0000939798-18-000026.txt : 20180820 0000939798-18-000026.hdr.sgml : 20180820 20180820141316 ACCESSION NUMBER: 0000939798-18-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180820 DATE AS OF CHANGE: 20180820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LKA GOLD Inc /DE/ CENTRAL INDEX KEY: 0000831355 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 911428250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17106 FILM NUMBER: 181027955 BUSINESS ADDRESS: STREET 1: 3724 47TH STREET NW CITY: GIG HARBOR STATE: WA ZIP: 98335 BUSINESS PHONE: 2068517486 MAIL ADDRESS: STREET 1: 3724 47TH STREET CT NW CITY: GIG HARBOR STATE: WA ZIP: 98335 FORMER COMPANY: FORMER CONFORMED NAME: LKA INTERNATIONAL INC /DE/ DATE OF NAME CHANGE: 20000118 10-Q 1 lkaitenqjuneighteen.htm LKAI 10-Q JUNE 30, 2018

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

____________________

FORM 10-Q
____________________

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

For the quarterly period ended June 30, 2018

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

For the transition period from ____________ to____________

Commission File No. 000-17106


LKA GOLD INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware
91-1428250
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

3724 47th Street Ct. N.W.
Gig Harbor, Washington 98335
(Address of principal executive offices)

(253) 514-6661
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [  ] Smaller reporting company [X] Emerging growth company [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  August 14, 2018 – 27,641,361 shares of common stock.

1

PART I

Item 1.  Financial Statements

The Financial Statements of LKA Gold Incorporated, a Delaware corporation (the "Registrant," the "Company" or "LKA") required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.



2

LKA GOLD INCORPORATED
Consolidated Balance Sheets
(Unaudited)

ASSETS

   
June 30, 2018
   
December 31, 2017
 
CURRENT ASSETS
           
     Cash
 
$
245,610
   
$
-
 
Restricted cash
   
1,875
     
-
 
Prepaid expenses
   
5,833
     
833
 
          Total Current Assets
   
253,318
     
833
 
 
FIXED ASSETS
               
     Land, equipment, mining claims and asset retirement liabilities
   
849,140
     
849,140
 
     Accumulated deprecation
   
(394,568
)
   
(390,252
)
          Total Fixed Assets, Net of Accumulated Depreciation
   
454,572
     
458,888
 
 
OTHER NON-CURRENT ASSETS
               
     Reclamation bonds
   
134,388
     
100,042
 
                 
          TOTAL ASSETS
 
$
842,278
   
$
559,763
 
                 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3

LKA GOLD INCORPORATED
Consolidated Balance Sheets (Continued)
(Unaudited)


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

     June 30, 2018      December 31, 2017  
 
CURRENT LIABILITIES
           
     Accounts payable
 
$
74,590
   
$
92,633
 
     Accounts payable – related party
   
3,342
     
23,905
 
     Cash overdraft
   
-
     
981
 
     Note Payable – related party
   
12,702
     
7,500
 
     Wastewater discharge liability
   
99,974
     
99,974
 
     Derivative liability
   
75,621
     
341,285
 
Convertible notes payable – related party, net of debt issue costs and debt discount of $0 and $209,339, respectively
   
-
     
40,661
 
Convertible note payable, net of debt issue costs and debt discount of
$107,542 and $41,868, respectively
   
42,458
     
8,132
 
     Note payable
   
10,000
     
10,000
 
     Accrued interest payable
   
5,071
     
38,166
 
     Accrued wages and advances payable to officer
   
24,989
     
113,257
 
          Total Current Liabilities
   
348,747
     
776,494
 
 
LONG-TERM LIABILITIES
               
Convertible notes payable – related party, net of $0 and $328,570
in debt issuance costs and debt discount, respectively
   
-
     
21,430
 
Convertible note payable, net of $45,300 and $139,288 in debt issuance
costs and debt discount, respectively
   
