Desert Hawk Gold Corp. - FORM 10-Q

Attached files

file	filename
EX-95 - MINE SAFETY DISCLOSURE - Desert Hawk Gold Corp.	f10q0916ex95_deserthawk.htm
EX-32.2 - CERTIFICATION - Desert Hawk Gold Corp.	f10q0916ex32-2_deserthawk.htm
EX-32.1 - CERTIFICATION - Desert Hawk Gold Corp.	f10q0916ex32-1_deserthawk.htm
EX-31.2 - CERTIFICATION - Desert Hawk Gold Corp.	f10q0916ex31-2_deserthawk.htm
EX-31.1 - CERTIFICATION - Desert Hawk Gold Corp.	f10q0916ex31-1_deserthawk.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016.

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

For the transition period from ___________________to______________________

Commission File Number: 333-169701

Desert Hawk Gold Corp.

(Exact name of registrant as specified in its charter)

Nevada		82-0230997
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1290 Holcomb Ave. Reno, NV		89502
(Address of principal executive offices)		(Zip Code)

(775) 337-8057
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting Company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

Indicate the number of shares outstanding of the issuer’s common stock, as of April 24, 2018: 19,956,603.

DESERT HAWK GOLD CORP.

Form 10-Q

September 30, 2016

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	1

Item 1. Financial Statements	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

Item 4. Controls and Procedures	22

PART II – OTHER INFORMATION	23

Item 3. Defaults Upon Senior Securities.	23

Item 4. Mine Safety Disclosures	23

Item 5. Other Information	23

Item 6. Exhibits	23

SIGNATURES	24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DESERT HAWK GOLD CORP

BALANCE SHEETS

	September 30,			December 31,
	2016			2015
ASSETS	(unaudited)
CURRENT ASSETS
Cash	$	22,477		$	132,509
Inventories (Note 4)		3,152,838			2,553,807
Prepaid expenses and other current assets		167,898			45,752
Total Current Assets		3,343,213			2,732,068

PROPERTY AND EQUIPMENT, net (Note 5)		4,394,987			4,584,394
MINERAL PROPERTIES AND INTERESTS, net (Note 6)		1,114,675			1,314,006
RECLAMATION BONDS (Note 6)		745,084			1,418,070

TOTAL ASSETS	$	9,597,959		$	10,048,538

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	988,943		$	754,064
Accrued liabilities-officer wages (Note 13)		441,577			308,885
Interest payable (Notes 7, 8 and 9)		165,000			97,500
Interest payable - related party (Note 10)		6,716,741			5,230,779
Convertible debt (Note 7)		600,000			600,000
Obligation under capital lease - related party (Note 8)		76,161			-
Short tern note payable		50,000			-
Notes payable - equipment (Note 9)		1,004,703			803,388
Notes payable - related parties (Note 10)		13,760,492			13,040,492
Total Current Liabilities		23,803,617			20,835,108

LONG-TERM LIABILITIES
Asset retirement obligation (Note 12)		955,981			901,597
Obligation under capital lease - related party (Note 8)		102,777			-
Notes payable - equipment (Note 9)		394,445			1,077,387
		1,453,203			1,978,984
TOTAL LIABILITIES		25,256,820			22,814,092

COMMITMENTS AND CONTINGENCIES (Notes 11, 12, 14 and 15)

STOCKHOLDERS’ (DEFICIT) (Note 3)
Preferred Stock, $0.001 par value, 10,000,000 shares authorized
Series A: 958,033 shares issued and outstanding		958			958
Series A-1: No shares issued and outstanding		-			-
Series A-2: 180,000 shares issued and outstanding		180			180
Series B: 444,530 shares issued and outstanding		444			444
Common stock, $0.001 par value, 100,000,000 shares authorized; 13,356,603 shares issued and outstanding		13,228			13,228
Additional paid-in capital		9,120,018			9,120,018
Accumulated deficit		(24,793,689	)		(21,900,382	)
Total Stockholders’ (Deficit)		(15,658,861	)		(12,765,554	)

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$	9,597,959		$	10,048,538

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

DESERT HAWK GOLD CORP

STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015

REVENUE:
Concentrate sales	$	245,873		$	721,167		$	1,041,006		$	2,815,808

EXPENSES
General project costs		433,585			697,508			1,215,703			2,282,835
Exploration expense		8,960			1,590			18,640			10,860
Consulting		3,877			-			15,939			1,343
Officers and directors fees		45,000			41,577			135,000			131,538
Legal and professional		2,158			10,110			47,666			55,981
General and administrative		71,905			94,548			255,185			328,231
Abandonment of mineral property		137,766			-			137,766			-
Loss on exchange of equipment		-			-			51,222			-
Depreciation and amortization		126,016			119,985			432,005			420,133
		829,267			965,318			2,309,126			3,230,921

OPERATING LOSS		(583,394	)		(244,151	)		(1,268,120	)		(415,113	)

OTHER INCOME (EXPENSE)
Interest and other income		60			494			1,055			1,351
Interest and financing expense		(34,528	)		(740,775	)		(140,280	)		(740,775	)
Interest expense - related party		(468,589	)		(517,102	)		(1,485,962	)		(1,491,933	)
		(503,057	)		(1,257,383	)		(1,625,187	)		(2,231,357	)

LOSS BEFORE INCOME TAXES		(1,086,451	)		(1,501,534	)		(2,893,307	)		(2,646,470	)
INCOME TAXES		-			-			-			-

NET LOSS	$	(1,086,451	)	$	(1,501,534	)	$	(2,893,307	)	$	(2,646,470	)

BASIC AND DILUTED NET LOSS PER SHARE	$	(0.08	)	$	(0.12	)	$	(0.22	)	$	(0.20	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED		13,356,603			13,056,603			13,356,603			13,056,603

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

DESERT HAWK GOLD CORP

STATEMENTS OF CASH FLOWS (unaudited)

	Nine Months Ended
	September 30,			September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,893,307	)	$	(2,646,470	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		432,004			559,424
Loss on exchange of equipment		51,222			-
Preferred stock issued for financing expense		-			740,775
Accretion of asset retirement obligation		54,384			44,872
Abandonment of mineral property		137,766			-
Net gain (loss) on disposal of asset		-			1,009
Loss on stock redeemed with gold proceeds		-			12,797
Changes in operating assets and liabilities:
Inventories		(599,031	)		(221,856	)
Prepaid expenses and other current assets		(122,146	)		(10,286	)
Accounts payable and accrued expenses		234,879			(239,032	)
Accrued liabilities - officer wages		132,692			19,846
Interest payable		67,500			67,500
Interest payable - related party		1,485,962			1,355,544
Net cash used by operating activities		(1,018,075	)		(315,877	)

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property and equipment		(17,644	)		(245,568	)
Proceeds from sale of equipment		-			9,192
Refund of reclamation bonds		674,000			-
Increase in reclamation bonds		(1,014	)		(4,551	)
Net cash provided (used) by investing activities		655,342			(240,927	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term note payable		50,000			-
Proceeds from note payable - related party		1,620,000			925,000
Payment on note payable - related party		(900,000	)		-
Payment of equipment lease		(6,680	)		-
Payment of note payable - equipment		(510,619	)		(389,356	)
Net cash provided by financing activities		252,701			535,644

