Atlas Lithium Corp - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from ____________ to ____________
Commission File Number 000-55191
Brazil Minerals, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 39-2078861 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
Rua Vereador João Alves Praes, nº 95-A
Olhos D’Água, MG 39398-000, Brazil
(Address of principal executive offices)
(833) 661-7900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| Common Stock | BMIX | OTCQB |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 9, 2021, the registrant had shares of common stock, par value $0.001 per share, issued and outstanding.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
BRAZIL MINERALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 18,132 | $ | 253,598 | ||||
| Accounts receivable | 378 | 20,106 | ||||||
| Taxes recoverable | 16,935 | 17,726 | ||||||
| Inventory | 11,155 | 11,676 | ||||||
| Deposits and advances | 17,893 | 2,039 | ||||||
| Total current assets | 64,493 | 305,145 | ||||||
| Property and equipment, net | 64,320 | 89,276 | ||||||
| Intangible assets, net | 1,336,173 | 407,467 | ||||||
| Equity investments | 150,000 | 150,000 | ||||||
| Total assets | $ | 1,614,986 | $ | 951,888 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 981,103 | $ | 652,119 | ||||
| Convertible notes payable | 97,820 | 872,720 | ||||||
| Loans payable | - | 235,308 | ||||||
| Related party notes and other payables | - | 566,743 | ||||||
| Total current liabilities | 1,078,923 | 2,326,890 | ||||||
| Other noncurrent liabilities | 115,316 | 121,250 | ||||||
| Total liabilities | 1,194,239 | 2,448,140 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A preferred stock, $ par value. shares authorized; share issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 1 | 1 | ||||||
| Series D preferred stock, $ par value. shares authorized; and shares as of September 30, 2021 and December 31, 2020, respectively | 214 | - | ||||||
| Common stock, $par value. shares authorized; and shares as of September 30, 2021 and December 31, 2020, respectively | 3,050,699 | 1,997,930 | ||||||
| Additional paid-in capital | 50,941,680 | 47,489,116 | ||||||
| Accumulated other comprehensive loss | (749,421 | ) | (775,113 | ) | ||||
| Accumulated deficit | (54,346,906 | ) | (52,185,071 | ) | ||||
| Total Brazil Minerals, Inc. stockholders’ deficit | (1,103,733 | ) | (3,473,137 | ) | ||||
| Non-controlling interest | 1,524,480 | 1,976,885 | ||||||
| Total stockholders’ equity (deficit) | 420,747 | (1,496,252 | ) | |||||
| Total liabilities and stockholders’ deficit | 1,614,986 | $ | 951,888 | |||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 3 |
BRAZIL MINERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
| Three Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | 2,984 | $ | 10,688 | $ | 9,088 | $ | 22,254 | ||||||||
| Cost of revenue | 27,382 | 26,908 | 74,476 | 86,805 | ||||||||||||
| Gross loss | (24,398 | ) | (16,220 | ) | (65,388 | ) | (64,551 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 150,510 | 25,665 | 252,307 | 99,960 | ||||||||||||
| General and administrative | 318,368 | 160,339 | 851,525 | 428,615 | ||||||||||||
| Compensation and related costs | 47,272 | 91,723 | 227,741 | 255,021 | ||||||||||||
| Stock based compensation | 191,185 | 25,684 | 1,228,598 | 73,918 | ||||||||||||
| Total operating expenses | 707,335 | 303,411 | 2,560,171 | 857,514 | ||||||||||||
| Loss from operations | (731,733 | ) | (319,631 | ) | (2,625,559 | ) | (922,065 | ) | ||||||||
| Other expense (income): | ||||||||||||||||
| Interest on promissory notes | 77,856 | 41,182 | 239,099 | 133,544 | ||||||||||||
| Amortization of debt discounts and other fees | 11,005 | 12,000 | 12,839 | 249,270 | ||||||||||||
| Extinguishment of debt | - | - | 224,812 | - | ||||||||||||
| Other expense (income) | (3 | ) | (215 | ) | (218 | ) | 75,325 | |||||||||
| Total other expense (income) | 88,858 | 52,967 | 476,532 | 458,139 | ||||||||||||
| Net loss | (820,591 | ) | (372,598 | ) | (3,102,091 | ) | (1,380,204 | ) | ||||||||
| Loss attributable to non-controlling interest | (201,452 | ) | (101,395 | ) | (940,256 | ) | (270,713 | ) | ||||||||
| Net loss attributable to Brazil Minerals, Inc. stockholders | $ | (619,139 | ) | $ | (271,203 | ) | $ | (2,161,835 | ) | $ | (1,109,491 | ) | ||||
| Basic and diluted loss per share | ||||||||||||||||
| Net loss per share attributable to Brazil Minerals, Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | 2,946,874,985 | 1,107,338,095 | 2,659,344,430 | 1,073,824,015 | ||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | (820,591 | ) | $ | (372,598 | ) | $ | (3,102,091 | ) | $ | (1,380,204 | ) | ||||
| Foreign currency translation adjustment | 6,794 | 36,603 | 25,498 | (154,524 | ) | |||||||||||
| Comprehensive loss | (813,797 | ) | (335,995 | ) | (3,076,593 | ) | (1,534,728 | ) | ||||||||
| Comprehensive loss attributable to noncontrolling interests | (185,647 | ) | (20,814 | ) | (940,450 | ) | (190,132 | ) | ||||||||
| Comprehensive loss attributable to Brazil Minerals, Inc. stockholders | $ | (628,150 | ) | $ | (315,181 | ) | $ | (2,136,143 | ) | $ | (1,344,596 | ) | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 4 |
BRAZIL MINERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
| Series A Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ Equity | | ||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Loss | Deficit | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 1 | $ | 1 | $ | 1,387,463,317 | $ | 1,387,463 | $ | 47,774,143 | $ | (772,084 | ) | $ | (51,881,696 | ) | $ | 1,849,734 | $ | (1,642,439 | ) | ||||||||||||||||||||||||
| Issuance of common stock in connection with sales made under private offerings | - | - | - | - | (62,500,000 | ) | (62,500 | ) | 162,500 | - | - | - | 100,000 | |||||||||||||||||||||||||||||||
