10-Q 1 dynr-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period

Commission File Number: 000-30371

 

img244445909_0.jpg

DYNARESOURCE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware

94-1589426

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

222 W. Las Colinas Blvd., Suite 1910 North Tower

Irving, TX

75039

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(972) 869-9400

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

None

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 20, 2024, there were 23,371,708 shares of Common Stock of the registrant outstanding.

 

 

 


TABLE OF CONTENTS

PART I.

FINANCIAL STATEMENTS

 

 

 

ITEM 1.

Unaudited Condensed Interim Consolidated Financial Statements

3

 

 

 

 

Notes to Unaudited Condensed Interim Consolidated Financial Statements

8

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

ITEM 4.

Controls and Procedures

28

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

29

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

ITEM 3.

Defaults Upon Senior Securities

29

 

 

 

ITEM 4.

Mine Safety Disclosures

29

 

 

 

ITEM 5.

Other Information

29

 

 

 

ITEM 6.

Exhibits

30

 

CERTIFICATIONS

 

EXHIBIT 31.1

 

CHIEF EXECUTIVE OFFICER CERTIFICATION

 

 

 

EXHIBIT 31.2

 

CHIEF FINANCIAL OFFICER CERTIFICATION

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

 

2


DYNARESOURCE, INC.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

MARCH 31, 2024 AND DECEMBER 31, 2023

 

 

2024

 

 

2023

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

    Cash

 

$

1,972,389

 

 

$

5,603,713

 

    Accounts receivable

 

 

1,146,660

 

 

 

880,473

 

    Inventories

 

 

2,083,801

 

 

 

2,089,194

 

    Foreign tax receivable

 

 

6,017,531

 

 

 

4,434,958

 

    Other current assets

 

 

1,181,986

 

 

 

1,137,162

 

Total current assets

 

 

12,402,367

 

 

 

14,145,500

 

Property and equipment (net of accumulated

 

 

 

 

 

 

      depreciation and amortization of $19,582 and $12,239)

 

 

95,691

 

 

 

103,034

 

Right-of-use assets, net

 

 

815,630

 

 

 

848,822

 

Mining concessions

 

 

4,132,678

 

 

 

4,132,678

 

Deferred tax asset, net

 

 

4,264,115

 

 

 

4,264,115

 

Foreign tax receivable

 

 

12,356,116

 

 

 

11,768,613

 

Other assets

 

 

177,733

 

 

 

175,588

 

TOTAL ASSETS

 

$

34,244,330

 

 

$

35,438,350

 

 

 

 

 

 

 

 

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

5,054,071

 

 

$

2,768,634

 

Accrued expenses

 

 

9,005,788

 

 

 

7,727,621

 

Derivative liabilities

 

 

1,717,200

 

 

 

1,797,341

 

Note payable

 

 

9,262,500

 

 

 

9,750,000

 

     Current portion of operating lease payable

 

 

113,462

 

 

 

104,117

 

     Installment notes payable

 

 

2,315,382

 

 

 

2,259,432

 

Total current liabilities

 

 

27,468,403

 

 

 

24,407,145

 

Operating lease payable, less current portion

 

 

771,051

 

 

 

825,762

 

Deferred tax liability

 

 

334,236

 

 

 

334,236

 

Asset retirement obligation

 

 

203,033

 

 

 

198,468

 

TOTAL LIABILITIES

 

 

28,776,723

 

 

 

25,765,611

 

TEMPORARY EQUITY

 

 

 

 

 

 

Series C Senior Convertible Preferred Stock, $0.0001 par value, 1,734,992 shares authorized, issued and outstanding

 

 

4,337,480

 

 

 

4,337,480

 

Series D Senior Convertible Preferred Stock, $0.0001 par value, 3,000,000 shares authorized, 760,000 shares issued and outstanding

 

 

1,520,000

 

 

 

1,520,000

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

Common Stock, $0.01 par value, 40,000,000 shares authorized 23,371,708 and 23,371,708 issued and outstanding

 

 

233,717

 

 

 

233,717

 

Preferred rights

 

 

40,000

 

 

 

40,000

 

Additional paid-in-capital

 

 

61,509,032

 

 

 

61,509,032

 

Treasury stock, 37,180 shares each period, at cost

 

 

(95,023

)

 

 

(95,023

)

Accumulated other comprehensive income

 

 

900,939

 

 

 

697,700

 

Accumulated deficit

 

 

(62,978,538

)

 

 

(58,570,167

)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

(389,873

)

 

 

3,815,259

 

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

34,244,330

 

 

$

35,438,350

 

 

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

 

 

 

3


DYNARESOURCE, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(Unaudited)

 

 

2024

 

 

2023

 

REVENUE

 

$

9,428,856

 

 

 

11,953,079

 

COSTS AND EXPENSES OF MINING OPERATION

 

 

 

 

 

 

Production cost applicable to sales

 

 

1,895,757

 

 

 

1,711,262

 

Mine production costs

 

 

3,755,357

 

 

 

2,529,437

 

Mine exploration costs

 

 

2,459,217

 

 

 

2,216,949

 

Facilities expansion costs

 

 

787,809

 

 

 

285,078

 

Exploration drilling

 

 

920,485

 

 

 

497,400

 

Camp, warehouse and facilities

 

 

1,445,225

 

 

 

1,082,179

 

Transportation costs

 

 

995,867

 

 

 

746,063

 

Property holding costs

 

 

44,047

 

 

 

39,521

 

General and administrative

 

 

1,202,041

 

 

 

2,965,593

 

Accretion expense

 

 

4,565

 

 

 

 

Depreciation and amortization

 

 

7,343

 

 

 

 

