Desert Hawk Gold Corp. - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Desert Hawk Gold Corp.	f10q093011_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Desert Hawk Gold Corp.	f10q093011_ex32z1.htm
EXCEL - IDEA: XBRL DOCUMENT - Desert Hawk Gold Corp.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

For the transition period from _______________________to___________________________

Commission File Number: 333-169701

Desert Hawk Gold Corp.

(Exact name of registrant as specified in its charter)


Nevada	82-0230997
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7723 N. Morton St., Spokane, WA	99208
(Address of principal executive offices)	(Zip Code)

(509) 434-8161
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X . No .

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 25, 2011: 8,310,533.

DESERT HAWK GOLD CORP.

Form 10-Q

September 30, 2011

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II – OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 6. Exhibits

SIGNATURES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements


	Page
Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010	4
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)	6
Notes to Unaudited Financial Statements	7

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Balance Sheets


			September 30,		December 31,
			2011		2010
			(unaudited)		(Restated Note 9)
ASSETS
CURRENT ASSETS
	Cash	$	699,167	$	566,549
	Concentrate inventory		49,738		-
	Prepaid expenses and other current assets		38,589		42,153
	Total Current Assets		787,494		608,702

PROPERTY AND EQUIPMENT, net of depreciation of $72,752 and $22,770			394,164		404,819
MINERAL PROPERTIES AND LEASES (Note 6)			827,580		777,735
RECLAMATION BONDS (Notes 4 and 6)			143,303		80,302

TOTAL ASSETS		$	2,152,541	$	1,871,558

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
	Accounts payable	$	47,856	$	74,507
	Accrued expenses		21,980		33,115
	Accrued liabilities-officer wages (Note 6)		-		131,259
	Derivative liability-put option (Notes 6 and 7)		24,938		26,396
	Derivative liability-conversion option (Notes 7 and 8)		213,587		-
	Interest payable		264,706		-
	Convertible debt-net of discount (Note 5)		517,264		-
	Note payable-equipment		-		15,995
	Notes payable-net of discount, current portion (Note 8 )		3,620,220		1,623,531
	Interest on notes payable-net of prepaid portion (Note 8)		64,891		106,307
	Total Current Liabilities		4,775,442		2,011,110

LONG-TERM DEBT

	Convertible debt-net of discount (Note 5)		-		465,444
	Accrued repayment premium on note payable-net of prepaid portion (Note 8)		86,828		30,745
	Notes payable-net of discount (Note 8)		835,403		-

TOTAL LIABILITIES			5,697,673		2,507,299

COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)

STOCKHOLDERS' EQUITY (DEFICIT) (Note 3)
Preferred Stock, $0.001 par value, 10,000,000 shares authorized
Series A: 958,033 shares issued and outstanding			958		958
Series A-1: No shares issued and outstanding			-		-
Series A-2: 100,000 shares issued and outstanding			100		-
Common stock, $0.001 par value, 100,000,000 shares authorized; 8,297,876 and 7,586,411 shares issued and outstanding, respectively			8,298		7,587
Additional paid-in capital			5,039,024		3,718,109
Accumulated deficit prior to exploration stage			(1,016,591)		(1,016,591)
Accumulated deficit during exploration stage			(7,576,921)		(3,345,804)
Total Stockholders' Equity (Deficit)			(3,545,132)		(635,741)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	2,152,541	$	1,871,558

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

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Statements of Operations (Unaudited)


											Period from
											May 1, 2009
											(Inception of
			Three Months Ended				Nine Months Ended				Exploration Stage)
			September 30,		September 30,		September 30,		September 30,		to September 30,
			2011		2010		2011		2010		2011
					(Restated Note 9)				(Restated Note 9)
INCOME EARNED DURING EXPLORATION STAGE
	Concentrate sales	$	18,442	$	-	$	903,022	$	-	$	903,022

EXPENSES
	General project costs		124,570		-		1,047,299		-		1,351,155
	Exploration expense		74,999		274,227		204,635		374,278		1,335,043
	Consulting		30,000		89,716		150,670		159,036		432,404
	Officers and directors fees		59,188		332,295		249,486		401,960		780,935
	Legal and professional		10,423		81,355		75,919		180,815		352,282
	General and administrative		50,599		306,695		156,650		472,067		412,489
	Depreciation		16,360		7,658		49,982		10,139		72,752
			366,139		1,091,946		1,934,641		1,598,295		4,737,060

OPERATING LOSS			(347,697)		(1,091,946)		(1,031,619)		(1,598,295)		(3,834,038)

