NOTE 89 – NOTES PAYABLE – EQUIPMENT

The following is a summary of the equipment notes payable:

During the first quarter 2015, an accounts payable balance of $150,375 relating to lease costs for equipment was converted to Notes payable – equipment, when the Company acquired the equipment.

In November 2016, five pieces of mining equipment financed by CAT Financial were repossessed by CAT. The equipment had an original cost of $1,500,888 and accumulated depreciation of $366,288, for an adjusted balance of $1,134,600. The note payable due to CAT at the time of disposition was $960,585. On July 31, 2017, a new agreement was made as explained in Note 15 – Subsequent Events.

NOTE 910 – NOTE PAYABLE - RELATED PARTY

DMRJ Group beneficially owns approximately 77% of the Company (on a fully-diluted basis) with Series A, A-2 and B preferred shares convertible to 47,211,002 shares of common stock (See Note 3). They are considered a related party. In July 2010, the Company entered into an Investment Agreement with DMRJ.DMRJ Group. The Agreement has been modified numerous times and currently operatesat September 30, 2016 operated under the Thirteenth Amendment to the Investment Agreement dated August 31, 2015. The Amendments have provided for extensions of payment dates, increased funding capacity and other modifications to the debt agreement.

The total due to DMRJ Group at March 31,September 30, 2016 and December 31, 2015 is as follows:

The Investment Agreement contains certain negative covenants which prohibit us from the following actions or activities:

At March 31,September 30, 2016, the Company has failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the default and has indicated it has no present intent to declare an event of default under the Investment Agreement, as amended.

2016 Activity

Several term loan advances were received from DMRJ Group by the Company between February 9, 2016 and March 21,September 30, 2016 totaling $550,000. These$720,000. Included in that, a loan payment of $900,000 was made to DMRJ on July 8, 2016 and a draw was received on July 14, 2016 in the amount of $600,000. The advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to DMRJ Group. These funds were used for working capital and equipment debt repayment.

In the third quarter of 2016, control of the management of DMRJ Group, LLC was given to court appointed trustees of the two major funds of Platinum Partners. DMRJ Group is a fund managed by Platinum-related entities. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). See Note 15 – Subsequent Events for additional details of this development.

2015 Activity

An Eleventh Amendment to the Investment Agreement was entered into on March 17, 2015 which established new minimum principal and interest payment dates which were thenlater revised with the Twelfth and Thirteenth Amendments to the Investment Agreement. The Twelfth Amendment was entered into on June 5, 2015 and allowed for additional funding in the amount of $850,000 for the purpose of additional working capital, financing of the expansion into the east extension of the current pit boundary and to provide for crushing equipment to allow crushing to be done in-house.

The Thirteenth Amendment to the Investment Agreement was entered into on August 31, 2015 and allowed for additional funding of up to $525,000. In 2015, a total of $925,000 hashad been loaned to the Company pursuant to the Twelfth and Thirteenth Amendments. This funding was used for working capital and to prepare for a drilling program within the existing boundary of the Kiewit Exploration Permit. The Thirteenth Amendment also established new minimum principal and interest payment dates beginning in June 2016 as follows, with the remaining balance to be due thereafter, pursuant to the terms of the Tenth Amendment, whereby all funds in excess of $200,000 working capital, are to be remitted on a quarterly basis in payment of the remaining loan payable:

Regardless of the above minimum payment schedule, the loan from DMRJ Group has a due date of October 31, 2016. The Company’s ability toCompany did not meet these minimum payments will be dependent upon a numberthis payment date and is in default of factors including production variables, metals market pricing, demand for products and services,the Note and the availability of opportunities for expansion through affiliations and other business relationships.Investment Agreement (see Note 15).

NOTE 1011 – STOCK REDEEMABLE WITH GOLD PROCEEDS

An equity financing was initiated in September 2012 for the sale of up to 1,150,000 shares of the Company’s common stock. This offering closed December 31, 2012 with proceeds of $130,000 raised through sales of 130,000 shares of the Company’s common stock. Under the terms of this offering, the shares can be redeemed for cash generated from the sale of gold for a period of 12 months after commencement of operations at the Kiewit project. Proceeds from 5% of the gold produced during the first year of production will be allocated to fund this option. Shares will be converted on whole ounces only. Each investor received the right to convert a minimum of one-half and up to all of his shares (on a pro rata basis) into the value of the number of ounces represented by the total investment, determined using a base price of $1,000 per ounce. Due to the redemption feature of these shares, management has concluded that the conversion shares should be recorded as a liability and not as equity.

Once sales of concentrate began in 2014, all investors in this equity financing optedhad the option to convert their shares for cash from 5% of the gold sales. Based on the sales, price of gold sold during the conversion period, $151,406 in gold proceeds isand all parties chose to convert. Amounts due to be paid to investorsthese shareholders are disclosed in the following table. The share conversion is complete at March 31, 2016 and December 31, 2015. Of the amounts payable, $130,000 represents return of the funds originally invested, and the remaining $21,406 represents the difference between the $1,000 per ounce that the investors paid for the gold shares and the net sales price of the gold allocated to this financing. Offsets against revenue for $12,797 and $8,609, respectively was recognized during the years ended December 31,June 30, 2015 and 2014. Payments of these fundsamounts due to investors have not yet begun, due to cash flow, andshareholders are includedpast due. These amounts are reflected in accountsthe financial statements with ‘Accounts payable and accrued liabilities. These shares will not be cancelled until final payment is made. It is anticipated that these payments will be made in 2016.expenses’.

