Edgar Filing: PARAMOUNT GOLD & SILVER CORP.

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________

(Mark One)

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

______________

Paramount Gold and Silver Corp.

(Exact name of registrant as specified in its charter)

______________

Delaware	0-51600	20-3690109
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

665 Anderson Street, Winnemucca, Nevada 89445

(Address of Principal Executive Office) (Zip Code)

(775)625-3600

(Issuer’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days. Yes T 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 T
	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 T

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: 135,121,815 shares of Common Stock, $.001 par value as of February 2, 2010.

PARAMOUNT GOLD AND SILVER CORP.

INDEX

PART I. – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	22

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30

Item 4.	Controls and Procedures	31

PART II. – OTHER INFORMATION		32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults upon senior securities	32

Item 4.	Removed and Reserved	32

Item 5.	Other information	32

Item 6.	Exhibits	32

Index

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010 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, 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.

iii

Index

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Financial Statements

(Unaudited)

Period ended December 31, 2010 and 2009

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Balance Sheets

As at December 31, 2010(Unaudited) and June 30, 2010 (Audited)

(Expressed in United States dollars, unless otherwise stated)

	As at December 31, 2010 (Unaudited)			As at June 30, 2010 (Audited)
Assets

Current Assets
Cash and cash equivalents	$	17,132,173		$	21,380,505
Amounts receivable		2,110,067			1,511,619
Equity conversion right (Note 12)		336,590			516,545
Loan advance		-			243,495
Prepaid and deposits		133,459			45,368
Prepaid insurance, current portion (Note 11)		245,215			-
Marketable sercurities		2,700			-
		19,960,204			23,697,532
Long Term Assets
Mineral properties (Note 7)		48,666,487			22,111,203
Fixed assets (Note 8)		526,497			519,446
Prepaid insurance, non current portion (Note 11)		735,644			-
Reclamation bond		2,821,895			-
		52,750,523			22,630,649

	$	72,710,727		$	46,328,181

Liabilities and Shareholder’s Equity

Liabilities

Current Liabilities
Accounts payable	$	999,548		$	430,323
Warrant Liability (Note 2)		25,232,895			5,979,767
		26,232,443			6,410,090
Long Term Liabilities
Reclamation and Enviromental Obligation		1,131,559			-
		1,131,559			-
Shareholder’s Equity
Capital stock (Note 5)		133,618			110,069
Additional paid in capital		124,107,531			90,613,573
Contributed surplus		11,262,157			10,825,222
Deficit accumulated during the exploration stage		(89,984,685	)		(61,187,098	)
Cumulative translation adjustment		(171,896	)		(443,675	)
		45,346,725			39,918,091

	$	72,710,727		$	46,328,181

Commitments and Contingencies (Note 13), Subsequent Events (Note 15)

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Statements of Operations (Unaudited)

(Expressed in United States dollars, unless otherwise stated)

	Three Month Period Ended December 31, 2010		Six Month Period Ended December 31, 2010			Three Month Period Ended December 31, 2009			Six Month Period Ended December 31, 2009			Cumulative Since Inception March 29, 2005 to to December 31, 2010
Revenue
Interest Income	$	25,416	$	46,352		$	-		$	66,309		$	1,064,315
Other Income		178,230		178,230			-			-			178,230
Total Revenue	$	203,646	$	224,582		$	-		$	66,309		$	1,242,545

Expenses:
Incorporation Costs		-		-			-			-			1,773
Exploration		1,910,603		3,712,858			1,538,070			2,616,569			27,510,123
Professional Fees		468,328		636,064			167,442			407,374			6,861,117
Directors Compensation		142,181		192,727			-			-			333,951
Travel & Lodging		62,872		118,155			64,986			87,110			1,167,403
Corporate Communications		54,379		81,424			46,564			86,190			3,198,522
Consulting Fees		171,258		245,625			111,816			345,998			14,050,446
Office & Administration		142,207		222,831			71,827			152,764			2,578,663
Interest & Service Charges		3,185		6,016			32,115			50,347			102,857
Loss on disposal of Fixed Assets		-		-			-			-			44,669
Insurance		96,269		138,588			11,367			25,511			414,460
Depreciation		20,425		38,176			16,614			31,265			334,456
Accretion		35,210		49,464			-			-			49,464
Miscellaneous		-		-			(30,118	)		(25,103	)		203,097
Financing & Listing Fees		-		-			77,484			77,484			(22,024	)
Acquisition Expenses		4,758		1,081,030			695,721			1,060,180			2,323,601
Income and other taxes		-		-			-			-			51,732
Write Down of Mineral Property		-		-			275,000			275,000			1,746,049
Total Expense		3,111,675		6,522,958			3,078,888			5,190,689			60,950,359
Net Loss before other item		2,908,029		6,298,376			3,078,888			5,124,380			59,707,814

