See Accompanying Notes to these Condensed
Consolidated Financial Statements
See Accompanying Notes to these Condensed
Consolidated Financial Statements
See Accompanying Notes to these Condensed
Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY
OF SIGNIFICANT POLICIES
Description of business
- Searchlight
Minerals Corp. (the “Company”) is an exploration stage company engaged in a slag reprocessing project and the acquisition
and exploration of mineral properties. The Company is presently focused on the Clarkdale Slag Project, located in Clarkdale, Arizona,
which is a reclamation project to recover precious and base metals from the reprocessing of slag produced from the smelting of
copper ore mined at the United Verde Copper Mine in Jerome, Arizona.
Since the Company’s involvement in
the Clarkdale Slag Project began, the goal has been to demonstrate the economic feasibility of the project by determining a commercially
viable method to extract precious and base metals from the slag material.
The Company has not yet realized any revenues
from its planned operations. 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. 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.” (“Phage”).
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 and its Board of Directors approved a change in its name from Phage to "Searchlight Minerals Corp.”
effective June 23, 2005.
Going concern
- The accompanying
condensed consolidated financial statements were prepared on a going concern basis in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”). The going concern basis of presentation assumes that the Company
will continue in operation for the next twelve months and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business and does not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company’s
inability to continue as a going concern. The Company’s history of losses, working capital deficit, minimal
liquidity and other factors raise substantial doubt about the Company’s ability to continue as a going concern. In order
for the Company to continue operations beyond the next twelve months and be able to discharge its liabilities and commitments in
the normal course of business it must raise additional equity or debt capital and continue cost cutting measures. There can be
no assurance that the Company will be able to achieve sustainable profitable operations or obtain additional funds when needed
or that such funds, if available, will be obtainable on terms satisfactory to management.
If the Company continues to incur operating
losses and does not raise sufficient additional capital, material adverse events may occur including, but not limited to: a reduction
in the nature and scope of the Company’s operations; and the Company’s inability to fully implement its current business
plan. There can be no assurance that the Company will successfully improve its liquidity position. The accompanying consolidated
financial statements do not reflect any adjustments that might be required resulting from the adverse outcome relating to this
uncertainty.
As of March 31, 2016, the Company had cumulative
net losses of $93,236,798 from operations and had not commenced commercial mining and mineral processing operations; rather it
is still in the exploration stage. For the three months ended March 31, 2016, the Company incurred a net loss of $10,744,214, had
negative cash flows from operating activities of $511,311 and will incur additional future losses due to planned continued exploration
expenses. In addition, the Company had a working capital deficit totaling $3,179,234 at March 31, 2016.
To address ongoing liquidity constraints,
the Company continues to seek additional sources of capital through the issuance of equity, debt financing or a combination of
both. The Company has reduced general and administrative expenses and elected to defer payment of certain obligations. Cash conservation
measures include, but are not limited to, the deferred payment where available of outsourced consulting fees, current and future
board fees, certain officer salaries, certain monthly professional fees, and the Verde River Iron Company, LLC (“VRIC”)
monthly payable. These activities have reduced the required cash outlay of the Company’s business significantly. The Company
is focused on continuing to reduce costs and obtaining additional funding. There is no assurance that such funding will be available
on terms acceptable to the Company, or at all. If the Company raises additional funds by selling additional shares of capital stock,
securities convertible into shares of capital stock or the issuance of convertible debt, the ownership interest of the Company’s
existing common stock holders will be diluted.
SEARCHLIGHT MINERALS
CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of presentation
- The accompanying
financial statements have been prepared in accordance with U.S. GAAP. 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 with
the exception of recording a full valuation allowance on certain deferred tax assets as discussed in Note 14. 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, 2015, filed with the SEC on April
5, 2016.
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 U.S. 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 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.
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 will be 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 expense.
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 15 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.
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 production 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 cash flows
expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.
SEARCHLIGHT MINERALS
CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Deferred financing fees
–
Deferred financing fees represent fees paid in connection with obtaining debt financing. These fees are amortized using the effective
interest method over the term of the financing.
Convertible notes – derivative
liabilities
– The Company evaluates the embedded features of convertible notes to determine if they are required to be
bifurcated and recorded as a derivative liability. If more than one feature is required to be bifurcated, the features are accounted
for as a single compound derivative. The fair value of the compound derivative is recorded as a derivative liability and a debt
discount. The carrying value of the convertible notes is recorded on the date of issuance at its original value less the fair value
of the compound derivative.
The derivative liability is measured at
fair value on a recurring basis with changes reported in other income (expense). Fair value is determined using a model which incorporates
estimated probabilities and inputs calculated by both the Binomial Lattice model and present values. The debt discount is amortized
to non-cash interest expense using the effective interest method over the life of the notes. If a conversion of the underlying
note occurs, a proportionate share of the unamortized amount is immediately expensed.
Reclamation and remediation costs
- 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.
Fair value of financial instruments
- The Company’s financial instruments consist principally of derivative liabilities and the VRIC payable. Assets and liabilities
measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs
are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The hierarchy is prioritized into three levels defined as follows:
|
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 the VRIC payable (described in Note 9), derivative liabilities (described in Notes 6 and 8) and convertible notes (described
in Note 7). The VRIC payable and the convertible notes are classified within Level 2 of the fair value hierarchy. The fair value
of the VRIC payable approximates carrying value as the imputed interest rate is considered to approximate a market interest rate.
The fair value of the convertible notes approximates carrying value as the interest rate is considered to approximate a market
interest rate.
SEARCHLIGHT MINERALS
CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company calculates the fair value
of its derivative liabilities using various models which are all Level 3 inputs. The fair value of the derivative warrant liability
(described in Note 6) is calculated using the Binomial Lattice model, and the fair value of the derivative liability - convertible
notes (described in Note 8) is calculated using a model which incorporates estimated probabilities and inputs calculated by both
the Binomial Lattice model and present values. The change in fair value of the derivative liabilities is classified in other income
(expense) in the condensed consolidated statement of operations. The Company generally does not use derivative financial instruments
to hedge exposures to cash flow, market or foreign currency risks.