OTHER INCOME (EXPENSE)
	Interest income and other income (loss)		-		-		14		3,833		59,072
	Change in fair value of derivatives		(127,178)		-		(103,850)		-		(103,850)
	Loss on extinguishment of debt (Note 8)		-		-		(2,149,404)		-		(2,149,404)
	Gain (loss) on sale of investment		-		(181)		-		(181)		-
	Financing expense		(67,708)		(54,434)		(464,853)		(87,434)		(780,055)
	Interest expense		(207,619)		(392,307)		(481,405)		(470,969)		(768,646)
			(402,505)		(446,922)		(3,199,498)		(554,751)		(3,742,883)

LOSS BEFORE INCOME TAXES			(750,202)		(1,538,868)		(4,231,117)		(2,153,046)		(7,576,921)
INCOME TAXES			-		-		-		-		-

NET LOSS			(750,202)		(1,538,868)		(4,231,117)		(2,153,046)		(7,576,921)

OTHER COMPREHENSIVE INCOME (LOSS)
	Unrealized gain on available for sale securities		-		(1,910)		-		(510)		-

COMPREHENSIVE LOSS		$	(750,202)	$	(1,540,778)	$	(4,231,117)	$	(2,153,556)	$	(7,576,921)

BASIC AND DILUTED NET LOSS PER SHARE		$	(0.09)	$	(0.21)	$	(0.54)	$	(0.30)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			8,086,844		7,409,690		7,842,963		7,188,034

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

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows (Unaudited)


								Period from
								May 1, 2009
								(Inception of
				Nine Months Ended				Exploration Stage)
				September 30,		September 30,		to September 30,
				2011		2010		2011
						(Restated Note 9)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss		$	(4,231,117)	$	(2,153,046)	$	(7,576,921)
	Adjustments to reconcile net loss to net cash used by operating activities:							-
		Depreciation		49,982		10,139		72,752
		Common stock issued for services		136,842		358,167		530,009
		Common stock issued for interest expense		37,500				37,500
		Accretion of debt discounts		268,444		(194,683)		740,396
		Accretion of prepaid interest liability		96,779		-		56,778
		Accretion of repayment obligation		247,231		-		247,231
		Change in fair value of derivatives		103,850		-		103,850
		Loss on extinguishment of debt		2,149,404		-		2,149,404
		(Gain) on sale of marketable securities		-		310		(2,540)
	Changes in operating assets and liabilities:
		(Increase) decrease in concentrate inventory		(49,738)		-		(49,738)
		(Increase) decrease in accounts receivable		-		12,313		-
		(Increase) decrease in prepaid expenses and current assets		3,564		(21,117)		(38,589)
		Increase (decrease) in accounts payable		(26,651)		103,114		44,682
		Increase (decrease) in accrued liabilities - officer wages		-		(10,000)		(40,691)
		Increase (decrease) in accrued expenses		(11,135)		(14,770)		21,980
		Increase (decrease) in interest payable		264,706		(10,500)		264,706
	Net cash used by operating activities			(960,339)		(1,920,073)		(3,439,191)

CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchase of property and equipment		(39,327)		(357,949)		(450,921)
		Payments on mineral leases		(49,845)		(250)		(300,095)
		Acquisition of reclamation bonds		(63,001)		-		(100,501)
		Notes receivable		-		-		27,500
		Proceeds from marketable securities		-		19,290		48,920
	Net cash used by investing activities			(152,173)		(338,909)		(775,097)

CASH FLOWS FROM FINANCING ACTIVITIES:
		Proceeds from convertible notes payable		-		-		600,000
		Proceeds from notes payable		1,000,000		1,776,700		3,500,000
		Payment of note payable - equipment		(15,995)		-		(15,995)
		Proceeds from issuance of common stock		316,125		2,590		1,324,125
		Proceeds from issuance of preferred stock		-		958		958
		Financing fees paid		(55,000)		-		(521,281)
	Net cash provided by financing activities			1,245,130		1,780,248		4,887,807

NET INCREASE (DECREASE) IN CASH				132,618		(478,734)		673,520
CASH, BEGINNING OF PERIOD				566,549		888,434		25,647

CASH, END OF PERIOD			$	699,167	$	409,700	$	699,167

NON-CASH FINANCING AND INVESTING ACTIVITIES:
	Common stock issued for mineral lease		$	-	$	-	$	525,000
	Common stock issued as incentive with convertible notes			-		-		210,000
	Common stock issued for reclamation bond			-		-		42,802
	Equipment acquired with note payable			-		-		15,995
	Preferred stock issued in connection with debt amendment			700,000		-		700,000
	Common stock issued for accrued liabilities-officer wages			131,259		-		131,259
	Debt discount on preferred stock			-		669,644		-
	Stock received in satisfaction of note receivable			-		40,000		-

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

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

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 as a viable business model when the commodity prices cycled downward. The Company remained dormant until it recommenced its mining activities and entered the exploration stage on May 1, 2009. 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 915-10-05 and interpreted by the Securities and Exchange Commission for mining companies in Industry Guide 7.

