Desert Hawk Gold (DHGC) 10-Q 2023 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

or

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

For the transition period from _______________________to___________________________

Commission File Number: 333-169701

Desert Hawk Gold Corp.

(Exact name of registrant as specified in its charter)

Nevada	82-0230997
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1290 Holcomb Ave. Reno, NV	89502
(Address of principal executive offices)	(Zip Code)
(775) 337-8057
(Registrant’s telephone number, including area code)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting Company	☒
		Emerging growth company	☐

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

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

Yes ☐ No ☒

Indicate the number of shares outstanding of the issuer’s common stock, as of August 7, 2023: 26,831,603.

DESERT HAWK GOLD CORP.

Form 10-Q

June 30, 2023

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures About Market Risk	16
Item 4. Controls and Procedures	16
PART II – OTHER INFORMATION	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Mine Safety Disclosures	17
Item 6. Exhibits	17
SIGNATURES	18

i

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DESERT HAWK GOLD CORP.

CONDENSED INTERIM BALANCE SHEETS (UNAUDITED)

	June 30, 2023			December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	284,611		$	581,022
Inventories (NOTE 4)		2,421,388			3,544,071
Prepaid expenses and other current assets		51,034			50,523
TOTAL CURRENT ASSETS		2,757,033			4,175,616
PROPERTY AND EQUIPMENT, net (NOTE 5)		4,177,645			4,368,398
MINERAL PROPERTIES AND INTERESTS, net (NOTE 6)		3,632,912			3,616,493
RECLAMATION BONDS (NOTE 3)		1,595,206			1,591,547
TOTAL ASSETS	$	12,162,796		$	13,752,054
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	256,119		$	159,741
Royalties and upside participation payable (NOTE 7)		3,321,662			2,843,091
Accrued interest, prepaid forward gold contract (NOTE 7)		1,277,003			640,742
Accrued liabilities – officers and other wages (NOTES 11 and 12)		147,159			137,159
Notes payable, current portion (NOTE 8)		-			58,061
Settlement of consulting contract payable (NOTE 10)		200,000			200,000
Prepaid forward gold contract liability (NOTE 7)		3,110,445			5,841,383
Due in lieu of gold deliveries (NOTE 7)		18,143,000			13,419,500
TOTAL CURRENT LIABILITIES		26,455,388			23,299,677
LONG-TERM LIABILITIES
Asset retirement obligation (NOTE 9)		1,593,431			1,496,434
TOTAL LONG-TERM LIABILITIES		1,593,431			1,496,434
TOTAL LIABILITIES		28,048,819			24,796,111
COMMITMENTS AND CONTINGENCIES (NOTES 6, 7 AND 12)
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock, $.001 par value; 10,000,000 shares authorized, none issued or outstanding		-			-
Common Stock, $.001 par value; 100,000,000 shares authorized; 26,831,603 and 26,831,603 shares issued and outstanding, respectively		26,833			26,833
Additional paid-in capital		9,666,275			9,666,275
Accumulated deficit		(25,579,131	)		(20,737,165	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(15,886,023	)		(11,044,057	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	12,162,796		$	13,752,054

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

1

DESERT HAWK GOLD CORP. 

CONDENSED INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)

For the three and six months ended June 30, 2023 and 2022

	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
REVENUE
Concentrate sales	$	909,838		$	1,242,095		$	1,648,121		$	2,035,029
Contract processing income		-			497,241			-			971,429
Total revenue		909,838			1,739,336			1,648,121			3,006,458
OPERATING EXPENSES
General production and project costs		1,520,479			1,422,412			2,901,261			2,650,138
Contract processing costs		-			30,509			-			71,214
Depreciation and amortization		174,411			179,433			337,595			494,121
Other operating costs		131,203			148,815			197,687			263,730
Legal and professional		32,068			23,150			98,678			90,921
Officers and directors’ fees		89,259			84,658			181,282			172,547
General and administrative		66,230			69,121			136,513			180,901
Loss on disposal of equipment		14,927			18,468			9,258			18,468
Forward gold contract expense (NOTE 7)		1,109,228			883,333			1,992,562			1,459,777
TOTAL OPERATING EXPENSES		3,137,805			2,859,899			5,854,836			5,401,817
LOSS FROM OPERATIONS		(2,227,967	)		(1,120,563	)		(4,206,715	)		(2,395,359	)
OTHER INCOME (EXPENSE)
Interest and other income		2,269			30			3,659			56
Interest expense – equipment financing		-			(5,224	)		(1,399	)		(11,515	)
Interest expense - other		(352,839	)		(176,808	)		(637,511	)		(232,974	)
TOTAL OTHER INCOME (EXPENSE)		(350,570	)		(182,002	)		(635,251	)		(244,433	)
NET LOSS BEFORE INCOME TAX		(2,578,537	)		(1,302,565	)		(4,841,966	)		(2,639,792	)
Provision (benefit) for income tax		-			-			-			-
NET LOSS	$	(2,578,537	)	$	(1,302,565	)	$	(4,841,966	)	$	(2,639,792	)
Basic and diluted loss per share	$	(0.10	)	$	(0.05	)	$	(0.18	)	$	(0.10	)
Basic and diluted weighted average number of shares outstanding		26,831,603			26,831,603			26,831,603			26,831,603

