SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
January 31,
2021
|
|
October 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
862,575
|
|
|
$
|
1,861,518
|
|
Value-added tax receivable, net of allowance for uncollectible taxes of $360,711 and $345,059, respectively (Note 7)
|
|
|
236,366
|
|
|
|
219,804
|
|
Income tax receivables
|
|
|
739
|
|
|
|
580
|
|
Other receivables
|
|
|
9,670
|
|
|
|
14,387
|
|
Prepaid expenses and deposits
|
|
|
192,743
|
|
|
|
229,647
|
|
Loan receivable (Note 8)
|
|
|
760,050
|
|
|
|
360,050
|
|
Total Current Assets
|
|
|
2,062,143
|
|
|
|
2,685,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and mining equipment, net (Note 9)
|
|
|
239,522
|
|
|
|
239,769
|
|
Property concessions (Note 10)
|
|
|
5,019,927
|
|
|
|
5,019,927
|
|
Goodwill (Note 11)
|
|
|
2,058,031
|
|
|
|
2,058,031
|
|
TOTAL ASSETS
|
|
$
|
9,379,623
|
|
|
$
|
10,003,713
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
287,223
|
|
|
$
|
499,057
|
|
Accrued liabilities and expenses (Note 12)
|
|
|
601,006
|
|
|
|
383,718
|
|
Income tax payable
|
|
|
1,500
|
|
|
|
5,000
|
|
Total Current Liabilities
|
|
|
889,729
|
|
|
|
887,775
|
|
|
|
|
|
|
|
|
|
|
Loan payable (Note 13)
|
|
|
46,948
|
|
|
|
30,034
|
|
TOTAL LIABILITIES
|
|
|
936,677
|
|
|
|
917,809
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (Notes 4, 14, 15 and 16)
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 37,500,000 shares authorized,
33,484,945 and 33,165,945 shares issued and outstanding, respectively*
|
|
|
2,402,708
|
|
|
|
2,399,518
|
|
Additional paid-in capital
|
|
|
138,825,532
|
|
|
|
138,613,286
|
|
Accumulated deficit
|
|
|
(132,877,542
|
)
|
|
|
(132,019,148
|
)
|
Other comprehensive income
|
|
|
92,248
|
|
|
|
92,248
|
|
Total Stockholders’ Equity
|
|
|
8,442,946
|
|
|
|
9,085,904
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
9,379,623
|
|
|
$
|
10,003,713
|
|
SUBSEQUENT EVENTS (Note 20)
|
|
|
|
|
|
|
|
|
*Shares outstanding for prior period have been restated for the
one-for-eight reverse stock split.
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS (Unaudited)
|
|
Three Months Ended January 31,
|
|
|
|
2021
|
|
|
|
2020
|
|
REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
EXPLORATION AND PROPERTY HOLDING COSTS
|
|
|
|
|
|
|
|
|
Exploration and property holding costs
|
|
|
334,047
|
|
|
|
203,530
|
|
Depreciation (Note 9)
|
|
|
10,427
|
|
|
|
9,121
|
|
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS
|
|
|
344,474
|
|
|
|
212,651
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
141,032
|
|
|
|
156,217
|
|
Office and administrative
|
|
|
128,961
|
|
|
|
71,428
|
|
Professional services
|
|
|
200,864
|
|
|
|
80,321
|
|
Directors’ fees
|
|
|
30,489
|
|
|
|
37,483
|
|
Provision for uncollectible value-added taxes (Note 7)
|
|
|
8,572
|
|
|
|
10,578
|
|
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
509,918
|
|
|
|
356,027
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(854,392
|
)
|
|
|
(568,678
|
)
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSES) INCOME
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
54
|
|
|
|
5,480
|
|
Foreign currency transaction loss
|
|
|
(2,019
|
)
|
|
|
(4,002
|
)
|
TOTAL OTHER (EXPENSES) INCOME
|
|
|
(1,965
|
)
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(856,357
|
)
|
|
|
(567,200
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
2,037
|
|
|
|
1,243
|
|
NET AND COMPREHENSIVE LOSS
|
|
$
|
(858,394
|
)
|
|
$
|
(568,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE*
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING*
|
|
|
33,453,738
|
|
|
|
29,541,027
|
|
|
|
|
|
|
|
|
|
|
*Shares outstanding for prior period have been restated for the
one-for-eight reverse stock split.
