Alio Gold 6K Condensed Interim Consolidated Financial Statements | SEC 9 Aug 19

EXHIBIT 99.1

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended

June 30, 2019 and 2018

(Unaudited)

ALIO GOLD INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME

For the three and six months ended June 30, 2019 and 2018

(In thousands of United States dollars, except share numbers and per share amounts) - Unaudited

		Three months ended June 30,								Six months ended June 30,
	Note		2019				2018				2019				2018


Metal revenues	17	$		28,457		$		26,233		$		59,862		$		49,571

Cost of sales (including depreciation and depletion)	4a)			28,310				21,946				57,175				38,730

Earnings from mine operations				147				4,287				2,687				10,841

Corporate and administrative expenses	4b)			2,007				4,393				3,876				7,296

(Loss) earnings from operations				(1,860	)			(106	)			(1,189	)			3,545

Other income, net				235				121				737				281
Finance (expense) income, net	4c)			(463	)			739				(885	)			1,164
(Loss) gain on derivative contracts	15			(2,311	)			6,993				(2,305	)			6,915
Foreign exchange loss				(296	)			(694	)			(5	)			(585	)

(Loss) earnings before income taxes				(4,695	)			7,053				(3,647	)			11,320

Income taxes
Current tax expense (recovery)				-				503				(1,301	)			2,064
Deferred tax (recovery) expense				(865	)			3,266				(117	)			2,742
				(865	)			3,769				(1,418	)			4,806

(Loss) earnings and comprehensive (loss) income for the period		$		(3,830	)	$		3,284		$		(2,229	)	$		6,514

Weighted average shares outstanding:
Basic	14			84,707,143				60,148,955				84,707,143				52,456,564
Diluted	14			84,707,143				60,148,955				84,707,143				52,465,385

(Loss) earnings per share:
Basic	14	$		(0.05	)	$		0.05		$		(0.03	)	$		0.12
Diluted	14	$		(0.05	)	$		0.05		$		(0.03	)	$		0.12

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ALIO GOLD INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three and six months ended June 30, 2019 and 2018

(In thousands of United States dollars) - Unaudited

	Three months ended June 30,									Six months ended June 30,
	Note		2019				2018				2019				2018

OPERATING ACTIVITIES
(Loss) earnings before income taxes		$		(4,695	)	$		7,053		$		(3,647	)	$		11,320
Items not affecting cash:
Depletion and depreciation	4a)			2,449				1,246				4,861				2,516
Finance expense (income), net	4c)			463				(739	)			885				(1,164	)
Unrealized loss (gain) on derivative contracts	15			2,026				(6,943	)			1,905				(6,865	)
Share-based (recovery) payments	13b), 13c)			(39	)			436				(155	)			691
Unrealized gain on reclamation bonds	8			(202	)			-				(441	)			-
Unrealized foreign exchange loss				(239	)			773				(161	)			596
				(237	)			1,826				3,247				7,094
Changes in non-cash working capital items:
Trade and other receivables				715				(1,527	)			1,266				(5,499	)
Inventories				907				(5,266	)			3,542				(11,800	)
Advances and prepaid expenses				(327	)			513				(669	)			587
Trade payables and accrued liabilities				(1,423	)			(4,436	)			(5,226	)			(1,535	)
Income tax paid				-				(1,288	)			-				(1,288	)
Cash (used in) provided by operating activities				(365	)			(10,178	)			2,160				(12,441	)

INVESTING ACTIVITIES
Expenditures on mineral properties, property, plant and equipment				(421	)			(4,085	)			(2,191	)			(8,754	)
Expenditures on exploration and evaluation				(277	)			(4,030	)			(3,587	)			(9,392	)
Reclamation bond refund				119				-				119				-
Short-term investments maturity				-				10,000				-				10,000
Interest received on short-term investments				-				182				-				182
Cash acquired in connection with Rye Patch, net of cash consideration paid				-				10,943				-				10,943
Cash (used in) provided by investing activities				(579	)			13,010				(5,659	)			2,979

FINANCING ACTIVITIES
Repayment of equipment loans payable	10			(389	)			-				(770	)			-
Interest payments				(101	)			(129	)			(223	)			(129	)
Credit facility interest and principal payment				-				(1,998	)			-				(1,998	)
Credit facility amendment fees				-				(75	)			-				(75	)
Cash used in financing activities				(490	)			(2,202	)			(993	)			(2,202	)

Effects of exchange rate changes on the balance of cash held in foreign currencies				27				(34	)			13				(111	)

(Decrease) increase in cash and cash equivalents				(1,407	)			596				(4,479	)			(11,775	)
Cash and cash equivalents, beginning of period				18,906				19,103				21,978				31,474
Cash and cash equivalents, end of period		$		17,499		$		19,699		$		17,499		$		19,699

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ALIO GOLD INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands of United States dollars) - Unaudited

			June 30,				December 31,
	Note		2019				2018

ASSETS
Current
Cash and cash equivalents		$		17,499		$		21,978
Trade and other receivables	5			13,485				13,731
Inventories	6			60,815				64,298
Advances and prepaid expenses				2,641				1,972
Total current assets				94,440				101,979

Non-current inventories	6			6,272				7,081
Mineral properties, plant and equipment, exploration and evaluation	7			228,321				228,349
Reclamation bonds	8			11,199				10,877
Total assets		$		340,232		$		348,286

