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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

———————
FORM 10-Q
———————
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012 
 
¨
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
(Commission
(I.R.S. Employer
of Incorporation)
File Number)
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 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 ¨

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  ¨
Accelerated filer  þ
Non-accelerated filer  ¨
Smaller reporting company  ¨
(Do not check if smaller reporting company)
 
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: 147,387,288 shares of Common Stock, $.001 par value as of April 27, 2012.
 


 
 

 
 
 
 
2

 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 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.

 
3

 
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 

 
PARAMOUNT GOLD AND SILVER CORP.
 
(An Exploration Stage Mining Company)

 
 
Consolidated Financial Statements
 
(Unaudited)
 
Period ended March 31, 2012 and 2011
 
 
 
4

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Balance Sheets
As at March 31, 2012 (Unaudited) and June 30, 2011 (Audited)
(Expressed in United States dollars, unless otherwise stated)

 
   
As at March 31,
2012 (Unaudited)
   
As at June 30,
2011 (Audited)
 
Assets
           
             
Current Assets
           
Cash and cash equivalents
  $ 16,142,608     $ 14,689,241  
Amounts receivable
    1,615,485       1,625,724  
Subscriptions receivable (Note 6 and 12)
    8,661,250       -  
Prepaid and deposits
    341,573       34,252  
Prepaid insurance, current portion (Note 11)
    245,215       245,215  
Marketable securities (Note 3)
    -       319,219  
Total Current Assets
    27,006,131       16,913,651  
Non-Current Assets
               
Mineral properties (Note 8)
    50,479,859       49,515,859  
Fixed assets (Note 9)
    464,973       487,740  
Prepaid insurance, non current portion (Note 11)
    429,124       613,035  
Reclamation bond (Note 11)
    2,811,248       2,765,742  
Total Non-Current Assets
    54,185,204       53,382,376  
                 
Total Assets
  $ 81,191,335     $ 70,296,027  
                 
Liabilities and Shareholders' Equity
               
                 
Liabilities
               
                 
Current Liabilities
               
Accounts payable
  $ 2,276,409     $ 769,172  
Warrant liability (Note 4)
    9,854,853       16,914,660  
Total Current Liabilities
    12,131,262       17,683,832  
                 
Non-Current Liabilities
               
Reclamation and environmental obligation (Note 11)
    1,217,443       1,143,892  
Total Liabilities
  $ 13,348,705       18,827,724  
                 
Shareholders' Equity
               
Capital stock (Note 6)
    147,363       136,249  
Additional paid in capital
    151,532,498       129,664,660  
Contributed surplus
    12,481,382       11,287,242  
Deficit accumulated during the exploration stage
    (96,247,000 )     (89,637,633 )
Accumulated other comprehensive income
    (71,613 )     17,785  
Total Shareholders' Equity
    67,842,630       51,468,303  
                 
Total Liabilities and Shareholders' Equity
  $ 81,191,335     $ 70,296,027  
 
Subsequent Events (Note 12)
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
5

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the Nine Month Period Ended March 31, 2012 and 2011
 (Expressed in United States dollars, unless otherwise stated)

 
   
For the Three
Month Period
Ended March 31,
2012
   
For the Nine
Month Period
Ended March 31,
2012
   
For the Three
Month Period
Ended March 31,
2011
   
For the Nine
Month Period
Ended March 31,
 2011
   
Cumulative Since
Inception to
March 31, 2012
 
                               
                               
                               
Revenue
                             
Interest income
  $ 6,297     $ 23,237     $ 39,474     $ 85,826     $ 1,160,069  
Other income
    -       73,130       2,603       180,833       253,963  
Total Revenue
  $ 6,297     $ 96,367     $ 42,077     $ 266,659     $ 1,414,032  
                                         
Expenses:
                                       
