UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549D.C. 20549



FORM 10-Q



(Mark One)


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


For the quarterly period endedSeptember 30, 2011March 31, 2012

or


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


For the transition period from _______________________to___________________________


Commission File Number:333-169701


Desert Hawk Gold Corp.

DESERT HAWK GOLD CORP.

(Exact name of registrant as specified in its charter)



Nevada

82-0230997

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

7723 N. Morton St., Spokane, WA

99208

(Address of principal executive offices)

(Zip Code)

 

 

(509) 434-8161

(Registrant’s telephone number, including area code)



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  X. No     .


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


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      .(Do not check if a smaller reporting company)

Smaller reporting company

  X.


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     . No  X.


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 25, 2011: 8,310,533.May 4, 2012: 8,396,689.




1




DESERT HAWK GOLD CORP.

Form 10-Q

September 30, 2011March 31, 2012


TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

3

Item 1.  Financial Statements

3

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

17

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.  Controls and Procedures

20

PART II – OTHER INFORMATION

21

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

21

Item 6.  Exhibits

21

SIGNATURES

22


Page

PART I – FINANCIAL INFORMATION

3

Item 1.  Financial Statements

3

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

15

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.  Controls and Procedures

19

PART II – OTHER INFORMATION

20

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

20

Item 6.  Exhibits

20

SIGNATURES

21






2



PART I – FINANCIAL INFORMATION


Item 1.  Financial Statements




 

Page

Consolidated Balance Sheets at September 30, 2011March 31, 2012 (Unaudited) and December 31, 20102011

4

Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2012 and 2011 and 2010 (Unaudited)

5

Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2012 and 2011 and 2010 (Unaudited)

6

Notes to Unaudited Financial Statements

7





3


DESERT HAWK GOLD CORP

 

 

 

 

 

 

(An Exploration Stage Company)

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2012

 

 

2011

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

$

328,872

 

$

415,090

 

Accounts Receivable

 

 

-

 

 

66,883

 

Prepaid expenses and other current assets

 

63,933

 

 

92,195

 

     Total Current Assets

 

 

392,805

 

 

574,168

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT ,

   net of accumulated depreciation of $106,188 and $88,976

 

360,544

 

 

377,757

MINERAL PROPERTIES AND LEASES (Note 4)

 

835,556

 

 

835,237

RECLAMATION BONDS (Note 4)

 

150,581

 

 

149,981

 

 

 

 

 

 

 

TOTAL ASSETS

$

1,739,486

 

$

1,937,143

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

$

56,542

 

$

6,771

 

Accrued expenses

 

16,489

 

 

22,886

 

Deposit on joint venture agreement

 

100,000

 

 

-

 

Derivative liability-put option (Notes 4 and 7)

 

-

 

 

25,193

 

Derivative liability-conversion option (Notes 7 and 9)

 

249,076

 

 

230,714

 

Interest payable

 

533,824

 

 

419,559

 

Notes payable-net of discount (Note 8)

 

4,819,927

 

 

4,710,286

 

Convertible debt-net of discount (Note 6)

 

552,264

 

 

534,764

 

     Total Current Liabilities

 

 

6,328,122

 

 

5,950,173

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

 

 

 

 

 

Asset retirement obligation

 

 

59,261

 

 

57,502

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

6,387,383

 

 

6,007,675

 

 

 

 

 

 

 

 

COMMITMENTS  (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT (Note 3)

 

 

 

 

 

 

Preferred Stock, $0.001 par value, 10,000,000 shares authorized

 

 

 

 

 

 

     Series A:  958,033 shares issued and outstanding

 

958

 

 

958

 

     Series A-1: No shares issued and outstanding

 

-

 

 

-

 

     Series A-2: 100,000 shares issued and outstanding

 

100

 

 

100

 

Common stock,  $0.001 par value, 100,000,000  shares  authorized;

    8,396,689 and 8,314,883 shares issued and  outstanding, respectively

 

8,398

 

 

8,316

 

Additional paid-in capital

 

5,123,631

 

 

5,058,563

 

Accumulated deficit prior to exploration stage

 

(1,016,591)

 

 

(1,016,591)

 

Accumulated deficit during exploration stage

 

(8,764,393)

 

 

(8,121,878)

 

     Total Stockholders' Deficit

 

(4,647,897)

 

 

(4,070,532)

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

1,739,486

 

$

1,937,143

 

 

 

 

 

 

 

 



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Balance Sheets


 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(unaudited)

 

(Restated Note 9)

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash

$

699,167

$

566,549

 

Concentrate inventory

 

49,738

 

-

 

Prepaid expenses and other current assets

 

38,589

 

42,153

 

     Total Current Assets

 

787,494

 

608,702

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net of depreciation of $72,752 and $22,770

 

394,164

 

404,819

MINERAL PROPERTIES AND LEASES (Note 6)

 

827,580

 

777,735

RECLAMATION BONDS (Notes 4 and 6)

 

143,303

 

80,302

 

 

 

 

 

 

TOTAL ASSETS

$

2,152,541

$

1,871,558

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

47,856

$

74,507

 

Accrued expenses

 

21,980

 

33,115

 

Accrued liabilities-officer wages (Note 6)

 

-

 

131,259

 

Derivative liability-put option (Notes 6 and 7)

 

24,938

 

26,396

 

Derivative liability-conversion option (Notes 7 and 8)

 

213,587

 

-

 

Interest payable

 

264,706

 

-

 

Convertible debt-net of discount (Note 5)

 

517,264

 

-

 

Note payable-equipment

 

-

 

15,995

 

Notes payable-net of discount, current portion (Note 8 )

 

3,620,220

 

1,623,531

 

Interest on notes payable-net of prepaid portion (Note 8)

 

64,891

 

106,307

 

     Total Current Liabilities

 

4,775,442

 

2,011,110

 

 

 

 

 

 

LONG-TERM DEBT

 

 

 

 

 

 

 

 

 

 

 

Convertible debt-net of discount (Note 5)

 

-

 

465,444

 

Accrued repayment premium on note payable-net of prepaid portion (Note 8)

 

86,828

 

30,745

 

Notes payable-net of discount (Note 8)

 

835,403

 

-

 

 

 

 

 

 

TOTAL LIABILITIES

 

5,697,673

 

2,507,299

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT) (Note 3)

 

 

 

 

Preferred Stock, $0.001 par value, 10,000,000 shares authorized

 

 

 

 

     Series A:  958,033 shares issued and outstanding

 

958

 

958

     Series A-1: No shares issued and outstanding

 

-

 

-

     Series A-2: 100,000 shares issued and outstanding

 

100

 

-

Common stock,  $0.001 par value, 100,000,000  shares authorized;
    8,297,876 and 7,586,411 shares issued and outstanding, respectively

 

8,298

 

7,587

Additional paid-in capital

 

5,039,024

 

3,718,109

Accumulated deficit prior to exploration stage

 

(1,016,591)

 

(1,016,591)

Accumulated deficit during exploration stage

 

(7,576,921)

 

(3,345,804)

     Total Stockholders' Equity (Deficit)

 

(3,545,132)

 

(635,741)

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$

2,152,541

$

1,871,558


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




4



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Statements of Operations (Unaudited)


 

 

 

 

 

 

 

 

 

 

 

Period from

 

 

 

 

 

 

 

 

 

May 1, 2009

 

 

 

 

 

 

 

 

 

 

 

(Inception of

 

 

 

Three Months Ended

 

Nine Months Ended

 

Exploration Stage)

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

to September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

2011

 

 

 

 

(Restated Note 9)

 

 

 

(Restated Note 9)

 

 

INCOME EARNED DURING EXPLORATION STAGE

 

 

 

 

 

 

 

 

 

 

 

Concentrate sales

$

18,442

$

-

$

903,022

$

-

$

903,022

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

General project costs

 

124,570

 

-

 

1,047,299

 

-

 

1,351,155

 

Exploration expense

 

74,999

 

274,227

 

204,635

 

374,278

 

1,335,043

 

Consulting

 

30,000

 

89,716

 

150,670

 

159,036

 

432,404

 

Officers and directors fees

 

59,188

 

332,295

 

249,486

 

401,960

 

780,935

 

Legal and professional

 

10,423

 

81,355

 

75,919

 

180,815

 

352,282

 

General and administrative

 

50,599

 

306,695

 

156,650

 

472,067

 

412,489

 

Depreciation

 

16,360

 

7,658

 

49,982

 

10,139

 

72,752

 

 

 

366,139

 

1,091,946

 

1,934,641

 

1,598,295

 

4,737,060

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

(347,697)

 

(1,091,946)

 

(1,031,619)

 

(1,598,295)

 

(3,834,038)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income (loss)

 

-

 

-

 

14

 

3,833

 

59,072

 

Change in fair value of derivatives

 

(127,178)

 

-

 

(103,850)

 

-

 

(103,850)

 

Loss on extinguishment of debt  (Note 8)

 

-

 

-

 

(2,149,404)

 

-

 

(2,149,404)

 

Gain (loss) on sale of investment

 

-

 

(181)

 

-

 

(181)

 

-

 

Financing expense

 

(67,708)

 

(54,434)

 

(464,853)

 

(87,434)

 

(780,055)

 

Interest expense

 

(207,619)

 

(392,307)

 

(481,405)

 

(470,969)

 

(768,646)

 

 

 

(402,505)

 

(446,922)

 

(3,199,498)

 

(554,751)

 

(3,742,883)

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(750,202)

 

(1,538,868)

 

(4,231,117)

 

(2,153,046)

 

(7,576,921)

INCOME TAXES

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

(750,202)

 

(1,538,868)

 

(4,231,117)

 

(2,153,046)

 

(7,576,921)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available for sale securities

 

-

 

(1,910)

 

-

 

(510)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

$

(750,202)

$

(1,540,778)

$

(4,231,117)

$

(2,153,556)

$

(7,576,921)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET LOSS PER SHARE

$

(0.09)

$

(0.21)

$

(0.54)

$

(0.30)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 

8,086,844

 

