U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

  

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

Commission File Number 333-180624

  

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.)

 

324 South Beverly Drive, Suite 118

Beverly Hills, California 90212

(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 $.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 þ

 

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 þ

 

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 þ 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 þ 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 þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (as defined in Rule 12b-2 of the Exchange Act). Check one:

 

Large accelerated filer   ¨ Accelerated filer ¨ Non-accelerated filer   ¨ Smaller reporting company   þ
    (Do not check if a smaller  
    reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) .     Yes  ¨     No  þ

 

As of April 10, 2014, the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing stock price of $0.10 on such date as reported on otcmarkets.com) was approximately $4,386,407. Shares of the Registrant’s common stock held by each executive officer and director and by each person who owns 10 percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

As of April 10, 2014, there were outstanding 76,409,116 shares of the registrant’s common stock, $.001 par value.

 

Documents incorporated by reference: None.

 

 
 

 

  EXPLANATORY NOTE

 

We are filing this Amendment No. 1 to the Annual Report on Form 10-K of Brazil Minerals, Inc. for the fiscal year ended December 31, 2013 that we filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2014 to revise certain disclosures pursuant to a comment letter we received from the SEC in connection with our filing of the Registration Statement on Form 10 with the SEC on April 29, 2014.

   

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K (“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 : 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. BUSINESS

 

Overview

 

Brazil Minerals, Inc. (OTCQB: BMIX) (the "Company", "BMIX", “we”, “us”, or “our”) is a U.S. holding company with investments in Brazil. The primary business of BMIX is to acquire ownership positions in producing mining companies in Brazil. The secondary business of BMIX is to engage in the creation of new companies in Brazil with mineral properties for exploration and development.

 

In 2013, our consolidated revenues were generated from the sale of rough diamonds and gold by one of the companies in which we had invested. Starting in 2014, our consolidated revenues derived from such subsidiary include sales of polished diamonds as well as rough diamonds and gold.

 

General Development of our Business

 

We were incorporated under the laws of the State of Nevada under the name of Flux Technologies, Corp. on December 15, 2011. From inception until December 2012, the Company’s operations were limited to the development of a business plan, the completion of sales of our common stock, discussion with potential customers, and the signing and performance of a service agreement with one company.

 

Immediately after the transactions discussed below, the Company discontinued its 3D animation services business and entered its current business of investment in mining companies and mineral assets in Brazil.

 

On December 18, 2012, the Company, Iryna Antaniuk, the then sole director and sole officer of the Company (“Antaniuk”), and Brazil Mining, Inc., a Delaware corporation (“Brazil Mining”) entered into, and on December 19, 2012 they consummated, an Acquisition Agreement (the “Acquisition Agreement”). Pursuant to the Acquisition Agreement, (a) 3,000,000 shares of Common Stock held by Antaniuk were cancelled and retired, (b) Brazil Mining paid to the Company $25,000, (c) the Company used the $25,000 payment from Brazil Mining to pay and satisfy all of the Company’s liabilities and (d) the Company’s sole officer and director prior to the signing of the Agreement resigned and Marc Fogassa was elected as a director of the Company.

 

On December 19, 2012, the Company consummated Subscription Agreements with 37 investors pursuant to which the Company issued and sold to these investors for $33.333 per share an aggregate of 60,002 shares of the Company’s Common Stock for an aggregate purchase price of $2,000,006.66. Such Common Stock was issued in accordance with an exemption from the registration requirements of the Securities Act of 1933 as amended (the “Securities Act”), under Section 4(2) of the Securities Act by virtue of compliance with the provisions of Regulation D under the Securities Act.

 

As contemplated by the Subscription Agreements, on December 18, 2012, the Company amended its Articles of Incorporation to authorize 10,000,000 shares of a class of “blank check” preferred stock and filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock. One share of Series A Convertible Preferred Stock (“Series A Stock”) was designated and issued by the previous management of the Company for $1.00 to Marc Fogassa, who was elected on such date as a director and as the Chief Executive Officer of the Company. The Certificate of Designations of the Series A Stock, among other things, provides that, for so long as Series A Stock is issued and outstanding, the holders of Series A Stock shall vote together as a single class with the holders of the Common Stock, and the holders of any other class or series of shares entitled to vote with the Common Stock, with the holders of Series A Preferred Stock being entitled to 51% of the total votes on all such matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of Common Stock and any other shares entitled to vote being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power.

 

In connection with the Acquisition Agreement, the Company entered into and consummated a Contribution Agreement with Brazil Mining (the “Contribution Agreement”) pursuant to which Brazil Mining contributed to the Company by way of an Assignment of Mineral Rights, the mineral exploration rights on a mining claim with approximately 24,700 acres located in the municipality of Borba, State of Amazonas, Brazil. Brazil Mining also entered into an Option Agreement with the Company pursuant to which Brazil Mining granted to the Company an option to purchase for $800,000 a 20% share of the monthly diamond production that Brazil Mining would actually receive in respect of Brazil Mining’s then anticipated acquisition of a 55% equity interest in a Brazilian entity (the “Option Agreement”). Pursuant to the Contribution Agreement, the Company issued to Brazil Mining an aggregate of 1,073,511 shares of the Company’s Common Stock, par value $.001 per share, constituting 51% of the issued and outstanding shares of Common Stock of the Company giving effect to all of the transactions consummated on December 19, 2012 including issuances of stock and warrants to the placement agent on a fully diluted basis. On January 2, 2013, the Company exercised the option granted to the Company pursuant to the Option Agreement.

 

On January 24, 2013, the Company filed with the Secretary of State of the State of Nevada a Certificate of Amendment to the Articles of Incorporation of the Company to increase the number of authorized shares of its Common Stock from 75 million to 150 million shares. The Company declared a 33.333-1 stock dividend payable to holders of record of the Company’s Common Stock as of January 22, 2013. The payment date for the dividend was January 25, 2013.

 

On March 23, 2013, the Company and Brazil Mining entered into, and on April 30, 2013 consummated, an Exchange Agreement (the “Exchange Agreement”) pursuant to which Brazil Mining sold to a 99.99% owned Brazilian subsidiary of the Company (“BMIXP”), the rights to all profits, losses and appreciation or depreciation and all other economic and voting interests of any kind in Brazil Mining’s 55% equity interest in Mineração Duas Barras Ltda., a Brazilian company (“MDB”) in exchange for the issuance to Brazil Mining of 1,000,000 shares of the Company’s Common Stock.

 

As discussed in further detail throughout this report, some further significant developments to our business during 2013 were as follows:

 

(1) Our revenues increased to $791,780, compared with zero during 2012;

 

(2) We obtained from the Brazilian federal authority the license to export MDB’s production;

 

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(3) We decided to verticalize our business model and enter the business of cutting and polishing a small part of MDB’s diamond production;

 

(4) We graded and certified at the Gemological Institute of America (GIA) our first lot of polished diamonds from MDB’s production which were exported from Brazil to the U.S.;

 

(5) We confirmed the geochemical occurrence of gold and copper in our property in the state of Amazonas in Brazil;

 

(6) We raised $100,000 through the private placement of securities to two accredited investors.

 

Subsequent to the end of our fiscal year 2013, and through March 31, 2014, the following significant developments have occurred:

 

(1) We received $1,048,000 in cash without the outright sale of any of our stock; this cash consisted of $525,000 in revenues from sales of polished diamonds for forward delivery and $523,000 in convertible notes;

 

(2) We paid off and retired $25,000 in principal from a 2013 convertible note;

 

(3) We added a preeminent Brazilian mining lawyer who is also a licensed geologist to our Board of Directors;

 

(4) As of March 31, 2014, we had 2,754 stockholders of record of our common stock.

 

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 is held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period.

 

Certain Definitions

 

As used herein, the following terms have the meanings indicated:

 

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Gemological Institute of America (GIA) : The Gemological Institute of America, or GIA, is a nonprofit institute dedicated to research and education in the field of gemology and the jewelry arts. Founded in 1931, GIA's mission is to protect all buyers and sellers of gemstones by setting and maintaining the standards used to evaluate gemstone quality. In 1953 the GIA developed its International Diamond Grading System and the Four Cs (cut, clarity, color, and carat weight) as a standard to compare and evaluate the quality of diamonds. GIA is headquartered in Carlsbad, California and operates out of 14 countries, with 12 campuses, seven laboratories and four research centers worldwide. We have had MDB’s polished diamonds graded at GIA’s Carlsbad laboratory.

 

SGS-Geosol : SGS-Geosol is considered the premier company in Brazil that performs analysis of mineral samples. Its clients include most of major global mining companies operating in Brazil. SGS Geosol has a central laboratory and 6 other branches and units throughout the country. We have had geochemical studies in samples collected by our geologists in various assignments analyzed at their Belo Horizonte headquarters facility.

 

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2013 Significant Developments

 

Mineração Duas Barras Ltda.

 

On March 23, 2013, we entered into an agreement with Brazil Mining, Inc. (“BMI”) pursuant to which we acquired, through a subsidiary, BMI’s 55% interest in MDB for $660,000 in consideration.

 

Export License

 

In July 2013, we obtained the necessary license from the Brazilian federal regulator (Siscomex) allowing the export of rough and polished diamonds as well as gold from MDB.

 

Verticalization of Our Business Model

 

During the third quarter of 2013, we began to cut and polish a small percentage of the rough diamonds produced from MDB. We have utilized a cutting and polishing center in Brazil, managed by a very experienced master diamond cutter and polisher with over 30 years of experience.

 

Exporting and Grading MDB’s Polished Diamonds

 

In November 2013, MDB exported some polished diamonds to the U.S. These diamonds were subsequently taken to the Gemological Institute of America (“GIA”) for grading and certification. Because MDB’s diamonds are not subject to post-extraction treatment, 100 percent of them were accepted for grading and certification by the GIA.

 

Confirming Gold and Copper in Our Property in the State of Amazonas (Borba Project)

 

In 2013, we confirmed by a visit of a geologist to the site for inspection and geochemical testing that our project in the municipality of Borba, state of Amazonas, in Brazil, contains gold and copper.

 

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2013 Financings

 

On September 30, 2013, we received in investment of $100,000 in total from two accredited investors, one a trust for the benefit of two persons and the other, an individual. We sold such investors a total of four investment units, each unit consisting of a $25,000 convertible promissory note and warrants to purchase 50,000 shares of our common stock until December 31, 2019.

 

The notes bear interest at 10% per annum and may be converted into our common stock at $0.125 per share, a premium of 25% above our stock price at the time the transaction was entered into. The notes are due on May 31, 2014. The exercise price of the warrants is $0.15 per share, a premium of 50% above our stock price at the time.

 

As of March 31, 2014, 25% of these notes had already been repaid, and the outstanding principal from the unpaid notes was $75,000.

 

2014 Significant Developments

 

Polished Diamond Sales

 

On January 2, 2014, we received proceeds of $25,000 from a sale of polished and GIA graded diamonds pursuant to an agreement with a buyer in which the buyer agreed to receive these diamonds over a period of time.

 

On March 4, 2014, we received proceeds of $500,000 from a sale of polished and GIA graded diamonds pursuant to an agreement with two buyers that agreed to receive these diamonds over a period of one year. As part of this transaction, we pledged with a third party collateral agent an aggregate of 11,000,000 shares of our common stock, valued at approximately $990,000 at the time the transaction was consummated, in order to secure the delivery of the diamonds. The number of shares pledged is subject to periodic adjustment as diamonds are delivered and as the market price of our common stock may change. We also issued to the buyers two-year options to purchase an aggregate of 3,000,000 shares of our common stock at an exercise price (subject to adjustment upon the occurrence of certain events) of $0.12 per share, a premium of 33% above our stock price when the transaction was consummated.

 

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Financings

 

On January 7, 2014, we received $244,000 in investment from the Heather U. Baines and Lloyd McAdams AB Living Trust dated 8/1/2001 (the “Trust”) in exchange for a senior secured convertible promissory note in the principal amount of $244,000 and warrants to purchase an aggregate of 488,000 shares of our common stock through December 26, 2018 issued to a designee of the Trust. The notes bear interest at 12% per annum and may be converted into common stock at $0.125 per share, a premium of 42% above our stock price at the time the transaction was entered into. The exercise price of the warrants is $0.125 per share (subject to adjustment upon the occurrence of certain events), a premium of 79% above our stock price at the time. Interest on the note is payable on September 30, 2014 and on March 31, 2015, the maturity date of the note. The note is secured by certain capital equipment purchased by us with the proceeds received; this equipment is now being used in MDB and is comprised of an excavator, a bulldozer, a truck, a portable motor and generator, among other items. Besides this capital equipment, the note is secured by our pledge of common stock having a value of 200% of the outstanding principal and accrued interest of the note. The note is repaid by depositing $20,000 monthly to a sinking fund. As of April 3, 2014, we had deposited $40,000 into the sinking fund, and our sinking fund obligation was current; this amount deposited has been requested by us to be applied to satisfaction of principal and interest of the note; the holder of the note has 60 days following a deposit into the sinking fund to choose between accepting repayment or converting the amount deposited to our common stock.

 

On January 24, 2014, we received proceeds of $25,000 from an investment by Black Mountain Equities, Inc., an accredited investor, in exchange for an unsecured convertible promissory note in the principal amount of $27,500. The note bears interest at the rate of 10% per annum. The note must be converted by the holder (unless repaid by us) by December 31, 2014. We retain the option, but not the obligation, to repay the note in cash. The conversion price is the lesser of (a) $0.07 or (b) 60% of the lowest daily volume weighted average price of our common stock during the twenty trading days immediately prior the applicable date on which the holder of the note elects to convert all or part of the note. The note is not secured by any collateral.

 

On February 21, 2014, we received proceeds of $200,000 from an investment by St. George Investments, LLC (“St. George”) in exchange for an unsecured convertible promissory note in the principal amount of $222,500. The difference between the face amount of the note and the gross proceeds received was comprised of legal costs and origination discount. The note bears interest at 10% per annum and the conversion price is $0.11 per share, a premium of 38% above our stock price when the transaction was consummated. Principal and accrued interest on the note are due in five consecutive monthly installments of $44,500 plus accrued interest commencing on August 21, 2014. The monthly installments are payable in cash or in common stock, at our option, or in diamonds that have been graded by GIA, upon the request of St. George. All principal and accrued interest on the note is payable on December 21, 2014. The note is not secured by any collateral.

 

On March 31, 2014, we received net proceeds of $54,000, after compensation paid to a broker-dealer, from an investment by Group 10 Holdings LLC, an accredited investor, in exchange for an unsecured convertible promissory note in the principal amount of $63,000. The note bears interest at the rate of 10% per annum. The note must be converted by the holder (unless repaid by us) by March 31, 2015. We retain the option, but not the obligation, to repay the note in cash. The conversion price is the lesser of (a) $0.11 or (b) 60% of the lowest closing price of our common stock during the twenty trading days prior to the maturity date or the date that a notice of conversion is given by the holder. The note is not secured by any collateral.

 

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Our Operational Information

 

The primary business of BMIX is to acquire ownership positions in producing mining companies in Brazil. The secondary business of BMIX is to engage in the creation of new companies in Brazil with mineral properties for exploration and development. For information concerning our initial investments and assets see Item 2. Properties, which is incorporated herein by reference.

 

In 2013, our consolidated revenues were derived almost exclusively from sales of diamonds and gold by MDB. MDB's revenues were approximately 69% from the sale of rough diamonds and 31% from the sale of gold. All of the buyers were Brazilian institutional buyers.

 

While our consolidated financial results are in part tied to the price of diamonds and gold, both commodities that are traded globally, the biggest factor by far in generating revenues and profits is MDB’s ability to effectively mine diamonds and gold. Alluvial mines, such as MDB’s, are not homogeneous: some mining fronts have very rich concentration of diamondiferous and auriferous gravel whereas others do not. Additionally, some areas have easy access, whereas others may be underwater, and thus require water removal prior to excavation. Our ability to choose the mining fronts to pursue and to provide the necessary equipment, fuel, and labor are a significant factor in our results.

 

Competition

 

Our main source of revenue is from sales of diamonds and gold produced by MDB. Diamond production is a difficult field to penetrate due to regulatory and limited availability of new resource areas.

 

Seasonality

 

MDB’s ability to mine diamonds and gold is highly seasonal. The rainy season in the northern area of the state of Minas Gerais, Brazil, lasts from December through April. We expect that during these months MDB’s revenues will be substantially lower than during other periods.

 

Regulation

 

The Brazilian mining industry is highly regulated. MDB’s operations in Brazil are in full compliance with federal, state, and municipal regulations.

 

Available Information

 

We maintain an internet website at www.brazil-minerals.com . On our website, we provide a link to the Securities and Exchange Commission (“SEC”) webpage that contains all of the public filings of Brazil Minerals. Our SEC filings are also directly available at the SEC’s website at www.sec.gov or from the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. 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.

 

Personnel

 

As of March 31, 2014, the number of employees and consultants working for us or for our subsidiaries was as following. MDB had 11 full-time employees and four consultants, all of them based in Brazil. BMIXP had three full-time employees and two consultants, all of them based in Brazil. BMIX had one full-time employee based in the U.S. Therefore, on a consolidated basis the Company had 15 employee in total, all of which are full-time employees. We also periodically retain consultants and independent contractors to provide services deemed useful to the operation of our business.

 

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ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below before making an investment decision. Our business, financial condition, results of operations, and cash flows could be materially adversely affected by any of these risks. The market or trading price of our securities could decline due to any of these risks. In addition, please see our note about forward-looking statements included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.

 

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations and our stock price. The following highlights some of the factors that may affect our operations and our stock price.

 

Risks Related to Our Operations

 

We have a limited operating history.

 

The 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 an early stage company, we are subject to all of the risks inherent in the initial organization, financing, expenditures, complications, and delays inherent in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. 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 on the continuation of a favorable mining environment in Brazil.

 

Our management believes that Brazil has a favorable mining environment for some of the following reasons:

 

- Brazil has a strong tradition in production and export of natural resources ;

- Brazil has a qualified work force for mining and ancillary services to support mining ;

- Unlike other jurisdictions with defined time horizons, mining concessions in Brazil can be mined in perpetuity as lo ng as there is continued mining;

- Most of Brazil ’s vast territory has not been properly research ed on a geological basis, and therefore opportunity exists for new mineralized areas to be identified ; and

- Mineral rights are constitutionally guaranteed and the right to mine in general prevails over surface rights .

 

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 may be unable to find sources of funding if and when needed, resulting in the failure of our business.

 

Even though we have recently completed several transactions providing financing to us, we will likely require additional sources of funding to execute our business plan. We will need additional equity or debt financing beyond our existing cash to pursue our strategy, including the acquisition of additional investments in mining companies or to enter into strategic relationships with third parties to further study and/or develop mineral properties. Any additional financing that we need may not be available and, if available, may not be available on terms that are acceptable to us. Our failure to obtain financing on a timely basis, or on economically favorable terms, could prevent us from pursuing our acquisition strategy or from responding to changing business or economic conditions and could cause us to experience difficulty in withstanding adverse operating results.

 

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If we do obtain alternative source of capital, the terms and conditions of acquiring such capital may result in dilution and the resultant lessening of value of the shares of stockholders.

 

If we are not successful in raising sufficient capital, we will have to modify our business plans and reduce operations. In this event, you could lose a substantial part or all of your investment.

  

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, net income, and results of operations may fluctuate as a result of a variety of factors that are outside our control including, but not limited to, weather phenomena which directly affects the operations of alluvial mining properties, the general global economic condition which affects demand for diamonds, and others.

 

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, operations, capital requirements, our general financial condition, and other factors. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.

 

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.

 

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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.

