UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q/A-1


(Mark One)





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





For the quarterly period ended March 31, 2011


or





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





For the transition period from _______________________ to ___________________________





Commission File Number: 333-169701





Desert Hawk Gold Corp.


(Exact name of registrant as specified in its charter)





Nevada

82-0230997(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)7723 North Morton Street, Spokane, WA

99208(Address of principal executive offices)

(Zip Code)
  (509) 434-8161(Registrant’s telephone number, including area code)





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  o





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  o. No o





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.


Large accelerated filer o
Accelerated filer oNon-accelerated filer o
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  o. No x





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 20, 2011: 7,611,411








EXPLANATORY NOTE





We have revised information in the following items of this quarterly report:





Item 1—Financial Statements.  On August 2, 2011, the Board of Directors of the Company determined that the financial statements included in the Company’s quarterly report on Form 10-Q for the period ended March 31, 2011, should no longer be relied upon as a result of errors identified by the Company in its consolidated financial statements for the three months ended March 31, 2011.  The errors relate to the method used to record the legal costs associated with the Investment Agreement with DMRJ Group. In the prior financial statements the fees of approximately $466,000 had been recorded as an expense in the period in which they were incurred.  Upon reviewing the accounting treatment for these legal fees management determined that the appropriate accounting for the fees would have been to record these costs as debt discount and amortize them over the life of the related promissory notes.  We are also recognizing revenue of $215,000 in the first quarter.  As a result of these errors total assets at March 31, 2011, were underreported by $215,000, total liabilities were underreported by $61,539, and total stockholders’ equity was over-reported by $153,461.  The Company has made changes in the financial statements to reflect the amortization of the legal fees.  We have also recognized revenue of $215,000 in the first quarter.





Item 7—Managements’ Discussion and Analysis of Financial Condition and Results of Operations.  Corresponding changes have been made in this section to reflect the amortization of the expenses over the extended period.





This Amendment No. 1 continues to speak as of the date of the original Form 10-Q for the period ended March 31, 2011, and the Company has not updated or amended the disclosures contained in the amended items to reflect events that have occurred since the filing of the original Form 10-Q, or modified or updated those disclosures in any way other than as described in the preceding paragraphs.  Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings made with the Commission subsequent to the filing of the original Form 10-Q on May 23, 2011.






2




DESERT HAWK GOLD CORP.


Form 10-Q/A-1


March 31, 2011







Table of Contents




Page




EXPLANATORY NOTE

2PART I—FINANCIAL INFORMATION

4Item 1.  Financial Statements

4Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

23PART II – OTHER INFORMATION

26Item 6.  Exhibits

26SIGNATURES

27







3










PART I—FINANCIAL INFORMATION





Item 1.  Financial Statements





DESERT HAWK GOLD CORP.(A Development Stage Company)CONSOLIDATED BALANCE SHEETS





March 31,


December 31,2011


2010Restated


Restated(unaudited)ASSETSCURRENT ASSETSCash

$
38,378


$
566,549Accounts receivable


215,021



21Deposits


500



500Prepaid expense


47,132



41,632Total Current Assets


301,031



608,702PROPERTY AND EQUIPMENT (Note 7), net of depreciation of $39,851 and $22,770


403,207



404,819MINERAL LEASE (Note 9)


777,735



777,735OTHER ASSETSReclamation bonds (Notes 5 and 9)


80,302



80,302Trademark


2,690



-Total Other Assets


82,992



80,302TOTAL ASSETS

$
1,564,965


$
1,871,558LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIESAccounts payable

$
72,189


$
74,507Accrued expenses


6,658



33,115Accrued liabilities - officer wages (Note 9)


136,259



131,259Derivative liability (Note 10)


26,396



26,396Accrued interest, convertible debt (Note 6)


7,500



-Note payable - equipment (Note 7)


9,532



15,995Accrued interest, on note payable, net of unamortized prepaid portion of $265,622 and $334,868, respectively (Note 10)


219,671



106,307Total Current Liabilities


478,205



387,579LONG-TERM DEBTConvertible debt, net of unamortized debt discount of $117,736 and $134,556 respectively (Note 6)


482,264



465,444Accrued repayment premium on note payable, net of unamortized prepaid portion of $523,616 and $557,490, respectively (Note 10)


123,442



30,745Note payable, net of unamortized debt discount of $731,225 and $876,469, respectively (Note 10)


2,018,775



1,623,531Total Long-Term Debt


2,624,481



2,119,720TOTAL LIABILITIES


3,102,686



2,507,299




4




DESERT HAWK GOLD CORP(A Development Stage Company)CONSOLIDATED BALANCE SHEETS





March 31,


December 31,2011


2010Restated


Restated(unaudited)STOCKHOLDERS' EQUITY(DEFICIT) (Note 3)Preferred Stock, $0.001 par value, 10,000,000 shares authorized 958,033 issued and outstanding, respectively


958



958Common stock,  $0.001 par value, 100,000,000 shares authorized; 7,611,411 and 7,586,411 shares issued and outstanding, respectively


7,612



7,587Additional paid-in capital


3,735,584



3,718,109Accumulated deficit prior to exploration stage


(1,016,591
)


(1,016,591
)Accumulated deficit during exploration stage


(4,265,284
)


(3,345,804
)Total Stockholders' Equity (Deficit)


(1,537,721
)


(635,741
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$
1,564,965


$
1,871,558





See accompanying notes to unaudited financial statements.








5





DESERT HAWK GOLD CORP(A Development Stage Company)CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)





Period fromMay 1, 2009Three Months


Three Months


(Inception ofEnded


Ended


Exploration Stage)March 31


March 31


to March 31,2011


2010


2011Restated





RestatedREVENUES

$
215,000


$
-


$
215,000EXPENSESConsulting


31,000



22,000



312,734Officers and directors fees


53,462



32,049



584,911Exploration expense


333,871



67,529



1,121,777Legal and professional


22,541



50,465



298,904General and administrative


284,916



85,413



1,187,112Depreciation


17,081



2,634



39,851Total Expenses


742,871



260,090



3,545,289OPERATING LOSS


(527,871
)


(260,090
)


(3,330,289
)OTHER INCOME (EXPENSE)Interest income


-



-



40,000Other income


15



3,762



16,532Gain (loss) on investment sales


-



-



2,540Financing expense


(255,945
)


(33,000
)


(571,146
)Interest expense


(135,679
)


(39,319
)


(422,921
)Total Other Income (Expense)


(391,609
)


(68,557
)


(934,995
)LOSS BEFORE INCOME TAXES


(919,480
)


(328,647
)


(4,265,284
)INCOME TAXES


-



-



-NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

$
(919,480
)

$
(328,647
)

$
(4,265,284
)BASIC AND DILUTED NET LOSS PER SHARE

$
(0.12
)

$
(0.05
)WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING


7,598,633



7,074,744





See accompanying notes to unaudited financial statements.