Incorporation costs
    -       -       -       -       1,773  
Exploration
    3,046,194       9,850,449       2,531,665       6,244,524       41,632,485  
Professional fees
    265,380       874,308       283,796       919,805       8,380,231  
Directors compensation
    948,312       1,172,080       551,895       744,677       2,126,459  
Travel & lodging
    53,997       162,850       46,214       164,369       1,425,096  
Corporate communications
    146,822       314,266       137,346       218,770       3,691,673  
Consulting fees
    116,975       373,605       119,690       365,315       14,643,215  
Office & administration
    121,706       332,103       59,376       282,207       3,021,726  
Interest & service charges
    3,062       7,498       3,467       9,483       116,984  
Loss on disposal of fixed assets
    -       -       -       -       44,669  
Insurance
    81,409       237,387       95,334       233,922       830,716  
Depreciation
    19,547       58,985       16,738       54,915       428,562  
Accretion
    38,426       115,278       35,210       84,674       235,162  
Miscellaneous
    -       -       -       -       203,097  
Financing & listing fees
    -       -       -       -       (22,024 )
Acquisition expenses
    -       -       45       1,081,075       1,505,334  
Income and other taxes
    -       -       13,015       13,015       64,747  
Write down of mineral property
    100,000       100,000       -       -       1,856,049  
Total Expenses
    4,941,830       13,598,809       3,893,791       10,416,751       80,185,954  
Net Loss before other items
  $ 4,935,533     $ 13,502,442     $ 3,851,714     $ 10,150,092     $ 78,771,922  
                                         
Other items
                                       
Change in fair value of equity conversion right
    -       -       (164,488 )     15,467       990,236  
Change in fair value of warrant liability
    228,312       (7,059,807 )     (1,085,671 )     21,233,585       16,318,110  
Loss on sale of marketable securities
    162,603       166,732       900       900       166,732  
Net Loss
  $ 5,326,448     $ 6,609,367     $ 2,602,455     $ 31,400,044     $ 96,247,000  
                                         
Other comprehensive loss
                                       
Foreign currency translation adjustment
    59,217       120,343       (220,765 )     (492,544 )     71,613  
Total Comprehensive Loss for the Period
  $ 5,385,665     $ 6,729,710     $ 2,381,690     $ 30,907,500     $ 96,318,613  
                                         
Loss per Common share
                                       
Basic
  $ 0.04     $ 0.05     $ 0.02     $ 0.24          
Diluted
  $ 0.04     $ 0.05     $ 0.02     $ 0.24          
                                         
Weighted Average Number of Common
                                       
Shares Used in Per Share Calculations
                                       
Basic
    136,962,960       136,799,824       135,096,531       128,841,845          
Diluted
    136,970,327       136,809,006       135,096,531       128,841,845          
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
6

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Month Period Ended March 31, 2012 and 2011
 (Expressed in United States dollars, unless otherwise stated)

 
   
For the Nine
Month Period
Ended March 31,
2012
   
For the Nine
Month Period
Ended March 31,
2011
   
Cumulative Since
 Inception to
March 31, 2012
 
                   
Net Loss
  $ (6,609,367 )   $ (31,400,044 )   $ (96,247,000 )
Adjustment for:
                       
Depreciation
    58,985       54,915       428,562  
Loss on disposal of assets
    -       -       44,669  
Stock based compensation
    1,511,822       1,154,415       19,170,222  
Accrued interest
    -       -       (58,875 )
Write-down of mineral properties
    100,000       -       1,856,049  
Accretion expense
    115,278       84,674       235,162  
Change in reclamation
    (4,555 )     (19,532 )     59,037  
Insurance expense
    183,911       96,648       366,146  
Other non cash transactions
    205,474       900       204,575  
Change in fair value of equity conversion right
    -       15,467       990,236  
Change in fair value of warrant liability
    (7,059,807 )     21,233,585       16,318,110  
(Increase) Decrease in accounts receivable
    10,239       (369,678 )     (1,532,059 )
(Increase) Decrease in prepaid expenses
    (307,321 )     (85,322 )     (341,573 )
Increase (Decrease) in accounts payable
    1,507,237       (10,947 )     392,626  
Cash used in operating activities
  $ (10,288,104 )   $ (9,244,919 )   $ (58,114,113 )
                         
Sale (purchase) of marketable securities
    144,690       -       144,690  
Increase of reclamation bond
    (82,678 )     -       (82,678 )
Purchase of GIC receivable
    -       -       58,875  
Notes receivable issued
    -       243,495       21,365  
Purchase of equity conversion right
    -       -       (1,337,700 )
Purchase of mineral properties
    (100,000 )     (150,000 )     (7,209,870 )
Cash acquired on acquisition of X-Cal
    -       -       843,101  
Purchase of equipment
    (36,218 )     (28,712 )     (938,080 )
Cash provided by (used in) investing activities
  $ (74,206 )   $ 64,783     $ (8,500,297 )
                         
