UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

____________________

FORM 10-Q
____________________

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

For the quarterly period ended June 30, 2016

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

For the transition period from ____________ to____________

Commission File No. 000-17106


LKA GOLD INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware
91-1428250
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

3724 47 th Street Ct. N.W.
Gig Harbor, Washington 98335
(Address of principal executive offices)

(253) 514-6661
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  August 15, 2016 – 19,165,152 shares of common stock.
 
1

PART I

Item 1.  Financial Statements

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


 
LKA GOLD INCORPORATED
Consolidated Balance Sheets
(Unaudited)

ASSETS

   
June 30, 2016
   
December 31, 2015
 
CURRENT ASSETS
           
     Cash
 
$
72,126
   
$
150,068
 
     Restricted cash
   
18,750
     
22,500
 
     Prepaid expenses
   
4,375
     
-
 
     Accounts receivable
   
995
     
995
 
          Total Current Assets
   
96,246
     
173,563
 
 
FIXED ASSETS
               
     Land, equipment and mining claims
   
849,140
     
849,140
 
     Accumulated deprecation
   
(372,700
)    
(359,175
)
          Total Fixed Assets, Net of Accumulated Depreciation
   
476,440
     
489,965
 
 
OTHER NON-CURRENT ASSETS
               
     Reclamation bonds
   
100,042
     
123,597
 
          Total Non-Current Assets
   
100,042
     
123,597
 
                 
          TOTAL ASSETS
 
$
672,728
   
$
787,125
 
                 

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
LKA GOLD INCORPORATED
Consolidated Balance Sheets (Continued)
(Unaudited)


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

   
June 30, 2016
   
December 31, 2015
 
 
CURRENT LIABILITIES
           
     Accounts payable
 
$
55,720
   
$
69,042
 
     Accounts payable – related party
   
24,000
     
15,309
 
     Wastewater discharge liability
   
75,000
     
75,000
 
     Derivative liability
   
523,750
     
256,278
 
     Note payable
   
10,000
     
10,000
 
     Accrued interest payable
   
7,280
     
5,517
 
     Accrued wages and advances payable to officer
   
100,757
     
75,757
 
          Total Current Liabilities
   
796,507
     
506,903
 
 
LONG-TERM LIABILITIES
               
Convertible notes payable – related party, net of $237,930 and $240,465 in debt issuance costs and debt discount, respectively
   
12,070
     
9,535
 
Convertible notes payable, net of $144,937 and $49,051 in debt issuance
costs and debt discount, respectively
   
5,063
     
949
 
     Asset retirement obligation
   
120,355
     
117,761
 
            Total Long-Term Liabilities
   
137,488
     
128,245
 
Total Liabilities
   
933,995
     
635,148
 
 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Preferred stock; $0.001 par value, 50,000,000 shares authorized, 0 and 0 shares issued and outstanding, respectively
   
-
     
-
 
Common stock, $0.001 par value, 50,000,000 shares authorized,
19,165,152 and 19,165,152 shares issued and 19,121,528 and 19,121,528 shares outstanding, respectively
   
19,165
     
19,165
 
      Additional paid-in capital
   
17,963,315
     
17,963,315
 
      Treasury stock; 43,624 and 43,624 shares at cost, respectively
   
(86,692
)
   
(86,692
)
     Accumulated deficit
   
(18,157,055
)
   
(17,743,811
)
            Total Stockholders' Equity (Deficit)
   
(261,267
)
   
151,977
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
$
672,728
   
$
787,125
 

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
LKA GOLD INCORPORATED
Consolidated Statements of Operations
(Unaudited)

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
REVENUES
                       
Sales - precious metals
 
$
-
   
$
-
   
$
-
   
$
115,985
 
                                 
EXPLORATION COSTS
   
(11,143
)
   
(257,932
)
   
(36,969
)
   
(581,798
)
                                 
GROSS LOSS
   
(11,143
)
   
(257,932
)
   
(36,969
)
   
(465,813
)
                                 
