Searchlight Minerals 10Q 2014 Q1 Quarterly report

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

Form 10-Q

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

For the quarterly period ended March 31, 2014

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

For the transition period from _______ to _______.

Commission file number 000-30995

SEARCHLIGHT MINERALS CORP.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)		98-0232244 (I.R.S. Employer Identification No.)

#100 - 2360 West Horizon Ridge Pkwy. Henderson, Nevada (Address of principal executive offices)		89052 (Zip code)

(702) 939-5247
(Registrant’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 filer¨
Non-accelerated filer¨		Smaller reporting companyx

(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 13, 2014, the registrant had 135,768,318 outstanding shares of common stock.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2014			December 31, 2013

ASSETS

Current assets
Cash	$	716,461		$	2,065,824
Prepaid expenses		108,889			137,603

Total current assets		825,350			2,203,427

Property and equipment, net		9,101,377			9,455,439
Mineral properties		16,947,419			16,947,419
Slag project		121,779,426			121,759,811
Land - smelter site and slag pile		5,916,150			5,916,150
Land		3,300,000			3,300,000
Deferred financing fees		114,679			120,236
Reclamation bond and deposits, net		14,241			14,241

Total non-current assets		157,173,292			157,513,296

Total assets	$	157,998,642		$	159,716,723

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	292,939		$	195,541
Accounts payable - related party		48,089			46,535
Derivative warrant liability		2,809			81,574
VRIC payable, current portion - related party		295,998			290,156

Total current liabilities		639,835			613,806

Long-term liabilities
VRIC payable, net of current portion - related party		637,739			713,965
Convertible notes, net of discount		2,852,015			2,798,506
Derivative liability - convertible debt		635,977			755,709
Deferred tax liability		36,599,584			37,322,971

Total long-term liabilities		40,725,315			41,591,151

Total liabilities		41,365,150			42,204,957

Commitments and contingencies - Note 15

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		154,301,229			154,268,204
Accumulated deficit during exploration stage		(37,803,505	)		(36,892,206	)

Total stockholders' equity		116,633,492			117,511,766

Total liabilities and stockholders' equity	$	157,998,642		$	159,716,723

See Accompanying Notes to these Condensed Consolidated Financial Statements

F-1

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, 2014			March 31, 2013			March 31, 2014

Revenue	$	-		$	-		$	-

Operating expenses
Mineral exploration and evaluation expenses		590,692			568,527			18,684,828
Mineral exploration and evaluation expenses - related party		79,376			59,365			2,783,171
Administrative - Clarkdale site		20,036			41,355			3,964,727
General and administrative		590,672			684,275			24,981,241
General and administrative - related party		51,468			58,556			892,974
Loss on equipment disposition		-			-			611,517
Depreciation		378,825			342,107			6,349,024

Total operating expenses		1,711,069			1,754,185			58,267,482

Loss from operations		(1,711,069	)		(1,754,185	)		(58,267,482	)

Other income (expense)
Rental revenue		7,380			6,135			209,025
Gain on dispute resolution		-			-			502,586
Change in fair value of derivative liabilities		198,497			213,863			4,904,488
Interest expense		(129,997	)		-			(293,775	)
Interest and dividend income		503			1,331			657,964

Total other income (expense)		76,383			221,329			5,980,288

Loss from continuing operations before income taxes		(1,634,686	)		(1,532,856	)		(52,287,194	)

Income tax benefit		723,387			596,627			18,235,712
					.
Loss from continuing operations		(911,299	)		(936,229	)		(34,051,482	)

Discontinued operations
Loss from discontinued operations		-			-			(3,752,023	)

Net loss	$	(911,299	)	$	(936,229	)	$	(37,803,505	)

Comprehensive loss	$	(911,299	)	$	(936,229	)	$	(37,803,505	)

Loss per common share - basic and diluted
Loss from continuing operations	$	(0.01	)	$	(0.01	)
Loss from discontinued operations		-			-

Net loss	$	(0.01	)	$	(0.01	)

Weighted average common shares outstanding -
Basic		135,768,318			135,768,318

Diluted		135,768,318			135,768,318

See Accompanying Notes to these Condensed Consolidated Financial Statements

F-2

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

							Period from
							January 14, 2000
							(date of inception)
	For the three months ended						through
	March 31, 2014			March 31, 2013			March 31, 2014

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(911,299	)	$	(936,229	)	$	(37,803,505	)
Loss from discontinued operations		-			-			(3,752,023	)
Loss from continuing operations		(911,299	)		(936,229	)		(34,051,482	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		378,825			342,107			6,349,024
Stock based expenses		33,025			121,676			8,373,330
Loss on disposition of fixed assets		-			-			612,866
Amortization of prepaid expense		87,888			97,793			2,119,445
Amortization of debt financing fees and debt discount		59,066			-			125,067
Deferred income taxes		(723,387	)		(596,627	)		(18,235,712	)
Change in fair value of derivative liabilities		(198,497	)		(213,863	)		(4,904,488	)
Gain on dispute resolution		-			-			(502,586	)
Changes in operating assets and liabilities:
Prepaid expenses		(59,174	)		(65,870	)		(2,228,333	)
Reclamation bond and deposits		-			(3,664	)		(14,241	)
Accounts payable and accrued liabilities		98,953			(105,439	)		6,616

Net cash used in operating activities		(1,234,600	)		(1,360,116	)		(42,350,494	)
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		(24,763	)		(70,104	)		(15,673,991	)

Net cash used in investing activities		(24,763	)		(70,104	)		(26,314,717	)
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	)
Proceeds from convertible notes		-			-			4,000,000
Convertible notes issuance costs		-			-			(126,446	)
Principal payments on capital lease payable		-			-			(116,238	)
Payments on VRIC payable - related party		(90,000	)		(90,000	)		(2,580,001	)

Net cash (used in) provided by financing activities		(90,000	)		(90,000	)		69,381,377
Net cash provided by financing activities from discontinued operations		-			-			3,384,237

NET CHANGE IN CASH		(1,349,363	)		(1,520,220	)		716,461

CASH AT BEGINNING OF PERIOD		2,065,824			3,931,591			-

CASH AT END OF PERIOD	$	716,461		$	2,411,371		$	716,461

See Accompanying Notes to these Condensed Consolidated Financial Statements

F-3

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the three months ended				Period from January 14, 2000 (date of inception) through
	March 31, 2014		March 31, 2013		March 31, 2014

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

SUPPLEMENTAL INFORMATION

Interest paid, net of capitalized amounts	$	140,930	$	-	$	209,658

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

Derivative liability - convertible debt	$	-	$	-	$	1,261,285

See Accompanying Notes to these Condensed Consolidated Financial Statements

F-4

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

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

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

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

Going concern - The Company incurred cumulative net losses of $37,803,505 from operations as of March 31, 2014 and has not commenced its commercial mining and mineral processing operations; rather, it is still in the exploration stage. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three month period ended March 31, 2014, the Company incurred a net loss of $911,299, had negative cash flows from operating activities of $1,234,600 and will incur additional future losses due to planned continued exploration stage expenses.

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

F-5

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

These condensed consolidated financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring nature. The results reported in these interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 28, 2014.

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

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

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

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

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

F-6

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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

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

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

Deferred financing fees– Deferred financing fees represent fees paid in connection with obtaining debt financing. These fees are amortized using the effective interest method over the term of the financing.