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

2

DESERT HAWK GOLD CORP.

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

For the three and six months ended June 30, 2023 and 2022 

	Common Stock									Total’
	Shares Issued		Par Value $.001 per share		Additional Paid in Capital		Accumulated Deficit			Stockholders Equity (Deficit)
BALANCE, December 31, 2021		26,831,603	$	26,833	$	9,666,275	$	(14,247,760	)	$	(4,554,652	)
Net loss		-		-		-		(1,337,227	)		(1,337,227	)
BALANCE, March 31, 2022		26,831,603		26,833		9,666,275		(15,584,987	)		(5,891,879	)
Net loss		-		-		-		(1,302,565	)		(1,302,565	)
BALANCE, June 30, 2022		26,831,603	$	26,833	$	9,666,275	$	(16,887,552	)	$	(7,194,444	)
BALANCE, December 31, 2022		26,831,603	$	26,833	$	9,666,275	$	(20,737,165	)	$	(11,044,057	)
Net loss		-		-		-		(2,263,429	)		(2,263,429	)
BALANCE, March 31, 2023		26,831,603		26,833		9,666,275		(23,000,594	)		(13,307,486	)
Net loss		-		-		-		(2,578,537	)		(2,578,537	)
BALANCE, June 30, 2023		26,831,603	$	26,833	$	9,666,275	$	(25,579,131	)	$	(15,886,023	)

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

3

DESERT HAWK GOLD CORP.

CONDENSED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

For the six months ended June 30, 2023 and 2022

	Six months ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,841,966	)	$	(2,639,792	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities
Depreciation and amortization		337,595			494,121
Accretion of asset retirement obligation		74,819			67,071
Write down of inventory to net realizable value		1,618,700			1,235,568
Loss on disposal of equipment		9,258			18,468
Forward gold contract expense (NOTE 7)		1,992,562			1,459,777
Changes in operating assets and liabilities:
Accounts receivable		-			233,309
Inventories		(496,017	)		(228,486	)
Prepaid expenses and other current assets		(511	)		(3,130	)
Accounts payable and accrued liabilities		96,377			(126,343	)
Royalties and upside participation payable (NOTE 7)		478,571			544,905
Accrued interest, prepaid forward gold contract (NOTE 7)		636,261			232,516
Accrued liabilities – officer and other wages		10,000			16,000
Net cash provided (used) by operating activities		(84,351	)		1,303,984
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(163,340	)		(117,880	)
Proceeds from sale of equipment		13,000			45,000
Increase in reclamation bonds		(3,659	)		(89,056	)
Net cash used by investing activities		(153,999	)		(161,936	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable		(58,061	)		(400,321	)
Net cash used by financing activities		(58,061	)		(400,321	)
Net increase (decrease) in cash and cash equivalents		(296,411	)		741,727
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		581,022			424,629
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	284,611		$	1,166,356

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

4

DESERT HAWK GOLD CORP.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2023

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

These unaudited condensed interim financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”). These unaudited condensed interim financial statements should be read in conjunction with the annual audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 30, 2023.

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

Reclassifications

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

Earnings (Loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.

