0001654954-22-014575.txt : 20221102 0001654954-22-014575.hdr.sgml : 20221102 20221102114358 ACCESSION NUMBER: 0001654954-22-014575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221102 DATE AS OF CHANGE: 20221102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNARESOURCE INC CENTRAL INDEX KEY: 0001111741 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 941589426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30371 FILM NUMBER: 221352876 BUSINESS ADDRESS: STREET 1: 222 W. LAS COLINAS BLVD STREET 2: STE 744 EAST TOWER CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 9728689066 MAIL ADDRESS: STREET 1: 222 W. LAS COLINAS BLVD STREET 2: STE 744 EAST TOWER CITY: IRVING STATE: TX ZIP: 75039 FORMER COMPANY: FORMER CONFORMED NAME: DYNA RESOURCE INC DATE OF NAME CHANGE: 20000412 10-Q 1 dynr_10q.htm FORM 10-Q dynr_10q.htm

 

  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2022.

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period ____________ to ___________.

 

Commission File Number 000-30371

 

DYNARESOURCE, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware

 

94-1589426

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

222 W. Las Colinas Blvd., Suite 1910 North Tower, Irving, Texas 75039

(Address of principal executive offices)

 

(972) 868-9066

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

DYNR

OTC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. Yes ☐    No ☒

 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒

 

As of September 30, 2022, there were 20,746,654 shares of Common Stock of the registrant outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL STATEMENTS

 

 

 

 

 

 

 

ITEM 1.

Unaudited Financial Statements

 

 

 

 

 

 

 

 

 

Notes to Unaudited Financial Statements

 

7

 

 

 

 

 

 

ITEM 2.

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

 

25

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

 

29

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

30

 

 

 

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

 

ITEM 3.

Defaults Upon Senior Securities

 

30

 

 

 

 

 

 

ITEM 4.

Mine Safety Disclosures

 

31

 

 

 

 

 

 

ITEM 5.

Other Information

 

31

 

 

 

 

 

 

ITEM 6.

Exhibits

 

31

 

 

CERTIFICATIONS

 

EXHIBIT 31.1

 

CHIEF EXECUTIVE OFFICER CERTIFICATION

 

 

 

EXHIBIT 31.2

 

CHIEF FINANCIAL OFFICER CERTIFICATION

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

 

 
2

Table of Contents

 

DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022, AND DECEMBER 31, 2021

(Unaudited)

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$16,488,686

 

 

$15,719,238

 

Accounts Receivable

 

 

942,734

 

 

 

577,118

 

Inventories

 

 

2,943,112

 

 

 

2,110,203

 

Foreign Tax Receivable

 

 

8,244,016

 

 

 

4,742,180

 

Other Current Assets

 

 

1,009,020

 

 

 

667,742

 

Total Current Assets

 

 

29,627,568

 

 

 

23,816,481

 

 

 

 

 

 

 

 

 

 

Mining Equipment and Fixtures (Net of Accumulated

 

 

 

 

 

 

 

 

Depreciation of $118,862 and $116,425)

 

 

292

 

 

 

2,729

 

Operating Lease

 

 

575,985

 

 

 

648,381

 

Mining Concessions

 

 

4,132,678

 

 

 

4,132,678

 

Other Assets

 

 

163,298

 

 

 

162,174

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$34,499,821

 

 

$28,762,443

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts Payable

 

$2,261,299

 

 

$1,275,679

 

Accrued Expenses

 

 

5,481,107

 

 

 

5,440,204

 

Customer Advances

 

 

7,375,000

 

 

 

9,250,000

 

Derivative Liabilities

 

 

1,905,078

 

 

 

3,898,914

 

Convertible Notes Payable - Series I & II

 

 

-

 

 

 

543,279

 

Installment Notes Payable

 

 

1,914,086

 

 

 

1,962,525

 

Current Portion of Operating Lease Payable

 

 

50,461

 

 

 

98,169

 

Total Current Liabilities

 

 

18,987,031

 

 

 

22,468,770

 

 

 

 

 

 

 

 

 

 

Operating Lease Payable, Less Current Portion

 

 

558,914

 

 

 

587,782

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

19,545,945

 

 

 

23,056,552

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

Series C Senior Convertible Preferred Stock, $0.0001 par     value, 1,734,992 shares designated, issued and outstanding

 

 

4,337,480

 

 

 

4,337,480

 

Series D Senior Preferred Stock, $0.0001 par value, 3,000,000 shares designated, 760,000 shares issued and outstanding

 

 

1,520,000

 

 

 

1,520,000

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

-

 

 

 

-

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Preferred Stock, Series A, $0.0001 par value, 1,000 shares designated, issued and outstanding

 

 

1

 

 

 

1

 

Common Stock, $0.01 par value, 40,000,000 shares authorized, 20,746,654 and 18,091,293 issued and outstanding

 

 

207,467

 

 

 

180,913

 

Preferred Rights

 

 

40,000

 

 

 

40,000

 

Additional Paid In Capital

 

 

56,022,782

 

 

 

50,632,400

 

Treasury Stock, 12,180 shares

 

 

(34,773 )

 

 

(34,773 )

Accumulated Other Comprehensive Income

 

 

(421,708 )

 

 

(247,665 )

Accumulated Deficit

 

 

(46,717,373 )

 

 

(50,722,465 )

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

9,096,396

 

 

 

(151,589 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$34,499,821

 

 

$28,762,443

 

 

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

 

 
3

Table of Contents

  

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

 

 

Three Months

Sept. 30, 2022

 

 

Three Months

Sept. 30, 2021

 

 

Nine Months

Sept. 30, 2022

 

 

Nine Months

Sept. 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$8,032,557

 

 

$10,467,058

 

 

$28,623,070

 

 

$25,906,083

 

COSTS AND EXPENSES OF MINING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Costs Applicable to Sales

 

 

964,172

 

 

 

756,898

 

 

 

2,876,902

 

 

 

1,917,049

 

Mine Production Costs

 

 

1,946,981

 

 

 

1,135,938

 

 

 

4,786,236

 

 

 

3,385,340

 

Mine Exploration Costs

 

 

1,335,437

 

 

 

1,151,020

 

 

 

3,792,405

 

 

 

3,437,009

 

Facilities Expansion Costs

 

 

1,773,385

 

 

 

579,432

 

 

 

4,744,792

 

 

 

579,432

 

Exploration Drilling

 

 

770,892

 

 

 

-

 

 

 

1,993,082

 

 

 

-

 

Camp, Warehouse and Facilities

 

 

911,284

 

 

 

697,446

 

 

 

3,147,312

 

 

 

1,956,168

 

Transportation

 

 

572,772

 

 

 

374,974

 

 

 

1,682,986

 

 

 

968,672

 

Property Holding Costs

 

 

39,312

 

 

 

36,866

 

 

 

112,093

 

 

 

116,516

 

General and Administrative

 

 

1,033,820

 

 

 

1,085,187

 

 

 

3,177,917

 

 

 

2,252,156

 

Depreciation and Amortization

 

 

812

 

 

 

812

 

 

 

2,437

 

 

 

2,437

 

Total Operating Expenses

 

 

9,348,867

 

 

 

5,818,573

 

 

 

26,316,162

 

 

 

14,614,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET OPERATING INCOME (LOSS)

 

 

(1,316,310 )

 

 

4,648,485

 

 

 

2,306,908

 

 

 

11,291,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Gains (Losses)

 

 

9,919

 

 

 

(258,006 )

 

 

47,709

 

 

 

(121,725 )

Interest Expense

 

 

(103,544 )

 

 

(372,336 )

 

 

(345,049 )

 

 

(1,102,755 )

Derivatives Mark-to-Market Gain (Loss)

 

 

(169,445 )

 

 

(3,743,797 )

 

 

1,993,836

 

 

 

(3,928,913 )

Arbitration Award Expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,111,111 )

Other Income

 

 

649

 

 

 

581

 

 

 

1,688

 

 

 

581

 

Total Other Income (Expense)

 

 

(262,421 )

 

 

(4,373,558 )

 

 

1,698,184

 

 

 

(6,263,923 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)  BEFORE TAXES

 

 

(1,578,731 )

 

 

274,927

 

 

 

4,005,092

 

 

 

5,027,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAXES

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$(1,578,731 )

 

$274,927

 

 

$4,005,092

 

 

$5,027,381

 

DEEMED DIVIDEND FOR SERIES C AND SERIES D PREFERRED

 

$(58,574 )

 

 

(43,374 )

 

 

(175,724 )

 

 

(130,124 )

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$(1,637,305 )

 

$231,553

 

 

$3,829,368

 

 

$4,897,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE DATA ATTRIBUTABLE TO THE EQUITY HOLDERS OF DYNARESOURCE, INC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) per Common Share

 

$(0.08 )

 

$0.01

 

 

$0.20

 

 

$0.28

 

Diluted Earnings (Loss) per Common Share

 

$(0.08 )

 

$0.01

 

 

$0.20

 

 

$0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding, Basic

 

 

20,746,654

 

 

 

17,722,825

 

 

 

19,005,593

 

 

 

17,722,825

 

Weighted Average Shares Outstanding, Diluted

 

 

20,746,654

 

 

 

17,722,825

 

 

 

19,005,593

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Exchange Gains (Losses)

 

 

(185,059 )

 

 

69,421

 

 

 

(174,043 )

 

 

(301,986 )

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

 

 

(185,059 )

 

 

69,421

 

 

 

(174,043 )

 

 

(301,986 )

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$(1,763,790 )

 

$344,348

 

 

$3,831,049

 

 

