Exhibit 99.2

















NextSource Materials Inc.



Consolidated Financial Statements



For the years ended June 30, 2018 and 2017



Expressed in US Dollars

























REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Shareholders and Directors of NextSource Materials Inc.



Opinion on the Consolidated Financial Statements



We have audited the accompanying consolidated
financial statements of NextSource Materials Inc. (the “Company”), which comprise the consolidated statements of financial
position as at June 30, 2018 and 2017, and the consolidated statements of operations and comprehensive loss, changes in shareholders’
equity and cash flows for each of the two years in the period ended June 30, 2018, including the related notes, comprising a summary
of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial
statements”).



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as at June 30, 2018 and
2017 and its consolidated financial performance and its consolidated cash flows for each of the two years in the period ended June
30, 2018 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.



Material Uncertainty Related to Going
Concern



Without modifying our opinion, we draw
attention to Note 1 to the consolidated financial statements which highlights the existence of a material uncertainty relating
to conditions that cast significant doubt on the entity's ability to continue as a going concern.



Basis for Opinion



Management’s Responsibility for the Consolidated Financial
Statements



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



Auditors’ Responsibility



Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with
the PCAOB.



An audit includes performing procedures
to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing
procedures to respond to those risks. Such procedures include obtaining and examining, on a test basis, audit evidence regarding
the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether due to error or fraud. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair preparation of
the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such
opinion.



An audit also includes evaluating the appropriateness
of accounting policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.



|                                                   
|---------------------------------------------------
|                                                   
|                                                   
|We have served as the Company’s auditor since 2012.
|                                                   
|Mississauga, Canada                                
|                                                   
|October 31, 2018                                   





















NextSource Materials Inc. Consolidated Statements of Financial Position




Expressed
in US Dollars

|                                           |  | June 30, 2018 |              |   | June 30, 2017 (note 16) |   |             | July 1, 2016 (note 16) | 
|------------------------------------------ |  | ------------- | ------------ | - | ----------------------- | - | ----------- | ---------------------- | 
|Assets                                     |  |               |              |   |                         |   |             |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Current Assets:                            |  |               |              |   |                         |   |             |                        | 
|Cash and cash equivalents (note 4)         |  | $             | 338,702      |   |                         | $ | 1,964,948   |                        | 
|Amounts receivable                         |  |               | 13,241       |   |                         |   | 39,441      |                        | 
|Prepaid expenses (note 15)                 |  |               | 42,540       |   |                         |   | 39,096      |                        | 
|Total current assets                       |  |               | 394,483      |   |                         |   | 2,043,485   |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Equipment (note 5)                         |  |               | -            |   |                         |   | 27,805      |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Total Assets                               |  | $             | 394,483      |   |                         | $ | 2,071,290   |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Liabilities                                |  |               |              |   |                         |   |             |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Current Liabilities:                       |  |               |              |   |                         |   |             |                        | 
|Accounts payable (note 15)                 |  | $             | 140,865      |   |                         | $ | 159,147     |                        | 
|Accrued liabilities                        |  |               | 197,834      |   |                         |   | 68,241      |                        | 
|Provision (note 9)                         |  |               | 180,652      |   |                         |   | 182,883     |                        | 
|Warrant liability                          |  |               | -            |   |                         |   | -           |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Total Liabilities                          |  |               | 519,351      |   |                         |   | 410,271     |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Shareholders’ Equity                       |  |               |              |   |                         |   |             |                        | 
|Share capital (note 10)                    |  |               | 100,544,293  |   |                         |   | 99,621,124  |                        | 
|Accumulated deficit                        |  |               | (100,744,927 | ) |                         |   | (97,960,105 | )                      | 
|Accumulated other comprehensive income     |  |               | 75,766       |   |                         |   | -           |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Total Shareholder’s Equity                 |  |               | (124,868     | ) |                         |   | 1,661,019   |                        | 
|                                           |  |               |              |   |                         |   |             |                        | 
|Total Liabilities and Shareholder’s Equity |  | $             | 394,483      |   |                         | $ | 2,071,290   |                        | 



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



Nature of Operations (note 1)

Mineral
Exploration Properties (note 3)

Subsequent
Events (note 18)











NextSource Materials Inc. Consolidated Statements of Operations and Comprehensive Loss




Expressed
in US Dollars

|                                                                                                       |  | For the year ended |             |   | For the year ended      |  
|------------------------------------------------------------------------------------------------------ |  | ------------------ | ----------- | - | ----------------------- | -
|                                                                                                       |  | June 30, 2018      |             |   | June 30, 2017 (note 16) |  
|                                                                                                       |  |                    |             |   |                         |  
|Revenues                                                                                               |  | $                  | -           |   |                         | $
|Expenses                                                                                               |  |                    |             |   |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Exploration and evaluation expenses (notes 3, 5)                                                       |  |                    | 920,998     |   |                         |  
|Management and professional fees (notes 6, 15)                                                         |  |                    | 1,382,925   |   |                         |  
|Stock options                                                                                          |  |                    | -           |   |                         |  
|General and administrative expenses (note 7)                                                           |  |                    | 405,580     |   |                         |  
|Depreciation (note 8)                                                                                  |  |                    | -           |   |                         |  
|Impairment (note 8)                                                                                    |  |                    | 27,805      |   |                         |  
|Foreign currency translation (gain) loss                                                               |  |                    | 104,387     |   |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Total expenses                                                                                         |  |                    | 2,841,695   |   |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Net loss before change in fair value, reversal of impairment of amount receivable and part XII.6 taxes |  |                    | (2,841,695  | ) |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Other income (expenses)                                                                                |  |                    |             |   |                         |  
|Change in value of warrant liability                                                                   |  |                    | -           |   |                         |  
|Reversal of impairment of amount receivable                                                            |  |                    | 45,132      |   |                         |  
|Part XII.6 taxes                                                                                       |  |                    | 11,741      |   |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Net loss for the year                                                                                  |  | $                  | 2,784,822   |   |                         | $
|                                                                                                       |  |                    |             |   |                         |  
|Other comprehensive income                                                                             |  |                    |             |   |                         |  
|Items that will be reclassified subsequently to loss                                                   |  |                    |             |   |                         |  
|Translation adjustment for foreign operations                                                          |  |                    | 75,766      |   |                         |  
|                                                                                                       |  |                    |             |   |                         |  
|Net loss and comprehensive loss for the year                                                           |  | $                  | (2,709,056  | ) |                         | $
|                                                                                                       |  |                    |             |   |                         |  
|Weighted-average common shares, -          basic and diluted                                           |  |                    | 468,252,639 |   |                         |  
|Net loss per common shares, -          basic and diluted                                               |  | $                  | (0.01       | ) |                         | $





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











NextSource Materials Inc.

Consolidated Statements of Cash Flows



Expressed
in US Dollars

|                                                             |  | For the year ended June 30, 2018 |            |   | For the year ended June 30, 2017 (note 16) |  
|------------------------------------------------------------ |  | -------------------------------- | ---------- | - | ------------------------------------------ | -
|Cash flows from operating activities                         |  |                                  |            |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Net loss and comprehensive loss for the year                 |  | $                                | (2,709,056 | ) |                                            | $
|                                                             |  |                                  |            |   |                                            |  
|Items not affecting cash:                                    |  |                                  |            |   |                                            |  
|Depreciation and impairment of property, plant and equipment |  |                                  | 27,805     |   |                                            |  
|Change in value of warrant derivative liability              |  |                                  | -          |   |                                            |  
|Stock-based compensation                                     |  |                                  | -          |   |                                            |  
|Change in non-cash working capital items:                    |  |                                  |            |   |                                            |  
|Amounts receivable and prepaid expenses                      |  |                                  | 22,756     |   |                                            |  
|Accounts payable and accrued liabilities                     |  |                                  | 111,311    |   |                                            |  
|Provision                                                    |  |                                  | (2,231     | ) |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Net cash used in operating activities                        |  |                                  | (2,549,415 | ) |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Cash flows from investing
activities                         |  |                                  |            |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Equipment purchases                                          |  |                                  | -          |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Net cash used in investing activities                        |  |                                  | -          |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Cash flows from financing activities                         |  |                                  |            |   |                                            |  
|Proceeds from issuance of common shares                      |  |                                  | -          |   |                                            |  
|Proceeds from exercise of warrants                           |  |                                  | 923,169    |   |                                            |  
|Common share issue costs                                     |  |                                  | -          |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Net cash provided by financing activities                    |  |                                  | 923,169    |   |                                            |  
|                                                             |  |                                  |            |   |                                            |  
|Increase (decrease) in cash and cash equivalents             |  |                                  | (1,626,246 | ) |                                            |  
|Cash and cash equivalents - beginning of year                |  |                                  | 1,964,948  |   |                                            |  
|Cash and cash equivalents - end of year                      |  | $                                | 338,702    |   |                                            | $



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











NextSource Materials Inc.