LIABILITIES
Current
Trade payables and accrued liabilities	9	$		28,778		$		36,484
Current portion of equipment loans payable	10			1,576				1,342
Derivative liability	15			1,905				-
Other provisions				1,420				1,412
Total current liabilities				33,679				39,238

Equipment loans payable	10			2,189				3,193
Lease liabilities	12			323				-
Other financial liability				2,500				2,441
Deferred tax liabilities				11,367				11,433
Provision for site reclamation and closure				38,253				37,630
Other	11, 13c)			84				127
Total liabilities				88,395				94,062

EQUITY
Issued capital				323,685				323,685
Share-based payment reserve				20,456				20,614
Deficit				(92,304	)			(90,075	)
Total equity				251,837				254,224
Total liabilities and equity		$		340,232		$		348,286

Events after the reporting period (note 5, 15 and 16)

Approved by the Directors

“Mark Backens”	Director	“David Whittle”	Director

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ALIO GOLD INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three and six months ended June 30, 2019 and 2018

(In thousands of United States dollars, except share numbers) - Unaudited

		Number of common shares			Issued capital			Share- based payment reserve				(Deficit) Retained earnings				Total equity
Balance at January 1, 2019	Note		84,707,143	$		323,685	$		20,614		$		(90,075	)	$		254,224
Loss and comprehensive loss for the period		-			-			-					(2,229	)			(2,229	)
Equity settled share-based payments	13b)		-			-			(158	)			-				(158	)
Balance at June 30, 2019			84,707,143	$		323,685	$		20,456		$		(92,304	)	$		251,837


Balance at January 1, 2018			44,678,701	$		253,491	$		19,125		$		(76,031	)	$		196,585
Earnings and comprehensive income for the period			-			-			-				6,514				6,514
Shares issued to acquire Rye Patch Gold Corp.
Shares, net of share issuance costs	3		39,105,365			69,583			-				-				69,583
Share options	3		-			-			1,032				-				1,032
Equity settled share-based payments	13b)		-			-			613				-				613
Balance at June 30, 2018			83,784,066	$		323,074	$		20,770		$		(69,517	)	$		274,327

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

1.	NATURE OF OPERATIONS

Alio Gold Inc. (“Alio” or “the Company”) was incorporated on March 17, 2005 under the laws of the Province of British Columbia, Canada. The Company is in the business of acquiring, exploring, developing and operating mineral resource properties in Mexico and the United States (“US”), through its wholly-owned subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V., Molimentales del Noroeste, S.A. de C.V. (“MdN”) and Minera Aurea, S.A de C.V. (“Minera Aurea”) (collectively “the subsidiaries”). MdN owns the San Francisco Mine in Sonora, Mexico. Minera Aurea holds a 100% interest in the Ana Paula Property (“Ana Paula”), an exploration and evaluation asset in Guerrero, Mexico.

On May 25, 2018, Alio acquired all the outstanding common shares of Rye Patch Gold Corp. (“Rye Patch”) (note 3). Through the acquisition, Alio acquired additional subsidiaries: a 100% interest in Alio Gold (US) Inc., Rye Patch Gold US Inc., Rye Patch Mining US Inc., Florida Canyon Mining Inc. (“FCMI”), Standard Gold Mining Inc., and RP Dirt Inc. FCMI owns the Florida Canyon Mine in Nevada, US.

The Company is listed for trading on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange American under the symbol ALO. The registered office of the Company is located at Suite 507 - 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8.

2.	BASIS OF PREPARATION

a)	Statement of compliance

These condensed interim consolidated financial statements (“interim financial statements”) were approved by the Board of Directors and authorized for issue on August 8, 2019.

These interim financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. As such, these interim financial statements do not contain all the disclosures required by IFRS for annual financial statements and should be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended December 31, 2018 and 2017 (“annual consolidated financial statements”).

b)	Significant accounting policies

The accounting policies applied in the preparation of these interim financial statements are consistent with those applied and disclosed in note 3 to the annual consolidated financial statements with exception of the following:

Leases

On January 1, 2019, the Company adopted IFRS 16 - Leases ("IFRS 16") which superseded IAS 17 - Leases. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. Control is considered to exist if the customer has the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that asset. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on balance sheet accounting model that is similar to the finance lease accounting, with limited exceptions for short-term leases or leases of low value assets.

The Company adopted IFRS 16 on January 1, 2019, using the modified retrospective approach, in accordance with the transitional provisions in IFRS 16. This did not have a material impact on the Company’s interim financial statements with the exception of additional disclosures included in notes 7, 9 and 12 regarding assets, liabilities, and expenses recognized in the period in connection with leases.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

On adoption of IFRS 16, the Company analyzed its contracts to identify whether they are or contain a lease arrangement and did not identify any leases which qualify for recognition under IFRS 16, except office leases. The Company has elected to apply the available exemptions as permitted by IFRS 16 to recognize a lease expense on a straight-line basis for short-term leases (lease term of 12 months or less) and low value leases. The Company has also elected to apply the practical expedient whereby leases whose term ends within 12 months of the date of initial application would be accounted for in the same way as short-term leases.

c)	Critical judgements and estimates

The Company’s management makes judgements in the process of applying the Company’s accounting policies in the preparation of its interim financial statements. In addition, the preparation of the financial statements requires that the Company’s management make assumptions and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The Company’s interim results are not necessarily indicative of its results for a full year. The critical judgements and estimates applied in the preparation of these interim financial statements are consistent with those applied and disclosed in notes 2(d) and 2(e) to the annual consolidated financial statements with exception of the following:

Leases as a result of adopting IFRS 16

Identifying whether a contract includes a lease

IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. The Company had to apply judgment on certain factors, including whether the supplier has substantive substitution rights, does the Company obtain substantially all of the economic benefits and who has the right to direct the use of that asset.

ii.

