DYNARESOURCE INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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.

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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.

The 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 originally 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 own 80% of the outstanding shares of DynaMéxico, and DynaMéxico currently holds 20% of the outstanding shares of DynaMéxico. DynaMéxico owns 100% of the mining concessions, equipment, camp and related facilities which comprise the San Jose de Gracía Property ("SJG"), 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 Gracía Project, under contract with DynaMéxico. DynaMineras currently conducts test mining and pilot milling operations, and other exploration activities in México. The Company also has another wholly owned subsidiary, DynaResource Operaciones, S.A. de C.V. ("DynaOperaciones"). DynaOperaciones entered into a personnel management agreement with DynaMineras and, under the terms of that agreement, DynaOperaciones is the exclusive management company for registered employees.

Segment Information

Not required for small reporting Companies

Products

The end use product produced at our test mining and pilot milling operations at SJG is in the form of gold-silver concentrates. Gold-silver concentrates, or simply concentrate, is raw precious metals materials that has been crushed and ground finely to a sand-like product where gangue (waste) and non-precious metals are removed or reduced, thus concentrating the precious metals component. Concentrates processed and produced from San Jose de Gracía are shipped to third-party smelters, refineries or third parties for further processing or re-sale.

During the first three months of 2022, we reported the delivery and sale of 6,000 net Oz gold contained in concentrates. All gold-silver concentrate originated from the San Jose de Gracía Property in México.

Gold-silver concentrates are sold at a discount to the prevailing spot market price, based on the price per ounce of gold and silver quoted at the London PM fix, with the actual net precious metals prices received depending on the sales contract. Concentrates are priced by individual concentrate lots of 36 to 72 tons, or as a series of lots under contract, whereby the final selling price and gold-silver quantities are subject to final adjustments at the time of final purchase settlement.

Gold and Silver Pilot Processing Methods

Gold and silver are extracted from mined mineralized material, by crushing, grinding, milling, and further by simple gravity and flotation recoveries. The mineralized material is extracted by underground mining methods. The processing plant at the San José de Gracía mine is composed of conventional crushing and grinding circuits, and with gravity and flotation recovery methods. The gravity and flotation concentrates are dewatered and shipped to purchasers in semi-truck trailers.

Gold and Silver Reserves / No Known Reserves

The Company currently has no mineral "reserves" as defined by SEC Industry Guide 7 promulgated by the SEC.

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General Government Regulations

México

Mining in México is subject to numerous federal, state and local laws, regulations and ordinances governing mineral rights, operations and environmental protection.

Mineral Concession Rights. Exploration and exploitation of minerals in México may be carried out through Mexican companies incorporated under Mexican law by means of obtaining mining concessions. Mining concessions are granted by the Mexican government for a period of fifty years from the date of their recording in the Public Registry of Mining and are renewable for a further period of fifty years upon application within five years prior to the expiration of such concession in accordance with the Mining Law and its regulations. Mining concessions are subject to annual work requirements and payment of annual surface taxes which are assessed and levied on a semi-annual basis. Such concessions may be transferred or assigned by their holders, but such transfers or assignments must be registered with the Public Registry of Mining in order to be valid against third parties. The holder of a concession must pay semi-annual duties in January and July of each year on a per hectare basis and in accordance with the amounts provided by the Federal Fees Law. During the month of May of each year, the concessionaire must file with the General Bureau of Mines, the work assessment reports made on each concession or group of concessions for the preceding calendar year. The regulations of the Mining Law provide tables containing the minimum investment amounts that must be made on a concession. This amount is updated annually in accordance with the changes in the Consumer Price Index.

Surface Rights. In México, while mineral rights are administered by the federal government through federally issued mining concessions, Ejidos (communal owners of land recognized by the federal laws in México) control surface access rights to the land. An Ejido may sell or lease lands directly to a private entity. While the Company has agreements or is in the process of negotiating agreements with the Ejido that impact all of its projects in México, some of these agreements may be subject to renegotiations.

