UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549


FORM 10-Q

(Mark One)


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


For the quarterly period endedJuneSeptember 30, 2011

or


.

or

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.

(Exact name of registrant as specified in its charter)


Nevada82-0230997

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)


(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.  Yesx 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).  Yeso X. No     x.


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


Large accelerated filer

o

.

Accelerated filer

o

.

Non-accelerated filer

o

.(Do not check if a smaller reporting company)

Smaller reporting company

x

 X.


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


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 2,October 25, 2011: 7,969,411.

8,310,533.




1




DESERT HAWK GOLD CORP.

Form 10-Q

June

September 30, 2011


Table

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

3

Item 1.  Financial Statements

3

Item 2.  Management’s Discussion and Analysis of Contents

Page
PART I—FINANCIAL INFORMATION4
Item 1. Financial Statements4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations19
Item 3. Quantitative and Qualitative Disclosures About Market Risk22
Item 4. Controls and Procedures23
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




2



PART IOTHER INFORMATION

23
Item 1A. Risk Factors23
Item 6.Exhibits31
SIGNATURES32


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Consolidated Balance Sheets

PART I—FINANCIAL INFORMATION


Item 1.  Financial Statements


  June 30,  December 31, 
  2011  2010 
  (unaudited)  (Restated-Note 9) 
ASSETS      
CURRENT ASSETS      
Cash $543,285  $566,549 
Accounts receivable  439,519   - 
Concentrate inventory  16,900   - 
Prepaid expenses and other current assets  22,074   42,153 
Total Current Assets  1,021,778   608,702 
         
PROPERTY AND EQUIPMENT, net of depreciation of $55,025 and $22,770  382,524   404,819 
MINERAL LEASE (Note 6)  777,735   777,735 
RECLAMATION BONDS (Notes 4 and 6)  93,303   80,302 
         
TOTAL ASSETS $2,275,340  $1,871,558 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
CURRENT LIABILITIES        
Accounts payable $90,436  $74,507 
Accrued expenses  70,626   33,115 
Accrued liabilities-officer wages (Note 6)  -   131,259 
Derivative liability-put option (Note 5)  14,421   26,396 
Derivative liability-conversion option (Note 8)  96,926   - 
Interest payable  147,353   - 
Convertible debt-net of discount (Note 5)  499,764   - 
Note payable-equipment  -   15,995 
Notes payable-net of discount, current portion (Note 8 )  829,411   1,623,531 
Interest on notes payable-net of prepaid portion (Note 8)  29,625   106,307 
Total Current Liabilities  1,778,562   2,011,110 
         
LONG-TERM LIABILITIES        
Convertible debt-net of discount (Note 5)  -   465,444 
Accrued repayment premium on note payable-net of prepaid portion (Note 8)  39,847   30,745 
Notes payable-net of discount (Note 8)  3,605,485   - 
   3,645,332   496,189 
TOTAL LIABILITIES  5,423,894   2,507,299 
         
COMMITMENTS AND CONTINGENCIES (Note 6)        



Page

Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010

4

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

5

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)

6

Notes to Unaudited Financial Statements

7





3



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.


3



4




Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Balance Sheets

Statements of Operations (Unaudited)


  June 30,  December 31, 
  2011  2010 
  (unaudited)  (Restated-Note 9) 
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; 7,969,411 and 7,586,411 shares issued and outstanding, respectively  7,969   7,587 
Additional paid-in capital  4,685,727   3,718,109 
Accumulated deficit prior to exploration stage  (1,016,591)  (1,016,591)
Accumulated deficit during exploration stage  (6,826,717)  (3,345,804)
Total Stockholders' Equity (Deficit)  (3,148,554)  (635,741)
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $2,275,340  $1,871,558 

 

 

 

 

 

 

 

 

 

 

 

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.


4

5




Desert Hawk Gold Corp.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)

Consolidated Statements of Cash Flows (Unaudited)


              Period from 
              May 1, 2009 
              
(Inception of
Exploration Stage)
 
  Three Months Ended  Six Months Ended  
to June 30,
 
  June 30,  June 30,  June 30,  June 30,  
2011
 
  2011  2010  2011  2010  
(Restated-Note 9)
 
INCOME EARNED DURING EXPLORATION STAGE               
Concentrate sales $669,580  $-  $884,580  $-  $884,580 
                     
EXPENSES                    
General project costs  415,850   21,445   922,728   38,029   1,226,585 
Exploration expense  85,580   71,013   129,636   181,680   1,260,044 
Consulting  89,670   45,002   120,670   69,320   402,404 
Officers and directors fees  136,837   37,615   190,298   69,665   721,747 
Legal and professional  42,955   48,994   65,496   99,460   341,859 
General and administrative  38,196   22,985   107,418   45,714   363,255 
Depreciation  16,542   2,120   32,255   2,481   55,025 
   825,630   249,174   1,568,501   506,349   4,370,919 
                     
OPERATING LOSS  (156,050)  (249,174)  (683,921)  (506,349)  (3,486,339)
                     
OTHER INCOME (EXPENSE)                    
Interest income and other income (loss)  -   (129)  15   3,833   59,072 
Change in derivative liabilities  23,328   -   23,328   -   23,328 
Loss on extinguishment of debt  (Note 8)  (2,149,404)  -   (2,149,404)  -   (2,149,404)
Financing expense  (44,842)  -   (397,146)  (33,000)  (712,347)
Interest expense  (234,466)  (39,343)  (273,786)  (78,662)  (561,027)
   (2,405,384)  (39,472)  (2,796,993)  (107,829)  (3,340,378)
                     
LOSS BEFORE INCOME TAXES  (2,561,434)  (288,646)  (3,480,914)  (614,178)  (6,826,717)
INCOME TAXES  -   -   -   -   - 
                     
NET LOSS  (2,561,434)  (288,646)  (3,480,914)  (614,178)  (6,826,717)
                     
OTHER COMPREHENSIVE INCOME                    
Unrealized gain on available for sale securities  -   1,400   -   1,400   - 
                     
COMPREHENSIVE LOSS $(2,561,434) $(287,246) $(3,480,914) $(612,778) $(6,826,717)
                     
BASIC AND DILUTED NET LOSS PER SHARE $(0.33) $(0.04) $(0.45) $(0.09)    
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC AND DILUTED  7,827,960   7,074,744   7,719,002   7,074,744     

 

 

 

 

 

 

 

 

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.


