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Item 7. Management’s Discussion and Analysis

2024-04-16 compared with 2023-04-17 · 949 added, 91 removed, 64 unchanged (94% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS

MANAGEMENT’S DISCUSSION AND A NALYSIS 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.

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The Company can give no assurances that such forward-looking statements will prove to be correct.

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.

We currently conduct operations in México through our operating subsidiaries.

We currently own 80% of the outstanding shares of DynaResource de México, S.A.

(“DynaMéxico”), of which 79% are held directly and 1% are held by the current CEO on behalf of DynaResoure, Inc., in compliance with Mexican law, and DynaMéxico currently holds 20% of its shares recovered from Goldgroup Resources Inc.

as treasury shares.

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.

(“DynaMineras”), the exclusive operator of the San José de Gracía Project, under contract with DynaMéxico.

DynaOperaciones is the exclusive management company for registered employees.

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 a specific focus on the prolific San Jose de Gracia high-grade gold project in México.

We currently conduct activities in México through our operating subsidiary DynaResource de México SA de CV.

(“DynaMéxico”).

We currently own 100% of the outstanding shares of DynaMéxico, and DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia Property (“SJG”), in northern Sinaloa State, México.

In addition to investing in the increase and expansion of its test mining and milling activities at SJG in 2023, the Company has focused on corporate governance, with the intention of meeting the listing requirements for other exchanges in the US and/or Canada.

Project Improvements, Expansion and Increased Output (2017 to 2023)

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 700 tons per 24-hour operating day.

(Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2022 below).

Since January 2017, the Company has expended over $29.5 million USD in non-operating costs, generally classified as project improvements and expansion costs which have been expensed in the company’s consolidated financial statements.

These funds have been provided primarily from cash flows from operations.

An itemized list of these non-operating costs is described below:

Since 2017, the Company has conducted test mining and pilot milling activities at SJG, and to improve, increase and expand test mining and pilot milling operations to increase production of gold ounces, and since 2022 to continue exploration activities at SJG with the target to increase primarily gold resources.

Since the startup of the test mining and milling activities at SJG in January 2015, the Company has increased daily output from an initial average of 100 tons per 24-hour operating day, to an average of approximately 550 tons per 24-hour operating day in 2023.

In 2023, the volume processed increased over 44% from an average of 377 tons per 24-hour day to an average of 550 tons per 24-hour day in 2023.

During the first half of 2024, the Company expects to begin to achieve capacity from test mining and milling activities of approximately an average of 800 tons per 24-hour operating day and build processing capacity to an average of 900 to 1,000 tons per day in the second half of 2024.

Since January 2017, the Company has expended approximately $28.3 million USD in non-recurring costs, generally classified as project improvements and expansion costs which have been expensed in the Company’s financial statements.

The funds for these expenditures have been provided primarily from cash flows from operations and from the sale of the Company’s equity.

Of the approximately $28.3 million in non-recurring costs, the Company has spent the following on facilities expansion:

Mill Expansion

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Mining Camp Expansion

Medical Facility

The Company has spent the following amounts on mine development:

Mine Development - San Pablo

1 unchanged sentence

Mine Expansion - Tres Amigos

SIG Mining Concessions

Exploration and Developmental Drilling

Exploration Drilling

SJG Mining Concessions

Surface Rights and Permitting

Debt Retirement

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 $11 million USD which is available to offset future taxable earnings.

The result of expensing all costs is that the Company has accumulated a net loss carry forward from México operations of approximately $22 million USD which is available to offset future taxable earnings.

Results for the Years Ended December 31, 2023 and 2022

Summary of Test Mining and Pilot Mill Operations for 2018 to 2023:

Total Tonnes Processed

Reported Mill Feed Grade

Reported Recovery

Gross Gold Concentrates Produced (Au oz.)

Net Gold Concentrates Sold(Au oz.)

DynaMexico continued to increase its test underground mining activity and pilot milling operations in 2022 and increased output from 300 to 700 tons per 24-hour operating /day during the 4 th quarter.

Test pilot operations in 2022 yielded 137,740 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 31,905 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 25,554 Oz Au.

The Company reports net revenue of $39,757,460 net of buyer’s price discount and refining and treatment costs.

Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 26,728 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 22,566 Oz Au.

The Company reports net revenue of $35,886,046 net of buyer’s price discount and refining and treatment costs.

DynaMexico expects to continue its test underground mining activity and pilot milling operations in 2023; and projects the output of 700 tons per 24-hour operating day from the mine and mill in 2023.

Revenues for the years ended December 31, 2022, and 2021 were $39,767,460 and $35,886,046, respectively.

The increase was the result of the increase in tonnage mined and processed as a result of expansion of the Tres Amigos mine in 2022 and the increase in milling capacity to 700 tons per day in the fourth quarter of 2022.

The increase in tonnage resulted in a slight drop in yield from 9.67 g/t Au in 2021 to 8.18 g/t Au in 2022.

Volume processed however increased from 266 tons per 24hr day in 2021 to 377 tons per day in 2022.

During 2022 Volume increased from 308 tons per day in the 1 st quarter to 493 tons per day in the 4 th quarter.

The Company anticipates running an average of 600 to 700 tons per day in 2023.

Estimated Total Tonnes

Estimated Reported Mill

Estimated Reported

Estimated Gross Gold

Estimated Net Gold

Test pilot operations in 2023 yielded 198,618 Tons mined and processed from underground test mining activity and pilot milling activities and the production of approximately 27,252 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 24,829 Oz Au.

Test pilot operations in 2022 yielded 137,740 Tons mined and processed from underground test mining activity and pilot milling activities and the production of approximately 31,905 gross Oz Au, and net of dry weight adjustments at the buyer’s facilities, the production of approximately 25,554 Oz Au.

The decrease in the estimated recovery percentage from 88.05% to 76.50% was a result of processing different types of ore on a larger scale, testing activities, and adjustments to the operating inputs of the new ball mills.

We believe the test mill operations will achieve increased efficiencies as we gain experience with larger volumes of material processed.

However, the Company believes the reported recovery percentage may continue to be a reduced percentage from prior periods, as we process larger volumes of material and our milling processes are refined.

The drop in the feed grade at the pilot plant facility is a result of dilution experienced in the test mining activities, and partially due to the increase in test mining tonnage.

To increase the tonnage of higher-grade test mining material available for test mill processing, the Company has opened another test mining area of SJG in the fourth quarter of 2023.

The Company expects to achieve the access to an additional test mining area at SJG during 2024.

Revenue decreased approximately 10.5% to $35,573,194 for the year ended December 31, 2023 from $39,767,460 for the year ended December 31, 2022.

As discussed above, the Company’s yield decreased in 2023, which attributed to a 2.8% decrease in delivered ounces for the year.