TOTAL OPERATING EXPENSES

 

 

13,517,713

 

 

 

12,073,482

 

NET OPERATING LOSS

 

 

(4,088,857

)

 

 

(120,403

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

Foreign currency gains

 

 

28,077

 

 

 

18,254

 

Interest expense

 

 

(427,888

)

 

 

(116,308

)

Derivative mark-to-market gain

 

 

80,141

 

 

 

169,434

 

Other income

 

 

156

 

 

 

3,705

 

TOTAL OTHER INCOME (EXPENSE)

 

 

(319,514

)

 

 

75,085

 

 

 

 

 

 

 

 

NET LOSS BEFORE TAXES

 

 

(4,408,371

)

 

 

(45,318

)

INCOME TAXES BENEFIT

 

 

 

 

 

77,023

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(4,408,371

)

 

$

31,705

 

DEEMED DIVIDEND FOR SERIES C & D PREFERRED

 

 

(58,575

)

 

 

(58,575

)

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$

(4,466,946

)

 

$

(26,870

)

 

 

 

 

 

 

 

LOSS PER SHARE ATTRIBUTABLE TO THE EQUITY HOLDERS OF DYNARESOURCE, INC.

 

 

 

 

 

 

Basic loss per common share

 

$

(0.19

)

 

$

(0.00

)

Weighted average shares outstanding – Basic

 

 

23,371,708

 

 

 

22,246,654

 

Diluted loss per common share

 

$

(0.19

)

 

$

(0.00

)

Weighted average shares outstanding – Diluted

 

 

23,371,708

 

 

 

22,246,654

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

Unrealized foreign currency translation gain

 

 

203,239

 

 

 

91,241

 

TOTAL OTHER COMPREHENSIVE INCOME

 

 

203,239

 

 

 

91,241

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$

(4,205,132

)

 

$

122,946

 

 

 

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

 

4


DYNARESOURCE, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(Unaudited)

 

 

Preferred A

 

Common

 

Preferred

 

Preferred

 

Paid In

 

Treasury

 

Treasury

 

Other Comp

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Rights

 

Amount

 

Capital

 

Shares

 

Amount

 

Income

 

Deficit

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2023

 

1,000

 

$

1

 

 

22,246,654

 

$

222,467

 

 

1

 

$

40,000

 

$

56,889,031

 

 

12,180

 

$

(34,773

)

$

112,078

 

$

(44,036,663

)

$

13,192,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91,241

 

 

 

 

91,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,705

 

 

31,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2023

 

1,000

 

$

1

 

 

22,246,654

 

$

222,467

 

 

1

 

$

40,000

 

$

56,889,031

 

 

12,180

 

$

(34,773

)

$

203,319

 

$

(44,004,958

)

$

13,315,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2024

 

 

$

-

 

 

23,731,708

 

$

233,717

 

 

1

 

$

40,000

 

$

61,509,032

 

 

37,180

 

$

(95,023

)

$

697,700

 

$

(58,570,167

)

$

3,815,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

203,239

 

 

 

 

203,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,408,371

)

 

(4,408,371

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2024

 

-

 

$

-

 

 

23,731,708

 

$

233,717

 

 

1

 

$

40,000

 

$

61,509,032

 

 

37,180

 

$

(95,023

)

$

900,939

 

$

(62,978,538

)

$

(389,873

)

 

 

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

5


 

6


DYNARESOURCE, INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(Unaudited)

 

 

 

2024

 

 

2023

 

CASH FLOWS USED IN OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

(4,408,371

)

 

$

31,705

 

Adjustments to reconcile net income (loss) to cash used in operating activities

 

 

 

 

 

 

Derivatives mark-to-market gain

 

 

(80,141

)

 

 

(169,434

)

Accretion expense

 

 

4,565

 

 

 

 

Depreciation and amortization

 

 

7,343

 

 

 

 

Right-of-use asset amortization

 

 

33,192

 

 

 

19,358

 

Deferred tax asset

 

 

 

 

 

(77,023

)

Change in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(266,187

)

 

 

(1,160,955

)

Inventories

 

 

5,393

 

 

 

371,930

 

Foreign tax receivable

 

 

(2,170,076

)

 

 

(1,544,980

)

Other assets

 

 

(46,969

)

 

 

(261,771

)

Accounts payable

 

 

2,285,437

 

 

 

112,016

 

Accrued expenses

 

 

1,278,167

 

 

 

2,534,906

 

Customer advances

 

 

 

 

 

(150,000

)

CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(3,357,647

)

 

 

(294,248

)

 

 

 

 

 

 

 

CASH FLOWS USED IN FINANCING ACTIVITIES

 

 

 

 

 

 

Payments of note payable

 

 

(487,500

)

 

 

 

Operating lease payments

 

 

(45,366

)

 

 

(28,868

)

CASH FLOWS USED IN FINANCING ACTIVITIES

 

 

(532,866

)

 

 

(28,868

)

 

 

 

 

 

 

 

Effects of foreign currency

 

 

259,189

 

 

 

250,186

 

NET DECREASE IN CASH

 

 

(3,631,324

)

 

 

(72,930

)

CASH AT BEGINNING OF PERIOD

 

 

5,603,713

 

 

 

19,177,138

 

CASH AT END OF PERIOD

 

$

1,972,389

 

 

$

19,104,208

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

Cash paid for interest

 

$

214,794

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

 

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

7


DYNARESOURCE, INC.

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

 

 

NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Activities, History and Organization

DynaResource, Inc. (the “Company” or “DynaResource”) was organized September 28, 1937, as a California corporation under the name of West Coast Mines, Inc. In 1998, the Company re-domiciled to Delaware and changed its name to DynaResource, Inc. The Company is in the business of acquiring, investing in, and developing precious metal properties, and the production of precious metals.

