- Prospectus filed pursuant to Rule 424(b)(3) (424B3)
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-132929
3,225,645
Shares
SEARCHLIGHT
MINERALS CORP.
Common
Stock
We are
registering 3,225,645 shares of our common stock for sale by our stockholders
issuable, from time to time, upon the exercise of outstanding common stock
purchase warrants.
The
selling stockholders identified in this prospectus, or their pledgees, donees,
transferees or other successors-in-interest, may offer the shares from time to
time through public or private transactions at prevailing market prices, at
prices related to prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sale of the shares. We may receive
proceeds in connection with the exercise of warrants for the underlying shares
of our common stock, which may in turn be sold by the selling stockholders under
this prospectus. The prices at which such selling stockholders may sell shares
will be determined by the prevailing market price for the shares or in
negotiated transactions. The selling stockholders may resell the common stock to
or through underwriters, broker-dealers or agents, who may receive compensation
in the form of discounts, concessions or commissions. The selling stockholders
will bear all commissions and discounts, if any, attributable to the sales of
shares. We will bear all costs, expenses and fees in connection with the
registration of the shares.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 5 for certain risks and uncertainties that you should
consider.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “SRCH.” The
last reported sale price of our common stock on October 1, 2009 was $1.80 per
share.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date
of this prospectus is October 2, 2009
TABLE
OF CONTENTS
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Page
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Summary
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1
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Special
Note Regarding Forward-Looking Statements
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5
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Risk
Factors
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5
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Use
of Proceeds
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22
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Selling
Stockholders
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23
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Plan
of Distribution
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29
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Price
Range of Common Stock
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31
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Dividend
Policy
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32
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Selected
Financial Data
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33
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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Business
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59
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Management
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89
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Executive
Compensation
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98
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Certain
Relationships and Related Transactions
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107
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Security
Ownership of Certain Beneficial Owners and Management
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116
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Description
of Our Securities
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118
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Shares
Eligible for Future Sale
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119
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Legal
Matters
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122
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Experts
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122
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Changes
In and Disagreements with Accountants and Financial
Disclosure
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123
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Where
You Can Find Additional Information
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123
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Index
to Financial Statements
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F-1
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_____________________________________
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information that is different from that
contained in this prospectus. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
The information in this
prospectus is complete and accurate only as of the date of the front cover
regardless of the time of delivery of this prospectus or of any sale of shares.
Except where the context requires otherwise, in this prospectus, the words
“Company,” “Searchlight,” “we,” “us” and “our” refer to Searchlight Minerals
Corp., a Nevada corporation.
SUMMARY
This
summary highlights selected information from this prospectus. It does not
contain all of the information that is important to you. We encourage you to
carefully read this entire prospectus and the documents to which we refer you.
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this registration statement.
Our
Company
Exploration Stage Company
. We
are an exploration stage company engaged in the acquisition and exploration of
mineral properties and slag reprocessing projects. Our business is presently
focused on our two mineral projects in which we hold interests:
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the
Clarkdale Slag Project, located in Clarkdale, Arizona, 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
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·
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the
Searchlight Gold Project, which involves exploration for precious metals
on mining claims near Searchlight,
Nevada.
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Clarkdale Slag Project
. The
Clarkdale Slag Project, located in Clarkdale, Arizona, 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. Metallurgical testing and project construction on the Clarkdale Slag
Project have been ongoing since 2005, initially under the direction of the prior
owners, thereafter with our participation in a joint venture with the prior
owners in 2005, and currently solely by us since we acquired 100% of the
Clarkdale Slag Project in 2007.
Since our
acquisition of 100% of the Clarkdale Slag Project in 2007, we have devoted
considerable effort to the designing and engineering of our first
production module, which included finalizing the production flow sheet, sourcing
and purchasing equipment as well as refurbishing the module building and
constructing the electrowinning building. The module and electrowinning
buildings house the first production module, which has been designed to allow
for the grinding, leaching, filtering and extraction of precious and base metals
from the slag material and is expected to process between 100 and 250 tons of
slag material per day. During 2008, we completed the refurbishing and
construction of the module and electrowinning buildings, respectively, and we
installed all the necessary equipment in the two buildings for the operation of
the first production module. During 2009, we have been executing our plan of
operation on the Clarkdale Slag Project, which includes the start-up and
operation of the first production module, in an effort to achieve consistent
levels of gold and silver extraction that would support the economic feasibility
of a commercial production facility.
Searchlight Gold Project
. The
Searchlight Gold Project involves exploration for precious metals on mining
claims near Searchlight, Nevada. We have been engaged in an exploration program
on our Searchlight Gold Project since 2005. Our Searchlight Claims are comprised
of non-patented placer mining claims located on federal land administered by the
United States Bureau of Land Management (“BLM”). Drilling and mining activities
on the Searchlight Claims must be carried out in accordance with a Plan of
Operations or permit issued by the BLM.
The
former Searchlight Claim owners had previously obtained a BLM approved Plan of
Operations, which included permission to drill eighteen holes on the 3,200 acre
project area and to mine a 36-acre pit on our RR304 claim. We had anticipated
conducting our early stage exploratory work on the Searchlight Claims property
by utilizing the Plan of Operations issued to the former Searchlight Claim
owners, until such time as we would obtain a permit for exploration and
development in our own name or the former Searchlight Claim holder’s permit was
transferred to us.
Although
the Plan of Operations was accepted and registered in the name of a former
Searchlight Claim owner, which is an affiliate of K. Ian Matheson, one of our
principal stockholders and a former officer and director, in September 2007, we
learned that the BLM had issued an order (the “BLM Order”) for “Immediate
Suspension of All Activities” notice on May 12, 2006 against Mr. Matheson and
certain of his affiliates with respect to a dispute with the BLM on a project
unrelated to the Searchlight Gold Project. The issuance of the BLM Order
restricted our ability to rely upon the Plan of Operations to conduct our early
stage exploratory work on the Searchlight Claims property until such time that
we may obtain our own Plan of Operations. The BLM Order effectively covered all
projects tied to Mr. Matheson.
As a
result of the BLM Order, we have been delayed in our ability to drill on the
Searchlight Gold Project property. However, we have anticipated that regulatory
and other delays would take place, which are typical in our industry. We have
applied for a new Plan of Operations in our name and are currently in the course
of the BLM’s review process. In addition, we have continued and will continue
with our surface sampling and metallurgical testing program while awaiting
approval of a new Plan of Operations.
After a
series of correspondence between us and the BLM, we received a letter from the
BLM advising us that a new Plan of Operations would be required based on two
issues relating to the Desert Tortoise (
Gopherus asassizii
), a
Federally listed Threatened Species: (i) the proximity of the project area to a
nearby “Areas of Critical Environmental Concern” (“ACEC”); and (ii) the future
likelihood of tortoises being present on the land within the project area which
is involved in the application. We have submitted a new Plan of Operations to
the BLM, taking into account the Desert Tortoise issue. In our Plan of
Operations, we have requested permission to drill eighteen drill holes on the
project area.
There is
no regulatory time frame for the BLM to review our Plan of Operations. We
understand that the average time frame for approval of a plan of operation by
the Las Vegas, Nevada branch office of the BLM since January 1, 2000 has been
approximately four years and five months. Although we understand that the
average time frame of the application process by the Las Vegas branch office of
the BLM relating to an environmental assessment in connection with a plan of
operations is approximately eleven months, the “threatened species” issue raised
by the BLM requires the BLM to consult with the U.S. Fish and Wildlife Service
of the Department of Interior, and the BLM has no control over the length of
this consultation process in order to develop any necessary environmental
mitigation measures.
Our work
on the project site will be limited to the scope within the Plan of Operations.
However, the Plan of Operations approval process will delay the start of our
drilling program for an undetermined period of time. 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.
We do not
believe these added requirements will have a material adverse impact on our
overall business plan for the Searchlight Gold Project, given that we have
received no indication from the BLM, at this time, that the BLM will ultimately
deny our request for approval of our Plan of Operations. However, there is no
assurance of the timeline for approval by the BLM or that the BLM will grant
approval. Our drilling and mining program on this project is dependent on
obtaining the necessary approval from the BLM. Therefore, if approval ultimately
is not obtained, we may have to scale back or abandon exploration efforts on the
project. If management determines, based on any factors including the foregoing,
that capitalized costs associated with any of our mineral interests are not
likely to be recovered, we would incur a significant impairment of our
investment in such property interests on our financial statements.
We have
not been profitable since inception and there is no assurance that we will
develop profitable operations in the future. Our net loss for the six months
ended June 30, 2009 and 2008 was $2,058,384 and $1,452,572, respectively. Our
net loss for the years ended December 31, 2008, 2007 and 2006 was $3,128,386,
$2,221,818 and $2,540,978, respectively. As of June 30, 2009, we had an
accumulated deficit of $15,414,866. As of December 31, 2008, we had an
accumulated deficit of $13,356,482. We cannot assure you that we will have
profitable operations in the future.
Corporate Information
. Our
principal executive offices are located at 2441 W. Horizon Ridge Pkwy., Suite
120, Henderson, Nevada, 89052. Our telephone number is (702) 939-5247. Our
Internet address is
www.searchlightminerals.com
.
Through a link on the “Recent Filings” section of our website, we make available
the following filings as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange Commission
(“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings are
available free of charge. Information contained on our website or that is
accessible through our website should not be considered to be part of this
prospectus.
The
Offering
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Securities
offered by the selling stockholders
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3,225,645
shares of common stock
(1)
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Common
stock outstanding as of October 1, 2009
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106,578,527
shares
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Use
of Proceeds
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We
will not receive any of the proceeds from the sale of the securities owned
by the selling stockholders. We may receive proceeds in connection with
the exercise of warrants for the underlying shares of our common stock,
which may in turn be sold by the selling stockholders under this
prospectus. We intend to use any proceeds from the exercise of warrants
for working capital and other general corporate purposes. There is no
assurance that any of the warrants will ever be exercised for cash, if at
all.
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Risk
Factors
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An
investment in our securities involves a high degree of risk and could
result in a loss of your entire investment. Prior to making an investment
decision, you should carefully consider all of the information in this
prospectus and, in particular, you should evaluate the risk factors set
forth under the caption “Risk Factors” beginning on page
5.
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OTC
Bulletin Board Symbol
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SRCH
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(1)
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Consists
of 3,225,645 shares of our common stock issuable upon the exercise of our
outstanding common stock purchase
warrants.
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Summary
Financial Data
The
following historical financial information should be read in conjunction with
the section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and the
related notes included elsewhere in this prospectus. The historical results are
not necessarily indicative of results to be expected for any future
periods:
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Statements of Operations Data:
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Six Months Ended June 30
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Years Ended December 31
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2009
(Unaudited)
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2008
(Unaudited)
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2008
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2007
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2006
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Sales
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$
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0
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$
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0
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$
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0
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$
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0
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$
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0
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Operating
expenses
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$
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3,302,201
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$
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2,475,518
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$
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5,141,957
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$
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3,650,734
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$
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3,736,079
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Loss
from operations
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$
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(3,302,201
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)
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$
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(2,475,518
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)
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$
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(5,141,957
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)
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$
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(3,650,734
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)
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$
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(3,736,079
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)
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Net
loss attributable to common stockholders
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$
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(2,058,384
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)
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$
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(1,452,572
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)
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$
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(3,128,386
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)
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$
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(2,221,818
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)
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$
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(2,540,978
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Net
loss per share attributable to common stockholders, basic and
diluted
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$
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(0.02
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)
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$
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(0.01
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)
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$
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(0.03
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)
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$
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(0.02
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)
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$
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(0.04
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)
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Weighted
average shares used to compute net loss per share attributable to common
stockholders, basic and diluted
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106,363,518
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102,853,530
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104,338,284
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88,942,414
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62,075,707
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Balance Sheet Data:
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June 30, 2009 (Unaudited)
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December 31, 2008
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December 31, 2007
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Current
assets
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$
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3,063,905
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$
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7,307,005
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$
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12,200,133
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Current
liabilities
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$
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1,175,926
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$
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1,421,075
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$
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1,094,697
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Long-term
liabilities, less current portion
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$
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51,112,528
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$
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52,454,426
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$
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52,837,505
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Stockholders’
equity
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$
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111,785,740
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$
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113,604,132
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$
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106,200,676
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. The forward-looking statements
are contained principally in, but not limited to, the sections entitled “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business.” Forward-looking statements provide our
current expectations or forecasts of future events. Forward-looking statements
include statements about our expectations, beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical facts.
Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,”
“estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project”
or similar words or phrases, or the negatives of those words or phrases, may
identify forward-looking statements, but the absence of these words does not
necessarily mean that a statement is not forward-looking.
The risk
factors referred to in this prospectus could materially and adversely affect our
business, financial conditions and results of operations and cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by us, and you should not place undue reliance
on any such forward-looking statements. Any forward-looking statement speaks
only as of the date on which it is made and we do not undertake any obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. The risks and uncertainties described below
are not the only ones we face. New factors emerge from time to time, and it is
not possible for us to predict which will arise. There may be additional risks
not presently known to us or that we currently believe are immaterial to our
business. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements
.
If any such
risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, you
may lose all or part of your investment.
The
industry and market data contained in this prospectus are based either on our
management’s own estimates or, where indicated, independent industry
publications, reports by governmental agencies or market research firms or other
published independent sources and, in each case, are believed by our management
to be reasonable estimates. However, industry and market data is subject to
change and cannot always be verified with complete certainty due to limits on
the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties inherent in any
statistical survey of market shares. We have not independently verified market
and industry data from third-party sources. In addition, consumption patterns
and customer preferences can and do change. As a result, you should be aware
that market share, ranking and other similar data set forth herein, and
estimates and beliefs based on such data, may not be verifiable or
reliable.
RISK
FACTORS
An
investment in our common stock is very risky. Our financial condition is
unsound. You should not invest in our common stock unless you can afford to lose
your entire investment. You should carefully consider the risk factors described
below, together with all other information in this prospectus, before making an
investment decision. If an active market is ever established for our common
stock, the trading price of our common stock could decline due to any of these
risks, and you could lose all or part of your investment. You also should refer
to the other information set forth in this prospectus, including our financial
statements and the related notes.
Risks
Relating to Our Business
We
lack an operating history and have losses which we expect to continue into the
future. As a result, we may have to suspend or cease exploration activities if
we do not obtain additional financing, and our business will fail.
We were
incorporated on January 12, 1999 and initially were engaged in the business of
biotechnology research and development. In February, 2005, we changed our
business to mineral exploration. We have a limited history upon which we may
make an evaluation of the future success or failure of our current business
plan.
We have a
history of operating losses and have an accumulated deficit. Our net loss for
the six months ended June 30, 2009 and 2008 was $2,058,384 and $1,452,572,
respectively. We recorded a net loss of $3,128,386, $2,221,818 and $2,540,978
for the years ended December 31, 2008, 2007 and 2006, respectively, and have
incurred cumulative net losses from operations of $15,414,866, $13,356,482,
$10,228,096 and $8,006,278, as of June 30, 2009, December 31, 2008, 2007 and
2006, respectively. In addition, we had cash reserves of approximately
$1,660,000, $7,055,591 and $12,007,344 at August 31, 2009, December 31, 2008 and
2007, respectively. We have not commenced our proposed mineral processing and
mining operations and are still in the exploration stages of our proposed
operations. Prior to completion of our exploration stage, we anticipate that we
will incur increased operating expenses without realizing any revenues. We
therefore expect to incur significant losses into the foreseeable
future.
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:
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our
ability to locate a profitable mineral
property;
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positive
results from our feasibility studies on the Searchlight Gold Project and
the Clarkdale Slag Project;
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positive
results from the operation of our initial test module on the Clarkdale
Slag Project; and
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our
ability to generate revenues.
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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 exploration, testing and
construction 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 $5,300,000. As of August 31, 2009, we had cash reserves in the
amount of approximately $1,660,000.
This
amount is less than the total expenditures that we have budgeted for the next 12
months by approximately $3,640,000. We estimate that our current financial
resources are sufficient to allow us to meet the anticipated costs of our
exploration, testing and construction programs until approximately the middle of
the fourth quarter of the 2009 fiscal year. However, if actual costs are greater
than we have anticipated, we will require additional financing in order to fund
our exploration, testing and construction plans for 2009. We do not currently
have any financing arrangements in place, 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.
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, the report of our auditor accompanying our financial statements filed
herewith includes 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.
Actual
capital costs, operating costs and economic returns may differ significantly
from our estimates and there are no assurances that any future activities will
result in profitable mining operations.
We are an
exploration stage company and are still in the process of exploring and testing
our mineral projects. We do not have any historical mineral operations
upon which to base our estimates of costs. Decisions about the
exploration, testing and construction of our mineral properties will ultimately
be based upon feasibility studies. Feasibility studies derive cost
estimates based primarily upon:
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anticipated
tonnage, grades and metallurgical characteristics of the ore to be mined
and processed;
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anticipated
recovery rates of gold and other metals from the
ore;
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cash
operating costs of comparable facilities and equipment;
and
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anticipated
weather/climate conditions.
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To date,
we have only conducted an internal pre-feasibility study of the Clarkdale Slag
Project. In particular:
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we
have conducted limited amounts of drilling at the
site;
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process
testing has been limited to smaller scale pilot plants and bench scale
testing;
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·
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our
mine plans, slag processing concepts, metallurgical flow sheets and
estimated recoveries are still in exploration stages; and
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actual
metallurgical recoveries may fail to meet preliminary estimates when
scaled up from pilot plant scale to production
scale.
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We
incurred delays during the construction of our production module, including
delays in receiving large pieces of equipment from manufacturers, engineering
related delays due to the complexity of installing the production module
equipment in a World War I era module building and the decision to construct a
separate building to house the electrowinning equipment after it was determined
that the electrowinning equipment would not adequately fit in the module
building. Consequently, the construction timeline for completing the
production module was extended by approximately twelve months from what we
originally anticipated and there was an approximately 55% increase in costs from
what we had originally projected.
In order
to demonstrate the large scale viability of the project, we will need to
complete final feasibility studies that address the economic viability of the
project. Capital and operating costs and economic returns, and other
estimates contained in our final feasibility studies may differ significantly
from our current estimates. There is no assurance that our actual capital
and operating costs will not exceed our current estimates. In addition,
delays to construction schedules may negatively impact the net present value and
internal rates of return for our mineral properties. There are no
assurances that actual recoveries of base and precious metals or other minerals
processed from our mineral projects will be economically feasible or that actual
costs will match our pre-feasibility estimates.
Feasibility
estimates typically underestimate future capital needs and operating
costs. Our projected operating and capital cost estimates are in
preliminary stages and may be subject to significant, upward adjustment based on
future events, including the results of any final feasibility study which we may
develop.
If
the results from our feasibility studies and the results from the operation of
our first proposed production module are not sufficiently positive for us to
proceed with the construction of our processing facility we will have to scale
back or abandon our proposed operations on the Clarkdale Slag Project.
We intend
to continue the exploration, testing and construction of our production module
at the Clarkdale Slag Project site, which is anticipated to consist of a full
scale production and processing cycle. This first production module is
expected to be used to conduct a final test of the economic
feasibility of the Clarkdale Slag Project. However, if the results of our
pre-feasibility studies on the Clarkdale Slag Project and the results from the
operation of the first production module are not positive, we will have to scale
back or abandon our proposed operations of the Clarkdale Slag Project.
There is no assurance that actual recoveries of base and precious metals or
other minerals re-processed from the slag pile will be economically
feasible. If metal recoveries are less than projected, then our metal
sales will be less than anticipated and may not equal or exceed the cost of
mining and recovery. In such event, we will have difficulty in raising
additional capital to maintain operations and that would result in a material
adverse effect on our operating results, financial condition and our ability to
remain in business.
If
we are unable to achieve projected mineral recoveries from our exploration
mining activities at the Clarkdale Slag Project and Searchlight Gold Project,
then our financial condition will be adversely affected.
As we
have not established any reserves on either our Clarkdale Slag Project or
Searchlight Gold Project to date, there is no assurance that actual recoveries
of minerals from material mined during exploration mining activities will equal
or exceed our exploration costs on our mineral properties. To date, we
have completed only a limited amount of drilling and sampling on the Clarkdale
Slag Project site and the process testing of results has been limited to small
pilot plants and bench scale testing. There is no assurance that if we
move to production scale from pilot plant scale that our actual results will
match pre-feasibility estimates. If mineral recoveries are less than
projected, then our sales of minerals will be less than anticipated and may not
equal or exceed the cost of exploration and recovery, in which case our
operating results and financial condition will be materially, adversely
affected.
We
have no known mineral reserves and if we cannot find any, we will have to cease
operations.
We have
no known mineral reserves. Mineral exploration is highly
speculative. It involves many risks and is often non-productive.
Even if we are able to find mineral reserves on our property our production
capability is subject to further risks including:
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costs
of bringing the property into production including exploration work,
preparation of production feasibility studies, and construction of
production facilities;
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availability
and costs of financing;
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ongoing
costs of production; and
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environmental
compliance regulations and
restraints.
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The
marketability of any minerals acquired or discovered may be affected by numerous
factors which are beyond our control and which cannot be accurately predicted,
such as market fluctuations, the lack of milling facilities and processing
equipment near the Searchlight Gold Project, the success of our drilling and
sampling activities on the Clarkdale Slag Project and such other factors as
government regulations, including regulations relating to allowable production,
exporting of minerals, and environmental protection. If we do not find a
mineral reserve or if we cannot explore the mineral reserve, either because we
cannot obtain an approved Plan of Operations, do not have the money to do so or
because it will not be economically feasible to do so, we will have to cease
operations.
Our
rights under the Searchlight Claims may be difficult to retain and may not apply
to all metals and minerals located on the Searchlight property.
Our
rights in the 20 placer mineral claims with respect to a contiguous,
approximately 3,200-acre site located (the “Searchlight Claims”) on Federal land
administered by the BLM near Searchlight, Nevada are the subject of unpatented
mining claims (mining claims to which the deeds from the U.S. Government have
not been received) made under the General Mining Law of 1872. The
Searchlight Claims were assigned to us in June 2008 by the original locators
(those persons who locate, or are entitled to locate, land or mining claims, and
fix the boundaries of land claims) of such claims under an Option Agreement for
the Searchlight Claims. Legal title to the Searchlight property is held by
the United States and there are numerous conditions that must be met for a
mining claimant to obtain and retain legal rights in the land and minerals
claimed. Because title to unpatented mining claims is subject to inherent
uncertainties, it is difficult to determine conclusively the ownership of such
claims. These uncertainties relate to such things as sufficiency of
mineral discovery, proper posting and marking of boundaries and possible
conflicts with other claims not determinable from descriptions of record.
Since a substantial portion of all mineral exploration, development and mining
in the United States now occurs on unpatented mining claims, this uncertainty is
inherent in the mining industry.
The
present status of our unpatented mining claims located on public lands allows us
the exclusive right to mine and remove valuable metals, such as precious and
base metals, that are in placer form (mineral which has been separated from its
host rock by natural processes). We also are allowed to use the surface of
the land solely for purposes related to mining and processing the metal-bearing
ores. However, legal ownership of the land remains with the United
States. Placer mining claims (ground with defined boundaries that contains
metals in the earth, sand, or gravel, and is not fixed in the rock) are not
sufficient to claim lode mineralization (a deposit in consolidated rock as
opposed to a placer deposit), and any metals in veins or in bedrock need to be
separately claimed by lode claims. Therefore, we may not have legal rights
with respect to any lode deposits within the property that is the subject of the
Searchlight Claims.
In order
for us to assert a valid right in the 160 acre Searchlight Claims which we
acquired in June 2008, there must have been a discovery with respect to the
Searchlight Claims prior to their transfer. The concept of the validity of
the “discovery” of a mining claim is a legal standard. Generally, the BLM
considers a discovery to be the identification of adequate amounts of minerals
such that a reasonable person would seek to develop the claim as a commercial
enterprise. Based on the results of our testing and sampling on the
properties prior to transfer of title to the related Searchlight Claims to us,
we believe that we have a valid basis to assert that we have made a discovery
with respect to the claims located on the contiguous property that is the
subject of the Searchlight Claims. Further, we are working to explore the
Searchlight property and to evaluate and plan for the exploration of the
Searchlight Claims. However, if the BLM was to determine that a discovery
was not made on any of the 20 (160 acre) association placer claims (a placer
location made by an association of persons in one location covering up to 160
acres) before any of such claims were conveyed by the related group of locators
of a particular claim to us, any of such claims could implode to a 20-acre
parcel surrounding the point of discovery and potentially result in the loss of
our rights in the surrounding 140 acres of the particular claim. Further,
placer mining claims ultimately are required to have discovery on each 10-acre
portion in order to be considered valid in their entirety. Therefore, if
the BLM was to determine that a discovery was not made on any of the 10-acre
portions of the association placer claims before any of such claims were
conveyed to us, any of such claims could implode to a 10-acre parcel and
potentially result in the loss of our rights in the surrounding 150 acres of the
particular claim. At this time, there are no adversarial proceedings by
the BLM to challenge any of the 20 association placer claims. However,
there can be no assurances that adversarial proceedings will not occur in the
future, and if such proceedings occur, the BLM will not successfully challenge
these claims, which could have a material adverse effect on the Searchlight
Project and our operations.
During
the second quarter of 2008, we “double staked” the Searchlight property by
filing, with the BLM and the Clark County, Nevada Recorder, 142 new and separate
20-acre placer claims overtop of the twenty existing 160-acre claims. We
were only able to “double stake” 2,840 acres out of the 3,200 acre site due to
various regulatory restrictions on staking of certain of the smaller land
parcels on the site. We have maintained the twenty prior 160-acre claims
to provide us with a basis to retain the priority of and defend our existing
160-acre mining claims. However, we are subject to the risk that when we,
a single entity, acquire title to association placer claims from an association
of prior, multiple locators, there could be potential problems for us in the
future:
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First,
the validity of the association of the prior locators could always be
challenged by the BLM if the BLM believed that the association was not
properly assembled or if there were any “dummy locators” (place-holder
locators who did not contribute to the association). A “properly
assembled” placer association is comprised of 2–8 individuals or companies
who each may claim 20 acres and each owns a full interest in the
claim. The individuals may not be employees of one of the
companies. These individuals and/or entities must be involved
actively in the business of developing the claim. Use of an
uninvolved individual or entity as a locator for the purpose of acquiring
additional acreage may constitute fraud, and the entire claim could be
declared void. A “dummy locator” is an individual or entity who is
not actively involved with the development of the claims, and whose name
has been used for the purpose of acquiring additional acreage. The
action of using dummy locator(s) may constitute fraud, and under existing
laws, the claim located by use of dummy locator(s) can be declared void
from its inception.
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Second,
if there was deemed to be a discovery on any 160-acre claim following the
transfer to us, the claims could implode to a 20-acre parcel surrounding
the point of discovery of each claim and potentially leave the surrounding
140 acres unavailable for re-staking, and potentially to a 10-acre parcel
and leave the surrounding 150 acres unavailable for
re-staking.
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Third,
the location of the 20-acre claims may cause an implied abandonment of the
older claims. Should a problem occur in the future with the 160-acre
claims, we could revert to the 20-acre or 10-acre claims, if
necessary. Also, we will incur additional costs because we have to
maintain two sets of claims.
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We
believe that “double staking” the property enhances our existing claims because
“double staking” with 20-acre claims provides a more secure basis for asserting
our claim rights than our existing 160-acre claims because they were located and
are held solely by us, as a single entity and not as an association of two or
more entities. Holding 20-acre claims as a single entity reduces the
likelihood that the BLM will challenge the validity of the claims based on the
existence of “dummy locators.” If the BLM challenges the validity of the
160-acre claims or we are forced to abandon such claims, we would revert to the
20-acre claims covering only the 2,840 acres. Any regulatory permits that
we have applied or may apply for (i.e., drilling, and mining) would have to be
conducted within the related 2,840 acres. However, if the BLM was to
determine that a discovery was not made on any of the 10-acre portions of the
20-acre association placer claims, any of such claims could implode to a 10-acre
parcel and potentially result in the loss of our rights in the adjoining 10
acres of the particular claim.
Further,
we are required to make annual rental payments to the Federal government in
connection with our claims. If we fail to make our required payments in
the future, the related claims would be void.
In
addition, the BLM has been excluding significant amounts of land in southern
Nevada from mining and development over the past few decades. The BLM has
designated this excluded land as an ACEC. Any person that wishes to stake
mining claims would not be able to do so in these affected areas. However,
if a person already owns valid claims before the land is designated as an ACEC,
the claimant would have those claims grandfathered in. In the case of the
Searchlight Claims, the Searchlight Project has not been designated as an ACEC
and our 160-acre claims were originally located between 1990 and 2003. The
BLM has advised us, however, that due to the proximity of our claims to an ACEC
we would be required to file a Plan of Operations for our desired drilling
program. We do not believe these added requirements will have a material
adverse impact on our Plan of Operations for the Searchlight Gold Project.
However, the Plan of Operations approval process will delay the start of our
drilling program for an undetermined period of time. If the BLM decides in
the future to designate the Searchlight Project site as an ACEC, and also
challenges our 160-acre claims, we would have to rely on our “double staked”
claims to preserve the Searchlight Claims. Although we believe that, in
such event, our “double staked” claims would survive a challenge by the BLM,
there can be no assurances to that effect and the successful challenge of some
or all of the Searchlight Claims would have a material adverse effect on the
Searchlight Project and our operations.
We do not currently have a government
approved Plan of Operations for our Searchlight Gold Project, and if we are not
able to obtain an approved Plan of Operations, we will not be able to fulfill
our business plan with respect to the Searchlight Gold
Project
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The
former Searchlight Claim owners had previously obtained a BLM approved Plan of
Operations, which included permission to drill eighteen holes on the 3,200 acre
project area and to mine a 36-acre pit on our RR304 claim. We had
anticipated conducting our early stage exploratory work on the Searchlight
Claims property by utilizing the Plan of Operations issued to the former
Searchlight Claim owners, until such time as we would obtain a permit for
exploration and development in our own name or the former Searchlight Claim
holder’s permit was transferred to us. Although we did not acquire the
Searchlight Claims with a written agreement to purchase the Plan of Operations,
the prior owners verbally agreed to cooperate with us in attempting to transfer
their Plan of Operations into our name.
Although
the Plan of Operations was accepted and registered in the name of a former
Searchlight Claim owner, which is an affiliate of K. Ian Matheson, one of our
principal stockholders and a former officer and director, in September 2007, we
learned that the BLM had issued the BLM Order on May 12, 2006 against Mr.
Matheson and certain of his affiliates (Pass Minerals, Inc., Kiminco, Inc. and
Pilot Plant Inc., which also were prior Searchlight Claim owners and are our
stockholders) with respect to a dispute with the BLM on a project unrelated to
the Searchlight Gold Project. The dispute between the BLM and Mr. Matheson
arose due to the BLM’s determination that Mr. Matheson and his affiliates had
engaged in willful mineral trespass for the unauthorized removal of sand and
gravel from public lands by Mr. Matheson and his affiliates or their
predecessors. The BLM had demanded payment of approximately $2,530,000 for
the willful trespass. After failure by Mr. Matheson and his affiliates to
pay the amount, the BLM issued the BLM Order. The issuance of the BLM
Order restricted our ability to rely upon the Plan of Operations to conduct our
early stage exploratory work on the Searchlight Claims property until such time
that we may obtain our own Plan of Operations. An appeal by Mr. Matheson
of the BLM Order with the Interior Board of Land Appeals affirmed the BLM’s
decision, keeping the BLM Order in effect. The BLM Order effectively
covered all projects tied to Mr. Matheson.
As a
result of the BLM Order, we have been delayed in our ability to drill on the
Searchlight Gold Project property. However, we have anticipated that
regulatory and other delays would take place, which are typical in our
industry. We have applied for a new Plan of Operations in our name and are
currently in the course of the BLM’s review process. In addition, we have
continued and will continue with our surface sampling and metallurgical testing
program while awaiting approval of a new Plan of Operations.
In the
third quarter of 2008, we submitted a Plan of Operations to the BLM in our name,
substantially similar to the original Plan of Operations, which included a
request to drill eighteen holes on the project area and to mine a 36-acre mining
pit. On August 27, 2008, the BLM responded, in part, by advising that the
previous bond that we posted of $180,500 for the previous Plan of Operations
would not be transferrable to the new one and that a new bond would have to be
posted. At the time, we considered the recovery of the reclamation bond to
be uncertain and, therefore, we have established a full allowance against the
reclamation bond with the offsetting expense to project exploration costs.
Based on continued discussions with the BLM, we may be able to recover the bond
upon request, however, we have not chosen to make such a request at this
time.
In
September 2008, we decided that we would only continue to pursue the permits to
drill on the project area and forgo the 36-acre pit until a later date since we
believed that by keeping the pit area in the Plan of Operations, it might delay
the BLM’s approval process for our Plan of Operations. Although the
36-acre pit had been part of the Plan of Operations obtained by the prior owners
of the Searchlight Claims, we do not believe that digging and mining a 36-acre
pit would be a material aspect of the Plan of Operations at this stage of the
Searchlight Gold Project. Therefore, we decided to remove the 36-acre pit
from the Plan of Operations. Further, by reducing the scope of the permit,
we decided that we could submit the application in the form of a Notice of
Intent, a shorter and less complex application form than a Plan of
Operations. Consequently, on September 24, 2008, we withdrew the Plan of
Operations and submitted a Notice of Intent with the BLM, pursuant to which we
sought permission to drill eighteen 500-foot drill holes on the Searchlight
project area.
After a
series of correspondence between us and the BLM, on December 15, 2008, we
received a letter from the BLM advising us that the BLM had closed our Notice of
Intent from consideration and that a new Plan of Operations would be required
based on two issues relating to the Desert Tortoise (
Gopherus asassizii
), a
Federally listed Threatened Species: (i) the proximity of the project area to a
nearby ACEC; and (ii) the future likelihood of tortoises being present on the
land within the project area which is involved in the application.
On
January 13, 2009, we filed a Notice of Appeal of the BLM’s decision regarding
the closing of our Notice of Intent. However, the BLM’s decision was
upheld on appeal by the U.S. Department of Interior on September 9, 2009.
During
the course of the appeal, we determined that, due to the standard lengthy time
required to have a Plan of Operations approved by the BLM and should we be
unsuccessful with our appeal, it would be prudent to begin the approval process
immediately by filing for our Plan of Operations. Thus, on March 23, 2009,
we submitted a new Plan of Operations to the BLM, taking into account the Desert
Tortoise issue. In our Plan of Operations, we have requested permission to
drill eighteen drill holes on the project area. In the event of the
approval of our Plan of Operations, we will be required to post a new
reclamation bond with the BLM, which we anticipate will be approximately
$16,000. After a further series of correspondence between us and the BLM,
on September 15, 2009, we received a comment letter from the BLM regarding our
Plan of Operations. We have reached an understanding with the BLM that we
will use the Environmental Assessment previously approved by the BLM under the
prior Plan of Operations in connection with the new Plan of Operations, and the
BLM has requested that we conform certain aspects of the new Plan of Operations
with the previously approved Environmental Assessment.
There is
no regulatory time frame for the BLM to review our Plan of Operations. We
understand that the average time frame for approval of a plan of operation by
the Las Vegas, Nevada branch office of the BLM since January 1, 2000 has been
approximately four years and five months. Although we understand that the
average time frame of the application process by the Las Vegas branch office of
the BLM relating to an environmental assessment in connection with a plan of
operations is approximately eleven months, the “threatened species” issue raised
by the BLM requires the BLM to consult with the U.S. Fish and Wildlife Service
of the Department of Interior, and the BLM has no control over the length of
this consultation process in order to develop any necessary environmental
mitigation measures.
Our work
on the project site will be limited to the scope within the Plan of
Operations. However, the Plan of Operations approval process will delay
the start of our drilling program for an undetermined period of time. 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.
We do not
believe these added requirements will have a material adverse impact on our
overall business plan for the Searchlight Gold Project, given that we have
received no indication from the BLM, at this time, that the BLM will ultimately
deny our request for approval of our Plan of Operations. However, there is
no assurance of the timeline for approval by the BLM or that the BLM will grant
approval. Our drilling and mining program on this project is dependent on
obtaining the necessary approval from the BLM. Therefore, if approval
ultimately is not obtained, we may have to scale back or abandon exploration
efforts on the project. If management determines, based on any factors
including the foregoing, that capitalized costs associated with any of our
mineral interests are not likely to be recovered, we would incur a significant
impairment of our investment in such property interests on our financial
statements.
If
we do not complete the construction of an Industrial Collector Road pursuant to
an agreement with the Town of Clarkdale, Arizona by January 2011, we may lose
our conditional use permit from the Town of Clarkdale with respect to the
Clarkdale Slag Project, and we do not currently have sufficient funds to
complete construction of the road. The loss of the permit would have a
material adverse effect on the Clarkdale Slag Project and our operations.
In
January 2009, we submitted a development agreement to the Town of Clarkdale for
the construction of an Industrial Collector Road. The purpose of the road
is to provide us with the capability to enhance the flow of industrial traffic
to and from the Clarkdale Slag Project. The construction of the road is a
required infrastructure improvement under the terms of our conditional use
permit with the Town of Clarkdale. The Town of Clarkdale approved the
development agreement on January 9, 2009.
The
development agreement provides that its effective date will be the later of (i)
30 days from the approving resolution of the agreement by the Clarkdale Town
Council; or (ii) the date on which the Town of Clarkdale obtains a connection
dedication from separate property owners who have land that will be utilized in
construction of the road; or (iii) the date on which the Town of Clarkdale
receives the proper effluent permit. The Town of Clarkdale has approved
the development agreement, and the remaining two contingencies with respect to
the effectiveness of the development agreement are beyond our
control.
Under the
development agreement, we are obligated to complete the construction of the road
within two years after the effective date of the agreement. If we do not
complete the road within the two year period, we may lose our conditional use
permit from the Town of Clarkdale. Further, as a condition of our
developing any of our property that is adjacent to the Clarkdale Slag Project,
we will be required to construct additional enhancements to the road. We
will have ten years from the start of construction on the road in which to
complete the additional enhancements. However, we do not currently have
any defined plans for the development of the adjacent property.
We
estimate that the initial cost of construction of the road will be approximately
$3,500,000 and that the cost of the additional enhancements will be
approximately $1,200,000. We will be required to fund the costs of this
construction. Based on the uncertainty of the timing of these
contingencies, we have not included these costs in our current operating plans
or budgets. However, we will require additional project financing or other
financing in order to fund the construction of the road and the additional
enhancements. 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. The failure to complete the road and the additional
enhancements in a timely manner under the development agreement would have a
material adverse effect on the Clarkdale Slag Project and our
operations.
The
nature of mineral exploration and production activities involves a high degree
of risk; we could incur a write-down on our investment in any
project.
Exploration
for minerals is highly speculative and involves greater risk than many other
businesses. Investors should be aware of the difficulties normally
encountered by new mineral exploration companies and the high rate of failure of
such enterprises. The likelihood of success must be considered in light of
the problems, expenses, difficulties, complications and delays encountered in
connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration, and additional costs and
expenses that may exceed current estimates. The expenditures to be made by
us in the exploration of the mineral claim may not result in the discovery of
mineral deposits. If funding is not available, we may be forced to abandon
our operations.
Many
exploration programs do not result in the discovery of mineralization and any
mineralization discovered may not be of sufficient quantity or quality to be
profitably mined. Uncertainties as to the metallurgical amenability of any
minerals discovered may not warrant the mining of these minerals on the basis of
available technology. Our operations are subject to all of the operating
hazards and risks normally incident to exploring for and developing mineral
properties, such as:
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encountering
unusual or unexpected formations;
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environmental
pollution;
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personal
injury and flooding;
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decrease
in recoverable reserves due to lower precious and base metal prices;
and
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changing
environmental laws and regulations.
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If
management determines, based on any factors including the foregoing, that
capitalized costs associated with any of our mineral interests are not likely to
be recovered, we would incur a write-down on our investment in such property
interests on our financial statements. Further, we may become subject to
liability for such hazards, including pollution and other hazards against which
we cannot insure or against which we may elect not to insure. At the
present time, we have no coverage to insure against these hazards. Such a
write-down or the payment of such liabilities may have a material adverse effect
on our financial position.
Our
industry is highly competitive, mineral lands are scarce and we may not be able
to obtain quality properties.
In
addition to us, many companies and individuals engage in the mining business,
including large, established mining companies with substantial capabilities and
long earnings records. There is a limited supply of desirable mineral
lands available for claim staking, lease, or acquisition in the United States
and other areas where we may conduct exploration activities. We may be at
a competitive disadvantage in acquiring mining properties since we must compete
with these individuals and companies, many of which have greater financial
resources and larger technical staffs. Mineral properties in specific
areas which may be of interest or of strategic importance to us may be
unavailable for exploration or acquisition due to their high cost or they may be
controlled by other companies who may not want to sell or option their interests
at reasonable prices. In addition, the Clarkdale slag pile is a finite,
depleting asset. Therefore, the life of the Clarkdale Slag Project will be
finite, if it is ever developed to the point of economic feasibility. Our
long-term viability depends upon finding and acquiring new resources from
different sites or properties. There can be no assurances that the
Clarkdale Slag Project will become economically viable, and if so, that we will
achieve or obtain additional successful economic opportunities.
As
we undertake exploration of our mineral claims, we will be subject to compliance
with government regulation that may increase the anticipated cost of our
exploration program.
There are
several governmental regulations that materially restrict mineral
exploration. We will be subject to the laws of the State of Nevada and
applicable federal laws as we carry out our exploration program on the
Searchlight Gold Project. We are required to obtain work permits, post
bonds and perform remediation work for any physical disturbance to the land in
order to comply with these laws. Further, the United States Congress is
actively considering amendment of the federal mining laws. Among the
amendments being considered are imposition of significant royalties payable to
the United States and more stringent environmental and reclamation standards,
either of which would increase the cost of operations of mining projects.
While our planned exploration program budgets for regulatory compliance, there
is a risk that new regulations could increase our costs of doing business and
prevent us from carrying out our exploration program.
We are
required to obtain work permits, post bonds and perform remediation work for any
physical disturbance to the land in order to comply with these laws. If we
enter the production phase, the cost of complying with permit and regulatory
environment laws will be greater because the impact on the project area is
greater. Permits and regulations will control all aspects of the
production program if the project continues to that stage. Examples of
regulatory requirements include:
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water
discharge will have to meet drinking water
standards;
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dust
generation will have to be minimal or otherwise
remediated;
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dumping
of material on the surface will have to be re-contoured and re-vegetated
with natural vegetation;
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an
assessment of all material to be left on the surface will need to be
environmentally benign;
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ground
water will have to be monitored for any potential
contaminants;
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the
socio-economic impact of the project will have to be evaluated and if
deemed negative, will have to be remediated;
and
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there
will have to be an impact report of the work on the local fauna and flora
including a study of potentially endangered
species.
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There is
a risk that new regulations could increase our costs of doing business and
prevent us from carrying out our exploration program. We will also have to
sustain the cost of reclamation and environmental remediation for all
exploration work undertaken. Both reclamation and environmental
remediation refer to putting disturbed ground back as close to its original
state as possible. Other potential pollution or damage must be cleaned-up
and renewed along standard guidelines outlined in the usual permits.
Reclamation is the process of bringing the land back to its natural state after
completion of exploration activities. Environmental remediation refers to
the physical activity of taking steps to remediate, or remedy, any environmental
damage caused. The amount of these costs is not known at this time as we
do not know the extent of the exploration program that will be undertaken beyond
completion of the recommended work program. If remediation costs exceed
our cash reserves we may be unable to complete our exploration program and have
to abandon our operations.
We
must comply with complex environmental regulations which are increasing and
costly.
Our
exploration operations are regulated by both Federal and State environmental
laws that relate to the protection of air and water quality, hazardous waste
management and mine reclamation. These regulations will impose operating
costs on us. If the regulatory environment for our operations changes in a
manner that increases the costs of compliance and reclamation, then our
operating expenses may increase. This would result in an adverse effect on
our financial condition and operating results.
Compliance
with environmental quality requirements and reclamation laws imposed by Federal,
State and local governmental authorities may:
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require
significant capital outlays;
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materially
affect the economics of a given
property;
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cause
material changes or delays in our intended activities;
and
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These
authorities may require us to prepare and present data pertaining to the effect
or impact that any proposed exploration for or production of minerals may have
upon the environment. The requirements imposed by any such authorities may
be costly, time consuming, and may delay operations. Future legislation
and regulations designed to protect the environment, as well as future
interpretations of existing laws and regulations, may require substantial
increases in equipment and operating costs and delays, interruptions, or a
termination of operations. We cannot accurately predict or estimate the
impact of any such future laws or regulations, or future interpretations of
existing laws and regulations, on our operations.
Affiliates of our management and
principal stockholders have conflicts of interest which may differ from those of
ours and yours and we only have one independent board
member
.
We have
ongoing business relationships with affiliates of our management and principal
stockholders. In particular, we have continuing obligations under the
agreements under which we acquired the assets relating to our Clarkdale Slag
Project. We remain obligated to pay a royalty which may be generated from
the operations of the Clarkdale Slag Project to Nanominerals Corp.
(“Nanominerals”), one of our principal stockholders, which is an affiliate of
two members of our executive management and board of directors, Carl S. Ager and
Ian R. McNeil. We also have engaged Nanominerals as a paid consultant to
provide technical services to us. In addition, we have a similar royalty
arrangement with Verde River Iron Company (“VRIC”), an affiliate of another
member of our board of directors, Harry B. Crockett. Further, one of our
board members, Robert D. McDougal, serves as the chief financial officer and a
director of Ireland Inc., a publicly traded, mining related company, which is an
affiliate of Nanominerals. For these reasons, Martin B. Oring is the sole
independent member of our board of directors. We had negotiated the
revenue sharing agreements with each of Nanominerals and VRIC prior to the time
that Messrs. Ager, McNeil and Crockett, as applicable, became board
members. These persons are subject to a fiduciary duty to exercise good
faith and integrity in handling our affairs. However, the existence of
these continuing obligations may create a conflict of interest between us and
our board members and senior executive management, and any disputes between us
and such persons over the terms and conditions of these agreements that may
arise in the future may raise the risk that the negotiations over such disputes
may not be subject to being resolved in an arms’ length manner. In
addition, Nanominerals’ interest in Ireland Inc. and its other mining related
business interests may create a conflict of interest between us and our board
members and senior executive management who are affiliates of
Nanominerals. Further, the interests of K. Ian Matheson, one of our
principal stockholders (and a former officer and director), in Royal Mines and
Minerals Corp., a publicly traded mining company based in Nevada, of which Mr.
Matheson is an affiliate, and other mining related business interests may create
a conflict of interest between us and Mr. Matheson.
Although
our management intends to avoid situations involving conflicts of interest and
is subject to a Code of Ethics, there may be situations in which our interests
may conflict with the interests of those of our management or their
affiliates. These could include:
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competing
for the time and attention of
management;
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potential
interests of management in competing investment ventures;
and
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the
lack of independent representation of the interests of the other
stockholders in connection with potential disputes or negotiations over
ongoing business relationships.
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Although
we only have one independent director, the board of directors has adopted a
written Related Person Transactions Policy, that describes the procedures used
to identify, review, approve and disclose, if necessary, any transaction or
series of transactions in which: (i) we were, are or will be a participant; (ii)
the amount involved exceeds $120,000; and (iii) a related person had, has or
will have a direct or indirect material interest. There can be no
assurance that the above conflicts will not result in adverse consequences to us
and the interests of the other stockholders.
We
may suffer adverse consequences as a result of our reliance on outside
contractors to conduct our operations.
A
significant portion of our operations are currently conducted by outside
contractors. As a result, our operations are subject to a number of
risks, some of which are outside our control, including:
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negotiating
agreements with contractors on acceptable
terms;
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the
inability to replace a contractor and its operating equipment in the event
that either party terminates the
agreement;
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reduced
control over those aspects of operations which are the responsibility of
the contractor;
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failure
of a contractor to perform under its agreement with
us;
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interruption
of operations in the event that a contractor ceases its business due to
insolvency or other unforeseen
events;
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failure
of a contractor to comply with applicable legal and regulatory
requirements, to the extent it is responsible for such compliance;
and
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problems
of a contractor with managing its workforce, labor unrest or other
employment issues.
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In
addition, we may incur liability to third parties as a result of the actions of
our contractors. The occurrence of one or more of these risks could
have a material adverse effect on our business, results of operations and
financial condition.
Because
our management does not have formal training specific to the technicalities of
mineral exploration, there may be a higher risk that our business will
fail.
Our
executive officers and directors do not have any formal training as geologists
or in the technical aspects of management of a mineral exploration
company. With no direct training or experience in these areas, our
management may not be fully aware of the specific requirements related to
working within this industry. Our management's decisions and choices
may not take into account standard engineering or managerial approaches mineral
exploration companies commonly use. Consequently, our operations,
earnings, and ultimate financial success could suffer irreparable harm due to
management's lack of experience in this industry.
Mineral,
and base and precious metal prices are volatile and declines may have an adverse
effect on our share price and business plan.
The
market price of minerals is extremely volatile and beyond our
control. Basic supply/demand fundamentals generally influence gold
prices. The market dynamics of supply/demand can be heavily
influenced by economic policy. Fluctuating metal prices will have a
significant impact on our results of operations and operating cash
flow. Furthermore, if the price of a mineral should drop
dramatically, the value of our properties which are being explored or developed
for that mineral could also drop dramatically and we might not be able to
recover our investment in those properties. The decision and
investment necessary to put a mine into production must be made long before the
first revenues from production will be received. Price fluctuations
between the time that we make such a decision and the commencement of production
can completely change the economics of the mine. Although it is
possible for us to protect against some price fluctuations by entering into
derivative contracts (hedging) in certain circumstances, the volatility of
mineral prices represents a substantial risk which no amount of planning or
technical expertise can eliminate.
If
the price of base and precious metals declines, our financial condition and
ability to obtain future financings will be impaired.
The price
of base and precious metals is affected by numerous factors, all of which are
beyond our control. Factors that tend to cause the price of base and precious
metals to decrease include the following:
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sales
or leasing of base and precious metals by governments and central
banks;
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a
low rate of inflation and a strong U.S.
dollar;
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decreased
demand for base and precious metals in industrial, jewelry and investment
uses;
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high
supply of base and precious metals from production, disinvestment, scrap
and hedging;
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sales
by base and precious metals producers, foreign transactions and other
hedging transactions; and
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devaluing
local currencies (relative to base and precious metals prices in U.S.
dollars) leading to lower production costs and higher production in
certain major base and precious metals producing
regions.
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Our
business is dependent on the price of base and precious metals. We
have not undertaken hedging transactions in order to protect us from a decline
in the price of base and precious metals. A decline in the price of
base and precious metals may also decrease our ability to obtain future
financings to fund our planned exploration programs.
The restatement of certain of our
historical consolidated financial statements may have an adverse effect on
us
.
We have
restated certain items on our consolidated balance sheets and statements of
operations. On our consolidated balance sheets: (i) mineral
properties have been restated to include the market value of certain shares
issued by us under the terms of our option agreements for the acquisition of the
mineral claims making up the Searchlight Gold Project and for the computation of
deferred tax liability assumed in the acquisition; and (ii) the Clarkdale Slag
Project has been restated to include revision of acquisition costs related to
issuance of warrants, consideration of certain terms with respect to future
payments that should have been recorded as contingent consideration and related
deferred future income tax liability in connection with our acquisition of
Transylvania International, Inc. (“Transylvania”). Our statement of
operations for the year ended December 31, 2005, has been restated to reclassify
other comprehensive income as discontinued operations and to reflect income tax
benefit related to the acquisition accounting for the Searchlight Claims and the
Clarkdale Slag Project. Our statement of operations for the year
ended December 31, 2006 has been restated to reclassify foreign currency
translation adjustments as general and administrative expenses and to reflect
income tax benefit related to the acquisition accounting for Searchlight
Claims. Our consolidated statement of operations for the year ended
December 31, 2007, has been restated to reflect the recomputation of the income
tax benefit related to net operating losses as a result of changes to the
purchase accounting for the Clarkdale Slag Project. There was no
other impact on the results of operations. Our consolidated statement
of operations for the period from inception to December 31, 2007 has been
restated to reflect the cumulative totals impacted by the 2005, 2006 and 2007
restated amounts, as well as to reclassify net losses prior to January 1, 2005
as losses from discontinued operations. Related to these issues, our
balance sheets for the periods ended December 31, 2005, 2006 and consolidated
balance sheet for 2007 have been restated to reclassify accumulated other
comprehensive loss as accumulated deficit during the exploration
stage. Details regarding the restatement and its underlying
circumstances are discussed in the Explanatory Notes in Notes 1, 3, 4 and 16 of
the Notes to the consolidated financial statements included in this
prospectus. As a result of the events described above, we may become
subject to a number of significant risks, which could have an adverse effect on
our business, financial condition and results of operations, including: we may
be subject to potential civil litigation, including shareholder class action
lawsuits and derivative claims made on behalf of us, and regulatory proceedings
or actions, the defense of which may require us to devote significant management
attention and to incur significant legal expense and which litigation,
proceedings or actions, if decided against us, could require us to pay
substantial judgments, settlements or other penalties.
We
identified material weaknesses in our internal control over financial reporting
and concluded that such controls were not effective. If we fail to
maintain effective internal control over financial reporting, we may not be able
to accurately report our financial results. We can provide no
assurance that we will at all times in the future be able to report that our
internal control is effective.
As a
registrant under the Exchange Act and a public company, and under Section 404 of
the Sarbanes-Oxley Act of 2002, we are required to include a management report
of our internal controls over financial reporting in our annual report, which
contains management’s assessment of the effectiveness of the company’s internal
controls over financial reporting. We are required to report, among
other things, control deficiencies that constitute material weaknesses or
changes in internal control that, or that are reasonably likely to, materially
affect internal control over financial reporting. A “material
weakness” is a significant deficiency or combination of significant deficiencies
that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or
detected. If we fail to comply with the requirements of Section 404
of the Sarbanes-Oxley Act of 2002 or report a material weakness, we might be
subject to regulatory sanction and investors may lose confidence in our
financial statements, which may be inaccurate if we fail to remedy such material
weakness.
Our
independent registered public accounting firm is required to attest to and
report on management’s assessment of the effectiveness of the company’s internal
controls over financial reporting. Our management may conclude that
our internal controls over our financial reporting are not
effective. Moreover, even if our management concludes that our
internal controls over financial reporting are effective, our independent
registered public accounting firm may still decline to attest to our
management’s assessment or may issue a report that is qualified if it is not
satisfied with our controls or the level at which our controls are documented,
designed, operated, or reviewed, or if it interprets the relevant requirements
differently from us. Our reporting obligations as a public company
will place a significant strain on our management, operational, and financial
resources and systems for the foreseeable future. Effective internal
controls, particularly those related to revenue recognition, are necessary for
us to produce reliable financial reports and are important to help prevent
fraud. As a result, our failure to achieve and maintain effective
internal controls over financial reporting could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could
harm our business and negatively impact the trading price of our
stock. Furthermore, we anticipate that we will incur considerable
costs and use significant management time and other resources in an effort to
comply with Section 404 and other requirements of the Sarbanes-Oxley
Act.
Based on
the restatements described above, our management concluded that our system of
internal control over financial reporting was not effective during the period
from March 31, 2005 through September 30, 2008, which resulted in the
restatements described above. Management had identified internal
control deficiencies which, in management’s judgment, represented material
weakness in internal control over financial reporting. The control
deficiencies generally related to controls over the accounting for complex
transactions to ensure such transactions are recorded as necessary to permit
preparation of financial statements and disclosure in accordance with generally
accepted accounting principles. Such complex transactions included
capital asset acquisitions and accounting for income taxes. At this
time, management has remediated all of our deficiencies in internal controls
which, in management’s judgment, represented material weakness in internal
control over financial reporting. We can provide no assurance that we
will at all times in the future be able to report that our internal control over
financial reporting is effective. If we fail to maintain an effective
system of internal controls, we may not be able to accurately report our
financial results or prevent fraud.
Risks
Relating to Our Securities
There
has been a very limited public trading market for our securities, and the market
for our securities may continue to be limited and be sporadic and highly
volatile.
There is
currently a limited public market for our common stock. Our common
stock is quoted on the National Association of Securities Dealers, Inc.
Over-the-Counter Bulletin Board (the “OTCBB”). We cannot assure you
that an active market for our shares will be established or maintained in the
future. The OTCBB is not a national securities exchange, and many
companies have experienced limited liquidity when traded through this quotation
system. Holders of our common stock may, therefore, have difficulty
selling their shares, should they decide to do so. In addition, there
can be no assurances that such markets will continue or that any shares, which
may be purchased, may be sold without incurring a loss. The market
price of our shares, from time to time, may not necessarily bear any
relationship to our book value, assets, past operating results, financial
condition or any other established criteria of value, and may not be indicative
of the market price for the shares in the future.
In
addition, the market price of our common stock may be volatile, which could
cause the value of our common stock to decline. Securities markets
experience significant price and volume fluctuations. This market
volatility, as well as general economic conditions, could cause the market price
of our common stock to fluctuate substantially. Many factors that are
beyond our control may significantly affect the market price of our shares.
These factors include:
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price
and volume fluctuations in the stock
markets;
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changes
in our earnings or variations in operating
results;
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any
shortfall in revenue or increase in losses from levels expected by
securities analysts;
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changes
in regulatory policies or law;
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operating
performance of companies comparable to us;
and
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general
economic trends and other external
factors.
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Even if
an active market for our common stock is established, stockholders may have to
sell their shares at prices substantially lower than the price they paid for the
shares or might otherwise receive than if an active public market
existed.
Future
financings could adversely affect common stock ownership interest and rights in
comparison with those of other security holders.
Our board
of directors has the power to issue additional shares of common stock without
stockholder approval. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our existing stockholders will be reduced, and these newly issued securities may
have rights, preferences or privileges senior to those of existing
stockholders.
If we
issue any additional common stock or securities convertible into common stock,
such issuance will reduce the proportionate ownership and voting power of each
other stockholder. In addition, such stock issuances might result in
a reduction of the per share book value of our common stock.
We do not
currently have an authorized class of preferred stock. However, we
intend to submit a proposal to our stockholders to authorize a class of up
40,000,000 shares of preferred stock, and have filed a preliminary proxy
statement with the SEC to that effect. There can be no assurances
that our stockholders will approve the proposed authorization of a class of
preferred stock.
The
proposed class of preferred stock is commonly known as “blank check” preferred
stock. The preferred stock may be issued from time to time in one or
more series, and the board of directors, without further approval of our
stockholders, would be authorized to fix the relative rights, preferences,
privileges and restrictions applicable to each series of preferred
stock. Such shares of preferred stock, if and when issued, may have
rights, powers and preferences superior to those of our common
stock. Although there are no current plans, commitments or
understandings, written or oral, to issue any preferred stock, in the event of
any issuances, the holders of common stock will not have any preemptive or
similar rights to acquire any preferred stock.
The
proposed class of preferred stock could, under certain circumstances, have an
anti-takeover effect. For example, in the event of a hostile attempt
to take over control of us, it may be possible for us to endeavor to impede the
attempt by issuing shares of preferred stock, thereby diluting or impairing the
voting power of the other outstanding shares of common stock and increasing the
potential costs to acquire control of us. The proposed class of
preferred stock therefore may have the effect of discouraging unsolicited
takeover attempts, thereby potentially limiting the opportunity for our
stockholders to dispose of their shares at the higher price generally available
in takeover attempts or that may be available under a merger
proposal. The proposed class of preferred stock may have the effect
of permitting our current management, including the current board of directors,
to retain its position, and place it in a better position to resist changes that
stockholders may wish to make if they are dissatisfied with the conduct of our
business.
Our
anti-takeover provisions or provisions of Nevada law, in our articles of
incorporation and bylaws and the common share purchase rights that accompany
shares of our common stock could prevent or delay a change in control of us,
even if a change of control would benefit our stockholders.
Provisions
of our articles of incorporation and bylaws, as well as provisions of Nevada
law, could discourage, delay or prevent a merger, acquisition or other change in
control of us, even if a change in control would benefit our stockholders. These
provisions:
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classify
our board of directors so that only one-third of the directors are elected
each year and require the vote of 66 2/3% of the outstanding stock
entitled to vote in the election of directors to amend these
provisions;
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prohibit
stockholder action by written consent and require that all stockholder
actions be taken at a meeting of our stockholders;
and
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establish
advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted upon by stockholders
at stockholder meetings and require the vote of 66 2/3% of the outstanding
stock entitled to vote in the election of directors to amend these
provisions,
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In
addition, the Nevada Revised Statutes contain provisions governing the
acquisition of a controlling interest in certain publicly held Nevada
corporations. These laws provide generally that any person that
acquires 20% or more of the outstanding voting shares of certain publicly held
Nevada corporations, such as us, in the secondary public or private market must
follow certain formalities before such acquisition or they may be denied voting
rights, unless a majority of the disinterested stockholders of the corporation
elects to restore such voting rights in whole or in part. These laws
provide that a person acquires a "controlling interest" whenever a person
acquires shares of a subject corporation that, but for the application of these
provisions of the Nevada Revised Statutes, would enable that person to exercise
(1) one-fifth or more, but less than one-third, (2) one-third or more, but less
than a majority or (3) a majority or more, of all of the voting power of the
corporation in the election of directors. The Control Share
Acquisition Statute generally applies only to Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who are Nevada
residents, and which conduct business directly or indirectly in
Nevada. Our Bylaws provide that the provisions of the Nevada Revised
Statutes, known as the “Control Share Acquisition Statute” apply to the
acquisition of a controlling interest in us, irrespective of whether we have 200
or more stockholders of record, or whether at least 100 of our stockholders have
addresses in the State of Nevada appearing on our stock ledger. These
laws may have a chilling effect on certain transactions if our articles of
incorporation or bylaws are not amended to provide that these provisions do not
apply to us or to an acquisition of a controlling interest, or if our
disinterested stockholders do not confer voting rights in the control
shares.
Each
currently outstanding share of our common stock includes, and each newly issued
share of our common stock 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 our outstanding common stock. However, the applicable
threshold percentage will not exceed 20% or more of our outstanding common stock
in the case of any person or group who owned 15% or more of our outstanding
common stock as of August 24, 2009. These persons may be deemed to
include certain of our officers, directors and principal
stockholders. The rights have some anti-takeover effects and
generally will cause substantial dilution to a person or group that attempts to
acquire control of us without conditioning the offer on either redemption of the
rights or amendment of the rights to prevent this dilution. The
rights are designed to provide additional protection against abusive or unfair
takeover tactics, such as offers for all shares at less than full value or at an
inappropriate time (in terms of maximizing long-term stockholder value), partial
tender offers and selective open-market purchases. The rights are
intended to assure that our board of directors has the ability to protect
stockholders and us if efforts are made to gain control of us in a manner that
is not in the best interests of us and our stockholders. The rights
could have the effect of delaying, deferring or preventing a change of control
that is not approved by our board of directors, which in turn could prevent our
stockholders from recognizing a gain in the event that a favorable offer is
extended and could materially and negatively affect the market price of the
common stock.
A
substantial number of our shares are available for sale in the public market and
sales of those shares could adversely affect our stock price.
Sales of
a substantial number of shares of common stock into the public market, or the
perception that such sales could occur, could substantially reduce our stock
price in the public market for our common stock, and could impair our ability to
obtain capital through a subsequent sale of our securities.
Our
common stock is subject to “penny stock” regulations that may affect the
liquidity of our common stock.
Our
common stock is subject to the rules adopted by the SEC that regulate
broker-dealer practices in connection with transactions in “penny
stocks.” Penny stocks are generally equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges, for which current price and volume information with respect to
transactions in such securities is provided by the exchange or
system).
The penny
stock rules require that a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the SEC, which contains the
following:
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a
description of the nature and level of risk in the market for penny stocks
in both public offerings and secondary
trading;
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a
description of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to violation of
such duties or other requirements of securities
laws;
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a
brief, clear, narrative description of a dealer market, including “bid”
and “ask” prices for penny stocks and significance of the spread between
the “bid” and “ask” price;
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a
toll-free telephone number for inquiries on disciplinary actions,
definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks;
and
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such
other information and in such form (including language, type, size and
format), as the SEC shall require by rule or
regulation.
