UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Paramount Gold and Silver Corp.
(Exact name of registrant as specified in its charter)
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Delaware
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0-51600
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20-3690109
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(State or Other Jurisdiction
of Incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.)
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665 Anderson Street, Winnemucca, Nevada 89445
(Address of Principal Executive Office) (Zip Code)
(775) 625-3600
(Issuer’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by a 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 the filing requirements for the past 90 days. Yes þ 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 þ No o
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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨
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Accelerated filer þ |
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Non-accelerated filer ¨
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Smaller reporting company ¨ |
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(Do not check if smaller reporting company)
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|||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date: 162,027,422 shares of Common Stock, $.001 par value as of October 31, 2014.
1
| 4 | |||
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Item 1.
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4 | ||
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Item 2.
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21 | ||
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Item 3.
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24 | ||
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Item 4.
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25 | ||
| 25 | |||
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Item 1.
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25 | ||
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Item 1A.
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25 | ||
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Item 2.
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United Sales of Equity Securities and Use of Proceeds | 25 | |
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Item 6.
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26 | ||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 contains “forward-looking statements”. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements which include, but are not limited to, statements concerning the Company’s expectations regarding its working capital requirements, financing requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected.
These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, the prevailing market price for gold and silver, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein.
Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
OTHER PERTINENT INFORMATION
When used in this report, the terms “Paramount,” the “Company,” “we,”, “our,” and “us” refers to Paramount Gold and Silver Corp., a Delaware corporation.
PARAMOUNT GOLD AND SILVER CORP.
Condensed Consolidated Interim Financial Statements
(Unaudited)
Period ended September 30, 2014 and 2013
PARAMOUNT GOLD AND SILVER CORP.
Condensed Consolidated Interim Balance Sheets
As at September 30, 2014 and June 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
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As at September 30,
2014 |
As at June 30,
2014 |
|||||||
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Assets
|
||||||||
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Current Assets
|
||||||||
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Cash and cash equivalents
|
$
|
4,892,782
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$
|
5,107,691
|
||||
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Amounts receivable
|
1,544,074
|
1,398,190
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||||||
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Prepaid and deposits
|
551,676
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250,406
|
||||||
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Prepaid insurance, current portion (Note 11)
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49,043
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122,607
|
||||||
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Marketable securities (Note 3)
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6,334
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560,099
|
||||||
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Total Current Assets
|
7,043,909
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7,438,993
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||||||
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Non-Current Assets
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||||||||
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Mineral properties (Note 8)
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51,518,398
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51,875,798
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||||||
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Property and equipment (Note 9)
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365,299
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377,716
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||||||
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Prepaid insurance, non current portion (Note 11)
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61,302
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-
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||||||
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Reclamation bond (Note 11)
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2,601,898
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2,626,538
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||||||
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Total Non-Current Assets
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54,546,897
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54,880,052
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||||||
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Total Assets
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$
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61,590,806
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$
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62,319,045
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||||
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Liabilities and Stockholders' Equity
|
||||||||
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Liabilities
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||||||||
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Current Liabilities
|
||||||||
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Accounts payable and accrued liabilities
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$
|
494,181
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$
|
392,752
|
||||
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Total Current Liabilities
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494,181
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392,752
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||||||
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Non-Current Liabilities
|
||||||||
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Reclamation and environmental obligation (Note 11)
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1,299,372
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1,291,066
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||||||
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Total Liabilities
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$
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1,793,553
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$
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1,683,818
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||||
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Stockholders' Equity
|
||||||||
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Capital Stock, par value $0.001 per share; authorized 200,000,000 shares, 161,547,969 issued and outstanding at September 30, 2014 and 159,170,859 shares issued and outstanding at June 30, 2014
|
161,447
|
159,209
|
||||||
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Additional paid in capital
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174,326,301
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172,096,571
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||||||
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Contributed surplus
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14,733,902
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14,710,519
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||||||
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Deficit accumulated during the exploration stage
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(129,227,287
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)
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(126,279,546
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)
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||||
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Accumulated other comprehensive income (loss)
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(197,110
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)
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(51,526
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)
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||||
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Total Stockholders' Equity
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59,797,253
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60,635,227
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||||||
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Total Liabilities and Stockholders' Equity
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$
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61,590,806
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$
|
62,319,045
|
||||
Subsequent Events (Note 12)
The accompanying notes are an integral part of the condensed consolidated interim financial statements
PARAMOUNT GOLD AND SILVER CORP.
