10-Q 1 f10q063020_10q.htm FORM 10-Q QUARTERLY REPORT Form 10-Q Quarterly Report

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

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 number 000-501191

 

Dakota Logo.jpg 

 

Dakota Territory Resource Corp

(Exact Name of Registrant as Specified in its charter)

 

Nevada

 

98-0201259

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

10580 N. McCarran Blvd., Building 115-208

Reno, Nevada

 

89503

(Address of principal executive offices)

 

(Zip Code)

 

(605) 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) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [   ]


1


 

 

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[   ]

Smaller reporting company

[X]

(Do not check if a smaller reporting company)

 

Emerging growth company

[   ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [   ] No [X]

 

Number of shares of issuer’s common stock outstanding at July 27, 2020: 67,214,964


2


 

 

DAKOTA TERRITORY RESOURCES CORP

SEPTEMBER 30, 2019

(UNAUDITED)

TABLE OF CONTENTS

 

 

 

Page

 

Part I

 

Item 1

Financial Statements (unaudited)

4

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3

Quantitative and Qualitative Disclosures About Market Risk

17

Item 4

Controls and Procedures

17

 

 

 

 

Part II

 

Item 1

Legal Proceedings

18

Item 1A

Risk Factors

18

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

18

Item 3

Defaults upon Senior Securities

18

Item 4

Mine Safety Disclosure

18

Item 5

Other Information

18

Item 6

Exhibits

19

Signatures

20


3


 

 

DAKOTA TERRITORY RESOURCE CORP

BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

June 30, 2020

 

March 31, 2020

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and cash equivalents

$

1,257,548

$

146,425

Prepaid expenses and other current assets

 

11,892

 

7,649

Total current assets

 

1,269,440

 

154,074

 

 

 

 

 

Mineral properties

 

273,317

 

216,104

 

 

 

 

 

TOTAL ASSETS

$

1,542,757

$

370,178

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable and accrued liabilities

$

505,306

$

501,818

Accounts payable, related party

 

1,800,234

 

1,790,829

Line of credit

 

28,610

 

30,082

Note payable to related party

 

285,500

 

325,645

Total current liabilities

 

2,619,650

 

2,648,374

 

 

 

 

 

Notes payable, net of discount

 

212,038

 

300,000

Total liabilities

 

2,831,688

 

2,948,374

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' DEFICIT

 

 

 

 

Preferred stock, par value $0.001; 10,000,000 shares authorized, no

 

 

 

 

     shares issued and outstanding as of June 30, 2020 and

 

 

 

 

     March 31, 2020, respectively

 

-

 

-

Common stock, par value $0.001; 300,000,000 shares authorized,

 

 

 

 

  66,914,964 and 65,416,787 shares issued and outstanding as of

 

 

 

 

 June 30, 2020 and March 31, 2020, respectively

 

66,915

 

65,417

Additional paid-in capital

 

4,367,632

 

2,734,130

Accumulated deficit

 

(5,723,478)

 

(5,377,743)

Total shareholders' deficit

 

(1,288,931)

 

(2,578,196)

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

$

1,542,757

$

370,178

 

 

 

 

 

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


4


 

 

DAKOTA TERRITORY RESOURCE CORP

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

2020

 

2019

OPERATING EXPENSES

 

 

 

 

Exploration costs

$

126,461

$

8,000

General and administrative expenses

 

151,530

 

128,843

 

 

 

 

 

Total operating expenses

 

277,991

 

136,843

 

 

 

 

 

LOSS FROM OPERATIONS

 

(277,991)

 

(136,843)

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

Interest income

 

2,000

 

-

Interest expense

 

(69,744)

 

(3,267)

Total other income (expense)

 

(67,744)

 

(3,267)

 

 

 

 

 

NET LOSS

 

(345,735)

 

(140,110)

 

 

 

 

 

Net loss per share:

 

 

 

 

   Basic and diluted net loss per share

$

(0.01)

$

(0.00)

