U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
  
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2016
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

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)

Issuer's telephone number, including area code:  (213) 590-2500

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   No 
 
Indicate by check mark whether the registrant (1) has 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  
 
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 ☑
(Do not check if 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.  
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) .     Yes      No 
 
As of June 30, 2016, the last business day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's common stock held by non-affiliates (based on the closing sales price of such shares on such date as reported by Nasdaq.com) was approximately $816,000. For the purpose of this report it has been assumed that all officers and directors of the Registrant, as well as all stockholders holding 10% or more of the Registrant's stock, are affiliates of the Registrant.
 
As of June 1, 2017, there were outstanding 69,675,507 shares of the registrant's common stock.

Documents incorporated by reference: None.
 
 

 


FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K (the "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.

PART I
Item 1. Description of Business.

Brazil Minerals, Inc. ("Brazil Minerals", the "Company", "we", "us", or "our"), together with its subsidiaries, is engaged in the business of acquiring controlling positions or significant positions with oversight roles in companies in Brazil in the minerals area or in industries related to minerals. We consolidate the results of our controlled subsidiaries in this Annual Report.

Our progress has been steady, and can be measured in at least two quantifiable ways. First, in terms of mineral assets, in early 2013, our initial year of operations under the current business model and management team, we had 3 mineral rights. As of December 31, 2016, we had 38 mineral rights, as follows:

a)
10 mineral rights that are mining concessions, the highest level of mineral right in Brazil ("Concessão de Lavra");
   
b)
8 mineral rights that have status just below mining concession ("Requerimento de Lavra"), which allows us to apply for both an upgrade to mining concession and to conduct limited commercial mining;
   
c)
8 mineral rights in the research permit phase ("Autorização de Resquisa"); and
   
d)
12 mineral rights in the phase of application for research permit ("Requerimento de Pesquisa").

Details on each of these mineral rights can be found in Item 2. Properties of this Annual Report.

The second manner in which we expanded from 2013 to now is in the product mix output from our subsidiaries. In 2013, we produced and sold rough diamonds and gold. In 2014, we added polished diamonds. In 2015, we added sand and mortar, a product made from our sand.

From 2013 to today, we have been taking shape as a holding company. As of December 31, 2016, we materially owned the following stakes:

(1)
100% of BMIX Participações Ltda ("BMIXP");
(2)
100% of Mineração Duas Barras Ltda ("MDB");
(3)
50% of RST Recursos Minerais Ltda. ("RST");
(4)
100% of Hercules Resources Corporation ("HRC");
(4)
100% of Hercules Brasil Ltda. ("HBR");
(5)
58% of Jupiter Gold Corporation ("JGC").
 
 

 
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Business Developments
 
Some significant developments to our business during 2016 in chronological order were as follows:
 
1)
Licensing of a New Mining Area

On April 19, 2016, the Brazilian government official gazette ("Diário Oficial da União ") published the permit denominated   "Guia de Utilização" issued by the Brazilian mining department that allowed to begin initial mining of the mineral rights area 802.267/1977 (please see table in Item 2. Properties of this Annual Report).

2)
Formation of Jupiter Gold Corporation.

In conversations with current and potential investors, we observed that certain groups want to be more heavily involved with diamonds, others prefer gold, and yet others are only interested in commodity-type minerals. Based on such observations and other data, we believe it to be in the best interest of the Company and our shareholders to create certain "mineral-specific" subsidiaries. Such strategy seeks to accommodate specific investor demand, and allow each subsidiary to raise its own capital. We intend to maintain an ongoing ownership stake in each subsidiary it creates; the specific percentage will depend both on the valuation given to the subsidiary at any point in time and the amount of capital it raises from outside sources.

Jupiter Gold Corporation ("JGC"), the first such subsidiary, was incorporated on July 27, 2016. On December 16, 2016, JGC's Registration Statement on Form F-1 was declared effective by the Securities and Exchange Commission (the "SEC"). JGC anticipates being a publicly-traded entity in 2017.

3)
Improvements in Capital Structure

In 2016, we substantially improved the equity portion of our balance sheet by elimination of all of the Preferred B Convertible Stock and all of the Preferred C Convertible Stock that we had on our books. Such preferred shares were converted into shares of common stock of JCG, options on shares of common stock of JGC, and common shares of Brazil Minerals.

In 2016, we also improved the debt portion of its balance sheet by the net conversion of a significant amount of variable-rate convertible debt, with the result that as of year-end we had only one short-term oriented variable-rate noteholder left.
 
4) Construction of Modular Gold and Diamond Processing Plant

During the second semester of 2016, Brazil Minerals achieved the deployment of a modular gold and diamond processing plant in one of its mineral areas. The plant uses centrifugation as the primary method of gold separation. Material identified as potentially containing diamonds is retrieved and further processed in specific high-precision equipment for detection of diamonds.

This modular plant is owned by JGC and is solely operated by Brazil Minerals which retains 100% of the diamonds and 50% of the gold recovered from it, while the other 50% of gold is for the account of JGC. Under standard U.S. GAAP consolidation of financial results for subsidiaries, any gold revenues obtained by JGC are added to the revenues of Brazil Minerals.
 
 5)
Cashless Acquisition of New Truck

In May 2016, a Mercedes Benz Accelo 1044 truck was acquired by MDB for no cash, and only the use of tax credits, in a cashless transaction. Generally, under the laws of the state of Minas Gerais in Brazil, certain purchases of diesel for mining operations earn tax credits that can be redeemed, under a state-sponsored program, for capital equipment built in that state..
 
 
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Emerging Growth Company Status
 
We may be deemed to be an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. As long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding stockholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company."

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We will remain an "emerging growth company" for up to five years, although we would cease to be an "emerging growth company" prior to such time if we have more than $1 billion in annual revenue, more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion of non-convertible debt over a three-year period.

Markets
 
Rough Diamonds

The market for our rough diamonds is potentially global as we have attracted interest from foreign buyers. To date we have sold our rough diamonds only in Brazil and to Brazilian institutional buyers that represent merchants from other countries. We have the necessary Siscomex export license obtained from the Brazilian regulatory agency and therefore we can export rough diamonds in the future. The export process for rough diamonds involves obtaining the Kimberly certification on each rough diamond set being exported. This certificate is obtained in the local office of the Brazilian mining department and attests to the fact that we have all of the necessary licensing and that the diamonds are ethically produced. The Kimberly certification is a United Nations procedure to which Brazil is a signatory member; it seeks to eliminate from the global market the so-called "blood diamonds," mined under conditions of duress and without regard for the environment.

The price of our rough diamonds is mostly determined by the overall global market price for diamonds of similar characteristics; the prices are quoted in U.S. dollars per carat. For each lot available, we have had several interested and potential buyers and normally receive multiple bids. On average, approximately 97% of our rough diamonds are of gem quality, whereas 3% are for industrial uses.

Polished Diamonds

The market for our polished diamonds is global. To date we have sold our polished diamonds in Brazil and abroad. The sales in Brazil were made to a large jewelry chain that is in business since 1946 and caters to the medium-high end of the market. The sales of our polished diamonds to buyers from abroad were to high net worth individuals interested in acquisition for asset diversification as well as future use in jewelry pieces. Since we have the necessary export license, the export process is straightforward for polished diamonds.

The price for our polished diamonds is determined in the same method as for any other polished diamond, and thus primarily by the so-called four C's – color, carat weight, clarity, and cut. All of our exported diamonds to date have been certified and graded at the Gemological Institute of America ("GIA"), considered the premier analytical laboratory for diamonds and other gems in the world. The highest grade of color which our polished diamonds have obtained from GIA has been "E", the 2 nd highest possible grade (the color scale starts at "D"). The best clarity our polished diamonds have obtained has been "VVS1", the 2 nd best clarity possible. Most of our polished diamonds have been graded F-G for color and VVS2-VS2 for clarity. Their weights as polished gems have been approximately between 0.4 and 2.0 carats. The Rapaport valuation of our polished diamonds graded at GIA has been approximately $3,250 per carat. Rapaport is a premier diamond service provider that publishes well-known, periodic pricing valuations for diamonds based on the four C's, as described above. The prices for our diamonds are quoted in U.S. dollars.
 
 
 
 

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Gold

The market for our gold is local as there is normally demand from multiple Brazilian buyers. The price of our 96%-purity gold bars is determined by the London price for gold on the day of sale. The prices for our gold are quoted in U.S. dollars, and paid in Brazilian reais, the local currency

Sand

The market for our sand is local, driven by demands of residential and commercial construction. There are a large number of local buyers for our sand. Our sand was analyzed at a top analytical laboratory in Brazil and found to have high silica levels and low organic matter, both characteristics of high quality sand. We price our sand based on whether it is retrieved by the buyer directly in our sand mine versus being delivered by us, and the size of the trucks used, which determines the volume purchased. The prices for our sand are quoted in Brazilian reais.

Mortar

The market for our mortar is local, also driven by demands of residential and commercial construction. We sell mortar to stores and directly to the consumer. The prices for our mortar are quoted in Brazilian reais.

