UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJuneSeptember 30, 2021
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to ___________
Commission file number000-501191
Dakota Territory Resource Corp.
(Exact Name of Registrant as Specified in its charter)
Nevada | 80-0942566 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
141 Glendale Drive Lead, South Dakota | 57754 | |
(Address of principal executive offices) | (Zip Code) |
(605(605) 717-2540) 717-2540
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
1
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer | [ ] | Accelerated Filer | [ ] | |
Non-Accelerated Filer | [ ] | Smaller Reporting Company | [X] | |
Emerging Growth Company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
As of August 12,November 10, 2021, there were 69,182,10970,828,204 shares of common stock outstanding.
2
DAKOTA TERRITORY RESOURCES CORP
JUNESEPTEMBER 30, 2021
(UNAUDITED)
TABLE OF CONTENTS
3
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
June 30, 2021 | March 31, 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 24,852,299 | $ | 10,392,940 | ||||
Prepaid expenses and other current assets | 67,460 | 75,608 | ||||||
Total current assets | 24,919,759 | 10,468,548 | ||||||
Mineral properties, net | 7,357,741 | 5,337,072 | ||||||
Property and equipment, net | 983,701 | 870,744 | ||||||
TOTAL ASSETS | $ | 33,261,201 | $ | 16,676,364 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued liabilities | $ | 514,760 | $ | 162,024 | ||||
Accounts payable - related party | 81,250 | 3,000 | ||||||
Current portion of notes payable - related party | 872,578 | 906,768 | ||||||
Total current liabilities | 1,468,588 | 1,071,792 | ||||||
Notes payable - related party, net of current portion and discount | 0 | 473,325 | ||||||
Total liabilities | 1,468,588 | 1,545,117 | ||||||
COMMITMENTS AND CONTINGENCIES | 0 | 0 | ||||||
SHAREHOLDERS' EQUITY | ||||||||
Preferred stock, par value $0.001; 10,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively | 0 | 0 | ||||||
Common stock, par value $0.001; 75,000,000 shares authorized, 60,227,899 and 56,197,331 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively | 60,228 | 56,197 | ||||||
Additional paid-in capital | 52,456,311 | 23,617,834 | ||||||
Accumulated deficit | (20,723,926 | ) | (8,542,784 | ) | ||||
Total shareholders' equity | 31,792,613 | 15,131,247 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 33,261,201 | $ | 16,676,364 |
September 30, | March 31, | |||||
2021 | 2021 | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 52,220,159 | $ | 10,392,940 | ||
Prepaid expenses and other current assets | 147,742 | 75,608 | ||||
Total current assets | 52,367,901 | 10,468,548 | ||||
Mineral properties | 15,586,852 | 5,337,072 | ||||
Property and equipment | 1,075,363 | 870,744 | ||||
Total assets | $ | 69,030,116 | $ | 16,676,364 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 613,162 | $ | 165,024 | ||
Current portion of notes payable - related party | 0 | 906,768 | ||||
Total current liabilities | 613,162 | 1,071,792 | ||||
Notes payable - related party | 0 | 473,325 | ||||
Total liabilities | 613,162 | 1,545,117 | ||||
Commitments and contingencies | 0 | 0 | ||||
Shareholders' equity | ||||||
Common stock, par value $0.001; 75,000,000 shares authorized, 70,428,204 and 56,197,331 shares issued and outstanding as of September 30, 2021 and March 31, 2021, respectively | 70,428 | 56,197 | ||||
Additional paid-in capital | 94,102,303 | 23,617,834 | ||||
Accumulated deficit | (25,755,777 | ) | (8,542,784 | ) | ||
Total equity | 68,416,954 | 15,131,247 | ||||
Total liabilities and shareholders' equity | $ | 69,030,116 | $ | 16,676,364 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
4
Six Months Ended September 30, | Three Months Ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Operating expenses | ||||||||||||
Exploration costs | $ | 4,058,726 | $ | 482,189 | $ | 1,875,085 | $ | 355,728 | ||||
General and administrative expenses | 13,035,979 | 365,902 | 3,130,387 | 214,372 | ||||||||
Total operating expenses | 17,094,705 | 848,091 | 5,005,472 | 570,100 | ||||||||
Loss from operations | (17,094,705 | ) | (848,091 | ) | (5,005,472 | ) | (570,100 | ) | ||||
Other income (expense) | ||||||||||||
Loss on debt settlement | (124,521 | ) | 0 | (32,476 | ) | 0 | ||||||
Interest income | 6,334 | 2,000 | 6,097 | 0 | ||||||||
Interest expense | (101 | ) | (273,509 | ) | 0 | (203,765 | ) | |||||
Total other expense | (118,288 | ) | (271,509 | ) | (26,379 | ) | (203,765 | ) | ||||
Net loss | $ | (17,212,993 | ) | $ | (1,119,600 | ) | $ | (5,031,851 | ) | $ | (773,865 | ) |
Net loss per share: | ||||||||||||
Basic and diluted net loss per share | $ | (0.28 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.04 | ) |
Weighted average number of shares outstanding | ||||||||||||
Basic and diluted | 62,220,794 | 16,869,034 | 63,876,326 | 17,322,219 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
5
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30, | ||||||
2021 | 2020 | |||||
Cash flows from operating activities | ||||||
Net loss | $ | (17,212,993 | ) | $ | (1,119,600 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation expense | 13,314,963 | 0 | ||||
Loss on settlement of debt | 124,521 | 0 | ||||
Depreciation expense | 58,261 | 124 | ||||
Amortization of debt discount | (59,905 | ) | 268,151 | |||
Changes in current assets and liabilities | ||||||
Prepaid expenses and other current assets | (72,134 | ) | 1,316 | |||
Accounts payable and accrued expenses | 448,886 | 48,861 | ||||
Accounts payable - related party | 0 | 63,151 | ||||
Notes payable | 59,905 | 0 | ||||
Net cash used in operating activities | (3,338,496 | ) | (737,997 | ) | ||
Cash flow from investing activities | ||||||
Purchases of property and equipment | (262,880 | ) | (8,925 | ) | ||
Purchases of mineral properties | (3,286,750 | ) | (220,377 | ) | ||
Net cash used in investing activities | (3,549,630 | ) | (229,302 | ) | ||
Cash flow from financing activities | ||||||
Proceeds from sale of common stock, net of share issuance costs | 49,517,060 | 380,000 | ||||
Repayment of note payable - related party | (801,715 | ) | 0 | |||
Proceeds from exercise of options | 0 | 24,000 | ||||
Proceeds from the issuance of note payable - related party | 0 | (60,645 | ) | |||
Proceeds from note payable | 0 | 1,150,000 | ||||
Repayment of line of credit, net | 0 | (2,227 | ) | |||
Net cash provided by financing activities | 48,715,345 | 1,491,128 | ||||
Net change in cash and cash equivalents | 41,827,219 | 523,829 | ||||
Cash and cash equivalents, beginning of period | 10,392,940 | 146,425 | ||||
Cash and cash equivalents, end of period | $ | 52,220,159 | $ | 670,254 | ||
Supplemental cash flow information: | ||||||
Interest paid | $ | 0 | $ | 6,865 | ||
Taxes paid | $ | 0 | $ | 0 | ||
Non-cash investing and financing activities: | ||||||
Common stock issued for investments in mineral properties | $ | 6,964,463 | $ | 0 | ||
Common stock issued for payment of notes payable | $ | 703,647 | $ | 0 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
46
DAKOTA TERRITORY RESOURCE CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONSCHANGES IN SHAREHOLDERS' EQUITY
For the three and six months ended September 30, 2021 and 2020
(Unaudited)
Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
OPERATING EXPENSES | ||||||||
Exploration costs | $ | 2,183,641 | $ | 126,461 | ||||
General and administrative expenses | 9,905,592 | 151,530 | ||||||
Total operating expenses | 12,089,233 | 277,991 | ||||||
LOSS FROM OPERATIONS | (12,089,233 | ) | (277,991 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Loss on settlement of debt | (92,045 | ) | 0 | |||||
