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EX-32 - 906 CERTIFICATION - LKA GOLD Inc /DE/ex32.htm
EX-31 - 302 CERTIFICATION OF KYE ABRAHAM - LKA GOLD Inc /DE/ex311.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


____________________


FORM 10-Q

____________________


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2012


[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to____________


Commission File No. 000-17106



LKA INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware

91-1428250

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

  


3724 47th Street Ct. N.W.

Gig Harbor, Washington 98335

(Address of principal executive offices)


(253) 514-6661

(Registrant’s telephone number, including area code)


N/A

(Former name, former address and former fiscal year,

if changed since last report)


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.  (Check one):


Large accelerated filer [  ]      Accelerated filer [  ]       Non-accelerated filer [  ]      Smaller reporting company [X]



1





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

Yes [  ] No [X]


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Not applicable.


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 5, 2012 – 16,649,422 shares of common stock.


PART I


Item 1.  Financial Statements


The Financial Statements of LKA International, Inc., a Delaware corporation (the “Registrant,” the “Company” or “LKA”) required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.














2





LKA INTERNATIONAL, INC.

Consolidated Balance Sheets

(Unaudited)


ASSETS


 

September 30,

 

December 31,

 

 2012

 

2011

CURRENT ASSETS:

 

 

 

 

 

     Cash

$

44,518

 

$

143,331

     Accounts receivable

 

382,561

 

 

-

     

 

 

 

 

 

          Total Current Assets

 

427,079

 

 

143,331

 

 

 

 

 

 

FIXED ASSETS

 

 

 

 

 

     Land, equipment and mining claims

 

800,351

 

 

800,351

     Accumulated deprecation

 

(246,564)

 

 

(218,541)

 

 

 

 

 

 

          Total Fixed Assets, Net of Accumulated Depreciation

 

553,787

 

 

581,810

 

 

 

 

 

 

OTHER NON-CURRENT ASSETS

 

 

 

 

 

     Reclamation Bonds

 

123,597

 

 

123,597

 

 

 

 

 

 

          TOTAL ASSETS

$

1,104,463

 

$

848,738

 

 

 

 

 

 



























The accompanying notes are an integral part of these unaudited consolidated financial statements.



3




LKA INTERNATIONAL, INC.

Consolidated Balance Sheets (Continued)

(Unaudited)



LIABILITIES AND STOCKHOLDERS' (DEFICIT)


 

September 30,

 2012

 

December 31, 2011

CURRENT LIABILITIES

 

 

 

 

 

     Accounts Payable

$

202,529

 

$

200,877

     Accounts payable – related party

 

66,881

 

 

67,205

     Note payable

 

1,000,321

 

 

1,000,321

     Notes payable - related party

 

62,803

 

 

62,803

     Accrued interest

 

397,078

 

 

278,085

     Accrued interest payable - related party

 

89,695

 

 

86,030

     Accrued wages and advances payable to officer

 

163,662

 

 

179,067

 

 

 

 

 

 

 

 

1,982,969

 

 

1,874,388

          Total Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

     

Asset retirement obligation

 


122,104

 

 


119,159

 

 

 

 

 

 

            Total Liabilities

 

2,105,073

 

 

1,993,547

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 


STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

     Preferred stock; $0.001 par value, 50,000,000 shares authorized,

       no shares Issued or outstanding

 


-

 

 


-

     Common stock, $0.001 par value, 50,000,000 shares authorized,

      16,559,603 and 16,344,603 shares issued and 16,472,356 and

      16,257,356

       shares, outstanding, respectively

 



16,560

 

 



16,345

     Additional paid-in capital

 

9,599,964

 

 

9,354,991

     Treasury stock; 87,247 and 87,247 shares at cost, respectively

 

(86,692)

 

 

(86,692)

     Accumulated deficit

 

(10,530,442)

 

 

(10,429,453)

 

 

 

 

 

 

            Total Stockholders' Equity (Deficit)

 

(1,000,610)

 

 

(1,144,809)

 

 

 

 

 

 

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

            (DEFECIT)

$

1,104,463

 

$

848,738













The accompanying notes are an integral part of these unaudited consolidated financial statements.



4




LKA INTERNATIONAL, INC.