6








DESERT HAWK GOLD CORP(A Development Stage Company)CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)





Period fromMay 1, 2009Three Months


Three Months


(Inception ofEnded


Ended


Exploration Stage)March 31,


March 31,


to March 31,2011


2010


2011Restated





RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(919,480
)

$
(328,647
)

$
(4,265,284
)Adjustments to reconcile net loss to net cash used by operating activities:Depreciation


17,081



2,634



39,851Common stock issued for services


17,500



-



410,667Accretion of debt discounts


368,125



16,820



840,077Accrued interest income






-



(40,000
)(Gain) on sale of marketable securities


-



-



(2,540
)Changes in operating assets and liabilities:(Increase) in deposits


-



-



(500
)(Increase) decrease in accounts receivable


(215,000)



12,313



(215,021
)(Increase) in prepaid expenses


(5,500
)


(5,293
)


(47,132
)Increase (decrease) in accounts payable


(2,318
)


21,712



69,015Increase (decrease) in accrued liabilities - officer wages


5,000



(2,500
)


(35,691
)Increase (decrease) in accrued expenses


(26,457
)


(6,635
)


6,658Increase (decrease) in accrued interest


7,500



(10,500
)


7,500Net cash used by operating activities


(753,549
)


(300,096
)


(3,232,400
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets


(15,469
)


(31,367
)


(427,063
)Purchase of trademark


(2,690
)


-



(2,690
)Purchase of mineral lease


-



(250
)


(250,250
)Acquisition of reclamation bond


-



-



(37,500
)Notes receivable


-



-



27,500Proceeds from marketable securities


-



-



48,920Net cash used by investing activities


(18,159
)


(31,617
)


(641,083
)CASH FLOWS FROM FINANCING ACTIVITIES:Financing Costs Paid


-



-



(466,281)Proceeds from convertible notes payable


-



-



600,000Proceeds from notes payable


250,000



-



2,750,000Payment of note payable - equipment


(6,463
)


-



(6,463
)Proceeds from sale of common stock


-



2,590



1,008,000Proceeds from sale of preferred stock


-



-



958Net cash provided by financing activities


243,537



2,590



3,886,214NET INCREASE (DECREASE) IN CASH


(528,171
)


(329,123
)


12,731CASH, BEGINNING OF PERIOD


566,549



888,434



25,647CASH, END OF PERIOD

$
38,378


$
559,311


$
38,378








7





DESERT HAWK GOLD CORP(A Development Stage Company)CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)





Period fromMay 1, 2009(Inception ofPeriod Ended


Period Ended


Exploration Stage)March 31


March 31,


to March 31,2011


2010


2011Restated





RestatedNON-CASH FINANCING AND INVESTING ACTIVITIES:Common stock issued for mineral lease

$
-


$
-


$
525,000Common stock issued as incentive with convertible notes

$
-


$
-


$
-Common stock issued for reclamation bond

$
-


$
-


$
42,802Equipment acquired with note payable

$
-


$
-


$
10,000Debt discount on preferred stock

$
-


$
-


$
-Prepaid interest liability

$
44,118


$
-


$
485,293Repayment premium obligation

$
58,823


$
-


$
647,148





See accompanying notes to unaudited financial statements.




8





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010








NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS





Desert Hawk Gold Corp. was incorporated on November 5, 1957 in the State of Idaho as Lucky Joe Mining Company.  On July 17, 2008 the Company merged with its wholly-owned subsidiary, Lucky Joe Mining Company, a Nevada corporation, for the sole purpose of effecting a change in domicile from the State of Idaho to the State of Nevada.  Lucky Joe Mining Company (Nevada) was the continuing and surviving corporation, each outstanding share of Lucky Joe Mining Company (Idaho) was converted into one outstanding share of Lucky Joe Mining Company (Nevada). On April 3, 2009, the Company filed a Certificate of Amendment with the State of Nevada changing the name of the Company to Desert Hawk Gold Corp.





The Company was originally incorporated to pursue the Mining business through the acquisition of prospective mining claims in the Wallace and Kellogg mining districts of Northern Idaho.  The Company never successfully generated any revenue, or joint ventures from any of the activities it pursued, and abandoned the mining business as a viable business model when the commodity prices cycled downward. The Company remained dormant until it recommenced its mining activities and entered the exploration stage on May 1, 2009.  The Company is considered an exploration stage company and its financial statements are presented in a manner similar to a development stage company as defined in FASC 915-10-05, and interpreted by the Securities and Exchange Commission for mining companies in Industry Guide 7.





On December 31, 2009 the Company acquired all of the outstanding stock of Blue Fin Capital, Inc. (“Blue Fin”), a Utah corporation owning mining claims in Arizona.  The Company issued a total of 2,713,636 shares of its common stock to the shareholders of Blue Fin for all of the outstanding shares of Blue Fin.  Blue Fin was acquired from a related party, so the acquisition was recorded at the historical cost of Blue Fin.  Blue Fin became a wholly-owned subsidiary of the Company and all inter-company accounts have been eliminated.





The foregoing unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.  These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2010.  In the opinion of management, the unaudited interim financial statements furnished herein includes all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES





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





Accounting Method


The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.








9





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)





Accounting Pronouncements


In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855):Amendments to Certain Recognition and Disclosure Requirements.This Update


amends to Subtopic 855-10, Subsequent Events – Overall, to require SEC filers to evaluate subsequent events through the date that the financial statements are issued.





Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2011-04, which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.





Cash and Cash Equivalents


For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.





Concentration of Credit Risk


The Company maintains its cash in two commercial accounts at two major financial institutions. Although the financial institutions are considered creditworthy and have not experienced any losses on their deposits, at March 31, 2011 and December 31, 2010 the Company’s cash balance exceeded Federal Deposit Insurance Corporation (FDIC) limits by $0 and $316,549, respectively.





Fair Value of Financial Instruments


The Company's financial instruments as defined by FASB ASC 825-10-50, include cash, receivables, accounts payable and accrued expenses.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2011 and December 31, 2010.  FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements.  FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:





Level 1.  Observable inputs such as quoted prices in active markets;





Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and





Level 3.  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.





The Company measures its investments at fair value on a recurring basis.





Marketable Securities


The Company accounts for marketable securities as required by ASC Topic 320 Investments – Debt & Equity.  At acquisition, an entity shall classify debt securities and equity securities into one of the following three categories:





Held to Maturity – the positive intent and ability to hold to maturity. Amounts are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts.








10





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)





Marketable Securities (continued)





Trading Securities – bought principally for purpose of selling them in the near term. Amounts are reported at fair value, with unrealized gains and losses included in earnings.





Available for Sale – not classified in one of the above categories. Amounts are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately as a component of stockholders’ equity.





Mineral Exploration and Development Costs


The Company accounts for mineral exploration and development costs in accordance with ASC Topic 932 Extractive Activities.  All exploration expenditures are expensed as incurred, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on units of production basis over proven and probable reserves.





