SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to these Consolidated Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED) (RESTATED)

See Accompanying Notes to these Consolidated Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

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

Basis of presentation - The interim financial statements present the consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows of the Company. These consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).

These consolidated financial statements have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments and disclosures necessary for the fair presentation of these interim statements have been included. All such adjustments are, in the opinion of management, of a normal recurring nature with the exception of the reclassification of certain pieces of equipment to “assets held for sale” and the related write down to fair value, as discussed in Note 3 and with the exception of the adjustments discussed in Note 21. The results reported in these interim consolidated financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim consolidated financial statements should be read in conjunction with the restated consolidated financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2010, filed with the SEC on March 5, 2012.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Going concern - The Company incurred cumulative net losses of $25,678,232 from operations as of June 30, 2011 and has not commenced its commercial mining and mineral processing operations; rather, it is still in the exploration stage, raising substantial doubt about the Company’s ability to continue as a going concern. The Company will seek additional sources of capital through issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include the valuation of stock-based compensation, impairment analysis of long-lived assets, and the valuation allowance on 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 basis over the proven and probable reserves. Mineral properties are assessed for impairment when circumstances indicate that the carrying amount may not be recoverable. Impairment losses are charged to operations at the time of impairment. When a property is sold or abandoned, a gain or loss is recognized and included in the consolidated statement of operations.

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 - The Company capitalizes interest costs related to the acquisition, development and construction of property and equipment which is designed as integral parts of the manufacturing process. The capitalized interest is recorded as part of the asset it relates to and will be amortized over the asset’s useful life once production commences. Interest cost capitalized from imputed interest on acquisition indebtedness was $68,063 and $76,642 for the six months ended June 30, 2011 and 2010, respectively.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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 grinding circuit is depreciated on the units-of-production method over the total estimated units. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Gains or losses on disposition are recognized in operations.

For property, plant and equipment that our Board of Directors approves for sale, the asset is reclassified on our consolidated financial statements as “assets held for sale”.  Accordingly, we cease recording depreciation expense for assets classified as held for sale until the asset is sold or reclassified as held for use.  If the asset is ultimately reclassified as held for use, the previously unrecorded depreciation expense is expensed in the period of reclassification. Assets held for sale are recorded at the lower of their carrying value or fair values less cost to sell.  Subsequent gains and losses in fair value are recognized in operations. Subsequent gains are limited to the cumulative losses previously recognized.

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

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

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

Asset retirement obligation - The Company records the fair value of a liability for an asset retirement obligation (“ARO”) in the period that it is incurred if a reasonable estimate of fair value can be made. The fair value of the ARO is measured using expected future cash flows, discounted at the Company’s credit-adjusted risk-free interest rate. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. When the cost of the long-lived asset is depleted, the cost of the ARO is expensed over the useful life of the asset. To date, no significant asset retirement obligation exists and accordingly, no liability has been recorded.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

The Company’s financial instruments consist of mineral property purchase obligations and the derivative liability on stock purchase warrants. The mineral property purchase obligations are classified within Level 2 of the fair value hierarchy as their fair value is determined using interest rates which approximate market rates.

The derivative liability on stock purchase warrants was valued using the Binomial Lattice model, a Level 3 input. The change in fair value of the derivative liability is classified in other income (expense) in the statement of operations. The Company generally does not use derivative financial instruments to hedge exposures to cash flow, market or foreign currency risks. However, certain of the Company’s warrants contain anti-dilution provisions that are not afforded equity classification because they embody risks not clearly and closely related to the host contract. These features are required to be bifurcated and carried as a derivative liability.

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, such as stock options and warrants. In these consolidated financial statements, stock options and warrants are not considered in the computation of diluted earnings per share as their inclusion would be anti-dilutive for the periods presented. Excluded stock options and warrants amounted to 28,011,639 as of June 30, 2011.

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

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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. The Company has evaluated all the recent accounting pronouncements and believes that none of them will have a material effect on the consolidated financial statements.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Property and equipment consisted of the following:

Depreciation expense was $696,748 and $448,181 for the six months ended June 30, 2011 and 2010, respectively. The depreciation method for the grinding circuit is based on units of production. During the testing phase, units of production have thus far been limited and no depreciation expense has been recognized for the six month period ended June 30, 2011.

As of June 30, 2011, assets held for sale consisted of two pieces of equipment. In the first quarter of 2011, the Company was approached by another entity who was interested in purchasing the equipment. Management determined that the sale was in the best interest of the Company due to the generation of additional cash flow. The selling price of the equipment was $375,000 which reflected that the equipment was being sold “as is” with no implied warranty. Costs to complete the sale were incidental as the buyer was responsible for the relocation and retrofitting of the equipment. The equipment had a book value of $901,824, resulting in an impairment loss of $526,824.

