Item 2.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report on Form
10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we
refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which
we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather
reflect our current expectations, estimates and predictions about future results and events. These statements may use words such
as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,”
“project” and similar expressions as they relate to us or our management. When we make forward-looking statements,
we are basing them on our management’s beliefs and assumptions, using information currently available to us. These forward-looking
statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions
discussed in this annual report. Factors that can cause or contribute to these differences include those described under the heading
“Management Discussion and Analysis and Plan of Operation.”
If one or more of these or other
risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially
from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to
future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations,
growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting
on our behalf are expressly qualified in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this annual report. The Company expressly disclaims any obligation to release publicly
any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can
give no assurances that such forward-looking statements will prove to be correct.
CAUTIONARY NOTE TO UNITED STATES
INVESTORS—INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES
The Company is an “OTC Reporting
Issuer” as that term is defined in BC Multilateral Instrument 51-105,
Issuers Quoted in the U.S. Over-the-Counter Markets
,
promulgated by the British Columbia Securities Commission.
In Canada, an issuer is required
to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration
properties in accordance with Canadian requirements, which differ significantly from the requirements of the United States Securities
and Exchange Commission (the “SEC”) applicable to registration statements and reports filed by United States companies
pursuant to the Securities Act or the Exchange Act. As such, certain disclosures of mineralization under Canadian standards may
not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements
of the SEC and not subject to Canadian securities legislation.
While these terms are recognized
and required by Canadian securities legislation (under National Instrument 43-101 (“NI 43-101”), entitled
Standards
of Disclosure for Mineral Projects
), the SEC does not recognize these terms. Investors in the United States are cautioned not
to assume that any part or all of the mineral deposits in these categories will ever be converted to reserves. In addition, inferred
mineral resources have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed
that all or any part of a measured mineral resource, indicated mineral resource or inferred mineral resource will ever be upgraded
to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of
feasibility or pre-feasibility studies, although they may form, in certain circumstances, the basis of a “preliminary economic
assessment” as that term is defined in NI 43-101. U.S. investors are cautioned not to assume that any part or all of any
reported measured, indicated, or inferred mineral resource estimates referred to in the DynaMéxico NI 43-101 Technical Report
and DynaMéxico 43-101 Mineral Resource Estimate (compiled for DynaResource de Mexico SA de CV) are economically or legally
mineable.
Under U.S. standards, as set forth
in SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless a determination has been made that
the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG
Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified
as mineral reserves do not have “demonstrated economic viability.” The quantity of resources and the quality (grade)
of resources reported as “Indicated” and “Inferred” mineral resources in the DynaMéxico 43-101 Mineral
Resource Estimate compiled for DynaResource de Mexico SA de CV, under Canadian National Instrument 43-101 and filed by the Company
with SEDAR, are
not disclosed in this Form 10-Q
. There has been insufficient exploration to define any mineral reserves
on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.
Company
The Company is a minerals investment,
management, and exploration company, and currently conducting test mining and pilot milling operations through an operating subsidiary
in México, with specific focus on precious and base metals in México. The Company was incorporated in the State of
California on September 28, 1937, under the name West Coast Mines, Inc. In November 1998, the Company re-domiciled from California
to Delaware and changed its name to DynaResource, Inc. (“DynaUSA”).
We currently conduct operations
in México through our operating subsidiaries. We currently own 80% of the outstanding shares of DynaResource de México,
S.A. de C.V. (“DynaMéxico”). DynaMéxico owns 100% of mining concessions, equipment, camp and related
facilities which comprise the San Jose de Gracia Property, in northern Sinaloa State, México. We also own 100% of Mineras
de DynaResource S.A. de C.V. (“DynaMineras”), the exclusive operator of the San José de Gracia Project, under
contract with DynaMéxico.
In 2000, the Company formed DynaResource
de México S.A. de C.V. (“DynaMéxico”) for the purpose of acquiring and holding mineral properties and
mining concessions in México and, specifically for acquiring and consolidating the Mining District of San Jose de Gracia.
