NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

Inventories

Inventories as of June 30, 2026, and December 31, 2025, are comprised of the following:

 SCHEDULE OF INVENTORIES 

Materials and supplies consist primarily of feedstock intended for use in the Company’s production processes related to lithium operations.

Quartzite inventories as of June 30, 2026 contain slabs produced through the cutting and polishing of natural quartzite. Slabs are actively sold in the market and classified as finished goods.

Property and Equipment

The following table sets forth the components of the Company’s property and equipment as of June 30, 2026 and December 31, 2025:

 SCHEDULE OF PROPERTY AND EQUIPMENT

Exploration costs such as drilling, development and related costs are either classified as exploration and charged to operations as incurred, or capitalized, such as to assist with mine planning. Whether to capitalize an exploration/development cost or incur an expense also depends on whether the drilling or development costs relate to an ore body that has been determined to be commercially mineable and whether the expenditure relates to a probable future benefit to be generated singly or in combination with other assets. The basis of the mineral interest is amortized on a units-of-production basis.

Accounts Payable and Accrued Expenses

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 

ATLAS LITHIUM CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Leases

Finance Leases

For the reporting period ended June 30, 2026, no financial leases meeting the criteria outlined in ASC 842 have been identified.

Operating Leases

Right of use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, we utilize our incremental borrowing rate in determining the present value of the future lease payments. The ROU asset includes any lease payments made and lease incentives received prior to the commencement date. Operating lease ROU assets also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The ROU assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The ROU assets and lease liabilities are primarily related to the Company’s offices in Belo Horizonte and Araçuaí, as well as facilities for drilling core storage leased from third parties.

The lease agreements have terms between 2 two to five years, with the possibility of extending one of the leases for an additional two years and another for an additional 12 months. The liability was measured at the present value of the lease payments discounted using interest rates with a weighted average rate of 6.5% which was determined to be our incremental borrowing rate. The continuity of the lease liabilities is presented in the table below:

 SCHEDULE OF OPERATING LEASE LIABILITY

The maturity of the lease liabilities (contractual undiscounted cash flows) is presented in the table below:

 SCHEDULE OF MATURITY OF THE LEASE LIABILITIES 

ATLAS LITHIUM CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Convertible Debt

 SCHEDULE OF CONVERTIBLE DEBT

On November 7, 2023, we entered into a convertible note purchase agreement (the “November 2023 Convertible Note Agreement”) with a number of investors to raise up to $20,000,000 in proceeds through the issuance of convertible promissory notes with the following key terms:

On November 7, 2023, we issued $10,000,000 in convertible promissory notes (the “Notes”) under the terms of the November 2023 Convertible Note Purchase Agreement, and there were no other purchases and sales of the convertible promissory notes. On the date of issuance, we received $10,000,000 in cash proceeds and recorded (i) a $9,688,305 convertible debt liability and (ii) a $311,695 conversion feature derivative liability in our consolidated statement of financial position, as further disclosed below. In the three and six months ended June 30, 2026, the Company recorded $162,056 and $322,330 in interest expense and $25,902 and $51,521 in accretion expense in the condensed consolidated statement of operations and comprehensive loss ($162,055 and $322,330, in interest expenses and $25,903 and $51,522 in accretion expense in the three and six months ended June 30, 2025). The Notes will become due on November 7, 2026.

Derivatives

 SCHEDULE OF DERIVATIVES

ATLAS LITHIUM CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

a) Derivative liability – embedded conversion feature on convertible debt

On November 7, 2023, the Company issued the Notes. In accordance with Financial Accounting and Standards Board (“FASB”) ASC 815, the conversion feature of the convertible debt was determined to be an embedded derivative. As such, it was bifurcated from the host debt liability and was recognized as a derivative liability in the consolidated balance sheets. The derivative liability is measured at fair value through profit or loss.

On December 31, 2025, the fair value of the embedded conversion feature was determined to be $6,507 using a Black-Scholes collar option pricing model with the following assumptions:

 SCHEDULE OF FAIR VALUE EMBEDDED CONVERSION PRICING MODEL ASSUMPTION

On June 30, 2026, the fair value of the embedded conversion feature was determined to be $143 using a Black-Scholes collar option pricing model with the following assumptions:

In the Black-Scholes collar option pricing models, the expected volatilities were based on historical volatilities of the securities of the Company and its trading peers, and the risk-free interest rates were determined based on the prevailing rates at the grant date for U.S. Treasury Bonds with a term equal to the expected term of the instrument being valued.

In the three and six months ended June 30, 2026, the Company recognized a $1,721 and a $6,364 gain on changes in fair value of financial instruments in the condensed consolidated statement of operations and comprehensive loss ($17,607 and $59,240 in the three and six months ended June 30, 2025).

ATLAS LITHIUM CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

b) Derivative liability – other stock incentives

The employment agreement of Igor Tkachenko, a Vice President of the Company, dated September 30, 2023, provides for the issuance of shares of the Company’s common stock based on us achieving certain market capitalization milestones. As of June 30, 2026, the Company’s obligations under this employment agreement contemplate the issuance of additional shares of the Company’s common stock in five tranches, each representing 0.2% of the Company’s common stock outstanding at the time of vesting, with an expiry date of December 31, 2026 and market vesting conditions as follows

In accordance with FASB ASC 815, these RSU awards were classified as a liability, measured at fair value through profit or loss, and compensation expense is recognized over the expected term.

As of June 30, 2026, Tranche 3, Tranche 4, Tranche 5, Tranche 6 and Tranche 7 remain outstanding and unvested, and the total fair value of these outstanding rights to receive restricted stock was $171, as measured using a Monte Carlo Simulation with the following ranges of assumptions: the Company’s stock price of $3.76, expected dividend yield of 0%, expected annual volatility of 99.95%, risk-free interest rate of 3.98%, and an expected term of 6 months. The expected volatilities were based on historical volatilities of the securities of the Company and its trading peers, and the risk-free interest rates were determined based on the prevailing rates at the grant date for U.S. Treasury Bonds with a term equal to the expected term of the award being valued.

c) Derivative asset - Non-Deliverable Forward

Our Brazilian subsidiaries are exposed to foreign-currency exchange-rate fluctuations in the normal course of business because a portion of their expenses are paid in Brazilian reais (BRL). To mitigate this exposure, these subsidiaries utilize non-deliverable forward foreign-exchange contracts (“NDFs”), which are designed to offset changes in cash flows attributable to currency exchange movements.

The Company applies hedge accounting in accordance with U.S. GAAP (ASC 815). As a result, these derivative instruments are designated and qualify as cash flow hedges, with the entire gain or loss on the derivative initially recorded in Other Comprehensive Income (OCI). These amounts remain deferred in OCI and are subsequently reclassified into earnings in the same income statement line item as the hedged item when it affects earnings.

Atlas Lithium actively monitors the derivative portfolio of its subsidiaries on a monthly basis to assess financial results and cash flow implications. These contracts are used strictly for risk management purposes, and none of our Brazilian subsidiaries engage in speculative foreign-exchange transactions. Additionally, these contracts do not contain any credit-risk-related contingent features.

As of June 30, 2026, the fair value of outstanding NDF contracts was recorded as Derivative assets on the balance sheet.

For the 6 months period ended June 30, 2026:

ATLAS LITHIUM CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes the non-deliverable forward foreign exchange contracts that remain open as of June 30, 2026:

 SCHEDULE OF NON DELIVERABLE FORWARD EXCHANGE CONTRACTS