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EX-23.1 - Desert Hawk Gold Corp. | v205149_ex23-1.htm |
As
Filed with the Securities and Exchange Commission on December 10,
2010
Registration
No. 333-169701
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM
S-1/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES
ACT OF 1933
DESERT
HAWK GOLD CORP.
(Exact
name of Registrant as Specified in Its Charter)
Nevada
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1040
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82-0230997
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(State or other jurisdiction of
incorporation or
organization)
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(Primary Standard Industrial
Classification Code Number)
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|
(I.R.S. Employer
Identification No.)
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7723
North Morton Street
Spokane,
WA 99208
(509)
434-8161
(Address,
including zip code, and telephone number, including area code,
of
registrant's principal executive offices)
Robert
E. Jorgensen, CEO
8921
N. Indian Trail Road, #288
Spokane,
WA 99208
(509)
434-8161
(Name,
address, including zip code, and telephone number
including
area code, of agent for service)
Copies
to:
Ronald
N. Vance, P.C.
Attorney
at Law
1656
Reunion Avenue
Suite
250
South
Jordan, UT 84095
(801)
446-8802
(801)
446-8803 (fax)
Approximate
date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
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¨
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Accelerated
filer
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¨
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Non-accelerated
filer
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¨
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Smaller
reporting company
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x
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CALCULATION OF REGISTRATION FEE
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Title of Each Class
of Securities to be
Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price Per
Share (1)
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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||||||||||||
Common
Stock, $.001 par value
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7,369,038 | $ | 0.70 | $ | 5,158,327 | $ | 367.79 | |||||||||
Common
Stock, $.001 par value
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1,437,050 | (2)(3) | $ | 0.70 | $ | 1,005,935 | $ | 71.72 | ||||||||
TOTAL
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8,806,088 | $ | 6,164,262 | $ | 439.51 |
(1)
Estimated pursuant to Rule 457 solely for the purpose of calculating the amount
of the registration fee. The selling stockholders will offer to sell the shares
of common stock covered by this prospectus at $0.70 per share until our shares
of common stock are quoted on the OTC Bulletin Board, or listed for trading or
quoted on any other exchange, and thereafter at prices determined at the time of
sale by the selling stockholders.
(2)
Represents the number of shares of our common stock issuable upon the conversion
of Series A Preferred Stock issued to DMRJ Group I, LLC on July 14, 2010, based
on a conversion price of $0.70 per share.
(3) We
are registering 150% of the number of shares presently issuable upon conversion
of the Series A Preferred Stock issued to DMRJ Group I, LLC on July 14, 2010,
representing our good faith estimate of the number of shares that may become
issuable in the future as a result of conversion price adjustments. The
conversion price of the Series A Preferred Stock is subject to adjustment in the
event of issuance of common stock at an issue price less than the conversion
price at the time of the issuance. If the number of shares issuable upon
conversion of the shares of Series A Preferred Stock exceeds the registered
amount, we will not rely on Rule 416 to cover the additional shares, but will
instead file a new registration statement.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting offers to buy these securities in any state where the
offer or sale is not permitted.
Preliminary
Prospectus
Subject
to Completion, dated December 10, 2010
Desert
Hawk Gold Corp.
8,327,071
Shares of Common Stock
This
prospectus relates to the resale by the selling stockholders of up to 7,369,038
shares of our common stock, including 5,997,610 outstanding shares and up to
1,371,428 shares issuable upon conversion of outstanding promissory notes or
payment of penalties on the promissory notes. The shares being
offered also include 958,033 shares reserved for issuance upon conversion of our
Series A Preferred Stock. The selling stockholders, or their pledgees, donees,
transferees or other successors-in-interest, may offer the shares of our common
stock for resale in the over-the-counter market, in isolated transactions, or in
a combination of such methods of sale. 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. There will be no underwriter’s discounts or commissions,
except for the charges to a selling stockholder for sales through a
broker-dealer. All net proceeds from a sale will go to the selling
stockholder and not to us. We will pay the expenses of registering
these shares.
There is
currently no public market for our common stock. Our stock is
not quoted on the Pink Sheets or the OTC Bulletin Board and is not listed on any
exchange.
Investing
in our stock involves risks. You should carefully consider the
Risk Factors beginning on page 2 of this
prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is ____________, 2010
TABLE
OF CONTENTS
Page
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PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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2
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USE
OF PROCEEDS
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11
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MARKET
FOR OUR COMMON STOCK
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12
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FORWARD-LOOKING
STATEMENTS
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11
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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14
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BUSINESS
AND PROPERTIES
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20
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LEGAL
PROCEEDINGS
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36
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MANAGEMENT
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36
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EXECUTIVE
COMPENSATION
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41
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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45
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SELLING
STOCKHOLDERS
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44
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DESCRIPTION
OF COMMON STOCK
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47
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PLAN
OF DISTRIBUTION
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49
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LEGAL
MATTERS
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51
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EXPERTS
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51
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ADDITIONAL
INFORMATION
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52
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We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering
to sell, and seeking offers to buy, shares of our common stock only in
jurisdictions where offers and sales are permitted.
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.
ii
PROSPECTUS
SUMMARY
The
following summary highlights material information contained in this
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 prospectus carefully, including
the “Risk Factors” section, the financial statements and the notes to the
financial statements.
Desert
Hawk Gold Corp.
Desert
Hawk Gold Corp. is an exploration stage company which holds 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 claims
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 was amended on November 8,
2010 (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 December 7, 2010, our cash position was
approximately $260,000 and we had received loan advances from DMRJ Group of
$2,000,000, plus $313,235 for prepaid interest. Over the next 12
months we have the following principal objectives: to continue
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.
1
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.
Our
principal executive offices are located at 7723 North Morton Street, Spokane, WA
99208. We maintain a mailing address for our company at 8921 N.
Indian Trail Road, #288, Spokane, WA 99208. Our
telephone number is (509) 434-8161. We do not maintain a company
website.
The
Offering
Common
stock offered by selling stockholders:
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Up
to 5,997,610 outstanding shares of common stock 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
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Offering
Price:
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All
shares offered by means of this prospectus will be sold at $0.70 per share
until the common stock is quoted on the OTC Bulletin Board and thereafter
at prevailing market prices.
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Common
stock outstanding:
Before offering
After offering
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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 of the outstanding shares of
preferred stock)
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Use
of proceeds:
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We
will not receive any proceeds from the sale of the common stock by the
selling stockholders.
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RISK
FACTORS
Investment
in our common stock has a high degree of risk. Before you invest you
should carefully consider the risks and uncertainties described below and the
other information in this prospectus. If any of the following risks
actually occur, our business, operating results and financial condition could be
harmed and the value of our common stock could go down. This means
you could lose all or a part of your investment.
2
Risks
Related to Our Company and its Business
If
we fail to repay the loan advances from DMRJ Group in a timely manner or
otherwise breach our agreement with this lender, we would likely lose our
interest in our mining leases and other assets.
Our loan
advances from DMRJ Group under the Investment Agreement are secured by all of
our assets, including our mining leases and equipment. Each separate
loan advance to us pursuant to the Investment Agreement provides for a specific
repayment date of principal and, to the extent interest 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 to make any required payment of principal or
interest when due, it is likely that DMRJ Group would call the full amount of
the outstanding balances on our loans immediately due. If we are
unable to repay the outstanding balances at this time, we anticipate that DMRJ
Group would foreclose on its security interest and would likely take control of
or liquidate our mining leases and other assets. Because the
Investment Agreement limits our ability to raise outside funds during the
effective period of the Investment Agreement, it is unlikely that we would be
able to obtain alternate financing to satisfy the obligations owed to DMRJ Group
in the event of foreclosure. If we lose our mining leases and other
assets to DMRJ Group in foreclosure, we would not be able to continue our
business operations as currently planned and you would lose your entire
investment in our common stock.
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 September 30, 2010, we had cash and cash equivalents of
$409,700, negative working capital of ($511,245), and accumulated losses of
$2,968,087 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 nine months ended September 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.
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 planned activities.
3
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 process mineralized material from the Yellow
Hammer claims at the pilot plant and sell any concentrate produced by us from
the Cactus Mill pilot plant. We have not completed any
feasibility study of the Yellow Hammer claims and there are no known or
established commercially minable 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 nine months ended September 30, 2010, we had
comprehensive losses of $2,482,403. Since the commencement of our
exploration stage on May 1, 2009, we have experienced accumulated losses of
$2,968,087. 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:
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·
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expectations
with respect to the rate of
inflation;
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·
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the
relative strength of the U.S. dollar and certain other
currencies;
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·
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interest
rates;
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·
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global
or regional political or economic
conditions;
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·
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supply
and demand for jewelry and industrial products containing metals;
and
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·
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sales
by central banks and other holders, speculators and producers of gold and
other metals in response to any of the above
factors.
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4
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 $2.78 to
approximately $3.75 per ounce during the first three calendar quarters of
2010 to close on September 30, 2010, at approximately $3.75 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 three calendar quarters of 2010 to close on
September 30, 2010, at $1,307 per ounce. A decrease in the market price of
copper, gold and other metals could affect the commercial viability of our
properties and our anticipated exploration of such properties in the
future. Lower copper or gold prices could also adversely affect our
ability to finance exploration of our properties.
In
addition, the makeup of gold investors and users has changed significantly which
has affected the price of gold in particular in recent
years. Historically, the demand for gold was driven by the needs of
jewelers, dentists and electronics manufacturers who used gold in their
businesses. In 1998 investors in gold accounted for only 6.9% of
demand. During 2009 they accounted for 39% and in the second quarter
of 2010, they accounted for 51%. During the first quarter of 2009,
when the stock market was at its lowest, investors accounted for 60% of the
demand for gold. This shift in demand for gold could mean that
positive changes in the macro-economy could lead investors to sell gold in large
quantities, which could result in dramatically decreased demand and lower prices
for gold. These lower prices could have a negative impact on our
proposed business.
We
have significant cash commitments under our lease agreements and if we fail to
meet these obligations, we could lose our right to conduct mining activities on
these claims.
Under our
current lease agreements for our claims in the Gold Hill Mining District, we are
obligated to commence operations of the claims within three years and pay annual
maintenance costs on the claims. The annual claim maintenance costs,
including annual maintenance fees payable to the BLM for the unpatented claims,
the annual state trust lands mineral lease fees, and property tax payments are
substantial. For 2010 and following years we are responsible for
these costs. If we fail to make these maintenance, tax and other
payments, we may lose the right to continue mining activities on the
claims. In addition, pursuant to the terms of our lease agreements,
if we fail to commence commercial scale operations on certain of the claims
prior to July 2012, we will be required to pay $50,000 for an annual holding fee
to retain rights to these claims. We have paid the 2010 maintenance
costs in the aggregate amount of $46,760 for the unpatented claims in the Gold
Hill Mining District. We also paid $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 permits and licenses to commence
exploration activities on our properties, or the permitting process could be
delayed, which could cause delays in our proposed plan of operations or increase
the cost of those planned operations.
