Dynaresource, Inc 10-Q for FY2024 Q1
Dynaresource, Inc. (DYNR)
About this 10-Q
Dynaresource, Inc filed this 10-Q on May 20, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.43M
- down 21.1% from $11.95M a year earlier
- Net loss
- $4.41M
- compared with net income of $31.71K a year earlier
- Diluted EPS
- -$0.19
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
(
Securities registered pursuant to Section 12(b) of the Act:
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None |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Emerging growth company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 20, 2024, there were
TABLE OF CONTENTS
PART I. |
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ITEM 1. |
Unaudited Condensed Interim Consolidated Financial Statements |
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3 |
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Notes to Unaudited Condensed Interim Consolidated Financial Statements |
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8 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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ITEM 3. |
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28 |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 2. |
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ITEM 3. |
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29 |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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30 |
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CERTIFICATIONS
EXHIBIT 31.1 |
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CHIEF EXECUTIVE OFFICER CERTIFICATION |
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EXHIBIT 31.2 |
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CHIEF FINANCIAL OFFICER CERTIFICATION |
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EXHIBIT 32.1 |
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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 |
2
DYNARESOURCE, INC.
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
MARCH 31, 2024 AND DECEMBER 31, 2023
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2024 |
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2023 |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Current assets |
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Cash |
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$ |
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$ |
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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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Property and equipment (net of accumulated |
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depreciation and amortization of $ |
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Right-of-use assets, net |
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Mining concessions |
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Deferred tax asset, net |
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Foreign tax receivable |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Derivative liabilities |
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Note payable |
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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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Deferred tax liability |
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Asset retirement obligation |
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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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STOCKHOLDERS’ EQUITY (DEFICIT) |
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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 (DEFICIT) |
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TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
3
DYNARESOURCE, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
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2024 |
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2023 |
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REVENUE |
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$ |
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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 costs |
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Property holding costs |
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General and administrative |
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Accretion expense |
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Depreciation and amortization |
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TOTAL OPERATING EXPENSES |
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NET OPERATING LOSS |
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OTHER INCOME (EXPENSE) |
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Foreign currency gains |
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Interest expense |
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Derivative mark-to-market gain |
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Other income |
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TOTAL OTHER INCOME (EXPENSE) |
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NET LOSS BEFORE TAXES |
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INCOME TAXES BENEFIT |
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NET INCOME (LOSS) |
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$ |
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$ |
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DEEMED DIVIDEND FOR SERIES C & D PREFERRED |
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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$ |
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$ |
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LOSS PER SHARE ATTRIBUTABLE TO THE EQUITY HOLDERS OF DYNARESOURCE, INC. |
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Basic loss per common share |
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$ |
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$ |
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Weighted average shares outstanding – Basic |
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Diluted loss per common share |
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$ |
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$ |
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Weighted average shares outstanding – Diluted |
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OTHER COMPREHENSIVE INCOME |
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Unrealized foreign currency translation gain |
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TOTAL OTHER COMPREHENSIVE INCOME |
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TOTAL COMPREHENSIVE INCOME (LOSS) |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
4
DYNARESOURCE, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
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Preferred A |
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Common |
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Preferred |
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Preferred |
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Paid In |
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Treasury |
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Treasury |
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Other Comp |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Rights |
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Amount |
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Capital |
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Shares |
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Amount |
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Income |
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Deficit |
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Totals |
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THREE MONTHS ENDED MARCH 31, 2023 |
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Balance January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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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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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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THREE MONTHS ENDED MARCH 31, 2024 |
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Balance January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Other Comprehensive Income |
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Net Loss |
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Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
5
6
DYNARESOURCE, INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
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2024 |
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2023 |
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CASH FLOWS USED IN OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to cash used in operating activities |
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Derivatives mark-to-market gain |
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Accretion expense |
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Depreciation and amortization |
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Right-of-use asset amortization |
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Deferred tax asset |
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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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Other assets |
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Accounts payable |
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Accrued expenses |
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Customer advances |
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— |
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CASH FLOWS USED IN OPERATING ACTIVITIES |
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CASH FLOWS USED IN FINANCING ACTIVITIES |
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Payments of note payable |
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Operating lease payments |
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( |
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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 |
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CASH AT BEGINNING OF PERIOD |
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CASH AT END OF PERIOD |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURES |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7
DYNARESOURCE, INC.
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
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.
The Company has one wholly owned subsidiary in the United States, DynaMéxico US Holding, LLC and three wholly owned subsidiaries in México, DynaResource de México, S.A. de C.V. (“DynaMéxico”), Mineras de DynaResources S.A. de C.V. (“DynaMineras”) and DynaResource Operaciones de San Jose De Gracia S.A. de C.V. (“DynaOperaciones”). Although the Company considers the three Mexican subsidiaries to be wholly owned, each has issued one qualifying share to a second shareholder as required under Mexican law, with such qualifying shares held by either US Holding or DynaResource’s Chief Executive Officer. DynaMéxico owns a portfolio of mining concessions that currently comprises its
Principles of Consolidation
The unaudited condensed interim consolidated financial statements include the accounts of DynaResource, Inc., as well as the Company’s wholly owned subsidiaries DynaMéxico, DynaMineras and DynaOperaciones. All significant intercompany transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.