4,700
     
10,712
 
     Asset retirement obligation
   
122,950
     
122,950
 
Total Liabilities
   
476,397
     
931,586
 
 
STOCKHOLDERS' EQUITY (DEFICIT)
               
  Preferred stock; $0.001 par value, 50,000,000 shares authorized, 0 and
  0 shares issued and outstanding, respectively
   
-
     
-
 
     Common stock, $0.001 par value, 50,000,000 shares authorized,
27,641,308 and 19,261,717 shares issued and 27,597,684 and 19,218,093
       shares outstanding, respectively
   
27,641
     
19,262
 
     Additional paid-in capital
   
20,070,487
     
18,020,363
 
     Treasury stock; 43,624 and 43,624 shares at cost, respectively
   
(86,692
)
   
(86,692
)
     Accumulated deficit
   
(19,645,555
)
   
(18,324,756
)
            Total Stockholders' Equity (Deficit)
   
365,881
     
(371,823
)
                 
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
$
842,278
   
$
559,763
 

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

4

LKA GOLD INCORPORATED
Consolidated Statements of Operations
(Unaudited)

   
For the Three months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
OPERATING EXPENSES
                       
Exploration and related costs
   
11,627
     
15,076
     
11,627
     
91,233
 
General and administrative
   
58,851
     
45,804
     
78,911
     
79,310
 
Officer salaries
   
37,500
     
37,500
     
276,425
     
75,000
 
Professional and consulting
   
51,334
     
28,839
     
54,109
     
54,012
 
     Total Operating Expenses
   
159,312
     
127,219
     
421,072
     
299,555
 
                                 
OPERATING LOSS
   
(159,312
)
   
(127,219
)
   
(421,072
)
   
(299,555
)
                                 
OTHER INCOME (EXPENSES)
                               
Other income
   
-
     
-
     
-
     
12,205
 
Loss on debt conversion
   
-
     
-
     
(309,406
)
   
-
 
Derivative gain (loss)
   
5,370
     
(74,034
)
   
2,339
     
(314,688
)
Interest expense, net
   
(21,647
)
   
(50,539
)
   
(592,660
)
   
(64,150
)
     Total Other Income (Expenses)
   
(16,277
)
   
(124,573
)
   
(899,727
)
   
(366,633
)
                                 
NET LOSS
 
$
(175,589
)
 
$
(251,792
)
 
$
(1,320,799
)
 
$
(666,188
)
 
BASIC AND DILUTED NET LOSS PER SHARE
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.06
)
 
$
(0.03
)
 
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
27,459,841
     
19,236,343
     
23,716,935
     
19,153,314
 


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

5


LKA GOLD INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)

   
For the Six months Ended
June 30,
 
   
2018
   
2017
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(1,320,799
)
 
$
(666,188
)
Items to reconcile net loss to net cash used in operating activities:
               
   Depreciation and amortization
   
4,316
     
4,316
 
   Amortization of debt issuance costs
   
9,383
     
2,478
 
   Amortization of debt discount
   
556,840
     
37,528
 
   (Gain) Loss on derivative
   
(2,339
)
   
314,688
 
   Loss on debt conversion
   
309,406
     
-
 
   Common stock issued for compensation expenses
   
201,425
     
-
 
   Common stock issued for services
   
18,970
     
21,645
 
Changes in operating assets and liabilities
               
   Increase in prepaid expenses and other assets
   
(5,000
)
   
(5,208
)
   Increase in accounts payable and accrued expenses
   
2,259
     
93,237
 
   Increase in accounts payable – related party
   
3,241
     
3,044
 
   Increase in accrued wages
   
(12,890
)
   
50,000
 
      Net Cash Used in Operating Activities
   
(235,188
)
   
(144,460
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
   Cash paid for reclamation bond
   
(34,346
)
   
-
 
      Net Cash Used in Operating Activities
   
(34,346
)
   
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
      Cash overdraft
   
(981
)
   
