See Accompanying Notes to these Condensed
Consolidated Financial Statements
See Accompanying Notes to these Condensed
Consolidated Financial Statements
See Accompanying Notes to these Condensed
Consolidated Financial Statements
See Accompanying Notes to these Condensed
Consolidated Financial Statements
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 $37,803,505 from operations as of March 31, 2014 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 March 31, 2014, the Company incurred a net loss of $911,299, had negative
cash flows from operating activities of $1,234,600 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.
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)
|
Basis of presentation
- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America. The Company’s fiscal year-end is December 31.
These condensed consolidated
financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange
Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation
of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring
nature. The results reported in these interim condensed consolidated financial statements are not necessarily indicative of the
results that may be reported for the entire year. These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December
31, 2013, filed with the SEC on March 28, 2014.
Principles of
consolidation
- The condensed 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 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.
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 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.
Deferred financing fees
– Deferred financing fees represent fees paid in connection with obtaining debt financing. These fees are amortized
using the effective interest method over the term of the financing.
Convertible notes –
derivative liabilities
– The Company evaluates the embedded features of convertible notes to determine if they are required
to be bifurcated and recorded as a derivative liability. If more than one feature is required to be bifurcated, the features are
accounted for as a single compound derivative. The fair value of the compound derivative is recorded as a derivative liability
and a debt discount. The carrying value of the convertible notes was recorded on the date of issuance at its original value less
the fair value of the compound derivative.
The derivative liability is
measured at fair value on a recurring basis with changes reported in other income (expense). Fair value is determined using a
model which incorporates estimated probabilities and inputs calculated by both the Binomial Lattice model and present values.
The debt discount is amortized to non-cash interest expense using the effective interest method over the life of the notes. If
a conversion of the underlying note occurs, a proportionate share of the unamortized amount is immediately expensed.
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)
|
Reclamation and remediation
costs
- For its exploration stage properties, the Company accrues the estimated costs associated with environmental remediation
obligations in the period in which the liability is incurred or becomes determinable. Until such time that a project life is established,
the Company records the corresponding cost as an exploration stage expense. The costs of future expenditures for environmental
remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule.
Future reclamation and environmental-related
expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties
associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology. The Company periodically reviews accrued liabilities for such
reclamation and remediation costs as evidence indicating that the liabilities have potentially changed becomes available. Changes
in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.
The Company is in the exploration
stage and is unable to determine the estimated timing of expenditures relating to reclamation accruals. It is reasonably possible
that the ultimate cost of reclamation and remediation could change in the future and that changes to these estimates could have
a material effect on future operating results as new information becomes known.
Fair value of financial
instruments
- The Company’s financial instruments consist principally of derivative liabilities and the Verde River
Iron Company, LLC (“VRIC”) payable. Assets and liabilities measured at fair value are categorized based on whether
the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments
within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy
is prioritized into three levels defined as follows:
Level 1
|
|
Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level 2
|
|
Quoted
prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the
full term of the asset or liability; and
|
Level 3
|
|
Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported
by little or no market activity).
|
The Company’s financial
instruments consist of the VRIC payable (described in Note 9) and derivative liabilities. 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 calculates the
fair value of its derivative liabilities using various models which are all Level 3 inputs. The fair value of the derivative warrant
liability (described in Note 6) is calculated using the Binomial Lattice model, and the fair value of the derivative liability
- convertible notes (described in Note 8) is calculated using a model which incorporates estimated probabilities and inputs calculated
by both the Binomial Lattice model and present values. The change in fair value of the derivative liabilities is classified in
other income (expense) in the consolidated statement of operations. The Company generally does not use derivative financial instruments
to hedge exposures to cash flow, market or foreign currency risks.
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)
|
There has been no change in
the valuation technique used for the derivative warrant liability since its inception. The valuation technique for the derivative
liability – convertible debt was adopted upon its inception, in the third quarter of 2013. The Company does not have any
non-financial assets or liabilities that it measures at fair value. During the three month periods ended March 31, 2014 and 2013,
there were no transfers of assets or liabilities between levels.
