Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
Amendment
#1
x |
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended June 30, 2007
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o |
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ________ to ________
General
Moly, Inc.
(Name
of
small business issuer in its charter)
DELAWARE
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001-32986
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91-0232000
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(State
or other jurisdiction
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Commission
File Number
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(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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1726
Cole Blvd., Suite 115
Lakewood,
CO 80401
Telephone:
(303) 928-8599
(Address
and telephone number of principal executive offices)
Idaho
General Mines, Inc.
10
North
Post St., Suite 610
Spokane,
WA 99201
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for at least the past
90 days. YES x
NO o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES x
NO o
The
number of shares outstanding of registrant’s common stock as of August 3,
2007 was 56,334,005.
Transitional
Small Business Disclosure Format (check one): YES o
NO x
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-QSB/A (this “Amendment”) amends and restates items
identified below with respect to the Form 10-QSB filed by General Moly, Inc.
(formerly “Idaho General Mines, Inc.”) (“we” or the “Company”) for the period
ended June 30, 2007 with the Securities and Exchange Commission (the “SEC”) on
August 7, 2007 (the “Original Filing”). The purpose of this Amendment is to
amend and restate the previously issued financial statements included in the
Original Filing for the reasons described in Note 2 to the financial statements
included in Item 1 (Financial Statements) herein. Other than as set forth below,
the items of the Original Filing continue to speak as of the date of the
original filing date thereof, and the disclosure relating to such items is
not
being updated.
This
Amendment amends and restates the information in Item 1 (Financial Statements)
and Item 2 (Management’s Discussion and Analysis of Operation) of the Original
Filing. Except for the foregoing amended and restated information and the
information set forth below under the heading “Subsequent Event,” this Amendment
continues to describe conditions as of the date of the Original Filing, and
the
disclosures contained herein have not been updated to reflect events, results
or
developments that have occurred after the date of the Original Filing, or to
modify or update those disclosures affected by subsequent events. Among other
things, forward-looking statements made in the Original Filing have not been
revised to reflect events, results or developments that have occurred or facts
that have become known to us after the date of the Original Filing, and such
forward-looking statements should be read in their historical context. This
Amendment should be read in conjunction with the Company’s filings made with the
SEC subsequent to the Original Filing, including any amendments to those
filings.
Subsequent
Event
On
October 8, 2007, we reincorporated the Company in the State of Delaware (the
“Reincorporation”) through a merger involving Idaho General Mines, Inc. and
General Moly, Inc., a newly-formed Delaware corporation that was a wholly owned
subsidiary of Idaho General Mines, Inc. The Reincorporation was effected by
merging Idaho General Mines, Inc. with and into General Moly, with General
Moly
being the surviving entity. In connection with the Reincorporation, all of
the
outstanding securities of Idaho General Mines, Inc. were converted into
securities of General Moly on a one-for-one basis. For purposes of the Company’s
reporting status with the Securities and Exchange Commission, General Moly
is
deemed a successor to Idaho General Mines, Inc.
PART
I
FINANCIAL
INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
GENERAL
MOLY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited
- In thousands except per share amounts)
(Restated
- Note 2)
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At
June
30
2007
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At
December
31,
2006
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ASSETS:
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CURRENT
ASSETS
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Cash
and cash equivalents
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$
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27,537
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$
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17,882
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|
Deposits
|
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|
238
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|
147
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Prepaid
expense and other assets
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106
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|
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46
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Total
Current Assets
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27,881
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|
|
18,075
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Mining
properties, land and water rights
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17,671
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8,598
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Property
and equipment, net
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|
835
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|
|
431
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Restricted
cash held for reclamation bonds
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575
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|
|
—
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TOTAL
ASSETS
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$
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46,962
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$
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27,104
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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CURRENT
LIABILITIES
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Accounts
payable and accrued liabilities
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$
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3,101
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|
$
|
1,076
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|
Provision
for post closure reclamation and remediation costs
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105
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|
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—
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Current
portion of long term debt
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39
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19
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Total
Current Liabilities
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3,245
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|
1,095
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Provision
for post closure reclamation and remediation costs, net of current
portion
|
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|
324
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|
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—
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Long
term debt, net of current portion
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87
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58
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Total
Liabilities
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|
3,656
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|
1,153
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STOCKHOLDERS’
EQUITY
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Preferred
stock, Series A, $0.001 par value; 10,000,000 shares authorized,
no shares
issued and outstanding
|
|
|
—
|
|
|
—
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|
Common
stock, $0.001 par value; 200,000,000 shares authorized, 54,959,000
and
43,398,000 shares issued and outstanding, respectively
|
|
|
55
|
|
|
43
|
|
Additional
paid-in capital
|
|
|
81,919
|
|
|
46,017
|
|
Accumulated
deficit before exploration stage
|
|
|
(213
|
)
|
|
(213
|
)
|
Accumulated
deficit during exploration stage
|
|
|
(38,455
|
)
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|
(19,896
|
)
|
Total
Stockholders’ Equity
|
|
|
43,306
|
|
|
25,951
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|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
46,962
|
|
$
|
27,104
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In
thousands except per share amount)
(Restated
- Note 2)
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Three
Months Ended
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|
Six
Months Ended
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|
January
1, 2002
(Inception
of Exploration Stage) to June 30, 2007
|
|
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June
30, 2007
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June
30, 2006
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June
30, 2007
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June
30, 2006
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|
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REVENUES
