pzg_8k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 

FORM 8-K/A 

 
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of report (Date of earliest event reported): August 23,  2010
 
 
 PARAMOUNT GOLD AND SILVER CORP.
 (Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)

0-51600
 
20-3690109
(Commission File Number)
 
(IRS Employer Identification No.)

665 Anderson Street
Winnemucca, NV 89445
(Address of Principal Executive Offices)
 
2600 N. Military Trail Suite 270
Boca Raton, Florida 33431
(Former Principal Executive Offices)

(775) 625-3600
(Registrant’s Telephone Number, Including Area Code)
 
   Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
   o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
   Number of shares of Common Stock outstanding as of September 13, 2010:  132,077,034
 


 
 

 
 
Section 2- Financial Information
 
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
 
On August 23, 2010 (the “Closing Date”) Paramount Gold and Silver Corp. (“Paramount”) acquired all of the issued and outstanding shares of common stock of  X-Cal Resources Ltd. (“X-Cal”).  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 will receive one (1) share of Paramount common stock for every eight (8) common shares of X-Cal.  
 
At the Closing Date, X-Cal had 176,009,978   issued and outstanding shares of common stock.  Holders of these shares will receive a total of 22,001,247  shares of  Paramount common stock.   All options to purchase common shares of X-Cal were terminated prior to the Closing Date, and options to purchase shares of Paramount common stock were granted to those persons under Paramount’s existing stock option plans.  
 
The requisite approval of the Plan of Arrangement by the  X-Cal shareholders was obtained at an  annual and special meeting of the X-Cal shareholders held August 19, 2010. On August 20, 2010 a Final Order was entered by the Supreme Court of British Columbia in connection with the Plan of Arrangement (Vancouver Registry No. S-105075).   Pursuant to the Final Order,  it was the Court’s determination that:
 
 1.
The Plan of Arrangement, including the terms and conditions thereof and the issuances, exchanges and/or adjustments of securities contemplated therein, is fair and reasonable to the X-Cal shareholders;
 2. the Plan of Arrangement, including the terms and conditions thereof and the issuances, exchanges and/or adjustments of securities contemplated therein, was approved by the Court;
 3. the effective time and date of the completion of the Plan of Arrangement shall be on or about such time and date as determined by X-Cal and Paramount; and
 4. X-Cal shall be entitled to seek leave to vary the court order, to seek advice and direction as to the implementation of the order or to apply for such further order(s) as may be appropriate.
 
The principal asset of X-Cal is the Sleeper Gold Mine located in Humboldt County, Nevada.  Paramount intends to focus on drilling mine scale exploration targets defined by current and ongoing studies. The objective of the drilling is to test the targets for Sleeper type gold deposits that warrant follow up drilling for discoveries that can be mined by open pits or underground workings.
 
Section 3-Securities and Trading Markets
 
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
 
The issuance of the Company’s securities in the Plan of Arrangement is exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended.
 
Section 3(a)(10) exempts securities issued in exchange for one or more outstanding securities from the general requirement of registration where the terms and conditions of the issuance and exchange of such securities have been approved by any court of competent jurisdiction, after a hearing upon the fairness of the terms and conditions of the issuance and exchange at which all persons to whom the securities will be issued have the right to appear.  

The issuance of the Paramount shares to the X-Cal shareholders were:
 
 
2

 

      
Offered solely in exchange for X-Cal securities;
      
the Supreme Court of British Columbia (the “Court”) determined that the terms and conditions of the Plan of Arrangement are  fair to the X-Cal shareholders;
      
the Court is an authorized government entity empowered to issue the order;
      
the Court was advised that Paramount is relying on Section 3(a)(10) exemption for the issuance of securities;
      
the Court held a fairness hearing on the Plan of Arrangement and the hearing was open to everyone to whom the Paramount securities were to be issued  pursuant to the Plan of Arrangement; and
      
Notice of the hearing was given to the X-Cal shareholders and there were no impediments to the appearance of the X-Cal shareholders at the hearing.
 
