Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: December 31, 2020
OR
[ ]
TRANSITION REPORT UNDER SECTION 13
OF 15(d) OF THE EXCHANGE ACT OF 1934
From
the transition period ___________ to ____________.
Commission
File Number: 000-30371
DYNARESOURCE, INC.
(Exact
name of registrant as specified in its charter)
Delaware 94-1589426
(State
or other jurisdiction of incorporation or organization (IRS
Employer Identification No.)
222 W Las Colinas Blvd., Suite 1910 North Tower, Irving, Texas
75039
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (972) 868-9066
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock; $0.01 Par Value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act.
Yes [ ]
No [X]
Indicate
by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes [X]
No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (p. 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such files).
Yes [X]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (p. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
[X]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer ☐
|
☐ (Do not check if a sm
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Smaller reporting company
|
☒
|
|
|
|
Emerging
growth company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13 (a) of the Exchange Act.
Yes [ ]
No [X]
Indicate
by check mark whether the registrant is a shell company (as defined
by Rule 12b-2 of the Exchange Act):
Yes [ ]
No [X]
The
aggregate market value of the voting and non-voting common equity,
par value $0.01 per share, held by non-affiliates computed by
reference to the price at which the common equity was last sold, as
of the last business day of the registrant’s most recently
completed fiscal year end, December 31, 2020, was $9,588,482 based
on the closing price of $0.78 per share as reported on the
OTCQB. For purposes of this computation, all officers,
directors, subsidiaries, and 10% beneficial owners of the
registrant are deemed to be affiliates. Such determination
should not be deemed an admission that such officers, directors or
10% beneficial owners are, in fact, affiliates of the
registrant.
There
were 17,722,825 shares outstanding of each of the
registrant’s classes of common stock (only 1 class) as of the
latest practicable date (March 15, 2021).
DOCUMENTS INCORPORATED BY REFERENCE
Listed
below are documents incorporated herein by reference.
None.
TABLE OF CONTENTS
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EXHIBIT INDEX
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Exhibit
31.1
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CERTIFICATION OF
CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE
ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
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Exhibit
31.2
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CERTIFICATION OF
CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE
ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
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Exhibit
32.1
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CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER, PURSUANT TO 18
UNITED STATES CODE SECTION 1350, AS ENACTED BY SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
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FORWARD-LOOKING STATEMENTS
This
annual report on Form 10-K includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, which we refer to in this annual report as the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, which we refer to in this annual report as the Exchange
Act. Forward-looking statements are not statements of historical
fact but rather reflect our current expectations, estimates and
predictions about future results and events. These statements may
use words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“predict,” “project” and similar
expressions as they relate to us or our management. When we make
forward-looking statements, we are basing them on our
management’s beliefs and assumptions, using information
currently available to us. These forward-looking statements are
subject to risks, uncertainties and assumptions, including but not
limited to, risks, uncertainties and assumptions discussed in this
annual report. Factors that can cause or contribute to these
differences include those described under the headings “Risk
Factors” and “Management Discussion and Analysis and
Plan of Operation.”
If one
or more of these or other risks or uncertainties materialize, or if
our underlying assumptions prove to be incorrect, actual results
may vary materially from what we projected. Any forward-looking
statement you read in this annual report reflects our current views
with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to our operations,
results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable
to us or individuals acting on our behalf are expressly qualified
in their entirety by this paragraph. You are cautioned not to place
undue reliance on forward-looking statements, which speak to the
date of this annual report. The Company expressly disclaims any
obligation to release publicly any updates or revisions to these
forward-looking statements to reflect any change in its views or
expectations. The Company can give no assurances that
forward-looking statements will prove to be correct.
CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION
CONCERNING PREPARATION OF RESOURCE AND RESERVE
ESTIMATES
The
Company is an “OTC Reporting Issuer” as that term is
defined in BC Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter
Markets promulgated by the British Columbia Securities
Commission. In Canada, an issuer is required to provide technical
information with respect to mineralization, including reserves and
resources, if any, on its mineral exploration properties in
accordance with Canadian requirements, which differ significantly
from the requirements of the United States Securities and Exchange
Commission (the “SEC”) applicable to registration
statements and reports filed by United States companies pursuant to
the Securities Act or the Exchange Act. As such, certain
disclosures of mineralization under Canadian standards may not be
comparable to similar information made public by United States
companies subject to the reporting and disclosure requirements of
the SEC and not subject to Canadian securities
legislation.
While
these terms are recognized and required by Canadian securities
legislation (under National Instrument 43-101 (“NI
43-101”), entitled Standards
of Disclosure for Mineral Projects), the SEC does not
recognize these terms. Investors in the United States are cautioned
not to assume that any part or all of the mineral deposits in these
categories will ever be converted to reserves. In addition,
inferred mineral resources have a great amount of uncertainty as to
their existence and economic and legal feasibility. It cannot be
assumed that all or any part of a measured mineral resource,
indicated mineral resource or inferred mineral resource will ever
be upgraded to a higher category. Under Canadian securities
legislation, estimates of inferred mineral resources may not form
the basis of feasibility or pre-feasibility studies, although they
may form, in certain circumstances, the basis of a
“preliminary economic assessment” as that term is
defined in NI 43-101. U.S. investors are cautioned not to assume
that any part or all of any reported measured, indicated, or
inferred mineral resource estimates referred to in the NI 43-101
Technical Report and Mineral Resource Estimate (compiled for
DynaResource de México SA de CV) are economically or legally
mineable.
Under
U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made. The SJG Property as described in
this Annual Report on Form 10-K is without known reserves. Mineral
resources which are not classified as mineral reserves have not
“demonstrated economic viability.” The quantity of
resources and the quality (grade) of resources reported as
“Indicated” and “Inferred” mineral
resources in the mineral resource estimate compiled for
DynaResource de México SA de CV, under the NI 43-101 Mineral
Resource Estimate filed by the Company on SEDAR, are not disclosed in this Form
10-K. SEDAR is Canada’s System for Electronic
Document Analysis and Retrieval, the mandatory document filing and
retrieval system for Canadian public companies. There has
been insufficient exploration to define any mineral reserves on the
SJG Property, and it is not certain if further exploration will
result in the definition of mineral reserves.
PART I
ITEM 1.
BUSINESS
History and Organization
The
Company is a minerals investment, management, and exploration
company, and currently conducting test mining and pilot milling
operations through an operating subsidiary in México, with
specific focus on precious and base metals in México. The
Company was originally incorporated in the State of California on
September 28, 1937, under the name West Coast Mines, Inc. In
November 1998, the Company re-domiciled from California to Delaware
and changed its name to DynaResource, Inc.
(“DynaUSA”).
We
currently own 80% of the outstanding shares of DynaMéxico, and
DynaMéxico currently holds 20% of the outstanding shares of
DynaMéxico. DynaMéxico owns 100% of the mining
concessions, equipment, camp and related facilities which comprise
the San Jose de Gracía Property (“SJG”), in
northern Sinaloa State, México. We also own 100% of Mineras de
DynaResource S.A. de C.V. (“DynaMineras”), the
exclusive operator of the San José de Gracía Project,
under contract with DynaMéxico. DynaMineras currently conducts
test mining and pilot milling operations, and other exploration
activities in México. The Company also has another wholly
owned subsidiary, DynaResource Operaciones, S.A. de C.V.
(“DynaOperaciones”). DynaOperaciones entered into a
personnel management agreement with DynaMineras and, under the
terms of that agreement, DynaOperaciones is the exclusive
management company for registered employees.
Segment Information
Our
only current operating segment is DynaMéxico.
Products
The end
use product produced at our test mining and pilot milling
operations at SJG is in the form of gold-silver concentrates.
Gold-silver concentrates, or simply concentrate, is raw precious
metals materials that has been crushed and ground finely to a
sand-like product where gangue (waste) and non-precious metals are
removed or reduced, thus concentrating the precious metals
component. Concentrates processed and produced from San Jose de
Gracía are shipped to third-party smelters, refineries or
third parties for further processing or re-sale.
During
2020, we reported the delivery and sale of 5,828 net Oz gold
contained in concentrates. All gold-silver concentrate originated
from the San Jose de Gracía Property in
México.
Gold-silver
concentrates are sold at a small discount to the prevailing spot
market price, based on the price per ounce of gold and silver
quoted at the London PM fix, with the actual net precious metals
prices received depending on the sales contract. Concentrates are
priced by individual concentrate lots of 36 to 72 tons, or as a
series of lots under contract, whereby the final selling price and
gold-silver quantities are subject to final adjustments at the time
of final purchase settlement.
Gold and Silver Pilot Processing Methods
Gold
and silver are extracted from mined mineralized material, by
crushing, grinding, milling, and further by simple gravity and
flotation recoveries. The mineralized material is extracted by
underground mining methods. The processing plant at the San
José de Gracía mine is composed of conventional crushing
and grinding circuits, and with gravity and flotation recovery
methods. The gravity and flotation concentrates are dewatered and
shipped to purchasers in semi-truck trailers.
Gold and Silver Reserves / No Known Reserves
The
Company currently has no mineral “reserves” as defined
by SEC Industry Guide 7 promulgated by the SEC.
4
General Government Regulations
México
Mining
in México is subject to numerous federal, state and local
laws, regulations and ordinances governing mineral rights,
operations and environmental protection.
Mineral Concession
Rights. Exploration and exploitation
of minerals in México may be carried out through Mexican
companies incorporated under Mexican law by means of obtaining
mining concessions. Mining concessions are granted by the Mexican
government for a period of fifty years from the date of their
recording in the Public Registry of Mining and are renewable for a
further period of fifty years upon application within five years
prior to the expiration of such concession in accordance with the
Mining Law and its regulations. Mining concessions are
subject to annual work requirements and payment of annual surface
taxes which are assessed and levied on a semi-annual basis. Such
concessions may be transferred or assigned by their holders, but
such transfers or assignments must be registered with the Public
Registry of Mining in order to be valid against third parties. The
holder of a concession must pay semi-annual duties in January and
July of each year on a per hectare basis and in accordance with the
amounts provided by the Federal Fees Law. During the month of May
of each year, the concessionaire must file with the General Bureau
of Mines, the work assessment reports made on each concession or
group of concessions for the preceding calendar year. The
regulations of the Mining Law provide tables containing the minimum
investment amounts that must be made on a concession. This amount
is updated annually in accordance with the changes in the Consumer
Price Index.
Surface Rights. In México, while mineral rights are
administered by the federal government through federally issued
mining concessions, Ejidos
(communal owners of land recognized by the federal laws in
México) control surface access rights to the land. An
Ejido may sell or lease
lands directly to a private entity. While the Company has
agreements or is in the process of negotiating agreements with the
Ejido that impact all of
its projects in México, some of these agreements may be
subject to renegotiations.
Mining Royalties. In October 2013,
the Mexican lower house passed a bill levying a tax-deductible
mining royalty of 7.5% on earnings before the deduction of
interest, taxes, depreciation and amortization, along with an
additional 0.5% surcharge on precious metals revenue for mining
companies. The effective date of the law was January 1, 2014.
Although there are a few uncertainties surrounding the scope,
calculation and enforcement of the royalty, based on the Company's
current interpretation of the bill, the royalty or surcharge was
not material for 2020.
Environmental Law. The Environmental
Law in México, called the "General Law of Ecological Balance
and Protection to the Environment" ("General Law"), provides for
general environmental policies, with specific requirements for
certain activities such as exploration set forth in regulations
called "Mexican official norms". Responsibility for enforcement of
the General Law, the regulations and the Mexican official norms is
with the Ministry of Environment and Natural Resources, which
regulate all environmental matters with the assistance of
Procuraduria Federal de
Protección al Ambiente (known as
"PROFEPA").
2020 Forestry Law. The 2020 Forestry Law provides for
general policies for the use and protection of the surface, and for
plants, soil and trees. The regulation of the Forestry Law is with
the Ministry of Environment and Natural Resources, with the
assistance of PROFEPA.
Residues Law. The Residues Law, also known as Norm 141,
provides for general policies for the deposit and storage of
residue and waste. The regulation of the Residues Law is with the
Ministry Of Environment and Natural Resources, with the assistance
of PROFEPA.
The
primary laws and regulations used by the State of Sinaloa, where
our San Jose de Gracía property is located, in order to govern
environmental protection for mining and exploration are: The
General Law, the 2020 Forestry Law, Residues Law, as well as their
specific regulations on air, water and residues, and the Mexican
official norms (known as "NOM-120"). In order to comply with the
environmental regulations, a concessionaire must obtain a series of
permits during the exploitation and exploration stage. The time
required to obtain the required permits is dependent on a few
factors including the type of vegetation and trees impacted by
proposed activities.
Mining Permits. The Secretariat of
Environmental and Natural Resources, the Mexican Government
environmental authority ("SEMARNAT"), is responsible for issuing
environmental permits associated with mining. Three main permits
required before construction can begin are: Environmental Impact
Statement (known in México as Manifesto Impacto Ambiental) ("MIA"),
Land Use Change (known in México as Estudio Justificativo Para Cambio Uso
Sueldo) ("ETJ"), and Risk Analysis (known in México as
Analisis de Riesgo) ("RA").
A construction permit is required from the local municipality and
an archaeological release letter must be obtained from the National
Institute of Anthropology and History (known as "INAH"). An
explosives permit is required from the ministry of defense before
construction can begin. The Environmental Impact Statement is
required to be prepared by a third-party contractor and submitted
to SEMARNAT and must include a detailed analysis of climate, air
quality, water, soil, vegetation, wildlife, cultural resources and
socio-economic impacts. The Risk Analysis study (which is included
into the Environmental Impact Statement and submitted as one
complete document) identifies potential environmental releases of
hazardous substances and evaluates the risks in order to establish
methods to prevent, respond to, and control environmental
emergencies. The Land Use Change requires that an evaluation be
made of the existing conditions of the land, including a plant and
wildlife study, an evaluation of the current and proposed use of
the land, impacts to naturally occurring resources, and an
evaluation of reclamation/re-vegetation plans.
5
Customers
The
Company sells its concentrates to the buyer who offers the best
terms based upon price, treatment costs, refining costs, and other
terms of payment. During the year ended December 31, 2020, the
Company sold gold-silver concentrates to three
purchasers.
Employees
As of
December 31, 2020, we had 186 employees, including 182 employees
based in México, and 4 in the United States. Consultants are
retained from time to time. Employees based in México and the
United States include laborers, engineers, geologists, information
technologists, office administrators, managers and executives. None
of our employees in México are covered by union contracts and
the Company believes we have good relations with our
employees.
ITEM 1A.
RISK FACTORS
Not
applicable for smaller reporting companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The
Company leases office space for its corporate headquarters in
Irving, Texas. In September 2017, the Company entered into a
sixty-six-month extension of the lease through 2023. As part of the
agreement the Company received six months free rent as a finish out
allowance. The Company capitalized the leasehold improvement costs
and amortized them over the rent abatement period as rent expense.
The Company makes tiered lease payments on the 1st of each
month.
We
classify our mineral property as an "Exploration Property". We do
not suggest that we have proven or probable reserves at our
property as defined by the SEC. Under U.S. standards, as set forth
in SEC Industry Guide 7, mineralization may not be classified as a
“reserve” unless a determination has been made that the
mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. The SJG
Property as described in this Annual Report on Form 10-K is without
known reserves. Mineral resources which are not classified as
mineral reserves do not have “demonstrated economic
viability.” The quantity of resources and the quality (grade)
of resources reported as “Indicated” and
“Inferred” mineral resources in the mineral resource
estimate compiled for DynaMéxico, under and filed by the
Company on SEDAR, are not
disclosed in this Form 10K. There has been insufficient
exploration to define any mineral reserves on the SJG Property, and
it is not certain if further exploration will result in the
definition of mineral reserves.
6
San Jose de Gracia Mineral Property
San
Jose de Gracía Property (“SJG”) is a high-grade
mineralized system which reports historical production of 1,000,000
Oz. gold (“Au”), from a series of underground workings
and is located in the state of Sinaloa, México. The Company is
focused on the exploration and future exploitation of this
vein-hosted, near surface, and over 400 meters down dip gold
potential, that occurs within fault breccia veins; and has been
traced on surface and underground over a 15 Sq. kilometer
area.
DynaMéxico
owns 100% of the mineral concessions at the SJG Property, and all
mineral concessions are contiguous. The SJG Property is comprised
of 33 concessions covering approximately 9,920 hectares (24,513
acres).
Current Mining Concessions - San José de
Gracía
|
Claim Name
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Claim Number
|
Staking date
|
Expiry
|
Hectares
|
Taxes / ha (pesos)
|
|
AMPL.
SAN NICOLAS
|
183815
|
22/11/1988
|
21/11/2038
|
17.4234
|
111.27
|
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AMPL.
SANTA ROSA
|
163592
|
30/10/1978
|
29/10/2028
|
25.0000
|
111.27
|
|
BUENA
VISTA
|
211087
|
31/03/2000
|
30/03/2050
|
17.9829
|
63.22
|
|
EL
CASTILLO
|
214519
|
02/10/2001
|
01/10/2051
|
100.0000
|
31.62
|
|
EL
REAL
|
212571
|
07/11/2000
|
07/11/2052
|
2038.0000
|
31.62
|
|
EL REAL
2
|
216301
|
30/04/2002
|
29/04/2052
|
280.1555
|
31.62
|
|
FINISTERRE
FRACC. A
|
219001
|
28/01/2003
|
27/01/2053
|
18.7856
|
31.62
|
|
FINISTERRE
FRACC. B
|
219002
|
28/01/2003
|
27/01/2053
|
174.2004
|
31.62
|
|
GUADALUPE
|
189470
|
05/12/1990
|
04/12/2040
|
7.0000
|
111.27
|
|
LA
GRACIA I
|
215958
|
02/04/2002
|
01/04/2052
|
300.0000
|
31.62
|
|
LA
GRACIA II
|
215959
|
02/04/2002
|
01/04/2052
|
230.0000
|
31.62
|
|
LA
LIBERTAD
|
172433
|
15/12/1983
|
14/12/2033
|
97.0000
|
111.27
|
|
LA
NUEVA AURORA
|
215119
|
08/02/2002
|
07/02/2052
|
89.3021
|
31.62
|
|
LA
NUEVA ESPERANZA
|
226289
|
06/12/2005
|
05/12/2055
|
40.0000
|
7.6
|
|
LA
UNION
|
176214
|
26/08/1985
|
25/08/2035
|
4.1098
|
111.27
|
|
LOS
TRES AMIGOS
|
172216
|
27/10/1983
|
26/10/2033
|
23.0000
|
111.27
|
|
MINA
GRANDE
|
163578
|
10/10/1978
|
09/10/2028
|
6.6588
|
111.27
|
|
NUEVO
ROSARIO
|
184999
|
13/12/1989
|
12/12/2039
|
32.8781
|
111.27
|
|
PIEDRAS
DE LUMBRE 2
|
215556
|
05/03/2002
|
04/03/2052
|
34.8493
|
31.62
|
|
PIEDRAS
DE LUMBRE 3
|
218992
|
28/01/2003
|
27/01/2053
|
4.3098
|
31.62
|
|
PIEDRAS
DE LUMBRE No.4
|
212349
|
29/09/2000
|
28/09/2050
|
0.2034
|
63.22
|
|
PIEDRAS
DE LUMBRE UNO
|
215555
|
05/03/2002
|
04/03/2052
|
40.2754
|
31.62
|
|
SAN
ANDRES
|
212143
|
31/08/2000
|
30/08/2050
|
385.0990
|
63.22
|
|
SAN
JOSÉ
|
208537
|
24/11/1998
|
23/11/2048
|
27.0000
|
111.27
|
|
SAN
MIGUEL (1)
|
183504
|
26/10/1988
|
25/10/2038
|
7.0000
|
111.27
|
|
SAN
NICOLAS
|
163913
|
14/12/1978
|
13/12/2028
|
55.5490
|
111.27
|
|
SAN
SEBASTIAN
|
184473
|
08/11/1989
|
07/11/2039
|
40.0000
|
111.27
|
|
SANTA
MARIA
|
218769
|
17/01/2003
|
16/01/2053
|
4.2030
|
31.62
|
|
SANTA
ROSA
|
170557
|
13/05/1982
|
12/05/2032
|
31.4887
|
111.27
|
|
SANTO
TOMAS
|
187348
|
13/08/1986
|
12/08/2036
|
312.0000
|
111.27
|
|
TRES
AMIGOS 2
|
212142
|
31/08/2000
|
30/08/2050
|
54.4672
|
63.22
|
|
FINISTERRE
4
|
231166
|
18/01/2008
|
17/01/2058
|
2142.1302
|
5.08
|
|
FRANCISCO
ARTURO
|
230494
|
06/09/2007
|
27/03/2057
|
3,279.56
|
|
|
TOTAL
|
|
|
|
9,920.00
|
|
7
Surface Lease Rights
In
addition to the surface rights held by DynaMéxico pursuant to
the Mining Act of
México and its Regulations (Ley Minera y su Reglamento),
DynaMineras maintains access and surface rights to the SJG Project
pursuant to the 20-year Land Lease Agreement (above). The
20 Year Land Lease
Agreement with the Santa Maria Ejido Community surrounding San Jose
de Gracía is dated January 6, 2014 and continues through 2033.
It covers an area of 4,399 hectares surrounding the main mineral
resource areas of SJG and provides for annual lease payments by
DynaMineras of $1,359,443 Pesos (approx. $68,250USD as of December
31, 2020), commencing in 2014. Additionally, under the description
of the 20 Year Land Lease, DynaMineras constructed a Medical
Facility at SJG in year 2017.
The
Land Lease Agreement provides DynaMineras with surface access to
the core resource areas of SJG (4,399 hectares), and allows for all
permitted mining, pilot production and exploration activities from
the owners of the surface rights (Santa Maria Ejido
community).
The
Company expects DynaMineras will be successful in expanding the
size and scope of the resources at SJG through continued drilling
and development programs at San Pablo, Tres Amigos, La Ceceña,
Palos Chinos, San Pablo East, La Purisima, and La Prieta. The
Company expects extensions to mineralization in all directions and
down dip from the main target areas.
Mineral Reserves / No Known Reserves
Under
U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made. The SJG property is without known
reserves. Mineral resources which are not classified as mineral
reserves do not have “demonstrated economic viability.”
The quantity of resources and the quality (grade) of resources
reported as “Indicated” and “Inferred”
mineral resources in the mineral resource estimate compiled for
DynaMéxico is not
disclosed in this Form 10-K. There has been insufficient
exploration to define any mineral reserves on the property, and it
is not certain if further exploration will result in the definition
of mineral reserves.