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

       Basic and diluted

 

65,643,473

 

63,216,787

 

 

 

 

 

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


5


 

 

DAKOTA TERRITORY RESOURCE CORP

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

 

2020

 

2019

Net loss

$

(345,735)

$

(140,110)

 

Adjustments to reconcile net loss to net cash used

 

 

 

 

 

 in operating activities:

 

 

 

 

 

 

Amortization of debt discount

 

67,037

 

-

 

Changes in current assets and current liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

(4,244)

 

(1,024)

 

 

Accounts payable & accrued liabilities

 

3,490

 

1,574

 

 

Accounts payable, related party

 

9,405

 

62,715

Net cash used in operating activities

 

(270,047)

 

(76,845)

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Investment in mineral properties

 

(57,213)

 

-

Net cash used in investing activities

 

(57,213)

 

-

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from the issuance of note payable - related party

 

(40,145)

 

-

 

Proceeds from the issuance of note payable

 

1,150,000

 

-

 

Proceeds from the issuance of common stock

 

330,000

 

-

 

Repayment on line of credit, net

 

(1,472)

 

(1,266)

Net cash provided by (used in) financing activities

 

1,438,383

 

(1,266)

 

 

 

 

 

 

 

Net change in cash

 

1,111,123

 

(78,111)

Cash and cash equivalents, beginning of period

 

146,425

 

152,590

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

1,257,548

$

74,479

 

 

 

 

 

 

 

Supplemental Disclosure of Cashflow Information

 

 

 

 

 

 

 

 

 

 

 

Interest paid

$

-

$

-

Taxes paid

$

-

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


6


 

 

DAKOTA TERRITORY RESOURCE CORP

STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

For the three months ended June 30, 2020 and 2019

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional

Paid-In

 

Accumulated

Deficit

 

 

 

Shares

 

Amount

 

Capital

 

 

Total

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

65,416,787

$

65,417

$

2,734,130

$

(5,377,743)

$

(2,578,196)

 

 

 

 

 

 

 

 

 

 

Cashless exercise of stock options and warrants

1,498,177

 

1,498

 

(1,498)

 

-

 

-

Cash received for unissued shares

-

 

-

 

330,000

 

-

 

330,000

Debt discount assigned to purchase option

-

 

-

 

1,305,000

 

-

 

1,305,000

Net loss

-

 

-

 

-

 

(345,735)

 

(345,735)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

66,914,964

$

66,915

$

4,367,632

$

(5,723,478)

$

(1,288,931)

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

62,916,787

$

62,917

$

2,390,733

$

(4,263,470)

$

(1,809,820)

 

 

 

 

 

 

 

 

 

 

Net loss

-

 

-

 

-

 

(140,110)

 

(140,110)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

62,916,787

$

62,917

$

2,390,733

$

(4,403,580)

$

(1,949,930)

 

 

 

 

 

 

 

 

 

 

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


7


 

 

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Note 1—Basis of Presentation

 

The accompanying unaudited interim financial statements of Dakota Territory Resource Corp. (“we”, “us”, “our”, the “Company”, the “Corporation”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), 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, 2020 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, 2020 as reported in our annual report on Form 10-K, have been omitted.

 

The Company’s absence of revenues, its experience of recurring losses from operations, and its need for significant additional financing to fund its projected 2020 loss raise substantial doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Note 2—Related Party Transactions

 

The Company regularly 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 (“Mr. Aberle”) is the Company’s president, chief executive officer and chief operating officer. He is also a director and significant stockholder of the Company and the owner of Jerikodie, Inc. Under a February 2012 agreement, Jreikodie Inc. earns a fixed consulting fee of $9,000 per month, plus approved expenses. During both the three months ended June 30, 2020 and 2019, Jerikodie, Inc. earned consulting fees of $27,000 and $27,000 respectively, and submitted approved expense of $1,215 and $1,215, respectively. At June 30, 2020 and March 30, 2020, Mr. Aberle and Jerikode, Inc., on a combined basis, are owed accrued consulting/salary and approved expenses of $729,500 and $720,000, respectively, which amounts are included in accounts payable – related party in the accompanying balance sheets.