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Prior to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer the following:
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the
bid and offer quotations for the penny
stock;
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the
compensation of the broker-dealer and its salesperson in the
transaction;
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the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market
for such stock;
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the
liquidity of the market for such stock;
and
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monthly
account statements showing the market value of each penny stock held in
the customer’s account.
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In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement. These disclosure requirements may have the effect of
reducing the trading activity in the secondary market for a stock such as our
common stock if it is subject to the penny stock rules.
USE
OF PROCEEDS
We will
not receive any proceeds from the sale of the shares issuable upon the exercise
of our outstanding common stock purchase warrants by the selling stockholders
pursuant to this prospectus. We may receive proceeds from the
issuance of shares of our common stock upon the exercise of common stock
purchase warrants. These warrants are exercisable at a weighted
average exercise price of $2.40 per share. We intend to use any
proceeds from the exercise of warrants for working capital and other general
corporate purposes. These warrants and the exercise of these warrants
by the selling stockholders are not being offered under this prospectus;
however, the shares of our common stock, issuable upon exercise of these
warrants, are being offered under this prospectus by the selling
stockholders.
There is
no assurance that any of the warrants will ever be exercised for cash, if at
all. If all of these outstanding warrants are exercised for cash, we
would receive aggregate gross proceeds of approximately
$7,741,548.
SELLING
STOCKHOLDERS
Pursuant
to various registration rights agreements with the selling stockholders, we have
agreed to file with the SEC a registration statement pursuant to the Securities
Act covering the resale of our registrable securities owned by such selling
stockholders that are subject to the registration rights
agreements. Accordingly, we have filed a registration statement on
Form S-1, of which this prospectus forms a part, with respect to the resale of
these securities from time to time. In addition, we agreed in the
registration rights agreements with the investors to register securities of ours
they hold and to use our best efforts to keep the registration statement
effective until the securities they own covered by this prospectus have been
sold or may be sold without registration or prospectus delivery requirements
under the Securities Act, subject to certain restrictions. However,
these agreements do not include contractual penalty provisions for failure to
comply with these registration rights provisions.
All the
shares beneficially underlying the warrants owned by the selling stockholders
which are being offered for resale by the selling stockholders were acquired in
connection with the following private placement transactions:
|
|
·
|
On
February 23, 2007, we completed a private placement of 575,000 units of
our securities resulting in aggregate gross proceeds of
$1,725,000. Each unit consisted of one share of our common
stock and a purchase warrant to purchase one half of one share (with each
whole warrant entitling the subscriber to purchase one additional share
for a period of two years from the closing date at an exercise price of
$4.50 per share). The warrants issued to subscribers of the
offering are callable by us if our common stock trades above $6.50 per
share for 20 consecutive trading days. We have agreed to file a
registration statement to cover the shares underlying the units and not to
exercise our call rights until the registration statement has been
declared effective by the SEC. We paid commissions to the
agents in connection with the private placement of $111,100 and warrants
(without call provisions) to purchase 12,300 shares of our common stock at
a price of $4.50 per share, exercisable for a period of two years from the
closing date.
|
|
|
·
|
On
February 23, 2007, we completed a private placement of 4,520,666 units of
our securities resulting in aggregate gross proceeds of
$13,562,002. Each unit consisted of one share of our common
stock and one half of one share purchase warrant (with each whole warrant
entitling the subscriber to purchase one additional share for a period of
two years from the closing date at an exercise price of $4.50 per
share). The warrants issued to subscribers of the offering are
callable by us if our common stock trades above $6.50 per share for 20
consecutive trading days. We have agreed to file a registration
statement to cover the shares underlying the units and not to exercise our
call rights until the registration statement has been declared effective
by the SEC. We paid commissions to the agents in connection
with the private placement of $381,990 and warrants (without call
provisions) to purchase 90,870 shares of our common stock at a price of
$4.50 per share, exercisable for a period of two years from the closing
date.
|
|
|
·
|
On
March 22, 2007, we completed a private placement of 2,226,161 units of our
securities resulting in gross proceeds of $6,678,483. Each unit
consisted of one share of our common stock and one half of one share
purchase warrant (with each whole warrant entitling the subscriber to
purchase one additional share for a period of two years from the closing
date at an exercise price of $4.50 per share). The warrants
issued to subscribers of the offering are callable by us if our common
stock trades above $6.50 per share for 20 consecutive trading
days. We have agreed to file a registration statement to cover
the shares underlying the units and not to exercise our call rights until
the registration statement has been declared effective by the
SEC. We paid commissions to the agents in connection with the
private placement of $525,386 and warrants (without call provisions) to
purchase 75,175 shares of common stock at an exercise price of $4.50 per
share for a period of two years from the closing of the private
placement.
|
On
December 29, 2008, our board of directors unilaterally determined, without any
negotiations with the warrant holders, to: (i) extend the expiration date of all
of the warrants in this private placement to March 1, 2010, (ii) reduce the
exercise price of the warrants to $2.40 per share, and (iii) revise the call
provision in the warrants so that all of such warrants are callable for
cancellation by us if the volume weighted average price of the common stock
exceeds $4.40 per share for 20 consecutive trading days and there is an
effective registration statement registering the shares of common stock
underlying the warrants at the time of the call of the
warrants.
On April
30, 2009, after further consideration by us in response to comments from the
SEC’s staff with respect to this Registration Statement, our board of directors
unilaterally determined, without any negotiations with the warrant holders, to
amend and restate the call provisions in the warrants further so that the terms
of such amended and restated call provisions are identical to the terms of the
warrants on their original dates of issuance. As a result: (i) all of
the warrants issued to subscribers of the offerings are callable for
cancellation by us if the volume weighted average price of the common stock
exceeds $6.50 per share for 20 consecutive trading days and there is an
effective registration statement registering the shares of common stock
underlying the warrants at the time of the call of the warrants, and (ii) the
warrants issued to brokers for the offerings will not have a call
provision.
We
believe that the distribution of the new warrant certificates in connection with
such unilateral modifications will not constitute a “sale” or “offer,” as
defined in Section 2(3) of the Securities Act and that no investment decision
has been made with respect to such unilateral modifications by the warrant
holders. Further, we believe that such a distribution is exempt from
the registration provisions of the Securities Act pursuant to Section 3(a)(9)
thereof because the modified warrants will be exchanged with existing warrant
holders exclusively, and no commission or other remuneration will be paid or
given, directly or indirectly, in connection with such exchange.
Selling
Stockholders Table
We have
filed a registration statement with the SEC, of which this prospectus forms a
part, with respect to the resale of our securities covered by this prospectus
from time to time under Rule 415 of the Securities Act. Our
securities being offered by this prospectus are being registered to permit
secondary public trading of our securities. Subject to the
restrictions described in this prospectus, the selling stockholders may offer
our securities covered under this prospectus for resale from time to
time. In addition, subject to the restrictions described in this
prospectus, the selling stockholders may sell, transfer or otherwise dispose of
all or a portion of our securities being offered under this prospectus in
transactions exempt from the registration requirements of the Securities
Act. See “Plan of Distribution.”
The table
below presents information, as of October 1, 2009, regarding the selling
stockholders and the securities that the selling stockholders (and their
pledgees, assignees, transferees and other successors in interest) may offer and
sell from time to time under this prospectus. More specifically, the
following table sets forth as to the selling stockholders:
|
|
·
|
the
number of shares of our common stock that the selling stockholders
beneficially owned prior to the offering for resale of any of the shares
of our common stock being registered by the registration statement of
which this prospectus is a part;
|
|
|
·
|
the
number of shares of our common stock that may be offered for resale for
the selling stockholders’ account under this prospectus;
and
|
|
|
·
|
the
number and percent of shares of our common stock to be held by the selling
stockholders after the offering of the resale securities, assuming all of
the resale securities are sold by the selling stockholders and that the
selling stockholders do not acquire any other shares of our common stock
prior to their assumed sale of all of the resale
shares.
|
The table
is prepared based on information supplied to us by the selling
stockholders. We do not know when or in what amounts a selling
stockholder may offer shares for sale. Although we have assumed for
purposes of the table below that the selling stockholders will sell all of the
securities offered by this prospectus, because the selling stockholders may
offer from time to time all or some of their securities covered under this
prospectus, or in another permitted manner, no assurances can be given as to the
actual number of securities that will be resold by the selling stockholders or
that will be held by the selling stockholders after completion of the
resales. The selling stockholders might not sell any or all of the
shares offered by this prospectus. In addition, the selling
stockholders may have sold, transferred or otherwise disposed of the securities
in transactions exempt from the registration requirements of the Securities Act
since the date the selling stockholders provided the information regarding their
securities holdings. However, for purposes of this table, we have
assumed that, after completion of the offering, none of the shares covered by
the prospectus will be held by the selling stockholders. Information
covering the selling stockholders may change from time to time and changed
information will be presented in a post-effective amendment to this registration
statement if and when necessary and required. Except as described
above, based on information provided to us by the selling stockholders and to
our knowledge, there are currently no agreements, arrangements or understandings
with respect to the resale of any of the securities covered by this
prospectus.
Where
applicable, we have indicated in the footnotes to the following table the name
and title of the individuals which we have been advised have the power to vote
or dispose of the securities listed in the following table.
|
|
|
Shares Beneficially
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Number of Share
|
|
|
Shares Beneficially Owned
|
|
|
|
|
Before Offering
(1)
|
|
|
Being Offered
(2)
|
|
|
After Offering
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Selling Security Holder
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Adamson and Jone Panavas
|
|
|
12,792
|
|
|
|
*
|
|
|
|
4,264
|
|
|
|
8,528
|
|
|
|
*
|
|
|
AGF
Canadian Growth Equity
(3)
|
|
|
1,052,051
|
|
|
|
*
|
|
|
|
236,534
|
|
|
|
815,517
|
|
|
|
*
|
|
|
Avonlea
Ventures #2 Inc.
(4)
|
|
|
392,500
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
342,500
|
|
|
|
*
|
|
|
Mark
Beychok
|
|
|
95,000
|
|
|
|
*
|
|
|
|
47,500
|
|
|
|
47,500
|
|
|
|
*
|
|
|
Kenneth
L. and Sue A. Brush
|
|
|
122,760
|
|
|
|
*
|
|
|
|
17,500
|
|
|
|
105,260
|
|
|
|
*
|
|
|
Anthony
David Bune
|
|
|
445,000
|
|
|
|
*
|
|
|
|
217,000
|
|
|
|
228,000
|
|
|
|
*
|
|
|
Bruce
Burnam Trust of 1992
(5)
|
|
|
150,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Bush
Family Trust
(6)
|
|
|
83,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
58,000
|
|
|
|
*
|
|
|
William
D. Corbett
|
|
|
8,167
|
|
|
|
*
|
|
|
|
8,167
|
|
|
|
0
|
|
|
|
*
|
|
|
Robert
Crosbie
|
|
|
1,031,500
|
|
|
|
*
|
|
|
|
16,667
|
|
|
|
1,014,833
|
|
|
|
*
|
|
|
Crown
Growth Partners II, L.P.
(7)
|
|
|
122,500
|
|
|
|
*
|
|
|
|
122,500
|
|
|
|
0
|
|
|
|
*
|
|
|
Leigh
S. Curry
|
|
|
21,250
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
16,250
|
|
|
|
*
|
|
|
Cutler
Family Trust UTD 5/4/89
(8)
|
|
|
75,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
Kenneth
G. Dallamora
|
|
|
536,557
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
486,667
|
|
|
|
*
|
|
|
D&D
Securities Company
(9)
|
|
|
1,071,175
|
|
|
|
*
|
|
|
|
72,675
|
|
|
|
998,500
|
|
|
|
*
|
|
|
Robert
Edwards
|
|
|
313,750
|
|
|
|
*
|
|
|
|
33,333
|
|
|
|
280,417
|
|
|
|
*
|
|
|
EFG
Eurofinanciere D'Investissements
(10)
|
|
|
45,000
|
|
|
|
*
|
|
|
|
15,000
|
|
|
|
30,000
|
|
|
|
*
|
|
|
Fred
Fialkow
|
|
|
7,500
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
2,500
|
|
|
|
*
|
|
|
T.
Chen Fong
|
|
|
150,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Robert
M. Franklin
|
|
|
234,500
|
|
|
|
*
|
|
|
|
7,167
|
|
|
|
227,333
|
|
|
|
*
|
|
|
Gaia
Resources Fund
(11)
|
|
|
55,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
*
|
|
|
Galaxy
Players Ltd.
(12)
|
|
|
189,000
|
|
|
|
*
|
|
|
|
33,000
|
|
|
|
156,000
|
|
|
|
*
|
|
|
Giso
Finance SA
(13)
|
|
|
15,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
Gunther
Family Trust
(14)
|
|
|
411,000
|
|
|
|
*
|
|
|
|
100,000
|
|
|
|
311,000
|
|
|
|
*
|
|
|
GWL
Canadian Resources
(15)
|
|
|
262,500
|
|
|
|
*
|
|
|
|
59,200
|
|
|
|
203,600
|
|
|
|
*
|
|
|
Hebrides
II Offshore Fund Ltd.
(16)
|
|
|
820,800
|
|
|
|
*
|
|
|
|
20,000
|
|
|
|
800,800
|
|
|
|
*
|
|
|
Hebrides
LP
(17)
|
|
|
2,496,000
|
|
|
|
2.34
|
|
|
|
80,000
|
|
|
|
2,416,000
|
|
|
|
2.27
|
|
|
E.
Franklin Hirsch
|
|
|
12,500
|
|
|
|
*
|
|
|
|
4,167
|
|
|
|
8,333
|
|
|
|
*
|
|
|
Paul
R. Hobson
|
|
|
40,000
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
30,000
|
|
|
|
*
|
|
|
Robert
Hover
|
|
|
3,000
|
|
|
|
*
|
|
|
|
2,500
|
|
|
|
500
|
|
|
|
*
|
|
|
Howard
Rocket Holdings Ltd.
(18)
|
|
|
17,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
12,000
|
|
|
|
*
|
|
|
Iroquois
Master Fund Ltd.
(19)
|
|
|
62,500
|
|
|
|
*
|
|
|
|
62,500
|
|
|
|
0
|
|
|
|
*
|
|
|
Sander
Jacobs
|
|
|
114,583
|
|
|
|
*
|
|
|
|
29,167
|
|
|
|
85,416
|
|
|
|
*
|
|
|
Hayes
Jackson
|
|
|
15,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
Jennifer
Jackson
|
|
|
15,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
Barbara
Jaffe TTE Barbara Jaffe Revocable Trust dtd 10/13/97
(20)
|
|
|
275,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
225,000
|
|
|
|
*
|
|
|
Fred
and Lenore Kayne Family Trust Dated March 29, 2004
(21)
|
|
|
1,062,500
|
|
|
|
*
|
|
|
|
150,000
|
|
|
|
912,500
|
|
|
|
*
|
|
|
Brian
W. Lawrence UDT 7/1/99
(22)
|
|
|
2,501,950
|
|
|
|
2.34
|
|
|
|
150,000
|
|
|
|
2,351,950
|
|
|
|
2.20
|
|
|
Bruce
E. Lazier
|
|
|
1,258,500
|
|
|
|
1.18
|
|
|
|
35,000
|
|
|
|
1,223,500
|
|
|
|
1.15
|
|
|
Anthony
C. Lisa II Revocable Trust
(23)
|
|
|
52,500
|
|
|
|
*
|
|
|
|
17,500
|
|
|
|
35,000
|
|
|
|
*
|
|
|
London
Life Canadian Resources
(24)
|
|
|
153,900
|
|
|
|
*
|
|
|
|
37,600
|
|
|
|
116,300
|
|
|
|
*
|
|
|
Brenda
Mackie
|
|
|
75,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
James
Mackie
|
|
|
75,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
Sandra
MacNaughton
|
|
|
4,200
|
|
|
|
*
|
|
|
|
1,400
|
|
|
|
2,800
|
|
|
|
*
|
|
|
Peter
McRae
|
|
|
15,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
Midsouth
Investor Fund LP
(25)
|
|
|
150,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Jeanelle
Mitchell
|
|
|
370,500
|
|
|
|
*
|
|
|
|
15,500
|
|
|
|
355,000
|
|
|
|
*
|
|
|
Diwan
Nesicolaci and Tracey Nesicolaci
|
|
|
25,000
|
|
|
|
*
|
|
|
|
8,333
|
|
|
|
16,777
|
|
|
|
*
|
|
|
E.
Wayne Nordberg
|
|
|
90,000
|
|
|
|
*
|
|
|
|
30,000
|
|
|
|
60,000
|
|
|
|
*
|
|
|
Jayme
Nozzi
|
|
|
3,000
|
|
|
|
*
|
|
|
|
2,500
|
|
|
|
500
|
|
|
|
*
|
|
|
Martin
B. Oring
(26)
|
|
|
853,683
|
|
|
|
*
|
|
|
|
62,500
|
|
|
|
791,183
|
|
|
|
*
|
|
|
Pinetree
Resource Partnership
(27)
|
|
|
125,000
|
|
|
|
*
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
*
|
|
|
James
Pledger
|
|
|
5,000
|
|
|
|
*
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
*
|
|
|
Precious
Capital Global Mining & Metals Fund
(28)
|
|
|
50,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
*
|
|
|
Rahn
& Bodner
(29)
|
|
|
100,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
Michele
I. Reis, Trust of 21 May 1993
(30)
|
|
|
37,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
*
|
|
|
Ralph
I. Reis Revocable Trust
(31)
|
|
|
37,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
*
|
|
|
Rosalind
M. Reis,
Trust
of 18 June 1993
(32)
|
|
|
37,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
*
|
|
|
Christoph
Richter
|
|
|
20,000
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
15,000
|
|
|
|
*
|
|
|
Detlef
Rostock
|
|
|
120,000
|
|
|
|
*
|
|
|
|
20,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Robocheyne
Consulting, Ltd.
(33)
|
|
|
831,250
|
|
|
|
*
|
|
|
|
100,000
|
|
|
|
731,250
|
|
|
|
*
|
|
|
S&P
Investors, Inc.
(34)
|
|
|
66,420
|
|
|
|
*
|
|
|
|
36,420
|
|
|
|
30,000
|
|
|
|
*
|
|
|
SLP
Investments Ltd.
(35)
|
|
|
50,000
|
|
|
|
*
|
|
|
|
16,667
|
|
|
|
33,333
|
|
|
|
*
|
|
|
Cary
Schwartz
|
|
|
30,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
18,000
|
|
|
|
*
|
|
|
Seneca
Holdings Limited
(36)
|
|
|
150,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Stephen
Sharpe
|
|
|
70,320
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
57,820
|
|
|
|
*
|
|
|
Bruce
Shpiner
|
|
|
19,500
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
9,500
|
|
|
|
*
|
|
|
Signalta
Capital Corporation
(37)
|
|
|
284,500
|
|
|
|
*
|
|
|
|
16,667
|
|
|
|
267,833
|
|
|
|
*
|
|
|
Robert
and Ellen Snyder
|
|
|
12,000
|
|
|
|
*
|
|
|
|
4,000
|
|
|
|
8,000
|
|
|
|
*
|
|
|
John
H. Staab and Nancy Staab
|
|
|
7,500
|
|
|
|
*
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
*
|
|
|
Kenneth
Sutherland
|
|
|
133,333
|
|
|
|
*
|
|
|
|
16,667
|
|
|
|
116,666
|
|
|
|
*
|
|
|
Synergy
Asset Management Ltd.
(38)
|
|
|
140,000
|
|
|
|
*
|
|
|
|
20,000
|
|
|
|
120,000
|
|
|
|
*
|
|
|
John
C. Thompson
|
|
|
150,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Glen
Tobias
|
|
|
1,355,000
|
|
|
|
1.27
|
|
|
|
75,000
|
|
|
|
1,280,000
|
|
|
|
1.20
|
|
|
T.R.L.
Investments Limited
(39)
|
|
|
50,250
|
|
|
|
*
|
|
|
|
16,750
|
|
|
|
33,500
|
|
|
|
*
|
|
|
WES-TEX
Drilling Company, L.P.
(40)
|
|
|
537,500
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
487,500
|
|
|
|
*
|
|
|
Robert
Allen White
|
|
|
51,000
|
|
|
|
*
|
|
|
|
17,000
|
|
|
|
34,000
|
|
|
|
*
|
|
|
Dagmar
Wintersteller
|
|
|
120,000
|
|
|
|
*
|
|
|
|
20,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
Gregor
Wintersteller
|
|
|
300,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
250,000
|
|
|
|
*
|
|
|
Jeremy
A. Wise
|
|
|
7,500
|
|
|
|
*
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
*
|
|
|
Donald
Wohl, TTE Donald Wohl Revocable Trust dtd. 6/8/05
(41)
|
|
|
702,000
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
652,000
|
|
|
|
*
|
|
|
Todd
Wohl
|
|
|
38,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
26,000
|
|
|
|
*
|
|
|
Joe
Wolfe
|
|
|
105,865
|
|
|
|
*
|
|
|
|
50,000
|
|
|
|
55,865
|
|
|
|
*
|
|
|
Yendor
Investments Ltd.
(42)
|
|
|
37,500
|
|
|
|
*
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
*
|
|
|
Zuri
Invest Limited
(43)
|
|
|
140,000
|
|
|
|
*
|
|
|
|
12,300
|
|
|
|
127,700
|
|
|
|
*
|
|
|
1471158
Ontario Ltd.
(44)
|
|
|
35,000
|
|
|
|
*
|
|
|
|
25,000
|
|
|
|
10,000
|
|
|
|
*
|
|
____________________
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the
SEC. Shares of common stock subject to options or warrants
currently exercisable or exercisable within 60 days of the date of
this prospectus, are deemed outstanding for computing the
percentage ownership of the stockholder holding the options or warrants,
but are not deemed outstanding for computing the percentage ownership of
any other stockholder. Unless otherwise indicated in the
footnotes to this table, we believe stockholders named in the table have
sole voting and sole investment power with respect to the shares set forth
opposite such stockholder's name. Unless otherwise indicated,
the officers, directors and stockholders can be reached at our principal
offices. Percentage of ownership is based on 106,578,527 shares
of common stock outstanding as of the date of October 1, 2009.
|
|
(2)
|
The
shares of common stock being offered by the selling stockholders include
the number of shares underlying warrants set forth in this column which
have an exercise price of $2.40 per share. The warrants are
fully vested and expire on March 1,
2010.
|
|
(3)
|
W.R.
Farguharson has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(4)
|
Michael
A. Steele has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(5)
|
Bruce
Burnam has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(6)
|
Irving
M. Bush has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(7)
|
Anthony
C. Lisa II has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(8)
|
Burton
Cutler has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(9)
|
D&D
Securities Company acted as our agent with respect to our March 22, 2007
and September 2, 2005 private placements under Regulation S. As
a commission for the services provided by D&D in connection with the
March 22, 2007 private placement, D&D received a cash commission of
$526,224 and warrants to purchase 75,175 shares of our common stock at an
exercise price of $4.50 per share (and which exercise price was reduced to
$2.40 per share on December 29, 2008). As a commission for the
services provided by D&D in connection with the September 2, 2005
private placement, D&D received a commission of $205,250 and 639,000
broker unit warrants exercisable at a price of $0.25 per unit
warrant. Each broker unit consisted of one share of our common
stock, one half of one share purchase warrant (with each whole warrant
entitling D&D to purchase one additional share for a period of nine
months from the closing of private placement at an exercise price equal to
$0.625 per share). Joe Pavao, President of D&D, has power
to vote and dispose of the shares that this selling stockholder
owns.
|
|
(10)
|
Each
of Jean-Claude Gourrut and Philippe Ragaz has power to vote and dispose of
the shares that this selling stockholder
owns.
|
|
(11)
|
John
Coast Sullenger has power to vote and dispose of the shares that this
selling stockholder owns.
|
|
(12)
|
Each
of Jerry Sapieha and Brian Lawrence has power to vote and dispose of the
shares that this selling stockholder
owns.
|
|
(13)
|
Each
of Leo Frank Docsal and Roland Isler has power to vote and dispose of the
shares that this selling stockholder
owns.
|
|
(14)
|
Richard
S. Gunther has shared power to vote and dispose of the shares that this
selling stockholder owns.
|
|
(15)
|
W.R.
Farguharson has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(16)
|
Anthony
Bune has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(17)
|
Anthony
Bune has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(18)
|
Dr.
Howard Rocket has power to vote and dispose of the shares that this
selling stockholder owns.
|
|
(19)
|
Joshua
Silverman has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(20)
|
Barbara
Jaffe has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(21)
|
Each
of Fred Kayne and Lenore Kayne has power to vote and dispose of the shares
that this selling stockholder owns.
|
|
(22)
|
Brian
W. Lawrence has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(23)
|
Susan
Vissers Lisa has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(24)
|
W.R.
Farguharson has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(25)
|
Lyman
O. Heidtke has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(26)
|
Mr.
Oring is a member of our board of directors. Mr. Oring has been
a member of our board of directors since October 6,
2008.
|
|
(27)
|
Larry
Goldberg has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(28)
|
Patrick
Michaels has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(29)
|
Martin
Bidermann has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(30)
|
Michele
I. Reis has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(31)
|
Ralph
I. Reis has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(32)
|
Rosalind
M. Reis has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(33)
|
Each
of Martin Cheyne and Robert Rose has power to vote and dispose of the
shares that this selling stockholder
owns.
|
|
(34)
|
S&P
Investors, Inc. acted as our agent with respect to our January 18, 2006
and February 23, 2007 private placements under Regulation D. As
a commission for the services provided by S&P in connection with the
January 18, 2006 private placement, S&P received a cash commission of
$87,750 and warrants to purchase 390,000 shares of our common stock at a
price of $0.65 per share. As a commission for the services
provided by S&P in connection with the February 23, 2007 private
placement, S&P received a cash commission of $254,940 and warrants to
purchase 36,420 shares of our common stock at an exercise price of $4.50
per share (and which exercise price was reduced to $2.40 per share on
December 29, 2008). Stuart G. Potter has power to vote and
dispose of the shares that this selling stockholder
owns.
|
|
(35)
|
Stuart
G. Potter has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(36)
|
Lord
Reay has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(37)
|
Robert
M. Franklin has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(38)
|
Majid
El Solh has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(39)
|
Richard
M. Cooper has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(40)
|
Dewayne
Chitwood has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(41)
|
Donald
Wohl has power to vote and dispose of the shares that this selling
stockholder owns.
|
|
(42)
|
Lisa
Sharpe Ruscica has power to vote and dispose of the shares that this
selling stockholder owns.
|
|
(43)
|
Zuri
Invest Limited acted as our agent with respect to our February 23, 2007
private placement under Regulation S. As a commission for the
services provided by Zuri in connection with the February 23, 2007 private
placement, Zuri received a cash commission of $111,100 and warrants to
purchase 12,300 shares of our common stock at an exercise price of $4.50
per share (and which exercise price was reduced to $2.40 per share on
December 29, 2008). Andrew Michaels has power to vote and
dispose of the shares that this selling stockholder
owns.
|
|
(44)
|
Robert
Calvent has power to vote and dispose of the shares that this selling
stockholder owns.
|
PLAN
OF DISTRIBUTION
The
selling stockholders may, from time to time, sell any or all of their securities
on any stock exchange, market or trading facility on which the shares are traded
or in private transactions. There is a limited public trading market
for our common stock. Our common stock is quoted under the symbol
“SRCH” on the OTCBB.
The
selling stockholders may use any one or more of the following methods when
selling securities:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
|
·
|
a
combination of any such methods of sale;
and
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions
involved. Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of
shares will be borne by a selling stockholder. The selling
stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act supplementing or
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this
prospectus.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act supplementing or amending the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares of common stock purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.
We are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are
notified by any selling stockholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock, if
required, we will file a supplement to this prospectus. If the
selling stockholders use this prospectus for any sale of the shares of common
stock, they will be subject to the prospectus delivery requirements of the
Securities Act.
Under
applicable rules and regulations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), any person engaged in the distribution of the
resale shares may not simultaneously engage in market making activities with
respect to our common stock for a period of two business days prior to the
commencement of the distribution. In addition, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of shares of our common stock by the selling
stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.
Each of
D&D Securities Company and S&P Investors, Inc., who are selling
stockholders, has identified itself to us as a registered broker-dealer, and as
a result, each is an underwriter within the meaning of Section 2(a)(11) of the
Securities Act in connection with the sale of the shares registered hereunder
underlying such warrants. In addition, Paul R. Hobson, Bruce E.
Lazier, Stuart G. Potter and Midsouth Investor Fund LP, who also are selling
stockholders, have represented to us that they are affiliates of one or more
registered broker-dealers. Such persons also have represented to us
that they purchased the warrants relating to the shares registered hereunder in
the ordinary course of business, and at the time of the purchase of such
securities, such persons had no agreements or understandings, directly or
indirectly, with any other person to distribute such securities. In
addition, Martin B. Oring is a member of our board of
directors.
PRICE
RANGE OF COMMON STOCK
Our
common stock is quoted on the OTCBB under the symbol “SRCH.” Trading in our
common stock has not been extensive and such trades cannot be characterized as
constituting an active trading market. The following is a summary of
the high and low closing prices of our common stock on the OTCBB during the
periods presented, as reported on the website of the NASDAQ Stock
Market. Such prices represent inter-dealer prices, without retail
mark-up, mark down or commissions, and may not necessarily represent actual
transactions:
|
|
|
Closing Sale Price
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year
Ending December 31, 2009
|
|
|
|
|
|
|
|
Thrid
Quarter
|
|
$
|
2.64
|
|
|
$
|
1.70
|
|
|
Second
Quarter
|
|
|
2.75
|
|
|
|
1.93
|
|
|
First
Quarter
|
|
|
2.80
|
|
|
|
1.60
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
|
2.45
|
|
|
|
1.35
|
|
|
Third
Quarter
|
|
|
3.00
|
|
|
|
1.72
|
|
|
Second
Quarter
|
|
|
3.30
|
|
|
|
1.88
|
|
|
First
Quarter
|
|
|
4.18
|
|
|
|
2.25
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
|
3.25
|
|
|
|
1.65
|
|
|
Third
Quarter
|
|
|
3.40
|
|
|
|
2.60
|
|
|
Second
Quarter
|
|
|
4.00
|
|
|
|
2.80
|
|
|
First
Quarter
|
|
|
4.35
|
|
|
|
3.10
|
|
On
October 1, 2009, the closing sales price on the OTCBB for the common stock was
$1.80, as reported on the website of the NASDAQ Stock Market. As of
October 1, 2009, there were 106,578,527 outstanding shares of common stock and
approximately 139 stockholders of record of the common stock (not including
the number of persons or entities holding stock in nominee or street name
through various brokerage firms). However, the number of holders of
record of our shares of common stock (including the number of persons or
entities holding stock in nominee or street name through various brokerage
firms) exceeds the number of holders which would permit us to terminate the
registration of our common stock under Section 12(g) of the Exchange Act.
DIVIDEND
POLICY
We have
not declared any dividends and we do not plan to declare any dividends in the
foreseeable future. There are no restrictions in our articles of
incorporation or bylaws that prevent us from declaring dividends. The
Nevada Revised Statutes, however, prohibit us from declaring dividends where,
after giving effect to the distribution of the dividend:
|
|
·
|
we
would not be able to pay our debts as they become due in the usual course
of business; or
|
|
|
·
|
our
total assets would be less than the sum of our total liabilities plus the
amount that would be needed to satisfy the rights of stockholders who have
preferential rights superior to those receiving the distribution, unless
otherwise permitted under our articles of
incorporation.
|
Equity
Compensation Plan Information
The
following table provides information, as of December 31, 2008, with respect to
options outstanding and available under our equity compensation plans, other
than any employee benefit plan meeting the qualification requirements of Section
401(a) of the Internal Revenue Code:
|
Plan Category
|
|
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(A)
|
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants and
Rights
(B)
|
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
(excluding securities
reflected in Column A
(C)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
314,593
|
|
|
$
|
1.61
|
|
|
|
3,685,407
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
3,245,700
|
|
|
$
|
0.96
|
|
|
|
-
|
|
|
TOTAL
|
|
|
3,560,293
|
|
|
$
|
1.02
|
|
|
|
3,685,407
|
|
SELECTED
FINANCIAL DATA
The
following statements of operations data for fiscal years 2006, and consolidated
statement of operations for 2007 and 2008 and consolidated balance sheet data
for fiscal years 2007 and 2008 have been derived from our consolidated financial
statements and related notes which have been audited by Brown Armstrong,
Paulden, McCown, Starbuck, Thornburgh & Keeter Accountancy Corporation for
the years ended December 31, 2006, 2007 and 2008, and are included elsewhere in
this document. The statements of operations data for fiscal years
2005 and 2004, and the balance sheet data for fiscal years 2004, 2005 and 2006
have been derived from our financial statements and related notes not included
in this prospectus. The following selected financial data should be
read together with our financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this prospectus:
|
Statement of Operations Data
|
|
Year ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
Operating
Expenses
|
|
|
5,141,957
|
|
|
|
3,650,734
|
|
|
|
3,736,079
|
|
|
|
1,721,777
|
|
|
|
-
|
|
|
Income
tax benefit
|
|
|
1,777,458
|
|
|
|
1,080,375
|
|
|
|
1,122,457
|
|
|
|
399,645
|
|
|
|
-
|
|
|
Loss
from continuing operations
|
|
|
(3,128,386
|
)
|
|
|
(2,221,818
|
)
|
|
|
(2,540,978
|
)
|
|
|
(1,322,132
|
)
|
|
|
-
|
|
|
Gain
(loss) from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,708
|
|
|
|
(700,444
|
)
|
|
Net
loss
|
|
|
(3,128,386
|
)
|
|
|
(2,221,818
|
)
|
|
|
(2,540,978
|
)
|
|
|
(1,201,424
|
)
|
|
|
(700,444
|
)
|
|
Loss
per share - Basic and diluted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Loss
from continuing operations
|
|
|
(0.03
|
)
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
-
|
|
|
Gain
(loss) from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
Balance Sheet Data
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash
|
|
$
|
7,055,591
|
|
|
$
|
12,007,344
|
|
|
$
|
3,684,248
|
|
|
$
|
705,856
|
|
|
$
|
295
|
|
|
Working
capital (deficiency)
|
|
|
5,885,930
|
|
|
|
11,105,436
|
|
|
|
2,207,177
|
|
|
|
(472,267
|
)
|
|
|
(1,685,366
|
)
|
|
Total
assets
|
|
|
167,479,633
|
|
|
|
160,132,878
|
|
|
|
12,243,481
|
|
|
|
4,329,415
|
|
|
|
1,644
|
|
|
Total
liabilities
|
|
|
53,875,501
|
|
|
|
53,932,202
|
|
|
|
2,443,637
|
|
|
|
1,629,063
|
|
|
|
1,685,661
|
|
|
Total
stockholders’ equity (deficit)
|
|
|
113,604,132
|
|
|
|
106,200,676
|
|
|
|
9,799,844
|
|
|
|
2,700,352
|
|
|
|
(1,684,017
|
)
|
|
Long-term
debt, including
current
portion
|
|
|
2,217,847
|
|
|
|
2,420,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Selected
Quarterly
Financial Data
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/09
|
|
|
3/31/09
|
|
|
12/31/08
|
|
|
9/30/08
|
|
|
6/30/08
|
|
|
3/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
1,729,975
|
|
|
|
1,572,226
|
|
|
|
1,251,140
|
|
|
|
1,415,440
|
|
|
|
1,412,342
|
|
|
|
1,063,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,729,975
|
)
|
|
|
(1,572,226
|
)
|
|
|
(1,251,140
|
)
|
|
|
(1,415,440
|
)
|
|
|
(1,412,342
|
)
|
|
|
(1,063,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,078,329
|
)
|
|
|
(980,055
|
)
|
|
|
(765,055
|
)
|
|
|
(910,900
|
)
|
|
|
(859,735
|
)
|
|
|
(592,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
Selected
Quarterly
Financial Data
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/07
|
|
|
9/30/07
|
|
|
6/30/07
|
|
|
3/31/07
|
|
|
12/31/06
|
|
|
9/30/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
$
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
1,146,603
|
|
|
|
795,897
|
|
|
|
986,687
|
|
|
|
721,547
|
|
|
|
1,168,423
|
|
|
|
875,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,146,603
|
)
|
|
|
(795,897
|
)
|
|
|
(986,687
|
)
|
|
|
(721,547
|
)
|
|
|
(1,168,423
|
)
|
|
|
(875,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(801,291
|
)
|
|
|
(423,757
|
)
|
|
|
(586,835
|
)
|
|
|
(409,935
|
)
|
|
|
(834,872
|
)
|
|
|
(570,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes appearing elsewhere in this prospectus. This discussion
and analysis may contain forward-looking statements based on assumptions about
our future business. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to those set forth under “Risk Factors” and
elsewhere in this prospectus.
This
discussion presents management’s analysis of our results of operations and
financial condition as of and for each of the years in the three-year period
ended December 31, 2008 and for each of the six-month periods ended June 30,
2009 and 2008. The discussion should be read in conjunction with our
financial statements and the notes related thereto which appear elsewhere in
this prospectus.
Executive
Overview
We are an
exploration stage company engaged in the acquisition and exploration of mineral
properties and slag reprocessing projects. 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 acquisition of 100% of the Clarkdale Slag
Project in 2007, we have devoted considerable effort to the designing and
engineering of our first production module, which included finalizing the
production flow sheet, sourcing and purchasing equipment as well as refurbishing
the module building and constructing the electrowinning building. The
module and electrowinning buildings house the first production module, which has
been designed to allow for the grinding, leaching, filtering and extraction of
precious and base metals from the slag material and is expected to process
between 100 and 250 tons of slag material per day. During 2008, we
completed the refurbishing and construction of the module and electrowinning
buildings, respectively, and we installed all the necessary equipment in the two
buildings for the operation of the first production module. Also in
2008, we expended approximately $1,000,000 to immediately address Phase II long
lead-time items such as grading 12 acres of land, drilling a well and preparing
the architecture and engineering drawings for the proposed full-scale production
facility. During 2009, we have been executing our business plan on
the Clarkdale Slag Project, which includes the start-up and operation of the
first production module, in an effort to achieve consistent levels of gold and
silver extraction that would support the economic feasibility of a commercial
production facility.
On June
17, 2008, we received a Certificate of Occupancy for the laboratory facilities
located within the module building, allowing our chemists to conduct immediate,
on-site analyses of leaching results to further optimize the metals extraction
process. On August 8, 2008, we received a Certificate of Occupancy
for the module building, allowing us to operate the grinding, leaching,
filtering and resin extraction equipment within the module
building. On December 30, 2008, we received a Certificate of
Occupancy for the electrowinning building, allowing us to operate the copper and
zinc electrowinning equipment within the electrowinning building.
We have
completed the construction of the production module for the Clarkdale Slag
Project and are now actively engaged in the testing and start-up phase of the
project. Since the start of 2009, the primary emphasis has been
placed on the crushing and grinding circuit as well as the leaching and
extraction of precious metals (gold and silver). We have completed
continuous runs of up to 16 hours through the crushing and grinding
circuit. To date, our internal laboratory testing has reflected
consistent levels of extractable precious and base metals in pregnant leach
solutions from the Clarkdale slag material. The crushing and grinding
circuit effectively liberates gold, silver, copper and zinc from the slag
material. Further, management believes that extraction results from
preliminary internal laboratory testing have been consistent with the results of
earlier assay testing conducted by our independent consultants. We
believe that we can improve extraction rates further by optimizing the grind,
the chemical characteristics of the leach solutions and the amount of residence
time required for maximum grind and leach efficiency.
We have
faced challenges involving the amount of wear on certain grinding components
caused by the abrasiveness of the slag material and the rate of
throughput. Highly abrasive carbon-rich ferro-silicates (containing
carbon, iron and silica) comprise about 90% of the slag material, which has
required us to seek out more advanced hard facing technology and wear-resistant
surfacing media on our crushing and grinding equipment. We are having
such materials fabricated by third parties. We also are still working
to optimize the pulp density and production rate necessary for maximum metal
liberation by the large vibratory mill.
Once the
crushing and grinding circuit has been configured to run continuously at optimum
productivity levels, we believe that we will be able to proceed with the
operation of all circuits within the production module.
On May 6,
2009, we entered into a new engagement of Mountain States R&D International
Inc. (“Mountain States”), an independent engineering consultant, to conduct a
technical analysis of our gold recovery process, which we believe comprises the
majority of the potential value of the entire Clarkdale Slag
Project. Such technical analysis was to consist of the observation
and analysis of our gold recovery process in accordance with chain-of-custody
standards. The technical analysis was not intended for the purpose of
determining the economic feasibility of the Clarkdale Slag Project.
However,
during our work program with Mountain States, we jointly determined with
Mountain States that we would need specialty expertise in dealing with the
abrasiveness of the slag material. As a result, Mountain States
agreed to withdraw from its engagement and we have engaged a new team of
independent metallurgical engineers, with extensive international experience in
milling and leaching hard, abrasive and refractory material similar to that
found in the slag pile. We have engaged the new engineering team to
provide us with recommendations regarding further optimization of all four
primary processing circuits, with their initial recommendations focusing upon
the crushing, grinding, leaching and filtration circuits. Once we are
able to resolve these issues, we intend to engage an independent engineer to
conduct a technical analysis of our gold recovery process.
We
incurred delays during the construction of our production module, including
delays in receiving large pieces of equipment from manufacturers, engineering
related delays due to the complexity of installing the production module
equipment in a World War I era module building and the decision to construct a
separate building to house the electrowinning equipment after it was determined
that the electrowinning equipment would not adequately fit in the module
building. Consequently, the construction timeline for completing the
production module was extended by approximately twelve months from what we
originally anticipated and there was an approximately 55% increase in costs from
what we had originally projected.
We
anticipate that the operation of our production module will allow us to
determine the economics of the project and serve as the basis for the final
feasibility of the project. If the feasibility of the project
establishes economic viability, we expect to commence construction of a
full-scale production facility where we intend to install subsequent modules in
parallel. We expect that each subsequent module would be comparable in
technology and scale to the initial production module. The number of
subsequent modules required to attain full-production of 2,000 tons per day will
be determined once the initial production module capacity is
determined. The cost of designing and constructing our initial
production module was approximately $12,000,000. We do not believe
that the construction of subsequent modules will cost as much because: (i) of
the knowledge we have developed in the construction of the initial production
module, and (ii) any additional modules will be new construction, rather than
rehabilitation of an older building. However, the scope and size of
our full-scale production facility, including the number of additional modules,
the timing and cost of additional modules and the economies of scale of a
production facility, will depend upon a number of factors, including the results
of a feasibility study and the availability of funding. A more
thorough economic analysis of the full-scale production facility, including
specific capital and operating costs, funding schedules and funding sources, is
expected to occur during the feasibility evaluation of the initial production
module. The first stage of the feasibility evaluation began in the
second quarter of 2009, and has continued into the third quarter of 2009 when we
engaged the new team of metallurgical engineers, with specialty expertise in
dealing with milling and leaching hard, abrasive and refractory material, to
work with our Clarkdale personnel and consultants to achieve optimum continuous
production.
We have
budgeted $2,400,000 for our work program on the Clarkdale Slag Project over the
next twelve months, which includes the operation of the production module and
performing the feasibility study. A decision on allocating
approximately $6,000,000 of additional funds for the Phase II expansion and
$4,700,000 to complete the construction of an Industrial Collector Road pursuant
to an agreement with the Town of Clarkdale, Arizona by January 2011 will be made
once the first production module is operational and its results are analyzed.
We expect
that there will be significant financing requirements in order to finance the
construction of a full-scale production facility, and cannot assure you that
such funding will be available at all or on terms that are reasonably acceptable
to us. If the results from our feasibility study and the results from the
operation of the production module do not support a basis for us to proceed with
the construction of our proposed, full-scale production facility or we cannot
obtain funding at all or on terms that are reasonably acceptable to us, we will
have to scale back or abandon our proposed operations on the Clarkdale Slag
Project. If management determines, based on any factors, including the
foregoing, that capitalized costs associated with any of our mineral interests
are not likely to be recovered, we would incur a significant impairment of our
investment in such property interests on our financial statements.
In
January 2009, we submitted a development agreement to the Town of Clarkdale for
the construction of an Industrial Collector Road. The purpose of the road is to
provide us with the capability to enhance the flow of industrial traffic to and
from the Clarkdale Slag Project. The construction of the road is a required
infrastructure improvement under the terms of our conditional use permit with
the Town of Clarkdale. The Town of Clarkdale approved the development agreement
on January 9, 2009.
The
development agreement provides that its effective date will be the later of (i)
30 days from the approving resolution of the agreement by the Clarkdale Town
Council; or (ii) the date on which the Town of Clarkdale obtains a connection
dedication from separate property owners who have land that will be utilized in
construction of the road; or (iii) the date on which the Town of Clarkdale
receives the proper effluent permit. The Town of Clarkdale has approved the
development agreement, and the remaining two contingencies with respect to the
effectiveness of the development agreement are beyond our control.
Under the
development agreement, we are obligated to complete the construction of the road
within two years after the effective date of the agreement. If we do not
complete the road within the two year period, we may lose our conditional use
permit from the Town of Clarkdale. Further, as a condition of our developing any
of our property that is adjacent to the Clarkdale Slag Project, we will be
required to construct additional enhancements to the road. We will have ten
years from the start of construction on the road in which to complete the
additional enhancements. However, we do not currently have any defined plans for
the development of the adjacent property.
We
estimate that the initial cost of construction of the road will be approximately
$3,500,000 and that the cost of the additional enhancements will be
approximately $1,200,000. We will be required to fund the costs of this
construction. Based on the uncertainty of the timing of these contingencies, we
have not included these costs in our current operating plans or budgets.
However, we will require additional project financing or other financing in
order to fund the construction of the road and the additional enhancements.
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.
The failure to complete the road and the additional enhancements in a timely
manner under the development agreement would have a material adverse effect on
the Clarkdale Slag Project and our operations.
Searchlight
Gold Project
. Since 2005, we have maintained an ongoing exploration
program on our Searchlight Gold Project and have contracted with Arrakis, Inc.
(“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 in the first quarter of 2008, and we approved a
continuation of the metallurgical work program with Arrakis. The goal of this
work program is to attempt to further improve upon the extraction grades of gold
from samples taken from the project and explore in more detail the potential
capital and operating costs of implementing methods, such as autoclave
leaching.
During
the second quarter of 2008, we “double staked” the Searchlight property by
filing, with the BLM and the Clark County, Nevada Recorder, 142 new and separate
20-acre placer claims overtop of the twenty existing 160-acre claims. We were
only able to “double stake” 2,840 acres out of the 3,200 acre site due to
various regulatory restrictions on staking of certain of the smaller land
parcels on the site. We have maintained the twenty prior 160-acre claims to
provide us with a basis to retain the priority of and defend our existing
160-acre mining claims.
The
former Searchlight Claim owners had previously obtained a BLM approved Plan of
Operations, which included permission to drill eighteen holes on the 3,200 acre
project area and to mine a 36-acre pit on our RR304 claim. We had anticipated
conducting our early stage exploratory work on the Searchlight Claims property
by utilizing the Plan of Operations issued to the former Searchlight Claim
owners, until such time as we would obtain a permit for exploration and
development in our own name or the former Searchlight Claim holder’s permit was
transferred to us. Although we did not acquire the Searchlight Claims with a
written agreement to purchase the Plan of Operations, the prior owners verbally
agreed to cooperate with us in attempting to transfer their Plan of Operations
into our name.
Although
the Plan of Operations was accepted and registered in the name of a former
Searchlight Claim owner, which is an affiliate of K. Ian Matheson, one of our
principal stockholders and a former officer and director, in September 2007, we
learned that the BLM had issued the BLM Order on May 12, 2006 against Mr.
Matheson and certain of his affiliates (Pass Minerals, Inc., Kiminco, Inc. and
Pilot Plant Inc., which also were prior Searchlight Claim owners and are our
stockholders) with respect to a dispute with the BLM on a project unrelated to
the Searchlight Gold Project. The dispute between the BLM and Mr. Matheson arose
due to the BLM’s determination that Mr. Matheson and his affiliates had engaged
in willful mineral trespass for the unauthorized removal of sand and gravel from
public lands by Mr. Matheson and his affiliates or their predecessors. The BLM
had demanded payment of approximately $2,530,000 for the willful trespass. After
failure by Mr. Matheson and his affiliates to pay the amount, the BLM issued the
BLM Order. The issuance of the BLM Order restricted our ability to rely upon the
Plan of Operations to conduct our early stage exploratory work on the
Searchlight Claims property until such time that we may obtain our own Plan of
Operations. An appeal by Mr. Matheson of the BLM Order with the Interior Board
of Land Appeals affirmed the BLM’s decision, keeping the BLM Order in effect.
The BLM Order effectively covered all projects tied to Mr.
Matheson.
As a
result of the BLM Order, we have been delayed in our ability to drill on the
Searchlight Gold Project property. However, we have anticipated that regulatory
and other delays would take place, which are typical in our industry. We have
applied for a new Plan of Operations in our name and are currently in the course
of the BLM’s review process. In addition, we have continued and will continue
with our surface sampling and metallurgical testing program while awaiting
approval of a new Plan of Operations.
In the
third quarter of 2008, we submitted a Plan of Operations to the BLM in our name,
substantially similar to the original Plan of Operations, which included a
request to drill eighteen holes on the project area and to mine a 36-acre mining
pit. On August 27, 2008, the BLM responded, in part, by advising that the
previous bond that we posted of $180,500 for the previous Plan of Operations
would not be transferrable to the new one and that a new bond would have to be
posted. At the time, we considered the recovery of the reclamation bond to be
uncertain and, therefore, we have established a full allowance against the
reclamation bond with the offsetting expense to project exploration costs. Based
on continued discussions with the BLM, we may be able to recover the bond upon
request, however, we have not chosen to make such a request at this
time.
In
September 2008, we decided that we would only continue to pursue the permits to
drill on the project area and forgo the 36-acre pit until a later date since we
believed that by keeping the pit area in the Plan of Operations, it might delay
the BLM’s approval process for our Plan of Operations. Although the 36-acre pit
had been part of the Plan of Operations obtained by the prior owners of the
Searchlight Claims, we do not believe that digging and mining a 36-acre pit
would be a material aspect of the Plan of Operations at this stage of the
Searchlight Gold Project. Therefore, we decided to remove the 36-acre pit from
the Plan of Operations. Further, by reducing the scope of the permit, we decided
that we could submit the application in the form of a Notice of Intent, a
shorter and less complex application form than a Plan of Operations.
Consequently, on September 24, 2008, we withdrew the Plan of Operations and
submitted a Notice of Intent with the BLM, pursuant to which we sought
permission to drill eighteen 500-foot drill holes on the Searchlight project
area.
After a
series of correspondence between us and the BLM, on December 15, 2008, we
received a letter from the BLM advising us that the BLM had closed our Notice of
Intent from consideration and that a new Plan of Operations would be required
based on two issues relating to the Desert Tortoise (Gopherus asassizii), a
Federally listed Threatened Species: (i) the proximity of the project area to a
nearby ACEC; and (ii) the future likelihood of tortoises being present on the
land within the project area which is involved in the application.
On
January 13, 2009, we filed a Notice of Appeal of the BLM’s decision regarding
the closing of our Notice of Intent. However, the BLM’s decision was upheld on
appeal by the U.S. Department of Interior on September 9, 2009.
During
the course of the appeal, we determined that, due to the standard lengthy time
required to have a Plan of Operations approved by the BLM and should we be
unsuccessful with our appeal, it would be prudent to begin the approval process
immediately by filing for our Plan of Operations. Thus, on March 23, 2009, we
submitted a new Plan of Operations to the BLM, taking into account the Desert
Tortoise issue. In our Plan of Operations, we have requested permission to drill
eighteen drill holes on the project area. In the event of the approval of our
Plan of Operations, we will be required to post a new reclamation bond with the
BLM, which we anticipate will be approximately $16,000. After a further series
of correspondence between us and the BLM, on September 15, 2009, we received a
comment letter from the BLM regarding our Plan of Operations. We have reached an
understanding with the BLM that we will use the Environmental Assessment
previously approved by the BLM under the prior Plan of Operations in connection
with the new Plan of Operations, and the BLM has requested that we conform
certain aspects of the new Plan of Operations with the previously approved
Environmental Assessment.
There is
no regulatory time frame for the BLM to review our Plan of Operations. We
understand that the average time frame for approval of a plan of operation by
the Las Vegas, Nevada branch office of the BLM since January 1, 2000 has been
approximately four years and five months. Although we understand that the
average time frame of the application process by the Las Vegas branch office of
the BLM relating to an environmental assessment in connection with a plan of
operations is approximately eleven months, the “threatened species” issue raised
by the BLM requires the BLM to consult with the U.S. Fish and Wildlife Service
of the Department of Interior, and the BLM has no control over the length of
this consultation process in order to develop any necessary environmental
mitigation measures.
Our work
on the project site will be limited to the scope within the Plan of Operations.
However, the Plan of Operations approval process will delay the start of our
drilling program for an undetermined period of time. 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.
We do not
believe these added requirements will have a material adverse impact on our
overall business plan for the Searchlight Gold Project, given that we have
received no indication from the BLM, at this time, that the BLM will ultimately
deny our request for approval of our Plan of Operations. However, there is no
assurance of the timeline for approval by the BLM or that the BLM will grant
approval. Our drilling and mining program on this project is dependent on
obtaining the necessary approval from the BLM. Therefore, if approval ultimately
is not obtained, we may have to scale back or abandon exploration efforts on the
project. If management determines, based on any factors including the foregoing,
that capitalized costs associated with any of our mineral interests are not
likely to be recovered, we would incur a significant impairment of our
investment in such property interests on our financial statements.
Further,
although our ability to obtain drilling permits has been delayed, we have
continued and intend to continue our current metallurgical program with
Arrakis.
We have
budgeted $200,000 to our twelve month work program for the Searchlight Gold
Project. Our work program is focused on continuing the testing program with
Arrakis, including metallurgical tests, bulk sampling, milling, leaching and
extraction tests to optimize recovery of precious metals from samples taken from
the project and exploring in more detail the potential capital and operating
costs of implementing methods, such as autoclave leaching. We will also focus on
our work with the BLM, our consultants and our attorneys to help us obtain
approval of the Plan of Operations, containing the necessary permits to execute
on our desired drilling program. The drilling and pre-feasibility program, which
we anticipate will include an eighteen-hole drill program, chain-of-custody
sampling and assaying of drill hole material, pilot plant tests and a
pre-feasibility report, is expected to commence shortly after receiving the
BLM’s approval of the Plan of Operations.
Anticipated
Cash Requiremen
ts
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 $5,300,000. At August 31, 2009, we
had cash reserves in the amount of approximately $1,660,000. This amount is less
than the total expenditures that we have budgeted for the next 12 months by
approximately $3,640,000. We estimate that our current financial resources are
sufficient to allow us to meet the anticipated costs of our exploration, testing
and construction programs until approximately the middle of the fourth quarter
of the 2009 fiscal year. However, if actual costs are greater than we have
anticipated, we will require additional financing in order to fund our
exploration, testing and construction plans for 2009. We do not currently have
any financing arrangements in place, 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.
Our
estimated cash requirements for the next twelve months are as
follows:
|
|
|
BUDGET
|
|
|
|
|
|
|
|
Administrative
Expenses
|
|
$
|
1,400,000
|
|
|
Legal
and Accounting Expenses
|
|
$
|
800,000
|
|
|
Consulting
Services
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
SUBTOTAL
|
|
$
|
2,700,000
|
|
|
|
|
|
|
|
|
Clarkdale Slag
Project
|
|
|
|
|
|
Production
Module Operation
|
|
$
|
1,900,000
|
|
|
Feasibility
Study
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
SUBTOTAL
|
|
$
|
2,400,000
|
|
|
|
|
|
|
|
|
Searchlight
Gold Project
|
|
|
|
|
|
Metallurgical
Testing and Pre-Feasibility Program
|
|
$
|
100,000
|
|
|
Permitting
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
SUBTOTAL
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
5,300,000
|
|
Our
current twelve month plan also includes anticipated expenditure of approximately
$6,000,000 on Phase II of our Clarkdale Slag Project and $4,700,000 to complete
the construction of an Industrial Collector Road pursuant to an agreement with
the Town of Clarkdale, Arizona by January 2011, subject to funding availability.
We will require additional funding to fulfill our entire anticipated plan of
operations. In addition, the actual costs of completing those activities may be
greater than anticipated.
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.
Critical
Accounting Policies
Use
of estimates
– The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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. Actual results could differ from those
estimates.
Mineral
rights
– Costs of acquiring mining properties are capitalized upon
acquisition. Mine development costs incurred either to develop new ore deposits,
to expand the capacity of mines, or to develop mine areas substantially in
advance of current production are also capitalized once proven and probable
reserves exist and the property is a commercially mineable property. Costs
incurred to maintain current production or to maintain assets on a standby basis
are charged to operations. Costs of abandoned projects are charged to operations
upon abandonment. We evaluate the carrying value of capitalized mining costs and
related property and equipment costs, to determine if these costs are in excess
of their recoverable amount whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. The periodic evaluation of
carrying value of capitalized costs and any related property and equipment costs
are based upon expected future cash flows and/or estimated salvage value in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
“Accounting for Impairment or Disposal of Long-Lived
Assets.”
Capitalized
interest cost
- We capitalize interest cost related to acquisition,
development and construction of property and equipment which is designed as
integral parts of the manufacturing process. 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.
Exploration
costs
– Mineral exploration costs are expensed as
incurred.
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).
We
periodically evaluate whether events and circumstances have occurred that may
warrant revision of the estimated useful lives of property and equipment or
whether the remaining balance of property and equipment should be evaluated for
possible impairment. If events and circumstances warrant evaluation, we use an
estimate of the related undiscounted cash flows over the remaining life of the
fixed assets in measuring their recoverability.
Impairment
of long-lived assets
– We review and evaluate long-lived assets for
impairment when events or changes in circumstances indicate the related carrying
amounts may not be recoverable. The assets are subject to impairment
consideration under SFAS No. 144 if events or circumstances indicate that their
carrying amount might not be recoverable. As of June 30, 2009 exploration
progress is on target with our exploration and evaluation plan of operations and
no events or circumstances have happened to indicate the related carrying values
of the properties may not be recoverable. When we determine that SFAS 144
impairment analysis should be done, the analysis will be performed using the
rules of EITF 04-03, “Mining Assets: Impairment and Business
Combinations.”
Weaknesses
in Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting. Our system of internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. Our internal control over financial
reporting includes those policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect our transactions and dispositions of our
assets;
|
|
|
·
|
provide
reasonable assurance that our transactions are recorded as necessary to
permit preparation of our financial statements in accordance with
accounting principles generally accepted in the United States of America,
and that our receipts and expenditures are being made only in accordance
with authorizations of our management and our directors;
and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could
have a material effect on the financial
statements.
|
Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time. Our system
contains self monitoring mechanisms, and actions are taken to correct
deficiencies as they are identified.
During
the fourth quarter of 2008, in the course of preparing for our year end
evaluation of effectiveness of our system of internal control over financial
reporting based on the framework in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, our
management concluded that our system of internal control over financial
reporting was not effective as of the year ended December 31, 2007 and the three
month period ended March 31, 2008, which resulted in the restatements described
above. Although management does not anticipate making any further restatements
to the financial statements for the periods ended June 30, 2008 and September
30, 2008, management believes that our weakness in internal controls continued
during such periods.
Management
has identified internal control deficiencies which resulted in the material
restatements described above, which, in management’s judgment, represented
material weakness in internal control over financial reporting. The control
deficiencies related to controls over the accounting and disclosure for complex
transactions to ensure such transactions were recorded as necessary to permit
preparation of financial statements and disclosure in accordance with generally
accepted accounting principles. Specifically, the control deficiency which
resulted in the restatements above, which has since been remediated, was
management’s failure to consult an outside expert regarding the initial
accounting for certain complex transactions. Such complex transactions
included:
|
|
·
|
capital
asset acquisitions, and
|
|
|
·
|
accounting
for income taxes.
|
The
internal control deficiencies associated with capital asset acquisitions related
to the acquisition accounting method used to record the 2007 acquisition of
Transylvania, and the internal control deficiencies associated with accounting
for income taxes related to the purchase accounting treatment of the acquisition
of the Clarkdale Slag Project, and the resultant computation of future deferred
income tax liability assumed.
A
material weakness in internal controls is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the financial statements would not be
prevented or detected on a timely basis by us.
Management
will continue to evaluate the effectiveness of our internal controls over
financial reporting on an ongoing basis, and has taken action and implemented
improvements as necessary.
Management
has taken steps to remediate these deficiencies in our internal control over
financial reporting. To date, the board of directors has appointed an
independent director who will participate in the review our internal controls
and who has been appointed to our audit committee. We also have consulted with a
third party financial consultant who has assisted in our restatement regarding
our capital acquisition and accounting for income taxes. Further, management
will periodically assess its disclosure controls and procedures. Management
has:
|
|
·
|
completed
a review and updated risk assessment of all of our financial controls and
procedures;
|
|
|
·
|
provided
additional training of financial
staff;
|
|
|
·
|
purchased
additional research materials and
services;
|
|
|
·
|
shortened
the financial closing process to allow more time for a thorough
review;
|
|
|
·
|
reviewed
and instituted controls for each weakness;
and
|
|
|
·
|
adopted
a policy to consult outside experts on complex accounting
issues.
|
Our
registered public accounting firm has performed audit procedures and reported on
our internal control over financial reporting concurrent with their annual 2008
financial statement audit. Pursuant to temporary rules of the SEC, which only
required a management’s report of internal controls beginning with the 2007
year-end report, our auditors were not required to report on our internal
control over financial reporting for the 2007 year end.
In the
course of our revised assessment of internal controls over financial reporting,
we also re-assessed our disclosure controls and procedures as defined in Rule
13a-15(e) of the Exchange Act. We have determined that our material weakness in
its internal controls over financial reporting was also a weakness in our
disclosure controls and procedures, since such weakness related to the
disclosure controls which provide us with reasonable assurances that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles.
As of
December 31, 2008, 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 December 31, 2008, 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.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Our
management conducted an evaluation of the effectiveness of the system of
internal control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this evaluation, our management concluded
that our system of internal control over financial reporting was effective as of
December 31, 2008.
Brown
Armstrong Paulden McCown Starbuck Thornburgh & Keeter Accountancy
Corporation, an independent registered public accounting firm, has audited the
effectiveness of our internal control over financial reporting and has issued a
report on our internal control over financial reporting, which is included in
their report, which is included herein:
To the
Board of Directors and
Stockholders
of Searchlight Minerals Corp.
We have
audited Searchlight Minerals Corp.’s internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Searchlight Minerals Corp.’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying report from management. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Searchlight Minerals Corp. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of December
31, 2008 and 2007, and the related consolidated statements of operations,
including inception cumulative data prospectively from January 1, 2006,
stockholders’ equity and cash flows for each of the years ended in the three
year period ended December 31 2008 of Searchlight Minerals Corp., and our report
dated March 10, 2009 expressed an unqualified opinion.
|
|
BROWN
ARMSTRONG PAULDEN
|
|
|
McCOWN
STARBUCK THORNBURGH & KEETER
|
|
|
ACCOUNTANCY
CORPORATION
|
March 10,
2009
Bakersfield,
California
Results
of Operations
Six
Months Ended June 30, 2009 and 2008
The
following table illustrates a summary of our results of operations for the
periods listed below:
|
|
|
Six
Months
Ended
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating
Expenses
|
|
|
(3,302,201
|
)
|
|
|
(2,475,518
|
)
|
|
Rental
Revenue
|
|
|
14,105
|
|
|
|
17,040
|
|
|
Interest
and Dividend Income
|
|
|
6,453
|
|
|
|
138,839
|
|
|
Interest
expense
|
|
|
(1,321
|
)
|
|
|
(1,837
|
)
|
|
Loss
on equipment disposition
|
|
|
(1,542
|
)
|
|
|
-
|
|
|
Income
tax benefit
|
|
|
1,226,122
|
|
|
|
868,904
|
|
|
Net
Loss
|
|
$
|
(2,058,384
|
)
|
|
$
|
(1,452,572
|
)
|
Revenue
.
