DYNARESOURCE INC - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

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

For the fiscal year ended: December 31, 2020

OR

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

 

From the transition period ___________ to ____________.

 

Commission File Number: 000-30371

 

DYNARESOURCE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-1589426

 

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

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

(Address of principal executive offices)

 

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

 

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

None

 

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

Common Stock; $0.01 Par Value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

 

Yes [ ] No [X]

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (p. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes [X] No [ ]

 

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

 

[X]

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer ☐	☐ (Do not check if a sm	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

 

Yes [ ] No [X]

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act):

 

Yes [ ] No [X]

 

The aggregate market value of the voting and non-voting common equity, par value $0.01 per share, held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed fiscal year end, December 31, 2020, was $9,588,482 based on the closing price of $0.78 per share as reported on the OTCQB.  For purposes of this computation, all officers, directors, subsidiaries, and 10% beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.

 

There were 17,722,825 shares outstanding of each of the registrant’s classes of common stock (only 1 class) as of the latest practicable date (March 15, 2021).

 

DOCUMENTS INCORPORATED BY REFERENCE

Listed below are documents incorporated herein by reference.

None.

 

 

 

TABLE OF CONTENTS

 

PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	6
ITEM 1B.	UNRESOLVED STAFF COMMENTS	6
ITEM 2.	PROPERTIES	6
ITEM 3.	LEGAL PROCEEDINGS	10
ITEM 4.	MINE SAFETY DISCLOSURES	12
	PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	13
ITEM 6.	SELECTED FINANCIAL DATA	13
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	13
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	19
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	49
ITEM 9A.	CONTROLS AND PROCEDURES	49
ITEM 9B.	OTHER INFORMATION	50
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	51
ITEM 11.	EXECUTIVE COMPENSATION	55
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	57
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	58
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	58
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	59
ITEM 16.	FORM 10K SUMMARY	59
	SIGNATURES	60
EXHIBIT INDEX
Exhibit 31.1	CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2	CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT, AS ENACTED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1	CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER, PURSUANT TO 18 UNITED STATES CODE SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings “Risk Factors” and “Management Discussion and Analysis and Plan of Operation.”

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak to the date of this annual report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that forward-looking statements will prove to be correct.

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES

 

The Company is an “OTC Reporting Issuer” as that term is defined in BC Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter Markets promulgated by the British Columbia Securities Commission. In Canada, an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of the United States Securities and Exchange Commission (the “SEC”) applicable to registration statements and reports filed by United States companies pursuant to the Securities Act or the Exchange Act. As such, certain disclosures of mineralization under Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC and not subject to Canadian securities legislation.

 

While these terms are recognized and required by Canadian securities legislation (under National Instrument 43-101 (“NI 43-101”), entitled Standards of Disclosure for Mineral Projects), the SEC does not recognize these terms. Investors in the United States are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted to reserves. In addition, inferred mineral resources have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a “preliminary economic assessment” as that term is defined in NI 43-101. U.S. investors are cautioned not to assume that any part or all of any reported measured, indicated, or inferred mineral resource estimates referred to in the NI 43-101 Technical Report and Mineral Resource Estimate (compiled for DynaResource de México SA de CV) are economically or legally mineable.

 

Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves have not “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the mineral resource estimate compiled for DynaResource de México SA de CV, under the NI 43-101 Mineral Resource Estimate filed by the Company on SEDAR, are not disclosed in this Form 10-K. SEDAR is Canada’s System for Electronic Document Analysis and Retrieval, the mandatory document filing and retrieval system for Canadian public companies. There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.

 

 

PART I

 

ITEM 1.         BUSINESS

 

History and Organization

 

The Company is a minerals investment, management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary in México, with specific focus on precious and base metals in México. The Company was originally incorporated in the State of California on September 28, 1937, under the name West Coast Mines, Inc. In November 1998, the Company re-domiciled from California to Delaware and changed its name to DynaResource, Inc. (“DynaUSA”).

