Quarterly Report (10-q)

Date : 02/08/2018 @ 6:13AM
Source : Edgar (US Regulatory)
Stock : Paramount Gold Nevada Corp. (PZG)
Quote : 1.09  0.01 (0.93%) @ 4:00PM

Quarterly Report (10-q)

 

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, 2017

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 or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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 5, 2018 was 23,074,954.


 

 

 

 

 


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

 

19

 

 

 

 

 

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

 

 

 

 

 

 

 

 

i


 

PART I – FINANCI AL INFORMATION

Item 1. Financial Statements.

PARAMOUNT GOLD NEVADA CORP.

Condensed Consolidated Interim Balance Sheets

as at December 31, 2017 and June 30, 2017

(Unaudited)

 

 

 

As   at December 31,

 

 

As at June 30,

 

 

 

2017

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,227,000

 

 

$

1,911,170

 

Prepaid and deposits

 

 

389,752

 

 

 

213,608

 

Accounts receivable

 

 

15,804

 

 

 

15,804

 

Total Current Assets

 

 

5,632,556

 

 

 

2,140,582

 

Non-Current Assets

 

 

 

 

 

 

 

 

Mineral properties (Note 7)

 

 

46,460,386

 

 

 

46,460,386

 

Property and equipment

 

 

10,783

 

 

 

12,659

 

Reclamation bond (Note 8)

 

 

2,014,008

 

 

 

2,086,562

 

Total Non-Current Assets

 

 

48,485,177

 

 

 

48,559,607

 

Total Assets

 

$

54,117,733

 

 

$

50,700,189

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

561,669

 

 

$

873,127

 

Reclamation and environmental obligation, current portion (Note 8)

 

 

135,967

 

 

 

216,101

 

Total Current Liabilities

 

 

697,636

 

 

 

1,089,228

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

Reclamation and environmental obligation, non-current portion (Note 8)

 

 

1,120,300

 

 

 

1,044,933

 

Total Liabilities

 

 

1,817,936

 

 

 

2,134,161

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01, 50,000,000 authorized shares, 23,074,954 issued and outstanding at December 31, 2017 and 17,779,954 issued and outstanding at June 30, 2017

 

 

230,750

 

 

 

177,800

 

Additional paid in capital

 

 

90,632,642

 

 

 

84,050,214

 

Deficit

 

 

(38,563,595

)

 

 

(35,661,986

)

Total Stockholders' Equity

 

 

52,299,797

 

 

 

48,566,028

 

Total Liabilities and Stockholders' Equity

 

$

54,117,733

 

 

$

50,700,189

 

 

Subsequent Events: Note 12

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

for the Three and Six Month Period ended December 31, 2017 and 2016

(Unaudited)

 

 

 

For the

Three Month

Period Ended December 31, 2017

 

 

For the

Three Month

Period Ended

December 31, 2016

 

 

For the

Six Month

Period Ended December 31, 2017

 

 

For the

Six Month

Period Ended

December 31, 2016

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (Note 9)

 

$

 

 

$

40,599

 

 

$

85,548

 

 

$

45,905

 

Total Revenue

 

 

 

 

 

40,599

 

 

 

85,548

 

 

 

45,905

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration

 

 

1,307,160

 

 

 

1,318,444

 

 

 

1,954,072

 

 

 

1,855,815

 

Land holding costs

 

 

119,558

 

 

 

122,288

 

 

 

280,670

 

 

 

276,900

 

Professional fees

 

 

17,247

 

 

 

51,869

 

 

 

35,324

 

 

 

99,860

 

Salaries and benefits

 

 

142,995

 

 

 

173,331

 

 

 

285,916

 

 

 

438,174

 

Directors compensation

 

 

17,527

 

 

 

38,754

 

 

 

38,481

 

 

 

83,783

 

General and administrative

 

 

150,279

 

 

 

126,060

 

 

 

263,881

 

 

 

268,115

 

Insurance

 

 

27,829

 

 

 

41,422

 

 

 

55,765

 

 

 

84,418

 

Depreciation

 

 

938

 

 

 

1,481

 

 

 

1,876

 

 

 

2,584

 

Accretion (Note 8)

 

 

37,684

 

 

 

34,322

 

 

 

75,368

 

 

 

68,644

 

Total Expenses

 

 

1,821,217

 

 

 

1,907,971

 

 

 

2,991,353

 

 

 

3,178,293

 

Net Loss before other Expense

 

 

1,821,217

 

 

 

1,867,372

 

 

 

2,905,805

 

 