Interest income | 237 | 2,000 | ||||||
Interest expense | (101 | ) | (69,744 | ) | ||||
Total other income (expense) | (91,909 | ) | (67,744 | ) | ||||
NET LOSS | $ | (12,181,142 | ) | $ | (345,735 | ) | ||
Net loss per share: | ||||||||
Basic and diluted net loss per share | $ | (0.21 | ) | $ | (0.02 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 56,900,553 | 16,410,868 |
Common Stock | |||||||||||||||
Shares | Amount | Additional Paid-in Capital | Deficit | Total | |||||||||||
Balance, March 31, 2021 | 56,197,331 | $ | 56,197 | $ | 23,617,834 | $ | (8,542,784 | ) | $ | 15,131,247 | |||||
Private placement | 2,311,000 | 2,311 | 10,397,189 | 0 | 10,399,500 | ||||||||||
Cash received for unissued shares | - | 0 | 6,496,034 | 0 | 6,496,034 | ||||||||||
Common stock issued for investment in mineral properties | 224,005 | 224 | 1,119,241 | 0 | 1,119,465 | ||||||||||
Common stock issued upon issued of debt | 45,563 | 46 | 223,213 | 0 | 223,259 | ||||||||||
Stock based compensation expense | 1,450,000 | 1,450 | 10,602,798 | 0 | 10,604,248 | ||||||||||
Net loss for the Period | 0 | 0 | 0 | (12,181,142 | ) | (12,181,142 | ) | ||||||||
Balance, June 30, 2021 | 60,227,899 | $ | 60,228 | $ | 52,456,309 | $ | (20,723,926 | ) | $ | 31,792,611 | |||||
Common stock issued for cash | 37,500 | 37 | 22,463 | 0 | 22,500 | ||||||||||
Cash received for unissued shares | - | 0 | (6,496,034 | ) | 0 | (6,496,034 | ) | ||||||||
Private placement | 8,855,161 | 8,855 | 39,839,369 | 0 | 39,848,224 | ||||||||||
Common stock issued for investment in mineral properties | 1,208,595 | 1,209 | 5,843,790 | 0 | 5,844,999 | ||||||||||
Common stock issued upon issued of debt | 99,049 | 99 | 480,289 | 0 | 480,388 | ||||||||||
Share issuance costs | 0 | 0 | (754,598 | ) | 0 | (754,598 | ) | ||||||||
Stock-based compensation expense | - | 0 | 2,710,715 | 0 | 2,710,715 | ||||||||||
Net loss for the Period | 0 | 0 | 0 | (5,031,851 | ) | (5,031,851 | ) | ||||||||
Balance, September 30, 2021 | 70,428,204 | $ | 70,428 | $ | 94,102,303 | $ | (25,755,777 | ) | $ | 68,416,954 | |||||
Balance, March 31, 2020 | 16,354,197 | $ | 16,354 | $ | 2,783,193 | $ | (5,377,743 | ) | $ | (2,578,196 | ) | ||||
Cashless exercise of stock options and warrants | 374,544 | 375 | (375 | ) | 0 | 0 | |||||||||
Cash received for unissued for cash | - | 0 | 330,000 | 0 | 330,000 | ||||||||||
Debt discount assigned to purchase option | - | 0 | 1,305,000 | 0 | 1,305,000 | ||||||||||
Net loss for the Period | - | 0 | 0 | (345,735 | ) | (345,735 | ) | ||||||||
Balance, June 30, 2020 | 16,728,741 | $ | 16,729 | $ | 4,417,818 | $ | (5,723,478 | ) | $ | (1,288,931 | ) | ||||
Issuance of previously unissued shares | 275,000 | 275 | (275 | ) | 0 | 0 | |||||||||
Cash received for unissued shares | - | 0 | 50,000 | 0 | 50,000 | ||||||||||
Common stock issued upon exercise of options | 75,000 | 75 | 23,700 | 0 | 23,775 | ||||||||||
Common stock issued upon cashless exercise of warrants | 550,000 | 550 | (2,200 | ) | 0 | (1,650 | ) | ||||||||
Net loss for the Period | 0 | 0 | 0 | (773,865 | ) | (773,865 | ) | ||||||||
Balance, September 30, 2020 | 17,628,741 | $ | 17,629 | $ | 4,489,043 | $ | (6,497,343 | ) | $ | (1,990,671 | ) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
57
DAKOTA TERRITORY RESOURCE CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (12,181,142 | ) | $ | (345,735 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation expense | 10,604,248 | 0 | ||||||
Loss on settlement of debt | 54,169 | 0 | ||||||
Depreciation expense | 27,661 | 0 | ||||||
Amortization of debt discount | 37,876 | 67,037 | ||||||
Changes in current assets and liabilities: | ||||||||
Prepaid expenses and other assets | 8,148 | (4,244 | ) | |||||
Accounts payable and accrued expenses | 352,986 | 3,490 | ||||||
Accounts payable - related party | 78,250 | 9,405 | ||||||
Net cash used in operating activities | (1,017,804 | ) | (270,047 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (140,618 | ) | 0 | |||||
Purchases of mineral properties | (901,203 | ) | (57,213 | ) | ||||
Net cash used in investing activities | (1,041,821 | ) | (57,213 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of note payable | 0 | 1,150,000 | ||||||
Proceeds from issuance of common stock | 10,399,500 | 330,000 | ||||||
Deposits received | 6,496,034 | 0 | ||||||
Repayment of note payable - related party | (376,550 | ) | (40,145 | ) | ||||
Repayment of line of credit, net | 0 | (1,472 | ) | |||||
Net cash provided by financing activities | 16,518,984 | 1,438,383 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 14,459,359 | 1,111,123 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 10,392,940 | 146,425 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 24,852,299 | $ | 1,257,548 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Interest paid | $ | 0 | $ | 0 | ||||
Taxes paid | $ | 0 | $ | 0 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued for investment in mineral property | $ | 1,119,466 | $ | 0 | ||||
Common stock issued for payment of note payable | $ | 223,259 | $ | 0 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
6
DAKOTA TERRITORY RESOURCE CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended June 30, 2021 and 2020
(Unaudited)
Common Stock | |||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||
Balance March 31, 2020 | 16,354,197 | $ | 16,354 | $ | 2,783,193 | $ | (5,377,743 | ) | $ | (2,578,196 | ) | ||||||||
Cashless exercise of stock options and warrants | 374,544 | 375 | (375 | ) | 0 | 0 | |||||||||||||
Cash received for unissued shares | - | 0 | 330,000 | 0 | 330,000 | ||||||||||||||
Debt discount assigned to purchase option | - | 0 | 1,305,000 | 0 | 1,305,000 | ||||||||||||||
Net loss | - | 0 | 0 | (345,735 | ) | (345,735 | ) | ||||||||||||
Balance at June 30, 2020 | 16,728,741 | $ | 16,729 | $ | 4,417,818 | $ | (5,723,478 | ) | $ | (1,288,931 | ) | ||||||||
Balance at March 31, 2021 | 56,197,331 | $ | 56,197 | $ | 23,617,834 | $ | (8,542,784 | ) | $ | 15,131,247 | |||||||||
Common stock issued for cash | 2,311,000 | 2,311 | 10,397,189 | 10,399,500 | |||||||||||||||
Cash received for unissued shares | - | 0 | 6,496,034 | 0 | 6,496,034 | ||||||||||||||
Common stock issued for investment in mineral properties | 224,005 | 224 | 1,119,243 | 0 | 1,119,467 | ||||||||||||||
Common stock issued upon conversion of debt | 45,563 | 46 | 223,213 | 0 | 223,259 | ||||||||||||||
Stock-based compensation expense | 1,450,000 | 1,450 | 10,602,798 | 0 | 10,604,248 | ||||||||||||||
Net loss | - | 0 | 0 | (12,181,142 | ) | (12,181,142 | ) | ||||||||||||
Balance at June 30, 2021 | 60,227,899 | $ | 60,228 | $ | 52,456,311 | $ | (20,723,926 | ) | $ | 31,792,613 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
7
DAKOTA TERRITORY RESOURCES CORP
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2021
(UNAUDITED)
Note 1-Summary of Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements ("interim financial statements") of Dakota Territory Resource Corp. ("we", "us", "our", the "Company", "Dakota Territory") have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and the rules of the Securities and Exchange Commission ("SEC") for interim statements, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K, for the year ended March 31, 2021 as filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended March 31, 2021 as reported in our Annual Report on Form 10-K, have been omitted. The year-end balance sheet data was derived from the audited financial statements. Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in the Company's Annual Report on Form 10-K.
