Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - PARAMOUNT GOLD & SILVER CORP. | Financial_Report.xls |
| EX-32.2 - EXHIBIT 32.2 - PARAMOUNT GOLD & SILVER CORP. | ex32_2.htm |
| EX-31.1 - EXHIBIT 31.1 - PARAMOUNT GOLD & SILVER CORP. | ex31_1.htm |
| EX-32.1 - EXHIBIT 32.1 - PARAMOUNT GOLD & SILVER CORP. | ex32_1.htm |
| EX-31.2 - EXHIBIT 31.2 - PARAMOUNT GOLD & SILVER CORP. | ex31_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2011
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
(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 ¨
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: 136,787,012 shares of Common Stock, $.001 par value as of November 4, 2011.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 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.
PART I. FINANCIAL INFORMATION
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Financial Statements
(Unaudited)
Period ended September 30, 2011 and 2010
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Balance Sheets
As at September 30, 2011(Unaudited) and June 30, 2011 (Audited)
(Expressed in United States dollars, unless otherwise stated)
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As at September 30,
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As at June 30,
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|||||||
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2011 (Unudited)
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2011 (Audited)
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|||||||
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Assets
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||||||||
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Current Assets
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||||||||
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Cash and cash equivalents
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$ | 10,495,650 | $ | 14,689,241 | ||||
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Amounts receivable
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1,188,482 | 1,625,724 | ||||||
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Prepaid and deposits
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374,030 | 34,252 | ||||||
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Prepaid insurance, current portion (Note 11)
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245,215 | 245,215 | ||||||
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Marketable securities (Note 3)
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204,851 | 319,219 | ||||||
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Total Current Assets
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12,508,228 | 16,913,651 | ||||||
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Non-Current Assets
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||||||||
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Mineral properties (Note 8)
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50,479,859 | 49,515,859 | ||||||
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Fixed assets (Note 9)
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477,573 | 487,740 | ||||||
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Prepaid insurance, non current portion (Note 11)
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551,732 | 613,035 | ||||||
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Reclamation bond (Note 11)
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2,755,395 | 2,765,742 | ||||||
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Total Non-Current Assets
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54,264,559 | 53,382,376 | ||||||
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Total Assets
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$ | 66,772,787 | $ | 70,296,027 | ||||
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Liabilities and Shareholder’s Equity
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Liabilities
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Current Liabilities
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Accounts payable
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$ | 938,532 | $ | 769,172 | ||||
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Warrant Liability (Note 4)
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11,342,273 | 16,914,660 | ||||||
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Total Current Liabilities
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12,280,805 | 17,683,832 | ||||||
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Non-Current Liabilities
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Reclamation and Environmental Obligation
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1,170,092 | 1,143,892 | ||||||
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Total Liabilities
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$ | 13,450,897 | 18,827,724 | |||||
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Shareholder’s Equity
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||||||||
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Capital stock (Note 6)
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136,787 | 136,249 | ||||||
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Additional paid in capital
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130,843,520 | 129,664,660 | ||||||
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Contributed surplus
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11,249,035 | 11,287,242 | ||||||
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Deficit accumulated during the exploration stage
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(88,767,739 | ) | (89,637,633 | ) | ||||
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Accumulated other comprehensive income
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(139,713 | ) | 17,785 | |||||
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Total Shareholder's Equity
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53,321,890 | 51,468,303 | ||||||
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Total Liabilities and Shareholder's Equity
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$ | 66,772,787 | $ | 70,296,027 | ||||
Subsequent Events (Note 12)
The accompanying notes are an integral part of the consolidated financial statements
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Operations (Unaudited)
For the Three Month Period Ended September 30, 2011 and 2010
(Expressed in United States dollars, unless otherwise stated)
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For the Period
Ended September
30, 2011
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For the Period
Ended September
30, 2010
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Cumulative Since Inception to September 30,
2011
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Revenue
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Interest Income
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$ | 20,642 | $ | 20,937 | $ | 1,157,474 | ||||||
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Other Income
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25,000 | - | 205,833 | |||||||||
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Total Revenue
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45,642 | 20,937 | 1,363,307 | |||||||||
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Expenses:
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Incorporation Costs
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- | - | 1,773 | |||||||||
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Exploration
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3,978,339 | 1,802,256 | 35,760,375 | |||||||||
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Professional Fees
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308,366 | 167,735 | 7,814,289 | |||||||||
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Directors Compensation
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68,489 | 50,546 | 1,022,867 | |||||||||
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Travel & Lodging
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45,331 | 55,283 | 1,307,578 | |||||||||
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Corporate Communications
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38,037 | 27,045 | 3,415,444 | |||||||||
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Consulting Fees
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80,100 | 74,368 | 14,349,710 | |||||||||
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Office & Administration
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86,285 | 80,623 | 2,775,907 | |||||||||
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Interest & Service Charges
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2,776 | 2,830 | 112,261 | |||||||||
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Loss on disposal of Fixed Assets
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- | - | 44,669 | |||||||||
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Insurance
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76,417 | 42,319 | 669,746 | |||||||||
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Depreciation
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21,440 | 17,752 | 391,018 | |||||||||
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Accretion
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38,426 | 14,254 | 158,310 | |||||||||
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Miscellaneous
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- | - | 203,097 | |||||||||