 

We currently own 80% of the outstanding shares of DynaMéxico, and DynaMéxico currently holds 20% of the outstanding shares of DynaMéxico. DynaMéxico owns 100% of the mining concessions, equipment, camp and related facilities which comprise the San Jose de Gracía Property (“SJG”), in northern Sinaloa State, México. We also own 100% of Mineras de DynaResource S.A. de C.V. (“DynaMineras”), the exclusive operator of the San José de Gracía Project, under contract with DynaMéxico. DynaMineras currently conducts test mining and pilot milling operations, and other exploration activities in México. The Company also has another wholly owned subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”). DynaOperaciones entered into a personnel management agreement with DynaMineras and, under the terms of that agreement, DynaOperaciones is the exclusive management company for registered employees.

 

Segment Information

 

Our only current operating segment is DynaMéxico.

 

Products

 

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

 

During 2020, we reported the delivery and sale of 5,828 net Oz gold contained in concentrates. All gold-silver concentrate originated from the San Jose de Gracía Property in México.

 

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

 

Gold and Silver Pilot Processing Methods

 

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

 

Gold and Silver Reserves / No Known Reserves

 

The Company currently has no mineral “reserves” as defined by SEC Industry Guide 7 promulgated by the SEC.

 

 

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.

 

ITEM 1A.          RISK FACTORS

 

Not applicable for smaller reporting companies.

 

ITEM 1B.         UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.         PROPERTIES

 

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

 

We classify our mineral property as an "Exploration Property". We do not suggest that we have proven or probable reserves at our property as defined by the SEC. Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the mineral resource estimate compiled for DynaMéxico, under and filed by the Company on SEDAR, are not disclosed in this Form 10K. There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.

 

 

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	183815	22/11/1988	21/11/2038	17.4234	111.27
AMPL. SANTA ROSA	163592	30/10/1978	29/10/2028	25.0000	111.27
BUENA VISTA	211087	31/03/2000	30/03/2050	17.9829	63.22
EL CASTILLO	214519	02/10/2001	01/10/2051	100.0000	31.62
EL REAL	212571	07/11/2000	07/11/2052	2038.0000	31.62
EL REAL 2	216301	30/04/2002	29/04/2052	280.1555	31.62
FINISTERRE FRACC. A	219001	28/01/2003	27/01/2053	18.7856	31.62
FINISTERRE FRACC. B	219002	28/01/2003	27/01/2053	174.2004	31.62
GUADALUPE	189470	05/12/1990	04/12/2040	7.0000	111.27
LA GRACIA I	215958	02/04/2002	01/04/2052	300.0000	31.62
LA GRACIA II	215959	02/04/2002	01/04/2052	230.0000	31.62
LA LIBERTAD	172433	15/12/1983	14/12/2033	97.0000	111.27
LA NUEVA AURORA	215119	08/02/2002	07/02/2052	89.3021	31.62
LA NUEVA ESPERANZA	226289	06/12/2005	05/12/2055	40.0000	7.6
LA UNION	176214	26/08/1985	25/08/2035	4.1098	111.27
LOS TRES AMIGOS	172216	27/10/1983	26/10/2033	23.0000	111.27
MINA GRANDE	163578	10/10/1978	09/10/2028	6.6588	111.27
NUEVO ROSARIO	184999	13/12/1989	12/12/2039	32.8781	111.27
PIEDRAS DE LUMBRE 2	215556	05/03/2002	04/03/2052	34.8493	31.62
PIEDRAS DE LUMBRE 3	218992	28/01/2003	27/01/2053	4.3098	31.62
PIEDRAS DE LUMBRE No.4	212349	29/09/2000	28/09/2050	0.2034	63.22
PIEDRAS DE LUMBRE UNO	215555	05/03/2002	04/03/2052	40.2754	31.62
SAN ANDRES	212143	31/08/2000	30/08/2050	385.0990	63.22
SAN JOSÉ	208537	24/11/1998	23/11/2048	27.0000	111.27
SAN MIGUEL (1)	183504	26/10/1988	25/10/2038	7.0000	111.27
SAN NICOLAS	163913	14/12/1978	13/12/2028	55.5490	111.27
SAN SEBASTIAN	184473	08/11/1989	07/11/2039	40.0000	111.27
SANTA MARIA	218769	17/01/2003	16/01/2053	4.2030	31.62
SANTA ROSA	170557	13/05/1982	12/05/2032	31.4887	111.27
SANTO TOMAS	187348	13/08/1986	12/08/2036	312.0000	111.27
TRES AMIGOS 2	212142	31/08/2000	30/08/2050	54.4672	63.22
FINISTERRE 4	231166	18/01/2008	17/01/2058	2142.1302	5.08
FRANCISCO ARTURO	230494	06/09/2007	27/03/2057	3,279.56
TOTAL				9,920.00

