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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

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For the transition period from                     to                     

 

Paramount Gold and Silver Corp.

(Exact name of registrant as specified in its charter)

 

(Address of Principal Executive Office) (Zip Code)

 

(775) 625-3600

(Issuer’s telephone number, including area code)

 

N/A

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

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days.   Yes  þ   No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes ¨    No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date: 155,731,068 shares of Common Stock, $.001 par value as of January 31, 2014.

 

Index

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013 contains “forward-looking statements”. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements which include, but are not limited to, statements concerning the Company’s expectations regarding its working capital requirements, financing requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected.

These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, economic, political and market conditions and fluctuations, the prevailing market price for gold and silver, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein.

Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

OTHER PERTINENT INFORMATION

When used in this report, the terms “Paramount,” the “Company,” “we,”, “our,” and “us” refers to Paramount Gold and Silver Corp., a Delaware corporation.

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PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

		As at December 31				As at June 30,
		2013				2013
Assets
Current Assets
Cash and cash equivalents		$	6,899,680			$	11,524,051
Amounts receivable			1,326,277				1,207,247
Prepaid and deposits			469,915				212,197
Prepaid insurance, current portion (Note 11)			245,215				245,215
Marketable securities (Note 3)			496,152				450,000
Total Current Assets			9,437,239				13,638,710
Non-Current Assets
Mineral properties (Note 8)			51,875,798				51,875,798
Property and equipment (Note 9)			405,250				432,287
Prepaid insurance, non current portion (Note 11)			-				122,607
Reclamation bond (Note 11)			2,695,145				2,718,384
Total Non-Current Assets			54,976,193				55,149,076
Total Assets		$	64,413,432			$	68,787,786
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Accounts payable and accrued liabilities		$	285,517			$	298,281
Total Current Liabilities			285,517				298,281
Non-Current Liabilities
Reclamation and environmental obligation (Note 11)			1,299,802				1,263,584
Total Liabilities		$	1,585,319			$	1,561,865
Stockholders' Equity
Capital Stock, par value $0.001 per share; authorized 200,000,000 shares, 155,731,068 issued and outstanding at December 31, 2013 and 155,731,068 shares issued and outstanding at June 30, 2013			155,732				155,732
Additional paid in capital			168,773,335				168,773,335
Contributed surplus			13,704,151				13,583,315
Deficit accumulated during the exploration stage			(119,708,738	)			(115,217,521	)
Accumulated other comprehensive income (loss)			(96,367	)			(68,940	)
Total Stockholders' Equity			62,828,113				67,225,921
Total Liabilities and Stockholders' Equity		$	64,413,432			$	68,787,786
Subsequent Events (Note 12)

