Paramount Gold Nevada Corp. 10-Q

Item 1. Financial Statements. PARAMOUNT GOLD NEVADA CORP. Condensed Consolidated Interim Balance Sheets (Unaudited) As at September 30, As at June 30, 2021 2021 Assets Current Assets Cash and cash equivalents $ 3,659,067 $ 3,113,064 Prepaid expenses and deposits 834,566 1,152,396 Total Current Assets 4,493,633 4,265,460 Non-Current Assets Mineral properties (Note 7) 49,242,704 49,197,704 Reclamation bond (Note 8) 500,738 533,703 Property and equipment 7,831 5,959 Total Non-Current Assets 49,751,273 49,737,366 Total Assets $ 54,244,906 $ 54,002,826 Liabilities and Stockholders' Equity Liabilities Current Liabilities Accounts payable and accrued liabilities $ 697,742 $ 638,950 Reclamation and environmental obligation, current portion (Note 8) 316,022 310,022 Total Current Liabilities 1,013,764 948,972 Non-Current Liabilities Convertible debt (Note 6) 4,176,703 4,161,502 Reclamation and environmental obligation, non-current portion (Note 8) 1,579,591 1,539,622 Total Non-Current Liabilities 5,756,294 5,701,124 Total Liabilities 6,770,058 6,650,096 Stockholders' Equity Common stock, par value $ 0.01 , 200,000,000 authorized shares, 40,525,151 issued and outstanding at September 30, 2021 and 200,000,000 authorized shares, 38,154,109 issued and outstanding at June 30, 2021 (Note 5) 405,253 381,542 Additional paid in capital 109,017,288 107,005,135 Deficit ( 61,947,693 ) ( 60,033,947 ) Total Stockholders' Equity 47,474,848 47,352,730 Total Liabilities and Stockholders' Equity $ 54,244,906 $ 54,002,826 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Commitments and Contingencies: Note 11 Subsequent Events: Note 12 2 PARAMOUNT GOLD NEVADA CORP. Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (Unaudited) For the Three-Month Period Ended September 30, 2021 For the Three-Month Period Ended September 30, 2020 Income Other income (Note 9) $ 116,299 $ 68,948 Total Revenue 116,299 68,948 Expenses Exploration 1,256,805 636,027 Land holding costs 141,193 131,183 Professional fees 44,963 44,452 Salaries and benefits 230,749 255,941 Directors' compensation 13,837 30,942 General and administrative 119,863 114,123 Insurance 74,040 49,687 Depreciation 851 630 Accretion (Note 8) 45,969 15,010 Total Expenses 1,928,270 1,277,995 Net Loss before Other Expense 1,811,971 1,209,047 Other Expense (Income) Interest income - ( 1,224 ) Interest and service charges 101,775 123,685 Net Loss and Comprehensive Loss $ 1,913,746 $ 1,331,508 Loss per Common Share Basic $ 0.05 $ 0.04 Diluted $ 0.05 $ 0.04 Weighted Average Number of Common Shares Used in Per Share Calculations Basic 38,758,971 33,722,635 Diluted 38,758,971 33,722,635 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3 PARAMOUNT GOLD NEVADA CORP. Condensed Consolidated Interim Statements of Stockholders’ Equity (Unaudited) Shares (#) Common Stock Additional Paid-In Capital Deficit Total Stockholders' Equity Balance at June 30, 2021 38,154,109 $ 381,542 $ 107,005,135 $ ( 60,033,947 ) $ 47,352,730 Stock based compensation — — 42,671 — 42,671 Capital issued for financing 2,202,352 22,024 1,807,527 — 1,829,551 Capital issued for payment of interest 168,690 1,687 161,955 — 163,642 Net loss — — — ( 1,913,746 ) ( 1,913,746 ) Balance at September 30, 2021 40,525,151 $ 405,253 $ 109,017,288 $ ( 61,947,693 ) $ 47,474,848 Shares (#) Common Stock Additional Paid-In Capital Deficit Total Stockholders' Equity Balance at June 30, 2020 32,958,404 $ 329,584 $ 100,881,957 $ ( 54,130,329 ) $ 47,081,212 Stock based compensation — — 77,424 — 77,424 Capital issued for payment of interest 183,395 1,834 203,579 — 205,413 Capital issued for financing 595,281 5,953 764,561 — 770,514 Capital issued on conversion of debt 200,000 2,000 190,066 — 192,066 Net loss — — — ( 1,331,508 ) ( 1,331,508 ) Balance at September 30, 2020 33,937,080 $ 339,371 $ 102,117,587 $ ( 55,461,837 ) $ 46,995,121 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4 PARAMOUNT GOLD NEVADA CORP. Condensed Consolidated Interim Statements of Cash Flows (Unaudited) For the Three-Month Period Ended September 30, 2021 For the Three-Month Period Ended September 30, 2020 Net Loss $ ( 1,913,746 ) $ ( 1,331,508 ) Adjustment for: Depreciation 851 630 Stock based compensation (Note 5) 42,671 77,424 Amortization of debt issuance costs (Note 6) 15,201 17,384 Interest expense 81,989 100,674 Accretion expense (Note 8) 45,969 15,010 Changes in reclamation bonds and accounts 32,965 ( 1,224 ) (Increase)/Decrease in prepaid expenses 272,830 ( 279,345 ) Increase/(Decrease) in accounts payable 140,445 ( 312,162 ) Cash used in operating activities ( 1,280,825 ) ( 1,713,117 ) Purchase of equipment ( 2,723 ) — Cash used in investing activities ( 2,723 ) — Capital issued for financing (Note 5) 1,829,551 770,514 Cash provided by financing activities 1,829,551 770,514 Change in cash during period 546,003 ( 942,603 ) Cash at beginning of period 3,113,064 5,434,081 Cash at end of period $ 3,659,067 $ 4,491,478 See Note 4 for supplemental cash flow information The accompanying notes are an integral part of these condensed consolidated interim financial statements. 