UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
| For the quarterly period ended June 30, 2014 |
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
| For the transition period from _______ to _______. |
Commission file number 000-30995
SEARCHLIGHT MINERALS CORP.
(Exact name of registrant as specified
in its charter)
Nevada
(State or other jurisdiction of incorporation or
organization) |
98-0232244
(I.R.S. Employer Identification No.) |
|
|
#100 - 2360 West Horizon Ridge
Pkwy.
Henderson, Nevada
(Address of principal executive offices) |
89052
(Zip code) |
(702) 939-5247
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes
x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
|
|
Non-accelerated filer ¨ |
Smaller reporting company x |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of August 13, 2014, the registrant had
135,768,318 outstanding shares of common stock.
SEARCHLIGHT MINERALS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 37,473 | | |
$ | 2,065,824 | |
Prepaid expenses | |
| 86,650 | | |
| 137,603 | |
Assets held for sale | |
| 245,000 | | |
| - | |
| |
| | | |
| | |
Total current assets | |
| 369,123 | | |
| 2,203,427 | |
| |
| | | |
| | |
Property and equipment, net | |
| 8,471,537 | | |
| 9,455,439 | |
Mineral properties | |
| 16,947,419 | | |
| 16,947,419 | |
Slag project | |
| 121,785,651 | | |
| 121,759,811 | |
Land - smelter site and slag pile | |
| 5,916,150 | | |
| 5,916,150 | |
Land | |
| 3,300,000 | | |
| 3,300,000 | |
Deferred financing fees | |
| 109,053 | | |
| 120,236 | |
Reclamation bond and deposits, net | |
| 13,891 | | |
| 14,241 | |
| |
| | | |
| | |
Total non-current assets | |
| 156,543,701 | | |
| 157,513,296 | |
| |
| | | |
| | |
Total assets | |
$ | 156,912,824 | | |
$ | 159,716,723 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 799,104 | | |
$ | 195,541 | |
Accounts payable - related party | |
| 158,703 | | |
| 46,535 | |
Derivative warrant liability | |
| 3,634 | | |
| 81,574 | |
VRIC payable, current portion - related party | |
| 349,985 | | |
| 290,156 | |
| |
| | | |
| | |
Total current liabilities | |
| 1,311,426 | | |
| 613,806 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
VRIC payable, net of current portion - related party | |
| 559,976 | | |
| 713,965 | |
Convertible notes, net of discount | |
| 2,906,181 | | |
| 2,798,506 | |
Derivative liability - convertible debt | |
| 629,854 | | |
| 755,709 | |
Deferred tax liability | |
| 36,016,674 | | |
| 37,322,971 | |
| |
| | | |
| | |
Total long-term liabilities | |
| 40,112,685 | | |
| 41,591,151 | |
| |
| | | |
| | |
Total liabilities | |
| 41,424,111 | | |
| 42,204,957 | |
| |
| | | |
| | |
Commitments and contingencies - Note 16 | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' equity | |
| | | |
| | |
| |
| | | |
| | |
Common stock, $0.001 par value; 400,000,000 shares authorized, 135,768,318 and 135,768,318 shares, respectively, issued and outstanding | |
| 135,768 | | |
| 135,768 | |
Additional paid-in capital | |
| 154,319,851 | | |
| 154,268,204 | |
Accumulated deficit | |
| (38,966,906 | ) | |
| (36,892,206 | ) |
| |
| | | |
| | |
Total stockholders' equity | |
| 115,488,713 | | |
| 117,511,766 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
$ | 156,912,824 | | |
$ | 159,716,723 | |
See Accompanying Notes to these Consolidated
Financial Statements
SEARCHLIGHT MINERALS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
| |
For the three months ended | | |
For the six months ended | |
| |
June 30, 2014 | | |
June 30, 2013 | | |
June 30, 2014 | | |
June 30, 2013 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Mineral exploration and evaluation expenses | |
| 495,072 | | |
| 672,262 | | |
| 1,085,766 | | |
| 1,240,790 | |
Mineral exploration and evaluation expenses - related party | |
| 76,184 | | |
| 50,078 | | |
| 155,560 | | |
| 109,442 | |
Administrative - Clarkdale site | |
| 29,796 | | |
| 68,996 | | |
| 49,832 | | |
| 110,349 | |
General and administrative | |
| 567,629 | | |
| 569,745 | | |
| 1,158,300 | | |
| 1,254,021 | |
General and administrative - related party | |
| 37,249 | | |
| 23,789 | | |
| 88,717 | | |
| 82,345 | |
Loss on assets held for sale | |
| 45,115 | | |
| - | | |
| 45,115 | | |
| - | |
Depreciation | |
| 379,169 | | |
| 342,288 | | |
| 757,993 | | |
| 684,396 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 1,630,214 | | |
| 1,727,158 | | |
| 3,341,283 | | |
| 3,481,343 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,630,214 | ) | |
| (1,727,158 | ) | |
| (3,341,283 | ) | |
| (3,481,343 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Rental revenue | |
| 8,290 | | |
| 6,480 | | |
| 15,670 | | |
| 12,615 | |
Change in fair value of derivative liabilities | |
| 5,298 | | |
| 60,843 | | |
| 203,795 | | |
| 274,706 | |
Interest expense | |
| (129,698 | ) | |
| (2,353 | ) | |
| (259,695 | ) | |
| (2,353 | ) |
Interest and dividend income | |
| 13 | | |
| 585 | | |
| 516 | | |
| 1,916 | |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expense) | |
| (116,097 | ) | |
| 65,555 | | |
| (39,714 | ) | |
| 286,884 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (1,746,311 | ) | |
| (1,661,603 | ) | |
| (3,380,997 | ) | |
| (3,194,459 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax benefit | |
| 582,910 | | |
| 547,979 | | |
| 1,306,297 | | |
| 1,144,606 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (1,163,401 | ) | |
$ | (1,113,624 | ) | |
$ | (2,074,700 | ) | |
$ | (2,049,853 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (1,163,401 | ) | |
$ | (1,113,624 | ) | |
$ | (2,074,700 | ) | |
$ | (2,049,853 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss per common share - basic and diluted | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding - | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Basic | |
| 135,768,318 | | |
| 135,768,318 | | |
| 135,768,318 | | |
| 135,768,318 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted | |
| 135,768,318 | | |
| 135,768,318 | | |
| 135,768,318 | | |
| 135,768,318 | |
See Accompanying Notes to these Consolidated
Financial Statements
SEARCHLIGHT MINERALS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
| |
For the six months ended | |
| |
June 30, 2014 | | |
June 30, 2013 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (2,074,700 | ) | |
$ | (2,049,853 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 757,993 | | |
| 684,396 | |
Stock based expenses | |
| 51,647 | | |
| 195,281 | |
Loss on assets held for sale | |
| 45,115 | | |
| - | |
Amortization of prepaid expense | |
| 211,480 | | |
| 175,862 | |
Amortization of debt financing fees and debt discount | |
| 118,858 | | |
| - | |
Deferred income taxes | |
| (1,306,297 | ) | |
| (1,144,606 | ) |
Change in fair value of derivative liabilities | |
| (203,795 | ) | |
| (274,706 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| (160,527 | ) | |
| (136,033 | ) |
Reclamation bond and deposits | |
| 350 | | |
| (3,664 | ) |
Accounts payable and accrued liabilities | |
| 715,731 | | |
| (235,649 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (1,844,145 | ) | |
| (2,788,972 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of property and equipment | |
| (64,206 | ) | |
| (101,950 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (64,206 | ) | |
| (101,950 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Payments on VRIC payable - related party | |
| (120,000 | ) | |
| (180,000 | ) |
| |
| | | |
| | |
Net cash used in financing activities | |
| (120,000 | ) | |
| (180,000 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| (2,028,351 | ) | |
| (3,070,922 | ) |
| |
| | | |
| | |
CASH AT BEGINNING OF PERIOD | |
| 2,065,824 | | |
| 3,931,591 | |
| |
| | | |
| | |
CASH AT END OF PERIOD | |
$ | 37,473 | | |
$ | 860,669 | |
| |
| | | |
| | |
SUPPLEMENTAL INFORMATION | |
| | | |
| | |
| |
| | | |
| | |
Interest paid, net of capitalized amounts | |
$ | 71,304 | | |
$ | 2,353 | |
See Accompanying Notes to these Consolidated
Financial Statements
SEARCHLIGHT MINERALS CORP.
