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EX-32.2 - EX-32.2 - Paramount Gold Nevada Corp.pzg-ex322_8.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO

Commission File Number 001-36908

 

PARAMOUNT GOLD NEVADA CORP.

(Exact name of Registrant as specified in its Charter)

 

 

Nevada

98-0138393

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

665 Anderson Street

Winnemucca, NV

89445

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (775) 625-3600

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES      NO  

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES      NO  

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    YES      NO  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  

The number of shares of Registrant’s Common Stock outstanding, $0.01 par value per share, as of February 6, 2017 was 15,689,954.

 

 

 

 


Table of Contents

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Interim Balance Sheets

 

2

 

 

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Consolidated Interim Statements of Shareholders’ Equity

 

4

 

 

Condensed Consolidated Interim Statements of Cash Flows

 

5

 

 

Notes to Unaudited Condensed Consolidated Interim Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

18

Item 4.

 

Controls and Procedures

 

18

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

Item 1A.

 

Risk Factors

 

19

Item 4.

 

Mine Safety Disclosures

 

19

Item 6.

 

Exhibits

 

20

 

 

 

 

 

Signatures

 

Directors, Executive Officers and Corporate Governance

 

21

 

 

 

 

 

Exhibit Index

 

 

 

22

 

 

 

i


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

PARAMOUNT GOLD NEVADA CORP.

Condensed Consolidated Interim Balance Sheets

as at December 31, 2016 and June 30, 2016

(Unaudited)

 

 

 

As at December 31,

 

 

As at June 30,

 

 

 

2016

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,813,694

 

 

$

5,874,258

 

Prepaid and deposits

 

 

418,835

 

 

 

175,383

 

Accounts receivable

 

 

15,060

 

 

 

 

Promissory note receivable (Note 3)

 

 

 

 

 

808,187

 

Other assets

 

 

 

 

 

561,997

 

Prepaid insurance (Note 9)

 

 

 

 

 

24,517

 

Total Current Assets

 

 

2,247,589

 

 

 

7,444,342

 

Non-Current Assets

 

 

 

 

 

 

 

 

Mineral properties (Note 7)

 

 

46,460,386

 

 

 

25,674,658

 

Property and equipment (Note 8)

 

 

14,839

 

 

 

14,896

 

Reclamation bond (Note 9)

 

 

2,293,874

 

 

 

2,350,131

 

Total Non-Current Assets

 

 

48,769,099

 

 

 

28,039,685

 

Total Assets

 

$

51,016,688

 

 

$

35,484,027

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

248,617

 

 

$

175,801

 

Reclamation and environmental obligation, current portion (Note 9)

 

 

384,099

 

 

 

384,099

 

Total Current Liabilities

 

 

632,716

 

 

 

559,900

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

Reclamation and environmental obligation, non-current portion (Note 9)

 

 

1,023,813

 

 

 

1,017,940

 

Total Liabilities

 

 

1,656,529

 

 

 

1,577,840

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01, 50,000,000 authorized shares, 15,689,954 issued and outstanding at December 31, 2016 and 8,518,791 issued and outstanding at June 30, 2016

 

 

156,900

 

 

 

85,188

 

Additional paid in capital

 

 

80,397,039

 

 

 

65,143,383

 

Deficit

 

 

(31,193,780

)

 

 

(31,322,384

)

Total Stockholders' Equity

 

 

49,360,159

 

 

 

33,906,187

 

Total Liabilities and Stockholders' Equity

 

$

51,016,688

 

 

$

35,484,027

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

2


 

PARAMOUNT GOLD NEVADA CORP.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (Income)

for the Three and Six Month Period ended December 31, 2016 and 2015

(Unaudited)

 

 

 

For the

Three Month

Period Ended

December 31, 2016

 

 

For the

Three Month

Period Ended

December 31, 2015

 

 

For the

Six Month

Period Ended

December 31, 2016

 

 

For the

Six Month

Period Ended

December 31, 2015

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (Note 10)

 

$

40,599

 

 

$

125,722

 

 

$

45,905

 

 

$

130,924

 

Total Revenue

 

 

40,599

 

 

 

125,722

 

 

 

45,905

 

 

 

130,924

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration

 

 

1,318,444

 

 

 

171,296

 

 

 

1,855,815

 

 

 

446,171

 

Land holding costs

 

 

122,288

 

 

 

101,591

 

 

 

276,900

 

 

 

195,237

 

Professional fees

 

 

51,869

 

 

 

108,581

 

 

 

