Dynaresource, Inc 10-Q for FY2023 Q1
Dynaresource, Inc. (DYNR)
About this 10-Q
Dynaresource, Inc filed this 10-Q on May 15, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $11.95M
- up 13.9% from $10.49M a year earlier
- Net income
- $31.71K
- down 99.4% from net income of $5.06M a year earlier
- Diluted EPS
- $0.00
- compared with $0.27 a year earlier
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 |
From the transition period ____________ to ___________.
Commission File Number
(Exact name of small business issuer as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
OTC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
☐ | Smaller Reporting Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. Yes ☐ No ☒
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 12, 2023, there were
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CERTIFICATIONS
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DYNARESOURCE, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2023 AND DECEMBER 31, 2022
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| 2023 (Unaudited) |
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| 2022 (Audited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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Accounts receivable |
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Inventories |
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Foreign tax receivable |
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Other current assets |
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Total current assets |
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Right-of-use assets, net |
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Mining concessions |
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Deferred tax asset |
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Other assets |
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TOTAL ASSETS |
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LIABILITIES. TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Customer advances |
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Derivative liabilities |
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Current portion of operating lease payable |
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Installment notes payable |
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Total current liabilities |
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Operating lease payable, less current portion |
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TOTAL LIABILITIES |
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TEMPORARY EQUITY |
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Series C Senior Convertible Preferred Stock, $ |
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Series D Senior Convertible Preferred Stock, $ |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY |
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Preferred Stock, Series A, $ |
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Common Stock, $ |
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Preferred rights |
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Additional paid-in-capital |
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Treasury stock, |
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Accumulated other comprehensive income |
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Accumulated deficit |
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TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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| Table of Contents |
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
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REVENUE |
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COSTS AND EXPENSES OF MINING OPERATION |
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Production Cost Applicable to Sales |
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Mine Production Costs |
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Mine Exploration Costs |
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Facilities Expansion Costs |
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Exploration Drilling |
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Camp, Warehouse and Facilities |
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Transportation |
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Property Holding Costs |
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General and Administrative |
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Depreciation and Amortization |
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Total Operating Expenses |
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NET OPERATING INCOME (LOSS) |
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OTHER INCOME (EXPENSE) |
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Foreign Currency Gains (Losses) |
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Interest Expense |
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Derivatives Mark-to-Market Gain |
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Other Income |
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TOTAL OTHER INCOME |
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NET INCOME (LOSS) BEFORE TAXES |
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INCOME TAX BENEFIT |
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NET INCOME |
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DEEMED DIVIDEND FOR SERIES C & D PREFERRED |
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NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE |
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EQUITY HOLDERS OF DYNARESOURCE, INC. |
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Basic Earnings (Loss) Per Common Share |
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Weighted Average Shares Outstanding - Basic |
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Diluted earnings (Loss) Per Common Share |
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Weighted Average Shares Outstanding - Diluted |
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OTHER COMPREHENSIVE INCOME (LOSS) |
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Foreign Currency Translation Gain (Loss) |
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TOTAL OTHER COMPREHENSIVE INCOME (LOSS) |
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TOTAL COMPREHENSIVE INCOME |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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| Table of Contents |
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
THREE MONTHS ENDED MARCH 31, 2022
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| Other |
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| Preferred A |
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| Paid In |
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Balance January 1, 2022 |
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Other Comprehensive (Loss) |
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Net Income |
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Balance, March 31, 2022 |
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THREE MONTHS ENDED MARCH 31, 2023
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| Other |
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| Preferred A |
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| Common |
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| Paid In |
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| Treasury |
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| Shares |
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Balance January 1, 2023 |
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Other Comprehensive Income |
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Net Income |
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Balance, March 31, 2023 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
| Table of Contents |
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITES: |
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Net Income |
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Adjustments to reconcile net income to cash used in operating activities |
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Change in Fair Value of Derivatives |
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Depreciation and Amortization |
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Deferred Taxes |
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Change in Operating Assets and Liabilities |
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Accounts Receivable |
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Inventories |
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Foreign Tax Receivable |
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Operating Lease Assets |
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Other Assets |
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Accounts Payable |
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Accrued Expenses |
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Customer Advances |
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Lease Liabilities |
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CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments of Notes Payable |
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CASH FLOWS USED IN FINANCING ACTIVITIES |
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Effects of Foreign Currency |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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SUPPLEMENTAL DISCLOSURES |
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Cash Paid for Interest |
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Cash Paid for Income Taxes |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
| Table of Contents |
DYNARESOURCE, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization
DynaResource, Inc. (the “Company” or “DynaResource”) was organized September 28, 1937, as a California corporation under the name of West Coast Mines, Inc. In 1998, the Company re-domiciled to Delaware and changed its name to DynaResource, Inc. The Company is in the business of acquiring, investing in, and developing precious metal properties, and the production of precious metals.
In 2000, the Company formed a wholly owned subsidiary, DynaResource de México S.A. de C.V., chartered in México (“DynaMéxico”). This Company was formed to acquire, invest in and develop resource properties in México. DynaMéxico owns a portfolio of mining concessions that currently includes its interests in the San José de Gracia Project (“SJG”) in northern Sinaloa State, México. The SJG District covers 9,920 hectares (24,513 acres) on the west side of the Sierra Madre Mountain range. The Company currently owns 100% of the outstanding capital of DynaMéxico.
