NOVAGOLD RESOURCES INC 10-K

Item 8. Financial Statements and Supplementary Data   Report of Independent Registered Public Accounting Firm   To the Shareholders and Board of Directors of NOVAGOLD RESOURCES INC.   Opinions on the Financial Statements and Internal Control over Financial Reporting   We have audited the accompanying consolidated balance sheets of NOVAGOLD RESOURCES INC. and its subsidiaries (together, the Company) as of November 30, 2021 and 2020, and the related consolidated statements of loss and comprehensive loss, cash flows and equity for each of the three years in the period ended November 30, 2021, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of November 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).   In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.   Basis for Opinions   The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting 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, and whether effective internal control over financial reporting was maintained in all material respects.   Our audits of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.   Definition and Limitations of Internal Control over Financial Reporting   A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.        54 NOVAGOLD RESOURCES INC.     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.   Critical Audit Matters   The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.    Recognition of the contingent note receivable   As described in Notes 2 and 4 to the consolidated financial statements, on July 27, 2018, the Company sold its interest in the Galore Creek project (the sale). As part of the consideration for the sale, the Company received a $75 million note (the contingent note receivable), which is contingent upon the approval of a Galore Creek project construction plan by the owner(s). The Company has not assigned a value to the contingent note receivable as management determined that Galore Creek project construction approval was not probable as of the closing of the Galore Creek sale or in subsequent periods. Management’s assessment did not change as of November 30, 2021. The contingent note will be recognized when, in management’s judgment, it is probable that the payment will occur, and that the amount recorded will not reverse in future periods.   The principal considerations for our determination that performing procedures relating to the recognition of the contingent note receivable is a critical audit matter are the judgment by management when determining if recognition was required, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating management’s assessment of the probability of whether a Galore Creek project construction plan will be approved.   Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of the basis for recognizing the contingent note receivable. These procedures also included, among others, evaluating the reasonableness of management’s assessment regarding the probability of the owner(s) of the project approving the Galore Creek project construction plan. This included considering both publicly available information and the latest annual progress report provided by the owner(s) of the project to the Company under the terms of the sale agreement.         /s/ PricewaterhouseCoopers LLP   Chartered Professional Accountants   Vancouver, Canada January 26, 2022   We have served as the Company's auditor since 1984.   55 NOVAGOLD RESOURCES INC.     CONSOLIDATED BALANCE SHEETS (US dollars in thousands)         As of November 30,       2021     2020   ASSETS                 Cash and cash equivalents   $ 91,124     $ 60,906   Term deposits     78,000       61,000   Notes receivable (Note 4)     —       72,611   Other assets (Note 6)     327       1,869   Current assets     169,451       196,386   Notes receivable (Note 4)     23,572       23,405   Investment in Donlin Gold (Note 5)     3,576       2,614   Other assets (Note 6)     2,253       2,036   Total assets   $ 198,852     $ 224,441                     LIABILITIES   Accounts payable and accrued liabilities   $ 682     $ 900   Accrued payroll and related benefits     2,637       2,215   Other liabilities (Note 9)     1,064       394   Current liabilities     4,383       3,509   Promissory note (Note 7)     115,723       109,801   Other liabilities (Note 9)     464       404   Total liabilities     120,570       113,714                     Commitments and contingencies (Notes 7 and 8)                                       EQUITY   Common shares                 Authorized – 1,000 million shares, no par value                 Issued and outstanding – 332.4 and 330.4 million shares, respectively     1,978,520       1,972,029   Contributed surplus     82,216       81,203   Accumulated deficit     ( 1,959,165 )     ( 1,918,629 ) Accumulated other comprehensive loss     ( 23,289 )     ( 23,876 ) Total equity     78,282       110,727   Total liabilities and equity   $ 198,852     $ 224,441     The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board of Directors   /s/ Gregory A. Lang                    /s/ Anthony P. Walsh         56 NOVAGOLD RESOURCES INC.     CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (US dollars in thousands except per share amounts)       Years ended November 30,       2021     2020     2019   Operating expenses:                         General and administrative (Note 12)   $ 20,210     $ 18,735     $ 16,321   Equity loss - Donlin Gold (Note 5)     16,625       14,502       10,491         36,835       33,237       26,812                             Loss from operations     ( 36,835 )     ( 33,237 )     ( 26,812 ) Interest expense on promissory note (Note 7)     ( 5,922 )     ( 6,014 )     ( 7,286 ) Accretion of notes receivable (Note 4)     2,556       3,337       3,220   Other income (expense), net (Note 14)     ( 198 )     1,569       4,395   Loss before income taxes     ( 40,399 )     ( 34,345 )     ( 26,483 ) Income tax (expense) recovery (Note 15)     ( 137 )     781       ( 1,278 ) Net loss     ( 40,536 )     ( 33,564 )     ( 27,761 )                           Other comprehensive income (loss):                         Foreign currency translation adjustments     587       932       48         587       932       48                             Comprehensive loss   $ ( 39,949 )   $ ( 32,632 )   $ ( 27,713 )                           Net loss per common share – basic and diluted   $ ( 0.12 )   $ ( 0.10 )   $ ( 0.09 )                           Weighted average shares outstanding                         Basic and diluted (thousands)     331,546       329,269       325,785       The accompanying notes are an integral part of these consolidated financial statements.       57 NOVAGOLD RESOURCES INC.     CONSOLIDATED STATEMENTS OF CASH FLOWS (US dollars in thousands)       Years ended November 30,       2021     2020     2019   Operating activities:                         Net loss   $ ( 40,536 )   $ ( 33,564 )   $ ( 27,761 ) Adjustments:                         Equity loss – Donlin Gold     16,625       14,502       10,491   Share-based compensation     8,235       7,057       6,176   Interest expense on promissory note     5,922       6,014       7,286   Remediation expense     938       —       —   Foreign exchange loss (gain)     336       606       ( 20 ) Accretion of notes receivable     ( 2,556 )     ( 3,337 )     ( 3,220 ) Change in fair value of marketable securities     ( 418 )     ( 431 )     ( 93 ) Gain on sale of mineral property     ( 200 )     —       —   Deferred income tax (recovery) expense     —       ( 751 )     671   Other operating adjustments     7       19       15   Net change in operating assets and liabilities (Note 17)     1,784       ( 135 )     328   Net cash used in operating activities     ( 9,863 )     ( 10,020 )     ( 6,127 )                           Investing activities:                         Proceeds from term deposits     141,578       81,000       219,000   Purchases of term deposits     ( 158,799 )     ( 61,000 )     ( 154,000 ) Proceeds from note receivable     75,000       —       —   Funding of Donlin Gold     ( 17,587 )     ( 15,276 )     ( 11,122 ) Proceeds from sale of mineral property     200       —       —   Other     —       —       ( 17 ) Net cash provided from investing activities     40,392       4,724       53,861                             Financing activities:                         Withholding tax on share-based compensation     ( 731 )     ( 1,652 )     ( 1,197 ) Net cash used in financing activities     ( 731 )     ( 1,652 )     ( 1,197 )                           Effect of exchange rate changes on cash and cash equivalents     420       305       8   Net change in cash and cash equivalents     30,218       ( 6,643 )     46,545   Cash and cash equivalents at beginning of year     60,906       67,549       21,004   Cash and cash equivalents at end of year   $ 91,124     $ 60,906     $ 67,549     The accompanying notes are an integral part of these consolidated financial statements.       58 NOVAGOLD RESOURCES INC.     CONSOLIDATED STATEMENTS OF EQUITY (US dollars and shares in thousands)         Common shares     Contributed     Accumulated             Total       Shares     Amount     Surplus     deficit     AOCL*     equity   November 30, 2018     323,223     $ 1,954,861     $ 87,987     $ ( 1,857,682 )   $ ( 24,478 )   $ 160,688   Cumulative-effect adjustment of adopting ASU No. 2016-01     —       —       —       378       ( 378 )     —   Share-based compensation     —       —       6,176       —       —       6,176   Performance share units (PSUs) settled in shares     438       2,737       ( 2,737 )     —       —       —   DSUs settled in shares     32       120       ( 120 )     —       —       —   Stock options exercised     3,937       7,855       ( 7,855 )     —       —       —   Withholding tax on PSUs     —       —       ( 1,197 )     —       —       ( 1,197 ) Net loss     —       —       —       ( 27,761 )     —       ( 27,761 ) Other comprehensive income     —       —       —       —       48       48   November 30, 2019     327,630     $ 1,965,573     $ 82,254     $ ( 1,885,065 )   $ ( 24,808 )   $ 137,954                                                     Share-based compensation     —       —       7,057       —       —       7,057   PSUs settled in shares     410       1,026       ( 1,026 )     —       —       —   Stock options exercised     2,372       5,430       ( 5,430 )     —       —       —   Withholding tax on PSUs     —       —       ( 1,652 )     —       —       ( 1,652 ) Net loss     —       —       —       ( 33,564 )     —       ( 33,564 ) Other comprehensive income     —       —       —       —       932       932   November 30, 2020     330,412     $ 1,972,029     $ 81,203     $ ( 1,918,629 )   $ ( 23,876 )   $ 110,727                                                     Share-based compensation     —       —       8,235       —       —       8,235   PSUs settled in shares     574       1,460       ( 1,460 )     —       —       —   Stock options exercised     1,430       5,031       ( 5,031 )     —       —       —   Withholding tax on PSUs     —       —       ( 731 )     —       —       ( 731 ) Net loss     —       —       —       ( 40,536 )     —       ( 40,536 ) Other comprehensive income     —       —       —       —       587       587   November 30, 2021     332,416     $ 1,978,520     $ 82,216     $ ( 1,959,165 )   $ ( 23,289 )   $ 78,282     * Accumulated other comprehensive loss     The accompanying notes are an integral part of these consolidated financial statements.     