Demand

When we have diamonds and gold for sale, demand for our products has been robust. We are constrained by logistical issues (e.g., waiting for permits from the mining department to begin mining), equipment malfunction (e.g., waiting for repair of excavator, tractor, etc.), and at times, working capital. There is no observed lack of demand for any of our diamonds and gold.

Overall, there has been an increase in the global demand for rough and polished diamonds, primarily driven by the improvement in the U.S. economy and continued repressed demand from emerging markets such as China and India. Gold has strong continued demand for both jewelry and as an alternative asset.

Demand for our sand and mortar has decreased during the Brazilian recessionary period lasting from 2014 through 2016, in which the economy declined almost 10%. Sand and mortar demand is directly correlated to construction demand and heavily influenced by the Brazilian economic cycle.

Distribution

We have not had material issues or bottlenecks with distribution of our products.

Competition
 
Diamonds, gold, and sand production are difficult fields to penetrate due to limited availability of new resource areas, and heavy regulatory and licensing requirements, including long wait times for permitting.

Our competitive position among suppliers of diamonds and gold is particularly strong because both MDB and RST are known companies in the Brazilian diamond trade and have the necessary mining and environmental licenses in place. Therefore, our products are able to be purchased openly and without restrictions since all of the supporting proof of provenance is available and in good order. Other producers that lack rights or licenses do not enjoy our position and can only sell into the "black market," possibly at a substantial discount and facing legal risks.
  
A secondary reason for our strong competitive position is that the diamonds from the Jequitinhonha River valley are known in Brazil and in global diamond centers to be of high quality. Since our sources of diamonds are secondary valley deposits, it is presumed that the primary kimberlitic source of such diamonds suffered erosion by the river for millions of years. In this lengthy process, over millions of years, smaller, but well proportioned, "hardy" gems resulted. These rough diamonds are easily cut and polished, and yield attractive polished diamonds. We do not treat any of our polished diamonds with laser or other methods.
 
 
 

 
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We have very little competition from other sand providers as simply there are no licensed sand mines in a large radius around our location.

We do face competition with respect to mortar. In the local market in which we operate, one finds a few local mortar brands, with high name recognition, and low cost.

Seasonality
 
Our ability to mine for diamonds, gold and sand is highly seasonal. The rainy season normally lasts from December through April. We therefore expect that during these months our revenues will be substantially lower than during other periods.

Raw Materials

We do not have material dependence on any raw material or raw material supplier. The raw materials needed are available from numerous suppliers and at market-driven prices.

Intellectual Property

We have secured the right to use the name "Hercules" for our mortar with the Brazilian intellectual property agency. We have developed proprietary formulations for three different types of mortar that we sell.

Government Regulation 
   
The Brazilian mining industry is highly regulated. We spend a considerable amount of time preparing filings requested by the mining and the environmental regulatory agencies. Review of fillings by these agencies is deliberate and may take months or years. We comply with Brazilian federal, state, and municipal regulations. There is no governmental control of the selling of our diamonds (whether rough or polished), gold, sand, and mortar.
 
Mining Regulation and Compliance

Mining regulation in Brazil is carried out by the mining department, a federal entity. Each state in Brazil has a state-level office of this federal entity. For each mineral right that we own, we file any paperwork related to it in the office of the mining department in the state in which such mineral right is located. Fillings are mostly paper-based.

We follow the status of our various mineral rights by frequent monitoring of the mining department's online "Cadastro Mineiro" and by periodically securing physical access to paper-based documentation held at the state-level office of the mining department, and for which an appointment and power of attorney is necessary. We maintain a good relationship with the mining department and believe that our methods of monitoring are adequate for our current needs.

The mining department normally inspects our operations once a year via an unannounced visit which is their standard practice.  We estimate that it costs $25,000 annually to currently maintain compliance with various mining regulations.

Environmental Regulation and Compliance

Environmental regulation in Brazil is carried out by a state-level agency, which may have multiple offices, one for each region of the state. For each mineral right that we own, we file any paperwork related to it in the local office of the environmental agency that has the applicable geographical jurisdiction. Fillings are mostly paper-based.
 
 
 
 
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We follow the status of any processes with the environmental agency by periodic visitation to such office. We maintain a good relationship with the offices of the environmental agency and believe that our methods of monitoring are adequate for our current needs.

The environmental agency normally inspects our operations once every one or two years which is standard practice for companies in good standing. We believe that we properly comply with the environmental laws in our applicable jurisdictions. We estimate that it costs $25,000 annually to currently maintain compliance with various environmental regulations.

Surface disturbance from open pit mining at MDB is incompliance with its mining plan. Furthermore, MDB regularly recuperates areas that have been exploited. The current environmental regulations state that after all mining has ceased at MDB (however long that may take), there would still be five years of available time for any necessary recuperation to be performed. The separation process for diamonds and gold at MDB does not use any cyanide or mercury. Tests are conducted regularly and there are no records of groundwater contamination.
 
Export Regulation
 
The export of rough diamonds from Brazil complies with the United Nations Kimberley Process certification system of which Brazil is a signatory country. This system was implemented by a large number of member countries of the United Nations to marginalize and prevent entrance to the diamond marketplace of those gems produced in areas where human exploitation and other specific illicit activities exist. To our knowledge, Brazil was never a jurisdiction that had any issues of these types.
 
Two of our subsidiaries have been granted export licenses, and therefore we can export either rough or polished diamonds. Gold is heavy and is best sold locally, since its price is essentially the same as abroad. There is no cost to maintain the export license active.

Employees and Independent Contractors

As of June 1, 2017, we had 6 full-time equivalent employees, and 3 part-time persons who are independent contractors. We also periodically retain consultants to provide specific services deemed necessary. We consider our employee relations to be very good.

Form & Year of Organization & History to Date

We were incorporated in the State of Nevada on December 15, 2011. From inception until December 2012, we were focused in the software business, which generated minimal revenues and was discontinued when the current management team and business focus began. We changed name to Brazil Minerals, Inc. in December 2012 to reflect the new business focus.

Available Information

We maintain a website at www.brazil-minerals.com. We intend to make available free of charge, through the Public Filings section of the Investors tab on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.

Our SEC filings are available from the SEC's internet website at www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file electronically. These reports, proxy statements and other information may also be inspected and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
 
 
 
 
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Item 1A. Risk Factors.

Some, but not all, of our operating risk factors and the risks of any investment in our stock are listed below.

Risks Related to Our Operations
 
We have a limited operating history.
 
Our current business model and management team has been in place only since December 2012. Our limited operating history makes it difficult to evaluate our business or prospective operations. As a developing company, we are subject to the risks inherent in a young business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a highly-regulated business area such as mining, which also can require large amounts of capital until revenues are materialized. Our business is dependent upon the implementation of our business plan. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.
 
Our ability to execute our business plan depends primarily on the continuation of a favorable mining environment in Brazil.
 
Mining operations in Brazil are heavily regulated. Any significant change in mining legislation or other changes in Brazil's current mining environment may slow down or alter our business prospects.
 
We do not have any reserves compliant with SEC Industry Guide 7.
 
Vaaldiam, a company which previously owned MDB and purchased RST, performed geological studies in a subset of mineral rights areas from such companies leading to the publication of an NI 43-101 technical report in 2007, with an update in 2008, as required by the rules of the Canadian securities administrator. These NI 43-101 technical reports differ from the standards generally permitted in reports filed with the SEC. Therefore, investors should be aware that we have no "reserves" as strictly defined by SEC Industry Guide 7 since we have not performed any studies that follow the SEC Industry Guide 7, and that some or all of our mineralized material may never be confirmed or converted into SEC Industry Guide 7 compliant "reserves."
 
We may be unable to find sources of funding if and when needed, resulting in the failure of our business.
 
We still need additional equity or debt financing beyond our existing cash flow to operate. This additional financing may not become available and, if available, may not be available on terms that are acceptable to us. If we do obtain acceptable funding, the terms and conditions of receiving such capital would likely result in further dilution. If we are not successful in raising capital or sufficient capital, we will have to modify our business plans and substantially reduce or eliminate operations, or as an extreme measure seek reorganization. In these events, you could lose a substantial part or all of your investment.
 
 
 
 
 
 

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Our quarterly and annual operating and financial results and our revenue are likely to fluctuate significantly in future periods.
 
Our quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from period to period. Our revenues, expenses, net income or loss, and results of operations may fluctuate as a result of a variety of factors that are outside our control including, but not limited to, regulatory or licensing delays, lack of sufficient working capital, equipment malfunction and breakdowns, inability to timely find spare machines or parts to fix the broken equipment, and severe weather phenomena.
 
We do not intend to pay regular future dividends on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments.
 
We have never paid a dividend and we do not have any plans to pay dividends in the foreseeable future. Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including future earnings, if any, our capital requirements and general financial condition. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur, or may occur over a longer timeframe that is less interesting to short-term oriented investors.
 
We depend upon Marc Fogassa, our Chief Executive Officer and Chairman.
 
