UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022March 31, 2023

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

Indicate the number of shares outstanding of the issuer’s common stock, as of November 14, 2022:May 15, 2023: 26,831,603.

DESERT HAWK GOLD CORP.

Form 10-Q

September 30, 2022March 31, 2023

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DESERT HAWK GOLD CORP.

CONDENSED INTERIM BALANCE SHEETS (UNAUDITED)

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

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)

For the three and nine months ended September 30, 2022 and 2021

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

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

For the three and nine months ended September 30, 2022 and 2021

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

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENTS OF CASH FLOWSOPERATIONS (UNAUDITED)

For the three months ended March 31, 2023 and 2022

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

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

For the three months ended March 31, 2023 and 2022

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

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

For the three months ended March 31, 2023 and 2022

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

DESERT HAWK GOLD CORP.

NOTES TO CONDENSED INTERIM CONDENSED FINANCIAL STATEMENTS (unaudited)(UNAUDITED)

SEPTEMBER 30, 2022

MARCH 31, 2023

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Desert Hawk Gold Corp. (the “Company”), a Nevada Corporation, was incorporated on November 5, 1957. The Company commenced its current mining activities on May 1, 2009.

During the year ended December 31, 2009, the Company entered into Joint Venture Agreements with the Clifton Mining Company (“Clifton”), the Woodman Mining Company and the Moeller Family Trust for the lease of certain of their property interests in the Gold Hill Mining District of Utah.  In 2011, the Company entered into an agreement with DMRJ Group, (a Platinum Partners related entity), which allowed for long term funding of the Kiewit project and helped to provide cash flow for operations during the period from 2009 until 2014 while the permitting process was ongoing. The final permit needed to begin development of the Kiewit property was received in January 2014 and development began in February 2014. Construction at the site was substantially complete on September 30, 2014. Revenue from the heap leach operation began in October 2014 with the first sales of gold concentrate.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods reported. The condensed balance sheet at December 31, 20212022 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Operating results for the three- and nine-monththree-month period ended September 30, 2022March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.2023.

These unaudited condensed interim financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”). These unaudited condensed interim financial statements should be read in conjunction with the annual audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the Securities and Exchange Commission on March 31, 2022.2023.

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to U.S. GAAP and have been consistently applied in the preparation of the financial statements.

Reclassifications

Certain reclassifications have been made to conform prior periods’ amounts to the current presentation. These reclassifications have no effect on the results of operations, stockholders’ equity (deficit), and cash flows as previously reported.

Earnings (Loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (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 the Company.

For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, common stock equivalents of nil and 2,400,000, respectively, associated with the Company’s outstanding stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to the net loss for the periods then ended.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $18,833,089$23,000,594 through September 30, 2022March 31, 2023 and net loss of $4,585,329$2,263,429 for the nine-monththree-month period ended September 30, 2022,March 31, 2023, along with negative working capital of $16,830,854$21,500,281 which raises substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company has not delivered gold ounces as scheduled on its prepaid forward gold contract and could be subject to default provisions within the related agreement (see Note 7). The condensed interim 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.

Although production restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Management continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.

COVID -19

The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and elsewhere, causing disruptions to the Company’s business operations and management. These disruptions are most evident in the Company’s ability to retain and house employees and properly manage them while maintaining proper social distancing and with delays in obtaining materials and supplies. There has also been a reduction in the availability of equipment financing. These disruptions continue to hamper operations. It is management’s belief that disruptions relating to COVID will be mitigated in the future as a large percent of the population becomes vaccinated.

The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced availability of contractors and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts on the Company, including its ability to conduct operations.

The Company has taken steps to mitigate the potential risks to suppliers and employees posed by the spread of COVID-19, including work from home policies where appropriate. The Company will continue to monitor developments affecting both its workforce and contractors and will take additional precautions as necessary. The ultimate impact of COVID-19 depends on factors beyond management’s knowledge or control, including its duration and third-party actions to contain its spread and mitigate its public health effects. Therefore, the Company cannot estimate the potential future impact to its financial position, results of operations and cash flows, but the impacts could be material.

New Accounting Pronouncements

Accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

NOTE 3 – RECLAMATION BONDS

At September 30, 2022March 31, 2023 and December 31, 2021, the Company has2022, reclamation bonds totaled $1,592,936 and $1,591,547, respectively, associated with estimated reclamation costs for its mineral properties. The totals in both years include a surety bond of $674,000 in an escrow account with thea bonding company for reclamation of its mineral property. This escrowed amount is held at Bank of New York, Mellon for the Company’s benefit. It may not be released to the Company without the prior consent of the surety bondholder. The escrowed amount does not earn interest.