Mineral Properties and Leases


The Company accounts for mineral properties in accordance with ASC Topic 930 Extractive Activities-Mining.  Costs of acquiring mineral properties and leases are capitalized by project area upon purchase of the associated claims (see Note 5).  Mineral properties are periodically assessed for impairment of value and any diminution in value.





Revenue Recognition


Revenue is recognized when all of the following criteria are met: a) the Company has entered into a legally binding agreement with the customer; b) the products or services have been delivered; c) the Company's fee for providing the products and services is fixed and determinable; and d) collection of the Company’s fee is probable.  The Company’s policy is to record revenue net of any applicable sales, use, or excise taxes.





Earnings Per Share


Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share.  Common stock equivalents outstanding are 857,143 and 958,033 shares of common stock into which the convertible notes (Note 6) and preferred stock (Note 3), respectively, can be converted.  However, the diluted earnings per share is not presented because its effect would be anti-dilutive due to the Company’s cumulative losses.





Property and Equipment


Property and equipment are stated at cost.  Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to seven years.  See Note 7.





Provision for Taxes


Income taxes are provided based upon the liability method of accounting pursuant to ASC Topic 740-10-25 Income Taxes – Recognition.  Under the approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by ASC Topic 740-10-25-5 to allow recognition of such an asset.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.








11








Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)





Provision for Taxes (continued)





Significant components of the deferred tax assets as of March 31, 2011 and December 31, 2010 are as follows:





March 31,

2011


December 31,

2010Net operating loss carryforward

$
4,676,572


$
3,757,092Non-deductible accruals


131,259



131,259$
4,807,831


$
3,888,351Deferred tax asset


1,634,663



1,322,039Deferred tax asset valuation allowance

$
(1,634,663
)

$
(1,322,039)





At March 31, 2011, the Company has net operating loss carry forwards of approximately $4,807,831, which expire in the years 2015 through 2031. Deferred tax assets of approximately $1,634,663 were offset by the valuation allowance, which increased by  approximately $313,000 and $115,026 during the three months ended March 31, 2011 and 2010, respectively.





The Company follows the provisions of uncertain tax positions as addressed in FASC 740-10-65-1. The Company recognized no increase in the liability for unrecognized tax benefits. The Company has no tax position at March 31, 2011 or December 31, 2010 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at March 31, 2011 or December 31, 2010. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of its intended exploration stage activities.





Going Concern


As shown in the accompanying financial statements, the Company had an accumulated deficit incurred through March 31, 2011, which raises substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.





The Company will need significant funding to continue operations and increase development through the next fiscal year.  The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for expansion through affiliations and other business relationships.  Management intends to seek new capital from equity securities issuances to provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan.





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









12




Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010




NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)





Accounting for Stock Options and Warrants and Stock Awards Granted to Employees and Nonemployees.The Company accounts for stock based compensation to employees as required by ASC Topic 718 Compensation Stock Compensation of the FASB Accounting Standards Codification, and stock based compensation to nonemployees as required by ASC Topic 505-50 Equity-Based Payments to Non-Employees.  Stock awards havebeen valued at fair value using recent share issuance prices for cash, in arms length transactions ($0.70 per share). Options and warrants are valued using the Black-Scholes pricing model.  See Note 4.





NOTE 3 - CAPITAL STOCK





Common Stock


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





Common Stock (continued)


On February 15, 2011, the Company issued 25,000 shares of common stock at $0.70 per share for a total of $17,500 in services.  The shares were issued to an employee under the Company’s 2008 Stock Option/Stock Issuance Plan (Note 4) pursuant to the terms of the employee’s employment agreement with the Company.





Preferred Stock


In July 2010 the Company filed a Certificate of Designations with the State of Nevada to create 958,033 shares of Series A Preferred Stock.  The Series A Preferred Shares have voting rights with the common stock equal to the conversion value of the preferred shares into common shares.





In July 2010 the Company issued 958,033 shares of its Series A Preferred Stock to a lender and entered into a Registration Rights Agreement dated July 14, 2010, to register, either upon demand or by piggyback, the resale of the common shares issuable upon conversion of the preferred stock.  These preferred shares are convertible into shares of the Company’s common stock at the rate of one common share for each preferred share converted, subject to adjustment in the event the Company issues common shares or instruments exercisable or convertible into common shares at a price less than $0.70 per share, or if the Company effects a reverse or forward split of its outstanding shares or a reclassification of its common stock (See Note 10).





In May 2010, the Company filed a Certificate of Designations with the State of Nevada to create Series A-1 and A-2 Preferred Stock.  The Company has designated 2,500,00 shares of its authorized preferred stock as Series A-1 Preferred Stock and 1,000,000 shares as Series A-2 Preferred Stock pursuant to a Fourth Amendment to its Investment Agreement with DMRJ Group I, LLC (Notes 10 and 11).  On May 3, 2011, the Company issued 100,000 shares of Series A-2 Preferred Stock to DMRJ Group (Note 11).





NOTE 4 - STOCK PLAN





The Company’s board of directors approved the adoption of the “2008 Stock Option/Stock Issuance Plan” on July 12, 2008, pursuant to which the Company may grant incentive and non-qualified stock options or shares of common stock to employees and consultants, including directors and officers, from time to time. The Plan authorizes the issuance of 3,000,000 shares of the Company’s common stock for grants of shares or the exercise of stock options granted under the Plan.  The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until July 12, 2018, whichever is earlier.  The Plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of the Company’s assets.





The exercise price of each option is established by the plan administrator.  Additionally, the plan administrator will fix the terms of each option, but no option will be granted for a term in excess of ten years.  Stock issued under the


Plan may be granted for cash or other consideration determined by the plan administrator.  Options and stock granted under the Plan may vest immediately or upon terms established by the plan administrator.






13


Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 4 - STOCK PLAN (Continued)





There were initially 15,000,000 shares of common stock authorized for non-statutory and incentive stock option and stock grants under the Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. On April 3, 2009, the outstanding shares of common stock were reverse split at the rate of one-for-twelve, which reduced the number of shares authorized under the Plan to 1,250,000. On February 28, 2010, the Plan was amended to increase the number of shares authorized under the Plan to 3,000,000.





During the three months ended March 31, 2011, the Company granted 25,000 shares under the Plan for services rendered (Note 3). All of the shares are fully vested.




NOTE 5 – MINERAL PROPERTIES





The Company holds operating interests within the Gold Hill Mining District in Tooele County, Utah, consisting originally of 419 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and seven Utah state mineral leases located on state trust lands, all covering approximately 33 square miles. In August 2010 the Company paid the maintenance fees and other costs of maintaining the mining claims and leases held by it.  As a result of further evaluation, the Company allowed certain of the claims and leases to lapse back to Clifton Mining.  The Company has retained 334 unpatented claims, including the unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands.   All but four of these mining claims and leases were obtained under the terms of the Amended and Restated Lease Agreement effective July 24, 2009, with Clifton Mining Company and Woodman Mining Company as lessors.    Rights to the four Yellow Hammer patented claims were obtained under the terms of the Amended and Restated Lease Agreement dated July 24, 2009, with the Jeneane C. Moeller Family Trust.  The properties are located approximately 190 miles west-southwest of Salt Lake City, Utah, and 56 miles south southeast of Wendover, Utah.  The Company intends to concentrate its exploration activities on the four patented Yellow Hammer claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site.  Mineral extraction activities on the property will be open-pit and the Company does not anticipate conducting any underground mining activities.





