UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
x
|
Quarterly
report
pursuant
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934
|
For the quarterly period ended June 30, 2012
|
¨
|
Transition
report
pursuant
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.)
|
|
|
#120
- 2441 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 9, 2012, the registrant had
135,768,318 outstanding shares of common stock.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
|
3
|
|
|
Item 1. Financial Statements
|
3
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
35
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
47
|
|
|
Item 4. Controls and Procedures
|
47
|
|
|
PART II - OTHER INFORMATION
|
48
|
|
|
Item 1. Legal Proceedings
|
48
|
|
|
Item 1A. Risk Factors
|
48
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
48
|
|
|
Item 3. Defaults Upon Senior Securities
|
48
|
|
|
Item 4. Mine Safety Disclosures
|
48
|
|
|
Item 5. Other Information
|
48
|
|
|
Item 6. Exhibits
|
49
|
|
|
SIGNATURES
|
50
|
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
|
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,097,077
|
|
|
$
|
6,161,883
|
|
Prepaid expenses
|
|
|
174,769
|
|
|
|
146,805
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,271,846
|
|
|
|
6,308,688
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,276,006
|
|
|
|
11,853,534
|
|
Mineral properties
|
|
|
16,947,419
|
|
|
|
16,947,419
|
|
Slag project
|
|
|
120,766,877
|
|
|
|
120,766,877
|
|
Land - smelter site and slag pile
|
|
|
5,916,150
|
|
|
|
5,916,150
|
|
Land
|
|
|
3,300,000
|
|
|
|
3,300,000
|
|
Reclamation bond and deposits, net
|
|
|
14,272
|
|
|
|
14,772
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
158,220,724
|
|
|
|
158,798,752
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
165,492,570
|
|
|
$
|
165,107,440
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
104,872
|
|
|
$
|
61,496
|
|
Accounts payable - related party
|
|
|
6,337
|
|
|
|
12,725
|
|
Derivative warrant liability
|
|
|
46,882
|
|
|
|
-
|
|
VRIC payable, current portion - related
party
|
|
|
257,448
|
|
|
|
247,387
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
415,539
|
|
|
|
321,608
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
VRIC payable, net of current portion - related party
|
|
|
1,140,751
|
|
|
|
1,272,039
|
|
Deferred tax liability
|
|
|
40,435,664
|
|
|
|
41,756,100
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
41,576,415
|
|
|
|
43,028,139
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
41,991,954
|
|
|
|
43,349,747
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies - Note 14
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 400,000,000 shares
|
|
|
|
|
|
|
|
|
authorized, 135,768,318 and 131,018,318 shares,
|
|
|
|
|
|
|
|
|
respectively, issued and outstanding
|
|
|
135,768
|
|
|
|
131,018
|
|
Additional paid-in capital
|
|
|
153,736,412
|
|
|
|
149,242,418
|
|
Accumulated deficit during exploration
stage
|
|
|
(30,371,564
|
)
|
|
|
(27,615,743
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
123,500,616
|
|
|
|
121,757,693
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
165,492,570
|
|
|
$
|
165,107,440
|
|
See Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 14, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(date of inception)
|
|
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
through
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral exploration and evaluation expenses
|
|
|
561,232
|
|
|
|
584,067
|
|
|
|
1,606,685
|
|
|
|
1,181,951
|
|
|
|
14,738,750
|
|
Mineral exploration and evaluation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses - related party
|
|
|
47,229
|
|
|
|
45,000
|
|
|
|
95,966
|
|
|
|
95,058
|
|
|
|
2,314,284
|
|
Administrative - Clarkdale site
|
|
|
69,640
|
|
|
|
76,510
|
|
|
|
142,928
|
|
|
|
186,688
|
|
|
|
3,639,283
|
|
General and administrative
|
|
|
734,972
|
|
|
|
549,137
|
|
|
|
1,424,714
|
|
|
|
1,138,892
|
|
|
|
20,799,368
|
|
General and administrative - related party
|
|
|
27,451
|
|
|
|
34,204
|
|
|
|
64,918
|
|
|
|
77,560
|
|
|
|
625,691
|
|
Depreciation
|
|
|
343,580
|
|
|
|
348,367
|
|
|
|
688,593
|
|
|
|
696,748
|
|
|
|
3,826,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,784,104
|
|
|
|
1,637,285
|
|
|
|
4,023,804
|
|
|
|
3,376,897
|
|
|
|
45,944,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,784,104
|
)
|
|
|
(1,637,285
|
)
|
|
|
(4,023,804
|
)
|
|
|
(3,376,897
|
)
|
|
|
(45,944,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
|
7,635
|
|
|
|
6,020
|
|
|
|
15,115
|
|
|
|
12,270
|
|
|
|
163,780
|
|
Gain on legal settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
502,586
|
|
Loss on equipment disposition
|
|
|
(25,897
|
)
|
|
|
-
|
|
|
|
(25,897
|
)
|
|
|
(526,753
|
)
|
|
|
(611,517
|
)
|
Change in fair value of derivative warrant liability
|
|
|
2,992,076
|
|
|
|
-
|
|
|
|
(46,882
|
)
|
|
|
993,386
|
|
|
|
4,235,107
|
|
Interest expense
|
|
|
-
|
|
|
|
(148
|
)
|
|
|
-
|
|
|
|
(1,288
|
)
|
|
|
(14,143
|
)
|
Interest and dividend income
|
|
|
2,381
|
|
|
|
3,943
|
|
|
|
5,211
|
|
|
|
7,843
|
|
|
|
649,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
2,976,195
|
|
|
|
9,815
|
|
|
|
(52,453
|
)
|
|
|
485,458
|
|
|
|
4,924,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and discontinued operations
|
|
|
1,192,091
|
|
|
|
(1,627,470
|
)
|
|
|
(4,076,257
|
)
|
|
|
(2,891,439
|
)
|
|
|
(41,019,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
600,133
|
|
|
|
592,672
|
|
|
|
1,320,436
|
|
|
|
1,413,603
|
|
|
|
14,399,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
1,792,224
|
|
|
|
(1,034,798
|
)
|
|
|
(2,755,821
|
)
|
|
|
(1,477,836
|
)
|
|
|
(26,619,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,752,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,792,224
|
|
|
$
|
(1,034,798
|
)
|
|
$
|
(2,755,821
|
)
|
|
$
|
(1,477,836
|
)
|
|
$
|
(30,371,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
132,257,329
|
|
|
|
126,853,483
|
|
|
|
131,641,246
|
|
|
|
125,675,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
142,558,638
|
|
|
|
126,853,483
|
|
|
|
131,641,246
|
|
|
|
125,675,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
1,792,224
|
|
|
$
|
(1,034,798
|
)
|
|
$
|
(2,755,821
|
)
|
|
$
|
(1,477,836
|
)
|
|
$
|
(30,371,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
123,018,318
|
|
|
$
|
123,018
|
|
|
$
|
144,219,513
|
|
|
$
|
(24,200,396
|
)
|
|
$
|
120,142,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
164,492
|
|
|
|
-
|
|
|
|
164,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Issuance of common stock for cash, net
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
2,065,270
|
|
|
|
-
|
|
|
|
2,069,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, June 30, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,477,836
|
)
|
|
|
(1,477,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011
|
|
|
127,018,318
|
|
|
$
|
127,018
|
|
|
$
|
146,449,275
|
|
|
$
|
(25,678,232
|
)
|
|
$
|
120,898,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
131,018,318
|
|
|
$
|
131,018
|
|
|
$
|
149,242,418
|
|
|
$
|
(27,615,743
|
)
|
|
$
|
121,757,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
357,034
|
|
|
|
-
|
|
|
|
357,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash, net
|
|
|
4,750,000
|
|
|
|
4,750
|
|
|
|
4,136,960
|
|
|
|
-
|
|
|
|
4,141,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, June 30, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,755,821
|
)
|
|
|
(2,755,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
|
135,768,318
|
|
|
$
|
135,768
|
|
|
$
|
153,736,412
|
|
|
$
|
(30,371,564
|
)
|
|
$
|
123,500,616
|
|
See Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 14, 2000
|
|
|
|
|
|
|
|
|
|
(date of inception)
|
|
|
|
For the six months ended
|
|
|
through
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,755,821
|
)
|
|
$
|
(1,477,836
|
)
|
|
$
|
(30,371,564
|
)
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,752,023
|
)
|
Loss from continuing operations
|
|
|
(2,755,821
|
)
|
|
|
(1,477,836
|
)
|
|
|
(26,619,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile loss from operating
|
|
|
|
|
|
|
|
|
|
|
|
|
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
688,593
|
|
|
|
696,748
|
|
|
|
3,826,655
|
|
Stock based expenses
|
|
|
357,034
|
|
|
|
164,492
|
|
|
|
7,808,513
|
|
Loss on disposition of fixed assets
|
|
|
25,897
|
|
|
|
526,753
|
|
|
|
612,866
|
|
Amortization of prepaid expense
|
|
|
256,881
|
|
|
|
198,887
|
|
|
|
1,510,024
|
|
Change in fair value of derivative warrant liability
|
|
|
46,882
|
|
|
|
(993,386
|
)
|
|
|
(4,235,107
|
)
|
Gain on dispute resolution
|
|
|
-
|
|
|
|
-
|
|
|
|
(502,586
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(284,845
|
)
|
|
|
(192,902
|
)
|
|
|
(1,684,792
|
)
|
Reclamation bond and deposits
|
|
|
500
|
|
|
|
-
|
|
|
|
(14,272
|
)
|
Accounts payable and accrued liabilities
|
|
|
36,988
|
|
|
|
(166,219
|
)
|
|
|
(223,204
|
)
|
Deferred income taxes
|
|
|
(1,320,436
|
)
|
|
|
(1,413,603
|
)
|
|
|
(14,399,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,948,327
|
)
|
|
|
(2,657,066
|
)
|
|
|
(33,921,076
|
)
|
Net cash used in operating activities
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,931,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid on mineral property claims
|
|
|
-
|
|
|
|
-
|
|
|
|
(87,134
|
)
|
Cash paid for joint venture and merger option
|
|
|
-
|
|
|
|
-
|
|
|
|
(890,000
|
)
|
Cash paid to VRIC on closing date - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,900,000
|
)
|
Cash paid for additional acquisition costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,105
|
)
|
Capitalized interest - related party
|
|
|
(58,772
|
)
|
|
|
(68,063
|
)
|
|
|
(847,011
|
)
|
Proceeds from property and equipment disposition
|
|
|
500
|
|
|
|
338
|
|
|
|
366,513
|
|
Purchase of property and equipment
|
|
|
(78,690
|
)
|
|
|
(9,087
|
)
|
|
|
(14,479,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(136,962
|
)
|
|
|
(76,812
|
)
|
|
|
(25,966,977
|
)
|
Net cash used in investing activities
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(452,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issuance
|
|
|
4,143,750
|
|
|
|
2,079,270
|
|
|
|
70,330,435
|
|
Stock issuance costs
|
|
|
(2,040
|
)
|
|
|
(10,000
|
)
|
|
|
(2,126,373
|
)
|
Principal payments on capital lease payable
|
|
|
-
|
|
|
|
(15,175
|
)
|
|
|
(116,238
|
)
|
Principal payments on VRIC payable
- related party
|
|
|
(121,227
|
)
|
|
|
(111,937
|
)
|
|
|
(1,102,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,020,483
|
|
|
|
1,942,158
|
|
|
|
66,984,835
|
|
Net cash provided by financing activities
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
3,384,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
935,194
|
|
|
|
(791,720
|
)
|
|
|
7,097,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
6,161,883
|
|
|
|
6,996,027
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
7,097,077
|
|
|
$
|
6,204,307
|
|
|
$
|
7,097,077
|
|
See Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT MINERALS CORP.