Technical Report and Resource Estimate According to Canadian
National Instrument 43-101 (2012)
In
2012, DynaMéxico commissioned Servicios y Proyectos Mineros
(“SPM”) for the production of Technical Report 43-101
(“43-101”) at San Jose de Gracía. Additionally,
DynaMéxico commissioned Mr. Robert Sandefur, a senior reserve
analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO
(“CAM”) to produce a mineral resource estimate for the
4 main vein systems at the property.
Parameters Used to Estimate the Mineral Resource
Estimate--The data base for the San Jose de Gracía
Project consists of 372 drill holes of which 361 are diamond drill
holes (“DDH”) and the remaining 11 were reverse
circulation holes “(RC”), with a total drilling of
75,878 meters. The NI 43-101 Mineral Resource Estimate, prepared in
2012, concentrates on four main mineralized vein systems at SJG:
Tres Amigos, San Pablo, La Union, and La Purisima. Of the 372 drill
holes, 368 were drilled to test these four main vein systems and
the remaining four holes tested the Argillic Zone. Technical
personnel of Minop S.A. de C.V. (“Minop”), a subsidiary
(or affiliate) of Goldgroup Mining Inc., built three dimensional
solids to constrain estimation to the interpreted veins in each
swarm. The 172 holes most recently drilled (2009-2011), were
allocated as follows: Tres Amigos (64 holes), San Pablo (49 holes),
La Union (24 holes), La Purisima (32 holes) and Argillic Zone (3
holes). The data base also includes rock and chip sampling,
regional stream sediment sampling, and IP
Surveys.
Density--A total of 5,540 pieces of core were measured for
specific gravity using the weight in air vs. weight in water
method. This represents an additional 3,897 measurements taken in
the 2009-11 drill seasons with density measurements taken from all
mineral zones. Dried samples were coated with paraffin wax before
being measured. The results tabulated have been sorted by lithology
and mineralized veins. The average specific gravity of 5,051 wall
rock samples was 2.59 while the average specific gravity for 489
samples of vein material is 2.68. CAM and Servicios y Proyectos
Mineros have reviewed the procedures and results and opine that the
results are suitable for use in mineral resource
estimation.
Mineral Resource Estimate - Construction of
Wireframes--Mineral Resources were estimated by Mr. Sandefur
within wireframes constructed by technical personnel of Minop.
Minop was contracted by Mineras de DynaResource S.A. de C.V.
(“DynaMineras”).
8
Mineral Resource Estimate - Explanation of Resource
Estimation--Resource estimation was done in MineSight and
MicroModel computer systems with only those composites that were
inside the wireframe used in the estimate. Estimation was done
using kriging with the omni-directional variogram derived from all
the data in each area for gold using the relative variogram derived
from the log variogram. High grades were restricted by capping the
assays at a breakpoint based on the cumulative frequency curves.
Estimation was done using search radii of 100 x 100 x 50 m
“blocks” oriented subparallel to the general strike and
dip of the vein system in each area. A sector search, corresponding
to the faces of the search box with a maximum of two points per
sector was used in estimation. A density of 2.68 based on within
‘vein density’ samples was used in the resource
estimate. Within each of the four areas there are approximately 20
to 40 veins in the vein swarm. Resources were estimated by kriging
using data from all veins in the swarm. In general, gold accounts
for at least 80% of the value of contained metal at the project, so
the variograms for gold were used in estimation of the four other
metals.
The
veins at San Jose de Gracía have been historically mined for
many years and historic mined volumes are not available. The one
exception is the approximate 42,000 tonnes of ore processed by
DynaMéxico during its pilot production activities in
2003-2006. The resource table is not adjusted for any historic
mining. To validate that historic mining had not significantly
reduced the resource, CAM reviewed the database for all assays
greater than 1 gram per ton gold that were next to missing values
at the bottom of drill holes. Only four assays satisfying this
criterion were found, and on the basis of this review, Mr. Sandefur
does not believe that significant mining has occurred within the
volumes defined by the wireframes.
Servicios y Proyectos Mineros performed a database review
and considers that a reasonable level of verification has been
completed, and that no material issues have been left unidentified
from the drilling programs undertaken.
Mineral
Resource Estimate and 43-101 Technical Report - Data
Verification--Mr. Ramon Luna Espinoza (“Mr.
Luna”) initially visited the San Jose de Gracía Project
in November 2010 and conducted site inspections at SJG in November
2011 and January 2012. Mr. Sandefur conducted a site inspection of
the SJG Project in January 2012. While at the Property in November
2011, Mr. Luna inspected the areas of Tres Amigos, La Prieta,
Gossan Cap, San Pablo, La Union, and La Purisima, and historic
mining sites. In January 2012, Mr. Sandefur and Mr. Luna inspected
the areas of Tres Amigos, San Pablo, La Union, and La Purisima.
Pictures of the areas were taken. Many of the drill pads for the
drilling programs of 2007 to 2011 were clearly located and
identified. Mr. Luna also inspected at San José de
Gracía, the core logging and storage facilities, the geology
offices, the meteorological station, the plant nursery, and the
mill. Mr. Sandefur also inspected the core logging and storage
facilities.
The
Company received from DynaMéxico on February 14, 2012, a
National Instrument 43-101 Mineral Resource Estimate for San Jose
de Gracía. The NI 43-101 Resource Estimate was prepared by Mr.
Robert Sandefur, BS, MSc, P.E., a Qualified Person as defined under
NI 43-101, and a senior reserve analyst for Chlumsky, Armbrust
& Meyer LLC, Lakewood, CO (“CAM”). The Resource
Estimate concentrates on four separate main vein systems at SJG:
Tres Amigos, San Pablo, La Union, and La Purisima.
The
mineral resource estimates prepared by Mr. Robert Sandefur for this
Technical Report included Indicated Resources at Tres Amigos and
San Pablo. Table summaries of Indicated and Inferred Resources are
contained in the 2012 DynaMéxico-CAM Mineral Resource
Estimate. The Resource Estimate has been filed, along with the
Technical Report on SEDAR; but is not disclosed in this Form
10-K.
Water Concession
The
Company has secured the Water Rights Concession for the area
surrounding SJG. The Director of Water Administration of the
National Water Commission of México (CONAGUA) formally
certified in writing the rights of DynaResource de México,
S.A. de C.V. to legally “use”, exploit and extract
1,000,000 cubic meters of water per year from the DynaMéxico
extraction infrastructure located within the perimeter of the
mining concessions comprising the San Jose de Gracía Mining
Property in Sinaloa State, México. CONAGUA determined that the
DynaMéxico water rights are not subject to any water rights
concession or any other water extraction restriction. Water
extracted by DynaMéxico will be subject to applicable levies
imposed by the Mexican tax authorities in accordance with current
Mexican tax laws.
9
ITEM 3.
LEGAL PROCEEDINGS
$48M Damages Award to DynaMéxico
On
October 5, 2015, DynaMéxico was awarded in excess of US $48
million in damages from Goldgroup Resources, Inc. the subsidiary of
Goldgroup Mining Inc. (“GGA.TO”), by virtue of a
Sentencia Definitiva (the “Definitive Sentence”) issued
by the Thirty Sixth Civil Court of the Superior Court of Justice of
the Federal District of México (Tribunal Superior de Justicia
del Distrito Federal), File number 1120/2014. The Definitive
Sentence included the considerations and resolutions by the Court,
and additional Resolutions were also ordered in favor of
DynaMéxico (together the damages award and the additional
Resolutions are referred to as, the “October 5, 2015
Resolution”).
The
October 5, 2015 Resolution also declared:
|
(a)
|
The
AAA (American Arbitration Association) must “cease and
desist” from the arbitration proceeding;
|
|
(b)
|
The
AAA does not have jurisdiction to hear any conflict and/or
interpretation arising from the Earn In/Option Agreement, dated
September 1, 2006; and
|
|
(c)
|
The
AAA does not have jurisdiction to hear disputes arising between
shareholders of DynaMéxico, which disputes do not arise
directly and immediately from the Earn In/Option Agreement, dated
September 1, 2006.
|
Rejection of Goldgroup Resources Inc. request to the Supreme Court
of México
On July 3, 2019 an Official Ruling from The Supreme Court of
México was issued to Reject the Request of Goldgroup Resources
Inc. (the “México Supreme Court Rejection to
Goldgroup”). The Justices of the First Chamber of the
Supreme Court of Justice of México issued a Rejection Notice
to Goldgroup Resources Inc., “due to the lack of legitimacy
presented by Goldgroup”; and in issuing the Rejection Notice
to Goldgroup, the Supreme court thereby reverted the Amparo Appeal
back to the México Circuit Court.
On
December 6, 2019 the 11th Federal Circuit
Collegiate Court in México issued its Final Ruling (“the
DynaMéxico Final Legal Ruling”). The DynaMéxico
Final Legal Ruling denied the Amparo challenge of Goldgroup
Resources Inc. The DynaMéxico Final Legal Ruling constitutes
the Final Appeal of Goldgroup Resources Inc.; and is Not subject to
further appeal or protest.
The
DynaMéxico Final Legal Ruling is the result and culmination of
7 years of legal action performed by DynaMéxico and is the
Final Ruling of the 11th Federal Circuit
Collegiate Court. With this DynaMéxico Final Legal Ruling
issued, all matters before the Court in México with respect to
DynaMéxico and Goldgroup Resources Inc. are fully resolved and
are no longer subject to appeal or reconsideration.
DynaMéxico Foreclosure and Recovery of All Remaining Shares of
Goldgroup Resources
1.
On February 20,
2020, a México City court issued its Final Judgment,
effectively foreclosing on all of the remaining shares in
DynaMéxico held by Goldgroup Resources Inc. and awarding the
shares to DynaMéxico (the “DynaMéxico Foreclosure
Judgment”).
2.
The DynaMéxico
Foreclosure Judgment awarded to DynaMéxico 100% of the Shares
of DynaMéxico previously owned by Goldgroup Resources Inc. (a
Subsidiary Company in México owned 100% by Goldgroup Mining
Inc., Vancouver, BC., “GGA.TO”). Prior to the
DynaMéxico Foreclosure Judgment, Goldgroup Resources Inc.
owned shares of DynaMéxico constituting 20% of the total
outstanding shares of DynaMéxico (the “Goldgroup Shares
of DynaMéxico”). The Goldgroup Shares of DynaMéxico
were held under Lien by DynaMéxico since October
2016.
3.
DynaUSA owns 80% of
the outstanding shares of DynaMéxico. The remaining 20% of the
outstanding shares of DynaMéxico are held by DynaMéxico
as treasury shares.
10
DynaUSA and DynaMéxico file Recognition Claim in Dallas
County, Texas to Recognize the $48M Foreign Judgment in the
US.
On
August 28, 2020 DynaUSA and DynaMéxico filed a Recognition
Claim in Dallas County Texas USA, in order to register the $48M
Foreign Judgment against Goldgroup Resources Inc. in the
US.
On
November 6, 2020, the Mexican courts ruled the $48M USD judgement
could be transferred to the U.S. to support the Company’s
filing of August 28, 2020.
Arbitration Ruling
In
direct contradiction to the October 5, 2015 Definitive Sentence
issued by court in México, on August 25, 2016 the American
Arbitration Association - International Centre for Dispute
Resolution, Denver office (the “AAA”) issued an
Arbitration Ruling (the “Arbitration Ruling”) in favor
of Goldgroup Resources Inc. against DynaMéxico and
DynaResource, Inc. The Arbitration Ruling was the result of a
proceeding in which neither DynaMéxico nor DynaResource
participated, since the Definitive Sentence issued by the court in
México effectively prohibited their participation in the
Arbitration proceeding and should have prohibited Goldgroup
Resources Inc. participation.
The
Arbitration Ruling provides the following: (i) the Earn In/Option
Agreement is still in force, and consequently Goldgroup may appoint
two directors to the DynaMéxico board, and may participate in
the appointment of a fifth director; (ii) the DynaMéxico
Management Committee is reinstated, and must approve all budgets
and expenditures; (iii) amounts expended by DynaMéxico that
were not approved by the Management Committee are subject to
repayment by DynaResource; (iv) the issuance of additional shares
by DynaMéxico (and consequent dilution of Goldgroup’s
equity interest) was in violation of the Earn In/Option Agreement;
and (v) DynaResource and DynaMéxico are responsible for
Goldgroup’s costs and professional fees associated with the
Arbitration Ruling.
Unlike
most arbitration proceedings in the U.S., the Arbitration Ruling is
not final. Since the Arbitration Ruling is subject to international
rules, the ruling may be vacated by U.S. courts, or simply not
recognized by U.S. courts, on several grounds. Accordingly, both
DynaMéxico and DynaResource have timely requested relief from
the United States Federal District Court in Colorado, via the
filing of a Petition for Nonrecognition of Foreign Arbitral Award
and/or Motion to Vacate Arbitration Award (the “Petition for
Nonrecognition”), and a supporting brief. The Petition for
Nonrecognition relies heavily upon the Mexican court’s
Definitive Sentence, key excerpts of which appear immediately
below.
The Mexican court has already ruled that “any controversy
arising from the Earn In/Option Agreement must be brought and
resolved under Mexican Law and by competent Mexican Courts with
proper jurisdiction.” Consequently, the monetary awards
against DynaResource – which are based upon a finding that
the Earn In/Option Agreement is still in force – will not be
enforceable if the Mexican court rules that the Earn In/Option
Agreement is terminated. The Company believes that the potential
for the assessment of a material monetary judgment against
DynaResource is remote.
|
SIXTH:
|
Pursuant to Article 1424 of the Commercial Code of México, the
arbitration provision established under clause 8.16 of the Earn
In/Option Agreement, dated as of September 1, 2006, is ineffective
and impossible to execute.
|
|
SEVENTH:
|
This Court declares that any controversy arising from the Earn
In/Option Agreement must be brought and resolved under Mexican Law
and by competent Mexican Courts with proper jurisdiction, in
recognition of the waiver and exclusion of the arbitration clause
(contained in the Earn In/Option Agreement) by both
parties.
|
|
EIGHT:
|
This Court declares that the American Arbitration Association must
abstain from hearing arbitration procedure number 50 501 T 00226
14, or any other ongoing and/or future ongoing arbitration already
filed or to be filed by the defendant Goldgroup, based on the Earn
In/Option Agreement dated September 1, 2006.
|
|
NINTH:
|
This Court declares that the American Arbitration Association does
not have jurisdiction to hear any conflict and/or interpretation
arising from the Earn In/Option Agreement, dated September 1,
2006.
|
|
TENTH:
|
This Court declares that the American Arbitration Association does
not have jurisdiction to hear disputes arising between shareholders
of DynaMéxico, which disputes do not arise directly and
immediately from the Earn In/Option Agreement, dated September 1,
2006.
|
|
ELEVENTH:
|
This Court declares that the American Arbitration Association does
not have jurisdiction to hear any matters where Koy Wilber
Diepholz, who is the President of the Board of Directors of
DynaMéxico, and has been personally sued in relation to the
arbitration clause established under clause 8.16 of the Earn
In/Option Agreement, dated September 1, 2006, since he signed the
mentioned instrument in representation of the Company and not in
representation of the Company and not in his personal
capacity.
|
(a)
The
Arbitration Ruling contains an acknowledgement by the AAA that the
AAA was named as a defendant in the legal demand filed by
DynaMéxico in the Thirty Sixth Civil Court of the Superior
Court of Justice of the Federal District of México (the
“DynaMéxico Legal Demand”). The Arbitration Ruling
also contains a statement that the AAA was not properly served
notice of the DynaMéxico Legal Demand;
(c)
DynaMéxico
will pursue all legal remedies in order to obtain a full dismissal
of the Arbitration Ruling;
(d)
The
October 5, 2015 Court Order and the $48 million USD award of
damages against Goldgroup Resources Inc. remains in full force and
effect as issued. DynaMéxico is currently pursuing all
available remedies in order to collect $48 million USD in damages
from Goldgroup Resources Inc.
Mercuria Energy Trading, S.A. (“Mercuria”) –
Mercuria’s Failure to Perform
On
December 8, 2019 Mercuria informed Mineras de DynaResource
(“DynaMineras”) that it was terminating its mineral
concentrates business. DynaMineras commenced delivery of
Concentrates to Mercuria in February 2017.
On
March 16, 2020 DynaMineras was notified by Counsel for the London
Court of International Arbitration (“LCIA”) that
Mercuria had filed a request for Arbitration.
On
April 13, 2020, DynaMineras filed a response to Mercuria Energy
Trading, S.A., claiming that Mercuria failed to perform numerous
promises made to DynaMineras to advance funds in the amount of
$1.5M USD.; and further challenging amounts payable claimed by
Mercuria in the Arbitration.
The
arbitration matter is in the disclosure phase.
11
DynaUSA and DynaMéxico filed Motion to Vacate Arbitration
Ruling
On
November 17, 2016, DynaUSA and DynaMéxico filed a Motion to
Vacate the Arbitration Ruling in United States District Court,
District of Colorado.
Recommendation to Vacate Arbitration Ruling issued by United States
Magistrate Judge
On
February 13, 2018 a Recommendation to Vacate the Arbitration Ruling
was issued by a United States Magistrate Judge of the United States
District Court, District of Colorado.
On May
9, 2019, the United States district court for the district of
Colorado confirmed the August 2016 Arbitration award against
DynaResource, Inc. and DynaResource de México, S.A. de
C.V. The district court’s decision overruled the
recommendation previously issued by the magistrate judge to sustain
the DynaResource entities’ motion to vacate the arbitration
award. Each of DynaResource, Inc. and DynaResource de México,
S.A. de C.V. continues to exercise all its rights, as appropriate,
including an appeal.
On
March 25, 2020, the United States District Court for the District
of Colorado denied the motion by DynaUSA and DynaMéxico to
alter or amend its judgment (thereby confirming the August 2016
arbitration award), and denied DynaUSA and DynaMéxico’s
motions for stay and judgment pending appeal and to waive or reduce
supersedes bond.
On
April 10, 2020, DynaUSA and DynaMéxico appealed the March 25,
2020 ruling to the Tenth Circuit Court of Appeals and in accordance
with the requirements of the appeal, posted a cash bond of
$1,111,111 which is being held with the court.
Litigation(s) in México – Company as
Plaintiff
The
Company, and DynaMéxico have filed several legal actions in
México against Goldgroup Mining Inc. and Goldgroup Resources
Inc., and certain individuals
retained as agents of Goldgroup Mining Inc., or Goldgroup
Resources. The Company and DynaMéxico are plaintiffs in the
actions filed in México and the outcomes are
pending.
The
Company believes that no material adverse change will occur as a
result of the actions taken, and the Company further believes that
there is little to no potential for the assessment of a material
monetary judgment against the Company for legal actions it has
filed in México. For purposes of confidentiality, the Company
does not provide more specific disclosure in this Form
10-K.
ITEM 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.
12
PART II
ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s common stock is traded on the OTC Markets under the
symbol "DYNR". The following table sets forth, for the
periods indicated, the high and low bid quotations which reflect
inter-dealer prices, without retail mark-up or mark-down and
without commissions; and may not reflect actual transactions. All
amounts are denominated in U.S. dollars.
|
Year ended December 31,
2020
|
Low
|
High
|
|
First
Quarter
|
0.38
|
0.78
|
|
Second
Quarter
|
0.47
|
0.58
|
|
Third
Quarter
|
0.53
|
1.10
|
|
Fourth
Quarter
|
0.70
|
1.00
|
|
|
|
|
|
Year ended December 31,
2019
|
Low
|
High
|
|
First
Quarter
|
0.86
|
1.10
|
|
Second
Quarter
|
0.74
|
1.22
|
|
Third
Quarter
|
0.37
|
1.00
|
|
Fourth
Quarter
|
0.26
|
0.60
|
As of
February 29, 2021, there were outstanding 17,722,825 shares of our
common stock, which were held by approximately 460 shareholders of
record. This figure does not include shareholders that hold their
shares in street name or with a broker.
Dividend Policy
No cash
dividends on the Company common stock have been declared or paid
since the Company's inception. Payment of future dividends, if any,
will be at the discretion of our Board of Directors after
considering various factors, including the terms of any credit
arrangements, our financial condition, operating results, current
and anticipated cash needs and plans for growth. Our initial
earnings, if any, will likely be retained to finance our growth. At
the present time, we are not party to any agreement that would
limit our ability to pay dividends.
During
the fiscal years ended December 31, 2020 and 2019, no securities of
the Company were authorized for issuance under equity compensation
plans.
ITEM 6.
SELECTED FINANCIAL DATA
Not
applicable for smaller reporting companies.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
13
FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, which we refer to in this annual report as the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, which we refer to in this annual report as the Exchange
Act. Forward-looking statements are not statements of historical
fact but rather reflect our current expectations, estimates and
predictions about future results and events. These statements may
use words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“predict,” “project” and similar
expressions as they relate to us or our management. When we make
forward-looking statements, we are basing them on our
management’s beliefs and assumptions, using information
currently available to us. These forward-looking statements are
subject to risks, uncertainties and assumptions, including but not
limited to, risks, uncertainties and assumptions discussed in this
annual report. Factors that can cause or contribute to these
differences include those described under the heading
“Management Discussion and Analysis and Plan of
Operation.”
If one
or more of these or other risks or uncertainties materialize, or if
our underlying assumptions prove to be incorrect, actual results
may vary materially from what we projected. Any forward-looking
statement you read in this annual report reflects our current views
with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to our operations,
results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable
to us or individuals acting on our behalf are expressly qualified
in their entirety by this paragraph. You are cautioned not to place
undue reliance on forward-looking statements, which speak only as
of the date of this annual report. The Company expressly disclaims
any obligation to release publicly any updates or revisions to
these forward-looking statements to reflect any change in its views
or expectations. The Company can give no assurances that such
forward-looking statements will prove to be correct.
CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION
CONCERNING PREPARATION OF RESOURCE AND RESERVE
ESTIMATES
The
Company is an “OTC Reporting Issuer” as that term is
defined in BC Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter
Markets promulgated by the British Columbia Securities
Commission.
In
Canada, an issuer is required to provide technical information with
respect to mineralization, including reserves and resources, if
any, on its mineral exploration properties in accordance with
Canadian requirements, which differ significantly from the
requirements of the United States Securities and Exchange
Commission (the “SEC”) applicable to registration
statements and reports filed by United States companies pursuant to
the Securities Act or the Exchange Act. As such, certain
disclosures of mineralization under Canadian standards may not be
comparable to similar information made public by United States
companies subject to the reporting and disclosure requirements of
the SEC and not subject to Canadian securities
legislation.
While
these terms are recognized and required by Canadian securities
legislation (under National Instrument 43-101 (“NI
43-101”), entitled Standards
of Disclosure for Mineral Projects), the SEC does not
recognize these terms. Investors in the United States are cautioned
not to assume that any part or all, of the mineral deposits in
these categories, will ever be converted to reserves. In addition,
inferred mineral resources have a great amount of uncertainty as to
their existence and economic and legal feasibility. It cannot be
assumed that all or any part of a measured mineral resource,
indicated mineral resource or inferred mineral resource will ever
be upgraded to a higher category. Under Canadian securities
legislation, estimates of inferred mineral resources may not form
the basis of feasibility or pre-feasibility studies, although they
may form, in certain circumstances, the basis of a
“preliminary economic assessment” as that term is
defined in NI 43-101. U.S. investors are cautioned not to assume
that any part or all, of any reported measured, indicated, or
inferred mineral resource estimates referred to in the
DynaMéxico NI 43-101 Technical Report and DynaMéxico
43-101 Mineral Resource Estimate (compiled for DynaResource de
México SA de CV), are economically or legally
mineable.
Under
U.S. standards, as set forth in SEC Industry Guide 7,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made. The SJG Property as described in
this Annual Report on Form 10-K is without known reserves. Mineral
resources which are not classified as mineral reserves do not have
“demonstrated economic viability.” The quantity of
resources and the quality (grade) of resources reported as
“Indicated” and “Inferred” mineral
resources in the DynaMéxico 43-101 Mineral Resource Estimate
compiled for DynaResource de México SA de CV, under Canadian
National Instrument 43-101 and filed by the Company with SEDAR, are
not disclosed in this Form
10-K. There has been insufficient exploration to define any
mineral reserves on the SJG Property, and it is not certain if
further exploration will result in the definition of mineral
reserves.
14
Company
The
Company is a minerals investment, management, and exploration
company, and currently conducting test mining and pilot milling
operations through an operating subsidiary in México, with
specific focus on precious and base metals in México. The
Company was incorporated in the State of California on September
28, 1937, under the name West Coast Mines, Inc. In November 1998,
the Company re-domiciled from California to Delaware and changed
its name to DynaResource, Inc.
(“DynaUSA”).
We
currently conduct operations in México through our operating
subsidiaries. We currently own 80% of the outstanding shares of
DynaResource de México, S.A. de C.V.
(“DynaMéxico”), and DynaMéxico currently
holds 20% of its outstanding shares recovered from Goldgroup
Resources Inc. DynaMéxico owns 100% of mining concessions,
equipment, camp and related facilities which comprise the San Jose
de Gracía Property, in northern Sinaloa State, México. We
also own 100% of Mineras de DynaResource S.A. de C.V.
(“DynaMineras”), the exclusive operator of the San
José de Gracía Project, under contract with
DynaMéxico. DynaOperaciones is the exclusive management
company for registered employees.
Project Improvements, Expansion and Increased Output (2017 To
2020)
The
Company continues its business plan of operations at San Jose de
Gracía, which is to improve, increase and expand test mining
and pilot milling operations and generally, to increase production
of gold ounces. Since January 2015 startup of the test mining and
milling activities, the Company has increased daily output from an
initial 75 tons per 24-hour operating day, to a current 200 tons
per 24-hour operating day, and during first quarter 2021 the
Company expects to achieve production output of 300 tons per
24-hour operating day. (Note the Summary of Test Mining and Pilot
Mill Operations for 2018 to 2021 below).
Since
January 2017, the Company has expended over $13.1 million USD in
non-operating costs, generally classified as project improvements
and expansion costs which have been expensed in the company’s
financial statements. These funds have been provided primarily from
cash flows from operations. An itemized list of these non-operating
costs is described below:
|
Mill
Expansion:
|
$1,927,000
|
|
Tailings
Pond Expansion
|
265,000
|
|
Machinery
and Equipment
|
895,000
|
|
Mining
Camp Expansion
|
146,000
|
|
Medical
Facility
|
126,000
|
|
Mine
Development - San Pablo
|
2,748,000
|
|
Mine
Expansion - San Pablo East
|
915,000
|
|
Mine
Expansion – Tres Amigos
|
1,599,000
|
|
SIG
Mining Concessions
|
1,340,000
|
|
Surface
Rights and Permitting
|
238,000
|
|
Debt
Retirement
|
484,000
|
|
Legal
Fees
|
2,465,000
|
|
|
|
|
Total
|
$13,148,000
|
The
Company is currently reporting all costs of mine operations,
improvements, and expansion as expenses in accordance with United
States General Accepted Accounting Principal (GAAP) requirements.
The result of expensing all costs is that the Company has
accumulated a net loss carry forward from México operations of
$37 million USD which is available to offset future taxable
earnings.
15
Results for the Years Ended December 31, 2020 and 2019
Summary of Test Mining and Pilot Mill Operations for 2020, 2019 and
2018:
|
Year
|
Total
Tons
Mined &
Processed
|
Reported Mill
Feed Grade
(g/t Au)
|
Reported
Recovery
%
|
Gross Gold
Concentrates Produced
(Au
oz.)
|
Net Gold
Concentrates Sold
(Au
oz.)
|
|
2018
|
52,038
|
9.82
|
86.11%
|
14,147
|
13,418
|
|
2019
|
66,031
|
5.81
|
86.86%
|
10,646
|
9,713
|
|
2020
|
44,218
|
5.65
|
87.31%
|
7,001
|
5,828
|
DynaMineras
continued to increase its test underground mining activity and
pilot milling operations in 2020; and projects the increased output
from to 300 tons per 24-hour operating /day from the mine and mill
during 2021.
Test
pilot operations in 2020 yielded 44,218 Tons mined and processed
from underground test mining activity and pilot milling operations;
and the production of approximately 7,001 gross Oz Au, and net of
dry weight adjustments at the buyer’s facilities, the
production of approximately 5,828 Oz Au. The Company reports net
revenue of $9,048,831 net of buyer’s price discount and
refining and treatment costs.
Test
pilot operations in 2019 yielded 66,031 Tons mined and processed
from underground test mining activity and pilot milling operations;
and the production of approximately 10,646 gross Oz Au, and net of
dry weight adjustments at the buyer’s facilities, the
production of approximately 9,713 Oz Au. The Company reports net
revenue of $11,612,722 net of buyer’s price discount and
refining and treatment costs. In February 2020 the Company
transitioned mining activity from San Pablo to Tres Amigos in order
to achieve the opening of the Tres Amigos Mine. The Company
determined it was best to preserve its remaining cash resources and
redirect mining efforts to the opening of the Tres Amigos mine and
the upgrade of the Company’s mill with a goal of achieving
300 tons pilot mill production per 24-hour operating day. During
this transition period, limited pilot milling operations were
achieved. The Company resumed pilot milling operations in July
2020. Therefore, overall revenue and expenses related to mining and
milling operations were significantly lower for the first six
months of 2020 than the same period in 2019. Likewise, mine
expansion expenses are significantly higher.
DynaMineras
expects to continue its test underground mining activity and pilot
milling operations in 2021; and projects the output of 300 tons per
24-hour operating day from the mine and mill in 2021.
REVENUE.
Revenues for the years ended December 31, 2020 and 2019 were
$9,048,831 and $11,612,722, respectively. The Company continued the
test mining and pilot mill processing at San Jose de Gracía,
including the production and sale of precious metals concentrates.
The YTD decrease is a result on the company’s transition of
test mining operations from San Pablo to Tres Amigos from March to
June 2020. Revenue in the second half of the year increased over
2019 due to the increase in processing capacity from Mill
expansion, the higher grade from the opening of the Tres Amigos
mine and the increase in gold prices.
PRODUCTION
COSTS RELATED TO SALES. Production costs related to sales for the
years ended December 31, 2020 and 2019 were $1,166,135 and
$1,666,521, respectively. These are expenses directly related to
the milling, packaging and shipping of gold and other precious
metals product. This represents a decrease in the cost per ton of
milling ore. The YTD decrease was due to the Company’s
ceasing mill operations from March to June to complete the facility
upgrade.
16
MINE
PRODUCTION COSTS. Mine production costs for the years ended
December 31, 2020 and 2019 were $2,370,972 and $3,557,850
respectively. These costs were directly related to the extraction
of mine tonnage to be processed at the mill. The YTD decrease was a
result of decreased tonnage mined.
MINE
EXPLORATION COSTS. Mine exploration costs for the years ended
December 31, 2020 and 2019 were $1,610,747 and $1,486,037,
respectively. These were the costs of extracting waste material to
reach the materials to be extracted for
processing. The
YTD increase was a result of opening the Tres Amigos
mine.
MINE
EXPANSION COSTS: Mine expansion costs for the years ended December
31, 2020 and 2019 were $909,190 and $689,405, respectively. These
were the costs associated with the expansion of the mining
facilities and the cost associated with preparing the Tres Amigos
for production.
TRANSPORTATION.
Transportation costs for the years ended December 31, 2020 and 2019
were $528,423 and $816,504, respectively. These were the costs of
transporting the product to the customer for treatment and sale.
The decrease is consistent with the overall decrease in
production.
CAMP,
WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support
facility cost for the years ended December 31, 2020 and 2019 were
$2,036,610 and $2,547,910, respectively. These were the support
costs of the mining facilities including housing, food, security
and warehouse operations. The decrease was a result of decreased
activity at the camp during the shutdown of mining
activity.
PROPERTY
HOLDING COSTS. Property holding costs for the years ended December
31, 2020 and 2019 were $137,377 and $446,806, respectively. These
costs were concessions taxes, leases on land and other direct costs
of maintaining the property. The 2019 costs included settlement of
prior year’s concession for an amount in excess of the
accrual. The current year costs consist only of core concessions
and the reduced area of the Francisco Arturo
concession.
GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the years ended December 31, 2020 and 2019 were $2,996,073 and
$2,053,083 respectively. These were the costs of operating the
Company not directly associated with the mine operations including
management, accounting, and legal expenses. The year-to-date
increase was largely a result of legal fees associated with the
Company’s successful recovery of the non-controlling stock
and legal cost of the Company’s new financing.
OTHER
INCOME (EXPENSE). Other income for the years ended December 31,
2020 and 2019 was $(2,685,878) and $793,803 respectively. Included
in this category in 2020 was interest expense of $(1,133,360),
change in derivative of $(1,186,964), currency transaction loss of
$(361,127), and other expense of $(4,427). Included in this
category in 2019 was interest expense of $(492,907), other income
of $970, change in derivative liability of $888,579 and currency
transaction gain of $397,161. The increase in derivative liability
is the result of the extension of stock warrants and the issuance
of new convertible debt and stock warrants as part of the Golden
Post financing. Likewise, the increase in interest expense is
reflective of the Company’s increase in debt.
NON-CONTROLLING
INTEREST. The non-controlling interest portion of the net loss for
the years ended December 31, 2020 and 2019 was $61,589 and $62,511,
respectively. This represented the non-controlling interest share
of Dyna México’s loss. The 2020 allocation included only
the non-controlling interest’s share of the net loss for
January and February as the non-controlling interest was eliminated
at the end of February.
OTHER
COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) includes
the Company’s net income (loss) plus the unrealized currency
translation gain (loss) for the period. The Company’s other
comprehensive loss for the years ended December 31, 2020 and 2019
consisted of unrealized currency gains (losses) of $100,582 and
$(970,981), respectively. The YTD decrease is due to the variances
in the peso exchange rates throughout the two years.
Liquidity and Capital Resources
As of
December 31, 2020, the Company had working capital of $(5,778,992),
comprised of current assets of $6,818,412 and current liabilities
of $12,597,404. This represented a decrease of $2,422,622 from the
working capital maintained by the Company of $(3,356,370) as of
December 31, 2019. The primary reason for the decrease was the
increase in derivative liabilities associated with the
Company’s new financing.
17
Net
cash provided by (used in) operations for the year ended December
31, 2020 was $(2,421,108) compared to $(1,321,360) in the year
ended December 31, 2019. The decrease is primarily the result of
the Company’s increase in operating loss as a result of the
Company’s suspension of production mining and pilot milling
operations during the first half of the year.
Net
cash provided by (used) in investing activities for the years ended
December 31, 2020 and 2019 was $0 and $0, respectively. In 2020 and
2019 expenditures necessary for the expansion of mining operations
totaling $168,806 and $639,199, respectively which would normally
have been included in this category were expenses due to the
company’s lack of proven and probable reserves.
Net
cash provided by (used in) financing activities for the year ended
December 31, 2020 was $3,594,323 compared to $(111,977) for the
year ended December 31, 2019. The increase represents the net
proceeds from the Company’s Golden Post
financing.
Off-Balance
Sheet Arrangements
As of
December 31, 2020, we did not have any off-balance sheet
arrangements, which have or are reasonably likely to have a
material adverse effect on our financial condition, results of
operations or liquidity.
Plan of Operation
The
Plan of operation for the next twelve months includes DynaMineras
continuing the improvement and expansion of the test mining and
pilot milling operations at SJG. The Company commenced its testing
activities in fall 2015 at the rate of approximately 100 tons per
24-hour operating day from the mine and approximately the same
output from the processing plant. Over the past five years, the
Company has gradually increased its output to approximately 200
tons per 24-hour operating day from the mines and processing plant.
In 2021, the Company projects to complete its phases of expansion
to reach the output of approximately 300 tons per 24-hour operating
day from the mine and the processing plant.
The
Company funds its general and administrative expenses in the US.
The Company’s operating subsidiaries, DynaMineras and
DynaOperaciones, receive monthly fees for management of SJG
activities and personnel. These amounts are eliminated in
consolidation. The Company believes that cash on hand, and
including cash flow generated from its current operations, is
adequate to fund its ongoing general and administrative expenses
through 2021.
Capital Expenditures
The
Company’s primary activities relate to the test mining and
pilot milling operations of the SJG property through its 100% owned
operating subsidiary, DynaMineras. DynaMineras is conducting
activities at SJG under the terms of the Exploitation Amendment
Agreement (the “EAA”, or “operating
agreement”) with DynaMéxico.
No Known Reserves
The SJG
property is without known reserves. Under U.S. standards,
mineralization may not be classified as a “reserve”
unless a determination has been made that the mineralization could
be economically and legally produced or extracted at the time the
reserve determination is made.
Exploitation Amendment Agreement (“EAA”)
On May
15, 2013, DynaMineras entered into an Exploitation Amendment
Agreement (“EAA”) with DynaMéxico. The EAA grants
to DynaMineras the right to finance, explore, develop and exploit
the SJG Property, in exchange for: (A) Reimbursement of all costs
associated with financing, maintenance, exploration, development
and exploitation of the SJG Property, which costs are to be charged
and billed by DynaMineras to DynaMéxico; and, (B) After Item
(A) above, the receipt by DynaMineras of 75% of gross receipts
received by DynaMéxico from the sale of all minerals produced
from SJG, to the point that DynaMineras has received 200% of its
advanced funds; and, (C) after items (A) and (B) above; the receipt
by DynaMineras of 50% of all gross receipts received by
DynaMéxico from the sale of all minerals produced from SJG,
and throughout the term of the EAA; and, (D) in addition to Items
(A), (B), and (C) above, DynaMineras shall receive a 2.5% NSR
(“Net Smelter Royalty”) on all minerals sold from SJG
over the term of the EAA. The total Advances made by DynaMineras to
DynaMéxico as of December 31, 2014 is $4,025,000. The EAA is
the third and latest Amendment to the original Contract Mining
Services and Mineral Production Agreement (the “Operating
Agreement”), which was previously entered into by DynaMineras
with DynaMéxico in April 2005, wherein DynaMineras was named
the Exclusive Operating Entity at SJG. The Operating Agreement was
previously amended in September 2006 (the “First
Amendment”) and amended again at July 15, 2011 (the
“Second Amendment”). The Term of the Second Amendment
is 20 years, and the EAA (Third Amendment) provides for the
continuation of the 20 Year Term from the date of the Second
Amendment (July 15, 2011).
18
Exclusive
Operating Entity at San Jose de Gracía
Under
agreement with DynaMéxico, Mineras de DynaResource S.A. de
C.V. (“DynaMineras”) has been named the exclusive
operating entity at the San Jose de Gracía Project.
DynaResource owns 100% of DynaMineras.
DynaMéxico General Powers of Attorney
The
Chairman-CEO of DynaUSA also serves as the President of
DynaMéxico and as the President of DynaMineras. The President
of DynaMéxico holds broad powers of attorney granted by the
shareholders of DynaMéxico which gives the current President
significant and broad authority within
DynaMéxico.
Note Receivable and Investments in Affiliate
DynaResource
Nevada, Inc., a Nevada Corporation (“DynaNevada”), with
one operating subsidiary in México, DynaNevada de México,
S.A. de C.V. (“DynaNevada de México”) have common
officers, directors and shareholders. The total amount loaned by
the Company to DynaNevada at December 31, 2010 was $805,760. The
terms of the Note Receivable provided for a “Convertible
Loan,” repayable at 5% interest over a 3-year period, and
convertible at the Company’s option into Common Stock of
DynaNevada at $0.25 / Share. On December 31, 2010, the
Company converted its receivable from DynaNevada into 3,223,040
Shares of DynaNevada; and as a result, the Company owns 19.92% of
the outstanding shares of DynaNevada. DynaNevada is therefore a
related entity, and through its subsidiary in México
(DynaNevada de México), (“DynaNevada de
México”), has entered into an Option agreement with
Grupo México (“IMMSA”) in México, for the
exploration and development of approximately 3,000 hectares in the
State of San Luis Potosi (“the Santa Gertrudis
Property”). The Company had a receivable from DynaResource
Nevada, Inc. of $71,465 and $73,976 at December 31, 2020 and 2019
respectively. The Company has an investment balance in DynaResource
Nevada, Inc. of $70,000 and $70,000 as of December 31, 2020 and
2019, respectively.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not
applicable.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Incorporated
into and forming an integral part of this Form 10-K are the audited
financial statements for the Company for the years ended December
31, 2020 and 2019. The financial statements as of December 31, 2020
of the Company included in this Form 10-K have been audited by
Armanino LLP, an independent registered public accounting firm, as
set forth in their report. The financial Statements as of December
31, 2019 have been audited by Whitley Penn LLP, an independent
registered public accounting firm, as set forth in their
report.
Financial Statements included in the Form 10-K:
Reports of Independent Registered Public Accounting
Firms
Consolidated Balance Sheets as of December 31, 2020 and
2019
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss) for the Years Ended December 31, 2020 and 2019
Consolidated Statement of Changes in Stockholders’ (Deficit)
for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December
31, 2020 and 2019
Notes to the Consolidated Financial Statements for the Years Ended
December 31, 2020 and 2019
19
Report
of Independent Registered Public Accounting Firm
Board
of Directors and Stockholders DynaResource, Inc.
Irving,
Texas
Opinion
on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheet of
DynaResource, Inc. (the "Company") and subsidiaries as of December
31, 2020, the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years then
ended, and the related notes (collectively referred to as the
"consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31,
2020, and the results of their operations and their cash flows for
the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the Company's consolidated financial statements based on our
audit. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and
are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
20
Prior
Period Financial Statements
The
financial statements of DynaResource, Inc. as of December 31, 2019,
were audited by other auditors whose report dated June 9, 2020, and
expressed an unmodified opinion.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved
especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Derivative Liabilities
As
described in Note 11 to the consolidated financial statements, the
derivative liabilities represent the embedded conversion features
of the Series C Preferred Stock and Series D Convertible Notes
Payable. The Company has classified the derivative liabilities as
Level 3 liabilities and the fair value of the liabilities are
evaluated each reporting period. As of December 31, 2020, the
derivative liabilities were $2,371,560. The derivative liabilities
include both quantitative and qualitative components. The
calculation of the fair value of the derivative liabilities used a
Black-Scholes pricing model. Key components of the fair value
calculation included: the annual volatility rate, the risk-free
rate, the remaining term, and the fair value of the underlying
common stock.
The
principal considerations for our determination that performing
procedures relating to the fair value of the derivative liabilities
is a critical audit matter is: there was significant judgment and
estimation used by management in determining the fair value of the
derivative liabilities, which led to an increased level of auditor
judgment, subjectivity and effort in performing procedures and in
evaluating audit evidence obtained relating to the derivative
liabilities, including the qualitative component.
Addressing the
matter involved performing procedures and evaluating audit evidence
in connection with forming our overall opinion on the consolidated
financial statements. These procedures included documenting the
control environment in which judgements were made. These procedures
also included, testing the reasonableness of the assumptions
management used in the Black-Scholes pricing model, recalculating
the change in fair value, and performing a stress-test on the
assumptions.
ArmaninoLLP
Dallas,
Texas
We have served as the Company's auditor since 2020.
March
31, 2021
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
DynaResource,
Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheet of
DynaResource, Inc. and subsidiaries (the “Company”) as
of December 31, 2019, and the related consolidated statements of
income (loss) and comprehensive income (loss), changes in
stockholders’ equity (deficit), and cash flows for the year
then ended, and the related notes (collectively referred to as
the
“financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2019, and the results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
We served as the Company’s auditor from 2018 to
2020.