DynaMéxico completed the consolidation of the entire SJG District to DynaMéxico in 2003 (approx. 15 sq. km. at that
time), with the exception of the San Miguel Mining Concession (7 Hectares, for which DynaMéxico is proceeding towards accomplishing
the transfer of title, under previously signed sale and purchase agreements).
In 2005, the Company formed Mineras
de DynaResource S.A. de C.V. (“DynaMineras”), a wholly owned subsidiary. DynaMineras entered into an operating agreement
with DynaMéxico on April 15, 2005. As a consequence of that agreement and subsequent amendments to that agreement, DynaMineras
is the exclusive operating entity for the SJG Project.
Also in 2005, the Company formed
another wholly owned subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”). DynaOperaciones entered
into a personnel management agreement with DynaMineras and, as a consequence of that agreement, is the exclusive management company
for personnel and consultants involved at the SJG Project.
DynaMéxico currently owns
a portfolio of mining concessions, equipment, camp and related facilities which comprise the San José de Gracia Project
(“SJG”). The mining concessions cover 69,121 hectares (170,802 acres) on the west side of the Sierra Madre mountain
range, in northern Sinaloa State.
The Company currently owns 80%
of the outstanding shares of DynaMéxico. We also own 100% of Mineras de DynaResource S.A. de C.V. (“DynaMineras”),
the exclusive operator of the San José de Gracia Project, under contract with DynaMéxico, and we own 100% of DynaResource
Operaciones de San Jose de Gracia, S.A. de C.V., (“DynaOperaciones”), a company which manages the personnel registered
to work at the San Jose de Gracia Project.
San Jose de Gracia - History
Historical production records
from San Jose de Gracia (“SJG”) report 1,000,000 Oz gold production from a series of underground workings. The major
areas report 471,000 Oz. produced at the La Purisima area of SJG, at an average grade of 66.7 g/t.; and 215,000 Oz. produced from
the La Prieta area, at an average grade of 27.6 g/t. Mineralization at SJG has been traced on surface and underground over 15 sq.
km.
DynaMéxico was formed in
March 2000, for the purpose of acquiring the concessions comprising the SJG District, and to consolidate all ownership of SJG under
DynaMéxico. DynaMéxico focused on acquisition and consolidation work through 2003, and reported a virtually clear
title and consolidated ownership to the district at December 31, 2013.
No Known Reserves
The SJG property is without known
reserves. Under U.S. standards, mineralization may not be classified as a “reserve” unless a determination has been
made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
Exploitation Amendment Agreement
(“EAA”)
On May 15, 2013, DynaMineras entered
into an Exploitation Amendment Agreement (“EAA”) with DynaMéxico. The EAA grants to DynaMineras the right to
finance, explore, develop and exploit the SJG Property, in exchange for:
(a) Reimbursement of all
costs associated with financing, maintenance, exploration, development and exploitation of the SJG Property, which costs are to
be charged and billed by DynaMineras to DynaMéxico; and,
(b) After Item (A) above,
the receipt by DynaMineras of 75% of gross receipts received by DynaMéxico from the sale of all minerals produced from SJG,
to the point that DynaMineras has received 200% of its advanced funds; and,
(c) after items (A) and
(B) above; the receipt by DynaMineras of 50% of all gross receipts received by DynaMéxico from the sale of all minerals
produced from SJG, and throughout the term of the EAA; and,
(d) in addition to Items
(a), (b), and (c) above, DynaMineras shall receive a 2.5% NSR (“Net Smelter Royalty”) on all minerals sold from SJG
over the term of the EAA.
The total unpaid advances made
by DynaMineras to DynaMéxico as of September 30, 2017 is $2,125,000. The EAA is the third and latest Amendment to the original
Contract Mining Services and Mineral Production Agreement (the “Operating Agreement”), which was previously entered
into by DynaMineras with DynaMéxico in April 2005, wherein DynaMineras was named the Exclusive Operating Entity at SJG.
