Exhibit 99.2

















NextSource Materials Inc.





Consolidated Financial Statements





For the
years ended June 30, 2019 and June 30, 2018





Expressed
in US Dollars





1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Board of Directors and Shareholders of NextSource Materials
Inc.,





Opinion on the Consolidated Financial Statements





We have
audited the accompanying consolidated statements of financial
position of NextSource Materials Inc. (the Company) as of June 30,
2019 and 2018, and the related consolidated statements of
operations and comprehensive loss, shareholders’ equity, and
cash flows for each of the years in the three year period ended
June 30, 2019, and the related notes (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 of June 30, 2019 and 2018, and the results of its
consolidated operations and its consolidated cash flows for each of
the years in the three year period ended June 30, 2019 in
conformity with International Financial Reporting Standards as
issued by the International Accounting Standards
Board.





Material Uncertainty Related to Going Concern





The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has suffered accumulated deficit, recurring net losses and
negative operating cash flows that raise substantial doubt about
its ability to continue as a going concern. Management's plans with
regards to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.





Basis for Opinion





These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.





We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.





Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.








Chartered Professional Accountants


Licensed Public Accountants





We have
served as the Company’s auditor since 2012.





Mississauga,
Ontario





September 6,
2019





2


NextSource Materials Inc.


Consolidated Statements of Financial Position





Expressed in US Dollars


June
30,
2019
June
30,
2018AssetsCurrent
Assets:Cash and cash
equivalents
$529,331
$338,702Amounts
receivable
33,640
13,241Prepaid expenses
(note 16)
50,432
42,540Total
Assets
$613,403
$394,483LiabilitiesCurrent
Liabilities:Accounts payable
(note 16)
$109,020
$140,865Accrued
liabilities
654,999
197,834Provision (note
9)
180,652
180,652Warrant liability
(note 13)
334,618
-Total
Liabilities
1,279,289
519,351Shareholders’
DeficitShare capital (note
10)
103,172,066
100,544,293Accumulated
deficit
(103,955,431)
(100,744,927)Accumulated other
comprehensive income
117,479
75,766Total
Shareholders’ Deficit
(665,886)
(124,868)Total
Liabilities and Shareholders’ Deficit
$613,403
$394,483





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





Nature
of Operations and Going Concern (note 1)


Mineral
Exploration Properties (note 3)


Subsequent
Event (note 18)





3





NextSource Materials Inc.


Consolidated Statements of Operations and Comprehensive
Loss





Expressed in US Dollars


For the year ended
For the year ended
For the year endedJune
30,
2019
June
30,
2018
June
30,
2017Revenues
$-
$-
$-ExpensesExploration
and evaluation expenses (notes 3, 5)
1,103,394
920,998
1,839,659Management
and professional fees (notes 6, 16)
1,178,975
1,382,925
770,397Share
based compensation (notes 11, 16)
651,692
-
794,864General
and administrative expenses (note 7)
354,540
405,580
458,780Depreciation
(note 8)
-
-
21,911Impairment
(note 8)
-
27,805
-Foreign
currency translation (gain) loss
(4,565)
104,387
93,476Total expenses
3,284,036
2,841,695
3,979,087Net loss before change in fair value, reversal of impairment of
amount receivable and part XII.6 taxes
(3,284,036)
(2,841,695)
(3,979,087)Other
income (expenses)Change
in value of warrant liability (note 13)
73,532
-
111,049Reversal
of impairment of amount receivable
-
45,132
-Part
XII.6 taxes (note 9)
-
11,741
(131,320)Net loss for the year
$(3,210,504)
$(2,784,822)
$3,999,358Other comprehensive incomeItems that will be reclassified subsequently to lossTranslation
adjustment for foreign operations
41,713
75,766
-Net loss and comprehensive loss for the year
$(3,168,791)
$(2,709,056)
$(3,999,358)Weighted-average
common shares,
-
basic
and diluted
493,586,450
468,252,639
448,187,140Net
loss per common shares,
-
basic
and diluted
(0.01)
(0.01)
(0.01)





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





4


NextSource Materials Inc.