NET INCREASE (DECREASE) IN CASH		(110,032	)		(21,160	)
CASH, BEGINNING OF PERIOD		132,509			161,645

CASH, END OF PERIOD	$	22,477		$	140,485

NON-CASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired with note payable - equipment	$	28,992		$	1,624,276
Equipment acquired under capital lease		185,618			-
Accounts payable converted to notes payable - equipment		-			150,375
Additions to redemption of gold loan payable		-			94,797
Equipment acquired with accounts payable - equipment		-			47,876
Accounts payable satisfied through exchange of equipment		36,000			-

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

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Desert Hawk Gold Corp. (the “Company”) was incorporated on November 5, 1957, in the State of Idaho as Lucky Joe Mining Company. On July 17, 2008, the Company merged with its wholly-owned subsidiary, Lucky Joe Mining Company, a Nevada corporation, for the sole purpose of effecting a change in domicile from the State of Idaho to the State of Nevada. Lucky Joe Mining Company (Nevada) was the continuing and surviving corporation and each outstanding share of Lucky Joe Mining Company (Idaho) was converted into one outstanding share of Lucky Joe Mining Company (Nevada). On April 3, 2009, the Company filed a Certificate of Amendment with the State of Nevada changing the name of the Company to Desert Hawk Gold Corp. On June 30, 2014, the Company dissolved its sole subsidiary, Blue Fin Capital, Inc. As a result, the Company has no subsidiaries.

During the year ended December 31, 2009, the Company entered into Joint Venture Agreements with the Clifton Mining Company, the Woodman Mining Company and the Moeller Family Trust for the lease of certain of their property interests in the Gold Hill Mining District of Utah. In 2011, the Company entered into an agreement with DMRJ Group, a Platinum Partners’ related entity managed by Platinum Partners’ Credit Fund (PPCO), which allowed for long term funding of the Kiewit project and helped to provide cash flow for operations during the period from 2009 until 2014 while the permitting process was ongoing. The final permit needed to begin development of the Kiewit property was received in January 2014 and development began in February 2014. Construction at the site was substantially complete at September 30, 2014. Revenue from the Kiewit heap leach operation began in October 2014 with the first sales of gold and silver.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited interim balance sheets and statements of operations and cash flows contain all adjustments, consisting of normal recurring items, necessary to present fairly, in all material respects, the financial position of the Company as of September 30, 2016, and the results of its operations and its cash flows for the nine months ended September 30, 2016 and 2015. The operating and financial results for the Company for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.

These unaudited interim financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars. These unaudited interim financial statements do not include all note disclosures required by U.S. GAAP on an annual basis, and therefore should be read in conjunction with the annual audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on April 14, 2016.

Inventories

The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. The Company records ore on leach pad, ore in carbon column in process and gold doré, at average production cost per gold ounce, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; depreciation and amortization of property, equipment, and mineral properties; and mine administrative expenses. Revenue from the sale of silver is accounted for as by-product and is deducted from production costs. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per recoverable ounce of gold on the leach pad.

Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time. As of September 30, 2016, the Company had a limited operating history and actual results only over that short period of time. Due to this, estimates of recoverable gold are based primarily on initial tests and only limited refinements.

Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover during the next 12-18 months.

Revenue

Sales of all metals products are recorded as revenues when title and risk of loss transfer to the purchaser. Sales to the purchaser are recorded at gross sales price, with charges for treatment, refining, smelting and other charges included as part of general project costs.

Earnings (loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of the Company. At September 30, 2016 and 2015, common stock equivalents outstanding are as follows:

	September 30, 2016		September 30, 2015

Convertible debt		857,142		895,714
Convertible preferred stock		47,211,002		46,237,733

Total		48,068,144		47,133,447

However, the diluted earnings (loss) per share are not presented because its effect would be anti-dilutive due to the Company’s recurring losses.

Going Concern

As shown in the accompanying financial statements, the Company has an accumulated deficit incurred through September 30, 2016, which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

The final permit needed to begin development of the Kiewit property was received in January 2014 and development began in February 2014. Construction at the site was substantially complete at September 30, 2014. The Company will need significant funding to continue operations and increase development through the next fiscal year. This funding is expected to come via sales revenues and loan funds, but the timing and amount of capital requirements will depend on a number of factors, including demand for products and services, metals pricing and the availability of opportunities for expansion through affiliations and other business relationships.

If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

NOTE 3 – CAPITAL STOCK

Common Stock

2016 Activity

No shares of common stock have been issued during the first nine months of 2016.

2015 Activity

The Company failed to repay the convertible debt loan in full on the November 30, 2015 maturity date. Under the terms of debt agreements (see Note 7), the Company issued a total of 300,000 shares of common stock to the note holders on December 2, 2015. This issuance was valued at $0.04 per share ($12,000) which was determined by management to be the fair value of a share of common stock based upon a third party valuation performed in 2014. The issuance was accounted for as financing expense.

The Thirteenth Amendment to the Investment Agreement with DMRJ Group, a fund owned by Platinum Partners’ Credit fund (PPCO), (see Note 10), dated August 2015, contained provisions for shares of common stock to be issued to the Company’s President, Rick Havenstrite, if he operates within 10% of the approved operating budget over twelve months from the date of the amendment. The number of shares to potentially be issued to the Company’s President will be equal to 2.5% of the amount of fully outstanding shares of the Company on a fully diluted basis. These shares have not been issued.

Preferred Stock

2016 Activity

No shares of preferred stock have been issued during the first nine months of 2016. See Note 15 – Subsequent Events regarding the return of DMRJ Group’s equity shares as part of a reorganization with court appointed trustees.

2015 Activity

On August 31, 2015, as part of the Thirteenth Amendment to the Investment Agreement with DMRJ Group (see Note 10), the Company issued 185,194 shares of Series B Preferred Stock to DMRJ Group. The issuance of these shares was determined to meet the requirements of a substantial modification and thus was accounted for using debt extinguishment accounting guidelines. During the year ended December 31, 2015, financing expense of $740,776 was recorded in association with this share issuance, using an estimated fair value of the equivalent shares of $0.04. As a result of this issuance, DMRJ Group beneficially owned approximately 77% of the Company (on a fully-diluted basis). DMRJ Group is considered a related party.

In connection with the 300,000 shares of common stock issued to note holders of convertible debt (see above), the Company issued 9,733 shares of Series B Preferred Stock to satisfy the anti-dilution provisions associated with Series B Preferred Stock. During the year ended December 31, 2015, financing expense in the amount of $38,930 was recorded in association with this share issuance, using an estimated fair value of the equivalent shares of $0.04. This issuance maintains the current 77% beneficial ownership of the Company by DMRJ Group, with total preferred shares convertible into 47,211,002 shares of common stock.

NOTE 4 – INVENTORIES

The following table provides the components of inventories:

	September 30, 2016		December 31, 2015
Ore on leach pad	$	2,948,272	$	2,404,657
Carbon column in process		199,321		144,512
Dore finished goods		5,245		4,638
Total	$	3,152,838	$	2,553,807

Inventories are valued at the lower of cost or net realizable value, which at September 30, 2016 is cost.