We are currently in the exploration stage of our business, and have not earned
any revenues from our planned mineral operations to date. We did not generate
any revenues from inception in 2000 through the six months period ended June 30,
2009. 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:
|
|
|
Six
Months
Ended
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Mineral
exploration and evaluation expenses
|
|
$
|
843,626
|
|
|
$
|
448,908
|
|
|
Mineral
exploration and evaluation expenses – related
party
|
|
|
180,000
|
|
|
|
180,000
|
|
|
Administrative
– Clarkdale site
|
|
|
370,937
|
|
|
|
507,908
|
|
|
General
and administrative
|
|
|
1,449,204
|
|
|
|
1,281,025
|
|
|
General
and administrative – related party
|
|
|
89,819
|
|
|
|
27,125
|
|
|
Depreciation
|
|
|
368,615
|
|
|
|
30,552
|
|
|
Total
Operating Expenses
|
|
$
|
3,302,201
|
|
|
$
|
2,475,518
|
|
Operating
expenses increased by 33.4% to $3,302,201 during the
si
x
month period ended June 30, 2009 from $2,475,518 during the six month period
ended June 30, 2008. Operating expense increased during the six month period
ended June 30, 2009 compared to the corresponding period in 2008 primarily as a
result of increases in general and administrative expenses, increase in
depreciation expense, and mineral exploration and evaluation
expenses.
General
and administrative expenses increased by 13.1% to $1,449,204 during the six
month period ended June 30, 2009 from $1,281,025 during the six month period
ended June 30, 2008. General and administrative expenses increased primarily as
a result of (i) increased professional and administrative expenses associated
with the preparation of our 2008 annual report on Form 10-K, the preparation of
our registration statement on Form S-1, preparation of amended periodic reports
for the periods from March 31, 2005 through December 31, 2008, and legal and
accounting fees; and (ii) increased director compensation due to expansion of
our board of directors. We anticipate operating expenses to continue to increase
as we grow our business operations.
Included
in general and administrative expenses for the
six mont
h
period ended June 30, 2009 and 2008 were compensation expenses related to the
option vesting and option grants of $53,992 and $859, respectively.
On April
30, 2007, we adopted our 2007 Stock Option Plan (the “2007 Plan”). Under the
terms of the 2007 Plan, as amended May 8, 2007, options to purchase up to
4,000,000 shares of common stock may be granted to our employees, officers,
directors, and eligible consultants under such plan. On June 15, 2007, our
stockholders approved the 2007 Plan. As of June 30, 2009, 321,293 options have
been granted under the 2007 Plan with an exercise price ranging from $1.45 to
$2.74 per share.
In
addition, we incurred $89,819 and $27,125 during the six month periods ended
June 30, 2009 and 2008, 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 expenses
increased during the six month period ended June 30, 2009 as compared to 2008 as
a result of Cupit, Milligan, Ogden & Williams providing staff support
related to the preparation of our registration statement on Form S-1,
preparation of amended periodic reports for the periods from March 31, 2005
through December 31, 2008, and the completion of the first time filing of the
Arizona Business Personal Property Statement. 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
$28,742 and $7,300 of the above Cupit, Milligan, Ogden & Williams fees for
the six months ended June 30, 2009 and 2008, respectively.
Mineral
exploration and evaluation expenses increased to $843,626 during the six month
period ended June 30, 2009 from $448,908 during the six month period ended June
30, 2008. Mineral exploration and evaluation expenses increased primarily as a
result of increased testing activity subsequent to receiving of Certificate of
Occupancy for the demonstration module building.
Included
in mineral exploration and evaluation expenses were the amounts of $180,000 and
$180,000 paid during the six month period ended June 30, 2009 and 2008,
respectively, to Nanominerals (one of our principal stockholders and an
affiliate of Ian R. McNeil, our Chief Executive Officer and President and a
director, and Carl S. Ager, our Vice President, Secretary and Treasurer and a
director) for technical assistance, including providing us with the use of its
laboratory, instrumentation, milling equipment and research facilities with
respect to our Searchlight Gold Project and Clarkdale Slag Project and financing
related activities, including providing assistance to us when potential
financiers performed technical due diligence on our projects and made technical
presentation to potential investors in connection with the exploration, testing
and construction of our mineral projects, and reimbursement of expenses provided
by Nanominerals in connection with the exploration, testing and construction of
our mineral projects.
Depreciation
expense increased to $368,615 during the six month period ended June 30, 2009
from $30,552 during the six month period ended June 30, 2008. Depreciation
expense increased primarily because a substantial portion of property and
equipment that was previously reported as construction in progress was placed in
service during the six month period ended June 30, 2009.
For the
six month period ended June 30, 2009, we purchased services from one major
vendor, Baker & Hostetler LLP, our legal counsel, which exceeded more than
10% of total purchases and amounted to $591,982. For the six month period ended
June 30, 2008, we purchased services from two major vendors, Talson Corporation
and Cimetta Engineering, which exceeded more than 10% of total purchases and
amounted to $1,132,537 and $525,892, respectively.
Other
Income and Expenses
. Total other income decreased to $17,695 during the
six month period ended June 30, 2009 from $154,042 during the six month period
ended June 30, 2008. The decrease in total other income primarily resulted from
a decrease in interest and dividend income. The decrease in interest and
dividend income earned was attributable to lower interest rates and lower cash
reserves earning interest.
During
the six month period ended June 30, 2009, we received incidental rental revenue
of $14,105 compared to $17,040 for the same period in 2008 from rentals of our
commercial buildings and certain facilities acquired in connection with our
acquisition of Transylvania. The property leases consist of: (i) a rental
agreement with Clarkdale Arizona Central Railroad for the use of certain
facilities at a rate of $1,700 per month; and (ii) rental of a commercial
building space to various tenants. The rental arrangements are on a month to
month basis with no formal agreements.
Income
Tax Benefit
. Income tax benefit increased to $1,226,122 for the six
months period ended June 30, 2009 from $868,904 during the six month period
ended June 30, 2008. The increase in income tax benefit primarily resulted from
the increase in exploration stage losses during the six month period ended June
30, 2009 from the six month period ended June 30,
2008.
Net
Loss
. The aforementioned factors resulted in a net loss of $2,058,384, or
$0.02 per common share, for the six month period ended June 30, 2009, as
compared to a net loss of $1,452,572, or $0.01 per common share, for the six
month period ended June 30, 2008.
As of
June 30, 2009 and December 31, 2008, we had cumulative net operating loss
carryforwards of approximately $15,487,017 and $12,483,860, respectively for
federal income taxes. The federal net operating loss carryforwards expire
between 2025 and 2029.
We had
cumulative state net operating losses of approximately $7,573,040 and $5,325,778
as of June 30, 2009 and December 31, 2008, respectively for state income tax
purposes. The state net operating loss carryforwards expire between 2013 and
2015.
Years
Ended December 31, 2008, 2007 and 2006
The
following table illustrates a summary of our results of operations for the
periods set forth below:
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Operating
Expenses
|
|
|
(5,141,957
|
)
|
|
|
(3,650,734
|
)
|
|
|
(3,736,079
|
)
|
|
Rental
Revenue
|
|
|
35,720
|
|
|
|
36,410
|
|
|
|
-
|
|
|
Interest
and Dividend Income
|
|
|
203,821
|
|
|
|
314,331
|
|
|
|
77,032
|
|
|
Interest
Expense
|
|
|
(3,428
|
)
|
|
|
(2,062
|
)
|
|
|
-
|
|
|
Loss
on equipment disposition
|
|
|
-
|
|
|
|
(138
|
)
|
|
|
(4,388
|
)
|
|
Income
tax benefit
|
|
|
1,777,458
|
|
|
|
1,080,375
|
|
|
|
1,122,457
|
|
|
Net
Loss
|
|
$
|
(3,128,386
|
)
|
|
$
|
(2,221,818
|
)
|
|
$
|
(2,540,978
|
)
|
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 year ended December 31, 2008. 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:
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
exploration and evaluation expenses
|
|
$
|
976,974
|
|
|
$
|
1,149,755
|
|
|
$
|
2,024,932
|
|
|
Mineral
exploration and evaluation expenses – related party
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
495,000
|
|
|
Administrative
– site
|
|
|
1,142,102
|
|
|
|
513,759
|
|
|
|
-
|
|
|
General
and administrative
|
|
|
2,517,479
|
|
|
|
1,557,048
|
|
|
|
1,209,838
|
|
|
General
and administrative – related party
|
|
|
83,333
|
|
|
|
32,421
|
|
|
|
-
|
|
|
Depreciation
|
|
|
62,069
|
|
|
|
37,751
|
|
|
|
6,309
|
|
|
Total
Operating Expenses
|
|
$
|
5,141,957
|
|
|
$
|
3,650,734
|
|
|
$
|
3,736,079
|
|
Operating
expenses increased by 40.8% to $5,141,957 during the year ended December 31,
2008 from $3,650,734 during the year ended December 31, 2007 and decreased from
$3,736,079 during the year ended December 31, 2006. Operating expense increased
in 2008 compared to the corresponding period in 2007 primarily as a result of
increases in general and administrative expenses and site administrative
expenses for increased staffing during construction, offset by decreases in
mineral exploration and evaluation expenses. Operating expenses decreased in
2007 compared to the corresponding period in 2006 primarily due to decreases in
mineral exploration expenses offset by increases in our general and
administrative expenses. For fiscal 2007 and 2008, mineral exploration and
evaluation expenses decreased primarily as a result of our focus on our
construction efforts at the Clarkdale Slag Project site.
General
and administrative expenses increased by 61.7% to $2,517,479 during the year
ended December 31, 2008 from $1,557,048 during the year ended December 31, 2007
and 28.7% from $1,209,838 during the year ended December 31, 2006. General and
administrative expenses increased during 2008 primarily as a result of (i)
increased professional and administrative expenses associated with the
completion of our equity financing, the preparation of our 2007 annual report on
Form 10-KSB, the preparation of our registration statement on Form S-1, and
legal and accounting fees; and (ii) increased expenses related to the
administration of the Clarkdale Slag Project site during construction, which are
expected to continue as construction progresses. We anticipate operating
expenses to continue to increase if we grow our business operations. General and
administrative expenses increased in 2007 primarily as a result of (i) increased
professional and administrative expenses associated with holding our 2007 annual
meeting of stockholders, the acquisition of Transylvania, the completion of our
equity financings and the preparation of a registration statement on Form SB-2
and the related amendment on Form S-1; (ii) increased management fees related to
the administration of the Clarkdale Slag Project site; and (iii) increased
compensation paid to our executive officers and our directors.
Included
in general and administrative expenses for the years ended December 31, 2008,
2007 and 2006 were compensation expenses related to stock based compensation of
$136,342, $269,287 and $289,094, respectively. On April 30, 2007, we adopted our
2007 Stock Option Plan (the “2007 Plan”). Under the terms of the 2007 Plan, as
amended on May 8, 2007, options to purchase up to 4,000,000 shares of common
stock may be granted to our employees, officers, directors, and eligible
consultants under such plan. On June 15, 2007, our stockholders approved the
2007 Plan. As of December 31, 2008, 314,593 options have been granted under the
2007 Plan with an exercise price ranging from $1.45 to $3.45 per
share.
In
addition, we incurred $83,333 and $32,421 during the years ended December 31,
2008 and 2007, 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 expenses
increased during the year ended December 31, 2008 as compared to 2007 because we
did not incur such expenses to such firm prior to the third quarter of 2007.
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 $22,468 and $11,260 of the above Cupit
Milligan fees and expenses for the years ended December 31, 2008 and 2007,
respectively.
Mineral
exploration and evaluation expenses decreased by 15% to $976,974 during the year
ended December 31, 2008 from $1,149,755 in the year ended December 31, 2007 and
decreased by 43% from $2,024,932 during the year ended December 31, 2006.
Mineral exploration and evaluation expenses decreased primarily as a result of
our focus on our construction efforts for the Clarkdale Slag Project during the
years ended December 31, 2008 and 2007.
Included
in mineral exploration and evaluation expenses were the amounts of $360,000,
$360,000 and $495,000 paid in the years ended December 31, 2008, 2007 and 2006,
respectively, to Nanominerals (one of our principal stockholders and an
affiliate of Ian R. McNeil, our Chief Executive Officer and President and a
director, and Carl S. Ager, our Vice President, Secretary and Treasurer and a
director) for technical assistance, including providing us with the use of its
laboratory, instrumentation, milling equipment and research facilities with
respect to our Searchlight Gold Project and Clarkdale Slag Project and financing
related activities, including providing assistance to us when potential
financiers performed technical due diligence on our projects and made technical
presentations to potential investors in connection with the exploration, testing
and construction of our mineral projects, and reimbursement of expenses provided
by Nanominerals in connection with the exploration, testing and construction of
our mineral projects.
Further,
we paid $1,142,102 and $513,759 for administrative expenses relating to the
Clarkdale Slag Project during the years ended December 31, 2008 and 2007,
respectively. The increase in these expenses was attributable to increased
activity at the Clarkdale Slag Project site which commenced during the second
quarter of 2007. We did not pay such expenses during the year ended December 31,
2006.
For the
year ended December 31, 2008, we purchased services from two major vendors,
Talson Corporation and Cimetta Engineering, which exceeded more than 10% of
total purchase and amounted to $2,123,096 and $1,476,744, respectively. For the
year ended December 31, 2007, we purchased services from one major vendor,
Talson Corporation, which exceeded more than 10% of total purchases and amounted
to approximately $2,123,833. For the year ended December 31, 2006, we purchased
services from one major vendor, Nanominerals, which exceeded more that 10% of
total purchases and amounted to $495,000.
Othe
r
Income and
Expenses
. Total other income decreased to $236,113 during the year ended
December 31, 2008 from $348,541 during the year ended December 31, 2007 and
increased from $72,644 during the year ended December 31, 2006. The decrease in
total other income during 2008 primarily resulted from a decrease in interest
and dividend income. The decrease in interest and dividend income earned was
attributable to lower interest rates and lower cash reserves earning interest.
The increase in total other income during 2007 as compared to 2006 was primarily
attributable to an increase in interest and dividend
income.
During
the year ended December 31, 2008, we received incidental rental revenue of
$35,720 compared to $36,410 for the same period ended in 2007 from leases and
rentals of our commercial buildings and certain facilities acquired in
connection with our acquisition of Transylvania. The property leases consist of:
(i) a rental agreement with Clarkdale Arizona Central Railroad for the use of
certain facilities at a rate of $1,700 per month; and (ii) a lease of a
commercial building space to two tenants at an average rate of $1,277 per month.
The lease arrangements are on a month to month basis with no formal agreements.
We did not receive rental revenue during the year ended December 31,
2006.
Income
Tax Benefit
. Income tax benefit increased by 64.5% to $1,777,458 during
the year ended December 31, 2008 from $1,080,375 during the year ended December
31, 2007 and decreased by 3.8% from $1,122,457 during the year ended December
31, 2006. The increase in income tax benefit from 2007 to 2008 primarily
resulted from the increase in exploration stage losses in 2008 from 2007 and the
decrease in income tax benefit from 2006 to 2007 primarily resulted from the
decrease in exploration stage losses in 2007 from
2006.
Net
Loss
. The aforementioned factors resulted in a net loss of $3,128,386, or
$0.03 per common share, for the year ended December 31, 2008, as compared to a
net loss of $2,221,818, or $0.02 per common share, for the year ended December
31, 2007, and a net loss of $2,540,978, or $0.04 per common share, for the year
ended December 31, 2006.
As of
December 31, 2008, 2007 and 2006, we had cumulative net operating loss
carryforwards of approximately $12,479,222, $7,801,699 and $4,779,806,
respectively, for federal income tax purposes. The federal net operating loss
carryforwards expire between 2025 and 2028.
We had
cumulative state net operating losses of approximately $5,292,772 and $1,795,792
as of December 31, 2008 and 2007, respectively and no material loss
carryforwards as of December 31, 2006 for state income tax purposes. The state
net operating loss carryforwards will be expiring between 2013 and
2014.
Liquidity
and Capital Resources
Historically,
we have financed our operations primarily through the sale of common stock and
other convertible equity securities. During 2008 and 2007, we conducted the
following private placements of our securities:
|
|
·
|
On
February 7, 2008, we completed two concurrent private placement offerings
for gross proceeds of $5,250,000 to non-US persons and to US accredited
investors. A total of 3,281,250 units were issued at a price of $1.60 per
unit. Each unit sold consisted of one share of our common stock and
one-half of one share common stock purchase warrants. Each whole share
purchase warrant entitles the holder to purchase one additional share of
our common stock at a price of $2.40 per share for a period of two years
from the date of issuance. A total of 80,000 shares of our common stock
were issued as commission to agents in connection with these
offerings.
|
|
|
·
|
On
January 30, 2008, we received gross proceeds of $2,528,500 and issued an
aggregate of 3,890,000 shares of our common stock on the exercise of
warrants we issued in January, 2006. Each warrant entitled the holder to
purchase one share of our common stock at a price of $0.65 per share on or
before January 18, 2008. The warrant holders delivered their notices of
exercise, and paid the exercise price of $0.65 per share, prior to the
January 18, 2008 expiration date.
|
|
|
·
|
On
December 26, 2007, we completed a private placement to the Arlington Group
Limited of a total of 3,125,000 units at a price of $1.60 per unit for
total proceeds of $5,000,000. Each unit is comprised of one share of our
common stock and a purchase warrant to purchase one-half of one share of
common stock. Each whole share purchase warrant entitles the holder to
purchase one additional share of common stock at a price of $2.40 per
share for a period of two years from the date of issuance. In addition to
issuing the subscribed for units, we issued an additional 156,250 shares
of common stock to the Arlington Group Limited, equal to 5% of the total
number of units subscribed for by the Arlington Group Limited. Including
the shares issued as a commission, we issued an aggregate of 3,281,250
shares of common stock and 1,562,500 share purchase warrants under the
private placement. These securities were issued pursuant to the provisions
of Regulation S of the Securities
Act.
|
|
|
·
|
On
August 9, 2007, we issued 400,000 shares of common stock from the exercise
of warrants, at an exercise price of $0.65 per share, resulting in cash
proceeds of $260,000.
|
|
|
·
|
On
March 22, 2007, we completed a private placement of 2,226,161 units of our
securities resulting in gross proceeds of $6,678,483. Each unit consisted
of one share of our common stock and a purchase warrant to purchase one
half of one share (with each whole warrant entitling the subscriber to
purchase one additional share for a period of two years from the closing
date at an exercise price of $4.50 per share). The warrants issued to
subscribers of the offering are callable by us if our common stock trades
above $6.50 per share for 20 consecutive trading days. We have agreed to
file a registration statement to cover the shares underlying the units and
not to exercise our call rights until the registration statement has been
declared effective by the SEC. In connection with the private placement,
D&D Securities Company, the agent, received a fee of $525,386 and
warrants to purchase 75,175 shares of common stock at an exercise price of
$4.50 per share for a period of two years from the closing of the private
placement. On December 29, 2008, our board of directors unilaterally
determined to: (i) extend the expiration date of all of the warrants in
this private placement to March 1, 2010, (ii) reduce the exercise price of
the warrants to $2.40 per share, and (iii) revise the call provision in
the warrants so that all of such warrants are callable for cancellation by
us if the volume weighted average price of the common stock exceeds $4.40
per share for 20 consecutive trading days and there is an effective
registration statement registering the shares of common stock underlying
the warrants at the time of the call of the warrants. On April 30, 2009,
after further consideration by us in response to comments from the SEC’s
staff with respect to this Registration Statement, our board of directors
unilaterally determined, without any negotiations with the warrant
holders, to amend and restate the call provisions in the warrants further
so that the terms of such amended and restated call provisions are
identical to the terms of the warrants on their original dates of
issuance. As a result: (i) all of the warrants issued to subscribers of
the offerings are callable for cancellation by us if the volume weighted
average price of the common stock exceeds $6.50 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the warrants at the time
of the call of the warrants, and (ii) the warrants issued to brokers for
the offerings will not have a call
provision.
|
|
|
·
|
On
February 23, 2007, we completed a private placement of 575,000 units of
our securities resulting in aggregate gross proceeds of $1,725,000. Each
unit consisted of one share of our common stock and a purchase warrant to
purchase one half of one share (with each whole warrant entitling the
subscriber to purchase one additional share for a period of two years from
the closing date at an exercise price of $4.50 per share). The warrants
are callable by us if our common stock trades above $6.50 per share for 20
consecutive trading days. We have agreed to file a registration statement
to cover the shares underlying the units and not to exercise our call
rights until the registration statement has been declared effective by the
SEC. We paid commissions to the agents in connection with the private
placement of $111,100 and warrants to purchase 12,300 shares of our common
stock at a price of $4.50 per share, exercisable for a period of two years
from the closing date. On December 29, 2008, our board of directors
unilaterally determined to: (i) extend the expiration date of all of the
warrants in this private placement to March 1, 2010, (ii) reduce the
exercise price of the warrants to $2.40 per share, and (iii) revise the
call provision in the warrants so that all of such warrants are callable
for cancellation by us if the volume weighted average price of the common
stock exceeds $4.40 per share for 20 consecutive trading days and there is
an effective registration statement registering the shares of common stock
underlying the warrants at the time of the call of the warrants. On April
30, 2009, after further consideration by us in response to comments from
the SEC’s staff with respect to this Registration Statement, our board of
directors unilaterally determined, without any negotiations with the
warrant holders, to amend and restate the call provisions in the warrants
further so that the terms of such amended and restated call provisions are
identical to the terms of the warrants on their original dates of
issuance. As a result: (i) all of the warrants issued to subscribers of
the offerings are callable for cancellation by us if the volume weighted
average price of the common stock exceeds $6.50 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the warrants at the time
of the call of the warrants, and (ii) the warrants issued to brokers for
the offerings will not have a call
provision.
|
|
|
·
|
Also,
on February 23, 2007, we completed a private placement of 4,520,666 units
of our securities resulting in aggregate gross proceeds of $13,562,002.
Each unit consisted of one share of our common stock and a purchase
warrant to purchase one half of one share (with each whole warrant
entitling the subscriber to purchase one additional share for a period of
two years from the closing date at an exercise price of $4.50 per share).
The warrants are callable by us if our common stock trades above $6.50 per
share for 20 consecutive trading days. We have agreed to file a
registration statement to cover the shares underlying the units and not to
exercise our call rights until the registration statement has been
declared effective by the SEC. We paid commissions to the agents in
connection with the private placement of $381,990 and warrants to purchase
90,870 shares of our common stock at a price of $4.50 per share,
exercisable for a period of two years from the closing date. On December
29, 2008, our board of directors unilaterally determined to: (i) extend
the expiration date of all of the warrants in this private placement to
March 1, 2010, (ii) reduce the exercise price of the warrants to $2.40 per
share, and (iii) revise the call provision in the warrants so that all of
such warrants are callable for cancellation by us if the volume weighted
average price of the common stock exceeds $4.40 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the warrants at the time
of the call of the warrants. On April 30, 2009, after further
consideration by us in response to comments from the SEC’s staff with
respect to this Registration Statement, our board of directors
unilaterally determined, without any negotiations with the warrant
holders, to amend and restate the call provisions in the warrants further
so that the terms of such amended and restated call provisions are
identical to the terms of the warrants on their original dates of
issuance. As a result: (i) all of the warrants issued to subscribers of
the offerings are callable for cancellation by us if the volume weighted
average price of the common stock exceeds $6.50 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the warrants at the time
of the call of the warrants, and (ii) the warrants issued to brokers for
the offerings will not have a call
provision.
|
These
agreements do not include contractual penalty provisions for failure to comply
with these registration rights provisions. Further, we are not a party to any
other agreements which require us to pay liquidated damages in the future for
failure to register securities for sale.
Working
Capital
The
following is a summary of our working capital at the dates set forth
below:
|
|
|
At
June
30,
2009
|
|
|
At
December
31,
2008
|
|
|
At
December
31,
2007
|
|
|
Current
Assets
|
|
$
|
3,063,905
|
|
|
$
|
7,307,005
|
|
|
$
|
12,200,133
|
|
|
Current
Liabilities
|
|
|
(1,175,926
|
)
|
|
|
(1,421,075
|
)
|
|
|
(1,094,697
|
)
|
|
Working
Capital
|
|
$
|
1,887,979
|
|
|
$
|
5,885,930
|
|
|
$
|
11,105,436
|
|
As of
June 30, 2009, we had an accumulated deficit of $15,414,866. As of June 30,
2009, we had working capital of $1,887,979, compared to working capital of
$5,885,930 as of December 31, 2008. The decrease in our working capital was
primarily attributable to our net loss and capital expenditures partially offset
by issuance of our common stock from exercise of stock options in 2009. Cash was
$2,908,814 as of June 30, 2009, as compared to $7,055,591 as of December 31,
2008. Property and equipment increased to $13,976,743 as of June 30, 2009 from
$13,132,282 as of December 31, 2008. The increase primarily resulted from site
improvements and equipment acquisitions at the Clarkdale Slag Project partially
offset by depreciation expense.
As of
December 31, 2008, we had an accumulated deficit of $13,356,482. As of December
31, 2008, we had working capital of $5,885,930, compared to working capital of
$11,105,436 as of December 31, 2007. The decrease in our working capital was
primarily attributable to our net loss and capital expenditures partially offset
by the completion of our private placements in 2008. Cash was $7,055,591 as of
December 31, 2008, as compared to $12,007,344 as of December 31, 2007. Property
and equipment increased to $13,132,282 as of December 31, 2008 from $5,064,460
as of December 31, 2007. The increase primarily resulted from site improvements
and equipment acquisitions at the Clarkdale Slag Project.
Included
in long term liabilities in the accompanying consolidated financials statements
is a balance of $49,229,239 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 uses of cash for the periods set forth
below:
|
|
|
Six Months Ended
June 30, 2009
|
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Cash
Flows used in Operating Activities
|
|
$
|
(2,980,743
|
)
|
|
$
|
(4,382,549
|
)
|
|
$
|
(3,358,558
|
)
|
|
Cash
Flows used in Investing Activities
|
|
|
(1,208,718
|
)
|
|
|
(8,129,892
|
)
|
|
|
(14,347,827
|
)
|
|
Cash
Flows provided by Financing Activities
|
|
|
42,684
|
|
|
|
7,560,688
|
|
|
|
26,029,481
|
|
|
Net
(Decrease) Increase in Cash During Period
|
|
$
|
(4,146,777
|
)
|
|
$
|
(4,951,753
|
)
|
|
$
|
8,323,096
|
|
Net
Cash Used In Operating Activities
. Net cash used in operating activities
increased to $2,980,743 during the six month period ended June 30, 2009 from
$2,521,404 during the six month period ended June 30, 2008. The increase in cash
used in operating activities was primarily due to operating losses from our
exploration and evaluation activity and general and administrative expenses,
offset by non-cash elements which were primarily related to change in deferred
tax liability of $1,226,122.
Net cash
used in operating activities increased to $4,382,549 during the year ended
December 31, 2008 from $3,358,558 during the year ended December 31, 2007. The
increase in cash used in operating activities was primarily due to operating
losses from our exploration activity and general and administrative expenses,
offset by non-cash elements which were primarily related to change in deferred
tax liability of $1,777,458.
Net
Cash Used In Investing Activities
. We used $1,208,718 in investing
activities during the six month period ended June 30, 2009, as compared to
$3,586,921 during the six month period ended June 30, 2008. The decrease in the
six month period ended June 30, 2009 was primarily a result of decrease in
purchases of property and equipment relating to the Clarkdale Slag Project which
decreased primarily as a result of receiving of Certificate of Occupancy for the
demonstration module building and substantial completion of equipment
acquisitions for the demonstration module.
We used
$8,129,892 in investing activities during the year ended December 31, 2008, as
compared to $14,347,827 during the year ended December 31, 2007. The decrease in
the year ended December 31, 2008 was primarily a result of the payment to VRIC,
an affiliate of a member of our board of directors, Harry B. Crockett, of
$9,900,000 in connection with the acquisition of VRIC’s wholly owned subsidiary,
Transylvania, during the year ended December 31, 2007, offset by property and
equipment purchases of $7,949,722 relating to the Clarkdale Slag Project during
the year ended December 31, 2008.
Net
Cash Provided By Financing Activities
. Net cash provided by financing
activities was $42,684 for the six month period ended June 30, 2009 compared to
$7,639,012 for the six month period ended June 30, 2008. Net cash provided by
financing activities during the six month period ended June 30, 2009 primarily
resulted from the receipt of $150,000 from the exercise of stock options. Net
cash provided by financing activities during the six month period ended June 30,
2008 primarily resulted from the receipt of $5,250,000 from the proceeds of
private placements of our securities and $2,528,500 from the exercise of
warrants.
Net cash
provided by financing activities was $7,560,688 for the year ended December 31,
2008 compared to $26,029,481 for the year ended December 31, 2007. Net cash
provided by financing activities during the year ended December 31, 2008
primarily resulted from the receipt of $5,250,000 from the proceeds of private
placements of our securities and $2,528,500 from the exercise of warrants,
offset by $179,830 of cash paid to VRIC based on our $30,000 monthly obligation
to VRIC under the terms of the Transylvania reorganization agreement. Net cash
provided by financing activities during the year ended December 31, 2007
primarily resulted from the receipt of $26,813,817 from the gross proceeds of
private placements of our securities.
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 $5,300,000. As of August 31, 2009, we had cash reserves in the
amount of approximately $1,660
,000.
This
amount is less than the total expenditures that we have budgeted for the next 12
months by approximately $3,640,000. We estimate that our current financial
resources are sufficient to allow us to meet the anticipated costs of our
exploration, testing and construction programs until approximately the middle of
the fourth quarter of the 2009 fiscal year. However, if actual costs are greater
than we have anticipated, we will require additional financing in order to fund
our exploration, testing and construction plans for 2009. We do not currently
have any financing arrangements in place, 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.
Our
current twelve month plan also includes anticipated expenditure of approximately
$6,000,000 on Phase II of our Clarkdale Slag Project and $4,700,000 to complete
the construction of an Industrial Collector Road pursuant to an agreement with
the Town of Clarkdale, Arizona by January 2011, subject to funding availability.
We will require additional funding to fulfill our entire anticipated plan of
operations. In addition, the actual costs of completing those activities may be
greater than anticipated.
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.
Contractual
Obligations
The
following table represents our aggregate contractual obligations (principal and
interest) to make future payments as of December 31, 2008:
|
|
|
One Year
or Less
|
|
|
Over One Year
To
Three Years
|
|
|
Over Three
Years To
Five Years
|
|
|
Over Five
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
obligation
|
|
$
|
360,000
|
|
|
$
|
720,000
|
|
|
$
|
720,000
|
|
|
$
|
1,140,000
|
|
|
$
|
2,940,000
|
|
|
Capital
lease obligation
|
|
|
26,401
|
|
|
|
41,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
386,401
|
|
|
$
|
761,802
|
|
|
$
|
720,000
|
|
|
$
|
1,140,000
|
|
|
$
|
3,008,203
|
|
Off-Balance
Sheet Arrangements
None.
Quantitative
and Qualitative Disclosure About Market Risk
We had
unrestricted cash totaling $2,908,814 at June 30, 2009 and $7,055,591 at
December 31, 2008. Our cash is invested primarily in a non-interest bearing
checking account 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 investments, 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 investment income.
Recent
Accounting Pronouncements
In June
2009, the FASB issued FASB Statement No. 168, The “FASB Accounting Standards
CodificationTM” and the Hierarchy of Generally Accepted Accounting Principles.
Statement 168 establishes the FASB Accounting Standards CodificationTM
(Codification) as the single source of authoritative U.S. generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. Statement 168 and the Codification are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
In June
2009, the FASB issued FASB Statement No. 167, “Amendment to FASB Interpretation
No. 46(R)”. Statement 167 is a revision to FASB Interpretation No. 46 (Revised
December 2003), “Consolidation of Variable Interest Entities”, and changes how a
reporting entity determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entity’s purpose and design
and the reporting entity’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance.
Statement 167 will require a reporting entity to provide additional disclosures
about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. A reporting entity will be
required to disclose how its involvement with a variable interest entity affects
the reporting entity’s financial statements. Statement 167 will be effective at
the start of a reporting entity’s first fiscal year beginning after November 15,
2009, or January 1, 2010, for a calendar year-end entity. Adoption of this
statement is not expected to have a material impact on our consolidated
financial statements.
In June
2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets”. Statement 166 is a revision to FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities”, and will require more information about transfers of financial
assets, including securitization transactions, and where entities have
continuing exposure to the risk related to the transferred financial assets. It
eliminates the concept of a “qualifying special-purpose entity”, changes the
requirements for derecognizing financial assets, and requires additional
disclosures. Statement 166 enhances information reported to users of financial
statements by providing greater transparency about transfers of financial assets
and an entity’s continuing involvement in transferred financial assets.
Statement 166 will be effective at the start of a reporting entity’s first
fiscal year beginning after November 15, 2009, or January 1, 2010, for a
calendar year-end entity. Adoption of this statement is not expected to have a
material impact on our consolidated financial statements.
In May
2009, the FASB issued FASB Statement No. 165, “Subsequent Events”. Statement 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet but before financial statements are issued or are
available to be issued. Specifically, Statements 165 provides: (i) the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements; and (iii) the disclosures that an entity
should make about events or transactions that occurred after the balance sheet
date. Statement 165 is effective for interim or annual financial periods ending
after June 15, 2009, and shall be applied prospectively. The required
disclosures of this statement have been incorporated into our consolidated
financial statements.
In April
2009, FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1 was issued to amend
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to
require disclosures about fair value of financial instruments for interim
reporting period as well as in annual financial statements. This FSP also amends
APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures
in summarized financial information at interim reporting periods. FSP No. 107-1
and APB 28-1 is effective for interim reporting period ending after June 15,
2009. Adoption of this guidance is not expected to have a material impact on our
consolidated financial statements.
In April
2009, FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly,” was issued to provide additional guidance
for estimating the fair value in accordance with SFAS No. 157, “Fair Value
Measurements,” when the volume and level of activity for the asset or liability
have significantly decreased. This FSP also provides guidance on identifying
circumstances that indicate a transaction is not orderly. FSP No. FAS 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Adoption of this guidance is not expected to
have a material impact on our consolidated financial statements.
In April
2009, FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies.” This FSP
amends the guidance in FASB Statement No. 141 to require that assets acquired
and liabilities assumed in a business combination that arise from contingencies
be recognized at fair value if fair value can be reasonable estimated. If fair
value of such asset or liability cannot be reasonably estimated, the asset or
liability would generally be recognized in accordance with FASB Statement No. 5,
“Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14,
“Reasonable Estimation of the Amount of a Loss.” This FSP eliminates the
requirements to disclose an estimate of the range of outcomes of recognized
contingencies at the acquisition date. This FSP also requires that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value in accordance with Statement
141R. This FSP is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The adoption of this statement had little or no effect on our
consolidated financial position, results of operations, and
disclosures.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures
about Post-Retirement Benefit Plan Assets” (“FSP FAS 132(R)-1”), which amends
FASB Statement No. 132 “Employers’ Disclosures about Pensions and Other
Post-Retirement Benefits” (“FAS 132”), to provide guidance on an employer’s
disclosures about plan assets of a defined benefit pension or other
post-retirement plan. The objective of FSP FAS 132(R)-1 is to require more
detailed disclosures about employers’ plan assets, including employers’
investment strategies, major categories of plan assets, concentrations of risk
within plan assets, and valuation techniques used to measure the fair value of
plan assets. FSP FAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. Upon initial application, the provisions of this FSP are not
required for earlier periods that are presented for comparative purposes. The
adoption of this statement had little or no effect on our consolidated financial
position, results of operations, and disclosures.
In
November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method
Investment Accounting Considerations” (“EITF 08-6”), which clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. The intent of EITF 08-6 is to provide guidance on (i)
determining the initial carrying value of an equity method investment, (ii)
performing an impairment assessment of an underlying indefinite-lived intangible
asset of an equity method investment, (iii) accounting for an equity method
investee’s issuance of shares, and (iv) accounting for a change in an investment
from the equity method to the cost method. EITF 08-6 is effective for fiscal
years beginning January 1, 2009 and is to be applied prospectively. The adoption
of this statement had little or no effect on our consolidated financial
position, results of operations, and disclosures.
In June
2008, the EITF reached consensus on Issue No. 07-5, “Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 clarifies the determination of whether an instrument (or an
embedded feature) is indexed to an entity’s own stock, which would qualify as a
scope exception under FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“FAS 133”). EITF 07-5 is effective for
fiscal years beginning January 1, 2009. Early adoption for an existing
instrument is not permitted. The adoption of this statement had little or no
effect on our consolidated financial position, results of operations, and
disclosures.
In May
2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under FAS 133. Convertible debt instruments within the scope of FSP APB 14-1 are
not addressed by the existing APB 14. FSP APB 14-1 requires that the liability
and equity components of convertible debt instruments within the scope of FSP
APB 14-1 be separately accounted for in a manner that reflects the entity’s
nonconvertible debt borrowing rate. This requires an allocation of the
convertible debt proceeds between the liability component and the embedded
conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the
liability component will be reported as a debt discount and subsequently
amortized to earnings over the instrument’s expected life using the effective
interest method. FSP APB 14-1 is effective for fiscal years beginning January 1,
2009 and will be applied retrospectively to all periods
presented. The adoption of this statement had little or no effect on
our consolidated financial position, results of operations, and
disclosures.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”) which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
“Goodwill and Other Intangible Assets” (“FAS 142”). The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under FAS 142 and the period of expected cash flows used to measure the fair
value of the asset under FASB Statement No. 141, “Business Combinations” (“FAS
141”). FSP 142-3 is effective for fiscal years beginning January 1, 2009 and
will be applied prospectively to intangible assets acquired after the effective
date. The adoption of this statement had little or no effect on our consolidated
financial position, results of operations, and disclosures.
The FASB
issued FASB Staff Position (FSP) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset Is Not Active.” The FSP clarifies
the application of FASB Statement No. 157, “Fair Value Measurements,” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP is effective October 10,
2008, and for prior periods for which financial statements have not been issued.
Revisions resulting from a change in the valuation technique or its application
should be accounted for as a change in accounting estimate following the
guidance in FASB Statement No. 154, “Accounting Changes and Error Corrections.”
However, the disclosure provisions in Statement 154 for a change in accounting
estimate are not required for revisions resulting from a change in valuation
techniques or its application. The adoption of this statement has had no
material effect on our consolidated financial position, results of operations,
and disclosures.
On March
19, 2008 the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments
and Hedging Activities.” This statement is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The adoption of
this statement had little or no effect on our consolidated financial position,
results of operations, and disclosures.
In
February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of
FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the
effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The provisions
of FSP FAS 157-2 are effective for fiscal years beginning January 1,
2009. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. The adoption of this statement had
little or no effect on our consolidated financial position, results of
operations, and disclosures.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
amends SFAS No. 141, and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS No. 141(R) is
effective for our fiscal year beginning January 1, 2009 and is to be applied
prospectively. The adoption of this statement had little or no effect on our
consolidated financial position, results of operations, and
disclosures.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” which
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for our fiscal year beginning January 1,
2009. The adoption of this statement had little or no effect on our
consolidated financial position, results of operations, and
disclosures.
BUSINESS
General
We are an
exploration stage company engaged in the acquisition and exploration of mineral
properties and slag reprocessing projects. We hold interests in two
mineral projects, our Clarkdale Slag Project and our Searchlight Gold
Project. Our business is presently focused on our two mineral
projects:
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the
Clarkdale Slag Project, located in Clarkdale, Arizona, 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
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the
Searchlight Gold Project, which involves exploration for precious metals
on mining claims near Searchlight,
Nevada.
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Corporate
History
We were
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, we operated
primarily as a biotechnology research and development company with headquarters
in Canada and an office in the United Kingdom. On November 2, 2001,
we acquired all of the outstanding shares of Regma Bio Technologies, Ltd., a
corporation organized under the laws of the United Kingdom. The share
exchange transaction resulted in a change of control with the former principals
of Regma Bio Limited owning approximately 80% of our outstanding shares of
common stock (including Caisey Harlingten, who became the beneficial owner of
approximately 66% of our outstanding shares). In connection with this
acquisition, on February 1, 2002, we changed our name to “Regma Bio Technologies
Limited.” On November 26, 2003, we changed our name from “Regma Bio
Technologies Limited” to “Phage Genomics, Inc.”
In
February 2005, we changed our business from a biotechnology research and
development company to a company focused on the exploration and acquisition of
mineral properties in the Searchlight, Nevada area. Intangible assets
of $173,234 and property and equipment of $20,002 related to the prior
biotechnology research operations were fully written off and included in
discontinued operations. No sales proceeds were received from such
discontinued operations. In connection with the change of our
business, we entered into option agreements with the owners of 20 contiguous
placer mineral claims with respect to an approximately 3,200-acre site located
on federal land administered by the BLM near Searchlight, Nevada (the
“Searchlight Claims”). Under the option agreements, we issued
1,400,000 shares of our common stock and agreed to issue an additional 4,200,000
shares of our common stock during the following three year period to the holders
of the Searchlight Claims in consideration of an option to purchase the
Searchlight Claims.
Further,
on April 12, 2005, Mr. Harlingten and his affiliates transferred 95,400,000
shares of our common stock to Mr. Matheson in connection with Mr. Matheson’s
bringing the business opportunity relating to the Searchlight Claims to
us. The 95,400,000 shares represented approximately 88% of the
outstanding shares of common stock at the time of such
transfer. Subsequently, on April 29, 2005, Mr. Matheson cancelled
70,000,000 shares of our common stock held by him for no consideration for the
purpose of making our capitalization more attractive to future equity
investors. Immediately following these transactions, Mr. Matheson
became the beneficial owner of approximately 70% of our outstanding
shares.
On June
23, 2005, we changed our name from “Phage Genomics, Inc.” to “Searchlight
Minerals Corp.”
On
September 30, 2005, we effected a forward split of our common stock on a
two-for-one basis. All per share amounts and number of shares
outstanding in this prospectus have been retroactively adjusted and restated to
give effect to the forward split.
Acquisition
of Searchlight Gold Project Claims
On
February 8, 2005, and as amended June 22, 2005, we entered into option
agreements with the owners of the Searchlight Claims. Each claim
relates to a separate 160 acre parcel on the 3,200-acre site. Prior
to entering into the option agreements with us, the Searchlight Claim owners had
optioned their respective interests in the claims to Searchlight Minerals, Inc.
(“SMI”), a company controlled by Mr. Matheson. Under the terms of the
option agreements with us, each claim owner, SMI and we agreed, among other
things, to:
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the
assignment to us of SMI’s rights in the Searchlight Claims under the prior
option agreements with the claim
owners;
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our
reimbursement of Mr. Matheson and his related companies for amounts
advanced to SMI, for which we have reimbursed Mr. Matheson in the amount
of $85,000;
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the
issuance of an aggregate of 5,600,000 shares of our common stock in four
equal installments of 1,400,000 shares over a three year period to the
claim owners, after which all of the claim owner’s rights and interests in
the Searchlight Claims would be assigned to
us;
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the
appointment of Mr. Matheson as our director and officer to proceed with a
restructuring of our business;
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during
the term of the option agreement, our obligation to make all regulatory or
government payments required to maintain the Searchlight Claims in good
standing; and
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during
the term of the option agreement, our exclusive right to access the
Searchlight Claims for all purposes, including the right to prospect,
explore, develop, trench, strip, excavate, test pit, sample and conduct
any and all exploration and development activities for the purpose of
determining the mineral or metal content of the properties, to remove from
the properties all such materials and minerals deemed necessary to
properly test, explore or develop the properties (but not for sale), and
to use all structures, tools and facilities located on the properties, and
the right to place and use thereon, and to remove, all such equipment,
vehicles, machinery, buildings, structures, and facilities as it may deem
desirable from time to time.
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We issued
the initial 4,200,000 shares of the 5,600,000 shares in three installments of
1,400,000 shares on July 7, 2005, July 27, 2006 and June 29.
2007. During the second quarter of 2008, the Searchlight Claim owners
transferred title to the Searchlight Claims to us in consideration of our
agreement to issue to the claim owners the remaining 1,400,000 shares of common
stock by June 30, 2008. We issued the remaining 1,400,000 shares to
the Searchlight Claim owners in June 2008, and now have issued all 5,600,000 of
the shares of our common stock required to be issued to the Searchlight Claim
owners.
Acquisition
of Clarkdale Slag Project
Assignment
Agreement with Nanominerals
. Under the terms of an Assignment
Agreement, dated June 1, 2005, and as amended on August 31, 2005 (for the
purpose of extending the closing date of the transaction by requiring us to
confirm receipt of $1.5 million in financing by September 15, 2005), and October
24, 2005, Nanominerals, a privately owned Nevada corporation (and one of our
current principal stockholders, and an affiliate of Ian R. McNeil and Carl S.
Ager, our current Chief Executive Officer and Vice
President/Secretary/Treasurer, respectively, and each of whom is a current
member of our board of directors), assigned to us its 50% financial interest and
the related obligations arising under a Joint Venture Agreement, dated May 20,
2005, between Nanominerals and VRIC. Each of the August 31, 2005 and
October 24, 2005 amendments were negotiated on our behalf by K. Ian Matheson,
who served as an executive officer and director at the time of the execution of
the August 31, 2005 amendment and as a director at the time of the execution of
the October 24, 2005 amendment. The joint venture related to the
exploration, testing, construction and funding of the Clarkdale Slag Project.
Pursuant
to the terms of the Assignment Agreement, we:
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paid
Nanominerals $690,000 in respect of certain payments made by Nanominerals
towards the acquisition of the Clarkdale Slag Project, including
reimbursement of payments previously made by Nanominerals to VRIC under
the Joint Venture Agreement, and reimbursement of other previously paid
expenses incurred by Nanominerals relating to the Clarkdale Slag
Project;
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issued
to Nanominerals warrants to purchase 12,000,000 shares of our common stock
exercisable through June 1, 2015, at an exercise price of $0.375 per share
(at the instruction of Nanominerals, we issued 2,000,000 of the warrants
to Clarion Finanz AG, a designate of Nanominerals);
and
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appointed
Ian R. McNeil, Carl S. Ager and Robert D. McDougal, as nominees of
Nanominerals, to serve on our board of directors, thereby constituting a
majority of the board members.
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The value
of the warrants issued to Nanominerals was computed using the binomial lattice
method and was allocated to the acquisition cost of the project and was computed
based on the following assumptions:
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Dividend
yield
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—
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Expected
volatility
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79
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%
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Risk-free
interest rate
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3.91
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%
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Expected
life (years)
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9.6
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Further,
under the terms of the Assignment Agreement, we have a continuing obligation to
pay Nanominerals a royalty consisting of 2.5% of the “net smelter returns” on
any and all proceeds of production from the Clarkdale Slag
Project. Under the agreements, we agreed to pay Nanominerals a 5%
royalty on “net smelter returns” payable from our 50% joint venture interest in
the production from the Clarkdale Slag Project. The original June 1,
2005 assignment agreement did not include a specific definition of the term “net
smelter returns.” However, the parties agreed to a specific
definition of the term “net smelter returns” in the October 24, 2005 amendment,
which specific definition we believe conforms with the industry standard
interpretation of such term. Upon the assignment to us of VRIC’s 50%
interest in the Joint Venture Agreement in connection with our reorganization
with Transylvania International, Inc., we continue to have an obligation to pay
Nanominerals a royalty consisting of 2.5% of the net smelter returns on any and
all proceeds of production from the Clarkdale Slag Project.
For
purposes of this agreement, the term “net smelter returns” means the actual
proceeds received by us, from any mint, smelter or other purchaser for the sale
of bullion, concentrates or ores produced from the Clarkdale Slag Project and
sold, after deducting from such proceeds the following charges to the extent
that they are not deducted by the smelter or purchaser in computing
payment:
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in
the case of the sale of bullion, refining charges (including penalties)
only;
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in
the case of the sale of concentrates, smelting and refining charges,
penalties and the cost of transportation, including related insurance, of
such concentrates from the Clarkdale Slag Project property to any smelter
or other purchaser; and
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in
the case of any material containing a mineral or minerals of commercial
economic value mined or processed from the Clarkdale Slag Project which
may be shipped to a purchaser, refining charges for bullion and charges
for smelting, refining and the cost of transportation, including related
insurance, from the mill to any smelter or other purchaser for
concentrates.
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Further,
under the terms of the Assignment Agreement, we assumed the obligations of
Nanominerals under the Joint Venture Agreement relating to the Clarkdale Slag
Project, including the funding of a four phase program:
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drilling
and ore reserve studies (Phase 1);
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a
report of the commercial, technical and environmental feasibility of the
processing and smelting of metals and other mineral materials from a
deposit that is prepared in such depth and detail as would be acceptable
to lending institutions in the United States, or a “bankable feasibility
study” (Phase 2);
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the
construction of a commercial production facility to process slag
materials, as recommended by the bankable feasibility study (Phase 3);
and
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the
expansion of additional commercial production capacity to process slag
materials (Phase 4).
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On
January 17, 2006, Nanominerals acquired 16,000,000 shares of our common stock
from K. Ian Matheson in consideration of a payment of $4,640.50, to Mr.
Matheson, and, on the same date, Nanominerals sold 8,000,000 warrants to K. Ian
Matheson in consideration of a payment of $5,000 from Mr.
Matheson. On January 31, 2006, Nanominerals transferred the remaining
2,000,000 warrants in the following transactions: (i) 1,000,000 warrants to
Richard J. Werdesheim and Lynne Werdesheim, as trustees for the Werdesheim
Family Trust, for a payment of $625, and (iii) 1,000,000 warrants to Craigen
L.T. Maine, as trustee for the Maine Rev. Family Trust, for a payment of
$625.
Following
these transactions, Nanominerals and its affiliates became the beneficial owner
of approximately 29% of our outstanding shares.
Reorganization
with Transylvania International, Inc
. Under the terms of a
letter agreement, dated November 22, 2006 and as amended on February 15, 2007,
with VRIC, Harry B. Crockett, one of our current directors, and Gerald
Lembas, and an Agreement and Plan of Merger with VRIC and Transylvania, dated
and completed on February 15, 2007, we acquired all of the outstanding shares of
Transylvania from VRIC through the merger of Transylvania into our wholly-owned
subsidiary, Clarkdale Minerals LLC, a Nevada limited liability
company. As a result of the merger, we own title to the approximately
200 acre property underlying a slag pile located in Clarkdale, Arizona from
which we are seeking to recover base and precious metals through the
reprocessing of slag material, approximately 600 acres of additional land
adjacent to the project property and a commercial building in the town of
Clarkdale, Arizona. In accordance with the terms of these agreements,
we:
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paid
$200,000 in cash to VRIC on the execution of the Letter
Agreement;
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paid
$9,900,000 in cash to VRIC on the Closing Date;
and
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issued
16,825,000 shares of our common stock , valued at $3.975 per share, using
the average of the high and low prices of our common stock on the closing
date, to Harry B. Crockett and Gerald Lembas, the equity owners of VRIC,
and certain designates of VRIC under the agreements, who are not our
affiliates.
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In
addition to the cash and equity consideration paid and issued at the closing,
the acquisition agreement contains the following payment terms and
conditions:
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we
agreed to continue to pay VRIC $30,000 per month until the earlier of: (i)
the date that is 90 days after we receive a report of the commercial,
technical and environmental feasibility of the processing and smelting of
metals and other mineral materials from a deposit that is prepared in such
depth and detail as would be acceptable to lending institutions in the
United States, or a “bankable feasibility study,” or (ii) the tenth
anniversary of the date of the execution of the letter
agreement.
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The
acquisition agreement also contains additional contingent payment terms which
are based on the Project Funding Date:
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we
have agreed to pay VRIC $6,400,000 within 90 days after we receive a
bankable feasibility study;
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we
have agreed to pay VRIC a minimum annual royalty of $500,000, commencing
90 days after we receive a bankable feasibility study, and an additional
royalty consisting of 2.5% of the “net smelter returns” on any and all
proceeds of production from the Clarkdale Slag Project. The
minimum royalty remains payable until the first to occur of: (1) the end
of the first calendar year in which the percentage royalty equals or
exceeds $500,000; or (2) February 15, 2017. In any calendar
year in which the minimum royalty remains payable, the combined minimum
royalty and percentage royalty will not exceed $500,000;
and
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we
have agreed to pay VRIC an additional amount of $3,500,000 from the net
cash flow of the Clarkdale Slag Project after such time that we have
constructed and are operating a processing plant or plants that are
capable of processing approximately 2,000 tons of slag material per day at
the Clarkdale Slag Project. The acquisition agreement does not
include a specific provision with respect to the periods at the end of
which “net cash flow” is measured, once the production threshold has been
reached. Therefore, the timing and measurement of specific
payments may be subject to dispute. The parties intend to
negotiate a clarification of this provision in good faith before the
production threshold has been
reached.
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We
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
terms of these agreements, the parties terminated the Joint Venture
Agreement. However, we continue to have an obligation to pay
Nanominerals a royalty consisting of 2.5% of the net smelter returns on any and
all proceeds of production from the Clarkdale Slag
Project. Therefore, when added to VRIC’s 2.5% royalty, we have an
obligation to pay an aggregate of 5% of the net smelters returns to Nanominerals
and VRIC on any and all proceeds of production from the Clarkdale Slag
Project.
Clarkdale
Slag Project
Background and
Plan of Operation
. In June 2005, we engaged Dr. Richard F.
Hewlett as a consultant to serve as the technical project manager for the
Clarkdale Slag Project. Since that time, we have been working on the
design and testing of a method for extracting precious and base metals from the
slag material. Dr. Hewlett initially conducted laboratory tests and
analysis on the slag material at a metallurgical facility in Phoenix,
Arizona. We rented the facility from a third party in which Mr.
Crockett had a minor financial interest, although our rental arrangement
occurred prior to the time that we acquired Transylvania.
Initially,
we conducted small-scale testing, including grinding, assaying, leaching and
extraction of metals from samples of slag material taken from the project
site. In addition, recovery of metals was made using ion-exchange
technology. Concurrently, Nanominerals conducted mineralogical
studies, including Scanning Electron Microscopy/Energy Dispersive Spectroscopy
(SEM/EDS) analysis of samples of slag material to determine the presence of the
metals and the form in which the metals are contained within the slag, as a
potential guide for determining methods of potential liberation and extraction
of the metals from the slag. SEM/EDS was also used to evaluate the
efficiency of the grinding methods in liberating the metals.
Although
the technologies used by us and Nanominerals existed prior to 2005,
Transylvania, the prior owner of the Clarkdale Slag Project from 1983 until
2007, did not possess the technical expertise or understanding to be able to
perform the necessary analyses on the slag material in order to understand the
extent of potential precious metal mineralization within the slag material and
its potential recoverability. Consequently, the prior owner was not
aware that the slag material had a potential to possess a significant quantity
of precious metals. They also did not have the desire to expend the
necessary funds, nor have an investment vehicle necessary to provide access to
the required funds, in order to hire the specialized scientists, engineers and
firms to perform the studies and analyses that were required to determine the
presence, liberation and extraction of precious metals. Their lack of
technical expertise and access to financing served as the basis for entering
into their joint venture agreement with Nanominerals in 2005 and, subsequently,
agreeing to be acquired by us in 2007. We do not have any specific
information regarding efforts (or the lack of efforts) of owners of the
Clarkdale Slag Pile prior to Transylvania and prior to 1983 with respect to
attempts to extract metals from the slag material.
In 2005,
we retained Mountain States, an independent engineering consultant, to implement
a drilling and sampling program under strict chain-of-custody sampling, at the
Clarkdale Slag Project. The drill hole samples were taken between the
fourth quarter of 2005 and the third quarter of 2006. Boart Longyear
Company, a subcontractor under the chain-of-custody supervision of Mountain
States, drilled a total of eighteen holes (SD 1-18) in the slag pile using sonic
drills, comprising more than 1,700 feet on individual 2.5 foot intervals over
the project site. Mountain States had chain of custody over the
samples from the time they were recovered from the drill through the analytical
process. In the third quarter of 2006, Mountain States also conducted
chain-of-custody tests on bulk samples obtained from the slag pile.
In the
first quarter of 2006, we began to conduct larger scale, pilot testing at the
Phoenix facility on slag samples obtained from the Clarkdale site. In
connection with the testing, we purchased equipment, which we installed at the
pilot plant and used in conjunction with leaching, filtering and metal recovery
equipment already at the pilot plant.
In the
second quarter of 2007, we received a report from Independent Mining
Consultants, Inc. (“IMC”), an unaffiliated mining consultant located in Tucson,
Arizona, which outlined the volume, tonnage and grade estimates of the slag pile
at the Clarkdale site. This report constituted the first independent
analysis of the estimated tonnage and grade of slag at the project
site.
Since
2006, we have been in the process of designing a production module with the
intended purpose of processing and extracting precious and base metals from the
slag pile in a commercially viable manner. We retained Architecture
Works Inc., an unaffiliated architectural firm, to perform the architecture work
for the retrofitting of one of our existing structures at the Clarkdale site to
house the proposed production module. We then engaged Talson
Corporation, an unaffiliated general contractor, to perform the construction
work on the structure of the production module building, and additional site
work in accordance with the site plan that was approved by the town of
Clarkdale. We also retained Cimetta Engineering and Construction Co.,
Inc., an unaffiliated engineering firm, to collaborate with Dr. Hewlett in the
design, engineering and installation of the production module. In
February 2007, we moved our equipment from the Phoenix facility into an existing
structure on the Clarkdale site, adjacent to the production module building,
under the direction of Dr. Hewlett.
The
process design and equipment selection for the initial production module was
designed to process between 100 and 250 tons of slag material per
day. The results from its operation are anticipated to serve as the
basis for a proposed full-scale production facility. The full-scale
production facility is intended to house a number of modules which will allow
for a production capacity of 2,000 tons of slag material per day. All
required buildings and services are currently available at the site for the
initial production module. Buildings and services on site include
office, laboratory and processing buildings, as well as road, rail, power,
telephone, water, storm drain and sewage. However, we will need to
construct a larger building to house the full-scale production
facility.
On June
17, 2008, we received a Certificate of Occupancy for the laboratory facilities
located within the module building, allowing our chemists to conduct immediate,
on-site analyses of leaching results to further optimize the metals extraction
process. On August 8, 2008, we received a Certificate of Occupancy
for the module building, allowing us to operate the grinding, leaching,
filtering and resin extraction equipment within the module
building. On December 30, 2008, we received a Certificate of
Occupancy for the electrowinning building, allowing us to operate the copper and
zinc electrowinning equipment within the electrowinning building.
We have
completed the construction of the production module for the Clarkdale Slag
Project and are now actively engaged in the testing and start-up phase of the
project. Since the start of 2009, the primary emphasis has been
placed on the crushing and grinding circuit as well as the leaching and
extraction of precious metals (gold and silver). We have completed
continuous runs of up to 16 hours through the crushing and grinding
circuit. To date, our internal laboratory testing has reflected
consistent levels of extractable precious and base metals in pregnant leach
solutions from the Clarkdale slag material. The crushing and grinding
circuit effectively liberates gold, silver, copper and zinc from the slag
material. Further, management believes that extraction results from
preliminary internal laboratory testing have been consistent with the results of
earlier assay testing conducted by our independent consultants. We
believe that we can improve extraction rates further by optimizing the grind,
the chemical characteristics of the leach solutions and the amount of residence
time required for maximum grind and leach efficiency.
We have
faced challenges involving the amount of wear on certain grinding components
caused by the abrasiveness of the slag material and the rate of
throughput. Highly abrasive carbon-rich ferro-silicates (containing
carbon, iron and silica) comprise about 90% of the slag material, which has
required us to seek out more advanced hard facing technology and wear-resistant
surfacing media on our crushing and grinding equipment. We are having
such materials fabricated by third parties. We also are still working
to optimize the pulp density and production rate necessary for maximum metal
liberation by the large vibratory mill.
Once the
crushing and grinding circuit has been configured to run continuously at optimum
productivity levels, we believe that we will be able to proceed with the
operation of all circuits within the production module.
On May 6,
2009, we entered into a new engagement of Mountain States to conduct a technical
analysis of our gold recovery process, which we believe comprises the majority
of the potential value of the entire Clarkdale Slag Project. Such
technical analysis was to consist of the observation and analysis of our gold
recovery process in accordance with chain-of-custody standards. The
technical analysis was not intended for the purpose of determining the economic
feasibility of the Clarkdale Slag Project.
However,
during our work program with Mountain States, we jointly determined with
Mountain States that we would need specialty expertise in dealing with the
abrasiveness of the slag material. As a result, Mountain States
agreed to withdraw from its engagement and we have engaged a new team of
independent metallurgical engineers, with extensive international experience in
milling and leaching hard, abrasive and refractory material similar to that
found in the slag pile. We have engaged the new engineering team to
provide us with recommendations regarding further optimization of all four
primary processing circuits, with their initial recommendations focusing upon
the crushing, grinding, leaching and filtration circuits. Once we are
able to resolve these issues, we intend to engage an independent engineer to
conduct a technical analysis of our gold recovery process.
We
incurred delays during the construction of our production module, including
delays in receiving large pieces of equipment from manufacturers, engineering
related delays due to the complexity of installing the production module
equipment in a World War I era module building and the decision to construct a
separate building to house the electrowinning equipment after it was determined
that the electrowinning equipment would not adequately fit in the module
building. Consequently, the construction timeline for completing the
production module was extended by approximately twelve months from what we
originally anticipated and there was an approximately 55% increase in costs from
what we had originally projected.
We
anticipate that the operation of our production module will allow us to
determine the economics of the project and serve as the basis for the final
feasibility of the project. If the feasibility of the project
establishes economic viability, we expect to commence construction of a
full-scale production facility where we intend to install subsequent modules in
parallel. We expect that each subsequent module would be comparable in
technology and scale to the initial production module. The
number of subsequent modules required to attain full-production of 2,000 tons
per day will be determined once the initial production module capacity is
determined. The cost of designing and constructing our initial
production module was approximately $12,000,000. We do not believe
that the construction of subsequent modules will cost as much because: (i) of
the knowledge we have developed in the construction of the initial production
module, and (ii) any additional modules will be new construction, rather than
rehabilitation of an older building. However, the scope and size of
our full-scale production facility, including the number of additional modules,
the timing and cost of additional modules and the economies of scale of a
production facility, will depend upon a number of factors, including the results
of a feasibility study and the availability of funding. A more
thorough economic analysis of the full-scale production facility, including
specific capital and operating costs, funding schedules and funding sources, is
expected to occur during the feasibility evaluation of the initial production
module. The first stage of the feasibility evaluation began in the
second quarter of 2009, and has continued into the third quarter of 2009 when we
engaged the new team of metallurgical engineers, with specialty expertise in
dealing with milling and leaching hard, abrasive and refractory material, to
work with our Clarkdale personnel and consultants to achieve optimum continuous
production.
We have
budgeted $2,400,000 for our work program on the Clarkdale Slag Project over the
next twelve months, which includes the operation of the production module and
performing the feasibility study. A decision on allocating
approximately $6,000,000 of additional funds for the Phase II expansion and
$4,700,000 to complete the construction of an Industrial Collector Road pursuant
to an agreement with the Town of Clarkdale, Arizona by January 2011 will be made
once the first production module is operational and its results are analyzed.
We expect
that there will be significant financing requirements in order to finance the
construction of a full-scale production facility, and cannot assure you that
such funding will be available at all or on terms that are reasonably acceptable
to us. If the results from our feasibility study and the results from
the operation of the production module do not support a basis for us to proceed
with the construction of our proposed, full-scale production facility or we
cannot obtain funding at all or on terms that are reasonably acceptable to us,
we will have to scale back or abandon our proposed operations on the Clarkdale
Slag Project. If management determines, based on any factors,
including the foregoing, that capitalized costs associated with any of our
mineral interests are not likely to be recovered, we would incur a significant
impairment of our investment in such property interests on our financial
statements.
