Atlas Lithium Corp 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report. This discussion and analysis below include forward-looking statements that are subject to risks, uncertainties and other factors described in the “Risk Factors” section that could cause actual results could differ materially from those anticipated in these forward- looking statements as a result of various factors. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Atlas Lithium Corporation (“Atlas Lithium,” the “Company,” “we,” “us,” or “our”) is a mineral exploration and development company with a lithium project and multiple lithium exploration properties. In addition, we own exploration properties in other battery minerals, including nickel, rare earths, graphite, and titanium . Our current focus is the development from exploration to active mining of our hard-rock lithium project located in the state of Minas Gerais State in Brazil at a well-known, premier pegmatitic district in Brazil, which has been recently denominated by the government of Minas Gerais as “Lithium Valley”. We intend to mine and then process our lithium-containing ore to produce lithium concentrate (also known as spodumene concentrate), a key ingredient for the battery supply chain. We are in the initial stages of planning to develop and own 100% of a processing facility capable of producing 150,000 tons of lithium concentrate annually. However, there can be no assurance that we will have the necessary capital resources to develop such facility or, if developed, that we will reach the production capacity necessary to commercialize our products and with the quality needed to meet market demand. 3 Table of Contents All of our mineral projects and properties are located in Brazil and our mineral rights portfolio for battery minerals includes approximately 75,040 acres (304 km 2 ) for lithium in 64 mineral rights, 54,950 acres for nickel (222 km 2 ) in 15 mineral rights, 30,054 acres (122 km 2 ) for rare earths in seven mineral rights, 22,050 acres (89 km 2 ) for titanium in seven mineral rights, and 13,766 acres (56 km 2 ) for graphite in three mineral rights. We believe that we hold the largest portfolio of exploration properties for battery minerals in Brazil, a premier and well-established mining jurisdiction. We are primarily focused on advancing and developing our hard-rock lithium project located in the state of Minas Gerais, Brazil, where some of our high-potential mineral rights are adjacent to or near large lithium deposits that belong to Sigma Lithium Corporation (Nasdaq: SGML). Our Minas Gerais Lithium Project (“MGLP”) is our largest project and consists of 57 mineral rights spread over 58,774 acres (238 km 2 ) and predominantly located within the Brazilian Eastern Pegmatitic Province which has been surveyed by the Brazilian Geological Survey and is known for the presence of hard rock formations known as pegmatites which contain lithium-bearing minerals such as spodumene and petalite. We believe that we can increase our value by the acceleration of our exploratory work and quantification of our lithium mineralization. Our initial commercial goal is to be able to enter production of lithium concentrate, a product which is highly sought after in the battery supply chain for electric vehicles. We also have 100%-ownership of early-stage projects and properties in other minerals that are needed in the battery supply chain and high technology applications such as nickel, rare earths, graphite, and titanium. We believe that the shift from fossil fuels to battery power may yield long-term opportunities for us not only in lithium but also in such other minerals. Additionally, we have 100%-ownership of several mining concessions for gold and diamonds, two of which also include industrial sand. As our corporate focus became our lithium properties, we stopped alluvial gold and diamond exploration efforts in 2018 and the sale of our industrial sand in 2022. We also own 45.11% of the shares of common stock of Apollo Resources Corporation (“Apollo Resources”), a private company primarily focused on the development of its initial iron mine. We also own approximately 28.72% of the shares of common stock of Jupiter Gold Corporation (“Jupiter Gold”), a company focused on the exploration of two gold projects and the development of a quartzite mine, and whose common stock are quoted on the OTCQB marketplace under the symbol “JUPGF.” The quartzite mine is fully permitted and is expected to start operations in 2023. Apollo Resources and Jupiter Gold have not generated any revenues to date. The results of operations from both Apollo Resources and Jupiter Gold are consolidated in our financial statements under U.S. GAAP”. On October 17, 2022, we entered into an investor relations consulting agreement with MZHCI, LLC, a U.S. company. 