You should rely only on the information contained in this Prospectus, any prospectus supplement or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the Selling Stockholders have not, authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholdersinformation. We and the Selling Stockholders are not offering to sell, andor seeking offers to buy, shares of our common stock onlyCommon Stock in jurisdictions where offers and sales are not permitted. The information contained in this prospectusProspectus is accurate only as of the date of this prospectus,Prospectus, regardless of the time of delivery of this prospectusProspectus or of any sale of common stock.shares of our Common Stock.
Unless otherwise indicated, any reference to Desert Hawk, or as “we”, “us”, or “our” refers to Desert Hawk Gold Corp. and/or its wholly owned subsidiary, Blue Fin Capital, Inc.
PROSPECTUS SUMMARY
The following summary highlights selected material information contained in this prospectus.Prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectusProspectus carefully, including the “Risk Factors” section, the financial statements and the notes to the financial statements.
Desert Hawk Gold Corp.
Our Company
Corporate History
Desert Hawk Gold Corp. is an exploration stage company which holds(the “Company”) was incorporated on November 5, 1957, in the State of Idaho as Lucky Joe Mining Company. In 2008 we changed our corporate domicile to the State of Nevada by merging with a wholly-owned subsidiary formed solely for this purpose. Our Nevada corporation was incorporated on July 17, 2008. We have no subsidiaries.
Business Overview
We are currently engaged in the extraction of gold and related precious metals from our Kiewit mining claims in Utah and Arizona. Through two lease agreements which encompass all of the Utah claims, we intend to conduct exploration and pilot activities on claimsproperty located in the Gold Hill Mining District in Tooele County, Utah. Within this mining district we hold leasehold interests in 334 unpatented load and placer mining claims, including an unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands, covering approximately 33 square miles. We also hold eight unpatented lode mining claims in Yavapai County, Arizona, on which we have no current plans to conduct exploration. Our primary focus will be in the Gold Hill Mining District and we intend to concentrate our activities on the Yellow Hammer lode claims, located on four of the patented claims, seven of the unpatented Kiewit lode claims, and the pilot mill located on the Cactus Mill unpatented mill site. We intend to maintain our leasehold interest in the additional mining claims and leases in this district for future exploration, if warranted, but we have no current plans to conduct exploration on these additional claims and leases. We have not identified any proven or probable reserves on any of our mining claims or leases.
We were originally incorporated in the State of Idaho on November 5, 1957, under the name of Lucky Joe Mining Company. For several years the company bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2001 control of the company was acquired by Robert E. Jorgensen, John Ryan, and Howard M. Crosby, who purchased a controlling number of shares and assumed management of the company for the purpose of reengaging in mining operations. Mr. Jorgensen acquired principal stock and management control of the company from Messrs Ryan and Crosby in January 2006. In 2008 we changed the domicile of the company from the State of Idaho to the State of Nevada by merging the Idaho corporation into a newly formed Nevada corporation which was incorporated on July 17, 2008. Following the change of domicile, on April 3, 2009, we changed the name of the company to Desert Hawk Gold Corp. We have one subsidiary, Blue Fin Capital, Inc., which is wholly owned by us and which holds the Arizona mining claims.
In April 2009, we affected a one-for-twelve reverse split of our issued and outstanding shares of common stock. Unless otherwise indicated, all references herein to shares outstanding and share issuances have been adjusted to give effect to this stock split.
On July 14, 2010, we entered into an Investment Agreement (which we refer to throughout this document as the Investment Agreement) with DMRJ Group I, LLC (which we refer to as DMRJ Group). Under the terms of the Investment Agreement, we may borrow up to $6,500,000 to fund our mining activities in the Gold Hill Mining District. We also issued 958,033 shares of our Series A Preferred Stock to the DMRJ Group as additional consideration for entering into the Investment Agreement with us. For a discussion of the terms of the Investment Agreement, see the section heading “Business and Properties – DMRJ Group Investment Agreement” below.
In fall 2009 we completed 116 drill holes on the Yellow Hammer claims ranging in depth from 16 to 72 feet, totaling approximately 6,000 feet of drilling. In fall of 2010 we completed the rebuild of the pilot mill on the Cactus Mill site.
Historically, we have generated no revenues from operations, have experienced losses since inception of our current exploration stage on May 1, 2009, and currently rely upon the funds from DMRJ Group to fund our planned exploration activities. As of September 17, 2010, our cash position was approximately $540,000 and we had received loan advances from DMRJ Group of $1,500,000, plus $225,000 for prepaid interest. Over the next 12 months we have the following principal objectives: to commence processing activities at our pilot plant on the Cactus Mill site using mineralized material extracted from the Yellow Hammer claims; to amend our permitted activities at the Cactus Mill property to include a heap leach facility to process material from the Yellow Hammer claims; and to continue the application process for a large mining operations permit for conducting exploration activities on the Kiewit claims and for constructing and operating a heap leach facility near the claims. We believe that through the financing with DMRJ Group we have sufficient funds available to commence the extraction and processing of mineralized material on the Yellow Hammer project, complete the amendment process for the Cactus Mill leach pad and complete the permitting process for the Kiewit project, including construction of a heap leach facility. However, the repayment of debt and continued operations beyond this initial stage is dependent upon generating revenue from the processing of mineralized material from the Yellow Hammer claims at the Cactus Mill pilot plant.
Through this prospectus, certain selling stockholders are offering up to 8,327,071 shares of our common stock. Approximately 1,440,000 of these shares were purchased at $0.70 per share in two non-public offerings sold in 2009 and 2010. Another 289,584 of these shares were sold at $0.05 per share in a non-public offering in 2008. Also, 2,713,636 of these shares were issued by us in exchange for the outstanding stock of Blue Fin Capital, Inc. in December 2009. Approximately 1,254,390 of these shares were issued to the selling stockholders for services preformed for us. Finally, 300,000 of the shares were issued as bonuses to two parties in connection with loans of $600,000 to us and approximately 1,071,428 shares are issuable upon conversion of these loans and 300,000 are issuable as penalty shares if we fail to repay the loan when due. In addition, we are registering for resale 958,033 shares issuable upon conversion of our outstanding shares of Series A Preferred Stock.
Additional Information
Our principal executive offices are located at 7723 North Morton Street, Spokane, WA 99208. We maintain a mailing address for1290 Holcomb Ave, Reno, NV 89502, and our company at 8921 N. Indian Trail Road, #288, Spokane, WA 99208. Our telephone number is (509) 434-8161.(775) 337-8057. We do not maintainhave a company website.
We are registering the resale of 6,060,824 shares of Common Stock by the Selling Stockholders named in this Prospectus, or their permitted transferees.
Common stockStock offered by selling stockholders:Selling Stockholders | | Up to 5,997,611 outstanding6,060,824 shares (the “Shares”) of our common stock, par value $0.001 per share (the “Common Stock”) owned by the Selling Stockholders. |
| | |
Common Stock outstanding before and up to 1,371,428 shares issuable upon conversion of or penalty payments under outstanding promissory notes.Up to 958,033 shares of common stock underlying Series A Preferred Stock
after the offering | | 26,631,603 shares. |
| | | |
Offering Price:price | | All shares offered by means of this prospectus will be sold at $0.70$0.40 per share until the common stock is our shares are quoted on the OTC Bulletin BoardOTCQB and thereafter at prevailing market prices or privately negotiated prices. |
Common stock outstanding:
Before offering
After offering
| | 7,586,411
9,915,872 (assuming issuance of 1,371,428 shares upon conversion of our outstanding promissory notes and payment of penalty shares on the promissory notes and issuance of 958,033 shares upon conversion
|
Term of the outstanding sharesoffering | | The Selling Stockholders will determine when and how they will dispose of preferred stock)the Shares registered under this Prospectus for resale. |
| | | |
Use of proceeds:proceeds | | We will not receive any proceeds from the sale of the common stockCommon Stock by the selling stockholders.Selling Stockholders. |
| | |
| Risk factors | | We are subject to general risks associated with mineral extraction operations. There is also no public market for our Common Stock and no assurance that any public trading market for our shares will develop in the future. See “Risk Factors” below. |
Investment in our common stock has a high degree of risk. Before you invest you should carefully consider theThe following risks and uncertainties, described below andtogether with the other information set forth in this prospectus. If anyProspectus, should be carefully considered by those who invest in our securities. Any of the following risks actually occur,could materially and adversely affect our business, financial condition or operating results and financial condition could be harmed anddecrease the value of our common stock could go down. This means you could lose all or a part of your investment.
Common Stock.
Risks RelatedRelating to Our CompanyBusiness
Global health crises may adversely affect our planned operations.
Our business could be materially and its Business
If we failadversely affected by the risks, or the public perception of the risks, related to repaya pandemic or other health crisis, such as the loan advances from DMRJ Grouprecent outbreak of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could result in a timely mannerwidespread health crisis that could adversely affect our planned operations. Such events could result in the complete or otherwise breachpartial closure of our agreement with this lender, we would likely loseoperations. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our interest in our mining leases and other assets.
Our loan advances from DMRJ Group under the Investment Agreementability to raise capital.We have obligations which are secured by all of our assets, including our mining leases and equipment. Each separate loan advance to us pursuant toassets. If there is an occurrence of an uncured event of default, the Investment Agreement provides for a specific repayment date of principal and, to the extent interestfunding party can foreclose on the loan is not prepaid at the time of the particular loan advance, we have monthly obligations to pay interest on the amount borrowed after the first year of the loan advance. Repayment of loan advances made for our Yellow Hammer claims commences in March 2011 and advances made for the Kiewit property must be repaid commencing seven months after the first advance. All outstanding balances on any other advances are due upon maturity, which is July 13, 2012. The Investment Agreement also contains numerous affirmative and negative covenants which require us to perform certain obligations or refrain from certain actions so long as any amounts are owed to DMRJ Group under the Investment Agreement. If we fail to meet all of our covenants under the agreement or if we fail toassets, which would make any stock in the Company worthless.
We have entered into a Purchase Agreement with PDK Utah Holdings, LP (“PDK”), pursuant to which the obligation to deliver gold against cash advances was secured by all of our assets. We are required paymentto commence delivery of principal or interest when due, it is likely that DMRJ Group would callgold in December 2020. In the full amount of the outstanding balances on our loans immediately due. Ifevent we are unable to repaymake delivery of the outstanding balances at this time, we anticipate that DMRJ Group wouldgold when due, PDK may foreclose on its security interest andall of our assets. In the event PDK forecloses on our assets, any stock in the Company would likely take control of or liquidate our mining leases and other assets. Because the Investment Agreement limitshave no value. Our ability to make gold deliveries on these cash advances when due, will depend upon our ability to raise outside funds during the effective periodsuccessfully develop our Kiewit mining project.
The value of the Investment Agreement, itour property is unlikely that we would be ablesubject to obtain alternate financing to satisfy the obligations owed to DMRJ Groupvolatility in the event of foreclosure. If we lose our mining leases and other assets to DMRJ Group in foreclosure, we would not be able to continue our business operations as currently planned and you would lose your entire investment in our common stock.
Because of our historic losses from operations since the inception of our exploration stage on May 1, 2009, there is substantial doubt about our ability to continue as a going concern.
Our auditor’s report on our 2009 consolidated financial statements includes an additional explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. These consolidated financial statements for the year ended December 31, 2009, were prepared on the basis that our company is a going concern, which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. Our ability to continue as a going concern is uncertain and dependent upon continuing to obtain the financing necessary to meet our financial commitments and to complete the exploration of our mining properties and/or realizing proceeds from the sale of mineralized material from the properties. Our continuation as a going concern is primarily dependent upon the continued financing from DMRJ Group under the Investment Agreement and the attainment of profitable operations. As at June 30, 2010, we had cash and cash equivalents of $256,570, working capital of $75,372, and accumulated losses of $1,100,372 since inception of our current exploration stage. These factors raise substantial doubt regarding our ability to continue as a going concern. Neither our 2009 audited financial statements nor our interim unaudited financial statements for the six months ended June 30, 2010, include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
If we fail to meet certain milestones in our funding agreement with DMRJ Group, we will not have access to the full amount of the funds available under this arrangement, which could materially hamper our ability to continue our planned operations.
Management anticipates that the minimum cash requirements to fund our proposed exploration program can only be met through our financing arrangement with DMRJ Group. In order to continue to borrow funds under our Investment Agreement with DMRJ Group, we are required to meet certain milestones in our operations. For the final two $500,000 advances related to the Yellow Hammer project, we must have commenced mining of copper from the property and produced at least 400,000 pounds of copper concentrate. For advances on the Kiewit project we must have obtained and be in compliance with all environmental and mining permits for the project and have paid our initial Yellow Hammer advance repayment amount for the month of February 2011. This repayment amount is $511,616. If we fail to meet these milestones, these funds will not be available to us and we have no other source for funding to continue our planed activities.
If we are unable to generate revenue from the sale of mineralized material from the Yellow Hammer claims, we will likely not be able to continue our operations.
We have no history of producing metals from any of our properties. Our properties are all exploration stage properties in various stages of exploration and we have no proven or probable reserves on any of these properties. The first phase of our business plan is to complete the testing of the pilot mill at the Cactus Mill property, process mineralized material from the Yellow Hammer claims at the pilot plant and sell any concentrate produced by us from the pilot plant. We have not completed any feasibility study of the Yellow Hammer claims and there are no known or established commercially minable deposit for extraction on these claims and no known mineral deposit which could be economically extracted. We also have no firm off-take agreements for any concentrate produced by us. If the mineralized material from the Yellow Hammer claims fails to produce concentrate that can be sold at a profit for a sufficient period to repay our outstanding debt to DMRJ Group and others, it is unlikely that we would be able to continue any operations or explore our other mining properties and it is probable that our proposed business would fail.
We have a history of losses and are dependent upon revenue from our planned operations through our Cactus Mill pilot plant to continue our proposed operations.
In the fiscal year ended December 31, 2009, we had net losses of $518,219. For the six months ended June 30, 2010, we had comprehensive losses of $612,778. Since the commencement of our exploration stage on May 1, 2009, we have experienced accumulated losses of $1,100,372. We have not commenced commercial production on any of our mineral properties. We have no revenues from operations and anticipate we will have no operating revenues until we commence mineralized material processing operations on one or more of our properties. All of our properties are in the exploration stage, and we have no known mineral reserves on our properties. Even if we generate revenue from mineralized material on the Yellow Hammer or other claims, we may not achieve or sustain profitability in the future. If we do not begin to generate revenues before our current cash resources expire, we will either have to suspend or cease operations, in which case you will lose your investment.
Although we intend to commence the processing of mineralized material from the Yellow Hammer claims, we do not have any proven or probable reserves on this site. As a result we may not be able to locate mineral deposits or reserves on this site which could be economically and legally extracted or produced.
Our first phase of proposed operations includes processing mineralized material from our Yellow Hammer claims at our pilot plant on our Cactus Hill property. Nevertheless, we have not identified any proven or probable reserves on these claims which makes these extraction operations on them very speculative. If we are not able to quickly locate mineralized material which can be economically extracted and produced, the funds we spend on these claims may be lost which could have a material negative impact on our ability to continue operations.
Changes in the market prices of copper, gold and other metals, which in the past have fluctuated widely, will affect the profitability of our proposed operations and financial condition.
Our potential profitability and long-term viability depend, in large part, upon the market price of copper, gold and other metals and minerals which may be extracted from our mining claims and leases. The market price of copper, gold and other metals is volatile and is impacted by numerous factors beyond our control, including:
| · | expectations with respect to the rate of inflation; |
| · | the relative strength of the U.S. dollar and certain other currencies; |
| · | global or regional political or economic conditions; |
| · | supply and demand for jewelry and industrial products containing metals; and |
| · | sales by central banks and other holders, speculators and producers of gold and other metals in response to any of the above factors. |
We cannot predict the effect of these factors on metal prices. In particular, gold and copper prices have fluctuated during the last several years. The price of copper (London Fix) has ranged from approximately $1.50 to approximately $3.25 per ounce during calendar 2009, closing at approximately $3.25 on December 30, 2009; from approximately $2.80 to approximately $3.75 per ounce during the first two calendar quarters of 2010 to close on June 30, 2010, at approximately $2.80 per ounce. The price of gold
(London Fix) has ranged from $810 to $1,212 per ounce during calendar 2009, closing at $1,087 on December 30, 2009; from $1,052 to $1,259 per ounce during the first two calendar quarters of 2010 to close on June 30, 2010, at $1,244 per ounce. A decreaseand any other deposits we may seek or locate.Our profitability will be significantly affected by changes in the market price of copper, gold and silver, and other metals could affect the commercial viabilityminerals. These mineral prices fluctuate widely and are affected by numerous factors, all of which are beyond our properties and our anticipated exploration of such properties in the future. Lower copper or gold prices could also adversely affect our ability to finance exploration of our properties.
In addition, the makeup of gold investors and users has changed significantly which has affectedcontrol. For example, the price of gold
can be influenced by the sale or purchase of gold by central banks and financial institutions; interest rates; currency exchange rates; speculation; inflation or deflation; fluctuation in
particularthe value of the United States dollar and other currencies; global and regional supply and demand, including investment, industrial and jewelry demand; and the political and economic conditions of major gold producing countries throughout the world, such as Russia and South Africa. The price of gold and other minerals has fluctuated widely in recent
years. Historically, the demand for gold was driven by the needs of jewelers, dentistsyears, and
electronics manufacturers who used gold in their businesses. In 1998 investors in gold accounted for only 6.9% of demand. During 2009 they accounted for 39% anda decline in the
second quarterprice of
2010, they accounted for 51%. During the first quarter of 2009, when the stock market was at its lowest, investors accounted for 60% of the demand for gold. This shift in demand for gold
or other minerals could
mean that positive changescause a significant decrease in the
macro-economyvalue of our property, limit our ability to raise money, and render continued exploration and development of our property impracticable. If that happens, then we could
lead investorslose our rights to our property and be compelled to sell
some or all of these rights. Additionally, the future development of our mining properties is heavily dependent upon the level of metals prices remaining sufficiently high to make the development of our property economically viable. An investor may lose its investment if the price of these minerals substantially decreases. The greater the decrease in the price of gold
in large quantities, whichor other minerals, the more likely it is that an investor will lose money.To continue our operations, we may need to obtain additional financing from PDK or outside sources.
Other than future advances by PDK, we have no firm commitments or agreements to provide additional funding to have sufficient capital to fund our operations as they are currently planned or to fund the acquisition and exploration of new properties. We also may be unable to secure additional financing on terms acceptable to us, or at all. Our inability to raise additional funds on a timely basis could result in dramatically decreased demandprevent us from achieving our business objectives and lower prices for gold. These lower prices could have a negative impact on our proposed business.
Webusiness, financial condition, results of operations and the value of our securities. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership of existing stockholders may be diluted and the securities that we may issue in the future may have
significant cash commitments underrights, preferences or privileges senior to those of the current holders of our
lease agreements and ifcommon stock. Such securities may also be issued at a discount to the fair market value of our common stock, resulting in possible further dilution to the book value per share of common stock. If we
fail to meet these obligations,raise additional funds by issuing debt, we could
losebe subject to debt covenants that could place limitations on our
rightoperations and financial flexibility.Our management may have conflicts of interest and only devote a portion of their business time to conduct mining activities on these claims.
Underus which could materially and adversely affect us and our
current lease agreementsbusiness.Most of our management does not work for our claims in the Gold Hill Mining District, we are obligated to commence operations of the claims within three yearsus exclusively and pay annual maintenance costssome serve on the claims. The annual claim maintenance costs, including annual maintenance fees payableboards of other companies, although we do not consider any of these other companies to the BLMbe our direct competitors. Nevertheless, these other responsibilities may take away from time and focus of these parties on their responsibilities as management of our Company. It is possible that a conflict of interest may arise based on management’s other employment or board activities. Situations may arise where members of our management are presented with business opportunities which may be desirable not only for us, but also for the unpatented claims, the annual state trust lands mineral lease fees, and property tax paymentsother companies with which they are substantial. For 2010 and following yearsaffiliated.
We do not know if our properties contain any gold, silver, copper, tungsten, or other precious minerals that can be mined at a profit.
The properties on which we are responsible for these costs. If we fail to make these maintenance, tax and other payments, we may losehave the right to continueexplore for and mine precious minerals are not known to have any proven or probable reserves. Whether a precious mineral deposit can be mined at a profit depends upon many factors. Some but not all of these factors include: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; operating costs and capital expenditures required to start mining activities ona deposit; the claims. In addition, pursuantavailability and cost of financing; the price of the gold or other mineral which is highly volatile and cyclical; and government regulations, including regulations relating to the termsprices, taxes, royalties, land use, importing and exporting of our lease agreements, if we failminerals and environmental protection. We are also obligated to commence commercial scale operationspay royalties and taxes on certain of the claims priorour mining activities, which will make our ability to July 2012,operate profitably more difficult.
We are a junior mining company with limited operating mining activities, and we will be required to pay $50,000 for an annual holding fee to retain rights to these claims. We have paid the 2010 maintenance costs in the aggregate amount of $46,760 for the unpatented claims in the Gold Hill Mining District. We also paid $1,053 for the 2010 mineral lease fees on two of the Utah mineral leases and anticipate paying fees of approximately $4,637 on the remaining state leases in December 2010. We also anticipate paying approximately $6,500 for 2010 property taxes on the Utah patented claims. We anticipate that future annual fees will be comparable, and if we are unable to pay these fees from DMRJ Group loan advances or revenue generated from our extraction activities in the future, we would lose our interest in all of our claims and leases.
We may not be able to
obtain all required permitsincrease our mining activities in the future.Our business is mining for gold, silver and licensesother precious minerals. Mining operations in the United States are subject to commence exploration activities on our properties, or the permitting process could be delayed, which could cause delays in our proposed plan of operations or increase the cost of those planned operations.
Our current proposedmany different federal, state and future operations, including the initial extraction and processing of mineralized material from our Yellow Hammer claims, require permits from governmental authorities and such operations are and will be governed bylocal laws and regulations, governing exploration, taxes, labor standards, occupationalincluding stringent environmental, health waste disposal, toxic substances, land use, environmental protection, mineand safety and other matters. Companies engaged in exploration oflaws. In the event we increase operations on our mining properties, and related facilities generally experience increased costs, and delays in these activities and other schedules as a result of the needit is possible that we will be unable to comply with applicable laws, regulations and permits. Our current Small Mining Operations Permit for the Yellow Hammer claims is limited to operations in an area within five acres. Management anticipates that this permit will be sufficient for planned extraction activities on the Yellow Hammer claims for only one to three years and would not permit commencement of operations on the Kiewit claims. We do not have in place the necessary permits to commence operations on the Kiewit claims. A Large Mining Operations Permit for the Kiewit claims will require an extensive environmental assessment or preparation of a Plan of Operation. We have a permit to operate our proposed pilot plant on the Cactus Mill property, but do not have the required permits to add a planned heap leach facility near this property or for the Kiewit claims. We cannot predict if all permits which may be required for continued exploration activities or construction of facilities will be obtainable on reasonable terms or within the periods planned by us. Costs related to applying for and obtaining permits and licenses may be prohibitive and could delay our planned exploration activities. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.
Our activities are subject to environmentalfuture laws and regulations, that may increase our costs of doing business and restrict our planned mineral extraction and processing activities.
All phases of our planned mineral extraction and processing activities are subject to environmental regulation in the jurisdictions in which
we operate, in particular Tooele County, Utah. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. A Large Mining Operations Permit for our Kiewit claims will also require an extensive environmental assessment or preparation of a Plan of Operation. Compliance with environmental laws and regulations and future changes in these laws and regulations may require significant capital outlays and may cause material changes or delays in our operations and future activities.can change at any time. It is possible that
future changes
into these laws
will be adverse to our mining operations. Moreover, compliance with such laws may cause substantial delays and require capital outlays in excess of those anticipated, adversely affecting any potential mining operations. Our future mining operations may also be subject to liability for pollution or
regulations couldother environmental damage. We are not currently insured against this risk because of high insurance costs.We have a significant adverse impact onshort operating history, have only lost money and may never achieve any meaningful revenue.
Our operating history consists of limited operations and continuation of preliminary exploration activities. Our expenses have consistently exceeded the revenue generated from our propertiesmining operations. Exploring for and mining precious minerals or some portion of our business, causing us to re-evaluate those activities at that time.
Land reclamation requirements for our properties may be burdensome and expensive.
In addition to the current reclamation bonds posted by us, we will likely have additional reclamation requirements associated with our Large Mining Operations Permit for which we have applied for the Kiewit claims. Reclamation requirements by governmental authorities are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our potential exploration activities, we must allocate financial resources that might otherwise be spent on further exploration programs. If we are required to carry out unanticipated reclamation work, our financial positionis an inherently speculative activity. Our revenue could be adversely affected.
We are dependent upon the servicesaffected by many outside influences and we may never achieve revenue in amounts sufficient to provide for payment of our President to provide the principal mining expertise for our proposed exploration activities. The loss of Mr. Havenstrite could delay our business plan or increase the costs associated with our plan.
Other than our President, Rick Havenstrite, our officers and directors have no professional accreditation or formal training in the business of mineral exploration. With no direct training or experience these other members of our management team may not be fully aware of many of the specific requirements related to working within this industry. Decisions so made without this knowledge may not take into account standard engineering management approaches that experienced exploration corporations commonly make. Consequently, our business, earnings and ultimate financial success could suffer irreparable harm as a result of management’s lack of experience in the industry. The loss of our President could adversely affect our business. We have an employment agreement with Mr. Havenstrite for an initial period of four years until 2014. However, we do not maintain key-man insurance on Mr. Havenstrite. We may not be able to hire and retain personnel in the future, or the cost to retain replacement personnel may be excessive, in the event Mr. Havenstrite becomes unavailable for any reason.
Title to our properties may be subject to other claims, which could affect ourexpenses.Our property rights and claims.
There are risks that title to our properties may be challenged or impugned. Our principal properties are located in Utah and may be subject to prior unrecorded transfer agreements and royalty rights and title may be affected by other undetected defects. There may be validchallenged. We are not insured against any challenges, to the title of our properties which, if successful, could impair exploration operations on the claims. This is particularly the case in respect of our properties through which we hold our interest solely pursuant to leases with the claim holders, as such interests are substantially based on contract as opposed to a direct interest in the property.
Several of the mineral rightsimpairments or defects to our
properties consistmineral claims or property title.Our property is comprised of patented and unpatented mininglode claims created and maintained in accordance with the U.S.federal General Mining Law.Law of 1872. Unpatented mininglode claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mininglode claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the U.S. General Mining Law, includingLaw. Until the requirementclaims are surveyed, the precise location of a proper physical discovery of valuable minerals within the boundaries of each claimthe claims may be in doubt and proper compliance with physical staking requirements. Also,our claims subject to challenge. If we discover mineralization that is close to the claims’ boundaries, it is possible that some or all of the mineralization may occur outside the boundaries. In such a case we would not have the right to extract those minerals. This uncertainty leaves us exposed to potential title suits. Defending any challenges to our property title will be costly and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented mininglode claims are always subject to possible challenges by third parties or validity contests by the federal government. government, which, if successful, may prevent us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation or limit our ability to explore on certain portions of our property. We are not insured against challenges, impairments or defects to our property title, nor do we intend to carry title insurance in the future.
We may not be able to maintain the infrastructure necessary to conduct mining activities.
Our mining activities depend upon adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our mining activities and financial condition.
Our mining activities may be adversely affected by the local climate.
The validitylocal climate sometimes affects our mining activities on our properties. Earthquakes, heavy rains, snowstorms, and floods could result in serious damage to or the destruction of an unpatentedfacilities, equipment or means of access to our property, or could occasionally prevent us temporarily from conducting mining or mill site claim, in termsactivities on our property. Because of both itstheir rural location and the lack of developed infrastructure in the area, our mineral properties in Utah are occasionally impassible during the winter season. During this time, it may be difficult for us to access our property, maintain production rates, make repairs, or otherwise conduct mining activities on them.
Risks Relating to the Mining Industry
Mining for precious metals is an inherently speculative business. The properties on which we have the right to mine for precious minerals are not known to have any proven or probable reserves. If we are unable to extract gold, silver, or any other resources which can be mined at a profit, our business could fail.
Natural resource mining, and precious metal mining, in particular, is a business that by its maintenance,nature is dependent on strict compliance withspeculative. There is a complex bodystrong possibility that we will not discover gold, silver, or any other resources which can be mined or extracted at a profit. Even if we do discover and mine precious metal deposits, the deposits may not be of federal and state statutory and decisional law. In addition, there are few public records that definitively determine the issuesquality or size necessary for us or a potential purchaser of validity and ownership of unpatentedthe property to make a profit from mining claims. Should the federal government impose a royalty or additional tax burdens on theit. Few properties that lie within public lands,are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides and the resultinginability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits. If we are unable to extract gold, silver, or any other resources which can be mined at a profit, our business could fail.
Our business is subject to extensive environmental regulations which may make exploring or mining prohibitively expensive, and which may change at any time.
All of our operations couldare subject to extensive environmental regulations which can make exploration expensive or prohibit it altogether. We may be seriously impacted, depending uponsubject to potential liabilities associated with the typepollution of the environment and the disposal of waste products that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial position, which may cause loss of investor investment. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or to enter into interim compliance measures pending the burden.
We do not maintain insurance with respectcompletion of the required remedy. If a decision is made to certain high-risk activities, which exposes us tomine our properties our potential exposure for remediation may be significant, risk of loss.
Mining operations generally involve a high degree of risk. Hazards such as unusual or unexpected formations or other conditions are often encountered. Weand this may
become subject to liability for pollution or hazards against which we cannot insure or against which we cannot maintain insurance at commercially reasonable premiums. Any significant claim would have a material adverse effect
upon our business and financial position. All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have significant impact on
some portion of our business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited to, the risk that regulatory authorities may increase bonding requirements beyond our financial
positioncapability. Inasmuch as posting of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits, increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental laws. We have been required to post substantial bonds under various laws relating to mining and
prospects.the environment and may in the future be required to post further bonds to pursue additional activities. We
may be unable or unwilling to post such additional bonds which could prevent us from realizing any commercial mining success or commencing mining activities.
Market forces or unforeseen developments may prevent us from obtaining the supplies, equipment and skilled manpower necessary to explore for mineral resources.
Precious metals exploration, and resource exploration in general, is a very competitive business. Competitive demands for contractors and unforeseen shortages of supplies and/or equipment could result in the disruption of our planned exploration and production activities. Current demand for exploration drilling services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled times for our exploration and production programs. Fuel prices are not currently covered by any form of environmental liability insurance, since insurance against such risks, including liabilityextremely volatile as well. We will attempt to locate suitable equipment, materials, manpower and fuel if sufficient funds are available. If we cannot find the equipment, supplies and skilled manpower needed for pollution, is prohibitively expensive. Weour various exploration and production programs, we may have to suspend operationssome or take interim cost compliance measures if we are unable to fully fund the costall of remedying an environmental problem, if any of these uninsured events were to occur.
A shortage ofthem until equipment,
and supplies,
couldfunds and/or skilled manpower become available. Any such disruption in our activities may adversely affect our
abilityexploration activities and financial condition.
Risks Relating to operateOur Organization and Common Stock
There is currently no market for our business.
We arecommon stock, and we cannot ensure that one will ever develop or be sustained.There is currently no public market for our common stock. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. If an active market is established, the market liquidity will be dependent on various suppliesthe perception of our operating business, among other things. We will take certain steps including utilizing investor awareness campaigns, press releases, road shows and equipmentconferences to carry outincrease awareness of our exploration activities. These include crushing services for mineralized material from our Yellow Hammer claims, road grading services, chemicalsbusiness and maintenance equipment for our pilot plant, and parts and supplies for our extraction and hauling equipment. We haveany steps that we might take to bring us to the awareness of investors may require we compensate consultants with cash and/or stock. There can be no long-term agreements to provide these suppliesassurance that there will be any awareness generated or services. The shortagethe results of such supplies, equipment and parts could have a material adverse effectany efforts will result in any impact on our abilitytrading volume. Consequently, investors may not be able to carry out our operationsliquidate their investment or liquidate it at a price that reflects the value of the business and therefore limit or increase the cost of our exploration activities.
Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.
The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing gold or other metals. Wetrading may be at
an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a
competitive disadvantage in acquiring additional mining properties evenmarket should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the
Gold Hill Mining District because we must compete withsecurities or accept our shares for deposit in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other
individualsselling costs may exceed the selling price. Further, many lending institutions will not permit the use of low-priced shares of common stock as collateral for any loans.Our principal shareholders, officers and companies, many of which have greater financial resources, operational experience and technical capabilities than we have. We may also encounter increasing competition from other mining companiesdirectors own a substantial interest in our efforts to hire experienced mining professionals. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs, mining equipmentvoting stock and production equipment. Increased competition could adversely affect our ability to attract future capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.
We compete with larger, better capitalized competitors in the mining industry.
The mining industry is competitive in all of its phases, including financing, technical resources, personnel and property acquisition. It requires significant capital, technical resources, personnel and operational experience to effectively compete in the mining industry. Because of the high costs associated with exploration, the expertise required to analyze a project’s potential and the capital required to explore a mine, larger companies with significant resources mayinvestors will have a
competitive advantage over us. We face strong competition from other mining companies,limited voice in
particular Rio Tinto which operates a large copper mine inour management.Our principal shareholders, including the area, some with greater financial resources, operational experience and technical capabilities than we have. As a result of this competition, we may be unable to maintain or acquire future financing, personnel, technical resources or attractive mining properties on terms we consider acceptable or at all.
Increased commodity and labor costs could affect our financial condition.
We anticipate that costs at our Gold Hill projects will frequently be subject to variation from one year to the next due to a number of factors, such as changing grades of mineralized material, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the mineral body. In addition, costs are affected by the price of commodities such as fuel, chemicals and electricitySelling Stockholders, as well as labor costs. Such commodities are at times subject to volatile price movements, including increases that could make exploration activities at certain operations less profitable. We do not have firm contracts or commitments for the commodities or all labor in connection with the exploration or extraction activities on the mining claims. A material increase in these costs could have a significant effect on our cost of operationsofficers and potential profitability.
Transportation difficulties and weather interruptions may affect and delay proposed activities and could impact our proposed business.
Our mining properties are accessible by road and there are no other means of transportation available such as rail or navigable water ways. The climatedirectors, in the area is hot and dry inaggregate beneficially own a majority of our outstanding common stock, including shares of common stock issuable upon exercise or conversion within 60 days of the summer but cold and subject to snow indate of this filing.Additionally, the winter, which could at times hamper accessibility depending on the winter season precipitation levels. Significant snowfall could make accessing our properties difficult or impossible by truck. As a result, our exploration plans could be delayed for certain periods each year. These delays could affect our ability to process and transport mineralized material from the claims to the pilot plant which could have a material impact on our ability to generate revenue.
Our directors and officers may have conflicts of interest as a result of their relationships with other companies.
Certainholdings of our officers and directors
are also directors, officers or shareholders of other companies that are similarly engaged may increasein the
businessfuture upon vesting or other maturation of
acquiring, exploring and exploiting mining properties. For example, John Ryan, oneexercise rights under any of the options they currently hold or which may in the future be granted or if they otherwise acquire additional shares of our
common stock.As a result of their ownership and positions, our principal shareholders, directors also servesand executive officers collectively are able to influence all matters requiring shareholder approval, including the following matters:
| ● | election of our directors; |
| ● | amendment of our articles of incorporation or bylaws; and |
| ● | effecting or preventing a merger, sale of assets or other corporate transaction. |
In addition, their stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.
We are subject to the reporting requirements of federal securities laws, and compliance with such requirements can be expensive and may divert resources from other projects, thus impairing our ability to grow.
We are subject to the information and reporting requirements of the Securities and Exchange Act of 1934, as a director for Gold Crest Mines, Inc., Trend Mining Company, Lucky Friday Extension Mining Company, Inc., Mineral Mountain Mining and Milling Company, Tintic Standard Gold Mines, Inc., Consolidated Goldfields, Inc.amended (the “Exchange Act”), and Silver Verde May Mining Company, Inc. Consequently, there is a possibility thatother federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission and furnishing audited reports to stockholders will cause our directors and/or officersexpenses to be higher than they would have been if we were privately held.
It may be time consuming, difficult and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley Act and the Dodd-Frank Act. We may need to hire additional financial reporting, internal controls and other finance personnel in a positionorder to develop and implement appropriate internal controls and reporting procedures.
If we fail to establish and maintain an effective system of conflict in the future. In addition, our President, Rick Havenstrite, dedicates part of his time to operating his overhead door business in Reno, Nevada, which means that he is not able to devote all of his business time to our company.
We do not have water currently available in sufficient quantity to operate our planned leaching facility near the Kiewit claims, and if we are unable to produce sufficient water,internal control, we may not be able to commence planned activities on these claims.
The Kiewit claims are located in an arid high desert climate with no other water source than may be provided through a well. We have not testedreport our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the
area near the claimstrading price of our common stock.Effective internal control is necessary for the proposed well or any other water source sufficientus to operate the planned Kiewit leaching facility. In addition, if the water table for the planned well is deeper than we estimate, the cost of constructingprovide reliable financial reports and maintaining the well may increase.prevent fraud. If we are unable to locate a suitable water source by means of the proposed wellcannot provide reliable financial reports or otherwise,prevent fraud, we may not be able to proceedmanage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our proposed activities on the Kiewit claims, which could alsosmall size and any current internal control deficiencies may adversely affect our abilityfinancial condition, results of operation and access to secure necessary operating permitscapital. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.
Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and rules implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in 2020 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the leaching facilitysame or similar coverage. As a result, it may be more difficult for us to attract and future loan advances from DMRJ.
Risks Relatedretain qualified persons to
serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all.Our Common Stock
There is currently no public tradingstock price may be volatile.If a market for our common stock is ever established, the market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which meansare beyond our control, including the following:
| ● | our inability to maintain existing permits; |
| ● | changes in the prices of gold and silver; |
| ● | changes in our industry; |
| ● | competitive pricing pressures; |
| ● | our ability to obtain working capital financing; |
| ● | additions or departures of key personnel; |
| ● | limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock; |
| ● | our ability to execute our business plan; |
| ● | sales of our common stock; |
| ● | operating results that fall below expectations; |
| ● | loss of any strategic relationship; |
| ● | regulatory developments; |
| ● | economic and other external factors; and |
| ● | period-to-period fluctuations in our financial results; and inability to develop or acquire new or needed technology. |
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that youare unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be requiredlimited to holdthe value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your shares ininvestment will only occur if our companystock price appreciates.
Our common stock may be deemed a “penny stock,” which would make it more difficult for an indefinite period.
our investors to sell their shares.Our common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not quoted on either the OTC Bulletin Board or the Pink Sheets and is not listed on any exchange. Until the common stock is quoted on an electronic quotation serviceNASDAQ Stock Market or listed on another national securities exchange it is unlikely that any public market for the common stock will be established. It is unlikely that our company would qualify for listing on a stock exchange in the near future, if ever. Application for quotation on an electronic quotation service requires finding a market maker willing to make the application. The application process entails review by FINRA, the self-regulated industry processer of these applications, and may take several months. The application process cannot commence until the registration of which this prospectus is a part is declared effective by the Securities and Exchange Commission. We have not identified any broker-dealers who may be willing to make application on our behalf.
Because our shares are designated as Penny Stock, broker-dealers will be less likely to trade in our stock in the future due to, among other items, the requirements for broker-dealers to disclose to investors the risks inherent in penny stocks and to make a determination that the investment is suitable for the purchaser.
Our shares are designated as “penny stock” as defined in Rule 3a51-1 promulgated under the Exchange Act and thus, if a public market for the stock develops in the future, may be more illiquid than shares not designated as penny stock. The SEC has adopted rules which regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are defined generally as non-NASDAQ equity securities with a price oftrades at less than
$5.00$4.00 per
share;share, other than companies that
are not traded on a “recognized” national exchange; or in issuers with net tangible assets less than $2,000,000, if the issuer has been in continuous operation forhave had average revenue of at least
three years, or $10,000,000, if in continuous operation for less than three years, or with average revenues of less than $6,000,000 for the last three
years. Theyears or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock
rules requireto persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a
broker-dealer to deliver a standardized risk disclosure document
prepared by the SEC, to provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject to the penny stock rules. Since our securities are subject to the penny stock rules, investors in the shares may find it more difficult to sell their shares in any market which may develop in the future.quote information under certain circumstances. Many brokers have decided not to trade
in penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.
The reduction inIf we remain subject to the
number of available market makers and other broker-dealers willing to trade in penny stocks may limit the ability of purchasers in this offering to sell their stock in any secondary market which could develop in the future. These penny stock
regulations, and the restrictions imposedrules for any significant period, it could have an adverse effect on the
resale of penny stocks by these regulations, could adversely affect our stock pricemarket, if
a public trading marketany, for our
securities. If our securities are subject to the penny stock
rules, investors will find it more difficult to dispose of our securities.Exercise of options or future convertible instruments may have a dilutive effect on our common stock.
We have outstanding vested options to purchase 2,400,000 shares of our common stock at $0.40 per share. If the price per share of our common stock at the time of exercise of these or future options or warrants, or conversion of any future convertible notes or any other convertible securities is established in excess of the future.
Our boardArticles of directors can, without stockholder approval, cause preferred stock to be issued on terms that adversely affect common stockholders.
Under our articles of incorporation,Incorporation allow for our board
of directors is authorized to
issue up to 10,000,000 sharescreate new series of preferred stock
only 958,033 of which are issued and outstanding as of the date of this prospectus, and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without
any further
vote or actionapproval by our stockholders,
except as limited by the rights under our Series A Preferred Stock. If the board causes any additional preferred stock to be issued,which could adversely affect the rights of the holders of our common
stock could be adversely affected. The board’s abilitystock.Our board of directors has the authority to fix and determine the termsrelative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult forwithout further stockholder approval. As a third party to acquire a majority ofresult, our outstanding voting stock. Additional preferred shares issued by the board of directors could include voting rights, or even super voting rights, which could shiftauthorize the abilityissuance of a series of preferred stock that would grant to controlholders the companypreferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of the preferred stock. These preferred shares could also have conversion rights into shares of common stock at a discountand the right to the market priceredemption of the common stock which could negatively affect the market for our common stock. In addition, preferred shares, would have preference in the event of liquidation of the corporation, which means that the holders of preferred shares would be entitled to receive the net assets of the corporation distributed in liquidation before the common stock holders receive any distribution of the liquidated assets.
We have not paid, and do not intend to pay, dividends on our common shares and therefore, unless our common stock appreciates in value, our investors may not benefit from holding our common stock.
