Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are engaged in the business of acquiring, exploring and developing precious metal projects in the United States of America. Paramount owns both exploration and development stage projects in the states of Nevada and Oregon. We enhance the value of our projects by implementing exploration and engineering programs that are likely to expand and upgrade known mineral resources to mineral reserves. To further advance our projects towards the production decision, we manage the completion of the appropriate technical studies including feasibility studies and undertake permitting processes with the relevant local, state and federal regulators. The following discussion updates our outlook and plan of operations for the foreseeable future. It also analyzes our financial condition and summarizes the results of our operations for the years ended June 30, 2023 and 2022 and compares each year’s results to the results of the prior year.
Operating Highlights:
During the fiscal year-ended June 30, 2023, the Company conducted several exploration programs and continued with its permitting at its Grassy Mountain Project. Highlights include:
•
The Oregon State Technical Review Team ("TRT") accepted the Cultural Resources final baseline data report ("BDR") as complete. All required BDRs have been accepted as complete by the TRT and is a key condition in deeming the Company's permit application as complete.
•
The Federal Bureau of Land Management ("BLM") has accepted the Plan of Operation ("PoO") for the proposed underground Grassy Mountain gold mine as complete. With completeness, the BLM will issue a Notice of Intent which initiates the Environmental Impact Statement ("EIS") process under the National Environment Policy Act.
•
The Company received the permit from the U.S. Forest Service to drill its Bald Peak Project in Mineral County, Nevada.
•
The Oregon State TRT accepted and approved both the geo-chemistry and groundwater BDRs. Both BDRs are required to be approved in order for the State of Oregon to determine, along with other application information, that Company's submitted Consolidated Permit Application (the “CPA”) is complete. As of June 30, 2023, the completeness determination has not been made by the State of Oregon.
•
The TRT approved the Environmental Evaluation ("EE") outline which allows the State of Oregon's contracted consultant to begin its work on EE in advance to the CPA being deemed complete.
•
Completed new technical report summary("TRS") for the Sleeper Gold Property under Item 1300 of Regulation S-K.
Outlook:
We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. As an exploration and development company, we recognize the importance of managing our liquidity and capital resources. We pay close attention to non-discretionary cash expenses and look for ways to minimize them when possible. We ensure we have sufficient cash on hand to meet our annual land holding costs as the maintenance of mining claims and leases are essential to preserve the value of our mineral property assets.
Comparison of Operating Results for the year ended June 30, 2023 as compared to June 30, 2022
Results of Operations
We did not earn any revenue from mining operations for the years ended June 30, 2023 and 2022. During the year ended June 30, 2023, we completed various activities and milestones as described above in operating highlights. Other normal course of business activities included filing annual mining claim fees with the BLM, reclamation work at the Sleeper mine site and on-going reviews of its mining claims were completed.
Net Loss
Our net loss for the year ended June 30, 2023 was $6,450,531 compared to a net loss of $7,837,316 in the previous year. The decrease of approximately 18% is fully described below. We will continue to incur losses for the foreseeable future as we continue with our planned exploration and development programs.
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Expenses
Exploration, Development and Reclamation and Land Holding Costs
For the year ended June 30, 2023, exploration and development expenses were $2,595,709 compared to $4,436,266 in the prior year. This represents a decrease of 41% or $1,840,557 which was mainly due to the Company completing several exploration and development activities in 2023 at both its Oregon and Nevada based properties. Expenses related to our exploration or development activities are generally not comparable from period to period as activities will vary based on several factors. At Grassy Mountain the Company continued with permitting activities with state and federal permitting agencies and completed a TRS on the property. These expenses totaled $1,466,402. At Sleeper, the Company has re-assayed historical drill holes, digitized and re-verified its geological database, completed a TRS on the property and redesigned its E-cell pond conversion plans for upcoming reclamation work for expenses totaling $1,129,307.
For the year ended June 30, 2022, at Grassy Mountain, the Company continued with the permitting process with the State of Oregon and the BLM and submitted modified permit applications and at our Frost Property completed a drill program. Total exploration and development expenses at Grassy Mountain and Frost Project during the year that were $2,859,348. At Sleeper, the Company completed a small drill program to test zones of mineralization and at its Bald Peak Project conducted rock surface sampling, completed a geophysical survey and planned for a future exploratory drill program. We also incurred expenses related to the reclamation program at the Sleeper Project. These reclamation expenses are reimbursed from an insurance policy the Company holds related to the closure and reclamation of the past producing Sleeper mine. Total exploration and reclamation expenses at our Nevada based properties during that year were $1,576,918.
For the year ended June 30, 2023, land holding costs decreased by $7,865 or by 1% from the prior year of $640,349 to $632,484. The decrease is primarily due to an decrease in the professional fees incurred to file and maintain the mining claims with the BLM and respective counties.
Salaries and Benefits
For the year ended June 30, 2023, salary and benefits increased by 4% or by $42,593 from the prior year to $1,238,895. Salary and benefits are comprised of cash and stock-based compensation of the Company’s executive and corporate administration teams. The increase primarily reflects higher equity based compensation recorded in the current year compared to the previous comparable year. Included in the salary and benefits expense amount for the year ended June 30, 2023 and 2022 was non-cash stock based compensation of $317,762 and $259,670 respectively.
Directors’ Compensation
For the year ended June 30, 2023, directors’ compensation increased by 26% or by $29,475 from the prior year ended June 30, 2022. The decrease is due to the stock-based compensation recorded in the current year-ended June 30, 2023 compared to the prior year ended June 30, 2022.
Professional Fees and General and Administration
For the year ended June 30, 2023, professional fees were $377,822 compared to $130,765 in the prior year. This represents an increase of 189% or $247,057. The increase was due to several factors including the timing of the recording of the audit fees for the fiscal year ended June 30, 2022 after engaging the Company's new auditor, higher auditor quarterly review expenses and incurring one-time consulting and legal fees in the period. Professional fees included legal, advisory and consultant expenses incurred on corporate and operational activities on a period-by-period basis.
