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

DESERT HAWK GOLD CORP

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited)

For the nine-month periods ended September 30, 2020 and September 30, 2019

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

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Desert Hawk Gold Corp. (the “Company”), a Nevada Corporation, was incorporated on November 5, 1957. The Company commenced its current mining activities on May 1, 2009.

During the year ended December 31, 2009, the Company entered into Joint Venture Agreements with the Clifton Mining Company (“Clifton”), the Woodman Mining Company and the Moeller Family Trust for the lease of certain of their property interests in the Gold Hill Mining District of Utah.  In 2011, the Company entered into an agreement with DMRJ Group, (a Platinum Partners related entity), which allowed for long term funding of the Kiewit project and helped to provide cash flow for operations during the period from 2009 until 2014 while the permitting process was ongoing. The final permit needed to begin development of the Kiewit property was received in January 2014 and development began in February 2014. Construction at the site was substantially complete on September 30, 2014. Revenue from the heap leach operation began in October 2014 with the first sales of gold concentrate.

Prior to March 2019, ongoing undercapitalization continued to hamper the Company’s ability to operate. Due to lack of funding, the Company was temporarily shut down beginning third quarter of 2017. On March 7, 2019, the Company successfully finalized a prepaid forward gold contract liability agreement (the Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”)) that provided funding and enabled production to resume later in 2019. See Note 3.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited interim balance sheets and statements of operations, cash flows and stockholders’ equity (deficit) contain all adjustments, consisting of normal recurring items, necessary to present fairly, in all material respects, the financial position of the Company as of September 30, 2020,March 31, 2021, and the results of its operations and its cash flows for the three months ended March 31, 2021 and nine month periods ended September 30, 2020 and 2019.2020. The operating and financial results for the Company for the ninethree months ended September 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.

These unaudited interim financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”). These unaudited interim financial statements do not include all note disclosures required by U.S. GAAP on an annual basis, and therefore should be read in conjunction with the annual audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission on March 30, 2020.April 19, 2021.

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to U.S. GAAP and have been consistently applied in the preparation of the financial statements.

Accounting Method

The Company’s financial statements are prepared using the accrual basis of accounting in accordance with U.S. GAAP.

Accounting for Stock Options and Stock Awards Granted to Employees and Nonemployees

All transactions in which goods or services are received for the issuance of shares of the Company’s common stock or options to purchase shares of common stock are accounted for based on the fair value of the equity interest issued. For stock options, theThe Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.

Risks and Uncertainties

As a mining company, the revenue, profitability and future rate of growth of the Company are substantially dependent on the prevailing prices for gold and silver. The prices of these metals are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, access to capital and the quantities of resources that the Company can economically produce. Further, the carrying value of the Company’s property and equipment, net; mineral properties and interest, net; inventories and ore on leach pads are particularly sensitive to the outlook for commodity prices. A decline in the Company’s price outlook from current levels could result in material impairment charges related to these assets.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. SignificantActual results could differ materially from those estimates.

The more significant areas requiring the use of management estimates usedand assumptions relate to metal prices and material resources that are the basis for future cash flow estimates utilized in preparing these financial statements include those assumedimpairment calculations and units-of-production amortization calculations, environmental, reclamation and closure obligations, estimates of recoverable silver and gold in estimating the number of gold ounces in and costing ofleach pad inventories, the recoverability of the cost of mining claims, asset retirement obligation, stock-based compensation, determination of the fair value of common stock issued and valuation allowances for deferred tax assetsassets. The Company bases its estimates on historical experience and related valuation allowances. Actualon various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results couldmay differ from those estimates.the amounts estimated in these financial statements.

Reclassifications

Certain reclassifications have been made to conform prior periods’ amounts to the current presentation. These reclassifications have no effect on the results of operations, stockholders’ equity (deficit), and cash flows as previously reported.

Inventories

The recovery of gold from certain oxide ores is achieved through the heap leaching process. Under this method, mineralized material is placed on a leach pad where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting “pregnant” solution is further processed in a plant where gold is recovered. The Company records ore on leach pad, solution in carbon columns in process and gold concentrate, at average production cost per gold ounce equivalent, less provisions required to reduce inventory to net realizable value. Production costs include the cost of mineralized material processed; direct and indirect materials and consumables; direct labor; repairs and maintenance; utilities; amortization of property, equipment, and mineral properties; and mine administrative expenses. Costs are removed from ore on leach pads as ounces are recovered, based on the average cost per recoverable ounce of gold on the leach pad.

Estimates of recoverable gold on the leach pad are calculated from the quantities of material placed on the leach pad (measured tons added to the leach pad), the grade of material placed on the leach pad (based on assay data) and an estimated recovery percentage (based on ore type). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, actual gold ounces recovered are regularly monitored and estimates are refined based on actual results over time. As of September 30, 2020,March 31, 2021, the Company had a limited operating history and actual results only over a short period of time. Due to this, estimates of recoverable gold are based primarily on initial tests with only limited refinements.

Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. The ultimate recovery of gold from a leach pad will not be known until the leaching process is concluded. The quantification of material inventory on the leach pad is based on estimates of the quantities of gold at each balance sheet date that the Company expects to recover.recover during the next 12 to 24 months. Inventory is stated at the lower of cost or net realizable value which for March 31, 2021 is net realizable value. A portion of the March 31, 2021 inventory has been classified as non-current. This classification has been made based on the amount of gold expected to be sold over the next twelve months based on prior year sales. See Note 5.

Revenue Recognition

Sales of gold concentrate sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of the Company’s concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to the estimated settlement metals prices until final settlement by the customer.

Sales and accounts receivable for concentrate shipments are recorded net of royalties and charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. See Note 17.

LossEarnings (Loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net lossearnings (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.

For the threethree-month periods ended March 31, 2021 and nine months ended September 30, 2020, and 2019, common stock equivalents of 2,400,000 associated with the Company’s outstanding stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to the net loss for the periods then ended.

