NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description of business
- Searchlight Minerals Corp. (the “Company”) 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.”
(“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. 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 to "Searchlight Minerals Corp.” effective June 23, 2005.
Going concern
-
The Company incurred cumulative net losses of $
35,066,825
from operations as of June 30, 2013 and has not commenced its commercial mining and mineral processing operations; rather, it is still in the exploration stage.
The accompanying 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 three month period ended June 30, 2013, the Company incurred a net loss of $
1,113,624
. For the six month period ended June 30, 2013, the Company incurred a net loss of $
2,049,853
, had negative cash flows from operating activities of $
2,788,972
and will incur additional future losses due to planned continued exploration stage expenses.
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.
F-5
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 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, 2012, filed with the SEC on April 1, 2013.
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, results of operations or cash flows.
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 accounting principles generally accepted in the United States of America (“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.
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 expense.
F-6
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)
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.
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.
F-7
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 inp uts 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 7) and the derivative liability on stock purchase warrants (described in Note 6). The VRIC payable is classified within Level 2 of the fair value hierarchy. The fair value approximates carrying value as the imputed interest rate is considered to approximate a market interest rate.
The Company also has certain warrants with 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 these warrants were not afforded equity classification because they embody risks not clearly and closely related to the host contract. Accordingly, the warrants are treated as a derivative liability and are carried at fair value.
The Company calculates the fair value of the derivative liability 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 consolidated statement of operations. The Company generally does not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks.
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 three and six month periods ended June 30, 2013 and 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 when the exercise price of the instrument exceeds the fair market value and when a net loss is reported.
F-8
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)
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.
The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Binomial Lattice option pricing model. The measurement of stock-based compensation to non-employees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company’s consolidated statements of operations during the period the related services are rendered.
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.
F-9
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 February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” to improve the transparency of reporting these reclassifications. This update is effective for reporting periods beginning after December 15, 2012. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements GAAP. The new amendments require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. Additionally, the new amendments require cross-referencing to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. The adoption of this guidance did not have a material effect on the Company's financial condition, results of operation, or cash flows.
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company does not expect ASU 2013-11 to have a material effect on its financial condition, results of operation, or cash flows.
F-10
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:
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
Accumulated
|
|
Net book
|
|
|
|
|
Accumulated
|
|
Net book
|
|
|
|
|
Cost
|
|
Depreciation
|
|
value
|
|
Cost
|
|
Depreciation
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
38,255
|
|
$
|
(34,141)
|
|
$
|
4,114
|
|
$
|
38,255
|
|
$
|
(32,055)
|
|
$
|
6,200
|
|
|
Lab equipment
|
|
|
249,061
|
|
|
(215,352)
|
|
|
33,709
|
|
|
249,061
|
|
|
(190,446)
|
|
|
58,615
|
|
|
Computers and equipment
|
|
|
91,002
|
|
|
(63,069)
|
|
|
27,933
|
|
|
86,635
|
|
|
(57,836)
|
|
|
28,799
|
|
|
Income property
|
|
|
309,750
|
|
|
(16,988)
|
|
|
292,762
|
|
|
309,750
|
|
|
(15,664)
|
|
|
294,086
|
|
|
Vehicles
|
|
|
47,675
|
|
|
(44,467)
|
|
|
3,208
|
|
|
44,175
|
|
|
(44,175)
|
|
|
-
|
|
|
Slag conveyance equipment
|
|
|
300,916
|
|
|
(193,619)
|
|
|
107,297
|
|
|
300,916
|
|
|
(157,114)
|
|
|
143,802
|
|
|
Demo module building
|
|
|
6,630,063
|
|
|
(2,869,351)
|
|
|
3,760,712
|
|
|
6,630,063
|
|
|
(2,537,848)
|
|
|
4,092,215
|
|
|
Grinding circuit
|
|
|
863,678
|
|
|
-
|
|
|
863,678
|
|
|
863,678
|
|
|
-
|
|
|
863,678
|
|
|
Extraction circuit
|
|
|
898,909
|
|
|
-
|
|
|
898,909
|
|
|
879,962
|
|
|
-
|
|
|
879,962
|
|
|
Leaching and filtration
|
|
|
1,300,618
|
|
|
(650,309)
|
|
|
650,309
|
|
|
1,300,618
|
|
|
(520,247)
|
|
|
780,371
|
|
|
Fero-silicate storage
|
|
|
4,326
|
|
|
(1,082)
|
|
|
3,244
|
|
|
4,326
|
|
|
(865)
|
|
|
3,461
|
|
|
Electrowinning building
|
|
|
1,492,853
|
|
|
(373,213)
|
|
|
1,119,640
|
|
|
1,492,853
|
|
|
(298,571)
|
|
|
1,194,282
|
|
|
Site improvements
|
|
|
1,603,041
|
|
|
(408,103)
|
|
|
1,194,938
|
|
|
1,534,856
|
|
|
(350,554)
|
|
|
1,184,302
|
|
|
Site equipment
|
|
|
360,454
|
|
|
(289,391)
|
|
|
71,063
|
|
|
353,503
|
|
|
(269,314)
|
|
|
84,189
|
|
|
Construction in progress
|
|
|
1,102,014
|
|
|
-
|
|
|
1,102,014
|
|
|
1,102,014
|
|
|
-
|
|
|
1,102,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,292,615
|
|
$
|
(5,159,085)
|
|
$
|
10,133,530
|
|
$
|
15,190,665
|
|
$
|
(4,474,689)
|
|
$
|
10,715,976
|
|
Depreciation expense was $
342,288
and $
343,580
for the three month periods ended June 30, 2013 and 2012, respectively and $
684,396
and $
688,593
for the six month periods ended June 30, 2013 and 2012, 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 June 30, 2013. Significant components of the extraction circuit were placed in service in late December 2012. Depreciation expense has not been incurred due to minimal use. At June 30, 2013, construction in progress included the gold, copper, and zinc extraction circuits and electrowinning equipment at the Clarkdale Slag Project.
F-11
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 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.
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 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.
F-12
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 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;
|
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.
F-13
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
|
|
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. As of June 30, 2013, the cumulative interest cost capitalized and included in the Slag Project was $
949,563
.
The following table sets forth the change in the Slag Project for the six month period ended June 30, 2013 and the year ended December 31, 2012:
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Slag Pile, beginning balance
|
|
$
|
121,667,730
|
|
$
|
121,555,117
|
|
|
Capitalized interest costs
|
|
|
48,710
|
|
|
112,613
|
|
|
|
|
|
|
|
|
|
|
|
Slag Pile, ending balance
|
|
$
|
121,716,440
|
|
$
|
121,667,730
|
|
F-14
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
.
MINERAL PROPERTIES - MINING CLAIMS
As of
June 30, 2013
, 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 June 30, 2013 and December 31, 2012, the mineral properties balance was $
16,947,419
, respectively.
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, the Company has a bond with the Bureau of Land Management (“BLM”) amounting to $
11,466
and $
7,802
as of June 30, 2013 and December 31, 2012, respectively.
5
.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2013 and December 31, 2012 consisted of the following:
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
23,131
|
|
$
|
252,782
|
|
|
Accrued compensation and related taxes
|
|
|
50,522
|
|
|
61,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,653
|
|
$
|
314,678
|
|
Accounts payable – related party are discussed in Note 17.
F-15
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 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 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.