The Company has one wholly owned subsidiary in the United States, DynaMéxico US Holding, LLC and three wholly owned subsidiaries in México, DynaResource de México, S.A. de C.V. (“DynaMéxico”), Mineras de DynaResources S.A. de C.V. (“DynaMineras”) and DynaResource Operaciones de San Jose De Gracia S.A. de C.V. (“DynaOperaciones”). Although the Company considers the three Mexican subsidiaries to be wholly owned, each has issued one qualifying share to a second shareholder as required under Mexican law, with such qualifying shares held by either US Holding or DynaResource’s Chief Executive Officer. DynaMéxico owns a portfolio of mining concessions that currently comprises its 100% interest in the San José de Gracia Project (“SJG”) in northern Sinaloa State, México.

Principles of Consolidation

The unaudited condensed interim consolidated financial statements include the accounts of DynaResource, Inc., as well as the Company’s wholly owned subsidiaries DynaMéxico, DynaMineras and DynaOperaciones. All significant intercompany transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated.

Significant Accounting Policies

The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenues and expenses. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these unaudited, condensed, interim consolidated financial statements.

The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that: (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods presented.

Basis of Presentation

 

These unaudited condensed consolidated interim financial statements reflect the accounts of the Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for all periods presented. Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with GAAP have been omitted or condensed. These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying value in the normal course of business for the foreseeable future. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

Use of Estimates

In order to prepare unaudited condensed interim consolidated financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgments and assumptions that affect the amounts reported in the unaudited condensed interim consolidated financial statements and determines whether contingent assets and liabilities, if any, are

8


disclosed in the unaudited condensed interim consolidated financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based.

Exploration Stage Issuer (No Reserves Disclosed)

The definitions of Measured Mineral Resource, Mineral Reserve and Mineral Resource are set forth in SEC Regulation S-K, Item 1300 (“Reg. S-K, Item 1300”).

Measured mineral resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured mineral resource has a higher level of confidence than the level of confidence of either an indicated mineral resource or an inferred mineral resource, a measured mineral resource may be converted to a proven mineral reserve or to a probable mineral reserve.

Mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.

Mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.

As of March 31, 2024, the Company continues to meet the definition of an exploration stage issuer which is defined as an issuer that has no material property with established proven and probable mineral reserves as defined by Regulation S-K, Item 1300.

Segment Information

The Company operates as one segment: test mining and milling gold-silver concentrate for sale from its location in Mexico.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of March 31, 2024, the Company has $1,625,819 in deposits in U.S. banks in excess of the FDIC limit. The Company does not have any cash equivalents as of March 31, 2024 and December 31, 2023. The Company reduces this risk by maintaining such deposits at high quality financial institutions that management believes are creditworthy.

Accounts Receivable and Allowances for Doubtful Accounts

 

Accounts receivable consists of trade receivables which are recorded net of allowance for doubtful accounts for the sale of metal concentrate, as well as net of an embedded derivative based on mark-to-market adjustments for outstanding provisional invoices based on forward metal prices. The allowance for accounts receivable is recorded when receivables are considered to be uncollectible. As of March 31, 2024 and December 31, 2023 no allowance has been made, as management believes all accounts receivable are fully collectable.

Mined Tonnage Inventory

Mined tonnage inventory represents ore that has been mined and is available for further processing. The stockpiles of mined tonnage are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on the relative values of material stockpiled and processed using current mining costs incurred, including applicable overhead. Material is removed at each stockpile’s average cost per tonne. Stockpiles are carried at the lower of average cost of net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metal prices, less the estimated cost to complete production and bring the product to sale.

 

 

9


Concentrate Inventory

Concentrate inventory includes metal concentrates located either at the Company’s facilities or in transit to its customer’s port. Concentrate inventories are carried at the lower of cost of production or net realizable value based on current metals prices.

Foreign Tax Receivable

Foreign tax receivable is comprised of recoverable value-added taxes (“IVA”) charged by the Mexican government on goods and services rendered. Under certain circumstances, these taxes are recoverable by filing a tax return. Amounts paid for IVA are tracked and held as receivables until the funds are received by the Company.

Property and Equipment

Substantially all property and equipment at the Company’s mines, including design, engineering, mine construction, and installation of equipment are expensed as incurred, as the Company has not established proven and probable reserves on any of its properties. Only certain types of mining equipment which have alternative uses or significant salvage value, may be capitalized without proven and probable reserves.

Office furniture and equipment are depreciated on a straight-line method over estimated economic lives ranging from 3 to 5 years. Leasehold improvements, which relate to the Company’s corporate office, are being amortized over the term of the lease which is 52 months.

Mine Development Costs

Mine development costs are expensed as incurred and include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines.

When proven and probable reserves (as defined by Reg. S-K, Item 1300) exist, development costs are capitalized. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production would also be capitalized. Costs of start-up activities and costs incurred to maintain current production or to maintain assets are charged to operations as incurred. Costs of abandoned projects are charged to operations upon abandonment. All capitalized costs would be amortized using the units of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves.

Certain costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves. As no proven and probable reserves have been established on any of the Company’s properties, the design, construction and development costs are not capitalized at any of the Company’s properties.

Mining Concessions

The Company’s mining concessions include acquired interests in development and exploration stage properties and are considered tangible assets. The amount capitalized relating to the Company’s mining concessions represents its fair value at the time of acquisition. If it is determined that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to fair value as a charge to operations in the period in which the determination is made. The amounts at which mining concessions and the related costs are recorded do not necessarily reflect present or future values.