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

5

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $25,579,131 through June 30, 2023 and net loss of $4,841,966 for the six-month period ended June 30, 2023, along with negative working capital of $26,698,355 which raises substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company has not delivered gold ounces as scheduled on its prepaid forward gold contract and could be subject to default provisions within the related agreement (see Note 7). The condensed interim financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

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

New Accounting Pronouncements

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

NOTE 3 – RECLAMATION BONDS

At June 30, 2023 and December 31, 2022, reclamation bonds totaled $1,595,206 and $1,591,547, respectively, associated with estimated reclamation costs for its mineral properties. The totals at both dates include a surety bond of $674,000 with a bonding company for reclamation of its mineral property. This escrowed amount is held at Bank of New York, Mellon for the Company’s benefit. It may not be released to the Company without the prior consent of the surety bondholder. The escrowed amount does not earn interest. The remaining balances of $921,206 and $917,547, respectively, are held as certificate of deposits by the Utah Department of Natural Resources.

NOTE 4 – INVENTORIES

Inventories at June 30, 2023 and December 31, 2022 consists of the following:

	June 30,		December 31,
	2023		2022
Ore on leach pad	$	2,066,495	$	3,266,091
Carbon column in process		105,178		163,619
Finished goods		249,715		114,361
Total	$	2,421,388	$	3,544,071

Inventories at June 30, 2023 and December 31, 2022 were valued at net realizable value because production costs were greater than the net realizable value. The net realizable value adjustment to inventory, which is included in general production and projects costs on the statement of operations was $1,618,700 and $1,235,568 for the six month periods ended June 30, 2023 and 2022, respectively.

6

NOTE 5 - PROPERTY AND EQUIPMENT

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

	June 30,			December 31,
	2023			2022
Equipment	$	6,579,157		$	6,528,497
Furniture and fixtures		6,981			6,981
Electronic and computer equipment		50,587			50,587
Vehicles		417,667			369,595
Buildings		100,000			100,000
Land and improvements		98,121			105,299
		7,252,513			7,160,959
Less accumulated depreciation		(4,680,959	)		(4,401,690	)
		2,571,554			2,759,269
Kiewit property facilities		2,497,436			2,497,436
Less accumulated amortization		(891,345	)		(888,307	)
		1,606,091			1,609,129
Total	$	4,177,645		$	4,368,398

For the Kiewit property facilities, amortization based on total units of production was $3,038 and $6,617 for the three-months ended June 30, 2023 and 2022, respectively. For the Kiewit property facilities, amortization based on total units of production was $3,038 and $77,481 for the six-months ended June 30, 2023 and 2022, respectively. There was no production for the three months ended March 31, 2023.

Depreciation expense on property and equipment for the three-months ended June 30, 2023 and 2022 was $165,614 and $160,274 respectively. Depreciation expense on property and equipment for the six-months ended June 30, 2023 and 2022 was $328,798 and $352,842, respectively.

NOTE 6 – MINERAL PROPERTIES AND INTERESTS

Mineral properties and interests as of June 30, 2023 and December 31, 2022 are as follows:

	June 30,			December 31,
	2023			2022
Kiewit and all other sites	$	3,700,000		$	3,700,000
JJS property		250,000			250,000
		3,950,000			3,950,000
Less accumulated amortization		(856,805	)		(852,000	)
		3,093,195			3,098,000
Asset retirement obligation assets
Kiewit Site		747,300			725,122
Kiewit Exploration		28,377			28,377
JJS property		31,016			31,016
Total		806,693			784,515
Less accumulated amortization		(266,976	)		(266,022	)
		539,717			518,493
Total	$	3,632,912		$	3,616,493

Amortization of the mineral properties and interests based on total units of production was $5,759 and $12,543 for the three months ended June 30, 2023 and 2022, respectively. Amortization of the mineral properties and interests based on total units of production was $5,759 and $63,159 for the six months ended June 30, 2023 and 2022, respectively.

7

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

NOTE 7 – PREPAID FORWARD GOLD CONTRACT LIABILITY

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

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

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

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

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

To date, no gold has been delivered under the contract. As of June 30, 2023 and December 31, 2022, a cumulative of 36,286 and 26,839 ounces, respectively, were scheduled to be delivered under the terms of the Purchase Agreement. The ounces due but unpaid at June 30, 2023 and December 31, 2022 have been reflected in “Due in lieu of gold deliveries” on the balance sheet based on the Company’s option to pay cash in lieu of delivery at $500 per ounce. The forward gold contract balance as of June 30, 2023 and December 31, 2022 is as follows:

