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.

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"), and DynaMéxico currently holds 20% of its outstanding shares recovered from Goldgroup Resources Inc. DynaMéxico owns 100% of mining concessions, equipment, camp and related facilities which comprise the San José 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. DynaOperaciones is the exclusive management company for registered employees.

Project Improvements, Expansion and Increased Output (2017 To Present)

The Company continues its business plan of operations at San José de Gracia, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 300 tons per 24-hour operating day, and during second quarter 2022 the Company expects to achieve production output of 500 tons per 24-hour operating day. (Note the Summary of Test Mining and Pilot Mill Operations for 2018 to 2022 below).

Since January 2017, the Company has expended over 23 million USD in non-operating costs, generally classified as project improvements and expansion costs which have been expensed in the company's financial statements. These funds have been provided primarily from cash flows from operations. An itemized list of these non-operating costs is described below:





Mill Expansion:                   $  5,498,000
Tailings Pond Expansion                265,000
Machinery and Equipment              1,963,000
Mining Camp Expansion                  146,000
Medical Facility                       126,000
Mine Development - San Pablo         2,748,000
Mine Expansion - San Pablo East        915,000
Mine Expansion - Tres Amigos         1,599,000
Exploration Drilling                 1,257,000
SIG Mining Concessions               1,542,000
Surface Rights and Permitting          791,000
Debt Retirement                      2,985,000
Legal Fees                           3,894,000
Total                             $ 23,729,000

The Company is currently reporting all costs of mine operations, improvements, and expansion as expenses in accordance with United States General Accepted Accounting Principal (GAAP) requirements. The result of expensing all costs is that the Company has accumulated a net loss carry forward from México operations of $18.5 million USD which is available to offset future taxable earnings.






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Summary of Test Mining and Pilot Mill Operations for 2018 to 2022:





                                                                 Gross Gold            Net Gold
        Total Tonnes       Reported Mill        Reported        Concentrates         Concentrates
          Mined &         Feed Grade (g/t       Recovery          Recovered              Sold
Year     Processed              Au)                %              (Au oz.)             (Au oz.)
2018           52,038                 9.82          86.11 %              14,147             13,418
2019           66,031                 5.81          86.86 %              10,646              9,713
2020           44,218                 5.65          87.31 %               7,001              5,828
2021           97,088                 9.67          88.79 %              26,728             22,566

Test pilot operations in 2021 yielded 97,088 Tons mined and processed from underground test mining activity and pilot milling operations; and the production of approximately 26,728 gross Oz Au, and net of dry weight adjustments at the buyer's facilities, the production of approximately 22,566 Oz Au. The Company reports net revenue of $35,886,046 net of buyer's price discount and refining and treatment costs.





Summary of Test Mining and Pilot Mill Operations for the six months ended June
30, 2022 and 2021:



            Total                                                Gross Gold
           Tonnes            Reported          Reported         Concentrates          Net Gold (1)
           Mined &          Mill Feed           Recovery          Recovered           Concentrates
          Processed       Grade (g/t Au)           %              (Au oz.)           Sold (Au oz.)
Six
Months
Ended
June
30,
2022          61,166                 9.35           81.27 %              14,943               12,004
Six
Months
Ended
June
30,
2021          41,376                 8.98           86.74 %              10,320                9,437

(1) Gold concentrate sold during the quarter is not equal to gold concentrate


    recovered during the quarter due to timing of shipments & buyers discount.

Test pilot operations in Q1 2022 yielded 27,511 tons mined and processed through mill operations (306 tons per day) ? and the recovery of 7,110 gross Oz Au resulting in sales of 6,000 gross Au Oz contained in gold-silver concentrates, and the receipt of $10,492,503 in revenues net of buyer's price discount, refining and treatment costs.

Test pilot operations in Q2 2022 yielded 33,655 tons mined and processed through mill operations (370 tons per day) ? and the recovery of 7,834 gross Oz Au resulting in sales of 6,004 gross Au Oz contained in gold-silver concentrates, and the receipt of $10,098,010 in revenues net of buyer's price discount, refining and treatment costs.

