pzg_10qa.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
———————
FORM 10-Q/A-1
———————
(Mark One)
 
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31 2009
 
OR
 
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)
 
Delaware
 
0-51600
 
20-3690109
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
         
 
    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 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.
 
 
Large accelerated filer
o
Accelerated filer
o
 
Non-accelerated filer
o
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes o    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 o   No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:
 
132,247,814 shares of Common Stock, $.001 par value as of October 31, 2010
 


 
 

 

Explanatory Note
 
Paramount Gold and Silver Corp. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A to amend its Quarterly Report on Form 10-Q for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on February 12, 2010 (the “Original Filing”).  The Company is filing this amendment to its Original Filing to reflect the following changes:
 
1.  
Consolidated Statement of Operations:  Allocated stock based compensation to type of expense incurred
 
2.  
Consolidated Statement of Operations:  Recomputed Basic and Diluted Loss per Share to reflect shares issued that are held in escrow
 
3.  
Consolidated Balance Sheets and Consolidated Statement of Operations:  Recorded the fair value of an earned option to receive shares in an arms-length company.
 
4.  
Consolidated Balance Sheets, Consolidated Statement of Operations, Consolidated Statement of Cash Flows and Consolidated Statement of of Stockholder’s Equity:  Adopted amended provisions of ASC 815.  Warrants and Options issued with exercise prices denominated in Canadian dollars are now recorded as liabilities whereas they were previously recorded as equity.
 
5.  
Corresponding Management Discussion and Analysis has been amended to reflect the changes to the Company’s Financial Statements that have been amended by this Form 10-Q/A.
 
These restatements are further described in our Notes to the Consolidated Financial Statements (Note 15).
 
Except as indicated above, no other information included in the Original Filing is amended by this Form 10-Q/A Amendment No. 1.
 
 
 

 
 
Paramount Gold and Silver Corp.
 
INDEX
 
 
PART I. – FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements 
 
 1
       
 
Consolidated Balance Sheets at December 31, 2009 (unaudited) and June 30, 2009 (audited) 
 
2
       
 
Consolidated Statements of Operations for the Three and Six Months Ended  December 31, 2009 and for the Three and Six Months Ended December 31, 2008 (unaudited) and Cumulative Since
Inception, (March 29, 2005 to December 31, 2009) 
 
3
       
 
Consolidated Statements of Cash Flows  for the Period Ended December 31, 2009 and December 31, 2008 and Cumulative Since Inception to December 31, 2008 (unaudited) 
 
4
       
 
Consolidated Statement of Stockholders’ Equity for the Period Ended December 31, 2009 (unaudited)
 
5
       
 
Notes to Interim Financial Statements as of December 31, 2009 
 
7
       
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operation 
 
34
       
Item 3.
Quantitative and Qualitative Disclosure About Market Risk 
 
42
       
Item 4.   
Controls and Procedures 
 
42
       
Item 4T.
The information required by Item 4t is contained in Item 4. 
 
42
       
 
PART II. – OTHER INFORMATION
 
 34
       
Item 1
Legal Proceedings.
 
43
       
Item 1A.
Risk Factors
 
43
       
Item 2. 
Unregistered Sales of Equity Securities. 
 
43
       
Item 3.
Defaults upon senior securities. 
 
43
       
Item 4.
Submission of matters to a vote of security holders. 
 
43
       
Item 5. 
Other information 
 
43
       
Item 6.
Exhibits 
 
44
 
 
 

 
 
PART I.  FINANCIAL INFORMATION
 

 
ITEM 1.  FINANCIAL STATEMENTS.
 






PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Financial Statements
(Unaudited)
Period ended December 31, 2009 and 2008
 
 
1

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Balance Sheets (Unaudited)
As at December 31, 2009 and June 30, 2009
(Expressed in United States dollars, unless otherwise stated)


   
As at December 31,
 2009 (Unaudited)
(Restated)
   
As at June 30,
2009 (Audited)
 
Assets
           
             
Current Assets
           
             
Cash and cash equivalents
  $ 19,095,311     $ 7,040,999  
Amounts receivable
    473,052       221,267  
Notes Receivable (Note 9)
    -       91,365  
Equity conversion right (Note 13)
    1,337,700          
Prepaid and Deposits
    51,971       82,583  
Term deposit
    1,053,811       1,063,772  
      22,011,845       8,499,986  
                 
Long Term Assets
               
                 
Mineral properties (Note 7)
    22,111,203       18,436,951  
Fixed assets (Note 8)
    517,661       520,858  
      22,628,864       18,957,809  
                 
    $ 44,640,709     $ 27,457,795  
                 
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Current Liabilities
               
                 
Accounts payable
  $ 287,240     $ 383,445  
Warrant Liability (Note 2)
    13,333,127       -  
      13,620,367       383,445  
                 
Stockholders’ Equity
               
                 
Capital stock (Note 5)
    102,392       83,018  
Additional paid in capital
    74,596,812       52,506,278  
Contributed surplus
    14,591,970       17,969,510  
Deficit accumulated during the exploration stage
    (58,041,906 )     (43,197,264 )
Cumulative translation adjustment
    (228,926 )     (287,192 )
      31,020,342       27,074,350  
                 
    $ 44,640,709     $ 27,457,795  
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
2

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Operations (Unaudited)
 (Expressed in United States dollars, unless otherwise stated)


   
Three Month
Period Ended
December 31,
2009
   
Six Month
Period Ended
December 31,
2009
   
Three Month
Period Ended
December 31,
2008
   
Six Month
Period Ended
December 31,
2008
   
Cumulative Since Inception March 29, 2005 to
December 31, 2009
 
   
(Restated)
   
(Restated)
   
(Restated)
   
(Restated)
   
(Restated)
 
Revenue
                             
Interest Income
  $ -     $ 66,309     $ 52,930     $ 150,207     $ 1,036,623  
                                         
Expenses:
                                       
