8

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

(UNAUDITED)

Note 2—Related Party Transactions, continued

In October 2020, the Company issued a note payable to WCM Associates, LP, an entity controlled by the Company’s CFO, in the amount of $123,000, bearing interest at 0.25% per year, for amounts owed for consulting fees. The note required an initial payment in the amount of $86,500 due on January 1, 2021 and subsequent payments in the amount of $25,000 plus accrued interest, due on the last day of each quarter, beginning with the quarter ending March, 2021, and continuing until the note is fully repaid. As of the date of this filing, Mr. Mathers has been paid in full.

In connection with the notes payable issued in 2020, as discussed above, the Company determined that the 0.25% contractual rate represents 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 the three months ended December 31, 2020, the Company recognized amortization of the debt discount of $10,644 in interest expense, with the remaining unamortized discount to be recognized into interest expense over the remaining life of the notes using the effective interest method.

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. Mr. O’Rourke exercised these options for cash in October 2020.

In October and December 2020, options to purchase 4,300,000 shares of common stock were exercised for $344,000 by our officers and directors.

Messrs. Aberle and Bachman own a 5% net smelter return royalty on the original 84 unpatented mining claims that comprised 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 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 the Company’s 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.

9

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

(UNAUDITED)

Note 3—Mineral Properties, continued

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 the City Creek Property; 82 acres located approximately one half mile south of the Blind Gold Property at the western fringe of the historic Maitland Gold Mine; and 141 acres located immediately north and contiguous to the 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 December 31, 2020, the Company is current on all required annual lease payments.

In November 2018, the Company 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.

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).

On July 23, 2020 the Company announced that it had substantially increased its land holdings in the Black Hills of South Dakota through the staking of 166 unpatented lode mining claims covering approximately 3,152 acres located immediately north and adjacent to the Company’s City Creek Property. The project area was first expanded in 2018 on the basis of inversion modeling of historical geophysical survey data. Subsequent reconnaissance and preliminary analysis of the Company’s new geophysical data provided evidence of underlying shear fabric on a similar orientation with the productive structural corridor north of the Homestake Mine.

On September 15, 2020 the Company increased its land holdings in the Homestake District of the Black Hills of South Dakota through the staking of 50 unpatented lode mining claims covering approximately 840 acres at the historic Ragged Top Gold Camp. Tertiary-aged gold mineralization in the Ragged Top area is hosted primarily in the Paha Sapa Limestone formation and has been mined from both vertical fissures called “Verticals” and from collapsed breccias. The Company’s Ragged Top property 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).

On October 23, 2020, the Company closed the purchase of the Maitland Gold Property in the Black Hills of South Dakota from Homestake Mining Company of California, a wholly owned subsidiary of Barrick Gold Corporation (“Barrick”), for total consideration of $4.82 million, comprised of $3.5 million cash and the issuance of 3 million shares of Company common stock valued at $0.44 per share, or $1.32 million. Additionally, Barrick will retain a 2.5% net smelter returns royalty on the property. The 2,112 mineral-acre Maitland acquisition will secure an important component of the Company’s 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 Black Hills District.

10

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

(UNAUDITED)

Note 3—Mineral Properties, continued

In August 2020, the Company completed a broad high definition airborne geophysical survey to enhance the Company’s previous drill targeting, as well as to screen the entire Northern Hills area for new areas of interest and additional targets. Management believes the Homestake District holds exceptional discovery potential and it is the Company’s intent to continue to consolidate the Company’s dominant land position and to conduct systematic exploration of the district.

At December 31, 2020 and March 31, 2020, the Company’s mineral properties totaled $5,287,116 and $216,104, respectively. As of December 31, 2020, the Company is in the exploration stage and has not commenced amortization of the properties.

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.

In connection with the promissory note agreement with JR, the Company granted JR an option to purchase up to 142,566,667 shares of common stock at $0.15 per share in one or more closings on or prior to October 15, 2020. 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.

On October 15, 2020, and as a part of the first closing of our agreement with JR Resources, the promissory note was converted into 9,666,667 shares of the Company’s common stock. In connection with the conversion, the Company recognized the remaining $1,036,849 of unamortized debt discount as interest expense. For the nine and three months ended December 31, 2020, the Company recognized additional interest expense of approximately $1,316,000 and $1,047,000, respectively, related to amortization of debt discount.

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 December 31, 2020 was approximately $25,000.

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.

11

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

(UNAUDITED)

Note 6—Common Stock, Options and Warrants, continued

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 July 2020, warrants to purchase 3,300,000 shares of our common stock were exercised for $330,000 by investors.