Consolidated Statements of Cash Flows





Expressed in US Dollars


For the year
ended
June
30,
2019
For the year
ended
June
30,
2018
For the year
ended
June
30,
2017Cash
flows from operating activitiesNet
loss for the year
$(3,210,504)
$(2,784,822)
$(3,999,358)Items not affecting
cash:Depreciation and
impairment of equipment
-
27,805
21,911Change in value of
warrant derivative liability
(73,532)
-
(111,049)Share based
compensation
651,692
-
794,864Change in working
capital balances:(Increase) decrease
in amounts receivable and prepaid expenses
(28,291)
22,756
(53,037)Increase (decrease)
in accounts payable and accrued liabilities
425,320
111,311
(12,746)Increase (decrease)
in provision
-
(2,231)
141Net cash used in
operating activities
(2,235,315)
(2,625,181)
(3,359,274)Cash
flows from investing activitiesEquipment
purchases
-
-
(27,805)Net cash used in
investing activities
-
-
(27,805)Cash
flows from financing activitiesProceeds from
issuance of common shares
2,444,015
-
5,177,885Proceeds from
exercise of warrants
-
923,169
-Common share issue
cost finder shares
17,966
-
-Common share issue
costs
(77,750)
-
(370,671)Net cash provided
by financing activities
2,384,231
923,169
4,807,214Effect of exchange
rate changes on cash
41,713
75,766
-Increase (decrease)
in cash and cash equivalents
190,629
(1,626,246)
1,420,135Cash and cash
equivalents - beginning of year
338,702
1,964,948
544,813Cash
and cash equivalents - end of year
$529,331
$338,702
$1,964,948





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





5


NextSource Materials Inc.


Consolidated Statements of Changes in Shareholders’
Equity





Expressed in US Dollars





Shares
#
Share
Capital
$
Accumulated
Deficit
$
Accumulated Other Comprehensive Income
$
Total
(Deficit) Equity
$Balance – June 30, 2017
460,995,711
99,621,124
(97,960,105)
-
1,661,019Exercise
of warrants
8,937,900
923,169


923,169Net
loss for the year

-
(2,784,822)
-
(2,784,822)Cumulative
translation adjustment

-
-
75,766
75,766Balance – June 30, 2018
469,933,611
100,544,293
(100,744,927)
75,766
(124,868)Private
placement of common shares
37,145,696
2,444,015
-
-
2,444,015Reclassification
as warrant liability
-
(408,150)
-
-
(408,150)Cost
of issue of private placement of common shares
-
(77,750)
-
-
(77,750)Cost
of issue finder shares
337,714
17,966
-
-
17,966Share-based
compensation
-
651,692
-
-
651,692Net
loss for the period
-
-
(3,210,504)
-
(3,210,504)Cumulative
translation adjustment
-
-
-
41,713
41,713Balance – June 30, 2019
507,417,021
103,172,066
(103,955,431)
117,479
(665,886)





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





6
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars


1.
 Nature
of Operations and Going Concern





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 a wholly owned foreign subsidiary, obtained a
mining permit and environmental certificate for its Molo Graphite
Project in Madagascar.





These
consolidated financial statements were approved by the Board of
Directors on September 9, 2019.





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 (“GRAMAD”), a
Madagascar subsidiary. GRAMAD 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, 2019, the Company had an accumulated deficit of
$103,955,431 (June 30, 2018:
$100,744,927), 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 may raise substantial doubt about the
Company’s ability to continue as a going
concern.





These
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.





7
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars


2.
 Significant
Accounting Policies





Statement of compliance with IFRS





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





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 11.





Derivative warrant liability: The Company measures the fair
value of the derivative liability using an option pricing model.
This estimate requires determining the most appropriate inputs to
the valuation model including the expected life of the warrant,
volatility, dividend yield, and rate of forfeitures and making
assumptions about them. The value of the warrant liability along
with the assumptions and model used for estimating fair value are
disclosed in Note 13.





