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EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - DYNARESOURCE INCdynt_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - DYNARESOURCE INCdynt_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - DYNARESOURCE INCdynt_ex311.htm
 

 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 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 [X]    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 [X]
 
 
 
 
Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act):
 
Yes [ ]    No [X]
 
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 [X]
 
As of April 30, 2021, there were 17,722,825 shares of Common Stock of the issuer outstanding.
 

 
 

 
 
TABLE OF CONTENTS
  
 
 
 
PART I.
FINANCIAL STATEMENTS
 
 
 
 
ITEM 1.
Unaudited Financial Statements
3-6
 
 
 
 
Notes to Unaudited Financial Statements
7-31
 
 
 
ITEM 2.
Management's Discussion and Analysis and Plan of Operation
32
 
 
 
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk
42
 
 
 
ITEM 4.
Controls and Procedures
42
 
 

 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
ITEM 1.
Legal Proceedings
43
 
 
 
ITEM 2.
Unregistered Sales of Securities and Use of Proceeds
48
 
 
 
ITEM 3.
Default Upon Senior Securities
48
 
 
 
ITEM 4.
Mine Safety Disclosures
48
 
 
 
ITEM 5.
Other Information
48
 
 
 
ITEM 6.
Exhibits
48
 
 
 
 
 
 
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
 

 

 
 
DYNARESOURCE, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2021 AND DECEMBER 31, 2020
 
 
 
2021
 
 
2020
 
ASSETS
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash and Cash Equivalents
 $4,729,253 
 $1,504,016 
Accounts Receivable
  1,317,787 
  840,743 
Inventories
  1,259,844 
  603,967 
Foreign Tax Receivable
  2,552,318 
  2,179,914 
Appeal Bond
  1,111,111 
  1,111,111 
Other Current Assets
  665,300 
  578,661 
Total Current Assets
  11,635,613 
  6,818,412 
 
    
    
Mining Equipment and Fixtures (Net of Accumulated
    
    
Depreciation of $113,988 and $113,176)
  5,166 
  5,978 
Operating Lease
  714,316 
  735,220 
Mining Concessions
  4,132,678 
  4,132,678 
Investment in Affiliate
  70,000 
  70,700 
Other Assets
  93,586 
  95,380 
 
    
    
TOTAL ASSETS
 $16,651,359 
 $11,857,668 
 
    
    
LIBILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
    
    
Current Liabilities:
    
    
Accounts Payable
 $1,941,062 
 $2,274,011 
Accrued Expenses
  3,747,578 
  3,385,093 
Customer Advances
  6,250,000 
  2,500,000 
Derivative Liabilities
  2,766,827 
  2,371,560 
Current Portion of Operating Lease Payable
  89,627 
  82,733 
Current Portion of Long-Term Debt
  1,954,958 
  1,984,007 
Total Current Liabilities
  16,750,052 
  12,597,404 
 
    
    
Convertible Notes Payable – Series D, (Net of Unamortized Discount of $617,902 and $755,214)
  3,402,098 
  3,264,786 
Convertible Notes Payable – Series I & II
  543,279 
  543,279 
Operating Lease Payable, Less Current Portion
  650,012 
  685,951 
Long Term Debt, Less Current Portion
  55,018 
  97,428 
 
    
    
TOTAL LIABILITIES
  21,400,459 
  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
  50,407,333 
  50,407,333 
Treasury Stock, 516,480 and 516,480 shares
  (1,474,486)
  (1,474,486)
Accumulated Other Comprehensive income
  730,463 
  438,092 
Accumulated Deficit
  (58,967,119)
  (59,256,828)
TOTAL STOCKHOLDERS’ DEFICIT
  (9,086,580)
  (9,668,660)
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 $16,651,359 
 $11,857,668 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3
 
 
DYNARESOURCE, INC. 
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
 
 
 
2021
 
 
2020
 
REVENUE
 $4,912,712 
 $418,044 
COSTS AND EXPENSES OF MINING OPERATION
    
    
    Production Cost Applicable to Sales
  381,266 
  211,575 
    Mine Production Costs
  806,470 
  533,901 
    Mine Exploration Costs
  1,020,748 
  40,825 
    Mine Expansion Costs
   
  269,534 
    Camp, Warehouse and Facilities
  535,195 
  452,042 
    Transportation
  238,564 
  76,180 
    Property Holding Costs
  42,747 
  36,823 
    General and Administrative
  514,977 
  420,256 
    Depreciation and Amortization
  812 
  813 
    Total Operating Expenses
  3,532,779 
  2,041,949 
NET OPERATING INCOME (LOSS)
  1,379,933 
  (1,623,905)
 
    
    
OTHER INCOME (EXPENSE)
    
    
    Foreign Currency Gains (Losses)
  (333,735)
  (109,375)
    Interest Expense
  (361,222)
  (134,580)
    Derivatives Mark-to-Market Gain (Loss)
  (395,267)
  61,249 
    Other Income (Expense)
   
   
TOTAL OTHER INCOME (EXPENSES)
  (1,090,224)
  (182,706)
 
    
    
NET INCOME (LOSS) BEFORE TAXES
  289,709 
  (1,806,611)
PROVISION FOR INCOME TAXES
   
   
 
    
    
NET INCOME (LOSS)
 $289,709 
 $(1,806,611)
 
    
    
DEEMED DIVIDEND FOR SERIES C PREFERRED
  (43,375)
  (43,330)
LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
   
  61,589 
 
    
    
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
 $246,334 
 $(1,788,352)
 
    
    
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE
    
    
    EQUITY HOLDERS OF DYNARESOURCE, INC.
    
