Attached files
| file | filename |
|---|---|
| EX-95 - MINE SAFETY DISCLOSURES - LKA GOLD Inc /DE/ | exhibitninetyfive.htm |
| EX-32.1 - EX 32.1 - LKA GOLD Inc /DE/ | exhibitthirtytwoone.htm |
| EX-31.1 - EX 31.1 - LKA GOLD Inc /DE/ | exhibitthirtyoneone.htm |
| EX-32.2 - EX 32.2 - LKA GOLD Inc /DE/ | exhibitthirtytwotwo.htm |
| EX-31.2 - EX 31.2 - LKA GOLD Inc /DE/ | exhibitthirtyonetgwo.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, 2014
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File No. 000-17106
LKA GOLD INCORPORATED
(An Exploration Stage Company)
(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]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
- 1 -
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 14, 2014, 19,165,152 shares of common stock.
- 2 -
PART I
The Financial Statements of LKA Gold Incorporated (an Exploration Stage Company), 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.
- 3 -
LKA GOLD INCORPORATED
Consolidated Balance Sheets
(Unaudited)
|
ASSETS
|
|||||||||
|
September 30, 2014
|
December 31, 2013
|
||||||||
|
CURRENT ASSETS
|
|||||||||
|
Cash
|
$
|
980,953
|
$
|
8,740
|
|||||
|
Restricted cash
|
-
|
42,907
|
|||||||
|
Accounts receivable
|
72,577
|
38,638
|
|||||||
|
Total Current Assets
|
1,053,530
|
90,285
|
|||||||
|
FIXED ASSETS
|
|||||||||
|
Land, equipment and mining claims
|
811,085
|
807,085
|
|||||||
|
Accumulated depreciation
|
(319,780
|
)
|
(292,856
|
)
|
|||||
|
Total Fixed Assets, Net of Accumulated Depreciation
|
491,305
|
514,229
|
|||||||
|
OTHER NON-CURRENT ASSETS
|
|||||||||
|
Reclamation bonds
|
123,597
|
123,597
|
|||||||
|
TOTAL ASSETS
|
$
|
1,668,432
|
$
|
728,111
|
|||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|||||||||
|
CURRENT LIABILITIES
|
|||||||||
|
Accounts payable
|
$
|
147,292
|
$
|
272,579
|
|||||
|
Accounts payable – related party
|
2,386
|
102,497
|
|||||||
|
Note payable
|
10,000
|
10,000
|
|||||||
|
Accrued wages and advances payable to officer
|
150,977
|
161,866
|
|||||||
|
Total Current Liabilities
|
310,655
|
546,942
|
|||||||
|
NON-CURRENT LIABILITIES
|
|||||||||
|
Asset retirement obligation
|
111,741
|
127,310
|
|||||||
|
Total Liabilities
|
422,396
|
674,252
|
|||||||
|
Commitments and Contingencies
|
|||||||||
|
STOCKHOLDERS’ EQUITY
|
|||||||||
|
Preferred stock; $0.001 par value, 50,000,000 shares authorized, 0 and 1,800 shares issued and outstanding, respectively
|
-
|
2
|
|||||||
|
Common stock, $0.001 par value, 50,000,000 shares authorized, 19,165,152 and 14,976,556 shares issued and 19,121,528 and 10,432,932 shares outstanding, respectively
|
19,165
|
14,977
|
|||||||
|
Additional paid-in capital
|
17,988,119
|
16,428,239
|
|||||||
|
Treasury stock; 43,624 and 43,624 shares at cost, respectively
|
(86,692
|
)
|
(86,692
|
)
|
|||||
|
Accumulated deficit
|
(16,674,556
|
)
|
(16,302,667
|
)
|
|||||
|
Total Stockholders’ Equity
|
1,246,036
|
53,859
|
|||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
1,668,432
|
$
|
728,111
|
|||||
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
|||||||||
- 4 -
LKA GOLD INCORPORATED
Consolidated Statements of Operations
(Unaudited)
|
For the Three Months Ended
September 30,
|
For the Nine months Ended
September 30,
|
|||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
REVENUES
|
||||||||||||||||
|
Sales - precious metals
|
$
|
232,563
|
$
|
287,410
|
$
|
673,646
|
$
|
790,037
|
||||||||
|
EXPLORATION COSTS
|
213,484
|
206,506
|
538,757
|
656,032
|
||||||||||||
|
GROSS MARGIN
|
19,079
|
80,904
|
134,889
|
134,005
|
||||||||||||
|
OPERATING EXPENSES
|
||||||||||||||||
|
Professional fees
|
12,247
|
28,286
|
239,033
|
100,766
|
||||||||||||
|
General and administrative
