Paramount Gold Nevada Corp.: Form 10-Q for the period ended Mar 31, 2022

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 17, 2021. 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.

Cautionary Note to U.S. Investors

Paramount is subject to the reporting requirements of the Exchange Act and this filing and other U.S. reporting requirements are governed by the SEC Industry Guide 7. Additionally, Paramount is subject to certain reporting requirements under applicable Canadian securities laws with respect to our material mineral properties under National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) We caution investors that certain terms used under Canadian reporting requirements and definitions of NI 43-101 to describe mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Therefore, investors are cautioned not to assume that all or any part of the mineralized material contained at any of our material projects will ever be converted to Industry Guide 7 compliant reserves.

Overview

We are a company engaged in the business of acquiring, exploring and developing precious metal projects in the United States of America. Paramount owns advanced stage exploration projects in the states of Nevada and Oregon. We enhance the value of our projects by implementing exploration and engineering programs that have the goal to expand and upgrade known mineralized material to reserves. The following discussion updates our outlook and plan of operations for the foreseeable future. It also analyzes our financial condition and summarizes the results of our operations for the three and nine-month period ended March 31, 2022 and compares these results to the results of the prior year three and nine-month period ended March 31, 2021.

Operating Highlights:

During the nine-month period ended March 31, 2022, the Company conducted several exploration programs and continued with its permitting at its Grassy Mountain Project. Highlights include:

• Submitted a modified Consolidated Permit Application (the “CPA”) with the State of Oregon seeking approval to construct and operate its proposed gold mine for its Grassy Mountain Project.
• Submitted a modified Plan of Operation to the Bureau of Land Management (the ”BLM”) for its proposes mining operations for its Grassy Mountain Project.
• Entering into an option agreement with Nevada Select Royalty to purchase 100% interest in the Bald Peak Project (“Bald Peak”) located in Mineral County, Nevada. Total consideration of $300,000 will be paid based on achieving certain milestones over time.
• Completed a drill exploration program to test several targets identified to bring the Sleeper Gold Project back into production.
• Completed surface sampling and a geophysical survey at its Bald Peak Project in Nevada. Both these programs confirm a large and shallow target that the Company will design and plan a new drill program in 2022.
• Received positive assay results from geotechnical drill holes at its Grassy Mountain Project that indicate the potential for additional economic material to be used during mine operations.
• Received from Malheur County an extension on the Conditional Use Permit for the proposed Grassy Mountain underground mine.
• Completed a 15-hole reverse circulation drill program at the Frost Project which is located 12 miles from the Company’s Grassy Mountain Project in Eastern Oregon. The program was designed to locate and test historical gold intercepts from drilling that was performed by the previous operators.
• Completed a metallurgical testing program using Atmospheric Alkaline Oxidation recovery process for the treatment of sulphide mineralization at the Sleeper Gold Project.

Outlook and Plan of Operation:

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

Having accomplished many of the activities we outlined in our Annual Report on Form 10-K for the year ended June 30, 2021, the Company now expects to undertake the following activities in the next several months:

Grassy Mountain Project:

As a result of submitting both its state and federal modified permit applications, Paramount with continue to work with both regulators to ensure both applications are deemed complete. We expect to the interaction between the Company and both the State of Oregon and the BLM to be a highly interactive process. Due to the amount of information contained in both applications, the Company is allocating significant resources to ensure this stage of permitting is completed in a timely fashion. For the State of Oregon permitting process, once the CPA is deemed complete, the State of Oregon will initiate an environmental assessment of the proposed operation and commence the preparation of draft permits. These activities by state law must be completed within a 225 day period. For federal permitting, once the submitted Plan of Operation (the “PoO”) is deemed complete, the BLM will initiate the National Environmental Policy Act process which includes an Environmental Impact Statement for the proposed mining operation.

Sleeper Gold Project:

With results from its recent drill exploration program and results of a comprehensive review of all geological, geochemical and geophysical data, Paramount will commission a new technical and economic analysis of its Sleeper Gold Project. In addition to providing updated information on the project, the technical report will allow the Company to provide disclosures specified by the Securities Exchange Commission amendments that modernize the property disclosure requirements for mining registrants under Regulation S-K (Subpart 1300).