OPERATING EXPENSES
                               
General and administrative
   
39,688
     
39,685
     
69,379
     
78,594
 
Officer salaries
   
37,500
     
37,500
     
75,000
     
75,000
 
Professional and consulting
   
10,090
     
26,197
     
34,068
     
48,926
 
     Total Operating Expenses
   
87,278
     
103,382
     
178,447
     
202,520
 
                                 
OPERATING LOSS
   
(98,421
)
   
(361,314
)
   
(215,416
)
   
(668,333
)
                                 
OTHER EXPENSES
                               
Loss on derivatives
   
112,297
     
-
     
168,103
     
-
 
Interest expense, net
   
22,105
     
317
     
29,725
     
786
 
     Total Other Expenses
   
134,402
     
317
     
197,828
     
786
 
                                 
NET LOSS
 
$
(232,823
)
 
$
(361,631
)
 
$
(413,244
)
 
$
(669,119
)
 
BASIC NET LOSS PER SHARE
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.03
)
 
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
19,121,528
     
19,121,528
     
19,121,528
     
19,121,528
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
LKA GOLD INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)


   
For the Six months Ended
June 30,
 
   
2016
   
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(413,244
)
 
$
(669,119
)
Items to reconcile net loss to net cash used in operating activities:
               
   Accretion of asset retirement obligation
   
2,594
     
2,443
 
   Depreciation and amortization
   
13,525
     
15,735
 
   Amortization of debt issuance costs
   
12,490
     
-
 
   Amortization of debt discount
   
3,528
     
-
 
   Loss on derivative
   
168,103
     
-
 
Changes in operating assets and liabilities
               
   Decrease in accounts receivable
   
-
     
202,650
 
   Decrease in prepaid expenses and other assets
   
19,180
     
-
 
   Decrease in accounts payable and accrued expenses
   
(11,559
)
   
(24,788
)
   Increase in accounts payable – related party
   
8,691
     
5,395
 
   Increase in accrued wages
   
25,000
     
-
 
      Net Cash Used in Operating Activities
   
(171,692
)
   
(467,684
)
                 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
      Purchase of fixed assets
   
-
     
(38,055
)
      Change in restricted cash
   
3,750
     
-
 
         Net Cash Provided by (Used) in Investing Activities
   
3,750
     
(38,055
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
      Proceeds from convertible debt
   
100,000
     
-
 
      Cash paid for debt issuance costs
   
(10,000
)
   
-
 
         Net Cash Provided by Financing Activities
   
90,000
     
-
 
                 
DECREASE IN CASH
   
(77,942
)
   
(505,739
)
                 
CASH AT BEGINNING OF PERIOD
   
150,068
     
698,745
 
                 
CASH AT END OF PERIOD
 
$
72,126
   
$
193,006
 
                 
CASH PAID FOR:
               
   Interest
 
$
11,946
   
$
600
 
   Income taxes
 
$
-
   
$
-
 
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Discount on convertible notes payable
 
$
99,369
   
$
-
 
                 


The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
LKA GOLD INCORPORATED
Notes to the Unaudited Consolidated Financial Statements
June 30, 2016

NOTE 1 -       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying unaudited consolidated financial statements have been prepared by LKA pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations.  The information furnished in the interim consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with LKA's most recent audited financial statements.  Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Reclassifications

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

NOTE 2 -       RELATED PARTY TRANSACTIONS

Related Party Debt – Office Space

LKA pays a company owned by an officer and shareholder $1,500 per month for office rent and expenses.  The affiliated company (Abraham & Co., Inc. a FINRA member and registered investment advisor) also executes LKA's securities transactions and manages its investment portfolio.  LKA owed Abraham & Co. $24,000 and $15,000 as of June 30, 2016 and December 31, 2015, respectively.

Related Party Debt – Accounts and Wages Payable

At June 30, 2016 and December 31, 2015, LKA owes $0 and $309, respectively, for purchases made on the personal credit card of LKA's President, Kye Abraham.  Additionally, LKA owed Kye Abraham $100,757 and $75,757 in unpaid salary at June 30, 2016 and December 31, 2015, respectively.

