Idaho Strategic Resources Inc

Idaho Strategic Resources, Inc.

1. Description of Business

Idaho Strategic was incorporated as an Idaho corporation on July 18, 1996. The Company’s primary business is exploring for, developing, and extracting gold, and to a lesser extent, silver, and base metal mineral resources in the Greater Coeur d’Alene Mining District of North Idaho. From an operational perspective, the Company produces gold at the Golden Chest located in the Murray Gold Belt area of the world-class Coeur d’Alene Mining District, north of the prolific Silver Valley. With over 7,000 acres of patented and unpatented land, the Company has the largest private land position in the area following its consolidation of the Murray Gold Belt for the first time in over 100-years.

In addition to gold and gold production, the Company maintains an important strategic presence in the U.S. Critical Minerals sector, specifically focused on the more “at-risk” REE’s. Its business strategy is to grow its asset base and mineral production over time while advancing its REE projects. The Company’s Diamond Creek and Mineral Hill REE properties are included the U.S. national REE inventory as listed in USGS, IGS and DOE publications. Both projects are in central Idaho and participating in the USGS Earth MRI program, with the Diamond Creek Project also participating in the Idaho Department of Commerce’s IGEM program.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill JV (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of NJMJV partially owned by another investor is presented as non-controlling interest on the consolidated balance sheets, statements of operations, and statement of changes in stockholders’ equity.

Accounting for Investments in JVs and Equity Method Investments

Investment in JVs

For JVs where the Company holds more than 50% of the voting interest and has significant influence, the JV is consolidated with the presentation of non-controlling interest. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and its representation on the venture’s management committee.

For JVs in which the Company does not have joint control or significant influence, the cost method is used. For those JVs in which there is joint control between the parties, the equity method is utilized whereby the Company’s share of the ventures’ earnings and losses is included in the statement of operations as earnings in JVs and its investments therein are adjusted by a similar amount. The Company periodically assesses its investments in JVs for impairment. If management determines that a decline in fair value is other than temporary it will write-down the investment and charge the impairment against operations.

Equity Method Investments

Investments in companies and JVs in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and representation on governing bodies. Under the equity method of accounting, our share of the net earnings or losses of the investee are included in net income (loss) in the consolidated statements of operations. Upon investment, the Company assesses whether a step up in basis of the investee’s net assets has occurred and, if so, adjust our share of net earnings or losses by related depreciation and amortization expense. We evaluate equity method investments whenever events or changes in circumstance indicate the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. As changes in ownership percentage of our investments occur, the Company assesses whether we can exercise significant influence and account for under the equity method. If our ownership percentage of the company or venture in which we have an investment changes, we recognize a gain or loss on the investment in the period of change. At December 31, 2023, the Company’s 37% common stock holding of Buckskin Gold and Silver, Inc. (“Buckskin”) is accounted for using the equity method (Note 9).

At December 31, 2023 and 2022, the Company’s percentage ownership and method of accounting for each JV and equity method investment is as follows:

Non-controlling Interest

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interests represent non-controlling investor’s initial contribution at the date of the original acquisition, ongoing contributions, and percentage share of earnings since inception.

Use of Estimates** **

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for items such as mineral reserves, depreciation lives and methods, potential impairment of long-lived assets and equity method investments, deferred income taxes, settlement pricing of gold sales, fair value of stock based compensation, estimation of asset retirement obligations and reclamation liabilities. Estimates are based on historical experience and various other assumptions that the Company believes to be reasonable. Actual results could differ from those estimates.

Revenue Recognition

*Gold Revenue Recognition and Receivables-*Sales of gold sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. The embedded derivative contained in our concentrate sales is adjusted to fair value through earnings each period prior to final settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of our concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. For sales of doré and metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner.

Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. Costs charged by customers include fixed costs per ton of concentrate and price escalators. Refining, selling, and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. See Note 13 for more information on our sales of products.

*Other Revenue Recognition-*Revenue from harvest of raw timber is recognized when the performance obligation under a contract and transfer of control have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations.

