E3 Lithium Ltd. — Interim / Quarterly Report 2021

Aug 26, 2021

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Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2021 and 2020

Expressed in Canadian Dollars

(Unaudited – Prepared by Management)

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NOTICE TO READER

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

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by management and approved by the Audit Committee and Board of Directors of the Company.

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

August 26, 2021

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Condensed Consolidated Interim Statements of Financial Position (Expressed in Canadian Dollars – Unaudited)

		June 30,	December 31,
		2021	2020
	Notes	(unaudited)	(audited)
Assets
Current assets:
Cash		$ 13,602,644	$ 6,467,377
Restricted cash		-	221,795
Receivables	3	102,761	52,929
Prepaids	4	**137,494 **	115,240
		13,842,899	6,857,341
Property and equipment	5	59,583	4,797
Right-of-use asset	6	291,704	15,333
Exploration and evaluation assets	7	4,210,230	2,876,588
Intangible assets	8	1,647,926	886,687
Total Assets		$ 20,052,342	$10,640,746
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables and accrued liabilities		$ 291,511	$ 309,964
Due to related parties		-	65,913
Leaseliability short-term	10	122,524	18,306
		414,035	394,183
Long-term liabilities
Lease liability long-term	10	192,060	-
Long-term notespayable	11	-	150,000
Total Liabilities		606,095	544,183
Shareholders’ equity:
Share capital	12	36,972,860	28,052,180
Contributed surplus	12	5,220,406	3,140,573
Contributed capital	9	1,986,898	997,275
Foreign currency reserve		(75,128)	(75,128)
Deficit		(24,658,789)	(22,018,337)
		19,446,247	10,096,563
Total Liabilities and Shareholders’ Equity		$ 20,052,342	$10,640,746

Nature and continuance of operations (Note 1)

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

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Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (Expressed in Canadian Dollars– Unaudited)

	Number of Shares		Amount		Contributed Capital		Contributed Surplus	Foreign Currency Reserve	Foreign Currency Reserve		Deficit		Total Equity
Balance, January 1, 2021	41,664,131	$	28,052,180	$	997,275	$	3,140,573	$	(75,128)	$	(22,018,337)	$	10,096,563
Private placement of units	6,793,300		8,050,061		-		-		-		-		8,050,061
Exercise of stock options & warrants	4,510,975		2,611,944		-		-		-		-		2,611,944
Reclassify contributed surplus on exercise of stock options/warrants	-		431,525		-		(431,525)		-		-		-
Share issue costs	-		(2,172,850)		-		1,313,598		-		-		(859,252)
Contributed capital	-		-		989,623		-		-		-		989,623
Share-based compensation	-		-		-		1,197,760		-		-		1,197,760
Net loss for theperiod	-		-		-		-		-		(2,640,452)		(2,640,452)
Balance, June 30, 2021	52,968,406	$	36,972,860	$	1,986,898	$	5,220,406	$	(75,128)	$	(24,658,789)	$	19,446,247
Balance, January 1, 2020	27,397,901	$	20,264,608	$	997,275	$	2,760,249	$	(75,128)	$	(19,923,250)	$	4,023,754
Private placement of units	3,004,500		1,201,800		-		-		-		-		1,201,800
Value attributed to warrants issued with private placement	-		(225,337)		-		225,337		-		-		-
Finder's warrants issued with private placement	-		(9,800)		-		9,800		-		-		-
Exercise of stock options	75,000		30,000		-		-		-		-		30,000
Reclassify contributed surplus on exercise of stock options	-		18,357		-		(18,357)		-		-		-
Share issue costs	-		(27,010)		-		-		-		-		(27,010)
Share-based compensation	-		-		-		122,148		-		-		122,148
Net loss for theperiod	-		-		-		-		-		(774,003)		(774,003)
Balance, June 30, 2020	30,477,401	$	21,252,618	$	997,275	$	3,099,177	$	(75,128)	$	(20,697,253)	$	4,576,689

The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

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Condensed Consolidated Interim Statements of Comprehensive Loss For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars– Unaudited)