Additionally, the Company, through its wholly-owned subsidiary, Blue Fin Capital, Inc., holds eight unpatented mining claims in Yavapai County, Arizona.  The Company has no current plans to explore these claims.





Kiewit Gold Project





In January 2010 the Company submitted a notice of intent to commence large mining operations for three surface mines and a heap leach gold operation on the Kiewit unpatented claims.  In February 2010 the Company submitted a Plan of Operation to the Bureau of Land Management and the Utah Division of Oil, Gas and Mining for exploratory drilling on the claims.





The Company, through its lease agreement with Clifton Mining, has purchased all data, core samples and related reports from Dumont associated with the aforementioned properties.  In addition, the Company has access to all data and related information available and held by Clifton Mining. Desert Hawk has made application for a Large Mining Operations Permit to construct a heap leach facility and commence exploration activities on these claims.





Cactus Mill Plan


Located on the Cactus Mill site are two process facilities, a 150 ton per day mill built by Woodman Mining and operated until the 1980’s.  The mill has equipment used to process copper, gold, silver, and tungsten ores from the district.  In addition there is a second facility constructed in the 1990’s for custom milling precious metals concentrates.  Equipment from both mills was used to construct a 240 ton per day pilot mill capable of recovering copper, gold, silver and tungsten ores initially extracted from the Yellow Hammer claims.  In September the Company completed its rebuild of the pilot mill and testing of the pilot plan was conducted in September and commencement of processing activities began in fourth quarter 2010.  Pursuant to the Company’s lease agreement with Clifton Mining, it has access to Cane Springs, a natural flowing spring approximately 1,000 feet above the Cactus Mill site, as well as the Cane Springs mine shaft located approximately one-quarter mile south of the Cactus Mill property.  The Company holds a permit from the Utah Division of Oil, Gas and Mining for the pilot plant which allows flotation and gravity concentration.  The Company has filed an application to amend its permit to operate the pilot mill to allow construction of a heap leach facility near the mill to process mineralized material from the Yellow Hammer claims.




14


Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 5 – MINERAL PROPERTIES (Continued)




The Company commenced operation of the Cactus Mill pilot plant in November 2010.





Yellow Hammer Claims





The Company completed approximately 6,000 feet of drilling on the Yellow Hammer claims in fourth quarter of 2009.  Composites were made of several key areas and re-analyzed for gold, silver, copper and tungsten.  Metallurgical work is ongoing at independent labs for evaluation.  The Company holds a Small Mine Permit from the Utah Division of Oil, Gas and Mining and has posted a reclamation bond of $37,500.  This permit stipulates that the Company may conduct exploration or mining operations on these claims so long as such activities are limited to an area within five acres.





Exploration Expenditures


Exploration expenditures incurred by the Company during the three months ended March 31, 2011 and 2010 were as follows:




March 31, 2011


March 31, 2010Assaying

$
7,384


$
5,698Drilling


31,200



-Equipment rental


113,692



13,403Geological consulting fees


53,766



37,074Maps and miscellaneous


-



2,126Metallurgy


-



-Site costs


127,829



1,500Transportation


-



7,728Total Exploration Expenditures

$
333,871


$
67,529





NOTE 6 – CONVERTIBLE NOTE PAYABLE





On November 18, 2009, the Company issued convertible promissory notes to two of its minority shareholders, for a total of $600,000.  The notes bear interest at 15% per annum.  Interest-only is payable in equal monthly installments of $7,500.  The notes were originally convertible at any time at a rate of $1.50 per share, but on July 14, 2010 the promissory notes were amended thereby reducing the conversion price to $.70 due to the note holders’ agreement to subordinate their debt to DMRJ Group (Note 10).  The notes are convertible into potentially 857,143 shares of common stock, and principal and interest are due May 31, 2012, or 30 months from the date of issuance.  Interest expense on the notes was $22,500 and $22,500 for the three months ended March 31, 2011 and 2010, respectively.  Accrued interest at March 31, 2011 and December 31, 2010 was $7,500 and $0, respectively.  The holders of the notes were issued 300,000 bonus shares at a rate of one share for each $2 loaned, resulting in a debt discount of $210,000 that is being accreted over the life of the loan.  Accretion expense was $16,820 and $16,820 for the three months ended March 31, 2011 and 2010, resulting in an unamortized debt discount balance of $117,736 and $201,833 and net debt balance of $482,264 and $465,444 at March 31, 2011 and December 31, 2010, respectively.  In the event the Company fails to repay the loan or interest thereon in full on the maturity date, the Company will be required to issue an additional 300,000 shares.




15





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010








NOTE 7 - PROPERTY AND EQUIPMENT





Property and equipment are stated at cost.  Depreciation is provided using the straight-line method over the estimated useful lives of the assets.  The useful lives of property, plant and equipment for purposes of computing depreciation are five to seven years. The following is a summary of property, equipment, and accumulated depreciation:





March 31, 2011


December 31, 2010Equipment

$
394,839


$
394,068Furniture and fixtures


24,703



10,005Vehicles


23,516



23,516Less accumulated depreciation


(39,851
)


(22,770
)$
403,207


$
404,819





Depreciation and amortization expense for the three months ended March 31, 2011 and 2010 was $17,081and $2,634, respectively.  The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired.  The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts.  Maintenance and repairs are expensed as incurred.  Replacements and betterments are capitalized.  The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations.





In August 2010, the Company acquired equipment (included above) of $15,995 via an 8-month loan requiring $2,000 monthly payments plus 15% interest and applicable taxes.  The balance owing on the loan was $9,532 and $15,995 at March 31, 2011 and December 31, 2010, respectively.  The loan was paid in full by May 2011.





NOTE 8 – MARKETABLE SECURITIES





In March 2010, the Company received 20,000 shares of restricted common stock of Boyuan Construction Company.  These shares were valued at $40,000 and had originally been recorded as a receivable at December 31, 2009 for this same value.  During the year ended December 31, 2010, the Company sold all of these shares for gross proceeds of $40,051, with selling commissions and fees of $1,186, for net proceeds to the Company of $38,865, resulting in a realized loss on the sale of $1,135.





NOTE 9 – COMMITMENTS





During the year ended December 31, 2009 the Company entered into a Joint Venture Agreement with the Moeller Family Trust for the leasing of the Trust’s Yellow Hammer property in the Gold Hill Mining District of Utah.  Pursuant to the agreement, Moeller Family Trust received 250,000 shares of the Company’s restricted common stock.  Under the terms of the Joint Venture agreement, the Company will be required to pay a 6% net smelter royalty on the production of base metals and a net smelter royalty on gold and silver based on a sliding scale of between 2% and 15% based on the price of gold and silver, as applicable.  Additionally, if the Company does not


place the Yellow Hammer property into commercial production within a three year period it will be required to make annual payments to the Trust of $50,000.  The Company is designated as the operator of the property.