Our success is largely dependent upon the personal efforts of Marc Fogassa. Currently he is our only management team member that is fluent and fully conversant in both Portuguese, the language of Brazil, and English. The loss of the services of Mr. Fogassa would have a material adverse effect on our business and prospects. We maintain key-man life insurance on the life of Mr. Fogassa.

Risks Related to Our Capital Stock
 
Our Series A Preferred Stock has the effect of concentrating voting control over us in Marc Fogassa, our Chairman and Chief Executive Officer.
 
One share of our Series A Preferred Stock is issued, outstanding and held by Marc Fogassa, our Chairman and Chief Executive Officer. The Certificate of Designations, Preferences and Rights of our Series A Convertible Preferred provides that for so long as Series A Preferred Stock is issued and outstanding, the holders of Series A Preferred Stock shall vote together as a single class with the holders of our Common Stock, with the holders of Series A Preferred Stock being entitled to 51% of the total votes on all matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of Common Stock and any other class or series of capital stock entitled to vote with the Common Stock being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power.

Our stock price may be volatile.
 
The market price of our Common Stock has been and is likely to continue to be volatile and could fluctuate in price in response to various factors, many of which are beyond our control, including the following:

(1)
our ability to grow and/or maintain revenue;
(2)
our ability to achieve profitability;
(3)
our ability to raise capital when needed;
(4)
our sales of our common stock;
(5)
our ability to execute our business plan;
(6)
our ability to acquire additional mineral properties;
(7)
legislative, regulatory, and competitive developments; and
(8)
economic and other external factors.
(9) 
existence of convertible debt, which may at times convert to common stock for sale 
 
 
 
 
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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
 
Because our common stock trades on the over-the-counter (OTC) market, you may not be able to buy and sell our common stock at optimum prices and you may face liquidity issues.
 
The trading of our stock on the OTC imposes, among others, the following risks:

Availability of quotes and order information
Liquidity risks
Dealer's spreads

Our convertible debt securities outstanding may adversely affect the market price for our common stock.
 
To the extent that any remaining convertible debt securities are converted into our common stock, the existing stockholder percentage ownership will be diluted and any sales in the public market of the common stock underlying such options may adversely affect prevailing market prices for our common stock. A similar situation occurs if our outstanding options and warrants are exercised.
 
We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing capital stock that would dilute your ownership.
 
We may largely finance our operations by issuing equity securities, or debt securities convertible into equity securities, which would materially reduce the percentage ownership of our existing stockholders. Furthermore, any newly issued securities could have rights, preferences, and privileges senior to those of our existing common stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our stock, and in any event may have a dilutive impact on ownership interest of existing common stockholders, which could cause the market price of stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our common shares. The holders of any debt securities or instruments we may issue could have rights superior to the rights of our common stockholders.
  
Our common stock is currently defined as "penny stock" and the rules imposed on the sale of the shares may affect your ability to resell any shares you may purchase, if at all.
 
Our common stock is defined as a "penny stock" under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and rules of the SEC.  The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer.  For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale.  In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the SEC.  Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect a stockholder's ability to resell any of our shares in the public markets.
 
 


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Item 1B. Unresolved Staff Comments.

None.


Item 2. Properties.

As of December 31, 2016, we had 38 mineral rights, as follows:

a)
10 mineral rights that are mining concessions, the highest level of mineral right in Brazil ("Concessão de Lavra");
   
b)
8 mineral rights that have status just below mining concession ("Requerimento de Lavra"), which allows us to apply for both an upgrade to mining concession and to conduct limited commercial mining;
   
c)
8 mineral rights in the research permit phase ("Autorização de Resquisa"); and
   
d)
12 mineral rights in the phase of application for research permit ("Requerimento de Pesquisa").

Please refer to the table below for details on each of these mineral rights.

Note: DNPM ("Departamento Nacional de Produção Mineral") is the Brazilian national mining department .



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DNPM Mineral Right Number
Mineral Right Status
Location
Subsidiary
Area of Mineral Right (in acres)
Minerals Currently
Listed in Mineral Right
Expiration Date of Mineral Right (when applicable)
806.569/1977
MC
JRV
MDB
422
diamond, gold, sand
n/a (1)
830.797/1982
MC
JRV
RST
102
diamond, gold
n/a (1)
830.062/1980
MC
JRV
RST
1,177
diamond, gold
n/a (1)
817.734/1968
MC
JRV
RST
5,202
diamond, gold
n/a (1)
807.497/1968
MC
JRV
RST
1,178
diamond, gold
n/a (1)
003.048/1956
MC
JRV
RST
905
diamond, gold
n/a (1)
003.047/1956
MC
JRV
RST
1,343
diamond, gold
n/a (1)
003.046/1956
MC
JRV
RST
1,039
diamond, gold
n/a (1)
003.045/1956
MC
JRV
RST
1,295
diamond, gold
n/a (1)
003.044/1956
MC
JRV
RST
678
diamond, gold
n/a (1)
830.749/1981
AMC
JRV
RST
591
diamond, gold
n/a (2)
830.746/1981
AMC
JRV
RST
55
diamond, gold
n/a (2)
830.921/1980
AMC
JRV
RST
276
diamond, gold
n/a (2)
830.919/1980
AMC
JRV
RST
318
diamond
n/a (2)
804.492/1977
AMC
JRV
RST
986
diamond, gold
n/a (2)
802.267/1977
AMC
JRV
RST
1,310
diamond, gold
n/a (2)
831.742/1987
AMC
JRV
RST
294
diamond
n/a (2)
830.998/1984
AMC
JRV
RST
730
diamond
n/a (2)
880.239/2009
RP
Apuí
BMIXP
24,708
gold
n/a (2)
831.380/2014
RP
JRV
BMIXP
1,375
diamond, gold, gravel, sand
10/29/2018
831.398/2014
RP
JRV
BMIXP
994
diamond, gold, gravel, sand
11/13/2018
832.052/2006
RP
JRV
MDB
982
diamond, gold
n/a (2)
830.899/2013
RP
JRV
RST
1,443
diamond, gold
10/8/2018
830.898/2013
RP
JRV
RST
671
diamond, gold
6/10/2018
833.685/2006
RP
JRV
RST
130
diamond, gold
n/a (2)
832.108/2005
RP
JRV
RST
657
diamond, gold
n/a (3)
832.059/2014
ARP
JRV
BMIXP
1,152
diamond, gold, gravel, sand
n/a (4)
832.060/2014
ARP
JRV
BMIXP
1,052
diamond, gold, gravel, sand
n/a (4)
832.043/2007
ARP
JRV
BMIXP
19
diamond
n/a (4)
833.938/2006
ARP
JRV
BMIXP
1,236
diamond, gold
n/a (4)
860.807/2016
RP
Crixás
MJ
4,925
gold
12/27/2019
831.883/2016
ARP
Paracatu
MJ
795
gold
n/a (4)
831.942/2016
ARP
Itabira
MJ
4,069
gold
n/a (4)
880.133/2016
ARP
Apuí
MJ
23,043
gold
n/a (4)
880.134/2016
ARP
Apuí
MJ
23,207
gold
n/a (4)
880.135/2016
ARP
Apuí
MJ
23,080
gold
n/a (4)
831.665/2016
ARP
Diamantina
MJ
358
manganese
n/a (4)
831.642/2016
ARP
Diamantina
MJ
4,612
manganese
n/a (4)



- 12 -





Table Legend:

Ref: Mineral Right Status

MC: Mining Concession
AMC: Application for Mining Concession
RP: Research Permit
ARP: Application for Research Permit

Ref: Location

JRV: Jequitinhonha River valley, state of Minas Gerais, Brazil
Apuí: Apuí region, state of Amazonas, Brazil
Crixás: Crixás municipality, state of Goiás, Brazil
Paracatu: Paracatu municipality, state of Minas Gerais, Brazil
Diamantina: Diamantina region, state of Minas Gerais, Brazil
Itabira: Itabira region, state of Minas Gerais, Brazil

Ref: Subsidiary

MDB: Mineração Duas Barras Ltda.
RST: RST Recursos Minerais Ltda.
BMIXP: BMIX Participações Ltda.
MJ: Mineração Jupiter Ltda., owned by Jupiter Gold Corporation, a subsidiary of Brazil Minerals
 
Ref: Expiration Date of Mineral Right

n/a (1): not applicable; mining concessions are in perpetuity under current law
n/a (2): not applicable; final research report approved or submitted by the mining department
n/a (3): not applicable; in analysis at the mining department
n/a (4): not applicable; awaiting research permit to begin timeline

Details of two material properties are found below:

Mineração  Duas Barras Ltda. ("MDB")

MDB owns a large alluvial diamond and gold processing and recovery plant, capable of processing upwards of 45 tons of gravel per hour of operation. It is our best information that this plant was built by South African mining engineers hired for the task and cost $2.5 million to construct. It is regarded as the largest such plant in Latin America.