4 Table of Contents Operational Update Exploration Campaign Our ongoing drilling campaign is delineating the lithium resources of our 100%-owned Neves Project, a cluster of four lithium mineral rights within MGLP. Our current geological team is comprised of 13 geologists, with 11 of them being full-time. To support the work of our geologists we have 17 full-time field and support technicians and machinery operators. Our geological team and our exploration campaign is supervised by Volodymyr Myadzel, Ph.D., a Qualified Person for lithium as such term is defined in Subpart 1300 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (“Regulation S-K 1300”) . We have engaged SGS Canada Inc. (“SGS”), and, in particular, their geologist Marc-Antoine Laporte, a Qualified Person for lithium under Regulation S-K 1300 , to produce a mineral resource estimate report (the “Maiden Resource Report”) for our Neves Project in accordance with Regulation S-K 1300. Mr. Laporte is the author of mineral resource reports for two other companies which have hard-rock lithium projects in Lithium Valley, the general area where our Neves Project is located, and has worked on lithium properties in Lithium Valley since 2017. Mr. Laporte visited our Neves Project between May 4 and May 6, 2023. The Maiden Resource Report is expected to be completed during the third quarter of 2023. The Maiden Resource Report will update and replace our previously filed SLR International Corporation’s technical report summary entitled “S-K 1300 Technical Report Summary on the Das Neves Lithium Project” (the “Initial Exploration Report”), with an effective date of August 10, 2022, and a signature date of August 31, 2022. The Initial Exploration Report presented recommendations to us on further steps necessary for the delineation of the lithium resources at our Neves Project. At the time of the Initial Exploration Report, we had one drill on site and 1,213 meters drilled in total. Currently, we have 10 active drills operating and have drilled, as of May 4, 2023, an aggregate of 19,017 meters. The current drilling campaign pace is approximately 6,500 meters drilled per month. At our Neves Project, our current focus is drilling within and around our flagship pegmatite, “Anitta,” a 1.1-kilometer formation which remains open along strike and at depth, and has been proven to contain spodumene, a key lithium-bearing mineral. Drilling Campaign Highlights (drill holes in numerical sequence) DHAB-11B: 1.57% Li 2 O over 13.1m from 74.0m to 87.1m, which includes: 2.25% Li 2 O over 4.0m from 76.7m to 80.8m and 2.00% Li 2 O over 3.1m from 84.0m to 87.1m DHAB-12: 1.35% Li 2 O over 5.02m from 83.41m to 88.43m DHAB-15: 1.40% Li 2 O over 15.0m from 60.5m to 75.5m, which includes: 1.83% Li 2 O over 5.0m from 66.5m to 71.5m DHAB-18: 1.01% Li 2 O over 9.95m from 82.66m to 92.61m, which includes: 2.17% Li 2 O over 3.0m from 86.55m to 89.55m DHAB-21: 1.33% Li 2 O over 8.8m from 50.0m to 58.8m DHAB-39B: 1.00% Li 2 O over 9.1m from 107.4m to 116.6m 1.48% Li 2 O over 9.0m from 119.2m to 128.2m DHAB-41: 1.09% Li 2 O over 22.2m from 83.0m to 105.2m, which includes: 1.72% Li 2 O over 4.0m from 94.0m to 98.0m DHAB-44: 1.30% Li 2 O over 17.9m from 141.81m to 159.71m, which includes: 1.88% Li 2 O over 9.0m from 150.0m to 159.0m DHAB-47: 2.80% Li 2 O over 9.87m from 54.18m to 64.05m DHAB-57: 1.46% Li 2 O over 13.0m from 92.2m to 105.2m DHAB-64: 1.08% Li 2 O over 10.6m from 119.5m to 130.1m 1.26% Li 2 O over 11.0m from 132.1m to 143.1m, which includes: 2.09% Li 2 O over 5.0m from 135.1m to 140.1m DHAB-68: 1.36% Li 2 O over 25.43m from 54.15m to 79.58m, which includes: 2.02% Li 2 O over 6.5m from 54.15m to 60.15m, 4.40% Li 2 O over 0.55m from 60.15m to 60.70m, and 1.89% Li 2 O over 5.0m from 71.5m to 76.5m DHAB-70: 1.16% Li 2 O over 14.85m from 43.75m to 58.60m 1.20% Li 2 O over 2.4m from 78.31m to 80.72m DHAB-74: 1.01% Li 2 O over 8.74m from 137.26m to 146.00m DHAB-77: 1.08% Li 2 O over 3.2m from 65.8m to 69.0m 1.46% Li 2 O over 14.0m from 70.0m to 84.0m, which includes: 2.04% Li 2 O over 5.0m from 70.01m to 75.0m DHAB-85: 1.18% Li 2 O over 47.00m from 7.00m to 54.00m, which includes: 2.12% Li 2 O over 7.0m from 13.0m to 20.0m and 1.88% Li 2 O over 9.0m from 150.0m to 159.0m 5 Table of Contents Our drilling and sampling follow strict QA/QC protocols established under best practices. All lithium samples are analyzed at SGS-Geosol, the premier analytical laboratory used by reputable mining companies in Brazil. Normally geochemical results are obtained from SGS-Geosol three weeks after submission of the samples for analysis. Of note, recent drill hole DHAB-104 yielded a large aggregate total of 99.1 meters (325 feet) of visually appearing spodumene; the geochemical assays for DHAB-104 are pending. Metallurgical Report On April 24, 2023, we announced the receipt of the metallurgical report (the “Metallurgical Report”) from SGS for studies performed over several months on a representative ore sample from our Neves Project. The Metallurgical Report showed that a very high grade of 7.22% was achieved for Heavy Liquid Separation (“HLS”). Commercial-grade lithium concentrate was obtained from our