5

6




Desert Hawk Gold Corp.

(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)

        Period from 
        May 1, 2009 
        (Inception of 
  Six Months Ended  Exploration Stage) 
  June 30,  June 30,  to June 30, 
  2011  2010  2011 
CASH FLOWS FROM OPERATING ACTIVITIES:         
Net loss $(3,480,914) $(614,178) $(6,826,717)
Adjustments to reconcile net loss to net cash used by operating activities:            
Depreciation  32,255   2,481   55,025 
Common stock issued for services  136,841   -   530,007 
Accretion of debt discounts  230,217   33,639   235,888 
Accretion of prepaid interest  liability  61,513   -   21,513 
Accretion of repayment obligation  200,250   -   200,250 
Derivative liability changes  (23,328)  -   (23,328)
Loss on extinguishment of debt  2,149,404   -   2,149,404 
(Gain) loss on sale of marketable securities  -   129   (2,540)
Changes in operating assets and liabilities:          - 
(Increase) in deposits  -   -   (500)
(Increase) decrease in inventory  (16,900)  -   (16,900)
(Increase) decrease in accounts receivable  (439,519)  12,313   (439,519)
(Increase) decrease in prepaid expenses  20,079   (2,560)  (21,573)
Increase (decrease) in accounts payable  15,929   30,141   87,261 
Increase (decrease) in accrued liabilities - officer wages  -   (2,500)  (40,691)
Increase (decrease) in accrued expenses  37,511   (8,801)  70,626 
Increase (decrease) in interest payable  147,353   (3,750)  147,353 
Net cash used by operating activities  (929,309)  (553,086)  (3,874,441)
             
CASH FLOWS FROM INVESTING ACTIVITIES:            
Purchase of fixed assets  (9,960)  (92,989)  (421,554)
Purchase of mineral lease  -   (250)  (250,250)
Acquisition of reclamation bond  (13,000)  -   (50,500)
Notes receivable  -   -   27,500 
Proceeds from marketable securities  -   11,871   48,920 
Net cash used by investing activities  (22,960)  (81,368)  (645,884)

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

6


Desert Hawk Gold Corp.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)

        Period from 
        May 1, 2009 
        (Inception of 
  Six Months Ended  Exploration Stage) 
  June 30,  June 30,  to June 30, 
  2011  2010  2011 
CASH FLOWS FROM FINANCING ACTIVITIES:         
Proceeds from convertible notes payable  -   -   600,000 
Proceeds from notes payable  1,000,000   -   3,500,000 
Payment of note payable - equipment  (15,995)  -   (15,995)
Proceeds from issuance of common stock  -   2,590   1,008,000 
Proceeds from issuance of preferred stock  -   -   958 
Financing fees paid  (55,000)  -   (55,000)
Net cash provided by financing activities  929,005   2,590   5,037,963 
             
NET INCREASE (DECREASE) IN CASH  (23,264)  (631,864)  517,638 
CASH, BEGINNING OF PERIOD  566,549   888,434   25,647 
             
CASH, END OF PERIOD $543,285  $256,570  $543,285 
             
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 

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

7


Desert Hawk Gold Corp.
(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2011 and 2010



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, 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 Miningmining 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.  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 periodperiods presented. Operating results for the sixnine month period ended JuneSeptember 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.



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 JuneSeptember 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


8


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:

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 5)4).  Mineral properties are periodically assessed for impairment of value.


Inventories

Stockpiled ore


Concentrate inventory of mineralized material represents oremineralized 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, ourthe 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 JuneSeptember 30, 2011, common stock equivalents outstanding are 1,249,1431,563,843 and 1,958,033 shares of common stock into which the convertible debt (Note 5) and preferred stock (Note 3), respectively, can be converted.  However, the diluted earnings per share isare not presented because its effect would be anti-dilutive due to the Company’s recurring losses.


Going Concern


As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through JuneSeptember 30, 2011, 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.


9


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:

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.



8



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



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 during third quarter 2011.  At September 30, 2011, $316,125 had been raised through sales of 274,891 shares of common stock.  This 506 offering is expected to continue until January 31, 2012 or until 4,000,000 shares of common stock have been sold.  The shares offered and sold in 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.  


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 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 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.


10


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010

NOTE 3 - CAPITAL STOCK, Continued:

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.
·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:
oAmending the Articles of Incorporation or Bylaws of the Company or its subsidiary;
oEntering into another business;
oAdopting a new equity compensation plan or amending the current plan;
oRedeeming, retiring or acquiring the Company’s own securities;
oEntering into any merger transaction, selling, licensing or transferring any of the Company’s assets, or pledging or granting a security interest in its assets;
oEntering 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;
oDeclaring or paying any dividends on the Company’s equity securities;
oIssuing any debt or equity securities, except in certain limited circumstances;
oEntering 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;
oCreating any subsidiaries;
oDissolving, liquidating, or reorganizing the Company;
oCreating any new indebtedness in excess of $500,000 other than trade payables and the indebtedness created under the DMRJ Group Investment Agreement;
oFix or change the number of directors set in any resolution of the Board;
oMaking any loans or advances to any person other than ordinary business expenses not to exceed in the aggregate $15,000;
oGranting any registration, preemptive, anti-dilution, or redemption or repurchase rights with respect to any securities; and
oBorrowing 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.
11

·

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

For



·

The holders of the ThreeSeries A-1 and Six Months Ended June 30, 2011A-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 2010

NOTE 3 - CAPITAL STOCK, Continued:
·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.
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 JuneSeptember 30, 2011, 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 shares were issued during the quarter ended June 30, 2011, in connection with the Fourth Amendment 4 of the DMRJ Group financing arrangement (see Note 8).


NOTE 4 – MINERAL PROPERTIES

AND LEASES


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, and the Cactus Mill project consisting of an unpatented mill site.  Mineral extraction activities on the property will be open-pit and the Company does not anticipate conducting any underground mining activities.



10



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



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.


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.


In January 2010 the Company submitted a notice of intent to commence large mining operations 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.


12


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010

NOTE 4 – MINERAL PROPERTIES, Continued:

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.