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Financing & Listing Fees
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- | - | (22,024 | ) | ||||||||
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Acquisition Expenses
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- | 1,076,273 | 1,505,334 | |||||||||
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Income and other taxes
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- | - | 64,747 | |||||||||
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Write Down of Mineral Property
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- | - | 1,756,049 | |||||||||
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Total Expense
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4,744,006 | 3,411,284 | 71,331,150 | |||||||||
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Net Loss before other item
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4,698,364 | 3,390,347 | 69,967,843 | |||||||||
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Other item
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Change in fair value of Equity Conversion Right
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- | 102,772 | 990,236 | |||||||||
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Change in fair value of warrant liability
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(5,572,387 | ) | 368,110 | 17,805,530 | ||||||||
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Loss on sale of Marketable Securities
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4,129 | - | 4,129 | |||||||||
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Net Loss (Gain)
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$ | (869,894 | ) | $ | 3,861,229 | $ | 88,767,738 | |||||
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Other comprehensive loss
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Foreign Currency Translation Adjustment
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61,126 | (435,107 | ) | 12,396 | ||||||||
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Unrealized loss on available for sale securities
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96,372 | - | 127,317 | |||||||||
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Total Comprehensive Loss (Gain) for the Period
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$ | (712,396 | ) | $ | 3,426,122 | $ | 88,907,451 | |||||
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Loss (Gain) per Common share
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$ | $ | ||||||||||
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Basic
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(0.01 | ) | 0.03 | |||||||||
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Diluted
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(0.01 | ) | 0.03 | |||||||||
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Weighted Average Number of Common Shares Used in Per Share Calculations
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||||||||||||
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Basic
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136,442,854 | 119,165,219 | ||||||||||
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Diluted
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142,005,445 | 119,165,219 | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Cash Flows (Unaudited)
For the Three Month Period Ended September 30, 2011 and 2010
(Expressed in United States dollars, unless otherwise stated)
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For the Period
Ended September
30, 2011
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For the Period
Ended September
30, 2010
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Cumulative Since Inception to September 30,
2011
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||||||||||
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Net Gain (Loss)
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$ | 869,894 | $ | (3,861,229 | ) | $ | (88,767,739 | ) | ||||
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Adjustment for:
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||||||||||||
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Depreciation
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21,440 | 17,752 | 391,018 | |||||||||
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Loss on disposal of assets
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- | - | 44,669 | |||||||||
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Stock based compensation
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45,690 | 33,611 | 17,704,089 | |||||||||
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Accrued interest
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- | - | (58,875 | ) | ||||||||
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Write-down of mineral properties
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- | - | 1,756,049 | |||||||||
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Accretion expense
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38,426 | 14,254 | 158,310 | |||||||||
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Change in reclamation
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(1,879 | ) | - | 61,713 | ||||||||
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Insurance expense
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61,302 | - | 243,537 | |||||||||
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Other non cash transactions
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4,129 | - | 3,230 | |||||||||
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Change in fair value of equity conversion right
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- | 102,772 | 990,236 | |||||||||
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Change in fair value of warrant liability
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(5,572,387 | ) | 368,110 | 17,805,530 | ||||||||
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(Increase) Decrease in accounts receivable
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437,242 | (276,393 | ) | (1,105,056 | ) | |||||||
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(Increase) Decrease in prepaid expenses
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(339,778 | ) | (102,902 | ) | (374,030 | ) | ||||||
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Increase (Decrease) in accounts payable
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169,360 | 452,024 | (945,251 | ) | ||||||||
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Cash used in operating activities
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$ | (4,266,561 | ) | $ | (3,252,001 | ) | $ | (52,092,570 | ) | |||
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Sale (Purchase) of marketable securities
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13,868 | - | 13,868 | |||||||||
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Purchase of GIC receivable
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- | - | 58,875 | |||||||||
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Notes receivable issued
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- | 243,495 | 21,365 | |||||||||
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Purchase of Equity conversion right
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- | - | (1,337,700 | ) | ||||||||
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Purchase of Mineral Properties
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- | - | (7,109,870 | ) | ||||||||
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Cash acquired on acquisition of X-Cal
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- | - | 843,101 | |||||||||
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Purchase of Equipment
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(11,273 | ) | (33,321 | ) | (913,135 | ) | ||||||
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Cash provided by (used in) investing activities
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$ | 2,595 | $ | 210,174 | $ | (8,423,496 | ) | |||||
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Demand notes payable issued
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- | - | 105,580 | |||||||||
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Issuance of capital Stock
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131,501 | - | 70,963,480 | |||||||||
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Cash provided by financing activities
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$ | 131,501 | $ | - | $ | 71,069,060 | ||||||
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Effect of exchange rate changes on cash
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(61,126 | ) | 435,107 | (57,344 | ) | |||||||
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Change in cash during period
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(4,193,591 | ) | (2,606,720 | ) | 10,495,650 | |||||||
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Cash at beginning of period
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14,689,241 | 21,380,505 | - | |||||||||
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Cash at end of period
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$ | 10,495,650 | $ | 18,773,785 | $ | 10,495,650 | ||||||
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Supplemental Cash Flow Disclosure
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Interest Received
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$ | 20,642 | $ | 20,937 | ||||||||
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Cash