| Conversion of convertible notes and other indebtedness into common stock | - | - | - | - | 134,805,534 | 134,806 | (79,890 | ) | - | - | - | 54,916 | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | 25,684 | - | - | - | 25,684 | |||||||||||||||||||||||||||||||||
| Change in foreign currency translation | - | - | - | - | - | - | - | (43,978 | ) | - | 8,244 | (35,734 | ) | |||||||||||||||||||||||||||||||
| Sale of Jupiter Gold common stock in connection with equity offerings | - | - | - | - | - | - | - | - | - | 125,000 | 125,000 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (271,203 | ) | (101,395 | ) | (372,598 | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 1 | $ | 1 | $ | 1,459,768,851 | $ | 1,459,769 | $ | 47,882,437 | $ | (816,062 | ) | $ | (52,152,899 | ) | $ | 1,881,583 | $ | (1,745,171 | ) | ||||||||||||||||||||||||
| Series A Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Loss | Deficit | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 1 | $ | 1 | $ | 2,925,793,327 | $ | 2,925,793 | $ | 49,932,050 | $ | (740,410 | ) | $ | (53,727,767 | ) | $ | 1,490,677 | $ | (119,656 | ) | ||||||||||||||||||||||||
| Issuance of common stock in connection with sales made under private offerings | - | - | 214,006 | 214 | - | - | 641,804 | - | - | - | 642,018 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the exercise of common stock options and warrants | - | - | - | - | 26,086,958 | 26,087 | 123,913 | - | - | - | 150,000 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the exercise of common stock options | - | - | - | - | 83,863,837 | 83,864 | (83,864 | ) | - | - | 1,950 | 1,950 | ||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for consulting, professional and other services | - | - | - | - | 14,954,949 | 14,955 | 136,592 | - | - | - | 151,547 | |||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | 191,185 | - | - | - | 191,185 | |||||||||||||||||||||||||||||||||
| Change in foreign currency translation | - | - | - | - | - | - | - | (9,011 | ) | - | 15,805 | 6,794 | ||||||||||||||||||||||||||||||||
| Sale of Apollo Resources common stock in connection with equity offerings | - | - | - | - | - | - | - | - | - | 217,500 | 217,500 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (619,139 | ) | (201,452 | ) | (820,591 | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 1 | $ | 1 | 214,006 | $ | 214 | 3,050,699,071 | $ | 3,050,699 | $ | 50,941,680 | $ | (749,421 | ) | $ | (54,346,906 | ) | $ | 1,524,480 | $ | 420,747 | |||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
BRAZIL MINERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
| Series A Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Loss | Deficit | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 1 | $ | 1 | - | - | 1,132,435,380 | $ | 1,132,435 | $ | 47,724,570 | $ | (580,957 | ) | $ | (51,043,408 | ) | $ | 1,446,715 | $ | (1,320,644 | ) | |||||||||||||||||||||||
| Issuance of common stock in connection with sales made under private offerings | - | - | - | - | 232,500,000 | 232,500 | 87,500 | - | - | - | 320,000 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for consulting, professional and other services | - | - | - | - | 5,666,594 | 5,667 | 333 | - | - | - | 6,000 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with share exchange agreement with related party | - | - | - | - | 53,947,368 | 53,947 | 22,979 | - | - | - | 76,926 | |||||||||||||||||||||||||||||||||
| Issuance of common stock to related parties in lieu of cash for loans payable and other accrued obligations | - | - | - | - | 200,000 | 200 | 80 | - | - | - | 280 | |||||||||||||||||||||||||||||||||
| Conversion of convertible notes and other indebtedness into common stock | - | - | - | - | 235,019,509 | 235,020 | (126,943 | ) | - | - | - | 108,077 | ||||||||||||||||||||||||||||||||
| Exchange of common stock for Jupiter Gold common stock | - | - | - | - | (200,000,000 | ) | (200,000 | ) | 100,000 | - | - | 100,000 | - | |||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | 73,918 | - | - | - | 73,918 | |||||||||||||||||||||||||||||||||
| Change in foreign currency translation | - | - | - | - | - | - | - | (235,105 | ) | - | 80,581 | (154,524 | ) | |||||||||||||||||||||||||||||||
| Sale of Jupiter Gold common stock in connection with equity offerings | - | - | - | - | - | - | - | - | - | 525,000 | 525,000 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (1,109,491 | ) | (270,713 | ) | (1,380,204 | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 1 | $ | 1 | - | $ | 1,459,768,851 | $ | 1,459,769 | $ | 47,882,437 | $ | (816,062 | ) | $ | (52,152,899 | ) | $ | 1,881,583 | $ | (1,745,171 | ) | |||||||||||||||||||||||
| Series A Preferred Stock | Series D Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Capital | Loss | Deficit | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 1 | $ | 1 | $ | 1,997,930,297 | $ | 1,997,930 | $ | 47,489,116 | $ | (775,113 | ) | $ | (52,185,071 | ) | $ | 1,976,885 | $ | (1,496,252 | ) | ||||||||||||||||||||||||
| Conversion of related party convertible notes and other indebtedness into Series D preferred stock | - | - | 214,006 | 214 | - | - | 641,804 | - | - | - | 642,018 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with sales made under private offerings | - | - | - | - | 136,219,930 | 136,220 | 680,430 | - | - | - | 816,650 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the exercise of common stock options and warrants | - | - | - | - | 396,917,702 | 396,918 | (321,918 | ) | - | - | 70,700 | 145,700 | ||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for consulting, professional and other services | - | - | - | - | 14,954,949 | 14,955 | 136,592 | - | - | 31,845 | 183,392 | |||||||||||||||||||||||||||||||||