 

As of March 31, 2014 one share of our Series A Preferred Stock was 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 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 highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

our ability to grow and/or maintain revenue;

 

our ability to achieve profitability;

 

our ability to acquire additional mineral properties;

 

our ability to raise capital when needed;

 

sales of our common stock;

 

our ability to execute our business plan;

 

legislative, regulatory, and competitive developments; and

 

economic and other external factors.

 

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 Bulletin Board, you may not be able to buy and sell our common stock at optimum prices and you may face liquidity issues.

 

The Over-the-Counter Bulletin Board ("OTCBB") is a regulated quotation service that displays quotes, last sales prices, and volume in over-the-counter securities. The trading of our stock on the OTCBB imposes, among others, the following risks:

 

●           Availability of quotes and order information – Because OTCBB trades and quotations primarily involve a manual process (over the telephone) rather than automated or electronically linked execution systems, the market information for our common stock cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations could result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting, and the delivery of trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

 

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●           Liquidity Risks – Liquidity refers to the ability to freely buy and sell securities at given prices and volumes. In general, the more activity in a given security, and the more market makers participating in a security, the greater the liquidity in the security. Because the OTCBB generally has fewer market makers participating in a Bulletin Board security, the liquidity in our common stock may be significantly less than what might be experienced in the NASDAQ or listed markets. As such, you may only receive a partial execution or your order may not be executed at all. Additionally, the price received on a market order may be significantly different from the price quoted at the time of order entry. Additionally, when fewer shares of our common stock are being traded, larger spreads between bid and ask prices and volatile swings in price may result.

 

●           Dealer's Spread – The dealer's spread (the difference between the bid and ask prices) of our common stock may be large and may result in substantial losses to the seller of our common stock on the OTCBB if the common stock must be sold immediately. Further, purchasers of our common stock may incur an immediate "paper" loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through the OTCBB. Due to the foregoing, there may be decreased demand for our common stock traded through the OTCBB.

 

The significant number of options and warrants and convertible debt securities outstanding may adversely affect the market price for our common stock.

 

As of March 31, 2014 options and warrants to purchase an aggregate of 5,512,560 shares of our common stock were outstanding. In addition, an aggregate of 5,055,584 shares of our common stock are issuable upon conversion of convertible notes and debentures we have issued. To the extent that outstanding options and warrants are exercised and convertible debt securities are converted into our common stock, 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.

 

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, 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.

 

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Future sales of shares of our common stock may cause the prevailing market price of our shares to decline and could harm our ability to raise additional capital.

 

As of March 31, 2014 in addition to shares of our common stock which are freely tradable, there were outstanding approximately 53 million shares of common stock, which were subject to restrictions on resale, but which may become eligible for resale under Rule 144 of the Securities Act of 1933, and may become freely tradable. We have also registered 15,000,000 shares of our Common Stock that have been or may be issued under our 2013 Stock Incentive Plan. In addition, if holders of options and warrants choose to exercise their purchase rights and sell shares of common stock in the public market or if holders of currently restricted common stock or registered common stock sell such shares in the public market, or attempt to publicly sell such shares in a short time period, the prevailing market price for our common stock may decline. Such decline in the price of our common stock may also adversely affect our ability to raise additional capital or raise capital on terms acceptable to us.

 

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.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our main assets are:

 

1) 55% ownership interest in MDB, a Brazilian company with diamond and gold revenues and a producing mine located in the state of Minas Gerais, Brazil; and

 

2) 100% ownership interest in mineral exploration rights for a gold and copper area in the state of Amazonas, Brazil.

 

These assets are described immediately below.

 

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1. Mineração Duas Barras Ltda. (state of Minas Gerais, Brazil) – Diamonds and Gold

 

BMIX, through its 99.99%-owned subsidiary BMIX Participações Ltda. (“BMIXP”), owns title to 55% of the voting shares of Mineração Duas Barras Ltda. (“MDB”), a Brazilian company. A Brazilian resident owns the remaining 45% of MDB.

 

MDB owns a large alluvial diamond and gold processing and recovery plant, one mining concession (discussed below) and an additional mineral right (discussed below), each of which pertains to property 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 production; it has hosted alluvial production on all scales since the 18 th  century.

 

MDB’s plant, mining concession, and mineral right are all approximately one and half hour drive from Montes Claros, Brazil, a city of 400,000 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 and Belo Horizonte. MDB has an office in Montes Claros staffed with a full-time regional manager.

 

Montes Claros is located 400 kilometers north of Belo Horizonte, the capital of the State of Minas Gerais. Belo Horizonte is the third largest city in Brazil, with a population over 2,500,000 people and two airports, including one with international flights. In Belo Horizonte, BMIXP has a fully staffed office with three full-time employees. From Belo Horizonte to Montes Claros, it takes one hour by regular carrier flight or five hours by car on asphalt roads.

  

Synopsis of Operations

 

Operationally, MDB has two teams: the exploration team and the production team. The exploration team works in open pits with one excavator and three to four trucks. The exploration team loads gravel and transports it to the patio area immediately adjacent to the processing and recovery plant. The production team works at the plant, processing the gravel and recovering rough diamonds and gold.

 

Mining Claims

 

MDB has title to both a mining concession and a mineral right, further described below. MDB does not own the land or surface rights atop these claims. In Brazil, the mineral right and the land (surface right) on top of it are commonly held by different owners. Brazilian law protects the rights of the owner of a mineral right to explore such claim, even when a surface owner is opposed to it.

 

a) MDB’s mining concession: “Concessão de Lavra” number 265 awarded to MDB by “Departamento Nacional de Produção Mineral”, the National Mining Department (“DNPM”) effective on August 25, 2006 with respect to DNPM process number 806.569/1977. This claim award was published in Brazil’s Official Federal Gazette.

 

“Concessão de Lavra” is the highest level of mining claim achievable in Brazil. MDB’s Concessão de Lavra” permits MDB to mine and sell its production of diamonds and gold. MDB’s mining concession covers an area of 170.89 hectares, or approximately 422 acres.

 

There are no liens or other encumbrances on MDB’s mining concession. The mining concession is a federal claim in Brazil, as DNPM is a Brazilian federal entity. This mining concession has no ter mination date; it is held in perpetuity by MDB and for as long as MDB is continually mining in this concession area, this claim will be in good standing. The claim can also be in good standing even if there is no continued mining, if MDB were to file with DNPM for a hiatus from mining; such requests are normally granted for periods of up to three years.

 

“Concessão de Lavra” requires no fees to be paid to maintain such claim. Therefore, MDB has no payments to maintain MDB’s mining concession.

 

Brazilian law guarantees the owner of the land on top of a mining concession the payment of a royalty of at least 0.1% of all revenues from the concession. However, most Brazilian mining companies negotiate with the landowner and pay a higher royalty rate as an incentive for greater cooperation. MDB has a contract that pays the landowner a 6% royalty rate on any sales, and management of MDB believes that MDB has enjoyed excellent cooperation from the landowner at all times.

 

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MDB pays royalties to Brazil’s “Receita Federal” (the equivalent of the Internal Revenue Service in the U.S.) if and when it sells diamonds and gold. The royalty rates paid are fixed by federal decree and are 0.1% on diamond sales and 1% on gold sales.

 

MDB is not currently planning to perform any further exploratory research work in the area of its mining concession.

 

b) MDB’s mineral right: “Alvará de Pesquisa” with respect to DNPM process number 832.052/20006 initially awarded by DNMP on February 18, 2009, and renewed on November 13, 2013 for another two years. It covers an area of 397.42 hectares, or approximately 982 acres.

 

MDB intends to perform the necessary research to submit an application to upgrade this claim from “Alvará de Pesquisa” to “Concessão de Lavra”, and therefore obtain another mining concession for an open pit operation. MDB expects that the exploration research work needed to submit the necessary request to DNPM will involve drilling for diamonds in a defined sub-area of the mining claim. MDB expects that this work can be completed well ahead of the deadline of December 13, 2015. MDB projects that the total cost in performing the necessary exploratory research work and preparing all of the documents for submission to DNPM will be less than $100,000. MDB owns the drilling equipment and has workers with experience in using it, and therefore field labor and material costs will be reasonably contained. For this project, MDB has two qualified professionals, a licensed geologist and a licensed mining engineer with over 20 years of field experience in projects along the Jequitinhonha River valley.

 

If by December 13, 2015, MDB has not submitted the necessary research work to DNPM, and has not been granted a valid extension, it will lose this mining claim but it will not be subject to fines or penalties for not completing the research timely.

 

“Alvará de Pesquisa” requires payment of annual fees to DNPM. Currently the fees are R$3.06 (approximately $1.39) per hectare. Therefore, MDB pays approximately $550 per year to DNPM.

 

Processing and Recovery Plant

 

MDB’s diamond and gold processing plant was built in 2006-2007 by a Canadian company called Vaaldiam Resources, Ltd. (“Vaaldiam”), whose stock at that time traded on the Toronto Stock Exchange Venture Board. To the best of our knowledge, the diamond and gold processing plant at MDB is the largest such type of alluvial recovery plant in Latin America. The Company believes that the plant is in very good condition and MDB performs periodic maintenance and repairs on the plant to keep the plant in good condition.

  

Mineralization

 

Vaaldiam performed detailed geological studies in MDB’s mining concession leading to the publication of an NI 43-101 technical report in 2007, and an updated NI 43-101 technical report in 2008, as required by the rules of the Canadian securities administrator.Vaaldiam’s NI 43-101 report showed that in the areas drilled within MDB’s mining concession there were inferred and indicated resources totaling 432,000 carats of diamonds and 491 kilograms of gold (approximately 17,334 ounces of gold).

 

MDB has submitted its “Plano de Aproveitamento Econômico” (the “Feasibility Study”) to DNPM in accordance with the mining regulations of Brazil. In its Feasibility Study, approved by DNPM, MDB discloses under the heading “Dados da Reserva” (the “Reserve Data”) that it has reserves of 366,982 carats of diamonds and 412.855 kilograms of gold (approximately 14,563 ounces).

 

BMIX does not claim that the NI 43-101 technical report and/or MDB’s 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.”  

 

15
 

 

Source of Water and Power

 

The water used in MDB’s processing and recovery plant for diamonds and gold, and other installations, comes from lagoons that receive water from the Jequitinhonha River. There is no shortage of water and water is free to MDB.

 

The power used in MDB’s processing and recovery plant and other installations is provided by diesel generators. Normally, MDB purchases diesel on a weekly to bi-weekly schedule from two local competing distributors, both of which have storage tanks outside of MDB’s plant. There has been no shortage of fuel available for purchase. The Company believes that the existence of two suppliers ensures that competitive pricing and other terms will continue to be available to MDB.

 

Over the next one to two years, MDB’s intention is to work towards obtaining an industrial-strength electric line extension from the national electric grid, a pathway of approximately 27 kilometers. This would allow MDB to minimize, if not eliminate, any dependence on fossil fuels. To this extent, MDB has had meetings with CEMIG, the State of Minas Gerais electric utility company. Furthermore, MDB has obtained a detailed workplan by which the line extension could be built by a CEMIG authorized contractor in approximately four months and for under $800,000. CEMIG has indicated willingness to contribute 46% of such cost; other portions of this cost might be borne by farmers along the pathway which would be benefitting from electric energy for irrigation equipment use. These conversations are ongoing and at this time MDB has not finalized any commitments. Since energy costs are the largest component of expenses at MDB, and given that electric energy in Brazil is substantially less expensive than energy derived from fossil fuels on an equivalent basis, MDB believes that its cost of building the line extension would be recouped within two years or less.

 

Equipment at MDB

 

MDB has a large processing and recovery plant for alluvial diamonds and gold, considered by specialists to be the largest of such type in Latin America. The plant has a well-equipped spare parts and supply room. For mining, MDB has use of the following mechanized equipment which is owned by BMIXP: an excavator, a bulldozer, two trucks, a portable industrial-strength generator and pumps. MDB also leases from independent owners a mechanic shovel and another truck. For transportation of personnel and smaller items, MDB owns a car and a van. 

 

Set forth below is a map of the State of Minas Gerais showing the location of BMIX’s office and plant.

 

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2013 Production

 

In 2013 MDB produced diamonds with an aggregate weight of 3,994 carats and 212 ounces of gold. Gold is a byproduct of diamond production in alluvial operations along the Jequitinhonha River.

 

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2. Borba Project (state of Amazonas, Brazil)

 

The mineral claim for the Borba Project is “ Autorização de Pesquisa” (research permit) with respect to DNPM process number 880.239/2009 initially awarded by DNMP on October 14, 2009, and renewed on December 4, 2012 for another three years. It covers an area of 9,999.11 hectares, or approximately 24,708 acres. The title to this mineral claim is held by BMIXP.

 

BMIXP is evaluating the potential of the Borba Project. One possibility is for BMIXP to perform the necessary research to submit an application to upgrade this claim from research permit to mining concession by the submission of a research report in accordance with DNPM standards before December 4, 2015. Another possibility is a transaction by which a partner develops or co-develops this project. No decision on this has been made yet.

 

If by December 4, 2015, BMIXP, or a partner on its behalf, has not submitted the necessary research work to DNPM, and has not been granted a valid extension, BMIXP will lose this mining claim, but it will not be subject to fines or penalties for not completing the research on a timely basis.

 

In 2013, BMIXP performed a preliminary geological surface assessment of this area and collected samples for geochemical analysis. These samples were analyzed at the SGS-Geosol laboratory in Belo Horizonte, Brazil. Further analytical work continues to date with a senior geologist in Brazil.

 

Set forth below is a map from DNPM delineating the Borba Project mineral rights area.

 

 

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ITEM 3. LEGAL PROCEEDINGS.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

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 on the Over-the-Counter Bulletin Board ("OTCBB") 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 on OTCBB for each quarter since March 7, 2013. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Prior to March 7, 2013 there were no quotations for our common stock.

 

    Year Ended  
Quarters   December 31, 2013  
    High     Low  
             
First (3/7-3/31)   $ 1.10     $ 0.56  
Second (4/1-6/30)   $ 0.89     $ 0.11  
Third (7/1-9/30)   $ 0.28     $ 0.07  
Fourth (10/1-12/31)   $ 0.12     $ 0.06  

 

As of March 31, 2014, we had 2,754 stockholders of record of our common stock.

 

Dividends

 

We have not paid any cash dividends since inception and do not expect to declare any cash dividends in the foreseeable future. 

 

Equity Compensation Plan

 

On February 19, 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, 2013 with respect to our equity compensation plans.

 

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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     $ 0.33       11,417,148  
                         
Total     1,200,000     $ 0.33       11,417,148  

 

Sales of Unregistered Securities

 

On September 30, 2013, we issued and sold to two accredited investors for $100,000 four units of securities, each unit consisting of a $25,000 convertible promissory note and warrants to purchase 50,000 shares of our common stock until December 31, 2019. The notes bear interest at 10% per annum and are due on the earlier of the close of a $100,000 financing or May 31, 2014.  The note payable can be converted into common shares at $0.125 per share, a premium of 25% above our common stock price at the time the transaction was entered into. The exercise price of the warrants is $0.15 per share, a premium of 50% above our common stock price at the time. The units were issued in accordance with an exemption from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act by virtue of being issued to two purchasers which acquired the units for investment. As of March 31, 2014, 25% of the notes had already been repaid, and the outstanding principal from the unpaid notes was $75,000.

 

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.

 

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This Annual Report contains forward-looking statements. Forward-looking statements for us 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: 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.

 

Results of Operations

 

The Company was incorporated on December 15, 2011. It commenced operations on March 1, 2012. Until December 2012, the Company’s operations were limited to developing a business plan, completing sales of common stock, discussing offers by the Company of 3D animation services with potential customers, and the signing and performance of a service agreement with one company.

 

The Company changed its business model and management in December 2012, and simultaneously discontinued its 3D animation services business. From March 1, 2012 to December 31, 2012 (“FY2012”) we had zero revenues as compared to revenues of $791,780 in the period from January 1, 2013 to December 31, 2013 (“FY2013”). Essentially all of our revenues in FY2013 were derived from the consolidation of the revenues from MDB, a company in which we own a 55% ownership stake. All of the revenues of MDB in FY2013 were from sale of rough diamonds and gold mined at MDB.  

 

Our consolidated cost of goods sold in FY2013, consisting almost entirely of production expenses, was $448,830 or approximately 56.7% of the Company’s total revenues. The Company’s gross profit in FY2013 was $342,950, or approximately 43.3% of total revenues. By comparison, the Company had no revenues, costs of goods sold or gross profit in FY2012.

 

The Company had an aggregate of $2,073,050 in operating expenses in FY2013 as compared to $152,655 in total operating expenses in FY2012. Exploration and production costs totaling $834,962 and stock based compensation totaling $504,897 comprised the majority of operating expenses in FY2013. No exploration and production costs or stock based compensation expense was incurred in FY2012.

 

General and administrative expenses increased from $3,885 in FY2012 to $326,908 in FY2013; compensation and related costs increased from $54,112 in FY2012 to $269,168 in FY2013; and professional fees increased from $94,658 in FY2012 to $114,044 in FY2013, in each case primarily as a result of the change in the Company’s business All of these changes were as a result of the growth of our business.

 

Primarily as a result of the $1,920,395 increase in total operating expenses, the Company’s net loss increased by $1,338,916, from $174,463 in FY2012 to $1,513,379 in FY2013.

 

Net cash used in operating activities increased from $111,101 in FY2012 to $851,294 in FY2013, primarily as a result of the $1,360,724 increase in net loss from continuing operations, which was partially offset by non-cash items such as $504,897 in stock based compensation and $350,830 in increased inventory in FY2013.

 

Net cash used in investing activities decreased from $800,000 on FY2012 to $3,413 in FY2013. In December 2012 the Company advanced $800,000 to BMI. This loan was non-interest bearing and had no specified terms of repayment and was an advance related to the exercise of an option agreement held by the Company for a 20% share of the MDB diamond production. On January 2, 2013, the Company exercised the option and the advance was deemed payment of the option. The option granted the Company 20% of the diamond production with respect to BMI’s 55% interest in MDB.

 

Net cash provided by financing activities decreased from $1,752,802 in FY2012 to $323,003 in FY2013. In FY2012, the Company received net cash from continuing financing activities of $1,746,633 as compared to $323,003 in FY2013. In FY2012, the Company received net proceeds of $2,000,033 from a private placement of its common stock. In FY2013 the primary components of its net cash provided by continuing financing activities were capital contributions received from non-controlling interests ($165,500), proceeds from the sale of notes ($100,000) and cash acquired upon acquisition of a subsidiary ($56,914).

 

The effect of the foregoing changes in cash flows, as well as a $226,700 negative effect on cash in fiscal 2013 as a result of changes in exchange rates, was a net decrease of $758,404 during FY2013in cash and cash equivalents.

 

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Liquidity and Capital Resources

 

At December 31, 2013, we had current assets of $340,332 compared to current liabilities of $238,602 for a current ratio of 1.43 to 1. This compares to current assets of $863,189 and current liabilities of $67,462 at December 31, 2012, resulting in a current ratio of approximately 12.8 to 1. The decrease in our current ratio was primarily attributable to a decrease in cash and cash equivalents which were used to fund operations and acquisitions of capital equipment in fiscal 2013

 

In 2013, our principal sources of liquidity were our revenues from the sale of diamonds and gold as well as cash remaining from the $2,000,033 gross proceeds of a private placement of our common stock from December 2012.

 

On September 30, 2013, we issued and sold to two accredited investors for $100,000 four units of securities, each unit consisting of a $25,000 convertible promissory note and warrants to purchase 50,000 shares of our common stock until December 31, 2019.

 

As of December 31, 2013, our working capital was $101,730. As of December 31, 2013, we had accrued expenses and accounts payable of $171,526, and $67,076 in indebtedness for borrowed money.

 

During the first quarter of 2014, we received an aggregate of $1,048,000 in gross proceeds as a result of various financings and pre-sales of polished diamonds. A description of such transactions is set forth in Item 1 of this Annual Report.