Per share
amounts
- Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to
reflect the effect of potentially dilutive securities. Potentially dilutive shares, such as stock options and warrants, are excluded
from the calculation when their inclusion would be anti-dilutive, such as when the exercise price of the instrument exceeds the
fair market value of the Company’s common stock and when a net loss is reported. The dilutive effect of convertible debt
securities is reflected in the diluted earnings (loss) per share calculation using the if-converted method. Conversion of the
debt securities is not assumed for purposes of calculating diluted earnings (loss) per share if the effect is anti-dilutive. At
March 31, 2014 and 2013, 36,798,697 and 26,256,390 stock options, warrants and common shares issuable upon the conversion of notes
were outstanding, respectively, but were not considered in the computation of diluted earnings per share as their inclusion would
be anti-dilutive.
Stock-based
compensation
- Stock-based compensation awards are recognized in the consolidated financial statements based on the grant
date fair value of the award which is estimated using the Binomial Lattice option pricing model. The Company believes that this
model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility
and interest rates, and to allow for the actual exercise behavior of option holders
.
The
compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise,
shares issued will be newly issued shares from authorized common stock.
The fair value of performance-based
stock option grants is determined on their grant date through the use of the Binomial Lattice option pricing model. The total
value of the award is recognized over the requisite service period only if management has determined that achievement of the performance
condition is probable. The requisite service period is based on management’s estimate of when the performance condition
will be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount
of stock-based compensation recognized in the financial statements.
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.
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)
|
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.
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 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. The Company adopted ASU 2013-11 during the quarter ended March 31, 2014. The adoption of this
standard did not affect the Company’s financial position or results of operation.
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:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
38,255
|
|
|
$
|
(36,440
|
)
|
|
$
|
1,815
|
|
|
$
|
38,255
|
|
|
$
|
(35,759
|
)
|
|
$
|
2,496
|
|
Lab equipment
|
|
|
249,061
|
|
|
|
(242,620
|
)
|
|
|
6,441
|
|
|
|
249,061
|
|
|
|
(240,258
|
)
|
|
|
8,803
|
|
Computers and equipment
|
|
|
91,002
|
|
|
|
(70,002
|
)
|
|
|
21,000
|
|
|
|
91,002
|
|
|
|
(67,775
|
)
|
|
|
23,227
|
|
Income property
|
|
|
309,750
|
|
|
|
(18,973
|
)
|
|
|
290,777
|
|
|
|
309,750
|
|
|
|
(18,311
|
)
|
|
|
291,439
|
|
Vehicles
|
|
|
47,675
|
|
|
|
(44,933
|
)
|
|
|
2,742
|
|
|
|
47,675
|
|
|
|
(44,758
|
)
|
|
|
2,917
|
|
Slag conveyance equipment
|
|
|
300,916
|
|
|
|
(248,377
|
)
|
|
|
52,539
|
|
|
|
300,916
|
|
|
|
(230,124
|
)
|
|
|
70,792
|
|
Demo module building
|
|
|
6,630,063
|
|
|
|
(3,366,606
|
)
|
|
|
3,263,457
|
|
|
|
6,630,063
|
|
|
|
(3,200,854
|
)
|
|
|
3,429,209
|
|
Grinding circuit
|
|
|
913,678
|
|
|
|
(4,167
|
)
|
|
|
909,511
|
|
|
|
913,678
|
|
|
|
(1,666
|
)
|
|
|
912,012
|
|
Extraction circuit
|
|
|
898,909
|
|
|
|
(134,836
|
)
|
|
|
764,073
|
|
|
|
898,909
|
|
|
|
(89,891
|
)
|
|
|
809,018
|
|
Leaching and filtration
|
|
|
1,300,618
|
|
|
|
(845,402
|
)
|
|
|
455,216
|
|
|
|
1,300,618
|
|
|
|
(780,371
|
)
|
|
|
520,247
|
|
Fero-silicate storage
|
|
|
4,326
|
|
|
|
(1,406
|
)
|
|
|
2,920
|
|
|
|
4,326
|
|
|
|
(1,298
|
)
|
|
|
3,028
|
|
Electrowinning building
|
|
|
1,492,853
|
|
|
|
(485,177
|
)
|
|
|
1,007,676
|
|
|
|
1,492,853
|
|
|
|
(447,856
|
)
|
|
|
1,044,997
|
|
Site improvements
|
|
|
1,675,906
|
|
|
|
(498,301
|
)
|
|
|
1,177,605
|
|
|
|
1,651,143
|
|
|
|
(467,306
|
)
|
|
|
1,183,837
|
|
Site equipment
|
|
|
360,454
|
|
|
|
(316,863
|
)
|
|
|
43,591
|
|
|
|
360,454
|
|
|
|
(309,051
|
)
|
|
|
51,403
|
|
Construction in progress
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,415,480
|
|
|
$
|
(6,314,103
|
)
|
|
$
|
9,101,377
|
|
|
$
|
15,390,717
|
|
|
$
|
(5,935,278
|
)
|
|
$
|
9,455,439
|
|
Depreciation expense was $378,825
and $342,107 for the three month periods ended March 31, 2014 and 2013, respectively. At March 31, 2014, construction in progress
included the gold, copper, and zinc extraction circuits and electrowinning equipment at the Clarkdale Slag Project.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG
PROJECT
|
On February 15, 2007, the Company
completed a merger with Transylvania International, Inc. (“TI”) which provided the Company with 100% ownership of
the Clarkdale Slag Project in Clarkdale, Arizona, through its wholly owned subsidiary CML. This acquisition superseded the joint
venture option agreement to acquire a 50% ownership interest as a joint venture partner pursuant to Nanominerals Corp. (“NMC”)
interest in a joint venture agreement (“JV Agreement”) dated May 20, 2005 between NMC and Verde River Iron Company,
LLC (“VRIC”). One of the Company’s former directors was an affiliate of VRIC. The former director joined the
Company’s board subsequent to the acquisition.