Uncertainties and Economic Development
In March 2020, the World Health Organization designated the new coronavirus ("COVID-19") as a global pandemic. Federal, state and local governments have mandated orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, restrictions on travel, and work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has resulted in significant volatility in the financial markets. The restrictions put in place by federal, state and local governments could delay our exploratory programs on our mineral properties. Furthermore, the impact of the pandemic on the global economy could also negatively impact the availability and cost of future borrowings should the need arise. It is unknown how long the adverse conditions associated with the pandemic will last and what the complete financial effect will be to the Company. The Company continues to monitor the impact that the pandemic, including relief bills enacted in response thereto, may have on operations. Currently, the Company is unable to determine the impact that the pandemic will have on its financial condition, results of operations, or liquidity.
Reverse Stock Split
On May 13, 2021, the Board of Directors of the Company approved a reverse stock split of the Company's common stock at a ratio of 1-for-4. The reverse stock split was made effective on May 25, 2021 and all share numbers and common stock prices presented give effect to the reverse split.
Merger Agreement
Pursuant to thean Amended and Restated Merger Agreement (the "Merger Agreement"), JR Resources Corp. ("JR") will change its name to Dakota Gold Corp. and the Company have incorporatedwill merge (the "Merger") into a new company ("NewCo") that will acquire all of the outstanding securitiessubsidiary of JR, andwith shareholders of the Company in exchange for securities of NewCo (the "Merger"). Shareholders of JR will receive a number of NewCo shares of common stock equal to their percentage shareholding in JR multiplied by the 35,641,667 Dakota Territory shares that JR owns. Shareholders of the Company other than JR will receivereceiving one share of common stock of NewCoJR for each share of common stock of the Company.
In addition, at the closing of the Merger, (i) each outstanding option to purchase the Company's common stock, whether vested or unvested, will be assumed and converted into an option with respect to a number of shares of NewCoJR common stock in the manner set forth in the Merger Agreement (ii) each outstanding warrant to purchase JR common stock, whether or not exercisable, will be assumed and converted into a warrant with respect to a number of shares of NewCo common stock in the manner set forth in the Merger Agreement, (iii)(ii) any outstanding awards of restricted stock units with respect to shares of the Company's common stock will be assumed and converted into the right to receive an award of restricted stock units representing a right to receive a number of shares of NewCoJR common stock in the manner set forth in the Merger Agreement and (iv) NewCoAgreement. On or prior to the closing of the Merger, JR will change its namehave completed a reverse stock split such that the total number of JR shares will be proportionately reduced to "Dakota Gold Corp."35,641,667.
8
Note 1-Summary of Accounting Policies, continued
On or before completion of the Mergers: (i) JR will have changed its name to Dakota Gold Corp.; (ii) JR will have completed a reverse stock split such that the total number of JR shares will be proportionately reduced to 35,641,667 JR shares; (iii) shareholders of Dakota Territory other than JR will receive one share of common stock of JR Resources for each share of common stock of Dakota Territory; (iv) each outstanding option to purchase Dakota Territory common stock, whether vested or unvested, will be assumed and converted into an option with respect to a number of shares of JR common stock in the manner set forth in the Merger Agreement; and (v) each outstanding award of restricted stock units with respect to shares of Dakota Territory common stock will be assumed and converted into the right to receive an award of restricted stock units representing a right to receive a number of shares of JR common stock in the manner set forth in the Merger Agreement.
The completion of the Merger is subject to customary closing conditions for a transaction of this nature, including securities law compliance the approval of JR shareholders and the approval of the Company's shareholders. In addition, in connection with the Merger, the Company and JR intend to cause NewCo to prepare and file a registration statement on Form S-4 with the US Securities and Exchange Commission ("SEC").
Consolidation
On April 30, 2021, the Company incorporated Dakota Gold Services (Canada) Corp. ("Dakota Canada") under the British Columbia Business Corporations Act. These financial statements consolidate Dakota Canada, a wholly-owned subsidiary. All significant intercompany transactions and accounts have been eliminated on consolidation.
Note 2-Related Party Transactions
The Company engages in related party transactions that involve its officers and directors and/or companies controlled by the officers and directors. Following is an analysis of related party transactions:
Mr. Gerald Aberle is the Company's former President, Chief Executive Officer and is currently Chief Operating Officer of the Company. He is also a director and significant shareholder of the Company and the owner of Jerikodie Inc. ("Jerikodie"). Under a February 2012 agreement, Jerikodie Inc. earnsearned a fixed consulting fee of $9,000 per month, plus approved expenses. In October 2020, the Company paid Jerikodie Inc, $200,000 of the approximate $729,500 owed to it for consulting fees and issued a note payable to Jerikodie for the remaining balance of approximately $529,500 bearing interest at 0.25% per year. On June 1, 2021 the Company and Jerikodie settled debt of $529,500$529,544 through the payment of $376,550 and the issuance of 45,563 shares of common stock. Upon settlement, the Company recognized all unamortized debt discount on the note totaling $37,876 as interest expense.$22,029. The fair value of the consideration paid to settle the note exceeded the carrying amount of the note, resulting in a loss on settlement of $54,169 which was recognized as a general$92,045. During the three and administrative expense. Duringsix months ended September 30, 2021, the Company paid Jerikodie $0 and $66,178, respectively (2020 - $27,000 and $54,000, respectively) for consulting fees, in addition to $25,000 in the three months ended JuneSeptember 30, 2021 for a net smelter royalty disclosed below. Effective April 15,2021, Mr. Aberle transitioned from being a consultant to being an employee of the Company and the agreement with Jerikodie was terminated. The Company engaged a Company controlled by a family member of Mr. Aberle, for the purpose of providing general labor and incurred approximately $20,734 in costs. Duringduring the three and six months ended JuneSeptember 30, 2021 the Company paid Jerikodie $39,238 for consulting fees.and incurred $268 and $21,001 in costs, respectively (2020 - $0 and $2,326, respectively).
Mr. Richard Bachman is the Company's former Chief Geological Officer ("CGO"). He is also a significant shareholder of the Company and the owner of Minera Teles Pires Inc. ("Minera Teles"). Under an October 2005 agreement that expired in March 2020, Minera Teles earned a $10,000 monthly consulting fee and received $1,500 per month for office rent and expenses. The consulting fee was divided between a $5,000 per month cash payment and a $5,000 per month deferred amount. The Company also owed Mr. Bachman, individually, $305,145 in unsecured loans. These unsecured loans bear interest at rates ranging from 3% to 4% per year and are due on demand. In June 2020, the Company repaid $40,145 of unsecured loans, plus accrued interest totaling $6,095. In October 2020, the Company paid Minera Teles $200,000 for amounts owed for prior services and combined the remaining amount owed of approximately $795,500 with amounts owed under the unsecured loans, including unpaid interest, into a new note in the amount of $1,055,310, bearing interest at 0.25% per year. A payment of $145,000 was made in December 2020. As of June 30, 2021, the unpaid principal balance totalled $872,578. In July 2021, the Company and Mr. Bachman settled debt of $872,578 through the payment of $425,165 in cash and the issuance of 99,049 shares of common stock. Upon settlement, the Company recognized all unamortized debt discount on the note totaling $37,876. The fair value of the consideration paid to settle the note exceeded the carrying amount of the note, resulting in a loss on settlement of $32,476.