 

We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and exploration costs for the foreseeable future.

 

Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The Company currently, and generally at any time, has acquisition opportunities in various stages of review. We may seek additional financing as necessary to fund such acquisitions and capital expenditures or for general corporate needs as necessary.

 

Please refer to our risk factors included in Part 1, Item 1A of this Annual Report for a discussion of certain risks that may impact the Company's liquidity and capital resources.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our financial instruments consist of cash and cash equivalents, loans to a related party, accrued expenses, and an amount due to a director. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is incorrect at December 31, 2013, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.

 

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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.

 

Additional Comments

 

In 2013, we achieved revenues of $791,780 and had losses of $1,513,379. As of December 31, 2013, we had cash and cash equivalents of $104,992. However, as described elsewhere in this Annual Report, we received $1,048,000 in cash during the first quarter of 2014, thereby substantially increasing our liquidity.

 

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

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design, operation, and effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of December 31, 2013. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures. As described below, material weaknesses were identified in our internal control over financial reporting. The Public Company Accounting Oversight Board’s Auditing Standard No. 212 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of the material weaknesses, our chief executive officer and chief financial officer has concluded that, as of December 31, 2013, the end of the period covered by this Annual Report, our disclosure controls and procedures were not effective at a reasonable assurance level.

 

We intend to remedy the material weaknesses in our internal control over financial reporting and thereby make our disclosure controls and procedures effective by the actions described in Item 9A(b).

 

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(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). Our internal control system is designed to provide reasonable assurance to management and to our Board of Directors regarding the preparation and fair presentation of published financial statements. Our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our 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 his evaluation under the framework in Internal Control—Integrated Framework, he concluded that our internal control over financial reporting was not effective as of December 31, 2013 in certain respects as described below.

 

As of December 31, 2013, the Company had the following material weaknesses in internal control over financial reporting. While MDB, the source of substantially all of the Company’s consolidated revenues and the vast majority of its transactions, did have adequate segregation of accounting functions, there was less segregation elsewhere due to the Company’s small size. The Company has no dedicated internal accounting staff and relies on outsourced accountants in both Brazil, where the majority of its operations are located, as well as in North America.  As a result, financial information has sometimes not been accumulated and communicated to management, including our chief executive officer and chief financial officer, in a timely enough manner for decisions regarding our required disclosure to be made and financial statements to be prepared and delivered to our independent accountants for their audit or review to be conducted in a timely and efficient manner. Additionally, during 2013, the Company performed an analysis of its inventory only at year end.

 

Management believes that these material weaknesses set forth above did not have a material effect on our financial results. However, in an effort to remediate them and to enhance our internal controls, we plan to initiate the following series of measures: We will seek to identify and hire accountants that are bilingual in English and Portuguese, versed in both US GAAP and Brazil’s International Financial Reporting Standards (IFRS), and experienced in making the necessary transformations between IFRS to GAAP. We will also perform analysis of the fair value of our inventory on a regular basis.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Since we are a non-accelerated filer, management’s report is not subject to attestation by our 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 our internal control over financial reporting that occurred in the fourth quarter of 2013 that materially affected, or would be reasonably likely to materially affect, our internal control over financial reporting.

 

24
 

  

ITEM 9B. OTHER INFORMATION.

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth certain information as of March 31, 2014 concerning our directors and executive officers:

 

Name   Age   Position
         
Marc Fogassa   47  

Director, Chairman, Chief Executive Officer,

President, Chief Financial Officer, Treasurer and Secretary

         
Ambassador Roger Noriega   54   Director
         
Ambassador Paul Durand   72   Director
         
Luis Mauricio Ferraiuoli de Azevedo, Esq.   50   Director

 

Marc Fogassa

 

Marc Fogassa, age 47, has been a director and our Chairman and Chief Executive Officer since December 2012. He has over 15 years of investment experience in venture capital, and private and public equity investing, and has served on boards of directors of multiple private companies. In particular, in 1999 at age 32, he performed substantial due diligence, became an early venture investor in Achillion Pharmaceuticals, and joined its Board of Directors with a venture round he co-lead by investing $2 million at a post-investment valuation of $6 million; in 2006 this company had an IPO and uplisted to Nasdaq; its current valuation is $750 million. Mr. Fogassa has worked at Goldman Sachs & Co. (1997), Atlas Venture (1998-2000), and Axiom Ventures (2000-2005). He also worked as investment manager with Hedgefort Capital Management LLC from May 2005 to June 2012, and as an investment banker from November 2011 to January 2014 with Hunter Wise Financial Group, LLC). He has been Chairman and 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.

 

25
 

 

Ambassador Roger Noriega

 

Ambassador Roger Noriega, age 54, 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 VisionAmericas, 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

 

Ambassador Paul Durand, age 72, has been a director since 2012. He has had extensive experience in Latin America. From August 2001 to August 2006, Ambassador Durand 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.

 

Luis Mauricio Ferraiuoli de Azevedo, Esq.

 

On January 7, 2014, our Board of Directors elected Luis Mauricio Ferraiuoli de Azevedo, Esq. as a director. Mr. Azevedo, age 50, is both a licensed lawyer and geologist with 25 years of business and mining experience in Brazil. Since October 1997 he has been the Managing Partner at FFA Legal, a legal firm he founded and based in Rio de Janeiro, Brazil, and which is focused solely on natural resources companies. Mr. Azevedo’s practice is highly active in mergers in acquisitions for companies owning mineral assets and/or operating mining enterprises in Brazil. His experience spans industrial minerals, diamonds, and precious metals, and he continually works in contact with the highest federal levels of all branches of government in Brazil. Prior to his election to our Board of Directors, Mr. Azevedo had served on our Board of Advisors since July 2013. Mr. Azevedo previously worked for Western Mining, Barrick Gold, and Harsco. He assembled land packages that resulted in five initial public offerings of Canadian companies in Brazil (Avanco, Avenue, Carnavale, Rio Verde, and Talon) since 2004. In addition to his directorship in our Board of Directors, he is currently on the Board of Directors of three mining companies: Avanco, Avenue, and Talon Metals. Mr. Azevedo received a Geology degree from UERJ - Universidade do Estado do Rio de Janeiro in 1986, a Law degree from Faculdade Integradas Cândido Mendes in 1992, and a Master of Law degree from PUC-Rio, Pontifícia Universidade Católica of Rio de Janeiro in 1995. We appointed Mr. Azevedo as a director because of his extensive experience in Brazilian geology, Brazilian mining law, mergers and acquisitions of mining companies in Brazil and his experience as a director in publicly traded companies listed in Canada.

 

26
 

  

Board Composition

 

Our Board of Directors is currently composed of four members – Marc Fogassa, Ambassador Roger Noriega, Ambassador Paul Durand, and Luis Mauricio Ferraiuoli de Azevedo, Esq.

 

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. 

 

27
 

  

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.

 

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, 2012 and December 31, 2013. 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 
  ($)
    Option 
Awards
    Non-Equity
Incentive Plan
Compensation
(S)
    Non-Qualified
Deferred
Compensation
Earnings ($)
    All Other
Compensation
($)
    Total ($)  
Marc Fogassa     12/31/2012       -     $ 50,000       -       -       -       -       -     $ 50,000  
      12/31/2013     $ 125,000       -     $ 210,234 (A)     -       -       -       -     $ 335,234  

 

  (A) On November 30, 2013, the Board of Directors of the Company rescinded and cancelled a grant to Mr. Fogassa of options to purchase 2,000,000 shares of the Company’s Common Stock (which options had a value of $741,766 as of the date of grant of the option), and instead issued to him 2,000,000 shares with a deemed value of $180,000. The value of the options rescinded has been calculated in accordance with FASB ASC Topic 718.  See Note 6 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of all assumptions made in the calculation of this amount. The value of the 2,000,000 shares issued to Mr. Fogassa is based on the closing price of the Company’s Common Stock of $.09 per share on November 29, 2013.

 

Employment Agreement with Marc Fogassa

 

Marc Fogassa was hired by the Company as the Company’s 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 receives a salary of $150,000 per annum. In addition, Mr. Fogassa is entitled to reimbursement of expenses incurred by him in the performance of his duties, a maximum allowable SEP IRA contribution, four weeks of paid vacation time, and the payment by the Company of certain insurance-related expenses. The agreement further provides that the Company 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, 2013 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)
    Total
($)
 
Roger Noriega     -       85,407       85,407  
Paul  Durand     -       85,407       85,407  
John Bell (2)     -       80,401       80,401  

(1) The amounts in this column reflect the aggregate grant date fair value of stock options granted in 2013 to each director calculated in accordance with FASB ASC Topic 718.  See the notes to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of all assumptions made in the calculation of this amount.

 

(2) Mr. Bell served as a director of the Company from April 23, 2013 to January 7, 2014.

 

28
 

  

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 April 10, 2014 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.

 

Name and Address
(1)
  Office     Shares
Beneficially
Owned (2)
    Percent of Class (3)  
Common Stock                        
Marc Fogassa     Director, Chairman, Chief Executive Officer, President, Chief Financial Officer, Secretary and Treasurer       36,567,812 (4)     47.31 %
Brazil Mining, Inc.     -       29,426,849       38.07 %
Ambassador Paul  Durand     Director       425,750 (5)     0.55 %
Ambassador Roger Noriega     Director       419,125 (5)      0.54 %
Luis Mauricio Ferraiuoli de Azevedo, Esq.     Director       5,000     0.01 %
All executive officers and directors as a group (4 persons)             37,417,687 (4) (6)     48.41 %
                         
Series A Preferred Stock                      
Marc Fogassa     Director       1       100 %
All executive officers and directors as a group (4 persons)             1       100 %

 

(1) Unless otherwise specified, the address of each of the officers and directors set forth below is in care of Brazil Minerals, Inc., 324 South Beverly Drive, Suite 118, Beverly Hills, California 90212.  

 

(2) Beneficial ownership is determined in accordance with rules promulgated by the Commission.

 

(3) Based on 76,409,116 shares of common stock outstanding and computed in accordance with rules promulgated by the Commission.

 

(4) Includes 29,426,849 shares of our common stock owned by Brazil Mining, Inc. (“Brazil Mining”), a Delaware corporation of which Mr. Fogassa is a director and officer, shares owned by entities that could be deemed to be controlled by Mr. Fogassa or his immediate family, and options owned by Mr. Fogassa to purchase 79,999 shares of our common stock at $1.00 per share.

 

(5) Includes options to purchase 200,000 shares of our common stock at $0.58 per share and options to purchase 200,000 shares of our common stock at $0.09 per share.

 

29
 

  

(6) Includes options to purchase 400,000 shares of our common stock at $0.58 per share, options to purchase 400,000 shares of our common stock at $0.09 per share, and options to purchase 79,999 shares of our common stock at $1.00 per share.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

On January 1, 2013, the Company and Brazil Mining entered into an administrative services agreement under which Brazil Mining provided, at cost to us, personnel and facilities to carry out our business activities in Brazil. We paid Brazil Mining $228,463 pursuant to the agreement. This agreement was terminated in 2013 as we implemented our infrastructure in Brazil. During the period in which the agreement was in effect Brazil Mining owned a majority of the outstanding shares of our common stock, three of its directors were also directors of the Company and Marc Fogassa, our Chairman and Chief Executive Officer was also Chairman and Chief Executive Officer of Brazil Mining.

 

On December 19, 2012 the Company entered into and consummated a Contribution Agreement with Brazil Mining (the “Contribution Agreement”) pursuant to which Brazil Mining contributed to the Company by way of an Assignment of Mineral Rights, certain mineral exploration rights on an approximately 10,000 hectare property located in the municipality of Borba, State of Amazonas, Brazil. Brazil Mining also entered into an Option Agreement with the Company pursuant to which Brazil Mining granted to the Company an option to purchase for $800,000 a 20% share of the monthly diamond production that Brazil Mining would actually receive in respect of Brazil Mining’s then anticipated acquisition of a 55% equity interest in a Brazilian entity (the “Option Agreement”). Pursuant to the Contribution Agreement, the Company issued to Brazil Mining an aggregate of 1,073,511 shares of the Company’s Common Stock, par value $.001 per share, constituting 51% of the issued and outstanding shares of Common Stock of the Company giving effect to all of the transactions consummated on December 19, 2012. On January 2, 2013, the Company exercised the option granted to the Company pursuant to the Option Agreement and acquired 20% of the diamond production due BMI from BMI’s 55% interest in MDB.

 

On March 23, 2013, our Board of Directors and the Board of Directors of BMI, each having obtained all necessary authority, celebrated an agreement pursuant to which our Brazilian subsidiary acquired Brazil Mining’s 55% interest in MDB for $660,000 in consideration.

  

Director Independence

 

We believe that each of Ambassador Roger Noriega, Ambassador Paul Durand, and Luis Mauricio Ferraiuoli de Azevedo, Esq. are “independent” as such term is defined by the NASDAQ Stock Market Rules.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees that have been, or are expected to be, billed by Silberstein Ungar, PLLC ("Silberstein"), our principal accountant, to us for the audit of our financial statements as of December 31, 2012 and as of December 31, 2013 were $16,000 and $21,500, respectively. In addition, Silberstein was paid an aggregate of $3,750 for its reviews of our quarterly financial statements during 2012 and an aggregate of $5,250 for its reviews of our quarterly financial statements during 2013. In 2013, Silberstein was also paid $12,000 for an audit of MDB from January 1, 2011 through December 31, 2012, and $1,500 for the review of a Form 8-K filing.

 

30
 

 

Audit-Related Fees

 

During 2012 and 2013 there were no fees paid to Silberstein in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

 

No other fees were billed by Silberstein 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 Silberstein 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 Silberstein in 2012 or 2013.

 

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.

 

31
 

 

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.

 

32
 

 

BRAZIL MINERALS, INC.

 

TABLE OF CONTENTS

 

DECEMBER 31, 2013

 

Report of Independent Registered Public Accounting Firm  F-1
   
Consolidated Balance Sheets as of December 31, 2013 and 2012  F-2
   
Consolidated Statements of Operations for the Year Ended December 31, 2013  
and for the period from March 1, 2012 to December 31, 2012  F-3
   
Consolidated Statements of Other Comprehensive Income (Loss) for the Year  
Ended December 31, 2013 and for the period from March 1, 2012 to  
December 31, 2012  F-4
   
Consolidated Statement of Stockholders’ Equity  F-5
   
Consolidated Statements of Cash Flows for the Year Ended December 31, 2013  
and for the period from March 1, 2012 to December 31, 2012  F-6
   
Notes to the Consolidated Financial Statements F-7-F-16

  

 
 

  

Silberstein Ungar, PLLC CPAs and Business Advisors

Phone (248) 203-0080

Fax (248) 281-0940

30600 Telegraph Road, Suite 2175

Bingham Farms, MI 48025-4586

www.sucpas.com

 

 

To the Board of Directors of

Brazil Minerals, Inc.

Beverly Hills, California

 

We have audited the accompanying consolidated balance sheets of Brazil Minerals, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2013 and the period from March 1, 2012 through December 31, 2012. 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 audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits 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 effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also 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 audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brazil Minerals, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the year ended December 31, 2013 and the period from March 1, 2012 through December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Silberstein Ungar, PLLC

 

Bingham Farms, Michigan

April 13, 2014  

 

F- 1
 

 

BRAZIL MINERALS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012

 

    December 31, 2013     December 31, 2012  
ASSETS            
Current Assets                
Cash and cash equivalents   $ 104,785     $ 863,189  
Taxes recoverable     43,224       -  
Inventory     146,172       -  
Deposits     5,501       -  
Loan receivable-related party     40,650       -  
Total Current Assets     340,332       863,189  
                 
Capital Assets                
    Property, plant & equipment, net of accumulated depreciation     430,074       -  
                 
Other Assets                
Intangible assets     139,653       -  
Loan receivable-related party     -       800,000  
                 
Total Assets   $ 910,059     $ 1,663,189  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities                
Current Liabilities                
Accrued expenses and accounts payable   $ 171,526     $ 67,362  
Convertible notes payable, net of debt discount of $33,563     66,437       -  
Loan from director     639       100  
Total Liabilities     238,602       67,462  
                 
Stockholders’ Equity                
                 
Series A Preferred Stock, $0.001 par value, 10,000,000 shares authorized; 1 share issued and outstanding     -       -  
Common stock, $0.001 par value, 150,000,000 shares authorized; 74,639,834  shares issued and outstanding (December 31, 2012- 69,963,434)     74,640       69,963  
Additional paid-in-capital     38,629,290       37,370,516  
Accumulated other comprehensive loss     (226,700 )     -  
Stock warrants     129,772       117,765  
Deferred stock compensation     (69,611 )     -  
Non-controlling interest     409,962       -  
Deficit accumulated during the development stage     (38,275,896 )     (35,962,517 )
Parent company shareholders equity    

261,495

      1,595,727  
Non-controlling interest equity     409,962       -  
Total Stockholders’ Equity     671,457       1,595,727  
                 
Total Liabilities and Stockholders’ Equity   $ 910,059     $ 1,663,189  

   

The accompanying notes are an integral part of these financial statements.

 

F- 2
 

 

BRAZIL MINERALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND

FOR THE PERIOD FROM MARCH 1, 2012 TO DECEMBER 31, 2012

 

    Year ended December
31, 2013
    Period from March
1, 2012
to December 31,
2012
 
             
REVENUES   $ 791,780     $ -  
                 
COST OF GOODS SOLD                
Production expenses     445,262       -  
Mining tax     3,568          
      448,830       -  
GROSS PROFIT     342,950       -  
                 
OPERATING EXPENSES                
 Professional fees     114,044       94,658  
 General and administrative expenses     326,908       3,885  
 Compensation and related costs     269,168       54,112  
 Stock based compensation     504,897       -  
 Exploration and production costs     834,962       -  
 Interest on promissory notes     2,500       -  
 Amortization of debt discount     20,138       -  
 Depreciation     433       -  
TOTAL OPERATING EXPENSES     2,073,050       152,655  
                 
INTEREST INCOME     470       -  
                 
LOSS FROM CONTINUING OPERATIONS     (1,729,630 )     (152,655 )
                 
LOSS FROM DISCONTINUED OPERATIONS     -       (21,808 )
                 
LOSS BEFORE PROVISION FOR INCOME TAXES     (1,729,630 )     (174,463 )
                 
PROVISION FOR CORPORATE INCOME TAXES     0     -  
                 
NET LOSS     (1,729,630 )     (174,463 )
                 
LOSS ATTRIBUTABLE TO NON CONTROLLING INTEREST     (216,251 )     -  
                 
LOSS ATTRIBUTABLE TO BRAZIL MINERALS, INC.   $ (1,513,379 )   $ (174,463 )
                 
NET LOSS PER SHARE: BASIC AND DILUTED   $ (0.02 )   $ (0.00 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED     71,072,232       122,907,180  

   

The accompanying notes are an integral part of these financial statements.

  

F- 3
 

 

BRAZIL MINERALS, INC.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE (LOSS)

FOR THE YEAR ENDED DECEMBER 31, 2013 AND

FOR THE PERIOD FROM MARCH 1, 2012 TO DECEMBER 31, 2012

 

    Year Ended
December 31, 2013
    Period
from
March 1,
2012 to
December
31, 2012
 
             
Net Loss   $ (1,729,630 )   $ (174,463 )
                 
Foreign Currency Translation:                
Change in cumulative translation adjustment     226,700       -  
Income tax benefit (expense)     -       -  
Total Comprehensive Net Loss     1,956,330       -  
Total Comprehensive Net Loss attributable to Non Controlling Interest     318,266       -  
Total Comprehensive Net Loss attributable to Brazil Minerals, Inc.   $ 1,638,064     $ -  

 

The accompanying notes are an integral part of these financial statements.