-
 
      Proceeds from convertible debt
   
-
     
50,000
 
      Proceeds from convertible debt, related party
   
-
     
200,000
 
      Proceeds from notes payable, related party
   
18,000
     
1,100
 
      Payments on notes payable, related party
   
-
     
(6,600
)
      Common stock issued for cash
   
500,000
     
-
 
         Net Cash Provided by Financing Activities
   
517,019
     
244,500
 
                 
INCREASE IN CASH AND RESTRICTED CASH
   
247,485
     
100,040
 
                 
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD
   
-
     
1,101
 
                 
CASH AND RESTRICTED CASH AT END OF PERIOD
 
$
247,485
   
$
101,141
 
                 
CASH PAID FOR:
               
   Interest
 
$
6,225
   
$
15,599
 
   Income taxes
 
$
-
   
$
-
 
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Common stock issued for related party payable and accrued wages
 
$
120,379
   
$
25,500
 
Common stock issued for convertible debt and interest – related parties
 
$
644,998
   
$
-
 
Derivative liability reclassified to equity upon conversion
 
$
263,325
   
$
-
 
Discount on convertible notes payable
 
$
-
   
$
400,000
 
Convertible debt issued for accrued wages
 
$
-
   
$
150,000
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
6

LKA GOLD INCORPORATED
Notes to the Unaudited Consolidated Financial Statements
June 30, 2018
 
 
NOTE 1 -       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

LKA Gold Incorporated ("LKA" or the "Company") is currently engaged in efforts to expand mine production and continues to seek additional investment opportunities.

The accompanying unaudited consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with LKA's most recent audited financial statements. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

During May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition" and some cost guidance included in ASC Subtopic 605-35, "Revenue Recognition - Construction-Type and Production-Type Contracts." The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application.
 
ASC 606 requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. LKA performed a review of its sales history and compared historical accounting policies and practices to the new standard, electing to utilize the modified retrospective transition method effective January 1, 2018, with no impact to LKA's financial statements due to no sales in the past two years.

During November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230)" ("ASU 2016-18"). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period to total amounts shown on the statement of cash flows.

LKA had previously excluded restricted cash from the "Total Cash" and included the change in restricted cash balances in investing activities. As such, amounts presented in the six months ended June 30, 2017 statement of cash flows have been changed to include $30,000 in restricted cash in the newly titled "Total Cash and Restricted Cash Ending Balance" as of June 30, 2017. Additionally, $1,101 in restricted cash as of December 31, 2016 is now reflected in the "Cash and Restricted Cash at Beginning of Period" balance.

7

Net Income (Loss) per Common Share
 
Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during each year. Diluted net income (loss) per share is computed similar to basic net income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
 
For the three and six months ended June 30, 2018 and 2017, the Company realized a net loss, resulting in outstanding warrants, and outstanding convertible debt having an antidilutive effect.

NOTE 2 -        RELATED PARTY TRANSACTIONS

Office Space

LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses. The affiliated company (Abraham & Co., Inc. a FINRA member and registered investment advisor) also executes LKA's securities transactions and manages its investment portfolio. During the six months ended June 30, 2018, Abraham & Co., Inc. agreed to exchange $23,805 in outstanding accounts payable and $1,785 in accrued interest for 127,952 shares of LKA common stock at $0.20 per share. LKA owes Abraham & Co., Inc. $3,000 and $23,805 as of June 30, 2018 and December 31, 2017, respectively.

Related Party Payables – Notes, Accounts and Wages Payable

At June 30, 2018 and December 31, 2017, LKA owes $342 and $100, respectively, for purchases made on the personal credit card of LKA's President, Kye Abraham.  

During March 2018, LKA's President, Chairman of the Board and Director, Kye Abraham, elected to convert $75,378 in accrued wages and $5,653 in accrued interest into 405,157 shares of LKA common stock, or $0.20 per share. At June 30, 2018 and December 31, 2017, LKA owed Kye Abraham $24,989 and $113,257 in unpaid salary, respectively.