We have not paid any cash dividends since inception. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, provisions in our Investment Agreementtogether with DMRJ Group restrict our ability to declare and pay dividends on common stock as long as we have outstanding obligations to DMRJ Group. Nevertheless, if our common stock is not quoted on the OTC Bulletin Board or listed on a senior exchange on or before July 13, 2011, and during any period we fail to maintain a quotation or listing for our common stock, the holders of the Series A Preferred Stock shares are entitled to quarterly dividends equal to 10% of our consolidated net income for each quarter commencing with the quarter beginning July 1, 2011. In addition they are entitled to dividends or distributions madepremium, prior to the holders of our common stock to the same extent as if such holders of the Series A shares had converted their preferred shares into common stock. As a result, our common stock investors will not be able to benefit from owning our common stock unless a market for our common stock develops in the future and the market price of our common stock becomes greater than the price paid for the stock by these investors.
Any public trading market for our common stock which may develop in the future will likely be a volatile one and will generally result in higher spreads in stock prices.
If a public trading market for our common stock develops in the future, it would likely be in the over-the-counter market by means of the OTC Bulletin Board. The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business plan pertaining to the Gold Hill properties, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market priceredemption of our common stock. In addition, our board of directors could authorize the spreads onissuance of a series of preferred stock traded through the over-the-counter market are generally unregulated and higherthat has greater voting power than on the NASDAQ or other exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices of theour common stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers. We cannot insure that our trading volume will be sufficient to significantly reduce this spread, or that we will have sufficient market makers to affect this spread. ��These higher spreadsis convertible into our common stock, which could adversely affect investors who purchasedecrease the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time the investor wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale.
There may be conflicts of interest between our outside legal counsel who assisted us in preparation of the registration statement of which this prospectus is a part and our company because of the ownership of shares of our company by him.
The attorney who prepared the registration statement of which this prospectus is a part is also a shareholder which creates the potential for a conflict of interest in his representation of our company. He owns 15,000 sharesrelative voting power of our common stock which represents less than 1% of the outstanding shares. Conflicts of interest create the risk that he may have an incentive to act adversely to the interests of the company, especially where he would have a pecuniary interestor result in selling his shares in the future. Further, our attorney’s pecuniary interest may at some point compromise his fiduciary dutydilution to our company, in which event he would likely resign and we would be required to retain new counsel.
Rule 144 will not be available for the outstanding shares acquired after 1995 for a period of at least one year after the original filing date of the registration statement of which this prospectus is a part, which means that these shareholders may not be able to sell their shares in the open market during this period.
Rule 144, as recently amended, does not permit reliance upon this rule for the resale of shares sold after the issuer first became a shell company, until the issuer meets certain requirements, including cessation as a shell company, the filing of a registration statement, and the filing for a period of one year periodic reports required under the Exchange Act. We estimate that approximately 1,416,074 of our outstanding shares, excluding the shares included for resale in this prospectus, were purchased after the company first became a shell company in 1995. In addition, we believe all of the issued and outstanding shares of the selling stockholders in this prospectus were acquired after 1995, which means that these persons would not be able to sell their shares during this waiting period except pursuant to this prospectus. If for any reason we withdraw this registration statement or fail to file our periodic reports, these persons may not be able to publicly resell their shares.
existing stockholders.FORWARD-LOOKING STATEMENTS
The statements contained in this prospectusProspectus 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, 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,” “will,” “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 prospectus.Prospectus. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:
| | ·● | metallurgical and other processing problems; |
| | ·● | unusual or unexpected geological formations; |
| | ·● | need for additional funding to continue operations; |
| | |
| ● | global economic and political conditions; |
| | ·● | staffing considerations in remote locations; |
| ● | disruptions in credit and financial markets; |
| | ·● | global productive capacity; |
| | ·● | changes in product costing; and |
| | ·● | competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, flooding, landslides, power outages, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities). |
Mining operations are subject to a variety of existing laws and regulations relating to exploration, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.
TheThese risk factors discussed in “Risk Factors” above could cause our results to differ materially from those expressed in forward-looking statements. There may also be other risks and uncertainties that we are unable to predict at this time or that we do not now expect to have a material adverse impact on our business.
We will not receive any proceeds from the sale of the common stockShares by the selling stockholders.
Market Information
There is currently no public market for our common stock and it is not currently quoted or traded on any established public trading market.SELLING STOCKHOLDERSThis Prospectus relates to the possible resale by the Selling Stockholders named below of shares of the Company’s Common Stock. We intend to make application for quotation of our common stock on the OTC Bulletin Board promptly following the effective date ofare filing the registration statement of which this prospectusProspectus is a part.
At September 14, 2010, we had no options or warrants outstanding, but we did have outstanding promissory notes convertible into shares of our common stock. These three-year notes in the principal aggregated amount of $600,000 were issued on November 30, 2009, and bear interest at 15% which is payable monthly. The principal amount of these notes and interest are convertible into our common shares at any time through November 30, 2012, at the rate of $0.70 per share. The principal on these notes is convertible into approximately 857,143 shares as of the maturity date of the notes. If we failpart pursuant to repay the loans at maturity, we have agreed to issue additional shares to the lenders at the rate of one share for each $2.00 owed at maturity and the maturity date will be extended for one year. We also have outstanding 958,033 shares of Series A Preferred stock which are convertible into 958,033 shares of common stock.
We have granted registration rights only to the selling stockholders herein. We have not proposed to publicly offer any shares of our common stock in a primary offering.
Availability of Rule 144
Rule 144 was adopted by the SEC to provide shareholders a safe harbor which, if followed, would allow shareholders an opportunity to publicly resell restricted or control securities without registration. However, Paragraph (i) of Rule 144 states that the provisions of the
rule are not available forRegistration Rights Agreement we entered into with Clifton Mining Company. References in this Prospectus to the
resale“Selling Stockholders” means Clifton Mining Company, Scott Moeller, Keith Moeller, and any donees, pledgees, transferees or other successors in interest selling shares received after the date of
securities initially issued bythis Prospectus from a
shell company,selling stockholder as a gift, pledge or
a company which atother non-sale related transfer.Each of the time of issuance had ever been a shell company, until certain conditions are met. These conditions include the following: the issuer had ceasedSelling Stockholders, who is deemed to be a shell company;statutory underwriter, will offer its Shares at $0.40 or, upon quotation of our Common Stock on OTCQB, at prevailing market or privately negotiated prices if a market should develop.
We do not know how long the Selling Stockholders will hold the Shares before selling them, and other than the Registration Rights Agreement we entered into with it, is subject towe currently have no agreements, arrangements or understandings with the reporting requirementsSelling Stockholders regarding the sale of any of the Exchange Act;Shares. The Company will not receive any portion or percentage of any of the proceeds from the sale of the Shares.
The following table sets forth ownership of shares held by the Selling Stockholders.
| | | Before Offering | | | | | | After Offering (2) |
| Name | | Number of
Shares
Owned | | | Percent
of
Class (1) | | | Shares
Offered
for Sale | | | Number of
Shares
Owned | | | Percent
of
Class (1) |
| | | | | | | | | | | | | | | |
| Clifton Mining Company | | | 5,810,824 | | | | 22 | % | | | 5,810,824 | | | | 0 | | | * |
| Keith Moeller | | | 125,000 | | | | 0 | % | | | 125,000 | | | | 0 | | | * |
| Scott Moeller | | | 125,000 | | | | 0 | % | | | 125,000 | | | | 0 | | | * |
| (1) | Based on 26,631,603 shares of Common Stock outstanding as of the date of this Prospectus. |
| (2) | The columns in the table above reflecting “After Offering”: “Number of Shares Owned” and “Percent of Class” are prepared on the basis that all shares being registered in this registration statement are resold to third parties. |
Of the total shares owned by Clifton Mining Company, 5,500,000 were issued on or about March 8, 2019, in connection with the Second Amended and Restated Lease Agreement dated February 7, 2019, with this Selling Stockholder. These shares were issued as partial consideration for entering into the amended lease agreement. Of the remaining shares, 60,824 were issued in 2009 in connection with the transfer of a reclamation bond and 500,000 were issued in 2009 in connection with a joint venture transaction of which 250,000 of these shares were subsequently transferred in the amounts of 125,000 to Keith Moeller and 125,000 to Scott Moeller.
Clifton Mining Company (“Clifton”) is the owner and lessor of the mining claims upon which our principal mining operations are conducted. In addition, on March 26, 2019, we were granted an option to purchase 64 additional patented mining claims from Ben Julian, LLC, an Idaho limited liability company, for $500,000. On June 13, 2019, we entered into a letter agreement with Clifton whereby it has filed all reportswould purchase 44 of the optioned claims and other materials required duringwe would acquire the last 12 months, orremaining 20 claims. Each party would pay one-half of the total purchase price for the claims. The purchase price was paid by each party and the closing of the acquisition occurred on June 14, 2019.
MARKET FOR OUR COMMON STOCK
Market Information
At the date of this Prospectus, there is no public trading market for our Common Stock. We intend to apply for the quotation of our Common Stock on an automated quotation system. There can be no assurance that any application for the quotation of our Common Stock on an automated quotation system will be approved. If any such application is not approved and our common stock ultimately is not quoted on an automated quotation system, we intend to engage a shorter period it was requiredmarket maker to apply for quotation on the OTCQB Market operated by OTC Markets Group, Inc. There can be no assurance that a market maker will agree to file the reports; it has filed “Form 10 information;” and one year has elapsed fromnecessary documents with the date the “Form 10 information” was filed. We ceased principal operations in 1995 and became a shell company. Although management does not believe we are currently a shell company, as a former shell company, our shareholdersFinancial Industry Regulatory Authority (FINRA); nor can there be any assurance that such an application for quotation will not be able to rely on Rule 144 until at least one year from the filing date of the registration statement of which this prospectus is a part, except for shareholders owning shares which were issued by us prior to the time we first became a shell company in 1995. Management estimates that approximately 1,198,729 shares were issued prior to 1995 and would be eligible for resale pursuant to Rule 144.
At September 24, 2010,December 31, 2019, we had approximately 605649 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.Common Stock. We have appointed Over the CounterPacific Stock Transfer 231 East 2100 South, Salt Lake City, UT 84115,Company, Las Vegas, Nevada, to act as the transfer agent of our common stock. We act as our own transfer agent for the Series A PreferredCommon Stock.
We have never declared or paid any cash dividends on our common stock.Common Stock since inception. We do not anticipate paying any cash dividends to stockholders of our common stock in the foreseeable future. Our Prepaid Forward Gold Purchase Agreement prohibits us from declaring, making or paying any dividends so long as any gold remains to be delivered or any amounts remain to be paid by us under the agreement. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
So long as we have any outstanding obligations to DMRJ Group under the provisions of our Investment Agreement, we are prohibited from declaring or paying any dividends, except on our Series A Preferred Stock. In addition, we are prohibited from declaring a dividend on our common stock if at the time any dividends on our Series A Preferred Stock are unpaid.
The holders of the Series A shares are entitled to quarterly dividends equal to 10% of our consolidated net income for each quarter commencing with the quarter beginning July 1, 2011. Nevertheless, if our common stock is quoted on the OTC Bulletin Board or listed on a senior exchange on or before July 13, 2011, and so long as the common stock continues to be so quoted or listed, no quarterly dividends will be payable or accrue. In addition they are entitled to dividends or distributions made to the holders of our common stock to the same extent as if such holders of the Series A shares had converted their preferred shares into common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth as of the most recent fiscal year ended December 31, 2009, certain information with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b)) (c) | |
Equity compensation plans approved by security holders1 | | | -0- | | | | — | | | | 1,175,000 | |
| Equity compensation plans not approved by security holders | | | -0- | | | | -0- | | | | -0- | |
| Total | | | -0- | | | | -0- | | | | 1,175,000 | |
| 1 | As originally adopted, our 2008 Stock Option/Stock Issuance Plan authorized the granting of up to 15,000,000 shares, either as stock options or restricted stock grants. As a result of a stock split effective April 30, 2009, the number of shares authorized under the plan was reduced to 1,250,000. So long as we have any outstanding obligations to DMRJ Group, we are restricted to granting options or issuing shares under the plan in excess of 1,100,000 shares, of which we have issued 511,667 shares. As of December 31, 2009, we had granted a total of 75,000 shares and no options under the plan. |
In July 2008 the Board of Directors adopted the 2008 Stock Option/Stock Issuance Plan, which was approved by our shareholders in August 2008. The purpose of the plan is to provide eligible persons an opportunity to acquire a proprietary interest in our company and as an incentive to remain in our service.
In February 2010 we amended the plan to increase the number of shares available from 1,250,000 to 3,000,000 shares of common stock which are authorized for nonstatutory and incentive stock options and stock grants under the plan, which are subject to adjustment in the event of further stock splits, stock dividends, and other situations.
The plan is administered by the Board of Directors. The persons eligible to participate in the plan are as follows: (a) employees of our company and any of its subsidiaries; (b) non-employee members of the board or non-employee members of the Board of Directors of any of its subsidiaries; and (c) consultants and other independent advisors who provide services to us or any of our subsidiaries. Options may be granted, or shares issued, only to consultants or advisors who are natural persons and who provide bona fide services to us or one of our subsidiaries, provided that the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for our securities.
The plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until July 12, 2018, whichever is earlier. The plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This sectionThe following discussion should be read in conjunction with our Consolidated Financial Statementsfinancial statements and accompanyingrelated notes and other detailed information includedthereto contained in this prospectus.
We are a mineral exploration company with proposed projects located in the Gold Hill Mining District in Tooele County, Utah. We are currently focused on completing the testingexploration and development of our pilot mill on the Cactus Mill property, extracting mineralized material from the Yellow Hammer claims for processing at the pilot plant, and completing the permitting process for our Kiewit claims and constructionoperation of a heap leach facility near these claims. We are also in the process of seeking an amendment to our current mill site permit to allow us to construct and operate a heap leach facility near the pilot mill. We propose to extract any copper, gold, and silver from the mineralized material and sell the concentrate in readily available markets. We also intend to extract tungsten and to attempt to locate a market to sell any product extracted from the mineralized material.
processing facility.We were originally incorporated in the State of Idaho on November 5, 1957. For several years the companywe bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2008, we changed theour corporate domicile of the company from the State of Idaho to the State of Nevada. In May 2009, we raised funds to recommence mining activities. In July 2009, we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District located in Tooele County, Utah. We hold leasehold interests within the Gold Hill Mining District consisting of 334in 66 unpatented mining claims including an unpatented mill site claim, 42and 10 patented claims, and five Utah state mineral leases located on state trust lands, all covering approximately 33 square miles.claims. From these claims we have centered our exploration activities on the Yellow Hammer project located on four of the patented claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site. We have no current exploration plans for the remaining claims. We also hold eight unpatented lode mining claims in Yavapai County, Arizona, on which
During 2018 we have no current plans to conduct exploration. We do not have any proven or probable reserves on any ofsettled our mineral claims or mining leases.
Currently, we have no source of revenue. Previously we funded our exploration activities through the sale of our common stock in non-public offerings and loans from investors. In July 2010 we entered into an investment agreementoutstanding debt with DMRJ Group I, LLC
through whichand repurchased and retired all outstanding preferred shares issued to them under the 2010 Investment Agreement with them. During 2019 we
can borrow upsecured funding of $13,600,000 (net) from PDK Utah Holdings LP under the terms of the Prepaid Forward Gold Purchase Agreement dated March 7, 2019. We also renegotiated our lease with Clifton (and its subsidiary, The Woodman Mining Company) 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
$6,500,000PDK equal to 4% of the net smelter returns from our mine. An additional 20 claims, known as the JJS Property, were acquired.We suspended our mining operations in June 2016 because of depressed metal prices and lack of funds. We resumed operations in spring 2018 and again suspended operations in October 2018 for our Yellow Hammer and Kiewit projects. Historically,lack of funding. Since securing funding in March 2019, we have incurred net losses for the years ended December 31, 2009 and 2008, and have also incurred losses for the six months ended June 30, 2010. If we are unable to generate sufficient cash flow from the extraction and processing of mineralized material from our Yellow Hammer claims, we will not be able to meet our obligations to repay the loan advances to DMRJ Group and will likely lose our interest in all of our assets andrecommenced mining claims.
Recent Material Developments
In approximately May 2009 we began raising funds and commenced exploration activities on our Utah claims. Since that date and during the period covered by the financial statements included herein, we have accomplished the following material activities:
| · | In May 2009 we offered and sold 1,000,000 shares of our common stock in a non-public offering and raised $700,000 in gross proceeds to meet our cash obligations under the agreements by which we obtained the mining claims in the Gold Hill Mining District; |
| · | In July 2009 we acquired the leasehold interests in our mining claims in the Gold Hill Mining District; |
| · | In September 2009 we conducted another non-public offering of our common stock and sold 440,000 shares and raised gross proceeds of $308,000 to conduct a drilling program on our Yellow Hammer claims; |
| · | Also in September 2009 we filed an amendment to our mill site permit to allow us to construct and operate a heap leach facility near the pilot plant on the Cactus Mill site; |
| · | In fall 2009 we completed approximately 6,000 feet of drilling on the Yellow Hammer claims in this district; |
| · | In November of 2009 we borrowed an aggregate of $600,000 from two investors for operating expenses and exploration work on our Yellow Hammer claims; |
| · | In December 2009 we acquired all of the outstanding stock of Blue Fin Capital, Inc., a Utah corporation owning unpatented mining claims in Arizona; |
| · | In February 2010 we made application to the Utah Division of Oil, Gas and Mining for a Large Mining Operations Permit to commence exploration activities on the Kiewit claims located in the district and construct and operate a heap leach facility near the claims; and |
| · | Since May 2009 we retained the personnel to commence exploration activities on the Utah claims and commence the rebuild of the pilot mill. |
Subsequent to the period covered by the financial statements included with this prospectus, we have accomplished the following material activities:
| · | In July 2010 we secured the funding from DMRJ Group for the proposed exploration activities; |
| · | In September 2010 we completed the rebuild of the pilot mill on the Cactus Mill site and commenced the testing of the pilot mill; and |
| · | Since July 1, 2010, we have retained the additional personnel to test and operate the pilot mill and extract the mineralized material from the Yellow Hammer claims. |
DMRJ Group Funding
DMRJ Group has committed to loan us up to $6,500,000 under certain terms and conditions primarily for exploration activities on the Yellow Hammer and Kiewit claims. These loans are secured by all of our assets, including our leasehold interests in our mining claims. Each loan advance made by DMRJ Group is evidenced by a promissory note due not later than July 14, 2012. As of September 17, 2010, we had requested and received three loan advances from DMRJ Group for $500,000 each for a total of $1,500,000, plus $75,000 each, or a total of $225,000, in prepaid interest paid to DMRJ Group.
Each advance amount bears interest of 15% per annum from the date of borrowing. We are required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note. This prepayment of interest is nonrefundable even if we prepay the advance. Following this one-year period interest on the advance is payable monthly until the advance is repaid in full. In addition, at the time we repay or prepay the advance, we are required to pay an additional amount equal to 20% of the principal amount being repaid or prepaid. Upon an event of default, the interest rate on the outstanding principal amount increases to 25%.
Loan advances made for our Yellow Hammer and Kiewit projects are subject to mandatory prepayments by us. Yellow Hammer advances must be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month following February 2011 and each month thereafter through September 2011. Kiewit advances must be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.
As additional consideration for DMRJ Group we issued 958,033 shares of our Series A Preferred Stock to the lender. These preferred shares are convertible into shares of our common stock at the rate of one common share for each preferred share converted, subject to adjustment in the event we issue common shares or instruments exercisable or convertible into common shares at a price less than $0.70 per share, or if we effect a reverse or forward split of our outstanding shares or a reclassification of our common stock. In addition, our loans in the aggregate principal amount of $600,000 have been subordinated to their debt to DMRJ Group.
Results of Operations for the Six Months Ended June 30, 2010 and 2009
We generated no revenues for the six months ended June 30, 2010 or 2009. Total expenses increased approximately 569%, or $430,692, for the six months ended June 30, 2010, as compared to the comparable prior year period. This increase was primarily attributable to the recommencement of exploration activities beginning in May 2009, with no similar prior period activities, and is evidenced by the following items:
| · | Consulting expenses increased approximately 209%, or $46,900, for the six months ended June 30, 2010, as compared to the comparable prior year period. This increase was primarily attributable to consultants and contract labor for mill renovation and site preparation. |
| · | Officer and directors fees increased approximately 132%, or $39,665, for the six months ended June 30, 2010, as compared to the comparable prior year period. This increase was primarily attributable to engaging Rick Havenstrite to work on the mine site and act as President. |
| · | Exploration expense increased approximately 858%, or $89,611, for the six months ended June 30, 2010, as compared to the comparable prior year period. This increase was primarily attributable to becoming the operator of the mining properties under the agreements with Clifton Mining and the Moeller Family Trust. |
| · | Legal and professional expenses increased approximately 2,509%, or $103,588, for the six months ended June 30, 2010 as compared to the comparable prior year period. This increase was primarily attributable to legal fees associated with the DMRJ Group funding. |
| · | General and administrative expenses increased approximately 877%, or $148,447, for the six months ended June 30, 2010, as compared to the comparable prior year period. This increase was primarily attributable to the overall increase in spending associated with becoming the operator of the mining properties under the agreements with Clifton Mining and the Moeller Family Trust. |
| · | Depreciation expense was $2,481 for the six months ended June 30, 2010, with no comparable expense in the prior year. This expense is attributable to the increase in property, plant and equipment associated with becoming the operator of the mining properties under the agreements with Clifton Mining and the Moeller Family Trust. |
Other expense for the six month period ended June 30, 2010, was $107,829 compared to other income of $5,794 for the comparable prior year period. This other expense is attributable to financing expense and interest expense related to convertible notes issued in November, 2009.
Management does not believe the percentage increases in expenses is indicative of future increases. Until the company engages in exploration activities for a sufficient time to include comparable prior year periods, management is unable to predict the anticipated increases in expenses.
operations.Results of Operations for the Years Ended December 31, 20092019 and 2008
We generated no revenues for2018During the years ended December 31, 2009 or 2008. Total expenses increased approximately 324%, or $407,405,2019 and 2018, we had net income(loss) of $(3,776,293) and $21,344,498 respectively. This represents a decrease in income of $25,120,791 for the year ended December 31, 2009, as compared to the comparable prior year period. This increase was primarily attributable to the recommencement of exploration activities beginning in May 2009, with no similar prior period activities, and is reflected in the following items:
| · | Consulting expenses increased approximately 611%, or $77,841, for the year ended December 31, 2009, as compared to the comparable prior year period. This increase was primarily attributable to the hiring of consultants to assist the company in identifying business opportunities for the company resulting in the lease agreements signed during the year. |
| · | Officer and directors fees increased approximately 32%, or $21,181, for the year ended December 31, 2009, as compared to the comparable prior year period. This increase was primarily attributable to engaging Rick Havenstrite to work on the mine site and act as President. |
| · | Exploration expense was $120,324 for the year ended December 31, 2009, with no comparable expense in the prior year. This expense is attributable to the recommencement of exploration activities on our Utah claims in 2009. These activities consisted of geologist fees, equipment rental and assay costs. |
| · | Legal and professional expenses increased approximately 291%, or $55,721, for the year ended December 31, 2009, as compared to the comparable prior year period. This increase was primarily attributable to expenses related to the preparation and audit of our financial statements and legal fees incurred in connection with our non-public stock and note offerings. |
| · | General and administrative expenses increased approximately 448%, or $125,234, for the year ended December 31, 2009, as compared to the comparable prior year period. This increase was primarily attributable to the overall increase in spending associated with becoming the operator of the mining properties under the agreements with Clifton Mining and the Moeller Family Trust. |
| · | Depreciation expense was $7,104 for the year ended December 31, 2009, with no comparable expense in the prior year. This expense is attributable to the increase in property, plant and equipment associated with becoming the operator of the mining properties under the joint venture agreements with Clifton Mining and the Moeller Family Trust |
Other income was $14,9982019. The decrease for the year ended December 31, 2009, with no comparable other income in the prior year. This increase in other income2019 is generally attributable to the cancellation of our agreement with DMRJ in 2018 whereby we agreed to repurchase the debt and preferred shares previously owned by them that netted a prior investment by the company. Management does not anticipate that this increase would occur in the future.
Management does not believe the percentage increases in expenses is indicativereported gain of future increases. Until the company engages in exploration activities for a sufficient time to include comparable prior year periods, management is unable to predict the anticipated increases in expenses.
$24,916,561.Liquidity and Cash Flow
At June 30, 2010, our aggregateNet cash and short-term investments totaled $285,970, which included $256,570 ofused by operating activities was $7,001,224 during the year ended December 31, 2019, compared with $659,857 cash and $29,400 of marketable securities. Our cash balance is significantly lower thanused during the $888,434year ended December 31, 2018. The increase in cash at December 31, 2009. The decreaseused by operating activities of $6,341,367 is primarily attributable to the increased exploration activities on our Gold Hill Mining claims, including rebuildingagreement made with DMRJ to repurchase the debt and preferred shares previously owned by them in 2018 and to the recommencement of operations in 2019, along with the payment of accrued liabilities and payables as part of the pilot mill.
DuringPurchase Agreement signed in March 2019.Net cash used by investing activities was $1,993,224 during the yearsyear ended December 31, 20092019 compared to $74,104 during the year ended December 31, 2018. The increase in cash used by investing activities of $1,919,120 is attributable to increased additions to property and 2008,equipment and forto an increase in mineral properties and interests during 2019. Net cash provided by financing activities was $11,102,164 during the six-month periodyear ended June 30, 2010, our sole meansDecember 31, 2019, compared with $738,465 during the year ended December 31, 2018. This increase in cash provided by financing activities of meeting our cash flow requirements was through$10,363,699 is primarily a result of the sale of our common stock and loans from investors. In May 2008 we generated gross proceeds of $173,750 from the sale of stock;Purchase Agreement signed in May 2009 we generated gross proceeds of $700,000 from the sale of stock; and in our September 2009 offering we generated gross proceeds of $308,000 from the sale of stock. In November of 2009 we borrowed $600,000 from two outside investors. The net proceeds from these stock offerings and borrowings was used to satisfy our initialMarch 2019.
As a result, cash obligation of $250,000 to acquire the leasehold interests in our Utah mining claims, to conduct our drilling program on the Yellow Hammer claims, to conduct pre-exploration activities on the Utah such as assaying portions of the claims, conduction further geological work, and rebuilding the pilot mill, and to meet our overhead and administrative expenses.
In connection with the $600,000 borrowed from outside investors, we are required to pay monthly interest on the loans of $7,500. The promissory notes evidencing the loans are due and payable on or before November 30, 2012.
Pursuant to our agreements under which we acquired our leasehold interests in the claims located in the Gold Hill Mining District, we are obligated beginning in 2010 to pay all fees and costs to maintain our interest in the patented and unpatented mining claims and state mineral leases. For 2010, the maintenance fees for the unpatented claims were $46,760, which were paid in August 2010. In addition, we anticipate that the property taxes on the patented claims will be approximately $6,500 for 2010 and that fees on the state leases for 2010 will be approximately $5,690, including $1,053 already paid and $4,637 which will be payable in December 2010. We anticipate that similar fees will be payable each year so long as we maintain our interest in the claims and leases.
In July 2010 we completed our funding agreement with DMRJ Group to provide up to $6,500,000 for exploration activities on our Yellow Hammer and certain of our Kiewit claims. All loan advances for these projects made pursuant to this funding arrangement are due not later than July 14, 2012.
Yellow Hammer Project
The maximum amount allocable from the DMRJ Group funding for our Yellow Hammer project is $2,500,000 and is subject to meeting certain milestones on the project. The last two advances of $500,000 each with respect to the Yellow Hammer project are conditioned upon our ability to commence the extraction of copper from the project and processing of at least 400,000 pounds of copper concentrate from our mineralized material processing operations at our pilot mill. We have received loan advances of $1,500,000, plus $225,000 for prepayment of interest, for this project and anticipate making requests for an additional $1,000,000increased by $2,107,716 during the next six months. Loan advances on this project are repayable pursuantyear ended December 31, 2019, leaving us a cash balance of $2,116,432 as of December 31, 2019, as compared to the following schedule:
an ending cash balance of $8,716 as of December 31, 2018.
| Date | | Yellowhammer Advances Repayment Amount | |
| Feb-2011 | | $ | 511,616 | |
| Mar-2011 | | $ | 1,011,616 | |
| Apr-2011 | | $ | 818,316 | |
| May-2011 | | $ | 795,704 | |
| Jun-2011 | | $ | 139,604 | |
| Jul-2011 | | $ | 139,604 | |
| Aug-2011 | | $ | 112,954 | |
We estimate that direct operating expenses on the Yellow Hammer project, including operation of the pilot mill and extraction and crushing of the mineralized material for the pilot mill will be approximately $3,069,000 over the 12-month period beginning with the operation of the pilot mill estimated to commence in fourth quarter 2010. We also anticipate that the capital costs of constructing the heap leach facility near the pilot plant will be approximately $437,000 and will be subject to obtaining approval for the amendment to our existing operating permit. We believe the cost of operating this facility for the first 12 months will be approximately $776,250. Funds from DMRJ Group will be insufficient to meet our cash flow projections for this project. We anticipate that we will generate revenue from the operation of the pilot plant sufficient to provide the additional cash flow requirements. Nevertheless, if we are unable to generate revenue sufficient, if at all, to meet the operating expenses for the project and to meet the repayment schedule to DMRJ, we will likely be unable to continue our exploration activities on this project. In addition, since all of our assets, including our leasehold interests in the claims is pledged as security on our obligation to DMRJ Group, if we fail to generate sufficient revenue to make the repayments, it is likely that we would lose all of our assets and our leasehold interest in all of our claims. We have no other source of funding for this project and do not anticipate being able to secure an alternative funding source until at least July 14, 2012, following the scheduled repayment by us of all loan advances from DMRJ Group.
The maximum amount allocable from the DMRJ Group funding for our Kiewit project is $2,750,000 and is subject to meeting certain milestones on the project. Advances for operations on the Kiewit project are conditioned upon our ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and our timely payment of the initial Yellow Hammer advances for the month of February 2011. We have not applied for any loan advances on this project, but we anticipate making requests for $2,750,000 during the first six months after these milestones are met. Loan advances on this project are repayable pursuant to the following schedule:
The number of months following month in which initial Kiewit Advance is Borrowed | | Kiewit Advances Repayment Amount | |
| Month 7 | | $ | 825,934 | |
| Month 8 | | $ | 825,934 | |
| Month 9 | | $ | 825,934 | |
| Month 10 | | $ | 825,934 | |
| Month 11 | | $ | 578,618 | |
We estimate that the capital costs to construct the heap leach facility for the Kiewit project will be approximately $3,300,000 and that the direct operating expenses on the project, including operation of the heap leach facility and extraction and crushing of the mineralized material for the facility will be approximately $7,150,716 over the 12-month period beginning with the completion of the heap leach facility. As with the Yellow Hammer project, funds from DMRJ Group will be insufficient to meet our cash flow projections for this project. We anticipate that we will generate revenue from the operation of the heap leach facility sufficient to provide the additional cash flow requirements. Nevertheless, if we are unable to generate revenue sufficient, if at all, to meet the capital costs and the operating expenses for the project and to meet the repayment schedule to DMRJ, we will likely be unable to continue our exploration activities on this project. In addition, since all of our assets, including our leasehold interests in the claims is pledged as security on our obligation to DMRJ Group, if we fail to generate sufficient revenue to make the repayments, it is likely that we would lose all of our assets and our leasehold interest in all of our claims. We have no other source of funding for this project and do not anticipate being able to secure an alternative funding source until at least July 14, 2012, following scheduled repayment by us of all loan advances from DMRJ Group.
As such, our financial statements have been prepared on a going concern basis, under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, the budgeted amounts described above from DMRJ Group are not sufficient to fund fully the completion of the heap leach facility near the pilot plant or operations over the next 12 months for the Yellow Hammer project. Nor are the DMRJ funds sufficient to construct the heap leach facility and operate the Kiewit project. In order to continue as a going concern beyond 2010 and in order to continue significant advancement of the Yellow Hammer and Kiewit projects pursuant to our long-term business strategy in 2011, we will need to generate revenues from the processing of the mineralized material from the Yellow Hammer claims at our pilot plant. Without these revenues we would not have the resources to execute our long-term business strategy which may result in the loss of our assets, including the Yellow Hammer and the Kiewit projects.
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 Consolidated Financial Statementsattached audited financial statements for a discussion of those policies.
Inventories
The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. We record ore on leach pad, solution in carbon columns in process and gold doré (fully processed gold held at a refinery), at average production cost per gold ounce, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, equipment, and mineral properties; and mine administrative expenses. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per recoverable ounce of gold on the leach pad.
Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time. As of December 31, 2019, we had a limited operating history and actual results only over a short period of time. Due to this, estimates of recoverable gold are based primarily on initial tests with limited refinements based on actual results.
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover during the next 12 to 18 months.
Mineral Exploration and Development Costs
We account for mineral exploration costs in accordance with ASC 932Extractive ActivitiesTopic of the FASB Accounting Standards Codification.. All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to explore new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves. Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines are capitalized and will be amortized on units of production basis over proven and probable reserves. We do not have proven and probable reserves at this time.
We account for mineral properties in accordance with ASC 930Extractive Activities-MiningTopic of the FASB Accounting Standards Codification.. Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Mineral properties are periodically assessed for impairment of value and any diminution in value.
Revenue Recognition
The Company’s product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate, which is then further refined to become gold and silver bullion known as doré. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and when the transaction price can be determined or reasonably estimated.
Management has determined the performance obligation is met and title is transferred when the Company delivers the doré to the customer because, at that time, (i) legal title is transferred to the customer, (ii) the customer has accepted the doré and obtained the ability to realize all of the benefits from the product, (iii) the doré content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership to it, and (iv) the Company has the right to payment for the doré. The performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.
Sales and accounts receivable for sales are recorded net of royalties and sales participation payments, along with charges from the customer which represent components of the transaction price. Charges are estimated by management upon transfer of risk based on contractual terms, and actual charges typically do not vary materially from management’s estimates. Revenue from the sale of doré may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Revenue proceeds are recorded net the impact of royalties and participation agreements.
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. In calculating the present value of the asset retirement obligation, we used a credit adjusted risk-free interest rate of 8% - 10% and projected mine lives of 5 - 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. At December 31, 2019 and 2018, Asset Retirement Obligations total $826,637 and $792,747, respectively, for all of our Gold Hill properties.
Financial Instruments
Our financial instruments include cash and cash equivalents as well as various notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity and interest rates of these financial instruments, approximates fair value at December 31, 2019 and 2018.
Going Concern
The Company had an accumulated deficit of $9,451,218 through December 31, 2019 and net loss of $3,776,293 for the year ended December 31, 2019 which raises some 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 has 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. Although management has procured funding through a prepaid forward gold contract agreement they intend to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The Company’s management believes that is has sufficient funds to meet its obligations and continue production over the next twelve months.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Desert Hawk Gold Corp. is an exploration stage company, which means we are engaged in the search for mineral deposits or reserves which could be economically and legally extracted or produced. None of our mining properties has any known reserves and our proposed programs(the “Company”) was incorporated on these properties are exploratory in nature. We were originally incorporatedNovember 5, 1957, in the State of Idaho on November 5, 1957, under the name ofas Lucky Joe Mining Company. For several years the company bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2001 control of the company was acquired by Robert E. Jorgensen, John Ryan, and Howard M. Crosby, who purchased a controlling number of shares and assumed management of the company for the purpose of reengaging in mining operations. In January 2006 Mr. Jorgensen acquired sole control of the company from Messrs Ryan and Crosby. In 2008 we changed theour corporate domicile of the company from the State of Idaho to the State of Nevada by merging the Idaho corporation intowith a newlywholly-owned subsidiary formed solely for this purpose. Our Nevada corporation which was incorporated on July 17, 2008. FollowingWe have no subsidiaries.
We are currently engaged in the changeextraction of domicile, on April 3, 2009, we changed the name of the company to Desert Hawk Gold Corp.
Effective April 3, 2009, we also reverse split the outstanding shares ofgold and related precious metals from our common stock at the rate of one share for each 12 shares outstanding (1:12). Unless otherwise designated in this prospectus, all common stock amounts give effect to this reverse split.
In July 2009 we entered into joint venture agreements to commence exploration activities onKiewit mining claimsproperty located in the Gold Hill Mining District located in Tooele County, Utah. We subsequently converted these joint venture agreements into lease agreements.
In December 2009Mining Operations
On January 7, 2014, we acquired allreceived final approval from the federal Bureau of Land Management (“BLM”) of the outstanding stock of Blue Fin Capital, Inc., a Utah corporation owning eight unpatented lode mining claimsKiewit Large Mine Permit which allowed us to develop the Kiewit deposit and put it into production. Development began in Arizona. We issued a total of 2,713,636 shares of our common stock to the shareholders of Blue Fin, which included 482,236 shares to Mr. Jorgensen, our CEO, 1,000,000 shares to Rick Havenstrite, our President, and 1,131,400 shares to Eric L. Moe, who became one of our directors subsequent to this transaction, all of whom were shareholders of Blue FinJune 2014. Construction at the timesite was funded by loan advances from DMRJ under the Investment Agreement. The first sale of minerals from the mine occurred in October 2014. We suspended operations in June 2016 because of depressed metal prices and lack of funds. We resumed operations in spring 2018 and again suspended operations in October 2018 for lack of funding. Since securing funding in March 2019, we have recommenced mining operations.
Distribution, Sales, and Raw Materials
We currently sell our products solely to Asahi. We use several raw materials such as cyanide, caustic, and limestone, in processing and we are not dependent upon any single supplier for our raw materials. We also currently are dependent upon one customer for our product although other customers are available.
Competition
The precious metal exploration and mining industry is highly fragmented. We expect to compete with many other exploration companies looking for gold, silver and other minerals. We are among the smallest of the acquisition. The closing of the transaction occurred on December 31, 2009,exploration companies in existence and Blue Fin becameare a wholly owned subsidiary of Desert Hawk. We do not consider these properties material and we plan to commence exploration activities on these claims only after completion of our current activities on the Gold Hill projects. Blue Fin Capital, Inc. is our sole subsidiary.
From 2008 through 2010 we funded our operations through the sale of our common stock and promissory notes. In May 2008 we conducted a non-public offering of shares of our common stock. We sold 289,584 shares and raised $173,750 in gross proceeds to recommence mining operations. In May 2009 we offered and sold 1,000,000 shares of our common stock in a non-public offering and raised $700,000 in gross proceeds to meet our cash obligations under the joint venture agreements with Clifton Mining and Moeller Family Trust described below and to commence exploration operations on the property. In September 2009 we conducted another non-public offering of our common stock. We sold 440,000 shares and raised gross proceeds of $308,000very small participant in the offeringprecious metal industry. However, we generally expect to conduct a drilling program on our mining properties. In November of 2009 we borrowed $600,000 from two investors and issued 15% convertible promissory notes for this principal amount. The promissory notes mature on November 30, 2012, and are convertible at $0.70 per share. Incompete favorably with other exploration companies since the event we fail to repay one of these notes, or interest thereon, in full on the maturity date of the note, we have agreed to issue an additional one share of our common stock for each $2.00 of the original principal amount of the note at the maturity date and the maturity date of the Note will be extended for one year.
In July 2010, as described in more detail below, we entered into a financing arrangement with DMRJ Fund I, LLC to provide up to $6,500,000 in funding for our Gold Hill mining properties.
Acquisition of Utah Mining Claims and Leases
Clifton Mining Company and Woodman Mining Company Lease Agreement
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 toclaims held by 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, forconsolidate the principal mining areas and limit the ability of other exploration
development and mining, and the rightcompanies 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. These combined interests included 419 unpatented load and placer mining claims, including an unpatented mill site claim, 38 patented claims, and seven Utah state mineral leases located on state trust lands. Under the terms of the Joint Venture Agreement, we paid $250,000 to Clifton Mining on or about July 15, 2009. Additionally, we issued 500,000 shares of our common stock to Clifton Mining for the rights on the Kiewit gold property includedcommence material exploration activities in the
Joint Venture Agreement. These sharesdistrict. Furthermore, if we are able to successfully recover gold, as well as silver and other by-products from our claims, it is likely that we will be able to sell all minerals that we are able to recover.Government Compliance
Our operations are subject to a six-year lockupextensive federal and leak-out agreement which prevents Clifton Mining from selling shares publicly for a period of one year fromstate laws and regulations designed to conserve and prevent the original filing datedegradation of the registration statement of which this prospectus is a part. Thereafter, Clifton Miningenvironment. These laws and regulations require obtaining various permits before undertaking certain exploration or mining activities and may sell up to 20% of these shares during any 12-month period.
In June 2010 the parties to the Joint Venture Agreement entered into an Amended and Restated Lease and Sublease Agreement effective as of the date of the original Joint Venture Agreement. The Amended and Restated Lease and Sublease Agreement restated and replaced the original Joint Venture Agreement. The amended agreement provides for the lease to us of the patented and unpatented claims, including the mill site,result in significant delays, substantial costs and the
subleasealteration of
proposed operating plans. We believe we have all necessary environmental permits and authorizations to support existing operations.Most of our Kiewit claims are unpatented mining claims located on federal land, which require compliance with applicable requirements administered by the state mineral leases. The amended agreement also grants to usBLM. These regulations impose specific conditions on the right to enter ontonature and extent of surface disturbance, the land to conduct ourmanner in which exploration activities,and mining can be conducted, the right to make reasonable usedisposition of the surface of the properties for these activities, the right to transport on and across the surface of the properties anyspent mineralized material, the use and the right to destroy so muchcontainment of the surfacechemical leaching agents and subsurface as may be reasonably necessary to carry out the purposes of the agreement. The term of the amended agreement is for 20 years from its effective dateother solutions, spill prevention, liquid and for so long as we continue to produce and sell mineralized material or mineral resources from the property, unless sooner terminated as provided in the amended agreement. We do not have the right to assign, sublease or otherwise transfer our interest in the amended agreement without the prior written consent of Clifton Mining as to those of the properties owned by it and without the prior written consent of Woodman Mining as to those of the properties owned by it. Nevertheless we may mortgage or pledge our leasehold interest in the Kiewit Claims and the Cactus Mill Property for purposes of financing exploration, development and mining operations, but we cannot otherwise encumber the property without the written consent of Clifton Mining.