		For the Three Month Period Ended December 31, 2013				For the Six Month Period Ended December 31, 2013				For the Three Month Period Ended December 31, 2012				For the Six Month Period Ended December 31, 2012				Cumulative Since Inception to December 31, 2013
Revenue
Interest income		$	1,841			$	6,807			$	16,867			$	32,645			$	1,231,071
Gain on sale of mineral property			-				-				4,421,233				4,421,233				4,421,233
Other income			46,745				56,876				54,030				61,530				372,370
Total Revenue			48,586				63,683				4,492,130				4,515,408				6,024,674
Expenses
Incorporation costs			-				-				-				-				1,773
Exploration			1,855,025				3,089,282				3,304,365				6,798,835				60,651,041
Professional fees			204,202				434,970				467,753				660,862				10,316,423
Directors compensation			69,970				139,946				60,972				204,602				3,392,177
Travel & lodging			75,219				117,889				52,250				105,044				1,827,158
Corporate communications			64,287				118,638				46,564				107,178				4,245,027
Consulting fees			46,705				169,282				62,151				191,744				15,283,571
Office & administration			103,361				178,230				145,143				268,944				3,776,564
Interest & service charges			16,132				18,847				2,870				6,477				151,112
Loss on disposal of property and equipment			-				-				-				-				44,669
Insurance			87,448				189,820				87,577				178,192				1,456,435
Depreciation			14,455				29,241				16,680				33,132				540,529
Accretion			30,683				61,366				41,936				83,872				502,698
Miscellaneous			-				-				-				-				203,097
Financing & listing fees			-				-				-				-				(22,024	)
Acquisition expenses			-				-				-				-				1,505,334
Income and other taxes			7,389				7,389				-				-				72,136
Write down of mineral property			-				-				-				-				1,856,049
Total Expenses			2,574,876				4,554,900				4,288,261				8,638,882				105,803,769
Net Loss (Gain) before other items			2,526,290				4,491,217				(203,869	)			4,123,474				99,779,095
Other items
Change in fair value of equity conversion right			-				-				-				-				990,236
Other than temporary impairment of marketable securities			-				-				-				-				4,050,000
Write down of other assets			-				-				-				-				20,246
Change in fair value of warrant liability			-				-				(2,535,296	)			(1,003,176	)			14,702,429
Loss on sale of marketable securities			-				-				-				-				166,732
Net (Gain) Loss			2,526,290				4,491,217				(2,739,165	)			3,120,298				119,708,738
Other comprehensive loss (gain)
Foreign currency translation adjustment			(10,875	)			23,629				15,057				(12,230	)			92,569
Unrealized loss (gain) on available-for-sale-securities			108,591				3,798				-				-				3,798
Total Comprehensive Loss (Gain) for the Period		$	2,624,006			$	4,518,644			$	(2,724,108	)			3,108,068			$	119,805,105
Loss (Gain) per Common share
Basic		$	0.02			$	0.03			$	(0.02	)		$	0.02
Diluted		$	0.02			$	0.03			$	(0.02	)		$	0.02
Weighted Average Number of Common			155,731,068				155,731,068				147,546,184				147,514,241
Shares Used in Per Share Calculations
Basic
Diluted			155,731,068				155,731,068				152,095,775				152,133,554

		For the Six Month Period Ended December 31, 2013				For the Six Month Period Ended December 31, 2012				Cumulative Since Inception to December 31, 2013
Net Loss		$	(4,491,217	)		$	(3,120,298	)		$	(119,708,738	)
Adjustment for:
Depreciation			29,241				33,132				540,529
Loss on disposal of assets			-				-				44,669
Stock based compensation			120,836				289,411				20,932,074
Accrued interest			-				-				(58,875	)
Write-down of mineral properties			-				-				1,856,049
Accretion expense			61,366				83,872				502,698
Change in reclamation			(1,909	)			(1,492	)			52,957
Insurance expense			122,607				122,608				795,270
Non cash gain on sale of mineral property			-				(4,421,233	)			(4,216,658	)
Other than temporary impairment of marketable securities			-				-				4,050,000
Change in fair value of equity conversion right			-				-				990,236
Change in fair value of warrant liability			-				(1,003,176	)			14,702,429
(Increase) Decrease in accounts receivable			(119,030	)			233,653				(1,242,851	)
(Increase) Decrease in prepaid expenses			(257,718	)			(128,639	)			(469,915	)
Increase (Decrease) in accounts payable			(12,764	)			(827,111	)			(1,598,266	)
Cash used in operating activities		$	(4,548,588	)		$	(8,739,273	)		$	(82,828,392	)
Sale (purchase) of marketable securities			(49,950	)			-				94,740
Increase of reclamation bond			-				(29,418	)			(145,672	)
Sale (purchase) of GIC receivable			-				7,500,000				58,875
Notes receivable issued			-				-				21,365
Purchase of equity conversion right			-				-				(1,337,700	)
Purchase of mineral properties			-				(1,460,000	)			(8,669,870	)
Sale of mineral properties			-				(14,706	)			(14,706	)
Cash acquired on acquisition of X-Cal			-				-				843,101
Purchase of equipment			(2,204	)			(25,745	)			(990,323	)
Cash provided by (used in) investing activities		$	(52,154	)		$	5,970,131			$	(10,140,190	)
Demand notes payable issued			-				-				105,580
Issuance of capital stock			-				52,000				99,900,199
Cash provided by financing activities		$	-			$	52,000			$	100,005,779
Effect of exchange rate changes on cash			(23,629	)			12,230				(137,517	)
Change in cash during period			(4,624,371	)			(2,704,912	)			6,899,680
Cash at beginning of period			11,524,051				12,500,708				-
Cash at end of period		$	6,899,680			$	9,795,796			$	6,899,680
Supplemental Cash Flow Disclosure
Cash		$	2,096,296			$	1,696,862
Cash Equivalents		$	4,803,384			$	8,098,934