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Three months ended Six months ended
June 30, June 30,
Notes 2021 2020 2021 2020
Expenses:
Share-based compensation 12 $ 232,399 $ 113,395 $ 1,197,760 $ 122,148
Business development and marketing 230,247 90,032 448,461 184,397
Consulting fees 186,148 25,475 300,471 174,828
Professional fees 106,949 70,579 235,285 57,828
Wages and benefits 146,480 52,359 207,556 189,627
General and administrative 87,598 17,993 120,215 75,056
Regulatory and transfer agent fees 20,252 10,630 65,833 19,726
Amortization 5, 6 41,927 21,157 60,446 29,154
Realized loss (gain) on foreign exchange 2,743 29,385 8,852 (39,570)
Interest on lease liability 10 4,389 295 6,097 447
Travel expenses 3,408 313 5,302 11,182
- -
Wages and benefits subsidy (50,820) (50,820)
(1,062,540) (380,793) (2,656,278) (774,003)
Interest income (9,472) - (15,826) -
Net Loss for period (1,053,068) (380,793) (2,640,452) (774,003)
Comprehensive Loss for period $ (1,053,068) $ (380,793) $ (2,640,452) $ (774,003)
Loss per common share
- Basic and diluted $ (0.02) $ (0.01) $ (0.05) $ (0.03)
Weighted average number of common shares
outstanding – Basic and diluted 52,846,636 30,477,401 50,314,868 29,439,055
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The accompanying notes form a part of these Condensed Consolidated Interim Financial Statements.

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Condensed Consolidated Interim Statements of Cash Flows For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars -Unaudited)

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Three months ended Six months ended
June 30, June 30,
Notes 2021 2020 2021 2020
Cash provided by (used in):
Operating:
Net loss for the period $ (1,053,068) $ (380,793) $ (2,640,452) $ (774,003)
Items not affecting cash
Share-based compensation 12 232,399 113,395 1,197,760 122,148
Amortization 5, 6 41,927 21,157 60,446 29,154
Non-cash interest expense on lease liability 10 4,389 295 6,097 447
Change in non-cash working capital:
Receivables (6,113) (49,648) (20,409) (39,768)
Prepaids 4 6,594 121,894 (22,254) 24,130
Trade payables and accrued liabilities (126,846) (8,350) (18,453) (319,247)
Due to related parties (19,913) (4,998) (65,913) (11,281)
Net cash used in operating activities (920,631) (187,048) (1,503,178) (968,420)
Investing:
Intangible assets 8 (212,158) (192,984) (666,133) (365,176)
Exploration and evaluation assets 7 (1,271,085) (2,672) (1,333,642) (21,853)
Property and equipment 5 (50,028) - (65,596) -
Acquisition of joint operations, net of cash received 9 - - 221,922 -
Net cash used in investing activities (1,533,271) (195,656) (1,843,449) (387,029)
Financing:
Proceeds from private placements (net) 12 - - 7,196,460 1,174,790
Lease liability 10 13,310 (8,852) (35,826) (16,540)
Exercise of stock options and warrants (net) 12 439,094 - 2,606,293 30,000
Grants 550,000 - 643,172 -
Long term notes 11 - - (150,000) -
Net cash from financing activities 1,002,404 (8,852) 10,260,099 1,188,250
Change of cash during the period (1,451,498) (391,556) 6,913,472 (167,199)
Cash, beginning of the period 15,054,142 1,446,929 6,689,172 1,222,572
Cash, end of the period $ 13,602,644 $ 1,055,373 $ 13,602,644 $ 1,055,373
Unrestricted cash $ 13,602,644 431,419 13,602,644 431,419
Restricted cash - security for credit facility - 28,750 - 28,750
Restricted cash - Joint operations 9 - 595,204 - 595,204
Cash, end of the period $ 13,602,644 $ 1,055,373 $ 13,602,644 $ 1,055,373
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The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

1. NATURE AND CONTINUANCE OF OPERATIONS

E3 Metals Corp. (“E3 Metals” or the “Company”) was incorporated on August 19, 1998 under the laws of British Columbia. The Company’s shares trade on the TSX Venture Exchange (the “Exchange”) under the symbol ETMC.