COVID-19 Update

Paramount continues to monitor the evolution of the COVID-19 pandemic and continues to evaluate its business activities and plans. Our priority is to ensure the health and safety of our employee and consultants. We continue to perform the majority of our activities remotely with a limited amount of on-site or in-office attendance only when required.

Comparison of Operating Results for the three and nine-months ended March 31, 2022 and 2021

Results of Operations

We did not earn any revenue from mining operations for the three and nine-months ended March 31, 2022 and 2021.

Net Loss

Our net loss for the three-months ended March 31, 2022 was $1,347,036 compared to a net loss of $1,354,467 in the previous three-month period ended March 31, 2021. The drivers of the increase in net loss of 1% are fully described below.

Our net loss for the nine-months ended March 31, 2022 was $5,963,204 compared to a net loss of $4,460,874 in the previous nine-months period ended March 31, 2021. The drivers of the increase in net loss of 34% are fully described below.

The Company expects to incur losses for the foreseeable future as we continue with our planned exploration and development programs.

Expenses

Exploration and Land Holding Costs

For the three-month period ended March 31, 2022 and 2021, exploration expenses were $549,368 and $590,245, respectively. This represents a decrease of 7% or $40,877. The decrease was a result of the Company having completed several activities at both its

Oregon and Nevada based projects. At Grassy Mountain the Company continued with permitting activities with the State of Oregon and the BLM. These expenses totaled $305,072. At Sleeper, the Company completed a small drill program to test zones of mineralization and at its Bald Peak Project the Company conducted rock surface sampling. Total exploration expenses at the Sleeper Gold Project and Bald Peak during the current three-month period were $244,296. In the prior year comparable period the Company focused its efforts on preparing its modified permit applications for the Grassy Mountain Project and incurred expenses related to reclamation activities its Sleeper Gold Project.

For the three-month period ended March 31, 2022 and 2021, land holding costs were $163,011 and $130,284, respectively. The increase of land holding costs was primarily due to the acquisition of Bald Peak Project in Nevada.

For the nine-month period ended March 31, 2022 and 2021, exploration expenses were $3,714,035 and $2,100,760, respectively. This represents an increase of 77% or $1,613,275. The increase was a result of the Company completing several activities at both its Oregon and Nevada based projects. At Grassy Mountain the Company continued with permitting activities with the State of Oregon and the BLM and submitted modified permit applications and at our Frost Project completed a drill program. These expenses totaled $2,485,794. At Sleeper, the Company completed a small drill program to test zones of mineralization and at its Bald Peak Project conducted rock surface sampling and completed a geophysical survey. Total exploration expenses at the Sleeper Gold Project and Bald Peak during the current nine-month period were $1,228,241. In the prior year comparable period the Company focused its efforts on completing the feasibility study for the Grassy Mountain Project and incurred expenses related to reclamation activities its Sleeper Gold Project.

For the nine-month period ended March 31, 2022 and 2021, land holding costs were $477,338 and $391,867, respectively. The increase of land holding costs was primarily due to the acquisition of Bald Peak Property in Nevada.

Salaries and Benefits

For the three-month period ended March 31, 2022, salary and benefits increased by 49% or by $134,758 to $412,118 from the prior year’s three-month period ended March 31, 2021. Salary and benefits are comprised of cash and stock-based compensation of the Company’s executive and corporate administration teams. The increase primarily reflects higher cash bonus and stock-based compensation that was recorded during the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021. Included in the salary and benefits expense amount for the three-month period ended March 31, 2022 and 2021 was a non-cash stock-based compensation of $178,809 and $60,470, respectively.

For the nine-month period ended March 31, 2022, salary and benefits decreased by 21% or by $237,641 to $875,596 from the prior year’s nine-month period ended March 31, 2022. Salary and benefits are comprised of cash and stock-based compensation of the Company’s executive and corporate administration teams. The decrease primarily reflects lower cash bonus and stock-based compensation that was recorded during the nine-month period ended March 31, 2022 compared to the nine-month period ended March 31, 2021. Included in the salary and benefits expense for the nine-month period ended March 31, 2022 and 2021 was non-cash stock-based compensation of $258,478 and $273,382, respectively.

