Idaho Strategic Resources, Inc. - Annual Report: 2017 (Form 10-K)

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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GLOSSARY OF SIGNIFICANT MINING TERMS

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PART I

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ITEM 1.  DESCRIPTION OF THE BUSINESS

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ITEM 2.   DESCRIPTION OF PROPERTIES

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ITEM 3.  LEGAL PROCEEDINGS

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ITEM 4.  MINE SAFETY DISCLOSURES

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PART II

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ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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ITEM 6.  SELECTED FINANCIAL DATA

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

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ITEM 9A.  CONTROLS AND PROCEDURES

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ITEM 9B.  OTHER INFORMATION

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PART III

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ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

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ITEM 11.  EXECUTIVE COMPENSATION

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

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PART IV

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ITEM 15.  EXHIBITS

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SIGNATURES

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Quartzites-Metamorphic rock containing significant amounts of quartz.

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Economic conditions and depressed commodity prices prevented the commercial start-up of mining operations at the Crescent Silver Mine, but the Golden Chest Mine continued to progress. In October 2016 production at the Golden Chest resumed with the Company as the sole owner and operator. While not its core business, the New Jersey Mill has little competition for contract milling within an approximate 175-mile radius; however, it is conceivable that fuel prices and other factors could expand the market to include mines outside of the area.

Generally, the Company is subject to the risks inherent to the mineral industry. A primary risk of mineral exploration is the low probability of finding a major ore deposit. The Company attempts to mitigate this risk by focusing its efforts in areas known to host significant mineral deposits, and also by relying on its experienced management team to drive analysis, evaluation, and acquisition of properties that it feels have a higher-than-average probability of success. In addition to deal essentials, such as cost, terms, timing, and market considerations, the Company’s process of property acquisition involves screening target properties based on geological, economic, engineering, environmental, and metallurgical factors. In all of its operations the Company competes for skilled labor within the mining industry.

The risks associated with the Company’s mining and milling operations include other risks typical of the mining industry, such as: operational effectiveness in the processing plan that could result in lower recovery of the economic metals, mechanical failure of equipment that could increase costs or decrease efficacy, ability to hire and retain qualified operators, and risks that the mining operations are unable to economically extract material to feed the milling operation. The Company manages these risks with detailed mine planning and extraction processes, a preventive maintenance program, and installing experienced and technically proficient management.

Another significant risk in the mining industry is the price of metals such as gold and silver. If the prices of these metals were to fall substantially it could lead to a loss of investor interest in the mineral exploration sector, which would make it more difficult to raise the capital necessary for the Company or other potential customers to move exploration and development plans forward.

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Costs and Effects of Compliance with Environmental Laws (Federal, State and Local)

The Company's total number of full time employees is 18.

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The Company maintains a website where recent press releases and other information can be found. A link to the Company’s filings with the SEC is provided on the Company’s website www.newjerseymining.com.

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Property Location

The Golden Chest Mine is comprised of an underground mine, an open-pit mine, and an exploration project located about 1.5 miles east of Murray, Idaho, comprised of 25 patented mining claims (280 acres) and 70 unpatented claims (990 acres). The site is along USFS Highway 9 and is accessible by several improved dirt roads from the paved highway. A three-phase power line was installed at the property in 2014 with power supplied by Avista Utilities.

Property Ownership

NJMC owns 100% of the Golden Chest LLC (owner of the Golden Chest Mine). The Company consolidated its ownership in December 2015, purchasing Marathon Gold Corporation’s (“Marathon”) 52.22% stake in Golden Chest LLC (the Company already owned the other 47.78%) for $180,000 along with a 2% NSR on production from the Golden Chest property, as well as an adjacent Area of Interest. Golden Chest LLC purchased the mine from Metaline Contact Mines and J.W. Beasley Interests for $3.75-million. The purchase was financed through a promissory note of $3,250,000 after a down payment of $500,000. On October 25, 2017, NJMC paid off the remaining balance owed on the note.

Property History

The Golden Chest Mine was developed in the late-1800s or early-1900s as part of the early gold production from the Coeur d’Alene Mining District. Historical accounts vary, but the district is believed to have produced approximately 300,000 ounces of gold from placer sources. It is estimated that the historic hard rock mining operations on the Golden Chest property produced approximately 75,000 ounces of gold, primarily from shallow, underground, high-grade veins. The Golden Chest is considered to be the largest historic lode producer of gold in north Idaho.

Modern exploration of the Golden Chest area began in the late-1970s with several companies, including Cominco-American and Golden Chest Inc. (“GCI”), targeting gold and massive sulfides. Drill tests by GCI included a 200-foot hole from surface that intersected a 60-foot zone containing multiple low-grade gold-bearing quartz veins.

Newmont Exploration Ltd. followed GCI’s discovery by evaluating the veins for bulk mineable potential in the late-1980s. A geochemical survey yielded soil samples from the mine area that were anomalous in both gold and arsenic, indicating a well-developed vein system. Newmont then drilled 35 shallow reverse-circulation and five core holes, establishing an historic resource, most of which is related to the Idaho Vein system on the south end of the property.

Present Condition, Work Completed, and Exploration Plans

Exploration & Development by NJMC & Golden Chest LLC

NJMC first leased the property in 2003, then explored, drilled, and developed it over subsequent years, producing 8,400 tonnes of ore averaging 6.9 gpt gold, all of which was processed at its New Jersey Mill for total production of nearly 2,000 ounces of gold. From 2004 through 2008, the Company completed an exploration core-drilling program at the Golden Chest totaling 3,415 meters of core during that period, successfully extending the Idaho Vein below the No. 3 Level. NJMC connected the historic No. 3 Level to the surface by driving a 440-meter ramp (the “North Ramp”), which was completed in 2008.

In 2010, NJMC terminated its operating leases to form Golden Chest LLC with Marathon. NJMC contributed certain mining claims, all geological data, and mining equipment to the venture, while Marathon contributed $4-million cash. As Marathon is a Canadian issuer, the joint venture operated and issued technical disclosures in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).

In 2011, Golden Chest LLC completed the most aggressive exploration project in the history of the property, totaling 11,300 meters of surface drilling. Other work completed included the construction of a new core shed, construction of new roads, surface geological work, surface and underground surveying, underground exploration drifting, and mine rehabilitation. In 2012, Golden Chest LLC completed an additional 7,000 meters of drilling and exploration drifting on the Popcorn vein. Based on the results of those work programs, Golden Chest LLC delineated an updated gold resource and filed a technical report in compliance with NI 43-101.

As part of the Company’s efforts to seek a listing on the Canadian Stock Exchange an updated National Instrument 43-101 Technical Report was completed and released. The report included current mining operations and activity that occurred in 2016 and 2017.

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The Juniper Lease & Mine Modernization

In September 2013, the Skookum Shoot portion of the Golden Chest property was leased to Juniper, which later reassigned the lease to Gold Hill, an affiliate company. Gold Hill began construction in Q3 2014, spending an estimated $7 to $9-million on mine development and infrastructure, building a modern gold mine that reached production in May 2015. Mining activities continued until September 2015 when Gold Hill ceased operations and terminated its lease, forfeiting the mine and infrastructure back to Golden Chest LLC.

While in operation, NJMC processed Golden Chest ore at its New Jersey Mill, earning cash from milling fees and its share of a 2% net smelter return (“NSR”) royalty on gold production. In total, Gold Hill mined 40,840 dry metric tonnes of ore at an average grade of 6.70 gpt gold, resulting in production of approximately 8,000 ounces of gold.

The underground development performed by Gold Hill was based largely on prior exploration work done by Golden Chest LLC. Following lease termination, NJMC bought out Marathon’s interest in Golden Chest LLC in December 2015 for $180,000 and a 2% NSR royalty on production from the property and an adjacent Area of Interest.

Plans to Resume Underground Operations

In late-2015, NJMC completed an internal study, outlining plans to resume production at the Golden Chest. The Company developed a two-year underground mine plan, focused on unmined ore from the Gold Hill mine plan and from other easily accessible zones, while retaining all upside potential of up-dip, down-dip, and on-strike extensions such as the Paymaster zone, as well as the larger, district-scale potential. The underground mine plan has a 3,000-tonne per month production target with all material to be processed at the New Jersey Mill.