On March 31, 2022, the Company’s bond was increased $89,000 The remaining balances of $918,936 and $917,547, respectively, are held as certificate of deposits by the Utah DivisionDepartment of Oil, Gas and Mining to provide for the escalation of the existing large mine permit through 2026.Natural Resources.

Total reclamation bonds posted at September 30, 2022 and December 31, 2021 are $1,036,296 and $947,116, respectively, which consists of the above escrowed amount along with certificate of deposits held with the state of Utah for the remaining bonds on the property, including exploration bonds.

NOTE 4 – INVENTORIES

Inventories at September 30, 2022March 31, 2023 and December 31, 20212022 consists of the following:

Inventories at September 30, 2022March 31, 2023 and December 31, 20212022 were valued at net realizable value because production costs were greater than the amount the Company expected to receive on the sale of the estimated gold ounces contained in inventories.

The adjustment to inventory, which is included in general production and project costs on the statements of operations, was $2,049,961$nil and $1,265,018 for$680,319 during the nine-month periodsthree-month period ended September 30,March 31, 2023 and 2022, and September 30, 2021, respectively.

NOTE 5 - PROPERTY AND EQUIPMENT

The following is a summary of property and equipment at September 30, 2022March 31, 2023 and December 31, 2021:2022:

For the Kiewit property facilities, amortization based on total units of production was $Nil and $20,412$70,864 for the three-months ended March 31, 2023 and 2022, respectively. There was no production for the three months ended September 30, 2022 and 2021, respectively. For the Kiewit property facilities, amortization based on total units of production was $78,121 and $38,170 for the nine months ended September 30, 2022 and 2021, respectively. There was no production during the three months ended September 30, 2022 as the Company awaits approval of permits.March 31, 2023.

Depreciation expense on property and equipment for the three months ended September 30,March 31, 2023 and 2022 was $163,184 and 2021 was $160,619 and $222,804$193,210 respectively. Depreciation expense on property and equipment for the nine months ended September 30, 2022 and 2021 was $513,460 and $658,337 respectively.

During the nine months ended September 30, 2021, the Company was required to return a CAT 740 Haul truck to Wheeler Machinery because the Company was 5 payments delinquent in its obligation on this note payable. The net carrying value of the equipment was $290,889 and the outstanding note payable balance was $86,806. A loss on disposal of equipment of $204,083 was recognized. The truck was purchased by a related party who in February began renting the truck to the Company on a month-to-month rental. See Note 11.

During the nine months ended September 30, 2021, the Company acquired a new HP4 crushing system in exchange for its HP3 crushing system which was returned to ICM Solutions, Inc.(“ICM”). Prior to the acquisition, the Company had been renting the HP4 crushing system from ICM and had an accrued rent payable of $158,000. ICM financed the acquisition of the new HP4 crushing system with a new note of $215,510 for the cost of the new equipment, plus accrued rent payable, less the trade-in value of the HP3 crushing system.

NOTE 6 – MINERAL PROPERTIES AND INTERESTS

Mineral properties and interests as of September 30, 2022March 31, 2023 and December 31, 20212022 are as follows:

Amortization of the mineral properties and interests based on total units of production was $Nil and $57,739$50,615 for the three months ended September 30,March 31, 2023 and 2022, and 2021. Amortization of the mineral properties and interests was $63,159 and $107,972 for the nine months ended September 30, 3022 and 2021, respectively.

There was no production duringfor the three months ended September 30, 2022 as the Company awaits approval of permits.March 31, 2023.

The Company is required to pay a 4% net smelter royalty (“NSR”) to PDK Utah Holdings, LPQenta, Inc. (“PDK”Qenta”) on revenues of gold and silver from the Kiewit gold property and the JJS properties. See Note 7.

NOTE 7 – PREPAID FORWARD GOLD CONTRACT LIABILITY

In 2019, the Company entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings, LP (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the Purchase Agreement, as amended, PDK agreed to purchase a total of 47,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. The Company has the option of paying cash to PDK for the number of ounces scheduled to be delivered each month at a rate of $500 per ounce. The Company received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces. In February 2023, PDK sold their ownership position in the Purchase Agreement to Qenta, Inc. (“Qenta”)

Under the terms of the Purchase Agreement, as amended, the Company is obligated to deliver gold in the following quantities:

In addition, under the Purchase Agreement, PDKQenta may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company. To date, PDKthis option has not elected this option.been elected.