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 accounting principles generally accepted in the United States of America for interim financial information. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted 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, 2010. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. Operating results for the nine month period ended September 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fair Value of Financial Instruments

The Company's financial instruments as defined by ASC 825-10-50 include cash, receivables, accounts payable and debt. 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, 2011, and December 31, 2010. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. 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 derivative liabilities at fair value on a recurring basis using Level 2 inputs.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

Mineral Exploration and Development Costs

The Company accounts for mineral exploration and development costs in accordance with ASC Topic 930 Extractive Activities - Mining. 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 4). Mineral properties are periodically assessed for impairment of value.

Inventories

Concentrate inventory of mineralized material represents mineralized material that has been mined, hauled to the surface and processed through our Cactus Mill. This inventoried stockpile is ready for shipping for further processing by an outside source. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained metal ounces or pounds (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method).

Revenue Recognition

As an exploration stage company, the Company’s revenue from operations is referred to as income earned during the exploration stage. Revenue is recognized when title and risk of ownership of metals or metal bearing concentrate have passed and collection is reasonably assured. Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts.

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. At September 30, 2011, common stock equivalents outstanding are 1,563,843 and 1,958,033 shares of common stock into which the convertible debt (Note 5) and preferred stock (Note 3), respectively, can be converted. However, the diluted earnings per share are not presented because its effect would be anti-dilutive due to the Company’s recurring losses.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through September 30, 2011, 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.

The Company will need significant funding 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 continue to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.

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.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

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.

On February 15, 2011, the Company issued 25,000 shares of common stock valued at $0.70 per share or $17,500 in services. The shares were issued to an employee under the Company’s 2008 Stock Option/Stock Issuance Plan pursuant to the terms of the employee’s employment agreement with the Company.

On May 3 and May 10, 2011, the Company issued a total of 220,000 shares of common stock valued at $0.70 per share or $154,000 in services and 138,000 shares valued at $0.70 or $96,600 to satisfy accrued expenses for prior services. The shares were issued to non-employees under the Company’s 2008 Stock Option/Stock Issuance Plan.

An equity financing in the form of a 506 offering was initiated during third quarter 2011. At September 30, 2011, $316,125 had been raised through sales of 274,891 shares of common stock. This 506 offering is expected to continue until January 31, 2012 or until 4,000,000 shares of common stock have been sold. The shares offered and sold in this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

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 DMRJ Group in connection with financing (see Note 8). 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 certain adjustments.

In connection with the Fourth Amendment to the DMRJ Group funding (See Note 8), on May 3, 2011, the Company created and designated 2,500,000 shares of its authorized preferred stock as Series A-1 Preferred Stock and 1,000,000 shares as Series A-2 Preferred Stock.

Each share of Series A-1 Preferred Stock and Series A-2 Preferred Stock is convertible at the option of the holder at any time into that number of shares of common stock equal to (i) for the Series A-1 Preferred Stock ten times the Series A-1 Issue Price ($0.70) divided by the conversion price for Series A-1 Preferred and (ii) for the Series A-2 Preferred Stock ten times the Series A-2 Issue Price ($1.00) divided by the conversion price for such Series A-2 Preferred Stock. The initial conversion price of the Series A-1 preferred stock is $0.70 per share and the conversion price of the Series A-2 preferred stock is $1.00. If the Company issues or sell shares of its common stock, or grant options or other convertible securities which are exercisable or convertible into common shares, at prices less than the conversion price of Series A-1 or A-2 shares, except in certain exempted situations, then the conversion price of the Series A-1 and A-2 shares will be reduced to this lower sale or conversion price. The Series A-1 and A-2 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.

The Series A-1 and A-2 shares have the following rights and preferences:

The holders of the Series A-1 and A-2 shares have no preference as to any dividends declared by the Company.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a change of control transaction or the sale or lease of all or substantially all of its assets without the majority consent of the holders of the Series A-1 and A-2 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, A-1 and A-2.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

The holders of the Series A-1 and A-2 shares are entitled to the number of votes equal to the number of whole shares of common stock into which the Series A-1 or A-2 shares are convertible. The Series A-1 and A-2 shares vote together with the holders of the common stock, except as provided by law. In addition, the Company is prohibited from taking various actions without the separate consent of persons owning a majority of the Series A-1 and A-2 preferred shares, including:

Amending the Articles of Incorporation or Bylaws of the Company or its subsidiary;

Entering into another business;

Adopting a new equity compensation plan or amending the current plan;

Redeeming, retiring or acquiring the Company’s own securities;

Entering into any merger transaction, selling, licensing or transferring any of the Company’s assets, or pledging or granting a security interest in its assets;

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;

Declaring or paying any dividends on the Company’s equity securities;