The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Mineral properties are monitored for impairment based on factors such as mineral prices, government regulation and taxation, the Company’s continued right to explore the area, exploration reports, assays, technical reports, drill results and its continued plans to fund exploration programs on the property.

For operating mines, recoverability is measured by comparing the undiscounted future net cash flows to the net book value. When the net book value exceeds future net undiscounted cash flows, an impairment loss is measured and recorded based on the excess of the net book value over fair value. Fair value for operating mines is determined using a combined approach, which uses a discounted cash flow model for the existing operations and a market approach for the fair value assessment of exploration land claims. Future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after considering losses during processing and treatment of mineralized material. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset

10


groups. The Company’s estimates of future cash flows are based on numerous assumptions, and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, and silver, commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.

The recoverability of the book value of each property will be assessed annually for indicators of impairment such as adverse changes to any of the following:

estimated recoverable ounces of gold, silver or other precious minerals;
estimated future commodity prices;
estimated expected future operating costs, capital expenditures and reclamation expenditures.

A write-down to fair value will be recorded when the expected future cash flow is less than the net book value of the property, or when events or changes in the property indicate that carrying amounts are not recoverable. This analysis will be completed as needed. As of the date of this filing, no events have occurred that would require the write-down of any assets. As of March 31, 2024 and December 31, 2023, no indications of impairment existed.

Asset Retirement Obligation (“ARO”)

 

The Company records a liability based on the best estimate of costs for site closure and reclamation activities that the Company is legally or contractually required to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering and environmental reports and accreted to full value over time through periodic charges to income.

During 2023, a significant upgrade was made to the milling facility and therefore, an ARO was established as of December 31, 2023 at the estimated costs to decommission the plant and tailings pond at the end of the estimated live of the mines in operation as of December 31, 2023. As the Company is an exploration stage property that does not qualify for asset capitalization, the costs associated with the obligation are charged to operations.

Changes in regulations or laws, any instances of non-compliance with laws or regulations that result in fines, or any unforeseen environmental contamination could result in a material impact to the amounts charged to operations for reclamation and remediation. Significant judgments and estimates are made when estimating the fair value of AROs. Expected cash flows relating to AROs could occur over long periods of time and the assessment of the extent of environmental remediation work is highly subjective. Considering all the factors that go into the determination of an ARO, the fair value of the AROs can materially change over time.

Property Holding Costs

Holding costs to maintain the property on a care and maintenance basis are expensed in the period they are incurred. These costs include security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.

Exploration Costs

Exploration costs, including exploration, development, direct field costs and related administrative costs are expensed in the period incurred.

Leases

The Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company’s leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

Transactions In and Translations of Foreign Currency

The functional currency for the subsidiaries of the Company is the Mexican Peso. As a result, the financial statements of the subsidiaries have been translated from Mexican Pesos into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) the weighted average exchange rate of the reporting period for all income statement accounts. Foreign currency translation gains and losses are reported as a separate component of stockholders’ equity and comprehensive income (loss).

11


 

Foreign currency transactions are translated into the functional currency of the respective currency of the entity or division, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in profit or loss. Non-monetary items that are not re-translated at period end are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value, which are translated using the exchange rates as at the date when fair value was determined. Gains and losses are recorded in the statement of operations and comprehensive income (loss).

The unaudited financial statements of the subsidiaries should not be construed as representations that Mexican Pesos have been, could have been or may in the future be converted into U.S. Dollars at such rates or any other rates.

Relevant exchange rates used in the preparation of the unaudited financial statements for the subsidiaries are as follows for the periods ended March 31, 2024 and December 31, 2023 (Mexican Pesos per one U.S. dollar):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Current Exchange Rate

 

 

16.56

 

 

 

16.97

 

 

Relevant exchange rates used in the preparation of the income statement portion of unaudited financial statements for the subsidiaries are as follows for the periods ended March 31, 2024 and 2023 (Mexican Pesos per one U.S. dollar):

 

 

 

March 31,
2024

 

 

March 31,
2023

 

Weighted Average Exchange Rate for the Three Months Ended

 

 

16.98

 

 

 

18.66

 

 

The Company recorded currency transaction gains of $28,077 and $18,254 for the three months ended March 31, 2024 and 2023, respectively.

Income Taxes

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

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

 

Uncertain Tax Position

The Company is subject to income taxes in the U.S. and other foreign jurisdictions, with respect to which some of the outcome is uncertain. The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws. The Company establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. Any tax benefit that is or has been reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.

12


Comprehensive Income (Loss)

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

Revenue Recognition

The Company follows ASC 606 “Revenue from Contracts with Customers”. The Company generates revenue by selling gold and silver concentrate material produced from its mining operations. The Company recognizes revenue for gold and silver concentrate production, net of treatment and refining costs, when it satisfies the performance obligation of transferring control of the concentrate to the customer. This is generally when the material is delivered to the customer facility for treatment and processing, as the customer has the ability (upon such delivery) to direct the use of and obtain substantially all the remaining benefits from the material and the customer has the risk of loss.

The amount of revenue recognized is initially recorded on a provisional basis based on the contract price and the estimated metal quantities based on assay data. Adjustments to the provisional sales prices are made to take into account the mark-to-market changes based on the forward prices of metals until final settlement occurs. The changes in price between the provisional sales price and final sales price are considered an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrate at the quoted metal prices at the time of delivery. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through revenue at final settlement. Market changes in the prices of metals between the delivery and final settlement dates will result in adjustments to revenues related to previously recorded sales of concentrate. The chief risk associated with the recognition of sales on a provisional basis is the fluctuation (if any) between the estimated quantities of the precious metals based on the initial assay and the actual recovery from treatment and processing.