Demand notes payable issued
    -       -       105,580  
Issuance of capital Stock
    11,936,020       3,572,052       82,767,999  
Cash provided by financing activities
  $ 11,936,020     $ 3,572,052     $ 82,873,579  
                         
Effect of exchange rate changes on cash
    (120,343 )     492,544       (116,561 )
                         
Change in cash during period
    1,453,367       (5,115,540 )     16,142,608  
                         
Cash at beginning of period
    14,689,241       21,380,505       -  
Cash at end of period
  $ 16,142,608     $ 16,264,965     $ 16,142,608  
                         
Supplemental Cash Flow Disclosure
                       
Interest Received
  $ 23,237     $ 85,826          
Cash
  $ 13,584,103     $ 4,454,979          
Short-term investments
  $ 2,558,505     $ 11,809,986          

The accompanying notes are an integral part of the consolidated financial statements
 
 
7

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Shareholders’ Equity (Unaudited)
From Inception to the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
 
Shares
   
Par Value
   
Additional Paid in
Capital
   
Deficit
   
Contributed
Surplus
   
Accumulated
Other
Comprehensive
 Income (Loss)
   
Total
 Stockholders
 Equity
 
Balance at inception
        $     $     $     $     $     $  
Capital issued for financing
    104,825,287       104,826       20,277,171                         20,381,997  
Capital issued for services
    4,157,500       4,157       9,477,295                         9,481,452  
Capital issued for mineral properties
    1,178,519       1,179       2,682,617                         2,683,796  
Capital issued on settlement of notes payable
    39,691       39       105,541                         105,580  
Returned to treasury
    (61,660,000 )     (61,660 )     61,660                          
Fair value of warrants
                            8,460,682             8,460,682  
Stock based compensation
                            5,080,263             5,080,263  
Foreign currency translation
                                  (19,977 )     (19,977 )
Net Income (loss)
                      (35,956,085 )                 (35,956,085 )
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 and warrants 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  
Stock based compensation
                            3,612,864             3,612,864  
Transition adjustment (Note 2)
                            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  
Capital issued for financing
    18,400,000       18,400       21,371,043                         21,389,443  
Capital issued from stock options and warrants exercised
    8,351,360       8,351       16,361,552             (3,841,264 )           12,528,639  
Capital issued for mineral properties
    300,000       300       374,700                         375,000  
Stock based compensation
                            309,840             309,840  
Transition adjustment (Note 2)
                      (12,637,875 )     (3,612,864 )           (16,250,739 )
Foreign currency translation
                                  (156,483 )     (156,483 )
Net Income (loss)
                      (5,351,958 )                 (5,351,958 )
Balance at June 30, 2010
    110,069,579     $ 110,069     $ 90,613,573     $ (61,187,098 )   $ 10,825,222     $ (443,675 )   $ 39,918,091  
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
8

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Consolidated Statements of Shareholders’ Equity (Unaudited)
From Inception to the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
Capital issued for financing
    19,395       19       23,970                         23,989  
Capital issued from stock options and warrants exercised
    4,153,085       4,154       10,219,361             (1,053,645 )           9,169,870  
Capital issued for acquisition
    22,007,453       22,007       28,807,756             314,790             29,144,553  
Stock based compensation
                            1,200,875             1,200,875  
Foreign currency translation
                                  492,405       492,405  
Unrealized loss on available for sale securities
                                  (30,945 )     (30,945 )
Net Income (loss)
                      (28,450,535 )                 (28,450,535 )
Balance at June 30, 2011
    136,249,512     $ 136,249     $ 129,664,660     $ (89,637,633 )   $ 11,287,242     $ 17,785     $ 51,468,303  
Capital issued from stock options and warrants exercised
    137,500       138       215,260             (83,897 )           131,501  
Capital issued for acquisition
    400,000       400       963,600                         964,000  
Stock based compensation
                            45,690             45,690  
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  
Capital issued from stock options and warrants exercised
    100,000       100       265,569             (200,669 )           65,000  
Stock based compensation
                            341,065             341,065  
Unrealized loss on available for sale securities
                                  (42,679 )     (42,679 )
Net Income (loss)
                      (2,152,813 )                 (2,152,813 )
Balance at December 31, 2011
    136,887,012     $ 136,887     $ 131,109,089     $ (90,920,552 )   $ 11,389,431     $ (182,392 )   $ 51,532,463  
Capital issued for financing
    10,417,776       10,418       20,338,300                         20,348,718  
Capital issued from stock options and warrants exercised
    57,500       58       85,109             (33,117 )           52,050  
Stock based compensation
                            1,125,068             1,125,068  
Foreign currency translation
                                  (59,217 )     (59,217 )
Unrealized loss on available for sale securities
                                  169,996       169,996  
Net Income (loss)
                      (5,326,448 )                 (5,326,448 )
Balance at March 31, 2012
    147,362,288     $ 147,363     $ 151,532,498     $ (96,247,000 )   $ 12,481,382     $ (71,613 )   $ 67,842,630  