In 2016, NJMC made and executed plans to resume underground mining at Golden Chest, purchasing an underground haul truck and loader, receiving long-lead electrical components, and ensuring necessary equipment and trained personnel are in place to advance anticipated 2017 development and underground operations.

A significant amount of work was completed during 2017 to bring the underground mine back into production, including installation of an electrical circuit, installation of ventilation components, final installation of dewatering pumps, stope access development and construction of a backfill plant. Underground mining activities resumed in November of 2017 and are expected to continue to ramp up with full underground production levels expected by the end of 2018.

Modern exploration, including nearly 30,000 meters of drilling, reveals seven NW-trending ore shoots at Golden Chest that demonstrate strong periodicity, consistent width and spacing, along the Idaho Fault. Most historic production came from the northernmost of these shoots, the Katie-Dora and the Klondike. Excellent mineralization potential remains in unmined portions of the northern shoots as well as in the unmined Paymaster and Joe Dandy shoots to the south. The Company is targeting the Paymaster and Joe Dandy ore shoots as its top exploration priorities for future mine expansion.

Recent data compilation efforts by NJMC have integrated all available modern exploration data from the property and across the Murray area, including work by Cominco, Newmont, NJMC, Golden Chest LLC, and the recent information provided by Gold Hill. Based on these studies and the Company’s own exploration results, Management believes the Golden Chest property has district-scale production potential for the longer term, not only near the recently constructed mine, but in areas of past exploration and historic production.

Open-Pit Gold Production at Golden Chest

In 2016, NJMC used its internal study, including tightly-spaced drill data in an outcrop area, to identify a mineable open-pit directly above the main Golden Chest portal. Following the receipt of necessary permits, the Company began pit excavation and resumed gold production in Q3 2016 and resumed shipping ore to the New Jersey Mill in Q4 2016.

During the first half of 2017, NJMC completed an engineering study to evaluate the potential of expanding the existing open-pit mining operations. Approximately 450 blast hole assays from the recently mined benches were used to supplement previous core drilling data to update the block model. The study concluded the pit can be widened further to the west and deepened, with the expanded pit design containing 180,000 tonnes of ore at the fold grade of 4.26 grams per tonne (gpt), totaling 24,600 ounces of gold. The pit expansion study also showed the potential for an additional “starter pit” near the surface of the Klondike-Katie Dora area, about 370 meters north of the current operations. A trenching and small core drilling program was completed in the third and fourth quarters of 2017 in the Klondike-Katie Dora area. Plans for 2018 call for an updated open-pit study using the new geologic information provided by this work. Open-pit mining operations continued to ramp up through 2017, producing approximately 3,525 ounces of gold for the year.

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While significant modern drilling, underground development, and pit excavation have resulted in industrial scale mining and recovery of gold, there are no mineral reserves at the Golden Chest, as recognized by the SEC.

Present Condition of Plant & Equipment

During the lease, Gold Hill made many improvements to the Golden Chest property including approximately 1,000 meters of underground development at a nominal cross section of 4 meters by 4 meters, the establishment of a secondary escape-way and ventilation raises, the installation of three-phase power, and many surface improvements such as a septic field and major new haul road to keep mine traffic separate from employee and visitor traffic. NJMC constructed a 2,500 square-foot steel-clad pole building in 2011 which stands at the top of the most easterly driveway to the property and is used primarily for office space and core logging. A 600 square-foot steel-clad pole building, constructed by NJMC in 2005, is also present near the northern ramp portal.

Geology & Mineralization

Gold mineralization occurs in veins associated with multiple faulting and folding events in the Coeur d’Alene Mining District. The gold mineralization is of a broad type known as orogenic gold, but it also appears to have an association with igneous rock activity. Hence, the vein deposits may be described as intrusion-related orogenic gold. The principal vein being exploited at the Golden Chest Mine is associated with the Idaho Fault, which juxtaposes the quartzites of the upper Prichard Formation against finer-grained argillites, also of the upper Prichard Formation.

Veins occur in the Idaho Fault and to a lesser extent in its hangingwall and footwall. The mineralization occurs in two types of quartz veins that are generally conformable to bedding of the Prichard Formation of Proterozoic age. Thin-banded veins, occurring in argillite, contain visible gold, pyrite, arsenopyrite, galena, and sphalerite. Thicker, massive veins occur in quartzite and contain pyrite, galena, chalcopyrite, sphalerite, scheelite and visible gold.

NEW JERSEY MILL

Property Location

The New Jersey Mill is a fully-permitted, 360-tonne per day, flotation mill and concentrate leach plant (“CLP”) located two miles east of Kellogg, Idaho, in the Coeur d'Alene Mining District. The mill is located on the same property as the New Jersey Mine, adjacent to U.S. Interstate Highway 90 and easily accessed by local roads year-round. Three-phase electrical power is supplied to the New Jersey Mill by Avista Utilities.

Project Ownership

In 2011, NJMC signed a joint venture (“JV”) agreement with United Mine Services (“UMS”), a wholly-owned subsidiary of United Silver Corporation, to increase the capacity of the New Jersey Mill. UMS funded the mill expansion in return for a 35% interest in JV assets plus the right to process 7,000 tonnes of its ore per month. NJMC is the JV manager and retains a 65% interest in JV assets as well as the right to process its own ore at the rate of 3,000 tonnes per month and to allocate unused and excess capacity in its role as manager. The property covered by the JV agreement includes the crushing circuit, grinding circuit, gravity circuit, flotation circuit, CLP, buildings and surface rights only over the patented mill site claim. Unpatented mill site claims are also part of the JV.

Present Condition of Plant & Equipment

Mill Expansion and Crescent Ore Processing

The mill expansion was completed in 2012, rendering the mill capable of processing 360 tonnes of sulfide ore per day (a four-fold increase) to produce a single flotation concentrate. The expansion cost approximately $3.2 million, all of which was funded by UMS under terms of the JV (Ex. 10.1). The expansion project included the installation of a new cone crusher, a new fine ore bin, new conveyors, a new 2.4-meter by 4.0-meter ball mill, additional flotation cells, a new paste thickener, associated pumps, and a new building. Subsequent to the mill expansion, the New Jersey Mill processed 8,470 dry tonnes of silver ore from the Crescent Mine before operations ended.

In April 2014, Hale Capital Partners, through its subsidiary Crescent Silver LLC (“Crescent”), acquired the assets of UMS, including its stake in the New Jersey Mill JV, in a consensual foreclosure process. Therefore, Crescent is now the NJMC’s joint venture partner at the New Jersey Mill.

Mill Upgrades and Golden Chest Ore Processing

In September 2013, the Skookum Shoot portion of the Golden Chest Mine was leased to Juniper Resources LLC which, through its affiliate companies, developed a modern gold mine that reached full production in May 2015. NJMC processed Golden Chest ore at its New Jersey Mill, earning cash from milling fees and its share of a 2-percent net smelter return royalty on gold production.

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Significant additional upgrades, including installation of a new gravity gold recovery circuit and a tune up of the crushing, grinding, flotation, and tailings circuits were completed in 2014 in anticipation of ore deliveries from the Golden Chest Mine. From December 2014 through September 2015, 40,840 dry tonnes from the Golden Chest mine were successfully processed at the New Jersey Mill producing approximately 8,000 ounces of gold.

In addition to producing concentrates in 2015, NJMC leached approximately 10 tonnes of flotation concentrate, produced from Golden Chest ore, in the CLP at the New Jersey Mill. An improved leaching process that employs a Carbon-in-Leach finishing tank was tested, with objectives of reduced process time and increased gold recovery. Test results provided an understanding of which capital improvements to the leach circuit will be necessary to reach these objectives and also, as expected, confirmed that Golden Chest concentrates are amenable to leaching.

Current Ore Processing Operations

NJMC now has 100-percent ownership of the Golden Chest Mine. In October 2016, the Company resumed operations at the New Jersey Mill, processing ore extracted from open-pit development at the Golden Chest.