Our
current proposed and future operations, including the initial extraction and
processing of mineralized material from our Yellow Hammer claims, require
permits from governmental authorities and such operations are and will be
governed by laws and regulations governing exploration, taxes, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged in
exploration of mining properties and related facilities generally experience
increased costs, and delays in these activities and other schedules as a result
of the need 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.
5
Our
activities are subject to environmental laws and regulations that may increase
our costs of doing business and restrict our planned mineral extraction and
processing activities.
All
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. It is possible that future changes in these laws or
regulations could have a significant adverse impact on our properties or some
portion of our business, causing us to re-evaluate those activities at that
time.
Land
reclamation requirements for our properties may be burdensome and expensive.
In
addition to the current reclamation bonds posted by us, we will likely have
additional reclamation requirements associated with our Large Mining Operations
Permit for which we have applied for the Kiewit claims. Reclamation
requirements by governmental authorities are generally imposed on mineral
exploration companies (as well as companies with mining operations) in order to
minimize long-term effects of land disturbance. Reclamation may include
requirements to control dispersion of potentially deleterious effluents
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 position could be adversely affected.
We
are dependent upon the services 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 our
property rights and claims.
There are
risks that title to our properties may be challenged or impugned. Our
principal properties are located in Utah and may be subject to prior unrecorded
transfer agreements and royalty rights and title may be affected by other
undetected defects. There may be valid challenges to the title of our
properties which, if successful, could impair exploration operations on the
claims. This is particularly the case in respect of our properties through
which we hold our interest solely pursuant to leases with the claim holders, as
such interests are substantially based on contract as opposed to a direct
interest in the property.
6
Several
of the mineral rights to our properties consist of unpatented mining claims
created and maintained in accordance with the U.S. General Mining Law.
Unpatented mining claims are unique property interests, and are generally
considered to be subject to greater title risk than other real property
interests because the validity of unpatented mining claims is often uncertain.
This uncertainty arises, in part, out of the complex federal and state
laws and regulations under the U.S. General Mining Law, including the
requirement of a proper physical discovery of valuable minerals within the
boundaries of each claim and proper compliance with physical staking
requirements. Also, unpatented mining claims are always subject to
possible challenges by third parties or validity contests by the federal
government. The validity of an unpatented mining or mill site claim, in
terms of both its location and its maintenance, is dependent on strict
compliance with a complex body of federal and state statutory and decisional
law. In addition, there are few public records that definitively determine
the issues of validity and ownership of unpatented mining claims. Should
the federal government impose a royalty or additional tax burdens on the
properties that lie within public lands, the resulting mining operations could
be seriously impacted, depending upon the type and amount of the
burden.
We
do not maintain insurance with respect to certain high-risk activities, which
exposes us to significant risk of loss.
Mining
operations generally involve a high degree of risk. Hazards such as
unusual or unexpected formations or other conditions are often
encountered. We may become subject to liability for pollution or
hazards against which we cannot insure or against which we cannot maintain
insurance at commercially reasonable premiums. Any significant claim would
have a material adverse effect on our financial position and
prospects. We are not currently covered by any form of
environmental liability insurance, since insurance against such risks, including
liability for pollution, is prohibitively expensive. We may have to
suspend operations or take interim cost compliance measures if we are
unable to fully fund the cost of remedying an environmental problem, if any of
these uninsured events were to occur.
A
shortage of equipment and supplies could adversely affect our ability to operate
our business.
We are
dependent on various supplies and equipment to carry out our exploration
activities. These include crushing services for mineralized material
from our Yellow Hammer claims, road grading services, chemicals and maintenance
equipment for our pilot plant, and parts and supplies for our extraction and
hauling equipment. We have no long-term agreements to provide these
supplies or services. The shortage of such supplies, equipment and
parts could have a material adverse effect on our ability to carry out our
operations and therefore limit or increase the cost of our exploration
activities.
Increased
competition could adversely affect our ability to attract necessary capital
funding or acquire suitable producing properties or prospects for mineral
exploration in the future.
The
mining industry is intensely competitive. Significant competition exists
for the acquisition of properties producing or capable of producing gold or
other metals. We may be at a competitive disadvantage in acquiring
additional mining properties even in the Gold Hill Mining District because we
must compete with other individuals and companies, many of which have greater
financial resources, operational experience and technical capabilities than we
have. We may also encounter increasing competition from other mining
companies in our efforts to hire experienced mining professionals.
Competition for exploration resources at all levels is currently very
intense, particularly affecting the availability of manpower, drill rigs, mining
equipment and production equipment. Increased competition could adversely
affect our ability to attract future capital funding or acquire suitable
producing properties or prospects for mineral exploration in the
future.
We
compete with larger, better capitalized competitors in the mining
industry.
The
mining industry is competitive in all of its phases, including financing,
technical resources, personnel and property acquisition. It requires
significant capital, technical resources, personnel and operational experience
to effectively compete in the mining industry. Because of the high costs
associated with exploration, the expertise required to analyze a project’s
potential and the capital required to explore a mine, larger companies with
significant resources may have a competitive advantage over us. We face
strong competition from other mining companies, in particular Rio Tinto which
operates a large copper mine in the area, some with greater financial resources,
operational experience and technical capabilities than we have. As a
result of this competition, we may be unable to maintain or acquire future
financing, personnel, technical resources or attractive mining properties on
terms we consider acceptable or at all.
7
Increased
commodity and labor costs could affect our financial condition.
We
anticipate that costs at our Gold Hill projects will frequently be subject to
variation from one year to the next due to a number of factors, such as changing
grades of mineralized material, metallurgy and revisions to mine plans, if any,
in response to the physical shape and location of the mineral body. In
addition, costs are affected by the price of commodities such as fuel, chemicals
and electricity as well as labor costs. Such commodities are at times
subject to volatile price movements, including increases that could make
exploration activities at certain operations less profitable. We do not have firm
contracts or commitments for the commodities or all 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
operations and potential profitability.
Transportation
difficulties and weather interruptions may affect and delay proposed activities
and could impact our proposed business.
Our
mining properties are accessible by road and there are no other means of
transportation available such as rail or navigable water ways. The
climate in the area is hot and dry in the summer but cold and subject to snow in
the winter, which could at times hamper accessibility depending on the winter
season precipitation levels. Significant snowfall could make
accessing our properties difficult or impossible by truck. As a
result, our exploration plans could be delayed for certain periods each year.
These delays could affect our ability to process and transport mineralized
material from the claims to the pilot plant which could have a material impact
on our ability to generate revenue.
Our
directors and officers may have conflicts of interest as a result of their
relationships with other companies.
Certain
of our officers and directors are also directors, officers or shareholders of
other companies that are similarly engaged in the business of acquiring,
exploring and exploiting mining properties. For example, John Ryan, one of
our directors, also serves as a director for Gold Crest Mines, Inc., Trend
Mining Company, Lucky Friday Extension Mining Company, Inc., Mineral Mountain
Mining and Milling Company, Tintic Standard Gold Mines, Inc., Consolidated
Goldfields, Inc., and Silver Verde May Mining Company,
Inc. Consequently, there is a possibility that our directors and/or
officers may be in a position of conflict in the future. In addition,
our President, Rick Havenstrite, dedicates part of his time to operating his
overhead door business in Reno, Nevada, which means that he is not able to
devote all of his business time to our company.
We
do not have water currently available in sufficient quantity to operate our
planned leaching facility near the Kiewit claims, and if we are unable to
produce sufficient water, we may not be able to commence planned activities on
these claims.
The
Kiewit claims are located in an arid high desert climate with no other water
source than may be provided through a well. We have not tested the
area near the claims for the proposed well or any other water source sufficient
to operate the planned Kiewit leaching facility. In addition, if the
water table for the planned well is deeper than we estimate, the cost of
constructing and maintaining the well may increase. If we are unable
to locate a suitable water source by means of the proposed well or otherwise, we
may not be able to proceed with our proposed activities on the Kiewit claims,
which could also affect our ability to secure necessary operating permits for
the leaching facility and future loan advances from DMRJ.
8
Risks
Related to Our Common Stock
There
is currently no public trading market for our common stock which means that you
may be required to hold your shares in our company for an indefinite
period.
Our
common stock is not quoted on either the OTC Bulletin Board or the Pink Sheets
and is not listed on any exchange. Until the common stock is quoted
on an electronic quotation service or listed on an exchange, it is unlikely that
any public market for the common stock will be established. It is
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 of
less than $5.00 per share; that are not traded on a “recognized” national
exchange; or in issuers with net tangible assets less than $2,000,000, if the
issuer has been in continuous operation for at least three years, or
$10,000,000, if in continuous operation for less than three years, or with
average revenues of less than $6,000,000 for the last three
years. The penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the SEC, to provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction,
monthly account statements showing the market value of each penny stock held in
the customer’s account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity, if any, in the
secondary market for a stock that is subject to the penny stock
rules. Since our securities are subject to the penny stock rules,
investors in the shares may find it more difficult to sell their shares in any
market which may develop in the future. Many brokers have decided not
to trade in penny stocks because of the requirements of the penny stock rules
and, as a result, the number of broker-dealers willing to act as market makers
in such securities is limited. The reduction in the number of
available market makers and other broker-dealers willing to trade in penny
stocks may limit the ability of purchasers in this offering to sell their stock
in any secondary market which could develop in the future. These
penny stock regulations, and the restrictions imposed on the resale of penny
stocks by these regulations, could adversely affect our stock price if a public
trading market for our stock is established in the future.
Our board of directors can, without
stockholder approval, cause preferred stock to be issued on terms that adversely
affect common stockholders.
Under our
articles of incorporation, our board of directors is authorized to issue up to
10,000,000 shares 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 action 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, the rights of the
holders of our common stock could be adversely affected. The board’s
ability to determine the terms of 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
for a third party to acquire a majority of our outstanding voting
stock. Additional preferred shares issued by the board of directors
could include voting rights, or even super voting rights, which could shift the
ability to control the company to the holders of the preferred
stock. These preferred shares could also have conversion rights into
shares of common stock at a discount to the market price 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.
9
We have not paid, and do not intend
to pay, dividends on our common shares and therefore, unless our common stock
appreciates in value, our investors may not benefit from holding our common
stock.