Under the terms of the amended agreement, we are obligated to pay a 4% net smelter royalty on base metals in all areas except for extraction of mineralized material from the Kiewit gold propertysolid waste disposition, ground water monitoring, and a net smelter royalty on goldnumber of other matters which if violated could result in fines, penalties, shutdowns and silver, except for extraction of mineralized material 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. attendant adverse publicity.We are also obligated to pay a 6% net smelter return on any mineralized material extracted from the Kiewit gold property. Beginning with 2010, we are required to make all property payments by submitting payment on or before July 15th of each year during the term of the agreement. If we do 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 will be required to make annual payments to Clifton Mining of $50,000 to retain our rights to those properties. The amended agreement also requires Clifton Mining to make available to us for our use all historical geological, engineering, and other data on the properties, as well as all buildings, equipment, existing permits, and water rights necessary for operations. Clifton Mining has the right to terminate the Amended and Restated Lease and Sublease Agreement only if we fail to comply with the terms of the agreement and we fail to correct any breach of the agreement after 30 days’ notice from Clifton Mining.
We may surrender the lease as to all or any part of the leased property, after proper reclamation of all portions of the land to be surrendered affected by our operations. The lease also provides that the lessors, Clifton Mining and Woodman Mining, will be responsible for any and all liability that may exist under certain encumbrances and will indemnify us and our affiliates, officers, directors, employees, shareholders and agents from and against loss of leasehold title or other actual losses that we may incur on account of the existence or enforcement of any rights under these potential encumbrances.
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. For 2010 we paid the annual maintenance fees on 334 of the original 419 unpatented mining claims which were the subject of the original lease. We determined that 112 of the original unpatented claims and two of the state leases would not fit within our overall plan for the district and these claims and leases reverted back to Clifton Mining.
In September 2009, we acquired all of the rights and interest of Clifton Mining in a $38,000 reclamation contract and a $3,777 cash surety deposit with the State of Utah Division of Oil, Gas and Mining for certain of the property covered by the Amended and Restated Lease and Sublease Agreement. As consideration for Clifton Mining selling us its interest in the reclamation contract and surety deposit, we issued 60,824 shares of our common stock to Clifton Mining. For a period of two years from the original date of the transaction, we have the right to repurchase the shares for $48,000, or during the 180-day period after this two year period, Clifton Mining will have the option to put the shares to us for $48,000.
Moeller Family Trust Lease Agreement
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 properties are known as the Yellow Hammer claims. Under the terms of the Joint Venture Agreement, we issued 250,000 shares of our common stock for the rights granted to us in the Joint Venture Agreement. These shares are subject to a six-year lockup and leak-out agreement which prevents the trust from selling shares publicly for a period of one year from the original filing date of the registration statement of which this prospectus is a part. Thereafter, the trust may sell up to 20% of these shares during any 12-month period.
In June 2010 the parties to this Joint Venture Agreement entered into an Amended and Restated Lease Agreement effective as of the date of the original Joint Venture Agreement. The Amended and Restated Lease Agreement restated and replaced the original Joint Venture Agreement. The amended agreement provides for the lease to us of the patented Yellow Hammer claims. The amended agreement also grants to us the right to enter onto the land to conduct our exploration activities, the right to make reasonable use of the surface of the properties for these activities, the right to transport on and across the surface of the properties any mineralized material, and the right to destroy so much of the surface and subsurface as may be reasonably necessary to carry out the purposes of the agreement. The term of the amended agreement is for 20 years from its effective date and for so long as we continue to produce and sell mineralized material or mineral resources from the property, unless sooner terminated as provided in the amended agreement. We do not have the right to assign, sublease or otherwise transfer our interest in the amended agreement without the prior written consent of the trust. Nevertheless we may mortgage or pledge our leasehold interest in the Yellow Hammer claims for purposes of financing exploration, development and mining operations, but we cannot otherwise encumber the property without the written consent of the trust.
Under the terms of the amended agreement, we are required to pay a 6% net smelter royalty on 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 or silver, as applicable. Beginning with 2010, we are required to make all property payments. If we do not place the property into commercial production within a three year period from the date of the original agreement, we will be required to make annual payments to the trustBLM for each of $50,000our unpatented mining claims on federal land and to retainrecord an affidavit in the Tooele County Recorder’s Office reflecting the payment of the annual maintenance fees to the BLM and stating our rightsintention to those properties.hold the claims. The amended agreement2019 annual maintenance fees payable to the BLM on our unpatented claims were $10,890 and this amount was paid in full within the required payment period. The required affidavit was also requires the trust to make available to us for our use all historical geological, engineering, and other data on the properties. The trust has the right to terminate the Amended and Restated Lease Agreement only if we fail to complyfiled with the termsTooele County Recorder. Proposals repeatedly have been introduced in Congress that would substantially modify the Mining Law of 1872, the agreementstatute pursuant to which unpatented mining claims are located and we failmaintained. Bills have been introduced, but have not passed, that would require, among other things, the payment of royalties to correct any breach of the agreement after 30 days’ notice fromUnited States. Personal property taxes levied by the trust.
state and collected by the local county are due each year and have been paid for 2019 and prior years. The personal property taxes are expected to increase in 2020 over that in 2019 due to increases in personal property at the site along with projected future sales.Mining and exploration operations are also subject to both federal and state laws and regulations pertaining to employee health and safety. We may surrender the lease asemploy a mine safety administrator to all or any part of the leased property, after proper reclamation of all portions of the land to be surrendered affected bymonitor our operations. The lease also provides that the lessor, the Moeller Family Trust, will be responsible for any and all liability that may exist under certain encumbrances and will indemnify us and our affiliates, officers, directors, employees, shareholders and agents from and against loss of leasehold title or other actual losses that we may incur on account of the existence or enforcement of any rightsobligations under these potential encumbrances.
laws and regulations.
DMRJ Group Investment Agreement
On July 14, 2010, we entered into an Investment Agreement with DMRJ Group I, LLC, a Delaware limited liability company. UnderIntellectual Property Rights
We own the terms of the agreement, DMRJ Group has committed to loan us up to $6,500,000 under certain termsMarks “DESERT HAWK” and conditions. Each loan advance made by DMRJ Group is evidenced by a promissory note due not later than July 14, 2012. These loan advances can only be used by us to pay transaction fees“DESERT HAWK GOLD CORP” and expenses incurredalso own corresponding federal trademark filing Serial Nos. 85/232,815, 85,232,819, 85/232,820, and 85/232,823, for use in connection with mining extraction, consulting in the loan transaction, to purchase certainfields of mining and milling, milling of ore, mining exploration and mineral exploration, copper ore, gold ore, silver ore, and tungsten ore.
Employees
At March 22, 2020, we had 48 full-time and 3 part-time employees, including our President, Rick Havenstrite, who devotes approximately 90% of his time or 50 hours per week for this business. We also engage Marianne Havenstrite, wife of Rick Havenstrite, as our Treasurer and Principal Financial and Accounting Officer. Our officers are based out of our Reno, Nevada office, along with other office and engineering personnel. The remaining employees work at our Gold Hill project site.
Offices and Other Facilities
Our corporate office is located in Reno, Nevada and Mr. Havenstrite, our President, operates from this office and also works on site at our mining property in Tooele County, Utah. Monthly rent for the office space in Reno is $1,500. Financial and engineering activities are performed in this office and rent includes use of the business equipment and as working capitalsupplies needed to advance our Yellow Hammerperform these functions. This office space is used primarily for RMH Overhead, LLC and Kiewit mining activities. The maximum amounts allocable to our Yellow HammerOverhead Door Co. of Sierra Nevada/Reno, Inc., businesses owned by Mr. Havenstrite. Agreements for the use of the office space facilities with these parties are month-to-month and Kiewit projects are $2,500,000 and $2,750,000, respectively, and are subject to meeting certain milestonescan be cancelled at any time.
We rent a drill core-logging facility located on the projects.Tooele County airport grounds in Wendover, Utah. The balancefacility includes a separate core splitting and sawing room, field supply storage rooms and sufficient floor space for logging tables and racks to hold over 21,000 feet of HQ core boxes. Monthly rent for this space is $350 and the funds borrowed from DMRJ Group may be used for capital and operating expenses. rental arrangement is terminable at any time.
MINING PROPERTIES
Kiewit Project, Utah
The last two advances of $500,000 each with respect to the Yellow Hammer project are conditioned upon our ability to commence the extraction of copper from the project and processing of at least 400,000 pounds of copper concentrate from our mineralized material processing operations at the Cactus Mill pilot plant. Advances for operations on the Kiewit project are conditioned upon our ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and our timely payment of the initial Yellow Hammer advances for the month of February 2011. As of September 17, 2010, we had requested and received three loan advances from DMRJ Group for $500,000 each for an aggregated of $1,500,00, plus $75,000 eachgold property located in prepaid interest paid to DMRJ Group for an aggregate of $225,000.
Each advance amount bears interest of 15% per annum from the date of borrowing. We are required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note. This prepayment of interest is nonrefundable even if we prepay the advance. Following this one-year period interest on the advance is payable monthly until the advance is repaid in full. In addition, at the time we repay or prepay the advance, we are required to pay an additional amount equal to 20% of the principal amount being repaid or prepaid. Upon an event of default, the interest rate on the outstanding principal amount increases to 25%.
Loan advances made for our Yellow Hammer and Kiewit projects are subject to mandatory prepayments by us. Yellow Hammer advances must be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month following February 2011 and each month thereafter through September 2011. Kiewit advances must be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.
Pursuant to a Security Agreement dated July 14, 2010, we have secured the repayment of any advances made by DMRJ Group with all of our assets, including our shares of Blue Fin Capital, Inc., our wholly owned subsidiary, which shares have been pledged as collateral for the advances pursuant to a Pledge Agreement dated July 14, 2010. As the secured party, DMRJ Group is appointed as attorney in fact to foreclose on and deal with our assets in the event of default.
As additional consideration for DMRJ Group entering into the Investment Agreement with us, we issued 958,033 shares of our Series A Preferred Stock to the lender and entered into a Registration Rights Agreement dated July 14, 2010, to register, either upon demand or by piggyback, the resale of the common shares issuable upon conversion of the preferred stock. These preferred shares are convertible into shares of our common stock at the rate of one common share for each preferred share converted, subject to adjustment in the event we issue common shares or instruments exercisable or convertible into common shares at a price less than $0.70 per share, or if we effect a reverse or forward split of our outstanding shares or a reclassification of our common stock.
In connection with the loan transaction, two of our prior lenders, West C Street LLC and Ibearhouse LLC, each of whom had loaned $300,000 to us in 2009, agreed to subordinate their debt to DMRJ Group. In consideration for their agreement to subordinate their loans, we reduced the conversion price of the loans from $1.50 to $0.70 per share. On July 14, 2010, we issued amended and restated promissory notes to West C Street and Ibearhouse reflecting the reduced conversion price and acknowledging the subordination to the DMRJ Group financing.
Gold Hill Projects
Overview
We hold leasehold interests within the Gold Hill Mining District in Tooele County, Utah, consisting of 334 unpatentedis our principal mineral property and is an exploration stage property. In June 2019 we also acquired 20 patented mining claims of which 302 are lode claims and 32 are placer claims, and including an unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands, all covering approximately 33 square miles. We intendcontiguous to concentrate our activities on our material claims, designatedKiewit property, known as the Yellow Hammer project located on four of the patented claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site.JJS Property. We have assembled all of our claims and leases in this districtnot determined to create a sizeable, contiguous property package on whichwhat extent we will develop these new claims. We were attracted to conduct regional-scale exploration. Therefore, we intend to maintain our leasehold interest in the remaining mining claims for future exploration, if warranted. Over the next 12 months we intend to complete testing of the pilot plant located on the Cactus Mill property, extract mineralized material on the Yellow Hammer lode claims and process the material at the pilot plant, expand our permitted activities at the Cactus Mill property to include a heap leach facility to process material from the Yellow Hammer claims, commence extraction of mineralized material from the Kiewit lode claims and construct and operate a heap leach facility nearby to process the material from the Kiewit claims.
The first phase of our activities has included the re-habilitation and redesign of the existing mills on the Cactus Mill site to create a pilot plant facility. The rebuilt pilot mill has been completed and testing will occur during September 2010. We anticipate processing mineralized material from the Yellow Hammer claims commencing in fourth quarter 2010. Originally a smaller mill operated on this site over several decades. A larger mill was built many years ago but required modification to accommodate the Yellow Hammer material. The second phase will include the leaching of oxidized copper material at the existing Cactus Mill site. We propose constructing a four acre plastic lined leach pad along with a one acre solution pond. Material will be leached with diluted sulfuric acid and copper will be recovered through proven copper cementation methods. The final phase of our current operating plan will include construction of an 800,000 square foot heap leach pad and process facility to accommodate disseminated gold material from the Kiewit project. The construction of the two heap leach facilities and the proposed extraction activities on the Kiewit claims will require additional permits which we are in the process of securing from the appropriate governmental agencies.
We do not have any current plans to conduct material exploration activities on the remaining Utah claims or the mining properties in Arizona until and unless we are able to generate revenue from planned activities on our designated Utah claims. At this time we do not consider these additional claims to be material to our current operating plan. Nevertheless, if our extraction and processing activities on the Yellow Hammer Claims prove successful, we intend to proceed with the completion of a final feasibility study on all of the claims in the Gold Hill District.Mining District because of its similarities to productive mining districts and its past positive exploration results. The gold potential of the Gold Hill Mining District is enhanced by similarities to surrounding gold deposits. We anticipate that this would include detailed surface mapping,believe the scale, number and samplingfrequency of the Gold Hill Mining District gold-bearing exposures and diamond drillinggeochemical anomalies compare favorably to similar attributes of specified areas. We are unable to predict the costs associated with completing a final feasibility study.
We have no proven or probable reserves for this project. Management has decided rather than allocating fundsother productive mining districts.Location, Infrastructure, and resources on a final feasibility study and developing proven or probable reserves, we intend to process mineralized material based on existing data supplemented with our own confirming work. To this end, we commenced exploration activities on the Yellow Hammer claims in the summerGeography of 2009 to confirm work done by numerous previous operators. Approximately 6,000 feet of drilling was completed. Samples were prepared and assayed at an independent laboratory in Reno, Nevada. Composites were made of drill cuttings in several key areas and re-analyzed for gold, silver, copper, tungsten, and other elements. Metallurgical work is ongoing at an independent laboratory in Reno, Nevada, and by us on site. All results to date indicate the projections originally used on recoveries and reagent consumptions are within reason and we intend to proceed with our planned extraction and processing activities.
Project Location and Access
KiewitThe Gold Hill Mining District is in Tooele County, Utah, located in the Gold Hill and the Clifton 7½ minute quadrangles in western Utah.at 40º 07’ 00” North latitude, 113º 49’ 40” West longitude. The Gold Hill Mining Districtdistrict includes the north end of the Deep Creek Mountains, one of the nearly north-south ranges that are common in the Great Basin. On the east and north, the mountain area is separated by gravel slopes from the flat plain of the Great Salt Lake Desert, and on the west, it is bounded by the Deep Creek Valley and groups of irregular low hills. It is approximately 190 miles west-southwest of Salt Lake City, Utah, and approximately 56 miles south southeast of Wendover, Utah. The project is reached by taking Alternate 93A south from Wendover approximately 28 miles and turning east on to the Ibapah Highway, a paved two lanetwo-lane road. Approximately 17 miles east is a maintained two lanetwo-lane county road which provides access to the property approximately 11 miles southeast to the town of Gold Hill, Utah. Each of the claimsThe Kiewit mine and the mill site are accessible by dirt roads maintained year-round by us and Tooele County.year-round. Access to the property is maintained all year.
Power is supplied by the Company’s diesel generators and water for mining operations is supplied from an existing groundwater well. Drinking water is trucked to the site using a local vendor.
At March 22, 2020 we had 48 full-time and 3 part-time employees, with the expectation to expand that with an additional 10-15 employees by year end. All employees are assigned to work at the Gold Hill project site, with the exception of the officers, a bookkeeper and we likewise intendone engineer, who work from the corporate office in Reno, NV, with periodic site visits.
The Gold Hill area lies within the region of the interior drainage that includes western Utah and most of Nevada, and, like the remaining portions of that area, is a high desert semi-arid climate. The area is composed of a highly dissected group of hills of relatively low relief. The elevation of the Kiewit Mine is approximately 5,500 feet. The Gold Hill area is bounded on the east by the Great Salt Lake Desert at an altitude of about 4,300 feet, on the north by Dutch Mountain with a higher elevation of 7,735 feet, on the west by Clifton Flat at an approximate elevation of 6,600 feet, and on the south by Montezuma Peak with an elevation of 7,369 feet.
Pronounced differences in temperatures between night and day are common, with the dryness of the air mitigating the high temperatures which predominate the summer days. Annual precipitation averages approximately 12 inches with about half falling in the months from February to maintain roadwaysMay. Rainfall during summer to early fall is commonly in the form of severe thunderstorms. Snow may be expected between October and May. Fieldwork in the area is generally permitted throughout most of the year.
The higher portions of the Deep Creek Range and small areas near the summits of the adjoining mountains support a fairly heavy growth of yellow pine. The lower slopes of these mountains have a sparse covering of juniper and piñon trees. On the lower hills and on the gravel slopes surrounding them, these trees give way to sagebrush. The floor of the Great Salt Lake Desert in the north-east corner of the district is almost completely barren of vegetation.
Kiewit Mining Claims
The Kiewit mining claims consist of 66 unpatented mining claims and surface rights to 10 patented mining claims, covering approximately 3 square miles located in the Gold Hill Mining District in Tooele County, Utah.
The Kiewit mining claims were part of a larger group of mining claims leased from Clifton Mining Company (“Clifton”) and its subsidiary, The Woodman Mining Company, in July of 2009. The original lease was amended in June of 2010. In February 2019, the lease agreement was again amended by a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of the Amended Lease, the Company relinquished its leasehold interest in all but the current Kiewit patented and unpatented claims. The lease term is 20 years and for so long thereafter as the mining claims are being actively used by the mill site and paved roadsCompany for commercial mining purposes. The Company is required to pay all year.
Mineral extraction activitiesproperty maintenance obligations with respect to the leased premises.Under the terms of the Amended Lease, Clifton’s right to receive a 6% royalty interest from production on the propertyKiewit project was terminated. The Company also acquired from third parties and cancelled the remaining 1% outstanding royalty interest thereon, for which the Company paid each of two parties $50,000.
As consideration for entering into the Amended Lease, the Company issued 5,500,000 shares of its common stock with a fair value of $2,200,000 which increased the carrying value of the mineral properties and interests. The Company also paid $13,390 in satisfaction of delinquent amounts owed Clifton and $42,802 in a reclamation bond transfer. In addition, the Company and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires the Company to register the shares within 18 months (which is August 7, 2020) following the Initial Funding. In the event the Company does not register the shares within the 18-month period, the Company is obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from the Company’s mining claims. The Company has agreed to maintain the effectiveness of the Registration Rights Agreement for a period of three years.
Desert Hawk may mortgage or pledge its leasehold interest under the Amended Lease for purposes of financing exploration, development, and mining operations on the leased premises, including corporate overhead for such operations, but it cannot otherwise encumber the leased premises without Clifton’s prior, written discretionary consent. In connection with the PDK funding, the Company granted to PDK a security interest in all of the assets of the Company and issued and recorded a Leasehold Deed of Trust which included an assignment of leases, rents, as extracted collateral and contracts, a security agreement and fixture filing.
The Amended Lease cannot be assigned or subleased without the prior written consent of Clifton. Further, PDK may, without Clifton’s consent, hold a foreclosure sale, take title to the Company’s interest under the Amended Lease, or transfer or assign the Company’s interest under the Amended Lease. The Company may surrender the Amended Lease as to all or any part of the leased premises, after proper reclamation of all portions of the land to be surrendered affected by its operations. However, so long as any mortgage of PDK remains in effect, the Amended Lease cannot be modified, and Clifton will not accept a surrender of any of the leased premises or a termination or release of the Amended Lease, without the prior written consent of PDK, which consent cannot be open-pitunreasonably withheld or delayed.
Kiewit Geology and we do not anticipate conducting any underground mining.
The Gold Hill area hosts lithologic units ranging in age from the Cambrian through to Quaternary Periods including six Paleozoic sedimentary formations of Carboniferous-age from the Cordilleran miogeosyncline. Geology of the Gold Hill Mining District is dominated by a large Jurassic granodiorite stock intruding the Carboniferous sedimentary package consisting of carbonates (limestone and dolomite) and lesser clastic sequences, notably shale and quartzite. The contact between the granodiorite and sediments is clearly intrusive at many localities. In other exposures, the contact is a post-intrusive fault contact or localized detachment fault.
Other lithologies in the District include silica breccias, jasperoids and assorted (locally tuffaceous) volcanics. minor small, intrusive plugs and dikes of probable Tertiary age also occur in the area. Most of the present-day surface is covered with colluvial slope wash and the canyons and narrow washes have alluvial fill of various thicknesses.
The Kiewit historic gold zone is hosted within a structural zone traceable on the surface for a distance of approximately 2.5 miles across the full length of the Kiewit project area and beyond. This structure trends north-north-easterly with a gentle westerly dip ranging 20-30 degrees, often occupying dip-slopes across the area. The zone comprises a 30 to 165 foot thick, gently westerly dipping gold bearing oxidized quartz stockwork section in granodiorite. The zone is mostly exposed on the surface and occupies the dip-slope located at the southern part of the Kiewit project area. Projected western and northern extensions of the stockwork dip under Carboniferous Sedimentary rocks, although it is ultimately truncated by the Rodenhouse Fault located approximately 2,500 feet to the west.
The Kiewit gold zone is part of a typical low-sulfidation gold bearing epithermal system. It is manifested as a zone of quartz and quartz-carbonate veining and stockworks within the more laterally extensive (2.5 miles long and up to 1,650 feet wide) Kiewit structural zone fault/fracture system. The Kiewit structural zone comprises a group of lithologies overlying a major fault zone that is manifested as a three to 16 feet thick silica breccia unit in granodiorite. A basal three to six foot thick quartz-carbonate vein overlies this basal silica breccia and is followed up-section by a fault-bounded interval of relatively unaltered granodiorite that forms the footwall of the stockworks. At some locations, this footwall granodiorite is absent and the stockwork zone is instead in fault-contact with the basal quartz-carbonate vein. The footwall of the stockwork zone is defined by faulting, with a north-north-easterly trend and shallow westerly dip. The “footwall” fault appears to have developed after the stockwork and served to juxtapose altered and mineralized rocks of the historic gold zone over relatively mineralized and fresh granodiorite. The amount of displacement along this fault is unknown and the structure may be regarded as a detachment zone.
Precious metals mineralization at Kiewit occurs primarily as electrum and is hosted in a stockwork zone associated with a low angle fault zone. The stockwork zone comprises argillic-propylitic altered granodiorite with randomly oriented to anastomosing veinlets, as well as veins with variable mix of white to grey chalcedony/quartz and white to beige carbonate and adularia. The veins are commonly less than two centimeters wide but larger veins with apparent thickness up to one meter or greater are present on surface and in diamond drill core. The larger veins display typical epithermal style open space fillings and have variable textures.
The mineralized stockwork is reported by Dumont to generally contain up to 30 randomly oriented veinlets making up 30% of the rock volume. The highest gold grades are also reported by Dumont to generally be associated with the larger veins or where vein density is greatest which suggests that the gold mineralization is spatially associated with the quartz-carbonate veins.
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Kiewit Exploration Programs and Mining Activities
The Kiewit mining claims are without known reserves but beginning in 2014 the Company started extraction of gold without determining mineral reserves. The Kiewit mine is a small open pit, heap leach operation that produced gold and silver. Initial production at Kiewit commenced in June 2014 and was suspended in June 2016. Production was suspended due to low metal prices and undercapitalized operations. A fresh water well failure in July 2016, due to suspected sabotage, caused a complete leach pad shut-down. Fresh water pumping was re-started in mid-March 2017 mostly to reduce solution volumes as no sodium cyanide (NaCN) was being added. The mine resumed leaching activities in the spring of 2018 and recovered some gold but suspended operations again in October 2018 to secure funding for continued operations. In April 2019 we recommenced mining operations with our first sale in September 2019.
History
of Previous Mining ActivitiesThe Gold Hill area is one of the oldest mining districts in the State of Utah. It reflects 43 known historical producing deposits mined primarily from the mid-1800s until the end of World War II. These deposits included gold, silver, copper, bismuth, lead, zinc, tungsten, arsenic, molybdenum, cobalt, and beryllium. Exploration and mining activities commenced in the mid-1800s as travel westward through the area to California was at its peak. Lead mineralization first attracted the attention of travelers prompting early prospecting. Placer gold was first discovered in the Gold Hill area in 1858. These early prospectors were hampered by repeated attacks of local Native American tribes and the area was abandoned until 1869 when the settlements of Gold Hill and Clifton were reestablished.
A lead smelter was constructed at Clifton in 1872 and relocated to Gold Hill in 1874. However, mining activity did not commence in earnest until 1892 when a mill and smelter were constructed at Gold Hill. Substantial quantities of gold and silver ore were processed at this site between 1892 and 1896. Mining activity gradually diminished until 1905 when exploration for copper revived the area. With the outbreak of World War I and the completion of the Deep Creek Railroad between Gold Hill and Wendover, a new revival of interest in the area commenced. Gold, silver, copper and lead were produced and approximately 3,000 residents lived in Gold Hill and Clifton at the time.
Tungsten was produced beginning in 1912. Significant amounts of gold and bismuth were also reportedly extracted during this period. Two mines produced tungsten in 1914 and 1917 and were operated primarily for the strategic requirement of tungsten during the two world wars. Gold and silver mining ceased completely with the beginning of World War II since the few remaining miners focused their attention on the production of strategic metals such as arsenic and tungsten to support the war effort.
Arsenic was produced beginning with the outbreak of World War I and was used primarily for pesticides in the cotton fields of the south. Two former copper producers also produced arsenic between 1923 and 1925. One of the mines reopened during World War II to produce arsenic for the war effort. None of the arsenic deposits previously mined are located on our claims.
The first large-scale geological study of the area was published in 1935 by T. B. Nolan as U.S. Geological Survey Professional Paper 177 and is referred to herein as the Nolan Report. The Nolan Report provided the first detailed data on the mining district.
The mining district remained largely dormant during the period after World War II through the mid-1970’s.mid-1970s. Between this period and the mid-1990s, several mining companies began to consolidate the fragmented land holdings in the area and conducted a more regional-scale exploration operation.operation was conducted. In 1993 Clifton Mining Company acquired several of the mining claims in the area and subsequently purchased Woodman Mining Company which also held claims in the district. After purchase of the claims, Clifton Mining commenced additional exploration activities and in 1997 developed road access up the Clifton Hills area. Clifton completed construction of a 50 ton per day mill at the Cactus Mill site and started construction of a 500 ton per day gravity-flotation mill at the same location. In 1999 Clifton Mining borrowed funds which financed upgrades to the mill.
Between 1994 and 1997 Kennecott Utah Copper, now owned by Rio Tinto, explored a large region of the district. In December 2002 Clifton Mining and Woodman Mining entered into an option-joint venture agreement with Dumont Nickel Inc., which in 2010 changed its name to DNI Metals Inc. The joint venture ultimately covered approximately 10.3 square miles of mineral properties but did not include the Yellow Hammer claims which were controlled by the Moeller family. In 2003 Dumont commenced exploring the properties with the objective of identifying bulk mineable gold, copper and silver targets through regional work as well as several drill programs. Beginning in 2004 Dumont completed a regional-scale grid and reconnaissance rock and soil sampling exploration program with detailed, targeted exploration work over the Clifton Shears Corridor, the Kiewit Zone and the prior zone owned by Kennecott. Ultimately, Dumont determined that the scale of the project was too small and decided to sell its interest in the project. In July 2009 Dumont completed the sale of all its mineral properties in this area to Clifton Mining Company for $255,000 cash and a 0.5% net smelter return royalty against future production proceeds from the Cane Springs Property and from portions of the Kiewit project claims. The joint venture and the option agreement were both subsequently dissolved and terminated. Through our lease agreement with Clifton
Processing Plant and Mining we have access to all reports and core samples prepared by Dumont Nickel during the period of the joint venture.
Evidence of priorEquipmentThe Kiewit mine is an open pit mine using conventional open pit mining activities onmethods with drilling, blasting, loading with a wheeled loader and truck haulage to the Yellow Hammer claimsore stockpile near the crusher. We recommenced operation of the mine in April 2019. We also use a top hammer drill for all blast holes and a dozer to move waste and for road building, as required. We also use a grader and water truck for haul road maintenance. At the Kiewit claims is evidentleach pad we use a wheeled loader to feed the crusher and a dozer to level the pad.
The current processing facility can process approximately one million tons per year, which we plan to increase to three million tons if resource expansion dictates. We anticipate that this expansion will require an update or amendment of some permits. Ores are crushed, truck-stacked and heap-leached at the Company’s mine site.
Climate and Vegetation
The Gold Hill area lies within the region of the interior drainage that includes western Utah and most of Nevada, and, like the remaining portions of that area, is Pregnant solutions are passed through a high desert semiarid climate. The area is composed of a highly dissected group of hills of relatively low relief. The elevation of Gold Hill village is 5,321 feet. The Gold Hill area is bounded on the east by the Great Salt Lake Desert at an altitude of about 4,300 feet, on the north by Dutch Mountain with a higher elevation of 7,735 feet, on the west by Clifton Flat at an approximate elevation of 6,600 feet, and on the south by Montezuma Peak with an elevation of 7,369 feet.
Pronounced differences in temperatures between night and day are common,conventional carbon column with the dryness of the air mitigating the high temperatures which predominate the summer days. Annual precipitation averages approximately 12 inches with about half falling in the months from February to May. Rainfall during summer to early fall is commonly in the form of severe thunderstorms. Snow may be expected between October and May. Fieldwork in the area is generally permitted throughout the year.
resultant gold-bearing carbon refined off-site.Mining Permits
The higher portions of the Deep Creek Range and small areas near the summits of the adjoining mountains support a fairly heavy growth of yellow pine. The lower slopes of these mountains have a sparse covering of juniper and piñon trees. On the lower hills and on the gravel slopes surrounding them these trees give way to sagebrush. The floor of the Great Salt Lake Desert in the north-east corner of the district is almost completely barren of vegetation.
Title to the Claims
Our principal focus will be on the following material properties: the four patentedKiewit mining claims known as the Yellow Hammer claims, approximately seven of the unpatented load mining claims described as the Kiewit claims, and the unpatented mill site claim, all located in the Gold Hill Mining District of Tooele County, Utah.
There are significant differences between the ownership rights associated with patented mining claims and those associated with unpatented mining claims. The granting of a patent is a relinquishment by the United States of its ownership of the land patented, and is the origin of private ownership of such land. Thus, the owner of a patented mining claim has a fee simple title to the mining claim so patented. The original locator and each subsequent owner of an unpatented mining claim,exist entirely on the other hand, has only “possessory” title which is dependent upon maintaining possession and is subject to a paramount title of the United States. A mining claim locator’s possessory right is established by the physical act of “location” of an unpatented mining claim for minerals such as gold and silver on unappropriated public land that is open to mineral location, and remains valid so long as the unpatented mining claim is maintained in compliance with the Mining Law of 1872, as amended, and other federal and state laws and regulations. Such laws and regulations require a mineral discovery, the making of the mining claim on the ground in a specific way, and the making of annual payments to the U.S. Department of the Interior, Bureau of Land Management referred to herein as the BLM, in order to maintain the unpatented mining claim. Because possessory title is dependent upon the factual basis of these requirements, a determination that appropriate documents have been recorded in the county in which the mining claim is located and filed with the BLM does not ensure valid possessory title.
A valid unpatented mining claim may be held indefinitely and the mineral deposit mined without obtaining a patent from the United States. There is no requirement that royalties be paid to the United States for minerals produced from unpatented mining claims. However, proposals repeatedly have been introduced into Congress that would substantially modify the Mining Law of 1872 which could require, among other things, the payment of royalties to the United States.
We believe that we hold valid leasehold interests in all of our Utah mining claims and state leases, in particular the patented Yellow Hammer claims, the seven unpatented lode mining claims known as the Kiewit claims, and the unpatented mill site on the Cactus Mill property. Nevertheless, there may exist conflicting interests in these claims. In 1996 Clifton Mining obtained possessory title to the Cactus Mill site under a quitclaim deed from American Consolidated Mining Co., which had previously quitclaimed the site to another entity which recorded the deed after Clifton Mining. Because Utah has a race notice recording statute and the Clifton Mining deed was recorded first, management believes Clifton Mining holds valid possessory title to the site which has been leased to us. In addition, a quitclaim deed recorded in 2009 from International Minerals & Metals Inc. and IMM-Dworkin Holdings, LLC to Clifton Mining references a royalty agreement granting a 0.5% royalty in favor of the grantors over a portion of the claims including the Kiewit claims. No royalty deed has been recorded and management has been unable to locate the royalty deed. Nevertheless, this royalty obligation may exist in favor of the original grantors. Management does not believe that any of the exceptions to clear possessory title to the claims raises a material risk to planned operations and Clifton Mining has agreed to indemnify and hold us harmless from certain potential encumbrances.
Glossary
Archean: Of or belonging to the earlier of the two divisions of Precambrian time, from approximately 3.8 to 2.5 billion years ago, marked by an atmosphere with little free oxygen, the formation of the first rocks and oceans, and the development of unicellular life. Of or relating to the oldest known rocks, those of the Precambrian Eon, that are predominantly igneous in composition.
Assaying: Laboratory examination that determines the content or proportion of a specific metal (that is, gold) contained within a sample. Technique usually involves firing/smelting.
Development: A development project is one which is undergoing preparation of an established commercially mineable deposit for its extraction, but which is not yet in production. This stage occurs after completion of a feasibility study.
Dike: A tabular igneous intrusion that cuts across the bedding or foliation of the country rock.
Exploration: An exploration prospect is one which is not in either the development or production stage.
Fault: A break in the continuity of a body of rock. It is accompanied by a movement on one side of the break or the other so that what were once parts of one continuous rock stratum or vein are now separated. The amount of displacement of the parts may range from a few inches to thousands of feet.
Fold: A curve or bend of a planar structure such as rock strata, bedding planes, foliation, or cleavage.
Formation: A distinct layer of sedimentary rock of similar composition.
Geophysicist: One who studies the earth; in particular the physics of the solid earth, the atmosphere and the earth’s magnetosphere.
Granitic: Pertaining to or composed of granite.
Heap Leach: A mineral processing method involving the crushing and stacking of an ore on an impermeable liner upon which solutions are sprayed that dissolve metals such as gold and copper; the solutions containing the metals are then collected and treated to recover the metals.
Intrusions: Masses of igneous rock that, while molten, were forced into or between other rocks.
Mapped or Geological: The recording of geologic information such as the distribution and nature of rock.
Mapping: Units and the occurrence of structural features, mineral deposits, and fossil localities.
Mineral: A naturally formed chemical element or compound having a definite chemical composition and, usually, a characteristic crystal form.
Mineralization: A natural occurrence in rocks or soil of one or more metal yielding minerals.
Mineralized Material: The term “mineralized material” refers to material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction.
Mining: Mining is the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product. Exploration continues during the mining process and, in many cases, mineral reserves are expanded during the life of the mine operations as the exploration potential of the deposit is realized.
Pipes: Vertical conduits.
Production Stage: A “production stage” project is actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.
Sedimentary: Formed by the deposition of sediment.
Shear: A form of strain resulting from stresses that cause or tend to cause contiguous parts of a body of rock to slide relatively to each other in a direction parallel to their plane of contact.
Vein: A thin, sheet like crosscutting body of hydrothermal mineralization, principally quartz.
Geology
Our Gold Hill project is underlain by Carboniferous limestone and shale units of the Ochre Mountain Limestone, Manning Canyon, and Ochre Formations. Two distinctly separate igneous plutons intrude the sediments: a Jurassic granodiorite in the north and an Oliglocene quartz-monzonite in the south. Intense structural preparation is exhibited in different forms throughout the property with extensive primary north south fracturing exhibited in most areas. Considerable east west fracturing exists in the center of the project area and appears to control and/or host mineral occurrences. Generally, economic mineralization exhibits a close special relation to the Jurassic granodiorite with economic mineralization occurring both along the sediment contacts and the fractures within the intrusive. Nevertheless, there are no proven or probable reserves which would substantiate an established commercially minable deposit for extraction. The close special relationship of the granodiorite to many of the mineral occurrences suggest it is the primary source of the mineralization. The Nolan Report described several separate faulting, folding, and mineralizing events in the district.
The Kiewit occurrence has been characterized as a hydrothermal disseminated gold zone in a highly fractured granodiorite intrusion. A specific horizon or low angle fault structure manifests itself as an anomalous gold blanket within the intrusion.
The Yellow Hammer mineralized material consists of several structurally controlled tabular and pipe-like copper, gold/silver, and tungsten zones hosted in the strongly altered quartz monzonite. Copper oxides consist mostly of azurite, malachite and chrysocolla. Sulfide copper minerals include chalcocite, chalcopyrite, covellite, and many other minerals including native copper. Tungsten minerals are primarily sheelite. Copper, gold, silver, and tungsten occur side by side within the shear zones.
Prior Exploration Activities
In connection with our review and assessment of the Yellow Hammer claims, we studied drill hole results from the 1960s, 1970s, and 1990s from drilling programs conducted by earlier exploration companies. We selected certain areas of the claims where these prior drilling programs evidenced favorable results, and in fall 2009 we completed 116 drill holes on the Yellow Hammer claims ranging in depth from 16 to 72 feet, totaling approximately 6,000 feet of drilling. The drilling was done with a leased air-track drill, which drilled 3½ inch holes using conventional compressed air. Samples were collected on six foot spacing, bagged by company employees, and shipped by company truck to the American Assay Lab in Reno, Nevada, where the samples were wet-assayed for copper and the results sent to the company.
Subsequently, sample intervals from 22 of the better copper-grade drill holes were composited into 12 to 66 foot intervals and re-assayed for copper, gold, silver, and 68 other elements.
On the basis of the earlier drilling and our confirmation drilling, we calculated the mineralized material and concluded that sufficient mineralized material was present to justify removing the material by open pit and processing it at our pilot mill. Metallurgical test work on the samples was performed by McClellan Laboratories, Inc. in Reno, Nevada.
In the Kiewit area, based upon our calculation of mineralized material based on drill results from prior drilling performed by Dumont Nickel Inc. from 2004 to 2006 and recent metallurgical test work by McClellan Laboratories, we also concluded that sufficient mineralized material was present to justify removing the material by open pit and processing it by leaching at a facility to be constructed near the Kiewit claims.
For these reasons, we decided to concentrate our exploration activities in the Yellow Hammer and Kiewit areas for the near future. Therefore, much of the near term exploration will be centered on known mineral occurrences on the Yellow Hammer and Kiewit claims.
Mineralization in the project area is manifested as: contact-metasomatic in and around limestone-granodiorite contacts (skarns), as fissure quartz-carbonate-adularia veins within the intrusive body itself, and as copper-gold replacement deposits within both the limestone and the intrusion. The Nolan Report concluded that together these styles of mineralization are indicative of epithermal and related porphyry systems. Underlying thrust faults such as the Ochre Mountain thrust fault and the North Pass thrust fault along with numerous Mesazoic cross-cutting low-angle faults would have allowed magmatic or hydrothermal fluids emanating from the intrusion to migrate far from the intrusion and deep into surrounding wall rock. Clastic shale units within the property may have acted to form traps where migrating fluids would have deposited metals.
We believe the structural, lithological, and geochemical signature of the Gold Hill area is favorable for a porphyry copper-gold system (and related skarns) proximal to the Jurassic granodiorite, and for sediment hosted gold deposits distal to the granodiorite intrusion.
Exploration Plans
With the funding from DMRJ Group, we intend to commence processing mineralized material from our Yellow Hammer claims at the pilot plant located on the Cactus Mill property and to commence processing activities on the Kiewit Claims. Set forth below is a brief discussion of the material plans relating to these projects:
Cactus Mill Pilot Plant Rebuild. The Cactus Mill site is located approximately 1/3 mile north and west of the town site of Gold Hill and approximately four miles north of the Yellow Hammer claims. All needed access roads are already in place. Milling began on this site in about 1919. Prior to our recently completed rebuild activities, the site consisted of two buildings with a concentrated storage area. Water for the area comes from the Cane Springs, located approximately 1,000 feet southwest of the pilot mill site and is piped to the pilot mill.
We confirmed anomalous sulfide copper, gold, silver, and tungsten during the fall 2009 drilling program on the Yellow Hammer claims. Based upon the results of current independent and internal metallurgical work, we have modified and converted the existing mill on the Cactus Mill property into a larger and newer pilot facility to accommodate the treatment of this complex mineralized material. This pilot plant is comprised of a copper flotation circuit followed by flotation and gravity circuit for tungsten. Although most of the prior mill equipment is between 15 and 25 years old, it has been upgraded and modernized during this reconstruction process. A new feed system has been installed and all major electrical equipment has been rebuilt or replaced. A 350 KVA generator has been added to power the pilot plant initially, while a 150 KVA generator has been rebuilt to maintain support when the main generator is down. Two 60 KVA and one 70 KVA generators have been added as support for the water well and construction. We anticipate that the pilot plant will process at rates of approximately 4,000 tons per month. We will test the facility during September 2010 and anticipate processing mineralized material beginning in fourth quarter 2010. We spent approximately $1,000,000 on the remodel and reconstruction of the pilot plan.
Mineralized material from the Yellow Hammer claims will provide the initial material for feed to the pilot plant. It will be transported to the pilot mill on existing county roads and will be crushed and ground at the site. It will then be put through the gravity separation system, where a salable concentrate will be produced. The remaining materials will then be extracted using a regular floatation process and the concentrates will then be sold “as is” to a smelter. We intend to produce a copper concentrate with credits for gold and silver. In addition, we intend to produce a gravity and flotation tungsten concentrate.
The milling process would also allow subsequent leaching of the tailings for oxide copper mineralized material if deemed economic. We are in the process of amending our existing permit to allow us to construct and operate a heap leach facility near the pilot mill. In the event that gold bearing material is located in sufficient quantities on these claims, this material would be transported to the proposed Kiewit leach pad for processing.
Cactus Mill Heap Leaching Facility. Upon receipt of necessary permits as discussed below, we intend to construct an approximately four acre heap leach facility for oxide copper mineralized materials to be built near the Cactus Mill pilot plant. Management currently estimates that leaching would commence in mid-2011. Management estimates that approximately 75,000 tons could be leached per year through this facility with dilute sulfuric acid. Copper will be precipitated using the copper cementation process. While approximately $100,000 has been spent to prepare and construct the heap leaching facility, we have budgeted an additional $1,000,000 from the DMRJ funds to complete the project. Management estimates that this facility will accommodate processing of mineralized material from the Yellow Hammer claims for approximately two years, after which we anticipate constructing a larger facility near the Yellow Hammer claims, if warranted.