The accompanying notes are an integral part of the consolidated financial statements
 
 
9


PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (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.”

 
10

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (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. Foreign currency transactions 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.
 
 
11

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
3. 
Marketable Securities and Investments:

As of December 31, 2011, the Company had investments in available-for-sale securities with a cost basis of $332,168.  The investments include certain equity securities of entities involved in the exploration of precious metals.  During the three month period ended March 31, 2012, the Company sold its investment in available-for-sale securities for proceeds of $130,822.

Also during the three month period ended March 31, 2012, the Company sold 250,000 shares of common stock of Mexoro Minerals Ltd for proceeds of $38,743.

For the three month period ended March 31, 2012, the Company recorded a loss on sale of marketable securities of $162,603.
 
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 measurementdate for identical, unrestricted assets or liabilities.

Level 2
Inputs other than quoted prices included within Level 1 that are observable for theasset 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.
 
 
12

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (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 March 31, 2012
   
June 30, 2011
 
Assets
 
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
    $       $       $       $       $    
Cash equivalents
    16,142,608       16,142,608       -       -       14,689,241  
Marketable Securities
    -       -       -       -       319,219  
                                         
Liabilities
                                       
Warrant liability
    9,854,853       -       -       9,854,853       16,914,660  
 
The Company’s cash equivalents 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. The amounts 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:

 
March 31, 2012
Risk free interest rate
0.23%
Expected life of warrants and options
Less than 1 year
Expected stock price volatility
70.1%
Expected dividend yield
0%
 
The changes in fair value of the warrants during the three month period ended March 31, 2012 was as follows:

Balance at December 31, 2011
$9,626,541
Issuance of warrants and options
-
Change in fair value recorded in earnings
228,312
Transferred to equity upon exercise
-
Balance at March 31, 2012
$9,854,853
 
 
13


PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
5. 
Non-Cash Transactions:

During the nine month period ended March 31, 2012 and 2011, the Company entered into certain non-cash activities as follows:

   
2012
   
2011
 
Operating and  Financing Activities
           
From issuance of shares for acquisitions
  $ -     $ 28,829,763  
From issuance of shares for cashless exercise of options
  $ -     $ 2,341,322  
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 nine month period ended March 31, 2012, the Company issued a total of 11,112,776 (2011 – 26,113,035) common shares which are summarized as follows:
 
   
2012
   
2011
 
Financing
    10,417,776       -  
Acquisition of mineral properties
    400,000       -  
For exercise of warrants and options
    295,000       4,105,582  
For acquisition of companies
    -       22,007,453  
      11,112,776       26,113,035  

During the three month period ended March 31, 2012, the Company closed a private placement offering pursuant to which the Company sold 10,417,776 shares of its common stock for gross proceeds of $21,356,441, at an offering price of $2.05 per share.  At March 31, 2012, the Company recorded a receivable of $8,661,250 for 4,225,000 shares it issued pursuant to the financing in which it received funds in April 2012 (Note 12).  The shares were held in escrow until the funds were received.

During the nine month period ended March 31, 2012, 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.

 
14

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
6.
Capital Stock (Continued):
 
b) Warrants:
 
The following share purchase warrants were outstanding at March 31, 2012:
 
   
Exercise price in
CAD
   
Exercise price in
USD at March 31,
2012
   
Number of
 warrants
   
Remaining
 contractual life
(years)
 
Warrants *
  $ 1.05     $ 1.05       7,700,000       0.96  
 
* Strike price of warrant contract in Canadian dollars.  At March 31, 2012 $1.00 USD = $1.000 CAD.
 