There have been no changes in the valuation
techniques used for the derivative liabilities. The Company does not have any non-financial assets or liabilities that it measures
at fair value. During the three months ended March 31, 2016 and 2015, there were no transfers of assets or liabilities 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 when the exercise price of the instrument exceeds the fair market value of the Company’s
common stock and when a net loss is reported. The dilutive effect of convertible debt securities is reflected in the diluted earnings
(loss) per share calculation using the if-converted method. Conversion of the debt securities is not assumed for purposes of calculating
diluted earnings (loss) per share if the effect is anti-dilutive. 100,112,693 and 65,420,053 stock options, warrants and common
shares issuable upon the conversion of notes were outstanding as of March 31, 2016 and March 31, 2015, respectively, but were not
considered in the computation of diluted earnings per share as their inclusion would be anti-dilutive.
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.
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.
Income taxes
- For interim
reporting periods, the Company uses the annualized effective tax rate (“AETR”) method to calculate its income tax provision.
Under this method, the AETR is applied to the interim year-to-date pre-tax losses to determine the income tax benefit or expense
for the year-to-date period. The income tax benefit or expense for a quarter represents the difference between the year-to-date
income tax benefit or expense for the current year-to-date period less such amount for the immediately preceding year-to-date period.
Management considers the impact of all known events in its estimation of the Company’s annual operating results and AETR.
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.
SEARCHLIGHT MINERALS
CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recent accounting standards
- From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “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 March 2016, the FASB issued Accounting
Standards Update (“ASU”) No. 2016-09, “Improvements on Employee Share-Based Payment Accounting”, which
simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in
the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2016 and interim periods
within those years. Early adoption is permitted. The standard will be effective for the Company beginning January 1, 2017. The
Company is currently evaluating the impact to its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases”, which requires lessees to put most leases on their balance sheets but recognize the expenses on their income
statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the
obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new
standard is effective for annual periods beginning after December 15, 2018 and interim periods within those years. Early adoption
is permitted. The standard will be effective for the Company beginning January 1, 2019. The Company is currently evaluating the
impact to its condensed consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
“Balance Sheet Classification of Deferred Taxes”, which simplifies income tax accounting. The update requires that
all deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating deferred taxes into
current and noncurrent amounts. This update is effective for fiscal years beginning after December 15, 2016, and interim periods
within those fiscal years, and early adoption is permitted. Adoption of the new guidance is not expected to have an impact on the
condensed consolidated financial position, results of operations or cash flows.
In April 2015,
the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt
Issuance Costs”, which simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented
as a deduction from the corresponding debt liability. The update is effective in fiscal years, including interim periods, beginning
after December 15, 2015, and early adoption was permitted. We adopted the provisions of ASU 2015-03 on a retrospective basis for
our annual period ended December 31, 2015. The retrospective adoption of this standard resulted in the reclassification of
approximately $0.1 million of current assets as a direct reduction against the balance of our current debt in the accompanying
condensed consolidated balance sheet at December 31, 2015, but had no effect on our condensed consolidated net loss or stockholders’
equity.
In November 2014, the FASB issued ASU 2014-16,
“Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt
or Equity”. This update clarifies how current guidance should be interpreted in evaluating the economic characteristics and
risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify
that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation,
in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December
15, 2015. Adoption and implementation of this new guidance did not have any impact on our condensed consolidated statements of
financial position, results of operations and liquidity.
In August 2014, the FASB issued ASU 2014-15,
“Disclosure of Uncertainties about and Entity’s Ability to Continue as a Going Concern”. This update requires
management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue
as a going concern and, if so, disclose that fact. Management will also be required to evaluate and disclose whether its plans
alleviate that doubt. The new standard is effective for annual periods ending after December 15, 2016, and interim periods
within annual periods beginning after December 15, 2016. The Company is currently evaluating the impact to its condensed consolidated
financial statements.
SEARCHLIGHT MINERALS
CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – RESTRICTED CASH
At March 31, 2016 and December 31, 2015,
restricted cash amounted to $128,238 and $227,345, respectively, and consisted of funds designated for debt collateral. During
the three months ended March 31, 2016, the Company reduced the restricted cash requirement by approximately $100,000, in connection
with the conversion of a portion of the Company’s convertible notes payable (as described in Note 7).
