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Item 8. Financial Statements and Supplementary Data

2023-04-17 compared with 2022-03-24 · 270 added, 317 removed, 559 unchanged (51% of the section changed)

35 unchanged sentences

Derivative Liabilities

As described in Note 10 to the consolidated financial statements, the derivative liabilities represent the embedded conversion features of the Series C Preferred Stock, Preferred Series C Warrants, and Series D Notes Kicker Warrants.

As described in Note 10 to the consolidated financial statements, the derivative liabilities represent the embedded conversion features of the Series D Warrants.

The Company has classified the derivative liabilities as Level 3 liabilities and the fair value of the liabilities are evaluated each reporting period.

4 unchanged sentences

the annual volatility rate, the risk-free rate, the remaining term, and the fair value of the underlying common stock.

The principal considerations for our determination that performing procedures relating to the fair value of the derivative liabilities is a critical audit matter are:

The principal considerations for our determination that performing procedures relating to the fair value of the derivative liabilities is a critical audit matter is:

there was significant judgment and estimation used by management in determining the fair value of the derivative liabilities, which led to an increased level of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to the derivative liabilities, including the qualitative component.

4 unchanged sentences

We have served as the Company's auditor since 2020.

March 24, 2022

April 17, 2023

DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE S HEETS

DECEMBER 31, 2022 and 2021

5 unchanged sentences

Total current assets

Property and equipment (net of accumulated

depreciation of $ 116,425 and $ 113,176 )

Right-of-use assets

Property and equipment (net of accumulated depreciation of $ 119,154 and $ 116,425 )

Right-of-use assets, net

Mining concessions

Deferred tax asset

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

4 unchanged sentences

Derivative liabilities

Current portion of convertible notes payable

Convertible notes payable

Current portion of operating lease payable

Current portion of long-term debt

Installment notes payable

Total current liabilities

Convertible notes payable - Series D (net of amortized discount of $ 0 and $ 755,214 )

Convertible notes payable - Series I & II, less current portion

Operating lease payable, less current portion

Long term debt, less current portion

TOTAL LIABILITES

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 and 0 shares issued and outstanding

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)

Preferred Stock, Series A, $ 0.0001 par value, 1,000 shares

authorized, issued and outstanding

Common Stock, $ 0.01 par value, 40,000,000 and 40,000,000 shares authorized

18,091,293 and 17,722,825 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 (DEFICIT)

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

Common Stock, $ 0.01 par value, 40,000,000 and 40,000,000 shares authorized 22,246,654 and 18,091,293 issued and outstanding

Preferred rights

1 unchanged sentence

Treasury stock, 12,180 and 12,180 shares

( 1,474,486 )

Accumulated other comprehensive income

2 unchanged sentences

( 50,722,465 )

TOTAL STOCKHOLDERS’ DEFICIT

( 9,668,660 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

TOTAL STOCKHOLDERS’ EQUITY ( DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

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

DYNARESOURCE, INC.

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

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

3 unchanged sentences

Mine exploration costs

Mine expansion costs

Facilities expansion costs

Exploration Drilling

Camp, warehouse and facilities

1 unchanged sentence

Property holding costs

Stock Compensation Expense

General and administrative

1 unchanged sentence

TOTAL OPERATING EXPENSES

NET OPERATING INCOME (LOSS)

( 2,679,945 )

NET OPERATING INCOME

OTHER INCOME (EXPENSE)

2 unchanged sentences

( 1,573,125 )

( 1,133,360 )

Derivatives mark-to-market gain (loss)

( 2,186,912 )

( 1,186,964 )

Arbitration award expense

3 unchanged sentences

( 4,622,364 )

( 2,685,878 )

NET INCOME (LOSS) BEFORE TAXES

( 5,365,823 )

PROVISION FOR INCOME TAXES

NET INCOME (LOSS)

NET INCOME BEFORE TAXES

PROVISION FOR INCOME TAXES (BENEFIT)

( 2,580,410 )

DEEMED DIVIDEND FOR SERIES C & D PREFERRED

LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

$ ( 5,477,733 )

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

EARNINGS PER SHARE ATTRIBUTABLE TO THE

EQUITY HOLDERS OF DYNARESOURCE, INC.

Basic and Diluted Income (loss) per common share

Weighted average shares outstanding – Basic and Diluted

Basic Income per common share

Weighted average shares outstanding – Basic

Diluted Income per common share

Weighted average shares outstanding – Diluted

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency translation gain (loss)

Unrealized foreign currency translation gain (loss)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

TOTAL COMPREHENSIVE INCOME (LOSS)

$ ( 5,265,241 )

ATTRIBUTABLE TO:

EQUITY HOLDERS OF DYNARESOURCE, INC.

$ ( 5,191,983 )

NON-CONTROLLING INTEREST

TOTAL COMPREHENSIVE INCOME

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

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2022 AND 2021

Non Controlling

Balance January 1, 2021

2 unchanged sentences

$ ( 9,668,660 )

$ ( 4,734,919 )

Treasury Stock Issued for Services

Stock Warrants Exercised

Other Comprehensive Income

Net Income (Loss)

( 5,304,234 )

( 5,365,823 )

Elimination of Non-Controlling Interest

( 5,565,421 )

Balance, December 31, 2021

2 unchanged sentences

$ ( 151,589 )

Treasury Stock Issued for Services

Stock Issued for Services

Stock Warrants Exercised

3 unchanged sentences

$ ( 44,036,663 )

$ ( 50,722,465 )

$ ( 151,589 )

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

DYNARESOURCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH F LOWS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

CASH FLOWS FROM OPERATING ACTIVITES:

Net Income (Loss)

Adjustments to reconcile net income to cash used in operating activities

Derivatives mark-to-market (gain) loss

( 1,726,497 )

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

Change in derivatives

Depreciation and amortization

Right-of-use assets, amortization

Amortization of loan discount

Stock issued for services

Non-dilution stock issuance

Deferred tax asset

( 2,970,410 )

Change in operating assets and liabilities

4 unchanged sentences

( 2,562,266 )

Right-of-use assets

Accounts payable

6 unchanged sentences

Proceeds from exercise of stock warrants

Proceeds from borrowing

Payments of convertible notes

4 unchanged sentences

Effects of foreign currency exchange

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVILANTS

CASH AND CASH EQUIVILANTS AT BEGINNING OF PERIOD

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVILANTS AT END OF PERIOD

2 unchanged sentences

Cash paid for income taxes

NON-CASH TRANSACTION

Accrued interest rolled into notes payable

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

13 unchanged sentences

The SJG District covers 9,920 hectares (24,513 acres) on the west side of the Sierra Madre mountain range.