Convertible notes – derivative liabilities – The Company evaluates the embedded features of convertible notes to determine if they are required to be bifurcated and recorded as a derivative liability. If more than one feature is required to be bifurcated, the features are accounted for as a single compound derivative. The fair value of the compound derivative is recorded as a derivative liability and a debt discount. The carrying value of the convertible notes was recorded on the date of issuance at its original value less the fair value of the compound derivative.

The derivative liability is measured at fair value on a recurring basis with changes reported in other income (expense). Fair value is determined using a model which incorporates estimated probabilities and inputs calculated by both the Binomial Lattice model and present values. The debt discount is amortized to non-cash interest expense using the effective interest method over the life of the notes. If a conversion of the underlying note occurs, a proportionate share of the unamortized amount is immediately expensed.

F-7

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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

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

Fair value of financial instruments - The Company’s financial instruments consist principally of derivative liabilities and the Verde River Iron Company, LLC (“VRIC”) payable. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels defined as follows:

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

The Company’s financial instruments consist of the VRIC payable (described in Note 9) and derivative liabilities. The VRIC payable is classified within Level 2 of the fair value hierarchy. The fair value approximates carrying value as the imputed interest rate is considered to approximate a market interest rate.

The Company calculates the fair value of its derivative liabilities using various models which are all Level 3 inputs. The fair value of the derivative warrant liability (described in Note 6) is calculated using the Binomial Lattice model, and the fair value of the derivative liability - convertible notes (described in Note 8) is calculated using a model which incorporates estimated probabilities and inputs calculated by both the Binomial Lattice model and present values. The change in fair value of the derivative liabilities is classified in other income (expense) in the consolidated statement of operations. The Company generally does not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks.

F-8

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

There has been no change in the valuation technique used for the derivative warrant liability since its inception. The valuation technique for the derivative liability – convertible debt was adopted upon its inception, in the third quarter of 2013. The Company does not have any non-financial assets or liabilities that it measures at fair value. During the three month periods ended March 31, 2014 and 2013, there were no transfers of assets or liabilities between levels.

Per share amounts - Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities. Potentially dilutive shares, such as stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive, such as when the exercise price of the instrument exceeds the fair market value of the Company’s common stock and when a net loss is reported. The dilutive effect of convertible debt securities is reflected in the diluted earnings (loss) per share calculation using the if-converted method. Conversion of the debt securities is not assumed for purposes of calculating diluted earnings (loss) per share if the effect is anti-dilutive. At March 31, 2014 and 2013, 36,798,697 and 26,256,390 stock options, warrants and common shares issuable upon the conversion of notes were outstanding, respectively, but were not considered in the computation of diluted earnings per share as their inclusion would be anti-dilutive.

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

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

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

F-9

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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

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

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. The Company adopted ASU 2013-11 during the quarter ended March 31, 2014. The adoption of this standard did not affect the Company’s financial position or results of operation.

F-10

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	March 31, 2014							December 31, 2013
	Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value

Furniture and fixtures	$	38,255	$	(36,440	)	$	1,815	$	38,255	$	(35,759	)	$	2,496
Lab equipment		249,061		(242,620	)		6,441		249,061		(240,258	)		8,803
Computers and equipment		91,002		(70,002	)		21,000		91,002		(67,775	)		23,227
Income property		309,750		(18,973	)		290,777		309,750		(18,311	)		291,439
Vehicles		47,675		(44,933	)		2,742		47,675		(44,758	)		2,917
Slag conveyance equipment		300,916		(248,377	)		52,539		300,916		(230,124	)		70,792
Demo module building		6,630,063		(3,366,606	)		3,263,457		6,630,063		(3,200,854	)		3,429,209
Grinding circuit		913,678		(4,167	)		909,511		913,678		(1,666	)		912,012
Extraction circuit		898,909		(134,836	)		764,073		898,909		(89,891	)		809,018
Leaching and filtration		1,300,618		(845,402	)		455,216		1,300,618		(780,371	)		520,247
Fero-silicate storage		4,326		(1,406	)		2,920		4,326		(1,298	)		3,028
Electrowinning building		1,492,853		(485,177	)		1,007,676		1,492,853		(447,856	)		1,044,997
Site improvements		1,675,906		(498,301	)		1,177,605		1,651,143		(467,306	)		1,183,837
Site equipment		360,454		(316,863	)		43,591		360,454		(309,051	)		51,403
Construction in progress		1,102,014		-			1,102,014		1,102,014		-			1,102,014

	$	15,415,480	$	(6,314,103	)	$	9,101,377	$	15,390,717	$	(5,935,278	)	$	9,455,439

Depreciation expense was $378,825 and $342,107 for the three month periods ended March 31, 2014 and 2013, respectively. At March 31, 2014, construction in progress included the gold, copper, and zinc extraction circuits and electrowinning equipment at the Clarkdale Slag Project.

F-11

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CLARKDALE SLAG PROJECT

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

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

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

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

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

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

F-12

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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:

The Company paid $200,000 in cash to VRIC on the execution of a letter agreement;

The Company paid $9,900,000 in cash to VRIC on the Closing Date;

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:

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:

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

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

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

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

F-13

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CLARKDALE SLAG PROJECT (continued)

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

Purchase price:
Cash payments	$	10,100,000
Joint venture option acquired in 2005 for cash		690,000
Warrants issued for joint venture option		1,918,481
Common stock issued		66,879,375
Monthly payments, current portion		167,827
Monthly payments, net of current portion		2,333,360
Acquisition costs		127,000

Total purchase price		82,216,043

Net deferred income tax liability assumed - Clarkdale Slag Project		48,076,734

Total	$	130,292,777

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

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

Total	$	130,292,777

The Company agreed to continue to pay VRIC $30,000 per month until the earlier of the Project Funding Date or the tenth anniversary of the date of the execution of the letter agreement. As of March 31, 2014 and December 31, 2013, the cumulative interest cost capitalized and included in the Slag Project was $1,012,550 and $992,934, respectively.

The following table sets forth the change in the Slag Project for the three months period ended March 31, 2014 and the year ended December 31, 2013:

	March 31, 2014		December 31, 2013

Slag Pile, beginning balance	$	121,759,811	$	121,667,730
Capitalized interest costs		19,615		92,081

Slag Pile, ending balance	$	121,779,426	$	121,759,811

F-14

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MINERAL PROPERTIES - MINING CLAIMS

As of March 31, 2014, mining claims consisted of 3,200 acres located near Searchlight, Nevada. The 3,200 acre property is staked as twenty 160 acre claims, most of which are also double-staked as 142 twenty acre claims. At March 31, 2014 and 2013, the mineral properties balance was $16,947,419.

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

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

In connection with the Company’s Plan of Operations for the Searchlight Gold Project, the Company has a bond with the Bureau of Land Management (“BLM”) amounting to $11,466 and $11,466 as of March 31, 2014 and 2013, respectively.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at March 31, 2014 and December 31, 2013 consisted of the following:

	March 31, 2014		December 31, 2013

Trade accounts payable	$	209,383	$	70,272
Accrued compensation and related taxes		73,756		45,469
Accrued interest		9,800		79,800

	$	292,939	$	195,541

Accounts payable – related party are discussed in Note 18.