Environmental Law. The Environmental Law in México, called the "General Law of Ecological Balance and Protection to the Environment" ("General Law"), provides for general environmental policies, with specific requirements for certain activities such as exploration set forth in regulations called "Mexican official norms". Responsibility for enforcement of the General Law, the regulations and the Mexican official norms is with the Ministry of Environment and Natural Resources, which regulate all environmental matters with the assistance of Procuraduria Federal de Protección al Ambiente (known as "PROFEPA").

2020 Forestry Law. The 2020 Forestry Law provides for general policies for the use and protection of the surface, and for plants, soil and trees. The regulation of the Forestry Law is with the Ministry of Environment and Natural Resources, with the assistance of PROFEPA.

Residues Law. The Residues Law, also known as Norm 141, provides for general policies for the deposit and storage of residue and waste. The regulation of the Residues Law is with the Ministry Of Environment and Natural Resources, with the assistance of PROFEPA.

The primary laws and regulations used by the State of Sinaloa, where our San Jose de Gracía property is located, in order to govern environmental protection for mining and exploration are: The General Law, the 2020 Forestry Law, Residues Law, as well as their specific regulations on air, water and residues, and the Mexican official norms (known as "NOM-120"). In order to comply with the environmental regulations, a concessionaire must obtain a series of permits during the exploitation and exploration stage. The time required to obtain the required permits is dependent on a few factors including the type of vegetation and trees impacted by proposed activities.

Mining Permits. The Secretariat of Environmental and Natural Resources, the Mexican Government environmental authority ("SEMARNAT"), is responsible for issuing environmental permits associated with mining. Three main permits required before construction can begin are: Environmental Impact Statement (known in México as Manifesto Impacto Ambiental) ("MIA"), Land Use Change (known in México as Estudio Justificativo Para Cambio Uso Sueldo) ("ETJ"), and Risk Analysis (known in México as Analisis de Riesgo) ("RA"). A construction permit is required from the local municipality and an archaeological release letter must be obtained from the National Institute of Anthropology and History (known as "INAH"). An explosives permit is required from the ministry of defense before construction can begin. The Environmental Impact Statement is required to be prepared by a third-party contractor and submitted to SEMARNAT and must include a detailed analysis of climate, air quality, water, soil, vegetation, wildlife, cultural resources and socio-economic impacts. The Risk Analysis study (which is included into the Environmental Impact Statement and submitted as one complete document) identifies potential environmental releases of hazardous substances and evaluates the risks in order to establish methods to prevent, respond to, and control environmental emergencies. The Land Use Change requires that an evaluation be made of the existing conditions of the land, including a plant and wildlife study, an evaluation of the current and proposed use of the land, impacts to naturally occurring resources, and an evaluation of reclamation/re-vegetation plans.

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Customers

The Company sells its concentrates to the buyer who offers the best terms based upon price, treatment costs, refining costs, and other terms of payment. During the three months ended March 31, 2022, the Company sold gold-silver concentrates to one purchasers.

Employees

As of March 31, 2022, we had 197 employees, including 192 employees based in México, and 5 in the United States. Consultants are retained from time to time. Employees based in México and the United States include laborers, engineers, geologists, information technologists, office administrators, managers and executives. None of our employees in México are covered by union contracts and the Company believes we have good relations with our employees.

The San Jose de Gracia Mineral Property

We classify our mineral property as an "Exploration Property". We do not suggest that we have proven or probable reserves at our property as defined by the SEC. Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG Property as described in this Annual Report on Form 10-K is without known reserves. Mineral resources which are not classified as mineral reserves do not have "demonstrated economic viability." The quantity of resources and the quality (grade) of resources reported as "Indicated" and "Inferred" mineral resources in the mineral resource estimate compiled for DynaMéxico, under and filed by the Company on SEDAR, are not disclosed in this Form 10K. There has been insufficient exploration to define any mineral reserves on the SJG Property, and it is not certain if further exploration will result in the definition of mineral reserves.

