DAKOTA TERRITORY RESOURCE CORP. You should read the following discussion and analysis of the Company's financial condition and results of operations together with the Company's financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q may also contain statistical data and estimates the Company obtained from industry publications and reports generated by third parties. Although the Company believes that the publications and reports are reliable, it has not independently verified their data. 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 the Company's anticipated results and developments of its operations in future periods, planned exploration and development of its properties, plans related to its 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:
º the progress, potential and uncertainties of the Company's exploration
program at its properties located in the Homestake District of South Dakota
(the "Project");
º the success of getting the necessary permits for future drill programs and
future project exploration;
º expectations regarding the ability to raise capital and to continue the
Company's exploration plans on the Company's properties; and
º 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:
º risks associated with the Merger;
º risks associated with lack of defined resources that are not SEC S-K 1300
Compliant Reserves, and may never be;
º risks associated with the Company's history of losses and need for
additional financing;
º risks associated with its limited operating history;
º risks associated with its properties all being in the exploration stage;
º risks associated with its lack of history in producing metals from its
properties;
º risks associated with its need for additional financing to develop a
producing mine, if warranted;
º risks associated with its exploration activities not being commercially
successful;
º risks associated with ownership of surface rights at its Project;
º risks associated with increased costs affecting its financial condition;
º risks associated with a shortage of equipment and supplies adversely
affecting its ability to operate;
º risks associated with mining and mineral exploration being inherently
dangerous;
º risks associated with mineralization estimates;
º risks associated with changes in mineralization estimates affecting the
economic viability of its properties;
º risks associated with uninsured risks;
º risks associated with mineral operations being subject to market forces
beyond its control;
º risks associated with fluctuations in commodity prices;
º risks associated with permitting, licenses and approval processes;
º risks associated with the governmental and environmental regulations;
º risks associated with future legislation regarding the mining industry and
climate change;
º risks associated with potential environmental lawsuits;
º risks associated with its land reclamation requirements;
º risks associated with gold mining presenting potential health risks;
º risks associated with the COVID-19 pandemic;
º risks associated with cybersecurity and cyber-attacks;
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º risks related to title in its properties;
º risks related to competition in the gold and silver mining industries;
º risks related to economic conditions;
º risks related to its ability to manage growth;
º risks related to the potential difficulty of attracting and retaining
qualified personnel;
º risks related to its dependence on key personnel;
º risks related to its SEC filing history; and
º risks related to its securities.
This list is not exhaustive of the factors that may affect the Company's
forward-looking statements. Although the Company has 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. The Company cautions 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, the Company disclaims 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. The Company qualifies 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 the
Company's financial statements and notes thereto as set forth herein. Readers
are also urged to carefully review and consider the various disclosures made by
the Company, which attempt to advise interested parties of the factors which
affect its business, including without limitation, the disclosures made under
"Risk Factors" of its most recent Form 10-K.
The Company's unaudited financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles.
Since the Company is an exploration stage company and has not generated revenues
to date, its business is subject to numerous contingencies and risk factors
beyond its control, including exploration and development risks, competition
from well-funded competitors, and its ability to manage growth.
Overview
The Company's goal is to create shareholder value through the acquisition,
responsible exploration and future development of high caliber gold properties
in the Homestake District of South Dakota . Management and the technical teams
cumulatively have several hundred years of international mining and exploration
experience and key personnel have more than 50 combined years in the Homestake
District , mostly with the Homestake Mining Company , as well as other exploration
companies that worked in the region. The Company believes this experience
uniquely positions the Company and will allow it to leverage its direct
experience and knowledge of past exploration and mining activities in the
District with modern exploration and mining techniques and understanding to
focus its programs and build upon dominance where the historic Homestake Mining
Company left off in the 1990's.
The Homestake District has yielded approximately 44.6 million ounces of gold
production with most of it coming from within a small area. The production
ledges of the old mine define a cumulative surface projection area of much less
than 3 square miles. Homestake Mining Company's historic gold production and
exploration in the District is overwhelmingly focused on the underground mine.
Modern statistical studies and understanding of the distribution of large gold
camps around the world identifies that large gold deposits generally occur in
clusters. The Company believes the Homestake District is generally underexplored
and has lacked the modern efforts required to search for gold deposits
especially under the cover of younger sedimentary and igneous rocks that
dominate the surface. The Homestake 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, the Company has consistently pursued a strategy of expanding its
portfolio of brownfields properties located exclusively within the Homestake
District to build a dominant land position with the goal of consolidating the
remaining mineral potential. Property acquisitions are focused and based on past
exploration, the access to proprietary data sets the Company has assembled over
the years, and new research that has been conducted on the gold systems that
created the deposits in the Homestake District . We have not established that an
of our projects or properties contain any proven or probably reserves under S-K
1300.
