Attached files
| file | filename |
|---|---|
| EX-32.2 - EX 32.2 - LKA GOLD Inc /DE/ | exthirtytwotwo.htm |
| EX-31.2 - EX 31.2 - LKA GOLD Inc /DE/ | exthirtyonetwo.htm |
| EX-32.1 - EX 32.1 - LKA GOLD Inc /DE/ | exthirtytwoone.htm |
| EX-31.1 - EX 31.1 - LKA GOLD Inc /DE/ | exthirtyoneone.htm |
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, 2013
[ ] 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 GOLD INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware
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91-1428250
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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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]
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 19, 2013 – 14,867,469 shares of common stock.
PART I
The Financial Statements of LKA Gold Incorporated, 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.
- 1 -
LKA GOLD INCORPORATED
Consolidated Balance Sheets
ASSETS
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September 30,
2013
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December 31, 2012
2012
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|||||||||
| (Unaudited) | ||||||||||
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CURRENT ASSETS
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|||||||||
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Cash
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$ | 26,257 | $ | 87,329 | ||||||
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Restricted cash
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24,300 | - | ||||||||
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Accounts receivable
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211,775 | 151,524 | ||||||||
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Prepaid expenses
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- | 1,688 | ||||||||
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Total Current Assets
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262,332 | 240,541 | ||||||||
| FIXED ASSETS | ||||||||||
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Land, equipment and mining claims
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807,085 | 807,085 | ||||||||
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Accumulated deprecation
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(283,881 | ) | (256,957 | ) | ||||||
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Total Fixed Assets, Net of Accumulated Depreciation
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523,204 | 550,128 | ||||||||
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OTHER NON-CURRENT ASSETS
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||||||||||
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Reclamation bonds
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93,285 | 123,597 | ||||||||
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TOTAL ASSETS
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$ | 878,821 | $ | 914,266 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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||||||||
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Accounts payable
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$ | 251,049 | $ | 223,596 | ||||
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Accounts payable – related party
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89,180 | 64,545 | ||||||
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Note payable
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10,000 | 10,000 | ||||||
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Accrued wages and advances payable to officer
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163,813 | 145,572 | ||||||
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Total Current Liabilities
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514,042 | 443,713 | ||||||
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NON-CURRENT LIABILITIES
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||||||||
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Asset retirement obligation
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126,254 | 123,086 | ||||||
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Total Liabilities
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640,296 | 566,799 | ||||||
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Commitments and Contingencies
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||||||||
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STOCKHOLDERS' EQUITY
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||||||||
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Preferred stock; $0.001 par value, 50,000,000 shares authorized, 2,500 and 0
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||||||||
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shares issued and outstanding, respectively
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3 | - | ||||||
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Common stock, $0.001 par value, 50,000,000 shares authorized,
14,867,468 and 14,816,913 shares issued and 8,123,678 and 8,128,678
shares outstanding, respectively
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14,867 | 14,817 | ||||||
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Additional paid-in capital
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16,382,975 | 13,559,201 | ||||||
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Treasury stock; 43,624 and 43,624 shares at cost, respectively
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(86,692 | ) | (86,692 | ) | ||||
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Accumulated deficit
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(16,072,628 | ) | (13,139,859 | ) | ||||
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Total Stockholders' Equity
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238,525 | 347,467 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 878,821 | $ | 914,266 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
- 2 -
LKA GOLD INCORPORATED
Consolidated Statements of Operations
(Unaudited)
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For the Three Months Ended
September 30,
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For the Nine months Ended
September 30,
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|||||||||||||||
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2013
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2012
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2013
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2012
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|||||||||||||
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REVENUES
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||||||||||||||||
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Sales - precious metals
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$ | 287,410 | $ | 714,990 | $ | 790,037 | $ | 1,567,261 | ||||||||
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EXPLORATION COSTS
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206,506 | 335,692 | 656,032 | 909,488 | ||||||||||||
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GROSS MARGIN
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80,904 | 379,298 | 134,005 | 657,773 | ||||||||||||
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OPERATING EXPENSES
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||||||||||||||||
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Professional fees
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28,286 | 201,990 | 100,766 | 382,082 | ||||||||||||
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General and administrative
