Ceylon Graphite Corp. — Annual Report 2020

Sep 15, 2020

CEYLON GRAPHITE CORP.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

MARCH 31, 2020 AND 2019 (Expressed in Canadian dollars)

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 4] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 4] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Directors of Ceylon Graphite Corp.

Opinion

We have audited the consolidated financial statements of Ceylon Graphite Corp. and its subsidiaries (the “Company”) which comprise the consolidated statements of financial position as at March 31, 2020 and 2019, and the consolidated statements of comprehensive loss, cash flows and changes in equity for the years then ended, and the related notes comprising a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter - Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the accompanying consolidated financial statements, which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information, which comprises the information included in the Company’s Management Discussion & Analysis to be filed with the relevant Canadian securities commissions.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 8] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 5] intentionally omitted <==

==> picture [468 x 4] intentionally omitted <==

INDEPENDENT AUDITORS’ REPORT

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design 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.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditors’ report is Fernando J. Costa.

==> picture [186 x 32] intentionally omitted <==

CHARTERED PROFESSIONAL ACCOUNTANTS Vancouver, Canada September 14, 2020

CEYLON GRAPHITE CORP. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

	Note	2020	2019
		$	$
ASSETS
Current
Cash		1,047	441,640
Amount receivable		56,744	29,031
Prepaid expenses and advances		330,377	202,059
		388,168	672,730
Property and equipment	6	369,208	258,480
Exploration and evaluation assets	7	3,290,417	2,915,819
		4,047,793	3,847,029
LIABILITIES
Current
Accounts payable and accrued liabilities	10	282,482	64,963
Amounts payable	7,10	1,418,641	1,336,300
Other		-	8,822
Loans payable	11	161,478	-
Currentportion of capital lease obligations		3,868	3,926
		1,866,469	1,414,011
Capital lease obligations		8,228	10,881
Convertible debentures	8	1,935,644	1,613,085
		3,810,341	3,037,977
EQUITY
Share capital	9	6,200,542	5,216,542
Share subscriptions	9	50,000	50,000
Equity component of convertible debenture	8	394,711	394,711
Contributed surplus	9	3,025,999	2,454,607
Deficit		(9,657,850)	(7,390,486)
Accumulated other comprehensive income		224,050	83,678
		237,452	809,052
		4,047,793	3,847,029

CORPORATE INFORMATION AND CONTINUANCE OF OPERATIONS (Note 1) COMMMITMENT (Note 5) SUBSEQUENT EVENT (Note 15)

Approved by the Board of Directors on September 14, 2020

Approved by the Board of Directors on September 14,	2020
“Bharat Parashar” Bharat Parashar, Director	“Kevin Aylward”
	Kevin Aylward, Director

(The accompanying notes are an integral part of these consolidated financial statements)

• 1 -

CEYLON GRAPHITE CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

	Note	2020	2019
		$	$
Expenses
Advertising and promotion		69,819	166,030
Amortization		66,412	63,054
Interest, finance and bank charges	8	328,634	245,945
Office and administrative		118,599	127,091
Professional fees	10	754,776	403,798
Rent		-	6,016
Repair and maintenance		1,965	8,874
Share-based payments	9,10	38,059	168,864
Transfer agents		38,683	11,471
Travel		92,573	203,909
Vehicle		4,373	15,146
Wages and benefits		225,850	156,830
Loss before other items		(1,739,743)	(1,577,028)
Other items
Other income		216	16,222
Foreign exchange gain		1,827	17,523
Loss on disposal of assets		(16,147)	-
Conversion inducement	8	(533,333)	-
Gain on write off accountspayable		19,816	-
		(527,621)	33,745
Loss before deferred income tax recovery		(2,267,364)	(1,543,283)
Deferred income tax recovery		-	(145,989)
Net loss		(2,267,364)	(1,397,294)
Other comprehensive loss
Item that may be reclassified subsequently to loss:
Unrealized foreign exchange translation		(140,372)	43,103
Comprehensive loss		(2,126,992)	(1,440,397)
Lossper share – basic and diluted		(0.04)	(0.03)
Weighted average number of common shares outstanding		60,149,743	54,766,181

(The accompanying notes are an integral part of these consolidated financial statements)

