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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to 

 

 

Commission file number: 001-33894

 

 

 MIDWAY GOLD CORP.

(Exact name of registrant as specified in its charter)

British Columbia   98-0459178
(State of other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
Suite 280 – 8310 South Valley Highway    

Englewood, Colorado

  80112
(Address of principal executive offices)   (Zip Code)

 

(720) 979-0900

(Registrant’s Telephone Number, including area code)

 

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

 

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

 

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

Large accelerated filer ¨    Accelerated filer x    Non-accelerated filer ¨    Smaller Reporting Company ¨

 

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

 

Number of Common Shares outstanding at May 1, 2012: 114,131,443

 

 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 3
   
Item 1. Financial Statements. 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of   Operations. 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 39
Item 4. Controls and Procedures. 39
     
PART II - OTHER INFORMATION 40
   
Item 1. Legal Proceedings. 40
Item 1A. Risk Factors. 40
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds. 40
Item 3. Defaults Upon Senior Securities. 40
Item 4. Mine Safety Disclosures. 40
Item 5. Other information. 41
Item 6. Exhibits. 41
     
SIGNATURES   42

 

1
 

 

EXPLANATORY NOTE

 

All amounts in this interim report on Form 10-Q are expressed in Canadian dollars. Unless otherwise indicated, the United States dollar is denoted as “US$.”

 

Financial information is presented in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S. GAAP”).

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements.

 

MIDWAY GOLD CORP.

CONSOLIDATED INTERIM BALANCE SHEETS

(Expressed in Canadian dollars)

 

   March 31,
2012
   December 31,
2011
 
   (unaudited)     
Assets          
           
Current assets:          
Cash and cash equivalents  $6,349,527   $10,191,069 
Amounts receivable (note 7(b))   34,409    31,866 
Prepaid expenses and other current assets   839,813    465,608 
    7,223,749    10,688,543 
           
Investments (notes 4 and 5)   69,176    78,933 
Reclamation deposit (note 8)   599,695    603,062 
Property and Equipment (note 6)   2,480,377    1,638,280 
Mineral properties (note 7)   49,590,266    49,563,134 
           
   $59,963,263   $62,571,952 
           
Liabilities and stockholders’ equity          
           
Current liabilities:          
Accounts payable and accrued liabilities (note 12)  $1,409,631   $1,188,041 
           
Future income tax liability   4,154,968    4,103,278 
           
Stockholders’ equity (note 9):          
Common stock authorized – unlimited, no par value          
Issued – 114,022,333 (2011 – 113,849,475)   124,106,806    123,925,404 
Additional paid in capital   11,589,551    10,950,108 
Accumulated other comprehensive income   (603,546)   26,875 
Deficit accumulated during exploration stage   (80,694,147)   (77,621,754)
    54,398,664    57,280,633 
           
   $59,963,263   $62,571,952 

 

Contingency (note 10)

Commitments (note 11)

Subsequent events (note16)

 

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

 

3
 

 

MIDWAY GOLD CORP.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(Expressed in Canadian dollars) (unaudited)

 

   Three months
ended March
31, 2012
   Three months
ended March
31, 2011
   Cumulative
period from
inception (May
14,1996) to
March 31, 2012
 
             
Expenses               
Consulting (note 12)  $22,720   $43,687   $1,145,349 
Depreciation   83,710    20,492    941,990 
Gain on sale of subsidiary   -    -    (2,806,312)
Interest and bank charges   661    5,004    912,865 
Investor relations   59,758    39,596    1,439,586 
Legal, audit and accounting   247,617    73,102    3,631,739 
Management fees   (8)   (3,717)   210,762 
Mineral exploration expenditures (Schedule)   1,034,261    1,385,222    59,534,911 
Mineral property interests written-off   -    -    4,643,637 
Mineral property interests recovered   -    -    (60,120)
Office and administration   187,134    62,884    2,185,348 
Salaries and benefits   1,251,600    804,384    15,477,152 
Transfer agent and filing fees   37,675    60,861    882,997 
Travel   67,820    61,265    1,278,825 
Operating loss   2,992,948    2,552,780    89,418,729 
                
Other income (expenses):               
Foreign exchange gain (loss)   49,265    49,595    1,577,796 
Loss on change in fair value of warrant liability   -    (592,026)   (1,235,700)
Interest and investment income   14,675    2,012    904,319 
Gain (loss) on sale of equipment   -    -    526,149 
Gain (loss) on sale of investments   -    -    44,077 
Investment write down   -    -    (130,000)
Unrealized gain (loss) on investments (Note 5)   (2,257)   5,916    (602,544)
Other income   (7,396)   -    62,231 
    54,287    (534,503)   1,146,328 
                
Net loss before income tax   2,938,661    3,087,283    88,272,401 
Income tax recovery (expense)   (133,732)   373,000    7,578,254 
                
Net loss  $3,072,393   $2,714,283   $80,694,147 
                
Basic and diluted loss per share  $0.03   $0.03      
                
Weighted average number of shares outstanding   113,960,618    98,409,788      

 

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

 

4
 

 

MIDWAY GOLD CORP.

Consolidated Statement of COMPREHENSIVE Loss

(Expressed in Canadian dollars) (unaudited)

 

   Three Months ended
March 31, 2012
   Three Months ended
March 31, 2011
 
Net loss for the period before other comprehensive loss  $3,072,393   $2,714,283 
Unrealized (gain) on investment (Note 5)   (7,500)   (43,750)
Currency Translation Adjustment   (622,921)   - 
Comprehensive loss  $2,441,972   $2,670,533 

 

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

 

5
 

 

MIDWAY GOLD CORP.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars) (unaudited)

 

   Three months
ended March
31, 2012
   Three months
ended March
31, 2011
   Cumulative
period from
inception (May
14,1996) to
March 31, 2012
 
Cash provided by (used in):               
Operating activities:               
Net loss  $(3,072,393)  $(2,714,283)  $(80,694,147)
Items not involving cash:               
Depreciation   83,710    20,492    941,990 
Stock-based compensation   695,107    528,957    11,296,520 
Unrealized foreign exchange loss (gain)   (82,042)   (147,942)   (1,656,566)
Investment write down   -    -    130,000 
Unrealized (gain) loss on investment   2,257    (5,916)   602,544 
Non-cash interest expense   -    -    234,765 
Loss on change in liability of warrants   -    592,026    1,235,700 
Future income tax recovery   133,732    (373,000)   (7,578,254)
Gain on sale of subsidiary   -    -    (2,806,312)
Loss (gain) on sale of equipment   -    -    (526,149)
Loss (gain) on sale of investments   -    -    (44,077)
Mineral property interests written off   -    -    4,643,637 
Mineral property interest recovery   -    -    (60,120)
Change in non-cash working capital items:               
Amounts receivable   (2,927)   37,061    (16,506)
Prepaid expenses   (383,524)   (357,246)   (869,174)
Accounts payable and accrued liabilities   240,489    205,600    1,523,533 
    (2,385,591)   (2,214,251)   (73,642,616)
Investment activities:               
Proceeds on sale of subsidiary   -    -    254,366 
Proceeds on sale of equipment   -    -    22,820 
Proceeds on sale of mineral property   -    -    1,339,002 
Proceeds on sale of investments   -    -    321,852 
Mineral property acquisitions   (618,758)   (446,801)   (22,712,448)
Deferred acquisition costs   -    -    (23,316)
Purchase of equipment   (914,246)   (190,910)   (4,424,815)
Reclamation deposit   (7,241)   (8,696)   (1,025,686)
    (1,540,245)   (646,407)   (26,248,225)
Financing activities:               
Advance from Red Emerald Ltd.   -    -    12,010,075 
Common stock issued, net of issue costs   125,744    4,310,825    87,947,138 
Promissory note   -    -    2,000,000 
Repayment of promissory note   -    -    (2,000,000)
Convertible debenture   -    -    6,324,605 
    125,744    4,310,825    106,281,818 
Effect of exchange rate changes on cash:   (41,450)   -    (41,450)
                
Increase (decrease) in cash and cash equivalents   (3,841,542)   1,450,167    6,349,527 
Cash and cash equivalents, beginning of period   10,191,069    6,062,816    - 
Cash and cash equivalents, end of period  $6,349,527   $7,512,983   $6,349,527 

 

Supplementary information (note 14)

 

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

 

6
 

 

MIDWAY GOLD CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Expressed in Canadian dollars) (unaudited)

 

   Number of
shares
   Common
stock
   Additional
paid-in capital
   Accumulated
other
comprehensive
loss
   Accumulated
deficit during
the exploration
stage
  

Total

stockholders’

equity 

 
Balance, May 14, 1996 (date of inception)   -   $-   $-   $-   $-   $- 
Shares issued:                              
Private placements   700,000    168,722                   168,722 
Net loss   -    -    -    -    (114,800)   (114,800)
Balance, December 31, 1996   700,000    168,722              (114,800)   53,922 
Shares issued:                              
Initial public offering   2,025,000    590,570    -    -    -    590,570 
Principal shares   750,000    7,500    -    -    -    7,500 
Private placement   1,000,000    1,932,554    321,239    -    -    2,253,793 
Exercise of share purchase warrants   1,000,000    2,803,205    -    -    -    2,803,205 
Acquisition of mineral property interest   1,000,000    2,065,500    -    -    -    2,065,500 
Finder’s fee   150,000    309,825    -    -    -    309,825 
Net loss   -    -    -    -    (2,027,672)   (2,027,672)
Balance, December 31, 1997   6,625,000    7,877,876    321,239    -    (2,142,472)   6,056,643 
Shares issued:                              
Exercise of share purchase warrants   100,000    332,124    (32,124)   -    -    300,000 
Acquisition of mineral property interest   200,000    246,000    -    -    -    246,000 
Finder’s fee   150,000    224,250    -    -    -    224,250 
Net loss   -    -    -    -    (1,943,674)   (1,943,674)
Balance, December 31, 1998   7,075,000    8,680,250    289,115    -    (4,086,146)   4,883,219 
Consolidation of shares on a two for one basis   (3,537,500)   -    -    -    -    - 
Net loss   -    -    -    -    (2,378,063)   (2,378,063)
Balance, December 31, 1999   3,537,500    8,680,250    289,115    -    (6,464,209)   2,505,156 
Net loss   -    -    -    -    (4,718,044)   (4,718,044)
Balance, December 31, 2000   3,537,500    8,680,250    289,115    -    (11,182,253)   (2,212,888)
Net earnings   -    -    -    -    2,427,256    2,427,256 
Balance, December 31, 2001   3,537,500    8,680,250    289,115    -    (8,754,997)   214,368 
Shares issued:                              
Private placement   4,824,500    2,133,786    246,839    -    -    2,380,625 
Exercise of share purchase warrants   4,028,000    1,007,000    -    -    -    1,007,000 
Exercise of stock options   32,000    12,800    -    -    -    12,800 
Financing shares issued   31,250    35,000    -    -    -    35,000 
Acquisition of mineral property interest   4,500,000    3,600,000    -    -    -    3,600,000 
Share issue costs   -    (544,260)   -    -    -    (544,260)
Stock based compensation   -    -    27,000    -    -    27,000 
Net loss   -    -    -    -    (1,657,651)   (1,657,651)
Balance, December 31, 2002   16,953,250    14,924,576    562,954    -    (10,412,648)   5,074,882 
Shares issued:                              
Private placement   700,000    638,838    201,162    -    -    840,000 
Exercise of share purchase warrants   294,500    73,625    -    -    -    73,625 
Share issue costs   -    (19,932)   -    -    -    (19,932)
Stock based compensation   -    -    531,000    -    -    531,000 
Net loss   -    -    -    -    (1,352,679)   (1,352,679)
Balance, December 31, 2003   17,947,750    15,617,107    1,295,116         (11,765,327)   5,146,896 
Shares issued:                              
Private placement   2,234,400    2,122,269    175,407    -    -    2,297,676 
Exercise of share purchase warrants   213,500    300,892    (46,267)   -    -    254,625 
Exercise of stock options   250,000    157,000    (27,000)   -    -    130,000 
Share issue costs   -    (183,512)   -    -    -    (183,512)
Stock based compensation   -    -    941,478    -    -    941,478 
Net loss   -    -    -    -    (2,994,702)   (2,994,702)
Balance, December 31, 2004 carried forward   20,645,650    18,013,756    2,338,734    -    (14,760,029)   5,592,461 