For the year ended June 30, 2023, general and administration expenses decreased by 2% to $774,817 from $790,668 in the prior year. In general, these expenses which include travel, investor relations, office expenses and information technology costs remained stable from the prior year comparable period.
Asset Retirement Obligation
For the year ended June 30, 2023, the Company's asset retirement obligation for the Sleeper Gold Project decreased to $4,436,902 from $4,475,270 from the prior year ended June 30, 2022. The net decrease of $38,368 was the result of settlements of $120,001 plus a downward revision in estimate of $364,612 offset by current year accretion of $446,245. In the prior fiscal year, our estimate was based on proposals received to complete the pond conversions from third party contractors. During the current fiscal year, the company received several new bid proposals to complete the work and the winning bids for the conversions were lower than the previous proposals. The work to complete the ponds are expected to be completed in the second half of calendar year 2023 and the
34
costs are expected to be reimbursed by the insurance policy held by the Company for government mandated reclamation at the Sleeper Gold Project.
Liquidity and Capital Resources
Operating, Investing and Financing Activities
At June 30, 2023, we had cash and cash equivalents of $824,920 compared to $2,484,156 as at June 30, 2022. In May 2020, the Company established an “at the market” equity offering program (“ATM”) with Cantor Fitzgerald & Co. and Canaccord Genuity LLC to proactively increase financial flexibility. During the fiscal year ended June 30, 2023 the Company issued 6,996,054 shares (2022- 7,766,388 shares) for net proceeds of $2,219,796 (2022 -$6,119,954) under the program.
Subsequent to the year ended June 30, 2023, the Company sold 3,515,257 shares under the program for gross proceeds of $1,130,430. It also entered into an an amendment to its 2019 Convertible Notes with a majority of the note holders, to extend the maturity date of the 2019 Convertible Notes to be the earlier of (i) September 30, 2024 or (ii) the date of funding of the transaction contemplated by that certain non-binding term sheet by an between the Company and Sprott Resource and Streaming Royalty Corp.
In December 2022, the Company issued the Note to Seabridge, an entity affiliated with the Chairman of our Board of Directors, Rudi Fronk, and an owner of approximately 5.5% of our outstanding common stock, pursuant to which the Company may borrow, in one or more advances, the principal amount of up to $1,500,000. The Loan bears interest at a per annum rate of 12%, payable upon maturity or prepayment, and matures on September 30 2023. At the year ended June 30, 2023, the Company had borrowed $1,500,000 from Seabridge. Subsequent to the year ended June 30, 2023, the Company and Seabridge entered into an agreement to extend the maturity date of the Note to Seabridge to November 30, 2023 and increase the applicable annual interest rate to 13%.
The main uses of cash were comprised of the following material amounts:
•
Cash used to fund our operations, which included general and administration expenses, land holding costs, exploration and development programs at our mineral properties, of $5,252,332.
In addition to cash used in operating activities, the Company used and received cash as follows:
•
Cash used to purchase mining claims and increase reclamation bonds of $126,700;
•
Cash received from equity financings and issuance of note payable of $3,719,796.
Going Concern
The Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or man be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
Paramount expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses. Since 2015, the Company has relied on equity financings, debt financings and sale of royalties to fund its operations and the Company expects to rely on these forms of financing to fund operations into the near future. The Company will also continue to identify ways to reduce its cash expenditures.
Paramount’s current business plan requires working capital to fund non-discretionary expenditures for its exploration and development activities on its mineral properties, mineral property holding costs and general and administrative expenses. It also requires approximately $6.0 million in capital to repay the 2019 convertible notes and the note payable to Seabridge which become due in September 2024 and November 2023 respectively.
We anticipate our twelve-month cash expenditures for our fiscal year ending June 30, 2024 to be as follows:
•
$4.1 million on corporate, land claim maintenance and general expenses
For discretionary exploration and development, subject to available cash on hand and additional share issuances, we are budgeting the following amounts:
•
$3.9 million on the Grassy Mountain Project state and federal permitting activities
•
$0.15 million on the Sleeper Gold Project
•
$2.6 million for E-Cell Conversions at the Sleeper Gold Project
35
For the planned reclamation activities required by state and federal regulators at Sleeper, the Company expects that these expenditures will be reimbursed by insurance proceeds. For any interest that accrues and is owing on the outstanding convertible debt, the Company expects to elect to pay the semi-annual interest payment in shares of its Common Stock.
Subsequent to September 25, 2023, the Company expects to fund operations as follows:
•
Existing cash on hand and working capital.
•
The existing ATM with Cantor Fitzgerald & Co. and Canaccord Genuity LLC.
•
Insurance proceeds to fund reclamation and environmental obligations at its Sleeper Gold Project.
•
Other debt, equity financings and sale of royalties.
Historically, we have been successful in accessing capital through equity and debt financing arrangements or by the sale of royalties on its mineral properties, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. In the event that we are unable to obtain additional capital or financing, our operations, exploration and development activities will be significantly adversely affected. The continuation of the Company as a going concern is dependent on having sufficient capital to maintain our operations and to repay debt which become due in November 2023 and September 2024. In considering our financing plans, our current working capital position and our ability to reduce operating expenses the Company believes there is substantial doubt about its ability to continue as a going concern twelve months after the date that our financial statements are issued.
Critical Accounting Policies and Estimates
Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows. Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the Company’s critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, derivative accounting and foreign currency translation.
Estimates
The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles (“U.S. GAAP”) and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related the adequacy of the Company’s reclamation and environmental obligation, and assessment of impairment of mineral properties. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Mineral property acquisition costs
The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.
The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.
Exploration expenses
We record exploration expenses as incurred. When we determine that precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized. To date, we have not established any proven or probable reserves and will continue to expense exploration costs as incurred.
