EX-99.2 3 tm2226872d2_ex99-2.htm EXHIBIT 99.2

Exhibit 99.2

 

 

 

SIGMA LITHIUM CORPORATION

 

CONDENSED INTERIM CONSOLIDATED

 

FINANCIAL STATEMENTS

 

THREE AND SIX MONTHS ENDED

 

JUNE 30, 2022 AND 2021

 

(RESTATED)

 

(EXPRESSED IN THOUSANDS

 

OF CANADIAN DOLLARS)

 

(UNAUDITED)

 

 

 

NOTE TO READER

 

This restatement of the condensed interim consolidated financial statements dated and originally filed on August 16, 2022 is a result of management of the Company, after the completion of the third quarter of 2022, concluding that the Company’s previously issued consolidated financial statements as of and for the three and six-month period ended June 30, 2022, contained an error related to the accounting for stock-based compensation expense. During the third quarter of 2022, the Company identified a number of contracts entered into with employees and consultants which provided for the right to be issued RSUs which were not previously accounted for. The Company has adjusted its stock based compensation expense (and property plant and equipment, in accordance with the Company’s capitalization policy) to account for the RSUs which were not previously accounted for. Refer to Note 2 to the condensed interim consolidated financial statements.

 

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

 

The accompanying restated unaudited condensed interim consolidated financial statements of Sigma Lithium Corporation (the "Company") are the responsibility of management and have been approved by the Company's Board of Directors (the "Board").

 

The restated unaudited condensed interim consolidated financial statements have been prepared by management on a going concern basis in accordance with International Accounting Standard 34 Interim Financial (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Financial statements are not exact since they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects.

 

The Board is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee.

 

The Audit Committee is appointed by the Board, and the majority of its members are independent directors. The Audit Committee meets at least four times a year with management, and with the external auditors at least for the year-end audit, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities, and to review the quarterly and the annual reports, the unaudited condensed interim consolidated financial statements and the external auditors’ reports. The Audit Committee reports its findings to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board and approval by the shareholders, the engagement or reappointment of the external auditors.

 

"Calvyn Gardner"  "Ana Cabral Gardner"
Co-Chairperson and Co-Chief Executive Officer  Co-Chairperson and Co-Chief Executive Officer
    
"Felipe Peres"   
Chief Financial Officer   

 

- 2 -

 

Sigma Lithium Corporation

Condensed Interim Consolidated Statements of Financial Position

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

   June 30,   December 31, 
   2022   2021 
   Restated     
ASSET          
Current assets          
Cash  $123,285   $154,305 
Prepaid expenses and other assets   1,317    809 
Total current assets   124,602    155,114 
Non-current assets          
Prepaid expenses and other assets   92    92 
Exploration and evaluation assets (note 4)   15,865    7,884 
Property, plant and equipment (note 2 and 5)   54,193    30,689 
Total assets  $194,752   $193,779 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Current liabilities          
Account payable  $3,470   $3,554 
Payroll and other taxes   1,007    439 
Note payable   -    270 
Lease liability (note 7)   39    28 
Royalty agreement call option (note 5b)   4,892    - 
Other liabilities (note 2)   427    39 
Total current liabilities   9,835    4,330 
Non-Current Liabilities          
Deferred revenue (note 6)   4,007    4,007 
Lease liability (note 7)   213    217 
Asset retirement obligations (note 8)   529    162 
           
Total Non-Current liabilities   4,749    4,386 
Total liabilities   14,584    8,716 
           
Shareholders' equity          
Share capital (note 10)   231,356    224,820 
Contributed surplus   52,538    30,881 
Accumulated other comprehensive loss   (2,896)   (3,519)
Accumulated deficit   (100,830)   (67,119)
Total shareholders' equity   180,168    185,063 
Total liabilities and shareholders' equity  $194,752   $193,779 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

Basis of preparation (note 3)

 

Related parties (note 9)

 

Subsequent event (note 16)

 

Approved on behalf of the Board:

 

(Signed) "Calvyn Gardner"   , Director
   
(Signed) "Ana Cabral Gardner"   , Director

 

- 3 -

 

Sigma Lithium Corporation

Condensed Interim Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)

(Expressed in thousands of Canadian dollars, except for number of shares and per share amounts)

(Unaudited)

