As Filed with the Securities and Exchange
Commission on May 30, 2023
Registration No. 333-236398
United
States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
(Post-Effective Amendment
No. 3)
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Desert
Hawk Gold Corp.
(Exact name of Registrant as Specified in
Its Charter)
| Nevada | | 1040 | | 82-0230997 |
(State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer
Identification No.) |
Desert Hawk Gold Corp.
1290 Holcomb Avenue
Reno, NV 89502
(775) 337-8057
(Address, including
zip code, and telephone number, including area code, of registrant’s principal executive offices)
Rick Havenstrite, CEO
Desert Hawk Gold Corp.
1290 Holcomb Avenue
Reno, NV 89502
(775) 337-8057
rickh@dhgcorp.com
(Name, address, including
zip code, and telephone number including area code, of agents for service)
Copies to:
Kyle T. Hampton, Esq.
Pearson Butler, LLC
1802 W. South Jordan Parkway
Suite 200
South Jordan, UT 84095
(801) 495-4104
(801) 254-9427 (fax)
kyleh@pearsonbutler.com
Approximate date of commencement of proposed
sale to the public: From time to time after this post-effective amendment to the Registration Statement becomes effective.
If any of the securities being registered on this form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):
| 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 7(a)(2)(B) of the Securities
Act. ☐
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant
to Section 8(a), may determine.
EXPLANATORY NOTE
Desert Hawk Gold Corp., a Nevada corporation
(the “Company”) filed a registration statement with the Securities and Exchange Commission (the “SEC”) on Form
S-1 (Registration number 333-236398) which was declared effective by the SEC on April 14, 2020, for which an amendment was filed on April
6, 2021 and declared effective on April 14, 2021, and for which an amendment No. 2 was filed on April 5, 2022 and declared effective
on April 8, 2022 (collectively, the “Form S-1”).
This Post-Effective Amendment No. 3 to Form
S-1 (“Post-Effective Amendment”) contains an updated prospectus. This Post-Effective Amendment is being filed by the Company
(i) to include the Company’s unaudited interim financial statements for the three month period ended March 31, 2023 and audited
financial statements for the year ended December 31, 2022, (ii) to update the corresponding discussion of such financial information
contained in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
other sections of the prospectus, and (iii) to update certain other information in the prospectus, including business activities since
the effective date of the Form S-1 as reflected in the Company’s annual report on Form 10-K for the year ended December 31, 2022,
as filed with the SEC on March 30, 2023.
All filing fees payable in connection with the registration of the
securities registered by the Form S-1 were paid by the Registrant at the time of the initial filing of the Form S-1.
The
information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject
to Completion, dated May 30, 2023
PROSPECTUS
Desert
Hawk Gold Corp.
6,060,824 Shares of Common Stock
This Prospectus relates to the offer and
sale from time to time of up to 6,060,824 shares of common stock, par value $0.001 per share (the “Common Stock”),
of Desert Hawk Gold Corp. (“we,” “our,” “Desert Hawk,” or the “Company”). We are
registering the resale of the 6,060,824 shares of Common Stock (the “Shares’) for resale by Clifton Mining Company
(5,810,824 shares), Keith Moeller (125,000 shares), and Scott Moeller (125,000 shares) (collectively, the “Selling Stockholders”).
All net proceeds from a sale will go to the Selling Stockholders and not to us. All costs incurred in the registration of the Shares
are being borne by the Company.
This is a public offering of our Common
Stock, although there is currently no public market for our Common Stock. We intend to apply for the quotation of our Common Stock
on an automated quotation system. There can be no assurance that any application for the quotation of our Common Stock on an automated
quotation system will be approved. If any such application is not approved and our common stock ultimately is not quoted on an
automated quotation system, we intend to engage a market maker to apply for quotation on the OTCQB Market operated by OTC Markets
Group, Inc. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry
Regulatory Authority (FINRA); nor can there be any assurance that such an application for quotation will be approved.
Until such time that our common stock is
listed for quotation on an automated quotation system or quoted on the OTCQB Market, the Shares offered by the Selling Stockholders
will be sold at a fixed price of $0.40 per Share. As of and after such time (if ever) that our Common Stock is quoted on an automated
quotation system or quoted on the OTCQB Market, the Shares offered under this Prospectus by the Selling Stockholders may be sold
on the public market, in negotiated transactions with a broker-dealer or market maker as principal or agent or in privately negotiated
transactions not involving a broker-dealer, and the prices at which the Selling Stockholders may sell the Shares may be determined
by the prevailing market price of the Common Stock at the time of sale, may be different from such prevailing market price or may
be determined through negotiated transactions with third parties.
Each Selling Stockholder is an “underwriter” within
the meaning of Section 2(a)(11) of the Securities Act.
The offering will terminate three years
from the date that the registration statement relating to the Shares is declared effective, unless earlier fully sold or terminated.
The Company intends to maintain the effectiveness of the registration statement of which this Prospectus is a part and to allow
the Selling Stockholders to offer and sell the Shares for a period of up to three years, unless earlier completely sold, pursuant
to Rule 415 of the General Rules and Regulations of the Securities and Exchange Commission (“SEC”).
INVESTING IN OUR STOCK INVOLVES RISKS.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy
of this Prospectus. Any representation to the contrary is a criminal offense.
The date of this Prospectus is ____________,
2023
TABLE OF CONTENTS
You
should rely only on the information contained in this Prospectus, any prospectus supplement or in any free writing prospectus we
may authorize to be delivered or made available to you. We have not, and the Selling Stockholders have not, authorized anyone to
provide you with different information. We and the Selling Stockholders are not offering to sell, or seeking offers to buy, shares
of our Common Stock in jurisdictions where offers and sales are not permitted. The information contained in this Prospectus is
accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or any sale of shares of
our Common Stock.
PROSPECTUS SUMMARY
The following summary highlights selected
material information contained in this Prospectus. This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should read the entire Prospectus carefully, including the
“Risk Factors” section, the financial statements and the notes to the financial statements.
Our Company
Corporate History
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.
Business Overview
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.
In addition, we have commenced crushing and performing cyanide vat and heap leaching on various ores from a third party at our Goldhill
processing plant.
Additional
Information
Our principal executive offices are located
at 1290 Holcomb Ave, Reno, NV 89502, and our telephone number is (775) 337-8057. We do not have a company website.
The Offering
We
are registering the resale of 6,060,824 shares of Common Stock by the Selling Stockholders named in this Prospectus, or their
permitted transferees.
| Common Stock offered by Selling Stockholders |
|
Up to 6,060,824 shares (the “Shares”) of our common stock, par value $0.001 per share (the “Common Stock”) owned by the Selling Stockholders. |
| |
|
|
| Common Stock outstanding before and after the offering |
|
26,831,603 shares. |
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|
|
| Offering price |
|
$0.40 per share until our shares are quoted on OTCQB and thereafter at prevailing market prices or privately negotiated prices. |
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|
|
| Term of the offering |
|
The Selling Stockholders will determine when and how they will dispose of the Shares registered under this Prospectus for resale. |
| |
|
|
| Use of proceeds |
|
We will not receive any proceeds from the sale of the Common Stock by the Selling Stockholders. |
| |
|
|
| Risk factors |
|
We are subject to general risks associated with mineral extraction operations. There is also no
public market for our Common Stock and no assurance that any public trading market for our shares will develop in the
future. See “Risk Factors” below. |
RISK FACTORS
The following risks and uncertainties,
together with the other information set forth in this Prospectus, should be carefully considered by those who invest in our securities.
Any of the following risks could materially and adversely affect our business, financial condition or operating results and could
decrease the value of our Common Stock.
Risks Relating to Our Business
We have failed to make our gold deliveries
under the Purchase Agreement with PDK or Qenta, as the case may be, which constituted an Event of Default under the agreement.
We were unable to make the monthly gold deliveries
to PDK or Qenta, as the case may be, in December 2020 through May 2023. In February 2023, PDK sold their ownership position in the Purchase
Agreement to Qenta, Inc. We anticipate that we will be unable to make deliveries for several more months. The failure to make these gold
deliveries, as required under the Purchase Agreement, constitute Events of Default under the terms of the agreement. As such, Qenta has
available certain remedies under the terms of the Purchase Agreement, including the right to terminate the Purchase Agreement, demand
payment of an early termination amount as calculated in the agreement, or foreclose on the collateral provided under the agreement and
governed by the separate collateral agreement. Interest on any unpaid obligations will be calculated at a default rate equal to LIBOR
plus 2%. We do not have sufficient funds to satisfy the default obligations. If we are unable to negotiate a resolution of these default
events and restructure the gold delivery obligations currently mandated, we may be unable to retain possession of the mining project
and would be forced to cease operations. We are involved in ongoing discussions with representatives of Qenta in an attempt to resolve
these late payments and to renegotiate the gold delivery schedule.
The value of our property is subject to
volatility in the price of gold and any other deposits we may seek or locate.
Our profitability will be significantly affected
by changes in the market price of gold and silver, and other minerals. These mineral prices fluctuate widely and are affected by numerous
factors, all of which are beyond our control. For example, the price of gold can be influenced by the sale or purchase of gold by central
banks and financial institutions; interest rates; currency exchange rates; speculation; inflation or deflation; fluctuation in the value
of the United States dollar and other currencies; global and regional supply and demand, including investment, industrial and jewelry
demand; and the political and economic conditions of major gold producing countries throughout the world, such as Russia and South Africa.
The price of gold and other minerals has fluctuated widely in recent years, and a decline in the price of gold or other minerals could
cause a significant decrease in the value of our property, limit our ability to raise money, and render continued exploration and development
of our property impracticable. For example, the price of gold dropped significantly between August 2020 and March 2021, then increased
through March 2022, based in part on forecasts of a rapid global economic expansion this year, powered by vaccinations and U.S. stimulus
payments according to some economists. If the price of gold makes operations unprofitable, then we could lose our rights to our property
and be compelled to sell some or all of these rights. Additionally, the future development of our mining properties is heavily dependent
upon the level of metals prices remaining sufficiently high to make the development of our property economically viable. An investor
may lose its investment if the price of these minerals substantially decreases. The greater the decrease in the price of gold or other
minerals, the more likely it is that an investor will lose money.
Global health crises may adversely
affect our planned operations.
Our business could be materially and adversely
affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak
of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could result in a widespread health
crisis that could adversely affect our planned operations. Such events could result in the complete or partial closure of our operations.
In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise
capital. The pandemic that has been going on for the past two years has specifically affected our ability to obtain supplies and services
to maintain our business. This ongoing health crisis has reduced the ability of the regulating agencies to process our permits on a timely
basis which could delay our ability to operate at maximum efficiency. Our ability to obtain and retain qualified employees has also been
adversely affected by this global health crisis.
To continue our operations, we may need
to obtain additional financing from PDK or outside sources.
Other than future advances by PDK, we have
no firm commitments or agreements to provide additional funding to have sufficient capital to fund our operations as they are currently
planned or to fund the acquisition and exploration of new properties. We also may be unable to secure additional financing on terms
acceptable to us, or at all. Our inability to raise additional funds on a timely basis could prevent us from achieving our business
objectives and could have a negative impact on our business, financial condition, results of operations and the value of our securities.
If we raise additional funds by issuing additional equity or convertible debt securities, the ownership of existing stockholders
may be diluted and the securities that we may issue in the future may have rights, preferences or privileges senior to those of
the current holders of our common stock. Such securities may also be issued at a discount to the fair market value of our common
stock, resulting in possible further dilution to the book value per share of common stock. If we raise additional funds by issuing
debt, we could be subject to debt covenants that could place limitations on our operations and financial flexibility.
Our management may have conflicts of
interest and only devote a portion of their business time to us which could materially and adversely affect us and our business.
Most of our management does not work for
us exclusively and some serve on the boards of other companies, although we do not consider any of these other companies to be
our direct competitors. Nevertheless, these other responsibilities may take away from time and focus of these parties on their
responsibilities as management of our Company. It is possible that a conflict of interest may arise based on management’s
other employment or board activities. Situations may arise where members of our management are presented with business opportunities
which may be desirable not only for us, but also for the other companies with which they are affiliated.
We do not know if our properties contain
any gold, silver, copper, tungsten, or other precious minerals that can be mined at a profit.
The properties on which we have the right
to explore for and mine precious minerals are not known to have any proven or probable reserves. Whether a precious mineral deposit
can be mined at a profit depends upon many factors. Some but not all of these factors include: the particular attributes of the
deposit, such as size, grade and proximity to infrastructure; operating costs and capital expenditures required to start mining
a deposit; the availability and cost of financing; the price of the gold or other mineral which is highly volatile and cyclical;
and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals
and environmental protection. We are also obligated to pay royalties and taxes on certain of our mining activities, which will
make our ability to operate profitably more difficult.
We are a junior mining company with
limited operating mining activities, and we may not be able to increase our mining activities in the future.
Our business is mining for gold, silver
and other precious minerals. Mining operations in the United States are subject to many different federal, state and local laws
and regulations, including stringent environmental, health and safety laws. In the event we increase operations on our mining properties,
it is possible that we will be unable to comply with current or future laws and regulations, which can change at any time. It is
possible that changes to these laws will be adverse to our mining operations. Moreover, compliance with such laws may cause substantial
delays and require capital outlays in excess of those anticipated, adversely affecting any potential mining operations. Our future
mining operations may also be subject to liability for pollution or other environmental damage. We are not currently insured against
this risk because of high insurance costs.
We have a short operating history, have
only lost money and may never achieve any meaningful revenue.
Our operating history consists of limited
operations and continuation of preliminary exploration activities. Our expenses have consistently exceeded the revenue generated
from our mining operations. Exploring for and mining precious minerals or resources is an inherently speculative activity. Our
revenue could be adversely affected by many outside influences and we may never achieve revenue in amounts sufficient to provide
for payment of our expenses.
Our property title may be challenged.
We are not insured against any challenges, impairments or defects to our mineral claims or property title.
Our property is comprised of patented and
unpatented lode claims created and maintained in accordance with the federal General Mining Law of 1872. Unpatented lode claims
are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests
because the validity of unpatented lode claims is often uncertain. This uncertainty arises, in part, out of the complex federal
and state laws and regulations under the General Mining Law. Until the claims are surveyed, the precise location of the boundaries
of the claims may be in doubt and our claims subject to challenge. If we discover mineralization that is close to the claims’
boundaries, it is possible that some or all of the mineralization may occur outside the boundaries. In such a case we would not
have the right to extract those minerals. This uncertainty leaves us exposed to potential title suits. Defending any challenges
to our property title will be costly and may divert funds that could otherwise be used for exploration activities and other purposes.
In addition, unpatented lode claims are always subject to possible challenges by third parties or contests by the federal government,
which, if successful, may prevent us from exploiting our discovery of commercially extractable gold. Challenges to our title may
increase our costs of operation or limit our ability to explore on certain portions of our property. We are not insured against
challenges, impairments or defects to our property title, nor do we intend to carry title insurance in the future.
We may not be able to maintain the infrastructure
necessary to conduct mining activities.
Our mining activities depend upon adequate
infrastructure. Reliable roads, bridges, power sources and water supply are important factors which affect capital and operating
costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such
infrastructure could adversely affect our mining activities and financial condition.
Our mining activities may be adversely
affected by the local climate.
The local climate sometimes affects our mining
activities on our properties. Earthquakes, heavy rains, snowstorms, and floods could result in serious damage to or the destruction of
facilities, equipment or means of access to our property, or could occasionally prevent us temporarily from conducting mining activities
on our property. Because of their rural location and the lack of developed infrastructure in the area, our mineral properties in Utah
are occasionally impassable during the winter season. During this time, it may be difficult for us to access our property, maintain production
rates, make repairs, or otherwise conduct mining activities on them.
Risks Relating to the Mining Industry
Mining for precious metals is an inherently
speculative business. The properties on which we have the right to mine for precious minerals are not known to have any proven
or probable reserves. If we are unable to extract gold, silver, or any other resources which can be mined at a profit, our business
could fail.
Natural resource mining, and precious metal
mining, in particular, is a business that by its nature is speculative. There is a strong possibility that we will not discover
gold, silver, or any other resources which can be mined or extracted at a profit. Even if we do discover and mine precious metal
deposits, the deposits may not be of the quality or size necessary for us or a potential purchaser of the property to make a profit
from mining it. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological
formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides
and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral
exploration programs and the subsequent development of gold deposits. If we are unable to extract gold, silver, or any other resources
which can be mined at a profit, our business could fail.
Our business is subject to extensive
environmental regulations which may make exploring or mining prohibitively expensive, and which may change at any time.
All of our operations are subject to extensive
environmental regulations which can make exploration expensive or prohibit it altogether. We may be subject to potential liabilities
associated with the pollution of the environment and the disposal of waste products that may occur as the result of exploring and
other related activities on our properties. We may have to pay to remedy environmental pollution, which may reduce the amount of
money that we have available to use for exploration. This may adversely affect our financial position, which may cause loss of
investor investment. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or to
enter into interim compliance measures pending the completion of the required remedy. If a decision is made to mine our properties
our potential exposure for remediation may be significant, and this may have a material adverse effect upon our business and financial
position. All of our exploration and, if warranted, development activities may be subject to regulation under one or more local,
state and federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws,
regulations and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion
of our business, which may require our business to be economically re-evaluated from time to time. These risks include, but are
not limited to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch
as posting of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating
permits, increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental
laws. We have been required to post substantial bonds under various laws relating to mining and the environment and may in the
future be required to post further bonds to pursue additional activities. We may be unable or unwilling to post such additional
bonds which could prevent us from realizing any commercial mining success or commencing mining activities.
Market forces or unforeseen developments
may prevent us from obtaining the supplies, equipment and skilled manpower necessary to explore for mineral resources.
Precious metals exploration, and resource
exploration in general, is a very competitive business. Competitive demands for contractors and unforeseen shortages of supplies
and/or equipment could result in the disruption of our planned exploration and production activities. Current demand for exploration
drilling services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable
at scheduled times for our exploration and production programs. Fuel prices are extremely volatile as well. We will attempt to
locate suitable equipment, materials, manpower and fuel if sufficient funds are available. If we cannot find the equipment, supplies
and skilled manpower needed for our various exploration and production programs, we may have to suspend some or all of them until
equipment, supplies, funds and/or skilled manpower become available. Any such disruption in our activities may adversely affect
our exploration activities and financial condition.
Risks Relating to Our Organization
and Common Stock
There is currently no market for our
common stock, and we cannot ensure that one will ever develop or be sustained.
There is currently no public market for
our common stock. There can be no assurance that there will be an active market for our shares of common stock either now or in
the future. If an active market is established, the market liquidity will be dependent on the perception of our operating business,
among other things. We will take certain steps including utilizing investor awareness campaigns, press releases, road shows and
conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may
require we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated
or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate
their investment or liquidate it at a price that reflects the value of the business and trading may be at an inflated price relative
to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop,
the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing
firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor
finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer
fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit
the use of low-priced shares of common stock as collateral for any loans.
Our principal shareholders, officers
and directors own a substantial interest in our voting stock and investors will have a limited voice in our management.
Our principal shareholders, including the
Selling Stockholders, as well as our officers and directors, in the aggregate beneficially own a majority of our outstanding common
stock, including shares of common stock issuable upon exercise or conversion within 60 days of the date of this filing. Additionally,
the holdings of our officers and directors may increase in the future upon vesting or other maturation of exercise rights
under any of the options they currently hold or which may in the future be granted or if they otherwise acquire additional shares
of our common stock.
As a result of their ownership and positions,
our principal shareholders, directors and executive officers collectively are able to influence all matters requiring shareholder
approval, including the following matters:
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election of our directors; |
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amendment of our articles of incorporation or bylaws; and |
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effecting or preventing a merger, sale of assets or other corporate transaction. |
In addition, their stock ownership may
discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn
could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.
We are subject to the reporting requirements
of federal securities laws, and compliance with such requirements can be expensive and may divert resources from other projects,
thus impairing our ability to grow.
We are subject to the information and reporting
requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other federal
securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the
Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The costs of preparing
and filing annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission and
furnishing audited reports to stockholders will cause our expenses to be higher than they would have been if we were privately
held.