|
65,580
|
34,536
|
149,391
|
115,498
|
||||||||||||
|
Officer salaries
|
37,500
|
39,000
|
112,500
|
114,000
|
||||||||||||
|
Total Operating Expenses
|
115,327
|
101,822
|
500,924
|
330,264
|
||||||||||||
|
OPERATING LOSS
|
(96,248
|
)
|
(20,918
|
)
|
(366,035
|
)
|
(196,259
|
)
|
||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||||||
|
Stock based expense for shares not subject to reverse split
|
-
|
-
|
-
|
(2,756,000
|
)
|
|||||||||||
|
Gain on extinguishment of reclamation bond
|
-
|
23,311
|
-
|
23,311
|
||||||||||||
|
Interest expense
|
(1,637
|
)
|
(1,871
|
)
|
(5,856
|
)
|
(3,823
|
)
|
||||||||
|
Interest income
|
-
|
-
|
2
|
2
|
||||||||||||
|
Total Other Income (Expense)
|
(1,637
|
)
|
21,440
|
(5,854
|
)
|
(2,736,510
|
)
|
|||||||||
|
NET INCOME (LOSS)
|
$
|
(97,885
|
)
|
$
|
522
|
$
|
(371,889
|
)
|
$
|
(2,932,769
|
)
|
|||||
|
Dividends on, and related to beneficial conversion feature of, convertible preferred stock
|
-
|
(18,557
|
)
|
-
|
(18,557
|
)
|
||||||||||
|
NET INCOME (LOSS) ATTRIBUTED TO COMMON STOCKHOLDERS
|
$
|
(97,885
|
)
|
$
|
(18,035
|
)
|
$
|
(371,889
|
)
|
$
|
(2,951,326
|
)
|
||||
|
BASIC NET INCOME (LOSS) PER COMMON SHARE
|
$
|
(0.01
|
)
|
$
|
0.00
|
$
|
(0.03
|
)
|
$
|
(0.20
|
)
|
|||||
|
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
14,113,743
|
14,827,783
|
13,201,892
|
14,811,913
|
||||||||||||
|
DILUTED NET INCOME (LOSS) PER COMMON SHARE
|
$
|
(0.01
|
)
|
$
|
0.00
|
$
|
(0.03
|
)
|
$
|
(0.20
|
)
|
|||||
|
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
14,113,743
|
14,827,783
|
13,201,892
|
14,811,913
|
||||||||||||
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
- 5 -
LKA GOLD INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
|
For the Nine Months Ended September 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$
|
(371,889
|
)
|
$
|
(2,932,769
|
)
|
||
|
Items to reconcile net loss to net cash provided (used) by operating activities:
|
||||||||
|
Accretion of asset retirement obligation
|
3,406
|
3,168
|
||||||
|
Depreciation and amortization
|
26,924
|
26,924
|
||||||
|
Common stock warrants issued for services
|
1,684
|
23,924
|
||||||
|
Common stock issued for services
|
181,909
|
-
|
||||||
|
Common stock issued for expenses – related party
|
9,125
|
-
|
||||||
|
Stock based expense for shares not subject to reverse split
|
-
|
2,756,000
|
||||||
|
Changes in operating assets and liabilities
|
||||||||
|
Increase in accounts receivable
|
(33,939
|
)
|
(60,251
|
)
|
||||
|
Decrease in prepaid and other assets
|
-
|
1,688
|
||||||
|
Decrease in reclamation bonds
|
-
|
30,312
|
||||||
|
Increase (decrease) in accounts payable and accounts payable - related party
|
(188,899
|
)
|
51,891
|
|||||
|
Increase (decrease) in accrued expenses
|
(10,889
|
)
|
18,241
|
|||||
|
Decrease in asset retirement obligation
|
(18,975
|
)
|
-
|
|||||
|
Net Cash Used by Operating Activities
|
(401,543
|
)
|
(80,872
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Cash paid for construction in-process
|
(4,000
|
)
|
-
|
|||||
|
Change in Restricted Cash
|
42,907
|
-
|
||||||
|
Net Cash Provided by Investing Activities
|
38,907
|
-
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Common stock issued for cash
|
1,500,000
|
-
|
||||||
|
Cash paid for Common stock offering costs
|
(162,044
|
)
|
-
|
|||||
|
Convertible preferred stock issued for cash
|
-
|
55,000
|
||||||
|
Cash paid for preferred stock offering costs
|
-
|
(5,500
|
)
|
|||||
|
Cash paid for preferred stock dividends
|
(3,107
|
)
|
(5,400
|
)
|
||||
|
Net increase in restricted cash
|
-
|
(24,300
|
)
|
|||||
|
Net Cash Provided by Financing Activities
|
1,334,849
|
19,800
|
||||||
|