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book Value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book Value
|
|
Furniture and fixtures
|
|
$
|
38,255
|
|
|
$
|
(38,047
|
)
|
|
$
|
208
|
|
|
$
|
38,255
|
|
|
$
|
(37,963
|
)
|
|
$
|
292
|
|
Lab equipment
|
|
|
249,061
|
|
|
|
(249,061
|
)
|
|
|
-
|
|
|
|
249,061
|
|
|
|
(249,061
|
)
|
|
|
-
|
|
Computers and equipment
|
|
|
71,407
|
|
|
|
(63,140
|
)
|
|
|
8,267
|
|
|
|
71,407
|
|
|
|
(61,644
|
)
|
|
|
9,763
|
|
Vehicles
|
|
|
47,675
|
|
|
|
(46,333
|
)
|
|
|
1,342
|
|
|
|
47,675
|
|
|
|
(46,158
|
)
|
|
|
1,517
|
|
Slag conveyance equipment
|
|
|
300,916
|
|
|
|
(300,916
|
)
|
|
|
-
|
|
|
|
300,916
|
|
|
|
(300,916
|
)
|
|
|
-
|
|
Demo module building
|
|
|
6,630,063
|
|
|
|
(4,692,619
|
)
|
|
|
1,937,444
|
|
|
|
6,630,063
|
|
|
|
(4,526,867
|
)
|
|
|
2,103,196
|
|
Grinding circuit
|
|
|
913,679
|
|
|
|
(24,167
|
)
|
|
|
889,512
|
|
|
|
913,679
|
|
|
|
(21,667
|
)
|
|
|
892,012
|
|
Extraction circuit
|
|
|
938,352
|
|
|
|
(509,585
|
)
|
|
|
428,767
|
|
|
|
938,352
|
|
|
|
(462,668
|
)
|
|
|
475,684
|
|
Leaching and filtration
|
|
|
1,300,618
|
|
|
|
(1,300,618
|
)
|
|
|
-
|
|
|
|
1,300,618
|
|
|
|
(1,300,618
|
)
|
|
|
-
|
|
Fero-silicate storage
|
|
|
4,326
|
|
|
|
(2,271
|
)
|
|
|
2,055
|
|
|
|
4,326
|
|
|
|
(2,163
|
)
|
|
|
2,163
|
|
Electrowinning building
|
|
|
1,492,853
|
|
|
|
(783,748
|
)
|
|
|
709,105
|
|
|
|
1,492,853
|
|
|
|
(746,426
|
)
|
|
|
746,427
|
|
Site improvements
|
|
|
1,677,844
|
|
|
|
(746,901
|
)
|
|
|
930,943
|
|
|
|
1,677,844
|
|
|
|
(715,775
|
)
|
|
|
962,069
|
|
Site equipment
|
|
|
360,454
|
|
|
|
(354,824
|
)
|
|
|
5,630
|
|
|
|
360,454
|
|
|
|
(353,638
|
)
|
|
|
6,816
|
|
Construction in progress
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,127,517
|
|
|
$
|
(9,112,230
|
)
|
|
$
|
6,015,287
|
|
|
$
|
15,127,517
|
|
|
$
|
(8,825,564
|
)
|
|
$
|
6,301,953
|
|
Depreciation expense was $286,666 and $358,383
for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016 and December 31, 2015, construction in progress
included the gold, copper, and zinc extraction circuits and electrowinning equipment at the Clarkdale Slag Project.
NOTE 4 – 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 VRIC. One of the Company’s late
former directors was an affiliate of VRIC. The former director joined the Company’s board subsequent to the acquisition.
The Company also formed a second wholly
owned subsidiary, CMC, for the purpose of developing a processing plant at the Clarkdale Slag Project.
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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 SEC, 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 4 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 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.
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 a 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 price 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. To address liquidity constraints, the Company has deferred
payment of the VRIC payable effective May 1, 2014. On December 18, 2014, VRIC relinquished $255,000 of payments due to them. The
relinquishment was recorded as a contribution of capital (Note 9);
|
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 15.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 allocation of purchase price to 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
|
|
The Company agreed to continue to pay VRIC
$30,000 per month until the earlier of the Project Funding Date or the tenth anniversary of the date of the execution of the letter
agreement. During the fourth quarter of the fiscal year ended December 31, 2015, the Company deferred monthly payments to VRIC
as described in Note 9. As of March 31, 2016 and December 31, 2015, the cumulative interest cost capitalized and included in the
Clarkdale Slag Project was $1,114,327 and $1,107,226 respectively.
The following table sets forth the changes
to the Clarkdale Slag Project components for the three months and year ended March 31, 2016 and December 31, 2015, respectively:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Slag Pile, beginning balance
|
|
$
|
121,874,102
|
|
|
$
|
121,829,655
|
|
Capitalized interest costs
|
|
|
7,101
|
|
|
|
44,447
|
|
Slag Pile, ending balance
|
|
$
|
121,881,203
|
|
|
$
|
121,874,102
|
|
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities
consisted of the following at March 31, 2016 and December 31, 2015:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Trade accounts payable
|
|
$
|
828,409
|
|
|
$
|
589,657
|
|
Accrued compensation and related taxes
|
|
|
510,975
|
|
|
|
435,469
|
|
Accrued interest
|
|
|
79,555
|
|
|
|
126,057
|
|
|
|
$
|
1,418,939
|
|
|
$
|
1,151,183
|
|
Amounts due to related parties are discussed in Note 18.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 6 – DERIVATIVE WARRANT LIABILITY
Related to a private placement completed
on November 12, 2009, the Company issued 6,341,263 warrants to purchase shares of common stock. The warrants had an initial 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 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.
On various dates commencing in November
since 2012, the latest being March 18, 2016, the Company’s Board of Directors unilaterally determined, without any negotiations
with the warrant holders to amend these private placement warrants. The expiration date of the warrants was extended for approximately
one year at each extension. The current expiration date is November 30, 2017. In all other respects, the terms and conditions of
the warrants remained the same.
With respect to the March 18, 2016 extension,
the Company did not recognize any additional expense as the fair values of the warrants were calculated at zero using the Binomial
Lattice model with the following assumptions:
|
|
March 31,
2016
|
|
Risk-free interest rate
|
|
|
0.64% - 0.87%
|
|
Expected volatility
|
|
|
122.95% - 176.27%
|
|
Expected life (years)
|
|
|
1.75
|
|
As of March 31, 2016, the cumulative adjustment
to the warrants was as follows: (i) the exercise price was adjusted from $1.85 per share to $0.71 per share for warrants held by
Luxor Capital Partners, L.P. and its affiliates (“Luxor”) and to $0.70 per share for all other warrant holders (“all
others”), and (ii) the number of warrants was increased by a total of 7,463,223, being 4,686,112 warrants for Luxor and its
affiliates and 2,777,111 warrants for all others. In connection with the financing completed with Luxor on June 7, 2012, 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 adjusted exercise price of those warrants is $0.71 per share. During the three months ended March
31, 2016, the warrants increased by 993,332 as a result of dilutive issuances.
The total warrants accounted for as a derivative
liability were 16,610,253 and 9,147,029 as of March 31, 2016 and December 31, 2015, respectively.