| Issuance of common stock warrants in connection with the issuance of convertible debenture(s) | - | - | - | - | - | - | 356,827 | - | - | - | 356,827 | |||||||||||||||||||||||||||||||||
| Conversion of convertible notes and other indebtedness into common stock | - | - | - | - | 504,676,193 | 504,676 | 730,231 | - | - | - | 1,234,907 | |||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | 1,228,598 | - | - | - | 1,228,598 | |||||||||||||||||||||||||||||||||
| Change in foreign currency translation | - | - | - | - | - | - | - | 25,692 | - | (194 | ) | 25,498 | ||||||||||||||||||||||||||||||||
| Sale of Jupiter Gold common stock in connection with equity offerings | - | - | - | - | - | - | - | - | - | 118,000 | 118,000 | |||||||||||||||||||||||||||||||||
| Sale of Apollo Resources common stock in connection with equity offerings | - | - | - | - | - | - | - | - | - | 267,500 | 267,500 | |||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | - | (2,161,835 | ) | (940,256 | ) | (3,102,091 | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 1 | $ | 1 | 214,006 | $ | 214 | 3,050,699,071 | $ | 3,050,699 | $ | 50,941,680 | $ | (749,421 | ) | $ | (54,346,906 | ) | $ | 1,524,480 | $ | 420,747 | |||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 6 |
BRAZIL MINERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2021 and 2020
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,102,091 | ) | $ | (1,380,204 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Stock based compensation and services | 1,411,990 | 79,918 | ||||||
| Amortization of debt discounts | 12,839 | 249,270 | ||||||
| Common stock issued in satisfaction of other financing costs | 91,996 | - | ||||||
| Convertible debt issued in satisfaction of other financing costs | 37,212 | 18,402 | ||||||
| Preferred stock issued in satisfaction of interest and other financing costs | 75,276 | - | ||||||
| Loss on share exchange agreement with related party | - | 76,926 | ||||||
| Loss on extinguishment of debt | 224,812 | - | ||||||
| Depreciation and amortization | 28,128 | 29,393 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 19,238 | (30,612 | ) | |||||
| Deposits and advances | (16,285 | ) | 2,765 | |||||
| Accounts payable and accrued expenses | (14,244 | ) | 97,912 | |||||
| Accrued salary due to officer | 30,387 | 147,643 | ||||||
| Other noncurrent liabilities | (535 | ) | 6,631 | |||||
| Net cash used in operating activities | (1,231,664 | ) | (701,956 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | (6,574 | ) | (788 | ) | ||||
| Acquisition of intangible assets | (265,579 | ) | (11,940 | ) | ||||
| Net cash used in investing activities | (272,153 | ) | (12,728 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Loan from officer | - | (37,296 | ) | |||||
| Net proceeds from sale of common stock | 891,650 | 320,000 | ||||||
| Proceeds from sale of subsidiary common stock to noncontrolling interests | 456,200 | 525,000 | ||||||
| Proceeds from convertible notes payable | 125,000 | - | ||||||
| Proceeds from loans payable | - | 26,180 | ||||||
| Repayment of loans payable | (235,308 | ) | - | |||||
| Net cash provided by financing activities | 1,237,542 | 833,884 | ||||||
| Effect of exchange rates on cash and cash equivalents | 422 | 13,703 | ||||||
| Net increase (decrease) in cash and cash equivalents | (235,466 | ) | 132,903 | |||||
| Cash and cash equivalents at beginning of period | 253,598 | 151,088 | ||||||
| Cash and cash equivalents at end of period | $ | 18,132 | $ | 283,991 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Related party convertible notes payable exchanged for stock | $ | 566,743 | $ | |||||
| Shares issued in connection with conversion of debt and accrued interest | $ | 1,234,907 | $ | 108,077 | ||||
| Shares issued in connection with relief of related party payable | $ | $ | 280 | |||||
| Common stock warrants issued in connection with convertible promissory notes | $ | 40,019 | $ | |||||
| Acquisition of intangible assets via financing | $ | 701,694 | $ | |||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 7 |
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Brazil Minerals, Inc. (“Brazil Minerals” or the “Company”) was incorporated as Flux Technologies, Corp. under the laws of the State of Nevada, U.S. on December 15, 2011. The Company changed its management and business on December 18, 2012, to focus on mineral exploration. Brazil Minerals, through subsidiaries, owns mineral rights in Brazil for gold, diamonds, lithium, rare earths, titanium, iron, nickel, and sand.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2021, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2021 and 2020, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021.
The condensed consolidated financial statements include the accounts of the Company; its 99.99% owned subsidiary, BMIX Participações Ltda. (“BMIXP”), which includes the accounts of BMIXP’s wholly-owned subsidiary, Mineração Duas Barras Ltda. (“MDB”), and BMIXP’s 50% owned subsidiary, RST Recursos Minerais Ltda. (“RST”); its 99.99% owned subsidiary, Hercules Resources Corporation (“HRC”), which includes the accounts of HRC’s wholly-owned subsidiary, Hercules Brasil Comercio e Transportes Ltda. (“Hercules Brasil”); its 30.1% equity interest in Apollo Resources Corporation (“Apollo Resources”) and its subsidiary Mineração Apollo, Ltda.; and its 10.0% equity interest in Jupiter Gold Corporation (“Jupiter Gold”), which includes the accounts of Jupiter Gold’s wholly-owned subsidiary, Mineração Jupiter Ltda. The Company has concluded that Apollo Resources, Jupiter Gold and their subsidiaries are variable interest entities (“VIE”) in accordance with applicable accounting standards and guidance. As such, the accounts and results of Apollo Resources, Jupiter Gold and their subsidiaries have been included in the Company’s condensed consolidated financial statements.