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$
|
—
|
|
$
|
—
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|
$
|
—
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|
$
|
—
|
|
$
|
—
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|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Property
research, exploration and development
|
|
|
6,313
|
|
|
1,706
|
|
|
10,155
|
|
|
2,976
|
|
|
20,507
|
|
General
and administrative expense
|
|
|
3,533
|
|
|
3,247
|
|
|
8,932
|
|
|
4,309
|
|
|
19,477
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|
TOTAL
OPERATING EXPENSES
|
|
|
9,846
|
|
|
4,953
|
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|
19,087
|
|
|
7,285
|
|
|
39,984
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|
LOSS
FROM OPERATIONS
|
|
|
(9,846
|
)
|
|
(4,953
|
)
|
|
(19,087
|
)
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|
(7,285
|
)
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|
(39,984
|
)
|
OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest
and dividend income
|
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|
361
|
|
|
186
|
|
|
529
|
|
|
330
|
|
|
1,465
|
|
Realized
gains
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
TOTAL
OTHER INCOME
|
|
|
361
|
|
|
186
|
|
|
529
|
|
|
330
|
|
|
1,529
|
|
LOSS
BEFORE TAXES
|
|
|
(9,485
|
)
|
|
(4,767
|
)
|
|
(18,558
|
)
|
|
(6,955
|
)
|
|
(38,455
|
)
|
INCOME
TAXES
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
NET
LOSS
|
|
$
|
(9,485
|
)
|
$
|
(4,767
|
)
|
$
|
(18,558
|
)
|
$
|
(6,955
|
)
|
$
|
(38,455
|
)
|
BASIC
AND DILUTED NET LOSS PER SHARE OF COMMON STOCK
|
|
$
|
(0.18
|
)
|
$
|
(0.12
|
)
|
$
|
(0.38
|
)
|
$
|
(0.21
|
)
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC
|
|
|
53,642
|
|
|
38,410
|
|
|
48,767
|
|
|
32,706
|
|
|
|
|
FULLY
DILUTED
|
|
|
61,409
|
|
|
46,191
|
|
|
55,421
|
|
|
41,791
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
(Restated
- Note 2)
|
|
Six
Months Ended June 30, 2007
|
|
Six
Months Ended June 30, 2006
|
|
January
1, 2002 (Inception of Exploration Stage to June 30,
2007
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(18,558
|
)
|
$
|
(6,955
|
)
|
$
|
(38,455
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Services
and expenses paid with common stock
|
|
|
304
|
|
|
950
|
|
|
1,991
|
|
Depreciation
and amortization
|
|
|
76
|
|
|
14
|
|
|
149
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Equity
compensation for management and directors
|
|
|
4,519
|
|
|
676
|
|
|
7,829
|
|
Decrease
(increase) in restricted cash
|
|
|
(84
|
)
|
|
—
|
|
|
(84
|
)
|
Decrease
(increase) in deposits, prepaid expenses and other
|
|
|
(151
|
)
|
|
(146
|
)
|
|
(373
|
)
|
(Decrease)
increase in accounts payable and accrued liabilities
|
|
|
1,971
|
|
|
(397
|
)
|
|
3,047
|
|
(Decrease)
increase in post closure reclamation and remediation costs
|
|
|
220
|
|
|
—
|
|
|
220
|
|
Net
cash used by operating activities
|
|
|
(11,703
|
)
|
|
(5,858
|
)
|
|
(25,659
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Payments
for the purchase of equipment
|
|
|
(480
|
)
|
|
(256
|
)
|
|
(1,179
|
)
|
Purchase
of securities
|
|
|
—
|
|
|
—
|
|
|
(137
|
)
|
Purchase
of mining property, claims, options
|
|
|
(8,475
|
)
|
|
(4,460
|
)
|
|
(15,941
|
)
|
Net
increase in debt
|
|
|
49
|
|
|
—
|
|
|
49
|
|
Cash
provided by sale of marketable securities
|
|
|
—
|
|
|
—
|
|
|
247
|
|
Net
cash used by investing activities
|
|
|
(8,906
|
)
|
|
(4,716
|
)
|
|
(16,961
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of stock
|
|
|
30,264
|
|
|
32,719
|
|
|
70,112
|
|
Net
cash provided by financing activities
|
|
|
30,264
|
|
|
32,719
|
|
|
70,112
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
9,655
|
|
|
22,145
|
|
|
27,491
|
|
Cash
and cash equivalents, beginning of period
|
|
|
17,882
|
|
|
257
|
|
|
46
|
|
Cash
and cash equivalents, end of period
|
|
$
|
27,537
|
|
$
|
22,402
|
|
$
|
27,537
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Interest
paid
|
|
$
|
3
|
|
$
|
—
|
|
$
|
3
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for equipment
|
|
$
|
—
|
|
$
|
11
|
|
$
|
11
|
|
Common
stock and warrants issued for property
|
|
$
|
826
|
|
$
|
—
|
|
$
|
1,575
|
|
Restricted
cash held for reclamation bond acquired in a business
combination
|
|
$
|
491
|
|
$
|
—
|
|
$
|
491
|
|
Post
closure reclamation and remediation costs assumed in a business
combination
|
|
$
|
209
|
|
$
|
—
|
|
$
|
209
|
|
Accounts
payable and accrued expenses assumed in a business
combination
|
|
$
|
54
|
|
$
|
—
|
|
$
|
54
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1—BASIS OF PRESENTATION
General
Moly, Inc. (“the Company” or “GMO”) is a Delaware corporation originally
incorporated as General Mines Corporation on November 23, 1925. In 1966,
the Company amended its articles of incorporation to change its name to Idaho
General Petroleum and Mines Corporation, and amended its articles again in
1967
changing its name to Idaho General Mines, Inc. On October 8, 2007, the
Company reincorporated in the State of Delaware (the "Reincorporation") through
a merger involving Idaho General Mines, Inc. and General Moly, Inc., a
newly-formed Delaware corporation that was a wholly owned subsidiary of Idaho
General Mines, Inc. The Reincorporation was effected by merging Idaho General
Mines, Inc. with and into General Moly, with General Moly being the surviving
entity. For purposes of the Company’s reporting status with the Securities and
Exchange Commission, General Moly is deemed a successor to Idaho General Mines,
Inc.
The
Company’s historic activities have principally consisted of the exploration for
nonferrous and precious metals in and around Shoshone County, Idaho. The Company
entered a new exploration stage in early January 2002 when it shifted its
focus to minerals exploration. In May 2004, the Company began a search for
substantive mineral properties with a focus on metals such as copper, zinc,
silver, gold and specialty metals. GMO entered into an option to lease the
Mount
Hope molybdenum property located in Nevada in November 2004 and exercised
that option in October 2005 after several phases of feasibility studies and
project design studies which indicated the attractiveness of the project. GMO
similarly optioned the Hall Tonopah molybdenum-copper property, also in Nevada,
in 2005 and exercised that option to purchase the Hall Tonopah property in
March 2006 with the intent of assessing economic feasibility by exploring
and assessing the property’s potential. Accordingly, GMO has assumed the role of
exploring, and as warranted, developing major mineral deposits which are at
a
relatively advanced stage and are worthy of economic consideration.
The
interim Condensed Consolidated Financial Statements of the Company and its
subsidiaries are unaudited. In the opinion of management, all adjustments and
disclosures necessary for a fair presentation of these interim statements have
been included. All such adjustments are, in the opinion of management, of a
normal recurring nature. The results reported in these interim Condensed
Consolidated Financial Statements are not necessarily indicative of the results
that may be reported for the entire year. These interim Condensed Consolidated
Financial Statements should be read in conjunction with GMO’s Consolidated
Financial Statements included in its Annual Report on Form 10-KSB/A for the
year ended December 31, 2006.
On
January 30, 2007, the Company completed the acquisition of all of the
issued and outstanding shares of a corporation that owned a royalty interest
in
our Hall-Tonopah Property (see note 6). Upon its acquisition, the
corporation was consolidated as a wholly owned subsidiary of the
Company.
Certain
amounts for the three and six months ended June 30, 2006 have been
reclassified to conform to the 2007 presentation.
NOTE
2 - RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
The
Company has corrected its accounting treatment for certain non-cash adjustments
primarily related to the calculation of and recognition of compensation expense
and the valuation of warrants to purchase common shares of the Company under
FASB Statement 123 - Accounting
for Stock-Based Compensation, FASB
Statement 123(R) -Share
Based Payment
and EITF
96-18 - Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or
in Connection with Selling Goods and Services.
The
Company had utilized volatility assumptions which were too low in determining
the value of certain equity instruments issued during the periods and failed
to
attribute value to certain warrants included as consideration in transactions
with third parties. This resulted in the Company valuing equity instruments
granted and/or issued at too low of a value and, accordingly, the amounts
recorded for these non-cash transactions were understated.
Additionally
during the periods, the Company did not account for forfeitures of employee
options which occurred prior to vesting, resulting in an overstatement of
non-cash compensation expense, and allocated stock-related compensation costs
to
the incorrect service periods. Furthermore, in the year ended December 31,
2006,
the Company incorrectly allocated a portion of the cash consideration paid
for
water rights to non marketable securities and subsequently impaired such
securities, rather than allocating this portion of the consideration to the
purchase of such water rights.
In
addition, the Company has corrected certain other immaterial errors.
At June 30, 2007 the cumulative effect of all corrections was an increase
to the cost of our land and mining claims of $713,000, an increase in property
research, exploration and development expense of $423,000, an increase in
general and administration expense of $186,000, a decrease in realized loss
on
marketable securities of $ 321,000, and an increase to our net equity of
$363,000.