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss
For the Three Month Periods Ended September 30, 2014 and 2013
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
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For the Period
Ended September 30,
2014
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For the Period
Ended September 30,
2013
|
|||||||
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Revenue
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||||||||
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Interest income
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$
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2,620
|
$
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4,966
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||||
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Other income
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30,486
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10,131
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||||||
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Total Revenue
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33,106
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15,097
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||||||
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Expenses:
|
||||||||
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Exploration
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1,997,975
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1,234,257
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||||||
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Professional fees
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238,790
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230,767
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||||||
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Directors compensation
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62,482
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69,976
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||||||
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Travel & lodging
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49,756
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42,670
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||||||
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Corporate communications
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59,833
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54,351
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||||||
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Consulting fees
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66,268
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122,577
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||||||
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Office & administration
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74,195
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74,869
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||||||
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Interest & service charges
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3,311
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2,715
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||||||
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Insurance
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56,703
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102,372
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||||||
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Depreciation
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12,417
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14,786
|
||||||
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Accretion
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33,692
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30,683
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||||||
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Write down of mineral property
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357,400
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-
|
||||||
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Total Expenses
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3,012,822
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1,980,023
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||||||
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Net Loss before other items
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2,979,716
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1,964,926
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||||||
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Other items
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||||||||
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Gain on sale of marketable securities
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31,975
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-
|
||||||
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Net Loss
|
2,947,741
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1,964,926
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||||||
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Other comprehensive loss (gain)
|
||||||||
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Foreign currency translation adjustment
|
21,919
|
34,504
|
||||||
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Unrealized loss (gain) on available-for-sale-securities
|
123,665
|
(104,793
|
)
|
|||||
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Total Comprehensive Loss for the Period
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$
|
3,093,325
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$
|
1,894,637
|
||||
|
Loss per Common share
|
||||||||
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Basic
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$
|
0.02
|
$
|
0.01
|
||||
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Diluted
|
$
|
0.02
|
$
|
0.01
|
||||
|
Weighted Average Number of Common
|
||||||||
|
Shares Used in Per Share Calculations
|
||||||||
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Basic
|
161,078,684
|
155,731,068
|
||||||
|
Diluted
|
161,078,684
|
155,731,068
|
||||||
The accompanying notes are an integral part of the condensed consolidated interim financial statements
PARAMOUNT GOLD AND SILVER CORP.
Condensed Consolidated Interim Statements of Cash Flows
For the Three Month Periods Ended September 30, 2014 and 2013
Expressed in United States dollars, unless otherwise stated)
(Unaudited)
|
For the Period
Ended September 30,
2014
|
For the Period
Ended September 30,
2013
|
|||||||
|
Net Loss
|
$
|
(2,947,741
|
)
|
$
|
(1,964,926
|
)
|
||
|
Adjustment for:
|
||||||||
|
Depreciation
|
12,417
|
14,786
|
||||||
|
Stock based compensation
|
23,383
|
97,466
|
||||||
|
Write-down of mineral properties
|
357,400
|
-
|
||||||
|
Accretion expense
|
33,692
|
30,683
|
||||||
|
Change in reclamation
|
(746
|
)
|
(956
|
)
|
||||
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Insurance expense
|
12,262
|
61,305
|
||||||
|
Gain on sale of marketable securities
|
(31,975
|
)
|
-
|
|||||
|
(Increase) Decrease in accounts receivable
|
(145,884
|
)
|
190,939
|
|||||
|
(Increase) Decrease in prepaid expenses
|
(301,270
|
)
|
(387,584
|
)
|
||||
|
Increase (Decrease) in accounts payable
|
101,429
|
34,696
|
||||||
|
Cash used in operating activities
|
$
|
(2,887,033
|
)
|
$
|
(1,923,591
|
)
|
||
|
Sale (purchase) of marketable securities
|
462,075
|
(49,950
|
)
|
|||||
|
Purchase of equipment
|
-
|
(2,204
|
)
|
|||||
|
Cash provided by (used in) investing activities
|
$
|
462,075
|
$
|
(52,154
|
)
|
|||
|
Issuance of capital Stock
|
2,231,968
|
-
|
||||||
|
Cash provided by financing activities
|
$
|
2,231,968
|
$
|
-
|
||||
|
Effect of exchange rate changes on cash
|
(21,919
|
)
|
(34,504
|
)
|
||||
|
Change in cash during period
|
(214,909
|
)
|
(2,010,249
|
)
|
||||
|
Cash at beginning of period
|
5,107,691
|
11,524,051
|
||||||
|
Cash at end of period
|
$
|
4,892,782
|
$
|
9,513,802
|
||||
|
Supplemental Cash Flow Disclosure
|
||||||||
|
Cash
|
$
|
2,295,127
|
$
|
4,706,958
|
||||
|
Cash Equivalents
|
$
|
2,597,655
|
$
|
4,806,844
|
||||
The accompanying notes are an integral part of the condensed consolidated interim financial statements
PARAMOUNT GOLD AND SILVER CORP.