As security for the obligations of the Company under the Purchase Agreement, the Company has granted PDK a security interest in all of the assets of the Company. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.

To date, no gold has been delivered under the contract. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, a cumulative of 22,65131,027 and 11,54226,839 ounces, respectively, were scheduled to be delivered to PDK under the terms of the Purchase Agreement. The ounces due but unpaid to PDK at September 30,March 31, 2023 and December 31, 2022 have been reflected in “Due to PDK in lieu of gold deliveries” on the balance sheet based on the Company’s option to pay cash in lieu of delivery at $500 per ounce. The forward gold contract balance as of September 30, 2022March 31, 2023 and December 21, 202131, 2022 is as follows:

For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, the expenseactivity related to the forward gold contract is as follows:

As of September 30, 2022,March 31, 2023, and through the issuance of these financial statements, PDKthe Company has sentreceived invoices to the Company for the deliveries and payments due. The failure to make gold deliveries and make additional payments as described below provides PDKQenta with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. Due to the delinquent status of the deliveries and PDK’sQenta’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance owing as current on the balance sheets. The CompanyCompany’s management has received no noticebeen in discussions with Qenta regarding the status of the Purchase Agreement. To date, Qenta has not exercised its rights of default onas defined in the Purchase Agreement from PDK.agreement nor has it indicated plans to do so.

In addition to the delivery of gold ounces, the Purchase Agreement contains a royalty provision whereby royalties of 4% are due to PDK on gold and silver recovered from mining operations at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also accrues a 5% withholding tax to the state of Utah on the royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter. To date, none of the royalty has been remitted to PDK. Under the Purchase Agreement, the Company also pays a 5% withholding tax to the state of Utah on the PDK royalty payments.paid.

The Purchase Agreement contains a participation payment whereby PDKQenta receives a portion of the proceeds from gold sold by the Company to a third party. The payment due to PDK is based upon a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each sale. To date, none has been remitted to PDK.paid.

The following is a summary of royalties and upside participation payable:

The Purchase Agreement provides for the Company to pay default interest (calculated at the rate of LIBOR plus 2%) on outstanding amounts due to PDK. The balance of accrued interest payable to PDK is $427,909 and $120,989 at September 30, 2022 and December 31, 2021, respectively.due. To date, none has been paid.

The following is a summary of royalties, upside participation and interest payable:

NOTE 8 – NOTES PAYABLE

The following is a summary of the notes payable:

In February 2021, Wheeler CAT requestedDuring the return of the CAT 740 Haul truck (SN2293) becausethree months ended March 31, 2023, the Company was five payments delinquent in its obligation onpaid the relatedremaining note payable. This truck was then purchased from Wheeler CAT by a related party who in February began leasing the truck to the Company on a month-to-month rental. This arrangement relieved the Companypayable balance of any other financial obligation on this note.

The current portion of debt of $100,897 will be paid over the next seven months.$58,061.

NOTE 9 –ASSET RETIREMENT OBLIGATION

Changes in the asset retirement obligation for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 are as follows:

In the first quarter of 2023, the Company updated its estimate for reclamation and closure costs of the mine at the end of its life based on an expanded permit and bonding requirement finalized in December 31, 2022. The updated estimate was $2,557,553 on an undiscounted cash flow basis, an increase of $1,020,553 from the previous plan. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 11% from the time we incurred the obligation to the time we expect to pay the retirement obligation. During the quarter ended March 31, 2023, asset retirement obligation and the associated retirement asset of $22,178 was recognized for the disturbance that occurred in that period.

NOTE 10 – SETTLEMENT OF CONSULTING CONTRACT

On March 29, 2018, the Company entered into a five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”). Under the terms of the Agency Agreement, H&H agreed to provide certain advisory services in regard to natural resources activities and to assist in securing purchasers for minerals produced from its mining properties. The Company negotiated a settlement in 2019 with H&H resulting in the Company owing a balance of $200,000 due in July 2020 to H&H. This payment has not yet been paid and is classified as a current liability at both September 30, 2022March 31, 2023 and December 31, 2021.2022.

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company has a month-to-month lease agreement for its office space with RMH Overhead, LLC (“RMH”), a company owned by Rick Havenstrite, the Company’s President and a director. The Company recognized rent expense of $4,500 and $4,500 for three months ended September 30, 2022March 31, 2023 and 2021, respectively. The Company recognized rent expense of $13,500 and $13,500 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021, no amounts were due to RMH Overhead, LLC for rent.2022.

