Ceylon Graphite Corp. — Annual Report 2021

Sep 21, 2021

CEYLON GRAPHITE CORP. Year Report March 31, 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

1.1 Date of Report: September 20, 2021

The following management’s discussion and analysis (“MD&A”) should be read together with the unaudited condensed consolidated interim financial statements and accompanying notes for the year ended March 31, 2021 which are prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts are stated in Canadian dollars unless otherwise indicated.

This MD&A includes certain statements that may be deemed “forward-looking statements”. Forwardlooking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guaranteeing of future performance and actual results or developments may differ materially from those in the forwardlooking statements. Factors that could cause actual results to differ materially from those in forwardlooking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.

1.2 Nature of Business and Overall Performance

Ceylon Graphite Corp. (the “Company” or “Ceylon”) was incorporated on April 3, 1986 under the Canada Business Corporations Act as NWest Energy Corp. 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.

Concurrent with the closing of the reverse acquisition transaction, the Company changed its name from NWest Energy Corp. to Ceylon Graphite Corp. and effected a change in directors, management and business.

The address of the Company’s corporate office is 1100-1111 Melville Street, Vancouver, BC, Canada and its principal place of business is in Canada with its mining assets being in Sri Lanka. This is done through a wholly owned subsidiary Sarcon Development (Private) Limited (“Sarcon”) and JADS Enterprise (Pvt) Limited (“JADS”)

1.3 Overall Performance

Announcements and highlights during the Year:

• On June 2, 2020, the Company announced its first sale of graphite from its wholly owned subsidiary, Sarcon Development (Pvt) Ltd (“Sarcon Development”), since the commencement of commercial production in December 2019.

• On June 4, 2020, the Company announced its first sale of graphite from its wholly owned subsidiary, Sarcon Development (Pvt) Ltd (“Sarcon Development”), to the Korean market.

• Management On June 30, 2020, 25,393,500 special warrants expired unexercised continued to actively focus on capital raising to support the company’s business, marketing initiatives and general working capital.

• On July 13 2020, the Company announced that due to circumstances created by the COVID-19

Ceylon Graphite Corp. Period Report March 31, 2021

pandemic, the Company has delayed the release of its annual financial statements for the year March 31, 2020.

• On August 6, 2020, the Company announced its intention to complete a non-brokered private placement of units (“Units”) for gross proceeds of up to C$ 8,100,000 or US$ 6,000,000 (US$1= C$1.35) to a consortium of four international investors (the “Offering”). Upon the closing of the Offering, the consortium will, collectively, own approximately 55% of the issued and outstanding shares of the Company, though individually no one subscriber will hold more than 15% of the issued and outstanding shares. Mr. Paul Selvam Devadoss and Mr. Anuka B.A Soza will join the Board of Directors of the Company upon completion of the transaction. On August 26, 2020, the Company announced that pursuant to its press release of August 6, 2020, it has been granted an extension to close its proposed private placement by the TSX Venture Exchange. The extension was granted to permit Ceylon Graphite to obtain the requisite disinterested shareholder approval. On October 2, 2020 the Company announced that pursuant to its press release of August 6, 2020, it has been granted a further extension to close its proposed private placement by the TSX Venture Exchange. The small delay is necessitated by certain measures instituted in the domicile of our investors in response to COVID -19 and other health related issues. Mr. Paul Selvam Devadoss a lead investor said “Our Consortium is very committed to completing this investment as soon as possible under the agreements that we have signed with the company. The delay is unfortunate but has been beyond our control.” This transaction did not take place and was cancelled.

• On August 13, 2020, the Company announced that due to circumstances created by the COVID19 pandemic, the Company has delayed the release of its interim financial statements for the quarter June 30, 2020.

• On October 19, 2020, the Company announced its intention to complete a private placement pursuant to which it will issue and sell up to 51,428,566 units of the Company (the “Units”) at a price of $0.0875 per Unit (the “Offering Price”) for aggregate gross proceeds of up to approximately $4,500,000 (the “Offering”). Each Unit will be comprised of one common share in the capital of Ceylon Graphite (a “Common Share”) and one common share purchase warrant (a “Warrant”). Each whole Warrant will entitle the holder thereof to acquire one common share in the capital of Ceylon Graphite (“Warrant Share”) at any time up to three years from the date of issuance at an exercise price of $0.15. The closing is also conditional on the receipt of the approval of the TSX Venture Exchange and is anticipated to occur on or about October 22, 2020, or such other date as the Company may determine.

• On October 23,2020, the Company announced that further to its press release of October 19, 2020, it has closed its first tranche of the private placement. An aggregate of 30,163,566 units (“Units”) at a price of $0.0875 per Unit for gross proceeds of $2,639,312 (the “Offering”). The second closing for the balance of the Offering is anticipated to occur on or about October 28th, 2020, or such other date as the Company may determine.

• On October 29, 2020 the Company announced that further to its press releases of October 19 and 23, 2020, it has issued an additional 21,265,000 units (“Units”) at a price of $0.0875 per Unit for gross proceeds of $1,860,687.50 in connection with the closing of a second tranche of its private placement financing (the “Offering”). In aggregate, Ceylon Graphite issued an aggregate of 51,428,556 units for gross proceeds of $4,500,000 pursuant to its private placement.

• On November 19, 2020 the Company announced it has granted an aggregate of 5,000,000 stock options to its directors, officers and employees. Each option is exercisable at $0.215 per common share at any time until November 19, 2023.

• On December 1, 2020,, the announced that its wholly-owned subsidiary Sarcon Development (Pvt) Ltd.’s K1 and M1 sites in Sri Lanka have returned to full operations following easing of local COVID-19 related restrictions. The Company’s primary near term objective is to accelerate the commercial production volumes at its K1 site which first began production this year. Graphite mined from the Company’s K1 site is known to be some of the highest grade in the world and has been confirmed to be suitable to be easily upgraded for a range of

Ceylon Graphite Corp. Period Report March 31, 2021

applications including the high-growth electric vehicle and battery storage markets. The Company is also advancing towards development completion at its M1 site and is in the process of attaining mining licensing approval for production at this site. Additional near-term priorities include advancing development of additional sites and initiating geological work at other prospective areas of its land bank.

• On December 3, 2020, the Company announced that its common shares have been approved for trading on the OTCQB Venture Market effective December 3, 2020. The Company's U.S. listing will trade under the symbol "CYLYF" while the Company's primary Canadian listing will continue to trade on the TSX Venture Exchange under "CYL".

