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    BMIX   US1058612078

BRAZIL MINERALS, INC.

(BMIX)
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BRAZIL MINERALS : Management's Discussion and Analysis of Financial Condition and Results of Operation. (form 10-K)

03/31/2021 | 05:05pm EDT

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Annual Report.

This Annual Report contains forward-looking statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Annual 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, among others: 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.



Overview


Brazil Minerals, Inc. with its subsidiaries ("Brazil Minerals", the "Company", "we", "us", or "our") is a mineral exploration company currently primarily focused on the development of our two 100%-owned hard-rock lithium projects.. Our initial goal is to be able to enter commercial production of spodumene concentrate, a lithium bearing commodity.

We also have 100%-ownership of projects in other highly strategic minerals: rare earths, titanium, and nickel/cobalt. We have mining concessions and other mineral rights for diamonds, and in one of these areas we also mine and sell sand for construction usage, which was our primary source of our revenues in 2020.

As of the date of this Annual Report, we own approximately 60% of Apollo Resources Corporation, a private company primarily focused on the development of its initial iron mine. We own approximately 30% of Jupiter Gold Corporation, a company focused on the development of gold projects and of a quartzite mine, and whose common shares are quoted on otcmarkets.com under the symbol "JUPGF".



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We have consolidated our results as of December 31, 2020 in this Annual Report. All of our mineral properties are in Brazil. Our common stock is quoted on otcmarkets.com under the symbol "BMIX".



                                                 Total Area
    Mineral(s)           Location in Brazil       (acres)          Status
Lithium             Minas Gerais                   57,855   Research Exploration
Lithium             Rio Grande do Norte, Paraíba   23,079   Research Exploration
Total - Lithium                                    80,934
Rare Earths         Goiás, Tocantins               15,810   Research Exploration
Rare Earths         Bahia                          24,162   Research Exploration
Total - Rare Earths                                39,972
Nickel/Cobalt       Goiás                          9,553    Research Exploration
Titanium            Minas Gerais                   13,810   Research Exploration
Diamond             Minas Gerais                   21,871   Pre-Mining
Sand                Minas Gerais                   23,363   Commercial Mining



None of our projects currently has "reserves" in accordance with the definition of such term by the SEC. One of our projects has had an NI 43-101 technical report issued (see details below).

The projects owned by Jupiter Gold Corporation are summarized in the table below. Jupiter Gold provides details of its properties in its Annual Report on Form 20-F filed with the SEC. We currently own approximately 30% of Jupiter Gold Corporation.




                                             Total Area
 Mineral   Project Name & Location in Brazil  (acres)          Status
Gold      Alpha Project - Minas Gerais         34,899   Research Exploration
Gold      Alta Floresta - Mato Grosso          24,395   Research Exploration
Gold      Apuí - Amazonas                      69,330   Research Exploration
Gold      Brotas - Bahia                       4,821    Research Exploration
Gold      Cavalcante - Goiás                   4,771    Research Exploration
Gold      Crixás - Goiás                       3,068    Research Exploration
Gold      Paracatu - Minas Gerais               733     Research Exploration
Quartzite Diamantina - Minas Gerais             233     Pre-Mining Licensing




None of the Jupiter Gold Corporation projects currently has "reserves" in accordance with the definition of such term by the SEC.

The projects owned by Apollo Resources Corporation are summarized in the table below. We currently own approximately 60% of Apollo Resources Corporation.




                                                  Total Area
  Mineral     Project Name & Location in Brazil     (acres)          Status
Iron        Rio Piracicaba Project - Iron             641     Pre-Mining Licensing
            Quadrangle, Minas Gerais
Iron        Barão de Cocais Project- Iron             363     Research Exploration
            Quadrangle, Minas Gerais
Iron        Itabira Project - Iron Quadrangle,       3,792    Research Exploration
            Minas Gerais
Iron        Nova Aurora Project - Minas Gerais      16,727    Research Exploration
Iron        Alagoas Project - Alagoas               31,173    Research Exploration
Iron        Corumbá - Mato Grosso do Sul             4,869    Research Exploration


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None of the Apollo Resources Corporation projects currently has "reserves" in accordance with the definition of such term by the SEC.