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 concentrates intailings to recover additional tungsten is ongoing at this time.


Yellow Hammer Claims


The Company holds a Small Mine Permit from the Utah Division of Oil, Gas and Mining and has posted a reclamation bond of $37,500.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 fivenine acres.


Exploration Expenditures


Exploration expenditures incurred by the Company during the sixnine months ended JuneSeptember 30, 2011 and 2010 were as follows:


  June 30, 2011  June 30, 2010 
Assaying $12,219  $6,816 
Permitting  47,928   - 
Equipment rental  -   22,216 
Geological consulting fees  64,180   57,969 
Maps and miscellaneous  5,309   18,917 
Site development      75,762 
Total Exploration Expenditures $129,636  $181,680 

 

 

Sept. 30, 2011


Sept. 30, 2010

Assaying

$

 15,609

 $

 9,260

Permitting

 

 98,485

 

 -

Equipment rental

 

 -

 

 116,192

Geological consulting fees

 

 84,759

 

 168,794

Maps and miscellaneous

 

 5,782

 

 17,588

Site development

 

 -

 

 62,444

Total Exploration Expenditures

$

 204,635

 $

 374,278




11



Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements



NOTE 5–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 8).  The notes are convertible into potentially 857,143 shares of common stock, and principal and interest are due May 31, 2012, or 30 months from the date of issuance.  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. 

13


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010

NOTE 5–CONVERTIBLE DEBT, Continued:
Subsequent to quarter end, on

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 were eachhave been issued 10,71626,787 shares of stock each, valued at $.70, on July 5 to convert accrued interest for the months of May and  Junethrough September 2011.


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


NOTE 6 – COMMITMENTS


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 expensesexpense of approximately $80,000$86,000 as of JuneSeptember 30, 2011 associated with sales of concentrate during the sixnine months ended JuneSeptember 30, 2011.


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 has the right to repurchase the shares for $48,000, or during the 180-day period after this two year period, Clifton Mining will have 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.


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 3three months and four years and provides for base salary or fees of $120,000 per year.  The Company owes theowed $131,259 tothe CEO $0 and $131,259 at June 30, 2011 and December 31, 2010 respectively, to satisfy wagesfor 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.


14

12




Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2011 and 2010



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 June 30, 2011  December 31, 2010 
       
Put option $14,421  $26,396 
Conversion option $96,926  $- 

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 JuneSeptember 30, 2011:


  
Number of
Shares
  Volatility  
Risk-
Free Rate
  
Expected
Life
(in years)
  
Stock
price
 
Put option  60,824   117.0%  .40%  .66  $.70 
Conversion option  392,000   85.6%  .40%  1.14  $.70 

 

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 JuneSeptember 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. 


15


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010
NOTE 8 – DMRJ GROUP FUNDING, Continued:

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 I, LLC 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.


16


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010
NOTE 8 – DMRJ GROUP FUNDING, Continued:

On April 21, 2011, the Company entered into a Fourth Amendment to Investment Agreement with DMRJ Group.  This amendment allowsallowed 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 JuneSeptember 30, 2011 and December 31, 2010 is as follows:


  June 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  441,176   441,175 
   3,529,410   3,529,410 
Term Loan Advance Principal  1,000,000     
20% accrued repayment obligation  235,294     
15% accrued prepaid interest obligation  176,471   0 
   1,411,765   3,529,410 
Total  4,941,175     
Less related discounts and unamortized balances  436,807   1,768,827 
Carrying Value $4,504,368  $1,760,583 

 

 

 

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, $1,005,882$3,620,220 ($859,0363,608,614 net of discount) is due on JuneSeptember 30, 2012, and the remaining amount is due during the second half of the fiscal year ending 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.


17


Desert Hawk Gold Corp.
(An Exploration Stage Company)
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011 and 2010
NOTE 8 – DMRJ GROUP FUNDING, Continued:

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 2010 financial statementstatements for the year ended December 31, 2010, is summarized as follows:


        As 
  As  Correcting  Restated at 
  Initially Reported  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)

 

 

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 offering of up to 4,000,000 shares of common stock at $1.15 per share.  The offering is scheduled to terminate not later than September 30, 2011.on or before January 31, 2012.  No shares were sold prior to June 30, 2011.  As of August 5,September 30, 2011, the Company had raised $50,025$316,125 in gross proceeds from the offering and had issued 43,500274,891 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 in 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.




[THIS SPACE INTENTIONALLY LEFT BLANK]





18



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, 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:

·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).


19

·

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.


Overview


We are a mineral exploration company with proposed projects located in the Gold Hill Mining District in Tooele County, Utah.  We are currently focused on extracting mineralized material from the Yellow Hammer claims forclaimsfor 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.  We are also in the process of seeking an amendment to our current mill site permit to allow us to construct and operate a heap leach facility near the pilot mill.  Concentrates from our mill site arehave 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 located in Tooele County, Utah.  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.  We do not have any proven or probable reserves on any of our mineral claims or mining leases.


We have entered into an agreement with DMRJ Group, LLC through which we can borrow up to $6,500,000 for our mining operations and our general and administrative expenses.expenses, of which we have $3,000,000 remaining available to us upon reaching certain milestones.  Historically, we have incurred net losses for the years ended December 31, 2010 and 2009, and have also incurred losses for the sixnine months ended JuneSeptember 30, 2011.  If we are unable to generate sufficient cash flow from the extraction and processing of mineralized material from our claims, 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.


Second

Third Quarter Highlights


An NI 43-101 report titledIndependent Technical Report and Resource Estimate for the Desert Hawk Kiewit Project in Gold Hill Utah(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 at for the Kiewit project, including continued geological investigation 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 and secondthree quarters of 2011 we shipped concentrate from our mill to thea smelter in Hayden, Arizona, pursuant to a contract with a customer for up to 200 tons of mineral concentrates.  The assays are currently beingwere evaluated by an independent umpire who will determinedetermined the concentrates’ value.  This valuation will becontract has been completed in third quarter 2011.  Revenues fromwith the shipments are recognized atshipment of 193 tons of concentrate to the point that concentrates are shipped.  We estimatesmelter.  All revenues approximating $835,000 from this contract. We are obligated to paycontract have been received and all royalties to the Moeller Family Trust approximating $80,000 as a result of these anticipated revenues.

have been paid.


