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, 2018.

 

or

 

☐  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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

 

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 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, 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.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	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 December 19, 2019: 26,631,603.

 

 

 

DESERT HAWK GOLD CORP.

Form 10-Q

September 30, 2018

 

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			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			23
Item 4. Controls and Procedures			23
PART II – OTHER INFORMATION			24
Item 4. Mine Safety Disclosures			24
Item 6. Exhibits			24
SIGNATURES			25

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

DESERT HAWK GOLD CORP

BALANCE SHEETS (unaudited)

 

		September 30,				December 31,
		2018				2017
ASSETS						(revised)
CURRENT ASSETS
Cash		$	7,185			$	4,212
Inventories (Note 6)			363,708				371,778
Prepaid expenses and other current assets			46,785				102,251
Total Current Assets			417,678				478,241
INVENTORIES, non-current (Note 6)			1,630,858				1,686,592
PROPERTY AND EQUIPMENT, net (Note 7)			3,523,588				3,621,436
MINERAL PROPERTIES AND INTERESTS, net (Note 8)			1,205,387				1,205,387
RECLAMATION BONDS (Note 5)			753,230				753,054
TOTAL ASSETS		$	7,530,741			$	7,744,710
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	696,116			$	679,580
Accrued liabilities-officer and other wages (Note 15)			859,039				709,577
Interest payable - related parties (Notes 9 and 10)			422,722				317,436
Convertible debt - related parties (Note 9)			1,350,000				1,278,000
Obligation under capital lease - related party (Note 10)			68,180				84,110
Short term note payable - related parties (Note 11)			100,000				-
Notes payable - equipment, current portion (Note 12)			407,595				452,214
Notes payable - related parties (Note 13)			-				625,000
Total Current Liabilities			3,903,652				4,145,917
LONG-TERM LIABILITIES
Asset retirement obligation (Note 14)			1,101,005				1,046,621
Obligation under capital lease - related party (Note 10)			-				24,464,670
Notes payable - equipment (Note 12)			-				16,817
			1,101,005				25,528,108
TOTAL LIABILITIES			5,004,657				29,674,025
COMMITMENTS AND CONTINGENCIES (Notes 8, 14, 15, and 17 )
STOCKHOLDERS’ EQUITY (DEFICIT) (Note 4)
Preferred Stock, $0.001 par value, 10,000,000 shares authorized
Series A: 0 and 958,033 shares issued and outstanding			-				958
Series A-1: No shares issued and outstanding			-				-
Series A-2: 0 and 180,000 shares issued and outstanding			-				180
Series B: 0 and 444,530 shares issued and outstanding			-				444
Common stock, $0.001 par value, 100,000,000 shares authorized;  20,581,603 and 13,956,603 shares issued and outstanding			20,453				13,828
Additional paid-in capital			7,000,655				9,143,418
Accumulated deficit			(4,495,024	)			(31,088,143	)
Total Stockholders’ (Deficit)			2,526,084				(21,929,315	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	7,530,741			$	7,744,710

 

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,
		2018				2017				2018				2017
						(revised)								(revised)
REVENUE:
Concentrate sales		$	211,812			$	80,485			$	211,812			$	162,763
EXPENSES:
General project costs			6,810				67,997				763,194				435,884
Consulting			-				1,498				-				36,289
Officers and directors fees			63,000				58,000				189,000				185,537
Legal and professional			39,736				14,952				123,878				55,009
General and administrative			39,114				49,215				640,788				192,827
Depreciation and amortization			107,755				110,954				313,346				322,182
			256,415				302,616				2,030,206				1,227,728
OPERATING LOSS			(44,603	)			(222,131	)			(1,818,394	)			(1,064,965	)
OTHER INCOME (EXPENSE)
Gain on extinguishment of DMRJ debt (Note 13 )			-				-				24,916,561				-
Interest and other income			57				12				176				36
Interest and financing expense			(11,649	)			(16,558	)			(39,103	)			(52,273	)
Interest expense - related party			(35,577	)			(621,440	)			(534,841	)			(1,816,781	)
			(47,169	)			(637,986	)			24,342,793				(1,869,018	)
INCOME (LOSS) BEFORE INCOME TAXES			(91,772	)			(860,117	)			22,524,399				(2,933,983	)
INCOME TAXES			-				-				-				-
NET INCOME ( LOSS)			(91,772	)			(860,117	)			22,524,399				(2,933,983	)
DEEMED CAPITAL CONTRIBUTION ON EXTINGUISHMENT OF PREFERRED STOCK (NOTE 13)			-				-				4,068,720				-
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(91,772	)		$	(860,117	)		$	26,593,119			$	(2,933,983	)
BASIC NET INCOME (LOSS) PER SHARE		$	(0.00	)		$	(0.06	)		$	1.42			$	(0.21	)
DILUTED NET INCOME (LOSS) PER SHARE		$	(0.00	)		$	(0.06	)		$	1.21			$	(0.21	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC			20,581,603				13,656,603				18,696,072				13,656,603
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED			20,581,603				13,656,603				22,078,058				13,656,603

  

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,
		2018				2017
						(revised)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	22,524,399			$	(2,933,983	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization			313,346				322,182
Gain on extinguishment of DMRJ debt (Note 13)			(24,916,561	)			-
Stock based compensation			456,000				-
Accretion of asset retirement obligation			54,384				54,384
Changes in operating assets and liabilities:
Inventories			63,804				(221,093	)
Prepaid expenses and other current assets			55,466				(5,066	)
Accounts payable and accrued expenses			112,605				(102,412	)
Accrued liabilities - officer wages			149,462				150,769
Interest payable - related parties			105,286				87,928
Interest payable - DMRJ			451,891				1,707,418
Net cash used by operating activities			(629,918	)			(939,873	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment			(38,500	)			(30,678	)
Increase in reclamation bonds			(176	)			(169	)
Net cash used by investing activities			(38,676	)			(30,847	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock			1,475,000				-
Proceeds from (payment on) short term note payable			-				(34,500	)
Proceeds from short term notes payable - related parties			100,000				944,060
Proceeds from convertible debt - related parties			72,000				178,000
Payment on note payable - DMRJ			(625,000	)			-
Payment of obligation under capital lease - related party			(15,930	)			(88,065	)
Payment of notes payable - equipment			(334,503	)			(651,350	)
Net cash provided by financing activities			671,567				348,145
NET INCREASE (DECREASE) IN CASH			2,973				(622,575	)
CASH, BEGINNING OF PERIOD			4,212				657,944
CASH, END OF PERIOD		$	7,185			$	35,369
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Extinguishment of preferred stock (Note 13)		$	4,068,720			$	-
Equipment acquired with notes payable - equipment (Note 12)			141,631				-
Accounts payable settled with notes payable - equipment (Note 12)			131,436				-

 

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

 

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Desert Hawk Gold Corp. (the “Company”), a Nevada Corporation, was incorporated on November 5, 1957. The Company commenced its current mining activities on May 1, 2009.

