Searchlight Minerals (SRCH) 10-Q 2013 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

¨ Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

Commission file number 000-30995

SEARCHLIGHT MINERALS CORP.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	98-0232244 (I.R.S. Employer Identification No.)
#120 - 2441 West Horizon Ridge Pkwy.
Henderson, Nevada	89052
(Address of principal executive offices)	(Zip code)

(702) 939-5247
(Registrant’stelephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      x     No      ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes      x     No      ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨	Accelerated filerx
Non-accelerated filer¨	Smaller reporting company¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨      No     x

As of May 9, 2013, the registrant had 135,768,318 outstanding shares of common stock.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.  Controls and Procedures	44
PART II - OTHER INFORMATION	44
Item 1.  Legal Proceedings	44
Item 1A.  Risk Factors	44
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.  Defaults Upon Senior Securities	44
Item 4.  Mine Safety Disclosures	45
Item 5.  Other Information	45
Item 6.  Exhibits	45
SIGNATURES	46

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2013			December 31, 2012
ASSETS
Current assets
Cash	$	2,411,371		$	3,931,591
Prepaid expenses		97,716			129,639
Total current assets		2,509,087			4,061,230
Property and equipment, net		10,443,973			10,715,976
Mineral properties		16,947,419			16,947,419
Slag project		121,692,740			121,667,730
Land - smelter site and slag pile		5,916,150			5,916,150
Land		3,300,000			3,300,000
Reclamation bond and deposits, net		14,916			11,252
Total non-current assets		158,315,198			158,558,527
Total assets	$	160,824,285		$	162,619,757
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	141,318		$	314,678
Accounts payable - related party		82,921			15,000
Derivative warrant liability		60,843			274,706
VRIC payable, current portion - related party		273,313			267,919
Total current liabilities		558,395			872,303
Long-term liabilities
VRIC payable, net of current portion - related party		933,737			1,004,121
Deferred tax liability		39,052,054			39,648,681
Total long-term liabilities		39,985,791			40,652,802
Total liabilities		40,544,186			41,525,105
Commitments and contingencies - Note 14
Stockholders' equity
Common stock, $0.001 par value; 400,000,000 shares authorized, 135,768,318 and 135,768,318 shares, respectively, issued and outstanding		135,768			135,768
Additional paid-in capital		154,097,532			153,975,856
Accumulated deficit during exploration stage		(33,953,201	)		(33,016,972	)
Total stockholders' equity		120,280,099			121,094,652
Total liabilities and stockholders' equity	$	160,824,285		$	162,619,757

See Accompanying Notes to these Consolidated Financial Statements

3

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

							For the period from
							January 14, 2000
							(date of inception)
	For the three months ended						through
	March 31, 2013			March 31, 2012			March 31, 2013
Revenue	$	-		$	-		$	-
Operating expenses
Mineral exploration and evaluation expenses		568,527			1,045,453			16,246,320
Mineral exploration and evaluation expenses - related party		59,365			48,737			2,519,178
Administrative - Clarkdale site		41,355			73,288			3,817,854
General and administrative		684,275			688,890			22,738,355
General and administrative - related party		58,556			37,467			747,525
Loss on equipment disposition		-			-			611,517
Depreciation		342,107			345,013			4,851,717
Total operating expenses		1,754,185			2,238,848			51,532,466
Loss from operations		(1,754,185	)		(2,238,848	)		(51,532,466	)
Other income (expense)
Rental revenue		6,135			7,480			182,340
Gain on dispute resolution		-			-			502,586
Gain (loss) on the change in fair value of derivative warrant liability		213,863			(3,038,958	)		4,221,146
Interest expense		-			-			(14,143	)
Interest and dividend income		1,331			2,830			656,117
Total other income (expense)		221,329			(3,028,648	)		5,548,046
Loss from continuing operations before income taxes		(1,532,856	)		(5,267,496	)		(45,984,420	)
Deferred income tax benefit		596,627			720,303			15,783,242
Loss from continuing operations		(936,229	)		(4,547,193	)		(30,201,178	)
Discontinued operations
Loss from discontinued operations		-			-			(3,752,023	)
Net loss	$	(936,229	)	$	(4,547,193	)	$	(33,953,201	)
Comprehensive loss	$	(936,229	)	$	(4,547,193	)	$	(33,953,201	)
Loss per common share - basic and diluted
Loss from continuing operations	$	(0.01	)	$	(0.03	)
Loss from discontinued operations		-			-
Net loss	$	(0.01	)	$	(0.03	)
Weighted average common shares outstanding -
Basic		135,768,318			131,018,318
Diluted		135,768,318			131,018,318

See Accompanying Notes to these Consolidated Financial Statements

4

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

							Period from
							January 14, 2000
							(date of inception)
	For the three months ended						through
	March 31, 2013			March 31, 2012			March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(936,229	)	$	(4,547,193	)	$	(33,953,201	)
Loss from discontinued operations		-			-			(3,752,023	)
Loss from continuing operations		(936,229	)		(4,547,193	)		(30,201,178	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		342,107			345,013			4,851,717
Stock based expenses		121,676			136,824			8,169,633
Loss on equipment disposition		-			-			612,866
Amortization of prepaid expense		97,793			173,191			1,780,322
Deferred income taxes		(596,627	)		(720,303	)		(15,783,242	)
Change in fair value of derivative warrant liability		(213,863	)		3,038,958			(4,221,146	)
Gain on dispute resolution		-			-			(502,586	)
Changes in operating assets and liabilities:
Prepaid expenses		(65,870	)		(133,706	)		(1,878,037	)
Reclamation bond and deposits		(3,664	)		500			(14,916	)
Accounts payable and accrued liabilities		(105,439	)		126,920			(110,174	)
Net cash used in operating activities		(1,360,116	)		(1,579,796	)		(37,296,741	)
Net cash used in operating activities from discontinued operations		-			-			(2,931,324	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid on mineral property claims		-			-			(87,134	)
Cash paid for joint venture and merger option		-			-			(890,000	)
Cash paid to VRIC on closing date - related party		-			-			(9,900,000	)
Cash paid for additional acquisition costs		-			-			(130,105	)
Proceeds from property and equipment disposition		-			-			366,513
Purchase of property and equipment		(70,104	)		(40,650	)		(15,519,280	)
Net cash used in investing activities		(70,104	)		(40,650	)		(26,160,006	)
Net cash used in investing activities from discontinued operations		-			-			(452,618	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance		-			-			70,330,435
Stock issuance costs		-			-			(2,126,373	)
Principal payments on capital lease payable		-			-			(116,238	)
Payments on VRIC payable - related party		(90,000	)		(90,000	)		(2,220,001	)
Net cash (used) provided by financing activities		(90,000	)		(90,000	)		65,867,823
Net cash provided by financing activities from discontinued operations		-			-			3,384,237
NET CHANGE IN CASH		(1,520,220	)		(1,710,446	)		2,411,371
CASH AT BEGINNING OF PERIOD		3,931,591			6,161,883			-
CASH AT END OF PERIOD	$	2,411,371		$	4,451,437		$	2,411,371
SUPPLEMENTAL INFORMATION
Interest paid, net of capitalized amounts	$	-		$	-		$	64,894
Income taxes paid	$	-		$	-		$	-
Non-cash investing and financing activities:
Capital equipment purchased through accounts payable and financing	$	-		$	-		$	444,690
Assets acquired for common stock issued for acquisition	$	-		$	-		$	66,879,375
Assets acquired for common stock issued for mineral properties	$	-		$	-		$	10,220,000
Assets acquired for liabilities incurred in acquisition	$	-		$	-		$	2,628,188
Net deferred tax liability assumed	$	-		$	-		$	55,197,465
Merger option payment applied to acquisition	$	-		$	-		$	200,000
Reclassify joint venture option agreement to slag project	$	-		$	-		$	690,000
Warrants issued in connection with joint venture option agreement related to slag project	$	-		$	-		$	1,310,204
Stock options for common stock issued in satisfaction of debt	$	-		$	-		$	1,500,000
Capitalization of related party liability to equity	$	-		$	-		$	742,848
Stock issued for conversion of accounts payable, 200,000 shares at $0.625	$	-		$	-		$	125,000
Investor warrants issued with non-customary anti-dilution provisions	$	-		$	-		$	4,281,989

See Accompanying Notes to these Consolidated Financial Statements

5

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

Description of business- Searchlight Minerals Corp. (the “Company”) is considered an exploration stage company since its formation, and the Company has not yet realized any revenues from its planned operations. The Company is primarily focused on the exploration, acquisition and development of mining and mineral properties. Upon the location of commercially minable reserves, the Company plans to prepare for mineral extraction and enter the development stage.

History - The Company was incorporated on January 12, 1999 pursuant to the laws of the State of Nevada under the name L.C.M. Equity, Inc. From 1999 to 2005, the Company operated primarily as a biotechnology research and development company with its headquarters in Canada and an office in the United Kingdom (the “UK”). On November 2, 2001, the Company entered into an acquisition agreement with Regma Bio Technologies, Ltd. pursuant to which Regma Bio Technologies, Ltd. entered into a reverse merger with the Company with the surviving entity named “Regma Bio Technologies Limited”. On November 26, 2003, the Company changed its name from “Regma Bio Technologies Limited” to “Phage Genomics, Inc.”

In February 2005, the Company announced its reorganization from a biotechnology research and development company to a company focused on the development and acquisition of mineral properties. In connection with its reorganization the Company entered into mineral option agreements to acquire an interest in the Searchlight Claims. The Company has consequently been considered as an exploration stage enterprise. Also in connection with its corporate restructuring, its Board of Directors approved a change in its name from “Phage Genomics, Inc.” (“Phage”) to "Searchlight Minerals Corp.” effective June 23, 2005.

Going concern - The Company incurred cumulative net losses of $33,953,201 from operations as of March 31, 2013 and has not commenced its commercial mining and mineral processing operations; rather, it is still in the exploration stage. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three month period ended March 31, 2013, the Company incurred a net loss of $936,229, had negative cash flows from operations of $1,360,116 and may incur additional future losses due to planned continued exploration stage expenses.

These matters raise substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

Basis of presentation - The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company’s fiscal year-end is December 31.

6

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

These condensed consolidated financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring nature. The results reported in these interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 1, 2013.

Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s financial position, results of operations or cash flows.