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$ | 2,102,394 | $ | 2,243,119 | ||||||||
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Short-term investments
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$ | 8,393,256 | $ | 16,530,666 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Stockholders’ Equity (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
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Shares
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Par Value
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Capital in Excess of Par Value
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Deficit
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Contributed Surplus
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Accumulated Other Comprehensive Income (Loss)
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Total Stockholders Equity
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Balance at inception
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— | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
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Capital issued for financing
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104,825,287 | 104,826 | 20,277,171 | — | — | — | 20,381,997 | |||||||||||||||||||||
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Capital issued for services
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4,157,500 | 4,157 | 9,477,295 | — | — | — | 9,481,452 | |||||||||||||||||||||
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Capital issued for mineral properties
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1,178,519 | 1,179 | 2,682,617 | — | — | — | 2,683,796 | |||||||||||||||||||||
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Capital issued on settlement of notes payable
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39,691 | 39 | 105,541 | — | — | — | 105,580 | |||||||||||||||||||||
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Returned to treasury
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(61,660,000 | ) | (61,660 | ) | 61,660 | — | — | — | — | |||||||||||||||||||
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Fair Value of warrants
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— | — | — | — | 8,460,682 | — | 8,460,682 | |||||||||||||||||||||
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Stock based compensation
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— | — | — | — | 5,080,263 | — | 5,080,263 | |||||||||||||||||||||
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Foreign currency translation
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— | — | — | — | — | (19,977 | ) | (19,977 | ) | |||||||||||||||||||
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Net Income (loss)
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— | — | — | (35,956,085 | ) | — | — | (35,956,085 | ) | |||||||||||||||||||
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Balance at June 30, 2008
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48,540,997 | $ | 48,541 | $ | 32,604,284 | $ | (35,956,085 | ) | $ | 13,540,945 | $ | (19,977 | ) | $ | 10,217,708 | |||||||||||||
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Capital issued for financing
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16,707,791 | 16,707 | 5,828,684 | — | — | — | 5,845,391 | |||||||||||||||||||||
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Capital issued for services
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1,184,804 | 1,185 | 683,437 | — | — | — | 684,622 | |||||||||||||||||||||
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Capital issued from stock options and warrants exercised
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384,627 | 385 | 249,623 | — | (237,008 | ) | — | 13,000 | ||||||||||||||||||||
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Capital issued for mineral properties
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16,200,000 | 16,200 | 13,140,250 | — | — | — | 13,156,450 | |||||||||||||||||||||
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Stock based compensation
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— | — | — | — | 3,612,864 | — | 3,612,864 | |||||||||||||||||||||
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Transition Adjustment (Note 2)
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— | — | — | — | 1,052,709 | — | 1,052,709 | |||||||||||||||||||||
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Foreign currency translation
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— | — | — | — | — | (267,215 | ) | (267,215 | ) | |||||||||||||||||||
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Net Income (loss)
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— | — | — | (7,241,179 | ) | — | — | (7,241,179 | ) | |||||||||||||||||||
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Balance at June 30, 2009
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83,018,219 | $ | 83,018 | $ | 52,506,278 | $ | (43,197,264 | ) | $ | 17,969,510 | $ | (287,192 | ) | $ | 27,074,350 | |||||||||||||
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Capital issued for financing
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18,400,000 | 18,400 | 21,371,043 | — | — | — | 21,389,443 | |||||||||||||||||||||
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Capital issued from stock options and warrants exercised
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8,351,360 | 8,351 | 16,361,552 | — | (3,841,264 | ) | — | 12,528,639 | ||||||||||||||||||||
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Capital issued for mineral properties
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300,000 | 300 | 374,700 | — | — | — | 375,000 | |||||||||||||||||||||
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Stock based compensation
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— | — | — | — | 309,840 | — | 309,840 | |||||||||||||||||||||
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Transition Adjustment (Note 2)
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— | — | — | (12,637,875 | ) | (3,612,864 | ) | — | (16,250,739 | ) | ||||||||||||||||||
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Foreign currency translation
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— | — | — | — | — | (156,483 | ) | (156,483 | ) | |||||||||||||||||||
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Net Income (loss)
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— | — | — | (5,351,958 | ) | — | — | (5,351,958 | ) | |||||||||||||||||||
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Balance at June 30, 2010
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110,069,579 | $ | 110,069 | $ | 90,613,573 | $ | (61,187,098 | ) | $ | 10,825,222 | $ | (443,675 | ) | $ | 39,918,091 | |||||||||||||
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Capital issued for financing
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19,395 | 19 | 23,970 | — | — | — | 23,989 | |||||||||||||||||||||
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Capital issued from stock options and warrants exercised
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4,153,085 | 4,154 | 10,219,361 | — | (1,053,645 | ) | — | 9,169,870 | ||||||||||||||||||||
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Capital issued for acquisition
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22,007,453 | 22,007 | 28,807,756 | — | 314,790 | — | 29,144,553 | |||||||||||||||||||||
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Stock based compensation
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— | — | — | — | 1,200,875 | — | 1,200,875 | |||||||||||||||||||||
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Foreign currency translation
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— | — | — | — | — | 492,405 | 492,405 | |||||||||||||||||||||
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Unrealized loss on available for sale securities
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— | — | — | — | — | (30,945 | ) | (30,945 | ) | |||||||||||||||||||
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Net Income (loss)
|
— | — | — | (28,450,535 | ) | — | — | (28,450,535 | ) | |||||||||||||||||||
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Balance at June 30, 2011
|
136,249,512 | $ | 136,249 | $ | 129,664,660 | $ | (89,637,633 | ) | $ | 11,287,242 | $ | 17,785 | $ | 51,468,303 | ||||||||||||||
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Capital issued for financing
|
— | — | — | — | — | — | — | |||||||||||||||||||||
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Capital issued from stock options and warrants exercised
|
137,500 | 138 | 215,260 | — | (83,897 | ) | — | 131,501 | ||||||||||||||||||||
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Capital issued for acquisition
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400,000 | 400 | 963,600 | — | — | — | 964,000 | |||||||||||||||||||||
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Stock based compensation
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— | — | — | — | 45,690 | — | 45,690 | |||||||||||||||||||||
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Foreign currency translation
|
— | — | — | — | — | (61,126 | ) | (61,126 | ) | |||||||||||||||||||
|
Unrealized loss on available for sale securities
|
— | — | — | — | — | (96,372 | ) | (96,372 | ) | |||||||||||||||||||
|
Net Income (loss)
|
— | — | — | 869,894 | — | — | 869,894 | |||||||||||||||||||||
|
Balance at September 30, 2011
|
136,787,012 | $ | 136,787 | $ | 130,843,520 | $ | (88,767,739 | ) | $ | 11,249,035 | $ | (139,713 | ) | $ | 53,321,890 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
1.