 

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), 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 heap leach operation began in October 2014 with the first sales of gold concentrate. Production commenced and revenues of approximately $7,200,000 from sales of gold and other metals concentrate have been received through December 31, 2018.

 

Ongoing undercapitalization has continued to hamper the Company’s ability to operate. Due to lack of funding, the Company has been temporarily shut down since third quarter of 2017. Subsequent to year end, on March 7, 2019, the Company successfully finalized a lending agreement with PDK Utah Holdings, LLC that enabled production to resume in 2019. See Note 19.

 

On March 8, 2018, the Company successfully finalized an agreement with the trustees of DMRJ Group (“DMRJ”) which eliminated the note and interest payable balance of $25,541,561 due to DMRJ in exchange for $625,000. In addition, all outstanding shares of preferred stock held by DMRJ were retired and cancelled. See Notes 4 and 13.

 

NOTE 2 – REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR IMMATERIAL MISSTATEMENTS

 

In November 2018, management determined inventory was overstated since the beginning of production in 2014 based on an error in estimating the gold ounces contained in the ore on the leach pad. The valuation of inventory requires management to develop estimates of recoverable gold on the leach pad. Factors considered in this estimate include 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 miscalculation was primarily due to usage of an incorrect bench height measurement which resulted in an overstatement of tonnage contained in the pit. The accumulated overstatement of inventory was $1,263,566 through December 31, 2017. In addition, as a result of the change in estimated gold ounces, amortization of mineral properties was also miscalculated because it is based on units of production. Mineral properties were understated by $90,712 at December 31, 2017.

 

Management assessed the materiality of the effect of the errors on our prior annual financial statements, both quantitatively and qualitatively, in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, “Materiality” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” We concluded the error was not material to any previously issued financial statements. Consequently, we will correct this error prospectively and revise our financial statements when the balance sheets, statements of operations and cash flows for such prior periods are included in future filings (“the Revisions”). The Revisions have no net impact on revenue or net cash provided by operating activities as previously reported.

 

 

The adjustments at September 30, 2018 to record the cumulative amounts related to this overstatement for prior periods through September 30, 2017 were:

 

		At September 30, 2017
		As previously
		reported				Adjustment				As Revised
Balance sheet
Inventories, current portion		$	500,000			$	-			$	500,000
Current assets			673,182				-				673,182
Inventories, long term			3,730,190				(1,270,506	)			1,477,968
Mineral properties and interest, net			1,114,675								1,205,387
Total assets			9,019,444				(1,270,506	)			7,839,650
Accumulated deficit			(28,955,189	)			(1,270,506	)			(30,134,983	)
Total shareholders’ equity (deficit)			(19,808,361	)			(1,270,506	)			(20,988,155	)
Total liabilities and shareholders’ equity (deficit)			9,019,444				(1,270,506	)			7,839,650

 

		Three month period ended September 30, 2017
Statement of operations
General project costs			74,938				(6,941	)			67,997
Net income (loss)			(867,058	)			6,941				(860,117	)
Basic and diluted income (loss) per share			(0.06	)			-				(0.06	)

 

		Nine month period ended September 30, 2017
Statement of operations
General project costs			502,435				(66,551	)			435,884
Net income (loss)			(3,000,534	)			66,551				(2,933,983	)
Basic and diluted income (loss) per share			(0.22	)			0.01				(0.21	)
Statement of cash flows
Net income (loss)			(3,000,534	)			(66,551	)			(2,933,983	)
Change in inventory			(154,542	)			66,551				(221,093	)
Cash flow from operating activities			(939,873	)			-				(939,873	)

 

NOTE 3 – 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, 2018, and the results of its operations and its cash flows for the nine months ended September 30, 2018 and 2017. The operating and financial results for the Company for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.

 

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, 2017 filed with the Securities and Exchange Commission on October 26, 2018.

 

 

Accounting for Stock Options and Stock Awards Granted to Employees and Nonemployees

 

All transactions in which goods or services are received for the issuance of shares of the Company’s common stock or options to purchase shares of common stock are accounted for based on the fair value of the goods or services received or the fair value of the equity interest issued, whichever is more reliably measurable. The Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.

 

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, solution in carbon columns 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, 2018, 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 Recognition

 

Sales of gold concentrate sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of the Company’s concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to the estimated settlement metals prices until final settlement by the customer.

 

Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. See Note 16.

 

 

Earnings (loss) Per Share

 

Basic earnings 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 per share reflect the potential dilution of securities that could share in the earnings of the Company.

 

		Three months ended September 30,								Nine months ended September 30,
		2018				2017				2018				2017
Net income (loss)		$	(91,772	)		$	(860,117	)		$	22,524,399				(2,933,983	)
Deemed capital contribution on extinguishment of preferred stock			-				-				4,068,720				-
Net income (loss) available to common shareholders - basic			(91,772	)			(860,117	)			26,593,119				(2,933,983	)
Interest expense on convertible notes payable -related parties			-				-				55,561				-
Net income (loss) available to common shareholders - diluted		$	(91,772	)		$	(860,117	)		$	26,648,680			$	(2,073,868	)
Weighted average shares outstanding - basic			20,581,603				13,656,603				18,696,072				13,656,603
Dilutive shares – convertible notes payable – related parties			-				-				3,381,986				-
Weighted average shares outstanding - diluted			20,581,603				13,656,603				22,078,058				13,656,603
Basic income (loss) per share		$	(0.00	)		$	(0.06	)		$	1.42			$	(0.21	)
Diluted income (loss) per share		$	(0.00	)		$	(0.06	)		$	1.21			$	(0.21	)
Excluded in diluted income (loss) per share as inclusion would have an antidilutive effect:
Convertible debt – related parties			3,381,986				3,036,498				-				3,036,498
Convertible preferred stock							47,211,002				-				47,211,002
Stock options			2,400,000				-				2,400,000				-
			5,781,986				50,247,500				2,400,000				50,247,500

 

Going Concern

 

As shown in the accompanying financial statements, the Company had an accumulated deficit of $4,495,024 through September 30, 2018 and negative working capital of $3,485,974 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.

 

Although production has restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Although management has procured funding through a lender (Note 19) they intend to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.

 

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.

 

New Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 Revenue Recognition, replacing guidance previously codified in Subtopic 605-10 Revenue Recognition-Overall. The new ASU establishes a five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 deferred the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach. 

 

The Company performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how it recognized revenue under previous policies. Revenues involve a very small number of types of contracts and customers. In addition, revenue contracts do not involve multiple types of performance obligations.

 

 

Concentrate sales involve variable consideration as they are subject to changes in metals prices between the time of shipment and their final settlement. However, the Company is able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and values are adjusted each period until final settlement. Also, it is unlikely a significant reversal of revenue for any one concentrate lot will occur.