Inventories

Inventories include concentrate inventory and supplies inventory. Concentrate inventory is valued at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, royalties, and milling costs including applicable overhead, depreciation, depletion, and amortization relating to the operations. Costs are allocated based on the stage at which the ore is in the production process. Supplies inventory is stated at the lower of first-in, first-out weighted average cost or estimated net realizable value.

Income Taxes

Income taxes are recognized in accordance with Accounting Standards Codification 740 Income Taxes, whereby deferred income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.

Uncertain tax positions are evaluated in a two-step process, whereby (i) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, thelargest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority would be recognized.

Fair Value Measurements

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. At December 31, 2023 and 2022, the Company did not have any assets or liabilities that were valued at a fair value measurement other than its gold sales receivable. Due to the time elapsed from shipment to the customer and the final settlement with the customer, management must estimate the prices at which sales of gold concentrates will be settled. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. See Note 13 for further information.

Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, reclamation bond, equity method investments, notes payable to related parties, and notes payable approximate their fair values.

Net Income (Loss) Per Share

Net income (loss) per share is computed by dividing net income (loss) attributable to the Company excluding net income (loss) attributable to a non-controlling interest by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. For the years ended December 31, 2023, and 2022, Such common stock equivalents are included or excluded from the calculation of diluted net income (loss) per share for each period as follows:

Cash and Cash Equivalents

The Company considers cash in banks and other deposits with an original maturity of three months or less when purchased to be cash and cash equivalents. These deposit balances may at times exceed federally insured limits. No losses have been recognized because of these balances.

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation and amortization are based on the estimated useful lives of the assets and are computed using straight-line or units-of-production methods. The expected useful lives of most of the Company’sbuildings are up to 50 years and equipment life expectancy ranges between 2 and 10 years. When assets are retired or sold, the costs and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in operations.

Mineral Properties

Significant payments related to the acquisition of mineral properties, mineral rights, and mineral leases are capitalized. If a commercially mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on estimated reserves. If no commercially mineable ore body is discovered, or such rights are otherwise determined to have no value, such costs are expensed in the period in which it is determined the property has no future economic value.

Consideration received by the Company pursuant to joint ventures or mineral interest agreements is applied against the carrying value of the related mineral interest. When and if payments received exceed the carrying value, the excess amount is recognized as a gain in the consolidated statement of operations in the period the consideration is received.

Interest Capitalization

When capital projects are funded within the reporting period for which cash is paid which could have been used for debt reduction an amount equal to a weighted average interest rate of qualifying outstanding debt of the capital project expenditure in interest expense is capitalized.

Mine Exploration and Development Costs

The Company expenses exploration costs as such in the period they occur. The mine development stage begins once the Company identifies ore reserves which is based on a determination whether an ore body can be economically developed. Expenditures incurred during the development stage are capitalized as deferred development costs and include such costs for drifts, ramps, and infrastructure. Costs to improve, alter, or rehabilitate primary development assets which appreciably extend the life, increase capacity, or improve the efficiency or safety of such assets are also capitalized. The development stage ends when the production stage of ore reserves begins. Amortization of deferred development costs is calculated using the units-of-production method over the expected life of the operation based on the estimated recoverable resources.

Claim Fees

Unpatented claim fees paid at time of staking are expensed when incurred. Recurring renewal fees which are paid annually are recorded as other current assets and expensed over the course of the year.

Impairment of Long-Lived Assets

The Company evaluates the carrying amounts of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If such events and circumstances exist, estimated undiscounted future net cash flows from each mineral property are calculated using estimated future production, three-year average metals prices, operating capital and costs, and reclamations costs. If the carrying value exceeds the undiscounted future net cash flows, estimated discounted future net cash flow is calculated. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the use of an asset are less than the carrying amount of the specific asset group. The Company’s estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mineral properties.