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2022   2021   2022   2021 
   Restated       Restated     
Operating expenses                    
General and administrative expenses (note 12)  $3,590   $795   $4,949   $1,436 
Stock-based compensation (note 2 and note 15)   11,991    60    24,633    5,511 
Accretion and interest on notes payable   -    5    15    43 
Interest expense on credit revolver and suppliers   -    58    -    126 
Foreign exchange (gain) loss   1,046    87    (827)   251 
Royalty agreement call option (note 5b)   4,892    -    4,892    - 
Depreciation   27    14    49    27 
Net loss for the period   (21,546)   (1,019)   (33,711)   (7,394)
                     
Other comprehensive income (loss)                    
                     
Amounts that may be reclassified subsequently to profit and loss                    
Cumulative translation adjustment   (722)   1,057    623    30 
Net income (loss) and comprehensive income (loss) for the period  $(22,268)  $38   $(33,088)  $(7,364)
                     
Loss per common share                    
                     
Equity holders of the Company                    
Basic and diluted net loss per common share (note 11)  $(0.21)  $(0.01)  $(0.34)  $(0.09)
Weighted average number of common shares outstanding - basic and diluted   100,659,839    87,368,212    100,110,484    85,062,054 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 4 -

 

Sigma Lithium Corporation

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)

(Unaudited)

 

   2022   2021 
Six Months Ended June 30,  Restated     
Operating activities          
Net loss for the period  $(33,711)  $(7,394)
Adjustments for:          
Depreciation   49    27 
Stock-based compensation (note 2)   24,633    5,511 
Interest and accretion on notes payable   15    43 
Interest expense on credit revolver and suppliers   -    126 
Realized foreign exchange loss (gain) on notes payable   41    (92)
Foreign exchange loss (gain) on other assets and liabilities   (827)   48 
Royalty agreement call option   4,892    - 
Changes in non-cash working capital items:          
Prepaid expenses and other assets   (487)   (88)
Amounts payable and other liabilities   (2,270)   (1,650)
Payroll and other taxes   584    155 
Net cash used in operating activities   (7,081)   (3,314)
Investing activities          
Addition to exploration and evaluation assets   (6,806)   (5,366)
Purchase of property, plant and equipment   (19,409)   (21)
Net cash used in investing activities   (26,215)   (5,387)
Financing activities          
Proceeds from warrants exercised (note 13)   2,345    132 
Proceeds from stock options exercised   67    - 
Repayment of revolving credit facility   -    (1,330)
Repayment of note payable   (325)   (1,876)
Lease payments   (23)   (19)
Issuance of common shares   -    39,380 
Net cash provided by financing activities   2,064    36,287 
Effect of exchange rate changes on cash held in foreign currency   212    (553)
Net (decrease) increase in cash   (31,020)   27,033 
Cash, beginning of period   154,305    13,543 
Cash, end of period  $123,285   $40,576 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 5 -

 

Sigma Lithium Corporation

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity

(Expressed in thousands of Canadian dollars, except per share amounts, and number of shares, unless otherwise indicated)

(Unaudited)

 

   Number of
common shares		   Share
capital		   Contributed
Surplus
(restated)		   Accumulated
other
comprehensive
loss
(restated)		   Deficit   Total 
Balance, January 1, 2021   77,782,757   $53,911   $3,931   $(2,858)  $(33,226)  $21,758 
Private placement (note 10)   9,545,455    42,000    -    -    -    42,000 
Share issue costs (note 10)   -    (2,620)   -    -    -    (2,620)
Agent warrants issued   -    (873)   873    -    -    - 
Exercise of RSUs (note 15)   10,000    50    (50)   -    -    - 
Exercise of warrants (note 13)   30,000    179    (47)   -    -    132 
Stock-based compensation   -    -    7,073    -    -    7,073 
Net loss for the period   -    -    -    -    (7,393)   (7,393)
Other comprehensive loss for the period   -    -    -    29    -    29 
Balance, June 30, 2021   87,368,212   $92,647   $11,780   $(2,829)  $(40,619)  $60,979 
Balance, January 1, 2022   99,377,349   $224,820   $30,881   $(3,519)  $(67,119)  $185,063 
Exercise of warrants (notes 10 and 13)   532,860    3,218    (873)   -    -    2,345 
Exercise of RSUs (note 15)   776,333    3,191    (3,191)   -    -    - 
Exercise of stock options   30,000    127    (60)   -    -    67 
Stock-based compensation (note 2)   -    -    25,781    -    -    25,781 
Net loss for the period   -    -    -    -    (33,711)   (33,711)
Other comprehensive income for the period   -    -    -    623    -    623 
Balance, June 30, 2022 (Restated)   100,716,542   $231,356   $52,538   $(2,896)  $(100,830)  $180,168 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 6 -

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

1.Nature of operations

 

Sigma Lithium Corporation (the “Company”) is a mineral processing and development company incorporated under the Canada Business Corporations Act. The Company's common shares trade on Nasdaq Capital Market ("Nasdaq") under the symbol "SGML" and on the TSX Venture Exchange (the “TSXV”) under the symbol "SGML”. The head office of the Company is Suite 2200, 885 West Georgia Street, Vancouver, British Columbia, V6E 3E8.

