Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - LKA GOLD Inc /DE/ | exthirtytwotwo.htm |
| EX-32.1 - EXHIBIT 32.1 - LKA GOLD Inc /DE/ | exthirtytwoone.htm |
| EX-31.2 - EXHIBIT 31.2 - LKA GOLD Inc /DE/ | exthirtyonetwo.htm |
| EX-31.1 - EXHIBIT 31.1 - LKA GOLD Inc /DE/ | exthirtyoneone.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2013
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-17106
LKA GOLD INCORPORATED
(Exact name of registrant as specified in its charter)
|
Delaware
|
91-1428250
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
3724 47th Street Ct. N.W.
Gig Harbor, Washington 98335
(Address of principal executive offices)
(253) 514-6661
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:
|
Large accelerated filer [ ]
|
Accelerated filed [ ]
|
|
Non-accelerated filer [ ]
|
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]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second quarter.
The market value of the voting and non-voting common stock is $6,084,715, based on 6,613,821 shares held by non-affiliates. The shares were valued at $0.92 per share, that being the closing price on June 28, 2013, the last business day of the registrant’s most recently completed second quarter.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of April 10, 2014, the registrant had 14,949,187 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
See Part IV, Item 15.
- 1 -
PART I
FORWARD LOOKING STATEMENTS
In this Annual Report, references to “LKA International,” “LKA,” the “Company,” “we,” “us,” “our” and words of similar import) refer to LKA International, Inc., a Delaware corporation, the registrant.
Statements made in this Form 10-K 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 business of LKA. Such forward-looking statements include those that are 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, in addition to those contained in this Annual Report: general economic or industry conditions nationally and/or in the communities in which we conduct business; fluctuations in global gold and silver markets; legislation or regulatory requirements, including environmental requirements; conditions of the securities markets; competition; our ability to raise capital; changes in accounting principals, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services and prices.
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. LKA does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
ITEM 1. BUSINESS
Business Development
LKA International, Inc. was incorporated on March 15, 1988, in the State of Delaware. Since our inception, our authorized capital has been 100,000,000 shares, consisting of 50,000,000 shares of common stock with a par value of one mill ($0.001) per share, and 50,000,000 shares of preferred stock, also with a par value of one mill per share. LKA owns certain real and personal property interests including patented and unpatented mining claims, water rights, buildings, fixtures, improvements, equipment, and permits situated near Lake City, Colorado, which are described below. LKA's activities associated with these properties have been sporadic since they were acquired by its predecessor in December, 1982.
Effective as of July 2, 2009, LKA and PanAmerica Capital Group, a Panama corporation (“PanAmerica”) executed a Subscription Agreement by which LKA issued to PanAmerica a promissory note in the principal amount of $545,090, and bearing interest at 10 percent per year (the “Promissory Note”). The outstanding principal and interest on the Promissory Note were payable in five equal installments. The first installment came due on January 4, 2010, and each subsequent installment came due on the date that was three months after the due date of the immediately preceding installment. In lieu of the payment of principal and interest as outlined above, PanAmerica could elect to receive all or a portion of each installment in cash amounts equivalent to the value of 140 troy ounces of gold as determined by the closing spot price of gold on COMEX on the business day immediately preceding the due date of such installment. LKA’s obligations under the Promissory Note was secured by the Company’s mining properties.
The Company paid 60% of the amount owing to PanAmerica under the first installment on the Promissory Note but made no further payments. On August 7, 2012, the Promissory Note was settled in full in exchange for the Company’s obligation to issue to the holder of the Note, 6,000,000 shares of common stock of the Company.
The Lake City, Colorado Properties.
The Ute-Ulay silver mine and milling facility and the Golden Wonder gold mine (respectively, the "Ute-Ulay Property" and the "Golden Wonder Property" or, collectively, the "Properties"), consist of certain patented and unpatented mining claims and a milling facility located in Hinsdale County, Colorado. In December, 1982, our predecessor, LKA Holdings, Inc., a Utah corporation ("LKA Utah") acquired a 51% interest in the Properties from Lake City Mines, Inc., a Colorado corporation ("Lake City Mines"), which retained the remaining 49% interest. Immediately after the acquisition, LKA Utah assigned 90% of its interest in the future proceeds that it had the right to receive from the Properties to Caldera Partners Limited Partnership, a Washington limited partnership ("Caldera") in return for approximately $1.6 million, which LKA used to develop the Properties. As a result, Caldera owned a 45.9% interest in the future proceeds that LKA Utah had the right to receive on the Properties. LKA's President, Kye A. Abraham, is Caldera's Managing Partner. Subsequent to a bankruptcy filing by Lake City Mines in February 1984, LKA acquired Lake City Mine’s interest in the Properties through a Sheriff’s sale.
On March 1, 2005, the Company completed the acquisition of Caldera's 45.9% interest in the Golden Wonder and Ute Ulay mines. Per the terms of the agreement, the Company agreed to issue Caldera 6,434,042 pre-split "unregistered" and "restricted" shares of common stock in exchange for Caldera's interest in the mines and the full satisfaction of all receivables due to Caldera from the Company. Caldera was also relieved of any future obligations to contribute further exploration and construction funds.
- 2 -
Description of Business
LKA is currently engaged in an intensive exploration program at the Golden Wonder mine with the objective of returning the mine to a commercial 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. Exploration efforts are aimed at extending the zones (veins) within the mine that previously produced over 133,701 ozs. (82% of which came during the period of 2002-2006 at an average ore grade of 16.01 ozs. gold per ton). As the Golden Wonder vein system typically pinches and swells, horizontally as well as vertically, LKA’s objective/challenge will be to locate consistent vein widths within these high-grade zones to establish significant reserves to resume commercial production. Drilling and drifting along the vein structure has been the primary method of exploration to date. LKA expects to incorporate geochemical analysis, mapping (surface and underground) and other methods of exploration as its budget permits. Since resuming operations in the first quarter of 2009, LKA has, as of the date of this Report, shipped and/or sold 29 bulk ore samples containing over 3,938 ounces of gold derived from exploratory mining operations. Ore shipments for 2009, 2010, 2011, 2012 and 2013 are as follows:
Tons Oz/ton Gold (Oz)
2009 88 3.82 337
2010 559 1.07 599
2011 454 1.44 653
2012 861 1.55 1,335
2013 732 1.13 830
Ore shipments in transit or process may not result in receivables or finalized payment (“settlement”) at year end. Details of any such shipments will be reported in the subsequent quarter. Sales of ore have offset a significant portion of the cost of the current exploration program. Detailed ore shipment records can be found on the Company’s website at: http://lkagold.com/Golden-Wonder.php. To date, all ore shipments have been made to Teck, Yukon- Nevada Gold, Kinross and Freeport McMoRan. Currently there are no established reserves and all of LKA’s efforts are exploratory in nature. In August, 2010, LKA entered into a Mine Operating Agreement (the “Operating Agreement”) with Coal Creek Construction (“Coal Creek”). The Operating Agreement calls for Coal Creek to provide mine operating services, including mining and underground construction, blasting, crushing, bagging, hauling, loading and transporting of ore and associated waste material to locations specified by LKA. Per the Operating Agreement, Coal Creek is to pay all Mine Operator Services Expenses and is entitled to reimbursement for such expenses from LKA, provided LKA has received sufficient monies from ore sales. LKA is responsible for payment of costs associated with vehicles it provides for the project (including insurance and maintenance) property and production taxes, mining claim assessments or fees, personnel and consultants hired by LKA, claim and permit filings, and reclamation bonds. LKA will also pay all liabilities associated with the Golden Wonder Property which were incurred prior to the date of the Operating Agreement. In exchange for providing Mine Operator Services, Coal Creek is entitled to a payment equal to twenty percent of the project's net profits, or Net Smelter Receipts less deductions for Mine Operator Services, Royalties and Project-related Expenses, provided that Coal Creek has performed its service obligations and is current with its financial obligations and all other terms of its agreement with LKA. During and as of the years ended December 31, 2013 and 2012, LKA paid Coal Creek $563,133 and $840,084 for Mine Operator Services and accrued an additional $196,883 and $121,644 in remaining reimbursable expense related to ore shipments, respectively.
Principal Products or Services and their Markets
We do not currently have any products or services.
Distribution Methods of the Products or Services
None; not applicable.
Status of any Publicly Announced New Product or Service
None; not applicable.
- 3 -
Competitive Business Conditions and Our Competitive Position in the Industry and Methods of Competition
Management believes that there are literally hundreds of exploration-stage mining companies such as LKA. We believe that our competitive position in the industry will be insignificant.
Sources and Availability of Raw Materials and Names of Principal Suppliers
We do not use any raw materials, as we do not directly conduct any material operations.
Dependence on One or a Few Major Customers
In North America, there are a limited number of ore buyers capable of processing Golden Wonder ore efficiently. Accordingly, we are highly dependent upon securing and maintaining good sales terms with a relatively small number of customers, most of whom are major gold producers. Failure to obtain adequate terms of sale from these few customers would cause severe disruption to our operations. From 1984-2006 (initial exploration and commercial production) Golden Wonder ore and concentrates were sold almost exclusively to ASARCO and Barrick Gold Corp. During LKA’s current exploration program (2009-2013) the majority of ore sales were made to one customer, Kinross, with lesser amounts sold to Teck, Yukon-Nevada Gold and Freeport McMoran.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including
Duration
We have obtained "110d" limited impact permits from the Colorado Division of Reclamation Mining and Safety and have posted reclamation bonds to ensure the clean-up of environmental disturbances on the Ute-Ulay and Golden Wonder Properties. Storm water and discharge permits have also been issued for the above properties by the Colorado Department of Public Health and Environment. We are currently in compliance with all applicable permit and bonding requirements.
Need for any Governmental Approval of Principal Products or Services
None; not applicable.
Effect of Existing or Probable Governmental Regulations on our Business
We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:
Smaller Reporting Company
We are subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.
Sarbanes/Oxley Act
We are also subject to the Sarbanes/Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; auditor attestation to management’s conclusions about internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act has substantially increased our legal and accounting costs.
- 4 -
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to stockholders at special or annual meetings thereof or pursuant to a written consent will require us to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
We are also required to file Annual Reports on SEC Form 10-K and Quarterly Reports on SEC Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on SEC Form 8-K.