It may be time consuming, difficult and
costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley
Act and the Dodd-Frank Act. We may need to hire additional financial reporting, internal controls and other finance personnel in
order to develop and implement appropriate internal controls and reporting procedures.
If we fail to establish and maintain
an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any
inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely
affect our financial condition, results of operation and access to capital. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with any policies and procedures may deteriorate.
Public company compliance may make it
more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented
by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public
company, we expect these rules and regulations to increase our compliance costs in 2020 and beyond and to make certain activities
more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult
and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance
at reasonable rates, or at all.
Any future trading price of our stock may
be volatile.
If a market for our common stock is ever
established, the market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response
to various factors, many of which are beyond our control, including the following:
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our inability to maintain existing permits; |
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changes in the prices of gold and silver; |
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changes in our industry; |
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competitive pricing pressures; |
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our ability to obtain working capital financing; |
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additions or departures of key personnel; |
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock; |
| |
● |
our ability to execute our business plan; |
| |
● |
sales of our common stock; |
| |
● |
operating results that fall below expectations; |
| |
● |
loss of any strategic relationship; |
| |
● |
regulatory developments; |
| |
● |
economic and other external factors; and |
| |
● |
period-to-period fluctuations in our financial results; and inability to develop or acquire new or needed technology. |
In addition, the securities markets have from
time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the
past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our
common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may
consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only
occur if our stock price appreciates.
Our common stock may be deemed a “penny
stock,” which would make it more difficult for our investors to sell their shares.
Our common stock may be subject to the
“penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies
whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $4.00
per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible
net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among
other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation,
make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including
a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers
in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse
effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it
more difficult to dispose of our securities.
Exercise of options or future convertible
instruments may have a dilutive effect on our common stock.
If the price per share of our common stock
at the time of exercise of any future options or warrants, or conversion of any future convertible notes or any other convertible securities
is in excess of the various exercise or conversion prices of such convertible securities, exercise or conversion of such convertible
securities would have a dilutive effect on our common stock. Further, any additional financing that we secure may require the granting
of rights, preferences or privileges senior to those of our common stock and which result in additional dilution of the existing ownership
interests of our common stockholders.
Our Articles of Incorporation allow
for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect
the rights of the holders of our common stock.
Our board of directors has the authority
to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue
preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series
of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend
payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of
a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which
could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus
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 Prospectus. While it is not possible to identify
all factors, we continue to face many risks and uncertainties including, but not limited to, the following:
| |
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metallurgical and other processing problems; |
| |
● |
unusual or unexpected geological formations; |
| |
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need for additional funding to continue operations; |
| |
|
|
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● |
global economic and political conditions; |
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● |
staffing considerations in remote locations; |
| |
● |
disruptions in credit and financial markets; |
| |
● |
global productive capacity; |
| |
|
|
| |
● |
changes to existing
mining laws or regulations; |
| |
● |
changes in product costing;
|
| |
|
|
| |
● |
Effects of inflation
on operation cots and profitability; |
| |
● |
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); and |
| |
|
|
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● |
disruptions due to global
pandemics or civil unrest. |
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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares
by the Selling Stockholders.
SELLING STOCKHOLDERS
This Prospectus relates to the possible
resale by the Selling Stockholders named below of shares of the Company’s Common Stock. We are filing the registration statement
of which this Prospectus is a part pursuant to the provisions of the Registration Rights Agreement we entered into with Clifton
Mining Company. References in this Prospectus to the “Selling Stockholders” means Clifton Mining Company, Scott Moeller,
Keith Moeller, and any donees, pledgees, transferees or other successors in interest selling shares received after the date of
this Prospectus from a selling stockholder as a gift, pledge or other non-sale related transfer.
Each of the Selling Stockholders, who is
deemed to be a statutory underwriter, will offer its Shares at $0.40 or, upon quotation of our Common Stock on OTCQB, at prevailing
market or privately negotiated prices if a market should develop.
We do not know how long the Selling Stockholders
will hold the Shares before selling them, and other than the Registration Rights Agreement we entered into with it, we currently
have no agreements, arrangements or understandings with the Selling Stockholders regarding the sale of any of the Shares. The Company
will not receive any portion or percentage of any of the proceeds from the sale of the Shares.
The following table sets forth ownership
of shares held by the Selling Stockholders.
| |
|
Before
Offering |
|
|
|
|
|
After
Offering (2) |
| Name |
|
Number
of
Shares
Owned |
|
|
Percent
of
Class (1) |
|
|
Shares
Offered
for Sale |
|
|
Number
of
Shares
Owned |
|
|
Percent
of
Class (1) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Clifton
Mining Company |
|
|
5,810,824
|
|
|
|
21.6
|
% |
|
|
5,810,824
|
|
|
|
0 |
|
|
* |
| Keith Moeller |
|
|
125,000 |
|
|
|
0 |
% |
|
|
125,000 |
|
|
|
0 |
|
|
* |
| Scott Moeller |
|
|
125,000 |
|
|
|
0 |
% |
|
|
125,000 |
|
|
|
0 |
|
|
* |
| (1) |
Based on 26,831,603 shares of Common Stock outstanding as of the date of this Prospectus. |
| (2) |
The columns in the table above reflecting “After Offering”: “Number of Shares Owned” and “Percent of Class” are prepared on the basis that all shares being registered in this registration statement are resold to third parties. |
Of the total shares owned by Clifton
Mining Company, 5,500,000 were issued on or about March 8, 2019, in connection with the Second Amended and Restated Lease Agreement
dated February 7, 2019, with this Selling Stockholder. These shares were issued as partial consideration for entering into the
amended lease agreement. Of the remaining shares, 60,824 were issued in 2009 in connection with the transfer of a reclamation
bond and 500,000 were issued in 2009 in connection with a joint venture transaction of which 250,000 of these shares were subsequently
transferred in the amounts of 125,000 to Keith Moeller and 125,000 to Scott Moeller.
Clifton Mining Company (“Clifton”)
is the owner and lessor of the mining claims upon which our principal mining operations are conducted. In addition, on March 26,
2019, we were granted an option to purchase 64 additional patented mining claims from Ben Julian, LLC, an Idaho limited liability
company, for $500,000. On June 13, 2019, we entered into a letter agreement with Clifton whereby it 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.
MARKET FOR OUR COMMON STOCK
Market Information
At the date of this Prospectus, there is
no public trading market for our Common Stock. We intend to apply for the quotation of our Common Stock on an automated quotation
system. There can be no assurance that any application for the quotation of our Common Stock on an automated quotation system will
be approved. If any such application is not approved and our common stock ultimately is not quoted on an automated quotation system,
we intend to engage a market maker to apply for quotation on the OTCQB Market operated by OTC Markets Group, Inc. There can be
no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (FINRA);
nor can there be any assurance that such an application for quotation will be approved.
Holders
At March 31, 2023, we had approximately 655
holders of our Common Stock. We have appointed Pacific Stock Transfer Company, Las Vegas, Nevada, to act as the transfer agent of our
Common Stock.
Dividends
We have never declared or paid any cash
dividends on our Common Stock since inception. We do not anticipate paying any cash dividends to stockholders in the foreseeable
future. Our Prepaid Forward Gold Purchase Agreement prohibits us from declaring, making or paying any dividends so long as any
gold remains to be delivered or any amounts remain to be paid by us under the agreement. In addition, any future determination
to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with our financial statements and related notes thereto contained in this Prospectus.
Overview
We are an exploration stage company located
in the Gold Hill Mining District in Tooele County, Utah. We are currently focused on exploration and development of our Kiewit claims
and operation of a heap leach processing facility.
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 corporate 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 located in Tooele County, Utah. We hold leasehold interests within the Gold Hill Mining District consisting of 66
unpatented mining claims and 10 patented claims. From these claims we have centered our exploration activities on the Kiewit site.
During 2018 we settled our outstanding debt
with DMRJ Group I, LLC and repurchased and retired all outstanding preferred shares issued to them under the 2010 Investment Agreement
with them.
During 2019 we secured funding of $13,600,000
(net) from PDK Utah Holdings LP under the terms of the Pre-Paid Forward Gold Purchase Agreement dated March 7, 2019. We also renegotiated
our lease with Clifton Mining and released all but the current unpatented and patented mining claims. We also reacquired the existing
royalties from Clifton and its affiliates and issued a royalty to PDK equal to 4% of the net smelter returns from our mine. An additional
20 claims, known as the JJS Property, were also acquired.
During the first quarter of 2023 we crushed
no tons of mineralized material and hauled 149,3349 tons of waste from the open-pit Kiewit Pit. Using the funds from the PDK transaction,
in January 2020 we commenced a drilling program on the Kiewit and JJS mining claims to determine the definition of the mineralized body
and resource classification of the resources in connection with the proposed completion of a technical report on the claims. Our drilling
plan included drilling 30 holes for a total footage of 7,500 feet. Although drilling has commenced on the JJS property, permitting has
not been completed and production has not yet begun. We intend to continue extraction of mineralized material and to upgrade and expand
the current facilities, as resource expansion dictates.
Since securing funding in March 2019, we have
recommenced mining operations. Revenues of approximately $19,661,000 from sales of gold and other metals have been received through March
31, 2023, bringing total revenue from metals sales from the inception of the processing in 2014 to $25,875,000.
Results of Operations for the Years
Ended December 31, 2022 and 2021
During the years ended December 31, 2022 and
2021, we had loss from operations of $6,489,405 and $2,955,949, respectively. This represents an increase in net loss of $3,533,456 for
the year ended December 31, 2022, over the year ended December 31, 2021.
The operating loss of $5,957,777 for the year
ended December 31, 2022, as compared with the operating loss of $2,775,460 for the year ended December 31, 2021 represents increased
operating losses in the amount of $3,182,317. Increase losses are primarily due to the Forward gold contract expense and lack of production
in the third and fourth quarters of 2022.
For the year ended December 31, 2022, the
Company recognized revenue of $4.631.531 compared to $7,741,915 for the year ended December 31, 2021. The decrease in revenue of $3,110,384
is attributable to a decrease in production in the third and fourth quarters of 2022.
Operating expenses of $10,589,308 for the
year ended December 31, 2022 increased $71,933 over the year ended December 31, 2021.
During the years ended December 31, 2022 and
2021, we had net losses of $6,489,405 and $2,955,949, respectively. This represents an increased net loss of $3,533,456 for the year
ended December 31, 2022 over the year ended December 31, 2021.
Results of Operations for the three
months ended March 31, 2023 and 2022
During the three months ended March 31, 2023
and 2022, we had net losses of $2,263,429 and $1,337,227, respectively. This represents an increase in net loss of $926,202 for the three
months ended March 31, 2023, over the three months ended March 31, 2022. Increased losses are primarily due to the increase in forward
gold contract expense and lack of production in the first quarter of 2023.
Liquidity and Cash Flow
Net cash provided by operating activities
was $1,503,927 during the year ended December 31, 2022, compared with $1,958,764 cash used during the year ended December 31, 2022, represented
a $454,837 decrease in cash and is primarily attributable to the lack of production during the latter stages of the year.
Net cash used by investing activities was
$862,084 during the year ended December 31, 2022 compared to $444,644 used during the year ended December 31, 2021. The increase in cash
used by investing activities of $417,440 was primarily related to an increase in reclamation bonds.
Net cash used by financing activities was
$485,450 during the year ended December 31, 2022, compared with $1,262,778 cash provided during the year ended December 31, 2021. This
decrease in cash used by financing activities of $777,328 during the year ended December 31, 2022, was primarily due to reduction of
notes payable payments.
As a result, cash increased by $156,393 during
the year ended December 31, 2022, over the cash balance at December 31, 2021, leaving us with a cash balance of $581,022 as of December
31, 2022.
Net cash provided by operating activities
of $60,824 during the three months ended March 31, 2023, compared with cash provided by operating activities of $492,801 during the three
months ended March 31, 2022, represented a $431,977 decrease in cash provided by operating activities and is primarily attributable to
the lack of production during the period.
Net cash used by investing activities was
$112,917 during the three months ended March 31, 2023, compared with $154,039 cash used during the three months ended March 31, 2022.
This decrease in cash used by investing activities of $41,122 was primarily related to a decrease in the amount expended for reclamation
bonds.
Net cash used by financing activities was
$58,061 during the three months ended March 31, 2023, compared with $168,895 cash used during the three months ended March 31, 2022.
This decrease in cash used by financing activities of $110,834 during the three months ended March 31, 2023, was primarily due to reduction
of notes payable payments.
As a result of the above, cash decreased by
$110,154 during the three months ended March 31, 2023 over the cash balance at December 31, 2022, leaving us with a cash balance of $470,868
as of March 31, 2023.
Going Concern
As shown in the accompanying financial statements
for the year end December 31, 2022, the Company had an accumulated deficit of $20,737,165 through December 31, 2022 and net loss of $6,489,405
for the year ended December 31, 2022 along with negative working capital of $19,124,061, 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.
As shown in the accompanying financial statements
for the three month period ended March 31, 2023, the Company had an accumulated deficit of $23,000,594 and negative working capital of
$21,500,281 at March 31, 2023, 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 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.
Management continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase
liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is
dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business operations when they are due.
If the going concern assumptions 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.
Critical Accounting Policies and Estimates
See Note 2 to our financial statements furnished
with this Prospectus for a complete summary of the significant account policies used in the presentation of our financial statements.
As described in Note 2, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of
assets, liabilities, revenue, and expenses. We believe that our most critical accounting estimates are related to inventories, impairment
of long-lived assets and reclamation and remediation.
Our critical accounting policies and estimates
are as follows:
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 concentrate,
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;
amortization of property, equipment, and mineral properties; and mine administrative expenses. 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.
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 to 24 months. Inventory is stated at the lower of cost or net realizable value, which for December 31,
2022 and 2021 is net realizable value.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts
of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the
estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from
each mineral property are calculated using estimated future production, estimated future metals prices, operating capital and costs,
and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the
use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks
and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the
Company’s investments in mineral properties.
Reclamation and Remediation
The Company’s operations have been,
and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the
fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement
of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement
of the asset retirement obligation, the liability is adjusted when there are changes in the estimated future cash flows due to change
in estimated costs or change in time until reclamation will commence. Determination of any amounts recognized is based upon numerous
estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates.
Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. See
Note 9 to the Financial Statements.
For non-operating properties, the Company
accrues 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.
BUSINESS
General
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.
In addition, we have commenced crushing and performing cyanide vat and heap leaching on various ores from a third party at our Goldhill
processing plant.
Prepaid Forward Gold Contract Funding Transaction
and Amended Agreement
In 2019, the Company entered into and
closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings, LP (“PDK”)
for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement,
as amended, PDK agreed to purchase a total of 47,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced
from the Kiewit property to PDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified
in the Purchase Agreement. The Company has the option of paying cash for the number of ounces scheduled to be delivered each month at
a rate of $500 per ounce. The Company received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces. In February
2023, PDK sold their ownership position in the Purchase Agreement to Qenta, Inc. (“Qenta”)
Under the terms of the Purchase Agreement,
as amended, the Company is obligated to deliver gold in the following quantities:
| Months | |
Gold
Ounces per
Month | | |
Total Gold
Ounces | |
| December 2020 | |
| 655 | | |
| 655 | |
| January 2021 to March 2021 | |
| 896 | | |
| 2,688 | |
| April 2021 to March 2022 | |
| 911 | | |
| 10,932 | |
| April 2022 to March 2023 | |
| 1,396 | | |
| 16,752 | |
| April 2023 to December 2023 | |
| 1,753 | | |
| 15,777 | |
| January 2024 | |
| 241 | | |
| 241 | |
| | |
| | | |
| 47,045 | |
In addition, under the Purchase Agreement,
Qenta may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company.
As security for the obligations of the Company
under the Purchase Agreement, the Company has granted 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.
The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction
of this nature.
To date, no gold has been delivered under
the contract. As of March 31, 2023 and December 31, 2022, a cumulative of 31,027 and 26,839 ounces, respectively, were scheduled to be
delivered under the terms of the Purchase Agreement. The ounces due but unpaid at March 31, 2023 and December 31, 2022 have been reflected
in “Due in lieu of gold deliveries” on the balance sheet based on the Company’s option to pay cash in lieu of delivery
at $500 per ounce. The forward gold contract balance as of March 31, 2023 and December 31, 2022 is as follows:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Total ounces to be delivered | |
| 31,027 | | |
| 26,839 | |
| Contractual payment per ounce in lieu of delivery | |
$ | 500 | | |
$ | 500 | |
| Amount due in lieu of gold deliveries | |
$ | 15,513,500 | | |
$ | 13,419,500 | |
As of March 31, 2023, the Company has received
invoices for the deliveries and payments due. The failure to make gold deliveries and make additional payments as described below provides
Qenta with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and
enforcement of foreclosure rights against the assets pledged as security under the agreement. Due to the delinquent status of the deliveries
and Qenta’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance
owing as current on the balance sheets. The Company’s management has been in discussions with Qenta regarding the status of the
Purchase Agreement. To date, Qenta has not exercised its rights of default as defined in the agreement nor has it indicated plans to
do so.
In addition to the delivery of gold ounces,
the Purchase Agreement contains a royalty provision whereby royalties of 4% are due on gold and silver recovered from mining operations
at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also accrues a 5% withholding
tax to the state of Utah on the royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter. To date,
none of the royalty has been paid.
The Purchase Agreement contains a participation
payment whereby Qenta receives a portion of the proceeds from gold sold by the Company to a third party. The payment due is based upon
a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each
sale. To date, none has been paid.
Mining Operations
On January 7, 2014, we received final approval
from the BLM of the Kiewit Large Mine Permit which allowed us to develop the Kiewit deposit and put it into production. Development began
in June 2014. The first sale of minerals from the mine occurred in October 2014. We suspended operations in June 2016 because of depressed
metal prices and lack of funds. We resumed operations in spring 2018 and again suspended operations in October 2018 for lack of funding.
Since securing funding in March 2019, we have recommenced mining operations.
In March 2022, we paid an escalation increase
on our permit in the amount of $89,000. In June 2022 we paused our mining operations on the Kiewit claims and ceased our ore crushing
due to a delay in the issuance of a permit modification which would all us to expand our pit area, which is currently at the boundaries
of the existing permit. Utah Division of Oil, Gas and Mining has provided conditional approval for the permit modification contingent
on the approval by the BLM. In anticipation of receiving the permit modification, on November 1, 2022 we posted the required bond for
the permit modification in the amount of $555,000. We have curtailed operating expenses to the extent possible while keeping a minimum
staff employed, working on continued processing and equipment maintenance.
On December
22, 2022, BLM conditionally approved the Company’s amended plan of operations for the Kiewit Mine. The plan allows for an increase
in total material mined from Kiewit from 2 million tons of ore to 10 million tons of ore, an increase in the mining rate from 1 million
tons per year (tpy) to 1.75 million tpy and an increase in total disturbance from 101.3 acres to 203.4 acres. The plan also includes
an increase in pit and waste area disturbance from 38.5 acres to 80.9 acres. The plan also allows for an increase in heap leach area
disturbance from 19.5 acres to 65.5 acres, which may be bonded in 4 expansion phases. The Company will currently be bonded for
the initial 19.5 acres of heap leach area and will submit for additional bond money when expanding the heap leach area in the future.
The remaining increase in allowed disturbance acres is for roads, storage areas, containment ponds, growth medium stockpiles and other
miscellaneous disturbance areas. The plan also approved the removal of disturbance acreage associated with property owned
by the Moeller Family Trust which included the Yellow Hammer Mine, the Clifton Shears, and the Herat Mine. The plan also
includes an additional location for a second water well, 4 additional horizontal cascade tanks, and increases the life of the
mine timeframe from 6 to 10 years.
Third-Party Ore Processing
During 2020 we commenced processing ore for
a third party under our existing mining permit, which allowed for 5,000 tons of this ore to be processed and has since then been increased
to 30,000 tons. This ore was processed separately from our ore but in the same manner. For this
service, we received a percentage of net proceeds from the sale of the gold and silver ore. The contract agreement with the outside company
for which we were processing material was terminated in October 2022.