 

 

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.

 

 

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

 

 

 

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.

 

 

 

 

DynaUSA and DynaMéxico filed Motion to Vacate Arbitration Ruling

 

On November 17, 2016, DynaUSA and DynaMéxico filed a Motion to Vacate the Arbitration Ruling in United States District Court, District of Colorado.

 

Recommendation to Vacate Arbitration Ruling issued by United States Magistrate Judge

 

On February 13, 2018 a Recommendation to Vacate the Arbitration Ruling was issued by a United States Magistrate Judge of the United States District Court, District of Colorado.

 

On May 9, 2019, the United States district court for the district of Colorado confirmed the August 2016 Arbitration award against DynaResource, Inc. and DynaResource de México, S.A. de C.V.  The district court’s decision overruled the recommendation previously issued by the magistrate judge to sustain the DynaResource entities’ motion to vacate the arbitration award. Each of DynaResource, Inc. and DynaResource de México, S.A. de C.V. continues to exercise all its rights, as appropriate, including an appeal.

 

On March 25, 2020, the United States District Court for the District of Colorado denied the motion by DynaUSA and DynaMéxico to alter or amend its judgment (thereby confirming the August 2016 arbitration award), and denied DynaUSA and DynaMéxico’s motions for stay and judgment pending appeal and to waive or reduce supersedes bond.

 

On April 10, 2020, DynaUSA and DynaMéxico appealed the March 25, 2020 ruling to the Tenth Circuit Court of Appeals and in accordance with the requirements of the appeal, posted a cash bond of $1,111,111 which is being held with the court.

 

Litigation(s) in México – Company as Plaintiff

 

The Company, and DynaMéxico have filed several legal actions in México against Goldgroup Mining Inc. and Goldgroup Resources Inc., and certain individuals retained as agents of Goldgroup Mining Inc., or Goldgroup Resources. The Company and DynaMéxico are plaintiffs in the actions filed in México and the outcomes are pending.

 

The Company believes that no material adverse change will occur as a result of the actions taken, and the Company further believes that there is little to no potential for the assessment of a material monetary judgment against the Company for legal actions it has filed in México. For purposes of confidentiality, the Company does not provide more specific disclosure in this Form 10-K.

 

ITEM 4.        MINE SAFETY DISCLOSURES

 

As the Company has no mines located in the United States or any of its territories, the disclosure required by this Item is not applicable.

 

 

PART II

 

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

 

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

 

Year ended December 31, 2020	Low	High
First Quarter	0.38	0.78
Second Quarter	0.47	0.58
Third Quarter	0.53	1.10
Fourth Quarter	0.70	1.00

Year ended December 31, 2019	Low	High
First Quarter	0.86	1.10
Second Quarter	0.74	1.22
Third Quarter	0.37	1.00
Fourth Quarter	0.26	0.60

 

As of February 29, 2021, there were outstanding 17,722,825 shares of our common stock, which were held by approximately 460 shareholders of record. This figure does not include shareholders that hold their shares in street name or with a broker.