Revenue Recognition

Concentrate Sales: The Company’s product consists of gold bearing carbon which is shipped offsite to be turned into an unrefined gold concentrate, which is then further refined to become gold and silver bullion. The Company’s performance obligation in these transactions is generally the transfer of concentrate to the customer. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and when the transaction price and number of ounces can be determined or reasonably estimated.

Processing Income: The Company processes ore for another company. Once processed, the unrefined gold concentrate is shipped to a refinery where it is refined into gold and silver bullion. The Company receives a percentage of the proceeds from the sale of the gold and silver concentrate which is credited to the Company’s account at the refinery. Management has determined the performance obligation is met when the gold concentrate has been processed into an unrefined gold concentrate and is ready to be shipped to the refinery and recognizes revenue at that time.

Sales and accounts receivable for sales are recorded net of charges from the customer which represent components of the transaction price. Charges are estimated by management upon transfer of risk based on contractual terms, and actual charges typically do not vary materially from management’s estimates. Revenue from the sale of concentrate may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Revenue proceeds from concentrate sales are recorded net of the impact of royalties and participation agreements.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $11,204,736$12,836,275 through September 30, 2020March 31, 2021 and net loss of $1,753,518$1,544,464 for the nine monththree-month period ended September 30, 2020March 31, 2021, along with negative working capital of $11,913,276 which raises substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company has not delivered gold ounces as schedule on its prepaid forward gold contract and could be subject to default provisions within the related agreement (see Note 3). The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Although production has restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Although management has procured funding through a forward sales agreement (Note 3) they continueManagement continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. The ability of the Company to continue as a going concern is dependent on the Company’s management believes that it has sufficient fundsability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and continue production over the next twelve months, however thererepay its liabilities arising from normal business operations when they are no assurances that will occur. The Company is currently engaged in discussions with another mining company regarding processing a limited amount of their ore at the Company’s Gold Hill site as a means of increasing revenue. A “pilot test” of their ore is in process.due.

COVID -19

The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and elsewhere, causing disruptions to the Company’s business operations and management. These disruptions are most evident in ourthe Company’s ability to retain and house employees and properly manage them while maintaining proper social distancing and with delays in obtaining materials and supplies. There has also been a reduction in the availability of equipment financing. These disruptions continue to hamper operations. It is management’s belief that disruptions relating to COVID will be mitigated in the future as a large percent of the population becomes vaccinated.

New Accounting Pronouncements

Accounting Standards Updates Adopted

In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s financial statements.

Accounting Standards Updates to Become Effective in Future Periods

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating theThe update was adopted as of January 1, 2020, and its adoption did not have a material impact of this update on the Company’s financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

NOTE 3 – PREPAID FORWARD GOLD CONTRACT LIABILITY

During the first quarter of 2019, the Company entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings L.P. (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the original Purchase Agreement, as amended, PDK initially agreed to purchase a total of 73,91047,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK. ThePDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. Prepayment was to be made in three tranches, withThe Company has the initial tranche in the amountoption of $11,200,000 having been made upon execution of the Purchase Agreement on March 7, 2019 (the “Initial Funding”), $4,500,000 for Tranche 2 to occur at least six months following the Initial Funding date, and $5,500,000 for Tranche 3 to occur at least 10 months following the Initial Funding date, provided that all conditions precedent for funding Tranches 2 and 3 are met. From the Initial Funding, the Company paid an upfront fee of $600,000paying cash to PDK for expenses incurredthe number of ounces to be delivered each month at a rate of $500 per ounce. The Company received a net amount of $13,600,000 in connection with2019 for the transaction. The first goldfuture delivery of 655 ounces is due December 2020.these gold ounces.

The Purchase Agreement contains a royalty provision whereby royalties of 4% are due to PDK on gold and silver recovered from mining operations at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also pays a 5% withholding tax to the state of Utah on the PDK royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter. RoyaltiesPDK-related royalties and royalty withholding payable at September 30, 2020March 31, 2021 and December 30, 201931, 2020 were $149,988$296,657 and $36,074.$221,897, respectively. The September 30, 2020March 31, 2021 balance includes royalties payable for the second, third and thirdfourth quarters of 2020. Payment2020 and the first quarter of these royalties have been delayed with verbal permission by PDK.2021.

The Purchase Agreement contains a participation payment whereby PDK receives a portion of the proceeds from gold sold by the Company to a third party. The amount of proceedspayment due to PDK is based upon a percentage of proceeds over a set gold price per ounce. PaymentThe upside participation amounts are payable within four days following each sale. The March 31, 2021 and December 31, 2020 upside participation payable is $836,484 and $576,360, respectively. The March 31, 2021 balance includes participation payments payable for the third and fourth quarters of this participation amount has been delayed with verbal permission2020 and the first quarter of PDK. 2021.

In addition, under the agreement, PDK may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company. As security for the obligations of the Company under the Purchase Agreement, the Company has granted PDK a security interest in all of the assets of the Company and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.

On October 31, 2019, the Company and PDK amended the Purchase Agreement and entered into the Amended Pre-Paid Forward Agreement (the “Amended Agreement”) to adjust the second and third tranches paid to the Company, to reduce the total number of ounces of gold subject to the Purchase Agreement, and to revise other provisions therein. The second tranche was reduced from $4,500,000 to $1,600,000, and the third tranche was reduced from $5,500,000 to $1,400,000. The second tranche was received on October 31, 2019 upon execution of the Amended Agreement and the third tranche was received on December 27, 2019, with funds to be dedicated in accordance with the revised budget furnished with the Amended Agreement. The amendment also reduced the total number of ounces of gold to be delivered under the agreement from 73,910 to 47,045.

The prepayment has been accounted for as deferred revenue and is presented as a prepaid forward gold contract liability on the balance sheet at September 30, 2020 and December 31, 2019 with a total balance of $13,600,000 which is the $14,200,000 received from PDK in Tranches 1-3, less the $600,000 upfront fee paid by the Company in 2019.

Under the terms of the AmendedPurchase Agreement, as amended, the Company is obligated to deliver gold in the following quantities:

The Amended Agreement also alteredNo gold has been delivered under the total amount that PDK may reduce the numbercontract. As of March 31, 2021 and December 31, 2020, a cumulative of 3,343 and 655 ounces, of goldrespectively, were scheduled to be delivered to PDK under the Amended Agreement in exchange for common sharesterms of the Company. UnderPurchase Agreement. The ounces due but unpaid to PDK at March 31, 2021 have been reflected in current liabilities at the Amendedamount calculated based on the Company’s option to pay cash in lieu of delivery at $500 per ounce. The forward gold contract balance and the related contract expense for the three month period ended March 31, 2021 are as follows:

On December 1, 2020, the Company notified PDK that it would not be able to make the December delivery of gold and elected to use one of the delivery postponement options under the Purchase Agreement, PDK may reduceas amended. This provision permits the required number of ouncesCompany to delay delivery by up to 8,00030 days by delivering the amount of gold due within 30 days, plus interest calculated at the default interest rate, thereby causing the December ounces to be come due in exchangeJanuary 2021. At the end of this 30-day extension period the Company was unable to deliver the December payment and the amount became due on January 25, 2021.

As of March 31, 2021 and through the issuance of these financial statements, PDK has sent invoices to the Company for common sharesthe deliveries and payments due. However, no notice of default on the Purchase Agreement has been received PDK. The failure to make gold deliveries under the Purchase Agreement, as amended, provides PDK with certain remedies, including termination of the Company.agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. The Company is in ongoing negotiations with PDK in an effort to re-negotiate the terms of the agreement. Due to the delinquent status of the deliveries and PDK’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance owing as current on the March 31, 2021 balance sheet.

NOTE 4 – RECLAMATION BONDS

At September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company has a surety bond of $674,000 in an escrow account with the bonding company for reclamation of its property. This escrowed amount is held at Bank of New York, Mellon for the Company’s benefit. It may not be released to the Company without the prior consent of the surety bondholder. The escrowed amount does not earn interest.

In March 2019, as part of the Amended Lease (Note 7),December 2020, the Company returned the Cactus Mill property andwas notified that the reclamation bondcost estimate for the Kiewit properties had been escalated from $1,348,000 to $1,537,000, an increase of $42,802$189,000. The amount was remitted to the Utah Division of Oil, Gas and Mining on that property to Clifton Mining Company.March 11, 2021.

Total reclamation bonds posted at September 30, 2020March 31, 2021 and December 31, 20192020 are $759,726$947,011 and $759,351,$758,011, respectively, which consists of the above escrowed amount along with certificate of deposits held with the state of Utah for the remaining bonds on the property, including exploration bonds.

NOTE 5 – INVENTORIES

Inventories at September 30, 2020March 31, 2021 and December 31, 20192020 consists of the following:

Inventories at September 30, 2020 were valued at cost. Inventories atMarch 31, 2021 and December 31, 20192020 were valued at net realizable value because production costs were greater than the amount the Company expected to receive on the sale of the estimated gold ounces contained in inventories oninventories. The adjustments to inventory was $392,820 and $204,127 at March 31, 2021 and December 31, 2019.2020, respectively. A portion of the September 30, 2020March 31, 2021 inventory has been classified as non-current. This classification was madehas been based on the amount of gold expected to be sold over the next twelve months.months, using prior year sales as an estimate.

NOTE 6 – PROPERTY AND EQUIPMENT

The following is a summary of property and equipment at September 30, 2020March 31, 2021 and December 31, 2019:2020:

For the Kiewit property facilities, amortization expense of $28,817 and $83,274, which is based on total units of production was recognized$12,131 and $28,263 for the three and nine months ended September 30,March 31, 2021 and 2020. Amortization in the amount of $83,965Depreciation expense on property and $44,423equipment was recognized$218,259 and $203,739 for the three and nine months ended September 30, 2019.March 31, 2021 and 2020.

During the three months ended March 31, 2021, the Company was required to return a CAT 740 Haul truck to Wheeler Machinery because the Company was 5 payments delinquent in its obligation on this note payable. The net carrying value of the equipment was $290,889 and the outstanding note payable balance was $86,806. A loss on disposal of equipment of $204,083 was recognized. The truck was purchased by a related party who in February began renting the truck to the Company on a month-to-month rental. See Note 11.

During the three months ended March 31, 2021, the Company acquired a new HP4 crushing system in exchange for its HP3 crushing system which was returned to ICM Solutions, Inc.(“ICM”). Prior to the acquisition, the Company had been renting the HP4 crushing system from ICM and had an accrued rent payable of $158,000. ICM financed the acquisition of the new HP4 crushing system with a new note of $215,510 for the cost of the new equipment, plus accrued rent payable, less the trade-in value of the HP3 crushing system.

NOTE 7 – MINERAL PROPERTIES AND INTERESTS

Mineral properties and interests as of September 30, 2020March 31, 2021 and December 31, 20192020 are as follows:

On June 13, 2019, theThe Company entered into an agreement whereby the Company acquired 20 claims adjacent to the Kiewit property from Ben Julian, LLC for $250,000, known as the JJS Property. Although drilling has commenced on this property, permitting has not been completed and production has not yet begun.

In 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company (“Clifton”) and the Woodman Mining Company for the lease of their property interests in the Gold Hill Mining District of Utah. In March 2019, the Company and Clifton entered into a Second Amended and Restated Lease Agreement (the “Amended Lease”).   Under the terms of this Amended Lease, the Company relinquished its leasehold interest in all but 10 of the patented mining claims, for which it retained only the surface rights, and 66 of the unpatented lode mining claims previously held by the Company. The Cactus Mill property was returned to Clifton Mining Company as part of this agreement.