We have
not paid any cash dividends since inception. We do not anticipate
paying any cash dividends on our common stock in the foreseeable
future. In addition, provisions in our Investment Agreement with DMRJ
Group restrict our ability to declare and pay dividends on common stock as long
as we have outstanding obligations to DMRJ Group. Nevertheless, if
our common stock is not quoted on the OTC Bulletin Board or listed on a senior
exchange on or before July 13, 2011, and during any period we fail to maintain a
quotation or listing for our common stock, the holders of the Series A Preferred
Stock shares are entitled to quarterly dividends equal to 10% of our
consolidated net income for each quarter commencing with the quarter beginning
July 1, 2011. In addition they are entitled to dividends or
distributions made to the holders of our common stock to the same extent as if
such holders of the Series A shares had converted their preferred shares into
common stock. As a result, our common stock investors will not be able to
benefit from owning our common stock unless a market for our common stock
develops in the future and the market price of our common stock becomes greater
than the price paid for the stock by these investors.
Any public trading market for our
common stock which may develop in the future will likely be a volatile one and
will generally result in higher spreads in stock prices.
If a
public trading market for our common stock develops in the future, it would
likely be in the over-the-counter market by means of the OTC Bulletin
Board. The over-the-counter market for securities has historically
experienced extreme price and volume fluctuations during certain
periods. These broad market fluctuations and other factors, such as
our ability to implement our business plan pertaining to the Gold Hill
properties, as well as economic conditions and quarterly variations in our
results of operations, may adversely affect the market price of our common
stock. In addition, the spreads on stock traded through the
over-the-counter market are generally unregulated and higher than on the NASDAQ
or other exchanges, which means that the difference between the price at which
shares could be purchased by investors on the over-the-counter market compared
to the price at which they could be subsequently sold would be greater than on
these exchanges. Significant spreads between the bid and asked prices
of the stock could continue during any period in which a sufficient volume of
trading is unavailable or if the stock is quoted by an insignificant number of
market makers. We cannot insure that our trading volume will be
sufficient to significantly reduce this spread, or that we will have sufficient
market makers to affect this spread. These higher spreads could
adversely affect investors who purchase the shares at the higher price at which
the shares are sold, but subsequently sell the shares at the lower bid prices
quoted by the brokers. Unless the bid price for the stock increases
and exceeds the price paid for the shares by the investor, plus brokerage
commissions or charges, the investor could lose money on the
sale. For higher spreads such as those on over-the-counter stocks,
this is likely a much greater percentage of the price of the stock than for
exchange listed stocks. There is no assurance that at the time the
investor wishes to sell the shares, the bid price will have sufficiently
increased to create a profit on the sale.
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 shares
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 interest in selling his shares in the
future. Further, our attorney’s pecuniary interest may at some point
compromise his fiduciary duty to our company, in which event he would likely
resign and we would be required to retain new counsel.
10
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.
FORWARD-LOOKING
STATEMENTS
The
statements contained in this prospectus 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,” “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. While it is not
possible to identify all factors, we continue to face many risks and
uncertainties including, but not limited to, the following:
|
·
|
environmental
hazards;
|
|
·
|
metallurgical
and other processing problems;
|
|
·
|
unusual
or unexpected geological
formations;
|
|
·
|
global
economic and political conditions;
|
|
·
|
disruptions
in credit and financial markets;
|
|
·
|
global
productive capacity;
|
|
·
|
changes
in product costing; and
|
|
·
|
competitive
technology positions and operating interruptions (including, but not
limited to, labor disputes, leaks, fires, flooding, landslides, power
outages, explosions, unscheduled downtime, transportation interruptions,
war and terrorist activities).
|
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.
The 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 stock by the selling
stockholders.
11
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. We intend to make
application for quotation of our common stock on the OTC Bulletin Board promptly
following the effective date of the registration statement of which this
prospectus is a part.
At
December 7, 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 fail 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 for the resale of
securities initially issued by a shell company, or a company which at the time
of issuance had ever been a shell company, until certain conditions are
met. These conditions include the following: the issuer had ceased to
be a shell company; it is subject to the reporting requirements of the Exchange
Act; it has filed all reports and other materials required during the last 12
months, or for a shorter period it was required to file the reports; it has
filed “Form 10 information;” and one year has elapsed from 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 shareholders 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.
Holders
At
December 7, 2010, we had approximately 605 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. We have appointed Over the Counter
Stock Transfer, 231 East 2100 South, Salt Lake City, UT 84115, to act as the
transfer agent of our common stock. We act as our own transfer agent
for the Series A Preferred Stock.
Dividends
We have
never declared or paid any cash dividends on our common stock. We do
not anticipate paying any cash dividends to stockholders of our common stock in
the foreseeable future. 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.
12
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
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-0- | -0- | -0- | |||||||||
Total
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-0- | -0- | 1,175,000 |
1
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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,
of which 75,000 had been issued as stock grants under the plan prior to
December 31, 2009, leaving 1,175,000 shares available for future issuance
under the plan. No options had been granted under the plan as
of December 31, 2009.
|
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. 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 7,
2010.
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.
13
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.
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 section should be read in conjunction with our
Consolidated Financial Statements and accompanying notes and other detailed
information included in this prospectus.
Overview
We are a
mineral exploration company with proposed projects located in the Gold Hill
Mining District in Tooele County, Utah. We are currently focused on
extracting mineralized material from the Yellow Hammer claims for processing at
the Cactus Mill pilot plant, and completing the permitting process for our
Kiewit claims and construction of a heap leach facility near these
claims. We are also in the process of seeking an amendment to our
current mill site permit to allow us to construct and operate a heap leach
facility near the pilot mill. 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.
We were
originally incorporated in the State of Idaho on November 5,
1957. For several years the company bought and sold mining leases and
claims, but in 1995 we ceased all principal business operations. In
2008 we changed the domicile of the company from the State of Idaho to the State
of Nevada. In May 2009 we raised funds to recommence mining
activities. In July 2009 we entered into agreements to commence
exploration activities on mining claims in the Gold Hill Mining District located
in Tooele County, Utah. We hold leasehold interests within the Gold
Hill Mining District consisting of 334 unpatented mining claims, including an
unpatented mill site claim, 42 patented claims, and five Utah state mineral
leases located on state trust lands, all covering approximately 33 square
miles. From these claims we have centered our activities on the
Yellow Hammer project located on four of the patented claims, the Kiewit project
consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project
consisting of an unpatented mill site. We have no current exploration
plans for the remaining claims. We also hold eight unpatented lode
mining claims in Yavapai County, Arizona, on which we have no current plans to
conduct exploration. We do not have any proven or probable reserves
on any of our mineral claims or mining leases.
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
agreement with DMRJ Group I, LLC through which we can borrow up to $6,500,000
for our Yellow Hammer and Kiewit projects. Historically, we have
incurred net losses for the years ended December 31, 2009 and 2008, and have
also incurred losses for the nine months ended September 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 and 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;
|
14
|
·
|
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
|
|
·
|
In
October 2010 we completed the testing of the pilot mill and commenced
processing mineralized material at the pilot plant;
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 December 7, 2010, we had requested and received four
loan advances from DMRJ Group for $500,000 each for a total of $2,000,000, plus
a total of $352,941, 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%.
15
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 the debt to DMRJ Group.
Results
of Operations for the Nine Months Ended September 30, 2010 and
2009
We
generated no revenues for the nine months ended September 30, 2010 or
2009. Total operating expenses increased approximately 424%, or
$1,293,052, for the nine months ended September 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 124%, or $88,092, for the nine months
ended September 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 793%, or $356,960, for the
nine months ended September 30, 2010, as compared to the comparable prior
year period. This increase was primarily attributable to
issuing stock to a new director for accepting appointment to the board and
for their services as a director, and engaging Rick Havenstrite to work on
the mine site and act as
President.
|
|
·
|
Exploration
expense increased approximately 488%, or $310,581, for the nine
months ended September 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 245%, or $128,339, for
the nine months ended September 30, 2010 as compared to the comparable
prior year period. This increase was primarily attributable to
legal fees associated with the DMRJ Group funding and expenses related to
our S-1 filing.
|
|
·
|
General
and administrative expenses increased approximately 546%, or $398,941, for
the nine months ended September 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 $10,139 for the nine months ended September 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 nine month period ended September 30, 2010, was $883,598
compared to other income of $6,619 for the comparable prior year
period. This other expense is attributable to financing expense
related to the DMRJ Group funding 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.
16
Results
of Operations for the Years Ended December 31, 2009 and 2008
We
generated no revenues for the years ended December 31, 2009 or
2008. Total operating expenses increased approximately 324%, or
$407,405, 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 $14,998 for the year ended December 31, 2009, with no comparable
other income in the prior year. This increase in other income is
attributable to 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 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.
Liquidity
and Cash Flow
At
September 30, 2010, our aggregate cash and short-term investments totaled
$429,590, which included $409,700 of cash and $19,890 of marketable
securities. Our cash balance is significantly lower than the $888,434
in cash at December 31, 2009. The decrease is primarily
attributable to the increased exploration activities on our Gold Hill Mining
claims, including rebuilding of the pilot mill.
During
the years ended December 31, 2009 and 2008, and for the nine-month period ended
September 30, 2010, our sole means of meeting our cash flow requirements was
through 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; 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 initial 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
claims such as assaying portions of the claims, conduction further geological
work, and rebuilding the pilot mill, and to meet our overhead and administrative
expenses.
17
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, which
we have achieved. We have received loan advances of
$2,000,000, plus $352,941 for prepayment of interest, for this project and
anticipate making requests for an additional $500,000 during the next six
months. Loan advances on this project are repayable pursuant to the
following schedule:
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 $1,880,000 over the next
eight-month period which commenced November 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. Estimated
operating costs of the pilot mill are based upon the experience of our
management and our outside consultants and employees, as well as actual
operating costs since commencing operations at the pilot mill in October
2010. Projected capital costs for constructing the heap leach
facility are based upon initial bids solicited by management from the
anticipated sources of the materials necessary to construct the facility, which
bids, however, are no longer binding upon these source companies but which
management believes remain accurate. Estimated operating costs of the
heap leach facility are based upon the experience of management from like
projects. Management believes that the estimated costs associated
with operating the pilot mill and constructing and operating the proposed heap
leach facility are accurate within 10% of these
estimates. Nevertheless, we have no firm contracts for materials or
labor associated with these estimates, which means that increases or decreases
in the costs of labor or materials either because of material changes in the
economy or mining industry or from delays in obtaining the necessary amendment
to the existing large mining operations permit for this project could affect the
accuracy of these estimates.
