Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a company engaged in the business of acquiring, exploring and developing precious metal projects in the United States of America. Paramount owns advanced stage exploration 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 mineralized material to reserves. 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, 2020 and 2019 and compares each year’s results to the results of the prior year.
Operating Highlights:
In June 2020, the Company closed a non-brokered registered direct offering and a concurrent best efforts agency offering in Canada (the “Offerings”) of 4,807,700 shares of its common stock at a price of $1.04 per common stock for aggregate gross proceeds of $5.0 million.
In May 2020, the Company entered into an Controlled Equity OfferingSM Sales Agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. and Canaccord Genuity LLC (together, the “Agents”), pursuant to which the Company may issue and sell shares of its common stock from time to time through the Agents for aggregate sales proceeds of up to $8,000,000, subject to the offering limitations currently applicable to the Company under General Instruction I.B.6. of Form S-3. Sales of the Company’s common stock through the Agents will be made by any method that is deemed to be an “at-the-market” equity offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. As of June 30, 2020, we sold 372,742 shares of common stock under the Sales Agreement at an average approximate price of $1.17 per share for gross proceeds of $436,783. After deducting transaction fees and commissions and all other costs, we received net proceeds of $312,518.
In February 2020, the Company submitted a revised POO to the BLM outlining the Company’s plans to build and operate the proposed Grassy Mountain underground gold mine located in Malheur County, eastern Oregon. The BLM will review the POO for completeness, which is expected to take 30 days, and will subsequently provide the Company with comments, if any. The BLM has previously reviewed 19 of the baseline data reports (“BDRs”) and their requests for clarifications have all been addressed. The BLM will register a Notice of Intent (the ”Notice”) in the Federal Register once the application is deemed complete. The Notice initiates the Environmental Impact Statement (“EIS”) process under the National Environmental Policy Act.
In November 2019, Paramount submitted its CPA to DOGAMI to enable the Company to build and operate its proposed, high grade underground gold mine located in Malheur County of eastern Oregon. The Application was reviewed by the DOGAMI and cooperating agencies for completeness. As part of this process, the permitting agencies have provided Paramount with a list of supplemental information and recommendations required to submit a modified CPA. Paramount, the DOGAMI and the permitting agencies will continue to work together to discuss the additional information requested, ensuring the submission of a complete modified CPA which will trigger the 225 day maximum permit evaluation process, upon which draft permits are issued. The NI 43-101 Feasibility Study for the Grassy Mountain Project is well underway and being led by Ausenco Engineering Canada Inc. with expected completion during the Company’s second quarter for the year-ended June 30, 2021.
In September 2019, the Company entered into agreements with accredited investors and issued convertible notes in a private transaction (the “Private Placement”). Under the terms of the Private Placement, Paramount sold an aggregate of 5,478 notes at $975 per $1000 face amount with a four-year maturity for aggregate proceeds of $5.34 million. Each convertible note bears an interest rate of 7.5% per annum, payable semi-annually. The principle amount of the convertible notes is convertible at a price of $1.00 per share of Paramount common stock. 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, pursuant to the terms of the convertible notes, the Company is required to maintain a working capital balance of $250,000.
In September 2019, Paramount received from the State of Nevada’s Division of Minerals, the Excellence in Mine Reclamation Award for the Company’s reclamation efforts at the Sleeper Project. The award was based on an assessment from representatives from the US Forest Service, the Nevada Department of Environmental Protection, the Nevada Division of Minerals, the Nevada Department of Wildlife, and the Bureau of Land Management who visited and reviewed the reclamation of the Sleeper Pit and our management of surface and underground water.
In August 2019, the Company issued 1,096,791 shares of common stock to Ausenco Engineering USA South Inc. (“Ausenco”) in exchange for services to complete a feasibility study at its Grassy Mountain Project. The shares will be held in escrow until Ausenco delivers a feasibility study report to the Company.
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Outlook and Plan of Operation:
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.