DynaUSA currently owns 80% of the outstanding capital of DynaMéxico.

DynaUSA currently owns 80% of the outstanding capital of DynaMéxico, 79% directly and 1% held by the current CEO on behalf of the Company, in compliance with Mexican law.

DynaMéxico currently holds 20% of the Shares of DynaMéxico as treasury shares, after complete foreclosure and recovery of those shares on February 20, 2020 from Goldgroup Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc.

4 unchanged sentences

de C.V., “DynaMineras”).

In 2020 the Company moved its registered employees from DynaOperaciones to DynaMexico in compliance with changes in Mexican employment law.

The Company owns 100% of DynaMineras and 100% of DynaOperaciones.

1 unchanged sentence

This regulation sets forth standards for reporting resources in a mineral property and is a standard recognized in the mining industry.

Reclassifications and Adjustments

Certain financial statement reclassifications have been made to prior period balances to reflect the current period’s presentation format, such reclassifications had no impact on the Company’s consolidated statements of income or consolidated statements of cash flows and had no material impact on the Company’s consolidated balance sheets.

Significant Accounting Policies

2 unchanged sentences

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 consolidated financial statements which present fairly the consolidated financial condition, results of operations and cash flows of the Company for the respective periods presented.

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 consolidated financial statements which present fairly the consolidated financial condition, results of operations and cash flows of the Company for the respective periods presented.

Basis of Presentation

5 unchanged sentences

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).

de C.V., DynaResource Operaciones S.A.

and Mineras de DynaResource S.A.

All significant inter-company transactions have been eliminated.

1 unchanged sentence

Dollars unless otherwise stated.

Non-Controlling Interest

The Company’s subsidiary, DynaResource de México S.A.

de C.V, was 20 % owned by Goldgroup Resources, Inc.

until February 20, 2020 when the Company recovered the shares as partial satisfaction of a legal judgement.

See Note 11 for further details.

The Company accounted for this outside interest as a “non-controlling interest” through February 2020.

A 20% share of operating income (loss) and comprehensive income (loss) was allocated to the non-controlling interest through the date of the recovery of the shares.

Cash and Cash Equivalents

3 unchanged sentences

Banks in excess of the FDIC limit.

The Company does not believe it is at a risk of loss.

The Company does not believe it is at a risk of loss on cash.

Accounts Receivable and Allowances for Doubtful Accounts

1 unchanged sentence

As of December 31, 2022, and 2021, respectively, no allowance has been made.

During the year the Company recorded a $381,871 bad debt write off of receivables from a former customer of the Company.

At, December 31, 2021 management believes all current receivables are fully collectable.

During the year ended December 31, 2021 the Company recorded a $ 381,871 bad debt write off of receivables from a former customer of the Company.

At, December 31, 2022 management believes all accounts receivable are fully collectable.

Inventories are carried at the lower of cost or net realizable value and consist of mined tonnage, gravity and flotation concentrates, and gravity tailings or flotation feed material.

4 unchanged sentences

IVA amounts charged to and paid by the company are recorded and carried as receivables until the funds are collected by the company.

The total amounts of the IVA receivable as of December 31, 2021 and December 31, 2020 were $ 4,742,180 and $ 2,179,914 , respectively.

Proven and Probable Reserves (No Known Reserves)

The definition of proven and probable reserves is set forth in SEC Industry Guide 7 (“Industry Guide 7”).

Proven reserves for which (1) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (2) the sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of the reserves are well-established.

Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced.

The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observations.

As of December 31, 2021, none of the Company's properties contain resources that satisfy the definition of proven and probable reserves.

The Company classifies the development of its properties, including the San Jose de Gracía Property, as exploration stage projects since no proven or probable reserves have been established under Industry Guide 7.

Technical Report and Resource Estimate According to Canadian National Instrument 43-101 (2012)

In 2012, DynaMéxico commissioned Servicios y Proyectos Mineros (“SPM”) for the production of Technical Report 43-101 (“43-101”) at San Jose de Gracía.

Additionally, DynaMéxico commissioned Mr.

Robert Sandefur, a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO (“CAM”) to produce a mineral resource estimate for the 4 main vein systems at the property.

The Company plans to update this report in 2022.

The total amounts of the IVA receivable as of December 31, 2022 and December 31, 2021 were

$ 9,355,863 and $ 4,742,180 , respectively.

In 2022, the Company recovered $403,308 of the IVA receivable.

Exploration Stage

According to Section 1300 of Regulation S-K, the Registrant is an exploration stage issuer with an exploration stage property since it does not have proven and probable reserves as defined in Section 1300 and does not have a preliminary or final feasibility study.

Property and Equipment

6 unchanged sentences

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

When proven and probable reserves as defined by Industry Guide 7 exist, development costs are capitalized, and the property is a commercially minable property.

Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production would be capitalized.

Costs of start-up activities and costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations as incurred.

Costs of abandoned projects are charged to operations upon abandonment.

All capitalized costs would be amortized using the units of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves.

Certain costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves.

As no proven and probable reserves have been established on any of the Company's properties, design, construction and development costs are not capitalized at any of the Company's properties, and accordingly, substantially all costs are expensed as incurred, resulting in the Company reporting larger operating expenses than if such expenditures had been capitalized.