 

At June 30, 2020 Mr. Aberle, has made unsecured loans to the company totaling $20,500. These unsecured loans bear interest of 3% per year and are due on demand or past due. At June 30, 2020 and March 31, 2020, the balance of these unsecured loans was $20,500, which balances are included in notes payable to related parties in the accompanying balance sheet. In July 2020, Mr. Aberle was paid in full for these unsecured loans and related accrued interest of $671.

 

Mr. Richard Bachman (“Mr. Bachman”) serves as the Company’s chief geological officer. He is also a director and significant stockholder of the Company and owns of Minera Teles Pires Inc. Under an October 2005 agreement, Minera Teles Pires Inc. earns a $10,000 monthly consulting fee and receives $1,500 per month for office rent and expenses. The consulting fee is divided between a $5,000 per month cash payment and a $5,000 per month deferred amount, payable when adequate financing is obtained to support its payment. At June 30, 2020 and March 30, 2020, Mr. Bachman and Minera Teles Pires Inc., on a combined basis, are owed accrued consulting fees and rent reimbursement of approximately $920,000, which balances are included in accounts payable – related party in the accompanying balance sheets.

 

At June 30, 2020, Mr. Bachman has made unsecured loans to the Company totaling $265,000. These unsecured loans bear interest at rates ranging from 3% to 4% per year and are due on demand or past due. At June 30, 2020 and March 31, 2020, the balance of these unsecured loans was $265,000 and $305,145, respectively, which balances are included in notes payable to related parties in the accompanying balance sheets. At June 30, 2020 and March 31, 2020, accrued interest on these loans was $77,697 and $81,164, respectively, and included in Notes payable to related parties in the accompanying balance sheets..

 

At June 30, 2020 and March 31, 2020, the Company owes Mr. Chris Mathers, the Company’s chief financial officer $151,000 for accrued consulting fees. These balances are included in accounts payable – related party in the accompanying balance sheets.


8


 

 

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Note 2—Related Party Transactions, continued

 

In September 2018, Mr. Stephen T. O’Rourke, a director of the Company, purchased 750,000 shares of our common stock in a private placement for $75,000. Additionally, Mr. O’Rourke, through his consulting firm, entered into a one-year consulting agreement with the Company (i) in September 2018 whereby he was issued a consulting fee of 1,000,000 shares for services rendered, and (ii) in September 2019 whereby he was issued a five-year option to purchase 1,000,000 shares of our common stock at an exercise price of $0.08 per share.

 

Messrs. Aberle and Bachman own a 5% net smelter return royalty on the original eighty-four unpatented mining claims comprising the Blind Gold Property.

 

Note 3—Mineral Properties

 

On September 26, 2012, the Company was re-organized with North Homestake Mining Company. With this re-organization, the Company 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, 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 incorporated into the Blind Gold Property. The purchase price was 1,000,000 restricted common shares valued at $0.15 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 lease with 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 284 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, 2020, 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, the City Creek project area was expanded from approximately 449 acres to 1,167 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 1876 and the turn of the century.


9


 

 

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Note 3—Mineral Properties, continued

 

On March 6, 2020, the Company acquired 65 unpatented lode mining claims covering approximately 1,152 acres in the Homestake District of the Black Hills of South Dakota. The property is contiguous to the Company's Blind Gold Property and is the subject to historic prospecting activity that we believe suggests the occurrence of gold and/or silver mineralization at multiple locales on the property. We believe that the property is also a target for Pre-Cambrian Homestake style gold mineralization under the younger cover rocks based on the Company’s projections of the Homestake stratigraphic sequence (Ellison, Homestake, and Poorman Formations) and inversion modeling of geophysical survey data completed by our technical team in late 2018.