Additionally, revenue in the first half of 2023 was offset by adjustments in final settlements of $2,593,583 based on provisional settlements recorded on 2022 shipments.

Consistent with ongoing practice, the final settlement assays are recorded in the period received, of which the process may generally include a delay of three to six months due to Buyer’s receipt of final assay from the independent assay firm prior to July 2023.

The Company has worked with the buyer and the independent assay firm to develop processes to shorten the period of waiting on the final settlement assays, and during the last quarter of 2023, the final settlement adjustments were being processed and received in approximately 4-6 weeks.

The Company believes it has addressed the issues contributing to the differences in the assays that occurred since the installation of the new milling equipment in late 2022.

PRODUCTION COSTS RELATED TO SALES :

Production costs related to sales for the years ended December 31, 2023 and 2022 were $8,256,062 and $4,413,649, respectively.

These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product.

This represents an increase in the cost per ounce recovered of milling from

$109 per OZ to $138 per OZ.

The increase was largely due to cost of bringing the new ball mills online and is expected to drop in 2023.

These are expenses directly related to the milling, packaging and shipping of primarily gold and other precious metals product.

This represents an increase in the milling cost per ounce delivered (according to the preliminary settlements) from $173 per ounce to $333 per ounce.

The increase in the cost per ounce is primarily related to the decrease in feed grade from 8.18 g/t Au in 2022 to 5.58 g/t in 2023, resulting in an increase in tonnage processed from 137,740 in 2022 to 198,518 in 2023.

The Company expanded its pilot milling capacity late in 2022, which allows the Company to process more tonnage and process ore with a lower grade.

MINE PRODUCTION COSTS :

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These costs were directly related to the extraction of mine tonnage to be processed at the mill.

The increase was a result of the increase in tonnage mined.

Cost per ton rose from $45.57 per ton in 2021 to $47.98 per ton in 2022.

The increase is primarily due to an increase in tonnage mined as well as an increase in cost per ton from $47.98 per ton in 2022 to $54.77 per ton in 2023.

The increase in the cost per ton is primarily related to higher labor, equipment and fuel costs due to inflation in Mexico of over 5% in 2023.

MINE EXPLORATION COSTS :

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These were the costs associated with the expansion of the mining facilities.

Primary expenditures in 2023 were additional costs related to the new ball mills, including a new crusher, and concentrators on the front and the backs of the mill to aid in free gold recovery.

Primary costs in 2022 were the purchase and installation of the two new ball mills and the construction of a new tailings pond.

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Exploration drilling expenses for the years ended December 31, 2023 and 2022 were $2,514,544 and $2,484,072, respectively.

The Company began a new drilling program in 2022 to update its National Instrument 43-101 reserve report.

TRANSPORTATION:

Transportation costs for the years ended December 31, 2022, and 2021 were $2,261,681 and $1,330,414, respectively.

These were the costs of transporting the product to the customer for treatment and sale.

The increase was a result with the overall increase in production and sales and the general increase in fuel and trucking costs.

The Company began a new drilling program in 2022 to update its Canadian National Instrument 43-101 resource estimate.

The Company drilled 43 drill holes totaling 5,056 meters during 2022 and 75 drill holes totaling 21,931 meters in 2023.

CAMP, WAREHOUSE AND FACILITIES :

2 unchanged sentences

The increase was a result of the increase in personnel from the increase in operations.

TRANSPORTATION:

Transportation costs for the years ended December 31, 2023 and 2022 were $2,898,272 and $2,261,681, respectively.

These were the costs of transporting material between the mine and the mill, and delivery of the concentrate to the customer for treatment and sale.

The increase was a result of the overall increase in volume transported and the general increase in fuel and trucking costs.

PROPERTY HOLDING COSTS :

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These costs were concessions taxes, leases on land and other direct costs of maintaining the property.

The current 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, 2023 and 2022 were $8,592,745 and $4,134,902 respectively.

These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses.

These general and administrative expenses were the costs of operating the Company not directly associated with the test mining and pilot mill operations including management, accounting, and legal expenses.

The increase in costs in 2023 was primarily an increase in legal fees as discussed in the legal summary, including a non-recurring legal expense of $3,000,000 tied to the successful outcome of litigation and due to an overall increase in administrative costs supporting the Company’s increase in activity.

STOCK COMPENSATION EXPENSE:

Stock compensation expense for the years ended December 31, 2022 and 2021 was $881,250 and $1,005,223, respectively.

Stock compensation expense was $881,250 for the years ended December 31, 2023 and 2022 related to the vesting of restricted stock awards issued in 2022.

OTHER INCOME (EXPENSE):

Other income (expense) for the years ended December 31, 2023 and 2022 was $(235,675) and $1,336,841, respectively.

Included in this category in 2022 was interest expense of $(450,324), change in derivative liability of $1,726,497, currency transaction gain of $58,426, and other income of $2,242.

Included in this category in 2021 was interest expense of $(1,573,125), change in derivative liability of $(2,186,912), currency transaction gain of $247,712, an arbitration award payment of $(1,111,111) and other income of $1,072.

The decrease in derivative liability is the result of two of the derivatives expiring due to the maturity of the underlying securities.

See Item See Legal Proceedings for discussion of the arbitration award payment.

Included in 2022 was interest expense of $450,324, mark-to-market gain on the derivative liability of $1,726,497, currency translation gain of $58,426, and other income of $2,242.

Included in 2023 was interest expense of $567,792, mark-to-market gain on the derivative liability of $375,076, currency translation loss of $45,177 and other income of $2,218.

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, 2022, and 2021 consisted of unrealized currency gains (losses) of $359,743 and $(685,757), respectively.

The current year change is due to the variances in the peso exchange rates throughout the two years.

Comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized foreign currency translation gain for the period.

The Company’s other comprehensive loss for the years ended December 31, 2023 and 2022 consisted of unrealized foreign currency translation gains of $585,622 and $359,743, respectively, of which $383,604 of the 2023 gain related to a cumulative translation adjustment resulting from the unrealized gains on the Company’s deferred tax asset arising from the Mexico net operating loss.

Liquidity and Capital Resources

As of December 31, 2022, the Company had working capital of $11,789,578, comprised of current assets of $33,123,955 and current liabilities of $21,334,377.

This represented an increase of$10,661,867 from the working capital maintained by the Company of $1,347,711 as of December 31, 2021.

The primary reason for the increase is the cash, inventory and receivables from the Company’s operating profit and from funds raised by the issuance of common stock.

Net cash provided by (used in) operations for the year ended December 31, 2022 was $(1,781,225) compared to $17,516,205 in the year ended December 31, 2021.

The decrease is largely due to the drop in net income and the increase in exploration activities and an increase in working capital.

Net cash provided by (used) in investing activities for the years ended December 31, 2022, and 2021 was $0 and $0, respectively.