Also during the year ended December 31, 2009, the Company entered into a Joint Venture Agreement with the Clifton Mining Company and the Woodman Mining Company for the leasing of their property interests in the Gold Hill Mining District of Utah. Pursuant to the agreement, Clifton received $250,000 cash from the Company and 500,000 shares of the Company’s restricted stock.  Under the terms of the Joint Venture agreement, the Company will be required to pay a 4% net smelter royalty on base metals in all other areas except for production from the Kiewit gold property and a net smelter royalty on gold and silver, except for production from the Kiewit gold property, based on a sliding scale of between 2% and 15% based on the price of gold or silver, as applicable.  The Company will also be required to pay a 6% net smelter return on any production from the Kiewit gold property.  Additionally, if the Company does not place the Kiewit, Clifton Shears/smelter tunnel deposit, and the Cane Springs deposit into commercial production within a three year period, it will be required to make annual payments to Clifton in the amount of $50,000 per location. The Company is designated as the operator of the property.




16


Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 9 – COMMITMENTS (continued)








The mineral rights acquired were valued based on the $250,000 cash and 750,000 shares of restricted common stock paid to the Moeller Family Trust and Clifton Mining Company.  At $.70 per share of stock, the total value assigned was $775,000.   The Company also acquired $250 in water rights during 2010, which with the $2,485 in Arizona mining interests owned by Blue Fin, results in total mineral and property rights of $777,735 and $777,735 at March 31, 2011 and December 31, 2010, respectively.  Management has performed impairment analyses as of March 31, 2011 and determined that the cost of the mineral rights is recoverable in the normal course of business, and no impairment is necessary.





In September 2009, the Company acquired all of the rights and interests of Clifton Mining in a $42,802 reclamation contract and cash surety deposit with the State of Utah Division of Oil, Gas and Mining for the property covered by the joint venture.  As consideration for Clifton Mining selling its interest in the reclamation contract and surety deposit, the Company issued 60,824 shares to Clifton Mining.  For a period of two years the Company has the right to repurchase the shares for $48,000, or during the 180-day period after this two year period, Clifton Mining will have the option to put the shares to the Company for $48,000.  In connection with the issuance of this put option, management concluded that the 60,824 shares should be recorded as a derivative liability, and not as equity. The Company has used the Black-Scholes pricing model to value the put option. The following assumptions were used: stock price of $0.70, strike price of $0.79, volatility of 117% (based on similar companies’ volatility), and risk free interest rate of 4.35%. This resulted in the Company recording a derivative liability of $26,396.  No derivative gain or loss was incurred during the three months ended March 31, 2011, as there was no deemed change in value of the Company’s underlying common stock.





The amended and restated agreements with Clifton Mining Company and Woodman Mining Company and with the Moeller Family Trust are effective as of the date of the original agreements and the term of the restated agreements is for 20 years from the date of the original agreements.  The restated agreements also permit the Company to mortgage or pledge the leasehold interests acquired under the agreements for the purpose of financing exploration, development, and mining operations on the properties.  The leasing parties also agreed to be responsible for any liability arising under certain potential encumbrances to the mining claims and to indemnify the Company and its affiliates against the loss of leasehold title or other actual losses or expenses from the potential encumbrances.  All other material terms of the original agreements are preserved in the restated agreements.





In September 2010, the Company entered into employment agreements with its Chief Executive Officer and its President and entered into a consulting agreement with one of its directors.  Each agreement is for an initial term of four years and provides for a base salary or fees of $120,000 per year.  The Company owes the CEO $136,259 and $131,259 at March 31, 2011 and December 31, 2010, respectively, to satisfy wages due under the provisions of the September 2010 agreement and prior similar agreements.





NOTE 10 – DMRJ GROUP FUNDING





On July 14, 2010, the Company entered into an Investment Agreement with DMRJ Group I, LLC, a Delaware limited liability company.   According to the terms of the agreement, DMRJ Group has committed to loan the Company up to $6,500,000 pursuant to certain terms and conditions as evidenced by a promissory note, under which advances made to the Company are due not later than July 14, 2012.  These loan advances can only be used by the Company to pay transaction fees and expenses incurred in connection with the loan transaction, to purchase certain mining equipment, and as working capital to advance our Yellow Hammer and Kiewit mining activities.  The maximum amounts allocable to the Yellow Hammer and Kiewit projects are $2,500,000 and $2,750,000, respectively, and are subject to meeting certain milestones on the projects.   Advances for operations on the Kiewit project are conditioned upon the Company’s ability to obtain and maintain all environmental and mining permits necessary to commence mining activities and the timely payment of the initial Yellow Hammer advances for the month of February 2011, which the Company was unable to pay.  The Company has requested and received loan advances from DMRJ Group for total principal due of $2,750,000 and $2,500,000 at March 31, 2011 and December 31, 2010, respectively.




17




Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 10 – DMRJ GROUP FUNDING (continued)




In connection with this agreement, the Company issued 958,033 shares of its Series A Preferred Stock at $.001 par value for $958 cash (Note 3).  The Company has also recorded a discount to the loan proceeds in the amount of $669,644, which was valued based on the stock price of $.70 less the cash received for the preferred stock.  At March 31, 2011 and December 31, 2010, $356,989 and $502,233, respectively, remained as a discount which is accreted to interest expense over the life of the loans, resulting in net principal due of $2,018,775 and $1,623,531, respectively.  Accretion expense on the discount was $83,705 for the three months ended March 31, 2011.





Legal costs in the amount of $466,281 associated with this agreement have been recorded as a discount and have been amortized over the life of the related notes.  Accretion expense on the discount was $61,539 for the three months ended March 31, 2011.





Each principal advance amount bears interest of 15% per annum from the date of borrowing.  The Company is required to prepay interest on any advance that would accrue during the first year following the advance, or a shorter period if the advance is less than one year prior to the maturity date of the promissory note.  This prepayment of interest is nonrefundable even if the Company prepays the advance.  As of March 31, 2011 and December 31, 2010, a total of $485,293 and $441,175, respectively, in prepaid interest payable had been accrued, which has been netted with a corresponding prepaid portion from which interest through March 31, 2011 of $219,671 has been deducted and accreted to expense.  Accretion for the three months ended March 31, 2011 totaled $113,364.  The unamortized prepaid interest at March 31, 2011 and December 31, 2010 was $265,622 and $334,868, respectively.  Following this one-year period, interest on the advance is payable monthly until the advance is repaid in full.