All material intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Going Concern
The condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has limited working capital, has incurred losses in each of the past two years, and has not yet received material revenues from sales of products or services. These factors create substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company generating cash from its operations, the sale of its stock and/or obtaining debt financing. Historically, the Company has funded its operations primarily through the issuance of debt and equity securities. Management’s plan to fund its capital requirements and ongoing operations include the generation of revenue from its mining operations and projects. Management’s secondary plan to cover any shortfall is selling its equity securities, including common stock in the Company, or common stock in Jupiter Gold that it owns, and obtaining debt financing. There can be no assurance the Company will be successful in these efforts.
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Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company is evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.
NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Property and Equipment
The following table sets forth the components of the Company’s property and equipment at September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Computers and office equipment | $ | 3,854 | $ | (1,597 | ) | $ | 2,257 | $ | 3,880 | $ | (573 | ) | $ | 3,307 | ||||||||||
| Machinery and equipment | 341,348 | (279,285 | ) | 62,063 | 348,376 | (271,107 | ) | 77,269 | ||||||||||||||||
| Vehicles | 121,731 | (121,731 | ) | 127,416 | (118,716 | ) | 8,700 | |||||||||||||||||
| Total fixed assets | $ | 466,933 | $ | (402,613 | ) | $ | 64,320 | $ | 479,672 | $ | (390,396 | ) | $ | 89,276 | ||||||||||
For the three and nine months ended September 30, 2021, the Company recorded depreciation expense of $4,518 and $28,126, respectively, and for the three and nine months ended September 30, 2020, the Company recorded depreciation expense of $4,271 and $29,393, respectively.
Intangible Assets
Intangible assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $1,336,173 and $407,467 at September 30, 2021 and December 31, 2020, respectively.
Equity Investments without Readily Determinable Fair Values
On October 2, 2017, the Company entered into an exchange agreement whereby it issued shares of its common stock in exchange for shares of Ares Resources Corporation. The Company’s chief executive officer also serves as an officer of Ares Resources Corporation, thus making it a related party under common ownership and control. The shares were recorded at $150,000, or $ per share. The shares were valued based upon the lowest market price of the Company’s common stock on the date the agreement.
On March 11, 2020, the Company issued shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share exchange agreement dated September 28, 2018. The Company recorded a loss on exchange of equity with a related party of $76,926 representing the fair value of the additional shares of common stock issued.
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Under ASC 321-10, the Company elected to use a measurement alternative for its equity investment that does not have a readily determinable fair value. As such, the Company measured its investment at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The Company owns less than 5% of the total shares outstanding of Ares Resources Corporation.
As of September 30, 2021, no change in the value of the Ares common stock was recorded as the recorded value still approximated fair value.
Accounts Payable and Accrued Liabilities
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts payable and other accruals | $ | 291,254 | $ | 327,704 | ||||
| Mineral rights payable | 686,839 | |||||||
| Accrued interest | 3,010 | 324,415 | ||||||
| Total | $ | 981,103 | $ | 652,119 | ||||
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The following tables set forth the components of the Company’s convertible debentures as of September 30, 2021 and December 31, 2020:
| September 30,2021 | December 31, 2020 | |||||||
| Convertible notes payable – fixed conversion price | $ | 129,000 | 244,000 | |||||
| Convertible notes payable – variable conversion price | 628,720 | |||||||
| Discounts on convertible notes payable | (31,180 | ) | ||||||
| Total convertible notes | $ | 97,820 | $ | 872,720 | ||||
The following table sets forth a summary of change in our convertible notes payable for the nine months ended September 30, 2021:
| Beginning balance | $ | 872,720 | ||
| New issuances of convertible notes payable | 399,000 | |||
| Lender adjustments for penalties or defaults | 37,212 | |||
| Debt discounts recorded on new issuances | (44,019 | ) | ||
| Amortization of debt discounts associated with convertible debt | 12,839 | |||
| Conversion of convertible note principal into common stock | (909,932 | ) | ||
| Repayments of convertible notes payable | (270,000 | ) | ||
| Total convertible notes | $ | 97,820 |
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 September 30, 2021, all warrants issued in connection with this note had expired.
The outstanding principal on the note was payable on March 31, 2015, which as of the date of these financial statements is past due and in technical default. The Company is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve the obligation in default. No demand for payment has been made. As a result of the default, the interest rate on the note increased to 30% per annum. Interest was payable on September 30, 2014 and on the maturity date. In December 2020, the lender agreed to reduce the interest rate from the default rate of 30% to the stated rate of 10% retroactively. As a result, the Company recorded gain of $238,151 from the relief of interest expense to other income.
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On February 3, 2021, the Company issued shares of common stock upon conversion of $80,000 in convertible notes payable and accrued interest. On May 6, 2021, the Company issued shares of common stock upon conversion of $334,986 in convertible notes payable and accrued interest. As of September 30, 2021, the balance of the note was $0.
On June 18, 2021, Company issued to one noteholder a $129,000 convertible promissory note for $125,000 in proceeds. The note bears interest at 8.0% per annum and matures one year from issuance on June 18, 2022. After six months from issuance, the note is convertible at the option of the holder at a price of $0.001. A debt discount of $4,000 for issuance costs was recorded and is being amortized over the life of the note.