|
Summary of Significant 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 X-Cal Resources Ltd. The Company is an exploration stage company in the process of exploring its mineral properties in both the United States and Mexico, and has not yet determined whether these properties contain reserves that are economically recoverable.
Basis of Presentation and Preparation
The accompanying unaudited Consolidated 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 generally accepted accounting principles generally accepted in the United States 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 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, 2011.
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.
Derivatives
The Company accounts for its derivative instruments not indexed to our stock as either assets or liabilities and carries them at fair value. Derivatives that are not defined as hedges must be adjusted to fair value through earnings.
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.”
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
1.
|
Summary of Significant Accounting Policies (Continued):
|
The Company 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.
Foreign Currency Translation
The parent 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 Canadian Dollars. 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 U.S. Dollar 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.
|
2.
|
Recent Accounting Pronouncements Adopted:
|
i) ASU 2011-6
In January 2010, the FASB issued guidance regarding fair value: 1) adding new requirements for disclosures about transfers into and out of Levels 1 and 2 measurements and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements, and 2) clarifying existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The guidance also required that disclosures about postretirement benefit plan assets be provided by classes of assets instead of by major categories of assets. The guidance is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide Level 3 activity, which was effective for fiscal years beginning after December 15, 2010. The Company has adopted this guidance, which did not have any effect on its results of operations, financial position and cash flows.
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
3.
|
Marketable Securities and Investments:
|
As of June 30, 2011, the Company had investments in available-for-sale securities of $319,219. The investments reflected in the table below include certain equity securities of entities involved in the exploration of precious metals. The following table summarizes the Company’s available-for sale securities on hand as of September 30, 2011:
|
Cost
|
Gross
Unrealized
Losses
|
Gross
Unrealized
Gains
|
Fair Value
|
|||||||||||
| $ | 332,168 | $ | 127,317 | $ | - | $ | 204,851 | |||||||
During the three month period ended September 30, 2011, the Company recorded an unrealized loss on available-for-sale securities of $96,372. This loss is recorded as other comprehensive loss on the consolidated statement of operations. During the three month period ended September 30, 2011, the Company sold investments in available-for-sale securities and recorded a net loss of $4,129.
Mexoro Minerals Ltd.
The Company holds 250,000 shares of common stock of Mexoro Minerals Ltd. It has not recorded these shares in its financial statements because the shares as of the date of this report were restricted from sale and the Company cannot determine if there is any net realizable value until the shares have been liquidated.
|
4.
|
Fair Value Measurements:
|
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.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
4.
|
Fair Value Measurements (Continued):
|
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, 2011
|
June 30, 2011 | |||||||||||||||||||
|
Assets
|
Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
|
Cash equivalents
|
10,495,650 | 10,495,650 | - | - | 14,689,241 | |||||||||||||||
|
Marketable Securities
|
204,851 | 204,851 | - | - | 319,219 | |||||||||||||||
|
Liabilities
|
||||||||||||||||||||
|
Warrant liability
|
11,342,273 | - | - | 11,342,273 | 16,914,660 | |||||||||||||||
The Company’s cash equivalents and marketable securities 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. The accounts receivable represent amounts due from a national government regarding refund of taxes.
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 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:
|
September 30, 2011
|
||||
|
Risk free interest rate
|
0.11 | % | ||
|
Expected life of warrants and options
|
Less than 1 year
|
|||
|
Expected stock price volatility
|
75 | % | ||
|
Expected dividend yield
|
0 | % | ||
The changes in fair value of the warrants during the period ended September 30, 2011 were as follows:
|
Balance at June 30, 2011
|
$ | 16,914,660 | ||
|
Issuance of warrants and options
|
- | |||
|
Change in fair value recorded in earnings
|
(5,572,387 | ) | ||
|
Transferred to equity upon exercise
|
- | |||
|
Balance at September 30, 2011
|
$ | 11,342,273 |
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
5.
|
Non-Cash Transactions:
|
During the three month period ended September 30, 2011 and 2010, the Company entered into certain non-cash activities as follows:
|
2011
|
2010
|
|||||||
|
Operating and Financing Activities
|
||||||||
|
From issuance of shares for acquisitions
|
$ | - | $ | 28,829,763 | ||||
|
From issuance of shares for cashless exercise of options
|
$ | - | $ | 146,793 | ||||
|
From issuance of shares for mineral property
|
$ | 964,000 | $ | - | ||||
|
6.
|
Capital Stock:
|
a) Share issuances:
Authorized capital stock consists of 200,000,000 common shares with par value of $0.001 each.