As consideration for entering into the Amended Lease, the Company issued 5,500,000 shares of its common stock with a fair value of $2,200,000 which increased the carrying value of the mineral properties and interests. In addition, the Company and Clifton entered into a Registration Rights Agreement to register for resale the shares issued to Clifton which requires the Company to register the shares within 18 months (which is September 7, 2020) following the initial funding received under the Purchase Agreement (Note 3). In the event the Company does not register the shares within the 18-month period, the Company is obligated to pay Clifton a royalty equal to 2.5% of the net smelter returns from the minerals generated from the Company’s mining claims. The registration of these shares was filed and became effective on April 14, 2020.

Under the terms of the initial 2009 Joint Venture Agreement, the Company was required to pay a 4% net smelter royalty (“NSR”) to PDK on base metals in all other areas except for production from the Kiewit gold property and a NSR on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable.  The Company was also required to pay Clifton a 6% NSR on any production from the Kiewit gold property.  

As part of the Purchase Agreement (Note 3) finalized in March 2019, these NSRs were bought out by the Company from Clifton and two other minority royalty holders at a cost of $900,000 which increased the carrying value of the mineral properties and interests. The buyer of the Purchase Agreement (Note 3), PDK, acquired a 4% NSR, previously held by Clifton, on the Kiewit property for $2,200,000. PDK remitted the funds for the NSR directly to Clifton. PDK will receive a 4% net NSR on proceeds from the salerevenues of gold and silver from the Kiewit gold property and the JJS properties.

During the quarter ended March 31, 2020, the Company revised its estimate of gold ounces to be produced from its mineral properties and interests. The updated estimate of total gold ounces to be produced from the property considered actual gold ounce recoveries since production began and estimated ounces contained in mineral resources. The new estimate resulted in increased gold ounces at January 1, 2020 from 39,480 gold ounces to 98,066 gold ounces. Amortization of the mineral properties and interests based on total units of production was $54,316 and $156,748 for the three and nine-month periods ended September 30, 2020. Amortization for these periods was based on the updated estimate. Amortization for the three and nine-month periods ended September 30, 2019 was $170,959 and $184,837.

NOTE 8 – SHORT-TERM NOTES PAYABLE – RELATED PARTIES

During 2018 and the first quarter of 2019, the Company entered into several short-term notes payable with the convertible debt holders (Note 9) and with the Company’s president. Total borrowed was $91,680 during the first quarter 2019 and $249,000 during the year ended December 31, 2018. The notes bore interest at 10%, had a 2% loan initiation fee, and were due in full on March 31, 2019. These short-term notes were repaid in full, including 10% interest and a 2% loan initiation fee, in March 2019 as part of the terms of the Purchase Agreement. There was no interest expense recognized on these loans for the three months ended September 30, 2020 and September 30, 2019, respectively. Interest expense recognized on these loans was $5,820 for the nine months ended September 30, 2019.

NOTE 9 – CONVERTIBLE DEBT – RELATED PARTIES

At December 31, 2018, the Company had outstanding convertible promissory notes to two of its minority shareholders, for a total of $1,350,000 plus accrued interest of $456,750. All of these notes were paid in full, including accrued interest, on March 7, 2019 with funds received under the Purchase Agreement.

Interest expense recognized on these loans was $24,412 for the nine months ended September 30, 2019.

NOTE 10 – OBLIGATION UNDER CAPITAL LEASE — RELATED PARTY

A capital lease was entered into on June 20, 2016 with RMH Overhead, LLC for mining and crushing equipment valued at $185,618, some of which had been previously owned by the Company. RMH Overhead, LLC is an entity owned by the Company’s president, Rick Havenstrite. Lease payments were paid in full, including accrued interest and late fees, in March 2019 with funds received under the Purchase Agreement. The equipment is being amortized over the estimated useful life of the equipment. Accumulated amortization at December 31, 2018 was $66,292. The Company now owns the equipment which is included in property and equipment on the balance sheet. Interest expense recognized on this obligation under capital lease was $1,968 for the three and nine months ended September 2019, with no interest recognized in 2020.

NOTE 11 – NOTE PAYABLE - SBA

In April 2020, the Company received a loan of $463,497 pursuant to the SBA’s Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was enacted March 27, 2020. The loan, which was in the form of a Note dated April 16, 2020 issued by the Company, matures on April 9, 2025 and bears interest at a rate of 1% per annum, payable monthly commencing on August 15, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Qualifying expenses include payroll costs, costs used to continue group health care benefits, mortgage payments, rent, and utilities. As of September 30, 2020, the Company has used funds from the loan to pay qualifying expenses. The Company intends to apply for forgiveness of the loan at which time grant income of $463,497 will be recognized.

NOTE 128 – NOTES PAYABLE – EQUIPMENT

The following is a summary of the equipment notes payable:

Arrangements have been made with Wheeler CAT and ICM Solutions, LLC to accelerate the payment schedule for the first few months of 2021, with no additional penalties other than interest, thereby allowing for the accounts to become current by May 2021.

⁽¹⁾ The Company was between 1 and 3 payments delinquent in its obligation on this note at March 31, 2021.

⁽²⁾ Wheeler CAT has extended the terms of this 12-month amortization, allowing for continued monthly payments of the same amount until other financing becomes available or until the balance has been paid in full, whichever comes first.

⁽³⁾ In February 2021, Wheeler CAT requested the return of this equipment because the Company was 5 payments delinquent in its obligation on this note payable. This truck was then purchased from Wheeler CAT by a related party who in February began renting the truck to the Company on a month-to-month rental. See Note 11. This arrangement relieved the Company of any other financial obligation on this note.

NOTE 139 – ASSET RETIREMENT OBLIGATION

Changes in the asset retirement obligation for the nine-monththree-month periods ended September 30,March 31, 2021 and 2020 and 2019 are as follows:

During the nine months ended September 30, 2019, the Cactus Mill property was returned to Clifton as part of the terms of the Amended Lease (Note 7). The net asset retirement cost of $17,120 and obligation of $40,802 relating to the Cactus Mill property were eliminated resulting in a gain on settlement of asset retirement obligation of $20,451 recognized in general and administrative expense in the statement of operations.

