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 Month Ended
April 30,
|
|
Six Months Ended
April 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPLORATION AND PROPERTY HOLDING COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and property holding costs
|
|
|
356,131
|
|
|
|
102,536
|
|
|
|
814,160
|
|
|
|
276,640
|
|
Depreciation
|
|
|
7,381
|
|
|
|
6,763
|
|
|
|
14,598
|
|
|
|
13,880
|
|
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS
|
|
|
363,512
|
|
|
|
109,299
|
|
|
|
828,758
|
|
|
|
290,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
166,160
|
|
|
|
113,045
|
|
|
|
339,367
|
|
|
|
245,342
|
|
Office and administrative
|
|
|
154,996
|
|
|
|
139,123
|
|
|
|
280,888
|
|
|
|
238,089
|
|
Professional services
|
|
|
71,397
|
|
|
|
88,289
|
|
|
|
136,278
|
|
|
|
140,199
|
|
Directors’ fees
|
|
|
53,300
|
|
|
|
38,440
|
|
|
|
107,765
|
|
|
|
80,454
|
|
Provision for uncollectible value-added taxes (Note 6)
|
|
|
11,639
|
|
|
|
5,800
|
|
|
|
20,955
|
|
|
|
25,202
|
|
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
457,492
|
|
|
|
384,697
|
|
|
|
885,253
|
|
|
|
729,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(821,004
|
)
|
|
|
(493,996
|
)
|
|
|
(1,714,011
|
)
|
|
|
(1,019,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,265
|
|
|
|
129
|
|
|
|
6,384
|
|
|
|
769
|
|
Interest and finance costs
|
|
|
—
|
|
|
|
(690
|
)
|
|
|
—
|
|
|
|
(1,639
|
)
|
Foreign currency transaction gain
|
|
|
2,073
|
|
|
|
5,572
|
|
|
|
7,904
|
|
|
|
2,599
|
|
Change in fair value of stock option liability (Note 11)
|
|
|
16,983
|
|
|
|
2,249
|
|
|
|
18,774
|
|
|
|
(5,792
|
)
|
Change in fair value of warrant derivative liability (Note 12)
|
|
|
484,636
|
|
|
|
293,225
|
|
|
|
370,223
|
|
|
|
(1,305,119
|
)
|
Miscellaneous income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
225
|
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
509,957
|
|
|
|
300,485
|
|
|
|
403,285
|
|
|
|
(1,308,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(311,047
|
)
|
|
|
(193,511
|
)
|
|
|
(1,310,726
|
)
|
|
|
(2,328,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
3,312
|
|
|
|
236
|
|
|
|
4,984
|
|
|
|
1,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET AND COMPREHENSIVE LOSS
|
|
|
(314,359
|
)
|
|
|
(193,747
|
)
|
|
|
(1,315,710
|
)
|
|
|
(2,330,325
|
)
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 5)
|
|
|
236,010,911
|
|
|
|
202,514,499
|
|
|
|
235,435,436
|
|
|
|
200,944,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Number of Shares
|
|
Amount
|
|
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Comprehensive Income
|
|
Stockholder’ Equity
|
Six months ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2018
|
|
|
234,868,214
|
|
|
$
|
2,348,682
|
|
|
$
|
133,015,768
|
|
|
$
|
(125,855,030
|
)
|
|
$
|
92,248
|
|
|
$
|
9,601,668
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exercise of warrants at a price of $CDN 0.13 per share less costs of $210 (Note 10)
|
|
|
1,460,000
|
|
|
|
14,600
|
|
|
|
128,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142,876
|
|
Earn-in option agreement (Note 4)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,221,380
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,221,380
|
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13 (Note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,126
|
|
Stock option and warrants activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants (Note 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
122,131
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122,131
|
|
Net loss for the six month period ended April 30, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,315,710
|
)
|
|
|
—
|
|
|
|
(1,315,710
|
)
|
Balance, April 30, 2019
|
|
|
236,328,214
|
|
|
$
|
2,363,282
|
|
|
$
|
135,499,681
|
|
|
$
|
(127,170,740
|
)
|
|
$
|
92,248
|
|
|
$
|
10,784,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
Number of Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Comprehensive Income
|
|
Stockholder’ Equity
|
Three months ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2019
|
|
|
235,268,214
|
|
|
$
|
2,352,682
|
|
|
$
|
134,162,059
|
|
|
$
|
(126,856,381
|
)
|
|
|
92,248
|
|
|
$
|
9,750,608
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exercise of warrants at a price of $CDN 0.13 per share less costs of $140 (Note 10)
|
|
|
1,060,000
|
|
|
|
10,600
|
|
|
|
92,928
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103,528
|
|
Earn-in option agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
1,175,380
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,175,380
|
|
Reclassification to additional paid-in capital upon
exercise of warrants at price of $CDN 0.13
|
|
|
—
|
|
|
|
—
|
|
|
|
9,094
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,094
|
|
Stock option and warrants activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
60,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,220
|
|
Net loss for the three month period ended April 30, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(314,359
|
)
|
|
|
—
|
|
|
|
(314,359
|
)
|
Balance, April 30, 2019
|
|
|
236,328,214
|
|
|
$
|
2,363,282
|
|
|
$
|
135,499,681
|
|
|
$
|
(127,170,740
|
)
|
|
$
|
92,248
|
|
|
$
|
10,784,471
|
|
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited) (continued)
|
|
|
Common
Stock
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
Amount
|
|
|
|
Paid-in
Capital
|
|
|
|
Accumulated