7,409,690

 

7,842,963

 

7,188,034

 

 


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



5


DESERT HAWK GOLD CORP

 

 

 

 

 

 

(An Exploration Stage Company)

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

 

 

 

 

 

 

 

 Period from

 

 

 

 

 

 

 May 1, 2009

 

 

 

 

 

 

 

 

 (Inception of

 

 

 

 

Three Months Ended

 

Exploration Stage)

 

 

 

 

March 31,

 

March 31,

 

to March 31,

 

 

 

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

INCOME EARNED DURING EXPLORATION STAGE

 

 

 

 

 

 

 

Concentrate sales

 

$

-

$

215,000

$

969,905

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

General project costs

 

 

61,873

 

-

 

1,547,618

 

Exploration expense

 

93,191

 

333,871

 

1,463,775

 

Consulting

 

38,940

 

31,000

 

501,344

 

Officers and directors fees

 

60,769

 

53,462

 

901,704

 

Legal and professional

 

38,854

 

22,541

 

403,303

 

General and administrative

 

52,100

 

284,916

 

497,640

 

Depreciation

 

17,213

 

17,081

 

107,555

 

 

 

 

362,940

 

742,871

 

5,422,939

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

(362,940)

 

(527,871)

 

(4,453,034)

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest  and other income

 

-

 

15

 

63,986

 

Change in fair value of derivatives

 

6,831

 

-

 

(114,401)

 

Loss on extinguishment of debt  (Note 8)

 

-

 

-

 

(2,149,404)

 

Gain or loss on sale of investment

 

-

 

-

 

(1,135)

 

Financing expense

 

(71,469)

 

(255,945)

 

(919,232)

 

Interest expense

 

(214,937)

 

(135,679)

 

(1,191,173)

 

 

 

(279,575)

 

(391,609)

 

(4,311,359)

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(642,515)

 

(919,480)

 

(8,764,393)

INCOME TAXES

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

 

$

(642,515)

$

(919,480)

$

(8,764,393)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET LOSS PER SHARE

$

(0.08)

$

(0.12)

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED

 

8,356,780

 

7,598,633

 

 



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows (Unaudited)


 

 

 

 

 

 

 

 

Period from

 

 

 

 

 

 

May 1, 2009

 

 

 

 

 

 

 

 

(Inception of

 

 

 

 


Nine Months Ended

 

Exploration

Stage)

 

 

 

 

September 30,

 

September 30,

 

to September 30,

 

 

 

 

2011

 

2010

 

2011

 

 

 

 

 

 

(Restated Note 9)

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(4,231,117)

$

(2,153,046)

$

(7,576,921)

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

-

 

 

Depreciation

 

49,982

 

10,139

 

72,752

 

 

Common stock issued for services

 

136,842

 

358,167

 

530,009

 

 

Common stock issued for interest expense

 

37,500

 

 

 

37,500

 

 

Accretion of debt discounts

 

268,444

 

(194,683)

 

740,396

 

 

Accretion of prepaid interest  liability

 

96,779

 

-

 

56,778

 

 

Accretion of repayment obligation

 

247,231

 

-

 

247,231

 

 

Change in fair value of derivatives

 

103,850

 

-

 

103,850

 

 

Loss on extinguishment of debt

 

2,149,404

 

-

 

2,149,404

 

 

(Gain) on sale of marketable securities

 

-

 

310

 

(2,540)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in concentrate inventory

 

(49,738)

 

-

 

(49,738)

 

 

(Increase) decrease in accounts receivable

 

-

 

12,313

 

-

 

 

(Increase) decrease in prepaid expenses and current assets

 

3,564

 

(21,117)

 

(38,589)

 

 

Increase (decrease) in accounts payable

 

(26,651)

 

103,114

 

44,682

 

 

Increase (decrease) in accrued liabilities - officer wages

 

-

 

(10,000)

 

(40,691)

 

 

Increase (decrease) in accrued expenses

 

(11,135)

 

(14,770)

 

21,980

 

 

Increase (decrease) in interest payable

 

264,706

 

(10,500)

 

264,706

 

Net cash used by operating activities

 

(960,339)

 

(1,920,073)

 

(3,439,191)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

(39,327)

 

(357,949)

 

(450,921)

 

 

Payments on mineral leases

 

(49,845)

 

(250)

 

(300,095)

 

 

Acquisition of reclamation bonds

 

(63,001)

 

-

 

(100,501)

 

 

Notes receivable

 

-

 

-

 

27,500

 

 

Proceeds from marketable securities

 

-

 

19,290

 

48,920

 

Net cash used by investing activities

 

(152,173)

 

(338,909)

 

(775,097)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

-

 

-

 

600,000

 

 

Proceeds from notes payable

 

1,000,000

 

1,776,700

 

3,500,000

 

 

Payment of note payable - equipment

 

(15,995)

 

-

 

(15,995)

 

 

Proceeds from issuance of common stock

 

316,125

 

2,590

 

1,324,125

 

 

Proceeds from issuance of preferred stock

 

-

 

958

 

958

 

 

Financing fees paid

 

(55,000)

 

-

 

(521,281)

 

Net cash provided by financing activities

 

1,245,130

 

1,780,248

 

4,887,807

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

132,618

 

(478,734)

 

673,520

CASH, BEGINNING OF PERIOD

 

566,549

 

888,434

 

25,647

 

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

$

699,167

$

409,700

$

699,167

 

 

 

 

 

 

 

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Common stock issued for mineral lease

$

-

$

-

$

525,000

 

Common stock issued as incentive with convertible notes

 

-

 

-

 

210,000

 

Common stock issued for reclamation bond

 

-

 

-

 

42,802

 

Equipment acquired with note payable

 

-

 

-

 

15,995

 

Preferred stock issued in connection with debt amendment

 

700,000

 

-

 

700,000

 

Common stock issued for accrued liabilities-officer wages

   

131,259

 

-

 

131,259

 

Debt discount on preferred stock

 

-

 

669,644

 

-

 

Stock received in satisfaction of note receivable

 

-

 

40,000

 

-


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




DESERT HAWK GOLD CORP

 

 

 

 

 

 

(An Exploration Stage Company)

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Period from

 

 

 

 

 

 

 

May 1, 2009

 

 

 

 

 

 

 

 

 

(Inception of

 

 

 

 

 

Three Months Ended

 

Exploration Stage)

 

 

 

 

 

March 31,

 

March 31,

 

to March 31,

 

 

 

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(642,515)

$

(919,480)

$

(8,764,393)

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

17,213

 

17,081

 

107,556

 

 

Common stock issued for services

 

-

 

17,500

 

530,009

 

 

Common stock issued for interest expense

 

22,500

 

-

 

60,000

 

 

Accretion of debt-related discounts

 

127,141

 

368,125

 

1,291,990

 

 

Accretion of asset retirement obligation

 

1,440

 

-

 

1,440

 

 

Change in fair value of derivatives

 

(6,831)

 

-

 

114,401

 

 

Loss on extinguishment of debt

 

-

 

-

 

2,149,404

 

 

(Gain) on sale of marketable securities

 

-

 

-

 

(2,540)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

66,883

 

(215,000)

 

-

 

 

(Increase) decrease in prepaid expenses and other current assets

 

28,262

 

(5,500)

 

(4,502)

 

 

Increase (decrease) in accounts payable

 

49,771

 

(2,318)

 

53,368

 

 

Increase (decrease) in deposit on joint venture

 

100,000

 

-

 

100,000

 

 

Increase (decrease) in accrued liabilities - officer wages

 

-

 

5,000

 

(40,691)

 

 

Increase (decrease) in accrued expenses

 

(6,397)

 

(26,457)

 

16,489

 

 

Increase (decrease) in interest payable

 

136,765

 

7,500

 

556,324

 

Net cash used by operating activities

 

(105,768)

 

(753,549)

 

(3,831,145)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

-

 

(15,469)

 

(452,104)

 

 

Purchase of trademark

 

-

 

(2,690)

 

(309,681)

 

 

Payments on mineral leases

 

-

 

-

 

(107,180)

 

 

Acquisition of reclamation bonds

 

(600)

 

-

 

26,900

 

 

Proceeds from marketable securities

 

-

 

-

 

48,920

 

Net cash used by investing activities

 

(600)

 

(18,159)

 

(793,145)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

-

 

-

 

600,000

 

 

Proceeds from notes payable

 

-

 

250,000

 

3,500,000

 

 

Payment of note payable - equipment

 

-

 

(6,463)

 

(15,995)

 

 

Proceeds from issuance of common stock

 

20,150

 

-

 

1,363,833

 

 

Proceeds from issuance of preferred stock

 

-

 

-

 

958

 

 

Financing fees paid

 

-

 

-

 

(521,281)

 

Net cash provided by financing activities

 

20,150

 

243,537

 

4,927,515

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

(86,218)

 

(528,171)

 

303,225

CASH, BEGINNING OF PERIOD

 

415,090

 

566,549

 

25,647

 

 

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

$

328,872

$

38,378

$

328,872

 

 

 

 

 

 

 

 

 

 

NON-CASH FINANCING AND INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Common stock issued for mineral lease

$

-

$

-

$

525,000

 

Common stock issued as incentive with convertible notes

 

-

 

-

 

210,000

 

Common stock issued for reclamation bond

 

-

 

-

 

42,802

 

Equipment acquired with note payable

 

-

 

-

 

15,995

 

Preferred stock issued in connection with debt amendment

 

-

 

-

 

700,000

 

Common stock issued for accrued liabilities-officer wages

 

-

 

-

 

131,259

 

Prepaid interest liability

 

-

 

44,118

 

441,175

 

Repayment premium obligation

 

-

 

58,823

 

588,325

 

Common stock issued for accrued interest

 

22,500

 

-

 

22,500

 

 

 

 

 

 

 

 

 

 

6

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





Desert Hawk Gold Corp.DESERT HAWK GOLD CORP.