Research and Development Costs During the Last Two Fiscal Years
We have not spent any money on research and development in the past five years and we do not plan to make any such expenditures in the foreseeable future.
Cost and Effects of Compliance with Environmental Laws
As the owner of permits pertaining to the Properties, we are subject to many federal, state and local laws and regulations relating to environmental quality. For example, any mining operations conducted on the Properties must comply with federal and state laws and regulations that protect the quality of surface water and groundwater.
The Colorado Division of Reclamation Mining and Safety (the "Division") requires mine operators to have permits to conduct mining activities in Colorado. The Division also requires operators to obtain a reclamation bond to ensure the clean-up of disturbances on mining properties and conducts regular inspections to make sure that the operators are in compliance with applicable environmental laws and regulations. We have obtained all necessary bonds and permits required by the State of Colorado and believe that we are in compliance with all laws and regulations in this regard. However, we can provide no assurance as to the impact on LKA of any future environmental laws or regulations or any governmental interpretation of existing or future laws or regulations.
In 2002, the Federal Bureau of Land Management (the "BLM") advised us of its desire to extend to the Ute-Ulay Property certain environmental clean-up (“remediation”) activities that it is conducting on neighboring properties that we do not own. The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006. These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area. The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present. The BLM’s most recent study, “Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report” dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million. Based upon discussions to date with Hinsdale County officials, EPA’s regional manager and CDPHE, the actual costs associated with this recently completed remediation effort are expected to be approximately $1.2 million; substantially below previous BLM estimates. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA may either require a property owner to perform the necessary cleanup or, as in this case, the agencies may perform the work and seek recovery of costs against the property owner and previous owners. While it cannot be determined with certainty until the EPA has completed the process, the Company’s status as a “de minimis” participant and the fact that remediation activities were focused on property located largely outside of LKA’s permitted operating area, management expects the final determination of liability (cost) for this remediation project will have a negligible impact on the Company’s financial condition. Accordingly, pursuant to Generally Accepted Accounting Principles, no liability for this project has been recorded on the Company’s books and records. There can be, at this time, no guarantee that EPA will ultimately agree with management’s assessment of the Company’s liability.
- 5 -
Number of Total Employees and Number of Full Time Employees
Kye A. Abraham is LKA's only full-time employee. Nanette K. Abraham is a part-time employee and assists with bookkeeping and administrative work.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2: PROPERTIES
We own a 100% interest in the Ute-Ulay (non-donated portion of patented claims) and Golden Wonder Properties. The Company is entitled to receive all lease and royalty payments on these Properties. We are currently engaged in exploration and limited, non-commercial, ore production at the Golden Wonder mine.
Both the Ute-Ulay silver mine and the Golden Wonder gold mine are vein type deposits associated with volcanic activity occurring millions of years ago during a turbulent period known in geology as Tertiary time. During this violent geologic era, most of the known precious metal mines in the State of Colorado were formed along a southwest to northeast channel or narrow band approximately 20 miles wide, which stretches in a diagonal trend from Durango in the southwest to Boulder County in the northeast. This zone has been called the Colorado Mineral Belt. Lake City, Colorado lies astride this mineral belt in a topographical cul de sac 57 miles southwest of Gunnison, Colorado.
Each Property is described below.
Ute-Ulay Group.
The Ute-Ulay Property consists of 23 patented mining claims located approximately four miles west of Lake City, Colorado. These are highly mineralized silver-lead-zinc mines with excellent access via a gravel road that is maintained year-round by the County of Hinsdale. This road goes from the Property to Lake City and from Lake City to State Highway 149 northward approximately 46 miles to an intersection with U.S. 50, about nine miles west of Gunnison, Colorado.
This Property has a long history of mineral extraction dating back to the nineteenth century. Most of this extraction (silver, lead and zinc) occurred between 1874 and 1903. LKA has no current plans to resume mining operations at this property and has recently donated the historic structures, operating permits, reclamation bonding, and certain portions of its patented claims to Hinsdale County for historic preservation purposes. See further description of this property and its historical significance to the area on the Company’s website at: http://lkagold.com/Ute_Ulay.html
Donation of Ute-Ulay Historic Structures and Property to Hinsdale County
On October 4, 2012, LKA deeded ownership of a sub-divided portion of its property know as the Ute-Ulay Townsite in Phase I of a two-part plan to convey ownership of these properties to Hinsdale County for historic preservation and restoration purposes. On December 19, 2012, LKA and the County executed the “Agreement For Conveyance Of Ute-Ulay Mine and Mill Site” to commence Phase II of the donation process. On April 4, 2013, LKA deeded certain additional portions of the property known as the Mine and Mill sites (“Permitted Mine Area”) and the Henson Creek Frontage to the County and subsequently conveyed the Company’s operating permit and a portion of its reclamation bond to complete Phase II of the donation Agreement. During 2013, the County applied for, and obtained, funding from the EPA, BLM, and Colorado Department of Health & Environment (“CDPHE”) to clean up andstabilize these properties. Under the direction of EPA and DRMS the restoration and cleanup was completed in late 2013.
As discussed above, the Ute-Ulay property was the subject of multiple EE/CA studies/reports prepared by the Bureau of Land Management that identified certain environmental hazards on a portion of the property known as the Ute Mine & Mill Site. A remediation and property stabilization plan developed by the DRMS, and approved by the EPA, was completed in late 2013 at an estimated cost of $1.2 million. As the result of numerous discussions and agreements with Hinsdale County, CDPHE and the EPA’s regional manager, LKA expects to bear very little or none of these remediation costs since the affected area is located largely outside of LKA’s permitted area of operations.
- 6 -
The Ute Mill.
A 100 ton-per-day flotation mill, including various equipment, buildings and support facilities, exists on the Ute-Ulay Property. The mill is located at the level of the main haulage tunnel of the Ute mine. It is in satisfactory condition and was used by LKA to mill ore from the Golden Wonder mine during a 1984 pilot production program.
The mill, property, and related buildings were designated a historic landmark by Hinsdale County in 2011 and comprised the largest portion of the Company’s Phase II donation to the County. The mill is the only remaining one of its kind in the Lake City mining district and is considered a historic landmark and one of the area’s most significant tourist attractions. Prior to donating the mill to Hinsdale County, management determined that the mill was not a practical or efficient vehicle for processing ore from the Company’s Golden Wonder mine.
Golden Wonder.
Geology
Physical, structural and petrologic characteristics of this rhyolite intrusion observed in the underground workings of the Golden Wonder mine demonstrates features characteristic of both an extrusive and intrusive magma, and it is believed that the workings of the Golden Wonder mine are located in the upper reaches of the rhyolitic intrusion where it “welled out” from its vent source, gradually becoming more intrusive in character with depth. It undoubtedly extends downward along its vent source to the original magma chamber from whence it was derived. As observed in the underground workings of the Golden Wonder mine and based on extensive underground and field work, it would appear that the intrusion of the Golden Wonder host rock occurred in a series of pulses. Molten magma moved upward along the vent structure wherein it was emplaced, and solidified. Oftentimes it appears that the rock unit was only partially solidified when it was deformed by another upward pulse of magma, thereby creating very complex flow-banding within the partially solidified rock. In some instances, the rock unit appears to have been completely solidified, only to have been brecciated by a later pulse of magmatic injection, with fluid magma flowing around these brecciated fragments. In all instances observed, the composition of the magma remained essentially the same throughout its entire emplacement, suggesting the vein structure and the characteristics of the vein mineralization at the Golden Wonder mine is very much different from nearly all the other base-metal mines of the Lake City area, and even differs from that which apparently existed at the Golden Fleece mine. Instead of being of the classic fracture-filling type, where a more-or-less well-defined linear fracture, or set of open fractures, has been filled with ore minerals and gangue, the vein structure at the Golden Wonder mine usually does not follow a well-defined fracture, but in detail is often quite sinuous, enlarging and contracting along its course. Very commonly, the vein dies out completely and most often, a similar en echelon vein segment is located a relatively short distance away. The vein structure typically ranges from only a fraction of an inch thick to several feet across, but may enlarge significantly within ore shoots.
The Golden Wonder, near Lake City, Colorado, is located in the historic “Colorado Mineral Belt” from which over 25 million ounces of gold have been produced dating back to the mid 1800s.
- 7 -
History
The Golden Wonder Property consists of three patented and 25 unpatented mining claims located approximately 2- 1/2 miles south of Lake City, Colorado. The mine has been worked intermittently since its discovery in 1880. The mine is at an elevation of 10,323 feet and is situated on a hill slope approximately 1,500 feet above the valley floor. The initial discovery was made after finding high-grade float on the surface containing free gold. A limited body of ore was mined prior to 1889. The Golden Wonder Property was generally unworked through 1930. From 1930 to 1969, sporadic mining and exploration efforts were conducted, some of which resulted in the extraction of an undetermined amount of gold bearing ore.
During the summer of 1969, Southern Union Production Company ("SUPCO"), predecessor to the Texas based oil & gas conglomerate, Southern Union Company, began an exploration program at the Golden Wonder. Out of this, the SUPCO winze (a steeply inclined passageway connecting the mine workings) was started in the winter of 1970-1971 and completed to a depth of approximately 150 feet below the third level of the mine, with lateral drifting along the course of mineralization off the winze on the fourth level. Work was halted on the property in 1972, when SUPCO decided to discontinue all its metallic mineral operations in the western United States and South America. In 1973, Rocky Mountain Ventures secured a lease on the Property and shipped a small tonnage of dump material to a mill then operating at Crested Butte, Colorado for processing. Lake City Mines, Inc. acquired the property from SUPCO in 1977 and conducted extensive underground work including the driving of the 1,600’ sixth level crosscut. LKA acquired an undivided 51% interest in the property in 1982 and commenced exploration shortly thereafter. During this exploration program a limited amount of ore was produced and shipped to the Ute mill for concentrating and later sold to ASARCO as a part of a pilot production program. The mine was shut down shortly thereafter due to falling gold prices. In 1997, Au Mining leased the mine from LKA and commercially produced ore containing approximately 133,701 ounces of gold through the second quarter of 2006. Upon terminating its lease arrangement with Au Mining, LKA received an $18 million, 50/50 joint venture proposal from Cambior, Inc. to conduct exploration, establish reserves and, assuming success, resume commercial production. Cambior was acquired by IAM Gold in late 2006, before the joint venture agreement was finalized. In 2007, LKA was offered and finalized a similar joint venture arrangement ($18 million for 50% interest) with Richmont Mines, Inc. In 2008, a program of underground drilling and drifting was proposed and commenced but never completed by Richmont due to cost overruns and inconclusive results from initial drilling efforts. LKA resumed exploration efforts on its own in late 2008, which continue to the present date. Substantial underground drilling and drifting has been performed, resulting in the sale of limited quantities of ore containing approximately 4,000 ounces of gold. Ore sales have been made to Teck Resources, Kinross and Yukon-Nevada Gold and Freeport McMoRan. To date, no commercial reserves have been established. Power for mining operations is generated on site. Unpatented claims held by LKA (which may vary in number from year to year) are maintained on Bureau of Land Management property through payment of annual assessment fees.