 

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

 

7
 

 

MIDWAY GOLD CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY - CONTINUED

(Expressed in Canadian dollars) (unaudited)

 

   Number of
shares
   Common
stock
   Additional
paid-in capital
   Accumulated
other
comprehensive
loss
   Accumulated
deficit during
the exploration
stage
   Total
stockholders’
equity
 
Balance, December 31, 2004 brought forward   20,645,650   $18,013,756   $2,338,734   $-   $(14,760,029)  $5,592,461 
Shares issued:                              
Private placement   4,075,800    3,266,095    773,335    -    -    4,039,430 
Exercise of stock options   165,500    124,364    (31,964)   -    -    92,400 
Exercise of share purchase warrants   1,743,000    1,543,844    (4,844)   -    -    1,539,000 
Share issue costs   -    -    -    -    -    - 
Stock based compensation   -    (184,660)   488,075    -    -    303,415 
Net loss   -    -    -    -    (4,402,715)   (4,402,715)
Balance, December 31, 2005   26,629,950    22,763,399    3,563,336    -    (19,162,744)   7,163,991 
Shares issued:                              
Private placements   5,725,000    10,760,355    944,645    -    -    11,705,000 
Exercise of stock options   306,000    325,530    (111,330)   -    -    214,200 
Exercise of share purchase warrants   3,227,000    4,182,991    (768,491)   -    -    3,414,500 
Acquisition of mineral property interest   40,000    88,000    -    -    -    88,000 
Share issue costs   -    (248,512)   -    -    -    (248,512)
Stock based compensation   -    -    992,400    -    -    992,400 
Net loss   -    -    -    -    (7,241,228)   (7,241,228)
Balance, December 31, 2006   35,927,950    37,871,763    4,620,560    -    (26,403,972)   16,088,351 
Shares issued:                              
Private placement   2,000,000    5,400,000    -    -    -    5,400,000 
Pan-Nevada acquisition   7,764,109    25,000,431    2,028,074    -    -    27,028,505 
Exercise of stock options   595,000    1,485,415    (694,515)   -    -    790,900 
Exercise of share purchase warrants   3,395,605    10,777,930    (2,081,407)   -    -    8,696,523 
Share issue costs   -    (28,000)   -    -    -    (28,000)
Stock based compensation   -    -    1,502,912    -    -    1,502,912 
Unrealized loss on investments   -    -    -    (120,000)   -    (120,000)
Adjustment of future income tax liability to                              
mineral properties (note 2(p))   -    -    -    -    (389,955)   (389,955)
Net loss   -    -    -    -    (10,666,106)   (10,666,106)
Balance, December 31, 2007   49,682,664    80,507,539    5,375,624    (120,000)   (37,460,033)   48,303,130 
Shares issued:                              
Private placement   14,521,500    6,174,441    956,509    -    -    7,130,950 
Acquisition of mineral property interest   30,000    88,500    -    -    -    88,500 
Exercise of stock options   479,000    1,186,462    (453,212)   -    -    733,250 
Exercise of share purchase warrants   108,500    364,404    (209,405)   -    -    154,999 
Share issue costs   -    (139,705)   -    -    -    (139,705)
Stock based compensation   -    -    501,028    -    -    501,028 
Unrealized loss on investments   -    -    -    (502,225)   -    (502,225)
Investment write-down   -    -    -    622,225    -    622,225 
Net loss   -    -    -    -    (16,165,394)   (16,165,394)
Balance, December 31, 2008   64,821,664    88,181,641    6,170,544    -    (53,625,427)   40,726,758 
Shares issued:                              
Exercise of stock options   33,333    32,815    (11,164)   -    -    21,651 
Exercise of share purchase warrants   12,500,000    4,456,509    (956,509)   -    -    3,500,000 
Stock based compensation   -    -    1,152,238    -    -    1,152,238 
Unrealized gain on investment   -    -    -    53,850    -    53,850 
Realized gain on sale of investments   -    -    -    (53,850)   -    (53,850)
Net loss   -    -    -    -    (2,642,176)   (2,642,176)
Balance, December 31, 2009, carried forward   77,354,997    92,670,965    6,355,109    -    (56,267,603)   42,758,471 

 

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

 

8
 

 

MIDWAY GOLD CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY - CONTINUED

(Expressed in Canadian dollars) (unaudited)

 

   Number of
shares
   Common
stock
   Additional
paid-in capital
   Accumulated
other
comprehensive
loss
   Accumulated
deficit during
the exploration
stage
  

Total

stockholders’

equity 

 
Balance, December 31, 2009, brought forward   77,354,997   $92,670,965   $6,355,109   $-   $(56,267,603)  $42,758,471 
Shares issued:                              
Private placement   1,333,333    514,365    285,635    -    -    800,000 
Public offerings   17,738,666    8,294,058    1,504,996    -    -    9,799,054 
Share issue costs   -    (1,431,027)   212,109    -    -    (1,218,918)
Exercise of share purchase warrants   12,500    14,024    (4,024)   -    -    10,000 
Stock based compensation   -    -    838,601    -    -    838,601 
Unrealized gain on investment   -    -    -    13,125    -    13,125 
Net loss   -    -    -    -    (5,826,972)   (5,826,972)
Balance, December 31, 2010   96,439,496    100,062,385    9,192,426    13,125    (62,094,575)   47,173,361 
Shares issued:                              
Exercise of share purchase warrants   8,611,356    10,849,874    (1,578,554)   -    -    9,271,320 
Exercise of stock options   729,997    743,200    (290,451)   -    -    452,749 
Bought deal offering   7,500,000    11,742,000    -    -    -    11,742,000 
Share issuance under At-the-Market Program   568,626    1,518,845    -    -    -    1,518,845 
Share issue costs   -    (990,900)   -    -    -    (990,900)
Stock-based compensation   -    -    3,626,687    -    -    3,626,687 
Unrealized gain on investment   -    -    -    13,750    -    13,750 
Net loss   -    -    -    -    (15,527,179)   (15,527,179)
Balance, December 31, 2011   113,849,475   $123,925,404   $10,950,108   $26,875   $(77,621,754)  $57,280,633 
Shares issued:                              
Exercise of share purchase warrants   104,525    112,051    (28,430)   -    -    83,621 
Exercise of stock options   68,333    69,351    (27,233)   -    -    42,118 
Share issue costs   -    -    -    -    -    - 
Stock based compensation   -    -    695,106    -    -    695,106 
Unrealized gain on investment   -    -    -    (7,500)   -    (7,500)
Currency translation adjustment   -    -    -    (622,921)   -    (622,921)
Net loss   -    -    -    -    (3,072,393)   (3,072,393)
Balance, March 31, 2012   114,022,333   $124,106,806   $11,589,551   $(603,546)  $(80,694,147)  $54,398,664 

 

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

 

9
 

 

MIDWAY GOLD CORP.

SCHEDULE OF MINERAL EXPLORATION EXPENDITURES

(Expressed in Canadian dollars) (unaudited)

 

  

 

Three months

ended March 31,

2012

  

 

Three months

ended March 31,

2011

   Cumulative period
from inception
(May 14,1996) to
March 31, 2012
 
Exploration costs incurred are summarized as follows:               
Tonopah project               
Assays and analysis  $2,847   $-   $535,739 
Communication   -    -    9,513 
Drilling   (64)   (130)   2,834,782 
Engineering and consulting   5,816    42,223    4,438,671 
Environmental   -    -    236,138 
Field office and supplies   11,335    1,851    277,486 
Legal   (183)   877    165,163 
Property maintenance and taxes   -    (33)   558,809 
Reclamation costs   1,582    -    35,908 
Reproduction and drafting   -    -    23,446 
Salaries and labor   53,079    19,846    919,930 
Travel, transportation and accommodation   3,272    21,200    476,081 
    77,684    85,834    10,511,666 
Spring Valley project               
Assays and analysis   -    -    3,329,900 
Communication   -    -    10,307 
Drilling   -    -    10,261,359 
Engineering and consulting   22,355    18,852    2,654,806 
Environmental   -    -    300,445 
Equipment rental   -    -    64,651 
Field office and supplies   3,725    27    552,971 
Legal   22,654    -    458,329 
Operator fee   -    -    108,339 
Property maintenance and taxes   -    (144)   487,921 
Reclamation costs   -    -    30,873 
Reproduction and drafting   -    -    30,048 
Salaries and labor   10,050    8,538    1,269,718 
Travel, transportation and accommodation   1,110    8,517    857,835 
    59,894    35,790    20,417,502 
Pan project               
Assays and analysis   3,843    36,022    931,924 
Drilling   -    276,013    3,770,537 
Engineering and consulting   23,864    459,616    3,581,689 
Environmental   -    21,583    696,156 
Field office and supplies   30,901    39,342    704,503 
Legal   (2,969)   9,284    301,663 
Property maintenance and taxes   (275)   79,839    869,329 
Reclamation costs   5,081    -    (9,685)
Reproduction and drafting   -    3,429    72,028 
Salaries and labor   82,390    138,829    2,106,298 
Travel, transportation and accommodation   7,569    40,743    481,402 
    150,404    1,104,700    13,505,844 
Sub-total balance carried forward  $287,982   $1,226,324   $44,435,012 

 

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

 

10
 

 

MIDWAY GOLD CORP.

SCHEDULE OF MINERAL EXPLORATION EXPENDITURES - CONTINUED

(Expressed in Canadian dollars) (unaudited)

 

   Three months
ended March 31,
2012
   Three months
ended March 31,
2011
   Cumulative period
from inception
(May 14,1996) to
March 31, 2012
 
Sub-total balance brought forward  $287,982   $1,226,324   $44,435,012 
Burnt Canyon project               
Assays and analysis   5,296    -    48,117 
Drilling   -         170,031 
Engineering and consulting   8,058    -    66,170 
Environmental   -    -    462 
Field office and supplies   2,389    -    6,207 
Legal   -    -    4,230 
Property maintenance and taxes   -    -    63,835 
Reclamation costs   6,907         6,907 
Reproduction and drafting   -    -    5,036 
Salaries and labor   9,642    -    28,159 
Travel, transportation and accommodation   2,806    -    19,085 
    35,098    -    418,239 
Thunder Mountain project               
Assays and analysis   1,719    -    16,287 
Drilling   68,983    -    146,939 
Engineering and consulting   24,941    -    25,647 
Environmental   -    -    1,717 
Field office and supplies   11,950    -    13,143 
Property maintenance and taxes   20,449    -    39,436 
Reclamation costs   -    -    4,787 
Salaries and labor   59,455    191    63,130 
Travel, transportation and accommodation   8,532    -    8,587 
    196,029    191    319,673 
Gold Rock project               
Assays and analysis   59,875    -    250,418 
Drilling   21,766    -    1,074,151 
Engineering and consulting   94,975    12,358    364,982 
Environmental   80,586    -    166,145 
Field office and supplies   53,553    123    133,316 
Legal   1,360    -    29,633 
Property maintenance and taxes   13,547    633    437,242 
Reclamation costs   9,685    8,990    34,871 
Reproduction and drafting   -    108    35,416 
Salaries and labor   122,895    11,541    338,258 
Travel, transportation and accommodation   14,986    1,075    73,208 
    473,228    34,828    2,937,640 
Golden Eagle project               
Assays and analysis   -    -    21,690 
Drilling   -    -    3,638 
Engineering and consulting   21,101    112,915    402,083 
Field office and supplies   -    -    2,265 
Legal   -    -    21,519 
Property maintenance and taxes   -    -    21,377 
Salaries and labor   -    4,463    8,438 
Travel, transportation and accommodation   -    1,398    21,065 
    21,101    118,776    502,075 
Sub-total balance carried forward  $1,013,438   $1,380,119   $48,612,639 

 

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

 

11
 

 

MIDWAY GOLD CORP.