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”) has been in the exploration stage 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. 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 accompanying
unaudited condensed consolidated financial statements were prepared on a going concern basis in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). The going concern basis of presentation assumes that
the Company will continue in operation for the next twelve months and will be able to realize its assets and discharge its liabilities
and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company’s
inability to continue as a going concern. The Company’s history of losses, working capital deficit, capital deficit, minimal
liquidity and other factors raise substantial doubt about the Company’s ability to continue as a going concern. In order
for the Company to continue operations beyond the next twelve months and be able to discharge its liabilities and commitments in
the normal course of business it must raise additional equity or debt capital and continue cost cutting measures. There can be
no assurance that the Company will be able to achieve sustainable profitable operations or obtain additional funds when needed
or that such funds, if available, will be obtainable on terms satisfactory to management.
If the Company continues to
incur operating losses and does not raise sufficient additional capital, material adverse events may occur including, but not limited
to, 1) a reduction in the nature and scope of the Company’s operations and 2) the Company’s inability to fully implement
its current business plan. There can be no assurance that the Company will successfully improve its liquidity position. The accompanying
unaudited condensed consolidated financial statements do not reflect any adjustments that might be required resulting from the
adverse outcome relating to this uncertainty.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES (continued) |
As of June 30, 2014, the Company
had cumulative net losses of $38,966,906 from operations and had not commenced its commercial mining and mineral processing operations;
rather it is still in the exploration stage. For the six month period ended June 30, 2014, the Company incurred a net loss of $2,074,700,
had negative cash flows from operating activities of $1,844,145 and will incur additional future losses due to planned continued
exploration expenses. In addition, the Company had a working capital deficit totaling $942,303 at June 30, 2014.
To address liquidity constraints,
the Company will seek additional sources of capital through the issuance of equity or debt financing. Additionally, the Company
has reduced expenses and elected to defer payment of certain obligations. Cash conservation measures include, but are not limited
to, the deferred payment of outsourced consulting fees where available, deferred payment of current and future board fees and reduction
of staffing levels. The Company reduced staffing levels from December 31, 2013 through June 2014, constituting annual savings of
approximately $313,000. The Company has deferred payment of officer salaries, monthly legal retainer fees, and the Verde River
Iron Company, LLC (“VRIC”) monthly payable. These activities have reduced the required cash outlay of the Company’s
business significantly. The Company is focused on continuing to reduce costs and obtaining additional funding. There is no assurance
that such funding will be available on terms acceptable to the Company, or at all. If the Company raises additional funds by selling
additional shares of capital stock, securities convertible into shares of capital stock or the issuance of convertible debt, the
ownership interest of the Company’s existing common stock holders will be diluted.
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 the Company’s 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 U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could
be significant. Significant areas requiring management’s estimates and assumptions include the valuation of stock-based
compensation and derivative liabilities, impairment analysis of long-lived assets, and realizability of deferred tax assets. Actual
results could differ from those estimates.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued) |
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.
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 production stage that would have a value beyond proven and probable reserves would be monitored
for impairment based on factors such as current market value of the mineral property and results of exploration, future asset
utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related
assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated
future net cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.
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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES (continued) |
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.
Reclamation and remediation
costs - For its exploration stage properties, the Company accrues the estimated costs associated with environmental remediation
obligations in the period in which the liability is incurred or becomes determinable. Until such time that a project life is established,
the Company records the corresponding cost as an exploration stage expense. The costs of future expenditures for environmental
remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule.
Future reclamation and environmental-related
expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties
associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology. The Company periodically reviews accrued liabilities for such
reclamation and remediation costs as evidence indicating that the liabilities have potentially changed becomes available. Changes
in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.
The Company is in the exploration
stage and is unable to determine the estimated timing of expenditures relating to reclamation accruals. It is reasonably possible
that the ultimate cost of reclamation and remediation could change in the future and that changes to these estimates could have
a material effect on future operating results as new information becomes known.
Fair value of financial instruments
- The Company’s financial instruments consist principally of derivative liabilities and the VRIC payable. Assets and liabilities
measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs
are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The hierarchy is prioritized into three levels defined as follows:
|
|
|
Level 1 |
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 |
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 |
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES (continued) |
The Company’s financial
instruments consist of the VRIC payable (described in Note 10) 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 7) is calculated using the Binomial Lattice model, and the fair value of the derivative liability
- convertible notes (described in Note 9) 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.
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 six month periods ended June 30, 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 June 30, 2014 and
2013, 36,845,320 and 26,300,390 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.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES (continued) |
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.
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 June 2014, the FASB issued
Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915) Elimination of Certain
Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. This
ASU does the following, among other things: a) eliminates the requirement to present inception-to-date information on the statements
of income, cash flows, and shareholders’ equity, b) eliminates the need to label the financial statements as those of a development
stage entity, c) eliminates the need to disclose a description of the development stage activities in which the entity is engaged,
and d) amends FASB ASC 275, Risks and Uncertainties, to clarify that information on risks and uncertainties for entities that have
not commenced planned principal operations is required. The amendments in ASU No. 2014-10 are effective for public companies
for annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has elected
early adoption of the new standard applied retrospectively. Adoption of the new guidance had no impact on the consolidated financial
position, results of operations or cash flows.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
Cost | | |
Accumulated Depreciation | | |
Net Book Value | | |
Cost | | |
Accumulated Depreciation | | |
Net Book Value | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Furniture and fixtures | |
$ | 38,255 | | |
$ | (37,018 | ) | |
$ | 1,237 | | |
$ | 38,255 | | |
$ | (35,759 | ) | |
$ | 2,496 | |
Lab equipment | |
| 249,061 | | |
| (244,224 | ) | |
| 4,837 | | |
| 249,061 | | |
| (240,258 | ) | |
| 8,803 | |
Computers and | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
equipment | |
| 91,002 | | |
| (72,229 | ) | |
| 18,773 | | |
| 91,002 | | |
| (67,775 | ) | |
| 23,227 | |
Income property | |
| - | | |
| - | | |
| - | | |
| 309,750 | | |
| (18,311 | ) | |
| 291,439 | |
Vehicles | |
| 47,675 | | |
| (45,108 | ) | |
| 2,567 | | |
| 47,675 | | |
| (44,758 | ) | |
| 2,917 | |
Slag conveyance | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
equipment | |
| 300,916 | | |
| (266,629 | ) | |
| 34,287 | | |
| 300,916 | | |
| (230,124 | ) | |
| 70,792 | |
Demo module building | |
| 6,630,063 | | |
| (3,532,357 | ) | |
| 3,097,706 | | |
| 6,630,063 | | |
| (3,200,854 | ) | |
| 3,429,209 | |
Grinding circuit | |
| 913,678 | | |
| (6,667 | ) | |
| 907,011 | | |
| 913,678 | | |
| (1,666 | ) | |
| 912,012 | |
Extraction circuit | |
| 938,352 | | |
| (181,557 | ) | |
| 756,795 | | |
| 898,909 | | |
| (89,891 | ) | |
| 809,018 | |
Leaching and filtration | |
| 1,300,618 | | |
| (910,433 | ) | |
| 390,185 | | |
| 1,300,618 | | |
| (780,371 | ) | |
| 520,247 | |
Fero-silicate storage | |
| 4,326 | | |
| (1,514 | ) | |
| 2,812 | | |
| 4,326 | | |
| (1,298 | ) | |
| 3,028 | |
Electrowinning building | |
| 1,492,853 | | |
| (522,499 | ) | |
| 970,354 | | |
| 1,492,853 | | |
| (447,856 | ) | |
| 1,044,997 | |
Site improvements | |
| 1,675,907 | | |
| (529,298 | ) | |
| 1,146,609 | | |
| 1,651,143 | | |
| (467,306 | ) | |
| 1,183,837 | |
Site equipment | |
| 360,454 | | |
| (324,104 | ) | |
| 36,350 | | |
| 360,454 | | |
| (309,051 | ) | |
| 51,403 | |
Construction in progress | |
| 1,102,014 | | |
| - | | |
| 1,102,014 | | |
| 1,102,014 | | |
| - | | |
| 1,102,014 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 15,145,174 | | |
$ | (6,673,637 | ) | |
$ | 8,471,537 | | |
$ | 15,390,717 | | |
$ | (5,935,278 | ) | |
$ | 9,455,439 | |
| | Depreciation expense was $379,169 and $342,288 for the three month periods ended June 30, 2014
and 2013, respectively and $757,993 and $684,396 for the six month periods ended June 30, 2014 and 2013, respectively. At June
30, 2014, construction in progress included the gold, copper, and zinc extraction circuits and electrowinning equipment at the
Clarkdale Slag Project. |
As of June 30, 2014, assets
held for sale consisted of a building and lot that the Company was in the process of selling. In the second quarter of 2014, the
Company was approached by a buyer who was interested in purchasing the property. Management determined that the sale was in the
best interest of the Company due to the generation of additional cash flow. Prior to its reclassification to “assets held
for sale” the property was classified as “Income property” and had a book value of $290,115. The selling price
of the property was $250,000 and costs to complete the sale were estimated at $5,000. An impairment loss of $45,115 was recorded
to operations during the three month period ended June 30, 2014.