The Company’s head office and principal address is Suite 2300, 150 9[th] Ave SW, Calgary, AB, T2P 3H9. The registered and records office is Suite 400, 725 Granville Street, Vancouver, BC, V7Y 1G5.

E3 Metals is a resource company with mineral properties in Alberta that is currently focused on technology development for lithium extraction from Alberta brines contained in its mineral properties.

These Condensed Consolidated Interim Financial Statements (the “financial statements”) have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. These financial statements do not give effect to any adjustments to the amounts or classification of assets and liabilities which might be necessary should the Company be unable to continue as a going concern.

As at June 30, 2021, the Company is in the pre-revenue stage and has an accumulated deficit of $24.7 million (2020 – $22.0 million) including a net loss of $2.6 million (2020 – $0.8 million loss) incurred during the period ended June 30, 2021. These events and conditions indicate a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to raise equity financing to further develop their proprietary technology and commence construction of a pilot project.

The impact of the Covid-19 pandemic on the world’s financial markets may make it a significant challenge for the Company to raise new equity. On the advice of the Canadian public health authorities E3 Metals temporarily ceased all non-essential travel and implemented a work from home program for all staff. As of the date hereof, staff are working under a combined work from home/work in the office schedule and are utilizing the appropriate social distancing and other recommended or required safety protocols. Measures such as these have caused material disruption to businesses globally resulting in economic uncertainty. Global financial markets have experienced significant volatility and weakness as a consequence of this economic uncertainty. The duration and impact of the COVID-19 outbreak is unknown as this time, as is the effectiveness of interventions by governments and central banks. COVID-19 has had an impact into the timing and cost to develop the Company’s pilot project due to the inability to work together in an office and the extra protocols and procedures required for all lab / technology research.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

These financial statements were authorized for issue on August 25, 2021 by the Board of Directors of the Company.

These Condensed Consolidated Interim Financial Statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

Basis of Presentation

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) using International Accounting Standard (“IAS”) 34: Interim Financial Reporting. These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments which are measured at their estimated fair value. They do not contain all disclosures required by IFRS for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements and notes thereto for the period ended December 31, 2020. The consolidated financial statements have been prepared using the same accounting policies and methods as the consolidated financial statements for the period ended December 31, 2020.

Consolidation

These financial statements include the financial statements of the Company and its controlled subsidiaries. Subsidiaries are all corporations over which the Company is able directly or indirectly, to control the financial and operational policies, which is the authority usually connected with holding majority voting rights. Subsidiaries are fully consolidated from the date on which control is acquired by the Company. They are de-consolidated from the date that control by the Company ceases. The subsidiaries of the Company are as follows:

Country of incorporation Functional currency	Percentage owned
	June 30, 2021 December 31, 2020
1975293 Alberta Ltd. Canada CAD Mexigold Resources SA de CV (“MAU Mexico”)(1) Mexico MEX Alberta BatteryHoldings Inc.(2) Canada CAD	100% 100% 100% 100% 100% 50%

(1) MAU Mexico is inactive and has no assets.

(2) On January 25[th] , 2021 the Company acquired the remaining 50% of 2216747 Alberta Ltd. It was a jointly controlled operation, recognized using proportionate consolidation prior to the acquisition date. 2216747 Alberta Ltd. changed its name to Alberta Battery Holdings Inc. See Note 9 for further details

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

Assets, liabilities, revenues and expenses of the subsidiaries are recognized in accordance with the Company’s accounting policies. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation.

Significant estimates and judgments

The preparation of financial statements in accordance with IFRS requires the Company to make estimates and judgments concerning the future. The Company’s management reviews these estimates and judgments and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful life of property and equipment, the recoverability of the carrying value of exploration and evaluation assets, fair value measurements for financial instruments, the valuation of right-of-use assets, the valuation of lease liabilities and recoverability and measurement of deferred tax assets.