$4,725,395

 

 

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

 

 
4

Table of Contents

  

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022, AND 2021

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred A

 

 

Common

 

 

Preferred

 

 

Preferred

 

 

Paid In

 

 

Treasury

 

 

Treasury

 

 

Other Comp

 

 

 Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Rights

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income

 

 

 Deficit

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2021

 

Balance, June 30, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,407,333

 

 

 

516,480

 

 

$(1,474,486)

 

$66,685

 

 

$(54,504,374)

 

$(5,287,613)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,634)

 

 

(20,967)

 

 

59,858

 

 

 

 

 

 

 

 

 

 

 

48,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,421

 

 

 

 

 

 

 

69,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

274,927

 

 

 

274,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,395,699

 

 

 

495,513

 

 

$(1,414,628)

 

$136,106

 

 

$(54,229,447)

 

$(4,895,041)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2022

Balance, June 30, 2022

 

 

1,000

 

 

$1

 

 

 

20,746,654

 

 

$207,467

 

 

 

1

 

 

$40,000

 

 

$56,022,782

 

 

 

12,180

 

 

$(34,773)

 

$(236,649)

 

$(45,138,642)

 

$10,860,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(185,059)

 

 

 

 

 

 

(185,059)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,578,731)

 

 

(1,578,731)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

1,000

 

 

$1

 

 

 

20,746,654

 

 

$207,467

 

 

 

1

 

 

$40,000

 

 

$56,022,782

 

 

 

12,180

 

 

$(34,773)

 

$(421,708)

 

$(46,717,373)

 

$9,096,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2021

Balance January 1, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,407,333

 

 

 

516,480

 

 

$(1,474,486)

 

$438,092

 

 

$(59,256,828)

 

$(9,668,660)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,634)

 

 

(20,967)

 

 

59,858

 

 

 

 

 

 

 

 

 

 

 

48,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(301,986)

 

 

 

 

 

 

(301,986)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,027,381

 

 

 

5,027,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,395,699

 

 

 

495,513

 

 

$(1,414,628)

 

$136,106

 

 

$(54,229,447)

 

$(4,895,041)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2022

Balance January 1, 2022

 

 

1,000

 

 

$1

 

 

 

18,091,293

 

 

$180,913

 

 

 

1

 

 

$40,000

 

 

$50,632,400

 

 

 

12,180

 

 

$(34,773)

 

$(247,665)

 

$(50,722,465)

 

$(151,589)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Warrant Exercised

 

 

 

 

 

 

 

 

 

 

2,655,361

 

 

 

26,554

 

 

 

 

 

 

 

 

 

 

 

5,390,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,416,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(174,043)

 

 

 

 

 

 

(174,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,005,092

 

 

 

4,005,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

1,000

 

 

$1

 

 

 

20,746,654

 

 

$207,467

 

 

 

1

 

 

$40,000

 

 

$56,022,782

 

 

 

12,180

 

 

$(34,773)

 

$(421,708)

 

$(46,717,373)

 

$9,096,396

 

 

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

 

 
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Table of Contents

  

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022, AND 2021

(Unaudited)

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITES:

 

 

 

 

 

 

Net income

 

$4,005,092

 

 

$5,027,381

 

Adjustments to reconcile net income to cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

Change in Derivatives

 

 

(1,993,836 )

 

 

3,928,913

 

Depreciation and Amortization

 

 

2,437

 

 

 

2,437

 

Amortization of Loan Discount

 

 

-

 

 

 

411,935

 

    Stock Issued for Services

 

 

-

 

 

 

48,224

 

Change in Operating Assets and Liabilities

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(365,616 )

 

 

(125,252 )

Inventories

 

 

(832,909 )

 

 

(1,428,944 )

Foreign Tax Receivable

 

 

(3,501,836 )

 

 

(1,670,554 )

Other Assets

 

 

(342,402 )

 

 

(270,129 )

Operating Lease Assets

 

 

72,396

 

 

 

64,301

 

Appeal Bond

 

 

-

 

 

 

1,111,111

 

Accounts Payable

 

 

985,620

 

 

 

(419,323 )

Accrued Expenses

 

 

40,903

 

 

 

1,381,360

 

Customer Advances

 

 

(1,875,000 )

 

 

6,750,000

 

Operating Lease Liabilities

 

 

(76,576 )

 

 

(64,077 )

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

(3,881,727 )

 

 

14,747,383

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from Exercise of Stock Warrants

 

 

5,416,936

 

 

 

-

 

Payments of Convertible Notes Payable

 

 

(543,279 )

 

 

-

 

Payments of Notes Payable

 

 

(83,258 )

 

 

(47,936 )

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

4,790,399

 

 

 

(47,936 )

 

 

 

 

 

 

 

 

 

Effects of Foreign Currency Exchange

 

 

(139,224 )

 

 

(371,173 )

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

769,448

 

 

 

14,328,274

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

15,719,238

 

 

 

1,504,016

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$16,488,686

 

 

 

15,832,290

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Cash Paid for Interest

 

$62,729

 

 

$391,436

 

Cash Paid for Income Taxes

 

$-

 

 

$-

 

 

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

 

 
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Table of Contents

 

DYNARESOURCE, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 SEPTEMBER 30, 2022 AND 2021

 

NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Activities, History and Organization

 

DynaResource, Inc. (the “Company” or “DynaResource”) was organized September 28, 1937, as a California corporation under the name of West Coast Mines, Inc.   In 1998, the Company re-domiciled to Delaware and changed its name to DynaResource, Inc. The Company is in the business of acquiring, investing in, and developing precious metal properties, and the production of precious metals.

 

In 2000, the Company formed a wholly owned subsidiary, DynaResource de México S.A. de C.V., chartered in México (“DynaMéxico”). This Company was formed to acquire, invest in and develop resource properties in México. DynaMéxico owns a portfolio of mining concessions that currently includes its interests in the San José de Gracia Project (“SJG”) in northern Sinaloa State, México. The SJG District covers 9,920 hectares (24,513 acres) on the west side of the Sierra Madre mountain range. The Company currently owns 100% of the outstanding capital of DynaMéxico. A 20% minority interest in DynaMéxico was held by Goldgroup Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc. Vancouver BC (“Goldgroup”) until February 24, 2020.

 

In 2005, the Company formed DynaResource Operaciones de San José De Gracia S.A. de C.V. (“DynaOperaciones”) and acquired control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”). The Company owns 100% of DynaMineras.

 

The Company elected to become a voluntary reporting issuer in Canada in order to avail itself of Canadian regulations regarding reporting for mining properties and, more specifically, National Instrument 43-101 (“NI 43-101”). This regulation sets forth standards for reporting resources in a mineral property and is a reporting standard widely recognized in the mining industry.

 

Significant Accounting Policies

 

The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenues and expenses. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.

 

The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that: 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods presented.

 

Basis of Presentation

 

The Company prepares its unaudited consolidated financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States.

 

Principles of Consolidation

 

The unaudited consolidated financial statements include the accounts of DynaResource, Inc., as well as DynaResource de México, S.A. de C.V. (100% ownership), DynaResource Operaciones S.A. de C.V. (100% ownership) and Mineras de DynaResource S.A. de C.V. (100% ownership). All significant inter-company transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.

 

 
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Table of Contents

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of September 30, 2022, the Company had $15,595,559 of deposits in U.S. Banks in excess of the FDIC limit. Management does not believe that the Company is at risk of loss on cash.

 

Accounts Receivable and Allowances for Doubtful Accounts

 

The allowance for accounts receivable is recorded when receivables are considered to be doubtful of collection. As of September 30, 2022, and December 31, 2021, respectively, no allowance has been deemed necessary.

 

Foreign Tax Receivable

 

Foreign Tax Receivable is comprised of recoverable value-added taxes (“IVA”) charged by the Mexican government on goods and services rendered. Under certain circumstances, these taxes are recoverable by filing a tax return. Amounts paid for IVA are tracked and held as receivables until the funds are remitted. The total amounts of the IVA receivable as of September 30, 2022, and December 31, 2021 are $8,244,016 and $4,742,180, respectively.

 

Inventory

 

Inventories are carried at the lower of cost or net realizable value and consist of mined tonnage, gravity and flotation concentrates, and gravity tailings or flotation feed material. The inventories are $2,943,112 and $2,110,203 as of September 30, 2022, and December 31, 2021, respectively.

 

Exploration Stage Issuer (No Reserves Disclosed)

 

The definitions of Measured Mineral Resource, Mineral Reserve and Mineral Resource are set forth in SEC Regulation S-K, Item 1300 (“Reg. S-K, Item 1300”).

 

Measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.

 

Mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.

 

Mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.

 

As of September 30, 2022, the Company fits the definition of an exploration stage issuer which is defined as an issuer that has no material property with mineral reserves disclosed.

 

 
8

Table of Contents

 

Property

 

Substantially all mine development costs, including design, engineering, mine construction, and installation of equipment are expensed as incurred, as the Company has not established proven and probable reserves on any of its properties. Only certain types of mining equipment which has alternative uses or significant salvage value, may be capitalized without proven and probable reserves. Depreciation is computed using the straight-line method. Office furniture and equipment are being depreciated on a straight-line method over estimated economic lives ranging from 3 to 5 years. Leasehold improvements, which relate to the Company’s corporate office, are being amortized over the term of the lease of 10 years.

 

Design, Construction, and Development Costs: Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines.

 

When proven and probable reserves (as defined by Reg. S-K, Item 1300) exist, development costs are capitalized, and the property is a commercially minable property. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production would be capitalized. Costs of start-up activities and costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations as incurred. Costs of abandoned projects are charged to operations upon abandonment. All capitalized costs would be amortized using the units of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves.

