Document:

Exhibit 10.6

 

Next Graphite

 

Aukam
Deposit

 

 

Dr.
Ian M Flint

Element
12

February
18, 2014

 

    	 

    	 

    

 

Contents

 

	Contents	2
	List of Figures	3
	List of Tables	4
	Summary	5
	Aukam Summary	6
	Introduction	7
	Background	7
	Assumptions	7
	NI
    43-101 non-compliant	7
	Location
    and Ownership	7
	Accessibility	7
	Climate	8
	Infrastructure	8
	History	9
	Geological Setting	10
	Mineralization	13
	Introduction	13
	Trenching,
    sampling and measuring of tailings heaps	13
	Sampling
    and measuring of veins in the pit	14
	Introduction	14
	Incline
    at base of eastern wall of the open pit	14
	Upper
    Adit	15
	Lower
    adit, shear zone and surface vein	15
	Weathered
    vein, lower access adit	16
	Abandoned
    workings and vein structure	17
	Grades	18
	Processing – Test
    Work	19
	Conclusions	19
	Purpose	20
	Scope	20
	Methodology	20
	Size
    Reduction	21
	Flotation	25
	Processing Circuit	29
	Summary	29
	Introduction	29
	Test
    Work Implications	30
	Overall
    Circuit	31
	Size
    Reduction Circuit	32
	Flotation
    and dewatering	34
	Acid
    Leach Circuit	35
	Operating Costs	36
	Working Capital	36
	Marketing	37
	Processed
    Product	37
	Risks	39
	Technical	39
	Personnel	40
	Timelines	40
	Marketing	40

 

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List
of Figures

 

	Figure 1: 
    Open pit at the top of the mountain.	9
	Figure 2: Stratigraphic
    section of the greater Aukam area(Germs [1995]).	10
	Figure 3: Stratigraphic
    section of the Dabis formation	11
	Figure 4: Stratigraphic
    section: Zaris basin	11
	Figure 5: Unconformity,
    overlying Nama Group	12
	Figure 6: Trenching of
    lower stockpile heap.	13
	Figure 7: The three
    major stockpiles after trenching	13
	Figure 8: Incline in the
    eastern wall of the main pit.	14
	Figure 9: Close up view
    of Incline overlain by debris from pit.	14
	Figure 10: Open pit Aukam
    Graphite mine	15
	Figure 11: Upper adit and
    shear zone	15
	Figure 12: Shear zone lower
    access adit	16
	Figure 13: Exposed
    vein entrance lower access adit	16
	Figure 14: Vein load 1
    work face, lower access adit	16
	Figure 15: 3D model of
    lower access adit and drift..	17
	Figure 16: Three step test
    work for the creation of graphene pre-cursor graphite	20
	Figure 17: RM1 test for
    graphite particle size distribution.	21
	Figure 18: RM2 test for
    graphite particle size distribution.	21
	Figure 19: Test work grind
    particle size distribution..	22
	Figure 20: +50 Mesh (all
    particles larger than 297 μm) graphite	23
	Figure 21: +80 Mesh graphite,
    post cone crushing.	23
	Figure 22: +150 Mesh graphite,
    post cone crushing.	24
	Figure 23: -150 Mesh graphite,
    post cone crushing.	24
	Figure 24: Recovery of
    graphite as a function of time for four particle size classes.	27
	Figure 25: Overall process
    circuit blocks	31
	Figure 26: Initial crushing
    circuit	32
	Figure 27: flotation, dewatering
    and water systems	34

 

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List
of Tables

 

	Table 1: Aukam
    cost summary	5
	Table 2: Low, probable
    and high mine profit projections..	5
	Table 3: Estimated site
    auxiliary costs	8
	Table 4: Production
    at the Aukam Graphite mine	9
	Table 5: Summary of graphite
    waste heaps	13
	Table 6: Phase one
    exploration program: analysis results..	18
	Table 7: Initial sample
    particle size distribution after cone crushing	22
	Table 8: Condition, -#18
    Aukam rougher flotation.	26
	Table 9: Mass Balance,
    -#18 Aukam rougher flotation.	26
	Table 10: Mass Balance,
    -#18 Aukam rougher flotation.	26
	Table 11: Conditions of
    < 0.5 mm grind release flotation test	27
	Table 12: Graphite
    recovery with time and particle size	27
	Table 13: Primary time
    – release test grade response..	28
	Table 14: HCl (100%
    equivalent) consumption approximations	30
	Table 15: Crushing circuit
    equipment and approximate costs	33
	Table 16: Approximate pricing
    of the Next processing flotation plant	35
	Table 17: Approximate costs
    of major equipment of the acid wash circuit	35
	Table 18: Total estimated
    process plant costs	36
	Table 19: Current particle
    size distribution with assumed recoveries.	37
	Table 20:  Case I: 
    94-97% product grade.	38
	Table 21:  Case II:
    97-99% Product grades	38
	Table 22:  Case III:
    99-99.9% Production grades	38
	Table 23:  Case IV:
    +99.9% Product grades	39

 

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Summary

 

The
cost summary of the Aukam project is summarized in Table 1. Working capital includes equipment costs, installation costs, and
operations costs for a period of six months.

 

Table
1: Aukam cost summary

 

	Area	 	Capital costs	 	 	Working Capital	 	 	Per Tonne	 	 	Employees	 
	Processing	 	$	600,000	 	 	$	1,160,000	 	 	$	237	 	 	 	35	 
	Site	 	$	390,000	 	 	$	450,000	 	 	$	48	 	 	 	3	 
	Mining	 	$	40,000	 	 	$	80,000	 	 	$	32	 	 	 	5	 
	Transport	 	 	 	 	 	 	 	 	 	$	170	 	 	 	 	 
	Total	 	$	1,030,000	 	 	$	1,690,000	 	 	$	487	 	 	 	 	 

 

This
report only considers the surface waste dumps from prior mining. At a rate of 2,500 to 5,000 tonnes per year mining could be done
by a small dozer/backhoe and truck for a cost of about $30,000 plus an additional $5,000 per month using two employees. Transportation
of product has been assumed to be $170 per tonne delivered to the closest port.

 

The
revenue projections for Aukam are shown in Table 2 for three scenarios: low, probable and high revenues. These are meant to cover
the possible average value generated per tonne of graphite including products that may not have a market.

 

Table
2: Low, probable and high mine profit projections. These figures do not include corporate, any expatriate, travel, or royalty
costs.

 

	Item	 	Low	 	 	Probable	 	 	High	 
	Revenue	 	 	650	 	 	 	850	 	 	 	1080	 
	Operation costs	 	 	487	 	 	 	487	 	 	 	487	 
	Marketing	 	 	130	 	 	 	170	 	 	 	216	 
	Total costs	 	 	617	 	 	 	657	 	 	 	703	 
	Difference	 	 	33	 	 	 	193	 	 	 	377	 
	2500 tpy	 	$	82,500	 	 	$	482,500	 	 	$	942,500	 

 

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Aukam
Summary

 

Aukam
is a deposit first identified by Element 12 in 2011 as a past producer with a very good potential of re-starting within a short
time frame. The deposit is located in the far south of Namibia just north of South Africa as shown by the Next Graphite (NG) symbol.

 

This
mine has produced 25,000 tonnes during 30+ years of operation before the mine was abandoned during the Namibian conflicts of 1974.
There are an estimated 180,000 tonnes of graphite bearing rocks in three surface stockpile grading approximately 40%. There is,
also, an estimated 4 million tonnes of reserve of high-grade graphite from hydrothermal source.

 

Namibia
is a country of ~2.5 million people with one of the highest per capita GDPs in Sub-Saharan Africa. Although an independent nation
since 1990, it has close ties to South Africa and Europe. Mining’s contribution to Namibia’s gross domestic product
- 10.4% in 2009, 8.5% in 2010, 9.5% in 2011 and 11.5% in 2012 - makes it one of the largest economic sectors of the country. Namibian
government and ministries encourage private sector mining development and cooperation with international partners and foreign
direct investment.

 

	●	Aukam
    is the only historical graphite producer in Namibia
	●	Located
    on Aukam Farm 104, Bethanien Distric, 55 kilometers SW of Goageb near the South African border.
	●	Located
    within 200 km of the active port in Luderitz
	●	Connected
    by raid and road to both Angola and South Africa
	●	Situated
    on an eastern slope of a range of hills rising 150 meters above the surrounding valleys.
	●	Visible
    graphite production zone strikes east-west, and measures approximately 1000 ft L x 500 ft W x 300 ft D
	●	Three
    parallel lodes have been mined. Veins, lenses and pockets of high grade rock, several centimeters wide, dip 70° to 90°
    to the south
	●	Fine-flaky
    to lump-type graphite dominates
	●	Area
    is largely unexplored and prospective for a larger graphite ore body
	●	Nine
    major vein lodes on the site, all which have characteristics of being well-mineralized
	●	An
    average sample graded 49.2% high-grade graphite content
	●	80%
    average recovery was achieved with limited liberation of the ore in flotation tests
	●	All
    three tailings have visible graphitic content of lump, crystalline medium to large flake graphite
	●	84
    samples of bulk-screened graphite recorded 41.58% graphite
	●	Unscreened
    samples recorded 35% graphite content
	●	Mining
    costs of the three bulk waste dumps in minimal, probably on the order of $30 a tonne.
	●	A
    wide distribution of graphite crystal sizes including approximately 15% of the +300 micrometer jumbo flakes.
	●	Test
    work indicates that a grade in excess of 97% can be achieved at recoveries in the range of 98-99% using a three stage flotation
    system with regrind.