Condensed Consolidated Interim Statements of Shareholders’ Equity
From June 30, 2012 to the Three Month Periods Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
|
Shares
|
Par Value
|
Additional Paid in
Capital
|
Deficit Accumulated
During Exploration
Stage
|
Contributed Surplus
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total
Stockholders
Equity
|
||||||||||||||||||||||
|
Balance at June 30, 2012
|
147,412,603
|
$
|
147,413
|
$
|
151,564,888
|
$
|
(101,729,241
|
)
|
$
|
12,892,174
|
$
|
(64,730
|
)
|
$
|
62,810,504
|
|||||||||||||
|
Capital issued from stock options and warrants exercised
|
8,318,465
|
8,319
|
17,208,447
|
—
|
(542,974
|
)
|
—
|
16,673,792
|
||||||||||||||||||||
|
Stock based compensation
|
—
|
—
|
—
|
—
|
1,234,115
|
—
|
1,234,115
|
|||||||||||||||||||||
|
Foreign currency translation
|
—
|
—
|
—
|
—
|
—
|
(4,210
|
)
|
(4,210
|
)
|
|||||||||||||||||||
|
Net Income (loss)
|
—
|
—
|
—
|
(13,488,280
|
)
|
—
|
—
|
(13,488,280
|
)
|
|||||||||||||||||||
|
Balance at June 30, 2013
|
155,731,068
|
155,732
|
168,773,335
|
(115,217,521
|
)
|
13,583,315
|
(68,940
|
)
|
67,225,921
|
|||||||||||||||||||
|
Capital issued for financing
|
3,439,791
|
3,477
|
3,323,236
|
—
|
—
|
—
|
3,326,713
|
|||||||||||||||||||||
|
Stock based compensation
|
—
|
—
|
—
|
—
|
1,127,204
|
—
|
1,127,204
|
|||||||||||||||||||||
|
Unrealized gain on available for sale securities
|
—
|
—
|
—
|
—
|
—
|
60,149
|
60,149
|
|||||||||||||||||||||
|
Foreign currency translation
|
—
|
—
|
—
|
—
|
—
|
(42,735
|
)
|
(42,735
|
)
|
|||||||||||||||||||
|
Net Income (loss)
|
—
|
—
|
—
|
(11,062,025
|
)
|
—
|
—
|
(11,062,025
|
)
|
|||||||||||||||||||
|
Balance at June 30, 2014
|
159,170,859
|
159,209
|
172,096,571
|
(126,279,546
|
)
|
14,710,519
|
(51,526
|
)
|
60,635,227
|
|||||||||||||||||||
|
Capital issued for financing
|
2,377,110
|
2,238
|
2,229,730
|
—
|
—
|
—
|
2,231,968
|
|||||||||||||||||||||
|
Stock based compensation
|
—
|
—
|
—
|
—
|
23,383
|
—
|
23,383
|
|||||||||||||||||||||
|
Unrealized loss on available for sale securities
|
—
|
—
|
—
|
—
|
—
|
(123,665
|
)
|
(123,665
|
)
|
|||||||||||||||||||
|
Foreign currency translation
|
—
|
—
|
—
|
—
|
—
|
(21,919
|
)
|
(21,919
|
)
|
|||||||||||||||||||
|
Net Income (loss)
|
—
|
—
|
—
|
(2,947,741
|
)
|
—
|
—
|
(2,947,741
|
)
|
|||||||||||||||||||
|
Balance at September 30, 2014
|
161,547,969
|
161,447
|
174,326,301
|
(129,227,287
|
)
|
14,733,902
|
(197,110
|
)
|
59,797,253
|
|||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated interim financial statements
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 1. | Principal Accounting Policies: |
Paramount Gold and Silver Corp. (the “Company”), incorporated under the General Corporation Law of the State of Delaware, and its wholly-owned subsidiaries are engaged in the acquisition, exploration and development of precious metal properties. The Company’s wholly owned subsidiaries include Paramount Gold de Mexico S.A. de C.V., Magnetic Resources Ltd, Minera Gama SA de CV, and Paramount Nevada Gold Corp. The Company is in the process of exploring its mineral properties in both the United States and Mexico. 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 yet determined whether its properties contain reserves that are economically recoverable.
Basis of Presentation and Preparation
The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q 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 of 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 of future years.
These interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States and, with the exception of new accounting pronouncements described in Note 2, 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. These interim financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Annual Report on Form 10-K of Paramount Gold and Silver Corp. for the year ended June 30, 2014.
Marketable Securities
The Company classifies its marketable securities as available-for-sale securities. The securities are measured at fair market value in the financial statements with unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Upon realization, such amounts are reclassified from accumulated other comprehensive income to other income, net, realized gains and losses and other than temporary impairments, if any, are reflected in the statements of operations as other income or expenses. The Company does not recognize changes in the fair value of its investments in income unless a decline in value is considered other than temporary.
Use of Estimates
The preparation of these condensed consolidated interim financial statements in conformity with United States generally accepted accounting principles 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 accompanying financial statements include collectability of amounts receivable, the adequacy of the Company’s asset retirement obligations and fair value of stock based compensation.
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). New shares of the Company’s Common Stock will be issued for any options exercised or awards granted.
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 1. | Principal Accounting Policies (Continued): |
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.
Net Loss per 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.
Concentration of Credit Risk and Amounts Receivable
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents and amounts receivable. We deposit our cash with financial institutions which we believe have sufficient credit quality to minimize risk of loss.
Impuesto al Valor Agregado taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%. Under certain circumstances, these taxes are recoverable by filing a tax return and as determined by the Mexican taxing authority. Each period, receivables are reviewed for collectability. When a receivable is determined to not be collectable we allow for the receivable until we are either assured of collection or assured that a write-off is necessary. Allowances in association with our receivable from IVA from our Mexico subsidiaries are based on our determination that the Mexican government may not allow the complete refund of these taxes. The Company believes that all amounts recorded as a receivable from the Mexican government will be recovered.
Foreign Currency
The parent company’s functional currency is the United States dollar. The functional currencies of the Company’s wholly-owned subsidiaries are the U.S. Dollar and the Canadian Dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the consolidated balance sheet date. Foreign currency transaction gains and losses are included in the statement of operations and comprehensive loss. The aggregate foreign transaction loss for the three month period ended September 30, 2014 is $60,652.
The financial statements of the subsidiaries are translated to United States dollars in accordance with ASC 830 using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity.