 

3,132,388

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(3,771

)

 

 

(3,227

)

 

 

(7,590

)

 

 

(6,513

)

Interest and service charges

 

 

1,444

 

 

 

380

 

 

 

3,394

 

 

 

572

 

Non-recurring rebates

 

 

 

 

 

(39,633

)

 

 

 

 

 

(39,633

)

Net Loss before income taxes

 

 

1,818,890

 

 

 

1,824,892

 

 

 

2,901,609

 

 

 

3,086,814

 

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax recovery (Note 3)

 

 

 

 

 

 

 

 

 

 

 

(3,215,418

)

Net Loss (Income) and Comprehensive Loss (Income)

 

$

1,818,890

 

 

$

1,824,892

 

 

$

2,901,609

 

 

$

(128,604

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss (Income) per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

0.12

 

 

$

0.14

 

 

$

(0.01

)

Diluted

 

$

0.08

 

 

$

0.12

 

 

$

0.14

 

 

$

(0.01

)

Weighted Average Number of Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Used in Per Share Calculations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,384,302

 

 

 

15,689,954

 

 

 

20,082,128

 

 

 

15,417,138

 

Diluted

 

 

22,384,302

 

 

 

15,689,954

 

 

 

20,082,128

 

 

 

15,622,782

 

 

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 Three Month Period Ended September 30, 2017 and December 31, 2017 and Years ended June 30, 2017 and 2016

(Unaudited)

 

 

 

Shares (#)

 

 

Common   Stock

 

 

Additional

Paid-In   Capital

 

 

Deficit

 

 

Accumulated    Other

Comprehensive

Income (Loss)

 

 

Total   Stockholders'

Equity

 

Balance at June 30, 2016

 

 

8,518,791

 

 

$

85,188

 

 

$

65,143,383

 

 

$

(31,322,384

)

 

 

 

 

$

33,906,187

 

Stock based compensation

 

 

 

 

 

 

 

 

243,421

 

 

 

 

 

 

 

 

 

243,421

 

Capital issued for acquisition (Note 3)

 

 

7,171,163

 

 

 

71,712

 

 

 

15,131,154

 

 

 

 

 

 

 

 

 

15,202,866

 

Capital issued for financing (Note 6)

 

 

2,090,000

 

 

 

20,900

 

 

 

3,532,256

 

 

 

 

 

 

 

 

 

3,553,156

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,339,602

)

 

 

 

 

 

(4,339,602

)

Balance at June 30, 2017

 

 

17,779,954

 

 

$

177,800

 

 

$

84,050,214

 

 

$

(35,661,986

)

 

 

 

 

$

48,566,028

 

Stock based compensation

 

 

 

 

 

 

 

 

5,953

 

 

 

 

 

 

 

 

 

5,953

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,082,719

)

 

 

 

 

 

(1,082,719

)

Balance at September 30, 2017

 

 

17,779,954

 

 

$

177,800

 

 

$

84,056,167

 

 

$

(36,744,705

)

 

 

 

 

$

47,489,262

 

Stock based compensation

 

 

 

 

 

 

 

 

2,527

 

 

 

 

 

 

 

 

 

2,527

 

Capital issued for financing (Note 6)

 

 

5,295,000

 

 

 

52,950

 

 

 

6,573,948

 

 

 

 

 

 

 

 

 

6,626,898

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,818,890

)

 

 

 

 

 

(1,818,890

)

Balance at December 31, 2017

 

 

23,074,954

 

 

$

230,750

 

 

$

90,632,642

 

 

$

(38,563,595

)

 

 

 

 

$

52,299,797

 

 

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, 2017 and 2016

(Unaudited)

 

 

 

For the

Six Month

Period Ended December 31, 2017

 

 

For the

Six Month

Period Ended

December 31, 2016

 

Net Income (Loss)

 

$

(2,901,609

)

 

$

128,604

 

Adjustment for:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,876

 

 

 

2,584

 

Stock based compensation

 

 

8,480

 

 

 

122,502

 

Accretion expense (Note 8)

 

 

75,368

 

 

 

68,644

 

Interest earned on reclamation bond

 

 

(7,581

)

 

 

(6,514

)

Insurance expense

 

 

 

 

 

24,517

 

Deferred tax recovery (Note 3)

 

 

 

 

 

(3,215,418

)

(Increase) decrease in accounts receivable

 

 

 

 

 

(15,060

)

(Increase) decrease in other assets

 

 

(197,988

)

 

 

 

(Increase) decrease in prepaid expenses

 