The mill recycles process water and utilizes a paste tailings disposal process patented by NJMC founder Fred Brackebusch to minimize impact on the environment. By implementing paste tailings processing methods, NJMC is able to recycle process water and prevent the discharge of process water to surface waters. At full capacity, this method saves more than 50 million gallons of water per year. NJMC was recognized as a “Pollution Prevention Champion” by the Idaho Department of Environmental Quality in 2014 for its efforts to reduce pollution at the mill.

As of December 31, 2017, the Company had a net capital cost of $4,525,662 associated with the New Jersey Mill.

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In 2009, Timberline formed a 50/50 joint venture with Highland to create BHJV for the purpose of developing and mining the property. In 2009 and 2010, Timberline conducted surface exploration, drilling, and permitting work as Highland began building surface and underground infrastructure.

In 2011, BHJV completed an underground exploration ramp and a 16,000-meter underground core drilling program to support mine modeling, focusing on the upper portion of the “Old Mill Block” which has dimensions of approximately 85 meters along strike, 335 meters down dip, and a mineralized thickness of 2.5 to 4.5 meters. The program returned many significant mineralized intercepts, including a highlight of 4.4 meters grading 232 gpt gold.

A NI 43-101 compliant technical report for Butte Highlands was completed in May 2013 by Mine Development Associates of Reno, Nevada.

The project has experienced significant timeline delays due, in part, to miscalculations of the permitting process and other technical issues. Permitting advanced more effectively from 2013 to 2015 with the following critical milestones successfully achieved:

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In July 2013, the Montana Department of Environmental Quality (“DEQ”) issued the final Montana Pollutant Discharge Elimination System (“MPDES”) water discharge permit;

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In January 2015, the Montana DEQ authorized BHJV to construct and operate an underground gold mine by publishing positive Record of Decision (“ROD”) on Final Environmental Impact Statement (“EIS”);

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In October 2015, the U.S. Forest Service (“USFS”) released its Final Decision Notice on haul road with a Finding of No Significant Impacts.

These milestones represent the final major hurdles to the receipt of necessary permits allowing the project to proceed. Final construction designs and completion of work will be required, along with bond payments, before final authority is granted to proceed with the proposed operation. Once final designs and road construction are complete, the USFS will grant authority to use local USFS roads for material haulage. Upon payment of the reclamation bond, the Hard Rock Operating Permit will be granted by the Montana DEQ.

Present Condition, Work Completed, and Exploration Plans

Prior to NJMC’s purchase of its stake in BHJV, the BHJV partners envisioned a 4 to 5-year mine life with estimated annual production of 30,000 to 35,000 ounces of gold. Mining was proposed to be conducted by cut and fill methods at a rate of 400 tons per day with a cut-off grade estimated at 4.8 gpt gold. Waste rock will be replaced underground as cemented rock backfill in the mined ore zones to supply geotechnical stability. Preliminary metallurgical testwork indicates recoveries of approximately 85% of the contained gold in a flotation concentrate. Based on a draft internal scoping study produced by Timberline, NJMC Management purchased the Company’s interest in Butte Highlands with a belief that the deposit has the potential to contain 300,000 to 500,000 ounces of gold.

NJMC is working to advance an agreement to assume management control of the Butte Highlands project. If successful in negotiating a definitive agreement, NJMC will evaluate the possibility of building an on-site mill, which will require additional permitting but may improve overall economics of the project.

Present Condition of Plant & Equipment

Highland has invested nearly $40-million at Butte Highlands building a modern gold mine, including nearly a mile of underground mine development and construction of surface facilities, all of which are located on private lands owned by BHJV. Most surface facilities and infrastructure required for mining operations are already in place.

Geology & Mineralization

Gold mineralization at Butte Highlands is hosted primarily in lower Paleozoic Wolsey shale with higher-grade mineralization occurring within the sediments proximal to diorite sills and dikes. The project is within a favorable geologic domain that has hosted several multi-million-ounce gold deposits.

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Property Ownership

At the New Jersey Mine and Mill complex, the Company owns 102 acres of private land with surface and mineral rights, 108 acres of private land with mineral rights only, 40 acres of private land with surface rights only, and approximately 130 acres of unpatented mining claims. The unpatented claims are on federal land administered by the BLM. The gold-bearing Coleman vein system, including the underground workings and the Coleman pit, are located on the patented mining claims that are wholly-owned by the Company and not part of the Mill Joint Venture.

Property History

In the late-1800s and early-1900s, New Jersey Mining and Milling (an unrelated company) drove more than 760 meters of development workings on the Coleman Vein and its northwest branch, including drifts, crosscuts, shafts, and raises. The historic development also included a 10-stamp gravity mill that was operated for a short period.

Present Condition, Work Completed, and Exploration Plans

Since 2001, NJMC has drilled 14 holes totaling 1,765 meters to explore the Coleman vein and associated zones. Drilling confirmed vein system continuity and resulted in the discovery of the broad, low grade (averaging about 0.70 gpt gold) Grenfel zone. The Company’s best intercept assayed 2.76 gpt gold over 12.5 meters, which included 6.80 gpt gold over 2.5 meters.

In 2008, the Company performed underground exploration on the Coleman vein at the 740 level, including 84 meters of drifting, with 20 meters along the vein before it was displaced by a fault. The Company also drill-tested the Scotch Thistle prospect, but a 400-meter program encountered only silicification and alteration with no significant gold mineralization. There are at least 14 gold prospects within or near the New Jersey Mine.

In 2010, a raise was driven upward on the 740 level to explore a narrow high-grade vein that crosscut the main Coleman vein. This raise was driven 12 meters vertically, leading to the extraction of 367 dry tonnes that assayed 2.68 gpt gold in processing at the New Jersey Mill.

NJMC has not conducted material work at the New Jersey Mine since 2010, but Company geologists are again evaluating the known gold-bearing veins and historic targets. With the New Jersey Mill actively processing ores from the Golden Chest Mine, the potential economics of nearby gold prospects may have improved materially.

While the Company has conducted significant drilling, underground development, and even limited gold production from the New Jersey Mine, the project has no mineral reserves as recognized by the SEC.

As of December 31, 2017, the Company had a capitalized development plus investment cost of $248,289 associated with the mine.

Geology & Mineralization

The New Jersey Mine area is underlain by argillites and quartzites of the Prichard Formation [member of Belt Supergroup], which commonly hosts gold mineralization. The property occurs adjacent to and north of the major Osburn Fault, a major geological structure of the Coeur d’Alene Mining District. The Prichard Formation is divided into nine units of alternating argillites, siltites, and quartzites; the units exposed in the New Jersey Mine area appear to belong to the lower members. Gold mineralization is associated with sulfide-bearing quartz veins that cut the bedding in Prichard argillite and quartzite. Associated sulfides are pyrite, arsenopyrite, chalcopyrite, low-silver tennantite, galena, and sphalerite.

TOBOGGAN PROJECT

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The lease is in the 6^th year of a 20-year term and calls for annual Advanced Minimum Royalty payments to NJMC of $15,000 from 2017 through 2019, $20,000 in 2020 and $48,000 in subsequent years. The lease also calls for a work commitment of $200,000 by the end of the 5^th year (completed), and additional $200,000 by the end of the 8^th year, and an additional $300,000 by the end of the 11^th year. A 2% net smelter return (NSR) is due NJMC on any gold production from the leased claims.

Property History

For the 2008 through 2010 exploration seasons, Toboggan was a joint venture between Newmont Mining Corporation (“Newmont”) and NJMC. Newmont generated and/or explored multiple prospects during the joint venture, including Little Baldy, Gold Butte, Mineral Ridge, Golden Reward, CA, Snowslide, Independence, and Progress. The Little Baldy prospect is under lease to Hecla Mining Company (“Hecla”).

The Little Baldy prospect was discovered when soil sampling by Newmont revealed a 700-meter by 300-meter gold anomaly. Follow-up rock sampling returned values of up to 2,130 gpt gold and more than 500 gpt tellurium, typical of the association of gold and tellurium found elsewhere at Toboggan. Five other surface rock samples from different locations averaged 26.6 gpt gold and 165 gpt tellurium.