INCREASE (DECREASE) IN CASH
|
972,213
|
(61,072
|
)
|
|||||
|
CASH AT BEGINNING OF PERIOD
|
8,740
|
87,329
|
||||||
|
CASH AT END OF PERIOD
|
$
|
980,953
|
$
|
26,257
|
||||
|
CASH PAID FOR:
|
||||||||
|
Interest
|
$
|
900
|
$
|
900
|
||||
|
Income Taxes
|
$
|
-
|
$
|
-
|
||||
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Common stock issued to settle related party accounts payable
|
$
|
36,500
|
$
|
-
|
||||
|
Common stock issued for finders fees
|
$
|
138,300
|
$
|
-
|
||||
|
Common stock proceeds remitted for future stock distribution rights (see Note 4)
|
$
|
300,000
|
$
|
-
|
||||
|
Conversion of preferred shares to common shares
|
$
|
44
|
$
|
-
|
||||
|
Common stock issued for warrant settlement fee
|
$
|
6,080
|
$
|
-
|
||||
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
||||||||
- 6 -
LKA GOLD INCORPORATED
Notes to the Consolidated Unaudited Financial Statements
September 30, 2014
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
LKA Gold Incorporated (Formerly LKA International, Inc.) (“LKA” or the “Company”) is currently engaged in efforts to expand mine production and continues to seek additional investment opportunities. LKA is an exploration stage company and has no proven reserves. LKA generates revenues from the sale of gold bearing vein material. As such, there can be no basis of reliance upon the continuing generation of revenue. Exploration costs related to locating and evaluating gold bearing material, as well as determining the economic mineability of gold bearing material deposits, are expensed as incurred. All costs related to mine exploration have been expensed to-date due to there being no proven and probable reserves. LKA’s costs of goods sold and gross profit are not comparable to those of revenue-generating gold mining companies in the production stage as LKA is not permitted to capitalize certain costs.
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 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
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 Abraham & Co., Inc, a company owned by an officer and shareholder, $1,500 per month for office services, rent and expenses. LKA owed Abraham & Co. $1,500 and $51,500 as of September 30, 2014 and December 31, 2013, respectively. During February 2014, LKA issued 108,631 shares, valued at $45,625, to settle accrued payables of $36,500 and expenses of $9,125. Abraham & Co. is a FINRA member and registered investment advisor that also executes LKA’s securities transactions and manages its investment portfolio.
Related Party Debt – Accounts and Wages Payable
At September 30, 2014 and December 31, 2013, LKA owes $886 and $50,997, respectively, for purchases made on the personal credit card of LKA’s President, Kye Abraham. Additionally, LKA owed Kye Abraham $150,977 and $161,866 in unpaid salary at September 30, 2014 and December 31, 2013, respectively.
- 7 -
LKA GOLD INCORPORATED
Notes to the Consolidated Unaudited Financial Statements
September 30, 2014
NOTE 3 - SIGNIFICANT EVENTS
Precious Metals Sales
During January through September 2014, LKA delivered a total of approximately 311.81 dry short tons of gold bearing vein material (“shipments”) for processing with a net revenue value of $673,646. Approximately 178 tons of crushed vein material remained unsold at September 30, 2014. At September 30, 2014 and December 31, 2013, LKA had receivables from shipments of $72,577 and $38,638, respectively.
NOTE 4 - COMMON STOCK AND COMMON STOCK OPTIONS AND WARRANTS
Common Stock
During January 2014, LKA issued 25,000 shares of common stock for services to a consultant. LKA recognized $12,748 in non-cash consulting expense, or $0.51 per share.