Convertible Debentures

On September 29, 2015, LKA issued two convertible debentures (Convertible Debentures), each in the amount of $125,000, or a total of $250,000 to members of the Koski family, the Company's largest shareholders.  Principal on the Convertible Debentures is due September 29, 2018. The Convertible Debentures accrue interest at 7.5% and are convertible at any time into shares of LKA common stock at $0.50 per share.  Interest is due on a semi-annual basis and LKA is required to retain a reserve amount of the proceeds to pay the first two semi-annual interest payments, which, if the Convertible Debentures are converted within one year, will be paid to the Convertible Debenture holders. As such, LKA has designated $9,375 and $18,750 as restricted cash at June 30, 2016 and December 31, 2015, respectively.

During the six months ended June 30, 2016, LKA paid $9,375 in interest payments on the convertible debentures.

If any event of default occurs, the interest rate increases to 15% per annum and the conversion rate shall be decreased to $0.25 per share. As a result of the potential variable conversion rate, the conversion option embedded in this instrument is classified as a liability in accordance with Accounting Series Codification Topic 815, "Derivatives and Hedging" (ASC 815) and LKA recognized a debt discount of $250,000.  During the six months ended June 30, 2016, LKA recognized $624 of interest expense from the amortization of the debt discounts.

LKA incurred $12,500 in debt issuance costs on the convertible debenture issuance. The debt issuance costs are being amortized over the three year term of the convertible debenture.  During the six months ended June 30, 2016, LKA recognized $2,075 of interest expense from the amortization of debt issuance costs.

6
NOTE 3 -       CONVERTIBLE DEBENTURES

During October 2015, LKA issued a 7.5% convertible debenture for $50,000 in cash.  The convertible debenture accrues interest at 7.5% per annum, is unsecured, due in three years from the date of issuance and is convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments.  As such, LKA has designated $1,875 and $3,750 as restricted cash at June 30, 2016 and December 31, 2015, respectively.

LKA incurred $2,500 in debt issuance costs on the convertible debenture issuance. The debt issuance costs are being amortized over the three year term of the convertible debenture.  During the six months ended June 30, 2016, LKA recognized $415 of interest expense from the amortization of debt issuance costs.

During the six months ended June 30, 2016, LKA paid $1,875 in interest payments on the convertible debenture.

During April 2016, LKA issued two $50,000 7.5% convertible debentures for $100,000 in cash.  The convertible debentures accrue interest at 7.5% per annum, are unsecured, due in three years from the dates of issuance and are convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments.  As such, LKA has designated $7,500 as restricted cash at June 30, 2016.

LKA incurred $10,000 in debt issuance costs on the convertible debenture issuance. The debt issuance costs were expensed during the six months ended June 30, 2016.

If any event of default occurs on any of the above mentioned convertible debentures, the interest rate increases to 15% per annum and the conversion rate shall be decreased to $0.25 per share for all of the convertible debentures. As a result of the potential variable conversion rate, the conversion option embedded in this instrument is classified as a liability in accordance with ASC Topic 815, "Derivatives and Hedging" (ASC 815) and LKA recognized a debt discount of $149,369. During the six months ended June 30, 2016, LKA recognized $2,904 of interest expense from the amortization of the debt discount.

NOTE 4 -       DERIVATIVE LIABILITY

LKA analyzed the conversion options embedded in the convertible notes payable and convertible notes payable related party for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced convertible notes should be classified as liabilities and recorded at fair value due to the potentially variable conversion prices.  
 
The fair value of the conversion options on convertible notes issued during the six months ended June 30, 2016 was determined to be $133,150 as of the issuance date using a Black-Scholes option-pricing model.   Upon the date of issuance of the Convertible Notes, $99,369 was recorded as debt discount and $33,781 was recorded as day one loss on derivative liability.  During the six months ended June 30, 2016 , $134,322 of loss was recorded on mark-to-market of the conversion options, respectively.

7
The following table summarizes the derivative liabilities included in the balance sheet at December 31, 2015 and June 30, 2016:

Balance, December 31, 2014
 
$
-
 
Day one loss due to convertible debt
   
58,006
 
Debt discount
   
300,000
 
Gains on change in fair value
   
(101,728
)
Balance, December 31, 2015
   
256,278
 
Day one loss due to convertible debt
   
33,781
 
Debt discount
   
99,369
 
Loss on change in fair value
   
134,322
 
Balance, June 30, 2016
 
$
523,750
 

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model.  Assumptions used during the six months ended June 30, 2016 include (1) risk-free interest rates between 0.73% - 0.96%, (2) lives of between 2.28 - 3.04 years, (3) expected volatility between 213% - 229%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.

NOTE 5 -      COMMITMENTS AND CONTINGENCIES

Possible Environmental Remediation Liability

In 2002 the Federal Bureau of Land Management (the "BLM") advised LKA of its desire to extend to the Ute-Ulay Property certain environmental clean-up ("remediation") activities that it is conducting on neighboring properties that LKA does not own.  The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006.  These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area.  The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present.  The BLM's most recent study, "Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report" dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million.  Based upon discussions with Hinsdale County, Colorado officials, Colorado Department of Public Health & Environment Ute-Ulay project supervisor, the Federal Environmental Protection Agency's (the "EPA") regional manager, and legal counsel, the actual costs associated with this effort are expected to be approximately $1.2 million; substantially below previous BLM estimates.  Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the EPA may either require a property owner to perform the necessary cleanup or the agencies may perform the work and seek recovery of costs against the property owner and previous owners.  While it cannot be determined with absolute certainty until the project is completed, LKA's status as a " de minimis" participant and the fact that remediation activities are focused on property located largely outside of LKA's permitted operating area, LKA management expects this project will have a negligible impact on the LKA's financial condition.  Accordingly, pursuant to Generally Accepted Accounting Principles, and all discussions with the above named agencies to date, LKA management believes it is unlikely there will be a material impact to its financial statements and no liability for this project has been recorded as of June 30, 2016. Actual completion of remediation work at the site was completed in late 2013 by the EPA. The EPA has not yet issued its notice of final determination.

Wastewater Discharge Liability

During the fourth quarter of 2014, LKA received a Notice of Violation (NOV) from the Colorado Department of Health and Environment (CDPHE) for failure to meet certain requirements of the Company's wastewater discharge permit. During 2015, the Company undertook all corrective actions specified in the NOV, under CDPHE oversight, and believes it is in compliance with the terms of its permit. LKA believes it is probable that that there will be a financial penalty assessed, and that range will be between $75,000 and $150,000.  As a result, LKA has accrued a liability of $75,000 as of June 30, 2016 and December 31, 2015 since there is no better estimate of the amount of loss within this range.

8
NOTE 6 -       GOING CONCERN

LKA's consolidated financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, LKA has recently accumulated significant losses and has negative working capital.  All of these items raise substantial doubt about its ability to continue as a going concern.  Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:

LKA is currently engaged in an intensive exploration program at the Golden Wonder mine with the objective of returning the mine to a producing status. The exploration program, which began in late 2008, has involved extensive exploratory mining and drilling for the purpose of identifying possible new production zones within the mine and on the Company's adjacent property. During this ongoing evaluation period, bulk sampling, through exploratory mining of high-grade structures (extensions of the initial ore zone) has yielded over 4,900 ounces of gold resulting in over $5.1 million in precious metals revenues. Revenues from this selective mining process have largely funded LKA's exploration program to date. However, until LKA, either on its own or through the efforts of its partners, can locate another ore body, no conclusion can be drawn about the commercial viability of the mine.

In order to support continued exploration of the mine, LKA entered into an exploration and option agreement with Kinross Gold, USA in July, 2015. Additionally, to support general operations, the Company entered into financing transactions involving the sale of a limited number of convertible debentures, mostly to existing shareholders, during the year ended December 31, 2015 and the six months ended June 30, 2016. The Company expects to raise additional funding through similar financings in the future. If LKA is not successful in the resumption of profitable mine operations, either from commercial or exploratory mining, it may be forced to continue to raise additional equity or debt financing to fund its ongoing obligations or risk ceasing doing business.  

There can be no assurance that LKA will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan.  The ability of LKA to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

9
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward‑looking Statements

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

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

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

Results of Operations

For The Three Months Ended June 30, 2016 Compared to The Three Months Ended June 30, 2015

During the three months ended June 30, 2016 and 2015, we did not recognize any revenue.

Exploration expenses decreased $246,789, or approximately 96%, from $257,932 in the three months ended June 30, 2015, to $11,143 in the three months ended June 30, 2016. The decrease was mainly due to a decrease in contract labor resulting from the reduction of exploratory mining operations in favor of a detailed geochemistry analysis and follow on drilling program by the Company's exploration partner, Kinross Gold USA. A surface evaluation of the Company's claims, conducted by Kinross geologists, has already identified at least three areas (potential ore bodies) that possess characteristics remarkably similar to those found at the site of the Golden Wonder's original, high-grade ore shoot. Drilling crews have been retained and applications filed for permits to drill these targets from the surface. Drilling is expected to commence during 2016.

Professional fees decreased by $16,107 during the three months ended June 30, 2016, compared to the three months ended June 30, 2015, or approximately 61%, mainly due to a $13,000 reduction in consulting expenses in 2016 compared to 2015.

General and administrative expenses and officer salaries remained flat in the three months ended June 30, 2016, compared to the three months ended June 30, 2015.

We incurred an operating loss of $98,421 during the three months ended June 30, 2016, as compared to an operating loss of $361,314 in the three months ended June 30, 2015. The $262,893, or approximately 73% decrease is mainly due to the decrease in mining activities during the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

We incurred total other expenses of $134,402 during the three months ended June 30, 2016, as compared to $317 in the three months ended June 30, 2015. The $134,085, or approximately 42,298% increase is mainly due to the recognition of $112,297 in loss on derivatives compared to no derivative loss for the comparable period. Interest expense increased to $22,105 during the three months ended June 30, 2016 as compared to $317 in the three months ended June 30, 2015.  The increase is mainly due to the issuance of convertible debentures totaling $400,000 bearing interest at 7.5% per annum and the related debt discount and issuance costs.

Net loss totaled $232,823, or $0.01 per share, in the three months ended June 30, 2016, compared to a net loss of $361,631, or $0.02 per share in the three months ended June 30, 2015.

10
For The Six Months Ended June 30, 2016 Compared to The Six Months Ended June 30, 2015

During the six months ended June 30, 2016, as a result of discontinuing exploratory mining operations, we did not recognize any revenue, compared to $115,985 in revenue from gold sales in the six months ended June 30, 2015
Exploration expenses decreased $544,829, or approximately 94%, from $581,798 in the six months ended June 30, 2015, to $36,969 in the six months ended June 30, 2016. Again, the decrease was mainly due to a decrease in contract labor attributed to mining operations.

Professional fees decreased by $14,858, or approximately 30%, mainly due to a $13,000 reduction in consulting expenses in 2016 compared to 2015.

General and administrative expenses decreased by $9,215, or approximately 12% in the six months ended June 30, 2016, mainly due to decreased travel and business operations expense due to a reduction of exploration mining activities.

We incurred an operating loss of $215,416 during the six months ended June 30, 2016, as compared to an operating loss of $668,333 in the six months ended June 30, 2015. The $452,917, or approximately 68%, decrease is mainly due to the $544,829 decrease in exploration costs, partially offset by the $115,985 decrease in revenue during the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

We incurred total other expenses of $197,828 during the six months ended June 30, 2016, as compared to $786 in the six months ended June 30, 2015. The $197,042, or approximately 25,069% increase is mainly due to the recognition of $168,103 in loss on derivatives compared to no derivative loss for the comparable period. Interest expense increased to $29,725 during the three months ended June 30, 2016 as compared to $786 in the three months ended June 30, 2015.  The increase is mainly due to the issuance of convertible debentures totaling $400,000 bearing interest at 7.5% per annum and the related debt discount and issuance costs.

Net loss totaled $413,244, or $0.02 per share, in the six months ended June 30, 2016, compared to a net loss of $669,119, or $0.03 per share, in the six months ended June 30, 2015.

Liquidity

Current assets at June 30, 2016 totaled $96,246.  As of that date, we had $72,126 in cash, $18,750 in restricted cash, $4,375 in prepaid expenses and $995 in accounts receivable, as compared to $150,068 in cash, $22,500 in restricted cash and $995 in accounts receivable at December 31, 2015.

During the six months ended June 30, 2016, our operating activities used net cash of $171,692, compared to $467,684 in the comparable 2015 period. Investing activities provided cash of $3,750 during the period ended June 30, 2016, compared to using cash of $38,055 for the purchase of fixed assets in the 2015 period.  Financing activities provided $90,000 in cash during the six months ended June 30, 2016 from the issuance of two convertible debentures compared to $0 in the comparable 2015 period.

At June 30, 2016, the Company had a working capital deficit of $700,261, as compared to $333,340 at December 31, 2015.

Focus Shift

LKA has temporarily shifted its focus from exploratory mining if favor of a more cost effective surface drilling program to locate additional high-grade ore zones on the Company's mining claims. The current surface evaluation and anticipated drilling program, to be conducted by the Company's exploration partner, Kinross Gold, USA, follows up the Company's underground drilling and 3-D mapping program, conducted in 2014-2015. LKA expects to resume mining operations when and if new high-grade ore zones are identified.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

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Item 4.  Controls and Procedures.

Evaluation of disclosure controls and procedures

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

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2016, our disclosure controls and procedures were not effective as the Company lacks appropriate segregation of duties and has an insufficient number of employees responsible for the accounting and financial reporting functions.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in internal control over financial reporting

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

PART II - OTHER INFORMATION

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. Mine Safety Disclosures.

  The Company is the owner of the Golden Wonder Mine (the "Mine") located near Lake City, Colorado.  The Mine is subject to the jurisdiction and regulation of the Mine Safety and Health Administration, ("MSHA") a division of the U.S. Department of Labor.   During operations the mine is inspected on a quarterly basis for compliance with safety regulations by MSHA.  For the quarter ended June 30, 2016, there are no mine safety disclosures to be reported pursuant to this Item 4.

Item 5. Other Information.

During the six months ended June 30, 2016, there were no material changes to the procedures by which security holders may recommend nominees to the Registrant's Board of Directors.

12
Item 6. Exhibits.

Exhibit No.                         Identification of Exhibit

3.1
Certificate of Incorporation**
   
3.2
Bylaws**
   
31.1
 
31.2
 
32
Certification of Kye Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.
 
Certification of Nanette Abraham Pursuant to Section 302 of the Sarbanes-Oxley Act.
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
XBRL Instance Document*
101.PRE.
XBRL Taxonomy Extension Presentation Linkbase*
101.LAB
XBRL Taxonomy Extension Label Linkbase*
101.DEF
XBRL Taxonomy Extension Definition Linkbase*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase*
101.SCH
XBRL Taxonomy Extension Schema*

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed "furnished" and not "filed" or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed "furnished" and not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.

**Incorporated by reference to our Annual Report on Form 10-KSB for the calendar year ended December 31, 2001, filed with the SEC on February 11, 2003.

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 GOLD INCORPORATED

Date:
August 15, 2016
 
By:
/s/Kye Abraham
       
Kye Abraham, CEO, President, Chairman of the Board and Director
         
Date:
August 15, 2016
 
By:
/s/Nanette Abraham
       
Nanette Abraham, CFO, Secretary, Treasurer and Director

 
 
13
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