Funds
from DMRJ Group will be insufficient to meet our cash flow projections for this
project. Our
Cactus Mill pilot plant commenced operations in October 2010. We
anticipate that we will generate revenue from the operation of the pilot plant
commencing
first quarter 2011 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.
18
Kiewit
Project
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. We cannot
commence construction of this heap leach facility until we receive operating
permits from the BLM and the Utah Division of Oil, Gas and Mining, which we
anticipate completing in approximately fourth quarter of 2010. We
anticipate that the heap leach facility will be completed in approximately six
months from the date we receive the necessary permits.As with the Yellow
Hammer project, funds from DMRJ Group will be insufficient to meet our cash flow
projections for this project. Prior to
commencement of the construction of the facility, we anticipate generating
sufficient revenue from operation of the Cactus Mill pilot plant to complete
construction of the facility and to commence operations.We anticipate
that we will generate revenue from the operation of the heap leach facility
sufficient to provide the additional cash flow requirements for
continuing operations. 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
Statements for a discussion of those policies.
19
Mineral Exploration and
Development Costs
We
account for mineral exploration costs in accordance with ASC 932 Extractive Activities Topic
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.
Mineral
Properties
We
account for mineral properties in accordance with ASC 930 Extractive Activities-Mining
Topic 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.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
BUSINESS
AND PROPERTIES
Overview
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 on these properties are exploratory in
nature. 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. In
January 2006 Mr. Jorgensen acquired sole control of the company from Messrs Ryan
and Crosby. 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.
Effective
April 3, 2009, we also reverse split the outstanding shares of 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
on mining claims in the Gold Hill Mining District located in Tooele County,
Utah. We subsequently converted these joint venture agreements into
lease agreements.
In
December 2009 we acquired all of the outstanding stock of Blue Fin Capital,
Inc., a Utah corporation owning eight unpatented lode mining claims 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 Fin at the time of the
acquisition. The closing of the transaction occurred on December 31,
2009, and Blue Fin became a wholly owned subsidiary of Desert
Hawk. The
transaction was approved by a majority of the disinterested directors who
determined that the claims would have value to the company at least equal to the
par value at the time of the shares issued. We have been unable to
secure funding for exploration of these properties and do not consider
these properties material at
present because of the inability to raise funds for further exploration, but
we plan to commence exploration activities on these claims after
completion of our current activities on the Gold Hill projects. Blue
Fin Capital, Inc. is our sole subsidiary.
20
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 $308,000 in the offering 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. In 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 Group 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 to us
exclusive possession of certain patented and unpatented mining claims and an
unpatented mill site claim and certain Utah state mineral leases covering lands
in the Gold Hill Mining District located in Tooele County, Utah, for
exploration, development and mining, and the right to occupy the properties and
to explore, develop and mine the properties for minerals. Woodman
Mining also granted us the same rights in certain of these patented mining
claims owned jointly with Clifton Mining. 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 included in the Joint
Venture Agreement. These shares are subject to a six-year lockup 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% 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, and the sublease of the
state mineral leases. 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 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.
21
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 property and a net smelter royalty on gold 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. 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.
22
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 trust of $50,000 to retain our rights to
those properties. The amended agreement 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 comply with the
terms of the agreement and we fail to correct any breach of the agreement after
30 days’ notice from the trust.
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 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 rights under these potential encumbrances.
DMRJ
Group Investment Agreement
On
July 14, 2010, we 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 us 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 us 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 our
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
balance of the funds borrowed from DMRJ Group may be used for capital and
operating expenses. 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, which
condition we have met. 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 December
7, 2010, we had requested and received three loan advances from DMRJ
Group for $500,000 each for an aggregated of $2,000,000, plus an
aggregated of $352,941 in prepaid interest paid to DMRJ
Group.
In
November 2010 we amended the Investment Agreement to eliminate the requirement
to produce 400,000 pounds of copper concentrate in order to receive the final
two loan advances for the Yellow Hammer project or to avoid an event of default
if this amount was not produced by mid-December 2010, and we revised the pro
forma projections for the Yellow Hammer project. At the time we
entered into the original Investment Agreement in July 2010, we anticipated that
the amendment to our mining permit which would authorize us to construct and
operate the Cactus Mill heap leach facility would have been approved in third
quarter 2010, and our projections for funding were based on this
assumption. Since the amendment to the mining permit has not been
approved, we negotiated an amendment to the Investment Agreement to eliminate
the requirement to produce 400,000 pounds of concentrate, which was based upon
the original assumption of a combined operation of production of mineralized
material from the pilot mill and from the heap leach facility. Also,
our projections furnished with the original Investment Agreement contained the
projected mineral production levels, cash flows, operating expenses and debt
service based upon the combined processing capabilities from the pilot mill and
the heap leach facility. While we maintained the debt service
payments of the original projections commencing in February 2011, we revised the
mineral production levels, cash flows, and operating expenses based solely on
the estimated mineralized material to be processed at the pilot
mill. The amendment was entered into on November 8,
2010.
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.
The
Investment Agreement contains certain affirmative covenants we are required to
meet in order to avoid an event of default under the agreement, including the
following:
·
|
Maintain
the existence of our business and
properties;
|
·
|
Keep
our properties insured;
|
·
|
Pay
and discharge promptly all material
taxes;
|
·
|
Furnish
copies of our annual and quarterly financial
statements;
|
·
|
Furnish
notice of any event of default under the agreement or the commencement or
threat of any litigation;
|
·
|
Comply
with all rules and regulations applicable to our properties, including our
mining claims and leases;
|
·
|
Maintain
proper books and records, including financial
records;
|
·
|
Use
the proceeds of the loan advances for the purposes described in the
agreement;
|
·
|
Comply
with all environmental laws applicable to our mining operations;
and
|
·
|
Keep
all mining claims and leases in full force and
effect.
|
The
Investment Agreement further contains certain negative covenants which prohibit
us from the following actions or activities:
·
|
Incurring
any indebtedness except in limited
circumstances;
|
·
|
Creating
any significant liens on any of our properties or
assets;
|
·
|
Enter
into any sale and lease-back transaction involving any of our
properties;
|
·
|
Make
any investments in or loans or advances to other
parties;
|
·
|
Engage
in any merger, consolidation, sale of assets or acquisition transaction,
except for the purchase or sale of inventory or certain limited
investments;
|
·
|
Declare
or pay any dividends, except for dividends to DMRJ
Group;
|
·
|
Engage
in any business transactions with
affiliates;
|
·
|
Make
capital expenditures except as permitted in the agreement pertaining to
our current mining business;
|
·
|
Create
any lease obligations;
|
·
|
Amend,
supplement or modify any existing
indebtedness;
|
·
|
Enter
into any swap, forward, future or derivative
transaction;
|
·
|
Make
any change in our accounting policies or reporting
practices;
|
·
|
Form
additional subsidiaries; or
|
·
|
Modify
or grant a waiver or release under or terminate any principal lease
agreement or other material
contract.
|
23
An event
of default will occur under the terms of the Investment Agreement if any
representation or warranty made by us in the transaction documents with DMRJ
Group proves to be false or misleading in any material respect, if we fail to
make required payments under the loan documents, if we fail to observe the
covenants made in the agreement, if a change of control occurs, if a voluntary
or involuntary insolvency action is commenced, or if a change of control of our
company occurs. In the case of an event of default, DMRJ Group may,
upon prior written notice, terminate or suspend its commitment for further loan
advances, declare the outstanding loan advances to be immediately due and
payable, or exercise any other remedies legally available.
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 unpatented 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 intend to concentrate our
activities on our material claims, designated 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. We have assembled all of our claims and leases
in this district to create a sizeable, contiguous property package on which 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 extract mineralized
material on the Yellow Hammer lode claims and process the material at the Cactus
Mill 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 was
completed in fall of 2010. In October 2010 we commenced
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. We anticipate
that this would include detailed surface mapping, and sampling and diamond
drilling of specified areas. We are unable to predict the costs
associated with completing a final feasibility study.
24
We have
no proven or probable reserves for this project. Management has
decided rather than allocating funds 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 summer 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. In
October 2010 we commenced processing mineralized material at the Cactus Mill
pilot plant. Initial results to date from the
operation of the pilot plant indicate the projections originally used on
recoveries and reagent consumptions confirm
that the prior data is accurate and we intend to proceed with our planned
extraction and processing activities.
Project
Location and Access
The Gold
Hill Mining District is located in the Gold Hill and the Clifton 7½ minute
quadrangles in western Utah. The Gold Hill Mining District 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 lane road. Approximately 17 miles
east is a maintained two lane county road which provides access to the property
approximately 11 miles southeast to the town of Gold Hill, Utah. Each
of the claims and the mill site are accessible by dirt roads maintained
year-round by us and Tooele County. Access to the property is
maintained all year and we likewise intend to maintain roadways between the
mining claims, the mill site and paved roads all year.
Mineral
extraction activities on the property will be open-pit and we do not anticipate
conducting any underground mining.
25
26
History
The 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. 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. 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 dissolved and
terminated. Through our lease agreement with Clifton Mining, we have
access to all reports and core samples prepared by Dumont Nickel during the
period of the joint venture.
27
Evidence
of prior open pit mining activities on the Yellow Hammer claims and the Kiewit
claims is evident at the 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 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, 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.
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 patented 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, 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.
28
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.
29
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.
30
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 from the
2009 drilling was performed by McClellan Laboratories, Inc. in Reno,
Nevada.
They performed mineralogical work to confirm that the primary sulfide copper
minerals were approximately evenly split between chalcocite, covellite, bornite,
and chalcopyrite, all of which would be amenable to flotation
techniques. McClelland’s baseline metallurgical test work confirmed
that a +62% copper recovery at a +30% concentrate grade was attainable and that
gold and silver recoveries were over 65% each. McClelland also
studied tungsten separation using a Knelson bowl but was
unsuccessful. Using the data from McClelland, we commenced
optimization of the copper and tungsten and our internal results demonstrate
recoveries are optimal at 90% minus 200 mesh. Although we have no
proven or probable reserves, we have calculated internally a mineralogical
resource study of the mineralized material on the Yellow Hammer claims based on
a cross sectional method the result of which is an estimated contained resource
of approximately 25,000 tons grading 3.5% copper and 1% tungsten as WO3 and
containing 0.05 ounce per ton gold and 1.5 ounce per ton
silver.
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. McClellan
Laboratories completed a column leach test which resulted in 70% gold recovery
on minus 1/8th
material and with modest reagent consumptions due to the nature of the deposit
(granodiorite).