NOTE 5 – PROPERTY AND EQUIPMENT

The following is a summary of property, equipment, and accumulated depreciation at September 30, 2016 and December 31, 2015:

	September 30,			December 31,
	2016			2015
Equipment	$	3, 358,356		$	3,154,755
Furniture and fixtures, temporary housing		10,781			10,781
Electronic and computerized equipment		52,874			52,874
Vehicles		73,115			56,830
		3,495,126			3,275,240
Less accumulated depreciation		(1,111,309	)		(768,072	)
		2,383,817			2,507,168

Kiewit property facilities		2,497,435			2,451,973
Less accumulated amortization		(486,265	)		(374,747	)
		2,011,170			2,077,226

Total	$	4,394,987		$	4,584,394

NOTE 6 – MINERAL PROPERTIES AND RECLAMATION BONDS

Mineral properties and interests as of September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016			December 31, 2015
Initial lease fee
Yellow Hammer Site	$	0		$	175,000
Kiewit, Cactus Mill and all other sites		600,000			600,000
		600,000			775,000

Asset retirement obligation
Kiewit Site		789,026			789,026
Kiewit Exploration		10,780			10,780
Cactus Mill		16,133			16,133
Total		815,939			815,939
Accumulated amortization		(301,264	)		(276,933	)
		514,675			539,006

Total	$	1,114,675		$	1,314,006

The Company holds operating interests within the Gold Hill Mining District in Tooele County, Utah, consisting of 247 unpatented claims, including the unpatented mill site claim, and two Utah state mineral leases located on state trust lands. Annual claims fees are currently $155 per claim plus administrative fees.

On September 12, 2016, the Yellow Hammer mineral property was returned to the lessor, Moeller Family Trust, and the Company recognized a loss on abandonment in the amount of $175,000 less the accumulated amortization of $37,234, for a net loss of $137,766.

On January 6, 2014, we obtained the final permit necessary to commence construction of the heap leach pad and process facility. On February 20, 2014, the Kiewit reclamation bond in the amount of $1,348,000 was posted with the State of Utah, Division of Oil, Gas and Mining. This newly calculated bond amount includes bonding for the Yellow Hammer Small Mine and the Yellow Hammer Exploration sites along with the Herat Exploration site. Funds of $92,705 were received in April 2014 by the Company for these refunded reclamation bonds.

On July 7, 2016, the Company replaced the $1,348,000 cash reclamation bond with a surety bond in the same amount. A condition of the surety bond was the deposit of 50% of the bond amount into an escrow account with the bonding company. An escrow account was established with the bonding company and $674,000 (50% of the original cash bond) was deposited by the Company. The surety bond carries an annual bonding fee of $40,400. Total reclamation bonds posted at September 30, 2016 and December 31, 2015 are $745,085 and $1,417,355, respectively.

NOTE 7 – CONVERTIBLE DEBT

On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders for a total of $600,000. The notes bear interest at 15% per annum. Interest-only is payable in equal monthly installments of $7,500. The notes were originally convertible at any time at a rate of $1.50 per share, but on July 14, 2010 the promissory notes were amended thereby reducing the conversion price to $0.70 due to the note holders’ agreement to subordinate their debt to DMRJ Group (see Note 10). The notes are convertible into potentially 857,142 shares of common stock and principal and interest were initially due November 30, 2012.

On July 5, 2011, the Company entered into an agreement with the two holders of the convertible debt to begin paying their monthly interest in stock rather than cash. Interest was paid with stock through November 30, 2014 and it was agreed that interest will be paid in cash thereafter, however, no cash payments for interest have been made. Accrued interest payable at September 30, 2016 and December 31, 2015 includes $165,000 and $97,500, respectively, for these notes.

The Company failed to repay the loan in full on the November 30, 2012, November 30, 2013, November 30, 2014 and November 30, 2015 maturity dates, so the Company was required to issue an additional 300,000 shares of common stock to these debt holders in each of those years.

In addition, the Company entered into a short-term loan with one of the convertible debt holders on September 29, 2016 in the amount of $50,000. This short-term loan was repaid in full to the investor, with no interest paid, on October 14, 2016.

NOTE 8 – OBLIGATION UNDER CAPITAL LEASE - RELATED PARTY

A capital lease was entered into on June 20, 2016 with RMH Overhead, LLC for the purchase of mining and crushing equipment. RMH Overhead, LLC is an entity owned by the Company’s President, Rick Havenstrite. For the periods ended September 30, 2016 and December 31, 2015, equipment includes assets under capital lease amounting to $178,938 and $0, respectively. The lease is being amortized over the estimated useful life of the equipment. Accumulated amortization at September 30, 2016 and December 31, 2015 was $6,629 and $0. At September 30, 2016, the estimated future minimum lease payments under the capital lease was as follows:

Year ending September 30,
2017	$	126,000
2018		81,000
Total		207,000
Less: Implied interest		(28,062	)
Net present values		178,938
Less: Capital lease obligations-current portion		(102,777	)
Long-term capital lease obligations	$	76,161

NOTE 9 – NOTES PAYABLE – EQUIPMENT

The following is a summary of the equipment notes payable:

	September 30, 2016			December 31, 2015
Note payable to Komatsu Financial, collateralized by a Komatsu Telehandler lift, due in 48 monthly installments of $2,441 including interest at 4.99%.	$	79,601			91,080

Note payable to CAT Financial, collateralized by five pieces of used mining equipment, including three haul trucks, a loader and a grader, due in 36 monthly installments of varying amounts including interest at 4.68%. A loan revision to convert to interest only payments during four months of each year increased the remaining payment amounts due to $82,096. See note below.		960,585			1,347,751

Note payable to HCE Funding, collateralized by a Perkins Elmer AA machine, due in one installment of $7,600 and 22 installments of $520, including interest at 5.00%.		926			5,472

Note payable to Komatsu Financial, collateralized by a Komatsu D275 dozer, due in one monthly installment of $21,000 and 47 monthly installments of $11,674 including interest at 2.99%.		315,437			388,055

Note payable to Komatsu Financial, collateralized by a Komatsu PC400 Excavator, due in 24 monthly installments of $1,647 including interest at 2.5%.		0			9,743
Note payable to Komatsu Financial, due in 12 monthly installments of $3,223, uncollateralized, beginning in April 2016, including interest at 1.16%.		19,337			38,674
Note payable to Star Capital, LLC, collateralized by a 2009 Multiquip generator, due in 24 monthly installments of $1,412, beginning in March 2016, including interest at 11.4%.		23,262			-
		1,399,148			1,880,775
Current portion		(1,004,703	)		(803,388	)
Long term portion	$	394,445		$	1,077,387

Principal payments are as follows for the twelve months ended September 30,
2017	$	1,004,703
2018		335,711
2019		58,734
Total	$	1,399,148

During first quarter 2015, an accounts payable balance of $150,375 relating to lease costs for equipment was converted to Notes payable – equipment, when the Company acquired the equipment.

NOTE 10 – NOTE PAYABLE - RELATED PARTY

DMRJ Group beneficially owns approximately 77% of the Company (on a fully-diluted basis) with Series A, A-2 and B preferred shares convertible to 47,211,002 shares of common stock (See Note 3). They are considered a related party. In July 2010, the Company entered into an Investment Agreement with DMRJ Group. The Agreement has been modified numerous times and at September 30, 2016 operated under the Thirteenth Amendment to the Investment Agreement dated August 31, 2015. The Amendments have provided for extensions of payment dates, increased funding capacity and other modifications to the debt agreement.