During the three month period ended September 30, 2011, the Company issued a total of 537,500 common shares which are summarized as follows:
|
2011
|
2010
|
|||||||
|
Financing
|
- | - | ||||||
|
Acquisition of mineral properties
|
400,000 | - | ||||||
|
For exercise of warrants and options
|
137,500 | 170,690 | ||||||
|
For acquisition of companies
|
- | 22,007,453 | ||||||
| 537,500 | 23,454,835 | |||||||
During the three month period ended September 30, 2011, the Company entered into an agreement to purchase mining claims in northwestern Nevada in exchange for 400,000 shares of its common stock. The seller of the mineral claims retains a net smelter royalty of 1.5% on the portion of claims not subject to other royalties and a net smelter royalty of 0.5% on the portion already subject to a 2.0% royalty held by a third party.
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
6.
|
Capital Stock (Continued):
|
b) Warrants:
The following share purchase warrants were outstanding at September 30, 2011:
|
Exercise price in CAD
|
Exercise price in USD at September 30, 2011
|
Number of warrants
|
Remaining contractual life (years)
|
|||||||||||||
|
Warrants *
|
$ | 1.05 | $ | 1.01 | 7,700,000 | 1.47 | ||||||||||
|
Outstanding and exercisable at September 30, 2011
|
7,700,000 | |||||||||||||||
|
|
* Strike price of warrant contract in Canadian dollars. At September 30, 2011 $1.00 USD = $1.039 CAD
|
|
September 30, 2011
|
September 30, 2010
|
|||||||
|
Risk free interest rate
|
.11 | % | .26 | % | ||||
|
Expected life of warrants
|
Less than 1 year
|
1.2 years
|
||||||
|
Expected stock price volatility
|
75 | % | 59.72 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
c) 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.
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, 2011*
|
September 30, 2010
|
|||||||
|
Risk free interest rate
|
N/A | 0.26%-0.98 | % | |||||
|
Expected dividend yield
|
N/A | 0 | % | |||||
|
Expected stock price volatility
|
N/A | 61%-85 | % | |||||
|
Expected life of options
|
N/A |
1 to 2 years
|
||||||
|
|
*
|
The Company did not issue any stock options in the period ended September 30, 2011
|
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
6.
|
Capital Stock (Continued):
|
Changes in the Company’s stock options for the three month period ended September 30, 2011are summarized below:
|
Options
|
Number
|
Weighted Avg. Exercise Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate Intrinsic Value
|
||||||||||||
|
Balance, beginning of period
|
2,161,120 | 1.74 | 2.08 | 3,280,911 | ||||||||||||
|
Issued
|
- | - | ||||||||||||||
|
Cancelled / Expired
|
(22,500 | ) | 1.52 | |||||||||||||
|
Exercised
|
(137,500 | ) | 0.90 | |||||||||||||
|
Outstanding at September 30, 2011
|
2,001,120 | 1.80 | 2.11 | 1,419,803 | ||||||||||||
|
Exercisable at September 30, 2011
|
1,771,121 | 1.68 | 1.90 | 1,419,803 | ||||||||||||
At September 30, 2011, there were 2,001,120 options outstanding. Options outstanding above that have not been vested at period end are 229,999 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.
For the three period ended September 30, 2011 the Company recognized stock based compensation expense in the amount of $45,690 (2010 - $33,611) .
|
7.
|
Related Party Transactions:
|
During the period ended September 30, 2011, directors received cash payments in the amount of $52,500 (2010 $38,000) for their services as directors or members of committees of the Company’s Board. During the period ended September 30, 2011, the Company also recorded a non-cash transaction to recognize stock based compensation for directors in the amount of $15,989 (2010 -$12,546)
During the period ended September 30, 2011 the Company made payments of $24,055 (2010 - $22,201) pursuant to a premises lease agreement to a corporation in which the CEO is a shareholder.
All transactions with related parties are made in the normal course of operations and measured at exchange value.
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
8.
|
Mineral Properties:
|
The Company has capitalized acquisition costs on mineral properties as follows:
|
September 30, 2011
|
June 30, 2011
|
|||||||
|
Iris Royalty
|
50,000 | 50,000 | ||||||
|
Morelos
|
100,000 | 100,000 | ||||||
|
San Miguel Project
|
21,992,263 | 21,992,263 | ||||||
|
Sleeper
|
25,791,490 | 24,827,490 | ||||||
|
Mill Creek
|
2,096,616 | 2,096,616 | ||||||
|
Spring Valley
|
385,429 | 385,429 | ||||||
|
Reese River
|
64,061 | 64,061 | ||||||
| $ | 50,479,859 | $ | 49,515,859 | |||||
During the period ended September 30, 2011, the Company purchased mineral claims that are related to the Sleeper Gold Project for shares in the Company’s common stock. The fair value of the shares issued were $964,000.
The Company has a payment due December 7, 2011 for $100,000 towards a previously purchased mineral claim that is part of the Sleeper Gold Project.
|
9.
|
Fixed Assets:
|
|
Net Book Value
|
||||||||||||||||
|
Cost
|
Accumulated Amortization
|
September 30, 2011
|
June 30,2011
|
|||||||||||||
|
Property and Equipment
|
$ | 819,206 | $ | 341,633 | $ | 477,573 | $ | 487,740 | ||||||||
During the period ended September 30, 2011, total additions to property and equipment were $11,273(2010- $33,321) and total disposals of property and equipment were $nil (2010- $nil). During the period ended September 30, 2011 the Company recorded depreciation of $21,441 (2010-$17,752).