(An Exploration Stage Company)AN EXPLORATION STAGE COMPANY)

Notes to Unaudited Consolidated Financial Statements


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS


Desert Hawk Gold Corp. (the “Company”) was incorporated on November 5, 1957, in the State of Idaho as Lucky Joe Mining Company.  On July 17, 2008 the Company merged with its wholly-owned subsidiary, Lucky Joe Mining Company, a Nevada corporation, for the sole purpose of effecting a change in domicile from the State of Idaho to the State of Nevada.  Lucky Joe Mining Company (Nevada) was the continuing and surviving corporation and each outstanding share of Lucky Joe Mining Company (Idaho) was converted into one outstanding share of Lucky Joe Mining Company (Nevada).  On April 3, 2009, the Company filed a Certificate of Amendment with the State of Nevada changing the name of the Company to Desert Hawk Gold Corp.


The Company was originally incorporated to pursue the mining business through the acquisition of prospective mining claims in the Wallace and Kellogg mining districts of Northern Idaho.  The Company never successfully generated any revenue or joint ventures from any of the activities it pursued and abandoned the mining business as a viable business model when the commodity prices cycled downward.  The Company remained dormant until it recommenced its mining activities and entered the exploration stage on May 1, 2009.  The Company is considered an exploration stage company and its financial statements are presented in a manner similar to a development stage company as defined in ASC 915-10-05 and interpreted by the Securities and Exchange Commission for mining companies in Industry Guide 7.


On December 31, 2009, the Company acquired all of the outstanding stock of Blue Fin Capital, Inc. (“Blue Fin”), a Utah corporation owning mining claims in Arizona.  The Company issued a total of 2,713,636 shares of its common stock to the shareholders of Blue Fin for all of the outstanding shares of Blue Fin.  Blue Fin was acquired from a related party, so the acquisition was recorded at the historical cost of Blue Fin.  Blue Fin became a wholly-owned subsidiary of the Company and all inter-company accounts have been eliminated.


These unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.  Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.  These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2010.2011.  In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.  Operating results for the ninethree month period ended September 30, 2011,March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.2012.


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Fair Value of Financial Instruments


The Company's financial instruments as defined by ASC 825-10-50 include cash, receivables, accounts payable and debt.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2011, and December 31, 2010.  ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements.  ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:


Level 1.  Observable inputs such as quoted prices in active markets;


Level 2.  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and


Level 3.  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


The Company measures its derivative liabilities at fair value on a recurring basis using Level 2 inputs.



7



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



Mineral Exploration and Development Costs


The Company accounts for mineral exploration and development costs in accordance with ASC Topic 930Extractive Activities - Mining.  All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on units of production basis over proven and probable reserves.


Mineral Properties and Leases


The Company accounts for mineral properties in accordance with ASC Topic 930Extractive Activities-Mining.  Costs of acquiring mineral properties and leases are capitalized by project area upon purchase of the associated claims (see Note 4).  Mineral properties are periodically assessed for impairment of value.


Inventories


Concentrate inventory of mineralized material represents mineralized material that has been mined, hauled to the surface and processed through our Cactus Mill.  This inventoried stockpile is ready for shipping for further processing by an outside source.  Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained metal ounces or pounds (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method).


Revenue Recognition


As an exploration stage company, the Company’s revenue from operations is referred to as income earned during the exploration stage. Revenue is recognized when title and risk of ownership of metals or metal bearing concentrate have passed and collection is reasonably assured. Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts.


Earnings Per Share


Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share.  At September 30, 2011,March 31, 2012, common stock equivalents outstanding are 1,563,8431,210,717 and 1,958,033 shares of common stock into which the convertible debt (Note 5)(see Note 6) and preferred stock (Note(see Note 3), respectively, can be converted.  However, the diluted earnings per share are not presented because its effect would be anti-dilutive due to the Company’s recurring losses.net loss.





Going Concern


As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through September 30, 2011,March 31, 2012, which raises substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.


The Company will need significant funding to continue operations and increase development through the next fiscal year.  The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships.  Management intends to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.


If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.



8Reclassifications



Desert Hawk Gold Corp.

(An Exploration Stage Company)

NotesCertain reclassifications have been made to Unaudited Consolidated Financial Statements


conform the prior period’s data to the current presentation.  These reclassifications have no effect on the results of reported operations or stockholders’ deficit.


NOTE 3 - CAPITAL STOCK


Common Stock


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


On February 15, 2011, the Company issued 25,000 shares of common stock valued at $0.70 per share or $17,500 in services.  The shares were issued to an employee under the Company’s 2008 Stock Option/Stock Issuance Plan pursuant to the terms of the employee’s employment agreement with the Company.


On May 3 and May 10, 2011, the Company issued a total of 220,000 shares of common stock valued at $0.70 per share or $154,000 in services and 138,000 shares valued at $0.70 or $96,600 to satisfy accrued expenses for prior services.  The shares were issued to non-employees under the Company’s 2008 Stock Option/Stock Issuance Plan.


An equity financing in the form of a 506 offering was initiated duringin third quarter of 2011.  At September 30, 2011, $316,125 had beenThis financing raised $355,833 through sales of 274,891309,420 shares of common stock.  This 506 offering is expected to continue untilconcluded January 31, 2012.   A separate financing was initiated February 20, 2012 or until 4,000,000for the sale of up to 2,000,000 shares of common stockstock.  No sales have been sold.  The shares offered and sold inrecorded to date with this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  offering.


Preferred Stock


In July 2010 the Company filed a Certificate of Designations with the State of Nevada to create 958,033 shares of Series A Preferred Stock.  The Series A Preferred Shares have voting rights with the common stock equal to the conversion value of the preferred shares into common shares.


In July 2010 the Company issued 958,033 shares of its Series A Preferred Stock to DMRJ Group in connection with financing (see Note 8).  These preferred shares are convertible into shares of the Company’s common stock at the rate of one common share for each preferred share converted, subject to certain adjustments.


In connection with the Fourth Amendment to the DMRJ Group funding (See(see Note 8), on May 3, 2011, the Company created and designated 2,500,000 shares of its authorized preferred stock as Series A-1 Preferred Stock and 1,000,000 shares as Series A-2 Preferred Stock.


Each share of Series A-1 Preferred Stock and Series A-2 Preferred Stock is convertible at the option of the holder at any time into that number of shares of common stock equal to (i) for the Series A-1 Preferred Stock ten times the Series A-1 Issue Price ($0.70) divided by the conversion price for Series A-1 Preferred and (ii) for the Series A-2 Preferred Stock ten times the Series A-2 Issue Price ($1.00) divided by the conversion price for such Series A-2 Preferred Stock.  The initial conversion price of the Series A-1 preferred stock is $0.70 per share and the conversion price of the Series A-2 preferred stock is $1.00.  If the Company issues or sell shares of its common stock, or grant options or other convertible securities which are exercisable or convertible into common shares, at prices less than the conversion price of Series A-1 or A-2 shares, except in certain exempted situations, then the conversion price of the Series A-1 and A-2 shares will be reduced to this lower of sale or conversion price.  The Series A-1 and A-2 shares may not be converted into common shares if the beneficial owner of such shares would thereafter exceed 4.9% of the outstanding common shares.


 The Series A-1 and A-2 shares have the following rights and preferences:


·

The holders of the Series A-1 and A-2 shares have no preference as to any dividends declared by the Company.

·

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a change of control transaction or the sale or lease of all or substantially all of its assets without the majority consent of the holders of the Series A-1 and A-2 shares, the holders of the Series A shares will be entitled to receive ratably an amount of the funds available for liquidation equal to the issue price of the Series A shares plus any accrued and unpaid dividends.  Any remaining funds available for distribution will be distributed pro rata among the holders of the common stock and the Series A, A-1 and A-2.



9



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



·

The holders of the Series A-1 and A-2 shares are entitled to the number of votes equal to the number of whole shares of common stock into which the Series A-1 or A-2 shares are convertible.  The Series A-1 and A-2 shares vote together with the holders of the common stock, except as provided by law.  In addition, the Company is prohibited from taking various actions without the separate consent of persons owning a majority of the Series A-1 and A-2 preferred shares, including:


o

Amending the Articles of Incorporation or Bylaws of the Company or its subsidiary;

o

Entering into another business;

o

Adopting a new equity compensation plan or amending the current plan;

o

Redeeming, retiring or acquiring the Company’s own securities;

o

Entering into any merger transaction, selling, licensing or transferring any of the Company’s assets, or pledging or granting a security interest in its assets;

o

Entering into any agreement or arrangement for the purchase of capital stock or a substantial portion of the assets of another entity or any type of joint venture or strategic alliance;

o

Declaring or paying any dividends on the Company’s equity securities;

o

Issuing any debt or equity securities, except in certain limited circumstances;

o

Entering into any insider transactions, except for transactions in the normal course of business, the payment of customary salaries or other standard employee benefit programs available to all employees;

o

Creating any subsidiaries;

o

Dissolving, liquidating, or reorganizing the Company;

o

Creating any new indebtedness in excess of $500,000 other than trade payables and the indebtedness created under the DMRJ Group Investment Agreement;

o

Fix or change the number of directors set in any resolution of the Board;

o

Making any loans or advances to any person other than ordinary business expenses not to exceed in the aggregate $15,000;

o

Granting any registration, preemptive, anti-dilution, or redemption or repurchase rights with respect to any securities; and

o

Borrowing against, pledging, assigning, modifying, cancelling or surrendering any key man insurance policy maintained by or for the Company.


·

The holders of record of the Series A-1 and Series A-2 shares, voting together as a single class, have the right to elect two directors of the Board, to remove any such directors elected by them and to fill any vacancy caused by the death, resignation or removal of such directors.

·

The Company has the right to create and issue additional classes or series of preferred shares so long as the new class or series does not have preferences, limitations, or relative rights which are superior or senior to the preferences, limitations and relative rights granted the holders of the Series A-1 or A-2 shares.

·

The holders of the Series A-1 and A-2 shares have preemptive rights to purchase shares of common stock in any offering by the Company.