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34,536 | 42,637 | 115,498 | 128,253 | ||||||||||||
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Officer salaries
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39,000 | 37,500 | 114,000 | 112,500 | ||||||||||||
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Total Operating Expenses
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101,822 | 282,127 | 330,264 | 622,835 | ||||||||||||
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OPERATING INCOME (LOSS)
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(20,918 | ) | 97,171 | (196,259 | ) | 34,938 | ||||||||||
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OTHER INCOME (EXPENSE)
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||||||||||||||||
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Stock based expense for shares not subject to reverse split
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- | - | (2,756,000 | ) | - | |||||||||||
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Gain on extinguishment of reclamation bond
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23,311 | - | 23,311 | - | ||||||||||||
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Interest expense
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(1,871 | ) | (20,767 | ) | (3,823 | ) | (135,935 | ) | ||||||||
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Interest income
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- | - | 2 | 8 | ||||||||||||
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Total Other Income (Expense)
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21,440 | (20,767 | ) | (2,736,510 | ) | (135,927 | ) | |||||||||
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NET INCOME (LOSS)
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$ | 522 | $ | 76,404 | $ | (2,932,769 | ) | $ | (100,989 | ) | ||||||
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Dividends on, and related to beneficial conversion feature of, convertible preferred stock
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(18,557 | ) | - | (18,557 | ) | - | ||||||||||
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NET INCOME (LOSS) ATTRIBUTED TO COMMON STOCKHOLDERS
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$ | (18,035 | ) | $ | 76,404 | $ | (2,951,326 | ) | $ | (100,989 | ) | |||||
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BASIC NET INCOME (LOSS) PER COMMON SHARE
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$ | (0.00 | ) | $ | 0.00 | $ | (0.20 | ) | $ | (0.01 | ) | |||||
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BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
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14,827,783 | 8,277,465 | 14,811,913 | 8,207,612 | ||||||||||||
| DILUTED NET INCOME (LOSS) PER COMMON SHARE | $ | (0.00 | ) | $ | (0.00 | $ | (0.20 | ) | $ | (0.01 | ) | |||||
| BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 14,827,783 | 9,519,465 | 14,811,913 | 8,207,612 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
- 3 -
LKA GOLD INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
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For the Nine months Ended
September 30,
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||||||||
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2013
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2012
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|||||||
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$ | (2,932,769 | ) | $ | (100,989 | ) | ||
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Items to reconcile net loss to net cash provided (used) by operating activities:
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||||||||
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Accretion of asset retirement obligation
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3,168 | 2,945 | ||||||
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Depreciation and amortization
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26,924 | 28,023 | ||||||
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Common stock and warrants issued for services
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23,924 | 245,188 | ||||||
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Stock based expense for shares not subject to reverse split
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2,756,000 | - | ||||||
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Changes in operating assets and liabilities
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||||||||
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Increase in accounts receivable
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(60,251 | ) | (382,561 | ) | ||||
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Decrease in prepaid and other assets
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1,688 | - | ||||||
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Decrease in reclamation bonds
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30,312 | - | ||||||
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Increase in accounts payable and accounts payable – related party
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51,891 | 1,328 | ||||||
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Increase in accrued expenses
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18,241 | 107,253 | ||||||
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Net Cash Used by Operating Activities
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(80,872 | ) | (98,813 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||
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Convertible preferred stock issued for cash
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55,000 | - | ||||||
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Cash paid for preferred stock offering costs
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(5,500 | ) | - | |||||
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Cash paid for preferred stock dividends
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(5,400 | ) | - | |||||
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Net increase in restricted cash
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(24,300 | ) | - | |||||
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Net Cash Provided by Financing Activities
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$ | 19,800 | $ | - | ||||
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DECREASE IN CASH
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(61,072 | ) | (98,813 | ) | ||||
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CASH AT BEGINNING OF PERIOD
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87,329 | 143,331 | ||||||
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CASH AT END OF PERIOD
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$ | 26,257 | $ | 44,518 | ||||
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CASH PAID FOR:
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||||||||
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Interest
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$ | 900 | $ | 8,800 | ||||
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Income taxes
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$ | - | $ | - | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
- 4 -
LKA GOLD INCORPORATED
Notes to the Consolidated Unaudited Financial Statements
September 30, 2013
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
LKA Gold Incorporated (“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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2 - RELATED PARTY TRANSACTIONS
Related Party Debt – Office Space
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. $47,000 and $43,500 as of September 30, 2013 and December 31, 2012, respectively.