Distribution, Sales, and Raw Materials
We currently sell our products solely to Asahi
Refining. We use several raw materials such as cyanide, caustic, and limestone, in processing and we are not dependent upon any single
supplier for our raw materials. We also currently are dependent upon one customer for our product although other customers are available.
Competition
The precious metal exploration and mining
industry is highly fragmented. We expect to compete with many other exploration companies looking for gold, silver and other minerals.
We are among the smallest of the exploration companies in existence and are a very small participant in the precious metal industry.
However, we generally expect to compete favorably with other exploration companies since the claims held by us in the Gold Hill
Mining District consolidate the principal mining areas and limit the ability of other exploration companies to commence material
exploration activities in the district. Furthermore, if we are able to successfully recover gold, as well as silver and other by-products
from our claims, it is likely that we will be able to sell all minerals that we are able to recover.
Government Compliance
Our operations are subject to extensive
federal and state laws and regulations designed to conserve and prevent the degradation of the environment. These laws and regulations
require obtaining various permits before undertaking certain exploration or mining activities and may result in significant delays,
substantial costs and the alteration of proposed operating plans. We believe we have all necessary environmental permits and authorizations
to support existing operations.
Our Kiewit claims are located on unpatented
claims located on federal land, which also requires compliance with applicable requirements administered by the BLM. These regulations
impose specific conditions on the nature and extent of surface disturbance, the manner in which exploration and mining can be conducted,
the disposition of spent mineralized material, the use and containment of chemical leaching agents and other solutions, spill prevention,
liquid and solid waste disposition, ground water monitoring, and a number of other matters which if violated could result in fines, penalties
or attendant adverse publicity.
We are also obligated to make annual payments
to the BLM for each of our unpatented mining claims on federal land and to record an affidavit in the Tooele County Recorder’s
Office reflecting the payment of the annual maintenance fees to the BLM and stating our intention to hold the claims. The 2022 annual
maintenance fees and mineral lease fees payable to the BLM on our unpatented claims were $15,318 and this amount was paid in full within
the required payment period. The required affidavit was also filed with the Tooele County Recorder. Proposals repeatedly have been introduced
in Congress that would substantially modify the Mining Law of 1872, the statute pursuant to which unpatented mining claims are located
and maintained. Bills have been introduced, but have not passed, that would require, among other things, the payment of royalties to
the United States. Personal property tax levied by the state and collected by the local county are due each year and have been paid for
2021 and prior years. The 2022 personal property tax in the amount of $33,027 became due in November 2022 and has not yet been paid.
The personal property taxes are expected to remain similar in 2023 to that in 2022.
Mining and exploration operations are also
subject to both federal and state laws and regulations pertaining to employee health and safety. We employ a mine safety administrator
to monitor our obligations under these laws and regulations.
Climate-Related Matters
In 2020 the SEC adopted guidance for disclosing
material obligations as they apply to climate change. Recommended disclosures include discussion of the impact on climate change legislation
and regulation, international accords, indirect results of regulations on the company’s business trends, and the physical impacts
of climate change on the company. Examples suggested by the SEC include disclosure to climate change items, including the following:
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Decreased demand for
goods that produce significant greenhouse gas emissions; |
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Increased demand for
goods that result in lower emissions than competing products; |
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Increased competition
to develop innovative new products; |
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Increased demand for
generation and transmission of energy from alternative energy sources; and |
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Decreased demand for
services related to carbon-based energy sources, such as drilling services or equipment maintenance services. |
Management has evaluated the effects of climate
change on its business and believes that they should have no material adverse impact on its business. The State of Utah and particularly
the environs surrounding our properties are experiencing extreme drought conditions. If these conditions ultimately affect the water
table underlying the property, it could reduce the water available from our well or require us to extend the depth of the well.
Intellectual Property Rights
We own the Marks “DESERT HAWK”
and “DESERT HAWK GOLD CORP” and also own corresponding federal trademark filing Serial Nos. 85/232,815, 85,232,819,
85/232,820, and 85/232,823, for use in connection with mining extraction, consulting in the fields of mining and milling, milling
of ore, mining exploration and mineral exploration, copper ore, gold ore, silver ore, and tungsten ore.
Employees
At March 31, 2023, we had 17 full-time and
2 part-time employees, including our President, Rick Havenstrite, who devotes approximately 90% of his time or approximately 40 hours
per week for this business. We also engage Marianne Havenstrite, wife of Rick Havenstrite, as our Treasurer and Principal Financial and
Accounting Officer. Our officers are based out of our Reno, Nevada office, along with other office and engineering personnel. The remaining
employees work at our Gold Hill project site.
MINING PROPERTIES
We have not obtained a technical report prepared
by a qualified person for any of our mining properties. Although we are conducting mining operations on our properties, we would be considered
an exploration stage issuer and our properties would be deemed exploration stage properties, without specified reserves. Below is a description
of our mining properties.
Kiewit Project, Utah
The Kiewit gold property located in the Gold
Hill Mining District in Tooele County, Utah, is our principal mineral property and is an exploration stage property. In June 2019 we
also acquired 20 patented mining claims contiguous to our Kiewit property, known as the JJS Property. We have not determined to what
extent we will develop these new claims. We were attracted to the Gold Hill Mining District because of its similarities to productive
mining districts and its past positive exploration results. The gold potential of the Gold Hill Mining District is enhanced by similarities
to surrounding gold deposits. We believe the scale, number and frequency of the Gold Hill Mining District gold-bearing exposures and
geochemical anomalies compare favorably to similar attributes of other productive mining districts.
Location, Infrastructure, and Geography
of Kiewit
The Gold Hill Mining District is in
Tooele County, Utah, located at 40º 07’ 00” North latitude, 113º 49’ 40” West longitude. The
district includes the north end of the Deep Creek Mountains, one of the nearly north-south ranges that are common in the Great
Basin. On the east and north, the mountain area is separated by gravel slopes from the flat plain of the Great Salt Lake Desert,
and on the west, it is bounded by the Deep Creek Valley and groups of irregular low hills. It is approximately 190 miles west-southwest
of Salt Lake City, Utah, and approximately 56 miles south southeast of Wendover, Utah. The project is reached by taking Alternate
93A south from Wendover approximately 28 miles and turning east on to the Ibapah Highway, a paved two-lane road. Approximately
17 miles east is a maintained two-lane county road which provides access to the property approximately 11 miles southeast to the
town of Gold Hill, Utah. The Kiewit mine and the mill site are accessible by dirt roads maintained year-round. Access to the property
is maintained all year.
Power is supplied by the Company’s diesel
generators and water for mining operations is supplied from an existing groundwater well. Drinking water is obtained from a local vendor.
At March 31,2023, we had 17 full-time and
2 part-time employees. All employees are assigned to work at the Kiewit site, with the exception of the officers, a bookkeeper and one
engineer, who work from the corporate office in Reno, Nevada, with periodic site visits.
The Gold Hill area lies within the region
of the interior drainage that includes western Utah and most of Nevada, and, like the remaining portions of that area, is a high
desert semi-arid climate. The area is composed of a highly dissected group of hills of relatively low relief. The elevation of
the Kiewit Mine is approximately 5,500 feet. The Gold Hill area is bounded on the east by the Great Salt Lake Desert at an altitude
of about 4,300 feet, on the north by Dutch Mountain with a higher elevation of 7,735 feet, on the west by Clifton Flat at an approximate
elevation of 6,600 feet, and on the south by Montezuma Peak with an elevation of 7,369 feet.
Pronounced differences in temperatures
between night and day are common, with the dryness of the air mitigating the high temperatures which predominate the summer days.
Annual precipitation averages approximately 12 inches with about half falling in the months from February to May. Rainfall during
summer to early fall is commonly in the form of severe thunderstorms. Snow may be expected between October and May. Fieldwork in
the area is generally permitted throughout most of the year.
The higher portions of the Deep Creek Range
and small areas near the summits of the adjoining mountains support a fairly heavy growth of yellow pine. The lower slopes of these
mountains have a sparse covering of juniper and piñon trees. On the lower hills and on the gravel slopes surrounding them,
these trees give way to sagebrush. The floor of the Great Salt Lake Desert in the north-east corner of the district is almost completely
barren of vegetation.
Kiewit Mining Claims
The Kiewit mining claims consist of 66 unpatented
and surface rights to 10 patented mining claims covering approximately 3 square miles located in the Gold Hill Mining District in Tooele
County, Utah.
The Kiewit mining claims were part of a larger
group of mining claims leased from Clifton Mining Company and its subsidiary, The Woodman Mining Company, in July of 2009. The original
lease with Clifton was amended in June of 2010. In March 2019, the lease agreement was again amended by 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 the current Kiewit patented and unpatented claims. The 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. The Company is required to pay all property payment and
payment obligations with respected to the leased premises.
Under the terms of the Amended Lease, Clifton’s
right to receive a 6% royalty interest from production on the Kiewit project was terminated. The Company also acquired from third
parties and cancelled the remaining 1% outstanding royalty interest thereon, for which the Company paid each of two parties $50,000.
As consideration for entering into the Amended
Lease, the Company issued 5,500,000 shares of its common stock with a fair value of $2,200,000 which increased the carrying value of
the mineral properties and interests. The Company also paid $13,390 in satisfaction of delinquent amounts owed Clifton and $42,802 in
a reclamation bond transfer. 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 (which is September 7, 2020) following
the Initial Funding. 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. The registration
of these shares was filed and became effective on April 14, 2020. The Company has agreed to maintain the effectiveness of the Registration
Rights Agreement for a period of three years.
Desert Hawk may mortgage or pledge its
leasehold interest under the Amended Lease for purposes of financing exploration, development, and mining operations on the leased
premises, including corporate overhead for such operations, but it cannot otherwise encumber the leased premises without Clifton’s
prior, written discretionary consent. In connection with the PDK funding, the Company granted to PDK a security interest in all
of the assets of the Company and issued and recorded a Leasehold Deed of Trust which included an assignment of leases, rents, as
extracted collateral and contracts, a security agreement and fixture filing.
The Amended Lease cannot be assigned or
subleased without the prior written consent of Clifton. Further, PDK may, without Clifton’s consent, hold a foreclosure sale,
take title to the Company’s interest under the Amended Lease, or transfer or assign the Company’s interest under the
Amended Lease. The Company may surrender the Amended Lease as to all or any part of the leased premises, after proper reclamation
of all portions of the land to be surrendered affected by its operations. However, so long as any mortgage of PDK remains in effect,
the Amended Lease cannot be modified, and Clifton will not accept a surrender of any of the leased premises or a termination or
release of the Amended Lease, without the prior written consent of PDK, which consent cannot be unreasonably withheld or delayed.
Kiewit Geology and Mineralization
The Gold Hill area hosts lithologic units
ranging in age from the Cambrian through to Quaternary Periods including six Paleozoic sedimentary formations of Carboniferous-age
from the Cordilleran miogeosyncline. Geology of the Gold Hill Mining District is dominated by a large Jurassic granodiorite stock
intruding the Carboniferous sedimentary package consisting of carbonates (limestone and dolomite) and lesser clastic sequences,
notably shale and quartzite. The contact between the granodiorite and sediments is clearly intrusive at many localities. In other
exposures, the contact is a post-intrusive fault contact or localized detachment fault.
Other lithologies in the District include
silica breccias, jasperoids and assorted (locally tuffaceous) volcanics, minor small, intrusive plugs and dikes of probable Tertiary
age also occur in the area. Most of the present-day surface is covered with colluvial slope wash and the canyons and narrow washes have
alluvial fill of various thicknesses.
The Kiewit historic gold zone is hosted within
a structural zone traceable on the surface for a distance of approximately 2.5 miles across the full length of the Kiewit project area
and beyond. This structure trends north-north-easterly with a gentle westerly dip ranging 20-30 degrees, often occupying dip-slopes across
the area. The zone comprises a 30 to 165-foot-thick, gently westerly dipping gold bearing oxidized quartz stockwork section in granodiorite.
The zone is mostly exposed on the surface and occupies the dip-slope located at the southern part of the Kiewit project area. Projected
western and northern extensions of the stockwork dip under Carboniferous Sedimentary rocks, although it is ultimately truncated by the
Rodenhouse Fault located approximately 2,500 feet to the west.
The Kiewit gold zone is part of a typical
low-sulfidation gold bearing epithermal system. It is manifested as a zone of quartz and quartz-carbonate veining and stockworks within
the more laterally extensive (2.5 miles long and up to 1,650 feet wide) Kiewit structural zone fault/fracture system. The Kiewit structural
zone comprises a group of lithologies overlying a major fault zone that is manifested as a three to 16 feet thick silica breccia unit
in granodiorite. A basal three to six-foot thick quartz-carbonate vein overlies this basal silica breccia and is followed up-section
by a fault-bounded interval of relatively unaltered granodiorite that forms the footwall of the stockworks. At some locations, this footwall
granodiorite is absent and the stockwork zone is instead in fault-contact with the basal quartz-carbonate vein. The footwall of the stockwork
zone is defined by faulting, with a north-north-easterly trend and shallow westerly dip. The “footwall” fault appears to
have developed after the stockwork and served to juxtapose altered and mineralized rocks of the historic gold zone over relatively mineralized
and fresh granodiorite. The amount of displacement along this fault is unknown and the structure may be regarded as a detachment zone.
Precious metals mineralization at Kiewit
occurs primarily as electrum and is hosted in a stockwork zone associated with a low angle fault zone. The stockwork zone comprises
argillic-propylitic altered granodiorite with randomly oriented to anastomosing veinlets, as well as veins with variable mix of
white to grey chalcedony/quartz and white to beige carbonate and adularia. The veins are commonly less than two centimeters wide
but larger veins with apparent thickness up to one meter or greater are present on surface and in diamond drill core. The larger
veins display typical epithermal style open space fillings and have variable textures.
The mineralized stockwork is reported by
Dumont to generally contain up to 30 randomly oriented veinlets making up 30% of the rock volume. The highest gold grades are also
reported by Dumont to generally be associated with the larger veins or where vein density is greatest which suggests that the gold
mineralization is spatially associated with the quartz-carbonate veins.
Kiewit Exploration Programs and Mining
Activities
The Kiewit mining
claims are without known reserves but beginning in 2014 the Company started extraction of gold without determining mineral reserves.
The Kiewit mine is a small open pit, heap leach operation that produces gold and silver. Initial production at Kiewit commenced in June
2014 and was suspended in June 2016. Production was suspended due to low metal prices and undercapitalized operations. A fresh water
well failure in July 2016, due to suspected sabotage, caused a complete leach pad shut-down. Fresh water pumping was re-started in mid-March
2017 mostly to reduce solution volumes as no sodium cyanide (NaCN) was being added. The mine resumed leaching activities in the spring
of 2018 and recovered some gold but suspended operations again in October 2018 to secure funding for continued operations. In April 2019
we re-commenced mining operations with our first sale in September 2019. During fourth quarter 2020, we also commenced processing ore
for a third party under our existing mining permit, which allowed for 5,000 tons of this ore to be processed and has since then been
increased to 30,000 tons.
In June 2022 we paused
our mining operations on the Kiewit claims and ceased our ore crushing due to a delay in the issuance of a permit modification which
would allow us to expand our pit area, which is currently at the boundaries of the existing permit. Utah Division of Oil, Gas and Mining
has provided conditional approval for the permit modification contingent on the approval by the BLM. In anticipation of receiving the
permit modification, on November 1, 2022 we posted the required bond for the permit modification in the amount of $555,000. We have curtailed
operating expenses to the extent possible while keeping a minimum staff employed, working on continued processing and equipment maintenance.
On December 22, 2022,
BLM conditionally approved the Company’s amended plan of operations for the Kiewit Mine. The plan allows for an increase in total
material mined from Kiewit from 2 million tons of ore to 10 million tons of ore, an increase in the mining rate from 1 million tons per
year (tpy) to 1.75 million tpy and an increase in total disturbance from 101.3 acres to 203.4 acres. The plan also includes an increase
in pit and waste area disturbance from 38.5 acres to 80.9 acres. The plan also allows for an increase in heap leach area disturbance
from 19.5 acres to 65.5 acres, which may be bonded in 4 expansion phases. The Company will currently be bonded for the initial
19.5 acres of heap leach area and will submit for additional bond money when expanding the heap leach area in the future. The remaining
increase in allowed disturbance acres is for roads, storage areas, containment ponds, growth medium stockpiles and other miscellaneous
disturbance areas. The plan also approved the removal of disturbance acreage associated with property owned by the Moeller
Family Trust which included the Yellow Hammer Mine, the Clifton Shears, and the Herat Mine. The plan also includes an
additional location for a second water well, 4 additional horizontal cascade tanks, and increases the life of the mine timeframe
from 6 to 10 years.
History of Previous
Mining Activities
The Gold Hill area is one of the oldest mining
districts in the State of Utah. It reflects 43 known historical producing deposits mined primarily from the mid-1800s until the end of
World War II. These deposits included gold, silver, copper, bismuth, lead, zinc, tungsten, arsenic, molybdenum, cobalt, and beryllium.
Exploration and mining activities commenced in the mid-1800s as travel westward through the area to California was at its peak. Lead
mineralization first attracted the attention of travelers prompting early prospecting. Placer gold was first discovered in the Gold Hill
area in 1858. These early prospectors were hampered by repeated attacks of local Native American tribes and the area was abandoned until
1869 when the settlements of Gold Hill and Clifton were re-established.
A lead smelter was constructed at Clifton
in 1872 and relocated to Gold Hill in 1874. However, mining activity did not commence in earnest until 1892 when a mill and smelter
were constructed at Gold Hill. Substantial quantities of gold and silver ore were processed at this site between 1892 and 1896.
Mining activity gradually diminished until 1905 when exploration for copper revived the area. With the outbreak of World War I
and the completion of the Deep Creek Railroad between Gold Hill and Wendover, a new revival of interest in the area commenced.
Gold, silver, copper and lead were produced and approximately 3,000 residents lived in Gold Hill and Clifton at the time.
Tungsten was produced beginning in 1912.
Significant amounts of gold and bismuth were also reportedly extracted during this period. Two mines produced tungsten in 1914
and 1917 and were operated primarily for the strategic requirement of tungsten during the two world wars. Gold and silver mining
ceased completely with the beginning of World War II since the few remaining miners focused their attention on the production of
strategic metals such as arsenic and tungsten to support the war effort.
Arsenic was produced beginning with the
outbreak of World War I and was used primarily for pesticides in the cotton fields of the south. Two former copper producers also
produced arsenic between 1923 and 1925. One of the mines reopened during World War II to produce arsenic for the war effort. None
of the arsenic deposits previously mined are located on our claims.
The first large-scale geological study
of the area was published in 1935 by T. B. Nolan as U.S. Geological Survey Professional Paper 177 and is referred to herein as
the Nolan Report. The Nolan Report provided the first detailed data on the mining district.
The mining district remained largely dormant
during the period after World War II through the mid-1970s. Between this period and the mid-1990s, several mining companies began
to consolidate the fragmented land holdings in the area and a more regional-scale exploration operation was conducted. In 1993
Clifton Mining Company acquired several of the mining claims in the area and subsequently purchased Woodman Mining Company which
also held claims in the district. After purchase of the claims, Clifton Mining commenced additional exploration activities and
in 1997 developed road access up the Clifton Hills area. Clifton completed construction of a 50 ton per day mill at the Cactus
Mill site and started construction of a 500 ton per day gravity-flotation mill at the same location. In 1999 Clifton Mining borrowed
funds which financed upgrades to the mill.
Between 1994 and 1997 Kennecott Utah Copper,
now owned by Rio Tinto, explored a large region of the district. In December 2002 Clifton Mining and Woodman Mining entered into
an option-joint venture agreement with Dumont Nickel Inc., which in 2010 changed its name to DNI Metals Inc. The joint venture
ultimately covered approximately 10.3 square miles of mineral properties but did not include the Yellow Hammer claims which were
controlled by the Moeller family. In 2003 Dumont commenced exploring the properties with the objective of identifying bulk mineable
gold, copper and silver targets through regional work as well as several drill programs. Beginning in 2004 Dumont completed a regional-scale
grid and reconnaissance rock and soil sampling exploration program with detailed, targeted exploration work over the Clifton Shears
Corridor, the Kiewit Zone and the prior zone owned by Kennecott. Ultimately, Dumont determined that the scale of the project was
too small and decided to sell its interest in the project. In July 2009 Dumont completed the sale of all its mineral properties
in this area to Clifton Mining Company for $255,000 cash and a 0.5% net smelter return royalty against future production proceeds
from the Cane Springs Property and from portions of the Kiewit project claims. The joint venture and the option agreement were
both subsequently dissolved and terminated.