Estimate of lease term

When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of the lease contract, or exercise an early termination option. As it is not reasonably certain that the extension or early termination options will be exercised, the Company determined that the term of its leases are the lesser of original lease term or the life of the mine. This significant estimate could affect future results if the Company extends the lease or exercises an early termination option.

d)	Basis of consolidation

These interim financial statements include the accounts of the Company and its subsidiaries including Rye Patch from the date of acquisition (note 3). All amounts are presented in United States dollars, which is the functional currency of the Company and each of the Company’s subsidiaries, except as otherwise noted. References to C$ are to Canadian dollars. All inter-company balances, transactions, revenues and expenses have been eliminated.

3.	RYE PATCH ACQUISITION

On May 25, 2018 (“Closing Date”), the Company acquired all of the outstanding common shares of Rye Patch exchanging 0.48 of the Company’s shares (the “Exchange Ratio”) and cash consideration of C$0.001 for each common share of Rye Patch. This resulted in 39,105,365 common shares of the Company being issued and C$81 ($63) cash being paid to the former shareholders of Rye Patch.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

In addition to the 39,105,365 common shares each Rye Patch share option and warrant, which gave the holder the right to acquire common shares of Rye Patch, was exchanged for a warrant and share option which gave the holder the right to acquire common shares in the Company on the same basis as the Exchange ratio (the “Replacement Warrants and Options”). The exercise price of the Replacement Warrants and Options was determined by dividing the exercise price of the Rye Patch warrants and share options by the Exchange Ratio.

The 9,508,540 Replacement Warrants and 1,511,800 Options issued have been included in the consideration paid at their fair value based on the Black-Scholes pricing model using the following assumptions:

Replacement Warrants

	May 25,
	2018
Risk-free interest rate	1.9%
Expected life of warrants	0.2 - 3.2 years
Annualized volatility	25.9 - 45.7%
Dividend rate	0.0%

The weighted average grant date fair value of the Alio warrants consideration granted upon acquisition, was C$0.21 ($0.16) per warrant.

Replacement Options

	May 25,
	2018
Risk-free interest rate	1.9 - 2.3%
Expected life of options	0.2 - 9.7 years
Annualized volatility	25.4 - 50.4%
Forfeiture rate	2.2%
Dividend rate	0.0%

The weighted average grant date fair value of the Alio share options consideration granted upon acquisition, was C$0.48 ($0.37) per option.

The transaction has been accounted for by the Company as a business combination. The transaction qualified as a business combination under IFRS 3 - Business Combinations, as the significant inputs, processes and outputs, that together constitute a business, currently exist. The primary business of Rye Patch is the Florida Canyon Mine, an operating gold mine, in Nevada, Unites States. Rye Patch was acquired to diversify the Company’s asset base.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

The total consideration paid totalled $72,055 and has been allocated to the assets acquired and liabilities based on their fair values on the Closing Date as follows:


Consideration paid
39,105,365 Alio common shares	$	69,771
9,508,540 Alio warrants		1,658
1,511,800 Alio share options		563
Cash paid		63
Total consideration	$	72,055

Allocation of consideration
Cash and cash equivalents	$	11,006
Trade and other receivables		552
Inventories		30,368
Advances and prepaid expenses		1,366
Mineral properties, plant and equipment, exploration and evaluation		71,413
Assets held for sale		19,000
Reclamation bonds		16,047
Trade payables and accrued liabilities		(10,186	)
Other financial liability		(5,000	)
Provision for site reclamation and closure		(30,227	)
Credit facility		(16,562	)
Equipment loan payable		(2,431	)
Derivative liability		(9,674	)
Deferred tax liability		(3,617	)
Net assets acquired	$	72,055

Financial and operating results of Rye Patch are included in the Company’s consolidated financial statements effective May 25, 2018.

EXPENSES

a)	Cost of sales

	Three months ended June 30,							Six months ended June 30,
		2019			2018				2019			2018
Costs of mining	$		8,399	$		13,608		$		16,407	$		26,275
Crushing and gold recovery costs			12,691			10,962				26,168			19,130
Mine site administration costs			2,359			1,555				4,373			3,044
Transport and refining			132			37				219			57
Royalties			1,023			433				2,075			551
Change in inventories			1,257			(5,895	)			3,072			(12,843	)
Production costs			25,861			20,700				52,314			36,214
Depreciation and depletion			2,449			1,246				4,861			2,516
Cost of sales (including depreciation and depletion)	$		28,310	$		21,946		$		57,175	$		38,730

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

b)	Corporate and administrative expenses

		Three months ended June 30,							Six months ended June 30,
	Note		2019				2018			2019				2018
Salaries		$		976		$	851		$		1,753		$		1,668
Consulting and professional fees ⁽¹⁾				491			2,545				1,250				3,977
Share-based (recovery) payments	13b), 13c)			(39	)		436				(155	)			691
Rent and office costs				173			197				302				286
Administrative and other				406			364				726				674
Corporate and administrative expenses		$		2,007		$		4,393	$		3,876		$		7,296