F-15

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DERIVATIVE WARRANT LIABILITY

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

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

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

On November 1, 2012 and on October 25, 2013, the Company’s Board of Directors unilaterally determined, without any negotiations with the warrant holders to amend these private placement warrants. The expiration date of the warrants was extended from November 12, 2012 to November 12, 2013 and again from November 12, 2013 to November 12, 2014. In all other respects, the terms and conditions of the warrants remained the same. With respect to the extensions, the Company did not recognize any additional expense as the fair values of the warrants were calculated at zero using the Binomial Lattice model with the following assumptions:

	October 25, 2013	November 1, 2012

Risk-free interest rate	0.11%	0.19%
Expected volatility	114.79%	94.94%
Expected life (years)	1.0	1.0

As of March 31, 2014, the cumulative adjustment to the warrants was as follows: (i) the exercise price was adjusted from $1.85 per share to $1.62 per share, and (ii) the number of warrants was increased by 817,285 warrants. In connection with the financing completed with Luxor on June 7, 2012, Luxor waived its right to the anti-dilution adjustments on 4,252,883 warrants it holds from the 2009 private placement. Future anti-dilution adjustments were not waived. The adjusted exercise price of the Luxor 2009 private placements warrants is $1.65 per share. 269,956 of the warrants originally held by Luxor have been transferred to another entity. No additional warrants were issued during the three month period ended March 31, 2014.

The total warrants accounted for as a derivative liability were as 7,158,548 and 7,158,548 as of March 31, 2014 and December 31, 2013, respectively.

F-16

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DERIVATIVE WARRANT LIABILITY (continued)

The following table sets forth the changes in the fair value of the derivative liability for the three month period ended March 31 2014 and the year ended December 31, 2013:

	March 31, 2014			December 31, 2013

Beginning balance	$	(81,574	)	$	(274,706	)
Adjustment to warrants		-			-
Change in fair value		78,765			193,132
Ending balance
	$	(2,809	)	$	(81,574	)

The Company estimates the fair value of the derivative liabilities by using the Binomial Lattice pricing-model, with the following assumptions used for the three month period ended March 31, 2014 and the year ended December 31, 2013:

	March 31, 2014	December 31, 2013

Dividend yield	-	-
Expected volatility	84.11%	90.98% - 121.32%
Risk-free interest rate	0.10%	0.01% - 0.13%
Expected life (years)	0.60	0.10 - 0.90

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

F-17

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONVERTIBLE NOTES

On September 18, 2013, the Company completed a private placement of secured convertible notes (the “Notes”) to certain investors resulting in gross proceeds of $4,000,000. The term of the Notes is five years, but the Notes can be called on the second anniversary date of issuance and every six month period ended thereafter. The Notes bear interest at 7% which is payable semi-annually. The Notes have customary provisions relating to events of default including an increase in the interest rate to 9%.The Notes are secured by a first priority lien on all of the assets of the Company including its subsidiaries.

The Company has agreed not to incur any additional secured indebtedness or any other indebtedness with a maturity prior to that of the Notes without the written consent of the holders of the majority-in-interest of the Notes. In the event of a change of control of the Company, the Notes will become due and payable at 120% of the principal balance. The holders of the Notes have the right to purchase, pro rata, up to $600,000 of additional separate notes by the first anniversary of the issuance date on the same general terms and conditions as the original Notes.

The Notes are convertible at any time into shares of common stock at $0.40 per share, subject to certain adjustments. At March 31, 2014, the Notes were convertible into 10,000,000 shares of common stock and the if-converted value equaled the principal amount of the Notes. Certain embedded features in the Notes were required to be bifurcated and accounted for as a single compound derivative and reported at fair value as further discussed in Note 8.

On the issuance date, the fair value of the compound derivative amounted to $1,261,285 and was recorded as both a derivative liability and a debt discount. The debt discount is being amortized to interest expense over the term of the Notes and the derivative liability is carried at fair value until conversion or maturity.

The carrying value of the convertible debt, net of discount was comprised of the following at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013

Convertible notes at face value	$	4,000,000		$	4,000,000
Unamortized discount		(1,147,985	)		(1,201,494	)
Convertible notes, net of discount
	$	2,852,015		$	2,798,506

The Company incurred $126,446 of financing fees related to the Notes. Such amounts were capitalized and recorded as deferred financing fees and are being amortized to interest expense over the term of the Notes. The effective interest rate on the Notes is 15.4% which included the following components and amounts for the three month period ended March 31 2014:

	March 31, 2014

Interest rate at 7%	$	70,000
Amortization of debt discount		53,510
Amortization of deferred financing fees		5,557
Total interest expense on convertible notes	$	129,067

F-18

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DERIVATIVE LIABILITY – CONVERTIBLE NOTES

As further discussed in Note 7, on September 18, 2013, the Company completed a private placement of Notes to certain investors resulting in gross proceeds of $4,000,000. The Notes are convertible at any time into shares of common stock at $0.40 per share.

The Notes have several embedded conversion and redemption features as well as the provision for additional investments. The Company determined that two of the features were required to be bifurcated and accounted for under derivative accounting as follows:

The embedded conversion feature includes a provision for the adjustment to the conversion price if the Company issues common stock or common stock equivalents at a price less than the exercise price. Derivative accounting was required for this feature due to this anti-dilution provision.

One embedded redemption feature requires the Company to pay 120% of the principal balance due upon a change of control. Derivative accounting was required for this feature as the debt involves a substantial discount, the option is only contingently exercisable and its exercise is not indexed to either an interest rate or credit risk.

These two embedded features have been accounted for together as a single compound derivative. The Company estimated the fair value of the compound derivative using a model with estimated probabilities and inputs calculated by the Binomial Lattice model and present values. The assumptions included in the calculations are highly subjective and subject to interpretation. Assumptions used for the three month period ended March 31, 2014 and the year ended December 31, 2013 included redemption and conversion estimates/behaviors, estimates regarding future anti-dilutive financing agreements and the following other significant estimates:

	March 31, 2014	December 31, 2013

Expected volatility	96.46%	93.11% - 101.74%
Risk-free interest rate	1.73%	1.39% - 1.75%
Expected life (years)	3.0	4.25 – 4.75

The following table sets forth the changes in the fair value of the derivative liability for the three month period ended March 31, 2014 and the year ended December 31, 2013:

	March 31, 2014			December 31, 2013

Beginning balance	$	755,709		$	-
Issuance of convertible debt		-			1,261,285
Change in fair value		(119,732	)		(505,576	)
Ending balance
	$	635,977		$	755,709

F-19

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

VRIC PAYABLE - RELATED PARTY

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

The Company has recorded a liability for this commitment using imputed interest based on its best estimate of its incremental borrowing rate. The effective interest rate used was 8.00%, resulting in an initial present value of $2,501,187 and a debt discount of $1,128,813. The discount is being amortized over the expected term of the debt using the effective interest method. The expected term used was 10 years which represents the maximum term the VRIC liability is payable if the Company does not obtain project funding. Interest costs related to this obligation were $19,615 and $25,010 for the three month periods ended March 31, 2014 and 2013, respectively. Interest costs incurred have been capitalized and included in the Slag Project.

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

2015	$	360,000
2016		360,000
2017		330,000
Thereafter		-

Total minimum payments		1,050,000
Less: amount representing interest		(116,263	)

Present value of minimum payments		933,737

VRIC payable, current portion		295,998

VRIC payable, net of current portion	$	637,739

The acquisition agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions of these payments are discussed in more detail in Notes 3 and 15.

F-20

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10.

STOCKHOLDERS’ EQUITY

During the three month periods ended March 31, 2014 and 2013 the Company did not issue any common stock or enter into any financing agreements.