During the three months ended March 31 2024 and 2023, there were $0 and $9,350,000 respectively of revenue recognized during the period from customer deposit liabilities (deferred contract revenue) from prior periods, and no customer deposits were refunded to the customer due to order cancellation.

Shipping and handling costs are considered fulfillment costs after the customer obtains control of the goods.

 

Derivative Financial Instruments

Certain warrants are treated as derivative financial liabilities. The estimated fair value, based on the Black-Scholes model, is adjusted on a quarterly basis with gains or losses recognized in the statements of operations and comprehensive income (loss). The Black-Scholes model is based on significant assumptions such as volatility, dividend yield, and expected term.

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, note payable and installment notes payable and derivative liabilities. The carrying amount of cash, accounts receivable, accounts payable and note payable approximates fair value because of the short-term nature of these items. The carrying amount of installment notes payable debt approximates fair value due to the relationship between the interest rate on installment notes payable debt and the Company’s incremental risk adjusted borrowing rate. The fair value of derivative liabilities is based on the Black-Scholes model.

Earnings (Loss) Per Share

Earnings (loss) per share, attributable to the common equity holders of the Company, are calculated in accordance with ASC 260 “Earnings per Share”. The weighted average number of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings (loss) per share is computed using the weighted average number of shares and potentially dilutive common shares outstanding. Potentially dilutive common shares are additional common shares assumed to be exercised. Potentially dilutive common shares consist of stock warrants and convertible preferred shares and are excluded from diluted earnings (loss) per share computation in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.

 

The Company’s Series C Preferred Stock and related outstanding dividends are convertible into 2,853,721 shares of Common Stock as of March 31, 2024 and 2023, respectively. The Company’s Series D Preferred Stock and related outstanding dividends are convertible into 820,800 shares of common stock as of March 31, 2024 and 2023. During the periods ended March 31, 2024 and 2023, the Company had warrants outstanding to purchase 892,165 shares of common stock. These shares related to these potentially dilutive common shares are excluded in the weighted average diluted shares outstanding for the periods ended March 31, 2024 and 2023 as including them would be anti-dilutive.

13


Related Party Transactions

FASB ASC 850, “Related Party Disclosures” requires companies to include in their financial statements, disclosures of material related party transactions. The Company discloses all material related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Significant Judgments, Estimates and Assumptions

The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. These judgments, estimates and assumptions are regularly evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.

The areas which require significant judgment and estimates that management has made at the financial reporting date, that could result in a material change to the carrying amounts of assets and liabilities, in the event actual results differ from the assumptions made, relate to, but are not limited to the following:

Significant judgments:

the determination of income tax is inherently complex and requires making certain estimates and assumptions about future events;
quantitative and qualitative factors used in the assessment of impairment of the Company’s mineral property;
the analysis of resource calculations, drill results, etc. which can impact the Company’s assessment of impairment, and provisions, if any, for environmental rehabilitation and restoration; and
the valuation of derivatives liabilities requires management to determine the most appropriate valuation model and inputs to the valuation model.

 

Reclassification

 

Amounts in the Condensed Interim Consolidated Statement of Cash Flows related to right-of-use-assets and operating lease payments for the three months ended March 31, 2023, have been reclassified to conform to the current year presentation.

 

Recently Issued Accounting Standards

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of the adoption of this new guidance on our Consolidated Financial Statements and related disclosures.

NOTE 2 - INVENTORIES

Inventories are carried at the lower of cost or fair value and consist of mined tonnage, gravity-flotation concentrates, and gravity tailings (or flotation feed material). Inventory balances as of March 31, 2024 and December 31, 2023 were as follows:

 

14


 

 

2024

 

 

2023

 

Mined tonnage

 

$

1,930,424

 

 

$

2,061,149

 

Gold-Silver concentrates

 

 

153,377

 

 

 

28,045

 

Total inventories

 

$

2,083,801

 

 

$

2,089,194

 

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following as of March 31, 2024 and December 31, 2023:

 

 

 

2024

 

 

2023

 

Leasehold improvements

 

$

21,274

 

 

$

21,274

 

Office equipment

 

 

42,493

 

 

 

42,493

 

Office furniture and fixtures

 

 

24,453

 

 

 

24,453

 

Other

 

 

27,053

 

 

 

27,053

 

Subtotal

 

 

115,273

 

 

 

115,273

 

Less: Accumulated depreciation and amortization

 

 

(19,582

)

 

 

(12,239

)

Total property and equipment, net

 

$

95,691

 

 

$

103,034

 

Depreciation and amortization have been provided over each asset’s estimated useful life. Depreciation and amortization expense was $7,343 and $0 for the three months ended March 31, 2024 and 2023, respectively.

 

NOTE 4 - MINING CONCESSIONS

Mining properties consist of the San José de Gracia concessions. Mining Concessions were $4,132,678 as of March 31, 2024 and December 31, 2023. There was no depletion expense during the three months ended March 31, 2024 and 2023, as the Company is an exploration stage issuer (See Note 1).