 

Certain costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves. As no proven and probable reserves have been established on any of the Company’s properties, the design, construction and development costs are not capitalized at any of the Company’s properties, and accordingly, substantially all such costs are expensed as incurred, resulting in the Company reporting higher operating costs than if such expenditures had been capitalized. Additionally, the Company does not have a corresponding depreciation or amortization of these costs going forward since such costs were expensed as incurred as opposed to being capitalized. As a result of these and other differences, the Company’s financial statements may not be comparable to the financial statements of mining companies that have established reserves.

 

Mineral Property Interests

 

Mineral property interests include acquired interests in development and exploration stage properties, and are considered tangible assets. The amount capitalized relating to a mineral property interest represents its fair value at the time of acquisition. When a property does not contain mineralized material that satisfies the definition of proven and probable reserves, such as with the San José de Gracia Property, capitalized costs and mineral property interests are amortized using the straight-line method once production begins. As of September 30, 2022, the mining interests have been in the pilot production stage and therefore, no amortization has been expensed. Mining properties consist of 33 mining concessions covering approximately 9,920 hectares at the San José de Gracia property, the basis of which are amortized on the unit of production method based on estimated recoverable resources. If it is determined that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to fair value as a charge to operations in the period in which the determination is made. The amounts at which mineral properties and the related costs are recorded do not necessarily reflect present or future values.

 

Impairment of Assets: The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Mineral properties are monitored for impairment based on factors such as mineral prices, government regulation and taxation, the Company’s continued right to explore the area, exploration reports, assays, technical reports, drill results and its continued plans to fund exploration programs on the property.

 

 
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Table of Contents

 

For operating mines, recoverability is measured by comparing the undiscounted future net cash flows to the net book value. When the net book value exceeds future net undiscounted cash flows, an impairment loss is measured and recorded based on the excess of the net book value over fair value. Fair value for operating mines is determined using a combined approach, which uses a discounted cash flow model for the existing operations and a market approach for the fair value assessment of exploration land claims. Future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after considering losses during processing and treatment of mineralized material. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, and silver, commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.

 

The recoverability of the book value of each property will be assessed annually for indicators of impairment such as adverse changes to any of the following:

 

·

estimated recoverable ounces of gold, silver or other precious minerals;

·

estimated future commodity prices;

·

estimated expected future operating costs, capital expenditures and reclamation expenditures.

 

A write-down to fair value will be recorded when the expected future cash flow is less than the net book value of the property, or when events or changes in the property indicate that carrying amounts are not recoverable. This analysis will be completed as needed, and at least annually. As of the date of this filing, no events have occurred that would require write-down of any assets. As of September 30, 2022, and December 31, 2021, no indications of impairment existed.

 

Asset Retirement Obligation

 

As the Company is not obligated to remediate the mining properties, no Asset Retirement Obligation (“ARO”) has been established. Changes in regulations or laws, any instances of non-compliance with laws or regulations that result in fines, or any unforeseen environmental contamination could result in a material impact to the amounts charged to operations for reclamation and remediation. Significant judgments and estimates are made when estimating the fair value of AROs. Expected cash flows relating to AROs could occur over long periods of time and the assessment of the extent of environmental remediation work is highly subjective. Considering all of these factors that go into the determination of an ARO, the fair value of the AROs can materially change over time.

 

Property Holding Costs

 

Holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. These costs include security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.

 

Exploration Costs

 

Exploration costs are charged to operations and expensed as incurred. Exploration, development, direct field costs and administrative costs are expensed in the period incurred.

 

Transactions in and Translations of Foreign Currency

 

The functional currency for the subsidiaries of the Company is the Mexican Peso. As a result, the financial statements of the subsidiaries have been translated from Mexican Pesos into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) the weighted average exchange rate of the reporting period for all income statement accounts. Foreign currency translation gains and losses are reported as a separate component of stockholders’ equity and comprehensive income (loss).

 

 
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Table of Contents

 

The unaudited financial statements of the subsidiaries should not be construed as representations that Mexican Pesos have been, could have been or may in the future be converted into U.S. dollars at such rates or any other rates.

 

Relevant exchange rates used in the preparation of the unaudited financial statements for the subsidiaries are as follows for the periods ended September 30, 2022, and December 31, 2021 (Mexican Pesos per one U.S. dollar):

 

 

 

Sept. 30,

2022

 

 

Dec.

 31,

2021

 

Exchange Rate at Period End Pesos

 

 

20.12

 

 

 

20.48

 

 

Relevant exchange rates used in the preparation of the income statement portion of unaudited financial statements for the subsidiaries are as follows for the periods ended September 30, 2022, and September 30, 2021 (Mexican Pesos per one U.S. dollar):

 

 

 

Sept. 30,

2022

 

 

Sept. 30,

2021

 

Weighted Average Exchange Rate for the Nine Months Ended Pesos

 

 

20.25

 

 

 

20.13

 

 

The Company recorded currency transaction gains (losses) of $47,709 and $(121,725) for the nine months ended September 30, 2022 and 2021, respectively.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740 “Income Taxes” using the liability method, recognizing certain temporary differences between the financial reporting basis of liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives the deferred income tax charge or benefit by recording the change in either the net deferred income tax liability or asset balance for the year. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

 

Income from the Company’s subsidiaries in México is taxed is accordance with applicable Mexican tax law rates.

 

Use of Estimates

 

In order to prepare unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the unaudited consolidated financial statements and determines whether contingent assets and liabilities, if any, are disclosed in the unaudited consolidated financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.

 

Comprehensive Income (Loss)

 

ASC 220 “Comprehensive Income” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company’s comprehensive income consists of net income and other comprehensive income (loss), consisting of unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations.

 

Revenue Recognition

 

The Company follows ASC 606 “Revenue from contracts with customers”. The Company generates revenue by selling gold and silver produced from its mining operations. The Company recognizes revenue for gold and silver concentrate production, net of treatment and refining costs, when it satisfies the performance obligation of transferring control of the concentrate to the customer. This is generally when the material is delivered to the customer facility for treatment and processing, as the customer has the ability (upon such delivery) to direct the use of and obtain substantially all the remaining benefits from the material and the customer has the risk of loss.

 

 
11

Table of Contents

 

The amount of revenue recognized is initially recorded on a provisional basis based on the contract price and the estimated metal quantities based on assay data. The revenue is adjusted upon final settlement of the sale. The chief risk associated with the recognition of sales on a provisional basis is the fluctuation (if any) between the estimated quantities of precious metals base on the initial assay and the actual recovery from treatment and processing.

 

As of September 30, 2022, there are $7,375,000 in customer deposit liabilities for payments received in advance, all of which are expected to be settled in 2022.

 

During the nine months ended September 30, 2022, and the year ended December 31, 2021, there was $9,250,000 and $1,500,000 of revenue recognized during the period from customer deposit liabilities (deferred contract revenue) from prior periods, and $0 of customer deposits refunded to the customer due to order cancellation.

 

We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, receivables, payables and long-term debt. The carrying amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of long-term debt approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental risk adjusted borrowing rate.

 

Per Share Amounts

 

Earnings per share are calculated in accordance with ASC 260 “ Earnings per Share”. The weighted average number of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings per share are computed using the weighted average number of shares and potentially dilutive common shares outstanding. Potentially dilutive common shares are additional common shares assumed to be exercised. Potentially dilutive common shares consist of stock warrants, convertible preferred shares and convertible notes and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss or where the average stock price was below the exercise price of the respective potentially dilutive common share, as their effect would be considered anti-dilutive.

 

The Company had warrants outstanding at September 30, 2022 which upon exercise, would result in the issuance of 892,165 shares of common stock. The warrants are exercisable at $.01 per share.

 

The Company had warrants outstanding at December 31, 2021 which upon exercise, would result in the issuance of 3,060,998 shares of common stock. Of these warrants, 2,168,833 were exercisable at $2.04 per share and 892,615 were exercisable at $.01 per share. The Company also had convertible debt instruments as of December 31, 2021 which, upon conversion at valuations of $2.50 per share, would result in the issuance of 217,312 shares of common stock.

 

 

 

Nine Months

Ended

Sept. 30,

2022

 

 

Nine Months

Ended

Sept. 30,

2021

 

Net income (loss) attributable to common shareholders

 

$3,829,368

 

 

$4,897,257

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, Basic

 

 

19,005,593

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding

 

 

19,005,593

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$0.20

 

 

$0.28

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$0.20

 

 

$0.28

 

 

As of September 30, 2022, 892,165 shares of potentially dilutive common stock related to outstanding stock warrants were excluded from the diluted earnings per share calculation because the ratio of expenses related to the shares to issuable shares exceeded the basic earnings per share and therefore their effect would be anti-dilutive.

 

At September 30, 2021, 2,168,833 shares of potentially dilutive common stock related to outstanding stock warrants and 224,103 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation because the exercise and conversion prices exceeded the average stock price and therefore their effect would be anti-dilutive. In addition, at September 30, 2021, 1,260,634 of potentially dilutive common stock related to outstanding warrants and 2,089,098 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation because the ratio of expenses related to the shares to issuable shares exceeded the basic earnings per share and therefore their effect would be anti-dilutive.