(AN EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 14, 2000
|
|
|
|
|
|
|
|
|
|
(date of inception)
|
|
|
|
For the six months ended
|
|
|
through
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized amounts
|
|
$
|
-
|
|
|
$
|
1,288
|
|
|
$
|
64,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital equipment purchased through
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts payable and financing
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
444,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired for common stock
issued for acquisition
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
66,879,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired for common stock
issued for mineral properties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired for liabilities
incurred in acquisition
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,628,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability assumed
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,197,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger option payment applied to
acquisition
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassify joint venture option
agreement to slag project
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
690,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with joint venture option
|
|
|
|
|
|
|
|
|
|
|
|
|
agreement related to slag project
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,310,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options for common stock
issued in satisfaction of debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of related party
liability to equity
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
742,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts payable, 200,000 shares
at $0.625
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor warrants issued with non-customary
|
|
|
|
|
|
|
|
|
|
|
|
|
anti-dilution provisions
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,281,989
|
|
See Accompanying Notes to these Consolidated Financial Statements
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
|
Basis of presentation
- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the
United States. The Company’s fiscal year-end is December 31.
These 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 consolidated financial statements are not necessarily indicative of the results that may be
reported for the entire year. These interim consolidated financial statements should be read in conjunction with the consolidated
financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on April
12, 2012.
Certain prior year amounts
have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s
financial position or results of operations.
Description of business
- Searchlight Minerals Corp. is considered an exploration stage company since its formation, and the Company has not yet realized
any revenues from its planned operations. The Company is primarily focused on the exploration, acquisition and development of
mining and mineral properties. Upon the location of commercially minable reserves, the Company plans to prepare for mineral extraction
and enter the development stage.
History
- The Company
was incorporated on January 12, 1999 pursuant to the laws of the State of Nevada under the name L.C.M. Equity, Inc. From 1999
to 2005, the Company operated primarily as a biotechnology research and development company with its headquarters in Canada and
an office in the United Kingdom (the “UK”). On November 2, 2001, the Company entered into an acquisition agreement
with Regma Bio Technologies, Ltd. pursuant to which Regma Bio Technologies, Ltd. entered into a reverse merger with the Company
with the surviving entity named “Regma Bio Technologies Limited”. On November 26, 2003, the Company changed its name
from “Regma Bio Technologies Limited” to “Phage Genomics, Inc.”
In February, 2005, the Company
announced its reorganization from a biotechnology research and development company to a company focused on the development and
acquisition of mineral properties. In connection with its reorganization the Company entered into mineral option agreements to
acquire an interest in the Searchlight Claims. The Company has consequently been considered as an exploration stage enterprise.
Also in connection with its corporate restructuring, its Board of Directors approved a change in its name from “Phage Genomics,
Inc.” (“Phage”) to "Searchlight Minerals Corp.” effective June 23, 2005.
Going concern
- The
Company incurred cumulative net losses of $30,371,564 from operations as of June 30, 2012 and has not commenced its commercial
mining and mineral processing operations; rather, it is still in the exploration stage, raising substantial doubt about the Company’s
ability to continue as a going concern. The Company will seek additional sources of capital through the issuance of debt or equity
financing, but there can be no assurance the Company will be successful in accomplishing its objectives.
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
(continued)
|
The ability of the Company
to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan. The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Principles of consolidation
- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Clarkdale Minerals,
LLC (“CML”) and Clarkdale Metals Corp. (“CMC”). Significant intercompany accounts and transactions have
been eliminated.
Use of estimates
- The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could
be significant. Significant areas requiring management’s estimates and assumptions include the valuation of stock-based
compensation and derivative warrant liabilities, impairment analysis of long-lived assets, and realizability of deferred tax assets.
Actual results could differ from those estimates.
Capitalized interest cost
- The Company capitalizes interest cost related to acquisition, development and construction of property and equipment which
is designed as integral parts of the manufacturing process. The capitalized interest is recorded as part of the asset it relates
to and will be amortized over the asset’s useful life once production commences. Interest cost capitalized from imputed
interest on acquisition indebtedness was $58,772 and $68,063 for the six months ended June 30, 2012 and 2011, respectively.
Mineral properties
-
Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties
are expensed as incurred while the project is in the exploration stage. Development costs and costs to maintain mineral properties
are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the
related capitalized costs are amortized using the units-of-production method over the proven and probable reserves.
Mineral exploration and
development costs
- Exploration expenditures incurred prior to entering the development stage are expensed and included in
“Mineral exploration and evaluation expenses”.
Property and equipment
- Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets, which are generally 3 to 39 years. The cost of repairs and maintenance is
charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition
of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other
income (expense).
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
(continued)
|
Impairment
of long-lived assets
-
The Company reviews and evaluates
its long-lived assets for impairment at each balance sheet date due to its planned exploration stage losses and documents such
impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as the Company’s
continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration
programs on the property.
The tests for long-lived assets
in the exploration, development or producing stage that would have a value beyond proven and probable reserves would be monitored
for impairment based on factors such as current market value of the mineral property and results of exploration, future asset
utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related
assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated
future net undiscounted cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and
probable amounts.
The
Company's policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may
not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by
which the carrying amount of the assets exceeds its fair value.
To date, no such impairments have been identified.
Reclamation and remediation
costs (asset retirement obligation)
- For its exploration stage properties, the Company accrues the estimated costs associated
with environmental remediation obligations in the period in which the liability is incurred or becomes determinable. Until such
time that a project life is established, the Company records the corresponding cost as an exploration stage expense. The costs
of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually
obligated fixed payment schedule.
Future reclamation and environmental-related
expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties
associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology. The Company periodically reviews accrued liabilities for such
reclamation and remediation costs as evidence indicating that the liabilities have potentially changed becomes available. Changes
in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.
The Company is in the exploration
stage and is unable to determine the estimated timing of expenditures relating to reclamation accruals. It is reasonably possible
that the ultimate cost of reclamation and remediation could change in the future and that changes to these estimates could have
a material effect on future operating results as new information becomes known.
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
(continued)
|
Fair
value of financial instruments
-
Fair value accounting establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets
that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level 2
|
|
Quoted prices in markets that are not active,
or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
Level 3
|
|
Prices or valuation techniques that require
inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
The Company’s financial
instruments consist of mineral property purchase obligations and the derivative liability on stock purchase warrants. The mineral
property purchase obligations are classified within Level 2 of the fair value hierarchy as their fair value is determined using
interest rates which approximate market rates.
The derivative liability on
stock purchase warrants was valued using the Binomial Lattice model, a Level 3 input. The change in fair value of the derivative
liability is classified in other income (expense) in the statement of operations. The Company generally does not use derivative
financial instruments to hedge exposures to cash flow, market or foreign currency risks. However, certain warrants contain anti-dilution
provisions that are not afforded equity classification because they embody risks not clearly and closely related to the host contract.
These features are required to be bifurcated and carried as a derivative liability.
The Company is not exposed
to significant interest or credit risk arising from these financial instruments. The Company does not have any non-financial assets
or liabilities that it measures at fair value. During the six month period ended June 30, 2012, there were no transfers of assets
between levels.
Per share
amounts
- Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to
reflect the effect of potentially dilutive securities. Potentially dilutive shares, such as stock options and warrants, are excluded
from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise
price of the instrument exceeds the fair market value.
Stock-based
compensation
- Stock-based compensation awards are recognized in the consolidated financial statements based on the grant
date fair value of the award which is estimated using the Binomial Lattice option pricing model. The Company believes that this
model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility
and interest rates, and to allow for the actual exercise behavior of option holders
.
The
compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise,
shares issued will be newly issued shares from authorized common stock.
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
(continued)
|
The fair value of performance-based
stock option grants is determined on their grant date through the use of the Binomial Lattice option pricing model. The total
value of the award is recognized over the requisite service period only if management has determined that achievement of the performance
condition is probable. The requisite service period is based on management’s estimate of when the performance condition
will be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount
of stock-based compensation recognized in the financial statements.
Income taxes
- The Company
follows the liability method of accounting for income taxes. This method recognizes certain temporary differences between the
financial reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method
generates either a net deferred income tax liability or asset as measured by the statutory tax rates in effect. The effect of
a change in tax rates is recognized in operations in the period that includes the enactment date. The Company records a valuation
allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
For acquired properties that
do not constitute a business, a deferred income tax liability is recorded on GAAP basis over income tax basis using statutory
federal and state rates. The resulting estimated future income tax liability associated with the temporary difference between
the acquisition consideration and the tax basis is computed in accordance with Accounting Standards Codification (“ASC”)
740-10-25-51,
Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations
,
and is reflected as an increase to the total purchase price which is then applied to the underlying acquired assets in the absence
of there being a goodwill component associated with the acquisition transactions.
Comprehensive loss
–
For the six months ended June 30, 2012 and 2011, respectively, the Company’s comprehensive loss was equal to the respective
net loss for each of the periods presented.
Recent accounting standards
- From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards
Board
(“FASB”
)
that are adopted by the Company as of the specified effective
date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a
material impact on the Company’s consolidated financial statements upon adoption.
In May 2011, the FASB issued
additional guidance regarding fair value measurement and disclosure requirements. The most significant change relates to Level
3 fair value measurements and requires disclosure of quantitative information about unobservable inputs used, a description of
the valuation processes used, and a qualitative discussion about the sensitivity of the measurements. The Company adopted the
additional guidance in the first quarter of 2012. The adoption of this guidance did not have a material effect on its financial
condition, results of operation, or cash flows.
In June 2011, the FASB issued
ASU 2011-12, Comprehensive Income,
Presentation of Comprehensive Income
. Under the amendments, an entity has the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted the
additional guidance in the first quarter of 2012. The adoption of this guidance did not have a material effect on its financial
condition, results of operation, or cash flows.
|
2.
|
PROPERTY AND
EQUIPMENT
|
Property and equipment consisted of the following:
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
38,255
|
|
|
$
|
(29,681
|
)
|
|
$
|
8,574
|
|
|
$
|
38,255
|
|
|
$
|
(27,020
|
)
|
|
$
|
11,235
|
|
Lab equipment
|
|
|
249,061
|
|
|
|
(165,540
|
)
|
|
|
83,521
|
|
|
|
249,061
|
|
|
|
(140,634
|
)
|
|
|
108,427
|
|
Computers and equipment
|
|
|
83,606
|
|
|
|
(51,550
|
)
|
|
|
32,056
|
|
|
|
81,969
|
|
|
|
(53,056
|
)
|
|
|
28,913
|
|
Income property
|
|
|
309,750
|
|
|
|
(14,340
|
)
|
|
|
295,410
|
|
|
|
309,750
|
|
|
|
(13,017
|
)
|
|
|
296,733
|
|
Vehicles
|
|
|
44,175
|
|
|
|
(43,258
|
)
|
|
|
917
|
|
|
|
44,175
|
|
|
|
(40,433
|
)
|
|
|
3,742
|
|
Slag conveyance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
|
|
|
300,916
|
|
|
|
(120,609
|
)
|
|
|
180,307
|
|
|
|
300,916
|
|
|
|
(84,104
|
)
|
|
|
216,812
|
|
Demo module building
|
|
|
6,630,063
|
|
|
|
(2,206,345
|
)
|
|
|
4,423,718
|
|
|
|
6,630,063
|
|
|
|
(1,874,841
|
)
|
|
|
4,755,222
|
|
Demo module
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,996
|
|
|
|
(7,199
|
)
|
|
|
28,797
|
|
Grinding circuit
|
|
|
863,679
|
|
|
|
-
|
|
|
|
863,679
|
|
|
|
863,678
|
|
|
|
-
|
|
|
|
863,678
|
|
Leaching and filtration
|
|
|
1,300,618
|
|
|
|
(390,185
|
)
|
|
|
910,433
|
|
|
|
1,300,618
|
|
|
|
(260,124
|
)
|
|
|
1,040,494
|
|
Fero-silicate storage
|
|
|
4,326
|
|
|
|
(649
|
)
|
|
|
3,677
|
|
|
|
4,326
|
|
|
|
(433
|
)
|
|
|
3,893
|
|
Electrowinning building
|
|
|
1,492,853
|
|
|
|
(223,928
|
)
|
|
|
1,268,925
|
|
|
|
1,492,853
|
|
|
|
(149,285
|
)
|
|
|
1,343,568
|
|
Site improvements
|
|
|
1,447,909
|
|
|
|
(298,422
|
)
|
|
|
1,149,487
|
|
|
|
1,392,559
|
|
|
|
(248,691
|
)
|
|
|
1,143,868
|
|
Site equipment
|
|
|
353,503
|
|
|
|
(247,227
|
)
|
|
|
106,276
|
|
|
|
341,529
|
|
|
|
(223,631
|
)
|
|
|
117,898
|
|
Construction
in
progress
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
|
|
1,102,014
|
|
|
|
-
|
|
|
|
1,102,014
|
|
Capitalized interest
|
|
|
847,012
|
|
|
|
-
|
|
|
|
847,012
|
|
|
|
788,240
|
|
|
|
-
|
|
|
|
788,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,067,740
|
|
|
$
|
(3,791,734
|
)
|
|
$
|
11,276,006
|
|
|
$
|
14,976,002
|
|
|
$
|
(3,122,468
|
)
|
|
$
|
11,853,534
|
|
|
|
Depreciation expense was $688,593 and
$696,748 for the six months ended June 30, 2012 and 2011, respectively.