In 2005, the Company formed DynaResource Operaciones de San José De Gracia S.A. de C.V. (“DynaOperaciones”) and acquired control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”). The Company owns 100% of DynaMineras.
The Company elected to become a voluntary reporting issuer in Canada in order to avail itself of Canadian regulations regarding reporting for mining properties and, more specifically, National Instrument 43-101 (“NI 43-101”). This regulation sets forth standards for reporting resources in a mineral property and is a reporting standard widely recognized in the mining industry.
Significant Accounting Policies
The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenues and expenses. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.
The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that: (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods presented.
Basis of Presentation
The Company prepares its unaudited consolidated financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States.
Correction of an Error
The derivative liability in the Company’s December 31, 2022 balance sheet presented herein has been corrected to $
| 7 |
| Table of Contents |
Use of Estimates
In order to prepare unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the unaudited consolidated financial statements and determines whether contingent assets and liabilities, if any, are disclosed in the unaudited consolidated financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.
Principles of Consolidation
The unaudited consolidated financial statements include the accounts of DynaResource, Inc., as well as DynaResource de México, S.A. de C.V. (100% ownership), DynaResource Operaciones S.A. de C.V. (100% ownership) and Mineras de DynaResource S.A. de C.V. (
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 March 31, 2023, the Company has $
Accounts Receivable and Allowances for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based upon its customers’ financial condition and payment history, and its historical collection experience and expected collectability. As of March 31, 2023 and December 31, 2022, no allowance has been deemed necessary.
Foreign Tax Receivable
Foreign Tax Receivable is comprised of recoverable value-added taxes (“IVA”) charged by the Mexican government on goods and services rendered. Under certain circumstances, these taxes are recoverable by filing a tax return. Amounts paid for IVA are tracked and held as receivables until the funds are remitted.
Inventory
Inventories are carried at the lower of cost or net realizable value and consist of mined tonnage, gravity and flotation concentrates, and gravity tailings or flotation feed material.
Exploration Stage Issuer (No Reserves Disclosed)
The definitions of Measured Mineral Resource, Mineral Reserve and Mineral Resource are set forth in SEC Regulation S-K, Item 1300 (“Reg. S-K, Item 1300”).
Measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.
Mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
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Mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.
As of March 31, 2023, the Company meets the definition of an exploration stage issuer which is defined as an issuer that has no material property with established proven and probable mineral reserves as defined by Regulation S-K, Item 1300.
Property, Plant & Equipment
Substantially all property, plant and equipment at the Company’s mines, 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 have alternative uses or significant salvage value, may be capitalized without proven and probable reserves.
Office furniture and equipment are depreciated on a straight-line method over estimated economic lives ranging from
Design, Construction, and Development Costs: Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines.
When proven and probable reserves (as defined by Reg. S-K, Item 1300) exist, development costs are capitalized. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production would also be capitalized. Costs of start-up activities and costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations as incurred. Costs of abandoned projects are charged to operations upon abandonment. All capitalized costs would be amortized using the units of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves.
Certain costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves. As no proven and probable reserves have been established on any of the Company’s properties, the design, construction and development costs are not capitalized at any of the Company’s properties, and accordingly, substantially all such costs are expensed as incurred, resulting in the Company reporting higher operating costs than if such expenditures had been capitalized. Additionally, the Company does not have a corresponding depreciation or amortization of these costs going forward since such costs were expensed as incurred as opposed to being capitalized. As a result of these and other differences, the Company’s financial statements may not be comparable to the financial statements of mining companies that have established reserves.
Mineral Property Interests
Mineral property interests include acquired interests in development and exploration stage properties and are considered tangible assets. The amount capitalized relating to a mineral property interest represents its fair value at the time of acquisition. Mining properties consist of 33 mining concessions covering approximately 9,920 hectares at the San José de Gracia property. 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.
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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.
For operating mines, recoverability is measured by comparing the undiscounted future net cash flows to the net book value. When the net book value exceeds future net undiscounted cash flows, an impairment loss is measured and recorded based on the excess of the net book value over fair value. Fair value for operating mines is determined using a combined approach, which uses a discounted cash flow model for the existing operations and a market approach for the fair value assessment of exploration land claims. Future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after considering losses during processing and treatment of mineralized material. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions, and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, and silver, commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.
The recoverability of the book value of each property will be assessed annually for indicators of impairment such as adverse changes to any of the following:
· | estimated recoverable ounces of gold, silver or other precious minerals; |
· | estimated future commodity prices; |
· | estimated expected future operating costs, capital expenditures and reclamation expenditures. |
A write-down to fair value will be recorded when the expected future cash flow is less than the net book value of the property, or when events or changes in the property indicate that carrying amounts are not recoverable. This analysis will be completed as needed. As of the date of this filing, no events have occurred that would require the write-down of any assets. As of March 31, 2023 and December 31, 2022, no indications of impairment existed.