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.





8
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars


2.
 Significant
Accounting Policies - continued





Significant accounting estimates, judgments and assumptions -
continued





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.





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





IFRS 9
- Financial Instruments ("IFRS 9") replaced the provision of IAS 39
- Financial Instruments: Recognition and Measurement ("IAS 39") and
was effective for annual periods beginning on or after January 1,
2018. IFRS 9 includes requirements for recognition and measurement,
impairment, derecognition and general hedge
accounting.





IFRS 9
includes finalized guidance on the classification and measurement
of financial assets. Under IFRS 9, financial assets are classified
and measured either at amortized cost, fair value through other
comprehensive income (“FVOCI”) or fair value through
profit or loss (“FVTPL”) based on the business model in
which they are held and the characteristics of their contractual
cash flows. IFRS 9 largely retains the existing requirements in IAS
39 - Financial Instruments: Recognition and Measurement ("IAS 39"),
for the classification and measurement of financial
liabilities.





The
Company adopted IFRS 9 in its consolidated financial statements on
July 1, 2018. Due to the nature of its financial instruments, the
adoption of IFRS 9 had no material impact on the opening
accumulated deficit balance on July 1, 2018. The impact on the
classification and measurement of its financial instruments is set
out below.





All
financial assets not classified at amortized cost or FVOCI are
measured at FVTPL. On initial recognition, the Company can
irrevocably designate a financial asset at FVTPL if doing so
eliminates or significantly reduces an accounting
mismatch.





A
financial asset is measured at amortized cost if it meets both of
the following conditions and is not designated at
FVTPL:





●
 It is held within a
business model whose objective is to hold the financial asset to
collect the contractual cash flows associated with the financial
asset instead of selling the financial asset for a profit or
loss;


●
 Its contractual
terms give rise to cash flows that are solely payments of principal
and interest.





All
financial instruments are initially recognized at fair value on the
consolidated statement of financial position. Subsequent
measurement of financial instruments is based on their
classification. Financial assets and liabilities classified at
FVTPL are measured at fair value with changes in those fair values
recognized in the consolidated statement of loss and comprehensive
loss for the period. Financial assets classified at amortized cost
and financial liabilities are measured at amortized cost using the
effective interest method.





Financial assets





Financial assets
are classified as either financial assets at FVTPL, amortized cost,
or FVTOCI. The Company determines the classification of its
financial assets at initial recognition.





i.
Financial assets recorded at FVTPL





Financial assets
are classified as FVTPL if they do not meet the criteria of
amortized cost or FVTOCI. Gains or losses on these items are
recognized in profit or loss.





9
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





2.
 Significant
Accounting Policies (continued)





Financial instruments (continued)





ii.
Amortized cost





Financial assets
classified as amortized cost are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. They are carried at amortized cost less any
provision for impairment. Individually significant receivables are
considered for impairment when they are past due or when other
objective evidence is received that a specific counterparty will
default.





The
Company’s cash and cash equivalents and amounts receivable
(excluding HST) are classified as financial assets measured at
amortized cost.





iii.
Financial assets recorded at FVTOCI





Financial assets
are recorded at FVTOCI when the change in fair value is
attributable to changes in the Company’s credit
risk.





Financial liabilities





Financial
liabilities are classified as either financial liabilities at FVTPL
or at amortized cost. The Company determines the classification of
its financial liabilities at initial recognition.





i.
Amortized cost





Financial
liabilities are measured at amortized cost, including borrowings,
are initially measured at fair value, net of transaction cost. They
are subsequently measured at amortized cost using the effective
interest method, with interest recognized on an effective yield
basis.





The
effective interest method is a method of calculating the amortized
cost of a financial liability and of allocating interest costs over
the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the
expected life of the financial liability or to the next carrying
amount or initial recognition.