Kiewit Gold Claims. Based on prior exploration work performed by Dumont Nickel between 2004 and 2006, management believes that mineralized material located on the Kiewit claims is a highly oxidized, highly fractured, highly disseminated and cyanide amenable hydrothermal gold deposit, with very minimal silver occurrences with the gold. Independent metallurgical testing by McClelland Laboratories in Reno, Nevada, has shown recoveries of 70% of gold are achievable with very low reagent consumptions but with the need for very fine crushing to at least minus 1/8th inch. We intend to extract mineralized material from three open pit mines and to process the material using a cyanide heap leach operation to recover gold and silver. Mining, haulage operations, crushing and placement of the material on the leach pad is intended to be performed by outside contractors. The claims are located approximately two miles west of the proposed leaching facility. Removal of mineralized material from these claims is subject to obtaining the necessary permits as discussed below.
Kiewit Heap Leaching Facility. We intend to process any mineralized material extracted from the Kiewit claims through a heap leach facility we propose to construct approximately 3,000 feet to the southwest of the Kiewit claims on patented claims we currently lease. We estimate that the leaching facility would cover approximately 20 acres. The project will entail the construction of an 800,000 square foot clay and plastic lined pad and ponds and a 1,500 gallons per minute carbon column recovery facility. We have budgeted $3,500,000 to complete this project upon receipt of necessary permits as discussed below.
Permits
The Bureau of Land Management regulations stipulate that, as long as any exploration projects on federal lands are limited to an area within five acres, there are no requirements to perform an extensive environmental assessment or compose a Plan of Operation. Larger projects would require a Plan of Operation which would consist of a reclamation plan and bond. The BLM has shifted some of its land management and authority to state agencies, such as the Utah Division of Oil, Gas and Mining which also regulates mining activities on state and private lands. The Utah Division of Oil, Gas, and Minerals also shares authority with the BLM to stipulate and enforce environmental protection measures which are generally regulated by the Utah Department of Environmental Quality. Our proposed exploration activities are located in the State of Utah and therefore require various filings with the Utah Division of Oil Gas and Mining. The Division requires all large mining operations to have an approved notice of intention and an approved reclamation contract in place and a surety bond posted. All small mining operations must have a complete notice of intention filed with the Division. All exploration projects must have a complete notice of intention filed with the Division.
We have retained North American Exploration, Inc. of Kaysville, Utah, to assist us in obtaining the operating permits necessary for our principal projects on the Gold Hill claims. We have also retained JBR Environmental Consultants, Inc. of Sandy, Utah, to assist us with environmental issues relating to the permitting process. We believe that because of the location of the mining property, obtaining the necessary regulatory permits will not be difficult or cause material delays. The property is located in an 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. Existing water quality is low and relations with the few existing neighbors are good. 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. Management believes that no previous work by any operator has been contested by regulators or others.
Set forth below is a summary of the status of the permitting process for the various segments of the project:
Yellow Hammer Small Mining Operations Permit: We hold a Small Mining Operations Permit from the Utah Division of Oil, Gas and Mining. This permit was approved by the Division on October 5, 2009. We have also posted a reclamation bond of $25,300 with the Division. This Small Mining Operations Permit stipulates that as long as any exploration or mining operations are limited to an area within five acres, there are no requirements to perform an extensive environmental assessment or complete a Plan of Operation.
Cactus Mill Site: We currently hold a Large Mining Operations Permit from the Utah Division of Oil, Gas and Mining for the pilot plant which allows flotation and gravity concentration. This permit was granted in October 1995 to Ivanhoe Joint Venture and was ultimately assigned to us on April 6, 2009. We have also entered into a Reclamation Contract with the Division which was originally effective August 9, 2002, and transferred to us on April 6, 2010. We have also posted a reclamation bond in the amount of $48,000 for this project with the Division. Initially, mineralized material for this pilot plant will be generated exclusively from the Yellow Hammer claims under the above–referenced Small Mining Operations Permit.
Cactus Mill Heap Leach Project: Since September 2009 we have been working with the Utah Division of Oil, Gas and Mining and the BLM to amend our Large Mining Operations Permit for the Cactus Mill site to allow a test copper heap leach operation. The amendment was originally filed in September 2009. The BLM responded in February 2010 with a request for additional information, including such items as a process flow sheet, rock characterization and handling plan, spill contingency plan, and operations schedule. In June 2009 we filed with the Utah Division of Oil, Gas and Mining our third amendment to the Notice of Intention to Amend the Large Mining Operations Permit. We anticipate completing the amendment process in early 2011.
The BLM is requiring an environmental assessment be provided with the amended Large Mining Operations Permit, although representatives of the BLM have indicated that a single environmental assessment for both the Cactus Mill amendment and the Kiewit application would be acceptable. We estimate that the cost of preparing the environmental assessment will be approximately $38,000 and that it will be completed in early 2011. We believe that the amended Large Mining Operations Permit process could be completed by first quarter 2011. However, there a number of factors which could require longer to complete the amended permitting process, including delays caused by untimely regulatory reviews. In June 2010, we submitted a Ground Water Discharge Permit Application with the Utah Division of Environmental Quality, which, if approved, will be included as an appendix to the Large Mining Operations Permit.
Kiewit Project: This deposit exists entirely on BLM unpatented mining claims from which an environmental assessment was previously completed by Dumont Nickel, a predecessor operator, on the affected area. The heap leach pad and process area will beare located on patented mining claims approximately 3,000 feet to the southsouthwest of the Kiewit claims. We are in the process of transferring the exploration permit which has a completed Plan of Operation and environmental assessment from Dumont Nickel to us. We anticipate completion of the transfer during fourth quarter 2010.
In February 2010 we filed an application with Utah Division of Oil, Gas and Mining for a Large Mining Operations Permit to commence large mining operations for three open pit mines and a heap leach gold facility. Final approval was received in November 2012. In February 2010 we also submitted a Plan of Operation to the BLM and the Utah Division of Oil, Gas and Mining for exploratory drilling. The Utah Division of Oil, Gas and Mining has provided its initial review of this submittal and management anticipates that our response will be submitted by the end of September 2010. The application includes reclamation and storm water management.BLM. Final approval was received in January 2014. A separate “Groundwater Protection Permit”Groundwater Discharge Permit through the Utah Department of Environmental Quality is also required and is in its final review phase. We anticipate completion of this process in fourth quarterwas issued on December 7, 2010.
In addition to completing the notice of intent filing, we anticipate that the BLM will requirerequires an analysis of our Plan of Operation in compliance with the National Environmental Protection Act, which we anticipate will consist of our notice of intent filing with the Utah Division of Oil, Gas and Mining once it is complete, which will require an environmental analysis on the project. JBR Environmental Consultants has likewise been engaged to prepare this analysis. We estimate the cost to prepare this environmental analysis will be at least $47,000 and could be higher depending upon the requirementsAct. Approval of the BLM.
Yellow Hammer Exploration: In October 2008 the Utah Division of Oil, GasEnvironmental Assessment was issued in January 2014 and Mining issued an exploration permit for explorationdevelopment of the Yellow Hammer claims which was used to conduct our drilling program on these claims last fall. We have also executed a Reclamation Contract dated October 13, 2009, with the Division and have postedproject began in February 2014 after posting a reclamation bond with the DivisionBond in the amount of $12,300 for this project.
Parties engaged$1,348,000. The bond has since been replaced with a surety bond in mining operations may be required to compensate those suffering loss or damage by reasonthe same amount, a condition of which was the deposit of $674,000 (50% of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on our planned operations and cause increases in capital expenditures or exploration costs or reduction in levels of mineralized material from future properties, if any, or require abandonment or delays in exploitation of new mining properties.
Water and Power
Pursuant to our lease agreement with Clifton Mining, we have access to Cane Springs, a natural flowing spring approximately 1,000 feet southwest of the Cactus Mill site, as well as the Cane Springs mine shaft located approximately ¼ mile south of the Cactus Mill. We have reconstructed pipe lines from Cane Springs and the Cane Springs shaft to the Cactus Mill pilot plant. Management believes the water from these two sources will be sufficient to operate the pilot plant and the proposed Cactus Mill leaching facility. We have been granted a one cubic foot per second water right from the Utah Division of Water Rights to provide water to the proposed Kiewit heap leach facility, which management believes will be sufficient to operate the proposed facility. We intend to construct a well adjacent to the facility to provide this water. Prior work on this site by Dumont Nickel has identified water at a depth of approximately 350 feet.
We believe that the generators installedbond amount) into escrow with the
pilot plant will be sufficient to provide the power necessary to operate the facility. We have installed an 8,000 gallon diesel fuel tank which we estimate will permit running time of approximately five weeks before refilling is required. We are also negotiating with a utility to provide a permanent power source by running power lines to the property for leaching facilities and pilot mill. We believe thatbonding company.The Company believes it has all necessary easements are in place for installationenvironmental permits and authorizations to support existing operations. As we expand or update the current mining plan of the power lines and estimate that the cost to install the lines would be approximately $13,000. We are also exploring additional alternatives for power to the property.
Competition
The precious metal exploration and mining industry is highly fragmented. We expect to compete with many other exploration companies looking for copper, gold, silver, tungsten, and other minerals. We are among the smallest of the exploration companies in existence and are a very small participant in the precious metal industry. However, we generally expect to compete favorably with other exploration companies since the claims held by the company in the Gold Hill Mining District consolidate the principal mining areas and limit the ability of other exploration companies to commence material exploration activities in the district. Furthermore, if we are able to successfully recover copper, gold and other by-products from our claims, it is likely thatoperations (the “POO”), we will be able to sell all minerals thatrequire an update or amendment of some permits and before we are able to recover.
Copper mining is a significant industrycan implement any changes in Utah. In particular,our operating parameters, we will be competing with Rio Tinto which operates the Kennecott Copper Mine, one of the largest open pit copper mines in the world, located in Salt Lake County, Utah. However, management believes the market for copper is sufficiently strongneed to accommodate any mineralized material which we may extract.
The property is located reasonably near a populated area from which it will be able to draw manpower and supplies. Management does not currently have customers for any copper, gold, silver,modify our existing permits or
other minerals which we may produce.seek new permits. We anticipate that
markets for these mineralsthe following permitting modifications will be required: | ● | POO Modification: A POO modification would be required to support our planned increased production capacity, expansion of the mine pit, and the expansion of the leach pad. The POO modification must be submitted to the BLM, and the process would require National Environmental Policy Act compliance, including public review and comment. We submitted the modification in first quarter 2020 and anticipate obtaining this modification by fourth quarter 2020. |
| ● | Air Quality Permit to Construct: A modification to the Air Quality Permit to Construct would be required for production increases from the one million tons per annum to the three-million-ton level. We anticipate submitting our application in first quarter 2020 and expect permit issuance by the end of 2020. |
| ● | Water Discharge Permit: A modification to our existing water discharge permit would be required for the expansion including enlargement of the heap leach facility. The permit includes monitoring of the heap leach leak detection system and groundwater monitoring wells in the vicinity of the heap leach and process area. We anticipate submitting the modification in first quarter 2020 and expect permit issuance by the end of 2020. |
| ● | Reclamation Plan: A Reclamation Plan Approval would be required by the Utah DOGM Office. However, the Aggregate Mine Land Reclamation Act would require approval by the Inspectors Office of the POO amendment addressing new infrastructure and disposal facilities. We submitted the POO amendment for approval in first quarter 2020 and anticipate permit approval by the end of 2020. |
We are readily available and do not anticipate difficulty in selling any concentratesthe process of mineralized material which we may extract. Notwithstanding this, management will need to evaluate transportation methods and costs when it obtains potential customers to determine whether existing prices for the mineralized materials would make sales to such customers economically viable.
Government Compliance
Our operations are subject to extensive federal and state laws and regulations designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration or mining activities and may result in significant delays, substantial costs and the alteration of proposed operating plans. As discussed above under Permits, we have retained North American Exploration, Inc. and JBR Environmental Consultants, Inc.engaging outside consultants to assist us in obtainingseeking modification or new permits to accomplish the necessaryabove.2018 and 2019 Mining Activities
During 2018 through October of that year we mined 50,000 tons of waste but did little or no crushing or processing. From October 2018 through the end of first quarter 2019, we ceased principal mining operations and environmental permitsfocused on securing funding. During that period the mine operation was on care and clearances. Meeting these regulatory requirements necessitates significant capital outlaysmaintenance with water and may resultair quality monitoring ongoing as required by existing permits. Mining operations resumed in liability2019 with our first sale in September 2019. Operations are ongoing.
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 owner and operatordefinition of the property for damages that may result from specific operations or from contaminationmineralized body and resource classification of the environment, allresources in connection with the proposed completion of which may prevent us from continuing to operate.
Our Cactus Mill pilot plant and the Kiewit claims are located on unpatented claims located on federal land, which also requires compliance with applicable requirements administered by the BLM. These regulations impose specific conditionsa technical report on the
natureclaims. Our drilling plan includes drilling 30 holes for a total footage of 7,500 feet. This drilling began on January 14, 2020.Planned 2020 Exploration and extentMining Activities
We intend to continue our drilling program during the first three quarters of surface disturbance, the manner in which exploration and mining can be conducted, the disposition2020 at a further cost of spentapproximately $175,000.
We also intend to continue extraction of mineralized material, the use and containment of chemical leaching agents and other solutions, spill prevention, liquid and solid waste disposition, ground water monitoring, and a number of other matters which if violated could result in fines, penalties or attendant adverse publicity.
We are also obligated to make annual payments to the BLM for each of our unpatented mining claims on federal landore and to record an affidavit inupgrade and expand the Tooele County Recorder’s Office reflecting the payment of the annual maintenance fees to the BLM and stating our intention to hold the claims. The 2010 annual maintenance fee payable to the BLM on our unpatented claims was $46,760 and was paid in August 2010. The required affidavit was filed with the Tooele County Recorder on August 26, 2010. Proposals repeatedly have been introduced in Congress that would substantially modify the Mining Law of 1872, the statute pursuant to which unpatented mining claims are located and maintained. Bills have been introduced that would require, among other things, the payment of royalties to the United States. Property taxes on the patented claims were $6,430 for 2009 and are anticipated to be approximately the same for 2010. The 2010 mineral lease fees on two of the Utah state claims were $1,053 and we anticipate that the mineral lease fees on the remaining state claims payable in December 2010 will be approximately $4,637. We do not anticipate that these taxes and fees will significantly increase in 2011.
Mining and exploration operations are also subject to both federal and state laws and regulations pertaining to employee health and safety. We have employed a mine safety administrator to monitor our obligations under these laws and regulations.
Insurance
We maintain property and general liability insurance with coverage we believe is reasonably satisfactory to insure against potential covered events, subject to reasonable deductible amounts, through our exploration stage.
Offices and Other Facilities
We do not maintain separate offices for the company. Mr. Jorgensen, our CEO, provides office space in his home in Spokane, Washington, for our principal executive offices. Monthly rent for this space is $500 commencing October 1, 2010. Mr. Havenstrite, our President, operates primarily on site at our mining property in Tooele County, Utah. He also works from his office in Reno, Nevada. Rent for this office space is $500 per month. This office space is used primarily for RMH Overhead, LLC, a business owned by him. We do not have any formal agreements for the use of any of the company’s office spacecurrent facilities, and the rental arrangements can be cancelled at any time.
We rent a core-logging facility located on the Tooele County airport grounds in Wendover, Utah. The facility includes a separate core splitting and sawing room, field supply storage rooms and sufficient floor space for logging tables and racks to hold over 21,000 feet of HQ core boxes. Monthly rent for this space is $350 and the rental arrangement is terminable at any time.
Employees
We currently have 15 full-time employees, including our President, Rick Havenstrite. In addition, we employ a project manager, a metallurgist, a geologist, a mine safety administrator, two mill operators, two mill helpers, an electrician/maintenance man, three mine laborers, and two tungsten processors. All of these employees work at our Gold Hill project site. We also employ our CEO, Robert E. Jorgensen, on a part-time basis. In addition, we have a part-time consulting agreement with one of our directors, Eric L. Moe.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.
as resource expansion dictates.MANAGEMENT
The following table sets forth as of September 14, 2010,March 22, 2020, the namenames and ages of, and position or positions held by, our executive officers and directors, and the employment background of these persons:
| Name | | Age | | Positions | | DirectorSince | | Employment Background |
| Howard Crosby | | 67 | | Director, Chairman | | 2016 | | Mr. Crosby served as our Chief Executive Officer from April 2016 until April 2017. Since 1989, Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned business advisory consulting firm. From 1994 to June of 2006 he served as president and director of Cadence Resources Corporation, a publicly traded oil and gas company. He served as an officer and director of Independence Resources PLC from March of 2010 until October of 2013. He served as a director of White Mountain Titanium Corporation from 2004 until March of 2016. Both Independence Resources and White Mountain Titanium were previously reporting companies with the SEC. He currently serves as President and Director of Shoshone Silver/Gold Mines, Inc. Mr. Crosby is also a director or advisor to a number of privately held companies. He received a bachelor’s degree from the University of Idaho in 1975. Mr. Crosby has extensive experience in corporate finance and strategic planning and provides valuable insight on business strategy development and strategic partnership to our Board of Directors. |
| Name | | Age | | Positions | | Director Since | | Employment Background | | Age | | Positions | | DirectorSince | | Employment Background |
| Robert E. Jorgensen | | 57 | | Chairman, CEO, & Treasurer | | 2001 | | Mr. Jorgensen has served as our Chairman and treasurer since February 2001; as a vice-president from November 2001 until October 2004, as president from October 2004 until April 2009, and as CEO since April 2009. He served as president of Monarch Gulf Exploration, an oil and gas exploration company, from January 2005 until late 2007. | |
| Rick Havenstrite | | | 61 | | Director, President and Chief Executive Officer | | 2009 | | Mr. Havenstrite has served as our President since April 2009 and as Chief Executive Officer since April 2017 and has been employed by us to manage our mining operations since August 2009. Since May 1999 he has been the co-owner, with his wife, and President of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company and since 2004 has been a partner in RMH Overhead, LLC. From 1998 until 1999 he was employed by Nevada Star Resources, a small copper mining company, as Manager of the Nevada Star Milford Copper Project in Utah; from 1996 until 1998 he was employed by Centurion Mines Corp, a exploration mining company, as Vice-president of Operations on the Milford Copper Project; from 1992 until 1996 he was General Manager of Nevada Operations for Arimetco Mining in Yerington Nevada, a mid-size copper mining company; from 1991 until 1992 he was employed by Nevmont Minerals, a small gold mining company, as Manager of the Golden Assets Mine in Montana; from 1983 to 1990 he was employed by Silver King Mines, which subsequently changed its name to Alta Gold Corp., a mid-sized diversified mining company, beginning his employment with the company as Project Engineer at the Buckskin Mine from 1983 to 1985, subsequently moving with the company to Ely, Nevada where he was the Mine Superintendent and then Mine Manager of the Robison Mine from 1985 to 1988, and finally serving as Manager of Mining for Alta Gold’s operating mines in Nevada, Idaho, Oregon and Colorado; and from 1980 until 1983 he was employed by Utah International, a large diversified mining company, as a mine engineer of the Springer Tungsten Mine in Nevada and the Navajo Coal mine in New Mexico. Mr. Havenstrite graduated in 1980 with a Bachelor of Science degree in Mining Engineering from the University of Reno, Mackay School of Mines. He is a registered Professional Mining Engineer with the State of Utah and is an inactive Professional Mining Engineer in the State of Nevada. |
| | | | | | | | |
| Marianne Havenstrite | | | 61 | | Treasurer and Principal Financial Officer | | -- | | Ms. Havenstrite has been our Principal Financial Officer from May 2013 to April 2016 and since March 2017. Since May 1999 she has been the co-owner with her husband, and has served as Vice-President, of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company and since 2004 has been a partner in RMH Overhead, LLC. She received her Bachelor of Science degree in accounting from the University of Nevada, Reno in 1980. |
Rick Havenstrite | | 52 | | Director & President | | 2009 | | Mr. Havenstrite has served as our President since April 2009 and has been employed by us to manage our mining operations since August 2009. Since May 1999 he has been the co-owner and president of Overhead Door Company of Sierra/Nevada, Inc., a commercial and residential door installation company. From 1998 until 1999 he was employed by Nevada Star Resources, a small copper mining company, as manager of the Nevada Star Milford Copper Project in Utah; from 1996 until 1998 he was employed by Centurion Mines Corp, a exploration mining company, as vice-president of operations on the Milford Copper Project; from 1992 until 1996 he was general manager of Nevada operations for Arimetco Mining Yerington Nevada, a mid-size copper mining company; from 1991 until 1992 he was employed by Nevmont Minerals, a small gold mining company, as manager of the Golden Assets Mine in Montana; from 1983 to 1990 he was employed by Silver King Mines, which subsequently changed its name to Alta Gold Corp., a Mid-sized diversified mining company, as the mine manager and superintendent on the Alta Gold Buckskin Mine and the Robinson Mine in Utah; and from 1980 until 1983 he was employed by Utah International, a large diversified mining company, as mine engineer of the Springer Tungsten Mine in Nevada and the Navaho Coal mine in New Mexico. Mr. Havenstrite graduated in 1980 with a Bachelor of Science degree in mining engineering from the University of Reno Mackay School of Mines. He is a registered Professional Mining Engineer with the State of Utah and is an inactive Professional Mining Engineer in the State of Nevada. |
| Robert E. Knecht | | 59 | | Vice-President & Director | | 2007 | | Mr. Knecht has been retired since 2005. From 1989 until 2001, Mr. Knecht was employed by Paulsen Investment in Spokane, Washington, as compliance officer for the brokerage firm. From 2001 until 2003 he was self-employed as a business consultant and from 2003 until 2005 he managed the collections office for Citigroup in Boise, Idaho. |
| William McAndrews | | 58 | | Director | | 2008 | | Mr. McAndrews has been employed as a marketing representative for Ron Rothert Insurance Services since April 2008. From February 2002 until March 2008 he was employed as an insurance agent for Northtown Insurance. |
| John Ryan | | 48 | | Director | | 2009 | | Mr. Ryan served as a director of our company from February 2001 until 2007and as president from 2001 until 2003. Since January 2010 he has been the management director of Sunrise Securities Corp., a boutique investment banking firm. From January 2001 until December 2009 he served as president and director of Fontana Capital Corp., a venture capital firm. He also serves as a director of the following reporting companies: Gold Crest Mines, Inc.; Trend Mining Company; Independence Brewing Company; Direct Response Media, Inc.; Lucky Friday Extension Mining Company, Inc.; Mineral Mountain Mining and Milling Company; Tintic Standard Gold Mines, Inc.; Consolidated Goldfields, Inc.; and Silver Verde May Mining Company, Inc. |
Eric L. Moe | | 46 | | Director | | 2010 | | Mr. Moe has been the president and a director of RMJ, Inc., a small development stage oil and gas company, since 2008. From 2005 until 2007 he was chief executive officer of Daybreak Oil & Gas, Inc., a small oil and gas company. Since 1998 he has also been self-employed as a business consultant to public and private companies, including Desert Hawk Gold Corp. for which he provided consulting services since 2007. |
| Name | | Age | | Positions | | DirectorSince | | Employment Background |
| John P. Ryan | | 57 | | Director | | 2017 | | Mr. Ryan served as our Chief Financial Officer for a short time period beginning in April 2016 until March 2017. He has been an active entrepreneur in the resources sector for over twenty years. Since 1995 he has been self-employed through his own company, Quest Consulting, providing consulting services for both private and public mining companies. He has extensive experience in the natural resource sector having served as an officer and/or director of companies such as Cadence Resources from 1995 to 2005 High Plains Uranium from 2004 to 2007, U.S. Silver Corporation from 2006 to 2009, and Western Goldfields, Inc. from 2001 to 2005. From December 2012 through April 2017 he served as a director of Mineral Mountain Mining and Milling Company. Mr. Ryan has extensive executive experience and provides our Board of Directors with valuable insights regarding mining operations as well as public company expertise. Mr. Ryan has acted as a professional Director in a number of cases of turnaround and/or distressed company scenarios. Mr. Ryan obtained a B.S. in Mining Engineering from the University of Idaho in 1985 and a Juris Doctor from Boston College in 1992. |
| | | | | | | | | |
| Phillip H. Holme | | 31 | | Director | | 2019 | | Since September 2014 Mr. Holme has served as Trading Officer of H&H Metals Corp., a private company engaged in trading of non-ferrous metals and concentrates, and which specializes in commercial recycling of most residues and byproducts resulting from the mining and metallurgical industry. From 2010 until August 2014, he was employed initially as an intern and ultimately as an associate of Newedge Financial Ltd., a derivatives brokerage firm. Mr. Holme graduated in 2010 with a Bachelor’s Degree in international economics and international affairs from George Washington University. |
Rick Havenstrite and Marianne Havenstrite are husband and wife. From March 2018 through January 2019 we engaged H&H to provide certain mining consulting services. Mr. Holme was designated by H&H Metals Corp. to be a director of the Company in accordance with Section 3 of the Termination and Settlement Agreement dated January 16, 2019 between the Company and H&H. Mr. Holme was appointed a director concurrent with the closing of the Initial Funding by PDK on March 7, 2019.
Each director is elected until the next annual meeting of shareholders and until his successor is elected and qualified, except as otherwise provided in the Bylaws or required by law. We did not hold an annual meeting of the shareholders for the fiscal year ended December 31, 2009,2018, and we have not scheduled an annual meeting for the current year. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office has the power to elect such new directors for the balance of a term and until their successors are elected and qualified.
There are no family relationships between any director, executive officer, or person nominated or chosen by us to become a director, other than the relationship between our President, Rick Havenstrite, and our Treasurer/Principal Financial Officer, Marianne Havenstrite, who are married.Officers are to be elected by the Board of Directors at its first meeting after every annual meeting of stockholders. Each officer holds his office until his successor is elected and qualified or until his earlier resignation or removal.
Involvement in Certain RelationshipsLegal Proceedings
During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and Related Transactions
On July 24, 2009, we entered into a Joint Venture Agreement, which was subsequently converted into a lease agreement, withno judgments, injunctions, orders or decrees material to the Clifton Mining Company and Woodman Mining Company under which we received all of our Utah mining claims and leases, except for the Yellow Hammer claims. Under the termsevaluation of the Joint Venture Agreement, we paid $250,000ability and issued 500,000 sharesintegrity of our commons stock to Clifton Mining. The shares were valued at $350,000. As a result of this transaction, Clifton Mining became a 5% shareholderany of the company. The shares are subject to a six-year lockupexecutive officers or directors, and leak-out agreement which prevents Clifton Mining from selling shares publicly for a period of one year from the original filing date of the registration statement of which this prospectus is a part. Thereafter, Clifton Mining may sell up to 20%none of these shares duringpersons has been involved in any 12-month period. In September 2009, we acquired alljudicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of the rights and interest of Clifton Mining infederal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a $38,000 reclamation contract and a $3,777 cash surety deposit with the State of Utah Division of Oil, Gas and Mining for the property. As consideration for Clifton Mining selling us its interest in the reclamation contract and surety deposit, we issued 60,824 shares of our common stock, to Clifton Mining. These shares were valued at $42,579.
commodities or derivatives exchange or other self-regulatory organization.
On November 30, 2009, we issued promissory notesExecutive Compensation
The following table sets forth information concerning the annual compensation awarded to, West C Street, LLC and Ibearhouse, LLC as a result of which they each became 5% shareholders of our company. These three-year notes were issued in the principal amount of $300,000 each and bear interest at 15% which is payable monthly. The full amount of interest is due and payable regardless of any prepayment of the principal amount of the note. The principal amount of these notes and interest are convertible into our common shares at any time through November 30, 2012, at the rate of $0.70 per share. The principal on each of these notes is convertible into approximately 428,571 shares. If we fail to repay the loans at maturity, we have agreed to issue additional sharesearned by, or paid to the lenders at the rate of one sharenamed executive officer for each $2.00 owed at maturity and the maturity date will be extended for one year. We also issued 150,000 shares each to the lenders as a bonus for loaning us the funds. These 150,000 shares were valued at $105,000.
In December 2009 we acquired all of the outstanding stock of Blue Fin Capital, Inc., a Utah corporation owning mining claims in Arizona, for 2,713,636 shares of our common stock which were issued pro rata to the shareholders of Blue Fin. We exchanged our common shares on a share-for-share basis with the shareholders of Blue Fin. The aggregated value of the transaction was recorded at $2,485. In connection with this transaction we issued 482,236 shares to Robert E. Jorgensen and 1,000,000 shares to Rick Havenstrite, each of whom was a shareholder, officer and director of Blue Fin at the time of the acquisition. As of the transaction date Mr. Jorgensen was the CEO, a director and principal shareholder of our company and Mr. Havenstrite was President and a director of our company. We also issued 100,000 shares to Stuart Havenstrite, a shareholder of Blue Fin and the father of Rick Havenstrite. Further, we issued 1,131,400 shares to Eric L. Moe, a shareholder of Blue Fin, who became a 5% shareholder as a result of the transaction. The closing of the transaction occurred on December 31, 2009, and Blue Fin became a wholly owned subsidiary of Desert Hawk.
In December 2009 we entered into a consulting agreement with Stuart Havenstrite, the father of Rick Havenstrite, our President and a director. Pursuant to the agreement Mr. Havenstrite has agreed to provide geological services for our mining project. The term of the agreement is for one year and we have agreed to compensate him at his regular hourly fee, provided that the aggregate payable for any month shall not exceed $6,000. Either party may terminate the agreement at any time for cause. The agreement may be extended by the parties and thereafter cancelled without cause at any time.
During 2009 we paid $36,615 to Rick Havenstrite for services performed as President of our company and for the eight-month period ended August 31, 2010, we paid $63,692 for his services. In addition, we paid $6,500 to RMH Overhead, LLC, an entity co-owned and controlled by Rick Havenstrite, for office rent since October 2009, and we continue to pay $500 per month for use of this office space. From April through September 2010, we paid $17,399 to Overhead Door Co. of Sierra Nevada/Reno, Inc. for work performed by its employees either at the mine site for hauling equipment. We have also purchased two Ford trucks and a ladder from Overhead Door Co. of Sierra Nevada/Reno, Inc. for an aggregate of $8,000.
On July 14, 2010, we entered into an Investment Agreement with DMRJ Group under which they agreed to provide loans of up to $6,500,000 and received 958,033 Series A Preferred Shares convertible into a like number of common shares. As a result of this transaction, DMRJ Group became a 5% shareholder.
In July 2010 we issued 25,000 shares to Marianne Havenstrite, wife of Rick Havenstrite, our President, for accounting services rendered in connection withall capacities to our funding transaction with DMRJ Group. These shares were valued at $17,500.
In July 2010 we issued 400,000 shares to John Ryan, one of our directors,company for accepting appointment as a directorthe years ended December 31, 2019 and for his prior services as a director. We valued these shares at $280,000.
2018:SUMMARY COMPENSATION TABLE
| Name & Principal Position | | Year | | | Salary and Fees
$ | | | Option Awards
$ | | | All Other Compensation
$ | | | Total
$ | |
| Rick Havenstrite, President and CEO | | | 2019 | | | | 116,692 | | | | - | | | | - | | | | 116,692 | |
| | | | 2018 | | | | 120,000 | (1) | | | 190,000 | (2) | | | 12,000 | (3) | | | 322,000 | |
| (1) | Mr. Havenstrite’s 2018 compensation consisted of $120,000 in base salary, of which $101,538 was accrued in 2018 and paid in 2019. His amended employment agreement allows for a base salary of $144,000 at December 31, 2019. In addition, in 2019, Mr. Havenstrite received $613,231 in wages accrued prior to 2019. |
| (2) | Mr. Havenstrite’s option award of $190,000 in 2018 consists of options to purchase up to 1,000,000 shares of our common stock at a price of $.40. The options were fully vested on the date of grant. The fair value of each option award is valued at $.19 as estimated using the Black-Scholes valuation model. |
| (3) | Mr. Havenstrite received $12,000 and $12,000 in 2019 and 2018, respectively (paid to RMH Overhead, a company owned by Mr. Havenstrite), as rent paid by us for office space in Reno, Nevada. |
In September 2010 we entered into an employment agreement with Mr. Havenstrite.Havenstrite as President of our company. The term of the agreement iswas originally for four years, expiring September 1, 2014, with automatic one-year extensions unless notice is given by either party. The employment agreement was renewed for one-year terms beginning September 1, 2015, 2016, 2017, 2018 and 2019. Mr. Havenstrite is required under the terms of the agreement to devote a minimum of 75% of his business time to the affairs of our company. Nevertheless, he may serve on the board of directors or serve as an officer of up to three companies not engaged in business which may reasonably compete with our business, provided that he would not be required to render any material services with respect to the operations or affairs of any other business which would exceed 25% of his entire business time. In spite of the minimum percentage of his time required in his employment agreement, Mr. Havenstrite currently devotes approximately 90% of his time, or approximately 50 hours per week, to our business and approximately 10%, or five hours per week, of his business time to Overhead Door Company of Sierra/Nevada, Inc., his overhead door business in Reno, Nevada. He does not anticipate devoting more than 20% of his time to the business of his overhead door company during the term of his employment contract with us. The annual base salary is $120,000 plus performance compensation of between 10% and 100% of the annual base salary based upon fulfillment of annual performance goals established by the Board of Directors or the Compensation Committee. InCommittee (if any). Effective May 1, 2019, the eventbase salary was increased to $144,000. No performance bonuses have been paid under the employment agreement since its commencement.
Under our employment agreement with Mr. Havenstrite, if we terminate the agreement without cause or if the agreement is constructively terminated by us, we have agreed to pay Mr. Havenstritehim a severance package equal to three times the initial base salary if such termination occurs on or before August 31, 2011, and one and one-half times the largest annual base salary plus the largest annual performance compensation received by Mr. Jorgensenhim under the Agreement if such termination occurs after August 31, 2011,agreement, payable 75% within 30 days and the balance within 30 days of the first anniversary of the termination.
For
Outstanding Equity Awards at 2018 Fiscal Year End
The following table sets forth the yearsoutstanding equity awards for each named executive officer as of December 31, 2019:
| | | Option Awards |
| Name | | Number of securities underlying unexercised options
(#) exercisable | | | Option
exercise price
($) | | | Option expiration date |
| Rick Havenstrite | | | 1,000,000 | | | | 0.40 | | | February 23, 2023 |
Compensation of Directors
The following table sets forth the compensation of directors for the year ended December 31, 20082019:
Director Compensation
| Name | | Fees earned or
paid in cash
($) | | | Total
($) | |
| Howard Crosby | | | 161,000 | | | | 161,000 | |
| John Ryan | | | 15,000 | | | | 15,000 | |
| Phillip H. Holme | | | 15,000 | | | | 15,000 | |
Director compensation for Howard Crosby of $161,000 shown above includes $94,000 accrued from previous years and 2009,$67,000 earned in 2019. Mr. Crosby’s compensation was increased from $5,000 to $6,000 per month effective June 1, 2019, and the director compensation for Mr. Ryan was set at $5,000 per quarter commencing second quarter 2019. Effective beginning second quarter 2019, we agreed to compensate Mr. Holme $5,000 per quarter for his services as a director.
Certain Relationships and Related Transactions
Under the Amended and Restated 15% Convertible Promissory Notes entered into on July 14, 2010 (the “Notes”), as corrected, between the Company and West C Street and Ibearhouse (the “Note Holders”), each a 5% shareholder of the Company, an agreement was made with the Note Holders to begin paying the monthly interest pursuant to the Notes in stock rather than cash. We issued 150,000 shares to each of the Note Holders for each of November 30, 2018, 2017, 2016 and 2015 as penalty shares in connection with the extensions of the due dates of the Notes for three one-year periods. During the year ended December 31, 2018, we accrued $32,425 as interest payable to each Note Holder and accrued interest payable for each of these Notes at December 31, 2018 was $171,175. We also issued 150,000 shares to each of the Note Holders as penalty shares for the first eight monthsperiod ending November 30, 2018.
Effective February 28, 2018, we entered into amendments to the Notes pursuant to which no interest is payable until May 31, 2019, and the interest rate on the Notes was changed to 10%. The Note Holders also waived past defaults under the Notes of this current calendar year, we have paid $101,730 to Eric L. Moe, onenon-payment of our directors, for consulting services. past-due interest payments and released the convertibility feature of the Notes. These Notes were fully repaid by us in 2019.
Effective September 1, 2010,February 28, 2018, we entered into a written consulting agreementStock Purchase Agreement (the “SPA”) with Mr. Moe which provides for a monthly paymentIbearhouse and West C Street where the Company exchanged 4,500,000 shares of $10,000 and requires approximately 50% of Mr. Moe’s business time be dedicatedcommon stock to the business of our company. The termconvertible debt holders for $625,000 in cash and several concessions as to the convertibility, due dates and default provisions on their outstanding debt.
On October 14, 2016, the Company entered into 10% Secured Convertible Promissory Notes with each of the consulting agreement isNote Holders in the principal amounts of $125,000. The notes are secured by all of the assets of the Company. Interest payments on the notes are deferred until May 31, 2019 and the notes mature on May 31, 2019. The notes were convertible by the holders at any time prior to maturity at the lesser of (i) $0.25 per share; or (ii) the price of any convertible debt or equity funding (including the purchase of DMRJ Group’s interest by any third party.) During the year ended December 31, 2018, we accrued $12,500 as interest payable to each Note Holder and accrued interest payable for four years but mayeach of these Notes at December 31, 2018 was $29,692. These secured notes were fully repaid by us in 2019.
On August 7, 2017, the Note 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 terminatedchanged to May 31, 2019. During the year ended December 31, 2018, we accrued $24,732 as interest payable to each Note Holder and accrued interest payable for cause. Mr. Moe also provideseach of these Notes at December 31, 2018 was $33,570. These notes were fully repaid by us in 2019.
During 2018 and the first quarter of 2019, we entered into several short-term notes payable with the Note Holders and with Rick Havenstrite, our President. Total borrowed was $91,680 during the first quarter 2019 and $249,000 during the year ended December 31, 2018. The notes bore interest at 10%, had a 2% loan initiation fee, and were due in full on March 31, 2019. These short-term notes were repaid in full, including 10% interest and a 2% loan initiation fee, in March 2019.
Since 2009 we have leased our corporate office space for our principal executive offices at no cost to us.
For the eight-month period ended August 31, 2010, we paid $7,000 tofrom RMH Overhead, LLC (“RMH”), an entity owned and controlled by Mr. Havenstrite, for accounting services performed by Ms. Havenstrite during the period. We have agreed to pay $2,000 per month for these continuing accounting services which may be terminated without cause at any time.
Weour President and a director. From 2009 until February 2014 monthly rent a core-logging facility from Clifton Mining, one of our 5% shareholders, which is located at the Tooele County airport grounds in Wendover. We began renting the space in January 2010 and pay $350 per month for this space. For the first eight months of 2010, we paid $2,800 to Clifton Mining.
Mr. Jorgensen, our CEO and Chairman, provides office space in his home for our principal executive offices at a cost ofwas $500 per month
commencing Octoberand from March 2014 until February 2020 monthly rent has been $1,000. Expansion into additional office space effected a rental increase to $1,500 per month effective March 1,
2010. As2020. The rental agreement is from month-to-month and can be cancelled by either party at any time. During 2019 we paid an aggregate of
September 17, 2010, we owed Mr. Jorgensen approximately $138,000$12,000 in rent for
unpaid salary accrued duringthis space.On June 20, 2016, the Company entered into an agreement with a related party, RMH, to lease certain mining and crushing equipment, some of which was previously owned by the Company. The terms of the lease were 24 monthly payments of $9,212 which included interest at 15%. At the conclusion of the lease term, the equipment may be purchased by the Company for a nominal fee. Although the 24-month lease term had expired at December 31, 2018, $69,562 remained due on this agreement. This account, including late fees, was fully paid by us in 2019.
Marianne Havenstrite, wife of Rick Havenstrite, is employed by the Company and acts as our Treasurer and Principal Financial Officer. For the year ended December 31, 2006. Mr. Jorgensen has deferred payment2019 Mrs. Havenstrite earned $88,616. Mrs. Havenstrite currently devotes approximately 80% of this accrued salary until revenue is generated from operationsher time, or approximately 50 hours per week, to our business and approximately 20%, or ten hours per week, of her business time to Overhead Door Company of Sierra/Nevada, Inc., her overhead door business in Reno, Nevada. We do not have a formal compensation agreement with Mrs. Havenstrite.
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 to the following:
| ● | Rick Havenstrite – 1,000,000 options; |
| ● | Howard Crosby – 1,000,000 options; |
| ● | John Ryan – 200,000 options; and |
| ● | Linde Havenstrite – 200,000 options. |
On March 26, 2019, we entered into an option to purchase 64 patented mining claims for $500,000. On June 13, 2019, we entered into a letter agreement with the Clifton Mining Company whereby it would purchase 44 of the company.
Independent Directors
On March 29, 2018, we entered into a five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”) of which Phillip H Holme, one of our directors, is a principal. Under the terms of the Agency Agreement H&H agreed to provide us certain advisory services in regard to natural resources activities and to assist us in securing purchasers for minerals produced from its mining properties. As a condition for entering into the Prepaid Forward Gold Purchase Agreement, we negotiated a termination of the Agency Agreement (the “Termination Agreement”). Under the terms of the Termination Agreement, we paid H&H $600,000, agreed to pay an additional $200,000 within 18 months, and $36,000 as a payment against the final shipment of ore by the Company. In addition, we appointed Mr. Holme as a director of the Company upon the Initial Funding.
Policies and Procedures Regarding Related Party Transactions
We have not adopted a specific policy pursuant to which an actual or proposed financial transaction, arrangement or relationship with a related person is subject to review or approval or, if applicable, ratification, by our Board of Directors. Under Nevada law any contract or other transaction between the company and one or more of its officers or directors or another entity in which one or more of the directors or officers are directors or officers or are financially interested may be void or voidable unless (i) the common relationship is disclosed to the remaining disinterested directors who thereafter approve or ratify the contract or transaction; (ii) the common relationship is disclosed to shareholders and shareholders holding a majority of the voting power of the company, including shares held by the interested officer or director, approve or ratify the contract or transaction, or (iii) the contract or transaction is fair as to the company at the time it is authorized or approved.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. As a result, we have adopted the independence standards of the NYSE Amex EquitiesAmerican (formerly known as the American Stock Exchange)Exchange and more recently the NYSE MKT) to determine the independence of our directors and those directors serving on our committees.directors. These standards provide that a person will be considered an independent director if he or she is not an officer of the companyCompany and is, in the view of the company’s boardCompany’s Board of directors,Directors, free of any relationship that would interfere with the exercise of independent judgment. Our Board of Directors has determined that John P. Ryan would be considered independent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information furnished by current management and others, concerning the ownership of our common stock as of January 20, 2020, of (i) each person who is known to us to be the beneficial owner of more than 5% of our common stock, without regard to any limitations on conversion or exercise of convertible securities or warrants; (ii) all directors and named executive officers; and (iii) our directors, named executive officers, and executive officers as a group:
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership(1) | | | Percent of Class(1) | |
Rick Havenstrite
1290 Holcomb Ave.
Reno, NV 89502 | | | 5,162,066 | (2) | | | 18.9 | % |
Howard Crosby
1290 Holcomb Ave.
Reno, NV 89502 | | | 1,000,000 | (3) | | | 3.7 | % |
John P. Ryan
5968 N. Govt. Way #305
Dalton Gardens, ID 83815 | | | 600,000 | (4) | | | 1.5 | % |
Phillip H. Holme
509 Madisen Ave.
Suite 2210
New York, NY 10022 | | | 1,500,000 | (5) | | | 5.7 | % |
Executive Officers and Directors as a Group
(4 Persons) | | | 8,262,066 | | | | 29.0 | % |
H&H Metals Corp.