NOTE 1112 – REMEDIATION LIABILITY AND ASSET RETIREMENT OBLIGATION

Remediation, reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. In calculating the present value of the asset retirement obligation the Company used a credit adjusted risk free interest rate of 8% to 10% and projected mine lives of five to 12 years, depending on the site. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.

Changes in the reclamation liability for the periods ended March 31,September 30, 2016 and December 31, 2015 are as follows:

NOTE 1213 – RELATED PARTY TRANSACTIONS

The Company recognized rent expense for rental of office space of $3,000$9,000 for the threenine months ended March 31,September 30, 2016 and 2015, respectively, to be paid to RMH Overhead, LLC, a company owned by Rick Havenstrite, the Company’s President and a director. Of the amounts recognized as expense, RMH Overhead, LLC was paid $3,000$8,000 and $9,000 during the quarters ending March 31,nine months ended September 30, 2016 and 2015, respectively, leaving a total of $14,750 and $13,750 remaining in accounts payable at MarchSeptember 30, 2016 and December 31, 2016 including2015, respectively, which represents amounts due from prior years. In addition, the Company purchased equipment for $16,500 from Overhead Door Co. of SNR, another company owned by Rick Havenstrite, during 2014, $12,000 of which remains unpaid at March 31, 2016. The Company additionally owes $2,401 to Rick Havenstrite at March 31, 2016 for supplies purchased by him for the Company during 2015, and $3,600 to Overhead Door Co. of SNR for expenses incurred on behalf of the Company during the first quarter of 2016. All of these amounts are reflected in the accounts payable for the Company.

During the quartersnine months ended March 31,September 30, 2016 and MarchDecember 31, 2015, the Company recognized wage expense of $15,000,$45,000, respectively, for office and accounting services performed by Marianne Havenstrite, wife of Rick Havenstrite, who became an officer of the Company during 2013. Part of these amounts, in combination with amounts from prior years, total $71,192totaling $98,885 and $28,500 remaining$56,193 remained unpaid at March 31,September 30, 2016 and December 31, 2015, respectively and is reflected in accrued liabilities – officer wages.

During the threenine months ended March 31,September 30, 2016 and 2015, the Company recognized general project cost expense of $6,667$10,627 and $6,958,$3,105, respectively, for geological services provided by Stuart Havenstrite, the father of Rick Havenstrite. $35,407$39,367 and $20,901$28,740 remain unpaid to Mr. Havenstrite at March 31,September 30, 2016 and MarchDecember 31, 2015. These amounts are included in accounts payable at those dates. Payments were also made to other family members of Rick and Marianne Havenstrite for the threenine months ended March 31,September 30, 2016 and December 31, 2015 for accounting and engineering services in the amount of $18,440$56,984 and $21,460,$81,692, respectively.

On June 20, 2016, the Company entered into an Equipment Lease Agreement with RMH Overhead, LLC, a company owned by Rick Havenstrite. RMH Overhead, LLC agreed to lease to the Company several pieces of crushing equipment, including a screen plant and four conveyor belts, along with a trackhoe previously owned by the Company. The terms of the lease are payments of $9,212 per month for 24 months, with an effective interest rate of 15%, after which the Company will take ownership of the equipment. The equipment can be purchased from RMH Overhead, LLC at any time without penalty. At September 30, 2016 and December 31, 2015, the remaining amount payable on leased equipment liability is $178,938 and $-0-.

The Thirteenth Amendment to the Investment Agreement with DMRJ Group, a fund owned by Platinum Partners’ Credit fund (PPCO), (see Note 10) dated August 2015, contained provisions for shares of common stock to be issued to the Company’s President, Rick Havenstrite, if he operates within 10% of the approved operating budget over twelve months from the date of the amendment. The number of shares to potentially be issued to the Company’s President will be equal to 2.5% of the amount of fully outstanding shares of the Company on a fully diluted basis. These shares have not been issued.

NOTE 1314 – COMMITMENTS AND CONTINGENCIES

Mining Properties

During the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the lease of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah.  Pursuant to the agreement, 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 penalty payments to the Trust of $50,000.  The Yellow Hammer operated for several months in 2011.  Under the terms of the Joint Venture Agreement, the Company is 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.  There were no sales and no royalty expense on this property to date in 2016 or in 2015. NoSee Note 15.

A letter of default was received from the Moeller Family Trust in September 2016 demanding the past due penalty payment. The payment has beenwas not made and the property was returned to the Moeller Family Trust. The mineral property lease in the amount of $175,000 less accumulated amortization of $37,214 was recognized as a loss on this property and no official forfeiture notice has been received regarding this nonpaymentabandonment in the amount of the annual penalty payment.$137,766 at September 30, 2016.

