UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________

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

For the quarterly period ended September 30, 2017March 31, 2018

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

For the transition period from ____________ to____________

Commission File No. 000-17106

LKA GOLD INCORPORATED

(Exact name of registrant as specified in its charter)

3724 47^th Street Ct. N.W.

(Address of principal executive offices)

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

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

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

Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS

PART I

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

LKA GOLD INCORPORATED

Consolidated Balance Sheets

(Unaudited)

LKA GOLD INCORPORATED

Consolidated Balance Sheets (Continued)

(Unaudited)

LKA GOLD INCORPORATED

Consolidated Statements of Operations

(Unaudited)

Consolidated Statements of Cash Flows

(Unaudited)

 

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

LKA GOLD INCORPORATED

Notes to the Unaudited Consolidated Financial Statements

September 30,March 31, 2017

NOTE 1 -       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

LKA Gold Incorporated ("LKA" or the "Company") is currently engaged in efforts to expand mine production and continues to seek additional investment opportunities.

The accompanying unaudited consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with LKA's most recent audited financial statements. Operating results for the ninethree months ended September 30, 2017March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2018.

NOTE 2 -        RELATED PARTY TRANSACTIONS

LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses. The affiliated company (Abraham & Co., Inc. a FINRA member and registered investment advisor) also executes LKA's securities transactions and manages its investment portfolio. During the ninethree months ended September 30, 2017,March 31, 2018, Abraham & Co., Inc. agreed to exchange $25,500$23,805 in outstanding accounts payable and $1,785 in accrued interest for 56,818127,952 shares of LKA common stock valued at the market price on the grant date and recognized $25,500 in accounts payable extinguishment and $10,863 in expense related to market discount.$0.20 per share. LKA owedowes Abraham & Co. $19,305, Inc. $4,500 and $31,500$23,805 as of September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.

At September 30, 2017March 31, 2018 and December 31, 2016,2017, LKA owes $0$3,369 and $5,500, respectively, for short-term operating capital notes payable to LKA's President, Kye Abraham.  During the nine months ended September 30, 2017, LKA borrowed an additional $1,100 and repaid the entire $6,600.

During the nine months ended September 30, 2017,March 2018, LKA's President, Chairman of the Board and Director, Kye Abraham, agreedelected to convert $150,000$75,378 in accrued unpaid salarywages and $5,653 in accrued interest into a convertible debenture.405,157 shares of LKA common stock, or $0.20 per share. At September 30, 2017March 31, 2018 and December 31, 2016,2017, LKA owed Kye Abraham $75,757$75,379 and $163,257$113,257 in unpaid salary, respectively.

On September 29, 2015, LKA issued two convertible debentures (Convertible Debentures), each in the amount of $125,000, or a total of $250,000 toDuring March 2018, members of the Koski family, the Company's largest shareholders. Principal on the Convertible Debentures is due September 29, 2018. Interest accrues at 7.5% per annum and interest is due on a semi-annual basis. The Convertible Debentures are convertible at any time into shares of LKA common stock at $0.50 per share.

During the three months ended March 31, 2018 and 2017, LKA recognized debt discounts totaling $350,000. During the nine months ended September 30, 2017$8,971 and 2016, LKA recognized $60,295 and $1,383 of interest expense from the amortization of the debt discounts, respectively.

NOTE 3 -       CONVERTIBLE DEBENTURES

During October 2015, LKA issued a 7.5% Convertible Debenture for $50,000 in cash. The Convertible Debenture accrues interest at 7.5% per annum due in semi-annual payments, is unsecured, due in three years from the date of issuance and is convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments, which were paid in 2016.

During April 2016, LKA issued two $50,000 Convertible Debentures for $100,000 in cash.  The Convertible Debentures accrue interest at 7.5% per annum due in semi-annual payments, are unsecured, due in three years from the dates of issuance and are convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments.payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments, which were paid in 2016 and 2017.

On April 26, 2017, LKA issued a convertible debenture in the amount of $50,000 for cash. Principal on the Convertible Debenture is due April 26, 2021.2020. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual semiannual

basis and LKA is required to retain a reserve amount of the proceeds to pay the first two semi-annual interest payments, which, if the Convertible Debentures are converted within one year, will be paid to the Convertible Debenture holders. As such, LKA has designated $3,750 as restricted cash at September 30, 2017.

LKA incurred $12,500 in debt issuance costs on the convertible debenture issuance. The debt issuance costs are being amortized over the three year term of the convertible debenture. During the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, LKA recognized $623$205 and $10,625$206 of interest expense from the amortization of debt issuance costs.costs, respectively.

NOTE 4 -       DERIVATIVE LIABILITY

LKA analyzed the conversion options embedded in the convertible notes payable and convertible notes payable related party for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced Convertible Notes should be classified as liabilities and recorded at fair value due to the potentially variable conversion prices.  

During the ninethree months ended September 30, 2017March 31, 2018, $494,995holders of gain was$600,000 in convertible notes payables elected to convert their outstanding principal into common stock (see Note 2). Upon conversion of the debt principal, the related derivative liabilities were extinguished to additional paid-in capital.

During the three months ended March 31, 2018, LKA recorded a loss of $3,031 on mark-to-market of the conversion options, respectively.options. During the three months ended March 31, 2017, LKA recorded a loss of $78,608 on mark-to-market of the conversion options.

