You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors and Uncertainties" and elsewhere in this document. See "Cautionary Note Regarding Forward-Looking Statements" above.






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Overview

We are an exploration company, using tried and proven methods to search for gold, silver, and other metals as become indicated, on properties located in the State of Nevada in the Western United States. Our significant properties consist of our Eureka Projects (Lookout Mountain, Windfall, Oswego and other targets) in the Battle Mountain - Eureka Trend located in the North-Central portion of the state, and the Seven Troughs Project, located in the Northwest portion of the state.

We raised funds to acquire and explore these properties through private placements of our common stock and warrants with investors, through debt placements, and through joint venture arrangements with other mining exploration and development companies in our business sector. Our business plans employ strategies to locate and analyze gold and silver properties to determine the existence, quantity and quality of mineral deposits and advance those deposits for the benefit of our shareholders. We may seek to develop those properties ourselves or engage larger mining companies to purchase, develop, joint venture and otherwise exploit the properties for the purpose of production of these discovered precious metals.

During the fiscal year ended September 30, 2022, we accomplished the following:





    1.  We closed a private placement of units of our equity for a total of
        approximately $4,340,000 cash;
    2.  We issued shares for exercise of warrants for a total of approximately
        $146,500;
    3.  We entered into an option with Normandy Gold which, if exercised in its
        entirety, would result in as much as a 75% joint venture interest for
        Normandy Gold in our Seven Troughs property. Full terms would include
        $5,000,000 invested by Normandy Gold in the property, 2,000,000 common
        shares of Normandy Gold issued to us and $250,000 cash paid to us, of
        which $50,000 has been received during the fourth quarter of our fiscal
        2022;
    4.  We purchased six patented claims within a property known as New York
        Canyon for approximately $128,000; and
    5.  We reported the drilling results of the 2021-2022 exploration program.

Highlights of the 2021-2022 exploration program completed during January 2022 include:





    ·   Completed approximately 6,535m of drilling, 65% of which was reverse
        circulation (RC) drilling and 35% was diamond core drilling;
    ·   The first results reported during the program were 5 RC holes completed in
        July 2021. The most significant new intercepts in these holes included:


  o 10.67m at 2.36 grams per tonne (g/t) gold from 301.8m depth in BHSE-194;


  ? including 6.01m at 2.98 g/t gold;


  o 16.76m at 1.74 g/t gold from 257.6m depth in BHSE-195;


  ? including 3.05m at 4.56 g/t gold; and


  o 19.81m at 1.38 g/t gold from 248.4m depth in BHSE-193.


    ·   Reported surface rock sample assay results on the channel and trench
        samples from the Oswego Target. Key results included:


  o 25.9m @ 14.42 g/t gold along strike;
  o 27.4m @ 12.02 g/t gold along strike; and
  o 10.7m @ 3.63 g/t gold, estimated to be true thickness from a trench.


        Integrated new geologic mapping in the Windfall and New York Canyon areas
    ·   with geochemical and geophysical data in anticipation of new drilling in
        late 2022 or 2023.

During the quarter ended March 31, 2022, the Company reported the majority of the drill results from the 2021 drill campaign, including the following highlights:





    ·   Results reported in February 2022 from 6 RC holes and portions of 2 core
        holes included the following highlights:


  o  22.9m at 6.11 g/t gold from 140.8m depth in BHSE-220C,


  ? including 12.2m at 8.92 g/t gold from 151.5m depth;


  o 10.7m at 2.96 g/t gold from 229.2m depth in BHSE-211C;
  o 22.9m at 1.11 g/t gold from 219.5m depth in BHSE-198; and
  o 6.10m at 2.85 g/t gold from 161.5m depth in BHSE-204.


    ·   In March 2022, Timberline reported additional results from 3 core holes
        and 1 RC hole, including:


  o 41.1m at 5.03 g/t gold from 316.1m depth in BHSE-212C,


  ? including 19.8m at 9.49 g/t gold;


  o 9.1m at 1.24 g/t gold from 324.6m depth in BHSE-209,


  ? including 4.6m at 2.07 g/t gold; and


  o 9.1m at 1.34 g/t gold from 255.1m depth in BHSE-210C.