In the first quarter of 2021 and 2020, the Company updated the asset retirement obligation to reflect a plan for reclamation and closure of the mine at the end of its life which resulted in an increase of estimated undiscounted costs of $198,365.life. The asset retirement asset and obligation increased by $6,833 and $125,363, respectively, as a result of a change in the estimated timing of costs and the impact of discounting the costs to present value.

The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 10% from the time we incurred the obligation to the time we expect to pay the retirement obligation.

NOTE 14 – SETTLEMENT OF CONSULTING CONTRACT

On March 29, 2018, the Company entered into a five-year Agency Agreement (the “Agency Agreement”) with H&H Metals Corp., a New York corporation (“H&H”). Under the terms of the Agency Agreement, H&H agreed to provide certain advisory services in regard to natural resources activities and to assist in securing purchasers for minerals produced from its mining properties.

On January 16, 2019, the Company negotiated a termination of the Agency Agreement (the “Termination Agreement”) with H&H. Under the terms of the Termination Agreement, the Company paid H&H $600,000 in cash and agreed to pay an additional $200,000 within 18 months. The Company also issued 250,000 shares of its common stock with a fair value of $100,000 to H&H. In addition, Phillip H. Holme, a principal of H&H, became a director of the Company. In April 2020, Mr. Holme passed away unexpectedly. No decision has been made at this time about a replacement to fill the vacancy on the Board of Director caused by Mr. Holme’s death.

The Company recognized a loss on settlement of consulting contract of $900,000 during the quarter ended March 31, 2019. The balance of $200,000 was due in July 2020 under the terms of the settlement agreement and has not yet been paid.

NOTE 1510 – CAPITAL STOCK

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock. All shares have equal voting rights and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

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2020 Activity

During the nine-month periodthree-month periods ended September 30,March 31, 2021 and 2020, the Company had the following transaction relating to common stock:

2019 Activity

During the nine-month period ended September 30, 2019, the Company had the followingno transactions relating to common stock. All shares issued were valued at $0.40 per share based on the most recent sale of common stock for cash:

Preferred Stock

The Company’s Articles of Incorporation authorized 10,000,000 shares of $0.001 par value Preferred Stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.

NOTE 1611 – RELATED PARTY TRANSACTIONS

In addition to transactions disclosed in Note 14 and 15,13, the Company had the following related party transactions.

The Company has a month to monthmonth-to-month lease agreement for its office space with RMH Overhead, LLC, a company owned by Rick Havenstrite, the Company’s President and a director. The Company recognized rent expense of $4,500 and $12,500$3,500 for the three and nine-monththree-month periods ended September 30,March 31, 2021 and 2020. The Company also recognizedAt March 31, 2021 and December 31, 2020, amounts due to RMH Overhead, LLC for rent expense of $6,000 and $3,000, respectively, are included in accounts payable and $9,000 foraccrued expenses on the three and nine-month periods ended September 30, 2019 under this lease.balance sheet.

AsOn February 1, 2021, RMH Overhead, LLC. (“RMH”) an entity owned by Rick Havenstrite, President of September 30, 2020the Company, purchased a CAT 740B Articulated Haul Truck from Wheeler CAT. This truck had previously been owned by the Company with an associated note payable to Wheeler CAT. See Note 6. Beginning February 1, 2021, the Company began renting this truck from RMH at a rate of $10,000 per month on a month-to-month rental. At March 31, 2021 and December 31, 2019, accrued compensation2020, amounts of $10,005$10,000 and nil, wasrespectively, are due to officers. This entireRMH Overhead, LLC for rent of this equipment, and this amount is included in accounts payable and accrued expenses on the balance was due to Rick Havenstrite, who serves as our President and as a director.sheet.

The Company compensates directors for their contributions to the management of the Company, with the Chairman of the Boardone director receiving $6,000 per month and other directorsdirector receiving $5,000 per quarter. At September 30, 2020March 31, 2021 and December 31, 2019,2020, accrued compensation due to directors was $11,000$51,000 and nil.$34,000, respectively.

NOTE 1712 – REVENUE RECOGNITION

Product sales for the three and nine-monththree-month periods ended September 30,March 31, 2021 and March 31, 2020 and September 30, 2019 are shown below. At September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company did not have ahad gold sales receivable balance. All revenuebalance of $197,496 and nil. Processing income is received for the three and nine-month periods ended September 30, 2020 and 2019 was from sales to Asahi Refining USA, Inc.ore processed for another company.

Royalties payable at September 30, 2020Once processed, the unrefined gold concentrate is shipped to a refinery where it is refined into gold and December 31, 2019 were $149,988 and $36,074, respectively. Upside participation payable at September 30, 2020 and December 31, 2019 was $332,039 and nil, respectively. Upside participation payable represents a payment whereby PDKsilver bullion. The Company receives a portionpercentage of the proceeds from the sale of the gold sold byand silver concentrate which is credited to the Company to a third party based on a percentage of proceeds over a fixed gold price. See Note 3.Company’s account at the time the concentrate reaches the refinery.

NOTE 18 – STOCK OPTIONS

The Company has reserved 2,400,000 shares under its 2018 Stock Incentive Plan (the “Plan”). The PlanFor the three months ended March 31, 2021 and 2020, all revenue from concentrate sales was adopted bysold to Asahi Refining. For the board of directors onthree months ended March 28, 2018, retroactive31, 2021, all revenue from processing income was received from the outside company whose concentrate sales are to February 23, 2018, as a vehicle for the recruitment and retention of qualified employees, officers, directors, consultants, and other service providers. The Plan is administered by the Board of Directors. The Company may issue, to eligible persons, restricted common stock, incentive and non-statutory options, stock appreciation rights and restricted stock units. The terms and conditions of awards under the Plan will be determined by the Board of Directors.Asahi Refinery.

Outstanding options at September 30, 2020 were 2,400,000, have a remaining life of 2.4 years, and had no intrinsic value. No options were granted, expired, or were exercised during 2020 or 2019.

NOTE 1913 – COMMITMENTS AND CONTINGENCIES

In addition to commitments disclosed in Notes 3 and 7, the Company had the following commitments and contingencies.