Asset Retirement Obligation
The fair value of the Company’s asset retirement obligation (“ARO”) is measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk free rate of interest, while taking into account the inflation rate. The Company prepares estimates of the timing and amounts of expected cash flows and ongoing reclamation expenditures are charged against the
36
ARO as incurred to the extent they relate to the ARO. Significant judgments and estimates are made when estimating the fair value of ARO.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
The Company holds cash balances in both U.S. and Canadian dollars. We transact most of our business in U.S. dollars. We do not manage our foreign currency exchange rate risk through the use of financial or derivative instruments, forward contracts or hedging activities.
In general, the strengthening of the U.S. dollar will positively impact our expenses transacted in Canadian dollars. Conversely, any weakening of the U.S. dollar will increase our expenses transacted in Canadian dollars. We do not believe that any weakening of the U.S. dollar as compared to the Canadian dollar will have an adverse material effect on our operations.
Interest Rate Risk
The Company’s investment policy for its cash and cash equivalents is focused on the preservation of capital and supporting the liquidity requirements of the Company. The Company’s interest earned on its cash balances is impacted on the fluctuations of U.S. interest rates. We do not use interest rate derivative instruments to manage exposure to interest rate changes. We do not believe that interest rate fluctuations will have any material effect on our operations.
Item 8. Financial Statements and Supplementary Data.
Our financial statements, accompanying notes and Report of Independent Registered Public Accounting Firm are included in this Annual Report on Form 10-K beginning on page F-1, which are incorporated in this Item 8 by reference.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including the Principal Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under then supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated 2013 Framework. Based on this assessment, our management concluded that, as of June 30, 2023, our internal control over financial reporting is effective based on those criteria.
Because we are a smaller reporting company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting for so long as we are a smaller reporting company.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes to our internal control over financial reporting that occurred during the year ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be contained in the Company’s 2023 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2023 (the “2023 Proxy Statement”) and is hereby incorporated by reference thereto.
Item 11. Executive Compensation.
The information required by Item 402 and paragraph (e)(4) and (e)(5) of Item 407 of Regulation S-K will be contained in the Company’s 2023 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2023 and is hereby incorporated by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 201(d) and Item 403 of Regulation S-K will be contained in the Company’s 2023 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2023 and is hereby incorporated by reference thereto.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 and Item 407(a) of Regulation S-K will be contained in the Company’s 2023 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2023 and is hereby incorporated by reference thereto.
Item 14. Principal Accounting Fees and Services.
The information required by Item 9(e) of Schedule 14A will be filed in the Company’s 2023 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended June 30, 2023 and is hereby incorporated by reference thereto. The Company's independent registered public accounting firm is Moss Adams LLP, Denver, CO, PCAOB ID: 659.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following report and financial statements are filed together with this Annual Report:
(1)
Audited Consolidated Financial Statements of Paramount Gold Nevada Corp.
Included in Part II of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2023 and 2022
Consolidated Statements of Operations for the years ended June 30, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2023 and 2022
Notes to Consolidated Financial Statements
40
(b)
Index to Exhibits
41
ExhibitNumber Description
3.1 Certificate of Amended and Restated Articles of Incorporation.2
3.2 Amended and Restated Bylaws.2
10.1 2015 Stock Incentive and Equity Compensation Plan.2
21.1* List of subsidiaries.
23.1* Consent of Moss Adams LLP, Independent Registered Public Accounting Firm
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101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
1 Incorporated by reference to the exhibit filed in the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 filed on February 23, 2015.
2 Incorporated by reference to the exhibit filed in the Registrant’s Form 10-Q filed on May 22, 2015.
3 Incorporated by reference to the exhibit filed in the Registrant’s Amendment No. 3 to Registration Statement on Form S-1 filed on April 2, 2015.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Paramount Gold Nevada Corp.
Date: September 25, 2023 By: /s/ Rachel Goldman
Rachel Goldman
(Director and CEO)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date
Rachel Goldman
Carlo Buffone
Glen Van Treek
/s/ Rudi Fronk Director September 25, 2023
Rudi Fronk
/s/ John Carden Director September 25, 2023
John Carden
/s/ Eliseo Gonzalez-Urien Director September 25, 2023
Eliseo Gonzalez-Urien
/s/ Christopher Reynolds Director September 25, 2023
Christopher Reynolds
/s/ Pierre Pelletier Director September 25, 2023
Pierre Pelletier
/s/ Samantha Espley Director September 25, 2023
Samantha Espley
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB Audit ID 659) F-1
Consolidated Balance Sheets as of June 30, 2023 and 2022 F-2
Notes to Consolidated Financial Statements F-6
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Paramount Gold Nevada Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Paramount Gold Nevada Corp. and subsidiaries (the “Company”) as of June 30, 2023 and June 30, 2022, the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2023 and June 30, 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has not generated revenues or cash flows from operations and does not expect to generate any in the near future, and the Company will require additional capital to settle the promissory note payable and convertible notes that mature in November 2023 and September 2024, respectively, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the (consolidated) financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Moss Adams LLP
Denver, Colorado
September 25, 2023
We have served as the Company’s auditor since 2022.
PARAMOUNT GOLD NEVADA CORP.
Consolidated Balance Sheets
as of June 30, 2023 and 2022
Assets
Current Assets
Non-Current Assets
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Reclamation and environmental obligation, current portion 2,560,515 120,000
Convertible debt, related parties 658,363 —
Notes payable, related party 1,579,397 —
Non-Current Liabilities
Convertible debt, related parties — 651,380
Commitments and Contingencies (Note 14)
Stockholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
F-2
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Operations
for the Years ended June 30, 2023 and 2022
Year Ended June 30,
Expenses
Other Expense (Income)
Income Taxes
Loss per Common Share
Basic and diluted $ 0.13 $ 0.19
Weighted Average Number of Common
Shares Used in Per Share Calculations
The accompanying notes are an integral part of these consolidated financial statements.