⁽¹⁾

During the three and six months ended June 30, 2019, consulting and professional fees included in transaction costs related to the acquisition of Rye Patch were $nil (three and six months ended June 30, 2018 - $1,917 and $2,707, respectively) (note 3). Transaction costs related to the acquisition of Rye Patch have been reclassified from investing to operating cash flows to conform with the presentation in the 2018 consolidated financial statements. Accordingly, the statement of cash flows for the three and six months ended June 30, 2018, have been adjusted by $1,888 and $2,325, respectively.

c)	Finance expense (income), net

		Three months ended June 30,								Six months ended June 30,
	Note		2019				2018				2019				2018
Gain on revaluation of warrant liabilities	11	$		(3	)	$		(1,042	)	$		(29	)	$		(1,550	)
Accretion of provision for site reclamation and closure				319				150				631				233
Interest on credit facility and equipment loans payable	10			77				151				164				151
Interest and accretion on other financial liability				70				2				119				2
Finance expense (income), net		$		463		$		(739	)	$		885		$		(1,164	)

5.	TRADE AND OTHER RECEIVABLES

		June 30,			December 31,
		2019			2018
Trade receivable	$		435	$		150
VAT receivable ⁽¹⁾			8,138			9,982
Income tax refund receivable			4,887			3,587
Other receivables			25			12
	$		13,485	$		13,731

⁽¹⁾

VAT receivable is value added tax payments made by the Company, which in Mexico and Canada are refundable. During the three and six months ended June 30, 2019, the Company collected $2,222 and $5,025, respectively (three and six months ended June 30, 2018 - $3,372 and $5,312, respectively) of the VAT receivable. Subsequent to June 30, 2019, $1,454 of VAT was received by the Company.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

6.	INVENTORIES

		June 30,			December 31,
		2019			2018
Stockpile	$		163	$		688
Ore in process			59,491			61,612
Finished metal inventory			3,765			4,883
Supplies			3,668			4,196
			67,087			71,379
Less: non-current ore in process			6,272			7,081
Current portion	$		60,815	$		64,298

The costs of inventories recognized as an expense for the three and six months ended June 30, 2019, was $24,796 and $50,508 (three and six months ended June 30, 2018 - $19,921 and $35,078, respectively) and are included in cost of sales.

7.	MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION AND EVALUATION

	Note		Mineral properties ⁽¹⁾			Plant and equipment ⁽²⁾			Exploration and evaluation			Total
Cost
At January 1, 2019		$		242,662	$		156,930	$		116,627	$		516,219
Expenditures				81			1,781			1,869			3,731
Adjustment on initial application of IFRS 16	2, 12			-			557			-			557
At June 30, 2019				242,743			159,268			118,496			520,507
Accumulated depreciation, depletion and impairment
At January 1, 2019		��		171,326			107,866			8,678			287,870
Depreciation and depletion				1,458			2,858			-			4,316
At June 30, 2019				172,784			110,724			8,678			292,186
Carrying amount at June 30, 2019		$		69,959	$		48,544	$		109,818	$		228,321

	Note		Mineral properties ⁽¹⁾			Plant and equipment ⁽²⁾			Exploration and evaluation			Total
Cost
At January 1, 2018		$		190,670	$		121,575	$		101,185	$		413,430
Expenditures				8,850			4,658			15,442			28,950
Rye Patch acquisition	3			40,716			30,697			-			71,413
Change in reclamation obligation ⁽³⁾				2,426			-			-			2,426
At December 31, 2018				242,662			156,930			116,627			516,219
Accumulated depreciation, depletion and impairment
At January 1, 2018				162,035			93,593			8,678			264,306
Depreciation and depletion				9,291			5,310			-			14,601
Impairment ⁽⁴⁾				-			8,963			-			8,963
At December 31, 2018				171,326			107,866			8,678			287,870
Carrying amount at December 31, 2018		$		71,336	$		49,064	$		107,949	$		228,349

⁽¹⁾

At June 30, 2019, mineral properties included deferred stripping costs with a carrying value of $13,229 (December 31, 2018 - $13,229).

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

⁽²⁾

Plant and equipment includes construction-in-progress assets of $2,951 (December 31, 2018 - $1,958).

⁽³⁾

The change in reclamation obligation primarily relates to the revaluation of the Florida Canyon asset retirement obligation from $30,227 to $33,316 by using an average US dollar risk free discount rate of 2.93% subsequent to the acquisition of Rye Patch.

⁽⁴⁾

The El Sauzal Plant had a carrying value of $13,963. During the year ended December 31, 2018, the Company obtained third party estimates indicating the El Sauzal Plant fair value was $5,000. As a result, the Company impaired the asset by $8,963.

Carrying amount by segment

		Mineral properties			Plant and equipment			Exploration and evaluation			Total
At June 30, 2019
San Francisco Mine	$		29,629	$		12,501	$		2,117	$		44,247
Florida Canyon Mine			40,330			29,065			-			69,395
Ana Paula Project			-			6,385			107,550			113,935
Other			-			593			151			744
	$		69,959	$		48,544	$		109,818	$		228,321

		Mineral properties			Plant and equipment			Exploration and evaluation			Total
At December 31, 2018
San Francisco Mine	$		29,560	$		13,024	$		1,634	$		44,218
Florida Canyon Mine			41,776			29,472			-			71,248
Ana Paula Project			-			6,452			106,164			112,616
Other			-			116			151			267
	$		71,336	$		49,064	$		107,949	$		228,349

8.	RECLAMATION BONDS

Upon acquisition of Rye Patch (note 3), the Company acquired reclamation bonds of $16,047 representing funds that have been placed in trust as security to the United States Bureau of Land Management relating to site closure obligations. The Company was required to submit collateral equivalent to 25% of the reclamation provision.