 

These unaudited condensed interim consolidated financial statements include the Company’s wholly -owned subsidiary Sigma Lithium Holdings Inc. (“Sigma Holdings”), which is domiciled in Canada and incorporated under the Business Corporations Act (British Columbia), and its indirect wholly-owned Brazil-incorporated subsidiary Sigma Mineração S.A. ("Sigma Brazil").

 

Sigma Brazil holds a 100% interest in four mineral properties: Grota do Cirilo, São Jose, Santa Clara, and Genipapo, located in the municipalities of Araçuaí and Itinga, in the Vale do Jequitinhonha region in the State of Minas Gerais, Brazil (together, the "Lithium Properties").

 

2.Restatement of Interim Condensed Consolidated Financial Statements.

 

During the third quarter of 2022, while reviewing the calculation of stock-based compensation expense, a non-cash expense, the Company identified a number of contracts entered into with employees and consultants which provided for the right to be issued RSUs which were not previously accounted for. The Company has restated its stock based compensation to account for the RSU’s which were not previously accounted for. There were no changes to cash flows from operations, financing or investing activities.

 

The Company has restated the figures below to correct the impact, as summarized in the tables below.

 

  

Statement of financial position

as at June 30, 2022

 
   As
previously
reported		   Adjustments   As Restated 
Property, plant and equipment   52,760    1,433    54,193 
Total assets   193,319    1,433    194,752 
Other liability - Current   134    293    427 
Total Liabilities   14,291    293    14,584 
Contributed surplus   48,107    4,431    52,538 
Accumulated deficit   (97,539)   (3,291)   (100,830)
Total Shareholders ‘equity   179,028    1,140    179,554 

 

- 7 -

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

The following table shows the Company's stock-based compensation expense as previously reported and the impact of the restatement for the three-month periods ended March 31, 2022 and June 30, 2022 and the six-month period ended June 30, 2022:

 

   Stock-Based Compensation Expense 
   As
previously
reported		   Adjustments   As Restated 
Three months ended March 31, 2022   10,681    1,961    12,642 
Three months ended June 30, 2022   10,661    1,330    11,991 
Six months ended June 30, 2022   21,342    3,291    24,633 

 

   Net loss for the period 
   As
previously
reported		   Adjustments   As Restated 
Three months ended June 30, 2022   (20,216)   (1,330)   (21,546)
Loss per common share               
Basic and diluted net loss per common share   (0.20)   (0.01)   (0.21)

 

   Net loss for the period 
   As
previously
reported		   Adjustments   As Restated 
Six months ended June 30, 2022   (30,420)   (3,291)   (33,711)
Loss per common share               
Basic and diluted net loss per common share   (0.30)   (0.04)   (0.34)

 

3.Basis of preparation

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting. The accounting policies, and critical accounting estimates and judgments applied in these condensed interim consolidated financial statements are consistent with those used in the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, except for the following:

 

Accounting policies:

 

In May 2020, the IASB issued an amendment to IAS 16, Property, Plant and Equipment (“IAS 16”), to prohibit the crediting to property, plant and equipment of amounts received from selling items produced while preparing an asset for its intended use. Instead, sales proceeds and related costs must be recognized in profit or loss. The amendment requires companies to distinguish between costs associated with producing and selling items before the item of property, plant and equipment is available for use and costs associated with making the item of property, plant and equipment available for its intended use. The Company adopted the revision to IAS 16 when it became effective on January 1, 2022 with no impact on its historical accounting.

 

- 8 -

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

New standards and amendments issued but not yet effective or adopted are described below:

 

IAS 1, Presentation of Financial Statements In January 2020, the IASB issued an amendment to IAS 1, Presentation of Financial Statements, to clarify one of the requirements under the standard for classifying a liability as non-current in nature. The amendment includes: – Specifying that an entity’s right to defer settlement must exist at the end of the reporting period; – Clarifying that classification is unaffected by management’s intentions or expectations about whether the entity will exercise its right to defer settlement; – Clarifying how lending conditions affect classification; and – Clarifying if the settlement of a liability refers to the transfer of cash, equity instruments, other assets or services. The Company will perform an assessment of the amendment on its financial statements prior to the effective date of January 1, 2023.

