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EX-32 - 906 CERTIFICATION - LKA GOLD Inc /DE/ex32.htm
EX-31 - 302 CERTIFICATION OF NANETTE ABRAHAM - LKA GOLD Inc /DE/ex312.htm
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EX-31 - 302 CERTIFICATION OF KYE ABRAHAM - LKA GOLD Inc /DE/ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


____________________


FORM 10-Q

____________________


[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 No. 000-17106



LKA INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware

91-1428250

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

  


3724 47th Street Ct. N.W.

Gig Harbor, Washington 98335

(Address of Principal Executive Offices)


(253) 851-7486

(Registrant’s telephone number, including area code)


N/A

(Former name, former address and former fiscal year,

if changed since last report)


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.  (Check one):


Large accelerated filer [  ]      Accelerated filer [  ]       Non-accelerated filer [  ]      Smaller reporting company [X]



1





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

Yes [  ] No [X]


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Not applicable.


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 9, 2011 – 16,500,422 shares of common stock.


PART I


Item 1.  Financial Statements


The Financial Statements of LKA International, Inc., a Delaware corporation (the “Registrant,” the “Company” or “LKA”) required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.














2





LKA INTERNATIONAL, INC.

Consolidated Balance Sheets

(Unaudited)


ASSETS

 

September 30,

 2011

 

December 31, 2010

CURRENT ASSETS:

 

 

 

 

 

     Cash

$

89,478

 

$

20,084

     Accounts receivable

 

-

 

 

89,384

     Prepaid expenses

 

3,023

 

 

14,341

     

 

 

 

 

 

          Total Current Assets

 

92,501

 

 

123,809

 

 

 

 

 

 

FIXED ASSETS

 

 

 

 

 

     Land, equipment and mining claims

 

800,351

 

 

800,351

     Accumulated deprecation

 

(209,200)

 

 

(183,083)

 

 

 

 

 

 

          Total Fixed Assets, Net of Accumulated Depreciation

 

591,151

 

 

617,268

 

 

 

 

 

 

OTHER NON-CURRENT ASSETS

 

 

 

 

 

     Reclamation Bonds

 

123,597

 

 

113,120

 

 

 

 

 

 

          Total Other Non-Current Assets

 

123,597

 

 

113,120

 

 

 

 

 

 

          TOTAL ASSETS

$

807,249

 

$

854,197

 

 

 

 

 

 




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



3




LKA INTERNATIONAL, INC.

Consolidated Balance Sheets (Continued)

(Unaudited)


LIABILITIES AND STOCKHOLDERS' (DEFICIT)


 

September 30,

 2011

 

December 31, 2010

CURRENT LIABILITIES

 

 

 

 

 

     Accounts Payable

$

175,314

 

$

179,923

     Accounts payable – related party

 

72,128

 

 

14,247

     Note payable

 

234,000

 

 

185,837

     Notes payable - related party

 

829,124

 

 

744,841

     Accrued interest

 

11,139

 

 

3,288

     Accrued interest payable - related party

 

296,958

 

 

170,648

     Accrued wages

 

146,406

 

 

61,335

     Derivative liability

 

-

 

 

67,826

 

 

 

 

 

 

          Total Current Liabilities

 

1,765,069

 

 

1,427,945

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

     Asset retirement obligation

 

118,246

 

 

115,507

 

 

 

 

 

 

           Total Non-Current Liabilities

 

118,246

 

 

115,507

 

 

 

 

 

 

            Total Liabilities

 

1,883,315

 

 

1,543,452

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 


STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

     Preferred stock; $0.001 par value, 50,000,000 shares authorized, no shares

       Issued or outstanding

 

 

 

 

 

     Common stock, $0.001 par value, 50,000,000 shares authorized,

      15,560,603 and 15,390,603 shares issued and 15,473,356 and 15,303,356

       shares, outstanding, respectively

 



15,561

 

 



15,391

     Additional paid-in capital

 

8,442,436

 

 

8,239,494

     Treasury stock; 87,247 and 87,247 shares at cost, respectively

 

(86,692)

 

 

(86,692)

     Accumulated deficit

 

(9,447,371)

 

 

(8,857,448)

 

 

 

 

 

 

            Total Stockholders' Equity (Deficit)

 

(1,076,066)

 

 

(689,255)

 

 

 

 

 

 

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFECIT)

$

807,249

 

$

854,197






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



4




LKA INTERNATIONAL, INC.