The surety bonds and restricted certificates of deposit have named the overseeing government agencies as beneficiaries in the event of the Company’s failure to complete site restoration. These deposits will be released when the government approves successful site restoration and surety bonding is no longer required.

During the year ended December 31, 2018, the collateral equivalent was reduced to 10% of the reclamation provision reducing the reclamation bonds by $5,086 which was returned to the Company in cash.

At June 30, 2019, the reclamations bonds were $11,199 (December 31, 2018 - $10,877). The funds consist of $5,600 cash and cash equivalents, $3,901 fixed income funds, and $1,698 equity funds (December 31, 2018 - $5,431 cash and cash equivalents, $3,970 fixed income funds, and $1,476 equity funds, respectively). During the three and six months ended June 30, 2019, interest income and gain on funds were $163 and $441, respectively (three and six months ended June 30, 2018 - $23 and $nil, respectively).

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

9.	TRADE PAYABLES AND ACCRUED LIABILITIES

			June 30,			December 31,
	Note		2019			2018
Trade payables		$		18,903	$		24,843
Income taxes payable				755			1,673
Accrued liabilities				6,029			6,407
Deferred revenue				1,199			1,836
Lease liabilities	12			167			-
Vendor loan				1,725			1,725
		$		28,778	$		36,484

10.	EQUIPMENT LOANS PAYABLE

Haul trucks financing

Upon acquisition of Rye Patch (note 3), the Company assumed an equipment loan payable of $2,431 to Caterpillar Financial Services Corporation (“CAT”). At June 30, 2019, the CAT loan had a remaining term of 27 months bearing an annual interest rate of 6.95% with monthly instalments of $70 and are secured by the underlying equipment (four haul trucks) at the Florida Canyon Mine.

		June 30,				December 31,
		2019				2018
Balance, opening	$		2,035		$		2,431
Interest			64				90
Payments - principal and interest			(418	)			(486	)
	$		1,681		$		2,035
Non-current portion of loans payable	$		939		$		1,318
Current portion of loans payable	$		742		$		717

Equipment financing

On December 28, 2018, the Company obtained a $2,500 equipment loan from CAT. At June 30, 2019, the loan had a remaining term of 30 months and matures on January 1, 2022. The loan bears an annual interest rate of 8.29%. The loan requires principal and accrued interest payments in 12 quarterly installments which started on April 1, 2019. The loan is secured with the underlying mobile equipment.

		June 30,				December 31,
		2019				2018
Balance, opening	$		2,500		$		2,500
Interest			104				-
Payments - principal and interest			(520	)			-
	$		2,084		$		2,500
Non-current portion of loans payable	$		1,250		$		1,875
Current portion of loans payable	$		834		$		625

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

11.	WARRANT LIABILITY

The share purchase warrants are classified as a financial instrument under the principles of IFRS 9, as the share purchase warrants are considered a derivative financial instrument given that their exercise price is in Canadian dollars (C$) while the functional currency of the Company is the US dollar. Accordingly, the outstanding warrants are remeasured to fair value at each reporting date with change in the fair value charged to finance expense (income), net (note 4(c)).

			Warrants Outstanding at
Issuance (note 3)	Expiry Date	Exercise Price	June 30, 2019		December 31, 2018
Rye Patch replacement warrants	January 31, 2020	C$2.71 ($2.09)		147,692		147,692
Rye Patch replacement warrants	January 31, 2020	C$3.44 ($2.65)		7,384,656		7,384,656
Rye Patch replacement warrants	July 28, 2021	C$2.98 ($2.30)		1,198,119		1,198,119
				8,730,467		8,730,467

As at June 30, 2019, the warrant liability was revalued to $1 (December 31, 2018 - $30) using a Black-Scholes option pricing model. During the three and six months ended June 30, 3019, the Company recognized gains on revaluation of $3 and $29, respectively (three and six months ended June 30, 2018 - $1,042 and $1,550).

12.	LEASE LIABILITIES

The Company has two office leases. At June 30, 2019, current and long-term lease liabilities were $167 and $323, respectively (December 31, 2018 - $nil and $nil, respectively).

Interest expense on the lease liabilities amounted to $14 and $28 for the three and six months ended June 30, 2019. There were no leases with residual value guarantees or leases not yet commenced.

13.

EQUITY

a)	Authorized share capital

•

Unlimited number of common shares without par value. These shares have voting rights and their holders are entitled to receive dividend payments; and,

•

Unlimited number of convertible preference shares without par value, with the same rights as the common shares on dissolution and similar events. These shares have no voting rights and are not entitled to dividend payments.

There were no common share transactions during the three and six months ended June 30, 2019. During the three and six months ended June 30, 2018, the Company issued 39,105,365 common shares valued at C$89,942 ($69,771) to acquire Rye Patch (note 3). Transaction costs relate to the share issuance was C$242 ($188).

At June 30, 2019, and December 31, 2018, there were 84,707,143 issued and outstanding common shares. The Company does not currently pay dividends and entitlement will only arise upon declaration.

b)	Share options

The Company has an incentive share option plan (“the plan”) in place under which it is authorized to grant share options to executive officers, directors, employees and consultants. The plan allows the Company to grant share options up to a maximum of 10.0% of the number of issued shares of the Company.