Subsequent to June 30, 2011, the sale of the equipment was completed. The transaction is more fully discussed in Note 20.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

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

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

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

The $130.3 million purchase price was comprised of a combination of the cash paid, the deferred tax liability assumed in connection with the acquisition, and the fair value of our common shares issued, based on the closing market price of our common stock, using the average of the high and low prices of our common stock on the closing date of the acquisition. The Clarkdale Slag Project is without known reserves and the project is exploratory in nature in accordance with Industry Guides promulgated by the Commission, Guide 7 paragraph (a)(4)(i). As required by ASC 930-805-30, Mining – Business Combinations – Initial Recognition, and ASC 740-10-25-49-55, Income Taxes – Overall – Recognition – Acquired Temporary Differences in Certain Purchase Transactions that are Not Accounted for as Business Combinations, the Company then allocated the purchase price among the assets as follows (and also further described in this Note 4 to the financial statements): $5,916,150 of the purchase price was allocated to the slag pile site, $3,300,000 to the remaining land acquired, and $309,750 to income property and improvements. The purchase price allocation to the real properties was based on fair market values determined using an independent real estate appraisal firm (Scott W. Lindsay, Arizona Certified General Real Estate Appraiser No. 30292). The remaining $120,766,877 of the purchase price was allocated to the Clarkdale Slag Project, which has been capitalized as a tangible asset in accordance with ASC 805-20-55-37, Use Rights. Upon commencement of commercial production, the material will be amortized using the unit-of-production method over the life of the Clarkdale Slag Project. 

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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:

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

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

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

As of June 30, 2011, mining claims consisted of 3,200 acres located near Searchlight, Nevada. The 3,200 acre property is staked as twenty 160 acre claims, most of which are also double-staked as 142 twenty acre claims. At June 30, 2011, the mineral properties balance was $16,947,419.

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

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

In connection with the Company’s Plan of Operations (“POO”) for the Searchlight Gold Project, a bond of $7,802 was posted with the Bureau of Land Management (“BLM”) in December 2009.

Accounts payable and accrued liabilities at June 30, 2011 and December 31, 2010 consisted of the following:

Prior to the Company’s corporate restructuring in 2005, the Company had several accounts payable (the “Phage Payables”) included in trade accounts payable, dating back to 2003 and prior. These expenses were related to business operations which were discontinued in February 2005. During the first quarter of 2010, the Company updated its internal review of the status of the Phage Payables and recorded a gain of $120,688 from relief of liabilities that were cleared based on expiration of UK statutes of limitations. The Phage Payables are further discussed in Note 19.

Accounts payable – related party are discussed in Note 18.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

The warrants issued to the purchasers in the private placement became exercisable on November 12, 2009. The warrants have an expiration date of November 12, 2012 and an initial exercise price of $1.85 per share. Under certain specified circumstances, the warrants may be exercised by means of a “cashless exercise.” The warrants have anti-dilution provisions, including provisions for the adjustment to the exercise price and to the number of warrants granted if the Company issues common stock or common stock equivalents at a price less than the exercise price.

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

As of June 30, 2011, the Company adjusted the fair value of the warrants as a result of five closings completed under the Seaside financing agreement. Financings completed during the six month period ended June 30, 2011 are discussed in Note 11. In accordance with the terms and conditions of the warrants the following adjustment was made through June 30, 2011: (i) the exercise price was reduced from $1.85 per share to $1.78 per share, and (ii) the number of warrants was increased by 249,408 warrants.

The following table sets forth the changes in the fair value of the derivative liability for the six month period ended June 30, 2010:

The Company estimates the fair value of the derivative liability by using the Binomial Lattice pricing-model, a Level 3 input. The fair value of the derivative liability was reduced to zero during the six month period ended June 30, 2011 primarily due to a reduction in the Company’s stock price combined with a decrease in the volatility of the Company’s stock price. The following assumptions were used during the six month period ended June 30, 2011:

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

The Company has recorded a liability for this commitment using imputed interest based on its best estimate of future cash flows. The effective interest rate used was 8.00%, resulting in an initial present value of $2,501,187 and imputed interest of $1,128,813. The expected term used was 10 years which represents the maximum term the VRIC liability is payable if the Company does not obtain project funding.