 

Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, concerning (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 16 for information on the Company’s sales of products.

 

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification of cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this update as of January 1, 2018 and there were no material impacts on its financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this update as of January 1, 2018, and there were no material impacts on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this update as of January 1, 2018. It will apply the applicable provisions of the update to any future acquisitions.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Upon implementation of the new guidance, the Company will be required to recognize a liability and right-of-use asset for its operating leases. The Company has elected the transition option to apply the new guidance at the effective date without adjusting comparative periods presented. The Company’s operating leases, which will be impacted upon adoption, are not significant and management anticipates no material impact upon adoption on January 1, 2019.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

 

NOTE 4 – CAPITAL STOCK

 

Common Stock

 

The Company is authorized to issue 100,000,000 shares of common stock. All shares have equal voting rights and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

 

2018 Activity

 

On March 8, 2018, the Company sold 4,500,000 shares of common stock to the convertible debt holders for $625,000 in cash and several concessions as to the convertibility, due dates and default provisions on their outstanding debt. See Note 9.

 

During the nine months ended September 30, 2018, the Company also sold 2,125,000 shares of its common stock at $0.40 per share for cash proceeds of $850,000.

 

Preferred Stock

 

The Company’s Articles of Incorporation authorized 10,000,000 shares of $0.001 par value Preferred Stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.

 

At December 31, 2017, DMRJ Group beneficially owned 77% of the Company on a fully diluted basis. On March 8, 2018, the Company finalized an agreement with the trustees of DMRJ, who owned all of the Series A, A-2 and Series B outstanding preferred stock. This agreement discharged all of the debt owed by the Company to DMRJ and its related affiliates and returned all of the shares of preferred stock to the Company in exchange for $625,000. The Company then cancelled all of the preferred shares of stock. As a result, DMRJ relinquished all ownership in the Company. See Note 13.

 

NOTE 5 – RECLAMATION BONDS

 

At September 30, 2018 and 2017, the Company has a surety bond of $674,000 in an escrow account with the bonding company for reclamation of its property. This escrowed amount is held at Bank of New York, Mellon for the Company’s benefit. It may not be released to the Company without the prior consent of the surety bondholder. The escrowed amount does not earn interest. Total reclamation bonds posted at September 30, 2018 and December 31, 2017 are $753,230 and $753,054, respectively, which consists of the above escrowed amount along with certificate of deposits held with the state of Utah for the remaining bonds on the property, including exploration bonds.

 

 

NOTE 6 – INVENTORIES

 

The following table provides the components of inventories:

 

		September 30, 2018				December 31, 2017
						(revised)
Ore on leach pad		$	1,994,566			$	2,058,370
Total			1,994,566				2,058,370
Less: current portion			(363,708	)			(371,778	)
Non-current inventories		$	1,630,858			$	1,686,592

 

Inventories are allocated between current and non-current based on estimated expected sales for the subsequent fiscal year. Inventories at September 30, 2018 and December 31, 2017 were valued at net realizable value because costs were greater than the market price for gold at both period-end dates.

 

NOTE 7 – PROPERTY AND EQUIPMENT

 

The following is a summary of property and equipment at September 30, 2018 and December 31, 2017:

 

		September 30,				December 31,
		2018				2017
Equipment		$	3,252,007			$	2,919,165
Furniture and fixtures			6,981				6,981
Electronic and computerized equipment			52,874				52,874
Vehicles			108,089				67,115
			3,419,951				3,046,135
Less accumulated depreciation			(1,906,584	)			(1,434,921	)
			1,513,367				1,611,214
Kiewit property facilities			2,497,435				2,497,436
Less accumulated amortization			(487,214	)			(487,214	)
			2,010,221				2,010,222
Total		$	3,523,588			$	3,621,436

 

For the Kiewit property facilities, amortization expense is based on units of production which resulted in no amortization in the nine months ended September 30, 2018 and 2017 due to the lack of production.

 

NOTE 8 – MINERAL PROPERTIES AND INTERESTS

 

Mineral properties and interests as of September 30, 2018 and December 31, 2017 are as follows:

 

		September 30, 2018				December 31, 2017
Initial lease fee
Kiewit and Cactus Mill		$	600,000			$	600,000
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			(210,552	)			(210,552	)
			605,387				605,387
Total		$	1,205,387			$	1,205,387

 

 

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. As part of the Pre-Paid Forward Gold Purchase Agreement finalized in March 2019, the number of claims held was reduced to a total of 76 claims. See Note 19.

 

In 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. Royalty expense of $11,360 and $9,785 was recognized during the nine months ended September 30, 2018 and 2017, respectively. Amortization expense is based on units of production resulting in no amortization in the nine-month periods ended September 30, 2018 and 2017, due to the lack of production.

 

As part of the Pre-Paid Forward Gold Purchase Agreement finalized in March 2019, these royalties were bought out by the Company from Clifton Mining Company and two other minority royalty holders. During first quarter of 2019, the Company and Clifton Mining Company entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of this Amended Lease, the Company relinquished its leasehold interest in all but 10 of the patented mining claims, for which it retained only the surface rights, and 66 of the unpatented lode mining claims previously held by the Company. See Note 19.

 

NOTE 9 – CONVERTIBLE DEBT – RELATED PARTIES

 

2009 Convertible Notes:

 

On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders, for a total of $600,000. The notes bore interest at 15% per annum. Interest-only was payable in equal monthly installments of $7,500. The notes were convertible at a rate of $0.70 per share.

 

The Company failed to repay the notes in full on the November 30, 2012 through the 2017 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 2014, 2015, 2016, and 2017, the annual issuance of shares of common stock was valued at an estimated $0.04 (total $12,000) each and was accounted for as financing expense.

 

Subsequent to September 30, 2018, the Company failed to repay the notes on the November 2018 maturity date. The Company issued shares of common stock valued at $.40 per share based on the cash price of common stock sales during 2018 which was recognized as financing expense. The due date of the note was extended to May 31, 2019. Interest has not been paid since November 2014. Per the terms of the notes, interest on these notes is not convertible to common stock.

 

On February 28, 2018, the notes 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 waived the default provision in the notes for past due interest. In addition, as part of the agreement, the convertible feature of the notes was removed.

 

2016 Convertible Notes:

 

On October 14, 2016, the Company issued additional convertible promissory notes to the convertible debt holders for a total of $250,000. The notes bore interest at 10% per annum and were due in full on September 30, 2018. The notes were convertible at a rate of $0.25 per share. These notes were amended in February 2018 to extend the due date of the notes and the accrued interest to May 31, 2019. Interest on these notes is convertible to common stock.