Estimate of
Projected Expenditures
. Since our involvement in the Clarkdale
Slag Project in June 2005, we have incurred project expenses of approximately
$6,121,000, including metallurgical testing, mineralogical studies, drilling
program, pilot plant operation and site administrative expenses. In
addition, as of December 31, 2008, we have recorded capital expenditures on the
Clarkdale Slag Project of approximately $12,431,000, including building
construction, production module equipment (grinding, leaching, filtering,
extraction and laboratory equipment), site improvements and administration
equipment. The following is an outline of the proposed milestones and
estimated costs for anticipated work on the Clarkdale Slag Project for the next
twelve months (subject to funding availability, we also anticipate spending
approximately $6,000,000 on Phase II of our Clarkdale Slag Project – preparation
for expansion to 2,000 tons of slag material per day and $4,700,000 to complete
the construction of an Industrial Collector Road pursuant to an agreement with
the Town of Clarkdale, Arizona by January 2011):
|
Work
|
|
Budget
|
|
|
|
|
|
|
|
1.
Production Module Operation
|
|
$
|
1,900,000
|
|
|
|
|
|
|
|
|
• Start-up and test module equipment
|
|
|
|
|
|
• Address start-up issues
|
|
|
|
|
|
• Optimize module operation
|
|
|
|
|
|
|
|
|
|
|
|
2.
Feasibility Study
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
• Third-party feasibility study performed on operating
production module
|
|
|
|
|
|
|
|
|
|
|
|
SUBTOTAL
|
|
$
|
2,400,000
|
|
These
estimated costs are preliminary in nature, and actual costs may be significantly
higher once we have completed the feasibility study and received results from
the construction and testing of our proposed production
module. Further, these estimated costs do not take into account
possible delays that may arise. If we experience any difficulties or
delays during our plan of operation, it could take substantially longer and be
more costly for us to complete construction of the production module or complete
a feasibility study. In addition, if our feasibility study
establishes the project is economically viable and “bankable,” we will have to
pay $6,400,000 to VRIC in connection with our Agreement and Plan of Merger with
VRIC and Transylvania. To satisfy this obligation, we will be
required to obtain additional financing within 90 days of receipt of such a
bankable feasibility study.
Location, Access
and History
. The Clarkdale Slag Project is located in
Clarkdale, Arizona, approximately 107 miles north of Phoenix, Arizona and about
50 miles southwest of Flagstaff, Arizona in Yavapai County (see Figure 1,
below). The project site is located at a 3,480 feet elevation on
approximately 833 deeded acres of industrial zoned land near the town of
Clarkdale.
Figure
1 - Clarkdale Project Site
Slag is
the waste product of the smelting process. The slag at the Clarkdale
Slag Project originated from a large, copper ore smelting operation located on
our property in Clarkdale. The copper ore was mined in Jerome,
Arizona during the period 1915-1952, when the Clarkdale smelter was one of the
largest copper smelters in the world. Jerome is a historic mining
district, located approximately 6 miles west of Clarkdale at an elevation of
5,435 feet, which produced copper extracted from massive sulfide deposits mined
at Jerome (1889-1952) and smelted at both Jerome (1889-1915) and Clarkdale
(1915-1952).
Molten
slag from the Clarkdale smelter was hauled by rail to the deposit site and
poured onto the property, much like a lava flow. The slag cooled and
hardened into the large slag pile which now exists at the Clarkdale
site. The hardened slag has a glassy, volcanic lava-like appearance,
and has a high iron and silica content. It contains some thin layers
of coarse material which appear to have been undigested from the
smelter. The hardening process causes fracturing at the surface and
within the layers beneath the surface. As a result, the slag pile
consists of both solid sheets and coarse material deposited layer upon
layer.
The slag
pile currently occupies approximately 45 acres on the property and, as
determined from the drilling and analysis programs, has a graduating thickness
of between 60 and 130 feet and contains approximately 20 million tons of slag
material. The slag pile borders the Verde River and an active
railroad track. The track divides the pile into two sections located
east and west of the track (See Figures 2A and 2B below). The eastern
portion of the slag pile is the larger of the two, as approximately 98% of the
slag pile is located in the east section of the property.
Figure
2A –Clarkdale Project Aerial View
Figure
2B –Clarkdale Project Area Map
Mineralogy and
Metallurgy
. Metallurgical testing between 2005 and 2007 by Dr.
Richard F. Hewlett, the technical project manager of our Clarkdale Slag Project,
on bench and bulk scale samples from the slag pile has indicated that gold,
silver, copper and zinc exists in and may potentially be extractable from the
slag pile. The filtered byproduct remaining after slag has been
processed is a ferrosilicate product (containing iron and
silica). Canadian Environmental & Metallurgical, Inc., an
independent laboratory which we retained, reported to us the results of a
leaching test they performed on a sample of the byproduct. Based on
these results, Dr. Hewlett concluded and reported to us that the byproduct may
consist of relatively inert materials. We do not currently know
whether the byproduct will have any significant commercial
value. However, we intend to conduct testing and analysis in the
future to explore this possibility.
Nanominerals
conducted a SEM/EDS analysis of the slag pile, which was supported by a report
by SGS Lakefield Research, an independent consultant, in October, 2005, which
showed that there are three distinct ferrosilicate phases which form the bulk
matrix of the slag pile and that:
|
|
·
|
copper-zinc
is contained within small, irregular shaped particles of iron-copper-zinc
sulfides of dimensions of less than 0.3-20
microns;
|
|
|
·
|
gold
occurs as very fine particles (less than 1 micron) entombed within larger
grains of iron sulphides (less than 30
microns);
|
|
|
·
|
zinc
occurs as zinc-oxides and forms part of the slag matrix;
and
|
|
|
·
|
iron
occurs as iron-metal, iron-silicates, iron-sulfides and iron-oxide of
dimensions of less than 5 microns.
|
The
studies by SGS Lakefield and Nanominerals showed that all of these metal phases
are contained in an amorphous, nano-crystalline matrix of
calcium-iron-aluminum-silicate. These studies also demonstrate the
existence of the various metals that are not generally visible due to their
extreme small size. Studies of these SEM/EDS micrographs make
possible the evaluation of the grinding and leaching efficiencies which aid in
flow-sheet design and process optimization.
Drilling
and Bulk Sampling Tests
Drilling Hole
Tests
. In 2005, we retained Mountain States to implement a
drilling and sampling program under strict chain-of-custody sampling at the
Clarkdale Slag Project. In the fourth quarter of 2005 and the first
and second quarters of 2006, Boart Longyear Company, an unaffiliated drilling
subcontractor under the chain-of-custody supervision of Mountain States, drilled
a total of eighteen holes (SD 1-18) in the slag pile using sonic drills,
comprising more than 1,700 feet on individual 2.5 foot intervals over the
project site (See Figure 3 below – “plan view of drilling
program”). Mountain States had complete control over the samples from
the time they were recovered from the drill through the analytical
process. Holes SD-1 to SD-6 were drilled by a mini-sonic drill and
SD-7 to SD-18 were drilled by a large sonic drill. Sonic drills
produce sonic waves that are directed down a hollow drill-pipe to the bottom of
the hole where the sonic waves perform the breaking of the slag
material. The broken slag cuttings were collected into a casing and
discharged directly into buckets every 2.5 feet of vertical depth, and each
bucket was marked by drill hole number and depth interval and then sealed in
order to retain the integrity of the sample. This drilling method
provides highly representative, continuous core samples without the use of water
or air.
Figure
3 – Clarkdale Project Plan View of Drilling Program
For drill
holes SD-1 through SD-18, Mountain States performed the copper, zinc, and iron
analysis using the fusion assay method, followed by atomic
absorption. Arrakis, an unaffiliated mining and environmental
technology firm, performed gold and silver analysis under chain of custody
analysis of Mountain States, using an acid total digestion method followed by
atomic absorption. The composite footage referenced in the table
below approximately reflects the base of the slag pile, and therefore, the
relative thickness of the slag pile above the ground. Mountain States
reported the following analysis of the drill hole samples:
Summary
of Results of Drill Hole Testing
|
|
|
|
Gold
|
|
|
Silver
|
|
|
Copper
|
|
|
Zinc
|
|
|
Iron
|
|
|
|
|
|
Au
(opt)*
|
|
|
Ag
(opt)*
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Fe
(%)
|
|
|
18
Drill Hole Average
|
|
|
|
0.46
|
|
|
|
0.13
|
|
|
|
0.37
|
|
|
|
2.47
|
|
|
|
33.1
|
|
|
Drill
Hole
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drill
Hole
|
|
Composite
Footage
|
|
|
Gold
|
|
|
Silver
|
|
|
Copper
|
|
|
Zinc
|
|
|
Iron
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Au
(opt)*
|
|
|
Ag
(opt)*
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Fe
(%)
|
|
|
SD-1
|
|
|
0.0
– 55.0
|
|
|
|
0.210
|
|
|
|
-
|
|
|
|
0.70
|
|
|
|
2.10
|
|
|
|
32.1
|
|
|
SD-2
|
|
|
0.0
– 60.0
|
|
|
|
0.213
|
|
|
|
-
|
|
|
|
0.73
|
|
|
|
2.13
|
|
|
|
34.6
|
|
|
SD-3
|
|
|
0.0
– 109.0
|
|
|
|
0.228
|
|
|
|
-
|
|
|
|
0.37
|
|
|
|
2.99
|
|
|
|
33.4
|
|
|
SD-4
|
|
|
0.0
– 80.0
|
|
|
|
0.190
|
|
|
|
-
|
|
|
|
0.39
|
|
|
|
3.29
|
|
|
|
32.3
|
|
|
SD-5
|
|
|
0.0
– 89.0
|
|
|
|
0.229
|
|
|
|
-
|
|
|
|
0.39
|
|
|
|
2.29
|
|
|
|
30.2
|
|
|
SD-6
|
|
|
0.0
– 50.0
|
|
|
|
0.216
|
|
|
|
-
|
|
|
|
0.36
|
|
|
|
3.04
|
|
|
|
32.5
|
|
|
SD-7
|
|
|
0.0
– 111.5
|
|
|
|
0.667
|
|
|
|
0.249
|
|
|
|
0.26
|
|
|
|
3.10
|
|
|
|
36.2
|
|
|
SD-8
|
|
|
0.0
– 117.5
|
|
|
|
0.716
|
|
|
|
0.140
|
|
|
|
0.29
|
|
|
|
2.79
|
|
|
|
33.3
|
|
|
SD-9
|
|
|
0.0
– 114.0
|
|
|
|
0.633
|
|
|
|
0.153
|
|
|
|
0.34
|
|
|
|
2.43
|
|
|
|
32.7
|
|
|
SD-10
|
|
|
0.0
– 112.5
|
|
|
|
0.669
|
|
|
|
0.110
|
|
|
|
0.32
|
|
|
|
2.57
|
|
|
|
33.5
|
|
|
SD-11
|
|
|
0.0
– 131.0
|
|
|
|
0.571
|
|
|
|
0.127
|
|
|
|
0.32
|
|
|
|
2.18
|
|
|
|
33.4
|
|
|
SD-12
|
|
|
0.0
– 89.0
|
|
|
|
0.428
|
|
|
|
0.109
|
|
|
|
0.31
|
|
|
|
1.99
|
|
|
|
32.1
|
|
|
SD-13
|
|
|
0.0
– 127.5
|
|
|
|
0.590
|
|
|
|
0.114
|
|
|
|
0.39
|
|
|
|
2.86
|
|
|
|
33.3
|
|
|
SD-14
|
|
|
0.0
– 107.5
|
|
|
|
0.538
|
|
|
|
0.139
|
|
|
|
0.36
|
|
|
|
2.14
|
|
|
|
33.0
|
|
|
SD-15
|
|
|
0.0
– 89.0
|
|
|
|
0.483
|
|
|
|
0.143
|
|
|
|
0.33
|
|
|
|
1.96
|
|
|
|
32.8
|
|
|
SD-16
|
|
|
0.0
– 118.0
|
|
|
|
0.633
|
|
|
|
0.125
|
|
|
|
0.31
|
|
|
|
2.49
|
|
|
|
34.8
|
|
|
SD-17
|
|
|
0.0
– 116.0
|
|
|
|
0.657
|
|
|
|
0.116
|
|
|
|
0.30
|
|
|
|
2.36
|
|
|
|
35.0
|
|
|
SD-18
|
|
|
0.0
– 36.0
|
|
|
|
0.390
|
|
|
|
0.070
|
|
|
|
0.22
|
|
|
|
1.70
|
|
|
|
31.3
|
|
|
Average
|
|
|
|
|
|
|
0.46
|
|
|
|
0.13
|
|
|
|
0.37
|
|
|
|
2.47
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*opt
(ounces per
ton)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk Sampling
Tests
. In the third quarter of 2006, Mountain States collected
a 4,000 pound bulk sample, under chain of custody, comprised of material taken
over the entire surface of the 45-acre slag pile. Mountain States
divided the 4,000 pound bulk sample into five approximately 750 pound lots and
milled each 750 pound lot through our mill located at the leased pilot plant in
Phoenix, Arizona. Mountain States subsequently performed the copper,
zinc, and iron analysis at its own facility using the fusion assay method,
followed by atomic absorption. Mountain States also performed gold
and silver analysis of the bulk sample using the fire assay method followed by
atomic absorption. Mountain States reported the following analysis of
the bulk sample:
Summary
of Bulk Sample Results
|
|
|
Gold
|
|
|
Silver
|
|
|
Copper
|
|
|
Zinc
|
|
|
Iron
|
|
|
|
|
Au
(opt)*
|
|
|
Ag
(opt)*
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Fe
(%)
|
|
|
750-pound
Bulk Sample Average
|
|
|
0.42
|
|
|
|
0.06
|
|
|
|
0.35
|
|
|
|
2.88
|
|
|
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface
Bulk
Sample
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sample
|
|
Composite
|
|
Gold
|
|
|
Silver
|
|
|
Copper
|
|
|
Zinc
|
|
|
Iron
|
|
|
|
|
Detail
|
|
Au
|
|
|
Ag
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Fe
(%)
|
|
|
|
|
|
|
(opt)*
|
|
|
(opt)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SS1B-1
|
|
Surface
Bulk Sample
|
|
|
0.361
|
|
|
|
0.285
|
|
|
|
0.36
|
|
|
|
3.00
|
|
|
|
33.8
|
|
|
SS1B-2
|
|
Surface
Bulk Sample
|
|
|
0.422
|
|
|
ND**
|
|
|
|
0.35
|
|
|
|
2.80
|
|
|
|
30.4
|
|
|
SS1B-3
|
|
Surface
Bulk Sample
|
|
|
0.428
|
|
|
ND**
|
|
|
|
0.33
|
|
|
|
2.90
|
|
|
|
30.4
|
|
|
SS1B-4
|
|
Surface
Bulk Sample
|
|
|
0.444
|
|
|
ND**
|
|
|
|
0.36
|
|
|
|
2.80
|
|
|
|
29.8
|
|
|
SS1B-5
|
|
Surface
Bulk Sample
|
|
|
0.434
|
|
|
ND**
|
|
|
|
0.34
|
|
|
|
2.90
|
|
|
|
30.6
|
|
|
Average
|
|
|
|
|
0.42
|
|
|
|
0.06
|
|
|
|
0.35
|
|
|
|
2.88
|
|
|
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*opt
(ounces per ton)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**ND
(None Detected)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume, Tonnage and Grade
Estimates
. On May 21, 2007, we received a report from IMC
outlining the volume, tonnage and grade estimate of the slag pile in Clarkdale,
Arizona. In compiling the report, IMC relied on the drill hole depths
and gold, silver, copper and zinc analysis provided by Mountain States and did
not perform independent verification of such data. Further, IMC
calculated the volume of the east (larger) side of the slag pile based on the
assumption that the depth of each drill hole (other than SD-18) conducted under
the supervision of Mountain States reflected the thickness of the slag pile
within the area of each drill hole. Dr. Hewlett provided calculations
for the volume of the west (smaller) side of the slag pile and topographic maps
showing the present day surface of the slag pile and surrounding
topography.
From the
drill hole samples, IMC calculated the average bulk density of the slag to be
200.6 pounds per cubic foot which equates to an average tonnage factor of 9.97
cubic feet per ton. With this analysis as well as the drill hole
depths and the assay data provided by Mountain States, IMC produced a three
dimensional computer model of the slag pile to estimate the volume, tonnage and
average metal grades within the pile as follows:
|
Slag Pile
|
|
Volume
Estimate
|
|
|
Tons in
|
|
|
Au (opt)*
|
|
|
Ag( opt)*
|
|
|
Cu (%)
|
|
|
Zn (%)
|
|
|
Fe (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(million cubic
feet)
|
|
|
Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
|
198.0
|
|
|
|
19.86
|
|
|
|
0.50
|
|
|
|
0.10
|
|
|
|
0.34
|
|
|
|
2.47
|
|
|
|
33.18
|
|
|
West
|
|
|
3.4
|
|
|
|
0.34
|
|
|
|
0.39
|
|
|
|
0.07
|
|
|
|
0.22
|
|
|
|
1.70
|
|
|
|
31.30
|
|
|
Combined
|
|
|
201.4
|
|
|
|
20.20
|
|
|
|
0.50
|
|
|
|
0.10
|
|
|
|
0.34
|
|
|
|
2.46
|
|
|
|
33.15
|
|
|
*opt
|
|
(ounces
per ton)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed
Production Module
. Since 2006, we have been in the process of
designing a production module with the intended purpose of processing and
extracting precious and base metals from the slag pile in a commercially viable
manner. The flow-sheet and equipment selection for the initial
production module was designed to process between 100 and 250 tons of slag
material per day. The results from its operation are anticipated to
serve as the basis for a proposed full-scale production facility. The
production facility is intended to house a number of modules which will allow
for a production capacity of 2,000 tons of slag material per day.
We have
completed the construction of the production module for the Clarkdale Slag
Project and are now actively engaged in the testing and start-up phase of the
project. Since the start of 2009, the primary emphasis has been
placed on the crushing and grinding circuit as well as the leaching and
extraction of precious metals (gold and silver). We have completed
continuous runs of up to 16 hours through the crushing and grinding
circuit. To date, our internal laboratory testing has reflected
consistent levels of extractable precious and base metals in pregnant leach
solutions from the Clarkdale slag material. The crushing and grinding
circuit effectively liberates gold, silver, copper and zinc from the slag
material. Further, management believes that extraction results from
preliminary internal laboratory testing have been consistent with the results of
earlier assay testing conducted by our independent consultants. We
believe that we can improve extraction rates further by optimizing the grind,
the chemical characteristics of the leach solutions and the amount of residence
time required for maximum grind and leach efficiency.
We have
faced challenges involving the amount of wear on certain grinding components
caused by the abrasiveness of the slag material and the rate of
throughput. Highly abrasive carbon-rich ferro-silicates (containing
carbon, iron and silica) comprise about 90% of the slag material, which has
required us to seek out more advanced hard facing technology and wear-resistant
surfacing media on our crushing and grinding equipment. We are having
such materials fabricated by third parties. We also are still working
to optimize the pulp density and production rate necessary for maximum metal
liberation by the large vibratory mill.
Once the
crushing and grinding circuit has been configured to run continuously at optimum
productivity levels, we believe that we will be able to proceed with the
operation of all circuits within the production module.
On May 6,
2009, we entered into a new engagement of Mountain States to conduct a technical
analysis of our gold recovery process, which we believe comprises the majority
of the potential value of the entire Clarkdale Slag Project. Such
technical analysis was to consist of the observation and analysis of our gold
recovery process in accordance with chain-of-custody standards. The
technical analysis was not intended for the purpose of determining the economic
feasibility of the Clarkdale Slag Project.
However,
during our work program with Mountain States, we jointly determined with
Mountain States that we would need specialty expertise in dealing with the
abrasiveness of the slag material. As a result, Mountain States
agreed to withdraw from its engagement and we have engaged a new team of
independent metallurgical engineers, with extensive international experience in
milling and leaching hard, abrasive and refractory material similar to that
found in the slag pile. We have engaged the new engineering team to
provide us with recommendations regarding further optimization of all four
primary processing circuits, with their initial recommendations focusing upon
the crushing, grinding, leaching and filtration circuits. Once we are
able to resolve these issues, we intend to engage an independent engineer to
conduct a technical analysis of our gold recovery process.
Below is
a basic flow chart of the intended operations of the proposed initial production
module at the Clarkdale site (See Figure 4 below).
Figure
4 – Clarkdale Project Flow Chart
The
following is a description of the anticipated operations of the four major
sections of the production module:
Crushing and
Grinding
. The flow sheet begins with the slag being dug from
the slag pile with an excavator and run through a jaw crusher (takes material
down to roughly 5/8” material). The output from the crusher is
scooped into a dump truck, transported a short distance to be stockpiled on a
storage pad near the processing building (roughly 2,800 feet from slag pile to
the stockpile). It is then run through an impact mill and fed into a
vibratory mill, the final stage of grinding. The vibratory mill is a
“wet” mill, which means that water is added, along with the slag inside the
mill. The output from the vibratory mill is a black, wet slurry with
paint-like consistency.
Leaching
.
After the grinding
circuit, the slurry will be pumped into a series of leach tanks into which
chemicals and water are added.
Filtration
. The
contents from the leach tanks are then passed through pressure filters through
which the solids are separated from the liquid. The solids, or
filtered “byproduct” are a ferrosilicate product and are stored for later
removal. The liquid, or “pregnant solution,” contains the gold,
silver, copper and zinc in solution.
Extraction
. The
extraction process starts by pumping the pregnant solution through a series of
resin columns, also referred to as the ion exchange circuit. Resins
are manmade collectors (functionalized plastic), each specifically designed to
selectively collect specific metals. The first series of resin
columns is designed to extract the gold and silver, followed by copper and zinc
in the second and third series of resin columns, respectively. At
this stage, the metals are “loaded’ on their respective resins. We
expect that the resins will recover the metals (gold, silver, copper, and zinc)
from the pregnant solution. However, the exact recovery rates will
not be known until data is analyzed from the operation of the production
module.
Due to
cost and efficiency, it is anticipated that the gold and silver loaded resins
will be sold directly to a refinery instead of purifying the metal on site (the
value of the gold and silver is anticipated to outweigh the value of the
resins). The copper and zinc will be dissolved from their respective
resins and purified into copper and zinc metal through separate electrowinning
systems. The electrowinning process uses electrical current to
extract metal from solution and is a widely used extraction method for copper
and zinc. The copper and zinc resins will then be recycled and reused
(the relative value of the resins compared to the value of copper and zinc is
significant and therefore the reason to “strip” and re-use the
resins).
Permitting
. The
site for the Clarkdale Slag Project is located in the Town of Clarkdale, Arizona
and as a result, most of the operational permits are subject to their
authority. The environmental permits, however, are subject to the
authority of the State of Arizona.
We were
granted a Class II Synthetic Air Quality permit from the Arizona Department of
Environmental Quality (“ADEQ”) for quarrying and metals recovery operations for
the Clarkdale Slag Project. A Class II permit is required because the
ADEQ determined that our project is not a “major source” of air pollution after
reviewing the description of our on-site activities, and the modeling done by us
with the assistance of our consultant, an unaffiliated international engineering
company, which shows the potential areas where the project could possibly emit
substances into the air. We received a “Synthetic” permit because we
voluntarily worked with ADEQ to agree on limits of production, that would assure
that we would not exceed the acceptable limits of regulated air
pollutants. The agreement permits us to operate the demonstration
module at a maximum capacity of 240 tons per day. The Class II permit
is the only air quality permit required for us to operate the demonstration
module. During the operation of the module, we intend to collect data
to demonstrate the actual amount of air pollutants generated by each process
that we use. We also intend to prepare a computer model of those
activities with the assistance of our consultant. We then intend to
submit that data to ADEQ in support of our full production module.
We have
obtained an approved use permit from the Town of Clarkdale to process up to 250
tons of slag per day for project operations, and a conditional use permit from
Clarkdale for our planned activities for up to 2,000 tons of slag material per
day on the Clarkdale Slag Project, subject to final approval of our plans and
approval from ADEQ with respect to our air permit. We have obtained a
Determination of Non-Applicability from the ADEQ with regard to an aquifer
protection permit for the proposed production module. The effect of
this determination will exempt us from requiring a water permit for the
processing of up to 250 tons of slag per day for project
operations.
On June
17, 2008, we received a Certificate of Occupancy for the laboratory facilities
located within the module building, allowing our chemists to conduct immediate,
on-site analyses of leaching results to further optimize the metals extraction
process. On August 8, 2008, we received a Certificate of Occupancy
for the module building, allowing us to operate the grinding, leaching,
filtering and resin extraction equipment within the module
building. On December 30, 2008, we received a Certificate of
Occupancy for the electrowinning building, allowing us to operate the copper and
zinc electrowinning equipment within the electrowinning building.
In
January 2009, we submitted a development agreement to the Town of Clarkdale for
the construction of an Industrial Collector Road. The purpose of the
road is to provide us with the capability to enhance the flow of industrial
traffic to and from the Clarkdale Slag Project. The construction of
the road is a required infrastructure improvement under the terms of our
conditional use permit with the Town of Clarkdale. The Town of
Clarkdale approved the development agreement on January 9, 2009.
The
development agreement provides that its effective date will be the later of (i)
30 days from the approving resolution of the agreement by the Clarkdale Town
Council; or (ii) the date on which the Town of Clarkdale obtains a connection
dedication from separate property owners who have land that will be utilized in
construction of the road; or (iii) the date on which the Town of Clarkdale
receives the proper effluent permit. The Town of Clarkdale has
approved the development agreement, and the remaining two contingencies with
respect to the effectiveness of the development agreement are beyond our
control.
Under the
development agreement, we are obligated to complete the construction of the road
within two years after the effective date of the agreement. If we do
not complete the road within the two year period, we may lose our conditional
use permit from the Town of Clarkdale. Further, as a condition of our
developing any of our property that is adjacent to the Clarkdale Slag Project,
we will be required to construct additional enhancements to the
road. We will have ten years from the start of construction on the
road in which to complete the additional enhancements. However, we do
not currently have any defined plans for the development of the adjacent
property.
We
estimate that the initial cost of construction of the road will be approximately
$3,500,000 and that the cost of the additional enhancements will be
approximately $1,200,000. We will be required to fund the costs of
this construction. Based on the uncertainty of the timing of these
contingencies, we have not included these costs in our current operating plans
or budgets. However, we will require additional project financing or
other financing in order to fund the construction of the road and the additional
enhancements. 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. The failure to complete the road and the
additional enhancements in a timely manner under the development agreement would
have a material adverse effect on the Clarkdale Slag Project and our
operations.
Searchlight
Gold Project
Location, Access
and History of Exploration
. The Searchlight Gold Project is a
3,200-acre placer gold project located about 50 miles south of Las Vegas and 2
miles south of Searchlight, Nevada. (See Figure 5
below.) Access is by vehicle from Highway 95. The mining
claims were staked in the period between 1998 and 2003 as 160-acre association
placer mining claims on federal land administered by the BLM. We own
title to the Searchlight Claims.
Figure
5 – Searchlight Gold Project Location
The
Searchlight Claims are located in parts of Sections 1, 12-13 and 24-25 of
Township 29 South, Range 63 East and Sections 19 and 30 of Township 29 South,
Range 64 East Clark County, Nevada. The names of the 160-acre claims
and their federal serial numbers are as described below:
|
Nevada
Mining Claim
|
|
BLM
Number
|
|
Rio
Raga 300
|
|
600834
|
|
Rio
Raga 301
|
|
600835
|
|
Rio
Raga 302
|
|
600836
|
|
Rio
Raga 303
|
|
600837
|
|
Rio
Raga 304
|
|
600838
|
|
Rio
Raga 305
|
|
600839
|
|
Rio
Raga 306
|
|
715676
|
|
Rio
Raga 307
|
|
600841
|
|
Rio
Raga 308
|
|
600842
|
|
Rio
Raga 309
|
|
600843
|
|
Rio
Raga 310
|
|
699996
|
|
Rio
Raga 311
|
|
699997
|
|
Rio
Raga 312
|
|
600846
|
|
Rio
Raga 313
|
|
600847
|
|
PV
Brown 193
|
|
854993
|
|
PV
Brown 301
|
|
854994
|
|
P V
Red #11
|
|
791232
|
|
P V
Red #12
|
|
791233
|
|
P V
Red #13
|
|
791234
|
|
P V
Red #14
|
|
791235
|
During
the second quarter of 2008, we “double staked” the Searchlight property by
filing, with the BLM and the Clark County, Nevada Recorder, 142 new and separate
20-acre placer claims overtop of the twenty existing 160-acre
claims. We were only able to “double stake” 2,840 acres out of the
3,200 acre site due to various regulatory restrictions on staking of certain of
the smaller land parcels on the site. We have maintained the twenty
prior 160-acre claims to provide us with a basis to retain the priority of and
defend our existing 160-acre mining claims.
The names
of the 20-acre claims and their corresponding federal serial numbers are as
described below:
|
Nevada Mining Claim
|
BLM Number
|
Nevada Mining Claim
|
BLM Number
|
|
SMC
|
001
|
0989708
|
SMC
|
047
|
0989748
|
|
SMC
|
002
|
0989709
|
SMC
|
048
|
0989749
|
|
SMC
|
003
|
0989710
|
SMC
|
050
|
0989750
|
|
SMC
|
004
|
0989711
|
SMC
|
052
|
0989751
|
|
SMC
|
005
|
0989712
|
SMC
|
054
|
0989752
|
|
SMC
|
006
|
0989713
|
SMC
|
056
|
0989753
|
|
SMC
|
007
|
0989714
|
SMC
|
057
|
0989754
|
|
SMC
|
008
|
0989715
|
SMC
|
058
|
0989755
|
|
SMC
|
009
|
0989716
|
SMC
|
059
|
0989756
|
|
SMC
|
010
|
0989717
|
SMC
|
060
|
0989757
|
|
SMC
|
011
|
0989718
|
SMC
|
061
|
0989758
|
|
SMC
|
012
|
0989719
|
SMC
|
062
|
0989759
|
|
SMC
|
013
|
0989720
|
SMC
|
063
|
0989760
|
|
SMC
|
014
|
0989721
|
SMC
|
064
|
0989761
|
|
SMC
|
015
|
0989722
|
SMC
|
065
|
0989762
|
|
SMC
|
016
|
0989723
|
SMC
|
066
|
0989763
|
|
SMC
|
017
|
0989724
|
SMC
|
067
|
0989764
|
|
SMC
|
018
|
0989725
|
SMC
|
068
|
0989765
|
|
SMC
|
019
|
0989726
|
SMC
|
069
|
0989766
|
|
SMC
|
020
|
0989727
|
SMC
|
070
|
0989767
|
|
SMC
|
021
|
0989728
|
SMC
|
071
|
0989768
|
|
SMC
|
022
|
0989729
|
SMC
|
072
|
0989769
|
|
SMC
|
023
|
0989730
|
SMC
|
073
|
0989770
|
|
SMC
|
024
|
0989731
|
SMC
|
074
|
0989771
|
|
SMC
|
025
|
0989732
|
SMC
|
075
|
0989772
|
|
SMC
|
026
|
0989733
|
SMC
|
076
|
0989773
|
|
SMC
|
027
|
0989734
|
SMC
|
077
|
0989774
|
|
SMC
|
028
|
0989735
|
SMC
|
078
|
0989775
|
|
SMC
|
029
|
0989736
|
SMC
|
079
|
0989776
|
|
SMC
|
030
|
0989737
|
SMC
|
080
|
0989777
|
|
SMC
|
031
|
0989738
|
SMC
|
081
|
0989778
|
|
SMC
|
032
|
0989739
|
SMC
|
082
|
0989779
|
|
SMC
|
033
|
0989740
|
SMC
|
083
|
0989780
|
|
SMC
|
035
|
0989741
|
SMC
|
084
|
0989781
|
|
SMC
|
037
|
0989742
|
SMC
|
085
|
0989782
|
|
SMC
|
039
|
0989743
|
SMC
|
086
|
0989783
|
|
SMC
|
041
|
0989744
|
SMC
|
087
|
0989784
|
|
SMC
|
043
|
0989745
|
SMC
|
088
|
0989785
|
|
SMC
|
045
|
0989746
|
SMC
|
089
|
0989786
|
|
SMC
|
046
|
0989747
|
SMC
|
090
|
0989787
|
|
Nevada Mining Claim
|
BLM Number
|
Nevada Mining Claim
|
BLM Number
|
|
SMC
|
091
|
0989788
|
SMC
|
126
|
0989819
|
|
SMC
|
092
|
0989789
|
SMC
|
127
|
0989820
|
|
SMC
|
093
|
0989790
|
SMC
|
128
|
0989821
|
|
SMC
|
094
|
0989791
|
SMC
|
129
|
0989822
|
|
SMC
|
095
|
0989792
|
SMC
|
130
|
0989823
|
|
SMC
|
096
|
0989793
|
SMC
|
131
|
0989824
|
|
SMC
|
097
|
0989794
|
SMC
|
132
|
0989825
|
|
SMC
|
098
|
0989795
|
SMC
|
133
|
0989826
|
|
SMC
|
099
|
0989796
|
SMC
|
134
|
0989827
|
|
SMC
|
100
|
0989797
|
SMC
|
135
|
0989828
|
|
SMC
|
101
|
0989798
|
SMC
|
136
|
0989829
|
|
SMC
|
102
|
0989799
|
SMC
|
141
|
0989830
|
|
SMC
|
103
|
0989800
|
SMC
|
142
|
0989831
|
|
SMC
|
104
|
0989801
|
SMC
|
143
|
0989832
|
|
SMC
|
105
|
0989802
|
SMC
|
144
|
0989833
|
|
SMC
|
106
|
0989803
|
SMC
|
145
|
0989834
|
|
SMC
|
107
|
0989804
|
SMC
|
146
|
0989835
|
|
SMC
|
108
|
0989805
|
SMC
|
147
|
0989836
|
|
SMC
|
109
|
0989806
|
SMC
|
148
|
0989837
|
|
SMC
|
110
|
0989807
|
SMC
|
149
|
0989838
|
|
SMC
|
111
|
0989808
|
SMC
|
150
|
0989839
|
|
SMC
|
112
|
0989809
|
SMC
|
151
|
0989840
|
|
SMC
|
117
|
0989810
|
SMC
|
152
|
0989841
|
|
SMC
|
118
|
0989811
|
SMC
|
153
|
0989842
|
|
SMC
|
119
|
0989812
|
SMC
|
154
|
0989843
|
|
SMC
|
120
|
0989813
|
SMC
|
155
|
0989844
|
|
SMC
|
121
|
0989814
|
SMC
|
156
|
0989845
|
|
SMC
|
122
|
0989815
|
SMC
|
157
|
0989846
|
|
SMC
|
123
|
0989816
|
SMC
|
158
|
0989847
|
|
SMC
|
124
|
0989817
|
SMC
|
159
|
0989848
|
|
SMC
|
125
|
0989818
|
SMC
|
160
|
0989849
|
The
Searchlight District is a well known, historic gold camp. Mining
occurred in the area during the period 1900-1950, where some 250,000 ounces of
gold were produced from quartz-sulphide-hematite veins to depths of greater than
1,000 feet with minor placer gold produced. However, there has been
no prior history of mining on the land related to the Searchlight
Claims.
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 in the first quarter of 2008,
we approved a continuation of the metallurgical work program with
Arrakis. The goal of this work program is to attempt to further
improve upon the extraction grades of gold from samples taken from the project
and explore in more detail the potential capital and operating costs of
implementing methods, such as autoclave leaching.
We have
budgeted $200,000 to our twelve month work program for the Searchlight Gold
Project. Our work program is focused on continuing the testing
program with Arrakis, including metallurgical tests, bulk sampling, milling,
leaching and extraction tests to optimize recovery of precious metals from
samples taken from the project and exploring in more detail the potential
capital and operating costs of implementing methods, such as autoclave
leaching. We will also focus on our work with the BLM, our
consultants and our attorneys to help us obtain approval of the Plan of
Operations, containing the necessary permits to execute on our desired drilling
program. The drilling and pre-feasibility program, which we
anticipate will include an eighteen-hole drill program, chain-of-custody
sampling and assaying of drill hole material, pilot plant tests and a
pre-feasibility report, is expected to commence shortly after receiving the
BLM’s approval of the Plan of Operations.
Estimate of
Projected Expenditures
. Since our involvement in the
Searchlight Gold Project in February 2005, we have incurred project expenses of
approximately $675,000 on metallurgical testing and mineralogical
studies. The following is an outline of the proposed milestones and
expenditures on the Searchlight Gold Project for the next twelve
months:
|
Work
|
|
Budget
|
|
|
|
|
|
|
|
1.
Metallurgical Testing and Pre-Feasibility Program
|
|
$
|
100,000
|
|
|
• Continue independent metallurgical testing program, bulk
sampling, milling, leaching and extraction tests to optimize recovery of
precious metals
|
|
|
|
|
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|
|
|
|
|
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• Update independent engineering report with results from
metallurgical testing program
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2.
Permitting
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$
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100,000
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|
|
• Obtain permit to drill 18 holes
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|
|
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TOTAL
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$
|
200,000
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Background of
Metallurgical Testing at the Searchlight Gold Project
. In May
2005, we retained Arrakis to take preliminary chain of custody surface samples
from the Searchlight site and test the samples for precious
metals. The results indicated that there was a presence of gold in
the samples. However, they represented only an “assay” of the sample
and are not indicative of the potential extraction of gold from the
material. Results of the chain of custody surface samples are
provided below:
|
Surface
Sample I.D.
|
|
Feed
Grade
|
|
|
|
Au
|
|
|
|
(opt)*
|
|
SS5
|
|
0.39
|
|
SS6
|
|
0.48
|
|
SS7
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0.55
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SS8
|
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0.69
|
|
*
opt (ounces per ton)
|
|
|
Following
this initial testing, Arrakis tested a variety of bench scale leach methods in
order to test for extraction of the gold from the samples. The bench
testing and optimization of leach conditions improved the extraction efficiency
to 72% and outlined a protocol for bulk leach testing. In September
2005, Arrakis collected a six-ton bulk sample from the project
site. Results from analyses of the bulk samples were as
follows:
|
Bulk
Test I.D.
|
|
Feed
Grade
|
|
Extracted
Grade Au
|
|
|
|
Au
|
|
(opt)*
|
|
|
|
(opt)*
|
|
|
|
BL1
|
|
0.58
|
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0.25
|
|
BL2
|
|
0.58
|
|
0.22
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|
BL3
|
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0.90
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|
0.21
|
|
* opt (ounces per ton)
|
|
|
|
|
Subsequent
metallurgical testing in 2006 and 2007 by Arrakis using the process of total
digestion has consistently revealed a feed grade of 0.37 ounces per ton (opt)
gold or better in the Searchlight Gold Project samples. Preliminary
tests indicate that gravity concentration of the material does not improve on
the extracted recovery of gold.
Arrakis
performed a number of tests to examine pressure leaching via autoclave to
enhance both the kinetics and extraction efficiency of gold from solution and
conducted a series of 11 autoclave tests using 200-gram samples in a Parr 1
liter pressure reactor. In January 2007, Arrakis reported the results
of such tests, as are summarized in the following table:
|
Autoclave
Test I.D.*
|
|
Feed
Grade
|
|
Extracted
Grade
|
|
|
|
Au
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|
Au
|
|
|
|
(opt)**
|
|
(opt)**
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TP2
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0.37
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0.07
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TP3
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0.39
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0.08
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TP4
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0.38
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0.03
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TP5
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0.37
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0.15
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TP6
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0.34
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0.19
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TP7
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0.37
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0.03
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TP8
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0.37
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0.16
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TP9
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0.37
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0.14
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TP10
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0.37
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0.23
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TP11
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0.37
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0.26
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TP12
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0.37
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0.15
|
|
|
*
|
All
samples approximated 200 grams in 1 liter of solution. Leach
time for all samples approximated 90 min. and the sample for TP7 was dead
roasted prior to leaching.
|
Metallurgical
extraction, using autoclave leaching, has been successful in extracting 70% of
the gold into solution. However, as seen from the table above,
precipitation of gold from the leach solution has been challenging and work is
continuing to better optimize this process.
Arrakis
performed gravity concentration testing on the Searchlight Claims
material. Although gravity concentration testing produced
an upgraded precious metal concentrate, it did not provide sufficient
total recovery of metal to support pursuing gravity separation as a
commercially viable option for extraction. Arrakis has advised us that the
gravitational forces acting on the denser precious metal particles may not be
significant enough to cause separation from the host material due to the small
size of the precious metal particles.
With
respect to our leach testing, Arrakis found that leaching under high temperature
and pressure (i.e. autoclaving) produced more consistent results for precious
metals, as opposed to extraction without high temperature and pressure (i.e.
open vat leaching). Arrakis has advised us that the aluminum-silicate
(aluminum and silica) coating, which we believe to be coating the gold particles
in this refractory material, may be the reason for the required high
temperature and pressure in the leach procedure.
The table
below provides an overview of the results from metallurgical tests completed, to
date, by Arrakis:
|
COC
Tests
(1)
|
|
Feed Grade
*
|
|
Extracted
Grade
|
|
Leach
Method
|
|
|
|
Gold
(opt)**
|
|
Gold
(opt)**
|
|
|
|
Bench
Leach Tests
|
|
|
|
|
|
|
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SP4
– 500grams
|
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0.58
|
|
0.24
– 0.42
|
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48
hr Leach
|
|
SP4
– 50lbs head
|
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0.54
|
|
|
|
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Con
1
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1.56
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|
0.36
|
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96
hr leach
|
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Con
2
|
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0.93
|
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0.75
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96
hr leach
|
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Bulk
Leach Tests
|
|
|
|
|
|
|
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BL1
- 1,000 lbs
|
|
0.58
|
|
0.25
|
|
48
hr Leach
|
|
BL2
- 1,000 lbs
|
|
0.58
|
|
0.22
|
|
48
hr Leach
|
|
BL3
– 9,000 lbs head
|
|
|
|
|
|
|
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1,674
lbs cons
|
|
0.90
|
|
0.21
|
|
72
hr Leach
|
|
Autoclave
Tests
|
|
|
|
|
|
|
|
TP2-12
– 200 grams
|
|
0.34
– 0.39
|
|
0.030
– 0.264
|
|
1.5
hr Autoclave
|
|
TP8
– 200 grams
|
|
0.37
|
|
0.158
|
|
1.5
hr Autoclave
|
|
TP9
(TP8 tails)
|
|
|
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0.142
|
|
1.5 hr Autoclave
|
|
Total
|
|
|
|
0.300
|
|
3.0
hr
Autoclave
|
|
*
|
Feed
Grade is the initial gold content in the sample. Extracted
Grade is the amount of gold leached into solution.
|
|
**
|
opt
(ounces per ton)
|
(1)
With
respect to the results set forth in the table above, Arrakis performed gold
analysis under chain-of-custody parameters. Analysis of all head ore
samples was done by 3 acid digestion in a Milestone Ethos Plus microwave sample
digester and analyzed by a Perkin Elmer 5100 graphite furnace atomic adsorption
system with Zeeman background correction. Pregnant solutions from all
bench and bulk tests were analyzed for gold using calibration blanks and
standards corrected with matching sample matrix to the specific solution being
read.
Permitting
. Our
Searchlight Claims are comprised of non-patented placer mining claims located on
federal land administered by the BLM. Mining activities on the
Searchlight Claims must be carried out in accordance with a Plan of Operations
or permit issued by the BLM.
The
former Searchlight Claim owners had previously obtained a BLM approved Plan of
Operations, which included permission to drill eighteen holes on the 3,200 acre
project area and to mine a 36-acre pit on our RR304 claim. We had
anticipated conducting our early stage exploratory work on the Searchlight
Claims property by utilizing the Plan of Operations issued to the former
Searchlight Claim owners, until such time as we would obtain a permit for
exploration and development in our own name or the former Searchlight Claim
holder’s permit was transferred to us. Although we did not acquire
the Searchlight Claims with a written agreement to purchase the Plan of
Operations, the prior owners verbally agreed to cooperate with us in attempting
to transfer their Plan of Operations into our name.
Although
the Plan of Operations was accepted and registered in the name of a former
Searchlight Claim owner, which is an affiliate of K. Ian Matheson, one of our
principal stockholders and a former officer and director, in September 2007, we
learned that the BLM had issued the BLM Order for “Immediate Suspension of All
Activities” notice on May 12, 2006 against Mr. Matheson and certain of his
affiliates (Pass Minerals, Inc., Kiminco, Inc. and Pilot Plant Inc., which also
were prior Searchlight Claim owners and are our stockholders) with respect to a
dispute with the BLM on a project unrelated to the Searchlight Gold
Project. The dispute between the BLM and Mr. Matheson arose due to
the BLM’s determination that Mr. Matheson and his affiliates had engaged in
willful mineral trespass for the unauthorized removal of sand and gravel from
public lands by Mr. Matheson and his affiliates or their
predecessors. The BLM had demanded payment of approximately
$2,530,000 for the willful trespass. After failure by Mr. Matheson
and his affiliates to pay the amount, the BLM issued the BLM
Order. The issuance of the BLM Order restricted our ability to rely
upon the Plan of Operations to conduct our early stage exploratory work on the
Searchlight Claims property until such time that we may obtain our own Plan of
Operations. An appeal by Mr. Matheson of the BLM Order with the
Interior Board of Land Appeals affirmed the BLM’s decision, keeping the BLM
Order in effect. The BLM Order effectively covered all projects tied
to Mr. Matheson.
In late
December 2007, we were verbally informed by the BLM that if we obtained title to
the claims (without Mr. Matheson as a claim owner) and we applied for a Plan of
Operations under our name, the BLM would cooperate with us in granting approval
of our Plan of Operations. During the second quarter of 2008, the
Searchlight Claim owners transferred title to the Searchlight Claims to us in
consideration of our agreement to issue to the Searchlight Claim owners by June
30, 2008 the remaining 1,400,000 shares of common stock out of the 5,600,000
shares issuable under the 2005 agreement pursuant to which we had obtained an
option to acquire the Searchlight Claims. On June 25, 2008, we issued
the 1,400,000 shares of common stock to the Searchlight Claim
owners.
Double
Staking
. During the second quarter of 2008, we “double staked”
the Searchlight property by filing, with the BLM and the Clark County, Nevada
Recorder, 142 new and separate 20-acre placer claims overtop of the twenty
existing 160-acre claims. We were only able to “double stake” 2,840
acres out of the 3,200 acre site due to various regulatory restrictions on
staking of certain of the smaller land parcels on the site. We have
maintained the twenty prior 160-acre claims to provide us with a basis to retain
the priority of and defend our existing 160-acre mining
claims. However, we are subject to the risk that when we, a single
entity, acquire title to association placer claims from an association of prior,
multiple locators, there could be potential problems for us in the
future:
|
|
·
|
First,
the validity of the association of the prior locators could always be
challenged by the BLM if the BLM believed that the association was not
properly assembled or if there were any “dummy locators” (place-holder
locators who did not contribute to the association). A
“properly assembled” placer association is comprised of 2–8 individuals or
companies who each may claim 20 acres and each owns a full interest in the
claim. The individuals may not be employees of one of the
companies. These individuals and/or entities must be involved
actively in the business of developing the claim. Use of an
uninvolved individual or entity as a locator for the purpose of acquiring
additional acreage may constitute fraud, and the entire claim could be
declared void. A “dummy locator” is an individual or entity who
is not actively involved with the development of the claims, and whose
name has been used for the purpose of acquiring additional
acreage. The action of using dummy locator(s) may constitute
fraud, and under existing laws, the claim located by use of dummy
locator(s) can be declared void from its
inception.
|
|
|
·
|
Second,
if there was deemed to be a discovery on any 160-acre claim following the
transfer to us, the claims could implode to a 20-acre parcel surrounding
the point of discovery of each claim and potentially leave the surrounding
140 acres unavailable for re-staking, and potentially to a 10-acre parcel
and leave the surrounding 150 acres unavailable for
re-staking.
|
|
|
·
|
Third,
the location of the 20-acre claims may cause an implied abandonment of the
older claims. Should a problem occur in the future with the
160-acre claims, we could revert to the 20-acre or 10-acre claims, if
necessary. Also, we will incur additional costs because we have
to maintain two sets of claims.
|
We
believe that “double staking” the property enhances our existing claims because
“double staking” with 20-acre claims provides a more secure basis for asserting
our claim rights than our existing 160-acre claims because they were located and
are held solely by us, as a single entity and not as an association of two or
more entities. Holding 20-acre claims as a single entity reduces the
likelihood that the BLM will challenge the validity of the claims based on the
existence of “dummy locators.” If the BLM challenges the validity of
the 160-acre claims or we are forced to abandon such claims, we would revert to
the 20-acre claims covering only the 2,840 acres. Any regulatory
permits that we have applied or may apply for (i.e., drilling, and mining) would
have to be conducted within the related 2,840 acres. However, if the
BLM was to determine that a discovery was not made on any of the 10-acre
portions of the 20-acre association placer claims, any of such claims could
implode to a 10-acre parcel and potentially result in the loss of our rights in
the adjoining 10 acres of the particular claim.
Further,
we are required to make annual rental payments to the Federal government in
connection with our claims. If we fail to make our required payments
in the future, the related claims would be void.
In
addition, the BLM has been excluding significant amounts of land in southern
Nevada from mining and development over the past few decades. The BLM
has designated this excluded land as an ACEC. Any person that wishes
to stake mining claims would not be able to do so in these affected
areas. However, if a person already owns valid claims before the land
is designated as an ACEC, the claimant would have those claims grandfathered
in. In the case of the Searchlight Claims, the Searchlight Project
has not been designated as an ACEC and our 160-acre claims were originally
located between 1990 and 2003. The BLM has advised us, however, that
due to the proximity of our claims to an ACEC we would be required to file a
Plan of Operations for our desired drilling program. We do not
believe these added requirements will have a material adverse impact on our Plan
of Operations for the Searchlight Gold Project. However, the Plan of
Operations approval process will delay the start of our drilling program for an
undetermined period of time. If the BLM decides in the future to
designate the Searchlight Project site as an ACEC, and also challenges our
160-acre claims, we would have to rely on our “double staked” claims to preserve
the Searchlight Claims. Although we believe that, in such event, our
“double staked” claims would survive a challenge by the BLM, there can be no
assurances to that effect and the successful challenge of some or all of the
Searchlight Claims would have a material adverse effect on the Searchlight
Project and our operations.
Application for New Plan of
Operations
. As a result of the BLM Order, we have been delayed
in our ability to drill on the Searchlight Gold Project
property. However, we have anticipated that regulatory and other
delays would take place, which are typical in our industry. We have
applied for a new Plan of Operations in our name and are currently in the course
of the BLM’s review process. In addition, we have continued and will
continue with our surface sampling and metallurgical testing program while
awaiting approval of a new Plan of Operations.
In the
third quarter of 2008, we submitted a Plan of Operations to the BLM in our name,
substantially similar to the original Plan of Operations, which included a
request to drill eighteen holes on the project area and to mine a 36-acre mining
pit. On August 27, 2008, the BLM responded, in part, by advising that
the previous bond that we posted of $180,500 for the previous Plan of Operations
would not be transferrable to the new one and that a new bond would have to be
posted. At the time, we considered the recovery of the reclamation
bond to be uncertain and, therefore, we have established a full allowance
against the reclamation bond with the offsetting expense to project exploration
costs. Based on continued discussions with the BLM, we may be able to
recover the bond upon request, however, we have not chosen to make such a
request at this time.
In
September 2008, we decided that we would only continue to pursue the permits to
drill on the project area and forgo the 36-acre pit until a later date since we
believed that by keeping the pit area in the Plan of Operations, it might delay
the BLM’s approval process for our Plan of Operations. Although the
36-acre pit had been part of the Plan of Operations obtained by the prior owners
of the Searchlight Claims, we do not believe that digging and mining a 36-acre
pit would be a material aspect of the Plan of Operations at this stage of the
Searchlight Gold Project. Therefore, we decided to remove the 36-acre
pit from the Plan of Operations. Further, by reducing the scope of
the permit, we decided that we could submit the application in the form of a
Notice of Intent, a shorter and less complex application form than a Plan of
Operations. Consequently, on September 24, 2008, we withdrew the Plan
of Operations and submitted a Notice of Intent with the BLM, pursuant to which
we sought permission to drill eighteen 500-foot drill holes on the Searchlight
project area.
After a
series of correspondence between us and the BLM, on December 15, 2008, we
received a letter from the BLM advising us that the BLM had closed our Notice of
Intent from consideration and that a new Plan of Operations would be required
based on two issues relating to the Desert Tortoise (
Gopherus asassizii
), a
Federally listed Threatened Species: (i) the proximity of the project area to a
nearby ACEC; and (ii) the future likelihood of tortoises being present on the
land within the project area which is involved in the application.
On
January 13, 2009, we filed a Notice of Appeal of the BLM’s decision regarding
the closing of our Notice of Intent. However, the BLM’s decision was
upheld on appeal by the U.S. Department of Interior on September 9, 2009.
During
the course of the appeal, we determined that, due to the standard lengthy time
required to have a Plan of Operations approved by the BLM and should we be
unsuccessful with our appeal, it would be prudent to begin the approval process
immediately by filing for our Plan of Operations. Thus, on March 23,
2009, we submitted a new Plan of Operations to the BLM, taking into account the
Desert Tortoise issue. In our Plan of Operations, we have requested
permission to drill eighteen drill holes on the project area. In the
event of the approval of our Plan of Operations, we will be required to post a
new reclamation bond with the BLM, which we anticipate will be approximately
$16,000. After a further series of correspondence between us and the
BLM, on September 15, 2009, we received a comment letter from the BLM regarding
our Plan of Operations. We have reached an understanding with the BLM
that we will use the Environmental Assessment previously approved by the BLM
under the prior Plan of Operations in connection with the new Plan of
Operations, and the BLM has requested that we conform certain aspects of the new
Plan of Operations with the previously approved Environmental Assessment.
There is
no regulatory time frame for the BLM to review our Plan of
Operations. We understand that the average time frame for approval of
a plan of operation by the Las Vegas, Nevada branch office of the BLM since
January 1, 2000 has been approximately four years and five
months. Although we understand that the average time frame of the
application process by the Las Vegas branch office of the BLM relating to an
environmental assessment in connection with a plan of operations is
approximately eleven months, the “threatened species” issue raised by the BLM
requires the BLM to consult with the U.S. Fish and Wildlife Service of the
Department of Interior, and the BLM has no control over the length of this
consultation process in order to develop any necessary environmental mitigation
measures.
Our work
on the project site will be limited to the scope within the Plan of
Operations. However, the Plan of Operations approval process will
delay the start of our drilling program for an undetermined period of
time. 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.
We do not
believe these added requirements will have a material adverse impact on our
overall business plan for the Searchlight Gold Project, given that we have
received no indication from the BLM, at this time, that the BLM will ultimately
deny our request for approval of our Plan of Operations. However,
there is no assurance of the timeline for approval by the BLM or that the BLM
will grant approval. Our drilling and mining program on this project
is dependent on obtaining the necessary approval from the
BLM. Therefore, if approval ultimately is not obtained, we may have
to scale back or abandon exploration efforts on the project. If
management determines, based on any factors including the foregoing, that
capitalized costs associated with any of our mineral interests are not likely to
be recovered, we would incur a significant impairment of our investment in such
property interests on our financial statements.
Further,
although our ability to obtain drilling permits has been delayed, we have
continued and intend to continue our current metallurgical program with
Arrakis.
In order
to maintain our Searchlight Claims, we must pay an annual maintenance fee of
$140 per claim to the Nevada State Office of the BLM. We have paid
the required maintenance fees and filed the affidavits required in order to
extend the claims to August 31, 2010.
Competition
We are an
exploration stage company. We compete with other mineral resource
exploration companies for financing and for the acquisition of new mineral
properties. Many of the mineral resource exploration companies with
whom we compete have greater financial and technical resources than
us. Accordingly, these competitors may be able to spend greater
amounts on acquisitions of mineral properties of merit, on exploration of their
mineral properties and on development of their mineral properties. In
addition, they may be able to afford greater geological expertise in the
targeting and exploration of mineral properties. This competition
could result in competitors having mineral properties of greater quality and
interest to prospective investors who may finance additional exploration. This
competition could adversely impact on our ability to finance further exploration
on our mineral properties.
Compliance
With Government Regulation
The
mining industry in the United States is highly regulated. We intend
to secure all necessary permits for the exploration and development of the
Clarkdale Slag Project and the Searchlight Gold Project. The
technical consultants that we hire are experienced in conducting mineral
exploration and metallurgical activities and are familiar with the necessary
governmental regulations and permits required to conduct such
activities. As such, we expect that our consultants will inform us of
any government permits that we will be required to obtain prior to conducting
any planned activities on our two aforementioned projects. We are not
able to estimate the full costs of complying with environmental laws at this
time since the full nature and extent of our proposed processing and mining
activities cannot be determined until we complete and operate our first
production module on the Clarkdale Slag Project and complete our exploration
program on the Searchlight Gold Project.
If we
enter into full scale production on our Clarkdale Slag Project or the
development of our Searchlight Gold Project, of which there are no assurances,
the cost of complying with environment laws, regulations and permitting
requirements will be substantially greater than in the exploration or
preliminary development phases because the increase in the size of the
project. Permits and regulations will control all aspects of any
development or production program if the project continues to those stages
because of the potential impact on the environment. Examples of regulatory
requirements include:
|
|
·
|
water
discharge will have to meet water
standards;
|
|
|
·
|
dust
generation will have to be minimal or otherwise
remediated;
|
|
|
·
|
dumping
of material on the surface will have to be re-contoured and
re-vegetated;
|
|
|
·
|
an
assessment of all material to be left on the surface will need to be
environmentally benign;
|
|
|
·
|
ground
water will have to be monitored for any potential
contaminants;
|
|
|
·
|
the
socio-economic impact of the project will have to be evaluated and if
deemed negative, will have to be remediated;
and
|
|
|
·
|
there
will have to be an impact report of the work on the local fauna and
flora.
|
Employees
As of
September 30, 2009, we had thirty full-time and five part-time
employees. We also had three full-time consultants who provide
services to our Clarkdale Slag Project operations. None of our
employees are currently represented by a union or covered by a collective
bargaining agreement. Management believes its employee relations are
satisfactory.
Properties
We
currently rent the office space for our corporate headquarters at the current
rate of $4,900 on a month-to-month basis from Horizon View, LLC (formerly
Burnett & Williams, LLC), a Nevada limited liability company. The
office space, located at 2441 West Horizon Ridge Parkway, Suite 120, Henderson,
Nevada 89052, consists of approximately 1,150 square feet.
We have a
month-to month rental agreement with Clarkdale Arizona Central
Railroad. We receive rental income of $1,700 per month.
We rent a
commercial building space to various tenants. The rental arrangements
are minor in amount and are typically on a month-to-month basis. We
currently receive rental income under these agreements of less than $1,000 per
month.
We hold
title to the following real properties located in Clarkdale, Arizona which
constitute the Clarkdale Slag Project:
|
Location
|
|
Yavapai
County Assessor/
|
|
Description
of Property
|
|
|
|
Parcel
No.
|
|
|
|
Clarkdale,
Arizona
|
|
400-01-007E
400-02-001
400-01-007F
400-05-017D
400-06-001Y
400-05-006A
400-06-002C
400-05-013F
400-05-013G
400-05-001E
400-05-001F
|
|
Parcels
of vacant land comprising approximately 600 acres
|
|
|
|
|
|
|
|
919
Main Street, Clarkdale, Arizona
|
|
400-03-158
|
|
Commercial
building
|
|
|
|
|
|
|
|
Clarkdale,
Arizona
|
|
Parcel
I
|
|
Lots
1 and 2, Block 44, town of Clarkdale according to the plat of record in
Book 5 of Maps, page 85, records of Yavapai County,
Arizona.
|
|
|
|
|
|
|
|
Clarkdale,
Arizona
|
|
Parcel
II
|
|
A
portion of the Northeast quarter of Section 20, Township 16 North, Range 3
East of the Gila and Salt River Base and Meridian, Yavapai County,
Arizona
|
|
|
|
|
|
|
|
Clarkdale,
Arizona
|
|
Parcel
III
|
|
A
parcel of land located in the Southeast quarter of Section 19, and the
Southwest quarter of Section 20, Township 16 North, Range 3 East, Gila and
Salt River Base and Meridian, Yavapai County, Arizona
|
|
|
|
|
|
|
|
Clarkdale,
Arizona
|
|
Parcel
IV
|
|
A
parcel of land located in the North half of Section 20, Township 16 North,
Range 3 East, Gila and Salt River Base and Meridian, Yavapai County,
Arizona
|
|
|
|
|
|
|
|
Clarkdale,
Arizona
|
|
Parcel
V
|
|
A
portion of Sections 17, 18, 19 and 20, Township 16 North, Range 3 East,
Gila and Salt River Base and Meridian, Yavapai County,
Arizona.
|
We
entered into a lease on August 25, 2004 with the Town of Clarkdale,
Arizona. We provide approximately 60 acres of land to the Town of
Clarkdale for disposal of Class B effluent. We have a first right to
purchase up to 46,000 gallons per day of the effluent for its use at 50% of the
potable water rate. In addition, if Class A effluent becomes
available, we may purchase the Class A effluent at 75% of the potable water
rate. The term of the lease is five years with a one year extension
available. 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, we have a continuing right to purchase Class B effluent, and if
available, Class A effluent at then market rates.
Effluent
is water that is reclaimed from a wastewater treatment process to remove
toxins. The classifications of reclaimed effluent ranging from A+
(the best) to C (the worst), are indicative of the level of treatment that has
been performed on the effluent. Treated effluents under all of these
classifications may be reused, within defined parameters. The
classifications determine what direct reuse is permitted for that
effluent. Currently, no class of treated effluent may be used for
direct human consumption. Based on the classification, reclaimed
water may be used for dust control, agricultural irrigation, livestock watering,
landscape irrigation, and human contact. Water quality criteria
include standards regulating turbidity, fecal coliform bacteria, enteric viruses
and other pathogenic organisms, and mean concentration of total
nitrogen. The Town of Clarkdale has obtained an Aquifer Protection
Permit to discharge the Class B effluent on to our property. The
water is discharged through a sprinkler system onto the ground, where it
percolates down through to the underlying aquifer.
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.
MANAGEMENT
General
Our bylaws provide that the terms of
office of the members of our board of directors be divided into three classes,
Class I, Class II and Class III, the members of which serve for a staggered
three-year term. The terms of the current Class I, Class II and Class III
directors are set to expire at the next annual meeting of stockholders in 2010,
2009 and 2011, respectively.
At each annual meeting of stockholders,
directors chosen to succeed those whose terms then expire are elected for a term
of office expiring at the third succeeding annual meeting of stockholders after
their election or until their successors are elected and qualify, subject to
their prior death, resignation or removal. Our board presently
consists of four directors.
Our board
members are encouraged to attend meetings of the board of directors and the
annual meeting of stockholders. The board of directors held 12
meetings and adopted approximately 13 unanimous written consents in lieu of
meetings in 2008. Officers serve at the discretion of the board of
directors.
Ian R.
McNeil, our President, Chief Executive Officer and a member of our board of
directors is the brother in law of Carl S. Ager, our Vice President, Secretary
and Treasurer and a member of our board of directors. Other than for
these relationships, none of our directors or executive officers are related to
one another.
The
following table sets forth certain biographical information with respect to our
directors and executive officers:
|
Name
|
|
Position
|
|
Age
|
|
|
|
|
|
|
|
Ian
R. McNeil
|
|
Director
(Class I), Chief Executive Officer and President
|
|
37
|
|
Carl
S. Ager
|
|
Director
(Class II), Vice President, Secretary and Treasurer
|
|
35
|
|
Melvin
L. Williams
|
|
Chief
Financial Officer
|
|
49
|
|
Harry
B. Crockett
|
|
Director
(Class II)
|
|
67
|
|
Robert
D. McDougal
|
|
Director
(Class III)
|
|
77
|
|
Martin
B. Oring
|
|
Director
(Class III)
|
|
63
|
Ian R. McNeil,
Chief Executive Officer, President and Director
.