MDB has title to two mineral rights. One is a mining concession for diamond, gold, and sand (discussed below). The other, physically separated, is an area for which we have submitted an application to mine.  Both of the MDB mineral rights are located on the left margin of the Jequitinhonha River in the state of Minas Gerais in Brazil. The Jequitinhonha River valley is a well-known area for diamond and gold; it has hosted alluvial production since the 18th century.
 
MDB's operations are located approximately one and half hour drive from Montes Claros, Brazil, a city of approximately 500,000 people. The first hour of the drive is on asphalt roads followed by a half-hour on dirt roads. Montes Claros has the infrastructure needed by MDB and also benefits from having an airport with regular carrier service to large Brazilian cities, including S ã o Paulo, the largest city in Brazil, and Belo Horizonte, the capital of the state of Minas Gerais.
 
 
 

- 13 -




MDB's Mining Concession

MDB's mining concession ("Concessão de Lavra") covers an area of 422 acres. Such title allows for the exploration and commercialization of diamonds, gold, and sand. "Concessão de Lavra" is the highest level of mineral right in Brazil. It permits the owner to mine in perpetuity provided that environmental licenses are kept current and that mining guidelines are followed.

There are no liens or other encumbrances on MDB's mining concession, and there are no fees to be paid to maintain such claim. Therefore, we have no outright payments to maintain MDB's mining concession.

Brazilian law guarantees the owner of the land from which the subsoil is mined a royalty of at least 0.1% of gross revenues. However, miners in Brazil normally pay a higher royalty rate to the landowner as an incentive for greater cooperation. Under such arrangement, MDB pays the surface landowner a 6% royalty rate on gold and diamonds, and 8% on sand. MDB pays "CEFEM" royalties to Brazil's federal tax authority if and when it sells diamonds and gold. These royalty rates are fixed by federal decree and currently are 0.1% on diamond sales and 1% on gold sales. MDB also pays a state tax called "ICMS" on sales of gold, diamond, and sand, with the caveat that sales of gold and diamonds to exporters are normally exempt from such taxation. The "ICMS" tax in the state of Minas Gerais is currently 18%.

MDB's Other Mineral Right ("MDB-2")

MDB's other mineral right covers an area of 982 acres. In February 2016, we filed with the mining department a detailed application with technical study for commercial mining of this area. We also filed the appropriate permit with the environmental department.

MDB-2 has not been mined commercially before, but prior to our ownership it has had prospector activity, something viewed by experts as a positive sign. In the plot within MDB-2 for which initial commercial exploration is targeted, our technical team identified both " grupiária" and alluvial gravel available for processing for diamonds and gold. " Grupiária" is a thicker rock mixture known locally for having a lower density diamond concentration, but larger diamonds where they do occur.

We intend to perform all of the necessary studies to move MDB-2 to the mining concession status as soon as possible in the future. There is no current recurring cost to the mining department to upkeep this area.
   
Mineralization
 
Vaaldiam, the previous owner of MDB's mining concession performed detailed geological studies leading to the publication of an NI 43-101 technical report in 2007, with an update in 2008, as required by the rules of the Canadian securities administrator. The NI 43-101 report from 2008 describes the existence of mineralized materials amounting to 1,639,200 cubic meters with the following concentrations for diamonds and gold: 0.16 carats of diamonds per cubic meter and 182 milligrams of gold per cubic meter. The previous owner also submitted its "Plano de Aproveitamento Econômico", a bankable feasibility study, to the mining department in accordance with the mining regulations of Brazil. We do not claim that MDB's NI 43-101 technical reports and its bankable feasibility study are compliant with the SEC-sanctioned Industry Guide 7. Under the SEC's Industry Guide 7, no assertion can be made about reserves; moreover, Industry Guide 7 does not recognize the term "resources." 
 
Source of Water and Power
 
The water used in MDB's operations comes from lagoons that receive water from the underground water table. There is no shortage of water and water is essentially free to MDB. The power used in MDB's operations is provided by diesel generators. Normally, MDB purchases diesel periodically from local distributors. There has been no shortage of fuel available for purchase. The price of diesel in Brazil has not seen a decline despite of the large drop in oil prices globally.
 
 
 
 
- 14 -




Other Equipment
 
Besides its large processing and recovery plant for alluvial diamonds and gold (described above), MDB owns an excavator, a bulldozer, three trucks, and several portable generators and pumps.

Maps

a)
Map showing location of MDB:

 
 
 
- 15 -

 
 
 
b)
Map showing details of the gold, diamond, and sand mining concession owned by MDB (mineral right DNPM 806.569/1977):
 
 
3)
RST Recursos Minerais Ltda. ("RST")


In 2014, we acquired from two Brazilian individuals, unrelated to us, 50% of RST for approximately $254,000. Previously in 2008, RST had been transacted for $10.5 million; the buyer paid $2 million and subsequently was unable to pay the remainder because of the global financial crisis. The RST mineral rights remained largely untouched prior to our acquisition.

RST has a storied history as holder of highly attractive areas for diamonds and gold. Most of its current mining concessions and mineral rights have never had land-based exploration. Most of the RST areas were previously the property of Mineração Tejucana S.A., a well-known Brazilian mining enterprise that mined inside the Jequitinhonha River by dredge boat.

Currently RST has title to 9 mining concessions and several other mineral rights, as seen in table attached above. All of RST areas are for diamonds and some for gold as well and are located in the Jequitinhonha River valley in the northern part of the state of Minas Gerais, Brazil.

The quality of the RST areas is evidenced in an NI 43-101 technical report published in 2008 by Vaaldiam, its predecessor owner.  We do not claim that RST's NI 43-101 technical report is compliant with the SEC-sanctioned Industry Guide 7. Under the SEC's Industry Guide 7, no assertion can be made about reserves; moreover, Industry Guide 7 does not recognize the term "resources." 
 
 
 
 

- 16 -



Maps
 

a)
Map showing location of RST:




 
- 17 -

 
 
 
b)
Map showing details of the mineral right owned by RST for which we received an initial permit (mineral right DNPM 802.267/1977)
 

Offices

Brazil Minerals has an office in Pasadena, California. The Company's Brazilian office is in the city of Olhos D'Agua, state of Minas Gerais, in Brazil.


Item 3. Legal Proceedings.

None material.


Item 4. Mine Safety Disclosures.

Not applicable.
 
 


- 18 -



PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information and Current Stockholders
 
Our common stock is traded under the symbol "BMIX". The following table sets forth, for each of the quarterly periods indicated, the range of high and low sales prices, in U.S. dollars, for our common stock for each quarter in 2015 and 2016. Prices have been proportionally adjusted to reflect a 1 for 500 reverse stock split effective January 27, 2017.

 
Year Ended
 
Quarters
December 31, 2015
 
 
High
 
Low
 
2015
       
First (1/1-3/31)
 
$
5.0000
   
$
0.5000
 
Second (4/1-6/30)
 
$
2.1500
   
$
0.0500
 
Third (7/1-9/30)
 
$
0.4000
   
$
0.0500
 
Fourth (10/1-12/31)
 
$
0.1000
   
$
0.0500
 



 
Year Ended
 
Quarters
December 31, 2016
 
 
High
 
Low
 
2016
       
First (1/1-3/31)
 
$
0.1000
   
$
0.0500
 
Second (4/1-6/30)
 
$
0.1000
   
$
0.0500
 
Third (7/1-9/30)
 
$
0.1000
   
$
0.0500
 
Fourth (10/1-12/31)
 
$
0.1000
   
$
0.0500
 

As of June 1, 2017 we had 181 holders of record of our common stock as such term is defined in SEC rules, according to records maintained by our transfer agent.
 
Dividends
 
We have not paid any cash dividends since inception and do not expect to declare any cash dividends in the foreseeable future. 
 
 
 


- 19 -





Equity Compensation Plan
 
In 2013, our Board of Directors approved our 2013 Stock Incentive Plan under which we can offer eligible employees, consultants, and non-employee directors cash and stock-based compensation and/or incentives to compensate, attract, retain, or reward such individuals. We have no other equity compensation plan. The table below sets forth certain information as of December 31, 2016 with respect to our equity compensation plans.

Plan Category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a)
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
   
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column "(a)")
(c)
 
 
                 
Equity compensation plans approved by security holders
   
0
     
0
     
0
 
 
                       
Equity compensation plans not approved by security holders (2013 Stock Incentive Plan)
   
1,200,000
   
$
165
     
11,417,148
 
 
                       
Total
   
1,200,000
   
$
165
     
11,417,148
 

Sales of Unregistered Securities

None during the 4 th quarter of 2016.


Item 6. Selected Financial Data.

The information to be reported under this Item is not required of smaller reporting companies.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

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 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.
 
 
 
- 20 -



 
Overview

Brazil Minerals, Inc. ("Brazil Minerals", the "Company", "we", "us", or "our"), together with its subsidiaries, is engaged in the business of acquiring controlling positions or significant positions with oversight roles in companies in Brazil in the minerals area or in industries related to minerals. We consolidate the results of our controlled subsidiaries in this Annual Report.