Consolidated Statements of Changes in Shareholders’
Equity



Expressed
in US Dollars

|                                                          |  | Shares # |             |  | Share 
Capital $ |  |             | Accumulated 
Deficit $ |  |  | Accumulated Other Comprehensive 
Income (Loss) $ |   |  | Total Equity $ |       
|--------------------------------------------------------- |  | -------- | ----------- |  | ---------------- |  | ----------- | ---------------------- |  |  | ------------------------------------------------ | - |  | -------------- | ------
|Balance – July 1, 2016 (note 16)                          |  |          | 364,931,425 |  |                  |  | 94,019,046  |                        |  |  | (93,960,747                                      | ) |  |                | -     
|                                                          |  |          |             |  |                  |  |             |                        |  |  |                                                  |   |  |                |       
|Private placement of common shares                        |  |          | 96,064,286  |  |                  |  | 5,177,885   |                        |  |  | -                                                |   |  |                | -     
|Cost of issue of private placement of common shares       |  |          | -           |  |                  |  | (370,671    | )                      |  |  | -                                                |   |  |                | -     
|Share-based compensation                                  |  |          | -           |  |                  |  | 794,864     |                        |  |  | -                                                |   |  |                | -     
|Net loss for the year                                     |  |          | -           |  |                  |  | -           |                        |  |  | (3,999,358                                       | ) |  |                | -     
|Exchange differences on translation of foreign operations |  |          | -           |  |                  |  | -           |                        |  |  | -                                                |   |  |                | -     
|                                                          |  |          |             |  |                  |  |             |                        |  |  |                                                  |   |  |                |       
|Balance - June 30, 2017 (note 16)                         |  |          | 460,995,711 |  |                  |  | 99,621,124  |                        |  |  | (97,960,105                                      | ) |  |                | -     
|                                                          |  |          |             |  |                  |  |             |                        |  |  |                                                  |   |  |                |       
|Exercise of warrants                                      |  |          | 8,937,900   |  |                  |  | 923,169     |                        |  |  |                                                  |   |  |                |       
|Net loss for the year                                     |  |          | -           |  |                  |  | -           |                        |  |  | (2,784,822                                       | ) |  |                | -     
|Cumulative translation adjustment                         |  |          | -           |  |                  |  | -           |                        |  |  | -                                                |   |  |                | 75,766
|                                                          |  |          |             |  |                  |  |             |                        |  |  |                                                  |   |  |                |       
|Balance - June 30, 2018                                   |  |          | 469,933,611 |  |                  |  | 100,544,293 |                        |  |  | (100,744,927                                     | ) |  |                | 75,766





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








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




1.        Nature of Operations



NextSource Materials Inc. (the "Company"
or “NextSource”) is incorporated under the laws of Canada and has a fiscal year end of June 30. The Company's registered
head office and primary location of records is 145 Wellington Street West, Suite 1001, Toronto, Ontario, M5J 1H8.



The Company's principal business is the
acquisition, exploration and development of mineral resources. The Company has yet to generate any revenue from mining operations
or pay dividends and is unlikely to do so in the immediate or foreseeable future.



The Company, through its wholly-owned foreign
subsidiaries, is currently focused on obtaining the necessary permits to begin construction on the Molo Graphite Project in Madagascar.
Although we have determined through a NI 43-101 Technical Report Feasibility Study dated July 13, 2017 that Phase 1 of our Molo
Graphite Project contains mineralization that is economically recoverable, we do not have the necessary permits or capital to begin
construction at this time.



These consolidated financial statements
were approved by the Board of Directors on September 28, 2018.



Corporate Redomicile



The Company completed a corporate redomicile
from the State of Minnesota to Canada on December 27, 2017.



Corporate Structure



NextSource owns 100% of NextSource Materials
(Mauritius) Ltd. (“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario Inc., an Ontario Company.



MATMAU owns 100% of NextSource Minerals
(Mauritius) Ltd. (“MINMAU”), a Mauritius subsidiary, NextSource Graphite (Mauritius) Ltd (“GRAMAU”), a
Mauritius subsidiary, and NextSource Materials (Madagascar) SARL (“MATMAD”), a Madagascar subsidiary.



MINMAU owns 100% of NextSource Minerals
(Madagascar) SARL (“MINMAD”), a Madagascar subsidiary. MINMAD holds the Green Giant Vanadium Project exploration permits.



GRAMAU owns 100% of ERG Madagascar SARL
(“ERGMAD”), a Madagascar subsidiary. ERGMAD holds the Molo Graphite Project exploration permits.



Going Concern Assumption



The accompanying consolidated financial
statements have been prepared on the basis of a going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.



As of June 30, 2018, the Company had an
accumulated deficit of $100,744,927 (June 30, 2017: $97,960,105), has experienced recurring net losses and has negative operating
cash flows. As such, conditions exist that may raise substantial doubt regarding the Company's ability to continue as a going concern.



In assessing whether the going concern
assumption is appropriate, management considers all available information about the future, which is at least, but not limited
to, twelve months from the end of the reporting period. The Company's ability to continue operations and fund its exploration and
development expenditures is dependent on management's ability to secure additional financing. Management is actively pursuing such
additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be
able to do so in the future. The Company has not obtained the necessary permits to begin construction and has not commenced commercial
operation of a mine. These conditions cast significant doubt about the Company’s ability to continue as a going concern.



Theses consolidated financial statements
do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore
need to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts
different from those in the accompanying consolidated financial statements.






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




2.       Significant Accounting
Policies



Statement of compliance and first-time
adoption of IFRS



The Company’s consolidated financial
statements for the year ending June 30, 2018 are the first annual consolidated financial statements that comply with International
Financial Reporting Standards (“IFRS”), as issued by the IASB. The Company has prepared its opening IFRS statement
of financial position by applying existing IFRS standards with an effective date of June 30, 2018 or prior.



The Company has applied IFRS in its financial
reporting with effect from July 1, 2016, the transition date, in accordance with the transitional provisions set out in IFRS 1,
“First-time adoption of International Financial Reporting Standards”. IFRS 1 requires that first-time adopters retrospectively
apply all IFRS standards effective at the end of its first IFRS reporting period, which is June 30, 2017. However, IFRS 1 also
provides for certain optional exemptions and certain mandatory exceptions for first-time IFRS adopters. The items relevant to the
Company’s IFRS reporting are disclosed in Note 16.



Basis of measurement



These consolidated financial statements
have been prepared under the historical cost basis except for certain financial instruments that are measured at fair values, as
explained in the accounting policies below.



Basis of consolidation



These consolidated financial statements
include the financial position, results of operation and cash flows of the Company and its wholly-owned subsidiaries. Intercompany
balances, transactions, income and expenses, profits and losses, including gains and losses relating to subsidiaries have been
eliminated on consolidation.



Significant accounting estimates,
judgments and assumptions



To prepare financial statements in conformity
with IFRS, the Company must make estimates, judgements and assumptions concerning the future that affect the carrying values of
assets and liabilities as of the date of the financial statements and the reported values of revenues and expenses during the reporting
period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments and assumptions.



The impacts of such estimates are pervasive
throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both
current and future periods. Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.



Significant assumptions about the future
and other sources of estimation uncertainty that management has made at the end of the reporting period, that could have an effect
on the amounts recognized in the consolidated financial statements relate to the following:



Going concern:The preparation of
the consolidated financial statements requires management to make judgments regarding the ability to continue as a going concern.



Share-based compensation:Estimating
fair value for granted stock options requires determining the most appropriate valuation model which is dependent on the terms
and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including
the expected life of the option, volatility, dividend yield, and rate of forfeitures and making assumptions about them. The value
of the share-based payment expense along with the assumptions and model used for estimating fair value for share-based compensation
transactions are disclosed in Note 12.



Flow-Through Provision Estimates:The
estimation of the value of the provision for the Part XII.6 taxes for the indemnification liability to subscribers of the flow-through
shares issued in fiscal 2014 for the additional taxes payable by such subscribers related to the CEE renunciation shortfall that
occurred in fiscal 2015 is based on applying a blended tax rate of approximately 35% against the CEE renunciation shortfall. The
assumptions and calculations used for estimating the value attributed to the flow-through provision are disclosed in Note 9.



Deferred taxes:The estimation of
income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability
to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses
whether it is probable that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful discovery, extraction,
development and commercialization of mineral reserves. To the extent that management’s assessment of the Company’s
ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets,
and deferred tax provisions or recoveries could be affected.






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




Cash equivalents



The Company considers cash equivalents
to be cash and highly liquid investments with original maturities of three months or less.



Prepayments and deposits



The Company makes prepayments and deposits
to suppliers of services. These are recognized as prepayments when made and recognized as expenses when received. Prepayments and
deposits on assets that are long term in nature are recorded as long-term prepayments and deposits.



Financial instruments



Management determines the classification
of financial assets and financial liabilities at initial recognition and, except in very limited circumstances, the classification
is not changed subsequent to initial recognition. The classification depends on the purpose for which the financial instruments
were acquired, their characteristics and/or management’s intent. Transaction costs with respect to instruments not classified
as fair value through profit or loss are recognized as an adjustment to the cost of the underlying instruments and amortized using
the effective interest method.



The Company’s financial instruments
were classified in the following categories:



Financial assets



Financial assets, measured at
fair value through profit or loss:

| | · | Cash equivalents
| | - | ----------------



An instrument is classified as
fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. A financial asset
is classified as fair value through profit or loss if acquired principally for the purpose of selling in the short term or if so
designated by management. Financial instruments included in this category are initially recognized at fair value and transaction
costs are taken directly to earnings along with gains and losses arising from changes in fair value.



Derivative instruments, including
embedded derivatives, are recorded at fair value unless exempted from derivative treatment as normal purchase and sale. All changes
in their fair value are recorded through profit or loss.



Loans and receivables, measured
at amortized cost:

| | · | Cash on hand and balances at bank
| | - | ---------------------------------



Cash on hand and balances at
bank and advances and loans receivable are initially recognized at fair value net of transaction costs and are subsequently measured
at amortized cost. Interest revenue on advances and loans receivable are recognized using the effective interest method.



Financial liabilities



Other financial liabilities,
measured at amortized cost:

| | · | Accounts payable and accrued liabilities
| | - | ----------------------------------------



Accounts payable and accrued
liabilities are initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost using
the effective interest method.



Derivative instruments, including
embedded derivatives, are recorded at fair value unless exempted from derivative treatment as normal purchase and sale. All changes
in their fair value are recorded through profit or loss.



Warrant liability is a level
3 instrument with fair value of $Nil as of June 30, 2018 (June 30, 2017 - $NIL and July 1, 2016 - $111,049).



The financial instrument measurement hierarchy,
for financial assets and liabilities measured at fair value through profit and loss at each reporting date, is as follows:



All financial instruments are
required to be measured at fair value on initial recognition. For those financial assets or liabilities measured at fair value
through profit and loss at each reporting date, financial instruments and liquidity risk disclosures require a three-level hierarchy
that reflects the significance of the inputs used in making the fair value measurements. These levels are defined below:






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




|· |  | Level 1: Determined by reference to unadjusted quoted prices in active markets for
identical assets and liabilities that the entity can access at the measurement date; or
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Level 2: Valuations using inputs other than the quoted prices for which all significant
inputs are based on observable market data, either directly or indirectly; or
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Level 3: Valuations using inputs that are not based on observable market data.
|- |  | ------------------------------------------------------------------------------



Both the binomial and Black Scholes
valuation techniques are permitted under IFRS.



The impairment of financial assets, carried
at amortized costs, is as follows:



At each reporting date, the Company
assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial
asset or a group of financial assets is impaired if there is objective evidence that the estimated future cash flows of the financial
asset or the group of financial assets have been negatively impacted. Evidence of impairment may include indications that debtors
are experiencing financial difficulty, default or delinquency in interest or principal payments, or other observable data which
indicates that there is a measurable decrease in the estimated future cash flows.



If an impairment loss has occurred,
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash
flows is discounted at the financial asset’s original effective interest rate. If a financial asset has a variable interest
rate, the discount rate for measuring any impairment loss is the current effective interest rate.



The carrying amount of the asset
is reduced through the use of an allowance account, and the loss is recognized in financing expense. Interest income continues
to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss. The interest income is recorded as part of financing income. Loans together with the associated
allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been
transferred to the Company.



If, in a subsequent year, the
amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized,
the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If an impairment is later
recovered, the recovery is credited to financing income.



The derecognition of financial assets and
liabilities is as follows:



A financial asset is derecognized
when its contractual rights to the cash flows that compose the financial asset expire or substantially all the risks and rewards
of the asset are transferred.



A financial liability is derecognized
when the obligation under the liability is discharged, cancelled or expired. Gains and losses on derecognition are recognized within
financing income and financing expense, respectively.



Exploration and evaluation expenditures



Exploration and evaluation expenses include
all costs relating to mineral property acquisition costs, exploration camp operating costs, local payroll and consultants in Madagascar
and Mauritius, directly attributable overhead, exploration permits and licenses, technical services, exploration drilling, seismic,
geological, geophysical and metallurgical studies, testing and sampling.



Once a mineral project has been established
as being technically feasible and commercially viable, the related development expenditures are capitalized. This includes costs
incurred in preparing the site for mining operations. Assessing commercial viability requires management to make certain judgments
as to future events and circumstances, in particular whether an economically viable operation can be established. Any such judgments
may change as new information becomes available. If after having capitalized the expenditure, a decision is made that recovery
of the expenditure is unlikely, the amount capitalized is recognized in cost of sales in the consolidated statements of comprehensive
income (loss).



Capitalization of development expenditures
ceases when the mine is capable of commercial production, with the exception of development costs that give rise to a future benefit.



Equipment



Equipment is stated at cost less accumulated
depreciation and any impairment losses. Equipment is depreciated using the straight-line method based on estimated useful lives,
once the assets are available for use. The estimated useful lives, residual values and depreciation method are reviewed at each
reporting period, with the effect of any changes in estimated accounted for on a prospective basis. The useful lives of the equipment
are as follows:






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




| | · | Exploration vehicles and equipment | 3 to 5 years
| | - | ---------------------------------- | ------------



The carrying values of equipment are reviewed
for impairment at each reporting period and when events or changes in circumstances indicate that the carrying values may not be
recoverable. Gains and losses on disposals are determined by comparing net proceeds with carrying amounts.



Provisions



Provisions are recognized when the Company
has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will
be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the
future cash flow estimates are adjusted to reflect risks specific to the obligation If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money. Where discounting is used, the increase in the provision due to the passage of time is
recognized as financing expense. A contingent liability is disclosed where the existence of an obligation will only be confirmed
by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not
recognized but are disclosed where an inflow of economic benefits is probable.



Warrant liabilities



The Company issued share purchase warrants with an exercise price denominated in a currency other than
its functional currency. As a result, the warrants are no longer considered solely indexed to the Company’s common shares
and are classified as financial liabilities and recorded at the estimated fair value at each reporting date using Level 3 inputs
on the financial instrument hierarchy. The Company records the change in fair value of the warrant liability as a component of
other income and expense on the statement of operations.



Environmental rehabilitation and
asset retirement obligations



An obligation to incur restoration, rehabilitation
and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of
a mineral property interest. Such costs arising for the decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and charged to expenses as an exploration cost, as soon as the obligation to incur such
costs arises. Discount rates using a pretax rate that reflect the time value of money are used to calculate the net present value.
The related liability is adjusted each period for the unwinding of the discount rate and for changes to the current market-based
discount rate, amount or timing of the underlying cash flows needed to settle the obligation.



The Company’s operations are subject
to environmental regulations in Madagascar. As at the date of these financial statements, the Company did not have any environmental
rehabilitation obligations and had no asset retirement obligations.



Share-based compensation



The Company operates a stock option plan,
which measures equity-settled share-based payments to eligible participants at the fair value of the equity instruments at the
grant date. Eligible participants are the Company’s directors, officers, employees and consultants. The fair value of grants
issued under the stock option plan are determined at the date of grant using the Black-Scholes option valuation model. Equity-settled
share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received,
except where this fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments
granted, as at the date the Company obtains the goods or the counterparty renders the service. The fair value of the stock option
grants is only re-measured if there is a modification to the terms of the option, such as a change in exercise price or legal life.
The fair value of the stock option grants is recognized as an expense over the expected vesting period with a corresponding entry
to shareholders’ equity.



Foreign currencies



The presentation and functional currency
of the Company is the US dollar. The Company has primarily expended its cash on international exploration projects and historically
generated its equity funding in US dollars. The Company expects to sell graphite priced in US dollars once the Molo Graphite Project
achieves production.



The Company offices are in Canada and the
Company expends a portion of its payroll, professional and general and administrative costs in Canadian dollars, which are translated
at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case
the exchange rates at the dates of transactions are used.



The functional currency of the Mauritius
subsidiaries is the United States dollar.



The functional currency of the Madagascar
subsidiaries is the Madagascar Ariary. Transfers of cash from the Company to its subsidiaries is typically completed using US dollars.
All Ariary transactions are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly
during that period, in which case the exchange rates at the dates of transactions are used.






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




For the purpose of presenting consolidated
financial statements, the subsidiaries’ assets and liabilities are expressed in United States dollars using the prevailing
exchange rates at the end of the reporting period. Any exchange differences that arise are recognized in other comprehensive income
and accumulated as foreign currency translation reserve in equity.



Foreign currency transactions are translated
into the functional currency using the exchange rates prevailing at the date of the transactions. Generally, foreign exchange gains
and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than the operation’s functional currency are recognized in
the consolidated statement of operations.



Income taxes



Income tax expense consists of current
and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent they relate to items recognized
directly in equity or other comprehensive income.



Current tax is recognized and measured
at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively
enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years.



Deferred tax is recognized on any temporary
differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding
tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply in the period when the asset is realized, and the liability is settled. The effect of a change in the enacted
or substantively enacted tax rates is recognized in net earnings and comprehensive income or equity depending on the item to which
the adjustment relates.



Deferred tax assets are recognized to the
extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer
probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.



Loss per share



Basic loss per share is computed using
the weighted average number of common shares outstanding during the period. Dilute earnings per share is computed, using the treasury
stock method, to show the potential reduction in earnings per share that would occur if securities or other contracts to issue
common shares were exercised or converted to common shares. The treasury stock method assumes that proceeds received from the exercise
of stock options and warrants are used to repurchase common shares at the prevailing market rate.



Accounting standards adopted



Accounting standards effective for the
period beginning on or after July 1, 2017 have been adopted as part of the transition to IFRS.



Accounting standards issued but not
yet applied



Certain new accounting standards and interpretations
have been published that are not mandatory for the June 30, 2018 reporting period. Management believes the following standards
will not have a significant impact on the Company’s consolidated financial statements:



|· |  | IFRS 9 Financial Instruments (“IFRS 9”) was initially issued by the IASB
in November 2009 and issued in its completed version in July 2014 and will replace IAS 39 Financial Instruments: Recognition and
Measurement (“IAS 39”). IFRS 9 replaces the multiple rules in IAS 39 with a single approach to determine whether a
financial asset is measured at amortized cost or fair value and a new mixed measurement model for debt instruments having only
two categories: amortized cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also
requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· |  | In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16
eliminates the current dual model for lessees, which distinguishes between on-statement of financial position finance leases and
off- statement of financial position operating leases. Instead, there is a single, on-statement of financial position accounting
model that is similar to current finance lease accounting. The extent of the impact of adoption of IFRS 16 has not yet been determined.
IFRS 16 is effective for periods beginning on or after January 1, 2019, with early adoption permitted.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




3.       Mineral
Exploration Properties



The Company has not capitalized any acquisition and exploration
costs for its mineral properties.



Molo Graphite Property, Southern Madagascar Region, Madagascar



On December 14, 2011, the Company entered
into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy"), a public company
listed on the Australian Stock Exchange, to acquire a 75% interest in a property package for the exploration and development of
industrial minerals, including graphite, vanadium and 25 other minerals. The land position consisted of 2,119 permits covering
827.7 square kilometers and is mostly adjacent towards the south and east with the Company's 100% owned Green Giant Vanadium Project.
Pursuant to the JVA, the Company paid $2,261,690 and issued 7,500,000 common shares that were valued at $1,350,000.



On April 16, 2014, the Company signed a
Sale and Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the
remaining 25% interest. Pursuant to the Agreements, the Company paid $364,480 (CAD$400,000), issued 2,500,000 common shares subject
to a 12-month voluntary vesting period that were valued at $325,000 and issued 3,500,000 common share purchase warrants, which
were valued at $320,950 using Black-Scholes, with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015
and upon completion of a bankable feasibility study (“BFS”) for the Molo Graphite Property, the Company paid $546,000
(CAD$700,000) and issued 1,000,000 common shares, which were valued at $100,000. Malagasy retains a 1.5% net smelter return royalty
("NSR") on the property. A further cash payment of approximately $771,510 (CAD$1,000,000) will be due within five days
of the commencement of commercial production.



The Company also acquired a 100% interest
in the industrial mineral rights on approximately 1 1⁄2 additional claim blocks covering 10,811 hectares adjoining the east
side of the Molo Graphite Property.



On June 1, 2017, we released the results
of a positive updated Molo Feasibility Study for Phase 1 of the mine development plan utilizing a fully modular build-out approach
which was based on the FEED Study and subsequent detailed engineering studies. Phase 1 would consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of
high-quality SuperFlakeTM graphite concentrate per year with a mine life of 30 years. The Phase 1 production costs were estimated
at $433 per tonne at the plant and $688 per tonne delivered CIF port of Rotterdam. CIF refers to cost, insurance and freight included.
The Phase 1 capital costs were estimated at $18.4 million with a construction projected but not guaranteed timeline of approximately
9 months. Based on an average selling cost of $1,014 per tonne, the Phase 1 was estimated to have a pre-tax NPV of $34 million
using an 8% discount rate, a pre-tax internal rate of return (“IRR”) of 25.2%, and a post-tax IRR of 21.5%.



The Molo Graphite Project is located within
Exploration Permit #3432 (“PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”)
pursuant to the Mining Code 1999 (as amended) and its implementing decrees. The Molo Graphite Project exploration permit PR 3432
is currently held under the name of our Madagascar subsidiary ERG Madagascar SARLU. Our Madagascar subsidiary has paid all taxes
and administrative fees to the Madagascar government and its mining ministry with respect to all the mining permits held in country.
These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.



During fiscal 2017, the Company applied
to the BCMM to have the exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances
by Ministers in the Madagascar government and from BCMM that the Company has followed all the regulations and that the application
contained no deficiencies, the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique,
since according to the Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members
during the past 18 months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government
officials, it is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before
our permit is granted.



Following an Environmental Legal Review
and an Environmental and Social Screening Assessment, which provided crucial information to align the project’s development
and design with international best practice on sustainable project development, the Company completed a comprehensive Environmental
and Social Impact Assessment ("ESIA"), which was developed to local Madagascar (“Malagasy”), Equator Principles,
World Bank and International Finance Corporation (“IFC”) standards. The ESIA was submitted to the Office National d’Environment
(“ONE”) during fiscal 2018. The Company expects it will receive a notice of provisional approval of its global environmental
permit (the “environmental permit”) in October of 2018.



Application for all other necessary permits
to construct and operate the mine, including water use, construction, mineral processing, transportation, export, and labour will
be undertaken upon receipt of the environmental permit. The Company is currently compiling a comprehensive legal register and will
complete the security of land tenure process upon receipt of the environmental permit, which is expected to take 1-2 months.



The Company cannot provide any assurance
as to the timing of the receipt of any of the permits and licenses necessary to initiate construction of the mine.




NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




Green Giant Vanadium Project, Southern
Madagascar Region, Madagascar



In 2007, the Company entered into a joint
venture agreement with Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75% interest in the Green Giant property.
Pursuant to the agreement, the Company paid $765,000 in cash, issued 2,500,000 common shares and issued 1,000,000 common share
purchase warrants, which have now expired.



On July 9, 2009, the Company acquired the
remaining 25% interest by paying $100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at the Company's option by paying
$500,000 in cash or common shares and the second 1% NSR can be acquired at the Company’s option by paying $1,000,000 in cash
or common shares.



On April 16, 2014, the Company signed a
Joint Venture Agreement with Malagasy, whereby Malagasy acquired a 75% interest in non-industrial minerals on the Company's 100%
owned Green Giant Property. On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted
to its original 100% interest in all minerals on the property.



The Green Giant property is located within
exploration permits issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999
(as amended) and its implementing decrees. The Green Giant property exploration permits are currently held under the name of our
Madagascar subsidiary NextSource Minerals (Madagascar) SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees
to the Madagascar government and its mining ministry with respect to all the mining permits held in country. These taxes and administrative
fee payments have been acknowledged and accepted by the Madagascar government.



Since early 2012, the Company has focused
its efforts on the Molo Graphite Project and as such only limited work has been completed on the Green Giant Vanadium Project since
that time.



Sagar Property, Labrador Trough Region, Quebec, Canada



In 2006, the Company purchased from Virginia
Mines Inc. ("Virginia") a 100% interest in 369 claims located in northern Quebec, Canada. Virginia retains a 2% net smelter
return royalty ("NSR") on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5%
NSR on certain claims within the property, of which half of the 1% NSR can be acquired by the Company by paying $200,000 and half
of the 0.5% NSR can be acquired by the Company by paying $100,000.



On February 28, 2014, the Company signed
an agreement to sell a 35% interest in the Sagar property to Honey Badger Exploration Inc. (“Honey Badger”), a public
company that is a related party through common management. The terms of the agreement were subsequently amended on July 31, 2014
and again on May 8, 2015. To earn the 35% interest, Honey Badger was required to complete a payment of $36,045 (CAD$50,000) by
December 31, 2015, incur exploration expenditures of $360,450 (CAD$500,000) by December 31, 2016 and issue 20,000,000 common shares
to the Company by December 31, 2015. Honey Badger did not complete the earn-in requirements by December 31, 2015 resulting in the
termination of the option agreement.



Since early 2012, the Company has focused
its efforts on the Molo Graphite Project and as such only minimal work has been completed on the Sagar Property since that time.
As of June 30, 2018, the Sagar property consisted of 234 claims covering a total area of 10,736.59 ha.








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




4.       Segmented Reporting



The Company has one operating segment,
which involves the acquisition, exploration and development of mineral resources in Madagascar and Canada. The Canadian exploration
project is not a focus for the Company at this time. No commercial revenue has ever been generated by any mineral resource properties.
Limited amounts of cash and equipment are currently held in Madagascar. Substantially all of the Company assets are held in Canada.
The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision-makers and direct the
allocation of resources to its geographic segments.



The following is the segmented information
by geographic region:



|Mineral Exploration Expenses |  | Madagascar $ |           |  | Canada $ |  |        | Total $ | 
|---------------------------- |  | ------------ | --------- |  | -------- |  | ------ | ------- | 
|Year ended June 30, 2018     |  |              | 918,763   |  |          |  | 2,235  |         | 
|Year ended June 30, 2017     |  |              | 1,763,223 |  |          |  | 76,436 |         | 





|Cash and Cash Equivalents |  | Madagascar $ |        |  | Canada $ |  |           | Total $ | 
|------------------------- |  | ------------ | ------ |  | -------- |  | --------- | ------- | 
|As of June 30, 2018       |  |              | 17,958 |  |          |  | 320,744   |         | 
|As of June 30, 2017       |  |              | 44,085 |  |          |  | 1,920,863 |         | 










NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




5.       Exploration and
Evaluation Expenses



Exploration and evaluation expenses include
all costs relating to mineral property acquisition costs, exploration camp operating costs, payroll and consultants for staff located
in Madagascar and Mauritius, directly attributable overhead, exploration permits and licenses, technical services, exploration
drilling, seismic, geological, geophysical and metallurgical studies, testing and sampling.



The following is the breakdown by nature
of the expenses:



|                                                                                   |  | For the year ended |         |  | For the year ended      |  
|---------------------------------------------------------------------------------- |  | ------------------ | ------- |  | ----------------------- | -
|                                                                                   |  | June 30, 2018      |         |  | June 30, 2017 (note 16) |  
|Consulting fees                                                                    |  | $                  | 522,341 |  |                         | $
|Permits and licenses                                                               |  |                    | 249,714 |  |                         |  
|Metallurgical Evaluation                                                           |  |                    | 107,185 |  |                         |  
|Exploration Activities                                                             |  |                    | -       |  |                         |  
|Travel                                                                             |  |                    | 26,902  |  |                         |  
|Other                                                                              |  |                    | 14,856  |  |                         |  
|Total
                                         exploration and evaluation expenses |  |                    | 920,998 |  |                         |  










NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




6.       Management and
Professional Fees



Management and professional fees include
payroll for management, director fees and professional fees such as lawyer and auditor fees.



The following is the breakdown by nature
of the expenses:



|                                                                                |  | For the year ended |           |  | For the year ended      |  
|------------------------------------------------------------------------------- |  | ------------------ | --------- |  | ----------------------- | -
|                                                                                |  | June 30, 2018      |           |  | June 30, 2017 (note 16) |  
|Payroll                                                                         |  | $                  | 458,932   |  |                         | $
|Consulting fees                                                                 |  |                    | 381,713   |  |                         |  
|Legal fees                                                                      |  |                    | 502,463   |  |                         |  
|Auditor fees                                                                    |  |                    | 36,342    |  |                         |  
|Other                                                                           |  |                    | 3,475     |  |                         |  
|Total
                                         management and professional fees |  |                    | 1,382,925 |  |                         |  










NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




7.       General and Administrative
Expenses



General and administrative expenses include
all bank fees, corporate travel, meals and entertainment, telecommunications, information technology, investor relations, exchange
listing fees and transfer agent fees.



The following is the breakdown by nature
of the expenses:



|                                                                                   |  | For the year ended |         |  | For the year ended      | 
|---------------------------------------------------------------------------------- |  | ------------------ | ------- |  | ----------------------- | 
|                                                                                   |  | June 30, 2018      |         |  | June 30, 2017 (note 16) | 
|Travel                                                                             |  |                    | 147,109 |  |                         | 
|Exchange and transfer agent fees                                                   |  |                    | 105,461 |  |                         | 
|Investor relations                                                                 |  |                    | 86,946  |  |                         | 
|Bank fees                                                                          |  |                    | 5,300   |  |                         | 
|Other                                                                              |  |                    | 60,764  |  |                         | 
|Total
                                         general and administrative expenses |  |                    | 405,580 |  |                         | 












NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




8.       Plant and Equipment



The Company owns metallurgical testing
equipment and several vehicles used for exploration purposes in Madagascar. The carrying values of equipment located in Madagascar
were reviewed for impairment and it was determined that the carrying values may not be recoverable and were impaired.



Changes in the carrying values were as
follows:



|                           |  | Equipment Costs $ |          |   | Accumulated Depreciation $ |  |          | Net Book Value $ | 
|-------------------------- |  | ----------------- | -------- | - | -------------------------- |  | -------- | ---------------- | 
|                           |  |                   |          |   |                            |  |          |                  | 
|Balance June 30, 2016      |  |                   | 195,561  |   |                            |  | (173,650 | )                | 
|                           |  |                   |          |   |                            |  |          |                  | 
|Depreciation expense       |  |                   | -        |   |                            |  | (21,911  | )                | 
|Derecognition of equipment |  |                   | (195,561 | ) |                            |  | 195,561  |                  | 
|Acquisition of equipment   |  |                   | 27,805   |   |                            |  | -        |                  | 
|                           |  |                   |          |   |                            |  |          |                  | 
|Balance June 30, 2017      |  |                   | 27,805   |   |                            |  | -        |                  | 
|                           |  |                   |          |   |                            |  |          |                  | 
|Impairment expense         |  |                   | -        |   |                            |  | (27,805  | )                | 
|                           |  |                   |          |   |                            |  |          |                  | 
|Balance June 30, 2018      |  |                   | 27,805   |   |                            |  | (27,805  | )                | 










NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




9.        Provision and
Contingent Liability



During fiscal 2014, the
Company issued 17,889,215 flow-through shares to eligible Canadian taxpayer subscribers which included a contractual commitment
for the Company to incur $3,812,642 in eligible Canadian Exploration Expenditures (“CEEs”) by December 31, 2014 as
per the provision of the Income Tax Act of Canada. The CEEs were renounced as a tax credit to the flow-through share subscribers
on December 31, 2013. As at December 31, 2014, the Company had unfulfilled CEE obligations. During the year ended June 30, 2015,
the Company recorded a provision for the Part XII.6 taxes and related penalties payable to the Canada Revenue Agency and for the
indemnification liability to subscribers of the flow-through shares for the additional taxes payable related to the CEE renunciation
shortfall. During the year ended June 30, 2017, the Company paid $131,320 (2016: $nil) in Part XII.6 taxes, resulting in a reduction
in the provision, and following a reassessment of its obligation to subscribers the Company increased the provision by $131,320.
During the year ended June 30, 2018, the provision was adjusted due to foreign exchange fluctuations to $180,652 (June 30, 2017:
$182,883).



On April 16, 2014, the
Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy
to acquire the remaining 25% interest in the Molo Graphite Property. Pursuant to the Agreements, a further cash payment of approximately
$771,510 (CAD$1,000,000) will be due within five days of the commencement of commercial production. Since this cash payment represents
a possible obligation that depends on the occurrence of an uncertain future event, it has been recognized as a contingent liability
and no amount has been recognized as a provision.












NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




10.       Share Capital



The Company’s common
shares have no par value and the authorized share capital is composed of an unlimited number of common shares. As of June 30, 2018,
the Company had 469,933,611 common shares issued and outstanding (2017: 460,995,711).



The Company issued the
following common shares during the year ended June 31, 2018:



| | (a) | On September 30, 2017, the Company issued 1,500,000 common shares upon the exercise of 1,500,000
common share purchase warrants for gross proceeds of $105,000. There were no issue costs.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On February 1, 2018, the Company issued 6,437,900 common shares upon the exercise of 6,437,900
common share purchase warrants for gross proceeds of $708,169. There were no issue costs.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | On April 13, 2018, the Company issued 1,000,000 common shares upon the exercise of 1,000,000 common
share purchase warrants for gross proceeds of $110,000. There were no issue costs.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company
issued the following common shares during the year ended June 30, 2017:



| | (a) | On August 18, 2016, the Company closed a non-brokered private placement offering of 96,064,286
common shares at a price of $0.05 (CAD$0.07) for aggregate gross proceeds of $5,177,885 (CAD$6,724,500). The share issue costs
totaled $370,671 for this issuance.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




11.       Stock Options



The Company’s stock option plan is
restricted to a maximum of 46,000,000 common stock purchase options. Under the stock option plan, the Company may grant stock options
to directors, officers, employees and consultants. The Board of Directors administers the plan and determines the vesting and terms
of each grant.



The Black-Scholes option valuation model
is used by the Company to determine the fair value of stock option grants based on the market price, the exercise price, compound
risk free interest rate, annualized volatility and number of periods until expiration. Each stock option entitles the holder to
purchase one common share of the Company at the respective exercise price prior to or on the respective expiration date.



As
of June 30, 2018, the Company had 37,630,000 stock options issued and outstanding with a weighted average expiration of 2.9 years,
which are exercisable into 37,630,000 common shares at a weighted average exercise price of $0.09. All stock options that
are currently outstanding vested on the grant date.



The following is a schedule of the outstanding
stock options for the year ending June 30, 2018:



|Grant Date         |  | Expiration Date   |  | Exercise Price |      |  | Balance Outstanding June 30, 2017 |  |            | Options 
Granted 
(Expired or Cancelled) |  |  | Options Exercised |   |  | Balance Outstanding June 30, 2018 |  
|------------------ |  | ----------------- |  | -------------- | ---- |  | --------------------------------- |  | ---------- | ---------------------------------------- |  |  | ----------------- | - |  | --------------------------------- | -
|February 27, 2013  |  | February 27, 2018 |  | $              | 0.21 |  |                                   |  | 3,725,000  |                                          |  |  | (3,725,000        | ) |  |                                   | -
|July 9, 2013       |  | July 9, 2018      |  | $              | 0.11 |  |                                   |  | 880,000    |                                          |  |  | (175,000          | ) |  |                                   | -
|September 19, 2013 |  | July 19, 2018     |  | $              | 0.15 |  |                                   |  | 450,000    |                                          |  |  | (75,000           | ) |  |                                   | -
|January 10, 2014   |  | January 10, 2019  |  | $              | 0.18 |  |                                   |  | 3,775,000  |                                          |  |  | (850,000          | ) |  |                                   | -
|July 3, 2014       |  | July 3, 2019      |  | $              | 0.15 |  |                                   |  | 2,750,000  |                                          |  |  | (500,000          | ) |  |                                   | -
|February 26, 2015  |  | February 26, 2020 |  | $              | 0.20 |  |                                   |  | 4,100,000  |                                          |  |  | (765,000          | ) |  |                                   | -
|December 22, 2015  |  | December 22, 2020 |  | $              | 0.06 |  |                                   |  | 7,650,000  |                                          |  |  | (750,000          | ) |  |                                   | -
|June 9, 2017       |  | June 9, 2022      |  | $              | 0.07 |  |                                   |  | 21,140,000 |                                          |  |  | -                 |   |  |                                   | -
|Total Outstanding  |  |                   |  |                |      |  |                                   |  | 44,470,000 |                                          |  |  | (6,840,000        | ) |  |                                   |  



The following is a continuity schedule
of the Company's outstanding common stock purchase options:



|                                |  | Weighted-Average Exercise Price ($) |      |  | Number of Stock Options | 
|------------------------------- |  | ----------------------------------- | ---- |  | ----------------------- | 
|Outstanding as of June 30, 2016 |  |                                     | 0.18 |  |                         | 
|Granted                         |  |                                     | 0.07 |  |                         | 
|Exercised                       |  |                                     | -    |  |                         | 
|Expired                         |  |                                     | 0.23 |  |                         | 
|                                |  |                                     |      |  |                         | 
|Outstanding as of June 30, 2017 |  |                                     | 0.11 |  |                         | 
|Granted                         |  |                                     | -    |  |                         | 
|Exercised                       |  |                                     | -    |  |                         | 
|Expired                         |  |                                     | 0.18 |  |                         | 
|                                |  |                                     |      |  |                         | 
|Outstanding as of June 30, 2018 |  |                                     | 0.09 |  |                         | 








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




12.       Warrants



The Company has issued common share purchase
warrants as part of equity private placements.



The Black-Scholes option valuation model
is used by the Company to determine the fair value of warrants issued based on the market price, the exercise price, compound risk
free interest rate, annualized volatility and number of periods until expiration. Each warrant entitles the holder to purchase
one common share of the Company at the respective exercise price prior to or on the respective expiration date.



As
of June 30, 2018, the Company had 3,500,000 common share purchase warrants issued and outstanding with a weighted average expiration
of 0.8 years, which are exercisable into 3,500,000 common shares at a weighted average exercise price of $0.14. All warrants
that are currently outstanding vested on the issue date.



The following is a schedule of the outstanding
common stock purchase warrants for the year ending on June 30, 2018:



|Grant Date        |  | Expiration Date  |  | Exercise Price |      |  | Balance Outstanding June 30, 2017 |  |            | Warrants 
Granted 
(Expired) |  |  | Warrants Exercised |   |  | Balance Outstanding June 30, 2018 |           
|----------------- |  | ---------------- |  | -------------- | ---- |  | --------------------------------- |  | ---------- | ---------------------------- |  |  | ------------------ | - |  | --------------------------------- | ----------
|October 7, 2015   |  | October 6, 2017  |  | $              | 0.07 |  |                                   |  | 7,100,000  |                              |  |  | (5,600,000         | ) |  |                                   | (1,500,000
|February 4, 2016  |  | February 4, 2018 |  | $              | 0.11 |  |                                   |  | 6,437,900  |                              |  |  | -                  |   |  |                                   | (6,437,900
|April 11, 2016    |  | April 11, 2018   |  | $              | 0.11 |  |                                   |  | 3,207,857  |                              |  |  | (2,207,857         | ) |  |                                   | (1,000,000
|July 31, 2015     |  | May 4, 2018      |  | $              | 0.14 |  |                                   |  | 10,275,499 |                              |  |  | (10,275,499        | ) |  |                                   | -         
|June 23, 2014     |  | April 15, 2019   |  | $              | 0.14 |  |                                   |  | 3,500,000  |                              |  |  | -                  |   |  |                                   | -         
|Total Outstanding |  |                  |  |                |      |  |                                   |  | 30,521,256 |                              |  |  | (18,083,356        | ) |  |                                   | (8,937,900



The following is the continuity schedule of the Company's common
share purchase warrants:



|                                |  | Weighted-Average Exercise Price ($) |      |  | Number of Warrants | 
|------------------------------- |  | ----------------------------------- | ---- |  | ------------------ | 
|Outstanding as of June 30, 2016 |  |                                     | 0.13 |  |                    | 
|Issued                          |  |                                     | -    |  |                    | 
|Expired                         |  |                                     | 0.14 |  |                    | 
|Exercised                       |  |                                     | -    |  |                    | 
|                                |  |                                     |      |  |                    | 
|Outstanding as of June 30, 2017 |  |                                     | 0.11 |  |                    | 
|Issued                          |  |                                     | -    |  |                    | 
|Expired                         |  |                                     | 0.11 |  |                    | 
|Exercised                       |  |                                     | 0.10 |  |                    | 
|                                |  |                                     |      |  |                    | 
|Outstanding as of June 30, 2018 |  |                                     | 0.14 |  |                    | 








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




13.       Capital Management



As at June 30, 2018, the Company had a
working capital deficit of $124,868 (June 30, 2017: surplus of $1,633,214).



There were no changes in the Company's
approach to capital management during the year ended June 30, 2018.



In managing liquidity, the Company’s
primary objective is to ensure the entity can continue as a going concern while raising additional funding to meet its obligations
as they come due. The Company’s operations to date have been funded by issuing equity. The Company expects to improve the
working capital position by securing additional financing.



The Company’s investment policy is
to invest excess cash in very low risk financial instruments such as term deposits or by holding funds in high yield savings accounts
with major Canadian banks. Financial instruments are exposed to certain financial risks, which may include currency risk, credit
risk, liquidity risk and interest rate risk.



The Company’s mineral property interests
are all in the exploration stage, as such the Company is dependent on external financing to fund its exploration activities and
administrative costs. Management continues to assess the merits of mineral properties on an ongoing basis and may seek to acquire
new properties or to increase ownership interests if it believes there is sufficient geologic and economic potential.



Management mitigates the risk and uncertainty
associated with raising additional capital in current economic conditions through cost control measures that minimizes discretionary
disbursements and reduces exploration expenditures that are deemed of limited strategic value.



The Company manages the capital structure
(consisting of shareholders’ deficiency) on an ongoing basis and adjusts in response to changes in economic conditions and
risks characteristics of its underlying assets. Adjustments to the Company’s capital structure may involve the issuance of
new shares, assumption of new debt, acquisition or disposition of assets, or adjustments to the amounts held in cash, cash equivalents
and short-term investments.



The Company is not subject to any externally
imposed capital requirements.








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




14.       Financial Instruments
and Risk Management



The following disclosures are to enable
users of the consolidated financial statements to evaluate the nature and extent of risks arising from financial instruments at
the end of the reporting period:



Credit risk



The Company does not currently have commercial
customers and therefore does not have any credit risk related to accounts receivables. The Company has credit risk arising from
the potential from counterparty default on cash and cash equivalents held on deposit with financial institutions. The Company manages
this risk by ensuring that deposits are only held with large Canadian banks and financial institutions.



Liquidity risk



Liquidity risk is the risk that the Company
will not be able to meet its obligations associated with financial liabilities. Liquidity risk arises from the Company’s
financial obligations and in the management of its assets, liabilities and capital structure. The Company manages this risk by
regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments
in a cost-effective manner.



The main factors that affect liquidity
include working capital requirements, capital-expenditure requirements and equity capital market conditions. The Company’s
liquidity requirements are met through a variety of sources, including cash and cash equivalents and equity capital markets.



As at June 30, 2018, considering the Company’s
financial position and its intention to begin mine construction once the necessary permits have been obtained, the Company expects
to access public debt and equity capital markets for financing over the next 12 months. While the Company has been successful in
obtaining required funding in the past, there is no assurance that future financings will be available.



As at June 30, 2018, the Company had a
cash and cash equivalents balance of $338,702 (June 30, 2017: $1,964,948) to settle current liabilities of $519,351 (June 30, 2017:
$410,271). As a result, the Company is currently exposed to liquidity risk.



Based on management’s assessment
of its past ability to obtain required funding, the Company believes that it will be able to satisfy its current and long-term
obligations as they come due.



Market risks



Market risk is the potential for financial
loss from adverse changes in underlying market factors, including foreign exchange rates, commodity prices and interest rates.



| | · | Interest rate risk, is the sensitivity of the fair value or of the future cash flows of a financial
instrument to changes in interest rates. The Company does not have any financial assets or liabilities that are subject to variable
interest rates.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Commodity price risks, is the sensitivity of the fair value of, or of the future cash flows, from
mineral assets. The Company manages this risk by monitoring mineral prices and commodity price trends to determine the appropriate
timing for funding the exploration or development of its mineral assets, or for the acquisition or disposition of mineral assets.
The Company does not have any mineral assets at the development or production stage carried at historical cost. The Company has
expensed the acquisition and exploration costs of its exploration stage mineral assets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | · | Currency risk: This is the sensitivity of the fair value or of the future cash flows of financial
instruments to changes in foreign exchange rates. The Company transacts in currencies other than the US dollar, including the Canadian
dollar, the Madagascar Ariary, the Euro and the South African Rand. The Company purchases services and has certain salary commitments
in those currencies. The Company also has monetary and financial instruments that may fluctuate due to changes in foreign exchange
rates. Derivative financial instruments are not used to reduce exposure to fluctuations in foreign exchange rates. The Company
is not sensitive to foreign exchange exposure since it has not made any commitments to deliver products quoted in foreign currencies.
The Company is not sensitive to foreign exchange risk arising from the translation of the financial statements of subsidiaries
with a functional currency other than the US dollar since it does not have any material assets and liabilities measured through
other comprehensive income. The impact of a 10% strengthening of the Canadian Dollar as of June 30, 2018 would result in a foreign
exchange loss of $24,109 on the consolidated statement of loss and comprehensive loss (June 30, 2017: $32,080). The impact of a
10% strengthening of the Madagascar Ariary of June 30, 2018 would result in a foreign exchange gain of $1,605 on other comprehensive
income (June 30, 2017: $2,135). A 10% weakening of each currency would have the opposite impact. The impact of a strengthening
or weakening of any other foreign currency would not be material.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




15.       Related Party
Transactions



Parties are related if one party has the
direct or indirect ability to control or exercise significant influence over the other party in making operating and financial
decisions. Parties are also related if they are subject to common control or common significant influence. A transaction is considered
to be a related party transaction when there is a transfer of economic resources or financial obligations between related parties.
Related party transactions that are in the normal course of business and have commercial substance are measured at the fair value.



Balances and transactions between the Company
and its wholly-owned subsidiaries, which are related parties of the Company, have been eliminated and are not disclosed in this
note.



Related parties include companies controlled
by key management personnel. Key management personnel are composed of the Board of Directors, Chief Executive Officer, Chief Financial
Officer and the Senior Vice Presidents of the Company.



The following key management personnel
related party transactions occurred during the years ended June 30, 2018 and June 30, 2017:



|                                 |  | For the year ended |         |  | For the year ended |  
|-------------------------------- |  | ------------------ | ------- |  | ------------------ | -
|                                 |  | June 30, 2018      |         |  | June 30, 2017      |  
|Management and professional fees |  | $                  | 806,752 |  |                    | $
|Stock options                    |  |                    | -       |  |                    |  
|Total                            |  | $                  | 806,752 |  |                    | $



The following key management related party
balances existed as of June 30, 2018 and June 30, 2017:



|                                                        |  | As at June 30, 2018 |        |  | As at June 30, 2017 |  
|------------------------------------------------------- |  | ------------------- | ------ |  | ------------------- | -
|Prepaid payroll to officers of the Company              |  | $                   | 26,632 |  |                     | $
|Accounts payable balance due to officers of the Company |  | $                   | 16,400 |  |                     | $












NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




16.        Transition
to international financial reporting standards



As stated in Note 2, Significant Accounting
Policies, these are the Company’s first consolidated financial statements prepared in accordance with IFRS instead of with
US GAAP.



The accounting policies set out in Note
2 have been applied in preparing the comparative information presented in these financial statements and in the preparation of
an opening IFRS statement of financial position at July 1, 2016 (the Company’s date of transition).



The Company has followed the recommendations
in IFRS 1 First-time adoption of IFRS, in preparing its transitional financial statements. An entity is required to use
the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first
IFRS financial statements.



IFRS exemption and choices



The adoption of IFRS requires the application
of IFRS 1, which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires retrospective application
of IFRS as effective at the end of its first annual IFRS reporting date. However, IFRS 1 also provides certain optional exemptions
and mandatory exceptions to this retrospective treatment.



Optional exemption



| | · | Cumulative translation differences: IFRS 1 permits cumulative translation gains and losses to be
reset to zero at the transition date. This provides relief from determining cumulative currency translation differences in accordance
with IAS 21, ‘The Effects of Changes in Foreign Exchange Rates’, from the date a subsidiary or equity method investee
was formed or acquired. The Company elected to reset all cumulative translation gains and losses to zero in opening retained earnings
at its transition date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mandatory exceptions to retrospective
application



| | · | Estimates: Hindsight was not used to create or revise estimates. The estimates previously made
by the Company under US GAAP are consistent with their application under.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The transition to IFRS has resulted in
financial statement presentation changes with no change in shareholders’ equity:



| | · | Additional paid-in capital is combined with share capital in shareholders’ equity.
| | - | ----------------------------------------------------------------------------------

| | · | The statement of operations and comprehensive loss presents an analysis of expenses recognized
in profit or loss using a classification based on their function within the Company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following is the reconciliation of
equity for the effects of transition to IFRS from US GAAP as at June 30, 2017 and July 1, 2016 (date of IFRS transition):



|                                           |  | June 30, 2017 |             |   | July 1, 2016          | 
|------------------------------------------ |  | ------------- | ----------- | - | --------------------- | 
|                                           |  | US GAAP       |             |   | Effect of 
transition | 
|Assets                                     |  |               |             |   |                       | 
|Current Assets:                            |  |               |             |   |                       | 
|Cash and cash equivalents                  |  | $             | 1,964,948   |   |                       | 
|Amounts receivable                         |  |               | 39,441      |   |                       | 
|Prepaid expenses                           |  |               | 39,096      |   |                       | 
|Total current assets                       |  |               | 2,043,485   |   |                       | 
|                                           |  |               |             |   |                       | 
|Property, Plant and Equipment              |  |               | 27,805      |   |                       | 
|                                           |  |               |             |   |                       | 
|Total Assets                               |  | $             | 2,071,290   |   |                       | 
|                                           |  |               |             |   |                       | 
|Liabilities                                |  |               |             |   |                       | 
|Current Liabilities:                       |  |               |             |   |                       | 
|Accounts payable                           |  | $             | 159,147     |   |                       | 
|Accrued liabilities                        |  |               | 68,241      |   |                       | 
|Provision                                  |  |               | 182,883     |   |                       | 
|Warrant liability                          |  |               | -           |   |                       | 
|                                           |  |               |             |   |                       | 
|Total Liabilities                          |  |               | 410,271     |   |                       | 
|                                           |  |               |             |   |                       | 
|Shareholders’ Equity                       |  |               |             |   |                       | 
|Share capital                              |  |               | 460,996     |   |                       | 
|Additional paid-in capital                 |  |               | 99,160,128  |   |                       | 
|Accumulated deficit                        |  |               | (97,960,105 | ) |                       | 
|Accumulated other comprehensive income     |  |               | -           |   |                       | 
|                                           |  |               |             |   |                       | 
|Total Shareholder’s Equity                 |  |               | 1,661,019   |   |                       | 
|                                           |  |               |             |   |                       | 
|Total Liabilities and Shareholder’s Equity |  | $             | 2,071,290   |   |                       | 








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




The following is the reconciliation of
statement of operations and comprehensive loss for the effects of transition to IFRS from US GAAP for the year ended June 30, 2017:



|                                     |  | Year ended June 30, 2017 |           
|------------------------------------ |  | ------------------------ | ----------
|                                     |  | US GAAP                  |           
|                                     |  |                          |           
|Revenues                             |  | $                        | -         
|                                     |  |                          |           
|Expenses                             |  |                          |           
|                                     |  |                          |           
|Exploration and evaluation expenses  |  |                          | 1,839,659 
|Management and professional fees     |  |                          | 770,397   
|Stock options                        |  |                          | 794,864   
|General and administrative expenses  |  |                          | 458,780   
|Depreciation                         |  |                          | 21,911    
|Foreign currency translation loss    |  |                          | 93,476    
|                                     |  |                          |           
|Total expenses                       |  |                          | 3,979,087 
|Net loss from operations             |  |                          | (3,979,087
|Other income (expenses)              |  |                          |           
|Change in value of warrant liability |  |                          | 111,049   
|Part XII.6 taxes                     |  |                          | (131,320  
|                                     |  |                          |           
|Net loss                             |  |                          | (3,999,358
|                                     |  |                          |           
|Net loss and comprehensive loss      |  | $                        | (3,999,358



The reconciliation of the statement of
cash flows is not presented since the transition to IFRS from US GAAP had no significant impact on the statement of cash flows.








NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




17.        Income Taxes



Below is a reconciliation of the income
tax provision, calculated using the combined Canadian federal and provincial statutory income tax rate of 26.5% as a result of
the corporate redomicile during the year. The 2017 reconciliation has been prepared at the statutory rate of 35% for the United
States:



|                                                |  | June 30, 2018 |            |   | June 30, 2017 | 
|----------------------------------------------- |  | ------------- | ---------- | - | ------------- | 
|Net Loss                                        |  |               | (2,784,222 | ) |               | 
|Statutory rate                                  |  |               | 26.5       | % |               | 
|                                                |  |               |            |   |               | 
|Expected income tax recovery                    |  |               | (738,000   | ) |               | 
|Tax rate changes and other adjustments          |  |               | 68,710     |   |               | 
|Stock based compensation                        |  |               | -          |   |               | 
|Change in tax benefits not recognized           |  |               | 684,500    |   |               | 
|Utilization of losses not previously recognized |  |               | (15,210    | ) |               | 
|Non-deductible expenses                         |  |               | -          |   |               | 
|Income tax recovery                             |  |               | -          |   |               | 



Deferred Tax



Deferred taxes are provided as a result
of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and
liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:



|                               |  | June 30, 2018 |            |  | June 30, 2017 | 
|------------------------------ |  | ------------- | ---------- |  | ------------- | 
|Property, plant and equipment  |  |               | 189,750    |  |               | 
|Share issue costs              |  |               | 384,230    |  |               | 
|Non-capital losses             |  |               | 20,292,580 |  |               | 
|Capital losses carried forward |  |               | 53,000     |  |               | 
|Exploration expenditures       |  |               | 3,291,810  |  |               | 
|Deferred tax assets            |  |               | 24,211,370 |  |               | 



The Canadian non-capital loss carry-forwards
expire as noted in the table below. The net capital loss carry-forward may be carried forward indefinitely but can only be used
to reduce capital gains. Share issue and financing costs will be fully amortized in 2022. The remaining deductible temporary differences
may be carried forward indefinitely. Deferred tax assets have not been recognized in respect of these items because it is not probable
that future taxable profit will be available against which the group can utilize the benefits therefrom. This is an inverted company
for US tax purpose and therefore is subject to US Corporate Income Tax. As they are in a loss position, there is no US income tax
liabilities. Their US non-operating losses carryforward are $42,718,647 and expire between 2025 and 2038. The Company's Canadian
non-capital income tax losses expire as follows:



|2027 |  | $ | 833,560    | 
|---- |  | - | ---------- | 
|2028 |  |   | 808,270    | 
|2029 |  |   | 817,410    | 
|2030 |  |   | 1,382,860  | 
|2031 |  |   | 1,948,650  | 
|2032 |  |   | 2,491,120  | 
|2033 |  |   | 2,077,470  | 
|2034 |  |   | 2,528,580  | 
|2035 |  |   | 2,013,770  | 
|2036 |  |   | 1,448,930  | 
|2037 |  |   | 1,837,300  | 
|2038 |  |   | 2,104,660  | 
|     |  | $ | 20,292,600 | 










NextSource Materials Inc.Notes to Consolidated Financial StatementsExpressed in US Dollars




18.        Subsequent
event



The Company issued the
following common shares subsequent to June 30, 2018:



| | (a) | On August 17, 2018, the Company closed a non-brokered private placement offering of 21,059,270
units at a price of $0.053 (CAD$0.07) per unit for aggregate gross proceeds of $1,120,353 (CAD$1,474,149). Each unit consisted
of one common share and one-half common share purchase warrant, with each warrant exercisable into one common share at an exercise
price of $0.076 (CAD$0.10) for a period of two years. The share issue costs consisting of finder’s fees totaled $16,576 plus
the issuance of 337,714 common shares and 123,000 common share purchase warrants, with each warrant exercisable into one common
share at an exercise price of $0.076 (CAD$0.10) for a period of two years.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------















































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