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The Company believes theHomestake District is located in a safe, low-cost jurisdiction with well-developed infrastructure and is in a regulatory jurisdiction in which authorities have consistently demonstrated a willingness to work with responsible operators to permit well-planned compliant projects. Merger OnSeptember 10, 2021 , the Company andJR Resources Corp. ("JR") entered into an Amended and Restated Agreement and Plan of Merger (as may be amended from time to time, the "Merger Agreement") providing for a business combination of the Company and JR. Prior to the completion of the transactions, JR will change its name toDakota Gold Corp. ("Dakota Gold"). Under the terms of the merger agreement, after the completion of the transactions, Dakota Gold will be the parent company. In the transactions, the Company's stockholders will receive one share of Dakota Gold common stock for each share of the Company's common stock that they own at the time of the closing of the transactions. It is anticipated that, upon the closing of the transactions, the Company's former stockholders will own approximately 49% and JR's existing stockholders will own approximately 51% of the outstanding shares ofDakota Gold Corp. common stock. OnFebruary 1, 2022 , the Company announced theUnited State Securities and Exchange Commission (the "SEC") declared effective the Company and JR's registration statement on Form S-4, filed in connection with their merger (the "Merger") pursuant to the merger agreement. The Company will hold a shareholder meeting onMarch 24, 2022 to approve the Merger, approve the Company's 2021 stock incentive plan, elect directors and ratify the appointment of the Company's independent registered accounting firm. The approval of the Company's shareholders of the Merger is required in order to complete the combination of the Company and JR under the terms of the Merger Agreement. The proposal is described in more detail in the proxy statement/prospectus that will be mailed to the Company's shareholders, which shareholders should read carefully in its entirety before submitting a proxy or otherwise voting their shares. The board of directors of the Company has approved the Merger Agreement. Holders of JR shares are not entitled to vote their JR shares at the Company's shareholder meeting, however, a JR shareholder that also owns the Company's shares may vote his or her Dakota Territory shares at the Company's shareholder meeting. The Merger does not require approval from JR shareholders to proceed. Assuming the approval of the Company's shareholders onMarch 24, 2022 , the Company anticipates the Merger will close on or beforeMarch 31, 2022 . Following the approval of the Company's shareholders of the Merger, on closing of the Merger and pursuant to the Merger Agreement: • The Company's shareholders will receive one share of JR (which will be renamedDakota Gold Corp. prior to closing) for each share of the Company; • JR shareholders will continue to hold shares of JR Resources (which will be renamedDakota Gold Corp. prior to closing); and • Immediately prior to the closing of the Merger, JR will complete a reverse share split such that the total number of JR Resources shares will be proportionately reduced to 35,641,667 JR shares. To receive Dakota Gold shares on closing, the Company's shareholders must complete the letter of transmittal they receive fromOdyssey Trust Company . This letter of transmittal will contain instructions for how to surrender the Company's stock certificates (or affidavit of loss, if applicable) or shares held in book-entry or other uncertificated form in order to exchange them for shares of Dakota Gold common stock. Shares of Dakota Gold common stock will be in uncertificated book-entry form. 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. The parties contemplate that, effective at, or around the time of, the completion of the transactions, Dakota Gold's common stock will be traded on theNYSE American stock exchange (the "NYSE American") under the symbol "DGC" through the "uplisting" of the Company's common stock, which currently trades on the OTCQB under the symbol "DTRC." Although the Company has applied for listing of Dakota Gold's common stock on the NYSE American, no assurance can be given that the Company's listing application will be approved. 17
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Planned Activities
Table: Fiscal Year 2022 Proposed
Cash Exploration Expenditures (millions)
General & administrative $ 3.4 Drilling, Field programs/Met Testing/Data Compilation
$ 6.8 TOTAL$13.4 Since the Company's projects are all exploration stage and do not, to date, generate revenues. The Company has not established that any of its properties or projects contain proven or probable reserves as defined under SEC S-K 1300. Expenditure projections are subject to numerous contingencies and risk factors beyond the Company's control, including exploration and development risks, competition from well-funded competitors, and the Company's ability to manage growth. The Company cannot offer assurance that its expenses will either meet or exceed its projections. As of the date of this management's discussion and analysis, the company has a commitment to purchase an additional exploration property at an approximate cost of approximately$190,000 which is expected to close inFebruary 2022 . Liquidity and Capital Resources The Company is in the exploration-stage company and does not generate revenues. As such, the Company finance its operations and the acquisition and exploration of its mineral properties through the issuance of share capital, and the Company could be materially adversely affected if it is unable to raise capital because of market or other factors. As ofDecember 31, 2021 , the Company had working capital of$46,191,920 and its accumulated deficit as ofDecember 31, 2021 , was$31,196,490 . The Company had a net loss for the nine months endedDecember 31, 2021 , of$22,653,706 . During the nine months endedDecember 31, 2021 , the Company issued a total of 11,203,661 shares of common stock for net proceeds of$49,515,626 . During its fiscal year endingMarch 31, 2022 , the Company plans cash expenditures of approximately$13.4 million . The timing of these expenditures is dependent upon a number of factors, including the availability of contractors. The Company has sufficient funds for funding its activities for the current year and for the 12 month period beyond our fiscal year-end. 18