Asset Retirement Obligations and Remediation Costs

Mineral properties are subject to standards for mine reclamation that have been established by various governmental agencies. Asset retirement obligations are related to the retirement of the mine when a contractual obligation has been established and a reasonable estimate of fair value can be determined. These obligations are initially measured at fair value with the resulting cost recognized at the present value of estimated reclamation costs. The liability is accreted, and the asset amortized over the life of the related asset. Adjustments are made for changes resulting from either the timing or amount of the original estimate underlying the obligation. Separate from asset retirement obligations, the Company records liability for remediation costs when a reasonable estimate of fair value can be determined. Accrued remediation costs are not discounted.

Reclamation Bonds

Various laws and permits require that financial assurances be in place for certain environmental and reclamation obligations and other potential liabilities. In 2022 the Company added additional bonds of $132,000 associated with milling operations, and an additional $91,700 in bonds for various exploration and drilling projects resulting in a balance of $327,020 at December 31, 2022. In 2023, the Company deposited $2,890 in additional bonds for trenching activities at Lemhi Pass, and a partial refund of $78,600 occurred after reclaiming the drill pads from drilling the Diamond Creek project in 2022. The remaining amount on this bond is expected to be refunded after revegetation is established. The balance of reclamation bonds at December 31, 2023 is $251,310.

Stock Based Compensation

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

Investments in Equity Securities

Investments in equity securities are generally measured at fair value. Unrealized gains and losses for equity securities resulting from changes in fair value are recognized in current earnings. If an equity security does not have a readily determinable fair value, we may elect to measure the security at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer. At the end of each reporting period, we reassess whether an equity investment security without a readily determinable fair value qualifies to be measured at cost less impairment, consider whether impairment indicators exist to evaluate if an equity investment security is impaired and, if so, record an impairment loss. At the end of each reporting period, unrealized gains and losses resulting from changes in fair value are recognized in current earnings. Upon sale of an equity security, the realized gain or loss is recognized in current earnings.

Going Concern

The Company is currently profitable and producing from underground at the Golden Chest. This has resulted in a positive cash flow from operations and an increase in working capital. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and debt. As a result of its planned production, equity sales and potential debt borrowings or restructurings, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

Recent Accounting Pronouncements

Accounting Standards Updates Adopted

In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which clarifies the business combination accounting for joint venture formations. The amendments in the ASU seek to reduce diversity in practice that has resulted from a lack of authoritative guidance regarding the accounting for the formation of joint ventures in separate financial statements. The amendments also seek to clarify the initial measurement of joint venture net assets, including businesses contributed to a joint venture. The guidance is applicable to all entities involved in the formation of a joint venture. The amendments are effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption and retrospective application of the amendments are permitted. We do not expect adoption of the new guidance to have a material impact on our consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, amending reportable segment disclosure requirements to include disclosure of incremental segment information on an annual and interim basis. Among the disclosure enhancements are new disclosures regarding significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit or loss, as well as other segment items bridging segment revenue to each reported measure of segment profit or loss. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and are applied retrospectively. Early adoption is permitted. We are currently evaluating the impact of this update on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 and are applied prospectively. Early adoption and retrospective application of the amendments are permitted. We are currently evaluating the impact of this update on our consolidated financial statements and disclosures.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

3. Inventories

At December 31, 2023 and 2022, inventories consisted of the following:

4. Property, Plant and Equipment

Property, plant and equipment at December 31, 2023 and 2022 consisted of the following:

5**. Mineral Properties**

Mineral properties at December 31, 2023 and 2022 are as follows:

For the years ended December 31, 2023 and 2022, $102,727 and $48,281, respectively, interest expense was capitalized in Golden Chest mineral property in association with core drilling and the ramp. In February 2024 purchased the surface rights to the Butte Gulch property, see note 15.

Golden Chest

The Golden Chest is an underground mine project currently producing for the Company located near Murray, Idaho consisting of 86 patented and 217 unpatented mining claims. A 2% NSR is payable on production at certain portions of the Golden Chest to a former joint venture partner. Royalty expense of $272,535 and $181,300 was recognized as costs of sales and other direct production costs in the years ended December 31, 2023, and 2022, respectively.

New Jersey

The Coleman property is located at the New Jersey Mine area of interest and consists of 62 acres of patented mining claims, mineral rights to 108 acres of fee land, 80 acres of land for which the Company owns the surface but not the mineral rights, and approximately 130 acres of unpatented mining claims.

McKinley-Monarch

The McKinley-Monarch project is located near the town of Lucille, Idaho. The project consists of 28 unpatented claims totaling 560 acres. The Company started exploring the property in 2013.

Butte Gulch

In 2018, the Company purchased the Butte Gulch property near the Golden Chest. This property consists of 177 acres of patented mining claims, some of which include both the surface and mineral rights, and some of which include only the mineral rights. There is an underlying 2% NSR on all ores mined and shipped from any lode production from the patented claims on the Butte property.

Potosi

In 2018, the Company purchased the Potosi property near the Golden Chest. This property consists of 71 acres of patented mining claims.

Park Copper/Gold

In August 2021, the Company paid $78,000 in cash for 100 acres of patented mineral property in Shoshone County referred to as Park Copper/Gold.

6. Notes Payable

At December 31, 2023 and 2022, notes payable are as follows:

6. Notes Payable, continued

All notes except the SBA EIDL loan are collateralized by the property or equipment purchased in connection with each note. Future principal payments of notes payable at December 31, 2023 are as follows:

7. Asset Retirement Obligations

*The Company has established asset retirement obligations associated with the ultimate closing of its mineral properties where there has been or currently is operations. Obligations were established for the New Jersey Mill in 2014 and the Golden Chest in 2016.*Activity for the years ended December 31, 2023 and 2022 is as follows:

The change in the asset retirement obligations estimate during the year ended December 31, 2022 related to the addition of an asset retirement obligation with our New Jersey Mill tailings expansion and a revision to the estimated start of the reclamation process to a later date at our Golden Chest property. The change in the asset retirement obligation estimate during the year ended December 31, 2023 related to revised a revision to the estimated start of the reclamation process and an updated reclamation cost estimate.

8. Joint Venture Arrangements

NJMJV Agreement

In January 2011, the Company and Crescent (formerly United Mine Services, Inc.) entered into a JV agreement relating to the New Jersey Mill. To earn a 35 percent interest in the JV, Crescent provided $3.2 million in funding to expand the processing plant to 15 tonnes/hr. The Company is the operator of the JV and charges operating costs to Crescent for milling its ore up to 7,000 tonnes/month, retain a milling capacity of 3,000 tonnes/month, and as the operator of the JV, receive a fee of $2.50/tonne milled. No ore has been milled for Crescent since 2013. As of December 31, 2023 and 2022, an account receivable existed with the NJMJV from Crescent for $2,080 and $1,926, respectively.

Butte Highlands JV

On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) for a total consideration of $435,000. Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the JV. Under the operating agreement, Highland will fund all future project exploration and mine development costs. The Agreement stipulates that Highland is manager of the JV and will manage BHJV until such time as all mine development costs, less $2 million are distributed to Highland out of the proceeds from future mine production. The Company has determined that because it does not currently have significant influence over the JV’s activities and accounts, it will continue to account for its investment on a cost basis.

9. Investment in Buckskin

In August 2021, the Company exchanged 45,940 shares of the Company’s common stock for 22% of Buckskin. The Company’s closing share price on the date of the agreement (August 18, 2021) was recorded as the cost basis for the investment. In October 2021 the Company exchanged an additional 30,358 shares of the Company’s common stock for an additional 15% of Buckskin. The Company’s closing share price on the date of the exchange (October 15, 2021) was recorded as the cost basis for the investment addition. This investment in Buckskin is being accounted for using the equity method and resulted in recognition of equity income on the investment of $4,517 and $1,524 during the years ended December 31, 2023 and 2022, respectively. The Company makes an annual payment of $12,000 to Buckskin per a lease covering 218 acres of patented mining claims. As of December 31, 2023 and 2022, the Company held 37% of Buckskin’s outstanding shares.

10. Income Taxes

The Company did not recognize a provision (benefit) for income taxes for the years ended December 31, 2023 and 2022.