Deficit
|
|
|
|
Comprehensive
Income
|
|
|
|
Total
|
|
Six months ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- exercise of warrants at a price of $CDN 0.13 per share less
costs of $750 (Note 10)
|
|
|
5,440,000
|
|
|
|
54,400
|
|
|
|
497,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
551,752
|
|
- exercise of agent warrants at a price of $CDN 0.10 per share less costs of $165 (Note 10)
|
|
|
39,375
|
|
|
|
394
|
|
|
|
2,586
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,980
|
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13 (Note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
379,908
|
|
|
|
—
|
|
|
|
—
|
|
|
|
379,908
|
|
Reclassification to additional paid-up capital upon
exercise of warrants at price of $CDN 0.10 (Note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,615
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to officers, employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
51,634
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51,634
|
|
Net loss for the six month period ended April 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,330,325
|
)
|
|
|
—
|
|
|
|
(2,330,325
|
)
|
Balance, April 30, 2018
|
|
|
204,739,342
|
|
|
$
|
2,047,393
|
|
|
$
|
128,614,759
|
|
|
$
|
(124,665,689
|
)
|
|
$
|
92,248
|
|
|
$
|
6,088,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
Number of Shares
|
|
Amount
|
|
Paid-in Capital
|
|
Accumulated Deficit
|
|
Comprehensive Income
|
|
Total
|
Three months ended April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2018
|
|
|
200,169,342
|
|
|
$
|
2,001,693
|
|
|
$
|
127,877,925
|
|
|
$
|
(124,471,942
|
)
|
|
$
|
92,248
|
|
|
$
|
5,499,924
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- exercise of warrants at a price of $CDN 0.13 per share less costs of $585 (Note 10)
|
|
|
4,552,500
|
|
|
|
45,525
|
|
|
|
413,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
459,056
|
|
- exercise of agent warrants at a price of $CDN 0.10 per share less costs of $110 (Note 10)
|
|
|
17,500
|
|
|
|
175
|
|
|
|
1,086
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,261
|
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13
|
|
|
—
|
|
|
|
—
|
|
|
|
300,627
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,627
|
|
Reclassification to additional paid-up capital upon exercise of warrants at price of $CDN 0.10
|
|
|
—
|
|
|
|
—
|
|
|
|
1,576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,576
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to officers, employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
20,014
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,014
|
|
Net loss for the three month period ended April 30, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(193,747
|
)
|
|
|
—
|
|
|
|
(193,747
|
)
|
Balance, April 30, 2018
|
|
|
204,739,342
|
|
|
$
|
2,047,393
|
|
|
$
|
128,614,759
|
|
|
$
|
(124,665,689
|
)
|
|
$
|
92,248
|
|
|
$
|
6,088,711
|
|
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)
|
|
|
|
|
|
|
Six Months Ended
April 30,
|
|
|
2019
|
|
2018
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,315,710
|
)
|
|
$
|
(2,330,325
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,598
|
|
|
|
13,880
|
|
Provision for uncollectible value-added taxes
|
|
|
20,955
|
|
|
|
25,202
|
|
Foreign currency transaction loss (gain)
|
|
|
3,157
|
|
|
|
(2,411
|
)
|
Change in fair value of warrant derivative liability (Note 12)
|
|
|
(370,223
|
)
|
|
|
1,305,119
|
|
Change in fair value of stock option liability (Note 11)
|
|
|
(18,774
|
)
|
|
|
5,792
|
|
Stock options issued for compensation
|
|
|
122,131
|
|
|
|
72,565
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Value-added tax receivable
|
|
|
(65,670
|
)
|
|
|
(28,986
|
)
|
Income tax receivable
|
|
|
(337
|
)
|
|
|
—
|
|
Other receivables
|
|
|
2,171
|
|
|
|
(7,401
|
)
|
Prepaid expenses and deposits
|
|
|
47,517
|
|
|
|
30,848
|
|
Accounts payable
|
|
|
(108,467
|
)
|
|
|
37,135
|
|
Accrued liabilities and expenses
|
|
|
(220,096
|
)
|
|
|
(95,273
|
)
|
Income tax payable
|
|
|
(3,200
|
)
|
|
|
(2,780
|
)
|
Net cash used in operating activities
|
|
|
(1,891,948
|
)
|
|
|
(976,635
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITY:
|
|
|
|
|
|
|
|
|
Acquisition of property concessions (Note 8)
|
|
|
(11,820
|
)
|
|
|
(15,541
|
)
|
Net cash used in investing activity
|
|
|
(11,820
|
)
|
|
|
(15,541
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property concessions funding (Note 4)
|
|
|
2,221,380
|
|
|
|
—
|
|
Proceeds from exercise of warrants, net of costs (Note 10)
|
|
|
142,876
|
|
|
|
555,207
|
|
Net cash provided by financing activities
|
|
|
2,364,256
|
|
|
|
555,207
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
1,067
|
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
461,555
|
|
|
|
(435,203
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
3,025,839
|
|
|
|
681,776
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
3,487,394
|
|
|
$
|
246,573
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
Six Months Ended
April 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
3,192
|
|
|
$
|
4,599
|
|
Interest paid
|
|
|
—
|
|
|
|
1,639
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance costs included in accounts payable and accrued liability
|
|
$
|
—
|
|
|
$
|
475
|
|
The accompanying notes are an integral part
of these interim condensed 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.