For the upcoming fiscal year, we intend to undertake the following:
Grassy Mountain Project: Paramount expects to complete the Feasibility Study in its second quarter and to focus its efforts on continued state and federal mining permitting for the fiscal year ending June 30, 2021. As a follow up to submitting the CPA in November 2019, Paramount will respond to the State of Oregon’s CPA completeness review (“Review”) received in February 2019. The Review provided included proposed resolutions and additional information required by the Company and will assist the Company in submitting a revised CPA. The Company expects the revised CPA to address all the comments and requests for additional information with the objective of submitting a complete revised CPA that allows the State of Oregon to determine whether to issue a state mining permit for the Grassy Mountain Project. In addition to the State of Oregon permitting activities, Paramount expects to respond to BLM comments it received on its POO. Once all the comments have been addressed, the BLM will register a Notice in the Federal Register once the application is deemed complete. The Notice initiates the EIS process under the National Environmental Policy Act. To complete these activities Paramount will engage specialized mining consulting firms, work with State and Federal contracted thirds parties and work directly with both state and federal permitting agencies. The Company has budgeted approximately $1.5 million to complete these permitting activities during the upcoming fiscal year. The Company has also budgeted approximately $0.4 million for general and administration expenses and annual claim maintenance fees for a total budget at Grassy Mountain of $1.9 million.
Sleeper Gold Project:
Paramount is planning to initiate several programs during the upcoming fiscal year that it believes will enhance the value of the Sleeper Gold Project. The programs planned include: 1) A review of all geological, geochemical and geophysical data for the purposes of generating targets for exploration drilling to locate additional higher-grade mineralization in the close proximity of the original Sleeper pit or in the large mining claim package owned by the Company.; (2) Evaluate the various successful metallurgical tests, previously conducted on the sulfide bearing mineralized material in order to optimize the best economic alternatives and increase the number of gold ounces produced in a proposed mining scenario. This could include bio or alkaline oxidation in a heap leach scenario, flotation and oxidation and gold recoveries from concentrates.; and (3) Update the resource estimation and preliminary economic assessment with the best alternatives identified for the project. These exploration programs are expected to cost approximate $0.5 million to $0.75 million. The Company is also budgeting $0.75 million for claim management and general and administration expenses at the Sleeper Gold Project. If all exploration programs are completed the total budget for fiscal year ended June 30, 2021 will be approximately $1.25 to $1.50 million.
Frost Project:
The Company will implement an initial reverse circulation drill program to test historical drill results and additional selective targets. The estimated budget to complete the drill program, assay lab testing and geological model is approximately $0.5 million.
Comparison of Operating Results for the year ended June 30, 2020 as compared to June 30, 2019
Results of Operations
We did not earn any revenue from mining operations for the years ended June 30, 2020 and 2019. During the year ended June 30, 2020, 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, 2020 was $6,430,141 compared to a net loss of $5,970,048 in the previous year. The increase of approximately 8% 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 and Land Holding Costs
For the year ended June 30, 2020, exploration expenses were $4,201,138 compared to $3,558,663 in the prior year. This represents an increase of 18% or $642,475. In the current fiscal year, the Company submitted the consolidated mining permit application with the State of Oregon and submitted a revised POO for its Grassy Mountain Project. It also continued to work on its previously announced feasibility study for the Grassy Mountain project. Total exploration expenses at Grassy Mountain during the year were $3,348,180 . Included were expenses of $723,279 related to the Company’s reclamation activities at the Sleeper Project to reclaim various water collection ponds from the past mining operation. These reclamation expenses are reimbursed from funds held in a commutation account as part of the Company’s insurance program for outstanding reclamation and environmental obligations at the Sleeper Gold Project. For the year ended June 30, 2019, the Company developed mine design plans required to satisfy permit application requirements at the Grassy Mountain Project. The Company received its conditional land use permit application with the county of Malheur.
For the year ended June 30, 2020, land holding costs decreased by 3% or by $17,040 from the prior year to $592,978. The decrease is primarily due to not incurring lease costs for non-essential mining claims leased from third parties.