Additionally, the Company does not have a corresponding depreciation or amortization of these costs going forward since these expenditures were expensed as incurred as opposed to being capitalized.

As a result of these and other differences, the Company's consolidated financial statements may not be comparable to the consolidated financial statements of mining companies that have established reserves as defined in Industry Guide 7.

Mineral Properties Interests

1 unchanged sentence

The amount capitalized relating to a mineral property interest represents its fair value at the time of acquisition.

When a property does not contain mineralized material that satisfies the definition of proven and probable reserves, such as with the San Jose de Gracía Property, capitalized costs and mineral property interests are amortized using the straight-line method once production begins.

As of December 31, 2022, the mining interests have been in the pilot production stage and therefore, no amortization has been expensed.

Mining properties consist of 33 mining concessions covering approximately 9,920 hectares at the San Jose de Gracía property (“SJG”), the basis of which are amortized on the unit of production method based on estimated recoverable resources.

Mining properties consist of 33 mining concessions covering approximately 9,920 hectares at the San Jose de Gracía property (“SJG”), the basis of which will be amotized once proven and probable reserves are extracted on the unit of production method based on estimated recoverable resources.

If it is determined that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to fair value as a charge to operations in the period in which the determination is made.

23 unchanged sentences

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.

As a result, the financial statements of the subsidiaries have been translated from Mexican Pesos into

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.

11 unchanged sentences

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.

Refer to Note 6.

Comprehensive Income (Loss)

3 unchanged sentences

The Company accounts for revenue recognition under ASC 606 “ Revenue from contracts with customers ”.

The Company generates revenue by selling gold and silver produce from its mining operations.

The Company generates revenue by selling gold and silver mineral concentrate 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.

8 unchanged sentences

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, receivables, payables and long-term debt.

The carrying amount of cash, receivable and payables approximates fair value because of the short-term nature of these items.

The carrying amount of long-term debt approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental risk adjusted borrowing rate.

The Company’s financial instruments consist of cash, receivables, payables and installment notes payable.

The carrying amount of cash, accounts receivable and accounts 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.

Earnings Per Share

4 unchanged sentences

Potentially dilutive common shares consist of stock warrants, convertible preferred shares and convertible notes and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.

The Company had 3,060,998 warrants outstanding at December 31, 2021 which upon exercise, would result in the issuance of 3,060,998 shares of common stock.

The Company had warrants outstanding to purchase 892,165 shares of common stock at December 31, 2022 which upon exercise, would result in the issuance of 892,165 shares of common stock.

These warrants are exercisable at $ 0.01 per share

The Company’s Series C Preferred Stock including outstanding dividends is convertible into 2,643,082 shares of Common Stock at December 31, 2022.

The Company’s Series D Preferred including outstanding dividends is convertible into 790,400 shares of common stock at December 31, 2022.

The Company had warrants outstanding (the 2015 Warrant) to purchase 2,657,895 shares of common stock at December 31, 2021 which upon exercise, would result in the issuance of 3,060,998 shares of common stock.

Of these warrants 2,168,745 were exercisable at $ 2.04 per share and 892,165 were exercisable at $ 0.01 per share.

The Company also had convertible debt instruments as of December 31, 2021 which, upon conversion at $ 2.50 per share, would result in the issuance of 217,312 shares of common stock.

The Company had 3,429,466 warrants outstanding at December 31, 2020 which upon exercise, would result in the issuance of 3,429,466 shares of common stock.

Of these warrants 2,168,833 were exercisable at $ 2.05 per share and 1,260,633 were exercisable at $.01 per share.

The Company also had convertible debt instruments as of December 31, 2020 which, upon conversion at valuations from $2.00 to $2.50 per share, would result in the issuance of 2,227,312 shares of common stock.

Years ended December 31

Net income (loss) attributable to common shareholders

$ ( 5,477,733 )

Weighted average number of common shares outstanding, Basic

2 unchanged sentences

Diluted income (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

At December 31, 2022, 892,165 of potentially dilutive common stock related to outstanding warrants were excluded from the diluted earnings per share calculation as the net income impact of the converted shares would cause earnings per share to increase, therefore their effect would be antidilutive.

At December 31, 2021, 2,168,833 shares of potentially dilutive common stock related to outstanding stock warrants and 217,312 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation, using the treasury stock method, because the exercise and conversion prices exceeded the average stock price and therefore their effect would be anti-dilutive.

In addition, at December 31, 2021, 892,165 of potentially dilutive common stock related to outstanding stock were excluded from the diluted earnings per share calculation as the net income impact of the converted shares would cause earnings per share to increase, therefore their effect would be antidilutive.

At December 31, 2020, potentially dilutive common shares related to stock warrants and convertible debt were excluded from the diluted earnings per share computation because the Company incurred a net loss and therefore their effect would be anti-dilutive.

In addition, at December 31, 2021, 892,165 of potentially dilutive common stock related to outstanding warrants were excluded from the diluted earnings per share calculation as the net income impact of the converted shares would cause earnings per share to increase, therefore their effect would be antidilutive.

Related Party Transactions

22 unchanged sentences

Mining Concessions were $ 4,132,678 and $ 4,132,678 at December 31, 2022 and December 31, 2021, respectively.

There was no depletion expense for the years ended December 31, 2021 and 2020.

As we are an exploration stage company, there was no depletion expense for the years ended December 31, 2022 and 2021.

NOTE 5 – CONVERTIBLE PROMISSORY NOTES

Notes Payable – Series I

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

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 at twelve and a half percent ( 12.5 %), accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears.

The 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 .

As of December 31, 2018, seven of the Series I Notes totaling $ 646,875 had subsequently been extended to December 30, 2019.

On December 31, 2019, the Company entered into agreements to extend seven outstanding notes totaling $646,875 plus accrued interest totaling $ 34,277 for new total notes of $ 681,152 until December 31, 2020.