 

F- 4
 

 

BRAZIL MINERALS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

AS OF DECEMBER 31, 2013

 

    Preferred Stock     Common Stock                                            
    Shares     Amount     Common shares     Amount     Additional Paid in Capital     Stock Warrants     Non-controlling interest     Other comprehensive income     Deferred compensation     Deficit     Total
Stockholders’ Equity
 
Balance, February 29, 2012     -     $ -       129,332,040     $ 3,880     $ 18,320     $ -     $ -     $ -     $ -     $ (4,712 )   $ 17,488  
Common shares voluntarily surrendered     -       -       (99,999,000 )     (3,000 )     3,000       -       -       -       -       -       -  
Forgiveness of debt from prior director     -       -       -       -       6,169       -       -       -       -       -       6,169  
Common shares issued for mining option and exploration rights     -       -       35,783,342       1,073       35,782,269       -       -       -       -       -       35,783,342  
Deemed dividend related to acquisition of mining option and exploration rights     -       -       -       -       -       -       -       -       -       (35,783,342 )     (35,783,342 )
Preferred share issued     1       -       -       -       1       -       -       -       -       -       1  
Common shares issued as share offering costs     -       -       2,847,005       85       2,846,920       -       -       -       -       -       2,847,005  
Warrants issued as share offering costs     -       -       -       -       -       117,765       -       -       -       -       117,765  
Common shares issued for cash     -       -       2,000,047       61       1,999,972       -       -       -       -       -       2,000,033  
Share offering costs including cash, stock and warrants     -       -       -       -       (3,218,271 )     -       -       -       -       -       (3,218,271 )
Par value adjustment for stock split (33.333:1)     -       -       -       67,864       (67,864 )     -       -       -       -       -       -  
Net loss for the period     -       -       -       -       -       -       -       -       -       (174,463 )     (174,463 )
                                                                                         
Balance, December 31, 2012     1       -       69,963,434       69,963       37,370,516       117,765       -       -       -       (35,962,517 )     1,595,727  
                                                                                         
Shares issued for acquisition of subsidiary     -       -       1,000,000       1,000       659,000       -       -       -       -       -       660,000  
Common shares issued for consulting     -       -       1,188,548       1,189       112,061       -       -       -       (69,611 )     -       43,639  
Common shares issued for  mineral  exploration costs     -       -       5,000       5       2,745       -       -       -       -       -       2,750  
Shares issued for compensation-directors     -       -       50,000       50       4,450       -       -       -       -       -       4,500  
Shares issued for compensation-officer     -       -       2,382,852       2,383       202,617       -       -       -       -       -       205,000  
Shares issued in connection with note payable     -       -       50,000       50       5,450       -       -       -       -       -       5,500  
Debt discount on issuance of convertible note     -       -       -       -       20,694       -       -       -       -       -       20,694  
Warrants issued in connection with convertible note     -       -       -       -       -       12,007       -       -       -       -       12,007  
Stock options-director and officer     -       -       -       -       993,523       -       -       -       -       -       993,523  
Non-controlling interest on acquisition of subsidiary     -       -       -       -       -       -       466,063       -       -       -       460,663  
Additional capital contributions by non-controlling interest     -       -       -       -       -       -       160,150       -       -       -       165,550  
Cancellation of stock options-director     -       -       -       -       (741,766 )     -       -       -       -       -       (741,766 )
Deemed dividend related to acquisition of mining option and exploration rights     -       -       -       -       -       -       -       -       -       (800,000 )     (800,000 )

Non controlling interest

                                                   

(216,251

)                             216,251  
Net loss for the period     -       -       -       -       -       -         (226,700 )     -       (1,513,379 )     (1,956,330 )
                                                                                         
Balance, December 31, 2013     1     $ -       74,639,834     $ 74,640     $ 38,629,290     $ 129,772     $ 409,962     $ (226,700 )   $ (69,611 )   $ (38,275,896 )   $ 671,457  

 

 The accompanying notes are an integral part of these financial statements.

 

F- 5
 

 

BRAZIL MINERALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND

FOR THE PERIOD FROM MARCH 1, 2012 TO DECEMBER 31, 2012

 

    For the year ended December 31, 2013     For the period from March 1, 2012 to  December 31, 2012  
CASH FLOWS FROM OPERATING ACTIVITIES:            

Loss for the period attributable to Brazil Minerals, Inc.

  $ (1,513,379 )   $ (174,463 )
Net loss from discontinuing operations     -       21,808  
Net loss from continuing operations     (1,513,379 )     (152,655 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:                
Non-controlling interest in income of subsidiary     (216,251 )     -  
Stock issued for mineral property option     2,749          
Stock based compensation     504,897       -  
Amortization of debt discount     20,138          
Depreciation     433       -  
Change in assets and liabilities:                
(Increase) in taxes recoverable     (43,224 )     -  
(Increase) in loan receivable-related party     (40,650 )        
(Increase) in deposits     (5,501 )        
(Increase) in inventory     350,830       -  
Increase in accrued expenses and accounts payable     88,664       66,112  
Net Cash Provided (Used) by Continuing Operating Activities     (851,294 )     (86,543 )
Net Cash Used in Discontinued Operations     -       (24,558 )
Net Cash Provided (Used) in Operating Activities     (851,294 )     (111,101 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Acquisition of capital asset     (3,413 )     -  
Advances to related party     -       (800,000 )
Net Cash Used in Investing Activities     (3,413 )     (800,000 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Loan from director     539       100  
Net proceeds from sale of common stock     -       2,000,033  
Cash paid for share offering costs     -       (253,500 )
Cash acquired on acquisition of subsidiary     56,914       -  
Capital contributions received from non-controlling interests     165,550       -  
Proceeds from note payable     100,000       -  
Net Cash Provided by Continuing Financing Activities     323,003       1,746,633  
Net Cash Provided by Discontinued Financing Activities     -       6,169  
Net Cash Provided by Financing Activities     323,003       1,752,802  
                 
Effect of exchange rate changes on cash     (226,700 )        
                 
Net Increase (decrease) in Cash and Cash Equivalents     (758,404 )     841,701  
                 
Cash and equivalents, beginning of period     863,189       21,488  
                 
Cash and equivalents, end of period   $ 104,785     $ 863,189  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for interest   $ 0     $ 0  
Cash paid for income taxes   $ 0     $ 0  
                 
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:                
Loan receivable converted to interest in mineral property rights   $ 800,000     $ 0  
Shares issued for acquisition of 55% of subsidiary   $ 660,000     $ 35,783,342  
Debt discount on convertible notes   $ 32,701     $ 0  
Stock and warrants issued as share offering costs   $ 0     $ 2,923,345  
Forgiveness of shareholder debt recorded as contributed capital   $ 0     $ 6,169  
Stock options issued with convertible notes   $ 5,500     $ 0  

 

The accompanying notes are an integral part of these financial statements.

 

F- 6
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business

Brazil Minerals, Inc. (“BMIX” or the “Company”) was incorporated as Flux Technologies, Corp. under the laws of the State of Nevada, U.S. on December 15, 2011. The Company, through subsidiaries, mines and sells diamonds and gold, and owns or has options on other mineral assets in Brazil.

 

On December 18, 2012, the Company entered into and consummated an acquisition agreement with Brazil Mining, Inc. (“BMI”) whereby BMI agreed to transfer to the Company certain mining and exploration rights, in exchange for 35,783,342 shares of the Company. At the same time, the previous sole director surrendered for voluntary cancellation, 99,999,000 common shares of stock of the Company such that, upon the transaction and a simultaneous private placement by the Company of its common stock, BMI owned 51% of the outstanding common stock of the Company. The Company changed its name to Brazil Minerals, Inc. on December 24, 2012.   Also see Note 3.

 

Principles of Consolidation

These financial statements include the accounts of the Company and its 99.99% subsidiary, BMIX Participações Ltda. (“BMIXP”), which owns 55% of Mineração Duas Barras Ltda. (“MDB”). All material intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Presentation

The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP accounting”) in the United States of America and are presented in U.S. dollars. In 2013, the Company elected to change its year end date from February 28 to December 31.

 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, loans, and accrued expenses. 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 these financial statements.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company's bank accounts are deposited in insured institutions. The funds held in U.S. banks are insured up to $250,000, and funds held in Brazilian banks are insured up to 250,000 Brazilian reais (approximately $106,719 as of December 31, 2013). As of December 31, 2013 and 2012, the Company’s bank deposits were $104,785 and $863,189, respectively.

 

Revenue Recognition

The Company recognizes revenues from diamond sales when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.

 

The Company recognizes revenues from gold sales when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.

 

Inventory

Inventory consists of diamonds and gold and related production costs, and is stated at lower of cost or market.

  

F- 7
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Mineral Properties

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

 

Impairment losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. As of December 31, 2013 and 2012, the Company did not recognize any impairment losses related to mineral properties held.

 

Capital Assets

Capital assets consisting of the diamond and gold processing plant and other machinery are recorded at cost and depreciated over their estimated useful life of 10 years, on a straight-line basis. Capital assets consisting of computer and other office equipment are recorded at cost and depreciated over their estimated useful life of 3 years, on a straight-line basis. During the year ended December 31, 2013, depreciation expense of $59,077 had been capitalized to inventory and expensed through exploration and production costs and $433 had been expensed through depreciation expenses.

 

Basic Income (Loss) Per Share

The Company computes loss per share in accordance with FASB ASC 260, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

 

Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.

 

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Impairment of Long-Lived Assets

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

 

F- 8
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with FASB ASC 718. The Company has adopted a stock plan to attract, retain and motivate its directors, officers, employees, consultants and advisors. The Company’s stock plan provides for the issuance of up to 15,000,000 common shares for employees, consultants, directors, and advisors. The Company issued $504,897 and $Nil in stock based compensation to employees, consultants, directors, and advisors during the years ended December 31, 2013 and 2012, respectively.

 

Recent Accounting Pronouncements

The Company has reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and the Company does not believe any of these pronouncements will have a material impact on the Company.

 

NOTE 2 – LOAN RECEIVABLE-RELATED PARTY AND OPTION EXERCISE

 

In 2012, the Company issued a loan receivable to BMI for $800,000. The loan was non-interest bearing and had no specified terms of repayment and was an advance related to the exercise of an option agreement held by the Company for a 20% share of the MDB diamond production. On January 2, 2013, the Company exercised the option and the advance was deemed payment of the option. The option granted the Company 20% of the diamond production with respect to BMI’s 55% interest in MDB.

 

NOTE 3 –ACQUISITION OF MDB INTEREST

 

On March 23, 2013, upon approval by its Board of Directors, the Company entered into an agreement pursuant to which BMI sold to BMIXP the rights to all profits, losses and appreciation or depreciation and all other economic and voting interests of any kind in respect of the BMI’s interest in MDB in exchange for the issuance to BMI of 1,000,000 shares of the Company’s common stock. The shares were valued at their fair market value of $0.66 per share as of March 23, 2013, the date that the agreement was entered into. As a result of the acquisition, a deemed dividend of $800,000 was recorded related to the acquisition of the option as discussed in Note 2. The net assets of MDB at the date of the acquisition of the 55% equity interest in MDB were $1,035,695. The acquisition was accounted for using the purchase method. As a result of the transaction, non-controlling interest of $460,663 was recognized in the financial statements.

 

The net assets upon the above acquisition consisted of the following:

 

Cash   $ 56,914  
Inventory     497,002  
Equipment     508,105  
Intangible assets     163,918  
Liabilities assumed     (190,244 )
         
Net assets   $ 1,035,695  

  

F- 9
 

 

  BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 4 – CONVERTIBLE PROMISSORY NOTES PAYABLE

 

On September 30, 2013, the Company issued and sold to two accredited investors for $100,000 four units of securities, each unit consisting of a $25,000 convertible promissory note and warrants to purchase 50,000 shares of the Company’s common stock until December 31, 2019. The notes bear interest at 10% per annum and are due on the earlier of the close of a $100,000 financing or May 31, 2014. The notes can be converted into common shares of the Company at $0.125 per share. The conversion price of the warrants is $0.15 per share. The Company recorded a debt discount of $53,701 related to the issuance of the convertible notes. As of December 31, 2013, $20,138 of the debt discount has been amortized during the life of the notes.

 

The total debt discount was comprised of the debt discount related to the warrants, the convertible notes, and stock and cash given in exchange for issuing the convertible notes. The fair value of the debt discount related to the warrants granted was $12,007 and was calculated using the Black-Scholes option pricing model with the following assumptions: the Company’s common stock price on date of grant ($0.11), expected dividend yield of 0%, expected volatility of 76.15%, risk-free interest rate of 1.43%, and expected term of 6.25 years. The fair value of the debt discount related to the convertible notes was $20,694 and was calculated using the Black-Scholes option pricing model with the following assumptions: the Company’s common stock price on the date of grant ($0.11), expected dividend yield of 0%, expected volatility of 87.67%, risk-free interest rate of 0.07%, and expected term of .67 years. The fair value of the stock and cash given in consideration for issuing the convertible notes was $11,000 and $10,000, respectively. The convertible notes called for the payment of one-half of the stock and cash upon issuing the notes and the remainder upon the repayment of the notes. As of December 31, 2013, $5,500 in stock and $5,000 in cash had been satisfied and the remainder due is reflected in accounts payable.

 

NOTE 5 – LOANS FROM DIRECTORS

 

During the period ended December 31, 2012, the former director loaned $6,169 to the Company to pay for business expenses. The loan was non-interest bearing, due upon demand and unsecured. The loan was forgiven on December 19, 2012 and the balance has been recorded as an increase in additional paid-in capital.

 

On December 19, 2012, a director loaned $100 to the Company to facilitate a bank account opening. This loan was non-interest bearing, due upon demand and unsecured. The balance due to the director was $100 as of December 31, 2012. This loan was repaid in 2013.

 

During the year ended December 31, 2013, a director loaned $80 to the Company to facilitate a bank account opening. During the period, a director paid expenses of $559 on behalf of the Company. These loans are non-interest bearing, due upon demand and unsecured.

 

NOTE 6 – COMMON STOCK

 

As of December 31, 2013, the Company had 150,000,000 common shares authorized with a par value of $0.001 per share and 10,000,000 series A preferred stock authorized with a par value of $0.001.

 

On January 18, 2012, the Company issued 99,999,000 shares of its common stock for total proceeds of $3,000. For the period from January 24, 2012 to February 14, 2012, the Company issued 23,999,760 shares of its common stock for total proceeds of $14,400. For the period from February 21, 2012 to February 29, 2012, the Company issued 5,333,280 shares of its common stock for total proceeds of $4,800.

 

F- 10
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 6 – COMMON STOCK (continued)

 

On December 18, 2012, a shareholder and former director of the Company surrendered for voluntary cancellation 99,999,000 shares of common stock of the Company.

 

On December 18, 2012, the Company issued 35,783,342 shares of its common stock in exchange for an assignment of certain exploration rights and a mining property option.

 

On December 19, 2012, the Company consummated a private placement with 37 accredited investors and the Company issued 2,000,047 shares of the Company’s common stock for total consideration of $2,000,033.

 

As part of the private placement, 2,847,005 shares of common stock were issued as part of share offering costs.

 

Pursuant to the issuance of shares in the private placement, the Company incurred costs related to the share issuance of $3,218,171. Of this $253,500 was paid in cash and the balance of $2,964,771 was paid through the issuance of shares and warrants with a deemed value of $2,847,005 and $117,765, respectively.

 

On December 18, 2012, the Company amended its Articles of Incorporation to authorize 10,000,000 shares of series A convertible preferred stock. On December 18, 2012, the Company issued and sold for $1.00, one share of series A convertible preferred stock.

 

The Company amended its articles of incorporation to increase the authorized common stock to 150,000,000 shares. On January 22, 2013, the Company declared a 33.333:1 stock dividend (treated as a stock split) payable to shareholders of record as of January 25, 2013. All share and per share data has been retrospectively adjusted for the stock split.

 

On April 30, 2013, the Company issued 1,000,000 shares of common stock to BMI pursuant to an agreement to purchase BMI’s equity interest in MDB. The shares were valued at $660,000, the fair market value of the shares on the date the agreement was entered into.

 

On May 28, 2013, the Company issued 5,000 shares of common stock with a deemed value of $2,750 pursuant to an option agreement on a mineral property. The Company has since abandoned the option.

 

On September 30, 2013, the Company issued 50,000 shares of common stock with a deemed value of $5,500 pursuant to the issuances of convertible notes. An additional 50,000 shares of common stock are to be issued when the debt has been repaid. The deemed value of these shares of $5,500 has been recorded as an accrued liability until they have been issued. See note 5.

 

On November 25, 2013, the Company issued 300,000 shares of common stock with a deemed value of $27,000 for consulting services. Prepaid stock compensation of $22,500 was recorded to be amortized over the remaining term of the consulting contract.

 

On November 30, 2013, the Company issued 50,000 shares to non-management directors with a deemed value of $4,500.

 

F- 11
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 6 – COMMON STOCK (continued)

 

On December 6, 2013, the Company issued 400,000 shares of common stock with a deemed value of $32,000 for consulting services. Prepaid stock compensation of $23,111 was recorded to be amortized over the remaining term of the consulting contract.

 

On December 9, 2013, the Company issued 400,000 shares of common stock with a deemed value of $36,000 for consulting services. Prepaid stock compensation of $24,000 was recorded to be amortized over the remaining term of the consulting contract.

 

During the period ended December 31, 2013, the Company issued 2,000,000 shares to an officer and director of the Company pursuant to a stock based compensation with a deemed value of $180,000 In addition the Company issued 382,852 shares of common stock to an officer in lieu of cash compensation of $25,000.

 

During the period ended December 31, 2013, the Company issued 88,548 shares of common stock with a deemed value of $18,250 for consulting services, mostly related to geological studies and analysis.

 

Common Stock Options

 

On April 18, April 23, and November 30, 2013, the Board of Directors of the Company granted options to purchase an aggregate of 2,400,000, 200,000, and 600,000, respectively, shares of common stock to non-management directors and an officer. The options were valued at $890,119 $69,711, and $33,691, respectively, using the Black-Scholes option pricing model with the following assumptions:

 

    April 18, 2013   April 23, 2013   November 30, 2013
Stock price   $0.60   $0.57   $0.09
Exercise price   $0.58   $0.57   $0.09
Expected life (years)   5 years   5 years   5 years
Risk free interest rate   .71%   .71%   1.37%
Volatility   76%   76%   77%

 

On November 30, 2013, the Board of Directors of the Company rescinded and cancelled the grant to the Chief Executive Officer of 2,000,000 options with a deemed value of $741,766, and instead issued to him 2,000,000 shares with a deemed value of $180,000. This resulted in a net reversal of stock-based compensation of $561,766.

 

Common Stock Warrants

 

During the year ended December 31, 2013, 200,000 warrants were issued in connection with convertible notes. These warrants expire on December 31, 2019 and have an exercise price of $0.15. The fair value of the warrants was $12,007 and was calculated using the Black-Scholes option pricing model with the following assumptions: the Company’s common stock price on date of grant ($0.11), expected dividend yield of 0%, expected volatility of 76.15%, risk-free interest rate of 1.43%, and expected term of 6.25 years.

 

During the year ended December 31, 2012, 200,000 warrants were issued as part of the private placement that occurred on December 19, 2012. These warrants expire on December 31, 2017 and have an exercise price of $1.00. The fair value of the warrants was $117,765 and was calculated using the Black-Scholes option pricing model with the following assumptions: the Company’s common stock price on date of grant  ($1.00), expected dividend yield of 0%, expected volatility of 72.24%, risk-free interest rate of 0.78%, and expected term of 5 years.

 

F- 12
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

The Company leases an office in Pasadena, California, and has had use of offices in Belo Horizonte and São Paulo , Brazil, through an agreement with an affiliate. Such costs are immaterial to the financial statements and accordingly are not reflected herein.