• On December 4, 2020, the Company announced that Bharat Parashar, Chairman and Chief Executive Officer and Sasha Jacob, Founder and Strategic Advisor of the Company will be hosting an investor webinar on Tuesday, December 8, 2020 at 12:00 PM EST. The webinar will provide participants an overview of the Company, its exciting recent developments as it accelerates production of its high grade graphite deposits as well as detail on how the Company is positioned to be a significant participant in the high-growth electric vehicle and battery storage markets.

• On December 8, 2020, the Company announced that Christopher Ecclestone of Hallgarten & Company has initiated coverage of Ceylon Graphite.

• On December 18, 2020, the Company announced the appointment of Dr. H.M Ranjith Premasiri to new roles within the Company.. Dr. Premasiri will be Senior Consultant Geologist and will guide and lead Sarcon’s team of geologists as the Company expands it business footprint in Sri Lanka.

• On January 4th, 2021, the Company announced that further to a previous release the Company intends to amend certain terms of the convertible debenture that were issued by the Company on May 23, 2018 (the “Convertible Debentures”). Ceylon Graphite proposes to amend the Convertible Debentures as follows: (i) extending the maturity date of the Convertible Debentures by six (6) months from May 23, 2021 to November 23, 2021. (ii) adding a provision whereby the Company will have the option to redeem the Convertible Debentures at any time, on ten (10) days’ notice, without penalty; and (iii) increasing the interest rate from 6% to 8%.

• On January 19, 2021, the Company announced that it has hired two of the world’s leading researchers and innovators in graphite and related product development. The addition of Dr. Siva Bohm and Dr. Mallika Bohm to the Ceylon Graphite management team will contribute significantly to the Company’s continued evolution from a highquality low-cost graphite producer, to an innovator in value added graphite products for the technology, construction, battery and transportation industries. Dr. Siva Bohm and Dr. Mallika Bohm collectively bring extensive experience in product development for graphite and graphene applications in anti-corrosion coating, nanotechnologies, energy storage, and fuel cell advancement amongst other revolutionary applications. The newly appointed executives distinguished pedigree includes previously leading scientific teams at Talga Resources Limited a leading battery anode and graphene additives company and senior scientific roles with the Tata Group of Companies.

• On January 20th, 2021, the Company announced that Bharat Parashar, Chairman and Chief Executive Officer and Sasha Jacob, Founder and Strategic Advisor of the Company will be speaking at an investor webinar hosted by New York based O&M Partners on Thursday, January 21, 2021 at 4.05 PM EST. The webinar will provide participants an overview of the Company and its exciting recent developments as it accelerates continued evolution from high-quality low-cost graphite producer, to an innovator in value added graphite products for technology, construction, battery and transportation industries.

Ceylon Graphite Corp. Period Report March 31, 2021

• On February 4, 2021, the Company announced that it has designed and launched an expanded drill program at one of its properties in Sri Lanka, with drilling commencing on its H1 site. H1 is one of 121 grids held by Ceylon Graphite’s subsidiary Sarcon Development (Pvt) Ltd under EL 222. The initial phase of the drill program will include 6 new 220 to 250 meters bore holes and has been designed to develop the parameters of the H1 mine. The Company has also retained the Geological Survey and Mines Bureau Technical Services drilling team to provide an additional drill rig and operators to complement its own drill rig and drilling team.

• On February 9, 2021, the Company announced it has developed and published best in class Environmental, Sustainability and Governance Standards (“ESG”) with intent to be a global leader in ESG for all innovative graphite companies globally and a leading producer of Clean Graphite.

• On February 16, 2021, the Company announced that it is ready to resume production at its K1 site, marking a return to normal operating levels pre-COVID 19 disruptions which interrupted mining activity twice in 2020/21.

• On February 23, 2021, the Company announced that it has signed a Memorandum of Understanding with the intent to enter into an exclusive global license (the “Definitive License”) with Cambridge Advanced Materials Innovation (“CAMI”) Consultancy Ltd, an arm’s length party incorporated and registered in England. The Definitive License will relate to certain technology, know-how and related intellectual property of CAMI (the “CAMI Technology”). The CAMI Technology includes an unpublished Great Britain patent application (application number 2101925) and other intellectual property, data, know-how, regulatory filings and other information. CAMI and Ceylon Graphite anticipate entering into the Definitive License within the next 21 days.

• Ceylon Graphite would also like to announce that further to its press release of January 4, 2021, it has received TSX Venture approval for the amendment of its convertible debentures that were issued on May 23, 2018 (the “Debentures”) and for the issuance of an aggregate of 1,970,624 common shares for the settlement of an aggregate of $325,153 in accrued interest on the Debentures. The Debentures have been amended as follows:

• (i) maturity date has been amended from May 23, 2021 to November 23, 2021.

• (ii) the Company now has the option to redeem the Debentures at any time, on ten (10) days’ notice, without penalty; and

• (iii) Interest rate has been increased from 6% to 8%.

In consideration for amending the Debenture, the expiry date of the original warrants has been amended from May 23, 2021 to November 23 2021 and an additional 1,000,000 warrants will be issued to the holders of the Debentures. These additional warrants will permit the holder thereof to acquire one (1) common share at an exercise price of $0.22 per share for a period of one (1) year from date of issuance.

• On March 4, 2021, the Company announced the discovery of new graphite veins on its H1 site and provide an operational update as the Company continues to achieve significant milestones as business activities have returned to planned levels in 2021 post COVID-19

disruptions.

• On March 8, 2021, the Company announced that it has developed a Biocidal

Ceylon Graphite Corp. Period Report March 31, 2021

Nanocomposite material which will be used as a multi purpose biocidal coating multiple material. In relation to the development of this product, Ceylon Graphite has filed a patent application (Number 2102984.8) in Great Britain on March 3, 2021.

• On March 22, 2021, the Company announced that Jody P. Lenihan has joined the Board of Directors of the company.

• On March 25, 2021, the Company announced it has opened an office in the United Kingdom (UK) to advance its strategic interests in innovative applications for graphite and graphene in multiple market segments including Europe’s massive push into vehicle electrification.

1.4 Results of Operations

Selected Annual Information and Result of Operations

	March 31, 2021 $	March 31, 2020 $	March 31, 2019 $
Net loss	(3,986,352)	(2,267,364)	(1,397,294)
Basic and diluted loss per share	(0.04)	(0.04)	(0.03)
Cash	2,073,452	1,047	441,640
Total Assets	5,696,258	4,047,793	3,847,029
Non-Current Liabilities	3,624	8,228	1,623,966

The condensed consolidated financial statements are presented as a continuance of Plumbago Refining Corp. B.V. (“Plumbago”). The condensed consolidated interim financial statements include the assets and operations of the Company and its wholly owned subsidiaries Plumbago and Sarcon Development (PVT) Limited, C Y L Lanka (Private) limited and JADS Enterprise (Private) Limited. Sarcon, CYL Lanka and JADS are incorporated in Sri Lanka.