Mr. McNeil has
been a member of our board of directors since July 25, 2005 and our Chief
Executive Officer and President since October 7, 2005. Mr. McNeil has
been involved in starting his own businesses and has worked in executive
positions for both large and small companies. Mr. McNeil graduated with a
Bachelor of Commerce degree from the University of Victoria in
1996. In 1997, Mr. McNeil founded McNeil Enterprises, a British
Columbia based small business consulting company that specialized in business
plan creation and event management. In 1998, Mr. McNeil co-founded a
private furniture, manufacturing and retail company based in Langley, British
Columbia. From June 2003 until June 2007, Mr. McNeil served as
president and a director of Nanominerals, one of our principal stockholders,
which operates in the business of precious metal exploration and
development. During his time at Nanominerals, Mr. McNeil helped
define much of the corporate strategy, raised money and ran the day to day
operations. Prior to joining Nanominerals, Mr. McNeil was the
director of operations for the eSolutions division of Telus Corporation
(2000-2003) a large telecommunications company based in Canada. While
at Telus, Mr. McNeil managed a team of over a 100 people spread over three
geographical offices. Telus provides a wide range of wireline and
wireless telecommunications products and services including data, Internet
Protocol (IP), voice, video and entertainment services.
Carl S. Ager,
Vice President, Secretary and Treasurer
.
Mr. Ager has
been a member of our board of directors since July 25, 2005 and our Vice
President, Secretary and Treasurer since October 7, 2005. In 1997,
Mr. Ager obtained his Bachelor of Applied Sciences – Engineering Geophysics
degree from Queen’s University in Kingston, Ontario. Since January,
2003, Mr. Ager has been President of CSA Management Corp, a private Nevada
corporation which provides consulting services, including business planning and
administration. However, CSA has not had active operations since
2005. Mr. Ager also served as Vice President and a director of
Nanominerals from June 2003 until June 2007. Prior to joining
Nanominerals and CSA Management, Mr. Ager’s experience included working as an
investment executive for Scotia McLeod, one of Canada’s leading full-service
brokerage firms (2000-2002).
Melvin L.
Williams, Chief Financial Officer
.
Mr. Williams has
been our Chief Financial Officer since June 14, 2006. Mr. Williams is
a certified public accountant with over 20 years' experience in the public
accounting industry with the firm of Cupit, Milligan, Ogden and Williams in
Reno, Nevada. During this period, he provided auditing, consulting,
merger/acquisition, valuation and tax services to companies in the
manufacturing, technology, mining, healthcare and service industries, including
publicly traded mining companies, as well as to various non-profit
organizations. From 1984 until 1987, Mr. Williams served on the
accounting staff of the University of Oregon Foundation, a private fund raising
entity that also maintains endowment and trust investments for the continuing
support of the University. Mr. Williams, a member of the American
Institute of Certified Public Accountants since 1989, is also a member of the
Nevada Society of CPAs and past president of the Reno, Nevada chapter of the
Institute of Management Accountants. He earned a Bachelor of Business
Administration degree at the University of Oregon in 1983.
Harry B.
Crockett, Director
.
Mr. Crockett has
been a member of our board of directors since February 16, 2007. Mr.
Crockett is the managing member of Verde River Iron Company, LLC, a private
Nevada limited liability company, which was our prior joint venture partner on
the Clarkdale Slag Project and the prior owner of the Clarkdale Slag
Project. Mr. Crockett serves as a court appointed receiver serving
various Superior Courts throughout California having served in this capacity
over the last 15 years. Mr. Crockett has previously served as an
Executive Vice President of American Savings, specializing in troubled debt and
troubled assets, as well as serving as Chairman of the Make a Wish Foundation of
San Joaquin County, a charitable foundation serving the needs of terminally ill
children. Mr. Crockett holds a Bachelor of Arts degree from Golden
Gate University in San Francisco, California and a California Real Estate
Brokers license. Mr. Crockett also has a pilot license with a single
and multi engine land and instrument ratings.
Robert D.
McDougal, Director
.
Mr. McDougal has
been a member of our board of directors since July 25, 2005. He is a
Certified Public Accountant. He began practicing public accounting in
1973 and established his own practice in 1981. The major portion of
the practice is with mining and mining related clients including public
companies, private companies, partnerships and individuals. He was a
director and officer of GEXA Gold Corporation, a publicly traded mining company,
from 1985 to 2001. Mr. McDougal was one of the founders of Millennium
Mining Corporation which has been merged into Gold Summit Corporation, a
publicly traded company. He is the managing partner of GM Squared,
LLC, which holds numerous mining claims. He also serves as the chief financial
officer and a director of Ireland Inc., a publicly traded exploration stage
company primarily focused on the acquisition and exploration of mining
properties, of which Nanominerals is the principal stockholder. He
served on the Nevada Society of Certified Public Accountants Committee on
Natural Resources for seven years, four years as chairman. Prior to
this time, Mr. McDougal served 20 years in the United States Air Force, retiring
with the rank of Major. Following his retirement from the United
States Air Force, Mr. McDougal obtained a Bachelor of Arts degree in accounting
from the University of Nevada, Reno, graduating with distinction.
Martin B. Oring,
Director
. Mr. Oring has been a member of our board of
directors since October 6, 2008. Mr. Oring, a senior
financial/planning executive, has served as the President of Wealth
Preservation, LLC, a financial advisory firm that serves high-net-worth
individuals, since 2001. Since the founding of Wealth Preservation,
LLC in 2001, Mr. Oring has completed the financial engineering, structuring, and
implementation of over $1 billion of proprietary tax and estate planning
products in the capital markets and insurance areas for wealthy individuals and
corporations. From 1998 until 2001, Mr. Oring served as Managing
Director, Executive Services at Prudential Securities, Inc., where he was
responsible for advice, planning and execution of capital market and insurance
products for high-net-worth individuals and corporations. From 1996
to 1998, he served as Managing Director, Capital Markets, during which time he
managed Prudential Securities’ capital market effort for large and medium-sized
financial institutions. From 1989 until 1996, he managed the Debt and
Capital Management group at The Chase Manhattan Corporation as Manager of
Capital Planning (Treasury). Prior to joining Chase Manhattan, he
spent approximately eighteen years in a variety of management positions with
Mobil Corporation, one of the world’s leading energy companies. When
he left Mobil in 1986, he was Manager, Capital Markets & Investment Banking
(Treasury). Mr. Oring is also a director of PetroHunter Energy
Corporation and Parallel Petroleum Corporation, each of which is a publicly
traded oil and gas exploration and production company. Mr. Oring has
served as a Lecturer at Lehigh University, the New York Institute of Technology,
New York University, Xerox Corporation, Salomon Brothers, Merrill Lynch,
numerous Advanced Management Seminars, and numerous in-house management courses
for a variety of corporations and organizations. He has an MBA Degree
in Production Management, Finance and Marketing from the Graduate School of
Business at Columbia University; and a B.S. Degree in Mechanical Engineering
from Carnegie Institute of Technology.
We are
committed to having sound corporate governance principles. Such
principles are essential to running our business efficiently and to maintaining
our integrity in the marketplace.
Consultants
Nanominerals
is a private Nevada corporation principally engaged in the business of mineral
exploration. We have engaged Nanominerals as a consultant to provide
us with the use of its laboratory, instrumentation, milling equipment and
research facilities which has allowed us to perform tests and analysis both
effectively and in a more timely manner than would otherwise be available from
other such consultants. Dr. Charles A. Ager performs the services for
us in his authorized capacity with Nanominerals under our consulting arrangement
with Nanominerals. Dr. Ager currently is the sole officer and
director of Nanominerals, and controls its day to day operations. The
following sets forth certain biographical information with respect to Dr.
Ager:
Dr.
Charles A. Ager, is a geophysical engineer with approximately 40 years of
experience in the areas of mining discovery and production. He is a
registered geophysicist in the State of California and a registered professional
engineer and professional geoscientist in British Columbia,
Canada. Dr. Ager received a PhD degree in geophysics from the
University of British Columbia in 1974 and a Masters of Science degree from the
University of British Columbia in 1972. He received his undergraduate
degree in mathematics and physics from California State University, Sacramento
in 1968. Dr. Ager has been associated with Nanominerals from 1988
until present. Dr. Ager was the Chairman of ABM Mining Group from
1979 until 1988, when it was acquired by Northgate Mining. ABM Mining
Group was involved in providing technical and financial assistance in building
and operating medium sized mining companies. Project duties included
property acquisition, exploration, permitting, development, production and
finance. Dr. Ager also was the President of the Ager Group of
Geotechnical Companies from 1968 to 1979. The Ager Group of
Geotechnical Companies was involved in providing technical and financial
assistance for exploration and development projects in Canada, the United
States, Africa and the Far East. Project work included the use of
water, ground and air surveys in the exploration for oil and gas, coal,
industrial minerals and base and precious metals. Dr. Ager is a
member of the Association of Professional Engineers and Geoscientists of British
Columbia, Canada, the Society of Exploration Geophysicists and the Society of
Mining, Metallurgy and Exploration.
Director
Qualifications
We
believe that our directors should have the highest professional and personal
ethics and values, consistent with our longstanding values and
standards. They should have broad experience at the policy-making
level in business or banking. They should be committed to enhancing
stockholder value and should have sufficient time to carry out their duties and
to provide insight and practical wisdom based on experience. Their
service on other boards of public companies should be limited to a number that
permits them, given their individual circumstances, to perform responsibly all
director duties for us. Each director must represent the interests of
all stockholders. When considering potential director candidates, the
board of directors also considers the candidate’s character, judgment,
diversity, age and skills, including financial literacy and experience in the
context of our needs and the needs of the board of directors.
Independent
Directors; Review, Approval or Ratification of Transactions with Related
Persons
We
currently have five members on our board of directors. We believe
that Martin B. Oring is independent under the criteria established by NASDAQ for
director independence, but that none of the remaining four members are
independent. The NASDAQ criteria include various objective standards
and a subjective test. A member of the board of directors is not
considered independent under the objective standards if, for example, he or she
is employed by us. Mr. McNeil and Mr. Ager are not independent
because they are our employees.
The
subjective test requires that each independent director not have a relationship
which, in the opinion of the board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. We considered commercial, financial services, charitable,
and other transactions and other relationships between us and each director and
his or her family members and affiliated entities.
For Mr.
Oring, we believe that he did not have any transactions or other relationships
which would have exceeded the NASDAQ objective standards or would otherwise
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
With
respect to our other four directors, we believe that we have ongoing business
relationships with these directors or their affiliates which would not satisfy
the NASDAQ subjective standards regarding the exercise of independent judgment
in carrying out the responsibilities of a director.
In
particular, we have continuing obligations under the agreements under which we
acquired the assets relating to our Clarkdale Slag Project. We remain
obligated to pay a royalty which may be generated from the operations of the
Clarkdale Slag Project with Nanominerals, one of our principal stockholders,
which is an affiliate of two members of our executive management and board of
directors, Carl S. Ager and Ian R. McNeil. We also have engaged
Nanominerals as a paid consultant to provide technical services to
us. In addition, we have a similar royalty arrangement with VRIC, an
affiliate of another member of our board of directors, Harry B.
Crockett. Further, one of our board members, Robert D. McDougal,
serves as the chief financial officer and a director of Ireland, Inc., a
publicly traded, mining related company, which is an affiliate of
Nanominerals. For these reasons, Messrs. McNeil, Ager, McDougal and
Crockett do not qualify as independent members of our board
directors. We had negotiated the revenue sharing agreements with each
of Nanominerals and VRIC prior to the time that Messrs. Ager, McNeil and
Crockett, as applicable, became board members. These persons are
subject to a fiduciary duty to exercise good faith and integrity in handling our
affairs. However, the existence of these continuing obligations may
create a conflict of interest between us and all of our board members and senior
executive management, and any disputes between us and such persons over the
terms and conditions of these agreements that may arise in the future may raise
the risk that the negotiations over such disputes may not be subject to being
resolved in an arms’ length manner. In addition, Nanominerals’
interest in Ireland, Inc. and its other mining related business interests may
create a conflict of interest between us and our board members and senior
executive management who are affiliates of Nanominerals.
Further,
the interests of K. Ian Matheson, one of our principal stockholders (and a
former officer and director), in Royal Mines and Minerals Corp., a publicly
traded mining company based in Nevada, of which Mr. Matheson is an affiliate,
and other mining related business interests may create a conflict of interest
between us and Mr. Matheson.
Because
we currently only have one independent director, the existence of these
continuing obligations to our affiliates may create a conflict of interest
between us and our non-independent board members and senior executive
management, and any disputes between us and such persons over the terms and
conditions of these agreements that may arise in the future may raise the risk
that the negotiations over such disputes may not be subject to being resolved in
an arms’ length manner. We intend to make good faith efforts to
recruit independent persons to our board of directors.
Although
we only have one independent director, the board of directors has adopted a
written Related Person Transactions Policy, that describes the procedures used
to identify, review, approve and disclose, if necessary, any transaction or
series of transactions in which: (i) we were, are or will be a participant; (ii)
the amount involved exceeds $120,000; and (iii) a related person had, has or
will have a direct or indirect material interest. There can be no
assurance that the above conflicts will not result in adverse consequences to us
and the interests of the other stockholders.
Although
our management intends to avoid situations involving conflicts of interest and
is subject to a Code of Ethics, there may be situations in which our interests
may conflict with the interests of those of our management or their
affiliates. These could include:
|
|
·
|
competing
for the time and attention of
management;
|
|
|
·
|
potential
interests of management in competing investment ventures;
and
|
|
|
·
|
the
lack of independent representation of the interests of the other
stockholders in connection with potential disputes or negotiations over
ongoing business relationships.
|
Committee
Interlocks and Insider Participation
Robert D.
McDougal, a member of our board of directors, serves as the chief financial
officer and a director of Ireland Inc., a publicly traded exploration stage
company primarily focused on the acquisition and exploration of mining
properties. Nanominerals, one of our principal stockholders and an
affiliate of Ian R. McNeil and Carl S. Ager, two of our executive directors and
officers, is the principal stockholder of Ireland Inc.
Except as
set forth above, no interlocking relationship exists between any member of our
board of directors and any member of the board of directors or compensation
committee of any other companies, nor has such interlocking relationship existed
in the past.
Committees
of the Board Of Directors
Audit
Committee
. We have an audit committee and an audit committee
charter. Our audit committee is presently comprised of Robert D.
McDougal, Martin B. Oring and Harry B. Crockett. Mr. Oring is an
independent director. Mr. Crockett is not an independent
director. Mr. McDougal is not an independent director, but we believe
that he qualifies as an “audit committee financial expert” under Item 407(d)(5)
of Regulation S-K under the Securities Act. On September 8, 2006, we
adopted a revised audit committee charter and a whistle blower
policy. The purpose of the amendments to the audit committee charter
is to expand on the role of the audit committee’s relationship with external
auditors and the primary committee responsibilities. The purpose of
the whistle blower policy is to encourage all employees to disclose any
wrongdoing that may adversely impact us, our stockholders, employees, investors,
or the public at large. The policy also sets forth (i) an
investigative process of reported acts of wrongdoing and retaliation, and (ii)
procedures for reports of questionable auditing, accounting and internal control
matters from employees on a confidential and anonymous basis and from other
interested third parties. A copy of our audit committee charter was
filed as an exhibit with to our Current Report on Form 8-K filed with the SEC on
September 27, 2006. Our audit committee is responsible
for:
|
|
·
|
selecting,
hiring and terminating our independent
auditors;
|
|
|
·
|
evaluating
the qualifications, independence and performance of our independent
auditors;
|
|
|
·
|
approving
the audit and non-audit services to be performed by our independent
auditors;
|
|
|
·
|
reviewing
the design, implementation, adequacy and effectiveness of our internal
controls and critical accounting
policies;
|
|
|
·
|
overseeing
and monitoring the integrity of our financial statements and our
compliance with legal and regulatory requirements as they relate to
financial statements or accounting
matters;
|
|
|
·
|
establishing
procedures for the confidential, anonymous submission by
our employees of concerns regarding accounting and auditing
matters;
|
|
|
·
|
reviewing
with management and our independent auditors, any earnings announcements
and other public announcements regarding our results of
operations;
|
|
|
·
|
preparing
the audit committee report that the SEC requires in our annual proxy
statement;
|
|
|
·
|
engaging
outside advisors; and
|
|
|
·
|
funding
for the outside auditor and any outside advisors engagement by the audit
committee.
|
Compensation
Committee
. Our Compensation Committee assists our board of
directors in determining and developing plans for the compensation of our
officers, directors and employees. Specific responsibilities include
the following:
|
|
·
|
approving
the compensation and benefits of our executive
officers;
|
|
|
·
|
reviewing
the performance objectives and actual performance of our officers;
and
|
|
|
·
|
administering
our stock option and other equity compensation
plans.
|
Our
Compensation Committee is comprised of Robert D. McDougal, Harry B. Crockett and
Martin B. Oring. Mr. Oring is an independent
director. However, neither Mr. McDougal nor Mr. Crockett is an
independent director.
Disclosure
Committee and Charter
. We have a Disclosure Committee and a
disclosure committee charter. Our disclosure committee is presently
comprised of Carl S. Ager, Ian R. McNeil, Robert D. McDougal and Martin B.
Oring. A copy of the disclosure committee charter was filed as an
exhibit to our Form 10-KSB filed with the SEC on April 13, 2004. The
purpose of the committee is to provide assistance to the Chief Executive Officer
and the Chief Financial Officer in fulfilling their responsibilities regarding
the identification and disclosure of material information about us and the
accuracy, completeness and timeliness of its financial reports. Mr.
Oring is an independent director. However, neither Mr. McDougal, Mr.
Ager nor Mr. McNeil is an independent director.
Related
Person Transactions Policy
On March
17, 2009, the board of directors adopted a written Related Person Transactions
Policy, that describes the procedures used to identify, review, approve and
disclose, if necessary, any transaction or series of transactions in which: (i)
we were, are or will be a participant; (ii) the amount involved exceeds
$120,000; and (iii) a related person had, has or will have a direct or indirect
material interest. Related party transactions, which are limited to
those described in this policy, are subject to the approval or ratification by
the Audit Committee in accordance with this policy.
Our Code
of Ethics, which applies to our directors and executive officers, including our
Chief Executive Officer, Chief Financial Officer and all senior financial
officers, provides that all conflicts of interest should be
avoided. Pursuant to Item 404 of Regulation S-K of the SEC, certain
transactions between the issuer and certain related persons need to be disclosed
in our filings with the SEC. In addition, under Section 78.140 of the
Nevada Revised Statutes, certain transactions between us and our directors and
officers may need to be approved by our board of directors or a duly authorized
committee of the Board. Finally, SEC rules require our Board to
assess whether relationships or transactions exist that may impair the
independence of our outside directors. The policy is intended to
provide guidance and direction on related party transactions.
A
“related party transaction” is any transaction directly or indirectly involving
any related party that would need to be disclosed under Item 404(a) of
Regulation S-K. Under Item 404(a), we are required to disclose any
transaction occurring since the beginning of our last fiscal year, or any
currently proposed transaction, involving us where the amount involved exceeds
$120,000, and in which any related person had or will have a direct or indirect
material interest. “Related party transaction” also includes any
material amendment or modification to an existing related party
transaction.
For
purposes of the policy, “related party” means any of the following:
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·
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a
director (which term when used therein includes any director
nominee);
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·
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a
person known by us to be the beneficial owner of more than 5% of our
common stock (a “5% stockholder”);
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·
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an
entity which is owned or controlled by a person listed above, or an entity
in which a person listed above has a substantial ownership interest or
control of such entity; or
|
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·
|
a
person who is an immediate family member of any of the
foregoing.
|
“Immediate
family member” means a child, stepchild, parent, stepparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of such director, executive officer, nominee for director or
beneficial owner, and any person (other than a tenant or employee) sharing the
household of such director, executive officer, nominee for director or
beneficial owner.
All
related party transactions are required to be disclosed to the Audit Committee
of the Board and any material related party transaction are required to be
disclosed to the full board of directors. Related party transactions
will be brought to management’s and the Board’s attention in a number of
ways. Each of our directors and executive officers is instructed and
periodically reminded to inform the Office of the Secretary of any potential
related party transactions. In addition, each such director and
executive officer completes a questionnaire on an annual basis designed to
elicit information about any potential related party
transactions. Any potential related party transactions that are
brought to our attention are analyzed by our legal department, or if none
exists, our outside counsel, in consultation with management, as appropriate, to
determine whether the transaction or relationship does, in fact, constitute a
related party transaction requiring compliance with the policy.
At each
of its meetings, the Audit Committee will be provided with the details of each
new, existing or proposed related party transaction, including the terms of the
transaction, the business purpose of the transaction, and the benefits to us and
to the relevant related party. In determining whether to approve a
related party transaction, the Audit Committee will consider, among other
factors, the following factors to the extent relevant to the related party
transaction:
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·
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whether
the terms of the related party transaction are fair to us and on the same
basis as would apply if the transaction did not involve a related
party;
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·
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whether
there are business reasons for us to enter into the related party
transaction;
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·
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whether
the related party transaction would impair the independence of an outside
director; and
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·
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whether
the related party transaction would present an improper conflict of
interests for any of our directors or executive officers, taking into
account the size of the transaction, the overall financial position of the
director, executive officer or related party, the direct or indirect
nature of the director’s, executive officer’s or related party’s interest
in the transaction and the ongoing nature of any proposed relationship,
and
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·
|
any
other factors the Audit Committee deems
relevant.
|
The Audit
Committee will apply these factors, and any other factors it deems relevant to
its determination, in a manner that is consistent with the rules and regulations
promulgated by the Commission and the objectives of the policy. Given
that this list of factors is non-exclusive and, further, that the factors have
not been assigned any particular level of importance with respect the other
factors, the Audit Committee will have a certain amount of discretion in
applying these factors. The members of the Audit Committee, however,
must exercise their reasonable business judgment in making a determination
regarding the transaction at issue.
As a
result, the specific application of these factors will be determined by the
Audit Committee on a case-by-case basis. The Audit Committee will
examine each factor, both individually and collectively, in the context of our
overall business and financial position, as well as our short-term and long-term
strategic objectives. In doing so, the Audit Committee will look at
the particular facts and circumstances of the transaction at issue, as well as
the totality of the circumstances surrounding the transaction as a
whole. The Audit Committee will examine the relationship of the facts
and circumstances with our overall business and financial position and strategic
objectives. If, as and when special or unique concerns must be
addressed, the Audit Committee will take such concerns into
account.
For
example, regarding transactions that would impair independence, if our
securities become listed on a national securities exchange that requires a
certain percentage of the board of directors to be independent, and the Audit
Committee determines that a particular transaction will impair the independence
of an outside director, potentially causing us to contradict the exchange
mandated independence requirement, that particular transaction may be
rejected. However, there could arise a situation where, due to the
importance of the transaction to our overall business and financial position and
strategic objectives and our ability to appoint another independent director,
such a transaction might be approved by the Audit Committee.
Any
member of the Audit Committee who has an interest in the transaction under
discussion will abstain from voting on the approval of the related party
transaction, but may, if so requested by the Chairperson of the Audit Committee,
participate in some or all of the Audit Committee’s discussions of the related
party transaction. Upon completion of its review of the transaction,
the Audit Committee may determine to permit or to prohibit the related party
transaction.
A related
party transaction entered into without pre-approval of the Audit Committee will
not be deemed to violate the policy, or be invalid or unenforceable, so long as
the transaction is brought to the Audit Committee as promptly as reasonably
practical after it is entered into or after it becomes reasonably apparent that
the transaction is covered by the policy.
Under the
policy, any “related party transaction” will be consummated or will continue
only if:
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·
|
the
Audit Committee shall approve or ratify such transaction in accordance
with the guidelines set forth in the policy and if the transaction is on
terms comparable to those that could be obtained in arm’s length dealings
with an unrelated third party;
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|
|
·
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the
transaction is approved by the disinterested members of the board of
directors; or
|
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|
·
|
if
the transaction involves compensation, that such transaction is approved
of by our Compensation Committee.
|
Code
of Ethics
Our
directors and executive officers, including our Chief Executive Officer, Chief
Financial Officer and all senior financial officers, are bound by a Code of
Ethics that complies with Item 406 of Regulation S-K of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
A Code of
Ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:
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·
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honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
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·
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full,
fair, accurate, timely and understandable disclosure in reports and
documents that are filed with, or submitted to, the SEC and in other
public communications made by an
issuer;
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·
|
compliance
with applicable governmental laws, rules and
regulations;
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·
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the
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
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|
·
|
accountability
for adherence to the code.
|
Stockholder
Communication with Our Board of Directors
Our board
of directors has established a process for stockholders to communicate with the
board of directors or with individual directors. Stockholders who
wish to communicate with our board of directors or with individual directors
should direct written correspondence to our Corporate Secretary at our principal
executive offices located at 2441 West Horizon Ridge Pkwy., Suite 120,
Henderson, Nevada, 89052. Any such communication must
contain:
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·
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a
representation that the stockholder is a holder of record of our capital
stock;
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·
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the
name and address, as they appear on our books, of the stockholder sending
such communication; and
|
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|
·
|
the
class and number of shares of our capital stock that are beneficially
owned by such stockholder.
|
The
Corporate Secretary will forward such communications to our board of directors
or the specified individual director to whom the communication is directed
unless such communication is unduly hostile, threatening, illegal or similarly
inappropriate, in which case the Corporate Secretary has the authority to
discard the communication or to take appropriate legal action regarding such
communication.
Compliance
with Section 16 of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
requires our directors and executive officers and beneficial holders of more
than 10% of our common stock to file with the SEC initial reports of ownership
and reports of changes in ownership and reports of changes in ownership of our
equity securities. As of the date of this prospectus, and based
solely on our review of the copies of such reports furnished to us and written
representations from the directors and executive officers, we believe that all
reports needed to be filed by current Section 16 reporting persons have been
filed in a timely manner for the year ended December 31, 2008, with the
exception of the following:
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·
|
Nanominerals,
one of our principal stockholders and an affiliate of Ian R. McNeil and
Carl S. Ager, who are our executive officers and members of our board of
directors, was delinquent in: (a) the filing of a Form 3 (Initial
Statement of Beneficial Ownership of Securities) relating to an event
occurring prior to 2008 and which was reported on a delinquent basis on a
report filed in 2008 and thereafter amended in 2009, and (b) the reporting
of three transactions on Form 4 (Statement of Changes in Beneficial
Ownership of Securities) relating to transactions occurring prior to 2008
and which were reported on a delinquent basis on two
reports;
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·
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Harry
B. Crockett, one of our directors, was delinquent in the reporting of four
transactions in 2008 on Form 4 which were reported on a delinquent basis
on two reports;
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·
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Martin
B. Oring, one of our directors, was delinquent in the reporting of two
transactions in 2008 on Form 4 which were reported on a delinquent basis
on two reports;
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·
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Robert
D. McDougal, one of our directors, was delinquent in the reporting of four
transactions in 2008 on Form 4 which were reported on a delinquent basis
on two reports; and
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·
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K.
Ian Matheson, one of our principal stockholders, was delinquent in the
reporting of fifteen transactions in 2008 on Form 4 which were reported on
a delinquent basis on ten reports.
|
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Process
Overview
. The Compensation Committee of the board of directors
discharges the board of directors’ responsibilities relating to compensation of
all of our executive officers. The Compensation Committee is
comprised of three non-employee directors.
The
agenda for meetings is determined by the Chair of the Compensation Committee
with the assistance of Ian
R.
McNeil, our
President and Chief Executive Officer, and Melvin
L.
Williams, our Chief Financial
Officer. Compensation Committee meetings are regularly attended by
one or more of our officers. However, they do not attend the portion
of meetings during which their own performance or compensation is being
discussed. Mr. Williams and Mr. Ager support the Compensation
Committee in its work by providing information relating to our financial plans,
performance assessments of our executive officers and other personnel-related
data. In addition, the Compensation Committee has the authority under
its charter to hire, terminate and approve fees for advisors, consultants and
agents as it deems necessary to assist in the fulfillment of its
responsibilities.
The
Compensation Committee has not delegated its authority to grant equity awards to
any of our employees, including the executive officers.
Compensation
Philosophy and Objectives
. The Compensation Committee believes
that our compensation philosophy and programs are designed to foster a
performance-oriented culture that aligns our executive officers’ interests with
those of our stockholders. The Compensation Committee also believes that the
compensation of our executive officers is both appropriate and responsive to the
goal of improving stockholder value.
The
Compensation Committee’s philosophy is to link the named executive officers’
compensation to corporate performance. The base salary, bonuses and
stock option grants of the named executive officers are determined in part by
the Compensation Committee reviewing data on prevailing compensation practices
of comparable companies with whom we compete for executive talent, and
evaluating such information in connection with our corporate goals and
compensation practices.
Our
current compensation arrangements for several of our executive officers,
including our Chief Executive Officer, are below average compensation levels for
similar positions at comparable companies. As we continue to grow, we
may need to increase our recruiting of new executives from outside of the
Company. This in turn may require us to pay higher compensation which
may be closer to or in excess of comparable company averages.
Finally,
we believe that creating stockholder value requires not only managerial talent,
but active participation by all employees. In recognition of this, we
try to minimize the number of compensation arrangements that are distinct or
exclusive to all of our executive officers. We currently provide base
salary, bonuses and long-term equity incentive compensation to a number of our
employees.
Because
we are an exploration company, we are in the process of refining our
compensation policies and anticipate that this will be an ongoing process as our
company moves forward in its exploration, testing and construction
plans. We are engaged in the evaluation, acquisition and advancement
of gold exploration projects in Nevada and Arizona.
In light
of the above, since our company could develop in a number of directions, such as
exploration only, or exploration with a producing mine, we have looked at a
broad range of mining companies to establish our compensation
packages. In general, these companies consisted of a mix of smaller
to medium-sized public mining companies. Most are at late stages of a
mine development project or have either one or two operating
mines. Although many companies were considered for comparative
purposes by our Compensation Committee, initially the Compensation Committee
focused on the following companies as likely to be more relevant to our own as
we develop: Apex Silver Mines Ltd., Canyon Resources Corp., Goldenstar
Resources, Mines Management Inc., US Gold Corp. and Vista Gold
Corp. Canyon Resources has merged with ATNA Resources and is now a
foreign reporting company and therefore has been dropped from the peer
group. Each company’s publicly-disclosed information was compiled to
provide data on executive compensation, including base pay, other cash
compensation and stock-based compensation. It is our intent to
formulate executive compensation packages that are both representative of
industry practices and are sufficient to attract and retain capable and
experienced people. In addition to industry comparables, the
Compensation Committee reviewed the National Association of Corporate Directors
“Report of the Blue Ribbon Commission on Executive Compensation and the Role of
the Compensation Committee” for 2007.
The Board
believes that the comparison companies noted above are a representative list of
comparison companies currently, but expects the list to change to reflect
developments in the mining industry and related markets. As we
develop, the comparison companies will be selected to be comparative to our size
and complexity at the time of the comparison. In addition, the
comparison companies will also develop over time, which will necessarily result
in changes in the composition of the comparison group. Future
comparison groups may include some, none or all of the companies in the current
group. For example, exploration companies may begin to operate mines
or may be acquired in a merger or acquisition.
Our
compensation policies and programs are designed to make us competitive with
similar mining companies, to recognize and reward executive performance
consistent with the success of our business and to attract and retain capable
and experienced people. The Compensation Committee’s role and
philosophy is to ensure that our compensation goals and objectives, as applied
to the actual compensation paid to our executive officers, are aligned with our
overall business objectives and with stockholder interests.
In
addition to industry comparables, the Compensation Committee considers a variety
of factors when determining both compensation policies and programs and
individual compensation levels, including the stockholder interests, our overall
financial and operating performance and the Compensation Committee’s assessment
of each executive’s individual performance and contribution toward meeting our
corporate objectives. As we develop, we will place increasing
importance on the incentive-based component of compensation because we believe
that a significant portion of an executive’s compensation should depend upon our
overall corporate performance, including share price performance relative to our
peer group.
2008 Executive
Officer Compensation Components
. For the year ended December
31, 2008, the principal components of compensation for our executive officers
were:
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·
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equity-based
incentive compensation.
|
Base Salary
.
Base salaries
for our executive officers, other than the Chief Executive Officer (CEO), are
determined by the Compensation Committee based upon recommendations by our Chief
Executive Officer, taking into account such factors as salary norms in
comparable companies, individual responsibilities, performance and experience of
the executive officer.
The
Compensation Committee, after review of compensation paid by peer group
companies, supplemented by published compensation surveys of public companies
and a review of the CEO’s responsibilities, performance, and experience, sets
the CEO’s salary. A review of the salaries of our executive officers
is conducted at least annually.
During
2007, the Compensation Committee approved increases in base salaries for our
executive officers from 2006 to realign salaries with market levels after taking
into account individual responsibilities, performance and
experience. The Compensation Committee determined that in connection
with the closing of the acquisition of 100% of the Clarkdale Slag Project and as
a result of the increase in the scope of responsibilities of our executives
during 2007, it was appropriate to review the compensation of salaries for
comparable executives in the peer group. The increase in the scope of
responsibilities during 2007 included the additional work performed and to be
performed by the executives to acquire 100% of the Clarkdale Slag Project,
design and engineer our first production module, conduct multiple financings,
and supervise an increased number of employees. During its review of
the peer group, the Compensation Committee decided to increase the salaries of
the executive officers to reduce the size of the disparity between the
compensation paid to our executive officers and the compensation paid to the
executive officers in the peer group. The realignment resulted in
different changes in percentage increases among our executive officers because
not all of the executives required the same percentage increase to narrow the
gap between our officers’ salaries and the salaries for comparable executives in
the peer group. The Compensation Committee was focused on bringing
the dollar amount of our executives’ salaries closer to the peer group, not on
increasing the salaries at the same rate as the percentage increase
of market salaries. As such, market salaries increased at
a lower percentage rate than our executives’ salaries. The
Compensation Committee did not have a specific formula to determine the amount
of the executive compensation or the specific increases for each individual
executive. Our executives’ salaries were subjectively determined in
the discretion of the Compensation Committee, taking into account the foregoing
factors.
The
Compensation Committee considered the lack of formal training of Mr. McNeil and
Mr. Ager in the specific technicalities of mineral exploration, but determined
that their general business management experience merited their compensation
levels, and that we could engage technical mineral exploration specialists, as
necessary and appropriate. Mr. Williams’ increase reflects a change
in his contract, increasing his time commitment to us from a range of 300-600
hours per year to 600-800 hours per year. The Compensation Committee
did not have a specific formula to determine the amount of the executive
compensation.
The 2008
salaries for our executive officers were not increased by mutual agreement
between the Board and the individual executives.
The
following charts reflect changes in the base salaries of our executive officers
between from 2006 to 2008:
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Principal Position
|
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2006
Salary
|
|
|
2007
Salary
|
|
|
Base Salary
% Change
|
|
|
Ian
R.
McNeil
|
|
President,
Chief Executive Officer and Chairman of the Board
|
|
$
|
108,000
|
|
|
$
|
190,000
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Melvin
L.
Williams
|
|
Chief
Financial Officer
|
|
$
|
60,000
|
|
|
$
|
130,000
|
|
|
|
117
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
S.
Ager
|
|
Vice
President, Treasurer, and Director
|
|
$
|
80,000
|
|
|
$
|
160,000
|
|
|
|
100
|
%
|
|
|
|
Principal Position
|
|
2007
Salary
|
|
|
2008
Salary
|
|
|
Base Salary
% Change
|
|
|
Ian
R.
McNeil
|
|
President,
Chief Executive Officer and Chairman of the Board
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
L.
Williams
|
|
Chief
Financial Officer
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
S.
Ager
|
|
Vice
President, Treasurer, and Director
|
|
$
|
160,000
|
|
|
$
|
160,000
|
|
|
|
0
|
%
|
Bonuses
.
Our cash bonus
program seeks to motivate executive officers to work effectively to achieve our
financial performance objectives and to reward them when such objectives are
met. Bonuses for executive officers are subject to approval by the Compensation
Committee. For the year ended December 31, 2008, bonuses for
executive officers were not authorized per their request.
Equity-Based Incentive
Compensation
. Stock options are an important component of the
total compensation of executive officers. We believe that stock
options align the interests of each executive with those of the
stockholders. They also provide executive officers a significant,
long-term interest in our success and help retain key executive officers in a
competitive market for executive talent. Our 2007 Stock Option Plan
authorizes the Compensation Committee to grant stock options to executive
officers. The number of shares owned by, or subject to options held
by, each executive officer is periodically reviewed and additional awards are
considered based upon past performance of the executive and the relative
holdings of other executive officers. The option grants generally
expire no later than five years from the date of grant.
Further,
on June 11, 2008, our board of directors adopted a 2008 Stock Incentive Award
Plan for Employees and Service Providers (“2008 Incentive Plan”), subject to
approval by our stockholders. The 2008 Incentive Plan provides for
grants to our employees and service providers of options to purchase shares of
our common stock, rights to receive the appreciation in value of common shares,
awards of common shares subject to vesting and other restrictions on transfer,
and other awards based on common shares. We intend to submit a
proposal to our stockholders to authorize the issuance of up 3,250,000 shares of
common stock under the 2008 Incentive Plan, and have filed a preliminary proxy
statement with the SEC to that effect. However, we will not grant any
awards under the 2008 Incentive Plan until such plan has been approved by our
stockholders.
Stock Ownership
Guidelines
. We currently do not require our directors or
executive officers to own a particular amount of our common
stock. The Compensation Committee is satisfied that stock and option
holdings among our directors and executive officers are sufficient at this time
to provide motivation and to align this group’s interests with those of our
stockholders.
Other
Benefits
Health and Welfare
Benefits
.
Our executive officers
receive the same health and welfare benefits offered to other employees,
including medical, and holiday pay.
Retirement
Program
.
We
currently have no Supplemental Executive Retirement Plan, or SERP,
obligations. We do not have any defined benefit retirement
plans.
Perquisites
.
We do not provide
special benefits or other perquisites to any of our executive
officers.
Employment
Arrangements, Severance and Change of Control Benefits
. Other
than as described below, we are not party to any employment contracts with our
officers and directors.
Ian R. McNeil
.
We entered into
an employment agreement with Ian R. McNeil, our President and Chief Executive
Officer, effective January 1, 2006 and as amended February 16,
2007. Pursuant to the terms of the employment agreement, we have
agreed to pay Mr. McNeil an annual salary of $190,000. On December
30, 2005, Mr. McNeil received a one time bonus of $36,000 on execution of the
agreement. In addition to his annual salary, Mr. McNeil may be
granted a discretionary bonus and stock options, to the extent authorized by our
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 us, other
than for cause, we will provide Mr. McNeil with six months written notice or
payment equal to six months of his monthly salary.
Carl S. Ager
.
We entered into
an employment agreement with Carl S. Ager, our Vice President, Secretary and
Treasurer, effective January 1, 2006 and as amended February 16,
2007. Pursuant to the terms of the employment agreement, we have
agreed to pay Mr. Ager an annual salary of $160,000. On December 30,
2005, Mr. Ager received a one time bonus of $26,666 on execution of the
agreement. In addition to his annual salary, Mr. Ager may be granted
a discretionary bonus and stock options, to the extent authorized by our Board.
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 us, other than for cause, we will
provide Mr. Ager with six months written notice or payment equal to six months
of his monthly salary.
Melvin L.
Williams
.
We entered into
an employment agreement with Melvin L. Williams, our Chief Financial Officer,
effective June 14, 2006 and as amended February 16, 2007. Pursuant to
the terms of the employment agreement, we have 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. On June 14, 2006, we
issued 50,000 restricted shares of our common stock, as a one time bonus, and
granted options to purchase 100,000 shares of our common stock at an exercise
price of $2.06 per share, exercisable for a period of five years until June 14,
2011. The options vested 50% on each of the first and second
anniversaries of the execution of the agreement. The price of the
shares issued and the exercise price of the options granted were valued based on
the closing price of the common stock on the OTCBB on June 14,
2006. In the event the employment agreement is terminated by us
without cause, we have agreed to 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.
Tax and
Accounting Treatment of Compensation
. In our review and
establishment of compensation programs and payments, we consider, but do not
place great emphasis on, the anticipated accounting and tax treatment of our
compensation programs on us and our executive officers. While we may
consider accounting and tax treatment, these factors alone are not
dispositive. Among other factors that receive greater consideration
are the net costs to us and our ability to effectively administer executive
compensation in the short and long-term interests of stockholders under a
proposed compensation arrangement.
Our
Compensation Committee and our Board have considered the potential future
effects of Internal Revenue Code Section 162(m), Trade or Business Expense,
Certain excessive employee remuneration (“Section 162(m)”) on the compensation
paid to our executive officers. Section 162(m) disallows a tax
deduction for any publicly held corporation for individual compensation
exceeding $1.0 million in any taxable year for any of our executive
officers. There is an exemption from the $1 million limitation for
performance-based compensation that meets certain requirements. In
approving the amount and form of compensation for our executive officers, our
compensation committee will continue to consider all elements of the cost to us
of providing such compensation, including the potential impact of Section
162(m).
In order
to qualify certain forms of equity based compensation, such as stock options, as
performance-based compensation, our 2007 Stock Option Plan was submitted to and
approved by our stockholders at our 2007 annual meeting of stockholders and is
structured to provide 162(m) qualification to stock options and other forms of
performance-based awards. Grants of equity based compensation under
our 2007 Stock Option Plan may qualify for the exemption if vesting is
contingent on the attainment of objectives based on performance criteria set
forth by our compensation committee, and if certain other requirements are
satisfied as set forth under Section 162(m). The compensation paid to
any of our executive officers in 2008 did not exceed the $1 million threshold
under Section 162(m). Thus, at the present time, neither we nor any of our
executives are impacted by Section 162(m).
We
monitor whether it might be in our best interest to comply with Section 162(m)
of the Code, but reserve the right to award future compensation which would not
comply with the Section 162(m) requirements for non-deductibility if the
Compensation Committee concludes that it is in our best interest to do
so. We seek to maintain flexibility in compensating executive
officers in a manner designed to promote varying corporate goals and therefore
the Compensation Committee has not adopted a policy requiring all compensation
to be deductible. The Compensation Committee will continue to assess
the impact of Section 162(m) on its compensation practices and determine what
further action, if any, is appropriate.
We
account for equity compensation paid to our employees under the rules of
Financial Accounting Standard No. 123R (“FAS 123(R)”), which requires us to
estimate and record an expense for each award of equity compensation over the
service period of the award. Accounting rules also require us to
record cash compensation as an expense at the time the obligation is
accrued. We have not tailored our executive compensation program to
achieve particular accounting results.
We intend
that our plans, arrangements and agreements will be structured and administered
in a manner that complies with the requirements of Internal Revenue Code Section
409A, Inclusion in gross income of deferred compensation under nonqualified
deferred compensation plans (“Section 409A”). Participation in, and
compensation paid under our plans, arrangements and agreements may, in certain
instances, result in the deferral of compensation that is subject to the
requirements of Section 409A. If our plans, arrangements and
agreements as administered fail to meet certain requirements under Section 409A,
compensation earned thereunder may be subject to immediate taxation and tax
penalties.
Section
409A requires programs that allow executives to defer a portion of their current
income to meet certain requirements regarding risk of forfeiture and election
and distribution timing (among other considerations).
Section
409A requires that “nonqualified deferred compensation” be deferred and paid
under plans or arrangements that satisfy the requirements of the statute with
respect to the timing of deferral elections, timing of payments and certain
other matters. Failure to satisfy these requirements can expose
employees and other service providers to accelerated income tax liabilities and
penalty taxes and interest on their vested compensation under such
plans. Accordingly, as a general matter, it is our intention to
design and administer our compensation and benefits plans and arrangements for
all of our employees and other service providers, including the named executive
officers, so that they are either exempt from, or satisfy the requirements of,
Section 409A.
Our
current compensation and benefit plans are not subject to Section
409A. We have reviewed our compensation arrangements with our
executives and employees, and have determined that they are excepted from the
requirements of Section 409A. The severance provisions and
discretionary bonus provisions under our Employment Agreements fall within the
short-term deferral rules of Treasury Regulations Section1.409A-1(b)(4). The
equity awards issued under our 2007 Stock Option Plan (both statutory and
nonstatutory stock options) are excepted from Section 409A. Statutory
options under Internal Revenue Code Section 422 are not subject to Section
409A. Likewise, the nonstatutory options are excepted from Section
409A under Treasury Regulations Section 1.409A-1(b)(5)(i)(A) because the
exercise prices for all awards issued thereunder are the fair market value of
the underlying stock on the date the option was granted and the options do not
include any feature for the deferral of compensation other than deferral of
recognition of income until the later of the exercise or disposition of the
option or the date the options become substantially vested. The
underlying stock for all the options constitutes "service recipient stock"
within the meaning of Treasury Regulation Section
1.409-A-1(b)(5)(iii). If we adopt new compensation plans that
constitute non-qualified deferred compensation, they will be operated in
compliance with Section 409A and regulatory guidance issued by the Internal
Revenue Service.
Summary
Compensation Table
The
following table sets forth all compensation received during the three years
ended December 31, 2008 by our Chief Executive Officer, Chief Financial Officer
and each of the other most highly compensated executive officers whose total
compensation exceeded $100,000 in such fiscal year. These officers
are referred to as the Named Executive Officers in this prospectus:
|
Name
and
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
|
|
|
Option
|
|
|
Non-Equity
|
|
|
Non-
|
|
|
All
Other
|
|
|
Total
|
|
|
Principal
|
|
|
|
($)
|
|
|
($)
|
|
|
Awards
|
|
|
Awards
(1)
|
|
|
Incentive
|
|
|
qualified
|
|
|
Compensation
|
|
|
($)
|
|
|
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Deferred
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ian
R. McNeil,
|
|
2008
|
|
|
190,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,000
|
|
|
Director,
|
|
2007
|
|
|
179,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,393
|
|
|
President
and
|
|
2006
|
|
|
108,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
179,642
|
|
|
CEO
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
S. Ager,
|
|
2008
|
|
|
160,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,000
|
|
|
Director,
Vice
|
|
2007
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,643
|
|
|
President
|
|
2006
|
|
|
80,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,642
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
L. Williams,
|
|
2008
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,468
|
|
|
|
152,468
|
|
|
Chief
Financial
|
|
2007
|
|
|
121,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,958
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,260
|
|
|
|
173,468
|
|
|
Officer
(4)
|
|
2006
|
|
|
32,500
|
|
|
|
-
|
|
|
|
103,000
|
|
|
|
9,163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144,663
|
|
|
(1)
|
The
dollar value of stock awards and option awards are calculated in
accordance with Statement of Financial Account
Standard
(“SFAS”) 123R,
Share
Based Payments
.
|
|
(2)
|
Mr.
McNeil was appointed as our President and Chief Executive Officer on
October 7, 2005. Mr. McNeil entered into an employment
agreement on January 1, 2006 for an annual salary of
$108,000. On February 16, 2007, we increased the salary of Mr.
McNeil under this agreement to $190,000.
|
|
(3)
|
Mr.
Ager was appointed as our Secretary, Treasurer and Chief Financial Officer
on October 7, 2005. Mr. Ager
entered
into an employment agreement on January 1, 2006 pursuant to which he
receives an annual salary of $80,000.
On
June 14, 2006, Mr. Ager resigned as Chief Financial Officer. On February
16, 2007, we increased the salary of Mr. Ager under this agreement to
$160,000.
|
|
(4)
|
Mr.
Williams was appointed as our Chief Financial Officer on June 14,
2006. Mr. Williams entered into an employment agreement on June
14, 2006 pursuant to which he is paid an annual salary of $60,000. On
February 16, 2007, we increased the salary of Mr. Williams to
$130,000. Other compensation includes direct benefit to Mr.
Williams of $11,260 and $22,468 from fees incurred in 2007 and 2008,
respectively, with Cupit, Milligan, Ogden & Williams, an affiliate of
Mr. Williams, to provide accounting support services. These
amounts were based on the profit percentage derived by Mr. Williams from
the revenue earned by Cupit Milligan in the applicable period, as applied
to the fees for services provided to us.
|
Outstanding
Equity Awards At Fiscal Year-End
The
following table provides information concerning unexercised options for each of
our Named Executive Officers outstanding as of December 31, 2008:
|
|
|
|
|
|
Option
Awards
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Position
|
|
Number
of
|
|
|
Number
of
|
|
|
Equity
|
|
|
Option
|
|
Option
|
|
Number
of
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Incentive
|
|
|
Exercise
|
|
Expiration
|
|
Shares
or Units
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Plan
Awards:
|
|
|
Price
|
|
Date
|
|
of
Stock that
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Number
of
|
|
|
|
|
|
|
Have
Not
|
|
|
|
|
Options
(#)
|
|
|
Options
|
|
|
Securities
|
|
|
|
|
|
|
Vested
(#)
|
|
|
|
|
Exercisable
|
|
|
(#)
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercisable
|
|
|
Unexercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
Ian
R. McNeil
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.44
|
|
11/11/10
|
|
|
-
|
|
|
Director,
President
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1.70
|
|
4/7/11
|
|
|
-
|
|
|
and
CEO
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2.40
|
|
6/6/11
|
|
|
-
|
|
|
|
|
|
24,800
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4.04
|
|
2/16/12
|
|
_
|
|
|
Carl
S. Ager
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.44
|
|
11/11/10
|
|
|
-
|
|
|
Director,
Vice
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1.70
|
|
4/7/11
|
|
|
-
|
|
|
President,
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2.40
|
|
6/6/11
|
|
|
-
|
|
|
Treasurer
and
|
|
|
24,800
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4.04
|
|
2/16/12
|
|
|
-
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
L. Williams
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2.06
|
|
6/14/11
|
|
|
-
|
|
|
Chief
Financial
|
|
|
18,600
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4.04
|
|
2/16/12
|
|
|
-
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None of
our Named Executives acquired shares of common stock by the exercise of stock
options during the year ended December 31, 2008.
Potential
Payments upon Termination of Employment or a Change of Control
We have
entered into change in control agreements with Ian R. McNeil, our President and
Chief Executive Officer, Carl S. Ager, our Vice President, Secretary and
Treasurer, and Melvin L. Williams, our Chief Financial Officer, in connection
with their respective employment agreements. These agreements provide
for payments to be made to each named executive officer upon termination of
employment.
In the
event that the agreement with Mr. McNeil or Mr. Ager is terminated by us, other
than for cause, we will provide Mr. McNeil or Mr. Ager, as applicable, with six
months written notice or payment equal to six months of their respective monthly
salaries. In the event the employment agreement with Mr. Williams is
terminated by us without cause, we have agreed to 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.
The
severance amounts are payable in cash, in a lump sum. As of December
31, 2008, in the event of a qualifying termination, Mr. McNeil would have been
entitled to cash payments totaling $95,000, Mr. Ager would have been entitled to
cash payments totaling $80,000, and Mr. Williams would have been entitled to
cash payments totaling $32,500.
Director
Compensation
This
section provides information regarding the compensation policies for our
directors and amounts paid and securities awarded to these directors in the
fiscal year ended December 31, 2008.
From
January 2007 until July 1, 2007 we paid non-employee directors a fee of $1,000
per meeting in cash. During that period, we paid an aggregate of
$5,000 to our non-employee directors for meeting
attendance. Effective July 1, 2007, we pay non-employee directors
compensation of $3,000 per month in cash and $9,000 value of our common stock
per quarter, where the appropriate number of shares to equal $9,000 is
determined by the closing price of our stock on the last trading day of each
quarter. We may also periodically grant additional stock options to
our directors in consideration for their providing services to us as
directors.
Further,
on June 11, 2008, our board of directors adopted a 2008 Stock Incentive Plan for
Directors (“2008 Directors Plan”), subject to approval by our
stockholders. The 2008 Directors Plan provides for grants to our
directors of options to purchase shares of our common stock, rights to receive
the appreciation in value of common shares, awards of common shares subject to
vesting and other restrictions on transfer, and other awards based on common
shares. We intend to submit a proposal to our stockholders to
authorize the issuance of up 750,000 shares of common stock under the 2008
Directors Plan, and have filed a preliminary proxy statement with the SEC to
that effect. However, we will not grant any awards under the 2008
Directors Plan until such plan has been approved by our
stockholders.
The
following table summarizes the compensation paid to our non-employee directors
for the fiscal year ended December 31, 2008:
|
Name
|
|
Fees
|
|
|
Stock
|
|
|
Option
|
|
|
Non-Equity
|
|
|
All
Other
|
|
|
Total
|
|
|
|
|
Earned
or
|
|
|
Awards
|
|
|
Awards
|
|
|
Incentive
Plan
|
|
|
Compensation
|
|
|
($)
|
|
|
|
|
Paid
in
|
|
|
($)
(1)
|
|
|
($)
(1)
|
|
|
Compensation
|
|
|
($)
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin B. Oring
(2)
|
|
|
9,000
|
|
|
|
-
|
|
|
|
27,026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,026
|
|
|
Robert D. McDougal
(3)
|
|
|
36,000
|
|
|
|
36,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,000
|
|
|
Harry B. Crockett
(4)
|
|
|
36,000
|
|
|
|
36,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,000
|
|
|
(1)
|
The
dollar value of stock awards and options awards are calculated in
accordance with Statement of Financial Accounts (“SFAS”) 123R,
Share Based
Payments
.
|
|
(2)
|
Mr.
Oring joined our board of directors on October 10, 2008. Mr. Oring held
207,347 stock options and no unvested shares as stock awards, of
December 31, 2008. We granted 207,347 stock options (which included
200,000 unvested stock options at December 31, 2008) and no stock
awards to Mr. Oring in 2008. The grant date fair value of the stock
option awards computed in accordance with SFAS 123(R) was
$165,180.
|
|
(3)
|
Mr.
McDougal held 550,000 stock options and no unvested shares as stock
awards, of December 31, 2008. We granted no stock options and
15,811 shares as stock awards to Mr. McDougal in 2008. In
addition, 3,214 shares were issued to Mr. McDougal in 2008 which are noted
in our Consolidated Statement of Stockholders' Equity included in the
financial statements filed herewith as subscribed for on December 31, 2007
and issued in 2008.
The
grant date fair value of the stock awards computed in accordance with
SFAS 123(R) was $36,000.
|
|
(4)
|
Mr.
Crockett held no stock options and no unvested shares as stock awards, of
December 31, 2008. We granted no stock options and 15,811
shares as stock awards to Mr. Crockett in 2008. In addition,
3,214 shares were issued to Mr. Crockett l in 2008 which are noted in our
Consolidated Statement of Stockholders' Equity included in the financial
statements filed herewith as subscribed for on December 31, 2007 and
issued in 2008.
The
grant date fair value of the stock awards computed in accordance with
SFAS 123(R) was $36,000.
|
Limitation
of Liability of Directors
Nevada
Revised Statutes provide that, subject to certain exceptions, or unless the
articles of incorporation or an amendment thereto, provide for greater
individual liability, a director or officer is not individually liable to the
corporation or its stockholders or creditors for any damages as a result of any
act or failure to act in his capacity as a director or officer unless it is
proven that his act or failure to act constituted a breach of his fiduciary
duties as a director or officer, and his breach of those duties involved
intentional misconduct, fraud or a knowing violation of law. Our
articles of incorporation do not contain a provision which provides for greater
individual liability of our directors and officers.
We have
filed a preliminary proxy statement with the SEC to amend our articles of
incorporation for the purpose of adding provisions for limiting liability of our
directors and officers under certain circumstances and for permitting
indemnification of directors, officers and certain other persons, to the maximum
extent permitted by applicable Nevada law, including that:
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no
director or officer will be individually liable to us or our stockholders
or creditors for any damages as a result of any act or failure to act in
his capacity as a director or officer, provided, that the foregoing clause
will not apply to any liability of a director or officer for any act or
failure to act for which Nevada law proscribes this limitation and then
only to the extent that this limitation is specifically
proscribed;
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any
repeal or modification of the foregoing provision will not adversely
affect any right or protection of a director existing at the time of such
repeal or modification;
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we
will be permitted to indemnify our directors, officers and such other
persons to the fullest extent permitted under Nevada law. Our
current Bylaws include provisions for the indemnification of our
directors, officers and certain other persons, to the fullest extent
permitted by applicable Nevada law;
and
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with
respect to the limitation of liability of our directors and officers or
indemnification of our directors, officers and such other persons, neither
any amendment or repeal of these provisions nor the adoption of any
inconsistent provision of our articles of incorporation, will eliminate or
reduce the effect of these provisions, in respect of any matter occurring,
or any action, suit or proceeding accruing or arising or that, but for
these provisions, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent
provision.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
General
We have
ongoing business relationships with affiliates of our management and principal
stockholders. In particular, we have continuing obligations under the
agreements under which we acquired the assets relating to our Clarkdale Slag
Project. We remain obligated to pay a royalty which may be generated
from the operations of the Clarkdale Slag Project to Nanominerals, one of our
principal stockholders, which is an affiliate of two members of our executive
management and board of directors, Carl S. Ager and Ian R. McNeil. We
also have engaged Nanominerals as a paid consultant to provide technical
services to us. In addition, we have a similar royalty arrangement
with VRIC, an affiliate of another member of our board of directors, Harry B.
Crockett. Further, one of our board members, Robert D. McDougal,
serves as the chief financial officer and a director of Ireland Inc., a publicly
traded, mining related company, which is an affiliate of
Nanominerals. For these reasons, Martin B. Oring is the sole
independent members of our board of directors. We had negotiated the
revenue sharing agreements with each of Nanominerals and VRIC prior to the time
that Messrs. Ager, McNeil and Crockett, as applicable, became board
members. These persons are subject to a fiduciary duty to exercise
good faith and integrity in handling our affairs. However, the
existence of these continuing obligations may create a conflict of interest
between us and our board members and senior executive management, and any
disputes between us and such persons over the terms and conditions of these
agreements that may arise in the future may raise the risk that the negotiations
over such disputes may not be subject to being resolved in an arms’ length
manner. In addition, Nanominerals’ interest in Ireland Inc. and its
other mining related business interests may create a conflict of interest
between us and our board members and senior executive management who are
affiliates of Nanominerals. Further, the interests of K. Ian
Matheson, one of our principal stockholders (and a former officer and director),
in Royal Mines and Minerals Corp., a publicly traded mining company based in
Nevada, of which Mr. Matheson is an affiliate, and other mining related business
interests may create a conflict of interest between us and Mr.
Matheson.
Although
our management intends to avoid situations involving conflicts of interest and
is subject to a Code of Ethics, there may be situations in which our interests
may conflict with the interests of those of our management or their
affiliates. These could include:
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competing
for the time and attention of
management;
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potential
interests of management in competing investment ventures;
and
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the
lack of independent representation of the interests of the other
stockholders in connection with potential disputes or negotiations over
ongoing business relationships.
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Although
we only have one independent director, the board of directors has adopted a
written Related Person Transactions Policy, that describes the procedures used
to identify, review, approve and disclose, if necessary, any transaction or
series of transactions in which: (i) we were, are or will be a participant; (ii)
the amount involved exceeds $120,000; and (iii) a related person had, has or
will have a direct or indirect material interest. There can be no
assurance that the above conflicts will not result in adverse consequences to us
and the interests of the other stockholders.
Prior to
the adoption of the Related Person Transactions Policy on March 17, 2009,
related party transactions were subject to our Code of Ethics, which was adopted
July 18, 2006, and an unwritten policy that any transactions with related
persons would be approved of by a majority of our independent, disinterested
directors, and would comply with the Sarbanes Oxley Act and other securities
laws and regulations. However, we did not have any independent
directors until October 2008. At any point at which we did not have
independent directors on our Board, any transactions with related persons were
approved of by a majority of our then disinterested directors.
The
following is a description of related party transactions in the three most
recent fiscal years ended December 31, 2008 and the six months ended June 30,
2009:
Transactions
with Certain Former Members of Management
On
February 10, 2005, in connection with our change of business from a
biotechnology research and development company to a company focused on the
acquisition of mineral properties, we approved the discharging of the
convertible debt of Searchlight to Caisey Harlingten, our former Chief Executive
Officer and director, in the amount of $300,000, in return for the grant of an
irrevocable stock option to Mr. Harlingten to purchase 500,000 shares of our
common stock for $0.25 per share, such option expiring February 10,
2010. Prior to discharging the convertible debt, on July 23, 2002, we
had issued $300,000 of convertible debt to Mr. Harlingten. The
convertible debt had accrued interest at 8% per year and was payable on demand
of the holder. The debt was convertible into common stock at $0.25
per share for a total of 1,200,000 shares. In connection with the
debt, Mr. Harlingten was granted warrants to purchase 1,200,000 shares of our
common stock at an exercise price of $0.35 per share. The $300,000
debt owed by us to Mr. Harlingten related to prior advances made by Mr.
Harlingten to us in the form of loans. The loan was interest free
without any fixed repayment date, based on a verbal agreement between the
parties.
As of
December 31, 2006, we had a related party loan payable of $382,792, which
consisted of borrowings from an affiliate of our former officers and
directors. In addition, $360,056 was included in accounts payable
that was an intercompany payable to a former subsidiary dating back to
2002. We recorded the removal of these items at December 31, 2007 as
capital transactions of related parties and increased paid-in capital by
$742,848 based upon our internal review of the status of these items and
determination that, based on the failure of any potential claimants to make
demand for payment of such amounts, these items had been canceled by such
affiliates and should be treated as capital contributions related to our
restructuring.
Transactions
with Searchlight Claim Owners and Affiliates of K. Ian Matheson
In
connection with our February 2005 change of business, on February 8, 2005, we
entered into mineral option agreements with the Searchlight Claim owners to
acquire 20 mineral claims representing an area of 3,200 acres located in Clark
County, south of Searchlight, Nevada. The acquisition of the
Searchlight Claims was initially valued at a negotiated price between us and the
claim owners of $2,000 per claim for a total of $40,000 plus actual costs
incurred in maintaining the claims of $87,134. Further, on April 12,
2005, Mr. Harlingten and his affiliates transferred 95,400,000 shares of our
common stock to Mr. Matheson in connection with Mr. Matheson’s bringing the
business opportunity relating to the Searchlight Claims to us. Prior
to entering into the option agreements with us, the Searchlight Claim owners had
optioned their respective interests in the claims to Searchlight Minerals Inc.
(“SMI”), a company controlled by Mr. Matheson. In connection with our
acquisition of the Searchlight Claims, SMI assigned to us SMI’s rights in the
Searchlight Claims under the prior option agreements with the Searchlight Claim
owners. The 95,400,000 shares represented approximately 88% of the
outstanding shares of common stock at the time of such
transfer. Subsequently, on April 29, 2005, Mr. Matheson cancelled
70,000,000 shares of our common stock held by him for no consideration for the
purpose of making our capitalization more attractive to future equity
investors.
Mr.
Matheson was appointed as our Chief Executive Officer, Chief Financial Officer,
President, Secretary and Treasurer and as a member of our board of directors on
February 10, 2005. He resigned as Chief Executive Officer, Chief
Financial Officer, President, Secretary and Treasurer on October 7, 2005, and
resigned from our board of directors on February 16, 2007.
Under the
option agreement with the Searchlight Claim owners, we had agreed to issue an
aggregate of 5,600,000 shares of our common stock in four equal installments of
1,400,000 shares over a three year period to the claim owners, after which all
of the claim owner’s rights and interests in the Searchlight Claims would be
assigned to us. We issued the initial 4,200,000 shares of the
5,600,000 shares in three installments of 1,400,000 shares on July 7, 2005, July
27, 2006 and June 29, 2007. During the second quarter of 2008, the
Searchlight Claim owners transferred title to the Searchlight Claims to us in
consideration of our agreement to issue to the claim owners the balance of the
1,400,000 shares of common stock by June 30, 2008. We issued the
1,400,000 shares to the remaining Searchlight Claim owners in June 2008, and now
have issued all 5,600,000 of the shares of our common stock required to be
issued to the Searchlight Claim owners. Pursuant to EITF 98-11,
“Accounting for Acquired Temporary Differences in Certain Purchase Transactions
That Are Not Accounted for as Business Combinations”, we valued the shares
issued to obtain the Searchlight Claims at their market price at the date of the
issue. In connection with this transaction, K. Ian Matheson (one of
our principal stockholders and a former member of the board of directors) and
his wife, Debra Matheson, and his affiliated companies (including Pass Minerals
Inc., Gold Crown Minerals Inc. and Kiminco Inc.), have received 1,050,000 shares
of common stock. Mr. Matheson may be considered a promoter of the
Company by virtue of his positions in the Company and with certain of the
Searchlight Claim owners. Also, in connection with the acquisition of
the Searchlight Claims in February 2005, Geotech Mining Inc. and Geosearch
Mining Inc., which are affiliates of Dr. Charles A. Ager and his wife, Carol
Ager, who were Searchlight Claim owners, have each received 140,000 shares of
common stock with respect to the transfer of title to their interests in the
Searchlight Claims under the option agreements for the Searchlight Gold
Project. Dr. Ager and his affiliate, Nanominerals, were also our
affiliates at the time of the final three stock issuances in connection with the
option agreement to acquire the Searchlight Claims. Mr. Matheson was
one of our officers and/or directors at the time of the initial two stock
issuances in connection with the option agreement to acquire the Searchlight
Claims, and has been one of our principal stockholders at the time of all such
issuances.
