UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A 

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

 

For the fiscal year ended: December 31, 2021

 

OR

 

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

 

From the transition period ___________ to ____________.

 

Commission File Number: 000-30371

 

DYNARESOURCE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-1589426

(State or other jurisdiction of incorporation or organization (IRS Employer Identification No.)

 

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

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (972) 868-9066

 

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

 

None

 

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

 

Common Stock; $0.01 Par Value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically 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 (p. 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 ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (p. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): 

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth 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 check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act):  Yes ☐ No ☒

 

The aggregate market value of the voting and non-voting common equity, par value $0.01 per share, held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed fiscal year end, December 31, 2021, was $21,736,306based on the closing price of $1.75 per share as reported on the OTCQB.  For purposes of this computation, all officers, directors, subsidiaries, and 10% beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.

 

There were 20,746,654 shares outstanding of each of the registrant’s classes of common stock (only 1 class) as of the latest practicable date (August 15, 2022).

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Listed below are documents incorporated herein by reference.

 

None.

 

 

 

 

Explanatory Note

 

DynaResource, Inc. (the “Company,” “DYNA,” “our,” “us” or “we”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 24, 2022, to provide the information required by Item 1304(b) of Regulation S-K regarding disclosures for mining properties to be included in the Form 10-K. This information was previously omitted from the Form 10-K. We are filing this Amendment No. 1 to include this information in our Form 10-K as well as to remove all references and related language to SEC Industry Guide 7.

 

This Amendment No. 1 amends and restates in their entirety the section titled San Jose de Gracia - Property Description.

 

In order to remove any reference to SEC Industry Guide 7, the Company, in Note 1 to the Financial Statements, removed the paragraphs titled Proven and Probable Reserves (No Known Reserves) and Technical Report and Resource Estimate According to Canadian National Instrument 43-101 (2012)and replaced them with:

 

Exploration Stage.

According to Section 1300 of Regulation S-K, the Registrant is an exploration stage company with an exploration stage property since it does not have an opinion from a qualified person that the project can be economically viable.

 

Additionally, in Note 1 to the Financial Statements under the section Property and Equipment, we removed a reference to certain requirements under SEC Industry Guide 7.

 

This Amendment No. 1,does not reflect subsequent events occurring after the original filing date of the Form 10-K or, with the exception of the changes noted above, does not modify or update in any way the financial statements, consents or any other items disclosures made in the Form 10-K in any way other than as required to reflect the amendments discussed above. Accordingly, this Amendment No. 1 should be read in conjunction with the Form 10-K and the Company’s other filings with the SEC subsequent to the filing of the Form 10-K.

 

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment No. 1 also contains new certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are attached hereto.

 

The following changes have been included in this amendment:

 

Introductory Page

Amended to remove the section titled Cautionary Note to United States Investors as it related to the difference between SEC Industry Guide 7 and Canadian National Instrument 43-101(2012).

Part I, Item 1

BUSINESS – Amended to remove reference to SEC Industry Guide 7 and add disclosure that the Company is an Exploration Stage company in accordance with Section 1300 of Regulation S-K.

Part I, Item 2

PROPERTIES – amended to reflect the status of the Registrant being in the exploration stage and the registrant has started extraction without determining mineral reserves.

Part I, Item 2

PROPERTIES - SAN JOSE DE GRACIA – PROPERTY DESCRIPTION – amended and replaced in its entirety to provide complete individual property disclosure as required by Item 1304(b) of Regulation S-K

Part II, Item 7

MANAGEMENT’S DISCUSSION and ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATION -amended to remove the section titled Cautionary Note to United States Investors as it related to the difference between SEC Industry Guide 7 and Canadian National Instrument 43-101 (2012).

Part II, Item 7

MANAGEMENT’S DISCUSSION and ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -amended to reflect the status of our property being in the exploration stage and the registrant has started extraction without determining mineral reserves.

Part II, Item 8

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - amended NOTE 16 SUBSEQUENT EVENTS to update through the date of this 10-K/A.

Part IV, Item 15

Exhibits

 

 
2

 

 

TABLE OF CONTENTS

 

PART I

 

 

 

ITEM 1.

BUSINESS

5

ITEM 1A.

RISK FACTORS

7

ITEM 1B.

UNRESOLVED STAFF COMMENTS

7

ITEM 2.

PROPERTIES

7

ITEM 3.

LEGAL PROCEEDINGS

16

ITEM 4.

MINE SAFETY DISCLOSURES

16

 

 

 

PART II

 

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

17

ITEM 6.

SELECTED FINANCIAL DATA

18

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

18

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

23

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

52

ITEM 9A.

CONTROLS AND PROCEDURES

52

ITEM 9B.

OTHER INFORMATION

52

 

PART III

 

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

53

ITEM 11.

EXECUTIVE COMPENSATION

57

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

59

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

60

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

61

 

PART IV

 

 

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

62

ITEM 16.

FORM 10K SUMMARY

62

 

SIGNATURES

63

 

EXHIBIT INDEX

 

 

 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

 

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER, PURSUANT TO 18 UNITED STATES CODE SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 
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Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of 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 headings “Risk Factors” and “Management Discussion and Analysis and Plan of Operation.”

 

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 to 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 forward-looking statements will prove to be correct.

 

 
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Table of Contents

 

PART I

 

ITEM 1. BUSINESS 

 

History and Organization

 

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 originally 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”).

 

DynaUSA currently owns 80% of the outstanding shares of DynaMéxico, and DynaMéxico currently holds 20% of the outstanding shares of DynaMéxico as treasury stock. DynaMéxico owns 100% of the mining concessions, equipment, camp and related facilities which comprise the San Jose de Gracía Property (“SJG”), in northern Sinaloa State, México. We also own 100% of Mineras de DynaResource S.A. de C.V. (“DynaMineras”). The Company also has another wholly owned subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”). The Company currently conducts test mining and pilot milling operations, and other exploration activities in México.

 

Segment Information

 

Our only current operating segment is gold mining and milling operation.

 

Products

 

The end use product produced at our test mining and pilot milling operations at SJG is in the form of gold-silver concentrates. Gold-silver concentrates, or simply concentrate, is raw precious metals materials that has been crushed and ground finely to a sand-like product where gangue (waste) and non-precious metals are removed or reduced, thus concentrating the precious metals component. Concentrates processed and produced from San Jose de Gracía are shipped to third-party smelters, refineries or third parties for further processing or re-sale.

 

During 2021, we reported the delivery and sale of 22,566 (subject to final settlements) net Oz gold contained in concentrates. All gold-silver concentrate originated from the San Jose de Gracía Property in México.

Gold-silver concentrates are sold at a small discount to the prevailing spot market price, based on the price per ounce of gold and silver quoted at the London PM fix, with the actual net precious metals prices received depending on the sales contract. Concentrates are priced by individual concentrate lots of 36 to 72 tons, or as a series of lots under contract, whereby the final selling price and gold-silver quantities are subject to final adjustments at the time of final purchase settlement.

 

Gold and Silver Pilot Processing Methods

 

Gold and silver are extracted from mined mineralized material, by crushing, grinding, milling, and further by simple gravity and flotation recoveries. The mineralized material is extracted by underground mining methods. The processing plant at the San José de Gracía mine is composed of conventional crushing and grinding circuits, and with gravity and flotation recovery methods. The gravity and flotation concentrates are dewatered and shipped to purchasers in semi-truck trailers.

 

Exploration Stage

  

The Company is an exploration stage company as defined in Section 1300 of Regulation S-K.

  

General Government Regulations

 

México

 

Mining in México is subject to numerous federal, state and local laws, regulations and ordinances governing mineral rights, operations and environmental protection.

 

Mineral Concession Rights.    Exploration and exploitation of minerals in México may be carried out through Mexican companies incorporated under Mexican law by means of obtaining mining concessions. Mining concessions are granted by the Mexican government for a period of fifty years from the date of their recording in the Public Registry of Mining and are renewable for a further period of fifty years upon application within five years prior to the expiration of such concession in accordance with the Mining Law and its regulations.  Mining concessions are subject to annual work requirements and payment of annual surface taxes which are assessed and levied on a semi-annual basis. Such concessions may be transferred or assigned by their holders, but such transfers or assignments must be registered with the Public Registry of Mining in order to be valid against third parties. The holder of a concession must pay semi-annual duties in January and July of each year on a per hectare basis and in accordance with the amounts provided by the Federal Fees Law. During the month of May of each year, the concessionaire must file with the General Bureau of Mines, the work assessment reports made on each concession or group of concessions for the preceding calendar year. The regulations of the Mining Law provide tables containing the minimum investment amounts that must be made on a concession. This amount is updated annually in accordance with the changes in the Consumer Price Index.

 

 
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Surface Rights. In México, while mineral rights are administered by the federal government through federally issued mining concessions, Ejidos (communal owners of land recognized by the federal laws in México) control surface access rights to the land. An Ejido may sell or lease lands directly to a private entity. While the Company has agreements or is in the process of negotiating agreements with the Ejido that impact all of its projects in México, some of these agreements may be subject to renegotiations.

 

Environmental Law. The Environmental Law in México, called the "General Law of Ecological Balance and Protection to the Environment" ("General Law"), provides for general environmental policies, with specific requirements for certain activities such as exploration set forth in regulations called "Mexican official norms". Responsibility for enforcement of the General Law, the regulations and the Mexican official norms is with the Ministry of Environment and Natural Resources, which regulate all environmental matters with the assistance of Procuraduria Federal de Protección al Ambiente (known as "PROFEPA").

 

2020 Forestry Law. The 2020 Forestry Law provides for general policies for the use and protection of the surface, and for  plants, soil and trees.  The regulation of the Forestry Law is with the Ministry of Environment and Natural Resources, with the assistance of PROFEPA.

 

Residues Law.  The Residues Law, also known as Norm 141, provides for general policies for the deposit and storage of residue and waste. The regulation of the Residues Law is with the Ministry Of Environment and Natural Resources, with the assistance of PROFEPA.

 

The primary laws and regulations used by the State of Sinaloa, where our San Jose de Gracía property is located, in order to govern environmental protection for mining and exploration are: The General Law, the 2020 Forestry Law, Residues Law, as well as their specific regulations on air, water and residues, and the Mexican official norms (known as "NOM-120"). In order to comply with the environmental regulations, a concessionaire must obtain a series of permits during the exploitation and exploration stage. The time required to obtain the required permits is dependent on a few factors including the type of vegetation and trees impacted by proposed activities. 

 

Mining Permits.   The Secretariat of Environmental and Natural Resources, the Mexican Government environmental authority ("SEMARNAT"), is responsible for issuing environmental permits associated with mining. Three main permits required before construction can begin are: Environmental Impact Statement (known in México as Manifesto Impacto Ambiental) ("MIA"), Land Use Change (known in México as Estudio Justificativo Para Cambio Uso Sueldo) ("ETJ"), and Risk Analysis (known in México as Analisis de Riesgo) ("RA"). A construction permit is required from the local municipality and an archaeological release letter must be obtained from the National Institute of Anthropology and History (known as "INAH"). An explosives permit is required from the ministry of defense before construction can begin. The Environmental Impact Statement is required to be prepared by a third-party contractor and submitted to SEMARNAT and must include a detailed analysis of climate, air quality, water, soil, vegetation, wildlife, cultural resources and socio-economic impacts. The Risk Analysis study (which is included into the Environmental Impact Statement and submitted as one complete document) identifies potential environmental releases of hazardous substances and evaluates the risks in order to establish methods to prevent, respond to, and control environmental emergencies. The Land Use Change requires that an evaluation be made of the existing conditions of the land, including a plant and wildlife study, an evaluation of the current and proposed use of the land, impacts to naturally occurring resources, and an evaluation of reclamation/re-vegetation plans.

 

Customers

 

The Company sells its concentrates to the buyer who offers the best terms based upon price, treatment costs, refining costs, and other terms of payment. During the year ended December 31, 2021, the Company sold gold-silver concentrates to three purchasers.

 

Employees

 

As of December 31, 2021, we had 186 employees, including 181 employees based in México, and 5 in the United States. Consultants are retained from time to time. Employees based in México and the United States include laborers, engineers, geologists, information technologists, office administrators, managers and executives. None of our employees in México are covered by union contracts and the Company believes we have good relations with our employees.

 

 
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Table of Contents

 

ITEM 1A. RISK FACTORS 

 

Not applicable for smaller reporting companies.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS 

 

N/A

 

ITEM 2. PROPERTIES 

 

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

 

We classify our mineral property as an as an exploration property and our Company as being in the exploration stage. The Registrant is an exploration stage company and the registrant has started extraction without determining mineral reserves.

   

SAN JOSE DE GRACIA  -  PROPERTY DESCRIPTION

 

Location

The San Jose de Gracia mining project (“SJG Project”) is located on map sheet G13-A81 in the Culiacan mining district of Sinaloa State, Mexico, at Latitude 26 ̊ , 9’ N, Longitude 107 ̊, 53’ W, approximately 120 kilometers east northeast of the coastal city of Los Mochis. The property on which the SJG Project resides, straddles the border separating the Mexican States of Sinaloa and Chihuahua. The SJG Project is located in the south-western portion of the property, and is located entirely within the State of Sinaloa (see Figure 1).

 

The property is without known reserves. The Company is an exploration stage company and the Company has started extraction without determining mineral reserves.

 

dynr_10kimg6.jpg

 

Figure 1. San Jose de Gracia, Location Map

 

 
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DynaResource de Mexico S.A. de C.V. (“DynaMexico”), the Company’s 100% owned subsidiary, owns the San Jose de Gracia mineral concessions, which are comprised of 33 distinct concessions covering an aggregate of approximately 9,920 hectares. The concessions are held 100% by DynaMexico with no royalty or other interests clouding them.

 

By way of further reference, the property on which the SJG Project resides is located in and around the village of San Jose de Gracia, approximately 100 km northeast of Guamuchil, on the west side of Mexico. The village of San Jose de Gracia has a small airstrip and can be accessed by a small airplane, or alternatively, by a dirt mountain road. There are roads providing access to the property on which the SJG Project resides.   These roads are accessible throughout the year, with the possible exception of June and July when the rainy season sometimes causes flooding and runoff to make the roads too muddy to navigate.

   

Local Resources and Infrastructure

 

Accommodations

The Village of San Jose de Gracia maintains few stores which offer only minimal goods. The camp site area maintains facilities of twelve rooms with additional lodging available in the town which can accommodate a total of about 225  persons.

 

Power

A power line to the San José de Gracia Project has been installed by the Comisión Federal de Electricidad, the only authorized power producer in Mexico. The power line was installed in March 2012 from the La Estancia area of the municipality of Sinaloa de Leyva, a distance of approximately 75 kilometers.

 

The power line is currently 220 volts maximum capacity, which supports domestic use only, including the office and camp facilities at SJG, such as water pump, air conditioning, refrigeration, lights, internet, and fans, as well as local residential use. The SJG Project can produces its own diesel-generated power as a backup to the power grid.

 

Offices – Camp Facilities

DynaMexico maintains an administrative and logistics office in Guamuchil. The SJG Project sources many of its supplies from Guamuchil, from Los Mochis and from Culiacan. There is a satellite dish installed at the SJG Property, providing communications from the SJG Property to Guamuchil. At the SJG Project, DynaMexico maintains a camp staff, including geologists, field helpers, consultants, security, cooks and cleaners. Most of these employees come from outside of the local community.