The depreciation method for the grinding circuit is based on units of
production. During the testing phase, units of production have thus far
been limited and no depreciation expense has been recognized as of June
30, 2012. At June 30, 2012, construction in progress included the gold,
copper and zinc extraction circuits and electrowinning equipment at the
Clarkdale Slag Project.
|
|
3.
|
CLARKDALE SLAG
PROJECT
|
On February 15, 2007, the Company
completed a merger with Transylvania International, Inc. (“TI”) which provided the Company with 100% ownership of
the Clarkdale Slag Project in Clarkdale, Arizona, through its wholly owned subsidiary CML. This acquisition superseded the joint
venture option agreement to acquire a 50% ownership interest as a joint venture partner pursuant to Nanominerals Corp. (“NMC”)
interest in a joint venture agreement (“JV Agreement”) dated May 20, 2005 between NMC and Verde River Iron Company,
LLC (“VRIC”). One of the Company’s former directors was an affiliate of VRIC. The former director joined the
Company’s board subsequent to the acquisition.
The Company believes the acquisition
of the Clarkdale Slag Project was beneficial because it provides for 100% ownership of the properties, thereby eliminating the
need to finance and further develop the projects in a joint venture environment.
This merger was treated as
a statutory merger for tax purposes whereby CML was the surviving merger entity.
The Company applied EITF 98-03
(which has been superseded by ASC 805-10-25-1) with regard to the acquisition of the Clarkdale Slag Project. The Company determined
that the acquisition of the Clarkdale Slag Project did not constitute an acquisition of a business as that term is defined in
ASC 805-10-55-4, and the Company recorded the acquisition as a purchase of assets.
The Company also formed a second wholly owned subsidiary,
CMC, for the purpose of developing a processing plant at the Clarkdale Slag Project.
The
$130.3 million purchase price was comprised of a combination of the cash paid, the deferred tax liability assumed in connection
with the acquisition, and the fair value of our common shares issued, based on the closing market price of our common stock, using
the average of the high and low prices of our common stock on the closing date of the acquisition. The Clarkdale Slag Project
is without known reserves and the project is exploratory in nature in accordance with Industry Guides promulgated by the Commission,
Guide 7 paragraph (a)(4)(i). As required by ASC 930-805-30,
Mining – Business Combinations – Initial Recognition
,
and ASC 740-10-25-49-55,
Income Taxes – Overall – Recognition
– Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations
,
the Company then allocated the purchase price among the assets as follows (and also further described in this Note 3 to the financial
statements): $5,916,150 of the purchase price was allocated to the slag pile site, $3,300,000 to the remaining land acquired,
and $309,750 to income property and improvements. The purchase price allocation to the real properties was based on fair market
values determined using an independent real estate appraisal firm (Scott W. Lindsay, Arizona Certified General Real Estate Appraiser
No. 30292). The remaining $120,766,877 of the purchase price was allocated to the Clarkdale Slag Project, which has been capitalized
as a tangible asset in accordance with ASC 805-20-55-37,
Use Rights
. Upon commencement of commercial production, the material
will be amortized using the unit-of-production method over the life of the Clarkdale Slag Project.
|
3.
|
CLARKDALE SLAG
PROJECT
(continued)
|
Closing of the TI acquisition
occurred on February 15, 2007, (the “Closing Date”) and was subject to, among other things, the following terms and
conditions:
|
a)
|
The
Company paid $200,000 in cash
to VRIC on the execution of
the Letter Agreement;
|
|
b)
|
The
Company paid $9,900,000 in cash
to VRIC on the Closing Date;
|
|
c)
|
The
Company issued 16,825,000 shares
of its common stock, valued
at $3.975 per share using the
average of the high and low
on the Closing Date, to the
designates of VRIC on the closing
pursuant to Section 4(2) and
Regulation D of the Securities
Act of 1933;
|
In addition to the cash and
equity consideration paid and issued upon closing, the acquisition agreement contains the following payment terms and conditions:
|
d)
|
The Company agreed to continue
to pay VRIC $30,000 per month until the earlier of: (i) the date
that is 90 days after receipt of a bankable feasibility study
by the Company (the “Project Funding Date”), or (ii)
the tenth anniversary of the date of the execution of the letter
agreement;
|
The acquisition agreement also contains the following
additional contingent payment terms which are based on the Project Funding Date as defined in the agreement:
|
e)
|
The Company has agreed to pay VRIC
$6,400,000 on the Project Funding Date;
|
|
f)
|
The Company has agreed to pay
VRIC a minimum annual royalty of $500,000, commencing on the Project
Funding Date (the “Advance Royalty”), and an additional
royalty consisting of 2.5% of the net smelter returns (“NSR”)
on any and all proceeds of production from the Clarkdale Slag
Project (the “Project Royalty”). The Advance Royalty
remains payable until the first to occur of: (i) the end of the
first calendar year in which the Project Royalty equals or exceeds
$500,000 or (ii) February 15, 2017. In any calendar year in which
the Advance Royalty remains payable, the combined Advance Royalty
and Project Royalty will not exceed $500,000 in any calendar year;
and
|
|
g)
|
The Company has agreed to pay
VRIC an additional amount of $3,500,000 from the net cash flow
of the Clarkdale Slag Project. The Company has accounted for this
as a contingent payment and upon meeting the contingency requirements,
the purchase price of the Clarkdale Slag Project will be adjusted
to reflect the additional consideration.
|
Under
the original JV Agreement, the Company agreed to pay NMC a 5% royalty on NSR payable from the Company’s 50% joint venture
interest in the production from the Clarkdale Slag Project. Upon the assignment to the Company of VRIC’s 50% interest in
the Joint Venture Agreement in connection with the reorganization with TI, the Company continues to have an obligation to pay
NMC
a royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project. On July
25, 2011, the Company agreed to pay NMC and advance royalty payment of $15,000 per month effective January 1, 2011. The advance
royalty payment is more fully discussed in Note 14.
|
3.
|
CLARKDALE SLAG
PROJECT
(continued)
|
The following table reflects
the recorded purchase consideration for the Clarkdale Slag Project:
Purchase price:
|
|
|
|
|
Cash payments
|
|
$
|
10,100,000
|
|
Joint venture option acquired in 2005 for cash
|
|
|
690,000
|
|
Warrants issued for joint venture option
|
|
|
1,918,481
|
|
Common stock issued
|
|
|
66,879,375
|
|
Monthly payments, current portion
|
|
|
167,827
|
|
Monthly payments, net of current portion
|
|
|
2,333,360
|
|
Acquisition costs
|
|
|
127,000
|
|
|
|
|
|
|
Total purchase price
|
|
|
82,216,043
|
|
|
|
|
|
|
Net deferred income tax liability assumed - Clarkdale Slag Project
|
|
|
48,076,734
|
|
|
|
|
|
|
Total
|
|
$
|
130,292,777
|
|
The
following table reflects the components of the Clarkdale Slag Project
:
Allocation of acquisition cost:
|
|
|
|
|
Clarkdale Slag Project (including net deferred income tax liability
assumed of $48,076,734)
|
|
$
|
120,766,877
|
|
Land - smelter site and slag pile
|
|
|
5,916,150
|
|
Land
|
|
|
3,300,000
|
|
Income property and improvements
|
|
|
309,750
|
|
|
|
|
|
|
Total
|
|
$
|
130,292,777
|
|
|
4.
|
MINERAL PROPERTIES
- MINING CLAIMS
|
As of June 30, 2012, mining
claims consisted of 3,200 acres located near Searchlight, Nevada. The 3,200 acre property is staked as twenty 160 acre claims,
most of which are also double-staked as 142 twenty acre claims. At June 30, 2012, the mineral properties balance was $16,947,419.
The mining claims were acquired
with issuance of 5,600,000 shares of the Company’s common stock over a three year period ending in June 2008. On June 25,
2008, the Company issued the final tranche of shares and received the title to the mining claims in consideration of the satisfaction
of the option agreement.
The mining claims were capitalized
as tangible assets in accordance with ASC 805-20-55-37,
Use Rights
. Upon commencement of commercial production, the claims
will be amortized using the unit-of-production method. If the Company does not continue with exploration after the completion
of the feasibility study, the claims will be expensed at that time.
In connection with the Company’s
Plan of Operations (“POO”) for the Searchlight Gold Project, a bond of $7,802 was posted with the Bureau of Land Management
(“BLM”) in December 2009.
|
5.
|
ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES
|
Accounts payable and accrued
liabilities at June 30, 2012 and December 31, 2011 consisted of the following:
|
|
June
30,
2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
86,000
|
|
|
$
|
44,749
|
|
Accrued compensation and related taxes
|
|
|
18,872
|
|
|
|
16,747
|
|
|
|
$
|
104,872
|
|
|
$
|
61,496
|
|
Accounts payable – related party are discussed
in Note 17.
|
6.
|
DERIVATIVE WARRANT
LIABILITY
|
On November 12, 2009, the Company
issued an aggregate of 12,078,596 units of securities to certain investors, consisting of 12,078,596 shares of common stock and
warrants to purchase an additional 6,039,298 shares of common stock, in a private placement to various accredited investors pursuant
to a Securities Purchase Agreement. The Company paid commissions to agents in connection with the private placement in the amount
of approximately $1,056,877 and warrants to purchase up to 301,965 shares of common stock.
The warrants issued to the
purchasers in the private placement became exercisable on November 12, 2009. The warrants have an expiration date of November
12, 2012 and an initial exercise price of $1.85 per share. The warrants have anti-dilution provisions, including provisions for
the adjustment to the exercise price and to the number of warrants granted if the Company issues common stock or common stock
equivalents at a price less than the exercise price.
The Company determined that
the warrants were not afforded equity classification because the warrants are not freestanding and are not considered to be indexed
to the Company’s own stock due to the anti-dilution provisions. In addition, the Company determined that the anti-dilution
provisions shield the warrant holders from the dilutive effects of subsequent security issuances and therefore the economic characteristics
and risks of the warrants are not clearly and closely related to the Company’s common stock. Accordingly, the warrants are
treated as a derivative liability and are carried at fair value.
As of June 30, 2012, the warrants
have been adjusted as follows: (i) the exercise price was adjusted from $1.85 per share to $1.71 per share, and (ii) the number
of warrants was increased by 444,562 warrants due to equity financing transactions completed during the years ended December 31,
2011 and 2010 and the six months ended June 30, 2012. As of June 30, 2012, Luxor Capital Partners, L.P. (“Luxor”)
owned 6,252,883 of the 2009 private placement warrants. Luxor waived their right to the anti-dilution adjustments with respect
to their warrants in connection with the private placement completed with them on June 7, 2012. The exercise price of the Luxor
warrants remains at the previously adjusted price of $1.74 per share.
