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EX-31 - 302 CERTIFICATION OF NANETTE ABRAHAM - LKA GOLD Inc /DE/ex312.htm
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 June 30, 2012


[  ] 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: August 7, 2012 – 16,549,422 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

 

June 30,

 2012

 

December 31, 2011

CURRENT ASSETS:

 

 

 

 

 

     Cash

$

116,113

 

$

143,331

     

 

 

 

 

 

          Total Current Assets

 

116,113

 

 

143,331

 

 

 

 

 

 

FIXED ASSETS

 

 

 

 

 

     Land, equipment and mining claims

 

800,351

 

 

800,351

     Accumulated deprecation

 

(237,223)

 

 

(218,541)

 

 

 

 

 

 

          Total Fixed Assets, Net of Accumulated Depreciation

 

563,128

 

 

581,810

 

 

 

 

 

 

OTHER NON-CURRENT ASSETS

 

 

 

 

 

     Reclamation Bonds

 

123,597

 

 

123,597

 

 

 

 

 

 

          TOTAL ASSETS

$

802,838

 

$

848,738

 

 

 

 

 

 
































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)


 

June 30,

 2012

 

December 31, 2011

CURRENT LIABILITIES

 

 

 

 

 

     Accounts Payable

$

121,297

 

$

200,877

     Accounts payable – related party

 

77,862

 

 

67,205

     Note payable

 

1,000,321

 

 

1,000,321

     Notes payable - related party

 

62,803

 

 

62,803

     Accrued interest

 

384,823

 

 

278.085

     Accrued interest payable - related party

 

89,170

 

 

86,030

     Accrued wages and advances payable to officer

 

169,837

 

 

179,067

 

 

 

 

 

 

          Total Current Liabilities

 

1,906,113

 

 

1,874,388

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

     

Asset retirement obligation

 


121,122

 

 


119,159

 

 

 

 

 

 

            Total Liabilities

 

2,027,235

 

 

1,993,547

 

 

 

 

 

 

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,

      16,344,603 and 16,344,603 shares issued and 16,257,356 and 16,257,356

       shares, outstanding, respectively

 



16,345

 

 

       


16,345

     Additional paid-in capital

 

9,452,796

 

 

           9,354,991

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

 

(86,692)

 

 

(86,692)

     Accumulated deficit

 

(10,606,846)

 

 

(10,429,453)

 

 

 

 

 

 

            Total Stockholders' Equity (Deficit)

 

(1,224,397)

 

 

(1,144,809)

 

 

 

 

 

 

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFECIT)

$

802,838

 

$

848,738















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

June 30,

 

For the Six Months Ended

June 30,

 

2012

 

2011

 

2012

 

2011

REVENUES

 

 

 

 

 

 

 

 

 

 

 

   Sales - precious metals

$

658,378

 

$

150,786

 

$

852,271

 

$

287,522

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

   Exploration, development and

     related costs


$


263,036

 


$


174,568

 


$


527,865

 


$


349,747

   Professional fees

 

80,946

 

 

169,957

 

 

180,092

 

 

255,219

   General and administrative

 

50,050

 

 

30,396

 

 

85,615

 

 

76,983

   Royalty expense

 

35,650

 

 

5,489

 

 

45,931

 

 

17,040

   Officer salaries and bonus

 

37,500

 

 

37,500

 

 

75,000

 

 

75,000

      Total Operating Expenses

 

467,182

 

 

417,910

 

 

914,503

 

 

773,989


OPERATING INCOME (LOSS)

 


191,196

 

 


(267,124)

 

 


(62,232)

 

 


(486,467)

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

   Interest expense

 

(57,739)

 

 

(83,825)

 

 

(115,168)

 

 

(144,506)

   Interest income

 

-

 

 

-

 

 

8

 

 

-

       Total Other Income (Expense)

 

(57,739)

 

 

(83,825)

 

 

(115,160)

 

 

(144,506)

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

133,457

 

$

(350,949)

 

$

(177,392)

 

$

(630,973)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME (LOSS) PER COMMON SHARE

$

0.01

 

$

(0.02)

 

$

(0.01)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 



16,344,603

 

 



15,509,394

 

 



16,344,603

 

 



15,466,515


DILUTED NET INCOME (LOSS) PER COMMON SHARE

$

0.01

 

$

(0.02)

 