In July 2020, an option to purchase 300,000 shares of common stock was exercised for $24,000 by a consultant.

In September 2020, a warrant to purchase 500,000 shares of common stock was exercised for $50,000 from an investor. These shares were issued in October 2020.

In connection with the May 2020 JR note, the Company provided JR the option to acquire up to 142,566,667 shares of common stock at $0.15 per share. On October 15, 2020, JR exercised the first closing of the option agreement and acquired 60,000,000 shares of common stock for total consideration of $9.0 million. JR has the right to purchase up to 72,900,000 additional shares of common stock for up to $10,935,000 on or prior to February 15, 2021. JR also converted the outstanding principal on its convertible promissory note totaling $1,450,000 into 9,666,667 shares of common stock (See Note 4 – Notes Payable for additional information).

In October 2020, the Company issued 3,000,000 shares valued at $1.32 million to Barrick in connection with the acquisition of the Maitland Gold Property as further described in Note 3 – Mineral Properties.

During the three months ended December 31, 2020, the holders of 7,650,000 common stock option with exercise prices ranging from $0.06 to $0.08 per share, exercised such options for total consideration of $607,000.

During the three months ended December 31, 2020, the holders of 600,000 common stock options with exercise prices of $0.08 per share, exercised such options on a cashless basis for a total of 507,692 shares of common stock.

On November 13, 2020, the Company declared a special cash dividend of $0.055 per common share, payable January 4, 2021 to holders of record on December 22, 2020. As of the date thereof, there were 150,181,631 shares of common stock issued and outstanding and common stock options to purchase 1,800,000 shares of common stock; holders of 72,666,667 shares of common stock have contractually relinquished and waived their right to receive this special cash dividend. As of December 31, 2020, the cash dividend totaling $4,357,246 is being held in escrow and is presented under restricted cash and dividend payable in the accompanying balance sheet.

At December 31, 2020, there were 151,889,323 shares of our common stock outstanding.

Common Stock Options and Warrants

A summary of the Company's stock option activity and related information for the period ended December 31, 2020 is as follows:

12

DAKOTA TERRITORY RESOURCES CORP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 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 December 31, 2020 is as follows:

Note 7 – Subsequent Events

On January 20, 2021, the Company entered into a note payable with JR in the amount of $300,000 for additional working capital. The note does not bear interest and is due and payable in cash on December 31, 2021. However, upon the occurrence of a change in control of the Company pursuant to the May 2020 agreement, the unpaid principal amount of the loan outstanding at the time of such change in control closing shall be applied to and considered an investment amount paid by JR.

On February 2, 2021, the Company announced the hiring of Mark Rantapaa to fill the position of Manager of Black Hills Operations. Mr. Rantapaa is responsible for the conduct of all of the Company’s exploration and mining activities in the Black Hills and has been charged with development of policy and programs necessary to the achievement of Dakota Territory’s goals for excellence in health, safety and environmental performance.

13

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

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; 

·risks associated with uninsured risks; 

14

·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 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” 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.

15

Overview

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 eight brownfield exploration project areas in the district comprised of unpatented claims and a combination of surface and mineral leases covering a total of approximately 18,182 mineral acres. We have not established that any of our projects or properties contain any proven or probable reserves under SEC Industry Guide 7.

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.

In May 2020, the Company entered into an agreement with JR Resources Corp. (“JR”) whereby JR loaned the Company an aggregate of $1,450,000 and the Company granted JR the right to purchase up to 142,566,667 shares of common stock at $0.15 per share in one or more closings on or prior to October 15, 2020 (“Agreement”). On October 15, 2020, the Company and JR effected the first closing under this Agreement whereby JR purchased 69,666,667 shares of the Company’s common stock for aggregate consideration of $10,450,000, including $9,000,000 in cash and $1,450,000 upon conversion of the principal amount of the May 2020 promissory note. Additionally, the Company and JR entered into an amending agreement on October 15, 2020 (“Amending Agreement”) whereby (i) it was agreed to extend the balance of the May 2020 purchase right until February 15, 2021, which will allow JR the option to purchase up to an additional 72,900,000 shares of common stock for up to an additional $10,935,000, and (ii) the Company created two director vacancies and agreed to allow for two JR nominees to be appointed, of which Alex Morrison was appointed as a director to fill one vacancy.

On July 23, 2020, the Company announced that it had substantially increased its land holdings in the Black Hills of South Dakota through the staking of 166 unpatented lode mining claims covering approximately 3,152 acres located immediately north and adjacent to the Company’s City Creek Property. The project area was first expanded in 2018 on the basis of inversion modeling of historical geophysical survey data. Subsequent reconnaissance and preliminary analysis of the Company’s new geophysical data provided evidence of underlying shear fabric on a similar orientation with the productive structural corridor north of the Homestake Mine.