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 lease of their property interests in the Gold Hill Mining District of Utah.  Under the terms of the Joint Venture Agreement, the Company is 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 is also 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 property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three year period, it will be required to make annual penalty payments to Clifton Mining in the amount of $50,000 per location.  In 2014, the Company had not begun commercial production and the payments due on July 24, 2014 were paid and accepted by Clifton Mining for the Clifton Shears and Kiewit properties. The Cane Springs property penalty payment was not made in 2013 and this claim was released back to Clifton Mining at that time.  Production at the Kiewit property has since begun. Royalty expense of $17,160$61,631 and $73,012$166,111 was recognized during the quartersnine months ended March 31,September 30, 2016 and 2015, respectively, with $103,746$128,868 still payable to Clifton Mining Company at March 31,September 30, 2016. This amount is expectedSee Note 15.

A letter of default on the Clifton Shears properties dated September 19, 2016 was received by the Company with a 30 day period for curing the default. On October 17, 2016, past due royalties and the $50,000 penalty payments for each of 2015 and 2016 were paid to be paid in 2016.Clifton Mining, who then acknowledged the cure of default.

Mining severance tax in the amount of $1,931,$1,943, based on production, was accrued at March 31,September 30, 2016.

Personal property tax due to Tooele County, Utah in the amount of $71,398,$76,240, based on income projections, was accrued and past due at March 31,September 30, 2016. This amount due has not yet been paid.

Employment Agreements

In September 2010, the Company entered into an employment agreement with Mr. Havenstrite as President of the Company, which is ongoing. The agreement requires Mr. Havenstrite to meet certain time requirements and limits the number of other board member obligations in which he can participate. The agreement allows for a base annual salary of $120,000 plus certain performance compensation upon fulfillment of established goals,goals. The agreement allows the Board to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination without cause.

As of March 31,September 30, 2016, and MarchDecember 31, 2015, accrued compensation of $353,885$441,577 and $193,500, and consulting fees payable of $0 and $15,000, respectively,$308,885, were due to directors and officers. Of the amounts accrued at March 31,September 30, 2016 and December 31, 2015, accrued compensation of $282,693$342,692 and $165,000$252,692 is due to Rick Havenstrite and $71,192$98,885 and $28,500$56,193 is due to Marianne Havenstrite. In addition, on May 1, 2014 Rick Havenstrite was awarded 3,137,066 shares of common stock as a management incentive.

NOTE 1415 – SUBSEQUENT EVENTS

On April 10, 2016, theThe Company failed to make interest payments required under the convertible notes (see Note 7). for all quarters beginning April 2016 through the current date. As a result, the Company iswas in default of the Notes. As per the terms of the Investment Agreement, DMRJ Group has beenwas informed of thethis default and hashad indicated it hashad no present intent to declare an event of default under the Investment Agreement, as amended. In addition, as per the terms of the notes, 300,000 penalty shares per year for 2016 and 2017 were issued to the convertible debt holders for failure to pay the convertible notes in November of 2016 and 2017.

In addition, DMRJ Group (see Note 10) has previously agreed to subordinate to these debtholders Platinum’s interest in the collateral for the Senior Notes, as well as the principal and accrued but unpaid interest on the prior convertible debt (see Note 7) and on the amounts due on the gold loan redemptions (see Note 11). As part of the agreement for this loan, DMRJ Group has agreed to waive the anti-dilution clause of their agreement with the Company.

The Fourteenth Amendment to the Investment Agreement with DMRJ Group was entered into on December 22, 2016 and allowed for December 2016 Term Loan Advances in an amount up to $600,000. The advance was drawn in full.

In the third quarter of 2016, control of the management of DMRJ Group, (a Platinum Partners related entity), was given to court appointed trustees of the two major funds of Platinum Partners. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). Funds in the amount of $944,060 were drawn from the trustees during the first two quarters of 2017 to help fund ongoing expenses.

The Company was working towards a reorganization and recapitalization with the trustees of the two funds and finalized an agreement which closed on March 8, 2018. This agreement discharged all of the debt owed by the Company to DMRJ Group and its related affiliates and returned all of their equity to the Company in exchange for $625,000. The debt and equity were retired and cancelled by the Company. The owners of the convertible debt agreed to fund this payment in full, and to agree to certain concessions on their outstanding notes with the Company, in exchange for 4,500,000 shares of the Company’s Common Stock. All signatures from the court appointed trustees, and funding by the Company, have been received and the agreement was finalized on March 8, 2018. The Company has been temporarily shut down due to this development since third quarter of 2017. The Company expects to release an offering in the near future to fund short-term operations while preparing to re-open the operation.

On February 28, 2018, the terms were changed for the 15% convertible promissory notes, convertible at $.70 per share, to two of the Company’s minority shareholders. The notes, for a total due of $600,000 were amended changing the interest rate from 15% to 10% effective March 1, 2018, and, allowing for accrued interest to be payable in full on May 31, 2019. The amendment further waives the default provision in the notes for past due interest.