San Jose de Gracia Mineral Property

San Jose de Gracía Property ("SJG") is a high-grade mineralized system which reports historical production of 1,000,000 Oz. gold ("Au"), from a series of underground workings and is located in the state of Sinaloa, México. The Company is focused on the exploration and future exploitation of this vein-hosted, near surface, and over 400 meters down dip gold potential, that occurs within fault breccia veins? and has been traced on surface and underground over a 15 Sq. kilometer area.

DynaMéxico owns 100% of the mineral concessions at the SJG Property, and all mineral concessions are contiguous. The SJG Property is comprised of 33 concessions covering approximately 9,920 hectares (24,513 acres).

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                Current Mining Concessions - San José de Gracía



      Claim Name       Claim Number Staking date   Expiry     Hectares   Taxes / ha
                                                                           (pesos)
  AMPL. SAN NICOLAS       183815     22/11/1988  21/11/2038    17.4234     111.27
   AMPL. SANTA ROSA       163592     30/10/1978  29/10/2028    25.0000     111.27
     BUENA VISTA          211087     31/03/2000  30/03/2050    17.9829      63.22
     EL CASTILLO          214519     02/10/2001  01/10/2051   100.0000      31.62
       EL REAL            212571     07/11/2000  07/11/2052   2038.0000     31.62
      EL REAL 2           216301     30/04/2002  29/04/2052   280.1555      31.62
 FINISTERRE FRACC. A      219001     28/01/2003  27/01/2053    18.7856      31.62
 FINISTERRE FRACC. B      219002     28/01/2003  27/01/2053   174.2004      31.62
      GUADALUPE           189470     05/12/1990  04/12/2040    7.0000      111.27
     LA GRACIA I          215958     02/04/2002  01/04/2052   300.0000      31.62
     LA GRACIA II         215959     02/04/2002  01/04/2052   230.0000      31.62
     LA LIBERTAD          172433     15/12/1983  14/12/2033    97.0000     111.27
   LA NUEVA AURORA        215119     08/02/2002  07/02/2052    89.3021      31.62
  LA NUEVA ESPERANZA      226289     06/12/2005  05/12/2055    40.0000       7.6
       LA UNION           176214     26/08/1985  25/08/2035    4.1098      111.27
   LOS TRES AMIGOS        172216     27/10/1983  26/10/2033    23.0000     111.27
     MINA GRANDE          163578     10/10/1978  09/10/2028    6.6588      111.27
    NUEVO ROSARIO         184999     13/12/1989  12/12/2039    32.8781     111.27
 PIEDRAS DE LUMBRE 2      215556     05/03/2002  04/03/2052    34.8493      31.62
 PIEDRAS DE LUMBRE 3      218992     28/01/2003  27/01/2053    4.3098       31.62
PIEDRAS DE LUMBRE No.4    212349     29/09/2000  28/09/2050    0.2034       63.22
PIEDRAS DE LUMBRE UNO     215555     05/03/2002  04/03/2052    40.2754      31.62
      SAN ANDRES          212143     31/08/2000  30/08/2050   385.0990      63.22
       SAN JOSÉ           208537     24/11/1998  23/11/2048    27.0000     111.27
    SAN MIGUEL (1)        183504     26/10/1988  25/10/2038    7.0000      111.27
     SAN NICOLAS          163913     14/12/1978  13/12/2028    55.5490     111.27
    SAN SEBASTIAN         184473     08/11/1989  07/11/2039    40.0000     111.27
     SANTA MARIA          218769     17/01/2003  16/01/2053    4.2030       31.62
      SANTA ROSA          170557     13/05/1982  12/05/2032    31.4887     111.27
     SANTO TOMAS          187348     13/08/1986  12/08/2036   312.0000     111.27
    TRES AMIGOS 2         212142     31/08/2000  30/08/2050    54.4672      63.22
     FINISTERRE 4         231166     18/01/2008  17/01/2058   2142.1302     5.08
   FRANCISCO ARTURO       230494     06/09/2007  27/03/2057   3,279.56
        TOTAL                                                 9,920.00