The
Company’s accounts payable, accrued liabilities and provision
do not satisfy any of the exemptions and are therefore classified
as measured at amortized cost.





ii.
Financial liabilities recorded FVTPL





Financial
liabilities are classified as FVTPL if they do not fall into
amortized cost as detailed above.





The
Company’s warrant liability is classified as measured at
FVTPL.





Transaction costs





Transaction costs
associated with financial instruments, carried at FVTPL, are
expensed as incurred, while transaction costs associated with all
other financial instruments are included in the initial carrying
amount of the asset or the liability.





Subsequent measurement





Instruments
classified as FVTPL are measured at fair value with unrealized
gains and losses recognized in profit or loss. Instruments
classified as amortized cost are measured at amortized cost using
the effective interest rate method. Instruments classified as FVOCI
are measured at fair value with unrealized gains and losses
recognized in other comprehensive income.





Derecognition





The
Company derecognizes financial liabilities only when its
obligations under the financial liabilities are discharged,
cancelled, or expired. The difference between the carrying amount
of the financial liability derecognized and the consideration paid
and payable, including any non-cash assets transferred or
liabilities assumed, is recognized in profit or loss.





10
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





2.
 Significant
Accounting Policies (continued)





Financial instruments (continued)





Expected credit loss impairment model





Financial assets
not measured at FVTPL are assessed for indicators of impairment at
the end of each reporting period. Financial assets are impaired
when there is objective evidence that, as a result of one or more
events that occurred after initial recognition of the financial
assets, the estimated future cash flows of the financial asset has
been negatively impacted.





The
carrying amount of a financial asset is written off (either
partially or in full) to the extent that there is no realistic
prospect of recovery. This is generally the case when the Company
determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the
amounts subject to the write-off.





IFRS 9
introduced a single expected credit loss impairment model, which is
based on changes in credit quality since initial application. The
adoption of the expected credit loss impairment model had no impact
on the Company’s consolidated financial
statements.





Financial instruments recorded at fair value:





Financial
instruments recorded at fair value on the consolidated statements
of financial position are classified using a fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following
levels:





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


●
 Level 2 - valuation
techniques based on inputs other than quoted prices included in
Level 1 that are


●
 observable for the
asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and


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





As of
June 30, 2019 and 2018, except for the warrant liability –
which is a Level 3 financial instrument (see Note 13) - none of the
Company’s financial instruments are recorded at fair value in
the consolidated statements of financial position.





The
following table summarizes the classification and measurement
changes under IFRS 9 for each financial instrument as per adoption
of IFRS 9. The adoption of the new classification did not result in
any changes in the measurement or carrying amount of the financial
instruments.





Classification
IAS
39
IFRS
9Financial
assets:Cash
and cash equivalents
Amortized
cost
Amortized
costAmounts
receivable excluding HST
Amortized
cost
Amortized
costFinancial
liabilities:Accounts
payable and accrued liabilities
Amortized
cost
Amortized
costProvision
Amortized
cost
Amortized
costWarrant
liability
FVTPL
FVTPL





11
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





2.
 Significant
Accounting Policies (continued)





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:





●
 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.





12
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





2.
 Significant
Accounting Policies (continued)





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.
Broker warrants may also be issued in connection with
financings.





The
fair value of share-based compensation is 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 share-based compensation is only re-measured if there is a
modification to the terms of the instrument, such as a change in
exercise price or legal life. The fair value of the share-based
compensation 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.





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 cumulative translation
adjustment 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.





The
Company adopted the IFRIC 23 guidance concerning accounting for
uncertainty in income taxes, which clarifies the accounting and
disclosure for uncertainty in tax positions, as of June 2017. 
The guidance requires that the Company determine whether it
is





13
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





2.
 Significant
Accounting Policies (continued)





Income taxes (continued)





more
likely than not that a tax position will not be sustained upon
examination by the appropriate taxing authority.  If a tax
position does not meet the more likely than not recognition
criterion, the guidance requires that the tax position be measured
at the largest amount of benefit greater than 50 percent not likely
of being sustained upon ultimate settlement.  Based on the
Company’s evaluation, management has concluded that there are
no significant uncertain tax positions requiring recognition in the
financial statements.





