Item 1. Financial Statements
See Accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
|
Basis of presentation
- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America. The Company’s fiscal year-end is December 31.
These condensed consolidated
financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange
Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation
of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring nature.
The results reported in these interim condensed consolidated financial statements are not necessarily indicative of the results
that may be reported for the entire year. These interim condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed
with the SEC on April 12, 2012.
Certain prior period amounts
have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s
financial position or results of operations.
Description of business
- Searchlight Minerals Corp. is considered an exploration stage company since its formation, and the Company has not yet realized
any revenues from its planned operations. The Company is primarily focused on the exploration, acquisition and development of mining
and mineral properties. Upon the location of commercially minable reserves, the Company plans to prepare for mineral extraction
and enter the development stage.
History
- The Company
was incorporated on January 12, 1999 pursuant to the laws of the State of Nevada under the name L.C.M. Equity, Inc. From 1999 to
2005, the Company operated primarily as a biotechnology research and development company with its headquarters in Canada and an
office in the United Kingdom (the “UK”). On November 2, 2001, the Company entered into an acquisition agreement with
Regma Bio Technologies, Ltd. pursuant to which Regma Bio Technologies, Ltd. entered into a reverse merger with the Company with
the surviving entity named “Regma Bio Technologies Limited”. On November 26, 2003, the Company changed its name from
“Regma Bio Technologies Limited” to “Phage Genomics, Inc.”
In February 2005, the Company
announced its reorganization from a biotechnology research and development company to a company focused on the development and
acquisition of mineral properties. In connection with its reorganization the Company entered into mineral option agreements to
acquire an interest in the Searchlight Claims. The Company has consequently been considered as an exploration stage enterprise.
Also in connection with its corporate restructuring, its Board of Directors approved a change in its name from “Phage Genomics,
Inc.” (“Phage”) to "Searchlight Minerals Corp.” effective June 23, 2005.
Going concern
- The Company
incurred cumulative net losses of $31,400,331 from operations as of September 30, 2012 and has not commenced its commercial mining
and mineral processing operations; rather, it is still in the exploration stage. The accompanying unaudited financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the nine months ended September 30, 2012, the Company incurred a net loss of $3,784,588, had negative
cash flows from operations of $3,835,168 and may incur additional future losses due to planned continued exploration stage expenses.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
These matters raise substantial
doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments
relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the Company
be unable to continue as a going concern. The Company will seek additional sources of capital through the issuance of debt or equity
financing, but there can be no assurance the Company will be successful in accomplishing its objectives.
Principles of consolidation
- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Clarkdale Minerals,
LLC (“CML”) and Clarkdale Metals Corp. (“CMC”). Significant intercompany accounts and transactions have
been eliminated.
Use of estimates
- The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement
uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant
areas requiring management’s estimates and assumptions include the valuation of stock-based compensation and derivative warrant
liabilities, impairment analysis of long-lived assets, and realizability of deferred tax assets. Actual results could differ from
those estimates.
Capitalized interest cost
- The Company capitalizes interest cost related to acquisition, development and construction of property and equipment which is
designed as integral parts of the manufacturing process. The capitalized interest is recorded as part of the asset it relates to
and will be amortized over the asset’s useful life once production commences. Interest cost capitalized from imputed interest
on acquisition indebtedness was $86,322 and $100,399 for the nine months ended September 30, 2012 and 2011, respectively.
Mineral properties
-
Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties
are expensed as incurred while the project is in the exploration stage. Once mineral reserves are established, development costs
and costs to maintain mineral properties are capitalized as incurred while the property is in the development stage. When a property
reaches the production stage, the related capitalized costs are amortized using the units-of-production method over the proven
and probable reserves.
Mineral exploration and development
costs
- Exploration expenditures incurred prior to entering the development stage are expensed and included in “Mineral
exploration and evaluation expenses”.
Property and equipment
- Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets, which are generally 3 to 39 years. The cost of repairs and maintenance is
charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition
of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operating
expenses.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Impairment
of long-lived assets
-
The Company reviews and evaluates
its long-lived assets for impairment at each balance sheet date due to its planned exploration stage losses and documents such
impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as the Company’s
continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration
programs on the property.
The tests for long-lived assets
in the exploration, development or producing stage that would have a value beyond proven and probable reserves would be monitored
for impairment based on factors such as current market value of the mineral property and results of exploration, future asset utilization,
business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted
cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.
The
Company's policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may
not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by which
the carrying amount of the assets exceeds its fair value.
To date, no such impairments have been identified.
Reclamation and remediation
costs (asset retirement obligation)
- For its exploration stage properties, the Company accrues the estimated costs associated
with environmental remediation obligations in the period in which the liability is incurred or becomes determinable. Until such
time that a project life is established, the Company records the corresponding cost as an exploration stage expense. The costs
of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually
obligated fixed payment schedule.
Future reclamation and environmental-related
expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties
associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology. The Company periodically reviews accrued liabilities for such
reclamation and remediation costs as evidence indicating that the liabilities have potentially changed becomes available. Changes
in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.
The Company is in the exploration
stage and is unable to determine the estimated timing of expenditures relating to reclamation accruals. It is reasonably possible
that the ultimate cost of reclamation and remediation could change in the future and that changes to these estimates could have
a material effect on future operating results as new information becomes known.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Fair
value of financial instruments
-
Fair value accounting establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
|
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level 2
|
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
Level 3
|
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
The Company’s financial
instruments consist of mineral property purchase obligations and the derivative liability on stock purchase warrants. The mineral
property purchase obligations are classified within Level 2 of the fair value hierarchy as their fair value is determined using
interest rates which approximate market rates.
The derivative liability on
stock purchase warrants was valued using the Binomial Lattice model, a Level 3 input. The change in fair value of the derivative
liability is classified in other income (expense) in the statement of operations. The Company generally does not use derivative
financial instruments to hedge exposures to cash flow, market or foreign currency risks. However, certain warrants contain anti-dilution
provisions that are not afforded equity classification because they embody risks not clearly and closely related to the host contract.
These features are required to be bifurcated and carried as a derivative liability.
The Company is not exposed to
significant interest or credit risk arising from these financial instruments. The Company does not have any non-financial assets
or liabilities that it measures at fair value. During the nine month period ended September 30, 2012, there were no transfers of
assets between levels.
Per share
amounts
- Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect
the effect of potentially dilutive securities. Potentially dilutive shares, such as stock options and warrants, are excluded from
the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price
of the instrument exceeds the fair market value.
Stock-based
compensation
- Stock-based compensation awards are recognized in the consolidated financial statements based on the grant date
fair value of the award which is estimated using the Binomial Lattice option pricing model. The Company believes that this model
provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and
interest rates, and to allow for the actual exercise behavior of option holders
.
The
compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise,
shares issued will be newly issued shares from authorized common stock.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
The fair value of performance-based
stock option grants is determined on their grant date through the use of the Binomial Lattice option pricing model. The total value
of the award is recognized over the requisite service period only if management has determined that achievement of the performance
condition is probable. The requisite service period is based on management’s estimate of when the performance condition will
be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount of
stock-based compensation recognized in the financial statements.
For stock-based compensation
awards to non-employees, the Company recognizes expense based on the estimated fair value of the options granted over their vesting
period, which is generally the period during which services are rendered and deemed completed by such non-employees.
Income taxes
- The Company
follows the liability method of accounting for income taxes. This method recognizes certain temporary differences between the financial
reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method generates
either a net deferred income tax liability or asset as measured by the statutory tax rates in effect. The effect of a change in
tax rates is recognized in operations in the period that includes the enactment date. The Company records a valuation allowance
against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred income tax asset will not be realized.