 

2017 Convertible Notes:

 

On August 7, 2017, the convertible debt holders agreed to fund up to an additional aggregate of $500,000 under terms similar to existing convertible debt agreements. At December 31, 2017, $428,000 of these funds had been advanced. The remaining $72,000 was advanced in 2018 with the final advance on February 9, 2018. On February 28, 2018, these notes were amended to postpone the maturity date and interest payment date to May 31, 2019.

 

 

Accrued interest payable to related parties on the above notes payable was $422,722 and $317,436 at September 30, 2018 and December 31, 2017, respectively. Interest expense recognized on these loans was $71,260 and 57,398 during the nine-month periods ended September 30, 2018 and 2017, respectively. These loans were paid in full, including accrued interest, on March 7, 2019. See Note 19.

 

NOTE 10 – OBLIGATION UNDER CAPITAL LEASE - RELATED PARTY

 

A capital lease was entered into on June 20, 2016 with RMH Overhead, LLC for mining and crushing equipment, some of which had been previously owned by the Company. RMH Overhead, LLC is an entity owned by the Company’s president, Rick Havenstrite. At September 30, 2018 and 2017, equipment includes assets under capital lease amounting to $185,618 and $185,618, respectively. The equipment is being amortized over the estimated useful life of the equipment. Accumulated amortization at September 30, 2018 and December 31, 2017 was $59,663 and $39,775. At September 30, 2018, the estimated future minimum lease payments under the capital lease was $72,000 of which $3,820 is implied interest. The initial lease term was for 24 months, which expired June 20, 2018. The eight future minimum lease payments of $9,000 each plus financing costs were overdue at September 30, 2018. These lease payments were paid in full, including accrued interest and late fees, in March 2019. See Note 19.

 

NOTE 11 – SHORT-TERM NOTES PAYABLE – RELATED PARTIES

 

In the quarter ending September 30, 2018, the Company entered into a short-term note payable with one of the convertible debt holders (See Note 9) for a total of $100,000. The note bears interest at 10%, had a 2% loan initiation fee, and is due in full on March 31, 2019. Accrued interest payable to related parties on this note at September 30, 2018 and September 30, 2017 was $2,438 and nil, respectively. Interest expense recognized on these notes was $2,438 and nil during the nine-month periods ended September 30, 2018 and 2017, respectively. This short-term note was repaid in full to the lender, including 10% interest and a 2% loan initiation fee, in March 2019. See Note 19.

 

NOTE 12 – NOTES PAYABLE – EQUIPMENT

 

The following is a summary of the equipment notes payable:

 

		September 30, 2018				December 31, 2017
Note payable to Komatsu Financial, collateralized by a Komatsu Telehandler lift, due in 48 monthly installments of $2,441 including interest at 4.99%.		$	30,893			$	47,154
Note payable to CAT Financial, collateralized by used crushing equipment, due in 9 monthly installments of $39,009. See below.			195,067				-
Note payable to CAT Financial, collateralized by used mining equipment due in 36 monthly installments of varying amounts including interest at 4.68%.			117,002				266,675
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%.			64,633				149,687
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%.			-				5,515
			407,595				469,031
Current portion			(407,595	)			(452,214	)
Long term portion		$	-			$	16,817

 

 

In November 2016, five pieces of mining equipment financed by CAT Financial were repossessed by CAT. The note payable due to CAT at the time of disposition was $960,585. The loss on impairment of equipment in the amount of $147,214 was recognized in the 2016. On July 31, 2017, a new agreement was made with Wheeler Machinery and CAT Financial for the return of four pieces of this equipment to the Company. The equipment temporarily remained in the possession of Wheeler Machinery and a new payment schedule was established. In May 2018, a note for the remaining payments due for $273,067 was formalized. Of this amount, $141,631 represented the value of the equipment and the remaining amount of $131,436 was to settle accounts payable for past due rent. The equipment was refurbished and returned to the site in 2019.

 

All of the above notes were paid in full in March 2019 as part of funding from a Pre-Paid Forward Gold Purchase Agreement. See Note 19.

 

NOTE 13 – NOTE PAYABLE - DMRJ

 

In July 2010, the Company entered into an Investment Agreement with DMRJ. The Agreement had been modified numerous times and operated under the Fourteenth Amendment to the Investment Agreement dated December 22, 2016. The Amendments provided for extensions of payment dates, increased funding capacity and other modifications to the debt agreement. At December 31, 2017, DMRJ beneficially owned approximately 77% of the Company (on a fully diluted basis) with Series A, A-2 and B preferred stock shares convertible to 47,211,002 shares of common stock (See Note 4).

 

The total due to DMRJ at September 30, 2018 and December 31, 2017 is as follows:

 

		September 30,				December 31,
		2018				2017
Principal		$	-			$	15,554,552
Interest payable			-				9,535,118
		$	-			$	25,089,670

 

In the third quarter of 2016, control of the management of DMRJ was given to court appointed trustees of the two major funds of Platinum Partners. On March 8, 2018, the Company finalized an agreement with the trustees to discharge all of the amounts owed by the Company to DMRJ and to extinguish all of DMRJ’s shares of the Company’s preferred stock in exchange for $625,000. On the date of the agreement, the principal balance of the note was $15,554,552 and accrued interest payable was $9,987,009 for a total balance due of $25,541,561. As a result of the transaction, the Company recognized a gain on extinguishment of debt of $24,916,561.

 

All of the preferred stock of the Company that had been issued to DMRJ in prior years was extinguished. The preferred stock was originally recorded for a total value $4,068,720. As a result of the extinguishment, the Company adjusted accumulated deficit for the value of the preferred stock. This amount is considered a capital contribution and has been added to net income attributable to common stockholders in the calculation of earnings per share for the nine months ended September 30, 2018.

 

After the above transactions, DMRJ is no longer a shareholder (beneficially or otherwise) of the Company.

 

The existing convertible debt holders funded the $625,000 and modifications to their existing convertible note terms were made in exchange for 4,500,000 shares of the Company’s common stock. See Notes 4 and 9.

 

NOTE 14 –ASSET RETIREMENT OBLIGATION

 

Changes in the asset retirement obligation for the nine months ended September 30, 2018 and 2017 are as follows:

 

		September 30,				September 30,
		2018				2017
Asset retirement obligation, beginning of period		$	1,046,621			$	974,109
Changes to estimated costs and timing to reclaim			-				-
Accretion expense			54,384				54,384
Asset retirement obligation, end of period		$	1,101,005			$	1,028,493

 

 

NOTE 15 – RELATED PARTY TRANSACTIONS

 

In addition to transactions disclosed in Notes 9, 10 and 13, the Company had the following related party transactions.

 

The Company recognized rent expense for rental of office space of $9,000 for the nine months ended September 30, 2018 and 2017, 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 $9,000 in current rents during the nine months ended September 30, 2018 and 2017, respectively, in addition to $1,000 in rents received in the period ended September 30, 2018 from prior years, leaving a total of $15,750 and $16,750 remaining in accounts payable at September 30, 2018 and December 31, 2017, respectively, all of which represents amounts due from prior years.