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Surface Lease Rights

In addition to the surface rights held by DynaMéxico pursuant to the Mining Act of México and its Regulations (Ley Minera y su Reglamento), DynaMineras maintains access and surface rights to the SJG Project pursuant to the 20-year Land Lease Agreement (above). The 20 Year Land Lease Agreement with the Santa Maria Ejido Community surrounding San Jose de Gracía is dated January 6, 2014 and continues through 2033. It covers an area of 4,399 hectares surrounding the main mineral resource areas of SJG and provides for annual lease payments by DynaMineras of $1,359,443 Pesos adjusted for inflation based on the Mexico minimum wage, commencing in 2014. The 2021 payment was $3,015,112 pesos (approx. $149,000 USD). Additionally, under the description of the 20 Year Land Lease, DynaMineras constructed a Medical Facility at SJG in year 2017.

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

The Company expects DynaMineras will be successful in expanding the size and scope of the resources at SJG through continued drilling and development programs at San Pablo, Tres Amigos, La Ceceña, Palos Chinos, San Pablo East, La Purisima, and La Prieta. The Company expects extensions to mineralization in all directions and down dip from the main target areas.

Mineral Reserves / No Known Reserves

Under U.S. standards, as set forth in SEC Industry Guide 7, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SJG property is without known reserves. Mineral resources which are not classified as mineral reserves do not have "demonstrated economic viability." The quantity of resources and the quality (grade) of resources reported as "Indicated" and "Inferred" mineral resources in the mineral resource estimate compiled for DynaMéxico is not disclosed in this Form 10-Q. There has been insufficient exploration to define any mineral reserves on the property, and it is not certain if further exploration will result in the definition of mineral reserves.

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

In 2012, DynaMéxico commissioned Servicios y Proyectos Mineros ("SPM") for the production of Technical Report 43-101 ("43-101") at San Jose de Gracía. Additionally, DynaMéxico commissioned Mr. Robert Sandefur, a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO ("CAM") to produce a mineral resource estimate for the 4 main vein systems at the property.

Parameters Used to Estimate the Mineral Resource Estimate--The data base for the San Jose de Gracía Project consists of 372 drill holes of which 361 are diamond drill holes ("DDH") and the remaining 11 were reverse circulation holes "(RC"), with a total drilling of 75,878 meters. The NI 43-101 Mineral Resource Estimate, prepared in 2012, concentrates on four main mineralized vein systems at SJG: Tres Amigos, San Pablo, La Union, and La Purisima. Of the 372 drill holes, 368 were drilled to test these four main vein systems and the remaining four holes tested the Argillic Zone. Technical personnel of Minop S.A. de C.V. ("Minop"), a subsidiary (or affiliate) of Goldgroup Mining Inc., built three dimensional solids to constrain estimation to the interpreted veins in each swarm. The 172 holes most recently drilled (2009-2011), were allocated as follows: Tres Amigos (64 holes), San Pablo (49 holes), La Union (24 holes), La Purisima (32 holes) and Argillic Zone (3 holes). The data base also includes rock and chip sampling, regional stream sediment sampling, and IP Surveys.

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Density--A total of 5,540 pieces of core were measured for specific gravity using the weight in air vs. weight in water method. This represents an additional 3,897 measurements taken in the 2009-11 drill seasons with density measurements taken from all mineral zones. Dried samples were coated with paraffin wax before being measured. The results tabulated have been sorted by lithology and mineralized veins. The average specific gravity of 5,051 wall rock samples was 2.59 while the average specific gravity for 489 samples of vein material is 2.68. CAM and Servicios y Proyectos Mineros have reviewed the procedures and results and opine that the results are suitable for use in mineral resource estimation.