During February 2014, LKA issued a total of 339,000 shares of common stock for services to four consultants. LKA recognized $169,161 in non-cash consulting expense
During February 2014, LKA issued 108,631 shares of common stock for accrued office space rent to Abraham & Co., Inc., a related party entity, valued at $45,625, for accrued amounts of $36,500 and expense of $9,125.
During February 2014, the holder of 1,800 shares of Preferred Stock elected to convert all of the Preferred Stock into 45,000 shares of common stock.
During June 2014, LKA issued 20,965 shares of common stock to Abraham & Co. for commissions related to the issuance of convertible preferred stock. The value of the common shares of $6,080, or $0.29 per share, was recorded as convertible preferred stock issuance costs at September 30, 2014.
During August 2014, LKA completed a private placement of 7,200,000 shares of common stock with Koski Family Limited Partnership (“KFLP”) at a price of $.25 per share. The private placement agreement also calls for LKA to purchase the Brannon Limited Partnership ("Brannon") rights to receive 4,200,000 shares of LKA common stock. Brannon received $300,000 in cash and 650,000 shares of LKA common stock in exchange for its rights to receive future distributions from the remaining 3,850,000 shares reserved by the Company for this purpose. LKA cancelled the remaining shares.
LKA also entered into an Investment Advisory and Finder’s Fee Agreement as part of the private placement agreement (“Advisory Agreement”). The Advisory Agreement provided for a cash payment of $150,000 and 300,000 shares of LKA common stock valued at $138,300, or $0.46 per share. The above payments, as well as the $300,000 cash payment to Brannon and an additional $12,044 paid for closing costs, all totaling $600,344 was recorded as common stock issue costs against additional paid-in capital.
- 8 -
LKA GOLD INCORPORATED
Notes to the Consolidated Unaudited Financial Statements
September 30, 2014
NOTE 4 - COMMON STOCK AND COMMON STOCK OPTIONS AND WARRANTS
Common Stock Options and Warrants
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 an initial incentive compensation for his services, LKA issued Mr. Viens warrants to purchase up to 250,000 shares of LKA stock in three tranches on a three-year vesting. 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 value of the warrants was recognized as expense ratably over the vesting term. During the nine months ended September 30 2013, LKA expensed $10,089 related to the warrant vesting.
During the nine months ended September 30, 2014, 100,000 warrants related to the above agreement expired unexercised.
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 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. 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 value of the warrants was recognized as expense ratably over the vesting term. During the nine months ended September 30 2014 and 2013, LKA expensed $1,684 and $3,721 related to the warrants, respectively.
NOTE 5 - NOTIFICATION OF POSSIBLE ENVIRONMENTAL REMEDIATION
In 2002 the Federal Bureau of Land Management (the "BLM") advised LKA of its desire to extend to the Ute-Ulay Property certain environmental clean-up (“remediation”) activities that it is conducting on neighboring properties that LKA does not own. The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006. These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area. The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present. The BLM’s most recent study, “Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report” dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million. Based upon management’s on-going and most recent discussions with Hinsdale County Colorado officials, the Federal Environmental Protection Agency’s (the “EPA”) regional manager, and legal counsel, the actual costs associated with this effort are expected to be approximately $1.2 million; substantially below previous BLM estimates. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA may either require a property owner to perform the necessary cleanup or the agencies may perform the work and seek recovery of costs against the property owner and previous owners. While it cannot be determined with absolute certainty until the project is completed, LKA’s status as a “de minimis” participant and the fact that remediation activities are focused on property located largely outside of LKA’s permitted operating area, LKA management expects this project will have a negligible impact on the LKA’s financial condition. Accordingly, pursuant to Generally Accepted Accounting Principles, LKA management believes it is a remote possibility there will be a material impact to its financial statements and no liability for this project has been recorded as of the period ended September 30, 2014.
- 9 -
LKA GOLD INCORPORATED
Notes to the Consolidated Unaudited Financial Statements
September 30, 2014
NOTE 6 - CONVERTIBLE PREFERRED STOCK
During August through November 2013, LKA issued a total of 9,700 shares of 9% non-voting convertible preferred stock (“Preferred Stock”) for cash of $97,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During September through December 2013, holders of the Preferred Stock elected to convert all of the preferred shares into 164,643 shares of common stock.