 

Critical accounting judgments

 

•Due to the advancement of the Company's project and significant spend during the quarter as well as assessed likelihood of reaching production, the Company made a critical accounting judgment to recognize the value of the royalty agreement call option as at June 30, 2022 given the assessed likelihood that the company will exercise this option.

 

Statement of compliance

 

These condensed interim consolidated financial statements do not include all disclosures required by IFRS for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2021.

 

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis on the assumption that the Company will continue to operate for the next 12 (twelve) months and foreseeable future and be able to realize its assets and discharge its liabilities in the normal course of business.

 

4.Exploration and evaluation assets

 

The Company has mineral properties in the exploration and evaluation stage and follows the practice of capitalizing all costs relating to the acquisition and exploration of mineral rights. Such costs include, among others, geological, geophysical studies, exploratory drilling and sampling, feasibility studies and technical reports.

 

A summary of exploration costs is set out below:

 

   June 30,   December 31, 
   2022   2021 
Opening balance  $7,884   $18,354 
Personnel costs (a)   1,053    2,769 
Geological costs   1,947    2,492 
Drilling   3,853    4,754 
Environmental consulting   90    194 
Environmental compensation   402    305 
Development / Engineering services   271    707 
Other   168    192 
Cumulative translation adjustment   197    188 
Transfer to property, plant and equipment (note 5)   -    (22,071)
Closing balance  $15,865   $7,884 

 

(a) The personnel costs include $8 related to RSUs during the six months ended June 30, 2022 (year ended December 31, 2021 - $1,653).

 

- 9 -

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

5.Property, plant, and equipment (Restated)

 

Cost  Vehicle   Furniture   Building   Machinery
and Fixtures		   Assets
Under
Construction		   Pilot
plant		   Right-
of-use
assets		   Total 
Balance, January 1, 2021  $6   $41   $12   $311   $-   $215   $293   $877 
Additions   48    9    -    13    7,034    -    13    7,118 
Transfers (note 4)   -    -    -    -    22,071    -    -    22,071 
Fixed Assets Paid in Advance   -    -    -    -    1,775    -    -    1,775 
Asset Retirement Cost   -    -    -    -    162    -    -    162 
Cumulative translation adjustment   (1)   (1)   (1)   (21)   (985)   (33)   (30)   (1,070)
Balance, December 31, 2021  $53   $49   $11   $303   $30,057   $184   $276   $30,933 
Additions(a)        17         15    22,315    -    -    22,347 
Asset Retirement Cost   -    -    -    -    363    -    -    363 
Cumulative translation adjustment   4    2    1    20    799    ‘13    19    858 
Balance, June 30, 2022  $57   $68   $12   $338   $53,534   $197   $295   $54,501 

 

Accumulated
Depreciation/Amortization		  Vehicle   Furniture   Building   Machinery
and Fixtures		   Assets
Under
Construction		   Pilot
plant		   Right-
of-use
assets		   Total 
Balance, January 1, 2021  $2   $9   $7   $84   $-   $33   $59   $194 
Depreciation   3    4    0    31    -    19    18    75 
Cumulative translation adjustment   -    -    -    (6)   -    (2)   (15)   (23)
Balance, December 31, 2021  $5   $13   $7   $109   $-   $49   $61   $244 
Depreciation   6    1    3    18    -    10    11    49 
Cumulative translation adjustment   -    1    -    7    -    3    4    15 
Balance, June 30, 2022   11    15    10    134    -    62    76    308 
Net Book Value                                        
Balance, December 31, 2021  $48   $36   $4   $194   $30,057   $135   $215   $30,689 
Balance, June 30, 2022  $46   $53   $2   $204   $53,534   $135   $219   $54,193 

 

(a)  The assets under construction include $1,433 related to RSUs during the six months ended June 30, 2022.

 

- 10 -

 

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

5.Property, plant and equipment (continued)

 

Assets Under Construction

 

During the year ended December 31, 2021, the Xuxa deposit (the “First Mine”) transitioned from the exploration and evaluation stage (under IFRS 6) to the development stage and, as a result, $22,071, of the exploration and evaluation expenditures were transferred from exploration and evaluation assets to property, plant and equipment.

 

Royalty

 

The Company is subject to the following royalties:

 

(a) 2.0% Compensação Financeira pela Exploração de Recursos Minerais (CFEM), a royalty on mineral production levied by the Brazilian government, payable on the gross revenue from sales of minerals extracted from the Lithium Properties.

