Idaho Strategic Resources, Inc. 10-Q

ITEM 1: Financial Statements Idaho Strategic Resources, Inc Condensed Consolidated Balance Sheets (Unaudited) September 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 2,255,688 $ 1,976,518 Gold sales receivable 428,755 408,187 Inventories 607,922 213,722 Joint venture receivable 1,682 4,442 Other current assets 255,875 334,443 Total current assets 3,549,922 2,937,312 Property, plant and equipment, net of accumulated depreciation 9,722,205 8,255,961 Mineral properties, net of accumulated amortization 6,354,304 5,843,186 Investment in Buckskin 333,941 332,728 Investment in joint venture 435,000 435,000 Reclamation bond 326,120 103,320 Deposits 76,110 11,694 Total assets $ 20,797,602 $ 17,919,201 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 812,704 $ 647,218 Accrued payroll and related payroll expenses 199,237 174,110 Notes payable related parties, current portion 11,799 10,543 Notes payable, current portion 897,509 664,153 Small Business Administration loan, current portion 2,465 2,469 Total current liabilities 1,923,714 1,498,493 Asset retirement obligation 258,378 172,348 Notes payable related parties, long term 73,896 106,068 Convertible debt - 1,950,000 Notes payable, long term 1,288,126 961,748 Small Business Administration loan, long term 160,850 166,742 Total long-term liabilities 1,781,250 3,356,906 Total liabilities 3,704,964 4,855,399 Commitments (Note 11) - - Stockholders’ equity: Preferred stock, no par value, 1,000,000 shares authorized; no shares issued or outstanding - - Common stock, no par value, 200,000,000 shares authorized; September 30, 2022- 12,098,070 and December 31, 2021- 10,940,969 shares issued and outstanding 33,245,622 26,004,756 Accumulated deficit ( 19,001,574 ) ( 15,832,955 ) Total Idaho Strategic Resources, Inc stockholders’ equity 14,244,048 10,171,801 Non-controlling interest 2,848,590 2,892,001 Total stockholders’ equity 17,092,638 13,063,802 Total liabilities and stockholders’ equity $ 20,797,602 $ 17,919,201 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents Idaho Strategic Resources, Inc Condensed Consolidated Statements of Operations (Unaudited) For the Three and Nine-Month Periods Ended September 30, 2022 and 2021 September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months Revenue: Sales of products $ 1,745,278 $ 6,148,187 $ 2,098,849 $ 5,865,708 Total revenue 1,745,278 6,148,187 2,098,849 5,865,708 Costs of Sales: Cost of sales and other direct production costs 1,728,214 5,345,409 1,603,785 4,701,626 Depreciation and amortization 245,824 717,939 217,054 595,227 Total costs of sales 1,974,038 6,063,348 1,820,839 5,296,853 Gross profit (loss) ( 228,760 ) 84,839 278,010 568,855 Other operating expenses: Exploration 747,217 1,530,122 267,644 1,193,520 Management 158,625 266,998 56,272 312,663 Professional services 85,429 301,446 39,974 206,056 General and administrative 603,274 1,078,563 101,430 751,272 Loss on disposal of equipment 64,739 68,641 - - Total other operating expenses 1,659,284 3,245,770 465,320 2,463,511 Operating loss ( 1,888,044 ) ( 3,160,931 ) ( 187,310 ) ( 1,894,656 ) Other (income) expense: Equity income on investment in Buckskin ( 542 ) ( 1,213 ) - - Timber revenue net of costs - - - ( 4,338 ) Gain on forgiveness of SBA loan - ( 10,000 ) - - Interest income ( 322 ) ( 878 ) ( 7 ) ( 131 ) Interest expense 22,244 85,902 50,368 150,656 Total other (income) expense 21,380 73,811 50,361 146,187 Net loss ( 1,909,424 ) ( 3,234,742 ) ( 237,671 ) ( 2,040,843 ) Net loss attributable to non-controlling interest ( 15,005 ) ( 66,123 ) ( 18,326 ) ( 65,823 ) Net loss attributable to Idaho Strategic Resources, Inc $ ( 1,894,419 ) $ ( 3,168,619 ) $ ( 219,345 ) $ ( 1,975,020 ) Net loss per common share-basic and diluted $ ( 0.16 ) $ ( 0.27 ) $ ( 0.02 ) $ ( 0.20 ) Weighted average common shares outstanding-basic and diluted 12,032,901 11,677,167 10,228,203 9,998,560 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents Idaho Strategic Resources, Inc Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) For the Nine-Month Periods Ended September 30, 2022 and 2021 Common Stock Shares Common Stock Amount Accumulated Deficit Attributable to Idaho Strategic Resources, Inc Non-Controlling Interest Total Balance January 1, 2021 9,826,665 $ 20,986,062 $ ( 12,672,786 ) $ 2,950,888 $ 11,264,164 Contribution from non-controlling interest