Related Party Debt – Accounts and Wages Payable
At September 30, 2013 and December 31, 2012, LKA owes $42,180 and $21,045, respectively, for purchases made on the personal credit card of LKA’s president, Kye Abraham. Additionally, LKA owed Kye Abraham $162,818 and $145,572 in unpaid salary at September 30, 2013 and December 31, 2012, respectively,
NOTE 3 - SIGNIFICANT EVENTS
Precious Metals Sales
During February 2013, LKA delivered a total of approximately 225.6 dry short tons of precious metals ore for processing at a value of $289,026.
During May 2013, LKA delivered a total of approximately 105.4 dry short tons of precious metals ore for processing at a value of $116,649.
During May 2013, LKA delivered a total of approximately 99.4 dry short tons of precious metals ore for
processing at a value of $96,952.
During August 2013, LKA delivered a total of approximately 111.6 dry short tons of precious metals ore for
processing at a value of $151,270.
During September 2013, LKA delivered a total of approximately 131.9 dry short tons of precious metals ore for processing at a value of $136,140.
At September 30, 2013 and December 31, 2012, LKA had metal sales receivables of $211,775 and $151,524, respectively.
- 5 -
Incentive Compensation
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During April 2013, the board of directors approved an Incentive Compensation arrangement with Kye Abraham, President and Chairman of the Board of LKA. Mr. Abraham was conditionally issued a total of 2,000,000 shares of LKA common stock. The stock will be considered earned on the completion of two events, each worth 1,000,000 shares, if and when a financing, or series of financings, of one million is completed for LKA and if and when a final resolution is reached with the EPA and/or BLM of other governmental agency that extinguishes the potential environmental liability at the Ute Ulay mine or reduces LKA’s liability to a “de minimis” level. LKA has determined it is not probable that both of these conditions will be met. Therefore, we have not recognized any expense related to these grants.
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NOTE 4 - COMMON STOCK AND COMMON STOCK WARRANTS
Common Stock
During the nine months ended September 30, 2013, LKA determined that 5,000 shares, which had previously been reflected as due and issued for commissions earned on stock sales occurring in 2009, had been returned to the Company and retired at par value.
On March 15, 2013, LKA affected a 1-for-2 reverse-split of its common stock. As a result, LKA recognized an additional $2,756,000 in non-cash stock based expense related to the exclusion of 5,200,000 pre-split (2,600,000 post-split) issued but not yet outstanding common shares related to October 2012 debt conversions. The expense was calculated based on the market price of $1.06 per share on the 2,600,000 post-split shares as of March 15, 2013. During July 2013, 200,000 of the 5,200,000 shares were issued and 5,000,000 shares remain.
During September 2013, holders of 3,000 shares of convertible preferred stock elected to convert their shares into 55,556 shares of common stock.
Common Stock Warrants
During December 2010, LKA granted fully vested warrants to purchase 42,000 share of its common stock for 36 months at $1.86 per share as debt offering costs related to the issuance of convertible notes payable (see Note 10). The warrants were valued at $28,137 using the Black-Scholes option fair value pricing model using the following assumptions:
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Stock price on grant date
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$ | 1.70 | ||
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Exercise price
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$ | 1.86 | ||
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Expected time to exercise
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3.0 years
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|||
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Risk free interest rate
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0.80 | % | ||
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Volatility
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192.45 | % | ||
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Expected forfeiture rate
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0.00 | % | ||
During April 2011, LKA entered into an interim consulting agreement with Francois Viens to act as a 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. Viens 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 issue Mr. Viens warrants to purchase up to 250,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:
Warrant I for 100,000 shares exercisable at $1.60 per share, to be issued as of May 1, 2011
Warrant II for 75,000 shares exercisable at $2.40 per share, to be issued one year later, or May 1, 2012
Warrant III for 75,000 shares exercisable at $3.60 per share, to be issued one year later, or May 1, 2013
- 6 -
Each warrant has 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 $6.00 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.