 

On May 18, 2020, the Company increased its land holdings in the Black Hills through the staking of 70 unpatented lode mining claims covering approximately 1,120 acres located on the western margin of 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 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). We believe that the Property is a target for both Homestake Iron Formation hosted gold mineralization under the cover of younger sedimentary and igneous rocks that also host tertiary-aged replacement gold and silver mineralization in the area.

 

We are flying a broad high definition airborne geophysical survey to enhance our current drill targets, as well as to screen other areas of interest for additional targets. We believe the Homestake District holds exceptional discovery potential and it is our intent to continue to establish a dominant land position and consolidate the systematic exploration of the district within our Company.

 

 

 

June 30,

 

March 31,

 

 

2020

 

2020

Capitalized costs

$

273,317

$

216,104

Accumulated amortization

 

-

 

-

Impairment

 

-

 

-

Capitalized costs, net

$

273,317

$

216,104

 

Note 4—Notes Payable

 

JR Resources Corp.

 

In February 2020, we entered into a $300,000 unsecured promissory note agreement with JR Resources Corp. (“JR”). The note bore interest at 3.0% per year and was due May 5, 2021. 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. At maturity, the principal amount of the note, together with any accrued but unpaid interest, will be due and payable in cash, provided that, if and to the extent that the Company does not pay this note in cash on the maturity date, then JR will be required to exercise, and will in fact be deemed to have exercised, its right to convert such unpaid portion of the note into shares of Company common stock. The conversion price is $0.15 per share through December 31, 2020 and, thereafter, the lesser of $0.15 per share on the volume weighted average price of Company common stock for the five consecutive trading days immediately preceding the date of such conversion (with a floor of $0.10 per share). The note has customary event of default provisions and, upon an event of default, JR will be required to convert the unpaid portion of the note into the shares of Company common stock, if not paid in cash by the Company.

 

Concurrent with the above note, the Company and JR entered into an option agreement, providing JR the option to acquire up to 142,566,667 shares of common stock at $0.15 per share. The option agreement expires October 15, 2020 and can be exercised in part or in full, as further described in the agreement.


10


 

 

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Note 4—Notes Payable, continued

 

The proceeds from the debt issuance were allocated between the debt instrument and the purchase option based on their estimated relative fair values (management calculated the initial estimated fair values, to be followed up with a third-party valuation). The Company estimated that $1,305,000 of the total proceeds was allocable to the purchase option and recognized through a charge to additional paid-in capital with a corresponding discount on the debt. The debt discount will be amortized to interest expense over the remaining life of the note using the effective interest method. For the three months ended June 30, 2020, the Company recognized additional interest expense of approximately $67,000 related to amortization of the debt discount.

 

Notes Payable to Related Party

 

As of June 30, 2020, Mr. Aberle, the chief executive officer and a director of the Company, and/or his affiliates has loaned the Company an aggregate of $20,500, which loans are unsecured obligations of the Company, bearing interest at an annual rate of 3%, and are currently due on demand or past due in the amount of $21,249 as of June 30, 2020. Subsequent to the quarter ended June 30, 2020, Mr. Aberle was paid in full for the note and accrued interest.

 

As of June 30, 2020, the Company owed Mr. Bachman, the CGO and a director of the Company, and/or his affiliates a principal amount of $265,000 and accrued interest of $77,697. These loans are unsecured obligations of the Company, bearing interest at annual rates of between 3% and 4%, and are due on demand or past due.

 

Note 5—Line of Credit

 

The Company executed a Line of Credit with Wells Fargo Bank in California. The Line of Credit allows the Company to borrow up to $47,500. The Line of Credit bears interest at 7.75% per annum, is unsecured, and due on demand. The balance on this Line of Credit at June 30, 2020 was approximately $28,600.

 

Note 6—Common Stock, Options and Warrants

 

Our authorized capital stock consists of 300,000,000 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.