Loss per share





Basic
loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per
share is computed, using the treasury stock method, to show the
potential reduction in earnings per share that would occur if
dilutive 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 issued but not yet applied





Certain
new accounting standards and interpretations have been published
that are not mandatory for the June 30, 2019 reporting period.
Management believes the following standards will not have a
significant impact on the Company’s consolidated financial
statements:





●
 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. Management expects
that adoption of IFRS 16 will have no impact on the financial
statements since the Company does not have any leases exceeding one
year. IFRS 16 is effective for periods beginning on or after
January 1, 2019, with early adoption permitted.





In June
2017, the IASB issued IFRIC Interpretation 23 – Uncertainty
over Income Tax Treatments (‘‘IFRIC 23’’).
IFRIC 23 clarifies the application of recognition and measurement
requirements in IAS 12 – Income Taxes when there is
uncertainty over income tax treatments. More specifically, it will
provide guidance in the determination of taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits and tax rates,
when uncertainty exists. IFRIC 23 is applicable for annual
reporting periods beginning on or after January 1, 2019. The
Company has determined that there will be no impact on the
Company’s current and deferred income tax balances as a
result of the adoption of IFRIC 23.





14
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed 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.





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.





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.





During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit. On February 15, 2019, the Company announced the
Madagascar Government granted a 40-year mining license for the Molo
Graphite Project and that the mining license does not limit mining
to any specific volume. On April 11, 2019, the Company announced it
had received the Global Environmental Permit for the Molo Graphite
Project from the Madagascar Ministry of Environment’s Office
National pour l'Environnement (the National Office for the
Environment; or “ONE”).





Application
for all other necessary permits to construct and operate the mine,
including water use, facilities construction, mineral processing,
transportation, export, and labour have been
initiated.





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





15
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed in US Dollars





3.
 Mineral
Exploration Properties – continued





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, 2019, the Sagar property consisted of 234 claims covering
a total area of 10,736.59 ha.





16
  NextSource Materials Inc.
 Notes to Consolidated Financial Statements
 For the years ended June 30, 2019 and 2018
 
 Expressed 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, 2019
1,087,925
15,469
1,103,394Year
ended June 30, 2018
918,763
2,235
920,998Year
ended June 30, 2017
1,763,223
76,436
1,839,659





Cash and Cash Equivalents
Madagascar
$
Canada
$
Total
$As
of June 30, 2019
54,701
474,630
529,331As
of June 30, 2018
17,958
320,744
338,702As
of June 30, 2017
44,085
1,920,863
1,964,948





5.
 Exploration
and Evaluation Expenses





Exploration
and evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, local payroll and
consultants, Madagascar travel costs, mineral claims and camp
operations.





The
following is the breakdown by nature of the expenses:





For the year ended
For the year ended
For the year endedJune 30,
2019
$
June 30,
2018
$
June 30,
2017
$Exploration
activities
-
-
50,717Metallurgical
evaluation
19,737
107,185
1,120,045Consulting
fees
852,049
522,341
344,749Travel
12,587
26,902
82,288Mineral
claims and camp (Madagascar)
203,552
249,714
156,634Mineral
claims (Canada)
15,469
14,856
85,226Total exploration and evaluation expenses
1,103,394
920,998
1,839,659





17


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
For the year endedJune 30,
2019
$
June 30,
2018
$
June 30,
2017
$Management
payroll
459,553
458,932
339,023Consulting
fees
368,345
381,713
160,916Legal
fees
239,366
502,463
224,938Auditor
fees
23,760
27,247
41,337Tax
advisory fees
67,810
9,095
-Other
20,141
3,475
4,183Total management and professional fees
1,178,975
1,382,925
770,397





7.
 General
and Administrative Expenses





General
and administrative expenses include all corporate travel, public
filing and transfer agent fees, investor relations, rent,
insurance, bank fees, meals and entertainment, telecommunications
and information technology.