The Company reported a net loss of $3,986,352 for the year ended March 31, 2021, as compared to a net loss of $2,267,364 for the year ended March 31, 2020. The net loss included share based compensation of $1,005,468 during the year ended March 31, 2021 (year ended March 31, 2020- $38,059).

During the period, the Company incurred professional fees in the amount of $1,173,118 compared to $754,776 during the prior period due to an increase third party consulting services, operational activities and completed private placement in the third quarter.

During the period, the Company incurred consulting fees in the amount of $400,000 compared to $nil during the prior period due to increased third party consulting, advisory services and retirement packages for former CEO.

Ceylon Graphite Corp. Period Report March 31, 2021

Advertising and promotion increased to $663,593 from $69,819 in the prior period mainly due to more advertising and marketing efforts as the Company focused more on the operational activities during the year

Office and administrative expenses incurred were $268,758 compared to the prior year of $118,599 mainly due to less activities during the period compared to the prior year. The increase of $150,159 in office and administration expenses can be generally attributed to an increase in office-related costs and costs incurred at new and/or expanded facilities including incremental employment levels to support the growth in the business with operations.

Interest expense increased to $407,230 in 2021 from $328,634 in 2020 mainly due to the interest expense and interest accretion of the convertible debentures. The transfer fees increased to $60,584 from $38,683 during the prior period due to the closed private placement in the third quarter.

During the year ended March 31, 2021, the Company incurred travel expense in the amount of $nil (year ended March 31, 2020- $92,573) related to travel to Sri Lanka and other locations. The travel expense is less due to COVID 19 situations. The Company wages and benefits were capitalized during the year as part of the exploration developments.

During the year ended March 31, 2021, the Company recorded $51,063 in foreign exchange translation loss to its cumulative translation account due to the changes resulting from the fluctuation of foreign exchange rates.

During the period ended December 31, 2020, the Company completed a brokered private placement and issued 51,428,566 units at a price of $0.0875 per unit for aggregate gross proceeds of $4,500,000. Each unit is comprised of one common share and one common share purchase warrant. Each whole warrant will entitle the holder to acquire one common share of the Company at an exercise price of $0.15 and an expiry date of three years. In connection with the financing, the Company issued 3,600,000 private placement units and 3,600,000 agents’ warrants to the broker for commission. The agents’ warrants have the same terms as private placement warrants. Fair value of the units is $315,000 and agents’ warrants is $342,365.

The Company issued 3,210,000 common shares pursuant to the exercise of share purchase warrants for total proceeds of $512,750.

The Company issued 300,000 common shares pursuant to the exercise of options for total proceeds of $60,000.

The Company issued 600,000 common shares pursuant to the exercise of convertible debenture for total proceeds of $150,000 (Note 7).

Summary of Quarterly Results

	March 31,	December 31,	September 30,	June 30,
	2021	2020	2020	2020
	$	$	$	$
Expenses	2,054,954	1,349,746	436,536	202,657
Net Loss	(1,999,501)	(1,349,658)	(434,536)	(202,657)
Lossper Share	(0.01)	(0.01)	(0.01)	(0.00)

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	March 31,	December 31,	September 30,	June 30,
	2020	2019	2019	2019
	$	$	$	$
Expenses	282,812	767,208	286,409	403,396
Net Loss	(810,433)	(783,608)	(286,409)	(403,314)
Lossper Share	(0.01)	(0.01)	(0.01)	(0.01)

Significant factors and trends that have impacted Ceylon’s results during the years presented above include the following:

• a) The Company incurred a one-time expenses of Conversion inducement $533,333 for the fourth quarter of 2020.

• b) The Company incurred the $1,005,648 of stock based compensation third and fourth quarter of the 2021 for issuing a total of 5,000,000 stock options, to consultants, directors and officers of the Company during the period.

1.5 Liquidity

The Company has total assets of $5,696,258 as at March 31, 2021consisting of cash, amounts receivable, prepaid expenses, equipment and exploration and evaluation assets. The Company has negative working capital of $1,339,637.

At March 31, 2021, the Company had cash of $2,073,452. The amounts payable in the amount of $1,257,500 (USD $1,000,000) was payable to the former shareholders of Sarcon, which is contingently payable when the Company begins mining activities and receives revenues from the sale of graphite.

During the year ended March 31, 2021, the Company used $2,367,085 in operating activities.

During the year ended March 31, 2021, the Company used $4,947,975 in financing activities.

At March 31, 2021, share capital was $11,171,927 comprising of 126,404,747 issued and outstanding Common Shares.

At March 31, 2021, the value of exploration and evaluation assets was $3,225,283. The decrease is due to fluctuation of foreign exchange.

At present, the Company’s operations do not generate cash inflows and its financial success after March 31, 2021 is dependent on management’s ability to quickly explore its grids and commence mining. To do this management will need to continue to obtain funding to sustain operations through the development stages of the mining process to the point that these operations lead to the Company being cash flow positive. The mining development process may take substantial time and is subject to factors that may be beyond the Company’s control.

In order to finance the Company’s future mining and development and to cover administrative and overhead expenses in the coming years the Company may raise money through equity sales. Many factors influence the Company’s ability to raise funds, including the Company’s track record, and the

Ceylon Graphite Corp. Period Report March 31, 2021

experience and caliber of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of operational activities. Management believes it will be able to meet its operational targets and raise capital if and when required through future equity issuance and or borrowings, but recognizes there may be risks involved that may be beyond their control.

1.6 Share Capital

The Company had 126,404,747 common shares issued and outstanding on March 31, 2021and as of the date of this report 129,946,475.

During the period ended December 31, 2020, the Company completed a brokered private placement and issued 51,428,566 units at a price of $0.0875 per unit for aggregate gross proceeds of $4,500,000. Each unit is comprised of one common share and one common share purchase warrant. Each whole warrant will entitle the holder to acquire one common share of the Company at an exercise price of $0.15 and an expiry date of three years. In connection with the financing, the Company issued 3,600,000 private placement units and 3,600,000 agents’ warrants to the broker for commission. The agents’ warrants have the same terms as private placement warrants. Fair value of the units is $315,000 and agents’ warrants is $342,365.

The Company issued 3,210,000 common shares pursuant to the exercise of share purchase warrants for total proceeds of $512,750.

The Company issued 300,000 common shares pursuant to the exercise of options for total proceeds of $60,000.

The Company issued 600,000 common shares pursuant to the exercise of convertible debenture for total proceeds of $150,000 (Note 7).