 

At September 30, 2018 and December 31, 2017, accrued compensation of $859,039 and $709,577 was due to directors and officers. Of the amounts accrued at September 30, 2018 and December 31, 2017, accrued compensation of $563,231 and $491,693 is due to Rick Havenstrite. In addition, $79,000 and $44,000 was due to other directors at September 30, 2018 and December 31, 2017, respectively. The amount due at December 31, 2018 was paid in full in March 2019.

 

NOTE 16 – REVENUE RECOGNITION

 

The Company’s product consists of an unrefined gold concentrate, which is then refined offsite to become doré. For the three and nine months ended September 30, 2018, the Company had sales of gold concentrate in the amount of $211,812, all of which sold to H & H Metals. In the nine months ended September 30, 2017, we had gold concentrate sales of $162,763, all of which sold directly to Asahi. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and the transaction price can be determined or reasonably estimated.

 

Sales and accounts receivable for sales are recorded net of charges for treatment and other charges which represent components of the transaction price. Charges are estimated by management upon transfer of risk based on contractual terms, and actual charges typically do not vary materially from management’s estimates. Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Costs charged by the refiner include fixed treatment, refining and costs per ton of concentrate and may include penalty charges for other metal content above a negotiated baseline as well as excessive moisture.

 

Management has determined the performance obligation is met and title is transferred when the Company delivers the concentrate to the customer because, at that time, (i) legal title is transferred to the customer, (ii) the customer has accepted the concentrate lot and obtained the ability to realize all of the benefits from the product, (iii) the concentrate content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership to it, and (iv) we have the right to payment for the concentrate. The performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.

 

Sales of products by metal for the nine-month periods ended September 30, 2018 and September 30, 2017 were as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2018				2017				2018				2017
Gold		$	211,812			$	80,485			$	211,812				162,763
Silver (by-product)			2,715				2,559				2,715				4,860
Less: Smelter and refining charges			(18,953	)			(1,726	)			(18,953	)			(5,039	)
Total		$	195,574			$	81,318			$	195,574			$	162,584

 

At September 30, 2018 and December 31, 2017, we did not have a gold sales receivable balance.

 

NOTE 17 – STOCK-BASED COMPENSATION

 

The Company has reserved 2,400,000 shares under its 2018 Stock Incentive Plan (the “Plan”). The Plan was adopted by the board of directors on March 28, 2018, retroactive to February 23, 2018, as a vehicle for the recruitment and retention of qualified employees, officers, directors, consultants, and other service providers. The Plan is administered by the Board of Directors. The Company may issue, to eligible persons, restricted common stock, incentive and non-statutory options, stock appreciation rights and restricted stock units. The terms and conditions of awards under the Plan will be determined by the Board of Directors.

 

On February 23, 2018, the Board approved the grant of an aggregate of 2,400,000 non-statutory options under the 2018 Plan exercisable at $0.40 per share which expire February 23, 2023 in the amounts and to the following:

 

●

Rick Havenstrite, President and CEO – 1,000,000 options

●

Howard Crosby, Director – 1,000,000 options

●

John Ryan, Director – 200,000 options

●

Linde Havenstrite, Project Engineer – 200,000 options

 

 

The options were fully vested on the date of grant. The fair value of each option award is estimated using the Black-Scholes valuation model. Assumptions used in calculating the fair value during the nine-month period ended September 30, 2018 were as follows:

 

		Weighted Average Inputs Used
Annual dividend yield			-
Expected life (years)			5.0
Risk-free interest rate			2.54	%
Expected volatility based on comparable peers			51.2	%
Common stock price based on most recent sale of common stock for cash		$	0.40

 

Stock based compensation cost for the nine-month period ended September 30, 2018 was $456,000, which was included in general and administrative expenses. Option activity for the nine-month period ended September 30, 2018 consists of the following:

 

		Stock Options				Weighted Average Exercise Price				Weighted Average Life Remaining  (years)
Outstanding, December 31, 2017			-				-				-
Issued			2,400,000			$	0.40				5.0
Exercised			-0-				-				-
Expired			-0-				-
Outstanding and exercisable, September 30, 2018			2,400,000			$	0.40				4.4

 

No options were issued prior to the nine-month period ended September 30, 2018. The options have intrinsic value of nil at September 30, 2018.

 

NOTE 18 – COMMITMENTS AND CONTINGENCIES

 

In addition to commitments disclosed in Note 8, the Company had the following commitments and contingencies.

 

Personal property tax and other accrued liabilities

 

Personal property tax for Tooele County, Utah is billed and becomes due on November 30 of each year. At September 30, 2018, $26,125 was due for 2017, $79,917 was due for 2016, and $90,013 was due for 2015 including interest and penalties, for a total of $196,055 due to Tooele County at September 30, 2018. At September 30, 2018 this amount remains unpaid and is included in accounts payable and accrued expenses on the balance sheet. These amounts were paid in full in March 2019.

 

Proceeds of $130,000 were raised in 2012 from the sale of stock, with shares redeemable for cash generated from the sale of gold. Based on gold prices during the conversion period in 2014, conversion amounts due to shareholders is $151,406. At September 30, 2018 and 2017, this amount remains unpaid and is included in accounts payable and accrued expenses on the balance sheet. Settlement of these amounts was made in full in March 2019.

 

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. This agreement was amended in 2019 to allow for a rate increase for Mr. Havenstrite to an annual rate of $144,000. The Board also agreed in 2019 to compensate its directors for their contributions to the management of the Company, with one director receiving $6,000 per month and the other two directors receiving $5,000 per quarter.

 

At September 30, 2018 and December 31, 2017, accrued compensation of $780,039 and $665,577 were due to officers. Of the amounts accrued at September 30, 2018 and December 31, 2017, accrued compensation of $563,231 and $491,693 is due to Rick Havenstrite and $216,808 and $173,884 is due to Marianne Havenstrite, Treasurer and Principal Financial Officer. In addition, $64,000 and $44,000 was due to directors at September 30, 2018 and December 31, 2017, respectively. These amounts were paid in full in March 2019. See Note 19.

 

 

Finder’s Agreement

 

On May 11, 2018, the Company agreed to an agreement with Mount Royal Consultants (Mount Royal) to assist in finding prospective investors. Mount Royal would receive a finder’s fee of 7% for a connection with a company that resulted in a qualified investment consisting of equity securities or a fee of 3% for a connection with a company that resulted in a purchase of debt securities. On March 7, 2019, the Company closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) to a buyer for the purchase of gold produced from the Company’s mining property. This investment was considered to be a debt agreement and resulted in a payment to Mount Royal of $318,000, 3% of the $10,600,000 beneficially received by the Company from PDK Utah Holdings, LLC in 2019. On November 1, 2019, an additional payment of 3% of the Tranche II payment received by the Company resulted in a payment of $48,000 to Mount Royal. Future amounts to be received from PDK Utah Holdings, LLC would also be subject to this agreement. See Note 19.