·

There are no redemption or sinking fund provisions applicable to the Series A-1 or A-2 shares.


At September 30, 2011,March 31, 2012, 100,000 shares of Series A-2 Preferred Shares are outstanding that are convertible by the holder into 1,000,000 shares of the Company’s common stock.  These preferred shares were issued during the quarter ended June 30, 2011, in connection with the Fourth Amendment of the DMRJ Group financing arrangement (see Note 8).




NOTE 4 – MINERAL PROPERTIES AND LEASES


Mineral properties and leases as of March 31, 2012 and December 31, 2011 are as follows:


 

 

March 31,

2012

 

December 31,

2011

     Yellow Hammer Site

 

 

 

 

          Initial Lease Fee

$

175,000

$

175,000

          Asset retirement obligation

 

30,908

 

30,908

               Total

 

205,908

 

205,908

 

 

 

 

 

     Kiewit, Cactus Mill and all other sites

 

 

 

 

          Initial Lease Fee

 

600,000

 

600,000

          Asset retirement obligation

 

26,913

 

26,594

               Total

 

626,913

 

626,594

 

 

 

 

 

     Blue Fin Claims

 

 

 

 

         Initial Purchase Price

 

2,735

 

2,735

 

 

 

 

 

               Total

 

2,735

 

2,735

 

 

 

 

 

Total Mineral Properties and Leases

$

835,556

$

835,237


The Company holds operating interests within the Gold Hill Mining District in Tooele County, Utah, consisting originally of 419 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and seven Utah state mineral leases located on state trust lands, all covering approximately 33 square miles.  In August 2010, as a result of further evaluation, the Company allowed certain of the claims and leases to lapse back to Clifton Mining.  The Company has retained 334 unpatented claims, including the unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands.  All but four of these mining claims and leases were obtained under the terms of the Amended and Restated Lease Agreement effective July 24, 2009, with Clifton Mining Company and Woodman Mining Company as lessors.  Rights to the four Yellow Hammer patented claims were obtained under the terms of the Amended and Restated Lease Agreement dated July 24, 2009, with the Jeneane C. Moeller Family Trust.  The properties are located approximately 190 miles west-southwest of Salt Lake City, Utah, and 56 miles south southeast of Wendover, Utah.  The Company intends to concentrate its exploration activities on the four patented Yellow Hammer claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, Cane Springs, Oquirrh Springs, the Frankie, the Rustler, the Lion Vein, and the Cactus Mill project consistingLucy L sites.  Each of an unpatented mill site.these is a potential near-term development target.  Mineral extraction activities on the property at this time will be open-pit and the Company does not anticipateanticipates conducting any underground mining activities.



10



Desert Hawkexploration in the future.  Annual lease fees are required on the 334 claims that make up the Company’s Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



Additionally,Hill property.  Of these, four claims are within the Company, through its wholly-owned subsidiary, Blue Fin Capital, Inc., holds eight unpatented miningYellow Hammer site.  Annual claims in Yavapai County, Arizona.  The Company has no current plans to explore these claims.fees are currently $140 per claim plus administrative fees.


Kiewit Gold Project


The Company, through its lease agreement with Clifton Mining, has purchased all data, core samples and related reports from Dumont Nickel Inc. (which in 2010 changed its name to DNI Metals Inc. and was the former owner of the leases) associated with the aforementioned properties.  In addition, the Company has access to all data and related information available and held by Clifton Mining.  Desert Hawk has made application for a Large Mining Operations Permit to construct a heap leach facility and commence exploration activities on these claims.  This permit is estimated by management to be issued mid-2012.


In January 2010 the Company submitted a noticeNotice of intentIntent to commence large mining operationsCommence Large Mining Operations application for three surface mines and a heap leach gold operation on the Kiewit unpatented claims.  In February 2010 the Company submitted a Plan of Operation to the Bureau of Land Management and the Utah Division of Oil, Gas and Mining for exploratory drilling on the claims.  Issuance of these two permits is estimated for mid-2012.





Cactus Mill Plant


Located on the Cactus Mill site are two process facilities, a 150 ton per day mill built by Woodman Mining and operated until the 1980’s.  The mill has equipment used to process copper, gold, silver, and tungsten ores from the district.  In addition there is a second facility constructed in the 1990’s for custom milling precious metals concentrates.  Equipment from both mills was used to construct a 240 ton per day pilot mill capable of recovering copper, gold, silver and tungsten ores initially extracted from the Yellow Hammer claims.  In September 2010 the Company completed its rebuild of the pilot mill and testing of the pilot plan was conducted.  Commencement of processing activities began in fourth quarter 2010.  Pursuant to the Company’s lease agreement with Clifton Mining, it has access to Cane Springs, a natural flowing spring approximately 1,000 feet above the Cactus Mill site, as well as the Cane Springs mine shaft located approximately one-quarter mile south of the Cactus Mill property.  The Company holds a permit from the Utah Division of Oil, Gas and Mining for the pilot plant which allows flotation and gravity concentration.  The Company has filed an application to amend its permit to operate the pilot mill to allow construction of a heap leach facility near the mill to process mineralized material from the Yellow Hammer claims.  Due to the extended response time from the permitting agencies, this application has temporarily been placed on hold.


The Company commenced operation of the Cactus Mill pilot plant in November 2010, processed and sold concentrates on a pilot test basis through June of 2011.  Further processing of Yellow Hammer tailings to recover additional tungsten is ongoingOperations at this time.the Cactus Mill pilot plant have been temporarily suspended.


Yellow Hammer Claims


The Company holds a Small Mine Permit for the Yellow Hammer site from the Utah Division of Oil, Gas and Mining and has posted reclamation bonds totaling $60,800.  This permit stipulates that the Company may conduct exploration or mining operations on these claims so long as such activities are limited to an area within nine acres.


Blue Fin Claims


Additionally, the Company, through its wholly-owned subsidiary, Blue Fin Capital, Inc., holds eight unpatented mining claims in Yavapai County, Arizona.  The Company has no current plans to explore these claims.


Exploration Expenditures


Exploration expenditures incurred by the Company during the ninethree months ended September 30,March 31, 2012 and 2011 and 2010 were as follows:


 

March 31, 2012

 

March 31, 2011

 

Sept. 30, 2011


Sept. 30, 2010

 

 

 

 

Assaying

$

 15,609

 $

 9,260

$

11,469

$

7,384

Permitting

 

 98,485

 

 -

 

81,683

 

-

Equipment rental

 

 -

 

 116,192

 

-

 

113,692

Geological consulting fees

 

 84,759

 

 168,794

 

-

 

53,766

Maps and miscellaneous

 

 5,782

 

 17,588

 

39

 

-

Site development

 

 -

 

 62,444

 

-

 

159,029

Total Exploration Expenditures

$

 204,635

 $

 374,278

$

93,191

$

333,871


NOTE 5 – JOINT VENTURE


On February 7, 2012, we signed a letter of intent (“LOI”) with Shoshone Silver/Gold Mining Company (“Shoshone”) whereby Shoshone will acquire a 50% interest in our mineral properties located in Tooele County, Utah.  The terms of the LOI are that Shoshone will contribute $10 million in project equity, as well as a $2 million project loan to be used for the startup of the Kiewit gold heap leach operation.  Under the terms of the deal, Shoshone will have a 120 day exclusive right to provide the $10 million, for which $100,000 is being advanced to us as a nonrefundable deposit.  Shoshone will also provide a $2 million, 10% interest loan, with a four year maturity, which bears a preferential payback from operational cash flow.  The two companies will be 50-50 partners on the entire project with a four man operating committee consisting of two members from each company.  The proceeds of the Shoshone transaction, scheduled to close in June 2012, would be used to retire the DMRJ debt as well as fund a portion of the heap leach operation.  The joint venture had not been finalized as of March 31, 2012 and the nonrefundable deposit received is recorded in current liabilities.




11



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



NOTE 5–6 – CONVERTIBLE DEBT


On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders, for a total of $600,000.  The notes bear interest at 15% per annum.  Interest-only is payable in equal monthly installments of $7,500.  The notes were originally convertible at any time at a rate of $1.50 per share, but on July 14, 2010 the promissory notes were amended thereby reducing the conversion price to $.70 due to the note holders’ agreement to subordinate their debt to DMRJ Group (Note(see Note 8).  The notes are convertible into potentially 857,143 shares of common stock, and principal and interest are due May 31,November 30, 2012, or 30 months from the date of issuance.  TheOn November 18, 2009, the holders of the notes were issued 300,000 bonus shares at a rate of one share for each $2 loaned, resulting in a debt discount of $210,000 that is being accreted over the life of the loan.


On July 5, 2011 the Company entered into an agreement with the two holders of the convertible debt to begin paying their monthly interest in stock rather than cash.  The note holders have been issued 26,78758,929 shares of stock each, valued at $.70, to convert accrued interest for the months of May 2011 through September 2011.  March 2012.


In the event the Company fails to repay the loan or interest thereon in full on the maturity date of November 30, 2012, the Company will be required to issue an additional 300,000 shares of common stock.