• 2 -

CEYLON GRAPHITE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

	2020	2019
	$	$
Net loss	(2,267,364)	(1,397,294)
Items not involving cash:
Accretion and interest for convertible debentures	322,559	221,285
Amortization	66,412	63,054
Deferred income tax recovery	-	(145,989)
Gain on write off of accounts payable	(19,816)	-
Conversion inducement	533,333	-
Loss on disposal of assets	16,147	-
Foreign exchange	58,319	(84,744)
Share-basedpayments	38,059	168,864
	(1,252,351)	(1,174,824)
Changes in non-cash working capital balances:
Accounts payable and accrued liabilities	228,513	24,934
Amounts receivable	(27,713)	(23,606)
Prepaid expenses and advances	(128,318)	(179,012)
Cash used in operatingactivities	(1,179,869)	(1,352,508)
INVESTING ACTIVITIES
Proceeds on disposal of assets	-	15,955
Purchase of property and equipment	(193,287)	(36,500)
Expenditures on exploration and evaluation assets	(209,916)	(147,945)
Cash used in investingactivities	(403,203)	(168,490)
FINANCING ACTIVITIES
Issuance of common shares	984,000	-
Payments on capital lease obligation	(2,711)	-
Loan repayment	(102,272)	(130,760)
Proceeds of convertible debt	-	1,911,200
Proceeds of loanspayable	263,750	-
Cash provided by financing activities	1,142,767	1,780,440
CHANGE IN CASH DURING THE YEAR	(440,305)	259,442
CASH, BEGINNING OF YEAR	441,640	180,787
EFFECTOF TRANSLATINGFOREIGNCURRENCY	(288)	1,411
CASH,END OF YEAR	1,047	441,640
SUPPLEMENTAL CASH DISCLOSURES
Interest and income taxespaid	-	-

(The accompanying notes are an integral part of these consolidated financial statements)

• 3 -

CEYLON GRAPHITE CORP. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

	Common Shares Number Amount Share subscriptions Equity portion of convertible debentures Contributed surplus Deficit Accumulated other comprehensive income Total
Balances as at March 31, 2018 Equity portion of convertible debentures Share-based payments Net loss and comprehensive loss	$ $ $ $ $ $ $ 54,766,181 5,216,542 50,000 - 2,285,743 (5,993,192) 126,781 1,685,874 - - - 394,711 - - - 394,711 - - - - 168,864 - - 168,864 - - - - - (1,397,294) (43,103) (1,440,397)
Balances as at March 31, 2019 Issuance of common shares for cash Share issuance for costs Inducement for convertible debentures Share-based payments Net loss and comprehensive loss	54,766,181 5,216,542 50,000 394,711 2,454,607 (7,390,486) 83,678 809,052 12,500,000 1,000,000 - - - - - 1,000,000 (16,000) - - - - - (16,000) - - - - 533,333 - - 533,333 - - - - 38,059 - - 38,059 - - - - - (2,267,364) 140,372 (2,126,992)
Balances as at March 31,2020	67,266,181 6,200,542 50,000 394,711 3,025,999 (9,657,850) 224,050 237,452

(The accompanying notes are an integral part of these consolidated financial statements)

• 4 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

1. CORPORATE INFORMATION AND CONTINUANCE OF OPERATIONS

Ceylon Graphite Corp. (the “Company or Ceylon”) was incorporated on April 3, 1986 under the Canada Business Corporations Act. On December 30, 2016 the Company acquired Plumbago Refining Corp. B.V. (“Plumbago”) through a reverse acquisition transaction. Plumbago was a private limited liability company organized under the laws of Curacao.

The address of the Company’s corporate office is Suite 600 – 535 Howe Street, Vancouver, BC, Canada and its principal place of business is Landhuis Joonchi, Kaya Richard J. Beaujon z/n Willemstad, Curacao.

On July 13, 2019, the Company incorporated a subsidiary B P A Lanka (Private) Limited (“BPA”) in Sri Lanka and retained 49% interest. As Plumbago is the sole decision maker in the operations of BPA, for accounting purposes, Plumbago has control over BPA and thus the operating results of BPA have been consolidated.