Our progress has been steady, and can be measured in at least two quantifiable ways. First, in terms of mineral assets, in early 2013, our initial year of operations under the current business model and management team, we had 3 mineral rights. As of December 31, 2016, we had 38 mineral rights, as follows:

a)
10 mineral rights that are mining concessions, the highest level of mineral right in Brazil ("Concessão de Lavra");
   
b)
8 mineral rights that have status just below mining concession ("Requerimento de Lavra"), which allows us to apply for both an upgrade to mining concession and to conduct limited commercial mining;
   
c)
8 mineral rights in the research permit phase ("Autorização de Resquisa"); and
   
d)
12 mineral rights in the phase of application for research permit ("Requerimento de Pesquisa").

Details on each of these mineral rights can be found in Item 2. Properties of this Report on Form 10-K.

The second manner in which we expanded as a company from 2013 to now is in the product mix output from our Brazilian subsidiaries. In 2013, we produced and sold rough diamonds and gold. In 2014, we added polished diamonds. In 2015, we added sand and mortar, a product made from our sand.

From 2013 to today, we have been taking shape as a holding company owner of different subsidiaries. As of December 31, 2016, we materially owned the following stakes:

(1)
100% of BMIX Participações Ltda ("BMIXP");
(2)
100% of Mineração Duas Barras Ltda ("MDB");
(3)
50% of RST Recursos Minerais Ltda. ("RST");
(4)
100% of Hercules Resources Corporation ("HRC");
(4)
100% of Hercules Brasil Ltda. ("HBR");
(5)
58% of Jupiter Gold Corporation ("JGC").

During the second semester of 2016, we achieved the deployment of the initial portions of a modular gold and diamond processing plant in one of its mining concessions. The remainder of such modular plant was deployed in 2017. The plant uses centrifugation as the primary method of gold separation. Material identified as potentially containing diamonds is retrieved and further processed in specific high-precision equipment for detection of diamonds.

This modular plant is owned by JGC and is solely operated by Brazil Minerals which retains 100% of the diamonds and 50% of the gold recovered from it, while the other 50% of gold is for the account of JGC. Under standard U.S. GAAP consolidation of financial results for subsidiaries, any gold revenues obtained by JGC are added to the revenues of Brazil Minerals.
 

 

- 21 -







Results of Operations

Fiscal Year Ended December 31, 2016 Compared to Fiscal Year Ended December 31, 2015
 
In 2016, we had revenues of $13,323, as compared to revenues of $63,610 in 2015, a decline of 79.1%. The decrease was primarily due to lesser mining activities, as we awaited deployment of a modular plant with new methodology for recovery of gold and diamonds, which occurred after the year end.
 
Our consolidated cost of goods sold in 2016 was $218,245, consisting of production expenses related to the initial exploration of a new mining area, and were comprised primarily of diesel, machinery rentals and labor expenses. Our consolidated cost of goods sold in 2015 was $163,149, also consisting of production expenses. The increase of 33.8% between production costs in 2016 versus 2015 is explained by the much higher level of expenditures needed to tackle the further exploration and initial mining of a new area.

In 2016, our gross loss was $204,922. By comparison, our gross loss in 2015 was $99,539, and such difference is explained by both lower revenues and high production expenses in 2016 as detailed above.
 
We had an aggregate of $1,117,699 in operating expense in 2016, as compared to an aggregate of $1,183,257 in operating expenses in 2015, an improvement of $65,558 or 5.6%. This decrease was mostly due to lower professional fees and general and administrative expenses, both of which declined more than the increase seen in compensation and related costs and stock-based compensation.

In 2016, we had total other expenses of $417,008, as compared to $595,473 in total other expenses in 2015, an improvement of $178,465 or 30.0%. This decrease was due to lower gain on derivative liability, amortization of debt discounts and other fees, and extinguishment of debt in 2016 which more than offset higher interest on promissory notes and other expense as compared to 2015.
 
In 2016, we experienced a net loss attributable to Brazil Minerals, Inc. of $1,588,418, as compared to a net loss of $1,878,268 in 2015, an improvement of $289,850 or 15.4%.  On a per share basis (both basic and diluted), the 2016 net loss attributable to Brazil Minerals, Inc. was $0.08versus $0.80 in 2015.

In 2016, we had comprehensive loss attributable to Brazil Minerals, Inc. stockholders of $1,588,418, as compared to a loss of $2,191,625, an improvement of $603,207 or 27.5%.
 
Net cash used in operating activities was $647,406 in 2016, as compared to $965,918 in 2015, a decrease of $318,512 or 33.0%. Net cash provided by investing activities was $45,883 in 2016, as compared to $24,762 in 2015, an increase of $21,121 or 85.3%. Net cash provided by financing activities was $581,277 in 2016, as compared to $1,068,128 in 2015, a decrease of $486,851 or 45.6%.
 
Liquidity and Capital Resources

As of December 31, 2016, we had total current assets of $121,572 compared to total current liabilities of $992,704 for a current ratio of 0.12 to 1 and working capital of ($871,132). By comparison, on December 31, 2015, we had total current assets of $262,429 compared to current liabilities of $1,404,594 for a current ratio of 0.19 to 1 and working capital of ($1,142,165). On an absolute basis, the relative improvement in working capital is primarily attributable to the decrease in outstanding convertible notes and other short-term obligations.

In both 2016 and 2015, our principal sources of liquidity were issuances of equity and convertible debt.
   
We believe that financial resources and funds generated from revenues, and equity and debt sales will provide cash flow for operations. We have no plans for any significant cash acquisitions in 2017 or in the foreseeable future.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
 
- 22 -





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 December 31, 2016, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.

Recent Accounting Pronouncements

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.  Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information to be reported under this Item is not required of smaller reporting companies.


Item 8. Financial Statements and Supplementary Data.

Our financial statements, including the notes thereto, together with the report from our independent registered public accounting firm are presented beginning at page F-1.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None .


Item 9A. Controls and Procedures.

(a)  Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Principal Executive Officer and Principal Financial Officer, has evaluated the design, operation, and effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of December 31, 2016. On the basis of that evaluation, management concluded that the Company's disclosure controls and procedures are designed, and are effective, to provide reasonable assurance that the information required to be disclosed in reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Commission, and that such information is accumulated and communicated to management, including its Principal Executive Officer and Principal Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
 
 

 

- 23 -





(b) Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  The Company's internal control system is designed to provide reasonable assurance to management and to the Company's Board of Directors regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation of management, including the Company's Principal Executive Officer and Principal Financial Officer, management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's evaluation under the framework in Internal Control—Integrated Framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2016.

This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Since the Company is a non-accelerated filer, management's report is not subject to attestation by the Company's registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. As a result, this Annual Report contains only management's report on internal controls.

(c)   Changes in Internal Control over Financial Reporting

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

(d)   Limitations of the Effectiveness of Internal Controls

The effectiveness of the Company's system of disclosure controls and procedures and internal control over financial reporting is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the control system, the assumptions used in identifying the likelihood of future events, and the inability to eliminate fraud and misconduct completely. As a result, there can be no assurance that the Company's disclosure controls and procedures and internal control over financial reporting will detect all errors or fraud. However, the Company's control systems have been designed to provide reasonable assurance of achieving their objectives, and the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures and internal control over financial reporting are effective at the reasonable assurance level.


Item 9B. Other Information.

None.
 
 

- 24 -





PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The following table sets forth certain information as of April 15, 2017 concerning our directors and executive officers:
 
Name
 
Age
 
Position
 
 
 
 
 
Marc Fogassa
 
50
 
Director, Chairman, Chief Executive Officer,
President, Chief Financial Officer, Treasurer and Secretary
 
 
 
 
 
Ambassador Robert F. Noriega
 
57
 
Director
 
 
 
 
 
Ambassador Paul Durand
 
75
 
Director
 
Marc Fogassa, age 49, has been a director and our Chairman and Chief Executive Officer since 2012. He has over 16 years of investment experience in finance and management, including venture capital and private equity investing, and serving on boards of directors of multiple private companies. Mr. Fogassa has worked at Goldman Sachs (1997), Atlas Venture (1998-2000), and Axiom Ventures (2000-2005). He has also worked as investment manager with Hedgefort Capital from May 2005 to December 2012, as an investment banker from November 2011 to January 2014 with Hunter Wise, and as CEO of Brazil Mining, Inc. since March 2012. Mr. Fogassa has been invited numerous times to speak about investment issues, particularly as related to Brazil. Mr. Fogassa double majored at the Massachusetts Institute of Technology (M.I.T.), graduating with two Bachelor of Science degrees in 1990. He later graduated from the Harvard Medical School with a Doctor of Medicine degree in 1995, and also from the Harvard Business School with a Master in Business Administration degree in 1999. Mr. Fogassa was born in Brazil and is fluent in Portuguese and English. We appointed Mr. Fogassa as a director and our Chairman of the Board and President because of his substantial management and fundraising skills, prior experience as a director of several private companies, venture capital and private equity experience, judgment and his knowledge of, and contacts in, Brazil.