 

(176,144

)

 

 

(243,452

)

Increase (decrease) in accounts payable

 

 

(311,458

)

 

 

72,816

 

Cash used in operating activities

 

 

(3,509,056

)

 

 

(3,060,777

)

Acquisition of Calico

 

 

 

 

 

(1,001,623

)

Cash acquired in Calico transaction

 

 

 

 

 

4,363

 

Purchase of equipment

 

 

 

 

 

(2,527

)

Cash used in investing activities

 

 

 

 

 

(999,787

)

Capital issued for financing (Note 6)

 

 

6,824,886

 

 

 

 

Cash provided by financing activities

 

 

6,824,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in cash during period

 

 

3,315,830

 

 

 

(4,060,564

)

Cash at beginning of period

 

 

1,911,170

 

 

 

5,874,258

 

Cash at end of period

 

$

5,227,000

 

 

$

1,813,694

 

 

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 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 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, 2017.

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 cash equivalent 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 and cash equivalents in accounts which may, at times, exceed federally insured limits.  At December 31, 2017, the Company had $4.9 million of balances 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


 

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 ore 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 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 8.

Loss/Income per Common Share

Basic loss/income 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 or income 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 and six month periods ended December 31, 2017 , 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.

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.

 

7


 

 

Note 2. Recent Accounting Guidance

 

In November 2016, the FASB issued ASU 2016-18, “ Statement of Cash Flows (Topic 230) - Restricted Cash, ” which will require entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents 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 financial position, results of operations, and 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.  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

 

  

 

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 in the six month period ended December 31, 2016.

 

 

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


 

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, 2017

 

 

June 30, 2017

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

5,227,000

 

 

 

5,227,000

 

 

 

 

 

 

 

 

$

1,911,170

 

 

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, 2017, the Company did not enter into any non-cash activities. 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, 2017 – 50,000,000 common shares with par value $0.01 per common share). 

 

During the six month period ended December 31, 2017, the Company issued 5,295,000 shares of its common stock.   The issuance was a result of a public offering of 3,520,000 shares of common stock for gross proceeds of $4.9 million and of a private placement of 1,775,000 shares of common stock for gross proceeds of $2.5 million completed during the three month period ended December 31, 2017. 

At December 31, 2017 there were 23,074,954 common shares issued and outstanding (June 30, 2017 - 17,779,954 common shares).

Warrants

A summary of warrant activity as of December 31, 2017, and changes during the six month period ended is presented below:

 

 

Warrants

 

 

Weighted

Average

Exercise   Price

 

 

Weighted-

Average Remaining

Contractual Term (Years)

 

 

Aggregate

Intrinsic   Value

($)

 

Outstanding at July 1, 2017

 

 

1,045,000

 

 

$

2.13

 

 

 

1.15

 

 

 

 

Issued

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

1,045,000

 

 

$

2.13

 

 

 

1.15

 

 

 

 

 

9


 

 

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 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 stockholders, a significant portion of those stock option awards will vest contingent upon meeting certain stock price appreciation performance goals. Option and stock awards provide for accelerated vesting if there is a change in control (as defined in the employee stock 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:

 

 

 

2017

 

 

2016

 

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 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.

 

 

 

2017

 

 

2016

 

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, 2017, 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, 2017

 

 

1,045,000

 

 

$

1.56

 

 

 

 

 

$

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

1,045,000

 

 

$

1.56

 

 

 

2.55

 

 

$

-

 

Exercisable at December 31, 2017

 

 

1,011,666

 

 

$

1.56

 

 

 

2.55

 

 

$

-

 

 

10


 

A summary of the status of Paramount’s non-vested options as of July 1, 2017 and changes during the six month period ended December 31 , 2017 is presented below.

 

Non-vested Options

 

Options

 

 

Weighted-

Average   Grant-

Date Fair Value

 

Non-vested at July 1, 2017

 

 

33,334

 

 

$

1.23

 

Granted

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Non-vested at December 31, 2017

 

 

33,334

 

 

$

1.23

 

 

As of December 31, 2017, there was $6,739 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 0.70 years. The total fair value of share based compensation arrangements vested during the six month period ended December 31, 2017 and 2016, was $nil and $351,236, respectively.

 

 

 

 

 

Note 7. Mineral Properties

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

 

 

 

December 31, 2017

 

 

June 30, 2017

 

Sleeper

 

$

25,674,658

 

 

$

25,674,658

 

Grassy Mountain

 

 

20,785,728

 

 

 

20,785,728

 

 

 

$

46,460,386

 

 

$

46,460,386

 

 

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. 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.