	June 30,		December 31,
	2023		2022
Total ounces to be delivered		36,286		26,839
Contractual payment per ounce in lieu of delivery	$	500	$	500
Amount due in lieu of gold deliveries	$	18,143,000	$	13,419,500

8

For the three months ended June 30, 2023 and 2022, the activity related to the forward gold contract is as follows:

	Three months ended June 30,
	2023			2022
Prepaid forward gold contract liability balance at beginning of period	$	4,630,717		$	9,473,382
Forward gold contract balance associated with ounces to be delivered during period		1,109,228			883,333
Reduction in prepaid forward gold contract liability balance		(2,629,500	)		(2,094,000	)
Prepaid forward gold contract liability balance at end of period	$	3,110,445		$	8,262,715

	Six months ended June 30,
	2023			2022
Prepaid forward gold contract liability balance at beginning of period	$	5,841,383		$	10,263,438
Forward gold contract balance associated with ounces to be delivered during period		1,992,562			1,459,777
Reduction in prepaid forward gold contract liability balance		(4,723,500	)		(3,460,500	)
Prepaid forward gold contract liability balance at end of period	$	3,110,445		$	8,262,715

As of June 30, 2023, and through the issuance of these financial statements, the Company has received invoices for the deliveries and payments due. The failure to make gold deliveries and make additional payments as described below provides Qenta with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. Due to the delinquent status of the deliveries and Qenta’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance owing as current on the balance sheets. The Company’s management has been in discussions with Qenta regarding the status of the Purchase Agreement. To date, Qenta has not exercised its rights of default as defined in the agreement nor has it indicated plans to do so. 

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

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

The Purchase Agreement provides for the Company to pay default interest (calculated at the rate of LIBOR plus 2%) on outstanding amounts due. To date, none has been paid.

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

	June 30,		December 31,
	2023		2022
Royalties payable	$	675,033	$	585,536
Royalties withholding payable		35,549		30,820
Upside participation payable		2,611,080		2,226,735
Subtotal		3,321,662		2,843,091
Accrued interest, prepaid forward gold contract		1,277,003		640,742
Total	$	4,598,665	$	3,483,833

9

NOTE 8 – NOTES PAYABLE

The following is a summary of the notes payable:

	December 31,
	2022
Note payable to Epiroc, collateralized by a used Epiroc drill due in 36 monthly payments of $14,679 including interest at 5.2%.		58,061
		58,061
Current portion		(58,061	)
Long term portion	$	-

During the six months ended June 30, 2023, the Company paid the remaining note payable balance of $58,061.

NOTE 9 –ASSET RETIREMENT OBLIGATION

Changes in the asset retirement obligation for the three months ended June 30, 2023 and 2022 are as follows:

	Three months ended June 30,
	2023		2022
Asset retirement obligation, beginning of period	$	1,556,021	$	1,395,830
Accretion expense		37,410		33,535
Asset retirement obligation, end of period	$	1,593,431	$	1,429,365

	Six months ended June 30,
	2023		2022
Asset retirement obligation, beginning of period	$	1,496,434	$	1,362,294
Increase due to change in estimated costs		22,178		-
Accretion expense		74,819		67,071
Asset retirement obligation, end of period	$	1,593,431	$	1,429,365

In the first quarter of 2023, the Company updated its estimate for reclamation and closure costs of the mine at the end of its life based on an expanded permit and bonding requirement finalized in December 31, 2022. The updated estimate was $2,557,553 on an undiscounted cash flow basis, an increase of $1,020,553 from the previous plan. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 11% from the time we incurred the obligation to the time we expect to pay the retirement obligation. During the six months ended June 30, 2023, asset retirement obligation and the associated retirement asset of $22,178 was recognized for the disturbance that occurred in that period.

NOTE 10 – SETTLEMENT OF CONSULTING CONTRACT

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

10

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company has a month-to-month lease agreement for its office space with RMH Overhead, LLC (“RMH”), a company owned by Rick Havenstrite, the Company’s President and a director. The Company recognized rent expense of $4,500 and $4,500 for three months ended June 30, 2023 and 2022. The Company recognized rent expense of $9,000 and $9,000 for six months ended June 30, 2023 and 2022.