During the six months ended June 30, 2018, an affiliated entity lent LKA $18,000 on a short-term note, due upon demand. During March 2018, the affiliate entity elected to convert $12,798 in note principal and $960 in interest into 68,789 shares of common stock, or $0.20 per share.

Common Stock

During March 2018, LKA issued 1,750,000 shares of common stock to its President and Chairman, Kye Abraham, as a performance bonus valued at $201,425, or $0.12 per share.

During April 2018, LKA sold 2,702,703 shares of its common stock to members of the Koski family, the Company's largest shareholders ("Koski"), for $500,000 cash.

Convertible Debentures

During March 2018, members of the Koski family, LKA's President and Chairman, Kye Abraham, and an entity controlled by LKA's President and Chairman, Kye Abraham, elected to convert a total of $600,000 in convertible debt principal and $44,998 in accrued interest into 3,224,990 shares of common stock at a price of $0.20 per share. As of June 30, 2018 and December 31, 2017, there was $0 and $600,000 in outstanding convertible debentures, respectively. As the conversion price was lower than the stated conversion rate in the convertible debt instruments, LKA recognized a loss on debt conversion of $309,406 during the six months ended June 30, 2018.

During the six months ended June 30, 2018 and 2017, LKA recognized $8,970 and $2,065 of interest expense from the amortization of debt issuance costs, respectively. During the six months ended June 30, 2018 and 2017, LKA recognized $528,939 and $31,754 of interest expense from the amortization of debt discounts, respectively.

8

NOTE 3 -       CONVERTIBLE DEBENTURES

During October 2015, LKA issued a 7.5% Convertible Debenture for $50,000 in cash. The Convertible Debenture accrues interest at 7.5% per annum due in semi-annual payments, is unsecured, due in three years from the date of issuance and is convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments, which were paid in 2016.

During April 2016, LKA issued two $50,000 Convertible Debentures for $100,000 in cash.  The Convertible Debentures accrue interest at 7.5% per annum due in semi-annual payments, are unsecured, due in three years from the dates of issuance and are convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments, which were paid in 2016 and 2017.

On April 26, 2017, LKA issued a convertible debenture in the amount of $50,000 for cash. Principal on the Convertible Debenture is due April 26, 2020. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semiannual basis and LKA is required to retain a reserve amount of the proceeds to pay the first two semi-annual interest payments, which, if the Convertible Debentures are converted within one year, will be paid to the Convertible Debenture holders.

For all the above noted convertible debentures, if any event of default occurs, the interest rate increases to 15% per annum and the conversion rate shall be decreased to $0.25 per share. As a result of the potential variable conversion rate, the conversion option embedded in this instrument is classified as a liability in accordance with ASC 815 and LKA recognized a debt discount of $152,587 during the six months ended June 30, 2018. During the six months ended June 30, 2018 and 2017, LKA recognized $27,901 and $5,774 of interest expense from the amortization of the debt discount, respectively.

LKA incurred $12,500 in debt issuance costs on the convertible debenture issuance. The debt issuance costs are being amortized over the three year term of the convertible debenture. During the six months ended June 30, 2018 and 2017, LKA recognized $413 and $413 of interest expense from the amortization of debt issuance costs, respectively.

NOTE 4 -       DERIVATIVE LIABILITY

LKA analyzed the conversion options embedded in the convertible notes payable and convertible notes payable related party for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced Convertible Notes should be classified as liabilities and recorded at fair value due to the potentially variable conversion prices.  Upon the date of issuance of the convertible notes (see Notes 2 and 3), $350,000 was recorded as debt discount and $162,046 was recorded as day one loss on derivative liability
 
During the six months ended June 30, 2018, holders of $600,000 in convertible notes payables elected to convert their outstanding principal into common stock (see Note 2). Upon conversion of the debt principal, the related derivative liabilities were extinguished to additional paid-in capital.