 

NOTE 19 – SUBSEQUENT EVENTS

 

Mining Leases

 

During first quarter of 2019, the Company and Clifton Mining Company entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of the Amended Lease, the Company relinquished its leasehold interest in all but 10 of the patented mining claims, for which it retained only the surface rights, and 66 of the unpatented lode mining claims previously held by the Company. The mining claims retained by the Company represent the Kiewit area of interest. The Amended Lease term is 20 years and for so long thereafter as the mining claims are being actively used by the Company for commercial mining purposes.

 

Under the terms of the Amended Lease the Company acquired and cancelled Clifton’s 5% royalty interest from production on the Kiewit project. The Company also acquired from third parties and cancelled the remaining 1% outstanding royalty interest thereon, for which the Company paid each party $50,000.

 

As consideration for entering into the Amended Lease, the Company paid Clifton $3,000,000 and issued 5,500,000 shares of its common stock. In addition, the Company and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires the Company to register the shares within 18 months following the Initial Funding (see below). In the event the Company does not register the shares within the 18-month period, the Company is obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from the Company’s mining claims.

 

Gold Sale Funding Transaction and Amended Agreement

 

During the first quarter of 2019, the Company entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) to a buyer for the purchase of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement, the buyer has agreed to purchase a total of 73,910 ounces of gold from the Company in three tranches, with prepayment of the initial tranche in the amount of $11,200,000 having been made upon execution of the Purchase Agreement on March 7, 2019 (the “Initial Funding”), $4,500,000 for Tranche 2 to occur at least six months following the Initial Funding date, and $5,500,000 for Tranche 3 to occur at least 10 months following the Initial Funding date, provided that all conditions precedent for funding Tranches 2 and 3 are met. From the Initial Funding, the Company paid an upfront fee of $600,000 to buyer for expenses incurred in connection with the transaction. Under the terms of the Purchase Agreement the Company also agreed to deliver gold in certain quantities during agreed periods following prepayment of each tranche.

 

As security for the obligations of the Company under the Purchase Agreement, the Company has granted the buyer a security interest in all of the assets of the Company and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing.

 

Concurrent with the Initial Funding, the Company granted a perpetual royalty to the buyer equal to 4% of the net smelter returns payable on all minerals mined, produced, or otherwise recovered from the Company’s mining properties, for which the buyer paid $2,200,000 to the Company.

 

On October 31, 2019, the Company and the buyer amended the Purchase Agreement and entered into the Amended Pre-Paid Forward Agreement (the “Amended Agreement”) to adjust the second and third tranches paid to the Company, to reduce the total number of ounces of gold subject to the Purchase Agreement, and to revise other provisions therein. The second tranche was reduced from $4,500,000 to $1,600,000, and the third tranche was reduced from $5,500,000 to $1,400,000. The second tranche was received on November 1, 2019 upon execution of the Amended Agreement and the funds are to be dedicated to general capital expenditures in accordance with the revised budget furnished with the Amended Agreement. The amendment also reduced the total number of ounces of gold prepaid under the agreement.

 

 

Under the terms of the Amended Agreement, the Company is obligated to deliver gold in the following quantities following prepayment of each tranche:

 

●

Beginning the 21st calendar month following the Initial Funding, 655 ounces of gold per month for each of the four calendar months thereafter, 670 ounces for each the 12 calendar months thereafter, 1,155 ounces for each of the 12 calendar months thereafter, and 1,512 ounces of gold for each of the 9 calendar months thereafter.

 

●

Beginning the 14th Calendar month following the Tranche 2 funding, 129 ounces of gold per month for each of the 37 calendar months thereafter.

 

●

Beginning the 13th Calendar month following the Tranche 3 funding, 112 ounces of gold per month for each of the 37 calendar months thereafter.

 

The Amended Agreement also alters the total amount that the buyer may reduce the number of ounces of gold to be delivered under the Amended Agreement in exchange for common shares of the Company. Under the Amended Agreement, the buyer may reduce the required number of ounces by up to 8,000 ounces in exchange for common shares of the Company.

 

H&H Metals Agreement

 

On March 29, 2018, the Company entered into a five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”). Under the terms of the Agency Agreement H&H agreed to provide us certain advisory services in regard to natural resources activities and to assist us in securing purchasers for minerals produced from its mining properties.

 

As a condition for entering into the Purchase Agreement with PDK, we negotiated a termination of the Agency Agreement (the “Termination Agreement”). Under the terms of the Termination Agreement, we paid H&H $600,000, agreed to pay an additional $200,000 within 18 months, and $36,000 as a payment against the final shipment of ore by the Company. In addition, we appointed Phillip H. Holme, a principal of H&H, as a director of the Company upon the Initial Funding.

 

Short-term Notes Payable – Related Parties

 
During 2018, the Company entered into several short-term notes payable with the convertible debt holders (See Note 9) for a total of $201,000 and with the Company’s president for $48,000 for a total amount of $249,000. The notes bear interest at 10%, had a 2% loan initiation fee, and are due in full on March 31, 2019. These short-term notes were repaid in full to the lenders, including 10% interest and a 2% loan initiation fee, in March 2019.

 

Consultant Settlement Agreement

 

During the first quarter of 2019, the Company terminated a consulting agreement and paid $600,000 to the consultant, with an agreement to pay an additional $200,000 within 18 months, and further agreed to pay $36,000 as a payment against the final shipment of ore by the Company. In addition, the Company issued 250,000 shares of its common stock to the consultant. A principal of the consulting company was also appointed a director of the Company.

 

Repayment of Notes

 

During the first quarter of 2019, the Company repaid convertible promissory notes and short-term notes payable to two of its minority shareholders in the amount of $2,103,289 including interest and fees. In addition, all of the notes payable – equipment and the leased equipment liability note were paid in full.

 

Claim Acquisition

 

The Company entered into an agreement dated March 26, 2019 with Ben Julian, LLC for an option to purchase 64 claims adjacent to the Kiewit property for a purchase price of $500,000. On June 13, 2019, an agreement between the Company, Clifton Mining Company and Ben Julian, LLC was signed in which the purchase option was exercised. The Company acquired 20 claims and Clifton Mining Company acquired the remaining 44 claims at a cost of $250,000 to each company.

  

 

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 financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017 and with the unaudited 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, including, but not limited to, statements found in the section entitled “Risk Factors,” 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, 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 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:

 

●

environmental hazards;

 

●

metallurgical and other processing problems;

 

●

unusual or unexpected geological formations;

 

	●	need for additional funding to continue operations;
	●	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. (the “Company”) was incorporated on November 5, 1957, in the State of Idaho as Lucky Joe Mining Company. In 2008 we changed our corporate domicile to the State of Nevada by merging with a wholly owned subsidiary formed solely for this purpose. Our Nevada corporation was incorporated on July 17, 2008. We have no subsidiaries.