During the three and six months ended JuneSeptember 30, 2021, the Company paid $0 and $6,000, respectively (2020 - $9,000 and $18,000, respectively) for consulting fees to WCM Associates, LP, an entity controlled by the Company's former CFO.
In connection with the notes payable issued in 2020, as discussed above, the Company determined that the 0.25% contractual rate represented a below-market interest rate. Interest was imputed on the notes payable at 5.00% interest resulting in a discount at issuance of $86,024. During three months ended June 30, 2021, the Company recognized amortization of the debt discount of $Nil in interest expense.
Messrs. Aberle and Bachman ownowned a 5% net smelter return royalty on the original 84 unpatented mining claims that comprised the Blind Gold Property. An agreement to extinguishDuring the three months ended September 30, 2021, the Company extinguished the royalty forby paying Messrs. Aberle and Bachman $25,000 each has been executed.and recognized as exploration expenses.
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Note 2-Related Party Transactions, continued
The remunerationJonathan Awde was appointed Chief Executive Officer and Gerald Aberle resigned as Chief Executive Officer and was appointed Chief Operating Officer. He is also a director and significant shareholder of directors and other membersthe Company. Under a March 2021 agreement, Jonathan Awde earns a fixed consulting fee of key management personnel during the three months ended June 30, 2021 and 2020 was as follows:$23,750 per month, plus approved expenses.
June 30, 2021 | June 30, 2020 | |||||
Directors fees | $ | 27,000 | $ | 0 | ||
Salaries | 71,133 | 0 | ||||
Consulting fees | 126,613 | 37,215 | ||||
Share-based compensation | 6,391,544 | 0 | ||||
$ | 6,616,290 | $ | 37,215 |
Note 3-Mineral Properties
On September 26, 2012, the Company was re-organized with North Homestake Mining Company. With this re-organization, the Company and acquired 84 unpatented lode mining claims covering approximately 1,600 acres known as the Blind Gold Property located in the Black Hills of South Dakota.
On December 28, 2012, In 2018 and 2019, the Company acquired 57 unpatented lode mining claims covering approximately 853 acres known as the West False Bottom Creek and Paradise Gulch Claim Group, the City Creek Claims Group, and the Homestake Paleoplacer Claims Group, all located in the Black Hills of South Dakota. The West False Bottom Creek and Paradise Gulch Claims were contiguous to the Blind Gold Property and have been consolidated into the Blind Gold Property. The purchase price was 250,000 restricted common shares valued at $0.60 per share, or $150,000.
On February 24, 2014, the Company acquired surface and mineral title to the 26.16 acres of the Squaw and Rubber Neck Lodes that comprise Mineral Survey 1706 in the Black Hills of South Dakota. The Company is required to make annual lease payments of $8,000 for a period of 5 years, of which $8,000 was due upon execution of the agreement. On May 7, 2019, the Company extended the leaseadditional acreage associated with an option to purchase agreement for Mineral Survey 1706 for an additional 5-year period. The property is part of the Homestake Paleoplacer Property, and the Company has maintained the option to purchase the mineral property for $150,000.
On March 3, 2014, the Company completed the acquisition of approximately 565.24 mineral acres in the Northern Black Hills of South Dakota. The acquisition increased our mineral interests in the Homestake District by nearly 23%, to over 3,057 acres. As part of the property acquisition, the Company purchased an additional 64.39 mineral acres located immediately southwest and contiguous to our Paleoplacer Property, including mineral title to the historic Gustin, Minerva and Deadbroke Gold Mines. The purchase price of the mineral interests was $33,335.
On April 5, 2017, the Company acquired options to purchase a combination of surface and mineral titles to approximately 293 acres in the Homestake District of the Northern Black Hills of South Dakota. The acquisition included 61 acres located immediately south and contiguous with our City Creek Property; 82 acres located approximately one half mile south of our Blind Gold Property at the western fringe of the historic Maitland Gold Mine; and 141 acres located immediately north and contiguous to our Homestake Paleoplacer Property. The Company is required to make annual lease payments totaling $20,000 for a period of 5 years, of which $20,000 was due upon execution of the agreement. The Company has an option to purchase the mineral properties for total price of $626,392. As of June 30, 2021, the Company is current on all required annual lease payments.
In November 2018, we acquired 42 unpatented lode mining claims covering approximately 718 acres located immediately to the north and adjacent to the Company's City Creek Property. Through this staking,Property and the City Creek project area was expanded from approximately 449 acres to 1,106 acres.
In September 2019, the Company completed the acquisition of 106 unpatented lode mining claims covering approximately 1,167 acres in close proximity to the historic Tinton Gold Camp. The Tinton area was the site of placer mining activity between 1876In 2020 and the turn of the century.
On March 6, 2020,2021, the Company completedincreased the acquisitionsize of 65 unpatented lode mining claims covering approximately 1,152 acres in the Homestake District of the Black Hills of South Dakota. The new property is contiguous to the Company's Blind Gold Property.
In May 2020,Property, the Company acquired 67 unpatented lode mining claims covering approximately 1,045 acres located onTinton Property, the western margin ofPoorman Anticline Property, the structural corridor that extends north of the Homestake Gold Mine. The West Corridor property is located just south of the mineral property Dakota Territory acquired from Deadbroke Mining Company in March of 2014, just north of the producing Wharf Mine (Coeur Mining) and just to the south and east of the former Richmond Hill Mine (Barrick Gold).
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Note 3-Mineral Properties, continued
In July 2020, the Company staked 166 unpatented lode mining claims covering approximately 3,152 acres located immediately north and adjacent to the Company's City Creek Property. Through this staking, the City Creek project area was expanded from approximately 1,176 acres to 4,319 acres. The City Creek Property is comprised of a combination of patented and unpatented mining claims covering the continuous extension of the iron-formation gold host northeast of the Homestake Mine. The City Creek geology is dominated by the Homestake, Ellison and Poorman stratigraphic sequence that has been delineated by more than 40,000 ft of core drilling across the property. The historic drilling also documents the occurrence of gold mineralization in the classic quartz vein, chlorite-arsenopyrite style of the Homestake Mine.
On September 15, 2020, we completed the acquisition of 50 unpatented lode mining claims covering approximately 840 acres at the historic Ragged Top Gold Camp, of the Black Hills of South Dakota. Tertiary-aged gold mineralization inWest Corridor Property and the Ragged Top area is hosted primarily in the Paha Sapa Limestone formationCity Creek Property through both acquisitions and has been mined from both vertical fissures called "Verticals" and from collapsed breccias. The Ragged Top acquisition is located just northwest of the producing Wharf Mine (Coeur Mining) and approximately 3 miles southwest of the former Richmond Hill Mine (Barrick Gold).staking.
On October 26, 2020, the Company completed the purchase of the Maitland Gold Property from Homestake Mining Company of California ("HMCC"), a wholly owned subsidiary of Barrick Gold Corporation ("Barrick"). At closing, the Company paid Barrick $3.5 million cash and issued 750,000 shares of its common stock valued at $1.76 per share, for total consideration of $4.82 million. Additionally, Barrick retained a 2.5% net smelter returns royalty on the property. The 2,112 mineral-acre Maitland acquisition is an important component of the Company's exploration and development strategy for the structural corridor that extends from the Homestake Gold Mine to the Company's Blind Gold Property at the northern end of the Homestake District.