For acquired properties that
do not constitute a business, a deferred income tax liability is recorded on GAAP basis over income tax basis using statutory federal
and state rates. The resulting estimated future income tax liability associated with the temporary difference between the acquisition
consideration and the tax basis is computed in accordance with Accounting Standards Codification (“ASC”) 740-10-25-51,
Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations
, and
is reflected as an increase to the total purchase price which is then applied to the underlying acquired assets in the absence
of there being a goodwill component associated with the acquisition transactions.
Comprehensive loss
–
For the nine months ended September 30, 2012 and 2011, respectively, the Company’s comprehensive loss was equal to the respective
net loss for each of the periods presented.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Recent accounting standards
- From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards
Board
(“FASB”
)
that are adopted by the Company as of the specified effective
date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material
impact on the Company’s consolidated financial statements upon adoption.
In May 2011, the FASB issued
additional guidance regarding fair value measurement and disclosure requirements. The most significant change relates to Level
3 fair value measurements and requires disclosure of quantitative information about unobservable inputs used, a description of
the valuation processes used, and a qualitative discussion about the sensitivity of the measurements. The Company adopted the additional
guidance in the first quarter of 2012. The adoption of this guidance did not have a material effect on its financial condition,
results of operation, or cash flows.
In June 2011, the FASB issued
ASU 2011-12, Comprehensive Income,
Presentation of Comprehensive Income
. Under the amendments, 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. The Company adopted the
additional guidance in the first quarter of 2012. The adoption of this guidance did not have a material effect on its financial
condition, results of operation, or cash flows.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
2.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consisted of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
38,255
|
|
|
$
|
(29,423
|
)
|
|
$
|
8,832
|
|
|
$
|
38,255
|
|
|
$
|
(27,020
|
)
|
|
$
|
11,235
|
|
Lab equipment
|
|
|
249,061
|
|
|
|
(177,993
|
)
|
|
|
71,068
|
|
|
|
249,061
|
|
|
|
(140,634
|
)
|
|
|
108,427
|
|
Computers and equipment
|
|
|
83,607
|
|
|
|
(56,323
|
)
|
|
|
27,284
|
|
|
|
81,969
|
|
|
|
(53,056
|
)
|
|
|
28,913
|
|
Income property
|
|
|
309,750
|
|
|
|
(15,002
|
)
|
|
|
294,748
|
|
|
|
309,750
|
|
|
|
(13,017
|
)
|
|
|
296,733
|
|
Vehicles
|
|
|
44,175
|
|
|
|
(43,717
|
)
|
|
|
458
|
|
|
|
44,175
|
|
|
|
(40,433
|
)
|
|
|
3,742
|
|
Slag conveyance equipment
|
|
|
300,916
|
|
|
|
(138,862
|
)
|
|
|
162,054
|
|
|
|
300,916
|
|
|
|
(84,104
|
)
|
|
|
216,812
|
|
Demo module building
|
|
|
6,630,063
|
|
|
|
(2,372,096
|
)
|
|
|
4,257,967
|
|
|
|
6,630,063
|
|
|
|
(1,874,841
|
)
|
|
|
4,755,222
|
|
Demo module equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,996
|
|
|
|
(7,199
|
)
|
|
|
28,797
|
|
Grinding circuit
|
|
|
863,678
|
|
|
|
-
|
|
|
|
863,678
|
|
|
|
863,678
|
|
|
|
-
|
|
|
|
863,678
|
|
Leaching and filtration
|
|
|
1,300,618
|
|
|
|
(455,216
|
)
|
|
|
845,402
|
|
|
|
1,300,618
|
|
|
|
(260,124
|
)
|
|
|
1,040,494
|
|
Fero-silicate storage
|
|
|
4,326
|
|
|
|
(757
|
)
|
|
|
3,569
|
|
|
|
4,326
|
|
|
|
(433
|
)
|
|
|
3,893
|
|
Electrowinning building
|
|
|
1,492,853
|
|
|
|
(261,249
|
)
|
|
|
1,231,604
|
|
|
|
1,492,853
|
|
|
|
(149,285
|
)
|
|
|
1,343,568
|
|
Site improvements
|
|
|
1,491,100
|
|
|
|
(324,295
|
)
|
|
|
1,166,805
|
|
|
|
1,392,559
|
|
|
|
(248,691
|
)
|
|
|
1,143,868
|
|
Site equipment
|
|
|
353,503
|
|
|
|
(258,311
|
)
|
|
|
95,192
|
|
|
|
341,529
|
|
|
|
(223,631
|
)
|
|
|
117,898
|
|
Construction in progress
|
|
|
1,524,297
|
|
|
|
-
|
|
|
|
1,524,297
|
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
Capitalized interest
|
|
|
874,562
|
|
|
|
-
|
|
|
|
874,562
|
|
|
|
788,240
|
|
|
|
-
|
|
|
|
788,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,560,764
|
|
|
$
|
(4,133,244
|
)
|
|
$
|
11,427,520
|
|
|
$
|
14,976,002
|
|
|
$
|
(3,122,468
|
)
|
|
$
|
11,853,534
|
|
Depreciation expense was $1,030,104
and $1,039,556 for the nine months ended September 30, 2012 and 2011, respectively. The depreciation method for the grinding circuit
is based on units of production. During the testing phase, units of production have thus far been limited and no depreciation expense
has been recognized as of September 30, 2012. At September 30, 2012, construction in progress included the gold, copper, and zinc
extraction circuits and electrowinning equipment at the Clarkdale Slag Project.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG PROJECT
|
On February 15, 2007, the Company
completed a merger with Transylvania International, Inc. (“TI”) which provided the Company with 100% ownership of the
Clarkdale Slag Project in Clarkdale, Arizona, through its wholly owned subsidiary CML. This acquisition superseded the joint venture
option agreement to acquire a 50% ownership interest as a joint venture partner pursuant to Nanominerals Corp. (“NMC”)
interest in a joint venture agreement (“JV Agreement”) dated May 20, 2005 between NMC and Verde River Iron Company,
LLC (“VRIC”). One of the Company’s former directors was an affiliate of VRIC. The former director joined the
Company’s board subsequent to the acquisition.
The Company believes the acquisition
of the Clarkdale Slag Project was beneficial because it provides for 100% ownership of the properties, thereby eliminating the
need to finance and further develop the projects in a joint venture environment.
This merger was treated as a
statutory merger for tax purposes whereby CML was the surviving merger entity.
The Company applied Emerging Issues Task Force (“EITF”) 98-03
(which has been superseded by ASC 805-10-25-1) with regard to the acquisition of the Clarkdale Slag Project. The Company determined
that the acquisition of the Clarkdale Slag Project did not constitute an acquisition of a business as that term is defined in ASC
805-10-55-4, and the Company recorded the acquisition as a purchase of assets.
The Company also formed a second wholly owned subsidiary,
CMC, for the purpose of developing a processing plant at the Clarkdale Slag Project.
The
$130.3 million purchase price was comprised of a combination of the cash paid, the deferred tax liability assumed in connection
with the acquisition, and the fair value of our common shares issued, based on the closing market price of our common stock, using
the average of the high and low prices of our common stock on the closing date of the acquisition. The Clarkdale Slag Project is
without known reserves and the project is exploratory in nature in accordance with Industry Guides promulgated by the Commission,
Guide 7 paragraph (a)(4)(i). As required by ASC 930-805-30,
Mining – Business Combinations – Initial Recognition
,
and ASC 740-10-25-49-55,
Income Taxes – Overall – Recognition – Acquired Temporary Differences in Certain
Purchase Transactions that are Not Accounted for as Business Combinations
, the Company then allocated the purchase price among
the assets as follows (and also further described in this Note 3 to the financial statements): $5,916,150 of the purchase price
was allocated to the slag pile site, $3,300,000 to the remaining land acquired, and $309,750 to income property and improvements.