On March 31, 2020, the Company entered into agreements to extend the seven outstanding notes totaling $ 681,152 plus accrued interest totaling $ 21,286 for a new total of $ 702,438 until June 30, 2022.

At December 31, 2020 one note for $ 246,533 was paid off leaving six Series I Notes remaining outstanding with a total balance of $ 455,905 .

The 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 .

The Company has the right to prepay the Series I Notes with a ten percent (10%) penalty.

The Series I Note holders retain 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.

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

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

Notes Payable – Series II

1 unchanged sentence

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

The 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 .

On December 31, 2019 the Company entered into agreements to extend the two notes totaling $ 78,750 plus accrued interest of $ 5,977 for total new notes of $ 84,726 to December 31, 2020.

One note for $112,500 was not extended and was past due as of December 31, 2019.

At December 31, 2019 three Series II notes remained outstanding for $ 197,226 .

On March 31, 2020, the Company entered into agreements to extend the two notes totaling $84,726 plus accrued interest of $ 2,648 for total new notes of $87,374 to June 30, 2022.

One note for $ 112,500 was not extended and was paid off in May 2020.

At December 31, 2020, two Series II notes remained outstanding for $ 87,374 .

The 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 .

The Company has the right to prepay the Series II Notes with a ten percent (10%) penalty.

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

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

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 6 – INCOME TAXES

5 unchanged sentences

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 main factors that we consider include:

Cumulative profits/losses in recent years, adjusted for certain nonrecurring items;

Income/losses expected in future years;

Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels;

The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits;

The carryforward period associated with the deferred tax assets and liabilities.

We consider many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review.

4 unchanged sentences

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.

The Company's pre-tax income (loss) by jurisdiction was as follows for the years ending December 31, 2021 and December 31, 2020:

Year ended December 31,

$ ( 10,064,644 )

$ ( 3,955,124 )

Federal Net Operating Loss Carryforwards

Foreign Net Operating Loss Carryforwards

Total Deferred Tax Asset

Less Valuation Allowance

( 12,328,461 )

Net Deferred Tax Asset

The Company's pre-tax income (loss) by jurisdiction was as follows for the years ending December 31, 2022 and December 31, 2021

$ ( 10,064,644 )

The provision for income taxes for continuing operations for the year ended December 31, 2021 and 2020 consist of the following:

The provision for income taxes for continuing operations for the year ended December 31, 2022 and December 31, 2021 consist of the following

Current income taxes

1 unchanged sentence

Deferred income taxes

$ ( 510,629 )

( 2,459,781 )

Total deferred income taxes

$ ( 2,970,410 )

Total income tax expense (benefit)

$ ( 2,580,410 )

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, 2021 includes state minimum taxes, permanent differences, and deferred tax assets for which a full valuation allowance has been placed.

A corresponding tax expense is included for the year ended December 31, 2021 to reflect the decrease in the valuation allowance.

Year ended December 31,

Income tax expense for the year ended December 31, 2022 includes state minimum taxes, permanent differences, and deferred tax assets for which a full valuation allowance has been released.

A corresponding tax benefit is included for the year ended December 31, 2022 to reflect the release in the valuation allowance.

Tax Expense at statutory federal rate of 21%

$ ( 1,126,823 )

State income taxes, net of federal income tax benefit

Permanent Differences

Foreign Rate Differential

GILTI NOL Impact

GILTI NOL Adjustment – Previously Offset by Valuation Allowance

Change in Valuation Allowance

1 unchanged sentence

$ ( 1,143,877 )

Income tax expense (benefit)

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The following table discloses those significant components of our deferred tax assets and liabilities, including any valuation allowance:

Long-term deferred tax assets:

Federal Net Operating Loss Carryforwards

State Net Operating Loss Carryforwards

Total deferred tax assets before valuation allowance

Deferred tax liabilities:

Total deferred tax liabilities

Valuation Allowance

$ ( 2,231,150 )

Income tax expense (benefit)

$ ( 2,580,410 )

Net deferred tax assets and liabilities

During the year ended December 31, 2021, the valuation allowance decreased by $ 1.2 million.

The Company believes a full valuation allowance against the net deferred tax asset is appropriate based on the negative evidence against future taxable income.

The Company is currently in a three-year cumulative loss and does not believe there is evidence to suggest future taxable income to realize its deferred tax assets.

The Company will continue to evaluate the realiziability of its deferred tax assets in future years.

We account for uncertain tax positions in accordance with ASC 740-10-25, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

The following table summarized the total changes in unrecognized tax benefits in continuing operations during the years ended December 31, 2021 and 2020.

Such amounts include unrecognized tax benefits that have impacted deferred tax assets and liabilities as of December 31, 2021 and 2020.

Balance - beginning of year

Gross increases - tax positions in prior period

Gross decreases - tax positions in prior period

Gross increases - tax positions in current period

Lapse of Statute of limitations

Uncertain Tax Benefit - end of year

The total amount of unrecognized tax benefits as of December 31, 2021 was $ 0 , of which none, if recognized, would affect our effective tax rate and income tax benefit from continuing operations.

Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations.

We did not have any interest or penalties on unrecognized tax benefits accrued at December 31, 2021.

The Company is subject to income taxes in the US federal jurisdiction and various state jurisdictions and Mexico.

With few exceptions, the Company is no longer subject to US federal, state and local tax examinations by tax authorities for years prior to fiscal year 2017.

The net deferred tax asset and benefit for the current year is generated primarily from cumulative net operating loss carryforward, which totals approximately $ 11 million at December 31, 2022.

United States Expiring 2029 to 2037

United States Indefinite Limited to 80%

At December 31, 2022, our carryforwards available to offset US federal future taxable income consisted of net operating loss (“NOL”) carryforwards of approximately $ 2.8 million pre-tax, all of which, has 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 $ 8.2 M pre-tax are subject to a ten-year carryforward period and the Company anticipates utilizing all of 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.