The following table represents future principal payments on VRIC payable for each of the twelve month periods ending June 30,

The acquisition agreement also contains payment terms which are based on the Project Funding Date as defined in the agreement. The terms and conditions of these payments are discussed in more detail in Notes 4 and 15.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

The per share purchase price of the shares sold in each transaction will be at a price equal to the volume weighted average trading price of the Company’s common stock during the ten-day trading period immediately preceding the applicable closing date (the “VWAP”), multiplied by 0.85.  For any closing to take place, the VWAP must be at least $0.50 per share. If the VWAP is below $0.50 per share, the applicable closing will not occur. In such event, the closing will be rescheduled to occur following the end of the originally scheduled closings under the Purchase Agreement, provided that only two closings may be rescheduled. The May and June closings did not occur and were rescheduled. Subsequent to June 30, 2011, the July closing did not occur.

The Company has the right, upon written notice to Seaside, to immediately terminate the Purchase Agreement at any time. In no event may the purchase of shares of common stock at a subsequent closing cause Seaside’s beneficial ownership of the Company’s common stock to exceed 9.99% of the number of common shares outstanding after such subsequent closing. 

During the six months ended June 30, 2011, the Company’s stockholders’ equity activity consisted of the following:

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Private placement stock warrants - As a result of the Seaside equity funding transactions completed in the six month period ended June 30, 2011, the Company adjusted the warrants from the November 12, 2009 private placement offering. The following adjustments were made: (i) the exercise price was reduced to $1.78 per share, (ii) the number of warrants was increased by 144,882, and (iii) at June 30, 2011, the cumulative warrant adjustment has provided for the issuance of an additional 249,408 warrants.

The following table summarizes the Company’s private placement warrant activity for the six months ended June 30, 2011: 

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

Stock option plans - The Company has adopted several stock option plans, all of which have been approved by the Company’s stockholders that authorize the granting of stock option awards subject to certain conditions. At June 30, 2011, the Company had 6,637,444 of its common shares available for issuance for stock option awards under the Company’s stock option plans.

At June 30, 2011, the Company had the following stock option plans available:

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.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Stock warrants - From time to time the Company grants stock warrants to consultants for services performed. These grants are on an individual transaction basis and issued upon approval of the Board of Directors.

Valuation of awards - The Company estimates the fair value of stock-based compensation awards by using the Binomial Lattice option pricing-model with the following assumptions used for grants:

For stock options and warrants awarded during 2011, the expected volatility is based on the historical volatility levels on the Company’s common stock. The risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues over equivalent lives of the options.

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

Stock-based compensation activity - During the six month period ended June 30, 2011, the Company granted stock-based awards as follows:

Expenses for the six months ended June 30, 2011 and 2010 related to the vesting and granting of stock-based compensation awards were $164,492 and $129,782, respectively, and are included in general and administrative expense.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Unvested awards - The following table summarizes the changes of the Company’s stock-based compensation awards subject to vesting for the six months ended June 30, 2011:

As of June 30, 2011, there was $293,319 total unrecognized compensation cost related to unvested stock-based compensation awards. This cost is expected to be recognized as follows:

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

The following table summarizes all of the Company’s stock option and warrant activity for the six month period ended June 30, 2011, including warrants issued pursuant to private placement agreements, warrants issued in 2005 in connection with the Clarkdale Slag Project (as discussed in Note 4) and stock options and warrants issued as compensation to directors, employees and consultants:

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

Significant components of the Company’s net deferred income tax assets and liabilities at June 30, 2011 and December 31, 2010 were as follows:

A valuation allowance for deferred tax related to option compensation was established for net deferred tax assets not allocated to offset acquisition related deferred tax liabilities due to the uncertainty of realizing these deferred tax assets based on conditions existing at June 30, 2011 and December 31, 2010.

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

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

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

A reconciliation of the tax benefit for the six month periods ended June 30, 2011 and 2010 at US federal and state income tax rates to the actual tax provision recorded in the financial statements consisted of the following components:

The Company had cumulative net operating losses of approximately $29,641,786 and $26,803,688 as of June 30, 2011 and December 31, 2010, respectively for federal income tax purposes. The federal net operating loss carryforwards will expire between 2025 and 2031.

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

For the six month periods ended June 30, 2011 and 2010, the state income tax benefit which is included in the total tax benefit was $204,509 and $201,554, respectively.

The Company had cumulative net operating losses of approximately $18,289,142 and $16,144,965 as of June 30, 2011 and December 31, 2010, respectively for Arizona state income tax purposes. The Arizona state net operating loss carryforwards will expire between 2012 and 2016.