Asset Retirement Obligation
As the Company is not obligated to remediate the mining properties, no Asset Retirement Obligation (“ARO”) has been established. Changes in regulations or laws, any instances of non-compliance with laws or regulations that result in fines, or any unforeseen environmental contamination could result in a material impact to the amounts charged to operations for reclamation and remediation. Significant judgments and estimates are made when estimating the fair value of AROs. Expected cash flows relating to AROs could occur over long periods of time and the assessment of the extent of environmental remediation work is highly subjective. Considering all of these factors that go into the determination of an ARO, the fair value of the AROs can materially change over time.
Property Holding Costs
Holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. These costs include security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.
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Exploration Costs
Exploration costs, including exploration, development, direct field costs and related administrative costs are expensed in the period incurred.
Leases
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.
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 unaudited financial statements of the subsidiaries should not be construed as representations that Mexican Pesos have been, could have been or may in the future be converted into U.S. dollars at such rates or any other rates.
Relevant exchange rates used in the preparation of the unaudited financial statements for the subsidiaries are as follows for the periods ended March 31, 2023, and December 31, 2022 (Mexican Pesos per one U.S. dollar):
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| March 31, 2023 |
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| December 31, 2022 |
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Current Exchange Rate |
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Relevant exchange rates used in the preparation of the income statement portion of unaudited financial statements for the subsidiaries are as follows for the periods ended March 31, 2023 and 2022 (Mexican Pesos per one U.S. dollar):
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| March 31, 2023 |
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| March 31, 2022 |
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Weighted Average Exchange Rate for the Three Months Ended |
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The Company recorded currency transaction gains (losses) of $
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.
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Income from the Company’s subsidiaries in México is taxed in accordance with applicable Mexican tax law and enacted rates.
Comprehensive Income (Loss)
ASC 220 “Comprehensive Income” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company’s comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), consisting of unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations.
Revenue Recognition
The Company follows ASC 606 “Revenue from Contracts with Customers”. The Company generates revenue by selling gold and silver concentrate material produced from its mining operations. The Company recognizes revenue for gold and silver concentrate production, net of treatment and refining costs, when it satisfies the performance obligation of transferring control of the concentrate to the customer. This is generally when the material is delivered to the customer facility for treatment and processing, as the customer has the ability (upon such delivery) to direct the use of and obtain substantially all the remaining benefits from the material and the customer has the risk of loss.
The amount of revenue recognized is initially recorded on a provisional basis based on the contract price and the estimated metal quantities based on assay data. The revenue is adjusted upon final settlement of the sale. The chief risk associated with the recognition of sales on a provisional basis is the fluctuation (if any) between the estimated quantities of precious metals base on the initial assay and the actual recovery from treatment and processing.
As of March 31, 2023, there are $
During the three months ended March 31, 2023, and the year ended December 31, 2022, there was $
Shipping and handling costs are considered fulfillment costs after the customer obtains control of the goods.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, payables and long-term debt. Cash, receivables and payables approximate fair value because of the short-term nature of these items. As of March 31, 2023 and December 31, 2022, there were no long-term assets or liabilities, measured at their estimated fair value.
Earnings (Loss) Per Share
Earnings (loss) per share, attributable to the common equity holders of DynaResource, 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 (loss) per share is 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 and convertible preferred shares and are excluded from diluted earnings (loss) per share computation in periods where the Company has incurred a net loss attributable to the common equity holders or where the average stock price was below the exercise price of the respective potentially dilutive common share, as their effect would be considered anti-dilutive. For the three months ended March 31, 2023, the Company had
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Related Party Transactions
ASC 850, “Related Party Disclosures” requires companies to include in their financial statements, disclosures of material related party transactions. The Company discloses all material related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party is also a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
NOTE 2 - INVENTORIES
Inventories are carried at the lower of cost or fair value and consist of mined tonnage, gravity-flotation concentrates, and gravity tailings (or flotation feed material). Inventory balances of March 31, 2023 and December 31, 2022 were as follows:
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| 2023 |
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| 2022 |
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Mined Tonnage |
| $ |
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| $ |
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Gold-Silver Concentrates |
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Total Inventories |
| $ |
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| $ |
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NOTE 3 – PROPERTY, PLANT & EQUIPMENT
As of March 31, 2023 and December 31, 2022, all the Company’s property, plant and equipment have been fully depreciated, amortized or expensed, as discussed in “Property, Plant and Equipment” in Note 1 above.
NOTE 4 - MINING CONCESSIONS
Mining properties consist of the San José de Gracia concessions. Mining Concessions were $
NOTE 5- INCOME TAXES
The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Our income tax expense and effective income tax rate are significantly impacted by the mix of our domestic and foreign earnings before income taxes. The Mexican applicable statutory rate is
NOTE 6 - STOCKHOLDERS’ EQUITY
The total number of shares of all classes of capital stock which the corporation has the authority to issue is
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Series A Preferred Stock
The Company has designated
Series C Senior Convertible Preferred Stock
As of March 31, 2023 and December 31, 2022 there were
Due to the nature of the Series C Preferred Shares as mandatorily redeemable, the Series C Preferred Shares are classified as “temporary equity” on the balance sheet.