During the year ended March 31, 2020, the Company incurred a net loss of $2,267,364 and had a deficit of $9,657,850, which has been funded by the issuance of equity. The Company’s ability to continue its operations and to realize its assets at their carrying values is dependent upon obtaining additional financing and generating sufficient revenues to cover its operating costs. The Company had not yet determined whether its property contains graphite reserves that are economically recoverable. The recoverability of amounts shown for exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production or proceeds from the disposition of the resource property. The outcome of these matters cannot be predicted at this time and the uncertainties cast significant doubt upon the Company’s ability to continue as a going concern.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. To date, there have been a large number of temporary business closures, quarantines and a general reduction in consumer activity in Canada. The outbreak has caused companies and various governmental bodies to impose travel, gathering and other public health restrictions. While these effects are expected to be temporary, the duration of the various disruptions to businesses locally and internationally and the related financial impact cannot be reasonably estimated at this time. Similarly, the Company cannot estimate whether or to what extent this outbreak and the potential financial impact may extend. At this point, the extent to which COVID-19 will or may impact the Company is uncertain and these factors are beyond the Company’s control; however, it is possible that COVID-19 may have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company has been able to fund operations and mineral property exploration through equity financings. The continued uncertainty in the financial equity markets may make it difficult to raise capital through the private placement of shares. The junior mining industry is considered speculative in nature which could make it more difficult to fund. While the Company is using its best efforts to achieve its business plans by examining various financing alternatives, there is no assurance that the Company will be successful with its financing ventures.

These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these consolidated financial statements.

• 5 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

2. SIGNIFICANT ACCOUNTING POLICIES

a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

The significant accounting policies used in the preparation of these consolidated financial statements are described below.

The consolidated financial statements were authorized for issue in accordance with a resolution from the Board of Directors on September 14, 2020.

b) Basis of presentation

These consolidated financial statements include the assets and operations of the Company and entities it controls, Plumbago and Sarcon Development (PVT) Limited (“Sarcon”), C Y L Lanka (Private) Limited (“Lanka”) and JADS Enterprise (Private) Limited (“JADS”) and BPA. Sarcon was incorporated in Sri Lanka under the Companies Act, No. 07 of 2007. Lanka was incorporated in Sri Lanka having a registration number PV 129449 with the local registration office No.47. JADS was incorporated in Sri Lanka having a registration number PV99839 with the local registration office No.165/2. BPA was incorporated in Sri Lanka having a registration number PV00214055 with the local registration office No.47. All significant inter-company balances and transactions have been eliminated upon consolidation.

The consolidated financial statements have been prepared on the historical cost basis, with the exception of financial instruments which are measured at fair value, as explained in the accounting policies set out below. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

c) Cash and cash equivalents

Cash in the statements of financial position is comprised of cash in banks and on hand, and shortterm deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. As of March 31, 2020 and 2019, the Company held cash only.

d) Exploration and evaluation assets

Exploration expenditures and direct costs of exploration and evaluation assets, such as property acquisition costs and leases, are capitalized. Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

Development costs incurred on a mineral property are deferred once management has determined, based on a feasibility study, that, a property is capable of economical commercial production as a result of having established proven and probable reserves. Development costs are carried at cost less accumulated depletion and accumulated impairment charges. Exploration expenditures incurred prior to determining that a property has economically recoverable resources are expensed as incurred.

The Company reviews the carrying values of mineral properties and development costs regularly with a view to assessing whether there has been any impairment in value, or whenever events or changes in circumstances that indicate the carrying value may not be recoverable. In the event the estimated discounted cash flows expected from its use or eventual disposition is determined to be insufficient to recover the carrying value of the property, the carrying value is written down to the estimated recoverable amount. Once a mine has achieved commercial production, mineral properties and development costs are depleted on a units-of-production basis over the life of the mine.

• 6 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

e) Foreign currency

The Company’s consolidated financial statements are presented in Canadian dollars. The Company’s functional currency is the Canadian dollar, Plumbago’s functional currency is the US dollar and the functional currency for Sarcon, Lanka, JADS and BPA is the Sri Lankan Rupee.

Transactions and balances in currencies other than the Canadian dollar, the currency of the primary economic environment in which the Company operates (“the functional currency”), are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at exchange prevailing on the statement of financial position date are recognized in the consolidated statement of comprehensive loss.

Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the statement of financial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

f) Provisions

Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount receivable can be measured reliably.

At each financial position reporting date presented, the Company has not incurred any decommissioning costs related to the exploration and evaluation of its mineral properties and accordingly no provision has been recorded for such site reclamation or abandonment.

g) Loss per share

The Company presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted loss per share does not adjust the loss attributable to common shareholders or the weighted average number of common shares outstanding when the effect is anti-dilutive.

h) Income taxes

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and includes any adjustments to tax payable or receivable in respect of previous years.