In addition, at the time the Company repays or prepays the advance, it is required to pay an additional amount equal to 20% of the principal and interest amount being repaid or prepaid.  The accrued repayment premium at March 31, 2011 and December 31, 2010 was $647,058 and $588,235, respectively, and has been netted against the corresponding prepaid portion from which the repayment premium is being amortized over the shorter of the life of the loan or the repayment date, regardless of the amount of debt being repaid.  During the period from each loan issuance through March 31, 2011, the Company accreted $123,442 in repayment premium to interest expense, resulting in an unamortized repayment premium accrual of $523,616 and $557,490 at March 31, 2011 and December 31, 2010, respectively.  Accretion for the three months ended March 31, 2011 totaled $92,697.  Upon an event of default, the interest rate on the outstanding principal amount increases to 25%.





Loan advances made for the Yellow Hammer and Kiewit projects are subject to mandatory prepayments by the Company.  Yellow Hammer advances were originally to be repaid, together with prepayment interest and any outstanding monthly interest, commencing on or before the fifth business day of the month beginning February 2011 and each month thereafter through September 2011.  Kiewit advances were to be repaid, together with prepayment interest and any outstanding monthly interest, beginning month seven after the initial advance on this project through month twelve.  However, the repayment dates have been deferred due to waivers, forbearances, and amendments to the initial Investment Agreement as stated in the following paragraphs.




18





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 10 – DMRJ GROUP FUNDING (continued)





Pursuant to a Security Agreement dated July 14, 2010, the Company has secured repayment of any advances made by DMRJ Group with all of its assets, including its shares of Blue Fin Capital, Inc., the Company’s wholly-owned subsidiary, which shares have been pledged as collateral for the advances pursuant to a Pledge Agreement dated July 14, 2010.  As the secured party, DMRJ Group is appointed as attorney in fact to foreclose on and deal with the Company’s assets in the event of default.





In connection with the loan transaction, two of the Company’s prior lenders, each of whom had loaned $300,000 to the Company on November 18, 2009, agreed to subordinate their debt to DMRJ Group.  In consideration for their agreement to subordinate their loans, the Company reduced the conversion price of the loans from $1.50 to $0.70 per share.  All other material terms of the loans remain unchanged.  On July 14, 2010, the Company issued amended and restated promissory notes to the lenders reflecting the reduced conversion price and acknowledging the subordination to the DMRJ Group financing (see Note 6).





On February 25, 2011, the Company entered into a Second Amendment to Investment Agreement with DMRJ Group I, LLC which amended the Investment Agreement, dated as of July 14, 2010, as amended by that certain Amendment and Waiver dated as of November 8, 2010.  This advance was made without satisfying the provisions requiring the Company to meet certain milestones in connection with its Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  The advance is not deemed to be a Kiewit Advance, which means that it was not subject to the mandatory prepayment requirements under the Investment Agreement.





On March 6, 2011, the Company entered into a Forbearance Agreement with DMRJ Group pursuant to which DMRJ Group agreed to forbear until April 6, 2011, from exercising its rights and remedies with respect to an event of default by virtue of the Company’s failure to make a mandatory prepayment as required under the Investment Agreement.  The Company failed to make the mandatory prepayment to DMRJ Group on March 7, 2011, as required in the Investment Agreement.  Pursuant to the Forbearance Agreement if the Company cures this prepayment default on or prior to April 6, 2011; no default interest will be due with respect to the period between the date of the prepayment default and April 6, 2011.





On March 11, 2011, the Company entered into a Third Amendment to Investment Agreement with DMRJ Group.  This amendment allows the Company to make a further request for a term loan advance under the Investment Agreement of up to $500,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.   The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.





The Company failed to make its mandatory prepayment of $1,011,616 to DMRJ Group on April 7, 2011, as required pursuant to Section 2.05(b)(i) of the Investment Agreement with DMRJ Group, and thus entered into a Fourth Amendment (Note 11).





The total balance payable to DMRJ on loans received as of March 31, 2011 and December 31, 2010 are summarized as follows:





March 31, 2011


December 31, 2010Principal

$
2,750,000


$
2,500,00020% accrued repayment obligation


647,058



588,23515% accrued prepaid interest obligation


485,293



441,175Total DMRJ obligation

$
3,882,351


$
3,529,410





19





Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 11 – RESTATEMENTS





On August 2, 2011, the management of Desert Hawk Gold Corp. concluded that financing costs of $466,281 associated with the DMRJ agreement were expensed in the period they were incurred.  We believe that appropriate accounting would have been to record these costs as debt discount and amortize them over the life of the loan.





Also, on August 2, 2011, the management of Desert Hawk Gold Corp. concluded that revenues for concentrates sold were included in the period received rather than the period sold.  We believe that the appropriate accounting for this transaction would have been to recognize the revenue in the period shipped rather than when the payment was received.





Accordingly, the accompanying consolidated balance sheet and the statement of operations for the period have been retroactively adjusted as summarized below.





Effect of Correction of Financing Expense and Recognition of RevenueFor the Period Ending March 31, 201103/31/11As Previously


12/31/10


03/31/11


03/31/11Reported


Adjustment


Adjustment


As RestatedASSETSAccounts Receivable

$
21


$
-


$
215,000


$
215,021Total Assets


1,349,965



-



215,000


$
1,564,965LIABILITIESNote Payable DMRJ


2,331,472



(374,236
)


61,539


$
2,018,775Total Liabilities


3,415,383



(374,236
)


61,539


$
3,102,686RETAINED EARNINGS/EQUITYAccumulated Deficit during ExplorationStage


(4,792,981
)


374,236



153,461


$
(4,265,284
)Total Stockholders’ Equity


(2,065,418
)


374,236



153,461


$
(1,537,721
)Total Liabilities/Stockholders’ Equity

$
1,349,965










$
1,564,965INCOMETotal Revenue

$
-



-



215,000



215,000




20


Desert Hawk Gold Corp.


(An Exploration Stage Company)


Notes to Unaudited Consolidated Financial Statements


For the Three Months Ended March 31, 2011 and 2010





NOTE 12 - SUBSEQUENT EVENTS





On March 1, 2011, the Company entered into a contract with Asarco, LLC to process approximately 200 tons of copper concentrates with silver and gold by-product. These concentrates are processed at the Cactus Mill pilot plant. Pursuant to this contract, the Company has delivered 193 tons of concentrate by the end of June 2011 and billed  $834,408 in accordance with the revenue contract.  Both parties conduct assays to determine the value of the concentrates.  If there is a dispute, the assays undergo further analysis by an independent umpire who determines the settlement value of the concentrates.  At June 30, 2011 all of the concentrates under this contract had been delivered to the smelter and had been billed based on estimated assay results.  All proceeds are expected to be received within 90 days. The Company owes royalties to the Moeller Family Trust on revenues earned from concentrate sales pursuant to terms of a Joint Venture Agreement (Note 7).  The Company estimates approximately $77,000 in royalties will be paid in connection with this concentrate sales contract.





In addition to the above contract, the Company has generated $50,172 in tungsten sales.  Concentrates are being produced at the Cactus Mill and future sales are anticipated but are not definable at this time.  Royalties in the amount of 6% are also due on tungsten sales.