1.7 Stock Options

As of March 31, 2021, the Company has 8,682,870 stock options outstanding.

1.8 Share Warrants

As of March 31, 2021, the Company has 69,568,566 warrants outstanding.

1.9 Capital Resources

The Company is not a party to any off -balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

1.10 Off Balance Sheet Arrangements

There is no off-balance sheet arrangements to which the Company is committed.

1.11 Transactions with Related Parties

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

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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, share-based 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:

	2021	2020
	$	$
Consulting fees - CEO	193,000	84,000
Consulting fees - CFO	84,000	67,595
Share-basedpayments	613,857	38,059

The Company has an amount payable of $1,257,500 (US$1,000,000) (March 31, 2020 - $ 1,418,641 or US$1,000,000) due to the former shareholder of Sarcon in connection with the Agreement described in Note 6. The amounts are unsecured and non-interest bearing.

1.12 Loan Payable

During the period ended March 31, 2021, the Company had the following transactions:

• a) The Company received $150,000 from an arm’s length third party. The loan is noninterest bearing, unsecured and due on demand. As part of the loan agreement the Company issued 250,000 warrants with a fair value of $10,119 which is included in the consolidated statements of comprehensive loss (see Note 8(c)). The loan was fully repaid as of December 31, 2020.

• b) The Company received $40,000 from Canada Emergency Business Account (CEBA). The loan has 0% interest until December 31, 2022, thereafter interest is 5% per annum starting on January 1, 2023. No principal repayments are required before December 31, 2022 and if the loan remains outstanding after December 31, 2022, only interest payments are required until full principal is due December 31, 2025. Payment of the loan balance on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to $10,000).

• c) The Company received $5,000 from an officer of the Company. The loan is non-interest bearing, unsecured and due on demand. The loan was fully repaid as of December 31, 2020.

• d) The Company received $3,471 from a director of the Company. The loan is non-interest bearing, unsecured and due on demand. The loan was fully repaid as of December 31, 2020.

During the year ended March 31, 2020, the Company had the following transactions:

• e) The Company received $13,500 from an officer of the Company. During the period ended September 30, 2020, the officer loaned an additional $3,471. The loans are non-

Ceylon Graphite Corp. Period Report March 31, 2021

interest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• f) The Company received $223,250 from an individual shareholder of the Company and repaid $102,272 during the fiscal year. The loan is non-interest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• g) The Company received $27,000 (USD$20,000) from an individual shareholder. During the period ended September 30, 2020, the shareholder loaned an additional $13,500 (USD$10,000). The loans are non-interest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• h) The Company received $137,000 (USD$100,000) from an individual shareholder. The loan bears interest of 15% per annum accrued daily and calculated on the basis of the actual number of days elapsed in a year of 360 days. The loan is unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

During the year ended March 31, 2020, the Company had the following transactions:

• i) The Company received $13,500 from an officer of the Company. During the period ended September 30, 2020, the officer loaned an additional $3,471. The loans are noninterest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• j) The Company received $223,250 from an individual shareholder of the Company and repaid $102,272 during the fiscal year. The loan is non-interest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• k) The Company received $27,000 (USD$20,000) from an individual shareholder. During the period ended September 30, 2020, the shareholder loaned an additional $13,500 (USD$10,000). The loans are non-interest bearing, unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

• l) The Company received $137,000 (USD$100,000) from an individual shareholder. The loan bears interest of 15% per annum accrued daily and calculated on the basis of the actual number of days elapsed in a year of 360 days. The loan is unsecured and due on demand. The loan was fully repaid during the period ended December 31, 2020.

The Company does not have any commitments outside of the normal course of business other than those already disclosed in the condensed consolidated interim financial statements.

1.13 Subsequent events

On June 2, 2021, the Company announced that Bharat Parashar has decided to retire as Chief Executive Officer and Chairman of the Board of Directors of the Company.

On June 3, 2021, the Company announced the appointment of Mr. Rodney Stevens as Vice President, Corporate Development for the Company. Mr. Stevens is a Chartered Financial Analyst (“CFA”) charter holder with over a decade of experience in the capital markets, first as an investment analyst with Salman Partners Inc. and subsequently as a merchant and investment banker.

Ceylon Graphite Corp. Period Report March 31, 2021

On June 14, 2021, the Company announced that it has acquired an exclusive global licence from Cambridge Advanced Materials & Innovation (“CAMI”). The licence pertains to a method of producing high quality few-layer graphene (“FLG”) and derivatives by exfoliation of high grade vein graphite produced by Ceylon Graphite.

On June 25 , 2021, the Company announced that it has negotiated a debt conversion agreement (the “Debt Agreements”) with Bharat Parashar, the former Chief Executive Officer and Chairman of Ceylon. As disclosed in the Corporation’s press release dated June 2, 2021. Mr. Parashar retired as Ceylon’s Chief Executive Officer and as Chairman. Pursuant to the terms of the Debt Agreements the Corporation has agreed to issue an aggregate of 1,500,000 common shares (“Debt Shares”) to Mr. Parashar in exchange for the cancellation of $300,000 (the “Debt”) in debt owing to the Mr, Bharat. The Debt Shares are being issued at a deemed price of $0.20 per share.

On June 28,2021, the Company announced Ceylon Chief Scientific Executive, Dr. Siva Bohm, and Ceylon Technical Director Dr. Mallika Bohm have published a paper titled “Graphene Production By Cracking” in one of the oldest Journal by the Royal Society, “Philosophical Transaction A”.. This follows a long list of publications By Drs Bohm.

On July 7, 2021, the Company announced the execution of a Memorandum of Understanding dated June 30, 2021 (the “MOU”) with two subsidiaries of Lanka ORIX Leasing Company Group (“LOLC”). Pursuant to the MOU, Ceylon Graphite, through its subsidiary, Plumbago Refining Corp B.V. (“Plumbago”), and LOLC, through its subsidiaries LOLC GEO Technologies Ltd. (“LOLCGT”) and LOLC Advanced Technologies Ltd. (“LOLCAT”), will work together to develop new graphite mines outside of the existing Ceylon portfolio, and to construct and operate a state-of-the-art graphite processing facility in Sri Lanka.

On July 13, 2021, the Company announced that the original news release captioned “CEYLON GRAPHITE ANNOUNCED MOU FOR JOINT VENTURE WITH STRATEGIC PARTNER TO DEVELOP AND OPERATE ADDITIONAL NEW GRAPHITE MINES AND A LOCAL UPGRADING FACILITY TO MEET GLOBAL BATTERY ANODE NEEDS”, published on July 7, 2021, referred, incorrectly, to LOLC Holdings PLC (LOLC) as Lanka ORIX Leasing Company Group in the first paragraph. With the exit of ORIX Corporation of Japan in March 2018, LOLC Holdings PLC no longer uses its former name Lanka Orix Leasing Company PLC. All other disclosures were correct.