On November 25, 2020,October 14, 2021 the Company acquired 64 unpatented lode mining claims covering approximately 1,092 acres located south andentered into an option agreement to acquire the westRichmond Hill Property in the Homestake District, South Dakota. Under the terms of the former Homestake Gold Mine at Lead, South Dakota.agreement, Dakota Territory has a three-year option to acquire 2,126 acres of surface and mineral rights with attendant facilities. The Poorman Anticline geological structure isCompany issued 400,000 Shares to Barrick and will make annual Option payments of $100,000 during the southwestern-most known extensionoption period. The Company may exercise the Option on or before September 7, 2024, by assuming all of the Homestake iron-formation host inliabilities and bonds associated with the district. Gold mineralization was discovered undergroundRichmond Hill Property. In addition, on the 2,600 and 4,100 foot levels in the far western extentsexercise of the Homestake Mine inoption, the 1950'sCompany will issue Barrick an additional 400,000 shares and 60'sgrant a 1% NSR to Barrick with little historic follow-up exploration inrespect to any gold that may be recovered from the Poorman Anticline closer to surface. Dakota Territory's targeting in the Poorman Anticline is based on the presence of the Homestake iron-formation host and projected intersections with important shear fabric that is known to have conducted fluids necessary to the deposition of gold mineralization in the northern extents of the structural corridor.Richmond Hill Property.
On January 26,September 7, 2021 the Company acquired 143 unpatented lode mining claims covering approximately 2,468 acres.entered into an option agreement to acquire surface rights and certain residual facilities in the Homestake District, South Dakota from the HMCC. The acquisition was based on continuing analysis of the Company'sagreement provides for exclusive access to Homestake's extensive historic data sets coupledwhich chronicle its 145-year exploration and mining history throughout South Dakota. Under the terms of the agreement, the Company has a three-year option to acquire 4,261 acres of surface rights with new insights derivedattendant facilities and data held by HMCC. In consideration for the option, the Company made a cash payment of US$1.3 million and issued 1 million shares of common stock to Barrick and will make annual Option payments of US$300,000 during the Option period. The Company may exercise the option on or before September 7, 2024, by assuming all of the liabilities and bonds currently held by HMCC in the Homestake District. In addition, on exercise of the Option, Dakota Territory will issue Barrick 3 million Shares and grant a 2.5% NSR to Barrick with respect to any gold that may be recovered from the Company's district-scale airborne geophysical survey flown during the summer of 2020 and increased the acreage covered by three of the Company's existing project areas. At the west side of the Homestake District, the Tinton property was extended to the north and northwest adding approximately 1,966 acres to the original claim block. In the central region of the District, the West Corridor property was extended west to Cleopatra Creek covering approximately 242 additional acres between Richmond Hill and Wharf gold mines, and the Blind Gold Property was expanded west adding approximately 260 acres immediately north of the Richmond Hill Mine.
On March 8, 2021, the Company acquired 39 unpatented lode mining claims covering approximately 806.5 acres at the eastern boundary of the Company's Tinton Property. Tinton was the site of placer mining activity between 1876 and the turn of the century, the lode source for which has not been discovered. Our original Tinton claim block was located based on historic research and exploration conducted by members of our technical team at Homestake Mining Company in the 1980's and 1990's, which suggested a Pre-Cambrian lode source at depth. The latest property acquisition is focussed on additional younger Tertiary-aged gold mineralization in the younger sedimentary and igneous rocks covering theGrizzly Gulch property.
On March 9, 2021, Dakota Territory acquired, by option, 25 patented mining claims covering approximately 307 acres at the eastern boundary of the northern segment of the Company's Ragged Top Property. NaN additional unpatented lode claims covering approximately 29 acres were also acquired by staking and added at the north end of the property. The Ragged Top Property has been subject to historic mining operations producing Tertiary-aged gold and silver mineralization primarily from vertical fissures and collapsed breccias within the Paha Sapa limestone unit. The Ragged Top property is located just northwest of the producing Wharf Mine (Coeur Mining) and approximately 3 miles southwest of the former Richmond Hill Mine (Barrick Gold).
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Note 3-Mineral Properties, continued
On May 21, 2021, the Company purchased surface and mineral title to approximately 213 acres located contiguous to the northwest boundary of the Company's West Corridor Property. The property is located just south of the mineral property Dakota Territory acquired from Deadbroke Mining Company in the Maitland Area in March of 2014, just north of the producing Wharf Mine (Coeur Mining) and just to the south and east of the former Richmond Hill Mine (Barrick Gold). The purchased property is subject to a 2% NSR Royalty held by Homestake Mining Company of California and a buyback right for 51% interest in the property subject to, among other provisions, the establishment of a 1,000,000-ounce reserve and/or inferred resource from one or more deposits located within a one-kilometer area of influence surrounding the property.
During the quarter ended June 30, 2021, the Company purchased an additional 334 acres of patented mining claims.
In total, the Company currently holds eightnine brownfield project areas in the district comprised of 9761,722 unpatented claims and a combination of surface and mineral leases covering a total of approximately 19,93738,918 acres. We have not established that any of our projects or properties contain any proven or probable reserves under SEC Industry Guide 7.
As of JuneSeptember 30, 2021 and March 31, 2021, the Company's mineral properties totaled $7,357,741$15,586,852 and $5,337,072, respectively. As of JuneSeptember 30, 2021, the Company is in the exploration stage and has not commenced amortization of its properties.
Note 4-Notes Payable, continued
JR Resources Corp.
In February 2020, wethe Company entered into a $300,000 unsecured promissory note agreement with JR. The note bore interest at 3.0% per year and was due on May 5, 2020. In May 2020, JR and the Company entered into an amended and restated promissory note in the amount of $1,450,000, which includes the $300,000 that was advanced in February 2020 and an additional $1,150,000 that was advanced in May 2020. The amended and restated unsecured note bears interest at 0.25% per year, compounded annually, and matures on December 31, 2021.
On October 15, 2020, and as a part of the first closing of our agreement with JR, the promissory note of $1,450,000 was converted into 2,416,667 shares of the Company's common stock, pursuant to its terms. In connection with the conversion, the Company recognized the remaining $1,036,849 of unamortized debt discount as interest expense. For the year ended March 31, 2021, the Company recognized additional interest expense of $1,305,000 related to amortization of the debt discount.10
Note 4-Notes Payable
On January 20, 2021, JR lent the Company borrowed $300,000 from JR, on an unsecured basis. On the occurrence of the final closing of the proposed merger, the unpaid principal of the loan would be applied to the consideration relating to the final close.
In March 2021, the Company and JR effected the second and final closing under the option, whereby JR acquired 18,225,000 shares of Company common stock for aggregate consideration of $10,935,000, $10,635,000 in cash and $300,000 upon conversion of the principal amount of the promissory note issued in January 2021. The final closing resulted in a change in control of the Company to JR.increased JR's common stock ownership above 50%.
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Note 5-Property and Equipment
As of JuneSeptember 30, 2021 and March 31, 2021, the Company's property and equipment consists of the following:
Estimated Useful Life (Years) | June 30, 2021 | March 31, 2021 | |||||||||||||||||
Estimated Useful Life (Years) | September 30, 2021 | March 31, 2021 | |||||||||||||||||
Land | $ | 70,000 | $ | 70,000 | $ | 70,000 | $ | 70,000 | �� | ||||||||||
Building | 39 | 543,549 | 503,711 | 39 | 559,503 | 503,711 | |||||||||||||
Furniture and equipment | 3 - 5 | 398,006 | 330,125 | 3 - 5 | 463,814 | 330,125 | |||||||||||||
Vehicle | 5 | 32,899 | 0 | ||||||||||||||||
5 | 73,399 | 0 | |||||||||||||||||
1,044,454 | 903,836 | 1,166,716 | 903,836 | ||||||||||||||||
Less accumulated depreciation | (60,753 | ) | (33,092 | ) | (91,353 | ) | (33,092 | ) | |||||||||||
Property and equipment, net | $ | 983,701 | $ | 870,744 | $ | 1,075,363 | $ | 870,744 |
Depreciation expense for the three and six months ended JuneSeptember 30, 2021 was $30,600 and $58,261, respectively. Depreciation expense for the three and six months ended September 30, 2020 was $27,661$124 and $0,$124, respectively.