The
impact of these errors on each of the Company's previously issued financial
statements, are set forth in the table below (in thousands except per share
amounts).
|
|
As
Originally Reported
|
|
As
Restated
|
|
Impact
of the error Increase (Decrease)
|
|
Income
Statement for the six months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
Property
research, exploration and development expenses
|
|
$
|
2,816
|
|
|
2,976
|
|
|
160
|
|
General
and administrative expenses
|
|
|
4,413
|
|
|
4,309
|
|
|
(104
|
)
|
Net
loss
|
|
|
6,899
|
|
|
6,955
|
|
|
56
|
|
Basic
and fully diluted loss per share
|
|
|
.21
|
|
|
.21
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement for the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Property
research, exploration and development expenses
|
|
$
|
10,070
|
|
|
10,155
|
|
|
85
|
|
General
and administrative expenses
|
|
|
8,936
|
|
|
8,932
|
|
|
(4
|
)
|
Net
loss
|
|
|
18,477
|
|
|
18,558
|
|
|
81
|
|
Basic
and fully diluted loss per share
|
|
|
.38
|
|
|
.38
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
Land
and Mining Claims
|
|
|
7,885
|
|
|
8,598
|
|
|
713
|
|
Total
Assets
|
|
|
26,391
|
|
|
27,104
|
|
|
713
|
|
Accrued
Liabilities
|
|
|
970
|
|
|
1,095
|
|
|
125
|
|
Additional
Paid in Capital
|
|
|
45,221
|
|
|
46,017
|
|
|
796
|
|
Accumulated
Deficit
|
|
|
(19,902
|
)
|
|
(20,109
|
)
|
|
(207
|
)
|
Total
Stockholders’ Equity
|
|
|
25,362
|
|
|
25,951
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet at June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Land
and Mining Claims
|
|
|
16,958
|
|
|
17,671
|
|
|
713
|
|
Total
Assets
|
|
|
46,249
|
|
|
46,962
|
|
|
713
|
|
Accrued
Liabilities
|
|
|
2,895
|
|
|
3,245
|
|
|
350
|
|
Additional
Paid in Capital
|
|
|
81,268
|
|
|
81,919
|
|
|
796
|
|
Accumulated
Deficit
|
|
|
(38,380
|
)
|
|
(38,668
|
)
|
|
(288
|
)
|
Total
Stockholders’ Equity
|
|
|
42,943
|
|
|
43,306
|
|
|
363
|
|
NOTE
3-LIQUIDITY AND CAPITAL REQUIREMENTS (AND SUBSEQUENT
EVENT)
On
October 4, 2007, the Company's Board of Directors approved the development
of
the Mount Hope Project as contemplated in the Bankable Feasibility Study. The
development of the Mount Hope Project has an estimated total capital requirement
of approximately $1 billion comprised of initial construction cost in excess
of
$850 million; $50 to $70 million in cash bonding requirements;
$27 million in advance royalty payments; and amounts necessary for
financing costs and working capital. Such capital requirements are management's
best estimates based on the Bankable Feasibility Study and other available
information, and are subject to change, which changes could be material. The
Company will also require additional capital to continue the exploration and
evaluation of Hall-Tonopah, as well as continue payment of ongoing general,
administrative and operations costs associated with supporting its planned
operations, the amounts of which are presently unknown.
The
capital will be required through the commencement of Mount Hope production
estimated to be in the second half of 2010. Our ability to develop the project
on time and on budget is dependent on, among other things, our ability to raise
the necessary capital to fund the Mount Hope Project both in sufficient quantity
of capital and at the time such capital is needed. Additionally, if the
estimated costs of the Mount Hope Project are exceeded we will need to raise
additional capital to fund such overruns.
The
Company does not currently have the capital necessary to complete the Mount
Hope
Project and, accordingly, plans to raise the capital on an ongoing basis when
needed. Our current business plan and project time schedule will require the
Company to raise approximately $200 million in capital from now through
December 31, 2008 with $10 to $20 million of such amount required by
December 31, 2007. If the Company is unable to raise sufficient quantities
of
capital when needed, it will be necessary to develop alternative plans that
would likely delay the development and completion of the Mount Hope Project.
There is no assurance that we will be able to obtain the necessary financing
for
the Mt. Hope Project on customary terms, or at all.
NOTE
4—SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes
are
representations of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the financial
statements.
Accounting
Pronouncements—Recent
In
June
2006, the Financial Accounting Standards Board issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109” (hereinafter “FIN 48), which prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48
is
effective for fiscal years beginning after December 15, 2006. The Company’s
adoption of FIN 48 did not have any impact on the Company’s previously reported
financial position, as it has no uncertain tax positions.
Cash
and
Cash
Equivalents
For
the
purposes of the statement of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Exploration
Stage
Activities
The
Company has been in the exploration stage since January 2002 and has not
realized any revenue from operations. It will be primarily engaged in minerals
exploration until it enters a development or operations stage.
Fair
Value of
Financial Instruments
The
Company’s financial instruments include cash, accounts payable and accrued
liabilities. All instruments are accounted for on a historical cost basis,
which, due to the short maturity of these financial instruments, approximates
fair value at June 30, 2007 and December 31, 2006.
Mining
Properties, Land and Water Rights
Costs
of
acquiring and developing mining properties, land and water rights are
capitalized as appropriate by project area. Exploration and related costs and
costs to maintain mining properties, land and water rights are expensed as
incurred. When a property reaches the production stage, the related capitalized
costs are amortized using the units-of-production method on the basis of
periodic estimates of ore reserves. Mining properties, land and water rights
are
periodically assessed for impairment of value, and any subsequent losses are
charged to operations at the time of impairment. If a property is abandoned
or
sold, a gain or loss is recognized and included in operations.
Mineral
Exploration and Development Costs
All
exploration expenditures are expensed as incurred. Significant property
acquisition payments for active exploration properties are capitalized. If
no
minable ore body is discovered, previously capitalized costs are expensed in
the
period the property is abandoned. Expenditures to develop new mines, to define
further mineralization in existing ore bodies, and to expand the capacity of
operating mines, are capitalized and amortized on a units-of-production basis
over proven and probable reserves.
Should
a
property be abandoned, its capitalized costs are charged to operations. The
Company charges to operations the allocable portion of capitalized costs
attributable to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining within
the
project area.
Reclamation
and Remediation
Expenditures
for ongoing compliance with environmental regulations that relate to current
exploration operations are expensed. Expenditures resulting from the remediation
of existing conditions caused by past operations that do not contribute to
future revenue generations are expensed. Liabilities are recognized when
environmental assessments indicate that remediation efforts are probable and
the
costs can be reasonably estimated.
Estimates
of such liabilities are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other societal and economic factors, and
include estimates of associated legal costs. These amounts also reflect prior
experience in remediating contaminated sites, other companies’ clean-up
experience and data released by The Environmental Protection Agency or other
organizations. Such estimates are by their nature imprecise and can be expected
to be revised over time because of changes in government regulations,
operations, technology and inflation. Recoveries are evaluated separately from
the liability and, when recovery is assured, the Company records and reports
an
asset separately from the associated liability.
Provision
for
Taxes
Income
taxes are provided based upon the liability method of accounting pursuant to
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income
taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
the deferred tax asset if management does not believe the Company has met the
“more likely than not” standard imposed by SFAS No. 109 to allow
recognition of such an asset.
Basic
and
Diluted Net Loss Per Share
Net
loss
per share was computed by dividing the net loss by the weighted average number
of shares outstanding during the period. The weighted average number of shares
was calculated by taking the number of shares outstanding and weighting them
by
the amount of time that they were outstanding. Diluted net loss per share for
GMO is the same as basic net loss per share, as the inclusion of common stock
equivalents would be antidilutive.
NOTE
5—INVESTMENTS
The
Company accounts for its investments in debt and equity securities in accordance
with the provisions of Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity Securities,” and reports
its investments in available for sale securities at their fair value, with
unrealized gains and losses excluded from income or loss and included in other
comprehensive income or loss.
NOTE
6—MINING
PROPERTIES, LAND AND WATER RIGHTS
Mount
Hope. The
Company is currently in the process of evaluating the Mount Hope molybdenum
project and acquiring necessary rights, land and claims related to the
operations.
In
November 2004, GMO entered into an option to lease all property and assets
of
the Mount Hope Molybdenum Property from Mt. Hope Mines, Inc. and in
October 2005 exercised its rights under the option. The renewable lease
allows GMO to proceed for the next 30 years with permitting, developing and
mining the deposit and for so long thereafter as GMO maintains an active
operation. At December 31, 2004, the Company had paid $186,044 cash and issued
500,000 shares of common stock with warrants to purchase 500,000 shares of
common stock to Mt. Hope Mines, Inc. for the Mount Hope option. Pursuant to
the
terms of the lease, the underlying total royalty on production payable to
Mt. Hope Mines, Inc., less certain deductions, is three percent for a
molybdenum price up to $12 per pound, four percent for a molybdenum
price up to $15 per pound, and five percent for a molybdenum price above
$15 per pound (the “Production Royalties”). GMO is subject to certain
periodic payments as set forth in Note 11 “Commitments and Contingencies.”