Other item
Change in fair value of Equity Conversion Right		77,183		179,955			-			-			1,001,110
Change in fair value of warrant liability		21,951,146		22,319,256			170,674			(2,917,613	)		29,275,761
Net Loss	$	24,936,358	$	28,797,587		$	3,249,562		$	2,206,767		$	89,984,685

Other comprehensive loss
Foreign Currency Translation Adjustment		163,328		(271,779	)		(47,603	)		(58,266	)		171,896
Total Comprehensive Loss for the Period	$	25,099,686	$	28,525,808		$	3,201,959		$	2,148,501		$	90,156,581

Loss per Common share
Basic and Diluted	$	0.19	$	0.23		$	0.03		$	0.02

Weighted Average Number of Common
Shares Used in Per Share Calculations
Basic		132,323,785		125,782,488			94,264,765			86,394,206
Diluted		132,323,785		125,782,488			98,764,765			90,894,206

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Statements of Cash Flows (Unaudited)

(Expressed in United States dollars, unless otherwise stated)

	For the Six Month Period Ended December 31, 2010			For the Six Month Period Ended December 31, 2009			Cummulative Since Inception to December 31, 2010

Operating Activities

Net Loss	$	(28,797,587	)		(2,206,767	)		(89,984,685	)
Adjustment for:
Depreciation		38,176			31,265			334,455
Loss on disposal of assets		-			-			44,669
Stock based compensation		306,311			209,191			16,763,835
Accrued interest		-			-			(58,875	)
Write-down of mineral properties		-			275,000			1,746,049
Accretion expense		49,464			-			49,464
Change in reclamation		(19,435	)		-			(19,435	)
Insurance expense		35,344			-			35,344
Change in fair value of equity conversion right		179,955			-			1,001,110
Change in fair value of warrant liability		22,319,256			(2,917,613	)		29,275,761
(Increase) Decrease in accounts receivable		(598,448	)		(251,785	)		(2,110,067	)
(Increase) Decrease in prepaid expenses		(88,091	)		30,612			(133,459	)
Increase (Decrease) in accounts payable		569,225			(96,205	)		999,549

Cash used in Operating Activities		(6,005,830	)		(4,926,302	)		(42,056,285	)

Purchase of GIC receivable		-			-			58,875
Notes receivable issued		243,495			91,365			21,365
Purchase of Equity conversion right		-			(1,337,700	)		(1,337,700	)
Purchase of Mineral properties		(150,000	)		(3,574,251	)		(7,068,809	)
Purchase of Equipment		(45,227	)		(28,068	)		(936,100	)

Cash used in Investing Activities		48,268			(4,848,654	)		(9,262,369	)

Demand notes payable issued		-			-			105,580
Issuance of capital Stock		1,437,450			21,761,042			68,562,090

Cash used in Financing Activities		1,437,450			21,761,042			68,667,670

Effect of exchange rate changes on Cash		271,780			68,226			(216,843	)

Change in cash during period		(4,248,332	)		12,054,312			17,132,173
Cash at beginning of period		21,380,505			7,040,999			-

Cash at end of period	$	17,132,173		$	19,095,311		$	17,132,173

Supplemental Cash Flow Disclosure
Interest Received	$	20,937		$	7,642
Cash		2,243,119			2,066,115
Short-term investments		16,530,666			17,021,554

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Six Months Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

	Shares			Par Value			Capital in Excess of Par Value			Deficit			Contributed Surplus			Cumulative Translation Adjustment			Total Stockholders Equity
Balance at September 30, 2005		11,267,726		$	11,268		$	1,755		$	(1,773	)	$	—		$	—		$	11,250

Forward split		45,267,726			45,267			(45,267	)		—			—			—			—
Returned to treasury		(61,660,000	)		(61,660	)		61,660												—
Capital issued for financing		48,289,835			48,291			20,320,683			—			—			—			20,368,974
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
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)		—			—			—			(35,954,312	)		—			—			(35,954,312	)
Balance at June 30, 2008		48,540,997			48,541			32,604,284			(35,956,085	)		13,540,945			(19,977	)		10,217,708