 

We are currently engaged in the extraction of gold and related precious metals from our Kiewit mining property located in the Gold Hill Mining District in Tooele County, Utah.

 

DMRJ Settlement

 

On July 14, 2010, we entered into an Investment Agreement, which was amended from time to time, (the “Investment Agreement”) with DMRJ Group I, LLC (“DMRJ”) to provide funding for our mining operations. Under the terms of the Investment Agreement, we borrowed approximately $15,000,000 through the year ended December 31, 2017 resulting in a balance due to DMRJ of $25,511,561 including principal and interest. As further consideration for the loans, we issued to DMRJ 958,033 shares of Series A Preferred Stock, 180,000 shares of Series A-2 Preferred Stock, and 444,529.69 shares of Series B Preferred Stock. DMRJ owned approximately 77% of stock of the Company (on a fully diluted basis). The preferred shares and debt were subsequently transferred to affiliated entities of DMRJ.

 

In the third quarter of 2016, control of the management of DMRJ was given to court appointed trustees of the affiliated assignees of the debt and preferred shares, Platinum Partners Value Arbitrage Fund L.P. (“PPVA”) and Platinum Partners Credit Opportunities Master Fund, LP (“PPCO”). On December 19, 2016, the SEC filed the complaint against defendants Platinum Management, PPCO, and management of the DMRJ, charging the defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. In July 2011, a federal jury in the Eastern District of New York convicted two executives of Platinum Partners L.P., the parent of DMRJ, of securities fraud, securities fraud conspiracy and wire fraud conspiracy. One of the defendants convicted in the lawsuit, David Levy, served as a director of our company from 2015 through April 2016.

 

After 2016 neither DMRJ nor its affiliates were able to provide further funding and on February 13, 2018, we entered into an Assignment and Assumption Agreement with DMRJ, PPVA, and PPCO (the “Assumption Agreement”), whereby we agreed to repurchase the debt and preferred shares for payment of $625,000. The transaction closed on or about March 8, 2018. Upon closing DMRJ also released all security interest in the assets of the Company. Following closing of the Assumption Agreement, we cancelled all of the debt owed DMRJ. We also cancelled all of the preferred shares and terminated each of the series of preferred stock. Each of the parties to the Assumption Agreement also agreed to indemnify the other for breach of any representation or covenant made under the agreement.

 

Funding for the closing of the Assumption Agreement was furnished by Ibearhouse, LLC and West C Street, LLC, note holders and shareholders of the Company. Under the terms of a Stock Purchase Agreement dated February 28, 2018 (the “SPA”), the Company exchanged 4,500,000 shares of common stock to the convertible debt holders for $625,000 in cash and several concessions as to the convertibility, due dates and default provisions on their outstanding debt. Under the terms of the SPA these investors waived their rights to convert under prior 2009 promissory notes to eliminate any rights to convert the amounts due under the notes into shares of our common stock or to accelerate repayment upon default. These investors also agreed to amend their prior 10% Secured Convertible Promissory Note dated October 14, 2016, in the principal amount of $125,000, their 10% Senior Secured Convertible Promissory Note dated November 15, 2016, in the principal amount of $25,000, and their 15% Convertible Promissory Note dated November 30, 2009, as amended, in the principal amount of $300,000. Each of these promissory notes was repaid in full on March 7, 2019.

 

 

Bridge Funding

 

In August 2018, we completed a non-public offering of 2,125,000 shares of our common stock at $0.40 per share, for gross proceeds of $850,000. Funds from this offering were used for our mining operations and provided working capital prior to project funding.

 

Gold Sale Funding Transaction and Amended Agreement

 

During the first quarter of 2019, the Company entered into and closed a Pre-paid Forward Gold Purchase Agreement (the “Purchase Agreement”) to a buyer for the purchase of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement, the buyer has agreed to purchase a total of 73,910 ounces of gold from the Company in three tranches, with prepayment of the initial tranche in the amount of $11,200,000 having been made upon execution of the Purchase Agreement on March 7, 2019 (the “Initial Funding”), $4,500,000 for Tranche 2 to occur at least six months following the Initial Funding date, and $5,500,000 for Tranche 3 to occur at least 10 months following the Initial Funding date, provided that all conditions precedent for funding Tranches 2 and 3 are met. From the Initial Funding, the Company paid an upfront fee of $600,000 to buyer for expenses incurred in connection with the transaction. Under the terms of the Purchase Agreement the Company also agreed to deliver gold in certain quantities during agreed periods following prepayment of each tranche.

 

As security for the obligations of the Company under the Purchase Agreement, the Company has granted the buyer a security interest in all of the assets of the Company and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing.

 

Concurrent with the Initial Funding, the Company granted a perpetual royalty to the buyer equal to 4% of the net smelter returns payable on all minerals mined, produced, or otherwise recovered from the Company’s mining properties, for which the buyer paid $2,200,000 to the Company.

 

On October 31, 2019, the Company and the buyer amended the Purchase Agreement and entered into the Amended Pre-paid Forward Agreement (the “Amended Agreement”) to adjust the second and third tranches paid to the Company, to reduce the total number of ounces of gold subject to the Purchase Agreement, and to revise other provisions therein. The second tranche was reduced from $4,500,000 to $1,600,000, and the third tranche was reduced from $5,500,000 to $1,400,000. The second tranche was received on November 1, 2019 upon execution of the Amended Agreement and the funds are to be dedicated to general capital expenditures in accordance with the revised budget furnished with the Amended Agreement. The amendment also reduced the total number of ounces of gold prepaid under the agreement.

 

Under the terms of the Amended Agreement, the Company is obligated to deliver gold in the following quantities following prepayment of each tranche:

 

●

Beginning the 21st calendar month following the Initial Funding, 655 ounces of gold per month for each of the four calendar months thereafter, 670 ounces for each the 12 calendar months thereafter, 1,155 ounces for each of the 12 calendar months thereafter, and 1,512 ounces of gold for each of the 9 calendar months thereafter.

 

●

Beginning the 14th Calendar month following the Tranche 2 funding, 129 ounces of gold per month for each of the 37 calendar months thereafter.

 

●

Beginning the 13th Calendar month following the Tranche 3 funding, 112 ounces of gold per month for each of the 37 calendar months thereafter.

 

The Amended Agreement also alters the total amount that the buyer may reduce the number of ounces of gold to be delivered under the Amended Agreement in exchange for common shares of the Company. Under the Amended Agreement, the buyer may reduce the required number of ounces by up to 8,000 ounces in exchange for common shares of the Company.