One of the convertible debt holders issued two short-term loans to the Company which were subsequently repaid. On September 29, 2016, $50,000 was loaned at no interest and was repaid to the debtholder on October 14, 2016. On November 5, 2016, an additional $25,000 was loaned to the Company at 10% interest and was repaid including interest of $438 on January 18, 2017. These loan funds were used for operating capital.

On October 14, 2016, the Company issued convertible promissory notes, convertible at $.25 per share, to its two convertible debt holders in the amount of $125,000 each (Senior Notes), at 10% interest, due in full on September 30, 2018. Interest is payable on September 30, 2017 and is payable quarterly thereafter.

On August 7, 2017, the convertible debt holders funded an additional aggregate of $500,000 under similar terms. These funds were used to sustain minimum operations of the Company until resolution of the DMRJ Group debt with the trustees. On February 28, 2018 both of these notes were amended to allow for the maturity date and the payment date for accrued interest to be changed to May 31, 2019.

In November 2016, five pieces of mining equipment financed by CAT Financial were repossessed by CAT. The equipment had an original cost of $1,500,888 and accumulated depreciation of $366,288, for an adjusted balance of $1,134,600. The note payable due to CAT at the time of disposition was $960,585. The cost of the equipment and the corresponding note payable was reflected on the balance sheet until final disposition of the equipment. On July 31, 2017, a new agreement was made with Wheeler Machinery and CAT financial for the return of four pieces of this equipment. While the equipment will temporarily remain in the possession of Wheeler Machinery, a new payment schedule was agreed upon which requires 10 equal payments of $39,934 beginning in October 2017. At this time four of those payments have been made. In the event the terms of the new agreement are not met, freight and interest penalties may be assessed and there could be a payment due to CAT for these fees and for the deficit on the return of the equipment. Management has not made an estimate of this additional loss, if any.

Director Appointments

During the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the lease of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah.  Pursuant to the agreement, 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 non-performance payments to the Trust of $50,000.  The Yellow Hammer operated for several months in 2011.  Under the terms of the Joint Venture Agreement, the Company is 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.  There were no sales and no royalty expense on this property to date in 2016 or in 2015.

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 lease of their property interests in the Gold Hill Mining District of Utah.  Under the terms of the Joint Venture Agreement, the Company is 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 is also 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 property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three year period, it will be required to make annual non-performance payments to Clifton Mining in the amount of $50,000 per location.  In 2014, the Company had not begun commercial production and the payments due on July 24, 2014 were paid and accepted by Clifton Mining for the Clifton Shears and Kiewit properties. Non-performance payments for the Clifton Shears-Smelter Tunnel property were not made by the due dates in 2015 or 2016. The Cane Springs property non-performance payment was not made in 2013 and this claim was released back to Clifton Mining at that time.  Production at the Kiewit property has since begun.

On April 25, 2016, David Levy resigned as a director of the Company. Mr. Levy’s resignation was not caused by any disagreement with the Company known to the Company.

On April 25, 2016, the Board of Directors3, 2017, two directors of the Company increasedstepped down from their positions, leaving Rick Havenstrite and Howard Crosby as directors. On April 6, 2017, the Board reduced the number of authorized directors fromto three to five and appointed John P. Ryan as a director. In addition, Howard Crosby Michael P. Kurtanjek,stepped down from his position as CEO and John May as directors of the CompanyRick Havenstrite was appointed to fill the vacancy left by Mr. Levy’s resignation as a directorposition of CEO.

Effective February 23, 2018, the Board approved and adopted the increase of the number of authorized directors. There are no arrangements or understandings between Messrs. Crosby, Kurtanjek, and May and any other persons2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which Messrs. Crosby, Kurtanjek,2,400,000 shares of the Company’s Common Stock were authorized. On February 23, 2018, the Board approved the grant of an aggregate of 2,400,000 options under the 2018 Plan exercisable at $0.40 per share which terminate February 23, 2023 in the amounts and May were selected as directors. At this time, Messrs. Crosby, Kurtanjek, and May have not been appointed to any committees and there are currently no plans for their appointment to any committees.

CEO Appointmentthe following:

On April 25, 2016, the Board of Directors of the Company appointed Howard Crosby, age 62, as Chief Executive Officer and Principal Executive Officer of the Company. There are no arrangements or understandings between Mr. Crosby and any other persons pursuant to which Mr. Crosby was selected as Chief Executive Officer and Principal Executive Officer. There are no family relationship between Mr. Crosby and any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer.

Chairman Appointment

In conjunction with Mr. Crosby’s appointment as a director of the Company, Mr. Crosby was appointed as the Chairman of the Board of Directors.

COO Appointment

On April 25, 2016, Rick Havenstrite, the Company’s current President and director, was appointed as the Company’s Chief Operating Officer. Mr. Havenstrite will no longer serve as the Company’s Principal Executive Officer but will remain as the Company’s President.