in Mill JV - - - 2,469 2,469 Issuance of common stock for services 714 2,300 - - 2,300 Options issued to management, directors, and employees - 604,571 - - 604,571 Options issued for services - 9,860 - - 9,860 Issuance of common stock for cashless option exercise 28,196 - - - - Net loss - - ( 1,646,487 ) ( 15,917 ) ( 1,662,404 ) Balance March 31, 2021 9,855,575 $ 21,602,793 $ ( 14,319,273 ) $ 2,937,440 $ 10,220,960 Contribution from non-controlling interest in Mill JV - - - 17,459 17,459 Issuance of common stock for services 1,071 4,200 - - 4,200 Issuance of common stock for warrants exercised 19,841 50,000 - - 50,000 Issuance of common stock for cashless option exercise 3,571 - - - - Conversion of convertible debt to common stock 291,667 735,000 - - 735,000 Net loss - - ( 109,188 ) ( 31,580 ) ( 140,768 ) Balance June 30, 2021 10,171,725 $ 22,391,993 $ ( 14,428,461 ) $ 2,923,319 $ 10,886,851 Contribution from non-controlling interest in Mill JV - - - 1,641 1,641 Issuance of common stock for investment in Buckskin 45,940 192,946 - - 192,946 Conversion of convertible debt to common stock 39,683 100,000 - - 100,000 Net loss - - ( 219,345 ) ( 18,326 ) ( 237,631 ) Balance September 30, 2021 10,257,348 $ 22,684,939 $ ( 14,647,806 ) $ 2,906,634 $ 10,943,767 Balance January 1, 2022 10,940,969 $ 26,004,756 $ ( 15,832,955 ) $ 2,892,001 $ 13,063,802 Contribution from non-controlling interest in Mill JV - - - 2,828 2,828 Issuance of common stock for cash, net of offering costs 360,134 2,701,000 - - 2,701,000 Issuance of common stock for services 3,572 32,326 - - 32,326 Issuance of common stock for warrants exercised 23,057 68,006 - - 68,006 Issuance of common stock for cashless option exercise 28,981 - - - - Conversion of convertible debt to common stock 392,866 1,950,000 - - 1,950,000 Net loss - - ( 455,602 ) ( 17,467 ) ( 473,069 ) Balance March 31, 2022 11,749,579 $ 30,756,088 $ ( 16,288,557 ) $ 2,877,362 $ 17,344,893 Contribution from non-controlling interest in Mill JV - - - 18,202 18,202 Issuance of common stock for cash, net of offering costs 138,665 980,107 - - 980,107 Issuance of common stock for warrants exercised 70,919 397,147 - - 397,147 Issuance of common stock for cashless option exercise 26,584 - - - - Net loss - - ( 818,598 ) ( 33,651 ) ( 852,249 ) Balance June 30, 2022 11,985,747 $ 32,133,342 $ ( 17,107,155 ) $ 2,861,913 $ 17,888,100 Contribution from non-controlling interest in Mill JV - - - 1,682 1,682 Issuance of common stock for warrants exercised 100,893 565,005 - - 565,005 Options issued to management, directors, and employees - 547,275 - - 547,275 Issuance of common stock for cashless option exercise 11,430 - - - - Net loss - - ( 1,894,419 ) ( 15,005 ) ( 1,909,424 ) Balance September 30, 2022 12,098,070 $ 33,245,622 $ ( 19,001,574 ) $ 2,848,590 $ 17,092,638 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents Idaho Strategic Resources, Inc Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine-Month Periods Ended September 30, 2022 and 2021 September 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 3,234,742 ) $ ( 2,040,843 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 717,939 595,227 Disposal of equipment 68,641 - Accretion of asset retirement obligation 11,342 7,476 Stock based compensation 547,275 614,431 Issuance of common stock for services 32,326 6,500 Gain on forgiveness of SBA loan ( 10,000 ) - Equity income on investment in Buckskin ( 1,213 ) - Change in operating assets and liabilities: Gold sales receivable ( 20,568 ) 52,654 Inventories ( 394,200 ) 146,431 Joint venture receivable 2,760 2,536 Other current assets 78,568 ( 107,770 ) Accounts payable and other accrued liabilities 169,590 ( 48,902 ) Accrued payroll and related payroll expenses 25,127 14,147 Net cash used by operating activities ( 2,007,155 ) ( 758,113 ) Cash flows from investing activities: Purchases of property, plant, and equipment ( 1,145,186 ) ( 351,618 ) Deposits on equipment 31,584 12,863 Additions to mineral property ( 451,012 ) ( 2,346,181 ) Purchase of reclamation bonds ( 222,800 ) - Net cash used by investing activities ( 1,787,414 ) ( 2,684,936 ) Cash flows from financing activities: Proceeds from sale of common stock, net of offering cost 3,681,107 - Proceeds from common stock warrants 1,030,158 50,000 Principal payments on notes payable ( 629,322 ) ( 409,679 ) Principal payments on notes payable, related parties ( 30,916 ) ( 27,599 ) Issuance of convertible debt - 1,750,000 Contributions from non-controlling interest 22,712 21,569 Net cash provided by financing activities 4,073,739 1,384,291 Net change in cash and cash equivalents 279,170 ( 2,058,758 ) Cash and cash equivalents, beginning of period 1,976,518 2,539,945 Cash and cash equivalents, end of period $ 2,255,688 $ 481,187 Non-cash investing and financing activities: Deposit on equipment applied to purchase $ 96,000 $ - Notes payable for land and equipment purchase $ 1,189,056 $ 1,149,683 Conversion of convertible debt to common stock $ 1,950,000 $ 835,000 Investment in Buckskin acquired with issuance of common stock $ - $ 192,946 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 1. The Company and Significant Accounting Policies These unaudited interim consolidated financial statements have been prepared by the management of Idaho Strategic Resources, Inc (IDR) (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair statement of the interim consolidated financial statements have been included. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s financial position and results of operations. Operating results for the three and nine-periods ended September 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. On December 6, 2021, New Jersey Mining Company changed its name to Idaho Strategic Resources Inc. and also finalized a 1 for 14 reverse stock split of its common stock as previously approved by shareholders at a Special Meeting of the Shareholders held on October 6, 2021. On the date of the reverse stock split, every fourteen (14) shares of New Jersey Mining Company were automatically converted into one issued and outstanding share of Idaho Strategic Resources, Inc. common stock without any change in the par value per share. All disclosure of share information within the financial statements reflects the reverse split. For further information refer to the financial statements and footnotes thereto in the Company’s audited consolidated financial statements for the year ended December 31, 2021, as filed with the Securities and Exchange Commission. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of entities owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations. 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. 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 4 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 of the timber have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations. Inventories Inventories are stated at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, 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 cost or estimated net realizable value. 7 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 1. The Company and Significant Accounting Policies (continued) 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 drift, 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 mineral ounces. 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 that are included in earnings are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. At September 30, 2022, and December 31, 2021, the Company had no assets or liabilities that required measurement at fair value on a recurring basis. Accounting for Investments in Joint Ventures and Equity Method Investments Investment in Joint Ventures -For joint ventures where the Company holds more than 50% of the voting interest and has significant influence, the joint venture 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 joint ventures in which the Company does not have joint control or significant influence, the cost method is used. For those joint ventures 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 joint ventures and its investments therein are adjusted by a similar amount. The Company periodically assesses its investments in joint ventures 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 joint ventures in which the Company has 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. 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. At September 30, 2022, and December 31, 2021, the Company’s 37% common stock holding of Buckskin Gold and Silver , Inc. is accounted for using the equity method (Note 10). At September 30, 2022 and December 31, 2021, the Company’s percentage ownership and method of accounting for each joint venture and equity method investment is as follows: September 30, 2022 December 31, 2021 Joint Venture % Ownership Significant Influence? Accounting Method % Ownership Significant Influence? Accounting Method NJMJV 65 % Yes Consolidated 65 % Yes Consolidated Butte Highlands Joint Venture (“BHJV”) 50 % No Cost 50 % No Cost Buckskin Gold and Silver 37 % Yes Equity 37 % Yes Equity Reclassifications Certain prior period amounts have been reclassified to conform to the 2022 financial statement presentation. Reclassifications had no effect on net loss, stockholders’ equity, or cash flows as previously reported. 8 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 1. The Company and Significant Accounting Policies (continued) New Accounting Pronouncement Accounting Standards Updates Adopted- In August 2020, the FASB issued ASU No. 2020 - 06 Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815 - 40 ): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2023 for smaller reporting companies, including interim periods within those fiscal years and with early adoption permitted. The early adoption of this update on January 1, 2022, did not have a material impact on our consolidated financial statements. 2. Going Concern The Company is currently producing from both the open-pit and underground at the Golden Chest Mine. 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. 3. Inventories At September 30, 2022 and December 31, 2021, the Company’s inventories consisted of the following: September 30, 2022 December 31, 2021 Concentrate inventory In process $ 43,085 $ 41,082 Finished goods 183,480 97,074 Total concentrate inventory 226,565 138,156 Supplies inventory Mine parts and supplies 247,924 54,998 Mill parts and supplies 55,347 20,568 Core drilling supplies and materials 78,086 - Total supplies inventory 381,357 75,566 Total $ 607,922 $ 213,722 The carrying value of inventory is determined each period based on the lower of cost or net realizable value. At September 30, 2022 and December 31, 2021 gold concentrate is carried at cost. 4. Sales of Products Our products consist of both gold flotation concentrates which we sell to a single broker (H&H Metal), and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. At September 30, 2022, metals that had been sold but not final settled thus exposed to future price changes totaled 3,685 ounces of gold. The Company has received provisional payments on the sale of these ounces with the remaining amount due reflected in gold sales receivable. Sales of products by metal type for the three and nine-month periods ended September 30, 2022 and 2021 were as follows: September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months Gold $ 1,890,626 $ 6,620,745 $ 2,253,431 $ 6,256,461 Silver 3,034 9,992 5,756 20,078 Less: Smelter and refining charges ( 148,382 ) ( 482,550 ) ( 160,338 ) ( 410,831 ) Total $ 1,745,278 $ 6,148,187 $ 2,098,849 $ 5,865,708 Sales by significant product type for the three and nine-month periods ended September 30, 2022, and 2021 were as follows: September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months Concentrate sales to H&H Metal $ 1,745,278 $ 5,844,571 $ 1,845,547 $ 5,535,899 Dore sales to refinery - 303,616 253,302 329,809 Total $ 1,745,278 $ 6,148,187 $ 2,098,849 $ 5,865,708 At September 30, 2022 and December 31, 2021, our gold sales receivable balance related to contracts with customers of $ 428,755 and $ 408,187 , respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts. 9 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 5. Related Party Transactions At September 30, 2022 and December 31, 2021, the Company had the following note payable to related parties: September 30, 2022 December 31, 2021 Ophir Holdings LLC, a company owned by two officers of the Company, 3.99% interest, monthly payments of $1,250 with a balloon payment of $68,839 in February 2024 $ 85,695 $ 116,611 Current portion ( 11,799 ) ( 10,543 ) Long term portion $ 73,896 $ 106,068 As of September 30, 2022 and December 31, 2021, there was no accrued interest payable to related parties. Related party interest expense for the three and nine-months ended September 30, 2022 and 2021 is as follows. September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months $ 924 $ 3,081 $ 1,994 $ 6,397 The Company leases office space from certain related parties on a month-to-month basis. $ 1,500 per month is paid to NP Depot, a company owned by the Company’s