During December 2013, LKA issued 1,800 shares of 9% non-voting Preferred Stock for cash of $18,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During January 2014, the holder of the Preferred Stock elected to convert all of the preferred shares into 45,000 shares of common stock.
During the nine months ended September 30, 2014 and 2013, LKA paid $3,107 and $5,400, respectively, of accumulated preferred dividends on the shares of Preferred Stock.
NOTE 7 - 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. As of September 30, 2014, LKA has accumulated significant losses and had negative cash flows from exploration activities. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans to alleviate the adverse financial conditions that create substantial doubt about the LKA's ability to continue as a going concern are as follows:
LKA is currently engaged in an exploration program at the Golden Wonder mine with the objective of returning the mine to a commercial 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 evaluate potential merger, joint venture or lease agreements for the property.
In order to support continued operation of the mine, LKA completed a $1,800,000 capital funding raise in August 2014 (see Note 4). 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.
- 10 -
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
LKA is an exploration stage company and has no proven reserves. LKA currently generates revenues from the sale of gold bearing vein material extracted during the exploration process. As such, there can be no basis of reliance upon the continuing generation of revenue. Exploration costs related to locating and evaluating gold bearing material, as well as determining the economic mineability of gold bearing material deposits, are expensed as incurred. All costs related to mine exploration have been expensed to-date due to there being no proven and probable reserves. LKA’s costs of goods sold and gross profit are not comparable to those of revenue-generating gold mining companies in the production stage as LKA is not permitted to capitalize certain costs.
For The Nine months ended September 30 2014 Compared to The Nine months ended September 30 2013
During the nine months ended September 30, 2014, LKA recognized revenue of $673,646 from the sale of gold bearing vein material, compared to $790,037 in the nine months ended September 30, 2013, a decrease of approximately 15%. Gold bearing vein material sales result from exploration activities at the Golden Wonder mine. At the end of the current period, the Company still had a significant amount of extracted, crushed, vein material that remained unsold. The Company is currently negotiating more favorable terms with certain purchasers/processor for the sale of this material.
Exploration expenses decreased from $656,032 in the nine months ended September 30, 2013, to $538,757 in the nine months ended September 30, 2014, or approximately 18%.
Professional fees increased by $138,267, or approximately 137%, mainly due to the recognition of $183,593 in non-cash equity compensation expense to consultants during the nine months ended September 30, 2014.
General and administrative expenses increased by $33,893, or approximately 29% in the nine months ended September 30, 2014.
We incurred gross losses of $366,035 during the nine months ended September 30, 2014, as compared to a gross loss of $196,259 in the nine months ended September 30, 2013. The increase is mainly due to the recognition of $181,909 in non-cash equity compensation expense to consultants during the nine months ended September 30, 2014 as well as an increase in operating expenses.
- 11 -
Our total other expenses decreased to $5,854 during the nine months ended September 30, 2014, as compared to $2,736,510 in the nine months ended September 30, 2013, mainly as a result of $2,756,000 in one-time non-cash stock based expenses recognized during the nine months ended September 30, 2013.
Interest expense increased to $5,856 during the nine months ended September 30, 2014, as compared to $3,823 in the nine months ended September 30, 2013.
We realized a gain of $23,311 on extinguishment of reclamation bonds during the nine months ended September 30, 2013, we had no such gain during the nine months ended September 30, 2014.
Net loss totaled $371,889, or $0.03 per share, in the nine months ended September 30, 2014, compared to a net loss of $2,932,769, or $0.20 per share, in the nine months ended September 30, 2013.
Approximately 178 wet tons of crushed vein material remained unsold at September 30, 2014.
For The Three months ended September 30 2014 Compared to The Three months ended September 30 2013
During the three months ended September 30, 2014, we recognized revenue of $232,563 from the sale of 177.7 short dry tons of gold bearing vein material at an average grade of 1.156 ounces (32.8 grams) gold per ton, compared to $287,410 in the three months ended September 30, 2013, a decrease of approximately 19%. Gold bearing vein material sales result from our exploration activities at the Golden Wonder mine. At the end of the current period, approximately 118 wet short tons of significantly higher-grade vein material remained unsold. An additional 60 wet short tons of lower-grade material (approximately .4 oz gold per ton) remains stockpiled for blending with future shipments. The Company is currently negotiating terms with certain purchasers/processor for the sale of this material.