In 2022 and 2021, expenditures necessary for the expansion of mining operations totaling $6,058,588 and $1,478,725 respectively which would normally have been included in this category were expensed 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, 2022, was $4,778,958 compared to $(2,557,721) for the year ended December 31, 2021.

The 2022 funds are the result of the issuance of common stock due to the exercise of stock warrants.

The 2021 usage was for the retirement of Series D debt.

As of December 31, 2023, the Company had negative working capital of $10,261,645, a decrease from the working capital maintained by the Company of $11,789,578, as of December 31, 2022.

The primary reasons for the decrease is related to a decrease in cash related to the Company’s net loss, which included over $29.5 million of non-recurring expenditures as discussed herein, an decrease in the Company’s current foreign tax receivable as delays in refunds of the IVA tax warranted classification as long-term in 2023, and an increase in accounts payable and accrued expenses.

Net cash used in operations for the year ended December 31, 2023 was $17,679,309 compared to $1,781,225 during the year ended December 31, 2022.

The increase in cash used is largely due the net loss in 2023 and the increase in exploration activities and decrease in working capital.

Net cash used in investing activities for the year ended December 31, 2023 was $115,273 for the purchase of computer equipment and leasehold improvements to expand the Corporate office.

In 2023 and 2022, expenditures related to facilities expansion costs of $2,554,505 and $6,058,588, respectively, were expensed under subpart 1300 of Regulation S-K and not included in investing activities.

Net cash provided by financing activities for the year ended December 31, 2023, was $3,689,750 compared to $4,778,958 for the year ended December 31, 2022.

In 2023, the Company received proceeds of $5,000,000 from the sale of a 1,000,000 shares of common stock offset by the purchase of the Company’s Series A Preferred stock for $1,250,000 and repurchase of shares that were returned to treasury stock for $60,250.

Through December 31 2023, the Company’s available liquidity and operations have been financed primarily through its operations and the revenue generated from the sale of product.

The revenue from operations was supplemented by proceeds from the sale of common stock and customer advances as well as the cash flow from operations.

Although the Company has incurred net losses and net cash outflows from operating activities and investing activities for the year ended December 31, 2023, there were many expenses which were made that were not expended for the production of revenue, such as exploration drilling and mine expansion and non-recurring legal success fees paid.

If these expenses had not been made, the Company’s net loss would have been minimized.

The Company believes it’s cash and cash receipts from its revenue arrangements, will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months from the date these financial statements were available for issuance.

Additionally, the Company believes its revenue will be greater due to material being mined from the additional mine opened and improvements made to the productivity of the milling activities.

Future capital requirements will depend on many factors, including the Company’s rate of mining, milling and exploration activities and growth.

To the extent that existing capital and revenue growth are not sufficient to fund future activities, the Company may need to raise capital through additional equity or debt financing.

Additional funds may not be available on terms favorable to the Company or at all.

Failure to raise additional capital, if needed, could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Off-Balance Sheet Arrangements

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Plan of Operation

The Plan of operation for the next twelve months includes the Company 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 seven years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant.

In 2023, the Company projects to complete its next phase of expansion to reach the output of approximately 700 tons per 24-hour operating day from the mine and the processing plant.

The Company funds its general and administrative expenses in the U.S.

from its Mexican operations.

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 2023.

The Plan of operation for the next twelve months includes the Company continuing the improvement and expansion of the test mining and pilot milling activities and exploration drilling at SJG.

During the first six months of 2024, the Company plans to mine and mill an average of approximately 800 tons of material a day, with that rate increasing to an average of approximately 1,000 tons a day during the second half of 2024.

The Company has opened a second mine late in 2023 and is consistently test mining additional material during the first quarter of 2024.

The Company plans to open a third mine during the second quarter of 2024 in an area anticipated to provide high feed grade material.

The Company plans to continue its exploration drilling program with two to three rigs on site.

Management and geologists will make decisions based on the drill results, corporate strategies and market conditions, surface mapping, sampling and target generation.

The Company has contracted with a "Qualified Person" within the meaning of subpart 1300 of Regulation S-K and Canadian Standard NI 43-101 to interpret the data collected in order to compile a formal Mineral Resource Estimate update in 2024.

Capital Expenditures

The Company’s primary activities relate to the test mining and pilot milling operations of the SJG property through its Mexican subsidiaries.

The Company’s primary capital expenditures relate to the test mining and pilot milling activities of the SJG Project.

The Company expanded its pilot milling plant in 2022 with the addition and installation of two ball mills and expanded the tailings pond with water being recycled to the plant.

The Company has continued to refine the milling process throughout 2023 with the addition of front and back end concentrators and utilization of the original mill for grinding.

All capital expenditures are expensed as we are an exploration stage issuer under subpart 1300 of Regulation S-K.

Exploration Stage

The Company is an exploration stage issuer has started extraction without determining mineral reserves.

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).

The agreement was terminated in October 2021 and all operations consolidated into Dyna Mexico.

The Company is currently an exploration stage issuer and is reporting all costs of mine operations, improvements, and expansion as expenses in accordance with Section 1300 of Regulation S-K and US GAAP requirements, and therefore the above costs are not reflected as capitalized assets on the Company’s balance sheet.

The Company has started test mining, milling and extraction activities prior to determining mineral reserves.

DynaMéxico General Powers of Attorney

The Chairman-CEO of DynaUSA also serves as the President of DynaMéxico and as the President of DynaMineras.

The Chairman of the Board of Directors and Chief Executive Officer 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

QUANTITATIVE AND QUALIT ATIVE DISCLOSURE ABOUT MARKET RISK

Not required for smaller reporting companies.

FINANCIAL STATEMENT S AND SUPPLEMENTARY DATA

The Company’s consolidated financial statements as of and for the year December 31, 2023 and 2022 included in this Form 10-K have been audited by Davidson & Company LLP and Armanino LLP, independent registered public accounting firms, for the years ended December 31, 2023 and 2022, respectively, as set forth in their report.

Consolidated Financial Statements included in the Form 10-K:

Report of Independent Registered Public Accounting Firm PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statement of Changes in Stockholders’ Equity/(Deficit)

Consolidated Statements of Cash Flows for the Years

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and Directors of

DynaResource, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of DynaResource, Inc.

(the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2023, 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, 2023, and the results of its operations and its cash flows in the year ended December 31, 2023, 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 these financial statements based on our audits.

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 audits 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 audits 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Deferred Tax Asset

The Company has recognized significant deferred tax assets in respect of unused tax losses.

The recovery of the deferred tax assets depends on achieving sufficient taxable profits in the future.

Future taxable profits to be used for utilization of tax losses accumulated by the Company mainly represent income from mining operations to be earned by the Company’s main operating subsidiary.

The assessment of the potential to utilize the tax losses is dependent on the forecast profitability of the subsidiary.