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares*
|
|
|
|
Amount
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Accumulated
Deficit
|
|
|
|
Other
Comprehensive Income
|
|
|
|
Total
Stockholders’ Equity
|
|
Three months ended January 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2020
|
|
|
33,165,945
|
|
|
$
|
2,399,518
|
|
|
$
|
138,613,286
|
|
|
$
|
(132,019,148
|
)
|
|
$
|
92,248
|
|
|
$
|
9,085,904
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- for cash at a price of $0.47 per share with attached warrants, less offering costs of $6,780 (Note 14)
|
|
|
319,000
|
|
|
|
3,190
|
|
|
|
139,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
143,150
|
|
Earn-in option agreement (Note 4)
|
|
|
—
|
|
|
|
—
|
|
|
|
72,286
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,286
|
|
Net loss for the three month period ended January 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(858,394
|
)
|
|
|
—
|
|
|
|
(858,394
|
)
|
Balance, January 31, 20201
|
|
|
33,484,945
|
|
|
$
|
2,402,708
|
|
|
$
|
138,825,532
|
|
|
$
|
(132,877,542
|
)
|
|
$
|
92,248
|
|
|
$
|
8,442,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares*
|
|
|
|
Amount
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Accumulated
Deficit
|
|
|
|
Other
Comprehensive Income
|
|
|
|
Total
Stockholders’ Equity
|
|
Three months ended January 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2019
|
|
|
29,541,027
|
|
|
$
|
2,363,282
|
|
|
$
|
135,902,944
|
|
|
$
|
(129,793,599
|
)
|
|
$
|
92,248
|
|
|
$
|
8,564,875
|
|
Earn-in option agreement (Note 4)
|
|
|
—
|
|
|
|
—
|
|
|
|
895,172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
895,172
|
|
Reclassification to additional paid-in capital of stock option liability (Note 15)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,803
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,803
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants (Note 15)
|
|
|
—
|
|
|
|
—
|
|
|
|
18,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,725
|
|
Net loss for the three month period ended January 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(568,443
|
)
|
|
|
—
|
|
|
|
(568,443
|
)
|
Balance, January 31, 2020
|
|
|
29,541,027
|
|
|
$
|
2,363,282
|
|
|
$
|
136,821,644
|
|
|
$
|
(130,362,042
|
)
|
|
$
|
92,248
|
|
|
$
|
8,915,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Shares outstanding for prior periods have been restated for the
one-for-eight reverse stock split.
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
2021
|
|
2020
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(858,394
|
)
|
|
$
|
(568,443
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
10,427
|
|
|
|
9,121
|
|
Provision for uncollectible value-added taxes
|
|
|
8,572
|
|
|
|
10,578
|
|
Foreign currency transaction gain
|
|
|
(2,525
|
)
|
|
|
(1,514
|
)
|
Stock options issued for compensation
|
|
|
—
|
|
|
|
18,725
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Value-added tax receivable
|
|
|
(14,529
|
)
|
|
|
(18,675
|
)
|
Income tax receivables
|
|
|
(133
|
)
|
|
|
(280
|
)
|
Other receivables
|
|
|
4,918
|
|
|
|
(4,274
|
)
|
Prepaid expenses and deposits
|
|
|
36,904
|
|
|
|
27,733
|
|
Accounts payable
|
|
|
(201,580
|
)
|
|
|
(156,374
|
)
|
Accrued liabilities and expenses
|
|
|
197,260
|
|
|
|
(49,383
|
)
|
Income tax payable
|
|
|
(3,500
|
)
|
|
|
(575
|
)
|
Net cash used in operating activities
|
|
|
(822,580
|
)
|
|
|
(733,361
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(10,180
|
)
|
|
|
—
|
|
Loan receivable (Note 8)
|
|
|
(400,000
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(410,180
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property concessions funding (Note 4)
|
|
|
72,286
|
|
|
|
895,172
|
|
Proceeds from loan financing (Note 13)
|
|
|
15,615
|
|
|
|
—
|
|
Proceeds from issuance of common stock, net of offering costs (Note 14)
|
|
|
143,091
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
230,992
|
|
|
|
895,172
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
2,825
|
|
|
|
1,212
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(998,943
|
)
|
|
|
163,023
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
1,861,518
|
|
|
|
1,431,634
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
862,575
|
|
|
$
|
1,594,657
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
|
|
Three Months Ended
January 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
5,732
|
|
|
$
|
1,823
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering costs included in accounts payable and accrued liabilities
|
|
$
|
60,102
|
|
|
$
|
—
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
NOTE 1 – ORGANIZATION, DESCRIPTION
OF BUSINESS AND GOING CONCERN
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”), Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) and Minas
de Coahuila SBR S.A. de C.V.
On April 16, 2010, Metalline Mining Delaware,
Inc., a wholly-owned subsidiary of the Company incorporated in the State of Delaware, was merged with and into Dome Ventures Corporation
(“Dome”), a Delaware corporation. 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 September 18, 2020, the Company completed
a one-for-eight reverse stock split of its shares of common stock. All share and per share information in the condensed interim
consolidated financial statements, including references to the number of shares of common stock, stock options and warrants, prices
of issued shares, exercise prices of stock options and warrants, and loss per share, have been adjusted to reflect the impact of
the reverse stock split.