 

 

Clifton Amended Lease Agreement

 

Effective with the Initial Funding, we and Clifton Mining Company entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of the Amended Lease, we relinquished our leasehold interest in all but 10 of the patented claims, on which we retained only the surface rights, and 66 of the unpatented lode mining claims previously held by us. The mining claims retained by us represent the area of interest known as the Kiewit property, which has been the principal focus of our mining activities. The lease term is for 20 years and for so long thereafter as the mining claims are being actively used by us for commercial mining purposes.

 

Under the terms of the Amended Lease we acquired and cancelled Clifton’s 5% royalty interest from production on the Kiewit project. We also acquired from third parties and cancelled the remaining 1% outstanding royalty interest thereon, for which we paid each of the two parties $50,000.

 

As consideration for entering into the Amended Lease, we paid Clifton $3,000,000 and issued 5,500,000 shares of our common stock. In addition, we and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires us to register the shares within 18 months following the Initial Funding. In the event we do not register the shares within the 18-month period, we are obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from our remaining mining claims. We have agreed to maintain the effectiveness of the Registration Rights Agreement for a period of three years. The agreement contains mutual indemnification provisions.

 

PDK Royalty Agreement

 

Concurrent with the Initial Funding by PDK, we granted it a perpetual royalty equal to 4% of the net smelter returns payable on all minerals mined, produced, or otherwise recovered from our mining properties, for which PDK paid us $2,200,000.

 

H&H Metals Agreement

 

On March 29, 2018, we entered into a five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”). Under the terms of the Agency Agreement H&H agreed to provide us certain advisory services in regard to natural resources activities and to assist us in securing purchasers for minerals produced from its mining properties.

 

As a condition for entering into the Purchase Agreement with PDK, we negotiated a termination of the Agency Agreement (the “Termination Agreement”). Under the terms of the Termination Agreement, we paid H&H $600,000, agreed to pay an additional $200,000 within 18 months, and $36,000 as a payment against the final shipment of ore by the Company. In addition, we appointed Phillip H. Holme, a principal of H&H, as a director of the Company upon the Initial Funding.

 

Acquisition of Additional Mining Claims

 

On March 26, 2019, we negotiated an option to purchase 64 patented mining claims from Ben Julian, LLC, an Idaho limited liability company, for $500,000. The claims are located contiguous to our existing Kiewit claims, except for one claim located in the Dugway Mining District. On June 13, 2019, we entered into a letter agreement with Clifton Mining Company whereby Clifton would purchase 44 of the optioned claims and we would acquire the remaining 20 claims. Each party would pay one-half of the total purchase price for the claims. The purchase price was paid by each party and the closing of the acquisition occurred on June 14, 2019. The Company received and has recorded a quitclaim deed for the 20 patented claims.

 

 

Stock-Based Compensation

 

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.

 

Historically, we have incurred net losses for the years ended December 31, 2017 and 2016. We have incurred net income for the nine months ended September 30, 2018, which is attributable to the gain on extinguishment of DMRJ debt.

  

Results of Operations for the Three Months Ended September 30, 2018 and 2017.

 

During the three months ended September 30, 2018 and 2017, we had net losses of $91,772 and $860,117, respectively. This represents a decrease in net loss of $768,345. The decrease in net loss for the three months ended September 30, 2018 is principally attributable to a decrease in interest expense – related parties of $585,863 due to the cancellation of the DMRJ debt and an increase in concentrate sales of $131,327. The operating loss of $44,603 for the three months ended September 30, 2018 as compared to the operating loss of $222,131 for the three months ended June 30, 2017 represent a decrease of $177,528. The decrease operating loss is due to increases in concentrate sales.

 

Results of Operations for the Nine Months Ended September 30, 2018 and 2017.

 

During the nine months ended September 30, 2018 and 2017, we had net income (loss) of $22,524,399 and $(2,933,983), respectively. This represents an increase in income of $25,458,382 for the nine months ended September 30, 2018. The increase in net income for the nine months ended September 30, 2018 is attributable to the cancellation of our agreement with DMRJ whereby we agreed to repurchase the debt and preferred shares previously owned by them. A gain on extinguishment of $24,916,561 was recognized as a result of this transaction. The operating loss of $1,818,394 for the nine months ended September 30, 2018 as compared to the operating loss of $1,064,965 for the nine months ended September 30, 2017 represent an increased loss in the amount of $753,429. The increased loss is due to curtailment of operations in 2017 which continued into 2018, and to the value assigned to the stock-based compensation awarded to employees and directors, along with increased legal and professional fees.

 

Liquidity and Cash Flow

 

Net cash used by operating activities was $629,918 during the nine-month period ended September 30, 2018, compared with cash used by operating activities of $939,873 during the nine-month period ended September 30, 2017. This $309,955 decrease in the amount of cash used by operating activities is primarily attributable an increase in net income and a net decrease in the change in operating assets and liabilities balances in the first nine months of 2018 compared to the same period in 2017. Cash flows from operation during the nine month period ended September 30, 2018 also included a noncash adjustment for stock based compensation of $456,000.

 

Net cash used by investing activities was $38,676 during the nine-month period ended September 30, 2018, compared to $30,847 cash used by investing activities during the nine-month period ended September 30, 2017. This increase of $7,829 represents an increase in property and equipment purchases.

 

Net cash provided by financing activities was $671,567 during the nine-month period ended September 30, 2018, compared with $348,145 cash provided by financing activities during the nine-month period ended September 30, 2017. The increase of $323,422 in cash provided by financing activities during the nine-month period ended September 30, 2018 was due primarily to proceeds from sale of common stock offset by payments on note payable to DMRJ and notes payable - equipment.

 

 

As a result of the above, cash increased by $2,973 during the nine-month period ended September 30, 2017, leaving us with a cash balance of $7,185 as of September 30, 2018.

 

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 3, “Summary of Significant Accounting Policies,” in our attached unaudited financial statements for a discussion of those policies.

 

Revenue Recognition

 

Sales of all metal 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.

 

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

 

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. We use assumptions about future costs, capital costs and reclamation costs. Such assumptions are based on our current mining plan and the best available information for making such estimates.

 

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

 

Financial Instruments

 

The Company’s financial instruments include cash and cash equivalents as well as various notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity and interest rates of these financial instruments, approximates fair value at September 30, 2018 and 2017. 

 

 

Going Concern

 

As shown in the accompanying financial statements, the Company had an accumulated deficit of $4,495,024 through September 30, 2018 and negative working capital of $3,485,974 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.

 

Although production has restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Although management has procured funding through a lender (Note 19) they intend to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.

 

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.

 

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 not 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 the nine months ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

PART II – OTHER INFORMATION

 

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 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.
	By:	/s/ Rick Havenstrite
Date: December 19, 2019		Rick Havenstrite, Chief Executive Officer
		(Principal Executive Officer)
Date: December 19, 2019	By:	/s/ Marianne Havenstrite
		Marianne Havenstrite, Chief Financial Officer
		(Principal Accounting and Financial Officer)

 

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