The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
Years Ended October 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
4,599
|
|
|
$
|
9,611
|
|
Interest paid
|
|
$
|
2,329
|
|
|
$
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for financing fees (Note 8)
|
|
$
|
26,165
|
|
|
$
|
12,967
|
|
Offering costs included in accounts payable and accrued liabilities
|
|
$
|
50,653
|
|
|
$
|
51,788
|
|
The accompanying notes are an integral part of these consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Other Comprehensive
|
|
|
|
|
|
|
Number of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
Balance, November 1, 2016
|
|
|
177,894,967
|
|
|
$
|
1,778,949
|
|
|
$
|
126,820,897
|
|
|
$
|
(120,281,820
|
)
|
|
$
|
219,308
|
|
|
$
|
8,537,334
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- for cash at a price of Canadian dollar ("$CDN") $0.08 per share with attached warrants, less offering costs of $165,227 (Note 8)
|
|
|
21,365,000
|
|
|
|
213,650
|
|
|
|
812,676
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,026,326
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
152,349
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152,349
|
|
Reclassification of warrants to derivative liability (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
(94,143
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(94,143
|
)
|
Reclassification of consultant stock options to liability (Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,115
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,115
|
)
|
Other comprehensive loss – Realized foreign currency translation gain on liquidation of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(129,427
|
)
|
|
|
(129,427
|
)
|
Other comprehensive gain – Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,367
|
|
|
|
2,367
|
|
Net loss for the year ended October 31, 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,053,544
|
)
|
|
|
—
|
|
|
|
(2,053,544
|
)
|
Balance, October 31, 2017
|
|
|
199,259,967
|
|
|
$
|
1,992,599
|
|
|
$
|
127,679,664
|
|
|
$
|
(122,335,364
|
)
|
|
$
|
92,248
|
|
|
$
|
7,429,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- for cash at a price of $0.13 per share with attached warrants, less offering costs of $343,816 (Note 8)
|
|
|
29,141,872
|
|
|
|
291,419
|
|
|
|
3,153,208
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,444,627
|
|
- exercise of warrants at a price of $CDN 0.13 per share, less costs of $795 (Note 8)
|
|
|
5,565,000
|
|
|
|
55,650
|
|
|
|
508,689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
564,339
|
|
- exercise of agent warrants at a price of $CDN 0.10 per share, less costs of $333 (Note 8)
|
|
|
901,375
|
|
|
|
9,014
|
|
|
|
60,556
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69,570
|
|
Earn-In Option Agreement (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
922,783
|
|
|
|
—
|
|
|
|
—
|
|
|
|
922,783
|
|
Stock-based compensation for options issued to directors, officers, employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
245,629
|
|
|
|
—
|
|
|
|
—
|
|
|
|
245,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued to agents in connection with the $0.13 per share private placement (Notes 8 and 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
26,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,165
|
|
Reclassification of consultants' stock options to liability (Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,111
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,111
|
)
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13 (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
385,738
|
|
|
|
—
|
|
|
|
—
|
|
|
|
385,738
|
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.10 (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
61,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended October 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,519,666
|
)
|
|
|
—
|
|
|
|
(3,519,666
|
)
|
Balance, October 31, 2018
|
|
|
234,868,214
|
|
|
$
|
2,348,682
|
|
|
$
|
133,015,768
|
|
|
$
|
(125,855,030
|
)
|
|
$
|
92,248
|
|
|
$
|
9,601,668
|
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Silver Bull Resources, Inc. (the "Company") was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company's name was changed to Metalline Mining Company. On April 21, 2011, the Company's name was changed to Silver Bull Resources, Inc. The Company's fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects and may never enter into the development stage with respect to any of its projects.
The Company engages in the business of mineral exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the "Sierra Mojada Property"). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V. ("Minera Metalin") and Contratistas de Sierra Mojada S.A. de C.V. ("Contratistas") and through Minera Metalin's wholly-owned subsidiary Minas de Coahuila SBR S.A. de C.V. ("Minas").
On April 16, 2010, Metalline Mining Delaware, Inc., a wholly-owned subsidiary of the Company, was merged with and into Dome Ventures Corporation ("Dome"). As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned subsidiary Dome Asia Inc. ("Dome Asia"), which is incorporated in the British Virgin Islands. Dome Asia has a wholly-owned subsidiary, Dome Minerals Nigeria Limited, incorporated in Nigeria. On May 15, 2017, the Company liquidated the Company's Gabonese subsidiary, African Resources SARL Gabon ("African Resources"). As a result of this liquidation, the Company recognized a gain on liquidation of subsidiary of $129,781 in the consolidated statements of operations and comprehensive loss for the year ended October 31, 2017.
The Company's efforts and expenditures have been concentrated on the exploration of properties, principally in the Sierra Mojada Property located in Coahuila, Mexico. The Company has not determined whether its exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company's investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, and the ability of the Company to obtain financing or make other arrangements for exploration, development, and future profitable production activities. The ultimate realization of the Company's investment in exploration properties cannot be determined at this time.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity.
Basis of Presentation
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") using the accrual method of accounting, except for cash flow amounts.
All figures are in United States dollars unless otherwise noted.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The wholly owned subsidiaries of the Company are listed in Note 1 to the consolidated financial statements.
The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (VIE) or voting interest model.
Under the VIE model, a VIE is a reporting entity that has (a) the power to direct the activities that most significantly impact the VIE's economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Currently, the Company manages the mineral exploration program in the property concessions in Mexico through its wholly-owned subsidiary corporations Minera Metalin and Contratistas.
The Company has determined Minera Metalin and Contratistas are variable interest entities and the Company is the primary beneficiary.
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates based on assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the consolidated financial statements. Actual results could differ from those estimates. Estimates and assumptions are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and assumptions are accounted for prospectively.
Significant areas involving the use of estimates include determining the allowance for uncollectible taxes, evaluating recoverability of property concessions, evaluating impairment of long-lived assets, evaluating impairment of goodwill, establishing a valuation allowance on future use of deferred tax assets, calculating a valuation for stock option liability, calculating a valuation for warrant derivative liability and calculating stock-based compensation.
Revenue Recognition
The Company recognizes revenue when the title and risks and rewards of ownership pass to the buyer, the selling price is fixed and determinable, persuasive evidence of an arrangement exists and collection of the sale proceeds is considered probable. As of October 31, 2018, the Company has not recognized any revenues.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with an original maturity of three months or less at the date of purchase.