NOTE 5 - ACCRUED LIABILITIES

 

As of March 31, 2024 and December 31, 2023, the Company had the following accrued liabilities:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued interest

 

$

2,625,231

 

 

$

2,352,869

 

Accrued mining expenses

 

 

2,562,258

 

 

 

2,104,938

 

Accrued payroll taxes

 

 

1,331,409

 

 

 

1,122,644

 

Other accrued liabilities

 

 

2,486,890

 

 

 

2,147,170

 

Total accrued liabilities

 

$

9,005,788

 

 

$

7,727,621

 

 

NOTE 6 - DERIVATIVE LIABILITY

Warrants Issued With the Notes Convertible Into Series D Preferred

 

In fiscal 2020, the Company closed a financing agreement with Golden Post Rail, LLC (“Golden Post”) and certain shareholders whereby the Company issued convertible promissory notes that bore interest at 10% and were convertible into shares of Series D Senior Convertible Preferred Stock and common stock purchase warrants (“2020 warrants”) at an exercise price of $0.01 per share, with an expiry of ten years. These 2020 warrants contain anti-dilution provisions. See Note 11. The Company analyzed the conversion features of the promissory notes convertible into Series D Preferred Stock and determined that the 2020 warrants and remaining purchaser warrants issued with such notes qualified as a derivative liability. The fair value was required to be allocated among the notes, the notes’ conversion features, and the 2020 warrants and remaining purchaser warrants, and then remeasured at each reporting date. The Company performed a valuation of the conversion feature of the 2020 warrants and remaining purchaser warrants. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability and utilizes market data to the maximum extent possible.

15


In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the Warrants issued with the notes convertible into Series D Preferred based on the assumptions below:

 

Period Ended

 

March 31,
2024

 

 

December 31,
2023

 

Annual volatility rate

 

 

126

%

 

 

123

%

Risk free rate

 

 

4.59

%

 

 

4.23

%

Remaining term

 

6.12 years

 

 

6.37 years

 

Fair value of common stock

 

$

1.93

 

 

$

2.02

 

 

For the three and twelve months ended March 31, 2024 and December 31, 2023, an active market for the Company’s common stock did not exist. Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.

The below table represents the change in the fair value of the derivative liability during the three and twelve months ended March 31, 2024 and December 31, 2023.

 

Period Ended

 

March 31,
2024

 

 

December 31,
2023

 

Fair value of derivative (warrants), beginning of period

 

$

1,797,341

 

 

$

1,905,078

 

Exercise of warrants

 

 

-

 

 

 

-

 

Change in fair value of derivative

 

 

(80,141

)

 

 

(107,737

)

Fair value of derivative (warrants), end of period

 

$

1,717,200

 

 

$

1,797,341

 

 

NOTE 7 - ADVANCE CREDIT LINE FACILITY/CUSTOMER ADVANCES

 

On February 4, 2021, the Company entered into an Advance Credit Line Facility and Purchase Agreement (the “ACL”), with a commercial buyer. On August 2, 2023, the ACL was extended through December 2026 in an Amendment Agreement (the “Amendment”). Under the terms of the ACL and Amendment:

The Company will deliver 100% of its produced concentrates to the buyer and provider of the ACL, through December 31, 2026, with evergreen annual extensions thereafter until either party terminates with at least 365 days’ notice;
An initial ACL was established by the buyer in the amount of $3.75M USD.
On May 1, 2021, the ACL increased to an amount equal to 80% of the prior 3 months’ revenue.
Each successive month, the ACL shall be adjusted according to the Company’s prior 3 months’ revenue to a maximum advance line of $17.5 million as specified in the Amendment.
The ACL shall never be less than $3.75M USD.
The ACL will be interest free for 45 days.
The ACL is to be repaid through deliveries of concentrates or cash within 120 days.
Beginning in September 2023, up to $10M of the ACL advance may be converted into a one-year installment loan bearing interest at 3M SOFR + 7.5% and amortized as follows: Month 1, interest only; Month 2-11, 5% principal plus interest; and Month 12, final 50% principal plus interest. Converting the advance amount into an installment loan will reduce the available on a pro rata percentage basis;
If the ACL is converted into an installment loan subsequent deliveries during the term of the loan will be paid in cash within ten days of delivery;
The Amendment provides the buyer with a right of first refusal during the Offtake Agreement, to provide offtake financing and purchase other concentrates (zinc, silver, copper, etc) and dore from the Company’s open pit and underground operations.

16


The ACL was included under Customer Advances on the unaudited, condensed, interim consolidated balance sheet, prior to December 1, 2023.

Deposits under the Advance Credit Line Facility

Under the terms of the ACL, the Company received the following advances from the buyer (in millions):

(1)
$9.35 advance on December 28, 2022. Settled on February 16, 2023.
(2)
$9.60 advance on February 21, 2023. Settled on March 31, 2023.
(3)
$9.20 advance on March 31, 2023. Settled on May 17, 2023.
(4)
$9.85 advance on May 18, 2023. Settled on June 28, 2023.
(5)
$10.0 advance on June 29, 2023. Settled on August 14, 2023.
(6)
$10.75 advance on August 17, 2023. Settled on September 16, 2023.
(7)
$9.75 advance on September 29, 2023. Converted to a one-year note payable on December 1, 2023. (Note 8).

NOTE 8 - NOTE PAYABLE

On December 1, 2023, the Company exercised its option under the ACL to convert the outstanding ACL balance of $9,750,000 into a one-year note payable bearing interest at 3M SOFR + 7.5%. The note is repayable as follows: Month 1, interest only; Month 2-11, 5% principal plus interest; and Month 12, final 50% principal plus interest.

 

NOTE 9 – INSTALLMENT NOTES PAYABLE

 

In June 2018, the Company entered into financing agreements for the unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2017 and the period ending June 30, 2018 in the amount of $1,739,392. The Company paid an initial 20% payment of $347,826 and financed the balance over 36 months at an interest rate of 22% per annum.

In February 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2018 in the amount of $335,350. The Company paid an initial 20% payment of $67,070 and financed the balance over 36 months at an interest rate of 22% per annum.

