Share Capital

The Company’s common shares outstanding are no par value, voting shares with no preferences or rights attached to them.

Common shares – 2016

In July 2016, the Company completed a financing for gross proceeds of $12.2 million (C$16.1 million) consisting of 11,120,000 units at a price of $1.10 (C$1.45) per unit. Each unit consisted of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional common share of the Company at a price of C$2.00 per common share until July 25, 2019. The aggregate fair value of the common share purchase warrants at the time of issuance was $2.4 million, which was recorded as a derivative liability and the Company allocated the remaining proceeds of $9.8 million to the common shares (See Note 10).

The Company also issued 757,700 common share purchase warrants to brokers with the same terms as the common share purchase warrants issued with the financing units. The aggregate fair value of the common share purchase warrants issued to the brokers at the time of issuance was $0.3 million which was recorded as a derivative liability (See Note 10).

In addition, the Company incurred cash share issue costs totalling $1.3 million, which consisted of legal fees, commission and other direct financing costs.

Stock options

The Company’s current stock option plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Plan provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Company’s Board of Directors (the “Board”), but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange (“TSX”) for the five (5) trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five (5) years. The Plan provides that the expiry date of the vested portion of a stock option will be the earlier of the date so fixed by the Board at the time the stock option is awarded and the early termination date (the “Early Termination Date”).

The Early Termination Date will be the date the vested portion of a stock option expires following the option holder ceasing to be a director, employee or consultant, as determined by the Board at the time of grant, or in the absence thereof at any time prior to the time the option holder ceases to be a director, employee or consultant, in accordance with and subject to the provisions of the Plan. All options granted under the 2013 Plan will be subject to such vesting requirements as may be prescribed by the TSX, if applicable, or as may be imposed by the Board. A total of 1,395,002 (December 31, 2016 – 1,555,000) common shares were issuable pursuant to such stock options as at September 30, 2017.

The Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. The compensation expense is amortized on a straight-line basis over the requisite service period, which approximates the vesting period.

The following is a summary of stock option activity during the nine months ended September 30, 2017 and 2016:

			Weighted Average
			Exercise Price per
	Shares		Share
Options outstanding, December 31, 2015		1,070,000	$	0.94
Options granted		485,000	$	0.66
Options outstanding, December 31, 2016		1,555,000	$	0.85
Options granted		400,002	$	0.65
Options forfeited		(166,667)	$	0.64
Options expired		(393,333)	$	1.10
Options outstanding, September 30, 2017		1,395,002	$	0.75

On March 20, 2017, the Company granted 400,002 options to the Company’s Chief Financial Officer (“CFO”) which are exercisable at a price of $0.65 for a period of five years from the date of grant. 133,334 options vest on March 20, 2018, 133,334 options vest on March 20, 2019 and 133,334 options on March 20, 2020.

On March 14, 2017, the former CFO of the Company resigned. 146,667 stock options were forfeited on this date as they did not meet the vesting conditions. Accordingly, the share-based compensation associated with the unvested stock options was reversed. The expiry date of 393,333 stock options that had vested was modified to June 14, 2017 pursuant to the terms of the employment agreement.

These stock options were not exercised, thus expired during the nine months ended September 30, 2017.

The fair value of stock options granted as above was calculated using the following weighted average assumptions:

	2017			2016
Expected life (years)		5.00			4.92
Interest rate		1.18	%		1.00	%
Volatility		77.29	%		81.27	%
Dividend yield		0.00	%		0.00	%

During the three and nine months ended September 30, 2017, the Company recognized $0.05 million and $0.1 million (three and nine months ended September 30, 2016 - $0.01 million) in stock-based compensation relating to employee stock options that were issued and/or had vesting terms.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2017:

					Remaining		Weighted
Expiry	Number		Number		Contractual Life		Average
Date	Outstanding		Exercisable		(years)		Exercise Price
June 3, 2018		50,000		50,000		0.67	$	1.16
September 3, 2018		150,000		150,000		0.93	$	1.59
September 8, 2020		430,000		430,000		2.94	$	0.58
November 30, 2021		365,000		-		4.17	$	0.66
March 20, 2022		400,002		-		4.47	$	0.65
Balance, September 30, 2017		1,395,002		630,000		3.40	$	0.75

As at September 30, 2017, the aggregate intrinsic value of the outstanding exercisable options was $nil (December, 31, 2016 - $0.4 million).

Warrants

The following is a summary of common share purchase warrants activity:

	September 30, 2017		December 31, 2016
Balance, beginning of the period		24,317,700		10,000,000
Issued - financing units		-		5,560,000
Issued - financing brokers ⁽¹⁾		-		757,700
Issued - debt restructuring ⁽¹⁾		-		8,000,000
Balance, end of the period		24,317,700		24,317,700

⁽¹⁾

Non-tradable share purchase warrants.

The following table summarizes information about share purchase warrants outstanding and exercisable at September 30, 2017:

			Remaining
Expiry	Number		Contractual Life		Exercise
Date	Outstanding		(periods)		Price
June 8, 2020		10,000,000		2.69	$	0.95
July 25, 2019		6,317,700		1.82	C$	2.00
November 18, 2021		8,000,000		4.15	$	0.85