Issuing any debt or equity securities, except in certain limited circumstances;

Entering into any insider transactions, except for transactions in the normal course of business, the payment of customary salaries or other standard employee benefit programs available to all employees;

Creating any subsidiaries;

Dissolving, liquidating, or reorganizing the Company;

Creating any new indebtedness in excess of $500,000 other than trade payables and the indebtedness created under the DMRJ Group Investment Agreement;

Fix or change the number of directors set in any resolution of the Board;

Making any loans or advances to any person other than ordinary business expenses not to exceed in the aggregate $15,000;

Granting any registration, preemptive, anti-dilution, or redemption or repurchase rights with respect to any securities; and

Borrowing against, pledging, assigning, modifying, cancelling or surrendering any key man insurance policy maintained by or for the Company.

The holders of record of the Series A-1 and Series A-2 shares, voting together as a single class, have the right to elect two directors of the Board, to remove any such directors elected by them and to fill any vacancy caused by the death, resignation or removal of such directors.

The Company has 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-1 or A-2 shares.

The holders of the Series A-1 and A-2 shares have preemptive rights to purchase shares of common stock in any offering by the Company.

There are no redemption or sinking fund provisions applicable to the Series A-1 or A-2 shares.

At September 30, 2011, 100,000 shares of Series A-2 Preferred Shares are outstanding that are convertible by the holder into 1,000,000 shares of the Company’s common stock. These shares were issued during the quarter ended June 30, 2011, in connection with the Fourth Amendment of the DMRJ Group financing arrangement (see Note 8).

NOTE 4 – MINERAL PROPERTIES AND LEASES

The Company holds operating 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, 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 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. Rights to the four Yellow Hammer patented claims were obtained under the terms of the Amended and Restated Lease 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.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

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.

Kiewit Gold Project

The Company, through its lease agreement with Clifton Mining, has purchased all data, core samples and related reports from Dumont Nickel Inc. (which in 2010 changed its name to DNI Metals Inc. and was the former owner of the leases) 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.

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.

Cactus Mill 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 2010 the Company completed its rebuild of the pilot mill and testing of the pilot plan was conducted. Commencement of processing activities began 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.

The Company commenced operation of the Cactus Mill pilot plant in November 2010, processed and sold concentrates on a pilot test basis through June of 2011. Further processing of Yellow Hammer tailings to recover additional tungsten is ongoing at this time.

Yellow Hammer Claims

The Company holds a Small Mine Permit from the Utah Division of Oil, Gas and Mining and has posted reclamation bonds totaling $60,800. 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 nine acres.

Exploration Expenditures

Exploration expenditures incurred by the Company during the nine months ended September 30, 2011 and 2010 were as follows:


		Sept. 30, 2011		Sept. 30, 2010
Assaying	$	15,609	$	9,260
Permitting		98,485		-
Equipment rental		-		116,192
Geological consulting fees		84,759		168,794
Maps and miscellaneous		5,782		17,588
Site development		-		62,444
Total Exploration Expenditures	$	204,635	$	374,278

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

NOTE 5–CONVERTIBLE DEBT

On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders, for a total of $600,000. The notes bear interest at 15% per annum. Interest-only is payable in equal monthly installments of $7,500. The notes were originally convertible at any time at a rate of $1.50 per share, but on July 14, 2010 the promissory notes were amended thereby reducing the conversion price to $.70 due to the note holders’ agreement to subordinate their debt to DMRJ Group (Note 8). The notes are convertible into potentially 857,143 shares of common stock, and principal and interest are due May 31, 2012, or 30 months from the date of issuance. The holders of the notes were issued 300,000 bonus shares at a rate of one share for each $2 loaned, resulting in a debt discount of $210,000 that is being accreted over the life of the loan.

On July 5, 2011 the Company entered into an agreement with the two holders of the convertible debt to begin paying their monthly interest in stock rather than cash. The note holders have been issued 26,787 shares of stock each, valued at $.70, to convert accrued interest for the months of May through September 2011.

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 of common stock.

NOTE 6 – COMMITMENTS

Mining Properties

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. 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. 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. The Company has incurred royalty expense of approximately $86,000 as of September 30, 2011 associated with sales of concentrate during the nine months ended September 30, 2011.

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. 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 Mining 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 $42,802 reclamation contract and 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.