Additionally, GMO is obligated to pay Exxon Mineral Company a one percent
net smelter royalty on all production.
In
July
2006, the Company purchased deeded land which includes certain BLM grazing
rights and certain water rights for $1,869,000. The primary purpose for the
purchase of this asset was to acquire the water rights for use by the Mount
Hope
operations.
In
November 2006, the Company purchased from Atlas Precious Metals, Inc. patented
millsite claims for $32,090, water rights for $363,687 and fee land in Eureka,
Nevada for $26,740 with improvements of $5,350. The primary purpose of this
purchase was to acquire the water rights of 1,448 acre feet for the Mount Hope
operation.
In
April
2007, the Company purchased land including all water rights and various personal
property for cash of $3,200,000 and 50,000 shares of common stock valued at
$308,000. The primary purpose of this purchase was to acquire the water rights
for the Mount Hope operation.
In
May
2007, the Company purchased water rights for cash of $1,375,000 and
17,000 shares of common stock valued at $98,000. The primary purpose of
this purchase was to acquire the water rights for the Mount Hope
operation.
Hall-Tonopah.
The
Company is currently in the process of exploration and evaluation of the
Hall-Tonopah molybdenum project.
During
the year ended December 31, 2005, the Company entered into an option
agreement with High Desert Winds LLC (“High Desert”) for High Desert’s
approximately ten square mile property in Nye County, Nevada, including water
rights, mineral and surface rights, buildings and certain equipment (the
“Hall-Tonopah Property”). On March 17, 2006, the Company entered into a
purchase agreement with High Desert whereby it purchased a substantial portion
of the Hall-Tonopah Property. At closing, the Company paid High Desert a cash
payment of $4,460,000 for the portion of the Hall-Tonopah Property that it
purchased and made a deferred payment of $990,000 in November of 2006 for the
purchase of the remaining portion of this property for the total purchase price
of $5,450,000 including buildings and equipment at the Hall-Tonopah site. The
primary purpose of the Hall-Tonopah purchase was to further the Company’s
strategy of exploring and developing potential molybdenum
properties.
At
December 31, 2006, the Hall-Tonopah Property was subject to a
12 percent royalty payable with respect to the net revenues generated from
molybdenum or copper minerals removed from the properties purchased. In January
2007, the Company completed the acquisition of all of the issued and outstanding
shares of the corporation that held the 12 percent net smelter royalty
interest in the mineral rights of the Hall-Tonopah Property and, as a result
of
this purchase, the Company now owns the Hall Tonopah Property and all associated
mineral rights without future royalty obligations. As set forth in the Purchase
Agreement, the Company paid approximately $3,691,000 in cash at closing, net
of
cash acquired of $1,246,000. At first commercial production of the property,
the
Company has agreed to pay an additional $6,000,000. Because the Company cannot
determine beyond a reasonable doubt that the mine will attain commercial
production, the Company has not recognized the $6,000,000 liability in its
financial statements. In connection with the acquisition, the Company also
received restricted cash totaling $491,000 and assumed reclamation and
remediation costs, accounts payable and accrued liabilities of
$263,000.
In
March
2007, the Company purchased a patented lode mining claim adjacent to the
Hall-Tonopah Property for $175,000 cash. Additionally, in March 2007, the
Company completed the purchase of certain patented lode mining claims referred
to as the Liberty Claims on property adjacent to the Hall-Tonopah Property
for
cash of $75,000 and 150,000 shares of common stock valued at $420,000.
These two acquisitions of mining claims were completed to control additional
mineral rights needed for the development of the Hall-Tonopah Property. The
Company currently believes that it has all the mineral, water and surface rights
necessary to develop the Hall-Tonopah Property.
Other
Properties. The
Company’s mining claims and land purchased prior to 2006 consist in part of
(a) approximately 107 acres of fee simple land in the Little Pine
Creek area of Shoshone County, Idaho, (b) six patented mining claims known
as Chicago-London group, located near the town of Murray in Shoshone County,
Idaho, (c) 265 acres of private land with three unpatented claims in
Josephine County, Oregon, known as the Turner Gold project.
The
following is a summary of mining properties, land and water rights at
June 30, 2007 and December 31, 2006 (in thousands):
|
|
At
June 30,
2007
|
|
At
Dec. 31,
2006
|
|
Mount
Hope:
|
|
|
|
|
|
|
|
Real
estate and water rights
|
|
$
|
7,125
|
|
$
|
2,292
|
|
Total
Mount Hope
|
|
|
7,125
|
|
|
2,292
|
|
Hall-Tonopah:
|
|
|
|
|
|
|
|
Hall-Tonopah
Property
|
|
|
9,162
|
|
|
5,417
|
|
Liberty
claims
|
|
|
495
|
|
|
—
|
|
Total
Hall-Tonopah
|
|
|
9,657
|
|
|
5,417
|
|
Other
Properties:
|
|
|
|
|
|
|
|
Little
Pine Creek land
|
|
|
1
|
|
|
1
|
|
Chicago-London
group
|
|
|
80
|
|
|
80
|
|
Turner
Gold land
|
|
|
808
|
|
|
808
|
|
Total
Other Properties
|
|
|
889
|
|
|
889
|
|
Total
|
|
$
|
17,671
|
|
$
|
8,598
|
|
NOTE
7—PROPERTY AND EQUIPMENT
During
the six months ended June 30, 2007, the Company purchased depreciable
assets such as vehicles, equipment and computers in the amount of $481,000.
The
vehicles, equipment and computers will be depreciated over useful lives of
three
to seven years using straight line depreciation. Depreciation expense for the
six months ended June 30, 2007 was $76,000.
Capital
assets are recorded at cost. Depreciation is calculated using the straight-line
method over three to twenty years. The following is a summary of property,
equipment, and accumulated depreciation at June 30, 2007 and
December 31, 2006 (in thousands):
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net
Book Value at June 30, 2007
|
|
Net
Book Value at Dec. 31,
2006
|
|
Field
Equipment and Vehicles
|
|
$
|
391
|
|
$
|
67
|
|
$
|
324
|
|
$
|
167
|
|
Office
Furniture and Computers
|
|
|
326
|
|
|
67
|
|
|
259
|
|
|
209
|
|
Buildings
and Improvements
|
|
|
267
|
|
|
15
|
|
|
252
|
|
|
55
|
|
Total
|
|
$
|
984
|
|
$
|
149
|
|
$
|
835
|
|
$
|
431
|
|
NOTE
8—RELATED
PARTY TRANSACTIONS
In
January 2007, the Company entered into an employment agreement with a son of
the
Company’s Chairman for services as Director of Projects and Operations. Under
this agreement, the Company granted a stock option to purchase
140,000 shares at $2.78 per share, the closing price of the Company’s
stock on January 30, 2007. Also under this agreement the Company issued an
additional 90,000 shares of nonvested common stock at $2.78 that will vest
based on certain performance based milestones. The Company has recorded the
expense associated with these shares this period as per the accounting
guidelines of SFAS No. 123(R), Share-Based
Payment.
Additional
related party transactions are included as part of Note 9.
NOTE
9—COMMON
STOCK AND COMMON STOCK WARRANTS
In
April 2007, the Company completed the private placement of units for gross
proceeds of $25,000,000 less placement agent and finder’s fees of $1,500,000. In
the aggregate, the Company issued 7,353,000 units at a price of $3.40 per
unit. Each unit consisted of one share of common stock and a warrant to purchase
one half of one share of common stock. Each warrant will be exercisable at
a
price of $5.20 per whole share for a period of one year from the date of
closing. The Units were offered and sold pursuant to exemptions from
registration under Regulation S of the Securities Act of 1933, as amended (the
“Securities Act”), for offers and sales occurring outside the United States, and
Rule 506 of Regulation D and Section 4(2) of the Securities Act,
as a transaction not involving any public offering.