Property Concessions
Property concession acquisition costs are capitalized when incurred and will be amortized using the units of production method following the commencement of production. If a property concession is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment. To date, no property concessions have reached the production stage.
Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of property concessions.
Exploration Costs
Exploration costs incurred are expensed to the date of establishing that costs incurred are economically recoverable. Exploration expenditures incurred subsequent to the establishment of economic recoverability are capitalized and included in the carrying amount of the related property. To date, the Company has not established the economic recoverability of its exploration prospects; therefore, all exploration costs are being expensed.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and impairment losses. Assets under construction are depreciated when they are substantially complete and available for their intended use, over their estimated useful lives. Repairs and maintenance of property and equipment are expensed as incurred. Costs incurred to enhance the service potential of property and equipment are capitalized and depreciated over the remaining useful life of the improved asset. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets as follows:
|
·
|
Mining equipment – five to 10 years
|
|
·
|
Building and structures – 40 years
|
|
·
|
Computer equipment and software – three years
|
|
·
|
Well equipment – 10 to 40 years
|
|
·
|
Office equipment – three to 10 years
|
Impairment of Long-Lived Assets
Management reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the related carrying amounts of its assets may not be recoverable. Impairment is considered to exist if the future cash flows on an undiscounted basis are less than the carrying amount of the long-lived asset. An impairment loss is measured and recorded based on the difference between book value and fair value of the asset group. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of cash flows from other asset groups. In estimating future cash flows, the Company estimates the price that would be received to sell an asset group in an orderly transaction between market participants at the measurement date. Significant factors that impact this price include the price of silver and zinc, and general market conditions for exploration companies, among other factors.
Goodwill
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. The Company tests goodwill for impairment at the reporting unit level at least annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The Company performs its annual goodwill impairment tests at April 30
th
of each fiscal year.
Income Taxes
The Tax Cuts and Jobs Act of 2017
(the "Tax Reform")
was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The law did not have a material impact on the Company's financial position, results of operations or cash flows and disclosures.
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on temporary differences between the tax basis and accounting basis of the assets and liabilities measured using tax rates enacted at the balance sheet date. The Company recognizes the tax benefit from uncertain tax positions only if it is at least "more likely than not" that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the taxing authorities. This accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.
A valuation allowance is recorded against deferred tax assets if management does not believe that the Company has met the "more likely than not" standard imposed by this guidance to allow recognition of such an asset. Management recorded a full valuation allowance at October 31, 2018 and 2017 against the deferred tax assets as it determined that future realization would not meet the "more likely than not" criteria.
Warrant Derivative liability
The Company classifies warrants with a Canadian Dollar ("$CDN") exercise price on its consolidated balance sheets as a derivative liability that is fair valued at each reporting period subsequent to the initial issuance as the functional currency of Silver Bull is the U.S. dollar and the exercise price of the warrants is the $CDN. The Company has used the Black-Scholes pricing model to fair value the warrants that do not have an acceleration feature and has used the Monte Carlo valuation model to fair value the warrants that do have an acceleration feature. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the Company's common stock at the date of issuance, and at each subsequent reporting period, is based on the historical volatility adjusted to reflect the implicit discount to historical volatilities observed in the prices of traded warrants. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is expected to be none as the Company has not paid dividend nor does the Company anticipate paying any dividend in the foreseeable future.
The derivatives warrants are not traded in an active market and the fair value is determined using valuation techniques. The estimates may be significantly different from those recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded in the consolidated statement of operations and comprehensive loss each reporting period.
Stock-Based Compensation
The Company uses the Black-Scholes pricing model as a method for determining the estimated fair value for all stock options awarded to employees, officers, directors and consultants. The expected term of the options is based upon an evaluation of historical and expected future exercise behavior. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the options at the valuation date. Volatility is determined based upon historical volatility of the Company's stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be none as the Company has not paid dividends nor does the Company anticipate paying any dividends in the foreseeable future. The Company uses the graded vesting attribution method to recognize compensation costs over the requisite service period. Stock options granted to consultants when the exercise price is in $CDN are classified as stock option liability on the Company's consolidated balance sheets upon vesting.
The Company classifies cumulative compensation cost associated with options on subsidiary equity as additional paid-in capital until exercise.
Loss per Share
Basic loss per share includes no dilution and is computed by dividing net loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted loss per share. Although there were stock options and warrants in the aggregate of 55,250,230 shares and 39,958,986 shares outstanding at October 31, 2018 and 2017, respectively, they were not included in the calculation of loss per share because they would have been considered anti-dilutive.
Foreign Currency Translation
During the years ended October 31, 2018 and 2017, the functional currency of Silver Bull Resources, Inc. and its subsidiaries is the U.S. dollar, except for the former Gabonese subsidiary whose functional currency was the Central African franc ("$CFA").
During the years ended October 31, 2018 and 2017, the Company's Mexican operations' monetary assets and liabilities were translated into U.S. dollars at the period-end exchange rate and non-monetary assets and liabilities were translated using the historical exchange rate. The Company's Mexican operations' revenue and expenses were translated at the average exchange rate during the period except for depreciation of office and mining equipment, costs of office and mining equipment sold and impairment of property concessions, all of which are translated using the historical exchange rate. Foreign currency translation gains and losses of the Company's Mexican operations are included in the consolidated statement of operations.
During the year ended October 31, 2017, assets and liabilities of the Company's Gabonese operations were translated into U.S. dollars at the period-end exchange rate, and revenue and expenses were translated at the average exchange rate during the period. Exchange differences arising on translation were disclosed as a separate component of stockholders' equity. Realized gains and losses from foreign currency transactions were reflected in the results of operations. Upon the liquidation of African Resources, the Company reclassified a certain amount from other comprehensive income to gain on the liquidation of a subsidiary in the consolidated statements of operations and comprehensive loss.
Accounting for Loss Contingencies and Legal Costs
From time to time, the Company is named as a defendant in legal actions arising from its normal business activities. The Company records an accrual for the estimated loss from a loss contingency when information available prior to issuance of its financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is made by the Company if there is at least a reasonable possibility that a loss has been incurred, and either an accrual has not been made or an exposure to loss exists in excess of the amount accrued. In cases where only disclosure of the loss contingency is required, either the estimated loss or a range of estimated loss is disclosed or it is stated that an estimate cannot be made. Legal costs incurred in connection with loss contingencies are considered period costs and accordingly are expensed in the period services are provided.