Item 2.01 of this Current Report on Form 8-k contains a more detailed description of the Agreement, and is incorporated into this Item 3.02 by reference.
 
Section 5- Corporate Governance and Management
 
ITEM 5.02-DEPARTURE OF DIRECTOR OR PRINCIPAL OFFICERS, ELECTION OF DIRECTORS, APPOINTMENT OF PRINCIPAL OFFICERS.
 
In connection with the Plan of Arrangement,  Shawn Kennedy, the chief executive officer of X-Cal, has joined the Paramount Board of Directors.
 
Mr. Kennedy incorporated X-Cal in 1981 as a private company under the name of X-Calibre Resources. In 1985 the company was listed on the Toronto Stock Exchange and the name changed to X-Cal. Mr. Kennedy has served as President and director of X-Cal since incorporation. His first prospector's license was issued in British Columbia in 1974.
 
Section 9 Financial Statements and Exhibits
 
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
 
(a)           Financial statements of X-Cal will be filed by amendment
 
(b)           Pro forma financial information
 
   
Exhibit    
99.1   Press release dated August 23, 2010, related to the acquisition of X-Cal*
_______________
* Previously filed.
 
 
 
3

 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
Paramount Gold and Silver Corp.
 
     
Date:   September 13, 2010
By:
/s/Christopher Crupi
 
   
Christopher Crupi, CEO
 
 


 
4

 

(b)           Pro forma financial information
 
Paramount Gold and Silver Corp.
Unaudited Pro Forma Condensed Combined Financial Information
 
The following unaudited pro forma condensed combined financial information combines the historical consolidated financial statements of Paramount Gold and Silver Corp. (“Paramount”) and X-Cal Resources Ltd. (“X-Cal”) as adjusted for the Transaction, which is described further in the notes to unaudited pro forma condensed combined financial information.  The acquisition of X-Cal by Paramount will be accounted for as a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations.  For this purpose, Paramount will be deemed the accounting acquirer, and X-Cal will be deemed the accounting acquiree.  The pre-acquisition combined financial statements of Paramount will be treated as the historical financial statements of the combined company.
 
Paramount has a fiscal year end of June 30, and X-Cal has a fiscal year end of March 31.  As permitted by the U.S. Securities and Exchange Commission (“SEC”) rules and regulations, Paramount has combined the Paramount consolidated statement of operations for the year ended June 30, 2009 and the nine months ended March 31, 2010 with X-Cal’s combined statement of operations for the year ended March 31, 2009 and the nine months ended December 31, 2009, for purposes of the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined statement of operations for the year ended June 30, 2009 and the nine months ended March 31, 2010 give effect to the Transaction as if it had occurred on July 1, 2008.  The unaudited pro forma condensed combined balance sheet assumes that the Transaction was consummated on March 31, 2010 and combines Paramount’s historical consolidated balance sheet as of March 31, 2010 with X-Cal’s historical consolidated balance sheet as of March 31, 2010.

The unaudited pro forma condensed balance sheet and statement of operations of Paramount as of and for the nine months ended March 31, 2010 were derived from its unaudited consolidated financial statements as of March 31, 2010 (as filed on Form 10-Q/A with the SEC on June 17, 2010).  The unaudited pro forma condensed combined statement of operations of Paramount for the year ended June 30, 2009 was derived from the audited consolidated financial statements of Paramount for the year ended June 30, 2009 (as filed on Form 10-K/A with the SEC on April 19, 2010).

The unaudited pro forma condensed balance sheet of X-Cal as at March 31, 2010 was derived from the audited consolidated balance sheet as at March 31, 2010 (as filed on SEDAR on June 29, 2010). The unaudited pro forma condensed consolidated statement of operations of X-Cal for the nine months ended December 31, 2009 were derived from its unaudited consolidated financial statements for the nine months ended December 31, 2009 (as filed on SEDAR on February 12, 2010).  The unaudited pro forma condensed consolidated statement of operations of X-Cal for the year ended March 31, 2009 was derived from the audited consolidated financial statements of X-Cal for the year ended March 31, 2009 (as filed on SEDAR on June 26, 2009).