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 unaudited, condensed, interim consolidated 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
These unaudited condensed consolidated interim financial statements reflect the accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for all periods presented. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying value in the normal course of business for the foreseeable future. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Use of Estimates
In order to prepare unaudited condensed interim 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 condensed interim consolidated financial statements and determines whether contingent assets and liabilities, if any, are
8
disclosed in the unaudited condensed interim 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.
Exploration Stage Issuer (No Reserves Disclosed)
The definitions of Measured Mineral Resource, Mineral Reserve and Mineral Resource are set forth in SEC Regulation S-K, Item 1300 (“Reg. S-K, Item 1300”).
Measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.
Mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
Mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.
As of March 31, 2024, the Company continues to meet 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.
Segment Information
The Company operates as
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, 2024, the Company has $
Accounts Receivable and Allowances for Doubtful Accounts
Accounts receivable consists of trade receivables which are recorded net of allowance for doubtful accounts for the sale of metal concentrate, as well as net of an embedded derivative based on mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. The allowance for accounts receivable is recorded when receivables are considered to be uncollectible. As of March 31, 2024 and December 31, 2023 no allowance has been made, as management believes all accounts receivable are fully collectable.
Mined Tonnage Inventory
Mined tonnage inventory represents ore that has been mined and is available for further processing. The stockpiles of mined tonnage are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on the relative values of material stockpiled and processed using current mining costs incurred, including applicable overhead. Material is removed at each stockpile’s average cost per tonne. Stockpiles are carried at the lower of average cost of net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metal prices, less the estimated cost to complete production and bring the product to sale.
9
Concentrate Inventory
Concentrate inventory includes metal concentrates located either at the Company’s facilities or in transit to its customer’s port. Concentrate inventories are carried at the lower of cost of production or net realizable value based on current metals prices.
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 received by the Company.
Property and Equipment
Substantially all property 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
Mine Development Costs
Mine development costs are expensed as incurred and 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 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.
Mining Concessions
The Company’s mining concessions include acquired interests in development and exploration stage properties and are considered tangible assets. The amount capitalized relating to the Company’s mining concessions represents its fair value at the time of acquisition. 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 mining concessions and the related costs are recorded do not necessarily reflect present or future values.
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
10
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:
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, 2024 and December 31, 2023, no indications of impairment existed.
Asset Retirement Obligation (“ARO”)
The Company records a liability based on the best estimate of costs for site closure and reclamation activities that the Company is legally or contractually required to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering and environmental reports and accreted to full value over time through periodic charges to income.
During 2023, a significant upgrade was made to the milling facility and therefore, an ARO was established as of December 31, 2023 at the estimated costs to decommission the plant and tailings pond at the end of the estimated live of the mines in operation as of December 31, 2023. As the Company is an exploration stage property that does not qualify for asset capitalization, the costs associated with the obligation are charged to operations.
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 the 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 the property on a care and maintenance basis are expensed in the period they are incurred. These costs include security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.
Exploration Costs
Exploration costs, including exploration, development, direct field costs and related administrative costs are expensed in the period incurred.
Leases
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).
11
Foreign currency transactions are translated into the functional currency of the respective currency of the entity or division, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in profit or loss. Non-monetary items that are not re-translated at period end are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value, which are translated using the exchange rates as at the date when fair value was determined. Gains and losses are recorded in the statement of operations 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, 2024 and December 31, 2023 (Mexican Pesos per one U.S. dollar):
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March 31, |
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December 31, |
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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, 2024 and 2023 (Mexican Pesos per one U.S. dollar):
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March 31, |
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March 31, |
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Weighted Average Exchange Rate for the Three Months Ended |
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The Company recorded currency transaction gains 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.
Income from the Company’s subsidiaries in México are taxed in accordance with applicable Mexican tax law.
Uncertain Tax Position
The Company is subject to income taxes in the U.S. and other foreign jurisdictions, with respect to which some of the outcome is uncertain. The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws. The Company establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. Any tax benefit that is or has been reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.
12
Comprehensive Income (Loss)
ASC 220 “Comprehensive Income” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose consolidated financial statements. The Company’s comprehensive income (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. Adjustments to the provisional sales prices are made to take into account the mark-to-market changes based on the forward prices of metals until final settlement occurs. The changes in price between the provisional sales price and final sales price are considered an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrate at the quoted metal prices at the time of delivery. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through revenue at final settlement. Market changes in the prices of metals between the delivery and final settlement dates will result in adjustments to revenues related to previously recorded sales of concentrate. The chief risk associated with the recognition of sales on a provisional basis is the fluctuation (if any) between the estimated quantities of the precious metals based on the initial assay and the actual recovery from treatment and processing.