The Warrant I - III tranches were valued at $91,905, $64,955 and $60,586 using the Black-Scholes option fair value pricing model using the following assumptions:
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Stock price on grant date
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$ | 1.18 | ||
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Exercise price
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$ | 1.60 – 3.60 | ||
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Expected time to exercise
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2.5 years
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|||
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Risk free interest rate
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0.69 | % | ||
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Volatility
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164.93 | % | ||
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Expected forfeiture rate
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0.00 | % | ||
During the nine months ended September 30, 2013, LKA expensed $10,098 related to Warrant III. During the nine months ended September 30, 2012, LKA expensed $21,652 and $22,720 for Warrants II and III, respectively, related to the Viens warrants. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.
NOTE 4 - COMMON STOCK AND COMMON STOCK WARRANTS (CONTINUED)
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 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 issue Mr. Perttu warrants to purchase up to 250,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:
Warrant I for 100,000 shares exercisable at $0.80 per share, to be issued as of March 1, 2012.
Warrant II for 75,000 shares exercisable at $1.20 per share, to be issued one year later, or March 1, 2013.
Warrant III for 75,000 shares exercisable at $1.60 per share, to be issued one year later, or March 1, 2014.
Each warrant has 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 $6.00 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.
The Warrant I - III tranches were valued at $44,792, $29,769 and $26,947 using the Black-Scholes option fair value pricing model using the following assumptions:
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Stock price on grant date
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$ | 0.70 | ||
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Exercise price
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$ | 0.80 – 1.60 | ||
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Expected time to exercise
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2.5 years
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|||
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Risk free interest rate
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0.35 | % | ||
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Volatility
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121.02 | % | ||
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Expected forfeiture rate
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0.00 | % | ||
During the nine months ended September 30, 2013, LKA expensed $3,721 and $10,105 related to Warrants II and III, respectively. During the period ended September 30, 2012, LKA expensed $44,791 related to Warrant I, $11,163 and $5,053 for Warrants II and III, respectively, related to the Perttu warrants. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.
- 7 -
The following table summarizes the outstanding warrants and associated activity for the nine months ended September 30, 2013 and the year ended December 31, 2012:
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Number of Warrants Outstanding
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Weighted Average Price
|
Weighted Average Remaining Contractual Life
|
||||||||||
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Balance, December 31, 2011
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292,000 | 2.36 | 2.62 | |||||||||
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Granted
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250,000 | 1.16 | 2.58 | |||||||||
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Exercised
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- | - | - | |||||||||
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Expired
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- | - | - | |||||||||
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Balance, December 31, 2012
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542,000 | 1.80 | 2.06 | |||||||||
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Granted
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- | - | - | |||||||||
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Exercised
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- | - | - | |||||||||
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Expired
|
- | - | - | |||||||||
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Balance, September 30, 2013
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542,000 | $ | 1.80 | 1.56 | ||||||||
NOTE 5 - CONVERTIBLE PREFERRED STOCK
During August 2013, LKA issued a total of 5,500 shares of 9% non-voting convertible preferred stock (“Preferred Stock”) for cash of $55,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. At September 30, 2013 2,500 shares of the Preferred Stock were outstanding.
During August 2013, LKA paid a related party a 10% commission based on the gross proceeds from the sales of Preferred Stock totaling $5,500. These Preferred Stock offering costs were recorded as reductions in the carrying value of the related Preferred Stock against additional paid-in capital.
As a requirement of the Preferred Stock subscription agreement, LKA is required to hold in escrow a “Dividend Reserve”, equal to 9% annual for the first two years. If the related Preferred Stock is converted within two years of the issuance date, the balance of any related unpaid Dividend Reserve is due and payable to the holders of the converted Preferred Stock. Additionally, fifty percent (50%) of the subscription proceeds, net of the 18% Dividend Reserve Account and net of 10% sales commissions, is designated “Market Development Funds” and held in escrow to be used for development of the public trading market of LKA’s common stock.
LKA’s Preferred Stock is convertible into shares of common stock at a rate based on the average closing price of LKA common shares for the 10 trading days prior to the receipt of the notice of conversion less a 15% discount. In no event shall the conversion price including the discount be less than $0.40 per share. LKA analyzed the conversion option for liability classification under ASC 815-15 and determined that equity classification was appropriate. At the time of each of the issuances of Preferred Stock, the value of the common stock into which the Preferred Stock was convertible had a fair value greater than the proceeds for such issuances. Accordingly, LKA recorded a deemed dividend totaling $24,155, which equals the amount by which the estimated fair value of the common stock issuable upon conversion of the issued Preferred Stock exceeded the proceeds from such issuances. The deemed dividend was recorded as a reduction of the value of the Preferred Stock and a corresponding increase in additional paid-in capital.