 

(b) a royalty (“Amilcar Royalty Agreement”) of 1% over the gross revenues of the Company from sales of minerals extracted from the Lithium Properties, less all taxes and costs incurred in the process of extraction, production, processing, treatment, transportation, and commercialization of the products sold (“Net Revenues”). Sigma Brazil has the option to repurchase the Amilcar Royalty Agreement, exercisable at any time, for US$3.8 million. The holder (currently Amilcar de Melo Afgouni (“Amilcar”)) has the option to require the repurchase of the Amilcar Royalty Agreement for the same price, exercisable: (i) if Sigma Brazil enters into commercial production and reaches production of 40,000 tonnes of lithium concentrate per year; or (ii) if the original controlling group of Sigma Holdings ceases to have an indirect interest of at least 30% in Sigma Brazil on a fully diluted basis. Due to the advancement of the Company's project and significant spend during the quarter as well as assessed likelihood of reaching production, the Company recognized the value of the royalty agreement call option of US$3.8 million represented by the strike price of the call option as at June 30, 2022 given the assessed likelihood that the company will exercise this option. As a result, the Company recorded a current liability in the Condensed Interim Consolidated Statement of Financial Position and an expense in the Condensed Interim Consolidated Statements of Net Income (Loss) and Comprehensive Loss, in the amount of US$3.8 million ($4,892); and

 

(c) a royalty (currently held by LRC LP I) of 1% of Net Revenues from sales net of all taxes, royalties, and transportation costs of minerals extracted from the Lithium Properties

 

6.Deferred revenue

 

On March 26, 2019, the Company entered into a binding heads of agreement with Mitsui & Co Ltd (“Mitsui”) under which Mitsui would prepay the Company US$30 million towards the purchase of 80,000 tonnes of battery grade lithium concentrate annually (the “Mitsui Pre-Payment”).

 

Mitsui made an initial deposit payment of US$3 million ($4,007) to the Company on April 4, 2019.

 

Other than the initial deposit payment described above, the Company did not request or receive any funds in 2021 or during the six months ended June 30, 2022.

 

- 11 -

 

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

7.Lease liability

 

The lease liability is related to land leases of surface properties owned by Miazga Participações S.A., (”Miazga”), a related party and Arqueana, a related party, (note 9) and land leases owned by third parties. The leases agreements have terms between 1 year to 15 years and the liability was measured at the present value of the lease payments discounted using a weighted average interest rate of 11.33% (December 31, 2021: 11.33%) which was determined to be the Company's incremental borrowing rate. The continuity of the lease liability is presented in the table below:

 

Lease liability, December 31, 2021  $244 
Interest expense   14 
Lease payments   (23)
Cumulative translation adjustment   17 
Lease liability, June 30, 2022  $252 
      
As of June 30, 2022     
Lease obligations  $252 
Less current portion   39 
Non-current portion  $213 

 

Maturity analysis – contractual undiscounted cash flows

 

As at June 30, 2022     
Less than one year  $40 
Year 2   40 
Year 3   40 
Year 4   40 
More than 5 years   394 
Total contractual undiscounted cash flows  $554 

 

- 12 -

 

 

Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

8.Asset retirement obligation

 

The Company has estimated its asset retirement obligation to be $529 on June 30, 2022 (December 31, 2021 - $162), representing the present value of estimated future rehabilitation costs currently disturbed. The estimate is based on future rehabilitation costs of $914, an inflation rate of 4% (December 31, 2021 - 4%) and a discount rate of 11.33% (December 31, 2021 – 11.33%).

 

Asset retirement obligation, December 31, 2021  $162 
Accretion   4 
Addition   360 
Cumulative translation adjustment   3 
Asset retirement obligation, June 30, 2022  $529 

 

9.Related party transactions

 

The Company’s related parties include:

 

Related Party Nature of relationship
A10 Group A10 Group is composed of A10 Serviços (“A10 Advisory”) and A10 Investimentos Ltda. The companies are controlled and indirectly controlled, respectively, by the director of the Company, Marcelo Paiva and by the Co-CEO Ana Cabral-Gardner.
Miazga Miazga Participações S.A is a land administration company in which the two Co-CEOs of the Company have an indirect economic interest.
Arqueana Arqueana Empreendimentos e Participações S.A. is a land administration company in which the two Co-CEOs of the Company have an indirect economic interest.

 

(a)Transactions with related parties

 

The related party transactions are recorded at the exchange amount transacted as agreed between the Company and the related party.