F-3
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Stockholders’ Equity
for the Years ended June 30, 2023 and 2022
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Cash Flows
for the Years ended June 30, 2023 and 2022
Year Ended June 30,
Adjustments to reconcile net loss to net cash used in operations:
Settlement of asset retirement obligations (120,001 ) (33,236 )
Change in reclamation bonds accounts (1,200 ) 35,427
Effect of changes in operating working capital items:
(Increase)/Decrease in prepaid expenses (191,391 ) (153,499 )
Increase/(Decrease) in accounts payable 458,484 (1,922 )
Cash flows from investing activities:
Increase of reclamation bond (46,700 ) —
Purchase of equipment — (2,723 )
Cash flows from financing activities
Capital issued for financing, net of share issuance costs 2,219,796 6,119,954
Proceeds from notes payable, related parties 1,500,000 —
See Note 5 for supplemental cash flow information
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PARAMOUNT GOLD NEVADA CORP.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Paramount Gold Nevada Corp. (the “Company” or “Paramount”), incorporated under the General Corporation Law of the State of Nevada, and its wholly-owned subsidiaries are engaged in the acquisition, exploration and development of precious metal properties. The Company’s wholly owned subsidiaries include New Sleeper Gold LLC, Sleeper Mining Company, LLC, and Calico Resources USA Corp (“Calico”). The Company is in the process of exploring its mineral properties in Nevada and Oregon, United States. The Company’s activities are subject to significant risks and uncertainties, including the risk of failing to secure additional funding to advance its projects and the risks of determining whether these properties contain reserves that are economically recoverable. The Company’s shares of common stock trade on the NYSE AMERICAN LLC under the symbol “PZG”.
Basis of Presentation and Preparation
The consolidated financial statements are prepared by management in accordance with U.S. generally accepted accounting principles (‘U.S. GAAP”) and are presented in US dollars. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Translation and Transactions
The Company’s functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Income and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations and comprehensive loss.
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management in the accompanying consolidated financial statements include the adequacy of the Company’s reclamation and environmental obligation, share based compensation, valuation of deferred tax asset, and assessment of impairment of mineral properties.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash and cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company maintains cash in accounts which may, at times, exceed federally insured limits. At June 30, 2023 and 2022, the Company had $0.6 million and $2.23 million, respectively, of balances in excess of federally insured limits. The Company deposits its cash with financial institutions which it believes have sufficient credit quality to minimize the risk of loss.
Fair Value Measurements
The Company has adopted FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. The Company applies fair value accounting for all financial assets and liabilities and non – financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company has adopted FASB ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
F-6
Stock Based Compensation
The Company has adopted the provisions of FASB ASC 718, “Stock Compensation” (“ASC 718”), which establishes accounting for equity instruments exchanged for employee services and for acquiring goods and services from nonemployees. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date and based on the calculated fair value of the award. For grants to employees an expense is recognized over the employee’s requisite service period (generally the vesting period of the equity grant) using the graded vesting method. For grants to nonemployees, an expense is recognized when the good or service is received.
For options with performance conditions, the Company accrues compensation if it is probable that the performance condition will be achieved and recognizes the compensation cost over the requisite service period. The requisite service period for options with performance conditions is estimated based on the analysis of the terms of the award and the specific performance conditions. The Company shall recognize the effect of forfeited awards in compensation cost when they occur. New shares of the Company’s common stock will be issued for any options exercised.
The fair value of Restricted Share Units ("RSUs") and stock awards are based on the Company's stock price on the day of grant. Stock based compensation expense related to RSUs and stock awards is generally recognized over the requisite service period using the graded vesting method. Vesting dates for RSUs with performance conditions are determined by an analysis of the implicit service period of the performance target. The Company shall recognize the effect of forfeited awards in compensation cost when they occur. New shares of the Company's common stock will be issued for any RSUs that vest to recipient.
Mineral Properties
Mineral property acquisition costs are capitalized when incurred and will be amortized using the units-of-production method over the estimated life of the reserve following the commencement of production. If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.
Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Net proceeds from the sale of royalties are deducted from the carrying value of the mineral properties.
The recoverability of the costs incurred for the exploration and development of precious mineral properties is dependent on the ability of the Company to obtain the necessary financing to advance the projects to production, upon future profitable production or from proceeds from sale of properties or production royalties. The Company will continue to incur losses and have negative cash flows from operating activities and as such we will require additional capital to fund exploration and development programs, future property acquisitions and for general corporate purposes. If the Company is unable to obtain additional funding, we may be unable to continue its operations, and amounts realized for assets may be less than amounts reflected in these consolidated financial statements.
Exploration Costs
Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred. When it is determined that a mineral deposit can be economically developed as a result of establishing proven and probable reserves and all regulatory operating permits have been secured, the costs incurred after such determination will be capitalized until the commencement of production and amortized over their useful lives. To date, the Company has not established the commercial feasibility and received the necessary regulatory operating permits for any of its exploration prospects; therefore, all exploration costs are being expensed.
Property and Equipment
Equipment is recorded at cost less accumulated depreciation. All equipment is depreciated over its estimated useful life at the following annual rates:
Computer equipment 30% declining balance
Equipment 20% declining balance
Impairment of Long-Lived Assets
The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.
F-7
The Company assesses the carrying value of mineral properties for whenever information or events indicate the potential for impairment. This would include our inability to obtain all the necessary regulatory permits to build and operate mines related to our mineral properties, government actions, the results of exploration activities and technical evaluations and changes in key economic conditions such as the price of gold and silver or key inputs to the building and operating of a mine including initial capital, yearly production levels and operating expenses. We compare estimated future net cash flows with our carrying costs and future obligations on an undiscounted basis. The undiscounted cash flows are based on the amounts we expect to receive from the sale of gold and silver produced from the mine, the level of operating expenses we expect to incur to produce the gold and silver that is recovered from the mineral deposit and the level of capital expected to build, operate and sustain the mine operations. If it is determined that the estimated future undiscounted cash flows are less than the carrying value of the property, a write-down to the estimated fair value will be reported in our Consolidated Statement of Operations for the period. There has been no impairment of our mineral properties for the fiscal years-ended June 30, 2023 and 2022.