In June 2018, the Company applied for a reduction of the Francisco Arturo mining concession, from 69,121 hectares to 3,280 hectares. On July 31, 2018, the application for reduction was approved and the Company paid an initial amount of 985,116 MNP (Pesos), for the second semester 2018 mining concessions taxes on the reduced Francisco Arturo mining concession. The Company continues to accrue an amount of $22,500 (USD) per semester (six months) on the reduced Francisco Arturo mining concession.

As of June 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda (Mexican federal tax authority) for a reduction in the liability which is pro-rata to the reduction in the Francisco Arturo concession. For financial reporting purposes the Company continues to carry all notes (to finance unpaid mining concession taxes) at their unpaid principal amount and accrues interest on a monthly basis. As of March 31, 2024, $2,423,991 of accrued interest on the notes was included in accrued liabilities on the unaudited consolidated balance sheet.

In October 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the core mining concessions in the amount of $299,474. The Company paid an initial 20% payment of $59,895 and financed the balance over 36 months at an interest rate of 22%.

The following is a summary of the activity during the three months ended March 31, 2024:

 

Balance December 31, 2023

 

$

2,259,432

 

Exchange rate adjustment

 

 

55,950

 

2024 principal payments

 

 

 

Balance March 31, 2024

 

$

2,315,382

 

 

NOTE 10 - ASSET RETIREMENT OBLIGATION

 

During 2023, a significant upgrade was made to the milling facility and therefore, an ARO has been established as of December 31, 2023 at the estimated undiscounted costs totaling $316,800 to decommission the plant and tailings pond at the end of the estimated

live of the mines in operation as of December 31, 2023, discounted using credit-adjusted, risk-free interest rate of 9.2%. As this is

17


an exploration stage property that does not qualify for asset capitalization, the costs associated with the obligation are charged to

operations.

 

Asset retirement obligation consists of the following as of March 31, 2024 and December 31, 2023:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Asset retirement obligation at beginning of year

 

$

198,468

 

 

$

-

 

 Additions to ARO liability

 

 

 

 

 

198,468

 

 Accretion

 

 

4,565

 

 

 

 

Asset retirement obligation at end of year

 

$

203,033

 

 

$

198,468

 

 

NOTE 11 - STOCKHOLDERS’ EQUITY

The total number of shares of all classes of capital stock which the corporation has the authority to issue is 60,001,000 shares, consisting of (i) 20,001,000 shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”), of which 1,734,992 are designated as Series C Preferred Stock, and 3,000,000 shares are designated as Series D Preferred Stock and (ii) 40,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”). As of March 31, 2024, 15,266,008 shares of Preferred Stock remain undesignated.

Series A Preferred Stock

As of March 31, 2024 and December 31, 2023 no shares of Preferred A stock were outstanding. On April 19, 2023, the Company repurchased the Series A Preferred Stock from its Chief Executive Officer (“CEO”). The Series A Preferred shares were subsequently cancelled. On July 17, 2023, the Company amended its certification of incorporation to cancel the Series A Preferred Stock.

Series C Senior Convertible Preferred Stock

As of March 31, 2024 and December 31, 2023 there were 1,734,992 Series C Preferred shares outstanding. As of March 31, 2024, these Series C Preferred Shares are convertible to common shares at $1.95 per share or redeemable in cash at the shareholder’s option and include anti-dilution protection. The Series C Preferred Shares may receive a 4% per annum dividend, payable if available, and in arrears. The dividend is calculated at 4% of $4,337,480 payable annually on June 30th. As of March 31, 2024, dividends for the years 2016 to 2024 totaling $1,227,276 were in arrears.

Due to the nature of the Series C Preferred Shares as mandatorily redeemable, the Series C Preferred Shares are classified as “temporary equity” on the balance sheet.

Series D Senior Convertible Preferred Stock

On May 14, 2020, the Company closed an additional financing and related agreements with certain shareholders totaling $4,020,000 which was convertible into Series D Senior Preferred Stock. The noteholders also received the 2020 warrants, as outlined in Note 6, for the purchase of an aggregate of 1,260,633 shares of the Company’s common stock at an exercise price of $.01 a share.

 

On October 7, 2021, the Company paid $2,500,000 to repurchase one note. The remaining ten noteholders elected to convert their notes totaling $1,520,000 into Series D Preferred Stock at $2.00 per share. Concurrently with the note conversion the noteholders exercised 368,468 of the 2020 warrants to purchase 368,468 shares of the Company’s common stock at $.01 per share. On October 18, 2021, the Company issued 760,000 shares of Series D Preferred Stock for these notes. The Series D Preferred Stock may receive a 4% per annum dividend, payable if available, and in arrears. The dividend is calculated at 4.0% of $1,520,000 payable annually on October 18th. As of December 31, 2023 dividends for the years 2022 and 2023 totaling $121,600 were in arrears.

Due to the nature of the Series D Preferred as mandatorily redeemable by the Company at the election of the Series D Preferred stockholder at any time following maturity, the Series D Preferred Stock is classified as “temporary equity” on the balance sheet.

The deemed dividends on the Series C and D Preferred Stock for the three months ended March 31, 2024 and 2023, were $58,575 and $58,575, respectively. As the Company has not declared these dividends, it is required as an item “below” the net income (loss) amount on the accompanying unaudited condensed interim consolidated statements of income.

Preferred Stock (Undesignated)

In addition to the 1,734,992 shares designated as Series C Preferred Stock, and the 3,000,000 shares designated as Series D Preferred Stock, the Company is authorized to issue an additional 15,266,008 shares of Preferred Stock, having a par value of $0.0001 per share. The Board of Directors of the Company has authority to issue the Preferred Stock from time to time in one or more series, and with

18


respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred Stock. As of March 31, 2024 and December 31, 2023, there were no other shares of Preferred Stock outstanding.