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 2. | Recent Accounting Pronouncements Adopted and New Accounting Pronouncements: |
|
i)
|
ASU 2013-05
|
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05, “Foreign Currency Matters (Topic 830); Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This guidance applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of substance real estate or conveyance of oil and gas, mineral rights) within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods with those years) beginning after December 15, 2013. The adoption of ASU 2013-05 did not have a material impact on our financial position or results of operations.
|
ii)
|
ASU 2013-11
|
In July 2013, FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exits.” The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. ASU No. 2013-11 is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. Early adoption is permitted. The amendments should be applied to all unrecognized tax benefits that exist as of the effective date. Entities may choose to apply the amendments retrospectively to each prior reporting period presented. The adoption of ASU 2013-05 did not have a material impact on our financial position or results of operations
|
iii)
|
ASU 2014-08
|
In April 2014, FASB issued ASU 2014-08, “Discontinued Operations”. ASC guidance was issued related to discontinued operations which changed the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements. The updated guidance requires an entity to only classify discontinued operations due to a major strategic shift or a major effect on an entity’s operations in the financial statements. The updated guidance will also require additional disclosures relating to discontinued operations. The update is effective prospectively for the Company’s fiscal year beginning July 1, 2015. Early application is permitted. The Company does not expect the updated guidance to
have an impact on the consolidated financial position, results of operations or cash flows
|
iv)
|
ASU 2014-12
|
In June 2014, FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. ASC guidance was issued to update the guidance on performance stock awards. The guidance requires that a performance target that affects vesting and that
could be achieved after the requisite service period is treated as a performance condition. This standard is effective for the Company’s fiscal year beginning July 1, 2016. Early application is permitted. The Company does not expect the updated guidance to have a material impact on the consolidated financial position, results of operations or cash flows.
|
iv)
|
ASU 2014-15
|
In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern”. ASC guidance was issued that explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. This standard is effective for the Company’s fiscal year ending July 30, 2017, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the updated guidance to have a material impact on the consolidated financial position, results of operations or cash flows.
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 3. | Marketable Securities: |
The following table summarizes the Company’s available-for sale securities on hand as of September 30, 2014 and June 30, 2014:
|
Cost Basis
|
Impairment
Charge
|
Adjusted
Cost
|
Gross
Unrealized
Losses
|
Gross
Unrealized
Gains
|
Fair Value
|
|||||||||||||||||||
|
Marketable securities at September 30, 2014
|
$
|
69,850
|
-
|
69,850
|
63,516
|
-
|
$
|
6,334
|
||||||||||||||||
|
Marketable securities at June 30, 2014
|
$
|
499,950
|
-
|
$
|
499,950
|
-
|
60,149
|
$
|
560,099
|
|||||||||||||||
During the three month period ended September 30, 2014, the Company sold marketable securities with a cost basis of $430,100 for net proceeds of $462,075. The gain on sale of securities of $31,975 was recorded on the statement of operations. As a result of the transaction, the Company reversed from comprehensive income $106,631 it had previously recorded as an unrealized gain.
In the three month period ended September 30, 2014, the Company recorded an unrealized loss of $17,034(2013 – $104,793 gain). The marketable securities reflected in the table above includes stock purchase warrants of a single entity involved in the exploration of precious metals. The Company performs a quarterly assessment on its marketable securities with unrealized losses to determine if the security is other than temporarily impaired.
| 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).
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. |
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
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 September 30, 2014
|
June 30, 2014
|
|||||||||||||||||||
|
Assets
|
Total
|
Level 1
|
Leveel 2
|
Level 3
|
Total
|
|||||||||||||||
|
Cash and cash equivalents
|
$
|
4,892,782
|
4,892,782
|
-
|
-
|
$
|
5,107,691
|
|||||||||||||
|
Marketable Securities
|
$
|
6,334
|
-
|
-
|
$
|
6,334
|
$
|
560,099
|
||||||||||||
The Company’s cash and cash equivalents and short-term investments 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.
The Company’s marketable securities are comprised of stock purchase warrants. The stock purchase warrants’ fair value is recorded using a Black Scholes options model using inputs such as contractual terms, stock volatility and implied interest rates. The Company’s marketable securities are classified within Level 3 of the fair value hierarchy.
| 5. | Non-Cash Transactions: |
During the periods ended September 30, 2014 and 2013, the Company did not enter into non-cash activities.
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 6. | Capital Stock: |
a) Share issuances:
Authorized capital stock consists of 200,000,000 common shares with par value of $0.001 per share. At September 30, 2014 there were 161,547,969 shares issued and outstanding and 159,170,859 shares issued and outstanding at June 30, 2014.
During the three month period ended September 30, 2014 and 2013, the Company issued the following shares:
|
Common Shares
|
||||||||
|
2014
|
2013
|
|||||||
|
Financing
|
2,377,110
|
-
|
||||||
|
2,377,110
|
-
|
|||||||
b) Stock options:
On August 23, 2007, the board and stockholders approved the 2007/2008 Stock Incentive & Compensation Plan thereby reserving an additional 4,000,000 common shares for issuance to employees, directors and consultants.