The
following is the breakdown by nature of the expenses:





For the year ended
For the year ended
For the year endedJune 30,
2019
$
June 30,
2018
$
June 30,
2017
$Travel
140,414
147,109
219,509Public
filing and transfer agent fees
87,093
105,461
71,979Investor
relations
49,711
86,946
112,263Rent
28,956
23,686
21,793Insurance
18,315
12,491
13,545Bank
fees
4,021
5,300
4,469Other
26,030
24,587
15,222Total general and administrative expenses
354,540
405,580
458,780








18





8.
 Equipment





The
Company owns metallurgical testing equipment and several vehicles
used for exploration purposes in Madagascar that were deemed
impaired and have no carrying values.





Changes
in the carrying values were as follows:





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

(27,805)Balance June 30, 2018
-
-
-Balance June 30, 2019
-
-
-





9.
 Provision
and Contingent Liability





Provision





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 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. During the year ended June 30, 2019,
there were $NIL adjustments made to the provision
balance.





Contingent Liabilities





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, no amount has been recognized as a provision.





19





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, 2019, the Company had 507,417,021
common shares issued and outstanding (June 30 2018:
469,933,611).





The Company issued the following common shares during the year
ended June 30, 2019:





(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 $1,120,385
(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
included cash finder’s fees totaling $16,905, the issuance of
337,714 common shares valued at $17,966 and the issuance of 123,000
common share purchase warrants valued at $3,272 with each warrant
exercisable into one common share at an exercise price of $0.076
(CAD$0.10) for a period of two years. Other share issue costs were
$8,015.





(b)
 On
March 7, 2019, the Company closed a non-brokered private placement
offering of 16,086,426 common shares at a price of $0.08 (CAD$0.11)
per common share for aggregate gross proceeds of $1,323,630
(CAD$1,769,507). The share issue costs included cash finder’s
fees totaling $24,062 (CAD$35,300). Other share issue costs were
$6,999 and legal fees were $3,803.





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





20





11.
 Stock
Options





The
Company’s stock option plan is restricted to a maximum of 10%
of the issued and outstanding common shares. 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, 2019, the Company had 40,670,000 stock options
issued and outstanding (June 30, 2018: 37,630,000) with a weighted
average expiration of 3 years (June 30, 2018: 2.9 years), which are
exercisable into 40,670,000 common shares (June 30, 2018:
37,630,000) at a weighted average exercise price of $0.08 (June 30,
2018: $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 ended June 30, 2019:





Grant
Date
Expiration
Date
Exercise
Price
Balance
Outstanding
June
30,
2018
Options Granted
(Expired or
Cancelled)
Options
Exercised
Balance
Outstanding
June 30,
2019July 9,
2013
July 9,
2018
USD
$0.11
705,000
(705,000)
-
-September 19,
2013
July 19,
2018
USD
$0.15
375,000
(375,000)
-
-January 10,
2014
January 10,
2019
USD
$0.18
2,925,000
(2,925,000)
-
-July 3,
2014
July 3,
2019
USD
$0.15
2,250,000
(1,100,000)
-
1,150,000February 26,
2015
February 26,
2020
USD
$0.20
3,335,000
(465,000)
-
2,870,000December 22,
2015
December 22,
2020
USD
$0.06
6,900,000
(200,000)
-
6,700,000June 9,
2017
June 9,
2022
USD
$0.07
21,140,000
(3,040,000)
-
18,100,000March 26,
2019
March 26,
2024
CAD
$0.10
-
11,850,000
-
11,850,000Total
Outstanding


37,630,000
3,040,000

40,670,000





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
41,965,000Granted
0.07
21,140,000Exercised
-
-Expired
0.23
(18,635,000)Outstanding as of
June 30, 2017
USD
$0.11
44,470,000Granted
-
-Exercised
-
-Expired
USD
$0.18
(6,840,000)Outstanding as of
June 30, 2018
USD
$0.09
37,630,000Granted
CAD $0.10
11,850,000Exercised
-
-Expired/cancelled
USD
$0.09
(8,810,000)Outstanding as of
June 30, 2019
USD
$0.08
40,670,000