Our practice is to recognize interest and penalties related to income taxes in income tax expense in continuing operations, as incurred.

We did not have any uncertain tax benefits or interest and penalties related to uncertain tax benefits as of December 31, 2022.

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.

At December 31, 2021, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of approximately $ 19.1 million pre-tax, $ 16.4 million of which expires in 2029 to 2037 and $ 2.7 million of which has no expiration date, (2) foreign net operating losses of $ 12.5 million.

Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period.

These ownership changes include purchases of common stock under share repurchase programs, the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury regulations, or the issuance or exercise of rights to acquire our stock.

If such ownership changes by 5 % shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the NOL carryforwards or tax credit carryforwards at the time of ownership change.

earnings (loss) from continuing operations

federal income tax expense (benefit)

State income tax expense (benefit)

Foreign income tax expense (benefit)

Total tax expense (benefit) from continuing operations

Federal Deferred Incoome Taxes

State Deferred Income Taxes

Foreign income tax expense (benefit)

Total Deferred Income taxes from continuing operations

Total Provision for income taxes

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 7 – STOCKHOLDERS’ EQUITY

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

The Company issued 1,000 shares of Series A Preferred Stock to its CEO.

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

At December 31, 2022 and December 31, 2021, there were 1,000 shares of Series A Preferred Stock outstanding.

1 unchanged sentence

At December 31, 2022 and December 31, 2021, 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 $ 2.50 per share, through June 30, 2022 and include anti-dilution protection.

These Series C Preferred Shares are convertible to common shares at $ 2.04 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.

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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.

Carrying Value, December 31, 2019

Issuances at Fair Value, Net of Issuance Costs

Bifurcation of Derivative Liability

Relative Fair Value of Warrants – Preferred Stock Discount

Accretion of Preferred Stock to Redemption Value

Carrying Value, December 31, 2020

Bifurcation of Derivative Liability

Issuances at Fair Value, Net of Issuance Costs

Relative Fair Value of Warrants – Preferred Stock Discount

Accretion of Preferred Stock to Redemption Value

Carrying Value, December 31, 2021

The 2015 Warrant - Attached to the Series C Preferred Stock issued in 2015 were 2,000,000 warrants, described as 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 .

Series D Senior Convertible Preferred Stock

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A convertible promissory note (the “Golden Post Note”) payable to Golden Post in the principal amount of $2,500,000, bearing interest at 10%, and maturing two years from the date of execution.

One half of the principal amount of the Golden Post Note, or $ 1,250,000 , has been fully funded in accordance with an agreed-upon draw summary and budget.

The balance of the principal amount will also be funded in accordance with agreed-upon draw summaries and the budget.

The Golden Post Note is convertible, at the option of Golden Post, into shares of Series D Senior Convertible Preferred Stock (the “Series D Preferred”) at a conversion price of $ 2.00 per share; and

The Golden Post Note was convertible, at the option of Golden Post, into shares of Series D Senior Convertible Preferred Stock (the “Series D Preferred”) at a conversion price of $ 2.00 per share:

A common stock purchase warrant (the “2020 Warrant”) for the purchase of 783,976 shares of the Company’s common stock, at an exercise price of $ 0.01 per share, and maturing on the 10-year anniversary of the date of issuance.

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The Remaining Purchasers Warrants contain anti-dilution provisions.

Also pursuant to the NPA, the Company and the Lead Purchaser have agreed to amend the common stock purchase warrant dated June 30, 2015 (the “2015 Warrant”), issued to the Lead Purchaser in connection with that certain Securities Purchase Agreement dated as of May 6, 2015.

The 2015 Warrant contemplates the purchase, upon exercise, of 2,166,527 shares (subject to adjustment) of the Company’s common stock and matured June 30, 2020 (the “Termination Date”).

The amendment to the 2015 Warrant provides that, following the expiration of the 2015 Warrant pursuant to its terms, the Company will issue to the Lead Purchaser a new warrant (the “New Warrant”), substantially in the same form of the 2015 Warrant, for the number of shares of the Company’s common stock that went unexercised on the Termination Date, if any.

The New Warrant has a maturity date of June 30, 2022 .

As part of the transaction contemplated by the NPA, the Company executed an Amended and Restated Registration Rights Agreement pursuant to which Golden Post may require the Company to register the shares of common stock which may be issued upon (i) the conversion of the Series C Senior Convertible Preferred Stock (“Series C Preferred”), (ii) the conversion of the Series D Preferred, and (iii) the shares of common stock issuable upon the exercise of the 2015 Warrant, the 2020 Warrant, and a compensatory warrant issued to the Lead Purchaser on May 13, 2020 (described below under the heading “Compensatory Issuances”), including any additional shares of common stock issuable pursuant to anti-dilution provisions of such securities.

Pursuant to the transaction contemplated by the NPA, the Company agreed to call a special meeting of Company stockholders, to be held not later than July 14, 2020, to solicit stockholder approval of (a) an amendment of the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 25,000,000 shares to 40,000,000 shares , and (b) an amendment of the Certificate of Designations of the Series C Preferred, in order to (a) extend the maturity date of the Series C Preferred by an additional two (2) years, (ii) add an equity cap in respect of the conversion of Series C Preferred into common stock of the Company, and (iii) add certain restrictions on the ability of the Company to issue Series C Preferred.

The special meeting was properly called and held on July 13, 2020, whereby Company stockholders confirmed approval for each item referenced in item 4 above.

Compensatory Issuances .

On May 13, 2020, one business day prior to the NPA, the Company issued to the Lead Purchaser the following:

(i) a common stock purchase warrant for 2,306 shares, at an exercise price of $0.01 per share, and maturing on the 7-year anniversary of the date of issuance (the “Compensatory Warrant”); and (ii) 1,771 shares of Series C Preferred Shares.

These issuances were occasioned by the Company’s obligations under the Securities Purchase Agreement dated as of May 6, 2015 .