Capital issued for financing		16,707,791			16,707			5,828,684			—			—			—			5,845,391
Capital issued for services		1,184,804			1,185			683,437			—			—			—			684,622
Capital issued from stock options exercised		384,627			385			249,623			—			(237,008	)		—			13,000
Capital issued for mineral properties		16,200,000			16,200			13,140,250			—			—			—			13,156,450
Fair Value of warrants		—			—			—			—			3,612,864			—			3,612,864
Stock based compensation		—			—			—			—			1,052,709			—			1,052,709
Foreign currency translation		—			—			—			—			—			(267,215	)		(267,215	)
Net Income (Loss)		—			—			—			(7,241,179	)		—			—			(7,241,179	)
Balance at June 30, 2009		83,018,219		$	83,018		$	52,506,278		$	(43,197,264	)	$	17,969,510		$	(287,192	)	$	27,074,350

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Six Months Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

	Shares		Par Value		Capital in Excess of Par Value		Deficit			Contributed Surplus			Cumulative Translation Adjustment			Total Stockholders Equity
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		835,136,060		8,351		16,361,552		—			(3,841,264	)		—			12,528,639
Capital issued for mineral properties		300,000		300		374,700		—			—			—			375,000
Fair Value of warrants		—		—		—		—			—			—			—
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	)		—			—			(5,351,908	)
Balance at June 30, 2010		110,069,579		110,069		90,613,573		(61,187,098	)		10,825,222			(443,675	)		39,918,091

Capital issued for financing		—		—		—		—			—			—			—
Capital issued from stock options and warrants exercised		170,690		171		146,623		—			(146,794	)		—			—
Capital issued for acquisition		22,007,453		22,007		28,807,756		—			314,790			—			29,144,553
Stock based compensation		—		—		—		—			33,611			—			33,611
Foreign currency translation		—		—		—		—			—			435,107			435,107
Net Income (loss)		—		—		—		(3,861,229	)		—			—			(3,861,229	)
Balance at September 30, 2010		132,247,722		132,247		119,567,952		(65,048,327	)		11,026,829			(8,568	)		65,670,133

Capital issued for financing		—		—		—		—			—			—			—
Capital issued from stock options and warrants exercised		1,371,250		1,371		4,539,579		—			(37,372	)		—			4,503,578
Capital issued for acquisition		—		—		—		—			—			—			—
Stock based compensation		—		—		—		—			272,700			—			272,700
Foreign currency translation		—		—		—		—			—			(163,328	)		(163,328	)
Net Income (loss)		—		—		—		(24,936,358	)		—			—			(24,936,358	)
Balance at December 31, 2010		133,618,972		133,618		124,107,531		(89,984,685	)		11,262,157			(171,896	)		45,346,725

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

1. Organization and Business Activity:

Paramount Gold and Silver Corp. (‘the Company’), incorporated under the General Corporation Law of the State of Delaware, is a natural resource company engaged in the acquisition, exploration and development of gold, silver and precious metal properties. The Company’s wholly owned subsidiaries include Paramount Gold de Mexico S.A. de C.V., Magnetic Resources Ltd, Minera Gama SA de CV, Compania Minera Paramount SAC and X-Cal Resources Ltd. The Company is an exploration stage company in the process of exploring its mineral properties, and has not yet determined whether these properties contain reserves that are economically recoverable.

2. Principal Accounting Policies:

Basis of Presentation

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, the 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. 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, 2010.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash and cash equivalents.

Fair Value Measurements

The Company has adopted FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. The company applies fair value accounting for all financial assets and liabilities and non – financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company has adopted FASB ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Notes Receivable

Notes receivable are classified as available-for-sale or held-to-maturity, depending on our intent with respect to holding such investments. If it is readily determinable, notes receivable classified as available-for-sale is accounted for at fair value. Unrealized gains and losses on available-for-sale securities are excluded from earnings and reported net of tax as a component of other comprehensive income within shareholders’ equity. Interest income is recognized when earned.

Stock Based Compensation

The Company has adopted the provisions of FASB ASC 718, “Stock Compensation” (“ASC 718”), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant).