ASC 470-20 requires proceeds from the sale of a debt instrument with stock purchase warrants be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance. In connection with the warrant issuance, the Company allocated an aggregate fair value of $40,019 to the stock warrants and recorded a debt discount which will be amortized to interest expense over the term of the loan using the effective interest method so the debt, at its term, is recorded at its face value. The Company estimated the fair value of this the warrant warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $, (ii) the contractual term of the warrant of years, (iii) a risk-free interest rate of % and (iv) an expected volatility of the price of the underlying common stock of %.
As of September 30, 2021, the outstanding principal balance on the note was $129,000, and the associated unamortized discounts totaled $31,180.
Convertible Notes Payable - Variable Conversion Price
At various times to fund operations, the Company issues convertible notes payable in which the conversion features are variable. In addition, some of these convertible notes payable have on issuance discounts and other fees withheld.
During the year ended December 31, 2016, the Company issued to one noteholder, in various transactions, $242,144 in convertible promissory notes with fixed floors and received an aggregate of $232,344 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from July to December 2017. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $241,852 were recorded and are being amortized over the life of the notes. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, and all discounts were fully amortized.
During the year ended December 31, 2017, the Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $447,272 were recorded and are being amortized over the life of the notes. During the nine months ended September 30, 2021, the Company issued shares of its common stock upon the conversion of $50,000 and $ 14,004, respectively, in note principal and accrued interest. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, and all discounts were fully amortized.
During the year ended December 31, 2018, the Company issued to one noteholder in various transactions $137,306 in convertible promissory notes with fixed floors and received an aggregate of $130,556 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from August 2018 to April 2019. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $122,755 were recorded and are being amortized over the life of the notes. During the nine months ended September 30, 2021, the Company issued shares of its common stock upon the conversion of $118,996 and $27,496, respectively, in note principal and accrued interest. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, and all discounts were fully amortized.
During the year ended December 31, 2019, the Company issued to one noteholder in various transactions $282,000 in convertible promissory notes with fixed floors and received an aggregate of $276,000 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance in July 2020. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $276,000 and $6,000 for issuance costs were recorded and are being amortized over the life of the notes. During the nine months ended September 30, 2021, the Company issued shares of its common stock upon the conversion of $310,200 and $40,186, respectively, in note principal and accrued interest. As of September 30, 2021, the principal balance on these notes was $0, and all discounts were fully amortized.
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On April 9, 2021, the Company issued shares of its common stock upon the conversion of $186,736 and $62,302, respectively, in note principal and accrued interest to settle all outstanding balances with the lender. In connection with the settlement, the Company agreed to issue 15,000,000 common stock purchase warrants with a cashless exercise price of $0.0125. The warrants expire on December 31, 2021. The Company allocated an aggregate fair value of $224,812 to the stock warrants and recorded a loss on the extinguishment of debt. The Company estimated the fair value of this the warrant warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $, (ii) the contractual term of the warrant of years, (iii) a risk-free interest rate of % and (iv) an expected volatility of the price of the underlying common stock of %.
On January 19, 2021, the Company issued to one noteholder a $270,000 convertible promissory note. The note bears interest at 8.0% per annum and matures on January 19, 2025. After six months from issuance, the note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. The note’s conversion rate has a floor of $0.0001.
On May 7, 2021, the Company repaid $270,000 in note principal and $6,391 in accrued interest to the holder. As of September 30, 2021, the principal balance on the note was $0.
Future Potential Dilution
As of September 30, 2021, the Company’s convertible note is convertible into an aggregate of approximately shares of common stock.
NOTE 4 – LOANS PAYABLE
As of December 31, 2020, the Company had $235,308 in principal outstanding from bridge loans. The loans payable bear interest at 8.0% per annum and are payable upon demand. In February 2021, the Company repaid the full principal balance of $235,308 and accrued interest of $24,654. As of September 30, 2021, the balance of these notes was $.
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 September 30, 2021 and December 31, 2020 amounted to $115,316 and $121,250, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
Authorized
As of September 30, 2021, the Company had common shares and preferred shares authorized with a par value of $ per share.
Series A Preferred Stock
On December 18, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (“Series A Stock”) to designate one share of a new series of preferred stock. The Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock provides that for so long as Series A Stock is issued and outstanding, the holders of Series A Stock shall vote together as a single class with the holders of the Company’s Common Stock, with the holders of Series A Stock being entitled to 51% of the total votes on all such matters regardless of the actual number of shares of Series A Stock then outstanding, and the holders of Common Stock are entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power.
Series D Preferred Stock
On September 14, 2021, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock (“Series D Stock”) to designate shares of a new series of preferred stock. The Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock provides that for so long as Series D Stock is issued and outstanding, the holders of Series D Stock shall have no voting power until such time as the Series D Stock is converted into shares of common stock. One share of Series D Stock is convertible into shares of common stock and may be converted at any time at the election of the holder. Holders of the Series D Stock are not entitled to any liquidation preference over the holders of common stock, and are entitled to any dividends or distributions declared by the Company on a pro rata basis.
On September 15, 2021, the Company issued shares of Series D Stock to Marc Fogassa for the conversion of $566,743 in convertible note principal and $75,276 of interest expense.
Nine Months Ended September 30, 2021 Transactions
During the nine months ended September 30, 2021, the Company issued shares of common stock for gross proceeds of $816,650 pursuant to subscription agreements with accredited investors. Additionally, the Company issued shares of common stock upon conversion of $1,234,906 in convertible notes payable and accrued interest. Further, the Company issued shares of common stock for net proceeds of $75,000 upon the exercise of 423,816,100 stock options and warrants. Lastly, the Company issued shares of common stock valued at $183,393 to contractors for services provided.