 

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Introduction

 

Background

 

This
focus of this report is the processing of Next Graphite’s Aukam deposit in Namibia located in the Bethanien District, Karas
Region, Namibia under Exclusive Prospecting License (EPL) 3895 that is currently held through a Nambian subsidiary by Next Graphite.
This report includes a summary of the Aukam property based on prior work done by this author and others associated with Next Graphite
(Next), Element 12 International (E12) and African Graphite – USA (AF-USA). The background and geology section is, by-in-large,
directly copied from earlier work by Arno Brand of Element 12. The test work and processing sections are from earlier work by
Dr. Ian Flint, also of Element 12.

 

Assumptions

 

A
0.6 to 1.25 tonne per hour mill feed tonnage producing a maximum of 0.25 – 0.5 tonne per hour is assumed. The material is
assumed to consist only of the waste material from prior mining that is already on the surface. No analysis has been done to prove
that this is an optimum rate economically. No mine life is reported in this analysis and mining is not reviewed. This data is
then augmented, in this report, with the results of company processing activities to the end of 2014.

 

NI
43-101 non-compliant

 

This
report does not conform to the standards specified in Canadian Securities Administrators’ National Instrument 43-101. The
resources quantified in this report are highly conceptual and by no means compliant with NI 43-101. There is little information
on the extent mineralization, physical properties, and continuity of the grade. These tonnages and grades must only be used internally
and are not for distribution to clients or investors.

 

Location
and Ownership

 

AGI,
which has since become Next Graphite, entered into an option agreement on the Aukam Graphite property on the 15th of
December 2013. The formerly abandoned mine site is located about 169 km SEE from Luderitz Bay, a small town with port and, rail
facilities on the Atlantic coast. Access to the Aukam project is by driving 156 km East on the B4 Highway from Luderitz Bay towards
Keetmanshoop, turning south onto the D446 district road heading southeast, after driving 49.6 km on this road turn right onto
the D727, the deposit is located on an outcrop to the southwest of the road about 3 km from the turn off.

 

The
“Aukam project”, exclusive prospecting license (EPL) 3895 makes up a total of 49,127 hectares (491.27 km2)
and includes several historical small scale workings for tin, beryllium, fluorite, tantatlum, and graphite. The property is named
after the Aukam Farm and easily searchable on Google Earth in the Karas District of Namibia.

 

Accessibility

 

Access
to the property farm gate is via a 52.6 km graded gravel road (D446 and D727) from the main tar road (B4 Highway). This road is
accessible to conventional cars. From the farm gate to the foot of the range that hosts the deposit (another 1km) is only accessible
by four-wheel drive gravel track that is relatively slow but essentially all-weather. The mine site workings are on a rugged slope
and there is only limited access by a bulldozed road. Access to the upper adits and open pit (Figure 1) is only by foot.

 

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Climate

 

The
Aukam Graphite deposit is located in an unusual area of southern Nambia with both summer and winter rainfall. In the austral summer,
day-time temperature peak in the mid 40° Celsius, while in winter temperatures can go as low as freezing. Rainfall in winter
is generally light drizzle with occasional harder falls and sometimes flurries. In summer, the rainfall is associated with occasional
thunderstorms and is of short duration, but can be of very high intensity. All of the streams within the area are ephemeral and
can flow very strongly after summer rainfall. Average annual rainfall is 50-150 mm.

 

The
impact of this diverse climate is that an enclosed process building optional but recommended to prevent damage to equipment if
the temperature falls below zero. It would also be a comfort factor for operational and maintenance staff.

 

Infrastructure

 

The
infrastructure in the area is good with access to the site possible throughout the year. The Aukam Graphite deposit is relatively
close to a main tar road and well graded so the only construction required would be a ±2 km long access road to site. There
is a national power grid that passes right by the property. A link would likely be required should the project develop. Water
is available in large amounts from underground Aquifers (there is an old pump station at the foot of the mountain which was used
previously to supply operations with water. This does not seem to be in a working condition and would require a new borehole to
be drilled for water access. The water pump can either be powered through a generator or a wind mill). The nearest rail link is
located next to the main highway (some 70 km from site). Suitable areas for tailings dams and flotation plants are available dependent
on eventual plant design. The nearest town; Aus, is some 87 km away by road.

 

A
small list of auxiliary costs have to be incorporated into the costs of the site have listed in Table 1. These costs are ball
park figures only as they are not based on Namibian costs, nor on drill depths, terrain conditions, or other unknown factors.
Thus, they could be include significant errors.

 

Table
3: Estimated site auxiliary costs

 

	Item	 	Cost	 
	Roads – 2 km, gravel assumed	 	$	40,000	 
	100 KVA substation and site wiring	 	$	20,000	 
	Drill hole well and recycle water system	 	$	60,000	 
	Housing and employee facilities	 	$	100,000	 
	Ambulance and emergency facilities	 	$	60,000	 
	Graphite storage and load out facilities	 	$	80,000	 
	Communications system	 	$	10,000	 
	Tailings impoundment facilities	 	$	20,000	 
	Included auxiliary costs	 	$	390,000	 

 

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History

 

The
Aukam graphite deposit was both open-pit and underground mined from 1940 and 1974 as shown in Figure 1. The historic production
from this mine is shown in Table 1. The minable resource remaining is unknown. Schneider and Genis write that the best quality
graphite came from the central lode. Underground workings are accessible at four levels where several thousand tonnes of graphite
were recovered. In total about 25,000 tonnes of graphite was produced at this site from roughly 300,000 tonnes of rock when waste
and development is considered.

 

 

Figure
1: Open pit at the top of the mountain and several access tunnels and tailings ponds from operations lower down.

 

Table
4: Production at the Aukam Graphite mine (Source: Ministry of Mines and Energy Namibia)

 

	Year	 	Production	 	 	Year	 	Production	 	 	Year	 	Production	 	 	Year	 	Production	 
	1940	 	 	64	 	 	1955	 	 	917	 	 	1947	 	 	1640	 	 	1969	 	 	386	 
	1941	 	 	172	 	 	1956	 	 	227	 	 	1948	 	 	1627	 	 	1970	 	 	336	 
	1942	 	 	182	 	 	1964	 	 	251	 	 	1949	 	 	2265	 	 	1971	 	 	494	 
	1943	 	 	1978	 	 	1965	 	 	359	 	 	1950	 	 	1380	 	 	1972	 	 	440	 
	1944	 	 	1974	 	 	1966	 	 	363	 	 	1951	 	 	2627	 	 	1973	 	 	368	 
	1945	 	 	1319	 	 	1967	 	 	436	 	 	1954	 	 	104	 	 	1974	 	 	137	 
	1946	 	 	1193	 	 	1968	 	 	398	 	 	 	 	 	 	 	 	 	 	 	 	 

 

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Geological
Setting

 

The
Aukam graphite deposit is exposed in an erosional window incised through the hard layers of sedimentary rocks that mantle southern
Namibia. The older hosting rocks, known as the Namaqualand Complex, are assemblage of gneisses, marbles, schists, quartzites,
amphibolites with nested intrusive rocks including granite and gabbros. This suite of rocks indicates that the entire complex
was once deeply buried. Intrustive events of charnockites has been dated between 1300 and 900 million years ago (Kroner and Blignault,
1976). Steep dipping shear zones are common and some are dated by Joubert (1974) around 1200 million years ago.

 

A
prominent flat-lying and resistant sediment layer overlies the erosional unconformity at the top of the Namaqualand Complex. The
specific formation has yet to be confirmed; however, it is likely to be the lowest most member of the Nama Group (Dabis Formation).
The late Proterozic stratigraphic correlations in southwestern Africa (using data assembled from various authors by Germs
[1995]). Section C in the Figure 2 is close to Aukam Farm and suggests the regional capping stone is the resistant Kaigas tillite.
Tillites of Gariep Complex date from the unique period of global glaciations known as the Cryogenian.

 

 

Figure
2: Stratigraphic section of the greater Aukam area(Germs [1995]).

 

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Other
writers on the local geology place the Dabis Formation above the unconformity. If so the resistant capstone would be the Kanies
member as illustrated in Figure 3.

 

 

Figure
3: Stratigraphic section of the Dabis formation

 

Figure
4 is useful in that its shows that carbonates layers appear directly on the the Namaqualand Complex as one moves north (to the
left) approaching the Oss Ridge. This change is observed in the cliffs on the north side of the Aukam window.

 

 

Figure
4: Stratigraphic section: Zaris basin

 

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Hydrothermal
alteration is common to some rocks in the window as is pegmatite veining. Both are evidence of hot water flowing through the rock.
The graphite occurs at one such site where over-pressured hot waters evidently carrying carbon dioxide and maybe methane mineralized
carbon into a zone of broken rock. This hosting “shear zone” is exposed for 350 m and is about 10 m wide.

 

The
sheared host rock at Aukam is Proterozoic granite that was hydrothermally altered to kaolinite (Reimer, 1984). The paper speculates
on a biogenic origin however it also cites Mueller (1971) opinion that veins from an unspecified location in Namibia sounding
like Aukam was an “inorganic derivation of the hydrocarbons”.