Commercial Ore Production
The Golden Wonder has been explored and developed by drifts on six different levels, with raises and winzes connecting the lower levels. In 1984, LKA conducted a five-month pilot production program that resulted in the sale of approximately $590,000 of gold concentrates to ASARCO. The average grade of the ore produced during the pilot program was 0.96 ounces of gold per ton and the average gold price at that time was $325 per ounce. The majority of this production was derived from two stopes on the mine's fourth level, which consistently averaged one ounce of gold per ton. Commercial quantities of gold were also taken from the mine's fifth level. From 1997 until the second quarter of 2006, commercial mining operations were conducted by Au Mining, LLC, which leased the mine from LKA. During this period, approximately 8,349 tons of ore containing 133,701 ounces of gold were produced from the mine's fifth, sixth and seventh levels. The average grade of the ore produced during this period was 16.01 ounces of gold per ton. The average gold price during the period in which the ore was sold was $337.76. Total gold production from the mine under LKA’s ownership has been approximately 140,560 ounces. The average grade of all ore produced during this period was 11.72 ounces gold per ton. Detailed commercial production and exploratory ore shipment records can be found on the Company’s website at: http://lkagold.com/Golden-Wonder.php
- 8 -
Office Space.
We currently lease approximately 750 square feet of office space located at 3724 47th Street Ct. N.W., Gig Harbor, Washington. Effective as of January 1, 2005, we paid monthly rent of $1,300 to Abraham & Co., Inc. a FINRA member broker/dealer which is controlled by our President, Kye A. Abraham. This rent includes the use of the office space, bookkeeping services, telephone, office supplies, utilities, internet, computers and photocopiers. The lease arrangement is a month-to-month oral lease with Abraham & Co. and the payment amount increased to $1,500 per month in 2007 to keep pace with increased costs.
ITEM 3: LEGAL PROCEEDINGS
Except as discussed below, LKA is not the subject of any pending legal proceedings and, to the knowledge of management, no proceedings are presently contemplated against LKA by any federal, state or local governmental agency.
However, there is a potential, pending claim against a portion of our Ute Ulay properties. As discussed above, the EPA recently approved and completed a property remediation and stabilization plan developed by the Division of Reclamation, Mining & Safety for a certain portion of the Ute properties. In discussions with senior EPA project officials and an agreement with Hinsdale County, LKA expects minimal or no liability for the cost associated with this project since the affected area lies mostly outside of LKA’s permitted area of operations. The remediation project was completed by late fall, 2013. The estimated cost of the project was $1.2 million and was funded with CERCLA funds obtained by Hinsdale County and directed by EPA.
ITEM 4: MINE SAFETY DISCLOSURES
None; not applicable.
- 9 -
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our shares of common stock are quoted by the OTC Markets Group Inc. of the Financial Industry Regulatory Authority, Inc. (“FINRA”) under the symbol “LKAI”.
Set forth below are the high and low closing bid prices for our common stock for each quarter of 2011 and 2012. These bid prices were obtained from OTC MarketsGroup Inc. All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
|
Period
|
High
|
Low
|
|
January 1, 2012 through March 31, 2012
|
$0.90
|
$0.40
|
|
April 1, 2012 through June 30, 2012
|
$1.50
|
$0.50
|
|
July 1, 2012 through September 30, 2012
|
$1.20
|
$0.60
|
|
October 1, 2012 through December 31, 2012
|
$1.10
|
$0.50
|
|
January 1, 2013 through March 31, 2013
|
$1.80
|
$0.60
|
|
April 1, 2013 through June 30, 2013
|
$1.32
|
$0.70
|
|
July 1, 2013 through September 30, 2013
|
$0.93
|
$0.35
|
|
October 1, 2013 through December 31, 2013
|
$1.00
|
$0.40
|
Holders
The number of record holders of the Company’s common stock as of the date of this Report is approximately 499, not including an indeterminate number who may hold shares in “street name.”
Common Stock Dividends
LKA has not declared any cash dividends with respect to its common stock and does not intend to declare dividends in the foreseeable future. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
None
- 10 -
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
During August 2013, LKA issued a total of 5,500 shares of 9% non-voting convertible preferred stock (“Preferred Stock”) for cash of $55,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During September and October 2013, holders of the Preferred Stock elected to convert into 89,340 shares of common stock. The securities were exempt from registration under Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Rule 506 of Regulation D promulgated under the Act.
During October 2013, LKA issued 700 shares of 9% non-voting Preferred Stock for cash of $7,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During October 2013, the holder of the Preferred Stock elected to convert all of the Preferred Stock into 11,667 shares of common stock. The securities were exempt from registration under Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Rule 506 of Regulation D promulgated under the Act.
During November 2013, LKA issued 3,500 shares of 9% non-voting Preferred Stock for cash of $35,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During November 2013, the holder of the Preferred Stock elected to convert all of the Preferred Stock into 63,636 shares of common stock. The securities were exempt from registration under Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Rule 506 of Regulation D promulgated under the Act.
During December 2013, LKA issued 1,800 shares of 9% non-voting Preferred Stock for cash of $18,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During the year ended December 31, 2013, LKA paid $133 of accumulated preferred dividends on the 1,800 shares of Preferred Stock. The securities were exempt from registration under Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Rule 506 of Regulation D promulgated under the Act.
Use of Proceeds of Registered Securities
During the years ended December 31, 2012 and 2013, we did not receive any proceeds from the sale of registered securities.
Not required for smaller reporting companies.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward-looking Statements
Statements made in this Form 10-K 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 business of LKA. Such forward-looking statements include those that are 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, in addition to those contained in this Annual Report: general economic or industry conditions nationally and/or in the communities in which we conduct business; fluctuations in global gold and silver markets; legislation or regulatory requirements, including environmental requirements; conditions of the securities markets; competition; our ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services and prices.
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. LKA does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Liquidity and Capital Resources
Current assets at December 31, 2013, totaled $90,285, which was comprised of cash totaling $51,647 and accounts receivable of $38,638.
During fiscal 2013, our operating activities used net cash of $121,589. In 2012, by contrast, operating activities used net cash of $49,268. Net cash used by investing activities was $42,907 in 2013 compared to $6,734 in 2012. Net cash provided by financing activities increased to $85,907 in 2013, compared to none in 2012. At December 31, 2013, the Company had a working capital deficit of $456,657, as compared to $203,172 at December 31, 2012.
- 11 -
Results of Operations
Year Ended December 31, 2013, Compared to Year Ended December 31, 2012
During the calendar year ended December 31, 2013, we recognized revenue of $821,956 from the sale of gold ore, compared to $1,726,224 in 2012. These ore sales resulted from our exploration activities at the Golden Wonder mine. Exploration expenses decreased from $1,183,422 in 2012 to $808,657 in 2013, or approximately 32%. Professional fees decreased by $335,052, or approximately 75%, mainly due to a reduction of non-cash equity compensation expense, from $129,000 during 2012 to $27,292 during 2013. General and administrative expenses decreased by $20,871, or approximately 12% in 2013. We incurred an operating gain of $13,299 during the calendar year ended December 31, 2013, as compared to an operating gain of $542,802 in 2012. Our total other expenses increased to $2,761,739 in 2013, from $2,484,066 in the prior year, mainly as a result of a $2,756,000 one-time non-cash stock based expenses for common stock shares issued that were not subject to the reverse stock split in 2013, compared to a one-time non-cash loss on debt conversion expense of $2,347,214 recognized in 2012. Interest expense decreased to $5,539 in 2013 from $136,852 in 2012, mainly due to the conversion of notes payable to common stock during October 2012.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements of any kind for the year ended December 31, 2013.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
- 12 -
C O N T E N T S
|
Report of Independent Registered Public Accounting Firm
|
14
|
|
Consolidated Balance Sheets
|
15
|
|
Consolidated Statements of Operations
|
17
|
|
Consolidated Statements of Stockholders' Equity
|
18
|
|
Consolidated Statements of Cash Flows
|
19
|
|
Notes to Consolidated Financial Statements
|
20
|
- 13 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors
LKA Gold, Inc.
Gig Harbor, WA
We have audited the consolidated balance sheets of LKA Gold Inc. and its subsidiary, (collectively, the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LKA Gold Inc. and its subsidiary as of December 31, 2013 and 2012 and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that LKA Gold Inc. will continue as a going concern. As discussed in Note 11 to the consolidated financial statements, LKA Gold Inc. suffered losses from operations and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 11. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 15, 2014
- 14 -
LKA GOLD, INC.