We also shipped tungsten concentrateconcentrates to a refinery in Buffalo, New York during second quarter 2011.  Revenue from this first shipment was approximately $50,000, with royalties paid to the Moeller Family Trust in the amount of approximately $3,000.  Tungsten shipments will be ongoing during 2011 as concentrate istailings are processed from our tailings.

to recover tungsten.  


20


On May 3,August 11, 2011, we entered intoposted a Fourth Amendmentbond in the amount of $26,700 with the Utah Division of Oil, Gas and Mining for the Herat Small Mine Permit, which was subsequently transferred to the Investment Agreement which restructures the repayment scheduleus from Clifton Mining on October 3, 2011.  This permit will allow for limited mining of the prior loanClifton Shears gold and silver veins.






During 2010 to 2011 draw advances to us. The Fourth Amendment allowed us to maketotaling $3.5 million were obtained through a further request for a term loan advance under the Investment Agreement of up to $735,295, including $110,295 of prepaid interest, and any remaining amounts previously permitted under the Third Amendment, without satisfying the provisions requiring us to meet certain milestones in connectionfunding agreement with our Kiewit properties and permitting us to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.DMRJ Group.  No additional advances were taken during third quarter 2011.  Term loan advances under the terms of the Fourth Amendment, repayment of this and all prior advances are now 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, 2011 is $4,607,342.  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 Hawk has consolidated net income.  


An equity financing in the form of a 506 offering was initiated in third quarter of 2011.  At September 30, 2011, this financing has raised $316,125 through sales of 274,891 shares of common stock.  This 506 offering is expected to continue until January 31, 2012 or until 4,000,000 shares of common stock have sold.  The shares offered and sold in 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.


Results of Operations for the SixThree and Nine Months Ended JuneSeptember 30, 2011 and 2010


During the sixthree and nine month periodperiods ended JuneSeptember 30, 2011, the Company had a net loss of $3,480,914$750,202 and $4,231,117, respectively, compared to a net loss of $614,178$1,538,868 and $2,153,046, respectively, during the sixthree and nine month periodperiods ended JuneSeptember 30, 2010.  This represents a decreased net loss of $788,666 for the three months ended September 30, 2011, and an increased net loss of $2,866,736$2,078,071 during the sixnine month period ended JuneSeptember 30, 2011.

 The decrease in net loss for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 is attributable to the reduction in exploration costs and general and administrative expense, including reductions in legal fees, and director and officer bonuses.  In addition, interest and financing costs for the three months ended September 30, 2011, also 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-product.by-products. These concentrates are processed at the Cactus Mill pilot plant.  Pursuant to this contract, the Company has delivered 193 tons of concentrate by the end of JuneSeptember 2011 and has billed $834,408$852,850 in accordance with the revenue contract.  Both parties conduct assays to determine the value of the concentrates.  If there is a dispute, the assays undergo further analysis by an independent umpire who determines the settlement value of the concentrates.  At JuneSeptember 30, 2011, all of the concentrates under this contract had been delivered to the smelter and all revenue had been billed based on estimated assay results.  Final resultsreceived and all proceeds are expected to be received within 90 days. The Company owes royaltiesrecognized.  Royalties were paid to the Moeller Family Trust on revenues earned from concentrate sales pursuant to termsin the amount of $83,337 as a Joint Venture Agreement.  The Company estimates approximately $80,000 in royalties will be paid in connection withresult of this concentrate sales contract.


In addition to the above contract, through September 30, 2011, the Company has generated $50,172 in tungsten sales.  Concentrates are being produced atsales with 6% royalties paid to the Cactus Mill and future sales are anticipated but are not definable at this time.  RoyaltiesMoeller Family Trust in the amount of 6%$3,010.  Tungsten shipments will be ongoing during 2011 as tailings are also dueprocessed to recover tungsten.  Tungsten concentrate inventory on tungsten sales.

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 JuneSeptember 30, 2011, mining severance tax is accrued in the amount of $3,081.  Future receipts based on the above proceeds will generate an additional accrual of approximately $3,400 in severance tax.

$6,654.


The increase in net loss is attributable to increases in exploration expense and general and administrative expense, and an increase in interest and financing expense related to the extinguishment of debt in regards to the investment agreement with DMRJ.

Total operating expenses increased to $1,568,501 during the six month period ended June 30, 2011, from $506,349 for the comparable period ended June 30, 2010.  The increase is primarily attributable to increased project costs including concentrate processing costs, and increased general and administrative expense over the respective six month period ended June 30, 2010.

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Liquidity and Cash Flow


Net cash used by operating activities was $929,309$960,339 during the sixnine month period ended JuneSeptember 30, 2011, compared with $553,086$1,920,073 during the sixnine month period ended JuneSeptember 30, 2010.  The increasedecrease in the amount of cash used by operating activities is primarily attributable to the increase in accretion of debt discount and other repayment obligations related to the DMRJ Investment Agreement, to the loss on extinguishment of debt and the discounts related to the increase in accounts receivable in relation to concentrate sales during the six months ended June 30, 2011.

that debt.   


Net cash used by investing activities was $22,960$152,173 during the sixnine month period ended JuneSeptember 30, 2011, compared to $81,368$338,909 during the sixnine month period ended JuneSeptember 30, 2010.  The decrease in cash used by investing is attributable to a reduction in the purchase of fixed assets during the sixnine month period ended JuneSeptember 30, 2011.






Net cash provided by financing activities was $929,005$1,245,130 during the sixnine month period ended JuneSeptember 30, 2011, compared with $2,590$1,780,248 during the sixnine month period ended JuneSeptember 30, 2010. The increasedecrease is primarily a result of additional borrowingsless borrowing from DMRJ along with the associated debt discountGroup during the sixnine months ended JuneSeptember 30, 2011.


As a result, cash decreasedincreased by $23,264$132,618 during the sixnine month period ended JuneSeptember 30, 2011, leaving the Company with a cash balance of $543,285$699,167 as of JuneSeptember 30, 2011.


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 productionunits-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.



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.


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Item 4.  Controls and Procedures


Evaluation of Disclosure Controls 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 JuneSeptember 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.