$

(0.01)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 



18,978,603

 

 



16,793,394

 

 



18,978,603

 

 



16,750,515














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 Six Months Ended

June 30,

 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(177,392)

 

$

(630,973)

Items to reconcile net income to net cash provided (used) by operating activities:

 

 

 

 

 

   Accretion of asset retirement obligation

 

1,963

 

 

1,826

   Depreciation and amortization

 

18,682

 

 

16,775

   Common stock issued for services

 

-

 

 

83,750

   Common stock and warrants issued for services

 

97,805

 

 

107,812

Changes in operating assets and liabilities

 

 

 

 

 

   (Increase) in accounts receivable

 

-

 

 

(15,222)

   Decrease in prepaid and other assets

 

-

 

 

260

   Increase (Decrease) in accounts payable

 

(68,924)

 

 

208,625

   Increase in accrued expenses

 

100,648

 

 

210,515


      Net Cash Used by Operating Activities

 


(27,218)

 

 


(16,632)

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH

 

(27,218)

 

 

(16,632)

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

143,331

 

 

20,084

 

 

 

 

 

 

CASH AT END OF PERIOD

$

116,113

 

$

3,452

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

   Interest

$

2,575

 

$

600

   Income taxes

$

-

 

$

-


NON CASH TRANSACTIONS


 

 


 

Reclassification of derivative liability

$

-

 

$

84,283






















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



6




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

June 30, 2012


NOTE 1 -

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES


LKA International, Inc. (“LKA” or the “Company”) is currently engaged in efforts to expand mine production 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 six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  


Reclassifications


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


NOTE 2 -

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 veins 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, 2011 and plans on raising additional funding during 2012 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.






7




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

June 30, 2012


NOTE 3 -

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 six months ended June 30, 2012.  Accrued interest related to this note totaled $79,178 and $76,337 as of June 30, 2012 and December 31, 2011, 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 six months ended June 30, 2012.  Accrued interest related to this note totaled $9,992 and $9,963 as of June 30, 2012 and December 31, 2011, 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 initially accrued interest at 10% per annum, was secured by a first charge over LKA mining property and claims in Hinsdale County, Colorado and 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. During January 2010, LKA made a partial payment of $92,064 on the Note, of which $16,644 was applied against a related derivative liability, $27,778 was applied against accrued interest and $47,642 was applied to principal.  


Due to delays in mine production, on June 10, 2010 PanAmerica and LKA entered into a Waiver Agreement, whereby PanAmerican agreed to allow LKA to defer installment payments due January 4, 2010, April 5, 2010 and July 5, 2010 until August 15, 2010.  

 

As a result of the Waiver Agreement and payment defaults, LKA 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 began accruing interest at 2% per month per the terms of the Note.  


During the period ended June 30, 2012, PanAmerican sold the Note to an unrelated third party, Brannon Limited Partnership, with no change to the Note terms.  As such, effective June 30, 2012, LKA has reclassified the presentation of the Note principal and accrued interest as an un-related party debt.


Total accrued interest on the Note and past due note balance was $350,436 and $258,478 at June 30, 2012 and December 31, 2011, respectively.  Interest expense on the Note totaled $91,956 and $91,959 for the six months ended June 30, 2012 and 2011, respectively.


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. $40,000 and $31,000 in past due amounts as of June 30, 2012 and December 31, 2011, respectively.


At June 30, 2012 and December 31, 2011, LKA owes $37,862 and $36,205, respectively, for purchases made on the personal credit card of LKA’s president, Kye Abraham.  Additionally, LKA owed Kye Abraham $0 and $12,500 for non-interest bearing, short-term operating loans to LKA at June 30, 2012 and December 31, 2011, respectively, and $169,837 and $166,567 in unpaid salary at June 30, 2012 and December 31, 2011, respectively,




8




LKA INTERNATIONAL, INC.

Notes to the Consolidated Unaudited Financial Statements

June 30, 2012


NOTE 4 -

SIGNIFICANT EVENTS


Precious Metals Sales


From April to May 2012, LKA delivered a total of approximately 251.3 dry short tons of precious metals ore for processing estimated at a value of $658,378.


Common Stock Warrants


During February 2012, LKA entered into an agreement with Rauno Perttu to act as Chief Geologist and 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. Perttu 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. Perttu 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 $0.40 per share, to be issued as of March 1, 2012.