This requires management’s judgment and estimation on key inputs such as expected production, sales volumes, commodity prices, grade and tonnage estimates and operating costs.

There is inherent uncertainty involved in forecasting timing and quantum of future taxable profits, which support the extent to which tax assets are recognized.

Therefore, this is the key judgmental area our audit is concentrated on.

Our audit procedures included the following:

• Testing the accuracy of the taxable profits forecast model used to estimate the likelihood of the recovery of deferred tax assets.

• Evaluating the appropriateness of management’s key assumptions and estimates used by management to allocate profit between the Company’s entities, the likelihood of generating sufficient future taxable profits to support the recognition of deferred tax assets.

• Using our in-house tax specialists, to evaluate the appropriateness of the application of relevant tax legislation by the Company, in relation to the utilisation of tax losses.

We have served as the Company’s auditor since 2023.

/s/ Davidson & Company LLP

Chartered Professional Accountants

Vancouver, Canada

April 15, 2024

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, 2022, the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year 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 as of December 31, 2022, 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.

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.

Our audit of the consolidated financial statements 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.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Dallas, Texas

April 17, 2023

We served as the Company’s auditor from 2020 to 2022.

In 2023, we became the predecessor auditor.

DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2023 and 2022

Current assets

Accounts receivable

Foreign tax receivable

Other current assets

Total current assets

Property and equipment (net of accumulated depreciation and amortization of $ 12,239 and $ 119,154 )

Right-of-use assets, net

Mining concessions

Deferred tax asset, net

Foreign tax receivable

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

Accrued expenses

Customer advances

Derivative liabilities

Current portion of operating lease payable

Installment notes payable

Total current liabilities

Operating lease payable, less current portion

Deferred tax liability

Asset retirement obligation

TOTAL LIABILITIES

TEMPORARY EQUITY

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

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

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

Preferred Stock, Series A, $ 0.0001 par value, 0 and 1,000 shares authorized, issued and outstanding

Common Stock, $ 0.01 par value, 40,000,000 and 40,000,000 shares authorized 23,371,708 and 22,246,654 issued and outstanding

Preferred rights

Additional paid-in-capital

Treasury stock, 37,180 and 12,180 shares at cost

Accumulated other comprehensive income

Accumulated deficit

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

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

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

COSTS AND EXPENSES OF MINING OPERATION

Production cost applicable to sales

Mine production costs

Mine exploration costs

Facilities expansion costs

Exploration drilling

Camp, warehouse and facilities

Transportation costs

Property holding costs

Stock based compensation

General and administrative

Depreciation and amortization

TOTAL OPERATING EXPENSES

NET OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE)

Foreign currency gains (loss)

Interest expense

Derivatives mark-to-market gain

TOTAL OTHER INCOME (EXPENSE)

NET INCOME (LOSS) BEFORE TAXES

INCOME TAXES BENEFIT

NET INCOME (LOSS)

DEEMED DIVIDEND FOR SERIES C & D PREFERRED

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE

EQUITY HOLDERS OF DYNARESOURCE, INC.

Basic earnings (loss) per common share

Weighted average shares outstanding – Basic

Diluted earnings (loss) per common share

Weighted average shares outstanding – Diluted

OTHER COMPREHENSIVE INCOME

Unrealized foreign currency translation gain

TOTAL OTHER COMPREHENSIVE INCOME

TOTAL COMPREHENSIVE INCOME (LOSS)

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

DYNARESOURCE, INC.

CONSOLIDATED STATEMENT S OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2023 AND 2022

Income (Loss)

Balance January 1, 2022

Stock Based Compensation

Stock Warrants Exercised

Other Comprehensive Income

Balance, December 31, 2022

Sale of Common Stock

Issuance of Non-Dilution Shares

Stock Based Compensation

Purchase of Series A Preferred Stock

Cancellation of Series A Preferred Stock

Acquisition of Treasury Stock

Other Comprehensive Income

Balance, December 31, 2023

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

DYNARESOURCE, INC.

CONSOLIDATED STATE MENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

CASH FLOWS USED IN OPERATING ACTIVITES:

Net Income (loss)

Adjustments to reconcile net income to cash used in operating activities

Derivatives mark-to-market gain

Depreciation and amortization

Stock based compensation

Deferred tax asset

Change in operating assets and liabilities

Accounts receivable

Foreign tax receivable

Leased assets

Accounts payable

Accrued expenses

Customer advances

Operating lease liabilities

CASH FLOWS USED IN OPERATING ACTIVITIES

CASH FLOWS USED IN INVESTING ACTIVITIES

Purchase of property and equipment

CASH FLOWS USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of common stock

Proceeds from exercise of stock warrants

Purchase of series A preferred stock

Acquisition of treasury stock

Payments of convertible notes

Payments of installment notes

CASH FLOWS FROM FINANCING ACTIVITIES

Effects of foreign currency exchange

NET INCREASE (DECREASE) IN CASH

CASH AT BEGINNING OF YEAR

CASH AT END OF YEAR

SUPPLEMENTAL DISCLOSURES

Cash paid for interest

Cash paid for income taxes

NON-CASH TRANSACTIONS

Conversion of customer advance into note payable

Recognition of right of use asset and lease liability

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

DYNARESOURCE, INC .

NOTES TO THE CONSOLIDA TED FINANCIAL STATEMENTS

December 31, 2023 and 2022

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 (“US Holding”) and three wholly owned subsidiaries in México, DynaResource de México, S.A.

(“DynaMéxico”), Mineras de DynaResource S.A.

(“DynaMineras”), and DynaResource Operaciones de San Jose De Gracia S.A.

(“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 consolidated financial statements include the accounts of DynaResource, Inc., as well as DynaResource de México, S.A.

( 100 % ownership), DynaResource Operaciones S.A.

( 100 % ownership) and Mineras de DynaResource S.A.

( 100 % ownership).

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 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

The Company prepares its consolidated financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States.

These 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.

Correction of an Error

The derivative liability in the Company’s December 31, 2022 balance sheet presented herein has been corrected to $ 2,172,417 from $ 2,334,377 .

The change in accrued liabilities in the Company’s statement of cash flows presented herein has been corrected to $ 316,757 from $ 96,757 and the net income for the year ended December 31, 2022, attributable to common shareholders in Note 2 presented herein has been corrected from $ 6,744,654 to $ 6,451,503 from the Company’s Form 10-K which was filed with the Securities and Exchange Commission on April 17, 2023.

The errors were typographical errors and it did not impact any other financial statement balances including total liabilities, net income, earnings per share, or management compensation .

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 December 31, 2023, the Company continues to meets 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 December 31, 2023, the Company had $ 5,250,603 of deposits in United States banks in excess of the FDIC limit.

In addition, the Company does no t have any cash equivalents as of December 31, 2023 and 2022.

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 December 31, 2023 and 2022, no allowance has been made.