The Gold Butte prospect has historic workings that include seven adits connected by a system of narrow roads. In 1941, ASARCO collected nine samples from within the workings, yielding an average grade of 6.4 gpt gold. The mineralized zone at Gold Butte outcrops over a strike length of at least 200 meters with a vertical extent of 120 meters. Soil sampling indicates the zone may continue north for at least another 400 meters, with a 75 to 90 meter width. Rock chip samples from Gold Butte have assayed up to 32.6 gpt gold in quartz vein and sulfidic breccia.

Historic workings at the Mineral Ridge prospect include six adits and several pits and trenches. In 1991, soil sampling by Nord-Pacific led to the discovery of a 1,650-meter by 240-meter gold anomaly. In 1992, a 9-hole, 850-meter RC drill program was completed with each hole intercepting mineralization ranging from anomalous gold to a 1.5-meter intercept of 18.9 gpt gold. More recently, NJMC discovered and mapped a new eastern zone, a sample of quartz-pyrite float from which assayed 38.4 gpt gold, 19.6 gpt silver, and 61.4 ppm tellurium.

The Golden Reward prospect was identified by soil sampling that outlined a 400-meter by 240-meter gold anomaly. A second mineralized zone (along with several smaller gold-in-soil anomalies) was discovered by soil sampling east of the main zone. High grade float contained visible gold and telluride minerals, assaying up to 67.6 gpt gold and more than 100 gpt silver.

In the 1980s, Cominco-American discovered a large geophysical anomaly, the CA prospect, covering about two square kilometers at a depth of 450 to 670 meters below surface. In 1987, Cominco-American drilled a 500-meter hole on the eastern edge of the anomaly, though it appears that the hole was too far east and to insufficient depth to intersect the anomaly.

The Progress prospect features historic workings and prospect pits on outcropping mineralization. The 40 samples taken at Progress included up to 73.7 gpt gold and 54.6 gpt tellurium from mine dumps and up to 42.0 gpt gold from prospect pits. A drill program planned by Newmont for 2010 was canceled due to permitting delays.

Present Condition, Work Completed, and Exploration Plans

Toboggan was an exploration joint venture between Newmont and the Company from March 2008 until March 2011. Newmont spent approximately $2-million and then exited the joint venture, quitclaiming all claims back to the Company, and returning the data generated from three seasons of exploration.

In 2008, Newmont completed a comprehensive early-stage exploration program including claim staking, soil sampling, rock sampling, geologic mapping, a ground-based geophysical survey at Gold Butte, and an airborne geophysical survey over the entire joint venture area.

In 2009, Newmont completed a 6-hole, 1,359-metre core drill program including two holes each at the Gold Butte, Mineral Ridge, and Golden Reward prospects. The best intercept occurred at Gold Butte where a near-surface pyritic quartz vein assayed 2.5 gpt gold over 4.0 meters, just 24 meters below surface. Thick intercepts of anomalous gold mineralization were drilled at Mineral Ridge and Golden Reward.

In 2010, Newmont completed eight shallow core holes and seven shallow RC holes. Six core holes were drilled at Gold Butte, intercepting a fault with anomalous gold mineralization. Two core holes were drilled at Mineral Ridge but were terminated due to difficult ground conditions. The RC holes were drilled at various locations near Toboggan Creek, on the Golden Reward, CA, and Snowslide, prospects, also returning anomalous gold.

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After the 2010 exploration season, Newmont finally obtained the USFS permit necessary to drill its best targets, but terminated the joint venture before proceeding. No significant exploration has occurred at Toboggan since 2010.

With the resumption of mining operations at the Company’s nearby Golden Chest Mine, NJMC is re-evaluating the potential of the Toboggan project, but has no specific work plans at Toboggan for the upcoming year.

Toboggan is an early-stage exploration project with no mineral reserves as recognized by the SEC.

Geology & Mineralization

Gold mineralization at Toboggan is primarily hosted in the Prichard Formation. The gold is structurally-controlled in nature, occurring in discrete high-grade quartz veins or within wider zones of brecciation. There is a spatial relationship between the richest gold values and major structures within the district, such as the Murray Peak, Bloom Peak Fault, and Niagara faults. Some of the controlling structures may be related to the Idaho Fault, which hosts the gold veins at the Company’s Golden Chest Mine, further south. Geochemical analysis has revealed high tellurium levels associated with zones of higher-grade gold. The presence of telluride minerals along with alkaline intrusive rocks and areas of potassic alteration are consistent with alkalic-related orogenic gold systems.

McKINLEY PROJECT

Property Location

The McKinley property encompasses several historic mines and prospects in central Idaho, extending from just north of Riggins northward for nearly five miles. The property is easily accessible via public and private dirt roads off of US Highway 95.

Property Ownership

In 2013, NJMC acquired the McKinley property through its acquisition of Idaho Champion Resources (“ICR”). The total property position is approximately 4,368 acres.

NJMC is currently working to finalize an exploration and mining lease option on the McKinley project for five years. Terms of the lease may require certain property improvements and road repairs. If a mineable resource is found a $12,000 per year Advance Royalty Payment will be made as an advance against a future 2% Net Smelter Return of all ores or concentrates.

A prior lessee of the McKinley Mine (Ex. 10.5) is due a 1.0% to 2.0% NSR sliding scale royalty based on the price of gold, which is capped at a total of $500,000.

The Rupp Lease (Ex. 10.7), which consists of a much larger mineral lease (1,728 acres) and additional lands with certain rights for access and surface disturbance (1,518 acres). An additional 3,246 acres is held through the Rupp Lease, including total surface and some mineral rights, that requires an annual rental payment of $6,100. If an ore reserve of 250,000 ounces of gold is achieved within the Rupp Lease, there is a 1% NSR royalty on future production less recoupment of capital costs. About 780 acres of the mineral rights subject to the Rupp Lease royalty are held through unpatented claims that also require an annual claim fee payment to the BLM.

A group of unpatented mining claims (1,060 acres). These claims require an annual claim fee payment to the BLM.

Property History

The McKinley project is located in the Simpson Mining District, which is mainly known for placer gold production although it also hosts several historic lode mines. The area was first worked in 1891 with intermittent activity and mine development over the following decades by unknown operators. After the Patent for the mine was granted in 1909, sporadic activity continued until the mine was shut down by the War Production Board at the onset of WWII.

While Hunt Energy performed limited sampling in the late-1970s and 1980s and Kennecott Exploration evaluated the property in the early-1990s, no other modern exploration is known to have occurred on the property before ICR started evaluating it in 2012. ICR began assembling the McKinley land package in 2013, acquiring its larger components and entering into an Memorandum of Understanding for an option to purchase the McKinley Mine. ICR was then acquired by NJMC under an Exchange Agreement in late-2013.

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Present Condition, Work Completed, and Exploration Plans

ICR previously conducted surface exploration, including a ground magnetic survey over a large portion of the property, approximately 2.4 by 5.6 kilometers. The survey indicates that potentially major structures passing through the district are associated with some degree of demagnetization. It also appears to indicate the mineralization at the McKinley Mine along with several potential target areas, including historic mines and prospects that extend for several miles along the known trend.

Subsequent rock chip sampling by NJMC identified two areas, outside the McKinley Mine area and along this trend, with significant gold mineralization in outcrop: the Monarch Zone, about one kilometer S-SW of the McKinley Mine, and along Fiddle Creek, which crosses the southern portion of the property. Both areas have had historic prospecting but no significant development and both areas exhibit carbonatization and quartz-carbonate veining along with visible gold and auriferous pyrite mineralization, similar to the McKinley Mine. Much of the ground between these prospects remains completely unexplored.

Of 285 rock chip samples collected by ICR and NJMC at the McKinley property, 49 samples returned gold values that exceeded 1 gpt, 32 samples exceeded 3 gpt, and 14 samples exceeded 10 gpt. Samples were collected over a broad area of the property, from both surface and underground, but primarily focused on its northern end, near the McKinley Mine. At the Monarch Zone, several samples returned high-grade gold with values up to 26 gpt. At Fiddle Creek, 10 of 20 samples exceeded 3 gpt gold with one sample exceeding 50 gpt gold.