Consolidated Balance Sheets
ASSETS
|
December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 8,740 | $ | 87,329 | ||||
| Restricted cash | 42,907 | - | ||||||
|
Accounts receivable
|
38,638 | 151,524 | ||||||
|
Prepaid expenses
|
- | 1,688 | ||||||
|
Total Current Assets
|
90,285 | 240,541 | ||||||
|
FIXED ASSETS
|
||||||||
|
Land, equipment, mining claims and asset retirement obligations
|
807,085 | 807,085 | ||||||
|
Accumulated depreciation
|
(292,856 | ) | (256,957 | ) | ||||
|
Total Fixed Assets, Net of Accumulated Depreciation
|
514,229 | 550,128 | ||||||
|
OTHER NON-CURRENT ASSETS
|
||||||||
|
Reclamation Bonds
|
123,597 | 123,597 | ||||||
|
TOTAL ASSETS
|
$ | 728,111 | $ | 914,266 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 15 -
LKA GOLD, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
|
CURRENT LIABILITIES
|
|||||||
|
Accounts payable
|
$ | 272,579 | $ | 223,596 | |||
|
Accounts payable – related party
|
102,497 | 64,545 | |||||
|
Note payable
|
10,000 | 10,000 | |||||
|
Accrued wages and advances payable to officer
|
161,866 | 145,572 | |||||
|
Total Current Liabilities
|
546,942 | 443,713 | |||||
|
NON-CURRENT LIABILITIES
|
|||||||
|
Asset retirement obligation
|
127,310 | 123,086 | |||||
|
Total Liabilities
|
674,252 | 566,799 | |||||
|
STOCKHOLDERS' EQUITY
|
|||||||
|
Preferred stock; $0.001 par value, 50,000,000 shares authorized, 1,800 and 0 shares issued and outstanding, respectively
|
2 | - | |||||
|
Common stock; $0.001 par value, 50,000,000 shares authorized, 14,976,556 and 14,816,913 shares issued, and 10,432,932 and 9,573,289 shares outstanding, respectively
|
14,977 | 14,817 | |||||
|
Additional paid-in capital
|
16,428,239 | 13,559,201 | |||||
|
Treasury stock; 43,624 and 43,624 shares at costs, respectively
|
(86,692 | ) | (86,692 | ) | |||
|
Accumulated deficit
|
(16,302,667 | ) | (13,139,859 | ) | |||
|
Total Stockholders' Equity
|
53,859 | 347,467 | |||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 728,111 | $ | 914,266 | |||
The accompanying notes are an integral part of these consolidated financial statements.
- 16 -
LKA GOLD, INC.
Consolidated Statements of Operations
|
Year Ended
|
|||||||
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
|
REVENUES
|
|||||||
|
Sales - precious metals
|
$ | 821,956 | $ | 1,726,224 | |||
|
EXPLORATION COSTS
|
|||||||
|
Exploration and related costs
|
(808,657 | ) | (1,183,422 | ||||
|
GROSS MARGIN
|
13,299 | 542,802 | |||||
|
GENERAL AND ADMINSTRATIVE EXPENSES
|
|||||||
|
Professional fees
|
112,405 | 446,108 | |||||
|
General and administrative
|
152,163 | 173,034 | |||||
|
Officer salaries and bonus
|
150,000 | 150,000 | |||||
|
Total General and Administrative Expenses
|
414,568 | 769,142 | |||||
|
OPERATING LOSS
|
(401,269 | ) | (226,340) | ||||
|
OTHER INCOME (EXPENSE)
|
|||||||
|
Loss on settlement of debt with shares
|
(2,756,000 | ) | - | ||||
|
Loss on settlement of debt with shares
|
- | (2,347,214) | |||||
|
Interest expense
|
(5,539 | ) | (136,852) | ||||
|
Total Other Income (Expense)
|
(2,761,539 | ) | (2,484,066) | ||||
|
NET LOSS
|
$ | (3,162,808 | ) | $ | (2,710,406) | ||
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE
|
$ | (0.21 | ) | $ | (0.32) | ||
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED
|
14,850,363 | 8,506,653 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
- 17 -
LKA GOLD,INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
Years Ended December 31, 2012 and 2011
|
Preferred Stock
|
Common Stock
|
Treasury Stock
|
Total
|
|||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
Stockholder’s
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid-In-Capital
|
Deficit
|
Equity (Deficit)
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2011
|
- | $ | - | 8,172,302 | $ | 8,172 | 43,624 | $ | 86,692 | $ | 9,363,164 | $ | (10,429,453 | ) | $ | (1,144,809 | ) | |||||||||||||||||||
|
Common stock issued for services
|
- | - | 157,500 | 157 | - | - | 180,843 | - | 181,000 | |||||||||||||||||||||||||||
|
Common stock issued for debt and interest
|
- | - | 6,487,111 | 6,488 | - | - | 3,880,622 | - | 3,887,110 | |||||||||||||||||||||||||||
|
Common stock warrants issued for services
|
- | - | - | - | - | - | 134,572 | - | 134,572 | |||||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2012
|
- | - | - | - | - | - | - | (2,710,406 | ) | (2,710,406 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2012
|
- | - | 14,816,913 | 14,817 | 43,624 | 86,692 | 13,559,201 | (13,139,859 | ) | 347,467 | ||||||||||||||||||||||||||
|
Preferred stock issued for cash
|
11,500 | 12 | - | - | - | - | 114,988 | - | 115,000 | |||||||||||||||||||||||||||
|
Preferred stock converted into common
|
(9,700 | ) | (10 | ) | 164,643 | 165 | - | - | (155 | ) | - | - | ||||||||||||||||||||||||
|
Preferred stock issuance costs
|
- | - | - | - | - | - | (11,500 | ) | - | (11,500 | ) | |||||||||||||||||||||||||
|
Common stock warrants issued for services
|
- | - | - | - | - | - | 27,292 | - | 27,292 | |||||||||||||||||||||||||||
|
Loss on settlement of debt with shares
|
- | - | - | - | - | - | 2,756,000 | - | 2,756,000 | |||||||||||||||||||||||||||
|
Preferred stock dividends paid
|
- | - | - | - | - | - | (17,593 | ) | - | (17,593 | ) | |||||||||||||||||||||||||
|
Shares retired
|
- | - | (5,000 | ) | (5 | ) | - | - | 6 | - | 1 | |||||||||||||||||||||||||
|
Net loss for the year ended December 31, 2013
|
- | - | - | - | - | - | - | (3,162,808 | ) | (3,162,818 | ) | |||||||||||||||||||||||||
|
Balance, December 31, 2013
|
1,800 | $ | 2 | 14,976,556 | $ | 14,977 | 43,624 | $ | 86,692 | $ | 16,428,239 | $ | (16,302,667 | ) | $ | 53,859 | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 18 -
LKA GOLD, INC.
Consolidated Statements of Cash Flows
|
Year Ended
|
||||||||
|
December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (3,162,808 | ) | $ | (2,710,406 | ) | ||
|
Items to reconcile net loss to net cash (used in) provided by operating activities:
|
||||||||
|
Depreciation expense
|
35,899 | 38,416 | ||||||
|
Accretion of asset retirement obligation
|
4,224 | 3,927 | ||||||
|
Loss on settlement of debt with shares
|
2,756,000 | - | ||||||
|
Loss on settlement of debt with shares
|
- | 2,347,214 | ||||||
|
Common stock options, warrants and shares issued for services and officer bonus
|
27,292 | 315,571 | ||||||
|
Changes in operating assets and liabilities
|
||||||||
|
(Increase) decrease in prepaid and other assets
|
1,688 | (1,688 | ) | |||||
|
(Increase) decrease in accounts receivable
|
112,886 | (151,524 | ) | |||||
|
Increase in accounts payable and accounts payable - related party
|
86,936 | 20,059 | ||||||
|
Increase in accrued expenses
|
16,294 | 89,163 | ||||||
|
Net Cash Used by Operating Activities
|
(121,589 | ) | (49,268 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase of equipment
|
- | (6,734 | ) | |||||
| Net increase in restricted cash | (42,907 | ) | - | |||||
|
Net Cash Used by Investing Activities
|
(42,907 | ) | (6,734 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Preferred stock issued for cash
|
115,000 | - | ||||||
|
Payment of preferred stock dividends
|
(17,593 | ) | - | |||||
|
Payment of preferred stock issuance costs
|
(11,500 | ) | - | |||||
|
Net Cash Provided by Financing Activities
|
85,907 | - | ||||||
|
NET DECREASE IN CASH
|
(78,589 | ) | (56,002 | ) | ||||
|
CASH AT BEGINNING OF PERIOD
|
87,329 | 143,331 | ||||||
|
CASH AT END OF PERIOD
|
$ | 8,740 | $ | 87,329 | ||||
|
CASH PAID FOR:
|
||||||||
|
Interest
|
$ | 1,200 | $ | 9,100 | ||||
|
Income Taxes
|
$ | - | $ | - | ||||
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
|
Common stock issued for notes payable, notes payable – related party and accrued interest
|
$ | - | $ | 1,539,897 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 19 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements presented are those of LKA Gold, Inc, a Delaware corporation and its wholly-owned subsidiary (LKA International, Inc.), a Nevada corporation (LKA). LKA was incorporated on March 15, 1988, under the laws of the State of Delaware.
LKA owns certain real and personal property interests including patented and unpatented mining claims, water rights, buildings, fixtures, improvements, equipment, and permits situated in Lake City, Colorado. LKA's activities associated with these properties have been sporadic since they were acquired by its predecessor in December, 1982. LKA exited the development stage in September 2003 as a result of the reacquisition of its interest in an operating mine near Lake City, Colorado and is currently engaged in efforts to re-establish reserves and resume commercial production in addition to seeking additional investment opportunities (See Note 11).
a. Accounting Methods
LKA’s financial statements are prepared using the accrual method of accounting. LKA has elected a calendar year-end.
b. Basic and Diluted Loss Per Share
LKA presents both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method, and convertible securities, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS includes 5,200,000 shares of common stock issued, but not yet outstanding related to the conversion of debt to equity (see Note 10) and excludes all dilutive potential shares if their effect is anti-dilutive. LKA had net losses as of December 31, 2013 and 2012, so the diluted EPS excluded all dilutive potential shares in the diluted EPS because the effect would be anti-dilutive.
c. Mine Exploration Costs
Mine exploration costs are capitalized and amortized by the units of production method over estimated total recoverable proven and probable reserves. Amortization of mineral rights is provided by the units of production method over estimated total recoverable proven and probable reserves. Costs related to locating and evaluating mineral and ore deposits, as well as determining the economic mineability of such deposits, are expensed as incurred. All costs related to mine exploration and expense were expensed due to there being no proven and probable reserves.
d. Asset Retirement Obligations
LKA recognizes legal obligations associated with the retirement of long-lived assets at fair value at the time the obligations are incurred. Upon initial recognition of a liability, the costs are capitalized as part of the carrying amount of the related long-lived asset (see Note 3).