The purchase price allocation to the real properties was based on fair market values determined using an independent real estate
appraisal firm (Scott W. Lindsay, Arizona Certified General Real Estate Appraiser No. 30292). The remaining $120,766,877 of the
purchase price was allocated to the Clarkdale Slag Project, which has been capitalized as a tangible asset in accordance with ASC
805-20-55-37,
Use Rights
. Upon commencement of commercial production, the asset will be amortized using the unit-of-production
method over the life of the Clarkdale Slag Project.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG PROJECT
(continued)
|
Closing of the TI acquisition
occurred on February 15, 2007, (the “Closing Date”) and was subject to, among other things, the following terms and
conditions:
|
a)
|
The Company paid $200,000 in cash to VRIC on the execution of the Letter Agreement;
|
|
b)
|
The Company paid $9,900,000 in cash to VRIC on the Closing Date;
|
|
c)
|
The Company issued 16,825,000 shares of its common stock, valued at $3.975 per share using the
average of the high and low on the Closing Date, to the designates of VRIC on the closing pursuant to Section 4(2) and Regulation
D of the Securities Act of 1933;
|
In addition to the cash and
equity consideration paid and issued upon closing, the acquisition agreement contains the following payment terms and conditions:
|
d)
|
The Company agreed to continue to pay VRIC $30,000 per month until the earlier of: (i) the date
that is 90 days after receipt of a bankable feasibility study by the Company (the “Project Funding Date”), or (ii)
the tenth anniversary of the date of the execution of the letter agreement;
|
The acquisition agreement also contains the following
additional contingent payment terms which are based on the Project Funding Date as defined in the agreement:
|
e)
|
The Company has agreed to pay VRIC $6,400,000 on the Project Funding Date;
|
|
f)
|
The Company has agreed to pay VRIC a minimum annual royalty of $500,000, commencing on the Project
Funding Date (the “Advance Royalty”), and an additional royalty consisting of 2.5% of the net smelter returns (“NSR”)
on any and all proceeds of production from the Clarkdale Slag Project (the “Project Royalty”). The Advance Royalty
remains payable until the first to occur of: (i) the end of the first calendar year in which the Project Royalty equals or exceeds
$500,000 or (ii) February 15, 2017. In any calendar year in which the Advance Royalty remains payable, the combined Advance Royalty
and Project Royalty will not exceed $500,000 in any calendar year; and
|
|
g)
|
The Company has agreed to pay VRIC an additional amount of $3,500,000 from the net cash flow of
the Clarkdale Slag Project. The Company has accounted for this as a contingent payment and upon meeting the contingency requirements,
the purchase price of the Clarkdale Slag Project will be adjusted to reflect the additional consideration.
|
Under
the original JV Agreement, the Company agreed to pay NMC a 5% royalty on NSR payable from the Company’s 50% joint venture
interest in the production from the Clarkdale Slag Project. Upon the assignment to the Company of VRIC’s 50% interest in
the Joint Venture Agreement in connection with the reorganization with TI, the Company continues to have an obligation to pay NMC
a royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project. On July 25,
2011, the Company agreed to pay NMC an advance royalty payment of $15,000 per month effective January 1, 2011. The advance royalty
payment is more fully discussed in Note 14.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG PROJECT
(continued)
|
The following table reflects
the recorded purchase consideration for the Clarkdale Slag Project:
Purchase price:
|
|
|
|
|
Cash payments
|
|
$
|
10,100,000
|
|
Joint venture option acquired in 2005 for cash
|
|
|
690,000
|
|
Warrants issued for joint venture option
|
|
|
1,918,481
|
|
Common stock issued
|
|
|
66,879,375
|
|
Monthly payments, current portion
|
|
|
167,827
|
|
Monthly payments, net of current portion
|
|
|
2,333,360
|
|
Acquisition costs
|
|
|
127,000
|
|
|
|
|
|
|
Total purchase price
|
|
|
82,216,043
|
|
|
|
|
|
|
Net deferred income tax liability assumed - Clarkdale Slag Project
|
|
|
48,076,734
|
|
|
|
|
|
|
Total
|
|
$
|
130,292,777
|
|
The
following table reflects the components of the Clarkdale Slag Project
:
Allocation of acquisition cost:
|
|
|
|
|
Clarkdale Slag Project (including net deferred income tax liability assumed of $48,076,734)
|
|
$
|
120,766,877
|
|
Land - smelter site and slag pile
|
|
|
5,916,150
|
|
Land
|
|
|
3,300,000
|
|
Income property and improvements
|
|
|
309,750
|
|
|
|
|
|
|
Total
|
|
$
|
130,292,777
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
4.
|
MINERAL PROPERTIES - MINING CLAIMS
|
As of September 30, 2012, mining
claims consisted of 3,200 acres located near Searchlight, Nevada. The 3,200 acre property is staked as twenty 160 acre claims,
most of which are also double-staked as 142 twenty acre claims. At September 30, 2012, the mineral properties balance was $16,947,419.
The mining claims were acquired
with issuance of 5,600,000 shares of the Company’s common stock over a three year period ending in June 2008. On June 25,
2008, the Company issued the final tranche of shares and received the title to the mining claims in consideration of the satisfaction
of the option agreement.
The mining claims were capitalized
as tangible assets in accordance with ASC 805-20-55-37,
Use Rights
. Upon commencement of commercial production, the claims
will be amortized using the unit-of-production method. If the Company does not continue with exploration after the completion of
the feasibility study, the claims will be expensed at that time.
In connection with the Company’s
Plan of Operations (“POO”) for the Searchlight Gold Project, a bond of $7,802 was posted with the Bureau of Land Management
(“BLM”) in December 2009.
|
5.
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
Accounts payable and accrued
liabilities at September 30, 2012 and December 31, 2011 consisted of the following:
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
255,303
|
|
|
$
|
44,749
|
|
Accrued compensation and related taxes
|
|
|
30,160
|
|
|
|
16,747
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
285,463
|
|
|
$
|
61,496
|
|
Accounts payable – related party are discussed
in Note 17.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
6.
|
DERIVATIVE WARRANT LIABILITY
|
On November 12, 2009, the Company
issued an aggregate of 12,078,596 units of securities to certain investors, consisting of 12,078,596 shares of common stock and
warrants to purchase an additional 6,039,298 shares of common stock, in a private placement to various accredited investors pursuant
to a Securities Purchase Agreement. The Company paid commissions to agents in connection with the private placement in the amount
of approximately $1,056,877 and warrants to purchase up to 301,965 shares of common stock.
The warrants issued to the purchasers
in the private placement became exercisable on November 12, 2009. The warrants have an expiration date of November 12, 2012 and
an initial exercise price of $1.85 per share. The warrants have anti-dilution provisions, including provisions for the adjustment
to the exercise price and to the number of warrants granted if the Company issues common stock or common stock equivalents at a
price less than the exercise price.
The Company determined that
the warrants were not afforded equity classification because the warrants are not freestanding and are not considered to be indexed
to the Company’s own stock due to the anti-dilution provisions. In addition, the Company determined that the anti-dilution
provisions shield the warrant holders from the dilutive effects of subsequent security issuances and therefore the economic characteristics
and risks of the warrants are not clearly and closely related to the Company’s common stock. Accordingly, the warrants are
treated as a derivative liability and are carried at fair value.