PART II – OTHER INFORMATION


Item 1A. Risk Factors

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 additionJuly and September 2011, we issued 26,787 shares of stock, valued at $.70, to each of the note holders to convert accrued interest for the months of May through September 2011.  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) and/or Section 4(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 other information described elsewhere in this report, you should carefully consider the following risk factors, which could materially adversely affect our business, financial condition and resultsimposition of operations.


Risks Related to Our Company and its Business

If we fail to repay the loan advances from DMRJ Group in a timely manner or otherwise breach our agreement with this lender, we would likely lose our interest in our mining leases and other assets.

Our loan advances from DMRJ Group under the Investment Agreement are secured by all of our assets, including our mining leases and equipment.   Repayment of loan advances commences June 30, 2012.  The Investment Agreement also contains numerous affirmative and negative covenants which require us to perform certain obligations or refrain from certain actions so long as any amounts are owed to DMRJ Group under the Investment Agreement.  If we fail to meet all of our covenants under the agreement or if we fail to make any required payment of principal or interest when due, it is likely that DMRJ Group would call the full amount of the outstanding balances on our loans immediately due.  If we are unable to repay the outstanding balances at this time, we anticipate that DMRJ Group would foreclose on its security interest and would likely take control of or liquidate our mining leases and other assets.  Because the Investment Agreement limits our ability to raise outside funds during the effective period of the Investment Agreement, it is unlikely that we would be able to obtain alternate financing to satisfy the obligations owed to DMRJ Group in the event of foreclosure.  If we lose our mining leases and other assets to DMRJ Group in foreclosure, we would not be able to continue our business operations as currently planned and you would lose your entire investment in our common stock.

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Because of our historic losses from operations since the inception of our exploration stage on May 1, 2009, there is substantial doubt about our ability to continue as a going concern.

Our auditor’s report on our 2010 consolidated financial statements includes an additional explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern.  These consolidated financial statements for the year ended December 31, 2010,were prepared on the basis that our company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations.  Our ability to continue as a going concern is uncertain and dependent upon continuing to obtain the financing necessary to meet our financial commitments and to complete the exploration of our mining properties and/or realizing proceeds from the sale of mineralized material from the properties.  Our continuation as a going concern is primarily dependentrestrictive legends upon the continued financing from DMRJ Group understock certificates representing the Investment Agreement andshares.  Each investor represented that it had not entered into the attainment of profitable operations. As of June 30, 2011, we had cash in the amount of $543,285, negative working capital of $756,784, and accumulated losses of $6,826,717 since inception of our current exploration stage.  These factors raise substantial doubt regarding our ability to continue as a going concern.  Neither our 2010 audited financial statements nor our interim unaudited financial statements for the six months ended June 30, 2011, include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

If we are unable to generate sufficient revenue from the sale of mineralized material from the Yellow Hammer claims, we will likely not be able to continue our operations.

We commenced producing metals from our properties during first quarter 2011. Nevertheless, our properties are all exploration stage properties in various stages of exploration and we have no proven or probable reserves on any of these properties.The first phase of our business plan is to process mineralized material from the Yellow Hammer claims at the pilot plant and continue to sell any concentrate produced bytransaction with us from the Cactus Mill pilot plant.  We have not completed any feasibility study of the Yellow Hammer claims and there are no known or established commercially minable deposits for extraction on these claims and no known mineral deposit which could be economically extracted.  If the mineralized material from the Yellow Hammer claims fails to produce concentrate that can be sold at a profit for a sufficient period to repay our outstanding debt to DMRJ Group and others, it is unlikely that we would be able to continue any operations or explore our other mining properties and it is probable that our proposed business would fail.

We have a history of losses and are dependent upon revenue from our planned operations through our Cactus Mill pilot plant to continue our proposed operations.

In the fiscal year ended December 31, 2010, we had net losses of $2,859,610.  For the six months ended June 30, 2011, we had net losses of $3,480,914.  Since the commencement of our exploration stage on May 1, 2009, we have experienced accumulated losses of $6,826,717. We have commenced commercial production only on our Yellow Hammer claims. We have limited revenues from operations and anticipate we will have no significant operating revenues until we commence mineralized material processing operations on more of our properties.  All of our properties are in the exploration stage, and we have no known mineral reserves on our properties.  Even if we generate revenue from mineralized material on the other claims, we may not achieve or sustain profitability in the future.  If we do not begin to generate revenues before our current cash resources expire, we will either have to suspend or cease operations.

Although we have commenced the processing of mineralized material from the Yellow Hammer claims, we do not have any proven or probable reserves on this site.  As a result we may not be able to locate mineral deposits or reserves on this site which could be economically and legally extracted or produced.

Our first phase of proposed operations includes processing mineralized material from our Yellow Hammer claims at our pilot plant on our Cactus Hill property.  Nevertheless, we have not identified any proven or probable reserves on these claims which make these extraction operations on them very speculative.  If we are not able to continue to locate mineralized material which can be economically extracted and produced, the funds we spend on these claims may be lost, which could have a material negative impact on our ability to continue operations.

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Changes in the market prices of copper, gold and other metals, which in the past have fluctuated widely, will affect the profitability of our proposed operations and financial condition.

Our potential profitability and long-term viability depend, in large part, upon the market price of copper, gold and other metals and minerals which may be extracted from our mining claims and leases. The market price of copper, gold and other metals is volatile and is impacted by numerous factors beyond our control, including:
·expectations with respect to the rate of inflation;
·the relative strength of the U.S. dollar and certain other currencies;
·interest rates;
·global or regional political or economic conditions;
·supply and demand for jewelry and industrial products containing metals; and
·sales by central banks and other holders, speculators and producers of gold and other metals in response to any of the above factors.

We cannot predict the effect of these factors on metal prices.  In particular, gold and copper prices have fluctuated during the last several years. The price of copper (London Fix) has ranged from approximately $2.78 to approximately $4.41 per ounce during 2010 to close on December 31, 2010 at approximately $4.41 per ounce. During the first six months of 2011, the price has ranged from approximately $4.15 to $4.46 per ounce to close on june 27, 2011 at approximately $4.45.  The price of gold (London Fix) has ranged from  from $1,052 to $1,426 per ounce during 2010 to close on December 31, 2010 at $1,410 per ounce.  During the first six months of 2011, the price of gold has ranged from approximately $1,316 to $1,552 per ounce to close at approximately $1,552 per ounce on June 27, 2011.  A decrease in the market price of copper, gold and other metals could affect the commercial viability of our properties and our anticipated exploration of such properties in the future. Lower copper or gold prices could also adversely affect our ability to finance exploration of our properties.