Note 6-Shareholders' Equity
Common Stock
Our authorized capital stock consists of 75,000,000 shares of common stock, with a par value of $0.001 per share, and 10,000,000 preferred shares with a par value of $0.001 per share.
On June 23, 2021, the Company issued 2,311,000 shares of common stock at a price of $4.50 per Common Share, for gross proceeds of $10,399,500 in connection with the initial tranche of a non-brokered private placement (“("Private Placement”Placement"). As of June 30,On July 21, 2021, the Company had received $6,496,034issued 8,734,611 shares of common stock at a price of $4.50 per Common Share, for gross proceeds of $39,305,750 in connection with the second tranche of the non-brokered Private Placement. On August 2, 2021, the Company entered into a series of substantially similar subscription agreements, pursuant to which the Company issued and sold to certain investors, in the final tranche of the Private Placement, as further discussedan aggregate of 120,550 common shares at a price of $4.50 per share, for gross proceeds of $542,475. In aggregate, the Company issued a total of 11,166,161 common shares for total gross proceeds of $50,247,725. Robert Quartermain, a director and Co-Chair of the Company, purchased 50,000 common shares in Note 7.the Private Placement. The Company paid a total of $754,598 in share issuance costs related 1,443,563 shares of common stock were not issued until July 2021.to the Private Placement.
During the threesix months ended JuneSeptember 30, 2021, the Company also issued (i) 224,0051,432,600 shares of common stock valued at $1,119,467$6,964,463 for investment in mineral properties (see Note 3 for furtheradditional discussion), (ii) 45,563144,612 shares of common stock valued at $223,259$703,646 for a settlementsettlements of debt (see Note 2 for furtheradditional discussion), and (iii) 1,450,000 shares of common stock valued at $7,177,500 as bonus shares to directors, employees and consultants to the Company.Company and (iv) 37,500 shares of common stock for cash consideration of $37,500. For the threesix months ending Juneended September 30, 2021, the share-based compensation expense for the bonus shares was allocated $1,361,250 to exploration costs and $5,816,250 to general and administrative expenses.
Of the 1,450,000 shares of common stock issued as bonus shares, 400,000 shares vested on June 4, 2021 and the remaining 1,050,000 shares will vest on June 4, 2022. The share-based compensation expense on the unvested bonus shares is being amortized on a straight-line basis until the vest date.
During the three months ended June 30, 2020, the Company issued 374,544 shares of common stock upon cashless exercise of stock options and warrants.
At Junewarrants and during the three months ended September 30, 2021, there were 60,227,8992020, the Company issued 900,000 shares of our common stock outstanding.
Common Stock Options, Restricted Stock Unitsfor $354,000 in cash upon the exercises of stock options and Warrants
On March 11, 2021, the Company's board of directors adopted a plan entitled the "2021 Stock Incentive Plan." The 2021 Stock Incentive Plan has a total of 6,250,000 Common Shares availablewarrants. In September 2020, warrants to award to the Company's directors, executive officers and consultants. As of June 30, 2021, a total of 2,378,750purchase 125,000 shares of our common stock remained availablewere exercised for future grants under the 2021 Stock Incentive Plan.
On January 25, 2015, the Company's board of directors adopted a plan entitled the "2015 Omnibus Incentive Plan." The 2015 Omnibus Incentive Plan is no longer in effect and no further securities will be$50,000 by an investor. These shares were not issued under the 2015 Omnibus Incentive Plan, other than in respect of 75,000 common stock purchase options that remain outstanding.until October 2020.
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Note 6-Shareholders' Equity, continued
At September 30, 2021, there were 70,428,204 shares of the Company's common stock outstanding.
Common Stock Options, Restricted Stock Units and Warrants
On January 25, 2015, the Company's board of directors adopted a plan entitled the "2015 Omnibus Incentive Plan." The 2015 Omnibus Incentive Plan is no longer in effect and no further securities will be issued under the 2015 Omnibus Incentive Plan, other than in respect of 75,000 common stock purchase options that remain outstanding.
On March 11, 2021, the Company's board of directors adopted a plan entitled the "2021 Stock Incentive Plan." The 2021 Stock Incentive Plan has a total of 6,250,000 Common Shares available to award to the Company's directors, executive officers and consultants. As of September 30, 2021, a total of 2,103,750 shares of our common stock remained available for future grants under the 2021 Stock Incentive Plan.
Outstanding stock options under the 2021 Stock Incentive Plan have a term of five years. Outstanding stock options granted to third-party service providers generally vest over thea period of the contract, which is typically one year.up to two years. The Company recognized stock-based compensation related to issuance of stock options totaling $3,056,515$2,710,715 ($501,890699,887 being allocated to exploration costs and $2,554,625 and$2,010,828 being allocated to administrative expenses) during the threesix months ended JuneSeptember 30, 2021. No stock-based compensation was recognized by the Company during the threesix months ended JuneSeptember 30, 2020.
On May 17, 2021, the Company granted 2,071,250 options, to officer, directors and consultants. consultants and on September 13, 2021, the Company granted a total of 200,000 options to directors.
A summary of the Company's stock option activity and related information for the period ended JuneSeptember 30, 2021 is as follows:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In Years) | Aggregate Intrinsic Value | ||||||||
Outstanding as of March 31, 2021 | 825,000 | $ | 1.77 | 4.61 | $ | 2,661,000 | |||||
Options granted | 2,071,250 | 4.76 | 4.88 | 497,100 | |||||||
Outstanding as of June 30, 2021 | 2,896,250 | $ | 3.91 | 4.80 | $ | 3,158,100 | |||||
Options exercisable as of June 30, 2021 | 765,417 | $ | 4.32 | 3.84 |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In Years) | Aggregate Intrinsic Value | |||||||||
Outstanding as of March 31, 2021 | 825,000 | $ | 1.77 | 4.61 | $ | 2,265,000 | ||||||
Options granted | 2,271,250 | 4.79 | 4.66 | (611,100 | ) | |||||||
Outstanding as of September 30, 2021 | 3,096,250 | $ | 3.99 | 4.58 | $ | 1,653,900 | ||||||
Options exercisable as of September 30, 2021 | 832,083 | $ | 4.39 | 4.6 |
During the threesix months ended JuneSeptember 30, 2021, we estimated the fair value of each stock option to have a weighted average grant date fair value of $3.39 per share on the date of grant using a Black Scholes valuation model. The weighted-average assumptions used to calculate the grant date fair value were as follows: exercise price of $4.76, risk-free interest rate of 0.95%ranging from 0.39% - 1.02%, estimated volatility of 90%between 82.61% and 95.82%, dividend yield of 0%, and expected life of 4.08 to 5 years. As at JuneSeptember 30, 2021 the unrecognized compensation cost related to unvested options was $4,963,034.$5,312,119.
On June 4,September 13, 2021 the Company issued 1,050,000 restricted stock units ("RSU's")granted 200,000 Stock Options with a grant date fair value of $4.95$5.13 per share to certain directors, officers, employees and consultants vesting on June 4, 2022.over a period of 24 months. The share-based compensation expense for the RSU'sstock options will be amortized monthly and allocated to exploration costs and general and administrative expenses. For the three months ending JuneSeptember 30, 2021, $52,890 and $317,343 were$264,475 was allocated to exploration costs and general and administrative expenses respectively.pursuant to these grants.