		Shares				Par Value				Additional Paid in Capital				Deficit Accumulated During Exploration Stage				Contributed Surplus				Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
Balance at inception			—			$	—			$	—			$	—			$	—			$	—			$	—
Capital issued for financing			139,933,078				139,933				47,476,898				—				—				—				47,616,831
Capital issued for services			5,342,304				5,342				10,160,732				—				—				—				10,166,074
Capital issued from stock options and warrants exercised			8,735,987				8,736				16,611,175								(4,078,272	)							12,541,639
Capital issued for mineral properties			17,678,519				17,679				16,197,567				—				—				—				16,215,246
Capital issued on settlement of notes payable			39,691				39				105,541				—				—				—				105,580
Returned to treasury			(61,660,000	)			(61,660	)			61,660				—				—				—				—
Fair value of warrants			—				—				—				—				12,073,546				—				12,073,546
Stock based compensation			—				—				—				—				6,442,812				—				6,442,812
Transition adjustment (Note 2)			—				—				—				(12,637,875	)			(3,612,864	)							(16,250,739	)
Foreign currency translation			—				—				—				—				—				(443,675	)			(443,675	)
Net Loss			—				—				—				(48,549,222	)			—				—				(48,549,222	)
Balance at June 30, 2010			110,069,579			$	110,069			$	90,613,573			$	(61,187,097	)		$	10,825,222			$	(443,675	)		$	39,918,092
Capital issued for financing			19,395				19				23,970				—				—				—				23,989
Capital issued from stock options and warrants exercised			4,153,085				4,154				10,219,361				—				(1,053,645	)			—				9,169,870
Capital issued for acquisition			22,007,453				22,007				28,807,756				—				314,790				—				29,144,553
Stock based compensation			—				—				—				—				1,200,875				—				1,200,875
Foreign currency translation			—				—				—				—				—				492,405				492,405
Unrealized loss on available for sale securities			—				—				—				—				—				(30,945	)			(30,945	)
Net Loss			—				—				—				(28,450,536	)			—				—				(28,450,536	)
Balance at June 30, 2011			136,249,512			$	136,249			$	129,664,660			$	(89,637,633	)		$	11,287,242			$	17,785			$	51,468,303
Capital issued for financing			10,417,776				10,418				20,335,755				—				—				—				20,346,173
Capital issued from stock options and warrants exercised			345,315				346				600,873				—				(313,792	)			—				287,427
Capital issued for mineral properties			400,000				400				963,600				—				—				—				964,000
Stock based compensation			—				—				—				—				1,918,724				—				1,918,724
Foreign currency translation			—				—				—				—				—				(113,460	)			(113,460	)
Unrealized loss on available for sale securities			—				—				—				—				—				30,945				30,945
Net Loss			—				—				—				(12,091,608	)			—				—				(12,091,608	)
Balance at June 30, 2012			147,412,603			$	147,413			$	151,564,888			$	(101,729,241	)		$	12,892,174			$	(64,730	)		$	62,810,504
Capital issued from stock options and warrants exercised			8,318,465				8,319				17,208,447				—				(542,974	)			—				16,673,792
Stock based compensation			—				—				—				—				1,234,115				—				1,234,115
Foreign currency translation			—				—				—				—				—				(4,210	)			(4,210	)
Net Loss			—				—				—				(13,488,280	)			—				—				(13,488,280	)
Balance at June 30, 2013			155,731,068			$	155,732			$	168,773,335			$	(115,217,521	)		$	13,583,315			$	(68,940	)		$	67,225,921
Stock based compensation			—				—				—				—				97,466				—				97,466
Foreign currency translation			—				—				—				—				—				(34,504	)			(34,504	)
Unrealized loss on available for sale securities			—				—				—				—				—				104,793				104,793
Net Loss			—				—				—				(1,964,927	)			—				—				(1,964,927	)
Balance at September 30, 2013			155,731,068			$	155,732			$	168,773,335			$	(117,182,448	)		$	13,680,781			$	1,349			$	65,428,749
Stock based compensation			—				—				—				—				23,370				—				23,370
Foreign currency translation			—				—				—				—				—				10,875				10,875
Unrealized loss on available for sale securities			—				—				—				—				—				(108,591	)			(108,591	)
Net Loss			—				—				—				(2,526,290	)			—				—				(2,526,290	)
Balance at December 30, 2013			155,731,068			$	155,732			$	168,773,335			$	(119,708,738	)		$	13,704,151			$	(96,367	)		$	62,828,113