As of September 30, 2012, the
cumulative adjustment to the warrants was as follows: (i) the exercise price was adjusted from $1.85 per share to $1.71 per share,
and (ii) the number of warrants was increased by 444,562 warrants due to equity financing transactions completed during the years
ended December 31, 2011 and 2010 and the nine months ended September 30, 2012. As of September 30, 2012, Luxor Capital Partners,
L.P. (“Luxor”) owned 6,252,883 warrants. In connection with the financing completed with Luxor on June 7, 2012 (see
Note 8), Luxor waived its right to the anti-dilution adjustments on 4,252,883 warrants it holds from the 2009 private placement.
Future anti-dilution adjustments were not waived. The exercise price of the Luxor 2009 private placements warrants remains at the
previously adjusted price of $1.74 per share.
The following table sets forth
the changes in the fair value of derivative liability for the nine month periods ended September 30:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Adjustment to warrants
|
|
$
|
(734
|
)
|
|
$
|
(8,937
|
)
|
Change in fair value
|
|
|
734
|
|
|
|
(2,120,355
|
)
|
|
|
|
|
|
|
|
|
|
Total change in fair value
|
|
$
|
-
|
|
|
$
|
(2,129,292
|
)
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
6.
|
DERIVATIVE WARRANT LIABILITY
(continued)
|
The Company estimates the fair
value of the derivative liabilities by using the Binomial Lattice pricing-model, a Level 3 input, with the following assumptions
used for the nine month periods ended September 30:
|
|
|
2012
|
|
|
|
2011
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
31.48% - 67.43%
|
|
|
|
68.29% - 85.90%
|
|
Risk-free interest rate
|
|
|
0.08% - 0.15%
|
|
|
|
0.21% - 0.84%
|
|
Expected life (years)
|
|
|
0.00 - 0.63
|
|
|
|
2.00
|
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options. The expected life is impacted by all of
the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result
in a significantly lower or higher fair value measurement.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
7.
|
VRIC PAYABLE - RELATED PARTY
|
Pursuant
to the Clarkdale acquisition agreement, the Company agreed to pay VRIC $30,000 per month until the Project Funding Date. Mr. Harry
Crockett, one of the Company’s former directors, was an
affiliate of VRIC. Mr. Crockett
joined the Board of Directors subsequent to the acquisition. Mr. Crockett passed away in September 2010.
The Company has recorded a
liability for this commitment using imputed interest based on its best estimate of future cash flows. The effective interest rate
used was 8.00%, resulting in an initial present value of $2,501,187 and a debt discount of $1,128,813. The discount is being amortized
over the expected term of the debt using the effective interest method. The expected term used was 10 years which represents the
maximum term the VRIC liability is payable if the Company does not obtain project funding. Interest costs related to this obligation
were $86,322 and $100,399 for the nine months ended September 30, 2012 and 2011, respectively and have been capitalized and included
in construction in progress.
The following table represents
future minimum payments on the VRIC payable for each of the twelve month periods ending September 30,
2013
|
|
$
|
360,000
|
|
2014
|
|
|
360,000
|
|
2015
|
|
|
360,000
|
|
2016
|
|
|
360,000
|
|
2017
|
|
|
150,000
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total minimum payments
|
|
|
1,590,000
|
|
Less: amount representing interest
|
|
|
(254,252
|
)
|
|
|
|
|
|
Present value of minimum payments
|
|
|
1,335,748
|
|
VRIC payable, current portion
|
|
|
(262,631
|
)
|
|
|
|
|
|
VRIC payable, net of current portion
|
|
$
|
1,073,117
|
|
The acquisition
agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions
of these payments are discussed in more detail in Notes 3 and 14.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
During the nine months ended
September 30, 2012, the Company’s stockholders’ equity activity consisted of the following:
|
a)
|
On June 7, 2012, the Company issued
4,500,000 shares of common stock in a private placement with Luxor
at a price of $0.90 per share for gross proceeds of $4,050,000.
Total fees related to this issuance were $2,040. In connection
with the offering, the Company entered into a Securities Purchase
Agreement (“SPA”) and a Registration Rights Agreement
(“RRA”) with the purchasers. The SPA contains representations
and warranties of the Company and the purchasers that are customary
for transactions of the type contemplated in connection with the
offering.
|
Pursuant to the RRA, the Company
agreed to certain demand registration rights. These rights include the requirement that the Company file certain registration
statements within a specified time period and to have these registration statements declared effective within a specified time
period. The Company also agreed to file and keep continuously effective such additional registration statements until all of the
shares of common stock registered thereunder have been sold or may be sold without volume restrictions. If the Company is not
able to comply with these registration requirements, the Company will be required to pay cash penalties equal to 1.0% of the aggregate
purchase price paid by the investors for each 30 day period in which a registration default, as defined by the RRA, exists. The
maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the date of this filing, the Company does
not believe the penalty to be probable and accordingly, no liability has been accrued.
|
b)
|
On May 24, 2012, the Company issued
250,000 shares of common stock from the exercise of stock warrants
resulting in cash proceeds of $93,750. The stock warrants had
an exercise price of $0.375 and an expiration date of June 15,
2015.
|
Subsequent event
–
On November 1, 2012, the Company’s Board of Directors unilaterally determined, without any negotiations with the warrant
holders to amend the private placement warrants in connection with the February 23, 2007, March 22, 2007, December 26, 2007, February
7, 2008 and November 12, 2009 private placement offerings. The expiration date of the warrants was extended from November 12,
2012 to November 12, 2013. In all other respects, the terms and conditions of the warrants remain the same. The Company calculated
the fair value of the warrants at zero using the Binomial Lattice model with the following assumptions:
Risk-free interest rate
|
|
|
0.19
|
%
|
Expected volatility
|
|
|
94.94
|
%
|
The expected life of the warrants,
which is an output of the model, was one year.
During the nine months ended
September 30, 2011, the Company’s stockholders’ equity activity consisted of the following:
Common stock Purchase Agreement
- The Company entered into a Purchase Agreement with Seaside 88 LP (“Seaside”) on December 22, 2010 for
the sale of 3,000,000 shares of common stock, followed by the sale of up to 1,000,000 shares of common stock on approximately
the 15
th
day of the month for ten consecutive months. The final closing was completed on December 15, 2011. The Company
issued a total of 11,000,000 shares under the Purchase Agreement.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
8.
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
a)
|
On September 15, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.619395 per share under the Purchase Agreement for gross
proceeds of $619,395. Total fees related to this issuance were
$2,500.
|
|
b)
|
On April 15, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.44846 per share under the Purchase Agreement for gross proceeds
of $448,460. Total fees related to this issuance were $2,500.
|
|
c)
|
On March 15, 2011, the Company issued 1,000,000 shares of common stock to Seaside at a price of
$0.47694 per share under a Common Stock Purchase Agreement (the “Purchase Agreement”), which is further described below,
for gross proceeds of $476,935. Total fees related to this issuance were $2,500.
|
|
d)
|
On February 15, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.49198 per share under the Purchase Agreement for gross proceeds
of $491,980. Total fees related to this issuance were $2,500.
|
|
e)
|
On January 18, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.661895 per share under the Purchase Agreement for gross
proceeds of $661,895. Total fees related to this issuance were
$2,500.
|
Private placement stock warrants
– As a result of the private placement completed in the second quarter of 2012, the Company adjusted the warrants from the
November 12, 2009 private placement offering. The following adjustments were made: (i) the exercise price was adjusted to $1.71
per share and (ii) the number of warrants was increased by 43,663 warrants. At September 30, 2012, Luxor owned 6,252,883 warrants.
In connection with the financing completed with Luxor on June 7, 2012, Luxor waived its right to the anti-dilution adjustments
on its 2009 private placement warrants. The accounting treatment of these adjustments is discussed in Note 6.