During the six months ended June 30, 2018, LKA recorded a gain of $2,339 on mark-to-market of the conversion options. During the six months ended June 30, 2017, LKA recorded a loss of $104,876 on mark-to-market of the conversion options.

9

The following table summarizes the derivative liabilities included in the consolidated balance sheets at June 30, 2018 and December 31, 2017:

Balance, December 31, 2017
 
$
341,285
 
Reclass to equity conversion
   
(263,325
)
Gain on change in fair value
   
(2,339
)
Balance, June 30, 2018
 
$
75,621
 

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model.  Assumptions used during the six months ended June 30, 2018 include (1) risk-free interest rates of 1.93% - 2.63%, (2) lives of between 0.31 and 3.07 years, (3) expected volatility between 176% - 266%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.

NOTE 5 -      NOTIFICATION OF POSSIBLE ENVIRONMENTAL REMEDIATION

In 2002 the Federal Bureau of Land Management (the "BLM") advised LKA of its desire to extend to the Ute-Ulay Property certain environmental clean-up ("remediation") activities that it is conducting on neighboring properties that LKA does not own.  The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006.  These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area.  The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present.  The BLM's most recent study, "Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report" dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million.  Based upon discussions with Hinsdale County, Colorado officials, Colorado Department of Public Health & Environment Ute-Ulay project supervisor, the Federal Environmental Protection Agency's (the "EPA") regional manager, and legal counsel, the actual costs associated with this effort are expected to be approximately $1.2 million; substantially below previous BLM estimates.  Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA may either require a property owner to perform the necessary cleanup or the agencies may perform the work and seek recovery of costs against the property owner and previous owners.  While it cannot be determined with absolute certainty until the project is completed, LKA's status as a "de minimis" participant and the fact that remediation activities are focused on property located largely outside of LKA's permitted operating area, LKA management expects this project will have a negligible impact on the LKA's financial condition.  Accordingly, pursuant to Generally Accepted Accounting Principles, and all discussions with the above named agencies to date, LKA management believes it is unlikely there will be a material impact to its financial statements and no liability for this project has been recorded as of June 30, 2018. Actual completion of remediation work at the site was completed in late 2014 by the EPA. The EPA has not yet issued its notice of final determination.

NOTE 6 -        WASTEWATER DISCHARGE LIABILITY

During the fourth quarter of 2014, LKA received a Notice of Violation (NOV) from the Colorado Department of Health and Environment (CDPHE) for failure to meet certain requirements of the Company's wastewater discharge permit. During 2016, the Company undertook all corrective actions specified in the NOV, under CDPHE oversight, and believes it is in compliance with the terms of its permit. Additional work is going to be required to modify and upgrade the mine's water treatment process in 2017 to meet regulatory requirements and bring LKA back into compliance with its discharge permit requirements. Until this work is completed to the satisfaction of CDPHE, the Company is considered to be in a "non-compliance" status with the terms of its discharge permit and additional penalties could be assessed beyond those described (anticipated) above.  It is currently expected that discussions with the CDPHE will be concluded by the end of 2018 and that any financial penalty assessed and any further corrective actions will not likely cost less than $75,000 but not more than $150,000. If LKA is unsuccessful in achieving full compliance with permit requirements, it may be subject to additional penalties or revocation of its discharge permit. As a result, LKA has accrued a liability of $99,974 and $99,974 as of June 30, 2018 and December 31, 2017, respectively, as there is no better estimate of the amount of loss within this range.

10

NOTE 7 -       COMMON STOCK

During March 2018, Abraham & Co., Inc., an affiliate entity, agreed to exchange $23,805 in outstanding accounts payable and $1,785 in accrued interest for 127,952 shares of LKA common stock at $0.20 per share.

During March 2018, LKA's President, Chairman of the Board and Director, Kye Abraham, elected to convert $75,378 in accrued wages and $5,653 in accrued interest into 405,157 shares of LKA common stock, or $0.20 per share.