Comprehensive Income

FASB ASC 220“Reporting Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of June 30, 2010 and June 30 2009, the Company’s only component of comprehensive income is foreign currency translation adjustments.

Long Term Assets

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 probable 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.

Fixed Assets

Equipment is recorded at cost less accumulated depreciation. All equipment is amortized over its estimated useful life at the following annual rates, with half the rate being applied in the period of acquisition:

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Income Taxes

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

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

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.

Asset Retirement Obligation

The Company has adopted ASC 410-20 “Accounting for Asset Retirement Obligations”, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognizable over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flows, discounted at the Company’s credit-adjusted-risk-free interest rate.

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Environmental Protection and Reclamation Costs

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

Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against statements of operations as incurred or capitalized and amortized depending upon their future economic benefits.

Loss per Share

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

Concentration of Credit and Foreign Exchange Rate Risk

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

Fair Value Measurements

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

ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in ASC 820. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed, based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed, based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Fair Value Measurements (Continued)

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.

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value at December 31, 2010								June 30, 2010
Assets	Total		Level 1		Level 2		Level 3		Total
	$		$		$		$		$
Cash equivalents		17,132,173		17,132,173		-		-		21,380,505
Accounts receivable		2,110,067		2,110,067		-		-		1,511,619
Loan Advance		-		-		-		-		243,495
Equity Conversion Right		336,590		336,590		-		-		516,545
Marketable Securities		2,700		2,700		-		-		-
Liabilities
Warrant liability		25,232,895		-		-		25,232,895		5,979,767

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 accounts receivable represent amounts due from a national government regarding refund of taxes. The notes receivable is classified within Level 2 of the fair value hierarchy.

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

The changes in fair value of the Equity Conversion Right during the period ended December 31, 2010 was as follows:

Balance at September 30, 2010	413,773
Change in fair value recorded in earnings	(77,183	)
Balance at December 31, 2010	336,590

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Fair Value Measurements (Continued)

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:

	December 31, 2010
Risk free interest rate		0.25	%
Expected life of warrants and options	1 to 2 years
Expected stock price volatility		70.89	%
Expected dividend yield		0	%

The changes in fair value of the warrants during the year ended December 31, 2010 were as follows:

Balance at September 30, 2010	6,347,877
Issuance of warrants and options	-
Change in fair value recorded in earnings	21,951,146
Transferred to equity upon exercise	(3,066,128	)
Balance at December 31, 2010	25,232,895

Derivatives

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

Effective July 1, 2009, we adopted the amended provisions of ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants and options issued in prior periods with exercise prices denominated in Canadian dollars are no longer considered indexed to our stock, as their exercise price is not in the Company’s functional currency of the US dollar, and therefore no longer qualify for the scope exception and must be accounted for as a derivative. These warrants and options are reclassified as liabilities under the caption “Warrant liability” and recorded at estimated fair value at each reporting date, computed using the Black-Scholes valuation method. Changes in the liability from period to period are recorded in the Statements of Operations under the caption “Change in fair value of warrant liability.” On July 1, 2010, we recorded a cumulative effect adjustment based on the grant date fair value of warrants issued during the year ended June 30, 2009 that were outstanding at July 1, 2009 and the change in fair value of the warrant liability from the issuance date through to July 1, 2009.

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

2. Principal Accounting Policies (Continued):

Accounting Standards Adopted (Continued)

(i) Derivatives (Continued)

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

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

In addition, we have recorded a gain related to the change in fair value of the warrant liability of $5,681,370 on the Consolidated Statements of Operations for the year ended June 30, 2010 and $22,319,256 for the six months ended December 31, 2010.

3. Recent Accounting Pronouncements:

ASC 860

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

ASC 810

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

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

4. Non-Cash Transactions:

During the six month period ended December 31, 2010 and 2009, the Company entered into certain non-cash activities as follows:

	2010		2009
Operating and Financing Activities
From issuance of shares for acquisitions	$	28,829,763	$	-
From issuance of shares for cashless exercise of options	$	146,793	$	142,462
From issuance of shares for mineral property	$	-	$	375,000

5. Capital Stock:

a) Share issuances:

Authorized capital stock consists of 200,000,000 common shares with par value of $0.001 each.