 

Dividend Policy

 

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

 

During the fiscal years ended December 31, 2020 and 2019, no securities of the Company were authorized for issuance under equity compensation plans.

 

ITEM 6.         SELECTED FINANCIAL DATA

 

Not applicable for smaller reporting companies.

 

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

 

 

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.)
2018	52,038	9.82	86.11%	14,147	13,418
2019	66,031	5.81	86.86%	10,646	9,713
2020	44,218	5.65	87.31%	7,001	5,828

 

DynaMineras continued to increase its test underground mining activity and pilot milling operations in 2020; and projects the increased output from to 300 tons per 24-hour operating /day from the mine and mill during 2021.

 

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

 

Test pilot operations in 2019 yielded 66,031 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 10,646 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 9,713 Oz Au. The Company reports net revenue of $11,612,722 net of buyer’s price discount and refining and treatment costs. In February 2020 the Company transitioned mining activity from San Pablo to Tres Amigos in order to achieve the opening of the Tres Amigos Mine. The Company determined it was best to preserve its remaining cash resources and redirect mining efforts to the opening of the Tres Amigos mine and the upgrade of the Company’s mill with a goal of achieving 300 tons pilot mill production per 24-hour operating day. During this transition period, limited pilot milling operations were achieved. The Company resumed pilot milling operations in July 2020. Therefore, overall revenue and expenses related to mining and milling operations were significantly lower for the first six months of 2020 than the same period in 2019. Likewise, mine expansion expenses are significantly higher.

 

DynaMineras expects to continue its test underground mining activity and pilot milling operations in 2021; and projects the output of 300 tons per 24-hour operating day from the mine and mill in 2021.

 

REVENUE. Revenues for the years ended December 31, 2020 and 2019 were $9,048,831 and $11,612,722, respectively. The Company continued the test mining and pilot mill processing at San Jose de Gracía, including the production and sale of precious metals concentrates. The YTD decrease is a result on the company’s transition of test mining operations from San Pablo to Tres Amigos from March to June 2020. Revenue in the second half of the year increased over 2019 due to the increase in processing capacity from Mill expansion, the higher grade from the opening of the Tres Amigos mine and the increase in gold prices.

 

PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the years ended December 31, 2020 and 2019 were $1,166,135 and $1,666,521, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. This represents a decrease in the cost per ton of milling ore. The YTD decrease was due to the Company’s ceasing mill operations from March to June to complete the facility upgrade.

 

 

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.

 

Not applicable.

 

Incorporated into and forming an integral part of this Form 10-K are the audited financial statements for the Company for the years ended December 31, 2020 and 2019. The financial statements as of December 31, 2020 of the Company included in this Form 10-K have been audited by Armanino LLP, an independent registered public accounting firm, as set forth in their report. The financial Statements as of December 31, 2019 have been audited by Whitley Penn LLP, an independent registered public accounting firm, as set forth in their report.

 

Financial Statements included in the Form 10-K:

 

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Years Ended December 31, 2020 and 2019

Consolidated Statement of Changes in Stockholders’ (Deficit) for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to the Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019

 

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, 2020

 

  

DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2020 and 2019

 