As of December 31, 2023 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 the sale.

Concentrate Inventory

Concentrate inventory include 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.

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 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 would be recorded if 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 December 31, 2023 and 2022, 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 has been 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 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.

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).

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).

Relevant exchange rates used in the preparation of the financial statements for the subsidiaries are as follows for the years ended December 31, 2023 and 2022 (Mexican Pesos per one U.S.

December 31, 2023

December 31, 2022

Current exchange rate

Weighted average exchange rate for the year ended

The Company recorded currency transaction gains (losses) of $( 45,177 ) and $ 58,426 for the years ended December 31, 2023 and 2022, respectively.

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.

We 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.

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 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 years ended December 31, 2023 and 2022, there were $ 9,350,000 and $ 9,250,000 , respectively of revenue recognized during the year 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 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 and convertible preferred shares 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’s Series C Preferred Stock and related outstanding dividends are convertible into 2,853,721 shares of Common Stock at December 31, 2023.

The Company’s Series D Preferred Stock and related outstanding dividends are convertible into 820,800 shares of common stock at December 31, 2023.

During the years ended December 31, 2022 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 included in the weighted average diluted shares outstanding for the year ended December 31, 2022 and are excluded for the year ended December 31, 2023, as including them would be anti-dilutive.

Years ended December 31,

Net income (loss) attributable to common shareholders

Weighted average number of common shares outstanding, Basic

Weighted average number of common shares outstanding, Diluted

Basic earnings (loss) per share

Diluted earnings (loss) per share

Diluted Earnings Per Share is calculated as follows:

Net income attributable to common shareholders

Deemed Dividends of Series C Preferred Stock

Deemed Dividends of Series D Preferred Stock

Adjusted Diluted Earnings

Weighted average number of share outstanding - Basic

Series C Preferred Stock Common Stock Equivalent

Series D Preferred Stock Common Stock Equivalent

Weighted average number of share outstanding - Diluted

Diluted Earnings Per Share

Related Party Transactions

FASB ASC 850 "Related Party Disclosures" requires companies to include in their consolidated financial statements disclosures of material related party transactions.

The Company discloses all material related party transactions.

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.

Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

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;

• The valuation of derivatives liabilities requires management to determine the most appropriate valuation model and inputs to the valuation model.

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 December 31, 2023 and 2022, respectively, were as follows:

Mined Tonnage

Gold-Silver Concentrates

Total Inventories

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2023 and 2022:

Leasehold improvements

Office equipment

Office furniture and fixtures

Accumulated depreciation and amortization

Total Property and Equipment

Depreciation and amortization has been provided over each asset’s estimated useful life.

Depreciation and amortization expense was $ 12,239 and $ 2,729 for the years ended December 31, 2023 and 2022 respectively.

NOTE 4 – MINING CONCESSIONS

Mining properties consist of the San Jose de Gracía (“SJG”) concessions.

Mining Concessions were $ 4,132,678 and $ 4,132,678 at December 31, 2023 and December 31, 2022, respectively.

As the Company is an exploration stage company, there was no depletion expense for the years ended December 31, 2023 and 2022.

NOTE 5 - ACCRUED LIABILITIES

As of December 31, 2023 and 2022, the Company had the following accrued liabilities:

Accrued interest

Accrued mining expenses

Accrued payroll taxes

Other accrued liabilities

Total accrued liabilities

NOTE 6 - DERIVATIVE LIABILITIES

Warrants Issued With the Notes Convertible into Series D Preferred Stock

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.

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.

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 the Black-Scholes model to determine the value of conversion feature of the Warrants issued with the notes convertible into Series D Preferred Stock based on the assumptions below:

Annual volatility rate

Risk free rate

Remaining term

Fair value of common stock

For the years ended December 31, 2023 and 2022, an active market for the Company’s common stock did not exist.

Accordingly, the fair value of the Company’s common stock was estimated using a valuation model with level 3 inputs.

The below table represents the change in the fair value of the derivative liability during the years ended December 31, 2023 and 2022.

Fair value of derivative (warrants), beginning of year

Exercise of warrants

Change in fair value of derivative

Fair value of derivative (warrants), end of year

NOTE 7 – ADVANCE CREDIT LINE FACILITY/CUSTOMER ADVANCES

On February 4, 2021, the Company entered into a 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 $ 3.75 million USD.

• On May 1, 2021, the ACL increased to an amount equal to 80 % of the prior three months’ revenue.

• Each successive month, the ACL shall be adjusted according to the Company’s prior three months’ revenue to a maximum advance line of $ 17.5 million as specified in the Amendment.

• 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 $10 million 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 advance 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 Purchase Agreement, to provide offtake financing and purchase other concentrates (zinc, silver, copper, etc) and dore from the Company’s open pit and underground operations.

The ACL is included under Customer Advances on the consolidated balance sheet as of December 31 2022.

Deposits under 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 PAYABLE

On December 1, 2023, the Company exercised its option under the Advance Credit Line Facility and Purchase Agreement (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 notes 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 22 %.

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 %.

In June 2018, the Company applied for a reduction of the Francisco Arturo mining concession, from 69,121 hectares to 3,280 hectares.

On July 31, 2018, the application for reduction was approved and the Company paid an initial amount of 985,116 MNP (Pesos), for the second semester 2018 mining concessions taxes on the reduced Francisco Arturo mining concession.

The Company continues to accrue an amount of $ 22,500 (USD) per semester on the reduced Francisco Arturo mining concession.

As of June 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda for a reduction in the liability equal to the reduction in the Francisco Arturo concession above.

For financial reporting purposes the Company continues to carry all notes at unpaid principal amount and accrues interest on a monthly basis.

At December 31, 2023, $ 2,244,771 of accrued interest on the notes was included in accrued liabilities on the accompanying consolidated balance sheet.

In October 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the San Jose de Gracia core mining concessions in the amount of $ 299,474 .

The Company paid an initial 20 % payment of $ 59,895 and financed the balance over 36 months at an interest rate of 22 %.

The following is a summary of the transaction during the years ended December 31, 2023, and December 31, 2022:

Balance December 31, 2021

Exchange Rate Adjustment

2022 Principal Payments

Balance December 31, 2022

Exchange Rate Adjustment

2023 Principal Payments

Balance December 31, 2023

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

Asset retirement obligation at beginning of year

Additions to ARO liability

Asset retirement obligation at end of year

NOTE 11 - CONVERTIBLE PROMISSORY NOTES

Notes Payable – Series I

In April and May 2013, the Company entered into note agreements with shareholders in the principal amount of $ 1,495,000 , of which $ 340,000 was converted to preferred shares within the same year, netting proceeds of $ 1,155,000 (the “Series I Notes”).

The Series I Notes bear simple interest a 12.5 % accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears.