The following table sets forth
the changes in the fair value of derivative liability for the six month periods ended June 30:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Adjustment to warrants
|
|
$
|
(734
|
)
|
|
$
|
(3,006
|
)
|
Change in fair value
|
|
|
(46,148
|
)
|
|
|
996,392
|
|
Total change in fair value
|
|
$
|
(46,882
|
)
|
|
$
|
993,386
|
|
|
6.
|
DERIVATIVE WARRANT
LIABILITY
(continued)
|
The Company estimates the fair
value of the derivative liabilities by using the Binomial Lattice pricing-model, a Level 3 input, with the following assumptions
used for the six month periods ended June 30:
|
|
2012
|
|
2011
|
Dividend yield
|
|
-
|
|
-
|
Expected volatility
|
|
59.47% - 67.43%
|
|
68.29% - 72.68%
|
Risk-free interest rate
|
|
0.12% - 0.15%
|
|
0.45% - 0.84%
|
Expected life (years)
|
|
0.33 - 0.63
|
|
2.00
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options. The expected life is impacted by all of
the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result
in a significantly lower or higher fair value measurement.
|
7.
|
VRIC PAYABLE - RELATED PARTY
|
Pursuant
to the Clarkdale acquisition agreement, the Company agreed to pay VRIC $30,000 per month until the Project Funding Date. Mr. Harry
Crockett, one of the Company’s former directors, was an
affiliate of VRIC. Mr. Crockett
joined the Board of Directors subsequent to the acquisition. Mr. Crockett passed away in September 2010.
The Company has recorded a
liability for this commitment using imputed interest based on its best estimate of future cash flows. The effective interest rate
used was 8.00%, resulting in an initial present value of $2,501,187 and imputed interest of $1,128,813. 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.
The following table represents
future principal payments on VRIC payable for each of the twelve month periods ending June 30,
2013
|
|
$
|
257,448
|
|
2014
|
|
|
278,816
|
|
2015
|
|
|
301,958
|
|
2016
|
|
|
327,020
|
|
2017
|
|
|
232,957
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
|
|
|
1,398,199
|
|
VRIC payable, current portion
|
|
|
257,448
|
|
|
|
|
|
|
VRIC payable, net of current portion
|
|
$
|
1,140,751
|
|
The acquisition
agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions
of these payments are discussed in more detail in Notes 3 and 14.
During the six months ended
June 30, 2012, the Company’s stockholders’ equity activity consisted of the following:
|
a)
|
On June 7, 2012, the Company issued
4,500,000 shares of common stock in a private placement with Luxor
at a price of $0.90 per share for gross proceeds of $4,050,000.
Total fees related to this issuance were $2,040. In connection
with the offering, the Company entered into a Securities Purchase
Agreement (“SPA”) and a Registration Rights Agreement
(“RRA”) with the purchasers. The SPA contains representations
and warranties of the Company and the purchasers that are customary
for transactions of the type contemplated in connection with the
offering.
|
Pursuant to the RRA, the Company
agreed to certain demand registration rights. These rights include the requirement that the Company file certain registration
statements within a specified time period and to have these registration statements declared effective within a specified time
period. The Company also agreed to file and keep continuously effective such additional registration statements until all of the
shares of common stock registered thereunder have been sold or may be sold without volume restrictions. If the Company is not
able to comply with these registration requirements, the Company will be required to pay cash penalties equal to 1.0% of the aggregate
purchase price paid by the investors for each 30 day period in which a registration default, as defined by the RRA, exists. The
maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the date of this filing, the Company does
not believe the penalty to be probable and accordingly, no liability has been accrued.
|
b)
|
On May 24, 2012, the Company issued
250,000 shares of common stock from the exercise of stock warrants
resulting in cash proceeds of $93,750. The stock options had an
exercise price of $0.375 and an expiration date of June 15, 2015.
|
During the six months ended
June 30, 2011, the Company’s stockholders’ equity activity consisted of the following:
Common stock Purchase Agreement
- The Company entered into a Purchase Agreement with Seaside 88 LP (“Seaside’”) on December 22, 2010 for
the sale of 3,000,000 shares of common stock, followed by the sale of up to 1,000,000 shares of common stock on approximately
the 15
th
day of the month for ten consecutive months. The final closing was completed on December 15, 2011. The Company
issued a total of 11,000,000 shares under the Purchase Agreement.
|
a)
|
On April 15, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.44846 per share under the Purchase Agreement for gross proceeds
of $448,460. Total fees related to this issuance were $2,500.
|
|
b)
|
On March 15, 2011, the Company
issued 1,000,000 shares of common stock to with Seaside 88, LP
(“Seaside”) at a price of $0.47694 per share under
a Common Stock Purchase Agreement (the “Purchase Agreement”),
which is further described below, for gross proceeds of $476,935.
Total fees related to this issuance were $2,500.
|
|
8.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
c)
|
On February 15, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.49198 per share under the Purchase Agreement for gross proceeds
of $491,980. Total fees related to this issuance were $2,500.
|
|
d)
|
On January 18, 2011, the Company
issued 1,000,000 shares of common stock to Seaside at a price
of $0.661895 per share under the Purchase Agreement for gross
proceeds of $661,895. Total fees related to this issuance were
$2,500.
|
Private placement stock
warrants
– As a result of the private placement completed in the second quarter of 2012, the Company adjusted the warrants
from the November 12, 2009 private placement offering. The following adjustments were made: (i) the exercise price was adjusted
to $1.71 per share and (ii) the number of warrants was increased by 43,663 warrants. At June 30, 2012, Luxor owned 6,252,883 of
the 2009 private placement warrants. Luxor waived their right to the anti-dilution adjustments with respect to their warrants
in connection with the private placement completed with them on June 7, 2012. The accounting treatment of these adjustments is
discussed in Note 6.
The following table summarizes the Company’s
private placement warrant activity for the six months ended June 30, 2012:
|
|
Number
of
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life
(Years)
|
|
Balance, December 31, 2011
|
|
|
13,784,549
|
|
|
$
|
1.80
|
|
|
|
0.87
|
|
Warrants issued
|
|
|
43,663
|
|
|
|
1.71
|
|
|
|
0.42
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
|
13,828,212
|
|
|
$
|
1.79
|
|
|
|
0.37
|
|
|
9.
|
STOCK-BASED
COMPENSATION
|
Stock-based compensation includes
grants of stock options and purchase warrants to eligible directors, employees and consultants as determined by the board of directors.
Stock option plans
-
The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize
the granting of stock option awards subject to certain conditions. At June 30, 2012, the Company had 11,243,076 of its common
shares available for issuance for stock option awards under the Company’s stock option plans.
At June 30, 2012, the Company
had the following stock option plans available:
|
·
|
2009
Plan - Under the
terms of the 2009
Plan, as amended,
options to purchase
up to 7,250,000
shares of common
stock may be granted
to eligible participants.
Under the plan,
the exercise price
is generally equal
to the fair market
value of the Company’s
common stock on
the grant date and
the maximum term
of the options is
generally ten years.
For grantees who
own more than 10%
of the Company’s
common stock on
the grant date,
the exercise price
may not be less
than 110% of the
fair market value
on the grant date
and the term is
limited to five
years. The 2009
Plan was approved
by the Company’s
stockholders on
December 15, 2009.
As of June 30, 2012,
the Company had
granted 1,110,000
options under the
2009 Plan with a
weighted average
exercise price of
$1.22 per share.
As of June 30, 2012,
all of the options
granted were outstanding.
|
|
·
|
2009
Directors Plan -
Under the terms
of the 2009 Directors
Plan, as amended,
options to purchase
up to 2,750,000
shares of common
stock may be granted
to Directors. Under
the plan, the exercise
price may not be
less than 100% of
the fair market
value of the Company’s
common stock on
the grant date and
the term may not
exceed ten years.
No participants
shall receive more
than 300,000 options
under this plan
in any one calendar
year. The 2009 Directors
Plan was approved
by the Company’s
stockholders on
December 15, 2009.
As of June 30, 2012,
the Company had
granted 789,866
options under the
2009 Directors Plan
with a weighted
average exercise
price of $1.15 per
share. As of June
30, 2012, all of
the options granted
were outstanding.
|
|
·
|
2007
Plan - Under the
terms of the 2007
Plan, options to
purchase up to 4,000,000
shares of common
stock may be granted
to eligible participants.
Under the plan,
the option price
for incentive stock
options is the fair
market value of
the stock on the
grant date and the
option price for
non-qualified stock
options shall be
no less than 85%
of the fair market
value of the stock
on the grant date.
The maximum term
of the options under
the plan is ten
years from the grant
date. The 2007 Plan
was approved by
the Company’s
stockholders on
June 15, 2007. As
of June 30, 2012,
the Company had
granted 857,058
options under the
2007 Plan with a
weighted average
exercise price of
$1.08 per share.
As of June 30, 2012,
849,812 of the options
granted were outstanding.
|
|
9.
|
STOCK-BASED
COMPENSATION
|
Non-Employee Directors Equity
Compensation Policy
– Non-employee directors have a choice between receiving $9,000 value of common stock per quarter,
where the number of shares is determined by the closing price of the Company’s stock on the last trading day of each quarter,
or a number of options to purchase twice the number of shares of common stock that the director would otherwise receive if the
director elected to receive shares, with an exercise price based on the closing price of the Company’s common stock on the
last trading day of each quarter. Effective April 1, 2011, the Board of Directors implemented a policy whereby the number of options
granted for quarterly compensation to each director is limited to 18,000 options per quarter.
Stock warrants
–
Upon approval of the Board of Directors, the Company grants stock warrants to consultants for services performed.
Valuation of awards
- The Company estimates the fair value of stock-based compensation awards by using the Binomial Lattice option pricing model with
the following assumptions used for grants:
|
|
2012
|
|
2011
|
|
|
|
|
|
Risk-free interest rate
|
|
0.37% -1.04%
|
|
1.00% - 2.24%
|
Dividend yield
|
|
-
|
|
-
|
Expected volatility
|
|
84.94% - 91.36%
|
|
76.54% - 83.28%
|
Expected life (years)
|
|
2.00 - 4.25
|
|
2.00 - 4.25
|
The expected volatility is
based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied
yield available on US Treasury zero-coupon issues over equivalent lives of the options.
The expected life of awards
represents the weighted-average period the stock options or warrants are expected to remain outstanding and is a derived output
of the Binomial Lattice model. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s
model. The Binomial Lattice model estimates the probability of exercise as a function of these two variables based on the entire
history of exercises and cancellations on all past option grants made by the Company.
|
9.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
Stock-based compensation
activity
- During the six month period ended June 30, 2012, the Company granted stock-based awards as follows:
|
a)
|
On June 30, 2012, the Company
granted stock options under the 2009 Directors Plan for the purchase
of 54,053 shares of common stock at $0.94 per share. 40,800 of
the options were granted to three of the Company’s non-management
directors and 13,253 options were granted to a former director
for directors’ compensation. All of the options are fully
vested and expire on June 30, 2017. The exercise price of the
stock options equaled the closing price of the Company’s
common stock on the grant date.
|
|
b)
|
On June 30, 2012, the Company
granted stock options under the 2007 Plan for the purchase of
4,747 shares of common stock at $0.94 per share. The options were
granted to a consultant, are fully vested and expire on June 30,
2017. The exercise price of the stock options equaled the closing
price of the Company’s common stock on the grant date.
|
|
c)
|
On June 7, 2012, the Company modified
the terms of a stock option grant made to a director by extending
the expiration date from June 30, 2012 to November 4, 2015. All
other option terms remained unchanged. The modification resulted
in additional expense of $53,613.
|
|
d)
|
On March 31, 2012, the Company
granted stock options under the 2009 Directors Plan for the purchase
of 28,125 shares of common stock at $1.92 per share. The options
were granted to three of the Company’s non-management directors
for directors’ compensation, are fully vested and expire
on March 31, 2017. The exercise price of the stock options equaled
the closing price of the Company’s common stock on the grant
date.
|
During the six month period
ended June 30, 2011, the Company granted stock-based awards as follows:
|
a)
|
On June 30, 2011, the Company
granted nonqualified stock options under the 2007 Plan for the
purchase of 54,000 shares of common stock at $0.405 per share.
The options were granted to three of the Company’s non-management
directors for directors’ compensation, are fully vested
and expire on June 30, 2016. The exercise price of the stock options
equaled the closing price of the Company’s common stock
on the grant date.
|
|
b)
|
On March 31, 2011, the Company
granted nonqualified stock options under the 2007 Plan for the
purchase of 105,882 shares of common stock at $0.51 per share.