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, 2017 is $2,014,008 (June 30, 2017 - $2,086,562).

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.  

11


 

The asset re tirement 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, 2017 and June 30, 2017 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (June 30, 2017– 9.76%) and 2.0% (June 30, 2017 – 2.0%), respectively. Expenses are expected to be incurred between the years 2017 and 2056.

Changes to the Company’s asset retirement obligations for the six month period ended December 31, 2017 and the year ended June 30, 2017 are as follows:

 

 

 

Six Month Period 2017

 

 

Year Ended June 30, 2017

 

Balance at beginning of period

 

$

1,261,034

 

 

$

1,402,039

 

Accretion expense

 

 

75,368

 

 

 

137,288

 

Payments

 

 

(80,135

)

 

 

(278,293

)

Change in estimate of existing obligation

 

 

 

 

 

 

Balance at end of period

 

$

1,256,267

 

 

$

1,261,034

 

 

The balance of the asset retirement obligation of $1,256,267 (June 30, 2017 -$1,261,034 ) is comprised of a current portion of $135,967 (June 30, 2017 -$216,101 ) and a non-current portion of $1,120,300 (June 30, 2017 -$1,044,933).

 

 

Note 9. Other Income

The Company’s other income details for the six month period ended December 31, 2017 and 2016 were as follows:

 

 

 

Six Month Period

 

 

Six Month Period

 

 

 

2017

 

 

2016

 

Re-imbursement of reclamation costs

 

$

80,145

 

 

$

40,599

 

Leasing of water rights to third party

 

 

5,403

 

 

 

5,306

 

Total

 

$

85,548

 

 

$

45,905

 

 

 

 

 

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 six month period ended December 31, 2017:

 

 

 

Exploration

Expenses

 

 

Land Holding

Costs

 

 

Mineral Properties

As at December 31, 2017

 

Sleeper Gold Project

 

$

320,606

 

 

$

208,359

 

 

$

25,674,658

 

Grassy Mountain Project

 

 

1,633,466

 

 

 

72,311

 

 

 

20,785,728

 

 

 

$

1,954,072

 

 

$

280,670

 

 

$

46,460,386

 

 

 

12


 

Expenses for the six month period ended December 31, 2016 and mineral property carrying values as at June 30, 2017 by material project:

 

 

 

Exploration

Expenses

 

 

Land Holding

Costs

 

 

Mineral Properties

As at June 30,

2017

 

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

 

 

 

Note 11. Commitments and Contingencies:

 

Lease Commitments

 

During the six month period ended December 31, 2017, the Company has office premises leases that expire at various dates until June 30, 2018.  The aggregate minimum rentals payable for these operating leases are as follows:

 

Year

 

Total Amount

 

2018

 

$

9,200

 

 

During the six month period ended December 31, 2017, $16,242 was recognized as rent expense in the statement of operations and comprehensive loss/income.

 

 

 

 

Note 12.  Subsequent Events:

 

Subsequent to the quarter ended December 31, 2017, the Company granted 500,000 stock options to employees, directors and consultants at a strike price of $1.40.  Each option carries a 5 year term.  Options received by senior management and directors will vest on achieving one of following performance conditions: 1) The issuance of mining permits for the Grassy Mountain Project by the State of Oregon; or 2) The Company entering into a transformative transaction on its Grassy Mountain or Sleeper projects as determined by the Board of Directors; or 3) The Company’s share price closing above $3.00 per share for 10 consecutive days.

 

 


13


 

 

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 18, 2017. 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 are likely to expand and upgrade known mineralized material to reserves.  The following discussion updates our outlook and plan of operations for the foreseeable future.  It also analyzes our financial condition and summarizes the results of our operations for the three and six months ended December 31, 2017 and compares these results to the results of the prior year three and six months ended December 31, 2016.

 

Operating Highlights:

 

During the six months ended December 31, 2017, Paramount completed a 30 hole drill program at its Grassy Mountain Project that it commenced in late 2016.  The drill program was designed with the primary objective of better defining the mineralized material for underground mining. Secondly, material was recovered in the drill program for additional metallurgical testing and geotechnical data required to optimize precious metal recovery processes and to determine the most efficient mining method.

 

In August, 2017, we commenced drilling of deep monitoring wells at the Grassy Mountain Project.  Data from this program will help to define a water flow model, characterize the water quality and determine if there will be any mine dewatering needs. These wells will also be used for monitoring during operation of the mine.  

 

Also in August 2017, the Company filed a mine Plan of Operations (“POO”) with the Federal Bureau of Land Management’s (“BLM”) district office in Vale, Oregon for its Grassy Mountain Project.  With the POO filed, the BLM can initiate its National Environmental Policy Act (“NEPA”) review process which will commence with the preparation of an Environmental Impact Statement (“EIS”).

In October, 2017, the Company closed a public offering of 3,520,000 shares of common stock and closed a private placement of 1,775,000 shares of common stock both at a price of $1.40 for aggregate gross proceeds of $7.4 million.  

In November, 2017, Paramount received approvals from both the Oregon Department of Geology and Mineral Industries (“DOGAMI”) and the BLM to proceed with a program of auger drilling, core drilling, and back hoe excavations at its Grassy Mountain proposed mine site as part of the project’s Preliminary Feasibility Study (“PFS”). The work is designed to characterize the rock and alluvium under the proposed mill, processing plant, and tailings areas to ensure stability and adjust the design of these installations if necessary.  The work was completed in December 2017.  

 

14


 

Outlook and Plan of Operation:

We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results.  As an exploration and development company, we do not generate cash flow from our operations. We recognize the importance of managing our liquidity and capital resources.  We pay close attention to non-discretionary cash expenses and look for ways to minimize them when possible.  We ensure we have sufficient cash on hand to meet our annual land holding costs as the maintenance of mining claims and leases are essential to preserve the value of our mineral property assets.

For the fiscal year ending June 30, 2018, we have undertaken or intend to undertake the following:

Sleeper Gold Project:

The Company is expected to focus its efforts on its reclamation and claim management activities for the fiscal year ending June 30, 2018.  

Grassy Mountain Project:

The Company is expected to complete a NI 43-101 PFS in the Company’s third quarter of the current fiscal year.  The PFS will consist of detailed analysis of all the key parameters involved in constructing and operating a mine including projected capital and operating costs, production levels and expected returns under different scenarios.  The Company will also submit its consolidated mining permit application with the State of Oregon in the first half of calendar 2018.

Comparison of Operating Results for the three and six months ended December 31, 2017 and 2016

Results of Operations

We did not earn any revenue from mining operations for the three and six months ended December 31, 2017 and 2016. During the six month period ended December 31, 2017, we completed a 30 hole drill program that we commenced in late 2016 at Grassy Mountain.  We also initiated the drilling of deep monitoring wells at Grassy Mountain and we filed a POO with the BLM.  Other normal course of business activities included filing annual mining claim fees with the BLM, reclamation work at the Sleeper mine site and on-going reviews of its mining claims were completed.

Net Loss

Our net loss before income taxes for the three months ended December 31, 2017 was $1,818,890 compared to a net loss before income taxes of $1,824,892 in the previous year. The marginal decrease in net loss before income taxes is fully described below.  

Our net loss before income taxes for the six months ended December 31, 2017 was $2,901,609 compared to a loss before income taxes of $3,086,814 in the previous year.  The decrease in net loss before income taxes of 6% is 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 months ended December 31, 2017, exploration expenses were $1,307,160 compared to $1,318,444 in the prior year.  This represents a decrease of 1% or by $11,284.  During the three-month period ended December 31, 2017, the Company continued with activities related to the PFS which included design engineering, water management analysis and geotechnical evaluation.  Also included were expenses related to the permitting activities in the state of Oregon.    Total exploration expenses at the Grassy Mountain Project during the three-month period were $1,082,028.  

For the three months ended December 31, 2017, land holding costs decreased by 2% or by $2,730 to $119,558 from the prior year.  The decrease was primarily a result lowered legal and other administration costs related to maintaining the claims.

For the six months ended December 31, 2017, exploration expenses were $1,954,072 compared to $1,855,815 in the prior year.  This represents an increase of $98,257 or by 5%.  During the six month period, the Company continued with activities related to the PFS which included design engineering, water management analysis and geotechnical evaluation. As indicated above, the previously announced drill program was completed at Grassy Mountain and drill core was sent to assay labs for analysis.  Also included were expenses related to the permitting activities in the state of Oregon.    

For the six months ended December 31, 2017, land holding costs increase by 1% or by $3,770 from the prior year.  

15


 

Salaries and Benefits

For the three months ended December 31, 2017, salary and benefits decreased by 18% or by $30,336 to $142,995 from the prior year’s three months ended December 31, 2016.   Salary and benefits is comprised of cash and stock based compensation of the Company’s executive and corporate administration teams.  The decrease primarily reflects stock based compensation recorded in the comparable prior period.   Included in the salary and benefits expense amount for the three months ended December 31, 2017 and 2016 was a non-cash stock based compensation of $nil and $30,221, respectively.  