Recent Accounting Pronouncements Adopted in the Year
Effective November 1, 2017, the Company adopted the Financial Accounting Standards Board's ("FASB") Accounting
Standards Update ("
ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting," which amends several aspects of the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The adoption of this update did not have a material impact on the Company's financial position, results of operations or cash flows and disclosures.
Effective as of November 1, 2017,
the Company adopted the FASB's
ASU
2015-17, "Balance Sheet Classification of Deferred Income Taxes (Topic 740)," which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The adoption of this update did not have a material impact on the Company's financial position, results of operations or cash flows and disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In June 2018, the FASB issued ASU 2018-07, "Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 simplifies the accounting for nonemployee share-based payments, aligning it more closely with the accounting for employee awards. These changes become effective for the Company's fiscal year beginning November 1, 2019. Early application is permitted. At this time, the Company has not determined the effects of this update on the Company's financial position, results of operations or cash flows and disclosures.
In February 2017, the FASB issued ASU 2017-05, "Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets," which addresses the transfer to noncustomers of nonfinancial assets or ownership interests in consolidated subsidiaries that do not constitute a business and the contribution of nonfinancial assets that are not a business to a joint venture or other noncontrolled investee. These changes become effective for the Company's fiscal year beginning November 1, 2018. At this time, the Company has not completed the assessment of the effects of this update on the Company's financial position, results of operations or cash flows and disclosures. The Company's preliminary assessment has focused on the assets of our subsidiaries involved in the Sierra Mojada Project and, based on our preliminary assessment, the Company does not expect this standard to affect the Company's conclusion that the assets of our Sierra Mojada Project should not be derecognized at this time.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business to assist entities in the evaluation of acquisitions and disposals of assets or businesses. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. These changes became effective for the Company's fiscal year beginning November 1, 2018. Although the subject of the standard may be applicable to the Company's financial statements at the time of an acquisition or disposition, the standard change is to be applied prospectively and, accordingly, is not expected to affect the Company's financial statements as of the effective date.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. These changes became effective for the Company's fiscal year beginning November 1, 2018. At this time, the Company does not expect this standard to affect the Company's financial position, results of operations or cash flows and disclosures.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which provides guidance on the presentation and classification of certain cash receipts and payments in the statement of cash flows. These changes became effective for the Company's fiscal year beginning November 1, 2018. At this time, the Company does not expect this standard to affect the Company's financial position, results of operations or cash flows and disclosures.
In February 2016, the FASB issued ASU 2016-02, "Leases," which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for the Company's fiscal year beginning November 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. At this time, the Company has not determined the effects of this update on the Company's financial position, results of operations or cash flows and disclosures.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which (i) requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (iii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes became effective for the Company's fiscal year beginning November 1, 2018. At this time, the Company does not expect this standard to affect the Company's financial position, results of operations or cash flows and disclosures.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which has subsequently been amended to update revenue guidance under the newly-created ASC 606. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" became effective for the Company's fiscal year beginning November 1, 2018. At this time, the Company does not expect this standard to affect the Company's financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on the Company's present or future consolidated financial statements.
NOTE 3 – EARN-IN OPTION AGREEMENT
On June 1, 2018, the Company and its subsidiaries Minera Metalin and Contratistas entered into an Earn-In Option Agreement (the "Option Agreement") with South32 International Investment Holdings Pty Ltd ("South32"), a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32 is able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the "Option"), Minera Metalin owns the Sierra Mojada Property located in Coahuila, Mexico (the "Sierra Mojada Project"), and Contratistas supplies labor for the Sierra Mojada Project. Under the Option Agreement, South32 earns into the Option by funding a collaborative exploration program on the Sierra Mojada Project. Upon the terms and subject to the conditions set forth in the Option Agreement, in order for South32 to earn and maintain its four-year Option, South32 must have contributed to Minera Metalin for exploration of the Sierra Mojada Project at least $3 million by the end of Year 1, $6 million by the end of Year 2, $8 million by the end of Year 3 and $10 million by the end of Year 4 (the "Initial Funding"). Funding is made on a quarterly basis based on the subsequent quarter's exploration budget. South32 may exercise the Option by contributing $100 million to Minera Metalin (the "Subscription Payment"), less the amount of Initial Funding previously contributed by South32. The issuance of shares upon notice of exercise of the Option by South32 is subject to antitrust approval by the Mexican government. If the full amount of the Subscription Payment is advanced by South32 and the Option becomes exercisable and is exercised, the Company and South32 will be obligated to contribute funding to Minera Metalin on a 30/70 pro rata basis. If South32 elects not to continue with the Option during the four-year option period, the Sierra Mojada Project will remain 100% owned by the Company. The exploration program will be initially managed by the Company with South32 being able to approve the exploration program funded by it. In June 2018, the Company received initial funding from South32 of $922,783. In December 2018, the Company received the second payment of $309,000 from South32. As of October 31, 2018, $236,846 remains unspent. South32 is able to terminate the Option Agreement at any time without penalty other than forfeiture of the Option. If the Option Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government, the Company is under no obligation to reimburse South32 for amounts contributed under the Option Agreement.
Upon exercise of the Option, Minera Metalin and Contratistas are required to issue common shares to South32. Pursuant to the Option Agreement, following exercise and until a decision has been made by the board of directors of Minera Metalin to develop and construct a mine on the Sierra Mojada Project, each shareholder holding greater than or equal to 10% of the shares may withdraw as an owner in exchange for a 2% net smelter royalty on products produced and sold from the Sierra Mojada Project. Any shareholder whose holdings are reduced to less than 10% must surrender its interest in exchange for a 2% net smelter royalty.
The Company has determined the Option Agreement has not resulted in the transfer of control of the Sierra Mojada Project to South32. The Company has also determined that the Option Agreement represents non-employee share-based compensation associated with the collaborative exploration program undertaken by the parties. The compensation cost is expensed when the associated exploration activity occurs. The share-based payments have been classified as equity instruments and valued based on the fair value of consideration received, as it is more reliably measurable than the fair value of the equity interest. If the Option is exercised and shares are issued prior to a decision to develop a mine, such shares would be classified as temporary equity as they would be contingently redeemable in exchange for a net smelter royalty under circumstances not wholly in control of the Company or South32 and which are not currently probable.
No portion of the equity value has been classified as temporary equity as the option has no intrinsic value.