59 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       NOTE 1 – THE COMPANY   NOVAGOLD RESOURCES INC. and its affiliates and subsidiaries (collectively, “NOVAGOLD” or the “Company”) operate in the mining industry, focused on the exploration for and development of gold mineral properties. The Company has no realized revenues from its planned principal business purpose. The Company’s principal asset is a 50 % interest in the Donlin Gold project in Alaska, USA. The Donlin Gold project is owned and operated by Donlin Gold LLC (“Donlin Gold”), a limited liability company that is owned equally by wholly-owned subsidiaries of NOVAGOLD and Barrick Gold Corporation (“Barrick”).   NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Presentation   The Consolidated Financial Statements include the accounts of NOVAGOLD RESOURCES INC. and its wholly-owned subsidiaries NOVAGOLD U.S. Holdings Inc., NOVAGOLD Resources Alaska Inc., NOVAGOLD USA, Inc., and AGC Resources Inc. All inter-company transactions and balances are eliminated on consolidation.   The Consolidated Financial Statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The preparation of the Company’s Consolidated Financial Statements in accordance with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of expenses during the reporting period. The Company bases its estimates and assumptions on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from the amounts recorded in these Consolidated Financial Statements.   References in these Consolidated Financial Statements and Notes to $ refer to United States (US) dollars and C$ to Canadian dollars. Dollar amounts are in thousands, except for per share amounts.   Foreign currency   The functional currency for NOVAGOLD RESOURCES INC. is the Canadian dollar and the functional currency for the Company’s U.S. operations is the U.S. dollar. Therefore, gains and losses on U.S. dollar denominated transactions and the effect of translating U.S. dollar denominated balances of Canadian operations are recorded in net loss. The effects of translating the Company’s Canadian operations from the Canadian dollar to the U.S. dollar are recorded in Other comprehensive income (loss).   Cash and cash equivalents   Cash and cash equivalents consist of cash balances and highly liquid investments with original maturities of three months or less, that are considered to be cash equivalents. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.   Term deposits   The Company’s term deposits are classified as held to maturity and recorded at cost. Term deposits are held at Chartered Canadian banks with original maturities of 12 months or less. The term deposits are not traded in an active market.   Contingent note receivable   A portion of the proceeds related to the sale of Galore Creek to Newmont includes a $ 75,000 note receivable, contingent upon the approval of a Galore Creek project construction plan by the owner(s). The Company has not assigned a value to the contingent note receivable as management determined that the approval of the Galore Creek project construction was not probable as of the closing of the Galore Creek sale or in subsequent periods. The contingent note will be recognized when, in management’s judgement, it is probable that the payment will occur, and that the amount recorded will not reverse in future periods.   Investment in affiliates   Investments in unconsolidated ventures over which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method and include the Company’s investment in the Donlin Gold project. The Company identified Donlin Gold as a Variable Interest Entity (VIE) as the entity is dependent on funding from its owners. All funding, ownership, voting rights, and power to exercise control is shared equally on a 50/50 basis between the owners of the VIE. Therefore, the Company has determined that it is not the primary beneficiary of the VIE. The Company’s maximum exposure to loss is its equity investment in Donlin Gold.     60 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)     The equity method is a basis of accounting for investments whereby the investment is initially recorded at cost and the carrying value is adjusted thereafter to include the investor’s pro rata share of post-acquisition earnings or losses of the investee, as computed by the consolidation method. Cash funding increases the carrying value of the investment. Profit distributions received or receivable from an investee reduce the carrying value of the investment.   Donlin Gold is a non-publicly traded equity investee owning an exploration and development project. Therefore, the Company assesses whether there has been a potential triggering event for other-than-temporary impairment by assessing the underlying assets of the equity investee for recoverability and assessing whether there has been a change in the development plan or strategy for the project. If the underlying assets are not recoverable, the Company will record an impairment charge equal to the difference between the carrying amount of the investee and its fair value.   