The options were granted to three of the Company’s non-management
directors for directors’ compensation, are fully vested
and expire on March 31, 2016. The exercise price of the stock
options equaled the closing price of the Company’s common
stock on the grant date.
|
|
c)
|
On January 13, 2011, the Company
granted stock purchase warrants for the purchase of 200,000 shares
of common stock at $1.00 per share to a consultant. The warrants
vest 25% each on April 13, 2011, July 13, 2011, October 13, 2011
and January 13, 2012. The warrants expire on January 13, 2014.
The exercise price of the warrants exceeded the closing price
of the Company’s common stock which was $0.76 on the grant
date.
|
Expenses for the six months
ended June 30, 2012 and 2011 related to the vesting, modifying and granting of stock-based compensation awards were $357,034 and
$164,492, respectively, and are included in general and administrative expense.
|
9.
|
STOCK
-
BASED
COMPENSATION
(continued)
|
The
following table summarizes the Company’s stock-based compensation activity for the six months ended June 30, 2012:
|
|
Number
of
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
3,230,953
|
|
|
$
|
1.17
|
|
|
|
5.07
|
|
Options/warrants granted
|
|
|
86,925
|
|
|
|
1.26
|
|
|
|
4.92
|
|
Options/warrants expired
|
|
|
(68,200
|
)
|
|
|
(4.04
|
)
|
|
|
-
|
|
Options/warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options/warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
|
3,249,678
|
|
|
$
|
1.12
|
|
|
|
4.89
|
|
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, 2012:
|
|
Number
of
Shares Subject to Vesting
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2011
|
|
|
1,115,000
|
|
|
$
|
0.90
|
|
Options/warrants granted
|
|
|
-
|
|
|
|
-
|
|
Options/warrants vested
|
|
|
(265,000
|
)
|
|
|
(0.86
|
)
|
Options/warrants cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested, June 30, 2012
|
|
|
850,000
|
|
|
$
|
0.91
|
|
As of June 30, 2012, there
was $349,569 of total unrecognized compensation cost related to unvested stock-based compensation awards. This cost is expected
to be recognized as follows:
2012
|
|
$
|
181,734
|
|
2013
|
|
|
164,726
|
|
2014
|
|
|
3,109
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
$
|
349,569
|
|
The following table summarizes
all of the Company’s stock option and warrant activity for the six months ended June 30, 2012. At June 30, 2012 the total
balance includes warrants issued pursuant to private placement agreements, warrants issued in 2005 in connection with the Clarkdale
Slag Project (as discussed in Note 3) and stock options and warrants issued as compensation to directors, employees and consultants:
|
|
Number
of
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Term
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
26,015,502
|
|
|
$
|
1.23
|
|
|
|
2.27
|
|
Options/warrants granted/issued
|
|
|
130,588
|
|
|
|
1.41
|
|
|
|
3.40
|
|
Options/warrants expired
|
|
|
(68,200
|
)
|
|
|
(4.04
|
)
|
|
|
-
|
|
Options/warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options/warranted exercised
|
|
|
(250,000
|
)
|
|
|
(0.375
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
|
25,827,890
|
|
|
$
|
1.23
|
|
|
|
1.80
|
|
|
11.
|
STOCKHOLDER
RIGHTS PLAN
|
The Company
adopted a Stockholder Rights Plan (the “Rights Plan”) in August 2009 to protect stockholders from attempts to acquire
control of the Company in a manner in which the Company’s Board of Directors determines is not in the best interest of the
Company or its stockholders. Under the plan, each currently outstanding share of the Company’s common stock includes,
and each newly issued share will include, a common share purchase right. The rights are attached to and trade with
the shares of common stock and generally are not exercisable. The rights will become exercisable if a person or group
acquires, or announces an intention to acquire, 15% or more of the Company’s outstanding common stock. The Rights Plan was
not adopted in response to any specific effort to acquire control of the Company. The issuance of rights had no dilutive
effect, did not affect the Company’s reported earnings per share and was not taxable to the Company or its stockholders.
In connection
with the private placement completed on June 7, 2012 with Luxor the Company agreed to waive the 15% limitation currently in the
Rights Plan with respect to Luxor, and to allow Luxor to become the beneficial owner of up to 17.5% of the Company’s common
stock, without being deemed to be an “acquiring person” under the Rights Plan. Following the private placement, Luxor
became a beneficial owner of approximately 17.48% of the Company’s common stock.
|
12.
|
PROPERTY RENTAL
AGREEMENTS AND LEASES
|
|
|
The Company, through its subsidiary CML, has the following lease
and rental agreements as lessor:
|
|
|
Clarkdale Arizona Central Railroad
– rental
- CML has a month-to-month rental agreement with Clarkdale
Arizona Central Railroad. The rental payment is $1,700 per month.
|
|
|
Commercial building rental
- CML
rents commercial building space to various tenants. Rental arrangements
are minor in amount and are typically month-to-month.
|
Land lease - wastewater
effluent
- Pursuant to our acquisition of TI, the Company became party to a lease dated August 25, 2004 with the Town of Clarkdale,
AZ (“Clarkdale”). The Company provides approximately 60 acres of land to Clarkdale for disposal of Class B effluent.
In return, the Company has first right to purchase up to 46,000 gallons per day of the effluent for its use at fifty percent (50%)
of the potable water rate. In addition, if Class A effluent becomes available, the Company may purchase that at seventy-five percent
(75%) of the potable water rate.
The original term of the lease
was five years and expired on August 25, 2009; however, the lease also provided for additional one year extensions without any
changes to the original lease agreement. At such time as Clarkdale no longer uses the property for effluent disposal, and for
a period of 25 years measured from the date of the lease, the Company has a continuing right to purchase Class B effluent, and
if available, Class A effluent at then market rates.
The Company is a Nevada corporation
and is subject to federal and Arizona income taxes. Nevada does not impose a corporate income tax.
Significant components of the
Company’s net deferred income tax assets and liabilities at June 30, 2012 and December 31, 2011 were as follows:
|
|
June
30,
2012
|
|
|
December
31,
2011
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
13,941,076
|
|
|
$
|
12,648,152
|
|
Option compensation
|
|
|
692,330
|
|
|
|
599,128
|
|
Property, plant &
equipment
|
|
|
667,511
|
|
|
|
565,186
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
15,300,917
|
|
|
|
13,812,466
|
|
Less: valuation allowance
|
|
|
(539,116
|
)
|
|
|
(371,101
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax assets
|
|
|
14,761,801
|
|
|
|
13,441,365
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related liabilities
|
|
|
(55,197,465
|
)
|
|
|
(55,197,465
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
|
$
|
(40,435,664
|
)
|
|
$
|
(41,756,100
|
)
|
The realizability of deferred
tax assets are reviewed at each balance sheet date. The majority of the Company’s deferred tax liabilities are depletable.
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.
|
13.
|
INCOME TAXES
(continued)
|
A reconciliation of the tax
benefit for the six months ended June 30, 2012 and 2011 at US federal and state income tax rates to the actual tax provision recorded
in the financial statements consisted of the following components:
|
|
June 30,
2012
|
|
|
June 30,
2011
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit at statutory rates
|
|
$
|
1,548,978
|
|
|
$
|
1,098,747
|
|
|
|
|
|
|
|
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Change in derivative warrant liability – non tax item
|
|
|
(17,815
|
)
|
|
|
306,647
|
|
Other non-deductible items
|
|
|
(42,712
|
)
|
|
|
-
|
|
Change in valuation allowance
|
|
|
(168,015
|
)
|
|
|
8,209
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
1,320,436
|
|
|
$
|
1,413,603
|
|
The Company had cumulative
net operating losses of approximately $36,687,044 and $33,284,612 as of June 30, 2012 and December 31, 2011, respectively for
federal income tax purposes. The federal net operating loss carryforwards will expire between 2025 and 2033.
State income tax allocation
- The Company has elected to file consolidated tax returns with Arizona tax authorities. Tax attributes are computed using
an allocation and apportionment formula as outlined in Arizona tax law. The Company computes its tax provision using its statutory
federal rate plus a state factor that includes the Arizona statutory rate and the current apportionment percentage, which is then
reduced by the federal tax benefit that would be obtained upon payment of the computed state taxes.
For the six month periods ended
June 30, 2012 and 2011, the state income tax benefit which is included in the total tax benefit was $162,683 and $204,509, respectively.
The Company had cumulative
net operating losses of approximately $22,518,598 and $20,183,883 as of June 30, 2012 and December 31, 2011, respectively for
Arizona state income tax purposes. The Arizona state net operating loss carryforwards will expire between 2013 and 2018.
Tax returns subject to examination
- The Company and its subsidiaries file income tax returns in the United States. These tax returns are subject to examination
by taxation authorities provided the years remain open under the relevant statutes of limitations, which may result in the payment
of income taxes and/or decreases in its net operating losses available for carryforward. The Company is no longer subject to income
tax examinations by US federal and state tax authorities for years prior to 2008. While the Company believes that its tax filings
do not include uncertain tax positions, the results of potential examinations or the effect of changes in tax law cannot be ascertained
at this time. The Company currently has no tax years under examination.
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
Lease obligations
-
The Company rents office space in Henderson, Nevada on month-to-month terms. As of June 30, 2012, the monthly rent was $2,980.
Rental expense resulting from
this operating lease agreement was $17,880 and $17,880 for the six month periods ended June 30, 2012 and 2011, respectively.
Employment contracts
-
Martin B. Oring
. On October 1, 2010, the Company entered into an employment agreement and stock option agreement
with Mr. Oring as its Chief Executive Officer and President. The agreement is on an at-will basis and the Company may terminate
his employment, upon written notice, at any time, with or without cause or advance notice. The Company has agreed to pay
Mr. Oring compensation of $150,000, which includes compensation as a director. Mr. Oring will be provided with reimbursement
for reasonable business expenses in connection with his duties as Chief Executive Officer. Mr. Oring has voluntarily agreed
not to participate in health or other benefit plans or programs otherwise in effect from time to time for executives or employees.
On July 1, 2011, Mr. Oring’s annual compensation was adjusted to $200,000.
Carl S. Ager
.
The
Company entered into an employment agreement with Carl S. Ager, its Vice President, Secretary and Treasurer, effective January
1, 2006 and as amended February 16, 2007. Pursuant to the terms of the employment agreement, the Company agreed to
pay Mr. Ager an annual salary of $160,000. From September 1, 2010 through June 30, 2011, Mr. Ager voluntarily agreed
to reduce his cash compensation by 25%. In addition to his annual salary, Mr. Ager may be granted a discretionary bonus and stock
options, to the extent authorized by the Board of Directors. The term of the agreement is for an indefinite period, unless otherwise
terminated by either party pursuant to the terms of the agreement. In the event that the agreement is terminated by
the Company, other than for cause, the Company will provide Mr. Ager with six months written notice or payment equal to six months
of his monthly salary.
Melvin L. Williams
.
The
Company entered into an employment agreement with Melvin L. Williams, its Chief Financial Officer, effective June 14, 2006 and
as amended February 16, 2007. Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Williams
an annualized salary of $130,000 based on an increase in time commitment from 300-600 hours worked to 600-800 hours worked. From
September 1, 2010 through June 30, 2011, Mr. Williams voluntarily agreed to reduce his cash compensation by 25%. In the event
the employment agreement is terminated by the Company without cause, the Company will pay Mr. Williams an amount equal to three
months’ salary in a lump sum as full and final payment of all amounts payable under the agreement.
|
14.
|
COMMITMENTS AND CONTINGENCIES
(continued)
|
Purchase consideration Clarkdale
Slag Project
- In consideration of the acquisition of the Clarkdale Slag Project from VRIC, the Company has agreed to certain
additional contingent payments. The acquisition agreement contains payment terms which are based on the Project Funding Date as
defined in the agreement:
|
a)
|
The Company has agreed to pay VRIC $6,400,000 on the Project
Funding Date;
|
|
b)
|
The
Company has agreed to pay VRIC
a minimum annual royalty of
$500,000, commencing on the
Project Funding Date (the “Advance
Royalty”), and an additional
royalty consisting of 2.5% of
the NSR on any and all proceeds
of production from the Clarkdale
Slag Project (the “Project
Royalty”). The Advance
Royalty remains payable until
the first to occur of: (i) the
end of the first calendar year
in which the Project Royalty
equals or exceeds $500,000 or
(ii) February 15, 2017. In any
calendar year in which the Advance
Royalty remains payable, the
combined Advance Royalty and
Project Royalty will not exceed
$500,000; and,
|
|
c)
|
The
Company has agreed to pay VRIC
an additional amount of $3,500,000
from the net cash flow of the
Clarkdale Slag Project.
|
The Advance Royalty shall continue
for a period of ten years from the Agreement Date or until such time that the Project Royalty shall exceed $500,000 in any calendar
year, at which time the Advance Royalty requirement shall cease.