On July 19, 2021, the Company announced the incorporation of its wholly-owned subsidiary, Ceylon Graphite Technologies LTD (“CGT”), in the United Kingdom.

On July 30, 2021,the Company announced that it has encountered delays in completing its audited financial statements for the year ended March 31, 2021 because Ceylon and its various Sri Lankan subsidiaries all share a fiscal year ending March 31, 2021 and these entities have encountered COVID-19 related delays in preparing their respective financial statements. As a result, the Company has applied for, and has been granted, a Management Cease Trade Order (“MCTO”) by the British Columbia Securities Commission. Because of the delays, the Company will file its annual audited financial statements, management’s discussion and analysis, and CEO and CFO certificates (collectively, the “2021 Annual Financial Statements”) after the filing deadline of July 29, 2021 as prescribed by National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”).

On August 13, 2021, the Company announced that its application for a management cease trade order ("MCTO"), as previously announced in a news release dated July 30, 2021, has been

Ceylon Graphite Corp. Period Report March 31, 2021

accepted by the British Columbia Securities Commission (the "BCSC"). The MCTO was issued by the BCSC, effective as of July 30, 2021, in connection with the delay by the Company in filing its annual financial statements, management's discussion and analysis and related officer certifications for the financial year ended March 31, 2021 (collectively, the "Annual Filings"). The completion of the Annual Filings by the Company and its various Sri Lankan subsidiaries has been delayed as a result of COVID-19 related interruptions and business restrictions.

On August 27, 2021, the Company previously announced in news releases dated July 30, 2021 and August 13, 2021, the Company has been delayed in completing its filings of the annual financial statements, management’s discussion and analysis and related officer certifications for the financial year ended March 31, 2021 (the “Annual Filings”). COVID-19 related interruptions and restrictions in Sri Lanka has caused the delay in the Company’s filings. Sri Lanka continues to be in the midst of a nation-wide lockdown as a result of the COVID-19 pandemic. The Company has sought an extension for filings and was approved for a management cease trade order by the British Columbia Securities Commission as of July 30, 2021.

On September 2, 2021, the Company announced that it has entered into a 6-month marketing and consulting contract with Toronto based marketing firm, North Equities Corp. North Equities Corp. specializes in various social media platforms and will be able to facilitate greater awareness and widespread dissemination of the Company's news.

On September 10, 2021, the Company previously announced in news releases dated July 30, 2021, August 13, 2021 and August 27, 2021, the Company has been delayed in completing its filings of the annual financial statements, management’s discussion and analysis and related officer certifications for the financial year ended March 31, 2021 (the “Annual Filings”). COVID-19 related interruptions and restrictions in Sri Lanka has caused the delay in the Company’s filings. Sri Lanka continues to be in the midst of a nation-wide lockdown as a result of the COVID-19 pandemic. The Company has sought an extension for filings and was approved for a management cease trade order by the British Columbia Securities Commission as of July 30, 2021

1.14 Critical Accounting Estimates

Critical Estimates and Assumptions

The preparation of the condensed consolidated interim financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews the estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that a rebelieved to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include assessment of decommissioning provision, valuation of share-based provisions, valuation of the convertible debentures, assessment of impairment of exploration and evaluation assets and the recoverability and measurement of deferred tax assets.

The most significant judgments in applying the Company’s financial statements is the classification of financial instruments and the going concern assumption.

1.15 Changes in Accounting Policies

Ceylon Graphite Corp. Period Report March 31, 2021

There was no change in accounting policies for the year ended March 31, 2021.

1.16 Financial Instruments and Other Instruments

The Company’s financial instruments consist of cash, accounts payable, amounts payable, loan payable and convertible debentures.

The Company’s financial instruments are exposed to the following risks:

(i) Currency risk

The Company is exposed to foreign currency risk on fluctuations related to cash, accounts payable, amounts payable and loans payable 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, 2021 March 31, 2021 March 31, 2020 March 31, 2020
	Rupee US$ Rupee US$ 3,347,300 94,650 1,349,799 104 - - 32,061,200 - (7,703,923) (6,173) (13,427,738) (6,881) - (1,000,000) - (1,000,000)
Total in foreign currency Canadian dollar equivalents	(4,356,623) (911,524) 19,983,261 (1,006,777) 27,446 (1,146,241) 149,874 (1,428,314)

Based on the net Canadian dollar denominated asset and liability exposures as at March 31 ,2021, a 10% fluctuation in the Canadian/US exchange rates would impact the Company’s earnings for the year ended March 31, 2021 by $115,000 (March 31, 2020 - $143,000). A 10% fluctuation in the Canadian/Rupee exchange rates would impact the Company’s earnings for the year ended March 31, 2021 by $3,000 (March 31, 2020 - $15,000). The Company has not entered into any foreign currency contracts to mitigate this risk.

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 with high credit ratings as assigned by international credit rating agencies. Therefore, the Company is not exposed to significant credit risk.

Interest rate risk

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not hold any financial liabilities with variable interest rates.

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

Ceylon Graphite Corp. Period Report March 31, 2021

and expects to have adequate sources of funding to finance the Company’s projects and operations. As at March 31, 2021, the Company had a working capital deficiency of $ 1,339,637 (March 31, 2020 - $3,413,945). As at March 31, 2021, the Company had cash of $2,073,452 (March 31, 2020 - $1,047) to settle accounts payable, current portion of capital lease obligation, convertible debentures, amounts payable and loans payable of $3,524,423 (March 31, 2020 - $3,802,113) 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 obligations	5,827	2,203	3,624	-	5,827
Convertible loans	1,898,404	1,898,404	-	-	1,898,404

Fair value

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

• Level 3 – Inputs that are not based on observable market data.

1.17 Other MD&A Requirements

• A. For more information about the Company, see Ceylon Graphite website at http://www.ceylongraphite.com. The Company has not filed an AIF Annual Information Form.

• B. Information required in the following section of National Instrument 51-102, if applicable:

• i) Section 5.3– Additional Disclosure for Venture Issuers without Significant Revenue

Analysis of material components of the Company’s general and administrative expenses is disclosed in the Condensed Consolidated Interim Statement of Comprehensive Loss forming part of the Financial Statements for the year ended March 31, 2021to which this MD&A relates.

• ii) Section5.4- Disclosureof Outstanding Share Data

• a. Authorized:

Unlimited common shares without par value

• b. Common Shares Issued and Outstanding as at this MD&A report date was 129,946,475 shares.