16

On September 15, 2020, the Company increased its land holdings in the Homestake District of the Black Hills of South Dakota through the staking of 50 unpatented lode mining claims covering approximately 840 acres at the historic Ragged Top Gold Camp. Tertiary-aged gold mineralization in the Ragged Top area is hosted primarily in the Paha Sapa Limestone formation and has been mined from both vertical fissures called “Verticals” and from collapsed breccias. The Company’s Ragged Top property 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). Dakota Territory believes the Property to be an excellent prospect for additional tertiary-aged limestone hosted gold mineralization and for tertiary-aged gold and silver replacement mineralization in the preferred Deadwood formation host that lies under the cover of the limestone that dominates the surface exposure.

On October 23, 2020, we closed the purchase of the Maitland Gold Property in the Black Hills of South Dakota from Homestake Mining Company of California, a wholly owned subsidiary of Barrick Gold Corporation (“Barrick”), for total consideration of $4.82 million, comprised of $3.5 million cash and the issuance of 3 million shares of Company common stock valued at $0.44 per share, or $1.32 million. Additionally, Barrick will retain a 2.5% net smelter returns royalty on the property. The 2,112 mineral-acre Maitland acquisition will secure an important component of the Company’s 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 Black Hills District.

On November 30, 2020, the Company announced the acquisition of 64 unpatented lode mining claims covering approximately 1,092 acres located south and to the west of the former Homestake Gold Mine. The Poorman Anticline Property covers the southwestern-most extension of the Homestake iron-formation host in the district. Gold mineralization was discovered underground on the 2600 and 4100 foot levels in the far western extents of the Homestake Mine in the 1950's and 60’s with little known historic follow-up exploration in 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.

In August 2020, we completed 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 plan to conduct additional field sampling /mapping programs and to continue to locate additional targets to add to our extensive data sets. We expect in the near future to complete site preparations and to conduct our first drill program on the Paleoplacer Property. Additionally, we plan to complete additional property acquisitions, and the commencement of preliminary permit work for the Blind Gold and City Creek and Tinton Properties.

On January 4, 2021, the Company purchased an office building located at 141 Glendale Dr., Lead, South Dakota 57754 to serve as the Company’s new corporate headquarters. The cash purchase price of the building, furniture, fixtures and other property was approximately $755,000. The building, built in the 1890’s as a railroad roundhouse, was completely renovated between 2000 and 2010 and is approximately 13,500 square feet with mixed use office and retail space.

On January 26, 2021, the Company announced the acquisition of 158 unpatented lode mining claims covering approximately 2,740 acres. The acquisition was based on continuing analysis of the Company’s historic data sets coupled with new insights derived from the Company’s district-scale airborne geophysical survey flown during the summer of 2020. 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 275 additional acres between Richmond Hill and Wharf gold mines, and the Blind Gold Property was further expanded west, adding approximately 499 acres immediately north of the Richmond Hill Mine.

On February 2, 2021, the Company announced the hiring of Mark Rantapaa to fill the position of Manager of Black Hills Operations. Mr. Rantapaa is responsible for the conduct of all of the Company’s exploration and mining activities in the Black Hills and has been charged with development of policy and programs necessary to the achievement of Dakota Territory’s goals for excellence in health, safety and environmental performance. Mr. Rantapaa was born and raised in the Black Hills of South Dakota and holds a BSc in Geological Engineering from SDSM&T, where he has also served as a member of the University’s Mining Industrial Advisory Board. Mr. Rantapaa has broad technical and management experience gained through his 27-year career with Barrick Gold Corporation in Nevada where he served in various roles of increasing responsibility, including Open Pit Technical Services Superintendent and Operations Superintendent at the Goldstrike Mine and Mine Manager at the Cortez Mine. Mr. Rantapaa also held the Corporate position of Director of Safety and Health before moving to McEwen Mining where he served as Mine Manager and General Manager at the Gold Bar Mine.

Liquidity and Capital Resources

As of December 31, 2020, we had a working capital surplus of approximately $81,000 and our accumulated deficit as of December 31, 2020 was approximately $7,793,000. We had a net loss for the quarter ended December 31, 2020 of approximately $1,296,000. Our cash position as of December 31, 2020 was approximately $1,346,000 and we had approximately $4,357,000 of restricted cash held in escrow for payment of a special dividend declared in November 2020.