In order to accommodate the issuance of the additional 1,771 shares of Series C Preferred, on May 13, 2020 the Company filed with the Secretary of State of Delaware a Certificate of Increase of Series C Senior Convertible Preferred Stock, to increase the number of shares of preferred stock designated as Series C Preferred from 1,733,221 shares to 1,734,992 shares (“Certificate of Increase”).

Also, on May 13, 2020, the Company filed with the Secretary of State of Delaware a Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof of Series D Senior Convertible Preferred Stock, contemplating the authorization of 3,000,000 shares of Series D Preferred (“Certificate of Designation”).

On October 11, 2021 the Company filed an amended designation of Series D Preferred Stock with the State of Delaware which removed the anti-dilution provisions of the original designation.

Retirement of Series D Convertible Debt

6 unchanged sentences

These Series D Preferred Shares are convertible to common shares at $2.00 per share, through October 18, 2026.

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

The Series D Preferred Shares carry a 4% per annum dividend and in arrears.

The Dividend is calculated at 4.0% of $ 1,520,000 payable annually on October 18.

At December 31, 2021 , no dividends were in arrears.

At December 31, 2022, $60,800 dividends were in arrears .

Due to the nature of this transaction as mandatorily redeemable by the Company at the election of the Series D preferred stock holder at maturity, the Series D preferred shares are classified as “temporary equity” on the balance sheet.

Due to underlying anti-dilutive provisions contained in the Series C Preferred Stock and the Golden Post Warrant, the Company incurred derivative liabilities.

On May 14, 2020 in connection with the Series D Convertible Note financing, the expiration date for the Series C Preferred Stock and the Golden Post warrants were extended to June 30, 2022.

Due to underlying anti-dilutive provisions contained in the Series C Preferred Stock and the 2015 Warrant, the Company incurred derivative liabilities.

On May 14, 2020 in connection with the Series D Convertible Note financing, the expiration date for the Series C Preferred Stock and the 2015 Warrant were extended to June 30, 2022.

In addition, a new derivative liability was incurred due to the issuance of warrants for kicker shares.

At December 31, 2021, the total derivative liability was $ 3,898,914 which included $ 1,019,431 for the Series C Preferred Stock, and $ 1,320,380 in connection with the Golden Post Warrants and $ 1,559,103 in connection with the Series D Convertible Note Kicker Warrants.

At December 31, 2020, the total derivative liability was $ 2,371,560 which included $ 601,313 for the Series C Preferred Stock, and $ 817,613 in connection with the Golden Post Warrants and $ 952,634 in connection with the Series D Convertible Note Kicker Warrants.

The deemed dividend for the years ending December 31, 2021, and December 31, 2020 were $ 188,699 and $ 173,490 , respectively.

At December 31, 2021, the total derivative liability was $ 3,898,914 which included $ 1,019,431 for the Series C Preferred Stock, and $ 1,320,380 in connection with the 2015 Warrant and $ 1,559,103 in connection with the warrants for kicker shares in connection with the Series D financing.

The 2015 Warrant was exercised at June 28, 2022 ending the related derivative liability.

The Series C Preferred Stock became payable on demand when not converted on June 30, 2022 extinguishing the associated derivative liability.

At December 31, 2022 the remaining derivative liability was $ 2,172,417 in connection with the warrants for kicker shares in connection with the Series D financing.

The deemed dividends for the years ending December 31, 2022, and December 31, 2021 were $ 234,299 and $ 188,699 , respectively.

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

A discount of $ 1,098,492 was recorded on the Series D financing as a result of the valuation the total liabilities including the derivatives .

The discount was amortized over the two year life of the loan on a straight line basis.

Preferred Stock (Undesignated)

In addition to the 1,000 shares designated as Series A Preferred Stock, the 1,734,992 shares designated as Series C Preferred Shares and 3,000,000 shares designated as Series D Preferred Stock, the Company is authorized to issue an additional 15,265,008 shares of Preferred Stock, having a par value of $0.0001 per share.

In addition to the 1,000 shares designated as Series A Preferred Stock, 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 15,265,008 shares of Preferred Stock, having a par value of $0.0001 per share.

The Board of Directors of the Company has authority to issue the Preferred Stock from time to time in one or more series, and with respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred Stock.

At December 31, 2022 and December 31, 2021, there were no other shares of Preferred Stock outstanding.

Separate Series;

Increase or Decrease in Authorized Shares .

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.

3 unchanged sentences

These shares have full voting rights.

At December 31, 2021 and December 31, 2020, there were 18,091,293 and 17,722,825 shares outstanding, respectively.

At December 31, 2022 and December 31, 2021, there were 22,246,654 and 18,091,293 common stock shares outstanding, respectively.

No dividends were paid for the years ended December 31, 2022 and 2021, respectively.

Preferred Rights

The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San Jose de Gracía Pilot Production Plant and received $ 784,500 for these rights.

This has been reflected as “Preferred Rights” in stockholders’ equity.

In 2003, the Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San Jose de Gracía Pilot Production Plant and received $ 784,500 for these rights.

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

As of December 31, 2022, $ 744,500 had been repaid, leaving a current balance of $ 40,000 and $ 40,000 as of December 31, 2022 and 2021, respectively.

Stock Issuances

On October 18, 2021, the Company issued 368,468 shares of common stock upon the exercise of 368,468 warrants by five warrant holders for $.01 a share.

There were no issuances of common stock during the year ending December 31, 2020.

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 performance based common stock awards to employees, directors and consultants of the Issuer for performance based compensation.

The stock awards approved were issued to each of the individuals/entities and vested 25% immediately with the remainder vesting 25% each year on December 31 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.

On October 18, 2021, five warrant holders exercised a total of 368,468 warrants to purchase 368,468 shares of common stock for $0.01 a share.

Treasury Stock

During the year ending December 31, 2021, 504,300 treasury shares were transferred for services provided to the Company.