Income taxes   The Company accounts for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of the Company’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates deferred income tax liabilities and assets for the Company, as measured by the statutory tax rates in effect. The Company derives its deferred income tax charge or benefit by recording the change in deferred income tax liabilities and asset balances for the year.   The Company’s deferred income tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.   Share-based payments   The Company records share-based compensation awards exchanged for employee services at fair value on the date of the grant and expenses the awards in the Consolidated Statements of Loss over the requisite employee service period. The fair values of stock options are determined using a Black-Scholes option pricing model. The fair values of PSUs are determined using a Monte Carlo valuation model. The Company’s estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, the Company’s performance, and the Company’s performance in relation to its peers.   Net income (loss) per common share   Basic and diluted income (loss) per share are presented for Net income (loss). Basic income (loss) per share is computed by dividing Net income (loss) by the weighted-average number of outstanding common shares for the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts that may require the issuance of common shares in the future were converted. Diluted income per share is computed by increasing the weighted-average number of outstanding common shares to include the additional common shares that would be outstanding after conversion and adjusting net income for changes that would result from the conversion. Only those securities or other contracts that result in a reduction in earnings per share are included in the calculation.   Recently adopted accounting pronouncements   Fair Value Disclosure Requirements   In August 2018, Accounting Standards Update (“ASU”) No. 2018 - 13 was issued to modify and enhance the disclosure requirements for fair value measurements. The Company adopted this standard on December 1, 2020. Adoption of this guidance did not impact the Company’s note disclosures.     61 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       NOTE 3 – SEGMENTED INFORMATION   Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. The Chief Executive Officer considers the business from a geographic perspective considering the performance of our investments in the Donlin Gold project in Alaska, USA (Note 5 ).   NOTE 4 – NOTES RECEIVABLE   Changes in the Company’s Notes receivable are summarized as follows:       Years ended November 30,       2021     2020     2019   Balance – beginning of period   $ 96,016     $ 92,679     $ 89,459   Accretion of notes receivable     2,556       3,337       3,220   Payment received     ( 75,000 )     —       —   Balance – end of period   $ 23,572     $ 96,016     $ 92,679     Notes receivable consist of:       As of November 30,       2021     2020   Current portion   $ —     $ 72,611   Non-current portion     23,572       23,405       $ 23,572     $ 96,016     Galore Creek   On July 27, 2018, the Company sold its interest in the Galore Creek project to a subsidiary of Newmont Corporation (“Newmont”) for cash proceeds of $ 100,000 , a $ 75,000 note due upon the earlier of the completion of a Galore Creek pre-feasibility study or July 27, 2021, a $ 25,000 note due upon the earlier of the completion of a Galore Creek feasibility study or July 27, 2023, and a contingent note for $ 75,000 due upon approval of a Galore Creek project construction plan by the owner(s). The Company received $ 75,000 from Newmont on July 27, 2021.   As of November 30, 2021, the carrying value of the $ 25,000 note was $ 23,572 including $ 2,556 of accumulated accretion. The carrying value of the note is being accreted to $ 25,000 over five years at a discount rate of 3.6 % based on quoted market values for Newmont debt with a similar term.   A contingent note for $ 75,000 is due upon approval of a Galore Creek project construction plan by the owner(s). No value was assigned to the final $ 75,000 contingent note. The Company determined that Galore Creek project construction approval was not probable as of the closing of the Galore Creek sale. The Company’s assessment did not change as of November 30, 2021.   Minas San Roque   On November 3, 2021, the Company sold its 49 % interest in the Minas San Roque project in Argentina to Marifil S.A., a subsidiary of International Iconic Gold Mines Ltd. (“Iconic”) for cash proceeds of C$250 upon closing, a C$750 note receivable due on November 1, 2022, and a C$1,000 note receivable due on November 1, 2023. The notes are guaranteed by Iconic. On closing, the Company determined the fair value of the notes was nil. The Company’s assessment did not change as of November 30, 2021.       62 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       NOTE 5 – INVESTMENT IN DONLIN GOLD   The Donlin Gold project is owned and operated by Donlin Gold, a limited liability company in which wholly-owned subsidiaries of NOVAGOLD and Barrick each own a 50 % interest. Donlin Gold has a board of four directors, with two directors selected by Barrick and two directors selected by the Company. All significant decisions related to Donlin Gold require the approval of at least a majority of the Donlin Gold board members.   