Salaries and Benefits
For the year ended June 30, 2020, salary and benefits increased by 7% or by $60,423 from the prior year to $989,602. Salary and benefits is comprised of cash and stock-based compensation of the Company’s executive and corporate administration teams. The increase in expenses was due to bonuses awarded to the Company’s employees and stock-based compensation incurred for new option grants. Included in the salary and benefits expense amount for the year ended June 30, 2020 and 2019 was non-cash stock based compensation of $132,286 and $231,527, respectively.
Directors’ Compensation
For the year ended June 30, 2020, directors’ compensation decreased by 40% or by $60,979 from the prior year ended June 30, 2019. The decrease reflects the reduction in stock-based compensation recorded in the current year-ended June 30, 2020 compared to the prior year ended June 30, 2019.
Professional Fees and General and Administration
For the year ended June 30, 2020, professional fees were $166,894 compared to $186,852 in the prior year. This represents a decrease of 11% or $19,958. The decrease is mainly due to the one time nature of legal expenses incurred for the various permitting activities undertaken for the Grassy Mountain Project in the comparative year.
For the year ended June 30, 2020, general and administration expenses decreased by 24% to $495,628 from $651,538 in the prior year. The decrease is mainly a result of decreased travel and marketing costs incurred by the Company.
Liquidity and Capital Resources
As an exploration and development company, Paramount funds its operations, reclamation activities and discretionary exploration programs with its cash on hand. At June 30, 2020, we had cash and cash equivalents of $5,434,081 compared to $463,690 as at June 30, 2019.
The main uses of cash were comprised of the following material amounts:
In addition to cash used in operating activities, the Company used and received cash as follows:
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• Cash used to purchase computer equipment of $4,719;
We anticipate our twelve-month cash expenditures for our fiscal year ending June 30, 2021 to be as follows:
Our anticipated expenditures will be funded by our cash on hand and other capital resources. Historically, we and other similar exploration and development public companies have accessed capital through equity financing arrangements or by the sale of royalties on its mineral properties. If, however we are unable to obtain additional capital or financing, our exploration and development activities will be significantly adversely affected.
Contractual Obligations
The following table summarizes our obligations and commitments as of June 30, 2020 to make future payments under certain contracts, aggregated by category of contractual obligation, for specified time periods:
Payments due by period
Accounts Payable & Accrued Liabilities $ 925,260 $ 925,260 — — —
Critical Accounting Policies
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, stock-based compensation, 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 to allowances for doubtful accounts receivable and long-lived assets. 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.
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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 ARO as incurred to the extent they relate to the ARO. Significant judgments and estimates are made when estimating the fair value of AROs.
Stock Based Compensation
For stock option grants with market conditions that affect vesting, the Company uses a lattice approach incorporating a Monte Carlo simulation to value stock options granted.
For stock option grants that have no market conditions that affect vesting, the Company uses the Black-Scholes option valuation model to value stock options granted. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used for the fiscal years ended June 30, 2020 and 2019:
WA Risk free interest rate 1.60% N/A
WA Expected dividend yield 0% N/A
WA Expected stock price volatility 61.00% N/A
WA Expected life of options 5 years N/A
Reclassification
Certain comparative figures have been reclassified to conform to the current year-end presentation.
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 compared to the Canadian dollar will have an adverse material effect on our operations.
Interest Rate Risk
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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, 2020. 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, 2020, 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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
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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 2020 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2020 (the “2020 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 2020 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2020 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 2020 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2020 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 2020 Proxy Statement, to be filed with the SEC 120 days following the end of the Company’s fiscal year ended June 30, 2020 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 2020 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended June 30, 2020 and is hereby incorporated by reference thereto.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(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, 2020 and 2019
Consolidated Statements of Operations for the years ended June 30, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2020 and 2019
Notes to Consolidated Financial Statements
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(b) Index to Exhibits
Exhibit Number 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 MNP LLP, Independent Registered Public Accounting Firm
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
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Exhibit Number Description
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
34
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.