		Cost Basis				Impairment Charge				Adjusted Cost				Gross Unrealized Losses				Gross Unrealized Gains				Fair Value
Marketable securities at December 31, 2013		$	499,950				-				-			$	3,798				-			$	496,152
Marketable securities at June 30, 2013		$	4,500,000			$	4,050,000			$	450,000				-				-			$	450,000

						Fair Value at December 31, 2013												June 30, 2013
Assets		Total				Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	6,899,680			$	6,899,680			$	-			$	-			$	11,524,051
Marketable Securities		$	496,152			$	-			$	-			$	496,152			$	450,000

		2013				2012
Operating and Financing Activities
From issuance of shares for cashless exercise of options		$	-			$	34,828

		Common Shares
		2013				2012
For exercise of warrants and options			-				133,581
			-				133,581

Options		Number				Weighted Avg. Exercise Price				Weighted-Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at June 30, 2013			3,776,500			$	2.20				2.28			$	0
Issued			105,000				1.62				-				-
Cancelled / Expired			(60,000	)			2.47				-				-
Exercised			-				-				-				-
Outstanding at December 31, 2013			3,821,500			$	2.18				1.83			$	0
Exercisable at December 31, 2013			3,631,501			$	2.15				1.85			$	0

Non-vested Options		Number				Weighted Avg. Grant-Date Fair Value
Non-vested at June 30, 2013			189,999			$	2.12
Issued			105,000				0.71
Vested			(105,000	)			0.71
Forfeited			-				-
Non-vested at December 31, 2013			189,999			$	2.12

		December 31, 2013				June 30, 2013
Iris Royalty			50,000				50,000
San Miguel Project			23,452,263				23,452,263
Sleeper			25,891,490				25,891,490
Mill Creek			2,096,616				2,096,616
Spring Valley			385,429				385,429
		$	51,875,798			$	51,875,798

		December 31, 2013				June 30, 2013
Exploration and other equipment		$	330,705			$	330,705
Buildings and leaseholds			325,207				325,207
Furniture and computer equipment			240,483				238,278
Subtotal			896,394				894,190
Accumulated  depreciation			(491,144	)			(461,903	)
Total		$	405,250			$	432,287

