| NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES | Nature of Activities, History and Organization DynaResource, Inc. (The “Company”,
“DynaResource”, or “DynaUSA”) was organized September 28, 1937, as a California corporation under the name
of West Coast Mines, Inc. In 1998, the Company re-domiciled to Delaware and changed its name to DynaResource, Inc. The
Company is in the business of acquiring, investing in, and developing precious metal properties, and the production of precious
metals. In 2000, the Company formed a wholly owned
subsidiary, DynaResource de México S.A. de C.V., chartered in México (“DynaMéxico”). This
Company was formed to acquire, invest in and develop resource properties in México. DynaMéxico owns a portfolio
of mining concessions that currently includes its interests in the San José de Gracia Project (“SJG”) in northern
Sinaloa State, México. The SJG District covers 69,121 hectares (170,802 acres) on the west side of the Sierra Madre mountain
range. The Company currently owns 80% of the outstanding capital of DynaMéxico. In 2005, the Company formed DynaResource
Operaciones de San Jose De Gracia S.A. de C.V. (“DynaOperaciones”), and acquired effective control of Mineras de DynaResource,
S.A. de C.V. (formerly Minera Finesterre S.A. de C.V., “DynaMineras”). The Company owned 25% of DynaMineras and acquired
effective control of DynaMineras by acquiring the option to purchase the remaining 75% of the Shares of DynaMineras. The Company
finalized the option and acquisition of DynaMineras in January 2010, and now owns 100% of DynaMineras. The results of
these subsidiaries are consolidated with those of the Company. From January 2008 through March 2011,
DynaMéxico issued 100 Variable Capital Series “B” shares to Goldgroup Resources, Inc., a wholly owned subsidiary
of Goldgroup Mining Inc. Vancouver BC (“Goldgroup”), in exchange for Goldgroup’s contribution of $18,000,000
to DynaMéxico. At March 14, 2011, Goldgroup owned 50% of the outstanding capital shares of DynaMéxico. On June 21, 2013, DynaResource acquired
a Certificate for 300 Series “B” Variable Capital Shares of DynaMéxico, in exchange for the settlement of accounts
receivable from DynaMéxico in the amount of $31,090,710 Mexican Pesos (approximately $2.4 million USD). After the issuance
and receipt of the 300 Series B Shares, DynaUSA holds 80% of the total outstanding Capital of DynaMéxico. The Company elected to become a voluntary
reporting issuer in Canada in order to avail itself of Canadian regulations regarding reporting for mining properties and, more
specifically, National Instrument 43-101 (“NI 43-101”). This regulation sets forth standards for reporting resources
in a mineral property and is a standard recognized in the mining industry. Reclassifications 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 operations or consolidated statements of cash flows and had no material
impact on the Company’s consolidated balance sheets. Significant Accounting Policies The Company’s management selects
accounting principles generally accepted in the United States of America and adopts methods for their application. The
application of accounting principles requires the estimating, matching and timing of revenue and expense. The accounting policies
used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial
statements. The financial statements and notes are
representations of the Company’s management which is responsible for their integrity and objectivity. Management further
acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed
to assure, among other items that: 1) recorded transactions are valid; 2) valid transactions are
recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements
which present fairly the financial condition, results of operations and cash flows of the Company for
the respective periods presented. Basis of Presentation The Company prepares its financial statements
on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States. Principles of Consolidation The financial statements include the accounts
of DynaResource, Inc., as well as DynaResource de México, S.A. de C.V. (80% ownership), DynaResource Operaciones S.A. de C.V.
(100% ownership) and Mineras de DynaResource S.A. de C.V. (100% ownership). All significant inter-company transactions
have been eliminated. All amounts are presented in U.S. Dollars unless otherwise stated. Non-Controlling Interest The Company’s subsidiary, DynaResource
de México S.A. de C.V, is 20% owned by Goldgroup Mining, Inc. On May 17, 2013, the ownership changed from 50% to 20%. The
Company accounts for this outside interest as “non-controlling interest”. Investments in Affiliates The Company owns a 20% 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 method. Cash and Cash Equivalents The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash equivalents. At times, cash balances may be
in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accounts Receivable and Allowances
for Doubtful Accounts The allowance for accounts receivable
is recorded when receivables are considered to be doubtful of collection. As of March 31, 2019, and December 31, 2018, 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, 2019 and December
31, 2018 are $1,171,879 and $845,564 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 $1,787,121 and $1,588,778 as of March 31, 2019 and December 31, 2018, 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 (b) 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, 2019, none of the Company's
properties contain resources that satisfy the definition of proven and probable reserves. The Company classifies the development
of its properties, including the San Jose de Gracia Property, as exploration stage projects since no proven or probable reserves
have been established under Industry Guide 7. Property Substantially all costs, including design,
engineering, 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 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 with the exception
of mining equipment. Mining equipment is depreciated using the units-of-production method based on tonnes processed over the estimated
total mine life. Office furniture, equipment and light vehicles are being depreciated on a straight-line method over estimated
economic lives ranging from 3 to 5 years. Leasehold improvements, which relate to the Company's corporate office, are being
amortized over the term of the lease of 10 years. Trailers, heavy vehicles and other site equipment are being depreciated
on a straight-line method over estimated economic lives from 5 to 15 years. Buildings are being depreciated on straight line
method over an estimated economic life of 20 years. Design, Construction, and Development
Costs: 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. Mining Properties Interests Mineral property interests include acquired
interests in development and exploration stage properties, which are considered tangible assets. The amount capitalized relating
to a mineral property interest represents its fair value at the time of acquisition. When a property does not contain mineralized
material that satisfies the definition of proven and probable reserves, such as with the San Jose de Gracia Property, capitalized
costs and mineral property interests are amortized using the straight-line method once production begins. As of March 31, 2019,
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 Gracia property (“SJG”),
the basis of which are amortized on the unit of production method based on estimated recoverable resources. If it is determined
that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to
fair value as a charge to operations in the period in which the determination is made. The amounts at which mineral
properties and the related costs are recorded do not necessarily reflect present or future values. Impairment of Assets: For operating mines, recoverability is
measured by comparing the undiscounted future net cash flows to the net book value. When the net book value exceeds future net
undiscounted cash flows, an impairment loss is measured and recorded based on the excess of the net book value over fair value.
Fair value for operating mines is determined using a combined approach, which uses a discounted cash flow model for the existing
operations and a market approach for the fair value assessment of exploration land claims. Future cash flows are estimated based
on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices,
trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine
plans. The term "recoverable mineralized material" refers to the estimated amount of gold or other commodities that will
be obtained after taking into account losses during processing and treatment of mineralized material. In estimating future cash
flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future
cash flows from other asset groups. The Company's estimates of future cash flows are based on numerous assumptions and it is possible
that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals,
gold, silver and other commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties. The recoverability of the book value of
each property will be assessed annually for indicators of impairment such as adverse changes to any of the following:
● estimated recoverable ounces of gold, silver or other precious minerals;
● estimated future commodity prices;
● estimated expected future operating costs, capital expenditures and reclamation expenditures. A write-down to fair value will be recorded
when the expected future cash flow is less than the net book value of the property or when events or changes in the property indicate
that carrying amounts are not recoverable. This analysis will be completed as needed, and at least annually. As of the date
of this filing, no events have occurred that would require write-down of any assets. As of March 31, 2019 and December
31, 2018, no indications of impairment existed. Asset Retirement Obligation: Pre-Pilot Production Costs During 2016, the Company has conducted rehabilitation
activity at the San Pablo mine and has refurbished the Pilot Mill Facility at San Jose de Gracia and, in general prepared for test
mining and pilot milling (“Pilot Production”) Operations. The costs associated with the rehabilitation, preparation,
clean up and facilitation of this process are expensed as pre-pilot production costs. Property Holding Costs Holding costs to maintain a property on
a care and maintenance basis are expensed in the period they are incurred. These costs include security and maintenance expenses,
lease and claim fees and payments, and environmental monitoring and reporting costs. Exploration Costs Exploration costs are charged to operations
and expenses as incurred. Exploration, development, direct field costs and administrative costs are expensed in the period incurred. Foreign Currency Translation The functional currency for the subsidiaries
of the Company is the Mexican Peso. As a result, the financial statements of the subsidiaries have been re-measured
from Mexican Pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical
exchange rates for nonmonetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated
with nonmonetary assets and liabilities and (iv) the weighted average exchange rate of the reporting period for all other revenues
and expenses. In addition, foreign currency translation gains and losses are reported as a separate component of stockholders’
equity (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, 2019 and December 31, 2018 (Mexican
Pesos per one U.S. dollar):
Mar 31, 2019 Dec 31, 2018
Exchange Rate at Period End Pesos 19.43 19.63 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, 2019
and March 31, 2018 (Mexican Pesos per one U.S. dollar):
Mar 31, 2019 Mar 31, 2018
Weighted Average Exchange Rate for the Three Months Ended Pesos 19.21 18.74 The Company recorded currency transaction
gains (losses) of $139,352 and $806,514 for the three months ended March 31, 2019 and 2018, respectively. Income Taxes The Company accounts for income taxes
under ASC 740 “Income Taxes” Income from the Company’s subsidiaries
in México are taxed at applicable Mexican tax law. On December 22, 2017, the 2017 Tax Cuts and
Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduced the highest corporate tax rate from
35% to 21%. With the passage of the Act, the Company‘s deferred tax assets and liabilities were restated as of the effective
date of the law to reflect the new applicable rate. The reduction to the net deferred tax asset was charged to tax expense in the
period of the change and offset by a valuation allowance stemming from historical net operating loss carryforwards. Use of Estimates In order to prepare financial statement
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” Revenue Recognition The Company adopted ASC 606 “ Revenue
from contracts with customers 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. Prior to the adoption of this standard
the Company recognized revenue in accordance with ASC 605-10, " Revenue Recognition in Financial Statements The change in accounting principle from
ASC 605 to ASC 606 did not impact the amount of revenue recognized in the Company’s financial statements. Stock-Based Compensation The Company accounts for stock options
at fair value as prescribed in ASC 718. The Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option. The Company accounts for stock options
issued and vesting to non-employees in accordance with ASC Topic 505-50 “ Equity -Based Payment to Non-Employees” 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 Company had 2,523,689 warrants outstanding
at March 31, 2019, of which 357,162 are exercisable at $2.50 and 2,166,527 are exercisable at $2.41, which upon exercise, would
result in the issuance of 2,523,689 shares of common stock. The Company also had convertible debt instruments as of March 31, 2019
which, upon conversion at a valuation of $2.50 per share, would result in the issuance of 335,250 shares of stock.
Three Months Three Months
Ended March 31, 2019
Ended March 31, 2018
Net income (loss) attributable to common shareholders $ (1,171,013 ) $ 1,929,450
Shares:
Weighted average number of common shares outstanding, Basic 17,722,825 17,722,825
Diluted weighted average number of common shares outstanding, Diluted 17,722,825 19,473,378
Basic earnings (loss) per share $ (0.07 ) $ 0.11
Diluted earnings (loss) per share $ (0.07 ) $ 0.10 Related Party Transactions FASB ASC 850, "Related Party Disclosures"
requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses
all material related party transactions. A party is considered to be related to the Company if the party directly or indirectly
or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties
also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company
and its management and other parties with which the Company may deal if one party controls or can significantly influence the management
or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its
own separate interests. A party which can significantly influence the management or operating policies of the transacting parties
or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.” Recently Issued Accounting Pronouncements Leases In February 2016, FASB issued ASU 2016-02—
Leases (Topic 842). The update is intended to increase transparency and comparability among organizations by recognizing lease
assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. As such, The Company
is required to adopt these provisions as of the fiscal year beginning on January 1, 2019. The Company elected the available practical
expedients and adopted ASC 842 effective January 1, 2019, prospectively. The adoption of this standard resulted in the recognition
of right-to-use assets and lease liabilities of $861,668 and $873,188 with no material impact on the results of operations and
cash flows. See Note 10 for additional information regarding our leases. |