The Company rents a haul truck from RMH at a current rate of $7,500 per month on a month-to-month basis. Rent expense of $22,500 and $30,000 was recognized during the three months ended June 30, 2023 and 2022, respectively. Rent expense of $42,500 and $55,000 was recognized during the six months ended June 30, 2023 and 2022, respectively. At June 30, 2023 and December 31, 2022, $7,500 and $Nil, respectively, is due to RMH for rent of this equipment, and this amount is included in accounts payable and accrued expenses on the balance sheet.

Employment Agreements

The Company has an employment agreement with Mr. Havenstrite as President of the Company, which is ongoing. The agreement, as amended, requires Mr. Havenstrite to meet certain time requirements and limits the number of other board member obligations in which he can participate. The agreement allows for a base annual salary of $144,000 plus an auto allowance and certain performance compensation upon fulfillment of established goals. The agreement allows the board of directors to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination without cause.

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

	June 30,		December 31,
	2023		2022
Rick Havenstrite, President	$	37,697	$	37,697
Marianne Havenstrite, Treasurer and Principal Financial Officer		18,462		18,462
Total	$	56,159	$	56,159

Directors’ fees

The Company compensates independent directors for their contributions to the management of the Company, with one director receiving fees of $6,000 per month and another director receiving $5,000 per quarter. At June 30, 2023 and December 31, 2022, accrued compensation due to directors was $91,000 and $81,000 respectively.

NOTE 12– COMMITMENTS AND CONTINGENCIES

In addition to commitments disclosed in Notes 6 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 June 30, 2023 and December 31, 2022, the amount due to Tooele County is $Nil and $33,027, respectively and this amount is included in accounts payable.

Mining Leases

Annual claim fees are currently $165 per claim plus administrative and school trust land fees. For the three- and six-months ended June 30, 2023 and 2022, claims’ fees paid were $Nil and $Nil, respectively. Claims fees are due in August for the year beginning in September of that year.

NOTE 13 – CAPITAL STOCK

Common Stock

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

During the three- and six-months ended June 30, 2023 and 2022, the Company had no transactions relating to common stock.

11

Preferred Stock

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

NOTE 14 – STOCK OPTIONS

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

Outstanding and vested options at June 30, 2023 and December 31, 2022 were Nil and 2,400,000. These options had an exercise price of $0.40. No options were granted or exercised during the three- and six-months ended June 30, 2023 and 2022. During the six months ended June 30, 2023, all options expired unexercised.

NOTE 15 – REVENUE

Product sales for three months ended June 30, 2023 and 2022, are shown below:

	Three months ended June 30,
	2023			2022
Concentrate sales	$			$
Gold		1,215,724			1,627,611
Silver		25,829			20,724
Total concentrate sales		1,241,553			1,648,335
Deductions to concentrate sales
Royalties		(52,276	)		(69,404	)
Upside participation payments		(219,437	)		(266,503	)
Outside processing		(60,002	)		(70,333	)
Subtotal – deductions to concentrate sales		(331,715	)		(406,240	)
Net concentrate sales		909,838			1,242,095
Net processing income		-			497,241
TOTAL REVENUE	$	909,838		$	1,739,336

Product sales for six months ended June 30, 2023 and 2022, are shown below:

	Six months ended June 30,
	2023			2022
Concentrate sales	$			$
Gold		2,194,921			2,671,540
Silver		42,495			34,852
Total concentrate sales		2,237,416			2,706,392
Deductions to concentrate sales
Royalties		(94,207	)		(113,953	)
Upside participation payments		(384,344	)		(433,115	)
Outside processing		(110,744	)		(124,295	)
Subtotal – deductions to concentrate sales		(589,295	)		(671,363	)
Net concentrate sales		1,648,121			2,035,029
Net processing income		-			971,429
TOTAL REVENUE	$	1,648,121		$	3,006,458

For the three months ended June 30, 2023 and 2022, all revenues from concentrate sale were from concentrate sold to Asahi Refining.

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

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

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 and with the unaudited financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. 

Forward-looking statements

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

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this 10-Q. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:

● environmental hazards;

● 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 existing mining laws or regulations;

● changes in product costing;

● 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); and

● disruptions due to global pandemics, supply chain delays, or civil unrest.

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

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

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Overview

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

We were originally incorporated in the State of Idaho on November 5, 1957. For several years we bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2008, we changed our corporate domicile from the State of Idaho to the State of Nevada. In May 2009, we raised funds to recommence mining activities. In July 2009, we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District located in Tooele County, Utah. We hold leasehold interests within the Gold Hill Mining District consisting of 66 unpatented mining claims and 30 patented claims. From these claims we have centered our exploration activities on the Kiewit site.