During the six month period ended December 31, 2010, the Company issued a total of 23,549,393 common shares which are summarized as follows:

	Common Shares
	2010		2009
Financing		-		18,400,000
Acquisition of mineral properties		-		300,000
For exercise of warrants and options		1,541,940		674,408
For acquisition of companies		22,007,453		-
		23,549,393		19,374,408

During the six month period ended December 31, 2010, the company issued 22,007,453 shares in exchange for all the outstanding and issued shares of X-Cal Resources Ltd. The Company also issued 241,940 common shares pursuant to the exercise of options and 1,300,000 shares pursuant to the exercise of share purchase warrants.

b) Warrants:

The following share purchase warrants and agent compensation warrants were outstanding at December 31, 2010:

	Exercise price in CAD		Exercise price in USD at December 31, 2010		Number of warrants		Remaining contractual life (years)
Warrants *	$	1.05	$	1.06		7,700,000		2.08
Agent compensation warrants *	$	1.05	$	1.06		840,000		2.08
Outstanding and exercisable at December 31, 2010						8,540,000

* Strike price of warrant contract in Canadian dollars. At December 31, 2010 $1.00 USD = $0.995 CAD.

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

5. Capital Stock (Continued):

	December 31, 2010			December 31, 2009
Risk free interest rate		.25	%		.31	%
Expected life of warrants	1.2 years			1.5 years
Expected stock price volatility		70.1	%		111	%
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:

	December 31, 2010			December 31, 2009
Risk free interest rate		0.57%-0.67	%		0.40%-0.47	%
Expected dividend yield		0	%		0	%
Expected stock price volatility		84%-87	%		114%-116	%
Expected life of options	1 to 2 years			3 years

Changes in the Company’s stock options for the year ended December 31, 2010 are summarized below:

Options	Number		Weighted Avg. Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance, beginning of period		3,674,375		1.23		1.72		1,840,781

Issued		660,000		2.74
Cancelled / Expired		-		-
Exercised		71,250		0.99

Outstanding at December 31, 2010		4,263,125		1.45		1.90		10,657,119
Exercisable at December 31, 2010		3,351,457		1.22		1.40		9,203,699

At December 31, 2010, there were 4,263,125 options outstanding. Options outstanding above that have not been vested at period end are 911,668 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 month period ended December 31, 2010 the Company recognized stock based compensation expense in the amount of $272,700 (2009 - $209,191).

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

6. Related Party Transactions:

During the three month period ended December 31, 2010, directors received payments in the amount of $220,896 (2009: $90,601).

During the three month period ended December 31, 2010 the Company made payments of $24,856 (2009: $20,613) pursuant to a premises lease agreement to a corporation with a shareholder in common with the Company.

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

7. Mineral Properties:

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

	December 31, 2010		June 30, 2010
Temoris		4,074,754		4,074,754
Iris Royalty		50,000		50,000
Morelos		100,000		100,000
San Miguel Project		17,855,824		17,855,824
Andrea		20,625		20,625
Sleeper		24,009,179		−
Mill Creek		2,096,616		−
Spring Valley		385,429		−
Reese River		64,061		−
Peru		10,000		10,000
	$	48,666,487	$	22,111,203

During the quarter ended December 31, 2010, the Company made a payment of $150,000 towards a previously purchased mineral claim that is part of the Sleeper Gold project. The Company has one payment remaining due December 7, 2011 for $100,000.

8. Fixed Assets:

					Net Book Value
	Cost		Accumulated Amortization		December 31, 2010		June 30, 2010
Property and Equipment	$	811,568	$	285,071	$	526,497	$	519,446

During the six month period ended December 31, 2010, total additions to property, plant and equipment were $45,227 (2009- $28,069). During the six month period ended December 31, 2010 the Company recorded depreciation of $38,176.

9. Investments:

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.

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

9. Investments (Continued):

Garibaldi Resources Corp.

During the period ended, December 31, 2010, the Company sold 400,000 shares of common stock of Garibaldi Resources Corp for net proceeds of $154,590. It recorded the gain as other income in its Consolidated Statements of Operations.

