Significant Events

9 Months Ended

Sep. 30, 2012

Significant Events:

Significant Events

NOTE 4 -       SIGNIFICANT EVENTS

Precious Metals Sales

From August to September 2012, LKA delivered to, and/or settled ore shipments with Kinross Gold Corporation of approximately 396.6 dry short tons of precious metals ore with a net value to the Company of $714,990. 

During July 2012, LKA entered into a one year Financial Consulting Agreement (the Agreement).  The Agreement required LKA to issue 215,000 shares of its common stock and pay $40,000 in cash.  LKA recognized expense of $129,000, or $0.60 per share from the issuance of the 215,000 shares of common stock during the period ended September 30, 2012.

Common Stock Warrants

During February 2012, LKA entered into an agreement with Rauno Perttu to act as Chief Geologist and special advisor to the LKA board of directors, with the election of being appointed to a position on the LKA board in the future.  As part of the consulting agreement, Mr. Perttu is to be paid consulting fees for any work done on projects pre-approved by the LKA board of directors.  An initial incentive compensation for his services, LKA agreed to issues Mr. Perttu warrants to purchase up to 500,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:

Warrant I for 200,000 shares exercisable at $0.40 per share, to be issued as of March 1, 2012.

Warrant II for 150,000 shares exercisable at $0.60 per share, to be issued one year later, or March 1, 2013.

Warrant III for 150,000 shares exercisable at $0.80 per share, to be issued one year later, or March 1, 2014.

Each warrant will have a term of two and one-half years.  In the event the shares underlying the warrants, and the closing price of the common stock of the Company has been $3.00 per share or higher for 10 trading days within a 30 day trading period subject to minimum trading volumes, LKA shall be able to redeem the Warrants at $0.001 per warrant. Such redemption notification shall be provided to warrant holders 20 days prior to redemption upon which Investors may exercise warrants.

The Warrant I - III tranches were valued at $44,791, $29,769 and $26,947 using the Black-Scholes option fair value pricing model using the following assumptions:

Stock price on grant date	$	0.35
Exercise price	$	0.40 – 0.80
Expected time to exercise		2.5 years
Risk free interest rate		0.35%
Volatility		121.02%
Expected forfeiture rate		0.00%

During the period ended September 30, 2012, LKA expensed $44,791 related to Warrant I, $18,605 and $8,421 for Warrants II and III, respectively, related to the Perttu warrants. The value of Warrants II and II are being recognized ratably over the vesting term of one and two years, respectively.  

During the period ended September 30, 2012, LKA expensed $21,651 and $22,720 for Warrants II and III, respectively, issued to Francois Viens in April 2011. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.  

Note Settlement Agreements

On August 31, 2012, LKA executed a separate Note Settlement Agreement (Note Settlement Agreement) with each of the following four creditors:  Cognitive Associates Limited Partnership; Cognitive Intelligence Limited Partnership; C.K. Cooper & Company, Inc.; and Sonata Multi-Manager Fund, LP (collectively, the Noteholders).  Under the terms of each Note Settlement Agreement, each of the Noteholders agreed to settle the outstanding principal and interest owed to each in consideration of the issuance of shares of LKA common stock at a settlement price of $0.25 per share.  The total principal and interest settled by each Noteholder (the Settlement Amount), and the number of shares to be issued to each (the Settlement Shares), are indicated below:

Noteholder		Settlement Amount	Settlement Shares
Cognitive Associates Limited Partnership	$	136,481	545,927
Cognitive Intelligence Limited Partnership		16,017	64,066
C.K. Cooper & Company, Inc.		29,817	374,582
Sonata Multi-Manager Fund, LP		197,412	789,646
Totals	$	379,727	1,774,221

The Company is required, within 90 days of the date of the Note Settlement Agreements, to proceed with a court hearing process that is required in order for the Settlement Shares to be issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended.  If Settlement Shares are not issuable in reliance on the Section 3(a)(10) exemption within such 90 day period, each Noteholder may declare its Note Settlement Agreement null and void in its entirety.

Settlement of Promissory Note

Effective as of August 14, 2012, LKA, executed a letter agreement with Brannon Limited Partnership (Brannon), which is the holder of a Note dated July 2, 2009 (the Letter Agreement). Under the terms of the Letter Agreement, the parties have agreed to settle the entire unpaid balance on the Note through the issuance of a total of six million shares of LKA common stock at a settlement price of $0.1886 per share.  LKA is required, within 90 days of the date of the Letter Agreement, to proceed with the court hearing process that is required in order for the Settlement Shares to be issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended.  If Settlement Shares are not issuable in reliance on the Section 3(a)(10) exemption within such 90 day period, Brannon may declare the Letter Agreement null and void in its entirety.

Immediately upon execution of the Letter Agreement, the Company is required to deliver to Brannon a stock certificate representing 800,000 unregistered and restricted shares of common stock, which shall be returned to LKA and canceled immediately upon the successful completion of the 3(a)(10) hearing and replaced with freely tradeable shares issued in reliance on the Section 3(a)(10) exemption. Brannon is to give LKA written notice of its election to convert the Note debt into shares, provided that Brannon will not be entitled to receive a number of shares that result in Brannon beneficially owning more than 4.99% of LKA’s common stock after such debt conversion.  If the Company is unable to issue any shares that are then deliverable, it will be required to make a Mandatory Redemption Payment equal to 120% of the value of the debt that such shares are meant to settle.