Employment Agreements

In September 2010, the Company entered into employment agreements with its Chief Executive Officer (“CEO”) and its President and entered into a consulting agreement with one of its directors. Each agreement is for an initial term of between three months and four years and provides for base salary or fees of $120,000 per year. The Company owed $131,259 to the CEO at December 31, 2010 for amounts due under the provisions of the September 2010 agreement and prior similar agreements. On May 3, 2011, this payable was satisfied with the issuance of 138,000 shares of stock to the CEO.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

NOTE 7 – DERIVATIVE LIABILITIES

The Company currently does not use derivative instruments to manage its exposures to currency risk or interest rates. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or other comprehensive income if they qualify for cash flow hedge accounting. The fair value of outstanding derivative instruments not designed as hedging instruments on the accompanying Consolidated Balance Sheets was as follows:


Derivative Instruments	September 30, 2011		December 31, 2010

Put option	$	24,938	$	26,396
Conversion option	$	213,587	$	-

A Black-Scholes option-pricing model was used to estimate the fair value, using Level 2 inputs, of the Company’s derivatives using the following assumptions at September 30, 2011:


	Number of Shares	Volatility	Risk-Free Rate	Expected Life (in years)	Stock price
Put option	60,824	70.21%	.06%	.42	$	1.15
Conversion option	406,700	70.21%	.13%	.88	$	1.15

NOTE 8 – DMRJ GROUP FUNDING

On July 14, 2010, the Company entered into an Investment Agreement with DMRJ Group I, LLC (“DMRJ Group”). According to the original terms of the agreement, DMRJ Group has committed to loan the Company up to $6,500,000 pursuant to certain terms and conditions as evidenced by a promissory note, under which advances made to the Company were due not later than July 14, 2012. These loan advances could 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 were $2,500,000 and $2,750,000, respectively, and were subject to meeting certain milestones on the projects. 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. The Company received loan advances from DMRJ Group for total principal due of $3,500,000 and $2,500,000 at September 30, 2011 and December 31, 2010, respectively.

Each principal 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 if the Company prepays the advance or goes into default. 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 and interest amount being repaid or prepaid.

In July 2010, in connection with this agreement, the Company issued 958,033 shares of its Series A Preferred Stock to DMRJ Group at $.001 par value for $958 cash. The Company recorded a discount to the loan proceeds in the amount of $669,664, which was valued based on the stock price of $.70 less the cash received for the preferred stock.

Loan advances made for the Yellow Hammer and Kiewit projects were subject to mandatory prepayments by the Company. Yellow Hammer advances were originally to 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 were to be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve. However, the repayment dates have been deferred due to waivers, forbearances, and amendments to the initial Investment Agreement as stated in the following paragraphs.

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.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

In connection with the DMRJ Group transaction, two of the Company’s convertible note holders, 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 February 25, 2011, the Company entered into a Second Amendment to Investment Agreement with DMRJ Group which amended the Investment Agreement, dated as of July 14, 2010, as amended by the First Amendment and Waiver dated as of November 8, 2010. The Second Amendment allowed the Company to receive a term loan advance of up to $125,000. This advance was made without satisfying the provisions requiring the Company to meet certain milestones in connection with its Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement. The advance is not deemed to be a Kiewit Advance, which means that it was not subject to the mandatory prepayment requirements under the Investment Agreement.

On March 6, 2011, the Company entered into a Forbearance Agreement with DMRJ Group pursuant to which DMRJ Group agreed to forbear until April 6, 2011, from exercising its rights and remedies with respect to an event of default by virtue of the Company’s failure to make a mandatory prepayment as required under the Investment Agreement. The Company failed to make the mandatory prepayment to DMRJ Group on March 7, 2011, as required in the Investment Agreement. Pursuant to the Forbearance Agreement if the Company cured this prepayment default on or prior to April 6, 2011; no default interest will be due with respect to the period between the date of the prepayment default and April 6, 2011.

On March 11, 2011, the Company entered into a Third Amendment to Investment Agreement with DMRJ Group. This amendment allows the Company to make a further request for a term loan advance under the Investment Agreement of up to $500,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement. The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.

The Company failed to make its mandatory prepayment of $1,011,616 to DMRJ Group on April 7, 2011, as required pursuant to the Investment Agreement with DMRJ Group, and thus entered into a Fourth Amendment.

On April 21, 2011, the Company entered into a Fourth Amendment to Investment Agreement with DMRJ Group. This amendment allowed the Company to make a further request for a term loan advance under the Investment Agreement of up to $625,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement. The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement. The Amendment also eliminates the requirement of the Investment Agreement to make mandatory prepayments for the Yellow Hammer advances.