During September 2013, holders of 3,000 shares of convertible preferred stock elected to convert their shares into 55,556 shares of common stock. As a result, $5,400 of the Dividend Reserve was paid upon conversion. The balance in Dividend Reserve and Market Development Funds restricted cash was $24,300 as of September 30, 2013. Accrued and unpaid dividends at September 30, 2013 were $197.
- 8 -
NOTE 6 - 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 joint venture or lease agreements for the property.
In order to support continued operation of the mine, LKA entered into several debt restructuring transactions during the year ended December 31, 2012, and plans on raising additional funding during 2013 to support the continued exploration of the Golden Wonder mine. If LKA is not successful in the resumption of commercial production or mine exploration operations which produce positive cash flows, 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.
NOTE 7 - SUBSEQUENT EVENTS
During October 2013, LKA issued 700 shares of 9% non-voting convertible Preferred Stock for cash of $7,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. The Preferred Stock is convertible into shares of common stock at a rate based on the average closing price of LKA common shares for the 10 trading days prior to the receipt of the notice of conversion less a 15% discount. In no event shall the conversion price including the discount be less than $0.40 per share.
During November 2013, LKA issued 3,500 shares of 9% non-voting convertible Preferred Stock for cash of $35,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. The Preferred Stock is convertible into shares of common stock at a rate based on the average closing price of LKA common shares for the 10 trading days prior to the receipt of the notice of conversion less a 15% discount. In no event shall the conversion price including the discount be less than $0.40 per share.
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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, 2013 Compared to The Three Months Ended September 30, 2012
During the three months ended September 30, 2013, we received $287,410 from gold ore sales compared to $714,990 in the three months ended September 30, 2012. Gold ore shipments made during the quarter contained approximately 293 ounces, compared to 427 ounces in the third quarter of 2012. The gross value of gold ore delivered during the current quarter was approximately $366,373 before processing and milling charges, compared to a gross value of approximately $655,184 in the third quarter of 2012. Average ore grades from third quarter 2013 shipments were approximately 1.2 ounces (34 grams) gold per ton, compared to 1.6 ounces (45.36 grams) in the third quarter of 2012. An average of 21% reduction in gold prices received on ore sales during the third quarter of 2013, vs. the year-ago period, was also a significant factor in the Company’s reduced revenues.
Exploration expenses decreased from $335,692 in the three months ended September 30, 2012, to $206,506 in the three months ended September 30, 2013, mainly due to a decrease in labor and mining supplies as mining activities were shifted to more compelling (higher grade) exploration targets at lower levels within the mine. As previously announced, based upon assays of crushed vein material received to date, significantly higher ore grades have been encountered in this new exploration area.
Operating expenses decreased from $282,127 in the quarterly period ended September 30, 2012, to $101,822 in the quarterly period ended September 30, 2013. Professional and consulting fees decreased to $28,286 in the three months ended September 30, 2013, compared to $201,990 in the three months ended September 30, 2012 period. General and administrative expenses decreased to $34,536 from $42,637 in the three months ended September 30, 2013 and 2012, respectively. Officer salaries were $39,000 and $37,500 in the three month periods ending September 30, 2013 and 2012, respectively. We realized an operating loss of $20,918 during the three months ended September 30, 2013, as compared to operating income of $91,171 in the comparable period in 2012.
Interest expense totaled $1,871 and $20,767 in the three months ended September 30, 2013, and 2012, respectively.
Net income totaled $522, or $0.00 per share, in the three months ended September 30, 2013, compared to net income of $76,404 or $0.00 per share, in the three months ended September 30, 2012. Net loss attributable to common shareholders totaled $18,035, or $(0.00) per share, in the three months ended September 30, 2013, compared to net income attributable to common shareholders of $76,404 or $0.00 per share, in the three months ended September 30, 2012. As stated above, lower average ore grades during the current year coupled with reduced gold prices received upon settlement were significant factors in these comparative financial results.