Principles of consolidation- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Clarkdale Minerals, LLC (“CML”) and Clarkdale Metals Corp. (“CMC”). Significant intercompany accounts and transactions have been eliminated.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include the valuation of stock-based compensation and derivative warrant liabilities, impairment analysis of long-lived assets, and realizability of deferred tax assets. Actual results could differ from those estimates.

Capitalized interest cost- The Company capitalizes interest cost related to acquisition, development and construction of property and equipment which is designed as integral parts of the manufacturing process. The capitalized interest is recorded as part of the asset it relates to and will be amortized over the asset’s useful life once production commences. Interest cost capitalized from imputed interest on acquisition indebtedness was $25,010 and $29,990 for the three month periods ended March 31, 2013 and 2012, respectively.

Mineral properties - Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties are expensed as incurred while the project is in the exploration stage. Once mineral reserves are established, development costs and costs to maintain mineral properties are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production method over the proven and probable reserves.

Mineral exploration and development costs - Exploration expenditures incurred prior to entering the development stage are expensed and included in “Mineral exploration and evaluation expenses”.

7

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Property and equipment - Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 39 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operating expenses.

Impairment of long-lived assets-The Company reviews and evaluates its long-lived assets for impairment at each balance sheet date due to its planned exploration stage losses and documents such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as the Company’s continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration programs on the property.

The tests for long-lived assets in the exploration, development or producing stage that would have a value beyond proven and probable reserves would be monitored for impairment based on factors such as current market value of the mineral property and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.

The Company's policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by which the carrying amount of the assets exceeds its fair value.To date, no such impairments have been identified.

Reclamation and remediation costs (asset retirement obligation) - For its exploration stage properties, the Company accrues the estimated costs associated with environmental remediation obligations in the period in which the liability is incurred or becomes determinable. Until such time that a project life is established, the Company records the corresponding cost as an exploration stage expense. The costs of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule.

Future reclamation and environmental-related expenditures are difficult to estimate in many circumstances due to the early stage nature of the exploration project, the uncertainties associated with defining the nature and extent of environmental disturbance, the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology. The Company periodically reviews accrued liabilities for such reclamation and remediation costs as evidence indicating that the liabilities have potentially changed becomes available. Changes in estimates are reflected in the consolidated statement of operations in the period an estimate is revised.

The Company is in the exploration stage and is unable to determine the estimated timing of expenditures relating to reclamation accruals. It is reasonably possible that the ultimate cost of reclamation and remediation could change in the future and that changes to these estimates could have a material effect on future operating results as new information becomes known. 

8

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Fair value of financial instruments -Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The Company’s financial instruments consist of the VRIC payable (described in Note 7) and the derivative liability on stock purchase warrants (described in Note 6). The VRIC payable is classified within Level 2 of the fair value hierarchy. The fair value approximates carrying value as the imputed interest rate is considered to approximate a market interest rate.

The Company also has certain warrants with anti-dilution provisions, including provisions for the adjustment to the exercise price and to the number of warrants granted if the Company issues common stock or common stock equivalents at a price less than the exercise price. The Company determined that these warrants were not afforded equity classification because they embody risks not clearly and closely related to the host contract. Accordingly, the warrants are treated as a derivative liability and are carried at fair value.

The Company calculates the fair value of the derivative liability using the Binomial Lattice model, a Level 3 input. The change in fair value of the derivative liability is classified in other income (expense) in the consolidated statement of operations. The Company generally does not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks.

The Company is not exposed to significant interest or credit risk arising from these financial instruments. The Company does not have any non-financial assets or liabilities that it measures at fair value. During the three month periods ended March 31, 2013 and 2012, there were no transfers of assets between levels.

Per share amounts - Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities. Potentially dilutive shares, such as stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive, such as when the exercise price of the instrument exceeds the fair market value and when a net loss is reported. Total potentially dilutive shares excluded from the calculation of diluted earnings per share amounted to 26,256,390 25,975,427 for the three month periods ended March 31, 2013 and 2012, respectively.

9

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Stock-based compensation - Stock-based compensation awards are recognized in the consolidated financial statements based on the grant date fair value of the award which is estimated using the Binomial Lattice option pricing model. The Company believes that this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for the actual exercise behavior of option holders.The compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise, shares issued will be newly issued shares from authorized common stock.

The fair value of performance-based stock option grants is determined on their grant date through the use of the Binomial Lattice option pricing model. The total value of the award is recognized over the requisite service period only if management has determined that achievement of the performance condition is probable. The requisite service period is based on management’s estimate of when the performance condition will be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount of stock-based compensation recognized in the financial statements.

The Company accounts for stock options issued to non-employees based on the estimated fair value of the awards using the Binomial Lattice option pricing model. The measurement of stock-based compensation to non-employees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company’s consolidated statements of operations during the period the related services are rendered.

Income taxes - The Company follows the liability method of accounting for income taxes. This method recognizes certain temporary differences between the financial reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset as measured by the statutory tax rates in effect. The effect of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

For acquired properties that do not constitute a business, a deferred income tax liability is recorded on GAAP basis over income tax basis using statutory federal and state rates. The resulting estimated future income tax liability associated with the temporary difference between the acquisition consideration and the tax basis is computed in accordance with Accounting Standards Codification (“ASC”) 740-10-25-51,Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations, and is reflected as an increase to the total purchase price which is then applied to the underlying acquired assets in the absence of there being a goodwill component associated with the acquisition transactions.

10

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Recent accounting standards- From time to time, new accounting pronouncements are issued by theFinancial Accounting Standards Board(“FASB”)that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.

In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” to improve the transparency of reporting these reclassifications. This update is effective for reporting periods beginning after December 15, 2012. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements GAAP. The new amendments will require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. Additionally, the new amendments require cross-referencing to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operation, or cash flows.

11

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) 

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	March 31, 2013							December 31, 2012
	Cost		Accumulated Depreciation			Net book value		Cost		Accumulated Depreciation			Net book value
Furniture and fixtures	$	38,255	$	(33,098	)	$	5,157	$	38,255	$	(32,055	)	$	6,200
Lab equipment		249,061		(202,899	)		46,162		249,061		(190,446	)		58,615
Computers and equipment		86,635		(60,627	)		26,008		86,635		(57,836	)		28,799
Income property		309,750		(16,326	)		293,424		309,750		(15,664	)		294,086
Vehicles		47,675		(44,321	)		3,354		44,175		(44,175	)		-
Slag conveyance equipment		300,916		(175,367	)		125,549		300,916		(157,114	)		143,802
Demo module building		6,630,063		(2,703,599	)		3,926,464		6,630,063		(2,537,848	)		4,092,215
Grinding circuit		863,678		-			863,678		863,678		-			863,678
Extraction circuit		898,909		-			898,909		879,962		-			879,962
Leaching and filtration		1,300,618		(585,278	)		715,340		1,300,618		(520,247	)		780,371
Fero-silicate storage		4,326		(973	)		3,353		4,326		(865	)		3,461
Electrowinning building		1,492,853		(335,892	)		1,156,961		1,492,853		(298,571	)		1,194,282
Site improvements		1,577,961		(378,856	)		1,199,105		1,534,856		(350,554	)		1,184,302
Site equipment		358,055		(279,560	)		78,495		353,503		(269,314	)		84,189
Construction in progress		1,102,014		-			1,102,014		1,102,014		-			1,102,014
	$	15,260,769	$	(4,816,796	)	$	10,443,973	$	15,190,665	$	(4,474,689	)	$	10,715,976

Depreciation expense was $342,107 and $345,013 for the three month periods ended March 31, 2013 and 2012, respectively. The depreciation method for the grinding circuit is based on units of production. During the testing phase, units of production have thus far been limited and no depreciation expense has been recognized as of March 31, 2013. Significant components of the extraction circuit were placed in service in late December 2012. Depreciation expense has not been incurred due to minimal use. At March 31, 2013, construction in progress included the gold, copper, and zinc extraction circuits and electrowinning equipment at the Clarkdale Slag Project.

12

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. CLARKDALE SLAG PROJECT

On February 15, 2007, the Company completed a merger with Transylvania International, Inc. (“TI”) which provided the Company with 100% ownership of the Clarkdale Slag Project in Clarkdale, Arizona, through its wholly owned subsidiary CML. This acquisition superseded the joint venture option agreement to acquire a 50% ownership interest as a joint venture partner pursuant to Nanominerals Corp. (“NMC”) interest in a joint venture agreement (“JV Agreement”) dated May 20, 2005 between NMC and Verde River Iron Company, LLC (“VRIC”). One of the Company’s former directors was an affiliate of VRIC. The former director joined the Company’s board subsequent to the acquisition.

The Company believes the acquisition of the Clarkdale Slag Project was beneficial because it provides for 100% ownership of the properties, thereby eliminating the need to finance and further develop the projects in a joint venture environment.

This merger was treated as a statutory merger for tax purposes whereby CML was the surviving merger entity.

The Company applied Emerging Issues Task Force (“EITF”) 98-03 (which has been superseded by ASC 805-10-25-1) with regard to the acquisition of the Clarkdale Slag Project. The Company determined that the acquisition of the Clarkdale Slag Project did not constitute an acquisition of a business as that term is defined in ASC 805-10-55-4, and the Company recorded the acquisition as a purchase of assets.

The Company also formed a second wholly owned subsidiary, CMC, for the purpose of developing a processing plant at the Clarkdale Slag Project.

The $130.3 million purchase price was comprised of a combination of the cash paid, the deferred tax liability assumed in connection with the acquisition, and the fair value of our common shares issued, based on the closing market price of our common stock, using the average of the high and low prices of our common stock on the closing date of the acquisition. The Clarkdale Slag Project is without known reserves and the project is exploratory in nature in accordance with Industry Guides promulgated by the Commission, Guide 7 paragraph (a)(4)(i). As required by ASC 930-805-30,Mining – Business Combinations – Initial Recognition,and ASC 740-10-25-49-55,Income Taxes – Overall – Recognition – Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations, the Company then allocated the purchase price among the assets as follows (and also further described in this Note 3 to the financial statements): $5,916,150 of the purchase price was allocated to the slag pile site, $3,300,000 to the remaining land acquired, and $309,750 to income property and improvements. The remaining $120,766,877 of the purchase price was allocated to the Clarkdale Slag Project, which has been capitalized as a tangible asset in accordance with ASC 805-20-55-37,Use Rights. Upon commencement of commercial production, the asset will be amortized using the unit-of-production method over the life of the Clarkdale Slag Project.

