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 March 31, 2017

[  ] 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:  May 19, 2017  – 19,221,970 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.





2
LKA GOLD INCORPORATED
Consolidated Balance Sheets
(Unaudited)

ASSETS

   
March 31, 2017
   
December 31, 2016
 
CURRENT ASSETS
           
     Cash
 
$
148,533
   
$
-
 
     Restricted cash
   
30,000
     
1,101
 
     Prepaid expenses
   
8,333
     
625
 
          Total Current Assets
   
186,866
     
1,726
 
 
FIXED ASSETS
               
     Land, equipment, mining claims and asset retirement liabilities
   
849,140
     
849,140
 
     Accumulated deprecation
   
(383,779
)
   
(381,621
)
          Total Fixed Assets, Net of Accumulated Depreciation
   
465,361
     
467,519
 
 
OTHER NON-CURRENT ASSETS
               
     Reclamation bonds
   
100,042
     
100,042
 
                 
          TOTAL ASSETS
 
$
752,269
   
$
569,287
 
                 
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3
LKA GOLD INCORPORATED
Consolidated Balance Sheets (Continued)
(Unaudited)


LIABILITIES AND STOCKHOLDERS' DEFICIT

    March 31, 2017       December 31, 2016  
 
CURRENT LIABILITIES
         
     Accounts payable
 
$
92,934
   
$
80,668
 
     Accounts payable – related party
   
21,606
     
40,095
 
     Note Payable – related party
   
6,600
     
5,500
 
     Wastewater discharge liability
   
150,000
     
75,000
 
     Derivative liability
   
1,250,276
     
659,622
 
     Note payable
   
10,000
     
10,000
 
     Accrued interest payable
   
15,726
     
7,404
 
     Accrued wages and advances payable to officer
   
50,757
     
163,257
 
          Total Current Liabilities
   
1,597,899
     
1,041,546
 
 
LONG-TERM LIABILITIES
               
Convertible notes payable – related party, net of $594,029 and $247,710
in debt issuance costs and debt discount, respectively
   
5,971
     
2,290
 
Convertible note payable, net of $144,968 and $145,949 in debt issuance
costs and debt discount, respectively
   
5,032
     
4,051
 
     Asset retirement obligation
   
122,950
     
122,950
 
Total Liabilities
   
1,731,852
     
1,170,837
 
 
STOCKHOLDERS' 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,
      19,221,970 and 19,165,152 shares issued and 19,178,346 and 19,121,528
       shares outstanding, respectively
   
19,222
     
19,165
 
      Additional paid-in capital
   
17,999,621
     
17,963,315
 
      Treasury stock; 43,624 and 43,624 shares at cost, respectively
   
(86,692
)
   
(86,692
)
     Accumulated deficit
   
(18,911,734
)
   
(18,497,338
)
            Total Stockholders' Deficit
   
(979,583
)
   
(601,550
)
                 
            TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
752,269
   
$
569,287
 

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

   
For the Three Months Ended
March 31,
 
   
2017
   
2016
 
             
REVENUES
 
$
-
   
$
-
 
                 
OPERATING EXPENSES
               
Exploration and related costs
   
76,157
     
25,826
 
General and administrative
   
33,506
     
29,691
 
Officer salaries
   
37,500
     
37,500
 
Professional and consulting
   
25,173
     
23,978
 
     Total Operating Expenses
   
172,336
     
116,995
 
                 
OPERATING LOSS
   
(172,336
)
   
(116,995
)
                 
OTHER INCOME (EXPENSES)
               
Other income
   
12,205
     
-
 
Derivative loss
   
(240,654
)
   
(55,806
)
Interest expense, net
   
(13,611
)
   
(7,620
)
Total Other Income (Expenses)
   
(242,060
)
   
(63,426
)
                 
NET LOSS
 
$
(414,396
)
 
$
(180,421
)
 
BASIC NET LOSS PER SHARE
 
$
(0.02
)
 
$
(0.01
)
 
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   
19,194,824
     
19,121,528
 

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
LKA GOLD INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)


   
For the Three Months Ended
March 31,
 
   
2017
   
2016
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(414,396
)
 
$
(180,421
)
Items to reconcile net loss to net cash used by operating activities:
               
   Accretion of asset retirement obligation
   
-
     
1,297
 
   Depreciation and amortization
   
2,158
     
6,763
 
   Amortization of debt issuance costs
   
1,232
     
1,163
 
   Amortization of debt discount
   
3,430
     
261
 
   Loss on derivative
   
240,654
     
55,806
 
   Common stock issued for expenses
   
10,863
     
-
 
Changes in operating assets and liabilities
               
   (Increase) decrease in prepaid expenses and other assets
   
(7,708
)
   