The following table summarizes the Company’s private placement warrant activity for the three month period ended March 31, 2014:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)

Balance, December 31, 2013		14,200,935	$	1.74		0.87

Warrants granted		-		-		-
Warrants expired		-		-		-
Warrants exercised		-		-		-

Balance, March 31, 2014		14,200,935	$	1.74		0.62

In addition to the private placement warrants in the table above, the Company issued 12,000,000 warrants on June 1, 2005 in connection with the Clarkdale Slag Project option. The warrants had an exercise price of $0.375 per share and an expiration date of June 1, 2015. In the third quarter of 2011, 3,000,000 of these warrants were cancelled upon the resolution of a dispute with a shareholder. The Company recorded a gain of $502,586 related to the settlement. During the three year period ended March 31, 2013, 250,000 of these warrants were exercised. As of March 31, 2014, 8,750,000 of these warrants were outstanding.

F-21

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.

STOCK-BASED COMPENSATION

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

Stock option plans - The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize the granting of stock option awards subject to certain conditions. At March 31, 2014, the Company had 10,498,576 of its common shares available for issuance for stock option awards under the Company’s stock option plans.

At March 31, 2014, the Company had the following stock option plans available:

2009 Incentive Plan – The terms of the 2009 Incentive Plan, as amended, allow for up to 7,250,000 options to be issued to eligible participants. Under the plan, the exercise price is generally equal to the fair market value of the Company’s common stock on the grant date and the maximum term of the options is generally ten years. No participants shall receive more than 500,000 options under this plan in any one calendar year. For grantees who own more than 10% of the Company’s common stock on the grant date, the exercise price may not be less than 110% of the fair market value on the grant date and the term is limited to five years. The plan was approved by the Company’s stockholders on December 15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2014, the Company had granted 1,222,500 options under the 2009 Incentive Plan with a weighted average exercise price of $1.16 per share. As of March 31, 2014, 1,190,000 of the options granted were outstanding.

2009 Directors Plan - The terms of the 2009 Directors Plan, as amended, allow for up to 2,750,000 options to be issued to eligible participants. Under the plan, the exercise price may not be less than 100% of the fair market value of the Company’s common stock on the grant date and the term may not exceed ten years. No participants shall receive more than 250,000 options under this plan in any one calendar year. The plan was approved by the Company’s stockholders on December 15, 2009 and the amendment was approved by the Company’s stockholders on May 8, 2012. As of March 31, 2014, the Company had granted 1,326,877 options under the 2009 Directors Plan with a weighted average exercise price of $0.92 per share. As of March 31, 2014, all of the options granted were outstanding.

2007 Plan - Under the terms of the 2007 Plan, options to purchase up to 4,000,000 shares of common stock may be granted to eligible participants. Under the plan, the option price for incentive stock options is the fair market value of the stock on the grant date and the option price for non-qualified stock options shall be no less than 85% of the fair market value of the stock on the grant date. The maximum term of the options under the plan is ten years from the grant date. The 2007 Plan was approved by the Company’s stockholders on June 15, 2007. As of March 31, 2014, the Company had granted 952,047 options under the 2007 Plan with a weighted average exercise price of $1.03 per share. As of March 31, 2014, 830,885 of the options granted were outstanding.

The Company has also granted 300,000 stock options to one of its executives on October 1, 2010 and 200,000 warrants to one of its consultants on January 13, 2011 outside of the aforementioned stock option plans, all of which remain outstanding at March 31, 2014.

F-22

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.

STOCK-BASED COMPENSATION (continued)

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

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

Valuation of awards - At March 31, 2014, the Company had options outstanding that vest on two different types of vesting schedules, service-based and performance-based. For both service-based and performance-based stock option grants, the Company estimates the fair value of stock-based compensation awards by using the Binomial Lattice option pricing model with the following assumptions used for the three month periods ended March 31, 2014 and 2013:

	March 31, 2014	March 31, 2013

Risk-free interest rate	0.39% - 1.73%	0.77%
Dividend yield	-	-
Expected volatility	98.65% - 105.87%	95.66%
Expected life (years)	2.00 - 4.25	4.25

The expected 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.

F-23

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.

STOCK-BASED COMPENSATION (continued)

Stock-based compensation activity - During the three month period ended March 31, 2014, the Company granted stock-based awards as follows:

During the three month period ended March 31, 2014, the Company granted stock-based awards as follows:

On March 31, 2014, the Company granted stock options under the 2009 Directors Plan for the purchase of 54,000 shares of common stock at $0.26 per share. The options were granted to three of the Company’s non-management directors for directors’ compensation, are fully vested and expire on March 31, 2019. The exercise price of the stock options equaled the closing price of the Company’s common stock for the grant date.

On January 13, 2014, the Company extended the expiration date of 200,000 warrants issued to a consultant. The expiration date was extended from January 13, 2014 to January 13, 2016. All other terms were unchanged. The modification resulted in additional expense of $5,011.

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

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.

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

Expenses related to the granting, vesting and modifying of stock-based compensation awards were $33,025 and $121,676 for the three month periods ended March 31, 2014 and 2013, respectively. Such expenses have been included in general and administrative and mineral exploration and evaluation expense.

F-24

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.

STOCK-BASED COMPENSATION (continued)

The following table summarizes the Company’s stock-based compensation activity for the three month period ended March 31, 2014:

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value

Outstanding, December 31, 2013		3,800,331		$	0.56	$	1.01		3.76
Options/warrants granted		54,000			0.09		0.26		5.00
Options/warrants expired		(6,569	)		1.22		2.74		-
Options/warrants forfeited		-			-		-		-
Options/warrants exercised		-			-		-		-

Outstanding, March 31, 2014		3,847,762		$	0.55	$	0.99		3.65	$	1,080

Exercisable, March 31, 2014		3,447,762		$	0.52	$	0.98		3.25	$	1,080

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the quarter ended March 31, 2014 in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.

Unvested awards - The following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting for the three month period ended March 31, 2014:

	Number of Shares Subject to Vesting			Weighted Average Grant Date Fair Value

Unvested, December 31, 2013		450,000		$	0.95
Options/warrants granted		-			-
Options/warrants vested		(50,000	)		1.49
Options/warrants cancelled		-			-

Unvested, March 31, 2014		400,000		$	0.88

For the three month periods ended March 31, 2014 and 2013, the total grant date fair value of shares vested was $74,731 and $70,144, respectively. As of March 31, 2014, there was $42,908 of total unrecognized compensation cost related to unvested stock-based compensation awards. The weighted average period over which this cost will be recognized was 0.94 years as of March 31, 2014. Included in the total of unvested stock options at March 31, 2014, was 250,000 performance-based stock options. At March 31, 2014, management determined that achievement of the performance targets was probable. The weighted average period over which the related expense will be recognized was 0.75 years as of March 31, 2014.

F-25

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12.

STOCKHOLDER RIGHTS AGREEMENT

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

On June 7, 2012, the Company agreed to waive the 15% limitation currently in the Rights Agreements with respect to Luxor, and to allow Luxor to become the beneficial owners of up to 17.5% of the Company’s common stock, without being deemed to be an “acquiring person” under the Rights Agreement. In connection with the convertible notes offering completed on September 18, 2013, the Company agreed to waive the 17.5% limitation currently in the Rights Agreement with respect to Luxor, and allow Luxor to become the beneficial owners of up to 22% of the Company’s common stock, without being deemed to be an “acquiring person” under the Rights Agreement. Following the Offering, Luxor became the beneficial owner of approximately 21% of the Company’s common stock (including giving effect to derivative securities or other rights to purchase or acquire shares of the Company’s common stock).