 

Related Party Transactions

 

FASB ASC 850, “Related Party Disclosures” requires companies to include in their financial statements, disclosures of material related party transactions. The Company discloses all material related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party is also a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

NOTE 2 - INVENTORIES

 

Inventories are carried at the lower of cost or fair value and consist of mined tonnage, gravity-flotation concentrates, and gravity tailings (or flotation feed material). Inventory balances of September 30, 2022, and December 31, 2021, respectively, were as follows:

 

 

 

2022

 

 

2021

 

Mined Tonnage

 

$2,866,094

 

 

$2,042,633

 

Gold-Silver Concentrates

 

 

77,018

 

 

 

67,570

 

Total Inventories

 

$2,943,112

 

 

$2,110,203

 

 

NOTE 3 - PROPERTY

 

Property consists of the following at September 30, 2022 and December 31, 2021:

 

 

 

2022

 

 

2021

 

Leasehold improvements

 

$9,340

 

 

$9,340

 

Office equipment

 

 

31,012

 

 

 

31,012

 

Office furniture and fixtures

 

 

78,802

 

 

 

78,802

 

Sub-total

 

 

119,154

 

 

 

119,154

 

Less: Accumulated depreciation

 

 

(118,862 )

 

 

(116,425 )

Total Property

 

$292

 

 

$2,729

 

 

Depreciation and amortization has been provided over each asset’s estimated useful life. Depreciation and amortization expense was $2,437 and $2,437 for the nine months ended September 30, 2022 and 2021, respectively.

 

 
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NOTE 4 - MINING CONCESSIONS

 

Mining properties consist of the San José de Gracia concessions. Mining Concessions were $4,132,678 and $4,132,678 at September 30, 2022 and December 31, 2021, respectively. There was no depletion expense during the nine months ended September 30, 2022 and 2021.

 

NOTE 5 - CONVERTIBLE PROMISSORY NOTES

 

Notes Payable - Series I

 

In April and May 2013, the Company entered into note agreements with shareholders in the principal amount of $1,495,000 (the “Series I Notes”).  The Series I Notes bear simple interest at twelve and a half percent (12.5%), paid quarterly in arrears. The Notes originally matured on December 31, 2015 but were subsequently extended.

 

Each Series I Note holder retained the option, at any time prior to maturity or prepayment, to convert any unpaid principal and accrued interest into Common Stock at $2.50 per share. If the Series I Note is converted into Common Stock, at the time of conversion, the holder would also receive warrants, in the same number as the number of common shares received upon conversion, to purchase additional common shares of the Company for $7.50 per share, with such warrants expiring one year from their conversion date.

 

As of December 31, 2021, six Series I Notes remained outstanding with a total balance of $455,905. The Series I Notes were paid off in July 2022.

 

Notes Payable - Series II

 

In 2013 and 2014, the Company entered into additional note agreements of $199,808 and $250,000, respectively (the “Series II Notes”) with similar terms as the Series I Notes. The Series II Notes bear simple interest at twelve and a half percent (12.5%) paid by the Company, quarterly in arrears.  The Series II Notes originally matured on December 31, 2015, but were subsequently extended.

 

Each Series II Note holder may, at any time prior to maturity or prepayment, convert any unpaid principal and accrued interest into common stock of the Company at $2.50 per share. At the time of conversion, the holder would receive a warrant to purchase additional common shares of the Company for $7.50 per share, such warrant expiring one year from the conversion date.

 

As of December 31, 2021, two Series II Notes remained outstanding with a balance of $87,374. The Series II Notes were paid off in July 2022.

 

NOTE 6 - INCOME TAXES

 

The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s effective tax rate for the period ended September 30, 2022 and for the period ended September 30, 2021 varies from the statutory rate of 21% due to a valuation allowance which creates a near zero effective tax rate. The Company intends to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the valuation allowance. However, given our current earnings and anticipated future earnings, it is reasonably possible that in the near future sufficient positive evidence may become available to support the conclusion that some of all of the valuation allowance is necessary.

 

 
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NOTE 7- STOCKHOLDERS’ EQUITY

 

 The total number of shares of all classes of capital stock which the corporation has the authority to issue is 60,001,000 shares, consisting of (i) twenty million and one thousand (20,001,000) shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”), of which 1,000 shares are designated as Series A Preferred Stock, 1,734,992 are designated as Series C Preferred Stock, and 3,000,000 shares are designated as Series D Preferred Stock and (ii) forty million (40,000,000) shares of Common Stock, par value $0.01 per share (“Common Stock”). As of September 30, 2022, 15,265,008 shares of Preferred Stock remain undesignated.

 

Series A Preferred Stock

 

The Company has designated 1,000 shares of its Preferred Stock as Series A, having a par value of $0.0001 per share. Holders of the Series A Preferred Stock have the right to elect a majority of the Board of Directors of the Company. The Company issued 1,000 shares of Series A Preferred Stock to its CEO. At, September 30, 2022 and December 31, 2021, there were 1,000 shares of Series A Preferred Stock outstanding.

 

Series C Senior Convertible Preferred Stock

 

At September 30, 2022 and December 31, 2021 there were 1,734,992 and 1,734,992 Series C Preferred shares outstanding. As of September 30, 2022, these Series C Preferred Shares are convertible to common shares at $2.04 per share or redeemable in cash at the shareholder’s option, and include anti-dilution protection. The Series C Preferred Shares may receive a 4% per annum dividend, payable if available, and in arrears. The dividend is calculated at 4.0% of $4,337,480 payable annually on June 30.  At September 30, 2022, dividends for the years 2016 to 2022 totaling $1,053,777 were in arrears.

 

Due to the nature of the Series C Preferred Shares as mandatorily redeemable, the Series C Preferred Shares are classified as “temporary equity” on the balance sheet.

 

Series D Senior Convertible Preferred Stock

 

Financing Agreement with Golden Post Rail, LLC, a Texas Limited Liability Company, (“Golden Post”) and with Shareholders of DynaResource, Inc.

 

On May 14, 2020, the Company closed an additional financing agreement with Golden Post, and with certain individual shareholders, and related agreements. A summary of the transactions and related agreements is set forth below:

 

 

1.

Pursuant to the May 14, 2020 Note Purchase Agreement (the “NPA”) among the Company, Golden Post Rail, LLC (the “Lead Purchaser”), and the other parties listed on Exhibit A of the NPA thereto (the “Remaining Purchasers”):

 

 

·

Golden Post acquired the following securities:

 

 

 

(a)

A convertible promissory note (the “Golden Post Note”) payable to Golden Post in the principal amount of $2,500,000, bearing interest at 10%, and maturing two years from the date of execution. The Golden Post Note is convertible, at the option of Golden Post, into shares of Series D Senior Convertible Preferred Stock (the “Series D Preferred”) at a conversion price of $2.00 per share; and

 

 

 

 

 

 

(b)

A common stock purchase warrant (the “2020 Warrant”) for the purchase of 783,976 shares of the Company’s common stock, at an exercise price of $0.01 per share, and maturing on the 10-year anniversary of the date of issuance. The 2020 Warrant contains anti-dilution provisions.

 

 
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Table of Contents

 

 

·

The Remaining Purchasers acquired the following securities:

 

 

 

(a)

Convertible promissory notes (the “Remaining Notes”) in the aggregate principal amount of $1,400,000, bearing interest at 10%, and maturing two years from the date of issuance. The Remaining Notes are convertible, at the option of each individual Remaining Purchaser, into shares of Series D Preferred at a conversion price of $2.00 per share; and

 

 

 

 

 

 

(b)

Common stock purchase warrants (the “Remaining Purchasers Warrants”) for the purchase of an aggregate of 439,026 shares of the Company’s common stock, at an exercise price of $0.01 per share, and maturing on the 10-year anniversary of the date of issuance. The Remaining Purchasers Warrants contain anti-dilution provisions.

 

 

2.

Also pursuant to the NPA, the Company and the Lead Purchaser agreed to amend the common stock purchase warrant dated September 30, 2015 (the “2015 Warrant”), issued to the Lead Purchaser in connection with that certain Securities Purchase Agreement dated as of May 6, 2015. The 2015 Warrant contemplates the purchase, upon exercise, of 2,166,527 shares (subject to adjustment) of the Company’s common stock and matured September 30, 2020 (the “Termination Date”). The amendment to the 2015 Warrant provides that, following the expiration of the 2015 Warrant, the Company will issue to the Lead Purchaser a new warrant (the “New Warrant”), substantially in the same form of the 2015 Warrant, representing the right to purchase the number of shares of the Company’s common stock that were still subject to purchase upon exercise of the 2015 Warrant, if any. The New Warrant has a maturity date of September 30, 2022.

 

 

3.

As part of the transaction contemplated by the NPA, the Company executed an Amended and Restated Registration Rights Agreement pursuant to which Golden Post may require the Company to register the shares of common stock which may be issued upon (i) the conversion of the Series C Preferred, (ii) the conversion of the Series D Preferred, and (iii) the shares of common stock issuable upon the exercise of the 2015 Warrant, the 2020 Warrant, and a compensatory warrant issued to the Lead Purchaser on May 13, 2020 (described below under the heading “Compensatory Issuances”), including any additional shares of common stock issuable pursuant to anti-dilution provisions of such securities.

 

 

 

 

4.

Pursuant to the transaction contemplated by the NPA, the Company held a special meeting of Company stockholders, to solicit stockholder approval of (a) an amendment of the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 25,000,000 shares to 40,000,000 shares, and (b) an amendment of the Certificate of Designations of the Series C Preferred, in order to (a) extend the maturity date of the Series C Preferred by an additional two (2) years, (ii) add an equity cap in respect of the conversion of Series C Preferred into common stock of the Company, and (iii) add certain restrictions on the ability of the Company to issue Series C Preferred. The special meeting was held on July 13, 2020, and Company stockholders approved each item referenced above.