Significant judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include:

• the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;

• the discount rate used to in the valuation of the right-of use asset and lease liability;

• the classification of financial instruments; and

• the determination of the functional currency of the Company and its subsidiaries.

Significant Accounting Policies

These condensed interim financial statements follow the same accounting principles and methods of application of those disclosed in Note 2 of the Company’s annual Financial Statements as at and for the year ended December 31, 2020.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

3. RECEIVABLES

Receivables consist primarily of GST input tax credits. The Company expects to realize on all outstanding receivables during the current fiscal period.

4. PREPAID EXPENSES

Prepaid expenses consist of various payments that will be amortized over the monthly periods which they relate to:

		June 30,		December 31,
		2021		2020
Deposits on office & lab leases	$	14,226	$	18,552
Insurance		2,132		13,520
Marketing and business development		42,386		23,986
Prepaid expenses and subscriptions		78,750		59,182
	$	137,494	$	115,240

Reclassified $28,750 GIC from restricted cash to prepaid expenses for current and prior year for presentation purposes as a deposit for corporate credit card.

5. PROPERTY AND EQUIPMENT

	Computer Equipment	Furniture	Softw are Licenses	Leasehold Improvements	Total
Cost:
At December 31, 2020	23,509	2,760	27,428	2,308	56,005
Additions	29,198	27,445	8,953	-	65,596
Disposal	-	-	-	-	-
At June 30, 2021	52,707	30,205	36,381	2,308	121,601
Amortization:
At December 31, 2020	19,984	1,488	27,428	2,308	51,208
Amortization	4,916	1,479	4,415	-	10,810
At June 30, 2021	24,900	2,967	31,843	2,308	62,018
Net book value:
At December 31,2020	3,525	1,272	-	-	4,797
At June 30, 2021	27,807	27,238	4,538	-	59,583

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

6. RIGHT-OF-USE ASSETS

		June 30,	December 31,	December 31,
		2021		2020
Balance, beginning of period	$	15,333	$	11,433
Additions		326,007		42,934
Current period amortization		(49,636)		(39,034)
	$	291,704	$	15,333

7. EXPLORATION AND EVALUATION ASSETS

The following table summarizes the Company’s E&E asset expenditures as at June 30, 2021:

Acquisition Costs:
Balance December 31, 2020		1,672,759
Addition		1,105,959
Balance, June 30, 2021	$	2,778,718
Exploration Costs:
Balance, December 31, 2020	$	1,203,829
Addition		227,683
Balance, June 30, 2021	$	1,431,512
Total,December 31,2020	$	2,876,588
Total, June 30, 2021	$	4,210,230

8. INTANGIBLE ASSETS

		June 31,	December 31,
		2021	2020
Opening balance	$	886,687	$ 236,945
Consultants		251,107	-
Other expenditures		211,347	-
IP development expenditures		941,957	649,742
Grants		(643,172)	-
Balance, end of year	$	1,647,926	$ 886,687

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

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9. JOINT OPERATION

Under the terms of the USA entered into in September 2019 with FMC Lithium USA Corp (“Livent”), E3 purchased fifty (50) common shares of 2216747 Alberta Ltd. (“Devco), representing a 50% ownership of the company. In addition, E3 granted Devco a perpetual, exclusive, royalty-free intellectual property license. The Company’s intellectual property consists of its proprietary Ion-Exchange technology

On October 12, 2019, Livent contributed US $1.5 million (approximately CAD $2.0 million) to Devco which is being used to fund the development work being conducted through Devco. Livent has no recourse to demand repayment of the contribution; therefore the Company’s share of contribution has been recognized within equity. The contribution, however, is restricted to jointly approved expenditures of Devco. At December 31, 2020, the Company share of cash restricted to jointly approved Devco expenditures was $0.2 million. In accordance with IFRS 11 – Joint Arrangements, the Company’s investment is considered a joint operation. As a result, the Company’s recognized its share of the jointly held assets and liabilities as well as its share of the jointly incurred expenses relating to the ownership of Devco.