The following table sets forth the changes
in the fair value of derivative liability for the three months ended March 31, 2016 and the year ended December 31 2015:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Beginning balance
|
|
$
|
(53,141
|
)
|
|
$
|
-
|
|
Adjustment to warrants
|
|
|
(104,075
|
)
|
|
|
-
|
|
Change in fair value
|
|
|
157,216
|
|
|
|
(53,141
|
)
|
Ending balance
|
|
$
|
-
|
|
|
$
|
(53,141
|
)
|
The Company estimates the fair value of
the derivative liabilities by using the Binomial Lattice pricing-model, with the following assumptions used for the three months
ended March 31, 2016 and the year ended December 31, 2015:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Expected volatility
|
|
|
122.95% - 176.27%
|
|
|
|
30.46% - 141.15%
|
|
Risk-free interest rate
|
|
|
0.64% - 0.84%
|
|
|
|
0.00% - 0.65%
|
|
Expected life (years)
|
|
|
0.75 – 1.75
|
|
|
|
0.10 - 0.90
|
|
Suboptimal exercise factor
|
|
|
2.0
|
|
|
|
2.5
|
|
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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.
NOTE 7 – CONVERTIBLE NOTES
On September 18, 2013, the Company completed
a private placement of secured convertible notes (the “Notes”) resulting in gross proceeds of $4,000,000. At issuance,
the Notes were convertible into shares of common stock at $0.40 per share, subject to certain adjustments. The term of the Notes
was five years, but the Notes can be demanded by the holders. The Notes bear interest at 7% which is payable semi-annually. The
Notes have customary provisions relating to events of default including an increase in the interest rate to 9%. The Notes are secured
by a first priority lien on all of the assets of the Company including its subsidiaries. At March 31, 2016, the first priority
lien included $128,238 of restricted cash specifically dedicated to debt collateral.
The Company may not incur additional secured
indebtedness or other indebtedness with a maturity prior to that of the Notes without the written consent of the holders of the
majority-in-interest of the Notes. In the event of a change of control of the Company, the Notes will become due and payable at
120% of the principal balance. The holders of the Notes had the right to purchase, pro rata, up to $600,000 of additional separate
notes by September 18, 2014 on the same general terms and conditions as the original Notes. In September 2014, $69,000 of additional
notes were purchased and issued.
At December 31, 2015, the Notes were convertible
into 10,433,333 shares of common stock at $0.39 per share, as adjusted for anti-dilutive provisions and the if-converted value
equaled the principal amount of the Notes. Certain embedded features in the Notes were required to be bifurcated and accounted
for as a single compound derivative and reported at fair value as discussed in Note 8.
During the three months ended March 31,
2016, Luxor, on behalf of itself and certain of its affiliates (collectively, the “Luxor Group”), demanded repayment
from the Company, of all of the outstanding principal and interest owing on the Luxor Group’s Secured Convertible Promissory
Notes, each dated September 18, 2013 (the “Luxor Notes”). Lacking sufficient funds to make such repayments, on March
18, 2016 the Company agreed, pursuant to an Amendment to Secured Convertible Promissory Note, dated September 18, 2013, to allow
the Luxor Group to convert all of the outstanding principal amount and accrued but unpaid interest owing on the Luxor Notes into
shares of the Company’s common stock, at a rate of $0.035 per share. In the aggregate, the Luxor Group converted $2,600,000
of principal owing on the Luxor Notes and $91,000 of interest owing on the Luxor Notes in exchange for 76,885,714 shares of the
Company’s common stock. As a condition of the Private Placement Offering on March 18, 2016, as discussed in Notes 10 and
Note 12, the Luxor Group agreed that all of its 12,128,708 currently owned warrants would not be exercised until at least September
18, 2016. The Company has subsequently cancelled the Luxor Notes. In connection with the conversion of the Luxor Notes the Company
has recognized a loss on conversion of $6,998,571.
On March 18, 2016, Martin Oring, one of
our directors and our Chief Executive Officer, and members of his family, pursuant to Amendments to Convertible Promissory Notes,
dated March 18, 2016, provided us with Conversion Notices whereby they elected to convert all of the principal and accrued but
unpaid interest owing on their Secured Convertible Promissory Notes (“Oring Notes”), each dated September 18, 2013,
into shares of the Company’s common stock at a rate of $0.035 per share. In the aggregate, Mr. Oring and his family members
converted $414,000 in principal and $14,491 in accrued interest owing on such notes in exchange for 12,242,600 shares of the Company’s
common stock. The Company has subsequently cancelled the Oring Notes. In connection with the conversion of the Oring Notes the
Company has recognized a loss on conversion of $1,114,391.
On March 17, 2016 the Board of Directors
of the Company approved an offer to the remaining holders of the Secured Convertible Promissory Notes. The offer, effective March
18, 2016, included the conversion of principal and interest outstanding as of March 18, 2016 at a rate of $0.035 per share. At
March 31, 2016, the remaining outstanding Notes had a principal balance of $1,055,000 and accrued interest of $31,125 and were
convertible into 31,037,855 shares of common stock at $0.035 per share, as adjusted for the March 18, 2016 conversion offer. The
Company anticipates that a loss of approximately $1.7 million will be recorded in connection with the conversion during the quarter
ended June 30, 2016.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
At issuance, the fair value of the compound
derivative was $1,261,285 and was recorded as both a derivative liability and a debt discount. The debt discount is being amortized
to interest expense over the term of the Notes and the derivative liability is carried at fair value until conversion or maturity.