During
the six months ending June 30, 2007, the Company had the following
issuances of common stock. The Company issued 303,000 shares of common
stock upon the cashless exercise of warrants and 255,000 shares of common
stock upon the cashless exercise of stock options. Warrants and options in
the
amount of 2,779,000 and 326,000 were exercised for cash in the amount of
$6,387,000 and $379,000 respectively. The Company issued 150,000 shares of
common stock in the completion of the Liberty Claims purchase valued at
$420,000, issued 17,000 shares of common stock in the completion of a water
rights purchase associated with Mount Hope valued at $98,000, issued
50,000 shares of common stock as part of the consideration paid for
property in the Mount Hope vicinity valued at $308,000, and issued
75,000 shares of common stock in exchange for services valued at $304,000.
The Company issued 620,000 shares of nonvested stock to officers and
management of the Company. During the first six months of 2007, shareholders
returned to the Company 39,000 shares of common stock due to a stock option
exercise pricing error in 2006.
During
the year ended December 31, 2006 the Company had two private placements of
Common Stock Units. In the first private placement, the Company sold 3,021,936
common stock units for $1.10 per unit. The Company received cash of $3,324,130
less cash placement agent and finder’s fees of $157,699 and issued 170,550
Common Stock Units for finder’s fees valued at $1.80 per unit for a total value
of $307,511. Each unit consisted of one of share of common stock with warrants
to purchase one-half share of common stock at a price of $1.75 for each whole
share for a period of two years. In the second private placement, the Company
sold 15,000,000 common stock units for $2.00 per unit. Each unit consisted
of
one of share of common stock with warrants to purchase one-half share of common
stock at a price of $3.75 for each whole share for a period of two years. The
Company received cash of $30,000,000 less cash placement agent and finder’s fees
of $2,125,000 and issued 800,000 warrants to purchase shares of common stock
at
a price of $3.75 for each whole share for a period of five years for finder’s
fees valued at $2.17 per warrant for a total value of $1,735,214.
Also
in
the year ended December 31, 2006, the Company issued 1,482,147 shares of common
stock for the cashless exercise of warrants and 1,008,837 shares of common
stock
for the cashless exercise of stock options. Warrants and options in the amount
of 5,838,055 and 340,000 were exercised for cash in the amount of $4,476,927
and
$60,670 respectively, less combined brokerage fees of $230,684. The Company
issued 50,000 shares of common stock for services valued at $112,566. The
Company issued 75,000 warrants to purchase shares of common stock at a price
of
$2.10 for a period of two years in exchange for services valued at $1.07 per
warrant for a total value of $79,946.
The
following is a summary of common stock warrant activity for the six months
ended
June 30, 2007:
|
|
Number
of Shares Under Warrants
|
|
Exercise
Price
|
|
Balance
at December 31, 2006
|
|
|
12,268,000
|
|
$
|
0.80
to $3.75
|
|
Issued
in connection with a private placement
|
|
|
3,676,000
|
|
$
|
5.20
|
|
Exercised
for cash
|
|
|
(2,779,000
|
)
|
$
|
0.80
to $3.75
|
|
Exercised
in cashless exchange
|
|
|
(400,000
|
)
|
$
|
1.00
|
|
Expired
|
|
|
(60,000
|
)
|
$
|
1.00
|
|
Balance
at June 30, 2007
|
|
|
12,705,000
|
|
$
|
0.80
to $5.20
|
|
Weighted
average exercise price
|
|
$
|
3.82
|
|
|
|
|
Of
the
warrants outstanding at June 30, 2007, 7,050,000 are exercisable at $3.75 per
warrant and expire February 2011; 3,676,000 are exercisable at $5.20 per share
and expire April 2008; and the remaining 1,979,000 are exercisable at prices
ranging from $.80 to $2.10 and expire through November 2010.
NOTE
10—PREFERRED
STOCK
In
October 2004, shareholders of the Company authorized 10,000,000 shares of
no par value preferred stock. The authorized but unissued shares of preferred
stock may be issued in designated series from time to time by one or more
resolutions adopted by the board of directors. The directors have the power
to
determine the preferences, limitations and relative rights of each series of
preferred stock.
In
November 2004, the board of directors unanimously consented to amend the
articles of incorporation of the Company. The amendment reclassified
10,000,000 shares of the Company’s no par value preferred stock into
10,000,000 shares of $0.001 par value Series A preferred stock. At
June 30, 2007 and December 31, 2006, no shares of $0.001 par value
Series A preferred stock were issued or outstanding.
NOTE
11—STOCK BASED COMPENSATION
Stock
Based
Compensation Plans
During
2006, the board of directors and shareholders adopted the 2006 Equity Incentive
Plan of the Company (the “2006 Plan”). During 2004, the board of directors and
shareholders adopted the 2003 Stock Option Plan of the Company (the “2003 Plan”
and together with the 2006 Plan, the “Plans”). The purpose of the Plans is to
give the Company greater ability to attract, retain, and motivate its officers
and key employees. The Plans are intended to provide the Company with the
ability to provide incentives more directly linked to the success of the
Company’s business and increases in shareholder value.
Under
the
2006 Plan, the board of directors is authorized to grant incentive stock options
(“ISOs”) to employees (pursuant to Internal Revenue Code 422),
non-statutory stock options, restricted stock awards, restricted stock units
and
stock appreciation rights. The aggregate number of shares of common stock that
may be issued pursuant to awards granted under the 2006 Plan will not exceed
3,500,000 plus the number of shares that are ungranted and those that are
subject to reversion under the 2003 Plan. As of June 30, 2007, the maximum
number of shares available for issuance under the 2003 Plan was
360,000 shares. Shares under the 2003 Plan that become eligible for awards
under the 2006 Plan may not be granted again under the 2003 Plan.
Stock
Options
During
the six months ending June 30, 2007, the Company issued 1,865,000 options
under the 2006 Plan with an exercise price ranging from $2.41 to $6.40 with
vesting at various dates through 2009. These options were granted to members
of
the board of directors, officers, employees and consultants of the Company.
The
fair value of each option is estimated on the issue date using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating
the
fair value: risk free interest of 4.94% to 5.05%; volatility of 88% to 91%;
dividend rate of 0%; and expected life of 2.0 years. The total value of
options awarded during the first six months of 2007 was calculated at
$3,858,000. Expense was recorded of $2,803,000 for the options which were earned
in the first six months ended June 30, 2007.
During
the year ended December 31, 2006, the Company granted 1,665,000
non-qualified stock options outside of the Plans with an exercise price ranging
from $2.25 to $3.68 with vesting at various dates through 2008. These options
were granted to members of the board of directors, officers, and employees
of
the Company. The Company issued 60,000 of ISOs within the 2003 Plan with an
exercise price of $2.10 with vesting at various dates through 2008. The fair
value of each option is estimated on the issue date using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating
the
fair value: risk free interest of 5%; volatility of 101%; dividend rate of
0%
and expected life of 2.4 years. The total value of options awarded during 2006
was calculated at $3,347,000. Expense was recorded of $2,105,000 for the options
which were earned in 2006.
The
following is a summary of the Company’s stock option plans as of June 30,
2007:
|
|
Number
of securities to be issued upon exercise of outstanding
options
|
|
Weighted
average exercise price of outstanding options
|
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|
Equity
compensation plans not approved by security holders
|
|
|
2,057,000
|
|
$
|
1.20
|
|
|
n/a
|
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
2006
Plan
|
|
|
1,845,000
|
|
|
3.98
|
|
|
1,015,000
|
(1)
|
2003
Plan
|
|
|
540,000
|
|
|
0.59
|
|
|
360,000
|
|
Total
|
|
|
4,442,000
|
|
$
|
2.28
|
|
|
1,375,000
|
|
(1) The
aggregate number of shares of common stock that may be issued pursuant to awards
granted under the 2006 Equity Incentive Plan will not exceed 3,500,000 plus
the
number of shares that are ungranted and those that are subject to reversion
under the 2003 Stock Plan. Shares under the 2003 Plan that become eligible
for
awards under the 2006 Plan may not be granted again under the 2003
Plan.