On November 1, 2012, 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 from November 12, 2012 to
November 12, 2013
. In all other respects, the terms and conditions of the warrants remained the same. With respect to the extension, 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.
As of June 30, 2013, 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, 2012, 2011 and 2010. For the three and six month periods ended June 30, 2013, no adjustments were made to the warrants. 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 exercise price of the Luxor 2009 private placements warrants remains at the previously adjusted price of $
1.74
per share. For the three and six month periods ended June 30, 2012 no adjustments were made to the warrants.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6
.
DERIVATIVE WARRANT LIABILITY
(continued)
The following table sets forth the changes in the fair value of derivative liability for the six month period ended June 30, 2013 and the year ended December 31, 2012:
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(274,706)
|
|
$
|
-
|
|
|
Adjustment to warrants
|
|
|
274,706
|
|
|
(734)
|
|
|
Change in fair value
|
|
|
-
|
|
|
(273,972)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
-
|
|
$
|
(274,706)
|
|
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 six month periods ended June 30, 2013 and 2012:
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
-
|
|
-
|
|
|
Expected volatility
|
|
90.98%
|
|
59.47% - 67.43%
|
|
|
Risk-free interest rate
|
|
0.07% - 0.11%
|
|
0.12% - 0.15%
|
|
|
Expected life (years)
|
|
0.40 - 0.60
|
|
0.33 - 0.63
|
|
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.
F-17
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 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 $
23,701
and $
28,782
for the three month periods ended June 30, 2013 and 2012, respectively, and $
48,710
and $
58,772
for the six month periods ended June 30, 2013 and 2012, respectively. Interest costs incurred have been capitalized and included in the Slag Project.
The following table represents future minimum payments on the VRIC payable for each of the years ending June 30,
|
2014
|
|
$
|
360,000
|
|
|
2015
|
|
|
360,000
|
|
|
2016
|
|
|
360,000
|
|
|
2017
|
|
|
240,000
|
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
|
1,320,000
|
|
|
Less: amount representing interest
|
|
|
(179,250)
|
|
|
|
|
|
|
|
|
Present value of minimum payments
|
|
|
1,140,750
|
|
|
VRIC payable, current portion
|
|
|
278,816
|
|
|
|
|
|
|
|
|
VRIC payable, net of current portion
|
|
$
|
861,934
|
|
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.
F-18
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
STOCKHOLDERS’ EQUITY
During the six month period ended June 30, 2013 the Company did not issue any common stock or enter into any financing agreements.
During the six months ended
June 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 options had an exercise price of $
0.375
and an expiration date of
June 15, 2015
.
The following table summarizes the Company’s private placement warrant activity for the six month period ended June 30, 2013:
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
13,828,212
|
|
$
|
1.79
|
|
|
0.87
|
|
|
Warrants granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Warrants expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Warrants exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
|
13,828,212
|
|
$
|
1.79
|
|
|
0.37
|
|
In addition to the private placement warrants in the table above, the Company issued
12,000,000
warrants on June 1, 2005 in connection with the Clarkdale Slag Project option. As of June 30, 2013,
8,750,000
of these warrants were outstanding.
F-19
(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 June 30, 2013, the Company had
10,660,576
of its common shares available for issuance for stock option awards under the Company's stock option plans.
At June 30, 2013, 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. 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 June 30, 2013, the Company had granted
1,222,500
options under the 2009 Incentive Plan with a weighted average exercise price of $
1.16
per share. As of June 30, 2013,
1,212,500
of the options granted were outstanding.
⋅
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 participants shall receive more than
300,000
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 June 30, 2013, the Company had granted
1,205,866
options under the 2009 Directors Plan with a weighted average exercise price of $
1.00
per share. As of June 30, 2013, 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 June 30, 2013, the Company had granted
911,058
options under the 2007 Plan with a weighted average exercise price of $
1.05
per share. As of June 30, 2013,
803,812
of the options granted were outstanding.
The Company has also granted
300,000
stock options to one of its executives on October 1, 2010 and
200,000
warrants to one of its consultants on January 13, 2011 outside of the aforementioned stock option plans, all of which remain outstanding at June 30, 2013.
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 may grant stock warrants to consultants for services performed.
Valuation of awards
- At June 30, 2013, 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 for the six month periods ended June 30, 2013 and 2012:
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
0.77% - 1.41%
|
|
0.37% - 1.04%
|
|
|
Dividend yield
|
|
-
|
|
-
|
|
|
Expected volatility
|
|
90.39% - 95.66%
|
|
84.94% - 91.36%
|
|
|
Expected life (years)
|
|
4.25
|
|
2.00 - 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. 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 six month period ended June 30, 2013, the Company granted stock-based awards as follows:
a) On June 30, 2013, the Company granted stock options under the 2009 Directors Plan for the purchase of
54,000
shares of common stock at $
0.288
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, 2018
. The exercise price of the stock options equaled the closing price of the Company's common stock for the grant date.
b) On March 31, 2013, the Company granted stock options under the 2009 Directors Plan for the purchase of
54,000
shares of common stock at $
0.48
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, 2018
. The exercise price of the stock options equaled the closing price of the Company's common stock for the grant date.
c) On March 31, 2013, the Company granted stock options under the 2007 Plan for the purchase of
18,000
shares of common stock at $
0.48
per share. The options were granted to a consultant, are fully vested and expire on
March 31, 2018
. The exercise price of the stock options equaled the closing price of the Company's common stock for the grant date.
During the six month period ended June 30, 2012, the Company granted stock-based awards as follows:
a) 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.
b) 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.
c) 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
.
d) 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 for the grant date.
Expenses related to the vesting, modifying and granting of stock-based compensation awards was $
73,605
and $
220,210
for the three month periods ended June 30, 2013 and 2012, respectively, and $
195,281
and $
357,034
for the six month periods ended June 30, 2013 and 2012, respectively. Such expenses have been included in general and administrative and mineral exploration and evaluation expense.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCK-BASED COMPENSATION
(continued)
The following table summarizes the Company's stock-based compensation activity for the six month period ended June 30, 2013:
|
|
|
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, 2012
|
|
|
3,606,178
|
|
$
|
0.59
|
|
$
|
1.05
|
|
|
4.69
|
|
|
|
|
|
Options/warrants granted
|
|
|
126,000
|
|
|
0.24
|
|
|
0.40
|
|
|
4.86
|
|
|
|
|
|
Options/warrants expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
Options/warrants forfeited
|
|
|
(10,000)
|
|
|
0.50
|
|
|
1.22
|
|
|
-
|
|
|
|
|
|
Options/warrants exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2013
|
|
|
3,722,178
|
|
$
|
0.57
|
|
$
|
1.03
|
|
|
4.22
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2013
|
|
|
2,859,678
|
|
$
|
0.53
|
|
$
|
1.02
|
|
|
3.32
|
|
$
|
-
|
|
Aggregate intrinsic
value represents the value of the Company's closing stock price on the last trading day of the quarter ended June 30, 2013 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 six month period ended June 30, 2013:
|
|
|
Number of
Shares Subject
to Vesting
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2012
|
|
|
1,112,500
|
|
$
|
0.80
|
|
|
Options/warrants granted
|
|
|
-
|
|
|
-
|
|
|
Options/warrants vested
|
|
|
(250,000)
|
|
|
(1.11)
|
|
|
Options/warrants cancelled
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, June 30, 2013
|
|
|
862,500
|
|
$
|
0.71
|
|
For the three and six month periods ended June 30, 2013, the total grant date fair value of shares vested was $
208,441
and $
278,585
, respectively. As of June 30, 2013, there was $
151,026
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 June 30, 2013.