The Company incurred $126,446 of financing fees related to the Notes. Such amounts were capitalized and are being amortized to
interest expense over the term of the Notes. The carrying value of the convertible debt, net of discount was comprised of the following:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Convertible notes at face value
|
|
$
|
4,069,000
|
|
|
$
|
4,069,000
|
|
Conversion of notes at face value
|
|
|
(3,014,000
|
)
|
|
|
-
|
|
Unamortized discount and deferred financing fees
|
|
|
(184,444
|
)
|
|
|
(816,788
|
)
|
Convertible notes, net of discount
|
|
$
|
870,556
|
|
|
$
|
3,252,212
|
|
Interest expense related to the Notes included
the following for the three months ended March 31, 2016 and March 31, 2015:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Interest rate at 7%
|
|
$
|
63,036
|
|
|
$
|
71,191
|
|
Amortization of debt discount
|
|
|
575,952
|
|
|
|
57,714
|
|
Amortization of deferred financing fees
|
|
|
56,391
|
|
|
|
5,994
|
|
Total interest expense on convertible notes
|
|
$
|
695,379
|
|
|
$
|
134,899
|
|
Included in amortization of debt discount for the three months
ended March 31, 2016 is expense of $570,642 related to the conversion of $3,014,000 of notes payable on March 18, 2016. This amount
has been recorded as interest expense on our condensed consolidated income statement.
NOTE 8 – DERIVATIVE LIABILITY – CONVERTIBLE
NOTES
As further discussed in Note 7, the Company
had issued $4,069,000 of secured convertible notes between September, 2013 and September, 2014. The Notes were convertible at any
time into shares of common stock at $0.39 per share. As discussed in Note 7, on April 27, 2016 all of the notes were converted
and cancelled. In connection with the April 27, 2016 conversion, the Company anticipates that it will record an approximate loss
on conversion of $1.7 million.
The Notes have several embedded conversion
and redemption features. The Company determined that two of the features were required to be bifurcated and accounted for under
derivative accounting as follows:
|
1.
|
The embedded conversion feature includes a provision for the adjustment to the conversion price
if the Company issues common stock or common stock equivalents at a price less than the exercise price. Derivative accounting was
required for this feature due to this anti-dilution provision.
|
|
2.
|
One embedded redemption feature requires the Company to pay 120% of the principal balance due upon
a change of control. Derivative accounting was required for this feature as the debt involves a substantial discount, the option
is only contingently exercisable and its exercise is not indexed to either an interest rate or credit risk.
|
These two embedded features have been accounted
for together as a single compound derivative. The Company estimated the fair value of the compound derivative using a model with
estimated probabilities and inputs calculated by the Binomial Lattice model and present values. The assumptions included in the
calculations are highly subjective and subject to interpretation. Assumptions used for the three months ended March 31, 2016 and
the year ended December 31, 2015 included redemption and conversion estimates/behaviors, estimates regarding future anti-dilutive
financing agreements and the following other significant estimates:
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Expected volatility
|
|
|
20.57% – 222.29%
|
|
|
|
101.46 – 139.57%
|
|
Risk-free interest rate
|
|
|
0.29% – 1.04%
|
|
|
|
0.92 - 1.31%
|
|
Expected life (years)
|
|
|
1.0 – 2.51
|
|
|
|
2.0 – 2.75
|
|
Suboptimal exercise factor
|
|
|
1.0 – 2.0
|
|
|
|
2.5
|
|
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.
The following table sets forth the changes
in the fair value of the derivative liability for the three months ended March 31, 2016 and the year ended December 31, 2015:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Beginning balance
|
|
$
|
590,536
|
|
|
$
|
1,218,619
|
|
Issuance of convertible debt
|
|
|
-
|
|
|
|
-
|
|
Conversion of convertible debt
|
|
|
(302,029
|
)
|
|
|
-
|
|
Change in fair value
|
|
|
1,104,158
|
|
|
|
(628,083
|
)
|
Ending balance
|
|
$
|
1,392,665
|
|
|
$
|
590,536
|
|
NOTE 9 – 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.
The Company has recorded a liability for
this commitment using imputed interest based on its best estimate of its incremental borrowing rate. 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 $7,101 and $13,454 for the three months ended March 31, 2016 and 2015, respectively. Interest costs incurred have been capitalized
and included in the Clarkdale Slag Project. To address liquidity constraints, the Company has deferred payment of the VRIC payable
effective May 1, 2014. On December 18, 2014, VRIC relinquished $255,000 of payments due to them. The relinquishment was recorded
as a contribution of capital.
The following table represents future minimum
payments on the VRIC payable for each of the twelve month periods ending March 31:
2016
|
|
$
|
720,000
|
|
2017
|
|
|
41,195
|
|
|
|
|
|
|
Total minimum payments
|
|
|
761,195
|
|
Less: amount representing interest
|
|
|
(63,051
|
)
|
|
|
|
|
|
Present value of minimum payments
|
|
|
698,144
|
|
VRIC payable, current portion
|
|
|
(698,144
|
)
|
|
|
|
|
|
VRIC payable, net of current portion
|
|
$
|
-
|
|
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 4 and 15.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 10 – STOCKHOLDERS’ EQUITY
During the three months ended March 31,
2016, the Company’s stockholders’ equity activity consisted of the following:
|
a)
|
On March 18, 2016, the Company issued 76,885,714 shares of common stock at $0.035 per share to
the Luxor noteholders as consideration for the conversion of $2,600,000 in principal and $91,000 in accrued interest. In connection
with the conversion of the notes payable, a loss on conversion of $6,998,571 has been recognized as discussed in Note 7.
|
|
b)
|
On March 18, 2016, the Company issued 12,242,600 shares of common stock at $0.035 per share to
the Oring noteholders as consideration for the conversion of $414,000 in principal and $14,491 in accrued interest. In connection
with the conversion of the notes payable, a loss on conversion of $1,114,391 has been recognized as discussed in Note 7.
|
|
c)
|
On March 18, 2016 the Company completed a private placement offering with the Luxor Group for proceeds
of $1,500,000. A total of 42,857,143 shares of common stock at $0.035 were issued in connection with this offering. As a condition
of the Private Placement Offering on March 18, 2016, as discussed in Note 7 and Note 12, the Luxor Group agreed that all of its
12,128,708 currently owned warrants would not be exercised until at least September 18, 2016.
|
|
d)
|
On March 17, 2016, the Board of Directors has also authorized, subject to stockholder approval,
certain amendments to our Articles of Incorporation and Amended and Restated Bylaws that, would increase the number of authorized
shares of our capital stock.