Reclamation and Environmental Obligation
The Company follows the provisions of ASC 410, “Asset Retirement and Environmental Obligations”, which establishes the standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future reclamation costs are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred for the asset. Such costs include facilities removal, earthworks, revegetation and on-going monitoring. Changes in estimates are reflected prospectively in the period an estimate is revised.
Net Loss per Share
Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during each period. Diluted loss per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the years ended June 30, 2023 and 2022, the shares of common stock equivalents related to outstanding stock options, restricted share units and shares upon conversion of the 2019 notes have not been included in the diluted per share calculation as they are anti-dilutive as the Company has recorded a net loss from continuing operations for each year.
Leases
The Company determines if an arrangement is, or contains, a lease at the inception date. Right-of-use (“ROU”) assets related to operating leases are included in Other assets, non-current with related liabilities included in Accrued liabilities and Other long-term liabilities. ROU assets under finance leases, which primarily represent property and equipment, are included in Property, plant and equipment, net with related liabilities in debt, current and debt, non-current on the Consolidated Balance Sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Currently, the Company does not have any leases with terms greater than 12 months.
Convertible Debt
The Company reviews the terms of its convertible notes payable to determine whether to account for any portion of the proceeds towards the conversion feature. In general, when the convertible notes instrument has the following characteristics and terms no portion of the proceeds from the issuance shall be accounted for as attributable to the conversion feature: a) is convertible into common stock of the Company at a specified price at the option of holder; b) the debt is sold at a price or has value at issuance not significantly in excess of the face amount; c) an interest rate that is lower than the Company could establish for nonconvertible debt; d) an initial conversion price that is greater than the fair value of the common stock at time of issuance and; e) a conversion price that does not decrease except pursuant to antidilution provisions. When proceeds are not attributable to the conversion features of the debt, the Company records the entire amount as a liability. If the fair value option is not elected, the Company will reduce the initial carrying amount of the debt by any direct and incremental issuance costs paid to third parties that are associated with the convertible debt issuance.
F-8
The Company also reviews the terms of its convertible notes payable to determine whether there are embedded derivatives, including the embedded conversion option, that are required to be bifurcated and accounted for as individual derivative financial instruments. In circumstances where convertible debt contains embedded derivatives that are required to be separated from the host contracts, the total proceeds received are first allocated to the fair value of the derivative financial instruments determined using the binomial model. The remaining proceeds, if any, are then allocated to the debenture cost contracts, usually resulting in those instruments being recorded at a discount from their principal amount. This discount is accreted over the expected life of the instruments to profit (loss) using the effective interest method.
The debenture host contracts are subsequently recorded at amortized cost at each reporting date, using the effective interest method. The embedded derivatives are subsequently recorded at fair value at each reporting date, with changes in fair value recognized in profit (loss). As of June 30, 2023 and 2022, there were no embedded derivatives.
Income Taxes
Income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future periods; and accordingly is offset by a valuation allowance.
To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts would be accrued and classified as a component of income tax expense in our Consolidated Statements of Operations and Comprehensive Loss.
Note 2. Recent Accounting Guidance
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which addresses the complexity of its guidance for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 removes the accounting models that require beneficial conversion features or cash conversion features associated with convertible instruments to be recognized as a separate component of equity, adds certain disclosure requirements for convertible instruments, amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and simplifies the diluted earnings per share calculation for certain situations. This ASU is effective for the Company beginning on July 1, 2024. The adoption of this ASU in not expected to have a significant impact on the Company’s consolidated financial position, operating results and cash-flows.
Note 3. Going Concern
The Company has not generated any revenues or cash flows from operations to date. As such the Company is subject to all the risks associated with development stage companies. Since inception, the Company has incurred losses and negative cash flows from operating activities which have been funded from the issuance of common stock, convertible notes, note payable and the sale of royalties on its mineral properties. The Company does not expect to generate positive cash flows from operating activities in the near future, if at all, until such time it successfully initiates production at its Grassy Mountain Project, including obtaining construction financing, completing the construction of the proposed mine and anticipates incurring operating losses for the foreseeable future.
The Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or many be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
Paramount expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses. Since 2015, the Company has relied on equity financings, debt financings and sale of royalties to fund its operations and the Company expects to rely on these forms of financing to fund operations into the near future. The Company will also continue to identify ways to reduce its cash expenditures.
F-9
Paramount’s current business plan requires working capital to fund non-discretionary expenditures for its exploration and development activities on its mineral properties, mineral property holding costs and general and administrative expenses. It also requires approximately $6.0 million in capital to repay the 2019 convertible notes and the note payable to Seabridge, which become due in September 2024 and November 2023, respectively. It also requires approximately $2.6 million to complete evaporation pond conversions as part of its reclamation and environmental obligations at its Sleeper Gold Project.
Subsequent to September 25, 2023, the Company expects to fund operations as follows:
•
Existing cash on hand and working capital.
•
The existing ATM with Cantor Fitzgerald & Co. and Canaccord Genuity LLC.
•
Insurance proceeds to fund reclamation and environmental obligations at its Sleeper Gold Project.
•
Other debt, equity financings and sale of royalties.
Historically, we have been successful in accessing capital through equity and debt financing arrangements or by the sale of royalties on its mineral properties, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. In the event that we are unable to obtain additional capital or financing, our operations, exploration and development activities will be significantly adversely affected. The continuation of the Company as a going concern is dependent on having sufficient capital to maintain our operations and to repay debt which become due in November 2023 and September 2024. In considering our financing plans and our current working capital position the Company believes there is substantial doubt about its ability to continue as a going concern twelve months after the date that our financial statements are issued.
