DYNARESOURCE, INC. 10-K

ITEM 2. PROPERTIES The Company leases office space for its corporate headquarters in Irving, Texas. In September 2017, the Company entered into a sixty-six-month extension of the lease through January 2023. As part of the agreement the Company received six months free rent as a finish out allowance. The Company capitalized the leasehold improvement costs and amortized them over the rent abatement period as rent expense. The Company makes tiered lease payments on the 1 st of each month. We classify our mineral property as an "Exploration Property". We do not suggest that we have proven or probable reserves at our property as defined by the SEC. Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the mineral resource estimate compiled for DynaMéxico, under and filed by the Company on SEDAR, are not disclosed in this Form 10K . There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves. San Jose de Gracia Mineral Property San Jose de Gracía Property (“SJG”) is a high-grade mineralized system which reports historical production of 1,000,000 Oz. gold (“Au”), from a series of underground workings and is located in the state of Sinaloa, México. The Company is focused on the exploration and future exploitation of this vein-hosted, near surface, and over 400 meters down dip gold potential, that occurs within fault breccia veins; and has been traced on surface and underground over a 15 Sq. kilometer area. DynaMéxico owns 100% of the mineral concessions at the SJG Property, and all mineral concessions are contiguous. The SJG Property is comprised of 33 concessions covering approximately 9,920 hectares (24,513 acres). Current Mining Concessions - San José de Gracía Claim Name Claim Number Staking date Expiry Hectares Taxes / ha (pesos) AMPL. SAN NICOLAS 183815 22/11/1988 21/11/2038 17.4234 111.27 AMPL. SANTA ROSA 163592 30/10/1978 29/10/2028 25.0000 111.27 BUENA VISTA 211087 31/03/2000 30/03/2050 17.9829 63.22 EL CASTILLO 214519 02/10/2001 01/10/2051 100.0000 31.62 EL REAL 212571 07/11/2000 07/11/2052 2038.0000 31.62 EL REAL 2 216301 30/04/2002 29/04/2052 280.1555 31.62 FINISTERRE FRACC. A 219001 28/01/2003 27/01/2053 18.7856 31.62 FINISTERRE FRACC. B 219002 28/01/2003 27/01/2053 174.2004 31.62 GUADALUPE 189470 05/12/1990 04/12/2040 7.0000 111.27 LA GRACIA I 215958 02/04/2002 01/04/2052 300.0000 31.62 LA GRACIA II 215959 02/04/2002 01/04/2052 230.0000 31.62 6 Table of Contents LA LIBERTAD 172433 15/12/1983 14/12/2033 97.0000 111.27 LA NUEVA AURORA 215119 08/02/2002 07/02/2052 89.3021 31.62 LA NUEVA ESPERANZA 226289 06/12/2005 05/12/2055 40.0000 7.6 LA UNION 176214 26/08/1985 25/08/2035 4.1098 111.27 LOS TRES AMIGOS 172216 27/10/1983 26/10/2033 23.0000 111.27 MINA GRANDE 163578 10/10/1978 09/10/2028 6.6588 111.27 NUEVO ROSARIO 184999 13/12/1989 12/12/2039 32.8781 111.27 PIEDRAS DE LUMBRE 2 215556 05/03/2002 04/03/2052 34.8493 31.62 PIEDRAS DE LUMBRE 3 218992 28/01/2003 27/01/2053 4.3098 31.62 PIEDRAS DE LUMBRE No.4 212349 29/09/2000 28/09/2050 0.2034 63.22 PIEDRAS DE LUMBRE UNO 215555 05/03/2002 04/03/2052 40.2754 31.62 SAN ANDRES 212143 31/08/2000 30/08/2050 385.0990 63.22 SAN JOSÉ 208537 24/11/1998 23/11/2048 27.0000 111.27 SAN MIGUEL (1) 183504 26/10/1988 25/10/2038 7.0000 111.27 SAN NICOLAS 163913 14/12/1978 13/12/2028 55.5490 111.27 SAN SEBASTIAN 184473 08/11/1989 07/11/2039 40.0000 111.27 SANTA MARIA 218769 17/01/2003 16/01/2053 4.2030 31.62 SANTA ROSA 170557 13/05/1982 12/05/2032 31.4887 111.27 SANTO TOMAS 187348 13/08/1986 12/08/2036 312.0000 111.27 TRES AMIGOS 2 212142 31/08/2000 30/08/2050 54.4672 63.22 FINISTERRE 4 231166 18/01/2008 17/01/2058 2142.1302 5.08 FRANCISCO ARTURO 230494 06/09/2007 27/03/2057 3,279.56 TOTAL 9,920.00 Surface Lease Rights In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations ( Ley Minera y su Reglamento ), DynaMineras maintains access and surface rights to the SJG Project pursuant to the 20-year Land Lease Agreement (above). The 20 Year Land Lease Agreement with the Santa Maria Ejido Community surrounding San Jose de Gracía is dated January 6, 2014 and continues through 2033. It covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG and provides for annual lease payments by DynaMineras of $1,359,443 Pesos adjusted for inflation based on the Mexico minimum wage, commencing in 2014. The 2021 payment was $3,015,112 pesos (approx. $149,000 USD). Additionally, under the description of the 20 Year Land Lease, DynaMineras constructed a Medical Facility at SJG in year 2017. The Land Lease Agreement provides DynaMineras with surface access to the core resource areas of SJG (4,399 hectares), and allows for all permitted mining, pilot production and exploration activities from the owners of the surface rights (Santa Maria Ejido community). The Company expects DynaMineras will be successful in expanding the size and scope of the resources at SJG through continued drilling and development programs at San Pablo, Tres Amigos, La Ceceña, Palos Chinos, San Pablo East, La Purisima, and La Prieta. The Company expects extensions to mineralization in all directions and down dip from the main target areas. Mineral Reserves / No Known Reserves Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG property is without known reserves. Mineral resources which are not classified as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade) of resources reported as “Indicated” and “Inferred” mineral resources in the mineral resource estimate compiled for DynaMéxico is not disclosed in this Form 10-K . There has been insufficient exploration to define any mineral reserves on the property, and it is not certain if further exploration will result in the definition of mineral reserves. 7 Table of Contents Technical Report and Resource Estimate According to Canadian National Instrument 43-101 (2012) In 2012, DynaMéxico commissioned Servicios y Proyectos Mineros (“SPM”) for the production of Technical Report 43-101 (“43-101”) at San Jose de Gracía. Additionally, DynaMéxico commissioned Mr. Robert Sandefur, a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO (“CAM”) to produce a mineral resource estimate for the 4 main vein systems at the property. Parameters Used to Estimate the Mineral Resource Estimate-- The data base for the San Jose de Gracía Project consists of 372 drill holes of which 361 are diamond drill holes (“DDH”) and the remaining 11 were reverse circulation holes “(RC”), with a total drilling of 75,878 meters. The NI 43-101 Mineral Resource Estimate, prepared in 2012, concentrates on four main mineralized vein systems at SJG: Tres Amigos, San Pablo, La Union, and La Purisima. Of the 372 drill holes, 368 were drilled to test these four main vein systems and the remaining four holes tested the Argillic Zone. Technical personnel of Minop S.A. de C.V. (“Minop”), a subsidiary (or affiliate) of Goldgroup Mining Inc., built three dimensional solids to constrain estimation to the interpreted veins in each swarm. The 172 holes most recently drilled (2009-2011), were allocated as follows: Tres Amigos (64 holes), San Pablo (49 holes), La Union (24 holes), La Purisima (32 holes) and Argillic Zone (3 holes). The data base also includes rock and chip sampling, regional stream sediment sampling, and IP Surveys. Density-- A total of 5,540 pieces of core were measured for specific gravity using the weight in air vs. weight in water method. This represents an additional 3,897 measurements taken in the 2009-11 drill seasons with density measurements taken from all mineral zones. Dried samples were coated with paraffin wax before being measured. The results tabulated have been sorted by lithology and mineralized veins. The average specific gravity of 5,051 wall rock samples was 2.59 while the average specific gravity for 489 samples of vein material is 2.68. CAM and Servicios y Proyectos Mineros have reviewed the procedures and results and opine that the results are suitable for use in mineral resource estimation. Mineral Resource Estimate - Construction of Wireframes-- Mineral Resources were estimated by Mr. Sandefur within wireframes constructed by technical personnel of Minop. Minop was contracted by Mineras de DynaResource S.A. de C.V. (“DynaMineras”). Mineral Resource Estimate - Explanation of Resource Estimation-- Resource estimation was done in MineSight and MicroModel computer systems with only those composites that were inside the wireframe used in the estimate. Estimation was done using kriging with the omni-directional variogram derived from all the data in each area for gold using the relative variogram derived from the log variogram. High grades were restricted by capping the assays at a breakpoint based on the cumulative frequency curves. Estimation was done using search radii of 100 x 100 x 50 m “blocks” oriented subparallel to the general strike and dip of the vein system in each area. A sector search, corresponding to the faces of the search box with a maximum of two points per sector was used in estimation. A density of 2.68 based on within ‘vein density’ samples was used in the resource estimate. Within each of the four areas there are approximately 20 to 40 veins in the vein swarm. Resources were estimated by kriging using data from all veins in the swarm. In general, gold accounts for at least 80% of the value of contained metal at the project, so the variograms for gold were used in estimation of the four other metals. The veins at San Jose de Gracía have been historically mined for many years and historic mined volumes are not available. The one exception is the approximate 42,000 tonnes of ore processed by DynaMéxico during its pilot production activities in 2003-2006. The resource table is not adjusted for any historic mining. To validate that historic mining had not significantly reduced the resource, CAM reviewed the database for all assays greater than 1 gram per ton gold that were next to missing values at the bottom of drill holes. Only four assays satisfying this criterion were found, and on the basis of this review, Mr. Sandefur does not believe that significant mining has occurred within the volumes defined by the wireframes. Servicios y Proyectos Mineros performed a database review and considers that a reasonable level of verification has been completed, and that no material issues have been left unidentified from the drilling programs undertaken. M ineral Resource Estimate and 43-101 Technical Report - Data Verification-- Mr. Ramon Luna Espinoza (“Mr. Luna”) initially visited the San Jose de Gracía Project in November 2010 and conducted site inspections at SJG in November 2011 and January 2012. Mr. Sandefur conducted a site inspection of the SJG Project in January 2012. While at the Property in November 2011, Mr. Luna inspected the areas of Tres Amigos, La Prieta, Gossan Cap, San Pablo, La Union, and La Purisima, and historic mining sites. In January 2012, Mr. Sandefur and Mr. Luna inspected the areas of Tres Amigos, San Pablo, La Union, and La Purisima. Pictures of the areas were taken. Many of the drill pads for the drilling programs of 2007 to 2011 were clearly located and identified. Mr. Luna also inspected at San José de Gracía, the core logging and storage facilities, the geology offices, the meteorological station, the plant nursery, and the mill. Mr. Sandefur also inspected the core logging and storage facilities. 8 Table of Contents The Company received from DynaMéxico on February 14, 2012, a National Instrument 43-101 Mineral Resource Estimate for San Jose de Gracía. The NI 43-101 Resource Estimate was prepared by Mr. Robert Sandefur, BS, MSc, P.E., a Qualified Person as defined under NI 43-101, and a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO (“CAM”). The Resource Estimate concentrates on four separate main vein systems at SJG: Tres Amigos, San Pablo, La Union, and La Purisima. The mineral resource estimates prepared by Mr. Robert Sandefur for this Technical Report included Indicated Resources at Tres Amigos and San Pablo. Table summaries of Indicated and Inferred Resources are contained in the 2012 DynaMéxico-CAM Mineral Resource Estimate. The Resource Estimate has been filed, along with the Technical Report on SEDAR; but is not disclosed in this Form 10-K . Water Concession The Company has secured the Water Rights Concession for the area surrounding SJG. The Director of Water Administration of the National Water Commission of México (CONAGUA) formally certified in writing the rights of DynaResource de México, S.A. de C.V. to legally “use”, exploit and extract 1,000,000 cubic meters of water per year from the DynaMéxico extraction infrastructure located within the perimeter of the mining concessions comprising the San Jose de Gracía Mining Property in Sinaloa State, México. CONAGUA determined that the DynaMéxico water rights are not subject to any water rights concession or any other water extraction restriction. Water extracted by DynaMéxico will be subject to applicable levies imposed by the Mexican tax authorities in accordance with current Mexican tax laws.