e. Income Taxes
LKA files income tax returns in the U.S. federal jurisdiction, and the state of Colorado. LKA’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
- 20 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Income Taxes (Continued)
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2013 and 2012:
|
2013
|
2012
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carry forward
|
$ | 1,108,798 | $ | 1,000,338 | ||||
|
Accrued expenses
|
89,203 | 71,440 | ||||||
|
Valuation allowance
|
(1,198,001 | ) | (1,071,778 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
The federal income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations for the years ended December 31, 2013 and 2012 due to the following:
|
2013
|
2012
|
|||||||
|
Pre-tax book income (loss)
|
$ | (1,075,355 | ) | $ | (921,358 | ) | ||
|
Meals and entertainment
|
1,375 | 1,129 | ||||||
|
Common stock, options and warrants issued for services and debt discount
|
9,279 | 107,294 | ||||||
|
Related party accruals
|
17,764 | (12,293 | ) | |||||
|
Accretion
|
1,436 | 1,335 | ||||||
|
Loss on debt conversion
|
937,040 | 798,053 | ||||||
|
Net operating loss carry forward
|
1,108,798 | 1,000,338 | ||||||
|
Valuation allowance
|
(1,000,337 | ) | (974,498 | ) | ||||
|
Federal Income Tax
|
$ | - | $ | - | ||||
LKA had net operating losses of approximately $3,259,171 that expire in years through 2024. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
f. Cash Equivalents
LKA considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
g. Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are amounts due on ore sales, are unsecured and are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest. Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions.
- 21 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
h. Principles of Consolidation
The consolidated financial statements include those of LKA Gold, Inc., a Delaware corporation and its wholly-owned subsidiary LKA International, Inc., a Nevada corporation. All significant intercompany accounts and transactions have been eliminated.
i. Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
j. Revenue Recognition Policy
The Company recognizes revenue when persuasive evidence of an arrangement exists, goods have been delivered and title has transferred, the sales price is fixed or determinable, and collectability is reasonably assured. Revenue is generated through the sale of gold and silver ore and is recognized upon acceptance of ore delivery from the smelter. During the years ended December 31, 2013 and 2012, LKA recognized $821,956 and $1,726,224 from the delivery of gold and silver ore from the Golden Wonder mine, respectively. Precious metal sales receivables are $38,638 at December 31, 2013. A total of $641,498 and $1,726,224, or approximately 78% and 100%, of revenue recognized during the years ended December 31, 2013 and 2012 are from one source, Echo Bay Minerals Company in Republic, Washington.
k. Securities and Investments
LKA applies the provisions of Accounting Standards Codification (“ASC”) 320, “Investments – Debt and Equity Securities”, regarding marketable securities. LKA invests in securities that are intended to be bought and held principally for the purpose of selling them in the near term, and as a result, classifies such investments as trading securities. Trading securities are recorded at fair value on the balance sheet with changes in fair value being reflected as unrealized gains or losses in the current period. In addition, LKA classifies the cash flows from purchases, sales, and maturities of trading securities as cash flows from operating activities.
l. Stock-Based Compensation
LKA records stock-based compensation using the fair value method. Equity instruments issued to employees and the cost of the services received as consideration are accounted for in accordance with ASC 718 “Stock Compensation” and are measured and recognized based on the fair value of the equity instruments issued. All transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments are accounted for in accordance with ASC 515 “Equity-Based Payments to Non-Employees”, based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
m. Fair Value of Financial Instruments
In April 2009, the FASB extended disclosure requirements on the fair value of financial instruments to interim financial statements of publicly traded companies. The requirements are effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The guidance does not require disclosures for the earlier periods presented for comparative purposes at initial adoption. The guidance requires comparative disclosures only for periods ending after the initial adoption.
LKA adopted the new provisions related to fair value measurements and disclosures effective January 1, 2008. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.
Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. Assets and liabilities recorded at fair value in the consolidated statement of financial condition are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the FASB and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities carried at Level 1 fair value generally are G-7 government and agency securities, equities listed in active markets, investments in publicly traded mutual funds with quoted market prices and listed derivatives.
Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets that are generally included in this category are stock warrants for which there are market-based implied volatilities, unregistered common stock and thinly traded common stock.
Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, assets carried at fair value and included in this category include stock warrants for which market-based implied volatilities are not available.
n. New Accounting Pronouncements
LKA has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
o. Reclassification of Prior Period Balances
Certain amounts in prior periods have been reclassified to conform with the report classifications of the year ended December 31, 2013, with no effect on previously reported net income or stockholder’s equity (deficit).
p. Accounting for Derivative Instruments
LKA accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet.
LKA uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, LKA’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for LKA’s liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible, LKA seeks to validate the model’s output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
- 22 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
p. Accounting for Derivative Instruments (Continued)
LKA categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.
q. Long Lived Assets
Periodically the Company assesses potential impairment of its long-lived assets, which include property, equipment and acquired intangible assets, in accordance with the provisions of ASC Topic 360, “Property, Plant and Equipment.” The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying values. An impairment loss would be recognized in the amount by which the recorded value of the asset exceeds the fair value of the asset, measured by the quoted market price of an asset or an estimate based on the best information available in the circumstances. There were no such losses recognized during 2013 or 2012.
r. Restricted Cash
Restricted cash consists of cash received by LKA which is required to be held in escrow to be used for development of the public trading market of LKA’s common stock. Restricted cash was $42,907 at December 31, 2013.
NOTE 2 - FIXED ASSETS
Property and equipment are carried at cost, less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing assets. Maintenance and repairs are charged to current operations as incurred. Upon sale, retirement, or other disposition of these assets, the costs and related accumulated depreciation are removed from the respective accounts, and any gain or loss on the disposition is included in other income.
Depreciation expense is computed using the straight-line method over the following estimated useful lives:
|
Description
|
Useful Life
|
|
Land improvements
|
Estimated life of mine
|
|
Mining equipment
|
3 – 5 years
|
|
Vehicles
|
5 years
|
Fixed assets and accumulated depreciation are as follows:
|
December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Fixed assets:
|
||||||||
|
Land
|
$ | 376,442 | $ | 376,442 | ||||
|
Mining claims
|
12,137 | 12,137 | ||||||
|
Land improvements
|
128,580 | 128,580 | ||||||
|
Automobile
|
66,923 | 66,923 | ||||||
|
Mining equipment
|
124,976 | 124,976 | ||||||
|
Unamortized asset retirement obligation (Note 3)
|
98,027 | 98,027 | ||||||
|
Less: Accumulated depreciation
|
(292,856 | ) | (256,957 | ) | ||||
|
Total fixed assets
|
$ | 514,229 | $ | 550,128 | ||||
Depreciation expense for the years ended December 31, 2013 and 2012 was $35,899 and $38,416, respectively.
NOTE 3 - ASSET RETIREMENT OBLIGATIONS
ASC 410, “Asset Retirement and Environmental Obligations”, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. LKA’s asset retirement obligations (AROs) consist of estimated costs related to the reclamation of the Golden Wonder and Ute Ulay mines in correspondence with federal and state reclamation laws as defined by each applicable mine permit. The obligation and corresponding asset have been recognized in the period in which the liability was incurred.
NOTE 3 - ASSET RETIREMENT OBLIGATIONS (CONTINUED)
Changes in estimates could occur due to mine plan revisions, changes in estimated costs, and changes in the timing of the performance of reclamation activities.
LKA calculated its initial estimated AROs for final reclamation and mine closure based upon anticipated amounts and timing of future cash expenditures for a third party to perform the required work. Spending estimates have been escalated for inflation at 1.93% per annum, then discounted at the credit-adjusted risk-free rate of 4.09% per annum at September 18, 2003. LKA recorded an ARO asset associated with the liability and amortizes the asset over its expected life using the straight-line depreciation method. The ARO liability is being accreted to the projected spending date.
The Company calculated its estimated ARO for additional final reclamation and mine closure costs based upon anticipated amounts and timing of future cash expenditures for a third party to perform the required work. Spending estimates were escalated for inflation at 2.29% per annum and discounted at a credit-adjusted risk-free rate of 7.54% per annum. The Company recorded an ARO asset associated with the liability and will amortize the asset over its expected life of seven years using the straight-line depreciation method. The ARO liability addition will be accreted based on the initial projected reclamation completion date of September 30, 2016. Changes in estimates could occur due to mine plan revisions, changes in estimated costs and changes in the timing of the performance of anticipated reclamation activities.
As of December 31, 2013 and 2012, LKA holds reclamation bonds totaling $123,597 in the name of the State of Colorado (the State) for both the Ute Ulay and Golden Wonder mines. These amounts are being held by the State until the mines are closed and reclamation activities begin.
Accretion expense on asset retirement obligations for the years ended December 31, 2013 and 2012 was $4,223 and $3,927, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
Notes Payable
Cognitive Associates Limited Partnership
As of December 31, 2011, LKA had a note payable to Cognitive Associates Limited Partnership totaling $56,828 in unpaid principal from a note dated December 31, 1986. The note was unsecured, due upon demand, and accrued interest at 10% per annum. The note was converted to common stock during October 2012 (see Note 10).
As of December 31, 2011, LKA had a note payable to Cognitive Intelligence Limited Partnership totaling $5,975 in unpaid principal from a note dated October 1, 1987. The note was unsecured, due upon demand, and accrued interest at 10% per annum. The note was converted to common stock during October 2012 (see Note 10). Accrued interest related to this note totaled $9,693 as of December 31, 2011.
- 23 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED)
Notes Payable (Continued)
PanAmerican Capital Group, Inc.
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.
During the year ended December 31, 2012, PanAmerican sold the Note to an unrelated third party, Brannon Limited Partnership (Brannon), with no change to the Note terms. As such, LKA has reclassified the presentation of the Note principal and accrued interest as an un-related party debt. The Note was converted to common stock during October 2012 (see Note 10).
Office Space
LKA pays a company owned by an officer and shareholder $1,500 per month for office rent, equipment, services and expenses. The affiliated Company, (Abraham & Co., Inc. a Financial Industry Regulatory Authority member and registered investment advisor) also executes LKA’s securities transactions and manages its investment portfolio. At December 31, 2013 and 2012, LKA owes Abraham & Co $51,500 and $43,500 on this obligation, respectively.