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For The Nine months Ended September 30, 2013 Compared to The Nine months Ended September 30, 2012
During the nine months ended September 30, 2013, we received $790,037 from gold ore sales compared to $1,567,261 in the nine months ended September 30, 2012. Gold ore shipments made during the period contained approximately 461 ounces, compared to 642 in the nine months ended September 31, 2012. The gross value of gold ore delivered during the period was approximately $660,144 before processing and milling charges, compared to a gross value of approximately $881,881 in the nine months ended September 31, 2012. Average ore grades from first quarter 2013 shipments were approximately 1.11 ounces (31.57 grams) gold per ton, compared to 1.77 ounces (50.18 grams) in the nine months ended September 31, 2012. Significantly lower gold prices on ore settlements were also a factor in reduced 2013 revenues during this period.
Exploration expenses decreased from $909,488 in the nine months ended September 30, 2012, to $656,032 in the nine months ended September 31, 2013, mainly due to a decrease in exploration efforts in the period ended September 30, 2013.
Operating expenses decreased from $622,835 in the nine months ended September 30, 2012, to $330,264 in the nine months ended September 30, 2013. Professional and consulting fees decreased to $100,766 in the nine months ended September 30, 2013, compared to $382,082 in the nine months ended September 30, 2012. General and administrative expenses decreased to $115,498 from $128,253 in the nine months ended September 30, 2013 and 2012, respectively. Officer salaries were $114,000 and $112,500 in the six month periods ending September 30, 2013 and 2012, respectively. We realized an operating loss of $196,259 during the nine months ended September 30, 2013, as compared to operating income of $34,938 in the comparable period in 2012.
Interest expense totaled $3,823 and $135,935 in the nine months ended September 30, 2013, and 2012, respectively. Interest income was $2 in the nine months ended September 30, 2013, and $8 in the nine months ended September 30, 2012. Gain on extinguishment of reclamation obligation was $23,311 in the nine months ended September 30, 2013, and $0 in the nine months ended September 30, 2012. Stock based expense totaled $2,756,000 in the nine months ended September 30, 2013 due to the valuation of 5,200,000 common shares not being subject to the 2013 reverse stock split, compared to $0 in the nine months ended September 30, 2012.
Net loss totaled $2,932,769 in the nine months ended September 30, 2013, compared to a net loss of $100,989 in the three months ended September 30, 2012. Net loss attributable to common shareholders totaled $2,951,326, or $(0.20) per share, in the nine months ended September 30, 2013, compared to a net loss attributable to common shareholders of $100,989, or $(0.01) per share, in the three months ended September 30, 2012.
Liquidity
Current assets at September 30, 2013 totaled $262,332. As of that date, we had $26,257 in cash, $24,300 in restricted cash and $211,775 in accounts receivable, as compared to $87,329 in cash, $151,524 in accounts receivable and $1,688 in prepaid assets at December 31, 2012.
During the nine months ended September 30, 2013, our operating activities used net cash of $80,675, compared to $98,813 in the comparable 2012 period. There were no investing activities in the three months ended September 30, 2013 or 2012. Cash flows from financing activities consisted of cash from the sale of convertible preferred stock of $55,000, cash paid for preferred stock dividends of $5,400, cash paid for preferred stock offering costs of $5,500 and an increase in restricted cash of $24,300 in the nine months ended September 30, 2013, compared to $0 in the comparable 2012 period.
At September 30, 2013, the Company had a working capital deficit of $251,710, as compared to working capital deficit of $203,172 at December 31, 2012.
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.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2013, 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 that 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.
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PART II - OTHER INFORMATION
None; not applicable.
Item 1A. Risk Factors.
Not required.
None; not applicable
None; not applicable
None, not applicable.
During the three months ended September 30, 2013, 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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31.1
31.2
32.1
32.2
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Certification of Kye Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Michael J. Hess Pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Kye Abraham Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Michael J. Hess Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL Instance Document*
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101.PRE.
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XBRL Taxonomy Extension Presentation Linkbase*
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101.LAB
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XBRL Taxonomy Extension Label Linkbase*
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase*
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase*
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101.SCH
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XBRL Taxonomy Extension Schema*
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*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. 101 XBRL Instant Documents (IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
LKA GOLD INCORPORATED
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Date:
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November 19, 2013
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By:
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/s/Kye Abraham
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Kye Abraham, President, Chairman of the Board and Director
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Date:
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November 19, 2013
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By:
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/s/Nanette Abraham
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Nanette Abraham, Secretary, Treasurer and Director
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