The
following is a summary of stock option activity in 2006 and 2007:
|
|
Number
of Shares Under Warrants
|
|
Exercise
Price
|
|
Outstanding
January 1, 2006
|
|
|
4,020,000
|
|
$
|
0.43
|
|
Granted
|
|
|
1,725,000
|
|
|
3.01
|
|
Exercised
|
|
|
(1,615,000
|
)
|
|
0.49
|
|
Forfeited
|
|
|
(480,000
|
)
|
|
1.57
|
|
Expired
|
|
|
—
|
|
|
—
|
|
Outstanding
at December 31, 2006
|
|
|
3,650,000
|
|
$
|
1.48
|
|
Options
exercisable at December 31, 2006
|
|
|
2,705,000
|
|
|
|
|
Weighted
average fair value of options granted during 2006
|
|
$
|
3.10
|
|
|
|
|
Outstanding
January 1, 2007
|
|
|
3,650,000
|
|
$
|
1.48
|
|
Granted
|
|
|
1,865,000
|
|
|
3.97
|
|
Exercised
|
|
|
(956,000
|
)
|
|
2.48
|
|
Forfeited
|
|
|
(117,000
|
)
|
|
2.71
|
|
Expired
|
|
|
—
|
|
|
—
|
|
Outstanding
June 30, 2007
|
|
|
4,442,000
|
|
$
|
2.28
|
|
Exercisable
at June 30, 2007
|
|
|
3,402,000
|
|
|
|
|
Weighted
Average Fair Value Granted During 2007
|
|
$
|
2.07
|
|
|
|
|
Nonvested
Shares
of Common Stock
During
the six months ending June 30, 2007, the Company issued 620,000 shares
of nonvested common stock to officers and employees of the Company that will
vest based on certain performance based milestones established for each
person.
The
total value of restricted stock awarded and expensed during the first six months
of 2007 was calculated at $1,716,000.
NOTE
12—INCOME TAXES
At
June 30, 2007 and December 31, 2006, the Company had deferred tax
assets principally arising from the net operating loss carry forwards for income
tax purposes multiplied by an expected rate of 34%. As management of the Company
cannot determine that it is more likely than not that the Company will realize
the benefit of the deferred tax assets, a valuation allowance equal to the
deferred tax asset has been established at June 30, 2007 and
December 31, 2006. The significant components of the deferred tax asset at
June 30, 2007 and December 31, 2006 were as follows (in
thousands):
|
|
June
30,
2007
|
|
December
31,
2006
|
|
Net
operating loss carry forward
|
|
$
|
12,202
|
|
$
|
8,425
|
|
Deferred
tax asset
|
|
$
|
4,149
|
|
$
|
2,865
|
|
Deferred
tax asset valuation allowance
|
|
$
|
(4,149
|
)
|
$
|
(2,865
|
)
|
Net
deferred tax asset
|
|
|
—
|
|
|
—
|
|
At
June 30, 2007 and December 31, 2006, the Company had a net operating
loss carry forward of approximately $12,202,000 and $8,425,000 respectively,
which expire in the years 2022 through 2027. The change in the allowance account
from December 31, 2006 to June 30, 2007 was $1,284,000.
NOTE
13—COMMITMENTS
AND CONTINGENCIES
Mount
Hope
The
Mount
Hope Lease may be terminated upon the expiration of its 30-year term, earlier
at
our election, or upon our material breach and failure to cure such breach.
If we
terminate the lease, termination is effective 30 days after receipt by MHMI
of
our written notice to terminate the Mount Hope Lease. In order to maintain
the
lease, the Company must pay certain deferral fees and advance royalties as
discussed below.
The
Mount
Hope Lease Agreement requires a royalty advance (the “Construction Royalty
Advance”) of the greater of $2,500,000 or 3% of the construction capital cost
estimate upon the earliest of the Company’s securing project financing in
sufficient amounts to develop and put into operation the Mount Hope property
at
a production level of at least 10 million pounds of annual production or
October 19, 2008.
The
Company has the right to defer the Construction Royalty Advance for one or
two
years by payment of a deferral fee (the “Deferral Fee”) in the amount of
$350,000 on or before October 19, 2008 and October 19, 2009 in the
event project financing for the project has not been secured by each of the
dates. By October 19, 2010, the Company must pay at a minimum $2,500,000 of
the Construction Royalty Advance with the remainder due upon securing project
financing or 50% of the remainder on October 19, 2011 and the other 50% due
on October 19, 2012.
Once
the
Company has paid in full the Construction Royalty Advance, the Company is
obligated to pay an advance royalty (the “Annual Advance Royalty”) each
October 19 thereafter in the amount of $500,000 per year. The
Construction Royalty Advance and the Annual Advance Royalty are collectively
referred to as the “Advance Royalties”. All Advance Royalties are credited
against the Production Royalties (see note 4) once the mine has achieved
commercial production. (The Deferral Fees are not recoverable against Production
Royalties.)
Based
on
the Company’s current estimate of developing and operating the mine, we believe
our contractual obligations under the Mount Hope Lease Agreement will be as
shown in the following table. This estimate is based on our current estimates
of
the timing of securing project financing and construction capital costs. The
Company is currently in the process of developing a new bankable feasibility
study and our estimates of both the amount and the timing may change upon
completion of the bankable feasibility study (in thousands).
Year
|
|
Deferral
Fees
|
|
Advance
Royalties
|
|
Total
|
|
2007
|
|
$
|
350
|
|
$
|
—
|
|
$
|
350
|
|
2008
|
|
|
350
|
|
|
—
|
|
|
350
|
|
2009
|
|
|
—
|
|
|
21,000
|
|
|
21,000
|
|
2010
|
|
|
—
|
|
|
500
|
|
|
500
|
|
2011
|
|
|
—
|
|
|
500
|
|
|
500
|
|
Thereafter
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
700
|
|
$
|
22,000
|
|
$
|
22,700
|
|
(1) After
the first full year of production the Company estimates that the Production
Royalties will fully recover the Advance Royalties for the life of the project
and, further, the Advance Royalties will be fully recovered (credited against
Production Royalties) by the end of 2012.
Environmental
Considerations
The
Company owns and has owned mineral property interests on certain public and
private lands in Shoshone County, Idaho. The Company’s mineral property holdings
known as the Little Pine Creek and the Chicago-London properties include lands
contained in mining districts that have been designated as “Superfund” sites
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act. The Company and its properties have been and are subject to
a
variety of federal and state regulations governing land use and environmental
matters. The Company believes it has been in substantial compliance with all
such regulations, and is unaware of any pending action or proceeding relating
to
regulatory matters that would affect the financial position of the Company.
The
Company’s management acknowledges, however, that the possibility exists that the
Company may be subject to further environmental liabilities associated with
its
properties in the future, and that the amount and nature of any liabilities
the
Company may be held responsible for is impossible to estimate.
Other
Commitments and Contingencies
The
Company has entered into miscellaneous notes for vehicles and leases for office
equipment at various interest rates and terms totaling $150,000. The table
below
shows these obligations over the next five years (in thousands).