The pro forma adjustments are based upon available information, preliminary estimates and certain assumptions that Paramount believes are reasonable and are described in the accompanying notes to the unaudited pro forma condensed combined financial information.   The unaudited pro forma condensed combined financial information does not take into account (i) any synergies or cost savings that may or are expected to occur as a result of the Transaction or (ii) any non-recurring cash or non-cash charges that Paramount may incur in connection with the Transaction, the level and timing of which cannot yet be determined.   The unaudited pro forma condensed combined financial statements have been prepared in accordance with SEC rules and regulations.

The unaudited pro forma condensed combined financial information assumes that the acquisition would be accounted for using the acquisition method of accounting in accordance with ASC 805.  The total purchase price has been preliminarily allocated based on available information and preliminary estimates and assumptions that management believes are reasonable.  However, the allocation of purchase price has not been finalized and the actual adjustments to our financial statements upon closing of the acquisition transaction will depend on a number of factors, including additional information available and the net assets on the closing date of the Transaction.   Accordingly, there can be no assurance that the final allocation of purchase price will not materially differ from the preliminary allocations reflected in the unaudited pro forma condensed combined financial information.
 
 
5

 
 
 
Paramount Gold and Silver Corp.
Unaudited Pro Forma Condensed Combined Financial Information
 
The unaudited pro forma condensed combined financial information is provided for informational purposes only, is subject to a number of uncertainties and assumptions and does not purport to represent what the combined company’s actual performance or financial position would have been if the Transaction had occurred on the dates indicated and does not purport to indicate financial position or results of operations as of any future date or for any future date.
 

Please refer to the following information in conjunction with this unaudited pro forma condensed combined financial information: the accompanying notes to these unaudited pro forma condensed combined financial statements, Paramount’s and X-Cal’s historical financial statements and the accompanying notes thereto, “Management’s Discussion and Analysis” filed on SEDAR for X-Cal’s years ended March 31, 2009 and 2008 and for the nine months ended December 31, 2009 and 2008, from Paramount’s Annual Report on Form 10-K for the year ended June 30, 2009 and from Paramount’s Quarterly Report on Form 10-Q as of and for the nine months ended March 31, 2010.
 
 
6

 
 
Paramount Gold and Silver Corp.
Unaudited Pro Forma Condensed Combined Balance Sheet
(Stated in U.S. Dollars)
As of March 31, 2010
 
   
Paramount
   
X-Cal
             
   
As at
   
As at
   
Pro Forma
       
   
March 31,
   
March 31,
   
Adjustments
   
Pro Forma
 
   
2010
   
2010
   
(Note 5)
   
Combined
 
                         
Assets
                       
                         
Current
                       
     Cash and cash equivalents
  $ 20,318,898     $ 176,672     $ -     $ 20,495,570  
Amounts receivable
    1,364,915       66,517       -       1,431,432  
Marketable securities
    -       2,700       -       2,700  
Prepaid and deposits
    39,411       -       -       39,411  
Term deposit
    1,053,811       -       -       1,053,811  
      22,777,035       245,889       -       23,022,924  
Prepaid insurance
    -       1,179,596       -       1,179,596  
Reclamation bond
    -       2,872,443       -       2,872,443  
Mineral property interests
    22,111,203       30,554,892       (30,544,892 )(a)     49,885,780  
                      27,764,577 (b)        
Fixed assets
    502,188       34,722       -       536,910  
                                 
                                 
      45,390,426       34,887,542       (2,780,315 )     77,497,653  
                                 
Liabilities
                               
                                 
Current
                               
Accounts payable
    196,338       150,208       -       346,546  
                              -  
Reclamation and environmental obligation
    -       1,085,429       -       1,085,429  
                                 