 

 

5.

On May 13, 2020, one business day prior to the NPA, the Company issued to the Lead Purchaser the following: (i) a common stock purchase warrant for 2,306 shares, at an exercise price of $0.01 per share, and maturing on the 7-year anniversary of the date of issuance (the “Compensatory Warrant”); and (ii) 1,771 shares of Series C Preferred. These issuances were occasioned by the Company’s obligations under the Securities Purchase Agreement dated as of May 6, 2015.

 

 

 

 

6.

In order to accommodate the issuance of the additional 1,771 shares of Series C Preferred, on May 13, 2020 the Company filed with the Secretary of State of Delaware a Certificate of Increase of Series C Senior Convertible Preferred Stock, to increase the number of shares of preferred stock designated as Series C Preferred from 1,733,221 shares to 1,734,992 shares.

 

 

 

 

7.

Also on May 13, 2020, the Company filed with the Secretary of State of Delaware a Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof of Series D Senior Convertible Preferred Stock, contemplating the authorization of 3,000,000 shares of Series D Preferred.

 

 
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Table of Contents

 

On October 11, 2021. the Company filed an amended designation of Series D Preferred with the State of Delaware.

 

Retirement of Convertible Debt

 

On October 7, 2021, the Company paid $2,500,000 to repurchase one note that was convertible into Series D Preferred.

 

The remaining ten noteholders of notes convertible into Series D Preferred elected to convert their notes totaling $1,520,000 into Series D Preferred at $2.00 per share. On October 18, 2021, the Company issued 760,000 shares of Series D Preferred for these notes.

 

Due to the nature of the Series D Preferred as mandatorily redeemable by the Company at the election of the Series D Preferred stock holder at any time following maturity, the Series D Preferred shares are classified as “temporary equity” on the balance sheet.

 

Due to the anti-dilutive provisions contained in the May 6, 2015, Securities Purchase Agreement, the Series C Preferred and the 2015 Warrant, the Company incurred derivative liabilities upon issuance of these securities. On May 14, 2020, in connection with the Series D Convertible Note financing, the expiration dates for the Series C Preferred and the 2015 Warrant were extended to September 30, 2022. In addition, a new derivative liability was incurred due to the issuance of additional warrants. At December 31, 2021, the total derivative liability was $3,898,914, which included $1,019,431 for the Series C Preferred, $1,320,380 in connection with the 2015 Warrant, and $1,559,103 in connection with the additional warrants. As of September 30, 2022, only the additional warrants derivative liability remained, for a total derivative liability of $1,905,078.   The 2015 Warrant was exercised on September 28, 2022 at an above market price, resulting in no derivative liability.  The Series C Preferred shares are convertible at an above market price or redeemable by the holder on demand.  The deemed dividends on the Series C Preferred for the nine months ending September 30, 2022, and September 30, 2021, were $130,124 and $130,124 respectively.  The deemed dividends for the Series D Preferred for the nine months ending September 30, 2022 and 2021 were $45,600 and $0, respectively. As the Company has not declared these dividends, it is required only as an item “below” the net income (loss) amount on the accompanying consolidated statements of income (loss).

 

Preferred Stock (Undesignated)

 

In addition to the 1,000 shares designated as Series A Preferred Stock and the 1,734,992 shares designated as Series C Preferred Shares and the 3,000,000 shares designated as Series D Preferred, the Company is authorized to issue an additional 15,265,008 shares of Preferred Stock, having a par value of $0.0001 per share. The Board of Directors of the Company has authority to issue the Preferred Stock from time to time in one or more series, and with respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred Stock. At September 30, 2022 and December 31, 2021, there were no other shares of Preferred Stock outstanding.

 

The shares of each series of Preferred Stock may vary from the shares of any other series thereof in any or all of the foregoing respects and in any other manner. The Board of Directors may increase the number of shares of Preferred Stock designated for any existing series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series. Unless otherwise provided in a particular Preferred Stock designation, the Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.

 

Common Stock

 

The Company is authorized to issue 40,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights. At September 30, 2022 and December 31, 2021, there were 20,746,654 and 18,091,293 shares outstanding, respectively. No dividends were paid for the periods ended September 30, 2022 and 2021, respectively.

 

 
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Table of Contents

 

Preferred Rights

 

The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San José de Gracia Pilot Production Plant and received $784,500 for these rights. The “Preferred Rights” are reflected in stockholders’ equity. As of September 30, 2022, $744,500 had been repaid, leaving a current balance of $40,000 and $40,000 as of September 30, 2022 and December 31, 2021, respectively.

 

Stock Issuances

 

On June 28, 2022, the Company issued 2,655,361 shares of common stock upon the exercise of warrants to purchase 2,655,361 shares, by one warrant holder for $2.04 a share.

 

On October 18, 2021, the Company issued 368,468 shares of common stock upon the exercise of warrants to purchase 368,468 shares, by five warrant holders for $.01 a share.

 

Treasury Stock 

 

During the nine months ended September 30, 2022 no shares of common stock held in treasury (treasury stock) were issued.

 

During the year ending December 31, 2021, 504,300 treasury shares were issued, in consideration of services provided to the Company.

 

Outstanding treasury shares total 12,180 and 12,180 at September 30, 2022 and December 31, 2021, respectively.

 

Warrants

 

2022 activity

 

At September 30, 2022, the Company had outstanding warrants to purchase 892,165 shares of common stock.  On June 28, 2022 one warrant holder exercised a warrant to purchase a total of 2,655,361 shares of common stock for $2.04 a share.

 

2021 activity

 

At December 31, 2021, the Company had outstanding warrants to purchase 3,060,998 shares of common stock. On October 18, 2021, five warrant holders exercised warrants to purchase 368,468 shares of common stock for $0.01 a share.

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Intrinsic

Value

 

Balance at December 31, 2020

 

 

3,429,466

 

 

$1.30

 

 

 

4.40

 

 

 

-

 

Granted

 

 

-

 

 

$-

 

 

 

-

 

 

 

-

 

Exercised

 

 

368,468

 

 

$0.01

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

$-

 

 

 

-

 

 

 

-

 

Balance at December 31, 2021

 

 

3,060,998

 

 

$1.46

 

 

 

2.79

 

 

 

-

 

Granted

 

 

-

 

 

$-

 

 

 

-

 

 

 

-

 

Exercised

 

 

2,166,775

 

 

$2.04

 

 

 

-

 

 

 

-

 

Forfeited

 

 

2,058

 

 

$2.04

 

 

 

-

 

 

 

-

 

Balance at September 30, 2022

 

 

892,165

 

 

$0.01

 

 

 

7.62

 

 

 

-

 

Exercisable at September 30, 2022

 

 

892,165

 

 

$0.01

 

 

 

7.62

 

 

 

-

 

 

 
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Table of Contents

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Dynacap Group Ltd.

 

The Company paid $143,750 and $128,500 to Dynacap Group, Ltd. (an entity controlled by the CEO of the Company) for consulting and other fees during the periods ended September 30, 2022, and 2021, respectively.

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

Concession Taxes

 

The Company is required to pay taxes in México in order to maintain mining concessions owned by DynaMéxico. Additionally, the Company is required to incur a minimum amount of expenditures each year for all concessions held. The minimum expenditures are calculated based upon the land area, as well as the age of the concessions. Amounts spent in excess of the minimum may be carried forward indefinitely over the life of the concessions and are adjusted annually for inflation. Based on Management’s recent business activities and current and forward plans and considering expenditures on mining concessions since 2002-2017 and continuing expenditures in current and forward activities, the Company does not anticipate that DynaMéxico will have any difficulties meeting the minimum annual expenditures for the concessions ($388 - $2,400 Mexican Pesos per hectare). DynaMéxico retains sufficient carry- forward amounts to cover over 10 years of the minimum annual expenditure (as calculated at the 2017 minimum, adjusted for annual inflation of 4%).

 

Leases

 

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), DynaMineras maintains access and surface rights to the SJG Project pursuant to a 20-year Land Lease Agreement with the Santa Maria Ejido Community, the owners of the surface rights. The Land Lease Agreement was dated January 6, 2014 and continues through January 2033. It covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG and provides for annual lease payments on January 1st each year by DynaMineras, in the amount of $1,359,443 pesos adjusted for inflation based on the Mexico minimum wage increase. Rent was $3,678,437 Pesos (approx. $182,000 USD) for the year ended December 31, 2022. The Land Lease Agreement provides DynaMineras with surface access to the core resource areas of SJG (4,399 hectares), and allows for all permitted mining and exploration activities.

 

The Company leases office space for its corporate headquarters in Irving, Texas. In September 2017, the Company entered into a sixty-six-month extension of the lease through January 2023. As part of the agreement the Company received six months free rent as a finish out allowance. The Company capitalized the leasehold improvement costs and amortized them over the rent abatement period as rent expense. The Company makes tiered lease payments on the 1st of each month.

 

Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company’s leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

 

The Company determines if a contract is or contains a lease at inception. As of September 30, 2022, the Company has two operating leases: a six and one-half year lease for office space with a remaining term of four months, and a twenty-year ground lease in association with its México mining operations with a remaining term of thirteen years. Variable lease costs consist primarily of variable common area maintenance, storage parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.

 

 
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Table of Contents

 

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s interest rate of promissory notes.