Share options granted under the plan will have a term not to exceed five years, have an exercise price not less than the Market Price as defined by the TSX Corporate Finance Manual and vest over periods no less than eighteen months.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

Share option transactions and the number of share options outstanding during the three and six months ended June 30, 2019, and year ended December 31, 2018, are summarized as follows:

	Number of share options			Weighted average exercise price (C$)
Outstanding at December 31, 2017		2,134,850			8.29
Granted		1,284,845			2.99
Granted for acquisition of Rye Patch (note 3)		1,511,800			4.52
Forfeited		(1,907,993	)		3.44
Outstanding at December 31, 2018		3,023,502			6.14
Granted		1,679,554			1.00
Forfeited		(900,406	)		3.74
Outstanding at June 30, 2019		3,802,650			4.44
Exercisable at June 30, 2019		1,746,360			7.97

Share options outstanding and exercisable at June 30, 2019, are as follows:

Exercise price range (C$)	Number of options outstanding		Weighted average exercise price (C$)		Weighted average remaining life of options (years)		Number of options exercisable		Weighted average exercise price (C$)		Weighted average remaining life of options (years)
1.00 - 3.00		2,262,161		1.39		4.79		445,066		2.66		4.25
3.01 - 5.00		465,216		3.38		3.21		331,553		3.41		3.03
5.01 - 10.00		781,173		7.04		2.16		675,641		7.30		2.00
10.01 - 31.40		294,100		22.71		1.01		294,100		22.71		1.01
		3,802,650		4.44		3.76		1,746,360		7.97		2.60

The fair value of share options recognized as a recovery during the three and six months ended June 30, 2019, was $110 and $158, respectively (expense for the three and six months ended June 30, 2018 - $336 and $613, respectively) (note 4(b)).

The weighted average grant date fair value of options granted, during the three and six months ended June 30, 2019, was C$0.39 ($0.30) (three and six months ended June 30, 2018 - C$0.89 ($0.69) and C$1.10 ($0.86), respectively). The following are the weighted average assumptions used for the Black-Scholes option pricing model valuation of share options granted during the three and six months ended June 30, 2019 and 2018:

	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Risk-free interest rate	1.5%	2.1%	1.5%	2.0%
Expected life of options	4.5 years	5.0 years	4.5 years	4.5 years
Annualized volatility	43.8%	49.7%	43.8%	50.7%
Forfeiture rate	2.2%	2.2%	2.2%	2.2%
Dividend rate	0.0%	0.0%	0.0%	0.0%

The risk-free rate of periods within the expected life of the share option is based on the Canadian government bond rate. The annualized volatility is based on historical and implied volatility of the precious metals mining sector and forfeiture rate assumptions are based on historical results.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

c)	Share-based compensation

On September 13, 2017, the Board of Directors approved grants of deferred share units, restricted share units, and performance share units under its long-term incentive plan.

DSU, RSU and PSU Activity	DSUs (thousands)				DSU Fair Value			RSUs (thousands)				RSU Fair Value			PSUs (thousands)				PSU Fair Value
At January 1, 2018		113		$		415			175		$		643			175		$		1,090
Granted		222				501			322				769			322				791
Forfeited		-				-			(138	)			(147	)		(121	)			(134	)
Change in value		-				(634	)		-				(962	)		-				(1,747	)
At December 31, 2018		335		$		282			359		$		303			376		$		-
Granted		300				232			353				272			302				233
Forfeited		(118	)			(92	)		(239	)			(179	)		(238	)			-
Change in value		-				(23	)		-				(31	)		-				-
At June 30, 2019		517		$		399			473		$		365			440		$		233

Deferred share units

Directors were granted DSUs where each DSU has a value equivalent to the price of one common share listed on the TSX. The DSUs are settled in cash and fully vest the day before each Annual General Meeting. Cash settlement takes place following a Director’s resignation.

At June 30, 2019, the carrying amount of DSUs outstanding and included in accrued liabilities was $283 (December 31, 2018 - $266). For the three and six months ended June 30, 2019, the share-based payments expense related to the DSUs was $52 and $17, respectively (share-based payments expense - three months and six ended June 30, 2018 - $33 and $47, respectively) (note 4(b)).

ii)

Restricted share units

Selected employees were granted RSUs where each RSU has a value equivalent to the price of one common share listed on the TSX. The RSUs are settled in cash and fully vest on the three-year anniversary date.

At June 30, 2019, the carrying amount of the RSUs outstanding and included in other liabilities was $45 (December 31, 2018 - $97). For the three and six months ended June 30, 2019, the share-based payments recovery was $19 and $52, respectively (share-based payments expense - three and six months ended June 30, 2018 - $35 and $40, respectively) (note 4(b)).

iii)

Performance share units

Selected employees were granted PSUs where each PSU has a value equivalent to the price of one common share listed on the TSX. The PSUs are settled in cash and fully vest on December 31 starting in the grant year (the “Performance Period”). Performance results at the end of the Performance Period relative to performance criteria and the application of a performance multiplier determines the vesting number of PSUs for each participant. Criteria is based on the Company’s share price performance in relation to its peer group.

At June 30, 2019, the carrying amount of the PSUs outstanding and included in other liabilities was $38 (December 31, 2018 - $nil). For the three and six months ended June 30, 2019, the share-based payments expense related to the PSUs was $38 (three and six months ended June 30, 2018 - expense of $32 and recovery of $9, respectively) (note 4(b)).