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 have commenced processing mineralized material from
our Yellow Hammer claims at the pilot plant located on the Cactus Mill property
and we intend to commence processing activities on the Kiewit Claims upon
receipt of the necessary permits. 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 tested
the facility during September 2010 and commenced processing mineralized
material in October 2010. We spent approximately $1,000,000 on the
remodel and reconstruction of the pilot plan.
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Mineralized
material from the Yellow Hammer claims is providing the initial material for
feed to the pilot plant. It is transported to the pilot mill on
existing county roads and crushed and ground at the site. It is
then put through the gravity separation system, where a salable
concentrate is produced. The remaining materials are then
extracted using a regular floatation process and the concentrates will then be
sold “as is” to a smelter. We have
commenced production of a copper concentrate with credits for gold
and silver but have
not produced sufficient concentrate to ship to smelter. In
addition, are
producing a gravity and flotation tungsten concentrate, but
likewise we have not yet produced sufficient concentrate to ship to
smelter. Based on our current schedule of operations, and depending
upon securing off-take contracts for the copper and tungsten concentrates, we
anticipate commencing shipments of copper and tungsten concentrates in fourth
quarter 2010.
Mineralized
material is removed from the Yellow Hammer pit by an excavator and a
loader. It is then crushed with an impact crusher in closed circuit
with a 1” x 1” screen. The material is crushed and stockpiled on top
of an apron feeder at the pilot mill and a backhoe is used to maintain the pile
during operation. The mineralized material is transferred from the
pile by an electric/hydraulic variable speed apron feeder to a newly rebuilt 30”
x 40’ weight-o-meter belt. This belt feeds a 30” x 20’ feed belt
which dumps into the pilot mill feed box. Water is added to the mill
feed material to achieve a density of 50%. The slurry is fed to the
mill through an eight inch pipe and elbow, and sealed on the mill feed end by a
neoprene washer which has been drilled for water injection to help with sealing
and lubrication. Mineralized material is ground in a 150 horsepower
six foot by seven foot steel lined mill with minus three-inch grinding
balls. Material which passes the one-inch discharge trammel falls to
a sump where water is added to achieve a density of 30-35%. This
slurry is pumped back to the pilot mill feed box where an eight-inch cyclone
classifies the material to achieve a 90% passing 200 mesh
grind. Oversized material returns to the mill feed box and mixes with
new mineralized material and make-up water and returns to
grinding. Undersize cyclone material reports to a set of six each
flotation rougher cells. There are two stages of cleaning to produce
the copper concentrate. Rougher tailings are pumped to a bank of four
spiral classifiers. Spiral concentrates are pumped by a 2 x 2
diaphragm pump to an agitated surge tank which feeds a six-foot by twelve-foot
Wiffley concentrating table.
From
approximately September 27, 2010, until mid-October 2010, the pilot mill was in
the startup testing phase. Commencing October 20, 2010, the pilot
mill has operated continuously processing mineralized material from the Yellow
Hammer claims. It is designed to operate at 10 tons per hour, but we
have found that it operates most efficiently at approximately nine tons per
hour. During October 2010 the pilot mill was operated 75 hours per
week and commencing November 1, 2010, it has been operated at a rate of
approximately 96 hours per week. We anticipate that the pilot plant
will process at a rate of at least 3,600 tons per month.
We
continue to adjust the specifications for the pilot mill to meet the
requirements of the specific mineralized material fed into the
plant. The flotation circuit is performing approximately to plan in
the oxidized horizon with copper recovery of between 50-60% depending on the
exact feed, but the gravity circuit with the spiral classifiers followed by a
Wiffley table is capturing more tungsten than expected and greater amounts of
copper than anticipated. As a result, we are adjusting the
specifications for the mill to accommodate the unexpected volume coming off the
table, which we do not anticipate will materially delay our operating
schedule. We estimate that as of December 7, 2010, we had produced
approximately 50,000 pounds of copper concentrate and approximately 2,000 pounds
of tungsten concentrate.
We have
retained a concentrate broker with contacts to several local smelters to
negotiate the selling price and terms to sell our copper and tungsten
concentrates. Although our broker has had preliminary discussions
with potential smelters, we have no existing off-take agreements for our
concentrates. Based upon these preliminary discussions, we anticipate
that we will be able to sell our concentrates to facilities in the Salt Lake
City, Utah area, which is approximately 220 miles by good roads from our
property. We believe adequate local trucking services are readily
available to transport the concentrates.
Tailings
from our pilot mill are being stored in an existing and historic tailings area
approximately 30 yards from the plant and adjacent to the location of the
proposed heap leach facility. Under the current terms of our existing
Large Mining Operations Permit for the pilot mill, we are not limited as to the
amount of tailings which we can store in this area. We believe the
operating duration of the pilot mill is not limited by the capacity of the
tailings area and would permit processing of all of the mineralized material at
the Yellow Hammer claims.
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 $500,000
from the DMRJ funds and $500,000 from the sale of copper concentrate from the
pilot mill 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.
32
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 Water
Quality within the Utah Department 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 be located on patented mining claims approximately
3,000 feet to the south 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.
33
In
February 2010 we filed an application for a Large Mining Operations Permit to
commence large mining operations for three open pit mines and a heap leach gold
facility. 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 provided its
initial review of this submittal. We have
submitted our response which is under review by the
Division. The application includes reclamation and storm water
management. A separate Groundwater DischargePermit
through the Utah Department of Environmental Quality is also required and is in
its final review phase. The
permit was posted by the Utah Division of Water Quality for 30-day public
comment on November 2, 2010. We anticipate completion of this
process in fourth quarter 2010.
In
addition to completing the notice of intent filing, we anticipate that the BLM
will require 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 requirements of the BLM.
Yellow Hammer
Exploration: In October 2008 the Utah Division of Oil, Gas and
Mining issued an exploration permit for exploration 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 posted a reclamation bond with the Division in
the amount of $12,300 for this project.
Parties
engaged in mining operations may be required to compensate those suffering loss
or damage by reason 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 installed 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 that all necessary easements are in place for
installation 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 that we will be able to sell all minerals that we are able to
recover.
Copper
mining is a significant industry in Utah. In particular, 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 strong to accommodate any mineralized material which we may
extract.
34
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, or other minerals which we may
produce. We anticipate that markets for these minerals are readily
available and do not anticipate difficulty in selling any concentrates 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. to
assist us in obtaining the necessary mining and environmental permits and
clearances. Meeting these regulatory requirements necessitates
significant capital outlays and may result in liability to the owner and
operator of the property for damages that may result from specific operations or
from contamination of the environment, all 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 conditions on the nature and extent of surface disturbance, the manner
in which exploration and mining can be conducted, the disposition of spent
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 land and to record an affidavit in 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 and commenced
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. Monthly
rent for the office space in Reno is $500 and commenced October 1,
2009. This office space is used primarily for RMH Overhead,
LLC, a business owned by him. Agreements
for the use of the office space facilities with
these parties are month-to-month and can be cancelled at any
time.
35
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
who will devote approximately 90% of his time or 36 hours per week for our
business. 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, who will
devote approximately 75% of his time or 30 hours per week for our
business. 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.
MANAGEMENT
Current
Management
The
following table sets forth as of December 7, 2010, the name and ages of, and
position or positions held by, our executive officers and directors and the
employment background of these persons:
Name
|
Age
|
Positions
|
Director
Since
|
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.
|
36
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 EBI
Securities Corp as compliance officer for the Spokane
Washington branch. From 2001 until 2003 he was
self-employed as a business consultant and from 2003 until 2005 he worked
in the collections department for
Citigroup in Meredian, 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.
|
37
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.
|
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, 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.
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 Legal Proceedings
During
the past ten years there have been no events under any bankruptcy act, no
criminal proceedings and no judgments, injunctions, orders or decrees material
to the evaluation of the ability and integrity of any of our directors or
executive officers.
We are
not aware of any legal proceedings in which any director, officer or affiliate
of our company, any owner of record or beneficially of more than five percent of
any class of our voting securities, or any associate of any such director,
officer, or affiliate of our company, or security holder is a party adverse to
us or our subsidiary or has a material interest adverse to us or our
subsidiary.
Certain
Relationships and Related Transactions
On July
24, 2009, we entered into a Joint Venture Agreement, which was subsequently
converted into a lease agreement, with 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 terms of the Joint
Venture Agreement, we paid $250,000 and issued 500,000 shares 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%
shareholder of the company. The shares are subject to a six-year
lockup 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% of
these shares during any 12-month period. 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 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.
On
November 30, 2009, we issued promissory notes 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 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 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.
38
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 ten-month period ended October 31, 2010, we paid $82,154
for his services. In addition, from October 2009 through October 31,
2010, we paid $6,000 to RMH Overhead, LLC, an entity co-owned and controlled by
Rick Havenstrite, for office rent, and we continue to pay $500 per month for use
of this office space pursuant to a Rental Agreement dated effective October 1,
2009, between us and RMH Overhead, LLC. From April through October
31, 2010, we paid $31,700 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
$8,800
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 with 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, for accepting
appointment as a director and for his prior services as a
director. We valued these shares at $280,000.
In
September 2010 we entered into an employment agreement with Mr.
Havenstrite. The term of the agreement is for four years, with
automatic one-year extensions unless notice is given by either
party. 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 90% of his time, or approximately
36 hours per week, to our business and approximately 10%, or 4 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 10% 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 or the Compensation Committee. In the event we terminate
the agreement without cause or if the agreement is constructively terminated by
us, we have agreed to pay Mr. Havenstrite 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.
For the
years ended December 31, 2008 and 2009, and for the first eight months of this
current calendar year, we have paid $101,730 to Eric L. Moe, one of
our directors, for consulting services. Effective September 1, 2010,
we entered into a written consulting agreement with Mr. Moe which provides for a
monthly payment of $10,000 and requires approximately 50% of Mr. Moe’s business
time be dedicated to the business of our company. The term of the
consulting agreement is for four years but may be terminated for
cause. During the year ended December 31, 2009, Mr. Moe received
$4,200 for providing us the use of office space in his
home.
For the
eight-month period ended August 31, 2010, we paid $7,000 to RMH Overhead, LLC,
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.
We 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.
39
Mr.
Jorgensen, our CEO and Chairman, provides office space in his home for our
principal executive offices at a cost of $500 per month commencing October 1,
2010, pursuant to a Rental Agreement dated effective October 1, 2010, between us
and Mr. Jorgensen. As of December 7, 2010, we owed Mr. Jorgensen
approximately $138,000 for unpaid salary accrued during the year ended December
31, 2006. Mr. Jorgensen has deferred payment of this accrued salary
until revenue is generated from operations of the
company.
Independent
Directors
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 Equities (formerly known as the American Stock Exchange) to
determine the independence of our directors and those directors serving on our
committees. These standards provide that a person will be considered
an independent director if he or she is not an officer of the company and is, in
the view of the company’s board of directors, free of any relationship that
would interfere with the exercise of independent judgment. Our board
of directors has determined that Robert E. Knecht, Bill McAndrews, and John Ryan
would meet this standard, and therefore, would be considered to be
independent.
Committees
We have
created a Compensation Committee of the Board of Directors, which is composed of
Robert E. Jorgensen, John Ryan, and Bill McAndrews. Mr. Jorgensen is
not considered an independent member of this committee. We have not
created any other committees.
Indemnification
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
the 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 Bylaws also
provides that we indemnify our directors, officers, and agents to the full
extent permitted by the laws of the State of Nevada.
Each of
our employment agreements with Messrs Jorgensen and Havenstrite, and our
consulting agreement with Eric L. Moe, contain mandatory indemnification
provisions similar in scope and operation as described above.
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.
40
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. Mr. Jorgensen 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. He devotes not less than 30 hours per week to our
business and currently has no other material business commitments to which he
devotes a substantive amount of his time. 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.
41
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.
42
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 December 7, 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
Holcomb 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 December 7, 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 December 7, 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.
43
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 December 7, 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
December 7, 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.
44
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. Except for Phillip V. Renz who is a registered representative
of a broker dealer unaffiliated with us, none of the selling stockholders is a
registered broker-dealer or an affiliate of a
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 Trust3
|
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 Trust12
|
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,
LLC16
|
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 |
45
* Less
than 1%
1 Based
upon 7,586,411 shares outstanding at December 7, 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 with sole voting and investment
power held by George D. Hansen.
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 2009. 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 2009. 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 2009. 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, of which sole voting
and investment power is held by 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:
46
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.
47
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;
|
48
|
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;
|
49
|
·
|
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;
|
|
·
|
short
sales;
|
|
·
|
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.
50
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.
51
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. 333-169701) 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.
52
Desert
Hawk Gold Corp.
(Formerly
Lucky Joe Mining Company)
Unaudited
Consolidated Financial Statements
September
30, 2010 and 2009
DESERT
HAWK GOLD CORP
|
(formerly
Lucky Joe Mining Company)
|
(An
Exploration Stage Company)
|
CONSOLIDATED
BALANCE SHEETS
|
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(restated)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 409,700 | $ | 888,434 | ||||
Deposits
|
500 | 500 | ||||||
Accounts
receivable
|
21 | 12,334 | ||||||
Prepaid
expense
|
21,117 | - | ||||||
Note
receivable
|
- | - | ||||||
Other receivable - Bouyan
stock
|
- | 40,000 | ||||||
Marketable
securities
|
19,890 | - | ||||||
Total Current
Assets
|
451,228 | 941,268 | ||||||
MINERAL
LEASE
|
775,000 | 775,000 | ||||||
PROPERTY AND EQUIPMENT, net of
depreciation of $17,243 and
|
||||||||
$9,585,
respectively
|
243,562 | 16,607 | ||||||
OTHER
ASSETS
|
||||||||
Reclamation
bonds
|
80,302 | 80,302 | ||||||
Mining
claims
|
2,485 | 2,485 | ||||||
Water
rights
|
250 | - | ||||||
Mill
renovation
|
120,855 | - | ||||||
Total Other
Assets
|
203,892 | 82,787 | ||||||
TOTAL
ASSETS
|
$ | 1,673,682 | $ | 1,815,662 | ||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 133,795 | $ | 30,681 | ||||
Accrued liabilities - officer
wages
|
131,259 | 141,259 | ||||||
Accrued
expenses
|
- | 1,079 | ||||||
Accrued
interest
|
- | 10,500 | ||||||
Accrued
payroll
|
- | 8,349 | ||||||
Payroll
liabilities
|
1,379 | 6,721 | ||||||
Derivative
liability
|
696,040 | 26,396 | ||||||
Note
payable
|
11,995 | - | ||||||
DMRJ note payable, net of debt
discount of $585,938 and
|
||||||||
$0,
respectively
|
1,178,767 | - | ||||||
Total Current
Liabilities
|
2,153,235 | 224,985 | ||||||
LONG-TERM DEBT CONVERTIBLE
DEBT, net of debt discount
|
||||||||
of $151,375 and
$201,833,
respectively
|
448,625 | 398,167 | ||||||
TOTAL
LIABILITIES
|
2,601,860 | 623,152 | ||||||
STOCKHOLDERS'
EQUITY(DEFICIT)
|
||||||||
Preferred Stock, $0.001 par
value, 10,000,000 shares authorized
|
||||||||
958,033
and 0 shares issued and outstanding
respectively
|
958 | - | ||||||
Common stock, $0.001
par value, 100,000,000 shares
authorized;
|
||||||||
7,586,411 and 7,071,044 shares issued and
outstanding,
|
||||||||
respectively
|
7,587 | 7,071 | ||||||
Additional paid-in
capital
|
3,048,465 | 2,688,224 | ||||||
Accumulated other comprehensive
income
|
(510 | ) | - | |||||
Accumulated deficit prior to
exploration stage
|
(1,016,591 | ) | (1,016,591 | ) | ||||
Accumulated deficit during
exploration stage
|
(2,968,087 | ) | (486,194 | ) | ||||
Total Stockholders' Equity
(Deficit)
|
(928,178 | ) | 1,192,510 | |||||
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 1,673,682 | $ | 1,815,662 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
1
(formerly
Lucky Joe Mining Company)
|
(An
Exploration Stage Company)
|
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
|
Period
from
|
||||||||||||||||||||
May 1,
2009
|
||||||||||||||||||||
(Re-entry
into
|
||||||||||||||||||||
Three
Months
|
Three
Months
|
Nine
Months
|
Nine
Months
|
Exploration
|
||||||||||||||||
Ended
|
Ended
|
Ended
|
Ended
|
Stage) to
|
||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
REVENUES
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
EXPENSES
|
||||||||||||||||||||
Consulting
|
89,716 | 48,524 | 159,036 | 70,944 | 246,128 | |||||||||||||||
Officers and directors
fees
|
332,295 | 15,000 | 401,960 | 45,000 | 469,142 | |||||||||||||||
Exploration
expense
|
274,227 | 53,257 | 374,278 | 63,697 | 493,402 | |||||||||||||||
Legal and
professional
|
81,355 | 56,604 | 180,815 | 52,476 | 253,359 | |||||||||||||||
General and
administrative
|
306,695 | 56,201 | 472,067 | 73,126 | 617,167 | |||||||||||||||
Depreciation
|
7,658 | - | 10,139 | - | 17,243 | |||||||||||||||
Total
Expenses
|
1,091,946 | 229,586 | 1,598,295 | 305,243 | 2,096,441 | |||||||||||||||
OPERATING
LOSS
|
(1,091,946 | ) | (229,586 | ) | (1,598,295 | ) | (305,243 | ) | (2,096,441 | ) | ||||||||||
OTHER INCOME
(EXPENSE)
|
||||||||||||||||||||
Interest
income
|
- | - | - | - | 40,000 | |||||||||||||||
Other
income
|
- | - | 3,962 | - | 16,296 | |||||||||||||||
Gain (loss) on investment
sales
|
(181 | ) | 825 | (310 | ) | 6,721 | 3,365 | |||||||||||||
Financing
expense
|
(383,281 | ) | - | (416,281 | ) | - | (441,281 | ) | ||||||||||||
Interest
expense
|
(392,307 | ) | - | (470,969 | ) | (102 | ) | (490,026 | ) | |||||||||||
Total Other Income
(Expense)
|
(775,769 | ) | 825 | (883,598 | ) | 6,619 | (871,646 | ) | ||||||||||||
LOSS BEFORE INCOME
TAXES
|
(1,867,715 | ) | (228,761 | ) | (2,481,893 | ) | (298,624 | ) | (2,968,087 | ) | ||||||||||
INCOME
TAXES
|
- | - | - | - | - | |||||||||||||||
NET
LOSS
|
(1,867,715 | ) | (228,761 | ) | (2,481,893 | ) | (298,624 | ) | (2,968,087 | ) | ||||||||||
OTHER COMPREHENSIVE INCOME
(LOSS)
|
||||||||||||||||||||
Unrealized gain on available
for sale securities
|
(1,910 | ) | 1,650 | (510 | ) | - | (510 | ) | ||||||||||||
COMPREHENSIVE
LOSS
|
$ | (1,869,625 | ) | $ | (227,111 | ) | $ | (2,482,403 | ) | $ | (298,624 | ) | $ | (2,968,597 | ) | |||||
BASIC AND DILUTED NET LOSS PER
SHARE
|
$ | (0.25 | ) | $ | (0.12 | ) | $ | (0.35 | ) | $ | (0.16 | ) | ||||||||
WEIGHTED AVERAGE NUMBER
OF
|
||||||||||||||||||||
COMMON SHARES
OUTSTANDING
|
7,408,422 | 1,850,687 | 7,187,002 | 1,850,687 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
2
(formerly
Lucky Joe Mining Company)
|
(An
Exploration Stage Company)
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
Period
from
|
||||||||||||
May 1,
2009
|
||||||||||||
(Re-entry
into
|
||||||||||||
Exploration
|
||||||||||||
Period
Ended
|
Period
Ended
|
Stage)
to
|
||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||
2010
|
2009
|
2010
|
||||||||||
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (2,481,893 | ) | $ | (298,624 | ) | $ | (2,968,087 | ) | |||
Adjustments to reconcile net
loss to net cash used by operating activities:
|
||||||||||||
Depreciation
|
10,139 | - | 17,243 | |||||||||
Common stock issued for
services
|
358,167 | - | 403,167 | |||||||||
Cancelled common stock issued
for services
|
- | (42,397 | ) | (42,397 | ) | |||||||
Accrued interest
income
|
- | - | (40,000 | ) | ||||||||
Loss (gain) on sale of
securities
|
310 | (5,896 | ) | (3,365 | ) | |||||||
Amortization of debt
discount
|
134,164 | - | 142,331 | |||||||||
Changes in assets and
liabilities:
|
||||||||||||
Prepaid
expenses
|
(21,117 | ) | 32,397 | 11,280 | ||||||||
Deposits
|
- | - | (500 | ) | ||||||||
Accounts
receivable
|
12,313 | - | (21 | ) | ||||||||
Accrued liabilities - officer
wages
|
(10,000 | ) | - | (40,691 | ) | |||||||
Accrued
payroll
|
(8,349 | ) | (15,541 | ) | (8,349 | ) | ||||||
Accounts
payable
|
103,114 | 2,946 | 130,621 | |||||||||
Accrued
expenses
|
(1,079 | ) | - | 15,070 | ||||||||
Accrued
interest
|
(10,500 | ) | - | - | ||||||||
Payroll
liability
|
(5,342 | ) | - | (5,342 | ) | |||||||
Net cash used by operating
activities
|
(1,920,073 | ) | (327,115 | ) | (2,389,040 | ) | ||||||
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||
Purchase of fixed
assets
|
(237,094 | ) | - | (260,805 | ) | |||||||
Purchase of mineral
lease
|
- | - | (250,000 | ) | ||||||||
Mill
renovation
|
(120,855 | ) | - | (120,855 | ) | |||||||
Reclamation
bond
|
- | - | (37,500 | ) | ||||||||
Purchase of water
rights
|
(250 | ) | - | (250 | ) | |||||||
Note
receivable
|
- | 12,500 | 27,500 | |||||||||
Proceeds from marketable
securities
|
19,290 | 2,596 | 29,345 | |||||||||
Net cash provided (used) by
investing activities
|
(338,909 | ) | 15,096 | (612,565 | ) | |||||||
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||||||
Proceeds from notes
payable
|
1,776,700 | - | 2,376,700 | |||||||||
Proceeds from sale of common
stock
|
2,590 | 393,500 | 1,008,000 | |||||||||
Proceeds from sale of preferred
stock
|
958 | - | 958 | |||||||||
Net cash provided by financing
activities
|
1,780,248 | 393,500 | 3,385,658 | |||||||||
NET INCREASE (DECREASE) IN
CASH
|
(478,734 | ) | 81,481 | 384,053 | ||||||||
CASH, BEGINNING OF
PERIOD
|
888,434 | 53,693 | 25,647 | |||||||||
CASH, END OF
PERIOD
|
$ | 409,700 | $ | 135,174 | $ | 409,700 | ||||||
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 | ||||||
Stock received in satisfaction
of note receivable
|
$ | 40,000 | $ | - | $ | 40,000 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 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 nine month period ended September 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.
4
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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 September 30, 2010
and September 30, 2009 the Company’s cash balances exceeded Federal Deposit
Insurance Corporation (FDIC) limits by $8,113 and $0,
respectively.
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 September 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.
Mineral Exploration and
Development Costs
The
Company accounts for mineral exploration costs in accordance with ASC 932 Extractive Activities Topic
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.
5
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
Mineral
Properties
The
Company accounts for mineral properties in accordance with ASC 930 Extractive Activities-Mining
Topic 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.
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 nine months ended September 30,
2010 and the year ended December 31, 2009 are as follows:
September
30, 2010
|
December
31,
2009
|
|||||||
Stock
based compensation
|
$ | 393,167 | $ | 35,000 | ||||
Net
operating loss carryforward
|
3,591,511 | 1,467,785 | ||||||
Deferred
tax asset
|
1,354,791 | 510,947 | ||||||
Deferred
tax asset valuation allowance
|
$ | (1,354,791 | ) | $ | (510,947 | ) |
At
September 30, 2010, the Company had net operating loss carryforwards of
approximately $3,591,511, which expire in the years 2015 through
2030. The change in the allowance account from September 30, 2010 to
December 31, 2009 was $843,844.
Going
Concern
As
shown in the accompanying financial statements, the Company had an accumulated
deficit incurred through September 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.
6
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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.
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 second quarter 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.
During
the period ended September 30, 2010, the Company issued 511,667 shares of common
stock for services valued at $358,167.
Preferred
Stock
In
July 2010 the Company filed a Certificate of Designations with the State of
Nevada to create 958,033 shares of Series A Preferred Stock. The
Series A Preferred Shares have voting rights with the common stock equal to the
conversion value of the preferred shares into common shares.
In
July 2010 the Company issued 958,033 shares of its Series A Preferred Stock to a
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 issuance of the preferred stock, the company has also
recorded a discount to the loan proceeds in the amount of $669,644. At
September 30, 2010, $585,938 remains as a discount which is charged to interest
expense over the life of the loans received in connection with the
preferred stock. The discount is considered a derivative liability as there
is uncertainty as to the number of shares of common stock that may eventually be
issued.
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.
7
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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. During the quarter ended September 30, 2010, the
Company issued 511,667 shares of its common stock as bonuses and for services
under the Plan, including 400,000 shares to a director, and 111,667 shares as
bonuses to employees and consultants.
NOTE
5 – MINERAL PROPERTIES
The
Company holds leasehold interests within the Gold Hill Mining District in Tooele
County, Utah, consisting originally of 419 unpatented mining claims, including
an unpatented mill site claim, 42 patented claims, and seven Utah state mineral
leases located on state trust lands, all covering approximately 33 square
miles. In August 2010 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. 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.
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.
8
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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 was used to construct a 240 ton per day pilot mill capable of
recovering copper, gold, silver and tungsten ores initially extracted from the
Yellow Hammer claims. In September the Company completed its rebuild
of the pilot mill and testing of the pilot plan was conducted in September and
commencement of processing activities is scheduled to begin in fourth quarter
2010. Pursuant to the Company’s lease agreement with Clifton Mining,
it has access to Cane Springs, a natural flowing spring approximately 1,000 feet
above the Cactus Mill site, as well as the Cane Springs mine shaft located
approximately one-quarter mile south of the Cactus Mill property. The
Company holds a permit from the Utah Division of Oil, Gas and Mining for the
pilot plant which allows flotation and gravity concentration. The
Company has filed an application to amend its permit to operate the pilot mill
to allow construction of a heap leach facility near the mill to process
mineralized material from the Yellow Hammer claims.
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 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.
Exploration
Expenditures
Exploration
expenditures incurred by the Company during the nine-month period ended
September 30, 2010 and the year ended December 31, 2009 were as
follows:
September
30, 2010
|
December
31, 2009
|
|||||||
Assaying
|
$ | 9,260 | $ | 12,307 | ||||
Drilling
|
32,600 | 5,527 | ||||||
Equipment
rental
|
83,592 | 12,298 | ||||||
Geological
consulting fees
|
168,794 | 27,250 | ||||||
Maps
and miscellaneous
|
5,854 | 1,674 | ||||||
Metallurgy
|
11,734 | 5,918 | ||||||
Site
costs
|
39,031 | 44,209 | ||||||
Transportation
|
23,413 | 11,141 | ||||||
Exploration
expenditures for period
|
$ | 374,278 | $ | 120,324 |
9
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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, the Company will be required to issue an additional 300,000
shares. As of September 30, 2010, the Company had incurred $78,000 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:
September
30, 2010
|
December
31,
2009
|
|||||||
Equipment
|
$ | 227,283 | $ | 23,711 | ||||
Furniture
and fixtures
|
10,005 | - | ||||||
Vehicles
|
23,517 | - | ||||||
Less
accumulated depreciation
|
(17,243 | ) | (7,104 | ) | ||||
$ | 243,562 | $ | 16,607 |
Depreciation
and amortization expense for the period ended September 30, 2010 was $10,139. 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 – 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 originally been recorded as a receivable at December 31, 2009 for this same
value. During the period ended September 30, 2010, the Company sold
9,800 of these shares for gross proceeds of $19,973, with selling commissions
and fees of $683, for net proceeds to the Company of $19,290.
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 agreement the Family Trust granted
the Company exclusive leasehold interests in the mining claims covered by the
original agreement. 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.
10
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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 agreement Clifton Mining and Woodman
Mining granted the Company exclusive leasehold interests in the mining claims
covered by the original agreement. 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.
In
connection with the issuance of this put option, management concluded that the
60,824 shares should be recorded as a derivative liability, and not as equity.
The Company has used the Black-Scholls pricing model to value the put option.
The following assumptions were used: stock price of $0.70, strike price of
$0.79, volatility of 117% (based on similar companies volatility), and risk free
interest rate of 4.35%. This resulted in the Company recording a derivative
liability of $26,396.
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.
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.
NOTE
10 – 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 $88,235 each in prepaid interest paid to DMRJ
Group.
11
Desert
Hawk Gold Corp.
(formerly
Lucky Joe Mining Company)
(An
Exploration Stage Company)
Notes
to Unaudited Consolidated Financial Statements
For
the Nine Months Ended September 30, 2010 and 2009
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 beginning 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.
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.
NOTE
11 – SUBSEQUENT EVENTS
On
November 4, 2010, the Company received an additional loan advance from DMRJ
Group I, LLC in the amount of $588,236.
In
November 2010 the Company and DMRJ Group I, LLC amended the Investment Agreement
to eliminate the requirement to produce 400,000 pounds of copper concentrate in
order to receive the final two loan advances for the Yellow Hammer project or to
avoid an event of default if this amount was not produced by mid-December
2010.
The
Company commenced operation of the Cactus Mill pilot plant in November
2010.
The
Company has evaluated subsequent events from the balance sheet date, September
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.
12
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)
Consolidated
Financial Statements
December
31, 2009 and 2008
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 and for the period from May 1, 2009 (re-entry to exploration stage)
to December 31, 2009. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is
to expressed 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 ended December 31, 2009 and 2008 and for the period from May
1, 2009 (re-entry to exploration stage) to December 31, 2009, 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.
Child, Van Wagoner &
Bradshaw, PLLC
Salt Lake City, Utah
June 21, 2010,
except for Notes 5 and 10, which are dated November 9,
2010
|
2
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
|
|||||||
(Restated) | ||||||||
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 | ||||||
Derivative
liability
|
26,396 | - | ||||||
Accrued
interest
|
10,500 | - | ||||||
Total
Current Liabilities
|
224,985 | 177,265 | ||||||
Convertible
notes payable, net of debt discount of $201,833 and $0,
respectively
|
398,167 | - | ||||||
TOTAL
LIABILITIES
|
623,152 | 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
|
2,688,224 | 931,525 | ||||||
Accumulated
deficit prior to exploration stage
|
(1,016,591 | ) | (984,566 | ) | ||||
Accumulated
deficit during exploration stage
|
(486,194 | ) | - | |||||
Total
Stockholders' Equity (Deficit)
|
1,192,510 | (51,174 | ) | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 1,789,266 | $ | 126,091 |
See
accompanying notes to consolidated financial statements.
3
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
|
||||||||||
(Restated) | ||||||||||||
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.