The combined carrying amount of the assets and liabilities of Minera Metalin and Contratistas (consolidated with their wholly-owned subsidiary) are as follows at October 31, 2018:
Assets:
|
|
Mexico
|
|
Cash and cash equivalents
|
|
$
|
33,000
|
|
Value-added tax receivable, net
|
|
|
175,000
|
|
Other receivables
|
|
|
1,000
|
|
Prepaid expenses and deposits
|
|
|
11,000
|
|
Office and mining equipment, net
|
|
|
201,000
|
|
Property concessions
|
|
|
5,020,000
|
|
Total assets
|
|
$
|
5,441,000
|
|
Liabilities:
|
|
|
|
Accounts payable
|
|
|
4,000
|
|
Accrued liabilities and expenses
|
|
|
319,000
|
|
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option
|
|
|
3,640,000
|
|
Total liabilities
|
|
$
|
3,963,000
|
|
|
|
|
|
|
Net advances and investment in the Company's Mexican subsidiaries
|
|
$
|
1,478,000
|
|
In addition, at October 31, 2018, Silver Bull Resources, Inc. holds $224,000 of cash received from South32, which is to be contributed to the capital of the Mexican subsidiaries as required for exploration. Cash received from South32 is required to be used to further exploration of Sierra Mojada.
The Company's maximum exposure to loss at October 31, 2018 is $5,118,000, which includes the carrying value of the VIEs' net assets excluding the payable to Silver Bull Resources, Inc.
NOTE 4 – VALUE-ADDED TAX RECEIVABLE
Value-added tax ("VAT") receivable relates to VAT paid in Mexico. The Company estimates net VAT of $175,020 will be received within 12 months of the balance sheet date. The allowance for uncollectible VAT taxes was estimated by management based upon a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions. During the fiscal year ended October 31, 2017, a recovery of VAT originating from Gabon of $52,951 and Mexico of $17,030 has been recorded in the consolidated statements of operations and comprehensive loss.
A summary of the changes in the allowance for uncollectible VAT taxes related to Mexico for the fiscal years ended October 31, 2018
and 2017
is as follows:
|
|
|
|
Allowance for uncollectible VAT taxes – October 31, 2016
|
|
$
|
88,283
|
|
Recovery of uncollectible VAT Taxes
|
|
|
(17,030
|
)
|
Write-off VAT receivable
|
|
|
(2,312
|
)
|
Foreign currency translation adjustment
|
|
|
(1,212
|
)
|
Allowance for uncollectible VAT taxes – October 31, 2017
|
|
|
67,729
|
|
Provision for uncollectible VAT Taxes
|
|
|
37,457
|
|
Write-off VAT receivable
|
|
|
(3,440
|
)
|
Foreign currency translation adjustment
|
|
|
(3,332
|
)
|
Allowance for uncollectible VAT taxes – October 31, 2018
|
|
$
|
98,414
|
|
NOTE 5 – OFFICE AND MINING EQUIPMENT
The following is a summary of the Company's office and mining equipment at October 31, 2018 and October 31, 2017:
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Mining equipment
|
|
$
|
358,513
|
|
|
$
|
358,513
|
|
Vehicles
|
|
|
73,287
|
|
|
|
53,451
|
|
Buildings and structures
|
|
|
185,724
|
|
|
|
185,724
|
|
Computer equipment and software
|
|
|
74,236
|
|
|
|
74,236
|
|
Well equipment
|
|
|
39,637
|
|
|
|
39,637
|
|
Office equipment
|
|
|
47,597
|
|
|
|
47,597
|
|
|
|
|
778,994
|
|
|
|
759,158
|
|
Less: Accumulated depreciation
|
|
|
(577,508
|
)
|
|
|
(550,403
|
)
|
Office and mining equipment, net
|
|
$
|
201,486
|
|
|
$
|
208,755
|
|
NOTE 6 – PROPERTY CONCESSIONS
The following is a summary of the Company's property concessions in Sierra Mojada, Mexico as at October 31, 2018 and 2017:
Property Concessions – October 31, 2017
|
|
$
|
5,004,386
|
|
Acquisitions
|
|
|
15,541
|
|
Property Concessions – October 31, 2018
|
|
$
|
5,019,927
|
|
NOTE 7 – GOODWILL
Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired.
On April 30, 2018, the Company elected to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Based on this assessment, management determined it is not more likely than not that the fair value of the reporting unit is less than its carrying amount.
The following is a summary of the Company's goodwill balance as at October 31, 2018 and 2017:
Goodwill – October 31, 2018 and 2017
|
|
|
$
|
2,058,031
|
|
NOTE 8 – COMMON STOCK
On July 25 and August 20, 2018, the Company completed a two tranche private placement for 29,141,872 units at a purchase price of $0.13 per unit (the "$0.13 Unit") for gross proceeds of $3,788,443. Each $0.13 Unit consists of one share of the Company's common stock and one half of one common stock purchase warrant (the "$0.13 Warrant"). Each full $0.13 Warrant entitles the holder thereof to acquire one share of common stock at a price of $0.16 for a period of 24 months from the closing of the private placement. The Company paid a 7% finder's fee totaling $224,110 to agents with respect to certain purchasers who were introduced by these agents. In addition, the agents received 1,231,374 non-transferable warrants (the "2018 Agent's Warrants"). Each 2018 Agent's Warrant entitles an agent to acquire one share of common stock at a price of $0.14 for a period of 24 months from the closing of the private placement. The fair value of the 2018 Agent's Warrants was determined to be $26,165 (Note 10), and the Company incurred other offering costs of $93,541.
On June 6, 2018, 43,750 warrants to acquire 43,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $3,388 ($CDN 4,375).
On May 28, 2018, 292,250 warrants to acquire 292,250 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $22,479 ($CDN 29,225).
On May 7, 2018, 125,000 warrants to acquire 125,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $12,632 ($CDN 16,250).
On May 7, 2018, 526,000 warrants to acquire 526,000 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $40,889 ($CDN 52,600).
On April 4, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $63,432 ($CDN 81,250).
On March 29, 2018, 1,000,000 warrants to acquire 1,000,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $100,822 ($CDN 130,000).
On March 28, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $678 ($CDN 875).
On March 15, 2018, 1,025,000 warrants to acquire 1,025,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $102,248 ($CDN 133,250).
On March 14, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,108 ($CDN 32,500).
On March 8, 2018, 974,500 warrants to acquire 974,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $98,000 ($CDN 126,685).
On February 20, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $693 ($CDN 875).
On February 20, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,749 ($CDN 32,500).
On February 16, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,917 ($CDN 32,500).
On February 13, 2018, 178,000 warrants to acquire 178,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $18,365 ($CDN 23,140).