    
 
    
    
Basic Earnings (Loss) Per Common Share
 $0.01 
 $(0.10)
    Weighted Average Shares Outstanding - Basic
  17,722,825 
  17,722,825 
 
    
    
Diluted Earnings (Loss) Per Common Share
 $0.01 
 $(0.10)
    Weighted Average Shares Outstanding - Diluted
  18,948,133 
  17,722,825 
 
    
    
OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    Foreign Currency Translation Gain (Loss)
  292,371 
  1,134,304 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
  292,371 
  1,134,304 
 
    
    
TOTAL COMPREHENSIVE INCOME (LOSS)
 $582,080 
 $(672,307)
 
    
    
ATTRIBUTABLE TO:
    
    
    EQUITY HOLDERS OF DYNARESOURCE, INC.
 $582,080 
 $(599,049)
    NON-CONTROLLING INTEREST
 $ 
 $(73,258)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4
 
  
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED MARCH 31, 2021 AND 2020
 
 
 Preferred A 
 Common 
 Preferred 
 Preferred 
 Paid In 
 Treasury 
 Treasury 
 Other Comp 
 Accumulated 
 
Non Controlling
 
   
 
 
Shares
 
 
Amount
 
 
Shares
 
 
 Amount
 
 
Rights
 
 
Amount
 
 
Capital
 
 
Shares
 
 
Amount
 
 
    Income
 
 
Deficit
 
 
Interests
 
 Totals 
Balance, December 31, 201
  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)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Other Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
  1,145,973 
    
  (11,669)
  1,134,304 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Net Income (Loss)
    
    
    
    
    
    
    
    
    
    
  (1,745,022)
  (61,589)
  (1,806,611)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Elimination of Non-Controlling Interest
    
    
    
    
    
    
  (5,565,421)
    
    
    
    
  5,796,921 
  231,500 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Balance, March 31, 2020
  1,000 
 $1 
  17,722,825 
 $177,228 
  1 
 $40,000 
 $51,056,738 
  778,980 
 $(2,223,891)
 $1,471,814 
 $(55,697,616)
 $0 
 $(5,175,726)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
    
    
    
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)
 $0 
 $(9,668,660)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Other Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
  292,371 
    
    
  292,371 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Net Income (Loss)
    
    
    
    
    
    
    
    
    
    
  289,709 
    
  289,709 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
    
    
    
Balance, March 31, 2021
  1,000 
 $1 
  17,722,825 
 $177,228 
  1 
 $40,000 
 $50,407,333 
  516,480 
 $(1,474,486)
 $730,463 
 $(58,967,119)
 $0 
 $(9,086,580)
 
The accompanying notes are an integral part of these consolidated financial statements. 
 
 
5
 
 
DYNARESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
 
 
 
2021
 
 
2020
 
CASH FLOWS FROM OPERATING ACTIVITES:
 
 
 
 
 
 
Net income (Loss)
 $289,709 
 $(1,806,611)
Adjustments to reconcile net loss to cash used in operating activities
    
    
    Change in Derivatives
  395,267 
  (61,249)
    Depreciation
  812 
  813 
    Amortization of Loan Discount
  137,312 
   
Change in Operating Assets and Liabilities
    
    
    Accounts Receivable
  (477,044)
  699,468 
    Inventories
  (655,877)
  523,089 
    Foreign Tax Receivable
  (372,404)
  245,459 
    Operating Lease Assets
  20,904 
  18,720 
    Other Assets
  (84,845)
  72,668 
    Accounts Payable
  (332,949)
  (494,448)
    Accrued Expenses
  362,485 
  (270,673)
    Customer Advances
  3,750,000 
   
    Lease Liabilities
  (29,045)
  (23,001)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
  3,004,325 
  (1,095,765)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
    Advances from Stockholders
   
  900,000 
    Payments of Long-Term Debt
  (17,291)
  (15,994)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
  (17,291)
  884,006 
 
    
    
    Effects of Foreign Exchange
  238,203 
  684,305 
 
    
    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVILANTS
  3,225,237 
  472,546 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  1,504,016 
  354,572 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 $4,729,253 
 $827,118 
 
    
    
SUPPLEMENTAL DISCLOSURES
    
    
    Cash Paid for Interest
 $140,799 
 $27,401 
    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
 
 
DYNARESOURCE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 effective 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
 
 
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 10 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. The Company therefore accounts for this investment using the cost basis. The investment was $70,000 and $70,000 at March 31, 2021 and December 31, 2020, 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. As of March 31, 2021, the Company had $4,153,181 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 March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020 are $2,552,318 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 $1,259,844 and $603,967 as of March 31, 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 of March 31, 2021, 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 Gracía Property, as exploration stage projects since no proven or probable reserves have been established under Industry Guide 7.
 
 
8
 
 
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 March 31, 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
 
 
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 March 31, 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 March 31, 2021 and December 31, 2020 (Mexican Pesos per one U.S. dollar):
 
 

 
Mar 31, 2021
 
 
Dec 31, 2020
 
Exchange Rate at Period End
Pesos
  20.45 
  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 March 31, 2021 and March 31, 2020 (Mexican Pesos per one U.S. dollar):
 
 

 
Mar 31, 2021
 
 
Mar 31, 2020
 
Weighted Average Exchange Rate for the Three Months Ended
Pesos
  20.36 
  20.28 
  
 
 
10
 
 
The Company recorded currency transaction gains (losses) of $(333,735) and $(109,375) for the three months ended March 31, 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 March 31, 2021 there are $6,250,000 in customer deposit liabilities for payments received in advance expected to be settled in 2021.
 
During the periods ended March 31, 2021 and 2020 there was $0 and $0 of 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 March 31, 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
 
 
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 3,391,835 warrants outstanding at March 31, 2021 which upon exercise, would result in the issuance of 3,391,835 shares of common stock. Of these warrants 2,166,527 were exercisable at $2.05 per share and 1,225,308 were exercisable at $.01 per share. The Company also had convertible debt instruments as of March 31, 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 3,391,835 warrants outstanding at December 31, 2020 which upon exercise, would result in the issuance of 3,391,835 shares of common stock. Of these warrants 2,166,527 were exercisable at $2.05 per share and 1,225,308 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 months ended March 31
 
 
 
2021
 
 
2020 
 
Net Income (loss) attributable to common shareholders
 $246,334 
 $(1,788,352)
Shares:
    
    
Weighted average number of common shares outstanding, Basic
  17,722,825 
  17,722,825 
 
    
    
Weighted average number of common shares outstanding, Diluted
  18,948,133 
  17,722,825 
 
    
    
Basic loss per share
 $0.01 
 $(0.10)
 
    
    
Diluted loss per share
 $0.01 
 $(0.10)
 
At March 31, 2021 2,166,527 shares of potentially dilutive common stock related to outstanding stock warrants and 2,227,312 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.
 