The total due to DMRJ Group at September 30, 2016 and December 31, 2015 is as follows:

	September 30,		December 31,
	2016		2015
Principal
Current	$	13,760,492	$	13,040,492
Long-term		-		-
Total		13,760,492		13,040,492
Interest payable
Current		6,716,741		5,230,779
Long-term		-		-
	$	20,476,963	$	18,271,271

The Investment Agreement contains certain negative covenants which prohibit us from the following actions or activities:

●

Incurring any indebtedness except in limited circumstances;

●

Creating any significant liens on any of our properties or assets;

●

Enter into any sale and lease-back transaction involving any of our properties;

●

Make any investments in or loans or advances to other parties;

●

Engage in any merger, consolidation, sale of assets or acquisition transaction, except for the purchase or sale of inventory or certain limited investments;

●

Declare or pay any dividends, except for dividends to DMRJ Group;

●

Engage in any business transactions with affiliates;

●

Make capital expenditures except as permitted in the agreement pertaining to our current mining business;

●

Create any lease obligations;

●

Amend, supplement or modify any existing indebtedness;

●

Enter into any swap, forward, future or derivative transaction;

●

Make any change in our accounting policies or reporting practices;

●

Form additional subsidiaries; or

●

Modify or grant a waiver or release under or terminate any principal lease agreement or other material contract.

At September 30, 2016, the Company has failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the default and has indicated it has no present intent to declare an event of default under the Investment Agreement, as amended.

2016 Activity

Several term loan advances were received from DMRJ Group by the Company between February 9, 2016 and September 30, 2016 totaling $720,000. Included in that, a loan payment of $900,000 was made to DMRJ on July 8, 2016 and a draw was received on July 14, 2016 in the amount of $600,000. The advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to DMRJ Group. These funds were used for working capital and equipment debt repayment.

In the third quarter of 2016, control of the management of DMRJ Group, LLC was given to court appointed trustees of the two major funds of Platinum Partners. DMRJ Group is a fund managed by Platinum-related entities. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). See Note 15 – Subsequent Events for additional details of this development.

2015 Activity

An Eleventh Amendment to the Investment Agreement was entered into on March 17, 2015 which established new minimum principal and interest payment dates which were later revised with the Twelfth and Thirteenth Amendments to the Investment Agreement. The Twelfth Amendment was entered into on June 5, 2015 and allowed for additional funding in the amount of $850,000 for the purpose of additional working capital, financing of the expansion into the east extension of the current pit boundary and to provide for crushing equipment to allow crushing to be done in-house.

The Thirteenth Amendment to the Investment Agreement was entered into on August 31, 2015 and allowed for additional funding of up to $525,000. In 2015, a total of $925,000 had been loaned to the Company pursuant to the Twelfth and Thirteenth Amendments. This funding was used for working capital and to prepare for a drilling program within the existing boundary of the Kiewit Exploration Permit. The Thirteenth Amendment also established new minimum principal and interest payment dates beginning in June 2016 as follows, with the remaining balance to be due thereafter, pursuant to the terms of the Tenth Amendment, whereby all funds in excess of $200,000 working capital, are to be remitted on a quarterly basis in payment of the remaining loan payable:

June 30, 2016	$	500,000
September 30, 2016		800,000
December 31, 2016		600,000
February 28, 2017		500,000
May 31, 2017		2,250,000
August 31, 2017		2,250,000

Total per Minimum Payment Schedule	$	6,900,000

Regardless of the above minimum payment schedule, the loan from DMRJ Group has a due date of October 31, 2016. The Company did not meet this payment date and is in default of the Note and the Investment Agreement (see Note 15).

NOTE 11 – STOCK REDEEMABLE WITH GOLD PROCEEDS

An equity financing was initiated in September 2012 for the sale of up to 1,150,000 shares of the Company’s common stock. This offering closed December 31, 2012 with proceeds of $130,000 raised through sales of 130,000 shares of the Company’s common stock. Under the terms of this offering, the shares can be redeemed for cash generated from the sale of gold for a period of 12 months after commencement of operations at the Kiewit project. Proceeds from 5% of the gold produced during the first year of production will be allocated to fund this option. Shares will be converted on whole ounces only. Each investor received the right to convert a minimum of one-half and up to all of his shares (on a pro rata basis) into the value of the number of ounces represented by the total investment, determined using a base price of $1,000 per ounce. Due to the redemption feature of these shares, management has concluded that the conversion shares should be recorded as a liability and not as equity.

Once sales of concentrate began in 2014, all investors in this equity financing had the option to convert their shares for cash from 5% of the gold sales, and all parties chose to convert. Amounts due to these shareholders are disclosed in the following table. The share conversion is complete at June 30, 2015 and amounts due to shareholders are past due. These amounts are reflected in the financial statements with ‘Accounts payable and accrued expenses’.

	Conversion Shares Due Based on $1,000 Gold Price		Additional Amount Based on Actual Gold Sales Price		Total Due to Shareholders at September 30, 2016
Original Conversion Liability		130,000
Less Conversion:
December 31, 2014		48,000		8,609		56,609
June 30, 2015		82,000		12,797		94,797
Total	$	130,000	$	21,406	$	151,406

Remaining balance to be redeemed at September 30, 2016					$	0

NOTE 12 – REMEDIATION LIABILITY AND ASSET RETIREMENT OBLIGATION

Remediation, reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. In calculating the present value of the asset retirement obligation the Company used a credit adjusted risk free interest rate of 8% to 10% and projected mine lives of five to 12 years, depending on the site. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.

Changes in the reclamation liability for the periods ended September 30, 2016 and December 31, 2015 are as follows:

	Nine months ended September 30, 2016		Year ended December 31, 2015
Reclamation and remediation liability, beginning of period	$	901,597	$	740,268
Obligation incurred		-		101,551
Accretion expense		54,384		59,778
Reclamation and remediation liability, end of period	$	955,981	$	901,597

NOTE 13 – RELATED PARTY TRANSACTIONS

The Company recognized rent expense for rental of office space of $9,000 for the nine months ended September 30, 2016 and 2015, respectively, paid to RMH Overhead, LLC, a company owned by Rick Havenstrite, the Company’s President and a director. Of the amounts recognized as expense, RMH Overhead, LLC was paid $8,000 and $9,000 during the nine months ended September 30, 2016 and 2015, respectively, leaving a total of $14,750 and $13,750 remaining in accounts payable at September 30, 2016 and December 31, 2015, respectively, which represents amounts due from prior years.

During the nine months ended September 30, 2016 and December 31, 2015, the Company recognized wage expense of $45,000, respectively, for office and accounting services performed by Marianne Havenstrite, wife of Rick Havenstrite, who became an officer of the Company during 2013. Part of these amounts, in combination with amounts from prior years, totaling $98,885 and $56,193 remained unpaid at September 30, 2016 and December 31, 2015, respectively and is reflected in accrued liabilities – officer wages.