 

NOTE 8 - INCOME TAXES

 

As of December 31, 2013, the Company had net operating loss carry forwards of approximately $1,729,630 that may be available to reduce future years’ taxable income through 2032. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

 

The provision for Federal income tax consists of the following for the periods ended December 31, 2013 and December 31, 2012.

 

    December
31, 2013
    December
31, 2012
 
Federal income tax benefit attributable to:                
Current Operations   $ 588,074     $ 59,317  
Less: valuation allowance     (588,074 )     (59,317 )
Net provision for Federal income taxes   $ 0     $ 0  

 

The cumulative tax effect at the expected rate of 34% of significant items comprising the Company’s net deferred tax amount is as follows as of December 31, 2013 and December 31, 2012:

 

    December
31, 2013
    December
31, 2012
 
Deferred tax asset attributable to:                
Net operating loss carryover   $ 648,993     $ 60,919  
Less: valuation allowance     (648,993 )     (60,919 )
Net deferred tax asset   $ 0     $ 0  

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $1,729,630 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.

  

F- 13
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

On January 18, 2012, the Company issued 99,999,000 shares of its common stock for total proceeds of $3,000. On December 18, 2012, these shares were returned for voluntary cancellation.

 

During the period ended December 31, 2012, the former director loaned $6,169 to the Company to pay for business expenses. The loan was non-interest bearing, due upon demand and unsecured. The loan was forgiven on December 19, 2012 and the balance has been recorded as an increase in additional paid-in capital.

 

On December 19, 2012, a director loaned $100 to the Company to facilitate the bank account opening. The loan is non-interest bearing, due upon demand and unsecured. The balance due to the director was $100 as of December 31, 2012. This loan was repaid in 2013.

 

Pursuant to the issuance of shares in the 2012 private placement, the Company incurred costs related to the share issuance of $3,218,171. Of this $253,500 was paid in cash and the balance of $2,964,771 was paid through the issuance of shares and warrants with a deemed value of $2,847,005 and $117,765, respectively.

 

As of December 31, 2012, accrued compensation owing to a director of the Company in the amount of $50,000 was included in accrued expenses.

 

In December 2012, pursuant to an option purchase agreement between the Company and BMI, the Company advanced $800,000. On January 2, 2013, the Company exercised the option and the advance was deemed payment of the option. The option granted the Company 20% of the diamond production with respect to BMI’s 55% interest in MDB. On March 23, 2013, upon approval by its Board of Directors, the Company entered into an agreement pursuant to which BMI sold to BMIXP the rights to all profits, losses and appreciation or depreciation and all other economic and voting interests of any kind in respect of the BMI’s interest in MDB in exchange for the issuance to BMI of 1,000,000 shares of the Company’s common stock. The shares were valued at their fair market value of $0.66 per share as of March 23, 2013, the date that the agreement was entered into. As a result of the acquisition, a deemed dividend of $800,000 was recorded related to the acquisition of the option. See Note 3.

 

On January 1, 2013, the Company and BMI entered into an administrative services agreement under which BMI provided, at cost, to the Company personnel and facilities to carry out certain of the Company’s business activities in Brazil. This agreement was terminated in 2013 as the Company implemented its infrastructure in Brazil. The total amount provided to BMI during the year ended December 31, 2013 was $228,463.

 

During the year ended December 31, 2013, the Board of Directors of the Company authorized it to loan $40,650 to BMI. The total due from BMI as of December 31, 2013 is $40,650, and the Company expects that the entirety of this amount will be received in 2014.

 

During the year ended December 31, 2013, a director loaned $80 to the Company to facilitate a bank account opening. During the period, a director paid expenses of $559 on behalf of the Company. These loans are non-interest bearing, due upon demand and unsecured.

 

F- 14
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 10 - DISCONTINUED OPERATIONS

 

As a result of the change in control transaction on December 18, 2012, the Company has abandoned its technology related business. A summary of operations related to the discontinued operation is presented in the table below:

 

    For the year
ended
December
31, 2013
    For the
period from
March 1,
2012 to
December
31, 2012
 
Revenue from discontinued operations   $ 0     $ 4,900  
Net loss from discontinued operations     0       (21,808 )
Net loss per share attributable to discontinued operations   $ 0     $ (0.00 )

 

NOTE 11 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements , except as noted below.

 

On January 2, 2014, the Company received proceeds of $25,000 from a sale of polished and graded diamonds pursuant to an agreement with a buyer in which the buyer agreed to receive these diamonds over a period of time.

 

On January 7, 2014, the Company received $244,000 in exchange for a senior secured convertible promissory note in the principal amount of $244,000 and warrants to purchase an aggregate of 488,000 shares of the Company’s common stock through December 26, 2018. The notes bear interest at 12% per annum and may be converted into common stock at $0.125 per share, a premium of 42% above the stock price at the time the transaction was entered into. The exercise price of the warrants is $0.125 per share (subject to adjustment upon the occurrence of certain events), a premium of 79% above the stock price at the time. Interest on the note is payable on September 30, 2014 and on March 31, 2015, the maturity date of the note. The note is secured by certain capital equipment purchased by us with the proceeds received. This equipment is now being used in MDB and is comprised of an excavator, a bulldozer, a truck, a portable motor and generator, and other items. Besides this capital equipment, the note is secured by a pledge of common stock the Company having a value of 200% of the outstanding principal and accrued interest of the note. The note is repaid by depositing $20,000 monthly to a sinking fund. As of April 3, 2014, the Company had deposited $40,000 into the sinking fund, and the Company’s sinking fund obligation was current. 

 

F- 15
 

 

BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 11 - SUBSEQUENT EVENTS (continued)

 

On January 24, 2014, the Company received proceeds of $25,000 from an investment by an accredited investor in exchange for an unsecured convertible promissory note in the principal amount of $27,500. The note bears interest at the rate of 10% per annum. The note must be converted by the holder (unless repaid by us) by December 31, 2014. The note may also be converted into the Company’s common stock at the option of the holder commencing 180 days after the note was issued. The Company retains the option, but not the obligation, to repay the note in cash. The conversion price is the lesser of (a) $0.07 or (b) 60% of the lowest daily volume weighted average price of the Company’s common stock during the twenty trading days immediately prior the applicable date on which the holder of the note elects to convert all or part of the note .

 

On February 21, 2014, the Company received proceeds of $200,000 from an investment by St. George Investments, LLC (“St. George”) in exchange for an unsecured convertible promissory note in the principal amount of $222,500. The difference between the face amount of the note and the gross proceeds received was comprised of legal costs and origination discount. The note bears interest at 10% per annum and the conversion price is $0.11 per share, a premium of 38% above the stock price when the transaction was consummated. Principal and accrued interest on the note are due in five consecutive monthly installments of $44,500 plus accrued interest commencing on August 21, 2014. The monthly installments are payable in cash or in common stock, at the option of the Company, or in graded diamonds, upon the request of St. George. All principal and accrued interest on the note is payable on December 21, 2014.

 

On March 4, 2014, the Company received proceeds of $500,000 from a sale of polished and GIA graded diamonds pursuant to an agreement with two buyers that agreed to receive these diamonds over a period of one year. As part of this transaction, the Company pledged with a third party collateral agent an aggregate of 11,000,000 shares of the Company’s common stock, valued at approximately $990,000 at the time the transaction was consummated, in order to secure the delivery of the diamonds. The number of shares pledged is subject to periodic adjustment as diamonds are delivered and as the market price of the Company’s common stock may change. The Company also issued to the buyers two-year options to purchase an aggregate of 3,000,000 shares of the Company’s common stock at an exercise price (subject to adjustment upon the occurrence of certain events) of $0.12 per share, a premium of 33% above the stock price when the transaction was consummated.

 

On March 31, 2014, the Company received net proceeds of $54,000, after compensation paid to a broker-dealer, from an investment by an accredited investor in exchange for an unsecured convertible promissory note in the principal amount of $63,000. The note bears interest at the rate of 10% per annum. The note must be converted by the holder (unless repaid by us) by March 31, 2015. The Company retains the option, but not the obligation, to repay the note in cash. The conversion price is the lesser of (a) $0.11 or (b) 60% of the lowest closing price of the Company’s common stock during the twenty trading days prior to the maturity date or the date that a notice of conversion is given by the holder.

 

F- 16
 

 

SIGNATURES

 

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BRAZIL MINERALS, INC.
   
  By: /s/ Marc Fogassa
    Marc Fogassa
Date: June 30, 2014   Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Marc Fogassa        
  Marc Fogassa   Chief Executive Officer   June 30, 2014
   

and Director; Chief Financial

Officer and Chief Accounting Officer

   
         
/s/  Roger Noriega   Director   June 30, 2014
 Roger Noriega        
         
/s/ Paul Durand   Director   June 30, 2014
 Paul Durand        
         
/s/  Luis Mauricio Ferraiuoli de Azevedo   Director   June 30, 2014
 Luis Mauricio Ferraiuoli de Azevedo        

 

 
 

  

EXHIBIT INDEX

 

Exhibit
Number
Description
2.1 Exchange Agreement dated as of March 23, 2013 between the Company and Brazil Mining. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on March 28, 2013.
3.1 Articles of Incorporation of the Company filed with the Secretary of State of Nevada on December 15, 2011. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed by the Company on April 6, 2012 (the “S-1”).
3.2 Certificate of Amendment to the Articles of Incorporation of the Company filed with the Secretary of State of the State of Nevada on December 18, 2012. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 26, 2012 (the “December 2012 8-K”).
3.3 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock filed with the Secretary of State of the State of Nevada on December 18, 2012.  Incorporated by reference to Exhibit 3.2 to the December 2012 8-K.
3.4 Certificate of Amendment to the Articles of Incorporation of the Company filed with the Secretary of State of the State of Nevada on December 24, 2012. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 28, 2013 (the “January 2013 8-K”).
3.5 Certificate of Amendment to the Articles of Incorporation of the Company filed with the Secretary of State of the State of Nevada on January 24, 2013. Incorporated by reference to Exhibit 3.2 to the January 2013 8-K.
3.6 By-laws of the Company. Incorporated by reference to Exhibit 3.2 to the S-1.
4.1 Senior Secured Convertible Promissory Note of the Company dated September 30, 2013 in the principal amount of $75,000 to the order of Heather U. Baines and Lloyd McAdams AB Living Trust dated 8/1/2001.*
4.2 Stock Purchase Warrant to purchase 150,000 Shares of the Company’s Common Stock Issued to Heather U. Baines and Lloyd McAdams AB Living Trust dated 8/1/2001 on September 30, 2013.*
4.3 Stock Purchase Warrant to purchase 50,000 Shares of the Company’s Common Stock Issued to Michael Dimeo on September 30, 2013.*
4.4 Senior Secured Convertible Promissory Note of the Company dated January 8, 2014 in the principal amount of $244,000 to the order of Heather U. Baines and Lloyd McAdams AB Living Trust dated 8/1/2001.*
4.5 Convertible Promissory Note of the Company dated February 21, 2014 in the principal amount of $222,500 to the order of St George Investments, LLC.*
4.6 Option to Purchase 1,500,000 shares of the Company’s Common Stock Issued to the Nazari & Associates International Group, Inc. Defined Benefit Pension Plan on March 4, 2014.*
4.7 Option to Purchase 1,500,000 shares of the Company’s Common Stock Issued to the Suter Family Trust u/t/a April 12, 2002, as amended and restated on March 4, 2014.*

 

 
 

 

4.8

Warrant to Purchase 488,000 Shares of the Company’s Common Stock Issued to Una Hannah, LP on January 8, 2014.*

4.9

Convertible Debenture of the Company dated March 28, 2014 in the principal amount of $63,000 to the order of Group 10 Holdings LLC.*

10.1 Acquisition Agreement dated as of December 18, 2012 between the Company, Antaniuk and Brazil Mining. Incorporated by reference to Exhibit 10.1 to the December 2012 8-K.
10.2 Assignment of Mineral Rights from Brazil Mining, Inc. to the Company, dated December 18, 2012. Incorporated by reference to Exhibit 10.2 to the December 2012 8-K.
10.3 Option Agreement between the Company and Brazil Mining, Inc., dated December 18, 2012. Incorporated by reference to Exhibit 10.3 to the December 2012 8-K.
10.4 Contribution Agreement dated December 18, 2012 between the Company and Brazil Mining, Inc.*
10.5 Employment Agreement between the Company and Marc Fogassa. Incorporated by reference to Exhibit 10.6 to the 2012 10-K.
10.6 2013 Stock Incentive Plan. Incorporated by reference to Exhibit 10.7 to the 2012 10-K.
10.7 Securities Purchase Agreement dated as of February 21, 2014 between the Company and St George Investments LLC.*
21.1 Subsidiaries of the Company.*
31.1 Certification of the Chief Executive Officer pursuant to Section 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of Chief Financial Officer pursuant to Section 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 135, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101 Interactive Data files pursuant to Rule 405 of Regulation S-T.*

 

*Filed herewith

 

 

Exhibit 4.1

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS

 

BRAZIL MINERALS, INC.

 

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, the undersigned, BRAZIL MINERALS, INC. (OTCQB: BMIX), a company organized under the laws of the State of Nevada (the “Company”), promises to pay to the order of Heather U. Baines and Lloyd McAdams AB Living Trust, or their respective assigns (the “Holder”) the principal sum of $75,000, with interest from the date hereof at the rate of 10% per annum on the unpaid balance hereof until paid (the “Note”).

 

The Note was issued in connection with the Company's private offering (the "Offering") of units of the Company's securities (the "Units"), each Unit consisting of $25,000 par value 10% Senior Secured Convertible Promissory Notes maturing May 31, 2014 and warrants to purchase 50,000 shares of the Company's Common Stock until December 31, 2019 (a "Warrant Share”). Capitalized terms used and not otherwise defined herein will have the respective meanings ascribed to such terms in the Memorandum.

 

1.             Payments; Ranking; Security (a) If not earlier converted pursuant to Section 3(a) hereof, the principal of this Note shall be payable on May 31, 2014 ("Maturity Date") or from the first $100,000 of proceeds from the closing of any subsequent financing, whichever is the earlier.   

 

(b) This Note will rank senior to all debt of the Company.

 

(c) This Note shall be secured by intellectual property of the Company such as patents, royalties, and receivables of the Company and all equipment owned by the Company, except for equipment acquired with the proceeds from any future financing that is initially secured by such equipment.

 

(d) This Note will bear interest at a rate of 10.0% per year. Interest will be paid to the person in whose name the Note is registered at the Maturity Date. Interest on the Note will accrue from the date of the original issuance of the Note.

 

2.             Redemption of this Note before the Maturity Date.   All or any portion of the principal amount plus accrued interest on this Note may be prepaid at any time upon 5 days prior written notice, without premium or penalty. 

 

3.             Conversion Events and Mechanics of Conversion .

 

(a)  Conversion . The Note-holder may convert the principal and unpaid interest into the Company's common stock at any time (“Conversion Event”). The Note’s initial Conversion Price is $0.125 per share at which price each $25,000 of principal of this Note can be converted into 200,000 common shares.

 

(b)  Mechanics of Conversion . The Company shall not be obligated to issue certificates evidencing the common stock issuable upon a Conversion Event unless this Note is either delivered to the Company, duly endorsed, at the office of the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. As soon as practicable after delivery of this Note, or delivery of an agreement and indemnification in the case of a lost Note, the Company shall issue and deliver to the Holder a certificate or certificates for the number of shares of common stock to which the Holder shall be entitled (the "Conversion Shares"), and a check payable to the Holder in the amount equal to the cash amounts payable as a result of a conversion into fractional shares of such common stock. Any Conversion Event shall be deemed to have occurred immediately prior to the close of business on the date of the Conversion Event, and the Holder entitled to receive the common stock issuable upon such conversion shall be treated for all purposes as the record holder of such common stock on such date.

 

1
 

 

(c)  Conversion Price Adjustment.  The conversion price of the Note (“Conversion Price” or “CP”) is subject to adjustment for stock splits, dividends, and combinations.

 

Event of Default: An event of Principal Payment Default shall occur if after the Maturity Date, the principal of the Note has been not paid in full. An event of Other Payment Default shall occur if, after the date that any interest payment is due, the respective payment has been not paid in full.

 

After an Event of Default: If it is an Event of Principal Payment Default, a Note Holder may request in writing that a part or all of the Holder’s Note be converted into the Company’s common stock at an adjusted conversion price of $0.02 cents per share, or equal to 50% of the common stock’s VWAP during the 15 days prior to the date of written conversion request; whichever is equal to the lesser of the two stock prices. Commencing 5 days after the occurrence of any Event of Default which will result in acceleration of the Note, interest on the Note shall accrue at the compounded penalty rate of 30% per annum until the whole of the principal and any unpaid interest is paid in full. In addition, and as a penalty, the Company shall be required to issue to the holder of the Note an additional 50,000 shares of its common stock for each 30 day period or part thereof until the Note and any unpaid interest is paid in full (the “Additional Consideration”).

 

(d) Rule 144 . Current regulations provide that if on any date of conversion of convertible securities like the Note, these convertible securities have been held for: (i) more than six months by non-affiliates of the Company, the common shares issued by the Company shall be issued with a legal opinion at the Company’s expense from counsel allowing the public resale of these shares pursuant to Rule 144(d)(1)(i), and (ii) more than twelve months by non-affiliates of the Company, the common shares issued by the Company shall be issued free to trade and without restriction as proscribed by Rule 144(b)(1)(i).

 

If (i) after 10 days from the receipt by the Company of any request for note conversion or unrestricting warrant shares which are restricted and (ii) the shares can validly be issued without a restriction and (iii) the Company fails to issue the unrestricted common shares; the number of shares issuable shall then increase 1% per day until receipt of the unrestricted shares.

 

(e) Fractional Shares . No fractional shares of common stock shall be issued upon conversion of this Note. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the Conversion Price.

 

4.             Transfer Restrictions . The Holder shall not transfer the Note (except to its own affiliate, subsidiary, or shareholders) until (a) it has first given written notice to the Company, describing briefly the manner of any such proposed transfer; and (b) (i) the Company has at its expense received from counsel satisfactory to the Company an opinion that such transfer can be made without compliance with the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"), and applicable state securities laws, or (ii) a registration statement covering the transfer of this Note is filed by the Company under the 1933 Act and applicable state securities laws is declared effective by the Securities and Exchange Commission and state securities commissions having jurisdiction.

 

5.             Currency; Payments . All references herein to "dollars" or "$" are to U.S. dollars, and all payments of principal of, and interest on, this Note shall be made in lawful money of the United States of America in immediately available funds. If the date on which any such payment is required to be made pursuant to the provisions of this Note occurs on a Saturday or Sunday or legal holiday observed in the State of California, such payments shall be due and payable on the immediately succeeding date which is not a Saturday or Sunday or legal holiday so observed.

 

2
 

 

6.             Representations and Warranties of Holder . Holder hereby represents and warrants that:

 

(a)  Securities Not Registered . Holder is acquiring this Note for its own account, not as an agent or nominee, and not with a view to, or for sale in connection with, any distribution thereof in violation of applicable securities laws. By executing this Note, Holder further represents with respect to this Note that Holder does not have any present contract, undertaking, understanding or arrangement with any person to sell, transfer or grant participations to such persons or any third person.

 

(b)  Access to Information . The Company has made available to Holder the opportunity to ask questions of and to receive answers from the Company's officers, directors and other authorized representatives concerning the Company and its business and prospects, and Holder has been permitted to have access to all information which it has requested in order to evaluate the merits and risks of the purchase of the Note.

 

(c)  Investment Experience . Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note.

 

(d)  Regulation D . Holder is an "accredited investor" as defined in Rule 501 under the 1933 Act. In the normal course of business, Holder invests in or purchases securities similar to the Note and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the Note.