Consolidated Statements of Operations

(Unaudited)


 

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

 

2012

 

2011

 

2012

 

2011

REVENUES

 

 

 

 

 

 

 

 

 

 

 

   Sales - precious metals

$

714,990

 

$

364,286

 

$

1,567,261

 

$

651,808

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

   Exploration, development and

     related costs


$


298,202

 


$


151,197

 


$


826,067

 


$


500,944

   Professional fees

 

201,990

 

 

10,804

 

 

382,082

 

 

266,023

   General and administrative

 

42,637

 

 

48,604

 

 

128,253

 

 

125,587

   Royalty expense

 

37,490

 

 

17,845

 

 

83,421

 

 

34,885

   Officer salaries and bonus

 

37,500

 

 

37,500

 

 

112,500

 

 

112,500

      Total Operating Expenses

 

617,819

 

 

265,950

 

 

1,532,323

 

 

1,039,939


OPERATING INCOME (LOSS)

 


97,171

 

 


98,336

 

 


34,938

 

 


(388,131)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

   Interest income

 

-

 

 

-

 

 

8

 

 

-

   Interest expense

 

(20,767)

 

 

(57,286)

 

 

(135,935)

 

 

(201,792)

       Total Other Income (Expense)

 

(20,767)

 

 

(57,286)

 

 

(135,927)

 

 

(201,792)

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

76,404

 

$

41,050

 

$

(100,989)

 

$

(589,923)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME (LOSS) PER COMMON SHARE

$

0.00

 

$

0.00

 

$

(0.01)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 



16,554,929

 

 



15,472,777

 

 



16,415,223

 

 



15,490,530


DILUTED NET INCOME PER COMMON SHARE

$

0.00

 

$

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 



19,038,929

 

 



17,756,777

 

 

 

 

 

 















The accompanying notes are an integral part of these unaudited consolidated financial statements.



5




LKA INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

(Unaudited)


 

For the Nine Months Ended

September 30,

 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(100,989)

 

$

(589,923)

Items to reconcile net income to net cash provided (used) by operating activities:

 


 

 


   Accretion of asset retirement obligation

 

2,945

 

 

2,739

   Depreciation and amortization

 

28,023

 

 

26,117

   Common stock and warrants issued for services

 

245,188

 

 

203,112

Changes in operating assets and liabilities

 

 

 

 

 

   (Increase) decrease in accounts receivable

 

(382,561)

 

 

89,384

   Decrease in prepaid and other assets

 

-

 

 

841

   Increase in accounts payable

 

1,328

 

 

53,272

   Increase in accrued expenses

 

107,253

 

 

283,852


      Net Cash (Used in) Provided By Operating Activities

 


(98,813)

 

 


69,394

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH

 

(98,813)

 

 

69,394

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

143,331

 

 

20,084

 

 

 

 

 

 

CASH AT END OF PERIOD

$

44,518

 

$

89,478

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

   Interest

$

8,800

 

$

900

   Income taxes

$

-

 

$

-


NON CASH TRANSACTIONS


 

 


 

Reclassification of derivative liability

$

-

 

$

84,283






















The accompanying notes are an integral part of these unaudited consolidated financial statements.



6




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2012


NOTE 1 -

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES


LKA International, Inc. (“LKA” or the “Company”) is currently engaged in efforts to expand mine production and continues to seek additional investment opportunities.


The accompanying unaudited condensed consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations.  The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with LKA’s most recent audited financial statements.  Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  


Reclassifications


Certain prior year amounts have been reclassified to conform to the current year presentation.


NOTE 2 -

GOING CONCERN


LKA's consolidated financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, LKA has recently accumulated significant losses and has negative working capital.  All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:


LKA is currently engaged in an intensive exploration program at the Golden Wonder mine with the objective of returning the mine to a producing status. The exploration program, which began in November, 2008, has involved extensive sampling/assaying for the purpose of identifying possible new production zones within the mine. During this evaluation period, sampling and analysis of exposed veins yielded encouraging results and some precious metals revenues. While encouraging, no conclusion can be drawn at this time about the commercial viability of the mine and LKA continues to pursue potential third party operator or lease agreements for the property.


In order to support continued operation of the mine, LKA entered into several financing transactions during the year ended December 31, 2011 and plans on raising additional funding during 2012 to support the continued exploration of the Golden Wonder mine.  If LKA is not successful in the resumption of mine operations which produce positive cash flows from operations, LKA may be forced to continue to raise additional equity or debt financing to fund its ongoing obligations or risk ceasing doing business.  