13.

PROPERTY RENTAL AGREEMENTS AND LEASES

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

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

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

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

The lease agreement expires August 25, 2014. At such time as Clarkdale no longer uses the property for effluent disposal, and for a period of 25 years measured from the date of the lease, the Company has a continuing right to purchase Class B effluent, and if available, Class A effluent at then market rates.

F-26

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.

INCOME TAXES

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

Significant components of the Company’s net deferred income tax assets and liabilities at March 31, 2014 and December 31, 2013 were as follows:

	March 31, 2014			December 31, 2013
Deferred income tax assets:

Net operating loss carryforward	$	17,375,356		$	16,822,317
Option compensation		773,285			763,779
Property, plant & equipment		1,082,341			1,021,685

Gross deferred income tax assets		19,230,982			18,607,781
Less: valuation allowance		(633,101	)		(733,287	)

Net deferred income tax assets		18,597,881			17,874,494

Deferred income tax liabilities:

Acquisition related liabilities		(55,197,465	)		(55,197,465	)

Net deferred income tax liability	$	(36,599,584	)	$	(37,322,971	)

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

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

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

F-27

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.

INCOME TAXES (continued)

A reconciliation of the deferred income tax benefit for the three month periods ended March 31, 2014 and 2013 at US federal and state income tax rates to the actual tax provision recorded in the financial statements consisted of the following components:

	March 31, 2014			March 31, 2013

Deferred tax benefit at statutory rates	$	572,140		$	536,500
State deferred tax benefit, net of federal benefit		49,041			45,986
Increase (decrease) in deferred tax benefit from:
Change in valuation allowance		100,186			(27,679	)
Permanent differences:
Change in state NOL’s		(47,874	)		(34,841	)
Gain on the change in fair value of derivative liabilities		75,429			81,268
Other		(25,535	)		(4,607	)

Deferred income tax benefit	$	723,387		$	596,627

The Company had cumulative net operating losses of $46,836,116 as of March 31, 2014 for federal income tax purposes. The federal net operating loss carryforwards will expire between 2025 and 2034.

State income tax allocation- The Company had cumulative net operating losses of $24,752,089 as of March 31, 2014 for state income tax purposes. The Company has placed a valuation allowance against state net operating loss carryforwards expected to expire unused. The remaining net operating loss carryforwards expire at various dates through 2034.

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

F-28

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.

COMMITMENTS AND CONTINGENCIES

Lease obligations – The Company leases corporate office space under a sublease agreement from a related party as further discussed in Note 18. The lease agreement commenced September 1, 2013 and is for a 2 year period. The following table represents future rent payments for each of the 12 month periods ending March 31,

2015	$	25,764
2016		8,335
Thereafter		-

	$	34,099

Total rent expense was $8,457 and $8,940 for the three month periods ended March 31, 2014 and 2013, respectively.

Severance agreements – The Company has severance agreements with two executive officers that provide for various payments if the officer’s employment agreement is terminated by the Company, other than for cause. At March 31, 2014, the total potential liability for severance agreements was $112,500.

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

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

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,

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

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

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

F-29

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.

COMMITMENTS AND CONTINGENCIES (continued)

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

Total advance royalty payments to NMC were $45,000 and $45,000 for the three month periods ended March 31, 2014 and 2013, respectively. Advanced royalty payments have been included in mineral exploration and evaluation expenses – related party on the statements of operations.

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

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

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

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

F-30

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.COMMITMENTS AND CONTINGENCIES (continued)

Registration Rights Agreement- In connection with the September 18, 2013 convertible notes issuance, the Company entered into a RRA with the investors. Pursuant to the RRA, the Company agreed to file a registration statement covering the resale of the shares of common stock issuable upon conversion of the notes and the additional notes allowed for under the agreement. Pursuant to the RRA, the Company agreed to certain demand registration rights. These rights include the requirement that the Company file certain registration statements within a specified time period and to have these registration statements declared effective within a specified time period. The Company also agreed to file and keep continuously effective such additional registration statements until all of the shares of common stock registered thereunder have been sold or may be sold without volume restrictions. The Purchasers will also be granted piggyback registration rights with respect to such shares. If the Company is not able to comply with these registration requirements, the Company will be required to pay cash penalties equal to 1.0% of the purchase price. The maximum penalty is equal to 3.0% of the purchase price which amounts to $120,000 for the convertible notes and $18,000 for the additional notes. As of the date of this filing, the Company does not believe the penalty to be probable and accordingly, no liability has been accrued.

Lawsuit – On October 28, 2013, the Company was sued in Federal District Court for the District of Connecticut. The Company believes it was not liable for any damages, however, it settled for an immaterial amount subsequent to March 31, 2014.

16.

CONCENTRATION OF CREDIT RISK

The Company maintains its cash accounts in financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (the “FDIC”) for up to $250,000 per institution. The Company has never experienced a material loss or lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s cash accounts will not be impacted by adverse conditions in the financial markets. At March 31, 2014, the Company had deposits in excess of FDIC insured limits in the amount of $34,733.

17.

CONCENTRATION OF ACTIVITY

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

F-31

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

18.

RELATED PARTY TRANSACTIONS

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

The Company has an existing obligation to pay NMC a royalty consisting of 2.5% of the NSR on any and all proceeds of production from the Clarkdale Slag Project. The royalty agreement and advance royalty payments are more fully discussed in Note 15.

The following table provides details of transactions between the Company and NMC for the three month periods ended March 31, 2014 and 2013.

	March 31, 2014		March 31, 2013

Reimbursement of expenses	$	4,376	$	1,515
Consulting services provided		30,000		12,850
Advance royalty payments		45,000		45,000

Mineral and exploration expense – related party	$	79,376	$	59,365

The Company had outstanding balances due to NMC of $27,761 and $37,896 at March 31, 2014 and December 31, 2013, respectively.

Cupit, Milligan, Ogden & Williams, CPAs - The Company utilizes Cupit, Milligan, Ogden & Williams, CPAs (“CMOW”) to provide accounting support services. CMOW is an affiliate of our CFO, Mr. Williams. Fees for services provided by CMOW do not include any charges for Mr. Williams’ time. Mr. Williams is compensated for his time under his employment agreement.

The following table provides details of transactions between the Company and CMOW and the direct benefit to Mr. Williams for the three month period ended March 31, 2014 and 2013.

	March 31, 2014		March 31, 2013

Accounting support services	$	43,011	$	58,556
Direct benefit to CFO	$	16,774	$	22,837

The Company had an outstanding balance due to CMOW of $20,328 and $8,639 as of March 31, 2014 and December 31, 2013, respectively.

F-32

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

18.

RELATED PARTY TRANSACTIONS (continued)

Ireland Inc. – The Company leases corporate office space under a sublease agreement with Ireland Inc. (“Ireland”). NMC is a shareholder in both the Company and Ireland. Additionally, one of the Company’s directors is the CFO, Treasurer and a director of Ireland and the Company’s CEO provides consulting services to Ireland. The lease agreement commenced September 1, 2013, is for a 2 year period and requires monthly lease payments of $2,819 for the first year and $1,667 for the second year. The lease agreement did not require payment of a security deposit.

Total rent expense incurred under this sublease agreement was $8,457 for the three month period ended March 31, 2014. No amounts were due to Ireland as of March 31, 2014.