                                         
Incorporation Costs
    -       -       -       -       1,773  
Exploration
    1,538,070       2,616,569       486,295       2,335,334       20,370,042  
Professional Fees
    167,442       407,374       173,597       408,573       5,701,023  
Travel & Lodging
    64,986       87,110       41,385       114,338       943,716  
Corporate Communications
    46,564       86,190       202,839       458,125       2,871,148  
Consulting Fees
    111,816       345,998       224,708       552,879       13,732,381  
Office & Administration
    71,827       152,764       266,245       582,634       2,079,447  
Interest & Service Charges
    32,115       50,347       1,452       3,991       77,751  
Loss on disposal of Fixed Assets
    -       -       -       44,669       44,669  
Insurance
    11,367       25,511       20,626       48,819       253,579  
Depreciation
    16,614       31,265       24,930       52,278       261,177  
Miscellaneous
    (30,118 )     (25,103 )     (990 )     (2,738 )     159,873  
Financing & Listing Fees
    77,484       77,484       12,525       12,525       55,460  
Acquisition Expenses
    695,721       1,060,180       -       -       1,060,179  
Write Down of Mineral Property
    275,000       275,000       -       -       1,746,049  
Total Expense
    3,078,888       5,190,689       1,453,612       4,611,427       49,358,267  
Net Loss before other item
    3,078,888       5,124,380       1,400,682       4,461,220       48,321,644  
Other item
                                       
Change in fair value of warrant liability
    170,674       (2,917,613 )     -       -       9,720,262  
Net Loss
    3,249,562       2,206,767       1,400,682       4,461,220       58,041,906  
                                         
Other comprehensive loss (income)
                                       
Foreign Currency Translation Adjustment
    (47,603 )     (58,266 )     192,598       224,892       228,926  
Total Comprehensive Loss for the Period
  $ 3,201,959     $ 2,148,501     $ 1,593,280     $ 4,686,112     $ 58,270,832  
Loss per Common Share
                                       
Basic
  $ 0.03     $ 0.02     $ 0.02     $ 0.08          
Diluted
  $ 0.03     $ 0.02     $ 0.02     $ 0.08          
Weighted Average Number of Common Shares Used in Per Share Calculations
                                       
Basic
    94,264,765       86,394,206       57,674,756       55,148,086          
Diluted
    98,764,765       90,894,206       57,674,756       55,148,086          

The accompanying notes are an integral part of the consolidated financial statements
 
 
3

 

PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in United States dollars, unless otherwise stated)

 
   
For the Six Month
Period Ended
December 31, 2009
   
For the Six Month
Period Ended
December 31, 2008
   
Cumulative Since
Inception to
December 31, 2009
 
   
(Restated)
         
(Restated)
 
Operating Activities:
                 
                   
Net Loss
  $ (2,206,767 )   $ (4,462,220 )   $ (58,041,906 )
Adjustment for:
                       
Depreciation
    31,265       53,278       261,177  
Allowance for doubtful accounts
    -       172,170       172,170  
Loss on disposal of assets
    -       44,669       44,669  
Write down on mineral property
    275,000       -       275,000  
Stock based compensation
    209,191       547,153       17,827,923  
Accrued interest
    -       (21,364 )     (58,875 )
Change in fair value of warrant liability
    (2,917,613 )     -       9,720,262  
(Increase) Decrease in accounts receivable
    (251,785 )     946,537       (620,394 )
(Increase) Decrease in prepaid expenses
    30,612       196,075       129,451  
Increase (Decrease) in accounts payable
    (96,205 )     (391,563 )     55,219  
                         
Cash used in Operating Activities
    (4,926,302 )     (2,915,265 )     (30,235,304 )
                         
Investing Activities:
                       
                         
Purchase of GIC receivable
    -       (16,384 )     (1,004,897 )
Note receivable
    91,365       (500,000 )     (3,253,192 )
Purchase of equity conversion right
    (1,337,700 )     -       (1,337,700 )
Purchase of Mineral Properties
    (3,574,251 )     (112,000 )     (4,400,168 )
Purchase of Equipment
    (28,068 )     (343,443 )     (98,068 )
                         
Cash used in Investing Activities
    (4,848,654 )     (971,827 )     (10,094,025 )
                         
Financing Activities:
                       
Increase (decrease) in demand notes payable
    -       -       105,580  
Issuance of capital stock
    21,761,042       2,859,676       59,557,202  
                         
Cash from Financing Activities:
    21,761,042       2,859,676       59,662,782  
                         
Effect of exchange rate changes on cash
    68,226       (88,954 )     (238,142 )
                         
Increase (Decrease) in Cash
    12,054,312       (1,116,370 )     19,095,311  
Cash, beginning
    7,040,999       3,199,848       -  
                         
Cash, ending
  $ 19,095,311     $ 2,083,478     $ 19,095,311  
                         
Supplemental Cash Flow Disclosure:
                       
Interest Received
  $ 7,642     $ 36,994       7,642  
Taxes Paid
    -       -       -  
Cash
    2,066,115       1,687,439       2,066,115  
Short term investments
    17,021,554       394,883       17,021,554  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
4

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statement of Stockholders’ Equity (Unaudited)
For the Six Months Period  Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
   
Shares
   
Par Value
   
Capital in
Excess of Par Value
   
Accumulated
Earnings (Deficiency)
   
Contributed
Surplus
   
Cumulative Translation Adjustment
   
Total Stockholders Equity
 
                                                         
Balance at June 30, 2007
    46,502,478       46,502       28,742,381       (17,546,124 )     10,159,322       8,412       21,410,493  
                                                         
Capital issued for financing
    1,000,000       1,000       1,778,590       -       -       -       1,779,590  
Capital issued for services
    770,000       770       1,593,582       -       -       -       1,594,352  
Capital issued for mineral properties
    268,519       269       489,731       -       -       -       490,000  
Fair Value of warrants
    -       -       -       -       470,410               470,410  
Stock based compensation
    -       -       -       -       2,911,213       -       2,911,213  
Foreign currency translation
    -       -       -       -       -       (28,389 )     (28,389 )
Net Income (loss)
    -       -       -       (18,409,961 )     -       -       (18,409,961 )
Balance at June 30, 2008
    48,540,997       48,541       32,604,284       (35,956,085 )     13,540,945       (19,977 )     10,217,708  
                                                         
Capital issued for financing
    16,707,791       16,707       5,828,684       -       -       -       5,845,391  
Capital issued for services
    1,184,804       1,185       683,437       -       -       -       684,622  
Capital issued from stock options exercised
    384,627       385       249,623       -       (237,008 )     -       13,000  
Capital issued for mineral properties
    16,200,000       16,200       13,140,250       -       -       -       13,156,450  
Fair Value of warrants
    -       -       -       -       3,612,864       -       3,612,864  
Stock based compensation
    -       -       -       -       1,052,709       -       1,052,709  
Foreign currency translation
    -       -       -       -       -       (267,215 )     (267,215 )
Net Income (loss)
    -       -       -       (7,241,179 )     -       -       (7,241,179 )
Balance at June 30, 2009
    83,018,219       83,018       52,506,278       (43,197,264 )     17,969,510       (287,192 )     27,074,350  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
5