Ambassador Roger Noriega, age 57, has been a director since 2012. He has extensive experience in Latin America. Ambassador Noriega was appointed by President George W. Bush and confirmed by the U.S. Congress as U.S. Assistant Secretary of State, and served from July 2003 to October 2005. In that capacity, Ambassador Noriega managed a 3,000-person team of professionals in Washington and in 50 diplomatic posts to design and implement political and economic strategies in Canada, Latin America, and the Caribbean. Prior to this assignment, Ambassador Noriega served as U.S. Ambassador to the Organization of American States ("OAS") from August 2001 to July 2003. Since February 2009 Ambassador Noriega has been the Managing Director of Vision Americas, a Latin America-focused consulting group that he founded. Ambassador Noriega has a Bachelor of Arts degree from Washburn University of Topeka, Kansas. We appointed Ambassador Noriega as a director because of his extensive experience in Latin America, business and government contacts, management skills and judgment.  

Ambassador Paul Durand, age 75, has been a director since 2012. He is also a director of Jupiter Gold Corporation, one of our subsidiaries. Ambassador Durand has had extensive experience in Latin America. From August 2001 to August 2006, He was Canada's Ambassador to the OAS. From August 2000 to July 2001 he was Canada's Ambassador to Chile, and from August 1992 to August 1995 he was Canada's Ambassador to Costa Rica, with concurrent accreditation to Honduras, Nicaragua, and Panama. For the past five years, Ambassador Durand has also personally provided consulting services to several businesses and organizations, including the University of Ottawa advising the executive student class on political and economic conditions in Brazil and Chile; the OAS on elections and a referendum in Chile; and Infinito Gold Inc. on negotiations with the government of Costa Rica regarding the development of a gold mine. He has a Bachelor of Arts degree in Political Economy from the University of Toronto, and has pursued further studies in International Relations and Economics at Northwestern University in Chicago and Carleton University in Ottawa. Ambassador Durand joined the Canadian government after working in international banking in Latin America (Colombia, El Salvador), the Caribbean (Bahamas) and the U.S. We appointed Ambassador Durand as a director because of his extensive experience in Latin America, business and government contacts, management skills and judgment.
 
 
 

- 25 -





Board Composition
 
Our Board of Directors is currently composed of three members – Marc Fogassa, Ambassador Roger Noriega and Ambassador Paul Durand.
 
There are no family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan, or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors.
 
Our directors and executive officers have not, during the past ten years:

had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time, 
   
been convicted in a criminal proceeding and is not subject to a pending criminal proceeding,
   
been subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently, or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business, securities, futures, commodities, or banking activities; or
   
been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission, or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated
 
 
We do not have standing audit, nominating, or compensation committees. Currently, our entire Board of Directors is responsible for the functions that would otherwise be handled by these committees. 
 
Code of Ethics
 
Our Board of Directors will adopt a new code of ethics that applies to all of our directors, officers, and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The new code will address, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code.

Audit Committee Financial Expert
 
Our Board of Directors currently acts as our audit committee. We do not currently have an independent member of our Board of Directors who qualifies as an "audit committee financial expert" as defined in Item 407(e)(5) of Regulation S-K.
 
 


- 26 -





Item 11. Executive Compensation.

The following table sets forth information concerning cash and non-cash compensation paid by us to our Chief Executive Officer for each of the two years ended December 31, 2015 and December 31, 2016. No other employee or independent contractor received compensation in excess of $100,000 for either of those two years.
 
Summary Compensation Table  
 
Name and
Principal
Position
Year 
Ended
 
Salary
($)
 
 
 
Bonus
($)
 
 
Stock
Awards
($)
 
 
 
Option
Awards
 
 
 
 
 
Non-Equity
Incentive
Plan
Compensation
($)
 
 
 
Non-Qualified
Deferred
Compensation
Earnings
($)
 
 
 
All
Other
Compensation
($)
 
 
 
Total
($)
 
 
Marc Fogassa, as CEO of Brazil Minerals
12/31/2015
 
 
100,000
 
 
 
 
-
 
 
   
-
 
 
 
 
-
 
 
 
 
 
-
 
 
 
 
-
 
 
 
 
-
 
 
 
 
100,000
 
 
 
12/31/2016
 
 
25,000
 
 
 
 
-
 
 
   
-
 
 
 
 
-
 
 
 
 
 
-
 
 
 
 
-
 
 
 
 
-
 
 
 
 
25,000
   
 
Employment Agreement with Marc Fogassa
 
Marc Fogassa was hired by us as our Chief Executive Officer, Chairman, Chief Financial Officer, Treasurer and Secretary under an Employment Agreement dated December 31, 2012 (the "Agreement"). Under the Agreement, Mr. Fogassa is currently entitled to receive a salary of $175,000 per annum; however, he has been paid less due to capital availability constraints. Mr. Fogassa is entitled to reimbursement of certain expenses, a maximum allowable SEP IRA contribution, and four weeks of paid vacation time. The agreement further provides that we shall pay to Mr. Fogassa severance in case of termination or change in control with demotion.

Director Compensation
 
The following table sets forth a summary of compensation for the fiscal year ended December 31, 2016 that we paid to each director other than its Chief Executive Officer, whose compensation is fully reflected in the Summary Compensation Table.  We do not sponsor a pension benefits plan, a non-qualified deferred compensation plan, or a non-equity incentive plan for directors; therefore, these columns have been omitted from the following table.  No other or additional compensation for services were paid to any of the directors.

Director Compensation Table
Name
 
Fees
Earned
or Paid
in Cash
($)
   
Option
Awards
($) (1)
 
Stock
Awards
($)
 
Total
($)
 
Roger Noriega
   
-
   
$
50,000
 
 
 
$
50,000
 
Paul Durand
   
-
   
$
50,000
 
 
 
$
50,000
 
                                  

 
(1)
The amounts in this column reflect the aggregate grant date fair value of stock options granted in 2016 to each director calculated in accordance with FASB ASC Topic 718.  See the notes to our consolidated financial statements included in this Annual Report for the year ended December 31, 2016 for a discussion of all assumptions made in the calculation of this amount.
 
 
 

- 27 -




Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information regarding beneficial ownership of our Common Stock and Series A Preferred Stock as of June 1, 2017   by (i) any person or group with more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive officer and each other executive officer whose cash compensation for the most recent fiscal year exceeded $100,000 and (iv) all executive officers and directors as a group.   Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table to our knowledge have sole voting and investment power with respect to all shares of securities shown as beneficially owned by them. The Certificate of Designations, Preferences and Rights of our Series A Convertible Preferred provides that for so long as Series A Preferred Stock is issued and outstanding, the holders of Series A Preferred Stock shall vote together as a single class with the holders of our Common Stock, with the holders of Series A Preferred Stock being entitled to 51% of the total votes on all matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of Common Stock being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power. The number of shares of common stock subject to options and the exercise price of such options in the footnotes to the following table have been adjusted in accordance with the terms of the options to reflect a 1 for 500 reverse stock split which became effective in January 2017.
 
 
 
 
 
 
 
 
 
 
 
Percentage of Voting Power
 
 
 
 
 
Shares Beneficially
 
 
 
 
 
of all Outstanding Classes
 
Name and Address (1)
 
Office
 
Owned (2)
 
 
Percent of Class (3)
 
 
of Our Stock (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marc Fogassa
 
Director, Chairman, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer
 
 
2,878,441
 (5)
 
 
4.1%
 
 
 
2.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ambassador Paul Durand
 
Director
 
 
1,147,108
 (6)
 
 
1.6%
 
 
 
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ambassador Roger Noriega
 
Director
 
 
1,147,096
 (7)
 
 
1.6%
 
 
 
 
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All executive officers and directors as a group (3 persons)
 
 
 
 
5,172,645
 (5)(6)(7)
 
 
7.4%
 
 
 
 
3.6%
 
                             
Benjamin Khowong
         9,636,364
 
   
13.8%
 
   
6.8%
 
                             
Michael Nazari
       
8,343,544
 (8)    
12.0%
     
5.9%
 
                             
Damon Suter
       
6,201,876
 (9)     
8.9%
     
4.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marc Fogassa
 
Director
 
 
1
 
 
 
100%
 
 
 
51.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All executive officers and directors as a group (3 persons)
 
 
 
 
1
 
 
 
100%
 
 
 
51.0%
 
 
 
 

 
- 28 -



———————
* Less than 1%
(1) Unless otherwise specified, the mailing address of each of the officers and directors set forth below is in care of Brazil Minerals, Inc., Rua Vereador João Alves Praes nº 95-A, Olhos D'Agua, MG 39.398-000, Brazil.
 
(2) Beneficial ownership is determined in accordance with rules promulgated by the Commission.
 
(3) Based on 26,130,923 shares of common stock outstanding and computed in accordance with rules promulgated by the Commission.
 