On February 24, 2009, the stockholders approved the 2008/2009 Stock Incentive & Equity Compensation Plan thereby reserving an additional 3,000,000 common shares for future issuance. The stockholders also approved the re-pricing of the exercise price of all outstanding stock options to $0.65 per share.
On December 2, 2011, the stockholders approved the 2011/2012 Stock Incentive & Equity Compensation Plan thereby reserving an additional 4,000,000 common shares for future issuance to employees, directors and consultants.
Stock Based Compensation
The Company uses the Black-Scholes option valuation model to value stock options granted. The Black-Scholes 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. For purposes of the calculation, the following assumptions were used:
|
September 30, 2014
|
September 30, 2013
|
|||||||
|
WA Risk free interest rate
|
-
|
0.12
|
%
|
|||||
|
WA Expected dividend yield
|
-
|
0
|
%
|
|||||
|
WA Expected stock price volatility
|
-
|
66
|
%
|
|||||
|
WA Expected life of options
|
-
|
3 years
|
||||||
Changes in the Company’s stock options for the period ended September 30, 2014 are summarized below:
|
Options
|
Number
|
Weighted Avg. Exercise Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Outstanding at June 30, 2014
|
5,767,500
|
$
|
1.89
|
2.27
|
$
|
0
|
||||||||||
|
Issued
|
-
|
-
|
-
|
-
|
||||||||||||
|
Cancelled / Expired
|
20,000
|
2.48
|
-
|
-
|
||||||||||||
|
Exercised
|
-
|
-
|
-
|
-
|
||||||||||||
|
Outstanding at September 30, 2014
|
5,747,500
|
$
|
1.89
|
2.03
|
$
|
0
|
||||||||||
|
Exercisable at September 30, 2014
|
5,557,501
|
$
|
1.87
|
2.08
|
$
|
0
|
||||||||||
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
|
6.
|
Capital Stock (Continued):
|
At September 30, 2014, there were 5,747,500 options outstanding. Options outstanding above that have not vested at period end are 189,999 which have a maximum service term of 1- 4 years. The vesting of these options is dependent on market conditions which have yet to be met. As of September 30, 2014, there was $45,188 (2013 - $138,706) of unrecognized compensation cost related to non-vested stock options to be recognized over a weighted average period of 1 year.
A summary of the non-vested options as of June 30, 2014 and changes during the three month period ended September 30, 2014 are as follows:
|
Non-vested Options
|
Number
|
Weighted Avg.
Grant-Date Fair
Value
|
||||||
|
Non-vested at June 30, 2014
|
189,999
|
$
|
2.12
|
|||||
|
Issued
|
-
|
-
|
||||||
|
Vested
|
-
|
-
|
||||||
|
Forfeited
|
-
|
-
|
||||||
|
Non-vested at September 30, 2014
|
189,999
|
$
|
2.12
|
|||||
For the three period ended September 30, 2014, the Company recognized a stock based compensation expense in the amount of $23,383 (2013 - $97,466).
| 7. | Related Party Transactions: |
During the period ended September 30, 2014, directors earned fees in the amount of $46,500 (2013 -$54,000) for their services as directors or members of committees of the Company’s Board. During the period ended September 30, 2014, the Company also recorded a non-cash transaction to recognize stock based compensation for directors in the amount of $15,982 (2013 -$15,976)
All transactions with related parties are made in the normal course of operations and measured at exchange value.
| 8. | Mineral Properties: |
The Company has capitalized acquisition costs on mineral properties as follows:
|
September 30, 2014
|
June 30, 2014
|
|||||||
|
Iris Royalty
|
50,000
|
50,000
|
||||||
|
San Miguel Project
|
23,432,263
|
23,452,263
|
||||||
|
Sleeper
|
25,554,090
|
25,891,490
|
||||||
|
Mill Creek
|
2,096,616
|
2,096,616
|
||||||
|
Spring Valley
|
385,429
|
385,429
|
||||||
|
$
|
51,518,398
|
$
|
51,875,798
|
|||||
San Miguel Project:
The 100% owned San Miguel Project is located in southwestern Chihuahua, a state in Northern Mexico. It consists of 40 mining concessions which total approximately 551 square miles. The concessions were acquired from 2005 to 2012 over a series of transactions with third parties.
During the three month period ended September 30, 2014, the Company wrote down certain mining concessions with a recorded value of $20,000. The Company determined that these concession no longer had exploration potential.
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 8. | Mineral Properties (Continued): |
Sleeper:
The Sleeper Gold Project was acquired through our acquisition of X-Cal Resources Ltd. in August 2010. Sleeper is located in northern Nevada approximately 26 miles northwest of the town of Winnemucca. When acquired in 2010, the Sleeper Gold Mine consisted of 1,044 unpatented mining claims. In August 2011 and July 2012, the Company has staked a total of 1,526 additional unpatented lode mining claims.
During the three month period ended September 30, 2014, the Company dropped 212 mining claims it acquired in 2011 with a recorded value of $337,400. The Company determined that these mining claims no longer had any exploration potential.
Mill Creek:
The Mill Creek property consists of 36 unpatented lode mining claims totaling 720 acres south of Battle Mountain Nevada.