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

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

During the second quarter of 2023 we crushed 6,610 of mineralized material and hauled 235,828 tons of waste from the open-pit Kiewit Pit. Using the funds from the PDK transaction, in January 2020 we commenced a drilling program on the Kiewit and JJS mining claims to determine the definition of the mineralized body and resource classification of the resources in connection with the proposed completion of a technical report on the claims. Our drilling plan included drilling 30 holes for a total footage of 7,500 feet. Although drilling has commenced on the JJS property, permitting has not been completed and production has not yet begun. We intend to continue extraction of mineralized material and to upgrade and expand the current facilities, as resource expansion dictates.

Since securing funding in March 2019, we have recommenced mining operations. Revenues of approximately $20,571,000 from sales of gold and other metals have been received through June 30, 2023, bringing total revenue from metals sales from the inception of the processing in 2014 to $26,785,000.

Results of Operations for the three- and six- months ended June 30, 2023 and 2022

	Three months ended June 30,						$			%
	2023			2022			Change			Change
REVENUE	$	909,838		$	1,739,336		$	(829,498	)		(47.7	)%
EXPENSES
General production and project costs		1,520,479			1,422,412			98,067			6.9	%
Processing costs		-			30,509			(30,509	)		(100.0	)%
Depreciation and amortization		174,411			179,433			(5,022	)		(2.8	)%
Other operating costs		131,203			148,815			(17,612	)		(11.8	)%
Legal and professional		32,068			23,150			8,918			38.5	%
Officers and directors’ fees		89,259			84,658			4,601			5.4	%
General and administrative		66,230			69,121			(2,891	)		(4.2	)%
Loss on disposal of equipment		14,927			18,468			(3,541	)		(19.2	)%
Forward gold contract expense		1,109,228			883,333			225,895			25.6	%
		3,137,805			2,859,899			277,906			9.7	%
OPERATING LOSS		(2,227,967	)		(1,120,563	)		(1,107,404	)		98.8	%
OTHER INCOME (EXPENSE)		(350,570	)		(182,002	)		(168,568	)		92.6	%
NET LOSS	$	(2,578,537	)	$	(1,302,565	)	$	(1,275,972	)		98.0	%

14

During the three months ended June 30, 2023 and 2022, we had net losses of $2,578,537 and $1,302,565 respectively. This represents an increase in net loss of $1,275,972 for the three months ended June 30, 2023, over the three months ended June 30, 2022.

	Six months ended June 30,						$			%
	2023			2022			Change			Change
REVENUE	$	1,648,121		$	3,006,458		$	(1,358,337	)		(45.2	)%
EXPENSES
General production and project costs		2,901,261			2,650,138			251,123			9.5	%
Processing costs		-			71,214			(71,214	)		(100.0	)%
Depreciation and amortization		337,595			494,121			(156,526	)		(31.7	)%
Other operating costs		197,687			263,730			(66,043	)		(25.0	)%
Legal and professional		98,678			90,921			7,757			8.5	%
Officers and directors fees		181,282			172,547			8,735			5.1	%
General and administrative		136,513			180,901			(44,388	)		(24.5	)%
Loss on disposal of equipment		9,258			18,468			(9,210	)		(49.9	)%
Forward gold contract expense		1,992,562			1,459,777			532,785			36.5	%
		5,854,836			5,401,817			453,019			8.4	%
OPERATING LOSS		(4,206,715	)		(2,395,359	)		(1,811,356	)		75.6	%
OTHER INCOME (EXPENSE)		(635,251	)		(244,433	)		(390,818	)		159.9	%
NET LOSS	$	(4,841,966	)	$	(2,639,792	)	$	(2,202,174	)		83.4	%

During the six months ended June 30, 2023 and 2022, we had net losses of $4,841,966 and $2,639,792, respectively. This represents an increase in net loss of $2,202,174 for the six months ended June 30, 2023, over the three months ended June 30, 2022.