 

 
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Table of Contents

 

Mining Concessions

The San José de Gracia Property consists of 33 contiguous mining concessions and covers an area of approximately 9,920 hectares (24,513 acres) as illustrated in Figure 2.

 

Current Mining Concessions - San José de Gracia

 

Claim Name

Claim Number

Staking date

Expiry

Hectares

Taxes / ha (pesos)

AMPL. SAN NICOLAS

183815

22/11/1988

21/11/2038

17.4234

111.27

AMPL. SANTA ROSA

163592

30/10/1978

29/10/2028

25.0000

111.27

BUENA VISTA

211087

31/03/2000

30/03/2050

17.9829

63.22

EL CASTILLO

214519

02/10/2001

01/10/2051

100.0000

31.62

EL REAL

212571

07/11/2000

07/11/2052

2038.0000

31.62

EL REAL 2

216301

30/04/2002

29/04/2052

280.1555

31.62

FINISTERRE FRACC. A

219001

28/01/2003

27/01/2053

18.7856

31.62

FINISTERRE FRACC. B

219002

28/01/2003

27/01/2053

174.2004

31.62

GUADALUPE

189470

05/12/1990

04/12/2040

7.0000

111.27

LA GRACIA I

215958

02/04/2002

01/04/2052

300.0000

31.62

LA GRACIA II

215959

02/04/2002

01/04/2052

230.0000

31.62

LA LIBERTAD

172433

15/12/1983

14/12/2033

97.0000

111.27

LA NUEVA AURORA

215119

08/02/2002

07/02/2052

89.3021

31.62

LA NUEVA ESPERANZA

226289

06/12/2005

05/12/2055

40.0000

7.6

LA UNION

176214

26/08/1985

25/08/2035

4.1098

111.27

LOS TRES AMIGOS

172216

27/10/1983

26/10/2033

23.0000

111.27

MINA GRANDE

163578

10/10/1978

09/10/2028

6.6588

111.27

NUEVO ROSARIO

184999

13/12/1989

12/12/2039

32.8781

111.27

PIEDRAS DE LUMBRE 2

215556

05/03/2002

04/03/2052

34.8493

31.62

PIEDRAS DE LUMBRE 3

218992

28/01/2003

27/01/2053

4.3098

31.62

PIEDRAS DE LUMBRE No.4

212349

29/09/2000

28/09/2050

0.2034

63.22

PIEDRAS DE LUMBRE UNO

215555

05/03/2002

04/03/2052

40.2754

31.62

SAN ANDRES

212143

31/08/2000

30/08/2050

385.0990

63.22

SAN JOSÉ

208537

24/11/1998

23/11/2048

27.0000

111.27

SAN MIGUEL

183504

26/10/1988

25/10/2038

7.0000

111.27

SAN NICOLAS

163913

14/12/1978

13/12/2028

55.5490

111.27

SAN SEBASTIAN

184473

08/11/1989

07/11/2039

40.0000

111.27

SANTA MARIA

218769

17/01/2003

16/01/2053

4.2030

31.62

SANTA ROSA

170557

13/05/1982

12/05/2032

31.4887

111.27

SANTO TOMAS

187348

13/08/1986

12/08/2036

312.0000

111.27

TRES AMIGOS 2

212142

31/08/2000

30/08/2050

54.4672

63.22

FINISTERRE 4

231166

18/01/2008

17/01/2058

2142.1302

5.08

FRANCISCO ARTURO

230494

06/09/2007

27/03/2057

3,279.56

 

TOTAL

 

 

 

9,920.00

 

 

Title to 32 of the 33 mining concessions is registered in the sole name of DynaMexico,   The one exception is the San Miguel concession.  For the San Miguel concession, DynaMexico has entered into transfer agreements with the registered owners of 50% of the concession title, and DynaMexico has also entered into promise to sell and purchase agreements with registered owners of the balance of the concession title. Under Mexican law, such agreements require the consent or relinquishment of first rights of refusal from the registered owners of 100% of the concession title, in order to have legal effect and be eligible for registration before the Mines Recorders’Office.

 

 
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Under amendments to the Mining Act of Mexico that came into effect in December 2006, the classifications of Mining Exploration Concessions and Mining Exploitation Concessions were replaced by a single classification of Mining Concessions valid for a renewable term of 50 years, commencing from the initial issuance date. To be converted into Mining Concessions at the time these amendments came into effect, former mining exploration and mining exploitation concessions had to be in good standing at the time of conversion.

 

All of the SJG concessions were in good standing and consequently were converted to 50-year Mining Concessions in December 2006, at the time the amendments to the Mining Act came into effect.

 

To renew the 50-year term, Mining Concessions must be in good standing at the time an application for renewal is filed, and an application for renewal must be filed within 5 years prior to expiration of the term.

 

To maintain Mining Concessions in good standing, the registered owner must (a) pay bi-annual mining duties in advance, by January 31 and July 31 each year, (b) file assessment work reports by May 30 each year, for the preceding year (some exceptions apply), and (c) by January 31 each year, file  statistical reports on exploration / exploitation work conducted for the preceding year.

 

Notice of Commencement of Production Activities and Annual Production Reports must be filed annually by January 31 each year for those concessions where mineral ore extraction is taking place. As a general provision, registered owners of Mining Concessions must follow environmental and labor laws and regulations in order to maintain their Mining Concessions in good standing.

 

Figure 2 – Claim location map

 

dynr_10kimg7.jpg

 

 
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Surface Rights

 

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), the Company maintains access and surface rights for the SJG Project pursuant to a 20-year Land Lease Agreement. This lease agreement with the Santa Maria Ejido Community (the owners of the surface rights) is dated January 6, 2014 and continues through 2033. The lease agreement covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG and provides for annual lease payments of $1,359,443 Pesos (adjusted for inflation). The 2021 payment was $3,015,112 pesos (approx. $149,000 USD). Additionally, under the lease agreement, the Company met its obligation to construct a Medical Facility at SJG in year 2017.

 

The lease agreement provides the Company with surface access to the core resource areas of SJG (4,399 hectares), and allows for all permitted mining, pilot production and exploration activities.

 

Water Concession

 

The Company has secured the Water Rights Concession for the area surrounding SJG. The Director of Water Administration of the National Water Commission of México (CONAGUA) formally certified in writing the rights of DynaMéxico to legally “use”, exploit and extract 1,000,000 cubic meters of water per year from the DynaMéxico extraction infrastructure located within the perimeter of the mining concessions. CONAGUA determined that the DynaMéxico water rights are not subject to any water rights concession or any other water extraction restriction. Water extracted by DynaMéxico will be subject to applicable levies imposed by the Mexican tax authorities in accordance with current Mexican tax laws. The water concession provides sufficient water for current operations, and for the anticipated future needs of the project.

 

Royalties, Encumbrances and Environmental Liabilities

 

The SJG Property is not subject to any royalties, encumbrances or environmental liabilities.

 

Required Permits for Exploration, Drilling and Mining

 

In respect of permit requirements for mineral exploration and mining in Mexico, the most relevant applicable laws, regulations and official technical norms are the Federal Mining Act (plus its regulations), the Federal Environmental Protection and Ecological Equilibrium Act (plus its regulations), the Federal Sustainable Forestry Development Act (plus its regulations), the Federal Explosives and Firearms Act, the National Waters Act and the Mexican Official Norm 120.

 

To carry out mineral exploration activities, holders of mining concessions in Mexico are required to file at the offices of the Federal Secretariat of the Environment and Natural Resources (“SEMARNAT”) a “Notice of Commencement of Exploration Activities” or “Preventive Exploration Notice” in accordance with the guidelines of the Mexican Official Norm 120 (“NOM-120”).

 

If contemplated mineral exploration activities fall outside of the guidelines of the NOM-120 (e.g. exploration activities on rain forest areas), a “Change of Soil Use Permit Application” (“CSUP”) is required to be filed at SEMARNAT under the guidelines of the Federal Sustainable Forestry Development Act and its Regulations. To meet the requirements for issuance of a change of soil use permit, the applicant must file (together with the CSUP) a Technical Study (“Technical Justification Study”) to justify the change of soil use from forestry to mining, in order to demonstrate that biodiversity will not be compromised and that there will be no soil erosion or water quality deterioration on completion of the mineral exploration activities.

 

To carry out mining activities in Mexico, holders of mining concessions are required to file an “Environmental Impact Assessment Study” under the guidelines of the Federal Environmental Protection and Ecological Equilibrium Act and its Regulations, in order to evaluate the environmental impact of the contemplated mining activities.

 

If the use of explosives materials is required for execution of mineral exploration or mining activities, an Application for General Permit for Use, Consumption and Storage of Explosive (“GPCSE”) is required to be filed at the offices of the Secretariat of National Defense (“SEDENA”) under the guidelines of the Federal Explosives and Firearms Act. Under the Federal Mining Act, holders of mining concessions in Mexico have the right to the use of the water coming from the mining works. Certification of water rights and/or issuance of water rights concessions are required from the National Water Commission (“CONAGUA”) under the guidelines of the National Waters Act.

 

 
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Fees or bonding requirements necessary to explore or mine.

As a pre-requisite for issuance of a CSUP, Article 118 of the Federal Sustainable Forestry Development Act provides the posting of a bond to the Mexican Forestry Fund for remediation, restoration and reforestation of the areas impacted by the mineral exploration activities.

 

As a pre-requisite for approval of Preventive Exploration Notice and Environmental Impact Assessment Study, the Federal Environmental Protection and Ecological Equilibrium Act and its Regulations require the posting of a bond to guarantee remediation and rehabilitation of the areas impacted by the mining activities.

 

Government agencies responsible for any applicable permits.

SEMARNAT is the office of the Federal Government of Mexico responsible for the review and issuance of a CSUP, the review of a Technical Justification Study and the filing of NOM-120. The Federal Attorney’s Office for the protection of the Environment  is the enforcement branch of SEMARNAT responsible for the monitoring and enforcement of environmental laws and regulations. SEDENA is the office responsible for issuance of a GPCSE. CONAGUA is the office responsible for certification of water rights and issuance of water rights concessions.

 

Time frame to obtain any permit or approval to explore or mine.

NOM-120 is a notice to SEMARNAT only and has no processing time. Processing time for review and approval of a CSUP Application and Technical Justification Study varies depending on workload of SEMARNAT regional office where application is filed, but a processing time of Four (4) months is typical.

 

Processing time for review and approval of a Environmental Impact Assessment Study varies depending on workload of SEMARNAT regional office where application is filed, but a processing time of Six (6) months is typical. Processing time for issuance of a GPCSE by SEDENA is approximately 6 months. Processing time for issuance of a Water Rights Concession by CONAGUA is approximately 6 months.

 

DynaMexico Permits and Bonding Requirements.

Exploration Permit: On June 28, 2010, DynaMexico filed an Preventive Exploration Notice (Preventive Exploration Notice) at the office of SEMARNAT in connection with contemplated mineral exploration activities at the La Prieta, San Pablo, La Purísima, La Unión, Tres Amigos and La Ceceña areas of the SJG Project. On July 21, 2010, SEMARNAT approved, for a term of 36 months, the execution of the mineral exploration activities at SJG set out in the Preventive Exploration Notice, as it determined that such activities fall within the framework of the NOM-120, subject to the following conditions: (a) filing and approval by SEMARNAT of a CSUP with respect to SJG (see below), and (b) posting of a bond in the amount of $134,487 Pesos to guarantee remediation and rehabilitation measures following the conclusion of the mineral exploration activities.

 

Change of Soil Use Permit

On August 9, 2010, DynaMexico filed at the offices of SEMARNAT a CSUP Application and Technical Justification Study to carry out certain mineral exploration activities set out in the Preventive Exploration Notice approved by SEMARNAT on July 21, 2010 (see above) at the La Prieta, San Pablo, La Purísima, La Unión, Tres Amigos and La Ceceña areas of SJG). On December 20, 2010, SEMARNAT approved the CSUP Application filed by DynaMexico with respect to SJG and authorized DynaMexico the execution of mineral exploration activities on 5.463 hectares of SJG for a term of 36 months, and it is continually renewed as required.

 

Water Rights Certification

On March 8, 2012 the Director of Water Administration of CONAGUA certified in writing the rights of DynaMexico to use, exploit and extract 1,000,000 m3 of water per year from the company’s extraction infrastructure located in SJG. CONAGUA determined that DynaMexico’s water rights are not subject to any other water rights concession or any other water extraction restriction.

 

Bonding Requirements

Under the CSUP issued to DynaMexico on December 20, 2010, SEMARNAT imposed upon DynaMexico the obligation to post a bond in the amount of $116,911 Pesos for reforestation and remediation measures in SJG.   The Bond was timely posted by DynaMexico.

 

Under Preventive Exploration Notice (Preventive Exploration Notice) approved by SEMARNAT on July 21, 2010, SEMARNAT imposed upon DynaMexico the obligation to post a bond in the amount of $134,487 Pesos, to guarantee remediation and rehabilitation measures following the conclusion of the mineral exploration activities. The Bond was timely posted by DynaMexico.

 

 
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DynaMexico has sought and obtained all required environmental permits, temporary land occupation rights and consent letters from the regulatory agencies, local municipalities and the State of Sinaloa, in order to conduct its mining, production, exploration and drilling activities on the four main deposit areas at SJG. DynaMexico will be required to obtain further permits in order to conduct drilling in these four areas and the other areas, and in order to carry out future mining, milling, and production activities, and will timely obtain such permits, as and when required.

 

HISTORY OF SAN JOSE DE GRACIA

 

Production at San José de Gracia dates from the 1800’s and totals approximately one million ounces of gold mined from high-grade quartz veins.  Large-scale mining in the camp began in 1870 and ended in 1910 with the onset of the Mexican Revolution.  The majority of the production came from the Anglo, Rosario and La Cruz Mines on the Purisima Ridge trend, and from the La Prieta Mine on the La Prieta trend (reference Fig. 2).  The remainder of the production was derived from as many as 60 smaller mines throughout the 12 square kilometer area, including the Palos Chinos, San Pablo, Tres Amigos, La Ceceña, Los Hilos, Santa Rosa, Veta Tierra, La Union, Santa Eduwiges, Mochemara and La Parilla Mines.

 

                Table 3 – Historic gold production – San Jose de Gracia – pre 1970’s

 

 

Area

Gold

Production (oz)

Gold

Grade (g/t)

Mined

Width (m)

Purisma Ridge Trend (includes the Anglo, Rosario, Jesus Maria and Laz Cruz Mines)

471,000

67.0

Unknown

La Prieta Trend (La Prieta Mine)

215,000

28.0

1.5 – 3 m

Other areas

300,000

Unknown

Unknown

 

It was not until the 1970’s when mining could resume at San José de Gracia, when the first road to SJG was opened, allowing Compaňia Rosarito to begin producing gold from the Palos Chinos, San Pablo, Tres Amigos and La Union mines.

 

Recent Ownership of the Property

 

By 1977 the underlying owners of the mining concessions and subsequent vendors to Minera Finisterre SA de CV. (“Finesterre”) succeeded in acquiring control of most of the district, and installed a 70 ton per day flotation concentrator. Finisterre subsequently acquired the property through option agreements with the underlying vendors and continued some exploration work, although most of its financial resources were expended in erecting a larger, 200 ton per day concentrator.

 

Golden Hemlock Explorations Ltd., a Canadian company, obtained an option to acquire majority control of Finisterre and commenced work on the property in 1997. The actual exploration and development work was performed for by Perforaciónes Quest de Mexico (“PQM”), which was under contract to Finesterre, and whose efforts consisted primarily of core drilling, trenching and mapping.  PQM completed a 63-hole, 6,000-meter core drilling program in 1997.