Processing Plant
and Mining Equipment
The Kiewit mine is an open pit mine using conventional
open pit mining methods with drilling, blasting, loading with a wheeled loader and truck haulage to the ore stockpile near the crusher.
We recommenced operation of the mine in April 2019. We also use a top hammer drill for all blast holes and a dozer to move waste and
for road building, as required. We also use a grader and water truck for haul road maintenance. At the leach pad we use a wheeled loader
to feed the crusher and a dozer to level the pad.
The current processing facility can process
approximately one million tons per year, which we plan to increase to three million tons if resource expansion dictates. We anticipate
that this expansion will require an update or amendment of some permits. Ores are crushed, truck-stacked and heap-leached at the Company’s
mine site. Pregnant solutions are passed through a conventional carbon column with the resultant gold-bearing carbon refined off-site.
Mining Permits
The Kiewit mining claims exist entirely on
federal Bureau of Land Management unpatented mining claims. The heap leach pad and process area are located on patented mining claims
approximately 3,000 feet to the southwest of the Kiewit claims.
In February 2010 we filed an application with
Utah Division of Oil, Gas and Mining for a Large Mining Operations Permit to commence large mining operations for three open pit mines
and a heap leach gold facility. Final approval was received in November 2012. In February 2010 we also submitted a Plan of Operation
to the BLM. Final approval was received in January 2014. A separate Groundwater Discharge Permit through the Utah Department of Environmental
Quality was issued on December 7, 2010.
In addition
to completing the notice of intent filing, the BLM requires an analysis of our Plan of Operation in compliance with the National Environmental
Protection Act. Approval of the Environmental Assessment was issued in January 2014 and development of the project began in February
2014 after posting a reclamation Bond in the amount of $1,348,000. In December 2020, we were notified that the reclamation cost estimate
for the Kiewit properties had been escalated from $1,348,000 to $1,537,000, an increase of $189,000. This amount escalated the cost estimate
to December 31, 2021 at which time a new cost estimate will be calculated to escalate the cost through 2026. This additional surety amount
of $189,000 was remitted on March 10, 2021. The additional escalation amount was then paid in March 2022 at a cost of $89,000. In
anticipation of receiving a permit modification, on November 1, 2022 we posted the required bond for the permit modification in the amount
of $555,000. On December 22, 2022, BLM conditionally approved the Company’s amended plan of operations for the Kiewit Mine.
The Company believes it has all necessary
environmental permits and authorizations to support existing operations. As we expand or update the current mining plan of operations
(the “POO”), we will require an update or amendment of some permits and before we can implement any changes in our
operating parameters, we will need to modify our existing permits or seek new permits. We anticipate that the following permitting modifications
will be required:
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POO
Modification: A POO modification would be required to support our planned increased production capacity, expansion of the mine
pit, and the expansion of the leach pad. The POO modification must be submitted to the BLM, and the process would require National
Environmental Policy Act (NEPA) compliance, including public review and comment. We submitted the modification in first quarter 2020
and the plan was accepted. |
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Air Quality Permit
to Construct: A modification to the Air Quality Permit to Construct would be required for production increases from the one million
tons per annum to the three-million-ton level. We submitted our application in first quarter 2020 and this permit was issued in 2021. |
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Water Discharge Permit:
A modification to our existing water discharge permit would be required for the expansion including enlargement of the heap leach
facility. The permit includes monitoring of the heap leach leak detection system and groundwater monitoring wells in the vicinity
of the heap leach and process area. We submitted the modification in third quarter 2020 and this permit was issued in 2021. |
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Reclamation Plan:
A Reclamation Plan Approval would be required by the Utah DOGM Office. However, the Aggregate Mine Land Reclamation Act would require
approval by the Inspectors Office of the POO amendment addressing new infrastructure and disposal facilities. We submitted the POO
amendment for approval in first quarter 2020 and the plan has been accepted. |
We have engaged outside consultants to assist
us in seeking modification or new permits to accomplish the above.
2022 Mining Activities
During
2022, we mined and crushed 83,413 tons of mineralized material and 188,556 tons of waste from the open-pit Kiewit Pit. Production was
limited due to the delay in receiving the permit modification to increase the size of the pit area.
Planned 2023 Exploration
and Mining Activities
We intend
to continue extraction of mineralized material and to upgrade and expand the current facilities, as resource expansion and permit approval
dictates. We hope to drill a new well to increase our water source in 2023 also.
Offices and Other Facilities
Our corporate office is located in Reno, Nevada
and Mr. Havenstrite, our President, operates from this office and also works on site at our mining property in Tooele County, Utah. Monthly
rent for the office space in Reno is $1,500. Financial and engineering activities are performed in this office and rent includes use
of the business equipment and supplies needed to perform these functions. This office space is used primarily for RMH Overhead, LLC and
Overhead Door Co. of Sierra Nevada/Reno, Inc., businesses owned by Mr. Havenstrite. Agreements for the use of the office space facilities
with these parties are month-to-month and can be cancelled at any time.
We rent a core-logging facility located on
the Tooele County airport grounds in Wendover, Utah. The facility includes a separate core splitting and sawing room, field supply storage
rooms and sufficient floor space for logging tables and racks to hold over 21,000 feet of HQ core boxes. Monthly rent for this space
is $350 and the rental arrangement is terminable at any time.
MANAGEMENT
Current Management
The following table sets forth as of May 25,
2023, the names and ages of, and position or positions held by, our executive officers and directors, the employment background of these
persons, and any directorships held by the current directors during the last five years. The Board of Directors believes that all the
directors named below are highly qualified and have the skills and experience required for effective service on the Board of Directors.
The directors’ individual biographies below contain information about their experience, qualifications and skills that led the
Board of Directors to nominate them.
| Name |
|
Age |
|
Positions |
|
Director
Since |
|
Employment
Background |
| Howard Crosby |
|
70 |
|
Director, Chairman |
|
2016 |
|
Mr. Crosby served as
our Chief Executive Officer from April 2016 until April 2017. Since 1989, Mr. Crosby has been president of Crosby Enterprises,
Inc., a family-owned business advisory consulting firm. From 1994 to June of 2006 he served as president and director of Cadence
Resources Corporation, a publicly traded oil and gas company. He served as an officer and director of Independence Resources PLC
from March of 2010 until October of 2013. He served as a director of White Mountain Titanium Corporation from 2004 until March of
2016. Both Independence Resources and White Mountain Titanium were previously reporting companies with the SEC. He currently serves
as President and Director of Shoshone Silver/Gold Mines, Inc. Mr. Crosby is also a director or advisor to a number of privately held
companies. He received a bachelor’s degree from the University of Idaho in 1975. Mr. Crosby has extensive experience in corporate
finance and strategic planning and provides valuable insight on business strategy development and strategic partnership to our Board
of Directors. |
| |
|
|
|
|
|
|
|
|
| Rick Havenstrite |
|
64 |
|
Director, President and Chief Executive Officer |
|
2009 |
|
Mr. Havenstrite has
served as our President since April 2009 and as Chief Executive Officer since April 2017 and has been employed by us to manage our
mining operations since August 2009. Since May 1999 he has been the co-owner, with his wife, and President of Overhead
Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company and since 2004 has been a partner in
RMH Overhead, LLC. From 1998 until 1999 he was employed by Nevada Star Resources, a small copper mining company, as Manager
of the Nevada Star Milford Copper Project in Utah; from 1996 until 1998 he was employed by Centurion Mines Corp, an exploration mining
company, as Vice-president of Operations on the Milford Copper Project; from 1992 until 1996 he was General Manager of Nevada Operations
for Arimetco Mining in Yerington Nevada, a mid-size copper mining company; from 1991 until 1992 he was employed by Newmont Minerals,
a small gold mining company, as Manager of the Golden Assets Mine in Montana; from 1983 to 1990 he was employed by Silver King Mines,
which subsequently changed its name to Alta Gold Corp., a mid-sized diversified mining company, beginning his employment with the
company as Project Engineer at the Buckskin Mine from 1983 to 1985, subsequently moving with the company to Ely, Nevada where he
was the Mine Superintendent and then Mine Manager of the Robison Mine from 1985 to 1988, and finally serving as Manager of Mining
for Alta Gold’s operating mines in Nevada, Idaho, Oregon and Colorado; and from 1980 until 1983 he was employed by Utah International,
a large diversified mining company, as a mine engineer of the Springer Tungsten Mine in Nevada and the Navajo Coal mine in New Mexico. Mr.
Havenstrite graduated in 1980 with a Bachelor of Science degree in Mining Engineering from the University of Reno, Mackay School
of Mines. He is a registered Professional Mining Engineer with the State of Utah and is an inactive Professional Mining
Engineer in the State of Nevada. |
| Marianne Havenstrite |
|
64 |
|
Treasurer and Principal Financial
Officer |
|
-- |
|
Ms. Havenstrite
has been our Principal Financial Officer from May 2013 to April 2016 and since March 2017. Since May 1999 she has been the co-owner
with her husband, and has served as Vice-president, of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential
door installation company and since 2004 has been a partner in RMH Overhead, LLC. She received her Bachelor of Science
degree in accounting from the University of Nevada, Reno in 1980. |
| |
|
|
|
|
|
|
|
|
| John P. Ryan |
|
61 |
|
Director |
|
2017 |
|
Mr. Ryan served as our
Chief Financial Officer for a short time period beginning in April 2016 until March 2017. He has been an active entrepreneur
in the resources sector for over twenty years. Since June 2020 he has been CEO and a director of Gold Minds, Inc., a private Nevada
corporation which is engaged in mineral exploration and development. Since 1995 he has been self-employed through his own company,
Quest Consulting, providing consulting services for both private and public mining companies. He has extensive experience
in the natural resource sector having served as an officer and/or director of companies such as Cadence Resources from 1995
to 2005 High Plains Uranium from 2004 to 2007, U.S. Silver Corporation from 2006 to 2009, and Western Goldfields, Inc. from 2001
to 2005. From December 2012 through April 2017 he served as a director of Mineral Mountain Mining and Milling Company. Mr.
Ryan has extensive executive experience and provides our Board of Directors with valuable insights regarding mining operations as
well as public company expertise. Mr. Ryan has acted as a professional Director in a number of cases of turnaround and/or distressed
company scenarios. Mr. Ryan obtained a B.S. in Mining Engineering from the University of Idaho in 1985 and a Juris Doctor
from Boston College in 1992. |
Rick Havenstrite and Marianne Havenstrite are husband and wife.
Each director is elected until the next annual
meeting of shareholders and until his successor is elected and qualified, except as otherwise provided in the Bylaws or required by law.
We did not hold an annual meeting of the shareholders for the fiscal year ended December 31, 2022, and we have not scheduled an annual
meeting for the current year. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a
majority of the directors then in office has the power to elect such new directors for the balance of a term and until their successors
are elected and qualified. There are no family relationships between any director, executive officer, or person nominated or chosen by
us to become a director, other than the relationship between our President, Rick Havenstrite, and our Treasurer/Principal Financial Officer,
Marianne Havenstrite, who are married.
Officers are to be elected by the Board
of Directors at its first meeting after every annual meeting of stockholders. Each officer holds his office until his successor
is elected and qualified or until his earlier resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years there have been
no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation
of the ability and integrity of any of the executive officers or directors, and none of these persons has been involved in any
judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business
entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or
insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange
or other self-regulatory organization.
Executive Compensation
The following table sets forth information
concerning the annual compensation awarded to, earned by, or paid to the named executive officer for all services rendered in all capacities
to our company for the years ended December 31, 2022 and 2021:
SUMMARY COMPENSATION TABLE
| Name & Principal Position | |
Year | | |
Salary and Fees
$ | | |
Option Awards
$ | | |
All Other Compensation
$ | | |
Total
$ | |
| Rick Havenstrite, President and CEO | |
| 2022 | | |
| 144,000 | | |
| - | | |
| 5,520 | | |
| 149,520 | |
| | |
| 2021 | | |
| 144,000 | | |
| - | | |
| 4,062 | | |
| 148,062 | |
In September 2010 we entered into an employment
agreement with Mr. Havenstrite as President of our Company. The term of the agreement was originally for four years, expiring September
1, 2014, with automatic one-year extensions unless notice is given by either party. The employment agreement was renewed for one-year
terms beginning September 1, 2015, through 2022. Mr. Havenstrite is required under the terms of the agreement to devote a minimum of
75% of his business time to the affairs of our company. Nevertheless, he may serve on the board of directors or serve as an officer of
up to three companies not engaged in business which may reasonably compete with our business, provided that he would not be required
to render any material services with respect to the operations or affairs of any other business which would exceed 25% of his entire
business time. In spite of the minimum percentage of his time required in his employment agreement, Mr. Havenstrite currently devotes
approximately 90% of his time, or approximately 40 hours per week, to our business and approximately 10%, or five hours per week, of
his business time to Overhead Door Company of Sierra/Nevada, Inc., his overhead door business in Reno, Nevada. He does not anticipate
devoting more than 20% of his time to the business of his overhead door company during the term of his employment contract with us. The
annual base salary is $144,000 plus performance compensation of between 10% and 100% of the annual base salary based upon fulfillment
of annual performance goals established by the Board of Directors or the Compensation Committee (if any). No performance bonuses have
been paid under the employment agreement since its commencement.
Under our employment agreement with
Mr. Havenstrite, if we terminate the agreement without cause or if the agreement is constructively terminated by us, we have agreed
to pay him a severance package equal to one and one-half times the largest annual base salary plus the largest annual performance
compensation received by him under the agreement, payable 75% within 30 days and the balance within 30 days of the first anniversary
of the termination.
Outstanding Equity Awards at 2022 Fiscal
Year End
The following table sets forth the outstanding
equity awards for each named executive officer as of December 31, 2022:
| | |
Option
Awards |
| Name | |
Number
of securities underlying unexercised options
(#) exercisable | | |
Option
exercise
price
($) | | |
Option expiration
date |
| Rick Havenstrite | |
| 1,000,000 | | |
$ | 0.40 | | |
February 23, 2023 |
Compensation of Directors
The following table sets forth the compensation
of directors for the year ended December 31, 2022:
Director
Compensation
| Name | |
Fees earned or
paid in cash
($) | | |
All
other
compensation ($) | | |
Total ($) | |
| Howard Crosby | |
| 72,000 | | |
| - | | |
| 72,000 | |
| John Ryan | |
| 20,000 | | |
| - | | |
| 20,000 | |
Director compensation for Howard Crosby is
$6,000 per month and for Mr. Ryan is $5,000 per quarter.
Certain Relationships and Related Transactions
Since 2009 we have leased our corporate office
space from RMH Overhead, LLC (“RMH”), an entity owned and controlled by Mr. Havenstrite, our President and a director. From
2009 until February 2014 monthly rent was $500 per month and from March 2014 until February 2020 monthly rent has been $1,000. Expansion
into additional office space effected a rental increase to $1,500 per month effective March 1, 2020. The rental agreement is month-to-month
and can be cancelled by either party at any time. During 2022 and 2021 we paid an aggregate of $18,000 and $18,000, respectively in rent
for this space.
On February 1, 2021, RMH purchased a CAT 740B
Articulated Haul Truck from a dealer who had previously provided this equipment to the Company under a rent purchase option agreement.
We owed the dealer five monthly payments along with a major repair billing and the dealer had requested the return of the truck. RMH
paid the dealer the five past due payments plus an amount to complete the purchase of the truck. The Company paid the past due repair
invoice, and the truck was obtained with no encumbrances. Beginning February 1, 2021, we began renting this truck from RMH at a rate
of $10,000 per month on a simple month-to-month rental arrangement. During the year ended December 31, 2022 and 2021, we paid a total
of $120,000 and $110,000, respectively, in truck rental to RMH.
Marianne Havenstrite, wife of Rick Havenstrite,
is employed by the Company and acts as our Treasurer and Principal Financial Officer. For the year ended December 31, 2022 and 2021 Mrs.
Havenstrite earned $96,000 and $96,000, respectively. Mrs. Havenstrite currently devotes approximately 80% of her time, or approximately
40 hours per week, to our business and approximately 20%, or approximately ten hours per week, of her business time to Overhead Door
Company of Sierra/Nevada, Inc., her overhead door business in Reno, Nevada. We do not have a formal compensation agreement with Mrs.
Havenstrite.
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. |
On February 23, 2023, the above options
all expired unexercised.
Policies and Procedures Regarding
Related Party Transactions
We have not adopted
a specific policy pursuant to which an actual or proposed financial transaction, arrangement or relationship with a related person
is subject to review or approval or, if applicable, ratification, by our Board of Directors. Under Nevada law any contract or other
transaction between the company and one or more of its officers or directors or another entity in which one or more of the directors
or officers are directors or officers or are financially interested may be void or voidable unless (i) the common relationship
is disclosed to the remaining disinterested directors who thereafter approve or ratify the contract or transaction; (ii) the common
relationship is disclosed to shareholders and shareholders holding a majority of the voting power of the company, including shares
held by the interested officer or director, approve or ratify the contract or transaction, or (iii) the contract or transaction
is fair as to the company at the time it is authorized or approved.
Independent Directors
Our securities
are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be
independent. As a result, we have adopted the independence standards of the NYSE American (formerly known as the American Stock
Exchange and more recently the NYSE MKT) to determine the independence of our directors. These standards provide that a person
will be considered an independent director if he or she is not an officer of the Company and is, in the view of the Company’s
Board of Directors, free of any relationship that would interfere with the exercise of independent judgment. Our Board of Directors
has determined that John P. Ryan would be considered independent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information
furnished by current management and others, concerning the ownership of our common stock as of May 25, 2023, of (i) each person who is
known to us to be the beneficial owner of more than 5% of our common stock, without regard to any limitations on conversion or exercise
of convertible securities or warrants; (ii) all directors and named executive officers; and (iii) our directors, named executive officers,
and executive officers as a group:
| Name and Address of Beneficial Owner | |
Amount
and Nature of Beneficial Ownership(1) | | |
Percent
of Class(1) | |
Rick Havenstrite
1290 Holcomb Ave.
Reno,
NV 89502 | |
| 4,137,066 | (2) | |
| 15.4 | % |
Howard Crosby
1290 Holcomb Ave.
Reno, NV 89502 | |
| 0 | | |
| 0 | % |
John P. Ryan
5968 N. Govt. Way #305
Dalton Gardens,
ID 83815 | |
| 400,000 | | |
| 1.5 | % |
Executive Officers and Directors as a Group
(3 Persons) | |
| 6,737,066 | | |
| 23.2 | % |
H&H Metals Corp.
509 Madison Ave., Ste. 1902
New York City, NY 10022 | |
| 1,500,000 | | |
| 5.6 | % |
Ibearhouse, LLC
Kelley Price
7806 NE
10th Street
Medina, WA 98039 | |
| 3,760,353 | | |
| 14.0 | % |
West C Street, LLC
Richard Meadows
21838 NE 102nd Street
Redmond, WA 98053 | |
| 2,260,353 | | |
| 8.4 | % |
Clifton Mining Company
101 South 200, Suite 700
Salt
Lake City, UT 84111 | |
| 5,810,824 | | |
| 21.7 | % |
Marianne Havenstrite
1290 Holcomb Ave.
Reno, NV 89502 | |
| 4,137,066 | (3) | |
| 15.4 | % |
| (1) |
This table is based
upon information supplied by officers, directors and principal stockholders and is believed to be accurate. Unless otherwise indicated
in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of our common
stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible
within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such option or
warrant but are not deemed outstanding for computing the percentage of any other person. Where more than one person has a beneficial
ownership interest in the same shares, the sharing of beneficial ownership of these shares is designated in the footnotes to this
table. As of the date of this table, we had 26,831,603 shares outstanding. |
| (2) |
Of these shares, 1,000,000
are owned of record jointly by Mr. and Mrs. Havenstrite. |
| (3) |
Of these shares, 3,137,066 are owned of record
by Mrs. Havenstrite’s husband, Rick Havenstrite and 1,000,000 are owned of record jointly by Mr. and Mrs. Havenstrite.
|
To our knowledge, except as noted above,
no person or entity is the beneficial owner of more than 5% of the voting power of our Common Stock.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table provides disclosure as
of December 31, 2022, of compensation plans (including individual compensation arrangements) under
which our equity securities are authorized for issuance:
Equity Compensation Plan Information
| Plan category | |
Number
of securities to be issued upon exercise of outstanding options, warrants and rights | | |
Weighted-average
exercise price of outstanding options, warrants and rights | | |
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Equity compensation plans approved by security holders | |
| -0- | | |
| N/A | | |
| -0- | |
| Equity compensation plans not approved by security holders | |
| 2,400,000 | | |
$ | 0.40 | | |
| -0- | |
| Total | |
| 2,400,000 | | |
$ | 0.40 | | |
| -0- | |
On March 28, 2018 the Board of Directors
adopted the 2018 Stock Incentive Plan (the “Plan”). The purposes of the Plan are (a) to enhance our ability
to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose
judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional
incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company,
by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and
increased value of our Company.