5 PARAMOUNT GOLD NEVADA CORP. Notes to Condensed Consolidated Interim Financial Statements For the Three-Month Period Ended September 30, 2021 and 2020 (Unaudited) Note 1. Description of Business and Summary of Significant Accounting Policies Paramount Gold Nevada Corp. (the “Company” or “Paramount”), incorporated under Chapter 78 of Nevada Revised Statutes, 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 unaudited condensed consolidated interim financial statements are prepared by management in accordance with accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The Company faces various risks related to the COVID-19 global pandemic. The Company’s primary goal during the COVID-19 pandemic is to safeguard the health of our employees, suppliers and the communities where we operate while minimizing business interruption. To date, COVID-19 pandemic has not had a material impact on our business however because of the highly uncertain and dynamic nature of events relating to the COVID-19 pandemic, it is not currently possible to predict any future impact of the COVID-19 pandemic, but these impacts could have a material adverse effect on the business, financial position, results of operations and/or cash flows. We will continue to monitor the COVID-19 situation closely. The results of operations for the interim period ended September 30, 2021 is not necessarily indicative of the operating results expected for any future period. The condensed consolidated interim financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), are presented in US dollars and follow the same accounting policies and methods of their application as the most recent annual financial statements. 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 condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended June 30, 2021. Significant Accounting Policies Please see Note 1- Description of Business and Summary of Significant Accounting Policies contained in the 2021 10-K. Note 2. Recent Accounting Guidance In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which addresses the complexity of its guidance for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 removes the accounting models that require beneficial conversion features or cash conversion features associated with convertible instruments to be recognized as a separate component of equity, adds certain disclosure requirements for convertible instruments, amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and simplifies the diluted earnings per share calculation for certain situations. This ASU is effective for the Company beginning on January 1, 2024. The Company is currently evaluating the impact of implementing these changes on the Company’s consolidated financial position, operating results and cash-flows. 6 Note 3. Fair Value Measurements Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 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). Financial assets carried at fair value on a recurring basis by level within the fair value hierarchy in the Condensed Consolidated Interim Balance Sheets at September 30, 2021 and June 30, 2021 are presented in the following table: Fair Value at September 30, 2021 June 30, 2021 Total Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 3,659,067 3,659,067 — — $ 3,113,064 The carrying values of accounts payable and accrued liabilities and convertible debt (Note 6) approximate fair value as of September 30, 2021 and June 30, 2021. Note 4. Non-Cash Transactions During the three-month period ended September 30, 2021, the Company issued 168,690 shares of Common Stock for payment of interest accrued and owing on its outstanding 2019 Convertible Notes. During the three-month period ended September 30, 2020, the Company issued 183,395 shares of Common Stock for payment of interest accrued and owing on its outstanding 2019 Convertible Notes. Additionally, 200,000 shares of Common Stock were issued upon the conversion of 200 of its outstanding 2019 Convertible Notes. Note 5. Capital Stock Authorized Capital Authorized capital stock consists of 200,000,000 common shares with par value of $ 0.01 per common share (June 30, 2021 – 200,000,000 common shares with par value $ 0.01 per common share). During the three-month period ended September 30, 2021, the Company issued 2,202,352 shares at an approximate average price of $ 0.856 for gross proceeds of $ 1,886,135 through its at-the-market offering. Share issuance costs related to this were $ 56,584 . The Company also issued 168,690 shares for payment of interest accrued and owing (Note 6) with a fair value of $ 163,642 . During the three month period ended September 30, 2020, the Company issued 595,281 shares at an approximate average price of $ 1.3344 for gross proceeds of $ 794,345 . Share issuance costs including commissions were $ 23,830 for net proceeds of $ 770,514 . The Company also issued 183,395 shares for payment of interest accrued and owing at June 30, 2020 (Note 6). The Company also issued 200,000 shares upon the conversion of 200 of the 2019 Senior Secured Convertible Notes (Note 6). At September 30, 2021 there were 40,525,151 common shares issued and