NJMC also conducted geologic mapping at McKinley, both surface and underground. On the main level of the McKinley Mine, underground mapping depicts a series of coalescing mineralized faults. These intersecting structural features indicate the potential for hosting large, continuous blocks of high-grade gold mineralization.

In 2014, NJMC conducted a channel sampling program, cutting more than 150 meters of channel from mine ribs and stoped areas in three separate zones on the main mine level. Highlights included a 4.27-meter continuous channel that returned a weighted average of 47.0 gpt gold and a 1.74-meter continuous channel that returned a weighted average of 72.3 gpt gold. The Company used these results to guide an initial drill program. 

Also in 2014, NJMC drilled 21 short, small-diameter (B sized) core holes totaling 388 meters from the main level of the McKinley Mine, where most of the historic production occurred. The holes were relatively short because of the use of a portable drill rig which NJMC custom engineered for the confined spaces of historic mine workings. While the custom drill has depth and angle limitations, it is also highly portable and does not require the construction of drill roads, realizing significant cost savings.

Eleven of the 21 drill holes encountered significant mineralization, including the following highlights:

●

DDH-02, which returned an 2.56-meter interval with a weighted average grade of 43.9 gpt gold

●

DDH-10, which returned an 3.44-meter interval with a weighted average grade of 18.5 gpt gold.

All channel sample and drill intervals reported are core length, not true thickness.

Although no significant work was performed at McKinley in 2017, the Company is preparing to resume exploration efforts in 2018. With historic production, widespread gold mineralization, and a mineralized trend that appears to be nearly three miles long, the Company’s exploration objective at its McKinley project is to evaluate its potential to host one or more high-grade gold deposits.

McKinley is an early-stage exploration project with no mineral reserves as recognized by the SEC.

Present Condition of Plant & Equipment

The McKinley Mine has four levels and approximately 1,190 meters of accessible underground workings that remain in good condition. The workings include two main levels separated vertically by approximately 90 meters with two intermediate sublevels, all of which are connected by a series of sub-vertical raises. There are other small historic mines on the property, one of which includes more than 360 meters of underground workings. There is no usable equipment at the various historic mine sites.

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Geology and Mineralization

The McKinley Project is located within the rocks of the Riggins and Seven Devils Groups of the Blue Mountains Island-Arc Complex. Rocks of the accreted Riggins Group and Seven Devils Terrane are widely considered to be the source of coarse gold found in the extensive historic placer operations near Lucile. The types of gold mineralization encountered in the rock samples, channel samples, and drill core from McKinley contain both coarse and microscopic gold, which is associated with low to moderate levels of geochemical pathfinder elements such as silver, arsenic, copper, cobalt, nickel, and others. The McKinley Project covers an extensive area of alteration and mineralization that can be classified as an orogenic gold model, also known as quartz-carbonate vein type deposits.

EASTERN STAR PROJECT

Property Location

In 2014, NJMC acquired the Eastern Star property which consists of 11 patented lode mining claims about four miles west of Elk City in central Idaho. The property is easily accessible via improved dirt roads off of Idaho State Highway 14.

Property Ownership

NJMC acquired fee simple title to the property from Premium Exploration Inc. (“Premium”) for a purchase price of $250,818. In accordance with the note, the Company made two payments totaling $250,818 to complete the purchase. As part of the purchase agreement, an additional parcel was available to the Company with a final payment due in July 2015, but that option was not exercised by NJMC.

Property History

The Elk City Mining District is an historic gold mining region dating back to the 1860s that once supported more than 20 underground mines, including the Eastern Star, along with placer dredging operations. Modern exploration in the district by companies including Cypress-Amax, Kinross Gold, and Bema Gold has focused on near-surface bulk tonnage gold potential, while the many smaller-scale high-grade gold occurrences have largely been ignored.

In recent years, prior operator Premium collected grab samples from three separate locations, representing nearly one-half mile of mineralized trend. Of 25 grab samples, nine returned gold values greater than 16.9 gpt. Premium then drilled three core holes at Eastern Star, targeting a bulk mineable gold deposit.

Present Condition, Work Completed, and Exploration Plans

After acquiring the property in 2014, NJMC completed initial mapping and sampling programs, following up with a trenching program to help trace structures and map vein locations as there is little exposed outcrop on the property.

Company geologists identified several quartz veins that had been exploited by historic prospect pits and small shafts. Surface grab samples from these veins confirmed the widespread presence of high-grade gold within mineralized quartz vein material. Of 27 samples collected by the Company over multiple vein zones, 12 returned gold values exceeding 5.5 gpt with five of those exceeding 17.0 gpt. Individual samples from five of the zones assayed greater than 6.5 gpt gold. Two samples from a previously un-prospected area returned gold values of 53.8 gpt and 68.9 gpt. A sample from another previously un-prospected area returned 12.3 gpt gold.

As the rocks on the property are deeply weathered, the Company performed an 880-meter trenching program to access fresher rock. The channel samples intercepted notable gold mineralization including contiguous samples up to 10.4 meters of 2.25 gpt gold and 6.4 meters of 7.97 gpt gold (which included 4.3 meters of 11.34 gpt gold). Grab samples from within the trenched material returned values of up to 35.9 gpt gold.

In 2015, NJMC continued with limited mapping and sampling at Eastern Star, with the intent of extending known vein systems generating additional targets for a comprehensive core drill program. Although no significant work was performed at Eastern Star in 2016 or 2017, the Company is preparing to resume exploration efforts in 2018. The Company’s exploration objective at Eastern Star is to evaluate its potential for high-grade gold-bearing quartz veins, similar to those that led to limited historic production and patenting of the mineral claims.

Eastern Star is an early-stage exploration project with no mineral reserves as recognized by the SEC.

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PART II

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Recent Sales of Unregistered Securities

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·

Open-pit mining operations progressed from the 1081 bench to the 1042 bench during the year. Mine production averaged 1,440 tonnes per day (ore and waste). A low-grade stockpile was established and contains 17,000 tonnes at an estimated grade of 0.75 gtp.

·

A pit expansion study was completed early in 2017 which contained 180,000 tonnes of ore at a projected grade of 4.26 gpt for a total of 24,600 ounces of gold. Permitting of the pit expansion was completed in June and mining began immediately thereafter.

·

Underground mining of NJMC’s first stope (849 sublevel) on Skookum Shoot began in December of 2017. A significant amount of work was completed during the year to bring the underground mine back into production including the installation of an electrical circuit, the final installation of dewatering pumps, stope access development and the construction of a backfill plant.

·

Evaluation for potential pit expansion at the Golden Chest was identified in the Katie-Dora area, assay results from drilling are expected in early 2018.

·

Closed private placements for net proceeds of $1,391,000 in cash in addition to $160,000 in debt reduction with participation from management and strategic shareholders including the Company’s concentrate broker H&H Metals Corp.

·

Reduced total liabilities $1,179,708 as compared to December 31, 2016.

The Company has made a variety of equipment purchases in 2017 as the open-pit continues to evolve and in preparation for underground production which commenced in November. Included in these equipment purchases was a Wagner 14-ton underground haul truck purchased in September 2017 for $125,000 of which $112,500 was financed with a 20 month note payable and $6,020/month payments.

Results of Operations

During 2017 the most significant event affecting our financial performance was an increase in revenue as a result of increasing production from the Golden Chest Mine and an overall reduction in debt. Changes in our financial performance are summarized below:

·

Our revenues from gold concentrate sales increased in 2017 due to increased production from the Golden Chest Mine. During 2017 revenue was $4,281,571 as production continued from the open-pit area compared to 2016 revenues of $544,751, most of which was achieved after production resumed the 4^th quarter of 2016.

·

Our percentage of costs of sales to revenue decreased from 87.29% in 2016 to 72.23% in 2017 as we continued to refine our operations through 2017.