The following table summarizes the Company’s
private placement warrant activity for the nine months ended September 30, 2012:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance, December 31, 2011
|
|
|
13,784,549
|
|
|
$
|
1.80
|
|
|
|
0.87
|
|
Warrants issued
|
|
|
43,663
|
|
|
|
1.71
|
|
|
|
0.42
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
|
13,828,212
|
|
|
$
|
1.79
|
|
|
|
0.12
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation includes
grants of stock options and purchase warrants to eligible directors, employees and consultants as determined by the board of directors.
Stock option plans
-
The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize
the granting of stock option awards subject to certain conditions. At September 30, 2012, the Company had 10,971,076 of its common
shares available for issuance for stock option awards under the Company’s stock option plans.
At September 30, 2012, the
Company had the following stock option plans available:
|
·
|
2009
Plan - Under the
terms of the 2009
Plan, as amended,
options to purchase
up to 7,250,000
shares of common
stock may be granted
to eligible participants.
Under the plan,
the exercise price
is generally equal
to the fair market
value of the Company’s
common stock on
the grant date and
the maximum term
of the options is
generally ten years.
For grantees who
own more than 10%
of the Company’s
common stock on
the grant date,
the exercise price
may not be less
than 110% of the
fair market value
on the grant date
and the term is
limited to five
years. The 2009
Plan was approved
by the Company’s
stockholders on
December 15, 2009.
As of September
30, 2012, the Company
had granted 1,110,000
options under the
2009 Plan with a
weighted average
exercise price of
$1.22 per share.
As of September
30, 2012, all of
the options granted
were outstanding.
|
|
·
|
2009
Directors Plan -
Under the terms
of the 2009 Directors
Plan, as amended,
options to purchase
up to 2,750,000
shares of common
stock may be granted
to Directors. Under
the plan, the exercise
price may not be
less than 100% of
the fair market
value of the Company’s
common stock on
the grant date and
the term may not
exceed ten years.
No participants
shall receive more
than 300,000 options
under this plan
in any one calendar
year. The 2009 Directors
Plan was approved
by the Company’s
stockholders on
December 15, 2009.
As of September
30, 2012, the Company
had granted 1,043,866
options under the
2009 Directors Plan
with a weighted
average exercise
price of $1.08 per
share. As of September
30, 2012, all of
the options granted
were outstanding.
|
|
·
|
2007
Plan - Under the
terms of the 2007
Plan, options to
purchase up to 4,000,000
shares of common
stock may be granted
to eligible participants.
Under the plan,
the option price
for incentive stock
options is the fair
market value of
the stock on the
grant date and the
option price for
non-qualified stock
options shall be
no less than 85%
of the fair market
value of the stock
on the grant date.
The maximum term
of the options under
the plan is ten
years from the grant
date. The 2007 Plan
was approved by
the Company’s
stockholders on
June 15, 2007. As
of September 30,
2012, the Company
had granted 875,058
options under the
2007 Plan with a
weighted average
exercise price of
$1.07 per share.
As of September
30, 2012, 867,812
of the options granted
were outstanding.
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
STOCK-BASED COMPENSATION
(continued)
|
Non-Employee Directors Equity
Compensation Policy
– Non-employee directors have a choice between receiving $9,000 value of common stock per quarter,
where the number of shares is determined by the closing price of the Company’s stock on the last trading day of each quarter,
or a number of options to purchase twice the number of shares of common stock that the director would otherwise receive if the
director elected to receive shares, with an exercise price based on the closing price of the Company’s common stock on the
last trading day of each quarter. Effective April 1, 2011, the Board of Directors implemented a policy whereby the number of options
granted for quarterly compensation to each director is limited to 18,000 options per quarter.
Stock warrants
–
Upon approval of the Board of Directors, the Company grants stock warrants to consultants for services performed.
Valuation of awards
- At September 30, 2012, the Company had options outstanding that vest on two different types of vesting schedules, service-based
and performance based. For both service-based and performance-based stock option grants, the Company estimates the fair value
of stock-based compensation awards by using the Binomial Lattice option pricing model with the following assumptions used for
grants:
|
|
|
2012
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.37% -1.04%
|
|
|
|
0.88% - 2.24%
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
84.94% - 91.36%
|
|
|
|
76.54% - 114.95%
|
|
Expected life (years)
|
|
|
2.00 - 4.55
|
|
|
|
2.00 – 8.00
|
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options.
The expected life of awards
represents the weighted-average period the stock options or warrants are expected to remain outstanding and is a derived output
of the Binomial Lattice model. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s
model. The Binomial Lattice model estimates the probability of exercise as a function of these two variables based on the entire
history of exercises and cancellations on all past option grants made by the Company.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
Stock-based compensation
activity
- During the nine month period ended September 30, 2012, the Company granted stock-based awards as follows:
|
a)
|
On September 30, 2012, the Company
granted stock options under the 2009 Directors Plan for the purchase
of 54,000 shares of common stock at $0.85 per share. The options
were granted to the Company’s non-management directors for
directors’ compensation. All of the options are fully vested
and expire on September 30, 2017. The exercise price of the stock
options equaled the closing price of the Company’s common
stock on the grant date.
|
|
b)
|
On September 30, 2012, the Company
granted stock options under the 2007 Plan for the purchase of
18,000 shares of common stock at $0.85 per share. The options
were granted to a consultant, are fully vested and expire on September
30, 2017. The exercise price of the stock options equaled the
closing price of the Company’s common stock on the grant
date.
|
|
c)
|
On July 3, 2012, the Company granted
stock options for the purchase of 200,000 shares of common stock
at $0.89 per share to a director. The options vest 25% each on
July 3, 2013, 2014, 2015 and 2016. The options expire five years
after the date that they vest. The exercise price of the options
exceeded the closing price of the Company’s common stock
which was $0.87 on the grant date.
|
|
d)
|
On June 30, 2012, the Company
granted stock options under the 2009 Directors Plan for the purchase
of 54,053 shares of common stock at $0.94 per share. 40,800 of
the options were granted to three of the Company’s non-management
directors and 13,253 options were granted to a former director
for directors’ compensation. All of the options are fully
vested and expire on June 30, 2017. The exercise price of the
stock options equaled the closing price of the Company’s
common stock on the grant date.
|
|
e)
|
On June 30, 2012, the Company
granted stock options under the 2007 Plan for the purchase of
4,747 shares of common stock at $0.94 per share. The options were
granted to a consultant, are fully vested and expire on June 30,
2017. The exercise price of the stock options equaled the closing
price of the Company’s common stock on the grant date.
|
|
f)
|
On June 7, 2012, the Company modified
the terms of a stock option grant made to a director by extending
the expiration date from June 30, 2012 to November 4, 2015. All
other option terms remained unchanged. The modification resulted
in additional expense of $53,613.
|
|
g)
|
On March 31, 2012, the Company
granted stock options under the 2009 Directors Plan for the purchase
of 28,125 shares of common stock at $1.92 per share. The options
were granted to three of the Company’s non-management directors
for directors’ compensation, are fully vested and expire
on March 31, 2017. The exercise price of the stock options equaled
the closing price of the Company’s common stock on the grant
date.
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
During the nine month period
ended September 30, 2011, the Company granted stock-based awards as follows:
|
a)
|
On September 30, 2011, the Company
granted nonqualified stock options under the 2009 Directors Plan
for the purchase of 50,943 shares of common stock at $1.06 per
share. The options were granted to three of the Company’s
non-management directors for directors’ compensation, are
fully vested and expire on September 30, 2016. The exercise price
of the stock options equaled the closing price of the Company’s
common stock on the grant date.
|
|
b)
|
On September 21, 2011, the Company
granted incentive stock options under the 2009 Incentive Plan
for the purchase of 610,000 shares of common stock at $1.22 per
share. The options were granted to officers and employees. 595,000
of the options are fully vested. 15,000 of the options vest upon
the employees’ one year anniversaries. All of the options
expire five years after the grant date. The exercise price of
the stock options equaled the closing price of the Company’s
common stock on the grant date.
|
|
c)
|
On September 21, 2011, the Company
granted incentive stock options under the 2009 Incentive Plan
for the purchase of 200,000 and 300,000 shares of common stock
at $1.22 per share to two of the Company’s officers. The
options vest upon completion of defined events and milestones.