 

(e)  Unregistered . Holder has been advised that (i) neither this Note nor the common stock issuable upon conversion of this Note has been registered under the 1933 Act or other applicable securities laws, (ii) the common stock issuable upon conversion of the Note may need to be held indefinitely, and Holder must continue to bear the economic risk of the investment in the common stock issuable upon conversion of this Note is subsequently registered under the 1933 Act or an exemption from such registration is available, (iii) when and if the common stock issuable upon conversion of this Note may be disposed of without registration in reliance on Rule 144 promulgated under the 1933 Act, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, and the Company at its expense may require an opinion of counsel to the Company and in form substance and scope reasonably acceptable to the Company to the effect that the common stock may be sold or transferred under an exemption from such registration, and (iv) if the Rule 144 exemption is not available, public sale without registration will require compliance with an exemption under the 1933 Act.

 

(g)  Pre-Existing Relationship . Holder has either (1) a pre-existing personal or business relationship with the Company or any of its officers, directors or controlling persons, or (2) has sufficient business or financial experience or (3) have reviewed the Offering with financial advisors, other than Syndicated Capital, who have sufficient business or financial experience and are unaffiliated with and are not compensated by the Company; in such degree that, directly or indirectly, the Holder could be reasonably assumed to have the capacity to protect his/its own interest in connection with the acquisition of the Note and the common stock into which it converts.

 

(h)  No Advertisement . Holder acknowledges that the offer and sale of this Note or the common stock into which it converts was not accomplished by the publication of any advertisement.

 

(i)  No Review . Holder understands that no arbitration board or panel, court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, has passed upon or made any recommendation or endorsement of the common stock into which it converts.

 

(j) Holder understands that the common stock into which this Note may convert shall bear a restrictive legend in substantially the following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

 

 

3
 

 

7.             Survival of Representation and Warranties . All representations and warranties made by Holder shall survive the earlier of the Maturity Date and shall remain effective and enforceable until the earlier to occur of the Maturity Date or the date on which claims based thereon shall have been barred by the applicable statutes of limitation.

 

8.             Waiver .  The Company expressly waives presentment, protest, demand, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, and diligence in collection.

 

9.             Attorneys' Fees and Costs . In the event of any legal proceedings in connection with this Note, all expenses in connection with such legal proceedings of the prevailing party, including reasonable legal fees and applicable costs and expenses, shall be reimbursed by the non-prevailing party upon demand. This provision shall not merge with any enforcement order or judgment on this Note and shall be applicable to any proceeding to enforce or appeal any judgment relating to the Note.

 

10.           Severability .  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

11.           Successors and Assigns . This Note shall inure to the benefit of the Holder and its successors and permitted assigns and shall be binding upon the undersigned and its successors and permitted assigns. As used herein, the term "Holder" shall mean and include the successors and permitted assigns of the Holder.

 

12.           Governing Law .  The parties acknowledge and agree that this Note and the rights and obligations of all parties hereunder shall be governed by and construed under the laws of the State of California, without regard to conflict of laws principles.

 

13.           Modification .  This Note may not be modified or amended orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

 

14.           Entire Agreement . This Note constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior written or oral agreements and understandings with respect to the matters covered hereby.

 

 IN WITNESS WHEREOF, the Company has caused this Note to be executed by its officers thereunto duly authorized as of the date first written above, and the Holder has executed this Note through its authorized persons.

 

  BRAZIL MINERALS, INC.  
       
  By: /s/ Marc Fogassa  
    Marc Fogassa  
    Chairman and Chief Executive Officer  

 

  /s/ Lloyd McAdams, Trustee  
  Heather U. Baines and Lloyd McAdams AB Living Trust  

 

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Exhibit 4.2

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.

 

BRAZIL MINERALS,   INC.

 

STOCK PURCHASE WARRANT

 

To Purchase 150,000 Shares of Common Stock

(one hundred fifty thousand shares)

 

No. 2013-1  Issue Date: September 30, 2013

 

THIS CERTIFIES that, for value received, Heather U. Baines and Lloyd McAdams AB Living Trust (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof, to subscribe for and purchase, from BRAZIL MINERALS, INC. a Nevada corporation (the "Company"), one hundred fifty thousand of the fully paid non-assessable shares of the Company's common stock, $0.001 par value per share ("Common Stock") at an initial purchase price of $0.15 per share or a lesser price as described in Section 11(c), provided that such right will terminate, if not terminated earlier in accordance with the provisions hereof, at 5:00 p.m. (Pacific Time) on December 31, 2019 (the "Expiration Date").

 

The purchase price and the number of shares for which this warrant (the "Warrant") is exercisable are subject to adjustment, as provided herein and specifically in Section 11.

 

This Warrant was issued in connection with the Company's private offering (the "Offering") of units of the Company's securities (the "Units"), each Unit consisting of $25,000 principal amount of 10% Senior Secured Convertible Promissory Notes maturing May 31, 2014 and warrants to purchase 50,000 shares of the Company's Common Stock until December 31, 2019 (a "Warrant Share”).

 

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

 

(a) The term "Company" shall include BRAZIL MINERALS, INC. and any corporation that shall succeed or assume the obligations of BRAZIL MINERALS, Inc. hereunder.

 

(b) The term "Warrant Shares" includes (i) the Company's Common Stock and (ii) any other securities into which or for which any of the Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

(c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities.

 

(d) The term "Exercise Price" shall be $0.15 per share or a lesser price per share as described in Section 11(c), subject to adjustment pursuant to the terms hereof.

 

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1.   Number of Shares Issuable upon Exercise.

 

Unless sooner terminated in accordance herewith, from and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, the number of shares of Common Stock of the Company set forth on the first page of this Warrant, subject to adjustment pursuant hereto, by delivery of an original or fax copy of the exercise notice attached hereto as Exhibit A (the "Notice of Exercise") along with payment to the Company of the Exercise Price.

 

2.   Exercise of Warrant.

 

(a) The purchase rights represented by this Warrant are exercisable by the registered Holder hereof, in whole at any time or in part from time to time by delivery of the Notice of Exercise duly completed and executed at the office of the Company in California (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder hereof at the address of such Holder appearing on the books of the Company), and upon payment of the Exercise Price of the shares thereby purchased (cash, bank wire transfer, or by certified or official bank check payable to the order of the Company in an amount equal to the Exercise Price of the shares thereby purchased); whereupon the Holder of this Warrant shall be entitled to receive a certificate for the number of Warrant Shares so purchased; provided that the Company will place on each certificate a legend substantially the same as that appearing on this Warrant, in addition to any legend required by any applicable state or federal law. If this Warrant is exercised in part, the Company will issue to the Holder hereof a new Warrant upon the same terms as this Warrant but for the balance of Warrant Shares for which this Warrant remains exercisable. The Company agrees that upon exercise of this Warrant the Holder shall be deemed to be the record owner of the shares issued upon exercise as of the close of business on the date on which this Warrant shall have been exercised as aforesaid. This Warrant will be surrendered at the time of exercise or if lost, stolen, misplaced or destroyed, the Holder will comply with Section 7 below.

 

(b) Certificates for shares purchased hereunder shall be delivered to the Holder hereof within a reasonable time after the date on which this Warrant shall have been exercised as aforesaid.

 

(c) The Company covenants that all Warrant Shares which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant and payment of the exercise price, be fully paid and non-assessable and free from all preemptive rights, taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue which shall be paid by the Company in accordance with Section 4 below).

 

3.   No Fractional Shares .

 

The Company shall not be required to issue fractional Warrant Shares upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional Warrant Shares. In the event that a fraction of a Warrant Share would, except for the provisions of this Section 3, be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Per Share Market Value of the Warrant Share.

 

For purposes of this Warrant, the Per Share Market Value shall be determined as follows: As used herein, "Per Share Market Value" means on any particular date (a) the closing bid price per share of Common Stock on such date on the national securities exchange on which the shares of Common Stock are then listed or quoted, or if there is no such price on such date, then the average of the closing bid and asked prices on the national securities exchange on the date nearest preceding such date, (b) if the shares of Common Stock are not then listed or quoted on a national securities exchange, the average of the closing bid and asked prices for a share of Common Stock in the over-the-counter market, as reported by the otcmarkets.com., or an equivalent generally accepted reporting service, at the close of business on such date, or (c) if the shares of Common Stock are not then publicly traded, the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the holders of a majority in interest of the Warrants of similar tenor then outstanding.

 

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4.  Charges, Taxes and Expenses.

 

Issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder of this Warrant, or in such name or names as may be directed by the Holder of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder of this Warrant, this Warrant, when exercised, shall be accompanied by the Assignment Form attached hereto as Exhibit B (the "Assignment Form") duly executed by the Holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for Warrant Shares, the Company may require, as a condition thereto, that the transferee execute an appropriate investment representation as may be reasonably required by the Company.

 

5.   No Rights as Shareholders.

 

This Warrant does not entitle the Holder hereof to any voting rights or other rights as a Shareholder of the Company prior to the exercise hereof.

 

6.   Exchange and Registry of Warrant .

 

This Warrant is exchangeable, upon the surrender hereof by the registered Holder at the above-mentioned office or agency of the Company, for a new Warrant or Warrants aggregating the total Warrant Shares of the surrendered Warrant of like tenor and dated as of such exchange. The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

 

7.   Loss, Theft, Destruction or Mutilation of Warrant.

 

Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor (but with no additional rights or obligations) and dated as of such cancellation, in lieu of this Warrant.

 

8.   Saturdays, Sundays, Holidays, etc .

 

If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

 

9.   Cash Distributions.

 

No adjustment on account of cash dividends or interest on the Company's Common Stock or Other Securities that may become purchasable hereunder will be made to the Exercise Price under this Warrant.

 

10.   Consolidation, Merger or Sale of the Company.

 

If the Company is a party to a consolidation, merger or transfer of assets that reclassifies or changes its outstanding Common Stock, the successor corporation (or corporation controlling the successor corporation or the Company, as the case may be) shall by operation of law assume the Company's obligations under this Warrant. Upon consummation of such transaction the Warrants shall automatically become exercisable for the kind and amount of securities, cash or other assets that the holder of a Warrant would have owned immediately after the consolidation, merger or transfer if the holder had exercised the Warrant immediately before the effective date of such transaction. As a condition to the consummation of such transaction, the Company shall arrange for the person or entity obligated to issue securities or deliver cash or other assets upon exercise of the Warrant to, concurrently with the consummation of such transaction, assume the Company's obligations hereunder by executing an instrument so providing and further providing for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Section 10.

 

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11.   Adjustments in the Exercise Price

 

The number of shares and class of capital stock purchasable under this Warrant are subject to adjustment from time to time as set forth in this Section 11.

 

(a) Adjustment for change in capital stock. If the Company:

 

(i) pays a dividend or makes a distribution on its Common Stock, in each case, in shares of its Common Stock;

(ii) subdivides its outstanding shares of Common Stock into a greater number of shares;

(iii) combines its outstanding shares of Common Stock into a smaller number of shares;

(iv) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or

(v) issues by reclassification of its shares of Common Stock any shares of its capital stock;

 

then the number and classes of shares purchasable upon exercise of each Warrant in effect immediately prior to such action shall be adjusted so that the holder of any Warrant thereafter exercised may receive the number and classes of shares of capital stock of the Company which such holder would have owned immediately following such action if such holder had exercised the Warrant immediately prior to such action.

 

For a dividend or distribution the adjustment shall become effective immediately after the record date for the dividend or distribution. For a subdivision, combination or reclassification, the adjustment shall become effective immediately after the effective date of the subdivision, combination or reclassification.

 

If after an adjustment the Holder, upon exercise of a Warrant, may receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company shall in good faith determine the allocation of the adjusted Exercise Price between or among the classes of capital stock. After such allocation, that portion of the Exercise Price applicable to each share of each such class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Warrant. Notwithstanding the allocation of the Exercise Price between or among shares of capital stock as provided by this Section 11(a), a Warrant may only be exercised in full by payment of the entire Exercise Price currently in effect. 

 

(b) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holders of this Warrant against impairment.

 

(c.) Each Warrant shall be non-redeemable and shall expire December 31, 2019 and entitles its holder to purchase one restricted share of the Company's Common Stock at an initial exercise price of $0.15 per share, subject to adjustment for stock splits, dividends and combinations described in the Memorandum and Warrant.

 

Beginning six-months after the issuance of the Warrants and until the Warrants expire, the Warrant

 

Exercise Price (“EP”), subject to being no less than the Floor Price, shall at each month-end be adjusted to the lesser of:

 

· The existing Exercise Price, or
· An adjusted Exercise Price (“EP”) calculated using the following formula: EP = SP x 110%

 

Where SP equals the VWAP of the Company’s stock during the most recent six-month period as reported by Bloomberg or its successors.

 

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Where Floor Price is defined as:

 

Through July 31, 2014: $0.15

During the period August 1, 2014 through August 31, 2015: $0.10

During the period September 1, 2015 through December 31, 2019: $0.05

Whenever an event of either Principal Payment Default or Other Payment Default is occurring: $0.02

 

Subject to being no less than the Floor Price, if at the end of 2014 and any subsequent or partial calendar year’s VWAP of the Company’s Common Stock as reported by Bloomberg is less than $0.15 per share, the exercise price shall become 80% of the prior month’s exercise price or EP before making the monthly six-month adjustment described above. 

 

12.   Certificate as to Adjustments.

 

In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 16 hereof).

 

13.   Reservation of Stock Issuable on Exercise of Warrant.

 

The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. If the Company has not reserve sufficient shares to accommodate all of its obligations include these Warrants to be converted into authorized common shares and a Warrant holder notifies the Company of this deficiency, then the number of common shares into which this Warrant may be exercised shall increase by 1% per day until the transfer agent has verified in writing that such shares shall have been duly authorized by the Company’s Board of Directors and shareholders if required.

 

14.   Assignment; Exchange of Warrant.

 

Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered Holder hereof (a "Transferor") with respect to any or all of the shares underlying this Warrant. On the surrender for exchange of this Warrant, with the Transferor's duly executed Assignment Form and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor's counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense (but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Assignment Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of Warrant Shares called for on the face or faces of the Warrant so surrendered by the Transferor; and provided further, that upon any such transfer, the Company may require, as a condition thereto, that the Transferee execute an appropriate investment representation as may be reasonably required by the Company.

 

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15.   Registration Rights.

 

The Company has agreed to register the Warrant Shares in any subsequent registration statement (other than a Form S-8, S-4 or amendments thereto) filed by the Company with the SEC, so that Holders shall be entitled to sell the same simultaneously with and upon the terms and conditions as the securities sold for the Company's account are being sold pursuant to any such registration statement, subject to such lock-up provisions as may be proposed by the underwriter of said registration statement (the "Piggyback Registration Right"). There is no guarantee as to a time frame for the filing of such a registration statement.

 

16.   Warrant Agent.

 

The Company may, by written notice to each Holder of a Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 2, exchanging this Warrant pursuant to Section 14, and replacing this Warrant pursuant to Section 7, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

 

17.   Notices, etc.

 

All notices shall be in writing signed by the party giving such notice, and delivered personally or sent by overnight courier or messenger or sent by registered or certified mail (air mail if overseas), return receipt requested, or by telex, facsimile transmission, telegram or similar means of communication. Notices shall be deemed to have been received on the date of personal, telex, facsimile transmission, telegram or similar means of communication, or if sent by overnight courier or messenger, shall be deemed to have been received on the next delivery day after deposit with the courier or messenger, or if sent by certified or registered mail, return receipt requested, shall be deemed to have been received on the third business day after the date of mailing. Notices shall be sent to the addresses set forth below each party's signature on the Subscription Agreement.

 

18.   Notices of Record Date.

 

In case,

 

(a) The Company takes a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or to receive a dividend, distribution or any other rights; or

 

(b) There is any capital reorganization of the Company, reclassification of the capital stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or consolidation or merger of the Company with or into another corporation which does not constitute a sale of the Company; or

 

(c) There is a voluntary or involuntary dissolution, liquidation or winding up of the Company;

 

then, and in any such case, the Company shall cause to be mailed to the Holder, at least 20 business days prior to the date hereinafter specified, a notice stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger,  dissolution, liquidation or winding up.

 

19.   Amendments and Supplements.

 

(a) The Company may from time to time supplement or amend this Warrant without the approval of any Holders in order to cure any ambiguity or to be correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interest of the Holder. All other supplements or amendments to this Warrant must be signed by the party against whom such supplement or amendment is to be enforced.

 

(b) Notwithstanding Section 19(a), the Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

 

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20.   Investment Intent.

 

Holder represents and warrants to the Company that Holder is acquiring the Warrants for investment and with no present intention of distributing or reselling any of the Warrants.

 

21.   Certificates to Bear Language.

 

The Warrants and the Warrant Shares issuable upon exercise thereof shall bear the following legend by which Holder shall be bound:

 

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."

 

Certificates for Warrants or Warrant Shares without such legend shall be issued if such Warrants or Warrant Shares are sold pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), or if the Company has received an opinion from counsel reasonably satisfactory to counsel for the Company, that such legend is no longer required under the Act.

 

22.   Miscellaneous.

 

(a) This Warrant shall be governed by and construed in accordance with the laws of the State of California without regard to principles of conflicts of laws. The parties submit to the jurisdiction of the Courts of the County of Los Angeles, State of California or a Federal Court empanelled in the State of California for the resolution of all legal disputes arising under the terms of this Warrant, including, but not limited to, enforcement of any arbitration award. The Company and the Holder agree to submit to the jurisdiction of such courts and waive trial by jury.

 

(b) If any action or proceeding is brought by the Company on the one hand or by the Holder on the other hand to enforce or continue any provision of this Warrant, the prevailing party's costs and expenses, including its reasonable attorney's fees, in connection with such action or proceeding shall be paid by the other party.

 

(c) In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant.

 

(d) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized as of the date first written above, and the Holder has executed this Warrant through its authorized persons.

 

  BRAZIL MINERALS, INC.  
       
  By:  /s/ Marc Fogassa  
    Marc Fogassa  
    Chairman and Chief Executive Officer  

 

  /s/ Lloyd McAdams, Trustee  
  Heather U. Baines and Lloyd McAdams AB Living Trust  

 

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EXHIBIT A

 

NOTICE OF EXERCISE OF

WARRANT

 

BRAZIL MINERALS, INC.

 

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of Brazil Minerals, Inc. covered by the within Warrant.

 

Dated:     Signature  
         
      Address  
         
         

 

EXHIBIT B

 

ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

 

Dated:     Signature  
         
      Address  
         
         

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ Warrant Shares evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

 

Dated:     Signature  
         
      Address  
         
         

 

FOR USE BY THE ISSUER ONLY:

 

This Warrant No. ___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. _____ issued for ____ shares of Common Stock in the name of _______________.

 

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Exhibit 4.3

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.

 

BRAZIL MINERALS,   INC.

 

STOCK PURCHASE WARRANT

 

To Purchase 50,000 Shares of Common Stock

 

No. 2013-2 Issue Date: September 30, 2013

 

THIS CERTIFIES that, for value received, Michael Dimeo (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof, to subscribe for and purchase, from BRAZIL MINERALS, INC. a Nevada corporation (the "Company"), 50,000 (fifty thousand) of the fully paid non-assessable shares of the Company's common stock, $0.001 par value per share ("Common Stock") at an initial purchase price of $0.15 per share or a lesser price as described in Section 11(c), provided that such right will terminate, if not terminated earlier in accordance with the provisions hereof, at 5:00 p.m. (Pacific Time) on December 31, 2019 (the "Expiration Date").


The purchase price and the number of shares for which this warrant (the "Warrant") is exercisable are subject to adjustment, as provided herein and specifically in Section 11.