As at March 31, 2021, there were no common shares held in escrow.

(iii)Section5.7– Additional Disclosure for Reporting Issuers with Significant Equity Investees .

Ceylon Graphite Corp. Period Report March 31, 2021

Not applicable.

C. Disclosure required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Filings.

Not applicable.

Risk Factors

The Company is focused solely on its mining and exploration efforts in a cost-effective manner. The failure to generate future cash flow could have a significant and adverse effect on the Company.

The Company's success will depend in large measure on certain key personnel. The loss of the services of such key personnel could have a material adverse effect on the Company. In addition, there can be no assurance that Company will be able to continue to attract and retinal personnel necessary for the development and operation of its business.

The Company has incurred a net loss for the year ended March 31, 2021of $3,986,352 and has a deficit of $13,110,869 as at March 31, 2021. Management is continuing its efforts to attract additional equity and capital investors and implement cost control measures to maintain adequate levels of working capital. Nevertheless, there can be no assurance provided with respect to the successful outcome of the seagoing actions. If the Company is unable to obtain additional financing on reasonable terms, the Company may be required to reduce its operations to continue as a going concern.

In addition, the Company’s negative working capital could affect the Company’s ability to seize upon opportunities requiring investment, or to reinvest in its products in a timely manner.

RISK FACTORS

An investment in Ceylon Graphite is subject to risks and uncertainties. The occurrence of any one or more of these risks or uncertainties could have a material adverse effect on the value of any investment in the Company and the business, prospects, financial position, financial condition or operating results of the Company. Prospective investors should carefully consider the information presented in this Annual Information Form, including the following risk factors, which are not an exhaustive list of all risk factors associated with an investment in the Company or the Company’s shares or in connection with the operations of the Company:

General Exploration & Mining Risks

The Company is engaged in the business of mineral exploration and production of graphite in historic resource jurisdictions in Sri Lanka. Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. The long-term profitability of the Company’s operations will be in part directly related to the cost and success of its exploration programs and its development of its properties, which may be affected by a number of factors beyond its control.

Any exploration, development and operation of a mine is inherently dangerous and involves many risks, that even a combination of experience, knowledge and careful evaluation may not be able to reduce or eliminate, including: unusual or unexpected geological formations; metallurgical and other processing problems; metal losses; environmental hazards; power outages; labour disruptions; industrial accidents; periodic interruptions due to inclement or hazardous weather conditions; flooding, explosions, fire, rock bursts, cave-ins and landslides; mechanical equipment and facility performance problems; and the availability of materials and equipment. These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death, including to the Company’s employees, environmental damage, delays in mining, increased production costs, asset write-downs, monetary losses and possible legal liability. The Company may become subject to liability for such matters against which it cannot insure or against which it may elect not to insure. The payment of such liabilities may have a material, adverse effect on its financial position.

Ceylon Graphite Corp. Period Report March 31, 2021

The Company will continue to rely upon consultants and others for exploration and development expertise. Expenditures will be required to establish ore reserves through drilling, to develop processes to extract minerals from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. The economics of developing mineral properties is affected by many factors including the cost of operations, variations in the grade of minerals mined, fluctuations in precious and base metal markets, production limits, importing and exporting of minerals and environmental protection.

Dependence on the Property

The Company is an early production stage company with several exploration stage properties and as such does not anticipate receiving significant revenue from its mineral properties for some time. The Company is focused on the exploration and development of its exploration stage properties, which may not have any identified mineral resources or reserves. Any adverse developments affecting its current properties could have a material adverse effect upon the Company and would materially and adversely affect any profitability, financial performance and results of operations of the Company.

Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company’s mineral exploration and development programs at its exploration stage properties will result in the definition of bodies of commercial mineralization. There is also no assurance that even if commercial quantities of mineralization are discovered that any of these properties will be brought into commercial production. Failure to do so will have a material adverse impact on the Company’s operations and potential future profitability. The discovery of bodies of commercial mineralization is dependent upon a number of factors, not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit once discovered is also dependent upon a number of factors, some of which are the particular attributes of the deposit (such as size, grade and proximity to infrastructure), metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. Most of the above factors are beyond the Company’s control.

Limited Operating History

The Company is an early stage company and owns certain producing properties as well as exploration stage properties. As such, the Company will be subject to all of the business risks and uncertainties associated with any new business enterprise, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. The current state of the Company’s properties may require additional expenditures before cash flow may be generated. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and the likelihood of its success must be considered in light of its early stage of operations.

Mining Decision

The Company may choose to initiate mining operations on any part of its various current or future properties, without basing its production decision on a feasibility study, preliminary economic assessment or mining study of mineral reserves demonstrating economic and technical viability, and therefore be subject to a higher risk of uncertainty. There is no assurance, given all of the known and potentially unknown risks associated with such properties that the Company will be able to profitably carry on mining operations. In addition, there is no assurance that continued exploration of the properties will demonstrate adequate additional mineralization which can be mined economically, such that mining operations on those properties may not be sustainable.

Mining Operations and Insurance

Mining operations generally involve a high degree of risk. The Company’s operations will be subject to all of the hazards and risks normally encountered in mineral exploration and development. Such risks include unusual and unexpected geological formations, seismic activity, rock bursts, cave-ins, water inflows, fires and other conditions involved in the drilling and removal of material, environmental hazards, industrial accidents, periodic interruptions due to adverse weather conditions, labor disputes, political unrest and theft. The occurrence of any of the foregoing could result in damage to, or destruction of, mineral properties or interests, production facilities, personal injury, damage to life or property, environmental damage, delays or interruption of operations, increases in costs, monetary losses, legal liability and adverse government action. The Company does not currently carry insurance against these risks and there is no assurance that such insurance will be available in the future, or if available, at economically feasible premiums or acceptable terms. The potential costs associated with losses or liabilities not covered by insurance coverage may have a material adverse effect upon the Company’s financial condition.

Ceylon Graphite Corp. Period Report March 31, 2021

Cost Overruns, Delays and Construction Risk

Subject to securing future mine development financing, the Company may encounter risks associated to potential cost overruns, delays and construction.