 

Schneider
and Genis [2001] have published a brief description of the graphite deposit:

 

“The
zone comprises three parallel lodes. Veins, lenses and pockets of ore, several centimeters wide, dip 70 to 90 degrees to the south.
The graphite, which is of the fine-flakey to lumpy type, usually contains malachite specs, while sulphur occurs along cracks.
The graphite veins are flanked by a pale-green, highly epidotized and kaolinized granite which is soft and highly decomposed.”

 

The
grayish rock and lineaments in the Aukam shear zone are clearly visible in satellite imagery. An inspection of the satellite data
has yet to find a similar structure, although there are multiple locations demonstrating alteration that need to be investigated
for similar alteration haloes (Figure 5).

 

 

Figure
5: Unconformity, overlying Nama Group, altered intrusive and basement Namaqua Complex

 

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Mineralization

 

Introduction

 

Historical
literature makes mention that the Graphite ore consists of lump and crystalline flake graphite containing carbonates including
malachite and pyrite. Another author.[i] has mentioned that the Graphite hosted by the deposit is amorphous but there
but visual and test result of the size class distribution indicate that it is vein and flake crystal types of graphite. Other
mineralization is also present on site including tin and fluorite.

 

Trenching,
sampling and measuring of tailings heaps

 

In
prior mining a total of about 300 000 tonnes of rock was removed to recover 25 000 tonnes of graphite. The mining process appears
to have been very selective in that only the graphite of sufficient quality to sell without processing was removed from site.
The remainders of this mining are three major tailings heaps (Figure 12) that contain both lumpy and crystalline graphitic material.
These heaps occur at the foot of the three drifts formerly used to access the high-grade graphite vein lodes. Each of these heaps
were trenched at one meter intervals going up slope. Graphite fines seem to be prominent in all three heaps. Samples were collected
at one-meter interval along the trench from the base of each heap. The lower heap is the major of the three and contains about
±100 000 tonnes of material (Figure 7). The mid and upper heaps are visibly smaller and contain about ±40 000 tonnes
each. In total it is estimated that the three heaps combined contain about 180 000 tonnes of material graphite bearing rock (Table
2). Samples tests indicate an average of approximately 40-50% graphite. No assumptions are made in this report as to the representative
nature of these samples.

 

	 	 
	Figure
    6: Trenching of lower stockpile heap.	Figure
    7:  The three major stockpiles after trenching

 

Table
5: Summary of graphite waste heaps

 

	Waste heap	 	Size (tonnes)	 	 	Grade (estimated)	 	 	Contained Graphite	 
	1	 	 	100 000	 	 	 	40	%	 	 	40 000	 
	2	 	 	40 000	 	 	 	40	%	 	 	16 000	 
	3	 	 	40 000	 	 	 	40	%	 	 	16 000	 
	Total	 	 	180 000	 	 	 	 	 	 	 	72 000	 

 

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Sampling
and measuring of veins in the pit

 

Introduction

 

There
are nine visible veins that outcrop on the side walls of the open pit at the top of the mountain. The veins measure between 20
cm several meters in width with a 70°-80° dip. Generally the veins strike in a northeasterly direction,
55 degrees (Figure 8). The pit was operated from 1940 – 1952 and yielded a total on the order of 17 386 tonnes of graphite
material. Most of the graphite bearing ore within this pit has been mined. The outcropping veins are easily accessible for mining
and could potentially yield as much as 1000t of graphite before having to start excavating the floor of the pit. This floor is
filled with debris from a collapsed overhang above the southwestern wall (hanging wall) of the pit. If a drilling program indicates
significant intersections of ore in the far reaches of the pit the overhang and hanging wall will have to be cut back in order
to ensure a safe mining environment.

 

Incline
at base of eastern wall of the open pit

 

An
incline was cut diagonally into the base of the eastern wall of the pit accessing a meter wide high-grade graphitic vein dipping
at a seventy degree angle to the south. The access to the incline has been netted to shelter it from debris falling in from the
pit. The incline is overlain by debris from the pit and inaccessible (Figure 8 and Figure 9).

 

	 	 
	Figure
    8: Incline in the eastern wall of the main pit with prominent veins cropping out overhead.	Figure
    9: Close up view of Incline overlain by debris from pit.

 

It
was not possible at the time of the site visit to investigate the geological merit of veins exposed within the Incline. The Outcropping
vein above the incline was sampled across the face and sent to an accredited laboratory for analysis. If the analysis results
indicate the presence of graphite, a drill program will be designed to drill the vein and a bulk sample will have to be taken,
for the purpose verifying the extent and continuity of the mineralization. The outcropping vein is relatively easily accessible
for mining purposes. In order to mine this vein lode the entire overhanging block hosting the graphitic material will have to
be collapsed. The rock can then manually broken down into smaller manageable pieces that could be sized to fit through a processing
plant for further liberation and concentration of the graphitic material. There are several other less prominent veins that could
potentially be mined in a similar fashion, these veins have been sampled and analysis will reveal whether they are graphite bearing.
(Figure 10)

 

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Upper
Adit

 

The
entrance to the adit is situated downslope from the open pit Access to the upper adit is restricted as debris from the tailings
heap (directly above the access tunnel) has in filled the access point almost entirely making it impossible and unsafe to enter
for purpose of geological observation (Figure 11). The access tunnel was cut into an out cropping shear zone which is believed
to have mobilized fluids from deeper down carrying and precipitated out the graphite and several other associated minerals. The
shear zone could potentially be graphite bearing but rather than the lumpy kind, which was originally mined from the main vein
lodes, would be of the crystalline flake type which might require a higher degree of processing expertise to recover the graphite.
The shear zone was sampled across the face where it crops out above the access tunnel.

 

	 	 
	Figure
    10: Open pit Aukam Graphite mine	Figure
    11: Upper adit and shear zone

 

Lower
adit, shear zone and surface vein

 

The
lower access adit cuts across three major vein lodes extending as far as 120 meters into the mountain. The entrance to the access
adit lies at an elevation of 1267 meters above sea level cutting into a similar shear zone as, (but less prominent, measuring
about two meters wide and dipping South), the one visible in the hanging wall of the entrance of the upper access adit. The two
shear zones run parallel to one another both striking in a general northeasterly direction. The shear zone in the lower adit has
a visibly lower graphitic content than the former; the veins are inter bedded with fine crystalline flake graphitic material.
Investigating the extent of the shear is a lower priority exploration target at this point but could potentially be investigated
at a later stage.

 

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Weathered
vein, lower access adit

 

A
heavily weathered graphite vein is seen striking perpendicular to the shear zone on the western face of the clear cut leading
into the entrance of the lower access adit. The vein measures about 1.6 m wide and appears to be well mineralized. A sample was
collected across the weathered face (Figure 12 and Figure 13) and sent to an accredited facility where it will be analyzed during
the next work phase to indicate the graphitic content contained within the sample. Further in phase two, the vein should be followed
along strike, drilled and characterized more diligently to infer its graphitic content.

 

The
first work face is roughly 70 meters into the lower access adit. The stoped area measures twelve meters long, four meters wide
and an average of roughly two meters high (Figure 14). About 250 metric tonnes of rock was mined from the open stope (assuming
a density of 2.7 g/cm3 ). There are several veins visible in the walls of the stoped area.

 

		 
	Figure
    12: Shear zone lower access adit	Figure
    13:  Exposed vein entrance lower access adit

 

 

 

Figure
14: Vein load 1 work face, lower access adit

 

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The
lower access adit was the final work phase of the former operations. If the mining operations ever recommenced it is most likely
to assume operations would continue from this work level downward. Tested samples indicate that a feed grade of 40% could easily
be averaged through a selective mining method. The vein loads vary in size and measures between 2-9 m across.

 

Abandoned
workings and vein structure

 

The
mine was formerly worked as an underground stoping operation. In the lower workings, an underground access adit and a perpendicular
drift accessed five parallel graphitic vein loads. The first vein load occurs some 72 meters from the entrance of the access adit
, a second 75 m drift was cut in a north westerly strike direction, in order to access vein loads 3, 4 and 5. Vein load 2 occurs
immediately to the left of Vein load 1 in a southeasterly strike direction. That general layout of the previously mined vein along
with the existing adits and drifts is shown in Figure 15.

 

 

Figure
15: 3D model of lower access adit and drift. The grey blocks show the location of the major vein loads and the curved lines the
general shear direction.

 

    	17 | Page

    	 

    

 

Grades

 

The
results of samples taken of the exposed veins and possibly the waste dumps are shown in Table 3. No distinction are made as there
where these samples originated within the sampling program. Generally, these samples ranged from 35-50% with a few reporting higher
grades.

 

Table
6: Phase one exploration program: analysis results. Note: this work was not supervised by the author and depends on third party
reporting.

 

 

    	18 | Page

    	 

    

 

Processing
– Test Work

 

Conclusions

 

	 	(1)	Equipment
	 	a.	The
    kinetics of flotation indicate that less than 120 seconds, in total, is needed as a residence time in the primary stage, and
    a similar time will be required in the secondary stage.
	 	b.	A
    grind size of 500 micrometers is sufficient for the primary size reduction circuit
	 	c.	Flotation
    will be carry capacity limited meaning that a short, wide, column will be required.
	 	d.	It
    is suggested that the primary circuit be composed of a rougher and scavenger so that reagent addition can be staged
	 	e.	The
    primary flotation concentrate should be reground to approximately 212 micrometers
	 	(2)	The
    majority of the graphite occurs in aggregates of graphite crystals that have a purity after flotation. Some of the larger
    flakes or aggregates have been bent at the 500 micrometer upper size and most of the graphite occurs as aggregates rather
    than individual flakes. As such, the particle size distribution can be adjusted by grinding to the size of the individual
    graphite flakes. The individual graphite flake particle size distribution has yet to be determined however it will be somewhat
    smaller than the 100 micrometer d50 size indicated in these tests. This is characteristic of vein graphite.
	 	(3)	Potential
    recovery is somewhat greater than 95% with greater than 99% being achieved at the primary float stage. Actual recovery will
    be a function of grade and may be operated at less than 99%. This recovery is based on material that has been tested and does
    not include any graphite lost due to selective mining,
	 	(4)	The
    lower limit of potential grade has been estimated at 97% based on a three stage flotation and 212 micrometer maximum size.
	 	(5)	Procedures
    for the secondary tests have been determined and these tests are currently ongoing.
	 	(6)	Significant
    retardation of flotation occurs due to minerals attached to the surface of the graphite. It is likely that a chemical leaching
    stage will be required to achieve grades of higher than about 85%. This leach may be before the float circuit or between the
    primary and secondary flotation stages.
	 	(7)	There
    is some evidence of native sulphur. The mineral will float with the graphite. Area that contain native sulphur should be avoided
    by selective mining.

 

Note:
All of these characterizations are likely of the poorer grade material left from prior mining. As such, they may not be representative
of the material found in-situ within unmined veins. Flotation at sizes above 212 micrometers was poor probably as a result of
precipitate particles coating the graphite. These particles may limit the ultimate grade of the graphite unless specific chemical
treatment is used.

 

    	19 | Page

    	 

    

 

Purpose

 

The
purpose of these step I was three-fold:

 

	 	(1)	To determine the equipment
    required for the processing with the goal of producing graphite grading over 99% by way of determining the engineering data
    for both circuit design and scale-up of the primary and secondary stages
	 	(2)	To determine the morphology
    of the graphite
	 	(3)	To estimate potential graphite
    recovery
	 	(4)	To estimate a lower limit
    of the potential grade
	 	(5)	To determine the procedures
    to test phase II.

 

Scope

 

Next
Graphite is currently progressing on a test work program whose results will be used to finalize the design of separation systems
to create graphite that has been optimized for the creation for high expansion factor and exfoliation applications. This is a
three step process that includes size reduction and primary flotation for recovery, multiple cleaner stages of flotation for grade
and, potentially, refining as shown in Figure 16. This report does not detail the refining circuit.

 

Figure
16: Three step test work for the creation of graphene pre-cursor graphite

 

The
only material tested at this stage was only large lumps of weathered material from the waste dumps of Aukam old workings although
geology indicates that the upper zones of the graphite vein(s) are similarly weathered.

 

Methodology

 

The
sample material was reduced in size sequentially using a jaw crusher and a cone crusher at SGS – Lakefield. Microscope pictures
were then taken of each size class. Relatively undamaged size classes where then floated in single rougher stage and the froth
was collected over timed intervals. Reagents were added to maintain bubble size and the collection of graphite.

 

    	20 | Page

    	 

    

 

Size
Reduction

 

The
purpose of the size reduction in these tests was not the production of liberated graphite but the production of graphite aggregates
of suitable size for the next stage of size reduction while minimizing damage to the crystals. The following were concluded from
this test work:

 

	 	(1)	As
    anticipated, visual observation of the crushed product confirmed at the graphite – graphite liberation has not occurred
    within these tests and that majority of the sample was of an appropriate size distribution of Step II testing.
	 	(2)	Due
    to the unliberated nature of these products the size class distributions presented represent that of the graphite particles
    but not of the graphite crystals.
	 	(3)	At
    a grind size of 1 mm poor flotation resulted. This size was chosen as, worldwide, other vein graphite does become liberated
    at this point. It is suspected that this phenomena is the result of fine particles of non-graphite on the weathered surfaces
    and the presence of non-liberated graphite on the surface of silica particles.
	 	(4)	At
    a grind size of 0.5 mm essentially 100% recovery was achieved at moderate grades of 70-76%. This probably indicates that the
    fresh surface of graphite generated in the grind where not covered with non-graphitic material. Inspection of the microphotographs
    of each size class indicates that small graphite particles are still found within silica particles at this grind.

 

Laser
assay particle size distributions performed by Gecko depict a variable particle size per unit volume with 80% passing 200μm
and approximately 100μm ≥ 40% showing the most particle number size per unit volume. Two examples of this work are shown
in Figure 17 and Figure 18.

 

 

 

Figure
17: RM1 test for graphite particle size distribution: Note, this work was not supervised by the author and depends on third party
reporting.

 

 

 

Figure
18: RM2 test for graphite particle size distribution. Note, this work was not supervised by the author and depends on third party
reporting.

 

    	21 | Page

    	 

    

 

The
SGS-Lakefield generated particle size distribution that resulted is shown in Table 4 and and compared with the Gecko numbers in
Figure 19

 

Table
7: Initial sample particle size distribution after cone crushing (SGS – Lakefield sieve analysis)

 

	Size   (μm)	 	Cumulative Passing	 
	350	 	 	100	%
	225	 	 	80	%
	150	 	 	60	%
	80	 	 	40	%
	35	 	 	20	%

 

 

 

Figure
19: Test work grind particle size distribution. Thick line represents grind of SGS rougher tests (2014). Other lines represent
prior particle size tests performed by Gecko (2014). Note, all sizes under 20% passing are estimated values.

 

    	22 | Page

    	 

    

 

When
determining particle size distribution of graphite two errors are usually present. These are the following:

 

	 	(1)	The
    graphite crystals are not liberated from each other. Graphite commonly grows in closely associated crystals. When graphite
    – graphite liberation is incomplete the indicated particle size is larger than individual graphite crystals. This is
    characteristic of under grinding of the graphite.
	 	(2)	The
    graphite crystals have been bend or folded. This is typical of over grinding of the graphite and presents as a size distribution
    shifted to smaller sizes.

 

Visual
inspection of these samples indicates that neither graphite / graphite nor graphite / non-graphite liberation was complete at
any of the size classes inspected. However, it also shows that the larger graphite particles had already attained a rounded morphology.
These two signs indicate that both (1) and (2) type errors were present.

 

Figure
20 through Figure 23 are the photographs are the particles retained on the 50 (297 μm), 80 (177 μm) and 150 (100 μm)
mesh screens that and material passing the 150 (< 100 μm ) mesh screen. On the #50 screen most of the graphite still
occurs as chunks or aggregates of graphite. Some of the particles appear to be flakes. At this stage it cannot be proven if these
are individual flakes or aggregate sheets. The number of flakes or flake like aggregates decreases with the decrease in the particle
size; however, both shapes of aggregates occur at all four size fractions inspected.

 

		
	Figure
    20: +50 Mesh (all particles larger than 297 μm) graphite, post cone crushing (SGS-Lakefield)  Note: this is
    a flotation laboratory microscope picture that is typically used to visually determine progress and is not of sufficient quality
    to determine sizes, liberation or estimate grades.  This picture has been reduced to black and white from it colour
    original.	Figure
    21: +80 Mesh graphite, post cone crushing (SGS-Lakefield)  Note: this is a flotation laboratory microscope picture
    that is typically used to visually determine progress and is not of sufficient quality to determine sizes, liberation or estimate
    grades.  This picture has been reduced to black and white from it colour original.

 

    	23 | Page

    	 

    

 

		
	Figure
    22: +150 Mesh graphite, post cone crushing (SGS-Lakefield);  Note: this is a flotation laboratory microscope picture
    that is typically used to visually determine progress and is not of sufficient quality to determine sizes, liberation or estimate
    grades.	Figure
    23: -150 Mesh graphite, post cone crushing (SGS-Lakefield); Note: this is a flotation laboratory microscope picture that is
    typically used to visually determine progress and is not of sufficient quality to determine sizes, liberation or estimate
    grades.

 

    	24 | Page

    	 

    

 

Flotation

 

	 	●	The
    graphite grade of the 212 micrometer grind, initial cleaner tests indicated that 97% ± 2.6% is possible for the Aukam
    sourced graphite. These must be considered initial tests are cleaner tests with re-grind has yet to be performed. Note: these
    tests where conducted after an acid wash of the surfaces was conducted.
	 	●	The
    high recovery at 99.3% over a 190 second residence time wherein 97.5% is recovered in 70 seconds, indicates very fast kinetics.
    As such, flotation will probably be carrying capacity limited and froth crowded could be used.
	 	●	The
    flotation circuit could be composed of four stage separation in a closed circuit: primary grinding, primary flotation for
    recovery, followed by a regrind and a secondary flotation. As staged addition of collector was required the primary float
    will probably be composed of a rougher followed by a scavenger each with approximately a 50-70 second residence time. The
    secondary float will probably be composed of a cleaner and cleaner scavenger.

 

Three
series of flotation tests have been conducted. The first test, that used a top size of 1.0 mm as this size is suitable for some
other vein graphite separations. However, this proved unsuccessful in terms of recovery. A second test was conducted at a top
size of 0.5 mm which resulted in recoveries of over 99% of the graphite with a grade increase to between approximately 70-77%
graphite in the primary flotation stage. Note, this test was done without acid leach. Thus, for the primary flotation, with respect
to recovery, the size of the particles should be reduced to approximately 0.5 mm or somewhat larger. A time release test was performed
to determine the flotation kinetics of each size class. This indicates that flotation is very rapid and that under 120 seconds
is required for the rougher retention time. Sufficient data was achieved from these tests to design the primary circuit. Kinetics
of the secondary float are typically similar so that this information can also be used to size the secondary circuit.

 

An
additional series of tests was conducted using a 212 micrometer top grind size, and acid washed prior to flotation, in order to
estimate the lower boundary of the final grade after three stages of flotation. This resulted in a grade of approximately 97%.
These tests will be repeated using the 0.5 mm initial grind size followed by regrind to determine if grades of greater than 97%
can probably be achieved after a secondary flotation as grades greater than 97% are considered a premium product and command significantly
higher market values.

 

The
head (feed) assay for this material was determined to be 53.4% graphite. This is higher than the 35-40% average of the waste dump
wider sampling. Also, it must be cautioned that assays of this type are only accurate to within approximately 2.6% absolute; thus
this assays should be read as 53.4% ± 2.6% carbon. Organic carbon content was not determined as the geothermal origin of
the material usually precludes the natural presence of this type of carbon.

 

These
tests indicate that a grade of 97% can be achieved at a 212 micrometer grind and almost 100% recovery. However, for grades higher
than this a larger initial grind should be performed so that the graphite doesn’t encapsulate upon folding gangue particles.
Initial tests indicate that this size should be on the order of a 500 micrometer top size. A regrind can then be used to reduce
the particle size further to achieve a higher grades.

 

    	25 | Page

    	 

    

 

The
primary flotation tests were run in order to achieve recovery targets and to obtain flotation kinetics results so that the primary
flotation circuit could be designed. These tests are run at as large a size as possible considering the liberation of the graphite.
These tests were not run to achieve grades as this is the function of the secondary tests that are currently being conducted.
The conditions of the first flotation tests (1 mm grind size) are summarized in Table 5 through Table 7.

 

Table
8: Condition, -#18 Aukam rougher flotation. (SGS-Lakefield 4L cell, 1,800 RPM.

 

	Stage	 	Fuel Oil	 	MIBC	 	Cond	 	Froth (s)
	Rougher 1	 	5	 	10	 	1	 	15
	Rougher 2	 	0	 	10	 	1	 	15
	 	 	5	 	10	 	1	 	30
	Rougher 3	 	5	 	10	 	1	 	60
	Rougher 4	 	5	 	10	 	1	 	60
	Rougher 5	 	5	 	10	 	1	 	120
	Rougher 6	 	25	 	60	 	6	 	300

 

Table
9: Mass Balance, -#18 Aukam rougher flotation. Individual timed samples

 

	 	 	Weight	 	 	Assays, %	 	 	% Distr.	 
	Product	 	G	 	 	%	 	 	C(t)	 	 	C(t)	 
	Rougher 1	 	 	99.7	 	 	 	10.1	 	 	 	79.1	 	 	 	14.0	 
	Rougher 2	 	 	92.4	 	 	 	9.4	 	 	 	81.1	 	 	 	13.3	 
	Rougher 3	 	 	158.6	 	 	 	16.1	 	 	 	76.2	 	 	 	21.4	 
	Rougher 4	 	 	55.0	 	 	 	5.6	 	 	 	83.8	 	 	 	8.2	 
	Rougher 5	 	 	38.3	 	 	 	3.9	 	 	 	79.9	 	 	 	5.4	 
	Rougher 6	 	 	40.6	 	 	 	4.1	 	 	 	73.6	 	 	 	5.3	 
	Rougher Tails	 	 	501.8	 	 	 	50.9	 	 	 	36.5	 	 	 	32.5	 
	Head ( calc. )	 	 	986.4	 	 	 	100.0	 	 	 	57.2	 	 	 	100.0	 
	Head (direct)	 	 	 	 	 	 	 	 	 	 	52.8	 	 	 	 	 

 

Table
10: Mass Balance, -#18 Aukam rougher flotation. Cumulative timed samples

 

	 	 	Weight	 	 	Assays, %	 	 	% Distr.	 
	Combined Products	 	G	 	 	%	 	 	C(t)	 	 	C(t)	 
	Rougher 1	 	 	99.7	 	 	 	10.1	 	 	 	79.1	 	 	 	14.0	 
	Rougher 1 +2	 	 	192.1	 	 	 	19.5	 	 	 	80.1	 	 	 	27.3	 
	Rougher 1-3	 	 	350.7	 	 	 	35.6	 	 	 	78.3	 	 	 	48.7	 
	Rougher 1-4	 	 	405.7	 	 	 	41.1	 	 	 	79.1	 	 	 	56.8	 
	Rougher 1-5	 	 	444.0	 	 	 	45.0	 	 	 	79.1	 	 	 	62.3	 
	Rougher 1-6	 	 	484.6	 	 	 	49.1	 	 	 	78.7	 	 	 	67.5	 

 

This
size was chosen as it approximates the size at which most of the gangue minerals and graphite become liberated. The poor recovery
of the graphite was probably indicative of surface coating of the graphite by weathering products as very few new surfaces are
created in the grinding process at this size. In these case the coating effect can be overcome by the creation of new surfaces
(regrinding) or by an acid wash (in the case of carbonates). In order to improve the recovery the second set of tests were performed
at a 500 micrometer upper size using the conditions outlined in Table 5. These results are shown in Table 8.

 

    	26 | Page

    	 

    

 

Table
11: Conditions of < 0.5 mm grind release flotation test (test #2) using a 4L flotation cell at 1,800 rpm

 

	 	 	Regents (g/t)	 	Time (min)
	Stage	 	Fuel Oil	 	MIBC	 	Grind	 	Cond.	 	Froth (s)
	Rougher 1	 	20	 	10	 	 	 	1	 	15
	Rougher 2	 	10	 	10	 	 	 	1	 	15
	Rougher 3	 	10	 	10	 	 	 	1	 	20
	Rougher 4	 	10	 	10	 	 	 	1	 	20
	Rougher 5	 	10	 	10	 	 	 	1	 	60
	Rougher 6	 	10	 	10	 	 	 	1	 	60
	Total	 	70	 	60	 	0	 	6	 	190

 

The
graphite recovery, with time that resulted from the time release test is shown in Table 9 for the #50 (297 μm), +#80 (177
μm), +#150 (100 μm) and passing or -#150 (smaller than 100 μm) at the time intervals of the test.

 

Table
12: Graphite recovery with time and particle size

 

	Recovery (%)	 	15 (s)	 	30 (s)	 	50 (s)	 	70 (s)	 	130 (s)	 	190 (s)	 	Tails
	+50 mesh	 	42.8%	 	65.5%	 	89.5%	 	98.8%	 	99.9%	 	100.0%	 	0.0%
	+80 mesh	 	43.8%	 	70.2%	 	91.8%	 	99.1%	 	99.8%	 	100.0%	 	0.0%
	+150 mesh	 	46.6%	 	71.8%	 	91.6%	 	98.7%	 	99.6%	 	99.6%	 	0.4%
	-150 mesh	 	31.3%	 	55.9%	 	81.4%	 	95.0%	 	98.5%	 	99.5%	 	0.5%

 

These
numbers are graphed in Figure 24. This rate of flotation indicates that almost 100% of the graphite floats within a two minute
residence time.

 

 

Figure
24: Recovery of graphite as a function of time for four particle size classes.

 

The
associated grades are not critical in the rougher stage as these tests were conducted to determine if waste rock could be removed
prior to acid wash in order to reduce costs.

 

For
the sake of completeness, the grade with time response of this flotation was shown in Table 10.

 

    	27 | Page

    	 

    

 

Table
13: Primary time – release test grade response. Note: these are the probably grades after the primary flotation stage and
are not indicative of final circuit performance.

 

	Graphite Grades (%)	 	Feed	 	15	 	30	 	50	 	70	 	130	 	190
	+50 mesh	 	64.3%	 	75.4%	 	75.6%	 	73.1%	 	70.9%	 	70.2%	 	69.3%
	+80 mesh	 	57.7%	 	75.1%	 	74.8%	 	72.0%	 	70.2%	 	69.2%	 	68.3%
	+150 mesh	 	50.0%	 	76.6%	 	76.2%	 	74.1%	 	72.1%	 	71.2%	 	69.7%
	-150 mesh	 	52.7%	 	75.9%	 	76.5%	 	75.5%	 	74.4%	 	73.5%	 	72.2%

 

 

The
grade information will be used once the secondary flotation tests results are available to calculate the probable recycle between
the different flotation stages.

 

    	28 | Page

    	 

    

 

Processing
Circuit

 

Summary

 

Other
deposits of this nature have purified product to an excess of 99% graphite based on flotation followed by chemical refining. The
physical separation circuit will probably be composed of crushing to approximately 0.5 cm in size followed by grinding to a size
no smaller than the largest size of the graphite crystals. This size has yet to be determined but is likely to be on the order
of 0.5 mm. This material will be floated at appropriate pH to reject iron and copper sulphides. The primary float product will
then be acid washed to improve grades followed by a secondary float. A series of re-grinds and additional flotation may be required
as the 97% grade was achieved using four stages of flotation.

 

The
total estimated cost of the processing plant is approximately 600,000 USD for a plant that could process between 0.25 and 0.5
tonnes per hour. The processing facility could be operational is as little as 18 weeks without considering delays such as the
delivery of external infrastructure and proper permitting and licenses.

 

These
costs could be decreased to approximately $400,000 if water recycle from the tailings is not required, if the throughput is fixed
at 0.25 tonne per hour, or it the flotation system is reduced from four stages to two and the building is reduced to a concrete
pad.

 

The
infrastructure, only on the site, would take about 4 weeks to prepare. The processing facility would take another 6 weeks for
equipment shipping and 4 weeks for installation followed by another four weeks of operator training before it could be operational.
Assuming no outside delays the shortest time for the processing plant to become operational is approximately 18 weeks.

 

These
numbers do not include time for the appropriate permitting and external infrastructure such as delivery of water and electricity
to the site which could be significantly larger than the costs of the processing plant.

 

The
location of the processing plant should be determined on an economic basis considering the various infrastructure and transportation
costs, housing, and access to replacement parts and maintenance.

 

Introduction

 

The
initial NEXT Graphite circuit has been designed using the following criteria:

 

	 	●	2,000 – 4,000 tpa
    production (0.25 - 0.5 tph) running 24 hours a day.
	 	●	No infrastructure is included
    outside the processing building.
	 	●	That
    an enclosed building is not required. This may mean that extended periods of below freezing temperatures will require a mill
    shut down to prevent damage to pipes, pumps, valves and equipment.
	 	●	Only
    graphite size reduction (one stage), flotation (4 stages) and acid wash are included. The circuit does not include regrinds
    or hot caustic leaching. The circuit, also, does not include a sulphur removal circuit.

 

    	29 | Page

    	 

    

 

The
following assumptions are made in this design:

 

	 	●	Maximum
    run-of-mine size of 10 cm
	 	●	That
    graphite – waste liberation occurs at particle sizes somewhat larger than 0.5 mm
	 	●	That
    much of the graphite is coated with malachite or other carbonate but not with silicates or alumino-silicates.
	 	●	That
    the common usual graphite maximum particle is somewhat smaller than 0.5 mm
	 	●	The
    majority of the carbonates are found only in small quantifies or are otherwise removed in the primary flotation.
	 	●	That
    the contaminate silicates, alumino-silicates, metal oxides and metal sulphides are found on the surface and not within the
    graphite crystals

 

The
circuit has been divided into three sections:

 

	 	●	Crushing and grinding –
    operated 4 hours a day
	 	●	Flotation, dewatering and
    water recycle – operates 24 hours a day
	 	●	Acid wash

 

All
sections are designed to be built in, or transported by, portable freight box cars to be shipped to site.

 

Test
Work Implications

 

Flotation
grades of greater than about 85% where not possible without an acid leach. This could be due to either carbonates coating the
surface of the graphite or otherwise closely associated with the graphite. This means that an acid wash will be required after
the rougher circuit. Carbonates at this point represent 0.3 to 1.3% of the ore (as oxides) or 2,100 (52.5 moles/tonne) to 9,600
g (240 moles/tonne) of Ca per tonne (with error due to oxidation mass changes). Assuming a pre-flotation leach, this will require
between 2000 g and 8000 g of HCl per tonne in consumption plus an additional 7000 g to 14000 g that is potentially consumed by
the iron sulphides present. As not all acid can be recovered and enough is required to suspend the particles it is also likely
that 20-30% additional acid will be lost in the process. This will require a total consumption of acid on the order to 11 to 26
kg per tonne when applied to the waste dump feed with a carbon content of 35-40%. These consumptions are summarized in Table 11.

 

Table
14: HCl (100% equivalent) consumption approximations

 

	Stream	 	 	Neutarlization	 	 	 	Losses	 	 	 	Total	 
	Feed	 	 	9 – 22 kg/tonne	 	 	 	2.25-5.5	 	 	 	11.25-27.5 kg/tonne	 
	1ST Cleaner Conc	 	 	2.25 – 5.5	 	 	 	2.25 – 5.5	 	 	 	4.5 – 11kg/tonne	 

 

As
the pH must be increased to about 10 to reject any suphides in the 2nd cleaner that non-recycled acid must be neutralized
with NaOH. A one-one weight ratio (not exact) is used to neutralize plus and additional amount to increase the pH. Thus, almost
an equivalent amount of NaOH will be required.

 

    	30 | Page

    	 

    

 

If
this is applied after flotation consumption can be reduced to about 25% of the base values (2.25 – 5.5 kg/tonne) plus the
non-recoverable material for

 

Note:
the use of this type of acid wash may preclude using this graphite is some high end applications that restrict the chloride content
of the graphite; such as premium nuclear graphite.

 

Overall
Circuit

 

The
generalized process circuit is shown in Figure 25. In this circuit the waste dump mined material if fed to a size reduction circuit
that takes lumps are large as 10 cm and converts it to material all less than 0.5 mm in size. This material is then floated to
form a graphite and waste stream. The graphite is then de-water and dried. The products from this circuit are waste (silicates,
clays, calcite and others) and graphite.

 

 

 

Figure
25: Overall process circuit blocks showing each major element of the processing system

 

    	31 | Page

    	 

    

 

Size
Reduction Circuit

 

The
crushing and grinding circuit is designed assuming that the natural contours of the hill can be used to move the run-of-mine material
from one stage of size reduction to another. The exception being wherever recycle is required. The circuit is configured as shown
in Figure 26.

 

 

Figure
26: Initial crushing circuit

 

In
this circuit, the run-of-mine material cross a grizzly, that is a screen designed to keep chunks of rock that are too large for
the initial jaw crusher out of the process. The oversize material must be broken by hand and passed, again, through the jaw crusher.
The grizzly itself is a plain metal rod mesh that is commonly available. If is often called a coarse “crusher screen”
or crusher guard. The size of this guard is usually about a meter and a half on each side of a square and is often mount close
to or immediately above the first crusher.

 

As
an option, a second screen can be placed under the grizzly to direct any particles already smaller than 0.3 cm directly to the
impact crusher.

 

The
material passing the grizzly flow by gravity into the primary jaw crusher.

 

The
size of the jaw crusher is based on the input size of the material and, usually, not the flow rate. Thus, the rock size of the
mined material should be as small as possible. In this case, it is assumed that the largest chunk of rock from the waste dumps
is no larger than 10 cm in both length and width (open side set). If possible, the jaw crusher should be sized to produce particles
that are no larger than 0.3 cm (closed side set). If this is not the case more than one impact crusher may be required.

 

The
coarse ore storage is used to buffer the capacities of the jaw crusher and the vertical impact crusher. This can be any storage
facility. In this case, probably a smooth concrete pad. The graphite is still large enough not to be seriously impacted by the
wind so it can be an outside mound or stockpile. Consideration should eventually be made of a cover the keeps both the wind and
rain off. It can be gravity fed to a gate and into a chute that leads to the impact crusher(s). This pile should have at least
a day capacity, or about 10 tonnes of material (4-5 m3 depending on particle size). The size of this area would depend
on the contours it is built on.

 

    	32 | Page

    	 

    

 

A
chute leads from the coarse ore storage to the coarse screen. This is a vibratory screen thus should be secured in a similar way
to the jaw crusher. This device allows particles smaller than the eventual product of the impact crusher to by-pass this device.
Currently, this is assumed to be 0.4 mm.

 

The
impact crusher is operated as a closed circuit wherein the product passes through the same 0.4 mm screen. Both the crusher feed
and product pass this screen. Material held on the screen pass through the crusher over and over while the material passing the
screen is goes to the next element of the circuit. It may be possible to remove some of the harder silicates from this screen.
The same supports as the jaw crusher are required of this crusher.

 

The
coarse product, that is larger than about 0.3 cm, is fed into a vertical impact crusher that reduces the size to approximately
0.4 mm. Like the jaw crusher, it must be anchored and placed on a secure base. This equipment is likely to cost on the order of
$9,000 and is available from China on relatively short notice.

 

The
fine ore storage must be covered as the graphite is now fine enough to be entrained in moderate winds. This can be a proper storage
silo or an enclosed pile. Material is fed to the flotation circuit from this pile in the same manner as the coarse storage: usually
on the side of the hill by a gate controlling flow into a chute.

 

A
list of the major equipment in the crushinig circuit is summarized in Table 12.

 

Table
15: Crushing circuit equipment and approximate costs

 

	Equipment	 	Description	 	Cost	 	 	Source
	Grizzly	 	Metal rod screen and mounting on angle iron	 	$	500	 	 	Local
	Chute	 	Angled smooth passage from grizzly to jaw crusher	 	$	500	 	 	Local
	Jaw Crusher	 	10 cm to 0.3 cm size reduction	 	$	8,000	 	 	China
	Coarse Storage	 	Concrete holding area for graphite storage	 	$	5,000	 	 	Local
	Chute	 	Angled smooth passage from stockpile to impact	 	$	1000	 	 	Local
	Coarse screen	 	0.4 mm vibrating screen	 	$	6,000	 	 	China
	Impact crusher	 	Vertical impact crusher, 0.3 cm to 0.4 mm	 	$	9,000	 	 	China
	Hydraulics	 	 	 	$	5,000	 	 	 
	Total	 	 	 	$	35,000	 	 	 

 

Note:
augers or conveyors have not be included. Solids flow would be by manual labor or by gravity chutes.

 

    	33 | Page

    	 

    

 

Flotation
and dewatering

 

This
circuit shows both primary and secondary flotation. The separations are performed in the flotation and dewatering circuits that
is shown in Figure 27. In this circuit diagram the blue lines represent water and the black slurry or solids. The feed solids
are added to the pulpers (upper right). The percent solids is maintained at approximately 20% solids throughout the circuit; initially
by the pulping system then by strategically placed settling tanks. Three flotation columns are used in a rougher – rougher
scavenger, and cleaner, with an optional cleaner – scavenger configurations. A jet mill is used as a regrind mill between
the roughers and cleaners. Two belt vacuum filters are used and two driers.

 

 

Figure
27: flotation, dewatering and water systems

 

Note
the circuit does not show the sorting and bagging facilities. This is composed of a vibrating multilevel screen ($5,000) various
chutes and storage bins ($15,000) and a bagging system for shipment.

 

    	34 | Page

    	 

    

 

The
estimated cost of each item is shown in Table 13. These prices will have to be quoted properly close to purchasing time.

 

Table
16: Approximate pricing of the Next processing flotation plant

 

	Tanks	 	2000L + mixer	 	2	 	$	1,500	 	 	$	3,000	 
	Float head tanks	 	500L + mixer	 	1	 	$	1,300	 	 	$	1,000	 
	Slurry Pump	 	600-750 GPH	 	10	 	$	1,000	 	 	$	10,000	 
	Flotation column	 	0.30 m by 5 m	 	3	 	$	35,000	 	 	$	105,000	 
	Settling tanks	 	10,000L	 	3	 	$	1,000	 	 	$	3,000	 
	Solids filters	 	1tph	 	2	 	$	12,000	 	 	$	24,000	 
	Positive D pumps	 	200 GPH	 	2	 	$	2,500	 	 	$	5,000	 
	Driers	 	1 tph	 	2	 	$	5,000	 	 	$	10,000	 
	Jet Mill (20% solids)	 	750 GPH	 	1	 	$	20,000	 	 	$	20,000	 
	Water storage	 	10000L	 	1	 	$	1,000	 	 	$	1,000	 
	Water filter	 	2,000 L	 	1	 	$	5,000	 	 	$	5,000	 
	Hydraulics	 	 	 	 	 	 	 	 	 	$	13,000	 
	Total	 	 	 	 	 	 	 	 	 	$	200,000	 

 

Acid
Leach Circuit

 

The
acid leach circuit is composed of an acid storage and preparation area and equipment, a leaching tank that gives about a twenty
minute residence time, a dewatering settler, a neutralization and repulping vessel and assorted pumps. These costs are summarized
in Table 14

 

Table
17: Approximate costs of major equipment of the acid wash circuit

 

	Tanks	 	2000L + mixer	 	2	 	$	3,000	 	 	$	6,000	 
	Acid storage	 	100L	 	1	 	$	1,000	 	 	$	1,000	 
	Metering pump	 	< 1 GPH	 	1	 	$	1,000	 	 	$	1,000	 
	pH meter	 	 	 	2	 	$	1,000	 	 	$	2,000	 
	Controller	 	 	 	2	 	$	500	 	 	$	1,000	 
	Slurry Pump	 	600-750 GPH	 	2	 	$	1,000	 	 	$	2,000	 
	Settling tanks	 	10,000L	 	1	 	$	2,000	 	 	$	2,000	 
	Repulper	 	500L plus mixer	 	1	 	$	2,000	 	 	$	2,000	 
	Hydraulics	 	 	 	 	 	$	3,000	 	 	$	3,000	 
	Total	 	 	 	 	 	 	 	 	 	$	20,000	 

 

    	35 | Page

    	 

    

 

The
summary of all individual subcircuit costs are summarized in Table 15 as approximately $600,000. This estimate contains a 20%
contingency factor as the design is based on limited test work meaning that circuit change may be required soon after production.

 

Table
18: Total estimated process plant costs

 

	Building	 	12 m x 16 m	 	 		 	 	 		 	 	$	60,000	 
	Crushing/grinding	 	 	 	 	 	 	 	 	 	 	 	$	35,000	 
	Flotation/Dewatering	 	 	 	 	 	 	 	 	 	 	 	$	200,000	 
	Acid Leach	 	 	 	 	 	 	 	 	 	 	 	$	20,000	 
	Sorting and shipping	 	 	 	 	 	 	 	 	 	 	 	$	20,000	 
	Hydraulics power	 	 	 	 	 	 	 	 	 	 	 	$	45,000	 
	Subtotal	 	 	 	 	 	 	 	 	 	 	 	$	380,000	 
	Infrastructure	 	 	 	 	 	 	 	 	 	 	 	$	20,000	 
	Shipping	 	 	 	 	 	 	 	 	 	 	 	$	80,000	 
	Contingency	 	 	 	 	 	 	 	 	 	 	 	$	120,000	 
	Total	 	 	 	 	 	 	 	 	 	 	 	$	600,000	 

 

Operating
Costs

 

The
operating costs, based on electrical consumption ($0.06/kWhr) and reagents is estimated to fall between $20 and $30 per feed tonne
with variations in grade and depending on the acid consumptions ($60 per tonne of graphite)

 

This
does not include personnel costs. Single shift personnel required will be one plant manager ($40,000), one metallurgist ($30,000)
and one clerical staff ($15,000). Multiple shift personnel will be four operators ($20,000), two laborers ($15,000), one electrician
($25,000) and one mill wright ($25,000) per shift for a total of $85,000 + $160,000 per shift. Assuming four shifts (2 weeks on
and 2 weeks off) the personnel costs will be about $725,000 per year or $60,400 per month. Once operation is achieved with is
a cost of $145 per tonne (based on 0.25 tonnes per hour of graphite)

 

It
is anticipated that equipment repair will result in approximately 10% of the capital cost per year, or about $60,000; for a per
tonne cost of $12 per tonne.

 

The
total processing plant operating costs are estimated to be between $217 and $237 per tonne of graphite.

 

Working
Capital

 

A
total of $600,000 will be required for the equipment, and additional 20% will be required for installation, and probably another
20% of spare parts as replacing equipment in the southern desert of Namibia would require considerable time if parts are to be
ordered upon failure. Thus, about $840,000 should be set aside for this purpose. The commissioning time used to get the plant
working as it should is likely be on the order of two months. There after it may be 2-4 months before sales can be achieved. Thus,
two months of employee costs ($120,800) plus four months of operations ($200,000) should be on hand. Thus the total capital needed
prior to cash flow is likely to be on the order of $1,160,000. Note: this assumes that marketing goes well and sales can be made.

 

    	36 | Page

    	 

    

 

Marketing

 

Processed
Product

 

Graphite
sales are dependent upon the relationship between producer and seller.

 

Graphite
Production is analyzed based on the number of tonnes of graphite bearing rock processed. In this example a head grade of 40% is
used along with a recovery of 90%. These numbers are reasonable as there is always some dilution of the mine product with wall
rock. Recovery could be as high as 95% however 90% is used to err on the side of caution. The processed product grade has assumed
to be 97% - 99% although a large fraction of +99% is certainly possible.

 

Table
19: Current particle size distribution with assumed recoveries (90%) grade of mined material (40%) used to predict the total amount
of graphite produced under 2 500, 5 000 and 10 000 tpa scenarios.

 

	Size   (μm)	 	%	 	2500 tpa	 	5000 tpa	 	10000 tpa
	300	 	0.15	 	135	 	270	 	540
	177	 	0.2	 	180	 	360	 	720
	100	 	0.25	 	225	 	450	 	900
	35	 	0.2	 	180	 	360	 	720
	-35	 	0.2	 	180	 	360	 	720
	Total	 	 	 	900	 	1800	 	3600

 

Four
scenarios are presented for each of the 94-97%, 97-99%, 99-99.9% and greater than 99.9% graphite product grades (Table 14 to Table
17). These four are the following:

 

	 	●	High
    is the upper price anticipated for long term high reliability suppliers
	 	●	Low
    is the lowest price anticipated for long term high reliability suppliers
	 	●	The
    Discounted price assumes 80% of the high price when dealing with a carbon trader on a long term basis
	 	●	The
    low discounted price assumes 60% on the low prices assuming a worst case scenario.

 

    	37 | Page

    	 

    

 

Table
20: Case I: 94-97% product grade.

