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 March 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File No. 000-17106
LKA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
91-1428250 |
|
(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
|
incorporation or organization) |
|
3724 47th Street Ct. N.W.
Gig Harbor, Washington 98335
(Address of Principal Executive Offices)
(253) 851-7486
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
1
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: May 6, 2009 - 12,890,498 shares of common stock.
PART I
Item 1. Financial Statements
The Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.
2
LKA INTERNATIONAL, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
|
|
March 31, 2009 |
|
December 31, 2008 | ||
|
CURRENT ASSETS: |
|
|
|
|
|
|
Cash |
$ |
9,793 |
|
$ |
182,984 |
|
Margin trading account |
|
1,153 |
|
|
16,941 |
|
Prepaid expenses |
|
2,456 |
|
|
10,226 |
|
Investments in trading securities |
|
109,189 |
|
|
172,072 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
122,591 |
|
|
382,223 |
|
|
|
|
|
|
|
|
FIXED ASSETS |
|
|
|
|
|
|
Land, equipment and mining claims |
|
675,105 |
|
|
612,274 |
|
Accumulated deprecation |
|
(105,264) |
|
|
(100,450) |
|
|
|
|
|
|
|
|
Total Fixed Assets, Net of Accumulated Depreciation |
|
569,841 |
|
|
511,824 |
|
|
|
|
|
|
|
|
OTHER NON-CURRENT ASSETS |
|
|
|
|
|
|
Reclamation Bonds |
|
113,120 |
|
|
113,120 |
|
|
|
|
|
|
|
|
Total Other Non-Current Assets |
|
113,120 |
|
|
113,120 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ |
805,552 |
|
$ |
1,007,167 |
|
|
|
|
|
|
|
|
| |||||
The accompanying notes are an integral part of these financial statements.
3
LKA INTERNATIONAL, INC.
Consolidated Balance Sheets (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
March 31, 2009 |
|
December 31, 2008 | ||
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts Payable |
$ |
80,005 |
|
$ |
121,470 |
|
Note payable |
|
10,000 |
|
|
10,000 |
|
Notes payable - related party (Note 2) |
|
62,803 |
|
|
62,803 |
|
Accrued interest payable - related party (Note 2) |
|
68,759 |
|
|
67,189 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
221,567 |
|
|
261,462 |
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
Asset retirement obligation |
|
108,343 |
|
|
107,088 |
|
|
|
|
|
|
|
|
Total Non-Current Liabilities |
|
108,343 |
|
|
107,088 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
329,910 |
|
|
368,550 |
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
- |
|
|
- |
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Preferred stock; $0.001 par value, 50,000,000 shares authorized, no shares Issued or outstanding |
|
- |
|
|
- |
|
Common stock, $0.001 par value, 50,000,000 shares authorized, 12,890,498 and 12,890,498 shares issued and 12,803,252 and 12,803,252 shares outstanding respectively |
|
12,891 |
|
|
12,891 |
|
Additional paid-in capital |
|
7,224,062 |
|
|
7,224,062 |
|
Treasury stock; 87,247 and 87,247 shares at cost, respectively |
|
(86,692) |
|
|
(86,692) |
|
Accumulated deficit |
|
(6,674,619) |
|
|
(6,511,644) |
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
|
475,642 |
|
|
638,617 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
805,552 |
|
$ |
1,007,167 |
The accompanying notes are an integral part of these financial statements.
4
LKA INTERNATIONAL, INC.
Consolidated Statements of Expenses
(Unaudited)
|
|
For the Three Months Ended March 31, | |||
|
|
2009 |
2008 | ||
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
General and administrative |
$ |
86,749 |
$ |
76,986 |
|
Exploration, development and related costs |
|
45,512 |
|
58,196 |
|
Bad debt expense |
|
- |
|
1,230 |
|
Officer salaries and bonus |
|
37,500 |
|
37,500 |
|
Total Operating Expenses |
|
169,761 |
|
173,.912 |
|
OPERATING LOSS |
|
(169,761) |
|
(173,912) |
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
Interest expense |
|
(2,055) |
|
(8,490) |
|
Interest income |
|
47 |
|
2,502 |
|
Realized gain on securities |
|
1,058 |
|
- |
|
Unrealized gain on securities |
|
4,027 |
|
15,251 |
|
Other investment income |
|
3,709 |
|
20,977 |
|
Total Other Income (Expense) |
|
6,786 |
|
30,240 |
|
|
|
|
|
|
|
NET LOSS BEFORE TAXES |
|
(162,975) |
|
(143,672) |
|
INCOME TAX BENEFIT |
|
- |
|
68,490 |
|
NET LOSS |
$ |
(162,975) |
$ |
(75,182) |
|
BASIC NET LOSS PER SHARE |
$ |
(0.01) |
$ |
(0.01) |
|
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
12,890,498 |
|
12,890,498 |
The accompanying notes are an integral part of these financial statements.
5
LKA INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Three Months Ended March 31, | |||||||
|
|
2009 |
2008 | ||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
| ||||
|
Net loss |
$ |
(162,975) |
$ |
(75,182) | ||||
|
Items to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
| ||||
|
Accretion of environmental remediation costs |
|
1,255 |
|
448 | ||||
|
Depreciation and amortization |
|
4,814 |
|
4,596 | ||||
|
Unrealized gain on investments |
|
(4,027) |
|
(20,051) | ||||
|
Realized gain on investments |
|
(1,058) |
|
- | ||||
|
Bad debt |
|
- |
|
1,230 | ||||
|
Investment purchases |
|
(3,528) |
|
(6,323) | ||||
|
Investment proceeds |
|
71,496 |
|
- | ||||
|
Changes in operating assets and liabilities |
|
|
|
| ||||
|
(Increase) in interest receivable |
|
- |
|
(2,461) | ||||
|
Decrease in prepaid and other assets |
|
7,770 |
|
7,546 | ||||
|
(Increase) decrease in money market funds |
|
15,788 |
|
(8,310) | ||||
|
(Increase) in net deferred tax assets and liabilities |
|
- |
|
(68,490) | ||||
|
(Decrease) in accounts payable |
|
(41,465) |
|
(13,320) | ||||
|
Increase in accrued expenses |
|
1,570 |
|
6,556 | ||||
|
Increase in deferred gain |
|
- |
|
183,549 | ||||
|
Net Cash Provided (Used) by Operating Activities |
|
(110,360) |
|
9,788 | ||||
|
|
|
|
|
| ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
| ||||
|
Purchase of construction equipment |
|
(62,831) |
|
- | ||||
|
Net Cash Used by Investing Activities |
|
(62,831) |
|
- | ||||
|
|
|
|
|
| ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
- |
|
- | ||||
|
|
|
|
|
| ||||
|
INCREASE (DECREASE) IN CASH |
|
(173,191) |
|
9,788 | ||||
|
|
|
|
|
| ||||
|
CASH AT BEGINNING OF PERIOD |
|
182,984 |
|
22,676 | ||||
|
|
|
|
|
| ||||
|
CASH AT END OF PERIOD |
$ |
9,793 |
$ |
32,464 | ||||
|
|
|
|
|
| ||||
|
CASH PAID FOR: |
|
|
|
| ||||
|
Interest |
$ |
375 |
$ |
349 | ||||
|
Income taxes |
$ |
- |
$ |
- | ||||
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these financial statements.
6
LKA INTERNATIONAL, INC.
Notes to the Consolidated Financial Statements
March 31, 2009
NOTE 1 -
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements presented are those of LKA International, Inc. (LKA), a Delaware corporation and its wholly-owned subsidiary (LKA International, Inc.), a Nevada corporation. LKA was incorporated on March 15, 1988, under the laws of the State of Delaware. LKA was engaged in several natural resource projects, but ceased operations shortly thereafter due to high capital investments and the risk of no return. LKA exited the development stage in September 2003 as a result of the reacquisition of its interest in an operating mine near Lake City, Colorado. LKA is currently engaged in efforts to expand mine production and continues to seek additional investment opportunities.
The accompanying unaudited condensed consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with LKA’s most recent audited financial statements. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
NOTE 2 -
RELATED PARTY TRANSACTIONS
Related Party Debt
LKA owes Cognitive Associates Limited Partnership $56,828 in unpaid principal from a note dated December 31, 1986. The note is unsecured, due upon demand, and accrues interest at 10% per annum. No payments have been made during the three months ended March 31, 2009. Accrued interest related to this note totaled $59,438 and $59,288 as of March 31, 2009 and December 31, 2008 respectively.
LKA owes Cognitive Intelligence Limited Partnership $5,975 in unpaid principal from a note dated October 1, 1987. The note is unsecured, due upon demand, and accrues interest at 10% per annum. No payments have been made during the three months ended March 31, 2009. Accrued interest related to this note totaled $9,321 and $7,901 as of March 31, 2009 and December 31, 2008, respectively.
Other Related Party Transactions
LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses. The affiliated Company, (Abraham & Co., Inc. a NASD member and registered investment advisor) also executes LKA’s securities transactions and manages its investment portfolio.
7
LKA INTERNATIONAL, INC.
Notes to the Consolidated Financial Statements
March 31, 2009
NOTE 3 -
SIGNIFICANT EVENTS
During the three months ended March 31, 2009, LKA continued to invest in the Golden Wonder mine through the continuation of a drainage improvement project and the purchase of a crushing machine. As of March 31, 2009, $58,745 and $62,831 of to-date expenses related to the drainage improvements and the crushing machine have been capitalized as construction in process, respectively. These amounts will begin being depreciated over their estimated useful lives upon being placed in service.
NOTE 4 -
GOING CONCERN
LKA's consolidated financial statements are prepared using Generally Accepted Accounting Principals 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 negative working capital and a deficit in stockholders' equity. All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:
During 2007, LKA terminated its eight year lease agreement on the Golden Wonder Mine with the previous mine operator and entered into a Letter Agreement with Richmont Mines for joint exploration and development of the Golden Wonder Mine. During the Initial Commitment Period, Richmont was required to invest $3 million in certain project-related expenditures prior to September 1, 2008. The Initial Commitment Period was extended 60 days until November 1, 2008, when Richmont discontinued its exploration effort at that time and returned control of the mine to LKA. Since November 2008, LKA personnel have been conducting a detailed evaluation program within the Golden Wonder mine to determine if previous producing zones can be extended. During this evaluation period, sampling and analysis of exposed veins yielded encouraging results. While encouraging, no conclusion can be drawn at this time about the commercial viability of the mine. If LKA is not successful in the resumption of mine operations which produce positive cash flows from operations, LKA may be forced to raise additional equity or debt financing to fund its ongoing obligations or risk ceasing doing business.
There can be no assurance that the Company will be able to achieve its business plans, raise any 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.
8
Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Results of Operations
For The Three Months Ended March 31, 2009 Compared to The Three Months Ended March 31, 2008.
During the quarterly periods ended March 31, 2009, and March 31, 2008, we received no revenues.
Operating expenses decreased from $173,912 in the quarterly period ended March 31, 2008, to $169,761 in the quarterly period ended March 31, 2009. Exploration, development and related costs decreased to $45,512 in the quarter ended March 31, 2009, from $58,196 in the year-ago quarter. We incurred a bad debt expense of $1,230 in the three months ended March 31, 2008, as compared to no bad debt expense in the three months ended March 31, 2009. Officer salaries and bonus remained $37,500 in both of these three month periods. We realized an operating loss of $169,761 during the quarter ended March 31, 2009, as compared to operating loss of $173,912 in the comparable period in 2008.
Interest income decreased to $47 in the three months ended March 31, 2009, from $2,502 in the three months ended March 31, 2008. Interest expense totaled $2,055 and $8,490 in 2009 and 2008, respectively. We realized a gain on securities in the three months ended March 31, 2009 of $1,058, as compared to no gain in the 2008 period. Unrealized gain on securities were $4,027 and $15,251 for the three months ended March 31, 2009 and 2008. We received $3,709 in other investment income in 2009, versus $20,977 in 2008.
Net loss totaled ($162,975), or ($0.01) per share, and ($75,182), or ($0.01) per share in the three months ended March 31, 2009 and 2008.
Liquidity
Current assets at March 31, 2009, totaled $122,591. As of that date, we had $9,793 in cash, as compared to $182,984 at December 31, 2008.
During the three months ended March 31, 2009, our operating activities used net cash of $110,360. In 2008, by contrast, operating activities provided net cash of $9,788. There was $62,831 cash used by investing activities and no cash provided by financing activities in the three months ended March 31, 2009, with no cash provided by investing activities or financing activities during the three months ended March 31, 2008.
At March 31, 2009, the Company had working capital of ($98,976), as compared to working capital of $120,761 at December 31, 2008.
9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4T. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2009, our disclosure controls and procedures were, subject to the limitations noted above, effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 1A. Risk Factors.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
None; not applicable.
10
Item 6. Exhibits.
Exhibit No. Identification of Exhibit
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
LKA INTERNATIONAL, INC.
|
Date: |
May 11, 2009 |
|
By: |
/s/Kye Abraham |
|
|
|
|
|
Kye Abraham, President, Chairman of the Board and Director |
|
|
|
|
|
|
|
Date: |
May 11, 2009 |
|
By: |
/s/Nanette Abraham |
|
|
|
|
|
Nanette Abraham, Secretary, Treasurer and Director |
11