Series D Senior Convertible Preferred Stock
On May 14, 2020, the Company closed an additional financing and related agreements with certain shareholders. On October 7, 2021, the Company paid $
The remaining ten noteholders of notes convertible into Series D Preferred Stock elected to convert their notes totaling $
Due to the nature of the Series D Preferred as mandatorily redeemable by the Company at the election of the Series D Preferred stockholder at any time following maturity, the Series D Preferred Stock is classified as “temporary equity” on the balance sheet.
The deemed dividends on the Series C and D Preferred Stock for the three months ended March 31, 2023 and 2022, were $
Preferred Stock (Undesignated)
In addition to the 1,000 shares designated as Series A Preferred Stock, and the
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The shares of each series of Preferred Stock may vary from the shares of any other series thereof in any or all the foregoing respects and in any other manner. The Board of Directors may increase the number of shares of Preferred Stock designated for any existing series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series. Unless otherwise provided in a particular Preferred Stock designation, the Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.
Common Stock
The Company is authorized to issue
Preferred Rights
The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San José de Gracia Pilot Production Plant and received $
Stock Issuances
There were no issuances of stock during the three months ended March 31, 2023.
Treasury Stock
During the three months ended March 31, 2023 no shares of treasury stock were purchased.
There were
Warrants
2023 activity
As of March 31, 2023, the Company had outstanding warrants, which were a part of the issuance of notes convertible into Series D Convertible Preferred Stock in 2020, to purchase
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| Number of Shares |
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| Weighted Average Exercise Price |
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| Weighted Average Remaining Contractual Life (Years) |
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| Intrinsic Value |
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Balance as of December 31, 2022 |
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Granted |
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Exercised |
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Forfeited |
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| - |
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| - |
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| - |
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Balance as of March 31, 2023 |
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| 892,165 |
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| 0.01 |
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| - |
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Exercisable as of March 31, 2023 |
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NOTE 7 - 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 to 2017 and continuing expenditures in current and forward activities,
Leases
In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), DynaMineras maintains access and surface rights to the SJG Project pursuant to a
The Company determines if a contract is or contains a lease at inception. As of March 31, 2023, the Company has two operating leases: corporate office space and a twenty-year ground lease in association with its México mining operations. An agreement for the lease of expanded office space was signed in the first quarter of 2023 and will commence when the build-out of the space is complete, which is anticipated to be during the second quarter of 2023. Until that time, the existing space is being leased on a month-to-month basis. The ground lease has a remaining term of approximately 10 years. Variable lease costs consist primarily of variable common area maintenance, storage parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.
As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s interest rate of promissory notes
NOTE 8 - DERIVATIVE LIABILITY
Warrants Issued With the Notes Convertible Into Series D Preferred
As discussed in Note 6, the Company analyzed the conversion features of the promissory notes convertible into Series D Preferred and determined that the Warrants issued with such notes qualified as a derivative liability. The fair value was required to be allocated among the notes, the notes’ conversion features, and the warrants, and then remeasured at each reporting date. The Company performed a valuation of the conversion feature. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability and utilizes market data to the maximum extent possible.
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In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the Warrants issued with the notes convertible into Series D Preferred based on the assumptions below:
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Period Ended |
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Annual volatility rate |
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Risk free rate |
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Remaining Term |
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Fair Value of common stock |
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For the three and twelve months ended March 31, 2023 and December 31, 2022, an active market for the Company’s common stock did not exist. Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.
The below table represents the change in the fair value of the derivative liability during the three and twelve months ended March 31, 2023 and December 31, 2022.
Period Ended |
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Fair value of derivative (warrants), beginning of period |
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Exercise of warrants |
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Change in fair value of derivative |
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Fair value of derivative (warrants), end of period |
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| $ |
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NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The ASC 820 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.
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As of March 31, 2023 and December 31, 2022, the Company’s financial assets and liabilities 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 8.
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| Total |
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| Quoted Prices in Active Markets For Identical Assets (Level 1) |
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| Significant Other Observable Inputs (Level 2) |
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| Significant Unobservable Inputs (Level 3) |
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Fair Value Measurement as of March 31, 2023: |
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Liabilities: |
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Derivative Liabilities |
| $ |
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| $ |
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| $ |
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| $ |
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Totals |
| $ |
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| $ |
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| $ |
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Fair Value Measurement as of December 31, 2022 |
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Liabilities: |
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Derivative Liabilities |
| $ |
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| $ |
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| $ |
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| $ |
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Totals |
| $ |
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| $ |
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| $ |
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The Company had certain customers whose revenue individually represented
For each of the three months ended March 31, 2023 and 2022, one customer accounted for
As of March 31, 2023 and December 31, 2022, one customer accounted for
NOTE 11 - NOTES PAYABLE
In September 2018, the Company entered into financing agreements for the unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2017 and the period ending September 30, 2018 in the amount of $
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 $
As of September 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda (Mexican federal tax authority) for a reduction in the liability which is pro-rata to the reduction in the Francisco Arturo concession. For financial reporting purposes the Company continues to carry all notes (to finance unpaid mining concession taxes) at their unpaid principal amount and accrues interest on a monthly basis. As of March 31, 2023, $
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In October 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the core mining concessions in the amount of $
The following is a summary of the activity during the three months ended March 31, 2023:
Balance December 31, 2022 |
| $ | 1,968,251 |
|
Exchange Rate Adjustment |
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| 158,945 |
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2023 Principal Payments |
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| - |
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Balance March 31, 2023 |
| $ | 2,127,196 |
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NOTE 12 - REVOLVING CREDIT LINE FACILITY
On February 4, 2021, the Company (through DynaMineras) entered into a Revolving Credit Line Facility and Commercial Offtake Agreement (the “RCL”), with a commercial buyer. The RCL was extended in December 2022 through December 2023. Under the terms of the RCL:
| · | The Company will deliver |
| · | An initial RCL was established by buyer in the amount of $ |
| · | On May 1, 2021, the RCL increased to an amount equal to 80% of the prior 3 months’ revenue; |
| · | Each successive month, the RCL shall be adjusted according to the Company’s prior 3 months’ revenue; |
| · | The RCL shall never be less than $ |
| · | The RCL will be interest free for |
| · | The RCL is to be repaid through deliveries of concentrates or cash within |
The RCL is included under Customer Advances on the unaudited consolidated balance sheet.