outstanding (June 30, 2021 – 38,154,109 common shares). Stock Options and Stock Based Compensation Paramount’s 2015 and 2016 Stock Incentive and Compensation Plans, which are stockholder-approved, permits the grant of stock options and stock to its employees and directors 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, employees and directors with those of its shareholders a significant portion of those 7 share option awards will vest contingent upon meeting certain stock price appreciation performance goals and other performance conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan). During the three-month period ended September 30, 2021, the Company did no t grant any stock options (2020 – 55,000 ). During the three-month period ended September 30, 2021, share-based compensation expense relating to service condition options and performance condition was $ 45,021 and $ 35,843 , respectively (2020- $ 23,029 and $ 44,477 ) . The fair value for these options was calculated using the Black-Scholes option valuations method. The weighted average assumptions used for the three-month period ended September, 2021 and three-month period ended September 30, 2020 were as follows: Three-Months Ended September 30, 2021 Three-Months Ended September 30, 2020 Weighted average risk-free interest rate N/A 0.22 % Weighted-average volatility N/A 63 % Expected dividends N/A $ 0.00 Weighted average expected term (years) N/A 5.00 Weighted average fair value N/A $ 0.64 A summary of option activity under the Stock Incentive and Compensation Plans as of September 30, 2021 is presented below: Options Options Weighted Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at June 30, 2020 1,243,995 $ 1.20 3.63 $ 165,600 Granted 755,000 1.13 4.44 — Exercised — — — — Forfeited or expired — — — — Outstanding at June 30, 2021 1,998,995 $ 1.17 3.31 $ — Granted — — — $ — Exercised — — — — Forfeited or expired ( 190,000 ) — — — Outstanding at September 30, 2021 1,808,995 $ 1.14 3.17 $ — Exercisable at September 30, 2021 863,330 $ 1.16 2.94 $ — A summary of the status of Paramount’s non-vested options as at September 30, 2021 is presented below: Non-vested Options Options Weighted- Average Grant- Date Fair Value Non-vested at June 30, 2020 943,992 $ 0.51 Granted 755,000 0.56 Vested ( 664,994 ) 0.50 Forfeited or expired — — Non-vested at June 30, 2021 1,033,998 $ 0.55 Granted — — Vested — — Forfeited or expired ( 88,333 ) 0.73 Non-vested at September 30, 2021 945,665 $ 0.54 As of September 30, 2021, there was $ 77,970 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plans. That cost is expected to be recognized over a weighted- 8 average period of 1.15 years . The total fair value of s tock based compensation arrangements vested during the three -month period ended September 30 , 2021 and 2020 , was $ nil and $ nil , respectively. Note 6. Convertible Debt Debt September 30, 2021 June 30, 2021 Current Non-Current Current Non-Current 2019 Secured Convertible Notes $ — $ 4,277,690 $ — $ 4,277,690 Less: unamortized discount and issuance costs — ( 100,987 ) — ( 116,188 ) $ — $ 4,176,703 $ — $ 4,161,502 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 effective interest rate of the 2019 Convertible Notes in 9.23 %. 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 three-month period ended September 30, 2021, the Company amortized $ 15,201 (2020- $ 25,318 ) 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 . At September 30, 2021, the working capital covenant was met by the Company. During the three-month period ended September 30, 2021, there were no conversions of 2019 Convertible Notes to common stock of the Company. During the three-month period ended September 30, 2020, 200 of the 2019 Convertible Notes outstanding were converted into 200,000 shares of common stock of the Company (Note 5) and $ 7,934 of unamortized discount and issuance costs were debited to additional paid in capital to reflect the issued common stock. Note 7. Mineral Properties The Company has capitalized acquisition costs on mineral properties as follows: September 30, 2021 June 30, 2021 Sleeper and other Nevada based Projects $ 26,031,976 $ 26,011,976 Grassy Mountain and other Oregon based Projects 23,210,728 23,185,728 $ 49,242,704 $ 49,197,704 Sleeper: Sleeper is located in Humboldt 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. 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. It consists of 442 unpatented lode claims, 3 patented lode claims, and various leased fee land surface and surface/mineral rights, covering approximately 8,300 acres . Note 8. Reclamation and Environmental 9 Reclamation and environmental costs are based principally on legal requirements. Management estimates costs associated with reclamation of mineral properties and properties under mine closure. On an ongoing basis the Company evaluates its estimates and assumptions; however, actual amounts could differ from those based on estimates and assumptions. The Company has posted several cash bonds as financial security to satisfy reclamation requirements. The balance of posted cash reclamation bonds at September 30, 2021 is $ 