4
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 (Restated) and 2008
Common
Stock
|
Additional
|
Accumulated
Deficit prior to Exploration
|
Accumulated
Deficit during Exploration
|
Total
Stockholders' Equity
|
||||||||||||||||||||
Shares
|
Amount
|
Paid-in
Capital
|
Stage
|
Stage
|
(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 | 16,345 | - | - | 16,406 | ||||||||||||||||||
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 | $ | 2,688,224 | $ | (1,016,591 | ) | $ | (486,194 | ) | $ | 1,192,510 |
See
accompanying notes to consolidated financial statements.
5
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
|
||||||||||
(Restated)
|
||||||||||||
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.
6
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
7
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 and Stock Awards 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. Stock awards have been valued at fair value
using recent share issuance prices for cash, in arms length transactions ($0.70
per share). Options and warrants are valued using the Black-Scholls pricing
model. See Note 4.
8
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
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.
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.
9
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
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:
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 | ) |
10
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
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.
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.
11
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.
12
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
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
13
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)
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:
14
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.
15
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.
In
addition, on November 3, 2010, the management of Desert Hawk Gold Corp.
concluded that the original equity classification of the put option discussed in
Note 9 of the December 31, 2009 consolidated financial statements was
incorrect. Management has subsequently determined that the put option
in connection with the issuance of 60,824 shares should have recorded as a
derivative liability, and not as equity under ASC Topic
480-10-25-8. As a result, the previously issued consolidated
financial statements for the year ended December 31, 2009 have been amended to
restate the financial statements for the derivative liability
classification. . The Company has used the Black-Scholls pricing
model to value the put option. The following assumptions were used: stock price
of $0.70, strike price of $0.79, volatility of 117% (based on similar companies
volatility), and risk free interest rate of 4.35%. This resulted in the Company
recording a derivative liability of $26,396.
Accordingly,
the accompanying consolidated balance sheet for the period described in the
preceding sentence has been retroactively adjusted as summarized below. There
has been no change to the statement of operations as a result of the
change.
Effect of Correction of Derivative
Liability
|
As Previously
Reported
|
As Restated
|
Adjustment
|
|||||||||
At December 31,
2009
|
||||||||||||
LIABILITIES
|
||||||||||||
- Derivative
liability
|
$ | - | $ | 26,396 | $ | 26,396 | (1) | |||||
- Total current
liabilities
|
$ | 198,589 | $ | 224,985 | $ | 26,396 | (1) | |||||
- Total
liabilities
|
$ | 596,756 | $ | 623,152 | $ | 26,396 | (1) | |||||
RETAINED
EARNINGS/EQUITY
|
||||||||||||
- Additional paid in
capital
|
$ | 2,714,620 | $ | 2,688,224 | $ | (26,396 | )(2) | |||||
- Total stockholders'
equity
|
$ | 1,218,906 | $ | 1,192,510 | $ | (26,396 | )(1) | |||||
- Total liabilities/stockholders'
equity
|
$ | 1,815,662 | $ | 1,789,266 | $ | (26,396 | )(1) |
(1) Cumulative effect of change in
derivative liability as of the period ended
(2) Cumulative
effect of reclassifying the derivative from equity to liabilities16
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
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.
17
[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 ,
2011, 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
In May
2008 we commenced an offering of 5,000,000 pre-reverse split shares of our
common stock at $0.05 per share. We completed the offering in
September 2008 and sold 289,583 shares (3,475,008 pre-reverse split shares) for
gross proceeds of $173,750. 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 May 30, 2008, for this offering. Sales were made to a total of 10
investors, each of whom was an accredited investor as defined in Regulation
D. Each investor delivered appropriate investment representations
with respect to these issuances and consented to the imposition of restrictive
legends upon the 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.
II-1
In July
2008, we issued 8,333 shares of common stock 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
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 May
2009 we commenced an offering 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
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 May 12, 2009 for this offering. Sales were made 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 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 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.
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.
II-2
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.
II-3
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.
|
S-1 | 333-169701 |
2.1
&10.1
|
9/30/10
|
||||||||||||
3.1 |
Amended
and Restated Articles of Incorporation
|
S-1 | 333-169701 | 3.1 |
9/30/10
|
||||||||||||
3.2 |
Certificate
of Designations for Series A Preferred Stock
|
S-1 | 333-169701 | 3.2 |
9/30/10
|
||||||||||||
3.3 |
Current
Bylaws
|
S-1 | 333-169701 | 3.3 |
9/30/10
|
||||||||||||
4.1 |
Form
of Common Stock Certificate
|
S-1 | 333-169701 | 4.1 |
9/30/10
|
||||||||||||
4.2 |
Form
of Registration Rights Agreements, including list of selling
shareholders
|
S-1 | 333-169701 | 4.2 |
9/30/10
|
||||||||||||
4.3
& 10.2
|
2008
Stock Option/Stock Issuance Plan, including grant forms
|
S-1 | 333-169701 |
4.3
&10.2
|
9/30/10
|
||||||||||||
4.4 |
Series
A Preferred Stock Certificate
|
S-1 | 333-169701 | 4.4 |
9/30/10
|
||||||||||||
4.5 |
Registration
Rights Agreement dated July 14, 2010, with DMRJ Group I,
LLC
|
S-1 | 333-169701 | 4.5 |
9/30/10
|
||||||||||||
4.6 |
Lockup
and Leak-Out Agreement dated July 24, 2009, with Clifton Mining
Company
|
S-1 | 333-169701 | 5.6 |
9/30/10
|
||||||||||||
4.7 |
Lockup
and Leak-Out Agreement dated July 24, 2009, with Moeller Family
Trust
|
S-1 | 333-169701 | 4.7 |
9/30/10
|
||||||||||||
5.1 |
Opinion re Legality of
Shares
|
S-1 | 333-169701 | 5.1 |
9/30/10
|
II-4
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
|
S-1 | 333-169701 | 10.3 |
9/30/10
|
||||||||||||
10.4 |
Contract
Assignment and Surety Transfer Agreement dated September 30, 2009, with
Clifton Mining Company
|
S-1 | 333-169701 | 10.4 |
9/30/10
|
||||||||||||
10.5 |
Amended
and Restated Lease Agreement effective July 24, 2009, with Moeller Family
Trust
|
S-1 | 333-169701 | 10.5 |
9/30/10
|
||||||||||||
10.6 |
Investment
Agreement dated July 14, 2010, with DMRJ Group I, LLC
|
S-1/A | 333-169701 | 10.6 |
11/12/10
|
|
|||||||||||
10.7 |
Form
of Promissory Note dated July 14, 2010, to DMRJ Group I,
LLC
|
S-1 | 333-169701 | 10.7 |
9/30/10
|
||||||||||||
10.8 |
Security
Agreement dated July 14, 2010, with DMRJ Group I, LLC
|
S-1 | 333-169701 | 10.8 |
9/30/10
|
||||||||||||
10.9 |
Pledge
Agreement dated July 14, 2010, with DMRJ Group I, LLC
|
S-1 | 333-169701 | 10.9 |
9/30/10
|
||||||||||||
10.10 |
Loan
Agreement dated November 18, 2009, with West C Street LLC and Ibearhouse
LLC
|
S-1 | 333-169701 | 10.10 |
9/30/10
|
||||||||||||
10.11 |
Amended
Loan Agreement dated July 14, 2010, with West C Street LLC and Ibearhouse
LLC
|
S-1 | 333-169701 | 10.11 |
9/30/10
|
||||||||||||
10.12 |
Amended
and Restated 15% Convertible Promissory Note dated July 14, 2010 with West
C Street LLC
|
S-1 | 333-169701 | 10.12 |
9/30/10
|
||||||||||||
10.13 |
Amended
and Restated 15% Convertible Promissory Note dated July 14, 2010 with
Ibearhouse LLC
|
S-1 | 333-169701 | 10.13 |
9/30/10
|
||||||||||||
10.14 |
Employment
Agreement dated September 1, 2010, with Robert E.
Jorgensen*
|
S-1 | 333-169701 | 10.14 |
9/30/10
|
||||||||||||
10.15 |
Employment
Agreement dated September 1, 2010, with Rick
Havenstrite*
|
S-1 | 333-169701 | 10.15 |
9/30/10
|
||||||||||||
10.16 |
Consulting
Agreement dated September 1, 2010, with Eric L. Moe*
|
S-1 | 333-169701 | 10.16 |
9/30/10
|
||||||||||||
10.17 |
Consulting
Agreement dated December 28, 2009 with Stuart
Havenstrite
|
S-1 | 333-169701 | 10.17 |
9/30/10
|
||||||||||||
10.18 |
Rental
Agreement effective October 1, 2010, with Robert E.
Jorgensen
|
S-1/A | 333-169701 | 10.18 |
11/12/10
|
|
|||||||||||
10.19 |
Rental
Agreement effective October 1, 2009, with RMH Overhead,
LLC
|
S-1/A | 333-169701 | 10.19 |
11/12/10
|
|
|||||||||||
10.20 |
Amendment
dated November 8, 2010 to Investment Agreement dated July 14, 2010, with
DMRJ Group I, LLC
|
S-1/A | 333-169701 | 10.20 |
11/12/10
|
|
|||||||||||
21.1 |
List
of Subsidiaries
|
S-1 | 333-169701 | 21.1 |
9/30/10
|
||||||||||||
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
|
S-1/A | 333-169701 | 23.3 |
11/12/10
|
|
*Management
contract, or compensatory plan or arrangement, required to be filed as an
exhibit.
II-5
Item
17. Undertakings
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
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent 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 an 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
II-6
(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 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 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]
II-7
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Spokane, Washington, on
December
9, 2010.
Desert
Hawk Gold Corp.
|
||
By:
|
/s/ Robert E. Jorgensen
|
|
Robert
E. Jorgensen, CEO
|
Pursuant
to 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.
Name
|
Title
|
Date
|
||
/s/
Robert E. Jorgensen
|
Chairman
& CEO (Principal
|
December
9, 2010
|
||
Robert
E. Jorgensen
|
Executive,
Financial, and Accounting
|
|||
Officer)
|
||||
/s/
Rick Havenstrite
|
President
& Director
|
December
9, 2010
|
||
Rick
Havenstrite
|
||||
/s/
Robert E. Knecht
|
Director
|
December
9, 2010
|
||
Robert
E. Knecht
|
||||
/s/
William McAndrews
|
Director
|
December
9, 2010
|
||
William
McAndrews
|
||||
/s/
John Ryan
|
Director
|
December
9, 2010
|
||
John
Ryan
|
||||
/s/
Eric L. Moe
|
Director
|
December
9, 2010
|
||
Eric
L. Moe
|
II-8