Additional Test Mining and Mill Operations Disclosure

DynaMineras expects to continue its test underground mining activity and pilot milling operations in the third quarter 2022, and projects an increased output of 500 tons per 24-hour operating day from the mine and mill during the quarter.

Results for the three and six months ended June 30, 2022 and 2021

REVENUE. The Company processed 61,166 tons (306 per day) during the first six months of 2022 compared to 17,342 tons (194 per day) in 2021. Additionally, the ore process was a higher grade of 9.35 Oz Au per ton compared to 8.98 Oz Au per ton in 2021, resulting in an increase of ounces recovered from 10,320 in 2021 to 14,943 in [the first six months of] 2022. This resulted in an increase in gross ounces sold from 9,437 in 2021 to 12,004 in 2022, increasing revenues from $15,439,025 to $20,590,513 for the six months ended June 30, 2021 and 2022, respectively.






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PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the six months ended June 30, 2022 and June 30, 2021 were $1,912,730 and $1,160,151, respectively. Production cost for the three months ended June 30, 2022, and 2021 were $1,147,215 and $778,885, respectively. These are expenses directly related to the milling, packaging and shipping of gold and other precious metals product. The increase is consistent with the increase in tonnage process and ounces recovered.

MINE PRODUCTION COSTS. Mine production costs for the six months ended June 30, 2022, and 2021 were $2,839,255 and $2,249,402, respectively and $1,611,371 and $1,442,932 for the three months ended June 30, 2022 and 2021, respectively. These costs were directly related to the extraction of mine tonnage to be processed at the mill. The increase is consistent with the increase in tonnage mined. Cost per ton of ore mined was $44 a ton both years. Mine production costs as a percentage of revenue dropped from 14.6% to 13.7%.

MINE EXPLORATION COSTS. Mine exploration costs for the six months ended June 30, 2022, and 2021 were $2,456,968 and $2,285,989, respectively and $1,578,780 and $1,273,241 for the three months ended June 30, 2022 and 2021, respectively. These were the costs of extracting waste material to reach the materials to be extracted for processing. The Company allocates total mining costs between production and waste based on tonnage on a monthly basis. Mine exploration costs as a percentage of revenue dropped from 14.8% to 12.0%. The decrease in cost is a result of the decrease in waste tonnage as a percentage of total tonnage mined from 52.2% to 45.8%

FACILITIES EXPANSION COSTS: Facilities expansion costs for the six months ended June 30, 2022, and 2021 were $2,971,407 and 0, respectively. The major expense was the installation of two new Ball Mill which upon completion will increase processing capacity to 700 tons a day. The Company expects the expansion to be complete by July. These are cost which would normally be capitalized under U.S Gaap but are expensed under Reg. S-K, Item 1300 because of the Company is an exploration stage issuer lacking proven and probable reserves.

EXPLORATION DRILLING. During the 1st quarter of 2022 the Company begin an exploration drilling program for the purposes of updating the Company's 43-101 Mineral Resource Estimate. Total cost of the exploratory drilling program in the first six months of 2022 was $1,222,190 including $734,575 in the 2nd quarter.

TRANSPORTATION. Transportation costs for the six months ended June 30, 2022, and 2021 were $1,110,214 and $593,698, respectively. Transportation cost for the three months ended June 30, 2022 and 2021 were $719,574 and $355,134, respectively. These were the costs of transporting the product to the customer for treatment and sale. The increase in reflective of the increase in fuel and transportation costs.

CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility cost for the six months June 30, 2022 and 2021 were $2,236,028 and $1,258,722, respectively and $1,410,825 and $723,527 for the three months ended June 30, 2022 and 2021, respectively. These were the support costs of the mining facilities including housing, food, security and warehouse operations. The increases were the result of the Company's increase in mining operations

PROPERTY HOLDING COSTS. Property holding costs for the six months ended June 30, 2022, and 2021 were $72,781 and $79,650, respectively. These costs were concessions taxes, leases on land and other direct costs of maintaining the property. These cost are relatively consistent from year to year regardless of the level of mining activity.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the six months ended June 30, 2022, and 2021 were $2,144,097 and $1,166,969, respectively. These were the costs of operating the Company not directly associated with the mine operations including management, accounting, and legal expenses. The increase was an increase legal fees associated ongoing legal discussed in the legal summary and an overall increase in administrative costs supporting the Companies increase in activity.

OTHER INCOME (EXPENSE). Other income (expense) for the six months ended June 30, 2022, and 2021 was 1,960,605 and $(1,890,365), respectively. Included in this category in 2022 was interest expense of $(241,505), change in derivative of $2,163,281, currency transaction gain (loss) of $37,790 and miscellaneous income of 1,039. Included in this category in 2021 was interest expense of $(730,419), change in derivative of $(185,116), currency transaction gain (loss) of $136,281 and a one-time arbitration award expense of $1,111,111. The decrease in the derivative liability was primarily due to maturity of two of the underlying securities and the Company's common stock value remaining under the conversion terms. The decrease in interest expense was the result of a reduction in the Company's debt. For a more detailed explanation of the 2021 arbitration award see Legal Proceedings.






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OTHER COMPREHENSIVE INCOME (LOSS). Other comprehensive income (loss) includes the Company's net income (loss) plus the unrealized currency translation gain (loss) for the period. The Company's other comprehensive loss for the six months ended June 30, 2022 and 2021 consisted of unrealized currency gains (losses) of $11,016 and $(371,407), respectively. The change is due to the variances in the peso exchange rates throughout the two periods.

Liquidity and Capital Resources

As of June 30, 2022, the Company had working capital of $12,378,739, comprised of current assets of $33,337,581 and current liabilities of $20,958,842. This represented an increase of $11,031,028 from the working capital of $1,347,711 maintained by the Company as of December 31, 2021. The primary reasons for the increase were funds generated from the Company's operating profit and proceeds from the exercise of stock warrants.

Net cash provided by (used in) operations for the six months ended June 30, 2022 and 2021 was $(176,600) and $8,271,206, respectively. The decrease in the funds provided from operations was a result of the operating profits being applied to reduce payables and other debt.

Net cash provided by (used in) investing activities for the six months ended June 30, 2022 and 2021 was $0 and $0, respectively. Expenditures necessary for the expansion of mining operations totaled $2,971,407 and $0 in the six months ended June 30, 2022 and 2021, respectively, which would normally have been included in this category were expenses due to the company's being an exploration stage issuer as defined in SEC Reg. S-K, Item 1300.

Net cash provided by (used in) financing activities for the six months ended June 30, 2022 and 2021 was $5,357,921 and $(36,460), respectively. The 2021 usage represented principal payments on long-term debt. The 2022 source of funds was proceeds from the exercise of stock warrants, offset by payments to reduce debt.

Off-Balance Sheet Arrangements

As of June 30, 2022, we did not have any off-balance sheet arrangements, which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.





Plan of Operation

The Plan of operation for the next twelve months includes DynaMineras continuing the improvement and expansion of the test mining and pilot milling operations at SJG. The Company commenced its testing activities in fall 2015 at the rate of approximately 100 tons per 24-hour operating day from the mine and approximately the same output from the processing plant. Over the past five years, the Company has gradually increased its output to approximately 300 tons per 24-hour operating day from the mines and processing plant. In 2022 the Company anticipates completion of expansion to reach a capacity of 700 tons per 24-hour operating days from the processing plant. The Company expects to operate at approximately 500 tons per day in the second half of 2022.

The Company funds its general and administrative expenses in the US, from the Company's operating subsidiaries, DynaMineras and DynaOperaciones. These amounts are eliminated in consolidation. The Company believes that cash on hand, and including cash flow generated from its current operations, is adequate to fund its ongoing general and administrative expenses through the subsequent twelve months.

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