For the six months ended December 31, 2017, salary and benefits decreased by $152,258 or by 35% to $285,916 from the prior six months ended December 31, 2016.  The decrease primarily reflects stock based compensation recorded in the comparable prior year period.  Included in the salary and benefits expense amount for the six months ended December 31, 2017 and 2016 was a non-cash stock based compensation of $nil and $60,862 respectively.

Professional Fees and General and Administration

For the three-month period ended December 31, 2017, professional fees were $17,247 compared to $51,869 in the prior year’s comparable period.  This represents a decrease of 67% or $34,622.  In the prior year’s comparable period the Company incurred one-time legal, accounting and tax advisory fees related to its integration of its acquisition of Calico.

For the three-month period ended December 31, 2017, general and administration expenses increased by 19% to $150,279 from $126,060 in the prior year comparable period.  This increase was a result of higher travel and marketing costs incurred by the Company.

For the six month period ended December 31, 2017, professional fees were $35,324 compared to $99,860 in the prior year’s comparable period.  This represents a decrease of 65% or $64,536.  In the prior year’s comparable period the Company incurred one-time legal, accounting and tax advisory fees related to its integration of its acquisition of Calico.

For the six month period ended December 31, 2017, general and administration expenses decreased by 2% to $263,881 from $268,115 in the prior year comparable period.  

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 December 31, 2017, we had cash and cash equivalents of $5,227,000 compared to $1,911,170 as at June 30, 2017. During the three months ended December 31, 2017, the Company closed a public offering of 3,520,000 shares of common stock and closed a private placement of 1,775,000 shares of common stock both at a price of $1.40 for aggregate gross proceeds of $7.4 million.  

The main uses of cash were comprised mainly 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 $3,509,056

 

 

We anticipate our operating expenditures for the remainder of the fiscal year ending June 30, 2018 to be as follows:

 

 

$0.88 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)

 

 

$1.6 million on the Grassy Mountain Project (expenses include consulting fees, land holding costs and general and administration expenses, PFS expenses which include mineralized material modelling, economic analysis, environmental impact statement preparation, mine design, process design and other mine permitting activities)

Our anticipated expenditures will be funded by our cash on hand.    Historically, we and other similar exploration and development public companies have accessed capital through equity financing arrangements.  If, however we are unable to obtain additional capital or financing, our exploration and development activities will be significantly adversely affected.

 

16


 

Critical Accounting Policies

Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows. Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the Company’s critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, stock based compensation, derivative accounting and foreign currency translation.

Estimates

The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles (“U.S. GAAP”) and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable, 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.

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 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.

For stock option grants that have no market conditions that affect vesting, the Company uses the Black-Scholes option valuation model to value stock options granted. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. There were no options issued in the three and six month periods ended December 31, 2017.  

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.

 

 

17


 

Item 3. Quantitative and Qualitati ve Disclosures About Market Risk .

Foreign Currency Exchange Rate Risk

The Company holds cash balances in both U.S. and Canadian dollars. We transact most of our business in US dollars. We do not manage our foreign currency exchange rate risk through the use of financial or derivative instruments, forward contracts or hedging activities.

In general, the strengthening of the U.S. dollar will positively impact our expenses transacted in Canadian dollars. Conversely, any weakening of the U.S dollar will increase our expenses transacted in Canadian dollars. We do not believe that any weakening of the U.S. dollar as compared to the Canadian dollar will have an adverse material effect on our operations.

Interest Rate Risk

The Company’s investment policy for its cash and cash equivalents is focused on the preservation of capital and supporting the liquidity requirements of the Company. The Company’s interest earned on its cash balances is impacted on the fluctuations of U.S. interest rates. We do not use interest rate derivative instruments to manage exposure to interest rate changes. We do not believe that interest rate fluctuations will have any material effect on our operations.

 


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Item 4. Controls and Procedures.

a)

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation considered the procedures designed to ensure that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Control over Financial Reporting

During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(c)

Inherent Limitations of Disclosure Controls and Internal Controls over Financial Reporting

Because of its inherent limitations, disclosure controls and internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation or effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

PART II – OTHER INFORMATION

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for year ended June 30, 2017.

 

Item 4. Mine Safety Disclosures.

Not applicable.

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PART IV

Item 6. Exhibits.

 

(a)

Index to Exhibits