Liquidity and Cash Flow

	June 30,			December 31,
WORKING CAPITAL	2023			2022
Current assets	$	2,757,033		$	4,175,616
Current liabilities		26,455,388			23,299,677
Working capital (deficit)	$	(23,698,355	)	$	(19,124,061	)

	Six months ended June 30,
CASH FLOWS	2023			2022
Cash flow provided (used) by operating activities	$	(84,351	)	$	1,303,984
Cash flow used by investing activities		(153,999	)		(161,936	)
Cash flow used by financing activities		(58,061	)		(400,321	)
Net increase (decrease) in cash	$	(296,411	)	$	741,727

Net cash used by operating activities of $84,351 during the six months ended June 30, 2023, compared with cash provided by operating activities of $1,303,984 during the three months ended June 30, 2022, represented a $1,388,335 decrease in cash provided by operating activities and is primarily attributable to limited production during the period and increased interest expense on the forward gold contract.

Net cash used by investing activities was $153,999 during the six months ended June 30, 2023, compared with $161,936 cash used during the six months ended June 30, 2022. This change in cash used by investing activities of $7,937 was primarily related to a decrease in the amount expended for reclamation bonds and an increase in additions to property and equipment.

15

Net cash used by financing activities was $58,061 during the six months ended June 30, 2023, compared with $400,321 cash used during the six months ended June 30, 2022. This decrease in cash used by financing activities of $342,260 during the six months ended June 30, 2023, was due to reduction of notes payable payments. The Company aggressively paid down debt in the prior year.

As a result of the above, cash decreased by $296,411 during the six months ended June 30, 2023 over the cash balance at December 31, 2022, leaving us with a cash balance of $284,611 as of June 30, 2023.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $25,579,131 and negative working capital of $23,698,355 at June 30, 2023, which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

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

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

Critical Accounting Policies

There have been no significant changes to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

Our Chief Executive Officer, who serves as our principal executive officer; and our Treasurer, who serves as our principal financial officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The Chief Executive Officer and Treasurer have concluded that as of the Evaluation Date, due to the existence of material weaknesses, our disclosure controls and procedures were not effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

16

PART II – OTHER INFORMATION

Item 3. Defaults Upon Senior Securities 

During the first quarter of 2019, the Company entered into and closed a Prepaid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings L.P. (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. On October 31, 2019, the Company and PDK amended the Purchase Agreement and entered into the Amended Prepaid Forward Agreement (the “Amended Agreement”) to reduce the total number of ounces of gold subject to the Purchase Agreement and to revise other provisions therein. The first gold delivery under the Amended Agreement was due on December 24, 2020, and recurring deliveries are due on the fourth business day prior to the last calendar day of each scheduled delivery month. On December 1, 2020, we notified PDK that we would not be able to make our December delivery and elected to use one of the delivery postponement options under the Amended Agreement. This provision permits us to delay delivery by up to 30 days by delivering the amount of gold due on the previous month’s due date, plus interest calculated at the default interest rate. At the end of this 30-day extension period we were unable to deliver the December payment. We have also failed to make the monthly gold deliveries beginning January of 2021 and anticipate that we will be unable to make deliveries through the last delivery date of January 2024. The failure to make gold deliveries under the Amended Agreement provides PDK with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. In February 2023, PDK sold their ownership position in the Purchase Agreement to Qenta, Inc. (“Qenta”). The Company’s management has been in discussions with Qenta regarding the status of the Purchase Agreement. As of the filing date of this report, we are obligated to deliver to Qenta 38,039 ounces of gold, plus default interest calculated at the rate of LIBOR plus 2%, under the Amended Agreement. We are involved in ongoing discussions with representatives of Qenta in an attempt to resolve these late payments and to renegotiate the gold delivery schedule.

Item 4. Mine Safety Disclosures

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

Item 6. Exhibits

Exhibit No.	Description
31.1	Rule 15d-14(a) Certification by Principal Executive Officer
31.2	Rule 15d-14(a) Certification by Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer
95	Mine Safety Disclosure
101.INS	Inline XBRL Instance Document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

In accordance with Rule 402 of Regulation S-T, the XBRL information included in Exhibit 101 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

17

SIGNATURES

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

	Desert Hawk Gold Corp.
Date: August 8, 2023	By:	/s/ Rick Havenstrite
		Rick Havenstrite, Chief Executive Officer
		(Principal Executive Officer)
Date: August 8, 2023	By:	/s/ Marianne Havenstrite
		Marianne Havenstrite, Treasurer
		(Principal Accounting and Financial Officer)

18

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