The Company 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.
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 15.
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 March 31, 2014 and December 31, 2013, the cumulative interest cost capitalized and included in
the Slag Project was $1,012,550 and $992,934, respectively.
The following table sets forth
the change in the Slag Project for the three months period ended March 31, 2014 and the year ended December 31, 2013:
|
|
March 31, 2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
Slag Pile, beginning balance
|
|
$
|
121,759,811
|
|
|
$
|
121,667,730
|
|
Capitalized interest costs
|
|
|
19,615
|
|
|
|
92,081
|
|
|
|
|
|
|
|
|
|
|
Slag Pile, ending balance
|
|
$
|
121,779,426
|
|
|
$
|
121,759,811
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
4.
|
MINERAL PROPERTIES
- MINING CLAIMS
|
As of March 31, 2014, 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 March 31, 2014 and 2013, the mineral properties balance was
$16,947,419.
The mining claims were acquired
with issuance of 5,600,000 shares of the Company’s common stock over a three year period ending in June 2008. On June 25,
2008, the Company issued the final tranche of shares and received the title to the mining claims in consideration of the satisfaction
of the option agreement.
The mining claims were capitalized
as tangible assets. 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 for the Searchlight Gold Project, the Company has a bond with the Bureau of Land Management (“BLM”)
amounting to $11,466 and $11,466 as of March 31, 2014 and 2013, respectively.
|
5.
|
ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES
|
Accounts payable and accrued
liabilities at March 31, 2014 and December 31, 2013 consisted of the following:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
209,383
|
|
|
$
|
70,272
|
|
Accrued compensation and related taxes
|
|
|
73,756
|
|
|
|
45,469
|
|
Accrued interest
|
|
|
9,800
|
|
|
|
79,800
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,939
|
|
|
$
|
195,541
|
|
Accounts payable – related party are discussed
in Note 18.
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 and on
October 25, 2013, 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 and again from November 12, 2013 to November 12, 2014. In all other respects, the terms and conditions of the warrants
remained the same. With respect to the extensions, the Company did not recognize any additional expense as the fair values of
the warrants were calculated at zero using the Binomial Lattice model with the following assumptions:
|
|
October 25, 2013
|
|
November 1, 2012
|
|
|
|
|
|
Risk-free interest rate
|
|
0.11%
|
|
0.19%
|
Expected volatility
|
|
114.79%
|
|
94.94%
|
Expected life (years)
|
|
1.0
|
|
1.0
|
As of March 31, 2014, the cumulative
adjustment to the warrants was as follows: (i) the exercise price was adjusted from $1.85 per share to $1.62 per share, and (ii)
the number of warrants was increased by 817,285 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 adjusted exercise price of the Luxor 2009 private placements warrants is $1.65
per share. 269,956 of the warrants originally held by Luxor have been transferred to another entity. No additional warrants were
issued during the three month period ended March 31, 2014.
The total warrants accounted
for as a derivative liability were as 7,158,548 and 7,158,548 as of March 31, 2014 and December 31, 2013, respectively.
