Paramount Gold Nevada Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Certain statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this quarterly report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, and in the risk factors on Form 10-K that was filed with the U.S. Securities and Exchange Commission (SEC) on September 16, 2019. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Overview We are an emerging growth 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 have the goal 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 three and nine-month periods ended March 31, 2020 and compares these results to the results of the prior year three and nine-month periods ended March 31, 2019. Operating Highlights: During the three-month period ended March 31, 2020, the Company submitted a revised Plan of Operation (the ”Plan”) to the Federal Bureau of Land Management (“ 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 Plan 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. During the nine-month period ended March 31, 2020, Paramount submitted its Consolidated Permit Application (“Application”) to the Oregon Department of Geology and Mineral Industries (“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 in mid-2020. On June 25, 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 to the Company which is expected to be completed in mid-2020. 14 On September 10, 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 aggregat e 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 conv ertible 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 consecuti ve 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. During the nine-month period ended March 31, 2020, 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. Outlook and Plan of Operation: We believe that investors will gain a better understanding of the Company if they understand how we measure and disclose our results. As an exploration and development company, we do not generate cash flow from our operations. We recognize the importance of managing our liquidity and capital resources. We pay close attention to all 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. Paramount has been closely monitoring the evolution of the COVID-19 pandemic and continues to evaluate its business activities and plans. Since March 2020, all of the Company’s employees have been working from home. Paramount believes that completion of the NI-43-101 Feasibility Study for the proposed high-grade Grassy Mountain underground gold mine in eastern Oregon is not likely to face disruption or delays and its completion remains on track for mid-2020. As previously reported, Ausenco, the lead consultant of the study, agreed to accept a fixed number of Paramount shares in lieu of cash to complete the study. This allows the Company to reduce cash expenses in the current challenging environment. Comparison of Operating Results for the three and nine-months ended March 31, 2020 and 2019 Results of Operations We did not earn any revenue from mining operations for the three and nine-months ended March 31, 2020 and 2019. During the nine-month period ended March 31, 2020, we submitted a consolidated mining permit application with the State of Oregon for our Grassy Mountain Project. In addition, Ausenco continued with activities related to completing a feasibility study on the Grassy Mountain Project. Net Loss Our net loss before income taxes for the three-months ended March 31, 2020 was $1,440,372 compared to a net loss before income taxes of $1,173,413 in the previous year. The drivers of the increase in net loss before income taxes of 23% are fully described below. Our net loss before income taxes for the nine-months ended March 31, 2020 was $4,789,388 compared to a net loss before income taxes of $3,662,629 in the previous year. The drivers of the increase of $1,126,759 or 31% in net loss before income taxes are fully described below. The Company expects to incur losses for the foreseeable future as we continue with our planned exploration programs. Expenses Exploration and Land Holding Costs For the three-month period ended March 31, 2020, exploration expenses were $1,068,021 compared to $712,623 in the prior year comparable period. This represents an increase of 50% or $355,398. During the three-month period ended March 31, 2020, the Company focused its efforts on preparing and submitting a revised plan of operations to the BLM for its Grassy Mountain Project. It also continued to work on its previously announced feasibility study for the Grassy Mountain project. Included were expenses related to the Company’s reclamation activities at the Sleeper Project. Total exploration expenses at the Grassy Mountain Project during the current three-month period were $968,059. 