During the nine months ended September 30, 2016 and 2015, the Company recognized general project cost expense of $10,627 and $3,105, respectively, for geological services provided by Stuart Havenstrite, the father of Rick Havenstrite. $39,367 and $28,740 remain unpaid to Mr. Havenstrite at September 30, 2016 and December 31, 2015. These amounts are included in accounts payable at those dates. Payments were also made to other family members of Rick and Marianne Havenstrite for the nine months ended September 30, 2016 and December 31, 2015 for accounting and engineering services in the amount of $56,984 and $81,692, respectively.

On June 20, 2016, the Company entered into an Equipment Lease Agreement with RMH Overhead, LLC, a company owned by Rick Havenstrite. RMH Overhead, LLC agreed to lease to the Company several pieces of crushing equipment, including a screen plant and four conveyor belts, along with a trackhoe previously owned by the Company. The terms of the lease are payments of $9,212 per month for 24 months, with an effective interest rate of 15%, after which the Company will take ownership of the equipment. The equipment can be purchased from RMH Overhead, LLC at any time without penalty. At September 30, 2016 and December 31, 2015, the remaining amount payable on leased equipment liability is $178,938 and $-0-.

The Thirteenth Amendment to the Investment Agreement with DMRJ Group, a fund owned by Platinum Partners’ Credit fund (PPCO), (see Note 10) dated August 2015, contained provisions for shares of common stock to be issued to the Company’s President, Rick Havenstrite, if he operates within 10% of the approved operating budget over twelve months from the date of the amendment. The number of shares to potentially be issued to the Company’s President will be equal to 2.5% of the amount of fully outstanding shares of the Company on a fully diluted basis. These shares have not been issued.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Mining Properties

During the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the lease of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah. Pursuant to the agreement, if the Company does not place the Yellow Hammer property into commercial production within a three-year period it will be required to make annual penalty payments to the Trust of $50,000. The Yellow Hammer operated for several months in 2011. Under the terms of the Joint Venture Agreement, the Company is required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable. There were no sales and no royalty expense on this property to date in 2016 or in 2015. See Note 15.

A letter of default was received from the Moeller Family Trust in September 2016 demanding the past due penalty payment. The payment was not made and the property was returned to the Moeller Family Trust. The mineral property lease in the amount of $175,000 less accumulated amortization of $37,214 was recognized as a loss on abandonment in the amount of $137,766 at September 30, 2016.

Also during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the lease of their property interests in the Gold Hill Mining District of Utah. Under the terms of the Joint Venture Agreement, the Company is required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable. The Company is also required to pay a 6% net smelter return on any production from the Kiewit gold property. Additionally, if the Company does not place the Kiewit property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three year period, it will be required to make annual penalty payments to Clifton Mining in the amount of $50,000 per location. In 2014, the Company had not begun commercial production and the payments due on July 24, 2014 were paid and accepted by Clifton Mining for the Clifton Shears and Kiewit properties. The Cane Springs property penalty payment was not made in 2013 and this claim was released back to Clifton Mining at that time. Production at the Kiewit property has since begun. Royalty expense of $61,631 and $166,111 was recognized during the nine months ended September 30, 2016 and 2015, respectively, with $128,868 still payable to Clifton Mining Company at September 30, 2016. See Note 15.

A letter of default on the Clifton Shears properties dated September 19, 2016 was received by the Company with a 30 day period for curing the default. On October 17, 2016, past due royalties and the $50,000 penalty payments for each of 2015 and 2016 were paid to Clifton Mining, who then acknowledged the cure of default.

Mining severance tax in the amount of $1,943, based on production, was accrued at September 30, 2016.

Personal property tax due to Tooele County, Utah in the amount of $76,240, based on income projections, was accrued and past due at September 30, 2016. This amount due has not yet been paid.

Employment Agreements

In September 2010, the Company entered into an employment agreement with Mr. Havenstrite as President of the Company, which is ongoing. The agreement requires Mr. Havenstrite to meet certain time requirements and limits the number of other board member obligations in which he can participate. The agreement allows for a base annual salary of $120,000 plus certain performance compensation upon fulfillment of established goals. The agreement allows the Board to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination without cause.

As of September 30, 2016, and December 31, 2015, accrued compensation of $441,577 and $308,885, were due to directors and officers. Of the amounts accrued at September 30, 2016 and December 31, 2015, accrued compensation of $342,692 and $252,692 is due to Rick Havenstrite and $98,885 and $56,193 is due to Marianne Havenstrite.

NOTE 15 – SUBSEQUENT EVENTS

The Company failed to make interest payments required under the convertible notes (see Note 7) for all quarters beginning April 2016 through the current date. As a result, the Company was in default of the Notes. As per the terms of the Investment Agreement, DMRJ Group was informed of this default and had indicated it had no intent to declare an event of default under the Investment Agreement, as amended. In addition, as per the terms of the notes, 300,000 penalty shares per year for 2016 and 2017 were issued to the convertible debt holders for failure to pay the convertible notes in November of 2016 and 2017.

In addition, DMRJ Group (see Note 10) has previously agreed to subordinate to these debtholders Platinum’s interest in the collateral for the Senior Notes, as well as the principal and accrued but unpaid interest on the prior convertible debt (see Note 7) and on the amounts due on the gold loan redemptions (see Note 11). As part of the agreement for this loan, DMRJ Group has agreed to waive the anti-dilution clause of their agreement with the Company.

The Fourteenth Amendment to the Investment Agreement with DMRJ Group was entered into on December 22, 2016 and allowed for December 2016 Term Loan Advances in an amount up to $600,000. The advance was drawn in full.

In the third quarter of 2016, control of the management of DMRJ Group, (a Platinum Partners related entity), was given to court appointed trustees of the two major funds of Platinum Partners. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). Funds in the amount of $944,060 were drawn from the trustees during the first two quarters of 2017 to help fund ongoing expenses.

The Company was working towards a reorganization and recapitalization with the trustees of the two funds and finalized an agreement which closed on March 8, 2018. This agreement discharged all of the debt owed by the Company to DMRJ Group and its related affiliates and returned all of their equity to the Company in exchange for $625,000. The debt and equity were retired and cancelled by the Company. The owners of the convertible debt agreed to fund this payment in full, and to agree to certain concessions on their outstanding notes with the Company, in exchange for 4,500,000 shares of the Company’s Common Stock. All signatures from the court appointed trustees, and funding by the Company, have been received and the agreement was finalized on March 8, 2018. The Company has been temporarily shut down due to this development since third quarter of 2017. The Company expects to release an offering in the near future to fund short-term operations while preparing to re-open the operation.

On February 28, 2018, the terms were changed for the 15% convertible promissory notes, convertible at $.70 per share, to two of the Company’s minority shareholders. The notes, for a total due of $600,000 were amended changing the interest rate from 15% to 10% effective March 1, 2018, and, allowing for accrued interest to be payable in full on May 31, 2019. The amendment further waives the default provision in the notes for past due interest.

One of the convertible debt holders issued two short-term loans to the Company which were subsequently repaid. On September 29, 2016, $50,000 was loaned at no interest and was repaid to the debtholder on October 14, 2016. On November 5, 2016, an additional $25,000 was loaned to the Company at 10% interest and was repaid including interest of $438 on January 18, 2017. These loan funds were used for operating capital.