·

Gross profit and net income also improved during 2017 compared to 2016 as a result of production and concentrate sales from the Golden Chest mine. Gross profit was $1,189,027 in 2017 compared to $69,222 in 2016. The consolidated net loss for 2017 was $22,124 compared to a net loss of $1,361,027 in 2016. Consolidated net loss included non-cash charges as follows: depreciation and amortization of $156,041 ($30,191 in 2016), amortization of discount on note payable of $44,272 ($84,370 in 2016), accretion of asset retirement obligation of $8,456 ($5,291 in 2016), stock based compensation of $141,407 ($292,241 in 2016), and change in fair value of forward gold contracts of $211,461 ($296,098 in 2016). Net income attributable to New Jersey Mining Company was $39,154 in 2017 compared to a net loss attributable to New Jersey Mining Company of $1,376,716 in 2016.

·

Pre-development expense increased to $234,624 in 2017 compared to $106,099 in 2016 due to activities directly related to the preparations of underground mining and operations at the Golden Chest which commenced in November 2017.

·

Exploration expense decreased for 2017 compared to 2016 due to the Company’s focus on production and operations at the Golden Chest property.

·

From time to time, the Company may take advantage of available timber harvesting opportunities at its properties. During 2017, minimal harvesting actives occurred and therefore revenues decreased from $130,574 recognized in 2016 to $4,887 recognized in 2017.

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Financial Condition and Liquidity

The Company is currently producing from the open-pit at the Golden Chest Mine and began underground operations in early November 2017. In addition, during 2017, production has generated cash flow from operations of $337,619 and the Company’s working capital position has improved approximately $1.3 million from December 31, 2016 to December 31, 2017. Planned production for the next 18 months indicates the trend to improve. The Company has also been successful in raising required capital to commence production and fund ongoing operations, completing a forward gold sale of $1.2 million in 2016 and common stock and warrants sales of $1,391,000 in 2017. The Company has utilized the proceeds for equipment purchase, to reduce debt, and pay off the remaining note balance on the Golden Chest Mine project.

As a result of its planned production, equity sales and ability to restructure debt, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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The accompanying notes are an integral part of these consolidated financial statements.

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New Jersey Mining Company

Notes to Financial Statements

1. Description of Business

New Jersey Mining Company (“the Company”) was incorporated as an Idaho corporation on July 18, 1996. The Company's primary business is exploring for, developing, and extraction of gold, silver, and base metal mineral resources in the Greater Coeur d’Alene Mining District of North Idaho and extending into Western Montana. The Company is currently focused on mining and milling ore from the Golden Chest property. It is also evaluating new mineral investment and development opportunities in the western United States.

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 Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of entities partially owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations.

Accounting for Investments 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. Under the cost method, these investments are carried at the lower of cost or fair value. 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.

At December 31, 2017 and December 31, 2016, the Company’s percentage ownership and method of accounting for each joint venture is as follows:

Non-controlling Interests

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 and the non-controlling investor’s share of changes in equity since that date.

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 depreciation lives and methods, potential impairment of long-lived assets, deferred income taxes, fair value of forward gold contracts, fair value of stock based compensation, estimation of asset retirement obligations and reclamation liabilities. Actual results could differ from those estimates.

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Notes to Financial Statements

2. Summary of Significant Accounting Policies, continued

Revenue Recognition

Revenue is recognized when title and risk of ownership of metals or metal bearing concentrate have passed and collection is reasonably assured. Revenue from the sale of metals may be subject to adjustment upon final settlement of estimated metal prices, weights and assays, and are recorded as adjustments to revenue in the period of final settlement of prices, weights and assays; such adjustments are typically not material in relation to the initial invoice amounts. Revenues from mill operations and custom milling are recognized in the period in which the milling is performed and collection of payment is deemed probable. Revenue from harvest of raw timber is recognized when a contract has been established, the timber has been shipped, and payment is deemed probable. 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 cost or estimated net realizable value. At December 31, 2017 inventories consisted of $219,660 in concentrate inventory and $25,494 in supplies inventory. At December 31, 2016 all inventory was concentrate inventory.

Income Taxes

Income taxes are accounted for under the liability method. Under this method deferred income tax liabilities or assets are determined at the end of each period using the tax rate expected to be in effect when the taxes are expected to be paid or recovered. A valuation allowance is recorded to reduce the deferred tax assets if there is uncertainty regarding their realization.

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, the largest 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.

During 2017 and 2016, the Company determined fair value on a recurring basis as follows:

Financial Instruments

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

Concentration

In 2016 and 2017, the Company has sold its gold flotation concentrate product to a concentrate broker, H&H Metals Corp, a related party (see Note 12). In 2017 and 2016 floatation concentrates accounted 98% and 76.4%, respectively, of all gold sales. The remaining 2% and 23.6% in 2017 and 2016, respectively, were dore and gold impregnated in carbon sold to DH Fell and SIPI Metals Corp.

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Notes to Financial Statements

2. Summary of Significant Accounting Policies, continued

Net Income (Loss) Per Share

Net income (loss) per share is computed by dividing the net amount 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 year ended December 31, 2017, stock options of 2,750,000 and warrants of 1,200,000 are included in the calculation of diluted income per share. Excluded from the diluted earnings per share calculation were 4,912,500 options and 8,095,834 warrants. These options and warrants were excluded because the exercise prices were greater than the average trading prices of the Company’s common stock for the period. For the year ended December 31, 2016, the effect of the Company’s potential issuance of shares from the exercise of 7,500,000 stock options and 10,737,500 warrants would have been anti-dilutive. Accordingly, only basic net loss per share has been presented.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 2017 financial statement presentation. Reclassifications had no effect on net income (loss), stockholders' equity, or cash flows as previously reported.

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.

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’s buildings 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.

Mine Exploration and Development Costs

The Company expenses exploration costs as such in the period they occur. Mine development costs are capitalized as deferred development costs after proven and probable reserves have been identified. 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.

Pre-Development Activities

Pre-development activities involve cost incurred that may ultimately benefit production, such as underground ramp development, pumping, and open-pit development, which are expensed due to the lack of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. These costs are charged to operations as incurred.

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 Asset

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. 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. 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 asset. 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.

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Notes to Financial Statements

2. Summary of Significant Accounting Policies, continued

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 capitalized at the present value of estimated reclamation costs. An asset and a related liability are recorded for the fair value of these 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. If there is an impairment to an asset’s carrying value and a decision is made to permanently close the property, changes to the liability are recognized and charged to the provision for closed operations and environmental matters. 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 Bond

Various laws and permits require that financial assurances be in place for certain environmental and reclamation obligations and other potential liabilities. At December 31, 2017 and 2016, the Company had a $103,320 and $58,000 reclamation bond, respectively, for the Golden Chest Mine.

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 accounted for based on the fair value of the goods or services received or the fair value of the equity interest issued, whichever is more reliably measurable. The value of common stock awards is determined based upon the closing price of our stock on the date of the award. The Company estimates the fair value of stock-based compensation 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 our common stock price over the expected term (“volatility”), employee forfeiture rate, 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.

Derivatives

The Company measures derivative contracts as assets or liabilities based on their fair value. Gains or losses resulting from changes in the fair value of derivatives in each period are recorded in current earnings (losses). None of the Company’s derivative contracts qualify for hedge accounting. The Company does not hold or issue derivative financial instruments for speculative trading purposes.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company has performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how revenue is recognized under current policies. ASU No. 2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of implementing this update on the consolidated financial statements.

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Notes to Financial Statements

2. Summary of Significant Accounting Policies, continued

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of implementing this update on the consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect this update to have a material impact on the consolidation financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the provisions of the update to potential future acquisitions occurring after the effective date.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

3. Going Concern

The Company is currently producing from the open-pit at the Golden Chest Mine and began underground operations in early November 2017. In addition, during 2017, production has generated cash flow from operations of $337,619 and the Company’s working capital position has improved approximately $1.3 million from December 31, 2016 to December 31, 2017. Planned production for the next 18 months indicates the trend to improve. The Company has also been successful in raising required capital to commence production and fund ongoing operations, completing a forward gold sale of $1.2 million in 2016 and common stock and warrants sales of $1,391,000 in 2017. The Company has utilized the proceeds for equipment purchase, to reduce debt, and pay off the remaining note balance on the Golden Chest Mine project.