At March 31, 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
 
 
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 March 31, 2021 and December 31, 2020, respectively, were as follows: 
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
Mined Tonnage
 $1,103,731 
 $555,608 
Gold-Silver Concentrates
  156,113 
  48,359 
 Total Inventories
 $1,259,844 
 $603,967 
 
NOTE 3 – PROPERTY
 
Property consists of the following at March 31, 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
  (113,988)
  (113,176)
    Total Property
 $5,166 
 $5,978 
 
Depreciation has been provided over each asset’s estimated useful life.  Depreciation expense was $812 and $813 for the periods ended March 31, 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 March 31, 2021 and December 31, 2020, respectively. 
 
Depletion expense was $0 and $0 for the periods ended March 31, 2021 and 2020, respectively.
 
NOTE 5 – INVESTMENT IN AFFILIATE/RECEIVABLES FROM AFFILIATE/OTHER ASSETS
 
The Company owns 19.95% 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”). 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”).
 
 
13
 
 
On December 31, 2010, 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 of cash and the remainder being unproven mining properties. Subsequent to the exchange management determined the investment to be impaired due to a lack of development of the properties and incurred a charge to the income statement. Management estimated the value of the Company’s DynaNevada shares as of March 31, 2021 and December 31, 2020 to be $70,000 and $70,000, respectively.
 
At March 31, 2021 and December 31, 2020, the Company had a receivable from DynaNevada de México of $70,294 and $71,465, respectively for working capital advances. These amounts are included in Other Assets in the accompanying consolidated balance sheets.
 
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 Gracía. 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. 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 March 31, 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 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 Gracía. 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. 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.
 
 
14
 
 
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.
 
At March 31, 2021, two Series II notes remained outstanding for $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 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 statutory tax rate of 21% of significant items comprising the Company’s net deferred tax amounts as of March 31, 2021 and December 31, 2020 are as follows: 
 
Deferred Tax Asset Related to:
 
 
 
2021
 
 
2020
 
Prior Year
 $13,473,000 
 $13,780,490 
Tax (Expense) Benefit for Current Year
  50,970 
  953,120 
Expiration of NOL Carryforward Period
  - 
  (1,260,610)
Total Deferred Tax Asset
  13,523,970 
  13,473,000 
Less Valuation Allowance
  (13,523,970)
  (13,473,000)
Net Deferred Tax Asset
 $- 
 $- 
 
For Financial Reporting Purposes Income (Loss) Before Taxes for the Periods ended March 31, 2021 and 2020 includes the Following Components:
 
 
 
2021
 
 
2020
 
United States
 $(1,114,646)
 $(297,172)
Foreign
  1,404,354 
  (1,509,439)
 
 $289,708 
 $(1,806,611)
 
The Expense (Benefit) for Taxes for the Periods Ended March 31, 2021 and 2020 Consist of the Following:
 
Current
 
 
 
 
 
 
Federal
 $- 
 $- 
State
  - 
  - 
Foreign
  - 
  - 
 
 $- 
 $- 
Deferred and Other
    
    
Federal
 $(123,944)
 $(89,605)
State
  - 
  - 
Foreign
  72,974 
  (377,360)
 
  (50,970)
  (466,965)
 
    
    
Total Tax Expense (Benefit)
  (50,970)
  (466,965)
Change in Valuation Allowance
  50,970 
  466,965 
Net Tax Expense (Benefit)
 $- 
 $- 
 
 
15
 
 
The Company's Income Tax Expense (Benefit)for the periods ending March 31, 2021 and 2020 differs from the Statutory Rate of 21% due to the following:
 
 
 
2021
 
 
2020
 
Tax (Expense) Benefit at Statutory Rate
 $60,839 
 $(379,388)
Foreign Tax Rate Differential
  126,392 
  (72,264)
Permanent Differences
    
    
Stock Issued for Services
  - 
    
Change in Derivative Liability
  83,006 
  (15,312)
Amortization of Loan Discount
  28,836 
    
Timing Differences
    
    
Depreciation & Capitalized Assets
  (8,163)
    
Sales & Accounts Receivable
  (137,265)
    
Inventory and COGS
  (202,905)
    
Other
  (1,710)
    
Change in Valuation Allowance
  50,970 
  466,965 
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 $53,590,000 at March 31, 2021 and will expire as follows:
 
United States Expiring 2029 through
 $18,500,000 
 
United States indefinite limited to 80% of NOL
  8,390,000 
 
Foreign expiring from 2020 to 2021
  26,700,000 
 
Total
 $53,590,000 
 
 
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 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 one thousand (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 March 31, 2021, 15,265,008 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 March 31, 2021 and December 31, 2020, there were 1,000 shares of Series A Preferred Stock outstanding.
 
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 were convertible to common shares at $2.50 per share, through June 30, 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 $4,337,480 payable annually on June 30. At March 31, 2021 dividends for the years 2017 to 2020 totaling $693,459 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.
 
 
16
 
 
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. The expiration of the Golden Post Warrant was extended on May 14, 2020, pursuant to an additional financing agreement with Golden Post.
 
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.
 
Additional 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.
 
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.
 
 
17
 
 
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 March 31, 2021 the total derivative liability was $2,766,827 which included $712,532 for the Series C Preferred Shares, and $953,997 in connection with the Golden Post Warrants and $1,100,298 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 March 31, 2021 and March 31, 2020 were $43,375 and $43,330. 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 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 
 
    
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, March 31, 2021
 $4,337,480 
 
 
18
 
 
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 March 31, 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 March 31, 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 March 31, 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 March 31, 2021, $744,500 had been repaid, leaving a current balance of $40,000 and $40,000 as of March 31, 2021 and December 31, 2020, respectively 
 
Stock Issuances
 
There were no issuances of common stock during the periods ending March 31, 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.
 
No treasury stock was issued during the period ended March 31, 2021
 
Outstanding treasury shares total 516,980 at both March 31, 2021 and December 31, 2020.
 
Warrants
 
2021 activity
 
The Company had 3,391,835 warrants outstanding at March 31, 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 $.01per 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.
 
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 2020, the Company had a total of 3,391,835 warrants outstanding.
 
 
19
 
 
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
  3,391,815 
 $1.31 
  4.89 
 $ 
Exercised
   
 $ 
    
 $ 
Forfeited
  2,166,527 
 $ 
    
 $ 
Balance at December 31, 2020
  3,391,815 
 $1.31 
  4.34 
 $ 
Granted
   
 $ 
    
 $ 
Exercised
   
 $ 
    
 $ 
Forfeited
   
 $ 
    
 $ 
Balance at March 31, 2021
  3,391,815 
 $1.31 
  4.09 
 $ 
Exercisable at March 31, 2021
  3,391,815 
 $1.31 
  4.09 
 $ 
 
NOTE 9 – RELATED PARTY TRANSACTIONS
 
Dynacap Group Ltd.
 