 

In June 2020, an option to purchase 1,300,000 shares of common stock was exercised on a cashless basis by our chief financial officer, resulting in the issuance of 1,083,333 shares of common stock.

 

In June 2020, a warrant to purchase 500,000 shares of common stock was exercised on a cashless basis by a consultant, resulting in the issuance of 414,844 shares of common stock.

 

In June 2020, a 5-year option to purchase 150,000 shares of our common stock at an exercise price of $0.15 were granted to a consultant.

 

At June 30, 2020, the total issued and outstanding shares of our common stock were 66,914,964.

 

Common Stock Options and Warrants

 

A summary of the Company's stock option activity and related information for the period ended June 30, 2020 is as follows:

 

 

 

Options

 

Price Range

 

Weighted Average

Remaining Life

(Years)

Outstanding March 31, 2020

 

10,150,000

$

0.08

 

4.81

Granted

 

150,000

 

0.15

 

5.64

Cancelled/Expired

 

-

 

-

 

-

Exercised

 

(1,300,000)

 

0.08

 

-

Outstanding and exercisable June 30, 2020

 

9,000,000

$

0.08

 

4.60


11


 

 

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Note 6—Common Stock, Options and Warrants, continued

 

A summary of the Company's stock warrant activity and related information for the period ended June 30, 2020 is as follows:

 

 

 

Warrants

 

Price Range

 

Weighted Average

Remaining Life

(Years)

Outstanding March 31, 2020

 

4,300,000

$

0.10

 

1.99

Granted

 

-

 

-

 

-

Cancelled/Expired

 

-

 

-

 

-

Exercised

 

(3,800,000)

 

0.10

 

-

Outstanding and exercisable June 30, 2020

 

500,000

$

0.10

 

0.38

 

Note 7 – Subsequent Events

 

In June 2020, outstanding warrants entitling the holders to purchase an aggregate of 3,300,000 shares of common stock were exercised. We received proceeds in the amount of $330,000 from the exercise of these warrants. These shares were issued in July and August 2020.


12


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

In this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Dakota Territory Resource Corp,” "the Corporation" “we,” “our” or “us” refer to Dakota Territory Resource Corp. 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 quarterly report. This Quarterly Report on Form 10-Q may also contain statistical data and estimates we obtained from industry publications and reports generated by third parties. Although we believe that the publications and reports are reliable, we have not independently verified their data.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements”. Such forward-looking statements concern our anticipated results and developments in 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” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, 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:

 

·the progress, potential and uncertainties of our 2020-2021 exploration program at our properties located in the Homestake District of the Black Hills of South Dakota (the “Project”); 

 

·the success of getting the necessary permits for future drill programs and future project exploration; 

 

·expectations regarding the ability to raise capital and to continue our exploration plans on our properties; and 

 

·plans regarding anticipated expenditures at the Project. 

 

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:

 

·risks associated with lack of defined resources that are not SEC Guide 7 Compliant Reserves, and may never be; 

 

·risks associated with our history of losses and need for additional financing; 

 

·risks associated with our limited operating history; 

 

·risks associated with our properties all being in the exploration stage; 

 

·risks associated with our lack of history in producing metals from our properties; 

 

·risks associated with our need for additional financing to develop a producing mine, if warranted; 

 

·risks associated with our exploration activities not being commercially successful; 

 

·risks associated with ownership of surface rights at our Project; 

 

·risks associated with increased costs affecting our financial condition; 

 

·risks associated with a shortage of equipment and supplies adversely affecting our ability to operate; 

 

·risks associated with mining and mineral exploration being inherently dangerous; 

 

·risks associated with mineralization estimates; 

 

·risks associated with changes in mineralization estimates affecting the economic viability of our properties; 


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·risks associated with uninsured risks; 

 

·risks associated with mineral operations being subject to market forces beyond our control; 

 

·risks associated with fluctuations in commodity prices; 

 

·risks associated with permitting, licenses and approval processes; 

 

·risks associated with the governmental and environmental regulations; 

 