There can be no assurance that LKA will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan.  The ability of LKA to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.






7




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2012


NOTE 3 -

RELATED PARTY TRANSACTIONS


Related Party Debt


Cognitive Associates Limited Partnership


LKA owes Cognitive Associates Limited Partnership $56,828 in unpaid principal from a note dated December 31, 1986.  The note is unsecured, due upon demand, and accrues interest at 10% per annum.  No payments have been made during the nine months ended September 30, 2012.  Accrued interest related to this note totaled $79,653 and $76,377 as of September 30, 2012 and December 31, 2011, respectively.


LKA owes Cognitive Intelligence Limited Partnership $5,975 in unpaid principal from a note dated October 1, 1987.  The note is unsecured, due upon demand, and accrues interest at 10% per annum.  No payments have been made during the nine months ended September 30, 2012.  Accrued interest related to this note totaled $10,042 and $9,693 as of September 30, 2012 and December 31, 2011, respectively.


PanAmerican Capital Group


On July 2, 2009, LKA issued a promissory note (the Note) to PanAmerican Capital Group, Inc. (PanAmerican), a related party company, in exchange for cash of $545,090.  The Note initially accrued interest at 10% per annum, was secured by a first charge over LKA mining property and claims in Hinsdale County, Colorado and due in five installments, the first due the first business day of January 2010, with the remaining four due in three months intervals through January 2011. During January 2010, LKA made a partial payment of $92,064 on the Note, of which $16,644 was applied against a related derivative liability, $27,778 was applied against accrued interest and $47,642 was applied to principal.  


Due to delays in mine production, on June 10, 2010 PanAmerica and LKA entered into a Waiver Agreement, whereby PanAmerican agreed to allow LKA to defer installment payments due January 4, 2010, April 5, 2010 and July 5, 2010 until August 15, 2010.  

 

As a result of the Waiver Agreement and payment defaults, LKA reclassified a total of $268,873 in accrued derivative liability related to the past due Note payments to the remaining original $497,448 note principal and began accruing interest at 2% per month per the terms of the Note.  


During the period ended September 30, 2012, PanAmerican sold the Note to an unrelated third party, Brannon Limited Partnership, with no change to the Note terms.  As such, LKA has reclassified the presentation of the Note principal and accrued interest as an un-related party debt.


Total accrued interest on the Note and past due note balance was $356,762 and $258,478 at September 30, 2012 and December 31, 2011, respectively.  Interest expense on the Note totaled $107,285 and $137,938 for the nine months ended September 30, 2012 and 2011, respectively.


Other Related Party Transactions


LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses.  The affiliated Company, (Abraham & Co., Inc. a FINRA member and registered investment advisor) also executes LKA’s securities transactions and manages its investment portfolio.  LKA owed Abraham & Co. $41,000 and $31,000 in past due amounts as of September 30, 2012 and December 31, 2011, respectively.


At September 30, 2012 and December 31, 2011, LKA owes $25,881 and $36,205, respectively, for purchases made on the personal credit card of LKA’s president, Kye Abraham.  Additionally, LKA owed Kye Abraham $0 and $12,500 for non-interest bearing, short-term operating loans to LKA at September 30, 2012 and December 31, 2011, respectively, and $163,662 and $166,567 in unpaid salary at September 30, 2012 and December 31, 2011, respectively.



8





LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2012


NOTE 4 -

SIGNIFICANT EVENTS


Precious Metals Sales


From July to September 2012, LKA delivered to, and/or settled ore shipments with Kinross Gold Corporation of approximately 396.6 dry short tons of precious metals ore with a net value to the Company of $714,990.


Common Stock


During July 2012, LKA entered into a one year Financial Consulting Agreement (the Agreement).  The Agreement required LKA to issue 215,000 shares of its common stock and pay $40,000 in cash.  LKA recognized expense of $129,000, or $0.60 per share from the issuance of the 215,000 shares of common stock during the period ended September 30, 2012.