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Nine Months Ended September 30, 2020 Transactions
During the nine months ended September 30, 2020, the Company issued shares of common stock to accredited investors pursuant to subscription agreements for net proceeds of $320,000. Additionally, the Company issued shares of common stock to non-employees for services rendered. Further, the Company issued shares of common stock upon conversion of $108,077 in convertible notes payable and accrued interest.
Lastly, the Company exchanged shares of common stock returned by an accredited investor for shares of Jupiter Gold’s common stock held as an investment by the Company. The Company used the quoted fair value of each entity’s common stock on the dates of exchange to determine the exchange ratio.
Stock Options
| Number of Options Outstanding and Vested | Weighted Average Exercise Price | Remaining Contractual Life (Years) | Aggregated Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2021 | 119,917,140 | $ | 0.0025 | |||||||||||||
| Issued | – | |||||||||||||||
| Exercised | (117,046,100 | ) | – | |||||||||||||
| Forfeited | (691,340 | ) | – | |||||||||||||
| Outstanding and vested, September 30, 2021 | 2,179,700 | $ | 0.0300 | $ | ||||||||||||
The following table reflects all outstanding and exercisable preferred stock options at September 30, 2021. All preferred stock options immediately vest and are exercisable for a period of ten years from the date of issuance.
| Number of Options Outstanding and Vested | Weighted Average Exercise Price | Remaining Contractual Life (Years) | Aggregated Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2021 | $ | |||||||||||||||
| Issued | 27,000 | 0.10 | ||||||||||||||
| Exercised | ( | ) | – | – | ||||||||||||
| Forfeited | ( | ) | – | – | ||||||||||||
| Outstanding and vested, September 30, 2021 | 27,000 | $ | 0.10 | $ | 2,508,300 | |||||||||||
During the nine months ended September 30, 2021, the Company granted options to purchase an aggregate of shares of common stock to officers and non-management directors. The options were valued at $ 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 ranged from $ to $, expected dividend yield of , historical volatility calculated between and , risk-free interest rate ranging between and , and an expected term of 10 years.
On September 15, 2021, the Company amended any stock options granted after December 31, 2020 by changing the underlying security issuable under those options from the Company’s common stock to its Series D Stock. The Series D Stock has a par value of $0.001, and each share can convert into shares of the Company’s common stock. The Company did not record any change in value, as computed above using the Black-Scholes option pricing model, as the election resulted in an equal exchange of underlying shares of common stock.
See Note 8 – Related Party Transactions for more information related to stock options issued and outstanding for the Company’s subsidiaries Jupiter Gold and Apollo Resources.
Common Stock Purchase Warrants
Common stock purchase warrants are accounted for as equity in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.
The following table reflects all outstanding and exercisable warrants at September 30, 2021. All warrants are exercisable for a period of nine months to four years from the date of issuance:
| Number of Warrants Outstanding | Weighted Average Exercise Price | Weighted Average Contractual Life (Yrs.) | ||||||||||
| Outstanding, January 1, 2021 | 306,770,000 | $ | 0.0016 | |||||||||
| Warrants issued | 123,678,264 | $ | 0.0134 | |||||||||
| Warrants exercised | (306,770,000 | ) | $ | 0.0016 | ||||||||
| Warrants forfeited | ( ) | $ | ||||||||||
| Outstanding and exercisable, September 30, 2021 | 123,678,265 | $ | 0.0134 | |||||||||
As of September 30, 2021, the 123,678,265 warrants outstanding has an aggregated intrinsic value of $.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space as its principal executive offices in Pasadena, California for approximately $5,750 on a month-to-month basis. The Company also leases office space in the municipality of Olhos D’Agua, Brazil. Such costs are immaterial to the condensed consolidated financial statements.
NOTE 8 - RELATED PARTY TRANSACTIONS
Chief Executive Officer
The following tables set forth the components of the Company’s related party payables as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes payable to related party | $ | $ | 566,743 | |||||
Effective June 30, 2018, the Company issued a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears no interest and is payable on demand. The note is convertible at the option of the holder at the lower of (i) the average of the five lowest bid prices of the Company’s common stock over the previous 20 trading days or (ii) the lowest price per share at which the Company sold its common stock in a transaction with a person who is not a manager, officer, or director of the Company during the period from the date hereof until the giving of notice of the election to convert or the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the Company into shares of the Company during the period from the date hereof until the giving of notice of the election to convert. The note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of September 30, 2021, all discounts were fully amortized.
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On April 7, 2019, the Company’s board of directors approved the issuance of a convertible note in the principal amount of $261,631 to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate of 6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.00045 or (ii) the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the Company into common stock of the Company during the period from the date hereof until the giving of notice of the election to convert. Total debt discounts related to the beneficial conversion features of $261,631 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of September 30, 2021, all discounts were fully amortized.
On June 30, 2019, the Company’s board of directors approved the issuance of a convertible note in the principal amount of $61,724 to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate of 6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.0003 or (ii) the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the Company into common stock of the Company during the period from the date hereof until the giving of notice of the election to convert. Total debt discounts related to the beneficial conversion features of $61,724 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of September 30, 2021, all discounts were fully amortized.
On September 15, 2021, the Company issued shares of Series D Stock to Marc Fogassa for the conversion of $566,743 in convertible note principal and $75,276 of interest expense. The conversion rate was modified from $0.0003 per share of common stock to $3.00 per share of Series D Stock due to the change in the underlying security. The Company did not record any dividend or expense as the conversion resulted in an equal exchange of underlying shares of common stock.