There were no warrants outstanding as of JuneSeptember 30, 2021 and March 31, 2021.
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Note 7-Subsequent EventsEvent
On August 2,October 18, 2021 the Company entered into a series of substantially similar subscription agreements pursuantgranted 300,000 Stock Options to which the Company issued and sold to certain investors, in the final tranche of the Private Placement, an aggregate of 120,550 common sharesemployee at aan exercise price of $4.50$4.60 per option and vesting over a period of 24 months, with a grant date fair value of $3.60 per share, as well as 125,000 restricted stock units ("RSU") with a grant date fair value of $4.60 vesting on June 4, 2022. The share-based compensation expense for gross proceeds of $542,475. In aggregate with the first tranche issuance of 2,311,000 common shares for gross proceeds of $10,399,500,stock options and the second tranche issuance of 8,734,611 common shares for $39,305,749.50, the Company issued a total of 11,166,161 common shares for total gross proceeds of $50,247,724.50.RSUs will be allocated to exploration expenses.
Robert Quartermain, a director and Co-Chair of the Company, purchased 50,000 common shares in the Private Placement.13
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Forward-Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments of our operations in future periods, planned exploration and development of our properties, plans related to our business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "anticipates", "plans", "estimates" or "intends", the negatives thereof, variations thereon and similar expressions or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q, include, but are not limited to:
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
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This list is not exhaustive of the factors that may affect our forward-looking statements. Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, we disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
This management's discussion and analysis should be read in conjunction with our financial statements and notes thereto as set forth herein. Readers are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors which affect our business, including without limitation, the disclosures made under "Risk Factors""Risk Factors" of our most recent Form 10-K.
Our unaudited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
Since we are an exploration stage company and have not generated revenues to date, our business is subject to numerous contingencies and risk factors beyond our control, including exploration and development risks, competition from well-funded competitors, and our ability to manage growth.
Overview
Our goal is to create shareholder value through the acquisition, responsible exploration and future development of high caliber gold properties in the Black HillsHomestake District of South Dakota. Our management and technical teams have more than 50 combined years of mining and exploration experience in the Black Hills with Homestake Mining Company, which we believe has uniquely positioned Dakota Territory to leverage our direct experience and knowledge of past exploration endeavors to focus our programs at the point where Homestake Mining Company left off in the 1990's.
The Black Hills of South DakotaHomestake District has yielded approximately 44.6 million ounces of gold production from thea 100 square mile area known as the Homestake District.area. Despite the historic gold endowment ofgold production from the area, we believe the District is generally underexplored and lacks a concerted effort to search for gold under the cover of younger sedimentary and igneous rocks that dominate the surface. The Black Hills of South DakotaHomestake District is a safe low-cost jurisdiction with well-developed mining infrastructure and is a jurisdiction in which regulatory authorities have consistently demonstrated a willingness to work with responsible operators to permit well-planned compliant projects.
Since 2012, we have consistently pursued a strategy of expanding our portfolio of brownfields exploration properties located exclusively within the Homestake District to build a dominant land position with the goal of consolidating the remaining mineral potential. Our property acquisitions have been based on our past exploration experiences, the extensive data sets we have assembled over the past 8 years, and new research we have conducted on the gold system that created the District. We currently hold eight exploration properties covering a total of approximately 19,604 mineral acres. We have not established that any of our projects or properties contain any proven or probable reserves under SEC Industry Guide 7.
Planned Activities
Our planned activities during fiscal 2022 are focussed on advancing our Maitland, Blind Gold, City Creek and Tinton gold exploration properties and to continue to build on our overall property position in the Homestake District of the Black Hills of South Dakota.
We continue to model data acquired by our broad high definitionhigh-definition airborne geophysical survey - as well as a recent and extensive ground geophysics survey covering a large area in the Homestake District - to enhance our current drill targets, as well as to screen other areas of interest within the district. We have budgeted for several field sampling/mapping programs and to continue to locate and add historic information to our extensive data sets. We have planned to complete site preparations and to conduct our first drill program on the deep Maitland iron-formation target and other tertiary-replacement targets in the Maitland area.area - as well as deep iron-formation targets and other tertiary-replacement targets at our City Creek Property, and targets in the new option agreement area at Richmond Hill. Additionally, our budget provides for the commencement of necessary permit work for the Blind Gold, Tinton and City Creek Properties and provides for our general operating expenses and the maintenance of the Company's mining claims and leases.
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Table: Fiscal Year 2022 Proposed Exploration Expenditures (millions) | |
General & administrative | $ 3.4 |
Drilling, Field programs/Met Testing/Data Compilation | $ 6.2 |
Property Acquisition | $ 3.8 |
TOTAL | $13.4 |
As at the date of this management's discussion and analysis, the company has commitments to purchase three exploration properties, totaling approximately $503,000, which are expected to close in November and December 2021.
Merger Agreement
Pursuant to an Amended and Restated Merger Agreement (the "Merger Agreement"), JR Resources Corp. ("JR") will change its name to Dakota Gold Corp. and the Company will merge (the "Merger") into a subsidiary of JR, with shareholders of the Company receiving one share of common stock of JR for each share of common stock of the Company.
In addition, at the closing of the Merger, (i) each outstanding option to purchase the Company's common stock, whether vested or unvested, will be assumed and converted into an option with respect to a number of shares of JR common stock in the manner set forth in the Merger Agreement and (ii) any outstanding awards of restricted stock units with respect to shares of the Company's common stock will be assumed and converted into the right to receive an award of restricted stock units representing a right to receive a number of shares of JR common stock in the manner set forth in the Merger Agreement. On or prior to the closing of the Merger, JR will have completed a reverse stock split such that the total number of JR shares will be proportionately reduced to 35,641,667.
On or before completion of the Mergers: (i) JR will have changed its name to Dakota Gold Corp.; (ii) JR will have completed a reverse stock split such that the total number of JR shares will be proportionately reduced to 35,641,667 JR shares; (iii) shareholders of Dakota Territory other than JR will receive one share of common stock of JR Resources for each share of common stock of Dakota Territory; (iv) each outstanding option to purchase Dakota Territory common stock, whether vested or unvested, will be assumed and converted into an option with respect to a number of shares of JR common stock in the manner set forth in the Merger Agreement; and (v) each outstanding award of restricted stock units with respect to shares of Dakota Territory common stock will be assumed and converted into the right to receive an award of restricted stock units representing a right to receive a number of shares of JR common stock in the manner set forth in the Merger Agreement.
The completion of the Merger is subject to customary closing conditions for a transaction of this nature, including securities law compliance and the approval of the Company's shareholders.
Liquidity and Capital Resources
We are an exploration-stage company and do not generate revenues. As such, we finance our operations and the acquisition and exploration of our mineral properties through the issuance of share capital.capital, and we could be materially adversely affected if we were unable to raise capital because of market or other factors.
As of JuneSeptember 30, 2021, we had working capital of approximately $23,451,000$51,754,820 and our accumulated deficit as of JuneSeptember 30, 2021 was approximately $20,724,000.$25,755,696. We had a net loss for the threesix months ended JuneSeptember 30, 2021 of approximately $12,181,000. On June 23,$17,212,912.
During the six months ended September 30, 2021, wethe Company issued 2,311,000a total of 11,203,661 shares of common stock at a price of $4.50 per share, for net proceeds of approximately $10,399,500.$49,504,424.
During our fiscal year ending March 31, 2022, we planthe Company plans to spend approximately $13.4 million. The timing of these expenditures is dependent upon a number of factors, including the availability of contractors.