Spring Valley:
The Spring Valley property consists of 38 unpatented lode mining claims located in Pershing County, Nevada.
| 9. | Property and Equipment: |
Property and equipment consist of the following:
|
September 30, 2014
|
June 30, 2014
|
|||||||
|
Exploration and other equipment
|
$
|
331,944
|
$
|
331,944
|
||||
|
Buildings and leaseholds
|
325,207
|
325,207
|
||||||
|
Furniture and computer equipment
|
240,483
|
240,483
|
||||||
|
Subtotal
|
897,634
|
897,634
|
||||||
|
Accumulated depreciation
|
(532,335
|
)
|
(519,918
|
)
|
||||
|
Total
|
$
|
365,299
|
$
|
377,716
|
||||
During the period ended September 30, 2013, net additions to property, and equipment were $ 0 (2013- $2,204). During the period ended September 30, 2014 the Company recorded depreciation of $12,417 (2013-$14,786).
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 10. | Segmented Information: |
Segmented information has been compiled based on the geographic regions in which the Company has acquired mineral properties and performs exploration activities.
Loss for the period by geographical segment for the period ended September 30, 2014:
|
|
United States
|
Mexico
|
Total
|
|||||||||
|
Interest income
|
$
|
2,620
|
$
|
-
|
$
|
2,620
|
||||||
|
Other income
|
30,486
|
-
|
30,486
|
|||||||||
|
Total income
|
$
|
33,106
|
$
|
-
|
$
|
33,106
|
||||||
|
Expenses:
|
||||||||||||
|
Exploration
|
489,425
|
1,508,550
|
1,997,975
|
|||||||||
|
Professional fees
|
238,790
|
-
|
238,790
|
|||||||||
|
Directors compensation
|
62,482
|
-
|
62,482
|
|||||||||
|
Travel and lodging
|
49,756
|
-
|
49,756
|
|||||||||
|
Corporate communications
|
59,833
|
-
|
59,833
|
|||||||||
|
Consulting fees
|
66,268
|
-
|
66,268
|
|||||||||
|
Office and administration
|
70,336
|
3,859
|
74,195
|
|||||||||
|
Interest and service charges
|
2,527
|
784
|
3,311
|
|||||||||
|
Insurance
|
56,703
|
-
|
56,703
|
|||||||||
|
Depreciation
|
4,166
|
8,251
|
12,417
|
|||||||||
|
Accretion
|
33,692
|
-
|
33,692
|
|||||||||
|
Write down of mineral properties
|
337,400
|
20,000
|
357,400
|
|||||||||
|
Total Expenses
|
1,471,378
|
1,541,444
|
3,012,822
|
|||||||||
|
Net loss
|
$
|
1,438,272
|
$
|
1,541,444
|
$
|
2,979,716
|
||||||
|
Other items
|
||||||||||||
|
Gain on sale of marketable securities
|
31,975
|
-
|
31,975
|
|||||||||
|
Net Loss
|
$
|
1,406,297
|
$
|
1,541,444
|
$
|
2,947,741
|
||||||
|
Other comprehensive loss(gain)
|
||||||||||||
|
Foreign currency translation adjustment
|
21,919
|
-
|
21,919
|
|||||||||
|
Unrealized loss (gain) on available-for-sale-securities
|
123,665
|
-
|
123,665
|
|||||||||
|
Total Comprehensive Loss for the Period
|
$
|
1,551,881
|
$
|
1,541,444
|
$
|
3,093,325
|
||||||
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 10. | Segmented Information (Continued): |
Loss for the period by geographical segment for the period ended September 30, 2013:
|
|
United States
|
Mexico
|
Total
|
|||||||||
|
Interest income
|
$
|
4,966
|
$
|
-
|
$
|
4,966
|
||||||
|
Other income
|
5,000
|
5,131
|
10,131
|
|||||||||
|
Total income
|
$
|
9,966
|
$
|
5,131
|
$
|
15,097
|
||||||
|
Expenses:
|
||||||||||||
|
Exploration
|
459,000
|
775,257
|
1,234,257
|
|||||||||
|
Professional fees
|
230,767
|
-
|
230,767
|
|||||||||
|
Directors compensation
|
69,976
|
-
|
69,976
|
|||||||||
|
Travel and lodging
|
42,670
|
-
|
42,670
|
|||||||||
|
Corporate communications
|
54,351
|
-
|
54,351
|
|||||||||
|
Consulting fees
|
122,577
|
-
|
122,577
|
|||||||||
|
Office and administration
|
62,062
|
12,807
|
74,869
|
|||||||||
|
Interest and service charges
|
1,789
|
926
|
2,715
|
|||||||||
|
Insurance
|
102,372
|
-
|
102,372
|
|||||||||
|
Depreciation
|
6,587
|
8,199
|
14,786
|
|||||||||
|
Accretion
|
30,683
|
-
|
30,683
|
|||||||||
|
Total Expenses
|
1,182,834
|
797,189
|
1,980,023
|
|||||||||
|
Net loss
|
$
|
1,172,868
|
$
|
792,058
|
$
|
1,964,926
|
||||||
|
Other comprehensive loss(gain)
|
||||||||||||
|
Foreign currency translation adjustment
|
34,504
|
-
|
34,504
|
|||||||||
|
Unrealized loss (gain) on available-for-sale-securities
|
(104,793
|
)
|
-
|
(104,793
|
)
|
|||||||
|
Total Comprehensive Loss for the Period
|
$
|
1,102,579
|
$
|
792,058
|
$
|
1,894,637
|
||||||
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
|
10.
