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, 2020

 

☐

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	Pink Open Market, a marketplace of OTC Markets Group

 

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 15, 2020, the registrant had 1,513,161,768 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION			Page
Item 1.	Financial Statements.		F-1
	Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 (Unaudited)		F-1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)		F-2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)		F-3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)		F-4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)		F-5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.		1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		5
Item 4.	Controls and Procedures.		6
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.		7
Item 1A.	Risk Factors.		7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		7
Item 3.	Defaults Upon Senior Securities.		7
Item 4.	Mine Safety Disclosures.		7
Item 5.	Other Information.		7
Item 6.	Exhibits.		8
Signatures			9

 

PART I - FINANCIAL INFORMATION

 

Item 1 FINANCIAL STATEMENTS

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2020 and December 31, 2019

 

		September 30,				December 31,
		2020				2019
ASSETS
Current assets:
Cash and cash equivalents		$	283,991			$	151,088
Accounts receivable			18,223				—
Taxes recoverable			16,331				22,853
Inventory			10,757				15,054
Deposits and advances			954				4,782
Total current assets			330,256				193,777
Property and equipment, net			98,484				172,802
Intangible assets, net			375,555				509,862
Equity investments			150,000				150,000
Total assets		$	954,295			$	1,026,441
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	676,108			$	638,364
Convertible notes payable, net of debt discounts totaling $0 and $153,000, respectively			911,845				824,614
Loans payable			235,308				209,128
Related party notes and other payables, net of debt discounts totaling $0 and $96,270, respectively			732,578				482,250
Total current liabilities			2,555,839				2,154,356
Other noncurrent liabilities			143,627				192,729
Total liabilities			2,699,466				2,347,085
Stockholders' deficit:
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; 1 share issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			1				1
Common stock, $0.001 par value. 1,550,000,000 shares authorized; 1,459,768,851 and 1,132,435,380 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			1,459,769				1,132,435
Additional paid-in capital			47,882,437				47,724,570
Accumulated other comprehensive loss			(816,062	)			(580,957	)
Accumulated deficit			(52,152,899	)			(51,043,408	)
Total Brazil Minerals, Inc. stockholders' deficit			(3,626,754	)			(2,767,359	)
Non-controlling interest			1,881,583				1,446,715
Total stockholders' deficit			(1,745,171	)			(1,320,644	)
Total liabilities and stockholders' deficit		$	954,295			$	1,026,441

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2020 and 2019

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenue		$	10,688			$	6,548			$	22,254			$	16,513
Cost of revenue			26,908				29,456				86,805				124,734
Gross loss			(16,220	)			(22,908	)			(64,551	)			(108,221	)
Operating expenses:
Professional fees			25,665				46,843				99,960				148,409
General and administrative			160,339				113,262				428,615				310,358
Compensation and related costs			91,723				64,914				255,021				239,624
Stock based compensation			25,684				32,724				73,918				139,898
Total operating expenses			303,411				257,743				857,514				838,289
Loss from operations			(319,631	)			(280,651	)			(922,065	)			(946,510	)
Other expense (income):
Interest on promissory notes			41,182				46,764				133,544				123,229
Amortization of debt discounts and other fees			12,000				139,339				249,270				435,860
Extinguishment of debt			—				—				—				68,015
Other expense (income)			(215	)			(510	)			75,325				(510	)
Total other expense net			52,967				185,593				458,139				626,594
Net loss			(372,598	)			(466,244	)			(1,380,204	)			(1,573,104	)
Loss attributable to non-controlling interest			(101,395	)			(46,712	)			(270,713	)			(134,594	)
Net loss attributable to Brazil Minerals, Inc. stockholders		$	(271,203	)		$	(419,532	)		$	(1,109,491	)		$	(1,438,510	)
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			1,395,432,833				980,488,750				1,181,807,669				699,255,659
Comprehensive loss:
Net loss		$	(372,598	)		$	(466,244	)		$	(1,380,204	)		$	(1,573,104	)
Foreign currency translation adjustment			(35,734	)			(54,360	)			(154,524	)			(47,755	)
Comprehensive loss			(408,332	)			(520,604	)			(1,534,728	)			(1,620,859	)
Comprehensive loss attributable to noncontrolling interests			(93,151	)			(46,712	)			(190,132	)			(134,594	)
Comprehensive loss attributable to Brazil Minerals, Inc. stockholders		$	(315,181	)		$	(473,892	)		$	(1,344,596	)		$	(1,486,265	)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three and Nine Months Ended September 30, 2020 and 2019

 

																						Accumulated
																		Additional				Other												Total
		Series A Preferred Stock								Common Stock								Paid-in				Comprehensive				Accumulated				Noncontrolling				Stockholders'
For the Three Months Ended September 30, 2019		Shares				Value				Shares				Value				Capital				Loss				Deficit				Interests				Equity (Deficit)
Balance, June 30, 2019			1			$	1				866,013,312			$	866,013			$	47,208,238			$	(559,500	)		$	(50,200,309	)		$	1,383,642			$	(1,301,915	)
Issuance of common stock in connection with sales made
under private offerings			—				—				12,000,000				12,000				(1,000	)			—				—				—				11,000
Issuance of common stock in connection with the exercise of
common stock options			—				—				51,000,000				51,000				(50,590	)			—				—				—				410
Conversion of convertible debenture(s) and other indebtedness
into common stock			—				—				150,550,830				150,551				(85,788	)			—				—				—				64,763
Recognition of beneficial conversion features related to
convertible debentures			—				—				—				—				276,000				—				—				—				276,000
Stock based compensation			—				—				—				—				32,724				—				—				—				32,724
Change in foreign currency translation			—				—				—				—				—				(54,360	)			—				—				(54,360	)
Sale of Jupiter Gold common stock in connection with
equity offerings			—				—				—				—				—				—				—				260,000				260,000
Net income (loss)			—				—				—				—				—				—				(419,532	)			(46,712	)			(466,244	)
Balance, September 30, 2019			1			$	1				1,079,564,142			$	1,079,564			$	47,379,584			$	(613,860	)		$	(50,619,841	)		$	1,596,930			$	(1,177,622	)
																							Accumulated
																			Additional				Other												Total
			Series A Preferred Stock								Common Stock								Paid-in				Comprehensive				Accumulated				Noncontrolling				Stockholders'
For the Three Months Ended September 30, 2020			Shares				Value				Shares				Value				Capital				Loss				Deficit				Interests				Equity (Deficit)
Balance, June 30, 2020			1			$	1				1,199,963,317			$	1,199,163			$	47,961,643			$	(772,084	)		$	(51,881,696	)		$	1,849,734			$	(1,642,439	)
Issuance of common stock in connection with sales made
under private offerings			—				—				125,000,000				125,000				(25,000	)			—				—				—				100,000
Conversion of convertible debenture(s) 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 income (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	)
																						Accumulated
																		Additional				Other												Total
		Series A Preferred Stock								Common Stock								Paid-in				Comprehensive				Accumulated				Noncontrolling				Stockholders'
For the Nine Months Ended September 30, 2019		Shares				Value				Shares				Value				Capital				Loss				Deficit				Interests				Equity (Deficit)
Balance, December 31, 2018			1			$	1				332,260,644			$	332,260			$	46,771,464			$	(566,105	)		$	(49,181,331	)		$	1,369,081			$	(1,274,630	)
Issuance of common stock in connection with sales made
under private offerings			—				—				235,584,906				235,585				(112,085	)			—				—				—				123,500
Issuance of common stock in connection with the exercise of
common stock options			—				—				51,000,000				51,000				(50,590	)			—				—				—				410
Conversion of convertible debenture(s) and other indebtedness
into common stock			—				—				460,718,592				460,719				(271,269	)			—				—				—				189,450
Issuance of common stock options in lieu of cash for extinguishment of
convertible notes with related party			—				—				—				—				270,254				—				—				—				270,254
Recognition of beneficial conversion features related to
convertible debentures			—				—				—				—				599,355				—				—				—				599,355
Stock based compensation			—				—				—				—				139,898				—				—				—				139,898
Change in foreign currency translation			—				—				—				—				—				(47,755	)			—				—				(47,755	)
Sale of Jupiter Gold common stock in connection with
equity offerings			—				—				—				—				—				—				—				362,443				362,443
Issuance of common stock purchase warrants in connection with sales
of Jupiter Gold common stock			—				—				—				—				32,557				—				—				—				32,557
Net income (loss)			—				—				—				—				—				—				(1,438,510	)			(134,594	)			(1,573,104	)
Balance, September 30, 2019			1			$	1				1,079,564,142			$	1,079,564			$	47,379,584			$	(613,860	)		$	(50,619,841	)		$	1,596,930			$	(1,177,622	)
																							Accumulated
											Common								Additional				Other												Total
			Series A Preferred Stock								Stock								Paid-in				Comprehensive				Accumulated				Noncontrolling				Stockholders'
For the Nine Months Ended September 30, 2020			Shares				Value				Shares				Value				Capital				Loss				Deficit				Interests				Equity (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 debenture(s) 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 income (loss)			—				—				—				—				—				—				(1,109,491	)			(270,713	)			(1,380,204	)
Balance, September 30, 2020			1			$	1				1,459,768,851			$	1,459,769			$	47,694,937			$	(816,062	)		$	(52,152,899	)		$	1,881,583			$	(1,745,171	)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30, 2020 and 2019

 

		Nine Months Ended
		September 30,
		2020				2019
Cash flows from operating activities of continuing operations:
Net loss		$	(1,380,204	)		$	(1,573,104	)
Adjustments to reconcile net loss to cash used in operating activities:
Stock based compensation and services			79,918				139,898
Amortization of debt discounts			249,270				355,021
Convertible debt issued in satisfaction of other financing costs			18,402				13,406
Loss on share exchange agreement with related party			76,926				—
Loss on extinguishment of debt			—				68,015
Depreciation and amortization			29,393				43,665
Changes in operating assets and liabilities:
Accounts receivable			(30,612	)			463
Deposits and advances			2,765				(1,250	)
Accounts payable and accrued expenses			97,912				124,423
Accrued salary due to officer			147,643				115,500
Other noncurrent liabilities			6,631				6,307
Net cash provided by (used in) operating activities			(701,956	)			(707,656	)
Cash flows from investing activities:
Acquisition of capital assets			(788	)			(74	)
Increase in intangible assets			(11,940	)			—
Net cash provided by (used in) investing activities			(12,728	)			(74	)
Cash flows from financing activities:
Loan from (repayment to) officer			(37,296	)			49,816
Net proceeds from sale of common stock			320,000				123,910
Proceeds from sale of subsidiary common stock to noncontrolling interests			525,000				395,000
Proceeds from convertible notes payable			—				276,000
Proceeds from loans payable			26,180				169,100
Repayment of loans payable			—				(222,112	)
Net cash provided by (used in) financing activities			833,884				791,714
Effect of exchange rates on cash and cash equivalents			13,703				(12,902	)
Net increase (decrease) in cash and cash equivalents			132,903				71,082
Cash and cash equivalents at beginning of period			151,088				2,374
Cash and cash equivalents at end of period		$	283,991			$	73,456
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 note payable exchanged for stock options		$	—			$	202,240
Shares issued in connection with conversion of debt and accrued interest		$	108,077			$	189,449
Shares issued in connection with relief of related party payable		$	280			$	—
Conversion of related party payables into convertible notes payable		$	—			$	323,355
Discount for beneficial conversion features on convertible notes		$	—			$	276,000

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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 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, 2020, 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, 2020 and 2019, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2020.

 

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 99.99% owned subsidiary, Mineração Apollo, Ltda.; and its 10.6% 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 Jupiter Gold and its subsidiary Mineração Jupiter are variable interest entities (“VIE”) in accordance with applicable accounting standards and guidance. As such, the accounts and results of Jupiter Gold and Mineração Jupiter have been included in the Company's consolidated financial statements.

 

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

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 unaudited 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.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings (loss) or and financial position.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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, 2020 and December 31, 2019:

		September 30, 2020												December 31, 2019
		Cost				Accumulated Depreciation				Net Book Value				Cost				Accumulated Depreciation				Net Book Value
Capital assets subject to depreciation:
Computers and office equipment		$	2,720			$	(528	)		$	2,192			$	2,144			$	(739	)		$	1,405
Machinery and equipment			324,626				(242,740	)			81,886				435,659				(298,845	)			136,814
Vehicles			117,387				(102,981	)			14,406				164,275				(129,692	)			34,583
Total fixed assets		$	444,733			$	(346,249	)		$	98,484			$	602,078			$	(429,276	)		$	172,802

 

For the nine months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $29,393 and $43,665, respectively.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (CONTINUED)

 

Intangible Assets

 

Intangible assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $375,555 and $509,862 at September 30, 2020 and December 31, 2019, respectively.

 

Equity Investments without Readily Determinable Fair Values

 

On October 2, 2017, the Company entered into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources Corporation, a related party. The shares issued 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.

 

The Company has recognized the value of its investment in Ares, which is a private company with no readily determinable fair value, at its cost of $150,000 and accounts for the investment as an equity investment without a readily determinable fair value. The Company owns less than 5% of the total shares outstanding of Ares Resources Corporation.

 

Accounts Payable and Accrued Liabilities

 

		September 30, 2020				December 31, 2019
Accounts payable and other accruals		$	88,423			$	141,916
Accrued interest			587,685				496,448
Total		$	676,108			$	638,364

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE

 

The following tables set forth the components of the Company’s convertible debentures as of September 30, 2020 and December 31, 2019:

 

		September 30, 2020				December 31, 2019
Convertible notes payable – fixed conversion price		$	244,000				244,000
Convertible notes payable – variable conversion price			667,845				733,614
Less: loan discounts			—				(153,000	)
Total convertible notes, net		$	911,845			$	824,614

 

The following table sets forth a summary of change in our convertible notes payable for the nine months ended September 30, 2020:

 

		September 30, 2020
Beginning balance, December 31, 2019		$	824,614
Amortization of debt discounts associated with convertible debt			153,000
Conversion of convertible note principal into common stock			(84,171	)
Increase in principal amounts outstanding due to lender adjustments per terms of the note agreements			18,402
Total convertible notes, net		$	911,845

 

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, 2020, all warrants issued in connection with this note had expired.

 

The outstanding principal on the note was payable on March 31, 2015, which as of the date of these financial statements is past due and in technical default. The Company is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve the obligation in default. No demand for payment has been made. As a result of the default, the interest rate on the note increased to 30% per annum. Interest was payable on September 30, 2014 and on the maturity date. As of September 30, 2020, the Company has accrued interest payable totaling $438,909 in connection with this note.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)

 

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 original issuance discounts and other fees withheld.

 

During the year ended December 31, 2016, the Company issued to one noteholder, in various transactions, $242,144 in convertible promissory notes with fixed floors and received an aggregate of $232,344 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from July to December 2017. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $241,852 were recorded and are being amortized over the life of the notes. As of September 30, 2020, the outstanding principal balance on these notes total $141,500, and all discounts were fully amortized.

 

During the year ended December 31, 2017, the Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $447,272 were recorded and are being amortized over the life of the notes. As of September 30, 2020, the outstanding principal balance on these notes total $115,125, 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. As of September 30, 2020, the outstanding principal balance on these notes total $129,220, 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. As of September 30, 2020, the outstanding principal balance on these notes total $282,000, and all discounts were fully amortized.

 

While many of these convertible notes are past their original maturity dates, the Company continues to maintain a favorable relationship and work with the lender with regard to financing its working capital needs.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)

 

As of September 30, 2020, the Company has accrued interest payable totaling $128,268 in connection with these variable convertible notes. During the nine months ended September 30, 2020 and 2019, $153,000 and $66,799 of the discounts were amortized to interest expense, respectively.

 

During the nine months ended September 30, 2020 and 2019, the Company issued 235,019,509 and 460,718,592 shares of common stock upon conversion of $108,077 and $ 166,401, respectively, in notes payable and accrued interest.

 

Future Potential Dilution

 

Most of the Company's convertible notes payable contain adjustable conversion terms with significant discounts to market. As of September 30, 2020, the Company's convertible notes are convertible into an aggregate of approximately 1,669,612,500 shares of common stock. Due to the variable conversion prices on some of the Company's convertible notes, the number of common shares issuable is dependent upon the traded price of the Company's common stock.

 

NOTE 4 – LOANS PAYABLE

 

As of September 30, 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. As of September 30, 2020, the Company has accrued interest payable totaling $20,508 in connection with these loans payable.

 

NOTE 5 – OTHER NONCURRENT LIABILITIES

 

Other noncurrent liabilities are comprised solely of social contributions and other employee-related costs at our operating subsidiaries located in Brazil. The Company has been funding these amounts upon the termination of a worker or employee. The balance of these employee related costs as of September 30, 2020 and December 31, 2019 amounted to $143,627 and $192,729, respectively.

 

NOTE 6 – STOCKHOLDERS' DEFICIT

 

Authorized and Amendments

 

As of September 30, 2020, the Company had 1,550,000,000 common shares authorized with a par value of $0.001 per share.

 

Series A Preferred Stock

 

On December 18, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock ("Series A Stock") to designate one share of a new series of preferred stock. The Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock provides that for so long as Series A Stock is issued and outstanding, the holders of Series A Stock shall vote together as a single class with the holders of the Company's Common Stock, with the holders of Series A Stock being entitled to 51% of the total votes on all such matters regardless of the actual number of shares of Series A Stock then outstanding, and the holders of Common Stock are entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – STOCKHOLDERS' DEFICIT (CONTINUED)

 

Nine Months Ended September 30, 2020 Transactions

 

During the nine months ended September 30, 2020, the Company received $170,000 in gross proceeds from the sale of 227,500,000 shares of its common stock to accredited investors. Additionally, the Company received $150,000 in gross proceeds from the sale of 187,500,000 shares its of common stock; however, the Company has not issued these shares of common stock as there were not enough authorized shares available for issuance. The proceeds received from the unissued shares are recorded as additional paid-in capital. Furthermore, the Company issued 5,000,000 shares of common stock to an accredited investor pursuant to a subscription agreement dated April 18, 2018 for which the funds were received in a prior period.

 

During the nine months ended September 30, 2020, the Company issued 5,666,594 shares of common stock to non-employees for services rendered. Additionally, the Company issued 235,019,509 shares of common stock upon conversion of $108,077 in convertible notes payable and accrued interest.

 

During the nine months ended September 30, 2020, the Company exchanged 200,000,000 shares of common stock returned by an accredited investor for 150,000 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.

 

See Note 8 – Related Party Transactions for additional disclosures of common stock issuances.

 

Nine Months Ended September 30, 2019 Transactions

 

During the nine months ended September 30, 2019, the Company received $265,000 in gross proceeds from the sale of units consisting of common stock of its subsidiary, Jupiter Gold Corporation, and warrants to purchase the Company’s common stock to accredited investors. In aggregate, the securities the Company sold were 212,000 shares of Jupiter Gold Corporation and two-year warrants to purchase a total of 106,000,000 shares of Brazil Minerals at $0.0012 per share.

 

Additionally, the Company received $123,500 in gross proceeds from the sale of 235,584,906 shares of its common stock to accredited investors.

 

During the nine months ended September 30, 2019, the Company issued 460,718,592 shares of common stock upon conversion of $189,450 in convertible notes payable and accrued interest, respectively.

 

Common Stock Options

 

During the nine months ended September 30, 2020, the Company granted options to purchase an aggregate of 33,926,500 shares of common stock to non-management directors. The options were valued at $37,500 in total. The options were valued using the Black-Scholes option pricing model with the following average assumptions: our stock price on the date of the grant which ranged between $0.0009 and $0.0013, expected dividend yield of 0.0%, historical volatility calculated between 215.54% and 221.07%, risk-free interest rate between 0.28% and 0.38%, and an expected term of 5 years.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company leases offices in Pasadena, California, U.S., and in the municipality of Olhos D'Agua, Brazil. Such costs are immaterial to the consolidated financial statements.

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Chief Executive Officer

 

The following tables set forth the components of the Company’s related party payables as of September 30, 2020 and December 31, 2019:

 

		September 30, 2020				December 31, 2019
Salary, retirement contributions and advances payable to related party		$	165,835			$	11,777
Convertible notes payable to related party		$	566,743			$	566,743
Less: loan discounts			—				(96,270	)
Total convertible notes payable to related party, net		$	566,743			$	470,473
Total related party payables		$	732,578			$	482,250

 

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, 2020, all discounts were fully amortized.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)

 

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, 2020, all debt discounts related to this note were fully amortized.

 

On March 11, 2020, the Company issued 200,000 shares of its common stock with a fair value of $280, or $0.0014 per share, to its Chief Executive Officer in lieu of cash for loans payable and other accrued obligations.

 

Jupiter Gold Corporation

 

On February 12, 2020, the Company sold 900,000 shares of Jupiter Gold common stock that it held as an investment, 180,500 warrants to purchase up to 180,500 shares of Jupiter Gold common stock at $0.60 per share, and 50,000,000 warrants to purchase up to 50,000,000 shares of Brazil Minerals common stock at $0.0015 per share for gross proceeds of $250,000 to an accredited investor.

 

On February 14, 2020, the Company loaned $225,000 to Jupiter Gold in the form of a convertible promissory note. The note bears interest at 6.0% per annum and matures on December 31, 2023. As an inducement to enter into the transaction, the Company received 67,000 warrants to purchase up to 67,000 shares of Jupiter Gold common stock at a price of $0.60 per share. After any time after issuance, the note is convertible at the option of the holder at a rate of one share of Jupiter Gold common stock for each $0.60 of loan principal. On February 15, 2020, the Company converted the promissory note in return for 375,000 shares of Jupiter Gold common stock.

 

Investment in Ares Resources Corporation's Common Stock

 

On October 2, 2017, the Company entered into a share exchange agreement with Ares Resources Corporation. Our chief executive officer also serves as an officer of Ares Resources Corporation, thus making it a related party under common ownership and control. Refer to “Note 2 – Composition of Certain Financial Statement Items” for additional information.

 

On March 11, 2020, the Company issued 53,947,368 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.

 

As of September 30, 2020, no change in the value of the Ares common stock was recorded as the recorded value still approximated fair value.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 – RISKS AND UNCERTAINTIES

 

COVID-19

 

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 as of August 19, 2020:

 

·

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.

 

BRAZIL MINERALS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2020 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:

 

 

 

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, Inc. with its subsidiaries ("Brazil Minerals", the "Company", "we", "us", or "our") has two components to its business model: (1) growing a portfolio of mineral rights in a wide spectrum of strategic and sought-after minerals, from which equity holdings and/or royalty interests may develop, and (2) mining certain specific areas for gold, diamonds, and sand.

 

We currently own mineral rights in Brazil for lithium, rare earths, titanium, cobalt, iron, manganese, nickel, gold, diamonds, precious gems, and industrial sand. Our first equity holdings from our exploration project generation strategy is Jupiter Gold Corporation ("Jupiter Gold", OTC: JUPGF).

 

Our mineral properties are listed in the following table and summarized below.

 

Primary Mineral		Other Minerals		Location (state in Brazil)		Total Area (acres)				Status
Diamonds, Gold		Sand (industrial)		Minas Gerais			28,794			Mining (selected areas), Pre-Mining & Research Exploration
Lithium		Aquamarine, Beryl, Tourmaline, Granite, Feldspar		Minas Gerais			17,487			Research Exploration
Rare Earths				Goiás, Tocantins			11,001			Research Exploration
Nickel		Cobalt, Copper		Goiás			4,991			Research Exploration
Titanium				Minas Gerais			21,253			Research Planning
Iron				Minas Gerais			4,484			Research Planning

  

The projects owned by Jupiter Gold are summarized in the table below.

 

Jupiter Gold Project Name		Minerals		Location (state in Brazil)		Total Area (acres)				Status
Alpha		Gold		Minas Gerais			28,167			Research Exploration
Brotas		Gold, Palladium, Platinum		Bahia			9,578			Research Exploration
Paracatu		Gold		Minas Gerais			733			Research Exploration
Apuí		Gold		Amazonas			69,330			Research Exploration
Serrita		Gold		Pernambuco			13,731			Research Exploration
Crixás		Gold		Goiás			3,068			Research Exploration
Cavalcante		Gold		Goiás			4,771			Research Exploration
Alta Floresta		Gold		Mato Grosso			24,610			Research Exploration
Diamantina		Iron, Manganese		Minas Gerais			233			Research Exploration

 

Results of Operations

 

The Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

 

Revenue for the three months ended September 30, 2020 totaled $10,688, compared to revenue of $6,548 during the three months ended September 30, 2019 representing an increase of 63.2%. 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, 2020 totaled $26,908, as compared to cost of goods sold of $29,456 during the three months ended September 30, 2019 representing a decrease of 8.7%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The decrease is explained by reduced costs resulting from more efficient mining activities and the risks and uncertainties surrounding COVID-19.

 

Gross loss for the three months ended September 30, 2020 totaled $16,220, compared to gross loss of $22,908 during the three months ended September 30, 2019 representing a decrease of 29.2%.

 

Operating expenses for the three months ended September 30, 2020 totaled $303,411, compared to operating expenses of $257,743 during the three months ended September 30, 2019 representing an increase of 17.7%. The increase was mostly due to higher levels of general and administrative expenses and compensation and related costs.

 

Other expenses for the three months ended September 30, 2020 totaled $52,967, compared to other expenses of $185,593 during the three months ended September 30, 2019 representing a decrease of 71.5%. The decrease was primarily the result of lower amortization of debt discounts.

 

As a result, we incurred a net loss attributable to our stockholders of $271,203, or $0.00 per share, for the three months ended September 30, 2020, compared to a net loss attributable to our stockholders of $419,532, or $0.00 per share, during the three months ended September 30, 2019.

 

The Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

 

Revenue for the nine months ended September 30, 2020 totaled $22,254, compared to revenue of $16,513 during the nine months ended September 30, 2019 representing an increase of 34.8%. 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, 2020 totaled $86,805, as compared to cost of goods sold of $124,734 during the nine months ended September 30, 2019 representing a decrease of 30.4%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The decrease is explained by reduced costs resulting from more efficient mining activities and the risks and uncertainties surrounding COVID-19.

 

Gross loss for the nine months ended September 30, 2020 totaled $64,551, compared to gross loss of $108,221 during the nine months ended September 30, 2019 representing a decrease of 40.4%.

 

Operating expenses for the nine months ended September 30, 2020 totaled $857,514, compared to operating expenses of $838,289 during the nine months ended September 30, 2019 representing an increase of 2.3%. The increase was mostly due to higher levels of general and administrative expenses.

 

Other expenses for the nine months ended September 30, 2020 totaled $458,139, compared to other expenses of $626,594 during the nine months ended September 30, 2019 representing a decrease of 26.9%. The decrease was primarily the result of lower amortization of debt discounts. During the nine months ended September 30, 2020, the Company recorded a $76,926 loss due to a fair market value adjustment provision included in a share exchange agreement with a related party.

 

As a result, we incurred a net loss attributable to our stockholders of $1,109,491, or $0.00 per share, for the nine months ended September 30, 2020, compared to a net loss attributable to our stockholders of $1,438,510, or $0.00 per share, during the nine months ended September 30, 2019.

  

Liquidity and Capital Resources

 

As of September 30, 2020, we had cash and cash equivalents of $283,991 and a working capital deficit of $2,225,583.

 

Net cash used in operating activities totaled $701,956 for the nine months ended September 30, 2020, compared to net cash used of $707,656 during the nine months ended September 30, 2019 representing a decrease in cash used of $5,700 or 0.8%. Net cash used in investing activities totaled $12,728 for the nine months ended September 30, 2020, compared to net cash used of $74 during the nine months ended September 30, 2019 representing an increase in cash used of $12,654. Net cash provided by financing activities totaled $833,884 for the nine months ended September 30, 2020, compared to $791,714 during the nine months ended September 30, 2019 representing an increase in cash provided of $42,170 or 5.3%.

 

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, 2020, it could negatively affect our financial position and liquidity and could result in our having understated our net loss. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which we filed with the Securities and Exchange Commission on April 14, 2020.

 

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).

 

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, 2020. 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 second quarter of 2020 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.

 

PART II OTHER INFORMATION

 

Item 1.

LEGAL PROCEEDINGS

 

None

 

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, 2019 filed with the Securities and Exchange Commission on April 14, 2020.

 

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended September 30, 2020, we received from one investor $100,000 in gross proceeds from the sale by Brazil Minerals, Inc. of its common stock.

 

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 a purchaser which represented to us that he is an accredited investors and that he was acquiring the securities for investment and could bear the economic risk of the investment. The proceeds of the above described transaction was for use in the normal course of business of the Company.

 

Item 3.

DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4.

MINE SAFETY DISCLOSURES

 

None

 

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		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

 

	BRAZIL MINERALS, INC.
Date: November 20, 2020	By:	/s/ Marc Fogassa
		Marc Fogassa
		Chief Executive Officer