13

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. CLARKDALE SLAG PROJECT (continued)

Closing of the TI acquisition occurred on February 15, 2007, (the “Closing Date”) and was subject to, among other things, the following terms and conditions:

a) The Company paid $200,000 in cash to VRIC on the execution of 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 price on the Closing Date, to the designates of VRIC on the closing pursuant to Section 4(2) and Regulation D of the Securities Act of 1933;

In addition to the cash and equity consideration paid and issued upon closing, the acquisition agreement contains the following payment terms and conditions:

d) The Company agreed to continue to pay VRIC $30,000 per month until the earlier of: (i) the date that is 90 days after receipt of a bankable feasibility study by the Company (the “Project Funding Date”), or (ii) the tenth anniversary of the date of the execution of the letter agreement;

The acquisition agreement also contains the following additional contingent payment terms which are based on the Project Funding Date as defined in the agreement:

e) The Company has agreed to pay VRIC $6,400,000 on the Project Funding Date;

f) The Company has agreed to pay VRIC a minimum annual royalty of $500,000, commencing on the Project Funding Date (the “Advance Royalty”), and an additional royalty consisting of 2.5% of the net smelter returns (“NSR”) on any and all proceeds of production from the Clarkdale Slag Project (the “Project Royalty”). The Advance Royalty remains payable until the first to occur of: (i) the end of the first calendar year in which the Project Royalty equals or exceeds $500,000 or (ii) February 15, 2017. In any calendar year in which the Advance Royalty remains payable, the combined Advance Royalty and Project Royalty will not exceed $500,000 in any calendar year; and

g) The Company has agreed to pay VRIC an additional amount of $3,500,000 from the net cash flow of the Clarkdale Slag Project. The Company has accounted for this as a contingent payment and upon meeting the contingency requirements, the purchase price of the Clarkdale Slag Project will be adjusted to reflect the additional consideration.

Under the original JV Agreement, the Company agreed to pay NMC a 5% royalty on NSR payable from the Company’s 50% joint venture interest in the production from the Clarkdale Slag Project. Upon the assignment to the Company of VRIC’s 50% interest in the Joint Venture Agreement in connection with the reorganization with TI, the Company continues to have an obligation to pay NMCa royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project. On July 25, 2011, the Company agreed to pay NMC an advance royalty payment of $15,000 per month effective January 1, 2011. The advance royalty payment is more fully discussed in Note 14.

14

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. CLARKDALE SLAG PROJECT (continued)

The following table reflects the recorded purchase consideration for the Clarkdale Slag Project:

Purchase price:
Cash payments	$	10,100,000
Joint venture option acquired in 2005 for cash		690,000
Warrants issued for joint venture option		1,918,481
Common stock issued		66,879,375
Monthly payments, current portion		167,827
Monthly payments, net of current portion		2,333,360
Acquisition costs		127,000
Total purchase price		82,216,043
Net deferred income tax liability assumed - Clarkdale Slag Project		48,076,734
Total	$	130,292,777

The following table reflects the components of the Clarkdale Slag Project:

Allocation of acquisition cost:
Clarkdale Slag Project (including net deferred income tax liability assumed of $48,076,734)	$	120,766,877
Land - smelter site and slag pile		5,916,150
Land		3,300,000
Income property and improvements		309,750
Total	$	130,292,777

The Company agreed to continue to pay VRIC $30,000 per month until the earlier of the Project Funding Date or the tenth anniversary of the date of the execution of the letter agreement. As of March 31, 2013, the cumulative interest cost capitalized and included in the Slag Project was $925,863.

The following table sets forth the change in the Slag Project for the three month period ended March 31 2013 and the year ended December 31, 2012:

	March 31, 2013		December 31, 2012
Slag Pile, beginning balance	$	121,667,730	$	121,555,117
Capitalized interest costs		25,010		112,613
Slag Pile, ending balance	$	121,692,740	$	121,667,730

15

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4. MINERAL PROPERTIES - MINING CLAIMS

As of March 31, 2013, mining claims consisted of 3,200 acres located near Searchlight, Nevada. The 3,200 acre property is staked as twenty 160 acre claims, most of which are also double-staked as 142 twenty acre claims. At March 31, 2013 and December 31, 2012, the mineral properties balance was $16,947,419.

The mining claims were acquired with issuance of 5,600,000 shares of the Company’s common stock over a three year period ending in June 2008. On June 25, 2008, the Company issued the final tranche of shares and received the title to the mining claims in consideration of the satisfaction of the option agreement.

The mining claims were capitalized as tangible assets in accordance with ASC 805-20-55-37,Use Rights. Upon commencement of commercial production, the claims will be amortized using the unit-of-production method. If the Company does not continue with exploration after the completion of the feasibility study, the claims will be expensed at that time.

In connection with the Company’s Plan of Operations (“POO”) for the Searchlight Gold Project, the Company has a bond with the Bureau of Land Management (“BLM”) amounting to $11,466 and $7,802 as of March 31, 2013 and December 31, 2012, respectively.

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at March 31, 2013 and December 31, 2012 consisted of the following:

	March 31, 2013		December 31, 2012
Trade accounts payable	$	114,280	$	252,782
Accrued compensation and related taxes		27,038		61,896
	$	141,318	$	314,678

Accounts payable – related party are discussed in Note 17.

16

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. DERIVATIVE WARRANT LIABILITY

On November 12, 2009, the Company issued an aggregate of 12,078,596 units of securities to certain investors, consisting of 12,078,596 shares of common stock and warrants to purchase an additional 6,039,298 shares of common stock, in a private placement to various accredited investors pursuant to a Securities Purchase Agreement. The Company paid commissions to agents in connection with the private placement in the amount of approximately $1,056,877 and warrants to purchase up to 301,965 shares of common stock.

The warrants issued to the purchasers in the private placement became exercisable on November 12, 2009. The warrants had an initial expiration date of November 12, 2012 and an initial exercise price of $1.85 per share. The warrants have anti-dilution provisions, including provisions for the adjustment to the exercise price and to the number of warrants granted if the Company issues common stock or common stock equivalents at a price less than the exercise price.

The Company determined that the warrants were not afforded equity classification because the warrants are not freestanding and are not considered to be indexed to the Company’s own stock due to the anti-dilution provisions. In addition, the Company determined that the anti-dilution provisions shield the warrant holders from the dilutive effects of subsequent security issuances and therefore the economic characteristics and risks of the warrants are not clearly and closely related to the Company’s common stock. Accordingly, the warrants are treated as a derivative liability and are carried at fair value.

On November 1, 2012, the Company’s Board of Directors unilaterally determined, without any negotiations with the warrant holders to amend these private placement warrants. The expiration date of the warrants was extended from November 12, 2012 to November 12, 2013. In all other respects, the terms and conditions of the warrants remained the same. The Company calculated the fair value of the warrants at zero using the Binomial Lattice model with the following assumptions:

Risk-free interest rate	0.19	%
Expected volatility	94.94	%

The expected life of the warrants, which is an output of the model, was one year.

As of March 31, 2013, the cumulative adjustment to the warrants was as follows: (i) the exercise price was adjusted from $1.85 per share to $1.71 per share, and (ii) the number of warrants was increased by 444,562 warrants due to equity financing transactions completed during the years ended December 31, 2012, 2011 and 2010. For the three month periods ended March 31, 2013 and 2012, no adjustments were made to the warrants. In connection with the financing completed with Luxor on June 7, 2012, Luxor waived its right to the anti-dilution adjustments on 4,252,883 warrants it holds from the 2009 private placement. Future anti-dilution adjustments were not waived. The exercise price of the Luxor 2009 private placements warrants remains at the previously adjusted price of $1.74 per share.

17

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. DERIVATIVE WARRANT LIABILITY (continued)

The following table sets forth the changes in the fair value of derivative liability for the three month periods ended March 31, 2013 and 2012: 

	March 31, 2013			March 31, 2012
Beginning balance	$	(274,706	)	$	-
Adjustment to warrants		-			-
Change in fair value		213,863			(3,038,958	)
Ending balance	$	(60,843	)	$	(3,038,958	)

As of March 31, 2013 and December 31, 2012, the fair value of the derivative liability was as follows:

	March 31, 2013			December 31, 2012
Ending balance	$	(60,843	)	$	(274,706	)

The Company estimates the fair value of the derivative liabilities by using the Binomial Lattice pricing-model, a Level 3 input, with the following assumptions used for the three month periods ended March 31, 2013 and 2012: 

	March 31, 2013			March 31, 2012
Dividend yield		-			-
Expected volatility		90.98	%		61.53	%
Risk-free interest rate		0.11	%		0.15	%
Expected life (years)		0.62			0.63

The expected volatility is based on the historical volatility levels of the Company’s common stock. The risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues over equivalent lives of the options. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s model. Significant increases or decreases in inputs would result in a significantly lower or higher fair value measurement.

18

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. VRIC PAYABLE - RELATED PARTY

Pursuant to the Clarkdale acquisition agreement, the Company agreed to pay VRIC $30,000 per month until the Project Funding Date. Mr. Harry Crockett, one of the Company’s former directors, was an affiliate of VRIC.  Mr. Crockett joined the Board of Directors subsequent to the acquisition. Mr. Crockett passed away in September 2010.

The Company has recorded a liability for this commitment using imputed interest based on its best estimate of its incremental borrowing rate. The effective interest rate used was 8.00%, resulting in an initial present value of $2,501,187 and a debt discount of $1,128,813. The discount is being amortized over the expected term of the debt using the effective interest method. The expected term used was 10 years which represents the maximum term the VRIC liability is payable if the Company does not obtain project funding. Interest costs related to this obligation were $25,010 and $29,990 for the three month periods ended March 31, 2013 and 2012, respectively and have been capitalized and included in the Slag Project.

The following table represents future minimum payments on the VRIC payable for each of the years ending March 31,

2014	$	360,000
2015		360,000
2016		360,000
2017		330,000
Thereafter		-
Total minimum payments		1,410,000
Less: amount representing interest		(202,950	)
Present value of minimum payments		1,207,050
VRIC payable, current portion		(273,313	)
VRIC payable, net of current portion	$	933,737

The acquisition agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions of these payments are discussed in more detail in Notes 3 and 14.

19

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. STOCKHOLDERS’ EQUITY

During the three month periods ended March 31, 2013 and 2012 the Company did not issue any common stock or enter into any financing agreements.

The following table summarizes the Company’s private placement warrant activity for the three month period ended March 31, 2013:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance, December 31, 2012		13,828,212	$	1.79		0.87
Warrants granted		-		-		-
Warrants expired		-		-		-
Warrants exercised		-		-		-
Balance, March 31, 2013		13,828,212	$	1.79		0.87

In addition to the private placement warrants in the table above, the Company issued 12,000,000 warrants on June 1, 2005 in connection with the Clarkdale Slag Project option. As of March 31, 2013, 8,750,000 of these warrants were outstanding.

20

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. STOCK-BASED COMPENSATION

Stock-based compensation includes grants of stock options and purchase warrants to eligible directors, employees and consultants as determined by the board of directors.

Stock option plans - The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize the granting of stock option awards subject to certain conditions. At March 31, 2013, the Company had 10,714,576 of its common shares available for issuance for stock option awards under the Company’s stock option plans.

At March 31, 2013, the Company had the following stock option plans available:

· 2009 Incentive Plan – The terms of the 2009 Incentive Plan, as amended, allow for up to 7,250,000 options to be issued to eligible participants. Under the plan, the exercise price is generally equal to the fair market value of the Company’s common stock on the grant date and the maximum term of the options is generally ten years. For grantees who own more than 10% of the Company’s common stock on the grant date, the exercise price may not be less than 110% of the fair market value on the grant date and the term is limited to five years. The plan was approved by the Company’s stockholders on December 15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2013, the Company had granted 1,222,500 options under the 2009 Incentive Plan with a weighted average exercise price of $1.16 per share. As of March 31, 2013, all of the options granted were outstanding.

· 2009 Directors Plan - The terms of the 2009 Directors Plan, as amended, allow for up to 2,750,000 options to be issued to eligible participants. Under the plan, the exercise price may not be less than 100% of the fair market value of the Company’s common stock on the grant date and the term may not exceed ten years. No participants shall receive more than 300,000 options under this plan in any one calendar year. The plan was approved by the Company’s stockholders on December 15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2013, the Company had granted 1,151,866 options under the 2009 Directors Plan with a weighted average exercise price of $1.03 per share. As of March 31, 2013, all of the options granted were outstanding.

· 2007 Plan - Under the terms of the 2007 Plan, options to purchase up to 4,000,000 shares of common stock may be granted to eligible participants. Under the plan, the option price for incentive stock options is the fair market value of the stock on the grant date and the option price for non-qualified stock options shall be no less than 85% of the fair market value of the stock on the grant date. The maximum term of the options under the plan is ten years from the grant date. The 2007 Plan was approved by the Company’s stockholders on June 15, 2007. As of March 31, 2013, the Company had granted 911,058 options under the 2007 Plan with a weighted average exercise price of $1.05 per share. As of March 31, 2013, 803,812 of the options granted were outstanding.

The Company has also granted 300,000 stock options to one of its executives on October 1, 2010 and 200,000 warrants to one of its consultants on January 13, 2011 outside of the aforementioned stock option plans, all of which remain outstanding at March 31, 2013.

21

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. STOCK-BASED COMPENSATION (continued)

Non-Employee Directors Equity Compensation Policy – Non-employee directors have a choice between receiving $9,000 value of common stock per quarter, where the number of shares is determined by the closing price of the Company’s stock on the last trading day of each quarter, or a number of options to purchase twice the number of shares of common stock that the director would otherwise receive if the director elected to receive shares, with an exercise price based on the closing price of the Company’s common stock on the last trading day of each quarter. Effective April 1, 2011, the Board of Directors implemented a policy whereby the number of options granted for quarterly compensation to each director is limited to 18,000 options per quarter.

Stock warrants – Upon approval of the Board of Directors, the Company may grant stock warrants to consultants for services performed.

Valuation of awards - At March 31, 2013, the Company had options outstanding that vest on two different types of vesting schedules, service-based and performance based. For both service-based and performance-based stock option grants, the Company estimates the fair value of stock-based compensation awards by using the Binomial Lattice option pricing model with the following assumptions used for grants for the three month periods ended March 31, 2013 and 2012:

	March 31, 2013			March 31, 2012
Risk-free interest rate		0.77	%		1.04	%
Dividend yield		-			-
Expected volatility		95.66	%		84.94	%
Expected life (years)		4.25			4.25

The expected volatility is based on the historical volatility levels of the Company’s common stock. The risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues over equivalent lives of the options.

The expected life of awards represents the weighted-average period the stock options or warrants are expected to remain outstanding and is a derived output of the Binomial Lattice model. The expected life is impacted by all of the underlying assumptions and calibration of the Company’s model. The Binomial Lattice model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations on all past option grants made by the Company.

22

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. STOCK-BASED COMPENSATION(continued)

Stock-based compensation activity - During the three month period ended March 31, 2013, the Company granted stock-based awards as follows:

a) On March 31, 2013, the Company granted stock options under the 2009 Directors Plan for the purchase of 54,000 shares of common stock at $0.48 per share. The options were granted to three of the Company’s non-management directors for directors’ compensation, are fully vested and expire on March 31, 2018. The exercise price of the stock options equaled the closing price of the Company’s common stock for the grant date.

b) On March 31, 2013, the Company granted stock options under the 2007 Plan for the purchase of 18,000 shares of common stock at $0.48 per share. The options were granted to a consultant, are fully vested and expire on March 31, 2018. The exercise price of the stock options equaled the closing price of the Company’s common stock for the grant date.

During the three month period ended March 31, 2012, the Company granted stock-based awards as follows:

a) On March 31, 2012, the Company granted stock options under the 2009 Directors Plan for the purchase of 28,125 shares of common stock at $1.92 per share. The options were granted to three of the Company’s non-management directors for directors’ compensation, are fully vested and expire on March 31, 2017. The exercise price of the stock options equaled the closing price of the Company’s common stock for the grant date.

Expense for the three month periods ended March 31, 2013 and 2012 related to the vesting, modifying and granting of stock-based compensation awards was $121,676 and $136,824, and was included in general and administrative and mineral exploration and evaluation expense.

The following table summarizes the Company’s stock-based compensation activity for the three month period ended March 31, 2013:

	Number of Shares		Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2012		3,606,178	$	0.59	$	1.05		4.69
Options/warrants granted		72,000		0.33		0.48		5.00
Options/warrants expired		-		-		-		-
Options/warrants forfeited		-		-		-		-
Options/warrants exercised		-		-		-		-
Outstanding, March 31, 2013		3,678,178	$	0.58	$	1.04		4.45	$	4,050
Exercisable, March 31, 2013		2,815,678	$	0.54	$	1.03		3.53	$	4,050

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the quarter ended March 31, 2013 in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable

23

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. STOCK-BASED COMPENSATION(continued)

Unvested awards - The following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting for the three month period ended March 31, 2013:

	Number of Shares Subject to Vesting			Weighted Average Grant Date Fair Value
Unvested, December 31, 2012		1,112,500		$	0.80
Options/warrants granted		-			-
Options/warrants vested		(50,000	)		(1.40	)
Options/warrants cancelled		-			-
Unvested, March 31, 2013		1,062,500		$	0.77

For the three month period ended March 31, 2013, the total grant date fair value of shares vested was $70,144. As of March 31, 2013, there was $218,715 of total unrecognized compensation cost related to unvested stock-based compensation awards. The weighted average period over which this cost will be recognized was 0.84 years as of March 31, 2013.

Included in the total of unvested stock options at March 31, 2013, was 700,000 performance based stock options. At March 31, 2013, management determined that achievement of the performance targets was probable. The weighted average period over which the related expense will be recognized was 0.36 years as of March 31, 2013.

10. WARRANTS AND OPTIONS

The following table summarizes all of the Company’s stock option and warrant activity for the three month period ended March 31, 2013. At March 31, 2013, the total balance included warrants issued pursuant to private placement agreements, warrants issued in 2005 in connection with the Clarkdale Slag Project (as discussed in Note 3) and stock options and warrants issued as compensation to directors, employees and consultants:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Term (Years)
Balance, December 31, 2012		26,184,390	$	1.22		1.91
Options/warrants granted/issued		72,000		0.48		5.00
Options/warrants expired		-		-		-
Options/warrants forfeited		-		-		-
Options/warranted exercised		-		-		-
Balance, March 31, 2013		26,256,390	$	1.21		1.67

24

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. STOCKHOLDER RIGHTS PLAN

The Company adopted a Stockholder Rights Plan (the “Rights Plan”) in August 2009 to protect stockholders from attempts to acquire control of the Company in a manner in which the Company’s Board of Directors determines is not in the best interest of the Company or its stockholders.  Under the plan, each currently outstanding share of the Company’s common stock includes, and each newly issued share will include, a common share purchase right.  The rights are attached to and trade with the shares of common stock and generally are not exercisable.  The rights will become exercisable if a person or group acquires, or announces an intention to acquire, 15% or more of the Company’s outstanding common stock. The Rights Plan was not adopted in response to any specific effort to acquire control of the Company.  The issuance of rights had no dilutive effect, did not affect the Company’s reported earnings per share and was not taxable to the Company or its stockholders. 

In connection with the private placement completed on June 7, 2012 with Luxor the Company agreed to waive the 15% limitation currently in the Rights Plan with respect to Luxor, and to allow Luxor to become the beneficial owner of up to 17.5% of the Company’s common stock, without being deemed to be an “acquiring person” under the Rights Plan. Following the private placement, Luxor became a beneficial owner of approximately 17.48% of the Company’s common stock.

12. PROPERTY RENTAL AGREEMENTS AND LEASES

The Company, through its subsidiary CML, has the following lease and rental agreements as lessor:

Clarkdale Arizona Central Railroad – rental – CML rents land to Clarkdale Arizona Central Railroad on month to month terms at $1,700 per month.

Commercial building rental- CML rents commercial building space to various tenants. Rental arrangements are minor in amount and are typically month-to-month.

Land lease - wastewater effluent - Pursuant to the acquisition of TI, the Company became party to a lease dated August 25, 2004 with the Town of Clarkdale, AZ (“Clarkdale”). The Company provides approximately 60 acres of land to Clarkdale for disposal of Class B effluent. In return, the Company has first right to purchase up to 46,000 gallons per day of the effluent for its use at fifty percent (50%) of the potable water rate. In addition, if Class A effluent becomes available, the Company may purchase that at seventy-five percent (75%) of the potable water rate.