The options expire on the fifth anniversary of the date that they
vest, but in no event later than the tenth anniversary of the
agreement. The exercise price of the stock options equaled the
closing price of the Company’s common stock on the grant
date. At September 30, 2012, management determined that achievement
of the performance conditions were probable.
|
|
d)
|
On September 21, 2011, the Company
granted incentive stock options under the 2007 Plan for the purchase
of 100,000 shares of common stock at $1.22 per share to the Company’s
CEO. The options vest upon completion of defined events. The options
expire on the fifth anniversary of the date that they vest, but
in no event later than the tenth anniversary of the agreement.
At September 30, 2012, management determined that achievement
of the performance condition was probable. The exercise price
of the stock options equaled the closing price of the Company’s
common stock on the grant date.
|
|
e)
|
On June 30, 2011, the Company
granted nonqualified stock options under the 2007 Plan for the
purchase of 54,000 shares of common stock at $0.405 per share.
The options were granted to three of the Company’s non-management
directors for directors’ compensation, are fully vested
and expire on June 30, 2016. The exercise price of the stock options
equaled the closing price of the Company’s common stock
on the grant date.
|
|
f)
|
On March 31, 2011, the Company
granted nonqualified stock options under the 2007 Plan for the
purchase of 105,882 shares of common stock at $0.51 per share.
The options were granted to three of the Company’s non-management
directors for directors’ compensation, are fully vested
and expire on March 31, 2016. The exercise price of the stock
options equaled the closing price of the Company’s common
stock on the grant date.
|
|
g)
|
On January 13, 2011, the Company
granted stock purchase warrants for the purchase of 200,000 shares
of common stock at $1.00 per share to a consultant. The warrants
vest 25% each on April 13, 2011, July 13, 2011, October 13, 2011
and January 13, 2012. The warrants expire on January 13, 2014.
The exercise price of the warrants exceeded the closing price
of the Company’s common stock which was $0.76 on the grant
date.
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
Expenses for the nine months
ended September 30, 2012 and 2011 related to the vesting, modifying and granting of stock-based compensation awards were $489,079
and $546,707, respectively, and are included in general and administrative expense.
|
|
The following table summarizes the
Company’s stock-based compensation activity for the nine months
ended September 30, 2012:
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2011
|
|
|
3,230,953
|
|
|
$
|
0.62
|
|
|
$
|
1.17
|
|
|
|
5.07
|
|
|
|
|
|
Options/warrants granted
|
|
|
358,925
|
|
|
|
0.50
|
|
|
|
0.97
|
|
|
|
6.18
|
|
|
|
|
|
Options/warrants expired
|
|
|
(68,200
|
)
|
|
|
(1.64
|
)
|
|
|
(4.04
|
)
|
|
|
-
|
|
|
|
|
|
Options/warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options/warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2012
|
|
|
3,521,678
|
|
|
$
|
0.60
|
|
|
$
|
1.10
|
|
|
|
4.79
|
|
|
$
|
145,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2012
|
|
|
2,471,678
|
|
|
$
|
0.49
|
|
|
$
|
1.07
|
|
|
|
3.41
|
|
|
$
|
145,731
|
|
Aggregate intrinsic value
represents the value of the Company’s closing stock price on the last trading day of the quarter ended September 30, 2012
in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable
Unvested awards
- The
following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting for the nine
month period ended September 30, 2012:
|
|
Number of
Shares Subject
to Vesting
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2011
|
|
|
1,115,000
|
|
|
$
|
0.90
|
|
Options/warrants granted
|
|
|
200,000
|
|
|
|
0.55
|
|
Options/warrants vested
|
|
|
(265,000
|
)
|
|
|
(0.86
|
)
|
Options/warrants cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested, September 30, 2012
|
|
|
1,050,000
|
|
|
$
|
0.85
|
|
As of September 30, 2012, there
was $352,533 of total unrecognized compensation cost related to unvested stock-based compensation awards. The weighted average
period over which this cost will be recognized was 0.96 years as of September 30, 2012.
Included in the total of unvested
stock options at September 30, 2012, was 600,000 performance based stock options granted to officers of the Company in the third
quarter of 2011. At September 30, 2012, management determined that achievement of the performance targets was probable. The weighted
average period over which the related expense will be recognized was 0.70 years as of September 30, 2012.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The following table summarizes
all of the Company’s stock option and warrant activity for the nine months ended September 30, 2012. At September 30, 2012
the total balance includes warrants issued pursuant to private placement agreements, warrants issued in 2005 in connection with
the Clarkdale Slag Project (as discussed in Note 3) and stock options and warrants issued as compensation to directors, employees
and consultants:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Term
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
26,015,502
|
|
|
$
|
1.23
|
|
|
|
2.27
|
|
Options/warrants granted/issued
|
|
|
402,588
|
|
|
|
1.05
|
|
|
|
5.52
|
|
Options/warrants expired
|
|
|
(68,200
|
)
|
|
|
(4.04
|
)
|
|
|
-
|
|
Options/warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options/warranted exercised
|
|
|
(250,000
|
)
|
|
|
(0.375
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
|
26,099,890
|
|
|
$
|
1.22
|
|
|
|
1.60
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
11.
|
STOCKHOLDER RIGHTS PLAN
|
The Company
adopted a Stockholder Rights Plan (the “Rights Plan”) in August 2009 to protect stockholders from attempts to acquire
control of the Company in a manner in which the Company’s Board of Directors determines is not in the best interest of the
Company or its stockholders. Under the plan, each currently outstanding share of the Company’s common stock includes,
and each newly issued share will include, a common share purchase right. The rights are attached to and trade with
the shares of common stock and generally are not exercisable. The rights will become exercisable if a person or group
acquires, or announces an intention to acquire, 15% or more of the Company’s outstanding common stock. The Rights Plan was
not adopted in response to any specific effort to acquire control of the Company. The issuance of rights had no dilutive
effect, did not affect the Company’s reported earnings per share and was not taxable to the Company or its stockholders.
In connection
with the private placement completed on June 7, 2012 with Luxor the Company agreed to waive the 15% limitation currently in the
Rights Plan with respect to Luxor, and to allow Luxor to become the beneficial owner of up to 17.5% of the Company’s common
stock, without being deemed to be an “acquiring person” under the Rights Plan. Following the private placement, Luxor
became a beneficial owner of approximately 17.48% of the Company’s common stock.
12.
PROPERTY RENTAL AGREEMENTS AND
LEASES
|
|
The Company, through its subsidiary CML, has the following lease
and rental agreements as lessor:
|
|
|
Clarkdale Arizona Central Railroad
– rental
- CML has a month-to-month rental agreement with Clarkdale
Arizona Central Railroad. The rental payment is $1,700 per month.
|
|
|
Commercial building rental
- CML
rents commercial building space to various tenants. Rental arrangements
are minor in amount and are typically month-to-month.
|
Land lease - wastewater
effluent
- Pursuant to the acquisition of TI, the Company became party to a lease dated August 25, 2004 with the Town of Clarkdale,
AZ (“Clarkdale”). The Company provides approximately 60 acres of land to Clarkdale for disposal of Class B effluent.