Common Stock Warrants


During February 2012, LKA entered into an agreement with Rauno Perttu to act as Chief Geologist and special advisor to the LKA board of directors, with the election of being appointed to a position on the LKA board in the future.  As part of the consulting agreement, Mr. Perttu is to be paid consulting fees for any work done on projects pre-approved by the LKA board of directors.  An initial incentive compensation for his services, LKA agreed to issues Mr. Perttu warrants to purchase up to 500,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:


Warrant I for 200,000 shares exercisable at $0.40 per share, to be issued as of March 1, 2012.

Warrant II for 150,000 shares exercisable at $0.60 per share, to be issued one year later, or March 1, 2013.

Warrant III for 150,000 shares exercisable at $0.80 per share, to be issued one year later, or March 1, 2014.


Each warrant will have a term of two and one-half years.  In the event the shares underlying the warrants, and the closing price of the common stock of the Company has been $3.00 per share or higher for 10 trading days within a 30 day trading period subject to minimum trading volumes, LKA shall be able to redeem the Warrants at $0.001 per warrant. Such redemption notification shall be provided to warrant holders 20 days prior to redemption upon which Investors may exercise warrants.


The Warrant I - III tranches were valued at $44,791, $29,769 and $26,947 using the Black-Scholes option fair value pricing model using the following assumptions:


Stock price on grant date

$

0.35

Exercise price

$

0.40 – 0.80

Expected time to exercise

 

2.5 years

Risk free interest rate

 

0.35%

Volatility

 

121.02%

Expected forfeiture rate

 

0.00%


During the period ended September 30, 2012, LKA expensed $44,791 related to Warrant I, $18,605 and $8,421 for Warrants II and III, respectively, related to the Perttu warrants. The value of Warrants II and II are being recognized ratably over the vesting term of one and two years, respectively.  


During the period ended September 30, 2012, LKA expensed $21,651 and $22,720 for Warrants II and III, respectively, issued to Francois Viens in April 2011. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.  




9





LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2012


Note Settlement Agreements


On August 31, 2012, LKA executed a separate Note Settlement Agreement (Note Settlement Agreement) with each of the following four creditors:  Cognitive Associates Limited Partnership; Cognitive Intelligence Limited Partnership; C.K. Cooper & Company, Inc.; and Sonata Multi-Manager Fund, LP (collectively, the Noteholders).  Under the terms of each Note Settlement Agreement, each of the Noteholders agreed to settle the outstanding principal and interest owed to each in consideration of the issuance of shares of LKA common stock at a settlement price of $0.25 per share.  The total principal and interest settled by each Noteholder (the Settlement Amount), and the number of shares to be issued to each (the Settlement Shares), are indicated below:


Noteholder

 

Settlement Amount

Settlement Shares

Cognitive Associates Limited Partnership

$

136,481

545,927

Cognitive Intelligence Limited Partnership

 

16,017

64,066

C.K. Cooper & Company, Inc.

 

29,817

374,582

Sonata Multi-Manager Fund, LP

 

197,412

789,646

Totals

$

379,727

1,774,221


The Company is required, within 90 days of the date of the Note Settlement Agreements, to proceed with a court hearing process that is required in order for the Settlement Shares to be issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended.  If Settlement Shares are not issuable in reliance on the Section 3(a)(10) exemption within such 90 day period, each Noteholder may declare its Note Settlement Agreement null and void in its entirety.


Settlement of Promissory Note


Effective as of August 14, 2012, LKA, executed a letter agreement with Brannon Limited Partnership (Brannon), which is the holder of a Note dated July 2, 2009 (the Letter Agreement). Under the terms of the Letter Agreement, the parties have agreed to settle the entire unpaid balance on the Note through the issuance of a total of six million shares of LKA common stock at a settlement price of $0.1886 per share.  LKA is required, within 90 days of the date of the Letter Agreement, to proceed with the court hearing process that is required in order for the Settlement Shares to be issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended.  If Settlement Shares are not issuable in reliance on the Section 3(a)(10) exemption within such 90 day period, Brannon may declare the Letter Agreement null and void in its entirety.


Immediately upon execution of the Letter Agreement, the Company is required to deliver to Brannon a stock certificate representing 800,000 unregistered and restricted shares of common stock, which shall be returned to LKA and canceled immediately upon the successful completion of the 3(a)(10) hearing and replaced with freely tradeable shares issued in reliance on the Section 3(a)(10) exemption. Brannon is to give LKA written notice of its election to convert the Note debt into shares, provided that Brannon will not be entitled to receive a number of shares that result in Brannon beneficially owning more than 4.99% of LKA’s common stock after such debt conversion.  If the Company is unable to issue any shares that are then deliverable, it will be required to make a Mandatory Redemption Payment equal to 120% of the value of the debt that such shares are meant to settle.