This Warrant was issued in connection with the Company's private offering (the "Offering") of units of the Company's securities (the "Units"), each Unit consisting of $25,000 principal amount of 10% Senior Secured Convertible Promissory Notes maturing May 31, 2014 and warrants to purchase 50,000 shares of the Company's Common Stock until December 31, 2019 (a "Warrant Share”).


As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

 

(a) The term "Company" shall include BRAZIL MINERALS, INC. and any corporation that shall succeed or assume the obligations of BRAZIL MINERALS, Inc. hereunder.

 

(b) The term "Warrant Shares" includes (i) the Company's Common Stock and (ii) any other securities into which or for which any of the Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

(c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities.

 

(d) The term "Exercise Price" shall be $0.15 per share or a lesser price per share as described in Section 11(c), subject to adjustment pursuant to the terms hereof.

 

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1. Number of Shares Issuable upon Exercise.

 

Unless sooner terminated in accordance herewith, from and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, the number of shares of Common Stock of the Company set forth on the first page of this Warrant, subject to adjustment pursuant hereto, by delivery of an original or fax copy of the exercise notice attached hereto as Exhibit A (the "Notice of Exercise") along with payment to the Company of the Exercise Price.

 

2. Exercise of Warrant.

 

(a) The purchase rights represented by this Warrant are exercisable by the registered Holder hereof, in whole at any time or in part from time to time by delivery of the Notice of Exercise duly completed and executed at the office of the Company in California (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder hereof at the address of such Holder appearing on the books of the Company), and upon payment of the Exercise Price of the shares thereby purchased (cash, bank wire transfer, or by certified or official bank check payable to the order of the Company in an amount equal to the Exercise Price of the shares thereby purchased); whereupon the Holder of this Warrant shall be entitled to receive a certificate for the number of Warrant Shares so purchased; provided that the Company will place on each certificate a legend substantially the same as that appearing on this Warrant, in addition to any legend required by any applicable state or federal law. If this Warrant is exercised in part, the Company will issue to the Holder hereof a new Warrant upon the same terms as this Warrant but for the balance of Warrant Shares for which this Warrant remains exercisable. The Company agrees that upon exercise of this Warrant the Holder shall be deemed to be the record owner of the shares issued upon exercise as of the close of business on the date on which this Warrant shall have been exercised as aforesaid. This Warrant will be surrendered at the time of exercise or if lost, stolen, misplaced or destroyed, the Holder will comply with Section 7 below.

 

(b) Certificates for shares purchased hereunder shall be delivered to the Holder hereof within a reasonable time after the date on which this Warrant shall have been exercised as aforesaid.

 

(c) The Company covenants that all Warrant Shares which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant and payment of the exercise price, be fully paid and non-assessable and free from all preemptive rights, taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue which shall be paid by the Company in accordance with Section 4 below).

 

3. No Fractional Shares .

 

The Company shall not be required to issue fractional Warrant Shares upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional Warrant Shares. In the event that a fraction of a Warrant Share would, except for the provisions of this Section 3, be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Per Share Market Value of the Warrant Share.

 

For purposes of this Warrant, the Per Share Market Value shall be determined as follows: As used herein, "Per Share Market Value" means on any particular date (a) the closing bid price per share of Common Stock on such date on the national securities exchange on which the shares of Common Stock are then listed or quoted, or if there is no such price on such date, then the average of the closing bid and asked prices on the national securities exchange on the date nearest preceding such date, (b) if the shares of Common Stock are not then listed or quoted on a national securities exchange, the average of the closing bid and asked prices for a share of Common Stock in the over-the-counter market, as reported by the otcmarkets.com., or an equivalent generally accepted reporting service, at the close of business on such date, or (c) if the shares of Common Stock are not then publicly traded, the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the holders of a majority in interest of the Warrants of similar tenor then outstanding.

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4. Charges, Taxes and Expenses.

 

Issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder of this Warrant, or in such name or names as may be directed by the Holder of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder of this Warrant, this Warrant, when exercised, shall be accompanied by the Assignment Form attached hereto as Exhibit B (the "Assignment Form") duly executed by the Holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for Warrant Shares, the Company may require, as a condition thereto, that the transferee execute an appropriate investment representation as may be reasonably required by the Company.

 

5. No Rights as Shareholders.

 

This Warrant does not entitle the Holder hereof to any voting rights or other rights as a Shareholder of the Company prior to the exercise hereof.

 

6. Exchange and Registry of Warrant .

 

This Warrant is exchangeable, upon the surrender hereof by the registered Holder at the above-mentioned office or agency of the Company, for a new Warrant or Warrants aggregating the total Warrant Shares of the surrendered Warrant of like tenor and dated as of such exchange. The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

 

7. Loss, Theft, Destruction or Mutilation of Warrant.

 

Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor (but with no additional rights or obligations) and dated as of such cancellation, in lieu of this Warrant.

 

8. Saturdays, Sundays, Holidays, etc .

 

If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

 

9. Cash Distributions.

 

No adjustment on account of cash dividends or interest on the Company's Common Stock or Other Securities that may become purchasable hereunder will be made to the Exercise Price under this Warrant.

 

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10. Consolidation, Merger or Sale of the Company.

 

If the Company is a party to a consolidation, merger or transfer of assets that reclassifies or changes its outstanding Common Stock, the successor corporation (or corporation controlling the successor corporation or the Company, as the case may be) shall by operation of law assume the Company's obligations under this Warrant. Upon consummation of such transaction the Warrants shall automatically become exercisable for the kind and amount of securities, cash or other assets that the holder of a Warrant would have owned immediately after the consolidation, merger or transfer if the holder had exercised the Warrant immediately before the effective date of such transaction. As a condition to the consummation of such transaction, the Company shall arrange for the person or entity obligated to issue securities or deliver cash or other assets upon exercise of the Warrant to, concurrently with the consummation of such transaction, assume the Company's obligations hereunder by executing an instrument so providing and further providing for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Section 10.

 

11. Adjustments in the Exercise Price

 

The number of shares and class of capital stock purchasable under this Warrant are subject to adjustment from time to time as set forth in this Section 11.

 

(a) Adjustment for change in capital stock. If the Company:

 

(i) pays a dividend or makes a distribution on its Common Stock, in each case, in shares of its Common Stock;

(ii) subdivides its outstanding shares of Common Stock into a greater number of shares;

(iii) combines its outstanding shares of Common Stock into a smaller number of shares;

(iv) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or

(v) issues by reclassification of its shares of Common Stock any shares of its capital stock;

 

then the number and classes of shares purchasable upon exercise of each Warrant in effect immediately prior to such action shall be adjusted so that the holder of any Warrant thereafter exercised may receive the number and classes of shares of capital stock of the Company which such holder would have owned immediately following such action if such holder had exercised the Warrant immediately prior to such action.

 

For a dividend or distribution the adjustment shall become effective immediately after the record date for the dividend or distribution. For a subdivision, combination or reclassification, the adjustment shall become effective immediately after the effective date of the subdivision, combination or reclassification.

 

If after an adjustment the Holder, upon exercise of a Warrant, may receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company shall in good faith determine the allocation of the adjusted Exercise Price between or among the classes of capital stock. After such allocation, that portion of the Exercise Price applicable to each share of each such class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Warrant. Notwithstanding the allocation of the Exercise Price between or among shares of capital stock as provided by this Section 11(a), a Warrant may only be exercised in full by payment of the entire Exercise Price currently in effect.

 

(b) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holders of this Warrant against impairment.

 

(c.) Each Warrant shall be non-redeemable and shall expire December 31, 2019 and entitles its holder to purchase one restricted share of the Company's Common Stock at an initial exercise price of $0.15 per share, subject to adjustment for stock splits, dividends and combinations described in the Memorandum and Warrant.

 

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Beginning six-months after the issuance of the Warrants and until the Warrants expire, the Warrant Exercise Price (“EP”), subject to being no less than the Floor Price, shall at each month-end be adjusted to the lesser of:

 

· The existing Exercise Price, or
· An adjusted Exercise Price (“EP”) calculated using the following formula: EP = SP x 110%

 

Where SP equals the VWAP of the Company’s stock during the most recent six-month period as reported by Bloomberg or its successors.

 

Where Floor Price is defined as:

 

Through July 31, 2014: $0.15

During the period August 1, 2014 through August 31, 2015: $0.10

During the period September 1, 2015 through December 31, 2019: $0.05

Whenever an event of either Principal Payment Default or Other Payment Default is occurring: $0.02

 

Subject to being no less than the Floor Price, if at the end of 2014 and any subsequent or partial calendar year’s VWAP of the Company’s Common Stock as reported by Bloomberg is less than $0.15 per share, the exercise price shall become 80% of the prior month’s exercise price or EP before making the monthly six-month adjustment described above.

 

12. Certificate as to Adjustments.

 

In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 16 hereof).

 

13. Reservation of Stock Issuable on Exercise of Warrant.

 

The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. If the Company has not reserve sufficient shares to accommodate all of its obligations include these Warrants to be converted into authorized common shares and a Warrant holder notifies the Company of this deficiency, then the number of common shares into which this Warrant may be exercised shall increase by 1% per day until the transfer agent has verified in writing that such shares shall have been duly authorized by the Company’s Board of Directors and shareholders if required.

 

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14. Assignment; Exchange of Warrant.

 

Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered Holder hereof (a "Transferor") with respect to any or all of the shares underlying this Warrant. On the surrender for exchange of this Warrant, with the Transferor's duly executed Assignment Form and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor's counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense (but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Assignment Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of Warrant Shares called for on the face or faces of the Warrant so surrendered by the Transferor; and provided further, that upon any such transfer, the Company may require, as a condition thereto, that the Transferee execute an appropriate investment representation as may be reasonably required by the Company.

 

15. Registration Rights.

 

The Company has agreed to register the Warrant Shares in any subsequent registration statement (other than a Form S-8, S-4 or amendments thereto) filed by the Company with the SEC, so that Holders shall be entitled to sell the same simultaneously with and upon the terms and conditions as the securities sold for the Company's account are being sold pursuant to any such registration statement, subject to such lock-up provisions as may be proposed by the underwriter of said registration statement (the "Piggyback Registration Right"). There is no guarantee as to a time frame for the filing of such a registration statement.

 

16. Warrant Agent.

 

The Company may, by written notice to each Holder of a Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 2, exchanging this Warrant pursuant to Section 14, and replacing this Warrant pursuant to Section 7, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

 

17. Notices, etc.

 

All notices shall be in writing signed by the party giving such notice, and delivered personally or sent by overnight courier or messenger or sent by registered or certified mail (air mail if overseas), return receipt requested, or by telex, facsimile transmission, telegram or similar means of communication. Notices shall be deemed to have been received on the date of personal, telex, facsimile transmission, telegram or similar means of communication, or if sent by overnight courier or messenger, shall be deemed to have been received on the next delivery day after deposit with the courier or messenger, or if sent by certified or registered mail, return receipt requested, shall be deemed to have been received on the third business day after the date of mailing. Notices shall be sent to the addresses set forth below each party's signature on the Subscription Agreement.

 

18. Notices of Record Date.

 

In case,

 

(a) The Company takes a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or to receive a dividend, distribution or any other rights; or

 

(b) There is any capital reorganization of the Company, reclassification of the capital stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or consolidation or merger of the Company with or into another corporation which does not constitute a sale of the Company; or

 

(c) There is a voluntary or involuntary dissolution, liquidation or winding up of the Company;

 

6
 

 

then, and in any such case, the Company shall cause to be mailed to the Holder, at least 20 business days prior to the date hereinafter specified, a notice stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger,  dissolution, liquidation or winding up.

 

19. Amendments and Supplements.

 

(a) The Company may from time to time supplement or amend this Warrant without the approval of any Holders in order to cure any ambiguity or to be correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interest of the Holder. All other supplements or amendments to this Warrant must be signed by the party against whom such supplement or amendment is to be enforced.

 

(b) Notwithstanding Section 19(a), the Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

 

20. Investment Intent.

 

Holder represents and warrants to the Company that Holder is acquiring the Warrants for investment and with no present intention of distributing or reselling any of the Warrants.

 

21. Certificates to Bear Language.

 

The Warrants and the Warrant Shares issuable upon exercise thereof shall bear the following legend by which Holder shall be bound:

 

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."

 

Certificates for Warrants or Warrant Shares without such legend shall be issued if such Warrants or Warrant Shares are sold pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), or if the Company has received an opinion from counsel reasonably satisfactory to counsel for the Company, that such legend is no longer required under the Act.

 

22. Miscellaneous.

 

(a) This Warrant shall be governed by and construed in accordance with the laws of the State of California without regard to principles of conflicts of laws. The parties submit to the jurisdiction of the Courts of the County of Los Angeles, State of California or a Federal Court empanelled in the State of California for the resolution of all legal disputes arising under the terms of this Warrant, including, but not limited to, enforcement of any arbitration award. The Company and the Holder agree to submit to the jurisdiction of such courts and waive trial by jury.

 

(b) If any action or proceeding is brought by the Company on the one hand or by the Holder on the other hand to enforce or continue any provision of this Warrant, the prevailing party's costs and expenses, including its reasonable attorney's fees, in connection with such action or proceeding shall be paid by the other party.

 

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(c) In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant.

 

(d) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized as of the date first written above, and the Holder has also executed this Warrant.

 

  BRAZIL MINERALS, INC.  
       
  By: /s/ Marc Fogassa  
    Marc Fogassa  
    Chairman and Chief Executive Officer  

 

    /s/ Michael Dimeo  
    Michael Dimeo  

 

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EXHIBIT A

 

NOTICE OF EXERCISE OF

WARRANT

 

BRAZIL MINERALS, INC.

 

The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of Brazil Minerals, Inc. covered by the within Warrant.

 

Dated:     Signature  
         
      Address  
         
         

 

EXHIBIT B

 

ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.

 

Dated:     Signature  
         
      Address  
         
         

  

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ Warrant Shares evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

 

Dated:     Signature  
         
      Address  
         
         

  

FOR USE BY THE ISSUER ONLY:

 

This Warrant No. ___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. _____ issued for ____ shares of Common Stock in the name of _______________.

 

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Exhibit 4.4

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS

 

BRAZIL MINERALS, INC.

 

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

$244,000 January 8, 2014

 

FOR VALUE RECEIVED, the undersigned, Brazil Minerals, Inc. (BMIX.OB), a company organized under the laws of the State of Nevada (the "Company"), promises to pay to the order of Heather U. Baines and Lloyd McAdams AB Living Trust dated 8-10-2001 or its registered assigns (the "Note Holder"), the principal sum of two hundred forty four thousand dollars ($244,000), with interest from the date hereof at the rate of 12% per annum on the unpaid balance hereof until paid.

 

This Note was issued in connection with the Company's private offering (the "Offering") of units of the Company's securities (the "Units"), each Unit consisting of $25,000 par value 12% Senior Secured Convertible Promissory Notes maturing March 31, 2015 and warrants to purchase 50,000 shares of the Company's Common Stock until Expiration Date (a "Warrant Share"), pursuant to a Subscription Agreement (the "Subscription Agreement") incorporated therein to which the initial Note Holder is a party.

 

1.                     Principal. If not earlier converted into the common stock of the Company (the “Stock”) as described herein, the principal of this Note shall be payable to the Holder on March 31, 2015 ("Maturity Date"). The Note will rank senior to all debt of the Company.

 

2.                     Collateral. The Notes shall be secured by:

 

  (a) all of the capital equipment (excavator, loading shovel, bulldozer, trucks, motor and pump) to be purchased with the funds from the sale of the Units as described in more detail in Exhibit A of this Note,

 

  (b) by a pledge of a number of shares of Stock whose value based on the stock bid price is twice (or 200%) the amount in outstanding and unpaid principal and interest of the Notes (the “Stock Coverage”). Stock certificates for the Stock Coverage shall be issued by the Company and deposited in the Company’s account (“Escrow Account”) at Syndicated Capital, Inc. or its successor. The amount of stock in the Stock Coverage shall be increased on the fifth calendar day of each month so that, based on the previous month-end bid price for the stock, the value of the Stock in the account is at least 200% of the aggregate amount of principal and accrued interest as of the previous month-end. The Stock Coverage shall only be returned to the Company upon the full repayment of unpaid principal and interest to the Note Holder, and

 

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  (c) by cash held in the Escrow Account into which on the fifteenth of each calendar month, the Company shall deposit cash collateral in the amount of $20,000 (the “Sinking Fund Payment”). With 60 days’ notice to the Note Holder during which time the Note Holder may convert the Note into Stock, the Company at its option can on the redemption terms described herein use the cash in this account for the full or partial redemption of the Note’s principal and associated accrued interest on the principal to be redeemed.

 

3.           Interest . The Notes will bear interest at a rate of 12.0% per year. Interest accrued will be payable on September 30, 2014 and March 31, 2015 and each six months thereafter. Interest on the Notes will be computed using a 360-day year comprised of twelve 30-day months and will accrue from the date of the original issuance of the Notes. If any interest payment date falls on a date that is not normally a business day, such payment of interest (or principal in the case of the Maturity Date or any earlier repurchase date for the Notes) will be made on the next succeeding business day, and no interest or other amount will be paid as a result of any such delay.

 

If the Note is not paid in full by the Maturity Date, the interest rate payable on the Note shall be adjusted for interest accruable after the Maturity Date from 12% per annum to the lesser of 30% per annum or the maximum statutory rate pursuant to California law and other applicable jurisdiction based on the opinion of legal counsel selected by a majority of Note Holders.

 

4.           Event of Default . The following Event of Principal Payment Default and Event of Other Payment Default are each defined as “Events of Default.”

 

  (a) An “Event of Principal Payment Default” shall exist (1) if after the Maturity Date, the principal and interest of the Note continues to have not been paid in full to the Note Holder or (2) whenever the Company has been delinquent at least 30 days in its required filings of all Forms 10-Q and 10-K with the U.S. Securities and Exchange Commission.

 

  (b) An “Event of Other Payment Default” shall exist after fifteen or more days after the date that any of the following has occurred:

 

  a. Interest payment not paid when due,
  b. Sinking Fund Payment not paid when due,
  c. Stock Coverage deposit not made when due,
  d. any other required deposit or payment described herein, or
  e. non-performance of Company representations in Section 9.

 

  (c) If there is an ongoing Event of Default, a Note Holder may deliver to the Company a request in writing that a part or all of Note Holder’s Notes be converted into the Company’s common stock at an adjusted conversion price equal to 50% of the common stock’s Volume Weighted Average Price as reported by Bloomberg (“VWAP”) during the 15 days prior to date that the written conversion request was received by the Company.

 

  (d) If there is an ongoing Event of Default and if requested in writing by the Note Holder; the Company will grant the request of the Note Holder to convert some or all the Notes unpaid interest and then unpaid principal into the Stock held in the Escrow Account at Syndicated Capital, Inc. For each one dollar of principal and/or accrued interest to be redeemed or paid, the value of the Stock transferred will be two dollars based on the most recent average closing bid price of the stock on the five days before the date of the written withdrawal request.

 

  (e) If there is an ongoing Event of Default and if requested in writing by the Note Holder; the Company will grant the request of the Note Holder to transfer cash from the Escrow Account at Syndicated Capital, Inc. to an account of the Note Holder as payment for some or all the Notes unpaid interest and then unpaid principal.

 

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5.                     Conversion Events and Mechanics of Conversion .

 

(a) Conversion . The Note Holder may convert the principal and unpaid interest into the Company's common stock at any time (“Conversion Event”). The Note’s initial Conversion Price is $0.10 per share.