There are 2,400,000 shares of common stock
authorized for non-qualified and incentive stock options, restricted stock units, restricted stock grants, and stock appreciation
rights under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. No
shares remain available for grants under the Plan.
The Plan is administered by our board of
directors; however, the board of directors may designate administration of the Plan to a committee consisting of at least two independent
directors. Only employees of our Company or of an “Affiliated Company”, as defined in the Plan, (including members
of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock
options under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not
employed by our company or an Affiliated Company), and “Service Providers”, as defined in the Plan, are eligible to
receive non-qualified options, restricted stock units, and stock appreciation rights under the Plan. All awards are subject to
Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more
than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the
date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator
of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time
of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee
has 30 days to exercise his or her options.
The Plan will continue in effect until
all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten
years after its adoption, whichever is earlier. Awards under the Plan may also be accelerated in the event of certain corporate
transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
DESCRIPTION OF COMMON STOCK
The shares registered pursuant to the registration
statement, of which this Prospectus is a part, are shares of Common Stock, all of the same class and entitled to the same rights
and privileges as all other shares of Common Stock.
We are authorized to issue up to 100,000,000
shares of common stock, par value $.001 per share. All common shares are equal to each other with respect to voting, and dividend rights,
and are equal to each other with respect to liquidation rights. Special meetings of the shareholders may be called by the Chairman or
the CEO and by the Secretary upon the request of a majority of the Board of Directors or the holders of not less than one-tenth of all
the shares entitled to vote at the meeting. Holders of shares of common stock are entitled to one vote at any meeting of the shareholders
for each share of common stock they own as of the record date fixed by the Board of Directors. At any meeting of shareholders, one-third
of the outstanding shares of capital stock entitled to vote, represented in person or by proxy, constitutes a quorum. A vote of the majority
of the shares represented at a meeting will govern, even if this is substantially less than a majority of the shares outstanding. Holders
of common shares are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor,
and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to shareholders.
There are no conversion, sinking fund, redemption, preemptive or other subscription rights or privileges with respect to any common shares.
Directors are elected by a plurality of
votes, which means that the persons receiving the greatest number of votes as directors for the number of directors to be elected
at the meeting are elected to serve as directors, whether or not the number of votes cast represents a majority of the votes present
at the meeting. The common shares do not have cumulative voting rights, which would permit a shareholder to multiply the number
of shares he owns by the number of directors to be elected and to distribute those votes among the candidates in any manner he
wishes.
We refer you to our Amended and Restated
Articles of Incorporation, our Amended and Restated Bylaws, and the applicable statutes of the state of Nevada for a more complete
description of the rights and liabilities of holders of our securities.
PLAN OF DISTRIBUTION
General
The Selling Stockholders may seek an underwriter,
broker-dealer or selling agent to sell the Shares. As of the date of this Prospectus, no Selling Stockholder has entered into any
arrangements with any underwriter, broker-dealer or selling agent for the sale of the Shares.
Each Selling Stockholder and any underwriters,
broker-dealers or agents who participate in the sale or distribution of the Shares may be deemed to be “underwriters”
within the meaning of the Securities Act. As a result, any profits on the sale of the Shares by a Selling Stockholder and any discounts,
commissions or agent’s commissions or concessions received by any such broker-dealer or agents may be deemed to be underwriting
discounts and commissions under the Securities Act. If a Selling Stockholder is deemed to be an “underwriter” within
the meaning of Section 2(11) of the Securities Act, it will be subject to prospectus delivery requirements of the Securities Act.
Underwriters are subject to certain statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of the Securities
Act.
There can be no assurance that the Selling
Stockholders will sell any or all of the Shares under this Prospectus. Further, we cannot assure you that the Selling Stockholders
will not transfer, devise or gift the Shares by other means not described in this Prospectus. In addition, any Shares covered by
this Prospectus that qualify for sale under Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
in certain instances, rather than under this Prospectus.
The Shares covered by this Prospectus may
also be sold to non-U.S. persons outside the U.S. in accordance with Regulation S under the Securities Act rather than under this
Prospectus. The Shares may be sold in some states only through registered or licensed brokers or dealers. In addition, in some
states the Shares may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification
is available and complied with. If any of the Shares offered for resale pursuant to this Prospectus are transferred other than
pursuant to a sale under this Prospectus, the subsequent holders could not use this Prospectus until a post-effective amendment
to the registration statement of which this Prospectus is a part or a prospectus supplement is filed naming such holders.
The Selling Stockholders and any other
person participating in the sale of the Shares may be subject to the Exchange Act. The Exchange Act rules include, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the Shares by the Selling Stockholders and any other
such person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the Common Stock to
engage in market-making activities with respect to the particular Shares being distributed. This may affect the marketability of
the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
The Company intends to maintain the currency
and accuracy of this Prospectus for a period of up to three years, unless earlier completely sold, pursuant to Rule 415 of the
General Rules and Regulations of the Securities and Exchange Commission.
Resales of the Shares under State Securities Laws
The National Securities Market Improvement
Act of 1996 (“NSMIA”) limits the authority of states to impose restrictions upon resales of securities made pursuant
to Sections 4(a)(1) and 4(a)(3) of the Securities Act of companies which file reports under Sections 13 or 15(d) of the Exchange
Act. Resales of the Shares in the secondary market will be made pursuant to Section 4(a)(1) of the Securities Act (sales other
than by an issuer, underwriter or broker).
LEGAL MATTERS
The validity of the shares of Common Stock
offered under this Prospectus is being passed upon for us by Pearson Butler, LLC, Attorneys at Law, South Jordan, Utah.
EXPERTS
Our financial statements for the years ended
December 31, 2022 and 2021, appearing in this Prospectus which is part of a registration statement have been audited by Assure CPA, LLC
and are included in reliance upon such reports given upon the authority of Assure CPA, LLC, as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement
on Form S-1 under the Securities Act of 1933, as amended, (SEC File No. 333-236398) relating to the shares of Common Stock being
offered by this Prospectus, and reference is made to such registration statement. This Prospectus constitutes the prospectus of
Desert Hawk Gold Corp., filed as part of the registration statements, and it does not contain all information in the registration
statements, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange
Commission.
We are required to file reports and
other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our annual report. You may read
and copy any document we file with the Securities and Exchange Commission at the public reference room of the Commission between
the hours of 9:00 a.m. and 5:00 p.m., except federal holidays and official closings, at 100 F Street, NE, Room 1580, Washington,
D.C. 20549. You should call (202) 551-8090 for more information on the public reference room. Our SEC filings are also available
to you on the Internet website for the Securities and Exchange Commission at http://www.sec.gov.
| Financial
Statements Index |
|
Page |
| |
|
|
| Unaudited Balance Sheets at March 31, 2023 and
December 31, 2022 |
|
F-2 |
| Unaudited Statements of Operations, for the three
months ended March 31, 2023 and 2022 |
|
F-3 |
| Unaudited Statements of Stockholders’ Equity
(Deficit), for the three months ended March 31, 2023 and 2022 |
|
F-4 |
| Unaudited Statements of Cash Flows, for the three
months ended March 31, 2023 and 2022 |
|
F-5 |
| Notes to Financial Statements, March 31, 2023 |
|
F-6 |
| |
|
|
| Report of Independent Registered Public Accounting firm (PCAOB ID # 444) |
|
F-13 |
| Balance Sheets, December 31, 2022 and 2021 |
|
F-15 |
| Statements of Operations, for the years ended December 31, 2022 and 2021 |
|
F-16 |
| Statements of Stockholders’ Equity (Deficit), for the years ended December
31, 2022 and 2021 |
|
F-17 |
| Statements of Cash Flows, for the years ended December 31, 2022 and 2021 |
|
F-18 |
| Notes to Financial Statements, December 31, 2022 and 2021 |
|
F-19 |
DESERT HAWK GOLD CORP.
CONDENSED INTERIM BALANCE
SHEETS (UNAUDITED)
| | |
March 31,
2023 | | |
December 31,
2022 | |
| ASSETS | |
| | |
| |
| CURRENT ASSETS | |
| | |
| |
| Cash and cash equivalents | |
$ | 470,868 | | |
$ | 581,022 | |
| Inventories (NOTE 4) | |
| 2,804,734 | | |
| 3,544,071 | |
| Prepaid expenses and other current assets | |
| 47,575 | | |
| 50,523 | |
| TOTAL CURRENT ASSETS | |
| 3,323,177 | | |
| 4,175,616 | |
| INVENTORIES (NOTE 4) | |
| 194,798 | | |
| - | |
| PROPERTY AND EQUIPMENT, net (NOTE 5) | |
| 4,322,411 | | |
| 4,368,398 | |
| MINERAL PROPERTIES AND INTERESTS, net (NOTE 6) | |
| 3,638,671 | | |
| 3,616,493 | |
| RECLAMATION BONDS (NOTE 3) | |
| 1,592,936 | | |
| 1,591,547 | |
| TOTAL ASSETS | |
$ | 13,071,993 | | |
$ | 13,752,054 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| CURRENT LIABILITIES: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 361,794 | | |
$ | 159,741 | |
| Royalties and upside participation payable (NOTE 7) | |
| 3,049,930 | | |
| 2,843,091 | |
| Accrued interest, prepaid forward gold contract (NOTE 7) | |
| 925,358 | | |
| 640,742 | |
| Accrued liabilities – officers and other wages (NOTES 11 and 12) | |
| 142,159 | | |
| 137,159 | |
| Notes payable, current portion (NOTE 8) | |
| - | | |
| 58,061 | |
| Settlement of consulting contract payable (NOTE 10) | |
| 200,000 | | |
| 200,000 | |
| Prepaid forward gold contract liability (NOTE 7) | |
| 4,630,717 | | |
| 5,841,383 | |
| Due in lieu of gold deliveries (NOTE 7) | |
| 15,513,500 | | |
| 13,419,500 | |
| TOTAL CURRENT LIABILITIES | |
| 24,823,458 | | |
| 23,299,677 | |
| LONG-TERM LIABILITIES | |
| | | |
| | |
| Asset retirement obligation (NOTE 9) | |
| 1,556,021 | | |
| 1,496,434 | |
| TOTAL LONG-TERM LIABILITIES | |
| 1,556,021 | | |
| 1,496,434 | |
| TOTAL LIABILITIES | |
| 26,379,479 | | |
| 24,796,111 | |
| COMMITMENTS AND CONTINGENCIES (NOTES 3, 6 AND 12) | |
| | | |
| | |
| STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| Preferred Stock, $.001 par value; 10,000,000 shares authorized, none issued or outstanding | |
| - | | |
| - | |
| Common Stock, $.001 par value; 100,000,000 shares authorized; 26,831,603 and 26,831,603 shares issued and outstanding, respectively | |
| 26,833 | | |
| 26,833 | |
| Additional paid-in capital | |
| 9,666,275 | | |
| 9,666,275 | |
| Accumulated deficit | |
| (23,000,594 | ) | |
| (20,737,165 | ) |
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | |
| (13,307,486 | ) | |
| (11,044,057 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
$ | 13,071,993 | | |
$ | 13,752,054 | |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
CONDENSED INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 2023 and 2022
| | |
Three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| REVENUE | |
| | |
| |
| Concentrate sales | |
$ | 738,283 | | |
$ | 792,934 | |
| Contract processing income | |
| - | | |
| 474,188 | |
| Total revenue | |
| 738,283 | | |
| 1,267,122 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| General production and project costs | |
| 1,380,782 | | |
| 1,227,726 | |
| Contract processing costs | |
| - | | |
| 40,705 | |
| Depreciation and amortization | |
| 163,184 | | |
| 314,688 | |
| Other operating costs | |
| 66,484 | | |
| 114,915 | |
| Legal and professional | |
| 66,610 | | |
| 67,771 | |
| Officers and directors’ fees | |
| 92,023 | | |
| 87,889 | |
| General and administrative | |
| 70,283 | | |
| 111,780 | |
| Gain on disposal of equipment | |
| (5,669 | ) | |
| | |
| Forward gold contract expense (NOTE 7) | |
| 883,334 | | |
| 576,444 | |
| TOTAL OPERATING EXPENSES | |
| 2,717,031 | | |
| 2,541,918 | |
| LOSS FROM OPERATIONS | |
| (1,978,748 | ) | |
| (1,274,796 | ) |
| OTHER INCOME (EXPENSE) | |
| | | |
| | |
| Interest and other income | |
| 1,390 | | |
| 26 | |
| Interest expense – equipment financing | |
| (1,399 | ) | |
| (6,291 | ) |
| Interest expense - other | |
| (284,672 | ) | |
| (56,166 | ) |
| TOTAL OTHER INCOME (EXPENSE) | |
| (284,681 | ) | |
| (62,431 | ) |
| NET LOSS BEFORE INCOME TAX | |
| (2,263,429 | ) | |
| (1,337,227 | ) |
| Provision (benefit) for income tax | |
| - | | |
| - | |
| NET LOSS | |
$ | (2,263,429 | ) | |
$ | (1,337,227 | ) |
Basic and diluted loss per share | |
$ | (0.08 | ) | |
$ | (0.05 | ) |
Basic and diluted weighted average number of shares outstanding | |
| 26,831,603 | | |
| 26,831,603 | |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
CONDENSED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT) (UNAUDITED)
For the three months ended March 31, 2023 and 2022
| | |
Common Stock | | |
| | |
| | |
| |
| | |
Shares Issued | | |
Par Value $.001 per share | | |
Additional Paid in Capital | | |
Accumulated
Deficit | | |
Total
Stockholders Equity
(Deficit) | |
| BALANCE, December 31, 2021 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (14,247,760 | ) | |
$ | (4,554,652 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (1,337,227 | ) | |
| (1,337,227 | ) |
| BALANCE, March 31, 2022 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (15,584,987 | ) | |
$ | (5,891,879 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCE, December 31, 2022 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (20,737,165 | ) | |
$ | (11,044,057 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (2,263,429 | ) | |
| (2,263,429 | ) |
| BALANCE, March 31, 2023 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (23,000,594 | ) | |
$ | (13,307,486 | ) |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
CONDENSED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2023 and 2022
| | |
Three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net loss | |
$ | (2,263,429 | ) | |
$ | (1,337,227 | ) |
| Adjustments to reconcile net loss to net cash provided (used) by operating activities | |
| | | |
| | |
| Depreciation and amortization | |
| 163,184 | | |
| 314,689 | |
| Accretion of asset retirement obligation | |
| 37,409 | | |
| 33,536 | |
| Write down of inventory to net realizable value | |
| - | | |
| 680,319 | |
| Gain on disposal of equipment | |
| (5,669 | ) | |
| - | |
| Forward gold contract expense (NOTE 7) | |
| 883,334 | | |
| 576,444 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| - | | |
| 254,024 | |
| Inventories | |
| 544,539 | | |
| (396,976 | ) |
| Prepaid expenses and other current assets | |
| 2,948 | | |
| 3,128 | |
| Accounts payable and accrued liabilities | |
| 202,053 | | |
| 93,700 | |
| Royalties and upside participation payable (NOTE 7) | |
| 206,839 | | |
| 208,998 | |
| Accrued interest, prepaid forward gold contract (NOTE 7) | |
| 284,616 | | |
| 56,166 | |
| Accrued liabilities – officer and other wages | |
| 5,000 | | |
| 6,000 | |
| Net cash provided by operating activities | |
| 60,824 | | |
| 492,801 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Additions to property and equipment | |
| (122,528 | ) | |
| (65,013 | ) |
| Proceeds from sale of equipment | |
| 11,000 | | |
| - | |
| Increase in reclamation bonds | |
| (1,389 | ) | |
| (89,026 | ) |
| Net cash used by investing activities | |
| (112,917 | ) | |
| (154,039 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Payment of notes payable | |
| (58,061 | ) | |
| (168,895 | ) |
| Net cash used by financing activities | |
| (58,061 | ) | |
| (168,895 | ) |
| Net increase (decrease) in cash and cash equivalents | |
| (110,154 | ) | |
| 169,867 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 581,022 | | |
| 424,629 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 470,868 | | |
$ | 594,496 | |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2023
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 (“Clifton”), 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 on September 30, 2014. Revenue from the heap leach operation began in October
2014 with the first sales of gold concentrate.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
In the opinion of management, the accompanying
unaudited condensed financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods reported. The condensed balance sheet at December 31, 2022 was derived from audited annual financial
statements but does not contain all of the footnote disclosures from the annual financial statements. Operating results for the three-month
period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31,
2023.
These unaudited condensed 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”). These unaudited condensed interim financial statements 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, 2022 filed with
the Securities and Exchange Commission on March 31, 2023.
This summary of significant accounting policies
of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are
representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies
conform to U.S. GAAP and have been consistently applied in the preparation of the financial statements.
Reclassifications
Certain reclassifications have been made to
conform prior periods’ amounts to the current presentation. These reclassifications have no effect on the results of operations,
stockholders’ equity (deficit), and cash flows as previously reported.
Earnings (Loss) Per Share
Basic earnings (loss) per share includes no
dilution and is computed by dividing net earnings (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.
For the three months ended March 31, 2023
and 2022, common stock equivalents of nil and 2,400,000, respectively, associated with the Company’s outstanding stock options
were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to the net loss for the periods
then ended.
Going Concern
As shown in the accompanying financial statements,
the Company had an accumulated deficit of $23,000,594 through March 31, 2023 and net loss of $2,263,429 for the three-month period ended
March 31, 2023, along with negative working capital of $21,500,281 which raises substantial doubt about the Company’s ability to
continue as a going concern. In addition, the Company has not delivered gold ounces as scheduled on its prepaid forward gold contract
and could be subject to default provisions within the related agreement (see Note 7). The condensed interim 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 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.
Management continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase
liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is
dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business operations when they are due.
New Accounting Pronouncements
Accounting standards that have been issued
or proposed by the Financial Accounting Standards Board (“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 3 – RECLAMATION BONDS
At March 31, 2023 and December 31, 2022, reclamation
bonds totaled $1,592,936 and $1,591,547, respectively, associated with estimated reclamation costs for its mineral properties. The totals
in both years include a surety bond of $674,000 with a bonding company for reclamation of its mineral 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. The remaining balances of $918,936 and $917,547, respectively,
are held as certificate of deposits by the Utah Department of Natural Resources.