 

Cost sharing agreement (“CSA”): The Company has a CSA with A10 Advisory where A10 Advisory is reimbursed for secondment staff 100% allocated to the Company, including legal, financial and business development personnel and 50% of shared secretarial administrative personnel.

 

Leasing Agreements: The Company has right-of-way agreements with Miazga and Arqueana.

 

Note Payable: The Company fully repaid the amount of $325 to Arqueana in March 2022. The note payable to Arqueana was related to the share exchange agreement dated December 12, 2017, entered by the Company with Arqueana.

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

9.Related party transactions (continued)

 

(b)Outstanding balances and expenses

 

   Six Months Ended
June 30, 2022		   As at
December 31, 2021		   Six Months
Ended June
30, 2021		 
   Pre-
payments		   Accounts
Payable/
Debt		   Expenses/
Payments		   Pre-
payments		   Accounts
Payable/
Debt		   Expenses/
Payments		 
   $   $   $   $   $   $ 
A10 Advisory                              
CSA   -    -    45    -    -    74 
Revolving credit facility (1)   -    -    -    -    -    1,306 
Commission fees (2)  (Note 10 b)   -    -    -    -    -    2,345 
Warrants (3) (Note 10 b)   -    -    -    -    -    827 
                               
Miazga                              
Lease agreements   -    80    33    -    82    24 
Prepaid land lease offset   116    -    -    104    -    6 
                               
Arqueana                              
Lease agreements   -    173    17    -    168    12 
Note payable   -    -    270    -    270    1,924 

 

(1) There were no payments made by the Company related to the Revolving Credit Facility in 2022. The last transaction happened in 2021.

(2) There were no payments made by the Company related to the Commission fees agreed between the Company and A10 Advisory in 2022.

(3) There were no payments made by the Company in 2022 related to the purchase Warrants issued by the Company in connection with the February 21, 2021 non-brokered private placement. The Warrants were exercised on February 11, 2022

 

10.Share capital

 

(a) Authorized share capital

 

The authorized share capital consists of an unlimited number of common shares. The common shares do not have a par value. All issued shares are fully paid.

 

(b) Common shares issued by the Company:

 

   Common
shares (#)		   Amount 
Balance, January 1, 2022   99,377,349   $224,820 
Exercise of warrants (1)   532,860    3,218 
Exercise of RSUs (note 15)   776,333    3,191 
Exercise of stock options   30,000    127 
Balance, June 30, 2022   100,716,542   $231,356 

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

   Common
shares (#)		   Amount 
Balance, January 1, 2021   77,782,757   $53,911 
Private placement (1)   9,545,455    42,000 
Cost of private placement (1)   -    (2,620)
Agents warrants issued   -    (873)
Exercise of RSUs (note 15)   10,000    50 
Exercise of warrants   30,000    178 
Balance, June 30, 2021   87,368,212   $92,646 

 

(1) On February 12, 2021, the Company completed a non-brokered private placement of 9,545,455 common shares at a price of $4.40 per share for aggregate gross proceeds of $42,000. In connection with the offering, the Company paid aggregate placement agent fees of $2,620 and issued 562,860 Common Share purchase warrants having an exercise price of $4.40 per share and exercisable until February 12, 2022. In connection with this offering A10 Advisory, a related party (note 9) who was part of the Company’s financial advisors engaged in such non-brokered private placement, received $2,345 of such placement agent fees and 532,860 of such common share purchase warrants. These warrants were exercised on February 11, 2022.

 

11.Net loss per common share (note 2)

 

The calculation of basic and diluted loss per share for the three and six months ended June 30, 2022 was based on the loss attributable to common shareholders of $21,546(restated) and $33,711(restated), respectively (three and six months ended June 30, 2021 - $1,019 and $7,394, respectively) and the weighted average number of common shares outstanding of 100,659,839 and 100,110,484, respectively (three and six months ended June 30, 2021 of 87,368,212 and 85,062,054, respectively). Diluted loss per share for each of the periods presented did not include the effect of RSU's, stock options and warrants as they are anti-dilutive.