During March 2018, an affiliated entity elected to convert $12,798 in note principal and $960 in interest into 68,789 shares of common stock, or $0.20 per share.

During March 2018, members of the Koski family, the Company's largest shareholders, LKA's President and Chairman, Kye Abraham, and an entity controlled by LKA's President and Chairman, Kye Abraham, elected to convert a total of $600,000 in convertible debt principal and $44,998 in accrued interest into 3,224,990 shares of common stock at a price of $0.20 per share.

During April 2018, LKA sold 2,702,703 shares of common stock for $500,000, or $0.185 per share to related parties. Funds are to be used to restart exploration activity at the Golden Wonder mine.

During April 2018, LKA issued 100,000 shares of common stock for consulting services valued at $18,970, or the fair market value of $0.19 per share.

During the six months ended June 30, 2018, LKA recognized $309,406 in loss on debt conversion based on the fair market value of the common stock issued compared to debt and interest converted.

NOTE 8 -        GOING CONCERN

LKA's consolidated financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, LKA has recently accumulated significant losses, has a working capital deficit and has negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern.  Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:

LKA is currently engaged in an exploration program at the Golden Wonder mine with the objective of returning the mine to a commercial producing status. The exploration program, which began in November 2008, has involved extensive sampling/assaying for the purpose of identifying possible new production zones within the mine. During this evaluation period, sampling and analysis of exposed veins yielded encouraging results and some precious metals revenues. While encouraging, no conclusion can be drawn at this time about the commercial viability of the mine and LKA continues to evaluate potential merger, joint venture or lease agreements for the property.

In order to support continued operation of the mine, LKA completed a $500,000 capital funding raise in April 2018 and will need raise additional funds to support operations during 2018. 

There can be no assurance that LKA will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan.  The ability of LKA to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

11

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

Forward‑looking Statements

Statements made in this Quarterly Report which are not purely historical are forward‑looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words "may," "would," "could," "should," "expects," "projects," "anticipates," "believes," "estimates," "plans," "intends," "targets" or similar expressions.

Forward‑looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward‑looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, international gold prices, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward‑looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward‑looking statements to reflect events or circumstances occurring after the date of such statements.

Results of Operations

For The Three Months Ended June 30, 2018 Compared to The Three Months Ended June 30, 2017

LKA had no revenues during the three months ended June 30, 2018 and 2017.

Exploration expenses decreased $3,449, or approximately 23%, to $11,627 in the three months ended June 30, 2018 compared to $15,076 during the three months ended June 30, 2017. Exploration expenses are minimal due to the temporary cessation of exploration activity in late 2017.

Professional fees increased by $22,495, or 78%, to $51,334 during the three months ended June 30, 2018, compared to $28,839 during the three months ended June 30, 2017. The increase is mainly due to the recognition of $28,500 in consulting expenses in the current year related to efforts to resume exploration activities that were not incurred in the comparable prior year period.

General and administrative expenses increased by $13,047, or approximately 28% in the three months ended June 30, 2018, compared to the three months ended June 30, 2017, mainly due to a $15,219 increase in promotional expenses.

Officer salaries and bonuses were $37,500 during the three months ended June 30, 2018 and 2017.

We incurred an operating loss of $159,312 during the three months ended June 30, 2018, as compared to an operating loss of $127,219 in the three months ended June 30, 2017. The $32,093, or approximately 25% increase, is mainly due to the increase in professional fees and general and administrative expenses as discussed above.

We incurred total other expenses of $16,277 during the three months ended June 30, 2018, as compared to $124,573 in the three months ended June 30, 2017. The $108,296, or approximately 87% decrease is mainly due to a $79,404 decrease in loss on derivatives during the three months ended June 30, 2018 compared to the three months ended June 30, 2017. Additionally, there was a $28,892, or approximately 57% decrease in interest expense during the three months ended June 30, 2018 compared to the comparable period in 2017 due to the reduction of related party convertible debt and debt discount amortization.