		United States				Mexico				Total
Interest income		$	6,807			$	-			$	6,807
Other income			51,745				5,131				56,876
Total income		$	58,552			$	5,131			$	63,683
Expenses:
Exploration			1,007,586				2,081,696				3,089,282
Professional fees			434,970				-				434,970
Directors compensation			139,946				-				139,946
Travel and lodging			117,889				-				117,889
Corporate communications			118,638				-				118,638
Consulting fees			169,282				-				169,282
Office and administration			159,570				18,660				178,230
Interest and service charges			4,014				14,833				18,847
Insurance			189,820				-				189,820
Depreciation			12,842				16,399				29,241
Accretion			61,366				-				61,366
Income and other taxes			7,389				-				7,389
Total Expenses			2,423,313				2,131,587				4,554,900
Net loss		$	2,364,761			$	2,126,456			$	4,491,217
Other comprehensive loss(gain)
Foreign currency translation adjustment			23,629				-				23,629
Unrealized loss (gain) on available-for-sale-securities			3,798				-				3,798
Total Comprehensive Loss for the Period		$	2,392,188			$	2,126,456			$	4,518,644

		United States				Mexico				Total
Interest income		$	26,445			$	6,200			$	32,645
Gain on sale of mineral property			4,421,233				-				4,421,233
Other income			57,500				4,030				61,530
Total income		$	4,505,178			$	10,230			$	4,515,408
Expenses:
Exploration			3,573,912				3,224,923				6,798,835
Professional fees			660,862				-				660,862
Directors compensation			204,602				-				204,602
Travel and lodging			105,044				-				105,044
Corporate communications			107,178				-				107,178
Consulting fees			191,744				-				191,744
Office and administration			202,726				66,218				268,944
Interest and service charges			4,844				1,633				6,477
Insurance			178,192				-				178,192
Amortization			17,674				15,458				33,132
Accretion			83,872				-				83,872
Total Expenses			5,330,650				3,308,232				8,638,882
Net loss (gain) before other items		$	825,472			$	3,298,002			$	4,123,474
Other items
Change in fair value of warrant liability			(1,003,176	)			-				(1,003,176	)
Net Loss (Gain)		$	(177,704	)		$	3,298,002			$	3,120,298
Other comprehensive loss (gain)
Foreign currency translation adjustment			(12,230	)			-				(12,230	)
Unrealized loss on available for sale investments			-				-				-
Total Comprehensive Loss (Gain) for the Period		$	(189,934	)		$	3,298,002			$	3,108,068

		United States				Mexico				Total
December 31, 2013
Mineral properties		$	28,273,535			$	23,602,263			$	51,875,798
Property and equipment		$	55,957			$	349,293			$	405,250
June 30, 2013
Mineral properties		$	28,273,535			$	23,602,263			$	51,875,798
Property and equipment		$	66,595			$	365,692			$	432,287

		December 31, 2013				June 30, 2013
Balance at beginning of period		$	1,263,584			$	1,198,179
Accretion expense			61,366				167,744
Payments			(25,148	)			(102,339	)
Balance at end of period		$	1,299,802			$	1,263,584

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Item 2.

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

The following information should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes (included elsewhere in this report) and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our June 30, 2013 annual report filed on Form 10-K with the Securities and Exchange Commission on September 9, 2013.

We are an exploratory stage mining company that currently has mining concessions in Mexico and mining claims in Nevada, USA.  We have no proven reserves at our San Miguel project in Mexico or at our Sleeper Gold project in Nevada but are currently exploring both projects.  The following discussion updates our planned operations for this fiscal year.  It also analyzes our financial condition and summarizes the results of operations for the three and six month periods ended December 31, 2013 and compares those results to the three and six months period ended December 31, 2012.

Exploration

Mexico

Our plan at the San Miguel Project is to conduct exploration drilling by testing new areas or expanding on known mineralized zones with infill drilling. Over fifty drill holes have been completed since our last material estimate. The Company plans to update this estimate in the first half of 2014. The Company also intends to evaluate silver metallurgical recovery alternatives for the Don Ese Zone.  Paramount plans to update its Preliminary Economic Assessment (the “San Miguel PEA”) in the second half of 2014.  The San Miguel PEA will test the economic viability of the open pit/heap leach operations at multiple zones and further, it will include the updated resources.