At December 31, 2021, 12,180 treasury shares remained outstanding.

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

During the year ending December 31, 2021, 504,300 treasury shares were transferred for services provided to the Company.

At December 31, 2020, 516,480 treasury shares remained outstanding.

At December 31, 2022 and 2021, 12,180 treasury shares remained held by the Company.

2022 Activity

On October 18, 2021, five warrant holders exercised a total of 368,468 warrant to purchase 368,468 shares of common stock for $ .01 a share.

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.

At December 31, 2022, the Company had a total of 892,165 warrants outstanding.

2021 Activity

On May 13, 2020 the Company issued 2,306 warrants to purchase shares of common stock with an exercise price of $ 2.05 per share related to anti-dilution provisions of the Series C preferred stock.

These warrants expire on June 30, 2022.

On May 14, 2020, the Company issued 1,260,633 warrants to purchase shares of common stock with an exercise price of $ .01 per share as kicker shares as part of the Series D note agreements.

These warrants expire on May 14, 2030.

On June 30, 2020, as part of the Series D note agreement the Company issued 2,166,527 warrants to purchase shares of common stock with an exercise price of $ 2.05 per share to replace the 2,166,527 warrants previously outstanding which expired on that date.

These warrants expire on June 30, 2022.

On October 18, 2021, five warrant holders exercised a total of 368,468 warrant to purchase 368,468 shares of common stock for $ 0.01 a share.

At December 2021, the Company had a total of 3,060,998 warrants outstanding.

The Company recorded no expense related to the issuance of these warrants since these warrants were issued in common stock for cash sales and note conversions.

Price per share

Balance at December 31, 2020

Exercise of 2020 warrants

Balance at December 31, 2021

Exercise of the 2015 warrant

( 2,166,775 )

Forfeiture of the 2015 warrant

Balance at December 31, 2022

Exercisable at December 31, 2022

NOTE 8 – 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 year ended December 31, 2022 was $ 881,250 representing the 25 % vested portion of the total stock value.

At December 31, 2022, deferred compensation totaling $ 2,643,750 will be expensed pro rata upon vesting.

NOTE 9 – RELATED PARTY TRANSACTIONS

Related Party Transactions

Restricted Stock Awards

The Compensation Committee approved stock awards to employees, directors and consultants of the Company for performance based compensation.

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 31 for the next three years, subject to resignation or termination provisions.

The awards totaled 150,000 shares of which 475,000 were awarded to officers and/or directors.

Dynacap Group Ltd.

The Company paid $ 285,999 and $ 114,250 to Dynacap Group, Ltd.

(“Dynacap”, an entity controlled by the CEO of the Company) for consulting and other servoces during the years ended December 31, 2021 and 2020, respectively.

The Company paid $ 184,583 and $ 285,999 to Dynacap Group, Ltd., an entity formerly controlled by the current CEO of the Company, for consulting and other services during the years ended December 31, 2022 and 2021, respectively.

The Company is not aware of any other material relationships or related transactions between the Company and any officers, directors or holders of more than five percent of any class of outstanding securities of the issuer.

NOTE 10 – 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, and citing the Earn In/Option Agreement as the basis for its filing.

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.

On May 20, 2021, the Company and DynaMéxico agreed to release the $ 1.11 1 million bond that had been posted, and paid an additional $ 4,054 in interest, in full satisfaction of the monetary portion of the Arbitration Award.

Since that time, the Company has fully performed the non-monetary portion of the Arbitration Award, which included the election of a Goldgroup designee to the board of DynaMéxico.

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 $48,280,808.34 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 £ 376,232.75.

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

21 unchanged sentences

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

As of December 31, 2021, the Company has two operating leases - a six- and one-half year lease for office space with a remaining term of twenty-four months and a twenty-year ground lease in association with its México mining operations with a remaining term of thirteen years.

As of December 31, 2022, the Company has two operating leases - a six- and one-half year lease for office space with a remaining term of one month and a twenty-year ground lease in association with its México mining operations with a remaining term of eleven years.

Variable lease costs consist primarily of variable common area maintenance, storage parking and utilities.

3 unchanged sentences

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

December 31, 2021

Operating Lease – Office Lease

9 unchanged sentences

NOTE 11 - DERIVATIVE LIABILITIES

Preferred Series C Stock

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the stock qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related.

Series C Preferred Stock

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the conversion feature qualified as embedded derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related.

The Company performed a valuation of the conversion feature.

4 unchanged sentences

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation model to determine the value of conversion feature of the Series C Preferred Stock based on the assumptions below:

The Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 (see “Note 12”) and used an equity simulation model to determine the value of conversion feature of the Series C Preferred Stock based on the assumptions below:

Annual volatility rate

4 unchanged sentences

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

The table below represents the change in the fair value of the derivative liability during the years ended December 31, 2021, and December 31, 2020.

Fair value of derivative (stock), beginning of period

Change in fair value of derivative

Fair value of derivative on the date of issuance

Fair value of derivative (stock), end of period

Preferred Series C Warrants

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the Warrants qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related.

The Company performed a valuation of the conversion feature.

In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis.

The below table represents the change in the fair value of the derivative liability during the nine and twelve months ended December 31, 2022 and December 31, 2021.

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the 2015 Warrant (issued at the same time as the Series C Preferred Stock) qualified as a derivative liability and is required to be accounted for as such.

The Company performed a valuation applying 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).

2 unchanged sentences

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 (see note 12) and used an equity simulation model to determine the value of the 2015 Warrant based on the assumptions below:

Annual volatility rate

4 unchanged sentences

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

The table below represents the change in the fair value of the derivative liability during years ended December 31, 2021, and December 31, 2020.

Fair value of derivative (warrants), beginning of period

The below table represents the change in the fair value of the derivative liability during the periods ended December 31, 2022, and December 31, 2021.