Net loss totaled $175,589, or $0.01 per share, in the three months ended June 30, 2018, compared to a net loss of $251,792, or $0.01 per share in the three months ended June 30, 2017. The $76,203, or approximately 30% decrease, is mainly due to the $108,296 decrease in other expenses, partially offset by a $32,093 increase in operating expenses, as discussed above.

12


For The Six Months Ended June 30, 2018 Compared to The Six Months Ended June 30, 2017

LKA had no revenues during the three months ended June 30, 2018 and 2017.

Exploration expenses decreased $79,606, or approximately 87%, to $11,627 in the six months ended June 30, 2018 compared to $91,233 during the six months ended June 30, 2017. Exploration expenses are minimal due to the temporary cessation of exploration activity in late 2017 and early 2018.

Professional fees remained flat at $54,109 during the six months ended June 30, 2018, compared to $54,012 during the six months ended June 30, 2017.

General and administrative expenses remained flat at $78,911 in the six months ended June 30, 2018, compared to $79,310 during the six months ended June 30, 2017.

Officer salaries and bonuses increased $201,425, or 269% during the six months ended June 30, 2018, compared to $75,000 during the six months ended June 30, 2017. The increase is due to the valuation of 1,750,000 shares of common stock issued to our President and Chairman as a bonus during the six months ended June 30, 2018.

We incurred an operating loss of $421,072 during the six months ended June 30, 2018, as compared to an operating loss of $299,555 in the six months ended June 30, 2017. The $121,517, or approximately 41% increase, is mainly due to the valuation of 1,750,000 shares of common stock issued to our President and Chairman as a bonus valued at $201,425 during the six months ended June 30, 2018 as discussed above.

We incurred total other expenses of $899,727 during the six months ended June 30, 2018, as compared to $366,633 in the six months ended June 30, 2017. The $533,094, or approximately 145% increase is mainly due to a $528,510 increase in in interest expense during the six months ended June 30, 2018 compared to the comparable period in 2017 due to the early conversion of related party convertible debt and recognition of the remaining related debt discount to interest expenses. Additionally, there was a $309,406 one-time loss on debt conversion during the six months ended June 30, 2018, offset by a loss on derivative of $314,688 during the six months ended June 30, 2017 compared to a gain of $2,339 during the six months ended June 30, 2018.

Net loss totaled $1,320,799, or $0.06 per share, in the six months ended June 30, 2018, compared to a net loss of $666,188, or $0.03 per share in the six months ended June 30, 2017. The $654,611, or approximately 98% increase, is mainly due to the $533,094 increase in other expenses as discussed above.

Liquidity

Current assets at June 30, 2018 totaled $253,318 and is mostly comprised of $247,485 of cash and restricted cash as well as $5,833 in prepaid expenses, as compared to $833 in prepaid expenses at December 31, 2017.

During the six months ended June 30, 2018, our operating activities used net cash of $235,188, compared to $144,460 in the comparable 2017 period. Cash flows from investing activities during the six months ended June 30, 2018 were from the payment of $34,346 for reclamation bonds, there were no cash flows from investing activities in the comparable 2017 period. Financing activities provided cash of $517,019 and $244,500 during the six months ended June 30, 2018 and 2017, respectively. The increase in cash provided from financing activities is mainly due to the issuance of 2,702,703 shares of common stock for $500,000 cash during the six months ended June 30, 2018, compared to proceeds of $250,000 from the issuance of related and third party debt in the comparable 2017 period.

At June 30, 2018, the Company had a working capital deficit of $95,429, as compared to $775,661 at December 31, 2017.

Focus Shift

During the third quarter of 2015, LKA shifted its focus from exploratory mining to prepare for another surface and/or underground drilling program. The new program will be designed to locate new high-grade structures near or within the Carve-Out Area defined by the exploration agreement between LKA and Kinross. Until additional high-grade targets are located, LKA has suspended exploratory mining operations. Accordingly, cash flow from gold sales is not expected until exploratory mining is resumed.  On or about September 20, 2017, Kinross gave LKA notice of termination of the Agreement.