99,860

 

 

 

150,286

 

Salaries and benefits

 

 

173,331

 

 

 

226,675

 

 

 

438,174

 

 

 

434,966

 

Directors compensation

 

 

38,754

 

 

 

58,183

 

 

 

83,783

 

 

 

109,448

 

General and administrative

 

 

126,060

 

 

 

109,738

 

 

 

268,115

 

 

 

167,954

 

Insurance

 

 

41,422

 

 

 

48,079

 

 

 

84,418

 

 

 

90,020

 

Depreciation

 

 

1,481

 

 

 

858

 

 

 

2,584

 

 

 

2,404

 

Accretion (Note 9)

 

 

34,322

 

 

 

36,998

 

 

 

68,644

 

 

 

73,996

 

Total Expenses

 

 

1,907,971

 

 

 

861,999

 

 

 

3,178,293

 

 

 

1,670,482

 

Net Loss before other Expense (Income)

 

 

1,867,372

 

 

 

736,277

 

 

 

3,132,388

 

 

 

1,539,558

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(3,227

)

 

 

(1,350

)

 

 

(6,513

)

 

 

(2,711

)

Interest and service charges

 

 

380

 

 

 

40

 

 

 

572

 

 

 

113

 

Non recurring rebates

 

 

(39,633

)

 

 

 

 

 

(39,633

)

 

 

 

Net Loss before income taxes

 

 

1,824,892

 

 

 

734,967

 

 

 

3,086,814

 

 

 

1,536,960

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax recovery (Note 3)

 

 

 

 

 

 

 

 

(3,215,418

)

 

 

 

Net Loss (Income)

 

 

1,824,892

 

 

 

734,967

 

 

 

(128,604

)

 

 

1,536,960

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale-securities

 

 

 

 

 

698

 

 

 

 

 

 

14,577

 

Total Comprehensive Loss (Income) for the Period

 

$

1,824,892

 

 

$

735,665

 

 

$

(128,604

)

 

$

1,551,537

 

Loss (Income) per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.09

 

 

$

(0.01

)

 

$

0.18

 

Diluted

 

$

0.12

 

 

$

0.09

 

 

$

(0.01

)

 

$

0.18

 

Weighted Average Number of Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Used in Per Share Calculations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,689,954

 

 

 

8,518,791

 

 

 

15,417,138

 

 

 

8,518,791

 

Diluted

 

 

15,689,954

 

 

 

8,518,791

 

 

 

15,622,782

 

 

 

8,518,791

 

 

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

for the Six Month Period Ended December 31, 2016 and Years ended June 30, 2016 and 2015

(Unaudited)

 

 

 

Shares (#)

 

 

Common Stock

 

 

Additional

Paid-In Capital

 

 

Deficit

 

 

Accumulated  Other

Comprehensive

Income (Loss)

 

 

Total Stockholders'

Equity

 

Balance at June 30, 2014

 

 

1,000

 

 

$

29,701,475

 

 

$

6,545,714

 

 

$

(20,749,005

)

 

$

60,149

 

 

$

15,558,333

 

Returned to treasury by PGSC for

   Spin-off

 

 

(1,000

)

 

 

(29,701,475

)

 

 

 

 

 

 

 

 

 

 

 

(29,701,475

)

Capital issued for Spin-off transaction

 

 

8,101,371

 

 

 

81,014

 

 

 

29,620,461

 

 

 

 

 

 

 

 

 

29,701,475

 

Contributed capital by PGSC - Cash

 

 

 

 

 

 

 

 

8,445,860

 

 

 

 

 

 

 

 

 

8,445,860

 

Contributed capital by PGSC - Loan

   reclassified to equity

 

 

 

 

 

 

 

 

15,866,870

 

 

 

 

 

 

 

 

 

15,866,870

 

Capital issued for financing

 

 

417,420

 

 

 

4,174

 

 

 

1,465,826

 

 

 

 

 

 

 

 

 

1,470,000

 

Stock based compensation

 

 

 

 

 

 

 

 

375,788

 

 

 

 

 

 

 

 

 

375,788

 

Imputed interest on loans due to PGSC

 

 

 

 

 

 

 

 

2,252,027

 

 

 

 

 

 

 

 

 

2,252,027

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,711

)

 

 

(8,711

)

Transfer on realized gain on sale of

   marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(106,631

)

 

 

(106,631

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,231,207

)

 

 

 

 

 

(5,231,207

)

Balance at June 30, 2015

 

 

8,518,791

 

 

 

85,188

 

 

 

64,572,546

 

 

 

(25,980,212

)

 

 

(55,193

)

 

 

38,622,329

 

Stock based compensation

 

 

 

 

 

 

 

 

570,837

 

 

 

 

 

 

 

 

 

570,837

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,193

 

 

 

55,193

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,342,172

)

 

 

 

 

 

(5,342,172

)

Balance at June 30, 2016

 

 

8,518,791

 

 

 

85,188

 

 

 

65,143,383

 

 

 

(31,322,384

)

 

 

 

 

 

33,906,187

 

Stock based compensation

 

 

 

 

 

 

 

 

122,502

 

 

 

 

 

 

 

 

 

122,502

 

Capital issued for acquisition (Note 3)

 

 

7,171,163

 

 

 

71,712

 

 

 

15,131,154

 

 

 

 

 

 

 

 

 

15,202,866

 

Net income

 

 

 

 

 

 

 

 

 

 

 

128,604

 

 

 

 

 

 

128,604

 

Balance at December 31, 2016

 

 

15,689,954

 

 

 

156,900

 

 

 

80,397,039

 

 

 

(31,193,780

)

 

 

 

 

 

49,360,159

 

 

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

for the Six Month Period ended December 31, 2016 and 2015

(Unaudited)

 

 

 

For the

Six Month

Period Ended

December 31, 2016

 

 

For the

Six Month

Period Ended

December 31, 2015

 

Net Income (Loss)

 

$

128,604

 

 

$

(1,536,960

)

Adjustment for:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,584

 

 

 

2,404

 

Stock based compensation

 

 

122,502

 

 

 

279,094

 

Accretion expense (Note 9)

 

 

68,644

 

 

 

73,996

 

Interest earned on reclamation bond

 

 

(6,514

)

 

 

(8,865

)

Insurance expense

 

 

24,517

 

 

 

24,518

 

Deferred tax recovery

 

 

(3,215,418

)

 

 

 

(Increase) decrease in accounts receivable

 

 

(15,060

)

 

 

37,071

 

(Increase) decrease in prepaid expenses

 

 

(243,452

)

 

 

(130,653

)

Increase (decrease) in accounts payable

 

 

72,816

 

 

 

(108,013

)

Cash used in operating activities

 

 

(3,060,777

)

 

 

(1,367,408

)

Acquisition of Calico

 

 

(1,001,623

)

 

 

 

Cash acquired in Calico transaction

 

 

4,363

 

 

 

 

Purchase of equipment

 

 

(2,527

)

 

 

(8,365

)

Cash used in investing activities

 

 

(999,787

)

 

 

(8,365

)

Cash provided by financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash during period

 

 

(4,060,564

)

 

 

(1,375,773

)

Cash at beginning of period

 

 

5,874,258

 

 

 

9,282,534

 

Cash at end of period

 

$

1,813,694

 

 

$

7,906,761

 

 

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

 

Note 1. Description of Business and Summary of Significant Accounting Policies

Paramount Gold Nevada Corp. (the “Company” or “Paramount”), incorporated under the General Corporation Law of the State of Nevada, and its wholly-owned subsidiaries are engaged in the acquisition, exploration and development of  precious metal properties. The Company’s wholly owned subsidiaries include New Sleeper Gold LLC, Sleeper Mining Company, LLC, and Calico Resources USA Corp (“Calico”).   The Company is in the process of exploring its mineral properties in Nevada and Oregon, United States. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to advance its projects and to date has not determined whether these properties contain reserves that are economically recoverable.  The Company’s shares of common stock trade on the NYSE MKT 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 results of operations for interim periods are not necessarily indicative of the operating results of a full year or future years.

The condensed consolidated interim financial statements have been prepared in accordance with U.S. GAAP 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, 2016.

Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made by management in the condensed consolidated interim financial statements include the adequacy of the Company’s asset retirement obligations, valuation of deferred tax asset, and valuation of mineral properties.

Cash and Cash Equivalents

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash and cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents and amounts receivable.  The Company maintains cash in accounts which may, at times, exceed federally insured limits.  At December 31, 2016, the balances of approximately $1.5 million were in excess of federally insured limits.  We deposit our cash with financial institutions which we believe have sufficient credit quality to minimize the risk of loss.

Fair Value Measurements

The Company has adopted FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. The Company applies fair value accounting for all financial assets and liabilities and non – financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

6


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

The Company has adopted FASB ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.

Stock Based Compensation

The Company has adopted the provisions of FASB ASC 718, “Stock Compensation” (“ASC 718”), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).  Shares of the Company’s common stock will be issued for any options exercised.

Mineral Properties

Mineral property acquisition costs are capitalized when incurred and will be amortized using the units-of-production method over the estimated life of the reserve following the commencement of production.  If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.

Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties.

Exploration Costs

Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred.  When it is determined that a mineral deposit can be economically developed as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives.  To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are being expensed.

Property and Equipment

Equipment is recorded at cost less accumulated depreciation. All equipment is depreciated over its estimated useful life at the following annual rates:

 

Computer equipment

 

30% declining balance

 

Equipment

 

20% declining balance

 

 

Asset Retirement Obligations

The Company follows the provisions of ASC 440, “Asset Retirement and Environmental Obligations”, which establishes the standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets.  The Company’s asset retirement obligations are further described in Note 10.

Loss/Income per Common Share

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during each period.  Diluted loss per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

For the three month period ended December 31, 2016 and 2015 and the six month period ended December 31, 2015, the shares of common stock equivalents related to outstanding stock options have not been included in the diluted per share calculation as they are anti-dilutive as the Company has recorded a net loss from continuing operations for the period.

For the six month period ended December 31, 2016, the shares of common stock equivalents related to outstanding stock options have been included in the diluted per share calculation as the Company has recorded a net income from continuing operations for the period.

7


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

Revenue Recognition

Revenue is recognized when persuasive evidence that an agreement exists, the risks and rewards of ownership pass to the purchaser, the selling price is fixed and determinable; or collection is reasonably assured. The passing of title to the purchaser is based on the terms of the purchase and sale agreement.

 

 

Note 2. Recent Accounting Guidance

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230),” which provides guidance on presentation and classification of certain cash receipts and payments in the statement of cash flows. These changes become effective for the Company's fiscal year beginning July 1, 2018. The Company is currently evaluating the potential impact of implementing these changes on the Company's consolidated cash flows.

 

 

 

Note 3. Acquisitions

On July 7, 2016, the Company completed the acquisition of Calico, which held mining claims and the Grassy Mountain Gold Project in Oregon, USA. Upon closing of the transaction, Calico became a wholly-owned subsidiary of the Company, and each issued and outstanding share of Calico common stock was converted into 0.07 shares of Paramount common stock.

The transaction was accounted for as an asset acquisition, as Calico is an exploration stage project, which requires that the total purchase price be allocated to the assets acquired and liabilities assumed based on their relative fair values.  Transaction advisory fees and other acquisition costs incurred prior to the closing of the transaction were recorded as Other Assets on the Balance Sheet. The purchase price and acquired assets and liabilities were as follows:

 

Common shares issued (7,171,163 at $2.12)

 

$

15,202,866

 

Transaction advisory fees and other acquisition costs

 

 

795,925

 

Total purchase price

 

 

15,998,791

 

Assets:

 

 

 

 

Cash

 

 

4,363

 

Receivables and other current assets

 

 

28,093

 

Mineral properties

 

 

20,785,728

 

 

 

 

20,818,184

 

Liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

 

1,603,975

 

Deferred income taxes

 

 

3,215,418

 

 

 

 

4,819,393

 

Net assets acquired

 

$

15,998,791

 

  

A loan was granted to Calico prior to the acquisition in exchange for a promissory note. As at June 30, 2016, the balance was $808,187 and has been eliminated on consolidation.

Pursuant to the acquisition of Calico, the Company recorded a deferred tax liability of $3,215,418.  Subsequent to the acquisition, the Company determined that it would be able to utilize the benefit of its tax operating loss carryforwards and adjusted its valuation allowance to recognize the benefit of these previously unrecognized deferred tax assets and offset the deferred tax liability.  Accordingly, the Company recognized a deferred tax recovery of $3,215,418.

 

 

Note 4. Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization with the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

8


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

Inputs that are both significant to the fair value measurement and unobservable.

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

 

 

 

 

Fair Value at December 31, 2016

 

 

June 30, 2016

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

1,813,694

 

 

 

1,813,694

 

 

 

 

 

 

 

 

$

5,874,258

 

 

The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash and cash equivalents that are valued based on quoted market prices in active markets are primarily comprised of commercial paper, short-term certificates of deposit and U.S. Treasury securities.

.

 

 

Note 5. Non-Cash Transactions

During the six month period ended December 31, 2016, the Company issued 7,171,163 shares of its common stock with a value of $15,202,866 for the acquisition of Calico Resources Corp.

 

 

Note 6. Capital Stock

Authorized Capital

Authorized capital stock consists of 50,000,000 common shares with par value of $0.01 per common share (June 30, 2016 – 50,000,000 common shares with par value $0.01 per common share).  At December 31, 2016 there were 15,689,954 common shares issued and outstanding (June 30, 2016- 8,518,791 common shares).

 

Stock Options and Stock Based Compensation

Paramount’s 2015 and 2016 Stock Incentive and Compensation Plans, which are shareholder-approved, permits the grant of share options and shares to its employees for up to 1.569 million shares of common stock. Option awards are generally granted with an exercise price equal to the market price of Paramount’s stock at the date of grant and have contractual lives of 5 years.  To better align the interests of its key executives and employees with those of its shareholders, a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan).

The fair value of option awards that have market conditions are estimated on the date of grant using a Monte-Carlo Simulation valuation model.  The award’s grant date fair value is determined by taking the average of the grant date fair values under each of many Monte Carlo trials.  The key assumptions used in the simulations were as follows:

 

 

 

2016

 

 

2015

 

Weighted average risk-free interest rate

 

 

1.26

%

 

 

 

Weighted average volatility

 

 

70.26

%

 

 

 

Weighted average fair value

 

$

1.22

 

 

 

 

 

The fair value of option awards that do not have market conditions are estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Because Black-Scholes option valuation models incorporate

9


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

ranges of assumptions for inputs, those ranges are disclosed. Given Paramount’s short history as a public company, expected volatilities are based on, historical volatilities from five proxy companies’ stock. Paramount uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

 

 

2016

 

 

2015

 

Weighted average risk-free interest rate

 

 

1.26

%

 

 

 

Weighted-average volatility

 

 

70.26

%

 

 

 

Expected dividends

 

$

0.00

 

 

 

 

Weighted average expected term (years)

 

 

5.00

 

 

 

 

Weighted average fair value

 

$

1.23

 

 

 

 

 

A summary of option activity under the Stock Incentive and Compensation Plan  as of December 31, 2016, and changes during the six month period ended is presented below.

 

Options

 

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted-

Average Remaining

Contractual Term (Years)

 

 

Aggregate

Intrinsic Value

($)

 

Outstanding at July 1, 2016

 

 

995,000

 

 

$

1.53

 

 

 

 

 

 

 

Granted

 

 

50,000

 

 

 

2.12

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

1,045,000

 

 

$

1.56

 

 

 

3.70

 

 

$

477,600

 

Exercisable at December 31, 2016

 

 

680,005

 

 

$

1.53

 

 

 

4.25

 

 

$

318,404

 

 

A summary of the status of Paramount’s non-vested shares as of July 1, 2016 and changes during the six month period ended December 31, 2016 is presented below.

 

Non-vested Options

 

Shares

 

 

Weighted-

Average Grant-

Date Fair Value

 

Non-vested at July 1, 2016

 

 

663,330

 

 

$

1.13

 

Granted

 

 

50,000

 

 

 

1.23

 

Vested

 

 

348,335

 

 

 

1.14

 

Forfeited

 

 

 

 

 

 

Non-vested at December 31, 2016

 

 

364,995

 

 

$

1.14

 

 

As of December 31, 2016, there was $120,928 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plan. That cost is expected to be recognized over a weighted-average period of 0.67 years. The total fair value of share based compensation arrangements vested during the six month period ended December 31, 2016 and 2015, was $351,236 and $nil, respectively.

 

 

Note 7. Mineral Properties

The Company has capitalized acquisition costs on mineral properties as follows:

 

 

 

December 31, 2016

 

 

June 30, 2016

 

Sleeper

 

$

25,674,658

 

 

$

25,674,658

 

Grassy Mountain

 

 

20,785,728

 

 

 

 

 

 

$

46,460,386

 

 

$

25,674,658

 

 

10


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

Sleeper:

Sleeper is located in Humbolt County, Nevada approximately 26 miles northwest of the town of Winnemucca.  The Sleeper Gold Mine consists of 2,322 unpatented mining claims totaling approximately 38,300 acres.

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 418 unpatented lode claims, 3 patented lode claims, 9 mill site claims, 6 association placer claims, and various leased fee land surface and surface/mineral rights, all totaling approximately 9,300 acres.