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 six month period ended December 31, 2010:

	United States		Mexico / Latin America		Total
Interest income	$	46,351	$	1	$	46,352
Other income	$	178,230	$	-	$	178,230
Total income	$	224,581	$	1	$	224,582

Expenses:
Exploration		1,542,934		2,169,924		3,712,858
Professional fees		636,064		-		636,064
Directors compensation		192,727		-		192,727
Travel and lodging		118,155		-		118,155
Corporate communications		81,424		-		81,424
Consulting fees		245,625		-		245,625
Office and administration		187,046		35,785		222,831
Interest and service charges		4,302		1,714		6,016
Loss on Disposal of Assets		-		-		-
Insurance		138,588		-		138,588
Amortization		9,327		28,849		38,176
Accretion		49,464		-		49,464
Acquisition Expenses		1,081,030		-		1,081,030
Miscellaneous		-		-		-
Write off of mineral property		-		-		-
Income and other taxes		-		-		-
Total Expenses		4,286,686		2,236,272		6,522,958
Net loss before other items	$	4,062,105	$	2,236,271	$	6,298,376

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

10. Segmented Information (Continued):

Loss by geographical segment for the six month period ended December 31, 2009:

	United States			Mexico / Latin America		Total
Interest income	$	66,244		$	65	$	66,309

Expenses:
Exploration		367,198			2,249,371		2,616,569
Professional fees		407,374			-		407,374
Travel and lodging		87,110			-		87,110
Corporate communications		86,190			-		86,190
Consulting fees		345,998			-		345,998
Office and administration		122,380			30,384		152,764
Interest and service charges		48,416			1,931		50,347
Loss on Disposal of Assets		-			-		-
Insurance		25,511			-		25,511
Amortization		11,421			19,844		31,265
Acquisition Expenses		1,060,180			-		1,060,180
Miscellaneous		(25,103	)		-		(25,103	)
Write off of mineral property		275,000			-		275,000
Financing & listing fees		77,484			-		77,484
Total Expenses		2,889,159			2,301,530		5,190,689
Net loss before other items	$	2,822,915		$	2,301,465	$	5,124,380

Assets by geographical segment:

	United States		Mexico / Latin America		Total

December 31, 2010
Mineral properties	$	26,555,284	$	22,111,203	$	48,666,487
Equipment		130,601		395,896		526,497

December 31, 2009
Mineral properties		-		22,111,203		22,111,203
Equipment	$	114,489	$	403,172	$	$517,661

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(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 December 31, 2010 is $980,859. 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 December 31, 2010 is $2,821,895.

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.

Changes to the Company’s asset retirement obligations are as follows:

Balance, beginning of the period	$	1,122,305
Asset retirement obligations acquired		-
Accretion expense		35,210
Payments		(25,956	)
Balance, end of period	$	1,131,559

12. Equity Conversion Right

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

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

During the period ended, December 31, 2010, SNS changed its name to Gold Finder Explorations Ltd.

At December 31, 2010, the fair value of the Equity Conversion Right was $336,590. As a result, the Company recorded a loss related to the change in fair value of the Equity Conversion Right of $77,183 on the Consolidated Statements of Operations for the three month period ended December 31, 2010.

13. Commitments and Contingencies

Litigation

In April 2010, the Company learned that Danny Sims and Sims Geological and Geotechnical Services LLC, a former contractor for the company, filed an action against the Company in the United States District Court for the District of Arizona on the date of February 22, 2010. The Company believes the amount of the claim is indeterminable and believes there is no basis for the claim or allegations made by the plaintiff and will defend itself to the fullest possible extent.

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

14. X-Cal Resources Ltd.

On August 23, 2010, the Company acquired all the issued and outstanding shares of common stock of X-Cal Resources Ltd. X-Cal Resources Ltd. is an exploration stage mining company with advanced projects in the state of Nevada. The transaction was structured as a statutory Plan of Arrangement under the Business Corporations Act of British Columbia, Canada. Under the terms of the Plan of Arrangement, X-Cal shareholders received one (1) share of Paramount common stock for every eight (8) common shares of X-Cal.

At the Closing Date, X-Cal Resources Ltd. had 176,059,978 issued and outstanding shares of common stock. Holders of these shares received a total of 22,007,453 shares of Paramount common stock. All options to purchase common shares of X-Cal were terminated prior to the Closing Date, and 1,264,375 options to purchase shares of Paramount common stock were granted to those persons under Paramount’s existing stock option plans.

The Company recorded acquisition related costs for the six month period ended December 31, 2010 of $1,081,030.