The significant components of net deferred tax assets at December 31, 2023 and 2022 were as follows:

At December 31, 2023 and 2022, the Company had net deferred tax assets principally arising from the net operating loss carryforward for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to 100% of the net deferred tax asset exists at December 31, 2023 and 2022.

At December 31, 2023, the Company had net operating loss carry forwards of approximately $20,348,000 for both federal and state purposes, $10,670,000 of which expire between 2023 through 2037. The remaining balance of $9,678,000 will never expire but its utilization is limited to 80% of taxable income in any future year.

The income tax provision (benefit) for the years ended December 31, 2023 and 2022 differ from the statutory rate of 21% as follows:

The Company is open to examination of our income tax filings in the United States and state jurisdictions for the 2021 through 2023 tax years. Tax attributes from years prior to that can be adjusted as a result of examinations. In the event that the Company is assessed penalties and or interest, penalties will be charged to other operating expense and interest will be charged to interest expense. The Company has reviewed its tax positions and believes it has not taken a position that would not be sustained under examination.

11. Equity

The Company has authorized 200,000,000 shares of no-par common stock at December 31, 2023 and 2022. In addition, the Company has authorized 1,000,000 shares of no-par preferred stock, none of which had been issued at December 31, 2023 or 2022.

S****tock Purchase Warrants Outstanding

Transactions in common stock purchase warrants for the years ended December 31, 2023 and 2022 are as follows:

These warrants expire as follows:

On October 12, 2023, IDR amended and restated warrants issued in private placements completed in October and November of 2021. The amended and restated warrants extended the exercise period of the warrants for an additional one year.

Stock Options

In April 2014, the Board of Directors of the Company established the 2014 Equity Incentive Compensation Plan to authorize the granting of stock options to officers and employees. Upon exercise of the options, shares are issued from the available authorized shares of the Company. Options reserved to any one related person on an annual basis may not, upon exercise, exceed 5% and the aggregate number of all options outstanding will not exceed 10% of the issued outstanding common shares in total as calculated at that time.

In May 2023, the 2023 Equity Incentive Compensation Plan was voted on, and approved, by the shareholders of the Company. This plan allows for the issuance of up to 1,225,600 shares of the Company’s common stock in the form of stock options (which may be incentive stock options or nonqualified stock options) or other stock-based awards, such as stock appreciation rights, restricted stock, restricted stock units and performance shares.

There were no stock options granted under either plan in 2023.

In September 2022, the board granted 165,000 stock options to officers, board members and employees. These options vested immediately and are exercisable at $5.25 for 3 years. Total stock-based compensation recognized on these options was $505,476 and was recognized in management ($64,333), professional services ($27,571), and general and administrative ($413,572) expenses in the consolidated statement of operations. In September 2022, the board granted an additional 15,000 stock options, 7,500 each to our independent board members. These options vested immediately and are exercisable at $4.75 for 3 years. Total stock-based compensation recognized on these options was $41,799 and was recognized in management expenses in the consolidated statement of operations.

The fair value of stock option awards granted, and the key assumptions used in the Black-Scholes valuation model to calculate the fair value of the options are as follows:

11. Equity, continued

Transactions in stock options for the years ended December 31, 2023 and 2022 are as follows:

At December 31, 2023 and 2022, the outstanding stock options have an intrinsic value of approximately $410,638 ($123,045 in 2022) and have a weighted average remaining term of 0.82 years (1.82 in 2022). No cashless options were exercised in the year ended December 31, 2023, however, cashless options exercised in the year ended December 31, 2022 had an intrinsic value of $677,928.

12. Related Party Transactions

At December 31, 2022 a note payable at 6% interest was held by Ophir Holdings, LLC (“Ophir”), a company owned by two officers and one former officer of the Company. The note had monthly payments of $3,777 and a balloon payment of the remaining principal due in February 2024.

At December 31, 2022, the balance due on the note to Ophir was $75,183 with $12,226 of related party debt payable in 2023 and the remaining $62,957 payable in 2024. Related party interest expense for the year ended December 31, 2022 was $3,901. No interest was accrued at the end of 2022.