Included in the total of unvested stock options at June 30, 2013, was 500,000 performance based stock options. At June 30, 2013, management determined that achievement of the performance targets was probable. The weighted average period over which the related expense will be recognized was
0.38
years as of June 30, 2013.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
WARRANTS AND OPTIONS
The following table summarizes all of the Company's stock option and warrant activity for the six month period ended June 30, 2013. At June 30, 2013, the total balance included 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, 2012
|
|
|
26,184,390
|
|
$
|
1.22
|
|
|
1.91
|
|
|
Options/warrants granted/issued
|
|
|
126,000
|
|
|
0.40
|
|
|
4.86
|
|
|
Options/warrants expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Options/warrants forfeited
|
|
|
(10,000)
|
|
|
1.22
|
|
|
-
|
|
|
Options/warranted exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
|
26,300,390
|
|
$
|
1.21
|
|
|
1.43
|
|
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.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 rents land to Clarkdale Arizona Central Railroad on month to month terms at $
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.
13.
INCOME TAXES
The Company is a Nevada corporation and is subject to federal, Arizona and Colorado income taxes. Nevada does not impose a corporate income tax.
Significant components of the Company's net deferred income tax assets and liabilities at June 30, 2013 and December 31, 2012 were as follows:
|
|
|
June 30,
2013
|
|
December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
15,765,922
|
|
$
|
14,724,543
|
|
|
Option compensation
|
|
|
738,299
|
|
|
673,271
|
|
|
Property, plant & equipment
|
|
|
906,466
|
|
|
773,542
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
17,410,687
|
|
|
16,171,356
|
|
|
Less: valuation allowance
|
|
|
(717,297)
|
|
|
(622,572)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
16,693,390
|
|
|
15,548,784
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related liabilities
|
|
|
(55,197,465)
|
|
|
(55,197,465)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(38,504,075)
|
|
$
|
(39,648,681)
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13.
INCOME TAXES
(continued)
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.
A reconciliation of the deferred income tax benefit for the three month periods ended June 30, 2013 and 2012 at US federal and state income tax rates to the actual tax provision recorded in the financial statements consisted of the following components:
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit (expense) at statutory rates
|
|
$
|
581,561
|
|
$
|
(417,232)
|
|
|
State deferred tax benefit (expense), net of federal benefit (expense)
|
|
|
49,848
|
|
|
(35,763)
|
|
|
Increase (decrease) in deferred tax benefit from:
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(67,046)
|
|
|
(84,007)
|
|
|
Change in state NOL's
|
|
|
(34,841)
|
|
|
-
|
|
|
Gain on the change in fair value of derivative warrant liability
|
|
|
23,120
|
|
|
1,136,989
|
|
|
Permanent differences
|
|
|
(4,590)
|
|
|
-
|
|
|
Other
|
|
|
(73)
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
$
|
547,979
|
|
$
|
600,133
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13.
INCOME TAXES
(continued)
A reconciliation of the deferred income tax benefit for the six month periods ended June 30, 2013 and 2012 at US federal and state income tax rates to the actual tax provision recorded in the financial statements consisted of the following components:
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit at statutory rates
|
|
$
|
1,118,061
|
|
$
|
1,426,690
|
|
|
State deferred tax benefit, net of federal benefit
|
|
|
95,834
|
|
|
122,288
|
|
|
Increase (decrease) in deferred tax benefit from:
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(94,725)
|
|
|
(168,015)
|
|
|
Change in state NOL's
|
|
|
(69,681)
|
|
|
-
|
|
|
Gain (loss) on the change in fair value of derivative
warrant liability
|
|
|
104,388
|
|
|
(17,815)
|
|
|
Permanent differences
|
|
|
(9,179)
|
|
|
(42,471)
|
|
|
Other
|
|
|
(92)
|
|
|
(241)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
$
|
1,144,606
|
|
$
|
1,320,436
|
|
The Company had cumulative net operating losses of $
42,291,405
as of June 30, 2013 for federal income tax purposes. The federal net operating loss carryforwards will expire between
2025
and
2033
.
State income tax allocation
- The Company had cumulative net operating losses of $
25,671,470
as of June 30, 2013 for state income tax purposes. The Company has placed a valuation allowance against state net operating loss carryforwards expected to expire unused. The remaining net operating loss carryforwards expire at various dates through
2033
.
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 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'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 June 30, 2013, the monthly rent was $
2,980
.
Rental expense resulting from this operating lease agreement was $
8,940
and $
8,940
for the three month periods ended June 30, 2013 and 2012, respectively and $
17,880
and $
17,880
for the six month periods ended June 30, 2013 and 2012, respectively.
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 June 30, 2013, the total potential liability for severance agreements was $
112,500
.
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.
F-28
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14.
COMMITMENTS AND CONTINGENCIES
(continued)
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 were $
45,000
and $
45,000
for the three month periods ended June 30, 2013 and 2012, respectively, and $
90,000
and $
90,000
for the six month periods ended June 30, 2013 and 2012, respectively. Advanced royalty payments 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 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. 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 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.
F-29
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
15.
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
June 30, 2013
, the Company had deposits in excess of FDIC insured limits in the amount of $
193,149
.
16.
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.
17.
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 our executive officers, 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.
The following table provides details of transactions between the Company and NMC for the three and six month periods ended June 30, 2013 and 2012.
|
|
|
Three Months
Ended
June 30, 2013
|
|
Three Months
Ended
June 30, 2012
|
|
Six Months
Ended
June 30, 2013
|
|
Six Months
Ended
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of expenses
|
|
$
|
578
|
|
$
|
2,229
|
|
$
|
2,092
|
|
$
|
5,966
|
|
|
Consulting services provided
|
|
|
4,500
|
|
|
-
|
|
|
17,350
|
|
|
-
|
|
|
Advance royalty payments
|
|
|
45,000
|
|
|
45,000
|
|
|
90,000
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral and exploration expense – related party
|
|
$
|
50,078
|
|
$
|
47,229
|
|
$
|
109,442
|
|
$
|
95,966
|
|
$
17,000
and $
15,000
was due to NMC at June 30, 2013 and December 31, 2012, respectively.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
17.
RELATED PARTY TRANSACTIONS
(continued)
Cupit, Milligan, Ogden & Williams, CPAs
- The Company utilizes Cupit, Milligan, Ogden & Williams, CPAs ("CMOW") to provide accounting support services. CMOW is an affiliate of our CFO, Mr. Williams. 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 following table provides details of transactions between the Company and CMOW and the direct benefit to Mr. Williams for the three and six month periods ended June 30, 2013 and 2012.
|
|
|
Three Months
Ended
June 30, 2013
|
|
Three Months
Ended
June 30, 2012
|
|
Six Months
Ended
June 30, 2013
|
|
Six Months
Ended
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting support services
|
|
$
|
23,789
|
|
$
|
27,451
|
|
$
|
82,345
|
|
$
|
64,918
|
|
|
Direct benefit to CFO
|
|
$
|
9,278
|
|
$
|
9,333
|
|
$
|
32,115
|
|
$
|
22,072
|
|
The Company had an outstanding balance due to CMOW of $
3,376
as of June 30, 2013. At December 31, 2012, no amount was due to CMOW.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
18.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average common shares and dilutive common equivalent shares outstanding. Potentially dilutive securities consist of outstanding stock options and warrants.
