0001654954-21-011672.txt : 20211104 0001654954-21-011672.hdr.sgml : 20211104 20211104101328 ACCESSION NUMBER: 0001654954-21-011672 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 81 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211104 DATE AS OF CHANGE: 20211104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNARESOURCE INC CENTRAL INDEX KEY: 0001111741 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 941589426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30371 FILM NUMBER: 211378601 BUSINESS ADDRESS: STREET 1: 222 W. LAS COLINAS BLVD STREET 2: STE 744 EAST TOWER CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 9728689066 MAIL ADDRESS: STREET 1: 222 W. LAS COLINAS BLVD STREET 2: STE 744 EAST TOWER CITY: IRVING STATE: TX ZIP: 75039 FORMER COMPANY: FORMER CONFORMED NAME: DYNA RESOURCE INC DATE OF NAME CHANGE: 20000412 10-Q 1 dynr_10q.htm PRIMARY DOCUMENT dynr_10q.htm

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021.

 

OR

 

 TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period ____________ to ___________.

 

Commission File Number 000-30371

 

DYNARESOURCE, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware

 

94-1589426

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

222 W Las Colinas Blvd., Suite 1910 North Tower, Irving, Texas 75039(Address of principal executive offices)

 

(972) 868-9066

(Issuer’s telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

 

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act): Yes      No ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. Yes ☐     No ☒

 

As of October 31, 2021, there were 18,091,293 shares of Common Stock of the issuer outstanding.

 

 

 

 

TABLEOFCONTENTS

 

PART I.

FINANCIAL STATEMENTS

 

 

 

 

 

 

 

ITEM 1.

Unaudited Financial Statements

 

 

 

 

 

 

 

 

 

Notes to Unaudited Financial Statements

 

7

 

 

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis and Plan of Operation

 

25

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

 

36

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

 

36

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

37

 

 

 

 

 

 

ITEM 2.

Unregistered Sales of Securities and Use of Proceeds

 

44

 

 

 

 

 

 

ITEM 3.

Default Upon Senior Securities

 

44

 

 

 

 

 

 

ITEM 4.

Mine Safety Disclosures

 

44

 

 

 

 

 

 

ITEM 5.

Other Information

 

44

 

 

 

 

 

 

ITEM 6.

Exhibits

 

45

 

 

CERTIFICATIONS

 

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

 

 

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

 

 

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

 

 
2

Table of Contents

 

DYNARESOURCE, INC.

CONSOLIDATED BALANCE SHEETS

September 30 2021 and December 31, 2020

  

 

 

2021

 

 

2020

 

ASSETS

 

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

15,832,290

 

 

$1,504,016

 

Accounts Receivable

 

 

965,995

 

 

 

840,743

 

Inventories

 

 

2,032,911

 

 

 

603,967

 

Foreign Tax Receivable

 

 

3,850,468

 

 

 

2,179,914

 

Appeal Bond

 

 

-

 

 

 

1,111,111

 

Other Current Assets

 

 

851,119

 

 

 

578,661

 

Total Current Assets

 

 

23,532,783

 

 

 

6,818,412

 

 

 

 

 

 

 

 

 

 

Mining Equipment and Fixtures (Net of Accumulated

 

 

 

 

 

 

 

 

Depreciation of $115,613 and $113,176)

 

 

3,541

 

 

 

5,978

 

Operating Lease

 

 

670,919

 

 

 

735,220

 

Mining Concessions

 

 

4,132,678

 

 

 

4,132,678

 

Other Assets

 

 

163,051

 

 

 

165,380

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$28,502,972

 

 

$11,857,668

 

 

 

 

 

 

 

 

 

 

LIBILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts Payable

 

$

1,854,688

 

 

$2,274,011

 

Accrued Expenses

 

 

4,766,453

 

 

 

3,385,093

 

Customer Advances

 

 

9,250,000

 

 

 

2,500,000

 

Derivative Liabilities

 

 

6,300,473

 

 

 

2,371,560

 

Current Portion of Convertible Notes Payable – Series D

 

 

3,676,721

 

 

 

-

 

Current Portion of Convertible Notes Payable – Series I & II

 

 

543,279

 

 

 

-

 

Current Portion of Long-Term Debt

 

 

1,956,079

 

 

 

1,984,007

 

Current Portion of Operating Lease Payable

 

 

95,232

 

 

 

82,733

 

Total Current Liabilities

 

 

28,442,925

 

 

 

12,597,404

 

 

 

 

 

 

 

 

 

 

Convertible Notes Payable – Series D, (Net of Unamortized Discount of $343,279 and $755,214), Less Current Portion

 

 

-

 

 

 

3,264,786

 

Convertible Notes Payable – Series I & II, Less Current Portion

 

 

-

 

 

 

543,279

 

Long Term Debt, Less Current Portion

 

 

8,233

 

 

 

97,428

 

Operating Lease Payable, Less Current Portion

 

 

609,375

 

 

 

685,951

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

29,060,533

 

 

 

17,188,848

 

 

 

 

 

 

 

 

 

 

Preferred Stock, Series C, $0.0001 par value, 1,734,992 shares Authorized, issued and outstanding

 

 

4,337,480

 

 

 

4,337,480

 

COMMITMENTS AND CONTINGENCIES

 

 

-

 

 

 

-

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

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

 

 

1

 

 

 

1

 

Common Stock, $0.01 par value, 40,000,000 shares authorized 17,722,825 and 17,722,825 issued and outstanding

 

 

177,228

 

 

 

177,228

 

Preferred Rights

 

 

40,000

 

 

 

40,000

 

Additional Paid In Capital

 

 

50,395,699

 

 

 

50,407,333

 

Treasury Stock, 495,513 and 516,480 shares

 

 

(1,414,628)

 

 

(1,474,486)

Accumulated Other Comprehensive income

 

 

136,106

 

 

 

438,092

 

Accumulated Deficit

 

 

(54,229,447)

 

 

(59,256,828)

TOTAL STOCKHOLDERS’ DEFICIT

 

 

(4,895,041)

 

 

(9,668,660)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$28,502,972

 

 

$11,857,668

 

 

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

 

 
3

Table of Contents

 

DYNARESOURCE,INC. 

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

 

 

Three Months

Sept. 30, 2021

 

 

Three Months

Sept. 30, 2020

 

 

Nine Months

Sept. 30, 2021

 

 

Nine Months

Sept. 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$10,467,058

 

 

$4,830,461

 

 

$25,906,083

 

 

$5,245,096

 

COSTS AND EXPENSES OF MINING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Costs Applicable to Sales

 

 

756,898

 

 

 

471,025

 

 

 

1,917,049

 

 

 

682,600

 

Mine Production Costs

 

 

1,135,938

 

 

 

854,297

 

 

 

3,385,340

 

 

 

1,388,198

 

Mine Exploration Costs

 

 

1,151,020

 

 

 

676,511

 

 

 

3,437,009

 

 

 

717,336

 

Mine Expansion Costs

 

 

579,432

 

 

 

-

 

 

 

579,432

 

 

 

909,190

 

Camp, and Facilities

 

 

697,446

 

 

 

542,630

 

 

 

1,956,168

 

 

 

1,415,954

 

Transportation

 

 

374,974

 

 

 

201,281

 

 

 

968,672

 

 

 

277,015

 

Property Holding Costs

 

 

36,866

 

 

 

33,394

 

 

 

116,516

 

 

 

101,523

 

General and Administrative

 

 

1,085,187

 

 

 

557,069

 

 

 

2,252,156

 

 

 

2,074,640

 

Depreciation and Amortization

 

 

812

 

 

 

812

 

 

 

2,437

 

 

 

2,437

 

Total Operating Expenses

 

 

5,818,573

 

 

 

3,337,019

 

 

 

14,614,779

 

 

 

7,568,893

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET OPERATING INCOME (LOSS)

 

 

4,648,485

 

 

 

1,493,442

 

 

 

11,291,304

 

 

 

(2,323,797)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Gains (Losses)

 

 

(258,006)

 

 

(685,509)

 

 

(121,725)

 

 

(1,025,194)

Interest Expense

 

 

(372,336)

 

 

(349,008)

 

 

(1,102,755)

 

 

(753,453)

Derivatives Adj. Mark-to-Market Gain (Loss)

 

 

(3,743,797)

 

 

(1,867,492)

 

 

(3,928,913)

 

(2,556,767)

 

Arbitration Award Expense

 

 

 -

 

 

 

-

 

 

 

(1,111,111)

 

 

-

 

Other Income (Expense)

 

 

581

 

 

 

-

 

 

 

581

 

 

 

(4,427)

Total Other Income (Expense)

 

 

(4,373,558)

 

 

(2,902,009)

 

 

(6,263,923)

 

 

(4,339,841)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) BEFORE TAXES

 

 

274,927

 

 

 

(1,408,567)

 

 

5,027,381

 

 

 

(6,663,638)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAXES

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

274,927

 

 

 

(1,408,567)

 

 

5,027,381

 

 

 

(6,663,638)

DEEMED DIVIDEND FOR SERIES C PREFERRED

 

 

(43,374)

 

 

(43,330)

 

 

(130,124)

 

 

(129,990)

LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61,589

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$231,553

 

 

$(1,451,897)

 

$4,897,257

 

 

$(6,732,039)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE DATA ATTRIBUTABLE TO THE EQUITY HOLDERS OF

DYNARESOURCE, INC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) per Common Share

 

$0.01

 

 

$(0.08)

 

$0.28

 

 

$(0.38)

Diluted Earnings (Loss) per Common Share

 

$0.01

 

 

$(0.08)

 

$0.28

 

 

$(0.38)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding, Basic

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

Weighted Average Shares Outstanding, Diluted

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Exchange Gains (Losses)

 

 

69,421

 

 

 

569,589

 

 

 

(301,986)

 

 

1,714,576

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

 

 

69,421

 

 

 

569,589

 

 

 

(301,986)

 

 

1,714,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$344,348

 

 

$(838,978)

 

$4,725,395

 

 

$(4,949,062)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATTRIBUTABLE TO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY HOLDERS OF DYNARESOURCE, INC.

 

$344,348

 

 

$(838,978)

 

$4,725,395

 

 

$(4,875,804)

NON-CONTROLLING INTERESTS

 

$-

 

 

$-

 

 

$-

 

 

$(73,258)

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$344,348

 

 

$(838,978)

 

$4,725,395

 

 

$(4,949,062)

 

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

 

 
4

Table of Contents

 

 DYNARESOURCE,INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND 2020

 

 

 

Preferred A

 

 

Common

 

 

Preferred

 

 

Paid In

 

 

Treasury

 

 

Other Comp

 

 

 Accumulated

 

 

 Non Controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Rights

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income

 

 

 Deficit

 

 

 Interests

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2020

 

Balance, June 30, 2020

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,692,821

 

 

 

616,480

 

 

$(1,759,974)

 

$1,482,497

 

 

$(59,146,076)

 

$-

 

 

$(8,513,503)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(363,917)

 

 

(162,500)

 

 

463,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

569,589

 

 

 

 

 

 

 

 

 

 

 

569,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,408,567)

 

 

 

 

 

 

(1,408,567)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,328,904

 

 

 

453,980

 

 

$(1,296,057)

 

$2,052,086

 

 

$(60,554,643)

 

$-

 

 

$(9,252,481)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2021

Balance, June 30, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,407,333

 

 

 

516,480

 

 

$(1,474,486)

 

$66,685

 

 

$(54,504,374)

 

$-

 

 

$(5,287,613)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,634)

 

 

(20,967)

 

 

59,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,421

 

 

 

 

 

 

 

 

 

 

 

69,421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

274,927

 

 

 

 

 

 

 

274,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

1,000

 

 

$-

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,395,699

 

 

 

495,513

 

 

$(1,414,628)

 

$136,106

 

 

$(54,229,447)

 

$-

 

 

$(4,895,041)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2020

Balance December 31, 2019

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$56,622,159

 

 

 

778,980

 

 

$(2,223,891)

 

$325,841

 

 

$(53,952,594)

 

$(5,723,663)

 

$(4,734,919)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(363,917)

 

 

(162,500)

 

 

463,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,726,245

 

 

 

 

 

 

 

(11,669)

 

 

1,714,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,602,049)

 

 

(61,589)

 

 

(6,663,638)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,565,421)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,796,921

 

 

 

231,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,692,821

 

 

 

616,480

 

 

$(1,759,974)

 

$2,052,086

 

 

$(60,554,643)

 

$-

 

 

$(9,352,481)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2021

Balance December 31, 2020

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,407,333

 

 

 

516,480

 

 

$(1,474,486)

 

$438,092

 

 

$(59,256,828)

 

$-

 

 

$(9,668,660)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock Issued for Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,634)

 

 

20,967)

 

 

59,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(301,986)

 

 

 

 

 

 

 

 

 

 

(301,986)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,027,381

 

 

 

 

 

 

 

5,027,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

1,000

 

 

$1

 

 

 

17,722,825

 

 

$177,228

 

 

 

1

 

 

$40,000

 

 

$50,395,699

 

 

 

495,513

 

 

$(1,414,628)

 

$136,106

 

 

$(54,229,447)

 

$-

 

 

$(4,895,041)

 

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

 

 
5

Table of Contents

 

DYNARESOURCE,INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITES:

 

 

 

 

 

 

Net income (Loss)

 

$5,027,381

 

 

$(6,663,638)

Adjustments to reconcile net loss to cash used in operating activities

 

 

 

 

 

 

 

 

Change in Derivatives

 

 

3,928,913

 

 

 

2,556,767

 

Depreciation and Amortization

 

 

2,437

 

 

 

2,437

 

Amortization of Loan Discount

 

 

411,935

 

 

 

205,967

 

Stock issued for Services

 

 

48,224

 

 

 

100,000

 

Non-Dilution Stock Issuance

 

 

-

 

 

 

4,427

 

Change in Operating Assets and Liabilities

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(125,252)

 

 

120,012

 

Inventories

 

 

(1,428,944)

 

 

446,757

 

Foreign Tax Receivable

 

 

(1,670,554)

 

 

(241,708)

Appeal Bond

 

 

1,111,111

 

 

 

(1,111,111)

Operating Lease Assets

 

 

64,301

 

 

 

57,520

 

Other Assets

 

 

(270,129)

 

 

(224,689)

Accounts Payable

 

 

(419,323)

 

 

(416,589)

Accrued Expenses

 

 

1,381,360

 

 

 

883,010

 

Customer Advances

 

 

6,750,000

 

 

 

-

 

Lease Liabilities

 

 

(64,077)

 

 

(53,083)

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

14,747,383

 

 

 

(4,333,881)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Advances from Stockholders

 

 

 

 

 

 

 

 

Proceeds from Borrowing

 

 

-

 

 

 

4,020,000

 

Payments of Convertible Notes

 

 

-

 

 

 

(112,500)

Payments of Long-Term Debt

 

 

(47,936)

 

 

(40,085)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

(47,936)

 

 

3,867,415

 

 

 

 

 

 

 

 

 

 

Effects of Foreign Exchange

 

 

(371,173)

 

 

1,382,926

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

14,328,274

 

 

 

916,460

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

1,504,016

 

 

 

354,572

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$15,832,290

 

 

 

1,271,032

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Cash Paid for Interest

 

$391,436

 

 

$89,396

 

Cash Paid for Income Taxes

 

$-

 

 

$-

 

NON-CASH TRANSACTION Accrued Interest Rolled into Notes Payable

 

$-

 

 

$23,934

 

 

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

 

 
6

Table of Contents

 

DYNARESOURCE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021 AND 2020

 

 

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 Gracía Project (“SJG”) in northern Sinaloa State, México. The SJG District covers 9,920 hectares (24,513 acres) on the west side of the Sierra Madre mountain range. The Company currently owns 100% of the outstanding capital of DynaMéxico. A 20% minority interest in Dyna México was held by Goldgroup Resources Inc., a wholly owned subsidiary of Goldgroup Mining Inc. Vancouver BC (“Goldgroup”) until February 24, 2020.

 

In 2005, the Company formed DynaResource Operaciones de San Jose De Gracía S.A. de C.V. (“DynaOperaciones”), and acquired control of Mineras de DynaResource, S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”). The Company owns 100% of Dyna Mineras.

 

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 revenues and expenses. 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.

 

Principles of Consolidation

 

The financial statements include the accounts of DynaResource, Inc., as well as DynaResource de México, S.A. de C.V. (100% 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.

 

 
7

Table of Contents

 

Non-Controlling Interest

 

The Company’s subsidiary, DynaResource de México S.A. de C.V, was 20% owned by Goldgroup Resources, Inc. until February 24, 2020 when the Company recovered the shares as partial satisfaction of a legal judgement. See Note 9 for further details.

 

The Company accounted for this outside interest as “non-controlling interest” through February 2020. A 20% share of operating income (loss) and comprehensive income (loss) was allocated to the non-controlling interest through the date of the recovery of the shares.

 

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.

 

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. As of September 30, 2021, the Company had $15,025,627 of deposits in U.S. Banks in excess of the FDIC limit.

 

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 September 30, 2021 and December 31, 2020, respectively, no allowance has been deemed necessary.

 

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 September 30, 2021 and December 31, 2020 are $3,850,468 and $2,179,914, 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 $2,032,911 and $603,967 as of September 30, 2021 and December 31, 2020, 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 September 30, 2021 of the Company’s properties do not contain resources that satisfy the definition of proven and probable reserves. Therefore the Company classifies the development of its properties, including the San Jose de Gracía Property, as exploration stage projects since no proven or probable reserves have been established under Industry Guide 7.

 

 
8

Table of Contents

 

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 and equipment 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.

 

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 Gracía Property, capitalized costs and mineral property interests are amortized using the straight-line method once production begins. As of September 30, 2021, the mining interests have been in the pilot production stage and therefore, no amortization has been expensed. Mining properties consist of 33 mining concessions covering approximately 9,920 hectares at the San Jose de Gracía property (“SJG”), the basis of which are amortized on the unit of production method based on estimated recoverable resources. 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 considering 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.

 

 
9

Table of Contents

 

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 September 30, 2021 and December 31, 2020, 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.

 

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.

 

Transactions in and Translations of Foreign Currency

 

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) yearend 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 periods ended September 30, 2021 and December 31, 2020 (Mexican Pesos per one U.S. dollar):

 

 

 

Sept. 30,

2021

 

 

Dec 31,

2020

 

Exchange Rate at Period End Pesos

 

 

20.60

 

 

 

19.91

 

  

Relevant exchange rates used in the preparation of the income statement portion of financial statements for the subsidiaries are as follows for the periods ended September 30, 2021 and September 30, 2020 (Mexican Pesos per one U.S. dollar):

 

 

 

Sept. 30,

2021

 

 

Sept. 30,

2020

 

Weighted Average Exchange Rate for the Nine Months Ended Pesos

 

 

20.13

 

 

 

21.79

 

 

 
10

Table of Contents

   

The Company recorded currency transaction gains (losses) of $(121,725) and $(1,025,194) for the nine months ended September 30, 2021 and 2020, respectively.

 

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.

 

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 follows ASC 606 “Revenue from contracts with customers”. 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.

 

As of September 30, 2021 there are $9,250,000 in customer deposit liabilities for payments received in advance expected to be settled in 2021.

 

During the nine months ended September 30, 2021 and 2020 there was no revenue recognized during the period from customer deposit liabilities (deferred contract revenue) from prior periods, and $0 of customer deposits refunded to the customer on order cancellation.

 

As of and for the periods ended September 30, 2021 and December 31, 2020, there are no contract costs or commissions deferred.

 

We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods.

 

 
11

Table of Contents

 

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.

 

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 warrants, convertible preferred shares and convertible notes and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss or where the average stock price was below the exercise price of the respective potentially dilutive common share, as their effect would be considered anti-dilutive.

 

The Company had 3,429,467 warrants outstanding at September 30, 2021 which upon exercise, would result in the issuance of 3,429,467 shares of common stock. Of these warrants 2,168,833 were exercisable at $2.05 per share and 1,260,634 were exercisable at $.01 per share. The Company also had convertible debt instruments as of September 30, 2021 which, upon conversion at valuations from $2.00 to $2.50 per share, would result in the issuance of 2,227,312 shares of stock.

 

The Company had 3,429,467 warrants outstanding at December 31, 2020 which upon exercise, would result in the issuance of 3,429,467 shares of common stock. Of these warrants 2,168,833 were exercisable at $2.05 per share and 1,260,634 were exercisable at $.01 per share. The Company also had convertible debt instruments as of December 31, 2020 which, upon conversion at valuations from $2.00 to $2.50 per share, would result in the issuance of 2,227,312 shares of stock.

   

 

 

Three Month

Ended

Sept. 30,

2021

 

 

Three Month

Ended

Sept. 30,

2020

 

 

Nine Month

Ended

Sept. 30,

2021

 

 

Nine Month

Ended

Sept. 30,

2020

 

Net income (loss) attributable to common shareholders

 

$231,553

 

 

$(1,451,897)

 

$4,897,257

 

 

$(6,732,039)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, Basic

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of common shares outstanding,

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

17,722,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$0.01

 

 

$(0.08)

 

$0.28

 

 

$(0.38)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$0.01

 

 

$(0.08)

 

$0.28

 

 

$(0.38)

  

At September 30, 2021, 2,168,833 shares of potentially dilutive common stock related to outstanding stock warrants and 224,103 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation because the exercise and conversion prices exceeded the average stock price and therefore their effect would be anti-dilutive. In addition, at September 30, 2021, 1,260,634 of potentially dilutive common stock related to outstanding stock warrants and 2,089,098 shares of potentially dilutive common stock related to convertible debt were excluded from the diluted earnings per share calculation because the ratio of expenses related to the shares to issuable shares exceeded the basic earnings per share and therefore their effect would be antidilutive.

 

At September 30, 2020, potentially dilutive common shares related to stock warrants and convertible debt were excluded from the diluted earning per share computation because the Company incurred a net loss and therefore their effect would be anti-dilutive.

 

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.

 

 
12

Table of Contents

  

NOTE 2 INVENTORIES

 

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 September 30, 2021 and December 31, 2020, respectively, were as follows:

S

 

 

2021

 

 

2020

 

 

 

 

 

 

Mined Tonnage

 

$1,864,794

 

 

$555,608

 

Gold-Silver Concentrates

 

 

168,117

 

 

 

48,359

 

Total Inventories

 

$2,032,911

 

 

$603,967

 

 

NOTE 3 PROPERTY

 

Property consists of the following at September 30, 2021 and December 31, 2020:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Leasehold improvements

 

$9,340

 

 

$9,340

 

Office equipment

 

 

31,012

 

 

 

31,012

 

Office furniture and fixtures

 

 

78,802

 

 

 

78,802

 

Sub-total

 

 

119,154

 

 

 

119,154

 

Less: Accumulated depreciation

 

 

(115,613)

 

 

(113,176)

Total Property

 

$3,541

 

 

$5,978

 

 

Depreciation and amortization has been provided over each asset’s estimated useful life. Depreciation and amortization expense was $2,437 and $2,437 for the nine months ended September 30, 2021 and 2020 respectively.

 

NOTE 4 MINING CONCESSIONS

 

Mining properties consist of the San Jose de Gracía (“SJG”) concessions. Mining Concessions were $4,132,678 and $4,132,678 at September 30, 2021 and December 31, 2020, respectively. There was no depletion expense during the nine months ended September 20, 2021 and 2020.

 

NOTE 5 CONVERTIBLE PROMISSORY NOTES

 

Notes Payable – Series I

 

In April and May 2013, the Company entered into note agreements with shareholders in the principal amount of $1,495,000, of which $340,000 was then converted to preferred shares within the same year, netting proceeds of $1,155,000 (the “Series I Notes”). 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 Notes originally matured on December 31, 2015. As of December 31, 2018, seven of the Series I Notes totaling $646,875 had subsequently been extended to December 30, 2019. On December 31, 2019, the Company entered into agreements to extend seven outstanding notes totaling $646,875 plus accrued interest totaling $34,277 for new total notes of $681,152 until December 31, 2020.

 

On March 31, 2020, the Company entered into agreements to extend the seven outstanding notes totaling $691,152 plus accrued interest totaling $21,286 for a new total of $702,438 until June 30, 2022. At December 31, 2020 one note for $246,533 was paid off leaving six Series I Notes remaining outstanding with a total balance of $455,905.

 

At September 30, 2021, six Series I Notes remained outstanding with a total balance of $455,905. The Company has the right to prepay the Series I Notes with a ten percent (10%) penalty.

 

The Series I Note holder retains the option, at any time prior to maturity or prepayment, to convert any unpaid principal and accrued interest into Common Stock at $2.50 per share. If the Series I Note is converted into Common Stock, at the time of conversion, the holder would also receive warrants, in the same number as the number of common shares received upon conversion, to purchase additional common shares of the Company for $7.50 per share, with such warrants expiring one year from their conversion date.

 

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 Notes originally matured on December 31, 2015. On December 31, 2019 the Company entered into agreements to extend the two notes totaling $78,750 plus accrued interest of $5,977 for total new notes of $84,757 to December 31, 2020. One note for $112,500 was not extended and was past due as of December 31, 2019. At December 31, 2019 three Series II notes remained outstanding for $197,226.

 

On March 31, 2020, the Company entered into agreements to extend the two notes totaling $84,726 plus accrued interest of $2,648 for total new notes of $87,374 to June 30, 2022. One note for $112,500 was not extended and was paid off in May 2020. At December 31, 2020, two Series II notes remained outstanding for $87,374.

 

 
13

Table of Contents

 

 

At September 30, 2021, two Series II notes remained outstanding with a balance of $87,374. The Company has the right to prepay the Series II Notes with a ten percent (10%) penalty.

 

The Note holder may, at any time prior to maturity or prepayment, convert any unpaid principal and accrued interest into common stock of the Company at $2.50 per share. At the time of conversion, the holder would receive a warrant to purchase additional common shares of the Company for $7.50 per share, such warrant expiring one year from their conversion date.

 

NOTE 6 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 statutory tax rate of 21% of significant items comprising the Company’s net deferred tax amounts as of September 30, 2021 and December 31, 2020 are as follows:

 

Deferred Tax Asset related to:

 

 

 

Sept. 30,

2021

 

 

December 31,

2020

 

Prior Year

 

$13,473,000

 

 

$13,780,490

 

Tax (Expense) Benefit for Current Year

 

 

(2,933,585)

 

 

953,120

 

Expiration of NOL Carryforward Period

 

 

-

 

 

 

(1,260,610)

Total Deferred Tax Asset

 

 

10,539,415

 

 

 

13,473,000

 

Less Valuation Allowance

 

 

(10,539,415)

 

 

(13,473,000)

Net Deferred Tax Asset

 

$-

 

 

$-

 

 

For financial reporting purposes income (loss) before taxes for the nine months ended September 30, 2021 and 2020 includes the following components:

 

 

 

2021

 

 

2020

 

United States

 

$(9,600,150)

 

$(4,316,690)

Foreign

 

 

14,627,531

 

 

 

(2,346,948)

 

 

$5,027,381

 

 

$(6,663,638)

The expense (benefit) for taxes for the nine months ended September 30, 2021 and 2020 consist of the following: Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Federal

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

-

 

 

 

-

 

 

 

$-

 

 

$-

 

Deferred and Other

 

 

 

 

 

 

 

 

Federal

 

$(1,094,279)

 

$(363,489)

State

 

 

-

 

 

 

-

 

Foreign

 

 

4,027,864

 

 

 

(586,737)

 

 

 

2,933,585

 

 

 

(950,226)

 

 

 

 

 

 

 

 

 

Total Tax Expense (Benefit)

 

 

2,933,585

 

 

 

(950,226)

Change in Valuation Allowance

 

 

(2,933,585)

 

 

950,226

 

Net Tax Expense (Benefit)

 

$-

 

 

$-

 

 

 
14

Table of Contents

 

The Company’s income tax expense (benefit)for the nine months ending September 30, 2021 and 2020 differs from the statutory rate of 21% due to the following:

 

 

 

2021

 

 

2020

 

Tax Expense (Benefit) at Statutory Rate

 

$1,055,750

 

 

$(1,399,364)

Foreign Tax Rate Differential

 

 

1,316,478

 

 

 

(266,546)

Permanent Differences

 

 

 

 

 

 

 

 

Stock Issued for Services

 

 

10,127

 

 

 

25,000

 

Change in Derivative Liability

 

 

825,072

 

 

 

639,192

 

Amortization of Loan Discount

 

 

86,507

 

 

 

51,492

 

Timing Differences

 

 

 

 

 

 

 

 

Depreciation & Capitalized Assets

 

 

173,409

 

 

 

 

 

Sales & Accounts Receivable

 

 

(128,875)

 

 

 

 

Inventory and COGS

 

 

(404,929)

 

 

 

 

Other

 

 

46

 

 

 

 

 

Change in Valuation Allowance

 

 

(2,933,585)

 

 

950,226

 

Provision for Income Tax Expense (Benefit)

 

$-

 

 

$-

 

 

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 $43,800,000 at September 30, 2021 and will expire as follows:

 

United States Expiring 2029 through

 

$18,500,000

 

United States indefinite limited to 80% of NOL

 

 

11,300,000

 

Foreign expiring from 2021 to 2030

 

 

14,000,000

 

Total

 

$43,800,000

 

 

NOTE 7 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 60,001,000 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 1,000 shares shall be designated as Series A Preferred Stock, 1,734,992 are designated as Series C Preferred Stock, and 3,000,000 shares are designated as Series D Preferred Stock and (ii) forty million (40,000,000) shares of Common Stock, par value $0.01 per share (“Common Stock”). As of September 30, 2021, 15,265,008 shares of Preferred Stock remain undesignated.

 

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. The Company issued 1,000 shares of Series A Preferred Stock to its CEO. At September 30, 2021 and December 31, 2020, there were 1,000 shares of Series A Preferred Stock outstanding.

 

Series C Senior Convertible Preferred Shares

 

At September 30, 2021 and December 31, 2020 there were 1,734,992 and 1,734,992 Series C Preferred shares outstanding. These Series C Preferred Shares are convertible to common shares at $2.50 per share, through June 30, 2022 and include anti-dilution protection. The Series C Preferred Shares may receive a 4% per annum dividend, payable if available, and in arrears. The Dividend is calculated at 4.0% of $4,337,480 payable annually on June 30. At September 30, 2021 dividends for the years 2017 to 2021 totaling $866,940 were in arrears.

 

Financing Agreement with Golden Post Rail, LLC, a Texas Limited Liability Company, and with Shareholders of DynaResource, Inc.

 

On May 14, 2020, the Company closed an additional financing agreement with Golden Post, and with certain individual shareholders of DynaUSA (“DynaUSA Shareholders”), and related agreements. A summary of the transactions and related agreements are set forth below:

 

 

1.

Pursuant to the May 14, 2020 Note Purchase Agreement (the “NPA”) among the Company, Golden Post Rail, LLC (the “Lead Purchaser”), and the other parties listed on Exhibit A thereto (the “Remaining Purchasers”):

 

 

·

Golden Post acquired the following securities:

 

 

(a)

A convertible promissory note (the “Golden Post Note”) payable to Golden Post in the principal amount of $2,500,000, bearing interest at 10%, and maturing two years from the date of execution. One half of the principal amount of the Golden Post Note, or $1,250,000, has been fully funded in accordance with an agreed-upon draw summary and budget. The balance of the principal amount will also be funded in accordance with agreed-upon draw summaries and the budget. The Golden Post Note is convertible, at the option of Golden Post, into shares of Series D Senior Convertible Preferred Stock (the “Series D Preferred”) at a conversion price of $2.00 per share; and

 

 

 

 

(b)

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

 

 

·

The Remaining Purchasers acquired the following securities:

 

 

(a)

Convertible promissory notes (the “Remaining Notes”) in the aggregate principal amount of $1,400,000, bearing interest at 10%, and maturing two years from the date of issuance. The Remaining Notes have been fully funded. The Remaining Notes are convertible, at the option of each individual Remaining Purchaser, into shares of Series D Preferred at a conversion price of $2.00 per share; and

 

 

 

 

(b)

Common stock purchase warrants (the “Remaining Purchasers Warrants”) for the purchase of an aggregate of 439,026 shares of the Company’s common stock, at an exercise price of $0.01 per share, and maturing on the 10-year anniversary of the date of issuance. The Remaining Purchasers Warrants contain anti-dilution provisions.

 

 

2.

Also pursuant to the NPA, the Company and the Lead Purchaser have agreed to amend the common stock purchase warrant dated June 30, 2015 (the “2015 Warrant”), issued to the Lead Purchaser in connection with that certain Securities Purchase Agreement dated as of May 6, 2015. The 2015 Warrant contemplates the purchase, upon exercise, of 2,166,527 shares (subject to adjustment) of the Company’s common stock and matured June 30, 2020 (the “Termination Date”). The amendment to the 2015 Warrant provides that, following the expiration of the 2015 Warrant pursuant to its terms, the Company will issue to the Lead Purchaser a new warrant (the “New Warrant”), substantially in the same form of the 2015 Warrant, for the number of shares of the Company’s common stock that went unexercised on the Termination Date, if any. The New Warrant has a maturity date of June 30, 2022.

 

 
15

Table of Contents

 

 

3.

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

 

 

 

 

4.

Pursuant to the transaction contemplated by the NPA, the Company agreed to call a special meeting of Company stockholders, to be held not later than July 14, 2020, to solicit stockholder approval of (a) an amendment of the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 25,000,000 shares to 40,000,000 shares, and (b) an amendment of the Certificate of Designations of the Series C Preferred, in order to (a) extend the maturity date of the Series C Preferred by an additional two (2) years, (ii) add an equity cap in respect of the conversion of Series C Preferred into common stock of the Company, and (iii) add certain restrictions on the ability of the Company to issue Series C Preferred. The special meeting was properly called and held on July 13, 2020, whereby Company stockholders confirmed approval for each item referenced in item 4 above.

 

 

 

 

4.

Compensatory Issuances. On May 13, 2020, one business day prior to the NPA, the Company issued to the Lead Purchaser the following: (i) a common stock purchase warrant for 2,306 shares, at an exercise price of $0.01 per share, and maturing on the 7-year anniversary of the date of issuance (the “Compensatory Warrant”); and (ii) 1,771 shares of Series C Preferred Shares. These issuances were occasioned by the Company’s obligations under the Securities Purchase Agreement dated as of May 6, 2015.

 

 

 

 

6.

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

 

(1)

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

 

The sale of the Golden Post Note, the Remaining Notes, the 2020 Warrant, the Remaining Purchasers Warrants, the Compensatory Warrant, and the Series C Preferred was made pursuant to a privately negotiated transaction that did not involve a public offering of securities and, accordingly, the Company believes that the transaction was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. Each investor represented that it (A) is an “accredited investor” and (B) has such knowledge and experience in financial and business matters that the investor is capable of evaluating the merits and risks of acquiring the securities acquired by such investor. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.

 

Due to underlying anti-dilutive provisions contained in the Series C Preferred Shares and the Golden Post Warrant, the Company incurred derivative liabilities. On May 14, 2020 in connection with the Series D Convertible Note financing, the expiration date for the Series C Preferred Shares and the Golden Post warrants were extended to June 30, 2022. In addition, a new derivative liability was incurred due to the issuance of warrants for kicker shares. At September 30, 2021, the total derivative liability was $6,300,473 which included $1,639,587 for the Series C Preferred Shares, and $2,518,993 in connection with the Golden Post Warrants and $2,141,893 in connection with the Series D Convertible Note Kicker Warrants. At December 31, 2020 the total derivative liability was $2,371,560 which included $601,313 for the Series C Preferred Shares, and $817,613 in connection with the Golden Post Warrants and $952,634 in connection with the Series D Convertible Note Kicker Warrants. The deemed dividend for the periods ending September 30, 2021 and September 30, 2020 were $130,124 and $129,990. respectively. As the Company has not declared these dividends, it is required only as an item “below” the net income (loss) amount on the accompanying consolidated statements of income (loss).

 

Due to the nature of this transaction as mandatorily redeemable, the Series C preferred shares are classified as “temporary equity” on the balance sheet.

 

 

 

Preferred

Series C

 

 

 

 

 

Carrying Value, December 31, 2019

 

$4,333,053

 

Issuances at Fair Value, Net of Issuance Costs

 

 

-

 

Bifurcation of Derivative Liability

 

 

-

 

Relative Fair Value of Warrants – Preferred Stock Discount

 

 

4,427

 

Accretion of Preferred Stock to Redemption Value

 

 

-

 

Carrying Value, December 31, 2020

 

 

4,337,480

 

 

 

 

 

 

Bifurcation of Derivative Liability

 

 

-

 

Issuances at Fair Value, Net of Issuance Costs

 

 

-

 

Relative Fair Value of Warrants – Preferred Stock Discount

 

 

-

 

Accretion of Preferred Stock to Redemption Value

 

 

-

 

Carrying Value, September 30, 2021

 

$4,337,480

 

 

 
16

Table of Contents

  

Preferred Stock (Undesignated)

 

In addition to the 1,000 shares designated as Series A Preferred Stock and the 1,734,992 shares designated as Series C Preferred Shares and the 3,000,000 shares designated as Series D Preferred Stock, the Company is authorized to issue an additional 15,265,008 shares of Preferred Stock, having a par value of $0.0001 per share. 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 September 30, 2021 and December 31, 2020, 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 40,000,000 common shares at a par value of $0.01 per share. These shares have full voting rights. At September 30, 2021 and December 31, 2020, there were 17,722,825 and 17,722,825 shares outstanding, respectively. No dividends were paid for the periods ended September 30, 2021 and 2020, respectively.

 

Preferred Rights

 

The Company issued “Preferred Rights” for the rights to percentages of revenues generated from the San Jose de Gracía Pilot Production Plant and received $784,500 for these rights. This has been reflected as “Preferred Rights” in stockholders’ equity. As of September 30, 2021, $744,500 had been repaid, leaving a current balance of $40,000 and $40,000 as of September 30, 2021 and December 31, 2020, respectively

 

Stock Issuances

 

There were no issuances of common stock during the periods ending September 30, 2021 and December 31, 2020.

 

Treasury Stock

 

During the year ending December 31, 2020, 262,500 treasury shares were transferred for services provided to the Company.

 

On September 2, 2021, 20,967 treasury shares were transferred for services provided to the Company.

 

Outstanding treasury shares total 495,513 and 516,480 at September 30, 2021 and December 31, 2020, respectively.

 

Warrants

 

2021 activity

 

The Company had 3,429,467 warrants outstanding at September 30, 2021. There were no warrants issued or exercised in 2021 and no warrants expired in 2021.

 

2020 Activity

 

On May 13, 2020, the Company issued 2,306 warrants to purchase shares of common stock with an exercise price of $.01 per share related to anti-dilution provisions of the Series C preferred stock. These warrants expire on May 13, 2027.

 

On May 14, 2020, the Company issued 1,223,002 warrants to purchase shares of common stock with an exercise price of $.01 per share as kicker shares as part of the Series D note agreements. These warrants expire on May 14, 2030. An additional 37,632 warrants were issued in July 2021 in connection with additional notes issued under the financing agreement.

 

On June 30, 2020, as part of the Series D note agreement the Company issued 2,166,527 warrants to purchase shares of common stock with an exercise price of $2.05 per share to replace the 2,166,527 warrants previously outstanding which expired on that date. These warrants expire on June 30, 2022.

 

At December 31, 2020, the Company had a total of 3,429,467 warrants outstanding.

 

 
17

Table of Contents

 

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, 2019

 

 

2,166,527

 

 

$2.45

 

 

 

0.51

 

 

 

 

Granted

 

 

3,429,467

 

 

$1.30

 

 

 

4.94

 

 

 

-

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Forfeited

 

 

2,166,527

 

 

$-

 

 

 

 

 

 

 

-

 

Balance at December 31, 2020

 

 

3,429,467

 

 

$1.30

 

 

 

4.40

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

 

 

 

 

 

-

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

$-

 

 

 

 

 

 

 

-

 

Balance at September 30, 2021

 

 

3,429,467

 

 

$1.30

 

 

 

3.65

 

 

 

 

 

Exercisable at September 30, 2021

 

 

3,429,467

 

 

$1.30

 

 

 

3.65

 

 

 

-

 

 

NOTE 8 RELATED PARTY TRANSACTIONS

 

Dynacap Group Ltd.

 

The Company paid $128,500 and $71,250 to Dynacap Group, Ltd. (“Dynacap”, an entity controlled by the CEO of the Company) for consulting and other fees during the periods ended September 30, 2021 and 2020, respectively.

 

NOTE 9 COMMITMENTS AND CONTINGENCIES

 

Concession Taxes

 

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%).

 

Leases

 

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 Gracía 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 on January 1st each year 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 makes tiered lease payments on the 1st of each month.

 

Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company’s leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

 

 
18

Table of Contents

 

 

The Company determines if a contract is or contains a lease at inception. As of September 30, 2021, the Company has two operating leases - a six and one-half year lease for office space with a remaining term of eighteen months and a twenty-year ground lease in association with its México mining operations with a remaining term of thirteen years. Variable lease costs consist primarily of variable common area maintenance, storage parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.

 

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s interest rate of promissory notes.

 

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

 

 

 

Period Ended

 

 

 

Sept. 30,

2021

 

Operating Lease – Office Lease

 

$64,414

 

Operating Lease – Ground Lease

 

 

66,506

 

Short Term Lease Costs

 

 

8,664

 

Variable Lease Costs

 

 

-

 

TOTAL

 

$139,584

 

 

 

 

 

 

Weighted average remaining lease term and weighted average discount rate are as follows:

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term (Years) – Operating Leases

 

 

11.00

 

Weighted Average Discount Rate – Operating Leases

 

 

12.50%

 

 

 

 

 

Estimated future minimum lease obligations are as follow for the years ending September 30:

 

 

 

 

YEAR

 

 

 

 

2022

 

$178,925

 

2023

 

 

123,773

 

2024

 

 

96,896

 

2025

 

 

99,803

 

2026

 

 

102,797

 

Thereafter

 

 

684,885

 

Total

 

$1,287,079

 

Less Imputed Interest

 

 

(582,472)

OPERATING LEASE PAYABLE

 

$704,607

 

 

Other Contingencies

 

Coronavirus Pandemic

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States of America. Efforts implemented by local and national governments, as well as businesses, including temporary closures, are expected to have adverse impacts on local, national and the global economies. Although the disruption is currently expected to be temporary, there is uncertainty around the duration and the related economic impact. Therefore, while we expect this matter to have an impact our business, the impact to our results of operations and financial position cannot be reasonably estimated at this time.

 

 
19

Table of Contents

 

NOTE 10 DERIVATIVE LIABILITIES

 

Preferred Series C Stock

 

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

 

 

 

2021

 

 

 2020

 

Annual volatility rate

 

 

156%

 

 

156%

Risk free rate

 

 

0.25%

 

 

0.13%

Remaining Term

 

0.75 years

 

 

1.50 years

 

Fair Value of common stock

 

$2.00

 

 

$0.78

 

 

For the nine and twelve months ended September 30, 2021 and December 31, 2020, 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 nine and twelve months ended September 30, 2021 and December 31, 2020.

 

Period Ended

 

2021

 

 

2020

 

Fair value of derivative (stock), beginning of period

 

$601,313

 

 

$37,038

 

Change in fair value of derivative

 

 

1,038,274

 

 

 

276,547

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

287,728

 

Fair value of derivative (stock), end of period

 

$1,639,587

 

 

$601,313

 

 

Preferred Series C Warrants

 

As discussed in Note 7, the Company analyzed the embedded conversion features of the Series C Preferred Stock and determined that the Warrants qualified as a derivative liability and is required to be bifurcated and accounted for as such since the host and the embedded instrument are not clearly and closely related. The Company performed a valuation of the conversion feature. In performing the valuation, the Company applied the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. 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:

 

 
20

Table of Contents

 

 

 

2021

 

 

2020

 

Annual volatility rate

 

 

156%

 

 

156%

Risk free rate

 

 

0.25%

 

 

0.13%

Remaining Term

 

0.75 years

 

 

1.5 years

 

Fair Value of common stock

 

$2.00

 

 

$0.78

 

 

For the nine and twelve months ended Septermber 30, 2021 and December 31, 2020, 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 periods ended September 30, 2021 and December 31, 2020.

 

Period Ended

 

2021

 

 

2020

 

Fair value of derivative (warrants), beginning of period

 

$817,613

 

 

$49,066

 

Change in fair value of derivative

 

 

1,324,280

 

 

 

367,781

 

Fair value of derivative on the date of issuance

 

 

-

 

 

 

400,766

 

Fair value of derivative(warrants), end of period

 

$2,141,893

 

 

$817,613

 

 

Series D Notes Kicker Warrants

 

As discussed in Note 7, the Company analyzed the conversion features of the Series D Notes and determined that the Warrants qualified as a derivative liability. The fair value was required to be allocated among the notes, conversion features, and the warrants, and then remeasured at each reporting date. The Company performed a valuation of the conversion feature. 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 D Warrants based on the assumptions below:

 

 

 

2021

 

 

2020

 

Annual volatility rate

 

 

156%

 

 

156%</