The Operating Agreement was previously amended in September 2006 (the “First Amendment”), and amended again at July
15, 2011 (the “Second Amendment”). The Term of the Second Amendment is 20 years, and the EAA (Third Amendment) provides
for the continuation of the 20 Year Term from the date of the Second Amendment (July 15, 2011).
Surface Rights Agreement
On January 6, 2014 DynaMineras
entered into a 20-year surface rights agreement with
the Santa Maria Ejido Community surrounding
the San Jose de Gracia Property (the “20 Year SRA”). The 20 Year SRA covers an area of 4,399 hectares surrounding the
main mineral resource areas of SJG, and provides for annual lease payments by DynaMineras of $1,359,443 Pesos (approx. $85,000
USD), commencing in 2014.
The 20-year SRA provides DynaMineras with surface access to the core resource areas of SJG, and
allows for all permitted mining, pilot production and exploration activities from the owners of the surface rights (Santa Maria
Ejido community).
Additionally,
DynaMineras expects to construct a Medical Facility and a Community Center within the SJG community in year 2015. DynaMineras reports
that land and building for which the medical facility and community center will be constructed have been approved for re-zoning
by the local community; and plans are being drawn for constructing the facilities.
Structure of Company / Operations
Activities in México are
conducted by Mineras de DynaResource S.A. de C.V. (“DynaMineras”); with the management of personnel being contracted
by DynaMineras through to the personnel management subsidiary, DynaResource Operaciones, S.A. de C.V. (“DynaOperaciones”).
Management of DynaResource, Inc. and consultants continue to manage the operating companies in México; while the Chairman/CEO
of DynaUSA is the President of each of the operating companies in México. Fees for Management and administration are charged
by DynaMineras and DynaOperaciones, which are eliminated in consolidation.
Activities under Exploitation
Amendment Agreement
In 2013, DynaMineras, in accordance
with the terms of the Exploitation Amendment Agreement, commenced the rehabilitation of the San Pablo Mine and the refurbishment
of the pilot production facility at SJG. DynaMéxico received permits as discussed above for the rehabilitation and operation
of the pilot mill facility and the exploitation and mining of the San Pablo area of SJG. The basis for the mining activity and
the operation of the pilot mill facility are the NI 43-101 Mineral Resource Estimate, the Technical Report, the block models prepared
as a result of the recent drilling activity, and the recent production history of 2003-2006.
Capital Requirements
The mining industry in general
requires significant capital in order to take a property from the exploration, to development to production. These costs remain
a significant barrier to entry for the average company but once in production, there is a ready market for the final products,
In the case of SJG, the final product would be mainly gold, the price of which is determined by global markets, so there is not
a dependence on a customer base.
Gold
Gold Uses.
Gold generally is used for fabrication or investment. Fabricated gold has a variety of end uses, including jewelry, electronics,
dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins
and jewelry.
Gold Supply.
A
combination of current mine production, recycling and draw-down of existing gold stocks held by governments, financial institutions,
industrial organizations and private individuals make up the annual gold supply. Based on public information available for the
years 2008 through 2014, on average, current mine production has accounted for approximately 64% of the annual gold supply.
Gold Price.
The
following table presents the annual high, low and average daily afternoon fixing prices for gold over the past ten years on the
London Bullion Market ($/ounce):
Year
|
High
|
Low
|
Average
|
2005
|
$536
|
$411
|
$444
|
2006
|
$725
|
$525
|
$604
|
2007
|
$841
|
$608
|
$695
|
2008
|
$1,011
|
$713
|
$872
|
2009
|
$1,213
|
$810
|
$972
|
2010
|
$1,421
|
$1,058
|
$1,225
|
2011
|
$1,895
|
$1,319
|
$1,572
|
2012
|
$1,792
|
$1,540
|
$1,669
|
2013
|
$1,694
|
$1,192
|
$1,411
|
2014
|
$1,380
|
$1,140
|
$1,265
|
2015
|
$1,303
|
$1,057
|
$1,175
|
2016
|
$1,366
|
$1,077
|
$1,251
|
2017 (Through October 16, 2017)
|
$1,351
|
$1,151
|
$1,251
|
Source: Kitco, Reuters and the London Bullion Market
Association
On October 16, 2017, the afternoon fixing gold price
on the London Bullion Market was $1,303.30 per ounce and the spot market gold price on the New York Commodity Exchange was $1,294
per ounce.