On August 12, 2020, the Company entered
into an option agreement (the “Beskauga Option Agreement”) with Copperbelt AG, a corporation existing under the laws
of Switzerland (“Copperbelt Parent”), and Dostyk LLP, an entity existing under the laws of Kazakhstan and a wholly-owned
subsidiary of Copperbelt (the “Copperbelt Sub,” and together with Copperbelt Parent, “Copperbelt”), pursuant
to which the Company has the exclusive right and option (the “Beskauga Option”) to acquire Copperbelt’s right,
title and 100% interest in the Beskauga property located in Kazakhstan (the “Beskauga Property”), which consists of
the Beskauga Main project (the “Beskauga Main Project”) and the Beskauga South project (the “Beskauga South Project,”
and together the Beskauga Main Project, the “Beskauga Project”). After the completion of due diligence, the transaction
contemplated by the Beskauga Option Agreement closed on January 26, 2021.
On September 1, 2020, the Company
entered into a joint venture agreement (the “Stepnoe and Ekidos JV Agreement”) with Copperbelt Parent in connection
with mineral license applications for, and further exploration and evaluation of, the Stepnoe and Ekidos properties located in
Kazakhstan. Pursuant to the Stepnoe and Ekidos JV Agreement, the Company is obligated to contribute to the joint venture such funds
as may be required to apply for the Stepnoe and Ekidos mineral licenses and to fund such other exploration activities on the Stepnoe
and Ekidos properties as the Company, in its sole discretion, may deem appropriate, and Copperbelt is obligated to contribute to
the joint venture the identification of the Stepnoe and Ekidos properties. The Company and Copperbelt have initial participating
interests in the joint venture of 80% and 20%, respectively. Pursuant to the Stepnoe and Ekidos JV Agreement, the Company is entitled
to acquire Copperbelt’s participating interest in one or both of the Stepnoe and Ekidos properties for $1.5 million
each in cash.
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.
Going Concern
Since its inception in November 1993, the Company
has not generated revenue and has incurred an accumulated deficit of $132,877,542. Accordingly, the Company has not generated cash
flows from operations, and since inception the Company has relied primarily upon proceeds from private placements and registered
direct offerings of the Company’s equity securities and warrant exercises as the primary sources of financing to fund the
Company’s operations. As of January 31, 2021, the Company had cash and cash equivalents of approximately $863,000. Based
on the Company’s limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether the Company’s
existing cash resources are sufficient to enable the Company to continue its operations for the next 12 months as a going concern.
Management plans to pursue possible financing and strategic options including, but not limited to, obtaining additional equity
financing. Management has successfully pursued these options previously and believes that they alleviate the substantial doubt
that the Company can continue its operations for the next 12 months as a going concern. However, there is no assurance that the
Company will be successful in pursuing these plans. The Company’s limited ability to
issue shares to raise capital without an increase in the number of authorized shares of common stock is discussed further in the
“Risk Factors – Risks Related to our Business” section of the Company’s Annual Report on Form 10-K
for the year ended October 31, 2020.
These interim condensed consolidated financial
statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of
assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern. Such adjustments
could be material.
NOTE 2 – BASIS OF PRESENTATION
The Company’s interim condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“GAAP”) and applicable rules of the U.S. Securities and Exchange Commission (the “SEC”)
regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information
and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations. The interim condensed consolidated balance sheet at January 31, 2021 was derived from the
audited consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form
10-K for the year ended October 31, 2020.
All figures are in United States dollars
unless otherwise noted.
The interim condensed consolidated financial
statements have been prepared on the same basis as the audited consolidated financial statements, except as disclosed in Note 3.
In the opinion of management, the interim condensed consolidated financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.
Uncertainties with respect to estimates and assumptions are inherent in the preparation of the Company’s interim condensed
consolidated financial statements. Accordingly, operating results for the three months ended January 31, 2021 are not necessarily
indicative of the results that may be expected for the fiscal year ending October 31, 2021.
NOTE 3 – SIGNIFICANT ACCOUNTING
POLICIES
The significant accounting policies
are defined in the Company’s Annual Report on Form 10-K for the year ended October 31, 2020 filed with the SEC on January
28, 2021, except as follows.
Recent Accounting Pronouncements
Adopted in the Three-Month Period Ended January 31, 2021
On November 1, 2020, the Company adopted
the Financial Accounting Standards Board’s (the “FASB’s”) Accounting Standards Updated (“ASU”)
2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various
aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and
clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual
periods beginning after December 15, 2020. Early adoption is permitted. 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 January 2020, the FASB issued ASU
No. 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This
ASU is effective for fiscal years beginning after December 15, 2020. The adoption of this update is not expected to have a material
impact on 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 4 – SOUTH32 OPTION AGREEMENT
On June 1, 2018, the Company and
its subsidiaries Minera Metalin and Contratistas entered into an earn-in option agreement (the “South32 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 “South32
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 South32 Option Agreement, South32 earns into the South32
Option by funding a collaborative exploration program on the Sierra Mojada Project. Upon the terms and subject to the conditions
set forth in the South32 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 South32
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 South32 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 South32
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 South32 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. The Company received funding of $3,144,163 from South32 for Year 1
of the South32 Option Agreement. In April 2019, the Company received a notice from South32 to maintain the South32 Option Agreement
for Year 2 by providing cumulative funding of $6 million by the end of such period. As of January 31, 2021, the Company
had received funding of $1,492,447, which included payments of $319,430 and $1,100,731 received during the years ended October
31, 2019 and 2020, respectively, from South32 for Year 2 of the South32 Option Agreement, the time period for which has been
extended by an event of force majeure described in more detail below. In November 2020, the Company received a payment of $60,286
for the extended Year 2 time period. In December 2020, the Company received a payment of $12,000 for a COVID-19 related medical
donation to support local communities. If the South32 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 South32 Option Agreement.
Upon exercise of the South32 Option,
Minera Metalin and Contratistas are required to issue common shares to South32. Pursuant to the South32 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 that Minera
Metalin and Contratistas are variable interest entities and that the South32 Option Agreement has not resulted in the transfer
of control of the Sierra Mojada Project to South32. The Company has also determined that the South32 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 the cash consideration received, as it is more reliably measurable than the fair value of
the equity interest. If the South32 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
that are not wholly in control of the Company or South32 and are not currently probable.
No portion of the equity value has been classified
as temporary equity as the South32 Option has no intrinsic value.
On October 11, 2019, the Company and its
subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the South32 Option Agreement. Due to a blockade
by a cooperative of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros
Norteños”), the Company has temporarily halted all work on the Sierra Mojada Property. The notice of force majeure
was issued because of the blockade’s impact on the ability of the Company and its subsidiary Minera Metalin to perform their
obligations under the South32 Option Agreement. Pursuant to the South32 Option Agreement, any time period provided for in the South32
Option Agreement will generally be extended by a period equal to the period of delay caused by the event of force majeure. As of
March 12, 2021, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.
The combined approximate carrying amount of the assets and liabilities
of Contratistas and Minera Metalin (consolidated with their wholly-owned subsidiary) are as follows at January 31, 2021:
Assets:
|
|
Mexico
|
Cash and cash equivalents
|
|
$
|
7,000
|
|
Value-added tax receivable, net
|
|
|
236,000
|
|
Other receivables
|
|
|
5,000
|
|
Income tax receivable
|
|
|
1,000
|
|
Prepaid expenses and deposits
|
|
|
100,000
|
|
Office and mining equipment, net
|
|
|
185,000
|
|
Property concessions
|
|
|
5,020,000
|
|
Total assets
|
|
$
|
5,554,000
|
|
Liabilities:
|
|
|
Accounts payable
|
|
$
|
51,000
|
|
Accrued liabilities and expenses
|
|
|
126,000
|
|
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the South32 Option
|
|
|
3,469,000
|
|
Total liabilities
|
|
$
|
3,646,000
|
|
|
|
|
|
|
Net advances and investment in the Company’s Mexican subsidiaries
|
|
$
|
1,908,000
|
|
In addition, at January 31, 2021, Silver Bull
Resources, Inc. held $nil 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 at the Sierra Mojada Property.
The Company’s maximum exposure to loss at January 31, 2021
is $5,377,000, which includes the carrying value of the Mexican subsidiaries’ net assets excluding the payable to Silver
Bull Resources, Inc.
NOTE 5 – BESKAUGA OPTION AGREEMENT
On August 12, 2020, the Company
entered into the Beskauga Option Agreement with Copperbelt pursuant to which it has the exclusive right and option to acquire Copperbelt’s
right, title and 100% interest in the Beskauga property located in Kazakhstan. Upon execution of the Beskauga Option Agreement,
the Company paid Copperbelt Parent $30,000. Upon completion of the Company’s due diligence on January 26, 2021, the
Beskauga Option Agreement was finalized and the Company paid Copperbelt Parent $40,000.
As per the Beskauga Option Agreement,
to maintain the effectiveness of the Beskauga Option, the Company must incur the following exploration expenditures:
Date
|
|
Amount (USD $)
|
Within 1 year from Closing Date
|
|
$2 million
|
Within 2 years from Closing Date
|
|
$3 million
|
Within 3 years from Closing Date
|
|
$5 million
|
Within 4 years from Closing Date
|
|
$5 million
|
As of January 31, 2021, the Company
had incurred approximately $565,000 of the required expenditures required under the Beskauga Option Agreement, via the loans made
to Ekidos Minerals LLP (“Ekidos”). The Company incurred an additional $134,000 in February 2021.
The Beskauga Option Agreement also provides
that subject to the terms and conditions set forth in the Beskauga Option Agreement, after the Company has incurred the Exploration
Expenditures, the Company may exercise the Beskauga Option and acquire (i) the Beskauga Property by paying Copperbelt $15,000,000
in cash, (ii) the Beskauga Main Project only by paying Copperbelt $13,500,000 in cash, or (iii) the Beskauga South Project
only by paying Copperbelt $1,500,000 in cash.
In addition, the Beskauga Option Agreement
provides that subject to the terms and conditions set forth in the Beskauga Option Agreement, the Company may be obligated to make
the following bonus payments (collectively, the “Bonus Payments”) to Copperbelt Parent if the Beskauga Main Project
or the Beskauga South Project is the subject of a bankable feasibility study in compliance with Canadian National Instrument 43-101
indicating gold equivalent resources in the amounts set forth below, with (i) (A) 20% of the Bonus Payments payable after
completion of the bankable feasibility study or after the mineral resource statement is finally determined and (B) the remaining
80% of the Bonus Payments due within 15 business days of commencement of on-site construction of a mine for the Beskauga Main Project
or the Beskauga South Project, as applicable, and (ii) up to 50% of the Bonus Payments payable in shares of the Company’s
common stock to be valued at the 20-day volume-weighted average trading price of the shares on the Toronto Stock Exchange calculated
as of the date immediately preceding the date such shares are issued:
Gold equivalent resources
|
|
Cumulative Bonus Payments
|
Beskauga Main Project
|
|
|
3,000,000 ounces
|
|
$
|
2,000,000
|
|
5,000,000 ounces
|
|
$
|
6,000,000
|
|
7,000,000 ounces
|
|
$
|
12,000,000
|
|
10,000,000 ounces
|
|
$
|
20,000,000
|
|
Beskauga South Project
|
|
|
|
|
2,000,000 ounces
|
|
$
|
2,000,000
|
|
3,000,000 ounces
|
|
$
|
5,000,000
|
|
4,000,000 ounces
|
|
$
|
8,000,000
|
|
5,000,000 ounces
|
|
$
|
12,000,000
|
|
The Beskauga Option Agreement may be
terminated under certain circumstances, including (i) upon the mutual written agreement of the Company and Copperbelt; (ii) upon
the delivery of written notice by the Company, provided that at the time of delivery of such notice, unless there has been a material
breach of a representation or warranty given by Copperbelt that has not been cured, the Beskauga Property is in good standing;
or (iii) if there is a material breach by a party of its obligations under the Beskauga Option Agreement and the other party
has provided written notice of such material breach, which is incapable of being cured or remains uncured.
NOTE 6 – NET LOSS PER SHARE
The Company had stock options and warrants
outstanding at January 31, 2021 and 2020 that upon exercise were issuable into 4,015,039 and 4,019,038 shares of the Company’s
common stock, respectively. They were not included in the calculation of loss per share because they would have been anti-dilutive.
NOTE 7 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”)
receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $236,366 will be received within 12 months of the
balance sheet date. The allowance for uncollectible VAT 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.
A summary of the changes in the allowance
for uncollectible VAT for the three months ended January 31, 2021 is as follows:
Allowance for uncollectible VAT – October 31, 2020
|
|
$
|
345,059
|
|
Provision for VAT receivable allowance
|
|
|
8,572
|
|
Foreign currency translation adjustment
|
|
|
7,080
|
|
Allowance for uncollectible VAT – January 31, 2021
|
|
$
|
360,711
|
|
NOTE 8 – LOAN RECEIVABLE
On August 24, 2020, the Company
loaned $360,000 to Ekidos, an unrelated third-party Kazakh entity, relating to the acquisition of mineral property concessions
in Kazakhstan and expenditures incurred in relation to the Beskauga Option Agreement. The loan is interest free and is to be repaid
on June 30, 2021.
On December 21, 2020, the Company
loaned an additional $400,000 to Ekidos. This loan is interest free and is to be repaid by June 30, 2021.
NOTE 9 – OFFICE AND MINING
EQUIPMENT
The following is a summary of the Company’s
office and mining equipment at January 31, 2021 and October 31, 2020, respectively:
|
|
January 31,
|
|
October 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Mining equipment
|
|
$
|
454,382
|
|
|
$
|
444,202
|
|
Vehicles
|
|
|
92,873
|
|
|
|
92,873
|
|
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
|
|
|
|
|
894,449
|
|
|
|
884,269
|
|
Less: Accumulated depreciation
|
|
|
(654,927
|
)
|
|
|
(644,500
|
)
|
Office and mining equipment, net
|
|
$
|
239,522
|
|
|
$
|
239,769
|
|
NOTE 10 – PROPERTY CONCESSIONS
The following is a summary of the Company’s
property concessions for the Sierra Mojada Property as at January 31, 2021 and October 31, 2020:
|
Property concessions – January 31, 2021 and October 31, 2020
|
|
|
$
|
5,019,927
|
|
NOTE 11 – 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, 2020, 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 Company performs its annual goodwill impairment test as of April 30th of each fiscal
year.