Mineral Resource Estimate - Construction of Wireframes--Mineral Resources were estimated by Mr. Sandefur within wireframes constructed by technical personnel of Minop. Minop was contracted by Mineras de DynaResource S.A. de C.V. ("DynaMineras").

Mineral Resource Estimate - Explanation of Resource Estimation--Resource estimation was done in MineSight and MicroModel computer systems with only those composites that were inside the wireframe used in the estimate. Estimation was done using kriging with the omni-directional variogram derived from all the data in each area for gold using the relative variogram derived from the log variogram. High grades were restricted by capping the assays at a breakpoint based on the cumulative frequency curves. Estimation was done using search radii of 100 x 100 x 50 m "blocks" oriented subparallel to the general strike and dip of the vein system in each area. A sector search, corresponding to the faces of the search box with a maximum of two points per sector was used in estimation. A density of 2.68 based on within 'vein density' samples was used in the resource estimate. Within each of the four areas there are approximately 20 to 40 veins in the vein swarm. Resources were estimated by kriging using data from all veins in the swarm. In general, gold accounts for at least 80% of the value of contained metal at the project, so the variograms for gold were used in estimation of the four other metals.

The veins at San Jose de Gracía have been historically mined for many years and historic mined volumes are not available. The one exception is the approximate 42,000 tonnes of ore processed by DynaMéxico during its pilot production activities in 2003-2006. The resource table is not adjusted for any historic mining. To validate that historic mining had not significantly reduced the resource, CAM reviewed the database for all assays greater than 1 gram per ton gold that were next to missing values at the bottom of drill holes. Only four assays satisfying this criterion were found, and on the basis of this review, Mr. Sandefur does not believe that significant mining has occurred within the volumes defined by the wireframes.

Servicios y Proyectos Mineros performed a database review and considers that a reasonable level of verification has been completed, and that no material issues have been left unidentified from the drilling programs undertaken.

Mineral Resource Estimate and 43-101 Technical Report - Data Verification-- Mr. Ramon Luna Espinoza ("Mr. Luna") initially visited the San Jose de Gracía Project in November 2010 and conducted site inspections at SJG in November 2011 and January 2012. Mr. Sandefur conducted a site inspection of the SJG Project in January 2012. While at the Property in November 2011, Mr. Luna inspected the areas of Tres Amigos, La Prieta, Gossan Cap, San Pablo, La Union, and La Purisima, and historic mining sites. In January 2012, Mr. Sandefur and Mr. Luna inspected the areas of Tres Amigos, San Pablo, La Union, and La Purisima. Pictures of the areas were taken. Many of the drill pads for the drilling programs of 2007 to 2011 were clearly located and identified. Mr. Luna also inspected at San José de Gracía, the core logging and storage facilities, the geology offices, the meteorological station, the plant nursery, and the mill. Mr. Sandefur also inspected the core logging and storage facilities.

The Company received from DynaMéxico on February 14, 2012, a National Instrument 43-101 Mineral Resource Estimate for San Jose de Gracía. The NI 43-101 Resource Estimate was prepared by Mr. Robert Sandefur, BS, MSc, P.E., a Qualified Person as defined under NI 43-101, and a senior reserve analyst for Chlumsky, Armbrust & Meyer LLC, Lakewood, CO ("CAM"). The Resource Estimate concentrates on four separate main vein systems at SJG: Tres Amigos, San Pablo, La Union, and La Purisima.

The mineral resource estimates prepared by Mr. Robert Sandefur for this Technical Report included Indicated Resources at Tres Amigos and San Pablo. Table summaries of Indicated and Inferred Resources are contained in the 2012 DynaMéxico-CAM Mineral Resource Estimate. The Resource Estimate has been filed, along with the Technical Report on SEDAR? but is not disclosed in this Form 10-Q.

Water Concession

The Company has secured the Water Rights Concession for the area surrounding SJG. The Director of Water Administration of the National Water Commission of México (CONAGUA) formally certified in writing the rights of DynaResource de México, S.A. de C.V. to legally "use", exploit and extract 1,000,000 cubic meters of water per year from the DynaMéxico extraction infrastructure located within the perimeter of the mining concessions comprising the San Jose de Gracía Mining Property in Sinaloa State, México. CONAGUA determined that the DynaMéxico water rights are not subject to any water rights concession or any other water extraction restriction. Water extracted by DynaMéxico will be subject to applicable levies imposed by the Mexican tax authorities in accordance with current Mexican tax laws.

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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"), 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 Jose de Gracía 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 Gracía Project, under contract with DynaMéxico. DynaOperaciones is the exclusive management company for registered employees.

Project Improvements, Expansion and Increased Output (2017 To 2021)

The Company continues its business plan of operations at San Jose de Gracía, which is to improve, increase and expand test mining and pilot milling operations and generally, to increase production of gold ounces. Since January 2015 startup of the test mining and milling activities, the Company has increased daily output from an initial 75 tons per 24-hour operating day, to a current 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 $20 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:                   $  3,542,000
Tailings Pond Expansion                265,000
Machinery and Equipment              1,556,000
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                   522,000
SIG Mining Concessions               1,516,000
Surface Rights and Permitting          528,000
Debt Retirement                      2,985,000
Legal Fees                           3,738,000
Total                             $ 20,186,000

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 $15 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 three months ended
March 31, 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.)
Three
Months
Ended
March
31,
2022          27,511                10.12           79.40 %               7,110                6,000
Three
Months
Ended
March
31,
2021          17,342                 7.66           83.45 %               3,571                3,024

(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.

Additional Test Mining and Mill Operations Disclosure

DynaMineras expects to continue its test underground mining activity and pilot milling operations in the second 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 months ended March 31, 2022 and 2021

REVENUE. The Company processed 27,511 tones (306 per day) during the current quarter compared to 17,342 tons (194 per day) in 2021. Additionally, the ore process was a higher grade of 10.12 Oz Au per ton compared to 7.66 Oz Au per ton in 2021 resulting in an increase of ounces recovered from 3,571 in 2021 to 7,110 in 2021. This resulted in an increase in gross ounces sold from 3,024 in 2021 to 6,000 in 2022 increasing revenues for the quarter from $4,912,712 to $10,492,503

PRODUCTION COSTS RELATED TO SALES. Production costs related to sales for the three months ended March 31, 2022, and 2021 were $765,495 and $381,266, 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 three months ended March 31, 2022, and 2021 were $1,227,884 and $806,470 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.

MINE EXPLORATION COSTS. Mine exploration costs for the three months ended March 31, 2022, and 2021 were $878,188 and $1,012,748, 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. The decrease in cost is a result of the decrease in waste tonnage as a percentage of total tonnage mined from 55.7% to 41.3%

FACILITIES EXPANSION COSTS: Facilities expansion costs for the three months ended March 31, 2022, and 2021 were $608,603 and 0, respectively. The major expense in the first quarter of 2022 was the installation of a new Ball Mill which upon completion will increase processing capacity to 500 tons a day. The Company expects the expansion to be complete by May.

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.

TRANSPORTATION. Transportation costs for the three months ended March 31, 2022, and 2021 were $390,640 and $238,564, respectively. These were the costs of transporting the product to the customer for treatment and sale. The increase in yield reduced overall transportation costs from approximately 4.86% to 3.72% of revenue.

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CAMP, WAREHOUSE AND SUPPORT FACILITIES. Camp, warehouse and support facility cost for the three months March 31, 2022 and 2021 were $825,203 and $535,195, respectively. These were the support costs of the mining facilities including housing, food, security and warehouse operations. The increase was a result of the increase mining activity dropping from 10.89% to 7.86% of revenue.