NOTE 5 -

SUBSEQUENT EVENTS

 

On October 15, 2012, the Circuit Court of the Eighteenth Judicial Circuit in and for Seminole County, Florida (the Court), issued its Consent Final Judgment (the Judgment) with respect to the issuance to five recipients of a total of 1,774,221 shares of the common stock of LKA.  Under the Judgment, the Court approved the settlements between the Company and Brannon Limited Partnership; Cognitive Associates Limited



10




Partnership; Cognitive Intelligence Limited Partnership; C.K. Cooper & Company, Inc.; and Sonata Multi-Manager Fund, LP.



11




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


Forward-looking Statements


Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, international gold prices, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.


Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Results of Operations


For The Three Months Ended September 30, 2012 Compared to The Three Months Ended September 30, 2011.


During the quarterly period ended September 30, 2012, we received $714,990 from gold ore sales vs. $364,286 in the period ended September 30, 2011. This increase in sales of approximately 196% was due to the Company’s shift in emphasis, from a focus on underground drilling and reduced mining activity in the year-ago period to a re-emphasis on exploratory mining activity in the 2012 period.  Currently, mining (exploratory) and related operations have resumed to normal and expected levels. A portion of third quarter ore sales were derived from ore extracted, crushed and shipped during the prior quarter, but not settled, during the second quarter of 2012.


Gold ore shipments made during the third quarter contained approximately 427 ounces. The gross value of gold ore delivered during the current quarter was $655,184 before processing and milling charges. Average ore grades from third quarter shipments were approximately 1.6 ounces (45.36 grams) gold per ton.


All third quarter 2012 ore shipments were made to Kinross' Kettle River milling facility in Republic, Washington.


Operating expenses increased from $265,950 in the quarterly period ended September 30, 2011, to $617,819 in the current quarter.  This increase was mainly due to a $147,005 increase in exploration and related costs for the Golden Wonder Mine. Exploration and related costs increased to $298,202 in the quarter ended September 30, 2012, from $151,197 in the year-ago quarter.  Professional fees also increased to $201,990 in the three months ended September 30, 2012, compared to $10,804 in the 2011 period.  General and administrative expenses decreased to $42,637 from $48,604 in the quarterly periods ended September 30, 2012, and 2011, respectively.  Royalty expenses increased from $17,845 in the quarterly period ended September 30, 2011, to $37,490 in the quarterly period ended September 30, 2012.  Officer salaries remained $37,500 in both of these three month periods.  We realized operating income of $97,171 during the quarter ended September 30, 2012, as compared to operating income of $98,336 in the comparable period in 2011.


Interest expense totaled $20,767 and $57,286 in the quarterly periods ended September 30, 2012, and 2011, respectively. Interest income was $0 in the three months ended September 30, 2012, and $0 in the three months ended September 30, 2011.


Net income totaled $76,404, or $0.00 per share, in the three months ended September 30, 2012, compared to a net income of $41,050, or $0.00 per share, in the three months ended September 30, 2011.




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For The Nine Months Ended September 30, 2012 Compared to The Nine Months Ended September 30, 2011.


During the nine months ended September 30, 2012, we received $1,567,261 from gold ore sales vs. $651,808 in the period ended September 30, 2011. This increase in sales of approximately 240% was due to the Company’s shift in emphasis, from a focus on underground drilling and reduced mining activity in the year-ago period to a re-emphasis on mining activity in the 2012 period.


Ore shipments made during the first nine-month period in 2012 contained approximately 1,069 ounces of gold. All 2012 ore shipments were made to Kinross' Kettle River milling facility in Republic, Washington.


Operating expenses increased from $1,039,939 in the nine months ended September 30, 2011, to $1,532,323 in the nine months ended September 30, 2012.  This increase was mainly due to a $325,123 increase in exploration and related costs for the Golden Wonder Mine.  Exploration and related costs increased to $826,067 in the nine months ended September 30, 2012, from $500,944 in the year-ago period.  Professional and consulting fees also increased to $382,082 in the nine months ended September 30, 2012, compared to $266,023 in the 2011 period.  General and administrative expenses increased slightly to $128,253 from $125,587 in the nine months ended September 30, 2012, and 2011, respectively.  Royalty expenses increased from $34,885 in the nine months ended September 30, 2011, to $83,421 in the nine months ended September 30, 2012.  Officer salaries remained $112,500 in both of these nine month periods.  We realized operating income of $34,938 during the nine months ended September 30, 2012, as compared to operating loss of $388,131 in the comparable period in 2011.


