Quarterly Report (10-q)

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 September 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 47 ^th Street Ct. N.W.

Gig Harbor, Washington 98335

(Address of principal executive offices)

[phone]

(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:  November 14, 2018 – 27,741,361 shares of common stock.

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.

 

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LKA GOLD INCORPORATED

Consolidated Balance Sheets

(Unaudited)

ASSETS

		September 30, 2018				December 31, 2017
CURRENT ASSETS
Cash		$	176,286			$	-
Prepaid expenses			3,333				833
Total Current Assets			179,619				833
FIXED ASSETS
Land, equipment, mining claims and asset retirement liabilities			849,140				849,140
Accumulated deprecation			(396,726	)			(390,252	)
Total Fixed Assets, Net of Accumulated Depreciation			452,414				458,888
OTHER NON-CURRENT ASSETS
Reclamation bonds			134,388				100,042
TOTAL ASSETS		$	766,421			$	559,763

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

 

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LKA GOLD INCORPORATED

Consolidated Balance Sheets (Continued)

(Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

		September 30, 2018				December 31, 2017
CURRENT LIABILITIES
Accounts payable		$	117,397			$	92,633
Accounts payable – related party			4,376				23,905
Cash overdraft			-				981
Note Payable – related party			12,702				7,500
Wastewater discharge liability			99,974				99,974
Derivative liability			42,486				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 $74,263 and $41,868, respectively			75,737				8,132
Note payable			10,000				10,000
Accrued interest payable			8,851				38,166
Accrued wages and advances payable to officer			49,989				113,257
Total Current Liabilities			421,512				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 $44,731 and $139,288 in debt issuance costs and debt discount, respectively			5,269				10,712
Asset retirement obligation			122,950				122,950
Total Liabilities			549,731				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, 27,741,308 and 19,261,717 shares issued and 27,597,684 and 19,218,093        shares outstanding, respectively			27,741				19,262
Additional paid-in capital			20,088,377				18,020,363
Treasury stock; 43,624 and 43,624 shares at cost, respectively			(86,692	)			(86,692	)
Accumulated deficit			(19,812,736	)			(18,324,756	)
Total Stockholders' Equity (Deficit)			216,690				(371,823	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	766,421			$	559,763

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

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LKA GOLD INCORPORATED

Consolidated Statements of Operations

(Unaudited)

		For the Three months Ended September 30,								For the Nine months Ended September 30,
		2018				2017				2018				2017
OPERATING EXPENSES
Exploration and related costs			16,552				-				28,179				89,769
General and administrative			101,758				26,921				180,669				107,695
Officer salaries			37,500				37,500				313,925				112,500
Professional and consulting			9,472				1,256				63,581				55,268
Total Operating Expenses			165,282				65,677				586,354				365,232
OPERATING LOSS			(165,282	)			(65,677	)			(586,354	)			(365,232	)
OTHER INCOME (EXPENSES)
Other income			3,299				-				3,299				12,205
Gain (loss) on debt conversion			-				-				(309,406	)			-
Derivative gain			33,134				599,871				35,473				285,183
Interest expense, net			(38,332	)			(49,456	)			(630,992	)			(113,606	)
Total Other Income (Expenses)			(1,899	)			550,415				(901,626	)			183,782
NET INCOME (LOSS)		$	(167,181	)		$	484,738			$	(1,487,980	)		$	(181,450	)
BASIC NET INCOME (LOSS) PER SHARE		$	(0.00	)		$	0.03			$	(0.06	)		$	(0.01	)
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			27,741,308				19,198,845				25,080,093				19,181,832
FULLY DILUTED NET INCOME (LOSS) PER SHARE		$	(0.00	)		$	(0.00	)		$	(0.06	)		$	(0.02	)
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			27,741,308				22,398,845				25,080,093				22,381,832

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

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LKA GOLD INCORPORATED

Consolidated Statements of Cash Flows

(Unaudited)

		For the Nine months Ended September 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(1,487,980	)		$	(181,450	)
Items to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			6,474				6,473
Amortization of debt issuance costs			9,593				5,138
Amortization of debt discount			590,478				68,954
(Gain) on derivative			(35,473	)			(285,183	)
Loss on debt conversion			309,406				-
Common stock issued for compensation expenses			201,425				-
Common stock issued for services			36,960				21,645
Changes in operating assets and liabilities
Increase in prepaid expenses and other assets			(2,500	)			(2,708	)
Increase in accounts payable and accrued expenses			48,846				80,729
Increase in accounts payable – related party			4,274				4,746
Increase in accrued wages			12,110				62,500
Net Cash Used in Operating Activities			(306,387	)			(219,156	)
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	)
Cash paid for debt issuance costs							(7,500	)
Common stock issued for cash			500,000				10,000
Net Cash Provided by Financing Activities			517,019				247,000
INCREASE IN CASH AND RESTRICTED CASH			176,286				27,844
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD			-				1,101
CASH AND RESTRICTED CASH AT END OF PERIOD		$	176,286			$	28,945
CASH PAID FOR:
Interest		$	6,525			$	15,899
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.