 

The Company’s components of lease cost are as follows:

 

 

 

Period Ended

 

 

 

Sept. 30, 2022

 

Operating Lease - Office Lease

 

$65,769

 

Operating Lease - Ground Lease

 

 

68,501

 

Short Term Lease Costs

 

 

12,037

 

Variable Lease Costs

 

 

-

 

TOTAL

 

$146,307

 

 

 

 

 

 

Weighted average remaining lease term and weighted average discount rate are as follows:

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term (Years) - Operating Leases

 

 

10.12

 

Weighted Average Discount Rate - Operating Leases

 

 

12.50%

 

 

 

 

 

Estimated future minimum lease obligations are as follow for the years ending September 30:

 

 

 

 

 

 

 

 

 

YEAR

 

 

 

 

2022

 

$121,033

 

2023

 

 

94,074

 

2024

 

 

96,896

 

2025

 

 

99,803

 

2026

 

 

102,797

 

Thereafter

 

 

684,885

 

Total

 

$1,199,488

 

Less Imputed Interest

 

 

(590,113 )

OPERATING LEASE PAYABLE

 

$609,375

 

 

NOTE 10 - DERIVATIVE LIABILITIES

 

Series C Preferred Stock

 

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the stock qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related. The Company performed a valuation of the conversion feature. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability and utilizes market data to the maximum extent possible.

 

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

 
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Table of Contents

 

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the Series C Preferred Stock based on the assumptions below:

 

 

 

2022

 

 

 2021

 

Annual volatility rate

 

 

0%

 

 

147%

Risk free rate

 

 

4.22%

 

 

0.73%

Remaining Term

 

0.00 years

 

 

0.50 years

 

Fair Value of common stock

 

$2.14

 

 

$1.75

 

 

For the nine and twelve months ended September 30, 2022 and December 31, 2021, an active market for the Company’s common stock did not exist. Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.

 

The below table represents the change in the fair value of the derivative liability during the nine and twelve months ended September 30, 2022 and December 31, 2021.

 

Period Ended

 

2022

 

 

2021

 

Fair value of derivative (stock), beginning of period

 

$1,019,431

 

 

$601,313

 

Change in fair value of derivative

 

 

(1,019,431 )

 

 

418,118

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

-

 

Fair value of derivative (stock), end of period

 

$-

 

 

$1,019,431

 

 

2015 Warrant

 

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the 2015 Warrant (acquired at the same time as the Series C Preferred Stock) qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related. The Company performed a valuation of the conversion feature. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability and utilizes market data to the maximum extent possible.

 

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the 2015 Warrant based on the assumptions below:

 

 

 

2022

 

 

2021

 

Annual volatility rate

 

 

0%

 

 

147%

Risk free rate

 

 

4.22%

 

 

0.73%

Remaining Term

 

0.00 years

 

 

0.50 years

 

Fair Value of common stock

 

$2.14

 

 

$1.75

 

 

 
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For the nine and twelve months ended September 30, 2022, and December 31, 2021, an active market for the Company’s common stock did not exist. Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.

 

The below table represents the change in the fair value of the derivative liability during the periods ended September 30, 2022, and December 31, 2021.

 

Period Ended

 

2022

 

 

2021

 

Fair value of derivative (warrant), beginning of period

 

$1,320,380

 

 

$817,613

 

Change in fair value of derivative

 

 

(1,320,380 )

 

 

502,767

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

-

 

Fair value of derivative (warrant), end of period

 

$-

 

 

$1,320,380

 

 

Warrants issued with the Notes convertible into Series D Preferred

 

As discussed in Note 7, the Company analyzed the conversion features of the promissory notes convertible into Series D Preferred and determined that the Warrants issued with such notes qualified as a derivative liability. The fair value was required to be allocated among the notes, the notes’ conversion features, and the warrants, and then remeasured at each reporting date. The Company performed a valuation of the conversion feature. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability and utilizes market data to the maximum extent possible.

 

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the Warrants issued with the notes convertible into Series D Preferred based on the assumptions below:

 

 

 

2022

 

 

2021

 

Annual volatility rate

 

 

119%

 

 

147%

Risk free rate

 

 

4.22%

 

 

0.73%

Remaining Term

 

7.62 years

 

 

8.37 years

 

Fair Value of common stock

 

$2.14

 

 

$1.75

 

 

For the nine and twelve months ended September 30, 2022 and December 31, 2021, an active market for the Company’s common stock did not exist. Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.

 

The below table represents the change in the fair value of the derivative liability during the nine and twelve months ended September 30, 2022 and December 31, 2021.

 

Period Ended

 

2022

 

 

2021

 

Fair value of derivative (warrants), beginning of period

 

$1,559,103

 

 

$952,634

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

-

 

Exercise of warrants

 

 

-

 

 

 

(659,558 )

Change in fair value of derivative

 

 

345,975

 

 

 

1,266,027

 

Fair value of derivative (warrants), end of period

 

$1,905,078

 

 

$1,559,103

 

 

 
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NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1 Inputs - Quoted prices for identical instruments in active markets.

Level 2 Inputs - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs - Instruments with primarily unobservable value drivers.

 

As of September 30, 2022, and December 31, 2021, the Company’s financial assets were measured at fair value using Level 3 inputs, with the exception of cash, which was valued using Level 1 inputs. A description of the valuation of the Level 3 inputs is discussed in Note 10.

 

 

 

 

 

Quoted

Prices

in Active

Markets

For

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Fair Value Measurement at September 30, 2022 Using:

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$1,905,078

 

 

$-

 

 

$-

 

 

$1,905,078

 

Totals

 

$1,905,078

 

 

$-

 

 

$-

 

 

$1,905,078

 

Fair Value Measurement at December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$3,898,914

 

 

$-

 

 

$-

 

 

$3,898,914

 

Totals

 

$3,898,914

 

 

$-

 

 

$-

 

 

$3,898,914

 

 

NOTE 12 - REVENUE CONCENTRATION

 

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

 

For each of the nine months ended September 30, 2022, and 2021, one and three customers accounted for 100% of revenue, respectively.

 

At September 30, 2022 and December 31, 2021, one and one customers accounted for 100% of accounts receivable, respectively.

 

 
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NOTE 13 - NOTES PAYABLE

 

In September 2018, the Company entered into financing agreements for the unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2017 and the period ending September 30, 2018 in the amount of $1,739,392. The Company paid an initial 20% payment of $347,826 and financed the balance over 36 months at 21.84%.

 

In February 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2018 in the amount of $335,350. The Company paid an initial 20% payment of $67,070 and financed the balance over 36 months at an interest rate of 22%.

 

In September 2018, the Company applied for a reduction of the Francisco Arturo mining concession, from 69,121 hectares to 3,280 hectares. On July 31, 2018, the application for reduction was approved and the Company paid an initial amount of 985,116 MNP (Pesos), for the second semester 2018 mining concessions taxes on the reduced Francisco Arturo mining concession. The Company continues to accrue an amount of $22,500 (USD) per semester on the reduced Francisco Arturo mining concession.

 

As of September 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda (Mexican federal tax authority) for a reduction in the liability which is pro-rata to the reduction in the Francisco Arturo concession above. For financial reporting purposes the Company continues to carry all notes (to finance unpaid mining concession taxes) at unpaid principal amount and accrues interest on a monthly basis. At September 30, 2022, $1,381,398 of accrued interest on the notes was included in accrued liabilities on the consolidated balance sheet.

 

In October 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the core mining concessions in the amount of $299,474. The Company paid an initial 20% payment of $59,895 and financed the balance over 36 months at an interest rate of 22%.

 

The following is a summary of the transaction during the nine and twelve months ended September 30, 2022 and December 31, 2021:

 

Balance December 31, 2020

 

$2,081,435

 

Exchange Rate Adjustment

 

 

(57,504 )

2021 Principal Payments

 

 

(61,406 )

Balance December 31, 2021

 

 

1,962,525

 

Exchange Rate Adjustment

 

 

34,819

 

2022 Principal Payments

 

 

(83,258 )

Balance September 30, 2022

 

$1,914,086

 

 

NOTE 14 - REVOLVING CREDIT LINE FACILITY

 

On February 4, 2021, the Company (through DynaMineras) entered into a Revolving Credit Line Facility and Commercial Offtake Agreement (the “RCL”), with a commercial buyer. Under the terms of the RCL:

 

 

·

The Company will deliver 100% of its produced concentrates to the buyer and provider of the RCL, through December 31, 2022; unless extended by the Company;

 

·

An initial RCL was established by buyer in the amount of $3.75M USD;

 

·

On May 1, 2021, the RCL increased to an amount equal to 80% of the prior 3 months’ revenue;

 

·

Each successive month, the RCL shall be adjusted according to the Company’s prior 3 months’ revenue;

 

·

The RCL shall never be less than $3.75M USD;

 

·

The RCL will be interest free for 45 days;

 

·

The RCL is to be repaid through deliveries of concentrates or cash within 120 days;

 

 
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The RCL is included under Customer Advances on the unaudited consolidated balance sheet.

 

Deposits under Revolving Credit Line Facility

 

Under the terms of the RCL, DynaMineras received the following advances from the buyer:

 

(1)

$2.5M advance on February 4, 2021. Settled on March 26, 2021

(2)

$3.75M advance on March 30, 2021. Settled on May 12, 2021

(3) 

$3.75M advance on May 12, 2021. Settled on June 16, 2021

(4)

$6.75M advance on June 18, 2021. Settled on August 5, 2021

(5)

$8.25M advance on August 9, 2021. Settled on September 27, 2021

(6)

$8.25M advance on September 29, 2021. Settled on November 17, 2021

(7) 

$8.25M advance on November 19, 2021. Settled on December 20, 2021

(8)

$9.25M advance on December 30, 2021. Settled on February 25, 2022

(9) 

$8.175M advance on February 25, 2022. Settled on March 30, 2022

(10)

$7.875M advance on March 30, 2022.  Settled on May 13, 2022

(11)

$8.875M advance on May 19, 2022.  Settled on June 27, 2022

(12)

$8.75M advance on June 28, 2022.  Settled on August 15, 2022

(13)

$7.80M advance on August 19, 2022.  Settled on September 28, 2022

(14)

$7.375M advance on September 29, 2022. 