509 Madison Ave., Ste. 1902
New York City, NY 10022 | | | 1,500,000 | (6) | | | 5.7 | % |
Ibearhouse, LLC Kelley Price 7806 NE 10th Street Medina, WA 98039 | | | 3,760,353 | | | | 12.9 | % |
West C Street, LLC Richard Meadows 21838 NE 102nd Street Redmond, WA 98053 | | | 2,260,353 | | | | 7.8 | % |
Clifton Mining Company
705 East 50 South
American Fork, UT 84003 | | | 5,810,824 | | | | 21.8 | % |
Marianne Havenstrite
1290 Holcomb Ave
Reno, NV 89502 | | | 5,162,066 | (7) | | | 18.9 | % |
| (1) | This table is based upon information supplied by officers, directors and principal stockholders and is believed to be accurate. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of our common stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Where more than one person has a beneficial ownership interest in the same shares, the sharing of beneficial ownership of these shares is designated in the footnotes to this table. As of the date of this table, we had 26,631,603 shares outstanding. |
| (2) | Of these shares, 25,000 are owned of record by Mr. Havenstrite’s wife, Marianne Havenstrite, and 1,000,000 are owned of record jointly by Mr. and Mrs. Havenstrite. These shares also include exercisable options to purchase 1,000,000 shares. |
| (3) | Represents exercisable options to purchase 1,000,000 shares. |
| (4) | Includes exercisable options to purchase 200,000 shares. |
| (5) | The shares beneficially owned by Mr. Holme are owned of record by H&H Metal Corp., an entity controlled by Mr. Holme, who is deemed to share beneficial ownership of the shares with the entity. |
| (6) | H&H Metals Corp. is an entity controlled by Mr. Phillip H. Holme. |
| (7) | Of these shares, 3,137,066 are owned of record by Mrs. Havenstrite’s husband, Rick Havenstrite and 1,000,000 are owned of record jointly by Mr. and Mrs. Havenstrite. Also includes exercisable options to purchase 1,000,000 by Mr. Havenstrite. |
To our knowledge, except as noted above, no person or entity is the beneficial owner of more than 5% of the voting power of our Common Stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides disclosure as of December 31, 2019, ofcompensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance:
Equity Compensation Plan Information
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Equity compensation plans approved by security holders | | | -0- | | | | N/A | | | | -0- | |
| Equity compensation plans not approved by security holders | | | 2,400,000 | | | $ | 0.40 | | | | -0- | |
| Total | | | 2,400,000 | | | $ | 0.40 | | | | -0- | |
On March 28, 2018 the Board of Directors adopted the 2018 Stock Incentive Plan (the “Plan”). The purposes of the Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
There are 2,400,000 shares of common stock authorized for non-qualified and incentive stock options, restricted stock units, restricted stock grants, and stock appreciation rights under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. No shares remain available for grants under the Plan.
The Plan is administered by our board of directors; however, the board of directors may designate administration of the Plan to a committee consisting of at least two independent directors. Only employees of our Company or of an “Affiliated Company”, as defined in the Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers”, as defined in the Plan, are eligible to receive non-qualified options, restricted stock units, and stock appreciation rights under the Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has determined that Robert E. Knecht, Bill McAndrews, and John Ryan would meet this standard, and therefore, wouldsix months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the Plan may also be considered to be independent.
Committees
DESCRIPTION OF COMMON STOCK
The shares registered pursuant to the registration statement, of which this Prospectus is a part, are shares of Common Stock, all of the same class and entitled to the same rights and privileges as all other shares of Common Stock.
We have createdare authorized to issue up to 100,000,000 shares of common stock, par value $.001 per share. All common shares are equal to each other with respect to voting, and dividend rights, and, are equal to each other with respect to liquidation rights. Special meetings of the shareholders may be called by the Chairman or the CEO and by the Secretary upon the request of a Compensation Committeemajority of the Board of Directors or the holders of not less than one-tenth of all the shares entitled to vote at the meeting. Holders of shares of common stock are entitled to one vote at any meeting of the shareholders for each share of common stock they own as of the record date fixed by the Board of Directors. At any meeting of shareholders, one-third of the outstanding shares of capital stock entitled to vote, represented in person or by proxy, constitutes a quorum. A vote of the majority of the shares represented at a meeting will govern, even if this is substantially less than a majority of the shares outstanding. Holders of common shares are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor, and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to shareholders. There are no conversion, sinking fund, redemption, preemptive or other subscription rights or privileges with respect to any common shares.
Directors are elected by a plurality of votes, which means that the persons receiving the greatest number of votes as directors for the number of directors to be elected at the meeting are elected to serve as directors, whether or not the number of votes cast represents a majority of the votes present at the meeting. The common shares do not have cumulative voting rights, which would permit a shareholder to multiply the number of shares he owns by the number of directors to be elected and to distribute those votes among the candidates in any manner he wishes.
We refer you to our Amended and Restated Articles of Incorporation, our Amended and Restated Bylaws, and the applicable statutes of the state of Nevada for a more complete description of the rights and liabilities of holders of our securities.
PLAN OF DISTRIBUTION
General
The Selling Stockholders may seek an underwriter, broker-dealer or selling agent to sell the Shares. As of the date of this Prospectus, no Selling Stockholder has entered into any arrangements with any underwriter, broker-dealer or selling agent for the sale of the Shares.
Each Selling Stockholder and any underwriters, broker-dealers or agents who participate in the sale or distribution of the Shares may be deemed to be “underwriters” within the meaning of the Securities Act. As a result, any profits on the sale of the Shares by a Selling Stockholder and any discounts, commissions or agent’s commissions or concessions received by any such broker-dealer or agents may be deemed to be underwriting discounts and commissions under the Securities Act. If a Selling Stockholder is deemed to be an “underwriter” within the meaning of Section 2(11) of the Securities Act, it will be subject to prospectus delivery requirements of the Securities Act. Underwriters are subject to certain statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of the Securities Act.
There can be no assurance that the Selling Stockholders will sell any or all of the Shares under this Prospectus. Further, we cannot assure you that the Selling Stockholders will not transfer, devise or gift the Shares by other means not described in this Prospectus. In addition, any Shares covered by this Prospectus that qualify for sale under Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A in certain instances, rather than under this Prospectus.
The Shares covered by this Prospectus may also be sold to non-U.S. persons outside the U.S. in accordance with Regulation S under the Securities Act rather than under this Prospectus. The Shares may be sold in some states only through registered or licensed brokers or dealers. In addition, in some states the Shares may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification is available and complied with. If any of the Shares offered for resale pursuant to this Prospectus are transferred other than pursuant to a sale under this Prospectus, the subsequent holders could not use this Prospectus until a post-effective amendment to the registration statement of which this Prospectus is a part or a prospectus supplement is filed naming such holders.
The Selling Stockholders and any other person participating in the sale of the Shares may be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the Shares by the Selling Stockholders and any other such person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the Common Stock to engage in market-making activities with respect to the particular Shares being distributed. This may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
The Company intends to maintain the currency and accuracy of this Prospectus for a period of up to three years, unless earlier completely sold, pursuant to Rule 415 of the General Rules and Regulations of the Securities and Exchange Commission.
Resales of the Shares under State Securities Laws
The National Securities Market Improvement Act of 1996 (“NSMIA”) limits the authority of states to impose restrictions upon resales of securities made pursuant to Sections 4(a)(1) and 4(a)(3) of the Securities Act of companies which file reports under Sections 13 or 15(d) of the Exchange Act. Resales of the Shares in the secondary market will be made pursuant to Section 4(a)(1) of the Securities Act (sales other than by an issuer, underwriter or broker).
LEGAL MATTERS
The validity of the shares of Common Stock offered under this Prospectus is being passed upon for us by Pearson Butler, PLLC, Attorneys at Law, South Jordan, Utah.
EXPERTS
Our financial statements for the years ended December 31, 2019 and 2018, appearing in this Prospectus which is composedpart of Robert E. Jorgensen, John Ryan,a registration statement have been audited by DeCoria, Maichel & Teague, P.S., and Bill McAndrews. Mr. Jorgensenare included in reliance upon such reports given upon the authority of DeCoria, Maichel & Teague, P.S., as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, (SEC File No. 333-236398) relating to the shares of Common Stock being offered by this Prospectus, and reference is made to such registration statement. This Prospectus constitutes the prospectus of Desert Hawk Gold Corp., filed as part of the registration statements, and it does not contain all information in the registration statements, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
We are required to file reports and other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our annual report. You may read and copy any document we file with the Securities and Exchange Commission at the public reference room of the Commission between the hours of 9:00 a.m. and 5:00 p.m., except federal holidays and official closings, at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You should call (202) 551-8090 for more information on the public reference room. Our SEC filings are also available to you on the Internet website for the Securities and Exchange Commission at http://www.sec.gov.
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Desert Hawk Gold Corp
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Desert Hawk Gold Corp (the “Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not consideredrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s independent memberauditor since 2011.
Spokane, Washington
March 27, 2020
DESERT HAWK GOLD CORP
BALANCE SHEETS
| | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| ASSETS | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash | | $ | 2,116,432 | | | $ | 8,716 | |
| Inventories (Note 5) | | | 4,333,682 | | | | 1,193,341 | |
| Prepaid expenses and other current assets | | | 181,030 | | | | 40,475 | |
| Total Current Assets | | | 6,631,144 | | | | 1,242,532 | |
| | | | | | | | | |
| PROPERTY AND EQUIPMENT, net (Note 6) | | | 5,287,515 | | | | 3,415,707 | |
| MINERAL PROPERTIES AND INTERESTS, net (Note 7) | | | 3,729,637 | | | | 879,001 | |
| RECLAMATION BONDS (Note 4) | | | 759,351 | | | | 753,290 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 16,407,647 | | | $ | 6,290,530 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 436,881 | | | $ | 652,895 | |
| Accrued liabilities-officer and other wages (Notes 17 and 20) | | | - | | | | 922,039 | |
| Interest payable - related parties (Notes 8, 9 and 10) | | | - | | | | 463,993 | |
| Short-term notes payable - related parties (Note 8) | | | - | | | | 249,000 | |
| Convertible debt - related parties (Note 9) | | | - | | | | 1,350,000 | |
| Obligation under capital lease - related party (Note 10) | | | - | | | | 69,562 | |
| Notes payable - equipment (Note 11) | | | 1,302,239 | | | | 324,111 | |
| Prepaid forward gold contract liability, current portion (Note 3) | | | 189,351 | | | | - | |
| Settlement of consulting contract payable (Note 14) | | | 200,000 | | | | - | |
| Total Current Liabilities | | | 2,128,471 | | | | 4,031,600 | |
| | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | |
| Asset retirement obligation (Note 13) | | | 826,637 | | | | 792,747 | |
| Prepaid forward gold contract liability (Note 3) | | | 13,410,649 | | | | - | |
| | | | 14,237,286 | | | | 792,747 | |
| TOTAL LIABILITIES | | | 16,365,757 | | | | 4,824,347 | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES (Note 20) | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS’ EQUITY (Note 15) | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized; none issued or outstanding | | | - | | | | - | |
| Common stock, $0.001 par value, 100,000,000 shares authorized; 26,631,603 and 20,881,603 shares issued and outstanding | | | 26,633 | | | | 20,753 | |
| Additional paid-in capital | | | 9,466,475 | | | | 7,120,355 | |
| Accumulated deficit | | | (9,451,218 | ) | | | (5,674,925 | ) |
| Total Stockholders’ Equity | | | 41,890 | | | | 1,466,183 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 16,407,647 | | | $ | 6,290,530 | |
DESERT HAWK GOLD CORP
STATEMENTS OF OPERATIONS
| | | Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
| REVENUE: | | | | | | |
| Concentrate sales | | $ | 889,311 | | | $ | 229,469 | |
| | | | | | | | | |
| EXPENSES: | | | | | | | | |
| General project costs | | | 2,161,565 | | | | 1,989,410 | |
| Consulting expense | | | 528,817 | | | | - | |
| Exploration expense | | | 99,761 | | | | 3,146 | |
| Officers and directors fees | | | 340,590 | | | | 253,752 | |
| Legal and professional | | | 184,679 | | | | 129,135 | |
| General and administrative | | | 231,308 | | | | 685,925 | |
| Loss on disposal of equipment | | | 51,950 | | | | - | |
| | | | 3,598,670 | | | | 3,061,368 | |
| | | | | | | | | |
| OPERATING LOSS | | | (2,709,359 | ) | | | (2,831,899 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | |
| Gain on extinguishment of DMRJ debt (Note 12) | | | - | | | | 24,916,561 | |
| Interest and other income | | | 6,032 | | | | 236 | |
| Interest expense | | | (46,415 | ) | | | (46,760 | ) |
| Interest expense - related parties | | | (34,794 | ) | | | (151,749 | ) |
| Interest expense - DMRJ | | | - | | | | (421,891 | ) |
| Loss on settlement of consulting contract (Note 14) | | | (900,000 | ) | | | - | |
| Loss on settlement of redeemable stock (Note 20) | | | (63,094 | ) | | | - | |
| Financing expense | | | (28,663 | ) | | | (120,000 | ) |
| | | | (1,066,934 | ) | | | 24,176,397 | |
| | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES | | | (3,776,293 | ) | | | 21,344,498 | |
| INCOME TAXES | | | - | | | | - | |
| | | | | | | | | |
| NET INCOME (LOSS) | | | (3,776,293 | ) | | | 21,344,498 | |
| | | | | | | | | |
| DEEMED CAPITAL CONTRIBUTION ON EXTINGUISHMENT OF PREFERRED STOCK (NOTE 12) | | | - | | | | 4,068,720 | |
| | | | | | | | | |
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | (3,776,293 | ) | | $ | 25,413,218 | |
| | | | | | | | | |
| BASIC NET INCOME (LOSS) PER SHARE | | $ | (0.15 | ) | | $ | 1.32 | |
| | | | | | | | | |
| DILUTED NET INCOME (LOSS) PER SHARE | | $ | (0.15 | ) | | $ | 1.12 | |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC | | | 25,591,877 | | | | 19,196,808 | |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED | | | 25,591,877 | | | | 22,654,411 | |
DESERT HAWK GOLD CORP
STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Total | |
| | | | | | | | | | | | | | | Additional | | | Accumulated | | | Stockholders’ | |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Deficit | | | Equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | (Revised) | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2017 | | | 1,582,563 | | | $ | 1,582 | | | | 13,956,603 | | | $ | 13,828 | | | $ | 9,143,418 | | | $ | (31,088,143 | ) | | $ | (21,929,315 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Extinguishment of preferred stock (Note 15) | | | (1,582,563 | ) | | | (1,582 | ) | | | - | | | | - | | | | (4,067,138 | ) | | | 4,068,720 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock options (Note 19 ) | | | - | | | | - | | | | - | | | | - | | | | 456,000 | | | | - | | | | 456,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for cash at $.40 per share | | | - | | | | - | | | | 2,125,000 | | | | 2,125 | | | | 847,875 | | | | - | | | | 850,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Common stock issued to convertible debtholders in connection with extinguishment of DMRJ debt (Note 12) | | | - | | | | - | | | | 4,500,000 | | | | 4,500 | | | | 620,500 | | | | - | | | | 625,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Common stock issued in connection with extension of convertible debt (Note 9) | | | | | | | | | | | 300,000 | | | | 300 | | | | 119,700 | | | | | | | | 120,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 21,344,498 | | | | 21,344,498 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Balance, December 31, 2018 | | | - | | | $ | - | | | | 20,881,603 | | | $ | 20,753 | | | $ | 7,120,355 | | | $ | (5,674,925 | ) | | $ | 1,466,183 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued in connection with acquiring mineral properties and interests | | | | | | | | | | | 5,500,000 | | | | 5,500 | | | | 2,194,500 | | | | | | | | 2,200,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued in connection with settlement of consulting contract (Note 14) | | | | | | | | | | | 250,000 | | | | 250 | | | | 99,750 | | | | | | | | 100,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock released in settlement of redeemable stock | | | | | | | | | | | | | | | 130 | | | | 51,870 | | | | | | | | 52,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (3,776,293 | ) | | | (3,776,293 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2019 | | | - | | | $ | - | | | | 26,631,603 | | | $ | 26,633 | | | $ | 9,466,475 | | | $ | (9,451,218 | ) | | $ | 41,890 | |
DESERT HAWK GOLD CORP
STATEMENTS OF CASH FLOWS
| | | | |
| | | Year ended | |
| | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income (loss) | | $ | (3,776,293 | ) | | $ | 21,344,498 | |
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 1,196,489 | | | | 421,228 | |
| Gain on extinguishment of DMRJ debt (Note 12) | | | - | | | | (24,916,561 | ) |
| Stock based compensation | | | - | | | | 456,000 | |
| Adjustment of inventory to net realizable value | | | 870,085 | | | | 656,257 | |
| Accretion of asset retirement obligation | | | 74,692 | | | | 80,468 | |
| Gain on settlement of asset retirement obligation | | | (17,120 | ) | | | - | |
| Loss on disposal of equipment | | | 51,950 | | | | - | |
| Common stock issued for financing expense | | | - | | | | 120,000 | |
| Common stock issued for consulting contract settlement | | | 100,000 | | | | - | |
| Common stock issued for settlement of redeemable stock | | | 52,000 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Inventories | | | (4,010,426 | ) | | | 208,772 | |
| Prepaid expenses and other current assets | | | (140,555 | ) | | | 61,776 | |
| Accounts payable and accrued expenses | | | (216,014 | ) | | | 96,795 | |
| Accrued liabilities - officer wages | | | (922,039 | ) | | | 212,462 | |
| Interest payable - related parties | | | (463,993 | ) | | | 146,557 | |
| Interest payable - DMRJ | | | - | | | | 451,891 | |
| Settlement of consulting contract payable | | | 200,000 | | | | - | |
| Net cash used by operating activities | | | (7,001,224 | ) | | | (659,857 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Additions to property and equipment | | | (794,361 | ) | | | (73,868 | ) |
| Additions to mineral properties and interests (Note 7) | | | (1,150,000 | ) | | | - | |
| Additions to reclamation bonds | | | (48,863 | ) | | | (236 | ) |
| Net cash used by investing activities | | | (1,993,224 | ) | | | (74,104 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from sale of common stock | | | - | | | | 1,475,000 | |
| Proceeds from prepaid forward gold contract liability, net (Note 3) | | | 13,600,000 | | | | - | |
| Proceeds from short-term notes payable - related parties | | | 91,680 | | | | 249,000 | |
| Payment on note payable - DMRJ | | | - | | | | (625,000 | ) |
| Payment of obligation under capital lease - related party | | | (69,562 | ) | | | (14,548 | ) |
| Payment of notes payable - equipment | | | (829,274 | ) | | | (417,987 | ) |
| Proceeds from convertible debt - related parties | | | - | | | | 72,000 | |
| Payment of short term note payable - related parties | | | (340,680 | ) | | | - | |
| Payment of convertible debt - related parties | | | (1,350,000 | ) | | | - | |
| Net cash provided by financing activities | | | 11,102,164 | | | | 738,465 | |
| | | | | | | | | |
| NET INCREASE IN CASH | | | 2,107,716 | | | | 4,504 | |
| CASH, BEGINNING OF YEAR | | | 8,716 | | | | 4,212 | |
| | | | | | | | | |
| CASH, END OF YEAR | | $ | 2,116,432 | | | $ | 8,716 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | |
| Cash paid for interest | | $ | 545,202 | | | $ | 46,760 | |
| | | | | | | | | |
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | | | | | | | | |
| Extinguishment of preferred stock (Note 12) | | $ | - | | | $ | 4,068,720 | |
| Equipment acquired with notes payable - equipment (Note 11 ) | | | 1,807,402 | | | | 141,631 | |
| Accounts payable settled with notes payable - equipment (Note 11) | | | - | | | | 131,436 | |
| Common stock issued for mineral properties and interests (Note 7 ) | | | 2,200,000 | | | | - | |
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 at September 30, 2014. Revenue from the heap leach operation began in October 2014 with the first sales of gold concentrate.
On March 8, 2018, the Company successfully finalized an agreement with the trustees of DMRJ Group (“DMRJ”) which eliminated the note and interest payable balance of $25,541,561 due to DMRJ in exchange for $625,000. In addition, all outstanding shares of preferred stock held by DMRJ were retired and cancelled. See Note 12.
Prior to March 2019, ongoing undercapitalization continued to hamper the Company’s ability to operate. Due to lack of funding, the Company was temporarily shut down since third quarter of 2017. On March 7, 2019, the Company successfully finalized a prepaid forward gold contract agreement (the Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”)) that provided funding and enabled production to resume later in 2019. See Note 3.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Accounting for Stock Options and Stock Awards Granted to Employees and Nonemployees
All transactions in which goods or services are received for the issuance of shares of the Company’s common stock or options to purchase shares of common stock are accounted for based on the fair value of the goods or services received or the fair value of the equity interest issued, whichever is more reliably measurable. The Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates used in preparing these financial statements include those assumed in estimating the number of gold ounces in and costing of inventories, the recoverability of the cost of mining claims, asset retirement obligation, stock-based compensation, determination of the fair value of common stock issued, deferred tax assets and related valuation allowances. Actual results could differ from those estimates.
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, and cash flows previously reported.
Cash and Cash Equivalents
The Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less when purchased to be cash equivalents.
Reclamation bonds
Reclamation bonds primarily represent bonds and are restricted primarily for reclamation funding which are carried at cost plus earned interest. Reclamation bonds are shown as a non-current asset and is included in the balance sheet. See Note 4.
Inventories
The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. The Company records ore on leach pad, solution in carbon columns in process and gold concentrate, at average production cost per gold ounce, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, equipment, and mineral properties; and mine administrative expenses. Costs are removed from ore on leach pads as ounces are recovered, based on the average cost per recoverable ounce of gold on the leach pad.
Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time. As of December 31, 2019, the Company had a limited operating history and actual results only over a short period of time. Due to this, estimates of recoverable gold are based primarily on initial tests with only limited refinements.
Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover during the next 12 to 18 months. At the end of each reporting period, inventory is adjusted to the lower of average cost or net realized value. See Note 5.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments that extend the useful life of the property and equipment are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts and any resulting gain or loss is reflected in results of operations. See Note 6.
Mineral Properties and Interests
The Company capitalizes costs for acquiring mineral properties and ongoing mineral lease payments and expenses costs to maintain mineral rights. Upon reaching the production stage, the capitalized costs are amortized using the units-of-production method on the basis of periodic estimates of ore reserves. Estimates for ore reserves are a key component in determining units of production rates. Estimates of ore reserves, mineralized material, and other resources may change, possibly in the near term, resulting in changes to rates in future reporting periods. The Company does not have proven and probable reserves at this time.
Mineral properties are periodically assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment. If a property is abandoned or sold, its capitalized costs are charged to operations. Mine property costs include the building of infrastructure of the processing facility including the heap leach pad and the carbon in column process plant along with water wells, roads and fencing. These costs are capitalized until ready for their intended use at which time they are amortized using the units of production method based on projected units of production which approximates the estimated life of the facility. Additionally, interest is capitalized to mine development until such assets are ready for their intended use. See Note 7.
Mineral Exploration and Development Costs
Until proven and probable reserves (as defined by SEC Guide 7) are established, all exploration expenditures are expensed as incurred. Once such reserves are established, expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operations, are capitalized and will be amortized on units of production basis over proven and probable reserves. Previously capitalized costs are expensed in the period the property is abandoned.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from each mineral property are calculated using estimated future production, three-year average metals prices, operating capital and costs, and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mineral properties.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard to allow recognition of such an asset. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
When applicable, the Company will recognize a liability for unrecognized tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. See Note 16.
Earnings Per Share
Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.
| | | 2019 | | | 2018 | |
| Net income (loss) | | $ | (3,776,293 | ) | | $ | 21,344,498 | |
| Deemed capital contribution on extinguishment of preferred stock | | | - | | | | 4,068,720 | |
| Net income (loss) available to common shareholders - basic | | | (3,776,293 | ) | | | 25,413,218 | |
| Interest expense on convertible notes payable -related parties | | | - | | | | 74,465 | |
| Net income (loss) available to common shareholders - diluted | | $ | (3,776,293 | ) | | $ | 25,487,683 | |
| | | | | | | | | |
| Weighted average shares outstanding - basic | | | 25,591,877 | | | | 19,196,808 | |
| Dilutive shares – convertible notes payable – related parties | | | - | | | | 3,457,603 | |
| Weighted average shares outstanding - diluted | | | 25,591,877 | | | | 22,654,411 | |
| | | | | | | | | |
| Basic income (loss) per share | | $ | (0.15 | ) | | $ | 1.32 | |
| Diluted income (loss) per share | | $ | (0.15 | ) | | $ | 1.12 | |
At December 31, 2019 and 2018, the common stock equivalents of 2,400,000 associated with the Company’s outstanding stock options were excluded from the calculation of diluted earnings per share because in 2019 the options were antidilutive due to the net loss for the period and in 2018 the options’ exercise price was not lower than the average share price during the year.
Revenue Recognition
The Company’s product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate, which is then further refined to become gold and silver bullion known as doré. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and when the transaction price can be determined or reasonably estimated.
Management has determined the performance obligation is met and title is transferred when the Company delivers the doré to the customer because, at that time, (i) legal title is transferred to the customer, (ii) the customer has accepted the doré and obtained the ability to realize all of the benefits from the product, (iii) the doré content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership to it, and (iv) the Company has the right to payment for the doré. The performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.
Sales and accounts receivable for sales are recorded net of charges from the customer which represent components of the transaction price. Charges are estimated by management upon transfer of risk based on contractual terms, and actual charges typically do not vary materially from management’s estimates. Revenue from the sale of dore may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Revenue proceeds are recorded net of the impact of royalties and participation agreements. See Note 18.
Reclamation and Remediation
The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement of the asset retirement obligation, the liability is adjusted when there are changes in the estimated future cash flows due to change in estimated costs or change in time until reclamation will commence. Determination of any amounts recognized is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. See Note 13.
For non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents as well as various notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity and interest rates of these financial instruments, approximates fair value at December 31, 2019 and 2018.
Fair Value Measurements
The Company discloses the following information for each class of assets and liabilities that are measured at fair value:
| 1. | the fair value measurement; |
| 2. | the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); |
| 3. | for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: |
| a. | total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earnings are reported in the statement of operations; |
| b. | the amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported; |
| c. | purchases, sales, issuances, and settlements (net); and |
| d. | transfers into and/or out of Level 3. |
| 4. | the amount of the total gains or losses for the period included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of operations; and |
| 5. | in annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. |
At December 31, 2019 and December 31, 2018, the Company has no assets nor liabilities that require measurement at fair value on a recurring basis.
Going Concern
As shown in the accompanying financial statements, the Company had an accumulated deficit of $9,451,218 through December 31, 2019 and net loss of $3,776,293 for the year ended December 31, 2019 which raises some 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 has 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. Although management has procured funding through a forward sales agreement (Note 3) they intend to continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The Company’s management believes that is has sufficient funds to meet its obligations and continue production over the next twelve months.
New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Upon implementation of the new guidance, the Company will be required to recognize a liability and right-of-use asset for its operating leases. The Company has elected the transition option to apply the new guidance at the effective date without adjusting comparative periods presented. Adoption of the ASU on January 1, 2019 had no material impact to the Company’s financial statements as the Company has no contracts that meet the criteria of this committee. WeASU.
In June 2018, the FASB issued ASU No. 2018-07 Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update involves simplification of several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include nonemployee awards. The update was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to certain disclosure requirements with respect to fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact of this update on fair value measurement disclosures.
Other accounting standards that have been issued or proposed by FASB that do not created any other committees.
NOTE 3 – PREPAID FORWARD GOLD CONTRACT LIABILITY
During the first quarter of 2019, the Company entered into and closed a Pre-Paid 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. Under the terms of the original Purchase Agreement, PDK initially agreed to purchase a total of 73,910 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK. The Company would receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. Prepayment was to be made in three tranches, with the initial tranche in the amount of $11,200,000 having been made upon execution of the Purchase Agreement on March 7, 2019 (the “Initial Funding”), $4,500,000 for Tranche 2 to occur at least six months following the Initial Funding date, and $5,500,000 for Tranche 3 to occur at least 10 months following the Initial Funding date, provided that all conditions precedent for funding Tranches 2 and 3 are met. From the Initial Funding, the Company paid an upfront fee of $600,000 to PDK for expenses incurred in connection with the transaction. The first gold delivery of 655 ounces is due December 2020.
The Purchase Agreement contains a participation payment whereby PDK receives a portion of the proceeds from gold sold by the Company to a third party. The amount of proceeds due to PDK is based upon a percentage of proceeds over a set gold price per ounce. In addition, PDK may reduce the required number of ounces to be sold in exchange for common shares of the Company. 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 and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.
Indemnification
On October 31, 2019, the Company and PDK amended the Purchase Agreement and entered into the Amended Pre-Paid Forward Agreement (the “Amended Agreement”) to adjust the second and third tranches paid to the Company, to reduce the total number of ounces of gold subject to the Purchase Agreement, and to revise other provisions therein. The second tranche was reduced from $4,500,000 to $1,600,000, and the third tranche was reduced from $5,500,000 to $1,400,000. The second tranche was received on October 31, 2019 upon execution of the Amended Agreement and the third tranche was received on December 27, 2019, with funds to be dedicated in accordance with the revised budget furnished with the Amended Agreement. The amendment also reduced the total number of ounces of gold to be delivered under the agreement from 73,910 to 47,045.
The prepayment has been accounted as deferred revenue and is presented as a prepaid forward gold contract liability on the balance sheet at December 31, 2019 with a total balance of $13,600,000 which is the $14,200,000 received from PDK in Tranches 1-3, less the $600,000 upfront fee paid by the Company.
Under the terms of the Amended Agreement, the Company is obligated to deliver gold in the following quantities:
Months | | Gold Ounces per Month | | | Total Gold Ounces | |
| December 2020 | | | 655 | | | | 655 | |
| January 2021 to March 2021 | | | 896 | | | | 2,688 | |
| April 2021 to March 2022 | | | 911 | | | | 10,932 | |
| April 2022 to March 2023 | | | 1,396 | | | | 16,752 | |
| April 2023 to December 2023 | | | 1,753 | | | | 15,777 | |
| January 2024 | | | 241 | | | | 241 | |
| | | | | | | | 47,045 | |
The Amended Agreement also altered the total amount that PDK may reduce the number of ounces of gold to be delivered under the Amended Agreement in exchange for common shares of the Company. Under the Amended Agreement, PDK may reduce the required number of ounces by up to 8,000 ounces in exchange for common shares of the Company.
NOTE 4 – RECLAMATION BONDS
At December 31, 2019 and 2018, the Company has a surety bond of $674,000 in an escrow account with the bonding company for reclamation of its 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.
In March 2019, as part of the Amended Lease (Note 7), the Company returned the Cactus Mill property and the reclamation bond of $42,802 on that property to Clifton Mining Company.
Total reclamation bonds posted at December 31, 2019 and 2018 are $759,351 and $753,290, 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 5 – INVENTORIES
Inventories at December 31, 2019 and 2018 consists of the following:
| | | December 31,
2019 | | | December 31,
2018 | |
| Ore on leach pad | | $ | 3,903,297 | | | $ | 1,193,341 | |
| Carbon column in process | | | 235,762 | | | | - | |
| Finished goods | | | 194,623 | | | | - | |
| Total | | $ | 4,333,682 | | | $ | 1,193,341 | |
Inventories at December 31, 2019 and 2018 were valued at net realizable value because production costs were greater than the amount the Company expects to receive on the sale of the estimated gold ounces contained in inventories at both period-end dates. The write-down to net realizable value was $870,085 and $656,257 at December 31, 2019 and 2018.
NOTE 6 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 2019 and 2018:
| | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| Equipment | | $ | 5,336,011 | | | $ | 3,093,690 | |
| Furniture and fixtures | | | 6,981 | | | | 6,981 | |
| Electronic and computer equipment | | | 50,587 | | | | 52,874 | |
| Vehicles | | | 256,815 | | | | 108,089 | |
| Land improvements | | | 44,840 | | | | - | |
| | | | 5,695,234 | | | | 3,261,634 | |
| Less accumulated depreciation | | | (2,254,961 | ) | | | (1,856,149 | ) |
| | | | 3,440,273 | | | | 1,405,485 | |
| | | | | | | | | |
| Kiewit property facilities | | | 2,497,436 | | | | 2,497,436 | |
| Less accumulated amortization | | | (650,194 | ) | | | (487,214 | ) |
| | | | 1,847,242 | | | | 2,010,222 | |
| | | | | | | | | |
| Total | | $ | 5,287,515 | | | $ | 3,415,707 | |
For the Kiewit property facilities, amortization based on total units of production was $162,980 for the year ended December 31, 2019. There was no amortization in the year ended December 31, 2018 due to the lack of production.
NOTE 7 – MINERAL PROPERTIES AND INTERESTS
Mineral properties and interests as of December 31, 2019 and 2018 are as follows:
| | | December 31,
2019 | | | December 31,
2018 | |
| | | | | | | |
| Kiewit and surrounding claims | | $ | 3,700,000 | | | $ | 600,000 | |
| JJS property | | | 250,000 | | | | - | |
| Total | | | 3,950,000 | | | | 600,000 | |
| Less Accumulated amortization | | | (475,401 | ) | | | (36,948 | ) |
| | | | 3,474,599 | | | | 563,052 | |
| Asset retirement obligation | | | | | | | | |
| Kiewit Site | | | 452,193 | | | | 452,193 | |
| Kiewit Exploration | | | 11,126 | | | | 11,126 | |
| Cactus Mill | | | - | | | | 26,234 | |
| Total | | | 463,319 | | | | 489,553 | |
| Less accumulated amortization | | | (208,281 | ) | | | (173,604 | ) |
| | | | 255,038 | | | | 315,949 | |
| | | | | | | | | |
| Total | | $ | 3,729,637 | | | $ | 879,001 | |
On June 13, 2019, the Company entered into an agreement whereby the Company acquired 20 claims adjacent to the Kiewit property from Ben Julian, LLC for $250,000, known as the JJS Property.
In 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company (“Clifton”) and the Woodman Mining Company for the lease of their property interests in the Gold Hill Mining District of Utah. In March 2019, the Company and Clifton entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”). Under the terms of this Amended Lease, the Company relinquished its leasehold interest in all but 10 of the patented mining claims, for which it retained only the surface rights, and 66 of the unpatented lode mining claims previously held by the Company. The Cactus Mill property was returned to Clifton Mining Company as part of this agreement.
As consideration for entering into the Amended Lease, the Company issued 5,500,000 shares of its common stock with a fair value of $2,200,000 which increased the carrying value of the mineral properties and interests. In addition, the Company and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires the Company to register the shares within 18 months (which is September 7, 2020) following the initial funding received under the Purchase Agreement (Note 3). In the event the Company does not register the shares within the 18-month period, the Company is obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from the Company’s mining claims.
Under the terms of the initial 2009 Joint Venture Agreement, the Company was required to pay a 4% net smelter royalty (“NSR”) on base metals in all other areas except for production from the Kiewit gold property and a NSR 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 was also required to pay Clifton a 6% NSR on any production from the Kiewit gold property.
As part of the Purchase Agreement (Note 3) finalized in March 2019, these NSRs were bought out by the Company from Clifton and two other minority royalty holders at a cost of $900,000 which increased the carrying value of the mineral properties and interests. The buyer of the Purchase Agreement (Note 3), PDK, acquired a 4% NSR, previously held by Clifton, on the Kiewit property for $2,200,000. PDK remitted the funds for the NSR directly to Clifton. PDK will receive a 4% net NSR on proceeds from the sale of gold and silver from the Kiewit and JJS properties.
Amortization of the mineral properties and interests based on total units of production was $475,682 for the year ended December 31, 2019. There was no amortization in the year ended December 31, 2018 due to lack of production.
NOTE 8 – SHORT-TERM NOTES PAYABLE – RELATED PARTIES
During 2018 and the first quarter of 2019, the Company entered into several short-term notes payable with the convertible debt holders (Note 9) and with the Company’s president. Total borrowed was $91,680 during the first quarter 2019 and $249,000 during the year ended December 31, 2018. The notes bore interest at 10%, had a 2% loan initiation fee, and were due in full on March 31, 2019. Accrued interest payable to related parties on these notes at December 31, 2019 and December 31, 2018 was nil and $7,243. Interest expense recognized on these loans was $3,382 and $7,243 for the years ended December 31, 2019 and 2018, respectively.
These short-term notes were repaid in full, including 10% interest and a 2% loan initiation fee, in March 2019 as part of the terms of the Purchase Agreement.
NOTE 9 – CONVERTIBLE DEBT – RELATED PARTIES
2009 Convertible Notes:
On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders, for a total of $600,000. The notes bore interest at 15% per annum. Interest-only was payable in equal monthly installments of $7,500. The notes were convertible at a rate of $0.70 per share. The Company failed to repay the notes in full on the November 30, 2012 through the 2017 maturity dates, so the Company was required to issue an additional 300,000 shares of common stock to these debt holders in each of those years. In 2014, 2015, 2016, and 2017, the annual issuance of shares of common stock was valued at an estimated $0.04 (total $12,000) each and was accounted for as financing expense.
The Company failed to repay the notes on the November 2018 maturity date. During the year ended December 31, 2018, the Company issued shares of common stock valued at $0.40 per share based on the cash price of common stock sales during 2018 which was recognized as financing expense. The due date of the note was extended to May 31, 2019. Interest had not been paid since November 2014. Per the terms of the notes, interest on these notes is not convertible to common stock.
On February 28, 2018, the notes 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 waived the default provision in the notes for past due interest. In addition, as part of the agreement, the convertible feature of the notes was removed.
2016 Convertible Notes:
On October 14, 2016, the Company issued additional convertible promissory notes to the convertible debt holders for a total of $250,000. The notes bore interest at 10% per annum and were due in full on September 30, 2018. The notes were convertible at a rate of $0.25 per share. These notes were amended in February 2018 to extend the due date of the notes and the accrued interest to May 31, 2019. Interest on these notes is convertible to common stock.
2017 Convertible Notes:
On August 7, 2017, the convertible debt holders agreed to fund up to an additional aggregate of $500,000 under terms similar to existing convertible debt agreements. At December 31, 2017, $428,000 of these funds had been advanced. The remaining $72,000 was advanced in 2018 with the final advance on February 9, 2018. On February 28, 2018, these notes were amended to postpone the maturity date and interest payment date to May 31, 2019.
Accrued interest payable to related parties on the above convertible notes payable was nil and $456,750 at December 31, 2019 and 2018, respectively. Interest expense recognized on these loans was $31,412 and $139,314 for the years ended December 31, 2019 and 2018.
All of these notes were paid in full, including accrued interest, on March 7, 2019 with funds received under the Purchase Agreement.
NOTE 10 – OBLIGATION UNDER CAPITAL LEASE — RELATED PARTY
A capital lease was entered into on June 20, 2016 with RMH Overhead, LLC for mining and crushing equipment valued at $185,618, some of which had been previously owned by the Company. RMH Overhead, LLC is an entity owned by the Company’s president, Rick Havenstrite. Lease payments were paid in full, including accrued interest and late fees, in March 2019 with funds received under the Purchase Agreement. The equipment is being amortized over the estimated useful life of the equipment. Accumulated amortization at December 31, 2018 was $66,292. The Company now owns the equipment which is included in property and equipment on the balance sheet.
NOTE 11 – NOTES PAYABLE – EQUIPMENT
The following is a summary of the equipment notes payable:
| | | December 31,
2019 | | | December 31, 2018 | |
| Note payable to Komatsu Financial, collateralized by a Komatsu Telehandler lift, due in 48 monthly installments of $2,441 including interest at 4.99%. | | $ | - | | | $ | 27,192 | |
| Note payable to CAT Financial, collateralized by used mining equipment due in 36 monthly installments of varying amounts including interest at 4.68%. | | | - | | | | 117,002 | |
| Note payable to Wheeler Machinery, collateralized by used crushing equipment, due in 9 monthly installments of $39,009. | | | - | | | | 145,066 | |
| Note payable to Komatsu Financial, collateralized by a Komatsu D275 dozer, due in one monthly installment of $21,000 and 47 monthly installments of $11,674 including interest at 2.99%. | | | - | | | | 34,851 | |
| Note payable to Epiroc, collateralized by a used Epiroc drill, due in 6 monthly installments of $22,235, beginning October 2019, plus a balloon payment or refinancing prior to April 2020, of $488,317, including interest at 8%. | | | 563,368 | | | | - | |
| Note payable to Wheeler Machinery, collateralized by a used CAT 740 Haul truck, due in 11 monthly installments of $14,475, beginning May 2019, including interest at 8%, with a balloon payment due in April 2020 of $168,873. | | | 206,682 | | | | - | |
| Note payable to Wheeler Machinery, collateralized by a used D8T dozer, due in 11 monthly payments of $19,125, beginning August 2019, including interest at 10%, with a balloon payment due in July 2020 of $350,281. | | | 441,989 | | | | - | |
| Note payable to Komatsu Equipment, collateralized by a used PC490 Excavator, due in 11 monthly payments of $10,320, beginning July 2019, including interest at 9%, with a balloon payment due in March 2020 of $71,372. | | | 90,200 | | | | - | |
| | | | 1,302,239 | | | | 324,111 | |
| Current portion | | | (1,302,239 | ) | | | (324,111 | ) |
| Long term portion | | $ | - | | | $ | - | |
All principal payments at December 31, 2019 are due in 2020. All of the above notes with balances due at December 31, 2018 were paid in full in March 2019 with funds received under the Purchase Agreement.