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Cash flows used in operating activities During the nine months endedDecember 31, 2021 , and 2020, the Company's cash slows used in operating activities were$5,715,288 and$1,616,447 , respectively. Cash used in operations for theDecember 31, 2021 , period increased year over year as the company increased the amount of land staking and associated annual claim maintenance costs. In addition, the company completed an airborne geophysical survey and engaged additional personnel to review and commence the compilation of historical geological data obtained through the Barrick option agreements. The Company also began preparation for drilling activities, which commenced in January of 2022. Cash flows used in investing activities During the nine months endedDecember 31, 2021 , and 2020, cash flow used in investing activities were$6,753,649 and$3,771,801 , respectively. In the period endedDecember 31, 2021 , the cash used for investing activities consisted primarily of the acquisition of land. As the Company has increased the land package for mineral rights under control, it has increased land acquisition expenditures in fiscal 2022 compared to fiscal 2021. Cash flows used in financing activities During the nine months endedDecember 31, 2021 , and 2020, cash flows from financing activities were$48,713,911 and$10,945,161 , respectively. In the period endedDecember 31, 2021 , Dakota, issued shares for proceeds of$50.3 million and made a repayment of related party notes for$801,715 . Cash flows from investing in the period endedDecember 31, 2020 , consisted primarily of Dakota issuing shares for proceeds of$9.4 million , receiving proceeds from option exercises of$631,000 and proceeds from a note payable of$1.1 million . Results of Operations Three months endedDecember 31, 2021 , and 2020 Revenue The Company had no operating revenues for the three months endedDecember 31, 2021 , and 2020. Exploration Costs During the three months endedDecember 31, 2021 , and 2020, the Company's exploration costs were$2,058,521 and$94,071 , respectively. The largest increase year over year related to$1,210,390 of share-based compensation expense in the three months endedDecember 31, 2021 , (2020 -$0 ) as a result of higher share price driving a higher fair value for equity compensation being granted, as well as a one-time grant to employees and contractors of common shares and Restricted Share Units related. Exploration work continued to ramp up, with higher payments of annual claim maintenance fees related to mineral properties from a larger land package, a regional geophysical survey and preparatory work for drilling, which commenced in January of 2022. General and Administrative The Company's general and administrative expenses for the three months endedDecember 31, 2021 and 2020, were$3,391,952 and$158,364 , respectively. The largest expenses were related to merger and related activities, including$1,827,808 of share-based compensation expense in the three months endedDecember 31, 2021 (2020 -$0 ), and legal, accounting and professional fees and investor relations accounting for$409,440 (2020 -$110,384 ). These costs are not expected to be incurred at such levels going forward. Nine months endedDecember 31, 2021 and 2020 Revenue The Company had no operating revenues for the nine months endedDecember 31, 2021 , and are currently not profitable. As a result of ongoing operating losses, the Company had an accumulated deficit of$31,196,490 as ofDecember 31, 2021 . Exploration Costs During the nine months endedDecember 31, 2021 , the Company's exploration costs were$6,117,247 (2020 -$576,260 ). Included in these costs were share-based compensation and payments of annual claim maintenance fees related to its mineral properties. The increase year over year related to$3,869,590 of share-based compensation expense in the nine months endedDecember 31, 2021 (2020 -$0 ) as a result of higher share price driving a higher fair value for equity compensation being granted, as well as a one-time grant to employees and contractors of common shares and Restricted Share Units related 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. Exploration work continued to ramp up, with higher payments of annual claim maintenance fees related to mineral properties from a larger land package, a regional geophysical survey and preparatory work for drilling, which commenced in January of 2022. 19
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General and Administrative The Company's general and administrative expenses for the nine months endedDecember 31, 2021 and 2020 were$16,427,931 and$524,266 , respectively. The largest expenses were related to merger and related activities, including$12,483,570 for share-based compensation in the nine months endedDecember 31, 2021 (2020 -$0 ) and$1,275,101 (2020 -$435,161 ) for legal, accounting and professional fees. These costs are not expected to be incurred at such levels going forward. Other general and administrative expenses necessary for operations accounted for$2,641,986 during the nine-month period endedDecember 31, 2021 (2020 -$89,105 ). The Company had losses from operations for the nine months endedDecember 31, 2021 and 2020, totaling$22,545,178 and$1,100,526 , respectively. The Company had total net losses for the nine months endedDecember 31, 2021 and 2020, of$22,653,706 and$2,415,630 , respectively. The Company incurred interest expense for the nine months endedDecember 31, 2021 and 2020, respectively, in the amounts of$101 and$1,322,244 and recognized a loss on settlement of related party debt of$124,521 and$0 , respectively. The Company's money market account generated interest income during the nine months endedDecember 31, 2021 and 2020, respectively, in the amounts of$16,094 and$2,140 . Off-Balance Sheet Arrangements As ofDecember 31, 2021 and 2020, the Company had 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 the Company's 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 the Company's 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 the Company's assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on the Company's 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 the Company's audited annual financial statements in the Company's Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 . There have been no material changes to the Company's critical accounting policies and estimates as compared to the Company's critical accounting policies and estimates described in the Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 20
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