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    ·   Later in March 2022, the Company reported the complete results from
        drillhole BHSE-220C, including:


  o 44.2m at 4.10 g/t gold from 140.8m depth in BHSE-220C,


  ? including 22.9m at 6.24 g/t gold from 140.8m depth; and
  ? including 12.2m at 9.18 g/t gold from 151.5m depth.

During the quarter ended June 30, 2022, Timberline reported the final results from the 2021-2022 drilling campaign, these included several drill holes from the Oswego target, one hole from the WWZ, and final multielement results from one hole into the Graben Zone.





    ·   On May 11, 2022, the Company reported significant shallow oxide gold
        mineralization from the Oswego Target:


  o 35.1m at 2.32 g/t gold from 6.1m depth in BHSE-213,


  ? including 19.8m at 3.93 g/t gold from 7.6m depth;


  o 13.7m at 1.31 g/t gold from 3.0m depth in BHSE-215,


  ? including 6.1m at 2.49 g/t gold from 9.1m depth; and


       o   9.1m at 1.72 g/t gold from surface and 12.2m at 1.22 g/t gold from
           15.2m depth in BHSE-214.


        The final news release concerning the 2021-2022 drill program was released
    ·   on May 18, 2022. The key results from that release included drillholes
        BHSE-192C and BHSE-206C:


  o 24.4m at 3.85 g/t gold from 349.6 depth in BHSE-209C,


  ? including 4.6m at 8.35 g/t gold from 354.2m depth; and
  ? including 7.6m at 5.72 g/t gold from 364.8m depth.


  o 30.5m at 0.41 g/t gold from 182.0m depth in BHSE-206C,


  ? including 7.6m of 1.04 g/t gold from 192.6 m depth.


  o 202.7m at 5.28 g/t SILVER from 121.0m depth in BHSE-206C,


  ? including 56.4m at 9.69 g/t SILVER from 264.3m depth.

During the quarter ended September 30, 2022, Timberline reported the results from the first four holes of the 2022 drilling program at Eureka. Highlights from the four new drill holes include:





  · BHSE-226C: 22.8m at 4.29 g/t gold from 339.9m depth,


  o Including 7.6m at 11.56 g/t gold from 342.9m depth;


  · BHSE-224C: 30.5m at 2.56 g/t gold from 317.6m depth,


  o including 18.4m at 3.80 g/t gold from 317.6m depth, and


  ? including 3.35m at 13.36 g/t gold from 331.3m depth;


  · BHSE-223C: 39.0m at 1.71 g/t gold from 259.7m depth, including


  o 28.3m at 1.97 g/t gold from 259.7m depth, and


  ? including 5.9m at 3.71 g/t gold from 259.7m depth;


  · BHSE-230C: 3.1m at 10.88 g/t gold from 288.6m depth; and
  · BHSE-230C: 8.7m at 2.01 g/t gold from 313.0m depth.

Subsequent to the quarter ended September 30, 2022, Timberline reported more results from the 2022 drilling program. Highlights from these holes include:





  · BHSE-238C: 16.8m at 2.64 g/t gold from 178.9m depth,


  o including 4.6m at 4.45 g/t gold from 182.0m depth;


  · BHSE-221C: 6.1m at 1.83 g/t gold from 332.8m depth,


  o including 1.5m at 3.59 g/t gold from 335.9m depth;


  · BHSE-239C: 9.4m at 1.09 g/t gold from 194.5m depth;
  · BHSE-239C: 6.1m at 1.33 g/t gold from 313.0m depth;
  · BHSE-239C: 3.1m at 3.77 g/t gold from 439.5m depth;
  · BHSE-221C: 35.1m at 10.1 g/t silver from 329.8m depth;
  · BHSE-237C: 79.2m at 8.2 g/t silver from 297.8m depth; and
  · BHSE-237C: 30.5m at 12.2 g/t silver from 393.8m depth.