Condition of Physical Assets
and Insurance
Our business is capital intensive
and requires ongoing capital investment for the replacement, modernization or expansion of equipment and facilities. We and our
subsidiaries maintain insurance policies against property loss. Such insurance, however, contains exclusions and limitations on
coverage, particularly with respect to environmental liability and political risk. There can be no assurance that claims would
be paid under such insurance policies in connection with a particular event.
Environmental Matters
Our activities are largely outside
the United States and subject to governmental regulations for the protection of the environment. We conduct our operations so as
to protect public health and the environment and believe our operations are in compliance with applicable laws and regulations
in all material respects. DynaMéxico is involved with maintaining tailings ponds and test mining and pilot production activities
(through DynaMineras) with the oversight of SEMARNAT, the federal environmental agency of México.
Summary of Test Mining and
Pilot Mill Operations for the nine months ended September 30, 2017 and 2016:
DynaMineras reports the following estimated
summary of its test mining and pilot milling operations during 2017 and 2016:
|
Total
Tonnes Mined & Processed
|
Reported
Mill Feed Grade (g/t Au)
|
Reported
Recovery %
|
Gross
Gold Concentrates Produced
(Au
oz.)
|
Net
Gold Concentrates Sold (Au oz.)
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
22,808
|
12.35
|
86.8%
|
7,859
|
6,307
|
Nine Months Ended September 30, 2016
|
30,603
|
13.10
|
78.2%
|
9,990
|
7,385
|
|
|
|
|
|
|
Test pilot operations in the nine
months ended September 30, 2017 yielded 22,808 tonnes mined and processed from underground mining activity and pilot mill operations;
and the production of approximately 7,859 gross Oz Au (and net of dry weights, buyer’s price discount and refining and treatment
costs, approximately 6,307 Oz. Au) contained in gold-silver concentrates, and the receipt of $7,233,329 in revenues from the sale
of gold-silver concentrates.
Test pilot operations in the nine
months ended September 30, 2016 yielded 30,603 tonnes mined and processed from underground mining activity and pilot mill operations;
and the production of approximately 9,990 gross Oz Au (and net of dry weights, buyer’s price discount and refining and treatment
costs, approximately 7,385 Oz. Au) contained in gold-silver concentrates, and the receipt of $7,185,900 in revenues from the sale
of gold-silver concentrates.
DynaMineras continues its test
underground mining activity and pilot milling operations in 2017; and projects the increased output of 150 tons/day – 250
tons/day from the mine and mill in the fourth quarter 2017.
Subsequent Deliveries of Gold
Concentrates for Sale
On the below listed dates, DynaMineras
reported the delivery for sale of gold ounces contained in concentrates (exact weights in gold and silver Oz. to be determined
at final settlement):
October 9
|
167 Oz. Au
|
October 13
|
175 Oz. Au
|
October 13
|
450 Oz. Au
|
October 18
|
135 Oz. Au
|
October 26
|
160 Oz. Au
|
October 26
|
215 Oz. Au
|
October 31
|
130 Oz. Au
|
|
|
Total Oz
|
1,432.00 Oz. Au
|
Cash Receipts Subsequent to September
30, 2017 from the Delivery and Sale of Gold Concentrates
On the below listed dates, DynaMineras
received the following amounts of net proceeds from the sale of gold-silver concentrates:
October 10
|
$133,426.92
|
October 10
|
$46,443.51
|
October 10
|
$29,962.58
|
October 12
|
$80,391.22
|
October 16
|
$322,457.21
|
October 17
|
$79,846.87
|
October 19
|
$118,595.13
|
October 27
|
$137,500.00
|
October 27
|
$185,750.00
|
November 1
|
$60,068.64
|
November 1
|
$54,684.17
|
|
|
Total
|
$1,249,126.25
|
Expansion and Improvements
In the first and second quarter
2017, the Company expended approximately $230,000 USD on the following projects which are one-time expenses. These amounts are
included in our financial statements under the heading Other Assets and booked as construction in progress. When the improvements
are complete, the costs will be moved to fixed assets and depreciated. These activities reduced the number of pilot mill operating
days in the first quarter, 2017 to approximately 60. In the second and third quarters 2017, the Company operated the mill with
reduced output in order to re-tool one ball mill, and to build a new foundation for this ball mill. The Company projects the re-insertion
of this ball mill into the milling operation in the fourth quarter, and the Company expects to install a third ball mill into the
milling operations in the fourth quarter. As the pilot mill capacity is increased with the operation of three ball mills, the Company
projects test mining and pilot mill processing volumes to reach 250 tons per day in the fourth quarter, 2017.