|
Segmented Information (Continued):
|
Assets by geographical segment:
|
United States
|
Mexico
|
Total
|
||||||||||
|
September 30, 2014
|
||||||||||||
|
Mineral properties
|
$
|
27,936,135
|
$
|
23,582,263
|
$
|
51,518,398
|
||||||
|
Property and equipment
|
$
|
39,519
|
$
|
325,780
|
$
|
365,299
|
||||||
|
June 30, 2014
|
||||||||||||
|
Mineral properties
|
$
|
28,273,535
|
$
|
23,602,263
|
$
|
51,875,798
|
||||||
|
Property and equipment
|
$
|
43,685
|
$
|
334,031
|
$
|
377,716
|
||||||
| 11. | Reclamation and Environmental: |
The Company holds an insurance policy related to its Sleeper Gold Project that covers reclamation costs in the event the Company defaults on payments of its reclamation costs up to an aggregate of $25 million. The unamortized insurance premium is being amortized to December 31, 2016 and the current and non-current prepaid insurance balance at September 30, 2014 is $110,347(June 30, 2014 - $122,607).
As a part of the 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 September 30, 2014 is $2,601,898 (June 30, 2014 - $2,626,538).
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 $3,915,626 as required by U.S Bureau of Land Management and the Nevada Department of Environmental Protection. Assumptions used to compute the asset retirement obligations for the year ended June 30, 2014 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (2013 – 9.76%) and 2.0% (2013 – 2.0%), respectively. Expenses are expected to be incurred between the years 2014 and 2053.
Changes to the Company’s asset retirement obligations for the three month period ended September 30, 2014 are as follows:
|
September 30, 2014
|
June 30, 2014
|
|||||||
|
Balance at beginning of period
|
$
|
1,291,066
|
$
|
1,263,584
|
||||
|
Accretion expense
|
33,692
|
122,732
|
||||||
|
Payments
|
(25,386
|
)
|
(95,250
|
)
|
||||
|
Balance at end of period
|
$
|
1,299,372
|
$
|
1,291,066
|
||||
PARAMOUNT GOLD AND SILVER CORP.
Notes to Condensed Consolidated Interim Financial Statements For the Three Month Period Ended September 30, 2014
(Expressed in United States dollars, unless otherwise stated)
(Unaudited)
| 12. | Subsequent Event: |
Subsequent to September 30, 2014, the Company issued 479,453 shares for gross proceeds of $373,266 pursuant to a Controlled Equity Offering Sales Agreement entered into with Cantor Fitzgerald & Co. on April 11, 2014.
The following information should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes (included elsewhere in this report) and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our June 30, 2013 annual report filed on Form 10-K with the Securities and Exchange Commission on September 9, 2014.
We are an exploratory stage mining company that currently has mining concessions in Mexico and mining claims in Nevada, USA. We have no proven reserves at our San Miguel project in Mexico or at our Sleeper Gold project in Nevada but are currently exploring both projects. The following discussion updates our planned operations for this fiscal year. It also analyzes our financial condition and summarizes the results of operations for the three month period ended September 30, 2014 and compares those results to the three month period ended September 30, 2013.
Plan of Operation:
Exploration activities at our San Miguel Project will include new target core drilling, expansion and in-fill drilling of known mineralized zones, geotechnical drilling and further metallurgical testing. We also plan to commence base line environmental studies related to the use of surface land for mining operations.
The Company’s exploration plan and budget for the San Miguel Project will be managed by its in-house technical staff. It will be funded by the Company’s cash on hand and future issuances of our common stock. We have budgeted approximately $2.0 million for the next three month period.
In Nevada, our plan for the next three months is to continue focusing on our Sleeper Gold Project. Our budget for this period is approximately $0.45 million. The main budget activities will include consulting, material modeling and metallurgical testing.
Our work at both the San Miguel Project and Sleeper Gold Project is consistent with Paramount’s strategy of expanding and upgrading known, large-scale precious metal occurrences in established mining camps, defining their economic potential and then partnering them with nearby producers.
Highlights from Q1 – July 1, 2014 to September 30, 2014
On August 22, 2014, the Company announced the results of an updated Preliminary Economic Assessment (“San Miguel PEA”). The report was authored by Metal Mining Consultants Inc. (“MMC”) and incorporated a resource estimate which was prepared by Mine Development Associates. In their analysis, MMC proposed a 4,000 tonnes per day mill with a heap leaching facility fed by open pits and underground mines, resulting in a projected 17 year operation with a total metal production of 933,000 ounces of gold and 47.1 million ounces of silver.
Liquidity and Capital Resources
At September 30, 2014, we had cash and cash equivalents of $4,892,782 compared to $5,107,691as at June 30, 2014. This decrease of $214,909 was comprised of cash used to fund our exploration and corporate overhead of $2,887,033 which was offset by cash provided by the issuance of our common stock and proceeds received from the sale of marketable securities of $2,694,043.
During the three month period ended September 30, 2014, the Company continued to sell shares of its common stock through its sales agent, Cantor Fitzgerald & Co. (“Cantor”) pursuant to a Controlled Equity OfferingSM Sales Agreement it entered with Cantor on April 11, 2014. Under the market offering program (“ATM”), pursuant to which, we may, at our discretion, sell up to $30.0 million of our common stock through Cantor. Sales of common stock made under the ATM are made under our previously filed and currently effective Registration Statement on Form S-3 (File No. 333-194411) by means of ordinary brokers’ transactions at market prices.