In addition, the makeup of gold investors and users has changed significantly which has affected the price of gold in particular in recent years.  Historically, the demand for gold was driven by the needs of jewelers, dentists and electronics manufacturers who used gold in their businesses.  In 1998 investors in gold accounted for only 6.9% of demand.  During 2009 they accounted for 39% and in the second quarter of 2010, they accounted for 51%.  During the first quarter of 2009, when the stock market was at its lowest, investors accounted for 60% of the demand for gold.  This shift in demand for gold could mean that positive changes in the macro-economy could lead investors to sell gold in large quantities, which could result in dramatically decreased demand and lower prices for gold.  These lower prices could have a negative impact on our proposed business.

We have significant cash commitments under our lease agreements and if we fail to meet these obligations, we could lose our right to conduct mining activities on these claims.

Under our current lease agreements for our claims in the Gold Hill Mining District, we are obligated to commence operations of the claims within three years and pay annual maintenance costs on the claims.  The annual claim maintenance costs, including annual maintenance fees payable to the BLM for the unpatented claims, the annual state trust lands mineral lease fees, and property tax payments are substantial.  For 2010 and following years we are responsible for these costs.  If we fail to make these maintenance, tax and other payments, we may lose the right to continue mining activities on the claims.  In addition, pursuant to the terms of our lease agreements, if we fail to commence commercial scale operations on certain of the claims prior to July 2012, we will be required to pay $50,000 for an annual holding fee to retain rights to these claims.  We have paid the 2010 maintenance costs in the aggregate amount of $46,760 for the unpatented claims in the Gold Hill Mining District.  We also paid $6,890 for the 2010 mineral lease fees on the Utah mineral leases.  We also paid $6,024 for 2010 property taxes on the Utah patented claims.  We anticipate that future annual fees will be comparable, and if we are unable to pay these fees from DMRJ Group loan advances or revenue generated from our extraction activities in the future, we would lose our interest in all of our claims and leases.

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We may not be able to obtain all required permits and licenses to commence exploration activities on our properties, or the permitting process could be delayed, which could cause delays in our proposed plan of operations or increase the cost of those planned operations.

Our current proposed and future operations, including the initial extraction and processing of mineralized material from our Yellow Hammer claims, require permits from governmental authorities and such operations are and will be governed by laws and regulations governing exploration, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in exploration of mining properties and related facilities generally experience increased costs, and delays in these activities and other schedules 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 needopportunity to comply with applicable laws, regulations and permits.  Our current Small Mining Operations Permit for the Yellow Hammer claims is limited to operations in an area within five acres.  Management anticipates that this permit will be sufficient for planned extraction activities on the Yellow Hammer claims for only one to three years and would not permit commencement of operations on the Kiewit claims.  We do not have in place the necessary permits to commence operations on the Kiewit claims.  A Large Mining Operations Permit for the Kiewit claims will require an extensive environmental assessment or preparation of a Plan of Operation.  We have a permit to operate our proposed pilot plant on the Cactus Mill property, but do not have the required permits to add a planned heap leach facility near this property or for the Kiewit claims.  We cannot predict if all permits which may be required for continued exploration activities or construction of facilities will be obtainable on reasonable terms or within the periods planned by us. Costs related to applying for and obtaining permits and licenses may be prohibitive and could delay our planned exploration activities. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.

Our activities are subject to environmental laws and regulations that may increase our costs of doing business and restrict our planned mineral extraction and processing activities.

All phasesask questions of our planned mineral extractionmanagement and processing activities are subject to environmental regulation inreceive answers concerning the jurisdictions in which we operate, in particular Tooele County, Utah. Environmental legislation is evolving in a manner which will require stricter standardsterms and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessmentsconditions of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations.  A Large Mining Operations Permit for our Kiewit claims will also require an extensive environmental assessmenttransaction.  No underwriting discounts or preparation of a Plan of Operation.  Compliance with environmental laws and regulations and future changes in these laws and regulations may require significant capital outlays and may cause material changes or delays in our operations and future activities. It is possible that future changes in these laws or regulations could have a significant adverse impact on our properties or some portion of our business, causing us to re-evaluate those activities at that time.

Land reclamation requirements for our properties may be burdensome and expensive.

In addition to the current reclamation bonds posted by us, we will likely have additional reclamation requirements associated with our Large Mining Operations Permit for which we have applied for the Kiewit claims.  Reclamation requirements by governmental authorities are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance.Reclamation may include requirements to control dispersion of potentially deleterious effluents andreasonably re-establish pre-disturbance land forms and vegetation.In order to carry out reclamation obligations imposed on uscommissions were paid in connection with the stock issuance.


In June 2011 we commenced a non-public offering of up to 4,000,000 shares our potential exploration activities,common stock at $1.15 per share.  During the quarter ended September 30, 2011, we must allocate financial resources that might otherwise be spentsold 274,891 shares for gross proceeds of $316,125.  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) and/or Section 4(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 further exploration programs. If we are requiredJuly 18, 2011, for this offering.  Sales were made to carry out unanticipated reclamation work, our financial position could be adversely affected.


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We are dependenta total of 10 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 services of our President to providestock certificates representing the principal mining expertise for our proposed exploration activities.  The loss of Mr. Havenstrite could delay our business planshares.  Each investor represented that he or increaseshe had not entered into the costs associatedtransaction with our plan.

Other than our President, Rick Havenstrite, our officers and directors have no professional accreditation or formal training in the business of mineral exploration. With no direct training or experience these other members of our management team may not be fully aware of many of the specific requirements related to working within this industry. Decisions so made without this knowledge may not take into account standard engineering management approaches that experienced exploration corporations commonly make. Consequently, our business, earnings and ultimate financial success could suffer irreparable harmus as a result of management’s lack of experienceor 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 industry.  The lossopportunity to ask questions of our President could adversely affect our business.  We have an employment agreement with Mr. Havenstrite for an initial period of four years until 2014.  However, we do not maintain key-man insurance on Mr. Havenstrite.  We may not be ablemanagement and to hirereceive answers concerning the terms and retain personnel in the future, or the cost to retain replacement personnel may be excessive, in the event Mr. Havenstrite becomes unavailable for any reason.