Deposits under Revolving Credit Line Facility
Under the terms of the RCL, DynaMineras received the following advances from the buyer (in millions):
(1) | $ |
(2) | $ |
(3) | $ |
NOTE 13 – RELATED PARTY TRANSACTIONS
Dynacap Group Ltd.
The Company paid $
There are no other related party transactions that require disclosure.
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NOTE 14 - SUBSEQUENT EVENTS
On April 19, 2023, the Company entered into a Multi-Party Agreement (the “Agreement”) with Golden Post Rail, LLC (“Golden Post”), MKR 2022 Grantor Retained Annuity Trust, and Koy W. (“K.D.”) Diepholz (“Diepholz”). Golden Post is a holder of more than 5% of the outstanding shares of the Company’s Common Stock and of all the Company’s outstanding Series C Preferred Stock (the “Series C Stock”). Diepholz is the Company’s CEO and Chairman of the Company’s Board of Directors.
The principal terms of the Agreement are as follows:
| · | Diepholz agreed to sell to the Company, and the Company agreed to redeem and purchase from Diepholz, all of the |
| · | The A Shares constitute all of the outstanding shares of Series A Stock of the Company. The Series A Stock carried the right to elect a majority of the Company’s Board of Directors. Upon the redemption of the A Shares, the Company agreed to retire the A Shares, not to issue or sell any Series A Stock in the future, and not to create or issue any other class or series of Preferred Stock having the right to elect a majority of the Board of Directors without approval of the Board of Directors (including the director appointed by the holders of the Series C Stock (the “Series C Director”). |
| · | Within 90 days after closing of the Agreement, the Company will seek stockholder approval to amend its Certificate of Incorporation to eliminate the Series A Stock. |
| · | The Company will enter into executive employment agreements (the “Employment Agreements”) with its key executives – Diepholz, Rene Mladosich, Jose Vargas, and Lic. Santos. |
| · | Prior to the redemption of the A Shares, Diepholz agreed to vote the A Shares to elect Ronald Vail as a fourth independent member of the Company’s Board of Directors, resulting in the Company’s having a majority-independent Board of Directors. |
| · | The Company will create an Audit Committee, consisting of three or more independent members of its Board of Directors, one of which must be the Series C Director as long as Golden Post has the right to appoint the Series C Director. |
| · | The Company will create a Nominating Committee, consisting of (a) all of the independent members of the Board of Directors, including the Series C Director as long as Golden Post has the right to appoint the Series C Director; and (b) the CEO, as long Diepholz holds that position and is serving as a director. |
The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement, a copy of which is available as filed on Form 8-K, filed with the SEC on April 26, 2023 and incorporated herein in its entirety by reference.
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| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this 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, (i) risks inherent in the mining business (including risks related to the development of large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), (ii) changes in the market prices of precious metals and in the cost of mining and refining ores, (iii) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays (including the impact of government shutdowns), ground conditions and grade and recovery variability, (iv) any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), (v) the uncertainties inherent in the estimation of mineral reserves and resources, (vi) changes that could result from the Company’s future acquisition of new mining properties or businesses, (vii) the Company’s reliance on a single purchaser to whom the Company markets its production, (viii) the effects of environmental and other governmental regulations in the United States and Mexico, (ix) the effects of changes in the general economic environment, including inflationary pressures, bank depositary risks, and the threat of recession, (x) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xi) the Company’s ability to raise additional financing necessary to conduct its business. Readers are cautioned not to put undue reliance on forward-looking statements risks, uncertainties and assumptions discussed in this report.
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 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 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 exp
Company
The Company is a minerals investment, management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary in México, with specific focus on precious and base metals in México.
We currently conduct operations in México through our operating subsidiaries. We currently own 80% of the outstanding shares of DynaResource de México, S.A. de C.V. (“DynaMéxico”), and DynaMéxico currently holds 20% of its outstanding shares recovered from Goldgroup Resources Inc. DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia Property, in northern Sinaloa State, México. We also own 100% of Mineras de DynaResource S.A. de C.V. (“DynaMineras”), the exclusive operator of the San José de Gracia Project, under contract with DynaMéxico. DynaOperaciones is the exclusive management company for registered employees.