Mining severance tax will be due to the State of Utah in connection with the mineral sales, and is calculated based upon receipt of the proceeds.  At June 30, 2011 mining severance tax is accrued in the amount of $3,081.  Future receipts based on the above proceeds will generate an additional accrual of approximately $3,400 in severance tax.


In April 2011, the Company received proceeds of $204,154 pursuant to a provisional billing on a revenue contract with Asarco, LLC, as detailed above.  Both parties conducted assays to determine the value of the concentrates.  The assays are under further analysis by an independent umpire who will determine the settlement value of the concentrates.  The proceeds will be recorded as revenues until the umpire reaches a decision, which is anticipated to occur in June 2011, at which point revenue will be adjusted to actual.  The Company owes royalties to the Moeller Family Trust on revenues earned from concentrate sales pursuant to terms of a Joint Venture Agreement (Note 9).  The Company estimates approximately $21,000 in royalties will be paid in connection with this concentrate sales transaction.


On April 21, 2011, the Company entered into a Fourth Amendment to Investment Agreement with DMRJ Group(Note 10).  This amendment allows the Company to make a further request for a term loan advance under the


Investment Agreement of up to $625,000 without satisfying the provisions requiring the Company to meet certain milestones in connection with the Kiewit properties and permitting the Company to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.   The advance is not deemed to be a Kiewit Advance, which means that it is not subject to the mandatory prepayment requirements under the Investment Agreement.  The Amendment also eliminates the requirement of Section 2.05(b)(i) of the Investment Agreement to require the Company to make mandatory prepayments for the Yellow Hammer advances.





On May 3, 2011, the Company filed a Certificate of Designations with the Nevada Secretary of State for the creation of its Series A-1 and A-2 Preferred Stock.  The Company has designated 2,500,00 shares of its authorized preferred stock as Series A-1 Preferred Stock and 1,000,000 shares as Series A-2 Preferred Stock.  The Series A-1 and A-2 shares have the following rights and preferences:





·
The holders of the Series A-1 and A-2 shares have no preference as to any dividends declared by the Company.·
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a change of control transaction or the sale or lease of all or substantially all of its assets without the majority consent of the holders of the Series A-1 and A-2 shares, the holders of the Series A shares will be entitled to receive ratably an amount of the funds available for liquidation equal to the issue price of the Series A shares plus any accrued and unpaid dividends.  Any remaining funds available for distribution will be distributed pro rata among the holders of the common stock and the Series A, A-1 and A-2.·
The holders of the Series A-1 and A-2 shares are entitled to the number of votes equal to the numberof whole shares of common stock into which the Series A-1 or A-2 shares are convertible.  TheSeries A-1 and A-2 shares vote together with the holders of the common stock, except as provided by law. In addition, the Company is prohibited from taking the following actions without  the separate consent of persons owning a majority of the Series A-1 and A-2 preferred shares:


o
Amending the Articles of Incorporation or Bylaws of the Company or its subsidiary;   21
  o
Entering into another business;


o
Adopting a new equity compensation plan or amending the current plan;o
Redeeming, retiring or acquiring the Company’s own securities;


o
Entering into any merger transaction, selling, licensing or transferring any of the Company’s assets, or pledging or granting a security interest in its assets;





o
Entering into any agreement or arrangement for the purchase of capital stock or a substantial portion of the assets of another entity or any type of joint venture or strategic alliance;o
Declaring or paying any dividends on the Company’s equity securities;


o
Issuing any debt or equity securities, except in certain limited circumstances;o
Entering into any insider transactions, except for transactions in the normal course of business, the payment of customary salaries or other standard employee benefit programs available to all employees;


o
Creating any subsidiaries;o
Dissolving, liquidating, or reorganizing the Company;


o
Creating any new indebtedness in excess of $500,000 other than trade payables and the indebtedness created under the DMRJ Group Investment Agreement;o
Fix or change the number of directors set in any resolution of the Board;


o
Making any loans or advances to any person other than ordinary business expenses not to exceed in the aggregate $15,000;o
Granting any registration, preemptive, anti-dilution, or redemption or repurchase rights with respect to any securities; ando
Borrowing against, pledging, assigning, modifying, cancelling or surrendering any key man insurance policy maintained by or for the Company.
  ·
The holders of record of the Series A-1 and Series A-2 shares, voting together as a single class, have the right to elect two directors of the Board, to remove any such directors elected by them and to fill any vacancy caused by the death, resignation or removal of such directors.





·
The Series A shares are convertible into shares of the Company’s common stock at any time.  The conversion price of the Series A-1 preferred stock is $0.70 per share and the conversion price of the Series A-2 shares is $1.00, subject to the following limitations and conditions:
 o
If the Company issues or sell shares of its common stock, or grant options or other convertible securities which are exercisable or convertible into common shares, at prices less than the conversion price of Series A-1 or A-2 shares, except in certain exempted situations, then the conversion price of the Series A-1 and A-2 shares will be reduced to this lower sale or conversion price.


o
The Series A-1 and A-2 shares may not be converted into common shares if the beneficial owner of such shares would thereafter exceed 4.9% of the outstanding common shares.
 ·
The Company has the right to create and issue additional classes or series of preferred shares so long as the new class or series does not have preferences, limitations, or relative rights which are superior or senior to the preferences, limitations and relative rights granted the holders of the Series A-1 or A-2 shares.


·
The holders of the Series A-1 and A-2 shares have preemptive rights to purchase shares of common stock in any offering by the Company.·
There are no redemption or sinking fund provisions applicable to the Series A-1 or A-2 shares.





On May 3, 2011, the Company issued 100,000 shares of Series A-2 Preferred Stock to DMRJ Group under the terms of the Fourth Amendment to our Investment Agreement.   No underwriting discounts or commissions were paid in connection with the preferred stock transaction.





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The Company has evaluated subsequent events from the balance sheet date, March 31, 2011, through the date these financial statements were issued and has determined that there are no additional events that would require disclosure in these financial statements.





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





The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.





Forward-looking statements





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





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


·
environmental hazards;


·
metallurgical and other processing problems;


·
unusual or unexpected geological formations;


·
global economic and political conditions;


·
disruptions in credit and financial markets;


·
global productive capacity;


·
changes in product costing; and


·
competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, flooding, landslides, power outages, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities).





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





Overview





We are a mineral exploration company with proposed projects located in the Gold Hill Mining District in Tooele County, Utah.  We are currently focused on extracting mineralized material from the Yellow Hammer claims for processing at the Cactus Mill pilot plant, and completing the permitting process for our Kiewit claims and construction of a heap leach facility near these claims.  We are also in the process of seeking an amendment to our current mill site permit to allow us to construct and operate a heap leach facility near the pilot mill.  Concentrates from our mill site are processed at a smelter in Hayden, Arizona to extract any copper, gold, and silver from the mineralized material.