Results of Operations
Three months ended JuneSeptember 30, 2021 and 2020
Revenue
We had no operating revenues for the three months ended JuneSeptember 30, 2021 and 2020. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $20,724,000 as of June 30, 2021.
Exploration Costs
During the three months ended JuneSeptember 30, 2021 and 2020, our exploration costs were approximately $2,184,000$1,847,676 and $126,000,$355,728, respectively. Included in these costs were share-based compensation and payments of annual claim maintenance fees related to our mineral properties. The largest increase year over year related to $1,916,030$878,250 of share-based compensation expense in the three months ended JuneSeptember 30, 2021 (2020 - $0) and having additional funds as a result of the financing proceeds from JR (the "Purchase Agreement"), which funded the airborne geophysical survey and review and compilation of historical geological data.
General and Administrative
Our general and administrative expenses for the three months ended JuneSeptember 30, 2021 and 2020 were approximately $9,906,000$3,157,804 and $152,000,$214,372, respectively. These expenditures were primarilylargest expense was for $8,688,218$1,832,465 of share-based compensation expense in the three months ended JuneSeptember 30, 2021 (2020 - $0), while legal, accounting &and professional fees and investor relations accounted for $597,887 (2020 - $90,663).
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Revenue
We had no operating revenues for the six months ended September 30, 2021 and are currently not profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $25,755,696 as of September 30, 2021.
Exploration Costs
During the six months ended September 30, 2021, our exploration costs were approximately $4,031,317 (2020 - $482,189). Included in these costs were share-based compensation and payments of annual claim maintenance fees related to our mineral properties. The increase year over year related to $2,794,280 of share-based compensation expense in the six months ended September 30, 2021 (2020 - $0) and having additional funds as a result of the financing proceeds from JR (the "Purchase Agreement"), which funded the airborne geophysical survey and review and compilation of historical geological data.
General and Administrative
Our general and administrative expenses for the six months ended September 30, 2021 and 2020 were approximately $13,063,396 and $365,902, respectively. The largest expense was $10,520,683 for share-based compensation in the six months ended September 30, 2021 (2020 - $0). Other general and administrative expenses necessary for our operations.operations accounted for $1,593,952 during the six-month period (2020 - $190,639) and legal, accounting and professional fees and investor relations during the six-month period were $911,715 (2020 - $175,403).
We had losses from operations for the threesix months ended JuneSeptember 30, 2021 and 2020 totaling approximately $12,089,000$17,094,713 and $278,000,$848,091, respectively. We had total net losses for the threesix months ended JuneSeptember 30, 2021 and 2020 of approximately $12,181,000$17,212,912 and $346,000,$1,119,600, respectively. We incurred interest expense from notes payable for the threesix months ended JuneSeptember 30, 2021 and 2020, respectively, in the amounts of $101$12 and $69,744$273,509 and recognized a loss on settlement of related party debt of $92,045$124,521 and $0, respectively.respectively. Our money market account generated interest income during the threesix months ended JuneSeptember 30, 2021 and 2020, respectively, in the amounts of $237$6,334 and $2,000.$2,000
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Off-Balance Sheet Arrangements
For the three months ended JuneAs at September 30, 2021 and 2020, we have off-balance sheet arrangements for annual payments in relation to the mineral leases as disclosed in Note 3 of the financial statements.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with US GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with US GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements: valuation of options granted to directors and officers using the Black-Scholes model and fair value of mineral properties. The accounting policies are described in greater detail in Note 2 to our audited annual financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of our management, including our chief executive officer ("CEO") and chief financial officer ("CFO"), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
Management'sAs previously disclosed in the Company's Annual Report on Internal Control over Financial Reporting
Our management is responsibleForm 10-K filed with the SEC for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting andyear ending March 31, 2021, the preparation of financial statements for external purposes in accordance with US GAAP. Management has assessed the effectiveness of internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. ACompany identified a material weakness as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in internal control over financial reporting that were identified are:
a) We did not maintain sufficientrelated to insufficient personnel with an appropriate level of technical accounting knowledge, experience and training in the application of US GAAP commensurate with our complexity and our financial accounting and reporting requirements. We have limited experience in. Additionally, the areas of financial reporting and disclosure controls and procedures. Also, we docompany did not have an independent audit committee. As a result, there is a lack of monitoring of the financial reporting process and there is a reasonable possibility that material misstatements of the consolidated financial statements, including disclosures, will not be prevented or detected on a timely basis; and
b)Audit Committee. Due to ourits small size, we dothe Company did not have a proper segregation of duties in certain areas of ourthe financial reporting process. The areas where we have a lack of segregation of duties includeprocess, including cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.
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As a result of the existence of these material weaknesses as of JuneSeptember 30, 2021, management has concluded that we did not maintain effective internal control over financial reporting as of JuneSeptember 30, 2021, based on the criteria set forth by the COSO in Internal Control-Integrated Framework.
This Quarterly Report on Form 10-Q does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules.
Changes to Internal Controls and Procedures over Financial Reporting
We intend to modify ourA material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, once we have adequate fundingsuch that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
The Company is committed to allow adding additional advisorsmaintaining a strong internal control environment. In order to address deficienciesthe material weaknesses in the financial closing, review and analysis process, which will improve our internal control over financial reporting. There were no changes to our internal control over financial reporting that occurred during our most recent fiscal quarter thatnoted above, management with oversight and direction from the Audit Committee and the Board of Directors, is developing a remediation plan. We have materially affected, or are reasonably likely to materially effect, our internal controls over financial reporting.taken the following remediation steps:
Management's Remediation Plans- Formed an independent Audit Committee in September 2021. The Audit Committee has responsibility for oversight of the financial reporting process and the company's system of internal controls.
We will look-Engaged a third party, and hired additional personnel to increase our personnel resources and technical accounting expertise withinassist the accounting functioncompany with available funds. Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weakness: insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of US GAAP commensurate with our complexity and our financial accounting and reporting requirements.requirements and address segregation of duties issues.
-Identified a third-party advisor to assist with the remediation plan and continuous control improvement initiatives. We expect to execute a signed engagement with this advisor in November 2021.
As we continue to develop and implement our remediation plan, additional remediation steps will be identified and adopted.
We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
The Company, including its CEO and CFO, does not expect that its internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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None.
On June 3,August 2, 2021, the Company issued 45,56399,049 Common Shares to Gerald AberleRichard Bachman as partial consideration for a settlement of debt. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D for purposes of the issuance of issuance common stock.
On June 4, 2021, the Company issued an aggregate of 1,450,000 Common Shares to certain directors and consultants as a share bonus. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D for purposes of the issuance of issuance common stock.
During the quarter ended JuneSeptember 30, 2021, the Company issued an aggregate of 222,1161,208,595 Common Shares to certain vendors of mineral properties as partial consideration for certain mineral properties. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D for purposes of the issuance of issuance common stock.
2019
The following exhibits are attached hereto or are incorporated by reference:
(1) Filed herewith
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DAKOTA TERRITORY RESOURCE CORP.
/s/ Jonathan Awde | |
By: Jonathan Awde | |
Chief Executive Officer, Principal Executive Officer and Director | |
Dated: | |
/s/ Gerald Aberle | |
By: Gerald Aberle | |
Chief Operating Officer and Director | |
Dated: | |
/s/ Stephen O'Rourke | |
By: Stephen T. O'Rourke | |
Director | |
Dated: | |
/s/ Robert Quartermain | |
Director | |
Dated: | |
/s/ Alex Morrison | |
By: Alex G. Morrison | |
Director | |
Dated: | |
/s/ Jennifer Grafton | |
By: Jennifer Grafton | |
Director | |
Dated: November 10, 2021 | |
/s/ Amy Koenig | |
By: Amy Koenig | |
Director | |
Dated: November 10, 2021 | |
/s/ Shawn Campbell | |
Chief Financial Officer | |
Dated: |
2221