SHARE CAPITAL

Authorized

500,000,000 Common Shares without par value. At December 31, 2016 and June 30, 2017 there were 162,186,972 shares issued and outstanding.

Share issuances

There were no share issuances during the six months ended June 30, 2017. On December 28, 2016, the Company closed a non-brokered private placement financing of 45,833,334 Common Shares at a price of $0.48 per share for gross proceeds of $22.0 million.

Obligation to issue shares

On May 24, 2017, the shareholders approved the issuance of Common Shares to the previous CEO for services rendered as CEO. On May 24, 2017, the Company recorded an obligation to issue 206,024 Common Shares valued at $99,492 (CAD $133,916). On July 13, 2017, the Company issued 206,024 Common Shares in full satisfaction of the obligation.

Deferred Share Unit Incentive Plan

On May 24, 2017 at the Company’s Annual General Meeting of Shareholders, a Deferred Share Unit Incentive Plan (“DSU Plan”) was approved.

As at June 30, 2017, the maximum aggregate number of Common Shares that could be issued under the DSU Plan and the 2006 Plan (as defined below) was 16,218,697, representing 10% of the number of issued and outstanding Common Shares on that date (on a non-diluted basis). As at June 30, 2017, the Company had stock options to potentially acquire 5,940,000 Common Shares outstanding under the 2006 Plan (representing approximately 3.66% of the outstanding Common Shares), leaving up to 10,278,697 Common Shares available for future grants under the DSU Plan and under the 2006 Plan (combined) based on the number of outstanding Common Shares as at that date on a non-diluted basis (representing an aggregate of approximately 6.34% of the outstanding Common Shares).

Stock options

The Company adopted an incentive stock option plan in 2006, as amended September 19, 2012 and reapproved on May 28, 2015 at the Company’s Annual General Meeting (the “2006 Plan”). The essential elements of the 2006 Plan provide that the aggregate number of Common Shares of the Company’s capital stock that may be made issuable pursuant to options granted under the 2006 Plan, together with shares under the DSU Plan, may not exceed 10% of the number of issued shares of the Company at the time of the granting of the options. Options granted under the 2006 Plan will have a maximum term of ten years. The exercise price of options granted under the 2006 Plan shall be fixed in compliance with the applicable provisions of the TSX Company Manual in force at the time of grant and, in any event, shall not be less than the closing price of the Company’s Common Shares on the TSX on the trading day immediately preceding the day on which the option is granted, or such other price as may be agreed to by the Company and accepted by the Toronto Stock Exchange. Options granted under the 2006 Plan vest immediately, unless otherwise determined by the directors at the date of grant.

During the six month period ended June 30, 2017, there were no incentive stock options granted by the Company.

A summary of the status of the stock option plan as of June 30, 2017 and December 31, 2016 and changes is presented below:

	Six Months Ended						Year Ended
	June 30, 2017						December 31, 2016
			Weighted						Weighted
			Average		Aggregate				Average		Aggregate
	Number of		Exercise		Intrinsic		Number of		Exercise		Intrinsic
	Options		Price (C$)		Value		Options		Price (C$)		Value
Balance, beginning of the period		6,026,200	$	1.61	$	183,930		6,066,200	$	1.60	$	Nil
Exercised		-		-		-		(40,000)		0.50		29,600
Forfeited		(86,200)		1.46		4,368		-		-		-
Balance, end of the period		5,940,000	$	1.61	$	78,840		6,026,200	$	1.61	$	183,930

Stock options outstanding are as follows:

	June 30, 2017						December 31, 2016
	Exercise		Number of				Exercise		Number of
Expiry Date	Price (C$)		Options		Exercisable		Price (C$)		Options		Exercisable
August 24, 2017	$	3.17		1,650,000		1,650,000	$	3.17		1,675,000		1,675,000
March 14, 2018	$	2.18		313,000		313,000	$	2.18		319,000		319,000
February 25, 2022	$	1.11		1,030,000		1,030,000	$	1.11		1,030,000		1,030,000
February 25, 2022	$	0.73		570,000		570,000	$	0.73		594,000		594,000
March 10, 2022	$	1.11		430,000		430,000	$	1.11		430,000		430,000
March 16, 2023	$	1.00		1,260,000		1,260,000	$	1.00		1,260,000		839,999
March 16, 2023	$	0.50		657,000		657,000	$	0.50		688,200		445,466
June 9, 2023	$	1.00		30,000		30,000	$	1.00		30,000		20,000
				5,940,000		5,940,000				6,026,200		5,353,465

A summary of the non-vested options as of June 30, 2017 and changes during the six months ended June 30, 2017 is as follows:

			Weighted
			average grant-
	Number of		date fair value
Non-vested options:	options		(C$)

Outstanding at December 31, 2016		672,735	$	0.25
Vested		(672,735)	$	0.25
Outstanding at June 30, 2017		-		-

At June 30, 2017 there was no unrecognized compensation expense related to non-vested options outstanding.

Share-based payments

During the six month period ended June 30, 2017, there were no incentive stock options granted by the Company. Share-based payment charges for the six months ended June 30, 2017 totaled $13,127.

During the six month period ended June 30, 2016, there were no incentive stock options granted by the Company. Share-based payment charges for the six months ended June 30, 2016 totaled $76,295.

The following weighted average assumptions were used for the Black-Scholes option pricing model calculations:

	YTD December 31,
	2015
Expected life of options		6 years
Risk-free interest rate		0.97	%
Annualized volatility		80.60	%
Dividend rate		0.00	%
Exercise price (C$)	$	0.80

The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.