The original term of the lease was five years and expired on August 25, 2009; however, the lease also provided for additional one year extensions without any changes to the original lease agreement. At such time as Clarkdale no longer uses the property for effluent disposal, and for a period of 25 years measured from the date of the lease, the Company has a continuing right to purchase Class B effluent, and if available, Class A effluent at then market rates.

25

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. INCOME TAXES

The Company is a Nevada corporation and is subject to federal and Arizona income taxes. Nevada does not impose a corporate income tax.

Significant components of the Company’s net deferred income tax assets and liabilities at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013			December 31, 2012
Deferred income tax assets:
Net operating loss carryforward	$	15,240,699		$	14,724,543
Option compensation		714,918			673,271
Property, plant & equipment		840,045			773,542
Gross deferred income tax assets		16,795,662			16,171,356
Less: valuation allowance		(650,251	)		(622,572	)
Net deferred income tax assets		16,145,411			15,548,784
Deferred income tax liabilities:
Acquisition related liabilities		(55,197,465	)		(55,197,465	)
Net deferred income tax liability	$	(39,052,054	)	$	(39,648,681	)

The realizability of deferred tax assets are reviewed at each balance sheet date. The majority of the Company’s deferred tax liabilities are related to depletable assets. Such depletion will begin with the processing of mineralized material once production has commenced. Therefore, the deferred tax liabilities will reverse in similar time periods as the deferred tax assets. The reversal of the deferred tax liabilities is sufficient to support the deferred tax assets. The valuation allowance relates to state net operating loss carryforwards which may expire unused due to their shorter life.

Deferred income tax liabilities were recorded on GAAP basis over income tax basis using statutory federal and state rates with the corresponding increase in the purchase price allocation to the assets acquired.

The resulting estimated future federal and state income tax liabilities associated with the temporary difference between the acquisition consideration and the tax basis are reflected as an increase to the total purchase price which has been applied to the underlying mineral and slag project assets in the absence of there being a goodwill component associated with the acquisition transactions.

26

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. INCOME TAXES (continued)

A reconciliation of the deferred income tax benefit for the three month periods ended March 31, 2013 and 2012 at US federal and state income tax rates to the actual tax provision recorded in the financial statements consisted of the following components:

	March 31, 2013			March 31, 2012
Deferred tax benefit at statutory rates	$	536,500		$	1,843,624
State deferred tax benefit, net of federal benefit		45,986			158,024
Increase (decrease) in deferred tax benefit from:
Change in valuation allowance		(27,679	)		(84,008	)
Change in state NOL’s		(34,841	)		-
Gain (loss) on the change in fair value of derivative warrant liability		81,268			(1,154,804	)
Permanent differences		(4,590	)		(42,533	)
Other		(17	)		-
Deferred income tax benefit	$	596,627		$	720,303

The Company had cumulative net operating losses of $40,817,557 as of March 31, 2013 for federal income tax purposes. The federal net operating loss carryforwards will expire between 2025 and 2033.

State income tax allocation- The Company has elected to file consolidated tax returns with Arizona tax authorities. Tax attributes are computed using an allocation and apportionment formula as outlined in Arizona tax law. The Company computes its tax provision using its statutory federal rate plus a state factor that includes the Arizona statutory rate and the current apportionment percentage, which is then reduced by the federal tax benefit that would be obtained upon payment of the computed state taxes.

The Company had cumulative net operating losses of $24,526,850 as of March 31, 2013 for Arizona state income tax purposes. The Company has placed a valuation allowance against Arizona state net operating loss carryforwards expected to expire unused. The remaining net operating loss carryforwards expire at various dates through 2033.

Tax returns subject to examination- The Company and its subsidiaries file income tax returns in the United States. These tax returns are subject to examination by taxation authorities provided the years remain open under the relevant statutes of limitations, which may result in the payment of income taxes and/or decreases in its net operating losses available for carryforward. The Company has losses from inception to date, and thus all years remain open for examination. While the Company believes that its tax filings do not include uncertain tax positions, the results of potential examinations or the effect of changes in tax law cannot be ascertained at this time. The Company’s federal tax returns for the years ended December 31, 2009 and 2010 are currently under examination by the Internal Revenue Service.

27

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES

Lease obligations - The Company rents office space in Henderson, Nevada on month-to-month terms. As of March 31, 2013, the monthly rent was $2,980.

Rental expense resulting from this operating lease agreement was $8,940 and $8,940 for the three month periods ended March 31, 2013 and 2012, respectively.

Employment contracts -Martin B. Oring.  The Company has an employment agreement with Mr. Oring as its Chief Executive Officer and President.  The agreement is on an at-will basis and the Company may terminate his employment, upon written notice, at any time, with or without cause or advance notice.  The Company has agreed to pay Mr. Oring compensation of $200,000, which includes compensation as a director.  Mr. Oring will be provided with reimbursement for reasonable business expenses in connection with his duties as Chief Executive Officer.  Mr. Oring has voluntarily agreed not to participate in health or other benefit plans or programs otherwise in effect from time to time for executives or employees.

Carl S. Ager.  The Company has an employment agreement with Carl S. Ager, its Vice President, Secretary and Treasurer.  Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Ager an annual salary of $160,000.   In addition to his annual salary, Mr. Ager may be granted a discretionary bonus and stock options, to the extent authorized by the Board of Directors. The term of the agreement is for an indefinite period, unless otherwise terminated by either party pursuant to the terms of the agreement.  In the event that the agreement is terminated by the Company, other than for cause, the Company will provide Mr. Ager with six months written notice or payment equal to six months of his monthly salary.

Melvin L. Williams.  The Company has an employment agreement with Melvin L. Williams, its Chief Financial Officer.  Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Williams an annualized salary of $130,000 based on a time commitment of 600-800 hours worked. In the event the employment agreement is terminated by the Company without cause, the Company will pay Mr. Williams an amount equal to three months’ salary in a lump sum as full and final payment of all amounts payable under the agreement.

28

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES (continued)

Purchase consideration Clarkdale Slag Project - In consideration of the acquisition of the Clarkdale Slag Project from VRIC, the Company has agreed to certain additional contingent payments. The acquisition agreement contains payment terms which are based on the Project Funding Date as defined in the agreement:

a) The Company has agreed to pay VRIC $6,400,000 on the Project Funding Date;

b) The Company has agreed to pay VRIC a minimum annual royalty of $500,000, commencing on the Project Funding Date (the “Advance Royalty”), and an additional royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project (the “Project Royalty”). The Advance Royalty remains payable until the first to occur of: (i) the end of the first calendar year in which the Project Royalty equals or exceeds $500,000 or (ii) February 15, 2017. In any calendar year in which the Advance Royalty remains payable, the combined Advance Royalty and Project Royalty will not exceed $500,000; and,

c) The Company has agreed to pay VRIC an additional amount of $3,500,000 from the net cash flow of the Clarkdale Slag Project.

The Advance Royalty shall continue for a period of ten years from the Agreement Date or until such time that the Project Royalty shall exceed $500,000 in any calendar year, at which time the Advance Royalty requirement shall cease.

Clarkdale Slag Project royalty agreement - NMC -Under the original JV Agreement, the Company agreed to pay NMC a 5% royalty on NSR payable from the Company’s 50% joint venture interest in the production from the Clarkdale Slag Project. Upon the assignment to the Company of VRIC’s 50% interest in the Joint Venture Agreement in connection with the reorganization with Transylvania International, Inc., the Company continues to have an obligation to pay NMCa royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project.

On July 25, 2011, the Company and NMC entered into an amendment (the “Third Amendment”) to the assignment agreement between the parties dated June 1, 2005. Pursuant to the Third Amendment, the Company agreed to pay advance royalties (the “Advance Royalties”) to NMC of $15,000 per month (the “Minimum Royalty Amount”) effective as of January 1, 2011. The Third Amendment also provides that the Minimum Royalty Amount will continue to be paid to NMC in every month where the amount of royalties otherwise payable would be less than the Minimum Royalty Amount, and such Advance Royalties will be treated as a prepayment of future royalty payments. In addition, fifty percent of the aggregate consulting fees paid to NMC from 2005 through December 31, 2010 were deemed to be prepayments of any future royalty payments. As of December 31, 2010, aggregate consulting fees previously incurred amounted to $1,320,000, representing credit for advance royalty payments of $660,000.

Total advance royalty payments to NMC for the three month periods ended March 31, 2013 and 2012 were $45,000 and $45,000, respectively, and has been included in “Mineral exploration and evaluation expenses – related party” on the statements of operations.

29

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES (continued)

Development agreement - In January 2009, the Company submitted a development agreement to the Town of Clarkdale for development of an Industrial Collector Road (the “Road”). The purpose of the Road is to provide the Company the capability to transport supplies, equipment and products to and from the Clarkdale Slag Project site efficiently and to meet stipulations of the Conditional Use Permit for the full production facility at the Clarkdale Slag Project.

The timing of the development of the Road is to be within two years of the effective date of the agreement. The effective date shall be the later of (i) 30 days from the approving resolution of the agreement by the Council, (ii) the date on which the Town obtains a connection dedication from separate property owners who have land that will be utilized in construction of the Road, or (iii) the date on which the Town receives the proper effluent permit. The contingencies outlined in (ii) and (iii) above are beyond control of the Company.

The Company estimates the initial cost of construction of the Road to be approximately $3,500,000 and the cost of additional enhancements to be approximately $1,200,000 which will be required to be funded by the Company. Based on the uncertainty of the contingencies, this cost is not included in the Company’s current operating plans. Funding for construction of the Road will require obtaining project financing or other significant financing. As of the date of this filing, these contingencies had not changed.

Registration Rights Agreement - In connection with the June 7, 2012 private placement, the Company entered into a Registration Rights Agreement (“RRA”) with the purchasers. Pursuant to the RRA, the Company agreed to certain demand registration rights. These rights include the requirement that the Company file certain registration statements within a specified time period and to have these registration statements declared effective within a specified time period. The Company also agreed to file and keep continuously effective such additional registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume restrictions. If the Company is not able to comply with these registration requirements, the Company will be required to pay cash penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in which a registration default, as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the date of this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.

15. CONCENTRATION OF CREDIT RISK

The Company maintains its cash accounts in financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (the “FDIC”) for up to $250,000 per institution. The Company has never experienced a material loss or lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s cash accounts will not be impacted by adverse conditions in the financial markets. At March 31, 2013, the Company had deposits in excess of FDIC insured limits in the amount of $1,753,154.

