SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172022.
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 |
From the transition period _______________________ to ____________.___________.
Commission File Number000-30371
DYNARESOURCE, INC.
(Exact name of small business issuer as specified in its charter)
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 WW. Las Colinas Blvd., Suite 744 East1910 North Tower, Irving, Texas 75039
(Address of principal executive offices)
(972) 868-9066
(Issuer'sIssuer’s telephone number)
N/ASecurities registered pursuant to Section 12(b) of the Act:
(Former name, former address and former fiscal year, if changed since last report)
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 ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☐ No ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 companyregistrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act):
. Yes [ ]☐ No [X]☒
As of November 13, 2017,September 30, 2022, there were 17,722,82520,746,654 shares of Common Stock of the issuerregistrant outstanding.
TABLE OF CONTENTS
TABLE OF CONTENTS
PART I. | FINANCIAL STATEMENTS | ||||
ITEM 1. | Unaudited Financial Statements | ||||
7 | |||||
Management’s Discussion and Analysis of Financial Condition and | |||||
| 25 |
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29 | |||||
29 | |||||
30 | |||||
30 | |||||
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30 | |||||
31 | |||||
31 | |||||
31 |
CERTIFICATIONS
2 | ||
Table of Contents |
PART I
ITEM 1.
FINANCIAL STATEMENTS
DYNARESOURCE, INC.
ConsolidatedCONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 20172022, AND DECEMBER 31, 20162021
(Unaudited)
Sept 30, 2017 | Dec 31, 2016 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 3,548,315 | $ | 2,197,005 | ||||
Accounts Receivable | 435,473 | 454,140 | ||||||
Inventories | 1,065,785 | 561,238 | ||||||
Foreign Tax Receivable | 1,136,090 | 1,083,364 | ||||||
Other Current Assets | 121,095 | 73,871 | ||||||
Total Current Assets | 6,306,758 | 4,369,618 | ||||||
Mining Equipment and Fixtures (Net of Accumulated | ||||||||
Depreciation of $950,380 and $821,132 | 825,993 | 578,743 | ||||||
Mining Concessions (Net of Accumulated Amortization) | 4,132,678 | 4,132,678 | ||||||
Investments in Affiliate | 70,000 | 70,000 | ||||||
Other Assets | 143,117 | 15,450 | ||||||
TOTAL ASSETS | $ | 11,478,546 | $ | 9,166,489 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 1,665,721 | $ | 851,197 | ||||
Convertible Notes Payable | 950,625 | 956,250 | ||||||
Due to Non-Controlling Interest | 231,500 | 231,500 | ||||||
Accrued Expenses | 998,372 | 1,367,510 | ||||||
Derivative Liabilities | 2,649,027 | 5,106,090 | ||||||
Total Current Liabilities | 6,495,245 | 8,512,547 | ||||||
Long-Term Liabilities: | ||||||||
Accrued Expenses | 265,028 | — | ||||||
TOTAL LIABILITIES | $ | 6,760,273 | $ | 8,512,547 | ||||
Preferred Stock, Series C, $.0001 par value, 1,733,221 shares | ||||||||
Authorized, 1,733,221 outstanding as of 2017 and 2016 | $ | 4,333,053 | $ | 4,333,053 | ||||
Stockholders’ Equity Deficit | ||||||||
Preferred Stock, Series A, $.0001 par value, 1,000 shares | ||||||||
Authorized, 1,000 and 1,000 issued and outstanding | $ | 1 | $ | 1 | ||||
Common Stock, $.01 par value, 25,000,000 shares authorized, | ||||||||
17,722,825 and 16,722,825 shares outstanding as of 2017 and 2016 | 177,228 | 167,228 | ||||||
Preferred Rights | 40,000 | 40,000 | ||||||
Additional Paid In Capital | 57,573,783 | 55,083,783 | ||||||
Treasury Stock, 1,112,313 outstanding as of 2017 and 2016 | (3,175,515 | ) | (3,175,515 | ) | ||||
Accumulated Other Comprehensive Income | 1,741,749 | 3,771,532 | ||||||
Accumulated Deficit | (50,515,213 | ) | (53,581,567 | ) | ||||
Total DynaResource, Inc. Stockholders’ Equity | 5,842,033 | 2,305,462 | ||||||
Non-controlling Interest | (5,456,813 | ) | (5,984,573 | ) | ||||
TOTAL (DEFICIT) | $ | 385,220 | $ | (3,679,111 | ) | |||
TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | 11,478,546 | $ | 9,166,489 |
The accompanying notes are an integral part of these consolidated financial statements.
|
| 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 |
|
DYNARESOURCE, INC.
Consolidated Statements of Operations and Comprehensive Loss
Three Months Sept 30, 2017 | Three Months Sept 30, 2016 | Nine Months Sept 30, 2017 | Nine Months Sept 30, 2016 | |||||||||||||
REVENUES | $ | 2,674,015 | $ | 3,027,305 | $ | 7,233,329 | $ | 8,192,230 | ||||||||
COSTS AND EXPENSES OF MINING | ||||||||||||||||
OPERATIONS | ||||||||||||||||
Production Costs Applicable to Sales | 928,663 | 443,703 | 2,586,553 | 1,308,858 | ||||||||||||
Mine Operating Costs | 1,100,948 | 1,061,073 | 2,659,093 | 3,036,423 | ||||||||||||
Property Holding Costs | 135,681 | 153,286 | 398,751 | 370,986 | ||||||||||||
General and Administrative | 616,036 | 653,429 | 1,805,373 | 1,666,029 | ||||||||||||
Depreciation and Amortization | 36,781 | 29,496 | 129,248 | 77,626 | ||||||||||||
Total Operating Expenses | 2,818,109 | 2,340,987 | 7,579,018 | 6,459,922 | ||||||||||||
NET OPERATING INCOME (LOSS) | (144,094 | ) | 686,318 | (345,689 | ) | 1,732,308 | ||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Foreign Currency Gains (Losses) | 195,042 | (460,885 | ) | 890,491 | (1,603,758 | ) | ||||||||||
Interest Expense | (27,533 | ) | (29,883 | ) | (89,203 | ) | (89,649 | ) | ||||||||
Gain (Loss) on Derivatives | 753,626 | (204,279 | ) | 2,457,063 | — | |||||||||||
Other Income | 257 | 185 | 654 | 545 | ||||||||||||
Total Other Income (Expense) | 921,392 | (694,862 | ) | 3,259,005 | (1,692,862 | ) | ||||||||||
NET INCOME (LOSS) BEFORE TAXES | 777,298 | (8,544 | ) | 2,913,316 | 39,446 | |||||||||||
TAXES | — | — | — | — | ||||||||||||
NET INCOME (LOSS) | $ | 777,298 | $ | (8,544 | ) | $ | 2,913,316 | $ | 39,446 | |||||||
Cumulative Dividend for Series C Preferred | (42,737 | ) | (40,000 | ) | (128,211 | ) | (120,000 | ) | ||||||||
ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | $ | (49,397 | ) | $ | 10,756 | $ | 153,038 | 175,536 | ||||||||
ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 685,164 | $ | (37,788 | ) | $ | 2,938,143 | $ | 94,982 | |||||||
EARNINGS PER SHARE DATA ATTRIBUTABLE TO THE EQUITY HOLDERS OF | ||||||||||||||||
DYNARESOURCE, INC: | ||||||||||||||||
Basic Loss per Common Share | $ | .04 | $ | (.00 | ) | $ | 0.17 | $ | .01 | |||||||
Diluted Loss per Common Share | $ | .00 | (.00 | ) | 0.03 | .01 | ||||||||||
Weighted Average Shares Outstanding, Basic | 17,124,999 | 16,722,825 | 16,858,356 | 16,722,825 | ||||||||||||
Weighted Average Shares Outstanding, Diluted | 18,725,897 | 16,722,825 | 18,977,097 | 16,722,825 | ||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
NET INCOME (LOSS) PER ABOVE | $ | 777,298 | $ | (8,544 | ) | $ | 2,913,316 | $ | 39,446 | |||||||
Foreign Currency Exchange Gains (Losses) | 2,571,845 | (1,083,766 | ) | 2,313,973 | (1,813,703 | ) | ||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 3,349,143 | $ | (1,092,310 | ) | $ | 5,227,289 | $ | (1,774,257 | ) | ||||||
ATTRIBUTABLE TO: | ||||||||||||||||
EQUITY HOLDERS OF DYNARESOURCE, INC. | $ | 907,344 | $ | 92,685 | $ | 3,878,304 | $ | (269,442 | ) | |||||||
NON-CONTROLLING INTERESTS | $ | 2,441,799 | $ | (1,184,995 | ) | $ | 1,348,985 | $ | (1,504,815 | ) | ||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | 3,349,143 | (1,092,310 | ) | 5,227,289 | (1,774,257 | ) | ||||||||||
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSINCOME AND COMPREHENSIVE INCOME
September 30, 2017 | September 30, 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income (Loss) | $ | 2,913,316 | $ | 39,446 | ||||
Adjustments to reconcile net loss to cash | ||||||||
provided by (used in) Operating activities | ||||||||
Gain on Derivative Liabilities | (2,457,063 | ) | — | |||||
Depreciation and Amortization | 129,248 | 77,626 | ||||||
Change in Operating Assets and Liabilities: | ||||||||
Accounts Receivable | 77,451 | (462,358 | ) | |||||
Inventory | (411,736 | ) | (500,133 | ) | ||||
Other Current Assets | (47,224 | ) | (189,863 | ) | ||||
Receivables from Affiliate | (26,917 | ) | (8,602 | ) | ||||
Foreign Tax Receivable | 91,222 | (464,472 | ) | |||||
Other Assets | (144,954 | ) | (1,689 | ) | ||||
Accounts Payable | 1,157,521 | 22,669 | ||||||
Accrued Liabilities | (604,918 | ) | 466,132 | |||||
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES | 675,946 | (1,021,244 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of Equipment | (327,786 | ) | (127,997 | ) | ||||
CASH FLOWS (USED IN) INVESTING ACTIVITIES | (327,786 | ) | (127,997 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payment on Advances to Related Party | — | (150,000 | ) | |||||
Payment of Dividends | — | (160,000 | ) | |||||
Payment on Note Payable | (5,625 | ) | — | |||||
Payment on Accrued LT | (155,856 | ) | — | |||||
Proceeds on Sale of Common Stock | 2,500,000 | — | ||||||
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 2,338,519 | (310,000 | ) | |||||
Effect of Foreign Exchange | (1,335,369 | ) | 1,890,284 | |||||
NET DECREASE IN CASH | 1,351,310 | 431,043 | ||||||
CASH AT BEGINNING OF PERIOD | 2,197,005 | 1,922,599 | ||||||
CASH AT END OF PERIOD | $ | 3,548,315 | $ | 2,353,642 | ||||
SUPPLEMENTAL DISCLOSURES | ||||||||
Cash Paid for Interest | $ | 89,203 | $ | 89,648 | ||||
Cash Paid for Income Taxes | $ | — | $ | — | ||||
NON CASH TRANSACTIONS | ||||||||
$ | — | $ | — | |||||
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 unaudited notes are an integral part of these unaudited consolidated financial statements.
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.
5 |
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.
6 |
Table of Contents |
DYNARESOURCE, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September SEPTEMBER 30, 20172022 AND 2021
NOTE 1 –- NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization
DynaResource, Inc. (The(the “Company”, or “DynaResource”, or “DynaUSA”) 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 in the test mining and pilot milling production of precious metals.
The interim consolidated financial statements included herein have been prepared by
In 2000, the Company without audit, pursuantformed 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 rules and regulationsSan 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 SecuritiesSierra 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 Exchange Commission (“SEC”acquired control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”). Certain informationThe 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, note disclosures normally includedmore specifically, National Instrument 43-101 (“NI 43-101”). This regulation sets forth standards for reporting resources in financial statements prepareda mineral property and is a reporting standard widely recognized in accordance withthe 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. GAAP”Dollars unless otherwise stated.
7 |
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.
9 |
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 condensedestablished. Changes in regulations or omitted pursuantlaws, 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 such rulesthe amounts charged to operations for reclamation and regulations, althoughremediation. 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 believesis 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).
10 |
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 disclosures included are adequate to makefuture be converted into U.S. dollars at such rates or any other rates.
Relevant exchange rates used in the information presented not misleading.
In management’s opinion,preparation of the unaudited Consolidated Statementsfinancial 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 Operationsthe income statement portion of unaudited financial statements for the subsidiaries are as follows for the periods ended September 30, 2022, and Comprehensive IncomeSeptember 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, 20172022 and 2016,2021, respectively.
Income Taxes
The Company accounts for income taxes under ASC 740 “Income Taxes” using the Consolidated Balance Sheetsliability 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 atmeasured 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, 2017 (unaudited) and December 31, 2016, and the unaudited Consolidated Statements2022, there are $7,375,000 in customer deposit liabilities for payments received in advance, all of Cash Flows forwhich are expected to be settled in 2022.
During the nine months ended September 30, 20172022, and 2016, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited annual consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2016. Except2021, 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 noted below, there have been no material changes infulfillment costs after the footnotes from those accompanyingcustomer obtains control of the audited consolidatedgoods.
Fair Value of Financial Instruments
The Company’s financial statements contained ininstruments 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 Form 10-K for the year ended December 31, 2016. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.incremental risk adjusted borrowing rate.
In the second quarter 2017, we identified certain property taxes amounting to $541,245 from 2014, 2015, and $169,232 for 2016, which were not expensed as required and an over accrual of $150,000 for legal expenses at December 31, 2016. Based on Staff Accounting Bulletin No. 108 (“SAB 108”), we have determined that these amounts
Per Share Amounts
Earnings per share are immaterial to each of the time periods affected and, therefore, we are not required to amend our previously filed reports. However, if these adjustments were recordedcalculated in 2017, we believe the impact could be material to this year. Therefore, we plan to adjust our previously reported results for 2014, 2015, and 2016 for these immaterial amounts as required by SAB 108. Such previous periods will be restated upon the next filing of our quarterly and annual consolidated financial statements. The balance sheet as of December 31, 2016 has been adjusted to reflect the cumulative impact of such errors. As a result, Accounts payable has been increased by $541,245, accrued expenses increased by $169,232 and retained earnings decreased by $710,477. For additional information, see Footnote 14.
Reclassifications
Certain financial statement reclassifications have been made to prior period balances to reflect the current period’s presentation format; such reclassifications had no impact on the Company’s consolidated statements of operations or consolidated statements of cash flows and had no material impact on the Company’s consolidated balance sheets.
Computation of Profit (Loss)accordance with ASC 260 “ Earnings per Share
Basic Income (Loss) per share is computed by dividing the period Income (Loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted Profit (Loss) per share is computed by dividing the Income (Loss) available to common shareholders by the”. The weighted average number of common shares outstanding plusduring 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 that would have been outstanding ifassumed to be exercised. Potentially dilutive potential common shares had been issued. For purposesconsist of this calculation,stock warrants, convertible preferred stock, common stock dividends, warrantsshares and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effectconvertible notes and are excluded from this calculationthe diluted earnings per share computation in periods in which these are anti-dilutivewhere the Company has incurred a net loss or towhere the net loss. The securities foraverage stock price was below the three-month period ending September 30, 2017 and September 30, 2016 were deemed antidilutive.exercise price of the respective potentially dilutive common share, as their effect would be considered anti-dilutive.
The following table illustrates the computation of Profit (loss), for the three months and nine months endedCompany had warrants outstanding at September 30, 2016 and 2017:2022 which upon exercise, would result in the issuance of 892,165 shares of common stock. The warrants are exercisable at $.01 per share.
Three Months Sept 30, 2017 | Three Months Sept 30, 2016 | Nine Months Sept 30, 2017 | Nine Months Sept 30, 2016 | |||||||||||||
Numerator | ||||||||||||||||
Profit (Loss) | $ | 685,164 | $ | (37,788 | ) | $ | 2,938,143 | $ | 94,982 | |||||||
Preferred dividends accrued | 42,737 | — | 128,211 | — | ||||||||||||
Gain on Derivatives | (753,626 | ) | — | (2,457,063 | ) | — | ||||||||||
Net Profit (Loss) applicable to common shareholders | $ | (25,725 | ) | $ | (37,788 | ) | $ | 609,291 | $ | 94,982 | ||||||
Denominator for basic and dilutive loss per share: | ||||||||||||||||
Weighted average common stock shares outstanding | 17,124,999 | 16,722,825 | 16,858,356 | 16,722,825 | ||||||||||||
Net effect of dilutive common stock equivalents | 1,600,898 | — | 2,118,741 | — | ||||||||||||
Weighted average shares outstanding – diluted | 18,725,897 | 16,722,825 | 18,977,097 | 16,722,825 | ||||||||||||
Income Profit (Loss) per share – basic | $ | .04 | $ | (.00 | ) | $ | .17 | $ | .01 | |||||||
Income Profit (Loss) per share – diluted | $ | .00 | (.00 | ) | .03 | .01 |
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
The Company commenced underground test mining and pilot milling activities (“pilot production”) in the 2nd quarter of 2014. Rehabilitation of the San Pablo Mine and refurbishing of the Pilot Mill Facility and construction of the adjacent tailings pond continued through 2016, and expansion of these activities commenced in second quarter 2017.
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, 20172022, and December 31, 2016,2021, respectively, were as follows:
09/30/17 | 12/31/16 | |||||||
Mined Tonnage Stockpiled | $ | 674,382 | $ | 445,082 | ||||
Mill Tonnage Stockpiled | 308,964 | 116,156 | ||||||
Finished Material | 82,439 | — | ||||||
Total Inventories | $ | 1,065,785 | $ | 561,238 |
|
| 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, 20172022 and December 31, 2016:2021:
09/30/17 | 12/31/16 | |||||||
Mining camp equipment | $ | 653,651 | $ | 399,180 | ||||
Transportation equipment | 282,379 | 282,379 | ||||||
Machinery and equipment | 587,280 | 470,741 | ||||||
Office furniture and fixtures | 78,709 | 75,829 | ||||||
Office equipment | 174,314 | 171,746 | ||||||
Sub-total | 1,776,373 | 1,399,875 | ||||||
Less: Accumulated depreciation | (950,380 | ) | (821,132 | ) | ||||
Total Property | $ | 825,993 | $ | 578,743 |
|
| 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 |
|
The Company purchased equipment of $327,786Depreciation and $127,997 in the nine months ended September 30, 2017 and September 30, 2016, respectively.
Depreciationamortization has been provided over each asset’s estimated useful life. Depreciation and amortization expense was $129,248$2,437 and $77,626$2,437 for the nine months ended September 30, 20172022 and 2016,2021, respectively.
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NOTE 4 –- MINING CONCESSIONS
Mining properties consist of the following at September 30, 2017 and December 31, 2016:
|
09/30/17 |
12/31/16 |
San Jose de Gracia (“SJG”): | ||
Total Mining Concessions | $4,132,678 | $4,132,678 |
DepletionMining 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 was $nil and $nil forduring the nine months ended September 30, 20172022 and 2016 respectively, respectively.2021.
NOTE 5 – INVESTMENT IN AFFILIATE/RECEIVABLES FROM AFFILIATE/OTHER ASSETS
Through December 31, 2016, the Company loaned a total of $805,760 to DynaResource Nevada, Inc. (“DynaNevada”), a Nevada Corporation, which owns 100% of one operating subsidiary in México, DynaNevada de México, S.A. de C.V. (“DynaNevada de México”). The terms of the Note Receivable provided for a “Convertible Loan”, repayable at 5% interest over a 3-year period, and convertible at the Company’s option into common stock of DynaNevada at $.25 / Share. DynaNevada is a related entity (affiliate), and through its subsidiary, DynaNevada de México has entered into an Option agreement with Grupo México (IMMSA) in México, for the exploration and development of approximately 3,000 hectares in the State of San Luis Potosi (“The Santa Gertrudis Property”). DynaNevada de México exercised the Option with IMMSA in March 2010, so that DynaNevada de México now owns 100% of the Santa Gertrudis Property. In June 2010, DynaNevada de México acquired an additional 6,000 hectares in the State of Sinaloa (the “San Juan Property”). As of September 30, 2017, and December 31, 2016 the investment was $70,000.
NOTE 6 –- 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 of which $340,000 was then converted to preferred shares within the same year, netting to proceeds of $1,155,000 (the “Series I Notes”). The Series I Notes bear simple interest at twelve and a half percent (12.5%), accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears. The holders of the Series I Notes (in aggregate) are also entitled to receive ten percent (10%) of the net profits received by the Company, on the first fifty thousand tons processed through the mill facilities at San Jose de Gracia. Such net profits (if any) are to be calculated after deducting “all expenses related to the production”, and after a prior deduction of thirty-three percent (33%) from the net profits, to be deposited into a sinking fund cash reserve. To date, the Company has not produced any net profits as calculated in accordance with the Series I Notes.
The Notes originally matured on December 31, 2015. In April 2015 the Company received note extensions (allonges) from all Series I note holders to ensure that all Series I Notesbut were in good standing and also extended the maturity date of the Series I Notes to December 31, 2016. At December 31, 2016, one of the Series I Notes remained outstanding for a total of $5,801 and was paid in 2017, one of the Series I Notes was further extended to September 30, 2017, and the remaining Series I Notes were further extended to December 31, 2017. The balance of the Notes at September 30, 2017 was $950,625.subsequently extended.
The Company has the right to prepay the Series I Notes with a ten percent (10%) penalty.
TheEach Series I Note holder retainsretained the option, at any time prior to maturity or prepayment, to convert any unpaid principal and accrued interest into Common Stock at $5.00$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 onone year from their conversion date.
As of December 31, 2018.2021, 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%), accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears. The holders of the Series II Notes (in aggregate) are also entitled to receive ten percent (10%) of the net profits received by the Company, on the second fifty thousand tons processed through the mill facilities at San Jose de Gracia. Such net profits (if any) are to be calculated after deducting “all expenses related to the production” l, and after a prior deduction of thirty-three percent (33%) from the net profits, to be deposited into a sinking fund cash reserve. To date, the Company has not produced any net profits as calculated in accordance with the Series II Notes.
The Notes originally matured on December 31, 2015. In April 2015, the Company received allonges (note extensions) from all noteholders to ensure that all notesbut were in good standing and also confirmed the maturity of thesubsequently extended.
Each Series II notes to be December 31, 2016. At December 31, 2016, the remaining Series II Notes were further extended to December 31, 2017.
The Company has the right to prepay the Series II Notes with a ten percent (10%) penalty.
The 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 $5.00$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 onone year from the conversion date.
As of December 31, 2018.
On June 30, 2015, the Company entered into conversion agreements with six (6) note holders. Principal and interest in the amount of $809,784 plus $33,120 of accrued interest (total of $842,903) was contracted to convert into 337,162 common shares. In addition, 337,162 warrants were issued which provide the option to purchase common shares at $2.50, with all warrants expiring December 31, 2017. The Company recorded $826,347 inducement expense related to these conversion transactions. On August 17, 2015, these common shares and warrants were issued.
At September 30, 2017, the principal and capitalized interest balance on the remaining Series I Notes was $759,375, and the principal and capitalized interest on the2021, two Series II Notes was $191,250, forremained outstanding with a total Note balance of $950,625.$87,374. The accrued interest for these notes was $29,965 and $29,883 asSeries 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 September 30, 2017 and 2016, respectively.
Notes Payable
In June 2017, the Company entered into financing agreementsliability method in the amountcomputation of $541,245 in order to retain the rights to, and maintain exploratory mineral concessions. The Company paid twenty percent as an initial payment, $108,249, and financed the balance, payable over thirty-six months. In accordance with the Company’s policy of treatment of exploratory mineral concessions or properties, the Company capitalized all costs associated with the financing of the exploratory mineral concessions, including annual taxes or fees,income tax expense and the Company expectscurrent and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to prepare an annual impairment analysis.reduce deferred tax assets to the amount expected to be realized.
The following is a summary of the Notes Payable at September 30, 2017 and December 31, 2016:
2017 | 2016 | |||||||
Convertible Promissory Notes Current Portion | $ | 956,250 | $ | 956,250 | ||||
Purchase of Note | (5,625 | ) | — | |||||
Total Notes Payable | $ | 950,625 | 956,250 |
NOTE 7 – Long Term Accrued Expense
In June 2017, the Company entered into financing agreements for unpaid mining concession taxesCompany’s effective tax rate for the period July 1, 2014 through December 31, 2015 in the amount of $541,245. The Company paid 20% as an initial payment, $108,249, and financed the balance over thirty-six months.
The following is a summary of the transactions during the second and third quarters:
Sept 30, 2017 | ||||
Property Holding Taxes June 1, 2014 – December 31, 2015 | $ | 541,245 | ||
Initial payment of 20% | (108,249 | ) | ||
2017 principal payments | (47,607 | ) | ||
Balance at September 30, 2017 | $ | 385,389 | ||
Short-Term Portion | $ | 120,361 | ||
Long-Term Portion | 265,028 | |||
Total | $ | 385,389 |
NOTE 8 – STOCKHOLDERS’ EQUITY
The only change in our stockholders’ equity in the three and nine months ended September 30, 2017 was2022 and for the exerciseperiod ended September 30, 2021 varies from the statutory rate of 1,000,000 warrants for cash at $2.50 per share.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.
Authorized Capital.
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NOTE 7- STOCKHOLDERS’ EQUITY
The total number of shares of all classes of capital stock which the corporation shall havehas the authority to issue is 45,001,00060,001,000 shares, consisting of (i) twenty million and one thousand (20,001,000) shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”Stock”), of which one thousand (1,000)1,000 shares shall beare 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) twenty-fiveforty million (25,000,000)(40,000,000) shares of Common Stock, par value $.01$0.01 per share (“Common Stock”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. In October 2007, theThe Company issued 1,000 shares of Series A Preferred Stock to its CEO. At, September 30, 20172022 and December 31, 2016,2021, there were 1,000 shares and 1,000 shares of Series A Preferred Stock outstanding, respectively.outstanding.
Series C Senior Convertible Preferred SharesStock
On June
At September 30, 2015, the Company issued 1,600,000 Series C Senior Convertible Preferred Shares (the “Series C Preferred Shares”) at $2.50 per share for gross proceeds of $ 4,000,000, as well as issuing 133,221 additional2022 and December 31, 2021 there were 1,734,992 and 1,734,992 Series C Preferred Shares due to anti-dilution provisions (with no cash remuneration). Legal feesshares outstanding. As of $45,000 were deducted from the proceeds of this transaction at closing. TheseSeptember 30, 2022, these Series C Preferred Shares are convertible to common shares at $2.50$2.04 per share through February 20, 2020.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. A descriptionThe dividend is calculated at 4.0% of $4,337,480 payable annually on June 30. At September 30, 2022, dividends for the transaction which includedyears 2016 to 2022 totaling $1,053,777 were in arrears.
Due to the issuancenature 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 included below. During 2016,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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· | 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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On October 11, 2021. the companyCompany filed an amended designation of Series D Preferred with the State of Delaware.
Retirement of Convertible Debt
On October 7, 2021, the Company paid Dividends$2,500,000 to repurchase one note that was convertible into Series D Preferred.
The remaining ten noteholders of $160,000notes 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 ofat 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 Stock.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 Dividend is calculated2015 Warrant was exercised on September 28, 2022 at 4.0% of $4,000,000 payable annuallyan 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 June 30.demand. The accumulateddeemed dividends were $128,211 and $120,000on the Series C Preferred for the nine months endedending September 30, 20172022, and 2016September 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 25,000,00040,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights. At September 30, 20172022 and December 31, 2016,2021, there were 17,722,82520,746,654 and 16,722,82518,091,293 shares outstanding, respectively. No dividends were paid for the periods ended September 30, 2017.2022 and 2021, respectively.
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Preferred Rights
The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San JoseJosé de Gracia Pilot Production Plant and received $158,500 in 2003 and $626,000 in 2002. This has been reflected as$784,500 for these rights. The “Preferred Rights” are reflected in stockholders’ equity. As of December 31, 2004, $558,312 was repaid and as of December 31, 2005, an additional $186,188 wasSeptember 30, 2022, $744,500 had been repaid, leaving a current balance of $40,000 and $40,000 as of September 30, 20172022 and December 31, 2016,2021, respectively.
Exercise of 1,000,000 Common Share Options at $2.50 per Share – Total of $2,500,000 USD
Stock Issuances
On August 22, 2017,June 28, 2022, the Company received proceeds in the amountissued 2,655,361 shares of $2.5 M USD followingcommon stock upon the exercise of one million outstanding options at a price of $2.50 per share. The option exercise was completed and funded on August 22, 2017.
Stock Issuances
2016 Activity – None.
2017 Activity – On August 22, 2017, 1,000,0000 optionswarrants to purchase common2,655,361 shares, were exercised, and 1,000,000 common shares were issued.by one warrant holder for $2.04 a share.
Treasury Stock
At September 30, 2017 and 2016, 1,112,313 treasury shares were outstanding.
Note Repayments
In the three months ended September 30, 2017,On October 18, 2021, the Company did not repurchase any Notes.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.
In
Treasury Stock
During the nine months ended September 30, 2017,2022 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 repaid Notes withhad outstanding warrants to purchase 892,165 shares of common stock. On June 28, 2022 one warrant holder exercised a principal balancewarrant to purchase a total of $5,625.
Warrants
Shareholders2,655,361 shares of the Company exercised 1,000,000 warrantscommon stock for cash at $2.50 per$2.04 a share.
Number of Shares |
Weighted Average Exercise Price
| Weighted Average Remaining Contractual Life (Years) |
Intrinsic Value | |||||||||||||
Balance at December 31, 2016 | 3,593,689 | $ | 2.45 | 2.51 | $ | — | ||||||||||
Granted | — | — | $ | — | ||||||||||||
Exercised | (1,000,000 | ) | $ | 2.50 | $ | — | ||||||||||
Forfeited | — | — | $ | — | ||||||||||||
Balance at September 30, 2017 | 2,593,689 | $ | 2.42 | 2.34 | $ | — | ||||||||||
Exercisable at September, 2017 | 2,593,689 | $ | 2.42 | 2.34 | $ | — |
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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NOTE 9 –8 - RELATED PARTY TRANSACTIONS
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) 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; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have 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.
Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Dynacap Group Ltd.
The Company paid $124,000$143,750 and $91,000$128,500 to Dynacap Group, Ltd. (“Dynacap”, an(an entity controlled by the CEO of the Company) for consulting and other fees during the nine monthsperiods ended September 30, 20172022, and 2016,2021, respectively. Dynacap retains 2 individuals who
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 family members ofcalculated based upon the CEO,land area, as well as 2 consultants, as independent contractors who provide administrativethe age of the concessions. Amounts spent in excess of the minimum may be carried forward indefinitely over the life of the concessions and executive support services to the Company. Dynacap has provided these services toare 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 recent years.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%).
Cash Advances by Management
Company Chairman/CEO loaned $75,000 and a former Company CFO loaned $150,000 as advances to the Company in 2015.Leases
In 2015,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 converted $175,000entered into a sixty-six-month extension of advances from the CEOlease 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 issuancecommencement date based on the present value of 70,000 shareslease 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 (at $2.50 per share) as well as 70,000 warrants, exercisable at $2.50 per share, expiring December 31, 2017. These shares were issued in August 2015. area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.
The Company repaiddetermines if a contract is or contains a lease at inception. As of September 30, 2022, the $150,000 advance to the former CFOCompany 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 2016.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.
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
Preferred
Series C Preferred Stock
As discussed in Note 8,7, 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.
19 |
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 forbelow:
|
| 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, 20172022 and year ended December 31, 2016:2021, 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.
09/30/17 | 12/31/16 | |||||||
Annual volatility rate | 97 | % | 123 | % | ||||
Risk free rate | 1.50 | % | 1.93 | % | ||||
Holding Period | 5 years | 5 years | ||||||
Fair Value of common stock | $ | 1.50 | $ | 1.75 |
The below table represents the change in the fair value of the derivative liability (Preferred Series C Stock) during the nine and twelve months endingended September 30, 20172022 and the year ending December 31, 2016:2021.
Period Ended | 09/30/17 | 12/31/16 | ||||||
Fair value of derivative (Preferred Series C Stock), beginning of year | $ | 2,592,452 | $ | 2,419,359 | ||||
Change in fair value of derivative (Preferred Series C Stock) | (1,518,891 | ) | 173,093 | |||||
Fair value of derivative (Preferred Series C Stock), end of period | $ | 1,073,561 | $ | 2,592,452 |
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 |
|
Preferred Series C Warrants2015 Warrant
As discussed in Note 8,7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the Warrants2015 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 |
|
20 |
Table of Contents |
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 forbelow:
|
| 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 periodsnine and twelve months ended September 30, 20172022 and December 31, 2016:2021, 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.
09/30/17 | 12/31/16 | |||||||
Annual volatility rate | 97 | % | 123 | % | ||||
Risk free rate | 1.50 | % | 1.93 | % | ||||
Holding Period | 5 years | 5 years | ||||||
Fair Value of common stock | $ | 1.50 | $ | 1.75 |
The below table represents the change in the fair value of the derivative liability (Preferred Series C Warrants) forduring the periodnine and twelve months ended September 30, 2017 and the year ending December 31, 2016.
Period Ended | 09/30/17 | 12/31/16 | ||||||
Fair value of derivative liability (Warrants), beginning of year | $ | 2,513,638 | $ | 2,963,378 | ||||
Change in fair value of derivative liability (Warrants) | (938,172 | ) | (449,740 | ) | ||||
Fair value of derivative liability (Warrants), end of period | $ | 1,575,466 | 2,513,638 |
Total (Gain) Loss on Derivative Liability (Preferred Series C Stock and Warrants)
The below table represents the total (gain) or loss, of the derivative liability (Preferred Series C Stock and Warrants) for the period ended September 30, 2017 and the year ending December 31, 2016.
Period Ended | 09/30/17 | 12/31/16 |
Fair value of derivative liability (Preferred C Stock and Warrants), beginning of year | $5,106,090 | $5,382,737 |
Change in fair value of derivative liability (Stock and Warrants) | (2,457,063) | (276,647) |
Fair value of derivative liability (Stock and Warrants), end of period | $2,649,027 | 5,106,090 |
NOTE 11 – NON-CONTROLLING INTEREST
The Company’s Non-Controlling Interest recorded in the consolidated financial statements relates to an interest in DynaResource de México, S.A. de C.V. of 50% through May 13, 2013, and 20% thereafter. Changes in Non-Controlling Interest for the periods ended September 30, 20172022 and December 31, 2016, respectively were as follows:2021.
Nine Months Ended 09/30/17 | Year Ended 12/31/16 | |
Beginning balance | $(5,984,573) | $(6,498,190) |
Operating income (loss) | (153,038) | (317,179) |
Share of Other Comprehensive Income | 680,798 | 830,796 |
Ending balance | $(5,456,813) | $(5,984,573) |
The Company began allocating a portion of other comprehensive income (loss) to the non-controlling interest with the adoption of SFAS 160 as of January 1, 2009. However, this amount is only reflected in the income statement.
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 |
|
21 |
Table of Contents |
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;markets; quoted prices for identical or similar instruments in markets that are not active;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, 2017,2022, and December 31, 2016,2021, the Company’s financial assets were measured at fair value using Level 3 inputs, except forwith 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.
Fair Value Measurement at September 30, 2017 using:
Total Fair Market Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
None | - | - | - | - | ||||||||||||
Totals | $- | $- | $- | $- | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative Liabilities | $ | 2,649,027 | — | — | $ | 2,649,027 | ||||||||||
Totals | $ | 2,649,027 | $ | — | $ | — | $ | 2,649,027 | ||||||||
Fair Value Measurement at December 31, 2016 Using: | ||||||||||||||||
Assets: | ||||||||||||||||
None | — | — | — | — | ||||||||||||
Totals | $ | — | $ | — | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Derivative Liabilities | $ | 5,106,090 | — | — | $ | 5,106,090 | ||||||||||
Totals | $ | 5,106,090 | $ | — | $ | — | $ | 5,106,090 |
|
|
|
| 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 13 –12 - REVENUE CONCENTRATIONCONCENTRATION
The Company receives revenues fromhad certain customers whowhose revenue individually represented 10% or more of the Company’s total revenue, and the Company’sor whose accounts receivable balances are represented by customers who individually represented 10% or more of the Company’s total accounts receivable, as described below:follows:
For the three months ended September 30, 2017 one customer accounted for 100%each of revenue and for the three months ended September 30, 2016, one customer accounted for 100% of revenue.
For the nine months ended September 30, 2017 two2022, and 2021, one and three customers accounted for 100% of revenue, and for the nine months endedrespectively.
At September 30, 2016, two2022 and December 31, 2021, one and one customers accounted for 100% of revenue.accounts receivable, respectively.
22 |
Table of Contents |
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, 2017, one customer accounted for 100%2022, $1,381,398 of accounts receivable. At December 31, 2016, one customer accounted for 100% of accounts receivable.accrued interest on the notes was included in accrued liabilities on the consolidated balance sheet.
NOTE 14 – ADJUSTMENT OF PRIOR PERIODS
In October 2019, the second quarter 2017, we identified certain propertyCompany entered into a financing agreement for unpaid mining concession taxes amounting to $541,245 from 2014 and 2015, and $169,232 from 2016, which were not expensed as required, and an over accrualon the core mining concessions in the amount of $150,000 for legal expenses at December 31, 2016.$299,474. The Company assessedpaid an initial 20% payment of $59,895 and financed the materialitybalance over 36 months at an interest rate of this misstatement in22%.
The following is a summary of the 2016transaction during the nine and 2015 periods financial statements in accordance with the SEC’s Staff Accounting Bulletin (SAB) No. 99, codified in ASC No. 250, Presentation of Financial Statements, and concluded that the misstatement was not material to any prior periods. In accordance with SAB 108, the Company has adjusted the three and ninetwelve months ended September 30, 20162022 and the balance sheet as of December 31, 2016. The following presents these adjustments in detail:2021:
BALANCE SHEET | Previously Reported Dec 31, 2016 | Adjustments |
Adjusted Balance Dec 31, 2016 | |||||||||
Accounts Payable | $ | 309,952 | $ | (541,245 | ) | $ | 851,197 | |||||
Accrued Expenses | 1,198,278 | 169,232 | 1,367,510 | |||||||||
Total Liabilities | 7,802,070 | 710,477 | 8,521,547 | ) | ||||||||
Accumulated Deficit | (53,013,185 | ) | (568,382 | ) | (53,581,567 | ) | ||||||
Total Equity (Deficit) | 2,873,844 | (568,832 | ) | 2,305,462 | ||||||||
Non-Controlling Interest | (5,842,478 | ) | (142,095 | ) | (5,984,573 | ) | ||||||
Total Equity (Deficit) | (2,968,634 | ) | (710,477 | ) | (3,679,111 | ) | ||||||
Total Liabilities and Equity | $ | 9,166,489 | $ | — | $ | 9,166,489 |
INCOME STATEMENT | ||||||||||||||||||||||||||||||||||||||
Three Months Ended Sept 30, 2016 | Nine Months Ended Sept 30, 2016 | |||||||||||||||||||||||||||||||||||||
Previously Reported | Adjustments | Adjusted | Previously Reported | Adjustments | Adjusted | |||||||||||||||||||||||||||||||||
COSTS AND EXPENSES OF MINING OPERATIONS | ||||||||||||||||||||||||||||||||||||||
Property Holding Costs | $ | 110,978 | $ | 42,308 | $ | 153,286 | 244,062 | $ | 126,924 | $ | 370,986 | |||||||||||||||||||||||||||
Total Operating Expenses | 2,298,678 | 42,308 | 2,340,986 | 6,332,998 | 126,924 | 6,459,922 | ||||||||||||||||||||||||||||||||
NET OPERATING INCOME (LOSS) | 728,627 | (42,308 | ) | 686,318 | 1,859,232 | (126,924 | ) | 1,732,308 | ||||||||||||||||||||||||||||||
NET INCOME (LOSS) BEFORE TAXES | 33,765 | (42,308 | ) | (8,544 | ) | 166,370 | (126,924 | ) | 39,446 | |||||||||||||||||||||||||||||
NET INCOME (LOSS) | 33,765 | (42,308 | ) | (8,544 | ) | 166,370 | (126,924 | ) | 39,446 | |||||||||||||||||||||||||||||
ATTRIBUTABLE TO NON-CONTROLLING INTERESST | 2,294 | 8,462 | 10,756 | 150,151 | 25,385 | 175,536 | ||||||||||||||||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | (3,941 | ) | (33,847 | ) | (37,788 | ) | $ | 196,521 | $ | (101,539 | ) | $ | 94,982 | |||||||||||||||||||||||||
Basic Loss Per Common Share | (0.00 | ) | $ | 0.00 | (0.00 | ) | $ | 0.01 | $ | 0.00 | $ | 0.01 | ||||||||||||||||||||||||||
Diluted Loss Per Common Share | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | 0.01 | $ | 0.00 | $ | 0.01 | ||||||||||||||||||||||||
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; |
23 | |
Table of Contents |
STATEMENT of CASH FLOWS | Previously Reported Sept 30, 2016 | Adjustments |
Adjusted Balance Sept 30, 2016 | |||||||||
Net Income (Loss) | $ | 166,370 | $ | (126,924 | ) | $ | 39,446 | |||||
Accrued Liabilities | 339,208 | 126,924 | 466,132 | |||||||||
Cash Flows Used in Operating | $ | (1,021,244 | ) | $ | — | $ | (1,021,244 | ) |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe RCL is included under Customer Advances on the unaudited consolidated balance sheet.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes forward-looking statements withinDeposits under Revolving Credit Line Facility
Under the meaning of Section 27Aterms of the Securities Act of 1933, as amended, which we refer to in this annual report asRCL, DynaMineras received the Securities Act, and Section 21E offollowing advances from the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the heading “Management Discussion and Analysis and Plan of Operation.”buyer:
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this annual report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.
(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. |
CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES16 - SUBSEQUENT EVENTS
The Company is an “OTC Reporting Issuer” as that term is defined in BC Multilateral Instrument 51-105,Issuers Quoted inhas evaluated events commencing September 30, 2022 and through the U.S. Over-the-Counter Markets, promulgated bydate the British Columbia Securities Commission.financial statements were issued, and determined no items required disclosure.
In Canada, an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of the United States Securities and Exchange Commission (the “SEC”) applicable to registration statements and reports filed by United States companies pursuant to the Securities Act or the Exchange Act. As such, certain disclosures of mineralization under Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC and not subject to Canadian securities legislation.
While these terms are recognized and required by Canadian securities legislation (under National Instrument 43-101 (“NI 43-101”), entitledStandards of Disclosure for Mineral Projects), the SEC does not recognize these terms. Investors in the United States are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted to reserves. In addition, inferred mineral resources have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a “preliminary economic assessment” as that term is defined in NI 43-101. U.S. investors are cautioned not to assume that any part or all of any reported measured, indicated, or inferred mineral resource estimates referred to in the DynaMéxico NI 43-101 Technical Report and DynaMéxico 43-101 Mineral Resource Estimate (compiled for DynaResource de Mexico SA de CV) are economically or legally mineable.
Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the DynaMéxico 43-101 Mineral Resource Estimate compiled for DynaResource de Mexico SA de CV, under Canadian National Instrument 43-101 and filed by the Company with SEDAR, arenot disclosed in this Form 10-Q. There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.
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. The Company was incorporated in the State of California on September 28, 1937, under the name West Coast Mines, Inc. In November 1998, the Company re-domiciled from California to Delaware and changed its name to DynaResource, Inc. (“DynaUSA”).
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 JoseJosé 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.
In 2000, the Company formed DynaResource de México S.A. de C.V. (“DynaMéxico”) for the purpose of acquiring and holding mineral properties and mining concessions in México and, specifically for acquiring and consolidating the Mining District of San Jose de Gracia. DynaMéxico completed the consolidation of the entire SJG District to DynaMéxico in 2003 (approx. 15 sq. km. at that time), with the exception of the San Miguel Mining Concession (7 Hectares, for which DynaMéxico is proceeding towards accomplishing the transfer of title, under previously signed sale and purchase agreements).
In 2005, the Company formed Mineras de DynaResource S.A. de C.V. (“DynaMineras”), a wholly owned subsidiary. DynaMineras entered into an operating agreement with DynaMéxico on April 15, 2005. As a consequence of that agreement and subsequent amendments to that agreement, DynaMineras is the exclusive operating entity for the SJG Project.
Also in 2005, the Company formed another wholly owned subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”). DynaOperaciones entered into a personnel management agreement with DynaMineras and, as a consequence of that agreement, is the exclusive management company for personnelregistered employees.
Project Improvements, Expansion and consultants involvedIncreased Output (2017 To Present)
The Company continues its business plan of operations at the SJG Project.
DynaMéxico currently owns a portfolio of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia, Project (“SJG”). The mining concessions cover 69,121 hectares (170,802 acres) on the west side of the Sierra Madre mountain range, in northern Sinaloa State.
The Company currently owns 80% of the outstanding shares of DynaMéxico. 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, and we own 100% of DynaResource Operaciones de San Jose de Gracia, S.A. de C.V., (“DynaOperaciones”), a company which manages the personnel registered to work at the San Jose de Gracia Project.
San Jose de Gracia - History
Historical production records from San Jose de Gracia (“SJG”) report 1,000,000 Oz gold production from a series of underground workings. The major areas report 471,000 Oz. produced at the La Purisima area of SJG, at an average grade of 66.7 g/t.; and 215,000 Oz. produced from the La Prieta area, at an average grade of 27.6 g/t. Mineralization at SJG has been traced on surface and underground over 15 sq. km.
DynaMéxico was formed in March 2000, for the purpose of acquiring the concessions comprising the SJG District, and to consolidate all ownership of SJG under DynaMéxico. DynaMéxico focused on acquisition and consolidation work through 2003, and reported a virtually clear title and consolidated ownership to the district at December 31, 2013.
No Known Reserves
The SJG property is without known reserves. Under U.S. standards, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
Exploitation Amendment Agreement (“EAA”)
On May 15, 2013, DynaMineras entered into an Exploitation Amendment Agreement (“EAA”) with DynaMéxico. The EAA grants to DynaMineras the right to finance, explore, develop and exploit the SJG Property, in exchange for:
(a) Reimbursement of all costs associated with financing, maintenance, exploration, development and exploitation of the SJG Property, which costs are to be charged and billed by DynaMineras to DynaMéxico; and,
(b) After Item (A) above, the receipt by DynaMineras of 75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, to the point that DynaMineras has received 200% of its advanced funds; and,
(c) after items (A) and (B) above; the receipt by DynaMineras of 50% of all gross receipts received by DynaMéxico from the sale of all minerals produced from SJG, and throughout the term of the EAA; and,
(d) in addition to Items (a), (b), and (c) above, DynaMineras shall receive a 2.5% NSR (“Net Smelter Royalty”) on all minerals sold from SJG over the term of the EAA.
The total unpaid advances made by DynaMineras to DynaMéxico as of September 30, 2017 is $2,125,000. The EAA is the third and latest Amendment to the original Contract Mining Services and Mineral Production Agreement (the “Operating Agreement”), which was previously entered into by DynaMineras with DynaMéxico in April 2005, wherein DynaMineras was named the Exclusive Operating Entity at SJG. The Operating Agreement was previously amended in September 2006 (the “First Amendment”), and amended again at July 15, 2011 (the “Second Amendment”). The Term of the Second Amendment is 20 years, and the EAA (Third Amendment) provides for the continuation of the 20 Year Term from the date of the Second Amendment (July 15, 2011).
Surface Rights Agreement
On January 6, 2014 DynaMineras entered into a 20-year surface rights agreement withthe Santa Maria Ejido Community surrounding the San Jose de Gracia Property (the “20 Year SRA”). The 20 Year SRA covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG, and provides for annual lease payments by DynaMineras of $1,359,443 Pesos (approx. $85,000 USD), commencing in 2014. The 20-year SRA provides DynaMineras with surface access to the core resource areas of SJG, and allows for all permitted mining, pilot production and exploration activities from the owners of the surface rights (Santa Maria Ejido community).
Additionally, DynaMineras expects to construct a Medical Facility and a Community Center within the SJG community in year 2015. DynaMineras reports that land and building for which the medical facility and community center will be constructed have been approved for re-zoning by the local community; and plans are being drawn for constructing the facilities.
Structure of Company / Operations
Activities in México are conducted by Mineras de DynaResource S.A. de C.V. (“DynaMineras”); with the management of personnel being contracted by DynaMineras through to the personnel management subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”). Management of DynaResource, Inc. and consultants continue to manage the operating companies in México; while the Chairman/CEO of DynaUSA is the President of each of the operating companies in México. Fees for Management and administration are charged by DynaMineras and DynaOperaciones, which are eliminated in consolidation.
Activities under Exploitation Amendment Agreement
In 2013, DynaMineras, in accordance with the terms of the Exploitation Amendment Agreement, commenced the rehabilitation of the San Pablo Mine and the refurbishment of the pilot production facility at SJG. DynaMéxico received permits as discussed above for the rehabilitation and operation of the pilot mill facility and the exploitation and mining of the San Pablo area of SJG. The basis for the mining activity and the operation of the pilot mill facility are the NI 43-101 Mineral Resource Estimate, the Technical Report, the block models prepared as a result of the recent drilling activity, and the recent production history of 2003-2006.
Capital Requirements
The mining industry in general requires significant capital in order to take a property from the exploration, to development to production. These costs remain a significant barrier to entry for the average company but once in production, there is a ready market for the final products, In the case of SJG, the final product would be mainly gold, the price of which is determined by global markets, so there is not a dependence on a customer base.
Gold
Gold Uses. Gold generally is used for fabrication or investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrialto improve, increase and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry.
Gold Supply. A combination of current mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions, industrial organizations and private individuals make up the annual gold supply. Based on public information available for the years 2008 through 2014, on average, current mine production has accounted for approximately 64% of the annual gold supply.
Gold Price. The following table presents the annual high, low and average daily afternoon fixing prices for gold over the past ten years on the London Bullion Market ($/ounce):
Year | High
| Low
| Average
|
2005 | $536 | $411 | $444 |
2006 | $725 | $525 | $604 |
2007 | $841 | $608 | $695 |
2008 | $1,011 | $713 | $872 |
2009 | $1,213 | $810 | $972 |
2010 | $1,421 | $1,058 | $1,225 |
2011 | $1,895 | $1,319 | $1,572 |
2012 | $1,792 | $1,540 | $1,669 |
2013 | $1,694 | $1,192 | $1,411 |
2014 | $1,380 | $1,140 | $1,265 |
2015 | $1,303 | $1,057 | $1,175 |
2016 | $1,366 | $1,077 | $1,251 |
2017 (Through October 16, 2017) | $1,351 | $1,151 | $1,251 |
Source: Kitco, Reuters and the London Bullion Market Association
On October 16, 2017, the afternoon fixing gold price on the London Bullion Market was $1,303.30 per ounce and the spot market gold price on the New York Commodity Exchange was $1,294 per ounce.
Condition of Physical Assets and Insurance
Our business is capital intensive and requires ongoing capital investment for the replacement, modernization or expansion of equipment and facilities. We and our subsidiaries maintain insurance policies against property loss. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. There can be no assurance that claims would be paid under such insurance policies in connection with a particular event.
Environmental Matters
Our activities are largely outside the United States and subject to governmental regulations for the protection of the environment. We conduct our operations so as to protect public health and the environment and believe our operations are in compliance with applicable laws and regulations in all material respects. DynaMéxico is involved with maintaining tailings ponds andexpand 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, (through DynaMineras)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 oversightCompany has accumulated a net loss carry forward from México operations of SEMARNAT,$18.5 million USD which is available to offset future taxable earnings.
25 |
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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 federal environmental agencyproduction of México.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, 20172022 and 2016:2021:
DynaMineras reports the following estimated summary of its test mining and pilot milling operations during 2017 and 2016:
Total Tonnes Mined & Processed | Reported Mill Feed Grade (g/t Au) | Reported Recovery % | Gross Gold Concentrates Produced (Au oz.) | Net Gold Concentrates Sold (Au oz.) | |
Nine Months Ended September 30, 2017 | 22,808 | 12.35 | 86.8% | 7,859 | 6,307 |
Nine Months Ended September 30, 2016 | 30,603 | 13.10 | 78.2% | 9,990 | 7,385 |
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 the nine months ended September 30, 2017Q1 2022 yielded 22,808 tonnes27,511 tons mined and processed from underground mining activity and pilotthrough mill operations;operations (306 tons per day) ; and the productionrecovery of approximately 7,8597,110 gross Oz Au (and netresulting in sales of dry weights, buyer’s price discount and refining and treatment costs, approximately 6,307 Oz. Au)6,000 gross Au Oz contained in gold-silver concentrates, and the receipt of $7,233,329$10,492,503 in revenues from the salenet of gold-silver concentrates.buyer’s price discount, refining and treatment costs.
Test pilot operations in the nine months ended September 30, 2016Q2 2022 yielded 30,603 tonnes33,655 tons mined and processed from underground mining activity and pilotthrough mill operations;operations (370 tons per day) ; and the productionrecovery of approximately 9,9907,834 gross Oz Au (and netresulting in sales of dry weights, buyer’s price discount and refining and treatment costs, approximately 7,385 Oz. Au)6,004 gross Au Oz contained in gold-silver concentrates, and the receipt of $7,185,900$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 salequarter.
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.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 continuesexpects to continue its test underground mining activity and pilot milling operations in 2017;the third quarter 2022, and projects thean increased output of 150 tons/day – 250 tons/500 tons per 24-hour operating day from the mine and mill induring the fourth quarter 2017.quarter.
Subsequent Deliveries of Gold Concentrates for Sale
On the below listed dates, DynaMineras reported the delivery for sale of gold ounces contained in concentrates (exact weights in gold and silver Oz. to be determined at final settlement):
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Cash Receipts Subsequent to
Results for the three and nine months ended September 30, 2017 from the Delivery2022 and Sale of Gold Concentrates2021
On the below listed dates, DynaMineras received the following amounts of net proceeds from the sale of gold-silver concentrates:
Expansion and Improvements
InREVENUE. The Company processed 100,206 tons (367 per day) during the first and second quarter 2017,nine months of 2022 compared to 66,695 tons (244 per day) in 2021. As a result of the Company expended approximately $230,000 USD onincreased volume the following projects which are one-time expenses. These amounts are includedgrade of ore processed dropped from 9.48 g/t Au per ton in our financial statements under the heading Other Assets and booked as constructionprior 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 progress. When the improvements are complete, the costs will be moved2021 to fixed assets and depreciated. These activities reduced the number of pilot mill operating days22,314 in the first quarter, 2017nine months of 2022. This resulted in an increase in gross ounces sold from 16,036 in 2021 to approximately 60. In the second and third quarters 2017, the Company operated the mill with reduced output17,823 in order2022, increasing revenues from $25,906,083 to re-tool one ball mill, and to build a new foundation for this ball mill. The Company projects the re-insertion of this ball mill into the milling operation in the fourth quarter, and the Company expects to install a third ball mill into the milling operations in the fourth quarter. As the pilot mill capacity is increased with the operation of three ball mills, the Company projects test mining and pilot mill processing volumes to reach 250 tons per day in the fourth quarter, 2017.
Medical Clinic at San Jose de Gracia (the “Santa Maria Anexo Clinic”)
A medical clinic at San Jose de Gracia is being constructed by the Company and will be donated to the San Jose de Gracia Community.
Tailings Pond Expansion
The Company has expanded the capacity of the tailings pond adjacent to the pilot mill facility. The Company completed the tailings pond expansion in the second quarter, 2017.
Camp Expansion
The Company is currently expanding the capacity of its camp facilities at San Jose de Gracia. The Company expects to complete the camp expansion work in the fourth quarter, 2017.
Mill Capacity and Efficiency
The Company is currently conducting activities within the Pilot Mill Facility which are intended to improve processing efficiencies and to expand capacities. The Company expects to complete these activities in the fourth quarter, 2017.
Mine Capacity and Efficiency
During the third quarter 2017, the Company has developed an additional access to the mineralized vein at San Pablo. The Company projects obtaining additional tonnage from the additional access at San Pablo in the fourth quarter 2017.
Competitive Advantage
The Company, through its subsidiaries, has been conducting business in México since March 2000. During this period the Company believes it has structured its subsidiaries properly and strategically, and during which time the Company has retained key personnel and developed key relationships and support. The Company believes its experience and accomplishments and relationships in México give it a competitive advantage, even though many competitors may be larger and have more capital resources.
DynaMéxico retains 100% of the rights to concessions over the area of the San José de Gracia property and it currently sees no competition for mining on the lands covered by those concessions. The sale of gold and any bi-products would be subject to global market prices; which prices fluctuate daily. DynaMéxico was successful in selling gold concentrates produced from SJG in prior years, and the Company expects a competitive market for produced concentrates and/or other mineral products in the future. Actual prices received by DynaMineras in the sale of concentrates or other products produced from San Jose de Gracia would depend upon these global market prices, less deductions.
The Company’s operating subsidiaries, DynaMineras and DynaOperaciones, receive monthly fees for management of the SJG activities and personnel. These fee amounts are eliminated in consolidation. Other than those intercompany fees, the Company reported revenue of $7,233,329 and $8,192,230$28,623,070 for the nine months ended September 30, 20172021 and 2022, respectively.
Revenues for the quarter ended September 30, 2022, and September 30, 2016 respectively.
Results2021 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 Three and Nine Months Ended September 30, 2017 and 2016
In the nine months ended September 30, 2017, the Company, through its wholly owned subsidiary DynaMineras, continued full test mining and pilot mill operations at San Jose de Gracia.
DynaMineras conducted test mining and milling operationsquarter reflected an negative adjustment of $1,202,584 for final settlement of provisional invoices reported in the third quarter of 2017 and 2016. During the three months ended September 30, 2017, the test mining and pilot milling operations have yielded the underground mining and mill processing of approx. 7,773 tonnes of mineralized material, the production of approximately 3,003 gross oz. Au (and net of weight and value adjustment) approximately 2,191 oz. Au) contained in gold-silver concentrates. DynaMineras realized the receipt of $2,674,015 in revenues from the delivery and sale of gold-silver concentrates in the three months ended September 30, 2017 and $7,233,329 in revenues for the nine months ended September 30, 2017.prior quarters.
REVENUE. Revenues for the three months ended September 30, 2017 and 2016 were $2,674,015 and $3,027,305, respectively. Revenues for the nine months ended September 30, 2017 and 2016 were $7,233,329 and $8,192,230, respectively. The Company has established consistent test mining and pilot milling operations since January 2016.
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, 20172022, and 20162021 were $928,663$964,172 and $443,703, respectively. Production costs related to sales for the nine months ended September 30, 2017 and 2016 were $2,586,553 and $1,308,858,$756,898, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. These costs increasedThe increase is consistent with the increase in the current versus the prior year due to the Company incurring additional costs as it prepares its mining and milling operations to increase its capacity. The Company believes the results of these additional expenditures will be seen in the fourth quarter of 2017.tonnage process.
MINE OPERATINGPRODUCTION COSTS. Mine operating costs for the three months ended September 30, 2017 and 2016 were $1,100,948 and $1,061,073, respectively. Mine operatingproduction costs for the nine months ended September 30, 20172022, and 20162021 were $2,659,093$4,786,236 and $3,036,423, respectively. These costs are directly related to the extraction$3,385,340 respectively and transportation of mine tonnage$1,946,981 and correlate closely with the amount of ore processed after adjusting for stock piled inventory.
PROPERTY HOLDING COSTS. Property holding costs$1,135,938 for the three months ended September 30, 20172022, and 20162021, respectively. These costs were $135,681directly 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 $153,286,2021 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, 20172022, and 20162021 were $398,751$112,093 and $370,986,$116,516, respectively. These costs arewere 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.
TOTAL OPERATING
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GENERAL AND ADMINISTRATIVE EXPENSES. Operating expenses for the three months ended September 30, 2017General and 2016 were $2,819,109 and $2,340,987, respectively. Operatingadministrative expenses for the nine months ended September 30, 20172022, and 20162021 were $7,579,018$3,177,917 and $6,459,922,$2,252,156, respectively. The above expenses include depreciationGeneral and amortization amounts of $36,781 and $29,496administrative costs for the three months ended September 30, 20172022 and 2016, respectively,2021 were 1,033,820 and $129,2481,085,187 respectively. These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and $77,626legal 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, 20172022, and 2016,2021 was 1,698,184 and $(6,263,923), respectively.
OTHER INCOME (EXPENSE). Other income, exclusive Included in this category in 2022 was interest expense of $(345,049), change in derivative of $1,993,836 currency transaction gain or (loss) for the three months ended September 30, 2017 and 2016 was $921,392 and $(694,862), respectively. Derivatives mark-to-market adjustments are the primary components of income in 2017 of $753,626 and foreign currency losses in 2016 of $(460,885) respectively. For the nine months ended September 30, 2017 and 2016, other income included Foreign Currency Transaction gain or (loss) of $890,491$47,709 and $(1,603,758)miscellaneous income of 1,688. Included in this category in 2021 was interest expense of $(1,102,755), respectively: Derivatives mark-to-market adjustmentschange in derivative of 2017$(3,928,913), currency transaction gain (loss) of $2,457,063$(121,725) and $nil for 2016 respectively.a one-time arbitration award expense of $1,111,111. The reason for the fluctuationsdecrease in the derivative marketliability was primarily due to market adjustment ismaturity of two of the changesunderlying 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 stock price and the reason for the fluctuations in the currency gains/losses is the change in valuationCompany’s debt. For a more detailed explanation of the Mexican Peso.2021 arbitration award see Legal Proceedings.
NON-CONTROLLING INTEREST. The non-controlling interest portion of the net loss for the three months ended September 30, 2017 and 2016 was $(49,397) and $10,756, respectively. The non-controlling interest portion of the net loss for the nine months ended September 30, 2017 and 2016 was $153,038 and $175,536, respectively.
OTHER COMPREHENSIVE INCOME (LOSS). ComprehensiveOther comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period. For the three months ended September 30, 2017 and 2016, the Company recorded a gain (loss) of $2,571,845 and $(1,083,766), respectively, which were made up of unrealized losses on currency translation. ForThe Company’s other comprehensive loss for the nine months ended September 30, 20172022 and 2016, the Company recorded a gain (loss) of $2,313,973 and $(1,813,703), respectively, which were made up2021 consisted of unrealized losses on currency translation.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, 2017,2022, the Company had a negative working capital of $(188,487),$10,640,537, comprised of current assets of $6,306,758$29,627,568 and current liabilities of $6,495,245.$18,987,031. This represents a decreaserepresented an increase of $3,243,965$9,292,826 from the working capital (deficit)of $1,347,711 maintained by the Company of $(3,432,452) as of December 31, 2016, due primarily to2021. The primary reasons for the mark to market adjustment for our derivative liabilities.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, 20172022 and 2021 was $675,946 compared with $(1,021,244) for$(3,881,727) and $14,747,383, respectively. The decrease in the nine months ended September 30, 2016.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 (used) inprovided by (used in) investing activities for the nine months ended September 30, 20172022 and 20162021 was $(327,786)$0 and $(127,997),$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, 20172022 and 20162021 was $2,338,519$4,790,399 and $(310,000)$(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.
Non-controlling Interest
Under the terms of the Earn-In Agreement (September 1, 2006 to March 15, 2011), Goldgroup Mining Inc. and its wholly owned subsidiary Goldgroup Resources, Inc. (Goldgroup), through 2010, had contributed capital to DynaMéxico in order to acquire 25% of the outstanding shares (a shareholder interest) of DynaResource de México, S.A. de C.V. (DynaMéxico). In March 2011, Goldgroup had contributed a total of $18 M USD capital to DynaMéxico in order to acquire a total of 50% of the outstanding shares (a shareholder interest) of DynaMéxico. From March 2011 through May 2013, Goldgroup owned 50% of the outstanding shares of DynaMéxico, and since May 2013 to current date Goldgroup owns 20% of the outstanding shares of DynaMéxico. The applicable portion of the earnings or loss attributable to Goldgroup is offset in this section. In the nine months ended September 30, 2017 the attributable portion to Goldgroup was $(527,760) and $(283,333) for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
As of September 30, 2017, the Company2022, we did not have any off-balance sheet arrangements, (as the phrase is defined by SEC rules applicable to this report) which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Capital Advances to Subsidiaries
DynaResource de México (“DynaMéxico”)Plan of Operation
In May 2013, the Company acquired additional shares in the outstanding equity in DynaMéxico in exchange
The Plan of operation for the retirement of accounts receivable of $2,393,803, which amount was due from DynaMéxico at December 31, 2012. As a result, as of May 17, 2013,next twelve months includes DynaMineras continuing the Company owns 80%improvement and expansion of the outstanding equity of DynaMéxico.
As of September 30, 2017, thetest mining and pilot milling operations at SJG. The Company had advanced $6,346,500 to DynaMineras and DynaMineras had advanced $6,266,750 to DynaMéxico. At December 31, 2014, the Company issued 1,333,333 shares ofcommenced its common stock to DynaMinerastesting activities in exchange for $4,000,000 receivable it held from DynaMéxico. The remaining $2,125,000 is a receivable owed to DynaMineras from DynaMéxico as of September 30, 2017. The total receivable from DynaMineras to the Company is $6,346,500 as of September 30, 2017.
Beginning on December 31, 2012, the Company and DynaMineras agreed with DynaMéxico to accrue interest on the total amount receivable until repaid or otherwise retired. The interest rate to be accrued is agreed to be simple annual interestfall 2015 at the rate quoted byof approximately 100 tons per 24-hour operating day from the Bank of México.
Amounts Owed to DynaUSAmine and DynaMineras
As of September 30, 2017,approximately the same output from the processing plant. Over the past five years, the Company had advanced $6,346,500 USDhas gradually increased its output to DynaMinerasapproximately 300 tons per 24-hour operating day from the mines and DynaMineras had advanced $6,266,750 USD to DynaMéxico. On September 5, 2014,processing plant. In 2022 the Company issued 1,333,333 sharesanticipates completion of its common stockexpansion to DynaMineras in exchange for the $4,000,000 receivable from DynaMéxico. Asreach a resultcapacity of these transactions:
DynaResource Operaciones (“DynaOperaciones”)
The Company loaned DynaOperaciones $225,000 in 2012, which amount remains payable to the Company as of September 30, 2017.
Mineras de DynaResource (“DynaMineras”)
The receivable from Mineras to the Company is $6,346,500 as of September 30, 2017, as described above. All receivables and payables among all subsidiary companies have been eliminated upon consolidation.
Future Advances to DynaMineras and DynaMéxico700 tons per 24-hour operating days from the Company
processing plant. The Company expects to make additional advances tooperate 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 DynaMéxico. Future advancesDynaOperaciones. These amounts are eliminated in consolidation. The Company believes that cash on hand, and including cash flow generated from DynaMinerasits current operations, is adequate to DynaMéxico will be made underfund its ongoing general and administrative expenses through the terms of the Exploitation Amendment Agreement. Other advances are agreed to be accrued in the same manner as previous receivables, until or unless otherwise agreed between DynaMéxico and the Company.subsequent twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK
Not applicable.
Item
ITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The company
We carried out an evaluation of the effectiveness of the design and operation of itsour disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017.2022. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer and chiefour financial officer / principal financial officerconsultant, who concluded that the company’sour disclosure controls and procedures are not effective to ensure that all material information required to be filed inas of the quarterly report onend of the period covered by this Form 10-Q has been made known to them.
10-Q. For purposes of this section, the term disclosure controls and procedures meansmean 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 (15 U.S.C. 78a et seg.) 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 by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer'sour management, including itsour principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation conducted for the period ended September 30, 2017, our Chief Executive Officer and Chief Financial Officer as of September 30, 2017, and as of the date of this Report, have concluded that as of the end of the period covered by this report, our internal control over financial reporting was not effective. We have identified two areas which contain material weaknesses. First, the size of the Company and inherent limitations in companies with limited accounting staff prevent the desired multiple checks and balances prior to processing daily operations. We need more compensating controls. Though adequate processes are in place and functioning, subsequent reviews are deemed necessary to identify unauthorized transactions. Secondly; the same inherent current limitation on company staffing requires specialized outside accounting assistance to implement additional procedures that are effective, and another review to the process, to ensure that all material information required to be filed in the quarterly report on Form 10-Q has been made known to them. The material weaknesses identified will be addressed with the implementation of revised internal control procedures to be developed and approved by the Board of Directors and the Companies external auditors. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Controls OverControl over Financial Reporting
The Company has not made any changeschange in its internal controlscontrol over financial reporting that occurred during the period covered by this report on Form 10-Q that havehas materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II
ITEM 1. Legal Proceedings LEGAL PROCEEDINGS
Recent Legal Rulings / Filings
DynaResource de Mexico’s Favorable Ruling against2014 Arbitration Proceeding filed by Goldgroup Resources Inc.
On August 24, 2017, a Federal Amparo Judge (appellate court) in the State of Veracruz, Mexico dismissed Goldgroup Resources Inc.’s Amparo Trial challenge to the $48 million USD damages award previously granted in favor of DynaMéxico. Pursuant to the ruling issued by the Federal Amparo Judge, the $48 million damages award – previously granted to DynaMéxico by the Thirty-Sixth Civil Court of the Superior Court of Justice of the Federal District of Mexico on October 5, 2015 – was effectively confirmed.
In the Federal Amparo Court, Goldgroup Resources Inc. (“Goldgroup”) claimed that it was unaware of the Superior Court legal action which ultimately resulted in the $48 million damages award to DynaMéxico. Goldgroup further claimed that this lack of knowledge was the reason for its having missed the deadline for filing an Amparo Trial challenge to the $48 million damages award.
The Federal Amparo Judge found that, contrary to Goldgroup’s claims, both Goldgroup and its legal counsel had full knowledge of the existence of the Superior Court legal action since at least January 2015. Accordingly, the Federal Amparo Judge dismissed Goldgroup’s Amparo Trial challenge.
Legal Background (Legal Decisions in Favor of DynaMéxico):
$48M USD Damages Award and Definitive Sentence against Goldgroup (October 5, 2015):
DynaMéxico was awarded $48 million USD in damages against Goldgroup on October 05, 2015, as described in the Sentencia Definitiva (“Definitive Sentence”) issued by the Thirty-Sixth Civil Court of the Superior Court of Justice of the Federal District of México, File number 1120/2014.
Grant of Lien upon the Shares of DynaMéxico owned by Goldgroup (October 5, 2016):
On October 5, 2016, the one-year anniversary of the $48 M damages award, the Thirty-Sixth Civil Court of the Superior Court of Justice of the Federal District of México granted to DynaMéxico, a lien (referred to by the Superior Court as an “Embargo”) upon 100% of the shares of DynaMéxico previously issued to Goldgroup, which at the time constituted 20% of the outstanding shares of DynaMéxico.
The referenced 2015, 2016, and 2017 court rulings in Mexico, are all favorable for DynaMéxico. The cumulative effect of these rulings is as follows: (a) Goldgroup is responsible for the payment of $48 million USD in damages to DynaMéxico; (b) Goldgroup’s challenge to that award has once again been denied by an appellate court; and (c) Goldgroup’s 20% ownership of the share capital of DynaMéxico is subject to a lien in favor of DynaMéxico.
DynaMéxico and DynaResource filed Motion for Leave to Supplement the Record
On September 15, 2017, as a consequence of the favorable appellate court ruling by the Federal Amparo Judge, DynaMéxico and DynaResource filed a Motion for Leave to Supplement the Record (“Motion”), in the United States District Court for the District of Colorado. This U.S. District Court is set to rule on the Petition for Nonrecognition of Foreign Arbitral Award and/or Motion to Vacate Arbitration Award, earlier filed by DynaMéxico and DynaResource. The Motion was filed to supplement the record with the favorable ruling received by DynaMéxico, following Goldgroup’s unsuccessful Amparo Trial Challenge.
Legal History
Arbitration filed by Goldgroup / DynaMéxico Complaint against Goldgroup
On March 14, 2014, Goldgroup filed for arbitration in the United States with the American Arbitration Association ("AAA"(“AAA”), seeking monetary and nonmonetary relief, and citing the Earn InIn/Option Agreement dated September 1, 2006 as the basis for its filing. On August 25, 2016, the arbitration filing. TheAAA issued a ruling in favor of Goldgroup against the Company filedand 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 answer on April 10, 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 disputing that any issues exist which provide for arbitration.Court filing by DynaMéxico, in Mexico
On December 9, 2014, DynaMéxico filed an Ordinarya commercial lawsuit (Civil Claims) against Goldgroup, Mining Inc., its parent company Goldgroup ResourcesMining 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"). TheTrial, DynaMéxico Trial seekssought to terminate the U.S.-based arbitration proceedings, as DynaMéxico believes there is no legal basis for arbitration, and to nullify the arbitration proceedings since Goldgroup previously sought recourse in the Mexican courts. In the DynaMéxico Trial, DynaMéxico also requestsrequested that substantial damages (in the amount of US $50 million) be awarded to DynaMéxico against Goldgroup for:
Goldgroup. On October 5, 2016, in an appellate ruling,2015, the Thirty Sixth CivilTrial Court of the Superior Court of Justice of the Federal District of México (Tribunal Superior de Justicia del Distrito Federal), file number 1120/2014 declared, among other resolutions, that:
$48 M Damages Award to DynaMéxico
Also on October 5, 2015, in an appellate ruling,awarded DynaMéxico was awardeddamages in excess of US $48 million in damages from million.
Goldgroup Resources, Inc. by virtue of a Sentencia Definitiva (the “Definitive Sentence”) issued byhas appealed the Thirty Sixth Civil Court of the Superior Court of Justice of the Federal District of México (Tribunal Superior de Justicia del Distrito Federal), File number 1120/2014. The Definitive Sentence included the considerations and resolutions by the Court, and additional Resolutions were also ordered in favor of DynaMéxico (together the$48 million damages award on multiple occasions, yet the award stands and has been affirmed by a variety of Mexican courts, including the additional Resolutions are referred to as,highest court in the “Oct. 5, 2015 Resolution”).
A concise translation to Englishland. Even in the face of the Oct. 5, 2015 Resolution (the resolution portion of the Definitive Sentence) is set forth below:
FIRST: The action and litigation based on commercial law filed by DynaMéxico is valid and enforceable, and where Goldgroup and the American Arbitration Association were found to be in default, was proper.
SECOND:Goldgroup is declared in breachmultiple rejections of its corporate duties, for failure to refrain from claiming direct ownership of 50% of the San José de Gracia Mining Project.
THIRD:Goldgroup is condemned and ordered to pay to DynaMéxico the amount of USD $20,000,000 (Twenty Million Dollars) in damages caused by Goldgroup to DynaMéxico, deriving from its breach of obligations in refraining from claiming direct ownership of 50% of the San Jose de Gracia Mining Project; which amount should be paid within five days upon execution of this order and resolution.
FOURTH:Goldgroup is condemned and ordered to pay to DynaMéxico the amount of USD $28,280,808.34 (Twenty Eight Million Two Hundred and Eighty Thousand Eight Hundred and Eight and 34/100 Dollars), for breach of its corporate duty and covenants with regards to the San Jose de Gracia mining project, as a result of depriving profits from DynaMéxico which DynaMéxico could have earned for the sale of gold produced and extracted during the years 2013 and 2014; amounts that should be paid within five days upon execution of this order and resolution.
FIFTH:Goldgroup is condemned and ordered to pay losses and damages to DynaMéxico, whicharguments before Mexican courts, Goldgroup continues to cause, until full payment of the above-mentioned amounts has been made, which damagesraise baseless and losses shall be calculated by an expert opinion in a corresponding legal procedure related to this litigation.
SIXTH: Pursuant to Article 1424 of the Commercial Code of México, the arbitration provision established under clause 8.16 of the Earn In/Option Agreement, dated as of September 1, 2006, is ineffective and impossible to execute.
SEVENTH: This Court declares that any controversy arising from the Earn In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction, in recognition of the waiver and exclusion of the arbitration clause (contained in the Earn In/Option Agreement) by both parties.
EIGHT: This Court declares that the American Arbitration Association must abstain from hearing arbitration procedure number 50 501 T 00226 14, or any other ongoing and/or future arbitration proceeding already filed or that may be filed by the co-defendant Goldgroup against DynaResource.
NINTH:This Court declares that the American Arbitration Association does not have jurisdiction to hear any conflict and/or interpretation arising from the Earn In/Option Agreement, dated September 1, 2006.
TENTH:This Court declares, that the American Arbitration Association does not have jurisdiction to hear disputes arising between shareholders of DynaMéxico, which disputes do not arise directly and immediately from the Earn In/Option Agreement, dated September 1, 2006.
ELEVENTH:This Court declares, that the American Arbitration Association does not have jurisdiction to hear any matters where Koy Wilber Diepholz, who is the President of the Board of Directors of DynaMéxico, and has been personally sued in relationunfounded objections to the arbitration clause established under clause 8.16 of the Earn In/Option Agreement, dated September 1, 2006, since he signed the mentioned instrument in representation of the Company and not in his personal capacity.award.
TWELFTH:The expenses and costs associated with these proceedings are hereby waived.
THIRTEENTH:LET IT SO BE PUBLISHED. A Copy of this Order and Sentence shall be found in the corresponding record.
ORDERED, adjudged and decreed by the Thirty Sixth Civil Judge of the Superior Court of the Federal District, Mr. JULIO GABRIEL IGLESIAS GOMEZ.
The October 5, 2015 Resolution constitutes a public record which may be reviewed through the Courts in México City.
Mexico City Court Approves Lien on Shares of DynaMéxico owned by Minority Interest Holder
On October 5, 2016, the Thirty-Sixth CivilTrial Court of(the same court which made the Superior Court of Justice of the Federal District of Mexico (Tribunal Superior de Justicia del Distrito Federal)$48 million damages award) approved a Liengrant 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, upon Stock Certificates 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 name of Goldgroup Resources Inc. (“Goldgroup”). The Stock Certificates subject to the Lien (“Embargo”) constitute Shares of DynaMéxico (“the Goldgroup DynaMéxico Shares”).
The Goldgroup DynaMéxico Shares were seized as a partial recovery of assets by DynaMéxico after DynaMéxico was awarded more than $ 48 M USD (Forty-Eight Million Dollars) in damages against Goldgroup (the “Damages against Goldgroup”) on October 05, 2015, as described in a Sentencia Definitiva (the “Definitive Sentence”) issued by the same court, the Thirty Sixth Civil Court of the Superior Court of Justice of the Federal District of México, File number 1120/2014. Excerpts from the Definitive Sentence appear below. In addition to the Damages against Goldgroup, the Definitive Sentence also included additional Resolutions ordered in favor of DynaMéxico (the Damages against Goldgroup and the additional Resolutions are together referred to as the “Oct. 5, 2015 Resolution”).
Arbitration Ruling
In direct contradiction to the October 5, 2015 Definitive Sentence issued by court in México, on August 25, 2016 the American Arbitration Association - International Centre for Dispute Resolution, Denver office (the “AAA”) issued an Arbitration Ruling (the “Arbitration Ruling”) in favor of Goldgroup Resources Inc. against DynaMéxico and DynaResource, Inc. The Arbitration Ruling was the result of a proceeding in which neither DynaMéxico nor DynaResource participated, since the Definitive Sentence issued by the court in México effectively prohibited their participation in the proceeding, and should have prohibited Goldgroup Resources Inc. participation as well.
(a) The Arbitration Ruling contains an acknowledgement by the AAA that the AAA was named as a defendant in the legal demand filed by DynaMéxico in the Thirty Sixth Civil Court of the Superior Court of Justice of the Federal District of México (the “DynaMéxico Legal Demand”). The Arbitration Ruling also contains a statement that the AAA was not properly served notice of the DynaMéxico Legal Demand.
(b) DynaMéxico obeyed the October 5, 2015 Court Order, and did not attend the Arbitration hearing.
(c) DynaMéxico will pursue all legal remedies in orderobligated to obtain a full dismissal of the Arbitration Ruling.
(d) The October 5, 2015 Court Order andrecognize the $48 million USDdamages award of damages against Goldgroup Resources Inc. remains in full force and effect as issued. DynaMéxico is currently pursuing all available remedies in order to collect $48 million USD in damages from Goldgroup Resources Inc. (See Court Approves Lien on Shares of DynaMéxico owned by Goldgroup Resources, above).
The Arbitration Ruling provides the following: (i) the Earn In/Option Agreement is still in force, and consequently Goldgroup may appoint two directors to the DynaMéxico board, and may participate in the appointment of a fifth director; (ii)United States. On May 14, 2021, the DynaMéxico Management Committee is reinstated, and must approve all budgets and expenditures; (iii) amounts expended by DynaMéxico that were not approved by the Management Committee are subject to repayment by DynaResource; (iv) the issuance of additional shares by DynaMéxico (and consequent dilution of Goldgroup's equity interest) was in violation of the Earn In/Option Agreement; and (v) DynaResource and DynaMéxico are responsible for Goldgroup's costs and professional fees associated with the Arbitration Ruling.
Unlike the majority of arbitration proceedings in the U.S., the Arbitration Ruling is not final. Since the Arbitration Ruling is subject to international rules, the ruling may be vacated by U.S. courts, or simply not recognized by U.S. courts, on a number of grounds. Accordingly, both DynaMéxico and DynaResource have timely requested relief from the United States Federal District Court in Colorado, via the filing of a Petition for Nonrecognition of Foreign Arbitral Award and/or Motion to Vacate Arbitration Award (the “Petition for Nonrecognition”), and a supporting brief. The Petition for Nonrecognition relies heavily upon the Mexican court's Definitive Sentence, key excerpts of which appear below.
The Mexican court has already ruled that “any controversy arising from the Earn In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction.” Consequently, the monetary awards against DynaResource - which are based upon a finding that the Earn In/Option Agreement is still in force - will not be enforceable if the Mexican court rules that the Earn In/Option Agreement is terminated. The Company believes that the potential for the assessment of a material monetary judgment against DynaResource is remote.
Key Excerpts from the Definitive Sentence ($48 M Damages Award to DynaMéxico)
SIXTH: Pursuant to Article 1424 of the Commercial Code of México, the arbitration provision established under clause 8.16 of the Earn In/Option Agreement, dated as of September 1, 2006, is ineffective and impossible to execute.
SEVENTH: This Court declares that any controversy arising from the Earn In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction, in recognition of the waiver and exclusion of the arbitration clause (contained in the Earn In/Option Agreement) by both parties.
EIGHT: This Court declares that the American Arbitration Association must abstain from hearing arbitration procedure number 50 501 T 00226 14, or any other ongoing and/or future ongoing arbitration already filed or to be filed by the defendant Goldgroup, based on the Earn In/Option Agreement dated September 1, 2006.
NINTH: This Court declares that the American Arbitration Association does not have jurisdiction to hear any conflict and/or interpretation arising from the Earn In/Option Agreement, dated September 1, 2006.
TENTH: This Court declares, that the American Arbitration Association does not have jurisdiction to hear disputes arising between shareholders of DynaMéxico, which disputes do not arise directly and immediately from the Earn In/Option Agreement, dated September 1, 2006.
ELEVENTH: This Court declares, that the American Arbitration Association does not have jurisdiction to hear any matters where Koy Wilber Diepholz, who is the President of the Board of Directors of DynaMéxico, and has been personally sued in relation to the arbitration clause established under clause 8.16 of the Earn In/Option Agreement, dated September 1, 2006, since he signed the mentioned instrument in representation of the Company and not in his personal capacity.
DynaUSA and DynaMéxico filed Motion to Vacate Arbitration Ruling
On November 17, 2016, DynaUSA and DynaMéxico filed a Motion to Vacate the Arbitration Ruling in United States District Court, DistrictNotice of Colorado.Appeal of that ruling.
Complaint filed by Goldgroup against the May 17, 2013 Shareholders’ Meeting of DynaMéxico
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 2, 2014, Goldgroup Resources Inc. filed a petition with the judge, tenth district Mazatlán, accordingJune 28, 2022, Golden Post Rail, LLC exercised its warrant to record 08/2014, in the ordinary commercial action, against DynaResource Inc., and DynaResource de México, S.A. de CV. Goldgroup complains against the results of the shareholders meeting of May 17, 2013, and petitions for the nullification of the meeting itself and for the nullification of the additionalacquire 2,655,361 shares of the outstanding capitalCompany’s common stock at a price of DynaMéxico issued to DynaResource, Inc.$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 satisfaction of debts owed to DynaResource.2020.
DynaResource and DynaMéxico filed a response on January 9, 2016, and the matter is pending. DynaMéxico will vigorously defend against all such complaints by Goldgroup, as there exists no legal basis for the complaint by Goldgroup against the May 17, 2013 shareholders meeting of DynaMéxico.ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Litigation(s) in México – Company as Plaintiff
The Company, and DynaMéxico have filed several legal actions in México against Goldgroup Mining Inc, Goldgroup Resources Inc., certain individuals employed or previously employed by Minop, S.A. de C.V. (a Company operating in México and associated with Goldgroup Mining Inc.), and certain individuals retained as agents of Goldgroup Mining Inc. The Company and DynaMéxico are plaintiffs in the actions filed in México and the outcomes are pending.
The Company believes that no material adverse change will occur as a result of the actions taken, and the Company further believes that there is little to no potential for the assessment of a material monetary judgment against the Company for legal actions it has filed in México. For purposes of confidentiality, the Company does not provide more specific disclosure in this Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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ITEM 3. Default Upon Senior Securities4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 4. Mine Safety Disclosures
As the Company has no mines located in the United States or any of its territories, the disclosure required by this Item is not applicable.
ITEM 5. Other Information
None.
ITEM 6. ExhibitsEXHIBITS
Exhibit Number; Name of Exhibit
Exhibit Number; | Name of Exhibit | |
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SIGNATURES
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.
By /s/
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.
K.W. (“KD”)
/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 |