Subsequent to June 30, 2014,
the sale was closed as further described in Note 20.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On February 15, 2007, the Company
completed a merger with Transylvania International, Inc. (“TI”) which provided the Company with 100% ownership of the
Clarkdale Slag Project in Clarkdale, Arizona, through its wholly owned subsidiary CML. This acquisition superseded the joint venture
option agreement to acquire a 50% ownership interest as a joint venture partner pursuant to Nanominerals Corp. (“NMC”)
interest in a joint venture agreement (“JV Agreement”) dated May 20, 2005 between NMC and VRIC. One of the Company’s
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 4 to the financial statements): $5,916,150 of the purchase price
was allocated to the slag pile site, $3,300,000 to the remaining land acquired, and $309,750 to income property and improvements.
The remaining $120,766,877 of the purchase price was allocated to the Clarkdale Slag Project, which has been capitalized as a tangible
asset in accordance with ASC 805-20-55-37, Use Rights. Upon commencement of commercial production, the asset will be amortized
using the unit-of-production method over the life of the Clarkdale Slag Project.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 4. | 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 16.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 4. | 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, 2014 and December 31, 2013, the cumulative interest cost capitalized and included in the
Slag Project was $1,018,774 and $992,934, respectively.
The following table sets forth
the change in the Slag Project for the six month period ended June 30, 2014 and the year ended December 31, 2013:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Slag Pile, beginning balance | |
$ | 121,759,811 | | |
$ | 121,667,730 | |
Capitalized interest costs | |
| 25,840 | | |
| 92,081 | |
Slag Pile, ending balance | |
$ | 121,785,651 | | |
$ | 121,759,811 | |
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 5. | MINERAL PROPERTIES - MINING CLAIMS |
As of June 30, 2014, the Company
holds mining claims consisting 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, 2014 and December 31, 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 June 30, 2014 and December 31, 2013, respectively.
| 6. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued
liabilities at June 30, 2014 and December 31, 2013 consisted of the following:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Trade accounts payable | |
$ | 529,524 | | |
$ | 70,272 | |
Accrued compensation and related taxes | |
| 190,247 | | |
| 45,469 | |
Accrued interest | |
| 79,333 | | |
| 79,800 | |
| |
$ | 799,104 | | |
$ | 195,541 | |
Accounts payable – related party are discussed
in Note 19.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 7. | 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 June 30, 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 Capital Partners,
L.P. and its affiliates (“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 six month period ended June 30, 2014.
The total warrants accounted
for as a derivative liability were 7,158,548 and 7,158,548 as of June 30, 2014 and December 31, 2013, respectively.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 7. | DERIVATIVE WARRANT
LIABILITY (continued) |
The following table sets forth
the changes in the fair value of the derivative liability for the six month period ended June 30, 2014 and the year ended December
31, 2013:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Beginning balance | |
$ | (81,574 | ) | |
$ | (274,706 | ) |
Adjustment to warrants | |
| - | | |
| - | |
Change in fair value | |
| 77,940 | | |
| 193,132 | |
Ending balance | |
$ | (3,634 | ) | |
$ | (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 six
month period ended June 30, 2014 and the year ended December 31, 2013:
| |
| June
30, 2014 | | |
| December
31, 2013 | |
| |
| | | |
| | |
Dividend yield | |
| - | | |
| - | |
Expected volatility | |
| 84.11%
- 118.69% | | |
| 90.98%
- 121.32% | |
Risk-free interest rate | |
| 0.07%
- 0.10% | | |
| 0.01%
- 0.13% | |
Expected life (years) | |
| 0.40
- 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.
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 June 30, 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 9.
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 June 30, 2014 and December 31, 2013:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Convertible notes at face value | |
$ | 4,000,000 | | |
$ | 4,000,000 | |
Unamortized discount | |
| (1,093,819 | ) | |
| (1,201,494 | ) |
| |
| | | |
| | |
Convertible notes, net of discount | |
$ | 2,906,181 | | |
$ | 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 and six month periods ended June 30, 2014: |
| |
Three Months Ended June 30, 2014 | | |
Six Months Ended June 30, 2014 | |
| |
| | |
| |
Interest rate at 7% | |
$ | 69,533 | | |
$ | 139,533 | |
Amortization of debt discount | |
| 54,166 | | |
| 107,676 | |
Amortization of deferred financing fees | |
| 5,625 | | |
| 11,182 | |
| |
| | | |
| | |
Total interest expense on convertible notes | |
$ | 129,324 | | |
$ | 258,391 | |
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 9. | DERIVATIVE LIABILITY
– CONVERTIBLE NOTES |
As further discussed in Note
8, 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 six month period ended
June 30, 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:
| |
| June
30, 2014 | | |
| December
31, 2013 | |
| |
| | | |
| | |
Expected volatility | |
| 96.46%
- 107.84% | | |
| 93.11%
- 101.74% | |
Risk-free interest rate | |
| 1.25
% - 1.73% | | |
| 1.39%
- 1.75% | |
Expected life (years) | |
| 2.50
- 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 six month period ended June 30, 2014 and the year ended December
31, 2013:
| |
June 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Beginning balance | |
$ | 755,709 | | |
$ | - | |
Issuance of convertible debt | |
| - | | |
| 1,261,285 | |
Change in fair value | |
| (125,855 | ) | |
| (505,576 | ) |
Ending balance | |
$ | 629,854 | | |
$ | 755,709 | |
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 10. | 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 $6,225 and $23,701 for the three month periods ended June 30, 2014 and 2013, respectively, and
$25,840 and $48,710 for the six month periods ended June 30, 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 twelve month periods ending June 30,
2015 | |
$ | 420,000 | |
2016 | |
| 360,000 | |
2017 | |
| 240,000 | |
Thereafter | |
| - | |
| |
| | |
Total minimum payments | |
| 1,020,000 | |
Less: amount representing interest | |
| (110,039 | ) |
| |
| | |
Present value of minimum payments | |
| 909,961 | |
VRIC payable, current portion | |
| 349,985 | |
| |
| | |
VRIC payable, net of current portion | |
$ | 559,976 | |
The acquisition
agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions
of these payments are discussed in more detail in Notes 4 and 16.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
During the six month periods
ended June 30, 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 six month period ended June 30, 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, June 30, 2014
| |
| 14,200,935 | | |
$ | 1.74 | | |
| 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, of which, 8,750,000 remain outstanding as of June 30, 2014. The exercise price of these warrants is $0.375 per share
with an expiration date of June 1, 2015.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 12. | 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, 2014, the Company had 10,444,576 of its common
shares available for issuance for stock option awards under the Company’s stock option plans.