On March 11, 2020, the Company issued shares of its common stock with a fair value of $280, or $ per share, to its Chief Executive Officer in lieu of cash for loans payable and other accrued obligations.
On December 3, 2020, the Company issued shares of common stock to its Chief Executive Officer in connection with the exercise stock options acquired on February 19, 2019 as described above.
Jupiter Gold Corporation
During the nine months ended September 30, 2021, Jupiter Gold granted options to purchase an aggregate of shares of its common stock to Marc Fogassa at prices ranging between $ to $ per share. The options were valued at $ and recorded to stock-based compensation. The options were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the grant ($ to $), expected dividend yield of %, historical volatility calculated between % and %, risk-free interest rate between a range of % to %, and an expected term between and years. On September 30, 2021, Marc Fogassa exercised stock options on a cashless basis and received shares of Jupiter Gold common stock. As of September 30, 2021, an aggregate Jupiter Gold common stock options were outstanding with a weighted average life of years at an average exercise price of $ and an aggregated intrinsic value of $.
Apollo Resource Corporation
During the nine months ended September 30, 2021, Apollo Resources granted options to purchase an aggregate of shares of its common stock to Marc Fogassa at a price of $ per share. The options were valued at $ and recorded to stock-based compensation. The options were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the grant ($ to $), expected dividend yield of %, historical volatility calculated between % and %, risk-free interest rate between a range of % to %, and an expected term between and years. On September 30, 2021, Marc Fogassa exercised stock options for cash proceeds of $ and received shares of Apollo Resources common stock. As of September 30, 2021, there were Apollo Resource common stock options outstanding.
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NOTE 9 – RISKS AND UNCERTAINTIES
In light of the SEC’s Division of Corporate Finance Disclosure Guidance Topic Number 9, dated March 25, 2020, on the impact of COVID-19, the Company notes the following:
| ● | The Company has not had any reports of COVID-19 among its workforce; |
| ● | The Company has been able to continue local operations of the Company in Brazil as they are located in a rural area currently unaffected by any lockdown restrictions implemented elsewhere in Brazil; |
| ● | Travel between the U.S. and Brazil has essentially ceased; this is mitigated by the use of live streaming video and other methods as needed; |
| ● | Some exploratory research of some of the Company’s projects have been delayed as certain municipalities in Brazil have unilaterally restricted the entry of outside persons; these actions are being legally challenged by branches of the state administration and the Company is monitoring all new developments; |
| ● | The Company has postponed any expenses which are not critical to it at the moment. |
Currency Risk
The Company operates primarily in Brazil which exposes it to currency risks. The Company’s business activities may generate intercompany receivables or payables that are in a currency other than the functional currency of the entity. Changes in exchange rates from the time the activity occurs to the time payments are made may result in the Company receiving either more or less in local currency than the local currency equivalent at the time of the original activity.
The Company’s condensed consolidated financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting in the consolidated financial statements. The Company’s foreign subsidiaries translate their financial results from the local currency into U.S. dollars in the following manner: (a) income statement accounts are translated at average exchange rates for the period; (b) balance sheet asset and liability accounts are translated at end of period exchange rates; and (c) equity accounts are translated at historical exchange rates. Translation in this manner affects the shareholders’ equity account referred to as the foreign currency translation adjustment account. This account exists only in the foreign subsidiaries’ U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries’ balance sheets in agreement.
NOTE 10 - SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2021 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.
This Quarterly Report contains forward-looking statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Quarterly Report, and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward- looking statements as a result of various factors. Factors that could cause future results to materially differ from the recent results or those projected in forward-looking statements include: unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production; market fluctuations; government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection; competition; the loss of services of key personnel; unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of infrastructure as well as general economic conditions.
Description of Business
Brazil Minerals is an exploration company with projects in highly strategic minerals, such as lithium, rare earths, titanium, nickel, and cobalt. We own approximately 60% of Apollo Resources Corporation, a company focused on exploration projects in iron, and which is advancing towards operational licensing of its first revenue-producing iron mine. We also own approximately 10% of Jupiter Gold Corporation, a company primarily focused on exploration projects in gold, and which is advancing towards operational licensing of its first revenue-producing quartzite mine.
Results of Operations
The Three Months Ended September 30, 2021 Compared to the Three Months ended September 30, 2020
Revenue for the three months ended September 30, 2021 totaled $2,984, compared to revenue of $10,688 during the three months ended September 30, 2020 representing a decrease of 72.1%. This decreased is mostly explained by our decision to prioritize the exploration and development of higher potential mineral rights. We anticipate that revenues will begin to increase with the licensing of new high-quality areas for production in future periods.
Cost of goods sold for the three months ended September 30, 2021 totaled $27,382, as compared to cost of goods sold of $26,908 during the three months ended September 30, 2020 representing an increase of 1.8%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The increase is explained by increased production activities and mining costs partially attributable to the Company’s exploratory efforts.
Gross loss for the three months ended September 30, 2021 was $24,398, compared to gross loss of $16,220 during the three months ended September 30, 2020 representing an increase in gross loss of 50.4%.
Operating expenses for the three months ended September 30, 2021 totaled $707,335, compared to operating expenses of $303,411 during the three months ended September 30, 2020 representing an increase of 133.1%. The increase was mostly due to general and administrative expenses related to public company costs and increased financing efforts, and stock-based compensation from issuances of stock options to officers and directors.
Other expenses for the three months ended September 30, 2021 totaled $88,858, compared to other expenses of $52,967 during the three months ended September 30, 2020 representing an increase of 67.8%. The Company realized an increase in interest expense on promissory notes due to the settlement during the period ended September 30, 2021. Additionally, the Company recorded a $224,812 loss on the extinguishment of debt related to common stock purchase warrants issued in a settlement with a noteholder during the three months ended September 30, 2021.