      196,338       1,235,637       -       1,431,975  
                                 
Stockholders' Equity
                               
                                 
Common stock
    106,472       50,121,777       (50,121,777 )(b)     127,415  
                      20,943 (b)        
Additional paid-in capital
    79,886,497       -       30,850,647 (b)     110,737,144  
Contributed surplus
    17,437,148       3,620,715       (3,620,715 )(b)     17,437,148  
Deficit accumulated during the exploration stage
    (51,841,219 )     (20,090,587 )     (30,544,892 )(a)     (51,841,219 )
                      50,635,479 (b)        
Cumulative translation adjustment
    (394,810 )     -       -       (394,810 )
                                 
      45,194,088       33,651,905       -       76,065,678  
                                 
    $ 45,390,426     $ 34,887,542     $ (2,780,315 )   $ 77,497,653  
 
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.  The pro forma adjustments are explained in Note 5 – Pro Forma Adjustments.
 
 
7

 

Paramount Gold and Silver Corp.
Unaudited Pro Forma Condensed Combined Statement of Operations
(Stated in U.S. Dollars)
For the Nine Months Ended March 31, 2010
 
   
Paramount
   
X-Cal
             
   
Nine Months
   
Nine Months
             
   
Ended
   
Ended
   
Pro Forma
       
   
March 31,
   
December 31
   
Adjustments
   
Pro Forma
 
   
2010
   
2009
   
(Note 5)
   
Combined
 
                         
Interest Income
  $ 80,755     $ 11,150     $ -     $ 91,905  
                                 
Expenses
                               
  Exploration
    5,320,444       -       643,020 (a)     5,963,464  
  Professional fees 
    691,893       110,088       -       801,981  
       Directors compensation
    94,468       -       -       94,468  
  Travel and lodging
    158,072       32,503       -       190,575  
 Corporate communications
    322,219       56,105       -       378,324  
  Consulting fees
    348,127       125,259       -       473,386  
 Office and administration
    265,723       41,588       -       307,311  
  Interest and service charges
    54,640       -       -       54,640  
 Insurance
    36,596       204,315       -       240,911  
  Depreciation
    46,965       7,871       -       54,836  
  Miscellaneous
    7,281       -       -       7,281  
  Acquisition expenses
    1,060,180       -       -       1,060,180  
  Income and other taxes
    43,101       -       -       43,101  
         Write down of mineral property
    275,000       -       -       275,000  
  Accretion expense
    -       101,659       -       101,659  
  Foreign exchange loss
    -       383,410       -       383,410  
                              -  
Total expenses
    8,724,709       1,062,798       -       10,430,527  
                              -  
Loss for the period
    (8,643,954 )     (1,051,649 )     -       (10,338,623 )
                              -  
Comprehensive income (loss)
                            -  
         Foreign currency translation adjustment
    (107,618 )     -       -       (107,618 )
                                 
Loss and comprehensive loss for the period
  $ (8,751,572 )   $ (1,051,649 )   $ -     $ (10,446,241 )
                                 
Weighted average common
                               
   shares outstanding
                               
Basic
    91,771,247       165,829,096       20,943,555 (d)     112,714,802  
Diluted
    95,771,247       165,829,096       20,943,555 (d)     116,714,802  
                                 
Pro forma loss per share
                               
Basic
    (0.10 )     (0.01 )             (0.09 )
Diluted
    (0.09 )     (0.01 )             (0.09 )
 
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.  The pro forma adjustments are explained in Note 5 – Pro Forma Adjustments.
 
 
8

 
 
Paramount Gold and Silver Corp.
Unaudited Pro Forma Condensed Combined Statement of Operations
(Stated in U.S. Dollars)
For the Twelve Months Ended June 30, 2009
 
   
Paramount
   
X-Cal
             
   
Year ended
   
Year ended
   
Pro Forma
       
   
June 30,
   
March 31,
   
Adjustments
   
Pro Forma
 
   
2009
   
2009
   
(Note 5)
   