17,305
 
   Increase in wastewater discharge liabilities
   
75,000
     
-
 
   Increase (decrease) in accounts payable and accrued expenses
   
20,588
     
(12,619
)
   Increase in accounts payable – related party
   
7,011
     
12,372
 
   Increase in accrued wages
   
37,500
     
12,500
 
      Net Cash Used in Operating Activities
   
(23,668
)
   
(85,573
)
                 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
      Change in restricted cash
   
(28,899
)
   
11,250
 
         Net Cash Provided by (Used in) Investing Activities
   
(28,899
)
   
11,250
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
                 
      Proceeds from convertible notes payable
   
200,000
     
-
 
      Proceeds from notes payable, related party
   
1,100
     
-
 
         Net Cash Provided by Financing Activities
   
201,100
     
-
 
                 
INCREASE (DECREASE) IN CASH
   
148,533
     
(74,323
)
                 
CASH AT BEGINNING OF PERIOD
   
-
     
150,068
 
                 
CASH AT END OF PERIOD
 
$
148,533
   
$
75,745
 
                 
CASH PAID FOR:
               
   Interest
 
$
300
   
$
11,549
 
   Income taxes
 
$
-
   
$
-
 
                 
NON-CASH TRANSACTIONS
               
     Discount on convertible notes payable
   
350,000
     
-
 
     Convertible debt issued for accrued wages
   
150,000
     
-
 
     Common stock issued for debt and expense
   
25,500
     
-
 

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
LKA GOLD INCORPORATED
Notes to the Unaudited Consolidated Financial Statements
March 31, 2017

NOTE 1 -       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying unaudited 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 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 three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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. During the three months ended March 31, 2017, Abraham & Co., Inc. agreed to exchange $25,500 in outstanding accounts payable for 56,818 shares of LKA common stock valued at the market price on the grant date and recognized $25,500 in accounts payable extinguishment and $10,863 in expense related to market discount. LKA owed Abraham & Co. $10,500 and $31,500 as of March 31, 2017 and December 31, 2016, respectively.

Related Party Debt – Notes, Accounts and Wages Payable

At March 31, 2017 and December 31, 2016, LKA owes $6,600 and $5,500, respectively, for short-term operating capital notes payable to LKA's President, Kye Abraham.  

At March 31, 2017 and December 31, 2016, LKA owes $11,106 and $8,595, respectively, for purchases made on the personal credit card of LKA's President, Kye Abraham.  

During the three months ended March 31, 2017, Kye Abraham agreed to convert $150,000 in accrued unpaid salary into a convertible debenture. At March 31, 2017 and December 31, 2016, LKA owed Kye Abraham $50,757 and $163,257 in unpaid salary, 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. Interest accrues at 7.5% per annum and interest is due on a semi-annual basis. The Convertible Debentures are convertible at any time into shares of LKA common stock at $0.50 per share.

7
On March 15, 2017, LKA issued a convertible debenture in the amount of $150,000 to members of the Koski family, the Company's largest shareholders. Principal on the Convertible Debenture is due March 15, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual 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 $11,250 as restricted cash at March 31, 2017.

On March 17, 2017, LKA issued a convertible debenture in the amount of $150,000 to its President and Chairman, Kye Abraham in exchange for $150,000 in accrued and unpaid wages. Principal on the Convertible Debenture is due March 17, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual 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 $11,250 as restricted cash at March 31, 2017.

On March 31, 2017, LKA issued a convertible debenture in the amount of $50,000 to an entity controlled by by LKA's President and Chairman, Kye Abraham. Principal on the Convertible Debenture is due March 31, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual basis and LKA is required to retain a reserve amount of the proceeds to pay the first two semi-annual interest payments, which, if the Convertible Debentures are converted within one year, will be paid to the Convertible Debenture holders. As such, LKA has designated $3,750 as restricted cash at March 31, 2017.

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) on the date of issuance and during the three months ended March 31, 2017, LKA recognized debt discounts totaling $350,000. During the three months ended March 31, 2017 and 2016, LKA recognized $2,654 and $261 of interest expense from the amortization of the debt discounts, respectively.

LKA incurred $12,500 in debt issuance costs on the convertible debenture issuances in September 2015. The debt issuance costs are being amortized over the three year term of the convertible debenture. During the three months ended March 31, 2017 and 2016, LKA recognized $1,026 and $970 of interest expense from the amortization of debt issuance costs, respectively.

NOTE 3 -       CONVERTIBLE DEBENTURES

During October 2015, LKA issued a 7.5% Convertible Debenture for $50,000 in cash. The Convertible Debenture accrues interest at 7.5% per annum due in semi-annual payments, is unsecured, due in three years from the date of issuance and is convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share.