/s/ Whitley Penn LLP
Dallas,
Texas
June 9,
2020
22
|
DYNARESOURCE, INC.
|
|
CONSOLIDATED BALANCE SHEETS
|
|
DECEMBER 31, 2020 and 2019
|
|
|
2020
|
2019
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
$1,504,016
|
$354,572
|
|
Accounts
receivable
|
840,743
|
1,103,205
|
|
Inventories
|
603,967
|
523,089
|
|
Foreign
tax receivable
|
2,179,914
|
1,297,387
|
|
Appeal
bond
|
1,111,111
|
—
|
|
Other
current assets
|
578,661
|
336,969
|
|
Total
current assets
|
6,818,412
|
3,615,222
|
|
|
|
|
|
Property
and Equipment (net of accumulated
|
|
|
|
depreciation
of $113,176 and $109,927)
|
5,978
|
9,227
|
|
Operating
lease
|
735,220
|
812,861
|
|
Mining
concessions
|
4,132,678
|
4,132,678
|
|
Investment
in affiliate (at cost)
|
70,000
|
70,000
|
|
Other
assets
|
95,380
|
99,223
|
|
|
|
|
|
TOTAL
ASSETS
|
$11,857,668
|
$8,739,211
|
|
|
|
|
|
LIBILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$2,274,011
|
$2,059,429
|
|
Accrued
expenses
|
3,385,093
|
1,775,404
|
|
Customer
advances
|
2,500,000
|
1,000,000
|
|
Due
to non-controlling interest
|
—
|
231,500
|
|
Derivative
liabilities
|
2,371,560
|
86,104
|
|
Current
portion of convertible notes payable
|
—
|
112,500
|
|
Current
portion of operating lease payable
|
82,733
|
69,146
|
|
Current
portion of long-term debt
|
1,984,007
|
1,637,509
|
|
Total
current liabilities
|
12,597,404
|
6,971,592
|
|
|
|
|
|
Convertible
notes payable - Series D (net of amortized discount of $755,214 and
$0)
|
3,264,786
|
—
|
|
Convertible
notes payable - Series I & II, less current
portion
|
543,279
|
765,879
|
|
Operating
lease payable, less current portion
|
685,951
|
768,684
|
|
Long
term debt, less current portion
|
97,428
|
634,922
|
|
|
|
|
|
TOTAL
LIABILITES
|
17,188,848
|
9,141,077
|
|
|
|
|
|
Series
C Senior Convertible Preferred Stock, $0.0001 par value, 1,734,992
and 1,733,221 shares Authorized, issued and
outstanding
|
4,337,480
|
4,333,053
|
|
COMMITMENTS
AND CONTINGENCIES
|
—
|
—
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
Preferred
Stock, Series A, $0.0001 par value, 1,000 shares
|
|
|
|
authorized,
issued and outstanding
|
1
|
1
|
|
Common
Stock, $0.01 par value, 40,000,000 and 25,000,000 shares
authorized
|
|
|
|
17,722,825
and 17,722,825 issued and outstanding
|
177,228
|
177,228
|
|
Preferred
rights
|
40,000
|
40,000
|
|
Additional
paid-in-capital
|
50,407,333
|
56,622,159
|
|
Treasury
stock, 516,480 and 778,980 shares
|
(1,474,486)
|
(2,223,891)
|
|
Accumulated
other comprehensive income
|
438,092
|
325,841
|
|
Accumulated
deficit
|
(59,256,828)
|
(53,952,594)
|
|
Total
DynaResource Inc. Stockholders' Equity (Deficit)
|
(9,668,660)
|
988,744
|
|
Non-Controlling
Interest
|
—
|
(5,723,663)
|
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
(9,668,660)
|
(4,734,919)
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$11,857,668
|
$8,739,211
|
The accompanying notes are an integral part of these consolidated
financial statements.
23
DYNARESOURCE,
INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
2020
|
2019
|
|
REVENUE
|
$9,048,831
|
$11,612,722
|
|
COSTS
AND EXPENSES OF MINING OPERATION
|
|
|
|
Production
cost applicable to sales
|
1,166,135
|
1,666,521
|
|
Mine
production costs
|
2,370,972
|
3,557,850
|
|
Mine
exploration costs
|
1,610,747
|
1,486,037
|
|
Mine
expansion costs
|
909,190
|
689,405
|
|
Camp,
warehouse and facilities
|
2,036,610
|
2,547,910
|
|
Transportation
|
528,423
|
816,504
|
|
Property
holding costs
|
137,377
|
446,806
|
|
General
and administrative
|
2,966,073
|
2,053,083
|
|
Depreciation
and amortization
|
3,249
|
3,255
|
|
TOTAL
OPERATING EXPENSES
|
11,728,776
|
13,267,371
|
|
NET
OPERATING LOSS
|
(2,679,945)
|
(1,654,649)
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
Foreign
currency gains (loss)
|
(361,127)
|
397,161
|
|
Interest
expense
|
(1,133,360)
|
(492,907)
|
|
Derivatives
mark-to-market gain (loss)
|
(1,186,964)
|
888,579
|
|
Other
income (expense)
|
(4,427)
|
970
|
|
TOTAL
OTHER INCOME
|
(2,685,878)
|
793,803
|
|
|
|
|
|
NET
LOSS BEFORE TAXES
|
(5,365,823)
|
(860,846)
|
|
PROVISION
FOR INCOME TAXES
|
—
|
—
|
|
|
|
|
|
NET
LOSS
|
$(5,365,823)
|
$(860,846)
|
|
|
|
|
|
DEEMED
DIVIDEND FOR SERIES C PREFERRED
|
(173,499)
|
(173,320)
|
|
LOSS
ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
61,589
|
62,511
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$(5,477,733)
|
$(971,655)
|
|
|
|
|
|
EARNINGS
PER SHARE ATTRIBUTABLE TO THE
|
|
|
|
EQUITY
HOLDERS OF DYNARESOURCE, INC.
|
|
|
|
|
|
|
|
Basic
and Diluted loss per common share
|
$(0.31)
|
$(0.05)
|
|
Weighted
average shares outstanding - Basic
|
17,722,825
|
17,722,825
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
Foreign
currency translation gain (loss)
|
100,582
|
(970,981)
|
|
TOTAL
OTHER COMPREHENSIVE INCOME (LOSS)
|
100,582
|
(970,981)
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME (LOSS)
|
$(5,265,241)
|
$(1,831,827)
|
|
|
|
|
|
ATTRIBUTABLE
TO:
|
|
|
|
EQUITY
HOLDERS OF DYNARESOURCE, INC.
|
$(5,191,983)
|
$(1,719,692)
|
|
NON-CONTROLLING
INTEREST
|
$(73,258)
|
$(112,135)
|
The accompanying notes are an integral part of these consolidated
financial statements.
24
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
Preferred
A
|
Common
|
|
|
|
|
|
|
|
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Preferred
Rights
|
Preferred
Amount
|
Paid in
Capital
|
Treasury
Shares
|
Treasury
Amount
|
Other Comp Income
|
Accumulated
Deficit
|
Non Controlling
Interests
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
1,000
|
$1
|
17,722,825
|
$177,228
|
0
|
$40,000
|
$56,622,159
|
$778,980
|
$(2,223,891)
|
$1,247,198
|
$(53,154,259)
|
$(5,611,528)
|
$(2,903,092)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
(921,357)
|
|
(49,624)
|
(970,981)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
(798,335)
|
(62,511)
|
(860,846)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
1,000
|
$1
|
17,722,825
|
$177,228
|
0
|
$40,000
|
$56,622,159
|
$778,980
|
$(2,223,891)
|
$325,841
|
$(53,952,594)
|
$(5,723,663)
|
$(4,734,919)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
Issued for Services
|
|
|
|
|
|
|
(649,405)
|
(262,500)
|
749,405
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
112,251
|
|
(11,669)
|
100,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
(5,304,234)
|
(61,589)
|
(5,365,823)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of
Non-Controlling Interest
|
|
|
|
|
|
|
(5,565,421)
|
|
|
|
|
5,796,921
|
231,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
1,000
|
$1
|
17,722,825
|
$177,228
|
0
|
$40,000
|
$50,407,333
|
$516,480
|
$(1,474,486)
|
$438,092
|
$(59,256,828)
|
$0
|
$(9,668,660)
|
The accompanying notes are an
integral part of these consolidated financial
statements.
25
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
2020
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITES:
|
|
|
|
Net
Loss
|
$(5,365,823)
|
$(860,846)
|
|
Adjustments
to reconcile net loss to cash used in operating
activities
|
|
|
|
Change
in derivatives
|
1,186,964
|
(888,579)
|
|
Depreciation
and amortization
|
3,249
|
3,255
|
|
Amortization
of loan discount
|
343,279
|
—
|
|
Stock
issued for services
|
100,000
|
—
|
|
Non-dilution
stock issuance
|
4,427
|
—
|
|
Change
in operating assets and liabilities
|
|
|
|
Accounts
receivable
|
262,462
|
(28,481)
|
|
Inventories
|
(80,878)
|
1,065,689
|
|
Foreign
tax receivable
|
(882,527)
|
(451,823)
|
|
Appeal
bond
|
(1,111,111)
|
—
|
|
Other
assets
|
(237,849)
|
33,153
|
|
Operating
lease assets
|
77,641
|
(812,861)
|
|
Accounts
payable
|
214,582
|
990,056
|
|
Accrued
expenses
|
1,633,622
|
(458,753)
|
|
Customer
advances
|
1,500,000
|
(750,000)
|
|
Lease
liabilities
|
(69,146)
|
837,830
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
(2,421,108)
|
(1,321,360)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from borrowing
|
4,020,000
|
—
|
|
Payments
of convertible notes
|
(359,033)
|
—
|
|
Payments
of long-term debt
|
(66,644)
|
(111,977)
|
|
CASH
FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
3,594,323
|
(111,977)
|
|
|
|
|
|
Effects
of foreign currency exchange
|
(23,771)
|
(897,667)
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,149,444
|
(2,331,004)
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
354,572
|
2,685,576
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$1,504,016
|
$354,572
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES
|
|
|
|
Cash
paid for interest
|
$206,642
|
$196,327
|
|
Cash
paid for income taxes
|
$—
|
$—
|
|
NON-CASH
TRANSACTION
|
|
|
|
Conversion
of accounts payable to long-term debt
|
$—
|
$507,859
|
|
Accrued
interest rolled into notes payable
|
$23,933
|
$40,254
|
The
accompanying notes are an integral part of these consolidated
financial statements.
26
DYNARESOURCE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Activities, History and Organization
DynaResource,
Inc. (The “Company”, “DynaResource”, or
“DynaUSA”) was organized September 28, 1937, as a
California corporation under the name of West Coast Mines,
Inc. In 1998, the Company re-domiciled to Delaware and
changed its name to DynaResource, Inc. The Company is in
the business of acquiring, investing in, and developing precious
metal properties, and the production of precious
metals.
In
2000, the Company formed a wholly owned subsidiary, DynaResource de
México S.A. de C.V., chartered in México
(“DynaMéxico”). This Company was formed
to acquire, invest in and develop resource properties in
México. DynaMéxico owns a portfolio of mining
concessions that currently includes its interests in the San
José de Gracía Project (“SJG”) in northern
Sinaloa State, México. The SJG District covers 9,920 hectares
(24,513 acres) on the west side of the Sierra Madre mountain range.
The Company currently owns 80% of the outstanding capital of
DynaMéxico. DynaMéxico currently holds 20% of the Shares
of DynaMéxico as treasury shares, after complete foreclosure
and recovery of those shares on February 20, 2020 from Goldgroup
Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc.
Vancouver, BC (“Goldgroup”).
In
2005, the Company formed DynaResource Operaciones de San Jose De
Gracía S.A. de C.V. (“DynaOperaciones”) as an
operating subsidiary to manage registered employees, and acquired
effective control of Mineras de DynaResource, S.A. de C.V.
(formerly Minera Finesterre S.A. de C.V.,
“DynaMineras”). The Company owns 100% of DynaMineras
and 100% of DynaOperaciones.
The
Company elected to become a voluntary reporting issuer in Canada in
order to avail itself of Canadian regulations regarding reporting
for mining properties and, more specifically, National Instrument
43-101 (“NI 43-101”). This regulation sets forth
standards for reporting resources in a mineral property and is a
standard recognized in the mining industry.
Significant Accounting Policies
The
financial statements and notes are representations of the
Company’s management which is responsible for their integrity
and objectivity. Management further acknowledges that it is solely
responsible for adopting sound accounting practices, establishing
and maintaining a system of internal accounting control and
preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other
items that: 1) recorded transactions are
valid; 2) valid transactions are
recorded; and 3) transactions are recorded in
the proper period in a timely manner to produce
financial statements which present fairly the
financial condition, results of operations and
cash flows of the Company for
the respective periods presented.
Basis of Presentation
The
Company prepares its financial statements on the accrual basis of
accounting in conformity with accounting principles generally
accepted in the United States.
Use of Estimates
In
order to prepare 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 financial statements and determines whether
contingent assets and liabilities, if any, are disclosed in the
financial statements. The ultimate resolution of issues requiring
these estimates and assumptions could differ significantly from the
resolution currently anticipated by management and on which the
financial statements are based.
Principles of Consolidation
The
financial statements include the accounts of DynaResource, Inc., as
well as DynaResource de México, S.A. de C.V. (100% ownership),
DynaResource Operaciones S.A. de C.V. (100% ownership) and Mineras
de DynaResource S.A. de C.V. (100% ownership). All
significant inter-company transactions have been
eliminated. All amounts are presented in U.S. Dollars
unless otherwise stated.
27
Non-Controlling Interest
The
Company’s subsidiary, DynaResource de México S.A. de
C.V, was 20% owned by Goldgroup Resources, Inc. until February 20,
2020 when the Company recovered the shares as partial satisfaction
of a legal judgement. See Note 10 for further details.
The
Company accounted for this outside interest as a
“non-controlling interest” through February 2020. A 20%
share of operating income (loss) and comprehensive income (loss)
was allocated to the non-controlling interest through the date of
the recovery of the shares.
Investments in Affiliates
The
Company owns a 19.95% interest in DynaResource Nevada, Inc., a
Nevada Corporation (“DynaNevada”), with one operating
subsidiary in México, DynaNevada de México, S.A. de C.V.
(“DynaNevada de México”), together
“DynaNevada”. The Company accounts for this investment
using the cost basis. The Company has significant influence over
DynaNevada, but not control, due to the lack of a majority voting
interest in the entity. DynaNevada has been dormant for several
years. DynaUSA has no plan or intention of future funding with
DynaNevada nor are any other transactions with DynaNevada
contemplated at this time. The Company therefore accounts for this
investment using the cost basis. The investment was $70,000 and
$70,000 at December 31, 2020 and 2019, respectively.
Cash and Cash Equivalents
The
Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash
equivalents. At times, cash balances may be in excess of
the Federal Deposit Insurance Corporation (“FDIC”)
insurance limits. As of December 31, 2020, the Company had
$1,507,278 of deposits in U.S. Banks in excess of the FDIC
limit.
Accounts Receivable and Allowances for Doubtful
Accounts
The
allowance for accounts receivable is recorded when receivables are
considered to be doubtful of collection. As of December 31, 2020,
and 2019, respectively, no allowance has been made.
Foreign Tax Receivable
Foreign
Tax Receivable is comprised of recoverable value-added taxes
(“IVA”) charged by the Mexican government on goods and
services rendered to the company in Mexico and paid by the
company. Under certain circumstances, these taxes are
recoverable by filing a tax return and application for
reimbursement. IVA Amounts charged to and paid by the
company are recorded and carried as receivables until the funds are
collected by the company. The total amounts of the IVA
receivable as of December 31, 2020 and December 31, 2019 were
$2,179,914 and $1,297,387, respectively.
Inventories
Inventories
are carried at the lower of cost or net realizable value and
consist of mined tonnage, gravity and flotation concentrates, and
gravity tailings or flotation feed material. The inventories were
$603,967 and $523,089 as of December 31, 2020 and December 31,
2019, respectively.
28
Proven and Probable Reserves (No Known Reserves)
The
definition of proven and probable reserves is set forth in SEC
Industry Guide 7 (“Industry Guide 7”). Proven reserves
for which (1) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes, grade and/or quality
are computed from the results of detailed sampling and (2) the
sites for inspection, sampling and measurement are spaced so
closely and the geological character is so well defined that size,
shape, depth and mineral content of the reserves are
well-established. Probable reserves are reserves for which quantity
and grade and/or quality are computed from information similar to
that used for proven (measured) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although
lower than that for proven (measured) reserves, is high enough to
assume continuity between points of observations.
As of
December 31, 2020, none of the Company's properties contain
resources that satisfy the definition of proven and probable
reserves. The Company classifies the development of its properties,
including the San Jose de Gracía Property, as exploration
stage projects since no proven or probable reserves have been
established under Industry Guide 7.
Technical Report and Resource Estimate According to Canadian
National Instrument 43-101 (2012)
In
2012, DynaMéxico commissioned Servicios y Proyectos Mineros
(“SPM”) for the production of Technical Report 43-101
(“43-101”) at San Jose de Gracía. Additionally,
DynaMéxico commissioned Mr. Robert Sandefur, a senior reserve
analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO
(“CAM”) to produce a mineral resource estimate for the
4 main vein systems at the property.
Property and Equipment
Substantially
all mine development costs, including design, engineering, mine
construction, and installation of equipment are expensed as
incurred as the Company has not established proven and probable
reserves on any of its properties. Only certain types of mining
equipment which has alternative uses or significant salvage value,
may be capitalized without proven and probable reserves.
Depreciation is computed using the straight-line method. Office
furniture and equipment are being depreciated on a straight-line
method over estimated economic lives ranging from 3 to
5 years. Leasehold improvements, which relate to the Company's
corporate office, are being amortized over the term of the lease of
10 years.
Design, Construction, and Development
Costs: Mine development costs include
engineering and metallurgical studies, drilling and other related
costs to delineate an ore body, the removal of overburden to
initially expose an ore body at open pit surface mines and the
building of access ways, shafts, lateral access, drifts, ramps and
other infrastructure at underground mines.
When
proven and probable reserves as defined by Industry Guide 7 exist,
development costs are capitalized, and the property is a
commercially minable property. Mine development costs incurred
either to develop new ore deposits, expand the capacity of
operating mines, or to develop mine areas substantially in advance
of current production would be capitalized. Costs of start-up
activities and costs incurred to maintain current production or to
maintain assets on a standby basis are charged to operations as
incurred. Costs of abandoned projects are charged to operations
upon abandonment. All capitalized costs would be amortized using
the units of production method over the estimated life of the ore
body based on recoverable ounces to be mined from proven and
probable reserves.
Certain
costs to design and construct mining and processing facilities may
be incurred prior to establishing proven and probable reserves. As
no proven and probable reserves have been established on any of the
Company's properties, design, construction and development costs
are not capitalized at any of the Company's properties, and
accordingly, substantially all costs are expensed as incurred,
resulting in the Company reporting larger operating expenses than
if such expenditures had been capitalized. Additionally, the
Company does not have a corresponding depreciation or amortization
of these costs going forward since these expenditures were expensed
as incurred as opposed to being capitalized. As a result of these
and other differences, the Company's financial statements may not
be comparable to the financial statements of mining companies that
have established reserves as defined in Industry Guide
7.
29
Mineral Properties Interests
Mineral
property interests include acquired interests in development and
exploration stage properties, which are considered tangible assets.
The amount capitalized relating to a mineral property interest
represents its fair value at the time of acquisition. When a
property does not contain mineralized material that satisfies the
definition of proven and probable reserves, such as with the San
Jose de Gracía Property, capitalized costs and mineral
property interests are amortized using the straight-line method
once production begins. As of December 31, 2020, the mining
interests have been in the pilot production stage and therefore, no
amortization has been expensed. Mining properties consist of 33
mining concessions covering approximately 9,919 hectares at the San
Jose de Gracía property (“SJG”), the basis of
which are amortized on the unit of production method based on
estimated recoverable resources. If it is determined that the
deferred costs related to a property are not recoverable over its
productive life, those costs will be written down to fair value as
a charge to operations in the period in which the determination is
made. The amounts at which mineral properties and the
related costs are recorded do not necessarily reflect present or
future values.
Impairment of Assets: The Company
reviews and evaluates its long-lived assets for impairment when
events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. Mineral properties are
monitored for impairment based on factors such as mineral prices,
government regulation and taxation, the Company's continued right
to explore the area, exploration reports, assays, technical
reports, drill results and its continued plans to fund exploration
programs on the property.
For
operating mines, recoverability is measured by comparing the
undiscounted future net cash flows to the net book value. When the
net book value exceeds future net undiscounted cash flows, an
impairment loss is measured and recorded based on the excess of the
net book value over fair value. Fair value for operating mines is
determined using a combined approach, which uses a discounted cash
flow model for the existing operations and a market approach for
the fair value assessment of exploration land claims. Future cash
flows are estimated based on quantities of recoverable mineralized
material, expected gold and silver prices (considering current and
historical prices, trends and related factors), production levels,
operating costs, capital requirements and reclamation costs, all
based on life-of-mine plans. The term "recoverable mineralized
material" refers to the estimated amount of gold or other
commodities that will be obtained after considering losses during
processing and treatment of mineralized material. In estimating
future cash flows, assets are grouped at the lowest level for which
there are identifiable cash flows that are largely independent of
future cash flows from other asset groups. The Company's estimates
of future cash flows are based on numerous assumptions and it is
possible that actual future cash flows will be significantly
different than the estimates, as actual future quantities of
recoverable minerals, gold, silver and other commodity prices,
production levels and costs and capital are each subject to
significant risks and uncertainties.
The
recoverability of the book value of each property is assessed
annually for indicators of impairment such as adverse changes to
any of the following:
|
●
|
estimated
recoverable ounces of gold, silver or other precious
minerals;
|
|
●
|
estimated
future commodity prices;
|
|
●
|
estimated
expected future operating costs, capital expenditures and
reclamation expenditures.
|
A
write-down to fair value will be recorded when the expected future
cash flow is less than the net book value of the property or when
events or changes in the property indicate that carrying amounts
are not recoverable. This analysis is completed as needed,
and at least annually. As of the date of this filing, no events
have occurred that would require write-down of any
assets. As of December 31, 2020, and 2019, no
indications of impairment existed.
Asset Retirement Obligation
As the
Company is not obligated to remediate the mining properties, no
Asset Retirement Obligation (“ARO”) has been
established. Changes in regulations or laws, any instances of
non-compliance with laws or regulations that result in fines, or
any unforeseen environmental contamination could result in a
material impact to the amounts charged to operations for
reclamation and remediation.
Pre-Pilot Production Costs
During
2016, the Company conducted rehabilitation activity at the San
Pablo mine and refurbished the Pilot Mill Facility at San Jose de
Gracía and, in general prepared for test mining and pilot
milling (“Pilot Production”) Operations. The costs
associated with the rehabilitation, preparation, clean up and
facilitation of this process were expensed as pre-pilot production
costs.
30
Property Holding Costs
Holding
costs to maintain a property on a care and maintenance basis are
expensed in the period they are incurred. These costs include
security and maintenance expenses, lease and claim fees and
payments, and environmental monitoring and reporting
costs.
Exploration Costs
Exploration
costs are charged to operations and expenses as incurred.
Exploration, development, direct field costs and administrative
costs are expensed in the period incurred.
Transactions in and Translations of Foreign Currency
The
functional currency for the subsidiaries of the Company is the
Mexican Peso. As a result, the financial statements of the
subsidiaries have been translated from Mexican Pesos into U.S.
dollars using (i) year-end exchange rates for balance sheet
accounts, and (ii) the weighted average exchange rate of the
reporting period for all income statement accounts. Foreign
currency translation gains and losses are reported as a separate
component of stockholders’ equity and comprehensive income
(loss).
The
financial statements of the subsidiaries should not be construed as
representations that Mexican Pesos have been, could have been or
may in the future be converted into U.S. dollars at such rates or
any other rates.
Relevant
exchange rates used in the preparation of the financial statements
for the subsidiaries are as follows for the years ended December
31, 2020 and 2019 (Mexican Pesos per one U.S. dollar):
|
|
|
Dec 31,
2020
|
Dec 31,
2019
|
|
Current
exchange rate
|
Pesos
|
19.91
|
18.86
|
|
Weighted
average exchange rate for the period ended
|
Pesos
|
21.47
|
19.25
|
The
Company recorded currency transaction gains (losses) of $(361,127)
for the year ended December 31, 2020 and $397,161 for the year
ended December 31, 2019.
Income Taxes
The
Company accounts for income taxes under ASC 740 “Income Taxes” using the
liability method, recognizing certain temporary differences between
the financial reporting basis of liabilities and assets and the
related income tax basis for such liabilities and assets. This
method generates either a net deferred income tax liability or
asset for the Company, as measured by the statutory tax rates in
effect. The Company derives the deferred income tax charge or
benefit by recording the change in either the net deferred income
tax liability or asset balance for the year. The Company records a
valuation allowance against any portion of those deferred income
tax assets when it believes, based on the weight of available
evidence, it is more likely than not that some portion or all of
the deferred income tax asset will not be realized.
Income
from the Company’s subsidiaries in México are taxed in
accordance with applicable Mexican tax law.
Comprehensive Income (Loss)
ASC 220
“Comprehensive
Income” establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The
Company’s comprehensive income consists of net income and
other comprehensive income (loss), consisting of unrealized net
gains and losses on the translation of the assets and liabilities
of its foreign operations.
31
Revenue Recognition
The
Company adopted ASC 606 “Revenue from contracts with
customers” on January 1, 2018 using the modified
retrospective approach. The Company generates revenue by selling
gold and silver produce from its mining operations. The Company
recognizes revenue for gold and silver concentrate production, net
of treatment and refining costs, when it satisfies the performance
obligation of transferring control of the concentrate to the
customer. This is generally when the material is delivered to the
customer facility for treatment and processing as the customer has
the ability to direct the use of and obtain substantially all the
remaining benefits from the material and the customer has the risk
of loss.
The
amount of revenue recognized is initially recorded on a provisional
basis based on the contract price and the estimated metal
quantities based on assay data. The revenue is adjusted upon final
settlement of the sale. The chief risk associated with the
recognition of sales on a provisional basis is the fluctuations
between the estimated quantities of precious metals based on the
initial assay and the actual recovery from treatment and
processing.
As of
December 31, 2020, there are $2,500,000 in customer deposit
liabilities for payments received during the period for contracts
expected to be settled in 2021.
During
the years ended December 31, 2020 and December 31, 2019 there was
$0 and $1,750,000 of revenue recognized during the period from
customer deposit liabilities (deferred contract revenue) from prior
periods, and $0 of customer deposits refunded to the customer due
to order cancellation.
As of
and for the year ended December 31, 2020 and December 31, 2019,
there are no deferred contract costs or commissions.
We have
elected to account for shipping and handling costs as fulfillment
costs after the customer obtains control of the
concentrate.
Stock-Based Compensation
The
Company accounts for stock options at fair value as prescribed in
ASC 718 “Compensation
– Stock Compensation”. The Company estimates the
fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model and provides for expense
recognition over the service period, if any, of the stock
option.
Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash, receivables,
payables and long-term debt. The carrying amount of cash,
receivable and payables approximates fair value because of the
short-term nature of these items. The carrying amount of long-term
debt approximates fair value due to the relationship between the
interest rate on long-term debt and the Company’s incremental
risk adjusted borrowing rate.
Per Share Amounts
Earnings
per share are calculated in accordance with ASC 260
“Earnings per
Share”. The weighted average number of common
shares outstanding during each period is used to compute basic
earnings (loss) per share. Diluted earnings per share
are computed using the weighted average number of shares and
potentially dilutive common shares
outstanding. Potentially dilutive common shares
are additional common shares assumed to be
exercised. Potentially dilutive common shares consist of
stock warrants, convertible preferred shares and convertible notes
and are excluded from the diluted earnings per share computation in
periods where the Company has incurred a net loss, as their effect
would be considered anti-dilutive.
The
Company had 3,391,855 warrants outstanding at December 31, 2020
which upon exercise, would result in the issuance of 3,391,855
shares of common stock. Of these warrants 2,166,527 were
exercisable at $2.05 per share and 1,225,308 were exercisable at
$.01 per share. The Company also had convertible debt instruments
as of December 31, 2020 which, upon conversion at valuations from
$2.00 to $2.50 per share, would result in the issuance of 2,227,312
shares of stock.
The
Company had 2,166,527 warrants outstanding at December 31, 2019
exercisable at $2.50 per share, which upon exercise, would result
in the issuance of 2,166,527 shares of common stock. The Company
also had convertible debt instruments as of December 31, 2019
which, upon conversion at a valuation of $2.50 per share, would
result in the issuance of 335,250 shares of stock.
32
Due to
the Company’s net loss fully diluted weighted number of
common shares outstanding and diluted earnings per share are the
same under United States GAAP.
|
|
Years ended
December 31
|
|
|
|
2020
|
2019
|
|
Net loss
attributable to common shareholders
|
$(5,477,733)
|
$(971,655)
|
|
Shares:
|
|
|
|
Weighted average
number of common shares outstanding, Basic
|
17,722,825
|
17,722,825
|
|
|
|
|
|
Weighted average
number of common shares outstanding, Diluted
|
17,722,825
|
17,722,825
|
|
|
|
|
|
Basic loss per
share
|
$(0.31)
|
$(0.05)
|
|
|
|
|
|
Diluted loss per
share
|
$(0.31)
|
$(0.05)
|
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 is also a related party.
Recently Issued Accounting Pronouncements
Leases
In
February 2016, FASB issued ASU 2016-02— Leases (Topic 842).
The update is intended to increase transparency and comparability
among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information
about leasing arrangements. As such, The Company was required to
adopt these provisions as of the fiscal year beginning on January
1, 2019. The Company elected the available practical expedients and
adopted ASC 842 effective January 1, 2019, prospectively. The
adoption of this standard resulted in the initial recognition of
right-of-use assets and lease liabilities of $878,605 and $891,023,
respectively, with no material impact on the results of operations
and cash flows. See Note 10 for additional information regarding
our leases.
NOTE 2 – INVENTORIES
The
Company commenced underground test mining and pilot milling
activities (“pilot production”) in the 2nd quarter of
2014. Rehabilitation of the San Pablo Mine and refurbishing of the
Pilot Mill Facility and construction of the adjacent tailings pond
continued through 2016. Inventories are carried at the lower of
cost or fair value and consist of mined tonnage, gravity-flotation
concentrates, and gravity tailings (or flotation feed material).
Inventory balances as of December 31, 2020 and December 31, 2019,
respectively, were as follows:
|
|
2020
|
2019
|
|
|
|
|
|
Mined
Tonnage, Gold-Silver Concentrates, and/or Gravity Tailings
(Flotation Feed Material)
|
$603,967
|
$523,089
|
|
Total
Inventories
|
$603,967
|
$523,089
|
33
NOTE 3 – PROPERTY AND EQUIPMENT
Property
consists of the following at December 31, 2020 and December 31,
2019:
|
|
2020
|
2019
|
|
|
|
|
|
Leasehold
improvements
|
$9,340
|
$9,340
|
|
Office
equipment
|
31,012
|
31,012
|
|
Office
furniture and fixtures
|
78,802
|
78,802
|
|
Sub-total
|
119,154
|
119,154
|
|
Less:
Accumulated depreciation and amortization
|
(113,176)
|
(109,927)
|
|
Total
Property
|
$5,978
|
$9,227
|
The
Company purchased no equipment during the years ended December 31,
2020 and 2019, respectively.
Depreciation
and amortization has been provided over each asset’s
estimated useful life. Depreciation and amortization
expense was $3,249 and $3,255 for the years ended December 31, 2020
and 2019 respectively.
NOTE 4 – MINING CONCESSIONS
Mining
properties consist of the San Jose de Gracía
(“SJG”) concessions. Mining Concessions were $4,132,678
and $4,132,678 at December 31, 2020 and December 31, 2019,
respectively.
There
was no depletion expense for the years ended December 31, 2020 and
2019.
NOTE 5 – INVESTMENT IN AFFILIATE/RECEIVABLES FROM
AFFILIATE/OTHER ASSETS
The
Company owns 19.95% DynaResource Nevada, Inc.
(“DynaNevada”), a Nevada Corporation, which owns 100%
of one operating subsidiary in México, DynaNevada de
México, S.A. de C.V. (“DynaNevada de
México”). DynaNevada is a related entity (affiliate),
and through its subsidiary, DynaNevada de México has entered
into an Option agreement with Grupo México (IMMSA) in
México, for the exploration and development of approximately
3,000 hectares in the State of San Luis Potosi (“The Santa
Gertrudis Property”). DynaNevada de México exercised the
Option with IMMSA in March 2010, so that DynaNevada de México
now owns 100% of the Santa Gertrudis Property. In June 2010,
DynaNevada de México acquired an additional 6,000 hectares in
the State of Sinaloa (the “San Juan
Property”).
On
December 31, 2010, the Company received 3,223,040 shares, which
represents approximately 19.95% of the outstanding shares of
DynaNevada. At the time of the exchange, DynaNevada’s net
book value was approximately $695,000, consisting of $30,000 of
cash and the remainder being unproven mining properties.
Subsequent, to the exchange management determined the investment to
be impaired due to lack of development of the properties and
incurred a charge to the income statement. Management estimated the
value of the Company’s DynaNevada shares as of December 31,
2020 and December 31, 2019 to be $70,000 and $70,000,
respectively.
At
December 31, 2020 and December 31, 2019, the Company had a
receivable from DynaNevada de México of $71,465 and $73,976,
respectively for working capital advances. These amounts are
included in Other Assets in the accompanying consolidated balance
sheets.
34
NOTE 6 – CONVERTIBLE PROMISSORY NOTES
Notes Payable – Series I
In
April and May 2013, the Company entered into note agreements with
shareholders in the principal amount of $1,495,000, of which
$340,000 was then converted to preferred shares within the same
year, netting to proceeds of $1,155,000 (the “Series I
Notes”). The Series I Notes bear simple interest at twelve
and a half percent (12.5%), accrued for twelve months, and
with the accrued interest to be added to the principal,
and then interest will be paid by the Company, quarterly in
arrears. The holders of the Series I Notes (in aggregate) are also
entitled to receive ten percent (10%) of the net profits
received by the Company, on the first fifty thousand tons processed
through the mill facilities at San Jose de Gracía. Such net
profits (if any) are to be calculated after deducting
“all expenses related to the production”, and
after a prior deduction of thirty-three percent (33%)
from the net profits, to be deposited into a sinking fund cash
reserve. To date, the Company has not produced any net profits as
calculated in accordance with the Series I Notes.
The
Notes originally matured on December 31, 2015. As of December 31,
2018, seven of the Series I Notes totaling $646,875 had
subsequently been extended to December 30, 2019. On December 31,
2019, the Company entered into agreements to extend seven
outstanding notes totaling $646,875 plus accrued interest totaling
$34,277 for new total notes of $691,152 until December 31, 2020. At
December 31, 2019 Series I Notes remained outstanding with a total
balance of $691,152.
On
March 31, 2020 the Company entered into agreements to extend the
seven outstanding notes totaling $691,152 plus accrued interest
totaling $21,286 for a new total of $702,438 until June 30, 2022.
At December 31, 2020 one note for $246,533 was paid off leaving six
Series I Notes remaining outstanding with a total balance of
$455,905 The Company has the
right to prepay the Series I Notes with a ten percent (10%)
penalty.
The
Series I Note holder retains the option, at any time prior to
maturity or prepayment, to convert any unpaid principal and accrued
interest into Common Stock at $2.50 per share. If the Series I Note
is converted into Common Stock, at the time of conversion, the
holder would also receive warrants, in the same number as the
number of common shares received upon conversion, to purchase
additional common shares of the Company for $7.50 per share, with
such warrants expiring one year from their conversion
date.
Notes Payable – Series II
In 2013
and 2014, the Company entered into additional note agreements of
$199,808 and $250,000, respectively (the “Series II
Notes”) with similar terms as the Series I Notes. The Series
II Notes bear simple interest at twelve and a half percent (12.5%),
accrued for twelve months, and with the accrued interest to be
added to the principal, and then interest will be paid by the
Company, quarterly in arrears. The holders of the Series II
Notes (in aggregate) are also entitled to receive ten percent
(10%) of the net profits received by the Company, on the second
fifty thousand tons processed through the mill facilities at San
Jose de Gracía. Such net profits (if any) are to be
calculated after deducting “all expenses related to the
production” and after a prior deduction
of thirty-three percent (33%) from the net profits, to be
deposited into a sinking fund cash reserve. To date, the Company
has not produced any net profits as calculated in accordance with
the Series II Notes.
The
Notes originally matured on December 31, 2015. On December 31, 2019
the Company entered into agreements to extend the two notes
totaling $78,750 plus accrued interest of $5,977 for total new
notes of $84,757 to December 31, 2020. One note for $112,500 was
not extended and was past due as of December 31, 2019. At December
31, 2019 three Series II notes remained outstanding for
$197,226.
On
March 31, 2020 the Company entered into agreements to extend the
two notes totaling $84,726 plus accrued interest of $2,648 for
total new notes of $87,374 to June 30, 2022. One note for $112,500
was not extended and was paid off in May 2020. At December 31, 2020
two Series II notes remained outstanding for $87,374. The Company
has the right to prepay the Series II Notes with a ten percent
(10%) penalty.
The
Note holder may, at any time prior to maturity or prepayment,
convert any unpaid principal and accrued interest into common stock
of the Company at $2.50 per share. At the time of conversion, the
holder would receive a warrant to purchase additional common shares
of the Company for $7.50 per share, such warrant expiring one year
from their conversion date.
NOTE 7 – INCOME TAXES
The
Company has adopted ASC 740-10, “Income Taxes”, which requires the
use of the liability method in the computation of income tax
expense and the current and deferred income taxes payable (deferred
tax liability) or benefit (deferred tax asset). Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The cumulative tax
effect at the expected tax rate of 21% of significant items
comprising the Company’s net deferred tax amounts as of
December 31, 2020 and December 31, 2019 are as follows:
35
|
Deferred Tax Asset Related to:
|
|
|
|
|
2020
|
2019
|
|
Prior Year
|
$13,780,730
|
$13,343,134
|
|
Tax (Expense) Benefit for Current Year
|
953,120
|
437,596
|
|
Expiration of NOL Carryforward Period
|
(1,260,850)
|
-
|
|
Total Deferred Tax Asset
|
13,473,000
|
13,780,730
|
|
Less Valuation Allowance
|
(13,473,000)
|
(13,780,730)
|
|
Net Deferred Tax Asset
|
$-
|
$-
|
|
For Financial Reporting Purposes Income (Loss) Before Taxes
includes the following components:
|
|
|
|
|
2020
|
2019
|
|
United States
|
$(3,955,124)
|
$(928,078)
|
|
Foreign
|
(1,410,699)
|
67,232
|
|
|
$(5,365,823)
|
$(860,846)
|
|
The Expense (Benefit) for Taxes Consist of the
Following
|
|
|
|
Current
|
|
|
|
Federal
|
-
|
-
|
|
State
|
-
|
-
|
|
Foreign
|
-
|
-
|
|
|
-
|
-
|
|
|
|
|
|
Deferred and Other
|
|
|
|
Federal
|
$(486,441)
|
$(454,164)
|
|
State
|
-
|
-
|
|
Foreign
|
(466,679)
|
16,808
|
|
|
(953,120)
|
(437,356)
|
|
|
|
|
|
Total Tax Expense (Benefit)
|
(953,120)
|
(437,356)
|
|
Change in Valuation Allowance
|
953,120
|
437,356
|
|
Net Tax Expense (Benefit)
|
$-
|
$-
|
The Company's Income Tax Expense (Benefit) Differ from the
Statutory Rate of 21% due to the following:
|
|
2020
|
2019
|
|
Tax (Expense) Benefit at Statutory Rate
|
$(1,126,823)
|
$(180,778)
|
|
Foreign Tax Rate Differential
|
(126,963)
|
(34,434)
|
|
Permanent Differences
|
|
|
|
Stock Issued for Services
|
21,000
|
|
|
Change in Derivative Liability
|
249,262
|
(222,145)
|
|
Amortization of Loan Discount
|
72,089
|
|
|
Other
|
(41,685)
|
|
|
Change in Valuation Allowance
|
953,120
|
437,356
|
|
Provision for Income Tax Expense (Benefit)
|
$-
|
$-
|
The net deferred tax asset and benefit for the current year is
generated primarily from the cumulative net operating loss
carry-forward which is approximately $52,800,000 at December 31,
2020 and will expire as follows:
|
United States Expiring 2029 through 2038
|
$18,500,000
|
|
United States indefinite carry forward period
|
7,800,000
|
|
Foreign expiring from 2020 to 2021
|
26,500,000
|
|
Total
|
$52,800,000
|
36
The
realization of deferred tax benefits is contingent upon future
earnings and is fully reserved at December 31, 2020.
On
December 11, 2013, the Mexican government enacted a tax reform
that increased the effective tax rate applicable to the Company's
Mexican operations. The law, effective January 1, 2014,
increased the future corporate income tax rate to 30%, created a
10% withholding tax on dividends paid to non-resident shareholders
and created a new Extraordinary Mining duty which is equal to 0.5%
of gross revenues from the sale of gold, silver and platinum.
Furthermore, the reform introduced a Special Mining Duty of 7.5%.
The Special Mining Duty is deductible for income tax purposes. The
Special Mining Duty is generally applicable to earnings before
income tax, depreciation, depletion, amortization and interest.
There will be no deductions related to development type costs, but
exploration and prospecting costs are deductible when incurred.
Certain non-deducted exploration expenditures incurred prior to
January 1, 2014 are also deductible in the calculation of the
Special Mining Duty. For the years ended December 31, 2020 and
2019, the Company had no taxes payable under the 7.5% Special
Mining Duty.
The
Company or its subsidiaries file income tax returns in the United
States and México. These tax returns are subject to
examination by local taxation authorities provided the tax years
remain open to audit under the relevant statute of limitations. The
following summarizes the open tax years by major
jurisdiction:
United
States: Three years after utilization of Net Operating Loss
Carryforward
México:
2016 to 2020
The
Company recognizes interest and penalties related to UTBs on the
interest expense line and other expense line of the accompanying
consolidated statement of operations. Accrued interest and
penalties are included in the related liability lines in the
accompanying balance sheet.
NOTE 8 – STOCKHOLDERS’ EQUITY
Authorized Capital. The total
number of shares of all classes of capital stock which the
corporation shall have the authority to issue is 60,001,000 shares,
consisting of (i) twenty million and one thousand (20,001,000)
shares of Preferred Stock, par value $0.0001 per share
(“Preferred Stock”), of which one thousand (1,000)
shares shall be designated as Series A Preferred Stock, 1,734,992
are designated as Series C Preferred Stock, and 3,000,000 shares
are designated as Series D Preferred Stock and (ii) forty million
(40,000,000) shares of Common Stock, par value $0.01 per share
(“Common Stock”). As of December 31, 2020, 15,265,008
of Preferred stock remain undesignated.
Series A Preferred Stock
The
Company has designated 1,000 shares of its Preferred Stock as
Series A, having a par value of $0.0001 per share. Holders of the
Series A Preferred Stock have the right to elect a majority of the
Board of Directors of the Company. The Company issued 1,000
shares of Series A Preferred Stock to its CEO. At December 31, 2020
and December 31, 2019, there were 1,000 shares of Series A
Preferred Stock outstanding.
37
Series C Senior Convertible Preferred Shares
On June
30, 2015, the Company issued 1,600,000 Series C Senior Convertible
Preferred Shares (the “Series C Preferred Shares”) at
$2.50 per share for gross proceeds of $4,000,000, as well as
issuing 133,221 additional Series C Preferred Shares due to
anti-dilution provisions (with no cash remuneration). Legal fees of
$45,000 were deducted from the proceeds of this transaction at
closing. These Series C Preferred Shares were convertible to common
shares at $2.50 per share, through June 30, 2020. The Series C
Preferred Shares may receive a 4% per annum dividend, payable if
available, and in arrears. A description of the transaction which
included the issuance of the Series C Preferred Shares is included
below. The Dividend is calculated at 4.0% of $4,337,480 payable
annually on June 30. At December 31, 2020 dividends for the years
2017 to 2020 totaling $693,459 were in arrears.
Financing Agreement with Golden Post Rail, LLC, a Texas Limited
Liability Company
1.
On May
6, 2015, the Company, Golden Post Rail, LLC, a Texas limited
liability company (“Golden Post”), and Mr. Koy W.
(“K.D.”) Diepholz, Chairman-CEO of the Company entered
into a Securities Purchase Agreement (the “SPA”).
Pursuant to the SPA, Golden Post acquired the following
securities:
a)
1,600,000
shares of Series C Senior Convertible Preferred Stock (the
“Series C Preferred”) at a purchase price of $2.50 per
share ($4M USD), plus an additional 133,221 shares of Series C
Preferred pursuant to anti-dilution provisions. The Series C
Preferred is entitled to receive dividends at the per share rate of
four percent (4%) per annum, ranks senior (in priority) to the
Common Stock, the Series A Preferred Stock, and each other class or
series of equity security of the Company. The Series C Preferred is
convertible into Common Stock of the Company at the price of $2.41
per share and is entitled to anti-dilution protection for (i)
subsequent equity issuances by the Company and (ii) changes in the
Company’s ownership of DynaResource de México SA de CV
(“DynaMéxico”). The Series C Preferred is also
entitled to preemptive rights, and the holder has the right to
designate one person to the Company’s Board of Directors as a
Class III director.
b)
A
Common Stock Purchase Warrant (the “Golden Post
Warrant”) for the purchase of 2,166,527 shares of the
Company’s Common Stock, at an exercise price of $2.50 per
share, and expiring June 30, 2020. The anti-dilution protections
contained in the terms of the Series C Preferred are essentially
replicated in the Golden Post Warrant. The expiration of the Golden
Post Warrant was extended on May 14, 2020, pursuant to an
additional financing agreement with Golden Post.
2.
Pursuant
to the SPA, the Company executed a Registration Rights Agreement
pursuant to which Golden Post may require the Company to register
the shares of Common Stock which may be issued upon the conversion
of the Series C Preferred and the shares of Common Stock issuable
upon the exercise of the Warrant, including any additional shares
of Common Stock issuable pursuant to anti-dilution
provisions.
Additional Financing Agreement with Golden Post Rail, LLC, a Texas
Limited Liability Company, and with Shareholders of DynaResource,
Inc.
On May 14, 2020, the Company closed
an additional financing agreement with Golden Post, and with
certain individual shareholders of DynaUSA (“DynaUSA
Shareholders”), and related agreements. A summary of the
transactions and related agreements are set forth
below:
1.
Pursuant
to the May 14, 2020 Note Purchase Agreement (the “NPA”)
among the Company, Golden Post Rail, LLC (the “Lead
Purchaser”), and the other parties listed on Exhibit A
thereto (the “Remaining Purchasers”):
●
Golden Post acquired
the following securities:
(a)
A
convertible promissory note (the “Golden Post Note”)
payable to Golden Post in the principal amount of $2,500,000,
bearing interest at 10%, and maturing two years from the date of
execution. One half of the principal amount of the Golden Post
Note, or $1,250,000, has been fully funded in accordance with an
agreed-upon draw summary and budget. The balance of the principal
amount will also be funded in accordance with agreed-upon draw
summaries and the budget. The Golden Post Note is convertible, at
the option of Golden Post, into shares of Series D Senior
Convertible Preferred Stock (the “Series D Preferred”)
at a conversion price of $2.00 per share; and
(b)
A
common stock purchase warrant (the “2020 Warrant”) for
the purchase of 783,976 shares of the Company’s common stock,
at an exercise price of $0.01 per share, and maturing on the
10-year anniversary of the date of issuance. The 2020 Warrant
contains anti-dilution provisions; and
●
The Remaining
Purchasers acquired the following securities:
a)
Convertible
promissory notes (the “Remaining Notes”) in the
aggregate principal amount of $1,400,000, bearing interest at 10%,
and maturing two years from the date of issuance. The Remaining
Notes have been fully funded. The Remaining Notes are convertible,
at the option of each individual Remaining Purchaser, into shares
of Series D Preferred at a conversion price of $2.00 per share;
and
b)
Common
stock purchase warrants (the “Remaining Purchasers
Warrants”) for the purchase of an aggregate of 439,026 shares
of the Company’s common stock, at an exercise price of $0.01
per share, and maturing on the 10-year anniversary of the date of
issuance. The Remaining Purchasers Warrants contain anti-dilution
provisions.
38
2.
Also
pursuant to the NPA, the Company and the Lead Purchaser have agreed
to amend the common stock purchase warrant dated June 30, 2015 (the
“2015 Warrant”), issued to the Lead Purchaser in
connection with that certain Securities Purchase Agreement dated as
of May 6, 2015. The 2015 Warrant contemplates the purchase, upon
exercise, of 2,166,527 shares (subject to adjustment) of the
Company’s common stock and matured June 30, 2020 (the
“Termination Date”). The amendment to the 2015 Warrant
provides that, following the expiration of the 2015 Warrant
pursuant to its terms, the Company will issue to the Lead Purchaser
a new warrant (the “New Warrant”), substantially in the
same form of the 2015 Warrant, for the number of shares of the
Company’s common stock that went unexercised on the
Termination Date, if any. The New Warrant has a maturity date of
June 30, 2022.
3.
As
part of the transaction contemplated by the NPA, the Company
executed an Amended and Restated Registration Rights Agreement
pursuant to which Golden Post may require the Company to register
the shares of common stock which may be issued upon (i) the
conversion of the Series C Senior Convertible Preferred Stock
(“Series C Preferred”), (ii) the conversion of the
Series D Preferred, and (iii) the shares of common stock issuable
upon the exercise of the 2015 Warrant, the 2020 Warrant, and a
compensatory warrant issued to the Lead Purchaser on May 13, 2020
(described below under the heading “Compensatory
Issuances”), including any additional shares of common stock
issuable pursuant to anti-dilution provisions of such
securities.
4.
Pursuant
to the transaction contemplated by the NPA, the Company agreed to
call a special meeting of Company stockholders, to be held not
later than July 14, 2020, to solicit stockholder approval of (a) an
amendment of the Company’s certificate of incorporation to
increase the number of authorized shares of common stock from
25,000,000 shares to 40,000,000 shares, and (b) an amendment of the
Certificate of Designations of the Series C Preferred, in order to
(a) extend the maturity date of the Series C Preferred by an
additional two (2) years, (ii) add an equity cap in respect of the
conversion of Series C Preferred into common stock of the Company,
and (iii) add certain restrictions on the ability of the Company to
issue Series C Preferred.
The
special meeting was properly called and held on July 13, 2020,
whereby Company stockholders confirmed approval for each item
referenced in item 4 above.
5.
Compensatory
Issuances. On May 13, 2020, one
business day prior to the NPA, the Company issued to the Lead
Purchaser the following: (i) a common stock purchase warrant for
2,306 shares, at an exercise price of $0.01 per share, and maturing
on the 7-year anniversary of the date of issuance (the
“Compensatory Warrant”); and (ii) 1,771 shares of
Series C Preferred Shares. These issuances were occasioned by the
Company’s obligations under the Securities Purchase Agreement
dated as of May 6, 2015.
6.
In
order to accommodate the issuance of the additional 1,771 shares of
Series C Preferred, on May 13, 2020 the Company filed with the
Secretary of State of Delaware a Certificate of Increase of Series
C Senior Convertible Preferred Stock, to increase the number of
shares of preferred stock designated as Series C Preferred from
1,733,221 shares to 1,734,992 shares (“Certificate of
Increase”).
(1)
Also,
on May 13, 2020, the Company filed with the Secretary of State of
Delaware a Certificate of Designations of the Powers, Preferences
and Relative, Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions
thereof of Series D Senior Convertible Preferred Stock,
contemplating the authorization of 3,000,000 shares of Series D
Preferred (“Certificate of Designation”).
The sale of the Golden Post Note, the Remaining Notes, the 2020
Warrant, the Remaining Purchasers Warrants, the Compensatory
Warrant, and the Series C Preferred was made pursuant to a
privately negotiated transaction that did not involve a public
offering of securities and, accordingly, the Company believes that
the transaction was exempt from the registration requirements of
the Securities Act pursuant to Section 4(a)(2) thereof. Each
investor represented that it (A) is an “accredited
investor” and (B) has such knowledge and experience in
financial and business matters that the investor is capable of
evaluating the merits and risks of acquiring the securities
acquired by such investor. All of the foregoing securities are
deemed restricted securities for purposes of the Securities
Act.
Due to underlying anti-dilutive provisions contained in the Series
C Preferred Shares and the Golden Post Warrant, the Company
incurred derivative liabilities. On May 14, 2020 in connection with
the Series D Convertible Note financing, the expiration date for
the Series C Preferred Shares and the Golden Post warrants were
extended to June 30, 2022. In addition, a new derivative liability
was incurred due to the issuance of warrants for kicker shares at
December 31, 2019 the total derivative liability was $86,104 which
included $37,038 for the Series C Preferred shares, and $49,066 in
connection with the Golden Post Warrants. At December 31, 2020 the
total derivative liability was $2,371,560 which included $601,313
for the Series C Preferred Shares, and $817,613 in connection with
the Golden Post Warrants and $952,634 in connection with the Series
D Convertible Note Kicker Warrants. The deemed dividend for the
years ending December 31, 2020 and December 31, 2019 was $173,499
and $173,320 respectively. As the Company has not declared these
dividends, it is required only as an item “below” the
net income (loss) amount on the accompanying consolidated
statements of income (loss).
Due to
the nature of this transaction as mandatorily redeemable, the
preferred shares are classified as “temporary equity”
on the balance sheet.
|
|
Preferred
Series C
|
|
|
|
|
Carrying
Value, December 31, 2019
|
$4,333,053
|
|
|
|
|
Issuances
at Fair Value, Net of Issuance Costs
|
—
|
|
Bifurcation
of Derivative Liability
|
—
|
|
Relative
Fair Value of Warrants – Preferred Stock
Discount
|
4,427
|
|
Accretion
of Preferred Stock to Redemption Value
|
—
|
|
Carrying
Value, December 31, 2020
|
$4,337,480
|
39
Preferred Stock (Undesignated)
In
addition to the 1,000 shares designated as Series A Preferred
Stock, the 1,734,992 shares designated as Series C Preferred Shares
and 3,000,000 shares designated as Series D Preferred Shares, the
Company is authorized to issue an additional 15,265,008 shares of
Preferred Stock, having a par value of $0.0001 per share. The Board
of Directors of the Company has authority to issue the Preferred
Stock from time to time in one or more series, and with respect to
each series of the Preferred Stock, to fix and state by the
resolution the terms attached to the Preferred Stock. At December
31, 2020 and December 31, 2019, there were no other shares of
Preferred Stock outstanding.
Separate Series; Increase or Decrease in Authorized Shares.
The shares of each series of Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing
respects and in any other manner. The Board of Directors may
increase the number of shares of Preferred Stock designated for any
existing series by a resolution adding to such series authorized
and unissued shares of Preferred Stock not designated for any other
series. Unless otherwise provided in the Preferred Stock
Designation, the Board of Directors may decrease the number of
shares of Preferred Stock designated for any existing series by a
resolution subtracting from such series authorized and unissued
shares of Preferred Stock designated for such existing series, and
the shares so subtracted shall become authorized, unissued and
undesignated shares of Preferred Stock.
Common Stock
The
Company is authorized to issue 40,000,000 common shares at a par
value of $0.01 per share. These shares have full voting rights. At
December 31, 2020 and December 31, 2019, there were 17,722,825 and
17,722,825 shares outstanding, respectively. No dividends were
paid for the years ended December 31, 2020 and 2019,
respectively.
Preferred Rights
The Company issued “Preferred Rights” for the rights to
percentages of revenues generated from the San Jose de Gracía
Pilot Production Plant and received $784,500 for these rights. This
has been reflected as “Preferred Rights” in
stockholders’ equity. As of December 30, 2020, $744,500 had
been repaid, leaving a current balance of $40,000 and $40,000 as of
December 31, 2020 and 2019, respectively
Stock Issuances
There
were no issuances of common stock during the years ending December
31, 2020 and December 31, 2019.
Treasury Stock
No treasury shares were issued or acquired during the year ended
December 31, 2019. At December 31, 2019, 778,980 treasury shares
were outstanding.
During the year ending December 31, 2020, 262,500 treasury shares
were transferred for services provided to the Company. At December
31, 2020, 516,480 treasury shares remained
outstanding.
Warrants
2020 Activity
On May 13, 2020 the Company issued 2,306 warrants to purchase
shares of common stock with an exercise price of $.01per share
related to anti-dilution provisions of the Series C preferred
stock. These warrants expire on May 13, 2027.
On May 14, 2020, the Company issued 1,223,002 warrants to purchase
shares of common stock with an exercise price of $.01 per share as
kicker shares as part of the Series D note agreements. These
warrants expire on May 14, 2030.
On June 30, 2020, as part of the Series D note agreement the
Company issued 2,166,527 warrants to purchase shares of common
stock with an exercise price of $2.05 per share to replace the
2,166,527 warrants previously outstanding which expired on that
date. These warrants expire on June 30, 2022.
At December 2020, the Company had a total of 3,391,835 warrants
outstanding.
40
2019 Activity
The
Company had 2,166,527 warrants outstanding at December 31, 2019.
There were no warrants issued or exercised in 2019 and no warrants
expired in 2019.
|
|
Number of
Shares
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Life (Years)
|
Intrinsic
Value
|
|
Balance at
December 31, 2019
|
2,166,527
|
$2.45
|
0.51
|
$-
|
|
Granted
|
3,391,835
|
$1.31
|
4.89
|
$-
|
|
Exercised
|
-
|
$-
|
|
$-
|
|
Forfeited
|
2,166,527
|
$-
|
|
$-
|
|
Balance at
December 31, 2020
|
3,391,835
|
$1.31
|
4.34
|
$-
|
|
Exercisable at
December 31, 2020
|
3,391,835
|
$1.31
|
4.34
|
$-
|
NOTE 9 – RELATED PARTY TRANSACTIONS
Related Party Transactions
Dynacap Group Ltd.
The
Company paid $114,250 and $146,125 to Dynacap Group, Ltd.
(“Dynacap”, an entity controlled by the CEO of the
Company) for consulting and other fees during the years ended
December 31, 2020 and 2019, respectively.
Advances from Goldgroup Mining Inc. (“Goldgroup”) to
DynaMéxico
In 2014, Goldgroup advanced $111,500 to DynaMéxico and in 2013
Goldgroup advanced $120,000 USD to DynaMéxico. This total of
$231,500 was carried by DynaMéxico as a Due to Non-Controlling
Interest. This balance was removed as part of the elimination of
the non-controlling interest in February 2020. At December 31, 2020
and December 31, 2019, the balance of Due to Non-Controlling
interest was $0 and $231,500, respectively.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Concession Taxes
The
Company is required to pay taxes in México in order to
maintain mining concessions owned by
DynaMéxico. Additionally, the Company is required
to incur a minimum amount of expenditures each year for all
concessions held. The minimum expenditures are
calculated based upon the land area, as well as the age of the
concessions. Amounts spent in excess of the minimum may
be carried forward indefinitely over the life of the concessions
and are adjusted annually for inflation. Based on
Management’s recent business activities and current and
forward plans and considering expenditures on mining concessions
from 2002-2017 and continuing expenditures in current and forward
activities, the Company does not anticipate that DynaMéxico
will have any difficulties meeting the minimum annual expenditures
for the concessions ($388 – $2,400 Mexican Pesos per
hectare). DynaMéxico retains sufficient carry-forward amounts
to cover over 10 years of the minimum expenditure (as calculated at
the 2017 minimum, adjusted for annual inflation of
4%).
41
Leases
In
addition to the surface rights held by DynaMéxico pursuant to
the Mining Act of
México and its Regulations (Ley Minera y su Reglamento),
DynaMineras maintains access and surface rights to the SJG Project
pursuant to the 20-year Land Lease Agreement. The 20 Year Land Lease Agreement with the
Santa Maria Ejido Community surrounding San Jose de Gracía was
dated January 6, 2014 and continues through 2033. It covers an area
of 4,399 hectares surrounding the main mineral resource areas of
SJG and provides for annual lease payments on January
1st
each year by DynaMineras of
$1,359,443 Pesos (approx. $72,000 USD), commencing in 2014.
The Land Lease Agreement provides DynaMineras with surface access
to the core resource areas of SJG (4,399 hectares), and allows for
all permitted mining and exploration activities from the owners of
the surface rights (Santa Maria Ejido community).
The
Company leases office space for its corporate headquarters in
Irving, Texas. In September 2017, the Company entered into a
sixty-six-month extension of the lease through 2023. As part of the
agreement the Company received six months free rent as a finish out
allowance. The Company capitalized the leasehold improvement costs
and amortized them over the rent abatement period as rent expense.
The Company makes tiered lease payments on the 1st of each
month.
Effective
January 1, 2019, the Company adopted ASC 842, which requires
recognition of a right-of-use asset and lease liability for all
leases at the commencement date based on the present value of lease
payments over the lease term. Additional qualitative and
quantitative disclosures regarding the Company's leasing
arrangements are also required. The Company adopted ASC 842
prospectively and elected the package of transition practical
expedients that does not require reassessment of (1) whether any
existing or expired contracts are or contain leases, (2) lease
classification and (3) initial direct costs. In addition, the
Company has elected other available practical expedients to not
separate lease and non-lease components, which consist principally
of common area maintenance charges, for all classes of underlying
assets and to exclude leases with an initial term of 12 months or
less.
The
Company determines if a contract is or contains a lease at
inception. As of December 31, 2020, the Company has two operating
leases - a six- and one-half year lease for office space with a
remaining term of twenty-four months and a twenty-year ground lease
in association with its México mining operations with a
remaining term of thirteen years. Variable lease costs consist
primarily of variable common area maintenance, storage parking and
utilities. The Company’s leases do not have any residual
value guarantees or restrictive covenants.
As the
implicit rate is not readily determinable for most of the
Company’s lease agreements, the Company uses an estimated
incremental borrowing rate to determine the initial present value
of lease payments. These discount rates for leases are calculated
using the Company's interest rate of promissory notes.
The
Company’s components of lease cost are as
follows:
|
|
Year
Ended
December 31,
2020
|
|
Operating Lease
– Office Lease
|
$84,431
|
|
Operating Lease
– Ground Lease
|
86,091
|
|
Short Term Lease
Costs
|
12,730
|
|
Variable Lease
Costs
|
—
|
|
TOTAL
|
$183,252
|
42
Weighted
average remaining lease term and weighted average discount rate are
as follows:
|
Weighted Average
Remaining Lease Term (Years) – Operating Leases
|
11.00%
|
|
Weighted Average
Discount Rate – Operating Leases
|
12.50%
|
Estimated
future minimum lease obligations are as follow for the years ending
December 31:
|
YEAR
|
|
|
2021
|
$174,911
|
|
2022
|
179,377
|
|
2023
|
101,499
|
|
2024
|
96,896
|
|
2025
|
99,803
|
|
Thereafter
|
787,681
|
|
Total
|
$1,440,167
|
|
Less Imputed
Interest
|
(671,483)
|
|
RIGHT
OF USE LIABILITY
|
$768,684
|
Other Contingencies
The
Company's mining and exploration activities are subject to various
laws and regulations governing the protection of the environment.
These laws and regulations are continually changing and generally
becoming more restrictive. The Company conducts its operations so
as to protect public health and the environment, and believes its
operations are materially in compliance with all applicable laws
and regulations. The Company has made, and expects to make in the
future, expenditures to comply with such laws and
regulations.
$48M USD Damages Awarded to DynaMéxico in México
Litigation
On
October 5, 2015, DynaResource de México SA de C.V.
(“DynaMéxico”), was awarded in excess of $48 M USD
(Forty-Eight Million Dollars) in damages from Goldgroup Resources,
Inc. (the “Goldgroup Damages”) by virtue of a Sentencia
Definitiva (the “Definitive Sentence”) issued by the
Thirty Sixth Civil Court of the Superior Court of Justice of the
Federal District of México (Tribunal Superior de Justicia del
Distrito Federal), File number 1120/2014. The Definitive Sentence
included the considerations and resolutions by the Court, and
additional Resolutions were also ordered in favor of
DynaMéxico (together the Goldgroup Damages and the additional
Resolutions are referred to as, the “Oct. 5, 2015
Resolution”).
On
October 5, 2016, the Thirty-Sixth Civil Court of the Superior Court
of Justice of the Federal District of México (Tribunal
Superior de Justicia del Distrito Federal) approved a Lien
(referred to by the court as an “Embargo”), in favor of
DynaMéxico, upon Stock Certificates in the name of Goldgroup
Resources Inc. (“Goldgroup”). The Stock Certificates
subject to the Lien (“Embargo”) constitute Shares of
DynaMéxico (“the Goldgroup DynaMéxico
Shares”).
On
August 24, 2017 a Federal Amparo Judge (“Juzgado de
Distrito”) in the State of Vera Cruz, México, dismissed
Goldgroup Resources Inc’s Amparo Trial Challenge to the $48 M
USD damages award previously granted in favor of DynaMéxico.
Pursuant to the dismissal ruling, the $48M USD damages award,
previously granted to DynaMéxico by the Thirty-Sixth Civil
Court of the Superior Court of Justice of the Federal District of
México on October 5, 2015, was effectively
confirmed.
43
On May
27, 2019, The Eleventh Collegiate Court in Civil Matters of the
First Circuit (“México Circuit Court”, and the
Court of Final Appeal for Goldgroup Resources Inc.) issued a
written notice confirming it was ruling against the Amparo Appeal
filed by Goldgroup Resources Inc. and in Favor of DynaResource de
México, S.A. de C.V. In an effort to stay the issuance of the
Ruling by the México Circuit Court, Goldgroup Resources Inc.
filed a request to The Supreme Court of México to review the
Amparo Appeal decision.
On July
3, 2019 an Official Ruling from The Supreme Court of México
was issued to Reject the Request of Goldgroup Resources Inc. (the
“México Supreme Court Rejection to Goldgroup”).
The Justices of the First Chamber of the Supreme Court of Justice
of México issued a Rejection Notice to Goldgroup Resources
Inc., “due to the lack of legitimacy presented by
Goldgroup”; and in issuing the Rejection Notice to Goldgroup,
the Supreme court thereby reverted the Amparo Appeal back to the
México Circuit Court where the Official and Final Ruling from
the México Circuit Court was issued.
On
December 6, 2019 the 11th Federal Circuit
Collegiate Court in México issued its Final Ruling (“the
DynaMéxico Final México Legal
Ruling”).
The
DynaMéxico Final México Legal Ruling is Favorable to
DynaMéxico, and denies the Amparo challenge of Goldgroup
Resources Inc., the subsidiary of Goldgroup Mining Inc.
(“GGA.TO”). The DynaMéxico Final México Legal
Ruling constitutes the Final Appeal of Goldgroup Resources Inc.;
and is not subject to further appeal.
The
DynaMéxico Final Legal Ruling is the result and culmination of
7 years of legal action performed by DynaMéxico and is the
Final Ruling of the 11th Federal Circuit
Collegiate Court. With this DynaMéxico Final Legal Ruling
issued, all matters before the Court in México with respect to
DynaMéxico and Goldgroup Resources Inc. in México are
fully resolved and are no longer subject to appeal or
reconsideration.
Legal Summary - Consequence of the DynaMéxico Final
México Legal Ruling :
1.
The
$48,280,808.34 USD damages award (dated October 05, 2015) in favor
of DynaMéxico and against Goldgroup Resources Inc. is now
Final. Goldgroup Resources’ challenge(s) to that award have
been fully denied and the damages award is Final.
2.
The Lien against the Shares of DynaMéxico
owned by Goldgroup Resources Inc. (established October 5, 2016, the
“Lien against Goldgroup Shares”) is now fully
confirmed, final, and enforceable.
3.
Ownership
of the shares of DynaMéxico held by Goldgroup Resources
(currently representing 20% of the outstanding shares of
DynaMéxico) are subject to the lien against Goldgroup
Shares.
DynaMéxico Foreclosure and Recovery of All Remaining Shares of
Goldgroup Resources
1.
On February 20,
2020, a México City court issued its Final Judgment,
effectively foreclosing on all of the remaining shares in
DynaMéxico held by Goldgroup Resources Inc. and awarding the
shares to DynaMéxico (the “DynaMéxico Foreclosure
Judgment”).
2.
The DynaMéxico
Foreclosure Judgment awarded to DynaMéxico 100% of the Shares
of DynaMéxico previously owned by Goldgroup Resources Inc. (a
Subsidiary Company in México owned 100% by Goldgroup Mining
Inc., Vancouver, BC., “GGA.TO”). Prior to the
DynaMéxico Foreclosure Judgment, Goldgroup Resources Inc.
owned shares of DynaMéxico constituting 20% of the total
outstanding shares of DynaMéxico (the “Goldgroup Shares
of DynaMéxico”). The Goldgroup Shares of DynaMéxico
were held under Lien by DynaMéxico since October
2016.
3.
DynaUSA owns 80% of
the outstanding shares of DynaMéxico; DynaMéxico holds
20% of the outstanding shares of DynaMéxico as treasury
shares.
DynaUSA and DynaMéxico file Recognition Claim in Dallas
County, Texas to Recognize the $48M Foreign Judgment in the
US.
On
August 28, 2020 DynaUSA and DynaMéxico filed a Recognition
Claim in Dallas County Texas USA, in order to register the $48M
Foreign Judgment against Goldgroup Resources Inc. in the United
States.
On
November 6, 2020, the Mexican courts ruled the $48M USD judgement
could be transferred to the U.S. to support the Company’s
filing of August 28, 2020.
44
Appeal of U.S. Arbitration Award and Posting of Appeal
Bond
On
March 25, 2020, the United States District Court for the District
of Colorado denied the motion by DynaUSA and DynaMéxico to
alter or amend its judgment (thereby confirming the August 2016
arbitration award), and, denied DynaUSA and DynaMéxico’s
motions for stay and judgment pending appeal and to waive or reduce
supersedes bond.
On
April 10, 2020, DynaUSA and DynaMéxico appealed the March 25,
2020 ruling to the Tenth Circuit Court of Appeals and in accordance
with the requirements of the appeal, posted a cash bond of
$1,111,111 which is being held with the court.
Mercuria Energy Trading, S.A. (“Mercuria”) –
Mercuria’s Failure to Perform
On
December 8, 2019 Mercuria informed Mineras de DynaResource
(“DynaMineras”) that it was terminating its mineral
concentrates business. DynaMineras commenced delivery of
Concentrates to Mercuria in February 2017.
On
March 16, 2020 DynaMineras was notified by Counsel for the London
Court of International Arbitration (“LCIA”) that
Mercuria had filed a request for Arbitration.
On
April 13, 2020, DynaMineras filed a response to Mercuria Energy
Trading, S.A., claiming that Mercuria failed to perform numerous
promises made to DynaMineras to advance funds in the amount of
$1.5M USD.; and further challenging amounts payable claimed by
Mercuria in the Arbitration.
The
arbitration matter is in the disclosure phase.
Litigation
The
Company believes that no material adverse change will occur as a
result of the legal actions taken, and the Company further believes
that there is little to no potential for the assessment of an
adverse material monetary judgment against the Company for legal
actions it has filed in México. Further, the Company believes
there is no legal basis for which to conduct arbitration
proceedings.
Coronavirus Pandemic
In
March 2020, the World Health Organization declared the outbreak of
a novel coronavirus (COVID-19) as a pandemic, which continues to
spread throughout the United States of America. Efforts
implemented by local and national governments, as well as
businesses, including temporary closures, are expected to have
adverse impacts on local, national and the global economies.
Although the disruption is currently expected to be temporary,
there is uncertainty around the duration and the related economic
impact. Therefore, while we expect this matter to have an
impact our business, the impact to our results of operations and
financial position cannot be reasonably estimated at this
time.
NOTE 11 – DERIVATIVE LIABILITIES
Preferred Series C Stock
As
discussed in Note 8, the Company analyzed the embedded conversion
features of the Series C Preferred Stock and determined that the
stock qualified as a derivative liability and is required to be
bifurcated and accounted for as such since the host and the
embedded instrument are not clearly and closely related. The
Company performed a valuation of the conversion feature. In
performing the valuation, the Company applied the guidance in ASC
820, “Fair Value
Measurements”, to nonfinancial assets and liabilities
that are recognized or disclosed at fair value on a nonrecurring
basis. ASC 820 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date (exit price). To measure fair value, the Company incorporates
assumptions that market participants would use in pricing the asset
or liability and utilizes market data to the maximum extent
possible.
In
instances where the determination of the fair value measurement is
based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is
significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or
liability.
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 the conversion feature
of the Series C Preferred Stock based on the assumptions
below:
|
|
2020
|
|
2019
|
|
Annual
volatility rate
|
156%
|
|
144%
|
|
Risk
free rate
|
0.13%
|
|
1.58%
|
|
Remaining
Term
|
1.50 years
|
|
0.5 years
|
|
Fair
Value of common stock
|
$0.78
|
|
$0.47
|
45
For the
years ended December 31, 2020 and 2019, 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 years ended December 31, 2020 and
2019.
|
Period
Ended
|
2020
|
2019
|
|
Fair value of
derivative (stock), beginning of period/year
|
$37,038
|
$402,909
|
|
Change in fair
value of derivative
|
276,547
|
(365,871)
|
|
Fair value of
derivative on the date of extension
|
287,728
|
-
|
|
Fair value of
derivative(stock), end of period/year
|
$601,313
|
$37,038
|
Preferred Series C Warrants
As
discussed in Note 8, the Company analyzed the embedded conversion
features of the Series C Preferred Stock and determined that the
Warrants qualified as a derivative liability and is required to be
bifurcated and accounted for as such since the host and the
embedded instrument are not clearly and closely related. The
Company performed a valuation of the conversion feature. In
performing the valuation, the Company applied the guidance in ASC
820, “Fair Value
Measurements”, to nonfinancial assets and liabilities
that are recognized or disclosed at fair value on a nonrecurring
basis. ASC 820 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date (exit price). To measure fair value, the Company incorporates
assumptions that market participants would use in pricing the asset
or liability and utilizes market data to the maximum extent
possible.
In
instances where the determination of the fair value measurement is
based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is
significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or
liability.
The
Company considered the inputs in this valuation to be level 3 in
the fair value hierarchy under ASC 820 and used an equity
simulation model to determine the value of conversion feature of
the Series C Preferred Stock based on the assumptions
below:
|
|
2020
|
2019
|
|
Annual volatility
rate
|
156%
|
144%
|
|
Risk free
rate
|
0.13%
|
1.58%
|
|
Remaining
Term
|
1.50 years
|
0.5 years
|
|
Fair Value of
common stock
|
$0.78
|
$0.47
|
For the
years ended December 31, 2020 and 2019, 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 years ended December 31, 2020 and
2019.
|
Period
Ended
|
2020
|
2019
|
|
Fair value of
derivative (warrants), beginning of period/year
|
$49,066
|
$571,774
|
|
Change in fair
value of derivative
|
367,781
|
(522,708)
|
|
Fair value of
derivative on the date of issuance
|
400,766
|
—
|
|
Fair value of
derivative(warrants), end of period/year
|
$817,613
|
$49,066
|
46
Series D Notes Kicker Warrants
As discussed in Note 8, the Company analyzed the conversion
features of the Series D Notes and determined that the Warrants
qualified as a derivative liability. The fair value was required to
be allocated among the notes, conversion features, and the
warrants, and then remeasured at each reporting date. The
Company performed a valuation of the conversion feature. In
performing the valuation, the Company applied the guidance in ASC
820, “Fair Value
Measurements”, to nonfinancial assets and liabilities
that are recognized or disclosed at fair value on a nonrecurring
basis. ASC 820 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date (exit price). To measure fair value, the Company incorporates
assumptions that market participants would use in pricing the asset
or liability and utilizes market data to the maximum extent
possible.
In
instances where the determination of the fair value measurement is
based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is
significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or
liability.
The
Company considered the inputs in this valuation to be level 3 in
the fair value hierarchy under ASC 820 and used an equity
simulation model to determine the value of conversion feature of
the Series D Warrants based on the assumptions
below:
|
|
2020
|
|
Annual volatility
rate
|
156%
|
|
Risk free
rate
|
0.13%
|
|
Remaining
Term
|
10.00 years
|
|
Fair Value of
common stock
|
$0.78
|
For the
year ended December 31, 2020, an active market for the
Company’s common stock did not exist. Accordingly, the fair
value of the Company’s common stock was estimated using a
valuation model with level 3 inputs.
The
below table represents the change in the fair value of the
derivative liability during the year ended December 31,
2020.
|
Period
Ended
|
2020
|
|
Fair value of
derivative (warrants), beginning of period/year
|
—
|
|
Fair value of
derivatives on date of issuance
|
$409,998
|
|
Change in fair
value of derivatives
|
542,636
|
|
Fair value of
derivative(warrants), end of period/year
|
$952,634
|
NOTE 12 – NON-CONTROLLING INTEREST
The
Company’s Non-Controlling Interest recorded in the
consolidated financial statements relates to an interest in
DynaResource de México, S.A. de C.V. of 50% through May 13,
2013, and 20% until February 24, 2020
when the minority interest was eliminated. Changes in
Non-Controlling Interest for the years ended December 31, 2020 and
2019, respectively were as follows:
|
|
2020
|
2019
|
|
Beginning
balance
|
$(5,723,663)
|
$(5,611,528)
|
|
Operating
income (loss)
|
(61,589)
|
(62,511)
|
|
Share
of Other Comprehensive Income (loss)
|
(11,669)
|
(49,624)
|
|
Elimination
of Non-Controlling Interest
|
(5,796,921)
|
—
|
|
Ending
balance
|
$—
|
$(5,723,663)
|
47
NOTE 13 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The ASC
guidance for fair value measurements and disclosure establishes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value
hierarchy are described below:
Level 1 Inputs –
Quoted prices for
identical instruments in active markets.
Level 2 Inputs –
Quoted prices for
similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs –
Instruments with
primarily unobservable value drivers.
As of
December 31, 2020, and December 31, 2019, the Company’s
financial assets were measured at fair value using Level 3 inputs,
with the exception of cash, which was valued using Level 1 inputs.
A description of the valuation of the Level 3 inputs is discussed
in Note 11.
|
Fair Value
Measurement at December 31, 2020 Using:
|
|
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
|
Liabilities:
|
|
|
|
|
|
Derivative
Liabilities
|
$2,371,560
|
—
|
—
|
2,371,560
|
|
Totals
|
$2,371,560
|
$—
|
$—
|
2,371,560
|
|
Fair
Value Measurement at December 31, 2019 Using:
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Derivative
Liabilities
|
$86,104
|
—
|
—
|
86,104
|
|
Totals
|
$86,104
|
$—
|
$—
|
86,104
|
NOTE 14 – REVENUE CONCENTRATION
The
Company had certain customers whose revenue individually
represented 10% or more of the Company’s total revenue, or
whose accounts receivable balances individually represented 10% or
more of the Company’s total accounts receivable, as
follows:
For
each of the twelve months ended December 31, 2020 and 2019, three
and two customers accounted for 100% of revenue,
respectively.
At
December 31, 2020 and 2019, four and two customers accounted for
100% of accounts receivable, respectively.
48
NOTE 15 – NOTES PAYABLE
In June
2017, the Company entered into financing agreements for unpaid
mining concession taxes on the Francisco Arturo mining concession
for the period July 1, 2014 to December 31, 2015 in the amount of
$533,580. The Company paid an initial 20% payment in the amount of
$106,716 and financed the balance over 36 months at 18%
interest.
In
February 2018 the Company entered into a financing agreement for
unpaid mining concessions taxes on the Francisco Arturo mining
concession for the year ended December 31, 2016 in the amount of
$552,990. The Company paid an initial payment of $110,598 and
financed the balance over 36 months at 18%.
In June
2018 the Company entered into financing agreements for the unpaid
mining concession taxes on the Francisco Arturo mining concession
for the year ended December 31, 2017 and the period ending June 30,
2018 in the amount of $1,739,392. The Company paid an initial 20%
payment of $347,826 and financed the balance over 36 months at
21.84%
In February 2019 the Company entered into a financing agreement for
unpaid mining concession taxes on the Francisco Arturo
mining concession for the
year ended December 31, 2018 in the amount of $335,350. The Company
paid an initial 20% payment of $67,070 and financed the balance
over 36 months at an interest rate of 21%.
In June
2018, the Company applied for a reduction of the Francisco Arturo
mining concession, from 69,121 hectares to 3,280 hectares. On July
31, 2018, The application for reduction was approved and the
Company paid an initial amount of 985,116 MNP (Pesos), for the
second semester 2018 mining concessions taxes on the reduced
Francisco Arturo mining concession. The Company continues to accrue
an amount of $22,500 (USD) per semester on the reduced Francisco
Arturo mining concession.
As of
June 2019, the Company ceased making monthly payments on the above
noted Francisco Arturo concession notes and has petitioned the
Hacienda for a reduction in the liability equal to the reduction in
the Francisco Arturo concession above. For financial reporting
purposes the Company continues to carry all notes at unpaid
principal amount and accrues interest on a monthly basis. At
December 31, 2020 $675,606 of accrued interest on the notes was
included in accrued liabilities on the consolidated balance
sheet.
In October 2019 the Company entered into a financing agreement for
unpaid mining concession taxes on the core mining concessions in
the amount of $299,474. The Company paid an initial 20% payment of
$59,895 and financed the balance over 36 months at an interest rate
of 22%.
|
The following is a
summary of the transaction during the years ended December 31, 2020
and 2019:
|
|
|
|
|
|
Balance December
31, 2018
|
$1,803,235
|
|
Exchange Rate
Adjustment
|
73,314
|
|
Property Holding
Taxes - Core Concessions
|
634,824
|
|
20% Down
Payment
|
(126,965)
|
|
2019 Principal
Payments
|
(111,977)
|
|
Balance December
31, 2019
|
2,272,431
|
|
Exchange Rate
Adjustment
|
(124,352)
|
|
2020 Principal
Payments
|
(66,644)
|
|
Balance December
31, 2020
|
$2,081,435
|
|
|
|
|
|
|
|
At December 31,
2020 future maturities of notes payable are as
follows:
|
|
|
|
|
|
Year Ending
December 31:
|
|
|
2021
|
$1,984,007
|
|
2022
|
97,428
|
|
|
$2,081,435
|
49
NOTE 16 – SUBSEQUENT EVENTS
The
Company has evaluated events from December 31, 2020, through the
date whereupon the financial statements were issued, and has
described below the events subsequent to the end of the
period.
Termination of Sales Agreement
On
January 6, 2021 Mineras de DynaResource SA de CV terminated its
sales agreement with a major customer.
$48M First Amended Petition and Recognition Claim Filed in Dallas
County, Texas USA
On
February 4, 2021 DynaUSA and DynaMéxico filed its First
Amended Petition for Recognition of the $48M Foreign Judgment
against Goldgroup Resources Inc. in the US.
Revolving Credit Line Facility
On
February 4, 2021 Mineras de DynaResource SA de CV
(“Seller”) entered into a Revolving Credit Line
Facility and Commercial Offtake Agreement (the “RCL"), with a
commercial buyer. Under the terms of the RCL:
●
The Company will
deliver 100% of its produced concentrates to the buyer and provider
of the RCL, through December 31, 2022; unless extended by the
Company;
●
An initial RCL has
been established by buyer in the amount of $3.75M USD;
●
At May 1, 2021, the
RCL will be increased to an amount equal to 80% of prior 3
month’s revenue;
●
Each successive
month, the RCL shall be adjusted according to the company’s
prior 3 month’s revenue;
●
The RCL shall never
be less than $3.75M USD;
●
The RCL will be
interest free for 45 days;
●
The RCL is to be
repaid through deliveries of Concentrates or Cash within 120
days;
Deposits under Revolving Credit Line Facility
Under
the terms of the RCL, Mineras de DynaResource received the
following advances from Buyer:
(1)
$2.5M on February
4, 2021; and,
(2)
$3.75M on March 31,
2021.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation
of Disclosure on Controls and Procedures.
We
carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31,
2019. This evaluation was accomplished under the supervision and
with the participation of our chief executive officer / principal
executive officer and our financial consultant who concluded that
our disclosure controls and procedures are not effective to ensure
that all material information required to be filed in the annual
report on Form 10-K has been made known to them. The evaluation did
not include a 404A assessment. For purposes of this section, the
term disclosure controls and procedures mean controls and other
procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports
that it files or submits under the Act (15 U.S.C. 78a et seg.) is
recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms.
Disclosure, controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the "Act") is accumulated and
communicated to the issuer's management, including its principal
executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions
regarding required disclosure.
50
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our
internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes, in
accordance with generally accepted accounting principles in the
United States of America. Our internal control over financial
reporting includes those policies and procedures that (i) pertain
to the maintenance records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets
of the Company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Because
of inherent limitations, a system of internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to
change in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management conducted an evaluation of the effectiveness of our
internal control over financial reporting using the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated
Framework (2013 Internal Control—Integrated Framework) at
December 31, 2020. Based on its evaluation, our management
concluded that, as of December 31, 2020, our internal control over
financial reporting were effective.
This
annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to the attestation by the Company’s
registered public accounting firm pursuant to rules of the SEC that
permit the Company to provide only management’s report in
this annual report.
Changes in Internal Controls over Financial Reporting
We
added additional internal controls to mitigate the material
internal control weaknesses reported in the 2019 10K. These
additional controls consist of an additional review during the
consolidation and SEC reporting process to review for items
capitalized in the operating subsidiaries which must be expensed
for SEC reporting due to the lack of proven and probable
reserves.
This
annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to the attestation by the Company’s
registered public accounting firm pursuant to rules of the SEC that
permit the Company to provide only management’s report in
this annual report.
ITEM 9B.
OTHER INFORMATION
None.
51
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
Company has a code of business conduct and ethics that applies to
all employees, officers and directors. The code of business conduct
and ethics is available on our website at www.dynaresource.com
and we will post any amendments to, or waivers from, the code of
ethics on that website.
The
following table lists the names and ages of the executive officers,
directors and key consultants of the Company. The directors will
continue to serve until the next annual shareholders meeting, or
until their successors are elected and qualified. All Directors
have been elected to serve through 2019. All officers serve at the
discretion of the President, Chairman of the Board of Directors,
and members of the Board of Directors.
|
Name
|
Age
|
Position
|
|
Held Since
|
|
K. W.
(“K.D.”) Diepholz
|
63
|
Chairman
of The Board
|
|
May
1995
|
|
222 W.
Las Colinas Blvd
Suite
1910 N. Tower
|
|
CEO/President;
CFO;
Treasurer;
|
|
May
1997
May
1997
|
|
Irving,
Texas 75039
|
|
|
|
|
|
Dr.
Jose Vargas Lugo
|
60
|
Director
of Operations - México, President - México
|
|
August
2011
|
|
Enrique
Dunant Y5 de Mayo #963
|
|
Director;
|
|
August
2013
|
|
Fracc,
Los Parques
|
|
|
|
|
|
Guamuchil,
Sin CP 81460
|
|
|
|
|
|
|
|
|
|
|
|
Pedro
Ignacio Teran Cruz
Sierra
Grande #134
|
61
|
Executive
Vice President, Director of Exploration and Resource
Development;
|
|
2008-2013;
|
|
Fraccionamiento
Lomas de Mazatlán, Mazatlán, Sinaloa 82110
|
|
Board
Member
|
|
March
2016 – Oct. 2020
|
|
John
C. Wasserman
|
81
|
Independent
Director
|
|
December,
2014
|
|
222
W. Las Colinas Blvd.
|
|
|
|
|
|
Suite
1910 North Tower
|
|
|
|
|
|
Irving,
Texas 75039
|
|
|
|
|
|
|
|
|
|
|
|
Dale G.
Petrini
222 W.
Las Colinas Blvd.
|
66
|
Independent
Director
|
|
December
2016
|
|
Suite
1901 North Tower
|
|
|
|
|
|
Irving,
TX. 75039
|
|
|
|
|
|
|
|
|
|
|
|
Philip
K. Rose
|
32
|
Independent
Director
|
|
July
2015
|
|
222 W.
Las Colinas Blvd.
|
|
|
|
|
|
Suite
1910 North Tower
|
|
|
|
|
|
Irving,
TX. 75039
|
|
|
|
|
|
|
|
|
|
|
|
Bradford
J. Saulter
|
61
|
Vice
President – Investor Relations
|
|
May
1998
|
|
7618
Straits Lane
|
|
|
|
|
|
Rowlett,
Texas 75088
|
|
|
|
|
|
|
|
|
|
|
|
Rene
L.F. MladosichSierra Grande
|
58
|
General
Manager at San Jose de Gracía
|
|
October
2019
|
|
Sierra
Grande #134
|
|
|
|
|
| Fraccionamiento Lomas de |
|
|
|
|
| Mazatlán, Sinaloa
82110 |
|
|
|
|
|
|
|
|
|
|
| Praxedis
Martinez |
73
|
Senior
Consultant – Plant Operations
|
|
July
2017
|
| Sierra Grande #134 |
|
|
|
|
| Fraccionamiento Lomas de |
|
|
|
|
| Mazatlán, Sinaloa 82110 |
|
|
|
|
52
K.W. (“K.D.”) Diepholz. Mr. Diepholz has been
involved in the resource sectors, primarily as an
investor/entrepreneur, since 1980. He founded KWD Properties Corp.
an Oil and Gas exploration and production company in 1983 and
served as an executive manager to this Oil and Gas concern, and as
a General partner to several limited partnerships. Mr. Diepholz has
served in a variety of capacities with DynaResource, Inc. from 1994
to the present, and has served as Chairman of the Board, President,
CEO and Treasurer since 1995. Mr. Diepholz has special skills in
the areas of negotiation, business development, project planning
and management, corporate financing, acquisition analysis,
investment program interpretation and structuring, and executive
management. Mr. Diepholz has been instrumental to the Company in
the negotiations of the following: the acquisition of 24.9% Net
Profits Interest in the San José de Gracía in 1995; the
acquisition of an additional 25% interest in San José de
Gracía in 1998; the acquisition and consolidation of 100% of
the rights to the San José de Gracía from prior owners,
culminating in March 2000; the acquisition and consolidation of
several outstanding Concessions at the San José de Gracía
from previous Mexican owners during 2000-2003; the direction and
management of the test mining and pilot mill operations at San
José de Gracía during 2003-2006; the negotiation of the
Stock Purchase/Earn In Agreement in 2006; the negotiation of the
surface rights agreement with the Santa Maria Ejido in 2013; the
negotiation of the financing agreement with Golden Post Rail, LLC,
and the general financing of, and the general management of the
Company since inception. In addition to his roles with the Company,
Mr. Diepholz serves as Chairman and CEO of DynaResource Nevada,
Inc., an affiliated company, and as President of DynaNevada de
México, a wholly owned subsidiary of DynaResource Nevada Inc.
Mr. Diepholz is also the current President of the following
subsidiaries of the Company in México: DynaResource de
México, Mineras de DynaResource, and DynaResource
Operaciones.
Rene L.F. Mladosich. Mr. Mladosich brings over 30 years of
direct experience in the mining industry in Mexico to DynaResource.
He has worked for Companies such as: Campania Mineras de Cananea,
Campania Minera Hecla (Hecla Mining), Campania Minera Pangea (now
owed by McEwen Mining), Campania Minera Dolores (Minefinders),
Minera Alamos de Sonora, and Campania Minera Pena de Bernal
(Starcore International Mines). Mr. Mladosich has also provided
consulting services to companies such as Minefinders, Pan American
Silver and Scorpio.
Mr.
Mladosich is a proven and successful manager in Mexico with
experience in the following areas: general management, underground
and open pit operations, process plant recovery and optimization,
construction, exploration, logistics, permitting, environmental,
and plant and pit design.
Mr.
Mladosich holds a B.S. degree from the University of Sonora, where
he was awarded First of the Class 6 times; and Mr. Mladosich
studied 1 year of metallurgy in the Master’s Degree work
program at the University. Mr. Mladosich speaks fluent Spanish and
English and has studied French under the French Embassy Program in
Mexico.
Mr.
Mladosich was named General Manager at SJG in January 2016 –
June 2017, and again in October 2019.
Dr. Jose Vargas Lugo. Dr. Vargas is a licensed physician
with graduate from the Universidad Nacional Autonoma de México
(UNAM) and is a 4th year law student at Universidad Autonoma de
Sinaloa (UAS). Dr. Vargas commenced his involvement with the mining
business with Minera Industrial Peñoles as a Medical Assistant
to the Mining Services Division of Peñoles in Fresnillo,
Zacatecas. Since 1993, Dr. Vargas has been a supplier of industrial
goods and services in and around the municipalities of Sinaloa de
Leyva and Mocorito Sinaloa. Dr. Vargas has worked with companies
such as Compañia Minera El Rosarito, which was conducting
operations at San Jose de Gracía during the period 1993
– 1995. Dr. Vargas later provided services and supplies to
Mineras Finesterre at San Jose de Gracía, and to Minera
Pangea, which was owned by Queenstake Resources, then Nevada
Pacific, and now US. Gold. Dr. Vargas began working with
DynaResource de México in spring 2000; as it commenced
activities to acquire and consolidate the San Jose de Gracía
District. Over the past + 10 Years, Dr. Vargas has proven to be an
integral part of the Company’s activities at San Jose de
Gracía and in Sinaloa State; involved in all facets of the
Company’s business. Dr. Vargas has proven instrumental in the
areas of public relations, community relations, governmental
affairs, environmental matters, and overall management of the
company’s business activities in México.
Pedro Ignacio Teran Cruz. Mr. Teran is a graduate Geologist
from the Universidad de Sonora, México. He has over 28
years’ experience in mineral exploration, mine development is
a successful and respected Geological Consultant in México and
is credited with defining significant resources at several
projects. From 1986 to 1992, he was Project Geologist for Minera
Real de Angeles, SA de CV (Frisco/Placer Dome Inc, now Alamos
Gold), in which under his participation, explored and discovered
the "Mulatos Gold Deposit" Sonora, México, and later as a
Project Manager, the "San Felipe Gold Project" BC, México,
both now in production. From 1992 to 1996, Mr. Teran worked as a
Mine Geologist with Hecla Mining Co and explored and advanced into
production the open pit "La Choya Gold Mine". From 1996 to 1999,
Mr. Teran worked as Geology Superintendent for Compañia Minera
Lluvia de Oro (Santa Cruz Gold, Now NWM Mining Corp.) and at the
open pit "Lluvia de Oro Gold Mine", Sonora, México. From 1999
to 2001, Mr. Teran worked as a Consultant Geology performing due
diligences for Tara Gold Resources in several projects located in
la Sierra Madre Occidental. From 2001 to 2005, he worked as Manager
of Geology Department for the Compañia Minera Pangea SA de CV
(Queenstake Resources, Nevada Pacific and now McEwen Mining), in
the "El Magistral Gold Mine" Sinaloa, México. Under his
direction of exploration, the reserves were increased substantially
and formed part of the team to put the project in production.
During 2005 and part of 2006, Mr. Teran worked as Data Manager for
Linear Gold Corp. in the "Ixhuatan Project" Chiapas, México.
He built the computer block model and Resources Estimation. From
2006 to 2008, he worked as Project Manager for Pediment Exploration
Ltd., now Argonaut Gold Inc. in the "San Antonio Gold Project"
located in BCS, México.
53
Since
2008, Mr. Teran began working as a Consultant Geologist with
DynaResource, Inc. in the "San Jose de Gracía Gold Project"
located in Sinaloa, México, an advanced exploration
project.
John C. Wasserman. Mr. Wasserman is a Partner with
Wasserman, Bryan, Landry & Honold, LLP Law firm, Perrysburg
Ohio. He is a stockholder of the Company and brings the following
credentials to the Board of Directors:
University
of Detroit (PHB); Ohio State University, Law School (JD) –
Graduate work in business administration; University of Toledo
– Undergraduate and Graduate work in business administration;
Admitted to practice before Ohio Supreme Court, U.S. Supreme Court,
U.S. District Court for Northern District of Ohio, Sixth Circuit
U.S. Court of Appeals; Member, Ohio State, Lucas County, Ohio (past
President) and Toledo, Ohio Bar Associations; Board Member,
Corporate and Board Secretary, Blue Water Satellite, Inc.; Board
Member, TechTol of Toledo, Inc.; Member and current chair of the
City of Waterville, Ohio Planning Commission; Member of the ten
year Plan Committee of Waterville, Ohio; Member, Past Board Member,
Secretary Treasurer and President of Toledo, Ohio Rotary; Past
Assistant District Governor, Area 4 of District 6600 of Rotary
International; Member of Timberlake Investments, LLC, an investment
LLC; Board Member, Victory Center of Toledo, Ohio; Member,
Succession Committee, DynaResource, Inc.; Member/Managing
Partner/Member, numerous LLCs/Partnerships for real estate
developments and investments.
Mr.
Wasserman has been employed with the Ohio Attorney General office,
as Special Counsel; and with Ohio Bureau of Unemployment, as
Hearing Officer; and as a Former Acting Judge, Maumee, Ohio,
Municipal Court; Past Toledo, Ohio Exchange Club Member
(President). Mr. Wasserman was selected one of Jaycees Top Ten
Young men of Toledo, Ohio; was Co Author – Management
Considerations of a Business Entity in the Environment of Chapter
XI Reorganization Proceedings Under the New Federal Bankruptcy Code
Effective October 1, 1979 published in Midwest Business
Administration Association; was an Expert witness in real estate
mandamus case: Lucas County Common Pleas Court, State ex rel Ad Hoc
Committee of Waterville Citizens for Initiative and Referendum
Petitions, Etc., Realtor vs. City of Waterville and Dale Knepper,
Clerk of Council, City of Waterville, Respondents, Case No.
CI-2013-1137.
Dale G. Petrini. Mr. Petrini brings over 40 years of
extensive international project and manufacturing experience to the
Board of DynaResource, Inc. During his 40+ years with The Dow
Chemical Company, Houston, Texas, Mr. Petrini was the engineering
sponsor, advisor and led the project development for several
international mega projects totally over $50 billion USD. In his
latest role for Dow, he was responsible for the project development
of mega project growth opportunities in Latin America.
Previously,
Mr. Petrini was responsible for Global Construction Management and
Global Capital Procurement for Dow with offices and personnel
located throughout the world. In addition, he was the Plant Manager
for several production units and led the respective business
management teams.
Mr.
Petrini earned his civil engineering degree from The University of
Michigan and is a registered licensed professional engineer. He
holds dual citizenship in the US and EU.
Philip K. Rose. Mr. Rose is the appointee to the Board of
Directors by Golden Post, LLC., the holder of the Series C
convertible preferred shares. Mr. Rose is a 2011 graduate of Texas
Christian University in Fort Worth, Texas.
Key Employees and Consultants
Praxedis Martinez (Senior Engineer – Advisor)
College:
UNIVERSIDAD DE GUANAJUATO, Guanajuato, Gto. 1964-1969. Degree: Mine
Engineer and metallurgist.
Graduate
School: Escuela de Graduados en Administración INSTITUTO
TECNOLÓGICO Y DE ESTUDIOS SUPERIORES DE MONTERREY,
México, D.F. 1978-1980 Degree:
MBA.
54
Company
CÍA Minera La Campana, S.A. DE
C.V., Reforma Mine. Group: Peñoles; Engineering
Department Assistant; Dec. 1969- Feb. 1970; Shift Foreman, March
1969- Dec. 1971; Supervision of mine exploration and development
works such as tunnels, crosscuts and raise shafts; Stope
preparation works, Stope exploitation; Mercurio Mexicano, SA. De C.V., Tiro
General mine Superintendent, January 1972- Dec. 1972, Responsible
for the operation of Tiro General Mine; Servicios
Industriales Peñoles, Briquetting plant Construction and other
construction works inside the lead smelter of Met – Mex
Peñoles in Torreon, Resident engineer, January 1973- December
1973; Responsible for supervising several contractor’s
works.
Praxedis
Martinez Ramos Company, Mining and ore sales, ore concentration and
concentrates sales. Mine plant equipment fabrication. Metallurgical
consulting and laboratory testing. Mineral Perlite expansion,
January 1974 – July 1993, during this time, in society with
Mr. José Luis Martínez, we exploited 6 different mines
located in Zacatecas, Durango, and Coahuila States, in one of them
we operated a flotation plant. In some of these mines the ore was
sold as extracted to the Met-Mex Peñoles Smelter in
Torreón; from some other mines the ore would be concentrated
in custom flotation plants and the concentrates then sold to the
Smelter; and in other cases, the ore was concentrated in our own
plant, a small shop for Mine Plant Equipment was started and
operated, a Mineral Perlite expansion furnace was set up, and
continued working until Dec. 2003.
Desarrollos
Mineros del Centro, SA. De CV., Luismin, Metallurgical Research
Manager, August 1993 – January 1998, Responsible for the
Research Area, which included the following laboratories: Assay,
Water analysis, Metallurgical, Pilot Plant, Biotechnology, Tests
were done in Flotation, Bottle roll cyanidation, Column Cyanidation
Acid leach, Filtration, Thickening, Gold diagnostic leach, Mass
balance, Work index (Wi) determination, Equipment calculation,
Statistical analysis of plant operation, Ore Bio-oxidation, Ore
Bioleaching. The Biotechnology testing was done in cooperation with
Little Bear and McClelland Labs. And with Dr. Corale Bryerley as
consultant.
Praxedis
Martinez Ramon, Mineral Perlite expansion, Metallurgical
consulting, February 1998 – December 2004, during this period
I continued to operate the Perlite expansion furnace. Also,
metallurgical consulting to several miners and mining Companies
including Minas de San Luis; Servicios
Administrativos Luismin, SA de CV., Metallurgical troubleshooting
in the Goldcorp Mexico plants, New projects metallurgical research
design and supervision, January 2005 – June 2008, Part of the
Technical Services Direction team, reporting to the Metallurgical
manager;
SGS,
Durango Laboratory, Planning and supervising test work for the
different clients’ projects in Mexico, July 2008 – June
2013, together with the heads of the different section of the lab,
examining the samples of ore that needed testing different of
routine work;
La
Salle University (ULSA), in the Laguna region, teaching in the
mining and construction career, August 2013 to date;
Praxedis
Martinez Ramos, Private mining and metallurgical consulting, July
2013 to date, Consulting to Mineras de DynaResource SA de CV.,
since May 2017 to date, mainly in the plant expansion project at
San Jose de Gracía.
Bradford J. Saulter (VP. – Shareholder Relations).
Attended University of Texas, Austin, Texas; Marketing Department
of Metagram, Inc., a Dallas National Marketing Company; Regional
Manager for Lugar, Lynch, & Associates, A Dallas Financial
Services Company, Involved in Sales & Marketing of Various
Investment Products; Independent Marketing Consultant; Series 22
& 63 Securities License; Vice President / Marketing - Dynacap
Group Ltd. (1992 - Present); Director: Farm Partners, Inc. (1992 -
Present), Vice President – Investor Relations - DynaResource,
Inc., Dallas, Texas (1995 to present).
To the
knowledge of the Company, no present or former director, executive
officer, or person nominated to become a director or executive of
the Company, or consultants to the Company, has ever:
1.
Filed a
bankruptcy petition by or against any business of which such person
was a general partner or executive officer whether at the time of
the bankruptcy or with two years prior to that time;
2.
Had any
conviction in a criminal proceeding or been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3.
Been
subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; and
4.
Been
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the
judgment has not been reversed suspended or vacated.
55
ITEM 11.
EXECUTIVE
COMPENSATION
The
following officers received the following compensation for the
years ended December 31, 2020 and 2019. These officers(*) do not
have employment contracts with the Company.
|
Name and principal
position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-equity
incentive
plan compensation
|
|
Nonqualified
deferred compensation
|
|
All
other
compensation
*
|
|
K.W. (“K.D.”)
Diepholz,
|
|
2020
|
|
$250,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
CEO/President
|
|
2019
|
|
$250,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Jose Vargas Lugo;
EVP.,
|
|
2020
|
|
$75,507
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
President of México
Operation
|
|
2019
|
|
$90,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eduardo Luna
|
|
2019
|
|
$27,778
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Sr. Advisor to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President of Mineras de
DynaResource
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rene L.F.
Mladosich;
|
|
2020
|
|
$101,890
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
GM of San Jose de Gracía
Project
|
|
2019
|
|
$40,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Ignacio Teran
Cruz,
|
|
2020
|
|
$52,073
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Dir. of Exp. and
Dev.
|
|
2019
|
|
$120,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradford J.
Saulter
|
|
2020
|
|
$90,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
VP., Investor
Relations
|
|
2019
|
|
$90,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Orta
|
|
2019
|
|
$24,000
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Controller Dyna
USA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* As
disclosed in the financial statements, the Company paid consulting
fees to Dynacap Group, Ltd.
56
|
|
|
Option
Awards
|
Stock
Awards
|
|||
|
Name and
principal position
|
Number of
Securities Underlying Unexercised options (#)
exercisable
|
Number of
Securities Underlying Unexercised options (#)
un-exercisable
|
Equity incentive
plan awards
|
Option exercise
price
|
Option expiration
date
|
Number of share
awards that have not vested
|
|
|
|
|
|
|
|
|
|
K.W.
(“K.D.”) Diepholz
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
|
CEO/President
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Dr. Jose Vargas
Lugo
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
|
President of
México Operations
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Rene L.F.
Mladosich
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
|
GM of San Jose de
Gracía Project (2016-2017; 2019)
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Pedro Ignacio Teran
Cruz; Dir. of Expl.
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
|
|
|
|
|
|||
|
David
Orta
|
None
|
None
|
None
|
N/A
|
N/A
|
|
|
Controller Dyna
USA
|
|
|
|
|
|
None
|
|
|
|
|
|
|||
|
Bradford J.
Saulter
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
|
|
|
|
|
|||
|
John C.
Wasserman
|
None
|
None
|
None
|
N/A
|
N/A
|
None
|
57
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth the amount and nature of beneficial
ownership of each of the executive officers and directors of the
Company and each person known to be a beneficial owner of more than
five percent of the issued and outstanding shares of common stock
of the Company as of December 31, 2020. The following table
sets forth the information based on 17,722,825(1) common shares
issued and outstanding (1) as of December 31, 2020.
|
COMMON STOCK
|
|
Beneficial
Owner
|
|
Address
|
|
Common
Shares
|
|
Percent
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
K.W.
(“K.D.”) Diepholz
Chairman
/ CEO
|
|
222 W.
Las Colinas Blvd.
Suite
1910 North Tower
Irving,
Texas 75039
|
|
1,865,100
|
|
10.52%
|
|
Common
Stock
|
|
Mineras
de DynaResource
SA de
CV.
|
|
CP
82110, Mazatlán, Sinaloa, México
|
|
504,300
|
|
2.85%
|
|
Common
Stock
|
|
Gareth
Nichol
|
|
Denver,
Colorado
|
|
2,333,333
|
|
13.17%
|
|
Common
Stock
|
|
Dr.
Jose Vargas Lugo
EVP,
Director
|
|
Plutarco
Elías Calles 47
Guamúchil
Sin. Mex. 81450
|
|
274,508
|
|
1.55%
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Pedro
I. Teran Cruz
EVP;
Director
|
|
Hermosillo,
Sonora México
|
|
37,500
|
|
0.21%
|
|
Common
Stock
|
|
Bradford
J. Saulter
VP.,
Investor Relations
|
|
222 W.
Las Colinas Blvd.
Suite
1910 North Tower
Irving,
Texas 75039
|
|
124,439
|
|
0.70%
|
|
Common
Stock
|
|
John C.
Wasserman
Director;
|
|
Waterville,
Ohio 43566
|
|
134,389
|
|
0.76%
|
|
Common
Stock
|
|
Dale G.
Petrini
Director
|
|
Houston,
Texas 77027
|
|
156,330
|
|
0.88%
|
|
**
|
|
Philip
A. Rose (2)
Director
|
|
Westlake,
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Officers, Directors and Beneficial owners as a Group (10
holders)
|
|
|
|
5,429,899
|
|
30.64%
|
(1)
Does Not Include (i) 1,734,992 shares of common stock issuable upon
the conversion of 1,734,992 shares of Series C Convertible
Preferred Stock, which are currently convertible, and (ii)
2,166,527 shares of common stock issuable upon the exercise of a
warrant, which is exercisable, and subsequent conversion into
common shares.
(2)
Does not include 1,223,002 shares of common
stock issuable upon the exercise of a cashless warrant which is
exercisable and subsequent conversion into common
stock
(3)
Mr. Rose is a Director of the Company, elected by the holder of the
Series C Preferred Shares.
No
officer or director holds options which are either (a) vested or
(b) will vest within 60 days.
OPTIONS/WARRANTS
The
officers and directors and those 5% beneficial owners held the
following options/warrants as of December 31, 2020:
Garreth Nichol
313,590
Dale
Petrini
31,359
58
PREFERRED SHARES (SERIES A)
|
Preferred
Series
|
|
Beneficial Owner
|
|
Address
|
|
Preferred Shares
|
|
Percent Ownership
|
|
Series
“A”
|
|
K.W.
(“K.D.”)
Diepholz,
CEO
|
|
1303
Regency Court
Southlake,
Texas76092
|
|
1,000
|
|
100.0%
|
PREFERRED SHARES (SERIES C)
|
Preferred Series
|
|
Beneficial Owner
|
|
Address
|
|
Preferred Shares
|
|
Percent Ownership
|
|
Series
“C”
|
|
Golden
Post Rail LLC.
|
|
1110
Post Oak Place
Westlake,
Texas 76262
|
|
1,734,992
|
|
100.0%
|
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Dynacap Group Ltd.
The
Company paid $114,250 and $146,125 to Dynacap Group, Ltd.
(“Dynacap”, an entity controlled by the CEO of the
Company) for consulting and other fees during the years ended
December 31, 2020 and 2019, respectively. Dynacap retained two
subcontractors who provided accounting, administrative and
executive support services to the Company during recent
years.
Cash Advances by Management
None
Stock Issued to Management
None
The
Company is not aware of any other material relationships or related
transactions between the Company and any officers, directors or
holders of more than five percent of any class of outstanding
securities of the issuer.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND
SERVICES
(1)
Audit Fees
The
aggregate fees billed for professional services rendered by our
auditors, for the audit of the registrant's annual financial
statements and review of the financial statements included in the
registrant's Form 10-K and Form 10-Q(s) or services that are
normally provided by the accountant in connection with statutory
and regulatory filings or engagements, for fiscal years 2020 and
2019 was $230,359 and $206,992, respectively.
(2)
Audit Related Fees
None.
(3) Tax
Fees
None.
(4) All
Other Fees
None.
(5)
Audit Committee Policies and Procedures
The
Company does not have an audit committee.
(6) If
greater than 50 percent, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees.
Not
applicable.
59
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
The
exhibits listed in the accompanying exhibit index are filed (except
as otherwise indicated) as part of this report.
|
No.
|
Description
|
|
31.1 *
|
Certification of
the Company’s Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
31.2 *
|
Certification of
the Company’s Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
32.1 *
|
Certification of
the Company’s Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
* Filed
herewith.
ITEM 16. 10K SUMMARY
|
Not
Applicable.
|
Exhibit Number; Name of Exhibit
31.1 Certification of
Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002
31.2
Certification of
Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of
Chief Executive Officer and Chief Financial Officer, pursuant to 18
United States Code Section 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002.
60
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the
Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
DYNARESOURCE,
INC.
|
|
|
|
|
|
|
|
|
Date: March 31,
2021
|
By:
|
/s/ K.W.
(“K.D.”) DIEPHOLZ
|
|
|
|
|
K.W. (K.D.)
Diepholz
|
|
|
|
|
Chairman of the Board of Directors and Chief Executive Officer |
|
SIGNATURES
In
accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
K.W. (“K.D.”) DIEPHOLZ
|
|
Chairman
of the Board of Directors and Chief Executive Officer (Principal
Executive Officer)
|
|
March
31, 2021
|
|
K.W.
(K.D.) Diepholz
|
|
|
|
|
|
|
|
|
|
|
|
/s/
K.W. (“K.D.”) DIEPHOLZ
|
|
Acting
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
March
31, 2021
|
|
K.W.
(K.D.) Diepholz
|
|
|
|
|
61