Combined
 
                         
Interest Income
  $ 249,082     $ 78,281     $ -     $ 327,363  
                                 
Expenses
                               
Exploration
    1,548,330       -       944,414 (a)     2,492,744  
       Professional fees
    1,244,792       148,875       -       1,393,667  
            Geologist fees and expenses
    824,291       -       -       824,291  
       Travel and lodging
    228,920       33,556       -       262,476  
            Corporate communications
    260,907       63,624       -       324,531  
       Consulting fees
    1,561,084       163,977       -       1,725,061  
            Office and administration
    881,726       36,451       -       918,177  
            Interest and service charges
    18,987       -       -       18,987  
Insurance
    76,705       277,548       -       354,253  
       Depreciation
    99,010       18,771       -       117,781  
       Miscellaneous
    91,592       (4,773 )     -       86,819  
Rent
    78,974       -       -       78,974  
Financing
    (12,005 )     -       -       (12,005 )
Marketing
    542,279       -       -       542,279  
            Loss on disposition of fixed assets
    44,669       -       -       44,669  
       Accretion expense
    -       132,227       -       132,227  
       Foreign exchange loss
    -       (418,904 )     -       (418,904 )
                              -  
Total expenses
    7,490,261       451,352       -       8,886,027  
                              -  
Loss for the period
    (7,241,179 )     (373,071 )     -       (8,558,664 )
                              -  
Comprehensive income (loss)
                            -  
            Foreign currency translation adjustment
    (267,215 )     -       -       (267,215 )
                                 
Loss and comprehensive loss for the period
  $ (7,508,394 )   $ (373,071 )   $ -     $ (8,825,879 )
                                 
Weighted average common
                               
   shares outstanding
                               
Basic
    62,941,467       135,959,729       20,943,555 (d)     83,885,022  
Diluted
    65,433,659       135,959,729       20,943,555 (d)     86,377,214  
                                 
Pr forma loss per share
                               
Basic
    (0.12 )     (0.00 )             (0.11 )
Diluted
    (0.11 )     (0.00 )             (0.10 )
 
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.  The pro forma adjustments are explained in Note 5 – Pro Forma Adjustments.
 
 
9

 
 
Paramount Gold and Silver Corp.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
 
Note 1 - Description of the Transaction

On June 22, 2010, Paramount entered into an Arrangement Agreement (the “Agreement”) with X-Cal Resources Ltd. The Agreement provides that, upon the terms and subject to the conditions set forth in the Agreement, X-Cal will become a wholly owned subsidiary of Paramount.

Subject to the terms and conditions of the Agreement, which are subject to approval by the shareholders of X-Cal, at the effective time of the Agreement, (i) each common share of X-Cal issued and outstanding immediately prior to the effective time, will be exchanged for a common share of Paramount, on the basis of 8 common shares of X-Cal for 1 common share of Paramount (the “Exchange Ratio”), (ii) each warrant  to purchase a common share of X-Cal outstanding immediately prior to the effective time (“X-Cal Warrant”), will be exchanged for 0.125 common stock purchase warrants of Paramount (“Paramount Warrant”), with each such Paramount Warrant having an exercise price equal to the quotient of (a) the exercise price per X-Cal Share subject to such X-Cal Warrant divided by (b) the Exchange Ratio,  expiring at the end of the term of the relevant X-Cal warrant, and otherwise having the same terms and conditions as such X-Cal Warrant, (iii) each option to purchase a common share of X-Cal outstanding immediately prior to the effective time (“X-Cal Option”), will be terminated and in substation therefor, 0.125 stock options of Paramount (“Paramount Option”) will be issued under Paramount’s stock option plan to the persons who held X-Cal options prior to the effective time, per X-Cal option held, with each such Paramount Option having an exercise price equal to the quotient of (a) the exercise price per X-Cal Share subject to such X-Cal Option divided by (b) the Exchange Ratio, expiring at the end of the term of the relevant X-Cal Option (the “Transaction”).

Concurrently with the date of the Agreement, Paramount and X-Cal entered into an agreement providing for a loan in the amount of $1,100,000 to be made to X-Cal by Paramount in monthly advances (the “Loan”).  The Loan shall be unsecured, and for so long as any amount remains outstanding under the Loan, X-Cal shall agree to not sell or encumber any of its interest in X-Cal’s mineral property interests, except as required for the repayment of the Loan.