NOTE 7 – DERIVATIVE LIABILITIES


The fair value of outstanding derivative instruments not designed as hedging instruments on the accompanying Consolidated Balance Sheets was as follows:


Derivative Instruments

 

March 31, 2012

 

 

December 31, 2011

 

 

 

 

 

 

Put option

 

 

Expired – 3/30/12

 

 

$

25,193

Conversion option

 

$

249,076

 

 

$

230,714


A Black-Scholes option-pricing model was used to estimate the fair value, using Level 2 inputs, of the Company’s derivatives using the following assumptions at March 31, 2012 and December 31, 2011:


 

 

Number of

Shares

 

Volatility

 

Risk-Free Rate

 

Expected

Life

(in years)

 

Stock

price

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Conversion option

 

411,450

 

132.48%

 

.15%

 

.52

 

$

1.15

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Put option

 

60,824

 

116.41%

 

.06%

 

.164

 

$

1.15

Conversion option

 

407,435

 

  91.72%

 

.90%

 

.77

 

$

1.15


NOTE 8 – DMRJ GROUP FUNDING


On July 14, 2010, the Company entered into an Investment Agreement with DMRJ Group I, LLC (“DMRJ Group”).  According to the original terms of the agreement, DMRJ Group has committed to loan the Company up to $6,500,000 pursuant to certain terms and conditions as evidenced by a promissory note, under which advances made to the Company were due not later than July 14, 2012.  These loan advances could only be used by the Company to pay transaction fees and expenses incurred in connection with the loan transaction, to purchase certain mining equipment, and as working capital to advance our Yellow Hammer and Kiewit mining activities.  The maximum amounts allocable to the Yellow Hammer and Kiewit projects were $2,500,000 and $2,750,000, respectively, and were subject to meeting certain milestones on the projects.  Advances for operations on the Kiewit project are conditioned upon the Company’s ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and the timely payment of the initial Yellow Hammer advances.  The Company had received loan advances from DMRJ Group for total principal due of $3,500,000 at March 31, 2012 and December 31, 2011.


Each principal advance amount bears interest of 15% per annum from the date of borrowing.  The Company is required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note.  This prepayment of interest is nonrefundable if the Company prepays the advance or goes into default.  In addition, at the time the Company repays or prepays the advance, it is required to pay an additional amount equal to 20% of the principal and interest amount being repaid or prepaid.





In July 2010, in connection with this agreement, the Company issued 958,033 shares of its Series A Preferred Stock to DMRJ Group at $.001 par value for $958 cash.  The Company recorded a discount to the DMRJ loan proceeds in the amount of $669,664, which was the common stock price of $.70 less the cash received for the preferred stock.


Loan advances made for the Yellow Hammer and Kiewit projects were subject to mandatory prepayments by the Company.  Yellow Hammer advances were originally to be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month beginning February 2011 and each month thereafter through September 2011.  Kiewit advances were to be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.  However, the repayment dates have been deferred due to waivers, forbearances, and amendments to the Initial Investment Agreement as stated in the following paragraphs.


Pursuant to a Security Agreement dated July 14, 2010, the Company has secured repayment of any advances made by DMRJ Group with all of its assets, including its shares of Blue Fin Capital, Inc., the Company’s wholly-owned subsidiary.


In connection with the DMRJ Group transaction, two of the Company’s convertible note holders, each of whom had loaned $300,000 to the Company on November 18, 2009, agreed to subordinate their debt to DMRJ Group.  In consideration for their agreement to subordinate their loans, the Company reduced the conversion price of the loans from $1.50 to $0.70 per share (see Note 6).  All other material terms of the loans remain unchanged.


On February 25, 2011, the Company entered into a Second Amendment to Investment Agreement with DMRJ Group which amended the Investment Agreement, dated as of July 14, 2010, as amended by the First Amendment and Waiver dated as of November 8, 2010.  The Second Amendment allowed the Company to receive a term loan advance of up to $125,000.  This advance was made without satisfying the provisions requiring the Company to meet certain milestones in connection with its Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  The advance is not deemed to be a Kiewit Advance, which means that it was not subject to the mandatory prepayment requirements under the Investment Agreement.


On March 6, 2011, the Company entered into a Forbearance Agreement with DMRJ Group pursuant to which DMRJ Group agreed to forbear until April 6, 2011, from exercising its rights and remedies with respect to an event of default by virtue of the Company’s failure to make a mandatory prepayment as required under the Investment Agreement.  The Company failed to make the mandatory prepayment to DMRJ Group on March 7, 2011, as required in the Investment Agreement.  Pursuant to the Forbearance Agreement if the Company cured this prepayment default on or prior to April 6, 2011; no default interest will be due with respect to the period between the date of the prepayment default and April 6, 2011.


On March 11, 2011, the Company entered into a Third Amendment to Investment Agreement with DMRJ Group.  This amendment allows the Company to make a further request for a term loan advance under the Investment Agreement of up to $500,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  Two $125,000 term loan advances were received as part of this amendment.  These advances are not deemed to be Kiewit Advances, which means that they are not subject to the mandatory prepayment requirements under the Investment Agreement.


The Company failed to make its mandatory prepayment of $1,011,616 to DMRJ Group on April 7, 2011, as required pursuant to the Investment Agreement with DMRJ Group, and thus entered into a Fourth Amendment.


On April 21, 2011, the Company entered into a Fourth Amendment to Investment Agreement with DMRJ Group.  This amendment allowed the Company to make a further request for a term loan advance under the Investment Agreement of up to $625,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.  The Amendment also eliminated the requirement of the Investment Agreement to make mandatory prepayments for the Yellow Hammer advances.


The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment of the Fourth Amendment.  ASC 470-50 states that a transaction resulting in a significant change in the nature of a debt instrument should be accounted for as an extinguishment of debt.  The difference between the reacquisition price and the net carrying amount of the extinguished debt should be recognized currently in income of the period of extinguishment.  The Company has concluded that the amendment constituted a substantial modification.  During the quarter ended June 30, 2011, the Company recognized a loss on extinguishment of the DMRJ note of $2,149,404 representing the difference between the fair value of the amended note, including consideration and fees, and the carrying value of the original note, including related unamortized discount.





A summary of DMRJ Group-related amounts as of March 31, 2012 and December 31, 2011 is as follows:


 

 

March 31, 2012

 

December 31, 2011

Yellow Hammer Advances

$

2,500,000

$

2,500,000

20% accrued repayment obligation

 

588,235

 

588,235

15% accrued prepaid interest obligation

 

441,175

 

441,175

 

 

3,529,410

 

3,529,410

Term Loan Advance Principal

 

1,000,000

 

1,000,000

20% accrued repayment obligation

 

235,294

 

235,294

15% accrued prepaid interest obligation

 

176,470

 

176,470

 

 

1,411,764

 

1,411,764

            Total principal

 

4,941,174

 

4,941,174

Less related discounts and unamortized balances

 

(121,247)

 

(230,888)

 

 

 

 

 

Carrying Value

$

4,819,927

$

4,710,286


This debt is all current in nature and is due in three installments (which include interest payable) of $1,550,000 on June 30, 2012, $2,945,000 on September 30, 2012 and $1,370,492 on December 31, 2012.


The Fourth Amendment contained provisions for DMRJ Group to elect to convert the outstanding payable balances to shares of Series A-1 preferred stock (for the Yellow Hammer Advances) and Series A-2 Preferred Stock (for the Term Loan Advances).  See description of the Preferred Stock in Note 3.


The Series A-1 and Series A-2 Preferred Stock are convertible into shares of the Company’s common stock.  The conversion rate of the Preferred Stock to shares of the Company’s common stock is adjustable based upon factors not found in a standard fixed-for-fixed pricing model. As such, the Company considered the provisions of ASC 815 “Derivatives and Hedging”, and recorded the fair value of $108,279 for the embedded conversion option liability associated with the amended agreement with an offset to the carrying value of the debt.  The assumptions used in the Black-Scholes option pricing model at May 3, 2011, were as follows: (1) dividend yield of 0%; (2) expected volatility of 96.8%, (3) risk-free interest rate of 0.40%, and (4) expected life of 1.25 years.  The conversion option liability is adjusted to its fair value at the end of each reporting period with the change in fair value recognized in net income (loss).  The conversion option derivative liability at March 31, 2012 is recorded at $249,076 (see Note 7).


Also in connection with entering this Fourth Amendment the Company issued 100,000 shares of Series A-2 Preferred Stock valued at $700,000 to DMRJ Group.  The value was determined by calculating the number of common shares into which the Series A-2 preferred shares were convertible (1,000,000 common shares) times the current fair value for shares of common stock ($0.70).  The Company recognized the amount in the loss on extinguishment of debt related to the Fourth Amendment.


In the event the Company completes an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require the Company to pay 25% of the proceeds over $3,000,000 to satisfy our indebtedness to them.





NOTE 9 – COMMITMENTS


Joint Venture


On February 7, 2012, the Company signed a letter of intent with Shoshone Silver/Gold Mining Company (“Shoshone”) whereby Shoshone will acquire a 50% interest in our mineral properties located in Tooele County, Utah.  Details of this LOI are discussed above in Note 5.  The proceeds of the Shoshone transaction, scheduled to close in June 2012, would be used to retire the DMRJ debt as well as fund a portion of the heap leach operation.


Mining Properties


During the year ended December 31, 2009 the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the leasing of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah.  Pursuant to the agreement, Moeller Family Trust received 250,000 shares of the Company’s restricted common stock.  If the Company does not place the Yellow Hammer property into commercial production within a three year period it will be required to make annual payments to the Trust of $50,000. Under the terms of the Joint Venture agreement, the Company will be required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable.  The Company has incurred royalty expense of approximately $86,000 as of September 30, 2011$90,360 associated with sales of concentrate during the nine monthsyear ended September 30,December 31, 2011.  Operations have been temporarily suspended and royalties are not currently accruing.


Also during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the leasing of their property interests in the Gold Hill Mining District of Utah. Under the terms of the Joint Venture agreement, the Company will be required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable. The Company will also be required to pay a 6% net smelter return on any production from the Kiewit gold property.  Additionally, if the Company does not place the Kiewit, Clifton Shears/smelter tunnel deposit, and the Cane Springs deposit into commercial production within a three year period, it will be required to make annual payments to Clifton Mining in the amount of $50,000 per location.


In September 2009, the Company acquired all of the rights and interests of Clifton Mining in a $42,802 reclamation contract and cash surety deposit with the State of Utah Division of Oil, Gas and Mining for the property covered by the joint venture.  As consideration for Clifton Mining selling its interest in the reclamation contract and surety deposit, the Company issued 60,824 shares to Clifton Mining.  For a period of two years the Company hashad the right to repurchase the shares for $48,000 or during the 180-day period after this two year period, Clifton Mining will havehad the option to put the shares to the Company for $48,000.  In connection with the issuance of this put option, management concluded that the 60,824 shares should be recorded as a derivative liability, and not as equity.  The put option expired March 30, 2012.