Changes in the Company’s Investment in Donlin Gold are summarized as follows:       Years ended November 30,       2021     2020     2019   Balance – beginning of period   $ 2,614     $ 1,840     $ 1,209   Share of losses:                         Mineral property expenditures     ( 16,286 )     ( 14,339 )     ( 10,434 ) Depreciation     ( 300 )     ( 163 )     ( 57 ) Accretion     ( 39 )     —       —         ( 16,625 )     ( 14,502 )     ( 10,491 ) Funding     17,587       15,276       11,122   Balance – end of period   $ 3,576     $ 2,614     $ 1,840     The following amounts represent the Company’s 50% share of the assets and liabilities of Donlin Gold. Donlin Gold capitalized the initial contribution of the Donlin Gold property as Non-current assets: Mineral property with a carrying value of $ 64,000 , resulting in a higher carrying value of the mineral property than that of the Company.       As of November 30,       2021     2020   Current assets: Cash, prepaid expenses, and other receivables   $ 3,815     $ 2,654   Non-current assets: Right-of-use assets, property and equipment     1,417       1,339   Non-current assets: Mineral property     32,615       32,615   Current liabilities: Accounts payable, accrued liabilities and lease obligations     ( 1,584 )     ( 1,271 ) Non-current liabilities: Reclamation and lease obligations     ( 687 )     ( 723 ) Net assets   $ 35,576     $ 34,614       NOTE 6 – OTHER ASSETS       As of November 30,       2021     2020   Other current assets:                 Accounts and interest receivable   $ 302     $ 577   Prepaid expenses     25       1,292       $ 327     $ 1,869                     Other long-term assets:                 Marketable equity securities   $ 1,830     $ 1,402   Right-of-use assets     396       600   Office equipment     27       34       $ 2,253     $ 2,036       63 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       NOTE 7 – PROMISSORY NOTE   The Company has a promissory note payable to Barrick of $ 115,723 , comprised of $ 51,576 in principal, and $ 64,147 in accrued interest at U.S. prime plus 2 %. The promissory note resulted from the agreement that led to the formation of Donlin Gold, where the Company agreed to reimburse Barrick for a portion of their expenditures incurred from April 1, 2006 to November 30, 2007. The promissory note and accrued interest are payable from 85 % of the Company’s share of revenue from future mine production or from any net proceeds resulting from a reduction of the Company’s interest in Donlin Gold. The carrying value of the promissory note approximates fair value.   Changes in the Company’s Promissory Note is summarized as follows:       Years ended November 30,       2021     2020     2019   Balance – beginning of period   $ 109,801     $ 103,787     $ 96,501   Interest expense on promissory note     5,922       6,014       7,286   Balance – end of period   $ 115,723     $ 109,801     $ 103,787       NOTE 8 – LEASES   The Company leases office space under non-cancelable operating leases with original lease terms of five years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional five years. These optional periods have not been considered in the determination of ROU assets or lease liabilities associated with these leases as management did not consider it reasonably certain it would exercise the options. Certain of our leases include payments that vary based on the Company’s level of usage and operations. These variable payments are not included within ROU assets and lease liabilities in the Consolidated Balance Sheets. Additionally, short-term leases, which have an initial term of 12 months or less, are not recorded in the Consolidated Balance Sheets.   Lease expenses are included in General and administrative expense – Office expense on the Consolidated Statements of Loss and include the following components:       Years ended November 30,       2021     2020   Operating lease cost   $ 235     $ 216   Variable lease cost     122       120   Short-term lease cost     4       4       $ 361     $ 340     Future minimum lease payments under non-cancellable operating leases as of November 30, 2021, were as follows:   2022   $ 239   2023     92   2024     93   2025     8   Thereafter     —   Total future minimum lease payments     432   Less: imputed interest     ( 24 ) Total   $ 408         64 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)     Other information regarding leases for the year ended November 30, 2021 includes the following:       Years ended November 30,       2021     2020   Cash paid for operating leases   $ 235     $ 216   Variable lease cost     127       120   Short-term lease cost     5       4       $ 367     $ 340     Right-of-use assets obtained in exchange for lease liabilities   $ —   Weighted average remaining lease term (years) – operating leases     2.3   Weighted average discount rate – operating leases     5 %     NOTE 9 – OTHER LIABILITIES       As of November 30,       2021     2020   Other current liabilities:                 Remediation liabilities   $ 840     $ 182   Lease obligations     224       207   Income taxes payable     —       5       $ 1,064     $ 394                     Other long-term liabilities:                 Remediation liabilities   $ 280       —   Lease obligations     184     $ 404       $ 464     $ 404       NOTE 10 – SHARE CAPITAL   Common shares   The Company is authorized to issue 1,000,000,000 common shares without par value, of which 332,415,547 were issued and outstanding as of November 30, 2021, and 330,411,589 were issued and outstanding as of November 30, 2020.   Preferred shares   Pursuant to the Company’s Notice of Articles filed under the Business Corporations Act (British Columbia), the Company is authorized to issue 10,000,000 preferred shares without par value. The authorized but unissued preferred shares may be issued in designated series from time to time by one or more resolutions adopted by the Directors. The Directors have the authority to determine the preferences, limitations, and relative rights of each series of preferred shares. As of November  30, 2021 and 2020, no preferred shares were issued or outstanding.     NOTE 11 – FAIR VALUE ACCOUNTING   Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:   Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;   Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and   Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).   The Company’s financial instruments consist of cash and cash equivalents, term deposits, accounts receivable, and accounts payable and accrued liabilities. The fair value of the Company’s financial instruments approximates their carrying value due to the short‐term nature of their maturity. The Company’s financial instruments initially measured at fair value and then held at amortized cost include cash and cash equivalents, term deposits, accounts receivable, and accounts payable and accrued liabilities. The Company’s marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities was $ 1,830 as of November 30, 2021 ( $ 1,402 as of November 30, 2020), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.     65 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)         NOTE 12 – GENERAL AND ADMINISTRATIVE       Years ended November 30,       2021     2020     2019   Share-based compensation (Note 13)   $ 8,235     $ 7,057     $ 6,176   Salaries and benefits     6,599       6,274       5,904   Office expense     2,544       2,199       2,311   Professional fees     1,849       2,139       972   Corporate communications and regulatory     976       1,059       943   Depreciation     7       7       15       $ 20,210     $ 18,735     $ 16,321       NOTE 13 – SHARE-BASED COMPENSATION   Share incentive awards include a stock option plan for directors, executives, employees and eligible consultants, a PSU plan for executives, employees, and eligible consultants and a DSU plan for non-executive directors of the Company. Options granted to purchase common shares have exercise prices not less than the fair market value of the underlying share at the date of grant. As of November  30, 2021, 29,399,000 common shares were available for future share incentive plan awards under all three plans.   The Company recognized share-based compensation expense (see Note 12 - General and administrative ) as follows:       Years ended November 30,       2021     2020     2019   Stock options   $ 4,721     $ 4,309     $ 3,694   Performance share unit plan     3,278       2,547       2,320   Deferred share unit plan     236       201       162       $ 8,235     $ 7,057     $ 6,176     Stock options   Stock options granted under the Company’s share-based incentive plans generally expire five years after the date of grant and vest in one - third annual increments beginning on the first anniversary of the date of grant. The value of each option award is estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected term of the option award and share price volatility. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination experience. Expected volatility is based on the historical volatility of the Company’s shares at the date of grant over the same length of term. These estimates involve inherent uncertainties and the application of management’s judgment. In addition, management estimates the expected forfeiture rate and only recognizes expense for those options expected to vest. As a result, if other assumptions had been used, the recorded share-based compensation expense would have been different from that reported.     66 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)     A summary of stock options outstanding as of November 30, 2021, and activity during the year ended November 30, 2021 are as follows:       Number of stock options (thousands)     Weighted- average exercise price per share     Weighted- average remaining contractual term (years)     Aggregate intrinsic value   November 30, 2020     10,403     $ 4.59                   Granted     1,254       9.91                   Exercised     ( 3,055 )     4.46                   November 30, 2021     8,602     $ 5.43       2.17     $ 16,318   Vested and exercisable as of November 30, 2021     5,242     $ 4.24       1.56     $ 13,512     The following table summarizes other stock option-related information:       Years ended November 30,       2021     2020     2019   Weighted-average assumptions used to value stock option awards:                         Expected volatility     47.2 %     46.1 %     46.9 % Expected term of options (years)     4       4       4   Expected dividend rate     —       —       —   Risk-free interest rate     0.3 %     1.5 %     2.7 % Expected forfeiture rate     3.0 %     3.1 %     3.1 % Weighted-average grant-date fair value   $ 3.63     $ 2.70     $ 1.46   Intrinsic value of options exercised   $ 12,543     $ 24,137     $ 20,527   Cash received from options exercised   $ —     $ —     $ —     As of November  30, 2021, the Company had $ 2,496 of unrecognized compensation cost related to 3,360,000 non-vested stock options expected to be expensed and vest over a period of approximately two years.   