Title to our properties may be subject to other claims, which could affect our property rights and claims.

There are risks that title to our properties may be challenged or impugned.  Our principal properties are located in Utah and may be subject to prior unrecorded transfer agreements and royalty rights and title may be affected by other undetected defects. There may be valid challenges to the title of our properties which, if successful, could impair exploration operations on the claims. This is particularly the case in respect of our properties through which we hold our interest solely pursuant to leases with the claim holders, as such interests are substantially based on contract as opposed to a direct interest in the property.

Severalconditions of the mineral rights to our properties consist of unpatented mining claims created and maintained in accordance with the U.S. General Mining Law. Unpatented mining claims are unique property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the U.S. General Mining Law, including the requirement of a proper physical discovery of valuable minerals within the boundaries of each claim and proper compliance with physical staking requirements. Also, unpatented mining claims are always subject to possible challenges by third partiestransaction.  No underwriting discounts or validity contests by the federal government. The validity of an unpatented mining or mill site claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law. In addition, there are few public records that definitively determine the issues of validity and ownership of unpatented mining claims. Should the federal government impose a royalty or additional tax burdens on the properties that lie within public lands, the resulting mining operations could be seriously impacted, depending upon the type and amount of the burden.

We do not maintain insurance with respect to certain high-risk activities, which exposes us to significant risk of loss.

Mining operations generally involve a high degree of risk. Hazards such as unusual or unexpected formations or other conditions are often encountered.  We may become subject to liability for pollution or hazards against which we cannot insure or against which we cannot maintain insurance at commercially reasonable premiums. Any significant claim would have a material adverse effect on our financial position and prospects.   We are not currently covered by any form of environmental liability insurance, since insurance against such risks, including liability for pollution, is prohibitively expensive.  We may have to suspend operations or take interim cost compliance measures if weare unable to fully fund the cost of remedying an environmental problem, if any of these uninsured eventscommissions were to occur.

A shortage of equipment and supplies could adversely affect our ability to operate our business.

We are dependent on various supplies and equipment to carry out our exploration activities.  These include crushing services for mineralized material from our Yellow Hammer claims, road grading services, chemicals and maintenance equipment for our pilot plant, and parts and supplies for our extraction and hauling equipment.  We have no long-term agreements to provide these supplies or services.  The shortage of such supplies, equipment and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the cost of our exploration activities.

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Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing gold or other metals. We may be at a competitive disadvantage in acquiring additional mining properties even in the Gold Hill Mining District because we must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than we have. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs, mining equipment and production equipment. Increased competition could adversely affect our ability to attract future capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

We compete with larger, better capitalized competitors in the mining industry.

The mining industry is competitive in all of its phases, including financing, technical resources, personnel and property acquisition. It requires significant capital, technical resources, personnel and operational experience to effectively compete in the mining industry. Because of the high costs associated with exploration, the expertise required to analyze a project’s potential and the capital required to explore a mine, larger companies with significant resources may have a competitive advantage over us. We face strong competition from other mining companies, in particular Rio Tinto which operates a large copper mine in the area, some with greater financial resources, operational experience and technical capabilities than we have. As a result of this competition, we may be unable to maintain or acquire future financing, personnel, technical resources or attractive mining properties on terms we consider acceptable or at all.

Increased commodity and labor costs could affect our financial condition.

We anticipate that costs at our Gold Hill projects will frequently be subject to variation from one year to the next due to a number of factors, such as changing grades of mineralized material, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the mineral body. In addition, costs are affected by the price of commodities such as fuel, chemicals and electricity as well as labor costs. Such commodities are at times subject to volatile price movements, including increases that could make exploration activities at certain operations less profitable. We do not have firm contracts or commitments for the commodities or all laborpaid in connection with the exploration or extraction activities on the mining claims.  A material increase in these costs could have a significant effect on our cost of operations and potential profitability.

Transportation difficulties and weather interruptions may affect and delay proposed activities and could impact our proposed business.
Our mining properties are accessible by road and there are no other means of transportation available such as rail or navigable water ways. The climate in the area is hot and dry in the summer but cold and subject to snow in the winter, which could at times hamper accessibility depending on the winter season precipitation levels.  Significant snowfall could make accessing our properties difficult or impossible by truck.  As a result, our exploration plans could be delayed for certain periods each year. These delays could affect our ability to process and transport mineralized material from the claims to the pilot plant which could have a material impact on our ability to generate revenue.

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Our directors and officers may have conflicts of interest as a result of their relationships with other companies.

Certain of our officers and directors are also directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, exploring and exploiting mining properties. For example, John Ryan, one of our directors, also serves as a director for Gold Crest Mines, Inc., Trend Mining Company, Lucky Friday Extension Mining Company, Inc., Mineral Mountain Mining and Milling Company, Tintic Standard Gold Mines, Inc., Consolidated Goldfields, Inc., and Silver Verde May Mining Company, Inc.  Consequently, there is a possibility that our directors and/or officers may be in a position of conflict in the future.  In addition, our President, Rick Havenstrite, dedicates part of his time to operating his overhead door business in Reno, Nevada, which means that he is not able to devote all of his business time to our company.

We do not have water currently available in sufficient quantity to operate our planned leaching facility near the Kiewit claims, and if we are unable to produce sufficient water, we may not be able to commence planned activities on these claims.

The Kiewit claims are located in an arid high desert climate with no other water source than may be provided through a well.  We have not tested the area near the claims for the proposed well or any other water source sufficient to operate the planned Kiewit leaching facility.  In addition, if the water table for the planned well is deeper than we estimate, the cost of constructing and maintaining the well may increase.  If we are unable to locate a suitable water source by means of the proposed well or otherwise, we may not be able to proceed with our proposed activities on the Kiewit claims, which could also affect our ability to secure necessary operating permits for the leaching facility and future loan advances from DMRJ.

Risks Related to Our Common Stock

There is currently no public trading market for our common stock which means that our shareholders must hold their shares in our company for an indefinite period.