As of June 30, 2013,
26,300,390
stock options and warrants were outstanding, but were not considered in the computation of diluted earnings per share for either of the three or six month periods then ended as their inclusion would be anti-dilutive.
As of June 30, 2012,
25,827,890
stock options and warrants were outstanding, but were not considered in the computation of diluted earnings per share for the six month period then ended as their inclusion would be anti-dilutive.
The Company is still in the exploration stage and as such, has not generated operational revenues; however, for the three month period ended June 30, 2012, the Company had net income due to a $
2,992,076
gain from the change in fair value of its derivative warrant liability. A reconciliation of the numerator and denominator of basic earnings per share and diluted earnings per share was as follows for the three months ended June 30, 2012:
|
Basic earnings per share computation:
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net income
|
|
$
|
1,792,224
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
132,257,329
|
|
|
Income per common share – basic
|
|
|
|
|
|
Net income
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
Diluted earnings per share computation:
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net income
|
|
$
|
1,792,224
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
132,257,329
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Weighted average stock options and warrants outstanding
|
|
|
10,301,309
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
142,558,638
|
|
|
Income per common share – dilutive
|
|
|
|
|
|
Net income
|
|
$
|
0.01
|
|
For the three month period ended June 30, 2012,
15,628,770
options and warrants were outstanding, but were not included in the computation of diluted weighted average common shares because their exercise prices exceeded their fair market values
.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q, or the Report, are “forward-looking statements.” These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of Searchlight Minerals Corp., a Nevada corporation (referred to in this Report as “we,” “us,” “our” or “registrant”) and other statements contained in this Report that are not historical facts. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management’s best estimates based upon current conditions and the most recent results of operations. When used in this Report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are generally intended to identify forward-looking statements, because these forward-looking statements involve risks and uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled “Risk Factors,” in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2012.
The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three and six month periods ended June 30, 2013 and changes in our financial condition from our year ended December 31, 2012. The following discussion should be read in conjunction with the Management’s Discussion and Analysis or Plan of Operation included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Executive Overview
We are an exploration stage company engaged in a slag reprocessing project and the acquisition and exploration of mineral properties. Our business is presently focused on our two mineral projects: (i) 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; and (ii) the Searchlight Gold Project, which involves exploration for precious metals on mining claims near Searchlight, Nevada.
Clarkdale Slag Project
Since our involvement in the Clarkdale Slag Project, our 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. We believe that in order to demonstrate this, we must successfully operate the four major steps of our production process: crushing and grinding, leaching, continuous process operation, and extraction of gold from solution.
Our Production Process
|
|
1.
|
Crushing and Grinding.
The first step of our production process involves grinding the slag material from rock-size chunks into sand-size grains (minus-20 mesh size). Because of the high iron content and the glassy/siliceous nature of the slag material, grinding the slag material creates significant wear on grinding equipment. Batch testing with various grinders produced significant wear on the equipment to render them unviable for a continuous production facility.
|
3
In 2010 we tested high pressure grinding rolls (HPGR) to grind the slag material at the facility in Germany of the leading manufacturer of HPGR’s. HPGR’s are commonly used in the mining industry to crush ore and have shown an ability to withstand very hard and abrasive ores. The results from these tests showed that grinding our slag material on a continuous basis did not produce wear on the equipment beyond the expected levels.
When we tested the HPGR-ground slag in our autoclave process, results showed liberation of gold, which our technical team believes is due to the micro-fractures imparted to the slag during the HPGR grinding process. The technical team also believes that the high pressures that exist in the autoclave (see autoclave discussion in 2. below) environment are able to drive the leach solution into the micro-fracture cracks created in the slag material by the HPGR crusher, thereby dissolving the gold without having to employ a more expensive process to grind the slag material to a much finer particle size.
We believe that the HPGR is a viable grinder for our production process because it appears to have solved our grinding equipment wear issue and the HPGR produces ground slag from which gold can be leached into solution in an autoclave process.
|
|
2.
|
Leaching.
The second step of our production process involves leaching gold from the ground slag material. Our original open-vessel ambient leach process leached gold into solution during our initial pilot tests. However, during our scale-up to a larger pilot size we discovered that the high levels of iron and silica that were leached into solution produced a pregnant leach solution (“PLS”) that became gelatinous over time. We tried numerous methods to remedy this issue. However, it was determined that, with the high levels of iron and silica in solution, the extraction of the gold from the PLS was not commercially feasible. Hence, we concluded that this open-vessel leach process was not viable for a production facility.
|
In 2010, we turned our efforts to the autoclave process. Autoclaving, a proven technology that is widely used within the mining industry, is a chemical leach process that utilizes elevated temperature and pressure in a closed autoclave system to extract precious and base metals from the slag material. Our independent consultant, Arrakis Inc. (“Arrakis”) has performed over 150 batch autoclave tests under various leach protocols and grind sizes. Arrakis’ test results have consistently leached approximately 0.5 ounces per ton (“opt”) of gold into solution. In addition, these results indicate that autoclaving does not dissolve the levels of iron and silica into solution as did the ambient leach. We believe that autoclaving will improve our ability to recover gold from solution and thus improve process technical feasibility. The operating conditions identified by Arrakis thus far are mild to moderate compared with most current autoclaves and are anticipated to result in lower capital, operating and maintenance costs.
During the third quarter of 2011, we received the results of testing from an independent engineering firm in Chile whereby a number of batch autoclave tests, under various metallurgical conditions using both pressure oxidation (“POX”) and pressure oxidative leach (“POL”) testing methodologies were completed. The optimized POX tests produced slightly less than or equal to 0.5 opt gold and the optimized POL tests produced 0.5 opt gold or slightly greater. Moreover, the test results reaffirm that autoclaving does not dissolve the levels of iron and silica into solution as did the ambient leach. Additionally, since the POL method involves fewer process steps resulting in lower operating costs, and appeared to consistently place higher grades of gold into solution, this process was likely to be superior to the POX method in achieving better results.
4
The Chilean engineering firm noted that the refractory Clarkdale slag was difficult to consistently analyze and suggested that further work be done to validate analytical methods and determine the most accurate method. Our consultant, Arrakis, previously had noted this analytical problem and decided to use an analytical method developed in the 1980’s, Atomic Absorption Spectroscopy/Inductively Coupled Plasma Optical Emission Spectroscopy (“AAS/ICP-OES”), to manually correct gold in solution values by determining the amount of interferences caused by other metals present in the leach solutions and manually adjusting the gold in solution values.
We believe that the POL autoclave method is a viable leach method for our production process because it leaches higher quantities of gold into solution from our slag material and results in much lower levels of iron and silica in solution than other methods, thus improving process technical feasibility.
|
|
3.
|
Continuous Operation.
The third step in our production process involves being able to perform the leaching step in a larger continuous operation. While lab and bench-scale testing provides critical data for the overall development of a process, economic feasibility can only be achieved if the process can be performed in a continuous operation.
|
During the second quarter of 2012, we received the results of tests conducted by an independent Australian metallurgical testing firm whereby they conducted autoclave tests under various conditions, using the POL method in a four-compartment, 25-liter autoclave. The completion of a continuous 14 hour test with 100% mechanical availability (i.e. no “down time”) demonstrates the ability of a pilot autoclave to process the Clarkdale slag material on a continuous basis. The pilot multi-compartment autoclave is routinely used to simulate operating performance in a full-scale commercial autoclave as part of a bankable feasibility study.