The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment of the Fourth Amendment. ASC 470-50 states that a transaction resulting in a significant change in the nature of a debt instrument should be accounted for as an extinguishment of debt. The difference between the reacquisition price and the net carrying amount of the extinguished debt should be recognized currently in income of the period of extinguishment. The Company has concluded that the amendment constituted a substantial modification. During the quarter ended June 30, 2011, the Company recognized a loss on extinguishment of the DMRJ note of $2,149,404 representing the difference between the fair value of the amended note, including consideration and fees, and the carrying value of the original note, including related unamortized discount.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

A summary of DMRJ Group-related amounts as of September 30, 2011 and December 31, 2010 is as follows:


		September 30, 2011		December 31, 2010
Yellow Hammer Advances	$	2,500,000	$	2,500,000
20% accrued repayment obligation		588,235		588,235
15% accrued prepaid interest obligation		441,177		441,175
		3,529,412		3,529,410
Term Loan Advance Principal		1,000,000
20% accrued repayment obligation		235,294
15% accrued prepaid interest obligation		176,470		0
		1,411,764		3,529,410
Total		4,941,176
Less related discounts and unamortized balances		333,834		1,768,827
Carrying Value	$	4,607,342	$	1,760,583

Of these amounts, $3,620,220 ($3,608,614 net of discount) is due on September 30, 2012, and the remaining amount is due December 31, 2012.

The Fourth Amendment contained provisions for DMRJ Group to elect to convert the outstanding payable balances to shares of Series A-1 preferred stock (for the Yellow Hammer Advances) and Series A-2 Preferred Stock (for the Term Loan Advances). See description of the Preferred Stock in Note 3.

The Series A-1 and Series A-2 Preferred Stock are convertible into shares of the Company’s common stock. The conversion rate of the Preferred Stock to shares of the Company’s common stock is adjustable based upon factors not found in a standard fixed-for-fixed pricing model. As such, the Company considered the provisions of ASC 815 “Derivatives and Hedging”, and recorded the fair value of $108,279 for the embedded conversion option liability associated with the amended agreement with an offset to the carrying value of the debt. The assumptions used in the Black-Scholes option pricing model at May 3, 2011, are as follows: (1) dividend yield of 0%; (2) expected volatility of 96.8%, (3) risk-free interest rate of 0.40%, and (4) expected life of 1.25 years. The conversion option liability is adjusted to its fair value at the end of each reporting period with the change in fair value recognized in net loss. The conversion option liability at September 30, 2011 is recorded at $213,587 (Note 7).

Also in connection with entering this Fourth Amendment the Company issued 100,000 shares of Series A-2 Preferred Stock valued at $700,000 to DMRJ Group. The value was determined by calculating the number of common shares into which the Series A-2 preferred shares are convertible (1,000,000 common shares) times the current fair value for shares of common stock ($0.70). The Company recognized the amount in the loss on extinguishment of debt related to the Fourth Amendment.

In the event the Company completes an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require the Company to pay 25% of the proceeds over $3,000,000 to satisfy our indebtedness to them.

NOTE 9- RESTATEMENT

On August 2, 2011, management of the Company concluded that the financial statements for the year ended December 31, 2010, contained an error relating to the recording of financing-related expenses incurred during 2010. Financing expenses in the amount of $466,281 were expensed in total during the year ended December 31, 2010. Management subsequently determined that the financing expenses should have been recorded as a discount to the associated note payable and amortized over the term of the related note. As a result, the previously issued financial statements for the year ended December 31, 2010 have been restated to reflect the appropriate accounting. Of the $466,281 adjustment at December 31, 2011, financing costs of $416,281 and related debt discount of $87,434 are attributable to the three and nine month periods ending September 30, 2010. This adjustment at September 30, 2010, results in a net reduction in loss of $328,847, reducing the net loss for the three and nine month periods to $1,535,868 and $2,153,046, respectively.

Desert Hawk Gold Corp.

(An Exploration Stage Company)

Notes to Unaudited Consolidated Financial Statements

The effect on the previously issued financial statements for the year ended December 31, 2010, is summarized as follows:


		As
		Initially Reported				As Restated at
		December 31, 2010		Correcting Entries		December 31, 2010

Total Assets	$	1,871,558	$	-	$	1,871,558
Current Liabilities	$	2,385,346	$	(374,236)	$	2,011,110
Long Term Liabilities		496,189		-		496,189
Equity		(1,009,977)		374,236		(635,741)
Total Liabilities and Shareholder’s Equity	$	1,871,558	$	-	$	1,871,558

For the year ended December 31, 2010
Operating Loss	$	(2,304,272)	$	-	$	(2,304,272)
Other Income (Expense)		(929,574)		374,236		(555,338)
Net Loss	$	(3,233,846)	$	374,236	$	(2,859,610)

Basic and Diluted Loss Per Share	$	(0.44)	$	0.05	$	(0.39)

NOTE 10 – SUBSEQUENT EVENTS

In June 2011 the Company commenced a non-public offering of up to 4,000,000 shares of common stock at $1.15 per share. The offering is scheduled to terminate on or before January 31, 2012. No shares were sold prior to June 30, 2011. As of September 30, 2011, the Company had raised $316,125 in gross proceeds from the offering and had issued 274,891 shares. During the month of October 2011, an additional 12,657 shares were issued providing $14,566 in gross proceeds. The shares offered and sold in this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

[THIS SPACE INTENTIONALLY LEFT BLANK]

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

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended, and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

Forward-looking statements

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

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

a decline in metal prices;

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.