30

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16. CONCENTRATION OF ACTIVITY

The Company currently utilizes a mining and environmental firm to perform significant portions of its mineral property and metallurgical exploration work programs. A change in the lead mining and environmental firm could cause a delay in the progress of the Company’s exploration programs and would cause the Company to incur significant transition expense and may affect operating results adversely.

17. RELATED PARTY TRANSACTIONS

NMC - The Company utilizes the services of NMC to provide technical assistance and financing related activities. In addition, NMC provides the Company with use of its laboratory, instrumentation, milling equipment and research facilities. Mr. Ager is affiliated with NMC. Prior to January 1, 2011, the Company paid a negotiated monthly fee ranging from $15,000 to $30,000 plus reimbursement of expenses incurred. Effective January 1, 2011, the Company and NMC agreed to replace the monthly fee with an advance royalty payment of $15,000 per month and to reimburse NMC for actual expenses incurred and consulting services provided.

The Company has an existing obligation to pay NMC a royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project. The royalty agreement and advance royalty payments are more fully discussed in Note 14.

For the three month period ended March 31, 2013, the Company incurred total reimbursement of expenses to NMC of $1,515, additional consulting services provided of $12,850 and advance royalty payments of $45,000. At March 31, 2013, $24,365 was due to NMC.

For the three month period ended March 31, 2012, the Company incurred total reimbursement of expenses to NMC of $3,737 and advance royalty payments of $45,000. At December 31, 2012, $15,000 was due to NMC.

Cupit, Milligan, Ogden & Williams, CPAs - The Company utilizes Cupit, Milligan, Ogden & Williams, CPAs (“CMOW”) to provide accounting support services. Mr. Williams is affiliated with CMOW.

The Company incurred total fees to CMOW of $58,556 for the three month period ended March 31, 2013. Fees for services provided by CMOW do not include any charges for Mr. Williams’ time. Mr. Williams is compensated for his time under his employment agreement. The direct benefit to Mr. Williams was $22,837 of the above CMOW fees and expenses. The Company had an outstanding balance due to CMOW of $58,556 as of March 31, 2013.

The Company incurred total fees to CMOW of $37,467 three month period ended March 31, 2012. The direct benefit to Mr. Williams was $12,739 for the three month period ended March 31, 2012. At December 31, 2012, no amounts were due to CMOW.

31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q, or the Report, are “forward-looking statements.” These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of Searchlight Minerals Corp., a Nevada corporation (referred to in this Report as “we,” “us,” “our” or “registrant”) and other statements contained in this Report that are not historical facts. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management’s best estimates based upon current conditions and the most recent results of operations. When used in this Report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are generally intended to identify forward-looking statements, because these forward-looking statements involve risks and uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled “Risk Factors,” in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2012.

The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three month period ended March 31, 2013 and changes in our financial condition from our year ended December 31, 2012. The following discussion should be read in conjunction with the Management’s Discussion and Analysis or Plan of Operation included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Executive Overview

We are an exploration stage company engaged in a slag reprocessing project and the acquisition and exploration of mineral properties. Our business is presently focused on our two mineral projects: (i) the Clarkdale Slag Project, located in Clarkdale, Arizona, which is a reclamation project to recover precious and base metals from the reprocessing of slag produced from the smelting of copper ore mined at the United Verde Copper Mine in Jerome, Arizona; and (ii) the Searchlight Gold Project, which involves exploration for precious metals on mining claims near Searchlight, Nevada.

Clarkdale Slag Project

Since our involvement in the Clarkdale Slag Project, our goal has been to demonstrate the economic feasibility of the project by determining a commercially viable method to extract precious and base metals from the slag material. We believe that in order to demonstrate this, we must successfully operate the four major steps of our production process: crushing and grinding, leaching, continuous process operation, and extraction of gold from solution.

Our Production Process

1. Crushing and Grinding. The first step of our production process involves grinding the slag material from rock-size chunks into sand-size grains (minus-20 mesh size). Because of the high iron content and the glassy/siliceous nature of the slag material, grinding the slag material creates significant wear on grinding equipment. Batch testing with various grinders produced significant wear on the equipment to render them unviable for a continuous production facility.

In 2010 we tested high pressure grinding rolls (HPGR) to grind the slag material at the facility in Germany of the leading manufacturer of HPGR’s. HPGR’s are commonly used in the mining industry to crush ore and have shown an ability to withstand very hard and abrasive ores. The results from these tests showed that grinding our slag material on a continuous basis did not produce wear on the equipment beyond the expected levels.

32

When we tested the HPGR-ground slag in our autoclave process, results showed liberation of gold, which our technical team believes is due to the micro-fractures imparted to the slag during the HPGR grinding process.  The technical team also believes that the high pressures that exist in the autoclave (see autoclave discussion in 2. below) environment are able to drive the leach solution into the micro-fracture cracks created in the slag material by the HPGR crusher, thereby dissolving the gold without having to employ a more expensive process to grind the slag material to a much finer particle size.

We believe that the HPGR is a viable grinder for our production process because it appears to have solved our grinding equipment wear issue and the HPGR produces ground slag from which gold can be leached into solution in an autoclave process.

2. Leaching. The second step of our production process involves leaching gold from the ground slag material. Our original open-vessel ambient leach process leached gold into solution during our pilot plant tests. However, during our scale-up to a larger pilot size we discovered that the high levels of iron and silica that were leached into solution produced a pregnant leach solution (“PLS”) that became gelatinous over time. We tried numerous methods to remedy this issue. However, it was determined that, with the high levels of iron and silica in solution, the extraction of the gold from the PLS was not commercially feasible. Hence, we concluded that this open-vessel leach process was not viable for a production facility.

In 2010, we turned our efforts to the autoclave process. Autoclaving, a proven technology that is widely used within the mining industry, is a chemical leach process that utilizes elevated temperature and pressure in a closed autoclave system to extract precious and base metals from the slag material. Our independent consultant, Arrakis Inc. (“Arrakis”) has performed over 150 batch autoclave tests under various leach protocols and grind sizes. Arrakis’ test results have consistently leached approximately 0.5 ounces per ton (“opt”) of gold into solution. In addition, these results indicate that autoclaving does not dissolve the levels of iron and silica into solution as did the ambient leach. We believe that autoclaving will improve our ability to recover gold from solution and thus improve process technical feasibility. The operating conditions identified by Arrakis thus far are mild to moderate compared with most current autoclaves and are anticipated to result in lower capital, operating and maintenance costs.

During the third quarter of 2011, we received the results of testing from an independent engineering firm in Chile whereby a number of batch autoclave tests, under various metallurgical conditions using both pressure oxidation (“POX”) and pressure oxidative leach (“POL”) testing methodologies. The optimized POX and POL tests both resulted in approximately 0.5 opt (ounces per ton) of gold extracted into solution. The optimized POX tests produced slightly less than or equal to 0.5 opt gold and the optimized POL tests produced 0.5 opt gold or slightly greater. Moreover, the test results reaffirm that autoclaving does not dissolve the levels of iron and silica into solution as did the ambient leach. Additionally, since the POL method involves fewer process steps resulting in lower operating costs, and appeared to consistently place higher grades of gold into solution, this process was likely to be superior to the POX method in achieving better results.

The Chilean engineering firm noted that the refractory Clarkdale slag was difficult to consistently analyze and suggested that further work be done to validate analytical methods and determine the most accurate method. Our consultant, Arrakis, previously had noted this analytical problem and decided to use an analytical method developed in the 1980’s, Atomic Absorption Spectroscopy/Inductively Coupled Plasma Optical Emission Spectroscopy (“AAS/ICP-OES”), to manually correct gold in solution values by determining the amount of interferences caused by other metals present in the leach solutions and manually adjusting the gold in solution values.

33

We believe that the POL autoclave method is a viable leach method for our production process because it leaches higher quantities of gold into solution from our slag material and results in much lower levels of iron and silica in solution than other methods, thus improving process technical feasibility.

3. Continuous Operation. The third step in our production process involves being able to perform the leaching step in a larger continuous operation. While lab and bench-scale testing provides critical data for the overall development of a process, economic feasibility can only be achieved if the process can be performed in a continuous operation.

During the second quarter of 2012, we received the results of tests conducted by an independent Australian metallurgical testing firm whereby they conducted autoclave tests under various conditions, using the POL method in a four-compartment, 25-liter autoclave. The completion of a continuous 14 hour test with 100% mechanical availability (i.e. no “down time”) demonstrates the ability of a pilot autoclave to process the Clarkdale slag material on a continuous basis. The pilot multi-compartment autoclave is routinely used to simulate operating performance in a full-scale commercial autoclave as part of a bankable feasibility study.

In addition, the PLS that was produced from the 14 hour continuous run was analyzed by the Australian testing firm. Analysis using the AAS/ICP-OES method resulted in approximately 0.2 - 0.6 opt of gold extracted into solution. The 0.2 opt was achieved during the startup of the test run. After making adjustments to the pH, volume of the leach solution and other process parameters, the higher 0.6 opt was obtained toward the completion of the test. Our independent technical consultants believe we can replicate these higher test results in future test runs.

The Australian testing firm also noted the existence of analytical difficulties previously reported by our independent consultants and us. We have been advised that theresults of this test work is largely based on the analysis carried out on gold solutions emanating from the tests, byAAS/ICP-OES. Analysis of gold in solution by this method is not in agreement with fire assays analysis, which are both prone to analytical difficulties due to the refractory nature of the slag. A different analytical method was used by the Australian testing firm, the Inductively Coupled Plasma Mass Spectroscopy, or ICPMS. Fire assay (performed by the Australian testing firm), as well as Neutron Activation (performed by an independent third party consulting agency), were also used to perform analyses of the raw slag. All of the above methods indicated different quantities of gold in the slag, but at values substantially below the results achieved by AAS/ICP-OES method. Consequently, Arrakis continues to refine the analytical techniques used to measure gold in solution.

We believe that the POL autoclave method in a large multi-compartment autoclave has shown to be viable for our production process because it can operate on a continuous basis and leaches higher levels of gold and much lower levels of iron and silica into solution than other methods. The results from POL autoclaving testing were comparable to previous bench-scale tests performed by Arrakis and the Chilean engineering firm.

4. Extraction. The fourth and final step in our production process involves being able to extract and recover metallic gold from PLS. Economic feasibility can only be achieved if a commercially viable method of metallic gold recovery is determined. In addition, the recovery of metallic gold will not only define the most cost-effective method of such recovery, but will also provide a better definition to the total process system mass balance and help reduce any discrepancy in analytical tests. Recovery of gold beads provides the ability to determine more accurately the amount of gold that was recovered from leach solution. Simple weighing of the gold bead and having the weight of the initial slag sample used to provide the bead gives a more accurate determination of an extractable gold grade in the slag sample. In this effort, we and our consultants are continuing to perform tests to recover gold from solution, using carbon, ion exchange resin technologies, or other commonly used methods of extracting gold from solution.

34

We have engaged Arrakis to assemble a multinational project team to specifically determine the most efficient method of extracting gold from solution. Arrakis has performed in excess of 63 ion exchange tests in an attempt to determine the optimal method for extracting gold from solution, using a variety of resins and carbons. In addition, Arrakis has performed nano-filtration tests using membrane technology in conjunction with the ion exchange tests to enhance ion exchange results. Arrakis has also conducted electro-winning tests, to determine the best way to remove gold from solution. Results from these alternative methods of extracting gold from solution have resulted in removing up to 10% of the gold from solution using resins and up to 40% of the gold from solution using the electro-winning method. These results were obtained by assaying of dore beads produced by the various testing techniques noted. As larger volumes of POL leach solutions are generated via the pilot autoclave, and testing optimized, larger dore beads will be produced and analysis will become much simpler.

We have also engaged a firm to examine the viability of using membrane technology to remove small quantities of unwanted elements from the PLS prior to loading the gold on to resin or carbon. This process may further enhance gold recovery and increase gold loading rates onto the resin or carbon. As larger volumes of POL leach solution are generated and resin tests are fine-tuned, we expect our gold recovery values to improve. We will continue with our test work in order to better determine the method that best optimizes our gold recovery on a consistent basis.

To provide additional PLS which is necessary to expedite the gold recovery tests and commercial viability of the project, we have acquired a large batch titanium autoclave (approximately 500 liter capacity). We have installed this autoclave and we are currently going through the startup and system adjustments necessary to operate it. To date we have conducted 5 pilot autoclave tests which have resulted in the processing of approximately 1,000 lbs of slag. The greater quantity of PLS able to be generated with the large batch autoclave allows the use of multiple resins and multiple stages to more closely model a full-scale commercial system and optimize recovery of gold from solution. We also continue to examine other methods of extracting gold from solution in an effort to determine the most cost-effective and efficient method of recovering gold. Most recent test results suggest that electrowinning may be the most commercially viable method of recovering gold from solution.

In December 2012, we hired Richard Kunter as Senior Corporate Metallurgist and Doug Aho as Autoclave Process Engineer. Together, these highly experienced engineers are managing and executing our autoclave testing program. During the past two years, Mr. Kunter and Mr. Aho were intimately involved in our autoclave test work as consulting engineers.

We believe that if we are able to achieve metallic gold extraction on a larger quantity of PLS at effective loading rates, we will have demonstrated the viability of the total extraction and recovery process as well as verified the extractable gold grade of the slag via metallic gold beads (the equivalent of a fire assay) thereby eliminating the need for different and sometimes conflicting analytical techniques. We will therefore be in a position to begin the bankable feasibility study on our production process which will serve to demonstrate the economic viability of the project.

35

Searchlight Gold Project

Since 2005, we have maintained an ongoing exploration program on our Searchlight Gold Project and have contracted with Arrakis, an unaffiliated mining and environmental firm, to perform a number of metallurgical tests on surface and bulk samples taken from the project site under strict chain-of-custody protocols. In 2007, results from these tests validated the presence of gold on the project site, and identified reliable and consistent metallurgical protocols for the analysis and extraction of gold, such as microwave digestion and autoclave leaching. Autoclave methods typically carry high capital and operating costs on large scale projects, however, we were encouraged by these results and intend to continue to explore their applicability to the Searchlight Gold Project.

On February 11, 2010, we received final approval of our Plan of Operations from the Bureau of Land Management (“BLM”), which allows us to conduct an 18-hole drill program on our project area. However, in an effort to conserve our cash and resources, we have decided to postpone further exploration on our Searchlight Gold Project until we are better able to determine the feasibility of our Clarkdale Slag Project. Once we have decided to resume our exploration program, work on the project site will be limited to the scope within the Plan of Operations. To perform any additional drilling or mining on the project, we would be required to submit a new application to the BLM for approval prior to the commencement of any such additional activities.

Critical Accounting Policies

Use of estimates - The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring estimates and assumptions include the valuation of stock-based compensation and derivative warrant liabilities, impairment analysis of long-lived assets, and realizability of deferred tax assets. Actual results could differ from those estimates.

Mineral properties -Costs of acquiring mineral properties are capitalized upon acquisition. Exploration costs and costs to maintain mineral properties are expensed as incurred while the project is in the exploration stage. Development costs and costs to maintain mineral properties are capitalized as incurred while the property is in the development stage. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production method over the proven and probable reserves.

Mineral exploration and development costs-Exploration expenditures incurred prior to entering the development stage are expensed and included in “Mineral exploration and evaluation expenses.”

Capitalized interest cost - We capitalize interest cost related to acquisition, development and construction of property and equipment which is designed as integral parts of the manufacturing process of the project. The capitalized interest is recorded as part of the asset it relates to and will be amortized over the asset’s useful life once production commences.

Property and Equipment-Property and equipment is stated at cost less accumulated depreciation. Depreciation is principally provided on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 39 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

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Impairment of long-lived assets - We review and evaluate our long-lived assets for impairment at each balance sheet date due to our planned exploration stage losses and document such impairment testing. Mineral properties in the exploration stage are monitored for impairment based on factors such as our continued right to explore the property, exploration reports, drill results, technical reports and continued plans to fund exploration programs on the property.

The tests for long-lived assets in the exploration, development or producing stage that would have a value beyond proven and probable reserves would be monitored for impairment based on factors such as current market value of the mineral property and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset, including evaluating its reserves beyond proven and probable amounts.

Our policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable either by impairment or by abandonment of the property. The impairment loss is calculated as the amount by which the carrying amount of the assets exceeds its fair value. To date, no such impairments have been identified.

Stock-based compensation - Stock-based compensation awards are recognized in the consolidated financial statements based on the grant date fair value of the award which is estimated using the Binomial Lattice option pricing model. We believe that this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for the actual exercise behavior of option holders. The compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise, shares issued will be newly issued shares from authorized common stock.

The fair value of performance-based stock option grants is determined on their grant date through the use of the Binomial Lattice option pricing model. The total value of the award is recognized over the requisite service period only if management has determined that achievement of the performance condition is probable. The requisite service period is based on management’s estimate of when the performance condition will be met. Changes in the requisite service period or the estimated probability of achievement can materially affect the amount of stock-based compensation recognized in the financial statements.

We account for stock options issued to non-employees based on the estimated fair value of the awards using the Binomial Lattice option pricing model. The measurement of stock-based compensation to non-employees is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our consolidated statements of operations during the period the related services are rendered.

Derivative warrant liability - We have certain warrants with anti-dilution provisions, including provisions for the adjustment to the exercise price and to the number of warrants granted if we issue common stock or common stock equivalents at a price less than the exercise price. We determined that these warrants were not afforded equity classification because they embody risks not clearly and closely related to the host contract. Accordingly, the warrants are treated as a derivative liability and are carried at fair value.

We calculate the fair value of the derivative liability using the Binomial Lattice model, a Level 3 input. The change in fair value of the derivative liability is classified in other income (expense) in the consolidated statement of operations. We generally do not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks. The Company is not exposed to significant interest or credit risk arising from these financial instruments.

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Income taxes - We follow the liability method of accounting for income taxes. This method recognizes certain temporary differences between the financial reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset as measured by the statutory tax rates in effect. The effect of a change in tax rates is recognized in operations in the period that includes the enactment date. We record a valuation allowance against any portion of those deferred income tax assets when we believe, based on the weight of available evidence, that it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

For acquired properties that do not constitute a business, a deferred income tax liability is recorded on GAAP basis over income tax basis using statutory federal and state rates. The resulting estimated future income tax liability associated with the temporary difference between the acquisition consideration and the tax basis is computed in accordance with Accounting Standards Codification (“ASC”) 740-10-25-51, Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations, and is reflected as an increase to the total purchase price which is then applied to the underlying acquired assets in the absence of there being a goodwill component associated with the acquisition transactions.

Results of Operations

Three months ended March 31, 2013 and 2012

The following table illustrates a summary of our results of operations for the periods set forth

below:

	Three Months Ended March, 31
	2013			2012			Percent Increase/ (Decrease)
Revenue	$	-		$	-			n/a
Operating expenses		(1,754,185	)		(2,238,848	)		(22	)%
Rental revenue		6,135			7,480			(18	)%
Interest and dividend income		1,331			2,830			(53	)%
Change in derivative warrant liability		213,863			(3,038,958	)		(107	)%
Income tax benefit		596,627			720,303			(17	)%
Net loss	$	(936,229	)	$	(4,547,193	)		(79	)%

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 three months ended March 31, 2013. We do not anticipate earning revenues from our planned mineral operations until such time as we enter into commercial production of the Clarkdale Slag Project, the Searchlight Gold Project or other mineral properties we may acquire from time to time, and of which there are no assurances.

Operating Expenses. The major components of our operating expenses are outlined in the table below:

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	Three Months Ended March 31,
	2013		2012		Percent Increase/ (Decrease)
Mineral exploration and evaluation expenses	$	568,527	$	1,045,453		(46	)%
Mineral exploration and evaluation expenses – related party		59,365		48,737		22	%
Administrative – Clarkdale site		41,355		73,288		(44	)%
General and administrative		684,275		688,890		(1	)%
General and administrative – related party		58,556		37,467		56	%
Depreciation		342,107		345,013		(1	)%
Total operating expenses	$	1,754,185	$	2,238,848		(22	)%

Operating expenses decreased by 22% to $1,754,185 during the three month period ended March 31, 2013 from $2,238,848 during the three month period ended March 31, 2012. Operating expense decreased primarily as a result of less mineral and exploration expense incurred in the first quarter of 2013 and to reduced administrative expenses at the Clarkdale site.

Mineral exploration and evaluation expenses decreased by 46% to $568,527 during the three month period ended March 31, 2013 from $1,045,453 during the three month period ended March 31, 2012. The decrease was due to substantial portions of our autoclave testing performed in the first quarter of 2012 in both Chile and Australia resulting in additional consulting and travel expenses.