representative sample using standard Dense Media Separation (“DMS”), a gravity-based approach which does not use any harmful chemicals or flotation. The Metallurgical Report also showed final lithium concentrate grading of 6.04% Li 2 O with only 0.53% Fe 2 O 3 , and a lithium recovery of 70%. Our desired target was the production of concentrate grading 6.0% Li 2 O with less than 1.0% Fe 2 O 3 , and these targets were exceeded. SGS has been providing testing and analytical services to the mining industry since 1941 and has earned the reputation as a leading provider of metallurgical services. The Metallurgical Report will become a chapter in the Maiden Resource Report described above. The Metallurgical Report also allows SGS to begin work towards a Preliminary Economic Assessment of the Neves Project which is a technical study expected to be issued after the Maiden Resource Report. Business Development Mitsui & Co., Ltd. On January 18, 2023, we announced that we had signed a Memorandum of Understanding (“MOU”) with Mitsui & Co., Ltd. (“Mitsui) with respect to Mitsui’s potential interest in acquiring the right to purchase our future lithium concentrate production. Mitsui is one of the world’s most diversified comprehensive trading, investment, and service enterprises. Headquartered in Tokyo, Japan, Mitsui maintains a global network of 128 offices in 63 countries and regions. In general terms, the MOU contemplates potential funding from Mitsui to us of up to $65 million (the “Offtake Funding”), in tranches and subject to the achievement of specific milestones acceptable to Mitsui, that would give Mitsui the right to buy up to 100% of our future production from our planned plant with output capacity of 150,000 tons of lithium concentrate per year (the “Plant”). The Offtake Funding would be primarily used by us for the construction of the Plant. Lithium concentrate produced by the Plant would then be available for purchase by Mitsui at a price generally based on the then-prevailing market price. The MOU is non-binding and non-exclusive for both companies. Lithium Royalty Corp. On May 2, 2023, we and Atlas Litio Brasil Ltda. (“Atlas Litio”), our Brazilian subsidiary, entered into a Royalty Purchase Agreement with Lithium Royalty Corp., a Canadian company listed on the Toronto Stock Exchange (“LRC”), whereby Atlas Litio sold to LRC in consideration for $20,000,000 in cash, a royalty interest equaling 3% of the future gross revenue to be received by Atlas Litio from the sale of products from certain 19 mineral rights and properties that are located in Brazil and held by Atlas Litio. The principals at LRC are known for their experience in the lithium industry. Prior to this transaction, LRC was composed of 30 royalties on 28 properties, with two properties in production, four properties in construction and 22 properties in development or exploration. LRC is a signatory of the Principles for Responsible Investment and the integration of ESG factors is a key aspect of their investment analysis and a key consideration in their target investment criteria. A s part of LRC’s due diligence, Mr. Ernie Ortiz, LRC’s President and CEO, visited our Neves Project between April 5, 2023, and April 7, 2023. Results of Operations The Three Months Ended March 31, 2023, Compared to the Three Months ended March 31, 2022 Net loss for the three months ended March 31, 2023, totaled $3,965,938, compared to net of $531,490 during the three months ended March 31, 2022. The increase on loss is mainly due to: ● Higher general and administrative expenses in the period due to approximately $1,030,000 in non-recurring transaction costs associated with our Offering in January 2023 in connection with the listing of our common stock on the Nasdaq Capital Market; ● Higher compensation costs in the period due to $712,000 to satisfy certain contractual obligations to management team members, a number of which are non-recurring; ● An increase in stock-based compensation expenses by $740,826 compared to prior period reflecting increase in our common stock share price and new members of the management team eligible for the stock-based compensation program; and ● Higher exploration expenses for the period due the execution of the drilling program on our 100% owned Minas Gerais Lithium Project. 