   
March 31, 2012
   
March 31, 2011
 
Risk free interest rate
    .23%       .29%  
Expected life of warrants
 
Less than 1 year
   
1 year
 
Expected stock price volatility
    70.1%       70.9%  
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.
 
On December 2, 2011, the stockholders approved the 2011/2012 Stock Incentive & Equity Compensation Plan thereby reserving an additional 4,000,000 common shares for future issuance to employees, directors and consultants.
 
Stock Based Compensation
 
The Company uses the Black-Scholes option valuation model to value stock options granted. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used:
 
   
March 31, 2012
 
March 31, 2011
Risk free interest rate
 
0.10%-0.39%
 
0.43%
Expected dividend yield
 
 0%
 
0%
Expected stock price volatility
 
 72% to 84%
 
62%-87%
Expected life of options
 
1 to 4 years
 
1 to 2 years

 
15

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
6.
Capital Stock (Continued):
 
Changes in the Company’s stock options for the nine month period ended March 31, 2012 are summarized below:
 
Options
 
Number
   
Weighted Avg.
Exercise Price
   
Weighted-Average
Remaining
Contractual Term
   
Aggregate
 Intrinsic Value
 
Balance at June 30, 2011
    2,161,120       1.74       2.08       3,280,911  
                                 
Issued
    1,492,500       2.52                  
Cancelled / Expired
    (275,500 )     2.66                  
Exercised
    (295,000 )     1.40                  
                                 
Outstanding at March 31, 2012
    3,083,120       2.27       2.63       1,060,121  
Exercisable at March 31, 2012
    2,328,121       1.96       2.11       1,060,121  

At March 31, 2012, there were 3,083,120 options outstanding. Options outstanding above that have not been vested at period end are 754,999 which have a maximum service term of 1- 5 years. The vesting of these options is dependent on market conditions or service requirements, which have yet to be met.

For the three and nine month period ended March 31, 2012 the Company recognized stock based compensation expense in the amount of $1,125,068 and $1,511,822 respectively (2011 - $848,104 and  $1,154,415) .
 
7. 
Related Party Transactions:

During the nine month period ended March  31, 2012, directors received cash payments in the amount of $147,500 (2011 -$162,500) for their services as directors or members of committees of the Company’s Board.   During the three month period ended March 31, 2012, the Company also recorded a non-cash transaction to recognize stock based compensation for directors in the amount of $903,312 (2011- $582,177)

During the three month period ended March 31, 2012 the Company made payments of $24,041 (2011 - $23,228) pursuant to a premises lease agreement to a corporation in which an officer is a shareholder.

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

 
16

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
8. 
Mineral Properties:

The Company has capitalized acquisition costs on mineral properties as follows:
 
   
March 31, 2012
   
June 30, 2011
 
Iris Royalty
    50,000       50,000  
Morelos
          100,000  
San Miguel Project
    21,992,263       21,992,263  
Sleeper
    25,891,490       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 three month period ended March 31, 2012, the Company decided it would not make the required bi-annual mineral concession payments to the Mexican Government for its interest in the Morelos property.  As a result, the value the Company has recorded for its interest in the Morelos property has been written off  a loss of $100,000 has been recorded the statement of operations.

During the nine month period ended March 31, 2012, 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.
 
During the nine month period ended March 31, 2012, the Company made a payment 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
 
March 31, 2012
 
June 30,2011
 
                         
Property and Equipment
  $ 844,151     $ 379,178     $ 464,973     $ 487,740  

During the nine month period ended March 31, 2012, total additions to property, plant and equipment were $36,218 (2011- $45,712) and total disposals of property, plant and equipment were $nil (2011- $16,800). During the nine month period ended March 31, 2012 the Company recorded depreciation of $58,985 (2011-$53,147).
 