NOTE 4 – INVENTORIES
Inventories at March 31, 2023 and December
31, 2022 consists of the following:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Ore on leach pad | |
$ | 2,628,409 | | |
$ | 3,266,091 | |
| Carbon column in process | |
| 231,685 | | |
| 163,619 | |
| Finished goods | |
| 139,438 | | |
| 114,361 | |
| | |
| 2,999,532 | | |
| 3,544,071 | |
| Less long-term portion | |
| (194,798 | ) | |
| - | |
| Total | |
$ | 2,804,734 | | |
$ | 3,544,071 | |
Inventories at March 31, 2023 and December
31, 2022 were valued at net realizable value because production costs were greater than the amount the Company expected to receive on
the sale of the estimated gold ounces contained in inventories. The adjustment to inventory, which is included in general production
and project costs on the statements of operations, was $nil and $680,319 during the three-month period ended March 31, 2023 and 2022,
respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and
equipment at March 31, 2023 and December 31, 2022:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Equipment | |
$ | 6,561,569 | | |
$ | 6,528,497 | |
| Furniture and fixtures | |
| 6,981 | | |
| 6,981 | |
| Electronic and computer equipment | |
| 50,587 | | |
| 50,587 | |
| Vehicles | |
| 417,667 | | |
| 369,595 | |
| Buildings | |
| 100,000 | | |
| 100,000 | |
| Land and improvements | |
| 105,299 | | |
| 105,299 | |
| | |
| 7,242,103 | | |
| 7,160,959 | |
| Less accumulated depreciation | |
| (4,528,821 | ) | |
| (4,401,690 | ) |
| | |
| 2,713,282 | | |
| 2,759,269 | |
| | |
| | | |
| | |
| Kiewit property facilities | |
| 2,497,436 | | |
| 2,497,436 | |
| Less accumulated amortization | |
| (888,307 | ) | |
| (888,307 | ) |
| | |
| 1,609,129 | | |
| 1,609,129 | |
| Total | |
$ | 4,322,411 | | |
$ | 4,368,398 | |
For the Kiewit property facilities, amortization
based on total units of production was $Nil and $70,864 for the three-months ended March 31, 2023 and 2022, respectively. There was no
production for the three months ended March 31, 2023.
Depreciation expense on property and equipment
for the three months ended March 31, 2023 and 2022 was $163,184 and $193,210 respectively.
NOTE 6 – MINERAL PROPERTIES AND INTERESTS
Mineral properties and interests as of March
31, 2023 and December 31, 2022 are as follows:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Kiewit and all other sites | |
$ | 3,700,000 | | |
$ | 3,700,000 | |
| JJS property | |
| 250,000 | | |
| 250,000 | |
| | |
| 3,950,000 | | |
| 3,950,000 | |
| Less accumulated amortization | |
| (852,000 | ) | |
| (852,000 | ) |
| | |
| 3,098,000 | | |
| 3,098,000 | |
| Asset retirement obligation assets | |
| | | |
| | |
| Kiewit Site | |
| 747,300 | | |
| 725,122 | |
| Kiewit Exploration | |
| 28,377 | | |
| 28,377 | |
| JJS property | |
| 31,016 | | |
| 31,016 | |
| Total | |
| 806,693 | | |
| 784,515 | |
| Less accumulated amortization | |
| (266,022 | ) | |
| (266,022 | ) |
| | |
| 540,671 | | |
| 518,493 | |
| | |
| | | |
| | |
| Total | |
$ | 3,638,671 | | |
$ | 3,616,493 | |
Amortization of the mineral properties and
interests based on total units of production was $Nil and $50,615 for the three months ended March 31, 2023 and 2022, respectively. There
was no production for the three months ended March 31, 2023.
The Company is required to pay a 4% net smelter
royalty (“NSR”) to Qenta, Inc. (“Qenta”) on revenues of gold and silver from the Kiewit gold property and the
JJS properties. See Note 7.
NOTE 7 – PREPAID FORWARD GOLD CONTRACT
LIABILITY
In 2019, the Company entered into and closed
a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings, LP (“PDK”) for
the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement, as
amended, PDK agreed to purchase a total of 47,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced
from the Kiewit property to PDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified
in the Purchase Agreement. The Company has the option of paying cash for the number of ounces scheduled to be delivered each month at
a rate of $500 per ounce. The Company received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces. In February
2023, PDK sold their ownership position in the Purchase Agreement to Qenta, Inc. (“Qenta”)
Under the terms of the Purchase Agreement,
as amended, the Company is obligated to deliver gold in the following quantities:
| Months | |
Gold Ounces
per Month | | |
Total Gold
Ounces | |
| December 2020 | |
| 655 | | |
| 655 | |
| January 2021 to March 2021 | |
| 896 | | |
| 2,688 | |
| April 2021 to March 2022 | |
| 911 | | |
| 10,932 | |
| April 2022 to March 2023 | |
| 1,396 | | |
| 16,752 | |
| April 2023 to December 2023 | |
| 1,753 | | |
| 15,777 | |
| January 2024 | |
| 241 | | |
| 241 | |
| | |
| | | |
| 47,045 | |
In addition, under the Purchase Agreement,
Qenta may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company. To date, this option
has not been elected.
As security for the obligations of the Company
under the Purchase Agreement, the Company has granted a security interest in all of the assets of the Company. The Purchase Agreement
contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.
To date, no gold has been delivered under
the contract. As of March 31, 2023 and December 31, 2022, a cumulative of 31,027 and 26,839 ounces, respectively, were scheduled to be
delivered under the terms of the Purchase Agreement. The ounces due but unpaid at March 31, 2023 and December 31, 2022 have been reflected
in “Due in lieu of gold deliveries” on the balance sheet based on the Company’s option to pay cash in lieu of delivery
at $500 per ounce. The forward gold contract balance as of March 31, 2023 and December 31, 2022 is as follows:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Total ounces to be delivered | |
| 31,027 | | |
| 26,839 | |
| Contractual payment per ounce in lieu of delivery | |
$ | 500 | | |
$ | 500 | |
| Amount due in lieu of gold deliveries | |
$ | 15,513,500 | | |
$ | 13,419,500 | |
For the three months ended March 31, 2023 and 2022, the activity
related to the forward gold contract is as follows:
| | |
Three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| Prepaid forward gold contract liability balance
at beginning of period | |
$ | 5,841,383 | | |
$ | 10,263,438 | |
| Forward gold contract balance associated with ounces to be
delivered during period | |
| 883,334 | | |
| 576,444 | |
| Reduction in prepaid forward gold contract
liability balance | |
| (2,094,000 | ) | |
| (1,366,500 | ) |
| Prepaid forward gold contract liability
balance at end of period | |
$ | 4,630,717 | | |
$ | 9,473,382 | |
As of March 31, 2023, and through the issuance
of these financial statements, the Company has received invoices for the deliveries and payments due. The failure to make gold deliveries
and make additional payments as described below provides Qenta with certain remedies, including termination of the agreement, demand
for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under
the agreement. Due to the delinquent status of the deliveries and Qenta’s rights under the default provisions of the Purchase Agreement,
the Company has classified the entire liability balance owing as current on the balance sheets. The Company’s management has been
in discussions with Qenta regarding the status of the Purchase Agreement. To date, Qenta has not exercised its rights of default as defined
in the agreement nor has it indicated plans to do so.
In addition to the delivery of gold ounces,
the Purchase Agreement contains a royalty provision whereby royalties of 4% are due on gold and silver recovered from mining operations
at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also accrues a 5% withholding
tax to the state of Utah on the royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter. To date,
none of the royalty has been paid.
The Purchase Agreement contains a participation
payment whereby Qenta receives a portion of the proceeds from gold sold by the Company to a third party. The payment due is based upon
a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each
sale. To date, none has been paid.
The Purchase Agreement provides for the Company
to pay default interest (calculated at the rate of LIBOR plus 2%) on outstanding amounts due. To date, none has been paid.
The following is a summary of royalties, upside
participation and interest payable:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Royalties payable | |
$ | 625,370 | | |
$ | 585,536 | |
| Royalties withholding payable | |
| 32,917 | | |
| 30,820 | |
| Upside participation payable | |
| 2,391,643 | | |
| 2,226,735 | |
| Subtotal | |
| 3,049,930 | | |
| 2,843,091 | |
| Accrued interest, prepaid forward gold contract | |
| 925,358 | | |
| 640,742 | |
| Total | |
$ | 3,975,288 | | |
$ | 3,483,833 | |
NOTE 8 – NOTES PAYABLE
The following is a summary of the notes payable:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Note payable to Epiroc, collateralized by a used Epiroc drill due in 36 monthly payments of $14,679 including interest at 5.2%. | |
| - | | |
| 58,061 | |
| | |
| - | | |
| 58,061 | |
| Current portion | |
| - | | |
| (58,061 | ) |
| Long term portion | |
$ | - | | |
$ | - | |
During the three months ended March 31, 2023,
the Company paid the remaining note payable balance of $58,061.
NOTE 9 – ASSET RETIREMENT
OBLIGATION
Changes in the asset retirement obligation
for the three months ended March 31, 2023 and 2022 are as follows:
| | |
Three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| Asset retirement obligation, beginning of period | |
$ | 1,496,434 | | |
$ | 1,362,294 | |
| Increase due to change in estimated costs | |
| 22,178 | | |
| - | |
| Accretion expense | |
| 37,409 | | |
| 33,536 | |
| Asset retirement obligation, end of period | |
$ | 1,556,021 | | |
$ | 1,395,830 | |
In the first quarter of 2023, the Company
updated its estimate for reclamation and closure costs of the mine at the end of its life based on an expanded permit and bonding requirement
finalized in December 31, 2022. The updated estimate was $2,557,553 on an undiscounted cash flow basis, an increase of $1,020,553 from
the previous plan. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 11% from the time
we incurred the obligation to the time we expect to pay the retirement obligation. During the quarter ended March 31, 2023, asset retirement
obligation and the associated retirement asset of $22,178 was recognized for the disturbance that occurred in that period.
NOTE 10 – SETTLEMENT OF CONSULTING
CONTRACT
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 certain advisory services in regard to natural resources activities
and to assist in securing purchasers for minerals produced from its mining properties. The Company negotiated a settlement in 2019 with
H&H resulting in the Company owing a balance of $200,000 due in July 2020 to H&H. This payment has not yet been paid and is classified
as a current liability at both March 31, 2023 and December 31, 2022.
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company has a month-to-month lease agreement
for its office space with RMH Overhead, LLC (“RMH”), a company owned by Rick Havenstrite, the Company’s President and
a director. The Company recognized rent expense of $4,500 and $4,500 for three months ended March 31, 2023 and 2022.
The Company rents a haul truck from RMH at
a current rate of $7,500 per month on a month-to-month basis. Rent expense of $22,500 and $30,000 was recognized during the three months
ended March 31, 2023 and 2022, respectively. At March 31, 2023 and December 31, 2022, $7,500 and $Nil, respectively, is due to RMH for
rent of this equipment, and this amount is included in accounts payable and accrued expenses on the balance sheet.
Employment Agreements
The Company has an employment agreement with
Mr. Havenstrite as President of the Company, which is ongoing. The agreement, as amended, 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 $144,000 plus an auto allowance and certain performance compensation upon fulfillment of established goals. The agreement allows
the board of directors to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination
without cause.
The amounts accrued at March 31, 2023 and
December 31, 2022 is due to the officers of the Company as follows:
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Rick Havenstrite, President | |
$ | 37,697 | | |
$ | 37,697 | |
| Marianne Havenstrite, Treasurer and Principal Financial Officer | |
| 18,462 | | |
| 18,462 | |
| Total | |
$ | 56,159 | | |
$ | 56,159 | |
Directors’ fees
The Company compensates independent directors
for their contributions to the management of the Company, with one director receiving fees of $6,000 per month and another director receiving
$5,000 per quarter. At March 31, 2023 and December 31, 2022, accrued compensation due to directors was $86,000 and $81,000 respectively.
NOTE 12 – COMMITMENTS AND
CONTINGENCIES
In addition to commitments disclosed in Notes
3, 7 and 12, 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 March 31, 2023 and December 31, 2022, the amount due to Tooele County is $34,667
and $33,027, respectively and this amount is included in accounts payable.
Mining Leases
Annual claim fees are currently $165 per claim
plus administrative and school trust land fees. For the three months ended March 31, 2023 and 2022, claims’ fees paid were $Nil
and $Nil, respectively. Claims fees are due in August for the year beginning in September of that year.
NOTE 13 – 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.
During the three months ended March 31, 2023
and 2022, the Company had no transactions relating to common stock.
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.
NOTE 14 – STOCK OPTIONS
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.
Outstanding and vested options at March 31,
2023 and December 31, 2022 were Nil and 2,400,000. These options had an exercise price of $0.40, a remaining life of 0.15 years, and
no intrinsic value. No options were granted or exercised during the three months ended March 31, 2023 and 2022. During the three months
ended March 31, 2023, 2,400,000 options expired.
NOTE 15 – REVENUE
Product sales for three months ended March
31, 2023 and 2022, are shown below:
| | |
Three months ended
March 31, | |
| | |
2023 | | |
2022 | |
| Concentrate sales | |
$ | | | |
$ | | |
| Gold | |
| 979,197 | | |
| 1,043,929 | |
| Silver | |
| 16,667 | | |
| 14,128 | |
| Total concentrate sales | |
| 995,864 | | |
| 1,058,057 | |
| Deductions to concentrate sales | |
| | | |
| | |
| Royalties | |
| (41,931 | ) | |
| (44,550 | ) |
| Upside participation payments | |
| (164,907 | ) | |
| (166,612 | ) |
| Outside processing | |
| (50,743 | ) | |
| (53,961 | ) |
| Subtotal – deductions to concentrate sales | |
| (257,581 | ) | |
| (265,123 | ) |
| Net concentrate sales | |
| 738,283 | | |
| 792,934 | |
| Net processing income | |
| - | | |
| 474,188 | |
| TOTAL REVENUE | |
$ | 738,283 | | |
$ | 1,267,122 | |
For the three months ended March 31, 2023
and 2022, all revenues from concentrate sale was from concentrated sold to Asahi Refining.
Contract processing income is proceeds received
for ore processed for another company. The contract agreement with the outside company for which we were processing material was terminated
in October 2022.
Report of Independent Registered Public
Accounting Firm
To the shareholders and the board of directors of Desert Hawk Gold
Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Desert Hawk Gold Corp (the “Company”) as of December 31, 2022 and 2021, the related statements of operations, of
changes in stockholders’ equity (deficit) and of cash flows for the years then ended, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue
as a Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company
has accumulated losses since inception. This factor raised substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to this matter is also described in Note 2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Metallic Content of Ore on Leach Pads (Note
4)
Critical Audit Matter Description
The Company has inventory on leach pads of
approximately $3.5 million as of December 31, 2022. The inventory balance is based on an estimate of the number of gold ounces contained
within the ore on the leach pad. The Company estimates the recoverable gold content of the leach pad based on ore added to the pad, assays,
historical recovery rate, and ounces recovered.
We identified the estimate of the number of
gold ounces as a critical audit matter because of the significant judgments made by management, in particular, gold content grade and
the recovery rate. Auditing this matter involved especially subjective auditor judgment due to the nature and extent of audit effort
required.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures to address this matter
were as follows:
| ● | We
evaluated management’s process for determining the gold content, specifically the assays
and recovery rates used. Our assessment included an evaluation of the competence, objectivity
and authority of the personnel involved in the determination of gold content and reconciliations
of gold recovered through the leaching process. |
| | | |
| ● | To
assess the annual change in the estimated quantity of gold ounces contained within the ore
on the leach pad, we performed the following: |
| | | |
| o | verified tonnage of ore added to the
pad and related assays records, |
| | | |
| o | compared gold ounces removed from the
pad to gold ounces sold which were subject to separate audit procedures performed on revenue,
and |
| | | |
| o | assessed the completeness, accuracy
and relevance of underlying data used in management’s estimate. |
/s/ Assure CPA, LLC
Spokane, Washington
March 30, 2023
We have served as the Company’s auditor
since 2011.
DESERT HAWK GOLD CORP.
BALANCE SHEETS
| | |
December 31,
2022 | | |
December 31,
2021 | |
| ASSETS | |
| | |
| |
| CURRENT ASSETS | |
| | |
| |
| Cash and cash equivalents | |
$ | 581,022 | | |
$ | 424,629 | |
| Accounts receivable | |
| - | | |
| 270,108 | |
| Inventories (NOTE 4) | |
| 3,544,071 | | |
| 4,673,189 | |
| Prepaid expenses and other current assets | |
| 50,523 | | |
| 45,983 | |
| TOTAL CURRENT ASSETS | |
| 4,175,616 | | |
| 5,413,909 | |
| INVENTORIES (NOTE 4) | |
| - | | |
| 1,081,425 | |
| PROPERTY AND EQUIPMENT, net (NOTE 5) | |
| 4,368,398 | | |
| 4,928,280 | |
| MINERAL PROPERTIES AND INTERESTS, net (NOTE 6) | |
| 3,616,493 | | |
| 3,679,652 | |
| RECLAMATION BONDS (NOTE 3) | |
| 1,591,547 | | |
| 947,116 | |
| TOTAL ASSETS | |
$ | 13,752,054 | | |
$ | 16,050,382 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| CURRENT LIABILITIES: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 159,741 | | |
$ | 255,010 | |
| Royalties and upside participation payable (NOTE 7) | |
| 2,843,091 | | |
| 1,977,633 | |
| Accrued interest, prepaid forward gold contract (NOTE 7) | |
| 640,742 | | |
| 120,989 | |
| Accrued liabilities – officers and other wages (NOTES 11 and 12) | |
| 137,159 | | |
| 111,159 | |
| Notes payable, current portion (NOTE 8) | |
| 58,061 | | |
| 427,413 | |
| Settlement of consulting contract payable (NOTE 10) | |
| 200,000 | | |
| 200,000 | |
| Prepaid forward gold contract liability (NOTE 7) | |
| 5,841,383 | | |
| 10,263,438 | |
| Due to PDK in lieu of gold deliveries (NOTE 7) | |
| 13,419,500 | | |
| 5,771,000 | |
| TOTAL CURRENT LIABILITIES | |
| 23,299,677 | | |
| 19,126,642 | |
| LONG-TERM LIABILITIES | |
| | | |
| | |
| Notes payable, net of current portion (NOTE 8) | |
| - | | |
| 116,098 | |
| Asset retirement obligation (NOTE 9) | |
| 1,496,434 | | |
| 1,362,294 | |
| TOTAL LONG-TERM LIABILITIES | |
| 1,496,434 | | |
| 1,478,392 | |
| TOTAL LIABILITIES | |
| 24,796,111 | | |
| 20,605,034 | |
| COMMITMENTS AND CONTINGENCIES (NOTES 6, 12 and 13) | |
| | | |
| | |
| STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| Preferred Stock, $.001 par value; 10,000,000 shares authorized, none issued or outstanding | |
| - | | |
| - | |
| Common Stock, $.001 par value; 100,000,000 shares authorized; 26,831,603 and 26,831,603 shares issued and outstanding, respectively | |
| 26,833 | | |
| 26,833 | |
| Additional paid-in capital | |
| 9,666,275 | | |
| 9,666,275 | |
| Accumulated deficit | |
| (20,737,165 | ) | |
| (14,247,760 | ) |
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | |
| (11,044,057 | ) | |
| (4,554,652 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
$ | 13,752,054 | | |
$ | 16,050,382 | |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
STATEMENTS
OF OPERATIONS
For the years ended December 31, 2022 and 2021
| | |
Year ended December 31, | |
| | |
2022 | | |
2021 | |
| REVENUE | |
| | |
| |
| Concentrate sales | |
$ | 3,468,853 | | |
$ | 5,007,093 | |
| Contract processing income | |
| 1,162,678 | | |
| 2,734,822 | |
| Total revenue | |
| 4,631,531 | | |
| 7,741,915 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| General production and project costs | |
| 5,061,534 | | |
| 5,270,126 | |
| Contract processing costs | |
| 127,157 | | |
| 242,758 | |
| Depreciation and amortization | |
| 817,773 | | |
| 1,030,920 | |
| Other operating costs | |
| 545,398 | | |
| 403,025 | |
| Exploration expense | |
| - | | |
| 8,738 | |
| Legal and professional | |
| 145,021 | | |
| 183,816 | |
| Officers and directors’ fees | |
| 341,475 | | |
| 345,955 | |
| General and administrative | |
| 301,584 | | |
| 357,948 | |
| Loss on disposal of equipment | |
| 22,921 | | |
| 239,651 | |
| Forward gold contract expense (NOTE 7) | |
| 3,226,445 | | |
| 2,434,438 | |
| TOTAL OPERATING EXPENSES | |
| 10,589,308 | | |
| 10,517,375 | |
| LOSS FROM OPERATIONS | |
| (5,957,777 | ) | |
| (2,775,460 | ) |
| OTHER INCOME (EXPENSE) | |
| | | |
| | |
| Interest and other income | |
| 3,130 | | |
| 16,144 | |
| Interest expense – equipment financing | |
| (14,458 | ) | |
| (73,022 | ) |
| Interest expense - other | |
| (520,300 | ) | |
| (123,611 | ) |
| TOTAL OTHER INCOME (EXPENSE) | |
| (531,628 | ) | |
| (180,489 | ) |
| NET LOSS BEFORE INCOME TAX | |
| (6,489,405 | ) | |
| (2,955,949 | ) |
| Provision (benefit) for income tax | |
| - | | |
| - | |
| NET LOSS | |
$ | (6,489,405 | ) | |
$ | (2,955,949 | ) |
Basic and diluted loss per share | |
$ | (0.24 | ) | |
$ | (0.11 | ) |
Basic and diluted weighted average number of shares outstanding | |
| 26,831,603 | | |
| 26,831,603 | |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the years ended December 31, 2022 and 2021
| | |
Common Stock | | |
| | |
| | |
Total | |
| | |
Shares
Issued | | |
Par Value
$.001 per
share | | |
Additional
Paid-in
Capital | | |
Accumulated
Deficit | | |
Stockholders’
Equity
(Deficit) | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE, December 31, 2020 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (11,291,811 | ) | |
$ | (1,598,703 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (2,955,949 | ) | |
| (2,955,949 | ) |
| BALANCE, December 31, 2021 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (14,247,760 | ) | |
$ | (4,554,652 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (6,489,405 | ) | |
| (6,489,405 | ) |
| BALANCE, December 31, 2022 | |
| 26,831,603 | | |
$ | 26,833 | | |
$ | 9,666,275 | | |
$ | (20,737,165 | ) | |
$ | (11,044,057 | ) |
The accompanying notes are an integral part
of these financial statements.