Medical Clinic at San
Jose de Gracia (the “Santa Maria Anexo Clinic”)
A medical clinic at San
Jose de Gracia is being constructed by the Company and will be donated to the San Jose de Gracia Community.
Tailings Pond Expansion
The Company has expanded
the capacity of the tailings pond adjacent to the pilot mill facility. The Company completed the tailings pond expansion in the
second quarter, 2017.
Camp Expansion
The Company is currently
expanding the capacity of its camp facilities at San Jose de Gracia. The Company expects to complete the camp expansion work in
the fourth quarter, 2017.
Mill Capacity and Efficiency
The Company is currently
conducting activities within the Pilot Mill Facility which are intended to improve processing efficiencies and to expand capacities.
The Company expects to complete these activities in the fourth quarter, 2017.
Mine Capacity and Efficiency
During
the third quarter 2017, the Company has developed an additional access to the mineralized vein at San Pablo. The Company projects
obtaining additional tonnage from the additional access at San Pablo in the fourth quarter 2017.
Competitive Advantage
The Company, through its subsidiaries,
has been conducting business in México since March 2000. During this period the Company believes it has structured its subsidiaries
properly and strategically, and during which time the Company has retained key personnel and developed key relationships and support.
The Company believes its experience and accomplishments and relationships in México give it a competitive advantage, even
though many competitors may be larger and have more capital resources.
DynaMéxico retains 100%
of the rights to concessions over the area of the San José de Gracia property and it currently sees no competition for mining
on the lands covered by those concessions. The sale of gold and any bi-products would be subject to global market prices; which
prices fluctuate daily. DynaMéxico was successful in selling gold concentrates produced from SJG in prior years, and the
Company expects a competitive market for produced concentrates and/or other mineral products in the future. Actual prices received
by DynaMineras in the sale of concentrates or other products produced from San Jose de Gracia would depend upon these global market
prices, less deductions.
The Company’s operating
subsidiaries, DynaMineras and DynaOperaciones, receive monthly fees for management of the SJG activities and personnel. These fee
amounts are eliminated in consolidation. Other than those intercompany fees, the Company reported revenue of $7,233,329 and $8,192,230
for the nine months ended September 30, 2017 and September 30, 2016 respectively.
Results for the Three and Nine Months Ended September
30, 2017 and 2016
In the nine months ended September
30, 2017, the Company, through its wholly owned subsidiary DynaMineras, continued full test mining and pilot mill operations at
San Jose de Gracia.
DynaMineras conducted test mining
and milling operations in the third quarter of 2017 and 2016. During the three months ended September 30, 2017, the test mining
and pilot milling operations have yielded the underground mining and mill processing of approx. 7,773 tonnes of mineralized material,
the production of approximately 3,003 gross oz. Au (and net of weight and value adjustment) approximately 2,191 oz. Au) contained
in gold-silver concentrates. DynaMineras realized the receipt of $2,674,015 in revenues from the delivery and sale of gold-silver
concentrates in the three months ended September 30, 2017 and $7,233,329 in revenues for the nine months ended September 30, 2017.