15 For the three-month pe riod ended March 31, 2020, land holding costs were $131,633 compared to $130,550 in the prior year comparable period. For the nine-month period ended March 31, 2020, exploration expenses were $3,335,221 compared to $2,019,837 in the prior year comparable period. This represents an increase of 65% or $1,315,384. During the current nine-month period, the Company submitted the consolidated mining permit application and a revised Plan for its Grassy Mountain Project and completed the reclamation of two ponds at its Sleeper Project in Nevada. For the nine-month period ended March 31, 2020, land holding costs decreased by $38,122 from the prior year comparable period. The decrease is primarily due to not incurring lease costs for non-essential mining claims leased from third parties. Salaries and Benefits For the three-month period ended March 31, 2020, salary and benefits increased by 6% or by $12,222 to $228,680 from the prior year’s three-month period ended March 31, 2019. Salary and benefits is comprised of cash and stock based compensation of the Company’s executive and corporate administration teams. The increase primarily reflects changes to stock-based compensation incurred during the three-month period ended March 31, 2020 compared to the three-month period ended March 31, 2019. Included in the salary and benefits expense amount for the three-month period ended March 31, 2020 and 2019 was a non-cash stock-based compensation of $23,361 and $43,409, respectively. For the nine-month period ended March 31, 2020, salary and benefits increased by 5% or by $38,356 to $740,369 from the prior year’s nine-month period ended March 31, 2019. The increase in expenses was due to bonuses awarded to the Company’s employee’s and stock-based compensation incurred for new option grants. Included in the salary and benefits expense amount for the nine-month period ended March 31, 2020 and 2019 was a non-cash stock-based compensation of $34,970 and $86,817. Directors’ Compensation For the three-month period ended March 31, 2020, directors’ compensation decreased by 51% or by $28,412 from the prior year’s three-month period ended March 31, 2019. Directors’ compensation consists of cash and stock-based compensation of the Company’s board of directors. The decrease reflects the reduction in stock-based compensation recorded in the current quarter compared to the prior year’s comparable period. For the nine-month period ended March 31, 2020, directors’ compensation decreased by 40% or by $42,746 from the prior year’s nine-months ended March 31, 2019. The decrease reflects the reduction in stock-based compensation recorded in the current nine-month period compared to the prior year’s comparable period. Professional Fees and General and Administration For the three-month period ended March 31, 2020, professional fees were $35,477 compared to $24,654 in the prior year’s comparable period. This represents an increase of 44% or $10,823. Legal costs and advisory fees related to permitting Grassy Mountain were the main factors for the increase in these expenses from the prior year comparable period. For the three-month period ended March 31, 2020, general and administration expenses decreased by 9% to $160,868 from $176,972 in the prior year comparable period. This decrease was a result of lower travel and marketing costs incurred by the Company. For the nine-month period ended March 31, 2020, professional fees were $124,809 compared to $97,428 in the prior year’s comparable period. This represents an increase of 28%. Legal costs and advisory fees related to permitting Grassy Mountain were the main factors in the increase in these expenses from the prior year comparable period. For the nine-month ended March 31, 2020, general and administration expenses decreased by 14% to $423,736 from $492,943 in the prior year comparable period. This decrease was a result of lower 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 March 31, 2020, we had cash and cash equivalents of $1,414,308 compared to $463,690 as at June 30, 2019. During the nine-months ended March 31, 2020, the Company issued 5,478 convertible notes for net proceeds of $5,201,807. 16 The main uses of cash for the nine-month period ending comprised of the following material amounts: • Cash used in operating activities which included general and administration expenses, land holding costs, exploration programs at our Grassy Mountain and Sleeper Gold Projects and reclamation activities of $4,246,470 Due to COVID-19, we anticipate our operating expenditures for the remainder of the fiscal year ending June 30, 2020 to be reduced. • $0.4 million on corporate administration expenses (expenses include executive management and employee salaries, legal, audit, marketing and other general and administrative expenses) • $0.1 million on the Sleeper Gold Project (expenses include reclamation costs, employee salary and benefits, and land holding costs) • $0.4 million on the Grassy Mountain Project (expenses include consulting fees, land holding costs and general and administration expenses, environmental impact statement preparation, State of Oregon permit application and evaluation activities and feasibility study costs) Our anticipated expenditures will be funded by our cash on hand and by 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. 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. Mineral property acquisition costs The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made. The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves. Exploration expenses We record exploration expenses as incurred. When we determine that a 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 expenses as incurred. 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 option granted. 17 For stock option grants that have no market conditions that affect vesting, th e 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 transferab le. 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. Use of 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, long-lived assets and asset retirement obligations. 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. 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. 18