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statement of Stockholders’ Equity (Unaudited)
For the Six Months Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)


   
Shares
   
Par Value
   
Capital in Excess
of Par Value
   
Accumulated
Earnings (Deficiency)
   
Contributed
Surplus
   
Cumulative
Translation Adjustment
   
Total Stockholders’ Equity
 
                     
(Restated)
   
(Restated)
         
(Restated)
 
Balance at June 30, 2009
    83,018,219       83,018       52,506,278       (43,197,264 )     17,969,510       (287,192 )     27,074,350  
                                                         
Capital issued from stock options exercised
    5,429       5       3,524       -       (3,529 )     -       -  
Stock based compensation
    -       -       -       -       161,975       -       161,975  
Transition Adjustment (Note 2)
    -       -       -       (12,637,875 )     (3,612,865 )             (16,250,740 )
Foreign currency translation
    -       -       -       -       -       10,663       10,663  
Net Income (loss)
    -       -       -       1,042,795       -       -       1,042,795  
Balance at September 30, 2009
    83,023,648       83,023       52,509,802       (54,792,344 )     14,515,091       (276,529 )     12,039,043  
                                                         
Capital issued for financing
    18,400,000       18,400       21,371,043       -       -               21,389,443  
Capital issued for mineral properties
    300,000       300       374,700       -       -               375,000  
Capital issued from stock options and warrants exercised
    668,979       669       341,267       -       29,663       -       371,599  
Stock based compensation
    -       -       -       -       47,216       -       47,216  
Foreign currency translation
    -       -       -       -       -       47,603       47,603  
Net Income (loss)
    -       -       -       (3,249,562 )     -       -       (3,249,563 )
Balance at December 31, 2009
    102,392,627       102,392       74,596,812       (58,041,906 )     14,591,970       (228,926 )     31,020,342  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
6

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

1.  Basis of Presentation:

a)  
The Company, incorporated under the General Corporation Law of the State of Delaware, is a natural resource company engaged in the acquisition, exploration and development of gold, silver and precious metal properties.  The unaudited consolidated financial statements of Paramount Gold and Silver Corp. (“The Company”) include the accounts of its wholly owned subsidiaries, Paramount Gold de Mexico S.A. de C.V., Magnetic Resources Ltd, and Compania Minera Paramount SAC. On August 23, 2007 the board of directors and stockholders’ approved the name change from Paramount Gold Mining Corp. to Paramount Gold & Silver Corp.
 
These unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. These financial statements are condensed and do not include all disclosures required for annual financial statements. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited consolidated financial statements filed as part of the Company’s June 30, 2009 Annual Report on Form 10-K. This quarterly report should be read in conjunction with the annual report.
 
In the opinion of the Company’s management, these consolidated financial statements reflect all adjustments necessary to present fairly the Company’s consolidated financial position at December 31, 2009, and the consolidated results of operations and the consolidated statements of cash flows for the six months ended December 31, 2009 and 2008. The results of operations for the three and six months ended December 31, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year.
 
b)  
Use of Estimates
 
The preparation of consolidated 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.
 
c)  
Exploration Stage Enterprise
 
The Company’s consolidated financial statements are prepared using the accrual method of accounting and according to the provision of FASB ASC 915, “Accounting and Reporting for Development Stage Enterprises”, as it were devoting substantially all of its efforts to acquiring and exploring mineral properties.  It is industry practice that mining companies in the development stage are classified under Generally Accepted Accounting Principles as exploration stage companies.  Until such properties are acquired and developed, the Company will continue to prepare its consolidated financial statements and related disclosures in accordance with entities in the exploration or development stage.
 
 
7

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.  Principal Accounting Policies
 
  
The consolidated financial statements are prepared by management in accordance with generally accepted accounting principles of the United States of America.  The principal accounting policies followed by the Company are as follows:
 
Cash and Cash Equivalents
 
Cash and cash equivalents include cash and highly liquid investments with an original maturity of three months or less.
 
Fair Value of Financial Instruments
 
The fair market value of the Company’s financial instruments comprising cash, accounts receivable and accounts payable and accrued liabilities were estimated to approximate their carrying values due to immediate or short-term maturity of these financial instruments.  The Company maintains cash balances at financial institutions which at times, exceed federally insured amounts. The Company has not experienced any material losses in such accounts.
 
Term Deposit
 
The GIC is non-redeemable until May 7, 2010 and bears an interest rate of 3.25% and has been pledged as collateral to support a letter of credit issued by a secured lender.
 
Notes Receivable
 
Notes receivable are classified as available-for-sale or held-to-maturity, depending on the Company’s intent with respect to holding such investments. If it is readily determinable, notes receivable classified as available-for-sale are accounted for at fair value. Unrealized gains and losses on available-for-sale securities are excluded from earnings and reported net of tax as a component of other comprehensive income within stockholders’ equity. Interest income is recognized when earned.
 
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 employees’ requisite service period (generally the vesting period of the equity grant).
 
Comprehensive Income
 
FASB ASC 220“Reporting Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements.  As of December 31, 2009, the Company’s only component of comprehensive income is foreign currency translation adjustments.
 
 
8

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.  Principal Accounting Policies: (Continued)

Long Term Assets

Mineral Properties

The Company has been in the exploration stage since its inception on March 29, 2005, and has not yet realized any revenues from its planned operations.  It is primarily engaged in the acquisition and exploration of mining properties.  The Company expenses all costs related to the maintenance, development and exploration of mineral claims in which it has secured exploration rights prior to establishment of proven and probable reserves.  To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are expensed.

Mineral property acquisition costs are initially capitalized when incurred using the guidance in ASC 360-10, “Whether Mineral Rights Are Tangible or Intangible Assets.” The Company assesses the carrying cost for impairment under ASC 360-10, “Accounting for Impairment or Disposal of Long Lived Assets” at each fiscal quarter end.  When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property are capitalized.  Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve.  If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Fixed Assets

Property and equipment are recorded at cost and are amortized over their estimated useful lives at the following annual rates, with half the rate being applied in the period of acquisition:

Computer equipment      30% declining balance
Equipment           20% declining balance
Furniture and fixtures         20% declining balance

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not.  The Company has adopted FASB ASC 740 as of its inception.  Pursuant to ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward.  Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future periods; and accordingly is offset by a valuation allowance. FIN No.48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken into in tax returns.

To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts would be accrued and classified as a component of income tax expense in the Company’s Consolidated Statements of Operations. The Company elected this accounting policy, which is a continuation of the Company’s historical policy, in connection with the Company’s adoption of FIN 48.
 
 
9

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.  Principal Accounting Policies: (Continued)

Foreign Currency Translation

The Company’s functional currency is the United States dollar. The consolidated financial statements of the Company are translated to United States dollars in accordance with  FASB ASC 830“Foreign Currency Translation” (“ASC 830). Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the consolidated balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Mexican pesos and  Euros. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

The functional currencies of the Company’s wholly-owned subsidiaries are the Mexican peso and the Canadian Dollar.  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. Foreign currency transaction gains and losses are included in the statement of operations.

Asset Retirement Obligation

The Company has adopted ASC 410-20 “Accounting for Asset Retirement Obligations”, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset.  The cost of the tangible asset, including the initially recognized ARO, is depleted such that the cost of the ARO is recognized over the useful life of the asset.  The ARO is recorded at fair value, and accretion expense is recognizable over time as the discounted liability is accreted to its expected settlement value.  The fair value of the ARO is measured using expected future cash flows, discounted at the Company’s credit-adjusted-risk-free interest rate.  To date, no material asset retirement obligation exists due to the early stage of the Company’s mineral exploration.  Accordingly, no liability has been recorded.

Environmental Protection and Reclamation Costs

The operations of the Company have been, and may in the future be affected in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs.  Both the likelihood of new regulations, and their overall effect upon the Company, may vary from region to region and are not predictable.

Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against statements of operations as incurred or capitalized and amortized depending upon their future economic benefits.  The Company does not anticipate any material capital expenditures for environmental control facilities.
 
 
10

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.  Principal Accounting Policies: (Continued)
 
Basic and Diluted Net Loss Per Share

The Company computes net income (loss) per share in accordance with FASB ASC 260, “Earnings per Share” and requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.  Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock method.  In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.  Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

Concentration of Credit and Foreign Exchange Rate Risk

Financial instruments that potentially subject the Company to credit and foreign exchange risk consist principally of cash, deposited with a high quality credit institution and amounts receivable, mainly representing value added tax recoverable from a foreign government.  Management does not believe that the Company is subject to significant credit or foreign exchange risk from these financial instruments.

Fair Value Option for Financial Assets

On July 1, 2008, the Company adopted FASB ASC 825-10, The Fair Value Option for Financial Assets and Financial Liabilities (“ASC 825-10”). ASC 825-10 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (fair value option) with changes in fair value reported in earnings.  The adoption of ASC 825-10 has no impact on the financial statements as management did not elect the fair value option for any other financial instruments or other assets and liabilities.

Accounting Standards Adopted

In March 2008, the FASB issued ASC 815, “Disclosures about Derivative Instruments and Hedging Activities” (“ASC 815”). ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after November 15, 2008.

Effective July 1, 2009, we adopted the amended provisions of ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can  be considered indexed to its own stock for the  purpose of evaluating the first criteria of the scope exception in ASC 815.  Warrants and options issued in prior periods with exercise prices denominated in Canadian dollars are no longer considered indexed to our stock, as their exercise price is not in the Company’s functional currency of the US dollar, and therefore no longer qualify for the scope exception and must be accounted for as a derivative.  These warrants and options are reclassified as liabilities under the caption “Warrant liability” and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation method.  Changes in the liability from period to period are recorded in the Statements of Operations under the caption “Change in fair value of warrant liability.”  On July 1, 2009, we recorded a cumulative effect adjustment based on the grant date fair value of warrants issued during the year ended June 30, 2009 that were outstanding at July 1, 2009 and the change in fair value of the warrant liability from the issuance date through to July 1, 2009.
 
 
11

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

2.  Principal Accounting Policies: (Continued)
 
We have elected to record the change in fair value of the warrant liability as a component of other income and expense on the statement of operations as we believe the amounts recorded relate to financing activities and not as a result of our operations.

We recorded the following cumulative effect of change in accounting principal pursuant to its adoption of the amendment as of July 1, 2009:

   
Contributed
surplus
   
Warrant
liability
   
Accumulated
deficit
 
Grant date fair value of previously issued warrants outstanding as of July 1, 2009
    3,612,865       (3,612,865 )      
Change in fair value of previously issued warrants outstanding as of July 1, 2009
          (12,637,875 )     12,637,875  
Cumulative effect of change in accounting principal
    3,612,865       (16,250,740 )     12,637,875  

In addition, we have recorded a gain related to the change in fair value of the warrant liability of $2,917,613 on the Consolidated Statements of Operations for the six month period ended December 31, 2009.
 
Fair Value Measurements

On July 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements  as it relates to financial assets and financial liabilities. In February 2008, the FASB staff issued ASC 845, Effective Date of ASC 820 (“ASC 820”). ASC 845 delayed the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of ASC 845 are effective for the Company’s fiscal year beginning July 1, 2009.

 ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in ASC 820.  ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). 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:
 
 
12

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.  Principal Accounting Policies: (Continued)
 
Fair Value Measurements (continued)
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
   
Level 2
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
   
Level 3
Inputs that are both significant to the fair value measurement and unobservable.
 
The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

   
Fair Value at December 31, 2009
   
June 30, 2009
 
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
    $       $       $       $       $  
Cash equivalents
    19,095,311       19,095,311                       7,040,999  
Accounts receivable
    473,052       473,052       -               221,267  
Notes receivable     -                               91,365   
GIC     1,053,811        1,053,811                       1,063,772  
Equity conversion right
    1,337,700       1,337,700                        
Liabilities
                                       
Warrant liability
    13,333,127                       13,333,127        

The Company’s cash equivalents, accounts receivables and GIC are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The 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.  Accounts receivable represents amounts due from a national government regarding the refund of taxes. Notes receivable is classified within Level 2 of the fair value hierarchy.
 
 
13

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
2.      Principal Accounting Policies: (Continued)
 
Fair Value Measurements (continued)

The Equity Conversion Right is accounted for as an asset and is classified within Level 1 because the underlying security has a published and observable market.  The Company uses the published closing stock price of the underlying security at the end of the financial reporting period to determine the fair value of the asset.  The change in fair value is recorded in the statement of operations as a loss (gain).

The estimated fair value of warrants and options accounted for as liabilities was determined on the date of closing and marked to market at each financial reporting period.  The change in fair value of the warrants and options is recorded in the statement of operations as a gain (loss) and is estimated using the Black-Scholes option-pricing model with the following inputs:
 
 
December 31, 2009
Risk free interest rate
0.93%
Expected life of warrants and options
1-2 years
Expected stock price volatility
60% to 111%
Expected dividend yield
0%
 
The changes in fair value of the warrants during the period ended December 31, 2009 were as follows:

Balance at September 30, 2009
13,162,453
Issuance of warrants and options
-
Change in fair value recorded in earnings
170,674
Transferred to equity upon exercise
-
Balance at December 31, 2009
13,333,127

 
14

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
3.  Recent Accounting Pronouncements:

(i)  
Business Combinations
 
In December 2007, the FASB issued FASB ASC 805(revised 2007), Business Combinations (ASC 805). ASC 805 significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre acquisition contingencies, transaction costs, in-process research and development, and restructuring costs. In addition, under ASC 805, changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. ASC 805 is effective for fiscal periods beginning after December 15, 2008. The Company has adopted ASC 805 on July 1, 2009. This standard will change the accounting treatment for business combinations on a prospective basis.
 
In December 2007, the FASB issued ASC 810, “No controlling Interests in Consolidated  Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“ASC 810”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.  The Statement also establishes reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners.  ASC 810 is effective for fiscal periods beginning after December 15, 2008.  The Company has adopted ASC 810 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.
 
(ii)   
 
 
 
 
 
(iii)  
ASC 815
 
In March 2008, the FASB issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities (ASC 815). ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after November 15, 2008. The Company has adopted ASC 815 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.
 
ASC 460

In May 2008, the FASB issued ASC 460, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60." ASC 460 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation.  This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities.  Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises.  This Statement requires expanded disclosures about financial guarantee insurance contracts.  The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements.  ASC 460 will be effective for financial statements issued for fiscal years beginning after December 15, 2008.  

 
15

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

3.  Recent Accounting Pronouncements: (Continued)

The Company adopted ASC 460 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial condition or results of operation.

  (iv)  
 ASC 855
 
In May 2009, the FASB issued ASC 855, "Subsequent Events," which establishes general standards for accounting for, and disclosures of, events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and whether that date represents the date the financial statements were issued or were available to be issued. ASC 855 is effective with interim and annual financial periods ending after June 15, 2009. The Company adopted ASC 855on July 1, 2009. Adoption of this standard did not have an impact on the Company's results of operations, financial position, or cash flows.

  (v)  
ASC 860

In June 2009, the FASB issued ASC 860, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement” (“ASC 860”).  ASC 860 is intended to establish standards of financial reporting for the transfer of assets to improve the relevance, representational faithfulness, and comparability. ASC 860 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009. The Company will adopt ASC 860 on July 1, 2010. The Company has determined that the adoption of ASC 860 will have no impact will have on its consolidated financial statements.
 
  (vi)  
ASC 810

In June 2009, the FASB issued ASC 810, “Amendments to FASB Interpretation No. 46(R)” (“ASC 810”). ASC 810 eliminates the exception to consolidate a qualifying special-purpose entity, changes the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently re-assess whether they must consolidate variable interest entities.  Under the new guidance, the primary beneficiary of a variable interest entity is identified qualitatively as the enterprise that has both (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. ASC 810 becomes effective for the Company’s fiscal 2011 year-end and interim reporting periods thereafter.  The Company does not expect ASC 810  to have a material impact on its financial statements.

  (vii)  
ASC 105-10-05
 
In July 2009, the FASB issued ASC 105-20-05, "FASB Accounting Standards Codification" ("ASC 105-10-05"), as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in ASC 105-10-05. All other accounting literature not included in the Codification is non-authoritative. Management is currently evaluating the impact of the adoption of ASC 105-10-05 but does not expect the adoption of ASC 105-10-05 to impact the Company's results of operations, financial position, or cash flows.

 
16

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

3.  Recent Accounting Pronouncements: (Continued)
 
 
(viii)
ASC 470-20
 
In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”). FSP 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB Statement No. 133. Convertible debt instruments within the scope of FSP 14-1 are not addressed by the existing APB 14. FSP 14-1 would require that the liability and equity components of convertible debt instruments within the scope of FSP 14-1 be separately accounted for in a manner that reflects the entity’s nonconvertible debt borrowing rate. This will require an allocation of the convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component). The difference between the principal amount of the debt and the amount of the proceeds allocated to the liability component would be reported as a debt discount and subsequently amortized to earnings over the instrument’s expected life using the effective interest method. FSP APB 14-1 is effective for the Company’s fiscal year beginning July 1, 2009 and will be applied retrospectively to all periods presented. Adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
 
4.   Non-Cash Transactions:

During the six month period ended December 31, 2009 and 2008, the Company entered into certain non-cash activities as follows:
 
   
2009
   
2008
 
Operating and  Financing Activities
           
From issuance of shares for consulting and geological services
  $ -     $ 210,988  
From issuance of shares for cashless exercise of options
  $ 142,462     $ -  
From issuance of shares for mineral property
  $ 375,000     $ 8,828,450  

5.  Capital Stock:

 
Authorized capital stock consists of 200,000,000 common shares with par value of $0.001 each.  During the six month period ending December 31, 2009, the Company issued a total of 19,374,408 common shares which are summarized as follows:
 
     2009      2008  
    Common Shares  
Financing          18,400,000       1,071,429  
Acquisition of mineral properties      300,000       7,350,000  
 For exercise of warrants and options      674,408       551,206  
      19,374,408       8,972,635  
 
 
17

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
5.   Capital Stock: (Continued)

During the six month period ended December 31, 2009, the Company issued 19,374,408 common shares.  The Company completed a financing in the current quarter and issued 18,400,000 common shares at $1.25 per share.  The company also issued an additional 300,000 shares at $1.25 per share related to a mineral property and 181, 818 warrants were exercised at $0.95 per share.  The options for 5,429 shares  were exercised at $0.65 during the three month period ending September 30, 2009.
 
The following share purchase warrants and agent compensation warrants were outstanding at December 31, 2009:

   
Exercise
price
   
Number
of warrants
   
Remaining
contractual
life (years)
 
Warrants
    .90       12,000,000       3.16  
Agent compensation warrants
    .90       840,000       3.16  
Warrants
    .85       3,636,362       1.00  
Warrants
    2.15       35,715       1.10  
Outstanding and exercisable at December 31, 2009
            16,512,077          
 
 
December 31, 2009
December 31, 2008
Risk free interest rate
N/A
0.40%
Expected life of warrants
N/A
1 year
Expected stock price volatility
N/A
110%
Expected dividend yield
N/A
0%

 
18

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
6.  Related Party Transactions:

During the period ended December 31, 2009, directors received payments for professional fees in the amount of $90,601 (2008: $51,520).

During the period ended December 31, 2009 the Company made payments of $20,613 pursuant to a premises lease agreement to a corporation with a director in common with the Company.

All transactions with related parties are made in the normal course of operations and measured at exchange value.
 
7.  Mineral Properties:

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

   
 
December 31 ,
 2009
   
 June 30,
 2009
 
Vidette Lake – Canada
  $ -     $ 275,000  
Temoris
    4,074,754       4,074,754  
Iris Royalty
    50,000       50,000  
Morelos
    100,000       100,000  
San Miguel Project
    17,855,824       13,906,572  
Andrea
    20,625       20,625  
 Peru
    10,000       10,000  
    $ 22,111,203     $ 18,436,951  

 
19

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
a.  
San Miguel Project
 
The Company has an option to acquire a 100% in the La Blanca property located in Guazaparez, Chihuahua, Mexico. Pursuant to the option agreement, payments of $180,000 have been made.  Furthermore, the company must pay a royalty of $1.00 for each ounce proven or probable gold reserves. No gold reserves have been established as at December 31, 2009. The Company has incurred $500,000 in exploration expenses.
 
The Company has a 100% interest in the Santa Cruz mining concession located in the San Miguel Project, subject to satisfactory title transfer. The terms of the agreement called for a payment of $50,000 prior to March 7, 2006 and the required payment was made by the Company.  The option also includes a 3% NSR payable to optioner. This concession was acquired as part of the San Miguel asset project purchased from Tara Gold.

b.  
Temoris
 
On March 19, 2009 the Company closed an agreement with Garibaldi Resources Corp. in which the company acquired the outstanding option on the Temoris project. The option covers an area of approximately 54,000 hectares adjacent to the San Miguel groupings and Andrea project. In consideration for the acquisition, the company paid Garibaldi $400,000 and issued six million shares of the Company’s common stock.
 
The shares of common stock were delivered to an escrow agent who released 500,000 shares of common stock six months from the date of closing and will release an additional 500,000 shares of common stock every three months thereafter.
 
On February 12, 2009, the company acquired all of the issued and outstanding shares of common stock of Magnetic Resources Ltd. (“Magnetic”). Magnetic is the sole beneficial stockholder of Minera Gama, S.A. de C.V. which holds interests in various mineral concessions in Mexico known as the Temoris Project and the Morelos Project and also holds a royalty in the Iris Project.

 
20

 

PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
7.  Mineral Properties (Continued):

In consideration for the acquisition of all of the issued and outstanding common shares of Magnetic and the assumption and discharge of the stockholder loans, the company issued to the stockholders of Magnetic 1,350,000 shares of the Company’s common stock valued at $675,000 and an advisor was paid a finder’s fee of 200,000 common shares of the Company valued at $100,000.

These financial statements reflect income earned and expenses incurred by Magnetic Resources Ltd. as of February 12, 2009. The following is the purchase price allocation at date of acquisition:
 
Total purchase price
  $ 775,000  
         
 Garibaldi mineral property
    604,754  
 Irish mineral property
    50,000  
 Moralos mineral property
    100,000  
 Other asset
    20,246  
    $ 775,000  
 
c.  
Andrea
 
The Company staked the Andrea mining concession located in the Guazaparez mining district in Chihuahua, Mexico for a cost of $20,000.
 
d.  
Vidette Lake, Canada

During the period ended December 31, 2009, the Company terminated its option to acquire the Vidette Lake Gold Mine and the related costs totaling $275,000 were written off in the consolidated statement of operations.
8.  Fixed Assets:

               
Net Book Value
 
   
Cost
   
Accumulated
Amortization
   
December 31,
2009
   
June 30,
2009
 
Property and Equipment
  $ 729,454     $ 211,793     $ 517,661     $ 520,858  

During the period ended December 31, 2009, total additions to property, plant and equipment were $28,069 (2008- $340,173).  During the period ended December 31, 2009 the Company recorded depreciation of $ 31,265.
 
 
21

 

PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

9.    Notes Receivable:

The Company held convertible notes receivable with face value of $70,000 plus accrued interest issued by Mexoro Minerals Ltd. (“Mexoro”) pursuant to a Letter of Intent dated May 2, 2008 between Mexoro Minerals Ltd. and the Company with respect to the proposed Strategic Alliance between Mexoro and Paramount.  The interest rate of the convertible notes is 8% but by mutual agreement, no interest was accrued for three months ending September 30, 2009. These notes were repaid to the Company on October 1, 2009.

   
Maturity
 Date
   
Interest
Rate
   
December 31,
2009
   
June 30,
2009
 
Note Receivable – Mexoro Minerals
 
September 18, 2009
   
8% per annum
    $ -     $ 70,000  
Note Receivable – Mexoro Minerals
 
May 7, 2009
   
8% per annum
      -        -  
   
July 10, 2009
   
8% per annum
      -       -  
Accrued Interest
    -       -       -       21,365  
                    $ -     $ 91,365  

On May 19, 2009 the Company entered into a letter of agreement with Mexoro Minerals Ltd.  to acquire all its legal and beneficial interest to 12 mining concessions adjacent to Paramount’s San Miguel Project resource areas in Chihuahua, Mexico .  The purchase price is $3.7 million and all underlying property payments are to be deferred for 36 months and further, if Paramount or its assets are sold within this period an additional payment will be made to the vendors.  Any amounts owing to Paramount by Mexoro on closing will be paid out of the closing proceeds.  During the period ending September 30, 2009, the purchase price was deposited into an escrow account pending completion of all due diligence issues.
 
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 six month period ended December 31, 2009:
 
   
United
States
   
Mexico / Latin
America
   
Total
 
Interest income
  $ 66,244     $ 65     $ 66,309  
                         
Expenses:
                       
Exploration
    (5,527 )     2,160,625       2,155,098  
Professional fees
    407,374       -       407,374  
Travel and lodging
    87,110       -       87,110  
Geologist fees and expenses
    372,725       88,746       461,471  
Corporate communications
    86,190       -       86,190  
Consulting fees
    345,998       -       345,998  
Office and administration
    79,384       30,384       109,768  
Interest and service charges
    48,416       1,931       50,347  
Loss on Disposal of Assets
    -       -       -  
Insurance
    25,511       -       25,511  
Amortization
    11,421       19,844       31,265  
Office
    42,996       -       42,996  
Acquisition Expenses
    1,060,180       -       1,060,180  
Miscellaneous
    (25,103 )     -       (25,103 )
Write off of mineral property
    275,000       -       275,000  
Financing & listing fees
    77,484       -       77,484  
Total Expenses
    2,889,159       2,301,530       5,190,689  
Change in fair value of warrant liability
    (2,917,613 )     -       (2,917,613 )
Net loss
  $ (94,698 )   $ 2,301,465     $ 2,206,767  

 
22

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
10.  Segmented Information (Continued):
 
Loss for the period by geographical segment for the six month period ended December 31, 2008:

   
United
States
   
Mexico / Latin
America
   
Total
 
Interest income
  $ 96,954     $ 53,253     $ 150,207  
                         
Expenses:
                       
Exploration (note 15)
    685,007       1,170,448       1,855,455  
Professional fees
    381,595       26,978       408,573  
Travel and lodging
    114,338       -       114,338  
Geologist fees and expenses
    258,395       221,484       479,879  
Corporate communications
    138,698       -       138,698  
Consulting fees
    552,879       -       552,879  
Marketing
    319,427       -       319,427  
Office and administration
    136,853       401,895       538,748  
Interest and service charges
    3,018       973       3,991  
Loss on Disposal of Assets
    -       44,669       44,669  
Insurance
    31,010       17,809       48,819  
Amortization
    27,103       25,175       52,278  
Rent
    43,886       -       43,886  
Financing
    12,525       -       12,525  
Miscellaneous
    (2,738 )     -       (2,738 )
Total Expenses
    2,701,996       1,909,431       4,611,427  
Net loss
  $ 2,605,042     $ 1,856,178     $ 4,461,220  

Assets by geographical segment:

   
United
 States
   
Mexico / Latin
 America
   
Total
 
                   
December 31, 2009
                 
Mineral properties
  $ -     $ 22,111,203     $ 22,111,203  
Equipment
    114,489       403,172       517,661  
                         
December 31, 2008
                       
Mineral properties
  $ -     $ 14,054,197     $ 14,054,197  
Equipment
    144,306       423,109     $ 567,415  
 
 
23

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
11.  Employee Stock Option Plan:
 
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.

Changes in the Company’s stock options for the period ending December 31, 2009 are summarized below:

   
Number
   
Weighted Avg.
Exercise Price
 
Balance, beginning of period
    4,612,000     $ 0.98  
                 
Issued
    -       -  
Cancelled / Expired
    85,000       1.46  
Exercised
    232,000       0.65  
Granted
    -       -  
                 
Balance, end of period
    4,295,000     $ 0.98  

At December 31, 2009, there were 3,520,000 exercisable options outstanding. Options outstanding above that have not been vested at year end amount to 775,000 which have a maximum service term of 1- 4 years and weighted average exercise price of $1.46. The vesting of these options is dependent on market conditions which have yet to be met.

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:

 
December 31, 2009
December 31, 2008
Risk free interest rate
.040% - .47%
0.40%
Expected dividend yield
0%
0%
Expected stock price volatility
114% - 116%
110%
Expected life of options
3 years
2 to 5 years

 
24

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

11.  Employee Stock Option Plan (continued):
 
During the period ended December 31, 2009 the Company recognized stock based compensation expense in the amount of $ 209,191 (2008: $ 274,928) for the vested portion of options issued in the previous year.

12.  Differences Between US and Canadian Generally Accepted Accounting Principles:

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). Set out below are the material adjustments to net loss for the period ending December 31, 2009 and December 31, 2008 and to stockholders’ equity at December 31, 2009 and December 31, 2008 in order to conform to accounting principles generally accepted in Canada (“Canadian GAAP”).

Statement of Loss
 
Period ended 
December 31,
2009
   
Period ended
December 31,
2008
 
             
Net loss based on US GAAP
  $ (2,206,767 )   $ (4,461,220 )
Deferred exploration costs prior to the establishment of proven and probable reserves
      3,954,269         2,207,134  
Net loss for the period based on Canadian GAAP
    1,747,502       (2,750,003 )

   
December 31,
2009
   
December 31,
2008
 
Stockholders’ Equity            
Stockholders’ Equity based on US GAAP
  $ 31,020,342     $ 18,144,913  
Deferred exploration costs prior to the establishment of proven and probable reserves
      20,555,886         13,131,097  
Stockholders’ Equity based on Canadian GAAP
    51,576,228       31,276,010  

  The following sets out the material balance sheet differences between Canadian and U.S. GAAP:

Mineral Properties
 
December 31,
2009
   
December 31,
2008
 
             
US GAAP
  $ 22,111,203     $ 14,054,197  
Deferred exploration costs prior to the establishment of proven and probable reserves
      20,555,886         13,131,097  
Canadian GAAP
    42,667,089       27,185,294  

 
25

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
12.  Differences Between US and Canadian Generally Accepted Accounting Principles (Continued):
 
(a)  Interest in Exploration Properties and Deferred Exploration Costs
   
Under U.S. GAAP, acquisition costs are capitalized, but exploration costs are not considered to have the characteristics of property, plant and equipment and, accordingly, are expensed prior to the Company determining that economically proven and probable mineral reserves exist.  Subsequent to that determination, all such costs are capitalized.

Under Canadian GAAP, acquisition and exploration expenditures on properties less recoveries in the pre-production stage are deferred until such time as the properties are put into commercial production, sold or become impaired. On the commencement of commercial production, the deferred costs are charged to operations on the unit-of-production method based upon estimated recoverable proven and probable reserves. General exploration expenditures are charged to operations in the period in which they are incurred. The Company recognizes the payment or receipt of payment required under option agreements when paid or received.

(b)  Statement of Cash Flows

As a result of the treatment of mining interests under item (a) above, cash expended for the exploration costs would have been classified as investing rather than operating, resulting in the following totals under Canadian GAAP:

   
December 31,
2009
   
December 31,
2008
 
             
Cash used in operating activities
  $ (4,926,302 )   $ ( 708,131 )
Cash used in investing activities
    (4,848,654 )     (3,178,961 )

(c)  Recent Accounting Pronouncements

International Financial Reporting Standards (“IFRS”)
       
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five period transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada’s own GAAP. The date is for interim and annual financial statements relating to fiscal periods beginning on or after January 1, 2011. The changeover date of June 30, 2012 will require the restatement for comparative purposes of amounts reported by the Company for the period ended June 30, 2011. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.
 
 
26

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

12.  Differences Between US and Canadian Generally Accepted Accounting Principles (Continued):
 
Capital Disclosures

As a result of new Section 1535, Capital Disclosures, the Company will be required to include additional information in the notes to the financial statements about its capital and the manner in which it is managed. This additional disclosure includes quantitative and qualitative information regarding an entity’s objectives, policies and procedures for managing capital.

Disclosure and Presentation of Financial Instruments

New accounting recommendations for disclosure and presentation of financial instruments are effective for the Company beginning July 1, 2008. The new recommendations require disclosures of both qualitative and quantitative information that enables users of financial statements to evaluate the nature and extent of risks from financial instruments to which the Company is exposed.

Goodwill and Intangible Assets

The Accounting Standards Board has also issued a new Section 3064, Goodwill and Intangible Assets, to replace current Section 3062, Goodwill and Other Intangible Assets. The new section establishes revised standards for recognizing, measuring, presenting and disclosing goodwill and intangible assets. Canadian Institute of Chartered Accountants Handbook Section 3064 is effective for fiscal periods beginning on or after October 1, 2008. The Company adopted Section 3064 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.

13.  Klondex Mines Ltd.

On October 2, 2009, the Company filed a statement of claim in the Supreme Court of British Columbia, Canada, naming Klondex Mines Ltd as a defendant in connection with the termination by Klondex of the binding Letter Agreement dated July 20, 2009 whereby Klondex agreed to be acquired by Paramount on the basis of 1.45 shares of Paramount common stock for each common share of Klondex. The Statement of Claim alleges Klondex acted in bad faith and in breach of the Agreement along with damages for breach of contract and, in addition, damages for malicious falsehood and defamation.

14.  SNS Silver Corp.:

On December 4, 2009, the Company entered into an Earn-In Agreement with SNS SilverCorp (“SNS”) of Vancouver BC wherein the Company has acquired the right and option to earn up to 30% of  SNS’s interest in and to the Claims of the Northern Nickel Agreement that SNS holds by incurring Exploration Expenditures of CAD $1,400,000 by December 31, 2009. SNS has confirmed that said expenditures of CAD $1,400,000 were incurred by the Company by December 31, 2009 and that the Company now holds an option to acquire a 30% interest in the Northern Nickel claims.
 
 
27

 
 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated financial statements
(Unaudited)
For the Six Month Period Ended December 31, 2009
(Expressed in United States dollars, unless otherwise stated)

 
14.  SNS Silver Corp.: (Continued)

Under terms of the Agreement with SNS, the Company has the option to convert the “EquityConversion Right” on any and all sums spent on the Exploration Program into shares of SNS at aprice of  CAD $0.23 per share.

At December 31, 2009, the Company recorded the Equity Conversion Right as an asset in the amount of $1,337,700 ($1,400,000CAD).

15.  Restatement

We determined that certain warrants issued by the Company in connection with 2008 and 2009 securities offering (“Warrants”) contain exercise prices which are denominated in a currency other than our functional currency of the U.S. Dollar, which should have been accounted for in the accordance with the amended provisions of ASC 815 effective July 1, 2009.  ASC 815-40-15 concerns the determination of what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purposes of evaluating the scope exception in ASC 815.  Since certain outstanding Warrants are exercisable in Canadian dollars, they are not considered indexed to the Company’s own stock and therefore, do not qualify for the scope exception in ASC 815 and must be accounted for as a derivative liability.   Accordingly, beginning July 1, 2009 we should have reclassified the Warrants as liabilities under the caption  “Warrant liability” and recorded them at estimated fair value at each reporting date, computed using the Black-Scholes valuation method.  Thereafter, changes in the warrant liability from period to period should have been recorded in the Statements of Operations under the caption “Change in fair value of warrant liability.”  Effective July 1, 2009, we should have recorded a cumulative effect adjustment based on the grant date fair value of the outstanding Warrants and the change in fair value of the warrant liability from the issuance date through July1, 2009.
 
The impact of the restatement on the quarter ended December 31, 2009 contained in this Form 10-Q/A is to record a warrant liability of $13,333,127, a reduction of contributed surplus of $3,612,865 and increase of accumulated deficit of $9,720,262 on the consolidated balance sheet.  In addition, a further adjustment to record a loss related to the change in fair value of the warrant liability of $170,674 on the Consolidated Statements of Operations for the three months ended December 31, 2009 and a gain related to the change in fair value of the warrant liability of $2,917,613 on the Consolidated Statements of Operations for the six months ended December 31, 2009.
 
We have also determined that the Company’s option to convert its interest in certain mining claims to shares of a SNS Silver Corp. requires the Company to record the option as an asset.  The impact of this restatement on the quarter ended December 31, 2009 contained in this Form 10-Q/A is to record an asset and a reduction of exploration expenses of $1,337,700.
 
Additionally, we determined that Stock Based Compensation expenses should be allocated to the type of expense incurred. We have also determined that the shares we issued to Garibaldi Resources Corp, held in escrow should be excluded from the basic loss per share computation. The Consolidated Statements of Cash Flows and Notes to Unaudited Financial Statements have been restated where applicable to reflect the adjustments.

The adjustment to net loss for the three months ended December 31, 2009 is summarized below:

   
Period Ended
December 31, 2009
$
 
Net loss, as previously reported
    4,416,588  
Adjustment for change in fair value of warrant liability (pre-tax)
    170,674  
Adjustment to record equity conversion right
    (1,337,700 )
Tax effect of restatement adjustment
    -  
Net loss (gain), as restated
    3,249,562  
Basic net loss per share, as restated
    0.03  
Diluted net loss per share, as restated
    0.03  
 
 
28

&