The Series I Note holders retained the option, at any time prior to maturity or prepayment, to convert any unpaid principal and accrued interest into Common Stock at $ 2.50 per share.

If the Series I Note is converted into Common Stock, at the time of conversion, the holder would also receive warrants, in the same number as the number of common shares received upon conversion, to purchase additional common shares of the Company for $ 7.50 per share, with such warrants expiring one year from their conversion date.

The Notes originally matured on December 31, 2015 .

The notes were extended multiple times including some interest payments being rolled into the principal.

At December 31, 2021, six Series I Notes remained outstanding with a total balance of $ 455,905 .

On July 1, 2022 the remaining Series I Notes were repaid in full in cash.

None of the notes were converted into common stock and no stock warrants were issued.

Notes Payable – Series II

In 2013 and 2014, the Company entered into additional note agreements of $ 199,808 and $ 250,000 , respectively (the “Series II Notes”) with similar terms as the Series I Notes.

The Series II Notes bear simple interest at 12.5 %, accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears.

The Note holder retained the option to at any time prior to maturity or prepayment, convert any unpaid principal and accrued interest into common stock of the Company at $ 2.50 per share.

At the time of conversion, the holder would receive a warrant to purchase additional common shares of the Company for $ 7.50 per share, such warrant expiring one year from their conversion date.

The Notes originally matured on December 31, 2015 .

The notes were extended multiple times including some interest payments being rolled into principal.

At December 31, 2021, two Series II notes remained outstanding with a balance of $ 87,374 .

On July 1, 2022 the remaining Series II Notes were paid off in full in cash.

None of the notes were converted into common stock and no stock warrants were issued.

NOTE 12– STOCKHOLDERS’ EQUITY

The total number of shares of all classes of capital stock which the Company has the authority to issue is 60,001,000 shares, consisting of (i) twenty million and one thousand ( 20,001,000 ) shares of Preferred Stock, par value $ 0.0001 per share (“Preferred Stock”), of which 1,734,992 are designated as Series C Preferred Stock, and 3,000,000 shares are designated as Series D Preferred Stock, and (ii) forty million ( 40,000,000 ) shares of Common Stock, par value $ 0.01 per share (“Common Stock”).

As of December 31, 2023, 15,266,008 of Preferred Stock remain undesignated.

Series A Preferred Stock

The Company had designated 1,000 shares of its Preferred Stock as Series A, having a par value of $ 0.0001 per share.

Holders of the Series A Preferred Stock had he right to elect a majority of the Board of Directors of the Company.

In 2007, the Company issued 1,000 shares of Series A Preferred Stock to its current CEO.

At December 31, 2022 there were 1,000 shares of Series A Preferred Stock outstanding.

On April 19, 2023 the Company repurchased the Series A Preferred stock from the CEO for $ 1,250,000 .

On July 17, 2023 the Company amended its certificate of incorporation to cancel the Series A Preferred stock.

Series C Senior Convertible Preferred Stock

As of December 31, 2023 and 2022, there were 1,734,992 and 1,734,992 Series C Preferred shares outstanding, respectively.

These Series C Preferred Shares are convertible to common shares at $ 1.95 per share, redeemable on demand and include anti-dilution protection on both the Preferred Series C and the 2,655,361 of Common Stock acquired through the exercise of the Series C stock warrants in June 2022.

The Series C Preferred Shares may receive a 4 % per annum dividend, payable if available, and in arrears.

The Dividend is calculated at 4.0 % of $ 4,337,480 payable annually on June 30.

As of December 31, 2023, dividends for the years ending December 31, 2017 through 2023 totaling $ 1,227,276 were in arrears.

(2022 - $ 1,053,777 ).

Due to the nature of this transaction as mandatorily redeemable by the Company at the election of the Series C preferred stock shareholder at maturity, the Series C Senior Convertible Preferred Shares are classified as “temporary equity” on the balance sheet.

Attached to the Series C Preferred Stock issued in 2015 were 2,000,000 warrants (the “2015 Warrant”), which gave the holder the right to purchase common shares at $ 2.50 per share.

After anti-dilution protection, these warrants became 2,166,527 warrants to purchase common shares at $ 2.04 and on June 28, 2022, the 2015 Warrant was exercised and the common shares were issued.

Series D Senior Convertible Preferred Stock

Financing Agreement with Golden Post Rail, LLC, a Texas Limited Liability Company, and with Shareholders of DynaResource, Inc.

On May 14, 2020, the Company closed an additional financing 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.

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 18 th .

As of December 31, 2023 dividends for the years 2022 and 2023 totaling $ 121,600 were in arrears.

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.

Due to the nature of the Series D Preferred Stock, 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 years ended December 31, 2023 and 2022, were $ 234,299 and $ 234,299 , respectively.

As the Company has not declared these dividends, it is required as an item “below” the net income amount on the accompanying consolidated statements of income.

Preferred Stock (Undesignated)

In addition to the 1,734,992 authorized shares designated as Series C Preferred Shares and 3,000,000 authorized 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 respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred Stock.

At December 31, 2023 and December 31, 2022, there were no other shares of Preferred Stock outstanding.

Separate Series; Increase or Decrease in Authorized Shares .

The shares of each series of Preferred Stock may vary from the shares of any other series thereof in any or all of the foregoing respects and in any other manner.

The Board of Directors may increase the number of shares of Preferred Stock designated for any existing series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series.

Unless otherwise provided in the Preferred Stock Designation, the

Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.

The Company is authorized to issue 40,000,000 common shares at a par value of $ 0.01 per share.

These shares have full voting rights.

At December 31, 2023 and December 31, 2022, there were 23,371,708 and 22,246,654 common stock shares outstanding, respectively.

No dividends were paid for the years ended December 31, 2023 and 2022, respectively.

Preferred Rights

In 2003, the Company issued “Preferred Rights” and received $ 784,500 for these rights.

This has been reflected as “Preferred Rights” in stockholders’ equity in accompanying consolidated balance sheets.

As of December 31, 2023, $ 744,500 had been repaid, leaving a current balance of $ 40,000 and $ 40,000 as of December 31, 2023 and 2022, respectively.

Stock Issuances

On August 4, 2023 the Company sold 1,000,000 common shares for $ 5.00 per share.

In connection with the sales the Company issued 125,054 shares to the Series C Preferred Stockholder under the Series C anti-dilution provision.

On June 28, 2022, the Company issued 2,655,361 shares of common stock upon the exercise of the 2,166,775 warrants by one warrant holder for $ 2.04 a share.

There shares carry the antidilution provision of the Series C Preferred stock.

On December 28, 2022, the Compensation Committee approved restricted common stock awards to employees, directors and consultants of the Company.

The stock awards approved vested 25% immediately with the remainder vesting 25% each year on December 28 for the next three years, subject to resignation or termination provisions.