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| Table of Contents |
Project Improvements, Expansion and Increased Output (2017 To Present)
The Company continues its business plan of operations at San José de Gracia, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial average of 100 tons per 24-hour operating day, to a current average of approximately 500 tons per 24-hour operating day. During the second half of 2023, the Company expects to achieve production output of an average of approximately 700 tons per 24-hour operating day. (Note the Summary of Test Mining and Pilot Mill Operations below).
Since January 2017, the Company has expended over $32.6 million USD in non-operating costs, generally classified as project improvements and expansion costs which have been expensed in the company’s financial statements. These funds have been provided primarily from cash flows from operations. An itemized list of these non-operating costs is described below:
Mill Expansion |
| $ | 7,093,000 |
|
Tailings Pond Expansion |
|
| 1,464,000 |
|
Machinery and Equipment |
|
| 2,600,000 |
|
Mining Camp Expansion |
|
| 146,000 |
|
Medical Facility |
|
| 126,000 |
|
Mine Development - San Pablo |
|
| 2,748,000 |
|
Mine Expansion - San Pablo East |
|
| 915,000 |
|
Mine Expansion - Tres Amigos |
|
| 1,599,000 |
|
Exploration Drilling |
|
| 2,981,000 |
|
SIG Mining Concessions |
|
| 2,014,000 |
|
Surface Rights and Permitting |
|
| 1,030,000 |
|
Debt Retirement |
|
| 3,528,000 |
|
Legal Fees |
|
| 6,385,000 |
|
Total |
| $ | 32,629,000 |
|
The Company is currently reporting all costs of mine operations, improvements, and expansion as expenses in accordance with United States General Accepted Accounting Principal (“GAAP”) requirements. The result of expensing all costs is that the Company has accumulated a net loss carry forward from México operations of $8 million USD which is available to offset future taxable earnings.
Summary of Test Mining and Pilot Mill Operations
Annual Results from 2018 to 2022:
|
| Total Tons Mined & |
|
| Reported Mill Feed Grade (g/t |
|
| Reported Recovery |
|
| Gross Gold Concentrates Recovered |
|
| Net Gold Concentrates Sold |
| |||||
Year |
| Processed |
|
| Au) |
|
| % |
|
| (Au oz.) |
|
| (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 |
|
2022 |
|
| 137,740 |
|
|
| 8.18 |
|
|
| 88.05 | % |
|
| 31,905 |
|
|
| 25,554 |
|
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| Table of Contents |
Test pilot operations in 2022 yielded 137,740 tons of material, mined and processed from underground test mining activity and pilot milling operations. These test pilot operations also yielded approximately 31,905 gross ounces of gold, and net of dry weight adjustments at the buyer’s facilities, the approximately 25,554 ounces of gold.
Quarterly Results for the Three Months Ended March 31, 2023 and 2022:
|
| Total Tons Mined & Processed |
|
| Reported Mill Feed Grade (g/t Au) |
|
| Reported Recovery % |
|
| Gross Gold Concentrates Recovered (Au oz.) |
|
| Net Gold (1) Concentrates Sold (Au oz.) |
| |||||
Three Months Ended March 31, 2023 |
|
| 53,258 |
|
|
| 6.91 |
|
|
| 69.39 | % |
|
| 8,204 |
|
|
| 6,810 |
|
Three Months Ended March 31, 2022 |
|
| 27,511 |
|
|
| 10.12 |
|
|
| 79.40 | % |
|
| 7,110 |
|
|
| 6,000 |
|
(1) | Gold concentrate sold during the quarter is not equal to gold concentrate recovered during the quarter due to timing of shipments & buyers discount. |
Test pilot operations in Q1 2023 yielded 53,258 tons mined and processed through mill operations (average of 592 tons per day) and the recovery of 8,204 gross Oz Au resulting in sales of 6,810 gross Au Oz contained in gold-silver concentrates, and $11,953,079 of revenue, net of buyer’s price discount, refining and treatment costs.
Test pilot operations in Q1 2022 yielded 27,511 tons mined and processed through mill operations (average of 306 tons per day) and the recovery of 7,110 gross Oz Au resulting in sales of 6,000 gross Au Oz contained in gold-silver concentrates, and of $10,492,503 of revenue, net of buyer’s price discount, refining and treatment costs.
Reported recovery in Q1 2023 is less than Q1 2022 as a result of the expansion of the Company’s mill operations. In the same quarter prior year, the Company was limited in capacity, and has since added two ball mills to the facility, which is providing additional capacity. With this new capacity, we had an increase in ore tonnage processed from 27,511 (average of 306 tons per day) to 53,258 (average of 592 tons per day) and decrease in grade from 10.12 to 6.91 g/t. The decrease in recovery percentage from 79.40% to 69.39% was a result of processing inefficiencies as a result of the installation, testing and adjustments to the operating inputs of the new, largest ball mill installed to date. We believe these inefficiencies will be temporary, however, the reported recovery percentage may be less going forward as we process larger amounts of material.