During the year 2020 and in 2021 to the date of this Annual Report, we strengthened our mineral property portfolio significantly. Some of the highlights are as follows:

? Lithium: we increased our portfolio of hard-rock lithium properties by 463%

from 17,487 acres to an aggregate of 80,934 acres by increasing the size of our

original project (in the State of Minas Gerais) and adding a second project in

the Northeast of Brazil (in the States of Rio Grande do Norte and Paraíba).

Both projects are located in areas rich in pegmatites which contain spodumene

as the primary lithium-bearing mineral. Spodumene has an 8.03% lithium content.

? Rare Earths: we increased our portfolio of rare earths properties by 363% from

11,001 acres to 39,972 acres by adding a second project in the State of Bahia.

? Nickel/Cobalt: we increased our portfolio of rare earths properties by 191%

from 4,991 acres to 9,553 acres by adding a second project in the State of

   Bahia.



? Iron: we acquired and currently own approximately 60% of Apollo Resources

Corporation, a private company which is developing its first iron mine.




Results of Operations


Fiscal Year Ended December 31, 2020 Compared to Fiscal Year Ended December 31, 2019

Revenue for the year ended December 31, 2020 totaled $23,446, compared to revenue of $15,393 during the year ended December 31, 2019 representing an increase of 52.3%. 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 year ended December 31, 2020 totaled $129,943, compared to cost of goods sold of $182,168 during the year ended December 31, 2019 representing a decrease of 28.7%. 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 year ended December 31, 2020 totaled $106,497, compared to gross loss of $166,775 for the year ended December 31, 2019 representing a decrease of 36.1%.

Operating expenses for the year ended December 31, 2020 totaled $1,175,056, compared to operating expenses of $1,097,569 for the year ended December 31, 2019 representing an increase of $77,487 or 7.1%. This increase was primarily caused by increased general and administrative expenses and professional services.

Other expenses for the year ended December 31, 2020 totaled $264,482, compared to other expenses of $821,537 for the year ended December 31, 2019 representing a decrease of $557,055 or 67.8%. The decrease was primarily the result of lower amortization expense related to debt discounts and the relief of $238,151 in interest expense accrued against a convertible note, offset in part by a $76,926 loss due to a fair market value adjustment provision included in a share exchange agreement with a related party.


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As a result, we incurred a net loss attributable to our shareholders of $1,141,663, or approximately $0.00 per share, for the year ended December 31, 2020, compared to a net loss attributable to our shareholders of $1,862,077, or approximately $0.00 per share, for the year ended December 31, 2019.

Liquidity and Capital Resources

As of December 31, 2020, we had total current assets of $305,145 compared to total current liabilities of $2,326,890 for a current ratio of 0.13 to one and a working capital deficit of $2,021,745. By comparison we had total current assets of $193,777 compared to current liabilities of $2,154,356 for a current ratio of 0.09 to one and a working capital deficit of $1,960,579 as of December 31, 2019. Our principal sources of liquidity were from the sale of equity and issuance of debt for the years ended December 31, 2020 and 2019.

Net cash used in operating activities totaled $996,781 for the year ended December 31, 2020, compared to $791,072 for the year ended December 31, 2019 representing an increase in cash used of $205,709 or 26.0%. Net cash used in investing activities totaled $13,643 for the year ended December 31, 2020, compared to $677 for the year ended December 31, 2019 representing a decrease of $12,966 or 1,915.2%. Net cash provided by financing activities totaled $1,104,549 for the year ended December 31, 2020, as compared to $941,852 for the year ended December 31, 2019 representing an increase of $162,697 or 17.3%.

During the year ended December 31, 2020, our sources of liquidity were primarily derived from the proceeds of equity sales by the Company and two of its 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.




Recent Developments



On March 3, 2021, we provided the necessary 60-day notice of intent to fully redeem a note issued by us in 2014 with $244,000 in original principal and held by a Trust. After such redemption, past-maturity third-party convertible debt remaining would aggregate $186,736 in principal and we intend to fully extinguish it within the second quarter of 2021.



Going Concern


The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements. 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.

Off-Balance Sheet Arrangements

The Company currently has no off-balance sheet arrangements.



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Critical Accounting Policies and Estimates



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.

Fair Value of Financial Instruments

We follow the guidance of Accounting Standards Codification ("ASC") Topic 820 - Fair Value Measurement and Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of December 31, 2020 and 2019, our derivative liabilities were considered a level 2 liability. We do not have any level 3 assets or liabilities.

Our financial instruments consist of cash and cash equivalents, accounts receivable, taxes receivable, prepaid expenses, deposits and other assets, accounts payable, accrued expenses and convertible notes payable. The carrying amount of these financial instruments approximates fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.



Property and Equipment


Property and equipment are stated at cost, net of accumulated depreciation. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statements of operations as other gain or loss, net.

The diamond and gold processing plant and other machinery are depreciated over an estimated useful life of ten years; vehicles are depreciated over an estimated life of four years; and computer and other office equipment over an estimated useful life of three years.



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Mineral Properties


Costs of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition costs, including licenses and lease payments, are capitalized. Although we have taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee our rights. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Impairment losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. As of December 31, 2020 and 2019, we did not recognize any impairment losses related to mineral properties held.

Impairment of Intangible Assets with Indefinite Useful Lives

We account for intangible assets in accordance with Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other ("ASC 350"). ASC 350 requires that intangible assets with indefinite useful lives no longer be amortized, but instead be evaluated for impairment at least annually. On an annual basis, in the fourth quarter of the fiscal year, we review our intangible assets with indefinite useful lives for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances makes it more-likely-than-not that the fair value of an intangible asset is less than its carrying amount. If it is determined that it is more-likely-than-not that the fair value of an intangible asset is less than its carrying amount, the intangible asset is further tested for impairment by comparing the carrying amount to its estimated fair value using a discounted cash flow. Impairment, if any, is measured as the amount by which an indefinite-lived intangible asset's carrying amount exceeds its fair value.

Application of impairment tests requires significant management judgment, including the determination of fair value of each indefinite-lived intangible asset. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the entity, composition, or strategy changes affecting the recoverability of asset groups. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each indefinite-lived intangible asset.

Impairment of Long-Lived Assets

For long-lived assets, such as property and equipment and intangible assets subject to amortization, we continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.



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Convertible Instruments



We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 470-20, "Debt with Conversion and Other Options".

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

We account for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.



Variable Interest Entities


We determine at the inception of each arrangement whether an entity in which we hold an investment or in which we have other variable interests in is considered a variable interest entity. We consolidate VIEs when we are the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE; and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, we assess whether any changes in the interest or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether we are the primary beneficiary. If we are not the primary beneficiary in a VIE, we account for the investment under the equity method or cost method in accordance with the applicable GAAP.

We have concluded that Apollo Resources, Jupiter Gold and their subsidiaries are VIEs in accordance with applicable accounting standards and guidance; and although the operations of Apollo Resources and Jupiter Gold are independent of ours, through governance rights, we have the power to direct the activities that are most significant to Apollo Resources and Jupiter Gold. Therefore, we concluded that we are the primary beneficiary of both Apollo Resources and Jupiter Gold.



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Stock-Based Compensation



We record stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. Under ASC 718, volatility is based on the historical volatility of our stock or the expected volatility of the stock of similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

We utilize the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted and the expected volatility of our stock price over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of our employee stock options, it is management's opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of our employee stock options. Although the fair value of employee stock options is determined in accordance with ASC Topic 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are measured at the grant date of the award which is the same as share-based payments for employees. We adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.



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Foreign Currency


Our foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are recognized as a component of accumulated other comprehensive income. Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the consolidated statements of operations. Net foreign currency transaction losses included in our consolidated statements of operations were negligible for all periods presented.







Reclassifications


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

Recent Accounting Pronouncements

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.


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Financials (USD)
Sales 2020 0,02 M - -
Net income 2020 -1,14 M - -
Net Debt 2020 1,42 M - -
P/E ratio 2020 -1,56x
Yield 2020 -
Capitalization 30,1 M 30,1 M -
EV / Sales 2019 203x
EV / Sales 2020 180x
Nbr of Employees 11
Free-Float 74,9%
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Income Statement Evolution
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Marc Fogassa Chairman, President, CEO, CFO & Treasurer
Joel de Paiva Monteiro Secretary, VP-Administration & Operations
Robert Francisco Noriega Independent Director
Brian W. Bernier VP-Business Development & Investor Relations
Areli Nogueira da Silva Vice President-Mineral Exploration
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