On January 29, 2018, 21,875 warrants to acquire 21,875 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $1,773 ($CDN 2,188).
On January 22, 2018, 62,500 warrants to acquire 62,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $6,522 ($CDN 8,125).
On January 15, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $65,408 ($CDN 81,250).
On January 8, 2018, 200,000 warrants to acquire 200,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $20,931 ($CDN 26,000).
The Company incurred costs of $1,128 related to the warrant exercises in the year ended October 31, 2018.
On July 10 and August 3, 2017, the Company completed a two tranche private placement for 21,365,000 units at a purchase price of $CDN 0.08 per unit (the "$CDN 0.08 Unit") for gross proceeds of $1,330,976 ($CDN 1,709,200). Each $CDN 0.08 Unit consists of one share of the Company's common stock and one warrant (the "$CDN 0.08 Warrant"). Each $CDN 0.08 Warrant entitles the holder thereof to acquire one share of common stock at a price of $CDN 0.13 for a period of 24 months from the closing of the private placement. The Company paid a 7% finder's fee totaling $78,169 to agents with respect to certain purchasers who were introduced by these agents. In addition, the agents received 1,259,300 non-transferable warrants (the "2017 Agent's Warrants"). Each 2017 Agent's Warrant entitles an agent to acquire one share of common stock at a price of $CDN 0.10 for a period of 24 months from the closing of the private placement. The fair value of the 2017 Agent's Warrants was determined to be $12,967 (Note 10), and the Company incurred other offering costs of $92,910. Of these costs $18,819 is included in warrant issuance costs in the consolidated statements of operations and comprehensive loss.
NOTE 9 – STOCK OPTIONS
The Company has one stock option plan, the 2010 Stock Option and Stock Bonus Plan, as amended (the "2010 Plan"). Under the 2010 Plan, the lesser of (i) 30,000,000 shares or (ii) 10% of the total shares outstanding are reserved for issuance upon the exercise of options or the grant of stock bonuses.
Options are typically granted with an exercise price equal to the closing market price of the Company's stock at the date of grant, have a graded vesting schedule over approximately one to two years and have a contractual term of five years.
A summary of the range of assumptions used to value stock options granted for the years ended October 31, 2018 and 2017 are as follows:
|
|
|
Year Ended
October 31,
|
Options
|
|
2018
|
|
2017
|
|
|
|
|
|
Expected volatility
|
|
40% – 87%
|
|
78% – 87%
|
Risk-free interest rate
|
|
1.94% – 2.60%
|
|
1.35% – 1.56%
|
Dividend yield
|
|
—
|
|
—
|
Expected term (in years)
|
|
2.50 – 5.00
|
|
2.50 – 3.50
|
During the year ended October 31, 2018, the Company granted options to acquire 350,000 shares of common stock with an exercise price of $CDN 0.215 per share and 7,825,000 options to acquire shares of common stock with an exercise price of $CDN 0.13 per share. No options were exercised during the year ended October 31, 2018. The weighted-average grant-date fair value of the stock options granted was $0.06 per share.
During the year ended October 31, 2017, the Company granted options to acquire 4,075,000 shares of common stock with a weighted-average grant-date fair value of $0.05 per share and an exercise price of $CDN 0.125 per share. No options were exercised during the year ended October 31, 2017.
The following is a summary of stock option activity for the fiscal years ended October 31, 2018 and 2017:
Options
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at October 31, 2016
|
|
|
11,517,858
|
|
|
|
0.28
|
|
|
|
2.66
|
|
|
$
|
227,891
|
|
Granted
|
|
|
4,075,000
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,770,000
|
)
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(28,572
|
)
|
|
|
2.18
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2017
|
|
|
12,794,286
|
|
|
|
0.16
|
|
|
|
2.98
|
|
|
$
|
110,622
|
|
Granted
|
|
|
8,175,000
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,019,286
|
)
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2018
|
|
|
18,950,000
|
|
|
$
|
0.11
|
|
|
|
3.48
|
|
|
$
|
429,158
|
|
Exercisable at October 31, 2018
|
|
|
12,375,000
|
|
|
$
|
0.12
|
|
|
|
3.24
|
|
|
$
|
323,930
|
|
The Company recognized stock-based compensation costs for stock options of $245,629 and $152,349 for the fiscal years ended October 31, 2018 and 2017, respectively. As of October 31, 2018, there remains $283,807 of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 0.7 years.
Summarized information about stock options outstanding and exercisable at October 31, 2018 is as follows:
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.06
|
|
|
|
4,075,000
|
|
|
|
2.32
|
|
|
$
|
0.06
|
|
|
|
4,075,000
|
|
|
$
|
0.06
|
|
|
0.10
|
|
|
|
11,900,000
|
|
|
|
4.39
|
|
|
|
0.10
|
|
|
|
5,325,000
|
|
|
|
0.10
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
4.30
|
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
0.16
|
|
|
0.19 – 0.26
|
|
|
|
2,625,000
|
|
|
|
1.06
|
|
|
|
0.25
|
|
|
|
2,625,000
|
|
|
|
0.25
|
|
$
|
0.06 – 0.26
|
|
|
|
18,950,000
|
|
|
|
3.48
|
|
|
$
|
0.11
|
|
|
|
12,375,000
|
|
|
$
|
0.12
|
|
Stock options granted to consultants with a $CDN exercise price are classified as a stock option liability on the Company's consolidated balance sheets upon vesting. The following is a summary of the Company's stock option liability at October 31, 2018 and October 31, 2017:
Stock option liability at October 31, 2016
|
|
$
|
—
|
|
Reclassification from additional paid-in capital
|
|
|
12,115
|
|
Change in fair value of stock option liability
|
|
|
(6,921
|
)
|
Stock option liability at October 31, 2017
|
|
$
|
5,194
|
|
Reclassification from additional paid-in capital
|
|
|
28,111
|
|
Change in fair value of stock option liability
|
|
|
(8,189
|
)
|
Stock option liability at October 31, 2018
|
|
$
|
25,116
|
|
NOTE 10 – WARRANTS
A summary of warrant activity for the fiscal years ended October 31, 2018 and 2017 is as follows:
Warrants
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at October 31, 2016
|
|
|
4,540,400
|
|
|
$
|
0.12
|
|
|
|
2.67
|
|
|
$
|
—
|
|
Issued in the $CDN 0.08 Unit private placement (Note 8)
|
|
|
21,365,000
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Agent's Warrants (Note 8)
|
|
|
1,259,300
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2017
|
|
|
27,164,700
|
|
|
$
|
0.10
|
|
|
|
1.70
|
|
|
$
|
9,769
|
|
Issued in the $0.13 Unit private placement (Note 8)
|
|
|
14,570,931
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
Agent's Warrants (Note 8)
|
|
|
1,231,374
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(200,400
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,466,375
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2018
|
|
|
36,300,230
|
|
|
$
|
0.13
|
|
|
|
1.16
|
|
|
$
|
254,068
|
|
During the year ended October 31, 2018, the Company issued 14,570,931 warrants with an exercise price of $0.16 in connection with the $0.13 Unit private placement and issued 1,231,374 compensation warrants to agents with an exercise price of $0.14 (Note 8). The fair value of the 2018 Agent's Warrants was determined to be $26,165 based on the Black-Scholes pricing model using a risk-free interest rate of 2.8% - 2.9%, expected volatility of 39% - 45%, a dividend yield of 0%, and a contractual term of two years.