On October 14, 2016, the Company issued convertible promissory notes, convertible at $.25 per share, to its two convertible debt holders in the amount of $125,000 each (Senior Notes), at 10% interest, due in full on September 30, 2018. Interest is payable on September 30, 2017 and is payable quarterly thereafter.

On August 7, 2017, the convertible debt holders funded an additional aggregate of $500,000 under similar terms. These funds were used to sustain minimum operations of the Company until resolution of the DMRJ Group debt with the trustees. On February 28, 2018 both of these notes were amended to allow for the maturity date and the payment date for accrued interest to be changed to May 31, 2019.

In November 2016, five pieces of mining equipment financed by CAT Financial were repossessed by CAT. The equipment had an original cost of $1,500,888 and accumulated depreciation of $366,288, for an adjusted balance of $1,134,600. The note payable due to CAT at the time of disposition was $960,585. The cost of the equipment and the corresponding note payable was reflected on the balance sheet until final disposition of the equipment. On July 31, 2017, a new agreement was made with Wheeler Machinery and CAT financial for the return of four pieces of this equipment. While the equipment will temporarily remain in the possession of Wheeler Machinery, a new payment schedule was agreed upon which requires 10 equal payments of $39,934 beginning in October 2017. At this time four of those payments have been made. In the event the terms of the new agreement are not met, freight and interest penalties may be assessed and there could be a payment due to CAT for these fees and for the deficit on the return of the equipment. Management has not made an estimate of this additional loss, if any.

During the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the lease of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah. Pursuant to the agreement, if the Company does not place the Yellow Hammer property into commercial production within a three-year period it will be required to make annual non-performance payments to the Trust of $50,000. The Yellow Hammer operated for several months in 2011. Under the terms of the Joint Venture Agreement, the Company is required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable. There were no sales and no royalty expense on this property to date in 2016 or in 2015.

Also, during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the lease of their property interests in the Gold Hill Mining District of Utah. Under the terms of the Joint Venture Agreement, the Company is required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable. The Company is also required to pay a 6% net smelter return on any production from the Kiewit gold property. Additionally, if the Company does not place the Kiewit property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three year period, it will be required to make annual non-performance payments to Clifton Mining in the amount of $50,000 per location. In 2014, the Company had not begun commercial production and the payments due on July 24, 2014 were paid and accepted by Clifton Mining for the Clifton Shears and Kiewit properties. Non-performance payments for the Clifton Shears-Smelter Tunnel property were not made by the due dates in 2015 or 2016. The Cane Springs property non-performance payment was not made in 2013 and this claim was released back to Clifton Mining at that time. Production at the Kiewit property has since begun.

On April 3, 2017, two directors of the Company stepped down from their positions, leaving Rick Havenstrite and Howard Crosby as directors. On April 6, 2017, the Board reduced the number of authorized directors to three and appointed John P. Ryan as a director. In addition, Howard Crosby stepped down from his position as CEO and Rick Havenstrite was appointed to fill the position of CEO.

Effective February 23, 2018, the Board approved and adopted the 2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which 2,400,000 shares of the Company’s Common Stock were authorized. On February 23, 2018, the Board approved the grant of an aggregate of 2,400,000 options under the 2018 Plan exercisable at $0.40 per share which terminate February 23, 2023 in the amounts and to the following:

●

Rick Havenstrite – 1,000,000 options;

●

Howard Crosby – 1,000,000 options;

●

John Ryan – 200,000 options; and

●

Linde Havenstrite – 200,000 options.

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

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

Forward-looking statements

The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this quarterly report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:

	●	default of outstanding secured obligations;
	●	maintaining necessary mining permits;
	●	a decline in metal prices;
	●	environmental hazards;
	●	metallurgical and other processing problems;
	●	unusual or unexpected geological formations;
	●	global economic and political conditions;
	●	disruptions in credit and financial markets;
	●	global productive capacity;
	●	changes in product costing; and
	●	competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, flooding, landslides, power outages, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities).

Mining operations are subject to a variety of existing laws and regulations relating to exploration, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.

These risk factors could cause our results to differ materially from those expressed in forward-looking statements.

Overview

Desert Hawk Gold Corp., a Nevada corporation (the “Company”), is engaged in the search for mineral deposits or reserves which could be economically and legally extracted or produced. In addition, we are currently producing gold and silver at the Kiewit property and had our first sales from the property in October 2014. None of our mining properties has any known reserves and our proposed programs on these properties are exploratory in nature. Our projects are located in the Gold Hill Mining District in Tooele County, Utah.

We were originally incorporated in the State of Idaho on November 5, 1957. For several years we bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2008, we changed our domicile from the State of Idaho to the State of Nevada. In May 2009, we raised funds to recommence mining activities. In July 2009, we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District.

On January 6, 2014, we obtained the final permit necessary to commence construction and development of the Kiewit property. The reclamation bond was posted in February 2014 in the amount of $1,348,000. Development of the project was essentially completed in 2014 using funding provided by DMRJ Group I, LLC, a Delaware limited liability company (“DMRJ Group”). DMRJ Group is a Platinum Partners’ related entity managed by the Platinum Partners’ Credit Fund (“PPCO”). The property is located in a historical mining district that has existing disturbances and mine wastes and is in a very arid, desolate area. The property is also adjacent to, and uphill from, the Dugway Proving Grounds and Air Force Gunnery Range that is deemed an environmentally insensitive area, with low water quality. Management believes that through our leased patented claims we have adequate private land for process facilities. There is no material access from any metropolitan area or community.

On July 24, 2009, we entered into a Joint Venture Agreement with the Clifton Mining Company and Woodman Mining Company under which Clifton Mining granted to us exclusive possession of certain patented and unpatented mining claims and an unpatented mill site claim and certain Utah state mineral leases covering lands in the Gold Hill Mining District located in Tooele County, Utah, for exploration, development and mining, and the right to occupy the properties and to explore, develop and mine the properties for minerals. Woodman Mining also granted us the same rights in certain of these patented mining claims owned jointly with Clifton Mining. Also, on July 24, 2009, we entered into a Joint Venture Agreement with the Jeneane C. Moeller Family Trust under which the trust granted to us exclusive possession of four patented mining claims covering lands in the Gold Hill Mining District located in Tooele County, Utah, for exploration, development and mining, and the right to occupy the properties and to explore, develop and mine the properties for minerals. These claims are known as the Yellow Hammer property. As part of this agreement, if we did not place the Yellow Hammer property into commercial production within a three-year period from the date of the agreement, we would be required to make annual payments to the Moeller Family Trust of $50,000 to retain our rights to this property.

In September of 2016 we received a notice of default regarding the $50,000 annual penalty payment on these claims. The Yellow Hammer agreement was terminated at that time with no payment made and we no longer have rights to any of the claims on the Yellow Hammer property.

Prior to July 1, 2010, we notified Clifton Mining that we would surrender certain of the mining claims and leases originally obtained in our lease agreement with it. Also, in 2010 and in 2012, certain amendments were made to the lease agreements. As part of these agreements, if we did not place the Kiewit property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three-year period from the date of the agreement, we would be required to make annual payments to Clifton Mining of $50,000 per property to retain our rights to those properties.