As a result of its planned production, equity sales, and the Company’s ability to meet debt obligations, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

4. Note Receivable

On September 30, 2014, the Company loaned $58,386 to Premium Exploration (USA) Inc under a convertible promissory note. The note carries simple interest at 8% and was to mature on August 1, 2015 at which time the principal and interest was due. Premium Exploration filed for bankruptcy and the Company received payment in July 2017 in the bankruptcy proceedings of $77,576 which included the original note principal, accrued interest, penalties, and fees. The balance has been paid in full as of December 31, 2017.

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Notes to Financial Statements

5. Property, Plant and Equipment

Property, plant and equipment at December 31, 2017 and 2016, consisted of the following:

During the year ended December 31, 2012, a lease agreement was entered into with Hecla Mining Company (“Hecla”) on the Company’s Little Baldy land holding. Under the agreement, Hecla has paid $15,000 in 2017 and $10,000 in 2016 to the Company for the option to obtain NJMC’s interest in the land. The Company has recorded these lease payments as a reduction in the carrying value of the land for the years ended December 31, 2017 and 2016.

6. Mineral Properties

Mineral properties are as follows:

During the year ended December 31, 2016, $6,253 of interest was capitalized for the construction at the Golden Chest property. No interest was capitalized in the year ended December 31, 2017.

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. The Coleman property was acquired in October 2002.

McKinley

The McKinley project is located near the town of Lucille, Idaho and encompasses three historic hard rock mines on private land in central Idaho. The Company started exploring the property in 2013. A prior lessee is due a 1% to 2% NSR sliding scale royalty on future production based on the price of gold capped at a total of $500,000.

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Notes to Financial Statements

Golden Chest

The Golden Chest is an exploration and underground mine project located near Murray, Idaho consisting of 25 patented and 70 unpatented mining claims. A 2% Net Smelter Royalty is payable on production at the Golden Chest to a former joint venture partner. Royalty expense of $80,865 and $6,916 was recognized as costs of sales and other direct production costs in the years ended December 31, 2017 and 2016, respectively.

Toboggan

Toboggan is a gold and silver exploration project consisting of 106 claims covering 2,100 acres of federal land administered by the U.S. Forest Service. In 2001, the Company issued 50,000 shares of stock to an individual to acquire the rights. The shares were valued at $0.10 per share for a total acquisition cost of $5,000. This cost was for a portion of the claims in the Toboggan property that were purchased; the remaining claims were staked by the Company.

The Little Baldy prospect which a part of the Toboggan project is under lease to Hecla Mining Company (“Hecla”). The lease has a 20-year term and calls for annual payments to the Company of $10,000 through the fifth year, then escalating to $15,000 for three years, $20,000 for one year, and $48,000 thereafter. Should gold production be realized from the leased claims, a 2% net smelter return royalty is due to the Company. The Company is currently in the sixth year of the lease. The annual requirement for 2018 is a payment of $15,000 and work commitment of $200,000 between 2018 and 2020, which will be paid by Hecla.

7. Notes Payable

At December 31, 2017 and 2016 notes payable are as follows:

Future principal payments of debt at December 31, 2017 are as follows:

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New Jersey Mining Company

Notes to Financial Statements

8. Asset Retirement Obligation

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 mine in 2016. Activity for the years ended December 31, 2017 and 2016 is as follows:

In 2016 management estimated the initial cost to reclaim the Golden Chest mine to be $42,182. During the year ended December 31, 2017, the obligations for the Golden Chest and New Jersey mill properties were revised in consideration of additional disturbance activity and timing of future reclamation. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 5.0% from the time the obligation was incurred to the time management expects to pay the retirement obligation.

9. Joint Venture Arrangements

New Jersey Mill Venture Agreement (“NJMJV”)

In January 2011, the Company and United Mine Services, Inc. (“UMS”) entered into a joint venture agreement relating to the New Jersey mineral processing plant. To earn a 35 percent interest in the venture, UMS provided $3.2 million funding to expand the processing plant to 15 tonnes/hr. The Company is the operator of the venture and charges operating costs to UMS 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 venture receive a fee of $2.50/tonne milled. UMS subsequently dissolved and its interest in the mill was transferred to Crescent Silver, LLC (Crescent). As of December 31, 2017 and 2016, an account receivable existed with the Mill Joint Venture from Crescent for $4,682 and $2,888, respectively. To date, no ore has been processed under this joint venture arrangement.

Butte Highlands Joint Venture

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 will account for its investment on a cost basis. The Company purchased the interest in the BHJV to provide additional opportunities for exploration and development and expand the Company’s mineral property portfolio.

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New Jersey Mining Company

Notes to Financial Statements

10. Income Taxes

The Company did not recognize a provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 due to consolidated net losses for those periods and net deferred tax assets having a full valuation allowance.

At December 31, 2017 and 2016, the Company had net deferred tax assets principally arising from the net operating loss carry forward for income tax purposes multiplied by an expected tax rate of 27% and 40%, respectively. 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 has been established at December 31, 2017 and 2016.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company did not incur any income tax benefit or provision for the year ended December 31, 2017 as a result of the changes to tax laws and tax rates under the Act. The Company’s net deferred tax asset was reduced by approximately $1.6 million during the year ended December 31, 2017, which consisted primarily of the remeasurement of federal deferred tax assets and liabilities from 35% to 21%.

The significant components of net deferred tax assets at December 31, 2017 and 2016 were as follows:

At December 31, 2017 and 2016 the Company had net operating loss carry forwards of approximately $10,816,000 and $10,476,000 respectively for both federal and state purposes, which expire in the years 2020 through 2037.

The income tax benefit shown in the financial statements for the years ended December 31, 2017 and 2016 differs from the statutory rate as follows:

We are open to examination of our income tax filings in the United States and state jurisdictions for the 2015 through 2017 tax years. Certain tax positions taken in the 2015 through 2017 tax years could result in adjustments to our exploration and development costs for tax purposes. However, such adjustments would not result in a tax provision because they would result in a revision to the net operating loss carry forwards balance. 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.

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New Jersey Mining Company

Notes to Financial Statements

11. Equity

The Company has authorized 200,000,000 shares of no par common stock at December 31, 2017 and 2016. In addition, the Company has authorized 1,000,000 shares of no par preferred stock, none of which had been issued at December 31, 2017 or 2016.

The Company began a private placement in the fourth quarter 2016 which ran through the first quarter of 2017. Each unit consisted of two shares of the Company’s common stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 through February 2020. As of December 31, 2016, 537,500 units were sold consisting of 1,075,000 shares and 537,500 warrants for net proceeds of $92,500 after deducting the 10% commission and other related placement fees. In March 2017, the Company completed the private placement. In 2017, an additional 3,200,000 shares and 1,600,000 warrants were sold for net proceeds in 2017 of $291,000 after deducting the 10% commission. At closing of the private placement in March 2017, the total units for the private placement were 2,137,500 units, consisting of 4,275,000 shares and 2,137,500 warrants. Net proceeds of the private placement in total were $383,500.

The Company offered an additional private placement in March 2017. The private placement was for 4,250,000 units, each unit consisting of two shares of the Company’s stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 through April 2020. No commission was paid with this private placement. Proceeds were $750,000 in cash and $100,000 exchanged for a note and interest payable to the Company’s president, John Swallow. The Company’s concentrate broker, H&H Metals Corp., who purchases the Company’s gold flotation concentrate product participated in this private placement purchasing 1,250,000 units for $250,000.

The Company offered an additional private placement in November 2017. The private placement was for 1,708,334 units, each unit consisting of two shares of the Company’s stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 for 36 months. No commission was paid with this private placement. Proceeds were $350,000 in cash and $60,000 exchanged for a note and interest payable to the Company’s president, John Swallow. H&H Metals Corp participated in this private placement purchasing 1,041,667 units for $250,000.

In October 2017, the Company utilized proceeds of the private placement to pay the remaining debt due on the Golden Chest property of $250,000.