CFO Appointment

On April 25, 2016, the Board of Directors of the Company appointed John Ryan, age 54, as Chief Financial Officer and Principal Financial and Accounting Officer of the Company. There are no arrangements or understandings between Mr. Ryan and any other persons pursuant to which Mr. Ryan was selected as Chief Financial Officer and Principal Financial and Accounting Officer. There are no family relationship between Mr. Ryan and any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer.

On April 20, 2016, a shareholder owning all of the Series A-2 Convertible Preferred Shares of the Company, pursuant to the Certificate of Designations, Preferences, and Rights of the Series A-1 and A-2 Convertible Preferred Stock, provided a consent to the expansion of the number of directors from three to five and a waiver of its right to appoint two members of the Board of Directors of the Company.

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, 2015 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:

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

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

Overview

Desert Hawk Gold Corp., a Nevada corporation (the “Company”), is engaged in the search for mineral deposits or reserves which could be economically and legally extracted or produced. In addition, we are currently producing gold and silver at the Kiewit property and had our first sales from the property in October 2014. None of our mining properties has any known reserves and our proposed programs on these properties are exploratory in nature. Our projects are located in the Gold Hill Mining District in Tooele County, Utah.

We were originally incorporated in the State of Idaho on November 5, 1957. For several years we bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2008, we changed our domicile 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.

On January 6, 2014, we obtained the final permit necessary to commence construction and development of the Kiewit property. The reclamation bond was posted in February 2014 in the amount of $1,348,000. Development of the project was essentially completed in 2014 using funding provided by DMRJ Group.Group I, LLC, a Delaware limited liability company (“DMRJ Group”). DMRJ Group is a Platinum Partners’ related entity managed by the Platinum Partners’ Credit Fund (“PPCO”). The property is located in a historical mining district that has existing disturbances and mine wastes and is in a very arid, desolate area. The property is also adjacent to, and uphill from, the Dugway Proving Grounds and Air Force Gunnery Range that is deemed an environmentally insensitive area, with low water quality. Management believes that through our leased patented claims we have adequate private land for process facilities. There is no material access from any metropolitan area or community.

On July 7, 2016, the Company replaced the $1,348,000 cash reclamation bond with a surety bond in the same amount. A condition of the surety bond was the deposit of 50% of the bond amount ($674,000) into an escrow account with the bonding company. The surety bond carries an annual bonding fee of $40,400.  

On July 24, 2009, we entered into a Joint Venture Agreement with the Clifton Mining Company and Woodman Mining Company under which Clifton Mining granted to us exclusive possession of certain patented and unpatented mining claims and an unpatented mill site claim and certain Utah state mineral leases covering lands in the Gold Hill Mining District located in Tooele County, Utah, for exploration, development and mining, and the right to occupy the properties and to explore, develop and mine the properties for minerals. Woodman Mining also granted us the same rights in certain of these patented mining claims owned jointly with Clifton Mining. Also, on July 24, 2009, we entered into a Joint Venture Agreement with the Jeneane C. Moeller Family Trust under which the trust granted to us exclusive possession of four patented mining claims covering lands in the Gold Hill Mining District located in Tooele County, Utah, for exploration, development and mining, and the right to occupy the properties and to explore, develop and mine the properties for minerals. These propertiesclaims are known as the Yellow Hammer claims. No payments have been made to keepproperty. As part of this agreement, currentif we did not place the Yellow Hammer property into commercial production within a three-year period from the date of the agreement, we would be required to make annual payments to the Moeller Family Trust of $50,000 to retain our rights to this property.

In September of 2016 we received a notice of default regarding the $50,000 annual penalty payment on these claims. The Yellow Hammer agreement was terminated at that time with no payment made and we no formal forfeiture notification has been received.longer have rights to any of the claims on the Yellow Hammer property.

Prior to July 1, 2010, we notified Clifton Mining that we would surrender certain of the mining claims and leases originally obtained in our lease agreement with it. Also, in 2010 and in 2012, certain amendments were made to the lease agreements. As part of these agreements, if we did not place the Kiewit property, the Clifton Shears-Smelter Tunnel property, and the Cane Springs property into commercial production within a three-year period from the date of the agreement, we would be required to make annual payments to Clifton Mining of $50,000 per property to retain our rights to those properties. The

In September of 2016 we received a notice of default from Clifton Mining regarding the payment of the $50,000 per year penalty payment on the Clifton Shears-Smelter Tunnel property for 2015 and 2016. A payment has not yet beenof $100,000 was made forto Clifton Mining in October of 2016 to cure this year.default. The property payment is not due on the Kiewit property as it has been placed into production and royalties are generated. Past due royalties in the amount of $128,868 were paid to Clifton Mining as part of the resolution of the default notice. There are currently no past due royalties to be paid. The Cane Springs property was released back to Clifton Mining in 2013.

We currently hold leasehold interests within the Gold Hill Mining District consisting of 247 unpatented mining claims, including an unpatented mill site claim, and two Utah state mineral leases located on state trust lands, all covering approximately 3310 square miles. Initial paymentPayment for the claims fees for 2015-2016 were2016-2017 was made in August 2015.2016. We intend to concentrate our activities on the Kiewit project. Mineral extraction activities on the property at this time are open-pit.

In July 2010, we entered into an Investment Agreement with DMRJ Group I, LLC, a Delaware limited liability company (“Group. DMRJ Group”) is a Platinum Partners’ related entity managed by the Platinum Credit Fund (PPCO). The agreement has been modified numerous times and currently operates under the ThirteenthFourteenth Amendment to the Investment Agreement. The Amendments have provided for extensions of payment dates, increased funding and other modifications to the agreement.

On February 19, 2014, we agreed to the terms of a Tenth Amendment to the Investment Agreement with DMRJ Group.  The Tenth Amendment provided for funding of construction of the heap leach pad and process facility, mining development, and operations through a series of monthly term loan advances totaling a maximum of $5,700,000 over five months.  A total of $5,500,000 of this allotment was eventually loaned to us. As a part of this amendment, on February 19, 2014, we issued to DMRJ Group 249,603 shares of Series B Preferred Stock. The conversion rate of the Series B Preferred Stock is 100 shares of common stock for each share of Series B Preferred Stock. During 2014, financing expense in the amount of $998,412 was recorded in association with this share issuance, using an estimated fair value of the equivalent common shares of $0.04.

As a result of this issuance, DMRJ beneficially owned approximately 67% of the Company (on a fully-diluted basis) with shares convertible into 27,718,333 shares of common stock.

In connection with the Tenth Amendment, we also amended the Certificates of Designation for the Series A Preferred Stock and the Series A-1 and A-2 Preferred Stock to eliminate the mandatory dividends payable to the holders of the Series A Preferred Stock and to exclude the issuances of certain securities from triggering adjustments.

An Eleventh Amendment to the Investment Agreement was entered into on March 17, 2015 which established new minimum principal and interest payment dates which were then revised with the Twelfth, Thirteenth and ThirteenthFourteenth Amendments to the Investment Agreement.

The Twelfth Amendment to the Investment Agreement was entered into on June 5, 2015 and allowed for additional funding in the amount of $850,000 for the purpose of additional working capital, financing of the expansion into the east extension of the current pit boundary and to provide for crushing equipment to allow crushing to be done in-house.

The Thirteenth Amendment to the Investment Agreement was entered into on August 31, 2015 and allowed for additional funding of up to $525,000 for operating capital and to provide the ability for crushing operations to be performed in-house. A net total of $925,000$720,000 has been loaned to us pursuantduring the first nine months of 2016. These advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to the Twelfth and Thirteenth Amendments as of March 31, 2016. In October 2015 a draw of $100,000 reduced the balance available to be drawn to $350,000.DMRJ Group. This funding was used for working capital and to prepare for a drilling program within the existing boundary of the Kiewit Exploration Permit.

As part of this amendment, we issued to DMRJ Group 185,194 shares of Series B Preferred Stock. The conversion rate of the Series B Preferred Stock is 100 shares of common stock for each share of Series B Preferred Stock. During the quarter ended September 30, 2015, financing expense in the amount of $740,775 was recorded in association with this share issuance, using an estimated fair value of the equivalent common shares of $0.04. As a result of this issuance, DMRJ Group owns approximately 77% of our Company (on a fully-diluted basis) with shares convertible into 47,211,002 of common stock. DMRJ is considered a related party.

Several term loan advances were received by us from DMRJ Group by the Company between February 9, 2016 and March 21,September 20, 2016 totaling $550,000. These$1,620,000. A loan payment of $900,000 was made to DMRJ on July 8, 2016 which was recorded as a payment against principal of the note, allowing for net loan advances of $720,000. The advances bear interest at 15% per annum and become due on October 31, 2016 with the remainder of the note due to DMRJ Group. These funds were used for working capital and equipment debt repayment.

The total due to DMRJ at March 31,September 30, 2016 and December 31, 2015 is as follows:

The Investment Agreement contains certain negative covenants which prohibit us from the following actions or activities:

At March 31,September 30, 2016, we have failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the defaults and has indicated it has no present intent to declare an event of default under the Investment Agreement.

The Thirteenth Amendment also established new minimum principal and interest payment dates beginning in June 2016 as follows:

We failed to make the minimum payments due June 30, 2016 and September 30, 2016.

The Fourteenth Amendment to the Investment Agreement with DMRJ Group was entered into on December 22, 2016 and allowed for December 2016 Term Loan Advances in an amount up to $600,000. The advance was drawn in full.

In the third quarter of 2016, control of the management of DMRJ Group, (a Platinum Partners related entity), was given to court appointed trustees of the two major funds of Platinum Partners. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis). Due to the financial constraints caused by this development, we have temporarily suspended operations. Funds in the amount of $944,060 were drawn from the receivers during the first two quarters of 2017 to help fund ongoing expenses.

The Company has been working towards a reorganization and recapitalization with the trustees of the two funds and finalized an agreement on March 7, 2018. This agreement discharged all of the debt owed by the Company to DMRJ Group and its related affiliates and returned all of their equity to the Company in exchange for $625,000. The debt and equity were retired and cancelled by the Company. The owners of the convertible debt agreed to fund this payment in full, and to agree to certain concessions on their outstanding notes with the Company, in exchange for 4,500,000 shares of the Company’s Common Stock. All signatures from the court appointed trustees, and the funding by the Company, have been received and the agreement was finalized on March 7, 2018. The Company has been temporarily shut down due to this problem since third quarter of 2017. The Company expects to release an offering in the near future to fund short-term operations while preparing to re-open the operation.

On February 28, 2018, the terms were changed for the 15% convertible promissory notes, convertible at $.70 per share, to two of the Company’s minority shareholders. The notes, for a total due of $600,000 were amended changing the interest rate from 15% to 10% effective March 1, 2018 and allowing for accrued interest to be payable in full on May 31, 2019. The amendment further waives the default provision in the notes for past due interest.

One of the convertible debt holders issued two short-term loans to the Company which were subsequently repaid. On September 29, 2016, $50,000 was loaned at no interest and was repaid to the debtholder on October 14, 2016. On November 5, 2016, an additional $25,000 was loaned to the Company at 10% interest and was repaid including interest of $438 on January 18, 2017. These loan funds were used for operating capital.

On October 14, 2016, the Company issued convertible promissory notes, convertible at $.25 per share, to its two convertible debt holders in the amount of $125,000 each (Senior Notes), at 10% interest, due in full on September 30, 2018. Interest is payable on September 30, 2017 and is payable quarterly thereafter.

On August 7, 2017, the convertible debt holders funded an additional aggregate of $500,000 under similar terms. These funds were used to sustain minimum operations of the Company until resolution of the DMRJ Group debt with the trustees. On February 28, 2018 both of these notes were amended to allow for the maturity date and the payment date for accrued interest to be changed to May 31, 2019.

An equity financing was initiated in September 2012 for the sale of up to 1,150,000 shares of our common stock. This offering closed December 31, 2012 with proceeds of $130,000 raised through sales of 130,000 shares of our common stock. Under the terms of this offering, stock can be converted to cash generated from the sale of gold, for a period of 12 months after commencement of operations at the Kiewit project. Proceeds from 5% of the gold produced during the first year of production will be allocated to fund this option. Each investor will receivereceived the right to convert a minimum of one-half and up to all of his shares (on a pro rata basis) into the value of the number of ounces represented by the total investment, determined using a base price of $1,000 per ounce. At March 31,September 30, 2016, conversion proceeds due to shareholders are $151,406 for all 130,000 conversion shares. Due to the redemption feature of these shares, management has concluded that the proceeds from these stock sales should be recorded as a liability and not as equity. Payment of these funds due to investors has not yet begun, due to limited cash flow, and is included in accounts payable and liabilities. The amount owed to the shareholders in excess of $1,000 per ounce for redemptions through March 31,September 30, 2016 is $21,406. This amount has been recorded as an administrative expense.

On June 20, 2016, we entered into an agreement with a related party, RMH Overhead, LLC, to lease certain mining and crushing equipment, some of which was previously owned by us. We have recorded this liability as a capital lease and the liability is reflected on the balance sheet as ‘obligation under capital lease – related party’. The terms of the lease are 24 monthly payments of $9,212 which include interest at 15%. At any time during the lease term, the equipment may be purchased by us for the balance due.

In November 2016, five pieces of mining equipment financed by CAT Financial were repossessed by CAT. The equipment had an original cost of $1,500,888 and accumulated depreciation of $366,288, for an adjusted balance of $1,134,600. The note payable due to CAT at the time of disposition was $960,585. On July 31, 2017, a new agreement was made with Wheeler Machinery and CAT Financial for the return of four of the five pieces of this equipment to us. Negotiations included a down payment and a note payable with 10 payments of $39,934 beginning in October of 2017, four of which have been made.

Historically, we have incurred net losses for the years ended December 31, 2015 and 2014 and have also incurred a loss for the threenine months ended March 31,September 30, 2016.

Our financial statements were prepared assuming that we would continue as a going concern. Our significant cumulative losses from operations as of March 31,September 30, 2016 raise substantial doubt about our ability to continue as a going concern. If the going-concern assumption was not appropriate for our 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. During 2016, we have continued to experience losses from operations. We will require additional funding to complete much of our planned mining exploration and operations. Except for potential proceeds from the sale of equity in offerings by us, the issuance of debt, and revenue from existing operations, which has been minimal, we have no other source for additional funding. Our continued net operating losses and stockholders’ deficiency increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Results of Operations for the ThreeNine Months Ended March 31,September 30, 2016 and 2015.

The operating loss of $385,409$1,268,120 for the threenine months ended March 31,September 30, 2016 as compared to the operating loss of $138,237$415,113 for the threenine months ended March 31,September 30, 2015 represents an increased loss of $247,172.$853,007. This increased loss is due to weather related equipment failures and restricted working capital which reduced our ability to conduct mining operations. Other expense for the threenine months ended March 31,September 30, 2016 was $549,477$1,625,187 which consisted of interest and financing expense, increaseddecreased by $75,323$606,170 as compared to the other expense amount of $474,154$2,231,357 for the threenine months ended March 31,September 30, 2015, due to increased interest on related party debt.debt and a reduction in financing expense. The net overall increase in net loss for the threenine months ended March 31,September 30, 2016 compared to March 31,September 30, 2015 was $322,495.$246,837.