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

14.	(LOSS) EARNINGS PER SHARE

		Three months ended June 30, 2019										Three months ended June 30, 2018
		Loss for the period			Weighted average shares outstanding			Earnings per share				Earnings for the period		Weighted average shares outstanding			Earnings per share
Basic EPS	$		(3,830	)		84,707,143	$		(0.05	)	$		3,284		60,148,955	$		0.05
Effect of dilutive securities:
Share options			-			-			-				-		-			-
Warrants			-			-			-				-		-			-
Diluted EPS	$		(3,830	)		84,707,143	$		(0.05	)	$		3,284		60,148,955	$		0.05

At June 30, 2019, 3,802,650 (June 30, 2018 - 4,532,903) share options were outstanding, all of which were anti-dilutive (June 30, 2018 - 4,532,903).

At June 30, 2019, share purchase warrants that entitle the holders to purchase 8,730,467 (June 30, 2018 - 13,539,540) common shares were outstanding, all of which were anti-dilutive (June 30, 2018 - 13,539,540).

		Six months ended June 30, 2019										Six months ended June 30, 2018
		Loss for the period			Weighted average shares outstanding			Earnings per share				Earnings for the period		Weighted average shares outstanding			Earnings per share
Basic EPS	$		(2,229	)		84,707,143	$		(0.03	)	$		6,514		52,456,564	$		0.12
Effect of dilutive securities:
Share options			-			-			-				-		8,821			-
Warrants			-			-			-				-		-			-
Diluted EPS	$		(2,229	)		84,707,143	$		(0.03	)	$		6,514		52,465,385	$		0.12

At June 30, 2019, 3,802,650 (June 30, 2018 - 4,532,903) share options were outstanding, all of which were anti-dilutive (June 30, 2018 - 4,444,137).

15.	FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in making fair value measurements as follows:

Level 1 - quoted prices in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and,

Level 3 - inputs for the asset or liability that are not based upon observable market data.

At June 30, 2019, and December 31, 2018, none of the Company’s financial assets and liabilities are measured and recognized in the condensed interim consolidated statements of financial position at fair value with the exception of the reclamation bonds (note 8), share purchase warrants (note 11), and derivative asset/liability.

The carrying values of cash and cash equivalents, trade and other receivables, trade payables, vendor loan and equipment loan approximate their fair value due to their short-term nature.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

At June 30, 2019, and December 31, 2018, there were no financial assets or liabilities measured and recognized in the condensed interim consolidated statements of financial position at fair value that would be categorized as Level 2 or Level 3 in the fair value hierarchy above with the exception of the share purchase warrants (note 11) and the derivative liability, which are a Level 2 fair value measurements.

Zero cost collars

The Company holds open option contracts whereby the Company purchased the option to sell gold ounces at a set price (“put option”) and financed the purchase price of this put option by selling the right to a third party to purchase a number of the Company’s gold ounces at a set price (“call option”). The Company has placed a minimum floor sales price and a maximum sales price on the ounces that are subject to these contracts.

As at June 30, 2019, a total of 24,000 gold ounces are placed under these contracts with expiry dates through to December 27, 2019, with a weighted average floor price of $1,300 per gold ounce and a weighted average maximum sales price of $1,350 per gold ounce. The fair value of the derivative liability of $1,905 (December 31, 2018 - $nil) is based on the valuation of the outstanding gold option contracts using Level 2 inputs and valuation techniques.

During the three and six months ended June 30, 2019, 10,000 and 8,000 contracts were settled and expired, respectively, resulting in a realized loss of $285.

Subsequent to June 30, 2019, 4,000 ounces were settled resulting in a realized loss of $276. 20,000 ounces remain under open contracts.

Forward sales contracts

During the six months ended June 30, 2019, a total of 14,000 gold ounces were placed under forward contracts with a weighted average price of $1,307 per gold ounce. The contracts are treated as derivative financial instruments as they do not meet the own-use exemption under IFRS 9.

During the three and six months ended June 30, 2019, nil and 14,000 ounces, respectively, were delivered into the contracts resulting in a realized loss of $nil and $115, respectively.

At June 30, 2019, there were no open contracts.

16. CONTINGENCIES

Peal Arbitration

During February 2019, Peal de Mexico, S.A. DE C.V. (“Peal”) gave notice of the termination of the mining services contract (“Peal Contract”) between Peal and Molimentales. Peal also entered in the arbitration process seeking to recover demobilization expenses and a termination penalty under the Peal Contract. The Company has properly accrued all expenses, including demobilization costs, based on the actual costs incurred. The Company has not accrued a termination penalty of $20,000 as it does not believe there is basis for the claim in the Peal Contract. The Company intends to vigorously defend its position in the arbitration and no additional liability has been recognized in the interim financial statements.

Maverix Arbitration

During July 2019, the Company received formal notice from Maverix Metals Inc. (“Maverix”), a 3.25% royalty holder of the Florida Canyon Mine, seeking arbitration to resolve disputed allowable deductions in the royalty calculations. The arbitration notice states that the dollar amount of the claim is still being calculated but the disputed amount based on past production is $1,000. The Company remains confident that the historical calculation of the royalty is correct. The Company intends to vigorously defend its interests and the interests of its stakeholders. The Company has not accrued the disputed amount.

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

Notice of Civil Claim

On May 2, 2019, the Company received a Notice of Civil Claim from a former shareholder of Rye Patch whose shares were acquired by the Company (note 3). The plaintiff brought the claim pursuant to the Class Proceedings Act and is seeking damages against the Company and certain directors and officers for misrepresentations with respect to anticipated gold production during the year ended December 31, 2018. The Company has reviewed the claim and currently has no reason to believe the claim has any merit. In the unlikely event the claim is successful, the Company is adequately insured for any reasonable outcome. Accordingly, no additional liability has been recognized in the interim financial statements.