Deferred income taxes are recorded using the liability method whereby deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

• 7 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

• h) Income taxes (continued)

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the statement of financial position date. Deferred tax is not recognized for temporary differences which arise on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

i) Equipment

Equipment is recorded at cost less accumulated amortization, less any accumulated impairment losses. Amortization is taken on a straight line basis at the following rates:

Machinery 8 years Furniture and fixtures 5 years Tools and equipment 4 years Motor vehicles 5 years

• j) Financial Instruments

Financial instruments are accounted for in accordance with IFRS 9 “Financial Instruments: Classification and Measurement”. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another equity.

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.

Measurement

Financial assets at FVTOCI - Elected investments in equity investments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses recognized in other comprehensive loss. The Company has no financial assets designated as FVTOCI.

Financial assets and liabilities at amortized cost - Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment. The Company financial assets and liabilities at amortized cost include accounts receivable, accounts payable, amounts payable, other, loans payable and convertible debentures.

• 8 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

• j) Financial Instruments (continued)

Financial assets and liabilities at FVTPL - Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs expensed in the consolidated statements of net loss. Realized and unrealized gains or losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the consolidated statements of net loss. The Company has classified cash as FVTPL.

Impairment of financial assets at amortized cost

The Company recognized a loss allowance for expected credit losses on financial assets that are measured at amortized cost.

At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset at an amount equal to the twelve months expected credit losses. The Company shall recognize in the consolidated statements of net loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these consolidated financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in future periods affected.

Significant accounts that require estimates as the basis for determining the stated amounts include recognition of deferred income tax assets, assessment of decommissioning provision, valuation of share-based payments and assessment of impairment of exploration and evaluation assets.

Critical accounting estimates

• i) the inputs used in accounting for share based payment expense and for the convertible debentures;

• ii) expected future tax rates used in the deferred income tax disclosures.

• 9 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Critical accounting judgments

• i. the determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management;

• ii. the assessment of indications of impairment of exploration and evaluation properties and related determination of net realizable values and write-down of the properties where applicable;

• iii. the determination of whether it is likely that future taxable profits will be available to utilize against any deferred tax assets; and

• iv. the determination of the Company’s ability to continue as a going concern.

4. NEW ACCOUNTING STANDARDS AND RECENT ACCOUNTING PRONOUNCEMENTS

• a) New accounting standards issued and adopted during the year

The Company adopted IFRS 16 during the year ended March 31, 2020 which did not have a significant impact on these consolidated financial statements.

• b) New accounting standards issued but not yet effective

A number of new standards, amendments to standards and interpretations applicable to the Company are not yet effective for the year ended March 31, 2020 and have not been applied in preparing these consolidated financial statements. Management does not expect the impact of any such new standards and amendments to have any significant impact on its consolidated financial statements.

5. COMMITMENT

In March 2018, Plumbago acquired 40% interest in Lanka by paying 2,849,925 Rupees. Subsequent to the acquisition of Lanka, Lanka entered into an acquisition agreement with the sole shareholder (“transferor”) of JADS whereby Lanka acquired all issued and outstanding shares of JADS by paying 2,296,536 Rupees. Pursuant to the terms and conditions of the acquisition agreement, the transferor is entitled to 5% of net profits, which will be paid out in the form of the shares of Lanka or its nominee, for the first 5 years and 3% for the next 5 years. To date, no shares have been issued.

• 10 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

6. PROPERTY AND EQUIPMENT

		Furniture
		and	Tools and	Motor
	Machinery	Fixtures	Equipment	Vehicles	Land	Total
	$	$	$	$	$	$
Cost
At March 31, 2018	164,257	9,584	108,178	56,843	-	338,862
Additions	13,271	4,406	13,663	-	-	31,340
Disposals	-	-	-	(10,795)	-	(10,795)
At March 31, 2019	177,528	13,990	121,841	46,048	-	359,407
Additions	88,931	6,196	9,119	-	93,741	197,987
Disposals	(16,147)	-	-	-	-	(16,147)
Exchange rate
movements	(2,963)	(215)	(1,475)	(47)	-	(4,700)
At March 31, 2020	247,349	19,971	129,485	46,001	93,741	536,547
At March 31, 2018	15,067	1,203	14,298	7,305	-	37,873
Additions	23,690	1,990	28,059	9,315	-	63,054
Disposals	-	-	-	-	-	-
At March 31, 2019	38,757	3,193	42,357	16,620	-	100,927
Additions	12,487	3,490	37,722	12,713	-	66,412
At March 31, 2020	51,244	6,683	80,079	29,333	-	167,339
Net book value
At March 31, 2019	138,771	10,797	79,484	29,428	-	258,480
At March 31,2020	196,105	13,288	49,406	16,668	93,741	369,208

7. EXPLORATION AND EVALUATION ASSETS

The Company has accumulated the following acquisition, exploration and evaluation costs for the years ended March 31, 2020 and March 31, 2019:

	Sri Lanka$
Balance, April 1, 2019	2,915,819
Costs incurred during fiscal year 2020:
License fees	13,867
Drilling and exploration	167,017
Sample analysis	8,026
Mine and campcosts	21,006
	209,916
Effect of foreign exchange	164,682
Balance, March 31, 2020	3,290,417

• 11 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

7. EXPLORATION AND EVALUATION ASSETS (continued)

	Sri Lanka$
Balance, April 1, 2018	2,672,674
Costs incurred during fiscal year 2019:
License fees	2,936
Drilling and exploration	126,963
Sample Analysis	2,504
Mine and campcosts	15,542
	147,945
Effect of foreign exchange	95,200
Balance, March 31, 2019	2,915,819

Sri Lanka

On September 12, 2012, the Company entered into an agreement (“Agreement”) to purchase 100% of the shares outstanding of Sarcon Development (PVT) Ltd. (“Sarcon”). At the time of the transaction, Sarcon had 1,000,000 shares outstanding. Sarcon has interests in approximately 100 zones on 1km by 1km grids to develop, construct and operate graphite mines located in Sri Lanka. In exchange for the shares of Sarcon, the Company agreed to pay US $2 million. The terms and conditions of the Agreement were amended in 2013 and 2014. The payment table below reflects all the amendments to the Agreement.

The Company will be required to make the following cash payments:

	US $
14 days after Sarcon’s Board of Investment approval – paid; Within 7 days of confirming that Sarcon’s shares have been transferred to the Company and the applicable stamp duty has been paid by the Company (“Confirmation Letter”) – paid; Within 45 days of issuance of the Confirmation Letter – paid; On or before December 31, 2016 - paid; Within 14 days of receipt of proceeds from the sale of a minimum 350 tonnes of graphite from the Sarcon grids; On or before July 1, 2017, or in the event that the third payment (US$650,000 noted above) was not made for reason other than breach of this Agreement, then the date of the fourth instalment (US$350,000) shall be adjusted to a date acceptable to both parties.	250,000 300,000 75,000 375,000 650,000 350,000
	2,000,000

In 2013 and amended in 2014, the Company entered into an escrow agreement with the vendor of Sarcon and an escrow agent. Under the terms of the escrow agreement, the Company deposited its share certificates for 875,000 shares of Sarcon with the escrow agent. The escrow agent will release the remaining share certificates once the Company has fulfilled its payment commitments outlined above.

As of March 31, 2020 the Company has made total payments of US$1,000,000.

The outstanding amounts due to the vendor have been shown as amounts payable on the consolidated statements of financial position. They are non-interest bearing and unsecured.

• 12 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

8. CONVERTIBLE DEBENTURES

On May 23, 2018, the Company closed a non-brokered private placement offering of units, at a purchase price $1.00 per Unit for aggregate gross proceeds of $2,000,000. Each Unit is comprised of $1.00 in principal amount of convertible debentures and two common share purchase warrants. The principal amount of the convertible debentures will be convertible at the holder’s option into fully-paid common shares in the capital of the Company at any time prior to Maturity in three years, at a conversion price of $0.25 per share. Each whole warrant will be exercisable into one Common Share on or before Maturity at an exercise price of $0.25 per share. Interest on the Debentures shall be paid upon maturity, at an annual rate of interest of 6% per annum. The Company paid $67,500 finders’ fees related to the convertible debentures.

The following table summarizes accounting for the convertible debentures and the amounts recognized in the liability and equity during the period:

	$
Principal
Issued duringtheyear ended March 31,2019	2,000,000
Liability
Gross proceeds received	2,000,000
Issue costs	(67,500)
Equitycomponent less issue costs allocated	(540,700)
Liability component initially recognized	1,391,800
Accretion and interest expense	221,285
Balance at March 31,2019	1,613,085
Accretion and interest expense	322,559
Balance at March 31, 2020	1,935,644
Equity Component of Debentures
Equity component initially recognized	540,700
Deferred income tax liabilities recognized	(145,989)
Balance at March 31, 2020 and 2019	394,711

For accounting purposes, the convertible debentures are separated into their liability and equity components using the residual method. The fair value of the liability component at the time of issue was determined based on an estimated interest rate of 17% for convertible debentures without the conversion feature. The fair value of the equity component was determined as the difference between the face value of the convertible debentures and the fair value of the liability component. After initial recognition the fair value of the liability component of $1,391,800 is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the convertible debenture at an effective interest rate of approximately 18.6% per annum.

During the year ended March 31, 2020, the Company modified the conversion price of $0.25 to $0.15 and as a result the Company recognized a conversion inducement expense with a corresponding increase in equity of $533,333 using the share price at the date of modification.

• 13 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

9. SHARE CAPITAL

• a) Authorized:

The Company is authorized to issue an unlimited number of common shares without par value.

• b) As at March 31, 2020, there were nil (2019 - 7,618,046) common shares in escrow.

• c) As at March 31, 2020, there were 67,266,181 (2019 – 54,766,181) common shares issued and outstanding.

During the year ended March 31, 2020, the Company issued the following common shares:

On October 16, 2019, the Company completed the first tranche of the brokered private placement and issued 10,000,000 units at $0.08 per unit for gross proceeds of $800,000. Each unit consists of one common share and one common share purchase warrant with an exercise price of $0.15 and an expiry date of three years. In connection with the financing, the Company paid cash commission in the amount of $12,800.

On December 4, 2019, the Company completed the second tranche of the brokered private placement and issued 2,500,000 units at $0.08 per unit for gross proceeds of $200,000. Each unit consists of one common share and one common share purchase warrant with an exercise price of $0.15 and an expiry date of three years. In connection with the financing, the Company paid cash commission in the amount of $3,200.

d) Share options

The Company has a stock option plan under which directors, officers, employees and consultants of the Company and its subsidiary are eligible to receive stock options. The total number of shares which are at any one time reserved and set aside for issuance under the stock option plan, and under all other management options outstanding, shall not exceed 10% of the shares issued and outstanding. The maximum number of common shares reserved for issuance to any one person pursuant to stock options shall not exceed 5% of the common shares outstanding at the time of the grant, or such greater amount as may be permitted pursuant to the rules of any regulatory authority having jurisdiction. The option price of a stock option granted shall be fixed by the Board of Directors but shall not be less than the market price of the shares at the time the option is granted, or such lesser price as may be permitted by the rules of the regulatory authority having jurisdiction. Stock options may be granted for a period not exceeding five years. Unless the Board determines otherwise, a stock option shall vest immediately upon being granted.

During the year ended March 31, 2020, the Company granted 300,000 stock options to its directors and officers of the Company. Options are exercisable for 5 years at $0.20 per share and vested immediately upon the grant date. The Company recorded share-based payment of $38,059. The fair values of the stock options were estimated using the Black-Scholes option pricing model with the following assumptions:

Share price	$0.14
Weighted average risk free interest rate	1.56%
Weighted expected life	5 years
Weighted average expected volatility	156%
Weighted expected dividends	Nil
Forfeiture rate	Nil

• 14 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

1. SHARE CAPITAL (continued)

2. d) Share options (continued)

As at March 31, 2020, the Company had options outstanding enabling holders to acquire the following:

following:
			Weighted Average
		Weighted-	Remaining
	Options	Average	Contractual
	Outstanding	Exercise Price	Life (years)
Balance, March 31, 2018	2,836,441	$0.32	4.62
Expired	(128,571)	$0.02	-
Outstanding, March 31, 2019	2,707,870	$0.30	3.80
Optionsgranted	300,000	$0.20	4.13
Outstanding, March 31, 2020	3,007,870	$0.25	2.93

Details of stock options outstanding and exercisable at March 31, 2020 are as follows:

Number of	Number of		Remaining
Stock Options	Stock Options		Contractual
Outstanding	Exercisable	Exercise Price	Life(years)	ExpiryDate
350,000	350,000	$0.20	1.96	March 15, 2022
200,000	200,000	$0.20	1.99	March 27, 2022
1,650,000	1,650,000	$0.30	2.88	February 15, 2023
507,870	507,870	$0.20	3.42	August 31, 2023
300,000	300,000	$0.20	4.13	May15,2024
3,007,870	3,007,870

• 15 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

1. SHARE CAPITAL (continued)

2. e) Warrants

A summary of the status of the Company’s outstanding and exercisable warrants as at March 31, 2020 and the changes during the year then ended are as follows:

		Weighted	Weighted
		Average	Average
	Warrants	Exercise	Remaining
	Outstanding	Price	(inyears)
Balance, March 31, 2018	15,087,500	$0.30	1.61
Granted	4,000,000	$0.25	2.15
Expired	(15,087,500)	$0.30	-
Balance, March 31, 2019	4,000,000	$0.25	2.15
Granted	12,500,000	$0.15	1.57
Balance, March 31, 2020	16,500,000	$0.17	1.47

Details of warrants outstanding at March 31, 2020 are as follows:

		Remaining
Number of		Contractual Life (in
Warrants	Exercise Price	years)	ExpiryDate
4,000,000	$0.25	1.15	May 23, 2021
10,000,000	$0.15	1.55	October 16, 2021
2,500,000	$0.15	1.68	December 4,2021
16,500,000

As part of the reverse take-over transaction previously entered into, the Company issued 25,393,500 special warrants. The special warrants can be converted to common shares for no further consideration once certain performance milestones are reached. Subsequent to the year ended March 31, 2020, the warrants expired unexercised (see Note 15).

• 16 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

10. RELATED PARTY BALANCES AND TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Key management personnel receive compensation in the form of short-term employee benefits, sharebased payments, and post-employment benefits. Key management personnel include the Chief Executive Officer, Chief Financial Officer, and directors of the Company. The remuneration of key management is as follows:

	2020	2019
	$	$
Consulting fees - CEO	84,000	81,000
Consulting fees - CFO	67,595	63,500
Share-basedpayments	38,059	-

The Company has an amounts payable of $1,418,641 (US$1,000,000) (2019 - $1,336,300 or US$1,000,000) due to the former shareholder of Sarcon in connection with the Agreement described in Note 7.The amounts are unsecured and non-interest bearing.

As at March 31, 2020, the Company had amounts payable to officers of the Company for total of $88,730 (2019 – Nil) included in accounts payable and accrued liabilities.

As at March 31, 2020, the Company had loans payable as described in Note 11.

11. LOANS PAYABLE

During the year ended March 31, 2020, the Company received $13,500 from an officer of the Company. The loan is non-interest bearing, unsecured and due on demand.

During the year ended March 31, 2020, the Company received $223,250 from an individual shareholder of the Company. The Company repaid $102,272 during the fiscal year. The loan is noninterest bearing, unsecured and due on demand.

During the year ended March 31, 2020, the Company received $27,000 from an individual shareholder of the Company. The loan is non-interest bearing, unsecured and due on demand.

• 17 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

12. INCOME TAXES

The Company has non-capital losses carried forward of approximately $10.8 million available to reduce income taxes in future years which expire between 2026 to 2040.

The Company has not recognized any deferred income tax assets. The Company recognizes deferred income tax assets based on the extent to which it is probable that sufficient taxable income will be realized during the carry forward periods to utilize all deferred tax assets. The following table reconciles the amount of income tax recoverable on application of the statutory

Canadian federal and provincial income tax rates: The temporary differences that give rise to significant portions of the deferred tax assets at March 31, 2020 not recognized are presented below:

	2020	2019
Statutoryincome tax rate	27%	26%
	$	$
Income tax recovery at statutory rate	612,187	410,000
Effect of income taxes of:
Non-deductible items for tax purposes and other	(124,252)	(95,527)
Difference in tax rates in other tax jurisdictions	(20,637)	9,100
Change in deferred tax assets not recognized and
other	(467,298)	(177,584)
Deferred income tax recoverable	-	145,989

The temporary differences that give rise to significant portions of the deferred tax assets at March 31, 2020 not recognized are presented below:

Non-capital loss carry-forwards Equipment Exploration and valuation assets Share issue costs Convertible debenture Deferred tax assets not recognized	2020 2019
	$ $ 2,957,728 2,484,227 28,541 10,924 960,207 960,207 31,204 78,062 (77,560) (100,598) (3,900,120) (3,432,822)
	- -

• 18 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019

(Expressed in Canadian Dollars)

13. MANAGEMENT OF CAPITAL

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the sourcing and exploration of its resource properties. The Company does not have any externally imposed capital requirements to which it is subject.

The Company considers the aggregate of its share capital, contributed surplus and deficit as capital. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or dispose of assets or adjust the amount of cash.

The Company’s investment policy is to invest its cash in large financial institutions with terms to maturity selected with regards to the expected time of expenditures from continuing operations.

The Company expects its current capital resources will be sufficient to carry its acquisition plans and operations through its current operating year.

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK

International Financial Reporting Standards 7, Financial Instruments: Disclosures , establishes a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair Value of Financial Instruments

The Company’s financial instruments include cash, accounts receivable, accounts payable, amounts payable, other, loans payable and convertible debentures.

Assets measured at fair value on a recurring basis were presented on the Company’s statements of financial position are as follows:

			Fair Value Measurements Using	Fair Value Measurements Using	Fair Value Measurements Using	Fair Value Measurements Using
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		For Identical		Observable		Unobservable
		Instruments		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
March 31, 2020:
Cash	$	1,047	$	-	$	-	$	1,047
March 31, 2019:
Cash	$	441,640	$	-	$	-	$	441,640

• 19 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK (continued)

Fair value

The fair value of the Company’s financial instruments approximates their carrying value as at March 31, 2020 because of the demand nature or short-term maturity of these instruments.

Financial risk management objectives and policies

The risks associated with the financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Currency risk

The Company is exposed to foreign currency risk on fluctuations related to cash, accounts payable, amounts payable and due to related party that are denominated in the United States dollar and Rupees. Management does not hedge its exposure to foreign exchange risk and the Company’s net exposure to foreign currency as at each of the reporting periods is at below:

Cash Advances to affiliates Accounts payable Amountspayable	March 31, 2020 March 31, 2020 March 31, 2019 March 31, 2019
	Rupee US$ Rupee US$ 1,349,799 104 7,082,229 11,534 32,061,200 - 18,550,000 - (13,427,738) (6,881) (3,913,899) (6,174) - (1,000,000) - (1,000,000)
Total in foreign currency Net exposure Canadian dollar equivalents	19,983,261 (1,006,777) 21,718,330 (994,640) (19,833,387) (421,537) (21,553,271) (334,497) 149,874 (1,428,314) 165,059 (1,329,137)

Based on the net Canadian dollar denominated asset and liability exposures as at March 31 ,2020, a 10% fluctuation in the Canadian/US exchange rates would impact the Company’s earnings for the year ended March 31, 2020 by $143,000 (2019 - $132,900). A 10% fluctuation in the Canadian/Rupee exchange rates would impact the Company’s earnings for the year ended March 31, 2020 by $15,000 (2019 - $16,000). The Company has not entered into any foreign currency contracts to mitigate this risk.

(ii) Interest rate risk

The Company is exposed to interest rate risk on the variable rate of interest earned on bank deposits. The fair value interest rate risk on bank deposits is insignificant as the deposits are short-term.

The Company has not entered into any derivative instruments to manage interest rate fluctuations.

• 20 -

CEYLON GRAPHITE CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2020 AND 2019 (Expressed in Canadian Dollars)

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK (continued)

(iii) Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The credit risk on cash is limited because the cash are composed of financial instruments issued by - Canadian banks and companies with high credit ratings as assigned by international credit rating agencies. Therefore, the Company is not exposed to significant credit risk.

(iv) Liquidity risk

In managing of liquidity risk, the Company maintains a balance between continuity of funding and the flexibility through the use of borrowings. Management closely monitors the liquidity position and expects to have adequate sources of funding to finance the Company’s projects and operations. As at March 31, 2020, the Company had a working capital deficiency of $1,478,301 (2019 - $741,281). As at March 31, 2020, the Company had cash of $1,047 to settle accounts payable, current portion of capital lease obligation, amounts payable and loans payable of $1,866,469 which fall due for payment within twelve months of the financial position date.

	Carrying	Less than	Between 2 – 5	More than
	value	1 year	years	5 years	Total
	$	$	$	$
Capital lease	12,096	3,868	8,228	-	12,096
obligations
Convertible loans	1,935,644	-	2,360,000	-	2,360,000

15. SUBSEQUENT EVENT

On June 30, 2020, 25,393,500 special warrants expired unexercised (see Note 9(e)).

• 21 -