6 Table of Contents Liquidity and Capital Resources As of March 31, 2023, we had cash and cash equivalents of $4,987,751 and a working capital of $2,596,943. Net cash used by operating activities totaled $3,663,428 for the three months ended March 31, 2023, compared to net cash used of $506,071 during the three months ended March 31, 2022, representing a decrease in cash available of $3,157,357 or 623%. The said increase in net cash used by operating activities was mainly due to: ● Increase of our lithium exploration program costs of approximately $1,028,000; ● Nasdaq listing, non-recurrent expenses of approximately $1,030,000; ● Increase in compensation expenses due to the increase of management and exploration teams. Net cash used in investing activities totaled $1,275,972 for the three months ended March 31, 2023, compared to net cash used of $152,998 during the three months ended March 31, 2022, representing an increase in cash used of $1,122,974 or 733%. The increase refers to the purchase of lithium mining rights. Net cash provided by financing activities totaled $9,564,335 for the three months ended March 31, 2023, compared to $622,999 during the three months ended March 31, 2022, representing an increase in cash provided of $8,941,336 or 1,435%. The increase is mainly due to: ● Our Offering which closed on January 12, 2023, with aggregate gross proceeds of $4,657,500. ● Securities Purchase Agreement with two investors, pursuant to which we agreed to issue and sell to the Investors in a Regulation S private placement an aggregate of 640,000 restricted shares of our common stock, par value $0.001 per share. The purchase price for the Shares was $6.25 per share, for total gross proceeds of $4,000,000. ● During the three months ended March 31, 2023, we also sold an aggregate of 91,500 shares of our common stock to Triton Funds, L.P for total gross proceeds of $831,834 pursuant to a Common Stock Purchase Agreement entered between us and Triton Funds, LP. For further information on three transactions mentioned above, please refer to note 4 – stockholders´ equity. We have historically incurred net operating losses and have not yet received material revenues from the sale of products or services. Our primary sources of liquidity have been derived through proceeds from the (i) issuance of debt and (ii) sales of our equity and the equity of one of our subsidiaries. For example, On January 12, 2023, we completed its firm underwritten public offering of 776,250 shares of our common stock (which includes the shares subject to the over-allotment option, exercised by the underwriter in full), for aggregate gross proceeds of $4,657,500 (prior to deducting any underwriting discounts, commissions, and other offering expenses). Also, on January 30, 2023, we raised an aggregate of $4 million in gross proceeds from the sale of its common stock in transaction exempt under Regulation S of the Securities Act. We believe our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months through March 2024. Our future short- and long-term capital requirements will depend on several factors, including but not limited to, the rate of our growth, our ability to identify areas for mineral exploration and the economic potential of such areas, the exploration and other drilling campaigns needed to verify and expand our mineral resources, the types of processing facilities we would need to install to obtain commercial-ready products, and the ability to attract talent to manage our different business activities. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to scale back our existing operations and growth plans, which could have an adverse impact on our business and financial prospects and could raise substantial doubt about our ability to continue as a going concern. Currency Risk We operate primarily in Brazil which exposes us to currency risks. Our business activities may generate intercompany receivables or payables that are in a currency other than the functional currency of the entity. Changes in exchange rates from the time the activity occurs to the time payments are made may result in it receiving either more or less in local currency than the local currency equivalent at the time of the original activity. Our consolidated financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting in the consolidated financial statements. Our foreign subsidiaries translate their financial results from the local currency into U.S. dollars in the following manner: (a) income statement accounts are translated at average exchange rates for the period; (b) balance sheet asset and liability accounts are translated at end of period exchange rates; and (c) equity accounts are translated at historical exchange rates. Translation in this manner affects the shareholders’ equity account referred to as the foreign currency translation adjustment account. This account exists only in the foreign subsidiaries’ U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries’ balance sheets in agreement. We currently have no off-balance sheet arrangements. Critical Accounting Policies and Estimates Our financial instruments consist of cash and cash equivalents and accrued expenses. The carrying amount of these financial instruments is approximate of 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 on March 31, 2023, it could negatively affect our financial position and liquidity and could result in our having understated our net loss. 7 Table of Contents Recent Accounting Pronouncements Our consolidated financial statements are prepared in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information to be reported under this Item is not required of smaller reporting companies.