Warrants exercised during the year ended October 31, 2018 are discussed in Note 8.
The warrants exercised during the year end October 31, 2018 had an intrinsic value of $447,185.
During the year ended October 31, 2017, the Company issued 21,365,000 warrants with an exercise price of $CDN 0.13 in connection with the $CDN 0.08 Unit private placement and issued 1,259,300 compensation warrants to agents with an exercise price of $CDN 0.10 (Note 8). The fair value of the warrants issued on the date of issuance in the $CDN 0.08 Unit private placement was determined to be $139,423 based on the Black-Scholes pricing model. The fair value of the 2017 Agent's Warrants on the date of issuance was determined to be $12,967 based on the Black-Scholes pricing model.
No warrants were exercised during the year ended October 31, 2017.
Summarized information about warrants outstanding and exercisable at October 31, 2018 is as follows:
Warrants Outstanding and Exercisable
|
|
Exercise Price
|
|
|
Number
Outstanding
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.08
|
|
|
|
357,925
|
|
|
|
0.69
|
|
|
$
|
0.08
|
|
|
0.10
|
|
|
|
15,800,000
|
|
|
|
0.70
|
|
|
|
0.10
|
|
|
0.12
|
|
|
|
4,340,000
|
|
|
|
0.72
|
|
|
|
0.12
|
|
|
0.14
|
|
|
|
1,231,374
|
|
|
|
1.75
|
|
|
|
0.14
|
|
|
0.16
|
|
|
|
14,570,931
|
|
|
|
1.75
|
|
|
|
0.16
|
|
$
|
0.08 – 0.16
|
|
|
|
36,300,230
|
|
|
|
1.16
|
|
|
$
|
0.13
|
|
If the closing price of the common stock on the TSX is higher than $CDN 0.30 for 20 consecutive trading days, then on the 20th consecutive trading day (the "Acceleration Trigger Date") the expiry date of the above $0.12 warrants may be accelerated to the 20th trading day after the Acceleration Trigger Date by the issuance, within three trading days of the Acceleration Trigger Date, of a news release announcing such acceleration
.
The Company's warrants with a $CDN exercise price have been recognized as a derivative liability. The following is a summary of the Company's warrant derivative liability at October 31, 2018 and October 31, 2017:
Warrant derivative liability at October 31, 2016
|
|
$
|
—
|
|
Reclassification from additional paid-in capital
|
|
|
94,143
|
|
Warrants issued in $CDN 0.08 Unit private placement
|
|
|
139,423
|
|
Agent's warrants issued in $CDN 0.08 Unit private placement
|
|
|
12,967
|
|
Change in fair value of warrant derivative liability
|
|
|
100,020
|
|
Foreign currency translation adjustment
|
|
|
(4,836
|
)
|
Warrant derivative liability at October 31, 2017
|
|
$
|
341,717
|
|
Change in fair value of warrant derivative liability
|
|
|
510,968
|
|
Reclassification to additional paid-in capital upon exercise of warrants
|
|
|
(447,185
|
)
|
Warrant derivative liability at October 31, 2018
|
|
$
|
405,500
|
|
NOTE 11 – TAX REFORM AND INCOME TAXES
Provision for Taxes
The
Tax Reform
was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.
The Tax Reform requires the Company to use a blended statutory tax rate of 23% for the year ended October 31, 2018.
The Company files a United States federal income tax return and a Canadian branch return on a fiscal year-end basis and files Mexican income tax returns for its three Mexican subsidiaries on a calendar year-end basis. The Company and two of its wholly-owned subsidiaries, Minera Metalin and Minas, have not generated taxable income since inception. Contratistas, another wholly-owned Mexican subsidiary, has historically generated taxable income based upon intercompany fees billed to Minera Metalin on the services it provides.
On April 16, 2010, a wholly-owned subsidiary of the Company was merged with and into Dome, resulting in Dome becoming a wholly-owned subsidiary of the Company. Dome, a Delaware corporation, files a tax return in the United States as part of the Company's consolidated tax return.
The components of loss before income taxes were as follows:
|
For the year ended
|
|
|
|
|
October 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
United States
|
|
$
|
(2,228,000
|
)
|
|
$
|
(1,339,000
|
)
|
Foreign
|
|
|
(1,288,000
|
)
|
|
|
(713,000
|
)
|
Loss before income taxes
|
|
$
|
(3,516,000
|
)
|
|
$
|
(2,052,000
|
)
|
The components of the provision for income taxes are as follows:
|
|
For the year ended
|
|
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current tax expense
|
|
$
|
3,718
|
|
|
$
|
1,867
|
|
Deferred tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
3,718
|
|
|
$
|
1,867
|
|
The Company's provision for income taxes for the fiscal year ended October 31, 2018 consisted of a tax expense of $3,718 related to a provision for income taxes for Contratistas and the Silver Bull Canadian branch return for the fiscal year ended October 31, 2018.
The reconciliation of the provision for income taxes computed at the U.S. statutory rate to the provision for income tax as shown in the statement of operations and comprehensive loss is as follows:
|
|
For the year ended
|
|
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Income tax benefit calculated at U.S. federal income tax rate
|
|
$
|
(808,000
|
)
|
|
$
|
(718,000
|
)
|
|
|
|
|
|
|
|
|
|
Differences arising from:
|
|
|
|
|
|
|
|
|
Other permanent differences
|
|
|
207,000
|
|
|
|
130,000
|
|
Differences due to foreign income tax rates
|
|
|
(81,000
|
)
|
|
|
43,000
|
|
Adjustment to prior year taxes
|
|
|
68,000
|
|
|
|
(77,000
|
)
|
Inflation adjustment foreign net operating loss
|
|
|
(375,000
|
)
|
|
|
(422,000
|
)
|
Foreign currency fluctuations
|
|
|
417,000
|
|
|
|
115,000
|
|
(Decrease) increase in valuation allowance
|
|
|
(4,810,000
|
)
|
|
|
353,000
|
|
Re-measurement of deferred tax assets at 21%
|
|
|
4,767,000
|
|
|
|
—
|
|
Net operation loss carry forwards expiration - United States
|
|
|
99,000
|
|
|
|
—
|
|
Net operation loss carry forwards expiration - Mexico
|
|
|
520,000
|
|
|
|
565,000
|
|
Other
|
|
|
—
|
|
|
|
13,000
|
|
Net income tax provision
|
|
$
|
4,000
|
|
|
$
|
2,000
|
|
The components of the deferred tax assets at October 31, 2018 and 2017 were as follows:
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forwards – U.S.
|
|
$
|
7,232,000
|
|
|
$
|
11,766,000
|
|
Net capital loss carry forwards – U.S.
|
|
|
62,000
|
|
|
|
103,000
|
|
Net operating loss carry forwards – Mexico
|
|
|
7,736,000
|
|
|
|
8,111,000
|
|
Stock-based compensation – U.S.
|
|
|
7,000
|
|
|
|
11,000
|
|
Exploration costs
|
|
|
295,000
|
|
|
|
122,000
|
|
Other – United States
|
|
|
26,000
|
|
|
|
36,000
|
|
Other – Mexico
|
|
|
19,000
|
|
|
|
38,000
|
|
Total net deferred tax assets
|
|
|
15,377,000
|
|
|
|
20,187,000
|
|
Less: valuation allowance
|
|
|
(15,377,000
|
)
|
|
|
(20,187,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At October 31, 2018, the Company has U.S. net operating loss carry-forwards of approximately $34 million that expire in the years 2019 through 2038. The Company has U.S net capital loss carry-forwards of approximately $0.3 million that expire in the year 2020. The Company has approximately $26 million of net operating loss carry-forwards in Mexico that expire in the years 2019 through 2028.
The valuation allowance for deferred tax assets of $15.4 and $20.2 million at October 31, 2018 and 2017, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily net operating loss carry forwards in various tax jurisdictions. The decrease in deferred tax assets prior to valuation allowance was primarily due to applying a 21% enacted federal tax rates at October 31, 2018 compared to 35% at October 31, 2017 for U.S. balances. The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized prior to their expiration. Based on the Company's assessment, it has determined that the deferred tax assets are not currently realizable.
Net Operating Loss Carry Forward Limitation
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has been a change in ownership as described in Section 382 of the Internal Revenue Code. As a result of the Dome merger in April 2010, substantial changes in the Company's ownership have occurred that may limit or reduce the amount of net operating loss carry forwards that the Company could utilize in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine what impact, if any, that ownership change may have had on its operating loss carry forwards. In each period since its inception, the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its consolidated statement of operations and comprehensive loss.
Accounting for Uncertainty in Income Taxes
During the fiscal years ended October 31, 2018 and 2017, the Company has not identified any unrecognized tax benefits or had any additions or reductions in tax positions and therefore a reconciliation of the beginning and ending amount of unrecognized tax benefits is not presented.
The Company does not have any unrecognized tax benefits as of October 31, 2018, and accordingly the Company's effective tax rate will not be materially affected by unrecognized tax benefits.
The following tax years remain open to examination by the Company's principal tax jurisdictions:
|
United States:
|
2014 and all following years
|
|
|
Mexico:
|
2013 and all following years
|
|
|
Canada:
|
2014 and all following years
|
|
The Company has not identified any uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase or decrease within the next 12 months.
The Company's policy is to classify tax related interest and penalties as income tax expense. There is no interest or penalties estimated on the underpayment of income taxes as a result of unrecognized tax benefits.
NOTE 12 – FINANCIAL INSTRUMENTS
Fair Value Measurements
All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of financial assets or the assumption of liabilities carried at amortized cost, in which case the transaction costs adjust the carrying amount.
The three levels of the fair value hierarchy are as follows:
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's financial instruments consist of cash and cash equivalents, accounts payable, stock option liability and warrant derivative liability.
The carrying amounts of cash and cash equivalents and accounts payable approximate fair value at October 31, 2018 and 2017 due to the short maturities of these financial instruments.
Derivative liability
The Company classifies warrants with a $CDN exercise price on its consolidated balance sheets as a derivative liability that is fair valued at each reporting period subsequent to the initial issuance as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing model to determine the fair value of the warrants that do not have an acceleration feature and has used the Monte Carlo valuation model to determine the fair value of the warrants that do have an acceleration feature (Note 10). Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the Company's common stock at the date of issuance, and at each subsequent reporting period, is based on the historical volatility adjusted to reflect the implicit discount to historical volatilities observed in the prices of traded warrants. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is expected to be none as the Company has not paid dividends nor does the Company anticipate paying a dividend in the foreseeable future.
The Company reclassifies stock options granted to consultants with a $CDN exercise price on its consolidated balance sheets upon vesting as a stock option liability that is fair valued at each reporting period subsequent to reclassification as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing model to fair value these stock options. Determining the appropriate fair-value model and calculating the fair value of these stock options requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the Company's common stock at the date of reclassification, and at each subsequent reporting period, is based on the historical volatility of the Company's common stock and adjusted if future volatility is expected to vary from historical experience. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the options at the valuation date. The expected life of the options is based upon historical and expected future exercise behavior. The dividend yield is expected to be none as the Company has not paid dividends nor does the Company anticipate paying any dividend in the foreseeable future.
The derivatives warrants are not traded in an active market and the fair value is determined using valuation techniques. The estimates may be significantly different from those recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded in the consolidated statement of operations and comprehensive loss each reporting period. These are considered to be a Level 3 financial instrument.
The Company has the following liabilities under the fair value hierarchy:
|
|
October 31, 2018
|
|
Liability
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Stock option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,116
|
|
Warrant derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
405,500
|
|
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets, the Company has established policies to ensure liquidity of funds and ensure that counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its U.S. dollar and $CDN cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash deposits held in the United States are insured by the Federal Deposit Insurance Corporation ("FDIC") for up to $250,000 and $CDN cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation ("CDIC") for up to $CDN 100,000. Certain United States and Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they related to U.S. dollar deposits held in Canadian financial institutions. As of October 31, 2018 and 2017, the Company's cash and cash equivalent balances held in United States and Canadian financial institutions included $2,919,461 and $578,773 respectively, which was not insured by the FDIC or CDIC. The Company has not experienced any losses on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in cash and cash equivalents.
The Company also maintains cash in bank accounts in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of October 31, 2018 and 2017, the U.S. dollar equivalent balance for these accounts was $32,668 and $25,408, respectively.
Interest Rate Risk
The Company holds substantially all of the Company's cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during the fiscal year ended October 31, 2018, a 1% decrease in interest rates would have resulted in a reduction in interest income for the period of approximately $4,065.
Foreign Currency Exchange Risk
The Company is not subject to any material market risk related to foreign currency exchange rate fluctuations.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Compliance with Environmental Regulations
The Company's exploration activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or affect the economics of a project, and cause changes or delays in the Company's activities.
Property Concessions Mexico
To properly maintain property concessions in Mexico, the Company is required to pay a semi-annual fee to the Mexican government and complete annual assessment work.
Royalty
The Company has agreed to pay a 2% net smelter return royalty on certain property concessions within the Sierra Mojada Property based on the revenue generated from production. Total payments under this royalty are limited to $6.875 million (the "Royalty"). To date no royalties have been paid.
On May 20, 2014, a cooperative named Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. ("Mineros Norteños") filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico, against the Company's subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development of the Sierra Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of 6% per annum since August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment of wages to the cooperative's members since August 30, 2004, even though none of the individuals were hired or performed work for Minera Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was moved to the Third District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was time barred from bringing the case. On October 19, 2017, Mineros Norteños appealed this ruling. The Company and the Company's Mexican legal counsel believe that it is unlikely that the court's ruling will be overturned. The Company has not accrued any amounts in its consolidated financial statements with respect to this claim.
On February 15, 2016, Messrs. Jaime Valdez Farias and Maria Asuncion Perez Alonso (collectively, "Valdez") filed an action before the Local First Civil Court of Torreon, State of Coahuila, Mexico, against the Company's subsidiary, Minera Metalin, claiming that Minera Metalin had breached an agreement regarding the development of the Sierra Mojada Property. Valdez sought payment in the amount of $5.9 million for the alleged breach of the agreement. On April 28, 2016, Minera Metalin filed its response to the complaint, asserting various defenses, including that Minera Metalin terminated the agreement before the payment obligations arose and that certain conditions precedent to such payment obligations were never satisfied by Valdez. The Company and the Company's Mexican legal counsel asserted all applicable defenses. In May 2017, a final judgment was entered, finding for the Company (the defendant) and acquitting the Company of all of the plaintiff's claims and demands. The Company did not accrue any amounts in its consolidated financial statements with respect to this claim.
From time to time, the Company is involved in other disputes, claims, proceedings and legal actions arising in the ordinary course of business. The Company intends to vigorously defend all claims against the Company, and pursue its full legal rights in cases where the Company has been harmed. Although the ultimate outcome of these proceedings cannot be accurately predicted due to the inherent uncertainty of litigation, in the opinion of management, based upon current information, no other currently pending or overtly threatened proceeding is expected to have a material adverse effect on the Company's business, financial condition or results of operations.
NOTE 14 – SEGMENT INFORMATION
The Company operates in a single reportable segment: the exploration of mineral property interests. The Company has mineral property interests in Sierra Mojada, Mexico.
Geographic information is approximately as follows:
|
|
For the Year Ended
|
|
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss
|
|
|
|
|
|
|
Mexico
|
|
$
|
(1,292,000
|
)
|
|
$
|
(928,000
|
)
|
Canada
|
|
|
(2,228,000
|
)
|
|
|
(1,339,000
|
)
|
Gabon
|
|
|
-
|
|
|
|
213,000
|
|
Net Loss
|
|
$
|
(3,520,000
|
)
|
|
$
|
(2,054,000
|
)
|
The following table details the allocation of assets included in the accompanying consolidated balance sheet at October 31, 2018:
|
|
Canada
|
|
|
Mexico
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
2,993,000
|
|
|
$
|
33,000
|
|
|
$
|
3,026,000
|
|
Value-added tax receivable, net
|
|
|
-
|
|
|
|
175,000
|
|
|
|
175,000
|
|
Other receivables
|
|
|
11,000
|
|
|
|
1,000
|
|
|
|
12,000
|
|
Prepaid expenses and deposits
|
|
|
226,000
|
|
|
|
11,000
|
|
|
|
237,000
|
|
Office and mining equipment, net
|
|
|
-
|
|
|
|
202,000
|
|
|
|
202,000
|
|
Property concessions
|
|
|
-
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
-
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
3,230,000
|
|
|
$
|
7,500,000
|
|
|
$
|
10,730,000
|
|
The following table details allocation of assets included in the accompanying consolidated balance sheets at October 31, 2017:
|
|
Canada
|
|
|
Mexico
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
657,000
|
|
|
$
|
25,000
|
|
|
$
|
682,000
|
|
Value-added tax receivable, net
|
|
|
-
|
|
|
|
157,000
|
|
|
|
157,000
|
|
Other receivables
|
|
|
4,000
|
|
|
|
1,000
|
|
|
|
5,000
|
|
Prepaid expenses and deposits
|
|
|
102,000
|
|
|
|
15,000
|
|
|
|
117,000
|
|
Office and mining equipment, net
|
|
|
-
|
|
|
|
209,000
|
|
|
|
209,000
|
|
Property concessions
|
|
|
-
|
|
|
|
5,004,000
|
|
|
|
5,004,000
|
|
Goodwill
|
|
|
-
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
763,000
|
|
|
$
|
7,469,000
|
|
|
$
|
8,232,000
|
|
The Company has significant assets in Coahuila, Mexico. Although Mexico is generally considered economically stable, it is always possible that unanticipated events in Mexico could disrupt the Company's operations. The Mexican government does not require foreign entities to maintain cash reserves in Mexico.
The following table details the allocation of exploration and property holding costs for the exploration properties:
|
|
For the Year Ended
October 31,
|
|
Exploration and property holding costs for the year
|
|
2018
|
|
|
2017
|
|
Mexico Sierra Mojada
|
|
$
|
(1,241,000
|
)
|
|
$
|
(944,000
|
)
|
Gabon Mitzic
|
|
|
-
|
|
|
|
31,000
|
|
|
|
$
|
(1,241,000
|
)
|
|
$
|
(913,000
|
)
|