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 the derivative liability for the three month period ended March 31 2014 and the year ended December
31, 2013:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(81,574
|
)
|
|
$
|
(274,706
|
)
|
Adjustment to warrants
|
|
|
-
|
|
|
|
-
|
|
Change in fair value
|
|
|
78,765
|
|
|
|
193,132
|
|
Ending balance
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,809
|
)
|
|
$
|
(81,574
|
)
|
The Company estimates the fair
value of the derivative liabilities by using the Binomial Lattice pricing-model, with the following assumptions used for the three
month period ended March 31, 2014 and the year ended December 31, 2013:
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
|
|
|
Dividend yield
|
|
-
|
|
-
|
Expected volatility
|
|
84.11%
|
|
90.98% - 121.32%
|
Risk-free interest rate
|
|
0.10%
|
|
0.01% - 0.13%
|
Expected life (years)
|
|
0.60
|
|
0.10 - 0.90
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options. The expected life is impacted by all of
the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result
in a significantly lower or higher fair value measurement.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On September 18, 2013, the
Company completed a private placement of secured convertible notes (the “Notes”) to certain investors resulting in
gross proceeds of $4,000,000. The term of the Notes is five years, but the Notes can be called on the second anniversary date
of issuance and every six month period ended thereafter. The Notes bear interest at 7% which is payable semi-annually. The Notes
have customary provisions relating to events of default including an increase in the interest rate to 9%.The Notes are secured
by a first priority lien on all of the assets of the Company including its subsidiaries.
The Company has agreed not
to incur any additional secured indebtedness or any other indebtedness with a maturity prior to that of the Notes without the
written consent of the holders of the majority-in-interest of the Notes. In the event of a change of control of the Company, the
Notes will become due and payable at 120% of the principal balance. The holders of the Notes have the right to purchase, pro rata,
up to $600,000 of additional separate notes by the first anniversary of the issuance date on the same general terms and conditions
as the original Notes.
The Notes are convertible at
any time into shares of common stock at $0.40 per share, subject to certain adjustments. At March 31, 2014, the Notes were convertible
into 10,000,000 shares of common stock and the if-converted value equaled the principal amount of the Notes. Certain embedded
features in the Notes were required to be bifurcated and accounted for as a single compound derivative and reported at fair value
as further discussed in Note 8.
On the issuance date, the fair
value of the compound derivative amounted to $1,261,285 and was recorded as both a derivative liability and a debt discount. The
debt discount is being amortized to interest expense over the term of the Notes and the derivative liability is carried at fair
value until conversion or maturity.
The carrying value of the convertible
debt, net of discount was comprised of the following at March 31, 2014 and December 31, 2013:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Convertible notes at face value
|
|
$
|
4,000,000
|
|
|
$
|
4,000,000
|
|
Unamortized discount
|
|
|
(1,147,985
|
)
|
|
|
(1,201,494
|
)
|
Convertible notes, net of discount
|
|
|
|
|
|
|
|
|
|
|
$
|
2,852,015
|
|
|
$
|
2,798,506
|
|
The Company incurred $126,446
of financing fees related to the Notes. Such amounts were capitalized and recorded as deferred financing fees and are being amortized
to interest expense over the term of the Notes. The effective interest rate on the Notes is 15.4% which included the following
components and amounts for the three month period ended March 31 2014:
|
|
March 31, 2014
|
|
|
|
|
|
Interest rate at 7%
|
|
$
|
70,000
|
|
Amortization of debt discount
|
|
|
53,510
|
|
Amortization of deferred financing fees
|
|
|
5,557
|
|
Total interest expense on convertible notes
|
|
$
|
129,067
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
8.
|
DERIVATIVE LIABILITY
– CONVERTIBLE NOTES
|
As further discussed in Note
7, on September 18, 2013, the Company completed a private placement of Notes to certain investors resulting in gross proceeds
of $4,000,000. The Notes are convertible at any time into shares of common stock at $0.40 per share.
The Notes have several embedded
conversion and redemption features as well as the provision for additional investments. The Company determined that two of the
features were required to be bifurcated and accounted for under derivative accounting as follows:
|
1.
|
The embedded conversion feature
includes a provision for the adjustment to the conversion price if the Company issues
common stock or common stock equivalents at a price less than the exercise price. Derivative
accounting was required for this feature due to this anti-dilution provision.
|
|
2.
|
One embedded redemption feature
requires the Company to pay 120% of the principal balance due upon a change of control.