On January 25, 2021 Livent withdrew from the joint operation with E3 Metals. The exit from the joint operation followed the Unanimous Shareholder Agreement with the following predetermined terms:

• E3 exercised the right to purchase the property and equipment in Devco (which amounted to $4,960)

• All Devco Intellectual Property and developments was transferred by Devco to E3 for USD $1.00

• After the completion of the sale and distributions, E3 purchased and Livent sold all of its common shares of Devco to E3 for USD $1.00 free and clear of all Encumbrances

• Any remaining funds from Livent’s Contribution of Capital held in Devco shall be for the sole benefit of Devco.

E3 has accounted for the acquisition of the assets from Devco as an asset acquisition. The fair value of the assets were based on the cost approach as prescribed in IFRS 13 (Cash $0.2 million, GST Receivable $29,423, and Intangible assets $0.7 million). The difference between the consideration paid and assets were recorded as an offset to contributed capital.

The following summarizes the amounts included in the Company’s financial statements as a result of the Devco consolidation:

	Jun 30, 2021	Dec 31, 2020
E3 Metals- 100% Devco-100% **E3 Metals- **		50% Devco-100%
Cash 135 135 221,795 443,590 GST receivable 58,844 58,844 29,422 58,844 Intangible assets 1,481,519 1,481,519 738,279 1,476,558 Contributed capital 1,994,551 1,994,551 997,275 1,994,551 Current year deficit (7,256) (7,256) (7,845) (15,691)

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

10. LEASE LIABILITIES

	June 30, 2021	June 30, 2021	December	31, 2020
Liability:
Balance, January 1	$	18,306	$	12,644
Addition		326,007		42,934
Interest		6,097		1,528
Leasepayments		(35,826)		(38,800)
Balance, end of period	$	314,584	$	18,306
Less short-term		(122,524)		(18,306)
Long-term		192,060		-

The Company entered into two leases:

• Lab facility for 36 months effective February 1, 2021

• Office lease for 39.5 months effective April 15, 2021

The lease liabilities have been present valued using a discount rate of 8%.

11. LONG-TERM NOTES PAYABLE

On September 23, 2020, the Company entered into an agreement with the Government of Canada as represented by the Minister responsible for Western Economic Diversification Canada. The Company received a total of $150,000 to assist with general corporate costs. The Company had the right to prepay the note at any time without penalty and is not subject to any covenants. On March 9, 2021 the Company exercised this right and repaid in full.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

12. SHARE CAPITAL

Authorized share capital

Unlimited common shares with no par value.

Issued and outstanding

	Number of Shares
	2021
Balance at January 1	41,664,131
Issuance of shares on exercise of stock options/warrants	4,510,975
Issuance of shares by private placement	6,793,300
Balance at June 30	52,968,406

Share capital transactions during the period ended June 30, 2021 were as follows:

On February 8, 2021, the Company closed its brokered private placement by issuing 6,793,300 units at a price of $1.185 per unit for total gross proceeds of $8,050,061. Each unit was comprised of one common share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at an exercise price of $1.65 for a period of 24 months following the date of issuance. Commissions comprised of $734,001 cash, and 567,931 broker warrants were issued in connection with the closing (valued at $1,313,598 using Black Scholes). Broker warrants issued carry the same terms as the unit warrants. As the closing price of the Company’s shares on February 8, 2021 exceeded the unit price of the private placement ($3.45 and $1.185 respectively), no residual value was allocated to the warrants.

During the period the Company issued 4,510,975 common shares pursuant to the exercise of 4,510,975 stock options and warrants at a price of $0.40-$1.40 per share. Total proceeds received were $2,611,944.