In addition, the PLS that was produced from the 14 hour continuous run was analyzed by the Australian testing firm. Analysis using the AAS/ICP-OES method resulted in approximately 0.2 - 0.6 opt of gold extracted into solution. The 0.2 opt was achieved during the startup of the test run. After making adjustments to the pH, volume of the leach solution and other process parameters, the higher 0.6 opt was obtained toward the completion of the test. Our independent technical consultants believe we can replicate these higher test results in future test runs.
The Australian testing firm also noted the existence of analytical difficulties previously reported by our independent consultants and us. We have been advised that the
results of this test work is largely based on the analysis carried out on gold solutions emanating from the tests, by
AAS/ICP-OES
. Analysis of gold in solution by this method is not in agreement with fire assays analysis and both methods areprone to analytical difficulties due to the refractory nature of the slag. A
different analytical method was used by the Australian testing firm, the Inductively Coupled Plasma Mass Spectroscopy, or ICPMS. Fire assay (performed by the Australian testing firm), as well as Neutron Activation (performed by an independent third party consulting agency), were also used to perform analyses of the raw slag. All of the above methods indicated different quantities of gold in the slag, but at values substantially below the results achieved by AAS/ICP-OES method. Consequently, Arrakis continues to refine the analytical techniques used to measure gold in solution.
We believe that the POL autoclave method in a large multi-compartment autoclave has shown to be viable for our production process because it can operate on a continuous basis and leaches higher levels of gold and much lower levels of iron and silica into solution than other methods. The results from POL autoclaving testing were comparable to previous bench-scale tests performed by Arrakis and the Chilean engineering firm.
5
|
|
4.
|
Extraction.
The fourth and final step in our production process involves being able to extract and recover metallic gold from PLS. Economic feasibility can only be achieved if a commercially viable method of metallic gold recovery is determined. In addition, the recovery of metallic gold will not only define the most cost-effective method of such recovery, but will also provide a better definition to the total process system mass balance and help reduce any discrepancy in analytical tests. Recovery of gold beads provides the ability to determine more accurately the amount of gold that was recovered from leach solution. Simple weighing of the gold bead and having the weight of the initial slag sample used to provide the bead gives a more accurate determination of an extractable gold grade in the slag sample. In this effort, we and our consultants are continuing to perform tests to recover gold from solution, using carbon, ion exchange resin technologies, or other commonly used methods of extracting gold from solution.
|
We have engaged Arrakis to assemble a multinational project team to specifically determine the most efficient method of extracting gold from solution. Arrakis has performed in excess of 63 ion exchange tests in an attempt to determine the optimal method for extracting gold from solution, using a variety of resins and carbons. In addition, Arrakis has performed nano-filtration tests using membrane technology in conjunction with the ion exchange tests to enhance ion exchange results. Arrakis has also conducted electro-winning tests, to determine the best way to remove gold from solution. Results from these alternative methods of extracting gold from solution have resulted in removing up to 10% of the gold from solution using resins and up to 40% of the gold from solution using the electro-winning method. These results were obtained by assaying of dore beads produced by the various testing techniques noted. As larger volumes of POL leach solutions are generated via the pilot autoclave, and testing optimized, larger dore beads will be produced and analysis will become much simpler.
We have also engaged an independent firm to examine the viability of using membrane technology to remove small quantities of unwanted elements from the PLS prior to loading the gold on to resin or carbon. This process may further enhance gold recovery and increase gold loading rates onto the resin or carbon. As larger volumes of POL leach solution are generated and resin tests are fine-tuned, we expect our gold recovery values to improve. We will continue with our test work in order to better determine the method that best optimizes our gold recovery on a consistent basis.
To provide additional PLS which is necessary to expedite the gold recovery tests and commercial viability of the project, we have acquired a large batch titanium autoclave (approximately 500 liter capacity). A total of nine tests have been conducted in the pilot autoclave. The initial tests were designed to examine the structural integrity and functionality of the autoclave, its components, control and support systems. Subsequent tests were designed in an effort to mimic the mechanical and chemical operating conditions achieved with previous tests in the 6-liter bench autoclave, which yielded approximately 0.4 to 0.5 opt of gold in solution.
As the tests progressed, several mechanical and chemical issues were identified which indicated that the pilot autoclave was operating under less than optimum conditions, resulting in low gold extraction values. As these issues were identified, modifications were undertaken to the autoclave in order to help achieve the desired operating conditions. Significant delays occurred due to specialty alloy parts having to be ordered and in some cases custom made. During this time, additional bench-scale autoclave tests were performed in order to modify and optimize the chlorine chemistry for the pilot autoclave.
The ninth and latest pilot autoclave test demonstrated that 0.42 opt gold was leached into solution from the slag sample containing 0.48 opt gold, which represents an estimated gold recovery of 87.5%. While past test work had relied upon ‘wet chemistry’ electronic determination, these latest results were determined by analyzing gold metal extracted by standard fire assay techniques.
Solution values were determined by evaporating the PLS and fire assaying the residual solids to produce a gold bead in hand. Likewise, the finely ground slag going into the large pilot autoclave and the leached residue after the test were also fire assayed and the resultant gold beads were used to calculate gold grades and leach efficiency. This is the second autoclave test that has verified the gold grade of the slag by fire assay. Electrowinning tests are currently underway to recover gold as metal from the PLS.
6
The greater quantity of PLS able to be generated with the large batch autoclave allows the use of multiple resins and multiple stages to more closely model a full-scale commercial system and optimize recovery of gold from solution. We also continue to examine other methods of extracting gold from solution in an effort to determine the most cost-effective and efficient method of recovering gold. Most recent test results suggest that electrowinning may be the most commercially viable method of recovering gold from solution.
We believe that if we are able to achieve metallic gold extraction on a larger quantity of PLS at effective loading rates, we will have demonstrated the viability of the total extraction and recovery process as well as verified the extractable gold grade of the slag via metallic gold beads (the equivalent of a fire assay) thereby eliminating the need for different and sometimes conflicting analytical techniques. We will therefore be in a position to begin the bankable feasibility study on our production process which will serve to demonstrate the economic viability of the project.
Searchlight Gold Project
Since 2005, we have maintained an ongoing exploration program on our Searchlight Gold Project and have contracted with Arrakis, an unaffiliated mining and environmental firm, to perform a number of metallurgical tests on surface and bulk samples taken from the project site under strict chain-of-custody protocols. In 2007, results from these tests validated the presence of gold on the project site, and identified reliable and consistent metallurgical protocols for the analysis and extraction of gold, such as microwave digestion and autoclave leaching. Autoclave methods typically carry high capital and operating costs on large scale projects, however, we were encouraged by these results and intend to continue to explore their applicability to the Searchlight Gold Project.
On February 11, 2010, we received final approval of our Plan of Operations from the BLM, which allows us to conduct an 18-hole drill program on our project area. However, in an effort to conserve our cash and resources, we have decided to postpone further exploration on our Searchlight Gold Project until we are better able to determine the feasibility of our Clarkdale Slag Project. Once we have decided to resume our exploration program, work on the project site will be limited to the scope within the Plan of Operations. To perform any additional drilling or mining on the project, we would be required to submit a new application to the BLM for approval prior to the commencement of any such additional activities.