Fair value of derivative (warrant), beginning of period

Change in fair value of derivative

( 1,320,380 )

Fair value of derivative on the date of issuance

Fair value of derivative(warrants), end of period

Series D Notes Kicker Warrants

As discussed in Note 7, the Company analyzed the conversion features of the Series D Notes and determined that the Warrants qualified as a derivative liability.

The fair value was required to be allocated among the notes, conversion features, and the warrants, and then remeasured at each reporting date.

The Company performed a valuation of the conversion feature.

Fair value of derivative (warrant), end of period

The 2015 Warrant was exercised on June 28, 2022.

Warrants issued with the Notes convertible into Series D Preferred

As discussed in Note 7, the Company analyzed the conversion features of the promissory notes convertible into Series D Preferred 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.

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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 (see “Note 11”) and used an equity simulation model to determine the value of conversion feature of the Warrants issued with the notes convertible into Series D Preferred based on the assumptions below:

Annual volatility rate

4 unchanged sentences

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

The table below represents the change in the fair value of the derivative liability during the years ended December 30, 2021, and December 31, 2020.

The below table represents the change in the fair value of the derivative liability during the twelve months ended December 31, 2022 and December 31, 2021.

Fair value of derivative (warrants), beginning of period

Fair value of derivative on the date of issuance

Exercise of warrants

1 unchanged sentence

Fair value of derivative (warrants), end of period

NOTE 11 – NON-CONTROLLING INTEREST

The Company’s Non-Controlling Interest recorded in the consolidated financial statements relates to an interest in DynaResource de México, S.A.

of 50% through May 13, 2013, and 20% until February 24, 2020 when the minority interest was eliminated.

Changes in Non-Controlling Interest for the year ended December 31, 2020.

Beginning balance

Fair value of derivative (stock), beginning of period

Change in fair value of derivative

( 1,019,431 )

Operating income (loss)

Share of Other Comprehensive Income (loss)

Elimination of Non-Controlling Interest

Ending balance

Fair value of derivative on the date of issuance

Fair value of derivative (stock), end of period

NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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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 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.

1 unchanged sentence

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

Fair Value Measurement at December 31, 2021 Using:

Prices in Active

Significant Other Observable Inputs

Significant Unobservable Inputs

Significant Other

Observable Inputs

Fair Value Measurement at December 31, 2022:

Derivative Liabilities

Fair Value Measurement at December 31, 2020 Using:

Fair Value Measurement at December 31, 2021:

Derivative Liabilities

1 unchanged sentence

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

For each of the years ended December 31, 2021 and 2020, three and three customers accounted for 100 % of revenue, respectively.

At December 31, 2021 and 2020, one and four customers accounted for 100 % of accounts receivable, respectively.

For the years ended December 31, 2022 and 2021, one and three customers accounted for 100 % of revenue, respectively.

At December 31, 2022 and 2021, one and one customers accounted for 100 % of accounts receivable, respectively.

NOTE 14 – NOTES PAYABLE

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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, 2021, $ 1,061,243 of accrued interest on the notes was included in accrued liabilities on the consolidated balance sheet.

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

At December 31, 2022, $ 1,572,972 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 %.

9 unchanged sentences

On February 4, 2021 Mineras de DynaResource SA de CV (“Seller”) entered into a Revolving Credit Line Facility and Commercial Offtake Agreement (the “RCL”), with a commercial buyer.

The RCL was assigned from Mineras to DynaMexico in March 2022 and in December 2022 it was extended for one year.

Under the terms of the RCL:

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The RCL will be interest free for 45 days;

The RCL is to be repaid through deliveries of Concentrates or Cash within 120 days;

The RCL is included under Customer Advances on the consolidate balance sheet

The RCL is to be repaid through deliveries of Concentrates or Cash within 120 days; The RCL is included under Customer Advances on the consolidate balance sheet,

Deposits under Revolving Credit Line Facility

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$ 9.25 M advance on December 30, 2021.

Settled on February 25, 2022

$ 8.175 M advance on February 25, 2022.

Settled on March 30, 2022

$ 7.875 M advance on March 30, 2022.

Settled on May 13, 2022

$ 8.875 M advance on May 19, 2020.

Settled on June 27, 2022

$ 8.75 M advance on June 28, 2022.

Settled on August 15, 2022

$ 7.80 M advance on August 19, 2022.

Settled on September 28, 2022

$ 7.7375 M advance on September 29, 2022.

Settled on November 15, 2022

$ 8.25 M advance on November 14, 2022.

Settled on December 28, 2022

$ 9.35 advance on December 28, 2022.

NOTE 16 – SUBSEQUENT EVENTS

On January 31, 2023, the Company entered in a 52 month extension on its office lease where the Company is headquartered in Irving, Texas.

The term of the new lease commences on or about April 15, 2023 or when the finish out of the additional two offices is complete, and expires 52 months later.

The new lease requires monthly lease payments of approximately $ 10,000 after the four-month rent abatement period.

The Company has evaluated events from December 31, 2022, through the date whereupon the consolidated financial statements were issued, and has described below the events subsequent to the end of the period.

London Court of International Arbitration

On January 27, 2022, DynaResource, Inc.

(the “ Company ”) received word from its counsel that the London Court of International Arbitration issued a First Final Partial Award (the “ Partial Award ”), in favor of Mercuria Energy Trading S.A., a Swiss company (“ Mercuria ”) and against Mineras de DynaResource S.A.

(“ Mineras ”), a subsidiary of the Company which is chartered in Mexico and whose offices are also located in Mexico.

The Partial Award requires that Mineras pay Mercuria the sum of $ 1,676,014 for an undersupply of metal concentrate production between October 2019 and December 2020.

The Partial Award also requires that Mineras pay Mercuria the sum of $ 146,659 in connection with a net overpayment by Mercuria for metal concentrates.

The arbitration panel retained jurisdiction to address any outstanding fees and expenses.

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 Partial Award and any supplemental award.

CHANGES IN AND DISAGREEMENTS 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 8. Financial Statements and Supplementary Data