Governmental and Environmental Regulation, Permits and Compliance

The future operations of the Company, including exploration and development activities and the commencement and continuation of commercial production, require licenses, permits or other approvals from various federal, provincial and local governmental authorities and such operations are or will be governed by laws and regulations relating to prospecting, development, mining, production, exports, taxes, labor standards, occupational health and safety, waste disposal, toxic substances, land use, water use, environmental protection, land claims of indigenous people and other matters. The Company believes that all of its properties are in compliance with all material laws and regulations which currently apply to its activities. There can be no assurance, however, that the Company will obtain on reasonable terms or at all the permits and approvals, and the renewals thereof, which it may require for the conduct of its future operations or that compliance with applicable laws, regulations, permits and approvals will not have an adverse effect on plans to develop the M1 and K1 properties. Possible future environmental and mineral tax legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delay on the Company’s planned exploration and operations, the extent of which cannot be predicted.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

Reliance on Management and Experts

The success of the Company will be largely dependent upon the performance of its senior management and directors. Due to the relative small size of the Company, the loss of these persons or the inability of the Company to attract and retain additional highly skilled employees may adversely affect its business and future operations. The Company has not purchased any “key-man” insurance nor has it entered into any non-competition or nondisclosure agreements with any of its directors, officers or key employees and has no current plans to do so

The Company has hired and may continue to rely upon consultants and others for geological and technical expertise. The Company’s current personnel may not include persons with sufficient technical expertise to carry out the future development of the Company’s properties. There is no assurance that suitably qualified personnel can be retained or will be hired for such development.

Competition

The mineral exploration and mining business is competitive in all of its phases. The Company competes with numerous other companies and individuals, including competitors with greater financial, technical and other resources, in the search for and the acquisition of attractive mineral properties. The mining industry is facing a shortage of equipment and skilled personnel and there is intense competition for experienced geologists, field personnel, contractors and management. There is no assurance that the Company will be able to compete successfully with others in acquiring such equipment or personnel.

Conflicts of Interest

Certain of the directors and officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration and development and consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers involving the Company should be made in accordance with their fiduciary duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders.

In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in the Canada Business Corporations Act and other applicable laws.

Competitive Conditions

Ceylon Graphite Corp. Period Report March 31, 2021

The mineral exploration and mining business is competitive in all phases of exploration, development and production. The Company competes with a number of other entities in the search for and acquisition of productive mineral properties. As a result of this competition, the majority of which is with companies with greater financial resources than the Company, the Company may be unable to acquire attractive properties in the future on terms it considers acceptable. The Company also competes for financing with other resources companies, many of whom have greater financial resources and/or more advanced properties. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company.

Country Risks

The Company’s mineral properties are located in and its activities are conducted in Sri Lanka and as such the Company is and will be exposed to various levels of political, economic and other risks and uncertainties associated with carrying on business in Sri Lanka. These risks include but are not limited to, political instability, an unpredictable legal system, civil unrest, inconsistent and unsophisticated land tenure system, government land policy and government ownership of or participation in mining projects, high levels of corruption, significant delays in permitting and approvals, fluctuations in currency exchange rates, high rates of inflation, excessive import duties and taxes on the importation of equipment, expropriation and nationalization, restrictions on foreign ownership, possible future restrictions on foreign exchange and repatriation, changes in taxation, labour and mining regulations and policies, and changing political conditions, currency controls, and government regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ local citizens.

Changes, if any, in mining or investment policies, or shifts in political attitude in Sri Lanka, may adversely affect the Company’s operations or profitability. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications, and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.

Title Risks

Title to mineral properties, as well as the location of boundaries on the ground may be disputed. While the Company has exercised the usual due diligence with respect to determining title to properties in which it has a material interest, there is no guarantee that title to such properties will not be challenged or impugned. There can be no assurance that the Company’s interests in such properties will not be subject to undetected defects including but not limited to prior unregistered agreements or transfers or native land claims which may affect title. Management believes that the Company has sufficient contractual, statutory, or common law rights to all of its properties in order to carry out its activities.

Commodity Prices

The price of the Company’s securities, its financial results and its exploration, development and mining activities have previously been, or may in the future be, significantly adversely affected by declines in the price of graphite. Industrial mineral prices fluctuate widely and are affected by numerous factors beyond the Company’s control such as the sale or purchase of industrial minerals by various dealers, interest rates, exchange rates, inflation or deflation, currency exchange fluctuation, global and regional supply and demand, production and consumption patterns, speculative activities, increased production due to improved mining and production methods, government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection, the degree to which a dominant producer uses its market strength to bring supply into equilibrium with demand, and international political and economic trends, conditions and events. The prices of industrial minerals have fluctuated widely in recent years, and future price declines could cause continued exploration and development of all of its properties to be impracticable.

Further, reserve calculations and life-of-mine plans using significantly lower graphite prices could result in material write-downs of the Company’s investment in all of its properties and increased amortization, reclamation and closure charges.

In addition to adversely affecting reserve estimates and the Company’s financial condition, declining graphite prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to

Ceylon Graphite Corp. Period Report March 31, 2021

conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Market for Securities

In recent years, securities markets in Canada and elsewhere have from time to time experienced high levels of price and volume volatility. Consequently, the market prices of the securities of many public companies have experienced significant fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Factors such as commodity prices, government regulation, interest rates, share price movements of the Company’s peer companies and competitors, as well as overall market movements, may have a significant impact on the market price of the Company’s securities.

Financing Risks

The Company is focused solely on its mining and exploration efforts in a cost-effective manner. The failure to generate future cash flow could have a significant and adverse effect on the Company. Management is continuing in its efforts to attract additional equity and capital investors and implement cost control measures to maintain adequate levels of working capital. Nevertheless, there can be no assurance provided with respect to the successful outcome of these ongoing actions nor can there be assurance that additional funding will be available to it for further exploration and development of its projects or to fulfill its obligations under any applicable agreements. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its projects and could cause the Company to reduce or terminate its operations. Additional funds raised by the Company from treasury share issuances may result in further dilution to the shareholders of the Company or a change of control.

Infrastructure

Exploration, development and processing activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important elements of infrastructure, which affect access, capital and operating costs. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploration or development of the properties. If adequate infrastructure is not available in a timely manner, there can be no assurance that the exploration or development of the properties will be commenced or completed on a timely basis, if at all. Furthermore, unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of necessary infrastructure could adversely affect the Company’s operations.

Corruption and Anti-Bribery

The Company must comply with anti-corruption and anti-bribery laws, including the Canadian Corruption of Foreign Public Officials Act as well as similar laws in the countries in which the Company conducts its business. Such laws apply to all directors, officers, employees, consultants and agents of the Company and each subsidiary thereof. If the Company finds itself subject to an enforcement action or is found to be in violation of such laws, this may result in significant penalties, fines and/or sanctions imposed on the Company, which may have a material adverse effect on it.

No Assurances

There is no assurance that economic mineral deposits will ever be discovered, or if discovered, subsequently put into production. Most exploration activities do not result in the discovery of commercially mineable deposits. The Company’s future growth and profitability will depend, in part, on its ability to identify and expand its mineral reserves through additional exploration of its properties and on the costs and results of continued exploration and development programs.

Mining exploration is highly speculative in nature, involves many risks and frequently is not productive. Most exploration projects do not result in the discovery of commercially mineable ore deposits and no assurance can be given that any anticipated level of recovery of mineral reserves will be realized or that any identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited. There can be no assurance that the Company’s exploration efforts at its properties will be successful.

Operating Hazards, Uninsurable Risks and Insurance

The ownership, exploration, operation and development of a mine or mineral property involves many risks which even a combination of experience, knowledge and careful evaluation may not be able to reduce or eliminate. These risks include environmental hazards, industrial accidents, explosions and third-party accidents, the

Ceylon Graphite Corp. Period Report March 31, 2021

encountering of unusual or unexpected geological formations, ground falls and cave-ins, mechanical failure, unforeseen metallurgical difficulties, power interruptions, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in environmental damage and liabilities, work stoppages, delayed production and resultant losses, increased production costs, damage to, or destruction of, mineral properties or production facilities and resultant losses, personal injury or death and resultant losses, asset write downs, monetary losses, claims for compensation of loss of life and/or damages by third parties in connection with accidents (for loss of life and/or damages and related pain and suffering) that occur on Company property, and punitive awards in connection with those claims and other liabilities.

It is not always possible to fully insure against such risks, and the Company may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise they could reduce or eliminate any future profitability and result in an increase in costs and a decline in value of the Company’s securities. Liabilities that the Company incurs may exceed the policy limits of insurance coverage or may not be covered by insurance, in which event the Company could incur significant costs that could adversely impact its business, operations, potential profitability or value. Despite efforts to attract and retain qualified personnel, as well as the retention of qualified consultants, to manage the Company’s interests, even when those efforts are successful, people are fallible and human error could result in significant uninsured losses. These could include loss or forfeiture of mineral interests or other assets for non-payment of fees or taxes, significant tax liabilities in connection with any tax planning effort the Company might undertake and legal claims for errors or mistakes by personnel.

Environmental Risks and Hazards

All phases of the Company’s operations will be subject to environmental regulation in the jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation and provide for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry activities and operations. They also set forth limitations on the generation, transportation, storage and disposal of hazardous waste. A breach of such regulation may result in the imposition of fines and penalties. In addition, certain types of mining operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees.

While management of the Company believes that the Company is in compliance with all material laws and regulations which currently apply to the activities of the Company. There is no assurance that, notwithstanding the precautions and limited history of activities of the Company, breaches of environmental laws (whether inadvertent or not) or environmental pollution will not result in additional costs or curtailment of planned activities and investments, which could have a material and adverse effect on future cash flows, earnings, results of operations and financial condition of the Company. Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Companies engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws even where there has been no intentional wrong-doing.

Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or any future production costs or require abandonment or delays in the development of new mining properties. Companies engaged in the exploration and development of mineral properties may from time to time experience increased costs and delays in exploration and production as a result of the need to comply with applicable laws, regulations and permits.

General Economic Conditions

The unprecedented events in global financial markets in the past several years have had a profound impact on the global economy. Many industries, including the mining industry, continue to be negatively impacted by these market conditions. Some of the key impacts of the current financial market turmoil include contraction in credit markets resulting in a widening of credit risk, devaluations, high volatility in global equity, commodity, foreign exchange and devalued precious and base metal markets combined with a lack of market liquidity. A continued or

Ceylon Graphite Corp. Period Report March 31, 2021

worsened slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, tax rates and base and precious metals pricing may adversely affect the Company’s growth and profitability.

Land Reclamation Requirements

Land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance. Reclamation may include requirements to: control dispersion of potentially deleterious effluents; and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on the Company in connection with exploration, development and production activities, the Company must allocate financial resources, including funds required to post reclamation bonds, that might otherwise be spent on further exploration and development programs.

Dilution

The Company may sell additional equity securities in subsequent offerings (including through the sale of securities convertible into Common Shares) and may issue additional equity securities to finance its operations, exploration, development, acquisitions or other projects. The Company cannot predict the size of future sales and issuances of equity securities or the effect, if any, that future sales and issuances of equity securities will have on the market price of the Company’s shares.

Future Sale of Shares

Future sales of the Company’s shares by large shareholders or other shareholders could decrease the value of the Company’s shares. Sales of a substantial number of Company’s Common Shares, or the perception that such sales could occur, may adversely affect prevailing market prices for the Company’s Common Shares.

Dividends

The Company has not declared or paid any dividends on the Company’s Common Shares. The Company intends to retain future earnings, if any, to finance the growth and development of its business and does not intend to pay cash dividends on the Company’s Common Shares in the foreseeable future.

The Company may Incur Losses for the Foreseeable Future

The Company expects to incur losses unless and until such time as the Company’s operations generate sufficient revenues to fund continuing operations. The Company cannot provide assurance that it will ever achieve profitability.

Litigation

The Company and/or its directors and officers may be subject to a variety of civil or other legal proceedings, with or without merit. From time to time in the ordinary course of its business, the Company may become involved in various legal proceedings, including commercial, employment and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause the Company to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on the Company’s business, operating results or financial condition.

Global COVID-19 Outbreak & Future Pandemic

Subsequent to year-end, there was a global outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses in Canada and throughout the world as a result of the restrictions put in place by the federal, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put in place by Canada and other countries to fight the virus. While the extent of the impact is unknown, this outbreak may also hinder the Company’s ability to raise financing due to uncertain capital markets, reduced customer demand, supply chain disruptions, increased government regulations and other unanticipated factors, all of which may also negatively impact the Company’s business and financial condition. In addition, it is unclear what further impact COVID-19 or any other future pandemic may have on the Company’s future operations in Sri Lanka. There can be no assurance that COVID-19 or any future pandemic will

Ceylon Graphite Corp. Period Report March 31, 2021

not disrupt the mining operations of the Company. Increased government regulations, mandatory quarantine orders and other health and safety protocols may result in reduced or limited operations, temporary or permanent closures of properties, loss of personnel or other unanticipated results.

ADDITIONAL INFORMATION

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, is contained in Ceylon Graphite’s information circular dated April 8, 2021 for the most recent annual meeting of the Company’s shareholders held on April 30, 2021. Additional information is provided in the Company’s audited financial statements and the Company’s management discussion and analysis for the year ended March 31, 2021. Copies of the foregoing documents may be obtained by shareholders upon request from the Corporate Secretary of the Company. These documents, as well as additional information relating to Ceylon Graphite, are available on SEDAR under the Company’s SEDAR profile at www.sedar.com.