F-33

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

Certain statements in this Quarterly Report on Form 10-Q, or the Report, are “forward-looking statements.” These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of Searchlight Minerals Corp., a Nevada corporation (referred to in this Report as “we,” “us,” “our” or “registrant”) and other statements contained in this Report that are not historical facts. Forward-looking statements in this Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, or the Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management’s best estimates based upon current conditions and the most recent results of operations. When used in this Report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are generally intended to identify forward-looking statements, because these forward-looking statements involve risks and uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled “Risk Factors,” in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2013.

The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three month period ended March 31, 2014 and changes in our financial condition from our year ended December 31, 2013. The following discussion should be read in conjunction with the Management’s Discussion and Analysis or Plan of Operation included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Executive Overview

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

Clarkdale Slag Project

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

Our Production Process

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

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

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

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

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

In 2010, we turned our efforts to the autoclave process. Autoclaving, a proven technology that is widely used within the mining industry, is a chemical leach process that utilizes elevated temperature and pressure in a closed autoclave system to extract precious and base metals from the slag material. Our independent consultant, Arrakis Inc. (“Arrakis”) has performed over 200 batch autoclave tests under various leach protocols and grind sizes. Arrakis’ test results have consistently leached approximately 0.5 ounces per ton (“opt”) of gold into solution. In addition, these results indicate that autoclaving does not dissolve the levels of iron and silica into solution as did the ambient leach. We believe that autoclaving will improve our ability to recover gold from solution and thus improve process technical feasibility. The operating conditions identified by Arrakis thus far are mild to moderate compared with most current autoclaves and are anticipated to result in lower capital, operating and maintenance costs.

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

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

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

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

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

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

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

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

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

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

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

To provide additional PLS which is necessary to expedite the gold recovery tests and commercial viability of the project, we have acquired a large batch titanium autoclave (approximately 500 liter capacity). A total of nine tests have been conducted in the pilot autoclave. The initial tests were designed to examine the structural integrity and functionality of the autoclave, its components, control and support systems. Subsequent tests were designed in an effort to mimic the mechanical and chemical operating conditions achieved with previous tests in the 6-liter bench autoclave, which yielded approximately 0.4 to 0.5 opt of gold in solution.

As the tests progressed, several mechanical and chemical issues were identified which indicated that the pilot autoclave was operating under less than optimum conditions, resulting in low gold extraction values. As these issues were identified, modifications were undertaken to the autoclave in order to help achieve the desired operating conditions. Significant delays occurred due to specialty alloy parts having to be ordered and in some cases custom made. During this time, additional bench-scale autoclave tests were performed in order to modify and optimize the chlorine chemistry for the pilot autoclave.

The ninth pilot autoclave test demonstrated that 0.42 opt gold was leached into solution from the slag sample containing 0.48 opt gold, which represents an estimated gold recovery of 87.5%. While past test work had relied upon ‘wet chemistry’ electronic determination, these latest results were determined by analyzing gold metal extracted by standard fire assay techniques.

Solution values were determined by evaporating the PLS and fire assaying the residual solids to produce a gold bead in hand. Likewise, the finely ground slag going into the large pilot autoclave and the leached residue after the test were also fire assayed and the resultant gold beads were used to calculate gold grades and leach efficiency. This is the second autoclave test that has verified the gold grade of the slag by fire assay. Electrowinning tests are currently underway to recover gold as metal from the PLS.

The greater quantity of PLS able to be generated with the large batch autoclave allows the use of multiple resins and multiple stages to more closely model a full-scale commercial system and optimize recovery of gold from solution. We also continue to examine other methods of extracting gold from solution in an effort to determine the most cost-effective and efficient method of recovering gold.

Recently, we have been performing tests whereby the slag material is pretreated prior to processing it in the autoclave. Recent test work indicates that pretreatment, by melting the slag at high temperature, aids in the recovery of the gold from solution derived from the autoclave. We believe that the high temperature process aids in breaking down the refractory coating on the gold particles that are subsequently put into solution after the autoclaving of the slag material and also separates out the iron that makes up approximately one third of the untreated slag material.

The heat treated slag material, after the removal of the iron is, for ease of reference, hereinafter referred to as glass. This processed glass material contains the gold and, because of the heat treatment process, is now easily and readily assayed by standard fire assay techniques. It is anticipated that incorporating this additional step into our flow chart renders process optimization testing much easier and will allow this phase of the development program to be concluded more quickly.

Technical achievements considered to be a major breakthrough

In the past few months the precise nature of the gold contained in the Clarkdale slag has been determined. Test work done with high resolution microscopes – a Scanning Electron Microscope (“SEM”) and a Transmission Electron Microscope (“TEM”) – have photographed and measured the gold contained within sulfides and further encapsulated by a highly refractory silicate very resistant to thermal and chemical attack. This explains the difficulty in fire assaying the gold or using ambient temperature strong reagent leaching. Further, the gold is present as colloids (very small particles) less than 100 nm in size which is 1,000 times less than the width of a human hair. [This microscopic size is in the range of most of the gold contained within the Carlin Trend in Nevada – one of North America’s richest gold deposits that went undetected for decades due to the small “invisible” gold particles. The Carlin Trend material was also very difficult to assay and process until the true nature and deportment of the gold was determined.] The temperature required to break the silicate coating of the Clarkdale slag material exceeds standard fire assay temperature which is why the gold is not captured in the lead collector used in a standard fire assay. Specialized grinding using High Pressure Grinding Rolls (“HPGR”) and high temperature leaching used in the current proposed process flow diagram aid in breaking this coating, oxidizing the sulfide, and converting the gold from a colloid to a charged ionic form in solution.

Testing using this process thus far has verified the prior test results achieved and reported by us of gold grades between 0.4 to 0.6 ounces per ton (average). The processed material being derived from the heat treated slag is also much easier to be analyzed using standard analytical techniques. Small autoclave tests conducted on the glass from the heat treatment have produced up to an 85% extraction of gold into the pregnant leach solution (“PLS”) solution.

The PLS solutions have been treated with ion exchange resin to remove the gold from solution. Fire assays of the gold impregnated resin indicate up to a 60% extraction of the gold from the PLS into gold fire assay beads (gold in hand). While not yet optimized, this is a significant improvement over previous attempts to capture the gold as metal by ion exchange resin.

All of these tests thus far have been limited to a small 6 liter test autoclave. To provide more definitive process results, we have purchased (and expects delivery within 2 weeks) a much larger heat treating unit, to produce sufficient treated slag to allow running the larger 900 liter pilot autoclave. This will provide a sufficient volume of PLS for a final determination of recoverable gold by ion exchange resin, as well as, allowing the testing of other methods of gold removal from solution to determine the method allowing optimal recovery of gold from solution.

Other positive developments

In addition to the breakthrough discussed above, as a byproduct of this new process, the high temperatures produce a high quality iron product grading 75 to 85% iron content in a pelletized form. The high quality of the iron and its pellet size form make it a readily marketable product for sale to the China, Korea, or India markets. We believe that further optimization testing will result in greater than 90% iron as achievable and will secure a premium price selling either into the scrap iron or pig iron market. Test work is underway to maximize iron content while maintaining gold recovery.

The existing railroad spur on the Clarkdale Project Site connects to a major railroad for low cost transportation to a seaport or domestic market. It is believed that this pre-treatment process may pay for itself or provide a net cash flow from the sale of the iron. To examine the efficacy of this concept, we have engaged Samuel Engineering of Denver, Colorado to perform a preliminary assessment and marketing study. This study has been concluded and suggests that a marketable higher grade iron product could be made and sold as a byproduct to generate net cash flow or reduce the overall costs of producing gold. Toward this end we have commenced contacting commercial iron producers for expressions of interest.

This pilot scale test work should provide sufficient process definition for a project feasibility study to be completed, allowing management to seek the financing to move forward to commercialization of the Clarkdale Project.

We believe this latest breakthrough has moved the project much closer to commercialization as well as potentially providing extra unanticipated revenue through the sale of iron. The gold results set forth in this report have not yet been optimized, however, since we have been able to remove the iron as a saleable byproduct through the additional step discussed, even at the current results, if repeatable, the project would be commercial. We are looking forward to final definition of the process flow diagram and moving ahead to the bankable study to allow the project to move to a commercial status.

Searchlight Gold Project

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

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

Critical Accounting Policies

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

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

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

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

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

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

The tests for long-lived assets in the exploration, development or 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.

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

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

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

Convertible notes – derivative liabilities –We evaluate the embedded features of convertible notes to determine if they are required to be bifurcated and recorded as a derivative liability. If more than one feature is required to be bifurcated, the features are accounted for as a single compound derivative. The fair value of the compound derivative is recorded as a derivative liability and a debt discount. The carrying value of the convertible notes was recorded on the issuance date at its original value less the fair value of the compound derivative.

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

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

Results of Operations

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

	Three Months Ended March 31,
	2014			2013			Percent Increase/ (Decrease)
Revenue	$	-		$	-			n/a
Operating expenses		(1,711,069	)		(1,754,185	)		(2.5	)%
Other income (expense)		76,383			221,329			(65.5	)%
Income tax benefit		723,387			596,627			21.2	%
Net loss	$	(911,299	)	$	(936,229	)		(2.7	)%

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, 2014. We do not anticipate earning revenues from our planned mineral operations until such time as we enter into commercial production of the Clarkdale Slag Project, the Searchlight Gold Project or other mineral properties we may acquire from time to time, and of which there are no assurances.

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

	Three Months Ended March 31,
	2014		2013		Percent Increase/ (Decrease)
Mineral exploration and evaluation expenses	$	590,692	$	568,527		3.9	%
Mineral exploration and evaluation expenses – related party		79,376		59,365		33.7	%
Administrative – Clarkdale site		20,036		41,355		(51.6	)%
General and administrative		590,672		684,275		(13.7	)%
General and administrative – related party		51,468		58,556		(12.1	)%
Depreciation		378,825		342,107		10.7	%
Total operating expenses	$	1,711,069	$	1,754,185		(2.5	)%

Three month period ended March 31, 2014 and 2013. Operating expenses decreased to $1,711,069 during the three month period ended March 31, 2014 from $1,754,185 during the three month period ended March 31, 2013 as further discussed below.

Mineral exploration and evaluation expenses increased to $590,692 during the three month period ended March 31, 2014 from $568,527 during the three month period ended March 31, 2013. The increase is attributed to more time spent by technical staff on the technical program in 2014.

Mineral exploration and evaluation expenses – related party increased to $79,376 during the three month period ended March 31, 2014 from $59,365 during the three month period ended March 31, 2013. The increase is due to NMC providing additional metallurgical consulting services in 2014.

Administrative – Clarkdale site expenses decreased to $20,036 during the three month period ended March 31, 2014 from $41,355 for the three month period ended March 31, 2013. Administrative costs at the Clarkdale site decreased due to a further reduction of certain consulting fees in 2014.

General and administrative expenses decreased to $590,672 during the three month period ended March 31, 2014 from $684,275 during the three month period ended March 31, 2013. The decrease was primarily due to less stock based compensation expense. Additionally, we incurred greater auditing fees in 2013 as a result of changing auditors.

General and administrative – related party decreased to $51,468 during the three month period ended March 31, 2014 from $58,556 during the three month period ended March 31, 2013 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. We incurred more accounting support expense in 2013 as a result of changing auditors.

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 $16,774 and $22,837 of the above fees for the three month periods ended March 31, 2014 and 2013, respectively.

Depreciation expense increased to $378,825 during the three month period ended March 31, 2014 from $342,107 during the three month period ended March 31, 2013. The increase was due to placing the autoclave into service during the third quarter of 2013.

Other Income and Expenses

Three month period ended March 31, 2014 and 2013. Total other income (expense) amounted to $76,383 during the three month period ended March 31, 2014 compared to $221,329 during the three month period ended March 31, 2013. The change in total other income (expense) primarily resulted from $129,997 of interest expense incurred during the three month period ended March 31, 2014 related to the issuance of convertible notes on September 18, 2013. Additionally, we recognized less gain on the change in fair values of our derivative liabilities for the three month period ended March 31, 2014 compared to 2013.

Income Tax Benefit

Three month period ended March 31, 2014 and 2013. Income tax benefit increased to $723,387 for the three month period ended March 31, 2014 from $596,627 during the three month period ended March 31, 2013. The increase in benefit was due to an increased loss for the period after permanent differences and a reduction in valuation allowance related to state net operating losses.

Net Loss

Three month period ended March 31, 2014 and 2013. The aforementioned factors resulted in a net loss of $911,299, or $0.01 per common share, for the three month period ended March 31, 2014, as compared to a net loss of $936,229, or $0.01 per common share, for the three month period ended March 31, 2013.

As of March 31, 2014, we had cumulative net operating loss carryforwards of approximately $46,836,116 for federal income taxes. The federal net operating loss carryforwards expire between 2025 and 2034.

We had cumulative state net operating losses of approximately $24,752,089 as of March 31, 2014 for state income tax purposes. The state net operating loss carryforwards expire between 2014 and 2034.

Liquidity and Capital Resources

Historically, we have financed our operations primarily through the sale of common stock and other convertible equity securities. No financing transactions occurred during the first quarter of 2014. During the year ended December 31, 2013, we completed the following issuance of convertible notes:

On September 18, 2013, we completed a private placement (the “Offering”) of secured convertible notes (the “Notes”) to certain investors (collectively, the “Purchasers”), resulting in aggregate gross proceeds to us of $4,000,000.We intend to use the proceeds from the Offering for general working capital purposes. We did not pay any commissions or brokers fees in connection with the Offering.

In connection with the Offering, we entered into certain agreements, including a Secured Convertible Note Purchase Agreement (the “Purchase Agreement”), a Registration Rights Agreement (the “Registration Rights Agreement”) and a Pledge and Security Agreement (the “Security Agreement”), each dated September 18, 2013, with the Purchasers (the Purchase Agreement, Registration Rights Agreement and Security Agreement, together with all exhibits, schedules and other documents attached thereto, are collectively referred to herein as the “Transaction Documents”). Our two wholly-owned subsidiaries, Clarkdale Metals Corp. and Clarkdale Minerals, LLC, agreed to guarantee the obligations underlying the Notes. We and our subsidiaries granted a first priority lien in all of our assets pursuant to the terms of the Security Agreement. The Bank of Utah has agreed to act as the collateral agent under the Security Agreement.

Luxor Capital Group, LP and certain of its associates and affiliates (collectively, “Luxor”) purchased $2,600,000 of the Notes in the Offering. Luxor and certain other funds managed by Luxor are principal stockholders of the Company. Michael Conboy, one of our directors, currently serves as Luxor’s Director of Research. In addition, Martin Oring, one of our directors, and our Chief Executive Officer and President, and certain affiliates and relatives of Mr. Oring, purchased $310,000 of Notes. The Notes were issued in reliance on exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D thereunder.

The Notes contain the following terms and conditions: The Notes are due five (5) years from the date of issuance. However, the Note holders have a put option with respect to the Notes, on the second anniversary of the issuance date and every six (6) months thereafter, at par plus accrued and unpaid interest. The Notes may not be prepaid without the consent of the holders of the majority-in-interest of the Notes. The Notes have customary provisions relating to events of default.

Interest on the Notes accrues at a rate of 7% per annum, which will be payable in cash semi-annually. On March 18, 2014, we paid our semi-annual interest installment of $140,000.

Following and during the continuance of an event of default, the Notes will bear interest at a rate per annum equal to the rate otherwise applicable thereto, plus an additional 2% per annum.

Each Note is convertible at any time while the Note is outstanding, at the option of the holder, into shares of our common stock, at $0.40 per share. The Notes have customary anti-dilution provisions, including, without limitation, provisions for the adjustment to the exercise price based on certain stock dividends and stock splits. In addition, the conversion price of the Notes may require adjustment upon the issuance of equity securities (including the issuance of debt convertible into equity) by us at prices below the then existing conversion price, subject to certain exempt issuances which will not result in an adjustment to the exercise price.

The Notes are secured by a first priority lien on all of our assets and our two subsidiaries in favor of the Purchasers. However, we have the right to cause defeasance of the liens and to reduce the interest rate on the Notes to 4% per annum, if, at any time, we deposit additional collateral and other agreements, satisfactory to the holders of the majority-in-interest of the Notes, with the collateral agent.

We have agreed to not incur any (a) additional secured indebtedness, or (b) indebtedness of any kind (unsecured or secured) with a maturity of less than 5 years from the issuance date of the Notes, in each case, without the written consent of the holders of the majority-in-interest of the Notes, except for purposes of defeasance or trade payables in the ordinary course of business.

Working Capital

The following is a summary of our working capital at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013			Percent Increase/(Decrease)
Current Assets	$	825,350		$	2,203,427			(62.5	)%
Current Liabilities		(639,835	)		(613,806	)		4.2	%
Working Capital	$	185,515		$	1,589,621			(88.3	)%

The change in our working capital was attributable to continued net losses, equipment purchases, interest payments on our convertible note and recurring scheduled payments on our long term liabilities. Cash was $716,461 as of March 31, 2014, as compared to $2,065,824 as of December 31, 2013.

Cash Flows

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

	Three Months Ended March 31,
	2014			2013			Percent Increase/(Decrease)
Cash Flows Used in Operating Activities	$	(1,234,600	)	$	(1,360,116	)		(9.2	)%
Cash Flows Used in Investing Activities		(24,763	)		(70,104	)		(64.7	)%
Cash Flows Used in Financing Activities		(90,000	)		(90,000	)		n/a
Net Change in Cash During Period	$	(1,349,363	)	$	(1,520,220	)		(11.2	)%

Net Cash Used in Operating Activities. Net cash used in operating activities decreased to $1,234,600 during the three month period ended March 31, 2014 from $1,360,116 during the three month period ended March 31, 2013. The decrease was due primarily to the increase in accounts payable.

Net Cash Used in Investing Activities. Net cash used in investing activities decreased to $24,763 during the three month period ended March 31, 2014, as compared to $70,104 during the three month period ended March 31, 2013. The decrease was due to less equipment purchases and restoration work on an on-site building during 2014.

Net Cash Used by Financing Activities. Net cash used in financing activities was $90,000 during both the three month periods ended March 31, 2014 and 2013. In both quarters, financing activities were limited to normal recurring payments on our long term debt.

We have not attained profitable operations and are dependent upon obtaining financing to pursue our plan of operation. Our ability to achieve and maintain profitability and positive cash flow will be dependent upon, among other things:

our ability to locate a profitable mineral property;

positive results from our feasibility studies on the Searchlight Gold Project and the Clarkdale Slag Project;

positive results from the operation of our initial test module on the Clarkdale Slag Project; and

our ability to generate revenues.

We may not generate sufficient revenues from our proposed business plan in the future to achieve profitable operations. As of March 31, 2014, we had an accumulated deficit of $37,803,505. As of March 31, 2014, we had working capital of $185,515, compared to working capital of $1,589,621 as of December 31, 2013. If we are not able to achieve profitable operations at some point in the future, we eventually will have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion plans. In addition, our losses may increase in the future as we expand our business plan. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders’ equity. If we are unable to achieve profitability, the market value of our common stock will decline and there would be a material adverse effect on our financial condition.

Our exploration and evaluation plan calls for significant expenses in connection with the Clarkdale Slag Project. For the next twelve months, our management anticipates that the minimum cash requirements for funding our proposed testing and feasibility programs and our continued operations will be approximately $7,300,000. As of April 30, 2014, we had cash reserves in the amount of approximately $410,000. Our current financial resources are not sufficient to allow us to meet the anticipated costs of our testing and feasibility programs and operating overhead during the next twelve months and we will require additional financing in order to fund these activities.As of March 31, 2014, our financial statements and this report do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should we be unable to continue as a going concern.

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

If the actual costs are significantly greater than anticipated, if we proceed with our exploration, testing and construction activities beyond what we currently have planned, or if we experience unforeseen delays during our activities during 2014, we will need to obtain additional financing. There are no assurances that we will be able to obtain additional financing in an amount sufficient to meet our needs or on terms that are acceptable to us.

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

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

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

Off-Balance Sheet Arrangements

None.

Recent Accounting Pronouncements

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

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company adopted ASU 2013-11 during the first quarter of 2014. The adoption of this standard did not affect our financial condition or results of operation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We had unrestricted cash totaling $716,461 at March 31, 2014 and $2,065,824 at December 31, 2013. Our cash is held primarily in an interest bearing bank account, a savings account and non-interest bearing checking accounts and is not materially affected by fluctuations in interest rates. The unrestricted cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these cash holdings, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.

Item 4. Controls and Procedures

Controls and Procedures

As of March 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2014, such disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2014 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.

On October 28, 2013, the Company was sued by Kuhns Brothers, Inc. in the case entitledKuhns Brothers Inc., v. Searchlight Minerals Corp. (Civil Action No. 3:13-CV-01573-RNC) in Federal District Court for the District of Connecticut. The lawsuit is for breach of contract and quantum meruit, and seeks at least $240,000 in damages. Subsequent to March 31, 2014, the lawsuit was settled for an immaterial amount.

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, 2013, which to our knowledge have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K for the quarter ended March 31, 2014 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

23.1	Consent of Samuel Engineering, Inc.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95.1	Mine Safety Disclosures
101	101.INS	XBRL Instance
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	XBRL Taxonomy Extension Calculation
	101.LAB	XBRL Taxonomy Extension Labels
	101.PRE	XBRL Taxonomy Extension Presentation
	101.DEF	XBRL Taxonomy Extension Definition

SIGNATURES

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

	SEARCHLIGHT MINERALS CORP.
	a Nevada corporation

Date: May 14, 2014	By:	/s/Martin B. Oring
		Martin B. Oring
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: May 14, 2014	By:	/s/Melvin L. Williams
		Melvin L. Williams
		Chief Financial Officer
		(Principal Accounting Officer)

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Searchlight Minerals (SRCH) Inactive 10-Q2014 Q1 Quarterly report

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