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We were originally incorporated in the State of Idaho on November 5, 1957.  For several years the Company bought and sold mining leases and claims, but in 1995 we ceased all principal business operations.  In 2008 we changed the domicile of the Company from the State of Idaho to the State of Nevada.  In May 2009 we raised funds to recommence mining activities.  In July 2009 we entered into agreements to commence exploration activities on mining claims in the Gold Hill Mining District located in Tooele County, Utah.  We hold leasehold interests within the Gold Hill Mining District consisting of 334 unpatented mining claims, including an unpatented mill site claim, 42 patented claims, and five Utah state mineral leases located on state trust lands, all covering approximately 33 square miles.  From these claims we have centered our activities on the Yellow Hammer project located on four of the patented claims, the Kiewit project consisting of seven of the unpatented Kiewit claims, and the Cactus Mill project consisting of an unpatented mill site.  We have no current exploration plans for the remaining claims.  We also hold eight unpatented lode mining claims in Yavapai County, Arizona, on which we have no current plans to conduct exploration.  We do not have any proven or probable reserves on any of our mineral claims or mining leases.





We have entered into an agreement with DMRJ Group, LLC through which we can borrow up to $6,500,000 for our mining operations and our general and administrative expenses.  Historically, we have incurred net losses for the years ended December 31, 2010 and 2009, and have also incurred losses for the three months ended March 31, 2011.  If we are unable to generate sufficient cash flow from the extraction and processing of mineralized material from our claims, we will not be able to meet our obligations to repay the loan advances to DMRJ Group and will likely lose our interest in all of our assets and mining claims.





First Quarter Highlights





During the first quarter of 2011 we shipped concentrate from our mill to the smelter in Hayden, Arizona pursuant to a contract with a customer for up to 200 tons of mineral concentrates.  The assays are currently being evaluated by an independent umpire who will determine the concentrates’ value.  This valuation will be completed in June 2011.  We estimate revenues approximating $$215,000 from this first shipment.  We are obligated to pay royalties to the Moeller Family Trust approximating $21,000 as a result of these anticipated revenues.




On January 26, 2011, our registration statement on Form S-1 (SEC File No. 333-169701) was declared effective by the U.S. Securities and Exchange Commission and on February 10, 2011, we filed a registration statement on Form S-8 with the U.S. Securities and Exchange Commission (SEC File No. 333-172156) to register 2,413,333 shares issuable under our 2008 Stock Option/Stock Issuance Plan.




On February 25, 2011, we entered into a Second Amendment to our Investment Agreement with DMRJ Group which amended the Investment Agreement dated as of July 14, 2010, as amended by that certain Amendment and Waiver dated as of November 8, 2010.  On March 1, 2011, DMRJ Group made a loan advance of $125,000 to us, plus prepaid interest of $22,059 which was paid to DMRJ Group.  This advance was made without satisfying the provisions requiring us to meet certain milestones in connection with our Kiewit properties and permitting us to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.




On March 6, 2011, we entered into a Forbearance Agreement with DMRJ Group pursuant to which DMRJ Group agreed to forbear until April 6, 2011, from exercising its rights and remedies with respect to an event of default by virtue of our failure to make a mandatory prepayment as required under the Investment Agreement.  We failed to make the mandatory prepayment to DMRJ Group on March 7, 2011, as required in the Investment Agreement.





On March 11, 2011, we entered into a Third Amendment to our Investment Agreement with DMRJ Group.  This amendment allowed the Company to make a further request for a term loan advance under the Investment Agreement of up to $500,000 without satisfying the provisions requiring us to meet certain milestones in connection with the Kiewit properties and again permitting us to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  On March 11, 2011, we received a $125,000 term loan advance from DMRJ Group, plus prepaid interest of $22,059 which was paid to DMRJ Group.





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Subsequent to the quarter ended March 31, 2011, we failed to make our mandatory prepayment of $1,011,616 to DMRJ Group due on April 7, 2011, as required pursuant to Section 2.05(b)(i) of the Investment Agreement with DMRJ Group.  We have renegotiated our agreement with DMRJ Group and on May 3, 2011, we entered into a Fourth Amendment to the Investment Agreement which restructures the repayment schedule of the prior loan advances to us.  The Fourth Amendment allows us to make a further request for a term loan advance under the Investment Agreement of up to $735,295, including $110,295 of prepaid interest, and any remaining amounts previously permitted under the Third Amendment, without satisfying the provisions requiring us to meet certain milestones in connection with our Kiewit properties and permitting us to use the funds for working capital and ordinary course general corporate purposes not inconsistent with or prohibited by the Investment Agreement.  Under the terms of the Fourth Amendment, repayment of this and all prior advances are now due in three payments due on June 30, 2012, September 30, 2012, and December 31, 2012.  And in the event we complete an equity financing with net proceeds of more than $3,000,000, DMRJ Group will have the option to require us to pay 25% of the proceeds over this amount to satisfy our indebtedness to it.  We also created a Series A-1 and a Series A-2 Preferred Stock which is convertible into our common stock, and we issued 100,000 shares of the Series A-2 Preferred Stock to DMRJ Group for entering into the Fourth Amendment.





Results of Operations for the Three Months Ended March 31, 2011 and 2010





During the three month period ended March 31, 2011, the Company had a net loss of $919,480 compared to a net loss of $328,647 during the three month period ended March 31, 2010.  This represents an increased net loss of $590,833 during the three month period ended March 31, 2011. The increase in net loss is attributable an increase in exploration expense and general and administrative expense, and an increase in interest and financing expense related to the Investment agreement with DMRJ.





Total operating expenses increased to $742,871 during the three month period ended March 31, 2011 from $260,090 for the comparable period ended March 31, 2010.  The increase is primarily attributable to increased exploration expense and general and administrative expense over the respective three month period ended March 31, 2010.





Liquidity and Cash Flow





Net cash used by operating activities was $753,549 during the three month period ended March 31, 2011 compared with $300,096 during the three month period ended March 31, 2010.  The increase in the amount of cash used by operating activities is primarily attributable to the increase in accretion of debt discount related to the DMRJ Investment Agreement during the three months ended March 31, 2011.





Net cash used by investing activities was $18,159 during the three month period ended March 31, 2011 compared to $31,617 during the three month period ended March 31, 2010. The decrease is attributable to a reduction in the purchase of fixed assets during the three month period ended March 31, 2011.





Net cash provided by financing activities was $243,537 during the three month period ended March 31, 2011 compared with $2,590 during the three month period ended March 31, 2010. The increase is a result of additional borrowings from DMRJ during the three months ended March 31, 2011.





As a result, cash decreased by $528,171 during the three month period ended March 31, 2011. The Company had cash of $38,378 as of March 31, 2011.





Critical Accounting Policies





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





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Mineral Exploration and Development Costs





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





Mineral Properties





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








PART II – OTHER INFORMATION





Item 6.  Exhibits





SEC Ref. No.

Title of Document31.1

Rule 15d-14(a) Certification by Principal Executive Officer and Principal Financial Officer32.1

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer





Signature Page Follows






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SIGNATURES





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




Desert Hawk Gold Corp.Date:  August 9, 2011
By:
/s/ Robert E. JorgensenRobert E. Jorgensen, Chief Executive Officer

(Principal Executive and Financial Officer)




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