In
connection with our change of business in fiscal 2005, we had agreed to pay a
management fee of $3,500 per month to Pass Minerals for management services
provided by Mr. Matheson relating to the change of our business. In
September 2006, the parties terminated this arrangement. We paid a
total of $24,500 to Pass Minerals for consulting services in
2006.
Transactions
with Nanominerals Corp. and Affiliates
General.
Nanominerals
is a private Nevada corporation principally engaged in the business of mineral
exploration. Nanominerals does not have any employees and relies on
third party consultants for the provision of services. Nanominerals
owns approximately 15.13% of our issued and outstanding shares of common
stock. Dr. Ager and Mrs. Ager, collectively own 35% of the
outstanding common stock of Nanominerals. Two of our executive
officers and directors, Carl S. Ager and Ian R. McNeil, are stockholders of
Nanominerals, but neither currently serves as an officer, director or employee
of Nanominerals. Messrs. Ager and McNeil each own 17.5% of the issued
and outstanding shares of common stock of Nanominerals, representing an
aggregate of 35% of the outstanding common stock of Nanominerals. Dr.
Ager currently is the sole officer and director of Nanominerals, and controls
its day to day operations. Further, Messrs. Ager and McNeil have
given an irrevocable proxy to Dr. Ager to vote their respective shares of
Nanominerals during the time that Mr. Ager or Mr. McNeil, as the case may be,
serves as one of our directors or executive officers. Dr. Ager has
sole voting and investment powers over the 16,000,000 shares owned by
Nanominerals. Messrs. Ager and McNeil are the son and son-in-law,
respectively, of Dr. Ager and Mrs. Ager. Dr. Ager, Mr. Ager and Mr.
McNeil may be considered promoters of the Company by virtue of their positions
in the Company and Nanominerals. Nanominerals is the principal
stockholder of another publicly traded mining company (Ireland Inc.) and has
other mining related business interests which may create a conflict of interest
between us and our board members and senior executive management who are
affiliates of Nanominerals.
Acquisition of
Searchlight Claims
. In connection with the acquisition of the
Searchlight Claims in February 2005, Geotech Mining Inc. and Geosearch Mining
Inc., which are affiliates of Dr. Ager and Mrs. Ager, who were Searchlight Claim
owners, have each received 140,000 shares of common stock with respect to the
transfer of title to their interests in the Searchlight Claims under the option
agreements for the Searchlight Gold Project.
Acquisition of
Interest of Joint Venture in Clarkdale Slag Project
. Under the
terms of an Assignment Agreement, dated June 1, 2005, and as amended on August
31, 2005 (for the purpose of extending the closing date of the transaction by
requiring us to confirm receipt of $1.5 million in financing by September 15,
2005), and October 24, 2005, Nanominerals assigned to us its 50% financial
interest and the related obligations arising under a Joint Venture Agreement,
dated May 20, 2005, between Nanominerals and VRIC. The joint venture
related to the exploration, testing, construction and funding of the Clarkdale
Slag Project.
On
October 24, 2005, in connection with the terms of the Assignment Agreement with
Nanominerals, we issued to Nanominerals and its designates warrants to purchase
12,000,000 shares of our common stock exercisable through May 31, 2015, at an
exercise price of $0.375 per share. At the instruction of
Nanominerals, we issued 2,000,000 of the 12,000,000 warrants to Clarion Finanz
AG, a designate of Nanominerals.
In
addition, in connection with the Assignment Agreement, we paid Nanominerals
$690,000 in respect of certain payments made by Nanominerals towards the
acquisition of the Clarkdale Slag Project, including reimbursement of payments
previously made by Nanominerals to VRIC under the Joint Venture Agreement, and
reimbursement of other previously paid expenses incurred by Nanominerals
relating to the Clarkdale Slag Project.
Further,
under the terms of the Assignment Agreement, we assumed the obligations of
Nanominerals under the Joint Venture Agreement relating to the Clarkdale Slag
Project, including the funding of a four phase program:
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drilling
and ore reserve studies (Phase 1);
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a
report of the commercial, technical and environmental feasibility of the
processing and smelting of metals and other mineral materials from a
deposit that is prepared in such depth and detail as would be acceptable
to lending institutions in the United States, or a “bankable feasibility
study” (Phase 2);
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the
construction of a commercial production facility to process slag
materials, as recommended by the bankable feasibility study (Phase 3);
and
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the
expansion of additional commercial production capacity to process slag
materials (Phase 4).
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In
addition, we appointed Ian R. McNeil, Carl S. Ager and Robert D. McDougal, as
nominees of Nanominerals, to serve on our board of directors, thereby
constituting a majority of the board members.
Further,
under the terms of the Assignment Agreement, we have a continuing obligation to
pay Nanominerals a royalty consisting of 2.5% of the “net smelter returns” on
any and all proceeds of production from the Clarkdale Slag
Project. Under the agreements, we agreed to pay Nanominerals a 5%
royalty on “net smelter returns” payable from our 50% joint venture interest in
the production from the Clarkdale Slag Project. The original June 1,
2005 assignment agreement did not include a specific definition of the term “net
smelter returns.” However, the parties agreed to a specific
definition of the term “net smelter returns” in the October 24, 2005 amendment,
which specific definition we believe conforms with the industry standard
interpretation of such term. Upon the assignment of the assignment to
us of VRIC’s 50% interest in the Joint Venture Agreement in connection with our
reorganization with Transylvania International, Inc., we continue to have an
obligation to pay Nanominerals a royalty consisting of 2.5% of the net smelter
returns on any and all proceeds of production from the Clarkdale Slag
Project.
The
following sets forth certain information regarding the acquisition of the 50%
financial interest in the Joint Venture Agreement with respect to the Clarkdale
Slag Project from Nanominerals, as such information relates to Dr. Charles A.
Ager, Carl S. Ager and Ian R. McNeil, who may be considered promoters of the
Company by virtue of their positions in the Company and
Nanominerals:
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We
acquired the assets consisting of the 50% financial interest in the Joint
Venture Agreement with respect to the Clarkdale Slag Project from
Nanominerals.
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We
applied EITF 98-03 with regard to the acquisition of the joint venture
interest in the Clarkdale Slag Project from Nanominerals. We
determined that the acquisition of the joint venture interest in the
Clarkdale Slag Project did not constitute an acquisition of a business, as
that term is defined in EITF 98-03, and we recorded the acquisition as a
purchase of assets.
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The
Assignment Agreement and each of the August 31, 2005 and October 24, 2005
amendments, including the determination of the amount at which we acquired
such assets, were negotiated on our behalf by K. Ian Matheson, who served
as an executive officer and director at the time of the execution of the
Assignment Agreement and the August 31, 2005 amendment and as a director
at the time of the execution of the October 24, 2005
amendment.
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The
$690,000 which we paid to Nanominerals in respect of the acquisition of
the Clarkdale Slag Project represents the cost to Nanominerals of the
assets consisting of the rights in the Joint Venture Agreement assigned by
Nanominerals in connection with the Assignment
Agreement.
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Certain
Transactions Between Nanominerals and Other Stockholders
. On
January 17, 2006, Nanominerals acquired 16,000,000 shares of our common stock
from K. Ian Matheson in consideration of a payment of $4,640.50, to Mr.
Matheson, and, on the same date, Nanominerals sold 8,000,000 of the 10,000,000
warrants which Nanominerals acquired from us in connection with the Assignment
Agreement to K. Ian Matheson in consideration of a payment of $5,000 from Mr.
Matheson.
On
January 31, 2006, Nanominerals transferred the remaining 2,000,000 warrants in
the following transactions: (i) 1,000,000 warrants to Richard J. Werdesheim and
Lynne Werdesheim, as trustees for the Werdesheim Family Trust, for a payment of
$625, and (iii) 1,000,000 warrants to Craigen L.T. Maine, as trustee for the
Maine Rev. Family Trust, for a payment of $625.
Consulting
Arrangement with Nanominerals
. Nanominerals provides us with
the use of its laboratory, instrumentation, milling equipment and research
facilities which has allowed us to perform tests and analysis both effectively
and in a more timely manner than would otherwise be available from other such
consultants. We believe that Nanominerals’ knowledge and
understanding of the science and technology in our business, along with its
understanding of how to implement our business plan in a practical manner, has
made Nanominerals an important part of our technical team. Dr. Ager
performs the services for us in his authorized capacity with Nanominerals under
our consulting arrangement with Nanominerals. Nanominerals also
engages the services of outside technical consultants to perform the services
for us, depending on the specific goal of a particular project. Some
of our consultants, such as Dr. Hewlett, have worked directly with Nanominerals
in an ongoing manner and performed day-to-day work and tests. The
consulting services provided by Nanominerals are highly specialized and unique
to the mineral exploration industry, and there is a limited number of experts
that can perform these types of services. We currently do not rely
solely on Nanominerals to provide us with technical expertise to guide the
project technically. However, Nanominerals continues to be an
important consultant to assist us with our technical
challenges.
We pay
Nanominerals a $30,000 per month fee, together with expense reimbursement and
some expenses, to cover their services. The services provided by
Nanominerals include:
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SEM/EDS
Studies
: Nanominerals uses SEM/EDS to identify the
minerals (gold, silver, copper and zinc) in the slag material and
understand the physical make-up of the slag. This information
has provided us with an understanding how to potentially liberate the
minerals from the slag material by mechanical methods
(grinding). This type of work is highly specialized and very
unique to the mineral exploration
industry.
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Grinding
Studies
: Looking at the ground material again using
SEM/EDS, Nanominerals has assisted us in testing a number of different
grinders and variables (size of material fed to grinder, grinding time,
etc.) to find the best way to mechanically liberate and expose the
minerals within the slag material. Without mechanical
liberation, the chemicals used in the extraction process (leaching) cannot
perform. Therefore, grinding is a crucial step in the overall
processing of the slag material. The unique nature of the
slag material (i.e. it is very hard and abrasive and the minerals are
entombed within the slag) makes the proper grinding of the slag material
very difficult. Grinding and crushing are commonly used in the
mining industry.
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Analytical and
Extraction Studies
: Nanominerals has provided us the use of its
laboratory, instrumentation, milling equipment and research facilities and
has performed (and continues to perform) analytical and extraction studies
for the presence of gold, silver, copper and zinc in the slag
material. Nanominerals has tested different variables
(chemicals, pH, ORP, machines, instruments, etc.) to attempt to determine
the most effective methods to analyze and extract the desired
metals.
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Flow-Sheet
Development
: Nanominerals, in conjunction with Dr.
Hewlett, has developed a flow sheet for the Clarkdale Project to attempt
to determine methods to process the slag material on a large
scale. The flow-sheet for the first production module has been
designed with the intention to allow for the most effective and economic
extraction of metals from the slag material with the least environmental
impact. Nanominerals assisted us in: (i) building the pilot
plant, where the grinding, leaching, filtering and extraction of the
metals was performed, (ii) gathering information from the pilot plant, and
(iii) making changes to the design, equipment and chemicals used in the
process of extracting metals from the slag
material. Nanominerals continues to assist us in determining
the most effective methods used in the process of extracting metals from
the slag material.
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Financings
: Nanominerals
has introduced us to investors and potential investors which have led to
participation in our previous financings. Nanominerals has also
provided assistance to us when potential financiers performed technical
due diligence on our projects, including making technical presentations to
potential investors. We have not provided special fees to
Nanominerals in connection with such
financings.
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We
commenced our consulting arrangement with Nanominerals in 2005 following the
completion of the Assignment Agreement relating to the Clarkdale Slag
Project. In 2005, we only reimbursed Nanominerals for technical
expenses. However, in 2006, we began to pay Nanominerals the $30,000
monthly fee, plus expense reimbursement due to the significant amount of work
that Nanominerals was performing for us. This consulting arrangement
was approved by the Board, including by K. Ian Matheson, who has never had a
direct or indirect financial interest in Nanominerals.
The Board
initially determined that $30,000 per month fee was a reasonable rate for
Nanominerals based on several factors:
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the
technical services provided by Nanominerals were highly specialized and
required scientists with significant experience in mining, metallurgy and
chemistry.
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we
required a significant amount of time to be devoted to our projects (most
importantly at Clarkdale). Nanominerals was available to us
nearly every day (at least 100 hours per
month).
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Nanominerals
had available resources, such as outside scientific contacts whom the
consultant could use to perform specific work (i.e. SEM specialists,
metallurgists in certain specialized fields,
etc.).
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Nanominerals
had instrumentation and laboratory facilities at its disposal, either to
be able to prepare or provide technical presentations and coordinate
technical due-diligence presentations to prospective
investors.
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Nanominerals
was willing to provide the services to us on a month-to-month with the
ability to terminate at any time.
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Given the
time commitment that we required and the general market rate for qualified
consultants of approximately $500 per hour, anticipated monthly fees for the
services that Nanominerals was to perform were estimated to be a minimum of
$50,000. Given these criteria, we believe that engaging Nanominerals
to perform these services at the $30,000 monthly rate, plus expense
reimbursement, has provided an advantage to us over other technical
consultants.
During
the years ended December 31, 2006, 2007 and 2008 and the six months ended June
30, 2009, we utilized the services of Nanominerals to provide technical
assistance and financing related activities primarily to the Clarkdale Slag
Project and Searchlight Gold Project. In addition, Nanominerals
provided us with the use of its laboratory, instrumentation, milling equipment
and research facilities. In 2006, Nanominerals began to invoice us
for technical assistance, financing related activities and reimbursement of
expenses. For the year ended December 31, 2006, we incurred total
fees and reimbursement of expenses to Nanominerals of $495,000 and $271,103,
respectively. For the year ended December 31, 2007, we incurred total
fees and reimbursement of expenses to Nanominerals of $360,000 and $105,346,
respectively. For the year ended December 31, 2008, we incurred total
fees and reimbursement of expenses to Nanominerals of $360,000 and $104,269,
respectively. For the six months ended June 30, 2009, we incurred
total fees and reimbursement of expenses to Nanominerals of $180,000 and
$49,862, respectively. At June 30, 2009, we had an outstanding
balance due to Nanominerals of $74,951.
Other Agreements
with Nanominerals
. We currently have a verbal understanding
with Nanominerals which provides us with the use of a patented halide leach
(comprised of chloride and bromide) technology at the Clarkdale Slag Project
site without a royalty. The expiration date of the patent would have
been October 28, 2014. However, the US Patent and Trademark Office
website indicates that the patent has expired for failure to pay maintenance
fees on the patent, and, therefore, the patent is now in the public
domain. As a result of the expiration of the patent, we do not
believe that we will need a formal agreement to use the technology at the
Clarkdale Slag Project site.
Transactions
with Verde River Iron Company and Harry B. Crockett
Under the
terms of a letter agreement, dated November 22, 2006 and as amended on February
15, 2007, with VRIC, Harry B. Crockett and Gerald Lembas, and an Agreement and
Plan of Merger with VRIC and Transylvania, dated and completed on February 15,
2007, we acquired all of the outstanding shares of Transylvania from VRIC
through the merger of Transylvania into our wholly-owned subsidiary, Clarkdale
Minerals LLC, a Nevada limited liability company. VRIC is an
affiliate of our director, Harry B. Crockett. As a result of the
merger, we own title to the approximately 200 acre property underlying a slag
pile located in Clarkdale, Arizona from which we are seeking to recover base and
precious metals through the reprocessing of slag material, approximately 600
acres of additional land adjacent to the project property and a commercial
building in the town of Clarkdale, Arizona. In accordance with the
terms of these agreements, we: (i) paid $10,100,000 in cash to VRIC; and (ii)
issued 16,825,000 shares of our common stock to Harry B. Crockett and Gerald
Lembas, the equity owners of VRIC, and certain designates of VRIC under the
agreements, who are not our affiliates. The $10,100,000 cash payment
to VRIC consisted of (i) $9,900,000 in connection with the acquisition of
Transylvania and (ii) $200,000 paid to VRIC for an option to enter into the
reorganization with Transylvania.
Under the
terms of our 2007 agreements to acquire Transylvania with VRIC, we have the
following continuing obligations:
|
|
·
|
we
agreed to continue to pay VRIC $30,000 per month (which amount we had
previously paid to VRIC under the Joint Venture Agreement since June 2005)
until the earlier of: (i) the date that is 90 days after we receive a
bankable feasibility study, or (ii) the tenth anniversary of the date of
the execution of the letter
agreement;
|
|
|
·
|
we
have agreed to pay VRIC $6,400,000 within 90 days after we receive a
bankable feasibility study;
|
|
|
·
|
we
have agreed to pay VRIC a minimum annual royalty of $500,000, commencing
90 days after we receive a bankable feasibility study, and an additional
royalty consisting of 2.5% of the “net smelter returns” on any and all
proceeds of production from the Clarkdale Slag Project. The
minimum royalty remains payable until the first to occur of: (1) the end
of the first calendar year in which the percentage royalty equals or
exceeds $500,000; or (2) February 15, 2017. In any calendar
year in which the minimum royalty remains payable, the combined minimum
royalty and percentage royalty will not exceed $500,000;
and
|
|
|
·
|
we
have agreed to pay VRIC an additional amount of $3,500,000 from the net
cash flow of the Clarkdale Slag Project after such time that we have
constructed and are operating a processing plant or plants that are
capable of processing approximately 2,000 tons of slag material per day at
the Clarkdale Slag Project. The acquisition agreement does not
include a specific provision with respect to the periods at the end of
which “net cash flow” is measured, once the production threshold has been
reached. Therefore, the timing and measurement of specific
payments may be subject to dispute. The parties intend to
negotiate a clarification of this provision in good faith before the
production threshold has been
reached.
|
We have
recorded a liability for the $30,000 monthly payment commitment using imputed
interest based on our 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 ten years, which represents the maximum term the VRIC liability is payable
if the Project Funding Date does not occur by the tenth anniversary of the date
of the execution of the letter agreement. Actual payments made under
the letter agreement subsequent to the acquisition have been made as
follows:
|
|
|
Total Payments
|
|
|
Amount
Applied to Interest
|
|
|
Amount Applied
to Principal
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/15/07
Discounted Acquisition Liability
|
|
|
|
|
|
|
|
|
|
|
$
|
2,501,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended 3/31/07
|
|
$
|
60,000
|
|
|
$
|
17,942
|
|
|
$
|
42,058
|
|
|
|
2,459,129
|
|
|
Quarter
Ended 6/30/07
|
|
|
90,000
|
|
|
|
48,910
|
|
|
|
41,090
|
|
|
|
2,418,039
|
|
|
Quarter
Ended 9/30/07
|
|
|
90,000
|
|
|
|
48,082
|
|
|
|
41,918
|
|
|
|
2,376,121
|
|
|
Quarter
Ended 12/31/07
|
|
|
90,000
|
|
|
|
47,239
|
|
|
|
42,761
|
|
|
|
2,333,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Totals
|
|
|
330,000
|
|
|
|
162,173
|
|
|
|
167,827
|
|
|
|
2,333,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended 3/31/08
|
|
|
90,000
|
|
|
|
46,378
|
|
|
|
43,622
|
|
|
|
2,289,738
|
|
|
Quarter
Ended 6/30/08
|
|
|
90,000
|
|
|
|
45,499
|
|
|
|
44,501
|
|
|
|
2,245,237
|
|
|
Quarter
Ended 9/30/08
|
|
|
90,000
|
|
|
|
44,603
|
|
|
|
45,397
|
|
|
|
2,199,840
|
|
|
Quarter
Ended 12/31/08
|
|
|
90,000
|
|
|
|
43,690
|
|
|
|
46,310
|
|
|
|
2,153,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Totals
|
|
|
270,000
|
|
|
|
136,480
|
|
|
|
133,520
|
|
|
|
2,153,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended 3/31/09
|
|
|
90,000
|
|
|
|
42,757
|
|
|
|
47,243
|
|
|
|
2,106,287
|
|
|
Quarter
Ended 6/30/09
|
|
|
90,000
|
|
|
|
41,806
|
|
|
|
48,194
|
|
|
|
2,058,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
Totals
|
|
$
|
180,000
|
|
|
$
|
84,563
|
|
|
$
|
95,437
|
|
|
$
|
2,058,093
|
|
Other
than the total $30,000 monthly payment, which includes imputed interest as set
forth in the table above, we have accounted for the payments that are dependent
upon future events as contingent payments. Upon meeting the
contingency requirements described above, the purchase price of the Clarkdale
Slag Project will be adjusted to reflect the additional
consideration.
Transactions
with Affiliate of our Chief Financial Officer
During
the years ended December 31, 2008 and 2007, we utilized the accounting firm of
Cupit, Milligan, Ogden & Williams, an affiliate of Melvin L. Williams, our
Chief Financial Officer, to provide accounting support services. For
the year ended December 31, 2008 we incurred total fees and reimbursement of
expenses to the firm of $83,213 and $120, respectively. For the year
ended December 31, 2007 we incurred total fees and reimbursement of expenses of
$31,277 and $1,144, respectively. For the six months ended June 30,
2009 and 2008 we incurred total fees of $89,819 and $27,035,
respectively. At June 30, 2009, we had an outstanding balance due to
the firm of $67,617. These accounting support services included
bookkeeping input for 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’s
compensation has been provided in the form of salary. The direct
benefit to Mr. Williams of the above Cupit, Milligan fees was $28,742 for the
six months ended June 30, 2009, and $22,468 and $11,260 for the years ended
December 31, 2008 and 2007, respectively.
We
believe that all transactions with our affiliates have been entered into on
terms no less favorable to us than could have been obtained from independent
third parties. We intend that any transactions with officers,
directors and 5% or greater stockholders will be on terms no less favorable to
us than could be obtained from independent third parties.
We
currently only have one independent director and the existence of these
continuing obligations to our affiliates may create a conflict of interest
between us and all of our board members and senior executive management, and any
disputes between us and such persons over the terms and conditions of these
agreements that may arise in the future may raise the risk that the negotiations
over such disputes may not be subject to being resolved in an arms’ length
manner. We intend to make good faith efforts to recruit additional
independent persons to our board of directors. We intend that any
transactions with our affiliates will be approved by a majority of our
independent, disinterested directors and will comply with the Sarbanes Oxley Act
and other securities laws and regulations.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information concerning the number of shares
of our common stock owned beneficially as of October 1, 2009 by: (i) each person
(including any group) known to us to own more than five percent (5%) of any
class of our voting securities, (ii) each of our directors and each of our named
executive officers, and (iii) officers and directors as a
group. Unless otherwise indicated, the stockholders listed possess
sole voting and investment power with respect to the shares shown and the
officers, directors and stockholders can be reached at our principal offices at
2441 West Horizon Ridge Parkway, Suite 120, Henderson, Nevada 89052.
|
|
|
Name
And Address
|
|
Amount
And Nature Of
|
|
|
Percentage
Of
|
|
|
|
|
Of
Beneficial Owner
|
|
Beneficial
Ownership
|
|
|
Common
Stock
(1)
|
|
|
DIRECTORS
AND
OFFICERS
|
|
|
|
|
|
|
|
|
|
|
|
Ian
R. McNeil
|
|
|
17,242,394
|
(2)(8)
|
|
|
16.05
|
%
|
|
|
|
Carl
S. Ager
|
|
|
17,242,394
|
(3)(8)
|
|
|
16.05
|
%
|
|
|
|
Melvin
L. Williams
|
|
|
174,600
|
(4)
|
|
|
*
|
|
|
|
|
Robert
D. McDougal
|
|
|
813,214
|
(5)
|
|
|
*
|
|
|
|
|
Harry
B. Crockett
|
|
|
7,642,982
|
(6)
|
|
|
7.17
|
%
|
|
|
|
Martin
B. Oring
|
|
|
853,683
|
(7)
|
|
|
*
|
|
|
|
|
All
officers and directors
as
a group (6 persons)
|
|
|
27,969,267
|
|
|
|
25.61
|
%
|
|
HOLDERS
OF
MORE
THAN 5%
OF
OUR COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nanominerals
Corp.
3500
Lakeside Court, Suite 206
Reno,
Nevada 89509
|
|
|
16,000,000
|
(8)
|
|
|
15.01
|
%
|
|
|
|
K.
Ian Matheson
2215
Lucerne Circle
Henderson,
Nevada 89014
|
|
|
10,932,004
|
(9)
|
|
|
9.54
|
%
|
|
|
|
Dr.
Charles A. Ager
17146
– 20
th
Avenue
Surrey,
British Columbia, Canada V3S
9N4
|
|
|
17,045,190
|
(8)(10)
|
|
|
15.99
|
%
|
|
*
|
Less
than 1%.
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the
SEC. Shares of common stock subject to options or warrants
currently exercisable or exercisable within 60 days of the date of this
prospectus, are deemed outstanding for computing the percentage ownership
of the stockholder holding the options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other
stockholder. Unless otherwise indicated in the footnotes to
this table, we believe stockholders named in the table have sole voting
and sole investment power with respect to the shares set forth opposite
such stockholder's name. Percentage of ownership is based on
106,578,527 shares of common stock outstanding as of October 1, 2009.
|
|
(2)
|
Consists
of 407,594 shares and options to acquire an additional 834,800 shares of
our common stock held directly by Ian R. McNeil, our Chief Executive
Officer and a member of our board of directors. In addition,
Mr. McNeil is a 17.5% stockholder of Nanominerals, a company that owns
16,000,000 of our outstanding shares of common stock. However,
Mr. McNeil does not have any voting or investment powers over the
16,000,000 shares owned by Nanominerals. For purposes of Rule
13d-3 of the Exchange Act, Mr. McNeil may be deemed to be a beneficial
owner of the 16,000,000 shares owned by Nanominerals by virtue of his
ownership interest in Nanominerals. However, for purposes of
Section 13(d) of the Exchange Act, Mr. McNeil disclaims beneficial
ownership of all but a number of shares not in excess of 2,800,000 of the
16,000,000 shares owned by Nanominerals, which reflects his 17.5%
ownership interest in Nanominerals. See footnote (8) below.
|
|
(3)
|
Consists
of 407,594 shares and options to acquire an additional 834,800 shares of
our common stock held directly by Carl S. Ager, our Vice President,
Secretary and Treasurer and a member of our board of
directors. In addition, Mr. Ager is a 17.5% stockholder of
Nanominerals, a company that owns 16,000,000 of our outstanding shares of
common stock. However, Mr. Ager does not have any voting or
investment powers over the 16,000,000 shares owned by
Nanominerals. For purposes of Rule 13d-3 of the Exchange Act,
Mr. Ager may be deemed to be a beneficial owner of the 16,000,000 shares
owned by Nanominerals by virtue of his ownership interest in
Nanominerals. However, for purposes of Section 13(d) of the
Exchange Act, Mr. Ager disclaims beneficial ownership of all but a number
of shares not in excess of 2,800,000 of the 16,000,000 shares owned by
Nanominerals, which reflects his 17.5% ownership interest in
Nanominerals. See footnote (8) below.
|
|
(4)
|
Consists
of 56,000 shares held directly by Melvin L. Williams and options to
acquire an additional 118,600 shares of our common
stock.
|
|
(5)
|
Consists
of 238,155 shares held directly by Robert D. McDougal, 25,059 shares held
by Robert D. McDougal as Trustee of the Robert D. McDougal and Edna D.
McDougal Family Trust Dated December 13, 2007 and options to acquire an
additional 550,000 shares of our common
stock.
|
|
(6)
|
Consists
of 7,608,882 shares held by Harry B. Crockett, as Trustee of the Marcia
and Harry Crockett 2004 Family Trust UA dated April 24, 2004 and 34,100
shares held directly by Mr.
Crockett.
|
|
(7)
|
Consists
of 455,000 shares held directly by Martin B. Oring, 105,000 shares held by
Martin Oring Financial Trust dated December 20, 2006, a family trust of
which Mr. Oring’s wife serves as a trustee, and options and warrants to
acquire an additional 293,683 shares of common stock held by Mr. Oring and
his affiliated entities. The shares underlying 62,500 warrants
are being registered in this Registration
Statement.
|
|
(8)
|
Pursuant
to a Schedule 13D filed by Dr. Charles A. Ager, Nanominerals is a
privately held Nevada corporation which owns 16,000,000 shares of our
common stock. Ian R. McNeil and Carl S. Ager, who are our
officers and directors, each own 17.5% of the issued and outstanding
shares of Nanominerals. Dr. Charles A. Ager, the sole director
and officer of Nanominerals, and his wife, Carol Ager, collectively own
35% of the issued and outstanding shares of
Nanominerals. Further, Messrs. Ager and McNeil have given an
irrevocable proxy to Dr. Ager to vote their respective shares of
Nanominerals during the time that Mr. Ager or Mr. McNeil, as the case may
be, serves as one of our directors or executive officers. Dr.
Ager has sole voting and investment powers over the 16,000,000 shares
owned by Nanominerals. A group of additional shareholders of
Nanominerals, none of who is an officer or director of Searchlight or
Nanominerals, collectively own 30% of the outstanding shares of
Nanominerals.
|
|
(9)
|
Mr.
Matheson beneficially owns 10,932,004 shares of common
stock. These shares include 1,637,002 shares held directly by
K. Ian Matheson, 1,295,002 shares held by Mr. Matheson’s wife and related
companies, warrants to purchase an additional 8,000,000 shares held
directly by Mr. Matheson.
|
|
(10)
|
These
shares include the 16,000,000 shares owned by
Nanominerals. Pursuant to a Schedule 13D filed by Dr. Ager, Dr.
Ager and his wife, Carol Ager, collectively own 35% of the outstanding
shares of Nanominerals. Dr. Ager is the sole director and
officer of Nanominerals. Further, Messrs. Ager and McNeil have
given an irrevocable proxy to Dr. Ager to vote their respective shares of
Nanominerals during the time that Mr. Ager or Mr. McNeil, as the case may
be, serves as one of our directors or executive officers. Dr.
Ager has sole voting and investment powers over the 16,000,000 shares
owned by Nanominerals. See footnote (8) above. In
addition, Dr. Ager’s affiliate, Geotech Mining Inc., owns 140,000 shares
of common stock. Further Mrs. Ager owns 765,190 shares in her
own name, and her affiliate, Geosearch Inc., owns an additional 140,000
shares.
|
DESCRIPTION
OF OUR SECURITIES
We have
the authority to issue 400,000,000 shares of common stock, $0.001 par
value. As of October 1, 2009, there were 106,578,527 shares of common
stock outstanding.
The
following description of our capital stock does not purport to be complete and
is subject to, and is qualified by, our articles of incorporation and bylaws,
which are filed as exhibits to the registration statement of which this
prospectus is a part.
Common
Stock
Holders
of our common stock are entitled to one vote per share on all matters requiring
a vote of stockholders, including the election of directors. The
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available, subject to preferences that may be applicable to preferred
stock, if any, then outstanding. At present, we have no plans to
issue dividends. See “Dividend Policy” for additional
information. In the event of a liquidation, dissolution or winding up
of our company, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock
has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable
to the common stock. There is a limited public market for our common
stock.
Preferred
Stock
We do not
currently have an authorized class of preferred stock. However, we
intend to submit a proposal to our stockholders to authorize a class of up
40,000,000 shares of preferred stock, and have filed a preliminary proxy
statement with the SEC to that effect. There can be no assurances
that our stockholders will approve the proposed of authorization of a class of
our preferred stock.
The
proposed class of preferred stock is commonly known as “blank check” preferred
stock. The preferred stock may be issued from time to time in one or
more series, and the board of directors, without further approval of our
stockholders, would be authorized to fix the relative rights, preferences,
privileges and restrictions applicable to each series of preferred
stock. Such shares of preferred stock, if and when issued, may have
rights, powers and preferences superior to those of our common
stock. Although there are no current plans, commitments or
understandings, written or oral, to issue any preferred stock, in the event of
any issuances, the holders of common stock will not have any preemptive or
similar rights to acquire any preferred stock.
The
proposed class of preferred stock could, under certain circumstances, have an
anti-takeover effect. For example, in the event of a hostile attempt
to take over control of us, it may be possible for us to endeavor to impede the
attempt by issuing shares of preferred stock, thereby diluting or impairing the
voting power of the other outstanding shares of common stock and increasing the
potential costs to acquire control of us. The proposed class of
preferred stock therefore may have the effect of discouraging unsolicited
takeover attempts, thereby potentially limiting the opportunity for our
stockholders to dispose of their shares at the higher price generally available
in takeover attempts or that may be available under a merger
proposal. The proposed class of preferred stock may have the effect
of permitting our current management, including the current board of directors,
to retain its position, and place it in a better position to resist changes that
stockholders may wish to make if they are dissatisfied with the conduct of our
business.
The
proposed class of preferred stock is not being submitted as a result of or in
response to any known accumulation of stock or threatened takeover or attempt to
obtain control of us by means of a business combination, tender offer,
solicitation in opposition to management or otherwise by any
person.
Options
and Warrants
As of
October 1, 2009, we had outstanding options and warrants to purchase an
aggregate of 21,811,770 shares of our common stock, with a range of exercise
prices from $0.25 to $4.04. The options and warrants expire at
various dates between 2009 and 2017. We have outstanding options to
purchase up to 2,769,383 shares of common stock at a weighted average exercise
price of $1.13 per share, 331,183 of which were granted pursuant to our 2007
Stock Option Plan and 2,438,200 of which were granted outside of the 2007 Stock
Option Plan. We have outstanding warrants to purchase up to
19,042,387 shares of common stock at a weighted average exercise price of $1.12
per share.
SHARES
ELIGIBLE FOR FUTURE SALE
There is
a limited public market for our common stock. We cannot predict the
effect, if any, that market sales of shares or the availability of shares for
sale will have on the market price prevailing from time to
time. Sales of our common stock in the public market after the
restrictions lapse as described below, or the perception that those sales may
occur, could cause the prevailing market price to decrease or to be lower than
it might be in the absence of those sales or perceptions.
Sale
of Restricted Shares
As of
October 1, 2009, there were 106,578,527 shares of common stock
outstanding. The shares of common stock being sold in this offering
will be freely tradable, other than by any of our “affiliates” as defined in
Rule 144(a) under the Securities Act, without restriction or registration under
the Securities Act. All remaining outstanding shares were issued and
sold by us in private transactions and those shares, as well as shares issuable
on exercise of currently outstanding options and warrants are, or will be
eligible for public sale if registered under the Securities Act or sold in
accordance with Rule 144 or Rule 701 under the Securities Act. These
remaining shares are “restricted securities” within the meaning of Rule 144
under the Securities Act.
Rule
144
In
general, under Rule 144, a person who is not our affiliate and has not been our
affiliate at any time during the preceding three months will be entitled to sell
any shares of our common stock that such person has beneficially owned for at
least six months, including the holding period of any prior owner other than one
of our affiliates, without regard to volume limitations. Sales of our
common stock by any such person would be subject to the availability of current
public information about us if the shares to be sold were beneficially owned by
such person for less than one year.
Our
affiliates who have beneficially owned shares of our common stock for at least
six months, including the holding period of any prior owner other than one of
our affiliates, would be entitled to sell within any three-month period a number
of shares that does not exceed 1% of the number of shares of our common stock
then outstanding, which would equal approximately 1,065,785 shares, as of
October 1, 2009. However, because our common stock is quoted only
over the OTC Bulletin Board, which is not considered to be an “automated
quotation system” for purposes of Rule 144(e), the market-based volume resale
limitation under Rule 144(e) is unavailable. The market-based volume
resale limitation permits resale volumes under Rule 144 based on the average
weekly reported volume of trading in a security on all national securities
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date of
filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with
respect to the sale. Sales under Rule 144 by our affiliates are also
subject to manner of sale provisions and notice requirements and to the
availability of current public information about us.
We cannot
estimate the number of shares of our common stock that our existing stockholders
will elect to sell under Rule 144.
Anti-Takeover
Effects of Nevada Law, Our Charter Documents and Our Stockholder Rights
Plan
Certain
provisions of Nevada law and our bylaws could make more difficult the
acquisition of us by means of a tender offer or otherwise, and the removal of
incumbent officers and directors. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of us.
Classified
Board
. Our board of directors is divided into three
classes. As a result of this provision, at least two annual meetings
of stockholders may be required for stockholders to change a majority of the
board of directors. The classification of directors will make it more
difficult to change the board of directors, and will promote the continuity of
existing management. Our Bylaws also provide that any vote of the
stockholders to alter, amend or repeal this Bylaw provision in any respect shall
require the affirmative vote of the holders of at least sixty-six and two thirds
percent (66 2/3%) of our outstanding voting power, voting together as a single
class.
No Action By
Written Consent
.
Our
Bylaws provide that any
action required to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders or otherwise, may not be taken without a meeting, prior
notice and a vote, and stockholders may not act by written consent.
Advance Notice
Procedures
. Our bylaws establish an advance notice procedure
for stockholder proposals to be brought before an annual meeting of our
stockholders, including proposed nominations of persons for election to our
board. Stockholders at our annual meeting may only consider proposals
or nominations specified in the notice of meeting or brought before the meeting
by or at the direction of our board or by a stockholder who was a stockholder of
record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to our secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although our by-laws do not give our board the power to
approve or disapprove stockholder nominations of candidates or proposals
regarding other business to be conducted at a special or annual meeting, our
bylaws may have the effect of precluding the conduct of some business at a
meeting if the proper procedures are not followed or may discourage or defer a
potential acquirer from conducting a solicitation of proxies to elect its own
slate of directors or otherwise attempting to obtain control of
us. Our Bylaws also provide that any vote of the stockholders to
alter, amend or repeal this Bylaw provision in any respect shall require the
affirmative vote of the holders of at least sixty-six and two thirds percent (66
2/3%) of our outstanding voting power, voting together as a single
class.
Business
Combinations
. As a Nevada corporation, we are also subject to
certain provisions of the Nevada General Corporation Law that have anti-takeover
effects and may inhibit a non-negotiated merger or other business
combination. These provisions are intended to encourage any person
interested in acquiring us to negotiate with, and to obtain the approval of, our
board of directors in connection with such a transaction. However,
certain of these provisions may discourage a future acquisition of us, including
an acquisition in which the stockholders might otherwise receive a premium for
their shares. As a result, stockholders who might desire to
participate in such a transaction may not have the opportunity to do
so.
The
Control Share Acquisition Statute generally applies only to Nevada corporations
with at least 200 stockholders, including at least 100 stockholders of record
who are Nevada residents, and which conduct business directly or indirectly in
Nevada. Our Bylaws provide that the provisions of the Nevada Revised
Statutes, known as the “Control Share Acquisition Statute” apply to the
acquisition of a controlling interest in us, irrespective of whether we have 200
or more stockholders of record, or whether at least 100 of our stockholders have
addresses in the State of Nevada appearing on our stock ledger.
This
statute generally provides that any person that acquires a “controlling
interest” acquires voting rights in the control shares, as defined, only as
conferred by the disinterested stockholders of the corporation at a special or
annual meeting. A person acquires a “controlling interest” whenever a
person acquires shares of a subject corporation that, but for the application of
these provisions of the Nevada Revised Statutes, would enable that person to
exercise (1) one-fifth or more, but less than one-third, (2) one-third or more,
but less than a majority or (3) a majority or more, of all of the voting power
of the corporation in the election of directors. Once an acquirer
crosses one of these thresholds, shares which it acquired in the transaction
taking it over the threshold and within the 90 days immediately preceding
the date when the acquiring person acquired or offered to acquire a controlling
interest become “control shares.” In the event control shares are
accorded full voting rights and the acquiring person has acquired at least a
majority of all of the voting power, any stockholder of record who has not voted
in favor of authorizing voting rights for the control shares is entitled to
demand payment for the fair value of its shares.
These
laws may have a chilling effect on certain transactions if our articles of
incorporation or bylaws are not amended to provide that these provisions do not
apply to us or to an acquisition of a controlling interest, or if our
disinterested stockholders do not confer voting rights in the control
shares.
Rights
Agreement
. On August 24, 2009, we entered into a Rights
Agreement, dated August 24, 2009, with Empire Stock Transfer, Inc. as rights
agent. In connection with the Rights Agreement, the board of
directors declared a dividend of one common share purchase right for each
outstanding share of our common stock. The dividend was paid on
September 1, 2009 to stockholders of record on the record date of August 24,
2009.
The
rights have some anti-takeover effects and generally will cause substantial
dilution to a person or group that attempts to acquire control of us without
conditioning the offer on either redemption of the rights or amendment of the
rights to prevent this dilution. The rights are designed to provide
additional protection against abusive or unfair takeover tactics, such as offers
for all shares at less than full value or at an inappropriate time (in terms of
maximizing long-term stockholder value), partial tender offers and selective
open-market purchases. The rights are intended to assure that our
board of directors has the ability to protect stockholders and us if efforts are
made to gain control of us in a manner that is not in the best interests of us
and our stockholders. The rights could have the effect of delaying,
deferring or preventing a change of control that is not approved by our board of
directors, which in turn could prevent our stockholders from recognizing a gain
in the event that a favorable offer is extended and could materially and
negatively affect the market price of the common stock.
The
rights initially are not exercisable and are attached to and trade with the
common stock outstanding as of, and all shares of common stock issued after, the
record date, until after the distribution date. As of, and after the
distribution date for the rights, the rights will separate from the shares of
common stock, and each right entitles the registered holder to purchase from us
one share of our common stock at a purchase price of $12.00 per share, subject
to adjustment.
The
distribution date is the earliest of:
|
|
·
|
10
days following a public announcement that a person or group of affiliated
or associated persons (other than us or certain of our related entities)
has become an acquiring person by acquiring beneficial ownership of 15% or
more of the outstanding shares of common stock (or in the case of a person
that had beneficial ownership of 15% or more of the outstanding shares of
common stock on the date the Rights Agreement was executed, by obtaining
beneficial ownership of any additional shares of common stock) other than
as a result of repurchases of shares of common stock by us, or
|
|
|
·
|
10
business days (or such later date as may be determined by action of our
board of directors prior to such time as any person becomes an acquiring
person) after the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group (other than us or
certain of our related entities)) of 15% or more of such outstanding
shares of common stock.
|
With
respect to any person who or which, together with all affiliates and associates
of such person, was, as of August 24, 2009, the beneficial owner of 15% or more
shares of common stock then outstanding (such person or persons being referred
to in the Rights Agreement as a grandfathered person), the distribution date
will not occur unless such grandfathered person has acquired beneficial
ownership of shares of common stock representing 20% of the outstanding shares
of common stock. However, in the event that any grandfathered person
sells, transfers or otherwise disposes of any outstanding shares of common
stock, the applicable threshold percentage will become the lesser of the
applicable threshold percentage as in effect immediately prior to such transfer,
or the percentage of outstanding shares of common stock that such grandfathered
person beneficially owns immediately following such sale, transfer or
disposition, plus an additional 1%. In no event will the applicable
threshold percentage ever exceed 20%, and in the event that the grandfathered
person becomes the beneficial owner of less than 15% of the outstanding shares
of common stock, the grandfathered person will cease to be a grandfathered
person and will be subject to all of the provisions of the Rights Agreement in
the same manner as any person who is not and was not a grandfathered
person. Grandfathered persons may be deemed to include Nanominerals,
Ian R. McNeil, Carl S. Ager, Dr. Charles A. Ager and his wife, Carol
Ager.
In the
event that any person becomes an acquiring person, each holder of a right
(except as otherwise provided in the Rights Agreement) will thereafter have the
right to receive upon exercise that number of shares of common stock (or, in
certain circumstances cash, property or other of our securities or a reduction
in the purchase price) having a current per share market price of approximately
two times the then current purchase price. Following the occurrence
of a person becoming an acquiring person, all rights that are, or (under certain
circumstances specified in the Rights Agreement) were, or subsequently become
beneficially owned by an acquiring person (or related persons and transferees)
will be null and void.
In the
event that, at any time after a person has become an acquiring person, (i) we
engage in a merger or other business combination transaction in which we are not
the continuing or surviving corporation, (ii) we engage in a merger or other
business combination transaction in which we are the continuing or surviving
corporation and the shares of common stock are changed into or exchanged, or
(iii) 50% or more of our assets or earning power are sold, mortgaged or
otherwise transferred, then each holder of a right (except rights which have
previously been voided as set forth above) will thereafter have the right to
receive, upon exercise, common stock of the acquiring company having a current
per share market price equal to approximately two times the purchase price of
the right. Each holder of a right will continue to have the right to
exercise upon the occurrence of such an event, whether or not that holder has
exercised upon an event arising from any person becoming an acquiring person,
but rights that are or were beneficially owned by an acquiring person may (under
certain circumstances specified in the Rights Agreement) become null and void.
The
current per share market price of the shares of common stock on any date will be
deemed to be the average of the daily closing prices per share of common stock
for the 30 consecutive trading days immediately prior to such date.
At any
time prior to such time as any person becomes an acquiring person, we may redeem
the rights in whole but not in part, at a redemption price of $0.001
per right (payable in
cash, common stock, or other consideration deemed appropriate by the board of
directors).
Until a
right is exercised, the holder will have no rights as a stockholder (beyond
those as an existing stockholder), including the right to vote or to receive
dividends.
The
rights will expire on August 24, 2019, subject to extension, unless the rights
are earlier redeemed or exchanged by us.
Transfer
Agent
We have
engaged Empire Stock Transfer, Inc, Henderson, Nevada, to act as our registrar
and transfer agent.
LEGAL
MATTERS
The
validity of the shares of common stock offered hereby will be passed upon for us
by Baker & Hostetler LLP, Los Angeles, California.
EXPERTS
The
financial statements included in the prospectus and elsewhere in the
registration statement, have been included in reliance on the reports of Brown
Armstrong, Paulden, McCown, Starbuck, Thornburgh & Keeter Accountancy
Corporation and Kyle L. Tingle, CPA, LLC, independent registered public
accountants, to the extent and for the periods indicated in their respective
reports, given on each of such firm’s authority as experts in accounting and
auditing.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
On
February 16, 2007, we appointed Brown Armstrong, Paulden, McCown, Starbuck,
Thornburgh & Keeter Accountancy Corporation (“Brown Armstrong”) as our new
independent registered public accounting firm following the dismissal of our
prior independent registered public accounting firm Kyle L. Tingle CPA, LLC
(“KLT”), which occurred on February 16, 2007. The decision to change
accountants was recommended by our Audit Committee and approved by our board of
directors on February 16, 2007.
KLT
performed the audit of our financial statements for the year ended December 31,
2005. During this period and the subsequent interim period through
February 16, 2007, there were no disagreements with KLT on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to KLT’s satisfaction
would have caused KLT to make reference to the subject matter of the
disagreements in connection with KLT’s report, nor were there any “reportable
events,” as such term is defined in Item 304(a)(1)(v) of Regulation S-K,
promulgated under the Securities Exchange Act of 1934, as amended.
The audit
report of KLT for our year ended December 31, 2005 did not contain an adverse
opinion, or a disclaimer of opinion, or qualification or modification as to
uncertainty, audit scope, or accounting principles, other than the uncertainty
that we might not be able to operate as a going concern.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the shares of common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules filed therewith. For further information about
us and the common stock offered hereby, reference is made to the registration
statement and the exhibits and schedules filed therewith. Statements
contained in this prospectus regarding the contents of any contract or any other
document that is filed as an exhibit to the registration statement are not
necessarily complete, and each such statement is qualified in all respects by
reference to the full text of such contract or other document filed as an
exhibit to the registration statement.
A copy of
the registration statement and the exhibits and schedules filed therewith may be
inspected without charge at the public reference room maintained by the SEC,
located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of
all or any part of the registration statement may be obtained from such offices
upon the payment of the fees prescribed by the SEC. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference
room. We also file annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC also maintains
an Internet web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
SEC. The address of the site is
www.sec.gov
.
This
prospectus includes statistical data obtained from industry
publications. These industry publications generally indicate that the
authors of these publications have obtained information from sources believed to
be reliable but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be
reliable, we have not independently verified their data.
INDEX
TO FINANCIAL STATEMENTS
Searchlight
Minerals Corp. Financial Statements
Table
of Contents
December
31, 2008, 2007 and 2006
|
Index
to Financial Statements
|
F-1
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets
|
F-4
|
|
Consolidated
Statements of Operations
|
F-5
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-6
|
|
Consolidated
Statements of Cash Flows
|
F-11
|
|
Notes
to Consolidated Financial Statements
|
F-13
|
Searchlight
Minerals Corp. Financial Statements
Table
of Contents
June
30, 2009 and 2008
|
Index
to Financial Statements
|
F-1
|
|
Consolidated
Balance Sheets
|
F-50
|
|
Consolidated
Statements of Operations
|
F-51
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-52
|
|
Consolidated
Statements of Cash Flows
|
F-53
|
|
Notes
to Consolidated Financial Statements
|
F-55
|
BROWN
ARMSTRONG PAULDEN
McCOWN
STARBUCK THORNBURGH & KEETER
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Searchlight Minerals Corp.
We have
audited the accompanying consolidated balance sheets of Searchlight Minerals
Corp. (An Exploration Stage Company) as of December 31, 2008 and 2007, and the
related consolidated statements of operations, including inception cumulative
data prospectively from January 1, 2006, stockholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2008.
Searchlight Minerals Corp.’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Searchlight Minerals Corp.
(An Exploration Stage Company) as of December 31, 2008 and 2007, and the results
of its operations, stockholders’ equity, including inception cumulative data,
and its cash flows for each of the years in the three-year period ended December
31, 2008 in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As described in Note 1 to the financial
statements, the Company’s operating losses raise substantial doubt about its
ability to continue as a going concern, unless the Company attains future
profitable operations and/or obtains additional financing. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Searchlight Minerals Corp.’s internal control
over financial reporting as of December 31, 2008, based on criteria established
in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 10, 2009 expressed an
unqualified opinion.
|
|
BROWN
ARMSTRONG PAULDEN
|
|
|
McCOWN
STARBUCK THORNBURGH & KEETER
|
|
|
ACCOUNTANCY
CORPORATION
|
|
March
10, 2009
Bakersfield,
California
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
BALANCE SHEETS
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,055,591
|
|
|
$
|
12,007,344
|
|
|
Prepaid
expenses
|
|
|
251,414
|
|
|
|
192,789
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,307,005
|
|
|
|
12,200,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
13,132,282
|
|
|
|
5,064,460
|
|
|
Mineral
properties
|
|
|
16,947,419
|
|
|
|
12,702,258
|
|
|
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
|
|
|
109,900
|
|
|
|
183,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
160,172,628
|
|
|
|
147,932,745
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
167,479,633
|
|
|
$
|
160,132,878
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,093,778
|
|
|
$
|
849,910
|
|
|
Accounts
payable - related party
|
|
|
108,515
|
|
|
|
41,974
|
|
|
VRIC
payable, current portion - related party
|
|
|
194,756
|
|
|
|
179,830
|
|
|
Capital
lease payable, current portion
|
|
|
24,026
|
|
|
|
22,983
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,421,075
|
|
|
|
1,094,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
VRIC
payable, net of current portion - related party
|
|
|
1,958,774
|
|
|
|
2,153,530
|
|
|
Capital
lease payable, net of current portion
|
|
|
40,291
|
|
|
|
64,317
|
|
|
Deferred
tax liability
|
|
|
50,455,361
|
|
|
|
50,619,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
52,454,426
|
|
|
|
52,837,505
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
53,875,501
|
|
|
|
53,932,202
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies - Note 11
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 400,000,000 shares authorized, 105,854,691 and
96,865,391 shares, respectively, issued and outstanding
|
|
|
105,854
|
|
|
|
96,865
|
|
|
Additional
paid-in capital
|
|
|
126,854,760
|
|
|
|
116,223,907
|
|
|
Common
stock subscribed
|
|
|
-
|
|
|
|
108,000
|
|
|
Accumulated
deficit during exploration stage
|
|
|
(13,356,482
|
)
|
|
|
(10,228,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
113,604,132
|
|
|
|
106,200,676
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
167,479,633
|
|
|
$
|
160,132,878
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
For the period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 14, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of Inception)
|
|
|
|
|
For the Year
Ended
|
|
|
For the Year
Ended
|
|
|
For the Year
Ended
|
|
|
Through
|
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
December 31,
2006
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
exploration and evaluation expenses
|
|
|
976,974
|
|
|
|
1,149,755
|
|
|
|
2,024,932
|
|
|
|
5,038,684
|
|
|
Mineral
exploration and evaluation expenses - related party
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
495,000
|
|
|
|
1,215,000
|
|
|
Administrative
- Clarkdale site
|
|
|
1,142,102
|
|
|
|
513,759
|
|
|
|
-
|
|
|
|
1,655,861
|
|
|
General
and administrative
|
|
|
2,517,479
|
|
|
|
1,557,048
|
|
|
|
1,209,838
|
|
|
|
6,118,169
|
|
|
General
and administrative - related party
|
|
|
83,333
|
|
|
|
32,421
|
|
|
|
-
|
|
|
|
115,754
|
|
|
Depreciation
|
|
|
62,069
|
|
|
|
37,751
|
|
|
|
6,309
|
|
|
|
107,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
5,141,957
|
|
|
|
3,650,734
|
|
|
|
3,736,079
|
|
|
|
14,250,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(5,141,957
|
)
|
|
|
(3,650,734
|
)
|
|
|
(3,736,079
|
)
|
|
|
(14,250,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenue
|
|
|
35,720
|
|
|
|
36,410
|
|
|
|
-
|
|
|
|
72,130
|
|
|
Loss
on equipment disposition
|
|
|
-
|
|
|
|
(138
|
)
|
|
|
(4,388
|
)
|
|
|
(4,526
|
)
|
|
Interest
expense
|
|
|
(3,428
|
)
|
|
|
(2,062
|
)
|
|
|
-
|
|
|
|
(5,490
|
)
|
|
Interest
and dividend income
|
|
|
203,821
|
|
|
|
314,331
|
|
|
|
77,032
|
|
|
|
595,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
236,113
|
|
|
|
348,541
|
|
|
|
72,644
|
|
|
|
657,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(4,905,844
|
)
|
|
|
(3,302,193
|
)
|
|
|
(3,663,435
|
)
|
|
|
(13,593,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
1,777,458
|
|
|
|
1,080,375
|
|
|
|
1,122,457
|
|
|
|
4,379,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(3,128,386
|
)
|
|
|
(2,221,818
|
)
|
|
|
(2,540,978
|
)
|
|
|
(9,213,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,143,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,128,386
|
)
|
|
$
|
(2,221,818
|
)
|
|
$
|
(2,540,978
|
)
|
|
$
|
(13,356,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding -Basic and diluted
|
|
|
104,338,284
|
|
|
|
88,942,414
|
|
|
|
62,075,707
|
|
|
|
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Stock
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 14, 2000
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock (recapitalized)
|
|
|
50,000,000
|
|
|
|
50,000
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
(24,999
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(231,969
|
)
|
|
|
(231,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2000
|
|
|
50,000,000
|
|
|
|
50,000
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
(256,968
|
)
|
|
|
(231,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in reverse merger
|
|
|
10,300,000
|
|
|
|
10,300
|
|
|
|
(5,150
|
)
|
|
|
-
|
|
|
|
(5,150
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(767,798
|
)
|
|
|
(767,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2001
|
|
|
60,300,000
|
|
|
|
60,300
|
|
|
|
(30,150
|
)
|
|
|
-
|
|
|
|
(1,029,916
|
)
|
|
|
(999,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
1,037,126
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,037,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature associated with debt
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,249,644
|
)
|
|
|
(1,249,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2002
|
|
|
60,300,000
|
|
|
|
60,300
|
|
|
|
1,306,976
|
|
|
|
-
|
|
|
|
(2,279,560
|
)
|
|
|
(912,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
exchanged for common stock
|
|
|
48,000,000
|
|
|
|
48,000
|
|
|
|
1,152,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
12,583
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,387
|
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,283,872
|
)
|
|
|
(1,283,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
108,300,000
|
|
|
|
108,300
|
|
|
|
2,471,559
|
|
|
|
-
|
|
|
|
(3,563,432
|
)
|
|
|
(985,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(700,444
|
)
|
|
|
(700,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
108,300,000
|
|
|
|
108,300
|
|
|
|
2,471,559
|
|
|
|
-
|
|
|
|
(4,263,876
|
)
|
|
|
(1,684,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 1,000,000 shares of common stock to two
officers
|
|
|
-
|
|
|
|
-
|
|
|
|
133,062
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 500,000 shares of common stock in satisfaction of
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
and cancellation of 70,000,000 shares of common stock
|
|
|
(70,000,000
|
)
|
|
|
(70,000
|
)
|
|
|
70,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 12,000,000 warrants in consideration of joint venture
option
|
|
|
-
|
|
|
|
-
|
|
|
|
1,310,204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,310,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for 20 mining claims
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
488,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
490,000
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Stock
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock in satisfaction of debt, $0.625 per share
|
|
|
200,000
|
|
|
|
200
|
|
|
|
124,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, Reg. S - Private
Placement, $0.25 per share, net of $205,250
commissions
|
|
|
6,390,000
|
|
|
|
6,390
|
|
|
|
1,369,070
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,375,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, Reg. S - Private Placement, $0.25 per
share, net of $135,000 commission
|
|
|
5,400,000
|
|
|
|
5,400
|
|
|
|
1,194,947
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, Reg. D 506 - Private
Placement, $0.25 per share
|
|
|
460,000
|
|
|
|
460
|
|
|
|
114,540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 1,500,000 shares of common stock to three
officers
|
|
|
-
|
|
|
|
-
|
|
|
|
266,720
|
|
|
|
-
|
|
|
|
-
|
|
|
|
266,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270,000
|
|
|
|
-
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,201,424
|
)
|
|
|
(1,201,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
52,150,000
|
|
|
|
52,150
|
|
|
|
7,843,502
|
|
|
|
270,000
|
|
|
|
(5,465,300
|
)
|
|
|
2,700,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, Reg. D - Private
Placement, $0.45 per share, net of $87,750
commission
|
|
|
3,900,000
|
|
|
|
3,900
|
|
|
|
1,663,350
|
|
|
|
(270,000
|
)
|
|
|
-
|
|
|
|
1,397,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants
|
|
|
1,225,000
|
|
|
|
1,225
|
|
|
|
(1,225
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 120,000 shares of common stock to two
officers
|
|
|
-
|
|
|
|
-
|
|
|
|
20,864
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 500,000 shares of common stock to two
directors
|
|
|
-
|
|
|
|
-
|
|
|
|
122,420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 100,000 shares of common stock to two
directors
|
|
|
-
|
|
|
|
-
|
|
|
|
24,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $0.625 per share from
exercise of warrants
|
|
|
6,125,000
|
|
|
|
6,125
|
|
|
|
3,822,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,828,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $0.375 per share from
exercise of warrants
|
|
|
1,768,500
|
|
|
|
1,768
|
|
|
|
661,420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
663,188
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Stock
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $0.625 per share from
exercise of warrants
|
|
|
612,500
|
|
|
|
613
|
|
|
|
382,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
382,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 100,000 shares of common stock to officer for
recruitment amortized over vesting period.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to officer for recruitment
|
|
|
50,000
|
|
|
|
50
|
|
|
|
102,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 50,000 shares of common stock to employee for
recruitment amortized over vesting period.
