Summary of Significant Accounting Principles

6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Principles [Abstract]

Summary of Significant Accounting Principles

Note 2 — Summary of Significant Accounting Principles

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years. These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements are unaudited and should be read in conjunction with the Company’s audited financial statements and related footnotes for the year ended December 31, 2010 included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission (“SEC”) on March 31, 2011.

Principles of Consolidation

The Company is the 50% owner of AWP, operates AWP, and accordingly provides the consolidated financial statements for the Company and AWP. Both entities have the same year end. The purpose of consolidated financial statements is to present the results of operations and the financial position of the Company and its subsidiaries as if the group were a single company. The consolidated financial statements of the Company include the accounts of Prospect and AWP. The Company has disclosed in the financial statements the amount of non-controlling interest attributable to Karlsson and will eliminate all intercompany gains and losses. All intercompany accounts and transactions have been eliminated in the consolidation.

Exploration Stage

The Company is considered an exploration stage enterprise as most of its efforts have been devoted to raising capital and exploring for potash. As of June 30, 2011, none of the Company’s mineral properties had proven or probable reserves as determined under the requirements of SEC Industry Guide No. 7.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. Significant estimates with regard to the Company’s consolidated financial statements include the calculation of certain conversion terms of the Company’s secured convertible notes, the embedded derivative liabilities associated with those secured convertible notes and outstanding warrants issued by the Company.

Cash and Cash Equivalents

Cash and cash equivalents solely consist of cash balances. As of June 30, 2011, the Company had a cash balance of $2,005,023 and no cash equivalents.

Equipment

Equipment is recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful life of the assets. The Company’s policy is to capitalize equipment with both a cost greater than $250 and an estimated useful life greater than one year. The Company’s policy is to review equipment for impairment at least annually.

Mineral Properties

Investments in mineral properties are capitalized as incurred. The carrying costs of mineral properties are assessed for impairment whenever changes in circumstances indicate that the carrying costs may not be recoverable. When the Company reaches the production stage, the related capitalized costs will be depleted. Refer to Note 9 — Mineral Properties for additional information.

Exploration Expense

Exploration expense includes geological and geophysical work performed on areas that do not yet have proved or probable reserves. These costs are expensed as incurred.

Financial Instruments

Financial instruments consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities, warrants, secured convertible notes, and derivative financial instruments. We carry cash and cash equivalents, accounts payable and accrued liabilities at historical costs; their respective estimated fair values approximate carrying values due to their current nature.

Derivative financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying variable (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

We do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts, such as our convertible note financing arrangements, that contain embedded derivative features, that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. These instruments are carried as derivative liabilities, at fair value, in our financial statements. Refer to Note 5 — Convertible Notes for additional information.

Income Taxes

The Company accounts for income taxes based on the asset and liability method of accounting for deferred income taxes. The provision for income taxes is based on pretax financial income. Deferred tax assets and liabilities are recognized for the future expected tax consequences of temporary differences between income tax and financial reporting and principally relate to differences in the tax basis of assets and liabilities and their reported amounts, using enacted tax rates in effect for the year in which differences are expected to reverse. As of June 30, 2011, the Company did not have an income tax liability. The Company believes it does not meet the more likely than not criteria for realizing its deferred tax asset. Therefore, the Company has recorded a full valuation allowance against it.

Loss per Share

Basic loss per share of common stock is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the respective period. Diluted loss per common share reflects the potential dilution that would occur if contracts to issue common stock were exercised or converted into common stock. For the three months ended June 30, 2011, the six months ended June 30, 2011 and from August 5, 2010 (Inception) to June 30, 2011, basic loss per common share and diluted loss per common share are the same as any potentially dilutive shares would be anti-dilutive to the periods. Refer to Note 10 — Loss per Share for additional information.

Stock-Based Compensation

The Company recognizes compensation expense for share-based payments based on the estimated fair value of the awards. The Company records tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements that are not included in costs applicable to sales (“excess tax benefits”) as financing cash inflows in the statement of cash flows.

Warrants

The Company classifies its currently issued and outstanding warrants as liabilities in its financial statements. Refer to Note 8 — Shareholders’ Equity for additional information.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. This guidance requires additional disclosure of transfers of assets and liabilities between Levels 1 and 2 of the fair value hierarchy and disclosure of activities on a gross basis including purchases, sales, issuances, and settlements in the reconciliation of the assets and liabilities measured under Level 3 of the fair value hierarchy. This standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. We adopted ASU 2010-06 effective January 1, 2011. The adoption of this standard did not have a material impact on our results of operations, financial position or cash flows.