17

In May 2020, we entered into an Agreement with JR whereby JR loaned the Company an aggregate of $1,450,000 and the Company granted JR the right to purchase up to 142,566,667 shares of common stock at $0.15 per share in one or more closings on or prior to October 15, 2020. On October 15, 2020, the Company and JR effected the first closing under this Agreement whereby JR purchased 69,666,667 shares of Company common stock for aggregate consideration of $10,450,000, including $9,000,000 in cash and $1,450,000 upon conversion of the principal amount of the May 2020 promissory note. Additionally, the Company and JR entered into an Amending Agreement on October 15, 2020 whereby it was agreed to extend the balance of the May 2020 purchase right until February 15, 2021, which will allow JR the option to purchase up to an additional 72,900,000 shares of common stock for up to an additional $10,935,000 in one or more closings from the Company. Each closing is subject to negotiation of closing deliverables and satisfaction of closing conditions to be mutually agreed upon by the Company and JR, including agreement on how the proceeds will be utilized. There is no assurance that closing deliverables will be agreed upon and that any subsequent closing will occur, as JR is not obligated to purchase any shares.

During the balance of our fiscal year ending March 31, 2021, we plan to continue to pursue field programs, geophysical surveys, and effect land acquisitions. The timing of these expenditures is dependent upon a number of factors, including the availability of sufficient financing. We estimate that general and administrative expenses during the balance of our current fiscal year ending March 31, 2021 will be approximately $200,000 to include payroll, legal and accounting services and other general and administrative expenses necessary to conduct our operations.

We currently have no employees. Our management, all of whom are consultants, conduct our operations.

During the three months ended December 31, 2020, outstanding options entitling the holders to purchase an aggregate of 8,250,000 shares of common stock were exercised. We received proceeds in the amount of $607,000 from the exercise of these options.

On January 20, 2021, the Company entered into a note payable with JR in the amount of $300,000 for additional working capital. The note does not bear interest and is due and payable in cash on December 31, 2021. However, upon the occurrence of a change in control of the Company pursuant to the Agreement, the unpaid principal amount of the loan outstanding at the time of such change in control closing shall be applied to and considered an investment amount paid by JR.

Results of Operations

Nine months ended December 31, 2020 and 2019

We had no operating revenues for the nine months ended December 31, 2020 and 2019. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $7,793,000 as of December 31, 2020.

Our exploration costs were approximately $576,000 and $63,000 for the nine months ended December 31, 2020 and 2019, respectively. The exploration costs for the nine moths ended December 31, 2020 were primarily for field programs and flying a new comprehensive geophysical survey over the northern Black Hills of South Dakota. Our general and administrative expenses for the nine months ended December 31, 2020 were approximately $524,000 and approximately $451,000 for the nine months ended December 31, 2019. Our general and administrative expenditures were primarily for legal, accounting and professional consulting fees, insurance and other general and administrative expenses necessary for our operations.

We had losses from operations for the nine months ended December 31, 2020 and 2019 totaling approximately $1,100,000 and $514,000, respectively, and a net loss for the nine months ended December 31, 2020 and 2019 totaling approximately $2,416,000 and $524,000, respectively. We recorded additional interest expense of approximately $1,316,000 related to amortization of the debt discount on notes payable during the nine months ended December 31, 2020 and interest expense of approximately $9,000 during the nine months ended December 31, 2019.

Three months ended December 31, 2020 and 2019

We had no operating revenues for the three months ended December 31, 2020 and 2019. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $7,793,000 as of December 31, 2020.

Our exploration costs were approximately $94,000 and $24,000 for the three months ended December 31, 2020 and 2019, respectively. The exploration costs for the quarter ended December 31, 2020 were primarily for field programs, collection of ground gravity data and analysis of data collected from our new geophysical programs. Our general and administrative expenses for the three months ended December 31, 2020 and 2019 were approximately $158,000 and $165,000, respectively. These expenditures were primarily for legal, accounting and professional consulting fees, insurance and other general and administrative expenses necessary for our operations.

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We had a loss from operations for the three months ended December 31, 2020 and 2019 totaling approximately $252,000 and $189,000, respectively. We recorded additional interest expense of approximately $1,054,000 related to amortization of the debt discount on notes payable during the three months ended December 31, 2020. We had a net loss for the three months ended December 31, 2020 and 2019 totaling approximately $1,296,000 and $192,000, respectively.

Off-Balance Sheet Arrangements

For the nine months ended December 31, 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 account principles generally accepted in the United States of America (“U.S. 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 U.S. 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 purchase option granted to JR, 

·Valuation of stock options granted to directors and officers, and  

·Valuation 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.

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 exploration and any development plans related to our 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.

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.

^(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. 

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”).

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Item 5. Other Information

None.

Item 6. Exhibits.

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

* 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.

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