 

(b) Mechanics of Conversion . The Company shall not be obligated to issue certificates evidencing the common stock issuable upon a Conversion Event unless this Note is either delivered to the Company, duly endorsed, at the California office of the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. As soon as practicable after delivery of the Note, or delivery of an agreement and indemnification in the case of a lost Note, the Company shall issue and deliver to the Holder a certificate or certificates for the number of shares of common stock to which the Holder shall be entitled (the "Conversion Shares"), and a check payable to the Holder in the amount equal to the cash amounts payable as a result of a conversion into fractional shares of such common stock. Any Conversion Event shall be deemed to have occurred immediately prior to the close of business on the date of the Conversion Event, and the Holder entitled to receive the common stock issuable upon such conversion shall be treated for all purposes as the record holder of such common stock on such date.

 

(c) Registration of Stock . If the Note Holder converts all or a part of the Note into Stock and the Note has been owned by the Note Holder for more than six months and the Note Holder affirms that it is a non-affiliate of the Company and the Note Holder requests that the shares be issued in unrestricted form; the Company affirms that at its expense it will cause to be issued unrestricted shares of the Company’s common shares to the Note Holder.

 

If based on any other terms of this Note, the Note Holder has received shares of the Company’s stock and the Note Holder has owned these shares for more than six months and the Note Holder affirms that it is a non-affiliate of the Company and the Note Holder requests in writing that the shares be reissued in unrestricted form; the Company affirms that at its expense it will cause to be issued unrestricted shares of the Company’s common shares to the Note Holder.

 

If for any reason these unrestricted shares are not issued within 15 days of the written request, the number of shares to be issued shall increase by 1% per day until all such share certificates are sent to the investor via traceable courier such as FedEx.

 

The Note Holder acknowledges by entering into this transaction that it fully understands that such shares cannot be sold without registration whenever the Company is not current with its required filings with the Securities and Exchange Commission.

 

(d). Subsequent Issuance of Stock . If prior to the repayment of the Note and accrued interest in full, the Company issues or grants the right to purchase new common shares at a price (the “Issue/Grant Price”), less than the Conversion Price, then the Conversion Price will immediately and permanently become the Issue/Grant Price.

 

(e) Fractional Shares . No fractional shares of common stock shall be issued upon conversion of this Note. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the Conversion Price.

 

3
 

 

(f) Redemption of the Note before the Maturity Date. On or after six months from the date of the Note, the Company may, at its option, after 60 days prior written notice to the Note Holder (“Redemption Notice”), during which period a Note-holder may elect to convert the Note, redeem via wire transfer all or a portion of the Notes at a call price in cash equal to:

 

  a. 115% of the principal amount of the notes to be called plus accrued and unpaid interest up to the payment date, if the previous 6 month Average Daily Trading Value as reported by Bloomberg on the date of notice is less than $100,000,
  b. 109% of the principal amount of the notes to be called plus accrued and unpaid interest up to the payment date, if the previous 6 month Average Daily Trading Value as reported by Bloomberg on the date of notice is greater than $100,000 and less than $500,000,
  c. 103% of the principal amount of the notes to be called plus accrued and unpaid interest up to the payment date, if the previous 6 month Average Daily Trading Value as reported by Bloomberg on the date of notice is greater than $500,000

  

If at any time after the written Redemption Notice, the Company amends any part of the Redemption Notice then the earliest date on which the Note may be redeemed is 60 days after the date of the written amendment notice.

 

(g)           Miscellaneous . The conversion price of the Note (“Conversion Price” or “CP”) is subject to customary adjustment for stock splits, all stock dividends, combinations and all cash dividends.

 

6.           Transfer Restrictions . The Holder shall not transfer the Note (except to its own affiliate, subsidiary, or shareholders) until (a) it has first given written notice to the Company, describing briefly the manner of any such proposed transfer; and (b) (i) the Company has at its expense received from counsel satisfactory to the Company an opinion that such transfer can be made without compliance with the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"), and applicable state securities laws, or (ii) a registration statement filed by the Company under the 1933 Act and applicable state securities laws is declared effective by the Securities and Exchange Commission and state securities commissions having jurisdiction.

 

7.            Currency; Payments . All references herein to "dollars" or "$" are to U.S. dollars, and all payments of principal of, and interest on, this Note shall be made in lawful money of the United States of America in immediately available funds. If the date on which any such payment is required to be made pursuant to the provisions of this Note occurs on a Saturday or Sunday or legal holiday observed in the State of California, such payments shall be due and payable on the immediately succeeding date which is not a Saturday or Sunday or legal holiday so observed.

 

8.           Representations and Warranties of Holder . Holder hereby represents and warrants that:

 

(a) Securities Not Acquired For Resale . Holder is acquiring the Note for its own account, not as an agent or nominee, and not with a view to, or for sale in connection with, any distribution thereof in violation of applicable securities laws. By executing this Note, Holder further represents with respect to the Note that Holder does not have any present contract, undertaking, understanding or arrangement with any person to sell, transfer or grant participations to such persons or any third person.

 

(b) Access to Information . The Company has made available to Holder the opportunity to ask questions of and to receive answers from the Company's officers, directors and other authorized representatives concerning the Company and its business and prospects, and Holder has been permitted to have access to all information which it has requested in order to evaluate the merits and risks of the purchase of the Note.

 

4
 

 

(c) Regulation D . Holder is an "accredited investor" as defined in Rule 501 under the 1933 Act. In the normal course of business, Holder invests in or purchases securities similar to the Note and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the Note.

 

(d) No Advertisement . Holder acknowledges that the offer and sale of the Note or the common stock into which it converts was not accomplished by the publication of any advertisement.

 

(e) No Review . Holder understands that no arbitration board or panel, court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, has passed upon or made any recommendation or endorsement of the common stock into which it converts.

 

9.                     Representations and Warranties of Company . Company hereby represents and warrants that:

 

(a)            Use of Proceeds . The Company represents that the proceeds from the issuance of this Note shall be used solely for the purchase of the equipment as presented in Exhibit A to the Note. If any of the proceeds from the issuance of this Note is not used to purchase this equipment prior to the termination of the Company’s right to purchase this equipment as presented in Exhibit A to this Note, any such unused proceeds from the issuance of this Note shall within two weeks be returned to the Note Holder at the face amount with interest. If the Company should sell the equipment prior to the repayment of the Note’s unpaid principal and interest, the proceeds from the sale shall be deposited in the Escrow Account within 5 days of the receipt of proceeds from the sale of the equipment.

 

(b)            Form D and Blue Sky Registration . The Company represents that relative to the issuance of the Units, Notes and Warrants; it will at its expense file and in a timely manner file Form D with the S.E.C. and other required forms with state security regulators.

 

(c)            Corporate Good Standing . The Company represents that it, subsidiaries and affiliates have and will continue to be in corporate good standing in all relevant jurisdictions.

 

(d)            Legal Authority . The Company represents that it has the legal authority to issue the Note and Warrants.

 

10.            Survival of Representation and Warranties . All representations and warranties made by Holder and Company shall survive the earlier of (a) the Maturity Date and shall remain effective and enforceable until the earlier to occur of the Maturity Date or (b) the date on which claims based thereon shall have been barred by the applicable statutes of limitation.

 

11.            Waiver . The Company expressly waives presentment, protest, demand, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, and diligence in collection.

 

12.            Attorneys' Fees and Costs . In the event of any legal proceedings in connection with this Note, all expenses in connection with such legal proceedings of the prevailing party, including reasonable legal fees and applicable costs and expenses shall be reimbursed by the non-prevailing party upon demand. This provision shall not merge with any enforcement order or judgment on this Note and shall be applicable to any proceeding to enforce or appeal any judgment relating to the Note.

 

5
 

 

13.            Severability . If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

14.            Successors and Assigns . This Note shall inure to the benefit of the Holder and its successors and permitted assigns and shall be binding upon the undersigned and its successors and permitted assigns. As used herein, the term "Holder" shall mean and include the successors and permitted assigns of the Holder.

 

15.            Governing Law . The parties acknowledge and agree that this Note and the rights and obligations of all parties hereunder shall be governed by and construed under the laws of the State of California, without regard to conflict of laws principles.

 

16.            Modification . This Note may not be modified or amended orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

 

17.            Entire Agreement . This Note constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior written or oral agreements and understandings with respect to the matters covered hereby.

 

  BRAZIL MINERALS, INC.
   
  a Nevada corporation
   
  /s/ Marc Fogassa
  By: Marc Fogassa
  Its: Chairman & CEO

 

6
 

 

Exhibit A

 

Brazil Minerals Inc.

12% Convertible Note maturing March 31, 2015

 

USE OF PROCEEDS

 

We intend to use the proceeds from the Senior Secured Convertible Promissory Note for the purchase of capital equipment for the Duas Barras mine, as follows:

 

1. One excavator

 

Brand Doosan (South Korean), Model 225 LCV, Year 2010

Price in Brazilian Real = R$250,000

Price in USD – US$109,000

Cost of Transport to Mine – US$1000

Total Cost – US$110,000

 

2. One Bulldozer

 

Brand Komatsu (Japanese), Model D65, Year 1984

Price in Brazilian Real = R$105,000

Price in USD – US$45,700

Cost of Transport to Mine – US$1000

Total Cost – US$46,700

 

3. One truck

 

Brand Mercedes Benz (German), Model 1929, Year 1984

Price in Brazilian Real = R$38,000

Price in USD – US$16,600

Cost of Transport to Mine – US$1000

Total Cost – US$17,600

 

4. One Portable Generator and One Portable Motor

 

Brand Caterpillar (American), generator 569 KVA, motor 125 cv

Price in Brazilian Real = R$163,887.50

Price in USD – US$71,300

Cost of Transport to Mine – US$1000

Total Cost – $72,300

 

5. Tube and filtering systems (for use with motor above)

 

Price in Brazilian Real = R$6,112.50

Price in USD – US$2,700

Cost of Transport to Mine – US$200

Total Cost – US$2,900

 

Other Purchase Costs (wires, etc) = $500 (estimated)

 

TOTAL COST = US$250,000

 

7
 

 

PRIVATE CONTRACT

 

THE PROMISE OF PURCHASE AND SALE

 

(“AGREEMENT”)

 

SELLER : RENCO EQUIPMENT S / A Rod BR 381 , km 424.1 Garden Piemont CEP : 32530-000 - Betim - MG - Brazil , herein represented by its attorney baste Fernando Tiago Dias , Mechanical Engineer, Married , CPF 365 606266-87 SSP 647 and RG - M678 MG , resident and domiciled at Rua in Japan # 21 , apt 201 , Bairro Jardim White House , Betim - Minas Gerais

 

BUYER : BRAZIL MINERALS , INC. . ( " BMIX " ) , a limited liability company duly organized and existing under the laws of the United States of America , with headquarters at 113 Barksdale Professional Center , Newark , Delaware , zip code 19711 , United States of America , and to the Office 324 South Beverly Drive, Suite 118 , Beverly Hills , California , zip code 90212 , United States , enrolled with the CNPJ / MF under No. 17.412.632/0001-65 , represented by his attorney , Mr. Robledo Delatorre Ribeiro , Brazilian , single, administrator , CPF 040746046-20 , domiciled at Avenida Guaicui , No. 330, apt . 302 , Subdivision Luxembourg , Belo Horizonte , MG , CEP 30380-380 ;

 

By the following terms and conditions freely negotiated and agreed to be bound to respect:

 

SECTION ONE – OBJECT

 

SELLER is the owner of Excavator:

 

Excavator Doosan SOLAR 225 LCV brand model year 2010 DHKHEMXOL80003879 Series with hourmeter scoring 2896.5 hs

  

First Paragraph: The machine does not suffer from restrictions of any kind, with the same free and clear of any liens, real or personal, judicial or extrajudicial, pledge, attachment or sequestration, forum or board, to date, by declaring the SELLER under civil and criminal liability.

 

SECTION TWO - PRICE AND PAYMENT

 

Hereby promises to sell and the BUYER SELLER promises to buy Excavator, understood and agreed by the full and final price of U.S. $ 250,000.00 (two hundred fifty thousand dollars), payable as follows:

 

a)        R $ 1,000.00 (one thousand reais) , as a sign and initial payment to the seller in the current account deposit n.18513 - 2 Agency : 2864-9 , 237 bank ( Bradesco ) in favor of the company RENCO EQUIPMENT SA in Salvador BA , using their signatures to the end of this instrument a receipt for the amount received , after confirmation of said bank deposit .

 

b)        R $ 125,000.00 (one hundred twenty -five thousand reais) to be paid within thirty (30 days), the current account deposit n18513 - 2 Agency: 2864-9, 237 bank (Bradesco) in favor of the company RENCO EQUIPMENT SA in Salvador BA, starting from the signing of this AGREEMENT.

 

c)        R $ 124,000.00 (sit and twenty-four thousand dollars) to be paid within 60 (sixty) days, on deposit in current account n. 18513-2 Agency 2864-9 , 237 bank ( Bradesco ) in favor of the company RENCO EQUIPMENT SA in Salvador BA , starting from the signing of this AGREEMENT.

 

FIRST PARAGRAPH: The value in item “a" above shall be paid upon the signing of this contract.

 

SECOND PARAGRAPH: THE SELLER undertakes to make available to the representative EQUIPMENT BUYER within five (05) days from the signing of this contract upon payment confirmation of item “b “above. The availability of the equipment shall be made at the address of the SELLER, described earlier in this document.

 

SECTION THREE - All taxes , fees , levies and charges of any nature , including the debt outstanding debt that relapse on the machine object of this contract , to the giving of the same is the responsibility of the SELLER and from the transfer of possession borne by the BUYER .

 

SECTION FOUR - It will be sole responsibility of the SELLER the cost of transfer, issue invoices, and taxes arising from the sale object of this contract.

 

SECTION FIVE - Failure to comply with any obligation in this contract shall result in termination of the same, independent of, or notification or judicial or extra- judicial notice, as provided in the following paragraphs:

 

FIRST PARAGRAPH - Being the offender SELLER, shall undertake, it just refund the amounts received, within ten (10) days from the date of termination. In particular , if the machine is sold to a third party by the SELLER upon payment by the BUYER sign £ 1,000 (one thousand reais) , the SELLER shall be responsible to pay a termination fee in the amount of $ 10,000 (ten thousand ) real to the PURCHASER within ten (10 ) days from the date of termination.

 

8
 

 

SECOND PARAGRAPH - Being the offender BUYER shall undertake it even to non-receipt of the return of the EQUIPMENT or EQUIPMENT if it does not comply with the payment for the item “c “of the Second Clause. SELLER received the equipment back, the buyer, and the amount paid by the BUYER will be refunded with the amount of R $ 21,000.00 discounted by the use of the equipment during the period between the first payment and the anticipated date of the second.

 

SIXTH CLAUSE - This contract has irrevocably and irreversibly under current legislation , undertaking the Contracting Parties , for themselves , their heirs and successors , to well and faithfully perform all items and conditions agreed and that it is payable regardless of notification or judicial or extra- judicial intervention .

 

SECTION SEVEN - The Contracting Parties undertake to make the sale always good, strong and valuable, at any time and place, as well as to respond to the eviction rights for themselves, their heirs and successors.

 

SECTION EIGHT - To resolve any issues arising directly or indirectly from this contract, the parties elect the courts of this judicial district of Belo Horizonte - capital of the state of Minas Gerais, with a waiver of any other by more privileged.

 

SECTION NINE - The Contracting Parties , having prior knowledge of the text of this agreement and understood its meaning and scope , and are fair and freely contracted , accepting the conditions set forth herein , execute this in three (03 ) counterparts , similarly and content , the presence of the undersigned witnesses , for the intents and purposes of law .

  

Belo Horizonte, December 9, 2013  
   
   
RENCO EQUIPMENT S / A  
SELLER  
   
   
BRAZIL MINERALS , INC. .  
BUYER  
   
WITNESSES :  
   
     
Name :    
CPF :    
     
.    
Name :    
CPF :    

 

9
 

 

PRIVATE CONTRACT

THE PROMISE OF PURCHASE AND SALE

(“AGREEMENT”)

 

SELLER: BETIMAQ TRACTOR PARTS AND SERVICES LTD, CPF No. 05.812.842/0001-61, State Registration No. 067.267399-0045: Rua Boa Viagem , 190 - Mount Lebanon , Betim - MG , CEP : 32553-470 . PHONE 31-3593-3288.

 

BUYER : BRAZIL MINERALS, INC. . ( " BMIX " ) , a limited liability company duly organized and existing under the laws of the United States of America , with headquarters at 113 Barksdale Professional Center , Newark , Delaware , zip code 19711 , United States of America , and to the Office 324 South Beverly Drive, Suite 118 , Beverly Hills , California , zip code 90212 , United States , enrolled with the CNPJ / MF under No. 17.412.632/0001-65 , represented by his attorney , Mr. Robledo Delatorre Ribeiro , Brazilian , single, administrator CPF 040746046-20 , domiciled Avenida Guaicui , No. 330 apt . 302 , Subdivision Luxembourg , Belo Horizonte , MG , CEP 30380-380 ;

 

By the following terms and conditions freely negotiated and agreed to be bound to respect:

 

SECTION ONE - OBJECT

 

SELLER is the owner of MACHINERY :

 

Tractor Komatsu D65 model year of manufacture 1984.

 

First Paragraph : The machine does not suffer from restrictions of any kind, with the same free and clear of any liens, real or personal, judicial or extrajudicial, pledge, attachment or sequestration, forum or board, to date, by declaring the SELLER under civil and criminal liability.

 

SECTION TWO - PRICE AND PAYMENT

 

SELLER hereby promises to sell and buy MACHINE BUYER promises , and for the right price and total final set of R $ 105,000.00 (one hundred and five thousand reais ) , payable as follows :

 

a) R$ 1,000.00 (one thousand reais) , as a sign and initial payment in favor of the SELLER in deposit in current account No. 18058-5 Agency 6505 , BANK ITAU , in favor of BETIMAQ TRACTOR PARTS AND SERVICES LTD , worth their signatures to the final settlement of this instrument as the amount received upon confirmation of said bank deposit .
b) R$ 54,000.00 ( fifty-four thousand dollars) to be paid within thirty (30 days) , after the signing of this Agreement, on deposit in current account No. 18058-5 Agency 6505 , BANK ITAU , in favor of BETIMAQ TRACTORS AND PARTS SERVICES LTD , starting from the signing of this AGREEMENT.
c) R$ 50:000,00 (fifty thousand dollars) to be paid a minimum period of 15 (fifteen days) A AFTER THE DATE OF THE PORTION PAGM1ENTO B. on deposit in current account No. 18058-5 Agency 6505 , BANK ITAU, in favor or on the BETIMAQ TRACTORS AND PARTS SERVICES LTD. starting from the signing of this AGREEMENT.

 

FIRST PARAGRAPH : The value in item “a" above shall be paid upon the signing of this contract.

 

SECOND PARAGRAPH : THE SELLER undertakes to provide to the representative TRUCK BUYER within thirty (30) days from the signing of this contract upon confirmation of payment.

 

10
 

 

SECTION THREE - All taxes , fees , levies and charges of any nature , including the debt outstanding debt that relapse on the machine object of this contract , to the giving of the same is the responsibility of the SELLER and from the transfer of possession borne by the BUYER .

 

SECTION FOUR - It will be sole responsibility of the SELLER the cost of transfer, issue invoices, and taxes arising from the sale object of this contract.

 

SECTION FIVE - Failure to comply with any obligation in this contract shall result in termination of the same, independent of, or notification or judicial or extra- judicial notice, as provided in the following paragraphs:

 

FIRST PARAGRAPH - Being the offender SELLER , shall undertake, it just refund the amounts received, within ten (10) days from the date of termination. In particular , if the machine is sold to a third party by the SELLER upon payment by the BUYER sign £ 1,000 (one thousand reais) , the SELLER shall be responsible to pay a termination fee in the amount of $ 10,000 (ten thousand ) real to the PURCHASER within ten (10 ) days from the date of termination.

 

SECOND PARAGRAPH - Being the offender BUYER shall undertake it even to non-receipt or return MACHINE , without further charge.