Tax returns subject to examination - The Company and its subsidiaries file income tax returns in the United States. These tax returns are subject to examination by taxation authorities provided the years remain open under the relevant statutes of limitations, which may result in the payment of income taxes and/or decreases in its net operating losses available for carryforward. The Company is no longer subject to income tax examinations by US federal and state tax authorities for years prior to 2007. While the Company believes that its tax filings do not include uncertain tax positions, the results of potential examinations or the effect of changes in tax law cannot be ascertained at this time. The Company currently has no tax years under examination.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Lease obligations - The Company rents office space in Henderson, Nevada. The lease agreement expired in November 2006, and the Company continues to rent the existing space under month-to-month terms. As of June 30, 2011, the monthly rent was $2,980.

Rental expense resulting from this operating lease agreement was $17,880 and $25,275 for the six month periods ended June 30, 2011 and 2010, respectively.

Employment contracts - Martin B. Oring.  On October 1, 2010, the Company entered into an employment agreement and non-qualified stock option agreement with Mr. Oring as its Chief Executive Officer and President.  The agreement is on an at-will basis and the Company may terminate his employment, upon written notice, at any time, with or without cause or advance notice.  The Company has agreed to pay Mr. Oring compensation of $150,000, which includes compensation as a director.  Mr. Oring will be provided with reimbursement for reasonable business expenses in connection with his duties as Chief Executive Officer.  Mr. Oring has voluntarily agreed not to participate in health or other benefit plans or programs otherwise in effect from time to time for executives or employees.

In addition, on October 1, 2010, Mr. Oring was granted options to purchase up to 300,000 shares of common stock with an exercise price of $0.91 per share, based on the closing price of the Company’s common stock on the grant date.  Of the 300,000 options, 100,000 options vested upon execution of the agreement, 100,000 vested in December 2010 upon entering into the Seaside Purchase Agreement, and 100,000 options will vest in connection with the hiring of a new Chief Executive Officer to replace Mr. Oring or Mr. Oring’s remaining as Chief Executive Officer for at least 30 months. The options expire on the fifth anniversary of the date that they vest, but in no event later than the tenth anniversary of the agreement.

Carl S. Ager.  The Company entered into an employment agreement with Carl S. Ager, its Vice President, Secretary and Treasurer, effective January 1, 2006 and as amended February 16, 2007.  Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Ager an annual salary of $160,000.  In addition to his annual salary, Mr. Ager may be granted a discretionary bonus and stock options, to the extent authorized by the Board of Directors. The term of the agreement is for an indefinite period, unless otherwise terminated by either party pursuant to the terms of the agreement.  In the event that the agreement is terminated by the Company, other than for cause, the Company will provide Mr. Ager with six months written notice or payment equal to six months of his monthly salary. In September 2010, Mr. Ager voluntarily agreed to reduce his cash compensation by 25% beginning on October 1, 2010 and continuing for an undetermined amount of time. Mr. Ager’s employment agreement was not affected and has not been amended.

Melvin L. Williams.  The Company entered into an employment agreement with Melvin L. Williams, its Chief Financial Officer, effective June 14, 2006 and as amended February 16, 2007.  Pursuant to the terms of the employment agreement, the Company agreed to pay Mr. Williams an annualized salary of $130,000 based on an increase in time commitment from 300-600 hours worked to 600-800 hours worked.  In the event the employment agreement is terminated by the Company without cause, the Company will pay Mr. Williams an amount equal to three months’ salary in a lump sum as full and final payment of all amounts payable under the agreement. In September 2010, Mr. Williams voluntarily agreed to reduce his cash compensation by 25% beginning on October 1, 2010 and continuing for an undetermined amount of time. Mr. Williams’ employment agreement was not affected and has not been amended.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

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

Total advance royalty payments to NMC for the six months ended June 30, 2011 amounted to $90,000 and were included in “Mineral exploration and evaluation expenses – related party” on the statement of operations.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

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

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

The Company estimates the initial cost of construction of the Road to be approximately $3,500,000 and the cost of additional enhancements to be approximately $1,200,000 which will be required to be funded by the Company. Based on the uncertainty of the contingencies, this cost is not included in the Company’s current operating plans. Funding for construction of the Road will require obtaining project financing or other significant financing. At June 30, 2011 and through the date the consolidated financial statements were issued, these contingencies had not changed.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

The Company maintains its cash accounts in three financial institutions. Cash accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (the “FDIC”) for up to $250,000 per institution. Additionally, under the FDIC’s expanded coverage, all non-interest bearing transactional accounts are insured in full from December 31, 2010 through December 31, 2012. This expanded coverage is separate from and in addition to the normal insurance coverage.