REVENUE. Revenues for the three
months ended September 30, 2017 and 2016 were $2,674,015 and $3,027,305, respectively. Revenues for the nine months ended September
30, 2017 and 2016 were $7,233,329 and $8,192,230, respectively. The Company has established consistent test mining and pilot milling
operations since January 2016.
PRODUCTION COSTS RELATED TO SALES.
Production costs related to sales for the three months ended September 30, 2017 and 2016 were $928,663 and $443,703, respectively.
Production costs related to sales for the nine months ended September 30, 2017 and 2016 were $2,586,553 and $1,308,858, respectively.
These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. These costs
increased in the current versus the prior year due to the Company incurring additional costs as it prepares its mining and milling
operations to increase its capacity. The Company believes the results of these additional expenditures will be seen in the fourth
quarter of 2017.
MINE OPERATING COSTS. Mine operating
costs for the three months ended September 30, 2017 and 2016 were $1,100,948 and $1,061,073, respectively. Mine operating costs
for the nine months ended September 30, 2017 and 2016 were $2,659,093 and $3,036,423, respectively. These costs are directly related
to the extraction and transportation of mine tonnage and correlate closely with the amount of ore processed after adjusting for
stock piled inventory.
PROPERTY HOLDING COSTS. Property
holding costs for the three months ended September 30, 2017 and 2016 were $135,681 and $153,286, respectively. Property holding
costs for the nine months ended September 30, 2017 and 2016 were $398,751 and $370,986, respectively. These costs are concessions
taxes, leases on land and other direct costs of maintaining the property.
TOTAL OPERATING EXPENSES. Operating
expenses for the three months ended September 30, 2017 and 2016 were $2,819,109 and $2,340,987, respectively. Operating expenses
for the nine months ended September 30, 2017 and 2016 were $7,579,018 and $6,459,922, respectively. The above expenses include
depreciation and amortization amounts of $36,781 and $29,496 for the three months ended September 30, 2017 and 2016, respectively,
and $129,248 and $77,626 for the nine months ended September 30, 2017 and 2016, respectively.
OTHER INCOME (EXPENSE). Other
income, exclusive of currency transaction gain or (loss) for the three months ended September 30, 2017 and 2016 was $921,392 and
$(694,862), respectively. Derivatives mark-to-market adjustments are the primary components of income in 2017 of $753,626 and foreign
currency losses in 2016 of $(460,885) respectively. For the nine months ended September 30, 2017 and 2016, other income included
Foreign Currency Transaction gain or (loss) of $890,491 and $(1,603,758), respectively: Derivatives mark-to-market adjustments
of 2017 of $2,457,063 and $nil for 2016 respectively. The reason for the fluctuations in the derivative market to market adjustment
is the changes in the stock price and the reason for the fluctuations in the currency gains/losses is the change in valuation of
the Mexican Peso.
NON-CONTROLLING INTEREST. The
non-controlling interest portion of the net loss for the three months ended September 30, 2017 and 2016 was $(49,397) and $10,756,
respectively. The non-controlling interest portion of the net loss for the nine months ended September 30, 2017 and 2016 was $153,038
and $175,536, respectively.
COMPREHENSIVE INCOME (LOSS). Comprehensive
income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period.
For the three months ended September 30, 2017 and 2016, the Company recorded a gain (loss) of $2,571,845 and $(1,083,766), respectively,
which were made up of unrealized losses on currency translation. For the nine months ended September 30, 2017 and 2016, the Company
recorded a gain (loss) of $2,313,973 and $(1,813,703), respectively, which were made up of unrealized losses on currency translation.
Liquidity and Capital
Resources
As of September 30, 2017, the Company
had a negative working capital of $(188,487), comprised of current assets of $6,306,758 and current liabilities of $6,495,245.
This represents a decrease of $3,243,965 from the working capital (deficit) maintained by the Company of $(3,432,452) as of December
31, 2016, due primarily to the mark to market adjustment for our derivative liabilities.