Accounts and Wages Payable
At December 31, 2013 and 2012, LKA owes $50,997 and $21,045, respectively, for purchases made on the personal credit card of LKA’s president, Kye Abraham. Additionally, LKA owed Kye Abraham $161,866 and $145,572 in unpaid salary at December 31, 2012 and 2011, respectively.
Common Stock and Common Stock Options
On December 28, 2007, LKA’s board of directors authorized the issuance of options to purchase 500,000 shares of LKA’s common stock to an officer and shareholder for services previously rendered. The options have an exercise price of $0.80 per share, and have a five-year term from the date of grant. These options expired unexercised during the year ended December 31, 2012 (See Note 9).
On October 26, 2011, LKA’s board of directors authorized the issuance of 250,000 shares and options to purchase 500,000 shares of LKA’s common stock to an officer and shareholder for services previously rendered. The options have an exercise price of $1.00 per share, and have a three-year term from the date of grant (See Note 9).
NOTE 5 - MINE OPERATING AGREEMENT
During August 2010, LKA entered into a Mine Operating Agreement (Operating Agreement) with Coal Creek Construction (Coal Creek). The Operating Agreement calls for Coal Creek to provide mine operating services, including mining and underground construction, blasting, crushing, bagging, hauling, loading and transporting of ore and associated waste material to locations specified by LKA in the vicinity of the property, maintenance of roads to the Property and working areas for the mining of the Property.
Per the Operating Agreement, Coal Creek is to pay all Mine Operator Services Expenses and is entitled to reimbursement for such expenses from LKA provided LKA has received sufficient monies from ore/metals sales. LKA is responsible for payment of costs associated with vehicles it provides for the Project (including insurance and maintenance) property and production taxes, mining claim assessments or fees, personnel and consultants hired by LKA, claim and permit filings, and reclamation bonds. LKA shall also pay all liabilities associated with the Property which were incurred prior to the date of the Operating Agreement.
In exchange for providing Mine Operator Services, Coal Creek is entitled to a payment equal to twenty percent of the project's net profits, or Net Smelter Receipts less deductions for Mine Operator Services, Royalties and Project-related Expenses, provided that Coal Creek has performed its service obligations and is current with its financial obligations and all other terms of its agreement with LKA. During and as of the years ended December 31, 2013 and 2012, LKA paid Coal Creek $563,133 and $840,084 for Mine Operator Services and accrued an additional $196,883 and $121,644 in remaining reimbursable expense related to ore shipments, respectively.
- 24 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 6 - NOTIFICATION OF POSSIBLE ENVIRONMENTAL REMEDIATION
In 2002 the Federal Bureau of Land Management (the "BLM") advised LKA of its desire to extend to the Ute-Ulay Property certain environmental clean-up (“remediation”) activities that it is conducting on neighboring properties that LKA does not own. The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006. These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area. The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present. The BLM’s most recent study, “Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report” dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million. Based upon 2012 and 2013 recent discussions with Hinsdale County Colorado officials, the Federal Environmental Protection Agency’s (the “EPA”) regional manager, and legal counsel, the actual costs associated with this effort are expected to be approximately $1.2 million; substantially below previous BLM estimates. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA may either require a property owner to perform the necessary cleanup or the agencies may perform the work and seek recovery of costs against the property owner and previous owners. While it cannot be determined with absolute certainty until the project is completed, LKA’s status as a “de minimis” participant and the fact that remediation activities are focused on property located largely outside of LKA’s permitted operating area, LKA management expects this project will have a negligible impact on the LKA’s financial condition. Accordingly, pursuant to Generally Accepted Accounting Principles, LKA management believes it is a remote possibility there will be a material impact to its financial statements and no liability for this project has been recorded as of the year ended December 31, 2013.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Except as discussed above in Note 6, LKA is not the subject of any pending legal proceedings and, to the knowledge of management; no proceedings are presently contemplated against LKA by any federal, state or local governmental agency.
NOTE 8 - CONVERTIBLE PREFERRED STOCK
During August 2013, LKA issued a total of 5,500 shares of 9% non-voting convertible preferred stock (“Preferred Stock”) for cash of $55,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During September and October 2013, holders of the Preferred Stock elected to convert all of the preferred shares into 89,340 shares of common stock.
During October 2013, LKA issued 700 shares of 9% non-voting Preferred Stock for cash of $7,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During October 2013, the holder of the Preferred Stock elected to convert all of the Preferred Stock into 11,667 shares of common stock.
During November 2013, LKA issued 3,500 shares of 9% non-voting Preferred Stock for cash of $35,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During November 2013, the holder of the Preferred Stock elected to convert all of the Preferred Stock into 63,636 shares of common stock.
During December 2013, LKA issued 1,800 shares of 9% non-voting Preferred Stock for cash of $18,000. The Preferred Stock entitles the holder to cash dividends based on 9% of the unconverted balance, payable on a calendar quarter. During the year ended December 31, 2013, LKA paid $133 of accumulated preferred dividends on the 1,800 shares of Preferred Stock.
As a result of the issuances of Preferred Stock, LKA paid a related party a 10% commission based on the gross proceeds from the sales of Preferred Stock totaling $11,500. These Preferred Stock offering costs were recorded as reductions in the carrying value of the related Preferred Stock against additional paid-in capital.
As a requirement of the Preferred Stock subscription agreement, LKA is required to hold in escrow a “Dividend Reserve”, equal to 9% annual for the first two years. If the related Preferred Stock is converted within two years of the issuance date, the balance of any related unpaid Dividend Reserve is due and payable to the holders of the converted Preferred Stock. Additionally, fifty percent (50%) of the subscription proceeds, net of the 18% Dividend Reserve Account and net of 10% sales commissions, is designated “Market Development Funds” and held in escrow to be used for development of the public trading market of LKA’s common stock.
LKA’s Preferred Stock is convertible into shares of common stock at a rate based on the average closing price of LKA common shares for the 10 trading days prior to the receipt of the notice of conversion less a 15% discount. In no event shall the conversion price including the discount be less than $0.40 per share. LKA analyzed the conversion option for liability classification under ASC 815-15 and determined that equity classification was appropriate. At the time of each of the issuances of Preferred Stock, the value of the common stock into which the Preferred Stock was convertible had a fair value greater than the proceeds for such issuances. Accordingly, LKA recorded a deemed dividend totaling $32,024, which equals the amount by which the estimated fair value of the common stock issuable upon conversion of the issued Preferred Stock exceeded the proceeds from such issuances. The deemed dividend was recorded as a reduction of the value of the Preferred Stock and a corresponding increase in additional paid-in capital.
Between September and December 2013, holders of 9,700 shares of convertible preferred stock elected to convert their shares into 164,643 shares of common stock. As a result, $17,460 of the Dividend Reserve was paid upon conversion. The balance in Dividend Reserve and Market Development Funds cash was $42,907 as of December 31, 2013.
- 25 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 9 - COMMON STOCK
During July 2012, LKA entered into a one year Financial Consulting Agreement. The Financial Consulting Agreement required LKA to issue 107,500 shares of its common stock and pay $40,000 in cash. LKA recognized expense of $129,000, or $1.20 per share.
During October 2012, LKA issued an aggregate of 6,487,111 shares of common stock to two related parties and three unrelated parties for $1,053,124 of debt principal, $486,773 of accrued interest and recognized a $2,347,214 loss on conversion of debt (see Note 10)
During October 2012, LKA issued Coal Creek 50,000 shares of common stock as a one-time production bonus and recognized expense of $52,000, or $1.04 per share.
During September and October 2013, holders of 5,500 shares of Preferred Stock elected to convert into 89,340 shares of common stock.
During October 2013, the holder of 700 shares of Preferred Stock elected to convert all of the Preferred Stock into 11,667 shares of common stock.
During November 2013, the holder of 3,500 shares of Preferred Stock elected to convert all of the Preferred Stock into 63,636 shares of common stock.
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS
Common Stock Options
On December 28, 2007, LKA granted an option to its President to purchase 500,000 shares of LKA’s common stock at an exercise price of $0.80 per share, exercisable for five years from the date of grant (the “2007 Options”). The resulting fair value estimate, net of tax, totaled $415,092. This amount was recorded as a current period expense during the fourth quarter of 2007. The common stock options were allowed to expire unexercised on December 31, 2012.
During October 2011, LKA issued its Chairman and CEO 250,000 shares of common stock and options to purchase up to 500,000 shares of LKA common stock at $1.00 per share for 3 years. The shares and options were issued for services rendered related to the continued management and operation of the company.
The common stock options were valued at $360,947 using the Black-Scholes option fair value pricing model using the following assumptions:
|
Stock price on grant date
|
$ | 1.30 | ||
|
Exercise price
|
$ | 1.00 | ||
|
Expected time to exercise
|
1.5 years
|
|||
|
Risk free interest rate
|
0.69 | % | ||
|
Volatility
|
106.56 | % | ||
|
Expected forfeiture rate
|
0.00 | % | ||
The following table summarizes the options outstanding and associated activity for the years ended December 31, 2013 and 2012:
|
Number of Options
|
Weighted Average Price
|
Weighted Average Remaining Contractual Life
|
|||||||||||
|
Options exercisable at December 31, 2011
|
1,000,000 | 0.90 | 2.00 | ||||||||||
|
Granted
|
- | - | - | ||||||||||
|
Exercised
|
- | - | - | ||||||||||
|
Expired
|
(500,000 | ) | 0.80 | - | |||||||||
|
Options exercisable at December 31, 2012
|
500,000 | 1.00 | 2.00 | ||||||||||
|
Granted
|
- | - | - | ||||||||||
|
Exercised
|
- | - | - | ||||||||||
|
Expired
|
0.80 | - | |||||||||||
|
Options exercisable at December 31, 2013
|
500,000 | $ | 1.00 | 2.00 | |||||||||
- 26 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
Common Stock Options (Continued)
The aggregate intrinsic value of stock options was $0 and $0 at December 31, 2013 and 2012, respectively.