Year
|
|
Lease
Payment
|
|
Interest
on Leases
|
|
Note
Payment
|
|
Note
Interest
|
|
2007
(Remaining portion)
|
|
$
|
5
|
|
$
|
1
|
|
$
|
17
|
|
$
|
2
|
|
2008
|
|
|
10
|
|
|
2
|
|
|
35
|
|
|
3
|
|
2009
|
|
|
10
|
|
|
1
|
|
|
35
|
|
|
2
|
|
2010
|
|
|
10
|
|
|
1
|
|
|
6
|
|
|
—
|
|
2011
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
45
|
|
$
|
5
|
|
$
|
93
|
|
$
|
7
|
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion of our financial condition and plan of operations
constitutes management’s review of the factors that affected our financial and
operating performance for the six months ended June 30, 2007 and 2006. This
discussion should be read in conjunction with the financial statements and
notes
thereto contained elsewhere in this report and in our Form 10-KSB/A, for
the year ended December 31, 2006.
Overview
We
are in
the business of the exploration, development and, if warranted, the mining
of
properties containing molybdenum, as well as silver, gold, base metals and
other
specialty metals. We currently have a 30-year renewable lease for the lands,
surface rights, patented and unpatented claims related to the Mount Hope
Project, a primary molybdenum property, located in Eureka County, Nevada. In
2006, we acquired a second significant molybdenum project, the Hall-Tonopah
project, located in Nye County, Nevada. We also own other properties and mineral
rights on which we intend to conduct mineral exploration and evaluation for
determining economic viability for further development. We continue to identify,
investigate, and acquire other potential properties for future
development.
Mount
Hope.
In
November 2004, we entered into an option agreement with Mt. Hope
Mines, Inc., or MHMI, pursuant to which we were granted an exclusive
one-year option to enter into a lease agreement for Mount Hope’s previously
drilled molybdenum deposit consisting of 13 patented claims and
109 unpatented claims in Eureka County, Nevada, for a lease period of
30 years. In April 2005, we completed a Phase 1 Mine Feasibility Study
with respect to Mount Hope and began the permitting process for placing into
production an open pit molybdenum mine, concentrator and processing facility
capable of producing 44,000 short tons (40,000 metric tons) of ore per day.
In
October 2005, we exercised the option and our lease agreement with MHMI
became effective.
In
December 2005, we completed a Technical Report that evaluated the potential
to
profitably extract the deeper portion of the Mount Hope deposit and augmented
the mine plan contained in the 2005 Phase I Mine Feasibility Study. The
augmented mine plan allowed for the mining and processing of 1.0 billion
short tons (920 million tons) of molybdenum bearing rock over a mine
production life of 50 or more years.
In
June
2007, the Company completed a five hole drill program that produced an aggregate
of over 5,100 feet of core and 1,400 feet of RC drilling. The holes
targeted mineralization expected to be mined within the first five years of
the
mine plan. The core material intersected long runs of mineralization with
average molybdenum grades ranging between 0.145% and 0.118% ranging between
635
and 905 feet in thickness.
The
Company intends to conduct another drilling program prior to the end of 2007,
which will consist of approximately 14 holes (over 21,000 feet of
core) that target mineralization within the first ten years of planned
production.
In
July
2007, the Company announced plans to increase mill throughput capacity at
Mount Hope from 44,000 short tons per day (40,000 metric tons) to an
average of approximately 60,000 short tons per day (54,000 metric tons),
with actual annual throughput dependant on ore characteristics and other
factors. The increased throughput capacity is expected to expand average annual
molybdenum production during the first ten years of production to
37 million pounds from the Company’s prior estimates of approximately
31 million pounds.
The
Company is currently in the process of developing a bankable feasibility study
with respect to the Mount Hope Project, which, due to the additional engineering
required to accommodate the higher throughput capacity, is now scheduled to
be
completed in late August of 2007. The bankable feasibility study will include
optimized mine and waste rock placement plans as well as revised estimates
for
capital and operating costs. As we are currently focused primarily on the
development of the Mount Hope Project, we do not expect to generate revenues
from operations before production of molybdenum begins at the Mount Hope
Project.
Hall-Tonopah.
In March 2006, we purchased from High Desert Winds LLC it’s approximately ten
square mile property in Nye County, Nevada, including water rights, mineral
and
surface rights, buildings and certain equipment. The property includes the
former Hall molybdenum and copper deposit which was mined by open pit methods
between 1982 and 1985 by the Anaconda Minerals Company and between 1988 and
1991
by Cyprus Metals Company for molybdenum. Equatorial Tonopah, Inc. mined
copper from 1999 to 2000 on this property. Much of the deposit was drilled
but
not developed or mined.
In
January 2007, we purchased 100% of the corporation which owned a 12% net smelter
returns royalty on the Hall-Tonopah Property, effectively eliminating the
royalty on the property.
From
January 2007 through April 2007, we completed a drilling program at Hall-Tonopah
on the molybdenum mineralization of the existing molybdenum pit developed by
Cyprus and an east extension mineralized area near the top of the east side
of
the existing pit. This program included 13 reverse circulation drill holes
and
six diamond drill holes.
The
drilling program was designed to validate and confirm the continuity of
mineralization indicated in the previous results of drilling by Anaconda and
Cyprus. The new drilling confirmed previous drill results for the upper ore
body, and has indicated near surface high grade mineralization greater than
0.10% on the east side of the existing molybdenum pit.
The
Company is conducting a pre-feasibility study on the Hall-Tonopah Property,
which it expects to complete before year-end 2007.
Other
Properties.
We also
currently own several other properties located in the western United States.
These properties include additional molybdenum deposits as well as copper and
gold deposits.
Results
of Operations for the Six Months Ended June 30, 2007
Compared
to Six Months Ended June 30, 2006
We
are
classified as an exploration stage company with no producing mines and,
accordingly, we do not produce income. Our net loss for the six months ended
June 30, 2007 was $(18,558,000) as compared to a net loss of $(6,955,000)
for the six months ended June 30, 2006. The increase of $11,603,000 is
attributable primarily to increased level of expenditures in exploration and
research studies required to complete our Environmental Impact Statement and
our
bankable feasibility study at Mount Hope as well as continuing research and
exploration at Hall-Tonopah as we continue to evaluate our molybdenum resources
there. General and administrative costs are also increasing as we continue
to
expand our support personnel for the higher levels of activity in our
exploration efforts.
Exploration
and development expenditures of $10,155,000 were incurred at the Mount Hope
Project and the Hall-Tonopah Project during the six months ended June 30,
2007, as we continued to drill and evaluate our properties. This is consistent
with our stated objective to complete our Mount Hope Project plans and to focus
on the permitting required to bring the project to commercial production
and to confirm existing mineralization as well as identify additional molybdenum
resources at Hall-Tonopah. The expenditures during the six months ended
June 30, 2007 were related to this objective, including associated costs
involved in properly evaluating and developing our feasibility study for the
Mount Hope Project.
We
also
incurred corporate and administrative costs of $8,932,000 for the six months
ended June 30, 2007 compared with $4,309,000 for the six months ended
June 30, 2006 consistent with our increased activity levels. These costs
include employee compensation expenses, increase in staffing levels of corporate
personnel and associated costs, marketing and investor relations expenses,
general legal expenses, and accounting and compliance issues reflecting the
greater complexity of our operations.
During
the six months ended June 30, 2007, we added key Officers, Directors and
employees as a continuation of our previously announced reorganization of the
executive team to keep up with our significant growth. In connection with our
compensation programs we granted stock options and unvested common shares to
attract, retain and motivate our Officers, Directors and key employees. As
a
result, we incurred non-cash equity compensation costs of $4,519,000 in the
six
months ended June 30, 2007 compared with $676,000 in the six months ended June
30, 2006. Approximately one half of the amount for the six months ended June
30,
2007 was as a result of the initial retention of Officers, Directors and
employees and, accordingly, will not be of a recurring nature.
Liquidity
and Capital Resources
We
have
limited capital resources and thus have to rely upon the sale of equity and
debt
securities for the cash required for exploration and development purposes,
for
acquisitions and to fund our administration. Since we do not expect to generate
any revenues in the near future, we must continue to rely upon the sale of
our
equity and debt securities to raise capital. There can be no assurance that
financing, whether debt or equity, will always be available to us in the amount
required at any particular time or for any period or, if available, that it
can
be obtained on terms satisfactory to us.