21





11.
 Stock
Options - Continued





The Company granted the following stock options during the year
ended June 30, 2019:





(a)
 On
March 26, 2019, the Company granted 11,850,000 stock options
exercisable at a price of CAD$0.10 for a period of five years. The
options were valued at $651,692 using the Black-Scholes pricing
model based on a risk-free rate of 1.66% and volatility of 97%.
These stock options vested on the grant date.





The
Company did not grant any stock options during the year ended June
30, 2018.





The Company granted the following stock options during the year
ended June 30, 2017:





(a)
 On
June 9, 2017, the Company issued 21,140,000 stock options at an
exercise price of $0.07 and an expiry date of June 9, 2022. The
stock options were valued at $794,864 using the Black-Scholes
pricing model with the following assumptions: risk free rate
– 1.11%; expected volatility – 82%; dividend yield
– NIL; and expected life – 5 years. These stock options
vested on the grant date.





22





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, 2019, the Company had 10,652,636 (June 30, 2018:
3,500,000) common share purchase warrants issued and outstanding
with a weighted average expiration of 1.13 years (June 30, 2018:
0.8 years), which are exercisable into 10,652,636 (June 30, 2018:
3,500,000) common shares at a weighted average exercise price of
$0.08 (June 30, 2018: $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 ended June 30, 2019:





Issue
Date
Expiration
Date
Exercise
Price
Balance
Outstanding
June
30,
2018
Warrants Granted
(Expired)
Warrants
Exercised
Balance
Outstanding
June
30,
2019June 23,
2014
April 15,
2019
USD
$0.14
3,500,000
(3,500,000)
-
-August 17,
2018
August 17,
2020
CAD
$0.10
-
10,529,636
-
10,529,636August 17,
2018
August 17,
2020
CAD
$0.10
-
123,000
-
123,000Total
Outstanding


3,500,000
7,152,636
-
10,652,636





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
65,242,431Issued
-
-Expired
0.14
(34,721,175)Exercised
-
-Outstanding as of
June 30, 2017
USD
$0.11
30,521,256Issued
-
-Expired
USD
$0.11
(18,083,356)Exercised
USD
$0.10
(8,937,900)Outstanding as of
June 30, 2018
USD
$0.14
3,500,000Issued
CAD $0.10
10,652,636Expired
USD
$0.14
(3,500,000)Exercised
-
-Outstanding as of
June 30, 2019
USD
$0.08
10,652,636





The Company issued the following common share purchase warrants
during the year ended June 30, 2019:





(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 $1,120,385
(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
included cash finder’s fees totaling $16,905, the issuance of
337,714 common shares valued at $17,966 and the issuance of 123,000
common share purchase warrants valued at $3,272 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 Company did not issue any common share purchase warrants during
the year ended June 30, 2017.





23





13.
 Warrant
Liability





The
warrants that were issued on August 17, 2018, as part of the units
as described in notes 10 and 12, were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.





The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:





June
30,
2019
August
17,
2018 (issue
date)Exercise
price
$0.076
$0.076Risk free
rate
1.67%
1.50%Expected
volatility
97%
115%Expected dividend
yield
Nil
NilExpected life (in
years)
1.13
2Opening balance,
derivative warrant liability
$408,150
$-Gain on change in
fair value of derivative warrant liability
(73,532)
408,150Ending
balance, derivative warrant liability
$334,618
$408,150





The
warrants that expired in January 2017 were issued in a currency
other than the Company’s functional currency and therefore
were considered a derivative instrument and recorded on the balance
sheet as a warrant liability. The fair value of the warrant
liability was estimated on the date of issue and was re-measured at
each reporting period using a binomial model until expiration or
exercise of the underlying warrants.