NOTE 12 – NOTE PAYABLE — DMRJ
In July 2010, the Company entered into an Investment Agreement with DMRJ. The Agreement had been modified numerous times and operated under the Fourteenth Amendment to the Investment Agreement dated December 22, 2016. The Amendments provided for extensions of payment dates, increased funding capacity and other modifications to the debt agreement. At December 31, 2017, DMRJ beneficially owned approximately 77% of the Company (on a fully diluted basis) with Series A, A-2 and B preferred stock shares convertible to 47,211,002 shares of common stock (See Note 15).
In the third quarter of 2016, control of the management of DMRJ was given to court appointed trustees of the two major funds of Platinum Partners. On March 8, 2018, the Company finalized an agreement with the trustees to discharge all of the amounts owed by the Company to DMRJ and to extinguish all of DMRJ’s shares of the Company’s preferred stock in exchange for $625,000. On the date of the agreement, the principal balance of the note was $15,554,552 and accrued interest payable was $9,987,009 for a total balance due of $25,541,561. As a result of the transaction, in the quarter ended March 31, 2018, the Company recognized a gain on extinguishment of debt of $24,916,561.
All of the preferred stock of the Company that had been issued to DMRJ in prior years was extinguished. The preferred stock was originally recorded for a total value $4,068,720. As a result of the extinguishment, the Company adjusted accumulated deficit for the value of the preferred stock. This amount is considered a capital contribution and has been added to net income attributable to common stockholders in the calculation of earnings per share for the year ended December 31, 2018.
After the above transactions, DMRJ is no longer a shareholder (beneficially or otherwise) of the Company as of March 8, 2018.
During the quarter ended March 31, 2018, the existing convertible debt holders funded the $625,000 and modifications to their existing convertible note terms were made in exchange for 4,500,000 shares of the Company’s common stock. See Notes 9 and 15.
NOTE 13 –ASSET RETIREMENT OBLIGATION
Changes in the asset retirement obligation for the years ended December 31, 2019 and 2018 are as follows:
| | | December 31,
2019 | | | December 31,
2018 | |
| Asset retirement obligation, beginning of period | | $ | 792,747 | | | $ | 1,046,621 | |
| Reduction in liability due to transfer of Cactus Mill property | | | (40,802 | ) | | | - | |
| Changes to estimated costs and timing to reclaim | | | - | | | | (334,342 | ) |
| Accretion expense | | | 74,692 | | | | 80,468 | |
| Asset retirement obligation, end of period | | $ | 826,637 | | | $ | 792,747 | |
During the year ended December 31, 2019, the Cactus Mill property was returned to Clifton as part of the terms of the Amended Lease (Note 7). The net asset retirement cost of $17,120 and obligation of $40,802 relating to the Cactus Mill property were eliminated resulting in a gain on settlement of asset retirement obligation of $20,451 recognized in general and administrative expense in the statement of operations.
In the fourth quarter of 2018, the Company updated the asset retirement obligation to reflect a plan for reclamation and closure of the mine at the end of its life having estimated undiscounted costs of approximately $1,369,115, an increase of $30,586 from the $1,338,529 in the previous plan. However, the asset retirement asset and obligation decreased by $334,342 as a result of a change in the estimated timing of costs and the impact of discounting the costs to present value. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 10% from the time we incurred the obligation to the time we expect to pay the retirement obligation.
NOTE 14 – 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.
On January 16, 2019, as a condition for entering into the Purchase Agreement (Note 3), the Company negotiated a termination of the Agency Agreement (the “Termination Agreement”) with H&H. Under the terms of the Termination Agreement, the Company paid H&H $600,000 in cash and agreed to pay an additional $200,000 within 18 months. The Company also issued 250,000 shares of its common stock with a fair value of $100,000 to H&H. In addition, Phillip H. Holme, a principal of H&H, became a director of the Company.
The Company recognized a loss on settlement of consulting contract of $900,000 during the year ended December 31, 2019. The balance of $200,000 is due in July 2020, under the settlement agreement.
NOTE 15 - 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.
2019 Activity
During the year ended December 31, 2019, the Company had the following transactions relating to common stock. All shares issued were valued at $0.40 per share based on the most recent sale of common stock for cash:
| ● | Issued 5,500,000 shares of common stock to Clifton in connection with the Amended Lease (Note 7). The fair value of these shares was $2,200,000. |
| ● | Issued 250,000 shares of common stock to H&H in connection with settlement of a consulting contract (Note 14). The fair value of these shares was $100,000. |
| ● | In connection with the settlement of stock redeemable with gold proceeds issued in 2012, the Company allowed investors to retain 130,000 shares of common stock that had been issued in connection with a financing in 2012. The fair value of these shares was $52,000. |
2018 Activity
During the year ended December 31, 2018, the Company had the following transactions relating to common stock:
| ● | Sold 4,500,000 shares of common stock to the convertible debt holders for $625,000 in cash and several concessions as to the convertibility, due dates and default provisions on their outstanding debt. See Note 9. |
| ● | Sold 2,125,000 shares of its common stock at $0.40 per share for cash proceeds of $850,000. |
| ● | Issued 300,000 shares of common stock to the convertible debt holders under the terms of the debt agreements, which required this stock issuance when the Company failed to repay the convertible debt in full on the November 31, 2018 maturity date. |
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.
On March 8, 2018, the Company finalized an agreement with the trustees of DMRJ, who owned all of the Series A, A-2 and Series B outstanding preferred stock. This agreement discharged all of the debt owed by the Company to DMRJ and its related affiliates and returned all of the shares of preferred stock to the Company in exchange for $625,000. The Company then cancelled all of the preferred shares of stock. As a result, DMRJ relinquished all ownership in the Company. See Note 12.
NOTE 16 – INCOME TAXES
The Company did not recognize a tax benefit for the year ended December 31, 2019 due to ongoing net losses. The Company did not recognize a tax provision for the year ended December 31, 2018 due to the availability of net operating loss carry forwards.
The components of the Company’s net deferred tax assets are as follows:
| | | 2019 | | | 2018 | |
| Deferred tax asset: | | | | | | | | |
| Net operating loss carryforward | | $ | 1,784,000 | | | $ | 952,000 | |
| Property and equipment | | | 37,000 | | | | 37,000 | |
| Exploration costs | | | 58,000 | | | | 85,000 | |
| Stock based compensation | | | 96,000 | | | | 96,000 | |
| Financing costs | | | - | | | | 23,000 | |
| Asset retirement obligation | | | 54,000 | | | | 42,000 | |
| Total deferred tax assets | | | 2,029,000 | | | | 1,235,000 | |
| Valuation allowance | | | (2,029,000 | ) | | | (1,235,000 | ) |
| Net deferred tax assets | | $ | - | | | $ | - | |
Deferred income taxes arise from timing differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. A deferred tax asset valuation allowance is recorded when it is more likely than not that deferred tax assets will not be realized. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax assets, a valuation allowance equal to 100% of the deferred tax assets has been recorded at December 31, 2019 and 2018.
A reconciliation between the statutory federal income tax rate and the Company’s tax provision (benefit) is as follow:
| | | December 31, 2019 | | | December 31, 2018 | |
| Amount computed using the statutory rate | | $ | (793,000 | ) | | | (21 | %) | | $ | 4,482,000 | | | | (21 | %) |
| Other | | | (1,000 | ) | | | - | | | | (8,000 | ) | | | - | |
| Change in valuation allowance | | | 794,000 | | | | 21 | % | | | (4,474,000 | ) | | | 21 | % |
| Total income tax provision (benefit) | | $ | - | | | | - | % | | $ | - | | | | - | % |
At December 31, 2019 the Company had federal net operating loss carry forwards of approximately $8.5 million, $4.6 million of which expire between 2028 through 2037. The remaining balance of $3.9 million will never expire but its utilization is limited to 80% of taxable income in any future year.
During the years ended December 31, 2019 and 2018, there were no material uncertain tax positions taken by the Company. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at December 31, 2019 and 2018. The Company’s federal income tax returns for fiscal years 2014 through 2019 remain open and subject to examination.
NOTE 17 – RELATED PARTY TRANSACTIONS
In addition to transactions disclosed in Notes 8, 9, 10 and 19, the Company had the following related party transaction.
The Company has a month to month lease agreement for its office space with RMH Overhead, LLC, a company owned by Rick Havenstrite, the Company’s President and a director. The Company recognized rent expense of $12,000 for the years ended December 31, 2019 and 2018, respectively, under this lease. At December 31, 2019 and 2018, amounts due to RMH Overhead, LLC of nil and $18,750, respectively, are included in in accounts payable and accrued expenses on the balance sheet.
The Company compensates directors for their contributions to the management of the Company, with one director receiving $6,000 per month and the other two directors receiving $5,000 per quarter. At December 31, 2019 and December 31, 2018, nil and $94,000, respectively, was due to directors. The amounts due at December 31, 2018 were paid in full in March 2019 with funds received under the Purchase Agreement.
NOTE 18 – REVENUE RECOGNITION
Product sales for the years ended December 31, 2019 and 2018 are shown below. At December 31, 2019 and December 31, 2018, the Company did not have a gold sales receivable balance.
| | | Year ended December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
| Gold | | $ | 1,010,080 | | | $ | 248,344 | |
| Silver | | | 11,928 | | | | 3,060 | |
| Less: Royalties and participation payments | | | (125,591 | ) | | | (13,159 | ) |
| Other charges | | | (7,106 | ) | | | (8,776 | ) |
| Total | | $ | 889,311 | | | $ | 229,469 | |
For the year ended December 31, 2019, all revenue was from sales to Asahi Refining. For the year ended December 31, 2018, all revenue was from sales to H&H Metals Corp.
NOTE 19—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.
On February 23, 2018, the Board approved the grant of an aggregate of 2,400,000 non-statutory options under the 2018 Plan exercisable at $0.40 per share which expire February 23, 2023 in the amounts and to the following:
| ● | Rick Havenstrite, President and CEO – 1,000,000 options |
| | |
| ● | Howard Crosby, Director – 1,000,000 options |
| | |
| ● | John Ryan, Director – 200,000 options |
| | |
| ● | Linde Havenstrite, Project Engineer – 200,000 options |
The options were fully vested on the date of grant. Assumptions used in calculating the fair value during the year ended December 31, 2018 were as follows:
| Annual dividend yield | | - | |
| Expected life (years) | | | 5.0 | |
| Risk-free interest rate | | | 2.54 | % |
| Expected volatility based on comparable peers | | | 51.2 | % |
| Common stock price based on most recent sale of common stock for cash | | $ | 0.40 | |
The fair value of the options of $456,000 was recognized as stock based compensation cost for the year ended December 31, 2018, which was included in general and administrative expenses.
Outstanding options at December 31, 2019 were 2,400,000, have a remaining life of 3.15 years, and had no intrinsic value. No options were granted, expired, or were exercised during the year ended December 31, 2019.
NOTE 20 – COMMITMENTS AND CONTINGENCIES
In addition to commitments disclosed in Notes 3 and 7, 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 December 31, 2019, the amount due to Tooele County is nil. At December 31, 2018, the balance due for these taxes was $134,687 which included delinquent taxes from prior years. The balance was paid in full in March 2019 with funds received under the Purchase Agreement.
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 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.
At December 31, 2019 and December 31, 2018, accrued compensation of nil and $828,039, were due to officers of the Company. Of the amounts accrued at December 31, 2019 and December 31, 2018, accrued compensation of nil and $593,232 is due to Rick Havenstrite and nil and $234,807 is due to Marianne Havenstrite, Treasurer and Principal Financial Officer.
Finder’s Agreement
On May 11, 2018, the Company entered into an agreement with Mount Royal Consultants (Mount Royal) to assist in finding prospective investors. Mount Royal would receive a finder’s fee of 7% for a connection with a company that resulted in a qualified investment consisting of equity securities or a fee of 3% for a connection with a company that resulted in a purchase of debt securities. On March 7, 2019, the Company closed a Purchase Agreement (Note 3) to a buyer for the purchase of gold produced from the Company’s mining property. This agreement was deemed to be subject to the finder’s fee and resulted in a payment to Mount Royal of $318,000, 3% of the $10,600,000 beneficially received by the Company in accordance with the terms of the Purchase Agreement. On November 1, 2019, an additional payment of 3% of the Tranche 2 payment received by the Company resulted in a payment of $48,000 to Mount Royal and a third payment of $42,000 was issued after receipt of the Tranche 3 payment on December 27, 2019. Future amounts to be received from investors could also be subject to this agreement. During the years ended December 31, 2019 and 2018, the Company recognized $408,000 and nil, respectively, as consulting expense relating to this agreement.
Stock Redeemable with Gold Proceeds
In 2012, the Company sold 130,000 shares of its common stock. Under the terms of this offering, the shares could be redeemed for cash generated from the sale of gold. 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, the shares were initially recorded as a liability and not as equity.
All investors opted to convert their shares for cash from 5% of the gold sales. At December 31, 2018, included in accounts payable was $151,405 to investors for their portion of gold sales occurring October 2014 to June 2015. This balance was paid to the investors in March 2019 fully satisfying the terms of the original offering. Upon full satisfaction of the redemption provisions, the shares of common stock should have been returned to the Company. However, the Company allowed the investors to keep the shares. The Company recognized an expense of $63,094, which includes $52,000 for the fair value of the shares of common stock, as loss on settlement of redeemable stock during the year ended December 31, 2019.
Mining Leases
Annual claims fees are currently $155 per claim plus administrative and school trust land fees. Total paid for claims fees in 2019 was $14,794.
[OUTSIDE BACK COVER]
Desert Hawk Gold Corp.
[A Nevada Corporation]
6,060,824 Shares
Common Stock
PROSPECTUS
Desert Hawk Gold Corp.
1290 Holcomb Ave.
Reno, NV 89502
Telephone (775) 337-8057
_______________, 2020
Until , 2020, all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all expenses payable by us in connection with the registration of the Common Stock, other than underwriting discounts and commissions. All amounts are estimates except the SEC registration fee.
| Securities and Exchange Commission - Registration Fee | | $ | 315 | |
| State filing Fees | | $ | 2,500 | |
| Edgarizing Costs | | $ | 5,000 | |
| Accounting Fees and Expenses | | $ | 10,000 | |
| Legal Fees and Expenses | | $ | 20,000 | |
| Miscellaneous | | $ | 5,000 | |
| Total | | $ | 42,815 | |
None of the expenses of the offering will be paid by the Selling Stockholders.
Item 14. Indemnification of Directors and Officers
Nevada law expressly authorizes a Nevada corporation to indemnify its directors, officers, employees, and agents against liabilities arising out of such persons’ conduct as directors, officers, employees, or agents if they acted in good faith, in a manner they reasonably believed to be in or not opposed to the best interests of the company, and, in the case of criminal proceedings, if they had no reasonable cause to believe their conduct was unlawful. Generally, indemnification for such persons is mandatory if such person was successful, on the merits or otherwise, in the defense of any such proceeding, or in the defense of any claim, issue, or matter in the proceeding. In addition, as provided in the articles of incorporation, bylaws, or an agreement, the corporation may pay for or reimburse the reasonable expenses incurred by such a person who is a party to a proceeding in advance of final disposition if such person furnishes to the corporation an undertaking to repay such expenses if it is ultimately determined that he did not meet the requirements. In order to provide indemnification, unless ordered by a court, the corporation must determine that the person meets the requirements for indemnification. Such determination must be made by a majority of disinterested directors; by independent legal counsel; or by a majority of the shareholders.
In addition to any other rights provided by Nevada law or our Bylaws, Article IX of theour Amended and Restated Articles of Incorporation mandates that the expenses of officers and directors incurred in defending any civil or criminal action, suit or proceeding, involving alleged acts or omissions of the officer or director in his or her capacity as an officer or director of our company, must be paid by the company or through any insurance purchased and maintained by us, including payment of expenses incurred in advance of the final disposition of the action so long as the indemnified party undertakes to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she was not entitled to be indemnified by us. Article VIII of our Amended and Restated Bylaws also providesprovide that wethe corporation shall indemnify ourits directors, officers, and agents to the full extent permitted by the laws of the State of Nevada.
Each of our Our employment agreements with Messrs JorgensenRick Havenstrite, our President and Havenstrite, and our consulting agreement with Eric L. Moe, containCEO, also provides for mandatory indemnification provisions similar in scope and operation as described above.
indemnification.Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of our company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by any director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the sale of the shares in this offering, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Our Amended and Restated Articles of Incorporation also provide that no director or officer will be personally liable to us or our stockholders for monetary damages to the fullest extent permitted by Nevada law. However, a director or officer will be liable if his act or failure to act constituted a breach of his fiduciary duty and his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information concerning the annual compensation awarded to, earned by, or paid to the named executive officer for all services rendered in all capacities to our company and its subsidiaries for the years ended December 31, 2009 and 2008:
SUMMARY COMPENSATION TABLE
| Name & Principal Position | | Year | | Salary | | | Total | |
| Robert E. Jorgensen, CEO | | 2009 | | $ | 60,000 | | | $ | 60,000 | |
| | | 2008 | | $ | 60,000 | (1) | | $ | 60,000 | |
| (1) | Of this amount, $37,500 was paid and the balance accrued in fiscal 2008 and paid during the year ended December 31, 2009. |
During 2008 and 2009 we agreed to pay Mr. Jorgensen $5,000 per month for his services as our principal executive officer. Effective September 1, 2010, we entered into an employment agreement with Mr. Jorgensen. The term of the agreement is for four years, with automatic one-year extensions unless notice is given by either party. The annual base salary is $120,000 plus performance compensation of between 10% and 100% of the annual base salary based upon fulfillment of annual performance goals established by the Board or the Compensation Committee. He is also entitled to a monthly car allowance of $500. In the event we terminate the agreement without cause or if the agreement is constructively terminated by us, we have agreed to pay Mr. Jorgensen a severance package equal to three times the initial base salary if such termination occurs on or before August 31, 2011, and one and one-half times the largest annual base salary plus the largest annual performance compensation received by Mr. Jorgensen under the Agreement if such termination occurs after August 31, 2011, payable 75% within 30 days and the balance within 30 days of the first anniversary of the termination.
Equity Awards
As of December 31, 2009, there were no unexercised options, stock that had not vested, or equity incentive plan awards for Mr. Jorgensen.
In July 2008 the Board of Directors adopted the Stock Option/Stock Issuance Plan, which was approved by the shareholders in August 2008. The purpose of the plan is to provide eligible persons an opportunity to acquire a proprietary interest in our company and as an incentive to remain in our service.
There are 3,000,000 shares of common stock authorized for nonstatutory and incentive stock options and stock grants under the plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations.
The plan is administered by the Board of Directors. The persons eligible to participate in the plan are as follows: (a) employees of our company and any of its subsidiaries; (b) non-employee members of the board or non-employee members of the Board of Directors of any of its subsidiaries; and (c) consultants and other independent advisors who provide services to us or any of our subsidiaries. Options may be granted, or shares issued, only to consultants or advisors who are natural persons and who provide bona fide services to us or one of our subsidiaries, provided that the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for our securities.
The plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until July 12, 2018, whichever is earlier. The plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
Compensation of Directors
The following table sets forth certain information concerning the compensation of our directors, excluding the named executive officers set forth in the Summary Compensation Table above, for the last fiscal year ended December 31, 2009:
DIRECTOR COMPENSATION
| Name | | Fees Earned or Paid in Cash | | | Total | |
| Rick Havenstrite | | $ | 44,682 | | | $ | 44,682 | |
| Robert E. Knecht | | | 0 | | | | 0 | |
| William McAndrews | | | 0 | | | | 0 | |
| John Ryan | | | 0 | | | | 0 | |
Of the total compensation paid to Mr. Havenstrite, $27,182 was paid for services performed for us as our President and for managing our mining operations during the year and $17,500 was paid to RMJ Overhead, an entity owned by Mr. Havenstrite, for consulting services performed for us.
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. The Board has not adopted a policy to compensate directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information furnished by current management and others, concerning the ownership of our common stock as of September 14, 2010, of (i) each person who is known to us to be the beneficial owner of more than 5 percent of our common stock, without regard to any limitations on conversion or exercise of convertible securities or warrants; (ii) all directors and executive officers; and (iii) our directors and executive officers as a group:
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership1 | | | Percent of Class1 | |
Robert E. Jorgensen 8921 Indian Trail Road No. 288 Spokane, WA 99208 | | | 1,015,000 | | | | 13.38 | % |
Rick Havenstrite 1290 Hazcomb Ave. Reno, NV 89502 | | | 1,025,000 | 2 | | | 13.51 | % |
Robert E. Knecht 250 E. James Ct. Drive #104 Meridian, ID 83646 | | | 50,167 | | | | * | |
William McAndrews 922 E. Brentwood Drive Spokane, WA 99208 | | | 8,333 | | | | * | |
John Ryan 641 Lexington Ave. #2500 New York, NY 10022 | | | 400,000 | | | | 5.27 | % |
Eric L. Moe 8305 N. Colton Place Spokane, WA 99208 | | | 1,131,400 | | | | 14.91 | % |
Executive Officers and Directors as a Group (6 Persons) | | | 3,629,900 | | | | 47.85 | % |
Clifton Mining Company3 80 West Canyon Crest Road Alpine, UT 84004 | | | 560,824 | | | | 7.39 | % |
Andrew and Karen Watling JTWROS 3567 Maidens Road Powhatan, VA 23139 | | | 391,500 | | | | 5.16 | % |
West C Street, LLC4 Richard Meadows 21838 NE 102nd Street Redmond, WA 98053 | | | 715,714 | 5 | | | 8.81 | % |
Ibearhouse, LLC6 Kelley Price 7806 NE 10th Street Medina, WA 98039 | | | 715,714 | 7 | | | 8.81 | % |
DMRJ GROUP I, LLC8 Carnegie Hall Tower 152 West 57th Street New York, NY 10022 | | | 958,033 | 9 | | | 12.63 | % |
* Less than 1%.
1 This table is based upon information supplied by officers, directors and principal stockholders and is believed to be accurate. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible within 60 days of September 14, 2010, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Where more than one person has a beneficial ownership interest in the same shares, the sharing of beneficial ownership of these shares is designated in the footnotes to this table. At September 14, 2010, we had 7,586,411 shares outstanding.
2 Includes 25,000 shares held by Mr. Havenstrite’s wife, Marianne Havenstrite.
3 Kenneth Friedman who has sole voting and investment power over these shares.
4 Richard Meadows has sole voting and investment power over these shares.
5 Includes 428,571 shares issuable upon conversion of the principal amount of an outstanding promissory note held by West C Street, LLC and 107,143 shares issuable upon conversion of the interest amount due for the promissory note as of September 24, 2010.
6 Kelley Price has sole voting and investment power over these shares.
7 Includes 428,571 shares issuable upon conversion of the principal amount of an outstanding promissory note held by Ibearhouse, LLC and 107,143 shares issuable upon conversion of the interest amount due for the promissory note as of September 24, 2010.
8 Mark Nordlicht has sole voting and investment power over these shares.
9 Consists of shares issuable upon conversion of outstanding shares of Series A Preferred stock. Notwithstanding the foregoing, the shares of the Series A Preferred Stock may not be converted or exercised if the holder of the security, together with its affiliates, after such conversion or exercise would hold 4.9% of the then issued and outstanding shares of our common stock.
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. None of the selling stockholders is a registered broker-dealer.
The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the percentage each person will own after the offering, assuming they sell all of the shares offered.
| Name | | Amount Beneficial Ownership Before Offering | | | Percentage of Common Stock Owned Before Offering1 | | | Amount to be Offered for the Security Holder’s Account | | | Amount to be Beneficially Owned After Offering1 | | | Percentage of Common Stock Owned After Offering2 | |
| Dennis R. Allen | | | 250,000 | | | | 3.29 | % | | | 250,000 | | | | 0 | | | | 0 | % |
| Thomas E. Anderson | | | 16,666 | | | | * | | | | 16,666 | | | | 0 | | | | 0 | % |
| David J. Andrews | | | 10,000 | | | | * | | | | 10,000 | | | | 0 | | | | 0 | % |
| Stacie Banks | | | 4,167 | | | | * | | | | 4,167 | | | | 0 | | | | 0 | % |
| Steve Besso | | | 14,285 | | | | * | | | | 14,285 | | | | 0 | | | | 0 | % |
| Thomas Black | | | 10,000 | | | | * | | | | 10,000 | | | | 0 | | | | 0 | % |
| Craig Bodmer | | | 4,167 | | | | * | | | | 4,167 | | | | 0 | | | | 0 | % |
| Max Burdick Family Trust | | | 230,666 | 3 | | | 3.04 | % | | | 230,666 | | | | 0 | | | | 0 | % |
| Michael Clarke | | | 16,666 | | | | * | | | | 16,666 | | | | 0 | | | | 0 | % |
| David Coombs | | | 56,017 | | | | * | | | | 56,017 | | | | 0 | | | | 0 | % |
DMRJ Group4 | | | 958,033 | 4 | | | 12.63 | % | | | 958,033 | | | | 0 | | | | 0 | % |
| Milt Datsopoulos | | | 66,667 | | | | * | | | | 66,667 | | | | 0 | | | | 0 | % |
| Wes Delaney | | | 9,259 | | | | * | | | | 9,259 | | | | 0 | | | | 0 | % |
| Dennis Erickson | | | 63,131 | | | | * | | | | 63,131 | | | | 0 | | | | 0 | % |
| C. Rick Flower | | | 20,667 | | | | * | | | | 20,667 | | | | 0 | | | | 0 | % |
| George D. Hansen | | | 43,518 | 5 | | | * | | | | 43,518 | | | | 0 | | | | 0 | % |
Cindy Havenstrite6 | | | 15,000 | | | | * | | | | 15,000 | | | | 0 | | | | 0 | % |
Rick Havenstrite7 | | | 1,025,000 | 7 | | | 13.51 | % | | | 1,000,000 | | | | 25,000 | | | | * | |
Stuart Havenstrite8 | | | 100,000 | | | | 1.32 | % | | | 100,000 | | | | 0 | | | | 0 | % |
| Mark Huber | | | 7,000 | | | | * | | | | 7,000 | | | | 0 | | | | 0 | % |
Ibearhouse, LLC9 | | | 715,714 | 9 | | | 8.81 | % | | | 865,714 | 9 | | | 0 | | | | 0 | % |
| Patrick Inglis | | | 20,000 | | | | * | | | | 20,000 | | | | 0 | | | | 0 | % |
| Mike S. Jensen | | | 25,000 | | | | * | | | | 25,000 | | | | 0 | | | | 0 | % |
Robert Jorgensen10 | | | 1,015,000 | | | | 13.38 | % | | | 1,015,000 | | | | 0 | | | | 0 | % |
| Mark Kamitomo | | | 66,667 | | | | * | | | | 66,667 | | | | 0 | | | | 0 | % |
Robert Knecht11 | | | 50,167 | | | | * | | | | 50,167 | | | | 0 | | | | 0 | % |
| William Korum | | | 7,000 | | | | * | | | | 7,000 | | | | 0 | | | | 0 | % |
| Hansen Family Trust | | | 18,518 | 12 | | | * | | | | 18,518 | | | | 0 | | | | 0 | % |
| Hugh T. Lackie | | | 28,750 | | | | * | | | | 28,750 | | | | 0 | | | | 0 | % |
| Mark Mackin | | | 113,333 | | | | 1.49 | % | | | 113,333 | | | | 0 | | | | 0 | % |
| Larry Martin | | | 4,167 | | | | * | | | | 4,167 | | | | 0 | | | | 0 | % |
William McAndrews13 | | | 8,333 | | | | * | | | | 8,333 | | | | 0 | | | | 0 | % |
| Daniel R. McKinney | | | 90,500 | | | | * | | | | 90,500 | | | | 0 | | | | 0 | % |
Eric L. Moe14 | | | 1,131,400 | | | | 14.91 | % | | | 1,131,400 | | | | 0 | | | | 0 | % |
| Carole Morgan | | | 24,000 | | | | * | | | | 24,000 | | | | 0 | | | | 0 | % |
| Mike Morgan | | | 4,167 | | | | * | | | | 4,167 | | | | 0 | | | | 0 | % |
| William T. Morkill | | | 40,000 | | | | * | | | | 40,000 | | | | 0 | | | | 0 | % |
| Ronald Noel | | | 8,333 | | | | * | | | | 8,333 | | | | 0 | | | | 0 | % |
| Jack Ossello | | | 8,333 | | | | * | | | | 8,333 | | | | 0 | | | | 0 | % |
| William L. Peterson | | | 238,096 | | | | 3.13 | % | | | 238,096 | | | | 0 | | | | 0 | % |
| George Pimpl | | | 10,000 | | | | * | | | | 10,000 | | | | 0 | | | | 0 | % |
| John A. Powell | | | 10,000 | | | | * | | | | 10,000 | | | | 0 | | | | 0 | % |
| Martyn Powell | | | 72,500 | 15 | | | * | | | | 72,500 | | | | 0 | | | | 0 | % |
| Rufus, LLC | | | 15,000 | 16 | | | * | | | | 15,000 | | | | 0 | | | | 0 | % |
| Otto Razzler | | | 15,000 | | | | * | | | | 15,000 | | | | 0 | | | | 0 | % |
| Phillip V. Renz | | | 8,429 | | | | * | | | | 8,429 | | | | 0 | | | | 0 | % |
| Jim Rhoades | | | 4,167 | | | | * | | | | 4,167 | | | | 0 | | | | 0 | % |
| Jon Sandstrom | | | 87,440 | | | | 1.15 | % | | | 87,440 | | | | 0 | | | | 0 | % |
| Richard Seefried | | | 1,852 | | | | * | | | | 1,852 | | | | 0 | | | | 0 | % |
| Darrell Seigler | | | 30,333 | | | | * | | | | 30,333 | | | | 0 | | | | 0 | % |
| Gary Soulsby | | | 30,000 | | | | * | | | | 30,000 | | | | 0 | | | | 0 | % |
| Rory T. Spellman | | | 30,000 | | | | * | | | | 30,000 | | | | 0 | | | | 0 | % |
| Ronald M. Stoddard | | | 30,000 | | | | * | | | | 30,000 | | | | 0 | | | | 0 | % |
Donna Street17 | | | 16,666 | | | | * | | | | 16,666 | | | | 0 | | | | 0 | % |
| James Topliff | | | 16,250 | | | | * | | | | 16,250 | | | | 0 | | | | 0 | % |
Ronald N. Vance18 | | | 15,000 | | | | * | | | | 8,333 | | | | 0 | | | | 0 | % |
West C Street, LLC19 | | | 715,714 | 19 | | | 8.81 | % | | | 865,714 | 19 | | | 0 | | | | 0 | % |
| Andrew W. & Karen M. Watling, JTWROS | | | 391,500 | 20 | | | 5.16 | % | | | 391,500 | | | | 0 | | | | 0 | % |
| David Wilson | | | 12,500 | | | | * | | | | 12,500 | | | | 0 | | | | 0 | % |
| Heather Yakelly | | | 8,000 | | | | * | | | | 8,000 | | | | 0 | | | | 0 | % |
TOTAL | | | 8,058,738 | | | | | | | | 8,327,071 | | | | 25,000 | | | | | |
* Less than 1%
1 Based upon 7,586,411 shares outstanding at September 14, 2010.
2 Based upon 9,915,872 shares outstanding after the offering.
3 Sole voting and investment power is held by Max Burdick.
4 In July 2010 we entered into an Investment Agreement with this selling stockholder pursuant to which it agreed to loan up to $6,500,000 to us to fund our mining projects. As a bonus for entering into the financing arrangement with us, we issued 958,033 Series A Preferred Shares to the DMRJ Group. The shares in this table designated as being beneficially owned by this entity represent common shares issuable upon conversion of these Series A Preferred Shares. The shares of the Series A Preferred Stock may not be converted or exercised if the holder of the security, together with its affiliates, after such conversion or exercise would hold 4.9% of the then issued and outstanding shares of our common stock. Mark Nordlicht has sole voting and investment power over these shares.
5 Includes 18,518 shares in the name of Hansen Family Trust.
6 Ms. Havenstrite is the sister of Rick Havenstrite, our President and a director.
7 Mr. Havenstrite has served as a director and President of our Company since 2009. He has been employed by us since August 2009. We have entered into an employment agreement effective September 1, 2010, with him to serve as our President. Mr. Havenstrite was a shareholder of Blue Fin Capital, Inc. and received 1,000,000 shares in our company in exchange for his shares in Blue Fin in December 2010. The number of shares beneficially owned by Mr. Havenstrite Includes 25,000 shares held by his wife, Marianne Havenstrite.
8 We have entered into a consulting agreement with Mr. Havenstrite to provide geological services on a part-time basis. Mr. Havenstrite was a shareholder of Blue Fin Capital, Inc. and received 100,000 shares in our company in exchange for his shares in Blue Fin in December 2010. Stu Havenstrite is the father of Rick Havenstrite, a director and President of our company.
9 In November 2009 we borrowed $300,000 from this selling stockholder and issued a promissory note evidencing the loan. In connection with the loan transaction we also issued 150,000 as a bonus for loaning the funds to us. The amount of shares beneficially owned by this selling stockholder includes 535,714 shares issuable upon conversion of the principal amount and the current outstanding interest due on a promissory note dated November 30, 2009. Sole voting and investment power is held by Mr. Kelly Price. The amount being offered for this security’s holder’s account includes 150,000 penalty shares issuable in the event we default in the repayment of the promissory note dated November 30, 2009.
10 Mr. Jorgensen has served as a director of our company since 2001 and as our chief executive officer since 2004. Mr. Jorgensen was a shareholder of Blue Fin Capital, Inc. and received 482,236 shares in our company in exchange for his shares in Blue Fin in December 2010. He also received 449,431 shares for services in our management.
11 Mr. Knecht has served as a director of our company since 2007.
12 George D. Hansen also holds 43,518 in his name. Sole voting and investment power is held by George D. Hansen.
13 Mr. McAndrews has served as a director of our company since 2008.
14 Mr. Moe was a shareholder of Blue Fin Capital, Inc. and received 1,131,400 shares in our company in exchange for his shares in Blue Fin in December 2010. He has provided consulting services for us since 2007 and entered into a written consulting agreement with us effective September 1, 2010.
15 12,200 Shares held by Equity Trust Company FBO of Martyn Powell.
16 Sole voting and investment power are held by James Christopherson.
17 Ms. Street has provided outside accounting services for us on an as-needed basis since 2006.
18 Mr. Vance has served as outside legal counsel since 2008. In September 2010, we issued 6,667 shares to Mr. Vance as a bonus.
19 In November 2009 we borrowed $300,000 from this selling stockholder and issued a promissory note evidencing the loan. In connection with the loan transaction we also issued 150,000 as a bonus for loaning the funds to us. The amount of shares beneficially owned by this selling stockholder includes 535,714 shares issuable upon conversion of the principal amount and the current outstanding interest due on a promissory note dated November 30, 2009. Sole voting and investment power are held by Richard Meadows. The amount being offered for this security’s holder’s account includes 150,000 penalty shares issuable in the event we default in the repayment of the promissory note dated November 30, 2009.
20 Voting and investment power are held jointly by Andrew and Karen Watling.
Except as provided in the footnotes above, each of the selling stockholders received his, her, or its shares, or part of the shares owned by the selling stockholder, in one of the prior non-public cash offerings of our common stock. In addition, several of the selling stockholders received shares for services rendered for us or as settlement of an abandoned merger transaction in 2002. The following table sets forth the number of shares beneficially owned by the selling stockholders which were received by the selling stockholders for services or for settlement of the abandoned merger:
Name | | No. of Shares | | Consideration |
Thomas E. Anderson | | 16,666 | | Services (8,333 shares)
Merger settlement (8,333 shares)
|
Stacie Banks | | 4,167 | | Services |
Craig Bodmer | | 4,167 | | Merger settlement |
Michael Clarke | | 16,666 | | Services (8,333 shares)
Merger settlement (8,333 shares)
|
David Coombs | | 8,333 | | Services |
Milt Datsopoulos | | 666,667 | | Services |
Wes Delaney | | 9,259 | | Services |
George D. Hansen | | 18,518 | | Services |
Mike S. Jensen | | 25,000 | | Services |
Mark Kamitomo | | 66,667 | | Services |
Robert Knecht | | 50,167 | | Services |
Hansen Family Trust | | 18,518 | | Services |
Hugh T. Lackie | | 8,333 | | Merger settlement |
Larry Martin | | 4,167 | | Merger settlement |
William McAndrews | | 8,333 | | Services |
Mike Morgan | | 4,167 | | Merger settlement |
Jim Rhoades | | 4,167 | | Merger settlement |
Jon Sandstrom | | 10,417 | | Merger settlement |
Richard Seefried | | 1,852 | | Services |
Donna Street | | 16,666 | | Services |
James Topliff | | 6,250 | | Merger settlement |
Ronald N. Vance | | 15,000 | | Services |
David Wilson | | 12,500 | | Merger settlement |
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares, which the selling stockholder has the right to acquire within 60 days.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 100,000,000 shares of common stock, par value $.001 per share. All common shares are equal to each other with respect to voting, and dividend rights, and, are equal to each other with respect to liquidation rights. Special meetings of the shareholders may be called by the Chairman or the CEO and by the Secretary upon the request of a majority of the Board of Directors or the holders of not less than one-tenth of all the shares entitled to vote at the meeting. Holders of shares of common stock are entitled to one vote at any meeting of the shareholders for each share of common stock they own as of the record date fixed by the Board of Directors. At any meeting of shareholders, one-third of the outstanding shares of capital stock entitled to vote, represented in person or by proxy, constitutes a quorum. A vote of the majority of the shares represented at a meeting will govern, even if this is substantially less than a majority of the shares outstanding. Subject to the rights granted to the holders of our preferred stock, holders of common shares are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor, and upon liquidation are entitled to participate pro rata in a distribution of assets available for such a distribution to shareholders. There are no conversion, sinking fund, redemption, preemptive or other subscription rights or privileges with respect to any common shares.
Directors are elected by a plurality of votes, which means that the persons receiving the greatest number of votes as directors for the number of directors to be elected at the meeting are elected to serve as directors, whether or not the number of votes cast represents a majority of the votes present at the meeting. Our common shares do not have cumulative voting rights, which would permit a shareholder to multiply the number of shares he owns by the number of directors to be elected and to distribute those votes among the candidates in any manner he wishes.
We refer you to our Amended and Restated Articles of Incorporation, Bylaws and the applicable statutes of the state of Nevada for a more complete description of the rights and liabilities of holders of our securities.
Series A Preferred Stock
We are authorized to issue 10,000,000 preferred shares and have outstanding 958,033 preferred shares designated as Series A Preferred Stock, par value $0.001 per share. The Series A shares have the following rights and preferences:
| · | The holders of the Series A shares are entitled to quarterly dividends equal to 10% of our consolidated net income for each quarter commencing with the quarter beginning July 1, 2011. Nevertheless, if our common stock is quoted on the OTC Bulletin Board or listed on a senior exchange on or before July 13, 2011, and so long as the common stock continues to be so quoted or listed, no quarterly dividends will be payable or accrue. In addition they are entitled to dividends or distributions made to the holders of our common stock to the same extent as if such holders of the Series A shares had converted their preferred shares into common stock. |
| · | In the event of any voluntary or involuntary liquidation, dissolution or winding up of our company, or a change of control transaction or the sale or lease of all or substantially all of our assets without the majority consent of the holders of the Series A shares, the holders of the Series A shares will be entitled to receive ratably an amount of the funds available for liquidation equal to the issue price of the Series A shares plus any accrued and unpaid dividends. Any remaining funds available for distribution will be distributed pro rata among the holders of the common stock and the Series A shares assuming conversion of the Series A shares. |
| · | The holders of the Series A shares are entitled to the number of votes equal to the number of whole shares of common stock into which the Series A shares are convertible. The Series A shares vote together with the holders of the common stock, except as provided by law. In addition, so long as the principal or accrued interest on any DMRJ Group loan is outstanding, we are prohibited from taking the following actions without the separate consent of persons owning a majority of the Series A preferred shares: |
| o | Amending our Articles of Incorporation or Bylaws, or the articles of incorporation or bylaws of our subsidiary; |
| o | Entering into another business; |
| o | Adopting a new equity compensation plan or amend our current plan; |
| o | Redeeming, retiring or acquiring our own securities; |
| o | Entering into any merger transaction, selling, licensing or transferring any of our assets, or pledging or granting a security interest in our assets; |
| o | Entering into any agreement or arrangement for the purchase of capital stock or a substantial portion of the assets of another entity or any type of joint venture or strategic alliance; |
| o | Declaring or paying any dividends on our equity securities, except the Series A shares; |
| o | Issuing any debt or equity securities, except in certain limited circumstances; |
| o | Entering into any insider transactions, except for transactions in the normal course of our business, the payment of customary salaries or other standard employee benefit programs available to all employees; |
| o | Creating any subsidiaries; |
| o | Dissolving, liquidating, or reorganizing the Company; |
| o | Creating any new indebtedness in excess of $1,000,000 other than trade payables and the indebtedness created under the DMRJ Group Investment Agreement; |
| o | Making any loans or advances to any person other than ordinary business expenses not to exceed in the aggregate $15,000; |
| o | Granting any registration, preemptive, anti-dilution, or redemption or repurchase rights with respect to any securities; and |
| o | Borrowing against, pledging, assigning, modifying, cancelling or surrendering any key man insurance policy maintained by or for us. |
| · | The Series A shares are convertible into shares of our common stock at any time. We have the right to mandate conversion if our stock has traded on the OTC Bulletin Board or on an exchange at a volume weighted average price per share of not less than $1.40 for each day over a period of 30 consecutive days with average trading volume per day of not less than 50,000 shares. ��The conversion ratio of the Series A Convertible Preferred Stock is determined according to a formula computed by dividing the stated value of the preferred stock, which is designated as $0.70 per share, by the conversion price of the preferred stock, which is $0.70 per share, subject to the following limitations and conditions: |
| o | If we issue or sell shares of our common stock, or grant options or other convertible securities which are exercisable or convertible into our common shares, at prices less than the conversion price of our Series A shares, then the conversion price of the Series A shares will be reduced to this lower sale or conversion price. |
| o | The Series A shares may not be converted into common shares if the beneficial owner of such shares would thereafter exceed 4.9% of the outstanding common shares. |
| · | We have the right to create and issue additional classes or series of preferred shares so long as the new class or series does not have preferences, limitations, or relative rights which are superior or senior to the preferences, limitations and relative rights granted the holders of the Series A shares. |
| · | The holders of the Series A shares have preemptive rights to purchase shares of our common stock in any offering by us. |
| · | There are no redemption or sinking fund provisions applicable to the Series A shares. |
PLAN OF DISTRIBUTION
We are registering outstanding shares of our common stock to permit the resale of such shares of common stock by the selling stockholders, from time to time after the date of this prospectus. We have agreed to maintain the effectiveness of the registration statement of which this prospectus is a part for DMRJ Group until the earlier of (i) the date on which all of the shares included for it in the registration statement may be sold pursuant to Rule 144 without volume restrictions or public information requirements and any and all restrictive legends have been removed from the shares and (ii) when all of the shares have been disposed of pursuant to the registration statement. For all other selling stockholders we have agreed to maintain the effectiveness of the registration statement for a period not to exceed two years. We will not receive any of the proceeds from the sale by the selling stockholders of such shares of our common stock. We will bear all fees and expenses incident to our obligation to register these shares of common stock.