During the three months ended March 31 2024 and 2023, there were $
Shipping and handling costs are considered fulfillment costs after the customer obtains control of the goods.
Derivative Financial Instruments
Certain warrants are treated as derivative financial liabilities. The estimated fair value, based on the Black-Scholes model, is adjusted on a quarterly basis with gains or losses recognized in the statements of operations and comprehensive income (loss). The Black-Scholes model is based on significant assumptions such as volatility, dividend yield, and expected term.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, note payable and installment notes payable and derivative liabilities. The carrying amount of cash, accounts receivable, accounts payable and note payable approximates fair value because of the short-term nature of these items. The carrying amount of installment notes payable debt approximates fair value due to the relationship between the interest rate on installment notes payable debt and the Company’s incremental risk adjusted borrowing rate. The fair value of derivative liabilities is based on the Black-Scholes model.
Earnings (Loss) Per Share
Earnings (loss) per share, attributable to the common equity holders of the Company, 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, as their effect would be considered anti-dilutive.
The Company’s Series C Preferred Stock and related outstanding dividends are convertible into
13
Related Party Transactions
FASB ASC 850, “Related Party Disclosures” requires companies to include in their financial statements, disclosures of material related party transactions. The Company discloses all material related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Significant Judgments, Estimates and Assumptions
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. These judgments, estimates and assumptions are regularly evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.
The areas which require significant judgment and estimates that management has made at the financial reporting date, that could result in a material change to the carrying amounts of assets and liabilities, in the event actual results differ from the assumptions made, relate to, but are not limited to the following:
Significant judgments:
Reclassification
Amounts in the Condensed Interim Consolidated Statement of Cash Flows related to right-of-use-assets and operating lease payments for the three months ended March 31, 2023, have been reclassified to conform to the current year presentation.
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of the adoption of this new guidance on our Consolidated Financial Statements and related disclosures.
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).
14
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2024 |
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2023 |
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Mined tonnage |
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$ |
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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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$ |
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NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of March 31, 2024 and December 31, 2023:
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2024 |
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2023 |
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Leasehold improvements |
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$ |
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$ |
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||
Office equipment |
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Office furniture and fixtures |
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Other |
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Subtotal |
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Less: Accumulated depreciation and amortization |
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( |
) |
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( |
) |
Total property and equipment, net |
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$ |
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$ |
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||
Depreciation and amortization have been provided over each asset’s estimated useful life. Depreciation and amortization expense was $
NOTE 4 - MINING CONCESSIONS
Mining properties consist of the San José de Gracia concessions. Mining Concessions were $
NOTE 5 - ACCRUED LIABILITIES
As of March 31, 2024 and December 31, 2023, the Company had the following accrued liabilities:
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March 31, |
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December 31, |
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||
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2024 |
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2023 |
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Accrued interest |
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$ |
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$ |
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Accrued mining expenses |
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Accrued payroll taxes |
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Other accrued liabilities |
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Total accrued liabilities |
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$ |
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$ |
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NOTE 6 - DERIVATIVE LIABILITY
Warrants Issued With the Notes Convertible Into Series D Preferred
In fiscal 2020, the Company closed a financing agreement with Golden Post Rail, LLC (“Golden Post”) and certain shareholders whereby the Company issued convertible promissory notes that bore interest at
15
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:
Period Ended |
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March 31, |
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December 31, |
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Annual volatility rate |
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% |
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% |
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Risk free rate |
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% |
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% |
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Remaining term |
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Fair value of common stock |
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$ |
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$ |
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||
For the three and twelve months ended March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023.
Period Ended |
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March 31, |
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December 31, |
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Fair value of derivative (warrants), beginning of period |
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$ |
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$ |
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Exercise of warrants |
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Change in fair value of derivative |
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( |
) |
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( |
) |
Fair value of derivative (warrants), end of period |
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$ |
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$ |
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||
NOTE 7 - ADVANCE CREDIT LINE FACILITY/CUSTOMER ADVANCES
On February 4, 2021, the Company entered into an Advance Credit Line Facility and Purchase Agreement (the “ACL”), with a commercial buyer. On August 2, 2023, the ACL was extended through December 2026 in an Amendment Agreement (the “Amendment”). Under the terms of the ACL and Amendment:
16
The ACL was included under Customer Advances on the unaudited, condensed, interim consolidated balance sheet, prior to December 1, 2023.
Deposits under the Advance Credit Line Facility
Under the terms of the ACL, the Company received the following advances from the buyer (in millions):
NOTE 8 - NOTE PAYABLE
On December 1, 2023, the Company exercised its option under the ACL to convert the outstanding ACL balance of $
NOTE 9 – INSTALLMENT NOTES PAYABLE
In June 2018, the Company entered into financing agreements for the unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2017 and the period ending June 30, 2018 in the amount of $
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 June 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, 2024, $
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, 2024:
Balance December 31, 2023 |
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$ |
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|
Exchange rate adjustment |
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2024 principal payments |
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Balance March 31, 2024 |
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$ |
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NOTE 10 - ASSET RETIREMENT OBLIGATION
During 2023, a significant upgrade was made to the milling facility and therefore, an ARO has been established as of December 31, 2023 at the estimated undiscounted costs totaling $
live of the mines in operation as of December 31, 2023, discounted using credit-adjusted, risk-free interest rate of
17
an exploration stage property that does not qualify for asset capitalization, the costs associated with the obligation are charged to
operations.
Asset retirement obligation consists of the following as of March 31, 2024 and December 31, 2023:
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March 31, |
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December 31, |
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||
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2024 |
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2023 |
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||
Asset retirement obligation at beginning of year |
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$ |
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$ |
|
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Additions to ARO liability |
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Accretion |
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Asset retirement obligation at end of year |
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$ |
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$ |
|
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NOTE 11 - STOCKHOLDERS’ EQUITY
The total number of shares of all classes of capital stock which the corporation has the authority to issue is
Series A Preferred Stock
As of March 31, 2024 and December 31, 2023
Series C Senior Convertible Preferred Stock
As of March 31, 2024 and December 31, 2023 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 totaling $
On October 7, 2021, the Company paid $
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, 2024 and 2023, were $
Preferred Stock (Undesignated)
In addition to the
18
respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred Stock. As of March 31, 2024 and December 31, 2023, there were
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” and received $
Stock Issuances
On August 4, 2023 the Company issued
Treasury Stock
During the year ended December 31, 2023,
There were
2023 Activity
As of March 31, 2024, 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 |
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Weighted |
|
|
Weighted |
|
|
Intrinsic |
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||||
Balance as of December 31, 2023 |
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$ |
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||||
Granted |
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||||
Exercised |
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||||
Forfeited |
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||||
Balance as of March 31, 2024 |
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|
||||
Exercisable as of March 31, 2024 |
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|
$ |
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|
|
|
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|
||||
A derivative liability was incurred at the issuance of the Series D warrants in 2020. As of March 31, 2024, the derivative liability totaled $
NOTE 12 – STOCK BASED COMPENSATION
On February 19, 2024, pursuant to the newly adopted DynaResource, Inc. 2024 Equity Incentive Plan, the Company awarded a board member options to purchase up to
19
Under ASC 718, the fair value of the options at the date of issuance was determined using the Black Scholes model and will not be adjusted for subsequent changes in fair value. Expense is recorded annually, upon vesting, on a prorata basis over the vesting period. The Company recognizes forfeitures as they occur.
The inputs utilized in calculating the fair value are as follows:
Period Ended |
|
March 31, |
|
|
December 31, |
|
||
Annual volatility rate |
|
|
% |
|
|
— |
|
|
Risk free rate |
|
|
% |
|
|
— |
|
|
Remaining Term |
|
|
|
|
— |
|
||
Fair Value of stock options |
|
$ |
|
|
|
— |
|
|
NOTE 13 - 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 14 - 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 leases office space for its corporate headquarters in Irving, Texas. In February 2023, the Company entered into a 52- month extension of the lease with additional office space. As part of the agreement, the lease term commenced and the Company received four months free rent upon completion of the finish out of the new space. The expansion was completed and the Company moved into the office space effective August 1, 2023. The Company makes tiered lease payments on the first of each month.
The Company determines if a contract is or contains a lease at inception. As of March 31, 2024, the Company has two operating leases: 52 months lease for office space with a remaining term of 44 months and the twenty-year ground lease in association with its México mining operations with a remaining term of approximately ten 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.
20
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 15 - 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.
As of March 31, 2024 and December 31, 2023, 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 6.