 

In 1998-1999, Pamicon Developments Ltd., a Canadian company, examined the results of the 1997 drilling program, including PQM’s technical work, in order to calculate possible mineral reserves, and to review the general status of the property. Results of this examination were presented in a report dated September 1999.

 

During the first half of 1999, DynaResource, Inc. and its agents arranged to collect samples for metallurgical testing.   In June of 2000, DynaResource formed its subsidiary DynaMexico, in order to acquire and consolidate ownership of the San Jose de Gracia Project. By December 2003, DynaMexico had completed the acquisition of and consolidation of 100% of the San Jose de Gracia Project from Golden Hemlock and Finisterre -- with the sole exception of the San Miguel mining concession.

 

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Test Mining Operations

 

The property is without known reserves and the test mining program is exploratory in nature and the Company has started extraction without determining mineral reserves. All mines are underground and the ore is hard rock that needs to be crushed and ground before gold concentrate can be extracted.

 

The Company is an exploration stage company and has a test mining facility and produces precious metal concentrates for sale to third parties.

 

Summary of Test Mining and Pilot Mill Operations for 2018 to 2021:

 

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 of material, mined and processed from underground test mining activity and pilot milling operations.  These test pilot operations also yielded approximately 26,728 gross ounces of gold, and net of dry weight adjustments at the buyer’s facilities, the approximately 22,566 ounces of gold.

 

Infrastructure Improvements, Expansion and Increased Output (2017 To 2021)

 

The Registrant is an exploration stage company and the registrant has started extraction without determining mineral reserves.

 

As part of the Company’s test mining operations, it continues to upgrade the camp facilities and the mill. Significant improvements have been made such that the condition of the equipment is new, relatively new or in good condition. The Company has three mills running which can process approximately 350 tons of mined material per day. Additionally, the Company has a new mill ordered which can process up to 500 tons per day. To support these mills, the Company has ordered or is installing additional crushing and grinding equipment.

 

The Company continues its exploration at San Jose de Gracía, in order to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 300 tons per 24-hour operating day, and during second quarter 2022 the Company expects to achieve production output of 500 tons per 24-hour operating day.

 

Since January 2017, the Company has expended funds to improve the mine, the mill and the facilities in order to increase the production at San Jose de Gracia.as follows:

 

Mill Expansion

 

$3,542,000

 

Tailings Pond Expansion

 

 

265,000

 

Machinery and Equipment

 

 

1,556,000

 

Mining Camp Expansion

 

 

146,000

 

Total

 

$5,509,000

 

 

 
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The Company is currently in the middle of exploration drilling to further define mineralization and in 2021 expended 522,000 for this drilling.

 

The Company is currently an exploration stage company and is reporting all costs of mine operations, improvements, and expansion as expenses in accordance with section 1300 of Regulation S-K and United States General Accepted Accounting Principal (GAAP) requirements, and therefore the above costs are not reflected as capitalized expenses (assets) on the Company’s balance sheet.

 

ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

 

Topography, Physiography, and Vegetation

The topography of the San José de Gracia district is generally rugged with elevations varying from 400 meters in the valley bottoms to over 1600 meters in the higher Sierra. A network of small roads and tracks winds around areas nearer the old workings at San José de Gracia. Access to the remainder of the large property at the current stage of development is difficult without the use of horse or helicopter.

 

The SJG Project can be accessed by road, from either the City of Culiacan) or the City of Guamuchil. Either route goes through the small town of Sinaloa de Leyva, then from Sinaloa de Leyva by gravel mountainous road to the village of San José de Gracia (population 250), which covers approximately 90 kilometers and is roughly a five hour trip.

 

The SJG Project can also be accessed by air. A gravel airstrip is located adjacent to the San Jose de Gracia Village. The airstrip is suitable for light aircraft and charter flights of 45 minutes duration are available from the cities of Los Mochis or Culiacan. Much of the labor for the recent mining and production activities of DynaMexico was provided by the village residents. Although the village provided approximately 75 employees to DynaMexico, it currently has limited services.

 

Climate and Operating Season

The climate is semi-tropical with a rainy season dominating from late June / early July through September. For some activities on the SDJ project, operations may be suspended during the rainy season.

 

MINERAL PROCESSING AND METALLURGICAL TESTING

 

Bulk Sample, Hazen Process Development Metallurgical Report

Ore and existing mill tailings samples were collected under the supervision of Mr. Henderson prior to DynaMexico’s acquisition and consolidation of San Jose de Gracia. The ore samples consisted of a bulk (about 500 kg) of stockpiled ore from the lower adit of the Tres Amigos mine (intercept of the Tres Amigos and Orange Tree veins). In addition, approximately 100 kg of ore as a bulk sample was taken from the surface at the Gossan Cap area. Three additional ore samples (approximately 5-15 kg each) were assembled from splits of the cores from several of the 1997 drilling program core holes to develop samples representing different ore types for testing. These included: 1) composite drill cores from Palos Chinos, 2) massive sulphide from the Tres Amigos vein and 3) disseminated, non-sulphide mineralized zones at the bottom of several Tres Amigos core holes. The logic was that major exploratory test work to define a metallurgical process would be done on the bulk sample from the adit at Tres Amigos and the other samples would have limited testing done at the selected metallurgical process conditions to verify the performance of the selected metallurgical process circuit on other types of San José mineralization. Finally, several bulk samples (50-100 kg) of existing tailings from the Rosarito mill and the old Rosarito mill were collected and used to conduct flotation, gravity, and limited leachability test work on the tailings.” Samples were shipped to the laboratory of Carbonyx Carbon Technologies in Plano, Texas where in 2000 and 2001 two separate preliminary test programs were conducted, one for the tailings, and the other for a portion of the bulk Tres Amigos ore. He developed a concept for the metallurgical processing to produce both gravity and flotation concentrates (rougher and cleaner). The tests confirmed a metallurgical flow sheet to be utilized at San José to recover up to 90% of the feed gold into the concentrates. The above “in-house” testing established a preliminary flowsheet for a mill circuit for processing either primary ore or for reprocessing the existing tailings. Subsequently Hazen Research Laboratories of Golden, Colorado (“Hazen”) was engaged to provide independent verification of the in-house work, and carry out additional optimization test work. Lockwood Greene/ Mr. Henderson prepared and verified completion of the scope of work.

 

In summary, various interim reports and the final metallurgical report, the "Official Hazen Test Report, (“Hazen Report”)” provided results as follows:

 

(a) The initial gravity beneficiation/flotation test work on the Tres Amigos and Gossan Cap bulk ore samples were very encouraging with up to 80 % recovery of the feed gold into the gravity concentrates while maintaining a minimum concentrate grade of 100 g Au/t ;

 

(b) The existing tailings samples (feed grades of 3 -8 g Au/t) returned similar recovery results, but had to be cleaned to produce a final concentrate with > 100 g Au/t ;

 

(c) The overall gold recoveries into the gravity cleaner concentrate still were in excess of 50% of the total feed gold;

 

(d) Flotation tests on primary ore samples resulted in recoveries of 85 - 90 % of the feed gold into the rougher concentrates, however, recoveries after cleaning (to get > 100 g Au/t grade) dropped to the 65-75 % range; and

 

(e) A combination circuit of a gravity pre-concentration stage with flotation on the gravity tailings indicated the potential to recover > 90% of the feed gold into the gravity concentrate, the rougher flotation and the cleaner flotation concentrates while maintaining a 100 g Au/t grade in all of the concentrates.”

 

 
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ITEM 3. LEGAL PROCEEDINGS  

 

2014 Arbitration Proceeding filed by Goldgroup Resources Inc.

 

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

 

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

 

2014 Court filing by DynaMéxico, in Mexico

 

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

 

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

 

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

 

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

 

2020 Petition for Recognition of the $48M Damages Award

 

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

 

ITEM 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.

 

 
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PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

 

The Company’s common stock is traded on the OTC Markets under the symbol "DYNR".  The following table sets forth, for the periods indicated, the high and low bid quotations which reflect inter-dealer prices, without retail mark-up or mark-down and without commissions; and may not reflect actual transactions. All amounts are denominated in U.S. dollars.

 

Year ended December 31, 2021

 

Low

 

 

High

 

First Quarter

 

 

0.57

 

 

 

1.00

 

Second Quarter

 

 

0.63

 

 

 

0.99

 

Third Quarter

 

 

0.77

 

 

 

2.45

 

Fourth Quarter

 

 

1.35

 

 

 

2.00

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2020

 

Low

 

 

High

 

First Quarter

 

 

0.38

 

 

 

0.78

 

Second Quarter

 

 

0.47

 

 

 

0.58

 

Third Quarter

 

 

0.53

 

 

 

1.10

 

Fourth Quarter

 

 

0.70

 

 

 

1.00

 

 

As of March 15, 2022, there were outstanding 18,091,293 shares of our common stock, which were held by approximately 439 shareholders of record. This figure does not include shareholders that hold their shares in street name or with a broker.

 

 
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Dividend Policy

 

No cash dividends on the Company common stock have been declared or paid since the Company's inception. Payment of future dividends, if any, will be at the discretion of our Board of Directors after considering various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for growth. Our initial earnings, if any, will likely be retained to finance our growth. At the present time, we are not party to any agreement that would limit our ability to pay dividends.

 

During the fiscal years ended December 31, 2021 and 2020, no securities of the Company were authorized for issuance under equity compensation plans.

 

ITEM 6. SELECTED FINANCIAL DATA 

 

Not applicable for smaller reporting companies.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of 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.”

 

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.

 

 
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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 Jose de Gracía 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 Gracía Project, under contract with DynaMéxico. DynaOperaciones is the exclusive management company for registered employees.

 

Project Improvements, Expansion and Increased Output (2017 To 2021)

 

The Company continues its business plan of operations at San Jose de Gracía, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 300 tons per 24-hour operating day, and during first quarter 2021 the Company expects to achieve production output of 500 tons per 24-hour operating day. (Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2021 below).

 

Since January 2017, the Company has expended over $18.5 million USD in non-operating costs, generally classified as project improvements and expansion costs which have been expensed in the company’s consolidated 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

 

$3,108,000

 

Tailings Pond Expansion

 

 

265,000

 

Machinery and Equipment

 

 

1,416,000

 

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

 

SIG Mining Concessions

 

 

1,401,000

 

Exploration and Developmental Drilling

 

 

35,000

 

Surface Rights and Permitting

 

 

528,000

 

Debt Retirement

 

 

2,985,000

 

Legal Fees

 

 

3,381,000

 

Total

 

$18,653,000

 

 

 
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The Company is currently reporting all costs of mine operations, improvements, and expansion as expenses in accordance with United States General Accepted Accounting Principal (GAAP) requirements. The result of expensing all costs is that the Company has accumulated a net loss carry forward from México operations of $12.5 million USD which is available to offset future taxable earnings.

 

Results for the Years Ended December 31, 2021 and 2020

 

Summary of Test Mining and Pilot Mill Operations for 2021, 2020, 2019 and 2018:

 

 Year

 

Total Tons

Mined & Processed

 

 

Reported Mill Feed Grade

(g/t Au)

 

 

Reported Recovery

%

 

 

Gross Gold Concentrates Produced

(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

 

 

DynaMineras continued to increase its test underground mining activity and pilot milling operations in 2021 and increased output from 200 to 300 tons per 24-hour operating /day from the mine and mill during.  With the opening of an additional ball mill in the first quarter of 2022 the Company projects an increase in capacity to 500 tons per day.

 

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

 

Test pilot operations in 2020 yielded 44,218 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 7,001 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 5,828 Oz Au. The Company reports net revenue of $9,048,831 net of buyer’s price discount and refining and treatment costs.

 

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

 

REVENUE. Revenues for the years ended December 31, 2021, and 2020 were $35,886,046 and $9,048,831, respectively.  The increase was the result of the opening of the Tres Amigos mine in 2020 which yielded a higher grade of ore and the increase in plant processing capacity to 300 tons a day.  The ore feed grade increase from 5.65 g/t in 2020 to 9.67 g/t in 2021.  This combined with higher gold prices resulted in a 297% increase in revenue on a 120% increase in tonnage processed.

 

PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the years ended December 31, 2021, and 2020 were $2,909,401 and $1,166,135, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. This represents a decrease in the cost per ounce recovered of milling from $167 per OZ to $109 per OZ.

 

MINE PRODUCTION COSTS. Mine production costs for the years ended December 31, 2021, and 2020 were 3,965,467 and $2,370,972 respectively. These costs were directly related to the extraction of mine tonnage to be processed at the mill. The increase was a result in the increase in tonnage mine.  However, the cost per ton dropped from $66.84 per ton in 2020 to $45.57 as result of the increased volume in tonnage.

 

 
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MINE EXPLORATION COSTS. Mine exploration costs for the years ended December 31, 2021, and 2020 were $5,198,057 and $1,610,747, respectively. These were the costs of extracting waste material to reach the materials to be extracted for processing. The increase was a result of the increase in activity as well as the increase in waste tonnage.

 

MINE EXPANSION COSTS: Mine expansion costs for the years ended December 31, 2021, and 2020 were $1,478,725 and $909,190, respectively. These were the costs associated with the expansion of the mining facilities and the cost associated with preparing the Tres Amigos for production.  The 2021 largely consisted of the new ball mill.  These are cost which would normally have been treated as capital expenditures under U.S. GAAP but the Company is required to expense because of the lack of proven and probable reserves. 

 

TRANSPORTATION. Transportation costs for the years ended December 31, 2021, and 2020 were $1,330,414 and $528,423, respectively. These were the costs of transporting the product to the customer for treatment and sale. The increase is consistent with the overall increase in production and sales.

 

CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility cost for the years ended December 31, 2021, and 2020 were $2,913,832 and $2,036,610, respectively. These were the support costs of the mining facilities including housing, food, security and warehouse operations. The increase was a result of the increase in personnel from the increase in operations.

 

PROPERTY HOLDING COSTS. Property holding costs for the years ended December 31, 2021, and 2020 were $127,731 and $137,377, respectively. These costs were concessions taxes, leases on land and other direct costs of maintaining the property.  The current costs consist only of core concessions and the reduced area of the Francisco Arturo concession.

 

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the years ended December 31, 2021, and 2020 were $4,773,473 and $2,966,073 respectively. These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses.  The increase is reflective of an overall increase in activity, an increase in compensation expense including $1,005,223 value of stock issued for services and a $381,871 bad debt write off.

 

OTHER INCOME (EXPENSE). Other income for the years ended December 31, 2021, and 2020 was $(4,622,364) and $(2,685,878), respectively. Included in this category in 2021 was interest expense of $(1,573,125), change in derivative liability of $(2,186,912), currency transaction gain of $247,712, and an arbitration award payment of $(1,111,111).  Included in this category in 2020 was interest expense of $(1,133,360), change in derivative of $(1,186,964), currency transaction loss of $(361,127), and other expense of $(4,427).  The increase in derivative liability is the result of the increase in the Company’s stock price on the Company’s black scholes calculation of the liability for stock warrants and convertible debt.  See Item Three Legal Proceedings for discussion of the arbitration award.

 

NON-CONTROLLING INTEREST. The non-controlling interest portion of the net loss for the years ended December 31, 2021, and 2020 was $0 and $61,589, respectively. This represented the non-controlling interest share of Dyna México’s loss.  The 2020 allocation included only the non-controlling interest’s share of the net loss for January and February as the non-controlling interest was eliminated at the end of February 2020.