The regulatory fees and legal fees attributable to the shares issuances for the year totaled $125,251.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

Share Purchase Warrants

The issuances of the share purchase warrants are summarized as follows:

	June 30, 2021 Number of warrants Weighted average exercise price
Warrants, beginning of year Issued in connection with the private placement Brokers’ warrants Exercised	6,767,300 $ 0.93 6,793,300 1.65 846,407 1.43 (3,212,726) **0.64 **
Warrants, end ofperiod	11,194,281 $ 1.49

The share purchase warrants outstanding and exercisable as at June 30, 2021:

				Weighted
	Number of			average life	Number of
	warrants			of warrants	warrants
Grant date	outstanding	Exercise price	Expiry date	(years)	exercisable
December 19, 2019	175,000	$ 0.60	Dec 19, 2022	1.47	175,000
March 2, 2020	800,250	$ 0.60	Sep 2, 2022	1.18	800,250
March 2, 2020	14,750	$ 0.40	Sep 2, 2022	1.18	14,750
December 17, 2020	2,701,169	$ 1.40	Dec 17, 2022	1.47	2,701,169
December 17, 2020	73,583	$ 0.85	Dec 17, 2022	1.47	73,583
February 8, 2021	7,361,231	$ 1.65	Feb 8, 2023	1.61	7,361,231
June 30, 2021	68,298	$ 1.40	Dec 17, 2022	1.47	68,298
	11,194,281	$ 1.49		1.54	11,194,281

The fair value of broker warrants was estimated using the Black-Scholes pricing model based on the date of grant and using the following assumptions:

Period ended June 30, 2021
Risk-free interest rate	0.28%
Expected stock price volatility	94.73%
Expected life	1.95 years
Fair value per warrant granted	$2.31
Forfeiture rate	0%

During the period ended June 30, 2021, the Company recorded $1,313,599 in share issuance costs for the broker warrants granted during the period.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

Stock options

The Company has adopted a shareholder-approved 10% rolling stock option plan (the “Plan”) pursuant to which options are granted to directors, officers, employees and other service providers. The Company follows the policies of the Exchange where the number of common shares which may be issued pursuant to options granted under the Plan may not exceed 10% of the issued and outstanding shares of the Company from time to time at the date of granting of options. Each option agreement with the grantee sets forth, among other things, the number of options granted, the exercise price and the vesting conditions of the options. Options granted fully vest on the date of grant, except for options issued to Consultants, which vest in stages over 12 months with no more than 25% of the options vesting in any 3-month period.

A summary of the Company’s stock option transactions is presented below:

The share options outstanding as at:

	June 30, 2021 Number of options Weighted average exercise price	December31,2020
		Number of options Weighted average exercise price
Options outstanding, beginning of year Granted Exercised Expired	2,938,000 $ 0.48 2,080,000 $ 1.89 (1,298,250) $ 0.43 (50,000) $ 0.43	1,915,000 $ 0.42 1,903,000 $ 0.52 (780,000) $ 0.41 (100,000) $ 0.40
Options outstanding,end ofperiod	3,669,750 $ 1.29	2,938,000 $0.48

The weighted average life of options outstanding is 2.70 years (2020 – 1.99).

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

The share options outstanding and exercisable as at June 30, 2021:

	Number of
	Options
Grant date	outstanding	Exercise price	Expiry date
August 21, 2018	25,000	$ 0.40	August 21, 2021
December 27, 2018	125,000	$ 0.40	December 27, 2021
November 11, 2019	100,000	$ 0.40	November 11, 2022
April 22, 2020	85,000	$ 0.40	April 22, 2022
April 22, 2020	58,000	$ 0.40	October 21, 2022
April 22, 2020	500,000	$ 0.40	April 22, 2023
August 15, 2020	25,000	$ 0.40	August 15, 2022
August 24, 2020	30,000	$ 0.40	August 24, 2022
November 9, 2020	650,000	$ 0.70	November 9, 2023
January 8, 2021	85,000	$ 1.08	January 8, 2023
January 13, 2021	831,750	$ 1.38	January 13, 2024
February 8, 2021	35,000	$ 3.20	February 8, 2024
February 17, 2021	200,000	$ 3.80	February 17, 2024
March 1, 2021	100,000	$ 3.57	March 1, 2024
March 19, 2021	25,000	$ 3.00	March 19, 2024
April 19, 2021	50,000	$ 2.05	April 19, 2024
June23,2021	745,000	$ 1.70	June23,2026
Outstanding, End of Period	3,669,750	$ 1.29
Exercisable, End of Period	2,179,750