Employment Agreements


In September 2010, the Company entered into employment agreements with its Chief Executive Officer (“CEO”) and its President and entered into a consulting agreement with one of its directors.  Each agreement is for an initial term of between three months and four years and provides for base salary or fees of $120,000 per year.  The Company owed $131,259 tothe CEO at December 31, 2010 for amounts due under the provisions of the September 2010 agreement and prior similar agreements.  On May 3, 2011, this payable was satisfied with the issuance of 138,000 shares of stock to the CEO.



12



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



NOTE 7 – DERIVATIVE LIABILITIES


The Company currently does not use derivative instruments to manage its exposures to currency risk or interest rates. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or other comprehensive income if they qualify for cash flow hedge accounting.  The fair value of outstanding derivative instruments not designed as hedging instruments on the accompanying Consolidated Balance Sheets was as follows:

Derivative Instruments

 

September 30,

2011

 

December 31,

2010

 

 

 

 

 

Put option

 

$

24,938

 

$

26,396

Conversion option

 

$

213,587

 

$

-

A Black-Scholes option-pricing model was used to estimate the fair value, using Level 2 inputs, of the Company’s derivatives using the following assumptions at September 30, 2011:


 

Number of

Shares

Volatility

Risk-Free Rate

Expected

Life

(in years)

Stock

price

Put option

60,824

70.21%

.06%

.42

$

1.15

Conversion option

406,700

70.21%

.13%

.88

$

1.15


NOTE 8 – DMRJ GROUP FUNDING


On July 14, 2010, the Company entered into an Investment Agreement with DMRJ Group I, LLC (“DMRJ Group”). According to the original terms of the agreement, DMRJ Group has committed to loan the Company up to $6,500,000 pursuant to certain terms and conditions as evidenced by a promissory note, under which advances made to the Company were due not later than July 14, 2012. These loan advances could only be used by the Company to pay transaction fees and expenses incurred in connection with the loan transaction, to purchase certain mining equipment, and as working capital to advance our Yellow Hammer and Kiewit mining activities.  The maximum amounts allocable to the Yellow Hammer and Kiewit projects were $2,500,000 and $2,750,000, respectively, and were subject to meeting certain milestones on the projects.   Advances for operations on the Kiewit project are conditioned upon the Company’s ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and the timely payment of the initial Yellow Hammer advances.  The Company received loan advances from DMRJ Group for total principal due of $3,500,000 and $2,500,000 at September 30, 2011 and December 31, 2010, respectively.


Each principal advance amount bears interest of 15% per annum from the date of borrowing.  The Company is required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note.  This prepayment of interest is nonrefundable if the Company prepays the advance or goes into default.  In addition, at the time the Company repays or prepays the advance, it is required to pay an additional amount equal to 20% of the principal and interest amount being repaid or prepaid. 


In July 2010, in connection with this agreement, the Company issued 958,033 shares of its Series A Preferred Stock to DMRJ Group at $.001 par value for $958 cash.  The Company recorded a discount to the loan proceeds in the amount of $669,664, which was valued based on the stock price of $.70 less the cash received for the preferred stock. 


Loan advances made for the Yellow Hammer and Kiewit projects were subject to mandatory prepayments by the Company.  Yellow Hammer advances were originally to be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month beginning February 2011 and each month thereafter through September 2011.  Kiewit advances were to be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.  However, the repayment dates have been deferred due to waivers, forbearances, and amendments to the initial Investment Agreement as stated in the following paragraphs.


Pursuant to a Security Agreement dated July 14, 2010, the Company has secured repayment of any advances made by DMRJ Group with all of its assets, including its shares of Blue Fin Capital, Inc., the Company’s wholly-owned subsidiary.



13



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



In connection with the DMRJ Group transaction, two of the Company’s convertible note holders, each of whom had loaned $300,000 to the Company on November 18, 2009, agreed to subordinate their debt to DMRJ Group.  In consideration for their agreement to subordinate their loans, the Company reduced the conversion price of the loans from $1.50 to $0.70 per share.  All other material terms of the loans remain unchanged.  


On February 25, 2011, the Company entered into a Second Amendment to Investment Agreement with DMRJ Group which amended the Investment Agreement, dated as of July 14, 2010, as amended by the First Amendment and Waiver dated as of November 8, 2010. The Second Amendment allowed the Company to receive a term loan advance of up to $125,000.  This advance was made without satisfying the provisions requiring the Company to meet certain milestones in connection with its Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  The advance is not deemed to be a Kiewit Advance, which means that it was not subject to the mandatory prepayment requirements under the Investment Agreement.

On March 6, 2011, the Company entered into a Forbearance Agreement with DMRJ Group pursuant to which DMRJ Group agreed to forbear until April 6, 2011, from exercising its rights and remedies with respect to an event of default by virtue of the Company’s failure to make a mandatory prepayment as required under the Investment Agreement.  The Company failed to make the mandatory prepayment to DMRJ Group on March 7, 2011, as required in the Investment Agreement.  Pursuant to the Forbearance Agreement if the Company cured this prepayment default on or prior to April 6, 2011; no default interest will be due with respect to the period between the date of the prepayment default and April 6, 2011.

On March 11, 2011, the Company entered into a Third Amendment to Investment Agreement with DMRJ Group.  This amendment allows the Company to make a further request for a term loan advance under the Investment Agreement of up to $500,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.   The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.

The Company failed to make its mandatory prepayment of $1,011,616 to DMRJ Group on April 7, 2011, as required pursuant to the Investment Agreement with DMRJ Group, and thus entered into a Fourth Amendment.


On April 21, 2011, the Company entered into a Fourth Amendment to Investment Agreement with DMRJ Group.  This amendment allowed the Company to make a further request for a term loan advance under the Investment Agreement of up to $625,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.   The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.  The Amendment also eliminates the requirement of the Investment Agreement to make mandatory prepayments for the Yellow Hammer advances.


The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment of the Fourth Amendment.  ASC 470-50 states that a transaction resulting in a significant change in the nature of a debt instrument should be accounted for as an extinguishment of debt. The difference between the reacquisition price and the net carrying amount of the extinguished debt should be recognized currently in income of the period of extinguishment. The Company has concluded that the amendment constituted a substantial modification. During the quarter ended June 30, 2011, the Company recognized a loss on extinguishment of the DMRJ note of $2,149,404 representing the difference between the fair value of the amended note, including consideration and fees, and the carrying value of the original note, including related unamortized discount.



14



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



A summary of DMRJ Group-related amounts as of September 30, 2011 and December 31, 2010 is as follows:


 

 

 

September 30,

2011

 

December 31,

2010

Yellow Hammer Advances

 

$

2,500,000

$

2,500,000

20% accrued repayment obligation

 

 

588,235

 

588,235

15% accrued prepaid interest obligation

 

 

441,177

 

441,175

 

 

 

3,529,412

 

3,529,410

Term Loan Advance Principal

 

 

1,000,000

 

 

20% accrued repayment obligation

 

 

235,294

 

 

15% accrued prepaid interest obligation

 

 

176,470

 

0

 

 

 

1,411,764

 

3,529,410

                   Total

 

 

4,941,176

 

 

Less related discounts and unamortized balances

 

 

333,834

 

1,768,827

Carrying Value

 

$

4,607,342

$

1,760,583


Of these amounts, $3,620,220 ($3,608,614 net of discount) is due on September 30, 2012, and the remaining amount is due December 31, 2012.


The Fourth Amendment contained provisions for DMRJ Group to elect to convert the outstanding payable balances to shares of Series A-1 preferred stock (for the Yellow Hammer Advances) and Series A-2 Preferred Stock (for the Term Loan Advances). See description of the Preferred Stock in Note 3.   


The Series A-1 and Series A-2 Preferred Stock are convertible into shares of the Company’s common stock.    The conversion rate of the Preferred Stock to shares of the Company’s common stock is adjustable based upon factors not found in a standard fixed-for-fixed pricing model. As such, the Company considered the provisions of ASC 815 “Derivatives and Hedging”, and recorded the fair value of $108,279 for the embedded conversion option liability associated with the amended agreement with an offset to the carrying value of the debt. The assumptions used in the Black-Scholes option pricing model at May 3, 2011, are as follows: (1) dividend yield of 0%; (2) expected volatility of 96.8%, (3) risk-free interest rate of 0.40%, and (4) expected life of 1.25 years.   The conversion option liability is adjusted to its fair value at the end of each reporting period with the change in fair value recognized in net loss.  The conversion option liability at September 30, 2011 is recorded at $213,587 (Note 7).


Also in connection with entering this Fourth Amendment the Company issued 100,000 shares of Series A-2 Preferred Stock valued at $700,000 to DMRJ Group.  The value was determined by calculating the number of common shares into which the Series A-2 preferred shares are convertible (1,000,000 common shares) times the current fair value for shares of common stock ($0.70).  The Company recognized the amount in the loss on extinguishment of debt related to the Fourth Amendment.


In the event the Company completes an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require the Company to pay 25% of the proceeds over $3,000,000 to satisfy our indebtedness to them.


NOTE 9- RESTATEMENT


On August 2, 2011, management of the Company concluded that the financial statements for the year ended December 31, 2010, contained an error relating to the recording of financing-related expenses incurred during 2010.   Financing expenses in the amount of $466,281 were expensed in total during the year ended December 31, 2010.   Management subsequently determined that the financing expenses should have been recorded as a discount to the associated note payable and amortized over the term of the related note.  As a result, the previously issued financial statements for the year ended December 31, 2010 have been restated to reflect the appropriate accounting.  Of the $466,281 adjustment at December 31, 2011, financing costs of $416,281 and related debt discount of $87,434 are attributable to the three and nine month periods ending September 30, 2010.  This adjustment at September 30, 2010, results in a net reduction in loss of $328,847, reducing the net loss for the three and nine month periods to $1,535,868 and $2,153,046, respectively.  