PROPERTY HOLDING COSTS. Property holding costs for the three months ended March 31, 2022, and 2021 were $35,967 and $42,747, 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 three months ended March 31, 2022, and 2021 were $1,026,355 and $514,977 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 three months ended March 31, 2022, and 2021 was $817,061 and $(1,090,224) respectively. Included in this category in 2022 was interest expense of $(119,769), change in derivative of $938,706 and currency transaction gain (loss) of $(2,402) and miscellaneous income of $526. Included in this category in 2021 was interest expense of $(361,222), change in derivative of $(395,267) and currency transaction gain (loss) of $(333,735). The decrease in the derivative liability was primarily due decreased remaining life of the underlying securities and the Company's common stock value remaining under the conversion term. The decrease in interest expense was a result of the reduction in the Company's debt.

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 three months ended March 31, 2022 and 2021 consisted of unrealized currency gains (losses) of $(301,912) and $292,371 respectively. The change is due to the variances in the peso exchange rates throughout the two periods.

Liquidity and Capital Resources

As of March 31, 2022, the Company had working capital of $6,172,317, comprised of current assets of $25,665,878 and current liabilities of $19,493,561. This represented an increase of $4,824,606 from the working capital maintained by the Company of $1,347,711 as of December 31, 2021. The primary reason for the increase was funds generate from the Company's operating profit.

Net cash provided by (used in) operations for the three months ended March 31, 2022, and 2021 was $104,312 and $3,004,325, respectively. The decrease in the funds provided from operations was a result of the operating profits being applied to reduced payables increase working capital.

Net cash provided by (used) in investing activities for the three months ended March 31, 2022, and 2021 was $0 and $0, respectively. Expenditures necessary for the expansion of mining operations totaled $608,603 and $0 in the three months ended March 31, 2022, and 2021, respectively, would normally have been included in this category were expenses due to the company's lack of proven and probable reserves.

Net cash provided by (used in) financing activities for the three months ended March 31, 2022 and 2021 was $(36,165) and $(17,291) respectively representing principal payments of long term debt.

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Off-Balance Sheet Arrangements

As of March 31, 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 2021, the Company completed its phases of expansion to reach the output of approximately 300 tons per 24-hour operating day from the mine and the processing plant. In 2022 the Company anticipates completion of expansion to reach 500 tons per 24-hour operating days from the mine and the processing plant.

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.

Capital Expenditures

The Company's primary activities relate to the test mining and pilot milling operations of the SJG property through its 100% owned operating subsidiary, DynaMineras. DynaMineras is conducting activities at SJG under the terms of the Exploitation Amendment Agreement (the "EAA", or "operating agreement") with DynaMéxico.

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 Advances made by DynaMineras to DynaMéxico as of December 31, 2014 is $4,025,000. The EAA is the third and latest Amendment to the original Contract Mining Services and Mineral Production Agreement (the "Operating Agreement"), which was previously entered into by DynaMineras with DynaMéxico in April 2005, wherein DynaMineras was named the Exclusive Operating Entity at SJG. The Operating Agreement was previously amended in September 2006 (the "First Amendment") and amended again at July 15, 2011 (the "Second Amendment"). The Term of the Second Amendment is 20 years, and the EAA (Third Amendment) provides for the continuation of the 20 Year Term from the date of the Second Amendment (July 15, 2011).

Exclusive Operating Entity at San Jose de Gracía

Under agreement with DynaMéxico, Mineras de DynaResource S.A. de C.V. ("DynaMineras") has been named the exclusive operating entity at the San Jose de Gracía Project. DynaResource owns 100% of DynaMineras.

DynaMéxico General Powers of Attorney

The Chairman-CEO of DynaUSA also serves as the President of DynaMéxico and as the President of DynaMineras. The President of DynaMéxico holds broad powers of attorney granted by the shareholders of DynaMéxico which gives the current President significant and broad authority within DynaMéxico.

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