The awards totaled 1,500,00 shares and the Company recorded stock compensation expense of $ 881,250 representing value of the 25% of shares that vested in 2022 and an additional $ 881,250 of stock compensation expense representing the value of the 25% of shares that vested in 2023.

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.

During the year ending December 31, 2022, there were no treasury stock transactions.

At December 31, 2023 and 2022, 37,180 and 12,180 treasury shares were held by the Company.

On June 28, 2022, one warrant holder exercised 2,166,775 warrants to purchase 2,655,361 shares of common stock for $ 2.04 a share.

These shares carry the antidilution provisions of the Series C preferred Stock.

As of December 31, 2023, the Company had a total of 892,165 warrants outstanding.

Balance at December 31, 2021

Exercise of the 2015 warrant

Forfeiture of the 2015 warrant

Balance at December 31, 2022

Exercise of warrants

Forfeiture of the warrants

Balance at December 31, 2023

Exercisable at December 31, 2023

NOTE 13 – STOCK BASED COMPENSATION

On December 28, 2022, the Company issued 1,500,000 shares of restricted common stock to certain key employees and consultants.

The shares were 25 % vested at issuance and vest an additional 25 % on December 28, 2023, 2024, and 2025.

The shares were valued at the closing stock price of $ 2.35 on the date of issuance and accounted for under ASC 718.

Stock compensation expense for the years ended December 31, 2023 and 2022 was $ 881,250 representing the 25 % vested portion of the total stock value.

As of December 31, 2023, deferred compensation totaling $ 1,762,500 will be expensed pro rata upon vesting.

NOTE 14 – INCOME TAXES

FASB ASC 740-10, Income Taxes, mandates the asset and liability approach to determine the income tax provision or benefit.

This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.

Developing the provision for income taxes and analysis of uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.

The Company assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required.

Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized.

The Company considers many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review.

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied:

(1) the more likely than not recognition threshold is satisfied;

(2) the position is ultimately settled through negotiation or litigation;

or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired.

Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.

Deferred Tax Assets:

Federal net operating loss carryforwards

Foreign net operating loss carryforwards

Lease liability

Accrued bonus

Gross Deferred Tax Assets

Valuation allowance

Total Deferred Tax Asset

Deferred Tax Liabilities:

Right of use asset

Total Deferred Tax Liabilities

Net Deferred Tax Asset

Deferred Tax Liability

The Company's pre-tax income (loss) by jurisdiction was as follows for the years ending December 31, 2023 and 2022

The provision for income taxes for continuing operations for the year ended December 31, 2023 and 2022 consist of the following

Current income taxes

Total current income taxes

Deferred income taxes

Total deferred income taxes

Total income tax benefit

A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal income tax rate is shown below.

Income tax expense for the year ended December 31, 2023 includes state minimum taxes, permanent differences, and deferred tax assets for which the valuation allowance has been released.

A corresponding tax benefit is included for the year ended December 31, 2023 to reflect the release in the valuation allowance.

Tax Expense at statutory federal rate of 21%

Permanent differences

Foreign rate differential

Return to provision

GILTI NOL impact

GILTI NOL adjustment – previously offset by valuation allowance

Change in valuation allowance

Statutory to GAAP

Income tax benefit

The net deferred tax asset and benefit for the current year is generated primarily from cumulative net operating loss carryforward, which totals approximately $ 28 million at December 31, 2023.

United States Expiring 2029 to 2037

United States Indefinite Limited to 80%

Total Net Operating Loss Carryforward

At December 31, 2023, the carryforwards available to offset US federal future taxable income consisted of net operating loss (“NOL”) carryforwards of approximately $ 6.6 million pre-tax, all of which, have no expiration date.

Future NOL utilization will be subject to the 80-percent of taxable income limitation, as all remaining NOLs have been generated after 2017 and the passage of the Tax Cuts and Jobs Act of 2017.

The Company’s Mexico net operating losses of $ 21.7 million pre-tax are subject to a ten-year carryforward period and the Company anticipates utilizing its Mexico NOL in future years before expiration.

During the year ended December 31, 2022, the valuation allowance was released.

The Company believes a full valuation allowance against the net deferred tax asset is no longer warranted based on the positive evidence in recent years.

Such positive evidence includes no longer being in a three-year cumulative losses, the rising prices in gold, utilization of current year tax attributes, and projected taxable income in the future.

The Company’s practice is to recognize interest and penalties related to income taxes in income tax expense in continuing operations, as incurred.

There were no any uncertain tax benefits or interest and penalties related to uncertain tax benefits as of December 31, 2023.

The Company is subject to income taxes in the US federal jurisdiction as well as Mexico.

The Company is no longer subject to US federal, state and local tax examinations by tax authorities for years prior to fiscal year 2021.

The Company began utilizing its NOL in 2021.

The statute of limitations began when the Company filed its 2021 US Federal Tax Return.

The Company is no longer subject to Mexican tax examinations for years prior to fiscal year 2017.

The Company is currently not under audit by any tax authority.

The Company has not provided U.S.

income taxes and foreign withholding taxes, on its cumulative earnings for certain non-U.S.

subsidiaries, because such earnings are intended to be indefinitely reinvested.

Determination of the amount of unrecognized deferred tax liability for temporary differences related to investments in these non-U.S.

subsidiaries that are essentially permanent in duration is not practicable.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

2014 Arbitration Proceeding filed by Goldgroup Resources Inc.

On March 14, 2014, Goldgroup Resources, Inc.

("Goldgroup") filed for arbitration in the United States with the American Arbitration Association (“AAA”), seeking monetary and nonmonetary relief under an Earn In/Option Agreement.

On August 25, 2016, the AAA issued a ruling in favor of Goldgroup against the Company and DynaMéxico (the “Arbitration Award”).

On May 9, 2019, the United States District Court for the District of Colorado (the “Colorado U.S.

District Court”) confirmed the Arbitration Award.

The Company fulfilled its obligations under the Arbitration Award prior to the beginning of 2023.

On March 5, 2024, the Colorado U.S.

District Court issued an Order denying requests for additional relief by both the Company and Goldgroup and stating that the case is closed.

DynaResource de Mexico SA de CV Legal Update & Disclosure

On March 3, 2023, Goldgroup Resources Inc.

(“Goldgroup”) filed a formal notice with the México Federal Legal Authorities, which confirmed Goldgroup’s complete withdrawal of all legal claims in Mexico and under Mexican law against DynaResource de México SA de CV.

Goldgroup’s complete legal withdrawal is the result and culmination of 7 years of legal actions undertaken in Mexico by DynaMéxico.

Accordingly, all matters before the courts in México with respect to DynaMéxico and Goldgroup Resources Inc.

are fully resolved and are no longer subject to appeal.

Consequence of the México legal ruling and the Goldgroup legal withdrawal:

The $48,280,808 USD damages award (dated October 05, 2015) in favor of DynaMéxico and against Goldgroup Resources Inc., confirmed by Mexican courts in 2019, is final, conclusive, and enforceable under Mexican law.