Liquidity and Cash Flow

Net cash used by operating activities was $380,463$1,018,075 during the three monthnine-month period ended March 31,September 30, 2016, compared with cash providedused by operating activities of $163,073$315,877 during the three monthnine-month period ended March 31,September 30, 2015. This $543,536$702,198 increase in the amount of cash used in operating activities is primarily attributable to the weather relatedweather-related decrease in production and equipment failures.to restrictions caused by insufficient working capital.

Net cash usedprovided by investing activities was $157,847$655,342 during the three monthnine-month period ended March 31,September 30, 2016, compared to $123,120$240,927 cash used by investing activities during the three monthnine-month period ended March 31,September 30, 2015. This increase of $34,727$896,269 in cash used forprovided by investing activities is due to the reduced investment in property and equipment, and due to the refund of the cash reclamation bond in favor of a surety bond in the first threenine months of 2016.

Net cash provided by financing activities was $476,303$252,701 during the three monthnine-month period ended March 31,September 30, 2016, compared with $44,482$535,644 cash usedprovided by financing activities during the three monthnine-month period ended March 31,September 30, 2015. The decrease of $282,943 in cash provided by financing activities in 2016 was provided with proceeds fromdue to a payment made on the financing agreement with DMRJ Group for the development of the Kiewit property.

As a result of the above, cash decreased by $90,999$110,032 during the three monthnine-month period ended March 31,September 30, 2016, leaving us with a cash balance of $41,510$22,477 as of March 31,September 30, 2016.

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.

Revenue Recognition

Sales of all metals products are recorded as revenues when title and risk of loss transfer to the purchaser. Sales to the purchaser are recorded at gross sales price, with charges for treatment, refining, smelting and other charges included as part of general project costs.

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 bodies of mineralized material, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.

Inventories

Inventories consist of estimated gold on the heap leach pad and in the carbon process system and are valued at the lower of production cost or market value. Gold on the heap leach pad is estimated to be 80% complete for cost purposes and gold in the process system is estimated at 95% complete.

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.

Reclamation and Remediation

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

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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

Our Chief Executive Officer, who serves as our principal executive officer; and our Chief Financial Officer,Treasurer, who serves as our principal financial and accounting 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”), have 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. However, due to financial considerations, we were unable to timely file this Quarterly Report on Form 10-Q and, thus, our disclosure controls and procedures were not 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.

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 March 31,September 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 3. Defaults Upon Senior Securities.

As has been disclosed above, we are currently in default of the Investment Agreement, as amended and the Note with DMRJ Group.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this quarterly report.

Item 5. Other Information

In the third quarter of 2016, control of the management of DMRJ Group, LLC was given to court appointed trustees of the two major funds of Platinum Partners. DMRJ Group is a fund managed by Platinum-related entities. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and management of the DMRJ Group, charging Defendants with a complex, multi-pronged, fraudulent scheme to inflate returns to investors, and cover up massive losses and liquidity problems. DMRJ Group effectively owns 77% of stock of the Company (on a fully diluted basis).

The Company has been working towards a reorganization and recapitalization with the trustees of the two funds and finalized an agreement on March 7, 2018. This agreement discharged all of the debt owed by the Company to DMRJ Group and its related affiliates and returned all of their equity to the Company in exchange for $625,000. The debt and equity were retired and cancelled by the Company. The owners of the convertible debt agreed to fund this payment in full, and to agree to certain concessions on their outstanding notes with the Company, in exchange for 4,500,000 shares of the Company’s Common Stock. All signatures from the court appointed trustees, and the funding by the Company, have been received and the agreement was finalized on March 7, 2018. The Company has been temporarily shut down due to this problem since third quarter of 2017. The Company expects to release an offering in the near future to fund short-term operations while preparing to re-open the operation.

On September 29, 2016, $50,000 was loaned to the Company at no interest by West C Street, one of our convertible debtholders, which was repaid to the debtholder on October 14, 2016.

As of the date of this Quarterly Report on Form 10-Q, we have failed to make interest payments on our notes with Ibearhouse and West C Street. The amount of accrued and unpaid interest as of March 31,September 30, 2016, totaled $60,000$82,500 for each respective note.

A letter of default was received from the Moeller Family Trust in September 2016 demanding the past due non-performance payment for the Yellow Hammer property. The payment was not made and the property was returned to the Moeller Family Trust.

A letter of default on the Clifton Shears properties dated September 19, 2016 was received by the Company with a 30 day period for curing the default. A payment of $100,000 was made to Clifton Mining in October of 2016 to cure this default.

On July 7, 2016, the Company replaced the $1,348,000 cash reclamation bond with a surety bond in the same amount. A condition of the surety bond was the deposit of 50% ($674,000) of the bond amount into an escrow account with the bonding company. The surety bond carries an annual bonding fee of $40,400.

Item 6. Exhibits

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.

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