The Company paid $33,750 and $15,000 to Dynacap Group, Ltd. (“Dynacap”, an entity controlled by the CEO of the Company) for consulting and other fees during the periods ended March 31, 2021 and 2020, respectively.
 
NOTE 10 – 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. 
 
 
20
 
 
The Company determines if a contract is or contains a lease at inception. As of March 31, 2021, the Company has two operating leases - a six and one-half year lease for office space with a remaining term of twenty-one 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
March 31, 2021
 
Operating Lease – Office Lease
 $21,371 
Operating Lease – Ground Lease
  22,169 
Short Term Lease Costs
  3,792 
Variable Lease Costs
   
TOTAL
 $47,332 
 
 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 March 31: 
 
 YEAR
 
 
 
2022
 $178,022 
2023
  167,719 
2024
  96,896 
2025
  99,803 
2026
  102,797 
Thereafter
  684,884 
Total
 $1,330,121 
Less Imputed Interest
  (590,482)
RIGHT OF USE LIABILITY
 $739,639 
 
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.
 
Arbitration filed by Goldgroup / DynaMéxico Complaint against Goldgroup
 
On March 14, 2014, Goldgroup filed for arbitration in the United States with the American Arbitration Association ("AAA"), citing the Earn In Agreement dated September 1, 2006 as the basis for the arbitration filing. The Company filed an answer on April 10, 2014, disputing that any issues exist which provide for arbitration.
 
On December 9, 2014, DynaMéxico filed an Ordinary commercial lawsuit (Civil Claims) against Goldgroup Mining Inc., its parent company Goldgroup Resources Inc., and the AAA, in the Thirty Sixth Civil Court in the Federal District of México, under file 1120 number / 2014 ("the DynaMéxico Trial"). The DynaMéxico Trial sought to terminate the U.S.-based arbitration proceedings, as DynaMéxico believes there is no legal basis for arbitration, and to nullify the arbitration proceedings since Goldgroup previously sought recourse in Mexican courts. In the DynaMéxico Trial, DynaMéxico also requests that substantial damages (in the amount of US $50 million) be awarded to DynaMéxico against Goldgroup for:
 
a) 
Wrongfully using and disseminating confidential information and data belonging to DynaMéxico;
b) 
Asserting that Goldgroup owns any interest in the San Jose de Gracía Project in northern Sinaloa, México, rather than accurately disclosing that Goldgroup owns a common shares equity interest (shareholder’s interest) in DynaMéxico;
c) 
Improperly disclosing the percentage of common shares equity interest (shareholder’s interest) owned by Goldgroup in DynaMéxico;
d) 
Improperly disclosing or implying that Goldgroup is the operator of the San Jose de Gracía Project;
e) 
Attempting to delay, stop, or otherwise impair the financing of, and further development of, the SJG Project;
f) 
Making numerous threats against DynaMéxico management and officers;
g) 
Failing to properly disclose that broad powers of attorney for acting on behalf of DynaMéxico are held by an individual not affiliated with Goldgroup.
 
 
21
 
 
On October 5, 2015, 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 declared, among other resolutions, that:
 
(a)
The AAA must “cease and desist” from the arbitration proceeding;
(b)
The AAA does not have jurisdiction to hear any conflict and/or interpretation arising from the Earn In/Option Agreement, dated September 1, 2006; and
(c)
The AAA does not have jurisdiction to hear disputes arising between shareholders of DynaMéxico, which disputes do not arise directly and immediately from the Earn In/Option Agreement, dated September 1, 2006.
 
$48M Damages Awarded to DynaMéxico
 
Also on October 5, 2015, DynaMéxico was awarded in excess of US $48 million in damages from Goldgroup Resources, Inc. 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 damages award and the additional Resolutions are referred to as, the “Oct. 5, 2015 Resolution”).
 
A concise translation to English of the Oct. 5, 2015 Resolution (the resolution portion of the Definitive Sentence) is set forth below:
 
FIRST: 
The action and litigation based on commercial law filed by DynaMéxico is valid and enforceable, and where Goldgroup and the American Arbitration Association were found to be in default, was proper.
SECOND
Goldgroup is declared in breach of its corporate duties, for failure to refrain from claiming direct ownership of 50% of the San José de Gracía Mining Project.
THIRD: 
Goldgroup is condemned and ordered to pay to DynaMéxico the amount of USD $20,000,000 (Twenty Million Dollars) in damages caused by Goldgroup to DynaMéxico, deriving from its breach of obligations in refraining from claiming direct ownership of 50% of the San Jose de Gracía Mining Project; which amount should be paid within five days upon execution of this order and resolution.
FOURTH: 
Goldgroup is condemned and ordered to pay to DynaMéxico the amount of USD $28,280,808.34 (Twenty Eight Million Two Hundred and Eighty Thousand Eight Hundred and Eight and 34/100 Dollars), for breach of its corporate duty and covenants with regards to the San Jose de Gracía mining project, as a result of depriving profits from DynaMéxico which DynaMéxico could have earned for the sale of gold produced and extracted during the years 2013 and 2014; amounts that should be paid within five days upon execution of this order and resolution.
FIFTH: 
Goldgroup is condemned and ordered to pay losses and damages to DynaMéxico, which Goldgroup continues to cause, until full payment of the above-mentioned amounts has been made, which damages, and losses shall be calculated by an expert opinion in a corresponding legal procedure related to this litigation.
SIXTH: 
Pursuant to Article 1424 of the Commercial Code of México, the arbitration provision established under clause 8.16 of the Earn In/Option Agreement, dated as of September 1, 2006, is ineffective and impossible to execute.
SEVENTH
This court declares that any controversy arising from the Ear In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction, in recognition of the waiver and exclusion of the arbitration clause (contained in the Earn In/Option Agreement) by both parties.
EIGHT: 
This Court declares that the American Arbitration Association must abstain from hearing arbitration procedure number 50 501 T 00226 14, or any other ongoing and/or future arbitration proceeding already filed or that may be filed by the co-defendant Goldgroup against DynaResource.
NINTH: 
This Court declares that the American Arbitration Association does not have jurisdiction to hear any conflict and/or interpretation arising from the Earn In/Option Agreement, dated September 1, 2006.
TENTH
This Court declares that the American Arbitration Association does not have jurisdiction to hear disputes arising between shareholders of DynaMéxico, which disputes do not arise directly and immediately from the Earn In/Option Agreement, dated September 1, 2006.
ELEVENTH
This Court declares that the American Arbitration Association does not have jurisdiction to hear any matters where Koy Wilber Diepholz, who is the President of the Board of Directors of DynaMéxico and has been personally sued in relation to the arbitration clause established under clause 8.16 of the Earn In/Option Agreement, dated September 1, 2006, since he signed the mentioned instrument in representation of the Company and not in his personal capacity.
TWELFTH:                                            
The expenses and costs associated with these proceedings are hereby waived.
THIRTEENTH: 
LET IT SO BE PUBLISHED. A Copy of this order and Sentence shall be found in the corresponding records.
 
ORDERED, adjudged and decreed by the Thirty Sixth Civil Judge of the Superior Court of the Federal District, Mr. JULIO GABRIEL IGLESIAS GOMEZ.
 
The October 5, 2015 Resolution constitutes a public record which may be viewed through the Courts in México City.
 
 
22
 
 
México City Court Approves Lien on Shares of DynaMéxico owned by Minority Interest Holder
 
On October 5, 2016, the Thirty-Sixth Civil Court of the Superior Court of Justice of the Federal District of México (Tribunal Superior de Justicia del Distrito Federal) approved a Lien (referred to by the court as an “Embargo”), in favor of DynaMéxico, upon Stock Certificates in the name of Goldgroup Resources Inc. (“Goldgroup”). The Stock Certificates subject to the Lien (“Embargo”) constitute Shares of DynaMéxico (“the Goldgroup DynaMéxico Shares”).
 
The Goldgroup DynaMéxico Shares were seized as a partial recovery of assets by DynaMéxico after DynaMéxico was awarded more than $48M USD (Forty-Eight Million Dollars) in damages against Goldgroup (the “Damages against Goldgroup”) on October 05, 2015, as described in a Sentencia Definitiva (the “Definitive Sentence”) issued by the same court, the Thirty Sixth Civil Court of the Superior Court of Justice of the Federal District of México, File number 1120/2014. Excerpts from the Definitive Sentence appear below. In addition to the Damages against Goldgroup, the Definitive Sentence also included additional Resolutions ordered in favor of DynaMéxico (the Damages against Goldgroup and the additional Resolutions are together referred to as the “Oct. 5, 2015 Resolution”).
 
Denial of Amparo Appeal
 
On August 24, 2017 a Federal Amparo Judge (“Juzgado de Distrito”) in the State of Vera Cruz, México, dismissed Goldgroup Resources Inc’s Amparo Trial Challenge to the $48 M USD damages award previously granted in favor of DynaMéxico. Pursuant to the dismissal ruling, the $48M USD damages award, previously granted to DynaMéxico by the Thirty-Sixth Civil Court of the Superior Court of Justice of the Federal District of México on October 5, 2015, was effectively confirmed.
 
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.
 
Final Legal Ruling in México (DynaMéxico Final Legal Ruling)
 
On December 6, 2019 the 11th Federal Circuit Collegiate Court in México issued its Final Ruling (“the DynaMéxico Final Legal Ruling”).
 
The DynaMéxico Final Legal Ruling is Favorable to DynaMéxico, and denies the Amparo challenge of Goldgroup Resources Inc., the subsidiary of Goldgroup Mining Inc. (“GGA.TO”). The DynaMéxico Final Legal Ruling constitutes the Final Appeal of Goldgroup Resources Inc.; and is Not subject to further appeal or protest.
 
The DynaMéxico Final Legal Ruling is the result and culmination of 7 years of legal action performed by DynaMéxico and is the Final Ruling of the 11th Federal Circuit Collegiate Court. With this DynaMéxico Final Legal Ruling issued, all matters before the Court in México with respect to DynaMéxico and Goldgroup Resources Inc. are fully resolved and are no longer subject to appeal or reconsideration.
 
Legal Summary - Consequence of the México Final Legal Ruling:
 
1. 
The $48,280,808.34 USD damages award (dated October 05, 2015) in favor of DynaMéxico and against Goldgroup Resources Inc. is now Final. Goldgroup Resources’ challenge(s) to that award have been fully denied and the damages award is Final.
2. 
The Lien against the Shares of DynaMéxico owned by Goldgroup Resources Inc. (established October 5, 2016, the “Lien against Goldgroup Shares”) is now fully confirmed, Final, and enforceable.
3. 
Ownership of the shares of DynaMéxico currently held by Goldgroup Resources (currently representing 20% of the outstanding shares of DynaMéxico) are subject to the Lien against Goldgroup Shares.
 
 
23
 
 
DynaMéxico Recovery of 100% of Goldgroup Shares
 
On February 20, 2020, a México City court issued its Final Judgment, effectively foreclosing on all shares of DynaMéxico formerly held by Goldgroup Resources Inc. and awarding those shares to DynaMéxico (the “DynaMéxico Foreclosure Judgment”).
 
The DynaMéxico Foreclosure Judgment awarded to DynaMéxico 100% of the Shares of DynaMéxico previously owned by Goldgroup Resources Inc. (a Subsidiary Company in México owned 100% by Goldgroup Mining Inc., Vancouver, BC., “GGA.TO”). Prior to the DynaMéxico Foreclosure Judgment, Goldgroup Resources Inc. owned shares of DynaMéxico constituting 20% of the total outstanding shares of DynaMéxico (the “Goldgroup Shares of DynaMéxico”). The Goldgroup Shares of DynaMéxico were held under Lien by DynaMéxico since October 2016. DynaUSA previously owned 80% of the outstanding shares of DynaMéxico.
 
Arbitration Ruling
 
In direct contradiction to the October 5, 2015 Definitive Sentence issued by court in México, on August 25, 2016 the American Arbitration Association - International Centre for Dispute Resolution, Denver office (the “AAA”) issued an Arbitration Ruling (the “Arbitration Ruling”) in favor of Goldgroup Resources Inc. against DynaMéxico and DynaResource, Inc. The Arbitration Ruling was the result of a proceeding in which neither DynaMéxico nor DynaResource participated, since the Definitive Sentence issued by the court in México effectively prohibited their participation in the Arbitration proceeding and should have prohibited Goldgroup Resources Inc. participation.
 
The Arbitration Ruling provides the following: (i) the Earn In/Option Agreement is still in force, and consequently Goldgroup may appoint two directors to the DynaMéxico board, and may participate in the appointment of a fifth director; (ii) the DynaMéxico Management Committee is reinstated, and must approve all budgets and expenditures; (iii) amounts expended by DynaMéxico that were not approved by the Management Committee are subject to repayment by DynaResource; (iv) the issuance of additional shares by DynaMéxico (and consequent dilution of Goldgroup’s equity interest) was in violation of the Earn In/Option Agreement; and (v) DynaResource and DynaMéxico are responsible for Goldgroup’s costs and professional fees associated with the Arbitration Ruling.
 
Unlike most arbitration proceedings in the U.S., the Arbitration Ruling is not final. Since the Arbitration Ruling is subject to international rules, the ruling may be vacated by U.S. courts, or simply not recognized by U.S. courts, on several grounds. Accordingly, both DynaMéxico and DynaResource have timely requested relief from the United States Federal District Court in Colorado, via the filing of a Petition for Nonrecognition of Foreign Arbitral Award and/or Motion to Vacate Arbitration Award (the “Petition for Nonrecognition”), and a supporting brief. The Petition for Nonrecognition relies heavily upon the Mexican court’s Definitive Sentence, key excerpts of which appear immediately below.
 
The Mexican court has already ruled that “any controversy arising from the Earn In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction.” Consequently, the monetary awards against DynaResource – which are based upon a finding that the Earn In/Option Agreement is still in force – will not be enforceable if the Mexican court rules that the Earn In/Option Agreement is terminated. The Company believes that the potential for the assessment of a material monetary judgment against DynaResource is remote.
 
SIXTH:
Pursuant to Article 1424 of the Commercial Code of México, the arbitration provision established under clause 8.16 of the Earn In/Option Agreement, dated as of September 1, 2006, is ineffective and impossible to execute.
SEVENTH:
This Court declares that any controversy arising from the Earn In/Option Agreement must be brought and resolved under Mexican Law and by competent Mexican Courts with proper jurisdiction, in recognition of the waiver and exclusion of the arbitration clause (contained in the Earn In/Option Agreement) by both parties.
EIGHT:
This Court declares that the American Arbitration Association must abstain from hearing arbitration procedure number 50 501 T 00226 14, or any other ongoing and/or future ongoing arbitration already filed or to be filed by the defendant Goldgroup, based on the Earn In/Option Agreement dated September 1, 2006.
NINTH:
This Court declares that the American Arbitration Association does not have jurisdiction to hear any conflict and/or interpretation arising from the Earn In/Option Agreement, dated September 1, 2006.
TENTH:
This Court declares that the American Arbitration Association does not have jurisdiction to hear disputes arising between shareholders of DynaMéxico, which disputes do not arise directly and immediately from the Earn In/Option Agreement, dated September 1, 2006.
ELEVENTH:
This Court declares that the American Arbitration Association does not have jurisdiction to hear any matters where Koy Wilber Diepholz, who is the President of the Board of Directors of DynaMéxico, and has been personally sued in relation to the arbitration clause established under clause 8.16 of the Earn In/Option Agreement, dated September 1, 2006, since he signed the mentioned instrument in representation of the Company and not in representation of the Company and not in his personal capacity.
 
(a)
The Arbitration Ruling contains an acknowledgement by the AAA that the AAA was named as a defendant in the legal demand filed by DynaMéxico in the Thirty Sixth Civil Court of the Superior Court of Justice of the Federal District of México (the “DynaMéxico Legal Demand”). The Arbitration Ruling also contains a statement that the AAA was not properly served notice of the DynaMéxico Legal Demand;
 
(b)
DynaMéxico obeyed the October 5, 2015 Court Order and did not attend the Arbitration hearing;
 
(c)
DynaMéxico will pursue all legal remedies in order to obtain a full dismissal of the Arbitration Ruling;
 
(d)
The October 5, 2015 Court Order and the $48 million USD award of damages against Goldgroup Resources Inc. remained in full force and effect as issued. DynaMéxico was currently pursuing all available remedies in order to collect $48 million USD in damages from Goldgroup Resources Inc. (See Court Approves Lien on Shares of DynaMéxico owned by Goldgroup Resources, above).
 
 
 
24
 
 
DynaUSA and DynaMéxico filed Motion to Vacate Arbitration Ruling
 
On November 17, 2016, DynaUSA and DynaMéxico filed a Motion to Vacate the Arbitration Ruling in United States District Court, District of Colorado.
 
Recommendation to Vacate Arbitration Ruling issued by United States Magistrate Judge
 
On February 13, 2018 a Recommendation to Vacate the Arbitration Ruling was issued by a United States Magistrate Judge of the United States District Court, District of Colorado.
 
Arbitration Award against DynaResource, Inc. and DynaResource de México, S.A. de C.V.
 
On May 9, 2019, the United States District Court for the District of Colorado confirmed the August 2016 Arbitration award against DynaResource, Inc. and DynaResource de México, 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 México, S.A. de C.V. intends to exercise all its rights, as appropriate, including an appeal.
 
DynaResource Entities Filings in US District Court in Response to Arbitration Ruling
 
DynaUSA and DynaMéxico filed Motion to Alter Judgment
 
On June 6, 2019 DynaUSA and DynaMéxico file a Motion to Alter Judgment.
 
DynaUSA and DynaMéxico filed Motion for Stay of Judgment Pending Appeal and to Waive Bond
 
On June 7, 2019 DynaUSA and DynaMéxico filed A Motion for Stay of Judgment Pending Appeal and to Waive Bond.
 
DynaUSA and DynaMéxico filed Motion for Leave to Supplement the Record
 
On July 13, 2019 DynaUSA and DynaMéxico filed A Motion for Leave to Supplement the Record with the following information:
 
“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.
 
DynaUSA and DynaMéxico filed Reply in Support of Motion to Alter Judgment.
 
On July 23, 2019 DynaUSA and DynaMéxico filed a Reply in Support of Motion to Alter Judgment. Goldgroup Resources was confirmed to be misleading the US District Court with inaccurate reports of the ruling of the México Supreme Court Rejection.
 
Final Legal Ruling in México (DynaMéxico Final México Legal Ruling)
 
On December 6, 2019 the 11th Federal Circuit Collegiate Court in México issued its Final Ruling (“the DynaMéxico Final México Legal Ruling”).
 
The DynaMéxico Final México Legal Ruling is Favorable to DynaMéxico, and denies the Amparo challenge of Goldgroup Resources Inc., the subsidiary of Goldgroup Mining Inc. (“GGA.TO”). The DynaMéxico Final México Legal Ruling constitutes the Final Appeal of Goldgroup Resources Inc.; and is Not subject to further appeal or protest.
 
The DynaMéxico Final Legal Ruling is the result and culmination of 7 years of legal action performed by DynaMéxico and is the Final Ruling of the 11th Federal Circuit Collegiate Court. With this DynaMéxico Final Legal Ruling issued, all matters before the Court in México with respect to DynaMéxico and Goldgroup Resources Inc. in México are fully resolved and are no longer subject to appeal or reconsideration.
 
Legal Summary - Consequence of the México Final Legal Ruling:
 
The $48,280,808.34 USD damages award (dated October 05, 2015) in favor of DynaMéxico and against Goldgroup Resources Inc. is now Final. Goldgroup Resources’ challenge(s) to that award have been fully denied and the damages award is Final.
 
The Lien against the Shares of DynaMéxico owned by Goldgroup Resources Inc. (established October 5, 2016, the “Lien against Goldgroup Shares”) is now fully confirmed, Final, and enforceable.
 
Ownership of the shares of DynaMéxico currently held by Goldgroup Resources (currently representing 20% of the outstanding shares of DynaMéxico) are subject to the Lien against Goldgroup Shares.”
 
DynaMéxico Recovery of 100% of Goldgroup Shares
 
On February 20, 2020, a México City court issued its Final Judgment, effectively foreclosing on all shares of DynaMéxico formerly held by Goldgroup Resources Inc. and awarding those shares to DynaMéxico (the “DynaMéxico Foreclosure Judgment”).
 
The DynaMéxico Foreclosure Judgment awarded to DynaMéxico 100% of the Shares of DynaMéxico previously owned by Goldgroup Resources Inc. (a Subsidiary Company in México owned 100% by Goldgroup Mining Inc., Vancouver, BC., “GGA.TO”). Prior to the DynaMéxico Foreclosure Judgment, Goldgroup Resources Inc. owned shares of DynaMéxico constituting 20% of the total outstanding shares of DynaMéxico (the “Goldgroup Shares of DynaMéxico”). The Goldgroup Shares of DynaMéxico were held under Lien by DynaMéxico since October 2016. DynaUSA previously owned 80% of the outstanding shares of DynaMéxico.
 
 
25
 
 
Confirmation of Arbitration Award in U.S. District Court – District of Colorado
 
On March 25, 2020 The U.S. District Court, District of Colorado affirmed the August 24, 2016 Arbitration Award in favor of Goldgroup Resources Inc.
 
DynaUSA and DynaMéxico filed Appeal of Arbitration Affirmation to U.S. District Court - 10th Circuit Court of Appeals
 
On July 17, 2020, DynaUSA and DynaMéxico filed an Appeal of the Affirmation of the Arbitration Award to the U.S. District Court – 10th Circuit Court of Appeals.
 
On July 17, 2020, DynaUSA and DynaMéxico posted supersedeas bond with the U.S. District Court, District of Colorado, in the amount of $1.111M USD.; and DynaUSA and DynaMéxico filed a motion for Stay of Judgment pending Appeal.
 
U.S. Court of Appeals - 10th Circuit Court of Appeals Denial of DynaUSA and DynaMéxico Appeal
 
On April 16, 2021, the U.S. Court of Appeals for the 10th Circuit Court issued a Ruling which denied the DynaUSA and DynaMéxico Appeal of the August 24, 2016 Arbitration Award in favor of Goldgroup Resources, Inc. In denying the Appeal of DynaUSA and DynaMéxico, the Arbitration Award in favor of Goldgroup was affirmed.
 
● 
On July 17, 2020, DynaUSA and DynaMéxico posted supersedeas bond with the U.S. District Court, District of Colorado, in the Amount of $1.111M USD, in order to fully bond the Monetary portion of the Arbitration Award.
● 
On August 24, 2020, DynaMéxico conducted an Extraordinary Shareholder’s Meeting of DynaMéxico, wherein all Non-Monetary portions of the Arbitration Award were fully performed and executed.
● 
In addition to fully performing the Monetary and Non-Monetary Portions of the Arbitration Award; DynaUSA and DynaMéxico are analyzing the options in response to the Ruling of the U.S. Court of Appeals, including an Appeal.
 
Complaint filed by Goldgroup against the May 17, 2013 Shareholders’ Meeting of DynaMéxico
 
On February 2nd, 2014, Goldgroup Resources Inc. filed a petition with the Judge of the Tenth District Mazatlán, according to record 08/2014, in the ordinary commercial action, against DynaResource Inc., and DynaResource de México, S.A. de CV. (“DynaMéxico”). In the Petition, Goldgroup complains against the results of the shareholders meeting of DynaMéxico of May 17, 2013, and petitions for the nullification of the meeting itself and for the nullification of the additional shares of the outstanding capital of DynaMéxico issued to DynaResource, Inc. in satisfaction of debts owed to DynaResource.
 
DynaResource and DynaMéxico filed a response on January 9, 2016. DynaMéxico will vigorously defend against all such complaints by Goldgroup, as there exists no legal basis for the complaint by Goldgroup against the May 17, 2013 shareholders meeting of DynaMéxico.
 
On October 31, 2018, the Judge of the Tenth District declared the Expiration of the Trial, due to inactivity of Goldgroup in the process, and the Judge decreed the Trial as a concluded and filed trial. As a result, the shareholders' meeting of May 17, 2013 remains valid.
 
On November 16, 2018, Goldgroup appealed the declaration of Expiration of the Trial.
 
On February 12, 2019, the Court of Appeals (Segundo Tribunal Unitario de Circuito in Mazatlán) confirmed the resolution issued October 31, 2018 by the Judge of Tenth District and declared and confirmed the Expiration of the Trial, due to the inactivity of Goldgroup to the process, and therefore the Court of Appeals decreed the matter as a concluded and filed trial. As a result, the shareholders' meeting of May 17, 2013 remains valid.
 
Goldgroup has filed a writ of amparo against the resolution of the Court of Appeals that confirmed the declaration of expiration of the trial. This Amparo Trial is pending resolution.
 
Litigation(s) in México – Company as Plaintiff
 
The Company, and DynaMéxico have filed several legal actions in México against Goldgroup Mining Inc. and Goldgroup Resources Inc., and certain individuals retained as agents of Goldgroup Mining Inc., or Goldgroup Resources. The Company and DynaMéxico are plaintiffs in the actions filed in México and the outcomes are pending.
 
The Company believes that no material adverse change will occur as a result of the 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. For purposes of confidentiality, the Company does not provide more specific disclosure in this Form 10-Q.
 
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 an adverse 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.
 
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.
 
 
26
 
 
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: 
 
 
 
2021 
 
 
2020
 
Annual volatility rate
  165%
  156%
Risk free rate
  0.16%
  0.13%
Remaining Term
  1.25 years 
  1.50 years 
Fair Value of common stock
 $0.90 
 $0.78 
 
For the periods ended March 31, 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 March 31, 2021 and December 31, 2020. 
 
Year Ended
 
2021
 
 
2020
 
Fair value of derivative (stock), beginning of year
 $601,313 
 $37,038 
Change in fair value of derivative
  111,219 
  276,547 
Fair value of derivative on the date of issuance
  - 
  287,728 
Fair value of derivative (stock), end of year
 $712,532 
 $601,313 
 
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: 
 
 
27
 
 
 
 
2021
 
 
2020
 
Annual volatility rate
  165%
  156%
Risk free rate
  0.16%
  0.13%
Remaining Term
  1.25 years 
  1.5 years 
Fair Value of common stock
 $0.90 
 $0.78 
 
For the periods ended March 31, 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 March 31, 2021 and December 31, 2020. 
 
Year Ended
 
2021
 
 
2020
 
Fair value of derivative (warrants), beginning of year
 $817,613 
 $49,066 
Change in fair value of derivative
  136,384 
  367,781 
Fair value of derivative on the date of issuance
   
  400,766 
Fair value of derivative(warrants), end of year
 $953,997 
 $817,613 
 
Series D Notes Kicker Warrants
 
As discussed in Note 8, 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
  165%
  156%
Risk free rate
  0.16%
  0.13%
Remaining Term
  9.13 years 
  10 years 
Fair Value of common stock
 $0.90 
 $0.78 
 
For the periods ended March 31, 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 March 31, 2021 and December 31, 2020. 
 
Year Ended
 
2021
 
 
2020
 
Fair value of derivative (warrants), beginning of year
 $952,634 
 $ 
Fair value of derivative on the date of issuance
   
  409,998 
Change in fair value of derivative
  147,664 
  542,636 
Fair value of derivative(warrants), end of year
 $1,100,298 
 $952,634 
 
 
28
 
 
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% until February 24, 2020 when the minority interest was eliminated. Changes in Non-Controlling Interest for the year ended December 31, 2020 was as follows:
 
 
 
2020
 
Beginning balance
 $(5,723,663)
        Operating income (loss)
  (61,589)
        Share of Other Comprehensive Income (loss)
  (11,669)
        Elimination of Non-Controlling Interest
  5,796,921 
Ending balance
 $ 
 
    
 
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 March 31, 2021, and December 31, 2020, 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 March 31, 2021 Using:
 
 
Quoted Prices in
Active Markets For
Identical Assets
(Level 1)
 
 
Significant Other
Observable Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
   Derivative Liabilities
 $2,766,827 
   
   
  2,766,827 
      Totals
 $2,766,827 
 $ 
 $ 
 $2,766,827 
  Fair Value Measurement at December 31, 2020
    
    
    
    
Liabilities:
    
    
    
    
   Derivative Liabilities
 $2,371,560 
   
   
  2,371,560 
      Totals
 $2,371,560 
 $ 
 $ 
 $2,371,560 
 
 29
 
 
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 three months ended March 31, 2021 and 2020, three and two customers accounted for 100% of revenue, respectively.
 
At March 31, 2021 and December 31, 2020, three and four customer accounted for 100% of accounts receivable, respectively.
 
NOTE 15 – NOTES PAYABLE
 
In June 2017, the Company entered into financing agreements for unpaid mining concession taxes on the Francisco Arturo mining concession 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 on the Francisco Arturo mining concession 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 on the Francisco Arturo mining concession 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% 
 
In February 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the Francisco Arturo mining concession for the year ended December 31, 2018 in the amount of $335,350. The Company paid an initial 20% payment of $67,070 and financed the balance over 36 months at an interest rate of 21%.
 
In June 2018, the Company applied for a reduction of the Francisco Arturo mining concession, from 69,121 hectares to 3,280 hectares. On July 31, 2018, the application for reduction was approved and the Company paid an initial amount of 985,116 MNP (Pesos), for the second semester 2018 mining concessions taxes on the reduced Francisco Arturo mining concession. The Company continues to accrue an amount of $22,500 (USD) per semester on the reduced Francisco Arturo mining concession.
 
As of June 2019, the Company ceased making monthly payments on the above noted Francisco Arturo concession notes and has petitioned the Hacienda for a reduction in the liability equal to the reduction in the Francisco Arturo concession above. For financial reporting purposes the Company continues to carry all notes at unpaid principal amount and accrues interest on a monthly basis. At March 31, 2021 $757,321 of accrued interest on the notes was included in accrued liabilities on the consolidated balance sheet.
 
In October 2019, the Company entered into a financing agreement for unpaid mining concession taxes on the core mining concessions in the amount of $299,474. The Company paid an initial 20% payment of $59,895 and financed the balance over 36 months at an interest rate of 22%.
 
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The following is a summary of the transaction during the periods ended March 31, 2021 and December 31, 2020:
 
 
 
 
 
 
 
Balance December 31, 2019
  2,272,431 
    Exchange Rate Adjustment
  (124,352)
    2020 Principal Payments
  (66,644)
Balance December 31, 2020
  2,081,435 
Exchange Rate Adjustment
  (54,168)
2021 Principal Payments
  (17,291)
Balance March 31, 2021
 $2,009,976