The selling shareholders will set a price of $0.70 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, in any one or more of the following methods:
| · | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; |
| · | in the over-the-counter market; |
| · | in transactions otherwise than on these exchanges or systems or in the over-the-counter market; |
| · | through the writing of options, whether such options are listed on an options exchange or otherwise; |
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | sales pursuant to Rule 144; |
| · | broker-dealers which have agreed with the selling security holders to sell a specified number of such shares at a stipulated price per share; |
| · | a combination of any such methods of sale; and |
| · | any other method permitted pursuant to applicable law. |
If the selling stockholders effect such transactions by selling shares of our common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of our common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of our common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. To the knowledge of management, no selling shareholder has taken, or plans to take, a short position in our stock prior to the effectiveness of the registration statement of which this prospectus is a part. The selling stockholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of our common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights provisions contained in the registration rights agreements between us and the selling stockholders; provided, however, that a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling stockholders specifically for use in this prospectus, in accordance with the related registration rights provisions, or we may be entitled to contribution.
The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of the shares, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of the shares by the selling stockholders. If we are notified by any one or more selling stockholders that any material arrangement has been entered into with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file, or cause to be filed, a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction.
Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
The selling stockholders are not restricted as to the price or prices at which they may sell their shares once our common stock is quoted on the OTC Bulletin Board. Sales of the shares may have an adverse effect on the market price of the common stock.
The validity of the shares of common stock offered under this prospectus is being passed upon for us by Ronald N. Vance, Attorney at Law. Mr. Vance beneficially owns 15,000 shares of our common stock.
EXPERTS
Our financial statements for the years ended December 31, 2009 and 2008, appearing in this prospectus have been audited by Child, Van Wagoner & Bradshaw, PLLC, and are included in reliance upon such reports given upon the authority of Child, Van Wagoner & Bradshaw, PLLC, as experts in accounting and auditing.
Certain information with respect to the metallurgy of our Yellow Hammer claims incorporated in this prospectus is derived from a report by McClelland Laboratories, Inc. and has been incorporated in this prospectus upon the authority of McClelland Laboratories, Inc. as an expert with respect to the matters covered by the report.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, (SEC File No. 333-_________) relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of Desert Hawk Gold Corp., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
Upon the effective date of the registration statement of which this prospectus is a part, we will be required to file reports and other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our annual report. You may read and copy any materials we file with the Securities and Exchange Commission at the public reference room of the Commission at 100 F Street, NE., Washington, DC 20549, between the hours of 10:00 a.m. and 3:00 p.m., except federal holidays and official closings, at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our SEC filings are also available to you on the Internet website for the Securities and Exchange Commission at http://www.sec.gov.
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
Unaudited Consolidated Financial Statements
June 30, 2010 and 2009
DESERT HAWK GOLD CORP |
(formerly Lucky Joe Mining Company) |
(An Exploration Stage Company) |
CONSOLIDATED BALANCE SHEETS |
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash | | $ | 256,570 | | | $ | 888,434 | |
| Deposits | | | 500 | | | | 500 | |
| Accounts receivable | | | 21 | | | | 12,334 | |
| Prepaid expense | | | 2,560 | | | | - | |
| Note receivable | | | - | | | | - | |
| Other receivable - Bouyan stock | | | - | | | | 40,000 | |
| Marketable securities | | | 29,400 | | | | - | |
| Total Current Assets | | | 289,051 | | | | 941,268 | |
| | | | | | | | | |
| MINERAL LEASE | | | 775,000 | | | | 775,000 | |
| | | | | | | | | |
| PROPERTY AND EQUIPMENT, net of depreciation of $9,585 and | | | | | | | | |
| $7,104, respectively | | | 79,297 | | | | 16,607 | |
| | | | | | | | | |
| OTHER ASSETS | | | | | | | | |
| Reclamation bonds | | | 80,302 | | | | 80,302 | |
| Mining claims | | | 2,485 | | | | 2,485 | |
| Water rights | | | 250 | | | | - | |
| Mill renovation | | | 27,818 | | | | - | |
| Total Other Assets | | | 110,855 | | | | 82,787 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 1,254,203 | | | $ | 1,815,662 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 60,822 | | | $ | 30,681 | |
| Accrued liabilities - officer wages | | | 138,759 | | | | 141,259 | |
| Accrued expense | | | - | | | | 1,079 | |
| Accrued interest | | | 6,750 | | | | 10,500 | |
| Accrued payroll | | | 5,622 | | | | 8,349 | |
| Payroll liabilities | | | 1,726 | | | | 6,721 | |
| Total Current Liabilities | | | 213,679 | | | | 198,589 | |
| | | | | | | | | |
| LONG-TERM DEBT CONVERTIBLE DEBT, net of debt discount | | | | | | | | |
| of $168,194 and $201,833 respectively | | | 431,806 | | | | 398,167 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 645,485 | | | | 596,756 | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY(DEFICIT) | | | | | | | | |
| Common stock, $0.001 par value, 100,000,000 shares authorized; | | | | | | | | |
| 7,074,744 and 7,071,044 shares issued and outstanding, | | | | | | | | |
| respectively | | | 7,075 | | | | 7,071 | |
| Additional paid-in capital | | | 2,717,206 | | | | 2,714,620 | |
| Accumulated other comprehensive income | | | 1,400 | | | | - | |
| Accumulated deficit prior to exploration stage | | | (1,016,591 | ) | | | (1,016,591 | ) |
| Accumulated deficit during exploration stage | | | (1,100,372 | ) | | | (486,194 | ) |
| Total Stockholders' Equity (Deficit) | | | 608,718 | | | | 1,218,906 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | $ | 1,254,203 | | | $ | 1,815,662 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
(formerly Lucky Joe Mining Company) |
(An Exploration Stage Company) |
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
| | | | | | | | | | | | | | | Period from | |
| | | | | | | | | May 1, 2009 | |
| | | Three Months | | | Three Months | | | Six Months | | | Six Months | | | (Inception of | |
| | | Ended | | | Ended | | | Ended | | | Ended | | | Exploration Stage) | |
| | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | to June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2010 | |
| | | | | | | | | | | | | | | | |
| REVENUES | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Consulting | | | 45,002 | | | | 20,420 | | | | 69,320 | | | | 22,420 | | | | 156,412 | |
| Officers and directors fees | | | 37,615 | | | | 15,000 | | | | 69,665 | | | | 30,000 | | | | 136,847 | |
| Exploration expense | | | 32,843 | | | | 9,240 | | | | 100,051 | | | | 10,440 | | | | 219,175 | |
| Legal and professional | | | 48,994 | | | | (5,160 | ) | | | 99,460 | | | | (4,128 | ) | | | 172,004 | |
| General and administrative | | | 82,600 | | | | 11,417 | | | | 165,372 | | | | 16,925 | | | | 310,472 | |
| Depreciation | | | 2,120 | | | | - | | | | 2,481 | | | | - | | | | 9,585 | |
| Total Expenses | | | 249,174 | | | | 50,917 | | | | 506,349 | | | | 75,657 | | | | 1,004,495 | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING LOSS | | | (249,174 | ) | | | (50,917 | ) | | | (506,349 | ) | | | (75,657 | ) | | | (1,004,495 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | - | | | | - | | | | - | | | | - | | | | 40,000 | |
| Other income | | | - | | | | - | | | | 3,962 | | | | - | | | | 16,296 | |
| Gain (loss) on investment sales | | | (129 | ) | | | 5,896 | | | | (129 | ) | | | 5,896 | | | | 3,546 | |
| Financing expense | | | - | | | | - | | | | (33,000 | ) | | | - | | | | (58,000 | ) |
| Interest expense | | | (39,343 | ) | | | (102 | ) | | | (78,662 | ) | | | (102 | ) | | | (97,719 | ) |
| Total Other Income (Expense) | | | (39,472 | ) | | | 5,794 | | | | (107,829 | ) | | | 5,794 | | | | (95,877 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (288,646 | ) | | | (45,123 | ) | | | (614,178 | ) | | | (69,863 | ) | | | (1,100,372 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME TAXES | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| NET LOSS | | | (288,646 | ) | | | (45,123 | ) | | | (614,178 | ) | | | (69,863 | ) | | | (1,100,372 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain on available for sale securities | | | 1,400 | | | | (8,350 | ) | | | 1,400 | | | | 1,650 | | | | 1,400 | |
| | | | | | | | | | | | | | | | | | | | | |
| COMPREHENSIVE LOSS | | $ | (287,246 | ) | | $ | (53,473 | ) | | $ | (612,778 | ) | | $ | (68,213 | ) | | $ | (1,098,972 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| BASIC AND DILUTED NET LOSS PER SHARE | | $ | (0.04 | ) | | $ | (0.02 | ) | | $ | (0.09 | ) | | $ | (0.04 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF | | | | | | | | | | | | | | | | | | | | |
| COMMON SHARES OUTSTANDING | | | 7,074,744 | | | | 1,850,687 | | | | 7,074,458 | | | | 1,850,687 | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
(formerly Lucky Joe Mining Company) |
(An Exploration Stage Company) |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | Period from | |
| | | | | | May 1, 2009 | |
| | | | | | | | | (Inception of | |
| | | Period Ended | | | Period Ended | | | Exploration Stage) | |
| | | June 30, | | | June 30, | | | to June 30, | |
| | | 2010 | | | 2009 | | | 2010 | |
| | | | | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
| Net loss | | $ | (614,178 | ) | | $ | (69,863 | ) | | $ | (1,100,372 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 2,481 | | | | - | | | | 9,585 | |
| Common stock issued for services | | | - | | | | - | | | | 35,000 | |
| Cancelled common stock issued for services | | | - | | | | (42,397 | ) | | | | |
| Accrued interest income | | | - | | | | - | | | | (40,000 | ) |
| Loss (gain) on sale of securities | | | 129 | | | | (5,896 | ) | | | (3,546 | ) |
| Amortization of debt discount | | | 33,639 | | | | - | | | | 41,806 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Prepaid expenses | | | (2,560 | ) | | | 32,397 | | | | (2,560 | ) |
| Deposits | | | - | | | | - | | | | (500 | ) |
| Accounts receivable | | | 12,313 | | | | - | | | | (21 | ) |
| Accrued liabilities - officer wages | | | (2,500 | ) | | | - | | | | (33,191 | ) |
| Accrued payroll | | | (2,727 | ) | | | (15,541 | ) | | | (2,727 | ) |
| Accounts payable | | | 30,141 | | | | 2,946 | | | | 57,648 | |
| Accrued expenses | | | (1,079 | ) | | | - | | | | 15,070 | |
| Accrued interest | | | (3,750 | ) | | | - | | | | 6,750 | |
| Payroll liability | | | (4,995 | ) | | | - | | | | (4,995 | ) |
| Net cash used by operating activities | | | (553,086 | ) | | | (98,354 | ) | | | (1,022,053 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Purchase of fixed assets | | | (65,171 | ) | | | - | | | | (88,882 | ) |
| Purchase of mineral lease | | | - | | | | - | | | | (250,000 | ) |
| Mill renovation | | | (27,818 | ) | | | - | | | | (27,818 | ) |
| Reclamation bond | | | - | | | | - | | | | (37,500 | ) |
| Purchase of water rights | | | (250 | ) | | | - | | | | (250 | ) |
| Note receivable | | | - | | | | 12,500 | | | | 27,500 | |
| Proceeds from marketable securities | | | 11,871 | | | | 2,596 | | | | 21,926 | |
| Net cash provided (used) by investing activities | | | (81,368 | ) | | | 15,096 | | | | (355,024 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Proceeds from notes payable | | | - | | | | - | | | | 600,000 | |
| Proceeds from sale of common stock | | | 2,590 | | | | 393,500 | | | | 1,008,000 | |
| Net cash provided by financing activities | | | 2,590 | | | | 393,500 | | | | 1,608,000 | |
| | | | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | (631,864 | ) | | | 310,242 | | | | 230,923 | |
| | | | | | | | | | | | | |
| CASH, BEGINNING OF PERIOD | | | 888,434 | | | | 53,693 | | | | 25,647 | |
| | | | | | | | | | | | | |
| CASH, END OF PERIOD | | $ | 256,570 | | | $ | 363,935 | | | $ | 256,570 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
| Interest paid | | $ | 48,750 | | | $ | - | | | $ | 56,250 | |
| Income taxes paid | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Common stock cancelled for prepaid expense | | $ | - | | | $ | - | | | $ | 32,397 | |
| Common stock issued for mineral lease | | $ | - | | | $ | - | | | $ | 525,000 | |
| Common stock issued for reclamation bond | | $ | - | | | $ | - | | | $ | 37,500 | |
| Treasury stock cancelled | | $ | - | | | $ | - | | | $ | 10,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Desert Hawk Gold Corp. (the “Company”) was incorporated on November 5, 1957 in the State of Idaho as Lucky Joe Mining Company. On July 17, 2008 the Company merged with its wholly-owned subsidiary, Lucky Joe Mining Company, a Nevada corporation, for the sole purpose of effecting a change in domicile from the State of Idaho to the State of Nevada. Lucky Joe Mining Company (Nevada) was the continuing and surviving corporation, each outstanding share of Lucky Joe Mining Company (Idaho) was converted into one outstanding share of Lucky Joe Mining Company (Nevada). On April 3, 2009, the Company filed a Certificate of Amendment with the State of Nevada changing the name of the Company to Desert Hawk Gold Corp.
The Company was originally incorporated to pursue the mining business through the acquisition of prospective mining claims in the Wallace and Kellogg mining districts of Northern Idaho. The Company never successfully generated any revenue, or joint ventures from any of the activities it pursued and abandoned the mining business in 1995 as a viable business model when the commodity prices cycled downward. Until it recommenced its mining activities in 2009, the Company was dormant. The Company is considered an exploration stage company and its financial statements are presented in a manner similar to a development stage company as defined in ASC Topic 915. The Company entered the exploration stage on May 1, 2009.
On December 31, 2009 the Company acquired all of the outstanding stock of Blue Fin Capital, Inc. (“Blue Fin”), a Utah corporation owning mining claims in Arizona. The Company issued a total of 2,713,636 shares of its common stock to the shareholders of Blue Fin for all of the outstanding shares of Blue Fin. Blue Fin was acquired from a related party, so the acquisition was recorded at the historical cost of Blue Fin. Blue Fin became a wholly-owned subsidiary of the Company and all inter-company accounts have been eliminated.
These unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2009. In the opinion of management, these unaudited interim financial statements include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the six month period ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
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 accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This Update amends to Subtopic 855-10, Subsequent Events – Overall, to require entities to evaluate subsequent events through the date that the financial statements are issued.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820). This Update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, that require new disclosures and clarify existing disclosures. The amendments in this Update are effective for interim and annual periods beginning after December 15, 2010.
Concentration of Credit Risk
The Company maintains its cash in two commercial accounts at two major financial institutions. The financial institutions are considered creditworthy and have not experienced any losses on their deposits. At June 30, 2010 and June 30, 2009 the Company’s cash balances did not exceed Federal Deposit Insurance Corporation (FDIC) limits.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by FASB ASC 825-10-50, include cash, receivables, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at June 30, 2010.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company measures its investments at fair value on a recurring basis.
Marketable Securities
The Company accounts for marketable securities as required by ASC Topic 320 Investments – Debt & Equity. At acquisition, an entity is required to classify debt securities and equity securities into one of the following three categories:
Held to Maturity – the positive intent and ability to hold to maturity. Amounts are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts.
Trading Securities – bought principally for purpose of selling them in the near term. Amounts are reported at fair value, with unrealized gains and losses included in earnings.
Available for Sale – not classified in one of the above categories. Amounts are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately as a component of stockholders’ equity.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to seven years. See Note 7.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to ASC Topic 740-10-25 Income Taxes – Recognition. Under the approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by ASC Topic 740-10-25-5 to allow recognition of such an asset.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
Significant components of the deferred tax assets for the years ended June 30, 2010 and December 31, 2009 are as follows:
| | | June 30, 2010 | | | December 31, 2009 | |
| Net operating loss carryforward | | $ | 2,116,963 | | | $ | 1,502,785 | |
| Deferred tax asset | | | 719,767 | | | | 510,947 | |
| Deferred tax asset valuation allowance | | $ | (719,767 | ) | | $ | (510,947 | ) |
At June 30, 2010, the Company had net operating loss carryforwards of approximately $2,117,000, which expire in the years 2015 through 2030. The change in the allowance account from June 30, 2010 to December 31, 2009 was $208,820.
Going Concern
As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through June 30, 2010, 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.
An estimated $500,000 is believed necessary to continue operations and increase development through the next fiscal year. The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships. Management intends to seek new capital from equity securities issuances and private lenders to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.
If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.
NOTE 3 – CAPITAL STOCK
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock. All shares have equal voting rights and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 3 – CAPITAL STOCK (Continued)
In February 2010, the Board of Directors and shareholders owning a majority of the outstanding shares of common stock approved amendments to the Company’s Articles of Incorporation. On March 1, 2010, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada. These Amended and Restated Articles decreased the par value of the common shares to $0.001 per share and authorized 10,000,000 preferred shares, par value $0.001 per share. All references to par value have been updated to reflect this change in par value.
Effective April 3, 2009, the Company reverse split the outstanding shares of its common stock at the rate of one share for each 12 shares outstanding (1:12). Unless otherwise designated in these financial statements, all common stock amounts give effect to this reverse split.
During the period ended June 30, 2010, the Company closed its common stock private offering and issued 3,700 shares of common stock at $0.70 per share for a total of $2,590 in cash. The shares offered were sold pursuant to Rule 506 of Regulation D.
NOTE 4 – STOCK PLAN
The Company’s board of directors approved the adoption of the “2008 Stock Option/Stock Issuance Plan” on July 12, 2008, pursuant to which the Company may grant incentive and non-qualified stock options or shares of common stock to employees and consultants, including directors and officers, from time to time. The Plan authorizes the issuance of 3,000,000 shares of the Company’s common stock for grants of shares or the exercise of stock options granted under the Plan. The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until July 12, 2018, whichever is earlier. The Plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of the Company’s assets.
The exercise price of each option is established by the plan administrator. Additionally, the plan administrator will fix the terms of each option, but no option will be granted for a term in excess of ten years. Stock issued under the Plan may be granted for cash or other consideration determined by the plan administrator. Options and stock granted under the Plan may vest immediately or upon terms established by the plan administrator.
There were initially 15,000,000 shares of common stock authorized for non-statutory and incentive stock option and stock grants under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. On April 3, 2009, the outstanding shares of common stock were reverse split at the rate of one-for-twelve, which reduced the number of shares authorized under the Plan to 1,250,000. In February 2010 the Company amended the Plan to increase the number of common shares available from 1,250,000 to 3,000,000.
During the year ended December 31, 2009, the Company granted 50,000 shares under the Plan and during the year ended December 31, 2008, the Company granted 24,999 shares under the Plan. Of the shares granted in 2008, 16,666 were granted for legal and accounting services rendered and 8,333 were granted to a director for accepting appointment to the Board of Directors. The shares granted in 2009 were for mining services. All of the shares are fully vested. No options or shares were granted under the Plan during the six months ended June 30, 2010.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 5 – MINERAL PROPERTIES
The Company holds leasehold interests within the Gold Hill Mining District in Tooele County, Utah, consisting of 419 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and seven Utah state mineral leases located on state trust lands, all covering approximately 33 square miles. All but four of these mining claims and leases were obtained under the terms of the Amended and Restated Lease Agreement effective July 24, 2009, with Clifton Mining Company and Woodman Mining Company as lessors. The four Yellow Hammer patented claims were obtained under the terms of the Amended and Restated Lease Agreement effective July 24, 2009, with the Jeneane C. Moeller Family Trust. The properties are located approximately 190 miles west-southwest of Salt Lake City, Utah, and 56 miles south southeast of Wendover, Utah. The Company intends to concentrate its exploration activities on the four patented Yellow Hammer claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site. Mineral extraction activities on the property will be open-pit and the Company does not anticipate conducting any underground mining activities.
Additionally, the Company, through its wholly owned subsidiary, Blue Fin Capital, Inc., holds eight unpatented mining claims in Yavapai County, Arizona. The Company has no current plans to explore these claims.
There are no proven or probable reserves for any of the claims or leases held by the Company.
Kiewit Project
In January 2010 the Company submitted a notice of intent to commence large mining operations for three surface mines and a heap leach gold operation on the Kiewit unpatented claims. In February 2010 the Company submitted a Plan of Operation to the Bureau of Land Management and the Utah Division of Oil, Gas and Mining for exploratory drilling on the claims.
The Company, through its lease agreement with Clifton Mining, has purchased all data, core samples and related reports from Dumont associated with the aforementioned properties. In addition the Company has access to all data and related information available and held by Clifton Mining. Desert Hawk has made application for a Large Mining Operations Permit to construct a heap leach facility and commence exploration activities on these claims.
Cactus Mill Pilot Plant
Located on the Cactus Mill site are two process facilities, a 150 ton per day mill built by Woodman Mining and operated until the 1980’s. The mill has equipment used to process copper, gold, silver, and tungsten ores from the district. In addition there is a second facility constructed in the 1990’s for custom milling precious metals concentrates. Equipment from both mills will be used to construct a 240 ton per day pilot mill capable of recovering copper, gold, silver and tungsten ores initially extracted from the Yellow Hammer claims. Pursuant to the Company’s lease agreement with Clifton Mining, it has access to Cane Springs, a natural flowing spring approximately 1,000 feet above the Cactus Mill site, as well as the Cane Springs mine shaft located approximately one-quarter mile south of the Cactus Mill property. The Company holds a permit from the Utah Division of Oil Gas and Mining for the pilot plant which allows flotation and gravity concentration. The Company has filed an application to amend its permit to operate the pilot mill to allow construction of a heap leach facility near the mill to process mineralized material from the Yellow Hammer claims.
Yellow Hammer Claims
The Company completed approximately 7,500 feet of drilling on the Yellow Hammer claims in fourth quarter of 2009. Composites were made of several key areas and re-analyzed for gold, silver, copper and tungsten. Metallurgical work is ongoing at independent labs for evaluation. The Company holds a Small Mine Permit from the Utah Division of Oil, Gas and Mining and has posted a reclamation bond of $25,000. This permit stipulates that the Company may conduct exploration or mining operations on these claims so long as such activities are limited to an area within five acres.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 5 – MINERAL PROPERTIES (Continued)
Exploration Expenditures
Exploration expenditures incurred by the Company during the six-month period ended June 30, 2010 and the year ended December 31, 2009 were as follows:
| | | June 30, 2010 | | | December 31, 2009 | |
| | | | | | | | | |
| Assaying | | $ | 1,696 | | | $ | 12,307 | |
| Drilling | | | | | | | 5,527 | |
| Equipment rental | | | 23.216 | | | | 12,298 | |
| Geological consulting fees | | | 57,111 | | | | 27,250 | |
| Maps and miscellaneous | | | 335 | | | | 1,674 | |
| Metallurgy | | | 5,120 | | | | 5,918 | |
| Site costs | | | 4,846 | | | | 44,209 | |
| Transportation | | | 7,727 | | | | 11,141 | |
| | | | | | | | | |
| Exploration expenditures for period | | $ | 100,051 | | | $ | 120,324 | |
NOTE 6 – CONVERTIBLE NOTE PAYABLE
The Company issued two convertible promissory notes for a total of $600,000 on November 18, 2009. The notes bear interest at 15% per annum. Interest only is payable in equal monthly installments of $7,500. The notes are convertible at any time at a rate of $1.50 per share, and are due November 18, 2012 or 36 months from the date of issuance. In addition, the holders of the notes were issued 300,000 bonus shares of the Company’s common stock at a rate of one share for each $2.00 loaned. Also, in the event the Company fails to repay the loan or interest thereon in full on the maturity date, the Company will be required to issue an additional 300,000 shares. As of June 30, 2010, the Company had accrued $63,000 in interest.
NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The useful lives of property, plant and equipment for purposes of computing depreciation are five to seven years. The following is a summary of property, equipment, and accumulated depreciation:
| | | June 30, 2010 | | | December 31, 2009 | |
| Equipment | | $ | 68,568 | | | $ | 23,711 | |
| Furniture and fixtures | | | 798 | | | | - | |
| Vehicles | | | 19,516 | | | | - | |
| Less accumulated depreciation | | | (9,585 | ) | | | (7,104 | ) |
| | | $ | 79,297 | | | $ | 16,607 | |
Depreciation and amortization expense for the period ended June 30, 2010 was $2,481. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 7 – PROPERTY AND EQUIPMENT (Continued)
Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.
NOTE 8 – MARKETABLE SECURITIES
In March 2010, the Company received 20,000 shares of restricted common stock of Boyuan Construction Company. These shares were valued at $40,000 and had been recorded as a receivable at December 31, 2009 for this same value. During the period ended June 30, 2010, the Company sold 5,000 of these shares for gross proceeds of $10,277, with selling commissions and fees of $340, for net proceeds to the Company of $9,937.
NOTE 9 – COMMITMENTS
During the year ended December 31, 2009 the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the leasing of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah. In June 2010 the parties entered into an Amended and Restated Lease Agreement effective as of the date of the original Joint Venture Agreement. The Amended and Restated Lease Agreement restated and replaced the original Joint Venture Agreement. Under the restated agreements Family Trust granted the Company exclusive leasehold interests in the mining claims covered by the original agreements. Pursuant to the original agreement, Moeller Family Trust received 250,000 shares of the Company’s restricted common stock. Under the terms of the amended agreement, the Company will be required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable. Additionally, if the Company does not place the Yellow Hammer property into commercial production within a three year period it will be required to make annual payments to the Trust of $50,000.
Also during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the leasing of their property interests in the Gold Hill Mining District of Utah. In June 2010 the parties entered into an Amended and Restated Lease and Sublease Agreement effective as of the date of the original Joint Venture Agreement. The Amended and Restated Lease and Sublease Agreement restated and replaced the original Joint Venture Agreement. Under the restated agreements Clifton Mining and Woodman Mining granted the Company exclusive leasehold interests in the mining claims covered by the original agreements. Pursuant to the original agreement, Clifton received 500,000 shares of the Company’s restricted stock. Under the terms of the amended agreement, the Company will be required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable. The Company will also be required to pay a 6% net smelter return on any production from the Kiewit gold property. Additionally, if the Company does not place the Kiewit, Clifton Shears/smelter tunnel deposit, and the Cane Springs deposit into commercial production within a three year period, it will be required to make annual payments to Clifton in the amount of $50,000 per location.
In September 2009, the Company acquired all of the rights and interests of Clifton Mining in a $38,000 reclamation contract and a $3,777 cash surety deposit with the State of Utah Division of Oil, Gas and Mining for the property covered by the joint venture. As consideration for Clifton Mining selling its interest in the reclamation contract and surety deposit, the Company issued 60,824 shares to Clifton Mining. For a period of two years the Company has the right to repurchase the shares for $48,000, or during the 180-day period after this two year period, Clifton Mining will have the option to put the shares to the Company for $48,000.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 9 – COMMITMENTS (Continued)
The amended and restated agreements with Clifton Mining Company and Woodman Mining Company and with the Moeller Family Trust are effective as of the date of the original agreements and the term of the restated agreements is for 20 years from the date of the original agreements. The restated agreements also permit the Company to mortgage or pledge the leasehold interests acquired under the agreements for the purpose of financing exploration, development, and mining operations on the properties. The leasing parties also agreed to be responsible for any liability arising under certain potential encumbrances to the mining claims and to indemnify the Company and its affiliates against the loss of leasehold title or other actual losses or expenses from the potential encumbrances. All other material terms of the original agreements are preserved in the restated agreements.
NOTE 10 – SUBSEQUENT EVENTS
DMRJ Group Funding
On July 14, 2010, the Company entered into an Investment Agreement with DMRJ Group I, LLC, a Delaware limited liability company. Under the terms of the agreement, DMRJ Group has committed to loan the Company up to $6,500,000 under certain terms and conditions. Each loan advance made by DMRJ Group is evidenced by a promissory note due not later than July 14, 2012. These loan advances can only be used by the Company to pay transaction fees and expenses incurred in connection with the loan transaction, to purchase certain mining equipment, and as working capital to advance our Yellow Hammer and Kiewit mining activities. The maximum amounts allocable to the Yellow Hammer and Kiewit projects are $2,500,000 and $2,750,000, respectively, and are subject to meeting certain milestones on the projects. The last two advances of $500,000 each with respect to the Yellow Hammer project are conditioned upon the Company’s ability to commence the mining of copper from the project and production of at least 400,000 pounds of copper concentrate from our ore processing operations at the Cactus Mill site. Advances for operations on the Kiewit project are conditioned upon the Company’s ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and the timely payment of the initial Yellow Hammer advances for the month of February 2011. The Company has requested and received two loan advances from DMRJ Group for $500,000 each, plus $75,000 each in prepaid interest paid to DMRJ Group.
Each advance amount bears interest of 15% per annum from the date of borrowing. The Company is required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note. This prepayment of interest is nonrefundable even if the Company prepays the advance. Following this one-year period interest on the advance is payable monthly until the advance is repaid in full. In addition, at the time the Company repays or prepays the advance, it is required to pay an additional amount equal to 20% of the principal amount being repaid or prepaid. Upon an event of default, the interest rate on the outstanding principal amount increases to 25%.
Loan advances made for the Yellow Hammer and Kiewit projects are subject to mandatory prepayments by the Company. Yellow Hammer advances must be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month following February 2011 and each month thereafter through September 2011. Kiewit advances must be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.
Pursuant to a Security Agreement dated July 14, 2010, the Company has secured repayment of any advances made by DMRJ Group with all of its assets, including its shares of Blue Fin Capital, Inc., the Company’s wholly owned subsidiary, which shares have been pledged as collateral for the advances pursuant to a Pledge Agreement dated July 14, 2010. As the secured party, DMRJ Group is appointed as attorney in fact to foreclose on and deal with the Company’s assets in the event of default.
DESERT HAWK GOLD CORP.
(FORMERLY LUCKY JOE MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
NOTE 10 – SUBSEQUENT EVENTS (Continued)
As additional consideration for DMRJ Group entering into the Investment Agreement, the Company issued 958,033 shares of its Series A Preferred Stock to the lender and entered into a Registration Rights Agreement dated July 14, 2010, to register, either upon demand or by piggyback, the resale of the common shares issuable upon conversion of the preferred stock. These preferred shares are convertible into shares of the Company’s common stock at the rate of one common share for each preferred share converted, subject to adjustment in the event the Company issues common shares or instruments exercisable or convertible into common shares at a price less than $0.70 per share, or if the Company effects a reverse or forward split of its outstanding shares or a reclassification of our common stock. In connection with the loan transaction, two of the Company’s prior lenders, each of whom had loaned $300,000 to the Company on November 18, 2009, agreed to subordinate their debt to DMRJ Group. In consideration for their agreement to subordinate their loans, the Company reduced the conversion price of the loans from $1.50 to $0.70 per share. All other material terms of the loans remain unchanged. On July 14, 2010, the Company issued amended and restated promissory notes to the lenders reflecting the reduced conversion price and acknowledging the subordination to the DMRJ Group financing.
Preferred Stock
In July 2010 the Company filed a Certificate of Designations with the State of Nevada to create 958,033 shares of Series A Preferred Stock. The Series A Preferred Shares have voting rights with the common stock equal to the conversion value of the preferred shares into common shares.
Mining Claims
In August 2010 the Company paid the maintenance fees and other costs of maintaining the mining claims and leases held by it. As a result of further evaluation, the company allowed certain of the claims and leases to lapse back to Clifton Mining. The Company has retained 334 unpatented mining claims, including the unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands.
Pilot Mill
In September the Company completed its rebuild of the pilot mill on the Cactus Mill site. Testing of the pilot plan is scheduled for September and commencement of processing activities is scheduled to begin in fourth quarter 2010.
Stock Issuances
In July 2010 the Company issued 500,000 shares of its common stock as bonuses and for services, including 400,000 shares to a director, under the Company’s 2008 Stock Option/Stock Issuance Plan. In addition, in September 2010, the Company issued 11,667 of its common shares as bonuses under the Company’s 2008 Stock Option/Stock Issuance Plan.
Employment and Consulting Agreements
In September 2010 the Company entered into employment agreements with its Chief Executive Officer and its President and entered into a consulting agreement with one of its directors. Each agreement is for an initial term of four years and provides for a base salary or fees of $120,000 per year.
Marketable Securities
Subsequent to the six-month period ended June 30, 2010, the Company sold 4,800 shares of restricted common stock of Boyuan Construction Company for gross proceeds of $9,696, with selling commissions and fees of $343, for net proceeds to the Company of $9,353.
The Company has evaluated subsequent events from the balance sheet date, June 30, 2010, through the date these financial statements were issued and has determined that there are no additional events that would require disclosure in these financial statements.
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
December 31, 2009 and 2008
| Salt Lake Office:
5296 South Commerce Drive, Suite 300
Salt Lake City, Utah 84107-5370
Telephone: (801)281-4700
| Kaysville Office:
1284 Flint Meadow Drive, Suite D
Kaysville, Utah 84037-9590
Telephone: (801)927-1337
|
Hong Kong Office:
Max Share Centre, 373 King’s Road
North Point, Hong Kong
Telephone: 852-21-555-333
|
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
Audited Consolidated Financial Statements
For the Years Ended
December 31, 2009 and 2008
Table of Contents
| | Page |
Report of Independent Registered Public Accounting Firm | | 2 |
| | |
Consolidated Financial Statements | | |
Consolidated Balance Sheets | | 3 |
Consolidated Statements of Operations | | 4 |
Consolidated Statement of Changes in Stockholders' Equity (Deficit) | | 5 |
Consolidated Statements of Cash Flows | | 6 |
Notes to Audited Consolidated Financial Statements | | 7 - 15 |
| Report of Independent Registered Public Accounting Firm
To the Board of Directors
Desert Hawk Gold Corp.
2719 W. Strong Way
Spokane, WA 99208
We have audited the consolidated balance sheets of Desert Hawk Gold Corp. (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009 and 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered net losses since inception arising from its planned principal operations. These factors raise substantial doubt about the Company’s ability to meet its obligations and to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Since our previous report dated June 21, 2010, it was determined that the consolidated financial statements needed restatement to make corrections as described in Note 10.
/s/ Child, Van Wagoner & Bradshaw, PLLC
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
June 21, 2010, except for Notes 5 and 10, which are dated September 20, 2010.
|
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
Consolidated Balance Sheets
As of December 31, 2009 and 2008
| | | December 31, | | | December 31, | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash | | $ | 888,434 | | | $ | 53,693 | |
| Accounts receivable | | | 12,334 | | | | - | |
| Other receivable - Boyuan stock | | | 40,000 | | | | - | |
| Note receivable | | | - | | | | 40,000 | |
| Deposits | | | 500 | | | | - | |
| Prepaid expense | | | - | | | | 32,398 | |
| Total Current Assets | | | 941,268 | | | | 126,091 | |
| | | | | | | | | |
| Property and equipment, net of depreciation of $7,104 and $0, respectively | | | 16,607 | | | | - | |
| Mineral leases | | | 775,000 | | | | - | |
| | | | | | | | | |
| OTHER ASSETS | | | | | | | | |
| Reclamation bonds | | | 80,302 | | | | - | |
| Mining claims | | | 2,485 | | | | - | |
| Total Other Assets | | | 82,787 | | | | | |
| TOTAL ASSETS | | $ | 1,815,662 | | | $ | 126,091 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 30,681 | | | $ | 4,315 | |
| Accrued expense | | | 16,149 | | | | - | |
| Accrued liabilities - officer wages | | | 141,259 | | | | 172,950 | |
| Accrued interest | | | 10,500 | | | | - | |
| Total Current Liabilities | | | 198,589 | | | | 177,265 | |
| | | | | | | | | |
| Convertible notes payable, net of debt discount of $201,833 and $0, respectively | | | 398,167 | | | | - | |
| TOTAL LIABILITIES | | | 596,756 | | | | 177,265 | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding | | | - | | | | - | |
| Common stock, $0.001 par value, 100,000,000 shares authorized; 7,071,044 and 1,867,348 shares issued and outstanding, respectively | | | 7,071 | | | | 1,867 | |
| Additional paid-in capital | | | 2,714,620 | | | | 931,525 | |
| Accumulated deficit prior to exploration stage | | | (1,016,591 | ) | | | (984,566 | ) |
| Accumulated deficit during exploration stage | | | (486,194 | ) | | | - | |
| Total Stockholders' Equity (Deficit) | | | 1,218,906 | | | | (51,174 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | $ | 1,815,662 | | | $ | 126,091 | |
See accompanying notes to consolidated financial statements.
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
Consolidated Statements of Operations
| | | Year Ended December 31, 2009 | | | Year Ended December 31, 2008 | | | Period from May 1, 2009 (Inception of Exploration Stage) to December 31, 2009 | |
| | | | | | | | | | |
| REVENUES | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | |
| Consulting | | | 90,591 | | | | 12,750 | | | | 87,092 | |
| Officers and directors fees | | | 87,181 | | | | 66,000 | | | | 67,182 | |
| Exploration expense | | | 120,324 | | | | - | | | | 119,124 | |
| Legal and professional | | | 74,847 | | | | 19,126 | | | | 72,544 | |
| General and administrative | | | 153,170 | | | | 27,936 | | | | 145,100 | |
| Depreciation | | | 7,104 | | | | - | | | | 7,104 | |
| Total Expenses | | | 533,217 | | | | 125,812 | | | | 498,146 | |
| | | | | | | | | | | | | |
| OPERATING LOSS | | | (533,217 | ) | | | (125,812 | ) | | | (498,146 | ) |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
| Interest income | | | 40,000 | | | | - | | | | 40,000 | |
| Other income | | | 12,334 | | | | - | | | | 12,334 | |
| Gain on marketable securities | | | 6,721 | | | | - | | | | 3,675 | |
| Financing expense | | | (25,000 | ) | | | - | | | | (25,000 | ) |
| Interest expense | | | (19,057 | ) | | | - | | | | (19,057 | ) |
| Total Other Income (Expense) | | | 14,998 | | | | - | | | | 11,952 | |
| | | | | | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (518,219 | ) | | | (125,812 | ) | | | (486,194 | ) |
| | | | | | | | | | | | | |
| INCOME TAXES | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | |
| NET LOSS | | $ | (518,219 | ) | | $ | (125,812 | ) | | $ | (486,194 | ) |
| | | | | | | | | | | | | |
| BASIC AND DILUTED NET LOSS PER SHARE | | $ | (0.19 | ) | | $ | (0.07 | ) | | | | |
| | | | | | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | 2,781,359 | | | | 1,743,564 | | | | | |
See accompanying notes to consolidated financial statements.
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2009 and 2008
| | | Common Stock | | | Additional Paid- | | | Accumulated Deficit prior to | | | Accumulated Deficit during | | | Total Stockholders' | |
| | | Shares | | | Amount | | | in Capital | | | Exploration Stage | | | Exploration Stage | | | Equity (Deficit) | |
| | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 1,544,433 | | | $ | 1,544 | | | $ | 741,498 | | | $ | (858,754 | ) | | $ | - | | | $ | (115,712 | ) |
| Common stock issued for services at $0.033 per share | | | 16,666 | | | | 17 | | | | 6,583 | | | | - | | | | - | | | | 6,600 | |
| Common stock issued for cash at $0.05 per share | | | 289,583 | | | | 289 | | | | 173,461 | | | | - | | | | - | | | | 173,750 | |
| Common stock issued for services at $0.05 per share | | | 16,666 | | | | 17 | | | | 9,983 | | | | - | | | | - | | | | 10,000 | |
| Net loss for the year | | | - | | | | - | | | | - | | | | (125,812 | ) | | | - | | | | (125,812 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 1,867,348 | | | | 1,867 | | | | 931,525 | | | | (984,566 | ) | | | - | | | | (51,174 | ) |
| Common stock issued for cash at $0.70 per share | | | 1,436,300 | | | | 1,436 | | | | 1,003,974 | | | | - | | | | - | | | | 1,005,410 | |
| Common stock cancelled for services not performed | | | (107,064 | ) | | | (107 | ) | | | (32,291 | ) | | | - | | | | - | | | | (32,398 | ) |
| Common stock issued for mineral leases at $0.70 per share | | | 750,000 | | | | 750 | | | | 524,250 | | | | - | | | | - | | | | 525,000 | |
| Common stock issued to acquire reclamation bond at $0.70 per share | | | 60,824 | | | | 61 | | | | 42,741 | | | | - | | | | - | | | | 42,802 | |
| Common stock issued with convertible notes as financing incentive at $0.70 per share | | | 300,000 | | | | 300 | | | | 209,700 | | | | - | | | | - | | | | 210,000 | |
| Common stock issued for wages at $0.70 per share | | | 50,000 | | | | 50 | | | | 34,950 | | | | - | | | | - | | | | 35,000 | |
| Common stock issued to acquire subsidiary | | | 2,713,636 | | | | 2,714 | | | | (229 | ) | | | - | | | | - | | | | 2,485 | |
| Net loss for the year | | | - | | | | - | | | | - | | | | (32,025 | ) | | | (486,194 | ) | | | (518,219 | ) |
| Balance, December 31, 2009 | | | 7,071,044 | | | $ | 7,071 | | | $ | 2,714,620 | | | $ | (1,016,591 | ) | | $ | (486,194 | ) | | $ | 1,218,906 | |
See accompanying notes to consolidated financial statements.
Desert Hawk Gold Corp.
(Formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
| | | Year Ended December 31, 2009 | | | Year Ended December 31, 2008 | | | Period from May 1, 2009 (Inception of Exploration Stage) to December 31, 2009 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
| Net loss | | $ | (518,219 | ) | | $ | (125,812 | ) | | $ | (486,194 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 7,104 | | | | - | | | | 7,104 | |
| Cancelation of common stock for services not performed | | | (32,397 | ) | | | - | | | | - | |
| Common stock issued for services and wages | | | 35,000 | | | | 16,600 | | | | 35,000 | |
| Accretion of debt discount | | | 8,167 | | | | - | | | | 8,167 | |
| Accrued interest income | | | (40,000 | ) | | | - | | | | (40,000 | ) |
| Gain on sale of marketable securities | | | (6,721 | ) | | | - | | | | (3,675 | ) |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Deposits | | | (500 | ) | | | - | | | | (500 | ) |
| Accounts receivable | | | (12,334 | ) | | | - | | | | (12,334 | ) |
| Prepaid expenses | | | 32,397 | | | | - | | | | - | |
| Accounts payable | | | 26,366 | | | | 4,314 | | | | 27,507 | |
| Accrued liabilities - officer wages | | | (31,691 | ) | | | 22,500 | | | | (30,691 | ) |
| Accrued liabilities | | | 16,149 | | | | - | | | | 16,149 | |
| Accrued interest | | | 10,500 | | | | - | | | | 10,500 | |
| Net cash used by operating activities | | | (506,179 | ) | | | (82,398 | ) | | | (468,967 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Purchase of fixed assets | | | (23,711 | ) | | | - | | | | (23,711 | ) |
| Purchase of mineral leases | | | (250,000 | ) | | | - | | | | (250,000 | ) |
| Reclamation bond | | | (37,500 | ) | | | - | | | | (37,500 | ) |
| Note receivable | | | 40,000 | | | | (40,000 | ) | | | 27,500 | |
| Investment in marketable securities | | | (10,000 | ) | | | - | | | | - | |
| Proceeds from sale of marketable securities | | | 16,721 | | | | - | | | | 10,055 | |
| Net cash provided (used) by investing activities | | | (264,490 | ) | | | (40,000 | ) | | | (273,656 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Proceeds from convertible notes payable | | | 600,000 | | | | - | | | | 600,000 | |
| Proceeds from sale of common stock | | | 1,005,410 | | | | 173,750 | | | | 1,005,410 | |
| Net cash provided by financing activities | | | 1,605,410 | | | | 173,750 | | | | 1,605,410 | |
| | | | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | 834,741 | | | | 51,352 | | | | 862,787 | |
| CASH, BEGINNING OF PERIOD | | | 53,693 | | | | 2,341 | | | | 25,647 | |
| CASH, END OF PERIOD | | $ | 888,434 | | | $ | 53,693 | | | $ | 888,434 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | | | $ | - | |
| Income taxes paid | | $ | - | | | $ | - | | | $ | - | |
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Common stock issued for mineral lease | | $ | 525,000 | | | $ | - | | | $ | 525,000 | |
| Common stock issued as incentive with convertible notes | | $ | 210,000 | | | $ | - | | | $ | 210,000 | |
| Common stock issued for reclamation bond | | $ | 42,802 | | | $ | - | | | $ | 42,802 | |
See accompanying notes to consolidated financial statements.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 1 – DESCRIPTION OF BUSINESS
Desert Hawk Gold Corp was incorporated on November 5, 1957 in the State of Idaho as Lucky Joe Mining Company. On July 17, 2008 the Company merged with its wholly-owned subsidiary, Lucky Joe Mining Company, a Nevada corporation, for the sole purpose of effecting a change in domicile from the State of Idaho to the State of Nevada. Lucky Joe Mining Company (Nevada) was the continuing and surviving corporation, each outstanding share of Lucky Joe Mining Company (Idaho) was converted into one outstanding share of Lucky Joe Mining Company (Nevada). On April 3, 2009, the Company filed a Certificate of Amendment with the State of Nevada changing the name of the Company to Desert Hawk Gold Corp.
The Company was originally incorporated to pursue the Mining business through the acquisition of prospective mining claims in the Wallace and Kellogg mining districts of Northern Idaho. The Company never successfully generated any revenue, or joint ventures from any of the activities it pursued and abandoned the mining business as a viable business model when the commodity prices cycled downward. Until it recommenced its mining activities, the Company was dormant. The Company is considered an exploration stage company and its financial statements are presented in a manner similar to a development stage company as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7. The Company entered the exploration stage on May 1, 2009.
On December 31, 2009 the Company acquired all of the outstanding stock of Blue Fin Capital, Inc. (“Blue Fin”), a Utah corporation owning mining claims in Arizona. The Company issued a total of 2,713,636 shares of its common stock to the shareholders of Blue Fin for all of the outstanding shares of Blue Fin. Blue Fin was acquired from a related party, so the acquisition was recorded at the historical cost of Blue Fin. Blue Fin became a wholly-owned subsidiary of the Company and all inter-company accounts have been eliminated.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
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 accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820). This Update provides amendments to, Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, that require new disclosures and clarify existing disclosures. The amendments in this Update are effective for interim and annual periods beginning after December 15, 2010.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This Update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The amendments in this Update are effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The adoption of this Update will have no material effect on the Company’s financial condition or results of operations.
In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. This update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. The guidance provided in this Update is effective for the first reporting period beginning after issuance. The adoption of this statement will have no material effect on the Company’s financial condition or results of operations
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, which is codified in FASB ASC 105, Generally Accepted Accounting Principles (“ASC 105”). ASC 105 establishes the Codification as the source of authoritative GAAP in the United States (the “GAAP hierarchy”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Once the Codification is in effect, all of its content will carry the same level of authority and the GAAP hierarchy will be modified to include only two levels of GAAP, authoritative and non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted the requirements of ASC 105 in the third quarter of 2009; the adoption had no material effect on the Company’s financial condition or results of operation.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB ASC 810, Consolidation and require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity.
SFAS No. 167 has not yet been codified and in accordance with ASC 105, remains authoritative guidance until such time that it is integrated in the FASB ASC. SFAS No. 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009, early adoption is prohibited. The adoption of this Update will have no material effect on the Company’s financial condition or results of operations.
In June, 2009, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). This Statement removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special-purpose entities.
SFAS No. 166 has not yet been codified and in accordance with ASC 105, remains authoritative guidance until such time that it is integrated in the FASB ASC. SFAS No. 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009 and early adoption is prohibited. The adoption of this statement will have no material effect on the financial statements. The adoption of this statement will have no material effect on the Company’s financial condition or results of operations.
In May, 2009, FASB issued ASC Topic 855 Subsequent Events which establishes principles and requirements for subsequent events. In accordance with the provisions of ASC 855, the Company currently evaluates subsequent events through the date the financial statements are available to be issued. In February 2010, the FASB issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This provides amendments to Subtopic 855-10 concerning when a company is required to evaluate subsequent events. The amendments in this update are effective upon final issuance.
Accounting for Stock Options and Warrants Granted to Employees and Nonemployees
The Company accounts for stock based compensation to employees as required by ASC Topic 718 Compensation-Stock Compensation of the FASB Accounting Standards Codification, and stock based compensation to nonemployees as required by ASC Topic 505-50 Equity-Based Payments to Non-Employees. See Note 4.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Concentration of Credit Risk
The Company maintains its cash in two commercial accounts at two major financial institutions. Although the financial institutions are considered creditworthy and have not experienced any losses on their deposits, at December 31, 2009 and December 31, 2008 the Company’s cash balance exceeded Federal Deposit Insurance Corporation (FDIC) limits by $612,590 and $0 respectively.
Revenue Recognition
Revenue is recognized when all of the following criteria are met: a) the Company has entered into a legally binding agreement with the customer; b) the products or services have been delivered; c) the Company's fee for providing the products and services is fixed and determinable; and d) collection of the Company’s fee is probable. The Company’s policy is to record revenue net of any applicable sales, use, or excise taxes.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing receivables. The Company determines the allowance based on factors such as historical collection experience, customer's current creditworthiness, customer concentration, age of accounts receivable balance and general economic conditions that may affect a customer's ability to pay. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for doubtful accounts are charged to expense. The Company does not have any off-balance sheet credit exposure related to its customers.
Earnings Per Share
Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Common stock equivalents outstanding are 400,000 shares of common stock that the convertible notes can be converted into. However, the diluted earnings per share is not presented because its effect would be anti-dilutive.
Fair Value of Financial Instruments
The Company's financial instruments as defined by FASB ASC 825-10-50, include cash, receivables, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2009.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company measures its investments at fair value on a recurring basis.
Loan Receivable
Loans are carried at the unpaid principal plus accrued interest. Loans considered uncollectible are written-off. Recoveries on loans previously written-off are recorded in income in the period of recovery.
Marketable Securities
The Company accounts for marketable securities as required by ASC Topic 320 Investments – Debt & Equity. At acquisition, an entity shall classify debt securities and equity securities into one of the following three categories:
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Held to Maturity – the positive intent and ability to hold to maturity. Amounts are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts.
Trading Securities – bought principally for purpose of selling them in the near term. Amounts are reported at fair value, with unrealized gains and losses included in earnings.
Available for Sale – not classified in one of the above categories. Amounts are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately as a component of stockholders’ equity.
Mineral Exploration and Development Costs
The Company accounts for mineral exploration and development costs in accordance with ASC Topic 932 Extractive Activities. All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on units of production basis over proven and probable reserves.
Mineral Properties and Leases
The Company accounts for mineral properties in accordance with ASC Topic 930 Extractive Activities-Mining. Costs of acquiring mineral properties and leases are capitalized by project area upon purchase of the associated claims (see Note 5). Mineral properties are periodically assessed for impairment of value and any diminution in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to seven years. See Note 7.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to ASC Topic 740-10-25 Income Taxes – Recognition. Under the approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by ASC Topic 740-10-25-5 to allow recognition of such an asset.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
Significant components of the deferred tax assets for the years ended December 31, 2009 and 2008 are as follows:
| | | December 31, 2009 | | | December 31 2008 | |
| Net operating loss carryforward | | $ | 1,502,785 | | | $ | 984,566 | |
| | | | | | | | | |
| Deferred tax asset | | | 510,947 | | | | 334,072 | |
| Deferred tax asset valuation allowance | | $ | (510,947 | ) | | $ | (334,072 | ) |
At December 31, 2009, the Company has net operating loss carryforwards of approximately $1,503,000, which expire in the years 2015 through 2029. The change in the allowance account from December 31, 2009 to December 31, 2008 was $176,875.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Reverse Stock Split
Effective April 3, 2009, the Company reverse split the outstanding shares of its common stock at the rate of one share for each 12 shares outstanding (1:12). All references in the accompanying financial statements to the number of common shares outstanding and per share amounts have been restated to reflect the reverse stock split.
Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Going Concern
As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through December 31, 2009, 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.
An estimated $500,000 is believed necessary to continue operations and increase development through the next fiscal year. The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships. Management intends to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.
If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.
NOTE 3 - CAPITAL STOCK
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock. All shares have equal voting rights and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
During the year ended December 31, 2008, the Company issued 289,583 shares of its common stock for cash of $173,750, and 33,333 shares of common stock for services valued at $16,600.
During the year ended December 31, 2009, the Company issued 750,000 shares of its common stock for mineral leases valued at $525,000, 60,824 shares of its common stock for reclamation bonds valued at $42,802, 300,000 shares of its common stock as an incentive for investors to enter a convertible note agreement valued at $210,000, 50,000 shares of its common stock for wages valued at $35,000, 2,713,636 shares of its common stock for an investment in a wholly-owned subsidiary valued at $2,485 from related parties. Additionally, in two private placements the Company issued 1,436,300 shares of common stock at $0.70 per share for a total of $1,005,410 in cash. The shares offered were sold pursuant to Rule 506 of Regulation D.
NOTE 4 - STOCK PLAN
The Company’s board of directors approved the adoption of the “2008 Stock Option/Stock Issuance Plan” on July 12, 2008, pursuant to which the Company may grant incentive and non-qualified stock options or shares of common stock to employees and consultants, including directors and officers, from time to time. The Plan authorizes the issuance of 1,250,000 shares of the Company’s common stock for grants of shares or the exercise of stock options granted under the Plan. The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until July 12, 2018, whichever is earlier. The Plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of the Company’s assets.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
The exercise price of each option is established by the plan administrator. Additionally, the plan administrator will fix the terms of each option, but no option will be granted for a term in excess of ten years. Stock issued under the Plan may be granted for cash or other consideration determined by the plan administrator. Options and stock granted under the Plan may vest immediately or upon terms established by the plan administrator.
There were initially 15,000,000 shares of common stock authorized for non-statutory and incentive stock option and stock grants under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. On April 3, 2009, the outstanding shares of common stock were reverse split at the rate of one-for-twelve, which reduced the number of shares authorized under the Plan to 1,250,000.
During the year ended December 31, 2009, the Company granted 50,000 shares under the Plan and during the year ended December 31, 2008, the Company granted 24,999 shares under the Plan. Of the shares granted in 2008, 16,666 were granted for legal and accounting services rendered and 8,333 where granted to a director for accepting appointment to the Board of Directors. The shares granted in 2009 were for mining services. All of the shares are fully vested.
NOTE 5 – MINERAL PROPERTIES
The Company holds operating interests within the Gold Hill Mining District in Tooele County, Utah, consisting of 419 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and seven Utah state mineral leases located on state trust lands, all covering approximately 33 square miles. Rights to all but four of these mining claims and leases were obtained under the terms of the Joint Venture Agreement dated July 24, 2009, with Clifton Mining Company and Woodman Mining Company as lessors. Rights to the four Yellow Hammer patented claims were obtained under the terms of the Joint Venture Agreement dated July 24, 2009, with the Jeneane C. Moeller Family Trust. The properties are located approximately 190 miles west-southwest of Salt Lake City, Utah, and 56 miles south southeast of Wendover, Utah. The Company intends to concentrate its exploration activities on the four patented Yellow Hammer claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site. Mineral extraction activities on the property will be open-pit and the Company does not anticipate conducting any underground mining activities.
Additionally, the Company, through its wholly owned subsidiary, Blue Fin Capital, Inc., holds eight unpatented mining claims in Yavapai County, Arizona. The Company has no current plans to explore these claims.
There are no proven or probable reserves for any of the claims or leases held by the Company.
The Company intends to commence large mining operations for three surface mines and a heap leach gold operation on the Kiewit unpatented claims.
The Company, through its joint venture agreement with Clifton Mining, has access to all data, core samples and related reports associated with the aforementioned properties. Desert Hawk has made application for a Large Mining Operations Permit to construct a heap leach facility and commence exploration activities on these claims.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 5 – MINERAL PROPERTIES (Continued)
Cactus Mill Pilot Plant
Located on the Cactus Mill site are two process facilities, a 150 ton per day mill built by Woodman Mining and operated until the 1980s. The mill has equipment used to process copper, gold, silver, and tungsten ores from the district. In addition there is a second facility constructed in the 1990s for custom milling precious metals concentrates. Equipment from both mills will be used to construct a 240 ton per day pilot mill capable of recovering copper, gold, silver and tungsten mineralized material initially extracted from the Yellow Hammer claims. Pursuant to the Company’s joint venture agreement with Clifton Mining, it has access to Cane Springs, a natural flowing spring approximately 1,000 feet southwest of the Cactus Mill site, as well as the Cane Springs mine shaft located approximately one-quarter mile south of the Cactus Mill property. The Company holds a permit from the Utah Division of Oil Gas and Mining for the pilot plant which allows flotation and gravity concentration. The Company has filed an application to amend its permit to operate the pilot mill to allow construction of a heap leach facility near the mill to process mineralized material from the Yellow Hammer claims.
Yellow Hammer Claims
The Company completed approximately 6,000 feet of drilling on the Yellow Hammer claims in fourth quarter of 2009. Composites were made of several key areas and re-analyzed for gold, silver, copper and tungsten. Metallurgical work is ongoing at independent labs for evaluation. The Company holds a Small Mining Operations Permit from the Utah Division of Oil, Gas and Mining and has posted a reclamation bond of $25,300. This permit stipulates that the Company may conduct exploration or mining operations on these claims so long as such activities are limited to an area within five acres.
Exploration Expenditures
Exploration expenditures incurred by the Company during the years ended December 31, 2009 and 2008 were as follows:
| | | 2009 | | | 2008 | |
| | | | | | | |
| Assaying | | $ | 12,307 | | | $ | - | |
| Drilling | | | 5,527 | | | | - | |
| Equipment rental | | | 12,298 | | | | - | |
| Geological consulting fees | | | 27,250 | | | | - | |
| Maps and miscellaneous | | | 1,674 | | | | - | |
| Metallurgy | | | 5,918 | | | | - | |
| Site costs | | | 44,209 | | | | - | |
| Transportation | | | 11,141 | | | | - | |
| | | | | | | | | |
| Exploration expenditures for year | | $ | 120,324 | | | $ | - | |
NOTE 6 – CONVERTIBLE NOTE PAYABLE
The Company issued two convertible promissory notes, for a total of $600,000 on November 18, 2009. The notes bear interest at 15% per annum. Interest only is payable in equal monthly installments of $7,500. The notes are convertible at any time at a rate of $1.50 per share, and are due November 18, 2012 or 36 months from the date of issuance. In addition, the holders of the notes were issued 300,000 bonus shares at a rate of one share for each $2.00 loaned. Also, in the event the Company fails to repay the loan or interest thereon in full on the maturity date, the Company will be required to issue an additional 300,000 shares.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The useful lives of property, plant and equipment for purposes of computing depreciation are five to seven years. The following is a summary of property, equipment, and accumulated depreciation:
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 7 - PROPERTY AND EQUIPMENT (Continued)
| | | December 31, 2009 | | | December 31, 2008 | |
| Equipment | | $ | 23,711 | | | $ | - | |
| Less accumulated depreciation | | | (7,104 | ) | | $ | - | |
| | | $ | 16,607 | | | $ | - | |
Depreciation and amortization expense for the year ended December 31, 2009 was $7,104. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.
NOTE 8 – NOTE RECEIVABLE
On October 21, 2008, the Company entered into a Bridge Loan Agreement/ Senior Promissory Note with S3 Investment Company, Inc in the amount of $40,000. The note is due within 30 days of the closing of the Company’s RTP/PIPE transaction. The note carries a guaranteed minimum return of $40,000 in cash and $40,000 in stock. The cash portion of this note was fully repaid during the year ended December 31, 2009.
NOTE 9 – COMMITMENTS
During the year ended December 31, 2009 the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the leasing of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah. Pursuant to the agreement, Moeller Family Trust received 250,000 shares of the Company’s restricted common stock. Under the terms of the Joint Venture agreement, the Company will be required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable. Additionally, if the Company does not place the Yellow Hammer property into commercial production within a three year period it will be required to make annual payments to the Trust of $50,000. The Company is designated as the operator of the property.
Also during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the leasing of their property interests in the Gold Hill Mining District of Utah. Pursuant to the agreement, Clifton received 500,000 shares of the Company’s restricted stock. Under the terms of the Joint Venture agreement, the Company will be required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable. The Company will also be required to pay a 6% net smelter return on any production from the Kiewit gold property. Additionally, if the Company does not place the Kiewit, Clifton Shears/smelter tunnel deposit, and the Cane Springs deposit into commercial production within a three year period, it will be required to make annual payments to Clifton in the amount of $50,000 per location. The Company is designated as the operator of the property.
In September 2009, the Company acquired all of the rights and interests of Clifton Mining in a $38,000 reclamation contract and a $3,777 cash surety deposit with the State of Utah Division of Oil, Gas and Mining for the property covered by the joint venture. As consideration for Clifton Mining selling its interest in the reclamation contract and surety deposit, the Company issued 60,824 shares to Clifton Mining. For a period of two years the Company has the right to repurchase the shares for $48,000, or during the 180-day period after this two year period, Clifton Mining will have the option to put the shares to the Company for $48,000.
Desert Hawk Gold Corp.
(formerly Lucky Joe Mining Company)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 10 - RESTATEMENT
On September 20, 2010, the management of Desert Hawk Gold Corp. concluded that the information provided in Note 5 of the December 31, 2009 financial statements was inappropriate for financial based notes. Management decided to scale back the note, in which the narrative was modified to remove all technical and non finance-based information. There were no changes to the financial statements.
NOTE 11 - SUBSEQUENT EVENTS
In February 2010, the Board of Directors and shareholders owning a majority of the outstanding shares of common stock approved an increase in the number of shares authorized in the Company’s 2008 Stock Option/Stock Issuance Plan to 3,000,000.
Also in February 2010, the Board of Directors and shareholders owning a majority of the outstanding shares of common stock approved amendments to the Company’s Articles of Incorporation. On March 1, 2010, the Company filed Amended and Restated Articles of Incorporation with the State of Nevada. These Amended and Restated Articles decreased the par value of the common shares to $0.001 per share and authorized 10,000,000 preferred shares, par value $0.001 per share. All references to par values have been changed in the consolidated financial statements presented.
In February 2010, the Company entered into a Term Sheet with an investor to provide up to $6,500,000 in loans to the Company. Under the proposed terms of the funding, the credit facility would provide for minimum traunches of $500,000, would bear interest at 15% per annum, and would mature in two years from the closing date of the transaction. At the maturity date the Company would be required to repay 120% of the principal amount borrowed. All funds loaned to the Company would be senior to existing or future debt and would be secured by all assets of the Company. In addition, at closing the Company would issue preferred shares to the investor convertible into common stock of the Company representing 9.99% of the equity of the Company on a fully diluted basis at closing. The preferred shares would be entitled to preemptive rights, would be entitled to full ratchet anti-dilution protection and would be convertible at the option of the holder. The Company is responsible for all legal and due diligence costs incurred by the investor.
On March 31, 2010, the company received 20,000 shares of stock valued at $40,000 in payment of its outstanding Loan Receivable. See Note 8.
In June 2010, the Company entered into amended and restated agreements with Clifton Mining Company and Woodman Mining Company and with the Moeller Family Trust. The Amended and Restated and Sublease Agreements restate and replace the prior Mining Venture Agreements between the Company and these parties. Under the restated agreements Clifton Mining and Woodman Mining and Moeller Family Trust granted the Company exclusive leasehold interests in the mining claims covered by the original agreements. The restated agreements are effective as of the date of the original agreements and the term of the restated agreements is for 20 years from the date of the original agreements. The restated agreements also permit the Company to mortgage or pledge the leasehold interests acquired under the agreements for the purpose of financing exploration, development, and mining operations on the properties. The leasing parties also agreed to be responsible for any liability arising under certain potential encumbrances to the mining claims and to indemnify the Company and its affiliates against the loss of leasehold title or other actual losses or expenses from the potential encumbrances. All other material terms of the original agreements are preserved in the restated agreements.
The Company has evaluated subsequent events from the balance sheet date, December 31, 2009, through the date these financial statements were issued and has determined that there are no additional events that would require disclosure in these financial statements.
[OUTSIDE BACK COVER]
Desert Hawk Gold Corp.
[A Nevada Corporation]
8,327,071 Shares
Common Stock
PROSPECTUS
DESERT HAWK GOLD CORP.
8921 N. Indian Trail Road, #288
Spokane, WA 99208
Telephone (509) 434-8161
_______________, 2010
Until , 2010, all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all expenses payable by us in connection with the registration of the common stock, other than underwriting discounts and commissions. All amounts are estimates except the SEC registration fee.
| Securities and Exchange Commission - Registration Fee | | $ | 440 | |
| State filing Fees | | $ | 2,500 | |
| Printing and Engraving Expenses | | $ | 1,000 | |
| Edgarizing Costs | | $ | 10,000 | |
| Accounting Fees and Expenses | | $ | 15,000 | |
| Legal Fees and Expenses | | $ | 35,000 | |
| Miscellaneous | | $ | 6,060 | |
| Total | | $ | 70,000 | |
None of the expenses of the offering will be paid by the selling security holders.
Item 14. Indemnification of Directors and Officers
Nevada law expressly authorizes a Nevada corporation to indemnify its directors, officers, employees, and agents against liabilities arising out of such persons’ conduct as directors, officers, employees, or agents if they acted in good faith, in a manner they reasonably believed to be in or not opposed to the best interests of the company, and, in the case of criminal proceedings, if they had no reasonable cause to believe their conduct was unlawful. Generally, indemnification for such persons is mandatory if such person was successful, on the merits or otherwise, in the defense of any such proceeding, or in the defense of any claim, issue, or matter in the proceeding. In addition, as provided in the articles of incorporation, bylaws, or an agreement, the corporation may pay for or reimburse the reasonable expenses incurred by such a person who is a party to a proceeding in advance of final disposition if such person furnishes to the corporation an undertaking to repay such expenses if it is ultimately determined that he did not meet the requirements. In order to provide indemnification, unless ordered by a court, the corporation must determine that the person meets the requirements for indemnification. Such determination must be made by a majority of disinterested directors; by independent legal counsel; or by a majority of the shareholders.
Article IX of our Amended and Restated Articles of Incorporation and VIII of our Bylaws provide that the corporation shall indemnify its directors, officers, and agents to the full extent permitted by the laws of the State of Nevada. Our employment agreements with Robert E. Jorgensen, our Chief Executive Officer, and Rick Havenstrite, our President, also provide for mandatory indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of our company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
During the past three years the registrant has sold the following securities which were not registered under the Securities Act:
Under the terms of the Second Amended and Restated Lease Agreement dated February 7, 2019, with Clifton Mining Company (“Clifton”), on or about March 7, 2019, we issued 5,500,000 shares of common stock to Clifton as partial consideration for entering into the amended lease agreement. Also, on or about March 7, 2019, we issued 250,000 shares to H&H Metals Corp. (“H&H”) for termination of a five-year agency agreement entered into on March 29, 2018. The shares issued to Clifton and H&H were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(a)(5) and Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. At the time of the sale of the shares, the Company reasonably believed that each purchaser was an “accredited investor” as defined in Rule 501(a) of Regulation D. No underwriting discounts or commissions were paid in connection with the transactions.
In May 2008During the past three-year period we commencedissued 300,000 shares each to West C Street LLC and Iberhouse LLC to satisfy penalty requirements under the loan documents with these entities. These shares were issued pursuant to Rule 506(b) of Regulation D promulgated by the SEC under the Act. Management reasonably believed that at the time of issuance each investor was an offering“accredited investor” as defined in Rule 501(a) of 5,000,000 pre-reverse splitRegulation D. No underwriting discounts or commissions were paid in connection with the transaction.
From March through June 2018 we sold 2,125,000 shares of our common stock at $0.05$0.40 per share. We completed the offering in September 2008 and sold 289,583 shares (3,475,008 pre-reverse split shares)share for gross proceeds of $173,750.$850,000. These shares were sold without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or4(a)(5) and Section 4(2)4(a)(2) thereof, and Rule 506506(c) promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D withAt the Commission on May 30, 2008, for this offering. Sales were made to a totaltime of 10 investors,the sale of the shares, we reasonably believed that each of whompurchaser was an accredited investor“accredited investor” as defined in Regulation D. Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares. Each investor represented that he or she had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the stock sale.
In July 2008,sales.On March 8, 2018, we issued 8,3332,250,000 shares to each of common stockIbearhouse and West C Street in exchange for $312,500 from each to Ronald N. Vance, our outside legal counsel, Donna Street, our outside accountant, and William McAndrews, one of our directors, for services rendered. All of the investors. This transaction also included concessions on their notes with the Company. Sales of these shares were issued under our 2008 Stock Option/Stock Issuance Plan without registration under the Securities Act by reasonmade pursuant to Rule 506(b) of the exemption from registration afforded by the provisions of Rule 701Regulation D promulgated by the Securities and Exchange Commission. Each participantSEC under the Act. Management reasonably believed that at the time of sale each investor was an “accredited investor” as defined in the plan who received the sharesRule 501(a) of Regulation D. No selling commissions or other remuneration was a natural person who provided bona fide services to the company, which services were not in connection with the offer or sale of securities in a capital raising transaction and not directly or indirectly used to promote or maintain a market for the company’s securities. No underwriting discounts or commissions were paid in connection with the stock award.
In May 2009 we commencedsales of these securities.Effective February 23, 2018, our Board approved and adopted the 2018 Stock Incentive Plan (the “2018 Plan”) pursuant to which 2,400,000 shares of the Company’s Common Stock were authorized. On February 23, 2018, the Board approved the grant of an offeringaggregate of 1,000,000 shares our common stock at $0.70 per share. We completed the offering in August 2009 and sold 1,000,000 shares for gross proceeds of $700,000. These shares were sold without registration2,400,000 options under the Securities Act by reason2018 Plan exercisable at $0.40 per share which terminate February 23, 2023 in the amounts and to the following:
| ● | Rick Havenstrite – 1,000,000 options; |
| ● | Howard Crosby – 1,000,000 options; |
| ● | John Ryan – 200,000 options; and |
| ● | Linde Havenstrite – 200,000 options. |
The issuances of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on May 12, 2009 for this offering. Salesthese securities were made pursuant to a total of 28 investors, each of whom was an accredited investor as defined in Regulation D. Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares. Each investor represented that he or she had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the stock sale.
In July 2009 we entered into joint venture agreements with Clifton Mining and Moeller Family Trust for the rights to certain mining claims and issued 500,000 shares to Clifton Mining and 250,000 shares to Moeller Family Trust as consideration for entering into the mining ventures. In September 2009 we also issued 60,824 to Clifton Mining for the transfer of surety bonds on the mining claims. These shares were issued without registrationRule 701 under the
Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on September 14, 2009 for this transaction. Both Clifton Mining and Moeller Family Trust were accredited investors as defined in Regulation D. Each party delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares. Each party represented that it had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Representatives of each party were afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the stock issuance.Act.In September 2009 we commenced an offering of 440,000 shares our common stock at $0.70 per share. We completed the offering in January 2010 and sold 436,300 shares for gross proceeds of $305,410. These shares were sold without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on September 17, 2009 for this offering. Sales were made to a total of eight investors, each of whom was an accredited investor as defined in Regulation D. Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares. Each investor represented that he or she had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the stock sale.
In November 2009 we issued 15% convertible promissory notes to Ibearhouse, LLC and West C Street, LLC in the principal amounts of $300,000 each. Each note is due and payable on November 30, 2012. Interest on each note is payable in monthly installments of $3,750. Each note was originally convertible at $1.50 per share and on July 14, 2010, the conversion price was reduced to $0.70 per share. The notes are convertible at any time prior to maturity. In consideration of each loan, we issued 150,000 shares each to lenders. The notes and shares were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on November 30, 2009 for the original transaction to reflect a reduction in the conversion price to from $1.50 to $0.70 per share. Each of the parties was an accredited investors as defined in Regulation D. Each party delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the promissory notes and the stock certificates representing the shares. Each party represented that it had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Representatives of each party were afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the issuances of the notes and stock.
In November 2009 we awarded 25,000 shares each to Dave Jensen and Stan Kendall, two of our employees, as bonuses for their services. These shares were issued under our 2008 Stock Option/Stock Issuance Plan without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Rule 701 promulgated by the Securities and Exchange Commission. Each participant in the plan who received the shares was a natural person who provided bona fide services to the company, which services were not in connection with the offer or sale of securities in a capital raising transaction and not directly or indirectly used to promote or maintain a market for the company’s securities. No underwriting discounts or commissions were paid in connection with the stock award.
In December 2009 we completed the purchase of Blue Fin Capital, Inc. through the exchange of 2,713,636 shares of our common stock for all of the outstanding shares of Blue Fin. These shares were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on January 21, 2010. Issuances were made to a total of 5 shareholders of Blue Fin, each of whom was an accredited investor as defined in Regulation D. Each shareholder of Blue Fin delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares. Each shareholder of Blue Fin represented that he or she had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each shareholder of Blue Fin was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the stock exchange transaction.
In July 2010 we issued 958,033 shares of our Series A Preferred Stock to DMRJ Group I, LLC under the terms of our Investment Agreement dated July 14, 2010. These preferred shares are convertible into an equal number of common shares. These shares were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. We filed a Form D with the Commission on July 19, 2010 for this transaction and filed an amended Form D on July 28, 2010, to correct a typographical error. DMRJ Group was an accredited investor as defined in Regulation D at the time of the transaction. DMRJ Group delivered appropriate investment representations with respect to the shares and consented to the imposition of restrictive legends upon the stock certificate representing the shares. It had not entered into the transaction with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Representatives of DMRJ Group were afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the preferred stock transaction.
In July 2010 we issued 25,000 shares to Marianne Havenstrite, wife of Rick Havenstrite, our president, for accounting services. We also issued 15,000 shares to Linda Miller as a bonus for services performed on our Gold Hill project. Further, we issued 60,000 shares to O. Jay Gatten, Brian G. Vinton, Oren S. Gatten, and Douglas D. Jensen, principals and employees of North American Exploration as incentive to perform permitting services for us on our Gold Hill project. We further issued 400,000 shares to John Ryan, one of our directors, for accepting appointment as a director and for his prior services as a director. All of the shares were issued under our 2008 Stock Option/Stock Issuance Plan without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Rule 701 promulgated by the Securities and Exchange Commission. Each participant in the plan who received the shares was a natural person who provided bona fide services to the company, which services were not in connection with the offer or sale of securities in a capital raising transaction and not directly or indirectly used to promote or maintain a market for the company’s securities. No underwriting discounts or commissions were paid in connection with the stock awards.
In September 2010 we issued 5,000 shares to Jamie Lloyd, legal assistant to Ronald N. Vance, our outside legal counsel, and 6,667 shares to Mr. Vance as bonuses for assisting management of the company with maintaining its corporate books and records. All of the shares were issued under our 2008 Stock Option/Stock Issuance Plan without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Rule 701 promulgated by the Securities and Exchange Commission. Each participant in the plan who received the shares was a natural person who provided bona fide services to the company, which services were not in connection with the offer or sale of securities in a capital raising transaction and not directly or indirectly used to promote or maintain a market for the company’s securities. No underwriting discounts or commissions were paid in connection with the stock awards.
Item 16. Exhibits and Financial Statement Schedules
| | | | Incorporated by Reference | | |
Exhibit
Number
| | Exhibit Description | | Form | | File No. | | Exhibit | | Filing
Date
| | Filed
Here-with
|
2.1 & 10.1 | | Agreement and Plan of Merger dated December 30, 2009, with Blue Fin Capital, Inc. | | | | | | | | | | X |
3.1 | | Amended and Restated Articles of Incorporation | | | | | | | | | | X |
3.2 | | Certificate of Designations for Series A Preferred Stock | | | | | | | | | | X |
3.3 | | Current Bylaws | | | | | | | | | | X |
4.1 | | Form of Common Stock Certificate | | | | | | | | | | X |
4.2 | | Form of Registration Rights Agreements, including list of selling shareholders | | | | | | | | | | X |
4.3 & 10.2 | | 2008 Stock Option/Stock Issuance Plan, including grant forms | | | | | | | | | | X |
4.4 | | Series A Preferred Stock Certificate | | | | | | | | | | X |
4.5 | | Registration Rights Agreement dated July 14, 2010, with DMRJ Group I, LLC | | | | | | | | | | X |
4.6 | | Lockup and Leak-Out Agreement dated July 24, 2009, with Clifton Mining Company | | | | | | | | | | X |
4.7 | | Lockup and Leak-Out Agreement dated July 24, 2009, with Moeller Family Trust | | | | | | | | | | X |
5.1 | | Opinion re Legality of Shares | | | | | | | | | | X |
| | | | Incorporated by Reference | | |
Exhibit
Number
| | Exhibit Description | | Form | | File No. | | Exhibit | | Filing
Date
| | Filed
Here-with
|
10.3 | | Amended and Restated Lease and Sublease Agreement effective July 24, 2009, with Clifton Mining Company and Woodman Mining Company | | | | | | | | | | X |
10.4 | | Contract Assignment and Surety Transfer Agreement dated September 30, 2009, with Clifton Mining Company | | | | | | | | | | X |
10.5 | | Amended and Restated Lease Agreement effective July 24, 2009, with Moeller Family Trust | | | | | | | | | | X |
10.6 | | Investment Agreement dated July 14, 2010, with DMRJ Group I, LLC | | | | | | | | | | X |
10.7 | | Form of Promissory Note dated July 14, 2010, to DMRJ Group I, LLC | | | | | | | | | | X |
10.8 | | Security Agreement dated July 14, 2010, with DMRJ Group I, LLC | | | | | | | | | | X |
10.9 | | Pledge Agreement dated July 14, 2010, with DMRJ Group I, LLC | | | | | | | | | | X |
10.10 | | Loan Agreement dated November 18, 2009, with West C Street LLC and Ibearhouse LLC | | | | | | | | | | X |
10.11 | | Amended Loan Agreement dated July 14, 2010, with West C Street LLC and Ibearhouse LLC | | | | | | | | | | X |
10.12 | | Amended and Restated 15% Convertible Promissory Note dated July 14, 2010 with West C Street LLC | | | | | | | | | | X |
10.13 | | Amended and Restated 15% Convertible Promissory Note dated July 14, 2010 with Ibearhouse LLC | | | | | | | | | | X |
10.14 | | Employment Agreement dated September 1, 2010, with Robert E. Jorgensen* | | | | | | | | | | X |
10.15 | | Employment Agreement dated September 1, 2010, with Rick Havenstrite* | | | | | | | | | | X |
10.16 | | Consulting Agreement dated September 1, 2010, with Eric L. Moe* | | | | | | | | | | X |
10.17 | | Consulting Agreement dated December 28, 2009 with Stuart Havenstrite | | | | | | | | | | X |
21.1 | | List of Subsidiaries | | | | | | | | | | X |
23.1 | | Consent of Child, Van Wagoner & Bradshaw, PLLC, independent registered public accounting firm | | | | | | | | | | X |
23.2 | | Consent of Attorney (included in Exhibit 5.1) | | | | | | | | | | — |
23.3 | | Consent of McClelland Laboratories | | | | | | | | | | X |
| | | | | Incorporated by Reference | | |
| Exhibit Number | | Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | | Filed Herewith |
| 3.1 | | Amended and Restated Articles of Incorporation filed March 1, 2010 | | S-1 | | 333-169701 | | 3.1 | | 9/30/10 | | |
| 3.2 | | Amended and Restated Bylaws dated May 3, 2011 | | 8-K | | 333-169701 | | 3.2 | | 5/9/11 | | |
| 5.1 | | Opinion re Legality of Shares | | | | | | | | | | X |
| 10.1 | | Pre-paid Forward Gold Purchase Agreement dated March 7, 2019 (confidential information has been redacted) | | 10-K | | 333-169701 | | 10.1 | | 7/30/19 | | |
| 10.2 | | Leasehold Deed of Trust dated March 7, 2019 | | 10-K | | 333-169701 | | 10.2 | | 7/30/19 | | |
| 10.3 | | Second Amended and Restated Lease Agreement effective March 7, 2019 | | 10-K | | 333-169701 | | 10.3 | | 7/30/19 | | |
| 10.4 | | Registration Rights Agreement effective March 7, 2019 | | 10-K | | 333-169701 | | 10.4 | | 7/30/19 | | |
| 10.5 | | Conveyance of Net Smelter Returns Royalty Interest effective March 7, 2019 | | 10-Q | | 333-169701 | | 99.1 | | 2/3/20 | | |
| 10.6 | | Agency Agreement dated March 29, 2018, with H&H Metals Corp. | | 8-K | | 333-169701 | | 99.6 | | 3/13/19 | | |
| 10.7 | | Termination Agreement dated January 16, 2019, with H&H Metals Corp. | | 8-K | | 333-169701 | | 99.7 | | 3/13/19 | | |
| 10.8 | | Employment Agreement dated September 1, 2010, with Rick Havenstrite* | | S-1 | | 333-169701 | | 10.15 | | 9/30/10 | | |
| 10.9 | | Amendment No. 1 dated effective May 1, 2019 to the Employment Agreement with Rick Havenstrite* | | 8-K | | 333-169701 | | 99.1 | | 7/22/19 | | |
| 10.10 | | Rental Agreement effective October 1, 2009, with RMH Overhead, LLC | | S-1A | | 333-169701 | | 10.19 | | 11/12/10 | | |
| 10.11 | | Assignment and Assumption Agreement dated February 13, 2018 | | 10-K | | 333-169701 | | 10.11 | | 7/30/19 | | |
| 10.12 | | Equipment Lease Agreement dated June 20, 2016 with RMH Overhead, LLC | | 10-K | | 333-169701 | | 10.36 | | 6/29/18 | | |
| 10.13 | | Ben Julian LLC Option Agreement dated March 26, 2019 | | 10-K | | 333-169701 | | 10.13 | | 7/30/19 | | |
| 10.14 | | Letter Agreement dated June 7, 2019, with Clifton Mining Company | | 10-K | | 333-169701 | | 10.14 | | 7/30/19 | | |
| 10.15 | | Amendment No.1 to the Pre-Paid Forward Gold Purchase Agreement dated October 31, 2019 (confidential information has been redacted) | | S-1 | | 333-236398 | | 10.15 | | 2/12/20 | | |
| 23.1 | | Consent of DeCoria, Maichel & Teague, P.S., independent registered public accounting firm | | | | | | | | | | X |
| 23.2 | | Consent of Attorney (included in Exhibit 5.1) | | | | | | | | | | -- |
| 101.INS | | XBRL Instance Document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
*Management contract, or compensatory plan or arrangement, required to be filed as an exhibit.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the CommissionSEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) Include any material or changed information with respect to the plan of distribution not previously disclosed in the registration statement or ana material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.Provided,however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 of Regulation C of the Securities Act;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
[SIGNATURE PAGE TO FOLLOW]
Pursuant toIn accordance with the requirements of the Securities Act, of 1933, the registrant certifies that it has duly causedreasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Spokane, Washington,Reno, Nevada, on September 29, 2010.
April 6, 2020.| | Desert Hawk Gold Corp. |
| |
| By: | /s/ Robert E. JorgensenDESERT HAWK GOLD CORP. |
| | | Robert E. Jorgensen, CEO |
| Date: April 6, 2020 | By: | /s/ Rick Havenstrite |
| | Rick Havenstrite, Chief Executive Officer |
Pursuant toIn accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
NameNAME | | TitleTITLE | | DateDATE |
| | | | | |
/s/ Robert E. JorgensenHoward Crosby | | Director and Chairman & CEO (Principal | | September 29, 2010April 6, 2020 |
Robert E. Jorgensen | | Executive, Financial, and AccountingHoward Crosby | | |
| | Officer) | | |
| | | | | |
| /s/ Rick Havenstrite | | Director, President, & Directorand CEO | | September 29, 2010April 6, 2020 |
| Rick Havenstrite | | | | |
| | | | |
/s/ Robert E. Knecht | | Director | | September 29, 2010 |
Robert E. Knecht | | | | |
| | | | |
/s/ William McAndrews | | Director | | September 29, 2010 |
William McAndrews | | (Principal Executive Officer) | | |
| | | | | |
| /s/ John P. Ryan | | Director | | September 29, 2010April 6, 2020 |
| John P. Ryan | | | | |
| | | | | |
/s/ Eric L. MoePhillip H. Holme | | Director | | September 29, 2010April 6, 2020 |
Eric L. MoePhillip H. Holme | | | | |
| | | | |
| /s/ Marianne Havenstrite | | Treasurer | | April 6, 2020 |
| Marianne Havenstrite | | (Principle Financial and Accounting Officer) | | |