Maps, tables and figures in Part I of this Annual Report include these drilling results reported for the Company's fiscal year 2022.






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Summary of gold prices

Fiscal year 2022 has seen continuing strong trends in the gold price from a low of approximately $1,634 to a high of approximately $2,039 per ounce, with a trend moving around $1,643 per ounce at year end. We believe the global economic environment and monetary climate continue to favor a strong gold price for the foreseeable future. While volatility is to be expected, our expectation is that we can identify and pursue opportunities to advance our projects and take advantage of the current gold price and market volatility.

Exploration Plans and Budgets

Our exploration focus during fiscal 2023 will continue to be on the Eureka Project. Our financial and human resources will be dedicated to the advancement of the Lookout Mountain, Water Well, Oswego, and other targets across the property. The results of our drilling, mapping, geochemical and geophysical work completed during fiscal years 2020 and 2021 exploration seasons significantly advanced our understanding of the overall geologic setting of the Eureka Project, highlighting several areas with potential for significant gold mineralization. The drilling results of fiscal 2022 significantly added to the geology and mineralization of our target areas in the Eureka Project and will guide our fiscal 2023 exploration plan.

Our preliminary exploration budget for fiscal 2023 is expected to exceed $3.0 million, funded largely by our cash reserves and additional financing activities as we enter into the new 2023 calendar year. We have not yet received all the data from the 2022 work program, and those final results and the analysis thereof will factor heavily into our planning for fiscal 2023. Details of the exploration plan for later in fiscal 2023 will follow after our analysis of the results of the current drill program.

Results of Operations for Years Ended September 30, 2022 and 2021





Consolidated Results



                                                           Year Ended September 30,
                                                             2022             2021

Exploration expenses: Eureka/Lookout Mountain, net of non-cash expenses $ 4,614,490 $ 2,795,753 Total exploration expenditures

$   4,614,490     $ 2,795,753
Non-cash expenses:
Stock option and stock issuance expense                  $      44,321     $   646,422
Depreciation, amortization, and accretion                        5,912           5,632
Total non-cash expenses                                  $      50,233     $   652,054

Operating expenses paid in cash: Salaries and benefits, net of non-cash expenses $ 293,097 $ 293,137 Professional fees expense

                                      181,811         205,068
Other general and administrative expenses                      551,815         529,641

Interest and other (income) expense, net of non-cash expenses

                                                       270,461         232,162
Income tax provision (benefit)                                       -               -
Net loss                                                 $   5,961,907     $ 4,707,815

Our consolidated net loss for the fiscal year ended September 30, 2022 increased significantly from the prior year, primarily as a result of our increased exploration program, which included significant increases in drilling and geophysical activities. We also experienced significant decreases in shared-based compensation. Professional fees expenses were lower as a result of decreased utilization of financial professionals during fiscal 2022. General and administrative expenses increased as management executed on marketing, investor relations, and other programs that were not possible in previous years as placement funds became available to do so. Other expenses for fiscal 2022 were generally consistent with the prior year.

Financial Condition and Liquidity

At September 30, 2022, we had assets of $16,972,229, consisting of cash of $2,438,587; property, mineral rights and equipment, net of depreciation, of $13,980,855, reclamation bonds of $528,643, and other assets in the amount of $24,144.

On September 30, 2022, we had total liabilities of $1,157,467 and total assets of $16,972,229. This compares to total liabilities of $570,144 and total assets of $17,716,406 on September 30, 2021. As of September 30, 2022, our liabilities consist of $124,159 for asset retirement obligations, $270,991 of senior unsecured notes payable - related party, and $704,351 of trade payables and accrued expenses and $57,966 interest payable to a related party. Of these liabilities, $1,033,308 are due within 12 months. The increase in liabilities compared to September 30, 2021 is largely due to increased trade payables and accrued liabilities in 2022. Other liabilities were affected positively or negatively by individual small changes in other components of liabilities. The decrease in total current assets was due to an decrease in cash.