president, John Swallow. Payments under these short-term lease arrangements are included in general and administrative expenses on the Consolidated Statement of Operations and are as follows: September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months $ 6,217 $ 18,651 $ 6,364 $ 18,791 6. Joint Ventures New Jersey Mill Joint Venture Agreement The Company owns 65% of the New Jersey Mill Joint Venture (JV) and has significant influence in its operations. Thus, the venture is included in the consolidated financial statements along with presentation of the non-controlling interest. At September 30, 2022 and December 31, 2021, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $ 1,682 and $ 4,442 , respectively, for shared operating costs as defined in the JV agreement. Butte Highlands JV, LLC (“BHJV”) On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) from Timberline Resources Corporation for $225,000 in cash and 3,000,000 restricted shares of the Company’s common stock valued at $210,000 for a total consideration of $435,000 . Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the joint venture. Under the agreement, Highland will fund all future project exploration and mine development costs. The agreement stipulates that Highland is manager of BHJV 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 joint venture’s activities, it accounts for its investment on a cost basis. 7. Earnings per Share For the three and nine-month periods ended September 30, 2022, and 2021, potentially dilutive shares including outstanding stock options (Note 13), warrants (Note 12), and convertible debt (Note 14) were excluded from the computation of diluted loss per share because they were anti-dilutive due to net losses in those periods. For the three and nine-month periods ended September 30, 2022 and 2021, potentially dilutive common stock equivalents excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive are as follows: September 30, 2022 September 30, 2021 Stock options 542,525 394,643 Stock purchase warrants 289,294 406,947 Convertible debt - 392,858 Total 831,819 1,194,448 10 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 8. Property, Plant, and Equipment Property, plant and equipment at September 30, 2022 and December 31, 2021 consisted of the following: September 30, 2022 December 31, 2021 Mill Land $ 225,289 $ 225,289 Building 536,193 536,193 Equipment 4,192,940 4,192,940 4,954,422 4,954,422 Less accumulated depreciation ( 1,212,259 ) ( 1,085,730 ) Total mill 3,742,163 3,868,692 Building and equipment Buildings 337,859 324,075 Equipment 6,464,911 5,042,915 6,802,770 5,366,990 Less accumulated depreciation ( 2,100,483 ) ( 1,847,191 ) Total building and equipment 4,702,287 3,519,799 Land Bear Creek 266,934 266,934 BOW 230,449 230,449 Eastern Star 250,817 250,817 Gillig 79,137 79,137 Highwater 40,133 40,133 Salmon Building 410,285 - Total land 1,277,755 867,470 Total $ 9,722,205 $ 8,255,961 9. Mineral Properties Mineral properties at September 30, 2022 and December 31, 2021 consisted of the following: September 30, 2022 December 31, 2021 Golden Chest Mineral Property $ 1,599,213 $ 1,577,669 Infrastructure 1,560,192 1,056,037 Total Golden Chest 3,159,405 2,633,706 New Jersey 248,289 248,289 McKinley-Monarch 200,000 200,000 Butte Potosi 274,440 274,440 Alder Gulch 2,473,066 2,473,066 Park Copper 78,000 78,000 Less accumulated amortization ( 78,896 ) ( 64,315 ) Total $ 6,354,304 $ 5,843,186 For the three and nine-month periods ended September 30, 2022 and 2021 interest expense was capitalized in association with the ramp access project at the Golden Chest as follows. September 30, 2022 September 30, 2021 Three Months Nine Months Three Months Nine Months $ 11,180 $ 32,097 $ 16,029 $ 42,545 11 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 10. Investment in Buckskin In August 2021, the Company exchanged 45,940 shares of the Company’s common stock for 22 % of Buckskin Gold and Silver Inc. The Company’s closing share price on the date of the agreement (August 18, 2021) was recorded as the cost basis for the property. 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 $ 542 and $ 1,213 for the three- and nine-month periods ending September 30, 2022. The Company makes an annual payment of $ 12,000 to Buckskin per a lease covering 218 acres of patented mining claims. As of September 30, 2022, the Company holds 37 % of Buckskin’s outstanding shares. 11. Notes Payable At September 30, 2022 and December 31, 2021, notes payable are as follows: September 30, 2022 December 31, 2021 Building in Salmon, Idaho, 60-month note payable, 7.00 % interest payable monthly through June 2027, monthly payments of $ 2,500 with a balloon payment of $260,886 in July 2027 $ 308,203 $ - Resemin Muki Bolter, 36-month note payable, 7.00 % interest payable monthly through January 2025, monthly payments of $ 14,821 383,245 - Paus 2 yrd. LHD, 48-month note payable, 4.78 % interest rate payable through September 2024, monthly payments of $ 5,181 123,033 164,422 Paus 2 yrd. LHD, 60-month note payable, 3.45 % interest rate payable through July 2024, monthly payments of $ 4,847 103,182 143,547 Compressor, 48-month note payable, 5.25 % interest rate payable monthly through January 2022, monthly payments of $ 813 - 410 CarryAll transport, 36-month note payable, 4.5 % interest rate payable monthly through June 2024, monthly payments of $ 627 12,634 17,752 CarryAll transport, 36-month note payable, 4.5 % interest rate payable monthly through February 2024, monthly payments of $ 303 4,987 7,501 Atlas Copco loader, 60-month note payable, 10.5 % interest rate payable monthly through June 2023, monthly payments of $ 3,550 30,591 58,866 Sandvik LH203 LHD, 36-month note payable, 4.5 % interest payable monthly through May 2024, monthly payments of $ 10,352 199,106 283,955 Sandvik LH202 LHD, 36-month note payable, 6.9 % interest payable monthly through August 2025, monthly payments of $ 4,933 155,991 - Doosan Compressor, 36-month note payable, 6.99 % interest payable monthly through July 2024, monthly payments of $ 602 12,422 17,064 Caterpillar 306 excavator, 48-month note payable, 4.6 % interest payable monthly through November 2024, monthly payments of $ 1,512 37,336 49,421 Caterpillar 938 loader, 60-month note payable, 6.8 % interest rate payable monthly through August 2023, monthly payments of $ 3,751 39,891 70,734 Caterpillar R1600 LHD, 48-month note payable, 4.5 % interest rate payable through January 2025, monthly payments of $ 17,125 454,339 590,535 Caterpillar AD22 underground truck, 48-month note payable, 6.45 % interest rate payable through June 2023, monthly payments of $12,979 113,521 221,694 Small Business Administration EIDL 30 year note payable, 3.75 % interest payable monthly through December 2054, monthly payments of $ 731 163,315 169,211 2022 Dodge Ram, 75-month note payable, 5.99 % interest rate payable monthly through June 2028, monthly payments of $ 1,152 67,112 - 2016 Dodge Ram, 75-month note payable, 5.99 % interest rate payable monthly through June 2028, monthly payments of $ 1,190 69,302 - Two CarryAll transports, 36-month note payable, 6.3 % interest rate payable monthly through May 2025, monthly payments of $ 1,515 44,556 - CarryAll transport, 36-month note payable, 6.3 % interest rate payable monthly through June 2025, monthly payments of $ 866 26,184 - Total notes payable 2,348,950 1,795,112 Due within one year 899,974 666,622 Due after one year $ 1,448,976 $ 1,128,490 12 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 11. Notes Payable; continued All notes are collateralized by the property or equipment purchased in connection with each note. Future principal payments of notes payable at September 30, 2022 are as follows: 12 months ended September 30, 2023 $ 899,974 2024 698,639 2025 243,911 2026 38,243 2027 298,577 2028 23,800 Thereafter 145,806 Total $ 2,348,950 In the second quarter of 2020 the Company received a loan of $ 149,900 pursuant to the Small Business Act Section 7(b). The loan which was in the form of a Note dated May 16, 2020, matures May 16, 2050, and bears interest at a rate of 3.75 % per annum. Payments of $ 731 are due monthly and will begin in November 2022. At September 30, 2022, and December 31, 2021 accrued interest on the loan was $ 13,415 and $ 9,311 , respectively and is included in the Small Business Administration Loan balance on the consolidated balance sheet. In the second quarter of 2022, it was determined that an additional $ 10,000 also received in the second quarter of 2020 was a grant that was forgiven as part of the Covid-19 relief program. This $ 10,000 was recorded as a gain on forgiveness of the SBA loan in the statement of operations during the second quarter of 2022. 