In the event that the Agreement is terminated:

(i)  
because X-Cal accepts, and enters into an agreement in respect of, a Superior Proposal (as defined in the Agreement) to the Agreement, the loan shall be repayable within ten business days, bearing interest from the date of the advance at a rate of 8% per annum;
(ii)  
as a result of X-Cal shareholders failing to approve the Transaction, the loan shall be repayable within forty five days of the meeting of X-Cal shareholders; or
(iii)  
for any reason other than as set out in (i) and (ii) above, the Loan shall be repayable on or before December 31, 2010, bearing interest from the date of the advance at a rate of 8% per annum.

In the event that the Loan is not repaid when due, the interest rate in default shall thereafter increase to an effective rate of 24% per annum.

Note 2 - Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared based on the historical financial information of Paramount and X-Cal giving effect to the Transaction and related adjustments described in these notes.  Certain note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted as permitted by SEC rules and regulations.
 

X-Cal presents its financial statements in its functional currency of the Canadian Dollar.  Paramount presents its financial statements in its functional currency of the U.S. Dollar.  The historical financial statements of X-Cal, from which the unaudited consolidated combined pro forma financial statements have been derived, have been translated from the Canadian Dollar to the U.S. Dollar utilizing exchange rates follows:
 
 
10

 
 
Paramount Gold and Silver Corp.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
 
Balance sheet as at March 31, 2010   $ 0.98  
Statement of operations for the nine months ended December 31, 2009
  $ 0.90  
Statement of operations for the year ended March 31, 2009
  $ 0.88  

The unaudited pro forma condensed combined financial information was prepared under existing U.S. GAAP standards, which are subject to change and interpretation.

This unaudited pro forma condensed combined financial information is not necessarily indicative of the results of operations that would have been achieved if the Transactions had actually taken place at the dates indicated and does not purport to be indicative of future position or operating results.

Note 3 - Accounting Policies

Upon consummation of the Agreement, Paramount will continue the review of X-Cal’s accounting policies.  As a result of that review, Paramount may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.  At this time, Paramount is not aware of any differences that would have a material impact on the combined financial statements, except as follows.

X-Cal prepares its financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).   Under Canadian GAAP, acquisition and exploration expenditures on mineral properties, less recoveries in the pre-production stage, are deferred until such time as the properties are put into commercial production, sold, or become impaired.  On the commencement of commercial production, the deferred costs are charged to operations on the unit-of-production method based upon estimated recoverable proven and probable reserves.  General exploration expenditures are charged to operations in the period in which they are incurred.

Under U.S. GAAP, acquisition costs are capitalized, but exploration costs are not considered to have the characteristics of property, plant and equipment and, accordingly, are expensed prior to the company determining that economically proven and probable mineral reserves exist, after which all such costs are capitalized.

Set out below are the material adjustments to X-Cal’s mineral properties and deficit as at March 31, 2010, and to operating expenses for the nine months ended December 31, 2009 and the year ended March 31, 2009 in order to conform to U.S. GAAP:

Mineral properties
 
March 31, 2010
 
Canadian GAAP
  $ 30,554,892  
Deferred exploration costs prior to the establishment of proven and probable reserves
    (14,790,303 )
U.S. GAAP
  $ 15,764,589  

 
Statement of Operations
 
Nine Months Ended December 31, 2010
   
Year Ended
March 31, 2009
 
Net loss based on Canadian GAAP
  $ (1,051,649 )   $ (373,071 )
Deferred exploration costs prior to the establishment of proven and probable reserves
    (643,020 )     (944,414 )
Net loss based on U.S. GAAP
  $ (1,694,669 )   $ (1,317,485 )

 
 
11

 
 
Paramount Gold and Silver Corp.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
 
Note 4 - Acquisition Accounting

The acquisition of X-Cal by Paramount has been accounted for using the acquisition method of accounting in accordance with ASC 805.  Further, under the acquisition method, the purchase price is allocated to assets acquired and liabilities assumed based on their estimated fair values, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.