Common Stock Warrants
During December 2010, LKA granted fully vested warrants to purchase 42,000 share of its common stock for 36 months at $1.86 per share as debt offering costs related to the issuance of convertible notes payable (see Note 10). The warrants were valued at $28,137 using the Black-Scholes option fair value pricing model using the following assumptions:
|
Stock price on grant date
|
$ | 1.70 | ||
|
Exercise price
|
$ | 1.86 | ||
|
Expected time to exercise
|
3 years
|
|||
|
Risk free interest rate
|
0.80 | % | ||
|
Volatility
|
192.45 | % | ||
|
Expected forfeiture rate
|
0.00 | % | ||
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 250,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:
Warrant I for 100,000 shares exercisable at $1.60 per share, to be issued as of May 1, 2011
Warrant II for 75,000 shares exercisable at $2.40 per share, to be issued one year later, or May 1, 2012
Warrant III for 75,000 shares exercisable at $3.60 per share, to be issued one year later, or May 1, 2013
Each warrant has 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 $6.00 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.
The Warrant I - III tranches were valued at $91,905, $64,955 and $60,586 using the Black-Scholes option fair value pricing model using the following assumptions:
|
Stock price on grant date
|
$ | 1.18 | ||
|
Exercise price
|
$ | 1.60 – 3.60 | ||
|
Expected time to exercise
|
2.5 years
|
|||
|
Risk free interest rate
|
0.69 | % | ||
|
Volatility
|
164.93 | % | ||
|
Expected forfeiture rate
|
0.00 | % | ||
During the years ended December 31, 2013 and 2012, LKA expensed $0 and $21,651 related to Warrant II, respectively and $10,098 and $30,293 related to Warrant III, respectively. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.
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 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
- 27 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
Common Stock Warrants (Continued)
Mr. Perttu warrants to purchase up to 250,000 shares of LKA stock in three tranches on a three-year vesting schedule as follows:
Warrant I for 100,000 shares exercisable at $0.80 per share, to be issued as of March 1, 2012.
Warrant II for 75,000 shares exercisable at $1.20 per share, to be issued one year later, or March 1, 2013.
Warrant III for 75,000 shares exercisable at $1.60 per share, to be issued one year later, or March 1, 2014.
Each warrant has 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 $6.00 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.
The Warrant I - III tranches were valued at $44,792, $29,769 and $26,947 using the Black-Scholes option fair value pricing model using the following assumptions:
|
Stock price on grant date
|
$ | 0.70 | ||
|
Exercise price
|
$ | 0.80 – 1.60 | ||
|
Expected time to exercise
|
2.5 years
|
|||
|
Risk free interest rate
|
0.35 | % | ||
|
Volatility
|
121.02 | % | ||
|
Expected forfeiture rate
|
0.00 | % | ||
During the years ended December 31, 2013 and 2012, LKA expensed $0 and $44,791 related to Warrant I, respectively, $3,721 and $26,047 related to Warrant II, respectively, and $13,473 and 11,789 related to Warrant III, respectively. The value of Warrants II and III are being recognized ratably over the vesting term of one and two years, respectively.
The following table summarizes the outstanding warrants and associated activity for the years ended December 31, 2012 and 2013:
|
Number of Warrants Outstanding
|
Weighted Average Price
|
Weighted Average Remaining Contractual Life
|
||||||||||
|
Balance, December 31, 2011
|
292,000 | 2.36 | 2.62 | |||||||||
|
Granted
|
250,000 | 1.16 | 2.58 | |||||||||
|
Exercised
|
- | - | - | |||||||||
|
Expired
|
- | - | - | |||||||||
|
Balance, December 31, 2012
|
542,000 | 1.80 | 2.06 | |||||||||
|
Granted
|
- | - | - | |||||||||
|
Exercised
|
- | - | - | |||||||||
|
Expired
|
(142,000 | ) | (1.68 | ) | - | |||||||
|
Balance, December 31, 2013
|
400,000 | $ | 1.85 | 1.48 | ||||||||
NOTE 10 - NOTES AND CONVERTIBLE NOTES PAYABLE
Convertible Note Payable
During December 2010, LKA issued a Convertible Note Payable for cash of $150,000. The Convertible Note Payable accrued interest at 5% and commission expense at 7% of the cash balance provided through the due date of June 1, 2011 and was convertible upon the consummation of a sale of equity securities of LKA 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 its terms, the to-date interest and commission expense of $18,000 was reclassified
- 28 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 10 - NOTES AND CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible Note Payable (Continued)
to note principle began to accrue interest at 15% per annum. The Convertible Note Payable was converted to common stock during October 2012 (see Note Settlement Agreements below). Accrued interest on the Convertible Note Payable totaled $14,705 at December 31, 2011.
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. The Convertible Note Payable was converted to common stock during October 2012 (see Note Settlement Agreements below). Accrued interest on the Convertible Note Payable totaled $4,902 at December 31, 2011.
Note Settlement Agreements
Effective as of August 14, 2012, LKA, executed a Letter Agreement with Brannon whereby, the parties agreed to settle the entire unpaid principal balance of $766,321 and accrued interest of $365,762 on the Note through the issuance of a total of six million shares of LKA common stock at a pre-split settlement price of $0.1886 per share. Accrued interest on the Note totaled $258,478 at December 31, 2011.
Under the Letter agreement, LKA was required to deliver to Brannon a stock certificate representing 400,000 shares of post reverse split common stock and Brannon is to provide LKA written notice of its election when to issue the remaining 5,200,000 common shares of LKA. The 5,200,000 shares of issued, but not outstanding common shares to Brannon are not subject to the 1:2 reverse stock split. As such, upon the 1-for-2 reverse-split of its common stock, LKA recognized an additional $2,756,000 in non-cash stock based expense for the exclusion of 5,200,000 pre-split (2,600,000 post-split) issued but not yet outstanding common shares related to October 2012 debt conversions. The expense was calculated based on the market price of $1.06 per share on the 2,600,000 post-split shares as of March 15, 2013.
On August 31, 2012, LKA executed a separate Note Settlement Agreement with each of the following four creditors: Cognitive Associates Limited Partnership; Cognitive Intelligence Limited Partnership; C.K. Cooper & Company, Inc.; and Sonata Multi-Manager Fund, LP (collectively, the Noteholders). Under the terms of each Note Settlement Agreement, each of the Noteholders agreed to settle the outstanding principal and interest owed to each in consideration of the issuance of shares of LKA common stock at a settlement price of $0.50 per share.
The total principal and interest settled by each Noteholder (the Settlement Amount), and the number of shares to be issued to each (the Settlement Shares), are indicated below:
| Noteholder | Settlement Amount | Settlement Shares | ||||||
|
Cognitive Associates Limited Partnership
|
$ | 136,481 | 272,964 | |||||
|
Cognitive Intelligence Limited Partnership
|
16,017 | 32,033 | ||||||
|
C.K. Cooper & Company, Inc.
|
57,904 | 187,291 | ||||||
|
Sonata Multi-Manager Fund, LP
|
197,412 | 394,823 | ||||||
|
Brannon
|
1,132,083 | 5,600,000 | ||||||
|
Totals
|
$ | 1,539,897 | 6,487,111 |
LKA was required, within 90 days of the date of the Letter Agreement and Note Settlement Agreement, to proceed with the court hearing process for the Settlement Shares to be issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended. On October 15, 2012, the Circuit Court of the Eighteenth Judicial Circuit in and for Seminole County, Florida, issued its Consent Final Judgment with respect to the issuance to the five recipients of a total of 887,111 post-split shares of LKA common stock and with respect to Brannon, a total of 6,000,000 pre-split shares, of which 800,000, or 400,000 post-split shares, were issued at December 31, 2012.
- 29 -
LKA GOLD, INC.
Notes to Consolidated Financial Statements
NOTE 10 - NOTES AND CONVERTIBLE NOTES PAYABLE (CONTINUED)
Notes and convertible notes payable consisted of the following at December 31:
2013 2012
Note payable to an individual, 12% interest
per annum, unsecured, due upon demand $ 10,000 $ 10,000
NOTE 11 - 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 its exploration program and potential joint venture or lease arrangements 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 2013 and plans on raising additional funding during 2014 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 12 - SUBSEQUENT EVENTS
During January 2014, LKA issued 25,000 shares of common stock for services to a consultant.
During February 2014, LKA issued 339,000 shares of common stock for services to consultants.
During January 2014, LKA issued 108,631 shares of common stock for accrued office space rent to Abraham & Company, a related party entity.
- 30 -
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None; not applicable.
ITEM 9A: CONTROLS AND PROCEDURES
Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, our President and our Treasurer concluded that our disclosure controls and procedures as of the end of the period covered by the Annual Report were effective and that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President and our Treasurer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of the President and the Treasurer, evaluated the effectiveness of our internal controls over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on this evaluation, our management, with the participation of the President and acting CFO, concluded that, as of December 31, 2013, our internal controls over financial reporting were effective.
This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of our 2013 fiscal year, there were no changes in our internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None
- 31 -
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
The following table sets forth the names of all current directors and executive officers of the Company. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.
|
Name
|
Positions Held
|
Date of Election or Designation
|
Date of Termination or Resignation
|
|
Kye A. Abraham
|
President
Chairman of the Board
Director
|
03/88
03/88
03/88
|
*
*
*
|
|
Nanette Abraham
|
Secretary
|
1990
|
*
|
|
Director
Treasurer
|
1990
12/02
|
*
*
|
These persons presently serve in the capacities indicated.
Background and Business Experience
Kye Abraham, President, Chairman of the Board Mr. Abraham is 55 years old. He has been the President of LKA since 1988. Mr. Abraham is also the President, Chairman of the Board and sole shareholder of Abraham & Co., Inc., a registered FINRA broker/dealer and Registered Investment Adviser. Mr. Abraham is also the Managing Partner of Caldera.
Nanette Abraham, Secretary/Treasurer and Director. Mrs. Abraham, age 56, and, until recently was employed as a Research Associate by the Russell Investment Group Company, a worldwide financial consulting company, since 1991. She has been the Secretary and Director of LKA for over 10 years, and was appointed to the office of Treasurer in December, 2002.
Significant Employees
LKA has no employees who are not executive officers, but who are expected to make a significant contribution to its business.