500,738 (June 30, 2021 - $ 533,703 ). Paramount is responsible for managing the reclamation activities from the previous mine operations at the Sleeper Gold Mine as directed by the BLM and the Nevada State Department of Environmental Protection (“NDEP”). Paramount has estimated the undiscounted reclamation costs for existing disturbances at the Sleeper Gold Project required by the BLM to be $ 3,557,944 . These costs are expected to be incurred between the calendar years 2021 and 2060. Paramount has also estimated undiscounted reclamation cost as required by the NDEP to be $ 1,470,000 . These costs include on-going monitoring and new requests from the NDEP to convert three processing ponds from the historical operations to evaporation cell ponds by 2023. On-going monitoring costs are expected to be incurred between 2021 and 2039. The sum of expected costs by year are discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement to the time it incurs the obligation. The asset retirement obligation for the Sleeper Gold Project recorded on the balance sheet is equal to the present value of the estimated reclamation costs as required by both the BLM and NDEP. The following variables were used in the calculation for the periods ending September 30, 2021 and June 30, 2021: Three-Months Ended September 30, 2021 Year Ended June 30, 2021 Weighted-average credit adjusted risk free rate 9.89 % 9.89 % Weighted-average inflation rate 2.31 % 2.31 % Changes to the Company’s asset retirement obligations for the Sleeper Gold Mine for the three-month period ended September 30, 2021 and the year ended June 30, 2021 are as follows: Three-Month Period Ended September 30, 2021 Year Ended June 30, 2021 Balance at beginning of period $ 1,849,644 $ 615,170 Accretion expense 45,969 60,040 Additions and change in estimates — 1,498,950 Settlements — ( 324,516 ) Balance at end of period $ 1,895,613 $ 1,849,644 The balance of the asset retirement obligation of $ 1,895,613 at September 30, 2021 (June 30, 2021 -$ 1,849,644 ) is comprised of a current portion of 316,022 (June 30, 2020 -$ 310,022 ) and a non-current portion of 1,579,591 (June 30, 2020 -$ 1,539,622 ). The Company recorded an accretion expense for the three-month period ended September 30, 2021 of $ 45,969 (September 30, 2020 - $ 15,010 ). Note 9. Other Income The Company’s other income details for the three month period ended September 30, 2021 and 2020 were as follows: Three-Month Period Three-Month Period Ended September 30, 2021 Ended September 30, 2020 Re-imbursement of reclamation costs $ 110,441 $ 63,205 Leasing of water rights to third party 5,858 5,743 Total $ 116,299 $ 68,948 10 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 three-month period ended September 30, 2021: Exploration Expenses Land Holding Costs Three-Month Period Ended September 30, 2021 Three-Month Period Ended September 30, 2021 Mineral Properties As at September 30, 2021 Sleeper Gold Project and other Nevada based Projects $ 335,242 $ 112,815 $ 26,031,976 Grassy Mountain Project and other Oregon based Projects 921,563 28,378 23,210,728 $ 1,256,805 $ 141,193 $ 49,242,704 Expenses for the three-month period ended September 30, 2020 and mineral property carrying values as at June 30, 2021 by material project: Exploration Expenses Land Holding Costs Three-Month Period Ended September 30, 2020 Three-Month Period Ended September 30, 2020 Mineral Properties As at June 30, 2021 Sleeper Gold Project and other Nevada based Projects $ 283,263 $ 106,904 $ 26,011,976 Grassy Mountain Project and other Oregon based Projects 352,764 24,279 23,185,728 $ 636,027 $ 131,183 $ 49,197,704 Note 11. Commitments and Contingencies: Other Commitments Paramount has an agreement to acquire 44 mining claims (“Cryla Claims”) covering 589 acres located immediately to the west of the proposed Grassy Mountain site from Cryla LLC. Paramount is obligated to make annual lease payments of $ 40,000 per year for the first two years of the lease term commencing in 2018 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. All lease payments under the agreement are up-to-date and no other payments were made during the three-month period ended September 30, 2021. 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 % of 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. 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. During the nine-month period ended March 31, 2021, the Company made a payment to Nevada Select for $ 15,000 upon receipt of its drilling permit from state and federal regulators and all required payments under the agreement are up-to-date as of September 30, 2021. The Frost Claims are without known mineral reserves. During the three-month period ended September 30, 2021, the Company entered into an option agreement with Nevada Select to purchase the Bald Peak mining claims in the State of Nevada and California for a total consideration of $ 300,000 . Payments under the agreement will be based on achieving certain events over time. Upon signing the agreement Paramount made a payment to Nevada Select of $ 20,000 . The Bald Peak Claims are without known mineral reserves. 11