On February 1, 2021, RMH Overhead, LLC. (“RMH”) an entity owned by Rick Havenstrite, President of theThe Company purchasedrents a CAT 740B Articulated Haul Truck from Wheeler CAT. This truck had previously been owned by the Company with an associated note payable to Wheeler CAT. See Note 5. Beginning February 1, 2021, the Company began renting thishaul truck from RMH at a current rate of $10,000$7,500 per month on a month-to-month rental. basis. Rent expense of $22,500 and $30,000 was recognized during the three months ended March 31, 2023 and 2022, respectively. At September 30,March 31, 2023 and December 31, 2022, $5,000$7,500 and $Nil, respectively, is due to RMH for rent of this equipment, and this amount is included in accounts payable and accrued expenses on the balance sheet. Effective June 1, 2022, rental for this haul truck will be temporarily reduced to $5,000 per month to recognize the minimal use of the truck while the Company awaits approval of the modification to the operating permit, currently expected late in 2022.

Employment Agreements

The Company has an employment agreement with Mr. Havenstrite as President of the Company, which is ongoing. The agreement, as amended, 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 $144,000 plus an auto allowance and certain performance compensation upon fulfillment of established goals. The agreement allows the board of directors to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination without cause.

For the three months ended September 30, 2022 and 2021, the Company paid Mr. Havenstrite $40,255 and $34,293, respectively. For the nine months ended September 30, 2022 and 2021, the Company paid Mr. Havenstrite $115,016 and $94,916, respectively.

The amounts accrued at September 30, 2022March 31, 2023 and December 31, 2021,2022 is due to the officers of the Company as follows:

Directors’ fees

The Company compensates independent directors for their contributions to the management of the Company, with one director receiving fees of $6,000 per month and another director receiving $5,000 per quarter. At September 30, 2022March 31, 2023 and December 31, 2021,2022, accrued compensation due to directors was $76,000$86,000 and $55,000$81,000 respectively.

NOTE 12– COMMITMENTS AND CONTINGENCIES

In addition to commitments disclosed in Notes 3, 7 and 12, the Company had the following commitments and contingencies.

Personal property tax and other accrued liabilities

Personal property tax for Tooele County, Utah, is billed and becomes due on November 30 of each year. At March 31, 2023 and December 31, 2022, the amount due to Tooele County is $34,667 and $33,027, respectively and this amount is included in accounts payable.

Mining Leases

Annual claims’claim fees are currently $165 per claim plus administrative and school trust land fees. Total paid for claims fees duringFor the three months ended September 30,March 31, 2023 and 2022, and 2021 were $11,029 and $15,199, respectively. For the nine months ended September 30, 2022 and 2021, claims’ fees paid were $11,162$Nil and 15,199,$Nil, respectively. Claims fees are due in August for the year beginning in September of that year.

NOTE 13 -– 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.

During the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, the Company had no transactions relating to common stock.

Preferred Stock

The Company’s Articles of Incorporation authorized 10,000,000 shares of $0.001 par value Preferred Stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.

NOTE 14 -– STOCK OPTIONS

The Company has reserved 2,400,000 shares under its 2018 Stock Incentive Plan (the “Plan”). The Plan was adopted by the board of directors on March 28, 2018, retroactive to February 23, 2018, as a vehicle for the recruitment and retention of qualified employees, officers, directors, consultants, and other service providers. The Plan is administered by the Board of Directors. The Company may issue, to eligible persons, restricted common stock, incentive and non-statutory options, stock appreciation rights and restricted stock units. The terms and conditions of awards under the Plan will be determined by the Board of Directors.

Outstanding and vested options at September 30, 2022March 31, 2023 and December 31, 20212022 wereNil and 2,400,000. These options havehad an exercise price of $0.40, a remaining life of .400.15 years, and no intrinsic value. No options were granted expired, or were exercised during the three- and ninethree months ended September 30, 2022 nor 2021.March 31, 2023 and 2022. During the three months ended March 31, 2023, 2,400,000 options expired.

NOTE 15 – REVENUE

Product sales for the three- and nine-three months ended September 30,March 31, 2023 and 2022, and 2021 are shown below:

For the three- and nine-three months ended September 30,March 31, 2023 and 2022, and 2021, all revenuerevenues from Concentrate salesconcentrate sale was from concentrateconcentrated sold to Asahi Refining. At September 30, 2022 and December 31, 2021, the balance due from Asahi Refining is $Nil and $265,444, respectively.