15



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



The effect on the previously issued financial statements for the year ended December 31, 2010, is summarized as follows:


 

 

As

 

 

 

 

 

 

Initially

Reported

 

 

 

As

Restated at

 

 

December 31,

2010

 

Correcting

Entries

 

December 31,

2010

 

 

 

 

 

 

 

Total Assets

$

 1,871,558

$

 -

$

 1,871,558

    Current Liabilities

$

 2,385,346

$

 (374,236)

$

 2,011,110

    Long Term Liabilities

 

 496,189

 

 -

 

 496,189

    Equity

 

 (1,009,977)

 

 374,236

 

 (635,741)

Total Liabilities and Shareholder’s Equity

$

 1,871,558

$

 -

$

 1,871,558

 

 

 

 

 

 

 

For the year ended December 31, 2010

 

 

 

 

 

 

Operating Loss

$

 (2,304,272)

$

 -

$

 (2,304,272)

Other Income (Expense)

 

 (929,574)

 

 374,236

 

 (555,338)

Net Loss

$

 (3,233,846)

$

 374,236

$

 (2,859,610)

 

 

 

 

 

 

 

Basic and Diluted Loss Per Share

$

 (0.44)

$

 0.05

$

 (0.39)


NOTE 10 – SUBSEQUENT EVENTS


In June 2011 the Company commenced a non-public offeringA financing was initiated February 20, 2012 for sales of up to 4,000,0002,000,000 shares of common stock at $1.15 per share.  The offering is scheduledstock.  No sales have been recorded to terminate on or before January 31, 2012.  No shares were sold prior to June 30, 2011.  As of September 30, 2011, the Company had raised $316,125 in gross proceeds from the offering and had issued 274,891 shares. During the month of October 2011, an additional 12,657 shares were issued providing $14,566 in gross proceeds.  The shares offered and sold indate with this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.offering.  




[THIS SPACE INTENTIONALLY LEFT BLANK]






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


The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended,2011, and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.


Forward-looking statements


The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information.  Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations.  Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct.  Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.


Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this quarterly report.  While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:


·

a decline in metal prices;

·

environmental hazards;

·

metallurgical and other processing problems;

·

unusual or unexpected geological formations;

·

global economic and political conditions;

·

disruptions in credit and financial markets;

·

global productive capacity;

·

changes in product costing; and

·

competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, flooding, landslides, power outages, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities).


Mining operations are subject to a variety of existing laws and regulations relating to exploration, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with.  Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected.  We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.


These risk factors could cause our results to differ materially from those expressed in forward-looking statements.


Overview


WeDesert Hawk Gold Corp. (the “Company”) is an exploration stage company, which means we are aengaged in the search for mineral exploration company withdeposits or reserves which could be economically and legally extracted or produced.  None of our mining properties has any known reserves and our proposed programs on these properties are exploratory in nature.  Our proposed projects are located in the Gold Hill Mining District in Tooele County, Utah.  We are currently focused on extracting mineralized material from the Yellow Hammer claimsfor processing at the Cactus Mill pilot plant, and completing the permitting process for our Kiewit claims and construction of a heap leach facility near these claims.  Concentrates from our mill site have been processed at a smelter in Hayden, Arizona to extract any copper, gold, and silver from the mineralized material.  In addition, tungsten concentrates are processed at a refinery in Buffalo, NY.






We were originally incorporated in the State of Idaho on November 5, 1957.  For several years the Company bought and sold mining leases and claims, but in 1995 we ceased all principal business operations.  In 2008 we changed the domicile of the Company from the State of Idaho to the State of Nevada.  In May 2009 we raised funds to recommence mining activities.  In July 2009 we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District locatedDistrict.







We are currently focused primarily on the permitting of the Kiewit and Clifton Shears projects.  Delays in Tooele County, Utah.  the receipt of the Large Mine Permit required the suspension of operations at the Yellow Hammer Pit and the Cactus Mill.  Exploration and conformational analysis of past geological work is ongoing while we await the permits necessary for construction of the heap leach pad and mining the Kiewit.


We hold leasehold interests within the Gold Hill Mining District consisting of 334 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands, all covering approximately 33 square miles.  From these claims we have centered our activities on the Yellow Hammer project located on four of the patented claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site.  We have no current exploration plans for the remaining claims.  We also hold eight unpatented lode mining claims in Yavapai County, Arizona, on which we have no current plans to conduct exploration.


Refurbishing of our Cactus Mill plant was completed in the fall of 2010 and processing of mineralized material was ongoing through December of 2011.  Operations were suspended in December 2011 due to the lack of a Large Mine Permit as well as difficulties recovering tungsten in the mill.  The tungsten recovery issues continue to be a work in progress but at a minimum, will require some modification to the existing mill circuit.


We have continued to conduct exploration activities through the first quarter of 2012.  Several veins within the Clifton Shears, including the Lion Vein, have been sampled with ongoing geological work taking place.  Confirmation work at the Frankie and continued exploration of the Rainbow Hill area have also been a priority.  We do not have any proven or probable reserves on any of our mineral claims or mining leases.


We have previously entered into an agreement with DMRJ Group, LLC (“DMRJ”) through which we can borrow up to $6,500,000 for our mining operations and our general and administrative expenses, of which we have $3,000,000 remaining available to us upon reaching certain milestones.  This debt is due in three installments on June 30, 2012, September 30, 2012 and December 31, 2012.


On February 7, 2012, we signed a letter of intent (“LOI”) with Shoshone Silver/Gold Mining Company (“Shoshone”) whereby Shoshone will acquire a 50% interest in our mineral properties located in Tooele County, Utah.  The terms of the LOI are that Shoshone will contribute $10 million in project equity, as well as a $2 million project loan to be used for the startup of the Kiewit gold heap leach operation.  Under the terms of the deal, Shoshone will have a 120 day exclusive right to provide the $10 million, for which $100,000 is being advanced to us as a nonrefundable deposit.  The proceeds of the Shoshone transaction, scheduled to close in June 2012, would be used to retire the DMRJ debt as well as fund a portion of the heap leach operation.


Historically, we have incurred net losses for the years ended December 31, 20102011 and 2009,2010, and have also incurred losses fora lossfor the ninethree months ended September 30, 2011.March 31, 2012.  If we are unable to generate sufficient cash flow fromnegotiate the extraction and processing of mineralized material from our claims,Shoshone JV funding or a similar funding arrangement, we will not be able to meet our obligations to repay the loan advances to DMRJ Group and will likely lose our interest in all of our assets and mining claims.


ThirdFirst Quarter Highlights


An NI 43-101 report titledIndependent Technical Report and Resource Estimate forIn addition to ongoing exploration activities, the Desert Hawk Kiewit Project in Gold Hill Utah(Company was focused on obtaining the “NI 43-101 Report”) prepared by a Qualified Person under Canadian National Instrument 43-101 Standards of Disclosure for Minerals Projects was completed during the third quarter of 2011.  A National Instrument 43-101 is a mineral resource classification scheme used for the public disclosure of information relating to mineral properties in Canada and is a strict guideline for disclosing scientific and technical information about mineral projects.  This report includes estimates of resources which we are not permitted to disclose under Industry Guide 7,Description of Property by Issuers Engaged or to Be Engaged in Significant Mining Operations, which governs disclosure of ore reserves by U.S. companies.  The NI 43-101 Report does not include any proven or probable reserves permitted to be disclosed pursuant to Guide 7.


The NI 43-101 Report recommends that we initiate two simultaneous programs atremaining operational permits for the Kiewit, project, including continued geological investigationClifton Shears, and sampling of the Kiewit area both to the south and to the north and beginning background work to bring the Kiewit claims into production.  The report further recommends that general geologic investigations should be conducted at both the Kiewit area and other areas explored with past programs with systematic surface sampling and drilling on the Kiewit South, Midzone and north of Rainbow Hill to assess the low grade-bulk tonnage potential.  In addition, the report recommends that we should merge and contour the historic soil and chip sample databases for the various areas in the Clifton-Gold Hill Mining District to provide targets where additional sampling and drilling should be conducted.


During the first three quarters of 2011 we shipped concentrate from our mill to a smelter in Hayden, Arizona, pursuant to a contract with a customer for up to 200 tons of mineral concentrates.  The assays were evaluated by an independent umpire who determined the concentrates’ value.  This contract has been completed with the shipment of 193 tons of concentrate to the smelter.  All revenues from this contract have been received and all royalties have been paid.


We also shipped tungsten concentrates to a refinery in Buffalo, New York during second quarter 2011.  Tungsten shipments will be ongoing during 2011 as tailings are processed to recover tungsten.  


On August 11, 2011, we posted a bond in the amount of $26,700 with theYellow Hammer ore bodies.  Utah Division of Oil, Gas and Mining (DOGM) continued to require additional independent test work related to the chemistry of the deposits.  That test work has been completed and is under review with DOGM.


The BLM initiated an EA (Environmental Assessment) of the project in December 2011.  JBR Consultants of Salt Lake City, Utah, is completing this review on behalf of the BLM.  JBR has set a target date of May 2012 as an estimated date of completion.


On February 7, 2012, we signed a letter of intent (“LOI”) with Shoshone Silver/Gold Mining Company (“Shoshone”) whereby Shoshone will acquire a 50% interest in our mineral properties located in Tooele County, Utah.  The terms of the LOI are that Shoshone will contribute $10 million in project equity, as well as a $2 million project loan to be used for the Herat Small Mine Permit,startup of the Kiewit gold heap leach operation.  Under the terms of the deal, Shoshone will have a 120 day exclusive right to provide the $10 million, for which was subsequently transferred$100,000 is being advanced to us as a nonrefundable deposit.  Shoshone will also provide a $2 million, 10% interest loan, with a four year maturity, which bears a preferential payback from Clifton Miningoperational cash flow.  The two companies will be 50-50 partners on October 3, 2011.  This permit will allow for limited miningthe entire project with a four man operating committee consisting of two members from each company.  The proceeds of the Clifton Shears gold and silver veins.Shoshone transaction, scheduled to close in June 2012, would be used to retire the DMRJ debt as well as fund a portion of the heap leach operation.