Clarkdale Slag Project royalty
agreement - NMC
-
Under the original JV Agreement, the Company agreed to pay NMC a 5% royalty on
NSR payable from the Company’s 50% joint venture interest in the production from the Clarkdale Slag Project. Upon the assignment
to the Company of VRIC’s 50% interest in the Joint Venture Agreement in connection with the reorganization with Transylvania
International, Inc., the Company continues to have an obligation to pay NMC
a royalty consisting of 2.5% of the NSR on
any and all proceeds of production from the Clarkdale Slag Project.
On July 25, 2011, the Company
and NMC entered into an amendment (the “Third Amendment”) to the assignment agreement between the parties dated June
1, 2005. Pursuant to the Third Amendment, the Company agreed to pay advance royalties (the “Advance Royalties”) to
NMC of $15,000 per month (the “Minimum Royalty Amount”) effective as of January 1, 2011. The Third Amendment also
provides that the Minimum Royalty Amount will continue to be paid to NMC in every month where the amount of royalties otherwise
payable would be less than the Minimum Royalty Amount, and such Advance Royalties will be treated as a prepayment of future royalty
payments. In addition, fifty percent of the aggregate consulting fees paid to NMC from 2005 through December 31, 2010 were deemed
to be prepayments of any future royalty payments. As of December 31, 2010, aggregate consulting fees previously incurred amounted
to $1,320,000, representing credit for advance royalty payments of $660,000.
Total advance royalty payments
to NMC for the six month period ended June 30, 2012 amounted to $90,000 and have been included in “Mineral exploration and
evaluation expenses – related party” on the statement of operations.
|
14.
|
COMMITMENTS AND CONTINGENCIES
(continued)
|
Development agreement
- In January 2009, the Company submitted a development agreement to the Town of Clarkdale for development of an Industrial Collector
Road (the “Road”). The purpose of the Road is to provide the Company the capability to transport supplies, equipment
and products to and from the Clarkdale Slag Project site efficiently and to meet stipulations of the Conditional Use Permit for
the full production facility at the Clarkdale Slag Project.
The timing of the development
of the Road is to be within two years of the effective date of the agreement. The effective date shall be the later of (i) 30
days from the approving resolution of the agreement by the Council, (ii) the date on which the Town obtains a connection dedication
from separate property owners who have land that will be utilized in construction of the Road, or (iii) the date on which the
Town receives the proper effluent permit. The contingencies outlined in (ii) and (iii) above are beyond control of the Company.
The Company estimates the initial
cost of construction of the Road to be approximately $3,500,000 and the cost of additional enhancements to be approximately $1,200,000
which will be required to be funded by the Company. Based on the uncertainty of the contingencies, this cost is not included in
the Company’s current operating plans. Funding for construction of the Road will require obtaining project financing or
other significant financing. At June 30, 2012 and through the date the consolidated financial statements were issued, these contingencies
had not changed.
Registration Rights Agreement
- In connection with the June 7, 2012 private placement, the Company entered into a Registration Rights Agreement (“RRA”)
with the purchasers. Pursuant to the RRA, the Company agreed to certain demand registration rights. These rights include the requirement
that the Company file certain registration statements within a specified time period and to have these registration statements
declared effective within a specified time period. The Company also agreed to file and keep continuously effective such additional
registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume
restrictions. If the Company is not able to comply with these registration requirements, the Company will be required to pay cash
penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in which a registration default,
as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the
date of this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.
|
15.
|
CONCENTRATION OF CREDIT RISK
|
The Company maintains its cash
accounts in three financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance
Corporation (the “FDIC”) for up to $250,000 per institution. Additionally, under the FDIC’s expanded coverage,
all non-interest bearing transactional accounts are insured in full until December 31, 2012. This expanded coverage is separate
from and in addition to the normal insurance coverage.
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, 2012, of the total cash held by
banks, the Company had deposits in excess of FDIC insured limits in the amount of $6,369,434.
|
16.
|
CONCENTRATION OF ACTIVITY
|
The Company currently utilizes
a mining and environmental firm to perform significant portions of its mineral property and metallurgical exploration work programs.
A change in the lead mining and environmental firm could cause a delay in the progress of the Company’s exploration programs
and would cause the Company to incur significant transition expense and may affect operating results adversely.
|
17.
|
RELATED PARTY TRANSACTIONS
|
NMC
- The Company utilizes
the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides the Company with
use of its laboratory, instrumentation, milling equipment and research facilities. 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.
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 Sag Project.
The royalty agreement and advance royalty payments are more fully discussed in Note 14.
For the six month period ended
June 30, 2012, the Company incurred total reimbursement of expenses to NMC of $5,966 and advance royalty payments of $90,000.
At June 30, 2012, the Company did not have an outstanding balance due to NMC.
For the six month period ended
June 30, 2011, the Company incurred total reimbursement of expenses to NMC of $5,058 and advance royalty payments of $90,000.
Cupit, Milligan, Ogden &
Williams, CPAs
- The Company utilizes Cupit, Milligan, Ogden & Williams, CPAs (“CMOW”) to provide accounting
support services. Mr. Williams is affiliated with CMOW.
The Company incurred total
fees to CMOW of $64,918 and $77,560 for the six month periods ended June 30, 2012 and 2011, respectively. Fees for services provided
by CMOW do not include any charges for Mr. Williams’ time. Mr. Williams is compensated for his time under his employment
agreement. The direct benefit to Mr. Williams was $22,072 and $26,370 of the above CMOW fees and expenses for the six month periods
ended June 30, 2012 and 2011, respectively. The Company had an outstanding balance due to CMOW of $6,337 and $12,725 as of June
30, 2012 and December 31, 2011, respectively.
Earnings per share is computed
using the weighted average common shares and dilutive common equivalent shares outstanding. Potentially dilutive securities consist
of outstanding stock options and warrants. The Company is still in the exploration stage and as such, has not generated operational
revenues; however, for the three month period ended June 30, 2012, the Company had net income due to a $2,992,076 gain from the
change in fair value of its derivative warrant liability. A reconciliation of the numerator and denominator of basic earnings
per share and diluted earnings per share was as follows for the three months ended June 30, 2012:
|
|
|
|
Basic earnings per share computation:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net income
|
|
$
|
1,792,224
|
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
132,257,329
|
|
Income per common share – basic
|
|
|
|
|
Net income
|
|
$
|
0.01
|
|
|
|
|
|
|
Diluted earnings per share computation:
|
|
|
|
|
Numerator:
|
|
|
|
|
Net income
|
|
$
|
1,792,224
|
|
Denominator:
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
132,257,329
|
|
Effect of dilutive securities:
|
|
|
|
|
Weighted average stock options and warrants outstanding
|
|
|
10,301,309
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
142,558,638
|
|
Income per common share – dilutive
|
|
|
|
|
Net income
|
|
$
|
0.01
|
|
For the three
month period ended June 30, 2012, 15,628,770 options and warrants were outstanding, but were not included in the computation of
diluted weighted average common shares because their exercise prices exceeded their fair market values.
As of June
30, 2012 and 2011 25,827,890 and 27,549,068 stock options and warrants were outstanding, but were not considered in the computation
of diluted earnings per share as their inclusion would be anti-dilutive.
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, 2011.
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, 2012 and changes in our financial condition from our year ended December 31, 2011. 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, 2011.
Executive Overview
We are an exploration stage company engaged
in a slag reprocessing project and the acquisition and exploration of mineral properties. Our business is presently focused on
our two mineral projects: (i) the Clarkdale Slag Project, located in Clarkdale, Arizona, which is a reclamation project to recover
precious and base metals from the reprocessing of slag produced from the smelting of copper ore mined at the United Verde Copper
Mine in Jerome, Arizona; and (ii) the Searchlight Gold Project, which involves exploration for precious metals on mining claims
near Searchlight, Nevada.
Clarkdale Slag Project
Since our involvement in the Clarkdale Slag
Project, our goal has been to demonstrate the economic feasibility of the project by determining a commercially viable method to
extract precious and base metals from the slag material. We believe that in order to demonstrate this, we must successfully operate
the four major steps of our production process: crushing and grinding, leaching, continuous process operation, and extraction of
gold from solution. We believe that we have demonstrated success in the first three steps of the process and are currently working
to complete the fourth step prior to beginning the bankable feasibility process.
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 significant 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
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 pilot plant tests. However, during our scale-up to a larger
pilot size we discovered that the high levels of iron and silica that were leached into solution produced a pregnant leach solution
(“PLS”) that became gelatinous over time. We tried numerous methods to remedy this issue. However, it was determined
that, with the high levels of iron and silica in solution, the extraction of the gold from the PLS was not commercially feasible.
Hence, we concluded that this open-vessel leach process was not viable for a production facility.
|
In 2010, we turned our efforts to the autoclave process.
Autoclaving, a proven technology that is widely used within the mining industry, is a chemical leach process that utilizes elevated
temperature and pressure in a closed autoclave system to extract precious and base metals from the slag material. Our independent
consultant, Arrakis Inc. (“Arrakis”) has performed over 150 batch autoclave tests under various leach protocols and
grind sizes. Arrakis’ test results have consistently leached approximately 0.5 ounces per ton (“opt”) of gold
into solution. In addition, these results indicate that autoclaving does not dissolve the levels of iron and silica into solution
as did the ambient leach. We believe that autoclaving will improve our ability to recover gold from solution and thus improve process
technical feasibility. The operating conditions identified by Arrakis thus far are mild to moderate compared with most current
autoclaves and are anticipated to result in lower capital, operating and maintenance costs.
During the third quarter of 2011, we received the
results of testing from independent engineering firm SGS Lakefield Research Chile, S.A. (“SGS Chile”). SGS Chile performed
a number of batch autoclave tests, under various metallurgical conditions, using both pressure oxidation (“POX”) and
pressure oxidative leach (“POL”) testing methodologies. The optimized POX and POL tests both resulted in approximately
0.5 opt (ounces per ton) of gold extracted into solution. 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 SGS Chile 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.
SGS Chile 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 (the “Australian Testing Firm”)
at its facility in Western Australia. The Australian Testing Firm 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, which are both 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 SGS Chile.
|
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. Initially, Arrakis performed
63 ion exchange resin and carbon tests resulting in the production of gold dore beads using a variety of resins and carbon. Resin
and carbon tests conducted on POL leach solution, consisting of 63 individual column tests, indicated an approximate 45% average
recovery of gold from solution with any single resin or carbon. Initially 7 resins and 4 carbons were chosen. We have narrowed
our testing to 2 resins and 2 carbons because they obtained the best extraction results. The results of tests conducted with the
eliminated resins, some of which did not result in any gold recovered, are calculated into the 45% figure above. Other resins were
successful in removing higher percentages of gold from solution. The goal of this testing is to obtain a minimum 85% recovery of
gold in solution which is also consistent with common commercial practice. It should be noted that this test work resulted in gold
metal beads obtained from the resin or carbon. When the head ore grade is back calculated from these beads it is within the previously
stated ranges of 0.2 to 0.6 opt., with an arithmetic average of 0.42 opt.
Recently, using the optimum protocols determined
from the initial 63 tests described above, we have been able to consistently repeat metallic gold extraction test results via resin
and carbon. We have also engaged a 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,
our initial gold recovery values may improve. While resin and carbon test results to date are encouraging, we believe we need to
continue with our test work in order to better determine the resins that best optimize our gold recovery on a consistent basis.
We are also in the process of having other qualified third party testing firms repeat and confirm the results obtained by the Arrakis
team.