Derivative accounting was required for this feature as the debt involves a substantial
discount, the option is only contingently exercisable and its exercise is not indexed
to either an interest rate or credit risk.
|
These two embedded features
have been accounted for together as a single compound derivative. The Company estimated the fair value of the compound derivative
using a model with estimated probabilities and inputs calculated by the Binomial Lattice model and present values. The assumptions
included in the calculations are highly subjective and subject to interpretation. Assumptions used for the three month period
ended March 31, 2014 and the year ended December 31, 2013 included redemption and conversion estimates/behaviors, estimates regarding
future anti-dilutive financing agreements and the following other significant estimates:
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
|
|
|
Expected volatility
|
|
96.46%
|
|
93.11% - 101.74%
|
Risk-free interest rate
|
|
1.73%
|
|
1.39% - 1.75%
|
Expected life (years)
|
|
3.0
|
|
4.25 – 4.75
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options. The expected life is impacted by all of
the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result
in a significantly lower or higher fair value measurement.
The following table sets forth
the changes in the fair value of the derivative liability for the three month period ended March 31, 2014 and the year ended December
31, 2013:
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
755,709
|
|
|
$
|
-
|
|
Issuance of convertible debt
|
|
|
-
|
|
|
|
1,261,285
|
|
Change in fair value
|
|
|
(119,732
|
)
|
|
|
(505,576
|
)
|
Ending balance
|
|
|
|
|
|
|
|
|
|
|
$
|
635,977
|
|
|
$
|
755,709
|
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
9.
|
VRIC PAYABLE
- RELATED PARTY
|
Pursuant
to the Clarkdale acquisition agreement, the Company agreed to pay VRIC $30,000 per month until the Project Funding Date. 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 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 $19,615 and $25,010 for the three month periods ended March 31, 2014 and 2013, 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 March 31,
2015
|
|
$
|
360,000
|
|
2016
|
|
|
360,000
|
|
2017
|
|
|
330,000
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total minimum payments
|
|
|
1,050,000
|
|
Less: amount representing interest
|
|
|
(116,263
|
)
|
|
|
|
|
|
Present value of minimum payments
|
|
|
933,737
|
|
|
|
|
|
|
VRIC payable, current portion
|
|
|
295,998
|
|
|
|
|
|
|
VRIC payable, net of current portion
|
|
$
|
637,739
|
|
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 15.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
During the three month periods
ended March 31, 2014 and 2013 the Company did not issue any common stock or enter into any financing agreements.
The following table summarizes the Company’s
private placement warrant activity for the three month period ended March 31, 2014:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
14,200,935
|
|
|
$
|
1.74
|
|
|
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2014
|
|
|
14,200,935
|
|
|
$
|
1.74
|
|
|
|
0.62
|
|
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. The warrants had an exercise price of $0.375 per share and an expiration date of June 1, 2015. In the third
quarter of 2011, 3,000,000 of these warrants were cancelled upon the resolution of a dispute with a shareholder. The Company recorded
a gain of $502,586 related to the settlement. During the three year period ended March 31, 2013, 250,000 of these warrants were
exercised. As of March 31, 2014, 8,750,000 of these warrants were outstanding.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
11.
|
STOCK-BASED
COMPENSATION
|
Stock-based compensation includes
grants of stock options and purchase warrants to eligible directors, employees and consultants as determined by the board of directors.
Stock option plans
-
The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize
the granting of stock option awards subject to certain conditions. At March 31, 2014, the Company had 10,498,576 of its common
shares available for issuance for stock option awards under the Company’s stock option plans.
At March 31, 2014, the Company
had the following stock option plans available:
|
·
|
2009
Incentive Plan – The terms of the 2009 Incentive Plan, as amended, allow for up
to 7,250,000 options to be issued to eligible participants. Under the plan, the exercise
price is generally equal to the fair market value of the Company’s common stock
on the grant date and the maximum term of the options is generally ten years. No participants
shall receive more than 500,000 options under this plan in any one calendar year. For
grantees who own more than 10% of the Company’s common stock on the grant date,
the exercise price may not be less than 110% of the fair market value on the grant date
and the term is limited to five years. The plan was approved by the Company’s stockholders
on December 15, 2009 and the amendment was approved by the Company’s stockholders
on May 8, 2012. As of March 31, 2014, 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 March 31, 2014, 1,190,000 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 250,000 options under this plan in any one calendar year. The plan was approved
by the Company’s stockholders on December 15, 2009 and the amendment was approved
by the Company’s stockholders on May 8, 2012. As of March 31, 2014, the Company
had granted 1,326,877 options under the 2009 Directors Plan with a weighted average exercise
price of $0.92 per share. As of March 31, 2014, 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 March 31, 2014, the Company had granted 952,047
options under the 2007 Plan with a weighted average exercise price of $1.03 per share.