 

OTHER COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period. The Company’s other comprehensive loss for the years ended December 31, 2021, and 2020 consisted of unrealized currency gains (losses) of $(685,757) and $100,582, respectively. The YTD change is due to the variances in the peso exchange rates throughout the two years.

 

Liquidity and Capital Resources

 

As of December 31, 2021, the Company had working capital of $1,347,711, comprised of current assets of $23,816,481 and current liabilities of $22,468,770. This represented a increase of $7,126,703 from the working capital maintained by the Company of $(5,778,992) as of December 31, 2020. The primary reason for the increase is the increase in cash balance generated from the Company’s operations.

 

Net cash provided by (used in) operations for the year ended December 31, 2021, was $17,516,205 compared to $(2,421,108) in the year ended December 31, 2020. The increase is the result of the Company’s increased operating profits and proceeds from its customer advance.

 

 
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Net cash provided by (used) in investing activities for the years ended December 31, 2021, and 2020 was $0 and $0, respectively.  In 2021 and 2020 expenditures necessary for the expansion of mining operations totaling $1,478,725 and $909,190, respectively which would normally have been included in this category were expensed due to the company’s lack of proven and probable reserves.

 

Net cash provided by (used in) financing activities for the year ended December 31, 2021, was $(2,557,721) compared to $3,594,323 for the year ended December 31, 2020.  The 2020 funds represent the net proceeds from the Series D financing.  The 2021 expenditure is the partial repayment of that financing.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2021, we did not have any off-balance sheet arrangements, which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.

 

Plan of Operation

 

The Plan of operation for the next twelve months includes the Company continuing the improvement and expansion of the test mining and pilot milling operations at SJG. The Company commenced its testing activities in fall 2015 at the rate of approximately 100 tons per 24-hour operating day from the mine and approximately the same output from the processing plant. Over the past five years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant.  In 2022, the Company projects to complete its next phase of expansion to reach the output of approximately 500 tons per 24-hour operating day from the mine and the processing plant.

 

The Company funds its general and administrative expenses in the U.S. from its Mexican operations.  The Company believes that cash on hand, and including cash flow generated from its current operations, is adequate to fund its ongoing general and administrative expenses through 2022.

 

Capital Expenditures

 

The Company’s primary activities relate to the test mining and pilot milling operations of the SJG property through its Mexican subsidiaries.

 

Exploration Stage

  

The Company is an exploration stage company and the registrant has started extraction without determining mineral reserves.

  

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 Advances made by DynaMineras to DynaMéxico as of December 31, 2014 is $4,025,000. 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). The agreement was terminated in October 2021 and all operations consolidated in Dyna Mexico.

 

DynaMéxico General Powers of Attorney

 

The Chairman-CEO of DynaUSA also serves as the President of DynaMéxico and as the President of DynaMineras. The President of DynaMéxico holds broad powers of attorney granted by the shareholders of DynaMéxico which gives the current President significant and broad authority within DynaMéxico.

 

 
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK  

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

 

Incorporated into and forming an integral part of this Form 10-K are the audited consolidated financial statements for the Company for the years ended December 31, 2021 and 2020. The consolidated financial statements as of December 31, 2021 and 2020 of the Company included in this Form 10-K have been audited by Armanino LLP, an independent registered public accounting firm, as set forth in their report.

 

Consolidated Financial Statements included in the Form 10-K:

 

Report of Independent Registered Public Accounting Firm PCAOB ID: 32

24

Consolidated Balance Sheets

26

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

27

Consolidated Statement of Changes in Stockholders’ (Deficit)

28

Consolidated Statements of Cash Flows for the Years

29

Notes to the Consolidated Financial Statements

30

 

 
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dynr_10kimg1.jpgdynr_10kimg2.jpg

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

DynaResource, Inc.

Irving, Texas

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of DynaResource, Inc. (the "Company") and subsidiaries as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audit provides a reasonable basis for our opinion.

 

dynr_10kimg3.jpg

 
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Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Derivative Liabilities

As described in Note 10 to the consolidated financial statements, the derivative liabilities represent the embedded conversion features of the Series C Preferred Stock, Preferred Series C Warrants, and Series D Notes Kicker Warrants. The Company has classified the derivative liabilities as Level 3 liabilities and the fair value of the liabilities are evaluated each reporting period. As of December 31, 2021, the derivative liabilities were $3,898,914. The derivative liabilities include both quantitative and qualitative components. The calculation of the fair value of the derivative liabilities used a Black-Scholes pricing model. Key components of the fair value calculation included: the annual volatility rate, the risk-free rate, the remaining term, and the fair value of the underlying common stock. 

 

The principal considerations for our determination that performing procedures relating to the fair value of the derivative liabilities is a critical audit matter are: there was significant judgment and estimation used by management in determining the fair value of the derivative liabilities, which led to an increased level of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to the derivative liabilities, including the qualitative component.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included documenting the control environment in which judgements were made. These procedures also included, testing the reasonableness of the assumptions management used in the Black-Scholes pricing model, recalculating the change in fair value, and performing a stress-test on the assumptions.

 

Armanino LLP Dallas, Texas

 

We have served as the Company's auditor since 2020.

 

March 24, 2022 except for Note 16, as to which the date is August 23, 2022

 

 
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DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2021 and 2020

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$15,719,238

 

 

$1,504,016

 

Accounts receivable

 

 

577,118

 

 

 

840,743

 

Inventories

 

 

2,110,203

 

 

 

603,967

 

Foreign tax receivable

 

 

4,742,180

 

 

 

2,179,914

 

Appeal bond

 

 

 

 

 

1,111,111

 

Other current assets

 

 

667,742

 

 

 

578,661

 

Total current assets

 

 

23,816,481

 

 

 

6,818,412

 

 

 

 

 

 

 

 

 

 

Property and equipment (net of accumulated

 

 

 

 

 

 

 

 

depreciation of $116,425 and $113,176)

 

 

2,729

 

 

 

5,978

 

Right-of-use assets

 

 

648,381

 

 

 

735,220

 

Mining concessions

 

 

4,132,678

 

 

 

4,132,678

 

Other assets

 

 

162,174

 

 

 

165,380

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$28,762,443

 

 

$11,857,668

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$1,275,679

 

 

$2,274,011

 

Accrued expenses

 

 

5,440,204

 

 

 

3,385,093

 

Customer advances

 

 

9,250,000

 

 

 

2,500,000

 

Derivative liabilities

 

 

3,898,914

 

 

 

2,371,560

 

Current portion of convertible notes payable

 

 

543,279

 

 

 

 

Current portion of operating lease payable

 

 

98,169

 

 

 

82,733

 

Current portion of long-term debt

 

 

1,962,525

 

 

 

1,984,007

 

Total current liabilities

 

 

22,468,770

 

 

 

12,597,404

 

 

 

 

 

 

 

 

 

 

Convertible notes payable - Series D (net of amortized discount of $0 and $755,214)

 

 

 

 

 

3,264,786

 

Convertible notes payable - Series I & II, less current portion

 

 

 

 

 

543,279

 

Operating lease payable, less current portion

 

 

587,782

 

 

 

685,951

 

Long term debt, less current portion

 

 

 

 

 

97,428

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITES

 

 

23,056,652

 

 

 

17,188,848

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

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

 

 

4,337,480

 

 

 

4,337,480

 

 

 

 

 

 

 

 

 

Series D Senior Convertible Preferred Stock, $0.0001 par   value, 3,000,000 shares authorized, 760,000 and 0 shares issued and outstanding

 

 

1,520,000

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Preferred Stock, Series A, $0.0001 par value, 1,000 shares

 

 

 

 

 

 

 

 

    authorized, issued and outstanding

 

 

1

 

 

 

1

 

Common Stock, $0.01 par value, 40,000,000 and 40,000,000 shares authorized

 

 

 

 

 

 

 

 

18,091,293 and 17,722,825 issued and outstanding

 

 

180,913

 

 

 

177,228

 

Preferred rights

 

 

40,000

 

 

 

40,000

 

Additional paid-in-capital

 

 

50,632,400

 

 

 

50,407,333

 

Treasury stock, 12,180 and 516,480 shares

 

 

(34,773 )

 

 

(1,474,486 )

Accumulated other comprehensive income

 

 

(247,665 )

 

 

438,092

 

Accumulated deficit

 

 

(50,722,465 )

 

 

(59,256,828 )

TOTAL STOCKHOLDERS’ DEFICIT

 

 

(151,589 )

 

 

(9,668,660 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$28,762,443

 

 

$11,857,668

 

 

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

 

 
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         DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

 

 2021

 

 

 2020

 

REVENUE

 

$35,886,046

 

 

$9,048,831

 

COSTS AND EXPENSES OF MINING OPERATION

 

 

 

 

 

 

 

 

    Production cost applicable to sales

 

 

2,909,401

 

 

 

1,166,135

 

    Mine production costs

 

 

3,965,467

 

 

 

2,370,972

 

    Mine exploration costs

 

 

5,198,057

 

 

 

1,610,747

 

    Mine expansion costs

 

 

1,478,725

 

 

 

909,190

 

    Camp, warehouse and facilities

 

 

2,913,832

 

 

 

2,036,610

 

    Transportation

 

 

1,330,414

 

 

 

528,423

 

    Property holding costs

 

 

127,731

 

 

 

137,377

 

    General and administrative

 

 

4,773,473

 

 

 

2,966,073

 

    Depreciation and amortization

 

 

3,249

 

 

 

3,249

 

TOTAL OPERATING EXPENSES

 

 

22,700,349

 

 

 

11,728,776

 

NET OPERATING INCOME (LOSS)

 

 

13,185,697

 

 

 

(2,679,945 )

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

    Foreign currency gains (loss)

 

 

247,712

 

 

 

(361,127 )

    Interest expense

 

 

(1,573,125 )

 

 

(1,133,360 )

    Derivatives mark-to-market gain (loss)

 

 

(2,186,912 )

 

 

(1,186,964 )

    Arbitration award expense

 

 

(1,111,111 )

 

 

 

    Other income (expense)

 

 

1,072

 

 

 

(4,427 )

TOTAL OTHER INCOME (EXPENSE)

 

 

(4,622,364 )

 

 

(2,685,878 )

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) BEFORE TAXES

 

 

8,563,333

 

 

 

(5,365,823 )

PROVISION FOR INCOME TAXES

 

 

28,970

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$8,534,363

 

 

$(5,365,823 )

 

 

 

 

 

 

 

 

 

DEEMED DIVIDEND FOR SERIES C & D PREFERRED

 

 

(188,699 )

 

 

(173,499 )

LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

 

 

 

 

 

61,589

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$8,345,664

 

 

$(5,477,733 )

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO THE

 

 

 

 

 

 

 

 

    EQUITY HOLDERS OF DYNARESOURCE, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Income (loss) per common share

 

$0.47

 

 

$(0.31 )

    Weighted average shares outstanding – Basic and Diluted

 

 

17,797,528

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

    Foreign currency translation gain (loss)

 

 

(685,757 )

 

 

100,582

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

 

 

(685,757 )

 

 

100,582

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$7,848,606

 

 

$(5,265,241 )

 

 

 

 

 

 

 

 

 

ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

    EQUITY HOLDERS OF DYNARESOURCE, INC.

 

$7,848,606

 

 

$(5,191,983 )

    NON-CONTROLLING INTEREST

 

$

 

 

$(73,258 )

 

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

 

 
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DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

 

Preferred A

 

 

Common

 

 

Preferred

 

 

Preferred

 

 

Paid In

 

 

Treasury

 

 

Treasury

 

 

Other Comp

 

 

 Accumulated

 

 

 Non Controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Rights

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income

 

 

 Deficit

 

 

 Interests

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2020

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$56,622,159

 

 

 

778,980

 

 

$(2,223,891)

 

$325,841

 

 

$(53,952,594)

 

$(5,723,663)

 

$(4,734,919)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(649,405)

 

 

(262,500)

 

 

749,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112,251

 

 

 

 

 

 

 

(11,669)

 

 

100,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,304,234)

 

 

(61,589)

 

 

(5,365,823)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,565,421)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,796,921

 

 

 

231,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(434,490)

 

 

(504,300)

 

 

1,439,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,005,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Warrants Exercised

 

 

 

 

 

 

 

 

 

 

368,468

 

 

 

3,685

 

 

 

 

 

 

 

 

 

 

 

659,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

663,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(685,757)

 

 

 

 

 

 

 

 

 

 

(685,757)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,534,363

 

 

 

 

 

 

 

8,534,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

1000

 

 

$1

 

 

 

18,091,293

 

 

$180,913

 

 

 

1

 

 

$40,000

 

 

$50,632,400

 

 

 

12,180

 

 

$(34,773)

 

$(247,665)

 

$(50,722,465)

 

$-

 

 

$(151,589)

 

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

 

 
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DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITES:

 

 

 

 

 

 

Net Income (Loss)

 

$8,534,363

 

 

$(5,365,823 )

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

 

 

 

 

 

 

 

 

    Change in derivatives

 

 

2,186,912

 

 

 

1,186,964

 

    Depreciation and amortization

 

 

3,249

 

 

 

3,249

 

    Amortization of loan discount

 

 

755,214

 

 

 

343,279

 

    Stock issued for services

 

 

1,005,223

 

 

 

100,000

 

    Non-dilution stock issuance

 

 

 

 

 

4,427

 

Change in operating assets and liabilities

 

 

 

 

 

 

 

 

    Accounts receivable

 

 

263,625

 

 

 

262,462

 

    Inventories

 

 

(1,506,236 )

 

 

(80,878 )

    Foreign tax receivable

 

 

(2,562,266 )

 

 

(882,527 )

    Appeal bond

 

 

1,111,111

 

 

 

(1,111,111 )

    Right-of-use assets

 

 

86,839

 

 

 

77,641

 

    Other assets

 

 

(85,875 )

 

 

(237,849 )

    Accounts payable

 

 

(998,332 )

 

 

214,582

 

  Accrued expenses

 

 

2,055,111

 

 

 

1,633,622

 

  Customer advances

 

 

6,750,000

 

 

 

1,500,000

 

  Operating lease liabilities

 

 

(82,733 )

 

 

(69,146 )

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

17,516,205

 

 

 

(2,421,108 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

    Proceeds from exercise of stock warrants

 

 

3,685

 

 

 

 

    Proceeds from borrowing

 

 

 

 

 

4,020,000

 

    Payments of convertible notes

 

 

(2,500,000 )

 

 

(359,033 )

    Payments of long-term debt

 

 

(61,406 )

 

 

(66,644 )

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

(2,557,721 )

 

 

3,594,323

 

 

 

 

 

 

 

 

 

 

    Effects of foreign currency exchange

 

 

(743,262 )

 

 

(23,771 )

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVILANTS

 

 

14,215,222

 

 

 

1,149,444

 

CASH AND CASH EQUIVILANTS AT BEGINNING OF PERIOD

 

 

1,504,016

 

 

 

354,572

 

CASH AND CASH EQUIVILANTS AT END OF PERIOD

 

$15,719,238

 

 

$1,504,016

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

    Cash paid for interest

 

$583,144

 

 

$206,642

 

    Cash paid for income taxes

 

$

 

 

$

 

NON-CASH TRANSACTION

 

 

 

 

 

 

 

 

    Accrued interest rolled into notes payable

 

$

 

 

$23,933

 

 

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

 

 
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DYNARESOURCE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021 and 2020

 

NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Activities, History and Organization

 

DynaResource, Inc. (The “Company”, “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 the production of precious metals.