The amounts of X-Cal Resources Ltd. revenue and Net Loss included in the Company’s consolidated income statement for the period ended December 31, 2010, and the revenue and earnings of the combined entity had the acquisition date been July 1, 2010, or July 1, 2009, are as follows:

	Revenue		Net Loss (Gain)		Net Loss Per Share
Actual from August 23, 2010 to December 31, 2010	$	0	$	1,476,846	$	0.01
Supplemental pro forma
For three month period ended December 31, 2010	$	224,582	$	29,376,478	$	0.23
Supplemental pro forma
For three month period ending December 31, 2009	$	66,309	$	3,630,727	$	0.04

The following is the allocation of cost of acquisition of X-Cal Resources Ltd.:

Shares eligible for conversion		176,059,978

Common stock exchange ratio per share		0.125
Equivalent new shares to be issued (par value $0.01)		22,007,497
Total fractional shares in exchange not issued		(44	)
Shares issued		22,007,453
Paramount common stock price on August 20, 2010		1.31
Total preliminary purchase price (common stock)	$	28,829,764
Estimated fair value of options issued		314,790
Total purchase price	$	29,144,554

Index

PARAMOUNT GOLD AND SILVER CORP.

(An Exploration Stage Mining Company)

Notes to Consolidated Financial Statements (Unaudited)

For the Six Month Period Ended December 31, 2010

(Expressed in United States dollars, unless otherwise stated)

15. Subsequent Events:

Subsequent events have been identified as of January 31, 2011.

The Company issued 919,090 shares pursuant to the cashless exercise of 1,150,000 outstanding options at a weighted exercise price of $0.7. It also issued 243,750 shares pursuant to the exercise of outstanding options for proceeds of $453,000 and issued 340,000 shares pursuant to the exercise of outstanding stock purchase warrants for proceeds of $357,000.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from management’s perspective on our liquidity financial condition, results of operations and other factors that may affect our future results. This MD&A should be read in conjunction with the accompanying interim financial statements and related notes. We also believe it is important to read our MD&A in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2010, as well as other publicly available information.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010 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.

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.

Company Overview and History

The Company is a U.S. based exploration stage mining company with multi-million ounce advanced stage precious metals projects in Nevada (Sleeper) and northern Mexico (San Miguel). We are a Delaware corporation incorporated on March 29, 2005. Our executive office is located at 665 Anderson Street, Winnemucca, Nevada. We also have a field office in Temoris, Chihuahua Mexico.

The Company’s business strategy is to acquire and develop known mineral deposits in large-scale geological environments in North America. This helps eliminate discovery risks and significantly increases the efficiency and effectiveness of exploration programs. Our projects are located in established mining camps near successful operating mines. This greatly reduces the related costs for infrastructure requirements at the exploration stage and eventually for mine construction and operations. The Company’s management is also focused on advancing its gold-bearing tailings and leach pad heaps at the former Sleeper mine towards an early production decision to generate near-term cash flow.

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Properties

The San Miguel Project

Our exploratory activities are concentrated within the San Miguel Groupings which comprise the San Miguel Project.

Location

The San Miguel Project is located in southwestern Chihuahua in Northern Mexico, and is approximately 400 km by road from the state capital. The project is about 20 km north of the town of Temoris, adjacent to the village of Guazapares. It is in the Guazapares mining district, which is part of the Sierra Madre Occidental gold-silver belt.

The location of the San Miguel Project is shown in Map 1. The coordinate system used for all maps and sections in this report is the Universal Transverse Mercator system, Zone 12. GPS coordinates are referenced to NAD 27 Mexico.

Map 1 – San Miguel Project Location

Index

The following table outlines our concessions within the San Miguel Project:

San Miguel Project Concession Data

Concession	Owner	Title No.	Date Staked	Hectares
San Miguel Group
SAN MIGUEL	Paramount	166401	4-Jun-80	12.9458
SAN LUIS	Paramount	166422	4-Jun-80	4
EMPALME	Paramount	166423	4-Jun-80	6
SANGRE DE CRISTO	Paramount	166424	4-Jun-80	41
SANTA CLARA	Paramount	166425	4-Jun-80	15
EL CARMEN	Paramount	166426	4-Jun-80	59.0864
LAS TRES B.B.B.	Paramount	166427	4-Jun-80	23.001
SWANWICK	Paramount	166428	4-Jun-80	70.1316
LAS TRES S.S.S.	Paramount	166429	4-Jun-80	19.1908
SAN JUAN	Paramount	166402	4-Jun-80	3
EL ROSARIO	Paramount