The fair value of options was estimated using the Black-Scholes options pricing model based on the date of grant and using the following assumptions:

Period ended June 30, 2021
Risk-free interest rate	0.23%-0.28%
Expected stock price volatility	91.29% - 98.10%
Expected life	2.31 years
Fair value per option granted	$0.63 - $2.73
Forfeiturerate	0%

During the period ended June 30, 2021, the Company recorded $1,197,760 in share-based compensation expense for the options vested during the period.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

13. MANAGEMENT COMPENSATION

Key management personnel are persons responsible for planning, directing and controlling activities of an entity, and include executive and non-executive directors and officers. During the six months ended June 30, 2021 and 2020, the remuneration of the key management personnel were as follows:

Six months ended June 30,		2021		2020
Management salaries and benefits	$	206,900	$	148,755
Consulting fees (i)		35,000		53,783
Share-based compensation		76,709		24,952
Total	$	318,609	$	227,490

• (i) On January 1, 2021, the Company entered into an agreement with Evrota Energy Ltd. to provide part-time CFO services and other consulting services on a contract basis. For the period ended June 30, 2021, the Company paid $35,000 in fees to Evrota Energy (2020 - $53,783 in fees to the CFO Centre).

14. FINANCIAL RISK AND CAPITAL MANAGEMENT

As at June 30, 2021, the Company’s financial instruments include cash, restricted cash, receivables, trade payables and accrued liabilities, long-term notes payable and due to related parties. Cash, restricted cash and receivables are classified as financial assets at amortized cost. Trade payables and accrued liabilities, long-term notes payable and due to related parties are classified as amortized cost.

The carrying value of these financial instruments approximates their fair value due to their short-term maturity.

The Company’s financial instruments are exposed to credit risk, liquidity risk, and market risks.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk with respect to its cash and receivables. The Company minimizes its exposure to credit risk by placing its cash with Canadian Schedule 1 Chartered banks. While there is concentration of risk by holding all funds with one institution, management assesses credit risk of cash as low due to the high credit quality rating the institution has with the rating agencies.

The Company’s secondary exposure to credit risk is on its receivable. This risk is minimal as receivables consist primarily of refundable input tax credits.

Currency risk

The Company’s current operations are not exposed to significant foreign currency risk.

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Notes to Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in Canadian Dollars - Unaudited)

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Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. The fair value of the Company’s financial instruments is relatively unaffected by changes in interest rates. The Company is exposed to interest rate risk on its bank deposit and long-term notes payables, which earns/bears interest at a variable rate. Based on the cash/loan balance at June 30, 2021, the effect of a 10% fluctuation in interest rates would not be material.

Liquidity and funding risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves to meet its liquidity requirements at any point in time. The Company tries to achieve this by maintaining sufficient cash to cover current liabilities as they mature. As at June 30, 2021, the Company had a working capital of $13.4 million (December 31, 2020 - $6.5 million).

Funding risk is the risk that market conditions will impact the Company’s ability to raise capital through equity markets under acceptable terms and conditions. While the Company has been successful in raising capital in the past, there is no guarantee it will be able to do so in the future.

Capital Management

The Company manages its capital structure and adjusts it, based on the funds available to the Company, to support its operations. The Company’s policy and objective is to maintain a strong capital base to maintain investor and creditor confidence and to sustain future development of the business. The capital structure of the Company consists of equity, comprising share capital and option reserve, net of accumulated deficit. To maintain or adjust the capital structure, the Company may issue new shares through private placements. The Company holds all surplus capital in cash accounts held with major financial institutions. The Company does not pay out dividends.

There were no changes in the Company’s approach to capital management during the three months ended June 30, 2021. The Company is not subject to any externally imposed capital requirements.

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