Critical Accounting Policies
Use of estimates
- The preparation of financial statements in conformity with GAAP requires us 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 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.
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. 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.
7
Mineral exploration and development costs
-
Exploration expenditures incurred prior to entering the development stage are expensed and included in “Mineral exploration and evaluation expenses.”
Capitalized interest cost
- We capitalize interest cost related to acquisition, development and construction of property and equipment which is designed as integral parts of the manufacturing process of the project. 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.
Property and Equipment
-
Property and equipment is stated at cost less accumulated depreciation. Depreciation is principally provided 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 other income (expense).
Impairment of long-lived assets
- We review and evaluate our long-lived assets for impairment at each balance sheet date due to our planned exploration stage losses and document such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as our 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 thecarrying 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.
Our 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.
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. We believe 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.
We account for stock options issued to non-employees based on the estimated fair value of the awards using the Binomial Lattice option pricing model. The measurement of stock-based compensation to non-employees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our consolidated statements of operations during the period the related services are rendered.
8
Derivative warrant liability
- We have certain warrants with anti-dilution provisions, including provisions for the adjustment to the exercise price and to the number of warrants granted if we issue common stock or common stock equivalents at a price less than the exercise price. We determined that these warrants were not afforded equity classification because they embody risks not clearly and closely related to the host contract. Accordingly, the warrants are treated as a derivative liability and are carried at fair value.
We calculate the fair value of the derivative liability 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 consolidated statement of operations. We generally do not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks. The Company is not exposed to significant interest or credit risk arising from these financial instruments.
Income taxes
- We follow 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. We record a valuation allowance against any portion of those deferred income tax assets when we believe, based on the weight of available evidence, that 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.
Results of Operations
The following table illustrates a summary of our results of operations for the periods set forth below:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
2012
|
|
Percent
Increase/
(Decrease)
|
|
|
2013
|
|
2012
|
|
Percent
Increase/
(Decrease)
|
|
|
Revenue
|
|
$
|
-
|
|
$
|
-
|
|
n/a
|
|
|
$
|
-
|
|
$
|
-
|
|
n/a
|
|
|
Operating expenses
|
|
|
(1,727,158)
|
|
|
(1,810,001)
|
|
(4.6)
|
%
|
|
|
(3,481,343)
|
|
|
(4,049,701)
|
|
(14.0)
|
%
|
|
Other income (expense)
|
|
|
65,555
|
|
|
3,002,092
|
|
(97.8)
|
%
|
|
|
286,884
|
|
|
(26,556)
|
|
(1180.3)
|
%
|
|
Income tax benefit
|
|
|
547,979
|
|
|
600,133
|
|
(8.7)
|
%
|
|
|
1,144,606
|
|
|
1,320,436
|
|
(13.3)
|
%
|
|
Net (loss) income
|
|
$
|
(1,113,624)
|
|
$
|
1,792,224
|
|
(162.1)
|
%
|
|
$
|
(2,049,853)
|
|
$
|
(2,755,821)
|
|
(25.6)
|
%
|
9
Revenue
. We are currently in the exploration stage of our business, and have not earned any revenues from our planned mineral operations to date. We did not generate any revenues from inception in 2000 through the six months ended June 30, 2013. We do not anticipate earning revenues from our planned mineral operations until such time as we enter into commercial production of the Clarkdale Slag Project, the Searchlight Gold Project or other mineral properties we may acquire from time to time, and of which there are no assurances.
Operating Expenses
. The major components of our operating expenses are outlined in the table below:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
2012
|
|
Percent
Increase/
(Decrease)
|
|
|
2013
|
|
2012
|
|
Percent
Increase/
(Decrease)
|
|
|
Mineral exploration and evaluation expenses
|
|
$
|
672,262
|
|
$
|
561,232
|
|
19.8
|
%
|
|
$
|
1,240,790
|
|
$
|
1,606,685
|
|
(22.8)
|
%
|
|
Mineral exploration and evaluation expenses – related party
|
|
|
50,078
|
|
|
47,229
|
|
6.0
|
%
|
|
|
109,442
|
|
|
95,966
|
|
14.0
|
%
|
|
Administrative – Clarkdale site
|
|
|
68,996
|
|
|
69,640
|
|
(0.9)
|
%
|
|
|
110,349
|
|
|
142,928
|
|
(22.8)
|
%
|
|
General and administrative
|
|
|
569,745
|
|
|
734,972
|
|
(22.5)
|
%
|
|
|
1,254,021
|
|
|
1,424,714
|
|
(12.0)
|
%
|
|
General and administrative – related party
|
|
|
23,789
|
|
|
27,451
|
|
(13.3)
|
%
|
|
|
82,345
|
|
|
64,918
|
|
26.8
|
%
|
|
Loss on equipment disposition
|
|
|
-
|
|
|
25,897
|
|
(100.0)
|
%
|
|
|
-
|
|
|
25,897
|
|
(100.0)
|
%
|
|
Depreciation
|
|
|
342,288
|
|
|
343,580
|
|
(0.4)
|
%
|
|
|
684,396
|
|
|
688,593
|
|
(0.6)
|
%
|
|
Total operating expenses
|
|
$
|
1,727,158
|
|
$
|
1,810,001
|
|
(4.6)
|
%
|
|
$
|
3,481,343
|
|
$
|
4,049,701
|
|
(14.0)
|
%
|
10
Six month period ended June 30, 2013 and 2012.
Operating expenses decreased by 14.0% to $3,481,343 during the six month period ended June 30, 2013 from $4,049,701 during the six month period ended June 30, 2012. Operating expenses decreased primarily as a result of lower mineral exploration and evaluation expenses and lower general and administrative expenses.
Mineral exploration and evaluation expenses decreased to $1,240,790 during the six month period ended June 30, 2013 from $1,606,685 during the six month period ended June 30, 2012. Mineral exploration and evaluation expenses decreased as a result of lower operating costs for our batch autoclave during 2013 as compared to use of external facilities during 2012.
Mineral exploration and evaluation expenses – related party increased to $109,442 during the six month period ended June 30, 2013 from $95,966 for the six month period ended June 30, 2012. These expenses relate to services provided to us by NMC. NMC is one of our principal stockholders and an affiliate of Carl S. Ager, our Vice President, Secretary and Treasurer and a director. We utilize the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides us with use of its laboratory, instrumentation, milling equipment and research facilities. We pay NMC an advance royalty payment of $15,000 per month and reimburse NMC for actual expenses incurred and consulting services provided. The increase is attributed to additional metallurgical consulting work related to our autoclave process.
Administrative – Clarkdale site expenses decreased to $110,349 during the six month period ended June 30, 2013 from $142,928 for the six month period ended June 30, 2012. Administrative costs at the Clarkdale site decreased due to a reduction of certain consulting fees and less of our site manager’s time allocated to administrative tasks.
General and administrative expenses decreased to $1,254,021 during the six month period ended June 30, 2013 from $1,424,714 during the six month period ended June 30, 2012. General and administrative expenses decreased primarily due to less stock based compensation expense incurred during the six month period ended June 30, 2013 compared to the six month period ended June 30, 2012. Additionally, we held a shareholders meeting in Florida during the six month period ended June 30, 2012 resulting in additional expense. No such meeting was held during the six month period ended June 30, 2013.