12. Stockholders’ Equity Stock issuance activity The Company closed a private placement in February 2022. Under the private placement, the Company sold 360,134 shares at $ 7.50 per share for net proceeds of $ 2,701,000 . In the second quarter of 2022, the Company sold 138,665 shares of common stock for net proceeds of $ 980,107 . In the first nine months of 2022 the Company issued 3,572 shares of common stock at $ 9.05 per share for services provided for a total value of $ 32,326 . In the first nine months of 2022, the Company issued 392,866 shares of the Company’s common stock in exchange for $ 1,950,000 of debt at $ 4.96 per share. In the first nine months of 2021 the Company issued 1,785 shares of the Company’s common stock for services rendered at an average price of $ 3.64 for a total value of $ 6,500 . In the first nine months of 2021 the Company issued 331,350 shares of the Company’s Stock in exchange for $ 835,000 of debt at $ 2.52 per share. The Company issued 45,940 shares of the Company’s common stock for 22% of Buckskin Gold and Silver in August 2021 valued $192,496 . Stock Purchase Warrants Outstanding The activity in stock purchase warrants is as follows: Number of Warrants Exercise Prices Balance December 31, 2020 426,788 $ 2.52 - 5.60 Issued 289,294 $ 5.60 - 7.00 Exercised ( 46,615 ) $ 2.52 Balance December 31, 2021 669,467 $ 2.52 -7.00 Expired ( 185,304 ) $ 2.52 - 5.60 Exercised ( 194,869 ) $ 2.52 - 5.60 Balance September 30, 2022 289,294 $ 5.60 - 7.00 These warrants expire as follows: Shares Exercise Price Expiration Date 235,722 $ 5.60 October 14, 2023 53,572 $ 7.00 November 12, 2023 289,294 13 Table of Contents Idaho Strategic Resources, Inc Notes to Consolidated Financial Statements (Unaudited) 13. Stock Options 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, professional services, and general administrative expenses in the statement of operations. In September 2022, the board granted an additional 15,000 total 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 statement of operations. In February 2021, the board granted 283,936 stock options to officers, board members, and employees. These options vested immediately and are exercisable at $ 5.60 for 3 years. Total stock-based compensation recognized on these options was $ 604,571 and was recognized in management, professional services, and general administrative expenses in the statement of operations. In March 2021, the Company granted 3,572 stock options to an individual for services rendered to the Company. These options vested immediately and are exercisable at $ 5.60 for 3 years. Total stock-based compensation recognized on these options was $ 9,860 and was recognized in general administrative expenses in the 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: February 11, 2021 March 15, 2021 September 6, 2022 September 28, 2022 Fair value $ 604,572 $ 9,860 $ 505,476 $ 41,799 Options issued 283,936 3,572 165,000 15,000 Exercise price $ 5.60 $ 5.60 $ 5.25 $ 4.75 Expected term (in years) 3.0 3.0 3.0 3.0 Risk-free rate 0.19 % 0.33 % 3.55 % 4.12 % Volatility 97.9 % 99.3 % 89.3 % 89.2 % Activity in the Company’s stock options is as follows: Number of Options Weighted Average Exercise Prices Balance December 31, 2020 150,000 $ 1.83 Granted 469,674 $ 5.53 Exercised ( 101,786 ) $ 1.87 Forfeited ( 10,713 ) $ 5.60 Balance December 31, 2021 507,175 $ 5.25 Granted 180,000 $ 5.21 Exercised ( 116,078 ) $ 4.31 Expired ( 7,143 $ 1.96 Forfeited ( 21,429 ) $ 5.60 Balance September 30, 2022 542,525 $ 5.47 Outstanding and exercisable at September 30, 2022 542,525 $ 5.47 At September 30, 2022, outstanding stock options have a weighted average remaining term of approximately 2 years and have no intrinsic value. Intrinsic value of the options exercised for the three and nine-month periods ended September 30, 2022, was $ 46,500 and $ 302,493 , respectively. Intrinsic value of the options exercised for the nine-month period ended September 30, 2021 was $ 164,000 , none were issued in the three month period ending September 30, 2021. 14. Convertible Debt The balance of convertible debt at December 31, 2021 consisted of $ 200,000 convertible to Common shares at a price of $ 5.60 per share ( 35,715 shares) and $ 1,750,000 convertible to Common shares at a price of $ 4.90 per share ( 357,151 shares). All of this debt was converted to Common shares as provided in the respective agreements in March 2022 14 Table of Contents