The Company’s exploration plan and budget for the San Miguel Project will be managed by its in-house technical staff. It will be funded by the Company’s cash on hand, and we have budgeted approximately $1.9 million for the next six months.

 

Nevada

 

Our plan for our current fiscal year is to continue focusing on our Sleeper Gold Project. Our budget for the next six month period is approximately $1.0 million. The budget activities will include drilling, modeling and metallurgical testing. The drill plans include drilling to obtain metallurgical samples, infill drilling to increase confidence in mineralized material and exploration drilling in the south Sleeper zone.

We plan to update our mineralized material model with drill hole data that was not previously included. This will allow us, along with a newly created geo-metallurgical model, to update our Preliminary Economic Assessment (the “Sleeper PEA”) which we completed in 2012.

 

Our work at both the San Miguel Project and Sleeper Gold Project is consistent with Paramount’s strategy of expanding and upgrading known, large-scale precious metal occurrences in established mining camps, defining their economic potential and then partnering them with nearby producers.

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Highlights from Q2 – October 1, 2013 to December 31, 2013

·

At our San Miguel Project in Mexico, results of metallurgical testing by McClelland Laboratories confirm the potential for an economic recovery process at two of San Miguel’s open pits using inexpensive heap leach technologies.  It is expected that there will be major reductions in costs and cut-off grades and a substantial increase in mineable material.

·

In November 2013, the Company resumed core drilling at the Don Ese zone at its San Miguel Project.  Our main objectives of the current drill program are: 1) add resources at two new high priority exploration targets; 2) acquire further material for metallurgical testing of heap leach processing; and 3) upgrade inferred resources to measured and indicated.

·

In January 2014, subsequent to quarter end, the Company reported favorable gold recoveries from bio-oxidation testing on the sulfide material at the West Wood Zone at the Sleeper Gold Project. The resources at the West Wood Zone were not included in a previous Sleeper PEA due to poor recoveries from the heap leach operation proposed for Sleeper in the PEA.

Liquidity and Capital Resources

At December 31, 2013, we had cash and cash equivalents of $6,899,680 compared to $11,524,051 as at June 30, 2013.  The decrease of $4,624,371 was the result of the funding of our exploration programs and corporate overhead. At December 31, 2013, $230,000 of the Company's cash and cash equivalents was held in Mexico and Canada by its wholly owed subsidiaries. These amounts are not required to fund the Company's U.S. operations.

At December 31, 2013, we had a net working capital of $9,151,762. We anticipate our cash expenditures to fund exploration programs and general corporate expenses to be approximately $0.85 million per month for three month period ending March 31, 2014.  Anticipated cash outlays will be funded by our available cash reserves.

At December 31, 2013, the amounts receivable amount of $1,326,277 primarily consisted of value added tax due from the Mexican government.

During the six months ended December 31, 2013, we sold marketable securities and received $450,000.  This was offset by our investment in a junior exploration company in the amount of $499,950.

Historically, we have funded our exploration and development activities through equity financing arrangements.  We continue to assess our needs for additional capital to ensure sufficient financial resources are available to fund our exploration and working capital needs.  We believe that our access to additional capital, together with our existing cash resources will be sufficient to meet our needs for the next twelve months.  If, however, we are unable to obtain additional capital or financing, our exploration and development activities will be significantly affected.

Comparison of Operating Results for the six month period ended December 31, 2013 as to the six month period ended December 31, 2012

Net Loss

Our net loss before other items for the six month period ended December 31, 2013 was $4,491,217 compared to a loss of $4,123,473 in the comparable period in the prior year. The increase in net loss of approximately 9% is comprised of a reduction in total expenses of approximately $4.1 million and a reduction in gain on sale of mineral property of approximately $4.4 million from the prior year six month period. We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.

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Expenses

Our level of exploration expenditures for the six month period ended December 31, 2013 decreased 55% or by $3,709,553 from the comparable prior year period.  This reduction was mainly a reduction in drilling activity at both the San Miguel Project and the Sleeper Gold Project.