The
following is a summary of the Company’s goodwill balance as at January 31, 2021 and October 31, 2020:
|
Goodwill – January 31, 2021 and October 31, 2020
|
|
|
$
|
2,058,031
|
|
NOTE 12 – ACCRUED LIABILITIES
AND EXPENSES
On August 12, 2020, the Company
entered into the Beskauga Option Agreement with Copperbelt pursuant to which it has the exclusive right and option to acquire Copperbelt’s
right, title and 100% interest in the Beskauga property located in Kazakhstan. In connection with the Beskauga Option Agreement,
the Company must pay in shares of the Company’s common stock a finder’s fee to a third party upon the satisfaction
of certain conditions. Upon completion of the Company’s due diligence on January 26, 2021, the Beskauga Option Agreement
was finalized, and the Company recorded a $154,000 (Canadian Dollar (“$CDN”) 200,000) liability.
The Company has agreed to issue to a
finder such number of the shares of common stock equal to following amounts by the dates included below:
Date
|
|
Amount ($CDN)
|
Upon completion of the Company’s due diligence and satisfaction of certain conditions
|
|
$
|
200,000
|
|
Within the first anniversary of first issue the Company’s common stock
|
|
$
|
100,000
|
|
Within the second anniversary of first issue the Company’s common stock
|
|
$
|
100,000
|
|
The shares of the Company’s common
stock are to be valued at the 10-day volume-weighted average trading price of the shares on the Toronto Stock Exchange calculated
as of the date immediately preceding the date such shares are issued
NOTE 13 – LOAN PAYABLE
In June 2020, the Company received $29,531
($CDN 40,000) in the form of a Canada Emergency Business Account (“CEBA”) loan. CEBA is part of the economic assistance
program launched by the Government of Canada to ensure that businesses have access to capital during the COVID-19 pandemic that
can only be used to pay non-deferrable operating expenses. During the period from receipt of the CEBA loan to December 31, 2022
(the “Initial Term”), no interest will be charged on the principal amount outstanding. If at least $CDN 30,000 is repaid
on or before the end of the Initial Term, the remaining $CDN 10,000 of principal will be forgiven pursuant to the terms of the
CEBA loan. During the period from January 1, 2023 to December 31, 2025 (the “Extended Term”), if any portion of the
loan remains outstanding, interest will be payable monthly at a rate of 5% per annum on the outstanding principal balance.
In January 2021, the Company applied and qualified
for an additional $15,615 ($CDN 20,000) CEBA loan. Fifty percent (50%) of the additional loan is forgivable if repaid by December
31, 2022. The loan accrues no interest before the end of the Initial Term, and thereafter converts to a three-year term loan with
a 5% annual interest rate. Any portion of the loan is repayable without penalty at any time prior to December 31, 2025. The total
CEBA loan amount stands at $CDN 60,000 with $CDN 20,000 forgivable if repaid by December 31, 2022.
The balance of the CEBA loan is fully repayable
on or before the end of the Extended Term, if not repaid on or before the end of the Initial Term. The Company anticipates repaying
the CEBA loan prior to the Initial Term date. An income will be recognized in the period when the CEBA loan is forgiven.
Loan payable – October 31, 2020
|
|
$
|
30,034
|
|
Loan payable received – January 2021
|
|
|
15,615
|
|
Foreign currency translation adjustment
|
|
|
1,299
|
|
Loan payable – January 31, 2021
|
|
$
|
46,948
|
|
NOTE 14 – COMMON STOCK
On November 9, 2020, the Company completed
the second and final tranche of a two-tranche private placement (the “Private Placement”) for 319,000 units (each,
a “Unit”) at a purchase price of $0.47 per Unit for gross proceeds of $149,930. Each Unit consists of one share of
the Company’s common stock and one half of one transferable common stock purchase warrant (each whole warrant, a “Warrant”).
Each Warrant entitles the holder thereof to acquire one share of common stock at a price of $0.59 until November 9, 2025. The Company
incurred other offering costs associated with the second and final tranche of the Private Placement of $6,780. Subscribers of the
second and final tranche of the Private Placement included management for a total 319,000 Units and gross proceeds of $149,930.
No shares of common stock were issued
during the three months ended January 31, 2020.
NOTE 15 – STOCK OPTIONS
The Company has one stock option plan under
which equity securities are authorized for issuance to officers, directors, employees and consultants: the 2019 Stock Option and
Stock Bonus Plan (the “2019 Plan”). Under the 2019 Plan, the lesser of (i) 3,750,000 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
two years and have a contractual term of five years.
No options were granted or exercised during
the three months ended January 31, 2021 and 2020.
On February 2, 2021, options to acquire 509,375
shares of common stock were exercised by way of a cashless exercise whereby the recipients elected to receive 228,986 shares without
payment of the cash exercise price and the remaining options for 280,389 shares were cancelled.
The following is a summary of stock option
activity for the three months ended January 31, 2021:
Options
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2020
|
|
|
|
2,043,750
|
|
|
$
|
0.72
|
|
|
|
1.83
|
|
|
$
|
53,546
|
|
|
Outstanding at January 31, 2021
|
|
|
|
2,043,750
|
|
|
$
|
0.75
|
|
|
|
1.66
|
|
|
$
|
139,500
|
|
|
Exercisable at January 31, 2021
|
|
|
|
2,043,750
|
|
|
$
|
0.75
|
|
|
|
1.66
|
|
|
$
|
139,500
|
|
The Company recognized stock-based compensation
costs for stock options of $nil and $18,725 for the three months ended January 31, 2021 and 2020, respectively. As of January 31,
2021, there was $nil of total unrecognized compensation expense, which is expected to be recognized over a weighted average period
of nil years.
Summarized information about stock options
outstanding and exercisable at January 31, 2021 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
|
$
|
0.47
|
|
|
|
509,375
|
|
|
|
0.15
|
|
|
$
|
0.47
|
|
|
|
509,375
|
|
|
$
|
0.47
|
|
|
0.78
|
|
|
|
509,375
|
|
|
|
1.26
|
|
|
|
0.78
|
|
|
|
509,375
|
|
|
|
0.78
|
|
|
0.81
|
|
|
|
943,750
|
|
|
|
2.72
|
|
|
|
0.81
|
|
|
|
943,750
|
|
|
|
0.81
|
|
|
1.35
|
|
|
|
43,750
|
|
|
|
2.13
|
|
|
|
1.35
|
|
|
|
43,750
|
|
|
|
1.35
|
|
|
1.60
|
|
|
|
37,500
|
|
|
|
0.59
|
|
|
|
1.60
|
|
|
|
37,500
|
|
|
|
1.60
|
|
|
0.47 – 1.60
|
|
|
|
2,043,750
|
|
|
|
1.66
|
|
|
$
|
0.75
|
|
|
|
2,043,750
|
|
|
$
|
0.75
|
|
Prior to the adoption of ASU 2018-07 on November
1, 2019, stock options granted to consultants with a $CDN exercise price were classified as a stock option liability on the Company’s
consolidated balance sheets upon vesting. On adoption of ASU 2018-07, the classification of stock options granted to consultants
with a $CDN exercise price is only reassessed if the award is modified after it vests and the consultant is no longer providing
services, rather than once performance is complete and the award vests. ASU 2018-07 requires liability-classified awards that have
not been settled as of the adoption date to be remeasured based on their adoption-date fair value. As a result, the Company reclassified
$4,803 from stock option liability to additional paid-in capital on adoption of ASU 2018-07. The following is a summary of the
Company’s stock option liability at January 31, 2020 and October 31, 2019:
Stock option liability at October 31, 2019:
|
|
$
|
4,803
|
|
Reclassification to additional paid-in capital
|
|
|
(4,803
|
)
|
Stock option liability at January 31, 2020
|
|
$
|
—
|
|
NOTE 16 –
WARRANTS
A summary of warrant activity for the three
months ended January 31, 2021 is as follows:
Warrants
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2020
|
|
|
1,811,789
|
|
|
$
|
0.59
|
|
|
|
4.99
|
|
|
$
|
18,118
|
|
Issued in the second and final tranche of the Private Placement (Note 14)
|
|
|
159,500
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at January 31, 2021
|
|
|
1,971,289
|
|
|
$
|
0.59
|
|
|
|
4.83
|
|
|
$
|
335,119
|
|
During the three months ended January 31,
2021, the Company issued 159,500 warrants with an exercise price of $0.59 in connection with the Private Placement.
No warrants were exercised during the three
months ended January 31, 2021.
No warrants were issued or exercised during
the three months ended January 31, 2020.
Summarized information about warrants outstanding
and exercisable at January 31, 2021 is as follows:
|
Warrants Outstanding and Exercisable
|
|
|
Exercise Price
|
|
|
|
Number
Outstanding
|
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.59
|
|
|
|
1,971,289
|
|
|
|
4.83
|
|
|
$
|
0.59
|
|
NOTE 17 – 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, loan receivable and loan payable.
The carrying amounts of cash and cash
equivalents, loan receivable, accounts payable and loan payable approximate fair value at January 31, 2021 and October 31, 2020
due to the short maturities of these financial instruments.
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 acceptable levels of creditworthiness.
The Company maintains its U.S. dollar
and Canadian dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit
standings. Cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to
$CDN 100,000. Certain Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they
relate to U.S. dollar deposits held in Canadian financial institutions. As of January 31, 2021, and October 31, 2020, the Company’s
cash and cash equivalent balances held in Canadian financial institutions included $803,563 and $1,793,270, respectively, which
was not insured by the 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 to 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 January 31, 2021,
and October 31, 2020, the U.S. dollar equivalent balance for these accounts was $7,467 and $8,739, respectively.
Interest Rate Risk
The Company holds substantially all
of its 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 three months ended January 31, 2021, a 1% decrease in interest rates would have resulted in a reduction of approximately $54
in interest income for the period.
Foreign Currency Exchange Risk
The Company is not subject to any significant
market risk related to foreign currency exchange rate fluctuations.
NOTE 18 – 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 in 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.
Litigation and Claims
On May 20,
2014, 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. On July 31, 2019, the Federal
Appeal Court upheld the original ruling. This ruling was subsequently challenged by Mineros Norteños and on January 24,
2020, the Federal Circuit Court ruled that the Federal Appeal Court must consider additional factors in its ruling. In
March 2020, the Federal Appeals Court upheld the original ruling after considering these additional factors. In August 2020,
Mineros Norteños appealed this ruling, which appeal the Company timely responded and objected to on October 5, 2020.
A resolution is expected to be entered in April, 2021. 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 interim condensed
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.
COVID-19
Global outbreaks of contagious diseases, including
the December 2019 outbreak of a novel strain of coronavirus (COVID-19), have the potential to significantly and adversely impact
our operations and business. On March 11, 2020, the World Health Organization recognized COVID-19 as a global pandemic. Pandemics
or disease outbreaks such as the currently ongoing COVID-19 outbreak may have a variety of adverse effects on our business, including
by depressing commodity prices and the market value of our securities and limiting the ability of our management to meet with potential
financing sources. The spread of COVID-19 has had, and continues to have, a negative impact on the financial markets, which may
impact our ability to obtain additional financing in the near term. A prolonged downturn in the financial markets could have an
adverse effect on our business, results of operations and ability to raise capital.
NOTE 19 – 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 Three Months Ended
|
|
|
January 31,
|
|
|
2021
|
|
2020
|
Net loss
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
(514,000
|
)
|
|
$
|
(197,000
|
)
|
Mexico
|
|
|
(58,000
|
)
|
|
|
(371,000
|
)
|
Kazakhstan
|
|
|
(286,000
|
)
|
|
|
—
|
|
Net Loss
|
|
$
|
(858,000
|
)
|
|
$
|
(568,000
|
)
|
|
|
|
|
|
|
|
|
|
The following table details the
allocation of assets included in the accompanying balance sheet at January 31, 2021:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
855,000
|
|
|
$
|
7,000
|
|
|
$
|
862,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
236,000
|
|
|
|
236,000
|
|
Income receivables
|
|
|
—
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Other receivables
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
10,000
|
|
Prepaid expenses and deposits
|
|
|
93,000
|
|
|
|
100,000
|
|
|
|
193,000
|
|
Loan receivable
|
|
|
760,000
|
|
|
|
—
|
|
|
|
760,000
|
|
Office and mining equipment, net
|
|
|
55,000
|
|
|
|
185,000
|
|
|
|
240,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
1,768,000
|
|
|
$
|
7,612,000
|
|
|
$
|
9,380,000
|
|
The following table details the allocation of assets included
in the accompanying balance sheet at October 31, 2020:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
1,853,000
|
|
|
$
|
9,000
|
|
|
$
|
1,862,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
220,000
|
|
|
|
220,000
|
|
Other receivables
|
|
|
10,000
|
|
|
|
4,000
|
|
|
|
14,000
|
|
Prepaid expenses and deposits
|
|
|
130,000
|
|
|
|
100,000
|
|
|
|
230,000
|
|
Loan receivable
|
|
|
360,000
|
|
|
|
—
|
|
|
|
360,000
|
|
Office and mining equipment, net
|
|
|
48,000
|
|
|
|
192,000
|
|
|
|
240,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
2,401,000
|
|
|
$
|
7,603,000
|
|
|
$
|
10,004,000
|
|
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 Three Months Ended
|
|
|
January 31,
|
|
|
2021
|
|
2020
|
Exploration and property holding costs for the year
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
(58,000
|
)
|
|
$
|
(185,000
|
)
|
Kazakhstan
|
|
|
(286,000
|
)
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
(28,000
|
)
|
|
|
$
|
(344,000
|
)
|
|
$
|
(213,000
|
)
|
NOTE 20 – SUBSEQUENT EVENTS
On February 5, 2021, Arras Minerals
Corp. was incorporated in British Columbia, Canada., as a wholly-owned subsidiary of the Company.
On February 22, 2021, the Company loaned an additional $155,000
to Ekidos relating to the acquisition of mineral property concessions in Kazakhstan, as well as exploration activities at the Beskauga
Property in Kazakhstan. This loan is interest free and is to be repaid by June 30, 2021.