Net cash provided by operations
for the nine months ended September 30, 2017 was $675,946 compared with $(1,021,244) for the nine months ended September 30, 2016.
Net cash (used) in investing activities
for the nine months ended September 30, 2017 and 2016 was $(327,786) and $(127,997), respectively.
Net cash provided by financing activities
for the nine months ended September 30, 2017 and 2016 was $2,338,519 and $(310,000), respectively.
Non-controlling
Interest
Under the terms of the Earn-In
Agreement (September 1, 2006 to March 15, 2011), Goldgroup Mining Inc. and its wholly owned subsidiary Goldgroup Resources, Inc.
(Goldgroup), through 2010, had contributed capital to DynaMéxico in order to acquire 25% of the outstanding shares (a shareholder
interest) of DynaResource de México, S.A. de C.V. (DynaMéxico). In March 2011, Goldgroup had contributed a total
of $18 M USD capital to DynaMéxico in order to acquire a total of 50% of the outstanding shares (a shareholder interest)
of DynaMéxico. From March 2011 through May 2013, Goldgroup owned 50% of the outstanding shares of DynaMéxico, and
since May 2013 to current date Goldgroup owns 20% of the outstanding shares of DynaMéxico. The applicable portion of the
earnings or loss attributable to Goldgroup is offset in this section. In the nine months ended September 30, 2017 the attributable
portion to Goldgroup was $(527,760) and $(283,333) for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
As of September 30, 2017, the
Company did not have any off-balance sheet arrangements (as the phrase is defined by SEC rules applicable to this report) which
have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Capital Advances to Subsidiaries
DynaResource de México
(“DynaMéxico”)
In May 2013, the Company acquired
additional shares in the outstanding equity in DynaMéxico in exchange for the retirement of accounts receivable of $2,393,803,
which amount was due from DynaMéxico at December 31, 2012. As a result, as of May 17, 2013, the Company owns 80% of the
outstanding equity of DynaMéxico.
As of September 30, 2017, the
Company had advanced $6,346,500 to DynaMineras and DynaMineras had advanced $6,266,750 to DynaMéxico. At December 31, 2014,
the Company issued 1,333,333 shares of its common stock to DynaMineras in exchange for $4,000,000 receivable it held from DynaMéxico.
The remaining $2,125,000 is a receivable owed to DynaMineras from DynaMéxico as of September 30, 2017. The total receivable
from DynaMineras to the Company is $6,346,500 as of September 30, 2017.
Beginning on December 31, 2012,
the Company and DynaMineras agreed with DynaMéxico to accrue interest on the total amount receivable until repaid or otherwise
retired. The interest rate to be accrued is agreed to be simple annual interest at the rate quoted by the Bank of México.
Amounts Owed to DynaUSA and
DynaMineras
As
of September 30, 2017, the Company had advanced $6,346,500 USD to DynaMineras and DynaMineras had advanced $6,266,750 USD to DynaMéxico.
On September 5, 2014, the Company issued 1,333,333 shares of its common stock to DynaMineras in exchange for the $4,000,000 receivable
from DynaMéxico. As a result of these transactions:
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·
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DynaMéxico
owes $2,266,750 USD to DynaMineras; and,
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·
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DynaMéxico
owes $4,000,000 USD to DynaUSA.
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DynaResource Operaciones
(“DynaOperaciones”)
The Company loaned DynaOperaciones
$225,000 in 2012, which amount remains payable to the Company as of September 30, 2017.
Mineras de DynaResource (“DynaMineras”)
The receivable from Mineras to
the Company is $6,346,500 as of September 30, 2017, as described above. All receivables and payables among all subsidiary companies
have been eliminated upon consolidation.
Future Advances to DynaMineras
and DynaMéxico from the Company
The Company expects to make additional
advances to DynaMineras and DynaMéxico. Future advances from DynaMineras to DynaMéxico will be made under the terms
of the Exploitation Amendment Agreement. Other advances are agreed to be accrued in the same manner as previous receivables, until
or unless otherwise agreed between DynaMéxico and the Company.