DESERT HAWK GOLD CORP.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2022 and 2021
| | |
Year ended December 31, | |
| | |
2022 | | |
2021 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net loss | |
$ | (6,489,405 | ) | |
$ | (2,955,949 | ) |
| Adjustments to reconcile net loss to net cash provided (used) by operating activities | |
| | | |
| | |
| Depreciation and amortization | |
| 817,773 | | |
| 1,030,920 | |
| Accretion of asset retirement obligation | |
| 134,140 | | |
| 121,947 | |
| Write down of inventory to net realizable value | |
| 2,111,596 | | |
| 1,496,590 | |
| Loss on disposal of equipment | |
| 22,921 | | |
| 239,651 | |
| Forward gold contract expense (NOTE 7) | |
| 3,226,445 | | |
| 2,434,438 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 270,108 | | |
| (270,108 | ) |
| Inventories | |
| 98,947 | | |
| (404,187 | ) |
| Prepaid expenses and other current assets | |
| (4,540 | ) | |
| (27,770 | ) |
| Accounts payable and accrued liabilities | |
| (95,269 | ) | |
| (1,035,500 | ) |
| Royalties and upside participation payable (NOTE 7) | |
| 865,458 | | |
| 1,168,281 | |
| Accrued interest, prepaid forward gold contract (NOTE 7) | |
| 519,753 | | |
| 120,989 | |
| Accrued liabilities – officer and other wages | |
| 26,000 | | |
| 39,462 | |
| Net cash provided by operating activities | |
| 1,503,927 | | |
| 1,958,764 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Additions to property and equipment | |
| (263,153 | ) | |
| (261,539 | ) |
| Proceeds from sale of equipment | |
| 45,500 | | |
| 6,000 | |
| Payments on reclamation bonds | |
| (644,431 | ) | |
| (189,105 | ) |
| Net cash used by investing activities | |
| (862,084 | ) | |
| (444,644 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Payment of notes payable | |
| (485,450 | ) | |
| (1,262,778 | ) |
| Net cash used by financing activities | |
| (485,450 | ) | |
| (1,262,778 | ) |
| Net increase in cash and cash equivalents | |
| 156,393 | | |
| 251,342 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | |
| 424,629 | | |
| 173,287 | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | |
$ | 581,022 | | |
$ | 424,629 | |
| | |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash paid in interest | |
$ | 14,844 | | |
$ | 81,244 | |
| | |
| | | |
| | |
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | |
| | | |
| | |
| Equipment acquired with notes payable – equipment | |
$ | - | | |
$ | 579,909 | |
| Land and building purchased with note payable and accrued rent | |
$ | - | | |
$ | 105,500 | |
The accompanying notes
are an integral part of these financial statements.
DESERT HAWK GOLD CORP.
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2022
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 (“Clifton”), 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 on September 30, 2014. Revenue from the heap leach operation began in October
2014 with the first sales of gold concentrate.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of significant accounting policies
of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are
representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles used in the United States of America (“U.S. GAAP”) and have been consistently
applied in the preparation of the financial statements.
Risks and Uncertainties
As a
mining company, the revenue, profitability and future rate of growth of the Company are substantially dependent on the prevailing prices
for gold and silver. The prices of these metals are volatile and affected by many factors beyond the Company’s control, including
prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental
decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other
factors. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial
position, results of operations, cash flows, access to capital and the quantities of resources that the Company can economically produce.
Further, the carrying value of the Company’s property and equipment, net; mineral properties and interests, net; inventories and
ore on leach pads are particularly sensitive to the outlook for commodity prices. A decline in the Company’s price outlook from
current levels could result in material impairment charges related to these assets.
Use of Estimates
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Actual results could differ materially from those estimates.
The
more significant areas requiring the use of management estimates and assumptions relate to metal prices and mineral resources that are
the basis for future cash flow estimates utilized in impairment calculations and units-of production amortization calculations, environmental,
reclamation and closure obligations, estimates of recoverable silver and gold in leach pad inventories, stock-based compensation and
valuation allowances for deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Accordingly, actual results will differ from the amounts estimated in these
financial statements.
Reclassifications
Certain reclassifications have been made to
conform prior years’ amounts to the current presentation. These reclassifications have no effect on the results of operations,
stockholders’ equity (deficit), and cash flows as previously reported.
Cash and Cash Equivalents
The Company considers all highly liquid investments
and short-term debt instruments with original maturities of three months or less when purchased to be cash equivalents.
Reclamation Bonds
Reclamation bonds primarily represent bonds
and are restricted primarily for reclamation funding which are carried at cost plus earned interest. Reclamation bonds are shown as a
non-current asset and are included in the balance sheet. See Note 3.
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 concentrate,
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;
amortization of property, equipment, and mineral properties; and mine administrative expenses. 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) along with our historical experience.
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.
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 to 24 months. Inventory is stated at the lower of cost or net realizable value, which for December 31,
2022 is net realizable value. All inventory has been classified current. This classification has been made based on the amount of gold
expected to be sold beyond the next twelve months. See Note 4.
Property and Equipment
Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Maintenance and repairs are expensed as incurred. Replacements and betterments that extend the useful
life of the property and equipment are capitalized. The cost and related accumulated depreciation of assets sold or retired are removed
from the accounts and any resulting gain or loss is reflected in results of operations. See Note 5.
Mineral Properties and Interests
The Company capitalizes costs for acquiring
mineral properties and ongoing mineral lease payments and expenses costs to maintain mineral rights. Upon reaching the production stage,
the capitalized costs are amortized using the units-of-production method on the basis of periodic estimates of ore resources. Estimates
for ore resources are a key component in determining units of production rates. Estimates of ore resources, mineralized material, and
other resources may change, possibly in the near term, resulting in changes to rates in future reporting periods. The Company does not
have proven and probable reserves at this time.
Mineral Exploration and Development Costs
Until proven and probable reserves are established,
all exploration expenditures and pre-development costs are expensed as incurred. Once such reserves are established, expenditures to
develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operations, are capitalized
and will be amortized on units of production basis over proven and probable reserves. Previously capitalized costs, net of accumulated
amortization, are expensed in the period the property is abandoned.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts
of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the
estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from
each mineral property are calculated using estimated future production, estimated future metals prices, operating capital and costs,
and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the
use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks
and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the
Company’s investments in mineral properties.
Stock Based Compensation
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 equity award issued. 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.
Income Taxes
Income taxes are provided based upon the liability
method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards, and their financial reporting
amounts at each year-end using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation
allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not”
standard to allow recognition of such an asset.
The Company evaluates its tax positions taken
or expected to be taken in the course of preparing its tax returns to determine whether the tax positions will more likely than not be
sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not standard are not recorded as a tax
benefit or expense in the current year. When applicable, the Company will recognize a liability for unrecognized tax benefits. The Company
recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest
or penalties were recognized during the years presented. See Note 12.
Earnings 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.
At December 31, 2022 and 2021, the common stock equivalents of 2,400,000 associated with the Company’s outstanding stock options
were excluded from the calculation of diluted earnings per share because the options were antidilutive due to the net losses for the
periods.
Revenue Recognition
Concentrate Sales: The Company’s
product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate, which is then further
refined to become gold and silver bullion known as doré. The Company’s performance obligation in these transactions is generally
the transfer of the refined dore’ to the buyer. Management has determined that the performance obligation for concentrate sales
is met and title is transferred when the Company delivers the doré to the buyer because, at that time, (i) legal title is transferred
to the buyer (ii) the buyer has accepted the doré and obtained the ability to realize all of the benefits from the product, (iii)
the doré content specifications are known, have been communicated to the buyer, and the buyer has the significant risks and rewards
of ownership to it, and (iv) the Company has the right to payment for the doré.
Contract Processing Income: The Company
processes ore for a third party which is processed separately from the Company’s ore but in the same manner. It is also shipped
offsite to be turned into an unrefined gold concentrate which is then further refined to become gold and silver bullion known as doré.
For this service, the Company receives a percentage of net proceeds from the sale of the gold and silver doré. Management has
determined that the performance obligation for contract processing income is met when title has been transferred to the buyer of the
dore’ because, at that time, (1) the Company has a right to receive its percentage of net proceeds from sale of the gold and silver
dore’ from the third party for which it processes ore and (ii) the doré content specifications are known, have been communicated
to the buyer, and the buyer has the significant risks and rewards of ownership to it.
Revenue and related accounts receivable from
both types of revenue are recorded net of 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 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. Revenue proceeds are recorded net of the impact of royalties and participation agreements. See Note 16.
Reclamation and Remediation
The Company’s operations have been,
and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the
fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement
of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement
of the asset retirement obligation, the liability is adjusted when there are changes in the estimated future cash flows due to change
in estimated costs or change in time until reclamation will commence. Determination of any amounts recognized is based upon numerous
estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates.
Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. See
Note 9.
For non-operating properties, the Company
accrues 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.
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 December 31, 2022 and 2021.
Fair Value Measurements
When required to measure assets or liabilities
at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used.
The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses
quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses
significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable
to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.
At December 31, 2022 and December 31, 2021,
the Company has no assets nor liabilities that require measurement at fair value on a recurring basis.
Going Concern
As shown in the accompanying financial statements,
the Company had an accumulated deficit of $20,737,165 through December 31, 2022 and net loss of $6,489,405 for the year ended December
31, 2022 along with negative working capital of $19,124,061, 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 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.
Management intends 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. The Company’s management believes that is has sufficient funds to meet
its obligations and continue production over the next twelve months.
New Accounting Pronouncements
Accounting standards that have been issued
or proposed by Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material
impact on the financial statements upon adoption.
NOTE 3 – RECLAMATION BONDS
At December 31, 2022 and 2021, reclamation
bonds totaled $1,591,547 and $947,116, respectively, associated with estimated reclamation costs for its mineral properties. The totals
in both years include a surety bond of $674,000 with a bonding company for reclamation of its mineral 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.
The remaining balances of $917,547 and $273,116
are held as certificate of deposits by the Utah Department of Natural Resources. In 2022 and 2021, the Company bond requirements for
planned expansion and operations increased for which the Company paid $644,000 and $189,000, respectively.
NOTE 4 – INVENTORIES
Inventories at December 31, 2022 and 2021
consists of the following:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Ore on leach pad | |
$ | 3,266,091 | | |
$ | 5,488,902 | |
| Carbon column in process | |
| 163,619 | | |
| 119,461 | |
| Finished goods | |
| 114,361 | | |
| 146,251 | |
| | |
| 3,544,071 | | |
| 5,754,614 | |
| Less long-term portion | |
| - | | |
| (1,081,425 | ) |
| Total | |
$ | 3,544,071 | | |
$ | 4,673,189 | |
Inventories at December 31, 2022 and 2021
were valued at net realizable value because production costs were greater than the amount the Company expected to receive on the sale
of the estimated gold ounces contained in inventories. The adjustment to inventory, which is included in general production and project
costs on the statements of operations, was $2,111,596 and $1,496,590 for the years ended December 31, 2022 and 2021, respectively.
NOTE 5 – PROPERTY AND EQUIPMENT
The following is a summary of property and
equipment at December 31, 2022 and 2021:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Equipment | |
$ | 6,528,497 | | |
$ | 6,461,263 | |
| Furniture and fixtures | |
| 6,981 | | |
| 6,981 | |
| Electronic and computer equipment | |
| 50,587 | | |
| 50,587 | |
| Vehicles | |
| 369,595 | | |
| 348,535 | |
| Buildings | |
| 100,000 | | |
| 100,000 | |
| Land and improvements | |
| 105,299 | | |
| 76,569 | |
| | |
| 7,160,959 | | |
| 7,043,935 | |
| Less accumulated depreciation | |
| (4,401,690 | ) | |
| (3,802,265 | ) |
| | |
| 2,759,269 | | |
| 3,241,670 | |
| | |
| | | |
| | |
| Kiewit property facilities | |
| 2,497,436 | | |
| 2,497,436 | |
| Less accumulated amortization | |
| (888,307 | ) | |
| (810,826 | ) |
| | |
| 1,609,129 | | |
| 1,686,610 | |
| Total | |
$ | 4,368,398 | | |
$ | 4,928,280 | |
For the Kiewit property facilities, amortization
based on total units of production was $78,121 and $51,334 for the year ended December 31, 2022 and 2021, respectively.
Depreciation expense on property and equipment
for the years ended December 31, 2022 and 2021 was $676,493 and $866,537 respectively.
During the year ended December 31, 2021, the
Company was required to return a CAT 740 Haul truck to Wheeler Machinery because the Company was 5 payments delinquent in its obligation
on this note payable. The net carrying value of the equipment was $290,889 and the outstanding note payable balance was $86,806. A loss
on disposal of equipment of $204,083 was recognized. The truck was purchased by a related party who in February began renting the truck
to the Company on a month-to-month basis. See Note 12.
During the year ended December 31, 2021, the
Company acquired a new HP4 crushing system in exchange for its HP3 crushing system which was returned to ICM Solutions, Inc. (“ICM”).
Prior to the acquisition, the Company had been renting the HP4 crushing system from ICM and had an accrued rent payable of $158,000.
ICM financed the acquisition of the new HP4 crushing system with a new note of $215,510 for the cost of the new equipment, plus accrued
rent payable, less the trade-in value of the HP3 crushing system.
NOTE 6 – MINERAL PROPERTIES AND INTERESTS
Mineral properties and interests as of December
31, 2022 and 2021 are as follows:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Kiewit and all other sites | |
$ | 3,700,000 | | |
$ | 3,700,000 | |
| JJS property | |
| 250,000 | | |
| 250,000 | |
| | |
| 3,950,000 | | |
| 3,950,000 | |
| Less accumulated amortization | |
| (852,000 | ) | |
| (864,436 | ) |
| | |
| 3,098,000 | | |
| 3,085,564 | |
| Asset retirement obligation assets | |
| | | |
| | |
| Kiewit Site | |
| 725,122 | | |
| 725,122 | |
| Kiewit Exploration | |
| 28,377 | | |
| 28,377 | |
| JJS property | |
| 31,016 | | |
| 31,016 | |
| Total | |
| 784,515 | | |
| 784,515 | |
| Less accumulated amortization | |
| (266,022 | ) | |
| (190,427 | ) |
| | |
| 518,493 | | |
| 594,088 | |
| Total | |
$ | 3,616,493 | | |
$ | 3,679,652 | |
Amortization of the mineral properties and
interests based on total units of production was $63,159 and $113,049 for the years ended December 31, 2022 and 2021, respectively.
The Company is required to pay a 4% net smelter
royalty (“NSR”) to PDK Utah Holdings, LP (“PDK”) on revenues of gold and silver from the Kiewit gold property
and the JJS properties. See Note 7.
NOTE 7 – PREPAID FORWARD GOLD CONTRACT
LIABILITY
In 2019, the Company entered into and closed
a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK for the sale and purchase by PDK of gold produced
from the Company’s mining property. Under the terms of the Purchase Agreement, as amended, PDK agreed to purchase a total of 47,045
ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK and the Company
would then receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. The Company
has the option of paying cash to PDK for the number of ounces scheduled to be delivered each month at a rate of $500 per ounce. The Company
received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces. Under the terms of the Purchase Agreement,
as amended, the Company is obligated to deliver gold in the following quantities:
| Months |
|
Gold Ounces per
Month |
|
|
Total Gold Ounces |
|
| December 2020 |
|
|
655 |
|
|
|
655 |
|
| January 2021 to March 2021 |
|
|
896 |
|
|
|
2,688 |
|
| April 2021 to March 2022 |
|
|
911 |
|
|
|
10,932 |
|
| April 2022 to March 2023 |
|
|
1,396 |
|
|
|
16,752 |
|
| April 2023 to December 2023 |
|
|
1,753 |
|
|
|
15,777 |
|
| January 2024 |
|
|
241 |
|
|
|
241 |
|
| |
|
|
|
|
|
|
47,045 |
|
In addition, under the Purchase Agreement,
PDK may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company. To date, PDK has not
elected this option.
As security for the obligations of the Company
under the Purchase Agreement, the Company has granted PDK a security interest in all of the assets of the Company. The Purchase Agreement
contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.
To date, no gold has been delivered under
the contract. As of December 31, 2022 and 2021, a cumulative of 26,839 and 11,542 ounces, respectively, were scheduled to be delivered
to PDK under the terms of the Purchase Agreement. The ounces due but unpaid to PDK at December 31, 2022 and 2021 have been reflected
in “Due to PDK in lieu of gold deliveries” on the balance sheet based on the Company’s option to pay cash in lieu of
delivery at $500 per ounce. The forward gold contract balance as of December 31, 2022 and 2021 is as follows:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Total ounces to be delivered | |
| 26,839 | | |
| 11,542 | |
| Contractual payment per ounce in lieu of delivery | |
$ | 500 | | |
$ | 500 | |
| Amount due to PDK | |
$ | 13,419,500 | | |
$ | 5,771,000 | |
For the years ended December 31, 2022 and
2021, the activity related to the forward gold contract is as follows:
| | |
2022 | | |
2021 | |
| Prepaid forward gold contract liability balance at beginning of year | |
$ | 10,263,438 | | |
$ | 13,600,000 | |
| Forward gold contract balance associated with ounces to be delivered during period | |
| 3,226,445 | | |
| 2,434,438 | |
| Reduction in prepaid forward gold contract liability balance | |
| (7,648,500 | ) | |
| (5,771,000 | ) |
| Prepaid forward gold contract liability balance at end of year | |
$ | 5,841,383 | | |
$ | 10,263,438 | |
As of December 31, 2022, and through the issuance
of these financial statements, PDK has sent invoices to the Company for the deliveries and payments due. The failure to make gold deliveries
and make additional payments as described below provides PDK with certain remedies, including termination of the agreement, demand for
early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under
the agreement. Due to the delinquent status of the deliveries and PDK’s rights under the default provisions of the Purchase Agreement,
the Company has classified the entire liability balance owing as current on the balance sheets. The Company has received no notice of
default on the Purchase Agreement from PDK. See Note 17 - Subsequent Events.
In addition to the delivery of gold ounces,
the Purchase Agreement contains a royalty provision whereby royalties of 4% are due to PDK on gold and silver recovered from mining operations
at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also accrues a 5% withholding
tax to the state of Utah on the PDK royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter.
The Purchase Agreement contains a participation
payment whereby PDK receives a portion of the proceeds from gold sold by the Company to a third party. The payment due to PDK is based
upon a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following
each sale. To date, none has been remitted to PDK.