In September of 2016 we received a notice of default from Clifton Mining regarding the payment of the $50,000 per year penalty payment on the Clifton Shears-Smelter Tunnel property for 2015 and 2016. A payment of $100,000 was made to Clifton Mining in October of 2016 to cure this default. The property payment is not due on the Kiewit property as it has been placed into production and royalties are generated. Past due royalties in the amount of $128,868 were paid to Clifton Mining as part of the resolution of the default notice. There are currently no past due royalties to be paid. The Cane Springs property was released back to Clifton Mining in 2013.

We currently hold leasehold interests within the Gold Hill Mining District consisting of 247 unpatented mining claims, including an unpatented mill site claim, and two Utah state mineral leases located on state trust lands, all covering approximately 10 square miles. Payment for the claims fees for 2016-2017 was made in August 2016. We intend to concentrate our activities on the Kiewit project. Mineral extraction activities on the property at this time are open-pit.

In July 2010, we entered into an Investment Agreement with DMRJ Group. DMRJ Group is a Platinum Partners’ related entity managed by the Platinum Credit Fund (PPCO). The agreement has been modified numerous times and currently operates under the Fourteenth Amendment to the Investment Agreement. The Amendments have provided for extensions of payment dates, increased funding and other modifications to the agreement.

On February 19, 2014, we agreed to the terms of a Tenth Amendment to the Investment Agreement with DMRJ Group. The Tenth Amendment provided for funding of construction of the heap leach pad and process facility, mining development, and operations through a series of monthly term loan advances totaling a maximum of $5,700,000 over five months. A total of $5,500,000 of this allotment was eventually loaned to us. As a part of this amendment, on February 19, 2014, we issued to DMRJ Group 249,603 shares of Series B Preferred Stock. The conversion rate of the Series B Preferred Stock is 100 shares of common stock for each share of Series B Preferred Stock. During 2014, financing expense in the amount of $998,412 was recorded in association with this share issuance, using an estimated fair value of the equivalent common shares of $0.04.

As a result of this issuance, DMRJ beneficially owned approximately 67% of the Company (on a fully-diluted basis) with shares convertible into 27,718,333 shares of common stock.

In connection with the Tenth Amendment, we also amended the Certificates of Designation for the Series A Preferred Stock and the Series A-1 and A-2 Preferred Stock to eliminate the mandatory dividends payable to the holders of the Series A Preferred Stock and to exclude the issuances of certain securities from triggering adjustments.

An Eleventh Amendment to the Investment Agreement was entered into on March 17, 2015 which established new minimum principal and interest payment dates which were then revised with the Twelfth, Thirteenth and Fourteenth Amendments to the Investment Agreement.

The Twelfth Amendment to the Investment Agreement was entered into on June 5, 2015 and allowed for additional funding in the amount of $850,000 for the purpose of additional working capital, financing of the expansion into the east extension of the current pit boundary and to provide for crushing equipment to allow crushing to be done in-house.

The Thirteenth Amendment to the Investment Agreement was entered into on August 31, 2015 and allowed for additional funding of up to $525,000 for operating capital and to provide the ability for crushing operations to be performed in-house. A net total of $720,000 has been loaned to us during the first nine months of 2016. These advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to DMRJ Group. This funding was used for working capital and to prepare for a drilling program within the existing boundary of the Kiewit Exploration Permit.

As part of this amendment, we issued to DMRJ Group 185,194 shares of Series B Preferred Stock. The conversion rate of the Series B Preferred Stock is 100 shares of common stock for each share of Series B Preferred Stock. During the quarter ended September 30, 2015, financing expense in the amount of $740,775 was recorded in association with this share issuance, using an estimated fair value of the equivalent common shares of $0.04. As a result of this issuance, DMRJ Group owns approximately 77% of our Company (on a fully-diluted basis) with shares convertible into 47,211,002 of common stock. DMRJ is considered a related party.

Several term loan advances were received from DMRJ Group by the Company between February 9, 2016 and September 20, 2016 totaling $1,620,000. A loan payment of $900,000 was made to DMRJ on July 8, 2016 which was recorded as a payment against principal of the note, allowing for net loan advances of $720,000. The advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to DMRJ Group. These funds were used for working capital and equipment debt repayment.

The total due to DMRJ at September 30, 2016 and December 31, 2015 is as follows:

	September 30,		December 31,
	2016		2015
Principal
Current	$	13,760,492	$	13,040,492
Long-term		-		-
Total		13,760,492		13,040,492
Interest payable
Current		6,716,741		5,230,779
Long-Term		-		-
	$	20,477,233	$	18,271,271

The Investment Agreement contains certain negative covenants which prohibit us from the following actions or activities:

	●	Incurring any indebtedness except in limited circumstances;
	●	Creating any significant liens on any of our properties or assets;
	●	Enter into any sale and lease-back transaction involving any of our properties;
	●	Make any investments in or loans or advances to other parties;
	●	Engage in any merger, consolidation, sale of assets or acquisition transaction, except for the purchase or sale of inventory or certain limited investments;
	●	Declare or pay any dividends, except for dividends to DMRJ Group;
	●	Engage in any business transactions with affiliates;
	●	Make capital expenditures except as permitted in the agreement pertaining to our current mining business;
	●	Create any lease obligations;
	●	Amend, supplement or modify any existing indebtedness;
	●	Enter into any swap, forward, future or derivative transaction;
	●	Make any change in our accounting policies or reporting practices;
	●	Form additional subsidiaries; or
	●	Modify or grant a waiver or release under or terminate any principal lease agreement or other material contract.

At September 30, 2016, we have failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the defaults and has indicated it has no present intent to declare an event of default under the Investment Agreement.

The Thirteenth Amendment also established new minimum principal and interest payment dates beginning in June 2016 as follows:

June 30, 2016	$	500,000
September 30, 2016		800,000
December 31, 2016		600,000
February 28, 2017		500,000
May 31, 2017		2,250,000
August 31, 2017		2,250,000

Total	$	6,900,000

We failed to make the minimum payments due June 30, 2016 and September 30, 2016.

In the third quarter of 2016, control of the management of DMRJ Group, (a Platinum Partners related entity), was given to court appointed trustees of the two major funds of Platinum Partners. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). Due to the financial constraints caused by this development, we have temporarily suspended operations. Funds in the amount of $944,060 were drawn from the receivers during the first two quarters of 2017 to help fund ongoing expenses.

The Company has been working towards a reorganization and recapitalization with the trustees of the two funds and finalized an agreement on March 7, 2018. This agreement discharged all of the debt owed by the Company to DMRJ Group and its related affiliates and returned all of their equity to the Company in exchange for $625,000. The debt and equity were retired and cancelled by the Company. The owners of the convertible debt agreed to fund this payment in full, and to agree to certain concessions on their outstanding notes with the Company, in exchange for 4,500,000 shares of the Company’s Common Stock. All signatures from the court appointed trustees, and the funding by the Company, have been received and the agreement was finalized on March 7, 2018. The Company has been temporarily shut down due to this problem since third quarter of 2017. The Company expects to release an offering in the near future to fund short-term operations while preparing to re-open the operation.

On February 28, 2018, the terms were changed for the 15% convertible promissory notes, convertible at $.70 per share, to two of the Company’s minority shareholders. The notes, for a total due of $600,000 were amended changing the interest rate from 15% to 10% effective March 1, 2018 and allowing for accrued interest to be payable in full on May 31, 2019. The amendment further waives the default provision in the notes for past due interest.