Interest expense totaled $135,935 and $201,792 in the nine months ended September 30, 2012, and 2011, respectively. Interest income was $8 in the nine months ended September 30, 2012, and $0 in the nine months ended September 30, 2011.


Net loss totaled $100,989, or $0.01 per share, in the nine months ended September 30, 2012, a decrease of approximately 83% from our net loss of $589,923, or $0.04 per share, in the nine months ended September 30, 2011.


Liquidity


Current assets at September 30, 2012, totaled $427,079, as compared to total current assets of $143,331 at September 30, 2011. As of the 2012 date, we had $44,518 in cash and $382,561 in accounts receivable, as compared to $143,331 and $0 at December 31, 2011.


During the nine months ended September 30, 2012, our operating activities used net cash of $98,813.  In the comparable 2011 period, by contrast, operating activities provided net cash of $69,394.  Investing activities and financing activities had no effect on our cash flows in the nine months ended September 30, 2012, or the nine months ended September 30, 2011.


At September 30, 2012, the Company had a working capital deficit of $1,555,890, as compared to working capital deficit of $1,731,057 at December 31, 2011.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


Not required.


Item 4.  Controls and Procedures.


Evaluation of disclosure controls and procedures


Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.




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Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2012, our disclosure controls and procedures were, subject to the limitations noted above, effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is 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


Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


None; not applicable.


Item 1A.  Risk Factors.


Not required.


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


On July 11, 2012, the Company issued to Riverview Capital 215,000 “unregistered” and “restricted” shares of its common stock for financial consulting services..  On August 8, 2012, we issued 800,000 “unregistered” and “restricted” shares to Brannon Limited Partnership per the terms of the parties’ letter agreement dated August 7, 2012, which was disclosed in the Company’s Current Report on Form 8-K dated August 14, 2012, and which is incorporated herein by reference.  On October 19, 2012, which is subsequent to the end of the period covered by this report, we issued 100,000 “unregistered” and “restricted” shares to Coal Creek Construction, our mine operator, as a bonus. 


Item 3. Defaults Upon Senior Securities.


Effective as of August 14, 2012, the Company entered into a letter agreement with Brannon Limited Partnership (“Brannon”), the holder of the Company’s promissory note dated July 2, 2009, which letter agreement provided for the settlement of all of the Company’s debt to Brannon under such promissory note.  On August 31, 2012, the Company entered into four separate Note Settlement Agreements providing for the settlement of an additional $379,726 in Company debt.  On October 15, 2012, which is subsequent to the end of the period covered by this Report, the Circuit Court of the Eighteenth Judicial Circuit in and for Seminole County, Florida, issued its Consent Final Judgment with respect to the issuance of these five creditors of a total of 7,774,221 shares of the Company’s common stock pursuant to the terms of the various settlement agreements.  Each of these events was disclosed in the Company’s Current Reports on Form 8-K dated August 14, 2012; August 31, 2012; and October 15, 2012, respectively, which are incorporated herein by reference.


Item 4. Mine Safety Disclosures.


None, not applicable.


Item 5. Other Information.


During the quarterly period ended September 30, 2012, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors.




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Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit

31.1


31.2


32

Certification of Kye Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification of Nanette Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document*

101.PRE.

XBRL Taxonomy Extension Presentation Linkbase*

101.LAB

XBRL Taxonomy Extension Label Linkbase*

101.DEF

XBRL Taxonomy Extension Definition Linkbase*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase*

101.SCH

XBRL Taxonomy Extension Schema*


*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.


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

  

LKA INTERNATIONAL, INC.


Date:

November 14, 2012

 

By:

/s/Kye Abraham

 

 

 

 

Kye Abraham, President, Chairman of the Board and Director

 

 

 

 

 

Date:

November 14, 2012

 

By:

/s/Nanette Abraham

 

 

 

 

Nanette Abraham, Secretary, Treasurer and Director




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