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. Concentrates from our mill site have been processed at a smelter in Hayden, Arizona to extract any copper, gold, and silver from the mineralized material. In addition, tungsten concentrates are processed at a refinery in Buffalo, NY.

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.

We have entered into an agreement with DMRJ Group, LLC through which we can borrow up to $6,500,000 for our mining operations and our general and administrative expenses, of which we have $3,000,000 remaining available to us upon reaching certain milestones. Historically, we have incurred net losses for the years ended December 31, 2010 and 2009, and have also incurred losses for the nine months ended September 30, 2011. If we are unable to generate sufficient cash flow from the extraction and processing of mineralized material from our 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.

Third Quarter Highlights

An NI 43-101 report titled Independent Technical Report and Resource Estimate for the Desert Hawk Kiewit Project in Gold Hill Utah (the “NI 43-101 Report”) prepared by a Qualified Person under Canadian National Instrument 43-101 Standards of Disclosure for Minerals Projects was completed during the third quarter of 2011. A National Instrument 43-101 is a mineral resource classification scheme used for the public disclosure of information relating to mineral properties in Canada and is a strict guideline for disclosing scientific and technical information about mineral projects. This report includes estimates of resources which we are not permitted to disclose under Industry Guide 7, Description of Property by Issuers Engaged or to Be Engaged in Significant Mining Operations, which governs disclosure of ore reserves by U.S. companies. The NI 43-101 Report does not include any proven or probable reserves permitted to be disclosed pursuant to Guide 7.

The NI 43-101 Report recommends that we initiate two simultaneous programs at for the Kiewit project, including continued geological investigation and sampling of the Kiewit area both to the south and to the north and beginning background work to bring the Kiewit claims into production. The report further recommends that general geologic investigations should be conducted at both the Kiewit area and other areas explored with past programs with systematic surface sampling and drilling on the Kiewit South, Midzone and north of Rainbow Hill to assess the low grade-bulk tonnage potential. In addition, the report recommends that we should merge and contour the historic soil and chip sample databases for the various areas in the Clifton-Gold Hill Mining District to provide targets where additional sampling and drilling should be conducted.

During the first three quarters of 2011 we shipped concentrate from our mill to a smelter in Hayden, Arizona, pursuant to a contract with a customer for up to 200 tons of mineral concentrates. The assays were evaluated by an independent umpire who determined the concentrates’ value. This contract has been completed with the shipment of 193 tons of concentrate to the smelter. All revenues from this contract have been received and all royalties have been paid.

We also shipped tungsten concentrates to a refinery in Buffalo, New York during second quarter 2011. Tungsten shipments will be ongoing during 2011 as tailings are processed to recover tungsten.

On August 11, 2011, we posted a bond in the amount of $26,700 with the Utah Division of Oil, Gas and Mining for the Herat Small Mine Permit, which was subsequently transferred to us from Clifton Mining on October 3, 2011. This permit will allow for limited mining of the Clifton Shears gold and silver veins.

During 2010 to 2011 draw advances totaling $3.5 million were obtained through a funding agreement with DMRJ Group. No additional advances were taken during third quarter 2011. Term loan advances under the terms of the Fourth Amendment, and all prior advances are due in three payments due on June 30, 2012, September 30, 2012, and December 31, 2012. Total due under the terms of these advances, after associated discounts, as of September 30, 2011 is $4,607,342. And in the event we complete an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require us to pay 25% of the proceeds over $3,000,000 to satisfy our indebtedness to them. We also created a Series A-1 and a Series A-2 Preferred Stocks which are convertible into our common stock. The Yellow Hammer loans may be converted by the investor, from time to time, to Series A-1 Preferred Stock, and the April Term Loan advances may be converted by the investor, from time to time, to Series A-2 Preferred Stock. We also issued 100,000 shares of the Series A-2 Preferred Stock to DMRJ Group for entering into the Fourth Amendment. As part of this 4^th Amendment to the Investment Agreement, beginning July 1, 2011, quarterly dividends in the amount of 10% of income will be due to all preferred stockholders for each quarter that Desert Hawk has consolidated net income.

An equity financing in the form of a 506 offering was initiated in third quarter of 2011. At September 30, 2011, this financing has raised $316,125 through sales of 274,891 shares of common stock. This 506 offering is expected to continue until January 31, 2012 or until 4,000,000 shares of common stock have sold. The shares offered and sold in this non-public equity financing have not been and will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

On August 21, 2011, John Ryan resigned his board position. He has not been replaced.

Results of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

During the three and nine month periods ended September 30, 2011, the Company had a net loss of $750,202 and $4,231,117, respectively, compared to a net loss of $1,538,868 and $2,153,046, respectively, during the three and nine month periods ended September 30, 2010. This represents a decreased net loss of $788,666 for the three months ended September 30, 2011, and an increased net loss of $2,078,071 during the nine month period ended September 30, 2011. The decrease in net loss for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 is attributable to the reduction in exploration costs and general and administrative expense, including reductions in legal fees, and director and officer bonuses. In addition, interest and financing costs for the three months ended September 30, 2011, also decreased by $171,414, which was generally offset by the change in derivative liabilities of $127,178.

The operating loss for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, decreased by $566,676 due to the sale of concentrates and reductions in all operating expense categories. Due to the restructuring of the DMRJ Group loans, other income and expense for the nine months ended September 30, 2011 showed a greater loss over the same period one year ago of $2,078,071 which consists of loss on extinguishment of debt and to an increase in financing expense.

On March 1, 2011, the Company entered into a contract with Asarco, LLC to process approximately 200 tons of copper concentrates with silver and gold by-products. These concentrates are processed at the Cactus Mill pilot plant. Pursuant to this contract, the Company delivered 193 tons of concentrate by the end of September 2011 and billed $852,850 in accordance with the revenue contract. At September 30, 2011, all of the concentrates under this contract had been delivered to the smelter and all revenue had been received and recognized. Royalties were paid to the Moeller Family Trust in the amount of $83,337 as a result of this contract.

In addition to the above contract, through September 30, 2011, the Company generated $50,172 in tungsten sales with 6% royalties paid to the Moeller Family Trust in the amount of $3,010. Tungsten shipments will be ongoing during 2011 as tailings are processed to recover tungsten. Tungsten concentrate inventory on hand at September 30, 2011 was $49,738.

Mining severance tax will be due to the State of Utah in connection with the mineral sales, and is calculated based upon receipt of the proceeds. At September 30, 2011, mining severance tax is accrued in the amount of $6,654.

Liquidity and Cash Flow

Net cash used by operating activities was $960,339 during the nine month period ended September 30, 2011, compared with $1,920,073 during the nine month period ended September 30, 2010. The decrease in the amount of cash used by operating activities is primarily attributable to the loss on extinguishment of debt and the discounts related to that debt.

Net cash used by investing activities was $152,173 during the nine month period ended September 30, 2011, compared to $338,909 during the nine month period ended September 30, 2010. The decrease in cash used by investing is attributable to a reduction in the purchase of fixed assets during the nine month period ended September 30, 2011.

Net cash provided by financing activities was $1,245,130 during the nine month period ended September 30, 2011, compared with $1,780,248 during the nine month period ended September 30, 2010. The decrease is primarily a result of less borrowing from DMRJ Group during the nine months ended September 30, 2011.

As a result, cash increased by $132,618 during the nine month period ended September 30, 2011, leaving the Company with a cash balance of $699,167 as of September 30, 2011.

Critical Accounting Policies

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. See Note 2, “Summary of Significant Accounting Policies,” in our attached unaudited consolidated financial statements for a discussion of those policies.

Mineral Exploration and Development Costs

We account for mineral exploration costs in accordance with ASC 932 Extractive Activities. All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to explore new mines, to define further mineralization in existing 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. Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Mineral properties are periodically assessed for impairment of value and any diminution in value.

Revenue

As an exploration stage company, our revenue from operations is referred to as income earned during the exploration stage. Revenue is recognized when title and risk of ownership of metals or metal bearing concentrate have passed and collection is reasonably assured. Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our CEO, who is also our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during our most recent quarter ended September 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 5, 2011 the Company entered into an agreement with West C Street LLC and Ibearhouse LLC, the holders of convertible debt acquired from us in 2009, permitting payment of their monthly interest in stock rather than cash. In July and September 2011, we issued 26,787 shares of stock, valued at $.70, to each of the note holders to convert accrued interest for the months of May through September 2011. 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. Each of the note holders 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 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. 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 issuance.

In June 2011 we commenced a non-public offering of up to 4,000,000 shares our common stock at $1.15 per share. During the quarter ended September 30, 2011, we sold 274,891 shares for gross proceeds of $316,125. 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 July 18, 2011, 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 sales.

Item 6. Exhibits


SEC Ref. No.	Title of Document
31.1	Rule 15d-14(a) Certification by Principal Executive Officer and Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101. INS	XBRL Instance Document
101. SCH	XBRL Taxonomy Extension Schema Document
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Taxonomy Extension Label Linkbase Document
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

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

Desert Hawk Gold Corp.

Date: November 7, 2011

By: /s/ Robert E. Jorgensen

Robert E. Jorgensen, Chief Executive Officer

(Principal Executive and Financial Officer)

Attached files

Desert Hawk Gold Corp. Reports

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