As of March 31, 2014, 830,885 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 March 31, 2014.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
11.
|
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 March 31, 2014, the Company had options outstanding that vest on two different types of vesting schedules, service-based
and performance-based. For both service-based and performance-based stock option grants, the Company estimates the fair value
of stock-based compensation awards by using the Binomial Lattice option pricing model with the following assumptions used for
the three month periods ended March 31, 2014 and 2013:
|
|
March 31, 2014
|
|
March 31, 2013
|
|
|
|
|
|
Risk-free interest rate
|
|
0.39% - 1.73%
|
|
0.77%
|
Dividend yield
|
|
-
|
|
-
|
Expected volatility
|
|
98.65% - 105.87%
|
|
95.66%
|
Expected life (years)
|
|
2.00 - 4.25
|
|
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)
|
11.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
Stock-based compensation
activity
- During the three month period ended March 31, 2014, the Company granted stock-based awards as follows:
During the three month period
ended March 31, 2014, the Company granted stock-based awards as follows:
|
a)
|
On March 31, 2014, the Company granted
stock options under the 2009 Directors Plan for the purchase of 54,000 shares of common
stock at $0.26 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,
2019. The exercise price of the stock options equaled the closing price of the Company’s
common stock for the grant date.
|
|
b)
|
On January 13, 2014, the Company
extended the expiration date of 200,000 warrants issued to a consultant. The expiration
date was extended from January 13, 2014 to January 13, 2016. All other terms were unchanged.
The modification resulted in additional expense of $5,011.
|
During the three month period
ended March 31, 2013, the Company granted stock-based awards as follows:
|
a)
|
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.
|
|
b)
|
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.
|
Expenses related to the granting,
vesting and modifying of stock-based compensation awards were $33,025 and $121,676 for the three month periods ended March 31,
2014 and 2013, 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)
|
11.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
The following
table summarizes the Company’s stock-based compensation activity for the three month period ended March 31, 2014:
|
|
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, 2013
|
|
|
3,800,331
|
|
|
$
|
0.56
|
|
|
$
|
1.01
|
|
|
|
3.76
|
|
|
|
|
|
Options/warrants granted
|
|
|
54,000
|
|
|
|
0.09
|
|
|
|
0.26
|
|
|
|
5.00
|
|
|
|
|
|
Options/warrants expired
|
|
|
(6,569
|
)
|
|
|
1.22
|
|
|
|
2.74
|
|
|
|
-
|
|
|
|
|
|
Options/warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options/warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2014
|
|
|
3,847,762
|
|
|
$
|
0.55
|
|
|
$
|
0.99
|
|
|
|
3.65
|
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2014
|
|
|
3,447,762
|
|
|
$
|
0.52
|
|
|
$
|
0.98
|
|
|
|
3.25
|
|
|
$
|
1,080
|
|
Aggregate intrinsic value
represents the value of the Company’s closing stock price on the last trading day of the quarter ended March 31, 2014
in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.
Unvested awards
- The
following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting for the three
month period ended March 31, 2014:
|
|
Number of
Shares Subject
to Vesting
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2013
|
|
|
450,000
|
|
|
$
|
0.95
|
|
Options/warrants granted
|
|
|
-
|
|
|
|
-
|
|
Options/warrants vested
|
|
|
(50,000
|
)
|
|
|
1.49
|
|
Options/warrants cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested, March 31, 2014
|
|
|
400,000
|
|
|
$
|
0.88
|
|
For the three month periods
ended March 31, 2014 and 2013, the total grant date fair value of shares vested was $74,731 and $70,144, respectively. As of March
31, 2014, there was $42,908 of total unrecognized compensation cost related to unvested stock-based compensation awards. The weighted
average period over which this cost will be recognized was 0.94 years as of March 31, 2014. Included in the total of unvested
stock options at March 31, 2014, was 250,000 performance-based stock options. At March 31, 2014, management determined that achievement
of the performance targets was probable. The weighted average period over which the related expense will be recognized was 0.75
years as of March 31, 2014.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
12.
|
STOCKHOLDER
RIGHTS AGREEMENT
|
The Company
adopted a Stockholder Rights Agreement (the “Rights Agreement”) in August 2009 to protect stockholders from attempts
to acquire control of the Company in a manner in which the Company’s Board of Directors determines is not in the best interest
of the Company or its stockholders. Under the agreement, each currently outstanding share of the Company’s common
stock includes, and each newly issued share will include, a common share purchase right. The rights are attached to
and trade with the shares of common stock and generally are not exercisable. The rights will become exercisable if
a person or group acquires, or announces an intention to acquire, 15% or more of the Company’s outstanding common stock.
The Rights Agreement was not adopted in response to any specific effort to acquire control of the Company. The issuance
of rights had no dilutive effect, did not affect the Company’s reported earnings per share and was not taxable to the Company
or its stockholders.
On June
7, 2012, the Company agreed to waive the 15% limitation currently in the Rights Agreements with respect to Luxor, and to allow
Luxor to become the beneficial owners of up to 17.5% of the Company’s common stock, without being deemed to be an “acquiring
person” under the Rights Agreement. In connection with the convertible notes offering completed on September 18, 2013, the
Company agreed to waive the 17.5% limitation currently in the Rights Agreement with respect to Luxor, and allow Luxor to become
the beneficial owners of up to 22% of the Company’s common stock, without being deemed to be an “acquiring person”
under the Rights Agreement. Following the Offering, Luxor became the beneficial owner of approximately 21% of the Company’s
common stock (including giving effect to derivative securities or other rights to purchase or acquire shares of the Company’s
common stock).
|
13.
|
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 lease agreement expires
August 25, 2014. At such time as Clarkdale no longer uses the property for effluent disposal, and for a period of 25 years measured
from the date of the lease, the Company has a continuing right to purchase Class B effluent, and if available, Class A effluent
at then market rates.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The Company is a Nevada corporation
and is subject to federal, 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 March 31, 2014 and December 31, 2013 were as follows:
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
17,375,356
|
|
|
$
|
16,822,317
|
|
Option compensation
|
|
|
773,285
|
|
|
|
763,779
|
|
Property, plant & equipment
|
|
|
1,082,341
|
|
|
|
1,021,685
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
19,230,982
|
|
|
|
18,607,781
|
|
Less: valuation allowance
|
|
|
(633,101
|
)
|
|
|
(733,287
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
18,597,881
|
|
|
|
17,874,494
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related liabilities
|
|
|
(55,197,465
|
)
|
|
|
(55,197,465
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(36,599,584
|
)
|
|
$
|
(37,322,971
|
)
|
The realizability of deferred
tax assets are reviewed at each balance sheet date. The majority of the Company’s deferred tax liabilities are related to
depletable assets. Such depletion will begin with the processing of mineralized material once production has commenced. Therefore,
the deferred tax liabilities will reverse in similar time periods as the deferred tax assets. The reversal of the deferred tax
liabilities is sufficient to support the deferred tax assets. The valuation allowance relates to state net operating loss carryforwards
which may expire unused due to their shorter life.
Deferred income tax liabilities
were recorded on GAAP basis over income tax basis using statutory federal and state rates with the corresponding increase in the
purchase price allocation to the assets acquired.
The resulting estimated future
federal and state income tax liabilities associated with the temporary difference between the acquisition consideration and the
tax basis are reflected as an increase to the total purchase price which has been applied to the underlying mineral and slag project
assets in the absence of there being a goodwill component associated with the acquisition transactions.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
14.
|
INCOME TAXES
(continued)
|
A reconciliation of the deferred
income tax benefit for the three month periods ended March 31, 2014 and 2013 at US federal and state income tax rates to the actual
tax provision recorded in the financial statements consisted of the following components:
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
Deferred tax benefit at statutory rates
|
|
$
|
572,140
|
|
|
$
|
536,500
|
|
State deferred tax benefit, net of federal benefit
|
|
|
49,041
|
|
|
|
45,986
|
|
Increase (decrease) in deferred tax benefit from:
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
100,186
|
|
|
|
(27,679
|
)
|
Permanent differences:
|
|
|
|
|
|
|
|
|
Change in state NOL’s
|
|
|
(47,874
|
)
|
|
|
(34,841
|
)
|
Gain on the change in fair value of derivative liabilities
|
|
|
75,429
|
|
|
|
81,268
|
|
Other
|
|
|
(25,535
|
)
|
|
|
(4,607
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
$
|
723,387
|
|
|
$
|
596,627
|
|
The Company had cumulative
net operating losses of $46,836,116 as of March 31, 2014 for federal income tax purposes. The federal net operating loss carryforwards
will expire between 2025 and 2034.
State income tax allocation
- The Company had cumulative net operating losses of $24,752,089 as of March 31, 2014 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 2034.
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 return for the year ended December 31, 2010 is currently under examination by the Internal Revenue
Service.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
15.
|
COMMITMENTS AND CONTINGENCIES
|
Lease obligations
–
The Company leases corporate office space under a sublease agreement from a related party as further discussed in Note 18. The
lease agreement commenced September 1, 2013 and is for a 2 year period. The following table represents future rent payments for
each of the 12 month periods ending March 31,
2015
|
|
$
|
25,764
|
|
2016
|
|
|
8,335
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
|
|
$
|
34,099
|
|
Total rent expense was $8,457
and $8,940 for the three month periods ended March 31, 2014 and 2013, 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 March 31, 2014, 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.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
15.
|
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 March 31, 2014 and 2013, 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.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
15.
COMMITMENTS AND CONTINGENCIES
(continued)
Registration Rights Agreement
- In connection with the September 18, 2013 convertible notes issuance, the Company entered into a RRA with the investors.
Pursuant to the RRA, the Company agreed to file a registration statement covering the resale of the shares of common stock issuable
upon conversion of the notes and the additional notes allowed for under the agreement. 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. The Purchasers will also be granted
piggyback registration rights with respect to such shares. 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 purchase price. The maximum penalty is equal to 3.0% of
the purchase price which amounts to $120,000 for the convertible notes and $18,000 for the additional notes. As of the date of
this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.
Lawsuit
– On October
28, 2013, the Company was sued in Federal District Court for the District of Connecticut. The Company believes it was not liable
for any damages, however, it settled for an immaterial amount subsequent to March 31, 2014.
|
16.
|
CONCENTRATION OF CREDIT RISK
|
The Company maintains its cash
accounts in financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance
Corporation (the “FDIC”) for up to $250,000 per institution. The Company has never experienced a material loss or
lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s cash accounts will
not be impacted by adverse conditions in the financial markets. At March 31, 2014, the Company had deposits in excess of FDIC
insured limits in the amount of $34,733.
|
17.
|
CONCENTRATION OF ACTIVITY
|
The Company currently utilizes
a mining and environmental firm to perform significant portions of its mineral property and metallurgical exploration work programs.
A change in the lead mining and environmental firm could cause a delay in the progress of the Company’s exploration programs
and would cause the Company to incur significant transition expense and may affect operating results adversely.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
18.
|
RELATED PARTY TRANSACTIONS
|
NMC
- The Company utilizes
the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides the Company with
use of its laboratory, instrumentation, milling equipment and research facilities. One of 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 15.
The following table provides
details of transactions between the Company and NMC for the three month periods ended March 31, 2014 and 2013.
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
Reimbursement of expenses
|
|
$
|
4,376
|
|
|
$
|
1,515
|
|
Consulting services provided
|
|
|
30,000
|
|
|
|
12,850
|
|
Advance royalty payments
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Mineral and exploration expense – related party
|
|
$
|
79,376
|
|
|
$
|
59,365
|
|
The Company had outstanding
balances due to NMC of $27,761 and $37,896 at March 31, 2014 and December 31, 2013, respectively.
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 month period ended March
31, 2014 and 2013.
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
Accounting support services
|
|
$
|
43,011
|
|
|
$
|
58,556
|
|
Direct benefit to CFO
|
|
$
|
16,774
|
|
|
$
|
22,837
|
|
The Company had an outstanding
balance due to CMOW of $20,328 and $8,639 as of March 31, 2014 and December 31, 2013, respectively.
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
18.
|
RELATED PARTY TRANSACTIONS
(continued)
|
Ireland Inc.
–
The Company leases corporate office space under a sublease agreement with Ireland Inc. (“Ireland”). NMC is a shareholder
in both the Company and Ireland. Additionally, one of the Company’s directors is the CFO, Treasurer and a director of Ireland
and the Company’s CEO provides consulting services to Ireland. The lease agreement commenced September 1, 2013, is for a
2 year period and requires monthly lease payments of $2,819 for the first year and $1,667 for the second year. The lease agreement
did not require payment of a security deposit.
Total rent expense incurred
under this sublease agreement was $8,457 for the three month period ended March 31, 2014. No amounts were due to Ireland as of
March 31, 2014.