Directors’ Compensation

For the three-month period ended March 31, 2022, directors’ compensation increased by 41% or by $15,827 to $54,718 from the three-month period ended March 31, 2021. Directors’ compensation consists of cash and stock-based compensation of the Company’s board of directors. The increase reflects higher stock-based compensation recorded in the current quarter compared to the prior year’s comparable period.

For the nine-month period ended March 31, 2022, directors’ compensation decreased by 24% or by $27,166 to $87,836 from the nine-month period ended March 31, 2021. Directors’ compensation consists of cash and stock-based compensation of the Company’s board of directors. The decrease reflects lower stock-based compensation recorded in the current nine-month period compared to the prior year’s comparable period.

Professional Fees and General and Administration

For the three-month period ended March 31, 2022 and 2021, professional fees were $26,510 and $21,812, respectively. This represents a increase of 22% or $4,698. Professional fees included legal, advisory and consultant expenses incurred on corporate and operational activities being performed by the Company on a period-by-period basis.

For the three-month period ended March 31, 2022, general and administration expenses increased by 18% to $153,986 from $130,615 from the three-month period ended March 31, 2021. The increase in general and administration expenses from the previous year’s comparable period was mainly due to an increase in marketing expenses and insurance costs.

For the nine-month period ended March 31, 2022 and 2021, professional fees were $92,523 and $94,964, respectively. This represents an decrease of 3%. Professional fees included legal, advisory and consultant expenses incurred on corporate and operational activities being performed by the Company on a period-by-period basis.

For the nine-month period ended March 31, 2022, general and administration expenses increased by 18% to $435,194 from $369,492 from the previous nine-month period ended March 31, 2021. The increase in general and administration expenses from the previous year’s comparable period was mainly due to an increase in marketing and travel related expenses and insurance costs.

Liquidity and Capital Resources

As an exploration and development company, Paramount funds its operations, reclamation activities and discretionary exploration programs with its cash on hand. At March 31, 2022, we had cash and cash equivalents of $4,442,387 compared to $3,113,064 as at June 30, 2021. In May 2020, the Company established an $8.0 million “at the market” equity offering program with Cantor Fitzgerald & Co. and Canaccord Genuity LLC to proactively increase its financial flexibility. During the nine-months ended March 31, 2022, the Company issued 7,766,388 shares for net proceeds of $6,214,480 under the program.

The main uses of cash for the nine-month period ended March 31, 2022 comprised of the following material amounts:

• Cash used in operating activities which included general and administration expenses, land holding costs, exploration programs at our Grassy Mountain and Sleeper Gold Projects and reclamation activities of $4,837,434 in the aggregate

We anticipate our cash expenditures for the remainder of our fiscal year ending June 30, 2022 to be as follows:

• $0.6 million on corporate and general expenses

For discretionary exploration and permitting programs, subject to available cash on hand and additional share issuances, we are budgeting the following amounts for the remainder of our fiscal year ending June 30, 2022:

• $0.8 million on the Grassy Mountain Project state and federal permitting activities
• $0.5 million on a new technical report for the Sleeper Gold Project and preparation activities for planned exploration drill program at the Bald Peak Project

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

Critical Accounting Policies

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

Mineral property acquisition costs

The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.

The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.

Exploration expenses

We record exploration expenses as incurred. When we determine that a precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized. To date, we have not established any proven or probable reserves and will continue to expense exploration expenses as incurred.

Stock Based Compensation

For stock option grants with market conditions that affect vesting, the Company uses a lattice approach incorporating a Monte Carlo simulation to value stock options granted.

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, employee and directors with those of its shareholders a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals and other performance conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan). For stock option grants made in the fiscal years ended June 30, 2021, the Company used 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.

Use of Estimates

The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles (“U.S. GAAP”) and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable, long-lived assets and asset retirement obligations. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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.

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.

(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.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2021.