EDGAR 10-K Filing

Company CIK: 1111741
Filing Year: 2021
Filename: 1111741_10-K_2021_0001654954-21-003661.json

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ITEM 1. BUSINESS
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.
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.
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.

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ITEM 1A. RISK FACTORS
ITEM 1A.
RISK FACTORS
Not applicable for smaller reporting companies.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
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.
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
Claim Number
Staking date
Expiry
Hectares
Taxes / ha (pesos)
AMPL. SAN NICOLAS
22/11/1988
21/11/2038
17.4234
111.27
AMPL. SANTA ROSA
30/10/1978
29/10/2028
25.0000
111.27
BUENA VISTA
31/03/2000
30/03/2050
17.9829
63.22
EL CASTILLO
02/10/2001
01/10/2051
100.0000
31.62
EL REAL
07/11/2000
07/11/2052
2038.0000
31.62
EL REAL
30/04/2002
29/04/2052
280.1555
31.62
FINISTERRE FRACC. A
28/01/2003
27/01/2053
18.7856
31.62
FINISTERRE FRACC. B
28/01/2003
27/01/2053
174.2004
31.62
GUADALUPE
05/12/1990
04/12/2040
7.0000
111.27
LA GRACIA I
02/04/2002
01/04/2052
300.0000
31.62
LA GRACIA II
02/04/2002
01/04/2052
230.0000
31.62
LA LIBERTAD
15/12/1983
14/12/2033
97.0000
111.27
LA NUEVA AURORA
08/02/2002
07/02/2052
89.3021
31.62
LA NUEVA ESPERANZA
06/12/2005
05/12/2055
40.0000
7.6
LA UNION
26/08/1985
25/08/2035
4.1098
111.27
LOS TRES AMIGOS
27/10/1983
26/10/2033
23.0000
111.27
MINA GRANDE
10/10/1978
09/10/2028
6.6588
111.27
NUEVO ROSARIO
13/12/1989
12/12/2039
32.8781
111.27
PIEDRAS DE LUMBRE 2
05/03/2002
04/03/2052
34.8493
31.62
PIEDRAS DE LUMBRE 3
28/01/2003
27/01/2053
4.3098
31.62
PIEDRAS DE LUMBRE No.4
29/09/2000
28/09/2050
0.2034
63.22
PIEDRAS DE LUMBRE UNO
05/03/2002
04/03/2052
40.2754
31.62
SAN ANDRES
31/08/2000
30/08/2050
385.0990
63.22
SAN JOSÉ
24/11/1998
23/11/2048
27.0000
111.27
SAN MIGUEL (1)
26/10/1988
25/10/2038
7.0000
111.27
SAN NICOLAS
14/12/1978
13/12/2028
55.5490
111.27
SAN SEBASTIAN
08/11/1989
07/11/2039
40.0000
111.27
SANTA MARIA
17/01/2003
16/01/2053
4.2030
31.62
SANTA ROSA
13/05/1982
12/05/2032
31.4887
111.27
SANTO TOMAS
13/08/1986
12/08/2036
312.0000
111.27
TRES AMIGOS 2
31/08/2000
30/08/2050
54.4672
63.22
FINISTERRE
18/01/2008
17/01/2058
2142.1302
5.08
FRANCISCO ARTURO
06/09/2007
27/03/2057
3,279.56
TOTAL
9,920.00
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”).
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.

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ITEM 3. LEGAL PROCEEDINGS
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.
Final Legal Ruling in México (DynaMéxico Final Legal Ruling)
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.
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;
(b) DynaMéxico obeyed the October 5, 2015 Court Order and did not attend the Arbitration hearing;
(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.
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.

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ITEM 4. MINE SAFETY DISCLOSURE
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.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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,
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,
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.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not applicable for smaller reporting companies.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the heading “Management Discussion and Analysis and Plan of Operation.”
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this annual report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.
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.
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.
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.)
52,038
9.82
86.11%
14,147
13,418
66,031
5.81
86.86%
10,646
9,713
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.
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.
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).
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
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
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.
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
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,
DYNARESOURCE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 and 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
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.
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 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)
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.
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
$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
$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
$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.
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 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.
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.
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.
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.
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.
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,
Dec 31,
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.
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.
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
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:
Mined Tonnage, Gold-Silver Concentrates, and/or Gravity Tailings (Flotation Feed Material)
$603,967
$523,089
Total Inventories
$603,967
$523,089
NOTE 3 - PROPERTY AND EQUIPMENT
Property consists of the following at December 31, 2020 and December 31, 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.
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:
Deferred Tax Asset Related to:
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:
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:
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
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.
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.
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
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.
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%).
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,
Operating Lease - Office Lease
$84,431
Operating Lease - Ground Lease
86,091
Short Term Lease Costs
12,730
Variable Lease Costs
-
TOTAL
$183,252
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
$174,911
179,377
101,499
96,896
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.
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.
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:
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
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:
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
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
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:
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
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:
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)
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.
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:
$1,984,007
97,428
$2,081,435
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.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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.
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.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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
Chairman of The Board
May
222 W. Las Colinas Blvd
Suite 1910 N. Tower
CEO/President; CFO;
Treasurer;
May
May
Irving, Texas 75039
Dr. Jose Vargas Lugo
Director of Operations - México, President - México
August
Enrique Dunant Y5 de Mayo #963
Director;
August
Fracc, Los Parques
Guamuchil, Sin CP 81460
Pedro Ignacio Teran Cruz
Sierra Grande #134
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
Independent Director
December,
W. Las Colinas Blvd.
Suite 1910 North Tower
Irving, Texas 75039
Dale G. Petrini
222 W. Las Colinas Blvd.
Independent Director
December
Suite 1901 North Tower
Irving, TX. 75039
Philip K. Rose
Independent Director
July
222 W. Las Colinas Blvd.
Suite 1910 North Tower
Irving, TX. 75039
Bradford J. Saulter
Vice President - Investor Relations
May
Straits Lane
Rowlett, Texas 75088
Rene L.F. MladosichSierra Grande
General Manager at San Jose de Gracía
October
Sierra Grande #134
Fraccionamiento Lomas de
Mazatlán, Sinaloa
Praxedis Martinez
Senior Consultant - Plant Operations
July
Sierra Grande #134
Fraccionamiento Lomas de
Mazatlán, Sinaloa
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.
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.
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.

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ITEM 11. EXECUTIVE COMPENSATION
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,
$250,000
None
None
None
None
None
None
CEO/President
$250,000
None
None
None
None
None
None
Dr. Jose Vargas Lugo; EVP.,
$75,507
None
None
None
None
None
None
President of México Operation
$90,000
None
None
None
None
None
None
Eduardo Luna
$27,778
None
None
None
None
None
None
Sr. Advisor to
President of Mineras de DynaResource
Rene L.F. Mladosich;
$101,890
None
None
None
None
None
None
GM of San Jose de Gracía Project
$40,000
None
None
None
None
None
None
Pedro Ignacio Teran Cruz,
$52,073
None
None
None
None
None
None
Dir. of Exp. and Dev.
$120,000
None
None
None
None
None
None
Bradford J. Saulter
$90,000
None
None
None
None
None
None
VP., Investor Relations
$90,000
None
None
None
None
None
None
David Orta
$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.
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

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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
PREFERRED SHARES (SERIES A)
Preferred Series
Beneficial Owner
Address
Preferred Shares
Percent Ownership
Series “A”
K.W. (“K.D.”)
Diepholz, CEO
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.
Post Oak Place
Westlake, Texas 76262
1,734,992
100.0%

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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.