An equity financing was initiated in September 2012 for the sale of up to 1,150,000 shares of our common stock. This offering closed December 31, 2012 with proceeds of $130,000 raised through sales of 130,000 shares of our common stock. Under the terms of this offering, stock can be converted to cash generated from the sale of gold, for a period of 12 months after commencement of operations at the Kiewit project. Proceeds from 5% of the gold produced during the first year of production will be allocated to fund this option. Each investor received the right to convert a minimum of one-half and up to all of his shares (on a pro rata basis) into the value of the number of ounces represented by the total investment, determined using a base price of $1,000 per ounce. At September 30, 2016, conversion proceeds due to shareholders are $151,406 for all 130,000 conversion shares. Due to the redemption feature of these shares, management has concluded that the proceeds from these stock sales should be recorded as a liability and not as equity. Payment of these funds due to investors has not yet begun, due to limited cash flow, and is included in accounts payable and liabilities. The amount owed to the shareholders in excess of $1,000 per ounce for redemptions through September 30, 2016 is $21,406. This amount has been recorded as an administrative expense.

On June 20, 2016, we entered into an agreement with a related party, RMH Overhead, LLC, to lease certain mining and crushing equipment, some of which was previously owned by us. We have recorded this liability as a capital lease and the liability is reflected on the balance sheet as ‘obligation under capital lease – related party’. The terms of the lease are 24 monthly payments of $9,212 which include interest at 15%. At any time during the lease term, the equipment may be purchased by us for the balance due.

Historically, we have incurred net losses for the years ended December 31, 2015 and 2014 and have also incurred a loss for the nine months ended September 30, 2016.

Our financial statements were prepared assuming that we would continue as a going concern. Our significant cumulative losses from operations as of September 30, 2016 raise substantial doubt about our ability to continue as a going concern. If the going-concern assumption was not appropriate for our financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. During 2016, we have continued to experience losses from operations. We will require additional funding to complete much of our planned mining exploration and operations. Except for potential proceeds from the sale of equity in offerings by us, the issuance of debt, and revenue from existing operations, which has been minimal, we have no other source for additional funding. Our continued net operating losses and stockholders’ deficiency increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Results of Operations for the Nine Months Ended September 30, 2016 and 2015.

The operating loss of $1,268,120 for the nine months ended September 30, 2016 as compared to the operating loss of $415,113 for the nine months ended September 30, 2015 represents an increased loss of $853,007. This increased loss is due to weather related equipment failures and restricted working capital which reduced our ability to conduct mining operations. Other expense for the nine months ended September 30, 2016 was $1,625,187 which consisted of interest and financing expense, decreased by $606,170 as compared to the other expense amount of $2,231,357 for the nine months ended September 30, 2015, due to increased interest on related party debt and a reduction in financing expense. The net overall increase in net loss for the nine months ended September 30, 2016 compared to September 30, 2015 was $246,837.

Liquidity and Cash Flow

Net cash used by operating activities was $1,018,075 during the nine-month period ended September 30, 2016, compared with cash used by operating activities of $315,877 during the nine-month period ended September 30, 2015. This $702,198 increase in the amount of cash used in operating activities is primarily attributable to the weather-related decrease in production and to restrictions caused by insufficient working capital.

Net cash provided by investing activities was $655,342 during the nine-month period ended September 30, 2016, compared to $240,927 cash used by investing activities during the nine-month period ended September 30, 2015. This increase of $896,269 in cash provided by investing activities is due to the reduced investment in property and equipment, and due to the refund of the cash reclamation bond in favor of a surety bond in the first nine months of 2016.

Net cash provided by financing activities was $252,701 during the nine-month period ended September 30, 2016, compared with $535,644 cash provided by financing activities during the nine-month period ended September 30, 2015. The decrease of $282,943 in cash provided by financing activities in 2016 was due to a payment made on the financing agreement with DMRJ Group for the development of the Kiewit property.

As a result of the above, cash decreased by $110,032 during the nine-month period ended September 30, 2016, leaving us with a cash balance of $22,477 as of September 30, 2016.

Critical Accounting Policies

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. See Note 2, “Summary of Significant Accounting Policies,” in our attached unaudited consolidated financial statements for a discussion of those policies.

Revenue Recognition

Mineral Exploration and Development Costs

We account for mineral exploration costs in accordance with ASC 932 Extractive Activities. All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to explore new mines, to define further mineralization in existing bodies of mineralized material, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.

Inventories

Inventories consist of estimated gold on the heap leach pad and in the carbon process system and are valued at the lower of production cost or market value. Gold on the heap leach pad is estimated to be 80% complete for cost purposes and gold in the process system is estimated at 95% complete.

Mineral Properties

We account for mineral properties in accordance with ASC 930 Extractive Activities-Mining. Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Mineral properties are periodically assessed for impairment of value and any diminution in value.

Reclamation and Remediation

For non-operating properties, we accrue costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

Our Chief Executive Officer, who serves as our principal executive officer; and our Treasurer, who serves as our principal financial and accounting officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. However, due to financial considerations, we were unable to timely file this Quarterly Report on Form 10-Q and, thus, our disclosure controls and procedures were not effective to provide 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 the Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during our most recent quarter ended September 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 3. Defaults Upon Senior Securities.

As has been disclosed above, we are currently in default of the Investment Agreement, as amended and the Note with DMRJ Group.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this quarterly report.

Item 5. Other Information

On September 29, 2016, $50,000 was loaned to the Company at no interest by West C Street, one of our convertible debtholders, which was repaid to the debtholder on October 14, 2016.

As of the date of this Quarterly Report on Form 10-Q, we have failed to make interest payments on our notes with Ibearhouse and West C Street. The amount of accrued and unpaid interest as of September 30, 2016, totaled $82,500 for each respective note.

A letter of default was received from the Moeller Family Trust in September 2016 demanding the past due non-performance payment for the Yellow Hammer property. The payment was not made and the property was returned to the Moeller Family Trust.

A letter of default on the Clifton Shears properties dated September 19, 2016 was received by the Company with a 30 day period for curing the default. A payment of $100,000 was made to Clifton Mining in October of 2016 to cure this default.

On July 7, 2016, the Company replaced the $1,348,000 cash reclamation bond with a surety bond in the same amount. A condition of the surety bond was the deposit of 50% ($674,000) of the bond amount into an escrow account with the bonding company. The surety bond carries an annual bonding fee of $40,400.

Item 6. Exhibits

Exhibit No.		Description
31.1		Rule 15d-14(a) Certification by Principal Executive Officer
31.2		Rule 15d-14(a) Certification by Principal Financial Officer
32.1		Section 1350 Certification of Principal Executive Officer
32.2		Section 1350 Certification of Principal Financial Officer
95		Mine Safety Disclosure
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

	Desert Hawk Gold Corp.


Date: April 24, 2018	By:	/s/ Rick Havenstrite
		Rick Havenstrite, Chief Executive Officer
		(Principal Executive Officer)

Date: April 24, 2018	By:	/s/ Marianne Havenstrite
		Marianne Havenstrite, Chief Financial Officer
		(Principal Accounting and Financial Officer)

Attached files

Desert Hawk Gold Corp. Reports

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