The following table summarizes the derivative liabilities included in the consolidated balance sheets at September 30, 2017March 31, 2018 and December 31, 2016:2017:

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model.  Assumptions used during the ninethree months ended September 30, 2017March 31, 2018 include (1) risk-free interest rates of between 1.31% and 1.93% - 2.41%, (2) lives of between 1.010.51 and 4.063.12 years, (3) expected volatility between 214%224% - 446%271%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.

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  discussions with Hinsdale County, Colorado officials, Colorado Department of Public Health & Environment Ute-Ulay project supervisor, 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, and all discussions with the above named agencies to date, LKA management believes it is unlikely there will be a material impact to its financial statements and no liability for this project has been recorded as of September 30, 2017.March 31, 2018. Actual completion of remediation work at the site was completed in late 20132014 by the EPA. The EPA has not yet issued its notice of final determination.

NOTE 6 -       WASTEWATER DISCHARGE LIABILITY

During the fourth quarter of 2014, LKA received a Notice of Violation (NOV) from the Colorado Department of Health and Environment (CDPHE) for failure to meet certain requirements of the Company's wastewater discharge permit. During 2016, the Company undertook all corrective actions specified in the NOV, under CDPHE oversight, and believes it is in compliance with the terms of its permit. Additional work is going to be required to modify and upgrade the mine's water treatment process in 2017 to meet regulatory requirements and bring LKA back into compliance with its discharge permit requirements. Until this work is completed to the satisfaction of CDPHE, the Company is considered to be in a "non-compliance" status with the terms of its discharge permit and additional penalties could be assessed beyond those described (anticipated) above.  It is currently expected that discussions with the CDPHE will be concluded by the end of 20172018 and that any financial penalty assessed and any further corrective actions will not likely cost less than $75,000 but not more than $150,000. If LKA is unsuccessful isin achieving full compliance with permit requirements, it may be subject to additional penalties or revocation of its discharge permit. As a result, LKA has accrued a liability of $120,416$99,974 and $75,000$99,974 as of September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively, as there is no better estimate of the amount of loss within this range. During the nine months ended September 30, 2017, due to an increase in estimated costs to meet proposed corrective actions, LKA increase the accrual by $75,000. During the nine months ended September 30, 2017, LKA spent approximately $29,584 in remediation expenses and the liability balance is $120,416 at September 30, 2017.

NOTE 7 -     MINE EXPLORATION AND OPTION AGREEMENT

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, has a working capital deficit and has negative cash flows from operations, which 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:

In order to support continued operation of the mine, LKA completed a $200,000$500,000 capital funding raise in March 2017, anApril 2018 and will need raise additional $50,000 in April 2017 andfunds to support operations during July 2017, entered into a limited private offering of its common stock to sell to certain accredited investors, "Units" priced at $0.48 each with a minimum investment of $10,000 with additional investment in increments of $5,000. Each Unit consists of one share of LKA Gold common stock and a "Warrant" to purchase an additional LKA Gold share of common at $.60 (exercise price) for a period of two years from date of original subscription. During September, in conjunction with the termination of the Kinross exploration agreement, LKA terminated the limited private offering (see Note 7).2018. 

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 98 -       SUBSEQUENT EVENTS

During November 2017,April 2018, LKA and the Caldera Partners Limited Partnership, asold 2,702,703 shares of common stock for $500,000, or $0.185 per share to related party entity, agreed to extend a financing arrangement with LKA for the purpose paying off past due interest on convertible debentures totaling $7,500 (see Note 2) while the Company is working on new financing arrangements.

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

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

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

Net loss totaled $181,450,$1,145,210, or $0.01$0.06 per share, in the ninethree months ended September 30, 2017,March 31, 2018, compared to a net loss of $376,464,$414,396, or $0.02 per share in the ninethree months ended September 30, 2016. As discussed above, the decrease in net loss is mainly due to the $251,716 increase in other income, partially offset by an increase in operating expenses of $56,702 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.March 31, 2017.

Current assets at September 30, 2017March 31, 2018 totaled $32,278.  As of that date, we had $28,945 in restricted cash, and $3,333$8,333 in prepaid expenses, as compared to $1,101 in restricted cash and $625$833 in prepaid expenses at December 31, 2016.2017.

During the ninethree months ended September 30, 2017,March 31, 2018, our operating activities used net cash of $219,156,$17,657, compared to $224,295$23,668 in the comparable 2016 period.  Investing activities used cash of $27,844 duringDuring the ninethree months ended September 30, 2017,March 31, 2018, no cash was provide by investing activities, compared to cash providedused of $3,750 in$28,899 during the 2016 period all related to the fluctuation in restricted cash for interest payments on convertible notes payable.ended March 31, 2017.  Financing activities provided $247,000 in cash of $17,657 and $201,100 during the ninethree months ended September 30,March 31, 2018 and 2017, respectively, mainly from the issuance of three convertible debentures for cash totaling $250,000 and $10,000 from the sale of common stock, compared to $100,000 in convertible debenture proceeds in the comparable 2016 period.related party debt.

At September 30, 2017,March 31, 2018, the Company had a working capital deficit of $1,113,347,$397,302, as compared to $1,039,820$775,661 at December 31, 2016.2017.

Not required.

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

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2017,March 31, 2018, our disclosure controls and procedures were not effective as the Company lacks appropriate segregation of duties and has an insufficient number of employees responsible for the accounting and financial reporting functions.  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.

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

PART II - OTHER INFORMATION

During the ninethree months ended September 30, 2017,March 31, 2018, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant's Board of Directors.

SIGNATURES

LKA GOLD INCORPORATED