Consolidated Statements of Operations

(Unaudited)



 

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

 

2011

 

2010

 

2011

 

2010

REVENUES

 

 

 

 

 

 

 

 

 

 

 

   Sales - precious metals

$

364,286

 

$

159,935

 

$

651,808

 

$

385,588

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

   Exploration and related costs

 

151,197

 

 

103,118

 

 

500,944

 

 

203,068

   Professional fees

 

10,804

 

 

5,375

 

 

266,023

 

 

39,247

   General and administrative

 

48,604

 

 

42,507

 

 

125,587

 

 

135,976

   Royalty expense

 

17,845

 

 

8,269

 

 

34,885

 

 

20,662

   Officer salaries and bonus

 

37,500

 

 

37,500

 

 

112,500

 

 

112,500

      Total Operating Expenses

 

265,950

 

 

196,769

 

 

1,039,939

 

 

511,453


OPERATING INCOME (LOSS)

 


98,336

 

 


(36,834)

 

 


(388,131)

 

 


(125,865)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

   Loss on derivative

 

-

 

 

(17,304)

 

 

-

 

 

(82,388)

   Debt default expense

 

-

 

 

(358,897)

 

 

-

 

 

(358,897)

   Interest expense

 

(57,286)

 

 

(30,016)

 

 

(201,792)

 

 

(93,703)

   Interest income

 

-

 

 

-

 

 

-

 

 

27

   Unrealized gain (loss) on securities

 

-

 

 

7

 

 

-

 

 

(5)

       Total Other Income (Expense)

 

(57,286)

 

 

(406,210)

 

 

(201,792)

 

 

(534,966)


NET INCOME (LOSS)


$


41,050

 


$


(443,044)

 


$


(589,923)

 


$


(660,831)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME (LOSS) PER COMMON SHARE


$


0.00

 


$


(0.03)

 


$


(0.04)

 


$


(0.04)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 



15,472,777

 

 



15,192,290

 

 



15,490,530

 

 



15,057,329


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




5




LKA INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

(Unaudited)


 

For the Nine Months Ended

September 30,

 

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net loss from operations

$

(589,923)

 $

(660,831)

Items to reconcile net loss to net cash used by operating activities:

 

 

 

 

   Accretion of environmental remediation costs

 

2,739

 

2,547

   Depreciation and amortization

 

26,117

 

38,063

   Unrealized (gain) loss on investments

 

-

 

5

   Realized (gain) on investments

 

-

 

25

   Loss on derivative

 

-

 

82,388

   Amortization of deferred debt issue costs

 

-

 

26,958

   Common stock issued for services

 

203,112

 

-

   Common Stock issued for debt default expense

 

-

 

358,897

Changes in operating assets and liabilities

 

 

 

 

   Decrease in accounts receivable

 

89,384

 

-

   Increase (decrease) in prepaid and other assets

 

841

 

(27,445)

   (Increase) decrease in accounts payable

 

53,272

 

(43,882)

   Increase in accrued expenses

 

283,852

 

86,653

      Net Cash Provided (Used) by Operating Activities

 

69,394

 

(136,647)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

   Payments on notes payable

 

-

 

(47,642)

   Payments on derivative liability

 

-

 

(16,644)

   Common stock issued for cash

 

-

 

5,000

      Net Cash Provided by Financing Activities

 

-

 

(59,286)

 

 

 

 

 

INCREASE (DECREASE) IN CASH

 

69,394

 

(195,933)

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

20,084

 

213,405

 

 

 

 

 

CASH AT END OF PERIOD

$

89,478

 $

17,472

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

   Interest

$

900

 $

28,677

   Income taxes

$

-

 $

-

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

   Reclassification of derivative liability

$

84,283

 $

117,233

   Reclassification of debt from long term debt to short term debt

$

-

 $

109,018


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



6




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2011


NOTE 1 -

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES


LKA International, Inc. (“LKA” or the “Company”) is currently engaged in efforts to expand mine exploration and continues to seek additional investment opportunities.


The accompanying unaudited condensed consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations.  The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with LKA’s most recent audited financial statements.  Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  


Reclassifications


Certain prior year amounts have been reclassified to conform to the current year presentation.


NOTE 2 -

RELATED PARTY TRANSACTIONS


Related Party Debt


Cognitive Associates Limited Partnership


LKA owes Cognitive Associates Limited Partnership $56,828 in unpaid principal from a note dated December 31, 1986.  The note is unsecured, due upon demand, and accrues interest at 10% per annum.  No payments have been made during the three months ended September 30, 2011.  Accrued interest related to this note totaled $74,916 and $70,654 as of September 30, 2011 and December 31, 2010, respectively.


LKA owes Cognitive Intelligence Limited Partnership $5,975 in unpaid principal from a note dated October 1, 1987.  The note is unsecured, due upon demand, and accrues interest at 10% per annum.  No payments have been made during the three months ended September 30, 2011.  Accrued interest related to this note totaled $9,544 and $9,096 as of September 30, 2011 and December 31, 2010, respectively.


PanAmerican Capital Group


On July 2, 2009, LKA issued a promissory note (the Note) to PanAmerican Capital Group, Inc. (PanAmerican), a related party company, in exchange for cash of $545,090.  The Note accrues interest at 10% per annum, is secured by a first charge over LKA mining property and claims in Hinsdale County, Colorado and is due in five installments, the first due the first business day of January 2010, with the remaining four due in three months intervals through January 2011.  The amount of the payments are to be determined as the higher of either (i) the value of 140 ounces of gold as determined by the closing spot price on the Commodity  Exchange, Inc. (COMEX) on the business day immediately preceding the installment due date, or (ii) one-fifth (1/5) of the total principal amount, together with accrued interest thereon.


During January 2010, LKA made a partial payment of $92,064 on the Note, of which $16,644 was applied against the derivative liability, $27,778 was applied against accrued interest and $47,642 was applied to principal.  





7




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2011


NOTE 2 -

RELATED PARTY TRANSACTIONS (CONTINUED)


PanAmerican Capital Group (Continued)


Due to delays in mine exploration, PanAmerica agreed to allow LKA to defer a portion of the first installment payment due January 4, 2010. The second installment payment due April 5, 2010 and third installment due on July 5, 2010, were also deferred until August 15, 2010. In consideration for these payment deferrals LKA agreed to make certain additional interest payments and to provide additional collateral/security on any unpaid balances due as of August 15, 2010. LKA and PanAmerican entered into a Waiver Agreement on June 10, 2010 whereby PanAmerican waived its Enforcement Rights with respect to the delinquent payments on the Note in consideration for the following:


(a)

LKA must pay all amounts payable in respect of the installment payments otherwise due under the Note on January 4, 2010, April 5, 2010 and July 5, 2010 to PanAmerican on or before August 15, 2010; 

(b)  on or before August 15, 2010, LKA must pay to PanAmerican, in addition to the amounts otherwise payable under subsection (a) above, an amount equal to 2% per month of any unpaid installment payments, calculated with respect to any such unpaid installment payment, from the date such installment payment was otherwise due; and

(c)  (i) LKA must issue to PanAmerican one unregistered and restricted share of LKA common stock for each dollar of unpaid installment payments otherwise due as of the date of the Waiver Agreement; and (ii) on July 5, 2010, issue to the PanAmerican one unregistered and restricted share of LKA common stock for each dollar of the installment payment otherwise due as of July 5, 2010.  The shares are to be held by PanAmerican as security and are to be surrendered to LKA for cancellation upon satisfaction of the Borrower of the obligations set forth in (a) and (b) above. In circumstances where such obligations are not satisfied the Holder shall be entitled to retain such Shares as beneficial owner thereof provided that such retention shall not otherwise relieve the Borrower from its obligations under the Note or the Waiver Agreement.


As a result of LKA’s failure to pay the required installment payment on August 15, 2010, 220,453 and 169,652 shares of LKA common stock were surrendered to PanAmerican with a fair value of $358,897.  The fair value of these shares was recorded as debt default expense for the year ended December 31, 2010.   


LKA failed to make the required final note installment payment due January 4, 2011.  To-date, PanAmerican has not made any demands on the past due installments and LKA continues to pursue a resolution with the debt holder. As a result of the Waiver Agreement and payment defaults, LKA has reclassified a total of $268,873 in accrued derivative liability related to the past due Note payments to the remaining original $497,448 note principal and has accrued interest at a rate of 2% per month, for the period from the dates of note defaults through September 30, 2011.  Total accrued interest on the Waiver Agreement and past due note balance was $212,498 and $74,560 at September 30, 2011 and December 31, 2010, respectively.  Interest expense on the Note totaled $137,938 for the nine months ended September 30, 2011.


Other Related Party Transactions


LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses.  The affiliated Company, (Abraham & Co., Inc. a FINRA member and registered investment advisor) also executes LKA’s securities transactions and manages its investment portfolio.  LKA owed Abraham & Co. $26,500 and $13,500 in past due amounts as of September 30, 2011 and December 31, 2010, respectively.


As of September 30, 2011 and December 31, 2010, LKA owes an officer and shareholder $45,628 and $747, respectively, for expenses paid on behalf of LKA.






8





LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2011


NOTE 3 -

SIGNIFICANT EVENTS


Precious Metals Sales


During March 2011, LKA delivered a total of 110.1 dry short tons of precious metals ore valued at $136,766.  


During May 2011, LKA delivered a total of approximately 12.4 dry short tons of precious metals ore for a net value of $46,150.  


During June 2011, LKA delivered a total of approximately 88.0 dry short tons of precious metals ore for a net value of $143,831.  


During August 2011, LKA delivered a total of approximately 88.5 dry short tons of precious metals ore for a net value of $325,061.  


Common Stock


During February 2011, LKA entered into a consulting agreement for investor and public relations services. As a result of this agreement, LKA issued 50,000 shares of its fully vested common stock.  LKA recorded $37,500 in consulting expense, or $0.75 per share.


During March 2010, LKA issued 20,000 share of its common stock to a consultant for services rendered.  LKA recorded $13,600 in consulting expense, or $0.68 per share.


During April 2011, LKA issued a consultant 50,000 shares of its common stock for services rendered and recognized $28,000 in expense, or $0.56 per share.


During April 2011, LKA issued a consultant 15,000 shares of its common stock for services rendered and recognized $4,650 in expense, or $0.31 per share.


During August 2011, LKA issued a consultant 35,000 shares of its common stock for services rendered and recognized $11,550 in expense, or $0.33 per share.


Common Stock Warrants


During April 2011, LKA entered into an interim consulting agreement with Francois Viens to act as a special advisor to the LKA board of directors, with the election of being appointed to a position on the LKA board in the future.  As part of the consulting agreement, Mr. Viens is to be paid consulting fees for any work done on projects pre-approved by the LKA board of directors.  An initial incentive compensation for his services, LKA agreed to issues Mr. Viens warrants to purchase up to 500,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:


Warrant I for 200,000 shares exercisable at $0.80 per share, to be issued as of May 1, 2011.

Warrant II for 150,0000 shares exercisable at $1.20 per share, to be issued one year later, or May 1, 2012.

Warrant III for 150,0000 shares exercisable at $1.80 per share, to be issued one year later, or May 1, 2013.


Each warrant will have a term of two and one-half years.  In the event the shares underlying the warrants, and the closing price of the common stock of the Company has been $3.00 per share or higher for 10 trading days within a 30 day trading period subject to minimum trading volumes, LKA shall be able to redeem the

Warrants at $0.001 per warrant. Such redemption notification shall be provided to warrant holders 20 days prior to redemption upon which Investors may exercise warrants.  




9




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2011


NOTE 3 -

SIGNIFICANT EVENTS (CONTINUED)


Common Stock Warrants (Continued)


In accordance with the interim consulting agreement discussed above, on May 1, 2011, LKA granted 200,000 warrants to acquire shares of common stock at any time at an exercise price of $0.80 per share for a period of two and one-half year.  The fair market value of the warrants was estimated at $107,812, or $0.54 per share, using the Black-Scholes option pricing model under the following assumptions:


Risk free interest rate

 

0.69%

Expected volatility

 

164.9%

Dividend yields

 

0.00%

Expected life

 

2.5 years

Expected forfeitures

 

0.00%


Derivative Liability


As a result of the repayment terms of the Note with PanAmerican Capital Group, Inc. (see Note 2) being indexed to the closing spot price of gold on COMEX at each repayment date, the Note is considered to be a hybrid debt instrument with an embedded derivative liability.  Accordingly, the embedded derivative liability was required to be bifurcated from the debt host agreement and recorded as a liability at its fair value as of the consolidated balance sheet dates.  The changes in fair value of the liability have been recorded as current period gains or losses in the consolidated statement of operations.


The fair market value of the embedded derivative liability was determined by applying quoted market prices of gold futures on the COMEX market for instruments that settle on or near the related debt payments, multiplying the quoted prices by the underlying number of troy ounces of gold at each repayment date and subtracting the otherwise required cash payment of the underlying note.  


During the nine months ending September 30, 2011, LKA failed to make the final required payment on the derivative liability at January 4, 2011 and reclassified the remaining $84,283 balance of the liability and related accrued interest to a related party note payable (see Note 2).  


Notes Payable


During December 2010, LKA issued a convertible note payable for cash of $150,000.  The convertible note accrued interest at 5% and commission expense at 7% of the cash balance provided through the due date of June 1, 2011 and  is convertible upon the consummation of a sale of equity securities of the Company for cash in an equity financing at a conversion price equal to the price per share paid by the investors in such financing.  During June 2011, the convertible note payable became past due and pursuant to the terms of the note, the to-date interest and commission  expense of $18,000 as of June  1, 2011 was reclassified to note principle and the total then began to accrue interest at 15% per annum.   Accrued interest on the convertible note totaled $8,354 and $2,466 at September 30, 2011 and December 31, 2010, respectively.


During December 2010, LKA issued a convertible note payable for cash of $50,000.  The convertible note accrued interest at 5% and commission expense at 7% of the cash balance provided through the due date of June 1, 2011 and is convertible upon the consummation of a sale of equity securities of the Company for cash in an equity financing at a conversion price equal to the price per share paid by the investors in such financing.  During June 2011, the convertible note payable became past due and pursuant to the terms of the note, the to-date interest and commission  expense of $6,000 as of June  1, 2011 was reclassified to note principle and the total then began to accrue interest at 15% per annum.   Accrued interest on the convertible note totaled $2,785 and $822 at September 30, 2011 and December 31, 2010, respectively. Debt offering costs of $24,163 were recognized during the nine months ending September 30, 2011.




10




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

September 30, 2011


NOTE 4 -

GOING CONCERN


LKA's consolidated financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, LKA has recently accumulated significant losses and has negative working capital.  All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:


LKA is currently engaged in an intensive exploration program at the Golden Wonder mine with the objective of returning the mine to a producing status. The exploration program, which began in November, 2008, has involved extensive sampling/assaying for the purpose of identifying possible new production zones within the mine. During this evaluation period, sampling and analysis of exposed Viens yielded encouraging results and some precious metals revenues. While encouraging, no conclusion can be drawn at this time about the commercial viability of the mine and LKA continues to pursue potential third party operator or lease agreements for the property.


In order to support continued operation of the mine, LKA entered into several financing transactions during the year ended December 31, 2010 and plans on raising additional funding during 2011 to support the continued exploration of the Golden Wonder mine.  If LKA is not successful in the resumption of mine operations which produce positive cash flows from operations, LKA may be forced to continue to raise additional equity or debt financing to fund its ongoing obligations or risk ceasing doing business.  


There can be no assurance that LKA will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan.  The ability of LKA to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.


NOTE 5 -

SUBSEQUENT EVENTS


During October 2011, LKA engaged Newport Coast Securities, Inc. as its investment banker to explore financing opportunities for the Company and its Golden Wonder mining project.  As a result of this agreement, LKA agreed to issue Newport 350,000 shares of LKA common stock.


During October 2011, LKA issued its Chairman and CEO 500,000 shares of common stock and options to purchase up to 1,000,000 shares of LKA common stock at $0.50 per share for 3 years.  The shares and options were issued for services rendered related to the continued management and operation of the company.


During November 2011, LKA entered into a non-binding Letter of Intent with Premier Gold Mines, Ltd (Premier) to jointly conduct exploration at LKA's Golden Wonder mine. Under the terms of the arrangement, Premier will design and manage a $2 million, LKA funded, Phase I exploration program over a period not to exceed two years from commencement of field operations. Upon completion of Phase I, Premier will be entitled, but not obligated, to enter into a joint venture agreement with LKA and earn up to a 60% interest in the Golden Wonder by spending $15 million in mine exploration over an additional six-year period. Premier may accelerate the earn-in period at its option. If Premier elects to fund exploration beyond Phase I, it will be required to make certain payments (cash and stock) and reimbursements to LKA as part of its initial earn-in obligation.



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


Forward-looking Statements


Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, international gold prices, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.


Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Results of Operations


For The Three Months Ended September 30, 2011 Compared to The Three Months Ended September 30, 2010.


During the quarterly period ended September 30, 2011, we received $364,286 from gold ore sales vs. $159,935 in the period ended September 30, 2010. This increase in sales was due to the Company’s shift in emphasis, from a focus on underground drilling and reduced mining activity in the year-ago period to a re-emphasis on mining activity in the 2011 period.  Currently, mining (exploratory) and related operations have resumed to normal and expected levels.


Operating expenses increased from $196,769 in the quarterly period ended September 30, 2010, to $265,950 in the current quarter.  This increase was mainly due to a $48,079 increase in exploration and related costs for the Golden Wonder Mine. Exploration and related costs increased to $151,197 in the quarter ended September 30, 2011, from $103,118 in the year-ago quarter.  Professional fees increased to $10,804 in the three months ended September 30, 2011, compared to $5,375 in the 2010 period.  General and administrative expenses increased to $48,604 from $42,507 in the quarterly periods ended September 30, 2011, and 2010, respectively.  Royalty expenses increased from $8,269 in the quarterly period ended September 30, 2010, to $17,845 in the quarterly period ended September 30, 2011.  Officer salaries remained $37,500 in both of these three month periods.  We realized operating income of $98,336 during the quarter ended September 30, 2011, as compared to operating loss of $36,834 in the comparable period in 2010.


We had a $17,304 loss on the booking of the derivative liability associated with the Pan America Note in the three months ended September 30, 2010 compared to $0 in the three months ended September 30, 2011.  We had debt default expense of $358,897 in the three months ended September 30, 2010 compared to $0 in the three months ended September 30, 2011. Interest expense totaled $57,286 and $30,016 in the quarterly periods ended September 30, 2011, and 2010, respectively. Interest income was $0 in the three months ended September 30, 2011, and $0 in the three months ended September 30, 2010. We had $7 in unrealized loss on securities in the quarter ended September 30, 2010, compared to $0 in the quarter ended September 30, 2011.


Net income totaled $41,050, or $0.00 per share, in the three months ended September 30, 2011, compared to a net loss of $443,044, or $0.03 per share, in the three months ended September 30, 2010.


For The Nine Months Ended September 30, 2011 Compared to The Nine Months Ended September 30, 2010.


During the nine months ended September 30, 2011, we received $651,808 from gold ore sales vs. $385,588 in the nine months ended September 30, 2010. As with the quarter-over-quarter increase, this increase in sales during the nine-month period was due to the Company’s shift in emphasis, from underground drilling and reduced mining activity, to a



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resumption of larger scale, albeit exploratory, mining operations. Currently, mining (exploratory) and related operations have resumed to normal and expected levels.  Ore reserves required for commercial levels of production have yet to be established.


Operating expenses increased substantially from $511,453 in the nine months ended September 30, 2010, to $1,039,939 in the current nine month period.  This increase was mainly due to a $297,876 increase in exploration and related costs for the Golden Wonder Mine as well as a $226,776 increase in professional fees.  Exploration and related costs increased to $500,944 in the nine months ended September 30, 2011, from $203,068 in the year-ago period.  Professional fees increased substantially to $266,023 in the nine months ended September 30, 2011, compared to $39,247 in the 2010 period.  General and administrative expenses decreased to $125,587 from $135,976 in the nine months ended September 30, 2011, and 2010, respectively.  Royalty expenses increased from $20,662 in the nine months ended September 30, 2010, to $34,885 in the nine months ended September 30, 2011.  Officer salaries and bonus remained $112,500 in both of these nine month periods.  We realized an operating loss of $388,131 during the nine months ended September 30, 2011, as compared to operating loss of $125,865 in the comparable period in 2010.


We incurred a $82,388 loss on the booking of the derivative liability associated with the Pan America Note in the nine months ended September 30, 2010, compared to $0 in the nine months ended September 30, 2011.  We had debt default expense of $358,897 in the nine months ended September 30, 2010 compared to $0 in the nine months ended September 30, 2011.  Interest expense totaled $201,792 and $93,703 in the nine months ended September 30, 2011, and 2010, respectively. Interest income was $0 in the nine months ended September 30, 2011, and $27 in the nine months ended September 30, 2010. We had $5 in unrealized loss on securities in the nine months ended September 30, 2010, compared to $0 in the nine months ended September 30, 2011.


Net loss totaled $589,923, or $0.04 per share, in the nine months ended September 30, 2011, compared to $660,831, or $0.04 per share, in the nine months ended September 30, 2010.


Liquidity


Current assets at September 30, 2011, totaled $92,501.  As of that date, we had $89,478 in cash, as compared to $20,084 at December 31, 2010.


During the nine months ended September 30, 2011, our operating activities provided net cash of $69,394.  In the comparable 2010 period, by contrast, operating activities used net cash of $136,647.  Investing activities had no effect on our cash flows in the nine months ended September 30, 2011, or the nine months ended September 30, 2010.  Cash used by financing activities totaled $0 in the nine months ended September 30, 2011, with $59,286 used by financing activities during the nine months ended September 30, 2010.


At September 30, 2011, the Company had a working capital deficit of $1,672,568, as compared to working capital deficit of $1,304,136 at December 31, 2010.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


Not required.


Item 4.  Controls and Procedures.


Evaluation of disclosure controls and procedures


Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.




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Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2011, our disclosure controls and procedures were, subject to the limitations noted above, effective to provide reasonable 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 Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in internal control over financial reporting


Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


None; not applicable.


Item 1A.  Risk Factors.


Not required.


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


During August 2011, LKA issued a consultant 35,000 shares of its common stock for services rendered and recognized $11,550 in expense, or $0.33 per share.


During October 2011, LKA engaged Newport Coast Securities, Inc. as its investment banker to explore financing opportunities for the Company and its Golden Wonder mining project.  As a result of this agreement, LKA agreed to issue Newport 350,000 shares of LKA common stock.


On October 26, 2011, which is subsequent to the end of the period covered by this Report, LKA issued to Kye A. Abraham, its Chairman and Chief Executive Officer, 500,000 shares of common stock and options to purchase up to 1,000,000 shares of LKA common stock at $0.50 per share, exercisable for 3 years.  The shares and options were issued for services rendered related to the continued management and operation of the company.


Item 3. Defaults Upon Senior Securities.


As of the date of this Quarterly Report, PanAmerican Capital Group, Inc. has not made any demands on the past due installments on its promissory note, and LKA continues to pursue a resolution with PanAmerican. LKA has reclassified a total of $268,873 in accrued derivative liability related to the past due note payments to the remaining original $497,448 note principal and has accrued interest at a rate of 2% per month, for the period from the dates of note defaults through September 30, 2011.  Total accrued interest on the Waiver Agreement and past due note balance was $212,498 and $74,560 at September 30, 2011 and December 31, 2010, respectively.  Interest expense on the Note totaled $137,938 for the nine months ended September 30, 2011.


On June 18, 2011, the Company received formal written notice from C.K. Cooper & Company, Inc., that C.K. Cooper considered the  Company’s convertible promissory notes in the principal amounts of $56,000 and $168,000 to be in default. On June 23, 2011, the Company filed a Current Report on Form 8-K with respect to this matter.

Pursuant to the terms of the C.K. Cooper notes, the to-date interest and commission expense as of June 1, 2011, was reclassified to note principal and the total then began to accrue interest at 15% per annum.   Total accrued interest on these convertible notes was $11,139 and $3,288 at September 30, 2011 and December 31, 2010, respectively.  Debt offering costs of $24,163 were recognized during the nine months ended September 30, 2011.

Item 4. (Removed and Reserved).



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Item 5. Other Information.


During the quarterly period ended September 30, 2011, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors.


Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit


31.1


31.2


32

Certification of Kye Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification of Nanette Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase*

101.LAB

XBRL Taxonomy Extension Label Linkbase*

101.DEF

XBRL Taxonomy Extension Definition Linkbase*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase*

101.SCH

XBRL Taxonomy Extension Schema*


*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.


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

  

LKA INTERNATIONAL, INC.


Date:

November 12, 2011

 

By:

/s/Kye Abraham

 

 

 

 

Kye Abraham, President, Chairman of the Board and Director

 

 

 

 

 

Date:

November 12, 2011

 

By:

/s/Nanette Abraham

 

 

 

 

Nanette Abraham, Secretary, Treasurer and Director




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