 

		 	General Price	 	 	Discounted Price	 
	Size   (μm)	 	High	 	 	Low	 	 	High (High)	 	 	Low (Low)	 
	300	 	$	1,500	 	 	$	1,000	 	 	$	1,200	 	 	$	600	 
	177	 	$	1,200	 	 	$	900	 	 	$	960	 	 	$	720	 
	100	 	$	900	 	 	$	600	 	 	$	720	 	 	$	360	 
	35	 	$	700	 	 	 	 	 	 	$	560	 	 	 	 	 
	-35	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Average	 	$	785	 	 	$	480	 	 	$	628	 	 	$	456	 
	Total (2.5 ktpa)	 	$	0.707	 	 	$	0.432	 	 	$	0.556	 	 	 	3600	 

 

Table
21: Case II: 97-99% Product grades

 

	 	 	General Price	 	 	Discounted Price	 
	Size   (μm)	 	High	 	 	Low	 	 	High (High)	 	 	Low (Low)	 
	300	 	$	2,000	 	 	$	1,500	 	 	$	1,600	 	 	$	900	 
	177	 	$	1,600	 	 	$	1,000	 	 	$	1,280	 	 	$	600	 
	100	 	$	1,200	 	 	$	800	 	 	$	960	 	 	$	480	 
	35	 	$	800	 	 	$	600	 	 	$	640	 	 	$	360	 
	-35	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Average	 	$	1,080	 	 	$	745	 	 	$	864	 	 	$	447	 
	Total (2.5 ktpa)	 	$	0.972	 	 	$	0.671	 	 	$	0.778	 	 	$	0.402	 

 

Table
22: Case III: 99-99.9% Production grades

 

	 	 	General Price	 	 	Discounted Price	 
	Size   (μm)	 	High	 	 	Low	 	 	High (High)	 	 	Low (Low)	 
	300	 	$	3,000	 	 	$	1,800	 	 	$	2,400	 	 	$	1,080	 
	177	 	$	2,400	 	 	$	1,600	 	 	$	1,920	 	 	$	960	 
	100	 	$	1,800	 	 	$	1,200	 	 	$	1,440	 	 	$	720	 
	35	 	$	1,200	 	 	$	800	 	 	$	960	 	 	$	640	 
	-35	 	$	1,000	 	 	$	400	 	 	$	800	 	 	$	240	 
	Average	 	$	1,820	 	 	$	1,130	 	 	$	1,456	 	 	$	704	 
	Total (2.5 ktpa)	 	$	1,638	 	 	$	1.017	 	 	$	1.310	 	 	$	0.634	 

 

    	38 | Page

    	 

    

 

Table 23: Case IV: +99.9% Product grades

 

	 	 	General Price	 	 	Discounted Price	 
	Size   (μm)	 	High	 	 	Low	 	 	High (High)	 	 	Low (Low)	 
	300	 	$	8,000	 	 	$	3,000	 	 	$	6,400	 	 	$	1,800	 
	177	 	$	4,000	 	 	$	2,000	 	 	$	3,200	 	 	$	1,600	 
	100	 	$	2,000	 	 	$	1,500	 	 	$	1,600	 	 	$	900	 
	35	 	$	8,000	 	 	$	1,000	 	 	$	6,400	 	 	$	600	 
	-35	 	$	8,000	 	 	$	3,000	 	 	$	6,400	 	 	$	1,800	 
	Average	 	$	5,700	 	 	$	2,025	 	 	$	4,560	 	 	$	1,215	 
	Total (2.5 ktpa)	 	$	5,130	 	 	$	1.823	 	 	$	4.104	 	 	$	1.094	 

 

The
price obtained, be it high or low, or discounted depends on the experience and efforts of the marketing team, long term cooperation
with clients, an established claim of reliability, and the graphite characteristics including grade, crystal morphology and the
levels of application specific requirements.

 

It
is possible that additional grades can be achieved using chemical refinery methods. However, this has yet to be tested. It is
unlikely that the graphite can be used for graphene or

 

Cash
Flow

 

Test
work suggests that the 97-99% grade is achievable. It is unlikely that a higher grade will be achieved without a refinery stage.
Thus, not considering the first couple of months were mistakes will be made, a per tonne revenue of about $650 should be achieved
in year one, $850 in year two and finally moving to $1,080 per tonne in years three onward.

 

Operating
costs are assumed to be $237 per tonne for processing, mining ($20 per tonne assumed) and marketing (20% of revenues). Corporate
overhead costs which are beyond the scope of this study

 

These
numbers are approximate based on a low feed grade that limits production to 2,500 tonnes per year. Higher grade feed can double
this through put to about 5,000. As such, this should be considered a low estimate.

 

Risks

 

Technical

 

	 	●	Test
    work performed on the material has not been aimed at the removal of certain contaminate minerals. Thus, the presence of mica
    and sulphur in particular have not been assessed. Both an have considerable impact on the process plant performance
	 	●	This
    is a complex ore that could require considerable flexibility in the processing that has not been tested

 

    	39 | Page

    	 

    

 

	 	●	The
    highly variable carbonate content may indicate that zones within the stockpile may be not economic
	 	●	Water
    resources could be scarce resulting in processing with elevated hardness or fine suspended particles which may reduce the
    overall maximum grade of the product.
	 	●	The
    process plant, as currently suggested, would be located a long drive from centers where replacement parts could be obtained.
    This risks plant shut down over lack of small parts.
	 	●	There
    is no method of on-stream analysis to determine graphite grade, in real time, during production.

 

Personnel

 

	 	●	While
    mining and processing personnel may be available there is not a history of graphite mining in the area. This means that experienced
    personnel may not be possible to find. This could result in substandard performance over a considerable length of time
	 	●	The
    isolated location may make the retention of skilled workers problematic. It might be worthwhile considering an in/out system
    where in employees work 12 hour shifts for two weeks then have two weeks off.

 

Timelines

 

Timelines
are based on best estimates internationally and may not be indicative of the pace at which things can get done in Namibia.

 

Marketing

 

The
marketing of graphite takes considerable time, effort and talent. This might not be available to the company or may be prohibitively
expensive when compared to the small production rates. In addition, most clients will require certain tonnages that might not
be met by small production making marketing that much more difficult

 

 

40 | Pageex10-32.htm

 

Exhibit 10.32

 

 

[Name of Optionee]

 Optionee           

 

BIO-KEY INTERNATIONAL, INC.

 

NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE

BIO-KEY INTERNATIONAL, INC.

2004 STOCK INCENTIVE PLAN

 

This Agreement is made as of the date set forth on Schedule A hereto (the “Grant Date”) by and between Bio-key International, Inc., a Delaware corporation (the “Corporation”), and the person named on Schedule A hereto (the “Optionee”).

 

WHEREAS, Optionee is a director of the Corporation and the Corporation considers it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in the Corporation and an incentive to advance the interests of the Corporation by granting the Optionee an option to purchase shares of common stock of the Corporation (the “Common Stock”);

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Corporation’s 2004 Stock Incentive Plan, as amended from time to time (the “Plan”), a copy of which is attached hereto, that number of shares of the authorized and unissued Common Stock of the Corporation as is set forth on Schedule A hereto.

 

1.              Terms of Stock Option. The option to purchase Common Stock granted hereby is subject to the terms, conditions, and covenants set forth in the Plan as well as the following:

 

	 	
(a)
	
This option shall constitute a Non-Qualified Stock Option which is not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended;

 

	 	
(b)
	
The per share exercise price for the shares subject to this option shall be the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto;

 

	 	
(c)
	
This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and

 

	 	
(d)
	
No portion of this option may be exercised more than seven (7) years from the Grant Date.

 

 

 

 

2.              Payment of Exercise Price. The option may be exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) if the shares underlying the option are registered under the Securities Act, by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; or (iii) by delivering previously owned shares of Common Stock or a combination of shares and cash having an aggregate Fair Market Value (as defined in the Plan) equal to the exercise price of the shares being purchased; provided, however, that shares of Common Stock delivered by the Optionee may be accepted as full or partial payment of the exercise price for any exercise of the option hereunder only if the shares have been held by the Optionee for at least six (6) months.

 

3.              Miscellaneous.

 

	 	
(a)
	
This Agreement is binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns.

 

	 	
(b)
	
This Agreement will be governed and interpreted in accordance with the laws of the State of Delaware, and may be executed in more than one counterpart, each of which shall constitute an original document.

 

	 	
(c)
	
No alterations, amendments, changes or additions to this agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

2

 

 

In witness whereof, the parties have executed this Agreement as of the Grant Date.

 

	
 
	
BIO KEY INTERNATIONAL, INC.
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	 	
 

	
 
	
Title:
	
   
	
 

	
 
	
 
	
 
	
 

	 	 	 	 
	 	OPTIONEE	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	[Name of Optionee]	 

 

 

3

 

  

Schedule A

 

 

 

1. Optionee: [__________]

 

2. Grant Date: [__________]

 

3. Number of Shares of Common Stock covered by the Option: [__________]

 

4. Exercise Price (Fair Market Value of Common Stock on the Grant Date): $[___]

 

5. The Option shall vest in accordance with the following schedule: 

 

	 	
[(i)
	
[__________] shares shall vest on [__________]; and

 

	 	
(ii)
	
[__________] shares shall vest on [__________]; and

 

	 	
(iii)
	
[__________] shares shall vest on [__________].

 

6. Expiration Date:  [__________]

 

 

 

	
 
	
 

	
 
	
 

	
 
	
  
	 
	
 
	
Initials of Authorized

	
 
	
Officer of BIO KEY INTERNATIONAL, INC.

	 	 
	 	 
	 	 	 
	 	Optionee’s Initials

 

 

 

4

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