Performance share units   The Company has a PSU plan that provides for the issuance of PSUs in amounts as approved by the Company’s Compensation Committee. Each PSU award entitles the participant to receive one common share of the Company at the end of a specified period. The Compensation Committee may adjust the number of common shares for the achievement of certain performance and vesting criteria established at the time of grant. The actual performance against each of these criteria generates a multiplier that varies from 0 % to 150 %. Thus, the common shares that may be issued vary between 0 % and 150 % of the number of PSUs granted, as reduced by the amounts for participants no longer with the Company on the vesting date.   The value of each PSU granted is estimated at the grant date using a Monte Carlo simulation model. The Monte Carlo simulation model requires the input of subjective assumptions, including the share price volatility of the Company’s stock, as well as comparator index and the correlation of returns between the comparator index and the Company. Expected volatility is based on the historical volatility of the Company’s shares and the comparator index at the grant date. These estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded share-based compensation expense would have been different from that reported.     67 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)     A summary of PSU awards outstanding and activity during the year ended November 30, 2021 are as follows:       Number of PSU awards (thousands)     Weighted- average grant day fair value per award     Aggregate intrinsic value   November 30, 2020     1,684     $ 4.59           Granted     331       10.07           Vested     ( 648 )     3.85           Performance adjustment     216       3.85           November 30, 2021     1,583     $ 5.94     $ 6,815     As of November  30, 2021, the Company had 1,583,100 non-vested PSU awards outstanding of which 800,500 were fully expensed and vested on December 1, 2021 with a multiplier of 93 %. The remaining 782,600 non-vested PSU awards with $ 3,338 of unrecognized compensation cost will be expensed over a period of approximately two years.   The following table summarizes other PSU-related information:       Years ended November 30,       2021     2020     2019   Performance multiplier on PSUs vested     150 %     150 %     82 % Common shares issued (thousands)     574       410       438   Total fair value of common shares issued   $ 5,723     $ 2,855     $ 1,607   Withholding tax paid on PSUs vested   $ 731     $ 1,652     $ 1,197     Deferred share units   The Company has a DSU plan that provides for the issuance of DSUs in amounts where the Directors receive half of their annual retainer in DSUs and have the option to elect to receive all or a portion of the other half of their annual retainer in DSUs. Each DSU entitles the Directors to receive one common share when they retire from the Company. The Company granted 25,957 , 21,602 and 35,851 DSUs to Directors with a weighted-average grant day fair value of $ 8.86 , $ 9.07 , and $ 4.40 per DSU during 2021, 2020 and 2019, respectively. The Company issued nil, nil, and 31,721 common shares under the DSU plan in 2021, 2020 and 2019, respectively. As of November 30, 2021, there were 306,321 DSUs outstanding.     NOTE 14 – OTHER INCOME (EXPENSE), NET       Years ended November 30,       2020     2020     2019   Interest income   $ 458     $ 1,744     $ 4,190   Change in fair market value of marketable securities     418       431       93   Foreign exchange (loss) gain     ( 336 )     ( 606 )     20   Remediation expense     ( 938 )     —       —   Other income     200       —       92       $ ( 198 )   $ 1,569     $ 4,395       NOTE 15 – INCOME TAXES   The Company’s statutory tax rate is 27 % and is expected to remain at this amount until 2024.   68 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       The Company’s Income tax (recovery) expense consisted of:       Years ended November 30,       2021     2020     2019   Current:                         Canada   $ 110     $ —     $ —   Foreign     27       ( 30 )     607       $ 137       ( 30 )     607   Deferred:                         Canada     —       —       —   Foreign     —       ( 751 )     671         —       ( 751 )     671   Income tax expense (recovery)   $ 137     $ ( 781 )   $ 1,278     The Company’s Loss before income tax and other items consisted of:       Years ended November 30,       2021     2020     2019   Canada   $ ( 17,723 )   $ ( 16,447 )   $ ( 12,584 ) Foreign     ( 22,676 )     ( 17,898 )     ( 13,899 )     $ ( 40,399 )   $ ( 34,345 )   $ ( 26,483 )   The Company’s Income tax expense differed from the amounts computed by applying the Canadian statutory corporate income tax rates for the following reasons:       Years ended November 30,       2021     2020     2019   Loss before income taxes and other items   $ ( 40,399 )   $ ( 34,345 )   $ ( 26,483 ) Combined federal and provincial statutory tax rate     27 %     27 %     27 % Income tax recovery based on statutory income tax rates     ( 10,908 )     ( 9,273 )     ( 7,150 ) Reconciling items:                         Non-deductible expenditures     2,483       1,911       2,136   Foreign accrual property income     771       652       180   Effect of consolidated return for U.S. subsidiaries     —       ( 751 )     —   Effect of