In return, the Company has first right to purchase up to 46,000 gallons per day of the effluent for its use at fifty percent (50%)
of the potable water rate. In addition, if Class A effluent becomes available, the Company may purchase that at seventy-five percent
(75%) of the potable water rate.
The original term of the lease
was five years and expired on August 25, 2009; however, the lease also provided for additional one year extensions without any
changes to the original lease agreement. At such time as Clarkdale no longer uses the property for effluent disposal, and for
a period of 25 years measured from the date of the lease, the Company has a continuing right to purchase Class B effluent, and
if available, Class A effluent at then market rates.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The Company is a Nevada corporation
and is subject to federal and Arizona income taxes. Nevada does not impose a corporate income tax.
Significant components of the
Company’s net deferred income tax assets and liabilities at September 30, 2012 and December 31, 2011 were as follows:
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
14,442,078
|
|
|
$
|
12,648,152
|
|
Option compensation
|
|
|
742,507
|
|
|
|
599,128
|
|
Property, plant & equipment
|
|
|
720,793
|
|
|
|
565,186
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
15,905,378
|
|
|
|
13,812,466
|
|
Less: valuation allowance
|
|
|
(623,124
|
)
|
|
|
(371,101
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
15,282,254
|
|
|
|
13,441,365
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related liabilities
|
|
|
(55,197,465
|
)
|
|
|
(55,197,465
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(39,915,211
|
)
|
|
$
|
(41,756,100
|
)
|
The realizability of deferred
tax assets are reviewed at each balance sheet date. The majority of the Company’s deferred tax liabilities are related to
depletable assets. Such depletion will begin with the processing of mineralized material once production has commenced. Therefore,
the deferred tax liabilities will reverse in similar time periods as the deferred tax assets. The reversal of the deferred tax
liabilities is sufficient to support the deferred tax assets. The valuation allowance relates to state net operating loss carryforwards
which may expire unused due to their shorter life.
Deferred income tax liabilities
were recorded on GAAP basis over income tax basis using statutory federal and state rates with the corresponding increase in the
purchase price allocation to the assets acquired.
The resulting estimated future
federal and state income tax liabilities associated with the temporary difference between the acquisition consideration and the
tax basis are reflected as an increase to the total purchase price which has been applied to the underlying mineral and slag project
assets in the absence of there being a goodwill component associated with the acquisition transactions.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
13.
|
INCOME TAXES
(continued)
|
A reconciliation of the tax
benefit for the nine months ended September 30, 2012 and 2011 at US federal and state income tax rates to the actual tax provision
recorded in the financial statements consisted of the following components:
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
|
|
|
Income tax benefit at statutory rates
|
|
$
|
2,137,682
|
|
|
$
|
2,875,385
|
|
|
|
|
|
|
|
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Other non-deductible items
|
|
|
(44,770
|
)
|
|
|
(689,257
|
)
|
Change in valuation allowance
|
|
|
(252,023
|
)
|
|
|
409,050
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
1,840,889
|
|
|
$
|
2,595,178
|
|
The Company had cumulative
net operating losses of approximately $38,005,471 and $33,279,314 as of September 30, 2012 and December 31, 2011, respectively
for federal income tax purposes. The federal net operating loss carryforwards will expire between 2025 and 2033.
State income tax allocation
- The Company has elected to file consolidated tax returns with Arizona tax authorities. Tax attributes are computed using
an allocation and apportionment formula as outlined in Arizona tax law. The Company computes its tax provision using its statutory
federal rate plus a state factor that includes the Arizona statutory rate and the current apportionment percentage, which is then
reduced by the federal tax benefit that would be obtained upon payment of the computed state taxes.
For the nine month periods
ended September 30, 2012 and 2011, the state income tax benefit which is included in the total tax benefit was $301,123 and $450,634,
respectively.
The Company had cumulative net
operating losses of approximately $25,837,544 and $21,516,027 as of September 30, 2012 and December 31, 2011, respectively for
Arizona state income tax purposes. The Company has placed a valuation allowance against Arizona state net operating loss carryforwards
expected to expire in the next two years. The statutory expiration will occur between 2012 and 2017.
Tax returns subject to examination
- The Company and its subsidiaries file income tax returns in the United States. These tax returns are subject to examination
by taxation authorities provided the years remain open under the relevant statutes of limitations, which may result in the payment
of income taxes and/or decreases in its net operating losses available for carryforward. The Company is no longer subject to income
tax examinations by US federal and state tax authorities for years prior to 2008. While the Company believes that its tax filings
do not include uncertain tax positions, the results of potential examinations or the effect of changes in tax law cannot be ascertained
at this time. The Company’s federal tax returns for the years ended December 31, 2009 and 2010 are currently under examination
by the Internal Revenue Service.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
Lease obligations
-
The Company rents office space in Henderson, Nevada on month-to-month terms. As of September 30, 2012, the monthly rent was $2,980.
Rental expense resulting from
this operating lease agreement was $26,820 and $26,820 for the nine month periods ended September 30, 2012 and 2011, respectively.
Employment contracts
-
Martin B. Oring
. On October 1, 2010, the Company entered into an employment agreement and stock option agreement
with Mr. Oring as its Chief Executive Officer and President. The agreement is on an at-will basis and the Company may terminate
his employment, upon written notice, at any time, with or without cause or advance notice. The Company has agreed to pay
Mr. Oring compensation of $150,000, which includes compensation as a director. Mr. Oring will be provided with reimbursement
for reasonable business expenses in connection with his duties as Chief Executive Officer. Mr. Oring has voluntarily agreed
not to participate in health or other benefit plans or programs otherwise in effect from time to time for executives or employees.
On July 1, 2011, Mr. Oring’s annual compensation was adjusted to $200,000.
Carl S. Ager
.
The
Company entered into an employment agreement with Carl S. Ager, its Vice President, Secretary and Treasurer, effective January
1, 2006 and as amended February 16, 2007. Pursuant to the terms of the employment agreement, the Company agreed to
pay Mr. Ager an annual salary of $160,000. From September 1, 2010 through June 30, 2011, Mr. Ager voluntarily agreed
to reduce his cash compensation by 25%. In addition to his annual salary, Mr. Ager may be granted a discretionary bonus and stock
options, to the extent authorized by the Board of Directors. The term of the agreement is for an indefinite period, unless otherwise
terminated by either party pursuant to the terms of the agreement. In the event that the agreement is terminated by
the Company, other than for cause, the Company will provide Mr. Ager with six months written notice or payment equal to six months
of his monthly salary.
Melvin L. Williams
.
The
Company entered into an employment agreement with Melvin L. Williams, its Chief Financial Officer, effective June 14, 2006 and
as amended February 16, 2007. Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Williams
an annualized salary of $130,000 based on an increase in time commitment from 300-600 hours worked to 600-800 hours worked. From
September 1, 2010 through June 30, 2011, Mr. Williams voluntarily agreed to reduce his cash compensation by 25%. In the event
the employment agreement is terminated by the Company without cause, the Company will pay Mr. Williams an amount equal to three
months’ salary in a lump sum as full and final payment of all amounts payable under the agreement.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
14.
|
COMMITMENTS AND CONTINGENCIES
(continued)
|
Purchase consideration Clarkdale
Slag Project
- In consideration of the acquisition of the Clarkdale Slag Project from VRIC, the Company has agreed to certain
additional contingent payments. The acquisition agreement contains payment terms which are based on the Project Funding Date as
defined in the agreement:
|
a)
|
The Company has agreed to pay VRIC $6,400,000 on the Project
Funding Date;
|
|
b)
|
The
Company has agreed to pay VRIC
a minimum annual royalty of
$500,000, commencing on the
Project Funding Date (the “Advance
Royalty”), and an additional
royalty consisting of 2.5% of
the NSR on any and all proceeds
of production from the Clarkdale
Slag Project (the “Project
Royalty”). The Advance
Royalty remains payable until
the first to occur of: (i) the
end of the first calendar year
in which the Project Royalty
equals or exceeds $500,000 or
(ii) February 15, 2017. In any
calendar year in which the Advance
Royalty remains payable, the
combined Advance Royalty and
Project Royalty will not exceed
$500,000; and,
|
|
c)
|
The
Company has agreed to pay VRIC
an additional amount of $3,500,000
from the net cash flow of the
Clarkdale Slag Project.
|
The Advance Royalty shall continue
for a period of ten years from the Agreement Date or until such time that the Project Royalty shall exceed $500,000 in any calendar
year, at which time the Advance Royalty requirement shall cease.