Our
cash
balance at June 30, 2007 was $27,537,000 compared to $22,501,000 at
June 30, 2006. Total assets at June 30, 2007 were $46,962,000 compared
to $28,336,000 at June 30, 2006. The change in these balances reflects the
purchase of property and water rights for our Mount Hope Project and the
purchase of a corporation to secure the royalty at our Hall-Tonopah project
offset by proceeds received in March 2007, from a private placement of equity.
Current liabilities at June 30, 2007 were $3,245,000 compared to $293,000
at June 30, 2006. This increase in current liabilities reflects our
increased accounts payable due to increased drilling expenses and expenses
related to the preparation of our bankable feasibility study, and due to the
increase in our required provision for post closure reclamation and remediation
costs.
On
January 10, 2006, we concluded a private placement of 3,441,936 units at a
price of $1.10 per unit. Each unit consisted of one share of our common
stock and one-half of one warrant to purchase one share of our common stock.
Each whole warrant is exercisable for 24 months from the date of issuance
and carries an exercise price of $1.75 per whole share. The gross proceeds
of this offering were $3,786,000 and, after payment of sales commissions and
finder’s fees, we received net proceeds of $3,621,000.
On
February 15, 2006, we concluded a private placement of 15,000,000 units at
a price of $2.00 per unit. Each unit consisted of one share of our common
stock and a warrant to purchase one-half of a share of our common stock. Each
whole warrant is exercisable for five years from the date of issuance and
carries an exercise price of $3.75 per whole share. The gross proceeds of
this offering were $30,000,000 and, after payment of sales commissions and
finder’s fees, we received net proceeds of $27,875,000. In the aggregate, we
issued 15 million shares of common stock and warrants to purchase an
additional 8.3 million shares, including warrants issued as compensation to
the placement agent.
On
January 30, 2007, the Company completed its previously announced
acquisition of all of the issued and outstanding shares of a corporation that
held a 12 percent net smelter royalty interest in the mineral rights of the
Company’s Hall-Tonopah molybdenum-copper property in Nye County, Nevada. The
Company now owns the Hall-Tonopah Property and all associated mineral rights
without future royalty obligations. As set forth in the Purchase Agreement,
the
Company paid approximately $4,937,000 in cash at closing. At first commercial
production of the property, the Company has agreed to pay an additional
$6,000,000.
In
April
2007, we concluded a private placement of 7,353,000 units for gross proceeds
of
$25,000,000, with net proceeds to the Company of approximately $23,500,000
after
legal and other related expenses. In the aggregate, the Company issued the
units
at a price of $3.40 per unit. Each unit consisted of one share of common
stock and a warrant to purchase one half of one share of common stock. Each
warrant will be exercisable at a price of $5.20 per whole share for a
period of one year from the date of closing.
See
note 13 to the condensed consolidated notes to the financial statements for
a discussion of commitments and contingencies.
Changes
in Accounting Policies
We
did
not change our accounting policies during the six months ended June 30,
2007.
Special
Note Regarding Forward-Looking Statements
Certain
statements in this report may constitute forward-looking statements, which
involve known and unknown risks, uncertainties and other factors, which may
cause actual results, performance or achievements of our company, the Mount
Hope
Project, Hall-Tonopah project and our other projects, or industry results,
to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. We use the words “may”,
“will”, “believe”, “expect”, “anticipate”, “intend”, “future”, “plan”,
“estimate”, “potential” and other similar expressions to identify
forward-looking statements. Forward-looking statements may include, but are
not
limited to, statements with respect to the following:
|
·
|
the
timing and possible outcome of pending regulatory and permitting
matters;
|
|
·
|
the
parameters and design of our planned initial mining facilities at
the
Mount Hope Project;
|
|
·
|
future
financial or operating performances of our company and our
projects;
|
|
·
|
the
estimation and realization of mineral reserves, if
any;
|
|
·
|
the
timing of exploration, development and production activities and estimated
future production, if any;
|
|
·
|
estimates
related to costs of production, capital, operating and exploration
expenditures;
|
|
·
|
requirements
for additional capital;
|
|
·
|
government
regulation of mining operations, environmental conditions and risks,
reclamation and rehabilitation
expenses;
|
|
·
|
title
disputes or claims;
|
|
·
|
limitations
of insurance coverage; and
|
|
·
|
the
future price of molybdenum, gold, silver or other
metals.
|
You
should not place undue reliance on these forward-looking statements, which
speak
only as of the date of this report. These forward-looking statements are based
on our current expectations and are subject to a number of risks and
uncertainties, including those set forth above. Although we believe that the
expectations reflected in these forward-looking statements are reasonable,
our
actual results could differ materially from those expressed in these
forward-looking statements, and any events anticipated in the forward-looking
statements may not actually occur. Except as required by law, we undertake
no
duty to update any forward-looking statements after the date of this report
to
conform those statements to actual results or to reflect the occurrence of
unanticipated events. We qualify all forward-looking statements contained in
this report by the foregoing cautionary statements.
An
evaluation was performed under the supervision and with the participation
of our
management, including our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934) as of the end of the period covered by this Quarterly Report on Form
10-QSB/A. Based on the foregoing and in light of the material weakness due
to
the lack of effective controls over the valuation and accuracy of stock
compensation expense and valuation of warrants to purchase common stock (as
previously disclosed in our Annual Report on Form 10-KSB/A for the year ended
December 31, 2006), our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures are not
effective, as of the end of the period covered by this report, to ensure
that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules
and
forms and such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer,
to
allow timely decisions regarding required disclosure.
As
more
fully described in our Annual Report on Form 10-KSB/A for the year ended
December 31, 2006, the Company has implemented a number of internal control
procedures to remediate the material weakness discussed above. Specifically
during the period covered by this report we hired new officers with
substantially greater knowledge of and experience in internal controls and
complex financial instruments. The CEO and Financial Officers of the Company
have been hired/appointed to their present positions beginning January 2007
as
follows:
|
a.
|
Chief
Executive Officer - January 2007 |
|
b.
|
Chief
Financial Officer - April 2007
|
|
c.
|
Controller
and Treasurer - June 2007
|
As
part
of the monthly and quarterly closing process, the controller, with the oversight
of the CFO tracks equity instrument transactions during each quarter and
reviews
the results of the stock option software for the recording of share based
payments, to ensure such calculations are made in accordance with accounting
principals generally accepted in the United States.
Also,
a
new board member and chairman of the audit committee with substantial experience
and knowledge in internal controls and complex financial instruments was
appointed in April 2007. As a result of this process, we made changes during
the
quarter ended June 30, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. As a result of these specific internal control improvements during
the quarter plus the other improvements discussed more fully in the Form
10-KSB/A, we believe the material weakness that existed at June 30, 2007
has
been remediated as of the date of this filing.
The
Company intends to continually review and evaluate the design and effectiveness
of our disclosure controls and procedures as well as our internal control
over
financial reporting to improve our controls and procedures over time as the
Company’s business transitions into mining operations and to correct any
deficiencies that we may discover in the future. The Company anticipates
that
additional changes to our internal control and procedures will be made as
we
takes steps to become compliant with Section 404 of the Sarbanes-Oxley Act
of 2002, which we anticipate will apply for our annual report for the year
ended
December 31, 2007.
PART
II
OTHER
INFORMATION
ITEM
6. EXHIBITS
Exhibit
Number
|
|
Description
of Exhibit
|
31.1
|
|
Certification
of CEO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act
|
31.2
|
|
Certification
of CFO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act
|
32.1
|
|
Certification
of CEO pursuant to 18 U.S.C. Section 1350
|
32.2
|
|
Certification
of CFO pursuant to 18 U.S.C.
Section 1350
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
Dated:
November 15, 2007
|
GENERAL
MOLY, INC.
|
|
|
|
|
|
/s/
Bruce D. Hansen
|
|
Bruce
D. Hansen
|
|
Chief
Executive Officer
|