|
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Total |
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Quoted |
|
|
Significant |
|
|
Significant |
|
||||
Fair Value Measurement as of March 31, 2024: |
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|
||||
Liabilities: |
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|
||||
Derivative Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fair Value Measurement as of December 31, 2023: |
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|
|
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|
||||
Liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
||||
Derivative Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 16 - CUSTOMER CONCENTRATION
For the periods ended March 31, 2024 and December 31, 2023, one customer accounted for
NOTE 17 – GEOGRAPHICAL CONCENTRATIONS
The Company operates as
21
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Mexico |
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United States |
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Total |
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|||
March 31, 2024 |
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|||
Mineral property |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Property and equipment, net |
|
|
— |
|
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||
Current assets |
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Other assets |
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|||
Total assets |
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$ |
|
|
$ |
|
|
$ |
|
|||
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|
|||
December 31, 2023 |
|
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|
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|
|
|
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|
|||
Mineral property |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Property and equipment, net |
|
|
— |
|
|
|
|
|
|
|
||
Current assets |
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|
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|
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|
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|
|||
Other assets |
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|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
NOTE 18 – RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2024 and 2023, the Company paid or accrued $
NOTE 19 - SUBSEQUENT EVENTS
The Company has evaluated events from March 31, 2024, through the date whereupon these condensed, interim consolidated financial statements were issued and has described below the events subsequent to the end of the period:
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT CONCERNING 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. relating to our mining business, including resource estimates, exploration efforts, results and expenditures, development initiatives at the San Jose de Gracia Project, estimated production and capacity, costs, capital expenditures, expenses, recoveries, gold prices, sufficiency of assets, ability to discharge liabilities, liquidity management, financing needs, environmental compliance expenditures, environmental, social and governance (“ESG”) and human capital management initiatives, risk management strategies, including capital resources and use, cash flow maximization, mine life and other strategic initiatives. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plan,” “projected,” “contemplates,” “anticipates” or similar words and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking information in this report includes, but is not limited to, statements regarding the beliefs, plans, expectations or intentions of management, as of the date of this presentation, regarding: (i) DynaResource, Inc.’s (the “Company”) ability to develop its exploration assets via operational cash flow from gold concentrate production; and (ii) the Company’s plans and expectations regarding its proposed 2024 exploration program for its San Jose de Gracia Project. Although the Company believes that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that these expectations and assumptions will prove to be correct. Such forward-looking statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements including, without limitation, risks related to: (1) fluctuations in commodity pricing, specifically gold and silver; (2) the Company’s ability to retain or engage qualified employees or contractors necessary to conduct mill operations at its San Jose de Gracia Facility; (3) a decreased demand for gold, silver and other minerals; (4) unexpected difficulties with the milling and the extraction of minerals from the Company’s projects; (5) unexpected interruptions and problems encountered in the operation of the San Jose de Gracia Facility; (6) factors that delay or cause difficulties in timing of shipments of concentrates by the Company; (7) potential negative financial impact from regulatory investigations, claims, lawsuits and other legal proceedings and challenges; (8) the possibility that the Company may not have sufficient capital to operate its San Jose de Gracia Facility or facilitate the further exploration of San Jose de Gracia; (9) inflationary pressures; (10) continued access to financing sources; (11) government orders that may require temporary suspension of operations or effects on our suppliers (12) the effects of environmental and other governmental regulations and government shut-downs; (13) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries; and (14) our ability to raise additional financing necessary to conduct our business, make payments or refinance our debt and (15) other factors beyond the Company’s control.
There is a significant risk that such forward-looking statements will not prove to be accurate. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. Given the current state of the global financial markets, global commodity markets, especially the recent volatility in gold and silver prices and current economic conditions, any forward-looking statements or projections may be impacted significantly. Consequently, there is no representation by the Company that actual results achieved will be the same as those forecast. You are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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 the prolific San Jose de Gracia high grade gold project in México.
We conduct activities in México through our operating subsidiary DynaResource de México SA de CV (“DynaMéxico”). We own 100% of the outstanding shares of DynaMéxico, and DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia Property (“SJG”), in northern Sinaloa State, México.
In addition to investing in the increase and expansion of its test mining and milling activities at SJG in 2023, the Company has focused on corporate governance, with the intention of meeting the listing requirements for other exchanges in the US and/or Canada.
23
Project Improvements, Expansion and Increased Output (2017 To Present)
The Company continues its business plan of test mining and pilot milling operations at SJG, and to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces, and since 2022 to continue exploration activities at SJG with the target to increase primary gold resources. Since the January 2015 startup of the test mining and milling activities at SJG, the Company has increased daily output from an initial average of 100 tons per 24-hour operating day, to a current average of approximately 750 tons per 24-hour operating day.
Since January 2017, the Company has expended approximately $30 million USD in non-recurring 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.
Of the approximately $30 million in non-recurring costs, the Company has spent the following on facilities expansion:
Mill Expansion |
|
$ |
7,893,000 |
|
Tailings Pond Expansion |
|
|
1,464,000 |
|
Machinery and Equipment |
|
|
3,353,000 |
|
Mining Camp Expansion |
|
|
272,000 |
|
Total |
|
$ |
12,982,000 |
|
|
|
|
|
|
|
|
|
|
|
The Company has spent the following amounts on mine development: |
|
|
|
|
|
|
|
|
|
Mine Development - San Pablo |
|
$ |
4,968,000 |
|
Mine Development - La Mochomera |
|
|
397,000 |
|
Mine Expansion - San Pablo East |
|
|
915,000 |
|
Mine Expansion - Tres Amigos |
|
|
1,599,000 |
|
Exploration Drilling |
|
|
5,914,000 |
|
SIG Mining Concessions |
|
|
2,014,000 |
|
Surface Rights and Permitting |
|
|
1,353,000 |
|
Total |
|
$ |
17,160,000 |
|
The Company is currently reporting all costs of test mining operations, project improvements, and project expansion as expenses in accordance with the United States Securities & Exchange Commission requirements for an exploration stage company. The result of expensing all costs is that the Company has accumulated a net loss carry-forward from México operations of approximately $8 million USD which is available to offset future taxable earnings.
Summary of Test Mining and Pilot Mill Operations
Annual Results from 2018 to 2023:
Year |
|
Estimated Total Tons |
|
|
Estimated Reported |
|
|
Estimated Reported |
|
|
Estimated |
|
|
Net Gold (1) |
|
|||||
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 |
|
|
|
80.00 |
% |
|
|
28,988 |
|
|
|
25,554 |
|
2023 |
|
|
198,518 |
|
|
|
5.58 |
|
|
|
76.50 |
% |
|
|
27,252 |
|
|
|
24,829 |
|
Test mining and pilot milling operations in 2023 yielded 198,518 tons of material, test mined from underground access and processed through pilot milling plant operations. These test pilot operations in 2023 yielded approximately 27,252 gross ounces of gold recovered, and net of dry weight and provisional assay at the buyer’s facilities of approximately 24,829 ounces of gold sold.
24
Quarterly Results for the Three Months Ended March 31, 2024 and 2023
|
|
Estimated Total Tons |
|
|
Estimated Reported |
|
|
Estimated Reported |
|
|
Estimated |
|
|
Net Gold (1) |
|
|||||
Three Months Ended March 31, 2024 |
|
|
61,601 |
|
|
|
4.46 |
|
|
|
79.25 |
% |
|
|
6,994 |
|
|
|
4,730 |
|
Three Months Ended March 31, 2023 |
|
|
53,258 |
|
|
|
6.91 |
|
|
|
69.39 |
% |
|
|
8,204 |
|
|
|
6,810 |
|
Mill tonnage processed, feed grade and recovery rates are estimates based on internal reports of assays and estimated weights of tonnage mined and shipped to the plant.
Test pilot operations in three months ended March 31, 2024 yielded 61,601 tons mined and processed through mill facility (an average of 677 tons per day during the quarter) and the recovery of 6,994 gross Au Oz resulting in sales of 4,730 gross Au Oz contained in gold-silver concentrates, and sales of $9,428,856, net of buyer’s price discount, refining and treatment costs.
Test pilot operations in three months ended March 31, 2023 yielded 53,258 tons mined and processed through mill facility (an average of 592 tons per day) and the recovery of 8,204 gross Au Oz resulting in sales of 6,810 gross Au Oz contained in gold-silver concentrates, and sales of $11,953,079, net of buyer’s price discount, refining and treatment costs.
The drop in the feed grade at the pilot plant facility is a result of dilution experienced in the test mining activities, and partially due to the increase in test mining tonnage within SJG. To increase the tonnage of test mining material available for test mill processing, the Company opened a test mining area at San Pablo during the fourth quarter of 2023. An additional test mining area was opened in May 2024, at La Mochomera, which is an area anticipated to provide higher feed grade material.
Additional Test Mining and Mill Operations Disclosure
The Company expects to continue its test underground mining activity and pilot milling operations in 2024, and projects an increased capacity of an average of approximately 800 tons per 24-hour operating day during the second quarter of 2024 and to build processing capacity to an average of 900 to 1,000 tons per day in the second half of 2024.
Results for the Three Months Ended March 31, 2024 and 2023
REVENUE: Revenue for the three months ended March 31, 2024 and 2023 was $9,428,856 and $11,953,079. The decrease was a result of a reduction in the feed grade of the material processed from 6.91 g/t au in the three months ending March 31, 2023 to 4.46 g/t au per ton for the three months ended March 31, 2024. The drop in the feed grade at the pilot plant facility is a result of dilution experienced in the test mining activities, and largely due to the increase in test mining tonnage.
PRODUCTION COSTS RELATED TO SALES: Production costs related to sales for the three months ended March 31, 2024 and 2023 were $1,895,757 and $1,711,262. These are expenses directly related to the test milling, packaging and shipping of gold-silver concentrates. The increase is a result of the increase in the volume of test mining and milling activities from an average of 592 tons per day in the three months ended March 31, 2023 to an average of 677 tons per day in the three months ended March 31, 2024.
MINE PRODUCTION COSTS: Costs associated with test mining activities (mine production costs) for the three months ended March 31, 2024 and 2023 were $3,755,357 and $2,529,437. The Company allocates total test mining costs between production and waste based on tonnage mined. These costs were directly related to the extraction of mine tonnage to be processed at the pilot mill facility. During the three months ended March 31, 2024, the Company test mined 61,877 tons of material compared to 45,499 tons in the three months ended March 31, 2023.
MINE EXPLORATION COSTS: Mine exploration costs for the three months ended March 31, 2024 and 2023 were $2,459,217 and $2,216,949. Mine exploration costs are the costs of extracting waste material in order to reach the tonnage of material to be extracted for processing at the pilot mill facility. For the three months ended March 31, 2024 the Company mined 49,847 tons of waste compared to 40,677 in the three months ended March 31, 2023.
25
FACILITIES EXPANSION COSTS: Facilities expansion costs for the three months ended March 31, 2024 and 2023 were $787,809 and $285,078. The major expenses reported for the three months ended March 31, 2023 was the second phase of expansion of the milling facility. The major expenses reported in the three months ended March 31, 2024 have been some additions to the mill facility and mining infrastructure for the access to an additional test mining area at SJG.
EXPLORATION DRILLING: During the first quarter of 2022, the Company began an exploration drilling program for the purpose of updating the Company’s CND NI 43-101 Mineral Resource Estimate. Exploration expenditures for the three months ended March 31, 2024 and 2023 were $920,485 and $497,400. The Company expects the updated report in the second half of 2024.
CAMP, WAREHOUSE AND FACILITIES: Camp, warehouse and support facility costs for the three months ended March 31, 2024 and 2023 were $1,445,225 and $1,082,179. These represent the costs of supporting the test mining facilities including housing, food, security and warehouse operations. The increase in costs recorded for the three months ended March 31, 2024 was a result of the increase in test mining activity as a result of the facilities expansion.
TRANSPORTATION: Transportation costs for the three months ended March 31, 2024 and 2023 were $995,867 and $746,063. These costs relate to the transporting of the primarily gold concentrates to the customer for treatment and sales. The increase in costs 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, 2024 and 2023 were $44,047 and $39,251. These costs were primarily taxes on mining concessions, leases on land and other direct costs of maintaining the SJG property. These costs are relatively consistent from year to year regardless of the level of mining activity.
GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative expenses for the three months ended March 31, 2024 and 2023 were $1,202,041 and $2,965,593. These general and administrative expenses were the costs of operating the Company not directly associated with the test mining and pilot mill operations including management, accounting, and legal expenses. The decrease in costs in 2024 was primarily a decrease in legal fees.
ACCRETION EXPENSE. Accretion expense for the three months ended March 31, 2024 and 2023 was $4,565 and $0. The Company began accreting its asset retirement obligation on January 1, 2024, related to estimated costs to decommission the pilot milling plant and tailings pond at the estimated live of the mines in operation at the establishment of the ARO in 2023 as a result of the expansion of the pilot milling operation.
OTHER INCOME (EXPENSE): Other income (expense) for the three months ended March 31, 2024 and 2023 was $(319,514) and $75,085, respectively. Included in other income in 2024 was interest expense of $427,888, change in derivative of $80,141, currency exchange gains of $28,077 and miscellaneous income of $156. The decrease in the derivative liability was primarily due to the decrease in the Company’s common stock value. The increase in interest expense was due to the conversion of the Company’s ACL to an installment note in December of 2023. Included in other income in 2023 was interest expense of $116,308, change in derivative of $169,434, currency exchange gain of $18,254 and miscellaneous income of $3,705.
OTHER COMPREHENSIVE INCOME: Other comprehensive income includes the Company’s net income (loss) plus the unrealized currency exchange gain for the period. The Company’s other comprehensive income for the three months ended March 31, 2024 and 2023 consisted of unrealized currency gains of $203,239 and $91,241, respectively. The change is due to the variances in the currency exchange rates between the US Dollar and Mexican Peso throughout the two periods.
Liquidity and Capital Resources
As of March 31, 2024, the Company had negative working capital of $15,066,036 comprised of current assets of $12,402,367 and current liabilities of $27,468,403. This represented an increase of $4,804,391 from the negative working capital maintained by the Company of $10,261,645 as of December 31, 2023 as a result of an increase in cash used in operations during the first quarter of 2024 and an increase in the Company’s accounts payable and accrued liabilities as of March 31, 2024.
Net cash used in operations for the three months ended March 31, 2024 was $3,357,647 compared to a use of $294,248 during the three months ended March 31, 2023. The decrease in the cash flow from operations was primarily due to the Company’s loss in 2024 primarily attributed to the ongoing expenses of expansion and a decrease in revenue for the quarter.
The Company had no investing activities during the three months ended March 31, 2024 and 2023. Expenditures reported for the expansion of mining facilities, which totaled $787,809 and $285,078 during the three months ended March 31, 2024 and 2023, respectively, would normally have been included in this category but were expensed due to the company’s lack of proven and probable reserves at the SJG Project, which therefore, requires the Company to expense costs as incurred related to expansion of test mining and milling activities.
26
Net cash used in financing activities for the three months ended March 31, 2024 and 2023 was $532,866 and $28,868, respectively. The net cash used by financing activities for the three months ended March 31, 2024 was used for principal payments on the RCL and operating lease payments.
Through March 31, 2024, the Company’s available liquidity and operations have been financed primarily through its operations and the revenue generated from the sale of product and from proceeds of the ACL the Company received in December 2023.
Although the Company has incurred net losses and net cash outflows from operating activities and investing activities for the three months ended March 31, 2024, there were many expenses which were made that were not expended for the production of revenue, such as exploration drilling and mine expansion costs. If these expenses had not been made, the Company’s net loss would have been minimized. The Company believes it’s cash and cash receipts from its revenue arrangement and the proceeds of the ACL received in December 2023 will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months from the date these financial statements were available for issuance. Additionally, the Company believes its revenue will be greater due to material being mined from the additional mines opened and improvements made to the productivity of the milling activities. Future capital requirements will depend on many factors, including the Company’s rate of mining, milling and exploration activities and growth. To the extent that existing capital and revenue growth are not sufficient to fund future activities, the Company may need to raise capital through additional equity or debt financings. Additional funds may not be available on terms favorable to the Company or at all. Failure to raise additional capital, if needed, could have a material adverse effect on the Company’s financial position, results of operations and cash flows.
Off-Balance Sheet Arrangements
As of March 31, 2024, the Company 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 is to continue the improvement and expansion of the test mining and pilot milling activities and exploration drilling at SJG.
During the first six months of 2024, the Company plans to continue to increase mining and milling an average of approximately 800 tons of material a day, with that rate increasing to an average of approximately 1,000 tons a day during the second half of 2024. The Company opened a second mine in late 2023 and is consistently test mining additional material during the first quarter of 2024. The Company opened a third mine during May 2024 in an area anticipated to provide higher feed grade material.
The Company expects to increase efficiency of activities in the second quarter of 2024 and is anticipating the ability to extract higher grade ore from the two new mines opened. As of March 31, 2024, the Company is conducting test mining activity at approximately 80% of the pilot milling capacity.
The Company plans to continue its exploration drilling program with two to three rigs on site. Management and geologists will make decisions based on the drill results, corporate strategies and market conditions, surface mapping, sampling and target generation. The Company has contracted with a "Qualified Person" within the meaning of subpart 1300 of Regulation S-K and Canadian Standard NI 43-101 to interpret the data collected in order to compile a formal Mineral Resource Estimate update in 2024.
Capital Expenditures
The Company’s primary capital expenditures relate to the test mining and pilot milling activities of the SJG Project. The Company expanded its pilot milling plant in 2022 and early 2023 with the addition and installation of two ball mills and expanded the tailings pond operation with water being recycled to the plant. The Company has continued to refine the milling process throughout 2023 with the addition of front and back-end concentrators and utilization of the original mill for grinding. All capital expenditures are expensed as the Company is an exploration stage issuer under subpart 1300 of Regulation S-K.
Exploration Stage
The Company is currently an exploration stage issuer and is reporting all costs of mine operations, improvements, and expansion as expenses in accordance with Section 1300 of Regulation S-K and US GAAP requirements, and therefore the above costs are not reflected as capitalized assets on the Company’s balance sheet. The Company has started test mining, milling and extraction activities prior to determining mineral reserves.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
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, 2024. This evaluation was accomplished under the supervision and with the participation of our principal executive officer and principal financial officer, assisted by our financial consultant, who concluded that our disclosure controls and procedures are 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 means 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 did not make any change in its internal control over financial reporting 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
There were no material developments during the period covered by this report on Form 10-Q in the legal proceedings previously publicly disclosed by the Company.
From time to time, the Company is involved in legal matters in the ordinary course of its business. The Company intends to defend itself vigorously against any such claims. It is the Company’s policy to accrue for amounts related to lawsuits brought against it if it is probable that a liability has been incurred and an amount can be reasonably estimated. Although the outcome of such matters cannot be predicted with certainty and no assurances can be given with respect to such matters, the Company believes that the outcome of those ordinary-course matters in which it is currently involved will not have a materially adverse effect on its results of operations, liquidity, or financial position.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
As the Company has no mines located in the United States or any of its territories, the disclosure required by this Item is not applicable.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
Exhibit Number; |
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Name of Exhibit |
31.1 |
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31.2 |
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32.1 |
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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.
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DynaResource, Inc. |
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Date: May 20, 2024 |
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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EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, K.W. (“K.D.”) DIEPHOLZ, certify that:
Date: May 20, 2024
/s/ K.W. (“K.D.”) Diepholz |
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K.W. (“KD”) Diepholz; |
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Chief Executive Officer |
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EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, K.W. (“K.D.”) DIEPHOLZ, certify that:
Date: May 20, 2024
/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, 2024 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:
/s/ K.W. (“K.D.”) Diepholz |
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K.W. (“K.D.”) Diepholz |
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Chief Executive Officer Dated: May 20, 2024 |
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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 20, 2024 |
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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.