 

 

 

Note 8. Property and Equipment:

At December 31, 2016, and June 30, 2016, property and equipment consisted of the following:

 

 

 

December 31, 2016

 

 

June 30, 2016

 

Computer equipment

 

$

21,333

 

 

$

18,806

 

Equipment

 

 

1,329

 

 

 

1,329

 

Subtotal

 

 

22,662

 

 

 

20,135

 

 

 

 

 

 

 

 

 

 

Accumulated  depreciation

 

 

(7,823

)

 

 

(5,239

)

Total

 

$

14,839

 

 

$

14,896

 

 

During the six month period ended December 31, 2016, net additions to property, and equipment were $2,527 (2015- $8,365). During the six month period ended December 31, 2016 the Company recorded depreciation of $2,584 (2015-$2,404).

 

 

Note 9. Reclamation and Environmental:

The Company holds an insurance policy which is in effect until 2033 related to its Sleeper Gold Project.  The policy covers reclamation costs up to an aggregate of $25 million in the event the Company’s bond is insufficient to cover any mandated reclamation obligations.  The unamortized insurance premium was amortized to December 31, 2016 .

As a part of its insurance policy, the Company has funds in a commutation account which is used to reimburse reclamation costs and indemnity claims.  The balance of the commutation account at December 31, 2016 is $2,293,874 (June 30, 2016 - $2,350,131).

Reclamation and environmental costs are based principally on legal requirements.  Management estimates costs associated with reclamation of mineral properties and properties under mine closure.  On an ongoing basis the Company evaluates its estimates and assumptions; however, actual amounts could differ from those based on estimates and assumptions.  

The asset retirement obligation at the Sleeper Gold Project has been measured using the following variables:  1) Expected costs for earthwork, re-vegetation, in-pit water treatment, on-going monitoring, labor and management, 2) Inflation adjustment, and 3) Market risk premium.  The sum of the expected costs by year is discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement obligation to the time it incurs the obligation.    The reclamation and environmental obligation recorded on the balance sheet is equal to the present value of the estimated costs.

The current undiscounted estimate of the reclamation costs for existing disturbances at the Sleeper Gold Project is $3,835,050 as required by U.S Bureau of Land Management and the Nevada Department of Environmental Protection. Assumptions used to compute the asset retirement obligations as at December 31, 2016 and June 30, 2016 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (June 30, 2016 – 9.76%) and 2.0% (June 30, 2016 – 2.0%), respectively. Expenses are expected to be incurred between the years 2017 and 2056.

11


PARAMOUNT GOLD NEVADA CORP.

Notes to Condensed Consolidated Interim Financial Statements — Continued

 

Changes to the Company’s asset retirement obligations for the six month period ended December 31, 2016 and the year ended June 30, 2016 are as follows:

 

 

 

Six Month Period

 

 

June 30, 2016

 

Balance at beginning of period

 

$

1,402,039

 

 

$

1,294,497

 

Accretion expense

 

 

68,644

 

 

 

147,992

 

Payments

 

 

(62,771

)

 

 

(161,018

)

Change in estimate of existing obligation

 

 

 

 

 

120,568

 

Balance at end of period

 

$

1,407,912

 

 

$

1,402,039

 

 

The balance of the asset retirement obligation of $1,407,912 (June 30, 2016 -$1,402,039 ) is comprised of a current portion of $384,099 (June 30, 2016 -$384,099 ) and a non-current portion of $1,023,813 (June 30, 2016 -$1,017,940 ).

 

 

Note 10. Other Income

The Company’s other income details were as follows:

 

 

 

Six Month Period

 

 

Six Month Period

 

 

 

2016

 

 

2015

 

Re-imbursement of reclamation costs

 

$

40,599

 

 

$

125,222

 

Gain on disposal of fixed assets

 

 

 

 

 

500

 

Leasing of water rights to third party

 

 

5,306

 

 

 

5,202

 

Total

 

$

45,905

 

 

$

130,924

 

 

 

 

 

Note 11. 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 six month period ended December 31, 2016:

 

 

 

Exploration

Expenses

 

 

Land Holding

Costs

 

 

Mineral Properties

As at December 31,

2016

 

Sleeper Gold Project

 

$

342,951

 

 

$

219,280

 

 

$

25,674,658

 

Grassy Mountain Project

 

 

1,512,864

 

 

 

57,620

 

 

 

20,785,728

 

 

 

$

1,855,815

 

 

$

276,900

 

 

$

46,460,386

 

 

 

Expenses for the six month period ended December 31, 2015 and mineral property carrying values as at June 30, 2016 by material project:

 

 

 

Exploration

Expenses

 

 

Land Holding

Costs