Note 4. Fair Value Measurements
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization with the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Inputs that are both significant to the fair value measurement and unobservable.
Financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Our financial instruments include cash, accounts payable, accrued liabilities and convertible debt. Due to their short maturity of our cash, accounts payable and accrued liabilities, we believe that their carrying amounts approximate fair value as of June 30, 2023 and 2022. The carrying amount of convertible debt approximates fair value as the interest rate charged represents a market rate of interest.
Note 5. Non-Cash Transactions
During the year-ended June 30, 2023, the Company issued 799,613 shares of Common Stock for payment of interest on its outstanding 2019 Convertible Notes with a fair value of $320,826. The Company also issued 425,500 shares of Common Stock under its equity compensation plans with a fair value of $142,650.
During the year-ended June 30, 2022, the Company issued 404,584 shares of Common Stock for payment of interest on its outstanding 2019 Convertible Notes with a fair value of $324,055. The Company also issued 266,000 shares of Common Stock under its equity compensation plans with a fair value of $170,240.
F-10
Note 6. Capital Stock
Authorized Capital
Authorized capital stock consists of 200,000,000 shares of Common Stock with par value of $0.01 per common share (2022- 200,000,000 shares of Common Stock with par value $0.01 per common share).
During the year-ended June 30, 2023, the Company issued 6,996,054 shares for net proceeds of $2,219,796 through its at-the-market offering and issued 799,613 shares for the payment of accrued interest (Note 7) with a fair value of $320,826. The Company also issued 425,500 shares related to awards made under its equity compensation plans.
During the year-ended June 30, 2022, the Company issued 7,766,388 shares for net proceeds of $6,119,954 through its at-the market offering and issued 404,584 shares for payment of interest accrued and owing (Note 5 and Note 7) with a fair value of $324,055. The Company also issued 266,000 shares related to awards under its equity compensation plans.
Stock Options, Restricted Stock Units and Stock Based Compensation
Paramount’s 2015 and 2016 Stock Incentive and Compensation Plans, which are stockholder-approved, permits the grant of stock options, restricted stock units and stock to its employees and directors for up to 3.5 million shares of common stock.
Total stock-based compensation for the years-ended June 30, 2023 and 2022 were $349,992 and $440,327 respectively. Total stock-based compensation for the year-ended June 30, 2023 consists of the aggregate of stock-based compensation recorded for outstanding stock-option awards $24,467 (2022 - $97,681), restricted stock unit awards $303,025 (2022 - $172,406) and restricted stock grant awards $22,500 (2022 - $170,240).
Restricted Stock Grants
During the year-ended June 30, 2023, the Company granted and issued 75,000 shares (2022 -266,000) of Common stock under its equity compensation plan with a fair value of $22,500 (2022 - $170,240).
Stock Options and Stock Based Compensation
Stock option awards are generally granted with an exercise price equal to the market price of Paramount’s stock at the date of grant and have contractual lives of 5 years. To better align the interests of its key executives, employee and directors with those of its shareholders a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals and other performance conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee equity compensation plan).
For the year-ended June 30, 2023 and 2022, the Company granted 50,000 and nil stock options to employees, directors and consultants, respectively.
For the year-ended June 30, 2023, share-based compensation expense relating to service conditions options and performance conditions options were $12,021 and $12,446, respectively (2022 - $50,861 and $46,820).
The fair value for these options was calculated using the Black-Scholes option valuations method. The weighted average assumptions used for the fiscal years ending June 30, 2023 and 2022 were as follows:
Twelve Months Ended June 30, 2023 Twelve Months Ended June 30, 2022
Weighted average risk-free interest rate 2.79 % N/A
Weighted-average volatility 58 % N/A
Expected dividends 0 N/A
Weighted average expected term (years) 5 N/A
Weighted average fair value $ 0.19 N/A
F-11
A summary of option activity under the Stock Incentive and Compensation Plan as of June 30, 2023 and 2022, and changes during the years ended June 30, 2023 and 2022 are presented below.
Granted — — — —
Exercised — — — —
Exercised — — — —
A summary of the status of Paramount’s non-vested options as of June 30, 2023 and 2022 and changes during the years ended June 30, 2023 and 2022 are presented below.
Non-vested Options Options Weighted-Average Grant-Date Fair Value
Granted — —
As of June 30, 2023 and 2022, there was $8,174 and $22,960 respectively of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plan. This expense is expected to be recognized over a weighted-average period of 1.14 years. The total fair value of stock options vested during the years ended June 30, 2023 and 2022, was $26,552 and $152,486 respectively.
Restricted Stock Units ("RSUs")
RSUs are awards for service and performance which upon vesting and settlement entitle the recipient to receive one common share of the Company's Common Stock for no additional consideration, for each RSU held.
During the year-ended June 30, 2023, the Company granted 630,000 RSUs (2022 - 701,000)
During the year-ended June 30, 2023, share-based compensation expenses related to service condition RSUs and performance condition RSUs was $161,756 and $141,269, respectively (2022 - $76,003 and $96,403)
A summary of RSUs activity is summarized as follows:
Outstanding at June 30, 2021 — $ —
Vested — —
Forfeited — —
Forfeited — —
F-12
As of June 30, 2023 and 2022, there was approximately $170,404 and $284,366 of unamortized stock-based compensation expense related to outstanding RSUs. This expense is expected to be recognized over the remaining weighted-average vesting periods of 0.8 years.
Note 7. Debt
Debt
Current Non-Current Current Non-Current
Less: unamortized discount and issuance costs (4,862 ) — — (55,880 )
In September 2019, the Company completed a private offering of 5,478 Senior Secured Convertible Notes (“2019 Convertible Notes”) at $975 per $1,000 face amount due in September 2023. Each 2019 Convertible Note will bear an interest rate of 7.5% per annum, payable semi-annually. Subsequent to the year ended June 30, 2023, the maturity of the 2019 Convertible Notes was extended to the earlier of September 30, 2024 or the date of funding of the transaction contemplated by a non-binding term sheet between the Company and Sprott Resource and Streaming Royalty Corp and the annual interest rate increased to 12% commencing on October 1, 2023 (Note 15). The effective interest rate of the 2019 Convertible Notes is 9.24%. The principal amount of the 2019 Convertible Notes will be convertible at a price of $1.00 per share of Paramount common stock. Unamortized discount and issuance costs of $275,883 will be amortized as an additional interest expense over the four-year term of the 2019 Convertible Notes. During the year-ended June 30, 2023, the Company amortized $51,018 (2022-$60,308) of discount and issuance costs. At any point after the second anniversary of the issuance of the convertible notes, Paramount may force conversion if the share price of its common stock remains above $1.75 for 20 consecutive trading days. The convertible notes are secured by a lien on all assets of the Company and the Company is required to maintain a cash balance of $250,000. At June 30, 2023, the cash covenant of $250,000 was met by the Company.
During the year-ended June 30, 2023, there were no notes converted to shares of Common Stock (2022 – NIL). Also during the year-ended June 30, 2023, the Company recorded interest expense of $325,283 (2022 - $325,283).
As of June 30, 2023, there were 4,278 (2022 - 4278) total notes outstanding of which 3,618 (2022 - 3,618) were held by third parties and 660 (2022 - 660) were held by related parties. Of the notes held by related parties 250 were held by a director of the Company and and 410 were held by an affiliate shareholder.
Note 8. Note Payable, Related Party
On December 9, 2022, the Company issued a Bridge Promissory Note (the "Note") to Seabridge, an entity affiliated with the Chairman of our Board of Directors, Rudi Fronk, and an owner of approximately 5.5% of our outstanding common stock, pursuant to which the Company may borrow, in one or more advances, the principal amount of up to $1,500,000 (the "Loan"). The Loan bears interest at a per annum rate of 12%, payable upon maturity or prepayment, and matures on September 30, 2023. The Company has the right to prepay the Loan, in whole or in part, at any time without penalty. At June 30, 2023, the balance of the loan including accrued interest was $1,579,397.
Subsequent to the year ended June 30, 2023, an agreement between the Company and Seabridge was reached to extend the maturity of the Note to the earlier of November 30, 2023 or the date of funding of the transaction contemplated by a non-binding term sheet between the Company and Sprott Resource and Streaming Royalty Corp and increase the per annum interest rate of the Loan to 13% commencing on October 1, 2023 (Note 15).
Note 9. Mineral Properties
The Company has capitalized acquisition costs on mineral properties as follows:
Sleeper:
Sleeper is located in Humbolt County, Nevada approximately 26 miles northwest of the town of Winnemucca.
F-13
During the year-ended June 30, 2023, the Company recorded a decrease in reclamation and environmental obligation of $364,612 (2022 - Increase of $2,475,169) (Note 10) for the Sleeper Gold Project.
Grassy Mountain:
The Grassy Mountain Project is located in Malheur County, Oregon, approximately 22 miles south of Vale, Oregon, and roughly 70 miles west of Boise, Idaho.
Other Oregon Based Projects :
During the year ended June 30, 2023, the Company made a payment to Nevada Select Royalty Inc. ("Nevada Select") in the amount of $50,000 on the anniversary date of receiving a drill permit for the Frost Project. See Note 14 for a description of the Frost Project.
Other Nevada Based Projects:
During the year ended June 30, 2023, the Company made a payment to Nevada Select in the amount of $30,000 after Paramount received a permit to drill the Bald Peak claims from the US Forestry Service. See Note 14 for a description of the Bald Peak claims.
Note 10. Reclamation and Environmental Obligation:
Reclamation and environmental costs are based principally on legal requirements. Management estimates costs associated with reclamation of mineral properties and properties under mine closure. On an ongoing basis the Company evaluates its estimates and assumptions; however, actual amounts could differ from those based on estimates and assumptions.
The Company has posted several cash bonds as financial security to satisfy reclamation requirements for its BLM mining claims. The balance of posted cash reclamation bonds at June 30, 2023 is $546,176 (June 30, 2022 - $498,276).
Paramount is responsible for managing the reclamation activities from the previous mine operations at the Sleeper Gold Mine as directed by the BLM and the Nevada State Department of Environmental Protection (“NDEP”). Paramount has estimated the undiscounted reclamation costs for existing disturbances at the Sleeper Gold Project required by the BLM to be $3,725,110. These costs are expected to be incurred between the calendar years 2023 and 2060. At June 30, 2023, Paramount has also estimated undiscounted reclamation cost as required by the NDEP to be $4,600,515. These costs include on-going monitoring and new requests from the NDEP to convert three processing ponds from the historical operations to evaporation cell ponds by the end of calendar year 2023. These costs are expected to be incurred between calendar years 2023 and 2039. The sum of expected costs by year are discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement to the time it incurs the obligation. The asset retirement obligation for the Sleeper Gold Project recorded on the balance sheet is equal to the present value of the estimated reclamation costs as required by both the BLM and NDEP.
The following variables were used in the calculation for the fiscal years ending June 30, 2023 and 2022:
Weighted-average credit adjusted risk free rate 9.93 % 9.94 %
Weighted-average inflation rate 2.49 % 2.32 %
Changes to the Company’s asset retirement obligation for the Sleeper Gold Mine for the years ended June 30, 2023 and 2022 are as follows:
The balance of the reclamation and environmental obligation of $4,436,902 (2022 - $4,475,270) is comprised of a current portion of $2,560,515 (2022 - $120,000) and a non-current portion of $1,876,387 (2022 - $4,355,270).
F-14
Note 11. Other Income
The Company’s other income details were as follows:
Leasing of water rights to third party 5,975 5,858
Restitution payment — 4,000
Note 12. Segmented Information
Segmented information has been compiled based on the material mineral properties in which the Company performs exploration activities.
Expenses and mineral property carrying values by material project for the year ended June 30, 2023:
Exploration and Development Expenses Land Holding Costs Mineral Properties
Expenses and mineral property carrying values by material project for the year ended June 30, 2022:
Exploration and Development Expenses Land Holding Costs Mineral Properties
Additional operating expenses incurred by the Company are treated as corporate overhead with exception of accretion expense which is discussed in note 10.
Note 13. Income Taxes
At June 30, 2023, the Company has net operating loss carry forwards of $38,219,334 (2022- $38,209,398) expiring between the years 2023 and 2038 which are available to reduce future taxable income. Tax losses incurred after June 30, 2018 of $30,375,155 (2022 - $23,983,360) may be carried forward indefinitely. The tax effects of the significant components within the Company’s deferred tax asset (liability) at June 30, 2023 and 2022 are as follows:
Net deferred tax asset $ — $ —
F-15
The income tax recovery differs from the amounts computed by applying statutory tax to pre-tax losses as a result of the following:
Other items — —
Change in tax rates — —
Current tax expense (recovery) — —
$ — $ —
The potential tax benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Accounting for uncertainty for Income Tax
Income taxes are determined using assets and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.
As at June 30, 2023 and 2022, the Company’s consolidated balance sheets did not reflect a liability for uncertain tax positions, nor any accrued penalties or interest associated with income tax uncertainties. The Company is subject to income taxation at the federal and state levels. The Company is subject to US federal tax examinations for the tax years 2019 through 2023. Loss carryforwards generated or utilized in years earlier than 2019 are also subject to examination and adjustment. The Company has no income tax examinations in process.
Note 14. Commitments and Contingencies:
Other Commitments
Paramount has an agreement to acquire 44 mining claims (“Cryla Claims”) covering 589 acres located immediately to the west of the proposed Grassy Mountain site from Cryla LLC. Paramount is obligated to make annual lease payments of $40,000 per year the first two years of the lease term and $60,000 per year thereafter with an option to purchase the Cryla Claims for $560,000 at any time. The term of the agreement is 25 years. In the event Paramount exercises its option to acquire the Cryla Claims, all annual payments shall be credited against a production royalty that will be based on a prevailing price of the metals produced from the Cryla Claims. The royalty rate ranges between 2% and 4% based on the daily price of gold. The agreement with Cryla can be terminated by Paramount at any time. Paramount made the annual lease payment of $60,000 as required by the agreement during the year ended June 30, 2023. The Cryla Claims are without known mineral reserves and there is no current exploratory work being performed.
Paramount has an agreement with Nevada Select Royalty (“Nevada Select”) to purchase 100% in the Frost Project, which consists of 40 mining claims located approximately 12 miles west of its Grassy Mountain Project. A total consideration of $250,000 payable to Nevada Select will be based on certain events over time. Upon signing the agreement, Paramount made a payment of $10,000 to Nevada Select. Nevada Select will retain a 2% NSR on the Frost Claims and Paramount has the right to reduce the NSR to 1% for a payment of $1 million. All required payments under the agreement due at June 30, 2023 have been paid including a payment for $50,000 that was due on the anniversary date of receiving the drill permit from the responsible regulatory agencies. The Frost Claims are without known mineral reserves.
During the year-ended June 30, 2022, the Company entered into an option agreement with Nevada Select to purchase the Bald Peak mining claims in the State of Nevada and California for a total consideration of $300,000. Payments under the agreement will be based on achieving certain events over time. Upon signing the agreement Paramount made a payment to Nevada Select of $20,000. During the year-ended June 30, 2023, the Company made a payment under the agreement of $30,000 after receiving the permit to drill the claims from the U.S. Forestry Service. The Bald Peak Claims are without known mineral reserves.
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Seabridge holds an NPI put option in which during the 30-day period immediately following the day that the Company has delivered notice to Seabridge that a positive production decision has been made and construction financing has been secured with respect to the Grassy Mountain Project. Seabridge may cause the Company to purchase the NPI for CDN$10,000,000. If Seabridge exercises the right to cause the Company to purchase the NPI, the Company would likely need to seek additional equity or other financing to fund the purchase, which financing may not be available to the Company on favorable terms or at all.
Note 15. Subsequent Events
Subsequent to the fiscal year ended June 30, 2023, the Company issued 553,141 shares at a fair value price of $0.29 per share for the payment of interest accrued and owing at June 30, 2023 for its outstanding convertible debt. The Company also sold 3,515,257 shares under its at the market program for gross proceeds of $1,130,430.
Also Subsequent to fiscal year ended June 30, 2023, entered into an amendment (the “Amendment”) to its outstanding 2019 Convertible Notes, with certain Holders of the 2019 Convertible Notes constituting the Required Holders (as defined in the 2019 Convertible Notes) . The Amendment modifies the definition of “Maturity Date” of the Convertible Notes to be the earlier of (i) September 30, 2024 or (ii) the date of funding of the transaction contemplated by that certain non-binding term sheet by and between the Company and Sprott Resource and Streaming Royalty Corp. The Amendment also modifies the definition of “Interest Rate” of the Convertible Notes to be (i) 7.5% per annum, to an including September 30, 2023, and (ii) 12.0% per annum, on and after October 1, 2023.
The Company also entered into an amendment (the "Seabridge Amendment") with Seabridge to the Note whereby the applicable rate of per annum interest has increased to 13% per annum from 12% per annum on and after October 1, 2023 and the maturity date to the earlier of November 30, 2023 and the date of funding of the transaction contemplated by that certain non-binding term sheet by and between the Company and Sprott Resources and Streaming Royalty Corp.
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