 

12.General and administrative expenses

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2022   2021   2022   2021 
Salaries and benefits  $641   $263   $1,115   $356 
Legal   1,012    46    1,213    114 
Travel   286    11    379    22 
A10 Advisory - Cost Sharing Agreement   53    39    72    70 
Business development and investor relations   381    195    789    290 
Accounting   97    20    141    44 
Auditing   13    77    13    276 
Other   1,107    144    1,227    264 
Total general and administrative expenses  $3,590   $795   $4,949   $1,436 

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

13.Warrants

 

The following table shows the continuity of warrants during the period:

 

   Warrants
Outstanding		   Average
Exercise
Price		 
Balance, December 31, 2020   -   $- 
Issued (1)   562,860    4.40 
Exercised   (30,000)   (4.40)
Balance, June 30, 2021   532,860   $4.40 
           
Balance, December 31, 2021   532,860   $4.40 
           
Exercised (2)   (532,860)   (4.40)
Balance, June 30, 2022   -   $- 

 

(1) The fair value of the 562,860 Common Share purchase warrants of $873 was estimated using the Black-Scholes valuation method at the date of the grant with the following inputs: market price on valuation date of $4.40; expected dividend yield of 0%; expected volatility of 66.61% using the historical price history of the Company; risk-free interest rate of 0.17%; and an expected average life of one year.

 

(2) In February 2022, the Company received from A10 Advisory $2,345 upon the exercise of 532,860 warrants into 532,860 common shares at an exercise price of $4.40 per share.

 

14.Financial risk management

 

The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, foreign currency risk and price risk).

 

The fair values of cash, accounts payable, and note payable approximate their carrying values due to the short term to maturity of these financial instruments.

 

Credit risk

 

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash. The Company’s cash is held with established institutions for which management believes the risk of loss to be remote.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure it will have sufficient liquidity to meet liabilities when due. To the extent the Company does not believe it has sufficient liquidity to meet obligations, it will consider securing additional equity or debt funding.

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

The Company’s financial obligations consist of accounts payable, and contractual lease payments. The maturity analysis of financial liabilities as of June 30, 2022, is as follows:

 

Contractual Obligations  Up to 1 year   1-3 year   4-5 years   More than
5 years		   Total 
Accounts payable and other liabilities  $3,604   $-   $-   $-   $3,604 
Lease liabilities   39    52    45    116    252 

 

Market risk

 

Market risk is the risk of loss that may arise from changes in market such as interest rates and foreign exchange rates.

 

(a) Interest rate risk

 

The Company has cash balances. The Company’s current policy is to invest surplus cash in savings accounts with a Canadian chartered bank with which it keeps its bank accounts. As of June 30, 2022, the Company has $123,285 as cash. The Company’s exposure to risks of changes in market interest rates relates primarily to interest earned on its cash balances.

 

(b) Foreign currency risk

 

The Company’s functional and presentation currency is the Canadian dollar and certain purchases, and salaries are transacted in Canadian dollars. The Company also has significant balances in Brazilian Reais and United States dollars that are subject to foreign currency risk.

 

The Company had the following balances in the prescribed currencies:

 

   June 30,
2022		   December 31,
2021		 
Brazilian Reais          
Current assets   8,384    4,279 
Current liabilities   (36,191)   (10,286)
           
United States Dollar          
Cash in banks   53,215    67,089 

 

Cash in Foreign Currencies  June 30, 2022   December 31, 2021 

Denominated Currencies:

  Amount in
denominated
currency		   Equivalent
Amount in
Canadian $		   Amount in
denominated
currency		   Equivalent
Amount in
Canadian $		 
Deposits in Brazilian Reais   6,990   $1,712    3,051   $699 
Deposits in United States Dollars   53,215    68,504    67,089    84,760 
Total Cash       $70,216        $85,459 

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

The Company is exposed to foreign currency risk on fluctuations related to cash, receivables, and accounts payable and other liabilities denominated in Brazilian Reais and US dollars:

 

•Sensitivity to a plus or minus 10% change in the foreign exchange rate of the Brazilian Reais compared to the Canadian dollar would affect the Company’s Condensed Interim Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) by approximately $192 with all other variables held constant

 

•Sensitivity to a plus or minus 10% change in the foreign exchange rate of the US dollar compared to the Canadian dollar would affect the Company’s Condensed Interim Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) by approximately $6,850 with all other variables held constant.

 

15.Restricted share units (Restated)

 

The Company’s Board of Directors has adopted the Equity Incentive Plan. The Equity Incentive Plan is available to (i) the directors of the Company, (ii) the officers and employees of the Company and its subsidiaries and (iii) designated service providers who spend a significant amount of time and attention on the affairs and business of the Company or a subsidiary thereof (each, a “Participant”), all as selected by the Company’s Board of Directors or a committee appointed by the Company’s Board of Directors to administer the Equity Incentive Plan (the “Plan Administrators”).