The following table summarizes our drilling activities at both projects for the six month period ended December 31, 2013 and 2012:

 

Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $901,120 for the six month period ended December 31, 2012.  This is a 42% decrease over the comparable six month period in the 2012.  The decrease was mainly due management bonuses paid in the prior period and not paid in the current period.

 

Comparison of Operating Results for the three month period ended December 31, 2013 to the three month period ended December 31, 2012.

Net Loss

Our net loss before other items for the three month period ended December 31, 2013 was $2,526,290 compared to a gain of $203,869 in the comparable period in the prior year.  The increase in net loss of $2,730,159 is comprised of a reduction in a gain on sale of mineral property of approximately $4.4 million and a reduction in total expenses of $1.7 million.  We will continue to incur losses for the foreseeable future as we continue with our planned explorations programs at both projects.

Expenses

Our exploration expenses for the three month period ended December 31, 2013 compared to the comparable prior period decreased by 44% or by $1,449,340.  This decrease was driven by a reduction in drilling activity at both our Sleeper Gold Project and our San Miguel Project.

The following table summarizes our drilling activities at both projects for the three month period ended December 31, 2013 and 2012:

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Our general corporate expenses which include professional fees, corporate communications, consulting fees and office and administration totaled $418,555 for the three month period ended December 31, 2013.  This is a 27% decrease over the comparable three month period in the 2012 and was due to management bonuses paid in the prior period and not paid in the current period.

Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows.  Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation.  Management believes the Company’s critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, stock based compensation, derivative accounting and foreign currency translation.

Estimates

The Company prepares its consolidated financial statements and notes in conformity to U.S. GAAP and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period.  On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Mineral property acquisition costs

The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense if it is determined that the mineral property has no future economic value or the properties are sold or abandoned.  Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties.  Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.

The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.

Exploration expenses

The company expenses exploration costs as incurred.  When it is determined that precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized.  To date, the Company has not established any proven or probable reserves and will continue to expense exploration expenses as incurred.

Foreign Currency Translation

The functional currency of the Company is the U.S. dollar.  Transactions involving foreign currencies for items included in operations are translated into U.S. dollars using the exchange rate prevailing at the date of transaction and monetary assets and liabilities are translated at the exchange rate prevailing at the consolidated balance sheet date and all other consolidated balance sheet items are translated at historical rates applicable to the transactions that comprise the amounts.  Translation gains and losses are included in the determination of other comprehensive loss and gains in the Statement of Operations.

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Reclassification

Certain comparative figures have been reclassified to conform to the current quarter presentation.

We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s market risk profile has not changed significantly from its year ended June 30, 2013.

Foreign Currency Exchange Rate Risk

 

The Company holds cash balances in both U.S. and Canadian dollars.  We transact most of our business in US and Canadian dollars.  Some of our expenses, including labor and operating supplies are denominated in Mexican Pesos.  As a result, currency exchange fluctuations may impact our operating costs.  We do not manage our foreign currency exchange rate risk through the use of financial or derivative instruments, forward contracts or hedging activities.

 

In general, the strengthening of the U.S. dollar or Canadian dollar will positively impact our expenses transacted in Mexican Pesos.   Conversely, any weakening of the U.S dollar or Canadian dollar will increase our expenses transacted in Mexican Pesos. We do not believe that any weakening of the U.S. or Canadian dollar as compared to the Mexican Peso will have an adverse material effect on our operations.

Interest Rate Risk

 

The Company’s investment policy for its cash and cash equivalents is focused on the preservation of capital and supporting the liquidity requirements of the Company.  The Company’s interest earned on its cash balances is impacted on the fluctuations of U.S. and Canadian interest rates.  We do not use interest rate derivative instruments to manage exposure to interest rate changes.  We do not believe that interest rate fluctuations will have any effect on our operations.

 

Item 4.

Controls and Procedures

(a)	Evaluation of Disclosure Controls and Procedures