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). This autoclave is currently being modified to accommodate its usage with the process developed thus far and enhance
its mechanical configuration. While the autoclave is being modified, the autoclave’s support system (feed system, controls,
etc.) is being designed and installed. We expect the initial startup and system adjustment of this autoclave to begin during the
third quarter of 2012. The greater quantity of PLS able to be generated with the large batch autoclave will allow 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.
We believe that if we are able to achieve metallic
gold extraction on a larger quantity of PLS at effective loading rates, we will have demonstrated the viability of the total extraction
and recovery process as well as verified the extractable gold grade of the slag via metallic gold beads (the equivalent of a fire
assay) thereby eliminating the need for different and sometimes conflicting analytical techniques. We will therefore be in a position
to begin the bankable feasibility study on our production process which will serve to demonstrate the economic viability of the
project.
Searchlight Gold Project
Since 2005, we have maintained an ongoing
exploration program on our Searchlight Gold Project and have contracted with Arrakis, an unaffiliated mining and environmental
firm, to perform a number of metallurgical tests on surface and bulk samples taken from the project site under strict chain-of-custody
protocols. In 2007, results from these tests validated the presence of gold on the project site, and identified reliable and consistent
metallurgical protocols for the analysis and extraction of gold, such as microwave digestion and autoclave leaching. Autoclave
methods typically carry high capital and operating costs on large scale projects, however, we were encouraged by these results
and intend to continue to explore their applicability to the Searchlight Gold Project.
On February 11, 2010, we received final
approval of our Plan of Operations from the BLM, which allows us to conduct an 18-hole drill program on our project area. However,
in an effort to conserve our cash and resources, we have decided to postpone further exploration on our Searchlight Gold Project
until we are better able to determine the feasibility of our Clarkdale Slag Project. Once we have decided to resume our exploration
program, work on the project site will be limited to the scope within the Plan of Operations. To perform any additional drilling
or mining on the project, we would be required to submit a new application to the BLM for approval prior to the commencement of
any such additional activities.
Critical Accounting Policies
Use of estimates
– The
preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement
uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant
areas requiring estimates and assumptions include the valuation of stock-based compensation and derivative warrant liabilities,
impairment analysis of long-lived assets, and realizability of deferred tax assets. Actual results could differ from those estimates.
Mineral properties -
Costs
of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties are
expensed as incurred while the project is in the exploration stage. Development costs and costs to maintain mineral properties
are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the related
capitalized costs are amortized using the units-of-production method over the proven and probable reserves.
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 costs related to acquisition, development and construction of property and equipment which is designed
as integral parts of the manufacturing process of our projects. The capitalized interest is recorded as part of the asset it relates
to and will be amortized over the asset’s useful life once production commences.
Property and Equipment –
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is principally provided on the straight-line method
over the estimated useful lives of the assets, which are generally 3 to 39 years. The cost of repairs and maintenance is charged
to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income
(expense).
Impairment of long-lived assets
– We review and evaluate our long-lived assets for impairment at each balance sheet date due to our planned exploration stage
losses and document such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on
factors such as our continued right to explore the property, exploration reports, drill results, technical reports and continued
plans to fund exploration programs on the property.
The tests for long-lived assets in the exploration,
development or producing stage that would have a value beyond proven and probable reserves would be monitored for impairment based
on factors such as current market value of the mineral property and results of exploration, future asset utilization, business
climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability
of assets to be held and used is measured by a comparison of 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.
Results of Operations
The following table illustrates a summary
of our results of operations for the periods listed below:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
Percent
Increase/
(Decrease)
|
|
|
2012
|
|
|
2011
|
|
|
Percent
Increase/
(Decrease)
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
n/a
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
n/a
|
|
Operating
expenses
|
|
|
(1,784,104
|
)
|
|
|
(1,637,285
|
)
|
|
|
9.0
|
%
|
|
|
(4,023,804
|
)
|
|
|
(3,376,897
|
)
|
|
|
19.2
|
%
|
Other income (expense)
|
|
|
2,976,195
|
|
|
|
9,815
|
|
|
|
30223.0
|
%
|
|
|
(52,453
|
)
|
|
|
485,458
|
|
|
|
(110.8
|
)%
|
Income tax benefit
|
|
|
600,133
|
|
|
|
592,672
|
|
|
|
1.3
|
%
|
|
|
1,320,436
|
|
|
|
1,413,603
|
|
|
|
(6.6
|
)%
|
Net income (loss)
|
|
$
|
1,792,224
|
|
|
$
|
(1,034,798
|
)
|
|
|
(273.2
|
)%
|
|
$
|
(2,755,821
|
)
|
|
$
|
(1,477,836
|
)
|
|
|
86.5
|
%
|
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 month period ended June 30, 2012. 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,
|
|
|
|
2012
|
|
|
2011
|
|
|
Percent
Increase/
(Decrease)
|
|
|
2012
|
|
|
2011
|
|
|
Percent
Increase/
(Decrease)
|
|
Mineral exploration and evaluation expenses
|
|
$
|
561,232
|
|
|
$
|
584,067
|
|
|
|
(3.9
|
)%
|
|
$
|
1,606,685
|
|
|
$
|
1,181,951
|
|
|
|
35.9
|
%
|
Mineral exploration and evaluation expenses – related party
|
|
|
47,229
|
|
|
|
45,000
|
|
|
|
5.0
|
%
|
|
|
95,966
|
|
|
|
95,058
|
|
|
|
1.0
|
%
|
Administrative – Clarkdale site
|
|
|
69,640
|
|
|
|
76,510
|
|
|
|
(9.0
|
)%
|
|
|
142,928
|
|
|
|
186,688
|
|
|
|
(23.4
|
)%
|
General and administrative
|
|
|
734,972
|
|
|
|
549,137
|
|
|
|
33.8
|
%
|
|
|
1,424,714
|
|
|
|
1,138,892
|
|
|
|
25.1
|
%
|
General and administrative –
related party
|
|
|
27,451
|
|
|
|
34,204
|
|
|
|
(19.7
|
)%
|
|
|
64,918
|
|
|
|
77,560
|
|
|
|
(16.3
|
)%
|
Depreciation
|
|
|
343,580
|
|
|
|
348,367
|
|
|
|
(1.4
|
)%
|
|
|
688,593
|
|
|
|
696,748
|
|
|
|
(1.2
|
)%
|
Total operating expenses
|
|
$
|
1,784,104
|
|
|
$
|
1,637,285
|
|
|
|
9.0
|
%
|
|
$
|
4,023,804
|
|
|
$
|
3,376,897
|
|
|
|
19.2
|
%
|
Six month period ended June 30, 2012
and 2011.
Operating expenses increased by 19.2% to $4,023,804 during the six month period ended June 30, 2012 from $3,376,897
during the six month period ended June 30, 2011. Operating expenses increased primarily as a result of higher mineral exploration
and evaluation expenses and higher general and administrative expenses.
Mineral exploration and evaluation expenses
increased to $1,606,685 during the six month period ended June 30, 2012 from $1,181,951 during the six month period ended June
30, 2011. Mineral exploration and evaluation expenses increased primarily as a result of completing substantial portions of our
autoclave testing in the first quarter of 2012.
Mineral exploration and evaluation expenses
– related party increased to $95,966 during the six month period ended June 30, 2012 from $95,058 for the six month period
ended June 30, 2011. 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.
Administrative – Clarkdale site expenses
decreased to $142,928 during the six month period ended June 30, 2012 from $186,688 for the six month period ended June 30, 2011.
Administrative costs at the Clarkdale site decreased due to a significant change in our work program for the Clarkdale Slag Project
from preproduction activities to autoclave testing conducted primarily by outside independent laboratories resulting in less on-site
activity.
General and administrative expenses
increased to $1,424,714 during the six month period ended June 30, 2012 from $1,138,892 during the six month period ended
June 30, 2011. General and administrative expenses increased primarily due to restoring director fees and officer salaries to
their contractual amounts and to increased stock based compensation related to the following events in the six month period
ended June 30, 2012: (1) modification of 200,000 stock options, (2) immediate vesting of 100,000 stock options upon the
resignation of one of our directors and (3) increased vesting expense related to 615,000 stock options granted in the third
quarter of 2011. Additionally, auditing and accounting fees increased in 2012 due to the restatement of our financial
statements for the years ended December 31, 2008 through 2010 and the unaudited interim consolidated financial statement for
each of the quarterly periods ended March 31, 2011 through September 30, 2011.
Included in general and administrative
– related party were the amounts of $64,918 and $77,560 for the six month periods ended June 30, 2012 and 2011, respectively,
for accounting support services to Cupit, Milligan, Ogden & Williams, CPAs, an affiliate of Melvin L. Williams, our Chief Financial
Officer. These accounting support services included bookkeeping input for the Clarkdale facility, assistance in preparing working
papers for quarterly and annual reporting, and preparation of federal and state tax filings. These expenses do not include any
fees for Mr. Williams’ time in directly supervising the support staff. Mr. Williams’ compensation has been provided
in the form of salary. The direct benefit to Mr. Williams was $22,072 and $26,370 of the above Cupit, Milligan, Ogden & Williams
fees for the six month periods ended June 30, 2012 and 2011, respectively. The decrease in fees is attributed primarily to the
reduction in activity at the Clarkdale site.
Depreciation expense decreased to $688,593
during the six month period ended June 30, 2012 from $696,748 during the six month period ended June 30, 2011.
Three month period ended June 30,
2012 and 2011.
Operating expenses increased by 9.0% to $1,784,104 during the three month period ended June 30, 2012 from
$1,637,285 during the three month period ended June 30, 2011. Operating expenses increased primarily as a result of increased general
and administrative expenses.
Mineral exploration and evaluation expenses
decreased by 3.9% to $561,232 during the three month period ended June 30, 2012 from $584,067 during the three month period ended
June 30, 2011. Mineral exploration and evaluation expenses decreased primarily as a result of completing substantial portions of
our autoclave testing in the first quarter of 2012.
In addition, included in mineral exploration
and evaluation expenses – related party were the amounts of $47,229 and $45,000 incurred in the three month periods ended
June 30, 2012 and 2011, respectively, to NMC.
Administrative – Clarkdale site expenses
decreased by 9.0% to $69,640 during the three month period ended June 30, 2012 from $76,510 for the three month period ended June
30, 2011. Administrative costs at the Clarkdale site decreased due to reduced activity and staff at the Clarkdale project site
as we continue to focus on autoclave testing conducted by outside independent laboratories.
General and administrative expenses increased
by 33.8% to $734,972 during the three month period ended June 30, 2012 from $549,137 during the three month period ended June 30,
2011. General and administrative expenses increased primarily due to restoring director fees and officer salaries to their contractual
amounts and to increased stock based compensation related to the following events in the second quarter of 2012: (1) modification
of 200,000 stock options, (2) immediate vesting of 100,000 stock options upon the resignation of one of our directors and (3) increased
vesting expense related to 615,000 stock options granted in the third quarter of 2011.
In addition, we incurred $27,451 and $34,204
during the three month periods ended June 30, 2012 and 2011, respectively, for general and administrative expenses for accounting
support services to Cupit, Milligan, Ogden & Williams, CPAs, an affiliate of Melvin L. Williams, our Chief Financial Officer.
These accounting support services included bookkeeping input for the Clarkdale facility, assistance in preparing working papers
for quarterly and annual reporting, and preparation support for various tax filings. These expenses do not include any fees for
Mr. Williams’ time in directly supervising the support staff. Mr. Williams’ compensation has been provided in the form
of salary. The direct benefit to Mr. Williams was $9,333 and $12,739 of the above Cupit, Milligan, Ogden & Williams fees for
the three month periods ended June 30, 2012 and 2011, respectively.
Depreciation expense decreased to $343,580
during the three month period ended June 30, 2012 from $348,367 during the three month period ended June 30, 2011.
Other Income and (Expense)
Six month period ended June 30, 2012
and 2011.
Total other income (expense) decreased to $(52,453) during the six month period ended June 30, 2012 from $485,458
during the six month period ended June 30, 2011. The decrease was primarily due to the change in the fair value of our derivative
warrant liability from a loss of $46,882 for the six months ended June 30, 2012 compared to a gain of $993,386 for the six months
ended June 30, 2011. In addition, we incurred losses of $526,753 on equipment dispositions during the six month period ended June
30, 2011.