General and administrative – related party amounted to $82,345 and $64,918 for the six month periods ended June 30, 2013 and 2012, respectively, for accounting support services to Cupit, Milligan, Ogden & Williams, CPAs, an affiliate of Melvin L. Williams, our Chief Financial Officer. These accounting support services included bookkeeping input for the Clarkdale facility, assistance in preparing working papers for quarterly and annual reporting, and preparation of federal and state tax filings. The increase in fees is attributed to the additional accounting services provided due to transition to accelerated filer status and detailed XBRL tagging.
These expenses do not include any fees for Mr. Williams’ time in directly supervising the support staff. Mr. Williams’ compensation has been provided in the form of salary. The direct benefit to Mr. Williams was $32,115 and $22,072 of the above fees for the six month periods ended June 30, 2013 and 2012, respectively.
No loss on equipment disposition was recognized during the six month period ended June 30, 2013 compared to a loss of $25,897 during the six month period ended June 30, 2012. The loss in 2012 related to a change in our work program to autoclave testing which resulting in the disposition of certain of our demo module equipment. There were no dispositions in 2013.
Depreciation expense decreased to $684,396 during the six month period ended June 30, 2013 from $688,593 during the six month period ended June 30, 2012.
11
Three month period ended June 30, 2013 and 2012.
Operating expenses decreased by 4.6% to $1,727,158 during the three month period ended June 30, 2013 from $1,810,001 during the three month period ended June 30, 2012. Operating expense decreased primarily as a result of less general and administrative expense incurred in the three month period ended June 30, 2013.
Mineral exploration and evaluation expenses increased by 19.8% to $672,262 during the
three month period ended June 30, 2013 from $
561,232
during the three month period ended June 30, 2012
. The increase is attributed to our hiring of a Senior Corporate Metallurgist and an Autoclave Process Engineer during the fourth quarter of 2012 and to increased consulting expense related to further autoclave testing completed in the second quarter of 2013.
Mineral exploration and evaluation expenses – related party increased by 6.0% to $50,078 during the
three month period ended June 30, 2013 from
$47,229 during the three month period ended June 30, 2012. The increase is due to NMC providing additional consulting services to the Company related to research activities and oversight of consultants during the three month period ended June 30, 2013.
Administrative – Clarkdale site expenses decreased by 0.9% to $68,996 during the three month period ended June 30, 2013 from $69,640 for the three month period ended June 30, 2012.
General and administrative expenses decreased 22.5% and amounted to $569,745 during the three month period ended June 30, 2013 from $734,972 during the three month period ended June 30, 2012. The decrease was due to less stock based compensation expense and to not hosting an annual shareholders meeting in the second quarter of 2013.
General and administrative – related party amounted to $23,789 and $27,451 for the three month periods ended June 30, 2013 and 2012, respectively, for accounting support services to Cupit, Milligan, Ogden & Williams, CPAs, an affiliate of Melvin L. Williams, our Chief Financial Officer. These accounting support services included bookkeeping input for the Clarkdale facility, assistance in preparing working papers for quarterly and annual reporting, and preparation of federal and state tax filings. The decrease in fees is attributed to normal workflow fluctuations.
These expenses do not include any fees for Mr. Williams’ time in directly supervising the support staff. Mr. Williams’ compensation has been provided in the form of salary. The direct benefit to Mr. Williams was $9,278 and $9,333 of the above fees for the three month periods ended June 30, 2013 and 2012, respectively. No loss on equipment disposition was recognized during the three month period ended June 30, 2013 compared to a loss of $25,897 during the three month period ended June 30, 2012. The loss in 2012 related to a change in our work program to autoclave testing which resulting in the disposition of certain of our demo module equipment. There were no dispositions in 2013.
Depreciation expense decreased to $342,288 during the three month period ended June 30, 2013 from $343,580 during the three month period ended June 30, 2012.
Other Income and Expenses
Six month period ended June 30, 2013 and 2012.
Total other income (expense) amounted to $286,884 during the six month period ended June 30, 2013 from $(26,556) during the six month period ended June 30, 2012. The change was primarily due to the change in the fair value of our derivative warrant liability from a gain of $274,706 for the six month period ended June 30, 2012 compared to a loss of $(46,882) for the six month period ended June 30, 2013. The change in value of our derivative warrant liability is impacted by changes in our stock price, the volatility of our stock price and changes in the risk free interest rate. In addition, we earned less interest income in 2013 due to less cash reserves placed in interest bearing accounts.
12
Three month period ended June 30, 2013 and 2012.
Total other income (expense) amounted to $65,555 during the three month period ended June 30, 2013 from $3,002,092 during the three month period ended June 30, 2012. The change in total other income (expense) primarily resulted from a $60,843 gain recognized on the change in fair value of our derivative warrant liability during the three month period ended June 30, 2013 compared to a gain of $2,992,076 during the three month period ended June 30, 2012. The change in value of our derivative warrant liability is impacted by changes in our stock price, the volatility of our stock price and changes in the risk free interest rate. In addition, we earned less interest income in 2013 due to less cash reserves placed in interest bearing accounts.
Income Tax Benefit
Six month period ended June 30, 2013 and 2012.
Our income tax benefit decreased to $1,144,606 for the six month period ended June 30, 2013 from $1,320,436 during the six month period ended June 30, 2012. The decrease in income tax benefit primarily resulted from lower operating losses as discussed above and to increasing our valuation allowance on state net operating losses not expected to be realized.
Three month period ended June 30, 2013 and 2012.
Income tax benefit decreased to $547,979 for the three month period ended June 30, 2013 from $600,133 during the three month period ended June 30, 2012. The decrease in income tax benefit primarily resulted from lower operating losses as discussed above and to increasing our valuation allowance on state net operating losses not expected to be realized.
As of June 30, 2013, we had cumulative net operating loss carryforwards of approximately $42,291,405 for federal income tax purposes. The federal net operating loss carryforwards expire between 2025 and 2033.
We had cumulative state net operating losses of approximately $25,671,470 as of June 30, 2013 for state income tax purposes. The state net operating loss carryforwards expire between 2013 and 2033.
Net (Loss) Income
Six month period ended June 30, 2013 and 2012.
The aforementioned factors resulted in a net loss of $2,049,853, or $0.02 per common share, for the six month period ended June 30, 2013, as compared to a net loss of $2,755,821, or $0.02 per common share, for the six month period ended June 30, 2012.
Three month period ended June 30, 2013 and 2012.
The aforementioned factors resulted in a net loss of $1,113,624, or $0.01 per common share, for the three month period ended June 30, 2013, as compared to a net income of $1,792,244, or $0.01 per common share, for the three month period ended June 30, 2012.
Liquidity and Capital Resources
Historically, we have financed our operations primarily through the sale of common stock and other convertible equity securities. No financing transactions occurred during the six month period ended June 30, 2013. During the year ended December 31, 2012, we conducted the following financings of our securities:
On June 7, 2012, we issued 4,500,000 shares of common stock in a private placement at a price of $0.90 per share resulting in gross proceeds of $4,050,000. Total fees related to this issuance were $2,040. In connection with the offering, we entered into a Securities Purchase Agreement and a Registration Rights Agreement (“RRA”) with the purchasers.
13
Pursuant to the RRA, we agreed to certain demand registration rights. These rights include the requirement that we file certain registration statements within a specified time period and to have these registration statements declared effective within a specified time period. We 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 we are not able to comply with these registration requirements, we have agreed 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, we do not believe the penalty to be probable and accordingly, no liability has been accrued.