Company Name
Date: September 25, 2020 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/ John Seaberg Director September 25, 2020
John Seaberg
/s/ Rudi Fronk Director September 25, 2020
Rudi Fronk
/s/ John Carden Director September 25, 2020
John Carden
/s/ Eliseo Gonzalez-Urien Director September 25, 2020
Eliseo Gonzalez-Urien
/s/ Christopher Reynolds Director September 25, 2020
Christopher Reynolds
/s/ Pierre Pelletier Director September 25, 2020
Pierre Pelletier
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of June 30, 2020 and 2019 F-3
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Paramount Gold Nevada Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Paramount Gold Nevada Corp. (the Company) as of June 30, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two year period ended June 30, 2020, 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, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two year period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
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 audit 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 that 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 provide a reasonable basis for our opinion.
Chartered Professional Accountants
We have served as the Company’s auditor since 2015. Toronto, ON
F-2
PARAMOUNT GOLD NEVADA CORP.
Consolidated Balance Sheets
as of June 30, 2020 and 2019
As at June 30, As at June 30,
Assets
Current Assets
Non-Current Assets
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Non-Current Liabilities
Promissory note (Note 6) 35,628 —
Stockholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
Commitments and Contingencies: Note 12
Subsequent Events: Note 13
F-3
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Operations and Comprehensive Loss
for the Years ended June 30, 2020 and 2019
For the Year Ended June 30, 2020 For the Year Ended June 30, 2019
Revenue
Expenses
Other items
Loss per Common share
Weighted Average Number of Common
Shares Used in Per Share Calculations
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Stockholders’ Equity
for the Years ended June 30, 2020 and 2019
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PARAMOUNT GOLD NEVADA CORP.
Consolidated Statements of Cash Flows
for the Years ended June 30, 2020 and 2019
For the Year Ended June 30, 2020 For the Year Ended June 30, 2019
Adjustment for:
Amortization of debt issuance costs 54,421 —
Interest earned on reclamation bond (16,487 ) (27,117 )
(Increase) decrease in other assets — 16,292
(Increase) decrease in prepaid expenses (93,825 ) (104,646 )
Purchase of equipment (4,719 ) —
Sale of royalty on mineral property (Note 7) — 1,927,660
Cash provided by (used in) investing activities (4,719 ) 1,927,660
Convertible debt issued (Note 6) 5,201,807 —
Promissory note (Note 6) 35,628 —
Capital issued for warrant exercise (Note 5) — 960,870
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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.
The Company faces various risks related to the COVID-19 global pandemic. The Company cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. The results of operations for the year ending June 30, 2020 is not necessarily indicative of the operating results expected for any future period.
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. Revenues 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.
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, warrant valuation, 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, 2020, the Company had $5.13 million 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.
F-7
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 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.
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. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). New shares of the Company’s common stock will be issued for any options exercised.
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.
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, the costs incurred after such determination will be capitalized and amortized over their useful lives. To date, the Company has not established the commercial feasibility 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
Long-Lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, 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. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Reclamation and Environmental Obligation
The Company follows the provisions of ASC 440, “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
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long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The Company’s asset retirement obligations are further described in Note 7.
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, 2020 and 2019, the shares of common stock equivalents related to outstanding stock options 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. Operating leases are included in Other assets, non-current with related liabilities included in Accrued liabilities and Other long-term liabilities. 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.
Revenue Recognition
The Company adopted Accounting Standards Code Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) with a date of initial application of July 1, 2018. As a result of this adoption, the Company has changed its accounting policy for revenue recognition. Revenue is measured based on the amount of consideration that is expected to be received by the Company for providing goods or services under a contract with a customer, which is initially estimated with pricing specified in the contract and adjusted primarily for sales returns, discounts and other credits at contract inception then updated each reporting period. The Company recognizes revenue when persuasive evidence of a contract with a customer exists and a performance obligation is identified and satisfied as the customer obtains control of the goods or services.
Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
When the Company performs shipping and handling activities after the customer obtains control of the goods, the Company accounts for the costs as fulfillment costs which are included in cost of revenues, as allowed under Topic 606.
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.
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The Company also reviews the terms of its convertible notes payable to determine whether there are embedded derivatives, included 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 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).
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. The Company has adopted FASB ASC 740 as of its inception. Pursuant to FASB ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward. 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. FIN No.48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken in tax returns.
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. The Company elected this accounting policy, which is a continuation of our historical policy, in connection with our adoption of FIN 48.
Note 2. Recent Accounting Guidance
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. These changes will be effective for the Company's fiscal year beginning July 1, 2019. The Company adoption of this guidance on July 1, 2019 did not have a material effect on the Company's consolidated financial position, results of operations, cash flows and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. The changes will be effective for the Company’s fiscal year beginning July 1, 2020. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company is currently evaluating the potential impact. The Company is currently evaluating the potential impact of implementing these changes on the Company's consolidated financial position, results of operations, and cash flows.
In January 2017, the FASB issued ASU No. 2017 -04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. These changes will be effective for the Company’s fiscal year beginning July 1, 2021. These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments also eliminate the requirements for any reporting unit with zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is
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necessary. The Company is currently evaluating the potential impact of implementing these changes on the Company’s consolidated financial position, results of operation, and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. These changes will be effective for the Company’s fiscal year beginning July 1, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company is currently evaluating the potential impact of implementing these changes on the Company's consolidated financial position, results of operations, and cash flows.
In December 2019, the FASB issued ASU 2019-2, “Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.
Note 3. 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:
The following table sets forth the Company’s financial assets and liabilities measured at fair value 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.
Assets Total Level 1 Level 2 Level 3 Total
The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash and cash equivalents that are valued based on quoted market prices in active markets are primarily comprised of commercial paper, short-term certificates of deposit and U.S. Treasury securities.
Note 4. Non-Cash Transactions
During the year-ended June 30, 2020, the Company the Company issued 1,096,791 shares to Ausenco Engineering USA South Inc. (“Ausenco”) in exchange for services valued at $976,144 to complete a feasibility study at its Grassy Mountain Project. The shares are being held in escrow until Ausenco delivers a feasibility study on Grassy Mountain to the Company.
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During the year-ended June 30, 2020, the Company issued 161,217 shares of Common Stock for payment of interest accrued and owing at December 31, 2019 on its outstanding 2023 Secured Convertible Notes.
During the comparative year-ended June 30, 2019, the Company did not enter into any non-cash activities.
Note 5. Capital Stock
Authorized Capital
Authorized capital stock consists of 50,000,000 common shares with par value of $0.01 per common share (2019- 50,000,000 common shares with par value $0.01 per common share).
During the year-ended June 30, 2020, the Company issued 1,096,791 shares at a value of $0.89 per share to Ausenco in exchange for services to complete a feasibility study at its Grassy Mountain Project (Note 4).The Company also issued 161,217 shares for payment of interest accrued and owing at December 31, 2019 (Note 4 and 6).
During the year-ended June 30, 2020, the Company issued 4,807,700 shares at a price of $1.04 per share for gross proceeds of $5.0 million. Share issuance costs were $0.43 million for net proceeds of $4.57 million.
During the year ended June 30, 2020, the Company issued 372,742 shares at an average approximate price of $1.17 for gross proceeds of $436,783. Share issuance costs, including one-time transaction costs and commissions were $124,265 for net proceeds of $312,518.
During the year-ended June 30, 2019, the Company issued 2,400,000 units at $1.25 per unit for aggregate proceeds of $3 million. Share issuance costs were $0.09 million for net proceeds of $2.91 million. Each unit consists of one share of common stock and one warrant to purchase one-half of a share of common stock. Each warrant will have a two year term and will be exercisable at the following exercise prices: in the first year at $1.30 per share and in the second year at $1.50 per share. Also during the year ended June 30, 2019, the Company issued 1,045,000 shares from the exercising of warrants for gross proceeds of $0.96 million.