On May 10, 2023 the Company paid the remaining amount due on the note payable to Ophir of $57,397.

The Company leases office locations from certain related parties on a month-to-month basis (not long term). These related parties are NP Depot, a company owned by John Swallow, the Company’s president, and Mine Systems Design, a company partially owned by Grant Brackebusch, one of the Company’s vice presidents. Payments under these month-to-month lease arrangements totaled $25,175 and $24,868 for the years ended December 31, 2023 and 2022, respectively, and are included in general and administrative expenses on the consolidated statement of operations.

13. Sales of Products

Our products consist of both gold flotation concentrates which in 2023 and 2022 we sold to a broker, H&H Metals Corp., and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and the transaction price can be determined or reasonably estimated.

For gold flotation concentrate sales, the performance obligation is met when the transaction price can be reasonably estimated, and revenue is recognized generally at the time when risk is transferred to H&H Metals based on contractual terms. Based on contractual terms, the Company has determined the performance obligation is met and title is transferred to H&H Metals when the Company receives its first provisional payment on the concentrate because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the concentrate lot and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to H&H Metals, and H&H Metals has the significant risks and rewards of ownership to it, 4) it is very unlikely a concentrate will be rejected by H&H Metals upon physical receipt, and 5) we have the right to payment for the concentrate. Concentrates lots that have been sold are held at our mill up to 60 days, until H&H Metals provides shipping instructions.

Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement. However, we can reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes. The embedded derivative contained in our concentrate sales is adjusted to fair value through earnings each period prior to final settlement. It is unlikely a significant reversal of revenue for any one concentrate lot will occur. As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known. At December 31, 2023, metals that had been sold but not final settled included 5,176 ounces of gold of which 3,320 ounces were sold at a predetermined price with the remaining 1,856 ounces exposed to future price changes. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable.

Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment and other charges negotiated by us with H&H Metals, which represent components of the transaction price. Charges are estimated by us upon transfer of risk of the concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by the customer include fixed treatment, refining and costs per ton of concentrate and may include penalty charges for lead and zinc content above a negotiated baseline as well as excessive moisture.

For sales of doré and of metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.

Sales of products by metal for the years ended December 31, 2023 and 2022 were as follows:

Sales by significant product type for the years ended December 31, 2023 and 2022 were as follows:

In 2023, flotation concentrates sold to H&H Metals accounted for 99% of all gold sales. The remaining 1% in 2023 was doré sold to a third party. In 2022, flotation concentrates sold to H&H Metals accounted for 97% of all gold sales. The remaining 3% in 2022 was doré sold to a third party. At December 31, 2023 and 2022, our gold sales receivable balance related to contracts with customers of $1,038,867 and $909,997, respectively, consist only of amounts due from H&H Metals. There is no allowance for doubtful accounts. We have determined our contracts do not include a significant financing component. For doré sales, payment is received at the time the performance obligation is satisfied. Consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels at the time the performance obligation is satisfied.** **

14. Convertible Debt

On December 31, 2021 $1,950,000 of convertible notes were outstanding. These notes were converted to 392,866 shares of the Company’s common stock in 2022. Interest expense recognized in 2022 on those notes prior to conversion was $38,521.

There was no convertible debt activity during the year ended December 31, 2023.

15. Subsequent Events

In February 2024 the Company purchased the surface rights and subsequently cancelled the NSR from the previous agreement with the seller for a 169-acre parcel known as Butte Gulch adjacent to the Golden Chest. The Company had already owned the mineral rights to this property. The sale price was $1,001,000 of which $351,000 was paid in cash and the remaining $650,000 is payable to the seller (monthly interest only payments of $2,750 at 5% interest, for three years with a balloon payment of $650,000 at the end of the term).

In the first quarter of 2024,147,026 shares of the Company’s common stock were issued in exchange for outstanding warrants at an exercise price of $5.60 for net proceeds of $823,346.

In the first quarter of 2024,127,152 shares of the Company’s common stock were issued at an average price of $6.87 per share for net proceeds of $847,493.