Clarkdale Slag Project royalty
agreement - NMC
-
Under the original JV Agreement, the Company agreed to pay NMC a 5% royalty on
NSR payable from the Company’s 50% joint venture interest in the production from the Clarkdale Slag Project. Upon the assignment
to the Company of VRIC’s 50% interest in the Joint Venture Agreement in connection with the reorganization with Transylvania
International, Inc., the Company continues to have an obligation to pay NMC
a royalty consisting of 2.5% of the NSR on
any and all proceeds of production from the Clarkdale Slag Project.
On July 25, 2011, the Company
and NMC entered into an amendment (the “Third Amendment”) to the assignment agreement between the parties dated June
1, 2005. Pursuant to the Third Amendment, the Company agreed to pay advance royalties (the “Advance Royalties”) to
NMC of $15,000 per month (the “Minimum Royalty Amount”) effective as of January 1, 2011. The Third Amendment also
provides that the Minimum Royalty Amount will continue to be paid to NMC in every month where the amount of royalties otherwise
payable would be less than the Minimum Royalty Amount, and such Advance Royalties will be treated as a prepayment of future royalty
payments. In addition, fifty percent of the aggregate consulting fees paid to NMC from 2005 through December 31, 2010 were deemed
to be prepayments of any future royalty payments. As of December 31, 2010, aggregate consulting fees previously incurred amounted
to $1,320,000, representing credit for advance royalty payments of $660,000.
Total advance royalty payments
to NMC for the nine month period ended September 30, 2012 amounted to $135,000 and have been included in “Mineral exploration
and evaluation expenses – related party” on the statement of operations.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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14.
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COMMITMENTS AND CONTINGENCIES
(continued)
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Development agreement
- In January 2009, the Company submitted a development agreement to the Town of Clarkdale for development of an Industrial Collector
Road (the “Road”). The purpose of the Road is to provide the Company the capability to transport supplies, equipment
and products to and from the Clarkdale Slag Project site efficiently and to meet stipulations of the Conditional Use Permit for
the full production facility at the Clarkdale Slag Project.
The timing of the development
of the Road is to be within two years of the effective date of the agreement. The effective date shall be the later of (i) 30
days from the approving resolution of the agreement by the Council, (ii) the date on which the Town obtains a connection dedication
from separate property owners who have land that will be utilized in construction of the Road, or (iii) the date on which the
Town receives the proper effluent permit. The contingencies outlined in (ii) and (iii) above are beyond control of the Company.
The Company estimates the initial
cost of construction of the Road to be approximately $3,500,000 and the cost of additional enhancements to be approximately $1,200,000
which will be required to be funded by the Company. Based on the uncertainty of the contingencies, this cost is not included in
the Company’s current operating plans. Funding for construction of the Road will require obtaining project financing or
other significant financing. At September 30, 2012 and through the date the consolidated financial statements were issued, these
contingencies had not changed.
Registration Rights Agreement
- In connection with the June 7, 2012 private placement, the Company entered into a Registration Rights Agreement (“RRA”)
with the purchasers. Pursuant to the RRA, the Company agreed to certain demand registration rights. These rights include the requirement
that the Company file certain registration statements within a specified time period and to have these registration statements
declared effective within a specified time period. The Company also agreed to file and keep continuously effective such additional
registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume
restrictions. If the Company is not able to comply with these registration requirements, the Company will be required to pay cash
penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in which a registration default,
as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the
date of this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.
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15.
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CONCENTRATION OF CREDIT RISK
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The Company maintains its cash accounts in three
financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation
(the “FDIC”) for up to $250,000 per institution. Additionally, under the FDIC's expanded coverage, all non-interest
bearing transactional accounts are insured in full until December 31, 2012.
The Company has never experienced
a material loss or lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s
cash accounts will not be impacted by adverse conditions in the financial markets. At September 30, 2012, of the total cash held
by banks, the Company had deposits in excess of FDIC insured limits in the amount of $4,823,876.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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16.
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CONCENTRATION OF ACTIVITY
|
The Company currently utilizes
a mining and environmental firm to perform significant portions of its mineral property and metallurgical exploration work programs.
A change in the lead mining and environmental firm could cause a delay in the progress of the Company’s exploration programs
and would cause the Company to incur significant transition expense and may affect operating results adversely.
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17.
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RELATED PARTY TRANSACTIONS
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NMC
- The Company utilizes
the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides the Company with
use of its laboratory, instrumentation, milling equipment and research facilities. Mr. Ager is affiliated with NMC. Prior to January
1, 2011, the Company paid a negotiated monthly fee ranging from $15,000 to $30,000 plus reimbursement of expenses incurred. Effective
January 1, 2011, the Company and NMC agreed to replace the monthly fee with an advance royalty payment of $15,000 per month and
to reimburse NMC for actual expenses incurred and consulting services provided.
The Company has an existing
obligation to pay NMC a royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project.
The royalty agreement and advance royalty payments are more fully discussed in Note 14.
For the nine month period
ended September 30, 2012, the Company incurred total reimbursement of expenses to NMC of $7,229, additional consulting services
provided of $46,200 and advance royalty payments of $135,000. For the nine month period ended September 30, 2011, the Company
incurred total reimbursement of expenses to NMC of $8,203 and advance royalty payments of $135,000. At September 30, 2012, the
Company had an outstanding balance due to NMC of $26,412. At December 31, 2011, the Company did not have an outstanding balance
due to NMC.
Cupit, Milligan, Ogden &
Williams, CPAs
- The Company utilizes Cupit, Milligan, Ogden & Williams, CPAs (“CMOW”) to provide accounting
support services. Mr. Williams is affiliated with CMOW.
The Company incurred total
fees to CMOW of $95,952 and $111,431 for the nine month periods ended September 30, 2012 and 2011, respectively. Fees for services
provided by CMOW do not include any charges for Mr. Williams’ time. Mr. Williams is compensated for his time under his employment
agreement. The direct benefit to Mr. Williams was $32,624 and $37,886 of the above CMOW fees and expenses for the nine month periods
ended September 30, 2012 and 2011, respectively. The Company had an outstanding balance due to CMOW of $16,613 and $12,725 as
of September 30, 2012 and December 31, 2011, respectively.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On November 1, 2012, the Company’s Board of
Directors unilaterally determined, without any negotiations with the warrant holders to amend the private placement warrants in
connection with the February 23, 2007, March 22, 2007, December 26, 2007, February 7, 2008 and November 12, 2009 private placement
offerings. The expiration date of the warrants was extended from November 12, 2012 to November 12, 2013. In all other respects,
the terms and conditions of the warrants remain the same. The Company calculated the fair value of the warrants at zero using the
Binomial Lattice model with the following assumptions:
Risk-free interest rate
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0.19%
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Expected volatility
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94.94%
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The expected life of the warrants, which is an output
of the model, was one year.