The cost of the acquisition and related purchase price allocation included in the accompanying unaudited pro forma condensed combined financial statements is based on a preliminary evaluation of the fair value of the assets and liabilities assumed of X-Cal and may change when the final valuation of acquired assets and working capital is determined.  Given a complete change in the accounting basis of X-Cal, the cost of acquisition represents the total fair value of X-Cal at the date of acquisition.  The total fair value of X-Cal was calculated by the outstanding common shares of X-Cal and the closing share price of Paramount on June 22, 2010, plus the estimated fair value of options and warrants of Paramount issued pursuant to the Agreement.  The ultimate purchase price will change based on movements in Paramount’s share price until the final closing date.

The following represents the preliminary allocation of the cost of acquisition:
Shares eligible for conversion
    167,548,439  
Common stock exchange ratio per share
    0.125  
Equivalent new shares issued (par value $0.01)
    20,943,555  
Paramount common stock price on June 22, 2010
  $ 1.43  
Total preliminary purchase price (common stock)
    29,949,283  
Estimated fair value of warrants issued (Note 5e)
    699,875  
Estimated fair value of options issued (Note 5f)
    222,432  
Total preliminary purchase price
  $ 30,871,590  

The purchase price will be computed using the value of Paramount common stock on the closing date, therefore the actual purchase price will fluctuate with the market price of Paramount common stock until the Transaction is closed.  As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the pro forma financial statements.

The following table provides sensitivities to changes in purchase price due to changes in the per share price of Paramount common stock:

   
 
Price of Paramount Common Stock
   
 
 
Exchange Ratio
   
Calculated per Share Value of X-Cal Common Stock
   
 
 
Total Purchase Price
 
As of June 22, 2010
  $ 1.43       0.125     $ 0.17875     $ 29,949,283  
Decrease of 10%
  $ 1.29       0.125     $ 0.16087     $ 26,954,355  
Increase of 10%
  $ 1.57       0.125     $ 0.19662     $ 32,944,212  
 
 
12

 
 
Paramount Gold and Silver Corp.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
 
The following represents the allocation of the total purchase price based on management’s preliminary valuation:

Total preliminary purchase consideration
  $ 30,871,590  
Less historical X-Cal net assets acquired:
       
Cash and cash equivalents
    176,672  
Prepaid insurance
    1,179,596  
Reclamation bond
    2,872,443  
Fixed assets
    34,722  
Mineral property interests
    30,554,892  
Other assets
    69,217  
Accounts payable
    (150,208 )
Reclamation and environmental obligations
    (1,085,429 )
         
Total historical X-Cal net assets acquired
    33,651,905  
Deficiency of purchase price over historical net assets acquired
    (2,780,315 )
Adjustment to mineral properties for U.S. GAAP (Note 3)
    14,790,303  
Pro forma adjustment to mineral property acquisition costs
  $ 12,009,988  

Net tangible assets were valued at their respective carrying amounts as management believes that these amounts approximate their current fair values.

Note 5 – Pro Forma Adjustments

(a)  
To adjust mineral property exploration costs that were capitalized under Canadian GAAP, but would have been expensed under U.S. GAAP (see Note 3). The effect of this adjustment at March 31, 2010 is to reduce the carrying value of mineral property interest by $14,790,303 and increase deficit by $14,790,303. The effect of this adjustment for the nine months ended March 31, 2010 is to increase exploration expense by $643,020.  The effect of this adjustment for the year ended June 30, 2009 is to increase exploration expense by $944,414.

(b)  
To record the issuance of: (a) 20,943,555 common shares of Paramount with par value of $0.01 in exchange for all of the issued and outstanding common shares of X-Cal pursuant to the Agreement; (b) 1,057,692 Paramount Warrants in exchange for all of the issued and outstanding warrants of X-Cal; and (c) 1,276,875 Paramount Options for all of the issued and outstanding options of X-Cal, recorded at fair value of $30,871,590 (see Note 4), and to eliminate the common stock, contributed surplus and deficit of X-Cal prior to acquisition.
 