Warrant II for 150,000 shares exercisable at $0.60 per share, to be issued one year later, or March 1, 2013.

Warrant III for 150,000 shares exercisable at $0.80 per share, to be issued one year later, or March 1, 2014.


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.


The Warrant I - III tranches were valued at $44,791, $29,769 and $26,947 using the Black-Scholes option fair value pricing model using the following assumptions:


Stock price on grant date

$

0.35

Exercise price

$

0.40 – 0.80

Expected time to exercise

 

2.5 years

Risk free interest rate

 

0.35%

Volatility

 

121.02%

Expected forfeiture rate

 

0.00%


During the period ended June 30, 2012, LKA expensed $44,791 related to Warrant I, $11,163 and $5,053 for Warrants II and III, respectively, related to the Perttu warrants. The value of Warrants II and II are being recognized ratably over the vesting term of one and two years, respectively.  


During the period ended June 30, 2012, LKA expensed $21,652 and $15,146 for Warrants II and III, respectively, issued to Francois Viens in April 2011. The value of Warrants II and II are being recognized ratably over the vesting term of one and two years, respectively.  


NOTE 5 -

SUBSEQUENT EVENTS


During July 2012, LKA entered into a one year Financial Consulting Agreement (the Agreement).  The Agreement requires LKA to issue 215,000 shares of its common stock and pay $40,000 in cash.




9




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 June 30, 2012 Compared to The Three Months Ended June 30, 2011.


During the quarterly period ended June 30, 2012, we received $658,378 from gold ore sales vs. $150,786 in the period ended June 30, 2011. This increase in sales of approximately 337% 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 exploratory mining activity in the 2012 period.  Currently, mining (exploratory) and related operations have resumed to normal and expected levels. A portion of second quarter ore sales were derived from ore extracted, crushed and shipped during the prior quarter, but not settled, during the first quarter of 2012.


Gold ore shipments made during the current quarter contained 297.56 ounces vs. 164.44 ounces shipped and/or sold during the first quarter of 2011. Included in these second quarter ore/gold deliveries was one shipment that remained unsettled as of June 30, 2012 and will be recorded as sold “settled” in the subsequent quarter. The gross value of gold ore delivered during the current quarter was $465,634.68 before processing and milling charges. This represents an 89% increase over the same period a year ago. Average ore grades from second quarter shipments were 1.33 ounces (37.70 grams) gold per ton.


All second quarter 2012 ore shipments were made to Kinross' Kettle River milling facility in Republic, Washington.


Operating expenses increased from $417,910 in the quarterly period ended June 30, 2011, to $467,182 in the current quarter. This increase was mainly due to an $88,468 increase in exploration and related costs for the Golden Wonder Mine. Exploration and related costs increased to $263,036 in the quarter ended June 30, 2012, from $174,568 in the year-ago quarter. Professional fees decreased to $80,946 in the three months ended June 30, 2012, compared to $169,957 in the 2011 period.  General and administrative expenses increased to $50,050 from $30,396 in the quarterly periods ended June 30, 2012, and 2011, respectively.  Royalty expenses increased from $5,489 in the quarterly period ended June 30, 2011, to $35,650 in the quarterly period ended June 30, 2012.  Officer salaries remained $37,500 in both of these three month periods.  We realized operating income of $191,196 during the quarter ended June 30, 2012, as compared to operating loss of $267,124 in the comparable period in 2011.


Interest expense totaled $57,739 and $83,825 in the quarterly periods ended June 30, 2012, and 2011, respectively.  Interest income was $0 in the three months ended June 30, 2012, and $0 in the three months ended June 30, 2011.


Net income totaled $133,457, or $0.01 per share, in the three months ended June 30, 2012, compared to a net loss of $350,949, or $0.02 per share, in the three months ended June 30, 2011.




10




For The Six Months Ended June 30, 2012 Compared to The Six Months Ended June 30, 2011.


During the six months ended June 30, 2012, we received $852,271 from gold ore sales vs. $287,522 in the period ended June 30, 2011. This increase in sales of approximately 196% 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 2012 period.