The shares of each series of Preferred Stock may vary from the shares of any other series thereof in any or all the foregoing respects and in any other manner. The Board of Directors may increase the number of shares of Preferred Stock designated for any existing series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series. Unless otherwise provided in a particular Preferred Stock designation, the Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.

Common Stock

The Company is authorized to issue 40,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights. As of both March 31, 2024, and December 31, 2023, there were 23,371,708 shares of common stock outstanding. No dividends were declared or paid during the three months ended March 31, 2024 and 2023.

Preferred Rights

The Company issued “Preferred Rights” and received $784,500 for these rights. This has been reflected as “Preferred Rights” in stockholders’ equity in the accompanying consolidated balance sheets. As of March 31, 2024, $744,500 had been repaid, leaving a current balance of $40,000 as of March 31, 2024 and December 31, 2023.

Stock Issuances

On August 4, 2023 the Company issued 1,000,000 shares of common stock for $5,000,000 cash consideration.

Treasury Stock

 

During the year ended December 31, 2023, 25,000 shares of the Company’s common stock previously issued for services were returned to the Company as part of a settlement of fees.

There were 37,180 shares of treasury stock outstanding as of March 31, 2024 and December 31, 2023.

2023 Activity

As of March 31, 2024, the Company had outstanding warrants, which were a part of the issuance of notes convertible into Series D Convertible Preferred Stock in 2020, to purchase 892,165 shares of common stock:

 

 

Number
of Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Life (Years)

 

 

Intrinsic
Value

 

Balance as of December 31, 2023

 

 

892,165

 

 

$

0.01

 

 

 

6.37

 

 

 

-

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance as of March 31, 2024

 

 

892,165

 

 

 

0.01

 

 

 

6.12

 

 

 

-

 

Exercisable as of March 31, 2024

 

 

892,165

 

 

$

0.01

 

 

 

6.12

 

 

 

-

 

 

A derivative liability was incurred at the issuance of the Series D warrants in 2020. As of March 31, 2024, the derivative liability totaled $1,717,200. See Note 6 above.

NOTE 12 – STOCK BASED COMPENSATION

On February 19, 2024, pursuant to the newly adopted DynaResource, Inc. 2024 Equity Incentive Plan, the Company awarded a board member options to purchase up to 400,000 shares of Common Stock of the Company, par value $0.01 per share, for an exercise price of $5.00 per share, with such options vesting in 25% increments on each of the first four anniversaries of the date of the award.

 

19


Under ASC 718, the fair value of the options at the date of issuance was determined using the Black Scholes model and will not be adjusted for subsequent changes in fair value. Expense is recorded annually, upon vesting, on a prorata basis over the vesting period. The Company recognizes forfeitures as they occur.

 

The inputs utilized in calculating the fair value are as follows:

 

Period Ended

 

March 31,
2024

 

 

December 31,
2023

 

Annual volatility rate

 

 

127.93

%

 

 

 

Risk free rate

 

 

4.36

%

 

 

 

Remaining Term

 

4

 

 

 

 

Fair Value of stock options

 

$

1.15

 

 

 

 

 

NOTE 13 - INCOME TAXES

The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Our income tax expense and effective income tax rate are significantly impacted by the mix of our domestic and foreign earnings before income taxes. The Mexican applicable statutory rate is 30% which is higher than the U.S. federal and state combined statutory rate of approximately 21%.

 

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Concession Taxes

The Company is required to pay taxes in México in order to maintain mining concessions owned by DynaMéxico. Additionally, the Company is required to incur a minimum amount of expenditures each year for all concessions held. The minimum expenditures are calculated based upon the land area, as well as the age of the concessions. Amounts spent in excess of the minimum may be carried forward indefinitely over the life of the concessions and are adjusted annually for inflation. Based on Management’s recent business activities and current and forward plans and considering expenditures on mining concessions from 2002 to 2017 and continuing expenditures in current and forward activities, the Company does not anticipate that DynaMéxico will have any difficulties meeting the minimum annual expenditures for the concessions ($388 - $2,400 Mexican Pesos per hectare). DynaMéxico retains sufficient carry- forward amounts to cover over 10 years of the minimum annual expenditure (as calculated at the 2017 minimum, adjusted for annual inflation of 4%).

Leases

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), DynaMineras maintains access and surface rights to the SJG Project pursuant to a 20-year Land Lease Agreement. The 20 Year Land Lease Agreement with the Santa Maria Ejido Community surrounding San Jose de Gracia was dated January 6, 2014 and continues through January 2033. It covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG and provides for annual lease payments on January 1st each year by DynaMineras, in the amount of $1,359,443 Pesos (approximately $76,000 USD) adjusted for inflation based on the Mexico minimum wage increase. Rent is $5,296,950 Pesos (approximately $321,000 USD) for the year ended December 31, 2024, which will be paid during the second quarter of 2024. The Land Lease Agreement provides DynaMineras with surface access to the core resource areas of SJG (4,399 hectares) and allows for all permitted mining and exploration activities.

The Company leases office space for its corporate headquarters in Irving, Texas. In February 2023, the Company entered into a 52- month extension of the lease with additional office space. As part of the agreement, the lease term commenced and the Company received four months free rent upon completion of the finish out of the new space. The expansion was completed and the Company moved into the office space effective August 1, 2023. The Company makes tiered lease payments on the first of each month.

The Company determines if a contract is or contains a lease at inception. As of March 31, 2024, the Company has two operating leases: 52 months lease for office space with a remaining term of 44 months and the twenty-year ground lease in association with its México mining operations with a remaining term of approximately ten years. Variable lease costs consist primarily of variable common area maintenance, storage, parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.

20


As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s interest rate of promissory notes.

 

NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS