NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2018 and 2017
NOTE
1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature
of Activities, History and Organization
DynaResource,
Inc. (The “Company”, “DynaResource”, or “DynaUSA”) was organized September 28, 1937, as a
California corporation under the name of West Coast Mines, Inc. In 1998, the Company re-domiciled to Delaware and changed
its name to DynaResource, Inc. The Company is in the business of acquiring, investing in, and developing precious metal
properties, and the production of precious metals.
In
2000, the Company formed a wholly owned subsidiary, DynaResource de México S.A. de C.V., chartered in México (“DynaMéxico”). This
Company was formed to acquire, invest in and develop resource properties in México. DynaMéxico owns a portfolio
of mining concessions that currently includes its interests in the San José de Gracia Project (“SJG”) in northern
Sinaloa State, México. The SJG District covers 69,121 hectares (170,802 acres) on the west side of the Sierra Madre mountain
range. The Company currently owns 80% of the outstanding capital of DynaMéxico.
In
2005, the Company formed DynaResource Operaciones de San Jose De Gracia S.A. de C.V. (“DynaOperaciones”), and acquired
effective control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”).
The Company owned 25% of DynaMineras and acquired effective control of DynaMineras by acquiring the option to purchase the remaining
75% of the Shares of DynaMineras. The Company finalized the option and acquisition of DynaMineras in January 2010, and now owns
100% of DynaMineras. The results of these subsidiaries are consolidated with those of the Company.
From
January 2008 through March 2011, DynaMéxico issued 100 Variable Capital Series “B” shares to Goldgroup Resources,
Inc., a wholly owned subsidiary of Goldgroup Mining Inc. Vancouver BC (“Goldgroup”), in exchange for Goldgroup’s
contribution of $18,000,000 to DynaMéxico. At March 14, 2011, Goldgroup owned 50% of the outstanding capital shares of
DynaMéxico.
On
June 21, 2013, DynaResource acquired a Certificate for 300 Series “B” Variable Capital Shares of DynaMéxico,
in exchange for the settlement of accounts receivable from DynaMéxico in the amount of $31,090,710 Mexican Pesos (approximately
$2.4 million USD). After the issuance and receipt of the 300 Series B Shares, DynaUSA holds 80% of the total outstanding Capital
of DynaMéxico.
The
Company elected to become a voluntary reporting issuer in Canada in order to avail itself of Canadian regulations regarding reporting
for mining properties and, more specifically, National Instrument 43-101 (“NI 43-101”). This regulation sets forth
standards for reporting resources in a mineral property and is a standard recognized in the mining industry.
Reclassifications
and Adjustments
Certain
financial statement reclassifications have been made to prior period balances to reflect the current period’s presentation
format; such reclassifications had no impact on the Company’s consolidated statements of income or consolidated statements
of cash flows and had no material impact on the Company’s consolidated balance sheets.
Significant
Accounting Policies
The
Company’s management selects accounting principles generally accepted in the United States of America and adopts methods
for their application. The application of accounting principles requires the estimating, matching and timing of revenue
and expense. The accounting policies used conform to generally accepted accounting principles which have been consistently applied
in the preparation of these financial statements.
The
financial statements and notes are representations of the Company’s management which is responsible for their integrity
and objectivity. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing
and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items that: 1) recorded transactions are valid; 2)
valid transactions are recorded; and 3) transactions are recorded in the proper period in a
timely manner to produce financial statements which present fairly the financial condition, results of operations and
cash flows of the Company for the respective periods presented.
Basis
of Presentation
The
Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally
accepted in the United States.
Restatement
The
Company is filing this Amendment No.2 to its Annual Report on Form 10-K for the year ended December 31, 2018, which was originally
filed with the Securities and Exchange Commission on April 8, 2019. The Company has restated its consolidated financial statements
for the years ended December 31, 2018 and December 31, 2017 to correct the manner in which the Company recorded certain expenditures.
The expenditures which were capitalized as Mining Equipment and Fixtures should have been expensed as mine expansion costs under
Generally Accepted Accounting Principles (GAAP) in the United States. The Company made the appropriate adjustment to the opening
January 1, 2017 equity balance to reflect the cumulative effect of prior periods to remove certain
expenditures for mining site improvements and equipment that were previously capitalized as fixed assets.
The
errors which were included in the December 31, 2018 Form 10-K Annual Report were incurred throughout the 2018 and 2017 fiscal
years and prior periods and were subsequently identified in the third quarter of the 2019 fiscal year. The Company will also be
filing an amended 10-Q for the quarter ended March 31, 2019.
Please
refer to Note 17 – Restatements for a complete summary of the restatement adjustments and an “As Reported” and
“As Restated” comparison of the affected balances within the financial statements. As required by Rule 12b-15 under
the Securities Exchange Act of 1934, as amended, new certifications by DynaResouce Inc.’s principal executive officer and
principal financial officer are being filed with this Form 10-K/A as Exhibits 31.1, 31.2, 32.1 and 32.2. In addition, Item 8 has
been amended to contain a currently-dated opinion of the Company’s independent registered public accounting firm.
Principles
of Consolidation
The
financial statements include the accounts of DynaResource, Inc., as well as DynaResource de México, S.A. de C.V. (80% ownership),
DynaResource Operaciones S.A. de C.V. (100% ownership) and Mineras de DynaResource S.A. de C.V. (100% ownership). All
significant inter-company transactions have been eliminated. All amounts are presented in U.S. Dollars unless otherwise
stated.
Non-Controlling
Interest
The
Company’s subsidiary, DynaResource de México S.A. de C.V, is 20% owned by Goldgroup Mining, Inc. On May 17, 2013,
the ownership changed from 50% to 20%. The Company accounts for this outside interest as “non-controlling interest”.
Investments
in Affiliates
The
Company owns a 19.95% interest in DynaResource Nevada, Inc., a Nevada Corporation (“DynaNevada”), with one operating
subsidiary in México, DynaNevada de México, S.A. de C.V. (“DynaNevada de México”), together “DynaNevada”.
The Company accounts for this investment using the cost basis. The Company has significant influence over DynaNevada, but not
control, due to the lack of a majority voting interest in the entity. DynaNevada has been dormant for several years. DynaUSA has
no plan or intention of future funding with DynaNevada nor are any other transactions with DynaNevada contemplated at this time.
The Company therefore accounts for this investment using the cost basis. The investment was $70,000 and $70,000 at December 31,
2018 and 2017, respectively.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. At
times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.
Accounts
Receivable and Allowances for Doubtful Accounts
The
allowance for accounts receivable is recorded when receivables are considered to be doubtful of collection. As of December 31,
2018, and 2017, respectively, no allowance has been made.
Foreign
Tax Receivable
Foreign
Tax Receivable is comprised of recoverable value-added taxes (“IVA”) charged by the Mexican government on goods and
services rendered. Under certain circumstances, these taxes are recoverable by filing a tax return. Amounts
paid for IVA are tracked and held as receivables until the funds are remitted. The total amounts of the IVA receivable
as of December 31, 2018 and December 31, 2017 are $845,564 and $732,341, respectively.
Inventory
Inventories
are carried at the lower of cost or net realizable value and consist of mined tonnage, and gravity and flotation concentrates,
and gravity tailings or flotation feed material. The inventories are $1,588,778 and $907,982 as of December 31, 2018 and December
31, 2017, respectively.
Proven
and Probable Reserves (No Known Reserves)
The
definition of proven and probable reserves is set forth in SEC Industry Guide 7 (“Industry Guide 7”). Proven reserves
for which (1) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality
are computed from the results of detailed sampling and (2) the sites for inspection, sampling and measurement are spaced
so closely and the geological character is so well defined that size, shape, depth and mineral content of the reserves are well-established.
Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used
for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume
continuity between points of observations.
As
of December 31, 2018, none of the Company's properties contain resources that satisfy the definition of proven and probable
reserves. The Company classifies the development of its properties, including the San Jose de Gracia Property, as exploration
stage projects since no proven or probable reserves have been established under Industry Guide 7.
Property
Substantially
all mine development costs, including design, engineering, mine construction, and installation of equipment are expensed as incurred
as the Company has not established proven and probable reserves on any of its properties. Only certain types of mining equipment
which has alternative uses or significant salvage value, may be capitalized without proven and probable reserves. Depreciation
is computed using the straight-line method. Office furniture, equipment and light vehicles are being depreciated on a straight-line
method over estimated economic lives ranging from 3 to 5 years. Leasehold improvements, which relate to the Company's corporate
office, are being amortized over the term of the lease of 10 years. Trailers, heavy vehicles and other site equipment are
being depreciated on a straight-line method over estimated economic lives from 5 to 15 years. Buildings are being depreciated
on straight line method over an estimated economic life of 20 years.
Design,
Construction, and Development Costs: Mine development costs include engineering and metallurgical studies,
drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit
surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines.
When
proven and probable reserves as defined by Industry Guide 7 exist, development costs are capitalized, and the property is a commercially
minable property. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines,
or to develop mine areas substantially in advance of current production would be capitalized. Costs of start-up activities and
costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations as incurred.
Costs of abandoned projects are charged to operations upon abandonment. All capitalized costs would be amortized using the units
of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable
reserves.
Certain
costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves.
As no proven and probable reserves have been established on any of the Company's properties, design, construction and development
costs are not capitalized at any of the Company's properties, and accordingly, substantially all costs are expensed as incurred,
resulting in the Company reporting larger losses than if such expenditures had been capitalized. Additionally, the Company does
not have a corresponding depreciation or amortization of these costs going forward since these expenditures were expensed as incurred
as opposed to being capitalized. As a result of these and other differences, the Company's financial statements may not be comparable
to the financial statements of mining companies that have established reserves.
Mineral
Properties Interests
Mineral
property interests include acquired interests in development and exploration stage properties, which are considered tangible assets.
The amount capitalized relating to a mineral property interest represents its fair value at the time of acquisition. When a property
does not contain mineralized material that satisfies the definition of proven and probable reserves, such as with the San Jose
de Gracia Property, capitalized costs and mineral property interests are amortized using the straight-line method once production
begins. As of December 31, 2018, the mining interests have been in the pilot production stage and therefore, no amortization has
been expensed. Mining properties consist of 33 mining concessions covering approximately 9,919 hectares at the San Jose de Gracia
property (“SJG”), the basis of which are amortized on the unit of production method based on estimated recoverable
resources. If it is determined that the deferred costs related to a property are not recoverable over its productive life,
those costs will be written down to fair value as a charge to operations in the period in which the determination is made. The
amounts at which mineral properties and the related costs are recorded do not necessarily reflect present or future values.
Impairment
of Assets: The Company reviews and evaluates its long-lived assets for impairment when events or changes
in circumstances indicate that the related carrying amounts may not be recoverable. Mineral properties are monitored for impairment
based on factors such as mineral prices, government regulation and taxation, the Company's continued right to explore the area,
exploration reports, assays, technical reports, drill results and its continued plans to fund exploration programs on the property.
For
operating mines, recoverability is measured by comparing the undiscounted future net cash flows to the net book value. When the
net book value exceeds future net undiscounted cash flows, an impairment loss is measured and recorded based on the excess of
the net book value over fair value. Fair value for operating mines is determined using a combined approach, which uses a discounted
cash flow model for the existing operations and a market approach for the fair value assessment of exploration land claims. Future
cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering
current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation
costs, all based on life-of-mine plans. The term "recoverable mineralized material" refers to the estimated amount of
gold or other commodities that will be obtained after taking into account losses during processing and treatment of mineralized
material. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows
that are largely independent of future cash flows from other asset groups. The Company's estimates of future cash flows are based
on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as
actual future quantities of recoverable minerals, gold, silver and other commodity prices, production levels and costs and capital
are each subject to significant risks and uncertainties.
The
recoverability of the book value of each property will be assessed annually for indicators of impairment such as adverse changes
to any of the following:
●
|
estimated
recoverable ounces of gold, silver or other precious minerals;
|
●
|
estimated
future commodity prices;
|
●
|
estimated
expected future operating costs, capital expenditures and reclamation expenditures.
|
A
write-down to fair value will be recorded when the expected future cash flow is less than the net book value of the property or
when events or changes in the property indicate that carrying amounts are not recoverable. This analysis will be completed
as needed, and at least annually. As of the date of this filing, no events have occurred that would require write-down of any
assets. As of December 31, 2018, and 2017, no indications of impairment existed.
Asset
Retirement Obligation: As the Company is not obligated to remediate the mining properties, no Asset
Retirement Obligation (“ARO”) has been established. Changes in regulations or laws, any instances of non-compliance
with laws or regulations that result in fines, or any unforeseen environmental contamination could result in a material impact
to the amounts charged to operations for reclamation and remediation. Significant judgments and estimates are made when estimating
the fair value of AROs. Expected cash flows relating to AROs could occur over long periods of time and the assessment of the extent
of environmental remediation work is highly subjective. Considering all of these factors that go into the determination of an
ARO, the fair value of the AROs can materially change over time.
Pre-Pilot
Production Costs
During
2016, the Company has conducted rehabilitation activity at the San Pablo mine and has refurbished the Pilot Mill Facility at San
Jose de Gracia and, in general prepared for test mining and pilot milling (“Pilot Production”) Operations. The costs
associated with the rehabilitation, preparation, clean up and facilitation of this process are expensed as pre-pilot production
costs.
Property
Holding Costs
Holding
costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. These costs include
security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.
Exploration
Costs
Exploration
costs are charged to operations and expenses as incurred. Exploration, development, direct field costs and administrative costs
are expensed in the period incurred.
Foreign
Currency Translation
The
functional currency for the subsidiaries of the Company is the Mexican Peso. As a result, the financial statements of the subsidiaries
have been translated from Mexican Pesos into U.S. dollars using (i) year end exchange rates for balance sheet accounts, and (ii)
the weighted average exchange rate of the reporting period for all income statement accounts. Foreign currency translation gains
and losses are reported as a separate component of stockholders’ equity and comprehensive income (loss).
The
financial statements of the subsidiaries should not be construed as representations that Mexican Pesos have been, could have been
or may in the future be converted into U.S. dollars at such rates or any other rates.
Relevant
exchange rates used in the preparation of the financial statements for the subsidiaries are as follows for the years ended December
31, 2018 and 2017 (Mexican Pesos per one U.S. dollar):
|
|
|
Dec
31, 2018
|
|
|
Dec
31, 2017
|
|
|
|
|
|
|
|
|
|
Current exchange rate
|
Pesos
|
|
|
19.63
|
|
|
|
19.73
|
|
|
|
|
|
|
|
|
|
|
Weighted average exchange rate for the period
ended
|
Pesos
|
|
|
19.23
|
|
|
|
18.12
|
|
The
Company recorded currency transaction gains of $51,325 for the year ended December 31, 2018 and $1,388,573 in 2017.
Income
Taxes
The
Company accounts for income taxes under ASC 740 “Income Taxes” using the liability method, recognizing
certain temporary differences between the financial reporting basis of liabilities and assets and the related income tax basis
for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as
measured by the statutory tax rates in effect. The Company derives the deferred income tax charge or benefit by recording the
change in either the net deferred income tax liability or asset balance for the year. The Company records a valuation allowance
against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred income tax asset will not be realized.
Income
from the Company’s subsidiaries in México are taxed at applicable Mexican tax law.
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act
reduced the highest corporate tax rate from 35% to 21%. With the passage of the Act, the Company‘s deferred tax assets and
liabilities were restated as of the effective date of the law to reflect the new applicable rate. The reduction to the net deferred
tax asset was charged to tax expense in the period of the change and offset by a valuation allowance stemming from historical
net operating loss carryforwards.
Use
of Estimates
In
order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management
must make estimates, judgments and assumptions that affect the amounts reported in the financial statements and determines whether
contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring
these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the
financial statements are based.
Comprehensive
Income (Loss)
ASC
220 “Comprehensive Income” establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The Company’s comprehensive income
consists of net income and other comprehensive income (loss), consisting of unrealized net gains and losses on the translation
of the assets and liabilities of its foreign operations.
Revenue
Recognition
The
Company adopted ASC 606 “Revenue from contracts with customers” on January 1, 2018 using the modified retrospective
approach. The Company generates revenue by selling gold and silver produce from its mining operations. The Company recognizes
revenue for gold and silver concentrate production, net of treatment and refining costs, when it satisfies the performance obligation
of transferring control of the concentrate to the customer. This is generally when the material is delivered to the customer facility
for treatment and processing as the customer has the ability to direct the use of and obtain substantially all the remaining benefits
from the material and the customer has the risk of loss.
The
amount of revenue recognized is initially recorded on a provisional basis based on the contract price and the estimated metal
quantities based on assay data. The revenue is adjusted upon final settlement of the sale. The chief risk associated with the
recognition of sales on a provisional basis is the fluctuations between the estimated quantities of precious metals base on the
initial assay and the actual recovery from treatment and processing.
During
the year ended December 31, 2018 there was $0 of revenue recognized during the period from customer deposit liabilities (deferred
contract revenue), and $0 of customer deposits refunded to the customer on order cancellation.
As
of December 31, 2018, there are $1,750,000 in customer deposit liabilities for payments received during the period for contracts
expected to ship in 2019. Under terms of the Company’s sales contract this amount is to be applied as payment on the customer
account at a rate of $250,000 per month throughout the year.
As
of and for the year ended December 31, 2018, there are $0 significant contract deferred costs such as sales commissions or costs
deferred.
We
have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.
Prior
to the adoption of this standard the Company recognized revenue in accordance with ASC 605-10, "Revenue Recognition in
Financial Statements". Revenue was recognized when persuasive evidence of an arrangement exists, delivery
or service has occurred, the sale price is fixed or determinable and receipt of payment is probable. Revenues earned from the
sale of precious metal concentrates are recognized when both the buyer and seller agree on the % of gold as determined by sample
assays and when it is delivered to the Buyer. Subsequently, a “final settlement” was calculated an adjustment was
recorded when any remaining balance was paid.
The
change in accounting principle from ASC 605 to ASC 606 did not impact the amount of revenue recognized in the Company’s
financial statements.
Stock-Based
Compensation
The
Company accounts for stock options at fair value as prescribed in ASC 718. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service
period, if any, of the stock option.
The
Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity -Based
Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement
date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which
the necessary performance to earn the equity instruments is complete. Accordingly, the fair value of these options is being “marked
to market” quarterly until the measurement date is determined.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash, receivables, payables and long-term debt. The carrying amount of cash,
receivable and payables approximates fair value because of the short-term nature of these items. The carrying amount of long-term
debt approximates fair value due to the relationship between the interest rate on long-term debt and the Company’s incremental
risk adjusted borrowing rate.
Per
Share Amounts
Earnings
per share are calculated in accordance with ASC 260 “Earnings per Share”. The weighted average number
of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings
per share are computed using the weighted average number of shares and potentially dilutive common shares outstanding. Potentially
dilutive common shares are additional common shares assumed to be exercised. Potentially dilutive common shares consist
of stock options and convertible preferred shares and convertible notes and are excluded from the diluted earnings per share computation
in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.
The
Company had 2,523,689 warrants outstanding at December 31, 2018 exercisable at $2.50 per share, which upon exercise, would result
in the issuance of 2,523,689 shares of common stock. The Company also had convertible debt instruments as of December 31, 2018
which, upon conversion at a valuation of $2.50 per share, would result in the issuance of 335,250 shares of stock.
The
Company had 2,523,689 warrants outstanding at December 31, 2017 exercisable at $2.50 per share, which upon exercise, would result
in the issuance of 2,523,689 shares of common stock. The Company also had convertible debt instruments as of December 31, 2017
which, upon conversion at a valuation of $2.50 per share, would result in the issuance of 380,250 shares of stock.
|
|
Years
ended December 31
|
|
|
2018
(Restated)
|
|
2017
(Restated)
|
Net income
(loss) attributable to common shareholders
|
|
$
|
(756,417
|
)
|
|
$
|
1,363,932
|
|
Shares:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
Basic
|
|
|
17,722,825
|
|
|
|
17,076,250
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
Diluted
|
|
|
17,722,825
|
|
|
|
18,943,790
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
0.08
|
|
Related
Party Transactions
FASB
ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material
related party transactions. The Company discloses all material related party transactions. A party is considered to be related
to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the
immediate families of principal owners of the Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence
the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests is also a related party.”
Recently
Issued Accounting Pronouncements
Stock
compensation
In
May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU
2017-09). ASU 2017-09 provides clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the
guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment
award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities
for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.
As such, The Company adopted these provisions as of the fiscal year beginning on January 1, 2018. The amendments in this update
should be applied prospectively to an award modified on or after the adoption date.
Leases
In
February 2016, FASB issued ASU 2016-02— Leases (Topic 842). The update is intended to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early application of the amendments in this update is permitted. As such, The Company
is required to adopt these provisions as of the fiscal year beginning on January 1, 2019. The Company is currently evaluating
the impact of FASB ASU 2016-02 and expects the adoption thereof will have a material effect on The Company’s presentation
of balance sheet assets and liabilities based on the present value of future lease payments but does not expect a material effect
on the presentation of expenses and cash flows.
NOTE
2 – INVENTORIES
The
Company commenced underground test mining and pilot milling activities (“pilot production”) in the 2nd quarter of
2014. Rehabilitation of the San Pablo Mine and refurbishing of the Pilot Mill Facility and construction of the adjacent tailings
pond continued through 2016. Inventories are carried at the lower of cost or fair value and consist of mined tonnage, gravity-flotation
concentrates, and gravity tailings (or, flotation feed material). Inventory balances of December 31, 2018 and December 31, 2017,
respectively, were as follows:
|
|
2018
|
|
2017
|
|
|
|
|
|
Mined Tonnage,
Gold-Silver Concentrates, and/or Gravity Tailings (Flotation Feed Material)
|
|
$
|
1,588,778
|
|
|
$
|
907,982
|
|
Total Inventories
|
|
$
|
1,588,778
|
|
|
$
|
907,982
|
|
NOTE
3 – PROPERTY
Property
consists of the following at December 31, 2018 and December 31, 2017:
|
|
2018
(Restated)
|
|
2017
(Restated)
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
9,340
|
|
|
$
|
9,340
|
|
Office equipment
|
|
|
31,012
|
|
|
|
27,082
|
|
Office furniture and
fixtures
|
|
|
78,802
|
|
|
|
78,802
|
|
Sub-total
|
|
|
119,154
|
|
|
|
115,224
|
|
Less: Accumulated depreciation
|
|
|
(106,673
|
)
|
|
|
(98,817
|
)
|
Total
Property
|
|
$
|
12,481
|
|
|
$
|
16,407
|
|
The
Company purchased equipment of $3,931 and $12,316 in the years ended December 31, 2018 and 2017, respectively.
Depreciation
has been provided over each asset’s estimated useful life. Depreciation expense was $7,856 and $5,630 for the
years ended December 31, 2018 and 2017, respectively.
NOTE
4 – MINING CONCESSIONS
Mining
properties consist of the following at December 31, 2018 and December 31, 2017:
|
|
2018
|
|
2017
|
San Jose de Gracia (“SJG”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mining Concessions
|
|
$
|
4,132,678
|
|
|
$
|
4,132,678
|
|
|
|
|
|
|
|
|
|
|
Depletion
expense was $0 and $0 for the years ended December 31, 2018 and 2017, respectively.
NOTE
5 – INVESTMENT IN AFFILIATE/RECEIVABLES FROM AFFILIATE/OTHER ASSETS
Through
December 31, 2018, the Company loaned a total of $805,760 to DynaResource Nevada, Inc. (“DynaNevada”), a Nevada Corporation,
which owns 100% of one operating subsidiary in México, DynaNevada de México, S.A. de C.V. (“DynaNevada
de México”). The terms of the Note Receivable provided for a “Convertible Loan”, repayable at 5% interest
over a 3-year period, and convertible at the Company’s option into common stock of DynaNevada at $.25 / Share.
DynaNevada is a related entity (affiliate), and through its subsidiary, DynaNevada de México has entered into an Option
agreement with Grupo México (IMMSA) in México, for the exploration and development of approximately 3,000 hectares
in the State of San Luis Potosi (“The Santa Gertrudis Property”). DynaNevada de México exercised the Option
with IMMSA in March 2010, so that DynaNevada de México now owns 100% of the Santa Gertrudis Property. In June 2010, DynaNevada
de México acquired an additional 6,000 hectares in the State of Sinaloa (the “San Juan Property”).
On
December 31, 2010, the Company exercised its option to convert the note receivable and other receivable from DynaNevada into shares
of common stock at a rate of $.25 / Share. The Company received 3,223,040 shares, which represents approximately 19.95% of the
outstanding shares of DynaNevada. At the time of the exchange, DynaNevada’s net book value was approximately $695,000, consisting
of $30,000 cash and the remainder unproven mining properties. Based upon the above, Management estimated the value of the Company’s
DynaNevada shares as of December 31, 2018 and December 31, 2017 to be $70,000 and $70,000, respectively. The loss was taken to
“other income (loss) on the income statement in previous years.
In
2016 the Company deemed $159,143 of receivable for funds, previously advanced to DynaNevada in order for DynaNevada to meets its
basis filing and reporting obligations with the Mexican authorities relating to tax returns and paying taxes on its mining concessions,
to be uncollectable and wrote them off. As of December 31, 2018, and December 31, 2017 the Company had no remaining receivable
from DynaNevada.
At
December 31, 2018 and December 31, 2017, the Company had a receivable from DynaNevada de Mexico of $68,376 and $0, respectively.
NOTE
6 – CONVERTIBLE PROMISSORY NOTES
Notes
Payable – Series I
In
April and May 2013, the Company entered into note agreements with shareholders in the principal amount of $1,495,000, of which
$340,000 was then converted to preferred shares within the same year, netting to proceeds of $1,155,000 (the “Series I Notes”).
The Series I Notes bear simple interest at twelve and a half percent (12.5%), accrued for twelve months, and with the accrued
interest to be added to the principal, and then interest will be paid by the Company, quarterly in arrears. The holders
of the Series I Notes (in aggregate) are also entitled to receive ten percent (10%) of the net profits received by the Company,
on the first fifty thousand tons processed through the mill facilities at San Jose de Gracia. Such net profits (if any) are to be
calculated after deducting “all expenses related to the production”, and after a prior deduction of thirty-three
percent (33%) from the net profits, to be deposited into a sinking fund cash reserve. To date, the Company has not produced any
net profits as calculated in accordance with the Series I Notes.
The
Notes originally matured on December 31, 2015. In April 2015, the Company received note extensions (allonges) from all Series
I note holders to ensure that all Series I Notes were in good standing and extended the maturity date of the Series I Notes to
December 31, 2016. The Company paid $5,625 to one Series I debt holder during 2017.
The remaining eight of the Series I noteholders totaling $759,375 have subsequently been extended to December 30, 2019.
The
Company has the right to prepay the Series I Notes with a ten percent (10%) penalty.
The
Series I Note holder retains the option, at any time prior to maturity or prepayment, to convert any unpaid principal and accrued
interest into Common Stock at $5.00 per share. If the Series I Note is converted into Common Stock, at the time of conversion,
the holder would also receive warrants, in the same number as the number of common shares received upon conversion, to purchase
additional common shares of the Company for $7.50 per share, with such warrants expiring on December 31, 2020.
Notes
Payable – Series II
In
2013 and 2014, the Company entered into additional note agreements of $199,808 and $250,000, respectively (the “Series II
Notes”) with similar terms as the Series I Notes. The Series II Notes bear simple interest at twelve and a half percent
(12.5%), accrued for twelve months, and with the accrued interest to be added to the principal, and then interest will
be paid by the Company, quarterly in arrears. The holders of the Series II Notes (in aggregate) are also entitled to receive
ten percent (10%) of the net profits received by the Company, on the second fifty thousand tons processed through the mill facilities
at San Jose de Gracia. Such net profits (if any) are to be calculated after deducting “all expenses related to the
production” and after a prior deduction of thirty-three percent (33%) from the net profits, to be deposited into
a sinking fund cash reserve. To date, the Company has not produced any net profits as calculated in accordance with the Series
II Notes.
The
Notes originally matured on December 31, 2015. In 2018 The Company paid off one note for $112,500. The remaining two Series II
Notes totaling $78,750 have been extended to December 30, 2019.
The
Company has the right to prepay the Series II Notes with a ten percent (10%) penalty.
The
Note holder may, at any time prior to maturity or prepayment, convert any unpaid principal and accrued interest into common stock
of the Company at $5.00 per share. At the time of conversion, the holder would receive a warrant to purchase additional common
shares of the Company for $7.50 per share, such warrant expiring on December 31, 2020.
On
June 30, 2015, the Company entered into conversion agreements with six (6) note holders. Principal and interest in the amount
of $809,784 plus $33,120 of accrued interest (total of $842,903) was contracted to convert into 337,162 common shares. In addition,
337,162 warrants were issued which provide the option to purchase common shares at $2.50, with all warrants expiring December
31, 2017. The Company recorded $826,347 inducement expense related to these conversion transactions. On August 17, 2015, these
common shares and warrants were issued.
At
December 31, 2018, the principal and capitalized interest balance on the remaining Series I Notes was $759,375, and the principal
and capitalized interest on the Series II Notes was $78,750, for a total Note balance of $838,125. At December 31, 2017, the principal
and capitalized interest balance on the remaining Series I Notes was $759,375, and the principal and capitalized interest on the
Series II Notes was $191,250, for a total Note balance of $950,625. The accrued interest for these notes was $25,150 and $30,141
as of December 31, 2018 and 2017, respectively.
NOTE
7 – INCOME TAXES
The
Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation
of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset).
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The cumulative
tax effect at the expected tax rate of 21% and 34%, respectively (blended for U.S. and México) of significant items comprising
the Company’s net deferred tax amounts as of December 31, 2018 and December 31, 2017 are as follows:
Deferred Tax Asset Related to:
|
|
|
|
|
|
|
2018
(Restated)
|
|
2017
(Restated)
|
Prior Year
|
|
$
|
12,549,746
|
|
|
$
|
17,244,045
|
|
Tax (Expense) Benefit for Current Year
|
|
|
793,388
|
|
|
|
166,093
|
|
Peranent Difference
Due to Rate Change
|
|
|
—
|
|
|
|
(4,860,392
|
)
|
Total Deferred Tax Asset
|
|
|
13,343,134
|
|
|
|
12,549,746
|
|
Less: Valuation
Allowance
|
|
|
(13,343,134
|
)
|
|
|
(12,549,746
|
)
|
Net Deferred Tax Asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision for the Company
as of December 31, 2018 and 2017 differ from those computed using the statutory rates of 21% and 34% due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
2018
(Restated)
|
|
|
|
2017
(Restated)
|
|
Tax Expense (Benefit) at Statutory
Rates
|
|
|
(241,682
|
)
|
|
|
481,123
|
|
Peranent Difference Due to Rate Change
|
|
|
—
|
|
|
|
4,860,392
|
|
Other Permanent Differences
|
|
|
(551,706
|
)
|
|
|
(653,180
|
)
|
Change in Valuation Allowance
|
|
|
793,388
|
|
|
|
(4,694,299
|
)
|
Other
|
|
|
—
|
|
|
|
5,964
|
|
Provision for (Benefit
from) Income Taxes, Net
|
|
|
—
|
|
|
|
—
|
|
The
net deferred tax asset and benefit for the current year is generated primarily from the cumulative net operating loss carry-forward
which is approximately $51,100,000 at December 31, 2018 and will expire in the years 2027 through 2033.
The
realization of deferred tax benefits is contingent upon future earnings and is fully reserved at December 31, 2018.
On
December 11, 2013, the Mexican government enacted a tax reform that increased the effective tax rate applicable to the Company's
Mexican operations. The law, effective January 1, 2014, increased the future corporate income tax rate to 30%, created a
10% withholding tax on dividends paid to non-resident shareholders and created a new Extraordinary Mining duty which is equal
to 0.5% of gross revenues from the sale of gold, silver and platinum. Furthermore, the reform introduced a Special Mining Duty
of 7.5%. The Special Mining Duty is deductible for income tax purposes. The Special Mining Duty is generally applicable to earnings
before income tax, depreciation, depletion, amortization and interest. There will be no deductions related to development type
costs, but exploration and prospecting costs are deductible when incurred. Certain non-deducted exploration expenditures incurred
prior to January 1, 2014 are also deductible in the calculation of the Special Mining Duty. For the years ended December 31,
2018 and 2017, the Company had no taxes payable under the 7.5% Special Mining Duty.
The
Company or its subsidiaries file income tax returns in the United States and México. These tax returns are subject to examination
by local taxation authorities provided the tax years remain open to audit under the relevant statute of limitations. The following
summarizes the open tax years by major jurisdiction:
United
States: 2015 to 2018
México:
2014 to 2018
The
Company does not have any other material items of temporary or permanent differences, which give rise to deferred tax assets or
liabilities.
NOTE
8 – STOCKHOLDERS’ EQUITY
Authorized
Capital. The total number of shares of all classes of capital stock which the corporation shall have the authority to
issue is 45,001,000 shares, consisting of (i) twenty million and one thousand (20,001,000) shares of Preferred Stock, par value
$0.0001 per share (“Preferred Stock”), of which one thousand (1,000) shares shall be designated as Series A Preferred
Stock and (ii) twenty-five million (25,000,000) shares of Common Stock, par value $0.01 per share (“Common Stock”).
Series
A Preferred Stock
The
Company has designated 1,000 shares of its Preferred Stock as Series A, having a par value of $0.0001 per share. Holders of the
Series A Preferred Stock have the right to elect a majority of the Board of Directors of the Company. In October 2007, the
Company issued 1,000 shares of Series A Preferred Stock to its CEO. At December 31, 2018 and December 31, 2017, there were 1,000
and 1,000 shares of Series A Preferred Stock outstanding, respectively.
Series
C Senior Convertible Preferred Shares
On
June 30, 2015, the Company issued 1,600,000 Series C Senior Convertible Preferred Shares (the “Series C Preferred Shares”)
at $2.50 per share for gross proceeds of $ 4,000,000, as well as issuing 133,221 additional Series C Preferred Shares due to anti-dilution
provisions (with no cash remuneration). Legal fees of $45,000 were deducted from the proceeds of this transaction at closing.
These Series C Preferred Shares are convertible to common shares at $2.50 per share, through February 20, 2020. The Series C Preferred
Shares may receive a 4% per annum dividend, payable if available, and in arrears. A description of the transaction which included
the issuance of the Series C Preferred Shares is included below. The Dividend is calculated at 4.0% of $4,333,053 payable annually
on June 30. At December 31, 2017 and 2018 dividends of $173,320 per year were in arrears.
Financing
Agreement with Golden Post Rail, LLC, a Texas Limited Liability Company
1.
|
On
May 6, 2015, the Company, Golden Post Rail, LLC, a Texas limited liability company (“Golden Post”), and Mr. Koy
W. (“K.D.”) Diepholz, Chairman-CEO of the Company entered into a Securities Purchase Agreement (the “SPA”).
Pursuant to the SPA, Golden Post acquired the following securities:
|
a)
|
1,600,000
shares of Series C Senior Convertible Preferred Stock (the “Series C Preferred”) at a purchase price of $2.50
per share ($4M USD), plus an additional 133,221 shares of Series C Preferred pursuant to anti-dilution provisions. The Series
C Preferred is entitled to receive dividends at the per share rate of four percent (4%) per annum, ranks senior (in priority)
to the Common Stock, the Series A Preferred Stock, and each other class or series of equity security of the Company. The Series
C Preferred is convertible into Common Stock of the Company at the price of $2.41 per share and is entitled to anti-dilution
protection for (i) subsequent equity issuances by the Company and (ii) changes in the Company’s ownership of DynaResource
de México SA de CV (“DynaMéxico”). The Series C Preferred is also entitled to preemptive rights,
and the holder has the right to designate one person to the Company’s Board of Directors as a Class III director.
|
b)
|
A
Common Stock Purchase Warrant (the “Golden Post Warrant”) for the purchase of 2,166,527 shares of the Company’s
Common Stock, at an exercise price of $2.50 per share, and expiring June 30, 2020. The anti-dilution protections contained
in the terms of the Series C Preferred are essentially replicated in the Golden Post Warrant.
|
2.
|
Pursuant
to the SPA, the Company executed a Registration Rights Agreement pursuant to which Golden Post may require the Company to
register the shares of Common Stock which may be issued upon the conversion of the Series C Preferred and the shares of Common
Stock issuable upon the exercise of the Warrant, including any additional shares of Common Stock issuable pursuant to anti-dilution
provisions.
|
In
2015, due to underlying anti-dilutive provisions contained in the Series C Preferred Shares and the Golden Post Warrant, the Company
incurred derivative liabilities of $1,531,789 in connection with the Series C Preferred Shares, and $2,963,378 in connection with
the Golden Post Warrant. Additionally, the Company fully accreted the discount related to the Series C Preferred Shares and the
Golden Post Warrant in the amount of $4,637,179, which is reflected “below” the net income (loss) amount. Also, in
2015, the Company reported $87,374 deemed dividend for Golden Post Rail related to its 4% dividend terms. As the Company has not
declared these dividends, it is required only as an item “below” the net income (loss) amount. At December 31, 2018
the total Derivative Liability was $974,683 which included $402,909 for the Series C Preferred Shares, and $571,774 in connection
with the Golden Post Warrant. The Deemed Dividend for 2018 and 2017 was $173,320, and $173,320 respectively.
Due
to the nature of this transaction as mandatorily redeemable, the preferred shares are classified as “temporary equity”
on the balance sheet.
|
|
Preferred
Series C
|
|
|
|
Carrying Value, December 31,
2016
|
|
$
|
4,333,053
|
|
Issuances at Fair Value, Net of Issuance
Costs
|
|
|
—
|
|
Bifurcation of Derivative Liability
|
|
|
—
|
|
Relative Fair Value of Warrants – Preferred
Stock Discount
|
|
|
—
|
|
Accretion of Preferred Stock to Redemption
Value
|
|
|
—
|
|
Carrying Value, December
31, 2017
|
|
|
4,333,053
|
|
|
|
|
|
|
Issuances at Fair Value, Net of Issuance
Costs
|
|
|
—
|
|
Bifurcation of Derivative Liability
|
|
|
—
|
|
Relative Fair Value of Warrants – Preferred
Stock Discount
|
|
|
—
|
|
Accretion of Preferred
Stock to Redemption Value
|
|
|
—
|
|
Carrying Value, December
31, 2018
|
|
|
4,333,053
|
|
Preferred
Stock (Undesignated)
In
addition to the 1,000 shares designated as Series A Preferred Stock and the 1,733,221 shares designated as Series C Preferred
Shares, the Company is authorized to issue an additional 16,266,779 shares of Preferred Stock, having a par value of $0.0001 per
share. The Board of Directors of the Company has authority to issue the Preferred Stock from time to time in one or more series,
and with respect to each series of the Preferred Stock, to fix and state by the resolution the terms attached to the Preferred
Stock. At December 31, 2018 and December 31, 2017, there were no other shares of Preferred Stock outstanding.
Separate
Series; Increase or Decrease in Authorized Shares. The shares of each series of Preferred Stock may vary from the shares of
any other series thereof in any or all of the foregoing respects and in any other manner. The Board of Directors may increase
the number of shares of Preferred Stock designated for any existing series by a resolution adding to such series authorized and
unissued shares of Preferred Stock not designated for any other series. Unless otherwise provided in the Preferred Stock Designation,
the Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution
subtracting from such series authorized and unissued shares of Preferred Stock designated for such existing series, and the shares
so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock.
Common
Stock
The
Company is authorized to issue 25,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights.
At December 31, 2018 and December 31, 2017, there were 17,722,825 and 17,722,825 shares outstanding, respectively. No dividends
were paid for the years ended December 31, 2018 and 2017, respectively.
Preferred
Rights
The
Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San Jose de Gracia
Pilot Production Plant and received $158,500 in 2003 and $626,000 in 2002. This has been reflected as “Preferred Rights”
in stockholders’ equity. As of December 31, 2004, $558,312 was repaid and as of December 31, 2005, an additional $186,188
was repaid, leaving a current balance of $40,000 and $40,000 as of December 31, 2018 and December 31, 2017, respectively.
Stock
Issuances
2018
Activity
None.
2017
Activity
During
the year ended December 31, 2017, the Company issued 1,000,000 common shares for the exercise of stock warrants at $2.50 a share
for total proceeds of $2,500,000. In addition, the Company issued 333,333 shares of treasury stock as additional compensation
for exercise of the warrants at above market price.
Treasury
Stock
During
the year ended December 31, 2017 the Company issued 333,333 treasury shares as additional compensation for the exercise of stock
warrants at an above market price as discussed above. No treasury stock was issued during the year ended December 31, 2018. At
December 31, 2018 and 2017, 778,980 and 778,790 treasury shares were outstanding.
Warrants
2018
activity
The
Company had 2,523,689 warrants outstanding at December 31, 2018. There were no warrants issued or exercised in 2018 and no warrants
expired in 2018.
2017
activity
The
Company had 2,523,689 warrants outstanding at December 31, 2018. 1,000,000 warrants were exercised at $2.50 a share during the
year and 70,000 warrants expired.
The
Company recorded no expense related to the issuance of these warrants since these warrants were issued in common stock for cash
sales and note conversions.
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Intrinsic
Value
|
|
Balance
at December 31, 2016
|
|
|
3,593,689
|
|
|
$
|
2.45
|
|
|
|
2.51
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Exercised
|
|
|
(1,000,000
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(70,000
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
$
|
-
|
|
Balance
at December 31, 2017
|
|
|
2,523,689
|
|
|
$
|
2.45
|
|
|
|
1.51
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Balance
at December 31, 2018
|
|
|
2,523,689
|
|
|
$
|
2.45
|
|
|
|
0.51
|
|
|
$
|
-
|
|
Exercisable
at December 31, 2018
|
|
|
2,523,689
|
|
|
$
|
2.45
|
|
|
|
0.51
|
|
|
$
|
-
|
|
NOTE
9 – RELATED PARTY TRANSACTIONS
Related
Party Transactions
The
Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure
of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for
which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value
Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts
for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management;
d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party
controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence
the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
Material
related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such
other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the
dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any
change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties
as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Dynacap
Group Ltd.
The
Company paid $113,750 and $165,250 to Dynacap Group, Ltd. (“Dynacap”, an entity controlled by the CEO of the Company)
for consulting and other fees during the years ended December 31, 2018 and 2017, respectively.
Advances
from Goldgroup Mining Inc. (“Goldgroup”) to DynaMéxico
In
2014, Goldgroup advanced $111,500 to DynaMéxico and in 2013 Goldgroup advanced $120,000 USD to DynaMéxico. This
total $231,500 is being carried by DynaMéxico as a Due to Non-Controlling Interest.
NOTE
10 – COMMITMENTS AND CONTINGENCIES
The
Company is required to pay taxes in México in order to maintain mining concessions owned by DynaMéxico. Additionally,
the Company is required to incur a minimum amount of expenditures each year for all concessions held. The minimum expenditures
are calculated based upon the land area, as well as the age of the concessions. Amounts spent in excess of the minimum
may be carried forward indefinitely over the life of the concessions and are adjusted annually for inflation. Based
on Management’s recent business activities and current and forward plans and considering expenditures on mining concessions
since 2002-2017 and continuing expenditures in current and forward activities, the Company does not anticipate that DynaMéxico
will have any difficulties meeting the minimum annual expenditures for the concessions ($388 – $2,400 Mexican Pesos per
hectare). DynaMéxico retains sufficient carry-forward amounts to cover over 10 years of the minimum expenditure (as calculated
at the 2017 minimum, adjusted for annual inflation of 4%).
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. The 20 Year Land Lease Agreement with the Santa Maria Ejido Community
surrounding San Jose de Gracia was 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 (approx. $72,000
USD), commencing in 2014. 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 and exploration activities from the owners of the surface rights (Santa
Maria Ejido community).
The
Company leases office space for its corporate headquarters in Irving, Texas. In September 2017, the Company entered into a sixty-six-month
extension of the lease through 2023. As part of the agreement the Company received six months free rent as a finish out allowance.
The Company capitalized the leasehold improvement costs and amortized them over the rent abatement period as rent expense The
Company incurred rent expense of $86,011 and $71,399 for the office lease in the years ended December 31, 2018 and 2017, respectively.
Future
minimum lease obligations are as follow for the years ending December 31:
YEAR
|
|
AMOUNT
|
|
2019
|
|
$
|
82,474
|
|
2020
|
|
$
|
84,280
|
|
2021
|
|
$
|
86,086
|
|
2022
|
|
$
|
87,892
|
|
2023
|
|
$
|
14,849
|
|
TOTAL
|
|
$
|
355,581
|
|
Other
Contingencies
The
Company's mining and exploration activities are subject to various laws and regulations governing the protection of the environment.
These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations
so as to protect public health and the environment, and believes its operations are materially in compliance with all applicable
laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.
Damages
Awarded to DynaMéxico in México Litigation
On
October 5, 2015, DynaResource de México SA de C.V. (“DynaMéxico”), was awarded in excess of $48 M USD
(Forty-Eight Million Dollars) in damages from Goldgroup Resources, Inc. (the “Goldgroup Damages”) by virtue of a Sentencia
Definitiva (the “Definitive Sentence”) issued by the Thirty Sixth Civil Court of the Superior Court of Justice of
the Federal District of México (Tribunal Superior de Justicia del Distrito Federal), File number 1120/2014. The Definitive
Sentence included the considerations and resolutions by the Court, and additional Resolutions were also ordered in favor of DynaMéxico
(together the Goldgroup Damages and the additional Resolutions are referred to as, the “Oct. 5, 2015 Resolution”).
The October 5, 2015 Resolution is described in Part II, Item 1. Legal Proceedings. As of December 31, 2018, the decision remains
under appeal.
Litigation
The
Company believes that no material adverse change will occur as a result of the legal actions taken, and the Company further believes
that there is little to no potential for the assessment of a material monetary judgment against the Company for legal actions
it has filed in México. Further, the Company believes there is no legal basis for which to conduct arbitration proceedings.
(See Item 3. Legal Proceedings. And, see Item 7. Management’s Discussion and Analysis of Financial Conditions and Results
of Operations).
NOTE
11 – DERIVATIVE LIABILITIES
Preferred
Series C Stock
As
discussed in Note 8, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that
the stock qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the
embedded instrument are not clearly and closely related. The Company performed a valuation of the conversion feature. In performing
the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets
and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would
use in pricing the asset or liability and utilizes market data to the maximum extent possible.
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The
Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation
model to determine the value of conversion feature of the Series C Preferred Stock based on the assumptions below:
|
2018
|
|
2017
|
Annual volatility
rate
|
86%
|
|
153%
|
Risk
free rate
|
2.48%
|
|
2.20%
|
Holding
Period
|
5
years
|
|
5
years
|
Fair
Value of common stock
|
$1.13
|
|
$1.11
|
For
the year ended December 31, 2018, an active market for the Company’s common stock did not exist. Accordingly, the fair value
of the Company’s common stock was estimated using a valuation model with level 3 inputs.
The
below table represents the change in the fair value of the derivative liability during the years ended December 31, 2018 and 2017:
Year Ended
|
|
2018
|
|
|
2017
|
|
Fair
value of derivative (stock), beginning of year
|
|
$
|
1,531,789
|
|
|
$
|
2,592,492
|
|
Change in fair value
of derivative
|
|
|
(1,128,880
|
)
|
|
|
(1,060,703
|
)
|
Fair value of derivative
on the date of issuance
|
|
|
-
|
|
|
|
-
|
|
Fair value of derivative(stock),
end of year
|
|
$
|
402,909
|
|
|
$
|
1,531,789
|
|
Preferred
Series C Warrants
As
discussed in Note 8, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that
the Warrants qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and
the embedded instrument are not clearly and closely related. The Company performed a valuation of the conversion feature. In performing
the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets
and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (exit price). To measure fair value, the Company incorporates assumptions that market participants would
use in pricing the asset or liability and utilizes market data to the maximum extent possible.
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The
Company considered the inputs in this valuation to be level 3 in the fair value hierarchy under ASC 820 and used an equity simulation
model to determine the value of conversion feature of the Warrants based on the assumptions below:
|
|
2018
|
|
2017
|
Annual volatility rate
|
|
|
86
|
%
|
|
|
153
|
%
|
Risk free rate
|
|
|
2.48
|
%
|
|
|
2.20
|
%
|
Holding Period
|
|
|
5
years
|
|
|
|
5
years
|
|
Fair Value of common stock
|
|
$
|
1.20
|
|
|
$
|
1.11
|
|
For
the year ended December 31, 2018, an active market for the Company’s common stock did not exist. Accordingly, the fair value
of the Company’s common stock was estimated using a valuation model with level 3 inputs.
The
below table represents the change in the fair value of the derivative liability during the years ended December 31, 2018 and 2017:
Year Ended
|
|
2018
|
|
2017
|
Fair value of derivative (warrants), beginning of
year
|
|
$
|
1,649,719
|
|
|
$
|
2,513,638
|
|
Change in fair value of derivative
|
|
|
(1,077,945
|
)
|
|
|
(863,919
|
)
|
Fair value of derivative on the date of
issuance
|
|
|
—
|
|
|
|
—
|
|
Fair value of derivative(warrants), end
of year
|
|
$
|
571,774
|
|
|
$
|
1,649,719
|
|
NOTE
12 – NON-CONTROLLING INTEREST
The
Company’s Non-Controlling Interest recorded in the consolidated financial statements relates to an interest in DynaResource
de México, S.A. de C.V. of 50% through May 13, 2013, and 20% thereafter. Changes in Non-Controlling Interest for the years
ended December 31, 2018 and December 31, 2017, respectively were as follows:
|
|
Year
Ended
December
31,
2018
|
|
Year
Ended
December
31,
2017
|
|
|
(Restated)
|
|
(Restated)
|
|
|
|
|
|
Beginning balance
|
|
$
|
(5,425,026
|
)
|
|
$
|
(6,026,748
|
)
|
Operating
income (loss)
|
|
|
(383,630
|
)
|
|
|
(122,184
|
)
|
Share
of Other Comprehensive Income (loss)
|
|
|
197,128
|
|
|
|
723,906
|
|
Ending
balance
|
|
$
|
(5,611,528
|
)
|
|
$
|
(5,425,026
|
)
|
The
Company began allocating a portion of other comprehensive income (loss) to the non-controlling interest with the adoption of ASC
160 as of January 1, 2009.
NOTE
13 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
ASC guidance for fair value measurements and disclosure establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The
three levels of the fair value hierarchy are described below:
Level
1 Inputs – Quoted prices for identical instruments in active markets.
Level
2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level
3 Inputs – Instruments with primarily unobservable value drivers.
As
of December 31, 2018, and December 31, 2017, the Company’s financial assets were measured at fair value using Level 3 inputs,
with the exception of cash, which was valued using Level 1 inputs. A description of the valuation of the Level 3 inputs is discussed
in Note 11.
Fair Value Measurement at December 31, 2018
Using:
|
|
|
|
|
Quoted
Prices in Active Markets For Identical Assets (Level 1)
|
|
|
Significant
Other Observable Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Totals
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
974,683
|
|
|
|
-
|
|
|
|
-
|
|
|
|
974,683
|
|
Totals
|
|
$
|
974,683
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
974,683
|
|
Fair Value Measurement at December
31, 2017 Using:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Totals
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
3,181,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,181,508
|
|
Totals
|
|
$
|
3,181,508
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,181,508
|
|
NOTE
14 – REVENUE CONCENTRATION
The
Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose
accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For
each of the twelve months ended December 31, 2018 and 2017, one and two customers accounted for 100% of revenue, respectively.
At
both December 31, 2018 and 2017, one customer accounted for 100% of accounts receivable.
NOTE
15 – NOTES PAYABLE
In
June 2017, the Company entered into financing agreements for unpaid mining concession taxes for the period July 1, 2014 to December
31, 2015 in the amount of $533,580. The Company paid an initial 20% payment in the amount of $106,716 and financed the balance
over 36 months at 18% interest.
In
February 2018 the Company entered into a financing agreement for unpaid mining concessions taxes for the year ended December 31,
2016 in the amount of $552,990. The Company paid an initial payment of $110,598 and financed the balance over 36 months at 18%.
In
June 2018 the Company entered into financing agreements for the unpaid mining concession taxes for the year ended December 31,
2017 and the period ending June 30, 2018 in the amount of $1,739,392. The Company paid an initial 20% payment of $347,826 and
financed the balance over 36 months at 21.84%
The
following is a summary of the transaction during the years ended December 31, 2018 and 2017:
Property Holding Taxes June 1,
2014 – December 31, 2015
|
|
$
|
533,580
|
|
Initial payment of 20%
|
|
|
(106,716
|
)
|
2017 principal payments
|
|
|
(59,553
|
)
|
Balance at December
31, 2017
|
|
|
367,311
|
|
Exchange Rate Adjustment
|
|
|
1,861
|
|
Property Holding Taxes January 1, 2016 –
June 30, 2018
|
|
|
2,292,122
|
|
Initial payment of 20%
|
|
|
(458,423
|
)
|
2018 principal payments
|
|
|
(399,636
|
)
|
Balance at December
31, 2018
|
|
|
1,803,235
|
|
At
December 31, 2018 future maturities of notes payable are as follows
Year
Ending December 31:
|
|
|
|
2019
|
|
$
|
705,320
|
|
2020
|
|
|
766,298
|
|
2021
|
|
|
331,617
|
|
Total
|
|
$
|
1,803,235
|
|
note
16 – subsequEnt events
The
Company has evaluated events from December 31, 2018, through the date whereupon the financial statements were issued, and has
determined the below described events subsequent to the end of the period.
On
February 18, 2019 the Company entered into a financing agreement for unpaid mining concession taxes for the year ended December
31, 2018 in the amount of $382,286. The Company paid an initial 20% payment of $65,667 and financed the balance over 36 months
at an interest rate of 21%.
Legal
Rulings
May
9, 2019 Arbitration Award against DynaResource and DynaResource de Mexico S.A. de C.V.
As
is described further under Part II – Item 1. Legal Proceedings, on May 9, 2019, the United States district court for the
district of Colorado confirmed an arbitration award against DynaResource, Inc. and DynaResource de Mexico, S.A. de C.V. The district
court’s decision overruled the recommendation previously issued by the magistrate judge to sustain the DynaResource entities’
motion to vacate the arbitration award. Each of DynaResource, Inc. and DynaResource de Mexico, S.A. de C.V. intends to exercise
all its rights, as appropriate, including an appeal.
The
DynaResource entities have filed the below notices in the United State District Coutrt:
México
Circuit Court of Appeals – Notice of Intent for Final Ruling in Favor of DynaResource de México
On
May 27, 2019, The Eleventh Collegiate Court in Civil Matters of the First Circuit (“México Circuit Court”,
and the Court of Final Appeal for Goldgroup Resources Inc.) issued a written notice confirming it was ruling against the Amparo
Appeal filed by Goldgroup Resources Inc. and in Favor of DynaResource de México, S.A. de C.V. In an effort to stay
the issuance of the Ruling by the México Circuit Court, Goldgroup Resources Inc. filed a request to The Supreme Court of
México to review the Amparo Appeal decision.
Rejection
of Goldgroup Resources Inc. request to the Supreme Court of México
On
July 3, 2019 an Official Ruling from The Supreme Court of México was issued to Reject the Request of Goldgroup Resources
Inc. (the “México Supreme Court Rejection to Goldgroup”). The Justices of the First Chamber of the Supreme
Court of Justice of México issued a Rejection Notice to Goldgroup Resources Inc., “due to the lack of legitimacy
presented by Goldgroup”; and in issuing the Rejection Notice to Goldgroup, the Supreme court thereby reverted the Amparo
Appeal back to the México Circuit Court where the Official and Final Ruling from the México Circuit Court is expected
to be issued.
México
Circuit Court of Appeals – Notice of Intent for Final Ruling in Favor of DynaResource de México
On
May 27, 2019, The Eleventh Collegiate Court in Civil Matters of the First Circuit (“México Circuit Court”,
and the Court of Final Appeal for Goldgroup Resources Inc.) issued a written notice confirming it was ruling against the Amparo
Appeal filed by Goldgroup Resources Inc. and in Favor of DynaResource de México, S.A. de C.V. In an effort to stay
the issuance of the Ruling by the México Circuit Court, Goldgroup Resources Inc. filed a request to The Supreme Court of
México to review the Amparo Appeal decision.
Rejection
of Goldgroup Resources Inc. request to the Supreme Court of México
On
July 3, 2019 an Official Ruling from The Supreme Court of México was issued to Reject the Request of Goldgroup Resources
Inc. (the “México Supreme Court Rejection to Goldgroup”). The Justices of the First Chamber of the Supreme
Court of Justice of México issued a Rejection Notice to Goldgroup Resources Inc., “due to the lack of legitimacy
presented by Goldgroup”; and in issuing the Rejection Notice to Goldgroup, the Supreme court thereby reverted the Amparo
Appeal back to the México Circuit Court where the Official and Final Ruling from the México Circuit Court is expected
to be issued.
Advances
from Purchaser
September
17, 2019 $1M USD Advance from Purchaser
The
Purchaser of the Company’s precious metals products produced from San Jose de Gracia submitted the next advance to Mineras
de DynaResource S.A. de C.V. in the amount of $1M USD.
NOTE
17 - RESTATEMENT
The
Company has identified certain expenditures amounting to $1,039,391 in 2018, $1,260,873 in 2017 and $569,022 in prior periods
which were improperly capitalized as Mining Equipment. Because the Company has not established proven and probably reserves under
Generally Accepted Accounting Principles (GAAP) in the United States all costs associated with the exploration and development
of mining properties should be expensed including those with useful life exceeding one year. The Company has adjusted the Consolidated
Statements of income and Comprehensive Income for the years ended December 31, 2018 and 2017 and the Balance sheets as of December
31, 2018 and 2017 and the opening Balance Sheet as of January 1, 2017. The following presents the adjustments in detail:
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
Restated
|
|
|
|
Reported
|
|
|
|
Balance
|
|
|
|
January
1, 2017
|
|
Adjustments
|
|
January
1, 2017
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
$
|
(53,551,567)
|
$
|
(556,847)
|
$
|
(54,108,414)
|
|
|
|
|
|
|
|
|
|
Total
DynaResource Inc. Stockholders' Equity
|
|
2,335,462
|
|
(556,847)
|
|
1,778,615
|
|
|
|
|
|
|
|
|
|
Non-Controlling
Interest
|
|
(6,014,573)
|
|
(12,175)
|
|
(6,026,748)
|
|
|
|
|
|
|
|
|
|
TOTAL
EQUITY (DEFICIT)
|
|
(3,679,111)
|
|
(569,022)
|
|
(4,248,133)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
Restated
|
|
|
|
Reported
|
|
|
|
Balance
|
|
|
|
Dec
31, 2017
|
|
Adjustments
|
|
Dec
31, 2017
|
BALANCE
SHEET:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
Equipment and Fixtures (Net of Accumulated Depreciation)
|
$
|
1,698,070
|
$
|
(1,681,663)
|
$
|
16,407
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
11,493,312
|
$
|
(1,681,663)
|
$
|
9,811,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
$
|
(50,898,357)
|
$
|
(1,672,805)
|
$
|
(52,571,162)
|
|
|
|
|
|
|
|
|
|
Total
DynaResource Inc. Stockholders' Equity
|
|
4,982,993
|
|
(1,672,805)
|
|
3,310,188
|
|
|
|
|
|
|
|
|
|
Non-Controlling
Interest
|
|
(5,416,168)
|
|
(8,858)
|
|
(5,425,026)
|
|
|
|
|
|
|
|
|
|
TOTAL
EQUITY (DEFICIT)
|
|
(433,175)
|
|
(1,681,663)
|
|
(2,114,838)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
11,493,312
|
$
|
(1,681,663)
|
$
|
9,811,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
STATEMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES OF MINING OPERATIONS:
|
|
|
|
|
|
|
|
Mine
Expansion Costs
|
$
|
253,231
|
$
|
1,260,873
|
$
|
1,514,104
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
153,862
|
|
(148,232)
|
|
5,630
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
11,477,656
|
|
1,112,641
|
|
12,590,297
|
|
|
|
|
|
|
|
|
|
NET
OPERATING INCOME (LOSS)
|
|
(627,565)
|
|
(1,112,641)
|
|
(1,740,206)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Gain
on Sale of Assets
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
3,155,274
|
|
|
|
3,155,274
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE TAXES
|
|
2,527,709
|
|
(1,112,641)
|
|
1,415,068
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
2,527,709
|
|
(1,112,641)
|
|
1,415,068
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE
TO NON-CONTROLLING INTEREST
|
|
125,501
|
|
(3,317)
|
|
122,184
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$
|
2,479,890
|
$
|
(1,115,958)
|
$
|
1,363,932
|
|
|
|
|
|
|
|
|
|
Basic
Earnings (Loss) Per Common Share
|
$
|
0.15
|
$
|
(0.07)
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings (Loss) Per Common Share
|
$
|
0.14
|
$
|
(0.06)
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
Restated
|
|
|
|
Reported
|
|
|
|
Balance
|
|
|
|
Dec
31, 2018
|
|
Adjustments
|
|
Dec
31, 2018
|
BALANCE
SHEET:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
Equipment and Fixtures (Net of Accumulated Depreciation)
|
$
|
2,449,354
|
$
|
(2,436,872)
|
$
|
12,482
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
13,316,019
|
$
|
(2,436,872)
|
$
|
10,879,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
$
|
(50,723,786)
|
$
|
(2,430,473)
|
$
|
(53,154,259)
|
|
|
|
|
|
|
|
|
|
Total
DynaResource Inc. Stockholders' Equity
|
|
5,138,909
|
|
(2,430,473)
|
|
2,708,436
|
|
|
|
|
|
|
|
|
|
Non-Controlling
Interest
|
|
(5,605,129)
|
|
(6,399)
|
|
(5,611,528)
|
|
|
|
|
|
|
|
|
|
TOTAL
EQUITY (DEFICIT)
|
|
(466,220)
|
|
(2,436,872)
|
|
(2,903,092)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
13,316,019
|
$
|
(2,436,872)
|
$
|
10,879,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
STATEMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES OF MINING OPERATIONS:
|
|
|
|
|
|
|
|
Mine
Expansion Costs
|
$
|
426,896
|
$
|
1,039,391
|
$
|
1,466,287
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
278,815
|
|
(270,959)
|
|
7,856
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
15,825,066
|
|
768,432
|
|
16,593,498
|
|
|
|
|
|
|
|
|
|
NET
OPERATING INCOME (LOSS)
|
|
(1,765,369)
|
|
(768,432)
|
|
(2,533,801)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Gain
on Sale of Assets
|
|
10,492
|
|
13,223
|
|
23,715
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
1,553,851
|
|
13,223
|
|
1,567,074
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE TAXES
|
|
(211,518)
|
|
(755,209)
|
|
(966,727)
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
(211,518)
|
|
(755,209)
|
|
(966,727)
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE
TO NON-CONTROLLING INTEREST
|
|
386,089
|
|
(2,459)
|
|
383,630
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$
|
1,251
|
$
|
(757,668)
|
$
|
(756,417)
|
|
|
|
|
|
|
|
|
|
Basic
Earnings (Loss) Per Common Share
|
$
|
0.00
|
$
|
(0.04)
|
$
|
(0.04)
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings (Loss) Per Common Share
|
$
|
0.00
|
$
|
(0.04)
|
$
|
(0.04)
|
STATEMENT OF CASH FLOW:
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
Restated
|
|
|
|
|
|
Reported
|
|
|
|
Balance
|
|
|
|
|
|
Dec 31, 2017
|
|
Adjustments
|
|
Dec
31, 2017
|
CASH FLOWS FROM OPERATING ACTIVITES:
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
2,527,709
|
$
|
(1,112,641)
|
$
|
1,415,068
|
Adjustments to reconcile net loss
to cash provided by operating activities
|
|
|
|
|
|
|
|
Change in Derivatives
|
|
(1,924,582)
|
|
|
|
(1,924,582)
|
|
Depreciation and Amortization
|
|
153,862
|
|
(148,232)
|
|
5,630
|
|
Gain on Sales of Assets
|
|
-
|
|
|
|
-
|
Change in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
130,825
|
|
|
|
130,825
|
|
Inventories
|
|
(346,744)
|
|
|
|
(346,744)
|
|
Foreign Tax Receivable
|
|
351,123
|
|
|
|
351,123
|
|
Other Assets
|
|
(10,970)
|
|
|
|
(10,970)
|
|
Customer Advances
|
|
-
|
|
|
|
-
|
|
Accounts Payable
|
|
(47,906)
|
|
|
|
(47,906)
|
|
Accrued Liabilities
|
|
1,225,269
|
|
|
|
1,225,269
|
CASH FLOWS Provided BY OPERATING
ACTIVITIES
|
|
2,058,586
|
|
(1,260,873)
|
|
797,713
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase of Equipment
|
|
(1,273,189)
|
|
1,260,873
|
|
(12,316)
|
|
Disposal of Equipment
|
|
|
|
|
|
|
CASH FLOWS (USED IN) INVESTING ACTIVITIES
|
|
(1,273,189)
|
|
1,260,873
|
|
(12,316)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from Sale of Common Stock
|
|
2,500,000
|
|
|
|
2,500,000
|
|
Payments of Promissory Notes -
Related Parties
|
|
(5,625)
|
|
|
|
(5,625)
|
|
Payments of Long Term Debt
|
|
(166,269)
|
|
|
|
(166,269)
|
CASH FLOW (USED IN) FINANCING ACTIVITIES
|
|
2,328,106
|
|
-
|
|
2,328,106
|
|
|
|
|
|
|
|
|
|
|
|
Effects of Foreign Exchange
|
|
(1,781,773)
|
|
|
|
(1,781,773)
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
1,331,730
|
|
-
|
|
1,331,730
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
2,197,005
|
|
|
|
2,197,005
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
3,528,735
|
|
-
|
|
3,528,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
Restated
|
|
|
|
|
|
Reported
|
|
|
|
Balance
|
|
|
|
|
|
Dec 31, 2018
|
|
Adjustments
|
|
Dec
31, 2018
|
CASH FLOWS FROM OPERATING ACTIVITES:
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(211,518)
|
$
|
(755,209)
|
$
|
(966,727)
|
Adjustments to reconcile net loss
to cash provided by operating activities
|
|
|
|
|
|
|
|
Change in Derivatives
|
|
(2,206,825)
|
|
|
|
(2,206,825)
|
|
Depreciation and Amortization
|
|
278,815
|
|
(270,959)
|
|
7,856
|
|
Gain on Sales of Assets
|
|
(10,492)
|
|
(13,223)
|
|
(23,715)
|
Change in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
(751,409)
|
|
|
|
(751,409)
|
|
Inventories
|
|
(680,796)
|
|
|
|
(680,796)
|
|
Foreign Tax Receivable
|
|
(113,323)
|
|
|
|
(113,323)
|
|
Other Assets
|
|
(369,054)
|
|
|
|
(369,054)
|
|
Customer Advances
|
|
1,750,000
|
|
|
|
1,750,000
|
|
Accounts Payable
|
|
1,480,512
|
|
|
|
1,480,512
|
|
Accrued Liabilities
|
|
1,342,339
|
|
|
|
1,342,339
|
CASH FLOWS Provided BY OPERATING
ACTIVITIES
|
|
508,249
|
|
(1,039,391)
|
|
(531,142)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase of Equipment
|
|
(1,043,322)
|
|
1,039,391
|
|
(3,931)
|
|
Disposal of Equipment
|
|
23,715
|
|
|
|
23,715
|
CASH FLOWS (USED IN) INVESTING ACTIVITIES
|
|
(1,019,607)
|
|
1,039,391
|
|
19,784
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from Sale of Common Stock
|
|
-
|
|
|
|
-
|
|
Payments of Promissory Notes -
Related Parties
|
|
(112,500)
|
|
|
|
(112,500)
|
|
Payments of Long Term Debt
|
|
(399,636)
|
|
|
|
(399,636)
|
CASH FLOW (USED IN) FINANCING ACTIVITIES
|
|
(512,136)
|
|
-
|
|
(512,136)
|
|
|
|
|
|
|
|
|
|
|
|
Effects of Foreign Exchange
|
|
180,335
|
|
-
|
|
180,335
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
(843,159)
|
|
|
|
(843,159)
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
3,528,735
|
|
-
|
|
3,528,735
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
2,685,576
|
$
|
-
|
$
|
2,685,576
|
In
evaluating whether the Company’s previously issued consolidated financial statements were materially misstated, the Company
considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality,
and ASC Topic 250-10-S99- 2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.