 

NOTE 16 - SUBSEQUENT EVENTS

 

The Company has evaluated events commencing September 30, 2022 and through the date the financial statements were issued, and determined no items required disclosure.

 

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Company

 

The Company is a minerals investment, management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary in México, with specific focus on precious and base metals in México.

 

We currently conduct operations in México through our operating subsidiaries. We currently own 80% of the outstanding shares of DynaResource de México, S.A. de C.V. (“DynaMéxico”), and DynaMéxico currently holds 20% of its outstanding shares recovered from Goldgroup Resources Inc. DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia Property, in northern Sinaloa State, México. We also own 100% of Mineras de DynaResource S.A. de C.V. (“DynaMineras”), the exclusive operator of the San José de Gracia Project, under contract with DynaMéxico. DynaOperaciones is the exclusive management company for registered employees.

 

Project Improvements, Expansion and Increased Output (2017 To Present)

 

The Company continues its business plan of operations at San José de Gracia, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 400 tons per 24-hour operating day, and during second quarter 2022 the Company expects to achieve production output of 600 tons per 24-hour operating day. (Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2022 below).

 

Since January 2017, the Company has expended over 27 million USD in non-operating costs, generally classified as project improvements and expansion costs which have been expensed in the company’s financial statements. These funds have been provided primarily from cash flows from operations. An itemized list of these non-operating costs is described below:

 

Mill Expansion:

 

$5,893,000

 

Tailings Pond Expansion

 

 

1,464,000

 

Machinery and Equipment

 

 

2,143,000

 

Mining Camp Expansion

 

 

146,000

 

Medical Facility

 

 

126,000

 

Mine Development - San Pablo

 

 

2,748,000

 

Mine Expansion - San Pablo East

 

 

915,000

 

Mine Expansion - Tres Amigos

 

 

1,599,000

 

Exploration Drilling

 

 

2,028,000

 

SIG Mining Concessions

 

 

2,014,000

 

Surface Rights and Permitting

 

 

792,000

 

Debt Retirement

 

 

3,528,000

 

Legal Fees

 

 

4,043,000

 

Total

 

$27,439,000

 

 

The Company is currently reporting all costs of mine operations, improvements, and expansion as expenses in accordance with United States General Accepted Accounting Principal (GAAP) requirements. The result of expensing all costs is that the Company has accumulated a net loss carry forward from México operations of $18.5 million USD which is available to offset future taxable earnings.

 

 
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Summary of Test Mining and Pilot Mill Operations for 2018 to 2022:

 

Year

 

Total Tonnes

Mined &

Processed

 

 

Reported Mill

Feed Grade (g/t

Au)

 

 

Reported

Recovery

%

 

 

Gross Gold Concentrates Recovered

(Au oz.)

 

 

Net Gold

Concentrates

Sold

(Au oz.)

 

2018

 

 

52,038

 

 

 

9.82

 

 

 

86.11%

 

 

14,147

 

 

 

13,418

 

2019

 

 

66,031

 

 

 

5.81

 

 

 

86.86%

 

 

10,646

 

 

 

9,713

 

2020

 

 

44,218

 

 

 

5.65

 

 

 

87.31%

 

 

7,001

 

 

 

5,828

 

2021

 

 

97,088

 

 

 

9.67

 

 

 

88.79%

 

 

26,728

 

 

 

22,566

 

 

Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 26,728 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 22,566 Oz Au. The Company reports net revenue of $35,886,046 net of buyer’s price discount and refining and treatment costs.

 

Summary of Test Mining and Pilot Mill Operations for the nine months ended September 30, 2022 and 2021:

 

 

 

Total

Tonnes

Mined &

Processed

 

 

Reported

Mill Feed

Grade (g/t Au)

 

 

Reported

 Recovery

%

 

 

Gross Gold Concentrates Recovered

(Au oz.)

 

 

Net Gold (1) Concentrates

Sold (Au oz.)

 

Nine Months Ended Sept. 30, 2022

 

 

100,206

 

 

 

8.67

 

 

 

79.86%

 

 

22,314

 

 

 

17,823

 

Nine Months Ended Sept. 30, 2021

 

 

66,695

 

 

 

9.48

 

 

 

89.45%

 

 

18,141

 

 

 

16,036

 

 

(1)

Gold concentrate sold during the quarter is not equal to gold concentrate recovered during the quarter due to timing of shipments & buyers discount.

 

Test pilot operations in Q1 2022 yielded 27,511 tons mined and processed through mill operations (306 tons per day) ; and the recovery of 7,110 gross Oz Au resulting in sales of 6,000 gross Au Oz contained in gold-silver concentrates, and the receipt of $10,492,503 in revenues net of buyer’s price discount, refining and treatment costs.

 

Test pilot operations in Q2 2022 yielded 33,655 tons mined and processed through mill operations (370 tons per day) ; and the recovery of 7,834 gross Oz Au resulting in sales of 6,004 gross Au Oz contained in gold-silver concentrates, and the receipt of $10,492,511 in revenues net of buyer’s price discount, refining and treatment costs.  The Company record a negative adjustment to revenue of $337,969 from final settlements of prior periods deliveries providing a net revenue of $10,098,010 for the quarter.

 

Test pilot operations in Q3 2022 yielded 39,040 tons mined and processed through mill operations (424 tons per day) ; and the recovery of 9,551 gross Oz Au resulting in sales of 7,370 gross Au Oz contained in gold-silver concentrates, and the receipt of $9,235,141 in revenues net of buyer’s price discount, refining and treatment costs.  The Company record a negative adjustment to revenue of $1,202,584 from final settlements of prior periods deliveries providing a net revenue of $8,032,557 for the quarter.

 

Additional Test Mining and Mill Operations Disclosure

 

DynaMineras expects to continue its test underground mining activity and pilot milling operations in the third quarter 2022, and projects an increased output of 500 tons per 24-hour operating day from the mine and mill during the quarter.

 

 
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Results for the three and nine months ended September 30, 2022 and 2021

 

REVENUE. The Company processed 100,206 tons (367 per day) during the first nine months of 2022 compared to 66,695 tons (244 per day) in 2021. As a result of the increased volume the grade of ore processed dropped from 9.48 g/t Au per ton in the prior year to 8.67 g/t Au per ton for the current year.  In addition the percentage of ore recovered has dropped from 89% to 80%.  The net result is an increase of ounces recovered from 18,141 in 2021 to 22,314 in the first nine months of 2022. This resulted in an increase in gross ounces sold from 16,036 in 2021 to 17,823 in 2022, increasing revenues from $25,906,083 to $28,623,070 for the nine months ended September 30, 2021 and 2022, respectively.

 

Revenues for the quarter ended September 30, 2022, and September 30, 2021 were $8,032,557 and $10,467,058,  The decrease was the result of a decrease in the grade of ore from 10.13 g/t Au per ton in 2021 to 7.61 per g/t Au per ton in 2022 and the recovery percentage from 83% to 79%.  The Company’s net revenue for the quarter reflected an negative adjustment of $1,202,584 for final settlement of provisional invoices reported in prior quarters.

 

PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the nine months ended September 30, 2022 and September 30, 2021 were $2,876,902 and $1,917,049, respectively.   Production cost for the three months ended September 30, 2022, and 2021 were $964,172 and $756,898, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. The increase is consistent with the increase in tonnage process.

 

MINE PRODUCTION COSTS. Mine production costs for the nine months ended September 30, 2022, and 2021 were $4,786,236 and $3,385,340 respectively and $1,946,981 and $1,135,938 for the three months ended September 30, 2022, and 2021, respectively. These costs were directly related to the extraction of mine tonnage to be processed at the mill. The increase is consistent with the increase in tonnage mined. Cost per ton of ore mined increase from $42 per ton in 2021 to $45 per ton in the current year.

 

MINE EXPLORATION COSTS. Mine exploration costs for the nine months ended September 30, 2022, and 2021 were $3,792,405 and 3,437,009 respectively and $1,335,437 and $1,151,020 for the three months ended September 30, 2022, and 2021, respectively.  These were the costs of extracting waste material to reach the materials to be extracted for processing. The Company allocates total mining costs between production and waste based on tonnage on a monthly basis. Mine exploration cost remained at approximately 13% of revenue from year to year.  The increase cost of mining was offset by a drop in waste tonnage as a percentage of total tonnage mined.

 

FACILITIES EXPANSION COSTS: Facilities expansion costs for the nine months ended September 30, 2022, and 2021 were $4,744,792 and 579,432, respectively. The major expense was the installation of two new Ball Mill which upon completion will increase processing capacity to 700 tons a day. The Company expects the expansion to be complete by October  These are cost which would normally be capitalized under U.S Gaap but are expensed under Reg. S-K, Item 1300 because of the Company is an exploration stage issuer lacking proven and probable reserves.

 

EXPLORATION DRILLING. During the 1st quarter of 2022 the Company begin an exploration drilling program for the purposes of updating the Company’s 43-101 Mineral Resource Estimate.  Total cost of the exploratory drilling program in the first nine months of 2022 was $1,993,082 including $770,892 in the 3rd quarter.