 
17

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (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 nine month period ended March 31, 2012:

   
United States
   
Mexico
   
Total
 
Interest income
  $ 17,046     $ 6,191     $ 23,237  
Other income
    73,130       -       73,130  
Total income
  $ 90,176     $ 6,191     $ 96,367  
                         
Expenses:
                       
Exploration
    3,344,404       6,506,045       9,850,449  
Professional fees
    874,308       -       874,308  
Directors compensation
    1,172,080       -       1,172,080  
Travel and lodging
    162,850       -       162,850  
Corporate communications
    314,266       -       314,266  
Consulting fees
    373,605       -       373,605  
Office and administration
    289,139       42,964       332,103  
Interest and service charges
    5,097       2,401       7,498  
Insurance
    237,387       -       237,387  
Amortization
    30,984       28,001       58,985  
Accretion
    115,278       -       115,278  
Write-down of mineral properties
    100,000       -       100,000  
Total Expenses
    7,019,398       6,579,411       13,598,809  
Net loss before other items
  $ 6,929,222     $ 6,573,220     $ 13,502,442  
                         
Other items
                       
Change in fair value of warrant liability
    (7,059,807 )     -       (7,059,807 )
Loss on sale of marketable securities
    166,732       -       166,732  
Net Loss
  $ 36,147     $ 6,573,220     $ 6,609,367  
                         
Other comprehensive loss
                       
Foreign currency translation adjustment
    120,343       -       120,343  
Total Comprehensive Loss for the Period
  $ 156,490     $ 6,573,220     $ 6,729,710  
 
 
18


PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (Expressed in United States dollars, unless otherwise stated)

 
10.
Segmented Information (Continued):

Loss by geographical segment for the nine month period ended March 31, 2011:
   
United States
   
Mexico / Latin
America
   
Total
 
Interest income
  $ 65,652     $ 20,174     $ 85,826  
Other income
  $ 178,230     $ 2,603     $ 180,833  
Total income
  $ 243,882     $ 22,777     $ 266,659  
                         
Expenses:
                       
Exploration
    2,683,214       3,561,310       6,244,524  
Professional fees
    919,805       -       919,805  
Directors compensation
    744,677       -       744,677  
Travel and lodging
    164,369       -       164,369  
Corporate communications
    218,770       -       218,770  
Consulting fees
    365,315       -       365,315  
Office and administration
    246,407       35,800       282,207  
Interest and service charges
    7,190       2,293       9,483  
Insurance
    233,922       -       233,922  
Amortization
    13,414       41,501       54,915  
Accretion
    84,674       -       84,674  
Acquisition expenses
    1,081,075       -       1,081,075  
Income and other taxes
    13,015       -       13,015  
Total Expenses
    6,775,847       3,640,904       10,416,751  
Net loss before other items
  $ 6,531,965     $ 3,618,127     $ 10,150,092  
                         
Other item
                       
Change in fair value of equity conversion right
    15,467       -       15,467  
Change in fair value of warrant liability
    21,233,585       -       21,233,585  
Other income & expenses
    900       -       900  
Net Loss
  $ 27,781,917     $ 3,618,127     $ 31,400,044  
                         
Other comprehensive loss
                       
Foreign currency translation adjustment
    (492,544 )     -       (492,544 )
Total Comprehensive Loss for the Period
  $ 27,289,373     $ 3,618,127     $ 30,907,500  
 
Assets by geographical segment:

   
United States
   
Mexico
   
Total
 
March 31, 2012
                 
Mineral properties
  $ 28,337,596     $ 22,142,263     $ 50,479,859  
Equipment
    106,973       358,000       464,973  
                         
June 30, 2011
                       
Mineral properties
    27,373,596       22,142,263       49,515,859  
Equipment
  $ 131,683     $ 356,057     $ 487,740  
                         
 
 
19

 
PARAMOUNT GOLD AND SILVER CORP.
(An Exploration Stage Mining Company)
Notes to Consolidated Financial Statements (Unaudited)
For the Nine Month Period Ended March 31, 2012
 (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 current and non-current prepaid insurance balance at March 31, 2012 is $674,339.

As a part of the policy, the Company has funds in a commutation account which is used to reimburse reclamation costs and indemnity claims.  During the nine month period ended March 31, 2012, the Company and the Bureau of Land Management of Nevada reviewed the previous reclamation cost estimates for the exploration activities of the Company and determined an increase in those estimates was required.  As a result, the Company provided additional bonding to the Bureau of Land Management and increased the balance of the commutation account by $82,678.   The balance of the commutation account at March 31, 2012 is $2,811,248.

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 at December 31, 2011