For the
year ended June 30, 2017, the Company recorded a gain in the fair
value of the derivative warrant liability of $111,049.





The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:





Year-Ended
June
30,
2017Exercise
price
NilRisk free
rate
NilExpected
volatility
NilExpected dividend
yield
NilExpected life (in
years)
NilOpening balance,
derivative warrant liability
$111,049Gain on change in
fair value of derivative warrant liability
(111,049)Ending
balance, derivative warrant liability
$-





24





14.
 Capital
Management





As at
June 30, 2019, the Company had a working capital deficit of
$665,886 (June 30, 2018: deficit of $124,868).





There
were no changes in the Company's approach to capital management
during the year-ended June 30, 2019.





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.





25





15.
 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, 2019, the Company expects to access public debt and equity
capital markets for financing over the next 12 months in order to
initiate construction of its Molo Graphite Project in Madagascar
and to satisfy working capital requirements. 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, 2019, the Company had a cash and cash equivalents balance
of $529,331 (June 30, 2018: $338,702) to settle current liabilities
of $1,279,289 (June 30, 2018: $519,351). 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.
Other than accounts payable, which are due within 30 days, and the
warrant liability, which will be fully expensed by August 2020,
none of the Company’s obligations have contractual
maturities.





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:
This 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: This 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, 2019 would
result in a loss of $37,497 (June 30, 2018: loss of $24,109; June
30, 2017: $32,080) on the consolidated statement of loss and
comprehensive loss.  The impact of a 10% strengthening of the
Madagascar Ariary of June 30, 2019 would result in a gain of $4,654
(June 30, 2018: gain of $1,605; June 30, 2017: $2,135) on the
consolidated statement of loss and comprehensive loss.  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.





26





16.
 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, 2019, 2018 and
2017:





For the year ended
For the year ended
For the year endedJune 30, 2019
$
June 30, 2018
$
June 30, 2017
$Management
and professional fees
774,220
806,752
639,190Share
based compensation
640,692
-
680,560Total
1,414,912
806,752
1,319,750





The
following key management related party balances existed as of June
30, 2019 and 2018:





As
at
June
30,
2019
As
at
June
30,
2018
As
at
June
30,
2017Prepaid
payroll to officers of the Company
$26,568
$26,632
$29,746Accounts
payable balance due to officers of the Company
$16,400
$16,400
$16,400





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%.





June 30,
2019
June 30,
2018Net
Loss
(3,210,504)
(2,784,222)Statutory
rate
26.5%
26.5%Expected
income tax recovery
(850,784)
(738,000)Other
adjustments
24,585
68,710Share
issuance costs booked to equity
(21,471)
-Non-deductible
expenses
153,893
-Utilization
of losses not previously recognized
-
(15,210)Change
in tax benefits not recognized
693,777
684,500Income
tax recovery
-
-





27





17.
 Income
Taxes – continued





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,
2019
June 30,
2018Property,
plant and equipment
188,980
189,750Share
issue costs
219,290
384,230Non-capital
losses – Canada
22,069,720
20,292,580Capital
losses carried forward – Canada
53,000
53,000Exploration
expenditures - Canada
4,191,650
3,291,810Losses-Non-Canadian
1,215,070
-Deferred
tax assets
27,937,710
24,211,370





The
Canadian non-capital loss carryforwards 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 costs will be fully amortized in 2023. The remaining
deductible temporary differences may be carried forward
indefinitely. Non-Canadian losses will expire in 2023. 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 $48,139,994 and expire between 2026 and 2038. U.S.
non-operating losses incurred in years 2019 and after, are carried
forward indefinitely. The Company's Canadian non-capital income tax
losses expire as follows:





2027
$833,5602028
808,2702029
817,4102030
1,382,8602031
1,948,6502032
2,491,1202033
2,077,4702034
2,528,5802035
2,013,7702036
1,448,9302037
1,837,3002038
2,104,6602039
1,777,160$22,069,720





18.
 Subsequent
event





There
were no subsequent events.





28