SCHEDULE OF MINERAL EXPLORATION EXPENDITURES - CONTINUED

(Expressed in Canadian dollars) (unaudited)

 

  

 

Three months

ended March

31, 2012

  

 

Three months

ended March 31,

2011

   Cumulative period
from inception
(May 14,1996) to
March 31, 2012
 
Sub-total balance brought forward  $1,013,438   $1,380,119   $48,612,639 
Abandoned properties               
Acquisition costs and option payments   -    -    40,340 
Assays and analysis   -    -    53,791 
Communications   -    -    119,734 
Drilling   -    -    848,921 
Engineering and consulting   -    -    3,272,236 
Equipment rental   -    -    348,377 
Field office and supplies   -    -    306,551 
Foreign exchange gain   -    -    (38,134)
Freight   -    -    234,956 
Geological and geophysical   -    -    63,481 
Interest on convertible loans   -    -    1,288,897 
Legal and accounting   -    -    462,534 
Marketing   -    -    91,917 
Mining costs   -    -    693,985 
Processing and laboratory supplies   -    -    941,335 
Property maintenance and taxes   -    -    447,610 
Reclamation costs   -    -    38,509 
Recoveries   -    -    (39,850)
Reproduction and drafting   -    -    1,179 
Security   -    -    350,584 
Salaries and labor   -    -    19,203 
Travel, transportation and accommodation   -    -    429,499 
Utilities and water   -    -    59,425 
    -    -    10,035,080 
Property investigations               
Assays and analysis   -    -    175,396 
Drilling   -    -    169,129 
Engineering and consulting   -    -    210,391 
Environmental   -    -    22,761 
Field office and supplies   5,680    (97)   25,674 
Legal   -    -    10,952 
Property maintenance and taxes   -    -    123,230 
Reclamation costs   -    -    3,048 
Reproduction and drafting   -    -    4,942 
Salaries and labor   13,596    4,481    24,900 
Travel, transportation and accommodation   1,547    719    116,769 
    20,823    5,103    887,192 
   $1,034,261   $1,385,222   $59,534,911 

 

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

 

12
 

  

MIDWAY GOLD CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.Nature and continuance of operations

 

Midway Gold Corp. (the “Company” or “Midway”) was incorporated on May 14, 1996 under the laws of the Province of British Columbia and its principal business activities are the acquisition, exploration and development of mineral properties.

 

The Company has not generated any revenues from operations. These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business in the foreseeable future. The Company has incurred losses for the three months ended March 31, 2012 of $3,072,393, and since inception of May 14, 1996 to March 31, 2012 resulting in an accumulated deficit of $80,694,147; further losses are anticipated in the development of its business. Management believes that the Company’s cash on hand at March 31, 2012 is sufficient to finance exploration activities and operations through at least the next twelve months. The Company’s ability to continue on a going concern basis beyond the next twelve months depends on its ability to successfully raise additional financing for the substantial capital expenditures required to achieve planned principal operations. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company.

 

These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.

 

2.Significant accounting policies and change in accounting policy

 

The interim consolidated financial statements included herein have been prepared by the Company, without audit, in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) pursuant to Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

 

In management’s opinion, the unaudited consolidated financial statements contained herein reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of our financial position, results of operations, and cash flows on a basis consistent with that of our prior audited consolidated financial statements. However, the results of operations for interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements including the notes thereto for the year ended December 31, 2011 which may be found under the Company’s profile on SEDAR and EDGAR.

 

The accounting policies followed by the Company are set out in note 2 to the audited consolidated financial statements for the year ended December 31, 2011 and have been consistently followed in the preparation of these consolidated interim financial statements, with the exception of those policies outlined below:

 

Foreign Currency Transactions

 

Effective January 1, 2012, the Company changed the functional currency for its U.S. operations to the United States dollar and its reporting currency is the Canadian dollar.

 

The Company’s financial statements are translated from its U.S. functional currency, the United States dollars, to the reporting currency, Canadian dollars, using the current rate method. Assets and liabilities are translated using the current rate in effect at the balance sheet date and revenues and expenses are translated at the average rate for the period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders’ equity.  

 

13
 

 

Mineral Properties

 

The Company expenses all costs related to the maintenance and exploration of mineral properties in which it has secured rights prior to establishment of commercial feasibility. Mineral property acquisition costs are initially capitalized when incurred. The Company assesses the carrying cost for impairment under ASC 360-10 “Accounting for Impairment or Disposal of Long Lived Assets”. When it has been determined that a mineral property has been deemed economically feasible, the costs then incurred to develop such property and construct a mine are capitalized. The costs of construction and development will be amortized using either straight-line or the units-of-production method over the estimated life of the mine. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

 

Recent Accounting Pronouncements

 

We evaluate the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company.

 

Recently adopted accounting policies

 

In May 2011, the FASB issued ASU No. 2011-04, which updated the guidance in ASC Topic 820, Fair Value Measurement. The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments in this update are to be applied prospectively. This guidance became effective for the Company as of January 1, 2012. The adoption of this guidance did not have a material impact on our financial position or results of operations.

 

In June 2011, the FASB issued ASU No. 2011-05, which updated the guidance in ASC Topic 220, Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this update should be applied retrospectively. In December of 2011, the FASB issued ASU No. 2011-12, which defers only those provisions within ASU 2011-05 pertaining to reclassification adjustments out of accumulated other comprehensive income. This guidance, except for those provisions deferred by ASU 2011-12, became effective for the Company as of the beginning January 1, 2012. The adoption of this guidance did not have an impact on our financial position or results of operations.

 

3.Net loss per share

 

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At March 31, 2012 and 2011, the total number of potentially dilutive shares of common stock of the Company excluded from basic net loss per share was 4,740,002 and 2,581,667, respectively.

 

14
 

 

4.Fair Value Measurements

 

ASC 820 establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1- Quoted prices in active markets for identical assets or liabilities.

Level 2- Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3- Unobservable inputs based on the Company’s assumptions.

 

The Company’s Level 1 assets include common shares available for sale with no trading restrictions as determined using a market approach based upon unadjusted quoted prices for identical assets in an active market. Level 1 assets also include warrants that are considered derivatives and are marked to market each reporting period based upon unadjusted quoted prices for identical assets in active markets.

 

The Company’s Level 2 assets include common shares with trading restrictions that will be removed within one year of the financial period reporting date as determined using a market approach and based upon quoted prices for identical assets in an active market adjusted by a discount to market comparable to the discount allowed by the TSX Venture Exchange for private placements.

 

The Company did not have any Level 3 assets as of March 31, 2012.

 

The determination of fair value for financial reporting purposes at March 31, 2012 utilizing the applicable framework is as follows:

 

Financial Instrument  Quoted
Prices in
Active
Markets for
Identical
Assets
   Significant
other
observable
inputs
   Significant
unobservable
inputs
   Total at  
March 31, 2012
 
Available-for-sale securities  $62,500   $-   $-   $62,500 
Derivatives   -    6,676    -    6,676 
Total  $62,500   $6,676   $-   $69,176 

 

Financial instruments measured at fair value as at December 31, 2011 were as follows:

 

Financial Instrument  Quoted
Prices in
Active
Markets for
Identical
Assets
   Significant
other
observable
inputs
   Significant
unobservable
inputs
   Total at
December 31,
2011
 
Available-for-sale securities  $70,000   $-   $-   $70,000 
Derivatives   -    8,933    -    8,933 
Total  $70,000   $8,933   $-   $78,933 

 

5.Investments

 

As consideration of certain area of interest obligations of NV Gold Corporation (“NVX”) that apply to the Roberts Gold project, the Company was issued 250,000 common shares of NVX and 250,000 common share purchase warrants (the “NVX Warrants”) on October 26, 2010. The NVX Warrants entitle the Company to purchase one common share of NVX at an exercise price of $0.40 until October 26, 2012. If the volume weighted average price of the common shares of NVX exceeds $0.60 for twenty consecutive trading days, NVX may notify the Company in writing that the NVX Warrants will expire 15 trading days from receipt of such notice unless exercised by the Company before such date.

 

15
 

  

The NVX Warrants are considered derivatives. The NVX Warrants will be revalued each reporting period with gains or losses recorded in the Statement of Operations. The following Black-Scholes valuation assumptions were used on March 31, 2012: expected life of 0.6 years; volatility of 78%; no dividend yield; and a risk free interest rate of 15%. The following Black-Scholes valuation assumptions were used on December 31, 2011: expected life of 0.82 years; volatility of 68%; no dividend yield; and a risk free interest rate of 0.91%.

 

   March 31, 2012 
   Number of
shares or
warrants
   Cost   Accumulated
unrealized
gains (losses)
   Fair Value 
Available for sale – common shares   250,000   $43,125   $19,375   $62,500 
Warrants   250,000    16,995    (10,319)   6,676 
Total investments       $60,120   $9,056   $69,176 

 

   December 31, 2011 
   Number of
shares or
warrants
   Cost   Accumulated
unrealized
gains (losses)
   Fair Value 
Available for sale – common shares   250,000   $43,125   $26,875   $70,000 
Warrants   250,000    16,995    (8,062)   8,933 
Total investments       $60,120   $18,813   $78,933 

 

During the three month period ended March 31, 2012, the Company recorded a net unrealized gain on the common shares of NVX of $7,500 in accumulated other comprehensive income and a net unrealized loss on the NVX Warrants of $2,257 in the Statement of Operations for the difference in the fair value at March 31, 2012 as compared to December 31, 2011.

 

6.Property and Equipment

 

At March 31, 2012 and December 31, 2011, property and equipment consisted of the following:

 

   March 31,
2012
   December 31,
2011
 
     
Land  $549,558   $536,854 
Buildings and leasehold improvements   502,312    434,864 
Computer equipment and software   755,457    497,317 
Trucks and autos   286,829    293,946 
Field equipment   228,446    247,826 
Office equipment   169,173    133,893 
Construction in progress   512,626    - 
Subtotal   3,004,401    2,144,700 
Accumulated depreciation   (524,024)   (506,420)
Totals  $2,480,377   $1,638,280 

 

Depreciation expense for the three months ended March 31, 2012 and 2011 was $83,710 and $20,492, respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired.

 

16
 

 

7.Mineral properties

 

Details on the Company’s mineral properties are found in note 6 to the audited consolidated financial statements for the year ended December 31, 2011.

 

Mineral property  March 31,
 2012
   December 31,
2011
 
Tonopah  $7,213,819   $7,324,586 
Spring Valley   4,801,613    5,099,159 
Pan   34,264,857    34,020,664 
Gold Rock   1,142,908    863,112 
Golden Eagle   2,167,069    2,255,613 
   $49,590,266   $49,563,134 

 

(a)Tonopah property, Nye County, Nevada

 

Through a series of agreements, amendments and payments the Company acquired a 100% interest in the Tonopah property subject only to a sliding scale royalty on Net Smelter Returns (“NSR”) from any commercial production of between 2% to 7%, based on changes in gold prices and an advance minimum royalty, recoverable from commercial production, of $299,250 (US$300,000) per year on each August 15.

 

(b)Spring Valley property, Nevada

 

At March 31, 2012, no amounts were due from Barrick Gold Exploration Inc. (“Barrick”). At December 31, 2011, the Company had an amount receivable of $6,537 (US$6,428), for recoverable salaries and expenses, from Barrick pursuant to the Spring Valley exploration option and joint venture agreement, which was subsequently paid.

 

(c)Pan property, Nevada

 

The Company assumed a mineral lease agreement in April 2007, with Newark Valley Mining Corp. (“NVMC”) (formerly Gold Standard Royalty Corporation (“GSRC”) and earlier the Lyle Campbell Trust) for a 100% interest in the Pan property. The Company must pay an advance minimum royalty of the greater of US$60,000 or the US dollar equivalent of 174 ounces of gold valued by the average of the London afternoon fixing for the third calendar quarter proceeding January 1 of the year in which the payment is due. The minimum advance royalties will be creditable against a sliding scale NSR production royalty of between 2.5% and 4%. On January 1, 2012, the Company paid $295,428 (US$296,169). The Company must incur a minimum of US$65,000 per year for work expenditures, including claim maintenance fees, during the term of the mining lease.

 

(d)Gold Rock property, Nevada

 

The Company assumed the mineral lease agreement in April 2007, with NVMC for a 100% interest in the Gold Rock property. Annually the Company must pay an advance minimum royalty of the greater of US$60,000 or the US dollar equivalent of 108.05 ounces of gold valued by the average of the London afternoon fixing for the third calendar quarter preceding January 1 of the year in which the payment is due. The minimum advance royalties will be creditable against a sliding scale NSR production royalty of between 2.5% and 4%. On January 1, 2012 the Company paid $183,454 (US$183,914). The Company must incur a minimum of US$75,000 per year for work expenditures, including claim maintenance fees, during the term of the mining lease.

 

(e)Golden Eagle property, Nevada

 

The Company purchased a 75% interest in the Golden Eagle, Washington project from Kinross Gold USA Inc. (“Kinross”) in August 2008, at a cost of $1,537,950 (US$1,500,000) and purchased a 25% interest in the Golden Eagle project from Hecla Limited at a cost of $500,200 (US$483,333). Kinross retained a 2% NSR royalty and was granted a first right of refusal to toll mill ore from the Golden Eagle property at their Kettle River Mill.

 

17
 

 

8.Reclamation deposit

 

The Company is required to post bonds with the Bureau of Land Management (“BLM”) for reclamation of planned mineral exploration programs work associated with the Company’s mineral properties located in the United States. For the Company’s mineral properties that are being actively explored under funding arrangement agreements, the funding partners are responsible for bonding for the surface disturbance created by the exploration programs funded by each of them on those projects.

 

At March 31, 2012 the Company had posted a total of $599,695 (US$601,198) reclamation deposits compared to $603,062 (US$592,981) at December 31, 2011.

 

9.Share capital

 

(a)The Company is authorized to issue an unlimited number of common shares.

 

(b)Share issuances

 

(i)During 1996, the Company issued 420,000 common shares at $0.25 per share by way of a non-brokered private placement for proceeds of $98,722 net of issue costs. In addition the Company issued 280,000 flow-through common shares at $0.25 per share by way of a non-brokered private placement for proceeds of $70,000.

 

(ii)During 1997, the Company completed an initial public offering of 2,000,000 common shares at $0.35 per share for proceeds of $590,570, net of issue costs. In connection with this offering, the Company’s agent received a selling commission of 10% or $0.035 per share and was issued 25,000 shares as a corporate finance fee.

 

(iii)During 1997, the Company issued 1,000,000 units at $2.50 per unit by way of a private placement for proceeds of $2,253,793 net of issue costs. Each unit consisted of one common share and one non-transferable share purchase to purchase one additional common share at $3.00 per share until February 14, 1998. The proceeds of the financing of $2,500,000 were allocated $2,178,761 as to the common shares and $321,239 as to the warrants. During 1998 100,000 of the warrants were exercised and 900,000 expired. In connection with this private placement, the Company’s agent received a selling commission of 7.5% of the proceeds of the units sold or $0.1875 per unit and a corporate finance fee of $15,000.

 

(iv)During 1997, the Company issued 750,000 common shares as performance shares for proceeds of $7,500 that were held in escrow in accordance with the rules of the regulatory authorities of British Columbia. The shares were released 25% in each of 1998, 1999, 2000 and 2001.

 

(v)During 1997, pursuant to an equity participation agreement to acquire an interest in Gemstone Mining Inc. (“Gemstone”), a Utah Corporation that by agreement the creditors of Gemstone were issued 1,000,000 units of the Company on conversion of a debt of $2,065,500 (US$1,500,000). Each unit consisted of one common share and one non-transferable share purchase to purchase one additional common share at US$2.00 per share that was immediately exercised for proceeds of $2,803,205 (US$2,000,000). The first one-third tranche of a conditional finders’ fee was satisfied by the issue of 150,000 common shares in connection with the acquisition of Gemstone.

 

(vi)During 1998, the Company issued 100,000 common shares pursuant to the exercise of share purchase warrants for proceeds of $300,000.

 

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(vii)During 1998, the Company issued 200,000 common shares in connection with the acquisition of Gemstone as well as the second tranche of finder’s fee in connection with that acquisition. The Company’s option to acquire Gemstone expired on January 31, 1998 and the remaining one-third tranche were not issued.

 

(viii)During 1999, the Company consolidated its issued share capital on a two old for one new basis and changed its name from Neary Resources Corporation to Red Emerald Resource Corp.

 

(ix)During 2002, the Company issued 3,500,000 units at $0.25 per unit for proceeds of $875,000 by way of a short form offering document under the policies of the TSX Venture Exchange. Each unit consists of one common share and one common share purchase warrant that entitled the holder to purchase one additional common share at $0.25 per share until October 19, 2002. The Company also issued 150,000 common shares as a finance fee in connection with this offering, and issued the agent 875,000 share purchase warrants exercisable at $0.25 per share until April 19, 2004. During 2002 the Company issued 1,134,500 special warrants at $1.25 per special warrant for proceeds of $1,418,125. Each Special Warrant automatically converted to a unit comprising one common share and one share purchase warrant that entitled the holder to purchase one additional common share at $1.55 per share until November 6, 2003. The proceeds of the financing of $1,418,125 were allocated on a relative fair value basis as $1,171,286 to common shares and $246,839 as to the warrants. During 2003 all of the warrants expired unexercised. In connection with the offering the Company paid the agent a 10% commission totaling $113,450, issued the agent 40,000 common shares as a finance fee in connection with this offering, and issued the agent 170,175 share purchase warrant exercisable at $1.55 per share until July 5, 2003.

 

(x)During 2002, the Company issued 4,028,000 common shares pursuant to the exercise of share purchase warrants for proceeds of $1,007,000.

 

(xi)During 2002, the Company issued 32,000 common shares pursuant to the exercise of stock options for proceeds of $12,800.

 

(xii)During 2002, the Company issued 31,250 common shares as additional consideration to a director who loaned the Company $780,000 bearing interest at 12% per annum. The loan and interest was repaid prior to December 31, 2002.

 

(xiii)During 2002, the Company acquired Rex Exploration Corp. (“Rex”) in exchange for 4,500,000 common shares of the Company.

 

(xiv)During 2003, the Company issued 700,000 units at $1.20 per unit for proceeds of $840,000 by way of a non-brokered private placement. Each unit consists of one common share and one share purchase warrant that entitled the holder to purchase one additional common share at $1.50 until May 25, 2004. The proceeds of the financing of $840,000 were allocated $638,838 as to common shares and $201,162 as to the warrants. During 2004 161,000 of the warrants were exercised and 539,000 expired. Share issue expenses were $19,932.

 

(xv)During 2003, the Company issued 294,500 common shares pursuant to the exercise of share purchase warrants for proceeds of $73,625.

 

(xvi)In January 2004, the Company issued 400,000 units at $2.00 per unit for proceeds of $800,000 by way of a private placement. Each unit consisted of one common share and one non-transferable share purchase warrant that entitled the holder to purchase one additional common share at $2.35 per share for a six month period. The proceeds of the financing of $800,000 were allocated on a relative fair value basis as $624,593 to common shares and $175,407 as to the warrants. All of the warrants expired unexercised in 2004. The Company issued 40,000 common shares as a finder’s fee for this private placement.

 

(xvii)In August 2004, the Company issued 1,020,000 units at $0.75 per unit for proceeds of $765,000 by way of a private placement. Each unit consisted of one common share and one non-transferable share purchase warrant that entitled the holder to purchase one additional common share at $0.80 per share until August 25, 2005. All of the warrants were subsequently exercised. The Company issued 55,650 common shares as a finder’s fee for this private placement.

 

19
 

 

(xviii)In December 2004, the Company issued 700,000 units at $0.85 per unit for proceeds of $595,000 by way of a private placement. Each unit consisted of one common share and one non-transferable share purchase warrant that entitled the holder to purchase one additional common share at $1.00 per share until December 20, 2005. All of the warrants were subsequently exercised. The Company issued 18,750 common shares as a finder’s fee for this private placement.

 

(xix)In February 2005, the Company issued 2,500,000 units at $0.85 per unit for proceeds of $2,125,000 by way of a private placement. Each unit consisted of one common share and one non-transferable share purchase warrant that entitled the holder to purchase one additional common share at $1.00 per share until February 16, 2006. The proceeds of the financing of $2,125,000 were allocated on a relative fair value basis as $1,598,457 to common shares and $526,543 as to warrants. There were 23,000 warrants exercised in fiscal year 2005 and the balance exercised in fiscal year 2006. The Company issued 75,800 common shares for $64,430 and paid $69,700 in cash as a finder’s fee and incurred $26,709 in additional issue costs for this private placement.

 

(xx)In July 2005, the Company issued 1,000,000 units at $1.15 per unit for proceeds of $1,150,000 by way of a private placement. Each unit consisted of one common share and one-half non-transferable share purchase warrant that entitled the holder to purchase one additional common share at $1.15 per share until July 27, 2006. The proceeds of the financing of $1,150,000 were allocated on a relative fair value basis as $995,193 to common shares and $154,807 as to warrants. All of the warrants were exercised in fiscal year 2006. The Company incurred $15,560 in issue costs.

 

(xxi)In August 2005, the Company issued 500,000 units at $1.40 per unit for proceeds of $700,000 by way of a private placement. Each unit consisted of one common share and one-half nontransferable share purchase warrant that entitled the holder to purchase one additional common share at $1.45 per share until August 22, 2006. The proceeds of the financing of $700,000 were allocated on a relative fair value basis as $608,015 to common shares and $91,985 as to warrants. All of the warrants were exercised in fiscal year 2006. The Company incurred $8,261 in issue costs.

 

(xxii)In January 2006, the Company issued 40,000 common shares at a value of $88,000 pursuant to a purchase and sale agreement to purchase mining claims for the Spring Valley project.

 

(xxiii)In May 2006, the Company issued 3,725,000 units at $1.80 per unit for proceeds of $6,705,000 by way of a private placement. Each unit consisted of one common share and one-half nontransferable share purchase warrant. Each whole warrant entitled the holder to purchase one additional common share at $2.70 per share until May 16, 2007. The proceeds of the financing of $6,705,000 were allocated on a relative fair value basis as $5,998,846 to common shares and $706,154 as to warrants. The Company incurred $65,216 in issue costs. By May 16, 2007 1,725,000 of the warrants were exercised and 137,500 expired unexercised.

 

(xxiv)In November 2006, the Company issued 2,000,000 units at $2.50 per unit for proceeds of $5,000,000 by way of a private placement. Each unit consisted of one common share and one-half nontransferable share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share at $3.00 per share until November 10, 2007. The proceeds of the financing of $2,000,000 were allocated on a relative fair value basis as $1,761,509 to common shares and $238,491 as to warrants. The Company paid $88,750 in finders’ fees and incurred $94,546 in issue costs for this private placement. By November 10, 2007 908,782 of the warrants were exercised and 91,218 expired unexercised.

 

(xxv)On April 16, 2007, the Company issued 7,764,109 common shares at a value of $25,000,431, 308,000 stock options at a value of $608,020 and 870,323 share purchase warrants at a value of $1,420,054 in connection with the acquisition of Pan-Nevada Gold Corporation. By December 31, 2007, 154,000 of the stock options had been exercised and 761,823 share purchase warrants had been exercised. By December 31, 2008 the remaining 108,500 share purchase warrants were exercised and 84,000 stock options had been exercised. On October 11, 2008 the final 70,000 stock options expired not exercised.

 

20
 

 

(xxvi)On August 24, 2007, the Company issued 2,000,000 common shares at $2.70 per common share for proceeds of $5,400,000 by way of a private placement. The Company incurred $28,000 in share issue costs.

 

(xxvii)On March 31, 2008, the Company issued 30,000 common shares at a value of $88,500 pursuant to a lease assignment of mining claims for the Gold Rock project. The Company incurred $1,489 in share issue costs.

 

(xxviii)On June 12, 2008, the Company issued 1,421,500 common shares at $2.00 per common share for proceeds of $2,843,000 by way of a private placement. The Company incurred $75,371 in share issue costs.

 

(xxix)On August 1, 2008 the Company issued 600,000 common shares at US$2.50 per common share for proceeds of $1,537,950 (US$1,500,000) by way of a private placement with Kinross. The Company incurred $39,450 in share issue costs.

 

(xxx)On November 12, 2008 the Company issued 12,500,000 units at $0.22 per unit for proceeds of $2,750,000 by way of a private placement. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share at $0.28 per share until May 12, 2009. The proceeds of the financing of $2,750,000 were allocated on a relative fair value basis as $1,793,491 to common shares and $956,509 as to warrants. The Company incurred $23,395 in issue costs for this private placement. In the year ended December 31, 2009 all of the 12,500,000 warrants were exercised for proceeds of $3,500,000.

 

(xxxi)In addition to the 84,000 stock options reported exercised in paragraph xxv, during 2008, the Company issued a further 395,000 common shares pursuant to the exercise of stock options for proceeds of $613,250.

 

(xxxii)During 2009, the Company issued 33,333 common shares pursuant to the exercise of stock options for proceeds of $21,651.

 

(xxxiii)On April 9, 2010, the Company issued 1,333,000 units at $0.60 per unit for proceeds of $800,000 by way of a private placement. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share until October 9, 2011 at an exercise price as follows: $0.70 if exercised on or before October 9, 2010; $0.80 if exercised after October 9, 2010 but on or before April 9, 2011; and $0.90 if exercised after April 9, 2011 but on or before October 9, 2011. The proceeds of the financing of $800,000 were allocated on a relative fair value basis as $514,365 to common shares and $285,635 as to warrants. The Company incurred $95,529 in issue costs for this private placement.

 

(xxxiv)On June 16, 2010, the Company issued 11,078,666 units at $0.60 per unit for proceeds of $6,647,199 by way of a brokered offering in Canada and a non-brokered offering in the United States. Each unit consisted of one common share and one-half share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share until June 16, 2012 at an exercise price of $0.80. The proceeds of the financing of $6,647,199 were allocated on a relative fair value basis as $5,142,202 to common shares and $1,504,997 as to warrants. The Company issued 658,840 agent’s warrants which entitle the holder to purchase one common share until June 16, 2010 at an exercise price of $0.80. These warrants have been recorded at the estimated fair value at the issue date of $212,109. The fair value of warrants was determined using a risk free interest rate of 1.82%, an expected volatility of 131%, an expected life of 2 years, and zero dividends for a fair value per warrant of $0.32. In addition, the Company paid finders’ fees in the amount of $395,304 and incurred other cash share issue costs of $307,553.
21
 

 

(xxxv)In September 2010, the Company issued 12,500 common shares pursuant to the exercise of share purchase warrants for proceeds of $10,000.

 

(xxxvi)In November 2010, the Company closed a public offering and the Company issued 6,660,000 units at US$0.60 per unit, each unit comprising one common share and one half of one non-transferable common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of US$0.90 per share until November 12, 2012, subject to acceleration provisions. The proceeds of the financing of $4,070,725 were allocated first to the fair value of the warrants at $918,870 with the residual amount of $3,151,855 to common shares.

 

The Company incurred $176,288 in issue costs and paid $244,244 to the agent as commission for this public offering. On February 9, 2011, the Company gave notice to the Warrant holders that it accelerated the expiry date of the warrants to March 14, 2011 and by that date 2,650,000 warrants were exercised and 680,000 warrants expired unexercised.

 

(xxxvii)On June 6, 2011, the Company issued 7,500,000 common shares upon the close of a “bought deal” public offering for US$1.60 per share. Gross proceeds on the purchase were $11,742,000 (US$12,000,000). The Company incurred $151,839 in issue costs and paid the agent $587,100 (US$600,000) as a commission for this public offering.

 

(xxxviii)On September 23, 2011, the Company announced that it had established an "At-the-Market" ("ATM") issuance program under which it may sell up to a maximum of 6,000,000 of its common shares.  The ATM issuance program is available to the Company on an as needed basis. Subject to market conditions and funding requirements, the Company may, at its discretion, from time to time sell all, some, or none of the reserved shares during the term of the ATM program.  Any common shares issued under the ATM program will be sold through ATM issuances in the United States.  No ATM issuances will be made through the facilities of any Canadian securities exchange.  Any ATM issuances will be made at market prices prevailing at the time of the sale and, as a result, prices may vary. During the three months ended March 31, 2012, the Company did not issue any shares pursuant to the ATM program. As of March 31, 2012, the Company has issued a total of 568,626 shares and received net proceeds of $1,454,523 pursuant to the ATM program.

 

(xxxix)During the three months ended March 31, 2012, the Company issued 104,525 common shares pursuant to the exercise of share purchase warrants. Proceeds received on the 104,525 common shares issued totalled $83,621.

 

Additionally, during the three months ended March 31, 2012, the Company issued 68,333 common shares pursuant to the exercise of employee stock options. Proceeds received on the options exercised totalled $42,118.

 

(c)Stock options

 

The Company has an incentive stock option plan (the “Plan”) that allows it to grant incentive stock options to its officers, directors, employees and consultants. The Plan was amended on May 12, 2008 to add an appendix called the 2008 Stock Incentive Plan for United States Resident Employees (the “U.S. Plan”) to supplement and be a part of the Plan. The purpose of the U.S. Plan is to enable the Company to grant incentive stock options, as that term is defined under Section 422 of the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder to qualifying employees who are citizens or residents of the United States of America. This does not change the aggregate number of options that can be granted pursuant to the Plan.

 

22
 

 

The purpose of the Plan permits the Company’s directors to grant incentive stock options for the purchase of shares of the Company to persons in consideration for services. Stock options must be non-transferable and the aggregate number of shares that may be reserved for issuance pursuant to stock options may not exceed 10% of the issued shares of the Company at the time of granting and may not exceed 5% to any individual (maximum of 2% to any consultant). The exercise price of stock options is determined by the board of directors of the Company at the time of grant and may not be less than the closing price of the Company’s shares on the trading day immediately preceding the date on which the option is granted and publicly announced, less an applicable discount, and may not otherwise be less than $0.10 per share. Options have a maximum term of ten years and terminate 90 days following the termination of the optionee’s employment, except in the case of death or disability, in which case they terminate one year after the event.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The option pricing model requires the input of subjective assumptions which are based on several different criteria. Expected volatility is based on the historical price volatility of the Company’s common stock.  Expected dividend yield is assumed to be nil, as the Company has not paid dividends since inception. Based on historical experience, forfeitures and cancellations are not significant. The expected life is estimated in accordance with SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” for “plain vanilla” options. Risk free interest rates are based on U.S. government obligations with a term approximating the expected life of the option.  

 

The fair value of stock option grants is amortized over the respective vesting period. The Company recorded stock-based compensation expense, net of forfeitures, of $695,107 and $528,957 in the three months ended March 31, 2012 and 2011, respectively. During the three months ended March 31, 2012 and 2011, $680,719 and $504,766, respectively, were included in salaries and benefits in the statement of operations, $42,019 and $24,191, respectively, were included in salaries and labor in the schedule of mineral exploration expenditures, and $(27,631) and nil, respectively, were included in consulting fees in the statement of operations for non-employee stock-based compensation, for options vesting in that period. The estimated unrecognized compensation cost from unvested options as of March 31, 2012 was approximately $1,473,341, which is expected to be recognized over the remaining vesting period of 1.6 years.

 

The weighted-average grant date fair value of options granted was $1.24 per option during the three months ended March 31, 2012 and $0.95 for the comparable period in 2011.

 

The following table summarizes activity for compensatory stock options during the three months ended March 31, 2012:

 

   Number of
Shares
   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic Value
   Number of
Shares
Exercisable
 
Outstanding, January 1, 2012   8,881,668   $1.36   $6,318,733    6,860,000 
Granted   250,000    1.89    -    - 
Exercised   (68,333)   0.62    -    - 
Cancelled   (63,333)   1.47    -    - 
Outstanding, March 31, 2012   9,000,002   $1.32   $3,714,717    6,930,000 

 

The following table summarizes information about outstanding compensatory stock options as of March 31, 2012:

 

   Options Outstanding   Options Exercisable 
Exercise Prices   Number of
Shares
   Remaining
Contractual Life
(in years)
   Weighted
Average
Exercise
Price
   Number
Exercisable
   Weighted
Average
Exercise Price
   Aggregate
Intrinsic Value
 
 $0.95 - $2.34    3,958,334    4.4   $1.85    2,330,000   $1.76   $393,750 
 $0.58 - $0.71    2,261,668    3.2    0.61    1,820,000    0.61    1,769,667 
 $0.56 - $0.86    1,815,000    2.1    0.73    1,815,000    0.73    1,551,300 
 $2.00 - $3.36    965,000    1.2    2.40    965,000    2.40    - 
      9,000,002    3.3   $1.32    6,930,000   $1.21   $3,714,717 

 

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d)Share purchase warrants:

 

Total outstanding warrants at March 31, 2012 were 1,473,125. The exercise price on all warrants outstanding was $0.80 per share. The warrants are exercisable immediately upon issuance and expire two years from the date of issuance.

 

During the three months ended March 31, 2012, the Company did not issue any warrants.

 

A summary of the Company’s stock purchase warrants as of March 31, 2012 is presented below:

 

   Number of
Warrants
   Weighted
Average
Exercise
Price
   Remaining
Contractual
Life (in years)
 
Balance, December 31, 2011   1,577,650   $0.80    0.4 
Issued   -    -    - 
Exercised   (104,525)   0.80    - 
Expired   -    -    - 
Balance, March 31, 2012   1,473,125   $0.80    0.2 

 

10.Contingency

 

On January 27, 2011, the Company was delivered a summons indicating that it is being sued in the state of Nevada by Redcor Drilling, Inc. ("Redcor") for non-payment of the balance of a drilling invoice that is under dispute by the Company. Redcor is demanding the Company pay US$241,477.24 together with interest at the rate of 4% per annum from September 18, 2010. On March 10, 2011, the Company responded to the summons. The Company intends to continue to protest payment of the amount demanded on the basis of non-performance of services.  The Company has recorded the full amount as an accrued liability without accruing interest as the amount of the liability can be estimated and it is likely the Company may be required to pay some portion of the disputed amount.

 

Redcor placed a mechanic's lien on a portion of the Pan project that the Company leases from a third party. Subsequently, the Company posted a surety bond for the disputed amount which released the lien from the property. Discovery has recently been undertaken in the suit and is in an early state; no trial date has been set.

 

11.Commitments

 

The Company has obligations under operating leases for its corporate offices in Englewood, Colorado and Ely, Nevada and office equipment until 2014 as follows. Future minimum lease payments for non-cancellable leases with initial lease terms in excess of one year are included.

 

   Fiscal Year 
    2012    2013    2014    Total 
Operating Leases  $104,724    132,865    127,419   $365,008 

 

12.Related party transactions

 

The Company had the following related party transactions for the three months ended March 31, 2012 and 2011 respectively.

 

   March 31,
2012
   March 31,
2011
 
         
Consulting services paid to a company owned by Doris Meyer, who, Until March 18, 2011, was an officer of the Company.  $-   $25,875 

 

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Included in accounts payable and accrued liabilities payable, amounts payable to directors and officers at March 31, 2012 and December 31, 2011, were $35,070 and $12,761, respectively.

 

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

 

13.Financial instruments

 

In all material respects, the carrying amounts for the Company’s cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term nature of these instruments. Investments at March 31, 2012 and December 31, 2011 are recorded at fair values (note 4).

 

14.Supplemental disclosure with respect to cash flows

 

The significant non-cash transactions for the three month period ended March 31, 2012 were nil.

 

The significant non-cash transactions for the three month period ended March 31, 2011 consisted of the transfer of $668,484 for the fair value of share purchase warrants exercised from paid in additional capital to share capital; the transfer of $2,154,570 for the fair value of share purchase warrants exercised or expired from warrant liability to share capital.

 

15.Segment disclosures

 

The Company considers itself to operate in a single segment, being mineral exploration and development, with all of the Company’s long lived assets being located in the United States at March 31, 2012 and December 31, 2011.

 

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report filed on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under the heading “Risk Factors and Uncertainties” in our Form 10-K filed with the SEC on March 9, 2012, and elsewhere in this report.

 

This discussion and analysis should be read in conjunction with the accompanying unaudited interim consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the unaudited interim consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Midway to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis Midway reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that Midway believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but Midway does not believe such differences will materially affect our financial position or results of operations. Critical accounting policies, the policies Midway believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are outlined below in “Critical Accounting Policies,” and have not changed significantly.

 

Cautionary Note Regarding Forward-Looking Statements

 

In addition, certain statements made in this report may constitute “forward-looking statements”. These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of Midway to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except for historical information, the matters set forth herein, which are forward-looking statements, involve certain risks and uncertainties that could cause actual results to differ. Potential risks and uncertainties include, but are not limited to, unexpected changes in business and economic conditions; significant increases or decreases in gold prices; changes in interest and currency exchange rates; unanticipated grade changes; metallurgy, processing, access, availability of materials, equipment, supplies and water; determination of reserves; results of current and future exploration activities; results of pending and future feasibility studies; joint venture relationships; political or economic instability, either globally or in the countries in which we operate; local and community impacts and issues; timing of receipt of government approvals; accidents and labor disputes; environmental costs and risks; competitive factors, including competition for property acquisitions; and availability of external financing at reasonable rates or at all. Forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although Midway believes that the expectations reflected in the forward-looking statements contained herein are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are made based on management’s beliefs, estimates, and opinions on the date the statements are made, and Midway undertakes no obligation to update such forward-looking statements if these beliefs, estimates, and opinions should change, except as required by law.

 

Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates

 

The mineral estimates in this Form 10-Q have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in United States Securities and Exchange Commission (“SEC”) Industry Guide 7 under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.

 

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In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.

 

Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.

 

Accordingly, information contained in this Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

 

Overview

 

Company Overview

 

Midway is a development stage company engaged in the acquisition, exploration, and, if warranted, development of gold and silver mineral properties in North America. Our mineral properties are located in Nevada and Washington. The Tonopah, Spring Valley, Gold Rock and Golden Eagle gold properties are exploratory stage projects and have identified gold mineralization and the Burnt Canyon and Thunder Mountain projects are earlier stage gold and silver exploration projects. Our Pan project is in the early development stage.

 

Business Strategy and Development

 

The Company is currently working towards transitioning ourselves from a development stage company to a gold production company with plans to advance the Pan gold property located in White Pine County, Nevada through to production by as early as 2013.

 

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The map below shows the location of Midway’s properties located in Nevada, USA.

 

 

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Highlights for the first quarter 2012 :

 

·Pan project – An Environmental Impact Statement (EIS) is being prepared by the BLM and cooperating agencies as part of the permitting process for a mining plan of operations submitted by Midway.

 

·Tonopah project – Assay results were received for core drilling conducted in fiscal year 2011.

 

·Spring Valley project – Assay results were received from drilling by Barrick conducted in the fourth quarter of fiscal year 2011.

 

·Gold Rock project – A new NI 43-101 Technical Report and resource estimate was completed based on historic drill data and recent Midway drilling.

 

Activities on Midway’s properties in the first quarter ended March 31, 2012 and up to the date of this Quarterly Report filed on Form 10-Q, are described in further detail below.

 

Pan Project, White Pine County, Nevada

 

The Pan property is located at the northern end of the Pancake mountain range in western White Pine County, Nevada, approximately 22 miles southeast of Eureka, Nevada, and 50 miles west of Ely, Nevada.  Access is via a seven mile dirt road running south-southeast from US Highway 50, at a point about 17 miles southeast of Eureka, Nevada. Eureka has a population of about 2,000. Water is readily available from wells west of the property. In March 2011, we contracted a third party vendor to obtain permits to extend power lines to the property.

 

Highlights

A Plan of Operations for a mining permit was submitted to the BLM and the Nevada Division of Environmental Protection (“NDEP”) in November 2011 and has been deemed complete. The BLM published in the Federal Register a notice of intent to develop an Environmental Impact Statement. Public scoping meetings were held on May 1-3, 2011 in Ely, Eureka, and Reno, Nevada. A new access road for the project has been permitted and will be constructed in 2012. Permitting is underway to extend power lines to the property. A water well has been completed for the project.

 

Mineral Reserves and Resources

 

Cautionary Note to U.S. Investors – In this Quarterly Report we use the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource”, which are geological and mining terms as defined in accordance with NI 43-101 under the guidelines adopted by CIM, as CIM Standards in Mineral Resources and Reserve Definition and Guidelines. U.S. investors in particular are advised to read carefully the definitions of these terms as well as the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” above.

 

In October 2011, the Company reported an updated resource estimate for the Pan project based on results from 2011 drilling received to date. The updated Measured and indicated resource estimate exceeds one million ounces of gold. The 1.13 million ounces of gold are contained in 37 million tonnes of 0.49 grams per tonne (gpt) gold in the Measured category and 43 million tonnes of 0.40 gpt gold in the Indicated category using a 0.14 gpt gold cutoff grade. The updated resource was prepared by Gustavson Associates, LLC (“Gustavson”). The mineral resources are summarized below.

 

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Updated Resource Estimate, Pan Project, Nevada

  Measured Resource
  Cutoff (gpt)  Tonnes  Grade (gpt)  Gold ounces
  0.27  27,352,000  0.59  520,000
  0.21  30,857,000  0.55  547,000
  0.14  36,920,000  0.49  579,000
  0.07  50,924,000  0.38  622,000

 

  Indicated Resource
  Cutoff (gpt)  Tonnes  Grade (gpt)  Gold ounces
  0.27  27,126,000  0.52  453,000
  0.21  32,652,000  0.47  495,000
  0.14  43,118,000  0.40  551,000
  0.07  73,925,000  0.27  645,000

 

  Measured Plus Indicated Resource
  Cutoff (gpt)  Tonnes  Grade (gpt)  Gold ounces
  0.27  54,478,000  0.56  974,000
  0.21  63,509,000  0.51  1,042,000
  0.14  80,037,000  0.44  1,130,000
  0.07  124,849,000  0.32  1,268,000

 

  Inferred Resource
  Cutoff (gpt)  Tonnes  Grade (gpt)  Gold ounces
  0.27  1,771,000  0.58  33,000
  0.21  2,229,000  0.51  37,000
  0.14  3,928,000  0.36  45,000
  0.07  9,693,000  0.20  63,000

 

Note: The tonnage and total ounces of gold were determined from the statistical block model. Average grades were calculated from the tonnage and total ounces and then rounded to the significant digits shown. Calculations based on this table may differ due to the effect of rounding. See “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates.”

 

On November 15, 2011, The Company announced completion of a Feasibility Study showing robust economics for the Pan project. Mineral reserves were based upon a design pit using Lerchs Grossmann generated pit surfaces that maximize revenue based on a $1,200 per ounce three-year trailing average price of gold. Cutoff grades of 0.21 gpt in the South pit and 0.27 gpt in the North & Central pits produced the project’s highest NPV.

 

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Table 2: Total Pan Mineral Reserves, November 2011

Pit
Area
  Cutoff Grade
(grams/tonne)
  Metric Tonnes
(x 1000)
  Gold Grade
(grams/tonne)
  Ounces Gold
(x 1000)
             
Proven
North & Central  0.27  13,085  0.60  251
South  0.21  12,160  0.61  236
All Pits     25,245  0.60  487
             
Probable
North & Central  0.27  10,994  0.50  178
South  0.21  12,073  0.51  199
All Pits     23,067  0.51  377
             
Proven plus Probable
North & Central  0.27  24,078  0.55  429
South  0.21  24,233  0.56  435
All Pits     48,311  0.56  864

 

Note: The tonnage and total ounces of gold were determined from the statistical block model. Average grades were calculated from the tonnage and total ounces and then rounded to the significant digits shown. Calculations based on this table may differ due to the effect of rounding. See “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates.”

 

Mining and Production

 

The Pan gold deposit contains mineralization at or near the surface and spatially distributed in a manner that is ideal for open pit mining methods. Gold grade distribution and the results of preliminary mineral processing testing indicate that ore from the Pan deposit can be processed by conventional heap leaching methods. The method of material transport evaluated for this study is open pit mining using a 21.6-yd3 front end shovel as the main loading unit with a 16-yd3 front end loader as a backup loading unit. The ore will be loaded into 150-ton haul trucks and transported to the primary jaw crusher, which will be set up at the mouth of the pit.  The primary jaw crusher is a semi-mobile unit mounted on skids that will be moved to the mouth of whichever pit is being mined. The crushed ore material will be conveyed to the secondary crushing site, crushed to P80 ½-inch (North) and P80 1½-inch (South), agglomerated, and conveyed to the heap leach pad.  The waste material will be loaded into the 150-ton haul trucks and hauled directly to the waste dump.  The truck haul method was chosen over in-pit mobile crushers and mobile conveyors in order to simplify waste dump construction and allow for more flexibility in day to day mining activities.

 

Operating Costs

Description  US$
Per ton of ore
   US$
Per oz of gold
 
Mining   2.78    227.97 
Processing   2.58    211.82 
G&A   0.37    30.49 
Production Taxes   0.52    42.99 
Contingency – 10%   0.29    23.51 
Total Operating Cost  $6.54   $536.78 

 

Initial Capital Costs

Description   US$ 
Construction and owner’s capital   84.2 million 
Contingency (5%)   6.8 million 
Working capital and inventory   8.2 million 
Total  $99.2 million 

 

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Metallurgy and Processing

 

Material from the North and South Pan pits will be processed using conventional heap leaching methods. Ore from both pits will be crushed by the primary in-pit mobile jaw crusher and secondary and tertiary cone crushers to P80 ½-inch (North) and P80 ½-inch (South) prior to leaching. The fines will be agglomerated. Crush size and leach kinetics are based on current metallurgical testing. Additional testing for optimization is underway.

 

Barren solution will be distributed on the leach pad with drip tube emitters. Pregnant solution and storm water storage ponds are integral to the leach pad system. Pregnant solutions will be treated in an adsorption/desorption refining (ADR) plant using conventional unit processes.

 

The Feasibility Study was prepared to the standards of NI 43-101. The open pit Mineral reserves and resources were completed by Gustavson, with Terre Lane and Donald E. Hulse acting as the qualified persons.

 

The Company incurred $150,404 and $1,104,700 of expenditures at the Pan project in the three months ended March 31, 2012 and 2011, respectively. These expenditures were primarily for salaries and labor, which was 55% during the three months ended March 31, 2012. For the comparable period during 2011, expenditures were primarily for engineering and consulting which was 42% and drilling which was 25%.

 

Tonopah Project, Nye County, Nevada

 

The Tonopah property is located in Nye County, Nevada, approximately 15 miles northeast of the town of Tonopah, 210 miles northwest of Las Vegas and 236 miles southeast of Reno.  The property is over the northeastern flank of the San Antonio Mountains and in the Ralston Valley. Water for exploration purposes is available from water wells for a fee from municipal sources. Power is accessible from existing power lines crossing the property, however capacity is unknown and may be limited.

 

During the three months ended March 31, 2012, we received assay results for core drilling conducted in fiscal year 2011. Assays in the discovery aone identified multiple high grade intercepts listed below:

 

0.4 meters of 334.9 grams per tonne (gpt) gold and 1.5 meters of 78.41 gpt gold within a zone of 45.9 meters of 7.68 gpt gold in drill hole MW11-09c

 

0.5 meters of 88 gpt gold within a zone of 47.9 meters of 2.02 gpt gold in MW11-05c

 

2.7 meters of 17.5 gpt gold within a zone of 21.6 meters of 4.83 gpt gold in MW11-07c


In addition, the drilling also encountered longer intercepts of:

 

46.6 meters of 2.67 gpt gold in MW11-08c

 

30.5 meters of 2.09 gpt gold in MW11-11c

 

52.4 meters of 1.99 gpt gold in MW11-04c

 

44.5 meters of 1.13 gpt gold in MW11-06c

 

The Company incurred $77,684 and $85,834 of expenditures at the Tonopah project in the three months ended March 31, 2012 and 2011, respectively. The expenditures were comprised of 68% related to salaries and wages for the three months ended March 31, 2012 and 49% related to engineering and consulting expenses for the comparable period in 2011.

 

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Spring Valley Project, Pershing County, Nevada

 

The Spring Valley property is located in the Spring Valley Mining District, Pershing County, Nevada, approximately 20 miles northeast of the town of Lovelock.  The property is accessed from Nevada State Highway 50, which extends eastward from US Interstate 80 and is paved to the Rochester turn-off; thereafter it is a dirt road.  Water for exploration purposes is available from water wells drilled on the property under temporary grant of water rights. Power is accessible from existing power lines, however capacity is unknown and may be limited.

 

Gold has been intercepted over an area 5,200 feet long by 3,500 feet wide that extended to a depth of 1,400 feet, suggesting the presence of a large mineral system. The Spring Valley project is under an exploration and option to joint venture agreement with Barrick. Barrick is funding 100% of the costs to earn an interest in this project. Barrick spent $7.6 million (unaudited) in 2011. Barrick's total expenditure through the end of fiscal year 2011 of approximately $17.7 million exceeds the cumulative $16 million expenditure required. Barrick has informed Midway that it intends to conduct and fund an $11 million program in fiscal year 2012 that includes both exploration drilling and development work in preparation for an internal pre-feasibility study. Exploration will be focused on in-fill drilling in the north resource area and expansion drilling of the south resource area. The development work will include metallurgical, geotechnical and hydrological studies. This program exceeds the minimum required 2012 program.

 

Barrick provided the Company with results from fourth quarter 2011 drilling. In fiscal year 2011, Barrick completed 4,682 meters in 14 core holes and 14,458 meters in 32 reverse circulation (RC) holes and 10 core pre-collars. Higher grade intercepts include:

 

·21.3 meters of 4.73 grams per tonne (gpt) including 1.5 meters of 62.71 gpt in SV11-538C

 

·6.1 meters of 6.86 gpt including 3.0 meters of 13.51 gpt in SV11-521

 

·6.1 meters of 4.97 gpt including 1.5 meters of 18.89 gpt in SV11-530

 

·1.5 meters of 22.11 gpt in SV11-544

 

·9.8 meters of 2.13 gpt in SV11-537C

 

Spring Valley has an estimated 2.16 million ounces of gold in the measured and indicated categories, consisting of 0.93 million ounces in the measured category and 1.23 million ounces in the Indicated category at a cut-off grade of 0.14 grams per tonne (g/t). There is an additional inferred resource of 1.97 million ounces of gold at the same cut-off grade. The measured resource is contained within 59.0 million tonnes grading 0.49 g/t, the indicated resource is contained within 85.8 million tonnes grading 0.45 g/t and the inferred resource is contained within 103.9 million tonnes grading 0.59 g/t.

 

Measured and indicated resources are estimated pursuant to Canadian industry standards. See “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” above. The Spring Valley project is without known reserves, as defined under SEC Guide 7, and the proposed program for the property is exploratory in nature.

 

Barrick is funding the majority of the ongoing costs of this project. In the three months ended March 31, 2012 and 2011, the Company incurred $59,894 and $35,790, respectively, primarily to fund engineering and legal costs incurred on the portion of the Seymork land that falls outside of the area of interest under the Barrick joint venture agreement.

 

Gold Rock Project, White Pine County, Nevada

 

The Gold Rock property is situated in the eastern Pancake Range in western White Pine County, Nevada. The property is 8 miles southeast of the Company’s Pan project. Access is via the Green Springs road from US Highway 50 approximately 65 miles from Ely, Nevada. Water for exploration purposes is available from wells in the region under temporary grant of water rights. It is anticipated that power will be available from the line being extended to serve the nearby Pan Project.

 

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Midway commissioned a new NI 43-101 Technical Report based on historic drilling and fiscal year 2011 drilling by the Company. The report estimates a new Indicated resource of 310,000 ounces (oz) of gold and inferred resource of 331,000 oz of gold. The gold resource, which appears to be open in all directions, represents a significant increase above the previously reported 344,700 oz historic estimate. The indicated resource is contained in 12,968,000 tonnes at a grade of 0.74 grams per tonne (gpt) gold. The inferred resource is contained in 17,894,000 tonnes at a grade of 0.58 gpt gold. The new resource includes results from 466 verified historic drill holes and 31 Midway verification holes that were drilled in 2011. The Gold Rock project lies 8 kilometers southeast of Midway's Pan project.


The resource extends for 2,500 meters north and south from the historic Easy Junior open pit gold mine. The significantly higher grade of the indicated resource reflects the difference between the use of fire assay results in estimation of the indicated resource and inclusion of cyanide solution assays in estimating the inferred resource. These solution assays, in historic drill holes by previous owners, appear to significantly understate the gold grade as compared to fire assay results. A set of 1,956 samples having both solution assays and fire assays averaged 25% difference between the assay types. Solution assays comprise about 35% of the gold values in the total resource. The indicated resource was calculated using only samples with verified fire assays; samples with cyanide solution assays were restricted to the inferred resource category.

 

A rigorous two-stage verification program was critical to validate the previous drill hole database before calculating a new resource estimate at Gold Rock. The first stage required independent validation of the historic drill results by engineers at Gustavson. This review resulted in validation of drill results from 52,000 meters of previous drilling in 466 holes. The second stage was a 2011 Midway drilling program to independently confirm gold grades, geology, and rock alteration reported from the earlier drill holes. Midway drilled 8,000 meters in 31 holes, including six core holes.

 

Resource Estimate, Gold Rock Project, Nevada
   Inferred Resource  Indicated Resource
Cutoff (gpt)  Tonnes  Grade (gpt)  Gold ounces  Tonnes  Grade (gpt)  Gold ounces
0.51  7,866,000  0.83  211,000  7,820,000  0.98  247,000
0.41  10,857,000  0.73  255,000  9,593,000  0.89  273,000
0.27  17,894,000  0.58  331,000  12,968,000  0.74  310,000
0.14  30,460,000  0.42  409,000  18,010,000  0.59  343,000

 

Note: The tonnage and total ounces of gold were determined from the statistical block model. Average grades were calculated from the tonnage and total ounces and then rounded to the significant digits shown. Calculations based on this table may differ due to the effect of rounding. See “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates.”

 

The indicated and inferred resource estimates include all data available through February, 2012, and were prepared by Gustavson, under the direction of Donald E. Hulse and Donald J. Baker, independent qualified persons.

 

Permitting is underway for a second round of drilling designed to infill the historic drilling and to test for expansion of the resource along strike and at depth. A surface exploration program is on-going to identify additional targets that may be tested in a third round of drilling either in mid to late 2012 or 2013.

 

The Company incurred $473,228 expenditures at the Gold Rock project in the three months ended March 31, 2012 of which 26% was related to salary and wages, 20% were cost of engineering studies and the balance on geological programs. For the comparable period in 2011, the company incurred $34,828, of which 35% was the cost of engineering and consulting.

 

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Burnt Canyon Project, Pershing County, Nevada

 

Burnt Canyon is a volcanic hosted epithermal system with gold identified in numerous rock and soil samples. The project lies between high grade veins in the Seven Troughs district to the south and the Wildcat disseminated gold deposit to the north in Pershing County, Nevada.

 

The Company drilled 3,395 feet in 8 RC holes during 2011. Assay results were not sufficient to justify continued exploration on the property. In April 2012, the Company terminated the leases comprising of property position and released all rights in the underlying claims.

 

The Company expensed $35,098 of costs at the Burnt Canyon project in the three months ended March 31, 2012, of which 43% was for engineering and reclamation, and 27% related to salaries and wages. The Company did not conduct any work on the Burnt Canyon project in the three months ended March 31, 2011. 

 

Thunder Mountain Project, Nye County, Nevada

 

Thunder Mountain is a gold and silver rich epithermal vein and disseminated gold system hosted in rhyolite tuffs and flow dome complexes located six miles southeast of the Tonopah project in Nye County, Nevada.

 

In March 2012, the company began reverse circulation drilling on the project and assay results are pending.

 

The Company incurred $196,029 expenditures at the Thunder Mountain project in the three months ended March 31, 2012 of which 35% was related to drilling and 30% related to salaries and wages. For the comparable period in 2011, the company incurred $191 all of which were for salaries and wages.

 

Golden Eagle Project, Ferry County, Washington

 

The Golden Eagle property is located on private land in the Eureka (Republic) mining district in Ferry County,

Washington. The property is two miles northwest of the town of Republic, Washington and is accessed by the Knob Hill county road.

 

Engineering studies are continuing, including evaluations of methods for processing sulfide mineralization and issues related to permitting.

 

The Company incurred $21,101 and $118,776 of expenditures at the Golden Eagle project in the three months ended March 31, 2012 and 2011, primarily for engineering studies.

 

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Results of Operations

 

Three months ended March 31, 2012 compared to the three months ended March 31, 2011

 

The following table summarizes our results of operation for the three months ended March 31, 2012 compared to the three months ended March 31, 2011:

 

   March 31, 2012   March 31, 2011 
           
Expenses          
Consulting  $22,720   $43,687 
Depreciation   83,710    20,492 
Interest and bank charges   661    5,004 
Investor relations   59,758    39,596 
Legal, audit and accounting   247,617    73,102 
Management fees   (8)   (3,717)
Mineral exploration expenditures (see schedule)   1,034,261    1,385,222 
Office and administration   187,134    62,884 
Salaries and benefits   1,251,600    804,384 
Transfer agent and filing fees   37,675    60,861 
Travel   67,820    61,265 
Operating loss   2,992,948    2,552,780 
           
Other income (expenses)   54,287    (534,503)
Income tax recovery   (133,732)   373,000 
           
Net loss  $3,072,393   $2,714,283 

 

Significant differences between the periods are as follows:

 

Depreciation expense during the three months ended March 31, 2012 was $83,710 compared to $20,492 during the comparable period of 2011, an increase of $63,218, or 309%. This was primarily due to a substantial increase in depreciable assets of 120% from the comparable period of 2011.

 

Exploration expenses for the three months ended March 31, 2012 decreased $350,961, or 25%, from the same period of 2011. Details of the expenses in each period may be found in the schedule of mineral exploration expenses to the unaudited consolidated interim financial statements. Exploration levels are determined by the success of previous exploration programs on each project and cash available to fund additional programs. Exploration salaries and labor include the non-cash estimated fair value of stock based compensation for stock options granted to technical employees for the three months ended March 31, 2012 of $42,019 compared to $24,191 during the comparable period of 2011.

 

Office and administration expenses for the three months ended March 31, 2012 were $187,134 compared to $62,884 during the comparable period of 2011, an increase of $124,250 or 198%. This increase is primarily a result of additional overhead costs related to our increase in employees. Additionally, the Company also purchased a Director and Officer insurance policy in 2012.

 

Director’s fees, salaries and benefits during the three months ended March 31, 2012 were $1,251,600 inclusive of $680,719 of non-cash stock based compensation, compared to $804,384 and $504,766 during the comparable period of 2011, respectively, an increase of $447,216, or 56%. We use an option pricing model to estimate the value of stock options granted to officers, directors, employees and consultants. We use the Black-Scholes-Merton model, which requires considerable judgment selecting the subjective assumptions that are critical to the results produced by the model, to calculate the estimated fair value. We record the estimated fair value as an expense on a pro-rata basis over the vesting period of the options. The increase in the cash component of salaries and benefits is attributable to an increase in the number of employees of the Company, 27 as of March 31, 2012 compared to 16 as of March 31, 2011.

 

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Transfer agent and filing fees for the three months ended March 31, 2012 decreased $23,186, or 38%, from the same period of 2011. The change was primarily related to a decrease in issuance of the Company’s shares as compared to the comparable period of 2011.

 

Other income and expenses during the three months ended March 31, 2012 were a net income of $54,287 compared to a net expense of $534,503 during the comparable period of 2011, a net change of $588,790 or 110%. This change was primarily caused by a loss of $592,026 incurred on a derivative liability that was carried on the balance sheet in the comparable period of 2011.

 

Income tax recovery for the three months ended March 31, 2012 decreased $506,732, or 136%, from the same period of 2011. The decrease is primarily related to an adjustment to the future income tax liability that is associated with the acquisition of the Pan-Nevada and Gold Rock projects.

 

Liquidity and Capital Resources

 

As of March 31, 2012, we had working capital of $5,814,118, consisting of current assets of $7,223,749 and current liabilities of $1,409,631. This represents a decrease of $3,686,384 from the working capital balance of $9,500,502 as of December 31, 2011. Consistent with our plans, our working capital balance fluctuates as we use cash to fund our exploration, development activities and other operating expenses.

 

The Company has not generated revenues from operations. These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, confirmation of the Company’s interests in the underlying properties, the attainment of profitable operations and/or realizing proceeds from the sale of one or more of the Company’s properties. As at March 31, 2012, the Company had an accumulated deficit of $80,694,147 and working capital of $5,814,118 which management believes is sufficient to fund ordinary operations through the next twelve months. However the Company intends to raise additional capital through debt and/or equity placements as the opportunity presents itself.

 

We have historically relied on equity financings to fund our operations. From inception through March 31, 2012, we received $87,947,133 in cash, services, and other consideration through issuance of shares of our common stock. As of March 31, 2012, we did not have any outstanding debt.

 

Our most significant expenditures for the remainder of 2012 are expected to be costs associated with the development of our Pan project and further exploration of our properties. We also continue to incur operating expenses approximating $420,000 per month for salaries and benefits (exclusive of non-cash stock-based compensation), professional fees, community relations, investor relations, travel and other overhead expenses at our Colorado executive offices and Ely, Nevada locations.

 

The balance of cash and equivalents as of March 31, 2012 decreased to $6,349,527 from $10,191,069 as of December 31, 2011, a net decrease in cash of $3,841,542. The decrease was primarily the result of cash used to fund exploration activities and the development costs related to our Pan project.

 

Net cash used in operating activities was $2,385,591 during the three months ended March 31, 2012 compared to $2,214,251 during the comparable period in 2011, an increase of $171,340. Our use of operating cash during the 2012 period has shifted from exploration activities to development activities, consistent with our plans to advance the Pan property through to production.

 

Net cash used in investing activities for the three months ended March 31, 2012 was $1,540,245, compared to net cash used by investing activities of $646,407 for the three months ended March 31, 2011.  Although most of our exploration stage expenditures are recorded as an expense rather than an investment, we capitalize the acquisition cost of land and mineral rights and certain equipment that has alternative future uses or significant salvage value, including furniture, and electronics, and the cost of these capitalized assets is reflected in our investing activities. We also capitalize certain permitting and engineering activities as part of our plans to advance the Pan project. Cash used in investing activities during the three months ended March 31, 2012 consisted primarily of mineral property acquisition costs of $618,758, permitting and engineering activities on the Pan project of $512,626, and additional equipment purchases of $401,620.

 

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Net cash used in financing activities for the three months ended March 31, 2012 was $125,744, consisting of the issuance of shares of the Company’s common stock as a result of options and warrants exercised during the period. During the comparable period in 2011, cash provided by financing activities was $4,310,825, consisting of proceeds from the sale of common shares.

 

Contractual Obligations

 

The Company has obligations under operating leases for its corporate offices in Englewood, Colorado and Ely, Nevada and office equipment until 2014 as follows. Future minimum lease payments for non-cancellable leases with initial lease terms in excess of one year are included.

 

   Fiscal Year 
    2012    2013    2014    Total 
Operating Leases  $104,724    132,865    127,419   $365,008 

 

Off-balance sheet arrangements

 

There are no off balance sheet arrangements.

 

Inflation

 

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.

 

Environmental Compliance

 

Our current and future exploration and development activities, as well as our future mining and processing operations, are subject to various federal, state and local laws and regulations in the countries in which we conduct our activities. These laws and regulations govern the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. We expect to be able to comply with those laws and do not believe that compliance will have a material adverse effect on our competitive position. We intend to obtain all licenses and permits required by all applicable regulatory agencies in connection with our mining operations and exploration activities. We intend to maintain standards of environmental compliance consistent with regulatory requirements.

 

Midway has an obligation to reclaim its properties after the surface has been disturbed by exploration methods at the site. As of March 31, 2012, we have accrued $12,688 compared to $7,805 at December 31, 2011 related to reclamation and other closure requirements at our properties. These liabilities are covered by a combination of surety bonds and restricted cash totaling $552,459 at March 31, 2012 as compared to $603,062 as of December 31, 2011. We have accrued as a current liability what management believes is the present value of our best estimate of the liabilities as of March 31, 2012; however, it is possible that our obligations may change in the near or long term depending on a number of factors.

 

Critical accounting policies

 

Critical accounting estimates used in the preparation of the financial statements include our estimate of recoverable value on our property, plant and equipment, site reclamation and rehabilitation as well as the value assigned to stock-based compensation expense. These estimates involve considerable judgment and are, or could be, affected by significant factors that are out of our control.

 

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The factors affecting stock-based compensation include estimates of when stock options might be exercised and the stock price volatility. The timing for exercise of options is out of our control and will depend, among other things, upon a variety of factors including the market value of Midway shares and financial objectives of the holders of the options. We used historical data to determine volatility in accordance with Black-Scholes modeling, however the future volatility is inherently uncertain and the model has its limitations. While these estimates can have a material impact on the stock-based compensation expense and hence results of operations, there is no impact on our financial condition.

 

Midway’s recoverability evaluation of its mineral properties and equipment is based on market conditions for minerals, underlying mineral resources associated with the assets and future costs that may be required for ultimate realization through mining operations or by sale. Midway is in an industry that is exposed to a number of risks and uncertainties, including exploration risk, development risk, commodity price risk, operating risk, ownership and political risk, funding and currency risk, as well as environmental risk. Bearing these risks in mind, Midway has assumed recent world commodity prices will be achievable. We have considered the mineral resource reports by independent engineers on the Tonopah, Spring Valley, Pan and Golden Eagle projects in considering the recoverability of the carrying costs of the mineral properties.  All of these assumptions are potentially subject to change and most are out of our control; however changes to the assumptions are not determinable. Accordingly, there is always the potential for a material adjustment to the value assigned to mineral properties and equipment.

 

Midway has an obligation to reclaim its properties after the surface has been disturbed by exploration methods at the site. As a result Midway has recorded a liability for the fair value of the reclamation costs it expects to incur. The Company estimated applicable inflation and credit-adjusted risk-free rates as well as expected reclamation time frames. To the extent that the estimated reclamation costs change, such changes will impact future reclamation expense recorded.

 

Related Party Transactions

 

The Company had the following related party transactions for the three months ended March 31, 2012 and 2011 respectively.

 

   March 31,
2012
   March 31,
2011
 
           
Consulting services paid to a company owned by Doris Meyer, who, Until March 18, 2011, was an officer of the Company.  $-   $25,875 

 

 

Included in accounts payable and accrued liabilities payable, amounts payable to directors and officers at March 31, 2012 and December 31, 2011, were $35,070 and $12,761, respectively.

 

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties

 

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4.Controls and Procedures.

 

Disclosure Controls and Procedures

  

At the end of the period covered by this Quarterly Report on Form 10-Q for the three months ended March 31, 2012, an evaluation was carried out under the supervision of and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in ensuring that: (i) information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

 

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Changes in Internal Control over Financial Reporting

 

During the period covered by this report, there were no changes to internal control over financial reporting that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.Legal Proceedings.

 

On January 27, 2011, the Company was delivered a summons indicating that it is being sued in the state of Nevada by Redcor Drilling, Inc. ("Redcor") for non-payment of the balance of a drilling invoice that is under dispute by the Company. Redcor is demanding the Company pay US$241,477 together with interest at the rate of 4% per annum from September 18, 2010.  On March 10, 2011, the Company responded to the summons. The Company intends to continue to protest payment of the amount demanded on the basis of non-performance of services.  The Company has recorded the full amount as an accrued liability without accruing interest as the amount of the liability can be estimated and it is likely the Company may be required to pay some portion of the disputed amount.

 

Redcor placed a mechanic's lien on a portion of the Pan project that the Company leases from NVMC. Subsequently, the Company posted a surety bond for the disputed amount which released the lien from the property.

 

Item 1A.Risk Factors.

 

There are no material changes from the risk factors previously disclosed in Midway’s Annual Report on Form 10-K for the period ended December 31, 2011, as filed on March 9, 2012 with the SEC.

 

Item 2.Unregistered Sale of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

We consider health, safety and environmental stewardship to be a core value for the Company.  

 

Our exploration properties are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act").  Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The "Dodd-Frank Act"), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended March 31, 2012, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.

 

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Item 5.Other information.

 

None.

 

Item 6.Exhibits.

 

Documents filed as part of this Quarterly Report on Form 10-Q or incorporated by reference:

 

Exhibit Number   Description
     
3.1   Notice of Articles, previously filed with the initial registration statement on Form S-1 filed with the Securities and Exchange Commission on August 6, 2007 and incorporated herein by reference.
     
3.2   Articles, previously filed with the initial registration statement on Form S-1 filed with the Securities and Exchange Commission on August 6, 2007 and incorporated herein by reference.
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-15(f) of the Exchange Act
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-15(f) of the Exchange Act
     
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a or 15(d) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

 

Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

  MIDWAY GOLD CORP. 
     
May 9, 2012 By: /s/ Daniel Wolfus
    Daniel Wolfus
    Chairman, Chief Executive Officer and Director
    (Principal Executive Officer)

 

May 9, 2012 By: /s/ Fritz K. Schaudies
    Fritz Schaudies
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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