 

Under the Equity Incentive Plan, selected participants are granted restricted share units (“RSUs”), where each RSU represents the right to receive one common share upon achievement of any applicable vesting conditions. Company´s plan includes time-based awards, milestones-based awards and other performance-based awards linked to market conditions. The milestones-based awards vests upon the achievement of specific operational goals, which are non-market performance conditions. Market performance conditions are detailed below. As per the Equity Incentive Plan, no RSUs will be exercisable more than 10 years after the grant date.

 

   Number of RSUs 
Balance, December 31, 2020   687,334 
Granted (1)   1,381,333 
Exercised   (10,000)
Balance, June 30, 2021   2,058,667 
      
Balance, December 31, 2021   7,422,667 
Granted (2) (3) (restated)   50,000 
Exercised   (776,333)
Balance, June 30, 2022 (restated)   6,696,334 

 

(1) On March 4, 2021, the Board approved the grant of 1,381,333 RSUs to key employees, directors and designated service providers of the Company. All these RSUs were fully vested on grant date.

 

(2) On April 5, 2022, the Compensation Committee, delegated by the Board, approved the grant of 50,000 RSUs to a key consultant of the Company. All these RSUs were fully vested on grant date, which occurred after completion of the service period.

 

(3) Total stock-based compensation for the three and six months ended June, 2022 was $13,134 (restated) and $25,781 (restated), respectively (three and six months ended June 30, 2021: $60, $5,511, respectively), being recorded as stock-based compensation expense $11,991 (restated) and $24,633 (restated), respectively ( three and six months ended June 30, 2021: $60, $5,511) and the remaining portion recordings in exploration and evaluation assets and property, plant and equipment (notes 4 and 5 respectively). The RSUs are measured at fair value according to IFRS 2. When a grant date under IFRS has not yet been established as the RSU award is subject to Board of Directors approval, the Company valued the RSUs at the Company’s June 30, 2022 share price. Certain of the awards remain subject to board approval (grant date),once the grant date under IFRS has been established, The Company revises the earlier estimate so that the amounts recognized for services received in respect of the grant are based on the grant date fair value.

 

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Sigma Lithium Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2022 and 2021

(Expressed in thousands of Canadian Dollars, except per share amounts, unless otherwise indicated)

(Unaudited)

 

On September 8, 2021, the Board granted an aggregated 5,000,000 RSUs to the Co-CEOs of the Company (2,500,000 RSUs to each Co-CEO) 5,000,000 of the RSUs granted to the Co-CEO (being 2,500,000 RSUs granted to each Co-CEO) vested in four tranches upon the achievement of specified market capitalization targets as follows:

 

 Tranche  Number of RSUs    Market Conditions Vesting Milestones
i.   1,000,000   Increase of market cap to $ 1.3 billion
ii.   1,000,000   Increase of market cap to $ 1.55 billion
iii.   1,000,000   Increase of market cap to $ 1.8 billion
iv.   2,000,000   Increase of market cap to $ 2 billion
    5,000,000    

 

An additional aggregate 1,000,000 RSUs will vest (500,000 RSUs per Co-CEO) upon approval by the Board of Directors of the plan to achieve a net zero carbon target and its subsequent successful execution.

 

These RSUs contain a market condition, and therefore the Company used a Monte Carlo Simulation methodology to determine the grant date fair value of the RSUs which incorporated the following assumptions:

 

Risk-free rate  0.85%
Expected equity volatility  60%
Share price  10.25
Expected dividend rate  0.00%
Probability of success  33.88% - 61.42%

 

The expense for these RSUs have been valued based on the Company’s Monte Carlo Simulation, amortized over its estimated life.

 

Total stock-based compensation for the six months ended June 30, 2022, was $26,074 (six months ended June 30, 2021 - $7,074), being $24,633 recorded as stock-based compensation expense (six months ended June 30, 2021 - $5,511), $1,433 recorded as property, plant and equipment, and the remaining portion recorded in exploration and evaluation assets (note 4). The total stock-based compensation plan of $26,074 includes the equity settlement portion of $25,781 and the cash settlement portion of $293 recorded as other current liability.

 

16.Subsequent Event

 

Subsequent to June 30, 2022 the Company engaged Mr. Brian Talbot (newly appointed COO) , for consideration of monthly fees of $35,000 and a grant of up to 1,000,000 restricted share units (“RSUs”), conditional upon achieving certain milestones.

 

In addition, subsequent to June 30, 2022 the Company extended the contract with Mr. Vicente Lobo (technical committee co-chair) for consideration of monthly fees of R$60,000 and a grant of 216,000 RSU’s, 50,000 which vest immediately and the remainder which vest 1/3 each on the on year anniversary from the grant date for a period of 3 years.

 

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