On May 24, 2012, we 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.
Working Capital
The following is a summary of our working capital at June 30, 2013
and December 31, 2012
:
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
Percent
Increase/(Decrease)
|
|
|
Current Assets
|
|
$
|
950,479
|
|
$
|
4,061,230
|
|
(76.6)
|
%
|
|
Current Liabilities
|
|
|
(372,845)
|
|
|
(872,303)
|
|
(57.3)
|
%
|
|
Working Capital
|
|
$
|
577,634
|
|
$
|
3,188,927
|
|
(81.9)
|
%
|
As of June 30, 2013, we had an accumulated deficit of $35,066,825. As of June 30, 2013, we had working capital of $577,634, compared to working capital of $3,188,927 as of December 31, 2012. The decrease in our working capital was to not raising any capital, continued net losses and recurring principal payments on our long term liabilities. Cash was $860,669 as of June 30, 2013, as compared to $3,931,591 as of December 31, 2012.
Cash Flows
The following is a summary of our sources and uses of cash for the periods set forth below:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2013
|
|
2012
|
|
Percent
Increase/(Decrease)
|
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(2,788,972)
|
|
$
|
(2,948,327)
|
|
(5.4)
|
%
|
|
Cash Flows Used in Investing Activities
|
|
|
(101,950)
|
|
|
(78,189)
|
|
30.4
|
%
|
|
Cash Flows (Used) Provided by Financing Activities
|
|
|
(180,000)
|
|
|
3,961,710
|
|
(104.5)
|
|
|
Net Change in Cash During Period
|
|
$
|
(3,070,922)
|
|
$
|
935,194
|
|
(428.4)
|
%
|
Net Cash Used in Operating Activities
. Net cash used in operating activities decreased to $2,788,972 during the six month period ended June 30, 2013 from $2,948,327 during the six month period ended June 30, 2012. The decrease in cash used in operating activities was primarily due to a smaller net loss due to lower mineral exploration consulting fees incurred.
14
Net Cash Used in Investing Activities
.
Net cash used in investing activities was $101,950 during the six month period ended June 30, 2013, as compared to net cash used of $78,189
during the six month period ended June 30, 2012. The change was primarily the result of more funds expended related to acquisition of property and equipment.
Net Cash (Used) Provided by Financing Activities
.
Net cash used in financing activities was $180,000 during the six month period ended June 30, 2013, as compared to net cash provided of $3,961,710
during the six month period ended June 30, 2012. During the six month period ended June 30, 2012, we completed a private placement for net proceeds of $4,047,960 and received $93,750 from the exercise of warrants. We did not issue any shares for cash during the six month period ended June 30, 2013.
We have not attained profitable operations and are dependent upon obtaining financing to pursue our plan of operation. Our ability to achieve and maintain profitability and positive cash flow will be dependent upon, among other things:
|
|
⋅
|
our ability to locate a profitable mineral property;
|
|
|
⋅
|
positive results from our feasibility studies on the Searchlight Gold Project and the Clarkdale Slag Project;
|
|
|
⋅
|
positive results from the operation of our initial test module on the Clarkdale Slag Project; and
|
|
|
⋅
|
our ability to generate revenues.
|
We may not generate sufficient revenues from our proposed business plan in the future to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we eventually will have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion plans. In addition, our losses may increase in the future as we expand our business plan. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders’ equity. If we are unable to achieve profitability, the market value of our common stock will decline and there would be a material adverse effect on our financial condition.
Our exploration and evaluation plan calls for significant expenses in connection with the Clarkdale Slag Project and the Searchlight Gold Project. During 2013, our management anticipates that the minimum cash requirements for funding our proposed testing and feasibility programs and our continued operations will be approximately $7,300,000. As of July 31, 2013, we had cash reserves in the amount of approximately $534,000. Our current financial resources are not sufficient to allow us to meet the anticipated costs of our testing and feasibility programs and operating overhead during the next 12 months and we will require additional financing in order to fund these activities
.
As of June 30, 2013, our financial statements and this report do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should we be unable to continue as a going concern.
A decision on allocating additional funds for Phase II of the Clarkdale Slag Project will be forthcoming if and once the feasibility study is completed and analyzed. The Phase II work program is expected to include the preparation of a bankable feasibility study, engineering and design of the full-scale production facility and planning for the construction of an Industrial Collector Road pursuant to an agreement with the Town of Clarkdale, Arizona. We estimate that our monthly expenses will increase substantially once we enter Phase II of the project and therefore, we may require the necessary funding to fulfill this anticipated work program.
15
If the actual costs are significantly greater than anticipated, if we proceed with our exploration, testing and construction activities beyond what we currently have planned, or if we experience unforeseen delays during our activities during 2013, we will need to obtain additional financing. There are no assurances that we will be able to obtain additional financing in an amount sufficient to meet our needs or on terms that are acceptable to us.
Obtaining additional financing is subject to a number of factors, including the market prices for base and precious metals. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund our business plan could be significantly limited and we may be required to suspend our business operations. We cannot assure you that additional financing will be available on terms favorable to us, or at all. The failure to obtain such a financing would have a material, adverse effect on our business, results of operations and financial condition.
If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of current stockholders will be reduced and these securities may have rights and preferences superior to that of current stockholders. If we raise capital through debt financing, we may be forced to accept restrictions affecting our liquidity, including restrictions on our ability to incur additional indebtedness or pay dividends.
For these reasons, our financial statements filed herewith include a statement that these factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will be dependent on our raising of additional capital and the success of our business plan.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by us, 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 our consolidated financial statements upon adoption.
In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” to improve the transparency of reporting these reclassifications. This update is effective for reporting periods beginning after December 15, 2012. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements. The new amendments require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. Additionally, the new amendments require cross-referencing to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. The adoption of this guidance did not have a material effect on our financial condition, results of operation, or cash flows.
16
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. We do not expect ASU 2013-11 to have a material effect on our financial condition, results of operation, or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We had unrestricted cash totaling $860,669 at June 30, 2013 and $3,931,591 at December 31, 2012. Our cash is held primarily in an interest bearing bank account, a savings account and non-interest bearing checking accounts and is not materially affected by fluctuations in interest rates. The unrestricted cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these cash holdings, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.
Item 4. Controls and Procedures
Controls and Procedures
As of June 30, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).
Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2013, such disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and the loss is probable.
We believe that there are no material litigation matters at the current time. Although the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position, liquidity, or results of operations.
17
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which to our knowledge have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K for the quarter ended June 30, 2013 is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits
18
EXHIBIT TABLE
The following is a complete list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:
|
Reference
Number
|
|
Item
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
95.1
|
|
Mine Safety Disclosures
|
|
|
|
|
|
101
|
|
101.INS XBRL Instance 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation 101.LAB XBRL Taxonomy Extension Labels 101.PRE XBRL Taxonomy Extension Presentation 101.DEF XBRL Taxonomy Extension Definition
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SEARCHLIGHT MINERALS CORP.
|
|
|
a Nevada corporation
|
|
|
|
|
Date: August 14, 2013
|
By:
|
/s/
Martin B. Oring
|
|
|
|
Martin B. Oring
|
|
|
|
President
and
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Date: August 14, 2013
|
By:
|
/s/
Melvin L. Williams
|
|
|
|
Melvin L. Williams
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Accounting Officer)
|