Family Relationships
Our President, Kye Abraham, is the husband of Nanette Abraham, who is our Secretary/Treasurer.
Involvement in Other Public Companies Registered Under the Exchange Act
None
- 32 -
Section 16(a) Beneficial Ownership Reporting Compliance
Our shares of common stock are registered under the Exchange Act, and therefore our officers, directors and holders of more than 10% of our outstanding shares are subject to the provisions of Section 16(a) which requires them to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon review of the copies of such forms furnished to us during the fiscal year ended December 31, 2013, there were no late filings, no failures to make filings and no unreported transactions.
Code of Ethics
We have adopted a Code of Conduct for our President and Secretary/Treasurer. A copy of the Code of Conduct was attached as Exhibit 14 to our Annual Report on Form 10-KSB for the calendar year ended December 31, 2003. See Part IV, Item 15 of this Report.
Corporate Governance
Nominating Committee
We have not established a Nominating Committee because we believe that our Board of Directors is able to effectively manage the issues normally considered by a Nominating Committee. During the calendar year ended December 31, 2013, there were no changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Audit Committee
We have not adopted an audit committee separate from our Board of Directors because the Board of Directors consists of only Mr. and Mrs. Abraham.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock Awards
($)
(e)
|
Option Awards
($)
(f)
|
Total
Earnings
($)
(j)
|
|
Kye Abraham, President, Director
|
12/31/13
12/31/12
12/31/11
|
$138,000
$138,000
$138,000
|
0
0
0
|
0
0
325,000(1)
|
0
0
360,947(2)
|
$138,000
$138,000
$823,947
|
|
Nannette Abraham Sec./Treas
Director
|
12/31/13
12/31/12
12/31/11
|
$12,000
$12,000
$12,000
|
0
0
0
|
0
0
0
|
0
0
0
|
$12,000
$12,000
$12,000
|
(1) On October 26, 2011, the Company issued to Mr. Abraham 250,000 “unregistered” and “restricted” shares of common stock.
(2) On October 26, 2011, the Company granted to Mr. Abraham options to purchase up to one half million (500,000) “unregistered” and “restricted” shares of common stock at a price of $1.00 per share, exercisable for a period of three years.
Beginning in October, 2006, Kye Abraham began receiving a salary of $12,500 per month for his services to LKA. Prior to that, his salary was $10,000 per month. We do not have any employment agreements with Mr. Abraham or with any other party.
- 33 -
Outstanding Equity Awards at Fiscal Year End
None
Compensation of Directors
Our directors are not compensated for their service on the board of directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following tables set forth the share holdings of those persons who were the beneficial owners of more than five percent (5%) shareholders of the Company’s common stock as of April 14, 2014:
Ownership of Principal Shareholders
|
Title Of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Owner
|
Percent of Class
|
|
Common Stock
|
Kye Abraham
|
4,835,419(1)
|
42.2%(2)
|
(1) Consists of 789,571 shares that are held directly by Mr. And Ms. Abraham; 3,217,021 shares that are owned by Caldera Partners Limited, of which Mr. Abraham is the Managing Director; 176,328 shares that are owned by Abraham & Co., which is controlled by Mr. Abraham, 136,482 shares that are owned by Cognitive Associates LP of which Mr. Abraham is the managing Partner and 16,017 shares that are owned by Cognitive Intelligence LP of which Mr. Abraham is the managing partner. The total also includes 500,000 shares that Mr. Abraham can obtain upon the exercise of warrants at the exercise price of $1.00 per share.
(2) Based on. a total of 11,449,240 shares issued and outstanding. The total also presumes the exercise of the 500,000 warrants.
Security Ownership of Management
The following table sets forth the share holdings of the Company’s directors and executive officers as of April 14, 2014:
Ownership of Officers and Directors
|
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Owner
|
Percent of Class
|
|
Common Stock
|
Kye Abraham
|
4,835,419(1)
|
42.2% (2)
|
|
Common Stock
|
Nanette Abraham
|
(3)
|
(1) Consists of 789,571 shares that are held directly by Mr. And Ms. Abraham; 3,217,021 shares that are owned by Caldera Partners Limited, of which Mr. Abraham is the Managing Director; 176,328 shares that are owned by Abraham & Co., which is controlled by Mr. Abraham, 136,482 shares that are owned by Cognitive Associates LP of which Mr. Abraham is the managing Partner and 16,017 shares that are owned by Cognitive Intelligence LP of which Mr. Abraham is the managing partner. The total also includes 500,000 shares that Mr. Abraham can obtain upon the exercise of warrants at the exercise price of $1.00 per share.
(2 Based on a total of 11,449,240 shares issued and outstanding. The total also presumes the exercise of the 500,000 warrants.
(3) As the spouse of Kye A. Abraham, Nanette Abraham may be deemed to beneficially own all 5,074,289 shares that Mr. Abraham beneficially owns.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
None
- 34 -
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
Transactions with Related Persons
Except as indicated below, during the past fiscal year, the Company has not entered into any transaction with a related person, and there is no currently proposed transaction with a related person, in which the Company was or is to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years.
In or around October, 2012, the Company issued 272,964 shares of common stock to Cognitive Associates Limited Partnership in exchange for the cancellation of debt in the amount of $136,481. The issuance of the shares was exempt from the registration requirements of the Act pursuant to Section 3(a)(10) of the Act and by virtue of the fact the Circuit Court of the Eighteenth Judicial Circuit, in and for Seminole County, Florida found the transaction to be fair, reasonable and equitable. Cognitive Associates Limited Partnership is an affiliate of the Company.
In or around October, 2012, the Company issued 32,033 shares of common stock to Cognitive Intelligence Limited Partnership in exchange for the cancellation of debt in the amount of $16,016. The issuance of the shares was exempt from the registration requirements of the Act pursuant to Section 3(a)(10) of the Act and by virtue of the fact the Circuit Court of the Eighteenth Judicial Circuit, in and for Seminole County, Florida found the transaction to be fair, reasonable and equitable. Cognitive Intelligence Limited Partnership is an affiliate of the Company.
LKA pays a company owned by an officer and shareholder $1,500 per month for office rent, administrative services, and expenses. The affiliated Company, (Abraham & Co., Inc. a Financial Industry Regulatory Authority member and Registered Investment Adviser) also executes LKA’s securities transactions and manages its investment portfolio. At December 31, 2013 and 2012, LKA owes Abraham & Co $51,500 and $43,000 respectively for office rent and administrative services.
As of December 31, 2011, LKA had a note payable to Cognitive Associates Limited Partnership totaling $56,828 in unpaid principal from a note dated December 31, 1986. The note was unsecured, due upon demand, and accrued interest at 10% per annum. As noted above, the note was converted to common stock during October 2012.
As of December 31, 2011, LKA had a note payable to Cognitive Intelligence Limited Partnership totaling $5,975 in unpaid principal from a note dated October 1, 1987. The note was unsecured, due upon demand, and accrued interest at 10% per annum. As noted above, the note was converted to common stock during October 2012.
At December 31, 2013 and 2012, LKA owes $50,997 and $21,045, respectively, for purchases made on the personal credit card of LKA’s president, Kye Abraham. Additionally, LKA owed Kye Abraham $161,866 and $145,572 in unpaid salary at December 31, 2013 and 2012, respectively.
Parents of the Smaller Reporting Company
LKA has no parents, except to the extent that Mr. Abraham may be deemed to be its parent by virtue of his beneficial ownership of approximately 49% of its currently outstanding shares.
- 35 -
Director Independence
We do not have any independent directors serving on our Board of Directors. The definition the Company uses to determine whether a director is independent is NASDAQ Rule 4200(a)(15). The text of this rule is attached to this Annual Report as Exhibit 99.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of the fees billed to us by our principal accountants during the fiscal years ended December 31, 2013, and 2012:
|
Fee Category
|
2013
|
2012
|
||||||
|
Audit Fees
|
$ | 20,000 | $ | 20,000 | ||||
|
Audit-related Fees
|
$ | - | $ | - | ||||
|
Tax Fees
|
$ | - | $ | - | ||||
|
All other Fees
|
$ | - | $ | - | ||||
|
Total Fees
|
$ | 20,000 | $ | 20,000 | ||||
Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”
Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees,” and “Tax fees” above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We have not adopted an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided to us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)(2) Financial Statements. See the audited financial statements for the year ended December 31, 2012 contained in Item 8 above which are incorporated herein by this reference.
(a)(3) Exhibits. The following exhibits are filed as part of this Annual Report:
Exhibits
|
Exhibit Number
|
Description (1)
|
|
3.1
|
Certificate of Incorporation (2)
|
|
3.2
|
By-laws (2)
|
|
14
|
Code of Conduct (3)
|
|
31.1
|
302 Certification of Kye Abraham
|
|
31.2
|
302 Certification of Nanette Abraham
|
|
32
|
906 Certification
|
|
99
|
NASDAQ Rule 4200(a)(15)
|
|
101 INS
|
XBRL Instance Document*
|
|
101 PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
101 LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
101 DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
|
101 CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
101 SCH
|
XBRL Taxonomy Extension Schema Document*
|
* 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. 101 XBRL Instant Documents (IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.)
DOCUMENTS INCORPORATED BY REFERENCE
(1) Summaries of all exhibits contained within this Report are modified in their entirety by reference to these exhibits.
(2) Incorporated by reference to our Annual Report on Form 10-KSB for the calendar year ended December 31, 2001, filed with the SEC on February 11, 2003.
(3) Incorporated by reference to our Annual Report on Form 10-KSB for the calendar year ended December 31, 2003, filed with the SEC on March 29, 2004.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 GOLD INCORPORATED
|
Date:
|
April 15, 2014
|
By:
|
/s/Kye Abraham
|
|
|
Kye Abraham, President, Chairman of the Board and Director
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
LKA GOLD INCORPORATED
|
Date:
|
April 15, 2014
|
By:
|
/s/Kye Abraham
|
|
|
Kye Abraham, President, Chairman of the Board and Director
|
||||
|
Date:
|
April 15, 2014
|
By:
|
/s/Nanette Abraham
|
|
|
Nanette Abraham, Secretary, Treasurer and Director
|
- 36 -