Additional Test Mining and Mill Operations Disclosure
The Company expects to continue its test underground mining activity and pilot milling operations in 2023, and projects an increased output to an average of approximately 700 tons per 24-hour operating day from the mine and mill during the second half of 2023.
Results for the Three Months ended March 31, 2023 and 2022
REVENUE. Revenue for the quarter ended March 31, 2023 and 2022 was $11,953,079 and 10,492,503. The increase was a result of an increase in tonnage mined and processed during the quarter from 27,511 tons in 2022 to 53,258 in 2023. The increase in tonnage was offset by a drop in the grade of the ore processed ore from 10.12 g/t au to in 2022 to 6.91 g/t au per ton in 2023. In addition, the Company’s recovery rate dropped from 79.4% to 69.4% due primarily to the implementation of two new ball mills.
PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the three months ended March 31, 2023 and 2022 were $1,711,262 and $765,495. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals products. The increase is a result of increasing production from an average of 306 tons per day in 2022 to an average of 592 tons per day in 2023.
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| Table of Contents |
MINE PRODUCTION COSTS. Mine production costs for the three months ended March 31, 2023 and 2022 were $2,529,437 and $1,227,884. The Company allocates total mining costs between production and waste based on tonnage mined monthly. These costs were directly related to the extraction of mine tonnage to be processed at the mill. For the quarter ended March 31, 2023, the Company mined 45,499 tons of ore compared to 31,696 tons in the prior year first quarter.
MINE EXPLORATION COSTS. Mine exploration costs for the three months ended March 31, 2023 and 2022 were $2,216,949 and $878,188. These were the costs of extracting waste material to reach the materials to be extracted for processing. For the quarter ended March 31, 2023 the Company mined 40,677 tons of waste compared to 22,314 in the prior year.
FACILITIES EXPANSION COSTS: Facilities expansion costs for the three months ended March 31, 2023 and 2022 were $285,078 and $608,603. The major expense in the first quarter of 2022 was the refurbishment of the Company’s existing mills. The Company’s first phase of the expansion was completed in May 2022 and the second phase of the expansion was completed in the first quarter of 2023. The majority of the second phase expansion costs were incurred during 2022.
EXPLORATION DRILLING. During the first quarter of 2022 the Company began an exploration drilling program for the purposes of updating the Company’s 43-101 Mineral Resource Estimate. Exploration expenditures for the three months ended March 31, 2023 and 2022 were $497,400 and $487,615.
CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility costs for the three months ended March 31, 2023 and 2022 were $1,082,179 and $825,203. These represent the costs of supporting the mining facilities including housing, food, security and warehouse operations. The increase was a result of the increase in mining activity as a result of the facilities expansion and mine exploration.
TRANSPORTATION. Transportation costs for the three months ended March 31, 2023 and 2022 were $746,063 and $390,640. These costs relate to the transporting the product to the customer for treatment and sales. The increase in costs between quarters is primarily due to an increase in tonnage of ore hauled from mine to plant and an overall increase in fuel and transportation costs.
PROPERTY HOLDING COSTS. Property holding costs for the three months ended March 31, 2023 and 2022 were $39,521 and $35,967. These costs were concessions taxes, leases on land and other direct costs of maintaining the property. These costs are relatively consistent from year to year regardless of the level of mining activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the three months ended March 31, 2023 and 2022 were $2,965,593 and $1,026,355. These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses. The increase was an increase legal fees associated ongoing legal discussed in the legal summary, including a non-recurring legal expense tied to the outcome of litigation that was accrued in the first quarter of 2023 and an overall increase in administrative costs supporting the Company’s increase in activity.
OTHER INCOME (EXPENSE). Other income (expense) for the three months ended March 31, 2023, and 2022 was $75,085 and $817,061, respectively. Included in this category in 2023 was interest expense of $(116,308), change in derivative of $169,434 and currency transaction gain (loss) of $18,254 and miscellaneous income of $3,705. The decrease in the derivative liability was primarily due to the decreased remaining life of the underlying securities and the Company’s common stock value remaining under the conversion term. Included in this category in 2022 was interest expense of $(119,769), change in derivative of $938,706 and currency transaction gain (loss) of $(2,402) and miscellaneous income of $526.
OTHER COMPREHENSIVE INCOME. Other comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period. The Company’s other comprehensive loss for the three months ended March 31, 2023 and 2022 consisted of unrealized currency gains (losses) of $91,241 and $(301,912), respectively. The change is due to the variances in the peso exchange rates throughout the two periods.
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| Table of Contents |
Liquidity and Capital Resources
As of March 31, 2023, the Company had working capital of $11,822,264, comprised of current assets of $35,641,238 and current liabilities of $23,818,974. This represented an increase of $32,686 from the working capital maintained by the Company of $11,789,578 as of December 31, 2022. The primary reason for the increase was due to timing of the Company’s sales, timing of the payment of accounts receivable and advances from the company’s customer, partially offset by a decrease in the Company’s derivative liability, which is a current liability.
Net cash used in operations for the three months ended March 31, 2023 was $(323,116) compared to a source of funds of $104,312 during the three months ended March 31, 2022. The decrease in the cash flow from operations was primarily due to an increase in accounts receivable and customer advances and decrease in inventory due to the timing of the Company’s sales, and an increase in accrued liabilities related to a non-recurring legal expense tied to the outcome of litigation.
There were no investing activities for the three months ended March 31, 2023, and 2022. Expenditures necessary for the expansion of mining facilities totaled $285,078 and $608,603 during the three months ended March 31, 2023 and 2022, respectively, would normally have been included in this category were expenses due to the company’s lack of proven and probable reserves, which therefore, requires the expenses related to expansion of mining operation activities to be expensed as incurred.
Net cash used in financing activities for the three months ended March 31, 2023 and 2022 was $0 and $(36,165), respectively, the amount in 2022 representing principal payments of the Company’s installment notes payable.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance sheet arrangements, which have or are likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Plan of Operation
The Company’s plan of operation for the next twelve months includes 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 an average 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 an average of approximately 500 tons per 24-hour operating day from the mines and processing plant. In 2023 the Company completed the current planned expansion of the plant with the addition of a fifth ball mill. The Company expects to operate at an average of approximately 600 tons per day in the first half of 2023 and an average of approximately 700 tons per day in the second half of 2023.
The Company funds its general and administrative expenses in the US from the Company’s operating subsidiaries in Mexico. The Company believes that cash on hand and the cash flow to be generated from its current operations, is adequate to fund its ongoing general and administrative expenses through the subsequent twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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| Table of Contents |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2023. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer and our financial consultant, who concluded that our disclosure controls and procedures are not effective as of the end of the period covered by this Form 10-Q. For purposes of this section, the term disclosure controls and procedures mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We recognize the importance of having effective controls in place to manage risks and ensure the integrity of our financial reporting. We are committed to continuously improving our control environment through ongoing monitoring, testing, and remediation of control deficiencies. Our management team is actively involved in overseeing the effectiveness of our controls, and we have established a culture of accountability and transparency to ensure that all employees understand their roles and responsibilities in maintaining a strong control environment. We are also investing in technology to streamline our control processes and reduce the risk of errors and fraud. We believe that these efforts will enable us to develop a high level of control effectiveness.
Changes in Internal Control over Financial Reporting
The Company has not made any change in its internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
2014 Arbitration Proceeding filed by Goldgroup Resources Inc.
On March 14, 2014, Goldgroup Resources, Inc. (“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.
DynaResource de Mexico SA de CV Legal Update & Disclosure:
On March 3, 2023, Goldgroup Resources Inc. (“Goldgroup”) filed a formal notice with the México Federal Legal Authorities, which confirmed Goldgroup’s complete withdrawal of all legal claims in Mexico and under Mexican law against DynaResource de México SA de CV.
Goldgroup’s complete legal withdrawal is the result and culmination of 7 years of legal actions undertaken in Mexico by DynaMéxico. Accordingly, all matters before the courts in México with respect to DynaMéxico and Goldgroup Resources Inc. are fully resolved and are no longer subject to appeal.
Consequence of the México legal ruling and the Goldgroup legal withdrawal:
1. | The $48,280,808.34 USD damages award (dated October 05, 2015) in favor of DynaMéxico and against Goldgroup Resources Inc., confirmed by Mexican courts in 2019, is final, conclusive, and enforceable under Mexican law. Goldgroup Resources’ challenges to that award have been fully denied and the damages award is final. |
|
|
2. | Goldgroup’s challenges to DynaMéxico’s share ownership have also been fully denied and consequently, under Mexican law, Goldgroup owns no shares in DynaMéxico. |
Mercuria Energy Trading S.A vs Mineras de DynaResource S.A. de C.V.
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.
As 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Number; |
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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. | ||
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Date: May 12, 2023 | By: | /s/ K.W. (“K.D.”) Diepholz | |
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| K.W. (“K.D.”) Diepholz, |
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| Chairman / Chief Executive Officer / Acting Chief Financial Officer |
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| 29 |
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, K.W. (“K.D.”) DIEPHOLZ, certify that:
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| 1. | I have reviewed this report on Form 10-Q of DYNARESOURCE, INC.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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| d) | Disclosed in this report any change to the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and, |
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| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and, |
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| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: May 12 , 2023
| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“KD”) Diepholz; |
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| Chairman and Chief Executive Officer |
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EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, K.W. (“K.D.”) DIEPHOLZ, certify that:
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| 1. | I have reviewed this report on Form 10-Q of DYNARESOURCE, INC.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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| d) | Disclosed in this report any change to the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and, |
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| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and, |
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| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: May 12, 2023
| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“KD”) Diepholz; |
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| Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of DynaResource, Inc. on Form 10-Q for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“K.D.”) Diepholz |
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| Chairman of the Board of Directors Dated: May 12, 2023 |
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| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“K.D.”) Diepholz |
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| Chief Executive Officer Dated: May 12, 2023 |
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| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“K.D.”) Diepholz; |
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| Chief Financial Officer Dated: May 12, 2023 |
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| /s/ K.W. (“K.D.”) Diepholz |
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| K.W. (“K.D.”) Diepholz; |
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| Principal Accounting Officer Dated: May 12, 2023 |
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This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.