As a result, we incurred a net loss attributable to our stockholders of $619,139, or $0.00 per share, for the three months ended September 30, 2021, compared to a net loss attributable to our stockholders of $271,203, or $0.00 per share, during the three months ended September 30, 2020.
The Nine Months Ended September 30, 2021 Compared to the Nine Months ended September 30, 2020
Revenue for the nine months ended September 30, 2021 totaled $9,088, compared to revenue of $22,254 during the nine months ended September 30, 2020 representing a decrease of 59.2%. This decreased is mostly explained by our decision to prioritize the exploration and development of higher potential mineral rights. We anticipate that revenues will begin to increase with the licensing of new high-quality areas for production in future periods.
Cost of goods sold for the nine months ended September 30, 2021 totaled $74,476, as compared to cost of goods sold of $86,805 during the nine months ended September 30, 2020 representing a decrease of 14.2%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The decrease is explained by reduced production activities and mining costs partially attributable to the Company’s exploratory efforts and the risks and uncertainties surrounding COVID-19.
Gross loss for the nine months ended September 30, 2021 was $65,388, compared to gross loss of $64,551 during the nine months ended September 30, 2020 representing an increase in gross loss of 1.3%.
Operating expenses for the nine months ended September 30, 2021 totaled $2,560,171, compared to operating expenses of $857,514 during the nine months ended September 30, 2020 representing an increase of 198.6%. The increase was mostly due to general and administrative expenses related to public company costs and increased financing efforts, and stock-based compensation from issuances of stock options to officers and directors.
Other expenses for the nine months ended September 30, 2021 totaled $476,532, compared to other expenses of $458,139 during the nine months ended September 30, 2020 representing an increase of 4.0%. The Company’s interest expense on promissory notes decreased due to reduced debt levels during the period ended September 30, 2021. Additionally, the Company recorded a $224,812 loss on the extinguishment of debt related to common stock purchase warrants issued in a settlement with a noteholder during the nine months ended September 30, 2021, as compared to a $76,178 loss due to a fair market value adjustment provision included in a share exchange agreement with a related party during the nine months ended September 30, 2020.
As a result, we incurred a net loss attributable to our stockholders of $2,161,835, or $0.00 per share, for the nine months ended September 30, 2021, compared to a net loss attributable to our stockholders of $1,109,491, or $0.00 per share, during the nine months ended September 30, 2020.
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Liquidity and Capital Resources
As of September 30, 2021, we had cash and cash equivalents of $18,132 and a working capital deficit of $1,014,430.
Net cash used in operating activities totaled $1,201,277 for the nine months ended September 30, 2021, compared to net cash used of $701,956 during the nine months ended September 30, 2020 representing an increase in cash used of $499,321 or 71.1%. Net cash used in investing activities totaled $272,153 for the nine months ended September 30, 2021, compared to net cash used of $12,728 during the nine months ended September 30, 2020 representing an increase in cash used of $259,425 or 2,038.2%. Net cash provided by financing activities totaled $1,237,542 for the nine months ended September 30, 2021, compared to $833,884 during the nine months ended September 30, 2020 representing an increase in cash provided of $434,045 or 52.1%.
We have limited working capital, have historically incurred net operating losses, and have not yet received material revenues from the sale of products or services. These factors create substantial doubt about our ability to continue as a going concern.
Our primary sources of liquidity have been derived through proceeds from the (i) issuance of debt and (ii) sales of our equity and the equity of one of our subsidiaries. Our ability to continue as a going concern is dependent upon our capability to generate cash flows from operations and successfully raise new capital through debt issuances and sales of our equity. We believe that we will be successful in the execution of our initiatives, but there can be no assurance. We have no plans for any significant cash acquisitions in the foreseeable future.
Currency Risk
We operate primarily in Brazil which exposes us to currency risks. Our business activities may generate intercompany receivables or payables that are in a currency other than the functional currency of the entity. Changes in exchange rates from the time the activity occurs to the time payments are made may result in it receiving either more or less in local currency than the local currency equivalent at the time of the original activity.
Our condensed consolidated financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting in the consolidated financial statements. Our foreign subsidiaries translate their financial results from the local currency into U.S. dollars in the following manner: (a) income statement accounts are translated at average exchange rates for the period; (b) balance sheet asset and liability accounts are translated at end of period exchange rates; and (c) equity accounts are translated at historical exchange rates. Translation in this manner affects the shareholders’ equity account referred to as the foreign currency translation adjustment account. This account exists only in the foreign subsidiaries’ U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries’ balance sheets in agreement.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
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 September 30, 2021, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.
Recent Accounting Pronouncements
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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).
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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, 2021. 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 effective.
(b) 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 2021 that materially affected, or would be reasonably likely to materially affect, our internal control over financial reporting.
(c) 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.
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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None which are material.
Item 1A. RISK FACTORS
There have been no material changes in the risk factors applicable to us from those identified in the Annual Report on Form 10-K for the period ended December 31, 2020 filed with the Securities and Exchange Commission on March 31, 2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2021, we received an aggregate of $75,000 in gross proceeds from the exercise of cash warrants and sale of our common stock to one institutional investor.
All of the above securities 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 purchasers which represented to us that they are accredited investors and that they were acquiring the securities for investment and could bear the economic risk of the investment.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
(a) Exhibits
Exhibit Number |
Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BRAZIL MINERALS, INC. | ||
| By: | /s/ Marc Fogassa | |
| Marc Fogassa | ||
| Date: November 10, 2021 | Chief Executive Officer | |
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