Mineral exploration and evaluation expenses – related party increased by 22% to $59,365 during the three month period ended March 31, 2013 from $48,737 during the three month period ended March 31, 2012. The increase is due to NMC providing additional consulting services to the Company related to research activities and oversight of consultants for the quarter ended March 31, 2013.

Administrative – Clarkdale site expenses decreased by 44% to $41,355 during the three month period ended March 31, 2013 from $73,288 for the three month period ended March 31, 2012. Administrative costs at the Clarkdale site decreased due to a reduction of certain consulting fees and less of our site manager’s time allocated to administrative tasks.

General and administrative expenses decreased 1% and amounted to $684,275 during the three month period ended March 31, 2013 from $688,890 during the three month period ended March 31, 2012.

General and administrative – related party amounted to $58,556 and $37,467 for the three month periods ended March 31, 2013 and 2012, respectively, for accounting support services to Cupit, Milligan, Ogden & Williams, CPAs, an affiliate of Melvin L. Williams, our Chief Financial Officer. These accounting support services included bookkeeping input for the Clarkdale facility, assistance in preparing working papers for quarterly and annual reporting, and preparation of federal and state tax filings.

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 $22,837 and $12,739 of the above fees for the three month periods ended March 31, 2013 and 2012, respectively. The increase in fees is attributed to the additional accounting services provided in 2013 due to transition to accelerated filer status and detailed XBRL tagging.

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Depreciation expense decreased to $342,107 during the three month period ended March 31, 2013 from $345,013 during the three month period ended March 31, 2012.

Other Income and Expenses. Total other income increased to $221,329 during the three month period ended March 31, 2013 from $(3,028,648) during the three month period ended March 31, 2012.The increase was primarily due to recognizing a $213,863 gain on the change in the fair value of our derivative warrant liability for the three month period ended March 31, 2013 compared to a loss of $3,038,958 for the same period in 2012.

We received incidental rental revenue of $6,135 and $7,480 during the three month periods ended March 31, 2013 and 2012, respectively, 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) rental of commercial building space to various tenants. Rental arrangements are minor in amount and are typically on a month to month basis.

Income Tax Benefit. Income tax benefit decreased by 17% to $596,627 during the three month period ended March 31, 2013 from $720,303 during the three month period ended March 31, 2012. The decrease in our tax benefit resulted from the decrease in our loss from operations as discussed above.

Net Loss. The aforementioned factors resulted in a net loss of $936,229 or $0.01 per common share, for the three month period ended March 31, 2013, as compared to a net loss of $4,547,193, or $0.03 per common share, for the three month period ended March 31, 2012.

As of March 31, 2013 and December 31 2012, we had cumulative net operating loss carryforwards of $40,817,557 and $39,367,564, respectively, for federal income tax purposes. The federal net operating loss carryforwards expire between 2025 and 2033.

We had cumulative state net operating losses of $24,526,850 and $24,294,040 as of March 31, 2013 and December 31, 2012, respectively, for state income tax purposes. The state net operating loss carryforwards began expiring in 2012 and unless used will continue to expire through 2033.

Liquidity and Capital Resources

Historically, we have financed our operations primarily through the sale of common stock and other convertible equity securities. No financing transactions occurred during the first quarter of 2013. During the year ended December 31, 2012, we conducted the following financings of our securities:

On June 7, 2012, we issued 4,500,000 shares of common stock in a private placement at a price of $0.90 per share resulting in gross proceeds of $4,050,000. Total fees related to this issuance were $2,040. In connection with the offering, we entered into a Securities Purchase Agreement and a Registration Rights Agreement (“RRA”) with the purchasers.

Pursuant to the RRA, we agreed to certain demand registration rights. These rights include the requirement that we file certain registration statements within a specified time period and to have these registration statements declared effective within a specified time period. We also agreed to file and keep continuously effective such additional registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume restrictions. If we are not able to comply with these registration requirements, we have agreed to pay cash penalties equal to 1.0% of the aggregate purchase price paid by the investors for each 30 day period in which a registration default, as defined by the RRA, exists. The maximum penalty is equal to 3.0% of the purchase price which amounts to $121,500. As of the date of this filing, we do not believe the penalty to be probable and accordingly, no liability has been accrued.

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On May 24, 2012, we issued 250,000 shares of common stock from the exercise of stock warrants resulting in cash proceeds of $93,750. The stock warrants had an exercise price of $0.375.

Working Capital

The following is a summary of our working capital at March 31, 2013 and December 31, 2012:

	March 31, 2013			December 31, 2012			Percent Increase/(Decrease)
Current Assets	$	2,509,087		$	4,061,230			(38	)%
Current Liabilities		(558,395	)		(872,303	)		(36	)%
Working Capital	$	1,950,692		$	3,188,927			(39	)%

As of March 31, 2013, we had an accumulated deficit of $33,953,201. As of March 31, 2013, we had working capital of $1,950,692, compared to working capital of $3,188,927 as of December 31, 2012. The decrease in our working capital was primarily attributable to our net loss and principal payments on our long term liabilities. Cash was $2,411,371 as of March 31, 2013, as compared to $3,931,591 as of December 31, 2012.

Cash Flows

The following is a summary of our sources and uses of cash for the periods set forth below:

	Three Months Ended March 31,
	2013			2012			Percent Increase/(Decrease)
Cash Flows Used in Operating Activities	$	(1,360,116	)	$	(1,579,796	)		(14	)%
Cash Flows Used in Investing Activities		(70,104	)		(40,650	)		72	%
Cash Flows Used in Financing Activities		(90,000	)		(90,000	)		-
Net Change in Cash During Period	$	(1,520,220	)	$	(1,710,446	)		(11	)%

Net Cash Used in Operating Activities. Net cash used in operating activities decreased to $1,360,116 during the three month period ended March 31, 2013 from $1,579,796 during the three month period ended March 31, 2012. The decrease in cash used in operating activities was primarily due to a reduction in our net loss due to less mineral exploration consulting fees incurred.

Net Cash Used in Investing Activities.Net cash used in investing activities was $70,104 during the three month period ended March 31, 2013, as compared to net cash used of $40,650during the three month period ended March 31, 2012. The change was primarily the result of more funds expended related to acquisition of property and equipment.

Net Cash Used in Financing Activities. There was no change in net cash used in financing activities for the three month period ended March 31, 2013 compared to the same period in 2012. In both quarters, financing activities were limited to principal payments on the VRIC payable.

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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. During 2013, our management anticipates that the minimum cash requirements for funding our proposed testing and feasibility programs and our continued operations will be approximately $7,300,000. As of April 30, 2013, we had cash reserves in the amount of approximately $1,800,000. Our current financial resources are not sufficient to allow us to meet the anticipated costs of our testing and feasibility programs and operating overhead during the next 12 months and we will require additional financing in order to fund these activities. We do not currently have any financing arrangements in place for such additional financing, and there are no assurances that we will be able to obtain additional financing in an amount sufficient to meet our needs or on terms that are acceptable to us. As of March 31, 2013, our financial statements and this report do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should we be unable to continue as a going concern.

A decision on allocating additional funds for Phase II of the Clarkdale Slag Project will be forthcoming if and once the feasibility study is completed and analyzed. The Phase II work program is expected to include the preparation of a bankable feasibility study, engineering and design of the full-scale production facility and planning for the construction of an Industrial Collector Road pursuant to an agreement with the Town of Clarkdale, Arizona. We estimate that our monthly expenses will increase substantially once we enter Phase II of the project and therefore, we may require the necessary funding to fulfill this anticipated work program.

If the actual costs are significantly greater than anticipated, if we proceed with our exploration, testing and construction activities beyond what we currently have planned, or if we experience unforeseen delays during our activities during 2013, we will need to obtain additional financing. There are no assurances that we will be able to obtain additional financing in an amount sufficient to meet our needs or on terms that are acceptable to us.

Obtaining additional financing is subject to a number of factors, including the market prices for base and precious metals. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund our business plan could be significantly limited and we may be required to suspend our business operations. We cannot assure you that additional financing will be available on terms favorable to us, or at all. The failure to obtain such a financing would have a material, adverse effect on our business, results of operations and financial condition.

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If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of current stockholders will be reduced and these securities may have rights and preferences superior to that of current stockholders. If we raise capital through debt financing, we may be forced to accept restrictions affecting our liquidity, including restrictions on our ability to incur additional indebtedness or pay dividends.

For these reasons, our financial statements filed herewith include a statement that these factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern will be dependent on our raising of additional capital and the success of our business plan.

Off-Balance Sheet Arrangements

None.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) that are adopted by us, as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on our consolidated financial statements upon adoption.

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” to improve the transparency of reporting these reclassifications. This update is effective for reporting periods beginning after December 15, 2012. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements. The new amendments will require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. Additionally, the new amendments require cross-referencing to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. The adoption of this guidance did not have a material effect on our financial condition, results of operation, or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We had unrestricted cash totaling $2,411,371 at March 31, 2013 and $3,931,591 at December 31, 2012. Our cash is held primarily in an interest bearing bank account, a savings account and non-interest bearing checking accounts and is not materially affected by fluctuations in interest rates. The unrestricted cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these cash holdings, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.

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Item 4. Controls and Procedures

Controls and Procedures

As of March 31, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2013, such disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2013 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and the loss is probable.

We believe that there are no material litigation matters at the current time. Although the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such claims and proceedings will not have a material adverse impact on our financial position, liquidity, or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which to our knowledge have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K for the quarter ended March 31, 2013 is included in Exhibit 95 to this Quarterly Report on Form 10-Q.

Item 5. Other Information

None.

Item 6. Exhibits

 EXHIBIT TABLE

The following is a complete list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:

Reference Number	Item
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95.1	Mine Safety Disclosures

101	101.INS	XBRL Instance
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	XBRL Taxonomy Extension Calculation
	101.LAB	XBRL Taxonomy Extension Labels
	101.PRE	XBRL Taxonomy Extension Presentation
	101.DEF	XBRL Taxonomy Extension Definition

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SEARCHLIGHT MINERALS CORP.
	a Nevada corporation
Date: May 10, 2013	By:	/s/Martin B. Oring
		Martin B. Oring
		PresidentandChief Executive Officer
		(Principal Executive Officer)
Date: May 10, 2013	By:	/s/Melvin L. Williams
		Melvin L. Williams
		Chief Financial Officer
		(Principal Accounting Officer)

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