·risks associated with future legislation regarding the mining industry and climate change; 

 

·risks associated with potential environmental lawsuits; 

 

·risks associated with our land reclamation requirements; 

 

·risks associated with gold mining presenting potential health risks; 

 

·risks related to title in our properties; 

 

·risks related to competition in the gold mining industries; 

 

·risks related to economic conditions; 

 

·risks related to our ability to manage growth; 

 

·risks related to the potential difficulty of attracting and retaining qualified personnel; 

 

·risks related to our dependence on key personnel; 

 

·risks related to our United States Securities and Exchange Commission (the “SEC”) filing history; and 

 

·risks related to our securities. 

 

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 by the foregoing cautionary statements.

 

This Management’s Discussion and Analysis should be read in conjunction with the financial statements of Dakota Territory Resource Corp. 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.”

 

Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.


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Overview

 

Our goal is to create shareholder value through the acquisition, responsible exploration and future development of high caliber gold properties in the Black Hills 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.

 

We believe that the Black Hills of South Dakota has yielded approximately 44.6 million ounces of gold production from a 100 square mile area known as the Homestake District. Despite the gold endowment of 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 Dakota 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 the Company has conducted on the gold system that created the District. Dakota Territory currently holds four brownfield exploration project areas in the district comprised of unpatented claims and a combination of surface and mineral leases covering a total of approximately 7,166 mineral acres. We have not established that any of our projects or properties contain any proven or probable reserves under SEC Industry Guide 7.

 

Current Plan of Operations

 

Our planned operations during fiscal 2021 are focussed on advancing our Blind Gold, City Creek, Tinton and Homestake Paleoplacer 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 are flying a broad high definition airborne geophysical survey 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 to our extensive data sets. We have planned to complete site preparations, and to conduct our first drill program on the Paleoplacer Property. Additionally, our budget provides for the commencement of necessary permit work for the Blind Gold and City Creek Properties and provides for our general operating expenses and the maintenance of the Company’s Mining Claims and leases.

 

Table: Fiscal Year 2021 Proposed

Exploration Expenditures (000’s)

General & administrative

$ 300

Airborne survey

$410

Field programs/Met Testing/Data

$ 90

Property Acquisition

$ 650

TOTAL

$1,450

 

Our operations for fiscal year 2021 are planned and budgeted at approximately $1,450,000.

 

Since we are an exploration stage company and have not generated revenues to date, our cash flow projections are 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. We can offer no assurance that our expenses will not exceed our projections.


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Liquidity and Capital Resources

 

As of June 30, 2020, we had a working capital deficit of approximately $1,350,000 and our accumulated deficit as of June 30, 2020 was approximately $5,723,000. We had a net loss for the quarter ended June 30, 2020 of approximately $346,000.

 

In February 2020, we entered into a $300,000 unsecured promissory note agreement with JR Resources Corp. (“JR”). The note bore interest at 3.0% per year and was due May 5, 2021. 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. At maturity, the principal amount of the note, together with any accrued but unpaid interest, will be due and payable in cash, provided that, if and to the extent that the Company does not pay this note in cash on the maturity date, then JR will be required to exercise, and will in fact be deemed to have exercised, its right to convert such unpaid portion of the note into shares of Company common stock. The conversion price is $0.15 per share through December 31, 2020 and, thereafter, the lesser of $0.15 per share and the volume weighted average price of Company common stock for the five consecutive trading days immediately preceding the date of such conversion (with a floor of $0.10 per share). The note has customary event of default provisions and, upon an event of default, JR will be required to convert the unpaid portion of the note into the shares of Company common stock, if not paid prior thereto in cash by the Company.

 

During our fiscal year ending March 31, 2021, we plan to spend approximately $90,000 for field programs, $410,000 for geophysical surveys, and approximately $650,000 for expenses related to land acquisition. The timing of these expenditures is dependent upon a number of factors, including the availability of contractors. We estimate that general and administrative expenses during fiscal year ending March 31, 2021 will be approximately $300,000 to include payroll, legal and accounting services and other general and other expenses necessary to conduct our operations.

 

We have no employees. Our management, all of whom are consultants, conduct our operations. Given the early stage of our exploration properties, we intend to continue to outsource our professional and personnel requirements by retaining consultants on an as needed basis. However, if we are successful in our initial and any subsequent drilling programs, we may retain employees.

 

We currently do not have sufficient funds to complete exploration and development work on our properties, which means that we will be required to raise additional capital, enter into joint venture relationships or find alternative means to finance placing one or more of our properties into commercial production, if warranted. In May 2020, the Company granted JR the right to acquire up to 142,566,667 shares of common stock at a purchase price of $0.15 per share (up to $21,385,000, reduced by the amount of the $1,450,000 note converted). There is no assurance that JR will purchase any or all of these shares on or prior to October 15, 2020, the expiration of this purchase right. If JR exercises all or a portion of this purchase right, the Company will utilize these proceeds to fund potential acquisitions and for working capital and other corporate purposes. Failure to obtain sufficient financing may result in the delay or indefinite postponement of exploration and development. We cannot be certain that additional capital or other types of financing will be available when needed or that, if available, the terms of such financing will be favorable or acceptable to us. Our ability to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions as well as our business performance.

 

In June 2020, outstanding warrants entitling the holders to purchase an aggregate of 3,300,000 shares of common stock were exercised. We received proceeds in the amount of $330,000 from the exercise of these warrants. These shares were issued in July and August 2020.

 

Results of Operations

 

Three months ended June 30, 2020 and 2019

 

We had no operating revenues for the three months ended June 30, 2020 and 2019. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $5,723,000 as of June 30, 2020.

 

Our exploration costs were approximately $126,000 and $8,000 for the three months ended June 30, 2020 and 2019, respectively. Our 2020 exploration expenditure has been focused on a new airborne geophysical survey over the entire Homestake District. The survey is scheduled to be completed at the end of July. Our general and administrative expenses for the three months ended June 30, 2020 were approximately $152,000 and approximately $129,000 for the three months ended June 30, 2019. Our general and administrative expenditures were primarily for legal, accounting & professional fees, investor relations and other general and administrative expenses necessary for our operations.


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We had losses from operations for the three months ended June 30, 2020 and 2019 totaling approximately $278,000 and $137,000, respectively, and a net loss for the three months ended June 30, 2020 and 2019 totaling approximately $346,000 and $140,000, respectively. We accrued interest expense on notes payable totaling approximately $2,700 and $3,300, respectively, for the three months ended June 30, 2020 and 2019. During the three months ended June 30, 2020, we recognized additional interest expense of approximately $67,000 related to amortization of debt discount on the JR note payable. For the three months ended June 30, 2020 we earned interest of approximately $2,000.

 

Off-Balance Sheet Arrangements

 

For the three months ended June 30, 2020 and 2019, we have off-balance sheet arrangements for annual payments in relation to the mineral leases as disclosed in Note 3 of the unaudited notes to 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 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 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

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 the Chief Executive Officer and Chief Financial Officer, 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 CFO have concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by us in our 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially effect, our internal controls over financial reporting.


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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors as previously disclosed in our Form 10-K for the year ended March 31, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Except as set forth below, all unregistered sales of equity securities during the period covered by this Quarterly Report were previously disclosed in our current reports on Form 8-K.

 

Date

 

Description

 

Number

 

Purchaser

 

Proceeds ($)

 

Consideration

 

Exemption (A)

June 2020

 

Common Stock

 

1,083,333(1)

 

Officer

 

$Nil

 

Services

 

Sec. 4(a)(2)

June 2020

 

Common Stock options

 

150,000 (2)

 

Consultant

 

$Nil

 

Services

 

Sec. 4(a)(2)

June 2020

 

Common Stock

 

414,844(3)

 

Consultant

 

$Nil

 

Services

 

Sec. 4(a)(2)

 

(A)With respect to sales designated by “Sec. 4(a)(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(a)(2) of the Securities Act as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. 