	2020	2019
ASSETS
Current assets
Cash and cash equivalents	$1,504,016	$354,572
Accounts receivable	840,743	1,103,205
Inventories	603,967	523,089
Foreign tax receivable	2,179,914	1,297,387
Appeal bond	1,111,111	—
Other current assets	578,661	336,969
Total current assets	6,818,412	3,615,222
Property and Equipment (net of accumulated
depreciation of $113,176 and $109,927)	5,978	9,227
Operating lease	735,220	812,861
Mining concessions	4,132,678	4,132,678
Investment in affiliate (at cost)	70,000	70,000
Other assets	95,380	99,223
TOTAL ASSETS	$11,857,668	$8,739,211
LIBILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$2,274,011	$2,059,429
Accrued expenses	3,385,093	1,775,404
Customer advances	2,500,000	1,000,000
Due to non-controlling interest	—	231,500
Derivative liabilities	2,371,560	86,104
Current portion of convertible notes payable	—	112,500
Current portion of operating lease payable	82,733	69,146
Current portion of long-term debt	1,984,007	1,637,509
Total current liabilities	12,597,404	6,971,592
Convertible notes payable - Series D (net of amortized discount of $755,214 and $0)	3,264,786	—
Convertible notes payable - Series I & II, less current portion	543,279	765,879
Operating lease payable, less current portion	685,951	768,684
Long term debt, less current portion	97,428	634,922
TOTAL LIABILITES	17,188,848	9,141,077
Series C Senior Convertible Preferred Stock, $0.0001 par value, 1,734,992 and 1,733,221 shares Authorized, issued and outstanding	4,337,480	4,333,053
COMMITMENTS AND CONTINGENCIES	—	—
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, Series A, $0.0001 par value, 1,000 shares
authorized, issued and outstanding	1	1
Common Stock, $0.01 par value, 40,000,000 and 25,000,000 shares authorized
17,722,825 and 17,722,825 issued and outstanding	177,228	177,228
Preferred rights	40,000	40,000
Additional paid-in-capital	50,407,333	56,622,159
Treasury stock, 516,480 and 778,980 shares	(1,474,486)	(2,223,891)
Accumulated other comprehensive income	438,092	325,841
Accumulated deficit	(59,256,828)	(53,952,594)
Total DynaResource Inc. Stockholders' Equity (Deficit)	(9,668,660)	988,744
Non-Controlling Interest	—	(5,723,663)
TOTAL STOCKHOLDERS’ DEFICIT	(9,668,660)	(4,734,919)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$11,857,668	$8,739,211

 

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

 

 

         DYNARESOURCE, INC.

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

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

	2020	2019
REVENUE	$9,048,831	$11,612,722
COSTS AND EXPENSES OF MINING OPERATION
Production cost applicable to sales	1,166,135	1,666,521
Mine production costs	2,370,972	3,557,850
Mine exploration costs	1,610,747	1,486,037
Mine expansion costs	909,190	689,405
Camp, warehouse and facilities	2,036,610	2,547,910
Transportation	528,423	816,504
Property holding costs	137,377	446,806
General and administrative	2,966,073	2,053,083
Depreciation and amortization	3,249	3,255
TOTAL OPERATING EXPENSES	11,728,776	13,267,371
NET OPERATING LOSS	(2,679,945)	(1,654,649)
OTHER INCOME (EXPENSE)
Foreign currency gains (loss)	(361,127)	397,161
Interest expense	(1,133,360)	(492,907)
Derivatives mark-to-market gain (loss)	(1,186,964)	888,579
Other income (expense)	(4,427)	970
TOTAL OTHER INCOME	(2,685,878)	793,803
NET LOSS BEFORE TAXES	(5,365,823)	(860,846)
PROVISION FOR INCOME TAXES	—	—
NET LOSS	$(5,365,823)	$(860,846)
DEEMED DIVIDEND FOR SERIES C PREFERRED	(173,499)	(173,320)
LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST	61,589	62,511
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$(5,477,733)	$(971,655)
EARNINGS PER SHARE ATTRIBUTABLE TO THE
EQUITY HOLDERS OF DYNARESOURCE, INC.
Basic and Diluted loss per common share	$(0.31)	$(0.05)
Weighted average shares outstanding - Basic	17,722,825	17,722,825
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss)	100,582	(970,981)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	100,582	(970,981)
TOTAL COMPREHENSIVE INCOME (LOSS)	$(5,265,241)	$(1,831,827)
ATTRIBUTABLE TO:
EQUITY HOLDERS OF DYNARESOURCE, INC.	$(5,191,983)	$(1,719,692)
NON-CONTROLLING INTEREST	$(73,258)	$(112,135)

 

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

 

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2020 AND 2019

  

	Preferred A		Common
	Shares	Amount	Shares	Amount	Preferred Rights	Preferred Amount	Paid in Capital	Treasury Shares	Treasury Amount	Other Comp Income	Accumulated Deficit	Non Controlling Interests	Totals
Balance, December 31, 2018	1,000	$1	17,722,825	$177,228	0	$40,000	$56,622,159	$778,980	$(2,223,891)	$1,247,198	$(53,154,259)	$(5,611,528)	$(2,903,092)
Other Comprehensive Income (Loss)										(921,357)		(49,624)	(970,981)
Net Income (Loss)											(798,335)	(62,511)	(860,846)
Balance, December 31, 2019	1,000	$1	17,722,825	$177,228	0	$40,000	$56,622,159	$778,980	$(2,223,891)	$325,841	$(53,952,594)	$(5,723,663)	$(4,734,919)
Treasury Stock Issued for Services							(649,405)	(262,500)	749,405				100,000
Other Comprehensive Income										112,251		(11,669)	100,582
Net Income (Loss)											(5,304,234)	(61,589)	(5,365,823)
Elimination of Non-Controlling Interest							(5,565,421)					5,796,921	231,500
Balance, December 31, 2019	1,000	$1	17,722,825	$177,228	0	$40,000	$50,407,333	$516,480	$(1,474,486)	$438,092	$(59,256,828)	$0	$(9,668,660)

 

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

 

 

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

	2020	2019
CASH FLOWS FROM OPERATING ACTIVITES:
Net Loss	$(5,365,823)	$(860,846)
Adjustments to reconcile net loss to cash used in operating activities
Change in derivatives	1,186,964	(888,579)
Depreciation and amortization	3,249	3,255
Amortization of loan discount	343,279	—
Stock issued for services	100,000	—
Non-dilution stock issuance	4,427	—
Change in operating assets and liabilities
Accounts receivable	262,462	(28,481)
Inventories	(80,878)	1,065,689
Foreign tax receivable	(882,527)	(451,823)
Appeal bond	(1,111,111)	—
Other assets	(237,849)	33,153
Operating lease assets	77,641	(812,861)
Accounts payable	214,582	990,056
Accrued expenses	1,633,622	(458,753)
Customer advances	1,500,000	(750,000)
Lease liabilities	(69,146)	837,830
CASH FLOWS USED IN OPERATING ACTIVITIES	(2,421,108)	(1,321,360)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing	4,020,000	—
Payments of convertible notes	(359,033)	—
Payments of long-term debt	(66,644)	(111,977)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,594,323	(111,977)
Effects of foreign currency exchange	(23,771)	(897,667)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,149,444	(2,331,004)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	354,572	2,685,576
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$1,504,016	$354,572
SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$206,642	$196,327
Cash paid for income taxes	$—	$—
NON-CASH TRANSACTION
Conversion of accounts payable to long-term debt	$—	$507,859
Accrued interest rolled into notes payable	$23,933	$40,254

 

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

 

 

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, 2020	Dec 31, 2019
Current exchange rate	Pesos	19.91	18.86
Weighted average exchange rate for the period ended	Pesos	21.47	19.25

 

The Company recorded currency transaction gains (losses) of $(361,127) for the year ended December 31, 2020 and $397,161 for the year ended December 31, 2019.

 

Income Taxes

 

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

 

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

 

Comprehensive Income (Loss)

 

ASC 220 “Comprehensive Income” establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements.    The Company’s comprehensive income consists of net income and other comprehensive income (loss), consisting of unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations. 

 

 

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
	2020	2019
Net loss attributable to common shareholders	$(5,477,733)	$(971,655)
Shares:
Weighted average number of common shares outstanding, Basic	17,722,825	17,722,825
Weighted average number of common shares outstanding, Diluted	17,722,825	17,722,825
Basic loss per share	$(0.31)	$(0.05)
Diluted loss per share	$(0.31)	$(0.05)