The Purchase Agreement provides for the Company
to pay default interest (calculated at the rate of LIBOR plus 2%) on outstanding amounts due to PDK.
The following is a summary of royalties, upside
participation and interest payable:
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Royalties payable | |
$ | 585,536 | | |
$ | 403,388 | |
| Royalties withholding payable | |
| 30,820 | | |
| 23,396 | |
| Upside participation payable | |
| 2,226,735 | | |
| 1,550,849 | |
| Accrued interest, prepaid forward gold contract | |
| 640,742 | | |
| 120,989 | |
| Subtotal | |
$ | 3,483,833 | | |
$ | 2,098,622 | |
NOTE 8 – NOTES PAYABLE
The following is a summary of the notes payable:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Note payable to Miller, collateralized by land and two buildings, due in 11 monthly installments of $7,000, beginning December 1, 2021, and a balloon payment of $3,000 paid in 2022, non-interest bearing. | |
$ | - | | |
$ | 66,000 | |
| Note payable to Epiroc, collateralized by a used Epiroc drill due in 36 monthly payments of $14,679 including interest at 5.2%. | |
| 58,061 | | |
| 226,115 | |
Note payable to Wheeler Machinery, collateralized by a used D8T dozer, due in monthly installments of $19,125, beginning August 2019, including interest at 9%. | |
| - | | |
| 102,368 | |
Note payable to Wheeler Machinery, collateralized by a used CAT 740 Haul Truck, due in 14 monthly installments of $14,475, beginning in July 2021, including interest at 7.48%. | |
| - | | |
| 130,128 | |
Note payable to Goodfellow, collateralized by a JM Conveyor, due in 19 monthly installments of $4,675, beginning in February 2021 including interest at 15%. | |
| - | | |
| 18,900 | |
| | |
| 58,061 | | |
| 543,511 | |
| Current portion | |
| (58,061 | ) | |
| (427,413 | ) |
| Long term portion | |
$ | - | | |
$ | 116,098 | |
The current portion of debt of $58,061 will
be paid over the next four months.
In February 2021, Wheeler CAT requested the
return of the CAT 740 Haul truck (SN2293) because the Company was five payments delinquent in its obligation on the related note payable.
This truck was then purchased from Wheeler CAT by a related party who in February began leasing the truck to the Company on a month-to-month
basis. This arrangement relieved the Company of any other financial obligation on this note.
NOTE 9 – ASSET RETIREMENT
OBLIGATION
Changes in the asset retirement obligation
for the years ended December 31, 2022 and 2021 are as follows:
| | |
Years ended December 31, | |
| | |
2022 | | |
2021 | |
| Asset retirement obligation, beginning of year | |
$ | 1,362,294 | | |
$ | 1,233,514 | |
| Increase due to change in estimated costs | |
| - | | |
| 6,833 | |
| Accretion expense | |
| 134,140 | | |
| 121,947 | |
| Asset retirement obligation, end of year | |
$ | 1,496,434 | | |
$ | 1,362,294 | |
The estimated reclamation costs in 2022 and
2021 were discounted using credit adjusted, risk-free interest rate of 10% from the time the Company incurred the obligation to the time
it expects to pay the retirement obligation.
NOTE 10 – SETTLEMENT OF CONSULTING
CONTRACT
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 certain advisory services in regard to natural resources activities
and to assist in securing purchasers for minerals produced from its mining properties. The Company negotiated a settlement in 2019 with
H&H resulting in the Company owing a balance of $200,000 due in July 2020 to H&H. This payment has not yet been paid and is classified
as a current liability at both December 31, 2022 and December 31, 2021.
NOTE 11 – INCOME TAXES
No income tax provision (benefit) has been
recognized for the years ended December 31, 2022 and 2021. The income tax provision (benefit) for the years ended December 31, 2022 and
2021 differ from the statutory rate of 21% as follows:
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Amount using the statutory rate | |
$ | (1,362,800 | ) | |
| 21 | % | |
$ | (621,000 | ) | |
| (21 | )% |
| Changes in prior year estimate | |
| - | | |
| - | | |
| (734,000 | ) | |
| (25 | ) |
| Other | |
| 300 | | |
| - | | |
| - | | |
| - | |
| Change in valuation allowance | |
| 1,362,500 | | |
| 21 | | |
| 1,355,000 | | |
| 46 | |
| Total income tax provision (benefit) | |
$ | - | | |
| - | % | |
$ | - | | |
| - | % |
The components of the Company’s net
deferred tax assets are as follows:
| | |
Years ended December 31, | |
| | |
2022 | | |
2021 | |
| Deferred tax asset: | |
| | |
| |
| Net operating loss carryforward | |
$ | 5,529,600 | | |
$ | 4,131,000 | |
| Exploration costs | |
| 5,200 | | |
| 12,000 | |
| Stock based compensation | |
| 95,800 | | |
| 96,000 | |
| Asset retirement obligation | |
| 189,500 | | |
| 161,000 | |
| Total deferred tax assets | |
| 5,820,100 | | |
| 4,400,000 | |
| Valuation allowance | |
| (5,631,500 | ) | |
| (4,269,000 | ) |
| | |
| 188,600 | | |
| 131,000 | |
| Deferred tax liabilities | |
| | | |
| | |
| Property and equipment | |
| (74,900 | ) | |
| (131,000 | ) |
| Inventory | |
| (113,700 | ) | |
| - | |
| | |
| (188,600 | ) | |
| (131,000 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
At December 31, 2022, the Company had net
operating loss carry forwards of approximately $26.3 million for federal income tax purposes, approximately $7.7 million of which expire
between 2036 and 2037. The remaining balance of approximately $18.6 million will never expire but its utilization is limited to 80% of
taxable income in any future year.
Deferred income taxes arise from timing differences
resulting from income and expense items reported for financial accounting and tax purposes in different periods. A deferred tax asset
valuation allowance is recorded when it is more likely than not that deferred tax assets will not be realized. As management of the Company
cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax assets, a valuation
allowance equal to 100% of the deferred tax assets has been recorded at December 31, 2022 and 2021.
During the years ended December 31, 2022 and
2021, there were no material uncertain tax positions taken by the Company. It is not anticipated that unrecognized tax benefits would
significantly increase or decrease within 12 months of the reporting date. The Company recognizes interest accrued related to unrecognized
tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods
presented. The Company had no accruals for interest and penalties at December 31, 2022 and 2021. The Company’s federal income tax
returns for fiscal years 2019 through 2021 remain open and subject to examination.
NOTE 12 – RELATED PARTY TRANSACTIONS
The Company has a month-to-month lease agreement
for its office space with RMH Overhead, LLC, a company owned by Rick Havenstrite, the Company’s President and a director. The Company
recognized rent expense of $18,000 and $18,000 for years ended December 31, 2022 and 2021. At December 31, 2022 and 2021, amounts due
to RMH Overhead, LLC for rent was $ Nil and $ Nil, respectively.
On February 1, 2021, RMH Overhead, LLC. (“RMH”)
an entity owned by Rick Havenstrite, President of the Company, purchased a CAT 740B Articulated Haul Truck from Wheeler CAT. This truck
had previously been owned by the Company with an associated note payable to Wheeler CAT. See Note 5. Beginning February 1, 2021, the
Company began renting this truck from RMH at a rate of $10,000 per month on a month-to-month basis. At December 31, 2022 and December
31, 2021, $Nil and $10,000, respectively, is due to RMH for rent of this equipment.
Employment Agreements
The Company has an employment agreement with
Mr. Havenstrite as President of the Company, which is ongoing. The agreement, as amended, 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 $144,000 plus an auto allowance and certain performance compensation upon fulfillment of established goals. The agreement allows
the board of directors to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination
without cause. For the years ended December 31, 2022 and 2021, $149,520 and $115,016, respectively, of compensation expense was recognized
under this agreement.
The amounts accrued at December 31, 2022 and
2021 is due to the officers of the Company as follows:
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Rick Havenstrite, President | |
$ | 37,697 | | |
$ | 37,697 | |
| Marianne Havenstrite, Treasurer and Principal Financial Officer | |
| 18,462 | | |
| 18,462 | |
| Total | |
$ | 56,159 | | |
$ | 56,159 | |
Directors’ fees
The Company compensates independent directors
for their contributions to the management of the Company, with one director receiving fees of $6,000 per month and another director receiving
$5,000 per quarter. At December 31, 2022 and December 31, 2021, accrued compensation due to directors was $81,000 and $55,000 respectively.
NOTE 13 – COMMITMENTS AND
CONTINGENCIES
In addition to commitments disclosed in Notes
6 and 12, 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 December 31, 2022 and 2021, the amount due to Tooele County is $33,027 and
$Nil, respectively and this amount is included in accounts payable.
Mining Leases
Annual claims’ fees are currently $165
per claim plus administrative and school trust land fees. For the year ended December 31, 2022 and 2021, claims’ fees paid were
$11,162 and $15,199, respectively. Claims fees are due in August for the year beginning in September of that year.
NOTE 14 – 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.
During the years ended December 31, 2022 and
2021, the Company had no transactions relating to common stock.
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.
NOTE 15 – STOCK OPTIONS
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.
Outstanding and vested options at December
31, 2022 and 2021 were 2,400,000. These options have an exercise price of $0.40, a remaining life of 0.15 years, and no intrinsic value.
No options were granted, expired, or were exercised during the years ended December 31, 2022 and 2021.
NOTE 16 – REVENUE
Product sales for years ended December 31,
2022 and 2021 are shown below:
| | |
Year ended December 31, | |
| | |
2022 | | |
2021 | |
| Concentrate sales | |
| | |
| |
| Gold | |
$ | 4,495,177 | | |
$ | 6,472,006 | |
| Silver | |
| 58,529 | | |
| 92,876 | |
| Total concentrate sales | |
| 4,553,706 | | |
| 6,564,882 | |
| Deductions to concentrate sales | |
| | | |
| | |
| Royalties | |
| (191,735 | ) | |
| (276,416 | ) |
| Upside participation payments | |
| (675,887 | ) | |
| (974,489 | ) |
| Outside processing | |
| (217,231 | ) | |
| (306,884 | ) |
| Subtotal – deductions to concentrate sales | |
| (1,084,853 | ) | |
| (1,557,789 | ) |
| Net concentrate sales | |
| 3,468,853 | | |
| 5,007,093 | |
| Net processing income | |
| 1,162,678 | | |
| 2,734,822 | |
| TOTAL REVENUE | |
$ | 4,631,531 | | |
$ | 7,741,915 | |
For the years ended December 31, 2022 and
2021, all revenues from concentrate sales was from concentrate sold to Asahi Refining. The balance due from Asahi Refining is $Nil and
$265,644 which is included in accounts receivable at December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, the Company
had a receivable balance from Contract processing income of $ Nil and $ Nil. Contract processing income is proceeds received for ore
processed for another company. The contract agreement with the outside company for which we were processing material was terminated in
October 2022.
NOTE 17 – SUBSEQUENT
EVENTS
Subsequent to year end, PDK was transferred
to Qenta, Inc. (“Qenta”). The Company’s management has been in discussions with Qenta regarding the status of the Purchase
Agreement. To Date, Qenta has not exercised its rights of default as defined in the agreement nor has it indicated plans to do so.
[OUTSIDE BACK COVER]
Desert
Hawk Gold Corp.
[A Nevada Corporation]
6,060,824 Shares
Common Stock
PROSPECTUS
Desert
Hawk Gold Corp.
1290 Holcomb Ave.
Reno, NV 89502
Telephone (775) 337-8057
_______________, 2023
Until ,
2023, all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement
of the estimated amounts of all expenses payable by us in connection with the registration of the Common Stock, other than underwriting
discounts and commissions. All amounts are estimates except the SEC registration fee.
| Securities and Exchange Commission - Registration Fee | |
$ | 315 | |
| State filing Fees | |
$ | 2,500 | |
| Edgarizing Costs | |
$ | 5,000 | |
| Accounting Fees and Expenses | |
$ | 10,000 | |
| Legal Fees and Expenses | |
$ | 20,000 | |
| Miscellaneous | |
$ | 5,000 | |
| Total | |
$ | 42,815 | |
None of the expenses of the offering will
be paid by the Selling Stockholders.
Item 14. Indemnification of Directors and Officers
Nevada law expressly authorizes a Nevada
corporation to indemnify its directors, officers, employees, and agents against liabilities arising out of such persons’
conduct as directors, officers, employees, or agents if they acted in good faith, in a manner they reasonably believed to be in
or not opposed to the best interests of the company, and, in the case of criminal proceedings, if they had no reasonable cause
to believe their conduct was unlawful. Generally, indemnification for such persons is mandatory if such person was successful,
on the merits or otherwise, in the defense of any such proceeding, or in the defense of any claim, issue, or matter in the proceeding.
In addition, as provided in the articles of incorporation, bylaws, or an agreement, the corporation may pay for or reimburse the
reasonable expenses incurred by such a person who is a party to a proceeding in advance of final disposition if such person furnishes
to the corporation an undertaking to repay such expenses if it is ultimately determined that he did not meet the requirements.
In order to provide indemnification, unless ordered by a court, the corporation must determine that the person meets the requirements
for indemnification. Such determination must be made by a majority of disinterested directors; by independent legal counsel; or
by a majority of the shareholders.
Article IX of our Amended and Restated
Articles of Incorporation and Article VIII of our Amended and Restated Bylaws provide that the corporation shall indemnify its
directors, officers, and agents to the full extent permitted by the laws of the State of Nevada. Our employment agreements with
Rick Havenstrite, our President and CEO, also provides for mandatory indemnification.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons
of our company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
During the past three years the registrant
has sold the following securities which were not registered under the Securities Act:
During the quarter ended September 30, 2020,
we issued 200,000 shares of common stock to a single accredited investor for gross proceeds of $200,000. These shares were issued pursuant
to Rule 506(c) of Regulation D promulgated by the SEC under the Securities Act. Management received verification and reasonably believed
that at the time of issuance the investor was an “accredited investor” as defined in Rule 501(a) of Regulation D. The investor
was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the investment.
No selling commissions or other remuneration was paid in connection with the sales of these shares. This private placement offering expired
on September 30, 2020.
Item 16. Exhibits and Financial Statement Schedules
| Exhibit |
|
|
|
Incorporated
by Reference |
|
Filed |
| Number |
|
Exhibit
Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
Herewith |
| 3.1 |
|
Amended
and Restated Articles of Incorporation filed March 1, 2010 |
|
S-1 |
|
333-169701 |
|
3.1 |
|
9/30/10 |
|
|
| 3.2 |
|
Amended
and Restated Bylaws dated May 3, 2011 |
|
8-K |
|
333-169701 |
|
3.2 |
|
5/9/11 |
|
|
| 5.1 |
|
Opinion re Legality of Shares |
|
|
|
|
|
|
|
|
|
X |
| 10.1 |
|
Pre-paid
Forward Gold Purchase Agreement dated March 7, 2019 (confidential information has been redacted) |
|
10-K |
|
333-169701 |
|
10.1 |
|
7/30/19 |
|
|
| 10.2 |
|
Leasehold
Deed of Trust dated March 7, 2019 |
|
10-K |
|
333-169701 |
|
10.2 |
|
7/30/19 |
|
|
| 10.3 |
|
Second
Amended and Restated Lease Agreement effective March 7, 2019 |
|
10-K |
|
333-169701 |
|
10.3 |
|
7/30/19 |
|
|
| 10.4 |
|
Registration
Rights Agreement effective March 7, 2019 |
|
10-K |
|
333-169701 |
|
10.4 |
|
7/30/19 |
|
|
| 10.5 |
|
Conveyance
of Net Smelter Returns Royalty Interest effective March 7, 2019 |
|
10-Q |
|
333-169701 |
|
99.1 |
|
2/3/20 |
|
|
| 10.6 |
|
Agency
Agreement dated March 29, 2018, with H&H Metals Corp. |
|
8-K |
|
333-169701 |
|
99.6 |
|
3/13/19 |
|
|
| 10.7 |
|
Termination
Agreement dated January 16, 2019, with H&H Metals Corp. |
|
8-K |
|
333-169701 |
|
99.7 |
|
3/13/19 |
|
|
| 10.8 |
|
Employment
Agreement dated September 1, 2010, with Rick Havenstrite* |
|
S-1 |
|
333-169701 |
|
10.15 |
|
9/30/10 |
|
|
| 10.9 |
|
Amendment
No. 1 dated effective May 1, 2019 to the Employment Agreement with Rick Havenstrite* |
|
8-K |
|
333-169701 |
|
99.1 |
|
7/22/19 |
|
|
| 10.10 |
|
Rental
Agreement effective October 1, 2009, with RMH Overhead, LLC |
|
S-1A |
|
333-169701 |
|
10.19 |
|
11/12/10 |
|
|
| 10.11 |
|
Assignment
and Assumption Agreement dated February 13, 2018 |
|
10-K |
|
333-169701 |
|
10.11 |
|
7/30/19 |
|
|
| 10.12 |
|
Equipment
Lease Agreement dated June 20, 2016 with RMH Overhead, LLC |
|
10-K |
|
333-169701 |
|
10.36 |
|
6/29/18 |
|
|
| 10.13 |
|
Ben
Julian LLC Option Agreement dated March 26, 2019 |
|
10-K |
|
333-169701 |
|
10.13 |
|
7/30/19 |
|
|
| 10.14 |
|
Letter
Agreement dated June 7, 2019, with Clifton Mining Company |
|
10-K |
|
333-169701 |
|
10.14 |
|
7/30/19 |
|
|
| 10.15 |
|
Amendment
No.1 to the Pre-Paid Forward Gold Purchase Agreement dated October 31, 2019 (confidential information has been redacted) |
|
S-1
|
|
333-236398
|
|
10.15
|
|
2/12/20
|
|
|
| 23.1 |
|
Consent of Assure CPA, LLC, independent registered public accounting firm |
|
|
|
|
|
|
|
|
|
X |
| 23.2 |
|
Consent of Attorney (included in Exhibit 5.1) |
|
|
|
|
|
|
|
|
|
-- |
| 101.INS |
|
XBRL Instance Document |
|
|
|
|
|
|
|
|
|
X |
| 101.SCH |
|
XBRL Taxonomy Extension
Schema Document |
|
|
|
|
|
|
|
|
|
X |
| 101.CAL |
|
XBRL Taxonomy Extension
Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
X |
| 101.DEF |
|
XBRL Taxonomy Extension
Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
X |
| 101.LAB |
|
XBRL Taxonomy Extension
Label Linkbase Document |
|
|
|
|
|
|
|
|
|
X |
| 101.PRE |
|
XBRL Taxonomy Extension
Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
X |
* Management contract, or compensatory plan or arrangement, required
to be filed as an exhibit.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in
which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus
required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus
any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement.
(iii) Include any material
or changed information with respect to the plan of distribution not previously disclosed in the registration statement or a material
change to such information in the registration statement.
(2) That, for the purpose of determining
any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by
means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) Each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with
a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use.
(5) That, for the purpose of determining
liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 of Regulation C
of the Securities Act;
(ii) Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any
other free writing prospectus relating to the offering containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the
Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on
Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned in the city of Reno, Nevada, on May
30, 2023.
| |
DESERT HAWK GOLD CORP. |
| |
|
|
|
By: |
/s/ Rick Havenstrite |
| |
|
Rick Havenstrite, Chief Executive Officer |
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
| NAME |
|
TITLE |
|
DATE |
| |
|
|
|
|
| /s/ Howard Crosby |
|
Director and Chairman |
|
May 30, 2023 |
| Howard Crosby |
|
|
|
|
| |
|
|
|
|
| /s/ Rick Havenstrite |
|
Director, President, and CEO |
|
May 30, 2023 |
| Rick Havenstrite |
|
(Principal Executive Officer) |
|
|
| |
|
|
|
|
| /s/ John P. Ryan |
|
Director |
|
May 30, 2023 |
| John P. Ryan |
|
|
|
|
| |
|
|
|
|
| /s/ Marianne Havenstrite |
|
Treasurer |
|
May 30, 2023 |
| Marianne Havenstrite |
|
(Principle Financial and Accounting Officer) |
|
|
II-4
Desert Hawk Gold Corp.
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