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
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 by geographical segment for the three month period ended September 30, 2011:
|
United States
|
Mexico
|
Total
|
||||||||||
|
Interest income
|
$ | 17,768 | $ | 2,874 | $ | 20,642 | ||||||
|
Other income
|
25,000 | - | 25,000 | |||||||||
|
Total income
|
$ | 42,768 | $ | 2,874 | $ | 45,642 | ||||||
|
Expenses:
|
||||||||||||
|
Exploration
|
1,913,971 | 2,064,368 | 3,978,339 | |||||||||
|
Professional fees
|
308,366 | - | 308,366 | |||||||||
|
Directors compensation
|
68,489 | - | 68,489 | |||||||||
|
Travel and lodging
|
45,331 | - | 45,331 | |||||||||
|
Corporate communications
|
38,037 | - | 38,037 | |||||||||
|
Consulting fees
|
80,100 | - | 80,100 | |||||||||
|
Office and administration
|
84,780 | 1,505 | 86,285 | |||||||||
|
Interest and service charges
|
1,924 | 852 | 2,776 | |||||||||
|
Insurance
|
76,417 | - | 76,417 | |||||||||
|
Amortization
|
11,655 | 9,785 | 21,440 | |||||||||
|
Accretion
|
38,426 | - | 38,426 | |||||||||
|
Total Expenses
|
2,667,496 | 2,076,510 | 4,744,006 | |||||||||
|
Net loss before other items
|
$ | 2,624,728 | $ | 2,073,636 | $ | 4,698,364 | ||||||
|
Other item
|
||||||||||||
|
Change in fair value of warrant liability
|
(5,572,387 | ) | - | (5,572,387 | ) | |||||||
|
Loss on sale of Marketable Securities
|
4,129 | - | 4,129 | |||||||||
|
Net Loss
|
$ | (2,943,530 | ) | $ | 2,073,636 | $ | (869,894 | ) | ||||
|
Other comprehensive loss
|
||||||||||||
|
Foreign Currency Translation Adjustment
|
61,126 | - | 61,126 | |||||||||
|
Unrealized loss on available for sale securities
|
96,372 | - | 96,372 | |||||||||
|
Total Comprehensive Loss for the Period
|
$ | (2,786,032 | ) | $ | 2,073,636 | $ | (712,396 | ) | ||||
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
10.
|
Segmented Information (Continued):
|
Loss by geographical segment for the three month period ended September 30, 2010:
|
United States
|
Mexico
|
Total
|
||||||||||
|
Interest income
|
$ | 20,936 | $ | 1 | $ | 20,937 | ||||||
|
Total income
|
$ | 20,936 | $ | 1 | $ | 20,937 | ||||||
|
Expenses:
|
||||||||||||
|
Exploration
|
362,394 | 1,439,862 | 1,802,256 | |||||||||
|
Professional fees
|
167,735 | - | 167,735 | |||||||||
|
Directors compensation
|
50,546 | - | 50,546 | |||||||||
|
Travel and lodging
|
55,283 | - | 55,283 | |||||||||
|
Corporate communications
|
27,045 | - | 27,045 | |||||||||
|
Consulting fees
|
74,368 | - | 74,368 | |||||||||
|
Office and administration
|
65,471 | 15,152 | 80,623 | |||||||||
|
Interest and service charges
|
1,926 | 905 | 2,830 | |||||||||
|
Insurance
|
42,319 | - | 42,319 | |||||||||
|
Amortization
|
3,348 | 14,404 | 17,752 | |||||||||
|
Accretion
|
14,254 | 14,254 | ||||||||||
|
Acquisition Expenses
|
1,076,273 | - | 1,076,273 | |||||||||
|
Total Expenses
|
1,940,961 | 1,470,323 | 3,411,284 | |||||||||
|
Net loss before other items
|
$ | 1,920,025 | $ | 1,470,322 | $ | 3,390,347 | ||||||
|
Other item
|
||||||||||||
|
Change in fair value of Equity Conversion Right
|
102,772 | - | 102,772 | |||||||||
|
Change in fair value of warrant liability
|
368,110 | - | 368,110 | |||||||||
|
Net Loss
|
$ | 2,390,907 | $ | 1,470,322 | $ | 3,861,229 | ||||||
|
Other comprehensive loss
|
||||||||||||
|
Foreign Currency Translation Adjustment
|
(435,107 | ) | - | (435,107 | ) | |||||||
|
Total Comprehensive Loss for the Period
|
$ | 1,955,800 | $ | 1,470,322 | $ | 3,426,122 | ||||||
Assets by geographical segment:
|
United States
|
Mexico
|
Total
|
||||||||||
|
September 30, 2011
|
||||||||||||
|
Mineral properties
|
$ | 28,337,596 | $ | 22,142,263 | $ | 50,479,859 | ||||||
|
Equipment
|
120,028 | 357,545 | 477,573 | |||||||||
|
June 30, 2011
|
||||||||||||
|
Mineral properties
|
27,373,596 | 22,142,263 | 49,515,859 | |||||||||
|
Equipment
|
$ | 131,683 | $ | 356,057 | $ | 487,740 | ||||||
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Three Month Period Ended September 30, 2011
(Expressed in United States dollars, unless otherwise stated)
|
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 insurance premium is being amortized over ten years and the prepaid insurance balance at September 30, 2011 is $796,948. 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, 2011 is $2,755,395.
Reclamation and environmental costs are based principally on legal requirements. Management estimates costs associated with reclamation of mineral properties. On an ongoing basis the Company evaluates its estimates and assumptions; however, actual amounts could differ from those based on estimates and assumptions. A liability has been established equal to the present value of the obligation, and the carrying amount of the mineral properties has been increased by the same amount.