Our common stock is not quoted on either the OTC Bulletin Board or the Pink Sheets and is not listed on any exchange.  Until the common stock is quoted on an electronic quotation service or listed on an exchange, it is unlikely that any public market for the common stock will be established.  It is possible that our company would not qualify for listing on a stock exchange in the near future, if ever.  Application for quotation on an electronic quotation service requires finding a market maker willing to make the application.  The application process entails review by FINRA, the self-regulated industry processer of these applications, and may take several months.  We have not identified any broker-dealers who may be willing to make application on our behalf.

Because our shares are designated as Penny Stock, broker-dealers will be less likely to trade in our stock in the future due to, among other items, the requirements for broker-dealers to disclose to investors the risks inherent in penny stocks and to make a determination that the investment is suitable for the purchaser.

Our shares are designated as “penny stock” as defined in Rule 3a51-1 promulgated under the Exchange Act and thus, if a public market for the stock develops in the future, may be more illiquid than shares not designated as penny stock.  The SEC has adopted rules which regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks are defined generally as non-NASDAQ equity securities with a price of less than $5.00 per share; that are not traded on a “recognized” national exchange; or in issuers with net tangible assets less than $2,000,000, if the issuer has been in continuous operation for at least three years, or $10,000,000, if in continuous operation for less than three years, or with average revenues of less than $6,000,000 for the last three years.  The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject to the penny stock rules.  Since our securities are subject to the penny stock rules, investors in the shares may find it more difficult to sell their shares in any market which may develop in the future.  Many brokers have decided not to trade in penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  The reduction in the number of available market makers and other broker-dealers willing to trade in penny stocks may limit the ability of purchasers in this offering to sell their stock in any secondary market which could develop in the future.  These penny stock regulations, and the restrictions imposed on the resale of penny stocks by these regulations, could adversely affect our stock price if a public trading market for our stock is established in the future.

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We have a significant number of shares of our preferred stock authorized which are convertible into shares of our common stock and which, if convertible, could adversely affect any public trading market for our shares which may develop in the future.

We have authorized 10,000,000 shares of Series A Preferred Stock, 958,033 shares are issued and outstanding, which are currently convertible into a like number of common shares.  We also have authorized 2,500,000 shares of Series A-1 Preferred Stock and 1,000,000 shares of Series A-2 Preferred Stock.  The Series A-1 Preferred Stock, none of which are outstanding, would be convertible into 25,000,000 common shares.  The Series A-2 Preferred Stock, 100,000 shares of which are issued and outstanding, would be convertible into 10,000,000 common shares.  The conversion of all or a significant amount of these preferred shares could have a material negative impact on the market price for our common stock if a public market for the stock is established in the future.

We have not paid, and do not intend to pay, dividends on our common shares and therefore, unless our common stock appreciates in value, our investors may not benefit from holding our common stock.

We have not paid any cash dividends since inception.  We do not anticipate paying any cash dividends on our common stock in the foreseeable future.  In addition, provisions in our Investment Agreement with DMRJ Group restrict our ability to declare and pay dividends on common stock as long as we have outstanding obligations to DMRJ Group.  Nevertheless, if our common stock is not quoted on the OTC Bulletin Board or listed on a senior exchange on or before July 13, 2011, and during any period we fail to maintain a quotation or listing for our common stock, the holders of the Series A Preferred Stock shares are entitled to quarterly dividends equal to 10% of our consolidated net income for each quarter commencing with the quarter beginning July 1, 2011.  In addition they are entitled to dividends or distributions made to the holders of our common stock to the same extent as if such holders of the Series A shares had converted their preferred shares into common stock.As a result, our common stock investors will not be able to benefit from owning our common stock unless a market for our common stock develops in the future and the market price of our common stock becomes greater than the price paid for the stock by these investors.

Any public trading market for our common stock which may develop in the future will likely be a volatile one and will generally result in higher spreads in stock prices.

If a public trading market for our common stock develops in the future, it would likely be in the over-the-counter market by means of the OTC Bulletin Board.  The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods.  These broad market fluctuations and other factors, such as our ability to implement our business plan pertaining to the Gold Hill properties, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our common stock.  In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on the NASDAQ or other exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges.  Significant spreads between the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers.  We cannot insure that our trading volume will be sufficient to significantly reduce this spread, or that we will have sufficient market makers to affect this spread.  These higher spreads could adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers.  Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, the investor could lose money on the sale.  For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks.  There is no assurance that at the time the investor wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale.

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Rule 144 will not be available for the outstanding shares acquired after 1995 until at least January 26, 2012, which means that these shareholders may not be able to sell their shares in the open market during this period.

Rule 144, as recently amended, does not permit reliance upon this rule for the resale of shares sold after the issuer first became a shell company, until the issuer meets certain requirements, including cessation as a shell company, the filing of a registration statement, and the filing for a period of one year periodic reports required under the Exchange Act.  Our registration statement on Form S-1 was declared effective by the Securities and Exchange Commission on January 26, 2011.  We have since filed a special report on Form 10-K to include our audited financial statements for the year ended December 31, 2010, and our first two quarter reports on Form 10-Q for the periods ended March 31, 2011 and June 30, 2011.  If we fail to continue to file our periodic reports with the Commission, our shareholders who acquire stock after 1995 may not be permitted to rely on Rule 144 for the resale of their shares.

sales.


Item 6.Exhibits

6.  Exhibits


SEC Ref. No.

Title of Document

31.1

31.1

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

32.1

32.1

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer

101. INS

XBRL Instance Document

101. SCH

XBRL Taxonomy Extension Schema Document

101. CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101. DEF

XBRL Taxonomy Extension Definition Linkbase Document

101. LAB

XBRL Taxonomy Extension Label Linkbase Document

101. PRE

XBRL Taxonomy Extension Presentation Linkbase Document





Signature Page Follows


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SIGNATURES


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 7,2011

By:/s/ Robert E. Jorgensen

Robert E. Jorgensen, Chief Executive Officer

(Principal Executive and Financial Officer)





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Desert Hawk Gold Corp.
Date: August 11, 2011By /s/ Robert E. Jorgensen
Robert E. Jorgensen, Chief Executive Officer
(Principal Executive and Financial Officer)
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