Three month period ended June 30,
2012 and 2011.
Total other income (expense) increased to $2,976,195 during the three month period ended June 30, 2012 from
$9,815 during the three month period ended June 30, 2011. The increase in total other income (expense) primarily resulted from
a $2,992,076 gain recognized on the change in fair value of our derivative warrant liability during the three month period ended
June 30, 2012 compared to no change recognized during the three month period ended June 30, 2011.
Income Tax Benefit
Six month period ended June 30, 2012
and 2011.
Our income tax benefit decreased to $1,320,436 for the six month period ended June 30, 2012 from $1,413,603 during
the six month period ended June 30, 2011. The decrease in income tax benefit primarily resulted from increasing our valuation allowance
on deferred tax assets arising from state net operating loss carryforwards.
Three month period ended June 30,
2012 and 2011.
Income tax benefit increased to $600,133 for the three month period ended June 30, 2012 from $592,672 during
the three month period ended June 30, 2011. The increase in income tax benefit primarily resulted from increased losses from operations
due to factors discussed above.
Net Income (Loss)
Six month period ended June 30, 2012
and 2011.
The aforementioned factors resulted in a net loss of $2,755,821, or $0.02 per common share, for the six month
period ended June 30, 2012, as compared to a net loss of $1,477,836, or $0.01 per common share, for the six month period ended
June 30, 2011.
Three month period ended June 30,
2012 and 2011.
The aforementioned factors resulted in net income of $1,792,244, or $0.01 per common share, for the three
month period ended June 30, 2012, as compared to a net loss of $1,034,798, or $0.01 per common share, for the three month period
ended June 30, 2011.
As of June 30, 2012 and December 31, 2011,
we had cumulative net operating loss carryforwards of approximately $36,687,044 and $33,284,612, respectively for federal income
taxes. The federal net operating loss carryforwards expire between 2025 and 2033.
We had cumulative state net operating losses
of approximately $22,518,598 and $20,183,883 as of June 30, 2012 and December 31, 2011, respectively for state income tax purposes.
The state net operating loss carryforwards expire between 2013 and 2018.
Liquidity and Capital Resources
Historically, we have
financed our operations primarily through the sale of common stock and other convertible equity securities.
On June 7, 2012, we issued 4,500,000 shares
of common stock in a private placement at a price of $0.90 per share resulting in gross proceeds of $4,050,000. Total fees related
to this issuance were $2,040. In connection with the offering, we entered into a Securities Purchase Agreement and a Registration
Rights Agreement (“RRA”) with the purchasers.
Pursuant to the RRA, we agreed to certain
demand registration rights. These rights include the requirement that we file certain registration statements within a specified
time period and to have these registration statements declared effective within a specified time period. We also agreed to file
and keep continuously effective such additional registration statements until all of the shares of common stock registered thereunder
have been sold or may be sold without volume restrictions. If we are not able to comply with these registration requirements, we
have agreed to pay cash penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in
which a registration default, as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts
to $121,500. As of the date of this filing, we do not believe the penalty to be probable and accordingly, no liability has been
accrued.
On May 24, 2012, we issued 250,000 shares
of common stock from the exercise of warrants resulting in cash proceeds of $93,750. The warrants had an exercise price of $0.375.
On December 22, 2010, we entered into a
Common Stock Purchase Agreement (the “Purchase Agreement”) with an investor for the sale of shares of our common stock.
The per share purchase price of the shares sold in each transaction equaled the volume weighted average trading price of our common
stock during the ten-day trading period immediately preceding the applicable closing date (the “VWAP”), multiplied
by 0.85. The final closing was completed on December 15, 2011.
The offering and sale of shares of our
common stock to the investor was made pursuant to our shelf registration statement on Form S-3 (File No. 333-169993), which was
declared effective by the Securities and Exchange Commission on November 23, 2010.
In connection with these transactions
under the Purchase Agreement, we issued a total of 11,000,000 shares of common stock at a weighted per share purchase price of
$0.5874, resulting in gross proceeds to us of $6,460,940. Total fees related to these issuances were $99,690.
Working Capital
The following is a summary of our working
capital at June 30, 2012 and December 31, 2011:
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
Percent
Increase/(Decrease)
|
|
Current Assets
|
|
$
|
7,271,846
|
|
|
$
|
6,308,688
|
|
|
|
15.3
|
%
|
Current Liabilities
|
|
|
(415,539
|
)
|
|
|
(321,608
|
)
|
|
|
29.2
|
%
|
Working Capital
|
|
$
|
6,856,307
|
|
|
$
|
5,987,080
|
|
|
|
14.5
|
%
|
As of June 30, 2012, we had an accumulated
deficit of $30,371,564. As of June 30, 2012, we had working capital of $6,856,307, compared to working capital of $5,987,080 as
of December 31, 2011. The increase in our working capital was primarily attributable to an increase in cash. Cash was $7,097,077
as of June 30, 2012, as compared to $6,161,883 as of December 31, 2011. The increase in our cash balance was due to gross proceeds
received from a private placement completed in the second quarter of 2012 partially offset by our operating loss, principal payments
on the VRIC payable and purchases of equipment.
Included in long term liabilities in the
accompanying consolidated financial statements is a balance of $40,435,664 for deferred tax liability relating to the Clarkdale
Slag Project and Searchlight Gold Project. A deferred income tax liability was recorded on the excess of fair market value for
the asset acquired over income tax basis at a combined statutory federal and state rate of 38% with the corresponding increase
in the purchase price allocation of the assets acquired.
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,
|
|
|
|
2012
|
|
|
2011
|
|
|
Percent
Increase/(Decrease)
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(2,948,327
|
)
|
|
$
|
(2,657,066
|
)
|
|
|
11.0
|
%
|
Cash Flows Used in Investing Activities
|
|
|
(136,962
|
)
|
|
|
(76,812
|
)
|
|
|
78.3
|
%
|
Cash Flows Provided by Financing Activities
|
|
|
4,020,483
|
|
|
|
1,942,158
|
|
|
|
107.0
|
%
|
Net Change in Cash During Period
|
|
$
|
935,194
|
|
|
$
|
(791,720
|
)
|
|
|
(218.1
|
)%
|
Net Cash Used in Operating Activities.
Net cash used in operating activities increased to $2,948,327 during the six month period ended June 30, 2012 from $2,657,066 during
the six month period ended June 30, 2011, primarily as result of increased mineral exploration expenses which included completing
substantial portions of our autoclave testing in early 2012.
Net Cash Used in Investing Activities.
Net cash used in investing activities was $136,962 during the six month period ended June 30, 2012, as compared to $76,812 during
the six month period ended June 30, 2011. The change was primarily a result of an increase in purchases of property and equipment.
Net Cash Provided by Financing Activities.
Net cash provided by financing activities was $4,020,483 for the six month period ended June 30, 2012 compared to $1,942,158 for
the six month period ended June 30, 2011. The increase was due to more shares sold for cash in 2012.
We have not attained profitable operations
and are dependent upon obtaining financing to pursue our plan of operation. Our ability to achieve and maintain profitability and
positive cash flow will be dependent upon, among other things:
|
·
|
our
ability to locate a profitable mineral property;
|
|
·
|
positive results from our feasibility studies on the Searchlight Gold
Project and the Clarkdale Slag Project;
|
|
·
|
positive results from the operation of our initial test module on
the Clarkdale Slag Project; and
|
|
·
|
our ability to generate revenues.
|
We may not generate sufficient revenues
from our proposed business plan in the future to achieve profitable operations. If we are not able to achieve profitable operations
at some point in the future, we eventually may have insufficient working capital to maintain our operations as we presently intend
to conduct them or to fund our expansion plans. In addition, our losses may increase in the future as we expand our business plan.
These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and
stockholders’ equity. If we are unable to achieve profitability, the market value of our common stock will decline and there
would be a material adverse effect on our financial condition.
Our exploration and evaluation plan calls
for significant expenses in connection with the Clarkdale Slag Project and the Searchlight Gold Project. Over the next twelve months,
our management anticipates that the minimum cash requirements for funding our proposed exploration, testing and construction program
and our continued operations will be approximately $7,300,000. As of August 13, 2012, we had cash reserves in the amount of approximately
$6,500,000. Our current financial resources are not sufficient to allow us to meet the anticipated costs of our exploration, testing
and construction programs for the next 12 months and we will require additional financing in order to fund these activities. We
do not currently have sufficient financing arrangements in place for such additional financing, and 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.
A decision on allocating additional funds
for Phase II of the Clarkdale Slag Project will be forthcoming 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 will 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 over the next twelve months, 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 the mineral property and 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 (the “
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 May 2011, the FASB issued additional
guidance regarding fair value measurement and disclosure requirements. The most significant change relates to Level 3 fair value
measurements and requires disclosure of quantitative information about unobservable inputs used, a description of the valuation
processes used, and a qualitative discussion about the sensitivity of the measurements. The guidance is effective for interim and
annual periods beginning on or after December 15, 2011. We adopted the additional guidance during the first quarter of 2012.
In June 2011, the FASB issued ASU 2011-12,
Comprehensive Income, Presentation of Comprehensive Income. Under the amendments, an entity has the option to present the total
of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. We adopted the additional guidance in the first
quarter of 2012. The adoption of this guidance did not have a material effect on its financial condition, results of operation,
or cash flows.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
We had unrestricted cash totaling $7,097,077
at June 30, 2012 and $6,161,883 at December 31, 2011. Our cash is held primarily in an interest bearing money market 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, 2012, 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, 2012, 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
During the quarter ended June 30, 2012,
we made the following change in internal controls over financial reporting:
|
·
|
On May 8, 2012, we adopted a Financial and Reporting Disclosure Controls
and Procedures Policy which was designed to ensure prompt, accurate and complete financial reporting and disclosure as required
by applicable securities laws and regulations.
|
Except as disclosed above, there were no
changes in our internal controls over financial reporting during the quarter ended June 30, 2012 that have materially affected,
or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to claims
and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings
individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable
and the loss is probable.
We believe that there are no material litigation
matters at the current time. Although the results of such litigation matters and claims cannot be predicted with certainty, we
believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position,
liquidity, or results of operations.
Item 1A. Risk Factors
In addition to the other information set
forth in this Report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31, 2011, 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
On
June 7, 2012, we issued 4,500,000 shares of common stock in a private placement (the “Offering”) at a price of $0.90
per share resulting in gross proceeds of $4,050,000. The shares were issued to certain investors, (collectively, the “Purchasers”),
which consisted of Luxor Capital Partners, L.P. and certain other funds with respect to which Luxor Capital Group, LP (“Luxor”)
acts as investment manager. The Purchasers and certain other funds managed by Luxor are one of our principal stockholders. Total
fees related to this issuance were $2,040. A more detailed description of the Offering is set forth in our Current Report on Form
8-K filed by us on June 11, 2012.
On May 24, 2012, we issued 250,000 shares
of common stock from the exercise of warrants resulting in cash proceeds of $93,750. The warrants had an exercise price of $0.375.
The securities described above 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.
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, 2012 is included in Exhibit 95
to this Quarterly Report on Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits
EXHIBIT TABLE
The following is a complete
list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the
reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:
Reference
Number
|
Item
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
95.1
|
Mine Safety Disclosures
|
101
|
101.INS XBRL Instance 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation 101.LAB XBRL Taxonomy Extension Labels 101.PRE XBRL Taxonomy Extension Presentation 101.DEF XBRL Taxonomy Extension Definition
|
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SEARCHLIGHT MINERALS CORP.
a Nevada corporation
|
|
|
Date: August 14, 2012
|
By:
|
/s/
Martin
B. Oring
|
|
|
Martin B. Oring
|
|
|
President
and
Chief
Executive Officer
(Principal Executive Officer)
|
|
|
|
Date: August 14, 2012
|
By:
|
/s/
Melvin
L. Williams
|
|
|
Melvin L. Williams
|
|
|
Chief Financial Officer
(Principal Accounting Officer)
|
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