(c)  
In connection with the acquisition of X-Cal, Paramount expects to incur approximately $1,100,000 of cash expenses related to a loan to X-Cal to finance X-Cal’s operating activities and deal related costs (Note 1).
 
(d)  
Pro forma loss per share, basic and diluted, includes the addition of 20,943,555 shares of common stock which will be issued in conjunction with the closing of the Agreement (Note 4).  The following adjustments represent the changes to basic and diluted weighted average shares outstanding:
 
   
Historical
Weighted Average Shares – basic
   
Share
Issuance
   
Pro Forma Weighted
Average Shares - basic
 
Year ended June 30, 2009
    62,941,467       20,943,555       83,885,022  
Nine months ended March 31, 2010
    91,771,247       20,943,555       112,714,802  
 
 
13

 
 
Paramount Gold and Silver Corp.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements

   
Historical
Weighted Average
Shares – diluted
   
 
Share
Issuance
   
Pro Forma
Weighted Average
Shares - diluted
 
Year ended June 30, 2009
    65,433,659       20,943,555       86,377,214  
Nine months ended March 31, 2010
    95,771,247       20,943,555       116,714,802  
 
(e)  
Pursuant to the Agreement, each warrant  to purchase a common share of X-Cal outstanding immediately prior to closing of the Transaction will be exchanged for 0.125 common stock purchase warrants of Paramount, with each such Paramount Warrant having an exercise price equal to the quotient of (a) the exercise price per X-Cal Share subject to such X-Cal Warrant divided by (b) the Exchange Ratio,  expiring at the end of the term of the relevant X-Cal warrant, and otherwise having the same terms and conditions as such X-Cal Warrant.  At the date of the Agreement, 8,461,539 X-Cal Warrants were outstanding.  Paramount Warrants to be issued are as follows:

X-Cal Warrants
Outstanding
Exchange Ratio
Paramount
Warrants to be Issued
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life
8,461,539
0.125
1,057,692
$ 0.80
0.77 years

The fair value of these warrants has been estimated as $699,875 using the Black-Scholes option valuation model.  For purposes of the calculation, it was assumed: (a) risk free interest rate of 0.4%, (b) expected dividend yield of 0%, (c) Expected stock price volatility of 55.8%, and (d) expected life of warrant of 0.77 years.

(f)  
Pursuant to the Agreement, X-Cal options will be terminated at the close of the Agreement and Paramount will issue new options under Paramount’s existing option plan in exchange.  Each option to purchase a common share of X-Cal outstanding immediately prior to the closing of the Transaction, will be exchanged for 0.125 stock options of Paramount, with each such Paramount Option having an exercise price equal to the quotient of (a) the exercise price per X-Cal Share subject to such X-Cal Option divided by (b) the Exchange Ratio, expiring at the end of the term of the relevant X-Cal Option.  At the date of the Agreement, 10,215,000 X-Cal Options were outstanding.  Paramount Options to be issued are as follows:

X-Cal Options
 Outstanding
Exchange Ratio
Paramount
Options to be Issued
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life
10,215,000
0.125
1,276,875
$ 1.92
1 year

The fair value of these options has been estimated as $222,432 using the Black-Scholes option valuation model.  For purposes of the calculation, it was assumed: (a) risk free interest rate of 0.4%, (b) expected dividend yield of 0%, (c) Expected stock price volatility of 55.8%, and (d) expected life of option of 1 year.

(g)  
Paramount has not provided for any income tax benefit related to the operating losses of X-Cal due to insufficient evidence to indicate on a more likely than not basis such benefits could be realized.

(h)  
To reflect, under the terms of employment agreements,  (a) payment to the CEO of  X-Cal upon termination or change in control of X-Cal of $472,627 ($480,000 CDN) based upon an amount equal to 3 years’ salary plus $150,000 , and (b)  payment to the CFO of X-Cal upon termination or change in control of X-Cal of $129,972 (CDN  $132,000) based upon an amount equal to 2 years’ salary.
 
 
 
 
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