|
|
e)
|
On March 31, 2016 the Company issued 18,750 shares of common stock at $0.08 per share to the estate
of the late Robert McDougal. Mr. McDougal had been a director of the Company through January 15, 2016, the date that Mr. McDougal
passed away. The shares were issued as consideration for his services a director of the Company.
|
During the three-month period
ended March 31, 2015, the Company’s stockholders’ equity activity consisted of the following:
|
a)
|
On March 23, 2015, the Company’s Board of Directors approved a private placement offering
for gross proceeds of $1,500,000 with Luxor. A total of 4,250,000 units were issued at a price of $0.3529 per unit. Each unit consisted
of one share of the Company’s common stock and one share purchase warrant exercisable at $0.50 per share. Such warrants will
expire five years from the date of issuance and are considered to be indexed to the Company’s common stock. The financing
was completed on March 25, 2015.
|
|
b)
|
On March 18, 2015, the Company issued 516,460 shares of common stock at a price of $0.25 per share
to certain convertible note holders as consideration for cancellation of an aggregate of $129,115 for interest payments due on
the convertible notes as of March 18, 2015. The remaining note holders received interest payments in cash.
|
The following summarizes the exercise price
per share and expiration date of the Company’s outstanding warrants issued to investors and vendors to purchase common stock
at March 31, 2016:
Shares Underlying
Outstanding Warrants
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
1,000,000
|
|
|
$
|
0.375
|
|
|
June 2016
|
|
3,410,526
|
|
|
|
0.70
|
|
|
November 2017
|
|
5,736,501
|
|
|
|
0.71
|
|
|
November 2017
|
|
7,042,387
|
|
|
|
1.85
|
|
|
November 2017
|
|
3,000,000
|
|
|
|
0.375
|
|
|
June 2017
|
|
316,752
|
|
|
|
0.30
|
|
|
September 2019
|
|
2,197,496
|
|
|
|
0.30
|
|
|
October 2019
|
|
1,000,000
|
|
|
|
0.30
|
|
|
November 2019
|
|
1,498,750
|
|
|
|
0.30
|
|
|
December 2019
|
|
3,981,000
|
|
|
|
0.50
|
|
|
December 2019
|
|
4,250,000
|
|
|
|
0.50
|
|
|
March 2020
|
|
2,843,000
|
|
|
|
0.50
|
|
|
May 2020
|
|
2,215,429
|
|
|
|
0.50
|
|
|
July 2020
|
|
327,900
|
|
|
|
0.50
|
|
|
September 2020
|
|
27,067
|
|
|
|
0.70
|
|
|
November 2017
|
|
44,816
|
|
|
|
0.71
|
|
|
November 2017
|
|
2,750,045
|
|
|
|
0.70
|
|
|
November 2017
|
|
4,641,296
|
|
|
|
0.71
|
|
|
November 2017
|
|
46,282,965
|
|
|
|
|
|
|
|
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 11 – 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 March 31, 2016, the Company had 5,335,576 of its common shares
available for issuance for stock option awards under the Company’s stock option plans.
At March 31, 2016, the Company had the
following stock option plans available:
|
·
|
2009 Incentive Plan
– The terms of the 2009 Incentive Plan, as amended, allow for
up to 7,250,000 options to be issued 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.
No participants shall receive more than 500,000 options under this plan in any one calendar year. 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 plan was approved by the Company’s stockholders on December
15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2016, the Company had
granted 3,437,500 options under the 2009 Incentive Plan with a weighted average exercise price of $0.68 per share, of which, 3,397,500
were outstanding. At March 31, 2016, options available for issuance under this plan amounted to 3,812,500.
|
|
·
|
2009 Directors Plan
- The terms of the 2009 Directors Plan, as amended, allow for up to
2,750,000 options to be issued to eligible participants. 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 participant shall
receive more than 250,000 options under this plan in any one calendar year. The plan was approved by the Company’s stockholders
on December 15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2016, the
Company had granted 2,274,877 options under the 2009 Directors Plan with a weighted average exercise price of $0.67 per share,
of which 2,163,627 were outstanding. As of March 31, 2016, options available for issuance under this plan amounted to 475,123.
|
|
·
|
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 March 31, 2016, the Company had granted
2,952,047 options under the 2007 Plan with a weighted average exercise price of $0.61 per share, of which 2,715,027 were outstanding.
As of March 31, 2016, options available for issuance under this plan amounted to 1,047,953.
|
As of March 31, 2016, the Company had granted
15,610,714 options and warrants outside of the aforementioned stock option plans with a weighted average exercise price of $0.48
per share. As of March 31, 2016, 15,410,714 options and warrants granted were outstanding.
Amendment to Certain Outstanding Stock
Options
– On March 17, 2016, the Company’s Board of Directors unilaterally determined to amend: 570,000 options
issued under the 2009 Incentive Plan; 188,469 options issued under the 2009 Directors Plan; 470,280 stock options issued under
the 2007 plan; and 200,000 options issued outside all plans, by extending their expiration dates. The options were granted at various
dates between October 6, 2008 and December 31, 2011 and have a weighted average exercise price of $0.98 per share. The expiration
dates of all of the options were extended by twelve months. In all other respects, the terms and conditions of the extended options
remain the same. With respect to the extensions, the Company did not recognize any additional expense as the fair values of the
warrants were calculated at zero using the Binomial Lattice model.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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, limited to 18,000, 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.
Stock warrants
– Upon approval
of the Board of Directors, the Company may grant stock warrants to consultants for services performed.
Valuation of awards
– At March
31, 2016, 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 the 3 month periods ended March
31, 2016 and March 31, 2015 respectively:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Risk-free interest rate
|
|
|
1.21%
|
|
|
|
0.24% - 1.37%
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
252.08%
|
|
|
|
91.23% - 105.19%
|
|
Suboptimal exercise factor
|
|
|
2.00
|
|
|
|
2.00
|
|
Expected life (years)
|
|
|
3.0
|
|
|
|
1.00 - 4.25
|
|
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.