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LKA GOLD INCORPORATED

Notes to the Unaudited Consolidated Financial Statements

September 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 nine months ended September 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 nine months ended September 30, 2017 statement of cash flows have been changed to include $28,945 in restricted cash in the newly titled "Total Cash and Restricted Cash Ending Balance" as of September 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.

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 nine months ended September 30, 2018, the Company realized a net loss, resulting in outstanding warrants, and outstanding convertible debt having an antidilutive effect.

 

The calculation of basic and diluted net loss per share for the three and nine months ended September 30, 2017 are as follows:

		Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
Basic Net (Loss) Income Per Share:
Numerator:
Net income (loss)		$	484,738			$	(181,450	)
Denominator
Weighted-average common shares outstanding			19,198,845				19,181,832
Basic net (loss) income per share		$	0.03			$	(0.01	)
Diluted Net Loss Per Share:
Numerator:
Net income (loss)		$	484,738			$	(181,450	)
Gain on fair value and interest expense on convertible debt			(544,831	)			(177,192	)
Diluted net loss		$	(60,093	)		$	(358,642	)
Denominator:
Weighted-average common shares outstanding			19,198,845				19,181,832
Convertible debt			3,200,000				3,200,000
Weighted average shares used in computing diluted net loss per share			22,398,845				22,381,832
Diluted net loss per share		$	(0.00	)		$	(0.02	)

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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 nine months ended September 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. $3,500 and $23,805 as of September 30, 2018 and December 31, 2017, respectively.

Related Party Payables – Notes, Accounts and Wages Payable

At September 30, 2018 and December 31, 2017, LKA owes $876 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 the market price of the common stock on the date of issuance of $0.20 per share. At September 30, 2018 and December 31, 2017, LKA owed Kye Abraham $49,989 and $113,257 in unpaid salary, respectively.

During the nine months ended September 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 the market price of the common stock on the date of issuance of $0.20 per share. The balance of the note is $12,702 at September 30, 2018.

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 the market price of the common stock on the date of issuance of $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 September 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 nine months ended September 30, 2018.

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

 

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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 $199,369. During the nine months ended September 30, 2018 and 2017, LKA recognized $61,542 and $60,295 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 nine months ended September 30, 2018 and 2017, LKA recognized $620 and $4,515 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 nine months ended September 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 nine months ended September 30, 2018 , LKA recorded a gain of $35,473 on mark-to-market of the conversion options. During the nine months ended September 30, 2017 , LKA recorded a loss of $494,995 on mark-to-market of the conversion options.

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

Balance, December 31, 2017		$	341,285
Reclass to equity conversion			(263,326	)
Gain on change in fair value			(35,473	)
Balance, September 30, 2018		$	42,486

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model.  Assumptions used during the nine months ended September 30, 2018 include (1) risk-free interest rates of 1.93% - 2.88%, (2) lives of between 0.06 and 3.07 years, (3) expected volatility between 119% - 404%, (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 September 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 September 30, 2018 and December 31, 2017, respectively, as there is no better estimate of the amount of loss within this range.

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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 the market price of the common stock on the date of issuance of $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 the market price of the common stock on the date of issuance of $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 the market price of the common stock on the date of issuance of $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 the market price of the common stock on the date of issuance of $0.20 per share.

During April 2018, LKA sold 2,702,703 shares of common stock for $500,000, or the market price of the common stock on the date of issuance of $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 market price of the common stock on the date of issuance of fair market value of $0.19 per share.

During June 2018, LKA issued 100,000 shares of common stock for promotion services valued at $17,990, or the market price of the common stock on the date of issuance of fair market value of $0.18 per share.

During the nine months ended September 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.

 

 

NOTE 9 – SUBSEQUENT EVENTS

During November 2018, the Company lost its defense to a vendor lawsuit, resulting in a judgement against the Company in the amount of approximately $72,900 plus attorney fees. As a result, the Company accrued an additional $50,000 as of September 30, 2018 to cover the estimated amount of the judgement. The Company intends to appeal the decision. 

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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 September 30, 2018 Compared to The Three Months Ended September 30, 2017

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

Exploration expenses increased $16,552 in the three months ended September 30, 2018 compared to $0 during the three months ended September 30, 2017. Exploration expenses are minimal due to the temporary cessation of exploration activity in late 2017 .

Professional fees increased by a negligible amount of $8,216 during the three months ended September 30, 2018, compared to $1,256 during the three months ended September 30, 2017.