(4) The holders of our Series A Stock vote together as a single class with the holders of our Common Stock, with the holders of Series A Stock being entitled to 51% of the total votes on all matters regardless of the actual number of shares of Series A Stock then outstanding, and the holders of Common Stock being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power. Based on their beneficial ownership of shares of Series A Stock and Common Stock as of June 1, 2017, each person set forth in the table had the approximate percentage of the voting power of the common and preferred stock voting together as a single class as of such date set forth opposite their name.
 
(5) Includes shares of common stock owned by a limited liability company owned by a trust for the benefit of Marc Fogassa as well as options owned by such entity to purchase 160 shares of our common stock at $500.00 per share.
 
(6) Includes options to purchase 400 shares of our common stock at $290.00 per share, options to purchase 400 shares of our common stock at $55.00 per share, options to purchase 400 shares of our common stock at $45.00 per share, options to purchase 400 shares of our common stock at $30.00 per share, options to purchase 284 shares of our common stock at $47.95 per share, options to purchase 377 shares of our common stock at $40.875 per share, options to purchase 1,126 shares of our common stock at $31.20 per share, options to purchase 15,984 shares of our common stock at $13.25 per share, options to purchase 50,730 shares of our common stock at $1.51 per share, options to purchase 60,500 shares of our common stock at $0.65 per share, options to purchase 390,100 shares of our common stock at $0.16 per share, options to purchase 310,700 shares of our common stock at $0.06 per share, and options to purchase 313,340 shares of our common stock at $0.05 per share.

(7) Includes options to purchase 400 shares of our common stock at $290.00 per share, options to purchase 400 shares of our common stock at $55.00 per share, options to purchase 400 shares of our common stock at $45.00 per share, options to purchase 400 shares of our common stock at $30.00 per share, options to purchase 284 shares of our common stock at $47.95 per share, options to purchase 377 shares of our common stock at $40.875 per share, options to purchase 1,126 shares of our common stock at $31.20 per share, options to purchase 15,984 shares of our common stock at $13.25 per share, options to purchase 50,730 shares of our common stock at $1.51 per share, options to purchase 60,500 shares of our common stock at $0.65 per share, options to purchase 390,100 shares of our common stock at $0.16 per share, options to purchase 310,700 shares of our common stock at $0.06 per share, and options to purchase 313,340 shares of our common stock at $0.05 per share.

(8) Shares owned by The Nazari/Singley Family Trust and The Nazari & Associates International Group, Inc. Defined Benefit Plan. Michael Nazari is a trustee of both.

(9) Shares owned by The Suter Family Trust, of which Damon Suter is a trustee.

 
Item 13. Certain Relationships and Related Transactions, and Director Independence.   

Director Independence
 
We believe that each of Ambassador Roger Noriega and Ambassador Paul Durand are "independent" as such term is defined by the NASDAQ Stock Market Rules.





- 29 -






Item 14. Principal Accounting Fees and Services.
Audit Fees

On December 31, 2015, we engaged BF Borgers CPA PC ("Borgers") as our independent registered public accounting firm for the audit of our financial statements as of December 31, 2015. Borgers was also retained as our independent registered public accounting firm for the audit of our financial statements as of December 31, 2016. The fee that was billed by Borgers for the audit of our financial statements as of December 31, 2015 and for quarterly reviews during such year was $41,500. We expect that the total fees payable to Borgers for the audit of our financial statements as of December 31, 2016 will be $29,950.

Audit-Related Fees
 
During 2015 or 2016 there were no fees paid to Borgers in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
 
No other fees were billed by Borgers for the last two years that were reasonably related to the performance of the audit or review of our financial statements and not reported under "Audit Fees" above.
 
Tax Fees
 
There were no fees billed by Borgers during the last two fiscal years for professional services rendered for tax compliance, tax advice, or tax planning. Accordingly, none of such services were approved pursuant to pre-approval procedures or permitted waivers thereof.
 
All Other Fees
 
There were no other non-audit-related fees billed to us by Borgers in 2015 or 2016.
 
Pre-Approval Policies and Procedures
 
Engagement of accounting services by us is not made pursuant to any pre-approval policies and procedures. Rather, we believe that our accounting firm is independent because all of its engagements by us are approved by our Board of Directors prior to any such engagement.
 
Our Board of Directors will meet periodically to review and approve the scope of the services to be provided to us by its independent registered public accounting firm, as well as to review and discuss any issues that may arise during an engagement. The Board is responsible for the prior approval of every engagement of our independent registered public accounting firm to perform audit and permissible non-audit services for us, such as quarterly financial reviews, tax matters, and consultation on new accounting and disclosure standards.
 
Before the auditors are engaged to provide those services, our Chief Financial Officer and Controller will make a recommendation to the Board of Directors regarding each of the services to be performed, including the fees to be charged for such services. At the request of the Board of Directors, the independent registered public accounting firm and/or management shall periodically report to the Board of Directors regarding the extent of services being provided by the independent registered public accounting firm, and the fees for the services performed to date.
 
 
 

- 30 -







PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)
   Documents filed as part of this report.
 
 
 
 
(i)
Financial Statements - see Item 8. Financial Statements and Supplementary Data
 
 
 
 
(ii)
Financial Statement Schedules – None
 
 
 
 
 
(Financial statement schedules have been omitted either because they are not applicable, not required, or the information required to be set forth therein is included in the financial statements or notes thereto.)
 
 
 
(iii)
Report of Independent Registered Public Accounting Firm.
 
 
 
(iv)
Notes to Financial Statements.
 
 
(b)
   Exhibits
 
 
 
   The exhibits listed on the accompanying Exhibit Index are filed as part of this Annual Report.
 
 

 

- 31 -




 
BRAZIL MINERALS, INC.
 
TABLE OF CONTENTS
DECEMBER 31, 2016
 
 
 
Report of Independent Registered Public Accounting Firm
 F-1
 
 
Consolidated Balance Sheets as of December 31, 2016 and 2015
 F-2
 
 
Consolidated Statements of Operations for the Year Ended December 31, 2016
 
and December 31, 2015
 F-3
 
 
Consolidated Statements of Other Comprehensive Income (Loss) for the Year
 
Ended December 31, 2016 and December 31, 2015
 F-4
 
 
Consolidated Statement of Stockholders' Equity
 F-5
 
 
Consolidated Statements of Cash Flows for the Year
 
Ended December 31, 2016 and December 31, 2015
 F-6
 
 
Notes to the Consolidated Financial Statements
F-7 - F-22
  


- 32 -




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Brazil Minerals, Inc.:
 
We have audited the accompanying consolidated balance sheets of Brazil Minerals, Inc. ("the Company") as of December 31, 2015 and 2016 and the related statement of operations, stockholders' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit. 
 
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion. 

In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of Brazil Minerals, Inc., as of December 31, 2015 and 2016, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America.
 
The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting.  Accordingly, we express no such opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, CO
June 5, 2017
 
F-1

 
 
 
BRAZIL MINERALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2015
 
             
   
December 31,
   
December 31,
 
   
2016
   
2015
 
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
7,139
   
$
64,364
 
Accounts receivable
   
-
     
2,886
 
Taxes recoverable
   
28,264
     
50,100
 
Prepaid expenses
   
7,258
     
-
 
Inventory
   
78,911
     
145,079
 
Total current assets
   
121,572
     
262,429
 
Capital assets:
               
Property and equipment, net
   
421,927
     
361,563
 
Other assets:
               
Intangible assets, net
   
630,089
     
508,865
 
Total assets
 
$
1,173,588
   
$
1,132,857
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
Accounts payable and accrued expenses
 
$
333,415
   
$
471,337
 
Convertible notes payable, net of debt discounts totaling $137,113 and $49,182, respectively
   
349,030
     
491,698
 
Derivative liabilities
   
-
     
281,345
 
Related party payable
   
310,259
     
160,214
 
Total current liabilities
   
992,704
     
1,404,594
 
Long term liabilities:
               
Convertible notes payable -- noncurrent, net of debt discounts totaling zero and $83,852, respectively
   
-
     
116,148
 
Other noncurrent liabilities
   
191,391
     
-
 
Total liabilities
   
1,184,095
     
1,520,742
 
                 
Stockholders' deficit:
               
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; 1 share issued and outstanding
   
1
     
1
 
Series B preferred stock, $0.001 par value. 10,000,000 shares authorized; zero and 1,047 shares issued
               
and outstanding as of December 31, 2016 and 2015, respectively
   
-
     
1,560,433
 
Series C preferred stock, $0.001 par value. 10,000,000 shares authorized; zero and 200,000 shares issued
               
and outstanding as of December 31, 2016 and 2015, respectively
   
-
     
250,000
 
Common stock, $0.001 par value. 30,000,000 and 14,000,000 shares authorized, respectively;
               
64,752,286 and 12,438,783 shares issued and outstanding as of December 31, 2016
               
and 2015, respectively
   
64,752
     
12,439
 
Additional paid-in capital
   
44,690,704
     
42,353,642
 
Accumulated other comprehensive loss
   
(489,516
)
   
(678,830
)
Stock purchase warrants
   
218,656
     
218,656
 
Accumulated deficit
   
(45,823,698
)
   