Stock-based compensation activity
– During the three months ended March 31, 2016, the Company granted stock-based awards as follows:
|
a)
|
On March 31, 2016, the Company granted stock options under the 2009 Directors Plan for the purchase
of 36,000 shares of common stock at $0.08 per share. The options were granted to two of the Company’s non-management directors
for directors’ compensation, are fully vested and expire on March 31, 2021. The exercise price of the stock options equaled
the closing price of the Company’s common stock for the grant date.
|
|
b)
|
On March 17, 2016, the Company’s Board of Directors unilaterally determined, without any
negotiations with the warrant holders, to amend the expiration dates of certain outstanding warrants to purchase up to an aggregate
of 16,189,414 shares of the Company’s common stock. The expiration date of the warrants was extended from November 30, 2016
to November 30, 2017. In all other respects, the terms and conditions of the warrants remain the same. The warrants were originally
issued in connection with the Company’s February 23, 2007, March 22, 2007, December 26, 2007, February 7, 2008 and November
12, 2009 private placements. The Company calculated the fair value of the warrants at zero.
|
Expenses related to the vesting,
modifying and granting of stock-based compensation awards were $6,922 and $42,088 for the three months ended March 31, 2016 and
2015, respectively. Such expenses have been included in general and administrative expense.
The following table summarizes
the Company’s stock-based compensation activity for the three-month period ended March 31, 2016:
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
|
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, 2015
|
|
|
23,936,162
|
|
|
$
|
0.21
|
|
|
$
|
0.53
|
|
|
|
3.88
|
|
|
$
|
-
|
|
Exercisable, December 31, 2015
|
|
|
23,636,162
|
|
|
$
|
0.20
|
|
|
$
|
0.52
|
|
|
|
3.89
|
|
|
$
|
-
|
|
Options/warrants granted
|
|
|
36,000
|
|
|
|
0.10
|
|
|
|
0.08
|
|
|
|
5.00
|
|
|
|
|
|
Options/warrants expired
|
|
|
(285,294
|
)
|
|
|
0.87
|
|
|
|
1.04
|
|
|
|
-
|
|
|
|
|
|
Options/warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding, March 31, 2016
|
|
|
23,686,868
|
|
|
$
|
0.20
|
|
|
$
|
0.52
|
|
|
|
3.74
|
|
|
$
|
-
|
|
Exercisable, March 31, 2016
|
|
|
23,386,868
|
|
|
$
|
0.19
|
|
|
$
|
0.52
|
|
|
|
3.76
|
|
|
$
|
-
|
|
Aggregate intrinsic value represents the
value of the Company’s closing stock price on the last trading day of the quarter ended March 31, 2016, 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 three-month period ended
March 31, 2016
|
|
Number of
Shares Subject to
Vesting
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2015
|
|
|
300,000
|
|
|
$
|
0.99
|
|
Options/warrants granted
|
|
|
-
|
|
|
|
-
|
|
Options/warrants vested
|
|
|
-
|
|
|
|
-
|
|
Unvested, March 31, 2016
|
|
|
300,000
|
|
|
$
|
0.99
|
|
No shares vested during the three-month
period ended March 31, 2016. As of March 31, 2016, there was $1,731 of total unrecognized compensation cost related to unvested
stock-based compensation awards. The weighted average period over which this cost will be recognized was 0.67 years as of March
31, 2016. Included in the total of unvested stock options at March 31, 2016, was 250,000 performance-based stock options. At March
31, 2016, management determined that achievement of the performance targets was probable. The weighted average period over which
the related expense will be recognized is 0.75 years as of March 31, 2016.
NOTE 12 – STOCKHOLDER RIGHTS AGREEMENT
The Company adopted a Stockholder Rights
Agreement (the “Rights Agreement”) 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 Rights Agreement, 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 Company’s Board of Directors had previously
waived the 15% limitation in the Rights Agreement with respect to Luxor, to allow Luxor to become the beneficial owner of up to
26% of the shares of our Common Stock, without being deemed to be an “acquiring person” under the Rights Agreement.
In connection with the Offering, completed on March 18, 2016 the Company agreed to further waive all of the existing limitations
under the Rights Agreement so that Luxor would not be considered an “acquiring person” under the Rights Agreement under
any circumstance. Following the Offering, Luxor is the beneficial owner (as defined in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended, the “Exchange Act”) of approximately 49.83% of our Common Stock. The Rights Agreement 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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 13 – PROPERTY RENTAL AGREEMENTS AND LEASES
The Company, through its subsidiary CML, has the following rental
agreement as lessor:
|
·
|
Clarkdale
Arizona Central Railroad – rental
– CML rents land to Clarkdale Arizona
Central Railroad on month-to-month terms at $1,700 per month.
|
NOTE 14 – INCOME TAXES
The Company is a Nevada corporation and is
subject to federal and Arizona income taxes. Nevada does not impose a corporate income tax. The Company recognized no income tax
expense for the period ended March 31, 2016 as compared to March 31, 2015. The Company has recorded a full valuation allowance
for any income tax benefits recognized in the current period. The effective tax rate for the period ended March 31, 2016 was 0%
as compared to 38% for the 2015 period. The overall effective income tax rate for the year could be different from the effective
tax rate for the three months ended March 31, 2016. A summary of our deferred tax assets and liabilities as well as the Company’s
federal and state net operating loss carryforwards are included in Note 14 “Income Taxes” in our Annual Report on
Form 10-K for the year ended December 31, 2015.
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 has losses from inception to date, and thus all years remain open for examination.
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 does not have any tax returns currently under
examination by the Internal Revenue Service.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Severance agreements
– The Company
has severance agreements with two executive officers that provide for various payments if the officer’s employment agreement
is terminated by the Company, other than for cause. At March 31, 2016, the total potential liability for severance agreements
was $112,500. Subsequent to March 31, 2016, Melvin Williams, the Company’s Chief Financial Officer, resigned. Accordingly,
the potential severance liability will be reduced to $80,000.
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 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.
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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 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 fees were $45,000 for
the three months ended March 31, 2016 and 2015 respectively. Advance Royalty fees have been included in mineral exploration and
evaluation expenses – related party on the statements of operations.
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 Town Council, (ii) the date on which the Town of Clarkdale 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 of Clarkdale 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. As of the date of this filing, 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.
NOTE 16 – CONCENTRATION OF CREDIT RISK
The Company maintains its cash accounts in
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. 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 March 31, 2016 and December 31, 2015, the Company had $1,262,167 and $91,355,
respectively, of deposits in excess of FDIC insured limits.
NOTE 17 – 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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 18 – RELATED PARTY TRANSACTIONS
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. One of the Company’s executive officers,
Mr. Ager, is affiliated with NMC. In 2011, the Company and NMC agreed to an advance royalty of $15,000 per month and to reimburse
NMC for actual expenses incurred and consulting services provided. In 2016, the Company incurred no expense for consulting services.
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 15.
The following table provides details of transactions
between the Company and NMC for the three months ended;
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
Reimbursement of expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
Consulting services provided
|
|
|
-
|
|
|
|
30,000
|
|
Advance royalty payments
|
|
|
45,000
|
|
|
|
45,000
|
|
Mineral and exploration expense – related party
|
|
$
|
45,000
|
|
|
$
|
45,000
|
|
The Company had outstanding balances due to
NMC of $233,725 and $188,725 at March 31, 2016 and December 31, 2015, respectively.
On December 23, 2014, the Company granted
warrants for the purchase of 1,940,000 shares of common stock at $0.50 per share to NMC. The warrants were granted in part to
incentivize their continued efforts and support of the Company. The warrants expire on December 23, 2019. The fair value of the
warrants was calculated by the binomial lattice model and amounted to $351,276.
On November 11, 2014, the Company granted
warrants for the purchase of 1,000,000 shares of common stock at $0.30 per share to NMC. The warrants were granted for investor
relations. The warrants are fully vested and expire on November 11, 2019. The fair value of the warrants was calculated by the
binomial lattice model and amounted to $108,877.
Cupit, Milligan, Ogden & Williams,
CPAs
– The Company utilized CMOW to provide accounting support services through April 8, 2016. CMOW is an affiliate
of the Company’s former CFO, Mr. Williams. Fees for services provided by CMOW do not include any charges that had been incurred
for Mr. Williams’ time. Mr. Williams was compensated for his time under his employment agreement.
The following table provides details of transactions
between the Company and CMOW and the direct benefit to Mr. Williams for the three months ended:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
Accounting support services
|
|
$
|
17,926
|
|
|
$
|
63,064
|
|
Direct benefit to CFO
|
|
$
|
6,095
|
|
|
$
|
18,289
|
|
The Company had an outstanding balance due
to CMOW of $176,383 and $158,457 as of March 31, 2016 and December 31, 2015, respectively.
Financial Consulting Services
– Beginning in October of 2014, the Company utilized five individuals to provide financial consulting services. During the
third quarter of 2015, the Company entered into consulting agreements with three of these individuals, all of the consultants
provided similar services. One of these individuals is the son of the Company’s CEO. In consideration for his services,
the Company issued to him 2,063,143 warrants to purchase common stock at an exercise price of $0.50 per share, which the Company
has valued at an aggregate of $258,553. The warrants are fully vested and expire five years from the date of grant.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Ireland Inc.
– The Company
leases corporate office space on month-to-month terms from Ireland Inc. (“Ireland”). NMC is a shareholder in both
the Company and Ireland. Additionally, one of the Company’s late directors was the former CFO, Treasurer and a director
of Ireland and the Company’s CEO provides consulting services to Ireland.
Total rent expense incurred to Ireland was
$5,202 and $5,001 for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, no amounts were due to
Ireland. At December 31, 2015, $1,734 was due to Ireland.
Luxor
–
As of March 31,
2016 Luxor owned an aggregate of 142,665,754 shares of common stock and warrants to purchase up to an additional 16,532,789 shares
of common stock. All 16,532,789 warrants, however, are not exercisable until September 18, 2016.
As of March 31, 2016 no amounts were payable
to Luxor.
During the three months ended March 31, 2016
the Company recognized a loss on conversion of $6,998,571 related to the conversion $2,691,000 in convertible notes payable and
accrued interest owing to the Luxor Group. In connection with this conversion the Company issued to the Luxor Group 76,885,714
shares of common stock, as discussed in Note 7.
During the three months ended March 31, 2016 The Luxor Group purchased
from the Company 42,857,143 shares of common stock at $0.035 per share in exchange for $1,500,000 cash, as discussed in Note 10.
NOTE 19 – SUBSEQUENT EVENTS
On April 8, 2016, Melvin Williams resigned
as the Chief Financial Officer of the Company, effective immediately. Concurrent with Mr. Williams’ resignation, CMOW resigned
as our primary accounting resource. CMOW is an affiliate of Mr. Williams (Note 18).
On April 27, 2016, all 9 remaining outstanding
holders of the Company’s secured convertible notes converted their notes into shares of common stock at a rate of $0.035
per share. In the aggregate, the holders of such notes converted, $1,086,325 in principal and interest owing on such Notes in
exchange for 31,037,855 shares of the Company’s Common Stock. The Company subsequently canceled the Notes, and there are
currently no further Notes outstanding from the September 18, 2013 Secured Convertible Promissory Note offering. The Company anticipates
that a loss of approximately $1.7 million will be recorded in connection with the conversion during the quarter ended June 30,
2016.
On May 23, 2016, the Company completed a private
placement of our common stock to 29 accredited investors. The securities were issued and sold in reliance on exemptions from registration
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation
D thereunder. In the Offering, the Company sold 28,251,430 shares of common stock at $0.035 per share for gross proceeds of $988,800.