 

(1)Our CFO exercised, on a cashless basis, an option to purchase 1,300,000 shares of common stock, resulting in the issuance of 1,083,333 shares of common stock. 

 

(2)In June 2020, a 5-year option to purchase 150,000 shares of our common stock at an exercise price of $0.15 were granted to a consultant. 

 

(3)A consultant exercised, on a cashless basis, a warrant to purchase 500,000 shares of common stock, resulting in the issuance of 414,844 shares of common stock. 

 

Item 3. Defaults upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosure

 

Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended June 30, 2017, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

 

Item 5. Other Information

 

None.


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Item 6. Exhibits.

 

The following exhibits are attached hereto or are incorporated by reference:

 

Exhibit Number

 

Description

3.1

 

Articles and Bylaws incorporated by reference from our registration statement on Form 10-SB filed on February 27, 2003.

3.2

 

Certificate of Amendment to the Articles of Incorporation dated June 2, 2005 incorporated by reference from our quarterly report on Form 10-QSB filed on November 17, 2006.

3.3

 

Certificate of Change dated June 2, 2005 incorporated by reference from our quarterly report on Form 10-QSB filed on November 17, 2006.

3.4

 

Certificate of Amendment to the Articles of Incorporation incorporated by reference from our annual report on Form 10-KSB filed on July 14, 2006

3.5

 

Certificate of Change incorporated by reference from our annual report on Form 10-KSB filed on July 14, 2006.

3.6

 

Articles of Incorporation of Urex Energy Corp. incorporated by reference from our annual report on Form 10-KSB filed on July 14, 2006.

3.7

 

Articles of Merger incorporated by reference from our Current Report on Form 8-K filed on July 5, 2006.

3.8

 

Certificate of Change incorporated by reference from our Current Report on Form 8-K filed on July 5, 2006.

3.9

 

Certificate of Correction with respect to the Certificate of Change incorporated by reference from our Current Report on Form 8-K filed on July 5, 2006.

3.10

 

Certificate of Correction with respect to the Articles of Merger incorporated by reference from our Current Report on Form 8-K filed on July 5, 2006.

3.11

 

Amended Articles and Plan of Merger filed on September 14, 2012 incorporated by reference from our Current Report on Form 8-K filed on October 3, 2012.

10.1

 

Agreement dated May 26, 2020 by and between JR Resources Corp. and Dakota Territory Resource Corp. (amended note attached as an exhibit), Exhibit 10.1 of the Form 8-K filed with the SEC on May 27, 2020

10.2

 

At-will employment arrangement for Gerald Aberle, incorporated by reference from our Form 10-K filed on June 29, 2020.

10.3

 

At-will employment arrangement for Wm. Chris Mathers, incorporated by reference from our Form 10-K filed on June 29, 2020.

14.1

 

Code of Ethics adopted April 26, 2013 incorporated by reference from our annual report on Form 10-K filed on July 1, 2013.

31.1(1)

 

Section 302 Certification of Gerald Aberle, Chief Executive Officer

31.2(1)

 

Section 302 Certification of Wm. Chris Mathers, Chief Financial Officer

32.1(1)

 

Section 906 Certification of Gerald Aberle, Chief Executive Officer

32.2(1)

 

Section 906 Certification of Wm. Chris Mathers, Chief Financial Officer

 

* Management contract or compensatory plan or arrangement

(1) Filed herewith


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

DAKOTA TERRITORY RESOURCE CORP.

 

/s/ Gerald Aberle

By: Gerald Aberle, duly authorized officer

Chief Executive Officer and Principal Executive Officer

Dated: August 13, 2020

 

/s/ Wm. Chris Mathers

By: Wm. Chris Mathers, duly authorized officer

Chief Financial Officer and Principal Accounting Officer

Dated: August 13, 2020


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