Ore shipments made during the first six-month period in 2012 contained 642.46 ounces of gold vs. 286.21 ounces shipped during the first six months of 2011. Both of these periods included shipments that remained unsettled as of June 30, 2011 and June 30, 2012 respectively which were recorded as sold “settled” in the subsequent quarters. Average ore grades during the first six months of 2012 were 1.77 ounces (50.18 grams) gold per ton, which significantly exceeded the 2011 full-year average grade of 1.46 ounces (41.39 grams). This is partially attributed to the sporadic but increasing occurrence of high-grade ore pockets encountered as crews advance along the Golden Wonder vein structure beyond the previously known production zones.


All 2012 ore shipments were made to Kinross' Kettle River milling facility in Republic, Washington.


Operating expenses increased from $733,989 in the six months ended June 30, 2011, to $914,503 in the six months ended June 30, 2012.  This increase was mainly due to a $178,118 increase in exploration and related costs for the Golden Wonder Mine. Exploration and related costs increased to $527,865 in the six months ended June 30, 2012, from $349,747 in the year-ago period.  Professional and consulting fees decreased to $180,092 in the six months ended June 30, 2012, compared to $255,219 in the 2011 period.  General and administrative expenses increased to $85,615 from $76,983 in the six months ended June 30, 2012, and 2011, respectively.  Royalty expenses increased from $17,040 in the six months ended June 30, 2011, to $45,931 in the six months ended June 30, 2012.  Officer salaries remained $75,000 in both of these six month periods.  We realized operating loss of $62,232 during the six months ended June 30, 2012, as compared to operating loss of $486,467 in the comparable period in 2011, a decrease of approximately 72%.


Interest expense totaled $115,168 and $144,506 in the six months ended June 30, 2012, and 2011, respectively.  Interest income was $8 in the six months ended June 30, 2012, and $0 in the six months ended June 30, 2011.


Net loss totaled $177,392, or $0.01 per share, in the six months ended June 30, 2012, a decrease of approximately 72% from our net loss of $630,973, or $0.04 per share, in the six months ended June 30, 2011.


Liquidity


Current assets at June 30, 2012, totaled $116,113.  As of that date, we had $116,113 in cash, as compared to $143,331 at December 31, 2011.


During the six months ended June 30, 2012, our operating activities used net cash of $27,218.  In the comparable 2011 period, by contrast, operating activities used net cash of $16,632.  Investing activities and financing activities had no effect on our cash flows in the six months ended June 30, 2012, or the six months ended June 30, 2011.


At June 30, 2012, the Company had a working capital deficit of $1,790,000, as compared to working capital deficit of $1,731,057 at December 31, 2011.


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



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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.


Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2012, 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.


None; not applicable.


Item 3. Defaults Upon Senior Securities.


In March, 2012, the Company’s management was informed that PanAmerican Capital Group, Inc. (“PanAmerican”), had assigned the Company’s promissory note to Brannon Limited Partnership (“Brannon”) on undisclosed terms.  Brannon is not an affiliate of the Company.  As of the date of this Quarterly Report, Brannon has not made any demands on the past due installments on its promissory note, and LKA continues to pursue a resolution with Brannon.  As a result of the Waiver Agreement with PanAmerican 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.  Total accrued interest on the Waiver Agreement and past due note balance was $350,436 and $258,478 at June 30, 2012, and December 31, 2011, respectively.  Interest expense on the Note totaled $91,956 and $91,959 for the six months ended June 30, 2012 and 2011, respectively.


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  $34,387and $19,608 at June 30, 2012 and December 31, 2011, respectively.  Debt offering costs of $24,163 were recognized during the nine months ended September 30, 2011.


Item 4. Mine Safety Disclosures.


None, not applicable.




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Item 5. Other Information.


During the quarterly period ended June 30, 2012, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant’s Board of Directors.


During July 2012, which is subsequent to the end of the period covered by this Report, LKA entered into a one year financial consulting agreement with Riverview Capital (the “Agreement”).  Under the terms of the Agreement, on July 11, 2012, the Company issued 215,000 “unregistered” and “restricted” shares of its common stock to Riverview Capital.  These shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D of the Securities and Exchange Commission.  In addition to the issuance of these shares, the Agreement requires LKA to pay $40,000 in cash to Riverview Capital.


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:

August 9, 2012

 

By:

/s/Kye Abraham

 

 

 

 

Kye Abraham, President, Chairman of the Board and Director

 

 

 

 

 

Date:

August 9, 2012

 

By:

/s/Nanette Abraham

 

 

 

 

Nanette Abraham, Secretary, Treasurer and Director




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