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On September 30, 2022, we had working capital of $1,423,723 and stockholders' equity of $15,814,762 compared to working capital of $3,170,019 and stockholders' equity of $17,146,262 for the year ended September 30, 2021. Working capital experienced an unfavorable change because of a decrease in cash and an increase in trade payables, with other liabilities affected positively or negatively by individual small changes in other components of liabilities.

During the fiscal year ended September 30, 2022, we used cash from operating activities of $5,325,134, compared to $4,263,754 used for fiscal 2021. There was a net loss of $5,961,907 for fiscal 2022 compared to a net loss of $4,707,815 for fiscal 2021. The causal factors are disclosed above in the comparative table and discussion above.

At the end of fiscal 2022, Timberline Resources Corp has accumulated approximately $52.6 million and $22.7 million in federal and state net operating losses, respectively, which may enable us to generate like amounts in net income prior to incurring any significant income tax obligation. Federal net operating losses of $44.8 million will expire in various amounts from 2024 through 2038, while $7.8 million do not expire and the usage of these loss carryforwards is limited to 80% of taxable income. The state net operating losses will expire in fiscal years ending September 30, 2023 through September 30, 2042.

Additionally, BH Minerals has total federal net operating loss carryforwards of approximately $25.5 million, of which $15.8 million expire in fiscal years ending September 30, 2025 through September 30, 2038. Federal net operating loss carryforwards of $9.7 million will not expire and the usage of these loss carryforwards is limited to 80% of taxable income.

At September 30, 2022, the Company also has approximately $6.7 million in net operating loss carryforwards in Canada which will expire in fiscal years ending September 30, 2024 through September 30, 2032.

During the fiscal year ended September 30, 2022, we used cash of $149,717 from investment activities, compared with cash used by investment activities of $13,430 in fiscal 2021. During fiscal 2022, we paid $209,770 to purchase mineral properties, while receiving a refund of reclamation bonds of $10,053, and a non-refundable payment per a memorandum of understanding for sale of mineral rights of $50,000. During fiscal 2021, we paid $92,000 to purchase mineral properties, while receiving $78,570 for lease payments to us for company-owned mineral properties

During the fiscal year ended September 30, 2022, cash of $4,586,086 was provided by financing activities, compared to cash of $5,083,810 provided during the fiscal year ended September 30, 2021. For the fiscal year ended September 30, 2022, cash of $4,439,587 was provided through the sale of stock, net of offering costs, and $146,499 was provided from exercise of warrants. This compares to cash of $4,475,818 provided through the sale of stock and warrants, net of offering costs, $637,001 was provided from exercise of warrants, reduced by $29,009 paid on debt for the fiscal year ended September 30, 2021.





Going Concern:

These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of our assets and the settlement of our liabilities in the normal course of our operations. Disruptions in the credit and financial markets over the past several years have had a material adverse impact on a number of financial institutions and investors and have limited access to capital and credit for many companies. In addition, commodity prices and mining equities have seen significant volatility which increases the risk to precious metal investors. Market disruptions and alternative investment options, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all. If we are unable to obtain financing through equity investments, we will seek multiple solutions including, but not limited to, asset sales, corporate transactions, credit facilities or debenture issuances in order to continue as a going concern.

At September 30, 2022, we had working capital of $1,423,723. We have $1,033,308 outstanding in current liabilities and a cash balance of $2,438,587. As of the date of this Annual Report on Form 10-K, we have sufficient cash to meet our normal operating commitments for the next 12 months. Therefore, we do not expect to be required to engage in financial transactions to increase our cash balance or decrease our cash obligations in the near term. However, we are an exploration company with exploration programs that require significant cash expenditures. A significant drilling program, such are those we have planned, can result in in depletion of cash and return us to a position of insufficient cash to support normal operations for the following 12 months. Such cash-raising efforts may include equity financings, corporate transactions, joint venture agreements, sales of assets, credit facilities or debenture issuances, or other strategic transactions.

The audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2022 disclose a 'going concern' qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We have incurred losses since our inception. We do not have sufficient cash to fund normal operations and meet all of our obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. We believe that the going concern condition cannot be removed with confidence until the Company has entered into a business climate where funding of its activities is more assured. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.






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We plan, as funding allows, to follow up on our positive drill results on our Eureka and Paiute Projects. Principally, we plan to execute drilling as part of the ongoing exploration program at Eureka. Also, subject to available capital, we may continue prudent exploration programs on our material exploration properties and/or fund some exploratory activities on early-stage properties.

We will require additional funding and/or reductions in exploration and administrative expenditures in future periods. Given current economic conditions, we cannot provide assurance that necessary financing transactions will be available on terms acceptable to us, or at all. Without additional financing, we would have to curtail our exploration and other expenditures while we seek alternative funding arrangements to provide sufficient capital to meet our ongoing, non-discretionary expenditures, and maintain our primary mineral properties. If we cannot obtain sufficient additional financing, we may be unable to make required property payments on a timely basis and be forced to return some or all of our leased or optioned properties to the underlying owners.





Financing activities



Private Placements:

On June 25, 2021, we closed on total subscriptions for a private placement offering for 23,070,798 units of the Company at a price of $0.20 per unit. Each unit consisted of one share of our common stock and one-half common share purchase Series M Warrant (each whole such warrant a "Warrant"), with each Warrant exercisable to acquire an additional share of our common stock at a price of $0.30 per share until the Warrant expiration date of May 31, 2023. A total of 23,070,798 shares and 11,535,399 Warrants issued for net proceeds of $4,475,818 to us, net of $138,342 finders fees. In addition, 596,248 Series M Warrants were issued for finders fees.

On May 2, 2022, we closed a non-brokered private placement of the Company to accredited investors at a price of $0.25 per common share. We issued 18,933,705 common shares for cash proceeds of $4,733,426. Finders fees in the amount of $293,839 and 1,016,022 Series N Warrants were paid and issued, respectively, to licensed brokers and consultants in association with the offering. The warrants have a term of 18 months and are exercisable at $0.25 per common share.

The private placement offerings were completed under Rule 506(b) of Regulation D promulgated by the SEC under the Securities Act of 1933, as amended, solely to persons who qualified as accredited investors. Subscribers who were resident in Canada were required to qualify as accredited investors under Canadian National Instrument 45-106 Prospectus Exemptions.

Off-Balance Sheet Arrangements

We do not have any off-balance-sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity, or capital expenditures.

Critical Accounting Policies and Estimates

See Note 2 to our consolidated financial statements contained in Item 8 of this Annual Report for a complete summary of the significant accounting policies used in the presentation of our financial statements. As described in Note 2, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. We believe that our most critical accounting estimates are related to asset impairments and asset retirement obligations.

Our critical accounting policies and estimates are as follows:





Asset Impairments

Significant property acquisition payments for active exploration properties and the fair value of equity instruments, including common shares and warrants, issued for properties are capitalized. The evaluation of our mineral properties for impairment is based on market conditions for minerals, underlying mineralized material associated with the properties, and future costs that may be required for ultimate realization through mining operations or by sale. If no mineable ore body is discovered, or market conditions for minerals deteriorate, there is the potential for a material adjustment to the value assigned to mineral properties.






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We review the carrying value of long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment or abandonment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the asset is used, and the effects of obsolescence, demand, competition, and other economic factors.





Asset Retirement Obligations

We have an obligation to reclaim our properties after the surface has been disturbed by exploration methods at the site. As a result, we have recorded a liability for the fair value of the reclamation costs we expect to incur in association with our Eureka Property. We estimate applicable inflation and credit-adjusted risk-free rates, as well as expected reclamation time frames. To the extent that the estimated reclamation costs change, such changes will impact future reclamation expense recorded. A liability is recognized for the present value of estimated environmental remediation (asset retirement obligation) in the period in which the liability is incurred, if a reasonable estimate of fair value can be made. The offsetting balance is charged to the related long-lived asset. Adjustments are made to the liability for changes resulting from passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation.

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