In 2016, the Company issued 500,000 shares of common stock pursuant to the exercise of stock purchase options at $0.10 per share for $16,250 cash and $33,750 in exchange for a reduction of a note payable with a related party.

During the year ended December 31, 2016 the Company issued 3,000,000 shares of common stock for the purchase of a 50% interest in Butte Highlands joint venture at $0.07 per share for a value of $210,000 and 175,760 shares of common stock for the acquisition of GF&H at $0.15 per share for a value of $26,364. Fair values were based on the trading price of the Company’s stock on the date of the respective transactions.

During the year ended December 31, 2016, the Company issued 682,796 shares of its common stock valued at $71,507 for professional services. Fair value was based on the trading price of the Company’s stock on the dates of each transaction.

Stock Purchase Warrants Outstanding

Transactions in common stock purchase warrants for the year ended December 31, 2017 and 2016 are as follows:

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New Jersey Mining Company

Notes to Financial Statements

11. Equity, continued

These warrants expire as follows:

Stock Options

In April 2014 the Board of Directors of the Company established a stock option 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.

In 2016 2,750,000 options were granted to management, directors, consultants, and employees of the Company. Of these options 1,225,000 vested in the fourth quarter of 2016 and the remaining 1,525,000 vested in 2017. The options expire three years after their grant date. Each option allows the holder to purchase one share of the Company’s stock at $0.15 prior to expiration. Compensation cost of $268,032 is associated with the options. Of this, $151,143 was recognized in 2016, and $116,889 was recognized in 2017.

In 2017, the Company granted a total of 662,500 options to consultants and employees of the Company. These options vest in 2018. The options had a fair value of $66,539 which is being recognized ratably over the vesting period. Compensation cost of $24,518 was recognized in 2017. The remaining unrecognized compensation cost of $42,021 is expected to be recognized in 2018.

Total compensation cost for granted options of $141,407 and $220,734 was recognized in the years ended December 31, 2017 and 2016, respectively. The 2016 amount includes $69,591 of compensation costs for options granted in 2014 and 2015 that vested in 2016.

The weighted average 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:

At December 31, 2017, the stock options have an intrinsic value of approximately $137,500 and have a weighted average remaining term of 2.23 years.

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New Jersey Mining Company

Notes to Financial Statements

12. Related Party Transactions

At December 31, 2017 and 2016, the Company had the following notes and interest payable to related parties:

Related party interest expense for the years ending December 31, 2017 and 2016 was $53,864 and $63,650, respectively. At December 31, 2017, $211,829 of related party debt is payable in 2018 and the remaining $601,082 is payable in 2019. Also see Note 14 for Forward Gold Contracts with related parties.

As of December 31, 2017 and 2016 gold sales receivable from H&H Metals, who owns 4% of the Company’s outstanding common stock, were $307,796 and $54,319, respectively. Gold sales to H&H Metals were $4,192,647 and $400,120, during the years ended December 31, 2017 and 2016, respectively.

13. Acquisition of GF&H Company

On July 11, 2014, the Company acquired two thirds of the issued and outstanding common shares of GF&H Company (“GF&H). In the third quarter of 2016, the Company acquired the remaining one third of GF&H’s outstanding shares at which time GF&H was dissolved. For the remaining one third interest, the Company paid the non-controlling interest $27,341 in cash and 175,760 shares of the Company’s common stock valued at $0.15 per share ($26,364) for a total consideration of $53,705. On the date of the acquisition, the non-controlling interest had a net asset value of $84,966 resulting in a gain of $31,261 which was been recognized as an addition to stockholders’ equity. The Company purchased the outstanding shares of GF&H Company to consolidate the Company’s land holdings in the area of the Golden Chest property and provide additional opportunities for timber revenue and mineral exploration.

14. Forward Gold Contracts

On July 13, 2016, the Company entered into a forward gold contract with Ophir Holdings LLC, a company owned by three of the Company’s officers, for net proceeds of $467,500 to fund startup costs at the Golden Chest. The agreement calls for the Company to deliver a total of 500 ounces of gold to the purchasers in quarterly payments starting December 1, 2016 for a period of two years as gold is produced from the Golden Chest Mine and New Jersey Mill. Ophir Holdings agreed to delay receipt of its December 1, 2016 payment until 2017. The equivalent of 80.5 ounces were delivered to Ophir Holdings in 2017. At December 31, 2017, future gold deliveries are 113 ounces in 2018, 222 ounces in 2019, and 84.5 ounces in 2020.

On July 29, 2016, the Company entered into a forward gold contract through GVC Capital LLC for net proceeds of $772,806 to fund startup costs at the Golden Chest. The agreement calls for the Company to deliver a total of 904 ounces of gold to the purchasers in quarterly payments starting December 1, 2016 for a period of two years as gold is produced from the Golden Chest Mine and New Jersey Mill. The December 1, 2016 payment and 4 payments in 2017 were paid with an ounce equivalent of 565 ounces. At December 31, 2017, future gold deliveries are 339 ounces in 2018.

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Notes to Financial Statements

14. Forward Gold Contracts, continued

The gold to be delivered does not need to be produced from the Golden Chest property. In addition, the counterparties can request cash payment instead of gold ounces for each quarterly payment. The cash payments are based on average gold prices for the applicable quarter. The contracts are accounted for as derivatives requiring their value to be adjusted to fair value each period end. The change in balance for the forward gold contracts for the year ended December 31, 2017 and 2016 is as follows:

The fair value was calculated using the market approach with Level 2 inputs for forward gold contract rates and a discount rate of 10%.

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PART III

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Executive Officers and Key Employees

Monique Hayes was appointed Corporate Secretary in November 2016. She has over 10 years of investor relations corporate governance experience in the mining industry and over 10 years of communications and brand management experience. Prior to joining New Jersey Mining Company, Ms. Hayes worked for Hecla Mining Company, Revett Mining Company and Sterling Mining. Her advertising and communications experience includes working for Publicis Dialog Direct and WhiteRunkle Associates where she worked with national accounts including AT&T Wireless, Bell Atlantic and NordicTrack. Ms. Hayes attended City University where she studied business management, brand strategy and communications.

Legal Proceedings

No Director or Officer has been involved in any legal action involving the Company for the past five years.

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Director Compensation

Director Summary Compensation Table

In 2017 and 2016, Option Awards were issued to the Directors for service as directors of the Company. No additional fees are paid for attendance at Board of Directors’ meetings, committee membership or committee chairmanship. On occasion, Directors are retained for consulting services unrelated to their duties as Directors. These consulting services are either paid in cash or with unregistered Common Stock according to the Company’s policy for share-based payment of services.

The Company does not have a retirement plan for its Directors and there is no agreement, plan or arrangement that provides for payments to Directors in connection with resignation, retirement, termination or a change in control of the Company.

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(1) Based upon 112,310,372 outstanding shares of common stock 9,295,834 warrants, and 7,000,000 vested options at February 15, 2018.

a)

Consists of 16,477,003 shares of common stock, presently exercisable options to purchase 1,500,000 shares and presently exercisable warrants to purchase 1,150,000 shares.

b)

Consists of 1,150,000 shares of common stock, presently exercisable options to purchase 1,750,000 shares.

c)

Consists of 1,156,093 shares of common stock, presently exercisable options to purchase 1,750,000 shares and presently exercisable warrants to purchase 50,000 shares.

d)

Consists of 200,000 shares of common stock, presently exercisable options to purchase 250,000 shares and presently exercisable warrants to purchase 100,000 shares.

e)

Consists of 110,000 shares of common stock, presently exercisable options to purchase 150,000 shares.

None of the Directors or Officers has the right to acquire any additional securities pursuant to options, warrants, conversion privileges or other rights. No shares are pledged as security.

Securities Authorized for Issuance under Equity Plans

In April 2014, the Company established a stock option plan to authorize the granting of stock options to officers and employee. The Company occasionally pays for goods or services with unregistered Common Stock and uses the average bid price of the stock, as quoted on the OTCQB, at the time to determine the number of shares to be issued.

Changes in Control

None.

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Audit Committee Pre-Approval Policies

The Board of Directors has adopted an audit committee pre-approval policy. The audit committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence.

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