 

In 2000, the Company formed a wholly owned subsidiary, DynaResource de México S.A. de C.V., chartered in México (“DynaMéxico”).  This Company was formed to acquire, invest in and develop resource properties in México. DynaMéxico owns a portfolio of mining concessions that currently includes its interests in the San José de Gracía Project (“SJG”) in northern Sinaloa State, México. The SJG District covers 9,920 hectares (24,513 acres) on the west side of the Sierra Madre mountain range. DynaUSA currently owns 80% of the outstanding capital of DynaMéxico. DynaMéxico currently holds 20% of the Shares of DynaMéxico as treasury shares, after complete foreclosure and recovery of those shares on February 20, 2020 from Goldgroup Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc. Vancouver, BC (“Goldgroup”).

 

In 2005, the Company formed DynaResource Operaciones de San Jose De Gracía S.A. de C.V. (“DynaOperaciones”) as an operating subsidiary to manage registered employees, and acquired effective control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”).  The Company owns 100% of DynaMineras and 100% of DynaOperaciones.

 

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

 

Significant Accounting Policies

 

The consolidated financial statements and notes are representations of the Company’s management which is responsible for their integrity and objectivity. Management further 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 consolidated financial statements which present fairly the consolidated financial condition, results of operations and cash flows of the Company for the respective periods presented.

 

Basis of Presentation

 

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

 

Use of Estimates

 

In order to prepare 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 consolidated financial statements and determines whether contingent assets and liabilities, if any, are disclosed in the consolidated financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from the resolution currently anticipated by management and on which the consolidated financial statements are based.

 

Principles of Consolidation

 

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

 

 
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Table of Contents

 

Non-Controlling Interest

 

The Company’s subsidiary, DynaResource de México S.A. de C.V, was 20% owned by Goldgroup Resources, Inc. until February 20, 2020 when the Company recovered the shares as partial satisfaction of a legal judgement.  See Note 11 for further details.

 

The Company accounted for this outside interest as a “non-controlling interest” through February 2020.  A 20% share of operating income (loss) and comprehensive income (loss) was allocated to the non-controlling interest through the date of the recovery of the shares.

 

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 December 31, 2021, the Company had $15,266,823 of deposits in U.S. Banks in excess of the FDIC limit.  The Company does not believe it is at a risk of loss.

 

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 December 31, 2021, and 2020, respectively, no allowance has been made.  During the year the Company recorded a $381,871 bad debt write off of receivables from a former customer of the Company.  At, December 31, 2021 management believes all current receivables are fully collectable.

 

Inventories

 

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 were $2,110,203 and $603,967 as of December 31, 2021 and December 31, 2020, respectively.

 

Foreign Tax Receivable

 

Foreign Tax Receivable is comprised of recoverable value-added taxes (“IVA”) charged by the Mexican government on goods and services rendered to the company in Mexico and paid by the company.  Under certain circumstances, these taxes are recoverable by filing a tax return and application for reimbursement.  IVA amounts charged to and paid by the company are recorded and carried as receivables until the funds are collected by the company.  The total amounts of the IVA receivable as of December 31, 2021 and December 31, 2020 were $4,742,180 and $2,179,914, respectively.

 

Exploration Stage

  

According to Section 1300 of Regulation S-K, the Registrant is an exploration stage company with an exploration stage property since it does not have an opinion from a qualified person that the project can be economically viable.

 

 
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Property and Equipment

 

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.

 

Mineral Properties Interests

 

Mineral property interests include acquired interests in development and exploration stage properties, which 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 Jose de Gracía Property, capitalized costs and mineral property interests are amortized using the straight-line method once production begins. As of December 31, 2021, 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 Jose de Gracía property (“SJG”), the basis of which are amortized on the unit of production method based on estimated recoverable resources.  If it is determined that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to fair value as a charge to operations in the period in which the determination is made.  The amounts at which mineral properties and the related costs are recorded do not necessarily reflect present or future values.

 

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

 

 
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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, silver and other 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 is 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 is 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 December 31, 2021, and 2020, no indications of impairment existed.

 

Asset Retirement Obligation

 

As the Company is not obligated to remediate the mining properties, no Asset Retirement Obligation (“ARO”) has been established. Changes in regulations or laws, any instances of non-compliance with laws or regulations that result in fines, or any unforeseen environmental contamination could result in a material impact to the amounts charged to operations for reclamation and remediation.

 

Transactions in and Translations of Foreign Currency

 

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

 

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

 

Relevant exchange rates used in the preparation of the financial statements for the subsidiaries are as follows for the years ended December 31, 2021 and 2020 (Mexican Pesos per one U.S. dollar):

 

 

 

 

 

Dec 31, 2021

 

 

Dec 31, 2020

 

Current exchange rate

 

 

Pesos

 

 

 

20.48

 

 

 

19.91

 

Weighted average exchange rate for the period ended

 

 

Pesos

 

 

 

20.29

 

 

 

21.47

 

 

The Company recorded currency transaction gains (losses) of $247,712 for the year ended December 31, 2021 and $(361,127) for the year ended December 31, 2020.

 

 
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Table of Contents

 

Income Taxes

 

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

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

 

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 consolidated 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 accounts for revenue recognition under ASC 606 “Revenue from contracts with customers”. The Company generates revenue by selling gold and silver produce 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 to direct the use of and obtain substantially all the remaining benefits from the material and the customer has the risk of loss.

 

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 fluctuations between the estimated quantities of precious metals based on the initial assay and the actual recovery from treatment and processing.  

 

As of December 31, 2021, there are $9,250,000 in customer advances for payments received during the period for contracts expected to be settled in 2022.

 

During the years ended December 31, 2021, and December 31, 2020, there was $1,500,000 and $0 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.

 

As of and for the year ended December 31, 2021, and December 31, 2020, there are no deferred contract costs or commissions.

 

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

 

Fair Value of Financial Instruments

 

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

 

Earnings Per Share

 

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

 

 
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The Company had 3,060,998 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 $2.05 per share and 892,165 were exercisable at $.01 per share. The Company also had convertible debt instruments as of December 31, 2021 which, upon conversion at $2.50 per share, would result in the issuance of 217,312 shares of common stock.

 

The Company had 3,429,466 warrants outstanding at December 31, 2020 which upon exercise, would result in the issuance of 3,429,466 shares of common stock. Of these warrants 2,168,833 were exercisable at $2.05 per share and 1,260,633 were exercisable at $.01 per share. The Company also had convertible debt instruments as of December 31, 2020 which, upon conversion at valuations from $2.00 to $2.50 per share, would result in the issuance of 2,227,312 shares of common stock.

 

 

 

Years ended December 31

 

 

 

2021

 

 

2020 

 

Net income (loss) attributable to common shareholders

 

$8,345,664

 

 

$(5,477,733 )

Shares:

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, Basic

 

 

17,797,528

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, Diluted

 

 

17,797,528

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share

 

$0.47

 

 

$(0.31 )

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share

 

$0.47

 

 

$(0.31 )

 

At December 31, 2021, 2,168,833 shares of potentially dilutive common stock related to outstanding stock warrants and 217,312 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation, using the treasury stock method, because the exercise and conversion prices exceeded the average stock price and therefore their effect would be anti-dilutive. In addition, at December 31, 2021, 892,165 of potentially dilutive common stock related to outstanding stock were excluded from the diluted earnings per share calculation as the net income impact of the converted shares would cause earnings per share to increase, therefore their effect would be antidilutive.

 

At December 31, 2020, potentially dilutive common shares related to stock warrants and convertible debt were excluded from the diluted earnings per share computation because the Company incurred a net loss and therefore their effect would be anti-dilutive.

 

Related Party Transactions

 

FASB ASC 850 "Related Party Disclosures" requires companies to include in their consolidated 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 which 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 is also a related party.

 

 
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NOTE 2 – INVENTORIES

 

Inventories are carried at the lower of cost or fair value and consist of mined tonnage, gravity-flotation concentrates, and gravity tailings (or, flotation feed material). Inventory balances at December 31, 2021 and 2020, respectively, were as follows:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Mined Tonnage

 

$2,042,633

 

 

$555,608

 

Gold-Silver Concentrates

 

 

67,570

 

 

 

48,359

 

Total Inventories

 

$2,110,203

 

 

$603,967

 

 

NOTE 3 – PROPERTY

 

Property consists of the following at December 31, 2021 and 2020:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

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

 

 

(116,425 )

 

 

(113,176 )

Total Property

 

$2,729

 

 

$5,978

 

 

Depreciation and amortization has been provided over each asset’s estimated useful life. Depreciation and amortization expense was $3,249 and $3,249 for the years ended December 31, 2021 and 2020 respectively.

 

NOTE 4 – MINING CONCESSIONS

 

Mining properties consist of the San Jose de Gracía (“SJG”) concessions.  Mining Concessions were $4,132,678 and $4,132,678 at December 31, 2021 and December 31, 2020, respectively.

There was no depletion expense for the years ended December 31, 2021 and 2020.

 

NOTE 5 – CONVERTIBLE PROMISSORY NOTES  

 

Notes Payable – Series I

 

In April and May 2013, the Company entered into note agreements with shareholders in the principal amount of $1,495,000, of which $340,000 was then converted to preferred shares within the same year, netting 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 Notes originally matured on December 31, 2015. As of December 31, 2018, seven of the Series I Notes totaling $646,875 had subsequently been extended to December 30, 2019. On December 31, 2019, the Company entered into agreements to extend seven outstanding notes totaling $646,875 plus accrued interest totaling $34,277 for new total notes of $681,152 until December 31, 2020.

 

On March 31, 2020, the Company entered into agreements to extend the seven outstanding notes totaling $681,152 plus accrued interest totaling $21,286 for a new total of $702,438 until June 30, 2022. At December 31, 2020 one note for $246,533 was paid off leaving six Series I Notes remaining outstanding with a total balance of $455,905.

 

At December 31, 2021, six Series I Notes remained outstanding with a total balance of $455,905. The Company has the right to prepay the Series I Notes with a ten percent (10%) penalty.

 

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

 

 
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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 Notes originally matured on December 31, 2015. On December 31, 2019 the Company entered into agreements to extend the two notes totaling $78,750 plus accrued interest of $5,977 for total new notes of $84,726 to December 31, 2020. One note for $112,500 was not extended and was past due as of December 31, 2019. At December 31, 2019 three Series II notes remained outstanding for $197,226.

 

On March 31, 2020, the Company entered into agreements to extend the two notes totaling $84,726 plus accrued interest of $2,648 for total new notes of $87,374 to June 30, 2022. One note for $112,500 was not extended and was paid off in May 2020. At December 31, 2020, two Series II notes remained outstanding for $87,374.

 

At December 31, 2021, two Series II notes remained outstanding with a balance of $87,374. 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 $2.50 per share. At the time of conversion, the holder would receive a warrant to purchase additional common shares of the Company for $7.50 per share, such warrant expiring one year from their conversion date.

 

NOTE 6 – INCOME TAXES

 

FASB ASC 740-10, Income Taxes, mandates the asset and liability approach to determine the income tax provision or benefit. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

 

Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.

 

Developing our provision for income taxes and analysis of uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.

 

We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:

 

·

Cumulative profits/losses in recent years, adjusted for certain nonrecurring items;

·

Income/losses expected in future years;

·

Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels;

·

The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits; and

·

The carryforward period associated with the deferred tax assets and liabilities.

 

We consider many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review. Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.

 

 
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The Company's pre-tax income (loss) by jurisdiction was as follows for the years ending December 31, 2021 and December 31, 2020:

 

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Domestic

 

$(10,064,644)

 

$(3,955,124)

Foreign

 

18,627,977

 

 

(1,410,699)

Total

 

$8,563,333

 

 

$(5,365,823)

 

The provision for income taxes for continuing operations for the year ended December 31, 2021 and 2020 consist of the following:

 

 

 

Year ended

December 31,

 

 

Year ended

December 31,

 

 

 

          2021

 

 

2020

 

Current income taxes

 

 

 

 

 

 

Federal

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

28,970

 

 

 

-

 

Total current income taxes

 

28,970

 

 

-

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

 

 

 

 

 

 

Federal

 

 

-

 

 

 

-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

-

 

 

 

-

 

Total deferred income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total income tax expense (benefit)

 

$28,970

 

 

$-

 

 

A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal income tax rate is shown below. Income tax expense for the year ended December 31, 2021 includes state minimum taxes, permanent differences, and deferred tax assets for which a full valuation allowance has been placed. A corresponding tax expense  is included for the year ended December 31, 2021 to reflect the decrease in the valuation allowance.

 

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

Tax Expense at statutory federal rate of 21%

 

$1,798,300

 

 

$(1,126,823)

State income taxes, net of federal income tax benefit

 

 

 

 

 

 

 

 

Permanent Differences

 

 

501,707

 

 

 

342,351

 

Foreign Rate Differential

 

 

1,103,990

 

 

 

(126,963)

Change in Valuation Allowance

 

 

(1,144,539)

 

 

953,120

 

Other

 

 

(2,230,488)

 

 

(41,685)

Income tax expense (benefit)

 

$28,970

 

 

$-

 

 

 
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Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The following table discloses those significant components of our deferred tax assets and liabilities, including any valuation allowance:

 

 

 

2021

 

 

2020

 

Long-term deferred tax assets:

 

 

 

 

 

 

Federal Net Operating Loss Carryforwards

 

$12,327,599

 

 

$13,473,000

 

State Net Operating Loss Carryforwards

 

 

 

 

 

 

 

 

Other

 

 

862

 

 

 

 

 

Total deferred tax assets before valuation allowance

 

 

12,328,461

 

 

13,473,000

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Total deferred tax liabilities

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Valuation Allowance

 

 

(12,328,461)

 

 

(13,473,000)

Net deferred tax assets and liabilities

 

$-

 

 

$-

 

 

During the year ended December 31, 2021, the valuation allowance decreased by $1.2 million. The Company believes a full valuation allowance against the net deferred tax asset is appropriate based on the negative evidence against future taxable income. The Company is currently in a three-year cumulative loss and does not believe there is evidence to suggest future taxable income to realize its deferred tax assets. The Company will continue to evaluate the realiziability of its deferred tax assets in future years.

 

We account for uncertain tax positions in accordance with ASC 740-10-25, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The following table summarized the total changes in unrecognized tax benefits in continuing operations during the years ended December 31, 2021 and 2020. Such amounts include unrecognized tax benefits that have impacted deferred tax assets and liabilities as of December 31, 2021 and 2020.

 

 

 

2021

 

 

2020

 

Balance - beginning of year

 

$-

 

 

$-

 

Gross increases - tax positions in prior period

 

-

 

 

-

 

Gross decreases - tax positions in prior period

 

-

 

 

-

 

Gross increases - tax positions in current period

 

-

 

 

-

 

Settlement

 

-

 

 

-

 

Lapse of Statute of limitations

 

-

 

 

-

 

Uncertain Tax Benefit - end of year

 

$-

 

 

$-

 

 

The total amount of unrecognized tax benefits as of December 31, 2021 was $0, of which none, if recognized, would affect our effective tax rate and income tax benefit from continuing operations.

 

Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations. We did not have any interest or penalties on unrecognized tax benefits accrued at December 31, 2021.

 

The Company is subject to income taxes in the US federal jurisdiction and various state jurisdictions and Mexico. With few exceptions, the Company is no longer subject to US federal, state and local tax examinations by tax authorities for years prior to fiscal year 2017. The Company is no longer subject to Mexican tax examinations for years prior to fiscal year 2017.  The Company is currently not under audit by any tax authority.

 

 
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At December 31, 2021, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of approximately $19.1 million pre-tax, $16.4 million of which expires in 2029 to 2037 and $2.7 million of which has no expiration date, (2) foreign net operating losses of $12.5 million. Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period. These ownership changes include purchases of common stock under share repurchase programs, the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury regulations, or the issuance or exercise of rights to acquire our stock. If such ownership changes by 5% shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the NOL carryforwards or tax credit carryforwards at the time of ownership change.

 

 

 

2021

 

 

2020

 

U.S. earnings (loss) from continuing operations

 

$8,563,333

 

 

$-

 

 

 

 

 

 

 

 

 

 

U.S. federal income tax expense (benefit)

 

 

 

 

 

 

 

 

State income tax expense (benefit)

 

 

 

 

 

 

 

 

Foreign income tax expense (benefit)

 

28,970

 

 

-

 

Total tax expense (benefit) from continuing operations

 

28,970

 

 

-

 

Federal Deferred Incoome Taxes

 

 

 

 

 

 

 

 

State Deferred Income Taxes

 

 

 

 

 

 

 

 

Foreign income tax expense (benefit)

 

 

 

 

 

 

 

 

Total Deferred Income taxes from continuing operations

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

Total Provision for income taxes

 

$28,970

 

 

$-

 

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

Authorized Capital. The total number of shares of all classes of capital stock which the corporation shall have the authority to issue is 60,001,000 shares, consisting of (i) twenty million and one thousand (20,001,000) shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”), of which one thousand (1,000) shares shall be designated as Series A Preferred Stock, 1,734,992 are designated as Series C Preferred Stock, and 3,000,000 shares are designated as Series D Preferred Stock and (ii) forty million (40,000,000) shares of Common Stock, par value $0.01 per share (“Common Stock”). As of December 31, 2021, 15,265,008 of Preferred stock remain undesignated.

 

Series A Preferred Stock

 

The Company has designated 1,000 shares of its Preferred Stock as Series A, having a par value of $0.0001 per share. Holders of the Series A Preferred Stock have the right to elect a majority of the Board of Directors of the Company. The Company issued 1,000 shares of Series A Preferred Stock to its CEO. At December 31, 2021 and December 31, 2020, there were 1,000 shares of Series A Preferred Stock outstanding.

 

Series C Senior Convertible Preferred Stock

 

At December 31, 2021 and December 31, 2020 there were 1,734,992 and 1,734,992 Series C Preferred shares outstanding, respectively. These Series C Preferred Shares are convertible to common shares at $2.50 per share, through June 30, 2022 and include anti-dilution protection. The Series C Preferred Shares may receive a 4% per annum dividend, payable if available, and in arrears. The Dividend is calculated at 4.0% of $4,337,480 payable annually on June 30. At December 31, 2021 dividends for the years 2017 to 2021 totaling $866,940 were in arrears.

 

 
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Due to the nature of this transaction as mandatorily redeemable by the Company at the election of the Series C preferred stock shareholder at maturity, the Series C Senior Convertible Preferred Shares are classified as “temporary equity” on the balance sheet.

 

 

 

Preferred

Series C

 

 

 

 

 

Carrying Value, December 31, 2019

 

$4,333,053

 

Issuances at Fair Value, Net of Issuance Costs

 

 

-

 

Bifurcation of Derivative Liability

 

 

-

 

Relative Fair Value of Warrants – Preferred Stock Discount

 

 

4,427

 

Accretion of Preferred Stock to Redemption Value

 

 

-

 

Carrying Value, December 31, 2020

 

 

4,337,480

 

 

 

 

 

 

Bifurcation of Derivative Liability

 

 

-

 

Issuances at Fair Value, Net of Issuance Costs

 

 

-

 

Relative Fair Value of Warrants – Preferred Stock Discount

 

 

-

 

Accretion of Preferred Stock to Redemption Value

 

 

-

 

Carrying Value, December 31, 2021

 

$4,337,480

 

 

Series D Senior Convertible Preferred Stock

 

Financing Agreement with Golden Post Rail, LLC, a Texas Limited Liability Company, 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 of DynaUSA (“DynaUSA Shareholders”), and related agreements. A summary of the transactions and related agreements are 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 NFP (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. One half of the principal amount of the Golden Post Note, or $1,250,000, has been fully funded in accordance with an agreed-upon draw summary and budget. The balance of the principal amount will also be funded in accordance with agreed-upon draw summaries and the budget. 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; and

 

 

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 have been fully funded. 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.

 

 

 
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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 Senior Convertible Preferred Stock (“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 agreed to call a special meeting of Company stockholders, to be held not later than July 14, 2020, 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 properly called and held on July 13, 2020, whereby Company stockholders confirmed approval for each item referenced in item 4 above.

 

 

 

 

5.

Compensatory Issuances. 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 Shares. 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 (“Certificate of Increase”).

 

 

 

 

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 (“Certificate of Designation”).

 

On October 11, 2021 the Company filed an amended designation of Series D Preferred Stock with the State of Delaware which removed the anti-dilution provisions of the original designation.

 

Retirement of Series D Convertible Debt

 

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

 

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

 

 
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In addition the redemption of the Series D notes trigged an acceleration of the amortization of the original loan discount booked at the issuance of the Series D notes (see discussion below) and being amortized over the 24 month life of the notes of $287,508 in October 2021.

 

As part of the transaction all Series D noteholders agreed to waive the non-dilution rights contained in the original note and an amendment of the Series D Preferred Stock designation was filed with the State of Delaware.

 

At December 31, 2021 and December 31, 2020, there were 760,000 and 0 Series D Preferred shares outstanding, respectively. These Series D Preferred Shares are convertible to common shares at $2.00 per share, through October 18, 2026. The Series D Preferred Shares may receive a 4% per annum dividend, payable if available, and in arrears. The Dividend is calculated at 4.0% of $1,520,000 payable annually on October 18. At December 31, 2021, no dividends were in arrears.

 

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

 

Due to underlying anti-dilutive provisions contained in the Series C Preferred Stock and the Golden Post Warrant, the Company incurred derivative liabilities. On May 14, 2020 in connection with the Series D Convertible Note financing, the expiration date for the Series C Preferred Stock and the Golden Post warrants were extended to June 30, 2022. In addition, a new derivative liability was incurred due to the issuance of warrants for kicker shares. At December 31, 2021, the total derivative liability was $3,898,914 which included $1,019,431 for the Series C Preferred Stock, and $1,320,380 in connection with the Golden Post Warrants and $1,559,103 in connection with the Series D Convertible Note Kicker Warrants. At December 31, 2020, the total derivative liability was $2,371,560 which included $601,313 for the Series C Preferred Stock, and $817,613 in connection with the Golden Post Warrants and $952,634 in connection with the Series D Convertible Note Kicker Warrants. The deemed dividend for the years ending December 31, 2021, and December 31, 2020 were $188,699 and $173,490, 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).

 

A discount of $1,098,492 was recorded on the Series D financing as a result of the valuation the total liabilities including the derivatives .  The discount was amortized over the two year life of the loan on a straight line basis.

 

Preferred Stock (Undesignated)

 

In addition to the 1,000 shares designated as Series A Preferred Stock, the 1,734,992 shares designated as Series C Preferred Shares and 3,000,000 shares designated as Series D Preferred Stock, 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 December 31, 2021 and December 31, 2020, there were no other shares of Preferred Stock outstanding.

 

Separate Series; Increase or Decrease in Authorized Shares. 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 the Preferred Stock Designation, the Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.

 

Common Stock

 

The Company is authorized to issue 40,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights. At December 31, 2021 and December 31, 2020, there were 18,091,293 and 17,722,825 shares outstanding, respectively. No dividends were paid for the years ended December 31, 2021 and 2020, respectively.

 

 
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Preferred Rights

 

The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San Jose de Gracía Pilot Production Plant and received $784,500 for these rights. This has been reflected as “Preferred Rights” in stockholders’ equity. As of December 31, 2021, $744,500 had been repaid, leaving a current balance of $40,000 and $40,000 as of December 31, 2021 and 2020, respectively

 

Stock Issuances

 

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

 

There were no issuances of common stock during the year ending December 31, 2020.

 

Treasury Stock

 

During the year ending December 31, 2021, 504,300 treasury shares were transferred for services provided to the Company. At December 31, 2021, 12,180 treasury shares remained outstanding.

 

During the year ending December 31, 2020, 262,500 treasury shares were transferred for services provided to the Company. At December 31, 2020, 516,480 treasury shares remained outstanding.

 

Warrants

 

2021 Activity

 

On October 18, 2021, five warrant holders exercised a total of 368,468 warrant to purchase 368,468 shares of common stock for $0.01 a share.

 

At December 2021, the Company had a total of 3,060,998 warrants outstanding.

 

2020 Activity

 

On May 13, 2020 the Company issued 2,306 warrants to purchase shares of common stock with an exercise price of $2.05 per share related to anti-dilution provisions of the Series C preferred stock. These warrants expire on June 30, 2022.

 

On May 14, 2020, the Company issued 1,260,633 warrants to purchase shares of common stock with an exercise price of $0.01 per share as kicker shares as part of the Series D note agreements. These warrants expire on May 14, 2030.

 

On June 30, 2020, as part of the Series D note agreement the Company issued 2,166,527 warrants to purchase shares of common stock with an exercise price of $2.05 per share to replace the 2,166,527 warrants previously outstanding which expired on that date. These warrants expire on June 30, 2022.

 

At December 2020, the Company had a total of 3,429,466 warrants outstanding.

 

The Company recorded no expense related to the issuance of these warrants since these warrants were issued in common stock for cash sales and note conversions.

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Intrinsic

Value

 

Balance at December 31, 2019

 

 

2,166,527

 

 

$2.45

 

 

 

0.51

 

 

 

 

Granted

 

 

3,429,466

 

 

$1.30

 

 

 

4.33

 

 

 

-

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Forfeited

 

 

2,166,527

 

 

$-

 

 

 

 

 

 

 

-

 

Balance at December 31, 2020

 

 

3,429,466

 

 

$1.30

 

 

 

4.33

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

 

 

 

 

 

-

 

Exercised

 

 

368,468

 

 

$0.01

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

$-

 

 

 

 

 

 

 

-

 

Balance at December 31, 2021

 

 

3,060,998

 

 

$1.46

 

 

 

2.79

 

 

 

 

 

Exercisable at December 31, 2021

 

 

3,060,998

 

 

$1.46

 

 

 

2.79

 

 

 

-

 

 

 
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NOTE 8 – RELATED PARTY TRANSACTIONS

 

Related Party Transactions

 

Dynacap Group Ltd.

 

The Company paid $285,999 and $114,250 to Dynacap Group, Ltd. (“Dynacap”, an entity controlled by the CEO of the Company) for consulting and other services during the years ended December 31, 2021 and 2020, respectively.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Concession Taxes

 

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

 

Leases

 

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), DynaMineras maintains access and surface rights to the SJG Project pursuant to the 20-year Land Lease Agreement. The 20 Year Land Lease Agreement with the Santa Maria Ejido Community surrounding San Jose de Gracía 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 of $1,359,443 pesos adjusted for inflation based on the Mexico minimum wage increase commencing in 2014.  Rent was $3,015,112 Pesos (approx. $149,000 USD) for the year ended December 31, 2021. 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 from the owners of the surface rights (Santa Maria Ejido community).

 

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

 

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

 

The Company determines if a contract is or contains a lease at inception. As of December 31, 2021, the Company has two operating leases - a six- and one-half year lease for office space with a remaining term of twenty-four months and a twenty-year ground lease in association with its México mining operations with a remaining term of thirteen years. Variable lease costs consist primarily of variable common area maintenance, storage parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.

 

 
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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: 

 

 

 

Year Ended

December 31, 2021

 

Operating Lease – Office Lease

 

$86,237

 

Operating Lease – Ground Lease

 

 

148,636

 

Short Term Lease Costs

 

 

12,471

 

Variable Lease Costs

 

 

 

TOTAL

 

$247,344

 

 

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

 

Weighted Average Remaining Lease Term (Years) – Operating Leases

 

 

11.00%

Weighted Average Discount Rate – Operating Leases

 

 

12.50%

 

Estimated future minimum lease obligations are as follow for the years ending December 31: 

 

YEAR

 

 

 

2022

 

$179,377

 

2023

 

 

101,499

 

2024

 

 

96,896

 

2025

 

 

99,803

 

2026

 

 

102,797

 

Thereafter

 

 

684,884

 

Total

 

$1,265,256

 

Less Imputed Interest

 

 

(579,305 )

OPERATING LEASE LIABILITY

 

$685,951

 

 

NOTE 10 – DERIVATIVE LIABILITIES

 

Preferred Series C Stock

 

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

 

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

 

 
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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:

 

 

 

2021

 

 

 2020

 

Annual volatility rate

 

 

147%

 

 

156%

Risk free rate

 

 

0.73%

 

 

0.13%

Remaining Term

 

0.50 years

 

 

1.50 years

 

Fair Value of common stock

 

$1.75

 

 

$0.78

 

 

For the years ended December 31, 2021, and December 31, 2020, 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 table below represents the change in the fair value of the derivative liability during the years ended December 31, 2021, and December 31, 2020.

 

Period Ended

 

2021

 

 

2020

 

Fair value of derivative (stock), beginning of period

 

$601,313

 

 

$37,038

 

Change in fair value of derivative

 

 

418,118

 

 

 

276,547

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

287,728

 

Fair value of derivative (stock), end of period

 

$1,019,431

 

 

$601,313

 

 

Preferred Series C Warrants

 

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the Warrants 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 Warrants based on the assumptions below:

 

 

 

2021

 

 

2020

 

Annual volatility rate

 

 

147%

 

 

156%

Risk free rate

 

 

0.73%

 

 

0.13%

Remaining Term

 

0.50 years

 

 

1.5 years

 

Fair Value of common stock

 

$1.75

 

 

$0.78

 

 

For the years ended December 31, 2021, and December 31, 2020, 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.

 

 
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The table below represents the change in the fair value of the derivative liability during years ended December 31, 2021, and December 31, 2020.

 

Period Ended

 

2021

 

 

2020

 

Fair value of derivative (warrants), beginning of period

 

$817,613

 

 

$49,066

 

Change in fair value of derivative

 

 

502,767

 

 

 

367,781

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

400,766

 

Fair value of derivative(warrants), end of period

 

$1,320,380

 

 

$817,613

 

 

Series D Notes Kicker Warrants

 

As discussed in Note 7, the Company analyzed the conversion features of the Series D Notes and determined that the Warrants qualified as a derivative liability. The fair value was required to be allocated among 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 Series D Warrants based on the assumptions below:

 

 

 

2021

 

 

2020

 

Annual volatility rate

 

 

147%

 

 

156%

Risk free rate

 

 

0.73%

 

 

0.13%

Remaining Term

 

8.37 years

 

 

9.37 yrs

 

Fair Value of common stock

 

$1.75

 

 

$0.78

 

 

For the years ended December 31, 2021, and December 31, 2020, 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 table below represents the change in the fair value of the derivative liability during the years ended December 30, 2021, and December 31, 2020.

 

Period Ended

 

2021

 

 

2020

 

Fair value of derivative (warrants), beginning of period

 

$952,634

 

 

$-

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

409,998

 

Exercise of warrants

 

 

(659,558 )

 

 

-

 

Change in fair value of derivative

 

 

1,266,027

 

 

 

542,636

 

Fair value of derivative(warrants), end of period

 

$1,559,103

 

 

$952,634

 

 

 
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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% until February 24, 2020 when the minority interest was eliminated. Changes in Non-Controlling Interest for the year ended December 31, 2020.

 

 

 

2020

 

Beginning balance

 

$(5,723,663 )

        Operating income (loss)

 

 

(61,589 )

        Share of Other Comprehensive Income (loss)

 

 

(11,669 )

        Elimination of Non-Controlling Interest

 

 

5,796,921

 

Ending balance

 

$

 

 

NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

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

Level 3 Inputs –  Instruments with primarily unobservable value drivers.

 

As of December 31, 2021, and December 31, 2020, the Company’s financial assets were measured at fair value using Level 3 inputs, with the exception of cash, which was valued using Level 1 inputs. A description of the valuation of the Level 3 inputs is discussed in Note 10.

Fair Value Measurement at December 31, 2021 Using:

 

 

 

Quoted

Prices in Active

Markets

For

Identical 

Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

   Derivative Liabilities

 

$3,898,914

 

 

 

 

 

 

 

 

$3,898,914

 

      Totals

 

$3,898,914

 

 

$

 

 

$

 

 

$3,898,914

 

Fair Value Measurement at December 31, 2020 Using:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Derivative Liabilities

 

$2,371,560

 

 

 

 

 

 

 

 

$2,371,560

 

      Totals

 

$2,371,560

 

 

$

 

 

$

 

 

$2,371,560

 

 

NOTE 13 – REVENUE CONCENTRATION

 

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

 

For each of the years ended December 31, 2021 and 2020, three and three customers accounted for 100% of revenue, respectively.

 

At December 31, 2021 and 2020, one and four customers accounted for 100% of accounts receivable, respectively.

 

 
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NOTE 14 – NOTES PAYABLE

 

In June 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 June 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 22%

 

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 June 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 June 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda for a reduction in the liability equal to the reduction in the Francisco Arturo concession above. For financial reporting purposes the Company continues to carry all notes at unpaid principal amount and accrues interest on a monthly basis. At December 31, 2021, $1,061,243 of accrued interest on the notes was included in accrued liabilities on the consolidated balance sheet.

 

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

 

The following is a summary of the transaction during the years ended December 30, 2021, and December 31, 2020: 

 

 

 

 

Balance December 31, 2019

 

$2,272,431

 

Exchange Rate Adjustment

 

 

(124,352)

2020 Principal Payments

 

 

(66,644)

Balance December 31, 2020

 

 

2,081,435

 

Exchange Rate Adjustment

 

 

(57,504)

2021 Principal Payments

 

 

(61,406)

Balance December 31, 2021

 

$1,962,525

 

 

NOTE 15 – REVOLVING CREDIT LINE FACILITY

 

On February 4, 2021 Mineras de DynaResource SA de CV (“Seller”) 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;

 

At May 1, 2021, the RCL increased to an amount equal to 80% of prior 3 month’s revenue;

 

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

 

The RCL is included under Customer Advances on the consolidate balance sheet

 

 
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Deposits under Revolving Credit Line Facility 

 

Under the terms of the RCL, Mineras de DynaResource received the following advances from the buyer:

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

(6)

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

(7)

$8.25M advance on November 19, 2021.   Settled on December 30, 2021

(8)

$9.25 M advance on December 30, 2021

 

NOTE 16 – SUBSEQUENT EVENTS

 

The Company has evaluated events from December 31, 2021, through the date whereupon the consolidated financial statements were issued, and has described below the events subsequent to the end of the period.

 

London Court of International Arbitration

 

In 2020, Mercuria Energy Trading, S.A. (“Mercuria”) initiated an arbitration proceeding against Mineras de Dynaresource, S.A. de C.V. (“Mineras”), arising out of the earlier-terminated supply agreement between the parties.  In January 2022, The arbitration panel awarded Mercuria the sum of US$1,822,674, plus interest at 2% over the quarterly compounded USD 3-month LIBOR rate, from February 2020 forward.  In August 2022, the panel also assessed costs of the arbitration proceeding against Mineras, in the aggregate amount of £376,232.75.    DynaResource has accrued $1,000,000 for the arbitration award and related costs.

 

The Company notes the following:  since Mineras is a company of Mexican nationality, under Mexican law Mineras has the right to legally oppose the recognition and enforcement of the award to Mercuria, the assessment of any costs, and any supplemental award.

 

 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure on Controls and Procedures.

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer and our financial consultant who concluded that our disclosure controls and procedures are not effective to ensure that all material information required to be filed in the annual report on Form 10-K has been made known to them. The evaluation did not include a 404A assessment. For purposes of this section, the term disclosure controls and procedures mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the 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 in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

 

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Internal Control—Integrated Framework) at December 31, 2021. Based on its evaluation, our management concluded that, as of December 31, 2021, our internal controls over financial reporting were effective.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Controls over Financial Reporting

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 
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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The Company has a code of business conduct and ethics that applies to all employees, officers and directors. The code of business conduct and ethics is available on our website at www.dynaresource.com and we will post any amendments to, or waivers from, the code of ethics on that website.

 

The following table lists the names and ages of the executive officers, directors and key consultants of the Company. The directors will continue to serve until the next annual shareholders meeting, or until their successors are elected and qualified. All Directors have been elected to serve through 2022. All officers serve at the discretion of the President, Chairman of the Board of Directors, and members of the Board of Directors.

 

Name

 

Age

 

Position

 

Held Since

K. W. (“K.D.”) Diepholz

 

64

 

Chairman of The Board

 

May 1995

222 W. Las Colinas Blvd

 

 

CEO/President; CFO;

 

May 1997

Suite 1910 N. Tower

 

 

 

Treasurer;

 

May 1997

Irving, Texas 75039

 

 

 

 

 

 

 

 

 

 

Dr. Jose Vargas Lugo

 

61

 

Director of Operations - México, President - México

 

August 2011

Enrique Dunant Y5 de Mayo #963

 

 

Director;

 

August 2013

Fracc, Los Parques

 

 

 

 

 

Guamuchil, Sin CP 81460

 

 

 

 

 

 

 

 

 

 

 

Pedro Ignacio Teran Cruz

 

62

 

Executive Vice President, Director of Exploration and Resource Development;

 

2008-2013;

Sierra Grande #134

 

 

 

Board Member

 

 

Fraccionamiento Lomas de Mazatlán,

 

 

 

 

 

 

Mazatlán, Sinaloa 82110

 

 

 

 

 

 

 

 

 

 

 

 

 

John C. Wasserman

 

82

 

Independent Director

 

March 2016 – Oct. 2020

222 W. Las Colinas Blvd.

 

 

 

 

 

December, 2014

Suite 1910 North Tower

 

 

 

 

 

 

Irving, Texas 75039

 

 

 

 

 

 

 

 

 

 

 

 

Dale G. Petrini

 

67

 

Independent Director

 

December 2016

222 W. Las Colinas Blvd

 

 

 

 

 

 

Suite 1901 North Tower

 

 

 

 

 

Irving, TX. 75039

 

 

 

 

 

 

 

 

 

 

 

Philip K. Rose

 

33

 

Independent Director

 

July 2015

222 W. Las Colinas Blvd.

 

 

 

 

 

Suite 1910 North Tower

 

 

 

 

 

Irving, TX. 75039

 

 

 

 

 

 

 

 

 

 

 

 

Bradford J. Saulter

 

62

 

Vice President – Investor Relations

 

May 1998

7618 Straits Lane

 

 

 

 

 

 

Rowlett, Texas 75088

 

 

 

 

 

 

 

 

 

 

 

 

 

Rene L.F. Mladosich

 

59

 

General Manager at San Jose de Gracía

 

October 2019

Sierra Grande #134

 

 

 

 

 

 

Fraccionamiento Lomas de

 

 

 

 

 

 

Mazatlán, Sinaloa 82110

 

 

 

 

 

 

 

 

 

 

 

 

 

Praxedis Martinez

 

74

 

Senior Consultant – Plant Operations

 

July 2017

Sierra Grande #134

 

 

 

 

 

 

Fraccionamiento Lomas de Mazatlán, Sinaloa 82110

 

 

 

 

 

 

Praxedis Martinez    

 

 

 

 

 

 

 

 
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K.W. (“K.D.”) Diepholz. Mr. Diepholz has been involved in the resource sectors, primarily as an investor/entrepreneur, since 1980. He founded KWD Properties Corp. an Oil and Gas exploration and production company in 1983 and served as an executive manager to this Oil and Gas concern, and as a General partner to several limited partnerships. Mr. Diepholz has served in a variety of capacities with DynaResource, Inc. from 1994 to the present, and has served as Chairman of the Board, President, CEO and Treasurer since 1995. Mr. Diepholz has special skills in the areas of negotiation, business development, project planning and management, corporate financing, acquisition analysis, investment program interpretation and structuring, and executive management. Mr. Diepholz has been instrumental to the Company in the negotiations of the following: the acquisition of 24.9% Net Profits Interest in the San José de Gracía in 1995; the acquisition of an additional 25% interest in San José de Gracía in 1998; the acquisition and consolidation of 100% of the rights to the San José de Gracía from prior owners, culminating in March 2000; the acquisition and consolidation of several outstanding Concessions at the San José de Gracía from previous Mexican owners during 2000-2003; the direction and management of the test mining and pilot mill operations at San José de Gracía during 2003-2006; the negotiation of the Stock Purchase/Earn In Agreement in 2006; the negotiation of the surface rights agreement with the Santa Maria Ejido in 2013; the negotiation of the financing agreement with Golden Post Rail, LLC, and the general financing of, and the general management of the Company since inception. In addition to his roles with the Company, Mr. Diepholz serves as Chairman and CEO of DynaResource Nevada, Inc., an affiliated company, and as President of DynaNevada de México, a wholly owned subsidiary of DynaResource Nevada Inc. Mr. Diepholz is also the current President of the following subsidiaries of the Company in México: DynaResource de México, Mineras de DynaResource, and DynaResource Operaciones.

 

Rene L.F. Mladosich. Mr. Mladosich brings over 30 years of direct experience in the mining industry in Mexico to DynaResource. He has worked for Companies such as: Campania Mineras de Cananea, Campania Minera Hecla (Hecla Mining), Campania Minera Pangea (now owed by McEwen Mining), Campania Minera Dolores (Minefinders), Minera Alamos de Sonora, and Campania Minera Pena de Bernal (Starcore International Mines). Mr. Mladosich has also provided consulting services to companies such as Minefinders, Pan American Silver and Scorpio.

 

Mr. Mladosich is a proven and successful manager in Mexico with experience in the following areas: general management, underground and open pit operations, process plant recovery and optimization, construction, exploration, logistics, permitting, environmental, and plant and pit design.

 

Mr. Mladosich holds a B.S. degree from the University of Sonora, where he was awarded First of the Class 6 times; and Mr. Mladosich studied 1 year of metallurgy in the Master’s Degree work program at the University. Mr. Mladosich speaks fluent Spanish and English and has studied French under the French Embassy Program in Mexico.

 

Mr. Mladosich was named General Manager at SJG in January 2016 – June 2017, and again in October 2019.

 

Dr. Jose Vargas Lugo. Dr. Vargas is a licensed physician with graduate from the Universidad Nacional Autonoma de México (UNAM) and is a 4th year law student at Universidad Autonoma de Sinaloa (UAS). Dr. Vargas commenced his involvement with the mining business with Minera Industrial Peñoles as a Medical Assistant to the Mining Services Division of Peñoles in Fresnillo, Zacatecas. Since 1993, Dr. Vargas has been a supplier of industrial goods and services in and around the municipalities of Sinaloa de Leyva and Mocorito Sinaloa. Dr. Vargas has worked with companies such as Compañia Minera El Rosarito, which was conducting operations at San Jose de Gracía during the period 1993 – 1995. Dr. Vargas later provided services and supplies to Mineras Finesterre at San Jose de Gracía, and to Minera Pangea, which was owned by Queenstake Resources, then Nevada Pacific, and now US. Gold. Dr. Vargas began working with DynaResource de México in spring 2000; as it commenced activities to acquire and consolidate the San Jose de Gracía District. Over the past + 10 Years, Dr. Vargas has proven to be an integral part of the Company’s activities at San Jose de Gracía and in Sinaloa State; involved in all facets of the Company’s business. Dr. Vargas has proven instrumental in the areas of public relations, community relations, governmental affairs, environmental matters, and overall management of the company’s business activities in México.

 

 
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Pedro Ignacio Teran Cruz. Mr. Teran is a graduate Geologist from the Universidad de Sonora, México. He has over 28 years’ experience in mineral exploration, mine development is a successful and respected Geological Consultant in México and is credited with defining significant resources at several projects. From 1986 to 1992, he was Project Geologist for Minera Real de Angeles, SA de CV (Frisco/Placer Dome Inc, now Alamos Gold), in which under his participation, explored and discovered the "Mulatos Gold Deposit" Sonora, México, and later as a Project Manager, the "San Felipe Gold Project" BC, México, both now in production. From 1992 to 1996, Mr. Teran worked as a Mine Geologist with Hecla Mining Co and explored and advanced into production the open pit "La Choya Gold Mine". From 1996 to 1999, Mr. Teran worked as Geology Superintendent for Compañia Minera Lluvia de Oro (Santa Cruz Gold, Now NWM Mining Corp.) and at the open pit "Lluvia de Oro Gold Mine", Sonora, México. From 1999 to 2001, Mr. Teran worked as a Consultant Geology performing due diligences for Tara Gold Resources in several projects located in la Sierra Madre Occidental. From 2001 to 2005, he worked as Manager of Geology Department for the Compañia Minera Pangea SA de CV (Queenstake Resources, Nevada Pacific and now McEwen Mining), in the "El Magistral Gold Mine" Sinaloa, México. Under his direction of exploration, the reserves were increased substantially and formed part of the team to put the project in production. During 2005 and part of 2006, Mr. Teran worked as Data Manager for Linear Gold Corp. in the "Ixhuatan Project" Chiapas, México. He built the computer block model and Resources Estimation. From 2006 to 2008, he worked as Project Manager for Pediment Exploration Ltd., now Argonaut Gold Inc. in the "San Antonio Gold Project" located in BCS, México.

 

Since 2008, Mr. Teran began working as a Consultant Geologist with DynaResource, Inc. in the "San Jose de Gracía Gold Project" located in Sinaloa, México, an advanced exploration project.

 

John C. Wasserman. Mr. Wasserman is a Partner with Wasserman, Bryan, Landry & Honold, LLP Law firm, Perrysburg Ohio. He is a stockholder of the Company and brings the following credentials to the Board of Directors:

 

University of Detroit (PHB); Ohio State University, Law School (JD) – Graduate work in business administration; University of Toledo – Undergraduate and Graduate work in business administration; Admitted to practice before Ohio Supreme Court, U.S. Supreme Court, U.S. District Court for Northern District of Ohio, Sixth Circuit U.S. Court of Appeals; Member, Ohio State, Lucas County, Ohio (past President) and Toledo, Ohio Bar Associations; Board Member, Corporate and Board Secretary, Blue Water Satellite, Inc.; Board Member, TechTol of Toledo, Inc.; Member and current chair of the City of Waterville, Ohio Planning Commission; Member of the ten year Plan Committee of Waterville, Ohio; Member, Past Board Member, Secretary Treasurer and President of Toledo, Ohio Rotary; Past Assistant District Governor, Area 4 of District 6600 of Rotary International; Member of Timberlake Investments, LLC, an investment LLC; Board Member, Victory Center of Toledo, Ohio; Member, Succession Committee, DynaResource, Inc.; Member/Managing Partner/Member, numerous LLCs/Partnerships for real estate developments and investments.

 

Mr. Wasserman has been employed with the Ohio Attorney General office, as Special Counsel; and with Ohio Bureau of Unemployment, as Hearing Officer; and as a Former Acting Judge, Maumee, Ohio, Municipal Court; Past Toledo, Ohio Exchange Club Member (President). Mr. Wasserman was selected one of Jaycees Top Ten Young men of Toledo, Ohio; was Co Author – Management Considerations of a Business Entity in the Environment of Chapter XI Reorganization Proceedings Under the New Federal Bankruptcy Code Effective October 1, 1979 published in Midwest Business Administration Association; was an Expert witness in real estate mandamus case: Lucas County Common Pleas Court, State ex rel Ad Hoc Committee of Waterville Citizens for Initiative and Referendum Petitions, Etc., Realtor vs. City of Waterville and Dale Knepper, Clerk of Council, City of Waterville, Respondents, Case No. CI-2013-1137.

 

Dale G. Petrini. Mr. Petrini brings over 40 years of extensive international project and manufacturing experience to the Board of DynaResource, Inc. During his 40+ years with The Dow Chemical Company, Houston, Texas, Mr. Petrini was the engineering sponsor, advisor and led the project development for several international mega projects totally over $50 billion USD. In his latest role for Dow, he was responsible for the project development of mega project growth opportunities in Latin America.

 

Previously, Mr. Petrini was responsible for Global Construction Management and Global Capital Procurement for Dow with offices and personnel located throughout the world. In addition, he was the Plant Manager for several production units and led the respective business management teams. 

 

Mr. Petrini earned his civil engineering degree from The University of Michigan and is a registered licensed professional engineer. He holds dual citizenship in the US and EU.

 

Philip K. Rose. Mr. Rose is the appointee to the Board of Directors by Golden Post, LLC., the holder of the Series C convertible preferred shares. Mr. Rose is a 2011 graduate of Texas Christian University in Fort Worth, Texas.

 

 
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Key Employees and Consultants

 

Praxedis Martinez (Senior Engineer – Advisor)

 

College: UNIVERSIDAD DE GUANAJUATO, Guanajuato, Gto. 1964-1969. Degree: Mine Engineer and metallurgist.

 

Graduate School: Escuela de Graduados en Administración INSTITUTO TECNOLÓGICO Y DE ESTUDIOS SUPERIORES DE MONTERREY, México, D.F. 1978-1980

 

Degree: MBA.

 

Company CÍA Minera La Campana, S.A. DE C.V., Reforma Mine. Group: Peñoles; Engineering Department Assistant; Dec. 1969- Feb. 1970;  Shift Foreman, March 1969- Dec. 1971; Supervision of mine exploration and development works such as tunnels, crosscuts and raise shafts; Stope preparation works, Stope exploitation; Mercurio Mexicano, SA. De C.V., Tiro General mine Superintendent, January 1972- Dec. 1972, Responsible for the operation of Tiro General Mine; 

 

Servicios Industriales Peñoles, Briquetting plant Construction and other construction works inside the lead smelter of Met – Mex Peñoles in Torreon, Resident engineer, January 1973- December 1973;  Responsible for supervising several contractor’s works.

 

Praxedis Martinez Ramos Company, Mining and ore sales, ore concentration and concentrates sales. Mine plant equipment fabrication. Metallurgical consulting and laboratory testing. Mineral Perlite expansion, January 1974 – July 1993, during this time, in society with Mr. José Luis Martínez, we exploited 6 different mines located in Zacatecas, Durango, and Coahuila States, in one of them we operated a flotation plant. In some of these mines the ore was sold as extracted to the Met-Mex Peñoles Smelter in Torreón; from some other mines the ore would be concentrated in custom flotation plants and the concentrates then sold to the Smelter; and in other cases, the ore was concentrated in our own plant, a small shop for Mine Plant Equipment was started and operated, a Mineral Perlite expansion furnace was set up, and continued working until Dec. 2003.

 

Desarrollos Mineros del Centro, SA. De CV., Luismin, Metallurgical Research Manager, August 1993 – January 1998, Responsible for the Research Area, which included the following laboratories: Assay, Water analysis, Metallurgical, Pilot Plant, Biotechnology, Tests were done in Flotation, Bottle roll cyanidation, Column Cyanidation Acid leach, Filtration, Thickening, Gold diagnostic leach, Mass balance, Work index (Wi) determination, Equipment calculation, Statistical analysis of plant operation, Ore Bio-oxidation, Ore Bioleaching. The Biotechnology testing was done in cooperation with Little Bear and McClelland Labs. And with Dr. Corale Bryerley as consultant.

 

Praxedis Martinez Ramon, Mineral Perlite expansion, Metallurgical consulting, February 1998 – December 2004,  during this period I continued to operate the Perlite expansion furnace. Also, metallurgical consulting to several miners and mining Companies including Minas de San Luis;

 

Servicios Administrativos Luismin, SA de CV., Metallurgical troubleshooting in the Goldcorp Mexico plants, New projects metallurgical research design and supervision, January 2005 – June 2008, Part of the Technical Services Direction team, reporting to the Metallurgical manager;

 

SGS, Durango Laboratory, Planning and supervising test work for the different clients’ projects in Mexico, July 2008 – June 2013, together with the heads of the different section of the lab, examining the samples of ore that needed testing different of routine work; 

 

La Salle University (ULSA), in the Laguna region, teaching in the mining and construction career, August 2013 to date;

 

Praxedis Martinez Ramos, Private mining and metallurgical consulting, July 2013 to date, Consulting to Mineras de DynaResource SA de CV., since May 2017 to date, mainly in the plant expansion project at San Jose de Gracía.

 

Bradford J. Saulter (VP. – Shareholder Relations). Attended University of Texas, Austin, Texas; Marketing Department of Metagram, Inc., a Dallas National Marketing Company; Regional Manager for Lugar, Lynch, & Associates, A Dallas Financial Services Company, Involved in Sales & Marketing of Various Investment Products; Independent Marketing Consultant; Series 22 & 63 Securities License; Vice President / Marketing - Dynacap Group Ltd. (1992 - Present); Director: Farm Partners, Inc. (1992 - Present), Vice President – Investor Relations - DynaResource, Inc., Dallas, Texas (1995 to present).

 

 
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To the knowledge of the Company, no present or former director, executive officer, or person nominated to become a director or executive of the Company, or consultants to the Company, has ever:

 

1.

Filed a bankruptcy petition by or against any business of which such person was a general partner or executive officer whether at the time of the bankruptcy or with two years prior to that time;

2.

Had any conviction in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.

Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

4.

Been found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed suspended or vacated.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following officers received the following compensation for the years ended December 31, 2021, and 2020. These officers(*) do not have employment contracts with the Company.

 

Name and principal position

 

Year

 

Salary

 

 

Bonus

 

 

Stock

Awards

 

 

Option

Awards

 

Non-equity

 incentive plan compensation

 

Nonqualified deferred compensation

 

All other

 compensation

*

 

K.W. (“K.D.”) Diepholz,

 

2021

 

$254,167

 

 

$224,375

 

 

$792,000

 

 

None

 

None

 

None

 

None

 

CEO/President

 

2020

 

$250,000

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Jose Vargas Lugo; EVP.,

 

2021

 

$42,783

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

President of México Operation

 

2020

 

$75,707

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rene L.F. Mladosich;

 

2021

 

$118,302

 

 

None

 

 

$99,000

 

 

None

 

None

 

None

 

None

 

GM of San Jose de Gracía Project

 

2020

 

$101,890

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pedro Ignacio Teran Cruz,

 

2021

 

$51,055

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

Dir. of Exp. and Dev.

 

 2020

 

$52,073

 

 

 None

 

 

 None

 

 

 None

 

 None

 

 None

 

 None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bradford J. Saulter

 

 2021

 

$90,000

 

 

 None

 

 

 None

 

 

 None

 

 None

 

 None

 

 None

 

VP., Investor Relations

 

2020

 

$90,000

 

 

None

 

 

None

 

 

None

 

None

 

None

 

None

 

 

 
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Table of Contents

 

 

 

 

Option Awards      

 

Stock Awards

Name and principal position

 

Number of Securities Underlying Unexercised options (#) exercisable

 

Number of Securities Underlying Unexercised options (#) un-exercisable

 

Equity incentive plan awards

 

Option exercise price

 

Option expiration date

 

Number of share awards that have not vested

 

 

 

 

 

 

 

 

 

 

 

 

 

K.W. (“K.D.”) Diepholz

 

None

 

None

 

None

 

N/A

 

N/A

 

None

CEO/President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Jose Vargas Lugo

 

None

 

None

 

None

 

N/A

 

N/A

 

None

President of México Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rene L.F. Mladosich

 

None

 

None

 

None

 

N/A

 

 N/A

 

 None

GM of San Jose de Gracía Project (2016-2017; 2019)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pedro Ignacio Teran Cruz; Dir. of Expl.

 

None

 

None

 

None

 

N/A

 

N/A

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

Bradford J. Saulter

 

None

 

None

 

None

 

N/A

 

N/A

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

John C. Wasserman

 

None

 

None

 

None

 

N/A

 

N/A

 

None 

 

 
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Table of Contents

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   

 

The following table sets forth the amount and nature of beneficial ownership of each of the executive officers and directors of the Company and each person known to be a beneficial owner of more than five percent of the issued and outstanding shares of common stock of the Company as of December 31, 2021.  The following table sets forth the information based on 18,091,293 (1) common shares issued and outstanding (1) as of December 31, 2021.

 

COMMON STOCK

 

Beneficial Owner

 

Address

 

Common Shares

 

 

Percent Ownership

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

K.W. (“K.D.”) Diepholz

Chairman / CEO

 

222 W. Las Colinas Blvd.

Suite 1910 North Tower

Irving, Texas 75039

 

 

2,265,100

 

 

 

12.52%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Gareth Nichol

 

Denver, Colorado

 

 

2,646,922

 

 

 

14.63%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Dr. Jose Vargas Lugo

EVP, Director

 

Plutarco Elías Calles 47

Guamúchil Sin. Mex. 81450

 

 

274,508

 

 

 

1.52%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Pedro I. Teran Cruz

EVP; Director

 

Hermosillo, Sonora México

 

 

37,500

 

 

 

0.21%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Bradford J. Saulter

VP., Investor Relations

 

222 W. Las Colinas Blvd.

Suite 1910 North Tower

Irving, Texas 75039

 

 

124,439

 

 

 

0.69%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

John C. Wasserman

Director;

 

Waterville, Ohio 43566

 

 

134,389

 

 

 

0.74%

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Dale G. Petrini

Director

 

Houston, Texas 77027

 

 

187,689

 

 

 

1.04%

 

 

 

 

 

 

 

 

 

 

 

 

 

**

 

Philip A. Rose (2)

Director

 

Westlake, Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Officers, Directors and Beneficial owners as a Group (10 holders)

 

 

 

 

5,670,547

 

 

 

31.34%

 

(1)

Does Not Include (i) 1,734,992 shares of common stock issuable upon the conversion of 1,737,992 shares of Series C Convertible Preferred Stock, which are currently convertible, and (ii) 2,168,833 shares of common stock issuable upon the exercise of a warrant, which is exercisable, and subsequent conversion into common shares.

(2)

Does not include 760,000 shares of common stock issuable upon the conversion of 760,000 share of Series D Convertible Preferred Stock, which is currently convertible.

(3)

Does not include 892,165 shares of common stock issuable upon the exercise of a cashless warrant which is exercisable.

(4)

Mr. Rose is a Director of the Company, elected by the holder of the Series C Preferred Shares.

 

No officer or director holds options which are either (a) vested or (b) will vest within 60 days.

 

 
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OPTIONS/WARRANTS

 

The officers and directors and those 5% beneficial owners held the following options/warrants as of December 31, 2021:

 

None.

 

PREFERRED SHARES (SERIES A)

 

 Preferred Series

 

Beneficial Owner

 

Address

 

Preferred Shares

 

Percent Ownership

Series “A”

 

K.W. (“K.D.”)

Diepholz, CEO

 

1303 Regency Court

Southlake, Texas76092

 

1,000

 

 

100.0%

 

 

PREFERRED SHARES (SERIES C)

 

Preferred Series

 

Beneficial Owner

 

Address

 

Preferred Shares

 

Percent Ownership

Series “C”

 

Golden Post Rail LLC.

 

1110 Post Oak Place

Westlake, Texas 76262

 

1,734,992 

 

100.0%

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 

 

Dynacap Group Ltd.

 

The Company paid $285,999 and $114,250 to Dynacap Group, Ltd. (“Dynacap”, an entity controlled by the CEO of the Company) for consulting and other fees during the years ended December 31, 2021 and 2020, respectively. Dynacap retained two subcontractors who provided accounting, administrative and executive support services to the Company during recent years.

 

Cash Advances by Management

 

None

 

Stock Issued to Management

 

Officers and directors received the follow stock as compensation during the year ended December 31, 2021

 

Koy W (“K.D.”) Diephotz

400,000 shares of Common Stock

 

 

Rene L.F. Mladosich

50,000 shares of Common Stock

 

The Company is not aware of any other material relationships or related transactions between the Company and any officers, directors or holders of more than five percent of any class of outstanding securities of the issuer.

 

 
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 

 

Our independent registered public accounting firm is Armanino LLP, San Ramon, CA, Auditor Firm ID: 32

 

(1) Audit Fees

The aggregate fees billed for professional services rendered by our auditors, for the audit of the registrant's annual consolidated financial statements and review of the consolidated financial statements included in the registrant's Form 10-K and Form 10-Q(s) or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, for fiscal years 2021 and 2020 was $222,202 and $230,359, respectively.

 

(2) Audit Related Fees

None.

 

(3) Tax Fees

None. 

 

(4) All Other Fees

None.

 

(5) Audit Committee Policies and Procedures

The Company does not have an audit committee.

 

(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's consolidated financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

Not applicable.

 

 
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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The exhibits listed in the accompanying exhibit index are filed (except as otherwise indicated) as part of this report.

 

No.

 

Description

31.1 *

 

Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 *

 

Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 *

 

Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

________________

* Filed herewith.

 

ITEM 16. 10K SUMMARY

 

Not Applicable. 

 

Exhibit Number; Name of Exhibit

 

31.1

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

 

31.2 

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

 

32.1 

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

 

 
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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

DynaResource, Inc.

 

 

 

 

Date: August 23, 2022

By:

/s/ K.W. (“K.D.”) Diepholz

 

 

K.W. (“KD”) Diepholz,

 

 

 

Chairman / CEO

 

 

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

 

/s/ K.D. Diepholz

 

/s/ Rene LF Mladosich

 

K. D. Diepholz, Chairman

 

Rene LF Mladosich

 

 

 

 

 

/s/ Dr. Jose Vargas Lugo

 

/s/ Dale G. Petrini

 

Dr. Jose Vargas Lugo

 

Dale G. Petrini

 

 

 

 

 

/s/ John C. Wasserman

 

/s/ Phillip Rose

 

John C. Wasserman

 

Phillip Rose

 

 

 

 

 

August 23, 2022

 

 

 

Dated

 

 

 

 

63

 

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