(44,235,280
)
Total Brazil Minerals, Inc. stockholders' deficit
   
(1,339,101
)
   
(518,939
)
Non-controlling interest
   
1,328,594
     
131,054
 
Total stockholders' deficit
   
(10,507
)
   
(387,885
)
Total liabilities and stockholders' deficit
 
$
1,173,588
   
$
1,132,857
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
F-2

 
 
 
BRAZIL MINERALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
 
 
             
             
   
Year Ended December 31,
   
Year Ended December 31,
 
   
2016
   
2015
 
             
Revenue
 
$
13,323
   
$
63,610
 
Cost of revenue
   
218,245
     
163,149
 
Gross margin
   
(204,922
)
   
(99,539
)
Operating expenses:
               
Professional fees
   
106,517
     
143,779
 
General and administrative
   
371,787
     
665,160
 
Compensation and related costs
   
279,825
     
216,172
 
Stock based compensation
   
359,570
     
158,146
 
Total operating expenses
   
1,117,699
     
1,183,257
 
Loss from operations
   
(1,322,621
)
   
(1,282,796
)
Other expense (income):
               
(Gain) loss on derivative liabilities
   
(281,345
)
   
(1,286,573
)
Interest on promissory notes
   
234,288
     
137,725
 
Amortization of debt discounts and other fees
   
237,773
     
1,025,221
 
Extinguishment of debt
   
-
     
719,119
 
Other expense (income)
   
226,292
     
(20
)
Total other expense (income)
   
417,008
     
595,472
 
Loss before provision for income taxes
   
(1,739,629
)
   
(1,878,268
)
Provision for income taxes
   
-
     
-
 
Net loss
   
(1,739,629
)
   
(1,878,268
)
Loss attributable to non-controlling interest
   
(151,211
)
   
-
 
Net loss attributable to Brazil Minerals, Inc. stockholders
 
$
(1,588,418
)
 
$
(1,878,268
)
                 
Basic and diluted loss per share
               
Net loss per share attributable to Brazil Minerals, Inc. common stockholders
 
$
(0.08
)  
$
(0.80
)
                 
Weighted-average number of common shares outstanding:
               
Basic and diluted
   
19,351,894
     
2,347,877
 
                 
Comprehensive loss:
               
Net loss
 
$
(1,739,629
)
 
$
(1,878,268
)
Foreign currency translation adjustment
   
-
     
(313,357
)
Comprehensive loss
   
(1,739,629
)
   
(2,191,625
)
Comprehensive loss attributable to noncontrolling interests
   
(151,211
)
   
-
 
Comprehensive loss attributable to Brazil Minerals, Inc. stockholders
 
$
(1,588,418
)
 
$
(2,191,625
)
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
 
BRAZIL MINERALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2016AND 2015
 
                                                                                     
                                                         
Accumulated
                         
                                                   
Additional
   
Other
   
Common
               
Total
 
   
Series A Preferred Stock
   
Series B Preferred Stock
   
Series C Preferred Stock
   
Common Stock
   
Paid-in
   
Comprehensive
   
Stock Purchase
   
Accumulated
   
Noncontrolling
   
Stockholders'
 
   
Shares
   
Value
   
Shares
   
Value
   
Shares
   
Value
   
Shares
   
Value
   
Capital
   
Loss
   
Warrants
   
Deficit
   
Interests
   
Equity (Deficit)
 
                                                                                     
Balance, December 31, 2014
   
1
   
$
1
     
-
   
$
-
     
-
   
$
-
     
237,237
     
237
   
$
40,602,140
   
$
(365,473
)
 
$
218,656
   
$
(42,418,033
)
 
$
-
   
$
(1,962,472
)
                                                                                                                 
Issuance of Series B preferred stock in connection with sales made
 under private offerings
   
-
     
-
     
279
     
270,000
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
270,000
 
                                                                                                                 
Conversion of convertible debenture(s) and other indebtedness
 into Series B preferred stock
   
-
     
-
     
100
     
166,667
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
166,667
 
 
                                                                                                               
Issuance of Series B preferred stock in exchange for the rights
 to certain diamond contract(s)
   
-
     
-
     
668
     
1,113,333
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,113,333
 
                                                                                                                 
Accrual of Series B preferred stock dividend(s)
   
-
     
-
     
-
     
10,433
     
-
     
-
     
-
     
-
     
(10,433
)
   
-
     
-
     
-
     
-
     
-
 
 
                                                                                                               
Issuance of Series C preferred stock in exchange for the return of common stock
   
-
     
-
     
-
     
-
     
200,000
     
250,000
     
(2,000,000
)
   
(2,000
)
   
(78,000
)
   
-
     
-
     
-
     
-
     
170,000
 
 
                                                                                                               
Issuance of common stock in connection with sales made under private offerings
   
-
     
-
     
-
     
-
     
-
     
-
     
3,201,795
     
3,202
     
201,298
     
-
     
-
     
-
     
-
     
204,500
 
 
                                                                                                               
Conversion of convertible debenture(s) and other indebtedness into common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
10,062,666
     
10,063
     
1,288,069
     
-
     
-
     
-
     
-
     
1,298,132
 
 
                                                                                                               
Issuance of common stock in exchange for consulting, professional and other services
   
-
     
-
     
-
     
-
     
-
     
-
     
14,818
     
15
     
24,793
     
-
     
-
     
-
     
-
     
24,808
 
 
                                                                                                               
Issuance of common stock to related parties in lieu of cash for loans payable and other accrued obligations
   
-
     
-
     
-
     
-
     
-
     
-
     
923,520
     
923
     
98,042
     
-
     
-
     
-
     
-
     
98,965
 
 
                                                                                                               
Return of common stock in connection with RST
   
-
     
-
     
-
     
-
     
-
     
-
     
(1,253
)
   
(1
)
   
(56,532
)
   
-
     
-
     
-
     
-
     
(56,533
)
 
                                                                                                               
Issuance of common stock options in exchange for consulting, professional and other services
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
151,700
     
-
     
-
     
-
     
-
     
151,700
 
 
                                                                                                               
Issuance of common stock options in connection with the issuance of convertible debenture(s) and other indebtedness
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
44,845
     
-
     
-
     
-
     
-
     
44,845
 
 
                                                                                                               
Recognition of beneficial conversion features related to convertible debentures
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
87,720
     
-
     
-
     
-
     
-
     
87,720
 
                                                                                                                 
Change in foreign currency translation
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(313,357
)
   
-
     
-
     
-
     
(313,357
)
                                                                                                                 
Change in noncontrolling interest(s)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
61,021
     
131,054
     
192,075
 
                                                                                                                 
Net income (loss)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,878,268
)
   
-
     
(1,878,268
)
                                                                                                                 
Balance, December 31, 2015
   
1
   
$
1
     
1,047
   
$
1,560,433
     
200,000
   
$
250,000
     
12,438,783
   
$
12,439
   
$
42,353,642
   
$
(678,830
)
 
$
218,656
   
$
(44,235,280
)
 
$
131,054
   
$
(387,885
)
                                                                                                                 
Issuance of Series B preferred stock in connection with sales made under private offerings
   
-
     
-
     
35
     
55,500
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
55,500
 
 
                                                                                                               
Conversion of convertible debenture(s) and other indebtedness into Series B preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
 
                                                                                                               
Conversion of Series B preferred stock into shares of common stock and Jupiter Gold common stock
   
-
     
-
     
(1,082
)
   
(1,698,283
)
   
-
     
-
     
20,610,000
     
20,610
     
888,363
     
-
     
-
     
-
     
890,346
     
101,036
 
                                                                                                                 
Accrual of Series B preferred stock dividend(s)
   
-
     
-
     
-
     
82,350
     
-
     
-
     
-
     
-
     
(82,350
)
   
-
     
-
     
-
     
-
     
-
 
                                                                                                                 
Conversion of Series C preferred stock into shares of Jupiter Gold common stock
   
-
     
-
     
-
     
-
     
(200,000
)
   
(250,000
)
   
-
     
-
     
-
     
-
     
-
     
-
     
125,000
     
(125,000
)
                                                                                                                 
Issuance of common stock in connection with sales made under private offerings
   
-
     
-
     
-
     
-
     
-
     
-
     
17,687,503
     
17,687
     
241,013
     
-
     
-
     
-
     
-
     
258,700
 
                                                                                                                 
Conversion of convertible debenture(s) and other indebtedness into common stock and Jupiter Gold common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
11,912,849
     
11,913
     
575,116
     
-
     
-
     
-
     
229,425
     
816,454
 
 
                                                                                                               
Issuance of common stock in exchange for consulting, professional and other services
   
-
     
-
     
-
     
-
     
-
     
-
     
160,000
     
160
     
7,840
     
-
     
-
     
-
     
-
     
8,000
 
 
                                                                                                               
Issuance of common stock to related parties in lieu of cash for loans payable and other accrued obligations
   
-
     
-
     
-
     
-
     
-
     
-
     
1,842,467
     
1,842
     
90,281
     
-
     
-
     
-
     
45,980
     
138,103