17.	SEGMENTED INFORMATION

Operating results of operating segments are reviewed by the Company's chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segments and to assess their performance. The Company has determined that it has three reportable operating segments, the San Francisco Mine and Ana Paula Project located in Mexico, and the Florida Canyon Mine located in the US. The Florida Canyon Mine was included as part of the Rye Patch acquisition (note 3) and is a significant operating asset of the Company which is monitored by the CODM.

Other consists primarily of the Company’s corporate assets, derivative assets, warrant liabilities and corporate and administrative expenses which are not allocated to operating segments.

A reporting segment is defined as a component of the Company:

•

that engages in business activities from which it may earn revenues or incur expenses;

•

whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and,

•

for which discrete financial information is available.

The CODM evaluates segment performance based on earnings from operations and capital expenditures.

The Company does not treat the production of gold and silver, the primary two minerals produced at the San Francisco Mine and Florida Canyon Mine, as separate operating segments as they are the output of the same production process, only become separately identifiable as finished goods and are not reported separately from a management perspective.

	Three months ended June 30, 2019
Segment results		San Francisco Mine				Florida Canyon Mine				Ana Paula Project				Other				Total
Metal revenues	$		12,827		$		15,630		$		-		$		-		$		28,457
Production costs			(10,727	)			(15,134	)			-				-				(25,861	)
Depreciation and depletion			(934	)			(1,515	)			-				-				(2,449	)
Corporate and administrative expenses			(337	)			-				(80	)			(1,590	)			(2,007	)
Earnings (loss) from operations	$		829		$		(1,019	)	$		(80	)	$		(1,590	)	$		(1,860	)
Capital expenditures	$		19		$		402		$		277		$		-		$		698

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

	Three months ended June 30, 2018
Segment results		San Francisco Mine				Florida Canyon Mine				Ana Paula Project			Other				Total
Metal revenues	$		19,040		$		7,193		$		-	$		-		$		26,233
Production costs			(13,993	)			(6,707	)			-			-				(20,700	)
Depreciation and depletion			(1,144	)			(102	)			-			-				(1,246	)
Corporate and administrative expenses			(381	)			-				-			(4,012	)			(4,393	)
Earnings (loss) from operations	$		3,522		$		384		$		-	$		(4,012	)	$		(106	)
Capital expenditures	$		3,311		$		105		$		4,685	$		14		$		8,115

	Six months ended June 30, 2019
Segment results		San Francisco Mine				Florida Canyon Mine				Ana Paula Project				Other				Total
Metal revenues	$		28,151		$		31,711		$		-		$		-		$		59,862
Production costs			(23,500	)			(28,814	)			-				-				(52,314	)
Depreciation and depletion			(2,144	)			(2,717	)			-				-				(4,861	)
Corporate and administrative expenses			(790	)			-				(160	)			(2,926	)			(3,876	)
Earnings (loss) from operations	$		1,717		$		180		$		(160	)	$		(2,926	)	$		(1,189	)
Capital expenditures	$		930		$		1,744		$		3,104		$		-		$		5,778

	Six months ended June 30, 2018
Segment results		San Francisco Mine				Florida Canyon Mine				Ana Paula Project			Other				Total
Metal revenues	$		42,378		$		7,193		$		-	$		-		$		49,571
Production costs			(29,507	)			(6,707	)			-			-				(36,214	)
Depreciation and depletion			(2,414	)			(102	)			-			-				(2,516	)
Corporate and administrative expenses			(770	)			-				-			(6,526	)			(7,296	)
Earnings (loss) from operations	$		9,687		$		384		$		-	$		(6,526	)	$		3,545
Capital expenditures	$		7,722		$		105		$		10,302	$		17		$		18,146

Segment assets and liabilities		San Francisco Mine			Florida Canyon Mine			Ana Paula Project			Other			Total
As at June 30, 2019
Total assets	$		88,773	$		127,704	$		115,695	$		8,060	$		340,232
Total liabilities	$		29,122	$		52,338	$		2,162	$		4,773	$		88,395
As at December 31, 2018
Total assets	$		91,763	$		138,980	$		114,496	$		3,047	$		348,286
Total liabilities	$		37,586	$		50,669	$		1,771	$		4,036	$		94,062

ALIO GOLD INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 and 2018

(In thousands of United States dollars, except where noted) - Unaudited

During the three and six months ended June 30, 2019 and 2018, the Company had sales agreements with four customers. The percentage breakdown of metal revenues by major customer is as follows:

	Three months ended June 30,				Six months ended June 30,
		2019	2018			2019		2018
Customer A		41%	63%			44%		77%
Customer B		55%	27%			53%		15%
Customer C		3%	10%			3%		8%
Customer D		1%		-			-		-
Total		100%	100%			100%		100%

Due to the nature of the gold market, the Company is not dependent on any customers to sell finished goods.

The Company’s metal revenues from operations, all of which are derived in Mexico and the United States, for the three and six months ended June 30, 2019 and 2018, were as follows:

	Three months ended June 30,							Six months ended June 30,
			2019			2018			2019			2018
Gold		$		28,236	$		26,016	$		59,418	$		49,261
Silver by-product				221			217			444			310
		$		28,457	$		26,233	$		59,862	$		49,571

Alio Gold 6-KCondensed Interim Consolidated Financial Statements