Changes to the Company’s asset retirement obligations are as follows:
|
Balance, beginning of the period
|
$ | 1,143,892 | ||
|
Accretion expense
|
38,426 | |||
|
Payments
|
(12,226 | ) | ||
|
Balance, end of period
|
$ | 1,170,092 |
|
12.
|
Subsequent Events:
|
No subsequent events have been identified as of November 4, 2011
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, 2011 annual report filed on Form 10-K with the Securities and Exchange Commission on September 12, 2011.
We are an exploratory stage mining company that currently has mining concessions in Mexico and mineral 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 period ending September 30, 2011 and compares the period’s results to the results of the same period in the prior year.
Plan of Operation – Exploration:
Our plan for the current fiscal year in Nevada is to primarily focus on our Sleeper Gold Project. Our budget for the program is approximately $3 million. We will drill known mineralized zones in order to recover samples for metallurgical testing. Results from our drilling campaigns will be used and incorporated into a material estimate model. We have also engaged a leading international mining consulting firm to prepare a NI 43-101 compliant Preliminary Economic Assessment of the Sleeper Gold Project. We anticipate completion in early 2012.
Our plan, at our San Miguel Project, in the current fiscal year is the continuation of an intensive core drilling program along with other geological work to further expand known areas of mineralization. We have budgeted $9.25 million for our exploration in Mexico. Mine Development Associates of Reno, will complete a NI 43-101 material estimate not included in a report released by the Company in May 2011. The Company expects to complete a Preliminary Economic Assessment in the first half of 2012.
During the quarterly period ended September 30, 2011, the Company acquired 606 unpatented lode mining claims (the “Dunes Project”) in northwestern Nevada from ICN Resources Ltd. The Dunes Project lies 11 miles south of our Sleeper Gold Project and be accessed by a paved highway. In consideration, Paramount issued 400,000 shares of its common stock. ICN Resources Ltd. retains a net smelter royalty of 0.5% on the portion already subject to a 2.0% royalty held by a third party. The Dunes project is exploratory in nature and contains no know reserves.
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.
Comparison of Operating Results for the period ended September 30, 2011 as compared to September 30, 2010
Liquidity and Capital Resources
At September 30, 2011, we had a cash balance of $10,495,650 compared to $18,773,785 for the same period in the prior year. The reduction in cash is attributable to the funding of our exploration programs in United States and Mexico.
At September 30, 2011, we had a net working capital, excluding the non-cash warrant liability of $11,569,696. We anticipate our cash expenditures to be approximately $1.2 million per month for the proceeding quarterly period. The cash will fund our exploration programs and our general corporate expenses. We believe our cash is adequate to meet our budgeted expenses in the short-term.
During the period ended September 30, 2011, the company received $131,500 pursuant to the exercise of stock options.
At September 30, 2011, the Company had 7,700,000 “in-the-money” purchase warrants outstanding. All the warrants are held by the Company’s largest shareholder FCMI Financial Corporation. If all the issued outstanding warrants are exercised, the Company’s cash balances will increase by $7,777,000.
At September 30, 2011, the accounts receivable amount of $1,188,482 primarily consisted of value added tax due from the Mexican government. During the period ended September 30, 2011, the Company collected $458,456 in value added tax.
Revenues
As an exploration stage mining company, we have not earned revenue from our operations since our inception. The majority of our income is from interest earned on our cash holdings. We invest our excess cash in short-term Guaranteed Investment Certificates that range from 30 to 90 day terms. Interest rate environments for our cash holdings in US dollar and Canadian dollar continue to remain low and our revenue from those investments is not significant. For the three month period ended September 30, 2011, the Company recorded interest income in the amount of $20,642 as compared to $20,937 in the same period in the prior year.
Cost and Expenses
Our exploration expenses for the three month period ended September 30, 2011 compared to comparable prior year period increased by 121%. The increase is mainly due to the Company’s increased exploration activity at its Sleeper Gold project in Nevada. The following table summarizes our drilling activities at both projects for the period ended September 30, 2011 and 2010:
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Three month period ended September 30,
2011
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Three month Period ended September 30,
2010
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Holes
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Cumulative
Length in Feet
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Holes
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Cumulative
Length in Feet
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San Miguel Project, Mexico
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22 | 24,898 | 33 | 25,591 | ||||||||||||
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Sleeper Gold Project, USA
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12 | 10,802 | - | - | ||||||||||||
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Total
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34 | 35,700 | 33 | 25,591 | ||||||||||||
Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $512,788 for the three month period ended September 30, 2011. This is a 47% increase over the comparable three month period in the 2010. The increase in expenses was primarily due to an increase in legal fees and tax consulting fees. Management believes these expenses were one time in nature and does not expect similar expenses in future periods.
During the three month period ended September 30, 2011, the Company’s warrant liability decreased by $5,572,387. The decrease was recorded as a gain on the Consolidated Statement of Operations. The decrease in warrant liability is primarily due to a decrease in the Company’s share price from $3.26 at June 30, 2011 to $2.36 at September 30, 2011.
Net Loss
Our net loss before other items for the three month period ended September 30, 2011 was $4,698,364 compared to a loss of $3,390,347 in the comparable period in the prior year. We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at our San Miguel and Sleeper Gold projects.
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 expensed if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs includes 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 records exploration expenses 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.
Derivatives
The Company has 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. The Company has issued stock purchase warrants with exercise prices denominated in a currency other than its functional currency of U.S. dollars. As a result, these warrants are no longer considered indexed to our stock and must be accounted for as a derivative.
Warrants that are issued with exercise prices other than the Company’s functional currency of the U.S. dollar are accounted for as liabilities. The fair value of the outstanding warrants liabilities is determined at each reporting date with any change to the liability from a previous period recorded in the Statement of Operations. We record changes in fair value of the warrant liabilities as a component of other income and expense as we believe the amounts recorded relate to financing activities and not as a result of our operations. If a stock purchase warrant is exercised the Company is only obligated to issue shares in its common stock.
If the Company were to issue stock purchase warrants with exercise prices in its functional currency, the warrants would be considered indexed to our stock and the fair value at date of issue recorded as equity. There would be no requirement under U.S. GAAP to report changes in its fair value from period to period.
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 monthly average exchange rate 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.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.
The Company’s market risk profile has not changed significantly from its year ended June 30, 2011.
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 affect 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.
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(a)
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Evaluation of Disclosure Controls and Procedures
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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.
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(b)
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Changes in Internal Control over Financial Reporting
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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.
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(c)
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Inherent Limitations of Disclosure Controls and Internal Controls over Financial Reporting
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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.
PART II. OTHER INFORMATION
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, 2011.
The Company issued 400,000 shares of its common stock in exchange for mineral claims.
We relied on the exemptive provisions of Section 4(2) of the Securities Act in issuing the shares of common stock.
Not Applicable
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Exhibit Number
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Description
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3.1
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Certificate of Incorporation, effective March 31, 2005, incorporated by reference to Exhibit 3.1 to Form 10-SB filed November 2, 2005
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3.2
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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
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3.2(b)
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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
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3.3
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Restated Bylaws, effective April 18, 2005
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4.1
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Registration Rights Agreement, dated March 30, 2007, incorporated by reference to Exhibit 10.2 to Form 8-K filed April 6, 2007
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4.2
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Form of Investor Warrant, incorporated by reference to Exhibit 10.3 to Form 8-K filed April 6, 2007
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4.3
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Form of Broker Warrant, incorporated by reference to Exhibit 10.4 to Form 8-K filed April 6, 2007
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4.4
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Warrant Certificate, dated March 20, 2009, issued by the Company to Dahlman Rose & Company LLC, incorporated by reference to Exhibit 4.1 to Form 8-K/A filed April 21, 2009
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10.1
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Option Agreement on San Miguel properties, dated December 19, 2005, incorporated by reference to Exhibit 10.11 to our Amendment to Form 10-SB filed February 9, 2006
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10.2
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Agency Agreement with Blackmont Capital, Inc., et al., dated March 30, 2007, incorporated by reference to Exhibit 10.1 to Form 8-K filed April 6, 2007
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10.3
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Agreement of Purchase and Sale between the Company and Tara Gold Resources, dated August 22, 2008, incorporated by reference to Exhibit 10.4 to Form 8-K filed September 2, 2008
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10.4
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Forebearance Agreement between the Company and Mexoro Minerals Ltd., dated March 17, 2009, incorporated by reference to Exhibit 10.5 to Form 8-K on March 23, 2009
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10.5
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Letter Agreement for Purchase and Sale of Magnetic Resources Ltd., dated February 12, 2009, incorporated by reference to Exhibit 10.6 to Form 8-K filed on March 23, 2009
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10.6
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Letter Agreement for Assignment of Option Agreement between the Company and Garibaldi Resources Corp., dated February 2, 2009, incorporated by reference to Exhibit 10.7 to Form 8-K on March 23, 2009
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10.7
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2006/07 Stock Incentive and Compensation Plan, incorporated by reference to Exhibit 10.1 to Form S-8 filed November 8, 2006
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10.8
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2007/08 Stock Incentive and Equity Compensation Plan, incorporated by reference to Exhibit A to our proxy statement filed June 29, 2007
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10.9
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2008/09 Stock Incentive and Equity Compensation Plan, incorporated by reference to Exhibit B to our proxy statement filed January 8, 2009
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10.10
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Financial Advisory Services Agreement, effective March 1, 2009, by and between the Company and Dahlman Rose & Company LLC, incorporated by reference to Exhibit 10.1 to Form 8-K filed April 21, 2009
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10.11
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Form of Klondex Support Agreement, incorporated by reference to Schedule “A” to Exhibit 2.1 to Form 8-K filed July 22, 2009
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Exhibit Number
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Description
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10.12
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Form of Paramount Support Agreement, incorporated by reference to Schedule “B” to Exhibit 2.1 to Form 8-K filed July 22, 2009
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10.13
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Support Agreement between the Company and FCMI Financial Corporation, dated August 5, 2009, incorporated by reference to Exhibit 10.1 to Form 8-K filed August 6, 2009
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10.14
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Support Agreement between the Company and Garibaldi Resources Corp., dated August 5, 2009, incorporated by reference to Exhibit 10.2 to Form 8-K filed August 6, 2009
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10.15
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Acquisition Agreement between the Company and X-Cal Resources Ltd. dated June 22, 2010, incorporated by reference to Exhibit 2.1 on Form 8-k filed June 25, 2010
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Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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*
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Filed Herewith
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SIGNATURES
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.
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PARAMOUNT GOLD AND SILVER CORP.
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Date: November 8, 2011
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By:
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/s/ Christopher Crupi
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Christopher Crupi
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Chief Executive Officer
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Date: November 8, 2011
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/s/ CARLO BUFFONE
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Carlo Buffone
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Chief Financial Officer
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