General and administrative expenses increased by $74,837 to $101,758, or approximately 278% in the three months ended September 30, 2018, compared to $26,921 during the three months ended September 30, 2017.

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

We incurred an operating loss of $165,282 during the three months ended September 30, 2018, as compared to an operating loss of $65,677 in the three months ended September 30, 2017. The $99,605, or approximately 152% increase, is mainly due to the increase in general and administrative expenses and exploration costs, as wells as a slight increase in professional fees as discussed above.

We recognized total other expense of $1,899 during the three months ended September 30, 2018, as compared to $550,415 in other income for the three months ended September 30, 2017. The $552,314, or approximately 100% decrease is mainly due to a $566,737 decrease in gain on derivatives during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Additionally, there was an $11,124, or approximately 22% decrease in interest expense during the three months ended September 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 $(167,181) or $(0.00) per share, in the three months ended September 30, 2018, compared to net income of $484,738, or $0.03 per share in the three months ended September 30, 2017. The $651,919, or approximately 100% decrease, is mainly due to the $552,314 decrease in other income as well as a $99,605 increase in operating expenses, as discussed above.

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For The Nine months Ended September 30, 2018 Compared to The Nine months Ended September 30, 2017

LKA had no revenues during the nine months ended September 30, 2018 and 2017.

Exploration expenses decreased $61,590, or approximately 69%, to $28,179 in the nine months ended September 30, 2018 compared to $89,769 during the nine months ended September 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 $63,581 during the nine months ended September 30, 2018, compared to $55,268 during the nine months ended September 30, 2017.

General and administrative expenses increased to $180,669 in the nine months ended September 30, 2018, compared to $107,695 during the nine months ended September 30, 2017. The $72,974, or 68% increase, is mainly due to an accural of $50,000 for litigation and a $15,315 increase in stock issued for consulting services during the nine months ended September 30, 2018.

Officer salaries and bonuses increased $201,425, or 179% during the nine months ended September 30, 2018, compared to $112,500 during the nine months ended September 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 valued at $201,425 during the nine months ended September 30, 2018.

We incurred an operating loss of $586,354 during the nine months ended September 30, 2018, as compared to an operating loss of $365,232 in the nine months ended September 30, 2017. The $221,122, or approximately 61% 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 nine months ended September 30, 2018 as discussed above.

We incurred total other expenses of $901,626 during the nine months ended September 30, 2018, as compared to other income of $183,782 in the nine months ended September 30, 2017. The $1,085,408, or approximately 591% increase is mainly due to a $517,386 increase in in interest expense during the nine months ended September 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 $306,107 one-time net loss on debt conversion and extinguishment during the nine months ended September 30, 2018 and a gain on derivative of $35,473 during the nine months ended September 30, 2017 compared to a gain of $285,183 during the nine months ended September 30, 2018.

Net loss totaled $1,487,980, or $0.06 per share, in the nine months ended September 30, 2018, compared to a net loss of $181,450, or $0.01 per share in the nine months ended September 30, 2017. The $1,306,530, or approximately 720% increase, is mainly due to the $1,085,408 increase in other expenses as discussed above.

Liquidity

Current assets at September 30, 2018 totaled $179,619 and is mostly comprised of $176,286 of cash well as $3,333 in prepaid expenses, as compared to $833 in prepaid expenses at December 31, 2017.

During the nine months ended September 30, 2018, our operating activities used net cash of $306,387, compared to $219,156 in the comparable 2017 period. Cash flows from investing activities during the nine months ended September 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 $247,000 during the nine months ended September 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 nine months ended September 30, 2018, compared to proceeds of $260,000 from the issuance of common stock for cash and related and third party debt in the comparable 2017 period.

At September 30, 2018, the Company had a working capital deficit of $241,893, as compared to $775,661 at December 31, 2017.

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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 September 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 1A.  Risk Factors.

Not required.

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

During June 2018, LKA issued 100,000 shares of common stock for promotion services valued at $17,990, or the fair market value of $0.18 per share.  The issuance was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the same Act since the issuance of the Shares did not involve any public offering.

Item 3. Defaults Upon Senior Securities.

None; not applicable

Item 4. Mine Safety Disclosures.

The Company is the owner of the Golden Wonder Mine (the "Mine") located near Lake City, Colorado.  The Mine is subject to the jurisdiction and regulation of the Mine Safety and Health Administration, ("MSHA") a division of the U.S. Department of Labor.   As of the date of this report, the Mine is in compliance with all mine safety requirements of MSHA.

Item 5. Other Information.

None.

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.

 

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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:	November 26, 2018		By:	/s/Kye Abraham
				Kye Abraham, President, Chairman of the Board and Director
Date:	November 26, 2018		By:	/s/Nanette Abraham
				Nanette Abraham, Secretary, Treasurer and Director

 

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