13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4.  Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2018, our disclosure controls and procedures were not effective as the Company lacks appropriate segregation of duties and has an insufficient number of employees responsible for the accounting and financial reporting functions.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in internal control over financial reporting

Our management, with the participation of the chief executive officer and chief financial officer, has concluded that there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

14

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None; not applicable.

Item 1A.  Risk Factors.

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During March 2018, Abraham & Co., Inc., an affiliate entity, agreed to exchange $23,805 in outstanding accounts payable and $1,785 in accrued interest for 127,952 shares of LKA common stock at $0.20 per share.

During March 2018, LKA's President, Chairman of the Board and Director, Kye Abraham, elected to convert $75,378 in accrued wages and $5,653 in accrued interest into 405,157 shares of LKA common stock, or $0.20 per share.

During March 2018, an affiliated entity elected to convert $12,798 in note principal and $960 in interest into 68,789 shares of common stock, or $0.20 per share.

During March 2018, members of the Koski family, the Company's largest shareholders, LKA's President and Chairman, Kye Abraham, and an entity controlled by LKA's President and Chairman, Kye Abraham, elected to convert a total of $600,000 in convertible debt principal and $44,998 in accrued interest into 3,224,990 shares of common stock at a price of $0.20 per share.

During April 2018, LKA sold 2,702,703 shares of common stock for $500,000, or $0.185 per share to related parties. Funds are to be used to restart exploration activity at the Golden Wonder mine.

During April 2018, LKA issued 100,000 shares of common stock for consulting services valued at $18,970, or the fair market value of $0.19 per share.

Item 3. Defaults Upon Senior Securities.

None; not applicable

Item 4. Mine Safety Disclosures.

None, not applicable.

Item 5. Other Information.

During the six months ended June 30, 2018, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant's Board of Directors.

15

Item 6. Exhibits.

Exhibit No.                         Identification of Exhibit

31.1
 
31.2
 
32
Certification of Kye Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.
 
Certification of Nanette Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
XBRL Instance Document*
101.PRE.
XBRL Taxonomy Extension Presentation Linkbase*
101.LAB
XBRL Taxonomy Extension Label Linkbase*
101.DEF
XBRL Taxonomy Extension Definition Linkbase*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase*
101.SCH
XBRL Taxonomy Extension Schema*

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed "furnished" and not "filed" or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed "furnished" and not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
 
LKA GOLD INCORPORATED

Date:
August 20, 2018
 
By:
/s/Kye Abraham
       
Kye Abraham, President, Chairman of the Board and Director
         
Date:
August 20, 2018
 
By:
/s/Nanette Abraham
       
Nanette Abraham, Secretary, Treasurer and Director
16
 
17
EX-31.1 2 exthirtyoneone.htm EX 31.1

Exhibit 31-1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kye Abraham, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of LKA Gold Incorporated;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5.   The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions);

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date:
August 20, 2018
 
By:
/s/Kye Abraham
 
 
 
 
Kye Abraham, Chief Executive Officer

EX-31.2 3 exthirtyonetwo.htm EX 31.2
Exhibit 31-2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nannette Abraham, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of LKA Gold Incorporated;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5.   The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions);

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date:
August 20, 2018
 
By:
/s/Nanette Abraham
 
 
 
 
Nanette Abraham,  Chief Financial Officer


EX-32 4 exhtirtytwo.htm EX 32


Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LKA Gold Incorporated, (the "Company") on Form 10-Q for the period ending June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Kye A. Abraham, Chief Executive Officer, and Nanette Abraham, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


Date:
August 20, 2018
 
By:
/s/Kye Abraham
       
Kye Abraham, Chief Executive Officer
         
Date:
August 20, 2018
 
By:
/s/Nanette Abraham
       
Nanette Abraham, Chief Financial Officer