At June 30, 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 June 30, 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 June 30, 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 June 30, 2014, the Company
had granted 1,380,877 options under the 2009 Directors Plan with a weighted average exercise
price of $0.89 per share. As of June 30, 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 June 30, 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 June 30, 2014, 823,508 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, 2014.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 12. | 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, 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 six month periods
ended June 30, 2014 and 2013:
| |
June 30, 2014 | | |
June 30, 2013 | |
| |
| | |
| |
Risk-free interest rate | |
| 0.39%
- 1.73% | | |
| 0.77%-1.41% | |
Dividend yield | |
| - | | |
| - | |
Expected volatility | |
| 98.65%
- 105.87% | | |
| 90.39%-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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 12. | STOCK-BASED
COMPENSATION (continued) |
Stock-based compensation
activity - During the six month period ended June 30, 2014, the Company granted stock-based awards as follows:
| a) | On June 30, 2014, the Company granted
stock options under the 2009 Directors Plan for the purchase of 54,000 shares of common
stock at $0.24 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,
2019. 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, 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. |
| c) | 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 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. |
Expenses related to the vesting,
modifying and granting of stock-based compensation awards were $18,622 and $73,605 for the three month periods ended June 30,
2014 and 2013, respectively, and $51,647 and $195,281 for the six month periods ended June 30, 2014 and 2013, respectively. Such
expenses have been included in general and administrative and mineral exploration and evaluation expense.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 12. | STOCK-BASED
COMPENSATION (continued) |
| | The following table summarizes the Company’s
stock-based compensation activity for the six month period ended June 30, 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 | |
| 108,000 | | |
| 0.09 | | |
| 0.25 | | |
| 4.88 | | |
| | |
Options/warrants expired | |
| (13,946 | ) | |
| 1.13 | | |
| 2.58 | | |
| - | | |
| | |
Options/warrants forfeited | |
| - | | |
| - | | |
| - | | |
| - | | |
| | |
Options/warrants exercised | |
| - | | |
| - | | |
| - | | |
| - | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Outstanding, June 30, 2014 | |
| 3,894,385 | | |
$ | 0.55 | | |
$ | 0.98 | | |
| 3.42 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercisable, June 30, 2014 | |
| 3,494,385 | | |
$ | 0.51 | | |
$ | 0.97 | | |
| 3.04 | | |
$ | - | |
| | Aggregate intrinsic
value represents the value of the Company’s closing stock price on the last trading
day of the quarter ended June 30, 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 six month
period ended June 30, 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, June 30, 2014 | |
| 400,000 | | |
$ | 0.88 | |
For the three month periods
ended June 30, 2014 and 2013, the total grant date fair value of shares vested was zero and $208,441, respectively. For the six
month periods ended June 30, 2014 and 2013, the total grant date fair value of shares vested was $74,731 and $278,585, respectively.
As of June 30, 2014, there was $28,993 of total unrecognized compensation cost related to unvested stock-based compensation awards.
The weighted average period over which this cost will be recognized was 0.69 years as of June 30, 2014. Included in the total
of unvested stock options at June 30, 2014, was 250,000 performance-based stock options. At June 30, 2014, management determined
that achievement of the performance targets was probable. The weighted average period over which the related expense will be recognized
was 0.50 years as of June 30, 2014.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 13. | 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).
| 14. | 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. Subsequent to June 30, 2014, this building was sold as further
discussed in Note 20. |
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 (“Town of Clarkdale”). The Company provides approximately 60 acres of land to the Town
of 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 the Town of 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.
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 June 30, 2014 and December 31, 2013 were as follows:
| |
June 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Deferred income tax assets: | |
| | | |
| | |
| |
| | | |
| | |
Net operating loss carryforward | |
$ | 17,885,849 | | |
$ | 16,822,317 | |
Option compensation | |
| 717,582 | | |
| 763,779 | |
Asset held for sale | |
| 17,144 | | |
| - | |
Property, plant & equipment | |
| 1,142,379 | | |
| 1,021,685 | |
| |
| | | |
| | |
Gross deferred income tax assets | |
| 19,762,954 | | |
| 18,607,781 | |
Less: valuation allowance | |
| (582,163 | ) | |
| (733,287 | ) |
| |
| | | |
| | |
Net deferred income tax assets | |
| 19,180,791 | | |
| 17,874,494 | |
| |
| | | |
| | |
Deferred income tax liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Acquisition related liabilities | |
| (55,197,465 | ) | |
| (55,197,465 | ) |
| |
| | | |
| | |
Net deferred income tax liability | |
$ | (36,016,674 | ) | |
$ | (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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 15. | INCOME TAXES (continued) |
A reconciliation of the deferred
income tax benefit for the three month periods ended June 30, 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:
| |
June 30, 2014 | | |
June 30, 2013 | |
| |
| | |
| |
Deferred tax benefit at statutory rates | |
$ | 611,209 | | |
$ | 581,561 | |
State deferred tax benefit, net of federal benefit | |
| 52,389 | | |
| 49,848 | |
Increase (decrease) in deferred tax benefit from: | |
| | | |
| | |
Change in valuation allowance | |
| 50,938 | | |
| (67,046 | ) |
Change in state NOL’s | |
| (47,874 | ) | |
| (34,841 | ) |
Gain on the change in fair value of derivative liabilities | |
| 2,013 | | |
| 23,120 | |
Other permanent differences | |
| (85,765 | ) | |
| (4,663 | ) |
| |
| | | |
| | |
Deferred income tax benefit | |
$ | 582,910 | | |
$ | 547,979 | |
A reconciliation of the deferred
income tax benefit for the six month periods ended June 30, 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:
| |
June 30, 2014 | | |
June 30, 2013 | |
| |
| | |
| |
Deferred tax benefit at statutory rates | |
$ | 1,183,349 | | |
$ | 1,118,061 | |
State deferred tax benefit, net of federal benefit | |
| 101,430 | | |
| 95,834 | |
Increase (decrease) in deferred tax benefit from: | |
| | | |
| | |
Change in valuation allowance | |
| 151,124 | | |
| (94,725 | ) |
Change in state NOL’s | |
| (95,748 | ) | |
| (69,681 | ) |
Gain (loss) on the change in fair value of derivative warrant liability | |
| 77,442 | | |
| 104,388 | |
Other permanent differences | |
| (111,300 | ) | |
| (9,271 | ) |
| |
| | | |
| | |
Deferred income tax benefit | |
$ | 1,306,297 | | |
$ | 1,144,606 | |
The Company had cumulative
net operating losses of $48,305,502 as of June 30, 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 $24,605,162 as of June 30, 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 16. | COMMITMENTS
AND CONTINGENCIES |
Lease obligations –
The Company leases corporate office space under a sublease agreement from a related party as further discussed in Note 19. 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 twelve month periods ending June 30,
2015 | |
$ | 22,308 | |
2016 | |
| 3,334 | |
Thereafter | |
| - | |
| |
| | |
| |
$ | 25,642 | |
Total rent expense was $8,457
and $8,940 for the three month periods ended June 30, 2014 and 2013, respectively. Total rent expense was $16,914 and $17,880
for the six month periods ended June 30, 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 June 30, 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 16. | 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, 2014 and 2013, respectively, and $90,000 and $90,000
for the six month periods ended June 30, 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 of
Clarkdale obtains a connection dedication from separate property owners who have land that will be utilized in
construction of the Road, or (iii) the date on which the Town of Clarkdale receives the proper effluent permit. The
contingencies outlined in (ii) and (iii) above are beyond control of the Company.
The Company estimates the initial
cost of construction of the Road to be approximately $3,500,000 and the cost of additional enhancements to be approximately $1,200,000
which will be required to be funded by the Company. Based on the uncertainty of the contingencies, this cost is not included in
the Company’s current operating plans. Funding for construction of the Road will require obtaining project financing or other
significant financing. As of the date of this filing, these contingencies had not changed.
Registration Rights Agreement
- In connection with the June 7, 2012 private placement, the Company entered into a Registration Rights Agreement (“RRA”)
with the purchasers. Pursuant to the RRA, the Company agreed to certain demand registration rights. These rights include the requirement
that the Company file certain registration statements within a specified time period and to have these registration statements
declared effective within a specified time period. The Company also agreed to file and keep continuously effective such additional
registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume
restrictions. If the Company is not able to comply with these registration requirements, the Company will be required to pay cash
penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in which a registration default,
as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the
date of this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 16. | 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.
| 17. | 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, 2014, the Company did not have any deposits in excess
of FDIC insured limits.
| 18. | CONCENTRATION
OF ACTIVITY |
The Company currently utilizes
a mining and environmental firm to perform significant portions of its mineral property and metallurgical exploration work programs.
A change in the lead mining and environmental firm could cause a delay in the progress of the Company’s exploration programs
and would cause the Company to incur significant transition expense and may affect operating results adversely.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
19. RELATED PARTY TRANSACTIONS
NMC - The Company utilizes
the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides the Company with
use of its laboratory, instrumentation, milling equipment and research facilities. One of the Company’s executive officers,
Mr. Ager, is affiliated with NMC. 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 16.
The following table provides
details of transactions between the Company and NMC for the three and six month periods ended June 30, 2014 and 2013.
| |
Three Months Ended June 30, 2014 | | |
Three Months Ended June 30, 2013 | | |
Six Months Ended June 30, 2014 | | |
Six Months Ended June 30, 2013 | |
| |
| | |
| | |
| | |
| |
Reimbursement of expenses | |
$ | 784 | | |
$ | 578 | | |
$ | 2,600 | | |
$ | 2,092 | |
Consulting services provided | |
| 30,400 | | |
| 4,500 | | |
| 62,960 | | |
| 17,350 | |
Advance royalty payments | |
| 45,000 | | |
| 45,000 | | |
| 90,000 | | |
| 90,000 | |
| |
| | | |
| | | |
| | | |
| | |
Mineral and exploration expense – related party | |
$ | 76,184 | | |
$ | 50,078 | | |
$ | 155,560 | | |
$ | 109,442 | |
The Company had outstanding
balances due to NMC of $103,945 and $37,896 at June 30, 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 and six month periods
ended June 30, 2014 and 2013.
| |
Three Months Ended June 30, 2014 | | |
Three Months Ended June 30, 2013 | | |
Six Months Ended June 30, 2014 | | |
Six Months Ended June 30, 2013 | |
| |
| | |
| | |
| | |
| |
Accounting support services | |
$ | 28,792 | | |
$ | 23,789 | | |
$ | 71,803 | | |
$ | 82,345 | |
Direct benefit to CFO | |
$ | 11,229 | | |
$ | 9,278 | | |
$ | 28,003 | | |
$ | 32,115 | |
The Company had an outstanding
balance due to CMOW of $49,120 and $8,639 as of June 30, 2014 and December 31, 2013, respectively.
SEARCHLIGHT MINERALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 19. | 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
two 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 and $16,914 for the three and six month periods ended June 30, 2014, respectively. The
Company had an outstanding balance due to Ireland of $5,638 as of June 30, 2014.
On July 10, 2014, the Company
completed the sale of a building and lot in Clarkdale, Arizona for gross proceeds of $250,000. The proceeds will be used for general
operating purposes.
| 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, 2013.
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, 2014 and changes in our financial condition from our year ended December 31, 2013. 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, 2013.
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
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. |
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 200 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.
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 are prone 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.
| 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 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.
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.
Recently, we have been performing tests whereby the
slag material is pretreated prior to processing it in the autoclave. Recent test work indicates that pretreatment, by melting the
slag at high temperature, aids in the recovery of the gold from solution derived from the autoclave. We believe that the
high temperature process aids in breaking down the refractory coating on the gold particles that are subsequently put into solution
after the autoclaving of the slag material and also separates out the iron that makes up approximately one third of the untreated
slag material.
The heat treated slag material, after the removal
of the iron is, for ease of reference, hereinafter referred to as glass. This processed glass material contains the gold
and, because of the heat treatment process, is now easily and readily assayed by standard fire assay techniques. It is anticipated
that incorporating this additional step into our flow chart renders process optimization testing much easier and will allow
this phase of the development program to be concluded more quickly.
Technical achievements
considered to be a major breakthrough
In the past few months the
precise nature of the gold contained in the Clarkdale slag has been determined. Test work done with high resolution microscopes
– a Scanning Electron Microscope (“SEM”) and a Transmission Electron Microscope (“TEM”) – have
photographed and measured the gold contained within sulfides and further encapsulated by a highly refractory silicate very resistant
to thermal and chemical attack. This explains the difficulty in fire assaying the gold or using ambient temperature strong reagent
leaching. Further, the gold is present as colloids (very small particles) less than 100 nm in size which is 1,000 times less than
the width of a human hair. [This microscopic size is in the range of most of the gold contained within the Carlin Trend in Nevada
– one of North America’s richest gold deposits that went undetected for decades due to the small “invisible”
gold particles. The Carlin Trend material was also very difficult to assay and process until the true nature and deportment of
the gold was determined.] The temperature required to break the silicate coating of the Clarkdale slag material exceeds standard
fire assay temperature which is why the gold is not captured in the lead collector used in a standard fire assay. Specialized grinding
using High Pressure Grinding Rolls (“HPGR”) and high temperature leaching used in the current proposed process flow
diagram aid in breaking this coating, oxidizing the sulfide, and converting the gold from a colloid to a charged ionic form in
solution.
Testing using this process
thus far has verified the prior test results achieved and reported by us of gold grades between 0.4 to 0.6 ounces per ton (average).
The processed material being derived from the heat treated slag is also much easier to be analyzed using standard analytical techniques.
Small autoclave tests conducted on the glass from the heat treatment have produced up to an 85% extraction of gold into the pregnant
leach solution (“PLS”) solution.
The PLS solutions have been
treated with ion exchange resin to remove the gold from solution. Fire assays of the gold impregnated resin indicate up to a 60%
extraction of the gold from the PLS into gold fire assay beads (gold in hand). While not yet optimized, this is a significant
improvement over previous attempts to capture the gold as metal by ion exchange resin.
All of these tests thus far
have been limited to a small 6 liter test autoclave. To provide more definitive process results, we have purchased and installed
a much larger heat treating unit, to produce sufficient treated slag to allow running the larger 900 liter pilot autoclave. This
will provide a sufficient volume of PLS for a final determination of recoverable gold by ion exchange resin, as well as, allowing
the testing of other methods of gold removal from solution to determine the method allowing optimal recovery of gold from solution.
Other
positive developments
In addition to the breakthrough
discussed above, as a byproduct of this new process, the high temperatures produce a high quality iron product grading 75 to 85%
iron content in a pelletized form. The high quality of the iron and its pellet size form make it a readily marketable product for
sale to the China, Korea, or India markets. We believe that further optimization testing will result in greater than 90% iron as
achievable and will secure a premium price selling either into the scrap iron or pig iron market. Test work is continuing in an
effort to maximize iron content while maintaining gold recovery.
The existing railroad spur
on the Clarkdale Project Site connects to a major railroad for low cost transportation to a seaport or domestic market. It is believed
that this pre-treatment process may pay for itself or provide a net cash flow from the sale of the iron. To examine the efficacy
of this concept, we have engaged Samuel Engineering of Denver, Colorado to perform a preliminary assessment and marketing study.
This study has been concluded and suggests that a marketable higher grade iron product could be made and sold as a byproduct to
generate net cash flow or reduce the overall costs of producing gold. Toward this end we have commenced contacting commercial iron
producers for expressions of interest.
This pilot scale test work
should provide sufficient process definition for a project feasibility study to be completed, allowing management to seek the financing
to move forward to commercialization of the Clarkdale Project.
We believe this latest breakthrough
has moved the project much closer to commercialization as well as potentially providing extra unanticipated revenue through the
sale of iron. The gold results set forth in this report have not yet been optimized, however, since we have been able to remove
the iron as a saleable byproduct through the additional step discussed, even at the current results, if repeatable, the project
would be commercial. We are looking forward to final definition of the process flow diagram and moving ahead to the bankable study
to allow the project to move to a commercial status.
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 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.
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 operating
expenses.
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 production stage that would have a value beyond proven and probable reserves would be monitored for impairment based
on factors such as current market value of the mineral property and results of exploration, future asset utilization, business
climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net
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.
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.
Convertible notes – derivative
liabilities – We evaluate 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 issuance date 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.
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, 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, |
|
|
|
2014 |
|
|
2013 |
|
|
Percent
Increase/
(Decrease) |
|
|
2014 |
|
|
2013 |
|
|
Percent
Increase/
(Decrease) |
|
Revenue |
|
$ |
- |
|
|
$ |
- |
|
|
|
n/a |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
n/a |
|
Operating expenses |
|
|
(1,630,214 |
) |
|
|
(1,727,158 |
) |
|
|
(5.6 |
)% |
|
|
(3,341,283 |
) |
|
|
(3,481,343 |
) |
|
|
(4.0 |
)% |
Other income (expense) |
|
|
(116,097 |
) |
|
|
65,555 |
|
|
|
(277.1 |
)% |
|
|
(39,714 |
) |
|
|
286,884 |
|
|
|
(113.8 |
)% |
Income tax benefit |
|
|
582,910 |
|
|
|
547,979 |
|
|
|
6.4 |
% |
|
|
1,306,297 |
|
|
|
1,144,606 |
|
|
|
14.1 |
% |
Net (loss) income |
|
$ |
(1,163,401 |
) |
|
$ |
(1,113,624 |
) |
|
|
4.5 |
% |
|
$ |
(2,074,700 |
) |
|
$ |
(2,049,853 |
) |
|
|
1.2 |
% |
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, 2014. 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, | |
| |
2014 | | |
2013 | | |
Percent Increase/ (Decrease) | | |
2014 | | |
2013 | | |
Percent Increase/ (Decrease) | |
Mineral exploration and
evaluation expenses | |
$ | 495,072 | | |
$ | 672,262 | | |
| (26.4 | )% | |
$ | 1,085,766 | | |
$ | 1,240,790 | | |
| (12.5 | )% |
Mineral exploration and
evaluation expenses –
related party | |
| 76,184 | | |
| 50,078 | | |
| 52.1 | % | |
| 155,560 | | |
| 109,442 | | |
| 42.1 | % |
Administrative – Clarkdale site | |
| 29,796 | | |
| 68,996 | | |
| (56.8 | )% | |
| 49,832 | | |
| 110,349 | | |
| (54.8 | )% |
General and administrative | |
| 567,629 | | |
| 569,745 | | |
| (0.4 | )% | |
| 1,158,300 | | |
| 1,254,021 | | |
| (7.6 | )% |
General and administrative – related party | |
| 37,249 | | |
| 23,789 | | |
| 56.6 | % | |
| 88,717 | | |
| 82,345 | | |
| 7.7 | % |
Loss on equipment disposition | |
| 45,115 | | |
| - | | |
| 100.0 | % | |
| 45,115 | | |
| - | | |
| 100.0 | % |
Depreciation | |
| 379,169 | | |
| 342,288 | | |
| 10.8 | % | |
| 757,993 | | |
| 684,396 | | |
| 10.8 | % |
Total operating expenses | |
$ | 1,630,214 | | |
$ | 1,727,158 | | |
| (5.6 | )% | |
$ | 3,341,283 | | |
$ | 3,481,343 | | |
| (4.0 | )% |
Six month period ended June 30, 2014
and 2013. Operating expenses decreased by 4.0% to $3,341,283 during the six month period ended June 30, 2014 from $3,481,343
during the six month period ended June 30, 2013. Operating expenses decreased primarily as a result of lower mineral exploration
and evaluation expenses and lower administrative expenses at the Clarkdale site.
Mineral exploration and evaluation expenses
decreased to $1,085,766 during the six month period ended June 30, 2014 from $1,240,790 during the six month period ended June
30, 2013. Mineral exploration and evaluation expenses decreased as a result reducing our staff at the Clarkdale site. Additionally,
in 2013 additional consulting expenses were incurred related to completion of nine autoclave tests conducted in the pilot autoclave.
Mineral exploration and evaluation expenses
– related party increased to $155,560 during the six month period ended June 30, 2014 from $109,442 for the six month period
ended June 30, 2013. These expenses relate to services provided to us by Nanominerals Corp. (“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 performed by NMC.
Administrative – Clarkdale site expenses
decreased to $49,832 during the six month period ended June 30, 2014 from $110,349 for the six month period ended June 30, 2013.
Administrative costs at the Clarkdale site decreased due to a reduction of certain consulting fees and to our reduction of staff
at the Clarkdale site in March 2014 resulting in less administrative costs.
General and administrative expenses decreased
to $1,158,300 during the six month period ended June 30, 2014 from $1,254,021 during the six month period ended June 30, 2013.
General and administrative expenses decreased primarily due to less stock based compensation expense incurred.
General and administrative – related
party amounted to $88,717 and $82,345 for the six month periods ended June 30, 2014 and 2013, respectively. These expenses include
accounting support services and rent expense. The accounting support services are performed by Cupit, Milligan, Ogden & Williams,
CPAs, an affiliate of Melvin L. Williams, our Chief Financial Officer. Rent payments are made to Ireland Inc. for corporate office
space. NMC is a shareholder in both Searchlight and Ireland. Additionally, one of our directors is the CFO, Treasurer and a director
of Ireland and our CEO provides consulting services to Ireland.
Accounting expenses – related party
decreased to $71,803 during the six month period ended June 30, 2014 from $82,345 for the six month period ended June 30, 2013.
These fees 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 $28,003 and $32,115 of the above fees
for the six month periods ended June 30, 2014 and 2013, respectively. The decrease in fees is attributed normal workflow fluctuation.
Rent expense– related party was $16,914
during the six month period ended June 30, 2014. No such amounts were incurred in the corresponding period in 2013 as the lease
agreement began in September 2013.
Loss on assets held for sale amounted to
$45,115 for the six month period ended June 30, 2014. The loss was the result of writing down the assets from their book value
of $290,115 to the estimated net selling price of $245,000. There were no dispositions or assets held for sale during the six month
period ended June 30, 2013.
Depreciation expense increased to $757,993
during the six month period ended June 30, 2014 from $684,396 during the six month period ended June 30, 2013. The increase is
due to placing the autoclave into service during the third quarter of 2013.
Three month period ended June 30,
2014 and 2013. Operating expenses decreased to $1,630,214 during the three month period ended June 30, 2014 from $1,727,158
during the three month period ended June 30, 2013. Operating expense decreased primarily as a result of less mineral exploration
and evaluation expenses and administrative expenses at the Clarkdale site incurred in the three month period ended June 30, 2014.
Mineral exploration and evaluation expenses
decreased to $495,072 during the three month period ended June 30, 2014 from $672,262 during the three month period ended June
30, 2013. The decrease is due to a large reduction is our staff at the Clarkdale site resulting in less salary and related costs.
Additionally, we incurred more consulting expenses in 2013 as a result of preliminary autoclave testing prior to its being placed
into service.
Mineral exploration and evaluation expenses
– related party increased to $76,184 during the three month period ended June 30, 2014 from $50,078 during the three month
period ended June 30, 2013. 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, 2014.
Administrative – Clarkdale site expenses
decreased to $29,796 during the three month period ended June 30, 2014 from $68,996 for the three month period ended June 30, 2013.
Administrative costs at the Clarkdale site decreased due to a reduction of certain consulting fees and to our reduction of staff
at the Clarkdale site in March 2014 resulting in less administrative costs.
General and administrative expenses decreased
to $567,629 during the three month period ended June 30, 2014 from $569,745 during the three month period ended June 30, 2013.
General and administrative – related
party amounted to $37,249 and $23,789 for the three month periods ended June 30, 2014 and 2013, respectively. These expenses include
accounting support services and rent expense as further discussed below.
Accounting expenses – related party
increased to $28,792 during the three month period ended June 30, 2014 from $23,789 for the three month period ended June 30, 2013.
These fees 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 $11,229 and $9,278 of the above fees
for the three month periods ended June 30, 2014 and 2013, respectively. The increase in fees is attributed to normal workflow fluctuations.
Rent expense– related party was $8,457
during the three month period ended June 30, 2014. No such amounts were incurred in the corresponding period in 2013 as the lease
agreement began in September 2013.
Loss on assets held for sale amounted to
$45,115 for the three month period ended June 30, 2014. The loss was the result of writing down the assets from their book value
of $290,115 to the estimated net selling price of $245,000. There were no dispositions or assets held for sale during the three
month period ended June 30, 2013.
Depreciation expense increased to $379,169
during the three month period ended June 30, 2014 from $342,288 during the three month period ended June 30, 2013. The increase
is due to placing the autoclave into service during the third quarter of 2013.
Other Income and Expenses
Six month period ended June 30, 2014
and 2013. Total other income (expense) amounted to $(39,714) during the six month period ended June 30, 2014 from $286,884
during the six month period ended June 30, 2013. The change was primarily due to additional interest expense incurred related to
our convertible debt issued in the third quarter of 2013 and to the change in the fair values of our derivative liabilities which
are impacted by changes in our stock price, the volatility of our stock price and changes in the risk free interest rate.
Three month period ended June 30,
2014 and 2013. Total other income (expense) amounted to $(116,097) during the three month period ended June 30, 2014 from
$65,555 during the three month period ended June 30, 2013. The change was primarily due to additional interest expense incurred
related to our convertible debt issued in the third quarter of 2013.
Income Tax Benefit
Six month period ended June 30, 2014
and 2013. Our income tax benefit increased to $1,306,297 for the six month period ended June 30, 2014 from $1,144,606 during
the six month period ended June 30, 2013. The increase in income tax benefit primarily resulted from increased operating losses
before taxes as discussed above and to reducing our valuation allowance on deferred tax assets arising from state net operating
loss carryforwards that have expired.
Three month period ended June 30,
2014 and 2013. Income tax benefit increased to $582,910 for the three month period ended June 30, 2014 from $547,979 during
the three month period ended June 30, 2013. The increase in income tax benefit primarily resulted from increased operating losses
before taxes due to factors discussed.
Net Loss
Six month period ended June 30, 2014
and 2013. The aforementioned factors resulted in a net loss of $2,074,700, or $0.02 per common share, for the six month
period ended June 30, 2014, as compared to a net loss of $2,049,853, or $0.02 per common share, for the six month period ended
June 30, 2013.
Three month period ended June 30,
2014 and 2013. The aforementioned factors resulted in a net loss of $1,163,401, or $0.01 per common share, for the three
month period ended June 30, 2014, as compared to a net loss of $1,113,624, or $0.01 per common share, for the three month period
ended June 30, 2013.
As of June 30, 2014, we had cumulative
net operating loss carryforwards of approximately $48,305,502 for federal income taxes. The federal net operating loss carryforwards
expire between 2025 and 2034.
We had cumulative state net operating losses
of approximately $24,605,162 as of June 30, 2014 for state income tax purposes. The state net operating loss carryforwards expire
between 2014 and 2034.
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
first six months of 2014. During the year ended December 31, 2013, we completed the following issuance of convertible notes:
On September 18, 2013, we completed a private
placement (the “Offering”) of secured convertible notes (the “Notes”) to certain investors (collectively,
the “Purchasers”), resulting in aggregate gross proceeds to us of $4,000,000.We intend to use the proceeds from the
Offering for general working capital purposes. We did not pay any commissions or brokers fees in connection with the Offering.
In connection with the Offering, we entered
into certain agreements, including a Secured Convertible Note Purchase Agreement (the “Purchase Agreement”), a Registration
Rights Agreement (the “Registration Rights Agreement”) and a Pledge and Security Agreement (the “Security Agreement”),
each dated September 18, 2013, with the Purchasers (the Purchase Agreement, Registration Rights Agreement and Security Agreement,
together with all exhibits, schedules and other documents attached thereto, are collectively referred to herein as the “Transaction
Documents”). Our two wholly-owned subsidiaries, Clarkdale Metals Corp. and Clarkdale Minerals, LLC, agreed to guarantee the
obligations underlying the Notes. We and our subsidiaries granted a first priority lien in all of our assets pursuant to the terms
of the Security Agreement. The Bank of Utah has agreed to act as the collateral agent under the Security Agreement.
Luxor Capital Group, LP and certain of its
associates and affiliates (collectively, “Luxor”) purchased $2,600,000 of the Notes in the Offering. Luxor and certain
other funds managed by Luxor are principal stockholders of the Company. Michael Conboy, one of our directors, currently serves
as Luxor’s Director of Research. In addition, Martin Oring, one of our directors, and our Chief Executive Officer and President,
and certain affiliates and relatives of Mr. Oring, purchased $310,000 of Notes. The Notes were issued in reliance on exemptions
from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule
506 of Regulation D thereunder.
The Notes contain the following terms and
conditions: The Notes are due five (5) years from the date of issuance. However, the Note holders have a put option with respect
to the Notes, on the second anniversary of the issuance date and every six (6) months thereafter, at par plus accrued and unpaid
interest. The Notes may not be prepaid without the consent of the holders of the majority-in-interest of the Notes. The Notes have
customary provisions relating to events of default.
Interest on the Notes accrues at a rate
of 7% per annum, which will be payable in cash semi-annually. On March 18, 2014, we paid our semi-annual interest installment of
$140,000.
Following and during the continuance of
an event of default, the Notes will bear interest at a rate per annum equal to the rate otherwise applicable thereto, plus an additional
2% per annum.
Each Note is convertible at any time while
the Note is outstanding, at the option of the holder, into shares of our common stock, at $0.40 per share. The Notes have customary
anti-dilution provisions, including, without limitation, provisions for the adjustment to the exercise price based on certain stock
dividends and stock splits. In addition, the conversion price of the Notes may require adjustment upon the issuance of equity securities
(including the issuance of debt convertible into equity) by us at prices below the then existing conversion price, subject to certain
exempt issuances which will not result in an adjustment to the exercise price.
The Notes are secured by a first priority
lien on all of our assets and our two subsidiaries in favor of the Purchasers. However, we have the right to cause defeasance of
the liens and to reduce the interest rate on the Notes to 4% per annum, if, at any time, we deposit additional collateral and other
agreements, satisfactory to the holders of the majority-in-interest of the Notes, with the collateral agent.
We have agreed to not incur any (a) additional
secured indebtedness, or (b) indebtedness of any kind (unsecured or secured) with a maturity of less than 5 years from the issuance
date of the Notes, in each case, without the written consent of the holders of the majority-in-interest of the Notes, except for
purposes of defeasance or trade payables in the ordinary course of business.
Working Capital
The following is a summary of our working
capital at June 30, 2014 and December 31, 2013:
| |
June 30, 2014 | | |
December 31, 2013 | | |
Percent Increase/(Decrease) | |
Current Assets | |
$ | 369,123 | | |
$ | 2,203,427 | | |
| (83.2 | )% |
Current Liabilities | |
| (1,311,426 | ) | |
| (613,806 | ) | |
| 113.7 | % |
(Working Capital Deficit) Working Capital | |
$ | (942,303 | ) | |
$ | 1,589,621 | | |
| (159.3 | )% |
The change in our working capital was attributable
to continued net losses, equipment purchases, interest payments on our convertible note and recurring scheduled payments on our
long term liabilities which were made through April 2014. Cash was $37,473 as of June 30, 2014, as compared to $2,065,824 as of
December 31, 2013.
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, | |
| |
2014 | | |
2013 | | |
Percent Increase/(Decrease) | |
Cash Flows Used in Operating Activities | |
$ | (1,844,145 | ) | |
$ | (2,788,972 | ) | |
| (33.9 | )% |
Cash Flows Used in Investing Activities | |
| (64,206 | ) | |
| (101,950 | ) | |
| (37.0 | )% |
Cash Flows Used in Financing Activities | |
| (120,000 | ) | |
| (180,000 | ) | |
| (33.3 | )% |
Net Change in Cash During Period | |
$ | (2,028,351 | ) | |
$ | (3,070,922 | ) | |
| (33.9 | )% |
Net Cash Used in Operating Activities.
Net cash used in operating activities decreased to $1,844,145 during the six month period ended June 30, 2014 from $2,788,972 during
the six month period ended June, 30 2013. The decrease was due primarily to the increase in accounts payable and accrued liabilities.
Net Cash Used in Investing Activities.
Net cash used in investing activities decreased to $64,206 during the six month period ended June 30, 2014, as compared to $101,950
during the six month period ended June 30, 2013. The decrease was due to less equipment purchases and restoration work on an on-site
building during 2014.
Net Cash Used in Financing Activities.
Net cash used in financing activities decreased to $120,000 during the six month period ended June 30, 2014, as compared to $180,000
during the six month period ended June 30, 2013. The decrease was due to deferral of scheduled monthly payments of $30,000 on our
purchase obligation with VRIC effective May 1, 2014.
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. As of June 30, 2014, we had working capital deficit
of $942,303, compared to working capital of $1,589,621 as of December 31, 2013. 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. For the next twelve months, 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, 2014, we had cash reserves in the amount of approximately $105,000. 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 twelve months and we will require additional financing in order to fund these activities. As of June
30, 2014, 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.
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 2014, 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 June 2014, the FASB issued ASU No. 2014-10,
Development Stage Entities (Topic 915) Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable
Interest Entities Guidance in Topic 810, Consolidation. This ASU does the following among other things: a) eliminates the requirement
to present inception-to-date information on the statements of income, cash flows, and shareholders’ equity, b) eliminates
the need to label the financial statements as those of a development stage entity, c) eliminates the need to disclose a description
of the development stage activities in which the entity is engaged, and d) amends FASB ASC 275, Risks and Uncertainties, to clarify
that information on risks and uncertainties for entities that have not commenced planned principal operations is required. The
amendments in ASU No. 2014-10 are effective for public companies for annual and interim reporting periods beginning after
December 15, 2014. Early adoption is permitted. We have elected early adoption of the new standard applied retrospectively.
Adoption of the new guidance had no impact on our consolidated financial position, results of operations or cash flows.
| Item 3. | Quantitative and Qualitative
Disclosures About Market Risk |
We had unrestricted cash totaling $37,473
at June 30, 2014 and $2,065,824 at December 31, 2013. 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, 2014, 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, 2014, 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, 2014 that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
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.
On October 28, 2013, the Company was sued by Kuhns Brothers, Inc. in the case entitled Kuhns Brothers Inc., v. Searchlight
Minerals Corp. (Civil Action No. 3:13-CV-01573-RNC) in Federal District Court for the District of Connecticut. During the
quarter ended June 30, 2014, the lawsuit was settled for an immaterial amount.
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, 2013, 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, 2014 is included in Exhibit 95
to this Quarterly Report on Form 10-Q.
None.
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 19, 2014 |
By: |
/s/
Martin B. Oring |
|
|
Martin B. Oring |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date: August 19, 2014 |
By: |
/s/
Melvin L. Williams |
|
|
Melvin L. Williams |
|
|
Chief Financial Officer |
|
|
(Principal Accounting Officer) |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Martin B. Oring, hereby
certify that:
1. I have reviewed this
quarterly report on Form 10-Q of Searchlight Minerals Corp.;
2. Based on my
knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my
knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
SEARCHLIGHT MINERALS CORP. |
|
|
Date: August 19, 2014 |
By: |
/s/ Martin B. Oring |
|
|
Martin B. Oring |
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Melvin L. Williams, hereby
certify that:
1. I have reviewed this
quarterly report on Form 10-Q of Searchlight Minerals Corp.;
2. Based on my
knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my
knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
SEARCHLIGHT MINERALS CORP. |
|
|
Date: August 19, 2014 |
By: |
/s/ MELVIN L. WILLIAMS |
|
|
Melvin L. Williams |
|
|
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT
TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
Quarterly Report on Form 10-Q of Searchlight Minerals Corp. (the “Company”) for the quarter ended June 30, 2014, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), Martin B. Oring, as Chief Executive
Officer of the Company, and Melvin L. Williams, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18
U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
SEARCHLIGHT MINERALS CORP |
|
|
Date: August 19, 2014 |
By: |
/s/ Martin B. Oring |
|
|
Martin B. Oring |
|
|
Chief Executive Officer |
|
|
|
Date: August 19, 2014 |
By: |
/s/
MELVIN L. WILLIAMS |
|
|
Melvin L. Williams |
|
|
Chief Financial Officer |
EXHIBIT 95.1
MINE SAFETY DISCLOSURE
Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K require certain disclosures by companies
required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate coal or other mines regulated
under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). The following disclosures are provided pursuant
to the Act and Item 104 of Regulation S-K; provided, however, that such disclosure is not intended as an admission by us that we
are subject to the provisions of the Mine Act and, provided, further, that we reserve the right to challenge the applicability
of the Mine Act and the jurisdiction of the U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”)
with respect to our activities. The following disclosures are reported for the quarter ended June 30, 2014 for us and our subsidiaries.
Project |
Section
104 S&S Citations (#)
(1) |
Section
104(b) Orders
(#)
(2) |
Section
104(d) Citations and Orders
(#)
(3) |
Section
110(b)(2) Violations
(#)
(4) |
Section
107(a) Orders
(#)
(5) |
Total
Dollar Value of MSHA Assessments Proposed
($) |
Total
Number of Mining Related Fatalities
(#) |
Received
Notice of Pattern of Violations Under Section 104(e)
(yes/no)
(6) |
Received
Notice of Potential to Have Pattern Under Section 104(e)
(yes/no) |
Legal
Actions Pending as of Last Day of Period
(#)
(7) |
Legal
Actions Initiated During Period
(#)
(7) |
Legal
Actions Resolved During Period
(#)
(7) |
Clarkdale
Slag Project |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
Searchlight
Gold Project |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
No |
No |
0 |
0 |
0 |
| (1) | Mine Act section 104(a) citations are for alleged violations of mandatory health or safety standards, rules, orders or regulations. |
| (2) | Mine Act section 104(b) orders are for alleged failures to totally abate a citation within the period of time specified in
the citation. |
| (3) | Mine Act section 104(d) citations and orders are for alleged violations of mandatory health or safety standards where such
violation is caused by an unwarrantable failure on the part of the operator to comply with such standards. |
| (4) | Mine Act section 110(b)(2) violations are for “flagrant” violations of mandatory health or safety standards, i.e.
a reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory safety or health standard
that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury. |
| (5) | Mine Act section 107(a) orders are for alleged conditions or practices which could reasonably be expected to cause death or
serious physical harm before such condition or practice can be abated and result in orders of immediate withdrawal from the area
of the mine affected by the condition. |
| (6) | Mine Act section 104(e) violations and notices are for when an operator is alleged to have a pattern or potential to have a
pattern of violations of mandatory health or safety standards. |
| (7) | Legal actions before the Federal Mine Safety and Health Review Commission involving a coal or other mine owned and operated
by us or our subsidiaries. |
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