During April 2016, LKA issued two $50,000 Convertible Debentures for $100,000 in cash.  The Convertible Debentures accrue interest at 7.5% per annum due in semi-annual payments, are unsecured, due in three years from the dates of issuance and are convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments, the first of which were paid in 2016.  As such, LKA has designated $3,750 as restricted cash at March 31, 2017.

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 ASC 815 and LKA recognized a debt discount of $149,369 on all the above mentioned Convertible Debentures. During the three months ended March 31, 2017 and 2016, LKA recognized $776 and $43 of interest expense from the amortization of the debt discount.

8
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 three months ended March 31, 2017 and 2016, LKA recognized $206 and $164 of interest expense from the amortization of debt issuance costs.

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 for Convertible Debentures issued during the three months ended March 31, 2017 was determined to be $512,046 as of the issuance date using a Black-Scholes option-pricing model.   Upon the date of issuance of the Convertible Notes, $350,000 was recorded as debt discount and $162,046 was recorded as day one loss on derivative liability.  During the three months ended March 31, 2017 , $78,608 of loss was recorded on mark-to-market of the conversion options, respectively.

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

Balance, December 31, 2016
 
$
659,622
 
Day one loss due to convertible debt
   
162,046
 
Debt discount
   
350,000
 
Loss on change in fair value
   
78,608
 
Balance, March 31, 2017
 
$
1,250,276
 

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model.  Assumptions used during the three months ended March 31, 2017 include (1) risk-free interest rates of 1.93%, (2) lives of between 1.52 and 4.06 years, (3) expected volatility between 218% - 264%, (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 -      NOTIFICATION OF POSSIBLE ENVIRONMENTAL REMEDIATION

In 2002 the Federal Bureau of Land Management (the "BLM") advised LKA of its desire to extend to the Ute-Ulay Property certain environmental clean-up ("remediation") activities that it is conducting on neighboring properties that LKA does not own.  The BLM commissioned and obtained three engineering evaluation and cost analysis ("EE/CA") studies/reports on the Ute-Ulay and the neighboring public lands in 2002-2006.  These EE/CA studies analyzed the current environmental state of the Ute-Ulay property and other properties in the area.  The studies identified a large volume of mine tailings and metals loading of shallow ground water, with elevated levels of arsenic, cadmium and lead being present.  The BLM's most recent study, "Value Engineering Study on the Ute Ulay Mine/Mill Site – Final Report" dated January 5, 2006, projected the costs of remediation and property stabilization on the Ute-Ulay property to be approximately $2.1 million.  Based upon  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 March 31, 2017. 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.

9
NOTE 6 -       WASTEWATER DISCHARGE LIABILITY

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

NOTE 7 -       MINE EXPLORATION AND OPTION AGREEMENT

On July 9, 2015, LKA entered into an Exploration Agreement & Option (Agreement) with Kinross Gold U.S.A., Inc. for the purpose of expanding its Golden Wonder Mine exploration beyond LKA's active workings. The Agreement, amongst its other provisions, grants Kinross a five-year exclusive right to explore, and if successful, develop any mineral resource(s) containing 50,000 or more ounces of gold on LKA's properties above and adjacent to the Golden Wonder Mine. If such a resource, or multiple resources, is discovered, LKA will have the option to enter into a joint venture with Kinross for the purpose of developing such resource(s) by reimbursing 40.25% of Kinross' exploration expenses in return for a 35% interest in the joint venture. If a joint venture is formed, LKA's contribution will also include all of LKA's Golden Wonder properties.

During the five-year exploration period, Kinross will, but is not obligated to, conduct exploration, at its own expense, while LKA will retain the exclusive right to continue exploration and development of any resources within a "Carve-Out Area" which is LKA's current area of operation.

NOTE 8 -       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,   has a working capital deficit and has negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern.  Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the LKA's ability to continue as a going concern are as follows:

LKA is currently engaged in an exploration program at the Golden Wonder mine with the objective of returning the mine to a commercial producing status. The exploration program, which began in November 2008, has involved extensive sampling/assaying for the purpose of identifying possible new production zones within the mine. During this evaluation period, sampling and analysis of exposed veins yielded encouraging results and some precious metals revenues. While encouraging, no conclusion can be drawn at this time about the commercial viability of the mine and LKA continues to evaluate potential merger, joint venture or lease agreements for the property.

In order to support continued operation of the mine, LKA completed a $200,000 capital funding raise in March 2017 (see Note 2).  If LKA is not successful in the resumption of mine operations which produce positive cash flows from operations, LKA may be forced to continue to raise additional equity or debt financing to fund its ongoing obligations or risk ceasing doing business.  

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



10
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 March 31, 2017 Compared to The Three Months Ended March 31, 2016

LKA had no revenues during the three months ended March 31, 2017 and 2016.

Exploration expenses increased $50,331, or approximately 195%, from $25,826 in the three months ended March 31, 2016, to $76,157 in the three months ended March 31, 2017. Exploration expenses increased mainly due to the accrual of an additional $75,000 in estimated wastewater permit liabilities, partially offset by a decrease of $24,669 in other exploration expenses due to the cessation of mine operating activities during the third quarter of 2015 and the related winding down of activities into the first quarter of 2016 .

Professional fees remained fairly steady, increasing by $1,195 during the three months ended March 31, 2017, compared to the three months ended March 31, 2016, or approximately 5%.

General and administrative expenses remained fairly steady, increased by $3,815, or approximately 13% in the three months ended March 31, 2017, compared to the three months ended March 31, 2016.

We incurred an operating loss of $172,336 during the three months ended March 31, 2017, as compared to an operating loss of $116,995 in the three months ended March 31, 2016. The $55,341, or approximately 47% increase, is mainly due to the increase in exploration activities during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

We incurred total other expenses of $242,060 during the three months ended March 31, 2017, as compared to $63,426 in the three months ended March 31, 2016. The $178,634, or approximately 282% increase is mainly due to the recognition of $240,654 in loss on derivatives compared to a $55,806 derivative loss for the comparable period. LKA also recognized $12, 205 in gains from the sale of mining claims during the three months ended March 31, 2017. We had no such gains in the comparable 2016 period. Interest expense increased to $13,611 during the three months ended March 31, 2017, as compared to $7,620 in the three months ended March 31, 2016.  The increase is mainly due to the issuance of three convertible debentures totaling $350,000 bearing interest at 7.5% per annum during the three months ended March 31, 2017.

Net loss totaled $414,396, or $0.02 per share, in the three months ended March 31, 2017, compared to a net loss of $180,421, or $0.01 per share in the three months ended March 31, 2016.

11
Liquidity

Current assets at March 31, 2017 totaled $186,866.  As of that date, we had $148,533 in cash, $30,000 in restricted cash and $8,333 in prepaid expenses, as compared to $1,101 in restricted cash and $625 in prepaid expenses at December 31, 2016.

During the three months ended March 31, 2017, our operating activities used net cash of $23,668, compared to $85,573 in the comparable 2016 period.  During the three months ended March 31, 2017, investing activities used cash of $28,899, compared to providing cash of $11,250 during the period ended March 31, 2016.  Financing activities provided cash of 201,100 from the issuance of related party debt, there were no cash flows from financing activities during the three months ended March 31, 2016.

At March 31, 2017, the Company had a working capital deficit of $1,411,033, as compared to $1,039,820 at December 31, 2016.

Focus Shift

During the third quarter of 2015, LKA shifted its focus from exploratory mining to prepare for another surface and/or underground drilling program. The new program will be designed to locate new high-grade structures near or within the Carve-Out Area defined by the exploration agreement between LKA and Kinross. Until additional high-grade targets are located, LKA has suspended exploratory mining operations. Accordingly, cash flow from gold sales is not expected until exploratory mining is resumed.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

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 March 31, 2017, 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.

12
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.

On March 15, 2017, LKA issued a convertible debenture in the amount of $150,000 to members of the Koski family, the Company's largest shareholders. Principal on the Convertible Debenture is due March 15, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual 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.

On March 17, 2017, LKA issued a convertible debenture in the amount of $150,000 to its President and Chairman, Kye Abraham in exchange for $150,000 in accrued and unpaid wages. Principal on the Convertible Debenture is due March 17, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual 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.

On March 31, 2017, LKA issued a convertible debenture in the amount of $50,000 to an entity controlled by LKA's President and Chairman, Kye Abraham. Principal on the Convertible Debenture is due March 31, 2021. The Convertible Debenture accrues interest at 7.5% and is convertible at any time into shares of LKA common stock at $0.50 per share. Interest is due on a semi-annual 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.

On February 16, 2017, Abraham & Co., Inc. an affiliated company controlled by our President and Chairman, Kye Abraham, agreed to exchange $25,500 in outstanding accounts payable for 56,818 shares of LKA common stock.

Item 3. Defaults Upon Senior Securities.

None; not applicable

Item 4. Mine Safety Disclosures.

None, not applicable.

Item 5. Other Information.

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

13
Item 6. Exhibits.

Exhibit No.                         Identification of Exhibit

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.

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:
May 22, 2017
 
By:
/s/Kye Abraham
       
Kye Abraham, President, Chairman of the Board and Director
         
Date:
May 22, 2017
 
By:
/s/Nanette Abraham
       
Nanette Abraham, Secretary, Treasurer and Director

 
14
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