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for mining claims
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
3,078,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,080,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to employee and officer over vesting
period
|
|
|
-
|
|
|
|
-
|
|
|
|
15,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss December 31, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,540,978
|
)
|
|
|
(2,540,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
67,231,000
|
|
|
|
67,231
|
|
|
|
17,738,891
|
|
|
|
-
|
|
|
|
(8,006,278
|
)
|
|
|
9,799,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with the acquisition to five investors,
$3.975 per share
|
|
|
16,825,000
|
|
|
|
16,825
|
|
|
|
66,862,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,879,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for 182,946 shares of common stock to three officers, two
employees and a consultant
|
|
|
-
|
|
|
|
-
|
|
|
|
220,194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. D - Private Placement, $3.00 per share, net
of $381,990 commission and $79,513 issuance costs
|
|
|
4,520,666
|
|
|
|
4,521
|
|
|
|
13,095,978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,100,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $3.00 per share, net
of $111,100 commission and $8,842 issuance costs
|
|
|
575,000
|
|
|
|
575
|
|
|
|
1,604,483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,605,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $3.00 per share, net
of $525,386 commission and $85,513 issuance costs
|
|
|
2,226,161
|
|
|
|
2,226
|
|
|
|
6,065,358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,067,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to employee and officer over vesting
period
|
|
|
-
|
|
|
|
-
|
|
|
|
13,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for mining claims
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
4,506,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,508,000
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Stock
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock related to exercise of warrants
|
|
|
400,000
|
|
|
|
400
|
|
|
|
259,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed for exercise of warrants and options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
6,314
|
|
|
|
6
|
|
|
|
17,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of options
|
|
|
400,000
|
|
|
|
400
|
|
|
|
99,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $1.60 per
share
|
|
|
3,125,000
|
|
|
|
3,125
|
|
|
|
4,996,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock as commission in connection with foreign
offering
|
|
|
156,250
|
|
|
|
156
|
|
|
|
(156
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock subscribed for directors' compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of Phage related party liability to equity
|
|
|
-
|
|
|
|
-
|
|
|
|
742,848
|
|
|
|
-
|
|
|
|
-
|
|
|
|
742,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss December 31, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,221,818
|
)
|
|
|
(2,221,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
96,865,391
|
|
|
|
96,865
|
|
|
|
116,223,907
|
|
|
|
108,000
|
|
|
|
(10,228,096
|
)
|
|
|
106,200,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.65 per share from exercise of
warrants
|
|
|
3,890,000
|
|
|
|
3,890
|
|
|
|
2,524,610
|
|
|
|
(65,000
|
)
|
|
|
-
|
|
|
|
2,463,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. S - Private Placement, $1.60 per
share
|
|
|
1,637,500
|
|
|
|
1,638
|
|
|
|
2,618,362
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash Reg. D - Private Placement, $1.60 per
share
|
|
|
1,643,750
|
|
|
|
1,644
|
|
|
|
2,628,356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock as commission in connection with foreign
offering
|
|
|
80,000
|
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to officer over vesting period
|
|
|
-
|
|
|
|
-
|
|
|
|
859
|
|
|
|
-
|
|
|
|
-
|
|
|
|
859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.25 per share exercise of nonemployee stock
options
|
|
|
200,000
|
|
|
|
200
|
|
|
|
49,800
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
11,768
|
|
|
|
11
|
|
|
|
35,989
|
|
|
|
(18,000
|
)
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for mining claims
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
2,630,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,632,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of modification of stock options issued to an employee
|
|
|
-
|
|
|
|
-
|
|
|
|
36,457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,457
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Deficit During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Stock
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Equity
|
|
|
Common
stock subscribed for directors' compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.25 per share from exercise of nonemployee
stock options
|
|
|
100,000
|
|
|
|
100
|
|
|
|
24,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
18,936
|
|
|
|
19
|
|
|
|
35,981
|
|
|
|
(18,000
|
)
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to director over vesting period
|
|
|
-
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
7,346
|
|
|
|
7
|
|
|
|
17,993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for directors' compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
7,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,128,386
|
)
|
|
|
(3,128,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
105,854,691
|
|
|
$
|
105,854
|
|
|
$
|
126,854,760
|
|
|
$
|
-
|
|
|
$
|
(13,356,482
|
)
|
|
$
|
113,604,132
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
14, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date
of inception)
|
|
|
|
|
For the Year Ended
|
|
|
through
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,128,386
|
)
|
|
$
|
(2,221,818
|
)
|
|
$
|
(2,540,978
|
)
|
|
$
|
(13,356,482
|
)
|
|
Deduct:
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,143,168
|
)
|
|
Loss
from continuing operations
|
|
|
(3,128,386
|
)
|
|
|
(2,221,818
|
)
|
|
|
(2,540,978
|
)
|
|
|
(9,213,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile loss from operating to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
62,069
|
|
|
|
37,751
|
|
|
|
6,309
|
|
|
|
107,079
|
|
|
Stock
based expenses
|
|
|
136,342
|
|
|
|
269,287
|
|
|
|
289,094
|
|
|
|
1,094,505
|
|
|
Loss
on disposition of fixed assets
|
|
|
-
|
|
|
|
138
|
|
|
|
4,388
|
|
|
|
5,875
|
|
|
Amortization
of prepaid expense
|
|
|
183,913
|
|
|
|
170,413
|
|
|
|
-
|
|
|
|
354,326
|
|
|
Allowance
for bond deposit recovery
|
|
|
180,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,500
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
(242,538
|
)
|
|
|
(256,967
|
)
|
|
|
(106,235
|
)
|
|
|
(605,740
|
)
|
|
Other
assets
|
|
|
(107,400
|
)
|
|
|
40
|
|
|
|
(2,540
|
)
|
|
|
(290,400
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
310,409
|
|
|
|
(277,026
|
)
|
|
|
420,183
|
|
|
|
476,735
|
|
|
Deferred
income taxes
|
|
|
(1,777,458
|
)
|
|
|
(1,080,375
|
)
|
|
|
(1,122,457
|
)
|
|
|
(4,379,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(4,382,549
|
)
|
|
|
(3,358,557
|
)
|
|
|
(3,052,236
|
)
|
|
|
(12,270,369
|
)
|
|
Net
cash used in operating activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,931,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on mineral property claims
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87,134
|
)
|
|
Cash
paid for joint venture and merger option
|
|
|
-
|
|
|
|
-
|
|
|
|
(200,000
|
)
|
|
|
(890,000
|
)
|
|
Cash
paid to VRIC on closing date
|
|
|
-
|
|
|
|
(9,900,000
|
)
|
|
|
-
|
|
|
|
(9,900,000
|
)
|
|
Cash
paid for additional acquisition costs
|
|
|
-
|
|
|
|
(130,105
|
)
|
|
|
-
|
|
|
|
(130,105
|
)
|
|
Capitalized
interest
|
|
|
(180,170
|
)
|
|
|
(162,173
|
)
|
|
|
-
|
|
|
|
(342,343
|
)
|
|
Purchase
of property and equipment
|
|
|
(7,949,722
|
)
|
|
|
(4,155,549
|
)
|
|
|
(25,748
|
)
|
|
|
(12,147,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(8,129,892
|
)
|
|
|
(14,347,827
|
)
|
|
|
(225,748
|
)
|
|
|
(23,496,686
|
)
|
|
Net
cash used in investing activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(452,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from stock issuance
|
|
|
7,763,500
|
|
|
|
26,813,817
|
|
|
|
6,271,376
|
|
|
|
43,539,500
|
|
|
Stock
issuance costs
|
|
|
-
|
|
|
|
(677,570
|
)
|
|
|
-
|
|
|
|
(677,570
|
)
|
|
Principal
payments on capital lease payable
|
|
|
(22,982
|
)
|
|
|
(28,939
|
)
|
|
|
(15,000
|
)
|
|
|
(51,921
|
)
|
|
Principal
payments on deferred purchase liability
|
|
|
(179,830
|
)
|
|
|
(167,828
|
)
|
|
|
-
|
|
|
|
(347,658
|
)
|
|
Proceeds
from subscribed stock
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
7,560,688
|
|
|
|
26,029,480
|
|
|
|
6,256,376
|
|
|
|
42,822,351
|
|
|
Net
cash provided by financing activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,384,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(4,951,753
|
)
|
|
|
8,323,096
|
|
|
|
2,978,392
|
|
|
|
7,055,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
12,007,344
|
|
|
|
3,684,248
|
|
|
|
705,856
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
7,055,591
|
|
|
$
|
12,007,344
|
|
|
$
|
3,684,248
|
|
|
$
|
7,055,591
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
14, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date
of inception)
|
|
|
|
|
For the Year Ended
|
|
|
through
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Paid, net of capitalized amounts
|
|
$
|
3,428
|
|
|
$
|
2,062
|
|
|
$
|
-
|
|
|
$
|
56,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
equipment purchased through accounts payable and financing
|
|
$
|
-
|
|
|
$
|
444,690
|
|
|
$
|
-
|
|
|
$
|
444,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for common stock issued for the acquisition
|
|
$
|
-
|
|
|
$
|
66,879,375
|
|
|
$
|
-
|
|
|
$
|
66,879,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for common stock issued for mineral properties
|
|
$
|
2,632,000
|
|
|
$
|
4,508,000
|
|
|
$
|
3,530,000
|
|
|
$
|
10,220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for liabilities incurred in the acquisition
|
|
$
|
-
|
|
|
$
|
2,628,188
|
|
|
$
|
-
|
|
|
$
|
2,628,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax liability assumed
|
|
$
|
1,613,161
|
|
|
$
|
50,839,702
|
|
|
$
|
1,614,147
|
|
|
$
|
55,197,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
option payment applied to the acquisition
|
|
$
|
-
|
|
|
$
|
200,000
|
|
|
$
|
-
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassify
joint venture option agreement to slag project
|
|
$
|
-
|
|
|
$
|
690,000
|
|
|
$
|
-
|
|
|
$
|
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
|
|
|
$
|
-
|
|
|
$
|
742,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for conversion of accounts payable, 200,000 shares at
$0.625
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125,000
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
|
Basis of
presentation
– These financial statements and related notes are presented
in accordance with accounting principles generally accepted in the United
States. The Company’s fiscal year-end is December 31.
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 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 us 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 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 $13,356,482 from operations as of
December 31, 2008 and has not commenced its mining and mineral processing
operations, rather, 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.
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 accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Mineral rights
- The
Company capitalizes acquisition and option costs of mineral property
rights. The amount capitalized represents fair value of the mineral
rights acquired.
The
Company capitalizes acquisition and option costs of mineral rights as tangible
assets in accordance with Emerging Issues Task Force abstract 04-02 (“EITF
04-02”), “Whether Mineral Rights are Tangible or Intangible Assets and Related
Issues”. Upon commencement of commercial production, the mineral
rights will be amortized using the unit-of-production method over the life of
the mineral rights. If the Company does not continue with exploration
after the completion of the feasibility study, the mineral rights will be
expensed at that time. The Company evaluates the carrying value of capitalized
mining costs and related property and equipment costs, to determine if these
costs are in excess of their recoverable amount whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. The
periodic evaluation of carrying value of capitalized costs and any related
property and equipment costs are based upon expected future cash flows and/or
estimated salvage value in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets.”
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 $180,170 and
$162,173 for the years ended December 31, 2008 and 2007,
respectively.
Exploration costs
–
Mineral exploration costs are expensed as incurred.
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).
The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful lives of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. If events and circumstances warrant
evaluation, the Company uses an estimate of the related undiscounted cash flows
over the remaining life of the property and equipment in measuring their
recoverability.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Impairment of long-lived
assets
–
The Company reviews and evaluates long-lived assets for impairment when
events or changes in circumstances indicate the related carrying amounts may not
be recoverable. The assets are subject to impairment consideration under SFAS
No. 144 if events or circumstances indicate that their carrying amount might not
be recoverable. As of December 31, 2008 exploration progress is on
target with the Company’s exploration and evaluation plan and no events or
circumstances have happened to indicate the related carrying values of the
properties may not be recoverable. When the Company determines that a SFAS 144
impairment analysis should be done, the analysis will be performed using the
rules of EITF 04-03, “Mining Assets: Impairment and Business
Combinations.”
Various
factors could impact our ability to achieve forecasted production schedules.
Additionally, commodity prices, capital expenditure requirements and reclamation
costs could differ from the assumptions the Company may use in cash flow models
used to assess impairment. The ability to achieve the estimated quantities of
recoverable minerals from exploration stage mineral interests involves further
risks in addition to those factors applicable to mineral interests where proven
and probable reserves have been identified, due to the lower level of confidence
that the identified mineralized material can ultimately be mined
economically.
Material
changes to any of these factors or assumptions discussed above could result in
future impairment charges to operations.
Reclassifications
–
Certain amounts in the prior period financial statements have been reclassified
to conform to current period presentation.
Asset retirement
obligation
- The Company has adopted Statement of Financial Accounting
Standard No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations”,
which requires that an asset retirement obligation (“ARO”) associated with the
retirement of a tangible long-lived asset be recognized as a liability in the
period in which it is incurred and becomes determinable, with an offsetting
increase in the carrying amount of the associated asset. The cost of
the tangible asset, including the initially recognized ARO, is depleted, such
that the cost of the ARO is recognized over the useful life of the
asset. The ARO is recorded at fair value, and accretion expense is
recognized over time as the discounted liability is accreted to its expected
settlement value. The fair value of the ARO is measured using
expected future cash flow, discounted at the Company’s credit-adjusted risk-free
interest rate. To date, no significant asset retirement obligation
exists due to the early stage of exploration. Accordingly, no
liability has been recorded.
Fair value of financial
instruments
- The Company’s financial instruments consist of accounts
payable, accrued liabilities, capital lease payable and mineral property
purchase obligations. The carrying value of these financial instruments
approximates their fair value based on their liquidity or their short-term
nature. The Company is not exposed to significant interest or credit
risk arising from these financial instruments.
Revenue recognition
-
Revenues are recognized during the period in which the revenues are earned.
Costs and expenses are recognized during the period in which they are
incurred.
Research and
development
- All research and development expenditures are expensed as
incurred.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Earnings (loss) per
share
- The Company follows Statement of Financial Accounting Standard
No. 128 (“SFAS 128”), “Earnings Per Share” and Statement of Financial Accounting
Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity,” which establish
standards for the computation, presentation and disclosure requirements for
basic and diluted earnings per share for entities with publicly-held common
shares and potential common stock issuances. Basic earnings (loss) per share are
computed by dividing net income 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, such as stock options and
warrants. Common stock equivalent shares are excluded from the
computation if their effect is antidilutive. Weighted average of common stock
equivalents, which include stock options and warrants to purchase common stock,
on December 31, 2008, 2007 and 2006 that were not included in the computation of
diluted EPS because the effect would be antidilutive were, 23,418,739,
25,352,207 and 23,666,088, respectively.
Expenses of Offering
–
The Company accounts for specific incremental costs directly to a proposed or
actual offering of securities as a direct charge against the gross proceeds of
the offering.
Income taxes
- The
Company accounts for its income taxes in accordance with the Statement of
Financial Accounting No. 109 (“SFAS 109”), “Accounting for Income Taxes”, which
requires recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
On July
13, 2006, the Financial Accounting Standards Board (“FASB”) issued Financial
Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial
statements in accordance with SFAS No. 109, and prescribes a recognition
threshold and measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Under FIN
48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than 50% likelihood of being
sustained. Additionally, FIN 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted the provision of FIN
48 on January 1, 2007, which did not have any impact on the consolidated
financial statements.
For
acquired properties that do not constitute a business as defined in Emerging
Issues Task Force Issue No. 98-03 (“EITF 98-03”), “Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”,
deferred income tax liability is recorded on GAAP basis over income tax basis
using statutory federal and state rates. The resulting estimated future federal
and state income tax liability associated with the temporary difference between
the acquisition consideration and the tax basis is computed in accordance with
EITF 98-11 “Accounting for Acquired Temporary Differences in Certain Purchase
Transactions That Are Not Accounted for as Business Combinations” and SFAS 109,
and is reflected as an increase to the total purchase price which is then
applied to the underlying acquired assets in the absence of there being a
goodwill component associated with the acquisition
transactions.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Stock-based
compensation
- On December 16, 2004, the FASB issued Statement of
Financial Accounting Standard No. 123R (“SFAS 123R”), “Share-Based
Payment”, which replaces Statement of Financial Accounting Standard No. 123
(“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on the grant
date fair value of the award. Under SFAS No. 123R, the Company must determine
the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be
used at date of adoption. The transition methods include prospective and
retroactive adoption option. Under the retroactive option, prior periods may be
restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded
for all unvested stock options and restricted stock at the beginning of the
first quarter of adoption of SFAS No. 123R, while the retroactive methods would
record compensation expense for all unvested stock options and restricted stock
beginning with the first period restated. The Company adopted the requirements
of SFAS No. 123R for the fiscal year beginning after December 31,
2004.
New accounting
pronouncements
– In December 2008, the FASB issued FSP
No. FAS 132(R)-1, “Employers’ Disclosures about Post-Retirement
Benefit Plan Assets” (“FSP FAS 132(R)-1”), which amends FASB Statement
No. 132 “Employers’ Disclosures about Pensions and Other Post-Retirement
Benefits” (“FAS 132”), to provide guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other post-retirement plan.
The objective of FSP FAS 132(R)-1 is to require more detailed disclosures
about employers’ plan assets, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and
valuation techniques used to measure the fair value of plan assets. FSP
FAS 132(R)-1 is effective for the Company’s fiscal year beginning
January 1, 2009. Upon initial application, the provisions of this FSP are
not required for earlier periods that are presented for comparative purposes.
The Company does not currently have a benefit pension or any post-retirement
benefit plans and the Company has determined that the adoption of this statement
will have little or no effect on the Company’s consolidated financial position,
results of operations, and disclosures.
In
November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method
Investment Accounting Considerations” (“EITF 08-6”), which clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. The intent of EITF 08-6 is to provide guidance
on (i) determining the initial carrying value of an equity method
investment, (ii) performing an impairment assessment of an underlying
indefinite-lived intangible asset of an equity method investment,
(iii) accounting for an equity method investee’s issuance of shares, and
(iv) accounting for a change in an investment from the equity method to the
cost method. EITF 08-6 is effective for the Company’s fiscal year beginning
January 1, 2009 and is to be applied prospectively. The Company is
currently evaluating the potential impact of adopting this statement on the
Company’s consolidated financial position or results of operations.
In
June 2008, the EITF reached consensus on Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”
(“EITF 07-5”). EITF 07-5 clarifies the determination of whether an
instrument (or an embedded feature) is indexed to an entity’s own stock, which
would qualify as a scope exception under FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”).
EITF 07-5 is effective for the Company’s fiscal years beginning
January 1, 2009. Early adoption for an existing instrument is not
permitted. The Company does not expect the adoption of EITF 07-5 to have a
material impact on the Company’s consolidated financial position or results of
operations.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
In May
2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under FAS 133. Convertible debt instruments within the scope of FSP APB
14-1 are not addressed by the existing APB 14. FSP APB 14-1 requires that the
liability and equity components of convertible debt instruments within the scope
of FSP APB 14-1 be separately accounted for in a manner that reflects the
entity’s nonconvertible debt borrowing rate. This requires an allocation of the
convertible debt proceeds between the liability component and the embedded
conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the
liability component will be reported as a debt discount and subsequently
amortized to earnings over the instrument’s expected life using the effective
interest method. FSP APB 14-1 is effective for the Company’s fiscal year
beginning January 1, 2009 and will be applied retrospectively to all
periods presented. The Company does not currently have convertible
debt instruments and the Company has determined that the adoption of this
statement will have little or no effect on the Company’s consolidated financial
position, results of operations, and disclosures.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”) which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). The
intent of this FSP is to improve the consistency between the useful life of a
recognized intangible asset under FAS 142 and the period of expected cash
flows used to measure the fair value of the asset under FASB Statement
No. 141, “Business Combinations” (“FAS 141”). FSP 142-3 is
effective for the Company’s fiscal year beginning January 1, 2009 and will
be applied prospectively to intangible assets acquired after the effective date.
The Company does not expect the adoption of FSP 142-3 to have an impact on
the Company’s consolidated financial position, results of operations or cash
flows.
The FASB
issued FASB Staff Position (FSP) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset Is Not Active”. The FSP clarifies
the application of FASB Statement No. 157, “Fair Value Measurements”, in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP is effective October 10,
2008, and for prior periods for which financial statements have not been issued.
Revisions resulting from a change in the valuation technique or its application
should be accounted for as a change in accounting estimate following the
guidance in FASB Statement No. 154, “Accounting Changes and Error Corrections”.
However, the disclosure provisions in Statement 154 for a change in accounting
estimate are not required for revisions resulting from a change in valuation
techniques or its application. The adoption of this statement has had no
material effect on the Company’s consolidated financial position, results of
operations, and disclosures.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
In May
2008, the FASB issued SFAS No. 162, “Hierarchy of Generally Accepted Accounting
Principles”. This statement is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements of nongovernmental
entities that are presented in conformity with GAAP. This statement will be
effective 60 days following the U.S. Securities and Exchange Commission’s
approval of the Public Company Accounting Oversight Board amendment to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The Company is currently evaluating
the potential impact, if any, of the adoption of SFAS 162 on its consolidated
financial statements.
On March
19, 2008, the FASB issued Statement of Financial Accounting Standard No. 161
(“SFAS 161”), “Disclosures about Derivative Instruments and Hedging
Activities.” This statement is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures. This statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The Company is currently evaluating the
impact that SFAS 161 will have on the consolidated financial
statements.
In
February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of
FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the
effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The provisions
of FSP FAS 157-2 are effective for the Company’s fiscal year beginning January
1, 2009. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 141(R) (“SFAS 141(R)”), “Business Combinations,” which amends
SFAS No. 141, and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS 141(R) is effective
for the Company’s fiscal year beginning January 1, 2009 and is to be
applied prospectively. This statement will impact how the Company accounts for
future business combinations and the Company’s future consolidated financial
position, results of operations and cash flows.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated
Financial Statements- an amendment of ARB No. 51” which establishes
accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for the Company’s fiscal year beginning
January 1, 2009. The Company is currently evaluating the potential impact
of adopting this statement on the Company’s consolidated financial position,
results of operations or cash flows.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
In
September 2007, the FASB published Proposed FASB Staff Position (“FSP”) No.
APB 14-a, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion.” The proposed FSP applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under SFAS 133. Convertible debt instruments within the scope of the
proposed FSP are not addressed by the existing APB 14. The proposed FSP
would require that the liability and equity components of convertible debt
instruments within the scope of the proposed FSP shall be separately accounted
for in a manner that reflects the entity’s nonconvertible debt borrowing rate.
This will require an allocation of the convertible debt proceeds between the
liability component and the embedded conversion option (i.e., the equity
component). The difference between the principal amount of the debt and the
amount of the proceeds allocated to the liability component would be reported as
a debt discount and subsequently amortized to earnings over the instrument’s
expected life using the effective interest method. FSP No. APB 14-a
is effective for the Company’s fiscal year beginning January 1, 2009 and early
adoption is not permitted. The Company is currently evaluating the impact that
Proposed FSP may have on the consolidated financial statements of the
Company.
In
February 2007, the FASB issued Statement of Financial Accounting Standard
No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and
Financial Liabilities - Including an amendment of FASB Statement
No. 115”, which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 does not affect any
existing accounting literature that requires certain assets and liabilities to
be carried at fair value, nor eliminate disclosure requirements included in
other accounting standards, including requirements for disclosures about fair
value measurements included in Statement of Financial Accounting No. 157
(“SFAS 157”), “Fair Value Measurements,” and
SFAS 107. SFAS 159 is effective for our fiscal year
beginning after November 15, 2007. The adoption of this
statement had little or no effect on the Company’s consolidated financial
position, results of operations, and disclosures.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
PROPERTY AND
EQUIPMENT
|
Property
and equipment consisted of the following as of December 31, 2008 and
2007:
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
35,813
|
|
|
$
|
34,694
|
|
|
Lab
equipment
|
|
|
2,804
|
|
|
|
2,804
|
|
|
Computers
and equipment
|
|
|
50,253
|
|
|
|
32,594
|
|
|
Income
property
|
|
|
309,750
|
|
|
|
309,750
|
|
|
Construction
in progress
|
|
|
12,289,996
|
|
|
|
4,408,796
|
|
|
Capitalized
interest
|
|
|
342,343
|
|
|
|
162,173
|
|
|
Vehicles
|
|
|
38,175
|
|
|
|
38,175
|
|
|
Site
equipment
|
|
|
168,949
|
|
|
|
119,203
|
|
|
|
|
|
13,238,083
|
|
|
|
5,108,189
|
|
|
Less
accumulated depreciation
|
|
|
105,801
|
|
|
|
43,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,132,282
|
|
|
$
|
5,064,460
|
|
Depreciation
expense was $62,069, $37,751 and $6,309 for the years ended December 31, 2008,
2007 and 2006, respectively.
|
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”). Subsequent to the acquisition, Mr. Harry Crockett joined the Company’s
board of directors. VRIC is an affiliate of Mr. Crockett.
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 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 EITF 98-03, 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
CLARKDALE SLAG
PROJECT
(continued)
|
The $130
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 EITF 04-03 paragraph 2 and EITF 98-11, 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 Slag Project, which has been capitalized as
a tangible asset in accordance with EITF 04-02. Upon commencement of commercial
production, the material will be amortized using the unit-of-production method
over the life of the Slag Project.
Closing
of the TI acquisition occurred on February 15, 2007, (the “Closing Date”) and
was subject to, among other things, the following terms and
conditions:
|
|
a)
|
The
Company paid $200,000 in cash to VRIC on the execution of 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 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 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” 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: (1) the end of the first calendar year in which the
Project Royalty equals or exceeds $500,000; or (2) 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,
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
CLARKDALE SLAG
PROJECT
(continued)
|
|
|
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.
The
following table reflects the recorded purchase consideration for the 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 - slag project
|
|
|
48,076,734
|
|
|
|
|
|
|
|
|
|
|
$
|
130,292,777
|
|
The following table reflects the
components of the Slag Project
:
|
Allocation
of acquisition cost:
|
|
|
|
|
Slag
project (including net deferred tax liability assumed of
$48,076,734)
|
|
$
|
120,766,877
|
|
|
Land
- slag pile site
|
|
|
5,916,150
|
|
|
Land
|
|
|
3,300,000
|
|
|
Income
property and improvements
|
|
|
309,750
|
|
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
130,292,777
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
MINERAL PROPERTIES -
MINING CLAIMS
|
As of
December 31, 2008 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.
The
mining claims were acquired during 2005 with issuance of 1,400,000 shares of the
Company’s common stock and the provision that the Company, at its option, issue
an additional 1,400,000 shares each year in June for three remaining
years. On June 25, 2008, the Company issued the remaining 1,400,000
shares and received the title to the mining claims in consideration of the
satisfaction of the option agreement.
On August
26, 2005, the Company paid $180,500 to the Bureau of Land Management as a bond
for future reclamation work in Searchlight, Nevada. As of December 31, 2008, the
recovery of the reclamation bond is uncertain, therefore the Company has
established a full allowance against the reclamation bond with the offsetting
expense to project exploration costs.
The
mining claims are capitalized as tangible assets in accordance with EITF
04-02. Upon commencement of commercial production, the claims will be
amortized using the unit-of-production method over the life of the
claims. If the Company does not continue with exploration after the
completion of the feasibility study, the claims will be expensed at that
time.
The
following table summarizes the changes of mineral properties for the years ended
December 31, 2007 and 2008:
|
Total
mineral properties balance, December 31, 2006
|
|
$
|
5,431,290
|
|
|
|
|
|
|
|
|
Share
issuance to obtain mineral properties, June 29, 2007
|
|
|
4,508,000
|
|
|
Net
deferred income tax liability assumed
|
|
|
2,762,968
|
|
|
|
|
|
|
|
|
Total
mineral properties balance, December 31, 2007
|
|
|
12,702,258
|
|
|
|
|
|
|
|
|
Share
issuance to obtain mineral properties, June 25, 2008
|
|
|
2,632,000
|
|
|
Net
deferred income tax liability assumed
|
|
|
1,613,161
|
|
|
|
|
|
|
|
|
Total
mineral properties balance, December 31, 2008
|
|
$
|
16,947,419
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Company leases equipment under a capital lease. The capital lease payable
consisted of the following at December 31, 2008 and 2007,
|
Lender
|
|
Collateral
|
|
Monthly
Payment
|
|
|
Interest
Rate
|
|
Maturity
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
Caterpillar
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
Equipment
|
|
$
|
2,200
|
|
|
|
4.45
|
%
|
Jul-11
|
|
$
|
64,317
|
|
|
$
|
87,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,317
|
|
|
|
87,300
|
|
|
Capital
lease payable, current portion
|
|
|
|
|
|
|
|
|
|
|
|
(24,026
|
)
|
|
|
(22,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease payable, net of current portion
|
|
|
|
|
|
|
|
|
|
|
$
|
40,291
|
|
|
$
|
64,317
|
|
The
following table represents future minimum lease payments on the capital lease
for the years ending December 31,
|
2009
|
|
$
|
26,401
|
|
|
2010
|
|
|
26,401
|
|
|
2011
|
|
|
15,401
|
|
|
2012
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
$
|
68,203
|
|
|
Imputed
interest
|
|
|
(3,886
|
)
|
|
|
|
|
|
|
|
Present
value of future minimum lease payments
|
|
$
|
64,317
|
|
The
following assets acquired under the capital lease and the related amortization
were included in property, plant and equipment at December 31, 2008 and
2007,
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
Site
Equipment
|
|
$
|
116,239
|
|
|
$
|
116,239
|
|
|
Accumulated
amortization
|
|
|
(46,011
|
)
|
|
|
(16,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,228
|
|
|
$
|
99,287
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
6.
|
CLARKDALE ACQUISITION
PAYABLE
|
Pursuant
to the Clarkdale acquisition agreement the Company agreed to pay VRIC $30,000
per month until the Project Funding Date.
The
Company has recorded a liability for this commitment using imputed interest
based on its best estimate of 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 the
years ending December 31,
|
2009
|
|
$
|
194,756
|
|
|
2010
|
|
|
210,921
|
|
|
2011
|
|
|
228,427
|
|
|
2012
|
|
|
247,386
|
|
|
2013
|
|
|
267,919
|
|
|
Thereafter
|
|
|
1,004,121
|
|
|
|
|
|
|
|
|
|
|
|
2,153,530
|
|
|
|
|
|
|
|
|
VRIC
payable, current portion
|
|
|
194,756
|
|
|
|
|
|
|
|
|
VRIC
payable, net of current portion
|
|
$
|
1,958,774
|
|
The
acquisition agreement also contains payment terms which are based on the Project
Funding Date as defined in the agreement. The terms of and conditions of these
payments are discussed in more detail in Note 3 and 11.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During
the year ended December 31, 2008 the Company’s stockholders’ equity activity
consisted of the following:
|
|
a)
|
On
December 31, 2008, the Company awarded and issued 3,673 shares each to its
two non officer directors pursuant to its directors’ compensation policy.
The share award was priced at $2.45 per share and has been recorded as
directors’ compensation expense of $18,000 and additional paid-in
capital.
|
|
|
b)
|
On
December 29, 2008, the Company amended the private placement warrants from
the February 23, 2007 and March 22, 2007 private placement offerings. The
following material amendments to the private placement warrants were
adopted: (i) the expiration date of the private placement warrants has
been extended to March 1, 2010; (ii) the exercise price of the private
placement warrants has been decreased to $2.40 per share; (iii) the call
provision in the investor warrants is now included in the broker warrants;
and (iv) the call provision in the private placement warrants has been
amended so that all of such private placement warrants callable for
cancellation by the Company if the volume weighted average price of the
common stock exceeds $4.40 per share for 20 consecutive trading days and
there is an effective registration statement registering the shares of
common stock underlying the private placement warrants at the time of the
call of the private placement
warrants.
|
Subsequent
to December 31, 2008, on April 30, 2009, the Company’s Board of Directors
unilaterally determined, without any negotiations with the warrant holders to
amend and restate the call provisions in the private placement warrants further
so that the terms of such amended and restated call provisions are identical to
the terms of the private placement warrants on their original dates
of issuance. As a result: (v) all of the investor warrants are
callable for cancellation by the Company if the volume weighted average price of
the common stock exceeds $6.50 per share for 20 consecutive trading days and
there is an effective registration statement registering the shares of common
stock underlying the investor warrants at the time of the call of the investor
warrants, (vi) the broker warrants will not have call provision, (vii) the
previously adopted amendments with respect to the extension of the expiration
dates and the reduction of the exercise price for the private placement warrants
will remain unchanged.
The
Company determined that the amendment to extend the expiration date
of the private placement warrants which were originally issued as part of equity
transactions, did not result in an expense to the Company. The
warrants were not a component to any debt transaction, registration agreement or
services rendered to the Company.
|
|
c)
|
On
September 30, 2008, the Company awarded and issued 5,142 shares each to
its two non officer directors pursuant to its directors’ compensation
policy. The share award was priced at $1.75 per share and has been
recorded as directors’ compensation expense of $18,000 and additional
paid-in capital.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
d)
|
On
August 26, 2008, the Company issued 100,000 shares of common stock from
the exercise of nonemployee stock options resulting in cash proceeds of
$25,000. Options exercised were for 100,000 shares of common stock at
$0.25 per share. These stock options were subject to an
expiration date of November 22,
2010.
|
|
|
e)
|
On
June 30, 2008, the Company awarded 4,326 shares each to its two non
officer directors pursuant to its directors’ compensation policy. The
share award was priced at $2.08 per share and has been recorded as
directors’ compensation expense of $18,000 and additional paid-in capital.
The Company issued the shares on September 30,
2008.
|
|
|
f)
|
On
June 25, 2008, the Company issued 1,400,000 million shares to the owners
of the Searchlight Claims. This issuance is the final of four required
share payments to complete the acquisition of the mining claims totaling
5,600,000 million shares.
|
|
|
g)
|
On
June 16, 2008, the Company issued 100,000 shares of common stock from the
exercise of nonemployee stock options resulting in cash proceeds of
$25,000. Options exercised were for 100,000 shares of common stock at
$0.25 per share. These stock options were subject to an
expiration date of November 23,
2010.
|
|
|
h)
|
On
May 5, 2008, the Company issued 100,000 shares of common stock from the
exercise of nonemployee stock options resulting in cash proceeds of
$25,000, which were received on August 16, 2007. Options exercised were
for 100,000 shares of common stock at $0.25 per share. These
stock options were subject to an expiration date of February 16,
2009.
|
|
|
i)
|
On
March 31, 2008, the Company awarded 2,670 shares each to its two non
officer directors pursuant to its directors’ compensation
policy. The share award was priced at $3.37 per share and has
been recorded as directors’ compensation expense of $18,000 and additional
paid-in capital. The Company issued the shares on May 15,
2008.
|
|
|
j)
|
On
February 7, 2008, the Company completed a private placement offering for
gross proceeds of $2,620,000 to non-US persons in reliance of Regulation S
promulgated under the Securities Act of 1933. A total of 1,637,500 units
were issued at a price of $1.60. Each unit sold consisted of one share of
the Company’s common stock and one-half of one share purchase
warrants. Each whole share purchase warrant entitles the holder
to purchase one additional share of the Company’s common stock at a price
of $2.40 per share for a period of two years from the date of issuance. A
total of 80,000 shares of the Company’s common stock were issued by the
Company as commission to agents in connection with the
offering.
|
|
|
k)
|
On
February 7, 2008, the Company completed a private placement offering for
gross proceeds of $2,630,000 to US accredited investors pursuant to Rule
506 of Regulation D promulgated under the Securities Act of 1933. A total
of 1,643,750 units were issued at a price of $1.60. Each unit sold
consisted of one share of the Company’s common stock and one-half of one
share purchase warrants. Each whole share purchase warrant
entitles the holder to purchase one additional share of the Company’s
common stock at a price of $2.40 per share for a period of two years from
the date of issuance. There was no commission paid or payable
to agents in connection with this
offering.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
l)
|
On
January 30, 2008, the Company received gross proceeds of $2,528,500 by
issuing an aggregate of 3,890,000 shares of its common stock on the
exercise of warrants issued by the Company in January,
2006. Each warrant entitled the holder to purchase one share of
the Company’s common stock at a price of $0.65 per share on or before
January 18, 2008. The warrant holders delivered their notices
of exercise, and paid the exercise price of $0.65 per share, prior to
January 18, 2008 expiration date. A total of 3,690,000 shares were issued
to US accredited investors as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933. An additional
200,000 shares were issued to one non-US person as defined in Regulation S
of the Securities Act.
|
During
the year
ended December 31, 2007, the Company’s stockholders’ equity activity consisted
of the following:
|
|
a)
|
On
December 31, 2007, the Company awarded 3,214 shares each to its two non
officer directors pursuant to its directors’ compensation
policy. The share award was priced at $2.80 per share and has
been recorded as directors’ compensation expense of $18,000 and common
stock subscribed as of December 31,
2007.
|
|
|
b)
|
On
December 26, 2007, the Company completed a private placement to the
Arlington Group Limited of a total of 3,125,000 units at a $1.60 per unit
for total proceeds of $5,000,000. Each unit is comprised of one
share of the Company’s common stock and one-half of one share purchase
warrant. Each whole share purchase warrant entitles the holder
to purchase one additional share of the Company’s common stock at a price
of $2.40 per share for a period of two years from the date of
issuance. In addition, the Company has issued an additional
156,250 shares of its common stock to the Arlington Group Limited, equal
to 5% of the total number of units subscribed for by the Arlington Group
Limited. Including the shares issued as a commission, the
Company has issued an aggregate of 3,281,250 shares of its common stock
and 1,562,500 share purchase warrants to the Arlington Group Limited under
the private placement. The private placement was completed
pursuant to the provisions of Regulation S under the Securities Act of
1933.
|
|
|
c)
|
On
December 13, 2007, the Company issued 400,000 shares of common stock from
the exercise of stock options resulting in cash proceeds of $100,000.
Stock options exercised were for 400,000 shares at $0.25 per share. Each
of the stock options was set to expire on November 23,
2010.
|
|
|
d)
|
On
December 12, 2007, the Company received $65,000 for exercise of warrants
to purchase 100,000 shares at $0.65 per share. The transaction
was recorded as common stock subscribed as of December 31, 2007 pending
execution of documents and issuance of
shares.
|
|
|
e)
|
On
September 30, 2007, the Company awarded 3,157 shares each to its two non
officer directors pursuant to its directors’ compensation
policy. The share award was priced at the nearest closing date
to quarter end of $2.85 per share and has been recorded as directors’
compensation expense of $18,000 and additional paid-in
capital. The Company issued the shares on November 13,
2007.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
f)
|
On
August 16, 2007, the Company received $25,000 for exercise of options to
purchase 100,000 shares at $0.25 per share. The transaction was
recorded as common stock subscribed as of December 31, 2007 pending
execution of documents and issuance of
shares.
|
|
|
g)
|
On
August 9, 2007, the Company issued 400,000 shares of common stock from the
exercise of warrants resulting in cash proceeds of $260,000. Warrants
exercised were for 400,000 shares at $0.65 per share. Each of the warrants
was set to expire on January 18,
2008.
|
|
|
h)
|
On
June 29, 2007, the Company issued 1,400,000 shares to the owners of the
Searchlight Claims. This issuance is the third of four required
share payments to complete the acquisition of the mining claims totaling
5,600,000 shares.
|
|
|
i)
|
On
March 22, 2007, the Company closed a private placement offering for gross
proceeds of $6,678,483 (the "March Offering"). The securities sold
pursuant to the March Offering were issued to non-US investors in
accordance with the terms of Regulation S of the Securities Act of 1933.
In connection with the March Offering, the Company entered into an Agency
Agreement dated March 21, 2007 (the "Agency Agreement"). The securities
were sold to subscribers on a best efforts agency basis. Pursuant to the
terms of the Agency Agreement, the Company sold an aggregate of 2,226,161
units for gross proceeds of $6,678,483, with each unit consisting of one
share of its common stock and one half of one share purchase warrant with
each whole warrant entitling the subscriber to purchase one additional
share for a period of two years from the closing date at an exercise price
of $4.50 per share. The warrants are callable by Searchlight if its common
stock trades above $6.50 per share for 20 consecutive trading days. Also
under the terms of the March Offering the Company agreed to use its best
efforts to file with the Securities and Exchange Commission a registration
statement on Form SB-2, or on such other form as is available, registering
the offered securities within four months after the closing of the March
Offering. The Company agreed not to exercise its call rights until the
registration statement registering the securities underlying the units
sold has been declared effective by the SEC. An aggregate
commission and corporate finance fee totaling $525,386 was paid by the
company to the Agent in connection with the March Offering and the Agent
also received warrants to purchase 75,175 shares of its common stock at a
price of $4.50 per share, exercisable for a period of two years from the
closing date. On December 29, 2008, the Company made the following
material amendments to the private placement warrants: (i) the expiration
date of the private placement warrants has been extended to March 1, 2010;
(ii) the exercise price of the private placement warrants has been
decreased to $2.40 per share; (iii) the call provision in the investor
warrants is now included in the broker warrants; and (iv) the call
provision in the private placement warrants has been amended so that all
of such private placement warrants callable for cancellation by the
Company if the volume weighted average price of the common stock exceeds
$4.40 per share for 20 consecutive trading days and there is an effective
registration statement registering the shares of common stock underlying
the private placement warrants at the time of the call of the private
placement warrants.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
j)
|
On
February 23, 2007, the Company closed a private placement offering and
issued 4,520,666 units for aggregate gross proceeds of $13,562,002 to
accredited investors resident in the United States pursuant to Regulation
D of the Securities Act (the “US Offering”). Each unit
consisted of one share of its common stock and one half of one share
purchase warrant with each whole warrant entitling the subscriber to
purchase one additional share for a period of two years from the closing
date at an exercise price of $4.50 per share. The warrants are
callable by the Company if its common stock trades above $6.50 per share
for 20 consecutive trading days. Pursuant to the terms of the
US Offering, the Company agreed to use its best efforts to file a
registration statement declared effective by the SEC within four months of
the closing date of the US Offering. The Company agreed not to
exercise its call rights until the registration statement registering the
securities underlying the units sold has been declared effective by the
SEC. The Company further agreed to keep the registration
statement effective pursuant to Rule 415 of the Securities Act for a
period of eighteen months following the date the registration statement is
declared effective by the SEC. A portion of the US Offering was
sold on a best efforts agency basis. Commissions paid to agents
in connection with the US Offering totaled $381,990 and the agents also
received warrants to purchase 90,870 shares of its common stock at a price
of $4.50 per share, exercisable for a period of two years from the closing
date. On December 29, 2008, the Company made the following
material amendments to the private placement warrants: (i) the expiration
date of the private placement warrants has been extended to March 1, 2010;
(ii) the exercise price of the private placement warrants has been
decreased to $2.40 per share; (iii) the call provision in the investor
warrants is now included in the broker warrants; and (iv) the call
provision in the private placement warrants has been amended so that all
of such private placement warrants callable for cancellation by the
Company if the volume weighted average price of the common stock exceeds
$4.40 per share for 20 consecutive trading days and there is an effective
registration statement registering the shares of common stock underlying
the private placement warrants at the time of the call of the private
placement warrants.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
k)
|
Also
on February 23, 2007, the Company closed a private placement offering and
issued 575,000 units for aggregate gross proceeds of $1,725,000 to non-US
investors pursuant to Regulation S of the Securities Act (the “February
Offering”). Each unit consisted of one share of its common
stock and one half of one share purchase warrant with each whole warrant
entitling the subscriber to purchase one additional share for a period of
two years from the closing date at an exercise price of $4.50 per
share. The warrants are callable by us if its common stock
trades above $6.50 per share for 20 consecutive trading
days. Pursuant to the terms of the Non-US Offering, the Company
agreed to use its best efforts to file a registration statement declared
effective by the SEC within four months of the closing date of the
February Offering. The Company agreed not to exercise its call
rights until the registration statement registering the securities
underlying the units sold has been declared effective by the
SEC. The Company further agreed to keep the registration
statement effective pursuant to Rule 415 of the Securities Act for a
period of eighteen months following the date the registration statement is
declared effective by the SEC. Commissions paid to agents in
connection with the February Offering totaled $111,100 and the agents also
received warrants to purchase 12,300 shares of its common stock at a price
of $4.50 per share, exercisable for a period of two years from the closing
date. On December 29, 2008, the Company made the following material
amendments to the private placement warrants: (i) the expiration date of
the private placement warrants has been extended to March 1, 2010; (ii)
the exercise price of the private placement warrants has been decreased to
$2.40 per share; (iii) the call provision in the investor warrants is now
included in the broker warrants; and (iv) the call provision in the
private placement warrants has been amended so that all of such private
placement warrants callable for cancellation by the Company if the volume
weighted average price of the common stock exceeds $4.40 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the private placement
warrants at the time of the call of the private placement
warrants.
|
|
|
l)
|
On
February 15, 2007, the Company approved the issuance of 16,825,000 shares
of its common stock to five investors in connection with the Agreement and
Plan of Merger dated February 15, 2007. The issuance was
completed pursuant to Section 4(2) and Regulation D of the Securities Act
on the basis that each investor was a sophisticated investor and was in a
position of access to relevant material information regarding its
operations. Each investor delivered appropriate investment
representations satisfactory to us with respect to this transaction and
consented to the imposition of restrictive legends upon the certificates
evidencing such share certificates.
|
During
the year ended December 31, 2006, the Company’s stockholders’ equity activity
consisted of the following:
|
|
a)
|
On
July 27, 2006, the Company issued 1,400,000 shares to the owners of the
Searchlight Claims. This issuance is the second of four required share
payments to complete the acquisition of the searchlight claims totaling
5,600,000 shares.
|
|
|
b)
|
On
June 21, 2006, the Company issued 8,506,000 shares of common stock from
the exercise of warrants resulting in cash proceeds of
$4,874,126. Warrants exercised were for 7,327,000 shares at
$0.625 per share and 1,179,000 shares at $0.25 per share. Each
of the warrants was set to expire between June 2 and June 7, 2006 and all
were exercised.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
c)
|
On
June 14, 2006, the Company issued 50,000 shares at $2.06 per share as
consideration for an employment contract entered into on June 14, 2006
with a new Chief Financial Officer. In addition, the Company
advanced $33,084 for withholding taxes required to be paid on total
compensation of $103,000. The advance was repaid in full on
December 31, 2006.
|
|
|
d)
|
On
February 9, 2006, the Company issued 1,225,000 shares of common stock and
warrants to purchase an additional 612,500 shares of common stock with an
exercise price of $0.625 expiring between June 2 and June 7, 2006. These
are related to the penalty shares and warrants for the late registration
of shares with the Securities and Exchange Commission pursuant to the
private placements completed in September 2005. Pursuant to the
private placements, subscribers received penalty units consisting of one
share and one half of one share purchase warrant. The penalty
units were exercisable into 1/10
th
of the total number of units issued in the private placement if a
registration statement on Form SB-2 was not declared effective within four
months and one day of the closing date of the private
placements. The Registration Statement was not effective prior
to the filing deadline resulting in the issuance of the penalty
units.
|
|
|
e)
|
On
January 18, 2006, the Company issued 39 units for $45,000 per unit where
each unit consisted of 100,000 shares and 100,000 purchase warrants. Each
purchase warrant is exercisable into one share at a price of $0.65
expiring on January 18, 2008. Total gross proceeds for this offering were
$1,775,000.
|
Warrants
associated with the 2008, 2007 and 2006 equity issuances do not constitute a
registration payment arrangement.
During
2005, the Company’s stockholders’ activities consisted of the
following:
|
|
a)
|
On
September 30, 2005, the Company effectuated a two-for-one forward stock
split on its common stock. As a result of the stock split, the Company’s
authorized number of common stock increased from 200,000,000 shares to
400,000,000 shares. Accordingly, the accompanying financial statements
have been adjusted on a retroactive basis for the forward stock split to
the Company’s date of inception.
|
|
|
b)
|
On
September 7, 2005, the Company issued 5,400,000 Units for $0.25 per Unit,
where each Unit consisted of one common share and one half of one purchase
warrant and one nontransferable warrant exercisable into one tenth (1/10)
of one unit for no additional consideration if registration requirements
are not met within four months after the closing. Each purchase
warrant was exercisable into one share at a price of $0.625 and expired on
June 7, 2006. Total gross proceeds of this offering were
$1,350,000. In connection with this brokered offering, 540,000 Brokers
Warrants, exercisable at $0.25 and expiring on June 7, 2006, were
issued. Each Broker Warrant was exercisable into one common
share and one half of one purchase warrant. Each purchase
warrant was exercisable into one common share at $0.625 and expired on
June 7, 2006.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
7.
|
STOCKHOLDERS’
EQUITY
(continued)
|
|
|
c)
|
On
September 6, 2005, the Company issued 460,000 Units for $0.25 per Unit,
where each Unit consisted of one common share and one half of one purchase
warrant and one nontransferable warrant exercisable into one tenth (1/10)
of one unit for no additional consideration if registration requirements
are not met within four months after the closing. Each purchase
warrant was exercisable into one share at a price of $0.625 and expired on
June 6, 2006. Total gross proceeds of this offering were
$115,000.
|
|
|
d)
|
On
September 2, 2005, the Company issued 6,390,000 Units for $0.25 per Unit,
where each Unit consisted of one common share and one half of one purchase
warrant and one nontransferable warrant exercisable into one tenth (1/10)
of one unit for no additional consideration if registration requirements
were not met within four months after the closing. Each
purchase warrant was exercisable into one share at a price of $0.625 and
expired on June 2, 2006. Total gross proceeds of this offering
were $1,597,500. In connection with this brokered offering,
639,000 Brokers Warrants, exercisable at $0.25 and expiring on June 2,
2006, were issued. Each Broker Warrant was exercisable into one
common share and one half of one purchase warrant. Each purchase warrant
was exercisable into one common share at $0.625 and expired on June 2,
2006.
|
|
|
e)
|
On
July 7, 2005, the Company issued 1,400,000 shares (post stock split) of
common stock for the purchase of 20 mineral claims. The Company initially
valued the total transaction based on actual costs incurred by the former
owner of $87,134, plus $40,000, represented by $2,000 per claim, for a
total acquisition price of $127,134. This issuance has been restated to
reflect payments made by issuance of 1,400,000 shares at the market value
on the date of issuance of $0.35.
|
|
|
f)
|
On
July 6, 2005, the Company issued 200,000 shares (post stock split) of
common stock at $0.625 per share for reduction of debt at $125,000 as
negotiated with the debtor.
|
|
|
g)
|
On
June 1, 2005, the Company approved the issuance of stock warrants for
12,000,000 shares of common stock with a strike price of $0.375 per share
in connection with the Clarkdale Slag Project option. Satisfaction of the
financing related closing conditions of the assignment agreement were met
on September 7, 2005. On October 24, 2005 the issuance of the
warrants was completed. The warrants contain an expiration date of June 1,
2015.
|
|
|
h)
|
On
February 14, 2005, the Company cancelled all of the stock options that
were outstanding as at December 31,
2004.
|
|
|
i)
|
On
February 11, 2005, 70,000,000 shares (post stock split) of the Company
were returned to the Company and cancelled at its par value of $0.001 per
share.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK
OPTION PLAN AND
WARRANTS
|
On April
30, 2007, the Board of Directors adopted the 2007 Stock Option Plan (the “2007
Plan”) and determined to cease granting any further options under the Company’s
2006 Stock Option Plan. Under the terms of the 2007 Plan, options to purchase up
to 40,000,000 shares of common stock of the Company may be granted to eligible
Participants. On May 8, 2007, the Board of Directors determined to
cease granting any further options under the Company’s 2003 Nonqualified Stock
Option Plan and amended the number of shares of the Company’s common stock
available for issuance under the 2007 Plan to a maximum of 4,000,000. On June
15, 2007, shareholders of the Company approved the 2007 Plan.
The 2007
Plan provides that the option price for incentive stock options be the fair
market value of the stock at the date of the grant and the option price for
non-qualified stock options be no less than 85% of the fair market value of the
stock at the date of the grant. The maximum term of an option shall
be established for that option by the Board of Directors or, if not so
established, shall be ten years from the grant date. Options granted under the
2007 Plan become exercisable and expire as determined by the Board of
Directors.
During
the year ended December 31, 2008, the Company granted stock options as
follows:
|
|
a)
|
On
December 31, 2008, the Company granted nonqualified stock options under
the 2007 Plan for the purchase of 7,347 shares of common stock at $2.45
per share. The options ware granted to an independent director for
directors’ compensation are fully vested and expire on December 31,
2013.
|
|
|
b)
|
On
October 6, 2008, the Company granted nonqualified stock options under the
2007 Plan for the purchase of 200,000 shares of common stock at $1.45 per
share. The options were granted to an independent director, vest 25% each
year over a four year period with each tranche expiring five years after
the respective vesting period.
|
During
the year ended December 31, 2007, the Company granted stock options as
follows:
|
|
a)
|
On
December 14, 2007, the Company granted incentive stock options under the
2007 Plan for the purchase of 50,000 shares of common stock at $1.75 per
share. The incentive stock options were granted to an employee, are fully
vested and expire on December 14,
2009.
|
|
|
b)
|
On
December 14, 2007, the Company granted nonqualified stock options under
the 2007 Plan for the purchase of 50,000 shares of common stock at $1.75
per share. The nonqualified stock options were granted to a consultant,
are fully vested and expire on December 14,
2009.
|
|
|
c)
|
On
June 15, 2007, the Company granted incentive stock options under the 2007
Plan for the purchase of 7,246 shares of common stock at $3.45 per share.
The options were granted to an employee, are fully vested and expire on
June 15, 2009.
|
|
|
d)
|
On
February 16, 2007, the Company granted nonqualified stock options under
the 2006 Plan for the purchase of 75,700 shares of common stock at $4.04
per share. The options were granted to three officers and employee, are
fully vested and expire on February 16,
2012.
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK
OPTION PLAN AND
WARRANTS
(continued)
|
During
the year ended December 31, 2006, the Company issued granted stock options as
follows:
|
|
a)
|
On
June 14, 2006, the Company granted nonqualified stock options for the
purchase of 50,000 shares of common stock at $2.06 per
share. The options were granted as a recruitment incentive to
an employee and vest 50% on December 14, 2006 and the remaining 50% on
June 14, 2007. The options contained an original expiration
date of June 14, 2008 and were subsequently extended on May 30, 2008 to
expire on June 14, 2011.
|
|
|
b)
|
On
June 14, 2006, the Company granted nonqualified stock options for the
purchase of 100,000 shares of common stock at $2.06 per
share. The options were granted as a recruitment incentive to
the Chief Financial Officer and vest 50% on June 14, 2007 and the
remaining 50% on June 14, 2008. The options contain an
expiration date of June 14, 2011.
|
|
|
c)
|
On
June 6, 2006, the Company granted nonqualified stock options for the
purchase of 100,000 shares of common stock at $2.40 per
share. The options were granted to equally to two directors,
are fully vested and expire on June 6,
2011.
|
|
|
d)
|
On
June 6, 2006, the Company granted nonqualified stock options for the
purchase of 500,000 shares of common stock at $2.40 per
share. The options were granted to equally to two
officer/directors, are fully vested and expire on June 6,
2011.
|
|
|
e)
|
On
April 7, 2006, the Company granted stock options for the purchase of
120,000 shares of common stock at $1.70 per share. The options
were granted equally to two officers, are fully vested and expire on April
7, 2011.
|
Expenses
for the years ended December 31, 2008, 2007 and 2006 related to vesting and
granting of stock options were $27,885, $233,286 and $186,094, respectively and
are included in general and administrative expense. The Company
recorded $36,457 in stock option modification expense for one employee during
the year ended December 31, 2008. No such stock option modifications occurred
before.
|
|
Stock
options
–
During the years ended December
31, 2008, 2007 and 2006, the Company granted stock options to employees
and directors totaling 207,347, 182,946 and 870,000, respectively, with a
weighted average exercise price of $1.49, $2.76 and $2.25 per share,
respectively. As of December 31, 2008 stock options outstanding
totaled 3,560,293 with a weighted average exercise price of $1.02 per
share.
|
On May
30, 2008, the Company extended the term of stock options previously issued to an
employee for 50,000 shares of common stock for an additional 3 years. The
Company accounted for the impact of the amended stock option grant as a stock
option modification under SFAS 123R. As a result of the modification, the
Company recognized $36,457 of additional stock-based compensation expense due to
the increase in the fair market value of this stock option grant that is
recorded in general and administrative expense.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
The
following table summarizes the Company’s stock option activity for the years
ended December 31, 2008, 2007 and 2006:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2005
|
|
|
3,000,000
|
|
|
$
|
0.35
|
|
|
Options
granted and assumed
|
|
|
870,000
|
|
|
|
2.25
|
|
|
Options
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
3,870,000
|
|
|
|
0.77
|
|
|
Options
granted and assumed
|
|
|
182,946
|
|
|
|
2.76
|
|
|
Options
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options
exercised
|
|
|
(400,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
3,652,946
|
|
|
|
0.93
|
|
|
Options
granted and assumed
|
|
|
207,347
|
|
|
|
1.49
|
|
|
Options
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options
exercised
|
|
|
(300,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
3,560,293
|
|
|
$
|
1.02
|
|
The
Company estimates the fair value of these options granted by using the Binomial
Lattice option pricing-model with the following assumptions used for
grants:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expected
volatility
|
|
|
76.59%
|
|
|
|
76.6%
|
|
|
|
85%
|
|
|
Risk-free
interest rate
|
|
1.55%
to 3.48%
|
|
|
2.88%
to 4.68%
|
|
|
4.89%
to 5.08%
|
|
|
Expected
life (years)
|
|
4.25
to 9
|
|
|
2
to 4.25
|
|
|
|
4.25
|
|
The
Company believes 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 actual exercise behavior of option holders
.
For stock
options awarded during 2008, the expected volatility is based on the historical
volatility levels on our common stock. For stock options awarded prior to 2008,
the Company estimated expected volatility using a representative peer group
average, because of limited historical equity transactions of the
Company. The risk-free interest rate is based on the implied yield
available on U.S. Treasury zero-coupon issues over equivalent lives of the
options.
The
expected life of employee stock options represents the weighted-average period
the stock options are expected to remain outstanding and is a derived output of
the Binomial Lattice model. The expected life of employee stock options is
impacted by all of the underlying assumptions and calibration of the Company’s
model. The Binomial Lattice model estimates the probability of exercise as a
function of these two variables based on the entire history of exercises and
cancellations on all past option grants made by the Company.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
The
following table summarizes the changes of the Company’s stock options subject to
vesting for the years ended December 31, 2008, 2007 and 2006:
|
|
|
Number of
Shares Subject
to
Vesting
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Unvested,
December 31, 2005
|
|
|
—
|
|
|
$
|
—
|
|
|
Options
granted
|
|
|
150,000
|
|
|
|
0.21
|
|
|
Options
vested
|
|
|
(25,000
|
)
|
|
|
0.21
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested,
December 31, 2006
|
|
|
125,000
|
|
|
|
0.21
|
|
|
Options
granted
|
|
|
—
|
|
|
|
—
|
|
|
Options
vested
|
|
|
(75,000
|
)
|
|
|
0.21
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested,
December 31, 2007
|
|
|
50,000
|
|
|
|
0.21
|
|
|
Options
granted
|
|
|
200,000
|
|
|
|
0.79
|
|
|
Options
vested
|
|
|
(50,000
|
)
|
|
|
0.21
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2008
|
|
|
200,000
|
|
|
$
|
0.79
|
|
As of
December 31, 2008, there was $138,154 total unrecognized compensation cost
related to unvested stock options. This cost is expected to be recognized as
follows: 2009 - $68,640, 2010 - $39,873, 2011 - $21,598, and 2012 -
$8,043.
The
following table summarizes information about options granted during the year
ended December 31, 2008:
|
Number of Options
Granted
During 2008
|
|
Exercise Price
Equals, Exceeds
Or
Is Less than Mkt.
Price of Stock
On Grant Date
|
|
Weighted
Average
Exercise
Price
|
|
|
Range of
Exercise
Price
|
|
|
Weighted
Average Fair
Value
|
|
|
207,347
|
|
Equals
|
|
$
|
1.49
|
|
|
$
|
1.45
to $2.45
|
|
|
$
|
0.80
|
|
|
—
|
|
Exceeds
|
|
$
|
—
|
|
|
$
|
—
to $
—
|
|
|
$
|
—
|
|
|
—
|
|
Less Than
|
|
$
|
—
|
|
|
$
|
— to $ —
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,347
|
|
Equals
|
|
$
|
1.49
|
|
|
|
$ 1.45
|
|
|
$
|
0.80
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
The
following table summarizes information about options granted during the year
ended December 31, 2007:
|
Number of Options
Granted
During 2007
|
|
Exercise Price
Equals, Exceeds
Or
Is Less than Mkt.
Price of Stock
On Grant Date
|
|
Weighted
Average
Exercise
Price
|
|
|
Range of
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
182,946
|
|
Equals
|
|
$
|
2.76
|
|
|
$
|
1.75
to $4.04
|
|
|
$
|
0.44
|
|
|
—
|
|
Exceeds
|
|
$
|
—
|
|
|
$
|
—
to $
—
|
|
|
$
|
—
|
|
|
—
|
|
Less Than
|
|
$
|
—
|
|
|
$
|
— to $ —
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,946
|
|
Equals
|
|
$
|
2.76
|
|
|
$
|
1.75 to $4.04
|
|
|
$
|
0.44
|
|
The
following table summarizes information about options granted during the year
ended December 31, 2006:
|
Number of Options
Granted
During 2006
|
|
Exercise Price
Equals, Exceeds
Or
Is Less than Mkt.
Price of Stock
On Grant Date
|
|
Weighted
Average
Exercise
Price
|
|
|
Range of
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
—
|
|
Equals
|
|
$
|
—
|
|
|
$
|
—
to $ —
|
|
|
$
|
—
|
|
|
—
|
|
Exceeds
|
|
$
|
—
|
|
|
$
|
—
to $
—
|
|
|
|
—
|
|
|
870,000
|
|
Less Than
|
|
$
|
2.25
|
|
|
$
|
1.70 to $2.40
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870,000
|
|
Less Than
|
|
$
|
2.25
|
|
|
$
|
1.70 to $2.40
|
|
|
$
|
0.10
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
Stock
options/warrants
– During the year ended December 31, 2008 the Company
granted stock warrants related to common stock issued through a private
placement totaling 1,640,625 with a strike price of $2.40 per
share.
The value
of the warrants was allocated against additional paid in capital as part of the
overall offering cost of the private placement.
During
the year ended December 31, 2008 the Company issued stock options for 207,347
shares of common stock to a director with an exercise price ranging from $1.45
to $2.45 per share.
Stock
options/warrants
– During the year ended December 31, 2007 the Company
granted stock warrants related to common stock issued through a private
placement totaling 3,660,913 with a strike price of $4.50 per share and
1,562,500 with a strike price of $2.40 per share and stock warrants totaling
178,345 were issued to underwriters of the private placement with a strike price
of $4.50 per share.
The value
of the warrants was allocated against additional paid in capital as part of the
overall offering cost of the private placement.
During
the year ended December 31, 2007 the Company issued stock options for 182,946
shares of common stock to three officers, two employees and a consultant with a
strike price ranging from $1.75 to $4.04 per share.
Stock options/warrants
- During the year ended December 31, 2006 the Company granted stock
warrants related to common stock issued through a private placement totaling
3,900,000 with a strike price of $0.65 per share and stock warrants totaling
390,000 were issued to underwriters of the private placement with a strike price
of $0.65 per share.
The
Company also granted warrants related to common stock totaling 612,500 which
were granted in accordance with registration provisions of the September 2005
financing with a strike price of $0.625 per share.
The value
of the warrants was allocated against additional paid in capital as part of the
overall offering cost of the private placement.
During
the year ending December 31, 2006 the Company issued stock options for 870,000
shares of common stock to directors, officers and an employee with strike price
ranging from $1.70 to $2.40 per share.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
STOCK
OPTION PLAN AND
WARRANTS
(continued)
|
The
following table summarizes information about options/warrants granted during the
years ended December 31, 2008, 2007 and 2006:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2005
|
|
|
24,118,500
|
|
|
$
|
0.42
|
|
|
Options/warrants
granted and assumed
|
|
|
5,772,500
|
|
|
|
0.55
|
|
|
Options/warrants
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
exercised
|
|
|
(9,731,000
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
20,160,000
|
|
|
|
0.51
|
|
|
Options/warrants
granted and assumed
|
|
|
5,584,704
|
|
|
|
3.86
|
|
|
Options/warrants
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
exercised
|
|
|
(800,000
|
)
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
24,944,704
|
|
|
|
1.26
|
|
|
Options/warrants
granted and assumed
|
|
|
1,847,972
|
|
|
|
2.30
|
|
|
Options/warrants
expired
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
exercised
|
|
|
(4,190,000
|
)
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
22,602,680
|
|
|
$
|
1.11
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
9.
|
PROPERTY RENTAL
AGREEMENTS AND LEASES
|
|
|
The
Company, through its subsidiary CML, has the following lease and rental
agreements as lessor:
|
|
|
Clarkdale Arizona
Central Railroad – Lease
|
|
|
CML
has a month-to-month rental agreement with Clarkdale Arizona Central
Railroad. The rental payment is $1,700 per
month.
|
|
|
Commercial Building –
Lease
|
|
|
CML
rents commercial building space to two tenants. The rental arrangements
for both tenants stem from expired leases and are month-to-month. Rent
under these agreements was on average $1,277 per
month.
|
Land Lease – Wastewater
Effluent
|
|
CML
assumed a lease as lessor on February 15, 2007 that was entered into by TI
on 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 term
of the lease is 5 years with a one year extension available. At such time as
Clarkdale no longer uses the property for effluent disposal, and for a period of
twenty five (25) years measured from the date of the lease, the Company has a
continuing right to purchase Class B, and if available, Class A at then market
rates.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Company is a Nevada corporation and is subject to federal and Arizona income
taxes. Nevada does not impose a corporate income tax.
The
income tax benefit consisted of the following at December 31, 2008, 2007 and
2006,
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit per financial statements
|
|
$
|
(1,864,221
|
)
|
|
$
|
(1,254,833
|
)
|
|
$
|
(1,278,083
|
)
|
|
Non-deductible
and other
|
|
|
6,460
|
|
|
|
4,807
|
|
|
|
3,294
|
|
|
Change
in valuation allowance
|
|
|
80,303
|
|
|
|
119,193
|
|
|
|
64,694
|
|
|
Release
of valuation allowance related to acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
82,299
|
|
|
Rate
change
|
|
|
—
|
|
|
|
50,458
|
|
|
|
5,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
$
|
(1,777,458
|
)
|
|
$
|
(1,080,375
|
)
|
|
$
|
(1,122,457
|
)
|
Significant
components of the Company’s net deferred income tax assets and liabilities at
December 31, 2008 and 2007 were as follows:
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
Deferred
income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
4,742,104
|
|
|
$
|
2,964,646
|
|
|
Option
compensation
|
|
|
349,412
|
|
|
|
324,962
|
|
|
Reclamation
bond
|
|
|
68,590
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
deferred income tax asset
|
|
|
5,160,106
|
|
|
|
3,289,608
|
|
|
Valuation
allowance
|
|
|
(403,501
|
)
|
|
|
(323,198
|
)
|
|
|
|
|
4,756,605
|
|
|
|
2,966,410
|
|
|
Deferred
income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equipment
|
|
|
14,501
|
|
|
|
1,764
|
|
|
Acquisition
related liabilities
|
|
|
55,197,465
|
|
|
|
53,584,304
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
|
$
|
50,455,361
|
|
|
$
|
50,619,658
|
|
A
valuation allowance for deferred tax related to option compensation and the
reclamation bond was established for net deferred tax assets not allocated to
offset acquisition related deferred tax liabilities due to the uncertainty of
realizing these deferred tax assets based on conditions existing at December 31,
2008 and 2007.
Deferred
income tax liability was 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
10.
|
INCOME TAXES
(continued)
|
The
resulting estimated future federal and state income tax liability associated
with the temporary difference between the acquisition consideration and the tax
basis as computed in accordance with EITF 98-11 and SFAS 109, is 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.
The
Company had cumulative net operating losses of approximately $12,479,222 and
$7,801,699 as of December 31, 2008 and 2007, respectively for federal income tax
purposes. The federal net operating loss carryforwards will be expiring between
2025 and 2028.