At June 30, 2020 there were 32,958,404 common shares issued and outstanding (June 30, 2019 – 26,519,954 common shares).
Warrants
A summary of warrant exercisable into common stock as of June 30, 2020, and changes during year ended is presented below:
Issued — — — —
Exercised — — — —
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Stock Options and Stock Based Compensation
Paramount’s 2015 and 2016 Stock Incentive and Compensation Plan, which is shareholder-approved, permits the grant of share options and shares to its employees for up to 2.169 million shares of common 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 and employees with those of its shareholders a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan).
During the year-ended June 30, 2020, the Company granted 690,000 stock options to employees, directors and consultants with a strike price of $1.00. Each option carries a 5 year term. Options received by senior management and directors will vest and become exercisable on achieving the following performance conditions: 1) 1⁄2 upon the completion of the Grassy Mountain Project feasibility study and 2) 1⁄2 on the issuance of mining permits for the Grassy Mountain Project by the State of Oregon. Options received by employees and consultants will vest and become exercisable as follows: 1/3 on the first anniversary of the date of grant, 1/3 on the second anniversary of the date of grant and 1/3 on the third anniversary of the date of grant. There were no option granted for the year-ended June 30, 2019.
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, 2020 and 2019 were as follows:
Weighted average risk-free interest rate 1.60 % N/A
Weighted-average volatility 61.00 % N/A
Expected dividends 0.00 N/A
Weighted average expected term (years) 5 N/A
Weighted average fair value $ 0.39 N/A
A summary of option activity under the Stock Incentive and Compensation Plan as of June 30, 2020, and changes during the year then ended is presented below.
Exercised — — — —
A summary of the status of Paramount’s non-vested options as of June 30, 2020 and changes during the year ended June 30, 2020 is presented below.
Non-vested Options Options Weighted- Average Grant-Date Fair Value
As of June 30, 2020 and 2019, there was $153,802 and $108,003 respectively of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plan. That cost is expected to be recognized
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over a weighted-average period of 1.05 years. The total fair value of shares vested during the years ended June 30, 2020 and 2019, was $202,121 and $nil, respectively.
Note 6. Debt
Convertible Debt
Current Non-Current Current Non-Current
Less: unamortized discount and issuance costs — (221,462 ) — —
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 2023. Each 2019 Convertible Note will bear an interest rate of 7.5% per annum, payable semi-annually. 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, 2020, the Company amortized $54,421 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 working capital balance of $250,000.
On May 5, 2020, the Company was granted a loan (the “PPP Loan”) from Wells Fargo Bank, N.A. in the amount of $35,628 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan which was in the form of a Promissory Note matures on May 3, 2022 and bears interest at a rate of 0.98% per annum, payable monthly commencing on November 1, 2020. The Note many be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
Note 7. 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. The Sleeper Gold Mine consists of 2,322 unpatented mining claims totaling approximately 38,300 acres.
During the year-ended June 30, 2020, the Company recorded a change in reclamation and environmental obligation of $278,181 (Note 8). This change in estimate is a result of completing certain reclamation activities in the year-ended June 30, 2020 that were expected to be completed in future periods.
During the year-ended June 30, 2019, the Company sold to Franco Nevada U.S. Corporation (“Franco”) a two percent (2%) net smelter return royalty on minerals produced from its Sleeper Gold property for gross cash proceeds of $2,000,000. Net proceeds of the transaction of $1,927,659 decreased the carrying value of the Sleeper property. This decrease was offset by the change in reclamation and environmental obligation of $122,406 (Note 8).
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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. Itconsists of 442 federal mining claims, 3 patented lode claims, and various leased fee land surface and surface/mineral rights, all totaling approximately 9,300 acres.
Note 8. Reclamation and Environmental Obligation:
The Company holds an insurance policy which is in effect until 2033 related to its Sleeper Gold Project. The policy covers reclamation costs up to an aggregate of $25 million in the event the Company’s bond is insufficient to cover any mandated reclamation obligations.
As a part of its insurance program, the Company has funds in a commutation account which is used to reimburse reclamation costs and indemnity claims. The balance of the commutation account and reclamation bonds at June 30, 2020 is $695,041 (June 30, 2019 - $1,401,833).
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 asset retirement obligation at the Sleeper Gold Project has been measured using the following variables: 1) Expected costs for earthwork, re-vegetation, in-pit water treatment, on-going monitoring, labor and management, 2) Inflation adjustment, and 3) Market risk premium. The sum of the expected costs by year is discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement obligation to the time it incurs the obligation. The reclamation and environmental obligation recorded on the balance sheet is equal to the present value of the estimated costs.
The current undiscounted estimate of the reclamation costs for existing disturbances at the Sleeper Gold Project is $4,010,403 as required by U.S Bureau of Land Management and the Nevada Department of Environmental Protection. Assumptions used to compute the asset retirement obligations for the year ended June 30, 2020 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (2019 – 9.76%) and 1.6% (2019 – 1.6%), respectively. Expenses are expected to be incurred between the years 2019 and 2056.
Changes to the Company’s reclamation and environmental obligation for the year ended June 30, 2020 are as follows:
The balance of the reclamation and environmental obligation of $615,170 (2019 - $965,677) is comprised of a current portion of $154,231 (2019 - $97,287) and a non-current portion of $460,939 (2019 - $868,390).
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Note 9. Other Income
The Company’s other income details were as follows:
Year Ended Year Ended
Leasing of water rights to third party 5,631 5,520
Reimbursement of workers compensation insurance — 83
Note 10. 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, 2020:
Exploration Expenses Land Holding Costs Mineral Properties As at June 30, 2020
Expenses and mineral property carrying values by material project for the year ended June 30, 2019:
Exploration Expenses Land Holding Costs Mineral Properties As at June 30, 2019
Note 11. Income Taxes
At June 30, 2020, the Company has net operating loss carry forwards of $48,984,744 (2019 - $43,150,088) expiring between the years 2020 and 2038 which are available to reduce future taxable income. Tax losses incurred after June 30, 2017 may be carried forward indefinitely. The tax effects of the significant components within the Company’s deferred tax asset (liability) at June 30, 2020 and 2019 are as follows:
Mineral properties $ (678,648 ) $ —
Net deferred tax asset $ — $ —
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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 — —
Total income taxes (recovery) $ — $ —
Current tax expense (recovery) — —
Deferred 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.
Effective July 1, 2009, the Company adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
As at June 30, 2020 and 2019, 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 2011 through 2020. Loss carryforwards generated or utilized in years earlier than 2011 are also subject to examination and adjustment. The Company has no income tax examinations in process.
Note 12. Commitments and Contingencies:
Lease Commitments
The Company has an office premises leases that expires on June 30, 2021. The aggregate minimum rentals payable for this operating lease is as follows:
Year Total Amount
During the year ended June 30, 2020, $46,885 was recognized as rent expense in the consolidated statements of operations and comprehensive loss.
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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, 2020. 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 are up to date as of June 30, 2020. The Frost Claims are without known mineral reserves.
Note 13. Subsequent Events
Subsequent to June 30, 2020, the Company issued 595,281 shares at an average price of $1.33 per share and for gross proceeds of approximately $0.8 million. The Company also issued 183,395 at an average price of $1.12 per share for the payment of interest accrued and owing at June 30, 2020 for its outstanding convertible debt.
Subsequent to June 30, 2020, 200 Senior Secured Convertible Notes were converted and as a result the Company issued 200,000 shares of its Common Stock.
Subsequent to June 30, 2020, the Company issued 55,000 stock-options to purchase common stock at strike price of $1.23. The term of the options is 5 years.
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