different statutory tax rates on earnings or losses of subsidiaries     ( 323 )     ( 2 )     ( 658 ) Change in valuation allowance on deferred tax assets     8,115       6,638       6,773   Other     ( 1 )     44       ( 3 ) Income tax (recovery) expense   $ 137     $ ( 781 )   $ 1,278   Effective tax rate     ( 0.3 )%     2.3 %     ( 4.8 )%     69 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)     Components of the Company’s deferred income tax assets (liabilities) are as follows:       As of November 30,       2021     2020   Deferred tax income assets:                 Net operating loss carry forwards   $ 184,833     $ 183,422   Capital loss carry forwards     50,969       49,307   Mineral properties     663       654   Intangible assets     491       484   Property and equipment     207       203   Investment in affiliates     38,931       35,933   Unpaid interest expense     2,105       2,105   Unrealized loss on investments     265       316   Asset retirement obligation     318       52   Other     980       633         279,762       273,109   Valuation allowances     ( 278,790 )     ( 271,016 )       972       2,093   Deferred income tax liabilities:                 Notes receivable     ( 701 )     ( 1,975 ) Capitalized assets and other     ( 271 )     ( 118 )       ( 972 )     ( 2,093 ) Net deferred income tax assets (liabilities)   $ —     $ —     Net operating losses available to offset future taxable income are as follows:   Year of Expiry   U.S.     Canada   2024   $ 1,032     $ —   2025     1,246       —   2026     13,382       19,426   2027     18,493       1,886   2028     85       —   2029     11,223       12,226   2030     10,916       16,269   2031     16,580       16,191   2032     309,772       19,759   2033     14,529       14,911   2034     15,607       10,728   2035     16,383       9,797   2036     14,764       9,641   2037     14,111       6,410   2038     —       6,115   2039     —       2,576   2040     —       3,545   2041     —       6,523   Indefinite     43,777       —       $ 501,900     $ 156,003     U.S. net operating losses arising in tax years ending after December 31, 2017 can be carried over to each taxable year following the tax year of loss (indefinitely). The Company has capital loss carry-forwards of approximately $ 377,550 ( November 30, 2020: $ 364,799 ) for Canadian tax purposes. These tax losses are carried forward indefinitely.   Future use of U.S. loss carry-forwards is subject to certain limitations under provisions of the Internal Revenue Code including limitations subject to Section  382, which relates to a 50% change in control over a three -year period and are further dependent upon the Company attaining profitable operations. Ownership changes occurred on January  22, 2009 and on December  31, 2012 and the U.S. tax losses related to NOVAGOLD Resources Alaska Inc. and its investment in Donlin Gold for the prior three -year periods prior to the change in control may be subject to limitation under Section  382. Accordingly, the Company’s ability to use these losses may be limited or they may expire un-utilized. Losses incurred to date may be further limited if a subsequent change in control occurs.     70 NOVAGOLD RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars in thousands, except per share)       Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax asset. Significant pieces of objective negative evidence evaluated included the cumulative loss incurred as of November 30, 2021. Such objective evidence limits the ability to consider other subjective evidence such as management’s projections for future growth. On the basis of this evaluation, as of November 30, 2021, a valuation allowance of $ 278,790 ( November 30, 2020: $ 271,016 ), has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable; however, could be adjusted if estimates of future taxable income during the carry forward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as management’s projections for growth.   Uncertain tax position   There were no uncertain tax positions as of November  30, 2021, 2020 and 2019. The Company recognizes any interest and penalties related to uncertain tax positions, if any, as income tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. As of November  30, 2021, 2020 and 2019, there were no accrued interest and penalties related to uncertain tax positions. The Company is subject to income taxes in Canada and the United States. With few exceptions, the tax years that remain subject to examination as of November  30, 2021, are 2017 to 2021 in Canada and 2018 to 2021 in the United States.     NOTE 16 – RELATED PARTY TRANSACTIONS   As of November 30, 2021, the Company has accounts receivable from Donlin Gold of nil ( November 30, 2020: $ 6 ) included in Other current assets .   NOTE 17 – NET CHANGE IN OPERATING ASSETS AND LIABILITIES       Years ended November 30,       2021     2020     2019   Changes in operating assets and liabilities:                         Other assets   $ 1,605     $ ( 65 )   $ 646   Accounts payable and accrued liabilities     ( 240 )     ( 137 )     84   Accrued payroll and related benefits     419       67       ( 402 )     $ 1,784     $ ( 135 )   $ 328       NOTE 18 – SUPPLEMENTAL CASH FLOW INFORMATION       Years ended November 30,       2021     2020     2019   Interest received   $ 1,024     $ 2,265     $ 3,094   Income taxes paid   $ 142     $ 376     $ 692         71 NOVAGOLD RESOURCES INC.       Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   None.