Goldgroup Resources’ challenges to that award have been fully denied and the damages award is final.

Goldgroup’s challenges to DynaMéxico’s share ownership have also been fully denied and consequently, under Mexican law, Goldgroup owns no shares in DynaMéxico.

Mercuria Energy Trading S.A vs Mineras de DynaResource S.A.

In 2020, Mercuria Energy Trading, S.A.

(“Mercuria”) initiated an arbitration proceeding against Mineras de Dynaresource, S.A.

(“Mineras”), arising out of the earlier-terminated supply agreement between the parties.

In January 2022, The arbitration panel awarded Mercuria the sum of US$1,822,674, plus interest at 2% over the quarterly compounded USD 3- month LIBOR rate, from February 2020 forward.

In August 2022, the panel also assessed costs of the arbitration proceeding against Mineras, in the aggregate amount of £ 376,232.

DynaResource has accrued $1,000,000 for the arbitration award and related costs.

The Company notes the following:

since Mineras is a company of Mexican nationality, under Mexican law Mineras has the right to legally oppose the recognition and enforcement of the award to Mercuria, the assessment of any costs, and any supplemental award.

Concession Taxes

The Company is required to pay taxes in México in order to maintain mining concessions owned by DynaMéxico.

Additionally, the Company is required to incur a minimum amount of expenditures each year for all concessions held.

The minimum expenditures are calculated based upon the land area, as well as the age of the concessions.

Amounts spent in excess of the minimum may be carried forward indefinitely over the life of the concessions and are adjusted annually for inflation.

Based on Management’s recent business activities and current and forward plans and considering expenditures on mining concessions from 2002-2017 and continuing expenditures in current and forward activities, the Company does not anticipate that DynaMéxico will have any difficulties meeting the minimum annual expenditures for the concessions ($388 – $2,400 Mexican Pesos per hectare).

DynaMéxico retains sufficient carryforward amounts to cover over 10 years of the minimum expenditure (as calculated at the 2017 minimum, adjusted for annual inflation of 4%).

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations ( Ley Minera y su Reglamento ), DynaMineras maintains access and surface rights to the SJG Project pursuant to the 20-year Land Lease Agreement.

The 20 Year Land Lease Agreement with the Santa Maria Ejido Community surrounding San Jose de Gracía was dated January 6, 2014 and continues through 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 of $ 1,359,443 pesos adjusted for inflation based on the Mexico minimum wage increase commencing in 2014.

Rent was $ 4,414,124 Pesos (approx.

$ 249,000 USD) for the year ended December 31, 2023.

The Land Lease Agreement provides DynaMineras with surface access to the core resource areas of SJG ( 4,399 hectares ), and allows for all permitted mining and exploration activities from the owners of the surface rights (Santa Maria Ejido community).

The Company leases office space for its corporate headquarters in Irving, Texas.

In February 2023, the Company entered into a fifty-two-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 affective August 1, 2023 The Company makes tiered lease payments on the 1st of each month.

The Company determines if a contract is or contains a lease at inception.

As of December 31, 2023, the Company has two operating leases - fifty-two month lease for office space with a remaining term of forty-seven months and a twenty-year ground lease in association with its México mining operations with a remaining term of 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.

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments.

These discount rates for leases are calculated using the Company's interest rate of promissory notes.

The Company’s components of lease expense are as follows:

Operating Lease – Office Lease

Operating Lease – Ground Lease

Short Term Lease Costs

Variable Lease Costs

Weighted average remaining lease term and weighted average discount rate are as follows:

Weighted Average Remaining Lease Term (Years) – Operating Leases

Weighted Average Discount Rate – Operating Leases

Estimated future minimum lease obligations are as follow for the years ending December 31:

Less Imputed Interest

OPERATING LEASE LIABILITY

NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are described below:

Level 1 Inputs – Quoted prices for identical instruments in active markets.

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs – Instruments with primarily unobservable value drivers.

As of December 31, 2023 and 2022, the Company’s financial assets were carried at fair value and were measured at fair value using Level 3 inputs, with the exception of cash, which was valued using Level 1 inputs.

A description of the valuation of the Level 3 inputs is discussed in Note 10.

Quoted Prices

Fair Value Measurement at December 31, 2023:

Derivative Liabilities

Fair Value Measurement at December 31, 2022:

Derivative Liabilities

NOTE 17 – CONCENTRATIONS

For the years ended December 31, 2023 and 2022, one customer accounted for 100 % of revenue and accounts receivable.

NOTE 18 - SEGMENTED INFORMATION

The Company operates as one segment:

test-mining and pilot milling gold-silver concentrate for sale from its location in Mexico, and had the following geographic concentrations as of December 31, 2023 and 2022:

United States

December 31, 2023

Mineral property

Property and equipment

Current assets

December 31, 2022

Mineral property

Property and equipment

Current assets

December 31, 2023

December 31, 2022

Total comprehensive income (loss) for the year - Mexico

Total comprehensive income (loss) for the year - United States

Total comprehensive income (loss) for the year

NOTE 19 – RELATED PARTY TRANSACTIONS

During the years ended December 31, 2023 and 2022, the Company paid or accrued $ 370,000 and $ 75,000 in management fees to its directors.

Included in accounts payable at December 31, 2023 is $ 100,734 due to related parties.

Restricted Stock Awards

During the year ended December 31, 2022 the Compensation Committee approved stock awards to employees, directors and consultants of the Company.

The stock awards approved were issued to each of the individuals/entities and vested 25 % immediately and the remainder vest 25 % each year on December 31st for the next three years, subject to resignation or termination provisions.

The awards totaled 1,500,000 shares of which 1,175,000 were awarded to officers and/or directors.

Total stock-based compensation recognized on awards granted to related parties totalled $ 690,313 during each of the years ended December 31, 2023 and 2022.

NOTE 20– SUBSEQUENT EVENTS

The Company has evaluated events from December 31, 2023, through the date whereupon the consolidated financial statements were issued, and has described below the events subsequent to the end of the period:

On February 19, 2024., the Board of Directors approved the DynaResource, Inc.

2024 Equity Incentive Plan (the “Plan”), which the Company intends to submit for stockholder approval at the 2024 annual meeting of stockholders.

Pursuant to the Plan, the Company may issue various types of equity incentives, including stock options, restricted stock, and stock appreciation rights, to employees, directors, and consultants.

The Plan has a term of 10 years and provides for the issuance of no more than an aggregate 2,700,000 shares of common stock over the life of the Plan.

The Plan is administered by the Compensation Committee of the Board of Directors.

On February 19, 2024, the Company issued 400,000 stock option awards to a new independent director, at 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.

CHANGES IN AND DISA GREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis