Ceylon Graphite Corp. — Interim / Quarterly Report 2023

Feb 22, 2023

CEYLON GRAPHITE CORP.

Condensed Consolidated Interim Financial Statements

For the Period Ended

December 31, 2022 and 2021

(Unaudited)

(Expressed in Canadian dollars)

Notice of no Auditor Review of Interim Financial Statements

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice indicating that the condensed consolidated interim financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these condensed consolidated interim financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

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

CEYLON GRAPHITE CORP. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian Dollars)

(Expressed in Canadian Dollars)
		December 31,	March 31,
		2022	2022
	Note	(Unaudited)	(Audited)
		$	$
ASSETS
Current
Cash		1,063,790	68,353
Amounts receivable		80,779	22,615
Prepaid expenses and advances		69,806	330,365
		1,214,375	421,333
Property and equipment	5	209,149	167,435
Exploration and evaluation assets	6	3,671,371	3,385,270
Right-of-use asset		11,909	13,716
		5,106,804	3,987,754
LIABILITIES
Current
Accounts payable and accrued liabilities		256,358	551,489
Amounts payable	9	1,354,400	1,249,600
Loans payable	10	41,541	41,541
Current portion of capital lease obligations		15,185	948
Convertible debentures	7	1,972,823	1,987,115
		3,640,307	3,830,693
Capital lease obligations		-	17,053
		3,640,307	3,847,746
EQUITY
Share capital	8	15,428,328	12,308,524
Share subscriptions	8	50,000	50,000
Equity component of convertible debenture	7	394,711	394,711
Contributed surplus		5,773,744	5,227,176
Deficit		(18,964,492)	(17,108,501)
Accumulated othercomprehensiveincome		(1,215,794)	(731,902)
		1,466,497	140,008
		5,106,804	3,987,754

CORPORATE INFORMATION AND CONTINUANCE OF OPERATIONS (Note 1) COMMMITMENTS (Note 4) SUBSEQUENT EVENTS (Note 13)

Approved by the Board of Directors on February 22, 2023

“Sasha Jacob”

Sasha Jacob, Director

“Kevin Aylward”

Kevin Aylward, Director

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

CEYLON GRAPHITE CORP. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Expressed in Canadian Dollars)

		Three Months ended	Three Months ended	Nine Months ended	Nine Months ended
		December	December	December	December
		31,	31,	31,	31,
	Note	2022	2021	2022	2021
		$	$	$	$
Expenses
Advertising and promotion		66,678	145,222	192,799	386,526
Amortization		6,465	11,270	17,251	39,168
Consulting		92,711	266,171	292,450	432,931
Director fees		9,000	-	27,000	-
Interest, finance and bank charge	7	45,753	176,716	151,716	486,630
Office and administrative		44,563	63,342	159,015	146,890
Professional fees	9	185,981	185,460	390,852	777,341
Rent		10,231	-	41,133	-
Share-based payments	8,9	115,167	178,870	431,054	828,719
Transfer agents		11,399	2,899	39,594	13,180
Travel		27,676	4,582	71,218	50,403
Wages and benefits		6,648	-	41,909	-
Loss before other items		(622,272)	(1,034,532)	(1,855,991)	(3,161,788)
Other items
Other income		-	10	-	7,300
Net loss		(622,272)	(1,034,522)	(1,855,991)	(3,154,488)
Other comprehensive gain (loss)
Item that may be reclassified subsequently
to gain (loss):
Unrealizedforeignexchange translation		(114,914)	(96,480)	(483,892)	(182,223)
Comprehensive loss		(737,196)	(1,131,002)	(2,339,8834)	(3,336,710)
Loss per share – basic and
diluted		(0.00)	(0.01)	(0.01)	(0.02)
Weighted average number of
common shares outstanding		154,321,475	129,512,274	151,316,475	129,212,653

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

CEYLON GRAPHITE CORP. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Expressed in Canadian Dollars)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 (Expressed in Canadian Dollars)	AND 2021
		December 31,	December 31,
	Note	2022	2021
		$	$
Net loss		(1,855,991)	(3,154,488)
Items not involving cash:
Accretion and interest for convertible debentures	7	146,331	472,480
Share issued for services		-	350,000
Amortization		17,251	39,168
Share-based payments		431,054	828,719
		(1,261,355)	(1,464,121)
Changes in non-cash working capital balances:
Accounts payable and accrued liabilities		(290,906)	43,690
Amounts receivable		(58,125)	(40,630)
Prepaid and deposit		(199,555)	(198,357)
Cashusedinoperating activities		(1,809,941)	(1,659,418)
INVESTING ACTIVITIES
Purchase of property and equipment	5	(80,660)	(14,882)
Expenditures onexplorationand evaluationassets	6	(187,829)	(214,380)
Cashusedin investing activities		(268,489)	(229,262)
FINANCING ACTIVITIES
Private placement, net		3,195,318	-
Payments on capital lease obligation		(441)	(1,173)
Option exercised		40,000	100,000
Interest payment on convertible debentures		(160,623)	-
Warrants exercised		-	26,250
Cash provided by financing activities		3,074,254	125,077
CHANGE IN CASH DURING THE PERIOD		995,824	(1,763,603)
CASH, BEGINNNG OF PERIOD		68,353	2,073,452
EFFECTOF TRANSLATINGFOREIGNCURRENCY		(387)	(324)
CASH,END OF PERIOD		1,063,790	309,525
SUPPLEMENTAL CASH DISCLOSURES
Interest and income taxespaid		160.623	-
NON-CASH TRANSACTION
Shares issued for debenture interest		-	325,153
Shares issued for services		-	350,000
Shares issued for debt		-	100,000

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

CEYLON GRAPHITE CORP. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY FOR THE PERIOD ENDED DECEMBER 31, 2022 AND 2021

(Unaudited)

(Expressed in Canadian Dollars)

	CommonShares Number Amount Share subscriptions Equity portion of convertible debentures Contributed surplus Deficit Accumulated other comprehensive income Total
Balances as at March 31, 2021 Warrant exercised Shares issued for service Issuance of shares for debenture interest Share for debt Stock option exercised Share-based payments Netloss and comprehensiveloss	$ $ $ $ $ $ $ 126,404,747 11,171,927 50,000 394,711 4,032,686 (13,110,869) (370,242) 2,168,213 175,000 26,250 - - - - - 26,250 1,681,818 350,000 - - - - - 350,000 1,970,624 325,153 - - - - - 325,153 500,000 100,000 - - - - - 100,000 714,286 185,195 - - (85,195) - - 100,000 - - - - 828,719 - - 828,719 - - - - - (3,154,488) (182,223) (3,336,711)
Balances as atDecember31,2021	131,446,475 12,158,525 50,000 394,711 4,776,210 (16,265,357) (552,465) 561,524
Balances as at March 31, 2022 Issuance of common shares for cash Share issuance costs Stock option exercised Share-based payments Netloss and comprehensiveloss	132,446,475 12,308,524 50,000 394,711 5,227,176 (17,108,501) (731,902) 140,008 21,875,000 3,500,000 - - - - - 3,500,000 - (463,103) - - 158,421 - - (304,682) 250,000 82,907 - - (42,907) - - 40,000 - - - - 431,054 - - 431,054 - - - - - (1,855,991) (483,893) (2,339,883)
Balances as at December 31,2022	154,571,475 15,428,328 50,000 394,711 5,773,744 (18,964,492) (1,215,795) 1,466,497

.

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

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (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 1100-1111 Melville Street Vancouver, BC V6E 3V6, 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 BPA 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.

On July 19, 2021, the Company incorporated a subsidiary Ceylon Graphite Technologies Ltd. (“CGT”), in the United Kingdom. This subsidiary is inactive as of the date of these consolidated financial statements.

During the period ended December 31, 2022, the Company incurred a net loss of $1,855,991 and had a deficit of $18,964,492 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 has 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 form a material uncertainty which may 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 throughout the world. 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 COVID-19 pandemic has affected the Company’s day-to-day operations, such as delays with the issuance of the Company’s mining and exploration license renewals. 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 condensed consolidated interim 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.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING POLICIES

a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors on February 22, 2023.

b) Basis of presentation

These condensed consolidated interim 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”), BPA and CGT. 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 condensed consolidated interim 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 condensed consolidated interim financial statements have been prepared using the accrual basis of accounting.

c) Cash and cash equivalents

Cash in the consolidated statements of financial position is comprised of cash in banks and on hand, and short-term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. As of December 31, 2022, and 2021, 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.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (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

Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

2. h) Income taxes (continued)

Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. 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 reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference 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 depreciation, less any accumulated impairment losses. Depreciation 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.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

2. j) Financial instruments (continued)

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 payable, amounts payable, loans payable, capital lease obligations and convertible debentures.

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.

k) Share capital

Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. Common shares issued for consideration other than cash, are valued based on the fair value of goods or services rendered.

The Company has adopted the residual value method with respect to the measurement of shares and warrants issued as private placement units. When shares and warrants are issued at the same time, the proceeds are allocated first to the warrants issued, according to their fair value using the Black-Scholes pricing model, and the residual value being allocated to the shares. The Company does not measure the impact of modification to the terms of warrants previously issued. Any fair value attributed to the warrants is recorded as reserves.

l) Share-based payment transactions

The fair value of options is measured on the grant date and is recognized as an expense with a corresponding increase in reserves as the options vest. Options granted to employees and others providing similar services are measured on the grant date at fair value of the instruments issued. Fair value is determined using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of options that are expected to vest. Each tranche in an award with graded vesting is considered a separate grant with a different vesting date and fair value. Each grant is accounted for on that basis.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

2. l) Share-based payment transactions (continued)

Options granted to non-employees are measured at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which case the fair vale of the equity instruments issued is used. The value of the goods or services is recorded at the earlier of the vesting date, or the date the goods or services are received. On vesting, share-based payments are recorded as an operating expense and as reserves. When options are exercised, the consideration received is recorded as share capital. The related share-based payments originally recorded as reserves on either exercise or expiry of the underlying options.

m) Compound financial instruments

The components of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the issuance date, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability based on amortized cost until the instrument is converted or matures. The equity component is determined by deducting the liability component from the total fair value of the compound instrument and is recognized as equity, net of income tax effects, with no subsequent re-measurement.

• n) Recent and future accounting standards

As at December 31, 2022, there have been no other recent or future accounting pronouncements by the IASB that would materially affect the Company’s consolidated financial statements.

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these condensed consolidated interim 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 condensed consolidated interim 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, valuation of share-based payments and assessment of impairment of exploration and evaluation assets.

Critical accounting estimates

i) Convertible debentures

Convertible debentures are separated into their liability and equity components on the consolidated statement of financial position. The liability component is initially recognized at fair value, calculated as the net present value of the liability, using estimated interest rates based upon non-convertible debt issued by comparable issuers, and accounted for at amortized cost using the effective interest method

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Critical accounting estimates (continued)

ii) Share based payments

The Company uses the fair-value method of accounting for share-based payments (related to incentive stock options and compensation warrants granted, modified or settled). Under this method compensation costs attributable to option awards granted are measured at fair value at the issue or grant date and are expensed over the vesting period. In determining the fair value for share-based payments, the Company uses option pricing models and makes estimates of the expected volatility of the stock, the expected life and risk-free rate. The expected volatility is based on historical volatility of the Company’s stock over a period commensurate with the expected life of the option. Changes to these estimates could result in the fair value of share-based payments expense being less than or greater than the amount recorded.

Critical accounting judgments

i. Financial instruments

The determination of categories of financial assets and financial liabilities has been identified as an accounting policy choice which involves judgments or assessments made by management.

• ii. Deferred income taxes

Management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the probable timing and level of future taxable income realized, including the usage of tax planning strategies.

• iii. Exploration and evaluation assets

The Company is required to review the carrying value of its exploration and evaluation properties at each reporting date for potential impairment. Impairment is indicated if the carrying value of the Company’s exploration and evaluation assets is not recoverable. If impairment is indicated, the amount by which the carrying value of exploration and evaluation assets exceeds their estimated fair value is charged to the statements of comprehensive loss.

Evaluating for recoverability during the exploration and evaluation phase requires judgment in determining whether future economic benefits from future exploitation, sale or otherwise are likely. Evaluations may be more complex where activities have not reached a stage which permits a reasonable assessment of the existence of reserves or resources. Management must make certain estimates and assumptions about future events or circumstances including, but not limited to, the interpretation of geological, geophysical and seismic data, the Company’s financial ability to continue exploration and evaluation activities, contractual issues with joint venture partners, the impact of government legislation and political stability in the region, and the impact of current and expected future metal prices on potential reserves.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Critical accounting judgments (continued)

• iv. Technical feasibility and commercial viability

The establishment of technical feasibility and commercial viability of a mineral property is assessed based on a combination of factors. By its nature, this assessment requires significant judgment. As at December 31, 2022, management determined that the technical feasibility and commercial viability has not yet been established for its mineral properties and as such they are considered to be at the exploration and evaluation stage.

v. Mineral property title

Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims and licenses. Although the Company has taken steps to verify title and licenses to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. To the best of the Company’s knowledge, title and licenses related to all of its properties are in good standing.

vi. Modification of convertible debt

Management judgment is required to determine if a change in the terms and conditions of a debt instrument is a modification or cancellation of debt.

• vii. Going concern

The Company’s management has made an assessment of the Company’s ability to continue as a going concern. Factors considered by management are disclosed in Note 1.

4. COMMITMENTS AND CONTINGENCIES

• a) From time to time, the Company is engaged in various legal proceedings and claims that have arisen in the normal course of business. The outcome of all the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company.

• b) 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 profit has been earned and as a result no shares have been issued.

5. PROPERTY AND EQUIPMENT

During the nine months period ended December 31, 2022, the Company acquired property and equipment in the amount of $80,660 (December 31, 2021 - $14,882). Amortization of assets for the period ended December 31, 2022 was $17,251 (December 31, 2021 - $39,168). Net book value of property and equipment as of December 31, 2022 was $209,149 (December 31, 2021 - $257,369). Any change on property and equipment balance was due to foreign exchange adjustments.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. EXPLORATION AND EVALUATION ASSETS

The Company has accumulated the following acquisition, exploration and evaluation costs for the period ended December 31, 2022:

	$
Balance, March 31, 2022	3,385,270
Costs incurred during the period:
Geological and Other Consultancy Services	17,028
Labour and Operating Costs	71,178
Drilling and Exploration	10,648
Mine and Camp Costs	43,905
Site Preparation Expense	2,477
LandRent Charges	2,459
	147,695
Effect of foreignexchange	138,406
Balance, December 31, 2022	3,671,371

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

6. EXPLORATION AND EVALUATION ASSETS (continued)

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.

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

As of December 31, 2022, the Company has made total payments of US$1,000,000.

The outstanding amount due to the vendor has been included within amounts payable on the consolidated statements of financial position. The amount is non-interest bearing and unsecured.

7. 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 in finders’ fees related to the convertible debentures.

On February 5, 2021, the Company modified the maturity date of the convertible debentures from May 23, 2021 to November 23, 2021. In addition, the interest rate increased from 6% to 8%. In connection with the modification, the Company issued 1,000,000 warrants exercisable at $0.22 per warrant, expiring in one year, as compensation to the debenture holders. The value of the warrants arising from the debt modification was $273,168, which was recorded as a transaction cost and applied against the carrying value of the debt.

On November 24, 2021, the maturity date of the convertible debentures was extended to November 23, 2022 and the expiry date of the original 4,000,000 warrants issued was extended to November 23, 2022.

On November 1, 2022, the maturity date of the convertible debentures was further extended to November 23, 2023 and the expiry date of the original 4,000,000 warrants issued was further extended to November 23, 2023.

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
Balance at March 31, 2020	1,935,644
Accretion and interest expense	385,928
Issue costs	(273,168)
Convertible debt exercised	(150,000)
Balance at March 31, 2021	1,898,404
Accretion and interest expense	413,864
Sharesissuedforpayment of interest	(325,153)
Balance at March 31, 2022	1,987,115
Accretion and interest expense	146,331
Interest paid out	(160,623)
Balance at December 31, 2022	1,972,823

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SHARE CAPITAL

2. a) Authorized:

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

• b) As at December 31, 2022, there were 154,571,475 (March 31, 2022 – 132,446,475) common shares issued and outstanding.

During the period ended December 31, 2022, the Company completed a brokered private placement and issued 21,875,000 units at a price of $0.16 per unit for aggregate gross proceeds of $3,500,000. 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 $0.25 and an expiry date of May 10, 2025. In connection with the Offering, a 7.5% cash finder’s fee was paid together with the issuance of finder warrants equal to 7.5% of the total number of Units placed, each exercisable for one Unit at a price of $0.16 at any time until May 10, 2025. Total cash paid for finders’ fees was $304,682 and fair value of the agents’ warrants is $158,421.

The Company issued 250,000 common shares pursuant to the exercise of options for total proceeds of $40,000. Contributed surplus in the amount of $42,907 was reversed upon exercising of these options.

During, the year ended March 31, 2022, the Company issued the following common shares: The Company issued 1,175,000 common shares pursuant to the exercise of share purchase warrants for total proceeds of $176,250.

The Company issued 681,818 common shares pursuant to an agreement to settle liability in the amount of $150,000.

The Company issued 1,970,624 common shares pursuant to the convertible debenture interest payments of $325,153.

The Company issued 714,286 common shares pursuant to the exercise of options for total proceeds of $100,000.

The Company issued 1,500,000 common shares to the former CEO in the amount of $300,000, in which $100,000 was to settle outstanding liabilities and $200,000 for consulting fees.

c) Stock 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.

On May 20, 2022, The Company granted 1,000,000 options to a consultant. Each option is exercisable at $0.16 per common share, expire in 5 years. The options were vested at 25% every 3 months starting on August 20, 2022 will be fully vested on May 20, 2023. During the period ended December 31, 2022, the total fair value of the options recognized was $124,709, which was estimated using the Black-Scholes calculator and the following assumptions:

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SHARE CAPITAL (continued)

Share price	$0.16
Risk free interest rate	2.70%
Weighted expected life	5 years
Weighted average expected volatility	116%
Weighted expected dividends	Nil
Forfeiture rate	Nil

On February 7, 2022, the Company granted an aggregate of 4,000,000 stock options to the officers and directors of the Company. Each option is exercisable at $0.20 per common share, expire in 5 years. 50% of the options were vested immediately and 50% will be vested on January 23, 2023. During the period ended December 31, 2022, the total fair value of the options recognized was $259,962 which was estimated using the Black-Scholes calculator and the following assumptions:

Share price	$0.20
Risk free interest rate	1.66%
Weighted expected life	5 years
Weighted average expected volatility	122%
Weighted expected dividends	Nil
Forfeiture rate	Nil

On September 2, 2021, the Company granted an aggregate of 800,000 stock options to a consulting company. Each option is exercisable at $0.14 per common share, expire in 5 years and vested immediately. The total fair value of the options was $95,417. On September 14, 2021, 714,286 options were exercised and $85,194 was reversed from contributed surplus accordingly.

The fair value of these options was determined using the Black-Scholes option pricing model with the following assumptions:

Share price	$0.14
Risk free interest rate	0.80%
Weighted expected life	5 years
Weighted average expected volatility	227%
Weighted expected dividends	Nil
Forfeiture rate	Nil

On November 19, 2020, the Company granted an aggregate of 5,000,000 stock options to its directors, officers and consultants. Each option is exercisable at $0.215 per common share and expire in 5 years. 2,800,000 options vest after six months. 3,424,000 options vest every six months in equal tranches. The total fair value of the options of $924,653 was determined using the BlackScholes option pricing model with the following assumptions:

Share price	$0.30
Risk free interest rate	0.44%
Weighted expected life	5 years
Weighted average expected volatility	125%
Weighted expected dividends	Nil
Forfeiture rate	Nil

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SHARE CAPITAL (continued)

During the period ended December 31, 2022, 2,757,870 stock options were cancelled.

c) Stock options (continued)

On January 19, 2021, the Company granted an aggregate of 1,000,000 stock options to its directors, officers and consultants. Each option is exercisable at $0.355 per common share and expire in 5 years. The options vest every six months in equal tranches. The total fair value of the options was $74,131.

Share price $0.37 Risk free interest rate 0.41% Weighted expected life 5 years Weighted average expected volatility 125% Weighted expected dividends Nil Forfeiture rate Nil

As at December 31, 2022, the Company had options outstanding enabling holders to acquire the following:

the following:
		Weighted-
	Options	Average
	Outstanding	ExercisePrice
Outstanding, March 31, 2021	8,682,870	$0.25
Options granted	4,800,000	$0.19
Options cancelled	(1,375,000)	$0.23
Options expired	(350,000)	$0.20
Options exercised	(714,286)	$0.14
Outstanding, March 31, 2022	11,043,584	$0.23
Options granted	1,000,000	$0.16
Options cancelled	(2,757,870)	$0.20
Options exercised	(250,000)	$0.16
Outstanding, December 31, 2022	9,035,714	$0.23

Details of stock options outstanding and exercisable at December 31, 2022 are as follows:

Number of	Number of		Remaining
Stock Options	Stock Options		Contractual
Outstanding	Exercisable	ExercisePrice	Life (years)	ExpiryDate
300,000	300,000	$0.30	0.13	15-Feb-23
50,000	50,000	$0.20	1.37	15-May-24
2,750,000	2,750,000	$0.22	2.89	19-Nov-25
4,000,000	3,000,000	$0.20	4.07	26-Jan-27
1,000,000	1,000,000	$0.36	3.06	20-Jan-26
100,000	100,000	$0.22	3.17	1-Mar-26
85,714	85,714	$0.14	3.67	2-Sep-26
750,000	250,000	$0.16	4.39	20-May-27
9,035,714	7,535,714	$0.22	3.47

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. SHARE CAPITAL (continued)

During the period ended December 31, 2022, the Company recorded $431,054 of share-based payments related to options vested (December 31, 2021 - $828,719).

d) Warrants

During the period ended December 31, 2022, 23,515,625 warrants were issued, of which 21,875,000 warrants were issued in connection to the private placement, and 1,640,625 warrants were issued for the finders’ fees in the private placement. The fair value of the 1,640,625 finders’ warrants was determined to be $158,421, using the Black-Scholes option pricing model with the following assumptions:

owing assumptions:
Share price	$0.14
Risk free interest rate	1.35%
Weighted expected life	3 years
Weighted average expected volatility	121%
Weighted expected dividends	Nil
Forfeiture rate	Nil

A summary of the status of the Company’s outstanding and exercisable warrants as at December 31, 2022 and the changes during the period then ended are as follows:

	Warrants	Weighted Average
	Outstanding	ExercisePrice
Balance, March 31, 2021	69,568,566	$0.16
Expired	(1,000,000)	$0.22
Exercised	(1,175,000)	$0.15
Balance, March 31, 2022	67,393,566	$0.16
Private placement	21,875,000	$0.25
Agents’ warrants	1,640,625	$0.16
Expired	(9,165,000)	$0.15
Balance, December 31, 2022	81,744,191	$0.18

Details of warrants outstanding at December 31, 2022 are as follows:

		Remaining
Number of		Contractual Life
Warrants	ExercisePrice	(inyears)	ExpiryDate
3,700,000	$0.25	0.90	November 23, 2023
2,111,450	$0.15	0.81	October 22, 2023
1,488, 550	$0.15	0.82	October 28, 2023
29,663,566	$0.15	0.81	October 22, 2023
21,265,000	$0.15	0.82	October 28, 2023
21,875,000	$0.25	2.36	May 10, 2025
1,640,625	$0.16	2.36	May10,2025
81,744,191	$0.18	1.26

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

9. RELATED PARTY TRANSACTIONS AND BALANCES

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, 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:

	December 31,	December 31,
	2022	2021
	$	$
Consulting fees – CEO	12,500	-
Consulting fees – CFO	85,500	67,500
Consulting fees – Director	116,199	-
Consulting fees – former CEO	114,300	90,000
Directors’ fees	27,000	-
Share-based payments	286,742	300,000
	642,241	457,500

The Company has an amount payable of $1,354,400 (US$1,000,000) (March 31, 2022 - $1,249,600 or US$1,000,000) due to the former shareholder of Sarcon in connection with the Agreement described in Note 6. The amount is unsecured and non-interest bearing.

10. LOANS PAYABLE

During the year ended March 31, 2021, the Company received a $40,000 loan from the Canada Emergency Business Account (CEBA). The loan has 0% interest until December 31, 2023, thereafter interest is at 5% per annum starting on January 1, 2024. No principal repayments are required before December 31, 2023, and if the loan remains outstanding after December 31, 2023, only interest payments are required until full principal is due on December 31, 2025. Payment of the loan balance on or before December 31, 2023 will result in loan forgiveness of 25% (up to $10,000).

11. 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 to.

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 period.

12. FINANCIAL INSTRUMENTS AND FINANCIAL RISK

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

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, amounts receivable, accounts payable, amounts payable, loans payable, capital lease obligations 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 ValueMeasurements Using	Fair ValueMeasurements Using	Fair ValueMeasurements Using	Fair ValueMeasurements Using
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		For Identical		Observable		Unobservable
		Instruments		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
December 31, 2022:
Cash	$	1,063,790	$	-	$	-	$	1,063,790
March 31, 2022:
Cash	$	68,353	$	-	$	-	$	68,353

Fair value

The fair value of the Company’s financial instruments approximates their carrying value as at ‐ December 31, 2022 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, amount receivable, accounts payable, amounts payable, loans payable and convertible debentures 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:

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

1. FINANCIAL INSTRUMENTS AND FINANCIAL RISK (continued)

Cash Accounts payable Amountspayable	December 31, 2022 December 31, 2022 March 31, 2022 March 31, 2022
	Rupee US$ Rupee US$ 1,257,669 1,368 712,765 4,093 (4,239,138) - (15,787,698) (6,173) - (1,000,000) - (1,000,000)
Total in foreign currency Canadian dollar equivalents	(2,981,449) (998,632) (15,074,933) (1,002,080) (10,924) (1,352,547) (64,094) (1,252,200)

Based on the net Canadian dollar denominated asset and liability exposures as at December 31, 2022, a 10% fluctuation in the Canadian/US exchange rates would impact the Company’s earnings for the period ended December 31, 2022 by $135,000 (March 31, 2022 - $125,000). A 10% fluctuation in the Canadian/Rupee exchange rates would impact the Company’s earnings for the period ended December 31, 2022 by $1,100 (March 31, 2022 - $6,400). 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.

(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 December 31, 2022, the Company had a working capital deficit of $2,425,932. As at December 31, 2022, the Company had cash of $1,063,790 to settle accounts payable, capital lease obligation, convertible debentures, amounts payable and loans payable of $3,640,307 which fall due for payment within twelve months of the financial position date.

	Carrying	Principal	Less than	Between 2	More than
	value	amount	1 year	– 5 years	5 years
	$	$	$	$	$
Accounts payable	256,358	256,358	256,358	-	-
Amounts payable	1,354,400	1,354,400	1,354,400	-	-
Capital lease obligations	15,185	39,540	3,401	13,605	22,534
Loans payable	41,541	41,541	41,541	-	-
Convertible loans	1,972,823	2,020,599	2,020,599	-	-

CEYLON GRAPHITE CORP. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2022 AND 2021 (Unaudited) (Expressed in Canadian Dollars)

13. SUBSEQUENT EVENTS

On February 7, 2023, the Company announced that it has entered into an amended and restated agreement dated February 4, 2023 (the “Restated Agreement”) with a private vendor (the “Vendor”) based in Sri Lanka to amend and restate the terms of a purchase agreement dated September 12, 2012 , as amended (the “Initial Agreement”), whereby the Company’s wholly owned subsidiary incorporated in Curacao, Plumbago Refining Corp BV (“Plumbago”), acquired Sarcon Development Pvt Ltd. (“Sarcon”). Sarcon holds 116 high-grade graphite grids in the country of Sri Lanka, which grids represent the Company’s primary focus for exploration and development. The Initial Agreement required an outstanding cash payment of US$1,000,000 to be paid to the Vendor to satisfy Plumbago’s payment obligations to the Vendor for the acquisition of Sarcon. Under the Restated Agreement, the Company has agreed to issue to the Vendor an aggregate total amount of common shares (the “Common Shares”) of the Company equal to an aggregate sum of US$1,625,000 upon meeting the milestones.