 

TRANSPORTATION. Transportation costs for the nine months ended September 30, 2022, and 2021 were $1,682,986 and $968,672, respectively.  Transportation cost for the three months ended September 30, 2022 and 2021 were $572,772 and $374,974, respectively.  These were the costs of transporting the product to the customer for treatment and sale. The increase in reflective of the increase in fuel and transportation costs.

 

CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility cost for the nine months September 30, 2022 and 2021 were $3,147,312 and $1,956,168 respectively and 911,284 and $697,446 for the three months ended September 30, 2022 and 2021, respectively.   These were the support costs of the mining facilities including housing, food, security and warehouse operations.   The increases were the result of the Company’s increase in mining operations

 

PROPERTY HOLDING COSTS. Property holding costs for the nine months ended September 30, 2022, and 2021 were $112,093 and $116,516, respectively. These costs were concessions taxes, leases on land and other direct costs of maintaining the property. These cost are relatively consistent from year to year regardless of the level of mining activity.

 

 
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the nine months ended September 30, 2022, and 2021 were $3,177,917 and $2,252,156, respectively. General and administrative costs for the three months ended September 2022 and 2021 were 1,033,820 and 1,085,187 respectively.  These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses. The increase was an increase legal fees associated ongoing legal discussed in the legal summary and an overall increase in administrative costs supporting the Companies increase in activity.

 

OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended September 30, 2022, and 2021 was 1,698,184 and $(6,263,923), respectively. Included in this category in 2022 was interest expense of $(345,049), change in derivative of $1,993,836 currency transaction gain (loss) of $47,709 and miscellaneous income of 1,688. Included in this category in 2021 was interest expense of $(1,102,755), change in derivative of $(3,928,913), currency transaction gain (loss) of $(121,725) and a one-time arbitration award expense of $1,111,111. The decrease in the derivative liability was primarily due to maturity of two of the underlying securities and the Company’s common stock value remaining under the conversion terms. The decrease in interest expense was the result of a reduction in the Company’s debt.  For a more detailed explanation of the 2021 arbitration award see Legal Proceedings.

 

OTHER COMPREHENSIVE INCOME (LOSS). Other comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period. The Company’s other comprehensive loss for the nine months ended September 30, 2022 and 2021 consisted of unrealized currency gains (losses) of $(174,043) and $(301,986), respectively. The change is due to the variances in the peso exchange rates throughout the two periods.

 

Liquidity and Capital Resources

 

As of September 30, 2022, the Company had working capital of $10,640,537, comprised of current assets of $29,627,568 and current liabilities of $18,987,031. This represented an increase of $9,292,826 from the working capital of $1,347,711 maintained by the Company as of December 31, 2021. The primary reasons for the increase were funds generated from the Company’s operating profit and proceeds from the exercise of stock warrants.

 

Net cash provided by (used in) operations for the nine months ended September 30, 2022 and 2021 was $(3,881,727) and $14,747,383, respectively. The decrease in the funds provided from operations was a result the decrease in operating income and the increase in receivables and inventory required by increase operations.

 

Net cash provided by (used in) investing activities for the nine months ended September 30, 2022 and 2021 was $0 and $0, respectively. Expenditures necessary for the expansion of mining operations totaled $ and $0 in the nine months ended September 30, 2022 and 2021, respectively, $4,744,792 which would normally have been included in this category were expenses due to the company’s being an exploration stage issuer as defined in SEC Reg. S-K, Item 1300.

 

Net cash provided by (used in) financing activities for the nine months ended September 30, 2022 and 2021 was $4,790,399 and $(47,936), respectively.  The 2021 usage represented principal payments on long-term debt.  The 2022 source of funds was proceeds from the exercise of stock warrants, offset by payments to reduce debt.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2022, we did not have any off-balance sheet arrangements, which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.

 

Plan of Operation

 

The Plan of operation for the next twelve months includes DynaMineras continuing the improvement and expansion of the test mining and pilot milling operations at SJG. The Company commenced its testing activities in fall 2015 at the rate of approximately 100 tons per 24-hour operating day from the mine and approximately the same output from the processing plant. Over the past five years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant. In 2022 the Company anticipates completion of expansion to reach a capacity of 700 tons per 24-hour operating days from the processing plant.  The Company expects to operate at approximately 600 tons per day in the fourth quarter of 2022.

 

 
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The Company funds its general and administrative expenses in the US, from the Company’s operating subsidiaries, DynaMineras and DynaOperaciones. These amounts are eliminated in consolidation. The Company believes that cash on hand, and including cash flow generated from its current operations, is adequate to fund its ongoing general and administrative expenses through the subsequent twelve months.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2022. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer and our financial consultant, who concluded that our disclosure controls and procedures are not effective as of the end of the period covered by this Form 10-Q. For purposes of this section, the term disclosure controls and procedures mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

The Company has not made any change in its internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

 
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PART II

 

ITEM 1.  LEGAL PROCEEDINGS

 

2014 Arbitration Proceeding filed by Goldgroup Resources Inc.

 

On March 14, 2014, Goldgroup filed for arbitration in the United States with the American Arbitration Association (“AAA”), seeking monetary and nonmonetary relief, and citing the Earn In/Option Agreement as the basis for its filing. On August 25, 2016, the AAA issued a ruling in favor of Goldgroup against the Company and DynaMéxico (the “Arbitration Award”). On May 9, 2019, the United States District Court for the District of Colorado (the “Colorado U.S. District Court”) confirmed the Arbitration Award.

 

On May 20, 2021, the Company and DynaMéxico agreed to release the $1.111 million bond that had been posted, and paid an additional $4,054 in interest, in full satisfaction of the monetary portion of the Arbitration Award. Since that time, the Company has fully performed the non-monetary portion of the Arbitration Award, which included the election of a Goldgroup designee to the board of DynaMéxico, yet Goldgroup continues to challenge the Company’s actions before the Colorado U.S. District Court.

 

2014 Court filing by DynaMéxico, in Mexico

 

On December 9, 2014, DynaMéxico filed a commercial lawsuit against Goldgroup, its parent company Goldgroup Mining Inc., and the AAA, in the Thirty Sixth Civil Court in the Federal District of México (the “Trial Court”), under file 1120 number / 2014 (the “DynaMéxico Trial”). In the DynaMéxico Trial, DynaMéxico sought to terminate the U.S.-based arbitration proceedings, and requested that substantial damages (in the amount of US $50 million) be awarded to DynaMéxico against Goldgroup. On October 5, 2015, the Trial Court awarded DynaMéxico damages in excess of US $48 million.

 

Goldgroup has appealed the $48 million damages award on multiple occasions, yet the award stands and has been affirmed by a variety of Mexican courts, including the highest court in the land. Even in the face of multiple rejections of its arguments before Mexican courts, Goldgroup continues to raise baseless and unfounded objections to the award.

 

On October 5, 2016, the Trial Court (the same court which made the $48 million damages award) approved a grant to DynaMéxico of a lien (referred to by the court as an “Embargo”) upon the shares of DynaMéxico held by Goldgroup in certificate form. On February 20, 2020, a México City court issued a final judgment, effectively foreclosing on all shares of DynaMéxico formerly held by Goldgroup, and awarding those shares to DynaMéxico. Those shares are now legally owned, and physically held, by DynaMéxico. Consequently, Goldgroup currently owns no shares of DynaMéxico under Mexican law, which requires physical possession of shares to evidence ownership.

 

The award to DynaMéxico of the shares formerly owned by Goldgroup, does not satisfy the $48 million damages award in favor of DynaMéxico.

 

2020 Petition for Recognition of the $48M Damages Award

 

On December 5, 2020, the Company and DynaMéxico filed an Original Petition for Recognition of the $48 million damages award in favor of DynaMéxico, in US. District Court in Dallas County, Texas (the “Texas U.S. District Court”), under principles of international comity. On May 12, 2021, The Texas U.S. District Court issued a ruling stating the Court was not obligated to recognize the $48 million damages award in the United States. On May 14, 2021, the Company and DynaMéxico filed a Notice of Appeal of that ruling.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On June 28, 2022, Golden Post Rail, LLC exercised its warrant to acquire 2,655,361 shares of the Company’s common stock at a price of $2.04 per share, for a total exercise price of $5,416,936. The warrant was granted on May 6, 2015 with an original maturity date of September 30, 2020, and the period of exercise was extended for two years in 2020.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

 
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ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit Number; 

 

Name of Exhibit

31.1

 

Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 
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SIGNATURES

 

In accordance with 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.

 

 

DynaResource, Inc.

 

 

 

 

Date: November 1, 2022

By:

/s/ K.W. (“K.D.”) Diepholz

 

 

K.W. (“KD”) Diepholz,

 

 

 

Chairman / CEO

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature for each undersigned Registrant shall be deemed to relate only to matters having reference to such Registrant and any subsidiaries thereof.

 

/s/ K.D. Diepholz

 

/s/ Rene LF Mladosich

 

K. D. Diepholz, Chairman

 

Rene LF Mladosich

 

 

 

 

 

/s/ Dr. Jose Vargas Lugo

 

/s/ Dale G. Petrini

 

Dr. Jose Vargas Lugo

 

Dale G. Petrini

 

 

 

 

 

/s/ John C. Wasserman

 

/s/ Phillip Rose

 

John C. Wasserman

 

Phillip Rose

 

 

 

 

 

November 1, 2022

 

 

 

Dated

 

 

 

 

 
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EX-31.1 2 dynr_ex311.htm CERTIFICATION dynr_ex311.htm

   

EXHIBIT 31.1

 

CHIEF EXECUTIVE OFFICER CERTIFICATION