During the three month period ended September 30, 2014, we received net proceeds of approximately $2,231,968 from sales of approximately 2,337,110 shares of our common stock at an average sales price of approximately $0.97 per share under a market offering program (‘ATM’). At September 30, 2014 we had approximately $24.1 million available under the ATM.
During the three month period ended September 30, 2013, we sold marketable securities and received $462,075.
At September 30, 2013, the amounts receivable amount of $1,544,074 primarily consisted of value added tax due from the Mexican government.
At September 30, 2014, we had a net working capital of $6,549,728. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $1 million per month for three month period ending December 31, 2014. Anticipated cash outlays will be funded by our available cash reserves and future issuances of shares of our common stock.
Historically, we have funded our exploration and development activities through equity financing arrangements. We continue to assess our needs for additional capital to ensure sufficient financial resources are available to fund our exploration and working capital needs. We believe that our access to additional capital, together with our existing cash resources will be sufficient to meet our needs for the next twelve months. If, however, we are unable to obtain additional capital or financing, our exploration and development activities will be significantly affected.
Comparison of Operating Results for the three month period ended September 30, 2014 to the three month period ended September 30, 2013.
Net Loss
Our net loss before other items for the three month period ended September 30, 2014 was $2,979,716 compared to a loss of $1,964,926 in the comparable period in the prior year. The increase in net loss of $1,014,790 or 52% mainly reflects increased exploration expenditures at the San Miguel Project. We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.
Expenses
Our exploration expenses for the three month period ended September 30, 2014 compared to the comparable prior period increased by 62% or by $763,718. This increase was driven by the completion of a new NI 43-101 Preliminary Economic Assessment report and the commencement of a new exploration drill program at our San Miguel Project.
The following table summarizes our drilling activities at both projects for the three month period ended September 30, 2014 and 2013:
|
Three month period ended September 30, 2014
|
Three month period ended September 30, 2013
|
|||||||||||||||
|
Holes
|
Cumulative Length in Feet
|
Holes
|
Cumulative Length in Feet
|
|||||||||||||
|
San Miguel Project, Mexico
|
1
|
7,087
|
-
|
-
|
||||||||||||
|
Sleeper Gold Project, USA
|
-
|
-
|
-
|
-
|
||||||||||||
|
Total
|
1
|
7,087
|
-
|
-
|
||||||||||||
During the three month period ended September 30, 2014, the Company dropped mining claims at its Sleeper Gold Project and mining concessions at its San Miguel Project and recorded an expense of $357,400 on its statement of operations and comprehensive loss. The Company determined that these mining concessions and claims no longer had future exploration value.
Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $439,086 for the three month period ended September 30, 2014. This is a 9% decrease over the comparable three month period in the 2013.
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 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 and long-lived assets. 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 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
The company expenses exploration costs as incurred. When it is determined 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, the Company has not established any proven or probable reserves and will continue to expense exploration expenses as incurred.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. Transactions involving foreign currencies for items included in operations are translated into U.S. dollars using the exchange rate prevailing at the date of transaction and monetary assets and liabilities are translated at the exchange rate prevailing at the consolidated balance sheet date and all other consolidated balance sheet items are translated at historical rates applicable to the transactions that comprise the amounts. Translation gains and losses are included in the determination of other comprehensive loss and gains in the Statement of Operations.
Reclassification
Certain comparative figures have been reclassified to conform to the current quarter presentation.
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 and Canadian dollars. Some of our expenses, including labor and operating supplies are denominated in Mexican Pesos. As a result, currency exchange fluctuations may impact our operating costs. 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 or Canadian dollar will positively impact our expenses transacted in Mexican Pesos. Conversely, any weakening of the U.S dollar or Canadian dollar will increase our expenses transacted in Mexican Pesos. We do not believe that any weakening of the U.S. or Canadian dollar as compared to the Mexican Peso 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. and Canadian 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 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, 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.
None
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the period ended June 30, 2014.
|
Exhibit Number
|
Description
|
|
|
3.1
|
Certificate of Incorporation, effective March 31, 2005, incorporated by reference to Exhibit 3.1 to Form 10-SB filed November 2, 2005
|
|
|
3.2
|
Certificate of Amendment to Certificate of Incorporation, effective August 23, 2007, incorporated by reference to Exhibit 3 to Form 8-K filed August 28, 2007
|
|
|
3.2(b)
|
Certificate of Amendment to Certificate of Incorporation, effective March 3, 2009, incorporated by reference to Exhibit 3.1 to Form 8-K filed February 26, 2009
|
|
|
3.3
|
Restated Bylaws, effective April 18, 2005, incorporated by reference to Exhibit 3.3 to Form 10-K filed September 9, 2009
|
|
|
4.1
|
Registration Rights Agreement, dated March 30, 2007, incorporated by reference to Exhibit 10.2 to Form 8-K filed April 6, 2007
|
|
|
4.2
|
Form of Investor Warrant, incorporated by reference to Exhibit 10.3 to Form 8-K filed April 6, 2007
|
|
|
Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
||
|
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
||
|
Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
||
|
Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Carlo Buffone
|
||
27