The
Company had cumulative net operating losses of approximately $5,292,772 and
$1,795,792 as of December 31, 2008 and 2007, respectively for state income tax
purposes. The state net operating loss carryforwards will be expiring between
2013 and 2014.
As of
January 1, 2007, the Company did not have any unrecognized tax
benefits. The adoption of FIN 48 did not result in any cumulative
effect adjustment to the January 1, 2007 balance of the Company’s accumulated
deficit. Upon adoption of FIN 48, the Company did not accrue for
interest and penalties as there were no unrecognized tax benefits. If
interest and penalties were to be assessed, we would charge interest to interest
expense, and penalties to general and administrative expense. It is
not anticipated that unrecognized tax benefits would significantly increase or
decrease within 12 months of the reporting date.
The
Company and its subsidiary 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 decrease its
net operating losses available for carryforwards. The Company is no
longer subject to income tax examinations by US federal and state tax
authorities for years prior to 2005. While the Company believes 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
COMMITMENTS AND
CONTINGENCIES
|
Lease obligations
–
The Company rents office space in Henderson, Nevada. The lease terms
expired in November 2006 and the Company continues to rent the existing space
under month-to-month terms for $4,900 per month.
Rental
expense, resulting from this operating lease agreement, approximated $58,800,
$46,700 and $43,613 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Employment contracts
–
Ian R. McNeil, President and Chief Executive Officer. The Company has an
employment agreement with Mr. McNeil effective since January 1, 2006. Under the
terms of the agreement, as updated February 16, 2007, Mr. McNeil is paid a
salary of $190,000. Mr. McNeil is also eligible for a discretionary bonus to be
determined based on factors considered relevant by the Company’s board of
directors, and may be granted, subject to the approval of the board of
directors, incentive stock options to purchase shares of the Company’s common
stock in such amounts and at such times as the board of directors, in its
absolute discretion, may from time to time determine. The term of the
agreement is for an indefinite period, unless otherwise terminated 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.
McNeil with six months written notice or payment equal to six months of his
monthly remuneration.
Carl S.
Ager, Treasurer and Secretary. The Company has an employment agreement with Mr.
Ager effective since January 1, 2006. Under the terms of the agreement, as
updated February 16, 2007, Mr. Ager is paid a salary of $160,000. Mr. Ager is
also eligible for a discretionary bonus to be determined based on factors
considered relevant by the Company’s board of directors, and may be granted,
subject to the approval of the board of directors, incentive stock options to
purchase shares of the Company’s common stock in such amounts and at such times
as the board of directors, in its absolute discretion, may from time to time
determine. The term of the agreement is for an indefinite period,
unless otherwise terminated 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
remuneration.
Melvin L.
Williams, Chief Financial Officer. The Company has an employment agreement with
Mr. Williams effective since June 14, 2006. Under the terms of the
agreement, as updated February 16, 2007, Mr. Williams is paid a salary of
$130,000, based on 600-800 hours worked. Mr. Williams is also
eligible for a discretionary bonus to be determined based on factors considered
relevant by the Company’s board of directors, and may be granted, subject to the
approval of the board of directors, incentive stock options to purchase shares
of the Company’s common stock in such amounts and at such times as the board of
directors, in its absolute discretion, may from time to time
determine. The term of the agreement is for an indefinite period,
unless otherwise terminated 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. Williams with thirty
days written notice or payment equal to three months of his monthly
remuneration.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
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 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 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: (1) the end of the first calendar year in which the
Project Royalty equals or exceeds $500,000; or (2) 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 (10) 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 end
forever.
Industrial development
agreement – Road
- 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 Slag
Project site efficiently and to meet stipulations of the Conditional Use Permit
(CUP) 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; or (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 (i), (ii), and (iii) above are
beyond control of the Company.
The Company estimates construction of
the Road to cost approximately $3,500,000 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
CONCENTRATION OF
CREDIT RISK
|
The
Company maintains its cash accounts in two financial institutions. Cash accounts
at these financial institutions are insured by the Federal Deposit Insurance
Corporation (FDIC) for up to $250,000 per financial institution. To date, the
Company has not 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
December 31, 2008, the Company had deposits in excess of FDIC insured limits in
the amount of $6,642,418. Subsequent to year end, the Company placed substantial
portion of its cash balances in United States Treasury instruments.
|
13.
|
CONCENTRATION OF
ACTIVITY
|
For the
year ended December 31, 2008, the Company purchased services from two major
vendors, Talson Corporation and Cimetta Engineering, which exceeded more than
10% of total purchases and amounted to approximately $2,123,096 and $1,476,744,
respectively.
For the
year ended December 31, 2007, the Company purchased services from one major
vendor, Talson Corporation, which exceeded more than 10% of total purchases and
amounted to approximately $2,123,833.
|
14.
|
RELATED PARTY
TRANSACTIONS
|
During
the years ended December 31, 2008, 2007 and 2006, the Company utilized the
services of NMC to provide technical assistance and financing related
activities. These services related primarily to the Clarkdale Slag
Project and the Searchlight Claims Project. Mr. McNeil and Mr. Ager
are affiliated with NMC.
In
addition to the above services, NMC provided dedicated use of its laboratory,
instrumentation, milling equipment and research facilities. NMC
provided invoices for these fees plus expenses.
For the
year ended December 31, 2008, the Company incurred total fees and reimbursement
of expenses to NMC of $360,000 and $104,269, respectively. At December 31, 2008,
the Company had an outstanding balance due to NMC of $93,940.
For the
year ended December 31, 2007, the Company incurred total fees and reimbursement
of expenses to NMC of $360,000 and $105,346, respectively. At December 31, 2007,
the Company had an outstanding balance due to NMC of $39,730.
For the
year ended December 31, 2006, the Company incurred total fees and reimbursements
of expenses to NMC of $495,000 and $271,103, respectively. At December 31, 2006,
the Company had an outstanding balance due to NMC of $311,863.
During
the years ended December 31, 2008 and 2007, the Company utilized Cupit,
Milligan, Ogden & Williams, CPAs (CMOW) to provide accounting support
services. Mr. Williams is affiliated with CMOW.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
14.
|
RELATED PARTY
TRANSACTIONS
(continued)
|
The
Company incurred total fees to CMOW of $83,213 and $31,277 for the years ended
December 31, 2008 and 2007, respectively. The Company also reimbursed expenses
to CMOW of $120 and $1,144 for the years ended December 31, 2008 and 2007,
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 salary agreement. The direct benefit to Mr. Williams was $22,468 and $11,260
of the above CMOW fees and expenses for the years ended December 31 2008 and
2007, respectively. The Company had an outstanding balance due to CMOW of
$14,575 and $2,244 as of December 31, 2008 and 2007, respectively.
During
2006, the Company did not utilize services of CMOW.
Industrial development
agreement – Road
- In January 2009, the Company submitted a development
agreement to the Town of Clarkdale for development of an Industrial Collector
Road (the “Road”). Details of the agreement are discussed further in Note
11.
Stock option activity
- On January 12, 2009, the Company issued 400,000 shares of common stock from
the exercise of non-employee stock options resulting in cash proceeds of
$100,000. Options exercised were for 400,000 shares of common stock at $0.25 per
share. These stock options were subject to an expiration date of February 16,
2009.
On
January 30, 2009, the Company issued 100,000 shares of common stock from the
exercise of non-employee stock options resulting in cash proceeds of $25,000.
Options exercised were for 100,000 shares of common stock at $0.25 per
share. These stock options were subject to an expiration date of
November 23, 2010.
On
February 16, 2009, stock options for the purchase of 50,000 shares of common
stock expired.
Amendment and revision to
warrant provisions
– On April 30, 2009 the Company further amended its
warrant call provisions. See Note 7, for further
discussion.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
16.
|
UNAUDITED
SUPPLEMENTARY DATA
|
The
following is a summary of selected quarterly financial information
(unaudited):
|
|
|
|
Q1
|
|
|
|
Q2
|
|
|
|
Q3
|
|
|
|
Q4
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
$
|
1,063,985
|
|
|
$
|
1,412,342
|
|
|
$
|
1,415,440
|
|
|
$
|
1,250,190
|
|
|
Loss
from operations
|
|
|
(1,063,985
|
)
|
|
|
(1,412,342
|
)
|
|
|
(1,415,440
|
)
|
|
|
(1,250,190
|
)
|
|
Net
loss
|
|
|
(592,696
|
)
|
|
|
(859,735
|
)
|
|
|
(910,900
|
)
|
|
|
(765,055
|
)
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
$
|
721,547
|
|
|
$
|
986,687
|
|
|
$
|
795,897
|
|
|
$
|
1,146,603
|
|
|
Loss
from operations
|
|
|
(721,547
|
)
|
|
|
(986,687
|
)
|
|
|
(795,897
|
)
|
|
|
(1,146,603
|
)
|
|
Net
loss
|
|
|
(409,935
|
)
|
|
|
(586,835
|
)
|
|
|
(423,757
|
)
|
|
|
(801,291
|
)
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,908,814
|
|
|
$
|
7,055,591
|
|
|
Prepaid
expenses
|
|
|
155,091
|
|
|
|
251,414
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,063,905
|
|
|
|
7,307,005
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
13,976,743
|
|
|
|
13,132,282
|
|
|
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
|
|
|
103,100
|
|
|
|
109,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
161,010,289
|
|
|
|
160,172,628
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
164,074,194
|
|
|
$
|
167,479,633
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
806,115
|
|
|
$
|
1,093,778
|
|
|
Accounts
payable - related party
|
|
|
142,569
|
|
|
|
108,515
|
|
|
VRIC
payable, current portion - related party
|
|
|
202,677
|
|
|
|
194,756
|
|
|
Capital
lease payable, current portion
|
|
|
24,565
|
|
|
|
24,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,175,926
|
|
|
|
1,421,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
VRIC
payable, net of current portion - related party
|
|
|
1,855,416
|
|
|
|
1,958,774
|
|
|
Capital
lease payable, net of current portion
|
|
|
27,873
|
|
|
|
40,291
|
|
|
Deferred
tax liability
|
|
|
49,229,239
|
|
|
|
50,455,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
51,112,528
|
|
|
|
52,454,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
52,288,454
|
|
|
|
53,875,501
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies - Note 12
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 400,000,000 shares authorized, 106,468,637 and
105,854,691 shares, respectively, issued and outstanding
|
|
|
106,468
|
|
|
|
105,854
|
|
|
Additional
paid-in capital
|
|
|
127,094,138
|
|
|
|
126,854,760
|
|
|
Accumulated
deficit during exploration stage
|
|
|
(15,414,866
|
)
|
|
|
(13,356,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
111,785,740
|
|
|
|
113,604,132
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
164,074,194
|
|
|
$
|
167,479,633
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
14, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date
of Inception)
|
|
|
|
|
For
the three months ended
|
|
|
For
the six months ended
|
|
|
Through
|
|
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
exploration and evaluation expenses
|
|
|
531,291
|
|
|
|
334,390
|
|
|
|
843,626
|
|
|
|
448,908
|
|
|
|
5,882,310
|
|
|
Mineral
exploration and evaluation expenses - related party
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
180,000
|
|
|
|
180,000
|
|
|
|
1,395,000
|
|
|
Administrative
- Clarkdale site
|
|
|
138,250
|
|
|
|
272,769
|
|
|
|
370,937
|
|
|
|
507,908
|
|
|
|
2,026,798
|
|
|
General
and administrative
|
|
|
716,160
|
|
|
|
689,031
|
|
|
|
1,449,204
|
|
|
|
1,281,025
|
|
|
|
7,567,373
|
|
|
General
and administrative - related party
|
|
|
67,617
|
|
|
|
10,722
|
|
|
|
89,819
|
|
|
|
27,125
|
|
|
|
205,573
|
|
|
Depreciation
|
|
|
186,657
|
|
|
|
15,430
|
|
|
|
368,615
|
|
|
|
30,552
|
|
|
|
475,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,729,975
|
|
|
|
1,412,342
|
|
|
|
3,302,201
|
|
|
|
2,475,518
|
|
|
|
17,552,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,729,975
|
)
|
|
|
(1,412,342
|
)
|
|
|
(3,302,201
|
)
|
|
|
(2,475,518
|
)
|
|
|
(17,552,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenue
|
|
|
6,565
|
|
|
|
7,740
|
|
|
|
14,105
|
|
|
|
17,040
|
|
|
|
86,235
|
|
|
Loss
on equipment disposition
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,542
|
)
|
|
|
-
|
|
|
|
(6,068
|
)
|
|
Interest
expense
|
|
|
(628
|
)
|
|
|
(887
|
)
|
|
|
(1,321
|
)
|
|
|
(1,837
|
)
|
|
|
(6,811
|
)
|
|
Interest
and dividend income
|
|
|
680
|
|
|
|
40,479
|
|
|
|
6,453
|
|
|
|
138,839
|
|
|
|
601,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
6,617
|
|
|
|
47,332
|
|
|
|
17,695
|
|
|
|
154,042
|
|
|
|
674,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,723,358
|
)
|
|
|
(1,365,010
|
)
|
|
|
(3,284,506
|
)
|
|
|
(2,321,476
|
)
|
|
|
(16,877,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
645,029
|
|
|
|
505,275
|
|
|
|
1,226,122
|
|
|
|
868,904
|
|
|
|
5,606,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(1,078,329
|
)
|
|
|
(859,735
|
)
|
|
|
(2,058,384
|
)
|
|
|
(1,452,572
|
)
|
|
|
(11,271,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,143,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,078,329
|
)
|
|
$
|
(859,735
|
)
|
|
$
|
(2,058,384
|
)
|
|
$
|
(1,452,572
|
)
|
|
$
|
(15,414,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
106,457,962
|
|
|
|
104,276,436
|
|
|
|
106,363,518
|
|
|
|
102,853,530
|
|
|
|
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
During
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Exploration
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Stage
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
105,854,691
|
|
|
$
|
105,854
|
|
|
$
|
126,854,760
|
|
|
$
|
(13,356,482
|
)
|
|
$
|
113,604,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.25 per share from exercise of nonemployee
stock options
|
|
|
400,000
|
|
|
|
400
|
|
|
|
99,600
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.25 per share from exercise of nonemployee
stock options
|
|
|
100,000
|
|
|
|
100
|
|
|
|
24,900
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to director over vesting period
|
|
|
-
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
6,568
|
|
|
|
7
|
|
|
|
17,993
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for directors' compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
8,010
|
|
|
|
-
|
|
|
|
8,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash, $0.25 per share from exercise of nonemployee
stock options
|
|
|
100,000
|
|
|
|
100
|
|
|
|
24,900
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to director over vesting period
|
|
|
-
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
-
|
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for directors' compensation
|
|
|
7,378
|
|
|
|
7
|
|
|
|
17,993
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for directors' compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
7,684
|
|
|
|
-
|
|
|
|
7,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss June 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,058,384
|
)
|
|
|
(2,058,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2009
|
|
|
106,468,637
|
|
|
$
|
106,468
|
|
|
$
|
127,094,138
|
|
|
$
|
(15,414,866
|
)
|
|
$
|
111,785,740
|
|
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, 2009
|
|
|
June
30, 2008
|
|
|
June
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,058,384
|
)
|
|
$
|
(1,452,572
|
)
|
|
$
|
(15,414,866
|
)
|
|
Deduct:
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,143,168
|
)
|
|
Loss
from continuing operations
|
|
|
(2,058,384
|
)
|
|
|
(1,452,572
|
)
|
|
|
(11,271,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile loss from operating to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
368,615
|
|
|
|
30,552
|
|
|
|
475,694
|
|
|
Stock
based expenses
|
|
|
89,992
|
|
|
|
73,316
|
|
|
|
1,184,497
|
|
|
Loss
on disposition of fixed assets
|
|
|
1,542
|
|
|
|
-
|
|
|
|
7,417
|
|
|
Amortization
of prepaid expense
|
|
|
114,826
|
|
|
|
86,445
|
|
|
|
469,152
|
|
|
Allowance
for bond deposit recovery
|
|
|
-
|
|
|
|
-
|
|
|
|
180,500
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
(18,503
|
)
|
|
|
(19,591
|
)
|
|
|
(624,243
|
)
|
|
Other
assets
|
|
|
900
|
|
|
|
(101,000
|
)
|
|
|
(289,500
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
(253,609
|
)
|
|
|
(269,650
|
)
|
|
|
223,126
|
|
|
Deferred
income taxes
|
|
|
(1,226,122
|
)
|
|
|
(868,904
|
)
|
|
|
(5,606,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(2,980,743
|
)
|
|
|
(2,521,404
|
)
|
|
|
(15,251,112
|
)
|
|
Net
cash used in operating activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,931,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW 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
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,900,000
|
)
|
|
Cash
paid for additional acquisition costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,105
|
)
|
|
Capitalized
interest
|
|
|
(84,563
|
)
|
|
|
(91,877
|
)
|
|
|
(426,906
|
)
|
|
Purchase
of property and equipment
|
|
|
(1,124,155
|
)
|
|
|
(3,495,044
|
)
|
|
|
(13,271,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(1,208,718
|
)
|
|
|
(3,586,921
|
)
|
|
|
(24,705,404
|
)
|
|
Net
cash used in investing activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(452,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from stock issuance
|
|
|
150,000
|
|
|
|
7,738,500
|
|
|
|
43,689,500
|
|
|
Stock
issuance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(677,570
|
)
|
|
Principal
payments on capital lease payable
|
|
|
(11,879
|
)
|
|
|
(11,364
|
)
|
|
|
(63,800
|
)
|
|
Principal
payments on deferred purchase liability
|
|
|
(95,437
|
)
|
|
|
(88,124
|
)
|
|
|
(443,095
|
)
|
|
Proceeds
from subscribed stock
|
|
|
-
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
42,684
|
|
|
|
7,639,012
|
|
|
|
42,865,035
|
|
|
Net
cash provided by financing activities from discontinued
operations
|
|
|
-
|
|
|
|
-
|
|
|
|
3,384,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH
|
|
|
(4,146,777
|
)
|
|
|
1,530,687
|
|
|
|
2,908,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
7,055,591
|
|
|
|
12,007,344
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
2,908,814
|
|
|
$
|
13,538,031
|
|
|
$
|
2,908,814
|
|
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, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Paid, net of capitalized amounts
|
|
$
|
1,321
|
|
|
$
|
1,837
|
|
|
$
|
57,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
equipment purchased through accounts payable and financing
|
|
$
|
-
|
|
|
$
|
363,442
|
|
|
$
|
444,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for common stock issued for the acquisition
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
66,879,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for common stock issued for mineral properties
|
|
$
|
-
|
|
|
$
|
2,632,000
|
|
|
$
|
10,220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired for liabilities incurred in the acquisition
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,628,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax liability assumed
|
|
$
|
-
|
|
|
$
|
1,613,161
|
|
|
$
|
55,197,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
option payment applied to the 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
|
|
See
Accompanying Notes to these Consolidated Financial Statements
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION
OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
POLICIES
|
Basis of
presentation
– The accompanying unaudited financial statements have been
prepared in accordance with Securities and Exchange Commission requirements for
interim financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
The
interim financial statements present the balance sheets, statements of
operations, stockholders’ equity, and cash flows of the Company. The financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States.
These
financial statements have been prepared by the Company without audit, and
include all adjustments (which consist solely of normal recurring adjustments)
which, in the opinion of management, are necessary for a fair presentation of
financial position and results of operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the Company’s audited financial
statements and notes thereto for the year ended December 31, 2008 appearing
elsewhere in this registration statement.
In
preparing these interim financial statements, the Company has evaluated events
and transactions for potential recognition or disclosure through August 7, 2009,
the date the financial statements were issued.
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 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 us 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 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Going concern
- The
Company incurred cumulative net losses of $15,414,866 from operations as of June
30, 2009 and has not commenced its mining and mineral processing operations,
rather, 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.
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 accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
Mineral rights
-
Costs of acquiring mining properties are capitalized upon
acquisition. Mine development costs incurred either to develop new
ore deposits, to expand the capacity of mines, or to develop mine areas
substantially in advance of current production are also capitalized once proven
and probable reserves exist and the property is a commercially mineable
property. Costs incurred to maintain current production or to maintain assets on
a standby basis are charged to operations. Costs of abandoned
projects are charged to operations upon abandonment. The Company
evaluates the carrying value of capitalized mining costs and related property
and equipment costs, to determine if these costs are in excess of their
recoverable amount whenever events or changes in circumstances indicate that
their carrying amounts may not be recoverable. The periodic
evaluation of carrying value of capitalized costs and any related property and
equipment costs are based upon expected future cash flows and/or estimated
salvage value in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets.”
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 $84,563 and
$91,877 for the six months ended June 30, 2009 and 2008,
respectively.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Exploration costs
–
Mineral exploration costs are expensed as incurred.
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).
The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful lives of property and
equipment or whether the remaining balance of property and equipment should be
evaluated for possible impairment. If events and circumstances warrant
evaluation, the Company uses an estimate of the related undiscounted cash flows
over the remaining life of the property and equipment in measuring their
recoverability.
Impairment of long-lived
assets
–
The Company reviews and evaluates long-lived assets for impairment when
events or changes in circumstances indicate the related carrying amounts may not
be recoverable. The assets are subject to impairment consideration under SFAS
No. 144 if events or circumstances indicate that their carrying amount might not
be recoverable. As of June 30, 2009 exploration progress is on target
with the Company’s exploration and evaluation plan and no events or
circumstances have happened to indicate the related carrying values of the
properties may not be recoverable. When the Company determines that a SFAS 144
impairment analysis should be done, the analysis will be performed using the
rules of EITF 04-03, “Mining Assets: Impairment and Business
Combinations.”
Various
factors could impact our ability to achieve forecasted production schedules.
Additionally, commodity prices, capital expenditure requirements and reclamation
costs could differ from the assumptions the Company may use in cash flow models
used to assess impairment. The ability to achieve the estimated quantities of
recoverable minerals from exploration stage mineral interests involves further
risks in addition to those factors applicable to mineral interests where proven
and probable reserves have been identified, due to the lower level of confidence
that the identified mineralized material can ultimately be mined
economically.
Material
changes to any of these factors or assumptions discussed above could result in
future impairment charges to operations.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Asset retirement
obligation
- The Company has adopted Statement of Financial Accounting
Standard No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations”,
which requires that an asset retirement obligation (“ARO”) associated with the
retirement of a tangible long-lived asset be recognized as a liability in the
period in which it is incurred and becomes determinable, with an offsetting
increase in the carrying amount of the associated asset. The cost of
the tangible asset, including the initially recognized ARO, is depleted, such
that the cost of the ARO is recognized over the useful life of the
asset. The ARO is recorded at fair value, and accretion expense is
recognized over time as the discounted liability is accreted to its expected
settlement value. The fair value of the ARO is measured using
expected future cash flow, discounted at the Company’s credit-adjusted risk-free
interest rate. To date, no significant asset retirement obligation
exists due to the early stage of exploration. Accordingly, no
liability has been recorded.
Fair value of financial
instruments
- The Company’s financial instruments consist of accounts
payable, accrued liabilities, capital lease payable and mineral property
purchase obligations. The carrying value of these financial instruments
approximates their fair value based on their liquidity or their short-term
nature. The Company is not exposed to significant interest or credit
risk arising from these financial instruments.
Revenue recognition
-
Revenues are recognized during the period in which the revenues are earned.
Costs and expenses are recognized during the period in which they are
incurred.
Research and
development
- All research and development expenditures are expensed as
incurred.
Earnings (loss) per
share
- The Company follows Statement of Financial Accounting Standard
No. 128 (“SFAS 128”), “Earnings Per Share” and Statement of Financial Accounting
Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity,” which establish
standards for the computation, presentation and disclosure requirements for
basic and diluted earnings per share for entities with publicly-held common
shares and potential common stock issuances. Basic earnings (loss) per share are
computed by dividing net income 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, such as stock options and
warrants. Common stock equivalent shares are excluded from the
computation if their effect is antidilutive. Weighted average of common stock
equivalents, which include stock options and warrants to purchase common stock,
on June 30, 2009 and 2008 that were not included in the computation of diluted
EPS because the effect would be antidilutive were, 21,953,465 and 24,361,656,
respectively.
Expenses of offering
–
The Company accounts for specific incremental costs directly to a proposed or
actual offering of securities as a direct charge against the gross proceeds of
the offering.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Income taxes
- The
Company accounts for its income taxes in accordance with the Statement of
Financial Accounting No. 109 (“SFAS 109”), “Accounting for Income Taxes”, which
requires recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
On July
13, 2006, the Financial Accounting Standards Board (“FASB”) issued Financial
Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial
statements in accordance with SFAS No. 109, and prescribes a recognition
threshold and measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Under FIN
48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than 50% likelihood of being
sustained. Additionally, FIN 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted the provision of FIN
48 on January 1, 2007, which did not have any impact on the consolidated
financial statements.
For
acquired properties that do not constitute a business as defined in Emerging
Issues Task Force Issue No. 98-03 (“EITF 98-03”), “Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”,
deferred income tax liability is recorded on GAAP basis over income tax basis
using statutory federal and state rates. The resulting estimated future federal
and state income tax liability associated with the temporary difference between
the acquisition consideration and the tax basis is computed in accordance with
EITF 98-11 “Accounting for Acquired Temporary Differences in Certain Purchase
Transactions That Are Not Accounted for as Business Combinations” and SFAS 109,
and is reflected as an increase to the total purchase price which is then
applied to the underlying acquired assets in the absence of there being a
goodwill component associated with the acquisition
transactions.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
Stock-based
compensation
- On December 16, 2004, the FASB issued Statement of
Financial Accounting Standard No. 123R (“SFAS 123R”), “Share-Based
Payment”, which replaces Statement of Financial Accounting Standard No. 123
(“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on the grant
date fair value of the award. Under SFAS No. 123R, the Company must determine
the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be
used at date of adoption. The transition methods include prospective and
retroactive adoption option. Under the retroactive option, prior periods may be
restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded
for all unvested stock options and restricted stock at the beginning of the
first quarter of adoption of SFAS No. 123R, while the retroactive methods would
record compensation expense for all unvested stock options and restricted stock
beginning with the first period restated. The Company adopted the requirements
of SFAS No. 123R for the fiscal year beginning after December 31,
2004.
New accounting
pronouncements
– The FASB has issued FASB Statement No. 168, The “FASB
Accounting Standards Codification
TM
” and
the Hierarchy of Generally Accepted Accounting Principles. Statement 168
establishes the FASB Accounting Standards Codification
TM
(Codification) as the single source of authoritative U.S. generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. Statement 168 and the Codification are
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.
The FASB
has issued FASB Statement No. 167, “Amendment to FASB Interpretation No. 46(R)”.
Statement 167 is a revision to FASB Interpretation No. 46 (Revised December
2003), ‘Consolidation of Variable Interest Entities”, and changes how a
reporting entity determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is
required to consolidate another entity is based on, among other things, the
other entity’s purpose and design and the reporting entity’s ability to direct
the activities of the other entity that most significantly impact the other
entity’s economic performance. Statement 167 will require a reporting
entity to provide additional disclosures about its involvement with variable
interest entities and any significant changes in risk exposure due to that
involvement. A reporting entity will be required to disclose how its
involvement with a variable interest entity affects the reporting entity’s
financial statements. Statement 167 will be effective at the start of a
reporting entity’s first fiscal year beginning after November 15, 2009, or
January 1, 2010, for a calendar year-end entity. Adoption of this statement is
not expected to have a material impact on the Company’s consolidated financial
statements.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
The FASB
has issued FASB Statement No. 166, “Accounting for Transfers of Financial
Assets”. Statement 166 is a revision to FASB Statement No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”,
and will require more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risk related to the transferred financial assets. It eliminates the
concept of a “qualifying special-purpose entity”, changes the requirements for
derecognizing financial assets, and requires additional
disclosures. Statement 166 enhances information reported to users of
financial statements by providing greater transparency about transfers of
financial assets and an entity’s continuing involvement in transferred financial
assets. Statement 166 will be effective at the start of a reporting
entity’s first fiscal year beginning after November 15, 2009, or January 1,
2010, for a calendar year-end entity. Adoption of this statement is not expected
to have a material impact on the Company’s consolidated financial
statements.
The FASB
has issued FASB Statement No. 165, “Subsequent Events”. Statement 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet but before financial statements are issued or are
available to be issued. Specifically, Statements 165 provides: (i) the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements; and (iii) the disclosures that an entity
should make about events or transactions that occurred after the balance sheet
date. Statement 165 is effective for interim or annual financial
periods ending after June 15, 2009, and shall be applied
prospectively. The required disclosures of this statement have been
incorporated into the Company’s consolidated financial statements.
In April
2009, FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1 was issued to amend
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to
require disclosures about fair value of financial instruments for interim
reporting period as well as in annual financial statements. This FSP also amends
APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures
in summarized financial information at interim reporting periods. FSP No. 107-1
and APB 28-1 is effective for interim reporting period ending after June 15,
2009. Adoption of this guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
In April
2009, FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”, was issued to provide additional guidance
for estimating the fair value in accordance with SFAS No. 157, “Fair Value
Measurements”, when the volume and level of activity for the asset or liability
have significantly decreased. This FSP also provides guidance on identifying
circumstances that indicate a transaction is not orderly. FSP No. FAS 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Adoption of this guidance is not expected to
have a material impact on the Company’s consolidated financial
statements.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
In April
2009, FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies”. This FSP
amends the guidance in FASB Statement No. 141 to require that assets acquired
and liabilities assumed in a business combination that arise from contingencies
be recognized at fair value if fair value can be reasonably estimated. If fair
value of such asset or liability cannot be reasonably estimated, the asset or
liability would generally be recognized in accordance with FASB Statement No. 5,
“Accounting for Contingencies”, and FASB Interpretation (FIN) No. 14,
“Reasonable Estimation of the Amount of a Loss”. This FSP eliminates the
requirements to disclose an estimate of the range of outcomes of recognized
contingencies at the acquisition date. This FSP also requires that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value in accordance with Statement
141R. This FSP is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The adoption of this statement had little or no effect on the
Company’s consolidated financial position, results of operations, and
disclosures.
In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’
Disclosures about Post-Retirement Benefit Plan Assets” (“FSP
FAS 132(R)-1”), which amends FASB Statement No. 132 “Employers’
Disclosures about Pensions and Other Post-Retirement Benefits” (“FAS 132”),
to provide guidance on an employer’s disclosures about plan assets of a defined
benefit pension or other post-retirement plan. The objective of FSP
FAS 132(R)-1 is to require more detailed disclosures about employers’ plan
assets, including employers’ investment strategies, major categories of plan
assets, concentrations of risk within plan assets, and valuation techniques used
to measure the fair value of plan assets. FSP FAS 132(R)-1 is effective for
the Company’s fiscal year ending after December 15, 2009. Upon initial
application, the provisions of this FSP are not required for earlier periods
that are presented for comparative purposes. The adoption of this statement had
little or no effect on the Company’s consolidated financial position, results of
operations, and disclosures.
In
November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method
Investment Accounting Considerations” (“EITF 08-6”), which clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. The intent of EITF 08-6 is to provide guidance
on (i) determining the initial carrying value of an equity method
investment, (ii) performing an impairment assessment of an underlying
indefinite-lived intangible asset of an equity method investment,
(iii) accounting for an equity method investee’s issuance of shares, and
(iv) accounting for a change in an investment from the equity method to the
cost method. EITF 08-6 is effective for the Company’s fiscal year beginning
January 1, 2009 and is to be applied prospectively. The adoption of this
statement had little or no effect on the Company’s consolidated financial
position, results of operations, and disclosures.
In
June 2008, the EITF reached consensus on Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”
(“EITF 07-5”). EITF 07-5 clarifies the determination of whether an
instrument (or an embedded feature) is indexed to an entity’s own stock, which
would qualify as a scope exception under FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”).
EITF 07-5 is effective for the Company’s fiscal years beginning
January 1, 2009. Early adoption for an existing instrument is not
permitted. The adoption of this statement had little or no effect on the
Company’s consolidated financial position, results of operations, and
disclosures.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
In May
2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under FAS 133. Convertible debt instruments within the scope of FSP APB
14-1 are not addressed by the existing APB 14. FSP APB 14-1 requires that the
liability and equity components of convertible debt instruments within the scope
of FSP APB 14-1 be separately accounted for in a manner that reflects the
entity’s nonconvertible debt borrowing rate. This requires an allocation of the
convertible debt proceeds between the liability component and the embedded
conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the
liability component will be reported as a debt discount and subsequently
amortized to earnings over the instrument’s expected life using the effective
interest method. FSP APB 14-1 is effective for the Company’s fiscal year
beginning January 1, 2009 and will be applied retrospectively to all
periods presented. The adoption of this statement had little or no
effect on the Company’s consolidated financial position, results of operations,
and disclosures.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”) which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). The
intent of this FSP is to improve the consistency between the useful life of a
recognized intangible asset under FAS 142 and the period of expected cash
flows used to measure the fair value of the asset under FASB Statement
No. 141, “Business Combinations” (“FAS 141”). FSP 142-3 is
effective for the Company’s fiscal year beginning January 1, 2009 and will
be applied prospectively to intangible assets acquired after the effective date.
The adoption of this statement had little or no effect on the Company’s
consolidated financial position, results of operations, and
disclosures.
The FASB
issued FASB Staff Position (FSP) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset Is Not Active”. The FSP clarifies
the application of FASB Statement No. 157, “Fair Value Measurements”, in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP is effective October 10,
2008, and for prior periods for which financial statements have not been issued.
Revisions resulting from a change in the valuation technique or its application
should be accounted for as a change in accounting estimate following the
guidance in FASB Statement No. 154, “Accounting Changes and Error Corrections”.
However, the disclosure provisions in Statement 154 for a change in accounting
estimate are not required for revisions resulting from a change in valuation
techniques or its application. The adoption of this statement had no material
effect on the Company’s consolidated financial position, results of operations,
and disclosures.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
DESCRIPTION OF
BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
(continued)
|
On March
19, 2008, the FASB issued Statement of Financial Accounting Standard No. 161
(“SFAS 161”), “Disclosures about Derivative Instruments and Hedging
Activities.” This statement is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures. This statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The adoption of this statement had little or
no effect on the Company’s consolidated financial position, results of
operations, and disclosures.
In
February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of
FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the
effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The provisions
of FSP FAS 157-2 are effective for the Company’s fiscal year beginning January
1, 2009. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. The adoption of this statement had
little or no effect on the Company’s consolidated financial position, results of
operations, and disclosures.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 141(R) (“SFAS 141(R)”), “Business Combinations,” which amends
SFAS No. 141, and provides revised guidance for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. SFAS 141(R) is effective
for the Company’s fiscal year beginning January 1, 2009 and is to be
applied prospectively. The adoption of this statement had little or no effect on
the Company’s consolidated financial position, results of operations, and
disclosures.
In
December 2007, the FASB issued Statement of Financial Accounting Standard
No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated
Financial Statements - an amendment of ARB No. 51” which establishes
accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for the Company’s fiscal year beginning
January 1, 2009. The adoption of this statement had little or no effect on
the Company’s consolidated financial position, results of operations, and
disclosures.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
2.
|
PROPERTY AND
EQUIPMENT
|
Property
and equipment consisted of the following as of June 30, 2009 and December 31,
2008:
|
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
36,740
|
|
|
$
|
35,813
|
|
|
Lab
equipment
|
|
|
216,923
|
|
|
|
2,804
|
|
|
Computers
and equipment
|
|
|
59,442
|
|
|
|
50,253
|
|
|
Income
property
|
|
|
309,750
|
|
|
|
309,750
|
|
|
Construction
in progress
|
|
|
5,392,815
|
|
|
|
12,289,996
|
|
|
Capitalized
interest
|
|
|
426,906
|
|
|
|
342,343
|
|
|
Vehicles
|
|
|
38,175
|
|
|
|
38,175
|
|
|
Demo
module building
|
|
|
6,621,980
|
|
|
|
—
|
|
|
Site
improvements
|
|
|
1,132,924
|
|
|
|
—
|
|
|
Site
equipment
|
|
|
214,242
|
|
|
|
168,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,449,897
|
|
|
|
13,238,083
|
|
|
Less
accumulated depreciation
|
|
|
473,154
|
|
|
|
105,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,976,743
|
|
|
$
|
13,132,282
|
|
Depreciation
expense was $368,615 and $30,552 for the six months ended June 30, 2009 and
2008, respectively.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG
PROJECT
|
On
February 15, 2007, the Company completed a merger with Transylvania
International, Inc. (TI) which provided the Company with 100% ownership of the
Clarkdale Slag Project in Clarkdale Arizona, through its wholly owned subsidiary
CML. This acquisition superseded the joint venture option agreement
to acquire a 50% ownership interest as a joint venture partner pursuant to
Nanominerals Corp. (“NMC”) interest in a joint venture agreement (“JV
Agreement”) dated May 20, 2005 between NMC and Verde River Iron Company, LLC
(“VRIC”). Subsequent to the acquisition, Mr. Harry Crockett joined the Company’s
board of directors. VRIC is an affiliate of Mr. Crockett.
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 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 EITF 98-03, and the Company recorded the acquisition as a purchase of
assets.
The $130
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 EITF 04-03 paragraph 2 and EITF 98-11, 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 Slag Project, which has been capitalized as
a tangible asset in accordance with EITF 04-02. Upon commencement of commercial
production, the material will be amortized using the unit-of-production method
over the life of the Slag Project.
The
Company also formed a second wholly owned subsidiary CMC, for the purpose of
developing a processing plant at the Clarkdale Slag Project.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG PROJECT
(continued)
|
Closing
of the TI acquisition occurred on February 15, 2007, (the “Closing Date”) and
was subject to, among other things, the following terms and
conditions:
|
|
a)
|
The
Company paid $200,000 in cash to VRIC on the execution of 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 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” 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: (1) the end of the first calendar year in which the
Project Royalty equals or exceeds $500,000; or (2) 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
3.
|
CLARKDALE SLAG PROJECT
(continued)
|
The
following table reflects the recorded purchase consideration for the 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 - slag project
|
|
|
48,076,734
|
|
|
|
|
|
|
|
|
|
|
$
|
130,292,777
|
|
The following table reflects the
components of the Slag Project
:
|
Allocation
of acquisition cost:
|
|
|
|
|
Slag
project (including net deferred tax liability assumed of
$48,076,734)
|
|
$
|
120,766,877
|
|
|
Land
- slag pile site
|
|
|
5,916,150
|
|
|
Land
|
|
|
3,300,000
|
|
|
Income
property and improvements
|
|
|
309,750
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
130,292,777
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
4.
|
MINERAL
PROPERTIES - MINING CLAIMS
|
As of
June 30, 2009 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, 2009 mineral
properties balance was $16,947,419.
The
mining claims were acquired during 2005 with issuance of 1,400,000 shares of the
Company’s common stock and the provision that the Company, at its option, issue
an additional 1,400,000 shares each year in June for three remaining
years. On June 25, 2008, the Company issued the remaining 1,400,000
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 EITF
04-02. Upon commencement of commercial production, the claims will be
amortized using the unit-of-production method over the life of the
claims. If the Company does not continue with exploration after the
completion of the feasibility study, the claims will be expensed at that
time.
On August
26, 2005, the Company paid $180,500 to the Bureau of Land Management as a bond
for future reclamation work in Searchlight, Nevada. As of June 30, 2009, the
recovery of the reclamation bond is uncertain, therefore the Company has
established a full allowance against the reclamation bond with the offsetting
expense to project exploration costs.
The
Company reviews and evaluates long-lived assets for impairment when events or
changes in circumstances indicate the related carrying amount may not be
recoverable. The assets are subject to impairment consideration under SFAS No.
144 if events or circumstances indicate that their carrying amount might not be
recoverable. As of June 30, 2009 exploration progress is on target with the
Company’s exploration and evaluation plan and no events or circumstances have
happened to indicate the related carrying values of the properties may not be
recoverable. When the Company determines that a SFAS 144 impairment analysis
should be done, the analysis will be performed using the rules of EITF 04-03,
“Mining Assets: Impairment and Business Combinations.”
|
5.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES
|
Accounts
payable and accrued liabilities at June 30, 2009 and December 31, 2008 consisted
of the following:
|
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
716,410
|
|
|
$
|
1,080,115
|
|
|
Accrued
compensation and related taxes
|
|
|
61,765
|
|
|
|
7,546
|
|
|
Accrued
property taxes
|
|
|
26,500
|
|
|
|
—
|
|
|
Other
|
|
|
1,440
|
|
|
|
6,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
806,115
|
|
|
$
|
1,093,778
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company leases equipment under a capital lease. The capital lease payable
consisted of the following at June 30, 2009 and December 31, 2008,
|
Lender
|
|
Collateral
|
|
Monthly
Payment
|
|
|
Interest
Rate
|
|
Maturity
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
Caterpillar
Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
Equipment
|
|
$
|
2,200
|
|
|
|
4.45
|
%
|
Jul-11
|
|
$
|
52,438
|
|
|
$
|
64,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,438
|
|
|
|
64,317
|
|
|
Capital
lease payable, current portion
|
|
|
|
|
|
|
|
|
|
|
|
(24,565
|
)
|
|
|
(24,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease payable, net of current portion
|
|
|
|
|
|
|
|
|
|
|
$
|
27,873
|
|
|
$
|
40,291
|
|
The
following table represents future minimum lease payments on the capital lease
payable for each of the twelve month periods ending June 30,
|
2010
|
|
$
|
26,401
|
|
|
2011
|
|
|
26,401
|
|
|
2012
|
|
|
2,200
|
|
|
2013
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
$
|
55,002
|
|
|
Imputed
interest
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
Present
value of future minimum lease payments
|
|
$
|
52,438
|
|
The
following assets acquired under the capital lease and the related amortization
were included in property, plant and equipment at June 30, 2009 and December 31,
2008,
|
|
|
June 30, 2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
Site
Equipment
|
|
$
|
116,239
|
|
|
$
|
116,239
|
|
|
Accumulated
amortization
|
|
|
(60,541
|
)
|
|
|
(46,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,698
|
|
|
$
|
70,228
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
7.
|
CLARKDALE
ACQUISITION PAYABLE
|
Pursuant
to the Clarkdale acquisition agreement the Company agreed to pay VRIC $30,000
per month until the Project Funding Date.
The
Company has recorded a liability for this commitment using imputed interest
based on its best estimate of 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,
|
2010
|
|
$
|
202,677
|
|
|
2011
|
|
|
219,499
|
|
|
2012
|
|
|
237,718
|
|
|
2013
|
|
|
257,448
|
|
|
2014
|
|
|
278,816
|
|
|
Thereafter
|
|
|
861,935
|
|
|
|
|
|
|
|
|
|
|
|
2,058,093
|
|
|
|
|
|
|
|
|
VRIC
payable, current portion
|
|
|
202,677
|
|
|
|
|
|
|
|
|
VRIC
payable, net of current portion
|
|
$
|
1,855,416
|
|
The
acquisition agreement also contains payment terms which are based on the Project
Funding Date as defined in the agreement. The terms of and conditions of these
payments are discussed in more detail in Note 3 and 12.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During
the six months ended June 30, 2009 the Company’s stockholders’ equity activity
consisted of the following:
|
|
a)
|
On
June 30, 2009, the Company awarded and issued 3,689 shares each to its two
non officer directors pursuant to its directors’ compensation
policy. The share award was priced at $2.44 per share and has
been recorded as directors’ compensation expense of $18,000 and additional
paid-in capital.
|
|
|
b)
|
On
April 14, 2009, the Company issued 100,000 shares of common stock from the
exercise of stock options resulting in cash proceeds of
$25,000. Options exercised were for 100,000 shares of common
stock at $0.25 per share. These stock options were subject to
an expiration date of November 23,
2010.
|
|
|
c)
|
On
March 31, 2009, the Company awarded and issued 3,284 shares each to its
two non officer directors pursuant to its directors’ compensation policy.
The share award was priced at $2.74 per share and has been recorded as
directors’ compensation expense of $18,000 and additional paid-in
capital.
|
|
|
d)
|
On
January 30, 2009, the Company issued 100,000 shares of common stock from
the exercise of stock options resulting in cash proceeds of $25,000.
Options exercised were for 100,000 shares of common stock at $0.25 per
share. These stock options were subject to an expiration date
of November 23, 2010.
|
|
|
e)
|
On
January 12, 2009, the Company issued 400,000 shares of common stock from
the exercise of stock options resulting in cash proceeds of $100,000.
Options exercised were for 400,000 shares of common stock at $0.25 per
share. These stock options were subject to an expiration date
of February 16, 2009.
|
|
9.
|
STOCK
OPTION PLAN AND
WARRANTS
|
On April
30, 2007, the Board of Directors adopted the 2007 Stock Option Plan (the “2007
Plan”) and determined to cease granting any further options under the Company’s
2006 Stock Option Plan. Under the terms of the 2007 Plan, options to purchase up
to 40,000,000 shares of common stock of the Company may be granted to eligible
Participants. On May 8, 2007, the Board of Directors determined to
cease granting any further options under the Company’s 2003 Nonqualified Stock
Option Plan and amended the number of shares of the Company’s common stock
available for issuance under the 2007 Plan to a maximum of 4,000,000. On June
15, 2007, shareholders of the Company approved the 2007 Plan.
The 2007
Plan provides that the option price for incentive stock options be the fair
market value of the stock at the date of the grant and the option price for
non-qualified stock options be no less than 85% of the fair market value of the
stock at the date of the grant. The maximum term of an option shall
be established for that option by the Board of Directors or, if not so
established, shall be ten years from the grant date. Options granted under the
2007 Plan become exercisable and expire as determined by the Board of
Directors.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
9.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
During the six months ended June 30,
2009, the Company granted stock options as follows:
|
|
a)
|
On
June 30, 2009, the Company granted nonqualified stock options under the
2007 Plan for the purchase of 7,377 shares of common stock at $2.44 per
share. The options were granted to an independent director for
directors’ compensation are fully vested and expire on June 30,
2014.
|
|
|
b)
|
On
March 31, 2009, the Company granted nonqualified stock options under the
2007 Plan for the purchase of 6,569 shares of common stock at $2.74 per
share. The options were granted to an independent director for directors’
compensation are fully vested and expire on March 31,
2014.
|
Expenses
for the six months ended June 30, 2009 and 2008 related to vesting and granting
of stock options were $53,992 and $859, respectively and are included in general
and administrative expense.
|
|
Stock
options
–
During the six months ended June
30, 2009 the Company granted stock options to a director totaling 13,946,
with a weighted average exercise price of $2.58 per share. As of June 30,
2009 stock options outstanding totaled 2,859,493 with a weighted average
exercise price of $1.13 per
share.
|
The
following table summarizes the Company’s stock option activity for the six
months ended June 30, 2009:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2008
|
|
|
3,560,293
|
|
|
$
|
1.02
|
|
|
Options
granted and assumed
|
|
|
13,946
|
|
|
|
2.58
|
|
|
Options
expired
|
|
|
(114,746
|
)
|
|
|
2.43
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options
exercised
|
|
|
(600,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
2,859,493
|
|
|
$
|
1.13
|
|
The
Company estimates the fair value of these options granted by using the Binomial
Lattice option pricing-model with the following assumptions used for
grants:
|
|
|
2009
|
|
|
|
|
|
|
|
Dividend
yield
|
|
|
—
|
|
|
Expected
volatility
|
|
72.67%
to 76.65%
|
|
|
Risk-free
interest rate
|
|
1.67%
to 2.54%
|
|
|
Expected
life (years)
|
|
|
4.25
|
|
The
Company believes 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 actual exercise behavior of option holders
.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
9.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
The
Company estimated expected volatility using the historical volatility levels of
the Company’s common stock. The risk-free interest rate is based on
the implied yield available on U.S. Treasury zero-coupon issues over equivalent
lives of the options.
The
expected life of employee stock options represents the weighted-average period
the stock options are expected to remain outstanding and is a derived output of
the Binomial Lattice model. The expected life of employee stock options 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.
The
following table summarizes the changes of the Company’s stock options subject to
vesting for the six months ended June 30, 2009:
|
|
|
Number of
Shares Subject
to Vesting
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Unvested,
December 31, 2008
|
|
|
200,000
|
|
|
$
|
0.79
|
|
|
Options
granted
|
|
|
—
|
|
|
|
—
|
|
|
Options
vested
|
|
|
—
|
|
|
|
—
|
|
|
Options
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, June 30, 2009
|
|
|
200,000
|
|
|
$
|
0.79
|
|
As of
June 30, 2009, there was $99,856 total unrecognized compensation cost related to
unvested stock options. This cost is expected to be recognized as follows: 2009
- $30,342, 2010 - $39,873, 2011 - $21,598, and 2012 - $8,043.
The
following table summarizes information about options granted during the six
months ended June 30, 2009:
|
Number of Options
Granted
During 2009
|
|
Exercise Price
Equals, Exceeds
Or
Is Less than Mkt.
Price of Stock
On Grant Date
|
|
Weighted
Average
Exercise
Price
|
|
|
Range of
Exercise
Price
|
|
|
Weighted
Average Fair
Value
|
|
|
13,946
|
|
Equals
|
|
$
|
2.58
|
|
|
$
|
2.44
to $2.74
|
|
|
$
|
1.13
|
|
|
—
|
|
Exceeds
|
|
$
|
—
|
|
|
$
—
to $
—
|
|
|
$
|
—
|
|
|
—
|
|
Less Than
|
|
$
|
—
|
|
|
$ — to $ —
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,946
|
|
Equals
|
|
$
|
2.58
|
|
|
$
|
2.44 to $2.74
|
|
|
$
|
1.13
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
9.
|
STOCK OPTION PLAN AND
WARRANTS
(continued)
|
Stock
options/warrants
– During the six months ended June 30, 2009 the Company
did not grant any stock warrants.
|
|
On
December 29, 2008, the Company amended the private placement warrants from
the February 23, 2007 and March 22, 2007 private placement offerings. The
following material amendments to the private placement warrants were
adopted: (i) the expiration date of the private placement warrants has
been extended to March 1, 2010; (ii) the exercise price of the private
placement warrants has been decreased to $2.40 per share; (iii) the call
provision in the investor warrants is now included in the broker warrants;
and (iv) the call provision in the private placement warrants has been
amended so that all of such private placement warrants callable for
cancellation by the Company if the volume weighted average price of the
common stock exceeds $4.40 per share for 20 consecutive trading days and
there is an effective registration statement registering the shares of
common stock underlying the private placement warrants at the time of the
call of the private placement
warrants.
|
On April
30, 2009, the Company’s Board of Directors unilaterally determined, without any
negotiations with the warrant holders to amend and restate the call provisions
in the private placement warrants further so that the terms of such amended and
restated call provisions are identical to the terms of the private placement
warrants on their original dates of issuance. As a result: (v) all of
the investor warrants are callable for cancellation by the Company if the volume
weighted average price of the common stock exceeds $6.50 per share for 20
consecutive trading days and there is an effective registration statement
registering the shares of common stock underlying the investor warrants at the
time of the call of the investor warrants, (vi) the broker warrants will not
have call provision, (vii) the previously adopted amendments with respect to the
extension of the expiration dates and the reduction of the exercise price for
the private placement warrants will remain unchanged.
The
Company determined that the amendment to extend the expiration date of the
private placement warrants which were originally issued as part of equity
transactions, did not result in an expense to the Company. The
warrants were not a component to any debt transaction, registration agreement or
services rendered to the Company.
During
the six months ended June 30, 2009 the Company issued stock options for 13,946
shares of common stock to a director with a weighted average exercise price of
$2.58 per share.
The
following table summarizes information about options/warrants granted during the
six months ended June 30, 2009:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2008
|
|
|
22,602,680
|
|
|
$
|
1.11
|
|
|
Options/warrants
granted and assumed
|
|
|
13,946
|
|
|
|
2.58
|
|
|
Options/warrants
expired
|
|
|
(114,746
|
)
|
|
|
2.43
|
|
|
Options/warrants
cancelled
|
|
|
—
|
|
|
|
—
|
|
|
Options/warrants
exercised
|
|
|
(600,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
21,901,880
|
|
|
$
|
1.12
|
|
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
10.
|
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
|
|
CML
assumed a lease as lessor on February 15, 2007 that was entered into by TI
on 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 term
of the lease is 5 years with a one year extension available. At such time as
Clarkdale no longer uses the property for effluent disposal, and for a period of
twenty five (25) years measured from the date of the lease, the Company has a
continuing right to purchase Class B, and if available, Class A at then market
rates.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company is a Nevada corporation and is subject to federal and Arizona income
taxes. Nevada does not impose a corporate income tax.
The
income tax benefit consisted of the following at June 30, 2009 and
2008,
|
|
|
June 30,
2009
|
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit based on statutory tax rate
|
|
$
|
(1,262,831
|
)
|
|
$
|
(882,110
|
)
|
|
Non-deductible
and other
|
|
|
1,691
|
|
|
|
2,125
|
|
|
Change
in valuation allowance
|
|
|
35,018
|
|
|
|
11,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
$
|
(1,226,122
|
)
|
|
$
|
(868,904
|
)
|
Significant
components of the Company’s net deferred income tax assets and liabilities at
June 30, 2009 and December 31, 2008 were as follows:
|
|
|
June 30,
2009
|
|
|
December 31,
2008
|
|
|
Deferred
income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
5,885,066
|
|
|
$
|
4,742,104
|
|
|
Option
compensation
|
|
|
369,929
|
|
|
|
349,412
|
|
|
Reclamation
bond
|
|
|
68,590
|
|
|
|
68,590
|
|
|
Property,
plant & equipment
|
|
|
83,160
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
deferred income tax asset
|
|
|
6,406,745
|
|
|
|
5,160,106
|
|
|
Valuation
allowance
|
|
|
(438,519
|
)
|
|
|
(403,501
|
)
|
|
|
|
|
5,968,226
|
|
|
|
4,756,605
|
|
|
Deferred
income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equipment
|
|
|
—
|
|
|
|
14,501
|
|
|
Acquisition
related liabilities
|
|
|
55,197,465
|
|
|
|
55,197,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
|
$
|
49,229,239
|
|
|
$
|
50,455,361
|
|
A
valuation allowance for deferred tax related to option compensation and the
reclamation bond was established for net deferred tax assets not allocated to
offset acquisition related deferred tax liabilities due to the uncertainty of
realizing these deferred tax assets based on conditions existing at June 30,
2009 and December 31, 2008.
Deferred
income tax liability was 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
11.
|
INCOME TAXES
(continued)
|
The
resulting estimated future federal and state income tax liability associated
with the temporary difference between the acquisition consideration and the tax
basis as computed in accordance with EITF 98-11 and SFAS 109, is 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.
The
Company had cumulative net operating losses of approximately $15,487,017 and
$12,483,860 as of June 30, 2009 and December 31, 2008, respectively for federal
income tax purposes. The federal net operating loss carryforwards will be
expiring between 2025 and 2029.
The
Company had cumulative net operating losses of approximately $7,573,040 and
$5,325,778 as of June 30, 2009 and December 31, 2008, respectively for state
income tax purposes. The state net operating loss carryforwards will be expiring
between 2013 and 2015.
As of
January 1, 2007, the Company did not have any unrecognized tax
benefits. The adoption of FIN 48 did not result in any cumulative
effect adjustment to the January 1, 2007 balance of the Company’s accumulated
deficit. Upon adoption of FIN 48, the Company did not accrue for
interest and penalties as there were no unrecognized tax benefits. If
interest and penalties were to be assessed, we would charge interest to interest
expense, and penalties to general and administrative expense. It is
not anticipated that unrecognized tax benefits would significantly increase or
decrease within 12 months of the reporting date.
The
Company and its subsidiary 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 decrease its
net operating losses available for carryforwards. The Company is no
longer subject to income tax examinations by US federal and state tax
authorities for years prior to 2005. While the Company believes 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.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
12.
|
COMMITMENTS AND
CONTINGENCIES
|
Lease obligations
–
The Company rents office space in Henderson, Nevada. The lease terms
expired in November 2006 and the Company continues to rent the existing space
under month-to-month terms for $4,900 per month.
Rental
expense, resulting from this operating lease agreement, approximated $29,400 for
each of the six months ended June 30, 2009 and 2008, respectively.
Employment contracts
–
Ian R. McNeil, President and Chief Executive Officer. The Company has an
employment agreement with Mr. McNeil effective since January 1, 2006. Under the
terms of the agreement, as updated February 16, 2007, Mr. McNeil is paid a
salary of $190,000. Mr. McNeil is also eligible for a discretionary bonus to be
determined based on factors considered relevant by the Company’s board of
directors, and may be granted, subject to the approval of the board of
directors, incentive stock options to purchase shares of the Company’s common
stock in such amounts and at such times as the board of directors, in its
absolute discretion, may from time to time determine. The term of the
agreement is for an indefinite period, unless otherwise terminated 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.
McNeil with six months written notice or payment equal to six months of his
monthly remuneration.
Carl S.
Ager, Treasurer and Secretary. The Company has an employment agreement with Mr.
Ager effective since January 1, 2006. Under the terms of the agreement, as
updated February 16, 2007, Mr. Ager is paid a salary of $160,000. Mr. Ager is
also eligible for a discretionary bonus to be determined based on factors
considered relevant by the Company’s board of directors, and may be granted,
subject to the approval of the board of directors, incentive stock options to
purchase shares of the Company’s common stock in such amounts and at such times
as the board of directors, in its absolute discretion, may from time to time
determine. The term of the agreement is for an indefinite period,
unless otherwise terminated 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
remuneration.
Melvin L.
Williams, Chief Financial Officer. The Company has an employment agreement with
Mr. Williams effective since June 14, 2006. Under the terms of the agreement, as
updated February 16, 2007, Mr. Williams is paid a salary of $130,000, based on
600-800 hours worked. Mr. Williams is also eligible for a
discretionary bonus to be determined based on factors considered relevant by the
Company’s board of directors, and may be granted, subject to the approval of the
board of directors, incentive stock options to purchase shares of the Company’s
common stock in such amounts and at such times as the board of directors, in its
absolute discretion, may from time to time determine. The term of the
agreement is for an indefinite period, unless otherwise terminated 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.
Williams with thirty days written notice or payment equal to three months of his
monthly remuneration.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
12.
|
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 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 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: (1) the end of the first calendar year in which the
Project Royalty equals or exceeds $500,000; or (2) 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 (10) 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 end
forever.
Development
agreement
– In January 2009, the Company submitted a development agreement
to the Town of Clarkdale for development of an Industrial Collector
Road. The purpose of the road is to provide the Company with the
capability to enhance the flow of industrial traffic to and from the Clarkdale
Slag Project. The construction of the road is a required
infrastructure improvement under the terms of the Company’s conditional use
permit with the Town of Clarkdale. The Town of Clarkdale approved the
development agreement on January 9, 2009.
The
development agreement provides that its effective date will be the later of (i)
30 days from the approving resolution of the agreement by the Clarkdale Town
Council; or (ii) the date on which the Town of Clarkdale obtains a connection
dedication from separate property owners who have land that will be utilized in
construction of the road; or (iii) the date on which the Town of Clarkdale
receives the proper effluent permit. The Town of Clarkdale has
approved the development agreement, and the remaining two contingencies with
respect to the effectiveness of the development agreement are beyond the
Company’s control.
Under the
development agreement, the Company is obligated to complete the development of
the road within two years after the effective date of the
agreement. If the Company does not complete the road within the two
year period, the Company may lose the conditional use permit from the Town of
Clarkdale. Further, as a condition of the Company’s developing any of
the Company’s property that is adjacent to the Clarkdale Slag Project, the
Company will be required to construct additional enhancements to the road. The
Company will have ten years from the start of construction on the road in which
to complete the additional enhancements. However, the Company does
not currently have any defined plans for the development of the adjacent
property.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
12.
|
COMMITMENTS AND
CONTINGENCIES
(continued)
|
The
Company estimates that the initial cost of construction of the road will be
approximately $3,500,000 and that the cost of the additional enhancements will
be approximately $1,200,000. The Company will be required to fund the
costs of this construction. Based on the uncertainty of the timing of
these contingencies, the Company has not included these costs in current
operating plans or budgets. However, the Company will require
additional project financing or other financing in order to fund the
construction of the road and the additional enhancements. There are
no assurances that the Company will be able to obtain additional financing in an
amount sufficient to meet the Company’s needs or on terms that are acceptable to
the Company. The failure to complete the road and the additional
enhancements in a timely manner under the development agreement would have a
material adverse effect on the Clarkdale Slag Project and
operations.
|
13.
|
CONCENTRATION OF
CREDIT RISK
|
The
Company maintains its cash accounts in two financial institutions. Cash accounts
at these financial institutions are insured by the Federal Deposit Insurance
Corporation (FDIC) for up to $250,000 per financial institution. Additionally,
through the financial institutions’ participation in the FDIC’s Transaction
Account Guarantee Program, all non-interest bearing checking accounts are fully
guaranteed by the FDIC for the entire amount in the account through December 31,
2009. Coverage under the Transaction Account Guarantee Program is in addition to
and separate from the coverage available under the FDIC’s general deposit
insurance rules.
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, 2009, the Company did not have material deposits in excess of FDIC
insured limits.
|
14.
|
CONCENTRATION OF
ACTIVITY
|
For the
six months ended June 30, 2009, the Company purchased services from one major
vendor, Baker & Hostetler LLP, which exceeded more than 10% of total
purchases and amounted to approximately $591,982.
|
15.
|
RELATED
PARTY TRANSACTIONS
|
During
the six months ended June 30, 2009, the Company utilized the services of NMC to
provide technical assistance and financing related activities. These
services related primarily to the Clarkdale Slag Project and the Searchlight
Claims Project. Mr. McNeil and Mr. Ager are affiliated with
NMC.
In
addition to the above services, NMC provided dedicated use of its laboratory,
instrumentation, milling equipment and research facilities. NMC
provided invoices for these fees plus expenses.
For the
six months ended June 30, 2009, the Company incurred total fees and
reimbursement of expenses to NMC of $180,000 and $49,862, respectively. At June
30, 2009, the Company had an outstanding balance due to NMC of
$74,951.
During
the six months ended June 30, 2009, the Company utilized Cupit, Milligan, Ogden
& Williams, CPAs (CMOW) to provide accounting support
services. Mr. Williams is affiliated with CMOW.
SEARCHLIGHT
MINERALS CORP.
(AN
EXPLORATION STAGE ENTERPRISE)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
15.
|
RELATED
PARTY TRANSACTIONS (continued)
|
The
Company incurred total fees to CMOW of $89,819 and $27,035 for the six months
ended June 30, 2009 and 2008, respectively. The Company also reimbursed expenses
to CMOW of $0 and $90 for the six months ended June 30, 2009 and 2008,
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 salary agreement. The direct benefit to Mr. Williams was $28,742 and $7,300
of the above CMOW fees and expenses for the six months ended June 30, 2009 and
2008, respectively. The Company had an outstanding balance due to CMOW of
$67,617 as of June 30, 2009.
TABLE
OF CONTENTS
|
|
Page
|
|
Summary
|
1
|
|
Special
Note Regarding Forward-Looking Statements
|
5
|
|
Risk
Factors
|
5
|
|
Use
of Proceeds
|
22
|
|
Selling
Stockholders
|
23
|
|
Plan
of Distribution
|
29
|
|
Price
Range of Common Stock
|
31
|
|
Dividend
Policy
|
32
|
|
Selected
Financial Data
|
33
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35
|
|
Business
|
59
|
|
Management
|
89
|
|
Executive
Compensation
|
98
|
|
Certain
Relationships and Related Transactions
|
107
|
|
Security
Ownership of Certain Beneficial Owners and Management
|
116
|
|
Description
of Our Securities
|
118
|
|
Shares
Eligible for Future Sale
|
119
|
|
Legal
Matters
|
122
|
|
Experts
|
122
|
|
Changes
In and Disagreements with Accountants and Financial
Disclosure
|
123
|
|
Where
You Can Find Additional Information
|
123
|
|
Index
to Financial Statements
|
F-1
|
You
should rely only on the information contained in this document. We
have not authorized anyone to give any information that is
different. This prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted. The information in this prospectus is
complete and accurate as of the date on the cover, but the information may
change in the future.
SEARCHLIGHT
MINERALS CORP.
3,225,645
SHARES
Common
Stock
PROSPECTUS
October
2, 2009