For the three- and nine- months ended September 30, 2022 and 2021, all revenue from Contract processing income wasis proceeds received from the outside company whose concentrate sales are to Asahi Refining. As of September 30, 2022 and December 31, 2021, the balance due from contract processing income was $11,141 and $Nil, respectively.

NOTE 16– SUBSEQUENT EVENTS

The Company anticipates modification to its operating permit in Winter 2022 which will require an increase in our bond deposit of $555,000. This amount was paid to Utah DOGM on November 1, 2022 in anticipation of receiving the permit modification prior to year-end 2022.

for ore processed for another company. The contract agreement with the outside company for which we were processing material was terminated in October 2022.

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 financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022 and with the unaudited financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. 

Forward-looking statements

The statements contained in this report that are not historical facts, including, but not limited to, statements found in the section entitled “Risk Factors,” 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, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, and the effects of competition. 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,“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 10-Q. 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

We are a mineral exploration company located in the Gold Hill Mining District in Tooele County, Utah. We are currently focused on exploration and development of our Kiewit claims and operation of a heap leach processing facility.

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 corporate 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 located in Tooele County, Utah. We hold leasehold interests within the Gold Hill Mining District consisting of 66 unpatented mining claims and 30 patented claims. From these claims we have centered our exploration activities on the Kiewit site.

During 2018 we settled our outstanding debt with DMRJ Group I, LLC and repurchased and retired all outstanding preferred shares issued to them under the 2010 Investment Agreement with them.

During 2019 we secured net funding of $13,600,000 (net) from PDK Utah Holdings LP under the terms of the Pre-Paid Forward Gold Purchase Agreement dated March 7, 2019. We also renegotiated our lease with Clifton Mining and released all but the current unpatented and patented mining claims. We also reacquired the existing royalties from Clifton and its affiliates and issued a royalty to PDK equal to 4% of the net smelter returns from our mine. An additional 20 claims, known as the JJS Property, were also acquired.

In June 2022 we paused our mining operations onDuring the Kiewit claims and ceased our ore crushing due to a delay in the issuancefirst quarter of a permit modification which would allow us to expand our pit area, which is currently at the boundaries of the existing permit. Utah Division of Oil, Gas and Mining has provided conditional approval for the permit modification contingent on the approval by the BLM. The modification is currently in the 30-day public comment period and permit approval is expected prior to the end of 2022. Further delays could be caused by adverse public comments which could require additional response from the BLM. In anticipation of receiving the permit modification, on November 1, 2022 we posted the required bond for the permit modification in the amount of $555,000. We have curtailed operating expenses to the extent possible while keeping a minimum staff employed, working on continued processing and equipment maintenance.

During 2022 through September 2022,2023 we crushed 82,900no tons of mineralized material and hauled 183,900149,3349 tons of waste from the open-pit Kiewit Pit -Pit. Using the funds from the PDK transaction, in January 2020 we commenced a drilling program on the Kiewit and JJS mining claims to determine the definition of the mineralized body and resource classification of the resources in connection with the proposed completion of a technical report on the claims. Our drilling plan included drilling 30 holes for a total footage of 7,500 feet. Although drilling has commenced on the JJS property, permitting has not been completed and production has not yet begun. We intend to continue our drilling program in the future. We also intend to continue extraction of mineralized material and to upgrade and expand the current facilities, as resource expansion dictates.

Since securing funding in March 2019, and recommencing mining operations, we have generated gross revenuesrecommenced mining operations. Revenues of approximately $18,582,400 through September 30, 2022,$19,661,000 from sales of gold and other metals have been received through March 31, 2023, bringing total revenue from metals sales from the inception of the processing in 2014 to $24,793,990.

During 2022, we continued to process material from an outside company resulting in contract processing income of $1,130,186 for the nine months ending September 30, 2022. The outside company stopped delivering material to us in March 2022. The contract agreement with this company was terminated in October 2022.$25,875,000.

Results of Operations for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021.

During the quartersthree months ended September 30,March 31, 2023 and 2022, and 2021, we had net losses of $1,945,537$2,263,429 and $331,945$1,337,227, respectively. This represents an increase in net loss of $1,613,592 for the quarter ended September 30, 2022, over the quarter ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, the Company had net losses of $4,585,329 and $2,401,486, respectively.

The operating loss of $1,872,255$926,202 for the three months ended September 30, 2022, as compared with the operating loss of $291,953 forMarch 31, 2023, over the three months ended September 30, 2021, represents increased operating loss of $1,580,302 for the period. The operating loss of $4,267,614 for the nine months ended September 30, 2022, as compared with the operating loss of $2,273,811 for the nine months ended September 2021 represents increased operating losses in the amount of $1,993,803.March 31, 2022. Increased losses are primarily due to the increase in forward gold contract expense.expense and lack of production in the first quarter of 2023.

Liquidity and Cash Flow

Net cash provided by operating activities of $1,922,661$60,824 during the nine-month periodthree months ended September 30, 2022,March 31, 2023, compared with cash provided by operating activities of $1,577,284$492,801 during the nine-month periodthree months ended September 30, 2021,March 31, 2022, represented a $345,377 increase$431,977 decrease in cash provided by operating activities and is primarily attributable to the decrease in inventories and the increase in the amount due to PDK in lieulack of gold deliveriesproduction during the nine months ended September 30, 2022.period.

Net cash used by investing activities was $276,387$112,917 during the nine-month periodthree months ended September 30, 2022,March 31, 2023, compared with $374,444$154,039 cash used during the nine-month periodthree months ended September 30, 2021.March 31, 2022. This decrease ofin cash used by investing activities of $98,057 during$41,122 was primarily related to a decrease in the nine-month period ended September 30, 2022, was due to the reduction in payments onamount expended for reclamation bonds.

Net cash used by financing activities was $442,584$58,061 during the nine-month periodthree months ended September 30, 2022,March 31, 2023, compared with $904,284$168,895 cash used during the three months ended March 31, 2022. This decrease in cash used by financing activities of $110,834 during the nine-month periodthree months ended September 30, 2021. The decreaseMarch 31, 2023, was primarily due to reduction of $461,700 was due primarily to the decrease in payments made on notes payable.payable payments.

As a result of the above, cash increaseddecreased by $1,203,690$110,154 during the nine-month periodthree months ended September 30, 2022March 31, 2023 over the cash balance at December 31, 2021,2022, leaving us with a cash balance of $1,628,319$470,868 as of September 30, 2022.March 31, 2023.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $18,833,089$23,000,594 and negative working capital of $16,830,854$21,500,281 at September 30, 2022,March 31, 2023, 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.

Although production restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Management continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.

If the going concern assumption were not appropriate for these 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.

Critical Accounting Policies

There have been no significant changes to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K.

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 Treasurer, who serves as our principal financial officer, evaluated 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”). The Chief Executive Officer and Treasurer have concluded that as of the Evaluation Date, due to the existence of material weaknesses, 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 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 the quarter ended September 30, 2022,March 31, 2023, 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 

During the first quarter of 2019, the Company entered into and closed a Prepaid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings L.P. (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. On October 31, 2019, the Company and PDK amended the Purchase Agreement and entered into the Amended Prepaid Forward Agreement (the “Amended Agreement”) to reduce the total number of ounces of gold subject to the Purchase Agreement and to revise other provisions therein. The first gold delivery under the Amended Agreement was due on December 24, 2020, and recurring deliveries are due on the fourth business day prior to the last calendar day of each scheduled delivery month thereafter.month. On December 1, 2020, we notified PDK that we would not be able to make our December delivery and elected to use one of the delivery postponement options under the Amended Agreement. This provision permits us to delay delivery by up to 30 days by delivering the amount of gold due on the previous month’s due date, plus interest calculated at the default interest rate. At the end of this 30-day extension period we were unable to deliver the December payment. We have also failed to make any of the monthly gold deliveries beginning January through the filing dateNovember of this report2021 and anticipate that we will be unable to make deliveries until at least the beginning of the next fiscal year. The failure to make gold deliveries under the Amended Agreement provides PDK with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. In February 2023, PDK sold their ownership position in the Purchase Agreement to Qenta, Inc. (“Qenta”). The Company’s management has been in discussions with Qenta regarding the status of the Purchase Agreement. As of the filing date of this report, we are obligated to deliver to PDK 24,047Qenta 31,027 ounces of gold, plus default interest of approximately $495,000 (calculatedcalculated at the rate of LIBOR plus 2%), under the Amended Agreement. We are involved in ongoing discussions with representatives of PDKQenta in an attempt to resolve these late payments and to renegotiate the gold delivery agreement.schedule.