During 2010 to 2011 draw advances totaling $3.5 million were obtained through a funding agreement with DMRJ Group.  No additional advances were taken during thirdfirst quarter 2011.2012.  Term loan advances under the terms of the Fourth Amendment, and all prior advances are due in three payments due on June 30, 2012, September 30, 2012, and December 31, 2012.  Total due under the terms of these advances, after associated discounts, as of September 30, 2011March 31, 2012 is $4,607,342.$4,819,927.  And in the event we complete an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require us to pay 25% of the proceeds over $3,000,000 to satisfy our indebtedness to them.  We also created a Series A-1 and a Series A-2 Preferred Stocks which are convertible into our common stock.  The Yellow Hammer loans may be converted by the investor, from time to time, to Series A-1 Preferred Stock, and the April Term Loan advances may be converted by the investor, from time to time, to Series A-2 Preferred Stock.  We also issued 100,000 shares of the Series A-2 Preferred Stock to DMRJ Group for entering into the Fourth Amendment.  As part of this 4th Amendment to the Investment Agreement, beginning July 1, 2011, quarterly dividends in the amount of 10% of income will be due to all preferred stockholders for each quarter that Desert Hawkthe Company has consolidated net income.  No dividends have become due as of March 31, 2012.


An equity financing in the form of a 506 offering was initiated in third quarter of 2011.  At September 30, 2011, thisThis financing has raised $316,125$355,833 through sales of 274,891309,420 shares of common stock.  This 506 offering is expected to continue untilconcluded January 31, 2012.   A separate financing was initiated February 20, 2012 or until 4,000,000for the sale of up to 2,000,000 shares of common stockstock.  No sales have sold.  The shares offered and sold inbeen recorded to date with this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.


On August 21, 2011, John Ryan resigned his board position.  He has not been replaced.offering.


Results of Operations for the Three and Nine Months Ended September 30,March 31, 2012 and 2011 and 2010


Operations were suspended in December 2011 due to the lack of a Large Mine Permit as well as difficulties recovering tungsten in the mill.  The tungsten recovery issues continue to be a work in progress but at a minimum, will require some modification to the existing mill circuit.


During the three and nine month periodsmonths ended September 30, 2011,March 31, 2012, the Company had a net loss of $750,202 and $4,231,117, respectively,$642,515 compared to a net loss of $1,538,868 and $2,153,046, respectively,$919,480 during the three and nine month periodsmonths ended September 30, 2010.March 31, 2011.  This represents a decreased net loss of $788,666$276,965 for the three months ended September 30, 2011, and an increased net lossMarch 31, 2012 which is attributable to the reduction in expense categories due to cessation of $2,078,071 duringpilot mill operations along with reduced exploration while awaiting the nine month period ended September 30, 2011.necessary permits.  The decrease in netoperating loss for the three months ended September 30, 2011March 31, 2012, as compared to the three months ended September 30, 2010 is attributableMarch 31, 2011, decreased by $164,931 due to the reduction in exploration costs and general and administrativescaled-back operations.


In addition, other expense, including reductions in legal fees, and director and officer bonuses.  In addition,consisting mostly of interest and financing costs, for the three months ended September 30, 2011, alsoMarch 31, 2012, decreased by $171,414, which was generally offset by the change in derivative liabilities of $127,178.


The operating loss for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, decreased by $566,676 due to the sale of concentrates and reductions in all operating expense categories.  Due to the restructuring of the DMRJ Group loans, other income and expense for the nine months ended September 30, 2011 showed a greater loss over the same period one year ago of $2,078,071 which consists of loss on extinguishment of debt and toan increase in financing expense.  


On March 1, 2011, the Company entered into a contract with Asarco, LLC to process approximately 200 tons of copper concentrates with silver and gold by-products. These concentrates are processed at the Cactus Mill pilot plant.  Pursuant to this contract, the Company delivered 193 tons of concentrate by the end of September 2011 and billed $852,850 in accordance with the revenue contract.  At September 30, 2011, all of the concentrates under this contract had been delivered to the smelter and all revenue had been received and recognized.  Royalties were paid to the Moeller Family Trust in the amount of $83,337 as a result of this contract.   


In addition to the above contract, through September 30, 2011, the Company generated $50,172 in tungsten sales with 6% royalties paid to the Moeller Family Trust in the amount of $3,010.  Tungsten shipments will be ongoing during 2011 as tailings are processed to recover tungsten.  Tungsten concentrate inventory on hand at September 30, 2011 was $49,738.


Mining severance tax will be due to the State of Utah in connection with the mineral sales, and is calculated based upon receipt of the proceeds.  At September 30, 2011, mining severance tax is accrued in the amount of $6,654.$112,034.


Liquidity and Cash Flow


Net cash used by operating activities was $960,339$105,768 during the ninethree month period ended September 30, 2011,March 31, 2012, compared with $1,920,073$753,549 during the ninethree month period ended September 30, 2010.March 31, 2011.  The decrease in the amount of cash used by operating activities is primarily attributable to thereduction in net loss on extinguishmentfrom operations, reductions in exploration activities and suspension of debt and the discounts related to that debt.   mill operations.


Net cash used by investing activities was $152,173$600 during the ninethree month period ended September 30, 2011,March 31, 2012, compared to $338,909$18,159 during the ninethree month period ended September 30, 2010.March 31, 2011.  The decrease in cash used by investing is attributable to a reduction in the purchase of fixed assets during the ninethree month period ended September 30, 2011.





March 31, 2012.


Net cash provided by financing activities was $1,245,130$20,150 during the ninethree month period ended September 30, 2011,March 31, 2012, compared with $1,780,248$243,537 during the ninethree month period ended March 31, 2011.  Cash provided from financing for the three month period ended March 31, 2012 was from issuance of stock while cash provided during the three month period ended March 31, 2011 was primarily from DMRJ loan proceeds.  This debt is all current in nature and is due in three installments (which include interest payable) of $1,550,000 on June 30, 2012, $2,945,000 on September 30, 2010. The decrease is primarily a result2012 and $1,370,492 on December 31, 2012.  A portion of less borrowing fromthe proceeds of the Shoshone joint venture transaction, scheduled to close in June 2012, would be used to retire the DMRJ debt. Negotiations have also begun with DMRJ Group duringregarding a future business relationship in the nine months ended Septemberevent that the joint venture with Shoshone is not finalized at June 30, 2011.2012.


As a result of the above, cash increaseddecreased by $132,618$86,218 during the ninethree month period ended September 30, 2011,March 31, 2012, leaving the Company with a cash balance of $699,167$328,872 as of September 30, 2011.March 31, 2012.







Critical Accounting Policies


The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed.  Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business.  Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.  See Note 2, “Summary of Significant Accounting Policies,” in our attached unaudited consolidated financial statements for a discussion of those policies.


Mineral Exploration and Development Costs


We account for mineral exploration costs in accordance with ASC 932Extractive Activities.  All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to explore new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.


Mineral Properties


We account for mineral properties in accordance with ASC 930Extractive Activities-Mining.  Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims.  Mineral properties are periodically assessed for impairment of value and any diminution in value.


Revenue


As an exploration stage company, our revenue from operations is referred to as income earned during the exploration stage.  Revenue is recognized when title and risk of ownership of metals or metal bearing concentrate have passed and collection is reasonably assured.  Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts.


Reclamation and Remediation


Remediation, reclamation and mine closure costs are based principally on legal and regulatory requirements.  Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties.  The Company uses assumptions about future costs, capital costs and reclamation costs.  Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates.


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


Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity, capital expenditures or capital resources.







Item 3.  Quantitative and Qualitative Disclosures About Market Risk


As a smaller reporting company, we have elected not to provide the disclosure required by this item.


Item 4.  Controls and Procedures


Evaluation of Disclosure ControlsControl and Procedures


Our CEO, who is also our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control Over Financial Reporting


There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during our most recent quarter ended September 30, 2011,March 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.







PART II – OTHER INFORMATION


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


On July 5, 2011 the Company entered into an agreement with West C Street LLC and Ibearhouse LLC, the holders of convertible debt acquired from us in 2009, permitting payment of their monthly interest in stock rather than cash.  In July and September 2011,Since then, we have issued 26,787a total of 117,858 shares of stock, valued at $.70, to each of the note holders to convert accrued interest for the months of May 2011 through September 2011.March 2012.  These shares were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6)4(a)(5) and/or Section 4(2)4(a)(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering.  Each of the note holders was an accredited investor as defined in Regulation D.  Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares.  Each investor represented that it had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting.  Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction.  No underwriting discounts or commissions were paid in connection with the stock issuance.


In June 2011 we commenced a non-public offering of up to 4,000,000 shares of our common stock at $1.15 per share.  During the quarter ended September 30, 2011, we sold 274,891This financing concluded January 31, 2012 with sales of 309,420 shares of common stock for gross proceeds of $316,125.$355,833.  These shares were sold without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6)4(a)(5) and/or Section 4(2)4(a)(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering.  We filed a Form D with the Commission on July 18, 2011, for this offering.  Sales were made to a total of 1014 investors, each of whom was an accredited investor as defined in Regulation D.  Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares.  Each investor represented that he or she had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting.  Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction.  No underwriting discounts or commissions were paid in connection with the stock sales.


Item 6.  Exhibits


SEC Ref.Exhibit No.

Title of DocumentDescription

31.1

Rule 15d-14(a) Certification by Principal Executive Officer and Principal Financial Officer

32.1

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer

101. INS

101.INS

XBRL Instance Document

101. SCH

101.SCH

XBRL Taxonomy Extension Schema Document

101. CAL

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101. DEF

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101. LAB

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101. PRE

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document










SIGNATURES


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


Desert Hawk Gold Corp.



Date: November 7,2011May 10, 2012

By:/s/ Robert E. Jorgensen

Robert E. Jorgensen, Chief Executive Officer

(Principal Executive and Financial Officer)





2221