Personal property tax and other accrued liabilities

Personal property tax for Tooele County, Utah, is billed and becomes due on November 30 of each year. At March 31, 2021 and December 31, 2020, the amount due to Tooele County for 2020 is $35,568 and $35,568, respectively.

Employment Agreements

The Company has an employment agreement with Mr. Havenstrite as President of the Company, which is ongoing. The agreement, as amended, requires Mr. Havenstrite to meet certain time requirements and limits the number of other board member obligations in which he can participate. The agreement allows for a base annual salary of $144,000 plus certain performance compensation upon fulfillment of established goals. The agreement allows the board of directors to terminate Mr. Havenstrite’s employment at any time, providing for a severance payment upon termination without cause.

At September 30, 2020March 31, 2021 and December 31, 20192020 accrued compensation due to officers of the Company was $10,005$56,159 and nil,$37,697, respectively. The entire balanceOf the amounts accrued at March 31, 2021 and December 31, 2020, accrued compensation of $10,005 was$37,698 and $26,621 is due to Rick Havenstrite.Havenstrite and $18,461 and $11,076 is due to Marianne Havenstrite, Treasurer and Principal Financial Officer.

Director’s Fees

The Company compensates its directors for their service to the Company. At September 30, 2020March 31, 2021 and December 31, 20192020 accrued compensation due to directors was $11,000$51,000 and nil.$34,000.

Finder’s Agreement

On May 11, 2018, the Company entered into an agreement with Mount Royal Consultants (Mount Royal) to assist in finding prospective investors. Mount Royal would receive a finder’s fee of 7% for a connection with a company that resulted in a qualified investment consisting of equity securities or a fee of 3% for a connection with a company that resulted in a purchase of debt securities. On March 7, 2019, the Company closed a Purchase Agreement (Note 3) to a buyer for the purchase of gold produced from the Company’s mining property. This agreement was deemed to be subject to the finder’s fee and resulted in a payment to Mount Royal of $318,000, 3% of the $10,600,000 beneficially received by the Company in accordance with the terms of the Purchase Agreement. On November 1, 2019, an additional payment of 3% of the Tranche 2 payment received by the Company resulted in a payment of $48,000 to Mount Royal and a third payment of $42,000 was issued after receipt of the Tranche 3 payment on December 27, 2019.

Future amounts to be received from investors could also be subject to this agreement. During the three and nine-month periods-month period ended September 30, 2020,March 31, 2021, the Company recognized no consulting expense relating to this agreement. Shares sold in July 2020 pursuant to the private placement offering were not subject to this agreement.

Mining Leases

Annual claims fees are currently $155 per claim plus administrative and school trust land fees. Total paid for claims fees in the three and nine-month-month periods ended September 30,March 31, 2021 and, 2020 and 2019 were $14,794nil each period. Claims fees are due in August for the year beginning in September of that year.

NOTE 20 – SUBSEQUENT EVENTS

Consignment Ore

At September 30, 2020, the Company was engaged in talks with another mining company regarding processing a limited amount of their ore at the Company’s Gold Hill site. A “pilot test” of a small quantity of their ore is currently in process.

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

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20192020 and with the unaudited financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.

Forward-looking statements

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

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this 10-Q. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the following:

Mining operations are subject to a variety of existing laws and regulations relating to exploration, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent, and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.

These risk factors could cause our results to differ materially from those expressed in forward-looking statements.

Overview

We are a mineral exploration company located in the Gold Hill Mining District in Tooele County, Utah. We are currently focused on exploration and development of our Kiewit claims and operation of a heap leach processing facility.

We were originally incorporated in the State of Idaho on November 5, 1957. For several years we bought and sold mining leases and claims, but in 1995 we ceased all principal business operations. In 2008, we changed our corporate domicile from the State of Idaho to the State of Nevada. In May 2009, we raised funds to recommence mining activities. In July 2009, we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District located in Tooele County, Utah. We hold leasehold interests within the Gold Hill Mining District consisting of 66 unpatented mining claims and 30 patented claims. From these claims we have centered our exploration activities on the Kiewit site.

During 2018 we settled our outstanding debt with DMRJ Group I, LLC and repurchased and retired all outstanding preferred shares issued to them under the 2010 Investment Agreement with them.

During 2019 we secured funding of $13,600,000 (net) from PDK Utah Holdings LP under the terms of the Pre-Paid Forward Gold Purchase Agreement dated March 7, 2019. We also renegotiated our lease with Clifton Mining and released all but the current unpatented and patented mining claims. We also reacquired the existing royalties from Clifton and its affiliates and issued a royalty to PDK equal to 4% of the net smelter returns from our mine. An additional 20 claims, known as the JJS Property, were also acquired.

During the first quarter of 2021 we mined and crushed 45,665 tons of mineralized material and 44,346 tons of waste from the open-pit Kiewit Pit. Using the funds from the PDK transaction, in January 2020 we commenced a drilling program on the Kiewit and JJS mining claims to determine the definition of the mineralized body and resource classification of the resources in connection with the proposed completion of a technical report on the claims. Our drilling plan included drilling 30 holes for a total footage of 7,500 feet. Although drilling has commenced on the JJS property, permitting has not been completed and production has not yet begun. We intend to continue our drilling program during the second and third quarters of 2021 at a further cost of approximately $175,000. We also intend to continue extraction of mineralized material and to upgrade and expand the current facilities, as resource expansion dictates.

We suspended our mining operations in June 2016 because of depressed metal prices and lack of funds. We resumed operations in Spring 2018 and again suspended operations in October 2018 for lack of funding. SinceAfter securing funding in March 2019, we have recommenced mining operations.operations late in 2019. Revenues of approximately $13,900,000$9,700,000 from sales of gold and other metals have been received from 2019 through September 30, 2020.March 31, 2021, bringing total revenue from metals sales from the inception of the processing in 2014 to $15,900,000.

Results of Operations for the Three Months Ended September 30, 2020March 31, 2021 and 2019.2020.

The operating loss of $428,650$1,489,768 for the three months ended September 30, 2020March 31, 2021 as compared to the operating loss of $331,600$1,062,950 for the three months ended September 30, 2019March 31, 2020 represents increased losses in the amount of $97,050.$426,818. Increased losses are primarily due to the commencementloss on disposition of ongoing operations in mid-2019 which has resulted in increased general production costs.equipment and to forward gold contract expense. During the quarters ended September 30,March 31, 2021 and 2020, and 2019, we had net losses of $455,250$1,544,464 and $350,348,$1,090,190, respectively. This represents an increase in net loss of $104,902$454,274 for the quarter ended September 30, 2020March 31, 2021 over the quarter ended September 30, 2019.

Results of Operations for the Nine Months Ended September 30, 2020 and 2019.

The operating loss of $1,678,611 for the nine months ended September 30, 2020 as compared to the operating loss of $2,084,421 for the nine months ended September 30, 2019 represent decreased losses in the amount of $405,810. Decreased losses are due to the commencement of ongoing operations and increased metal sales in 2020, offset by the reduction in fees associated with finding a lender, including legal and accounting fees as well as consulting fees in association with the Purchase Agreement finalized on March 7, 2019. During the nine months ended September 30, 2020 and 2019, we had net losses of $1,753,518 and $3,133,826, respectively. This represents a decrease in net loss of $1,380,308 for the nine months ended September 30, 2020 over the nine months ended September 30, 2019.

31, 2020.

Liquidity and Cash Flow

Net cash usedprovided by operating activities was $1,647,372$443,728 during the nine-monththree-month period ended September 30, 2020,March 31, 2021, compared with cash used by operating activities of $5,634,221$781,202 during the nine-monththree-month period ended September 30, 2019.March 31, 2020. This $3,986,850 decrease$1,224,930 increase in the amount of cash usedprovided by operating activities is primarily attributable to the payment of accrued expenses and accounts payables in 2019 and to the ongoing increasedecrease in inventories during the ninethree months ended September 30, 2020.March 31, 2021 and changes in the forward gold contract liability balance.

Net cash used by investing activities was $545,572$194,094 during the nine-monththree-month period ended September 30, 2020March 31, 2021 compared to $1,758,849$224,189 during the nine-monththree-month period ended September 30, 2019.March 31, 2020. This decrease of $1,213,277$30,095 during the nine-monththree-month period ended September 30, 2020March 31, 2021 was due the reduction in additions to property and equipment and tooffset by the purchase of royalty interests as part of the Purchasing Agreementincrease in the nine-month period ended September 30, 2019.reclamation bonds.

Net cash providedused by financing activities was $163,693$211,637 during the nine-monththree-month period ended September 30, 2020,March 31, 2021, compared with $8,315,330$161,174 cash providedused by financing activities during the nine-monththree-month period ended September 30, 2019.March 31, 2020. The decreaseincrease of $8,151,638$50,463 in cash providedused by financing activities in the nine-monththree-month period ended September 30, 2020March 31, 2021 was due primarily to proceeds receivedthe increase in 2019 from the Pre-Paid Forward Gold Purchase Agreement and offset partially by the proceeds from an SBA -PPP loan and the sale of stock during the nine months ended September 30, 2020.payments made on equipment notes payable.

As a result of the above, cash decreasedincreased by $2,029,251$37,997 during the nine-monththree-month period ended September 30,March 31, 2021 over the cash balance at December 31, 2020, leaving us with a cash balance of $87,181$211,284 as of September 30, 2020.March 31, 2021.

Critical Accounting Policies

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

Revenue Recognition

Sales of all metal products are recorded as revenues when title and risk of loss transfer to the purchaser. Sales to the purchaser are recorded at gross sales price less charges for treatment, refining, smelting and other sales charges. Processing income is recorded as revenues when the unrefined gold concentrate is shipped to the refinery where it is refined into gold and silver bullion.

Mineral Exploration and Development Costs

We account for mineral exploration costs in accordance with ASC 932 Extractive Activities. All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to explore new mines, to define further mineralization in existing bodies of mineralized material, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.

Inventories

Inventories consist of estimated gold on the heap leach pad and in the carbon process system and are valued at the lower of production cost or market value. Gold on the heap leach pad is estimated to be 80% complete for cost purposes and gold in the process system is estimated at 95% complete.

Mineral Properties

We account for mineral properties in accordance with ASC 930 Extractive Activities-Mining. Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Mineral properties are periodically assessed for impairment of value and any diminution in value.

Reclamation and Remediation

Remediation, reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. We use assumptions about future costs, capital costs and reclamation costs. Such assumptions are based on our current mining plan and the best available information for making such estimates.

For non-operating properties, we accrue costs associated with environmental remediation obligations when it is probable that such costs will be incurred and that they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.

Financial Instruments

The Company’s financial instruments include cash and cash equivalents as well as various notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity and interest rates of these financial instruments, approximates fair value at September 30, 2020March 31, 2021 and 2019. 2020.

Going Concern

As shown in the accompanying financial statements, the Company had an accumulated deficit of $11,204,736$12,836,275, and negative working capital of $11,913,276 through September 30, 2020March 31, 2021 which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Although production restarted in 2019, it has not yet reached optimum levels. The timing and amount of capital requirements will depend on a number of factors, including demand for products, metals market pricing, and the availability of opportunities for expansion through affiliations and other business relationships. Although management has procured funding through Purchase Agreement, they intend to continueManagement continues to seek new capital from equity securities issuances or other business arrangements to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. However, with the funding received under the Purchase Agreement during first quarterThe ability of 2019, and ongoing metals sales, the Company believes it hasto continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations for the next twelve months. The Company is currently engaged in discussions with another mining company regarding processing a limited amount of their ore at the Company’s Gold Hill site as a means of increasing revenue. A “pilot test” of their ore is in process.and repay its liabilities arising from normal business operations when they are due.

If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

Our Chief Executive Officer, who serves as our principal executive officer; and our Treasurer, who serves as our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”),. The Chief Executive Officer and Treasurer have concluded that as of the Evaluation Date, due to the existence of material weaknesses, our disclosure controls and procedures were not effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors3. Defaults Upon Senior Securities

The following risk factors represent material changesDuring the first quarter of 2019, the Company entered into and closed a Prepaid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings L.P. (“PDK”) for the sale and purchase by PDK of gold produced from risk factors as previously disclosed in the Company’s mining property. On October 31, 2019, Form 10-K filed with the CommissionCompany and PDK amended the Purchase Agreement and entered into the Amended Prepaid Forward Agreement to reduce the total number of ounces of gold subject to the Purchase Agreement and to revise other provisions therein. The first gold delivery under the Purchase Agreement, as amended, was due on March 30, 2020:

Insufficient cashDecember 24, 2020, and liquidity considerations could adversely impact our business.

Sufficient liquidity is necessary for usrecurring deliveries are due on the fourth business day prior to continue our operations. Delinquent accounts payable and other delinquencies on equipment payments, royalties and other obligations may jeopardize our ability to maintain equipment and supplies as needed to continue our operations and could cause us to default on our contractual obligations. Additionally, delinquent payables could cause us tothe last calendar day of each scheduled delivery month. On December 1, 2020, we notified PDK that we would not be able to managemake our businessDecember delivery and elected to use one of the delivery postponement options under the Purchase Agreement, as effectivelyamended. This provision permits us to delay delivery by up to 30 days by delivering the amount of gold due on the previous month’s due date, plus interest calculated at the default interest rate. At the end of this 30-day extension period we were unable to deliver the December payment. We have also failed to make the gold deliveries for January, February, March, and April of 2021 and anticipate that we will be unable to make deliveries until at least third quarter of this fiscal year. The failure to make gold deliveries under the Purchase Agreement, as possibleamended, provides PDK with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and our business and reputation with vendors and investors could be harmed.

A pandemic, epidemic or outbreakenforcement of an infectious diseaseforeclosure rights against the assets pledged as security under the agreement. As of the filing date of this report, we are obligated to deliver to PDK 4,254 ounces of gold, plus default interest in the markets in which we operate or that otherwise impacts our operations, facilities, or suppliers could adversely impact our business.

If a pandemic, epidemic, or outbreakamount of an infectious disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) first identified in Wuhan, Hubei Province, China, or other public health crisis were to affect our markets or facilities or those of our suppliers, our business could be adversely affected. Consequences of the coronavirus outbreak are resulting in disruptions in or restrictions on our and others’ ability to travel. In particular, the staff of government permitting agencies cannot easily perform their required site visits and office closures at government sites for staff charged with approving our permits have affected our ability to proceed timely with permitting work. Staffing$10,690 (calculated at the mine site has become more difficultrate of LIBOR plus 2%), under the Purchase Agreement, as amended. We are involved in ongoing discussions with representatives of PDK in an attempt to resolve these late payments and requires more of management’s time to ensure that proper social distancing is maintained among the employees while they are working.  Due to the remote location of the mine, special accommodations are required to obtain and retain employees who may not be able to find adequate housing due to the results of the virus.  Special arrangements are necessary to ensure that employees are able to commute to work without violating the distancing standards. In addition, effects of the virus have caused delays in shipping times for chemicals and supplies used at the mine.

If such an infectious disease broke out at our office, facilities, or work sites, our operations may be affected significantly, our productivity may be affected, our ability to complete projects in accordance with our contractual obligations may be affected, and we may incur increased labor and materials costs. If the suppliers, ore processors, or others with which we contract are affected by an outbreak of infectious disease, service work may be delayed, and we may incur increased labor and materials costs. If our subcontractors with whom we work were affected by an outbreak of infectious disease, our labor supply may be affected, and we may incur increased labor costs. In addition, we may experience difficulties with certain suppliers or with vendors in their supply chains, and our business could be affected if we become unable to procure essential chemicals, equipment, supplies or services in adequate quantities and at acceptable prices. We could incur substantial delays in obtaining necessary permits to operate our business.

Further, infectious outbreak may cause disruption to the U.S. economy, or the local or foreign economies of the markets in which we operate, cause shortages of materials, increase costs associated with obtaining materials, affect job growth and consumer confidence, adversely affect the value ofrenegotiate the gold or other minerals extracted at the mine, or cause economic changes that we cannot anticipate. Overall, the potential impact of a pandemic, epidemic or outbreak of an infectious disease with respect to our market or our facilities is difficult to predict and could adversely impact our business.delivery schedule.

In response to the COVID-19 situation, federal, state and local governments (or other governments or bodies) are considering placing, or have placed, restrictions on travel and conducting or operating business activities. At this time those restrictions are very fluid and evolving. We have been and will continue to be impacted by those restrictions. Given that the type, degree and length of such restrictions are not known at this time, we cannot predict the overall impact of such restrictions on us, our customers, our subcontractors and supply chain, others that we work with or the overall economic or governmental environment. As such, the impact these restrictions may have on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but the impact likely would be material. In addition, due to the speed with which the COVID-19 situation is developing and evolving, there is uncertainty around its ultimate impact on public health, business operations and the overall economy. Therefore, the negative impact on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but the impact may be material.

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

During the quarter ended September 30, 2020, we issued 200,000 shares of common stock to a single accredited investor for gross proceeds of $200,000. These shares were issued pursuant to Rule 506(c) of Regulation D promulgated by the SEC under the Securities Act. Management received verification and reasonably believed that at the time of issuance the investor was an “accredited investor” as defined in Rule 501(a) of Regulation D. The investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the investment. No selling commissions or other remuneration was paid in connection with the sales of these shares. This private placement offering expired on September 30, 2020.

Item 4. Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this quarterly report.

Item 6. Exhibits

In accordance with Rule 402 of Regulation S-T, the XBRL information included in Exhibit 101 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

SIGNATURE PAGE FOLLOWS

SIGNATURES

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

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