Exploration expenses increased from $206,506 in the three months ended September 30, 2013, to $213,484 in the three months ended September 30, 2014, or approximately 3%.
Professional fees decreased from $28,286 in the three months ended September 30, 2013, to $12,247 in the three months ended September 30, 2014, or approximately 57%.
General and administrative expenses increased by $31,044, or approximately 90% in the three months ended September 30, 2014 compared to the three months ended September 30, 2013.
We incurred gross loss of $96,248 during the three months ended September 30, 2014, as compared to a gross loss of $20,918 in the three months ended September 30, 2013. The increase is mainly due to the decrease of $54,847 in sales of gold bearing vein material and an increase of $31,044 in general and administrative expenses during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013.
Interest expenses decreased to $1,637, during the three months ended September 30, 2014, as compared to $1,871 in the three months ended September 30, 2013.
We realized a gain on extinguishment of reclamation bonds during the three months ended September 30, 2013, we had no such gain during the three months ended September 30, 2014.
Net loss totaled $97,885, or $0.01 per share, in the three months ended September 30, 2014, compared to a net gain of $522, or $0.00 per share, in the three months ended September 30, 2013.
Liquidity
Current assets at September 30, 2014 totaled $1,053,530, comprised of $980,953 in cash and $72,577 in accounts receivable, as compared to current assets of $90,285, comprised $8,740 in cash, $42,907 in restricted cash, and $38,638 in accounts receivable at December 31, 2013.
During the nine months ended September 30, 2014, our operating activities used net cash of $401,543, compared to cash used of $80,872 in the comparable 2013 period.
- 12 -
Investing activities provided $38,907 in cash during the nine months ended September 30, 2014, compared to none in the comparable 2013 period.
Financing activities provided $1,334,849 during the nine months ended September 30, 2014, compared to $19,800 in cash provided by financing activities during the nine months ended September 30, 2013. The increase in cash provided by financing activities is mainly due to the sale of common stock for net cash proceeds of $1,337,956 during the three months ended September 30, 2014.
At September 30, 2014, the Company had working capital of $742,875, as compared to working capital deficit of $456,657 at December 31, 2013.
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, 2014, 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.
- 13 -
PART II - OTHER INFORMATION
None; not applicable.
Item 1A. Risk Factors.
Not required.
During January 2014, LKA issued 25,000 shares of common stock for services to a consultant. LKA recognized $12,748 in non-cash consulting expense, or $0.51 per share.
During February 2014, LKA issued a total of 339,000 shares of common stock for services to four consultants. LKA recognized $169,161 in non-cash consulting expense
During February 2014, LKA issued 108,631 shares of common stock for accrued office space rent to Abraham & Co., Inc., a related party entity, valued at $45,625, for accrued amounts of $36,500 and expense of $9,125.
During February 2014, the holder of 1,800 shares of Preferred Stock elected to convert all of the Preferred Stock into 45,000 shares of common stock.
On or about August 11, 2014, 7,200,000 were issued to one entity in exchange for investment proceeds in the amount of $1,800,000.
On or about August 11, 2014, 650,000 shares were issued in exchange for the cancellation of certain contract rights. This issuance was exempt from the registration requirements of Section 5 of the Act pursuant to Section 3(a)(10) of the Act.
With the exception of the 650,000 shares discussed in the prior paragraph which were exempt from registration pursuant to Section 3(a)(10) of the Act, all shares issued as described in this Item 2 were exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the “Act”) because they were issued pursuant to Section 4(2) of the Act since there was no public offering of the shares.
None; not applicable
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in exhibit 95 to this quarterly report.
During the nine months ended September 30, 2014, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors.
- 14 -
|
31.1
31.2
32.1
|
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 of Kye Abraham Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Nanette Abraham Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| 95 | Mine Safety Disclosure Exhibit |
|
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. 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.)
- 15 -
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
|
Date:
|
November 13, 2014
|
By:
|
/s/Kye Abraham
|
|
|
Kye Abraham, President, Chairman of the Board and Director
|
||||
|
Date:
|
November 13, 2014
|
By:
|
/s/Nanette Abraham
|
|
|
Nanette Abraham, Secretary, Treasurer and Director
|
- 16 -