The Company has never experienced a material loss or lack of access to its cash accounts; however, no assurance can be provided that access to the Company’s cash accounts will not be impacted by adverse conditions in the financial markets. At June 30, 2011, the Company had deposits in excess of FDIC insured limits in the amount of $5,024,332.

For the six months ended June 30, 2011, the Company purchased services from one major vendor, Baker Hostetler, which exceeded more than 10% of total purchases and amounted to $501,309.

For the six months ended June 30, 2010, the Company purchased services from three major vendors, Baker Hostetler, Arrakis, Inc. and NMC, which exceeded more than 10% of total purchases and amounted to $450,000, $329,632 and $207,257, respectively.

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

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

For the six month period ended June 30, 2011, the Company incurred total reimbursement of expenses to NMC of $5,058 and advance royalty payments of $90,000. At June 30, 2011, the Company had an outstanding balance due to NMC of $15,000.

For the six month period ended June 30, 2010, the Company incurred total fees and reimbursement of expenses to NMC of $178,500 and $28,757, respectively. At June 30, 2010, the Company had an outstanding balance due to NMC of $30,400.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Cupit, Milligan, Ogden & Williams, CPAs - During the six month period ended June 30, 2011, the Company utilized Cupit, Milligan, Ogden & Williams, CPAs (“CMOW”) to provide accounting support services. Mr. Williams is affiliated with CMOW.

The Company incurred total fees to CMOW of $77,560 and $89,927 for the six month periods ended June 30, 2011 and 2010, respectively. Fees for services provided by CMOW do not include any charges for Mr. Williams’ time. Mr. Williams is compensated for his time under his employment agreement. The direct benefit to Mr. Williams was $26,370 and $37,769 of the above CMOW fees and expenses for the six month periods ended June 30, 2011 and 2010, respectively. The Company had an outstanding balance due to CMOW of $34,204 and $19,148 as of June 30, 2011 and 2010, respectively.

Prior to the Company’s corporate restructuring in 2005, the Company had several accounts payable (the “Phage Payables”) dating back to 2003 and prior. All of these Phage Payables were incurred in the UK. These expenses were related to business operations which were discontinued in February 2005. In the first quarter of 2010, the Company updated its internal review of the status of the Phage Payables and recorded a $120,688 gain resulting from relief of liabilities that were cleared based on expiration of UK statutes of limitations. The gain is reflected as a gain from discontinued operations. There was no tax impact as the prior expenses occurred while the Company operated outside the United States and the losses are not included in the Company’s net operating losses.

Assets held for sale - In July 2011, the Company obtained a signed Letter Agreement for the sale of two pieces of equipment that had been reclassified as “held for sale” in the first quarter of 2011. The Letter Agreement provided for a selling price of $375,000 and a closing date of July 29, 2011. The Company has received the down payment and the first payment on the equipment totaling $281,250. The remaining payment of $93,750 is being held in an escrow account and will be released upon the buyer’s final inspection of the equipment.

Clarkdale Slag Project royalty agreement - NMC - 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. The Third Amendment is further discussed in Note 15.

During the third quarter of 2011, the Company identified errors related to the accounting treatment of private placement warrants containing non-customary anti-dilutive provisions and for modifications of the term and exercise price of certain private placement warrants.

Modification of Private Placement Warrants - The Company issued warrants to purchase up to an aggregate of 7,042,387 shares of common stock (collectively, the “Subject Warrants”) to investors in connection with the Company’s February 23, 2007, March 22, 2007, December 26, 2007 and February 7, 2008 private placements. The Company unilaterally made several material amendments to the Subject Warrants. The Company originally did not give any accounting recognition to these modifications. Upon further review, the Company determined that these modifications conveyed value to these investors that was not contemplated in the original agreements, and therefore, the Company should record warrant modification expense.

SEARCHLIGHT MINERALS CORP.

(AN EXPLORATION STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (RESTATED)

Private Placement Warrants with Non-Customary Anti-Dilutive Provisions - 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 (the “Offering 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 which included warrants to purchase up to 301,965 shares of common stock.

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.

At the issuance date of the Offering Warrants, the Company did not give any accounting recognition to the Offering Warrants in its previously filed financial statements. The Company revisited the accounting treatment for the Offering Warrants and concluded that the warrants should be accounted for as a derivative liability and revalued at each reporting period.

The effects of correcting these errors to each of the consolidated balance sheets as of June 30, 2011 and 2010 and each of the consolidated statements of operations for the three month and six month periods ended June 30, 2011 and 2010 and for the cumulative periods from inception through June 30, 2011 and 2010 are presented in the tables below. None of the adjustments had an impact on cash flows for any of the periods presented below.