The Company’s efforts and expenditures
have been concentrated on the exploration of properties, principally 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 – 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 October 31, 2018 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, 2018.
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 six months ended April 30, 2019 are not necessarily indicative
of the results that may be expected for the fiscal year ending October 31, 2019.
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, 2018 filed on January 16, 2019, except
as follows.
Recent Accounting Pronouncements
Adopted in the Six-Month Period Ended April 30, 2019
Effective November 1, 2018, the Company adopted
the Financial Accounting Standards Board’s (the “FASB’s”) Accounting Standards Update (“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. 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 November 1, 2018, the Company
adopted the FASB’s
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. 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 November 1, 2018, the Company
adopted the FASB’s
ASU
2016-18, “Statement of Cash Flows (Topic 230):
Restricted Cash,” which required entities to show the changes in the total of cash, cash equivalents, restricted cash and
restricted cash equivalents in 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 November 1, 2018, the Company
adopted the FASB’s 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. 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 November 1, 2018, the Company
adopted the FASB’s 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.
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 November 1, 2018, the Company
adopted the FASB’s
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 requires expanded disclosures about revenue recognition.
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 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.
Other recent
accounting pronouncement 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 – 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. The
Company received funding of $3,144,163 from South32 for Year 1 of the Option Agreement, of which $1,246,768 remains unspent as
of April 30, 2019. In April 2019, the Company received a notice from South32 to maintain the Option Agreement for Year 2 by providing
cumulative funding of $6 million by the end of such period. In May 2019 the Company received the initial payment of $319,430 for
Year 2 of the Option Agreement from South32. 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 that Minera
Metalin and Contratistas are variable interest entities and that 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 the cash 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 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 option has no intrinsic value.
The combined approximate carrying amount of the assets and liabilities
of Contratistas and Minera Metalin (consolidated with Minera Metalin’s wholly-owned subsidiary) are as follows at April 30,
2019:
Assets:
|
|
Mexico
|
Cash and cash equivalents
|
|
$
|
104,000
|
|
Value-added tax receivable, net
|
|
|
231,000
|
|
Other receivables
|
|
|
1,000
|
|
Income tax receivable
|
|
|
1,000
|
|
Prepaid expenses and deposits
|
|
|
109,000
|
|
Office and mining equipment, net
|
|
|
187,000
|
|
Property concessions
|
|
|
5,032,000
|
|
Total assets
|
|
$
|
5,665,000
|
|
Liabilities:
|
|
|
Accounts payable
|
|
|
47,000
|
|
Accrued liabilities and expenses
|
|
|
148,000
|
|
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option
|
|
|
2,551,000
|
|
Total liabilities
|
|
$
|
2,746,000
|
|
|
|
|
|
|
Net advances and investment in the Company’s Mexican subsidiaries
|
|
$
|
2,919,000
|
|
In addition, at April 30, 2019, Silver Bull Resources, Inc. held
$1,174,000 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 April 30, 2019 is
$5,470,000, which includes the carrying value of the Mexican subsidiaries’ net assets excluding the payable to Silver Bull
Resources, Inc.
NOTE 5 – LOSS PER SHARE
The Company had stock options and warrants
outstanding at April 30, 2019 and 2018 that upon exercise were issuable into 53,515,230 and 34,515,325 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 6 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”)
receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $231,181 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 six months ended April 30, 2019 is as follows:
Allowance for uncollectible VAT – October 31, 2018
|
|
$
|
98,414
|
|
Provision for VAT receivable allowance
|
|
|
20,955
|
|
Foreign currency translation adjustment
|
|
|
6,218
|
|
Write-off of VAT receivable
|
|
|
762
|
|
Allowance for uncollectible VAT – April 30, 2019
|
|
$
|
126,349
|
|
NOTE 7 – OFFICE AND MINING
EQUIPMENT
The following is a summary of the Company’s
office and mining equipment at April 30, 2019 and October 31, 2018, respectively:
|
|
April 30,
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Mining equipment
|
|
$
|
358,513
|
|
|
$
|
358,513
|
|
Vehicles
|
|
|
73,287
|
|
|
|
73,287
|
|
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
|
|
|
|
778,994
|
|
Less: Accumulated depreciation
|
|
|
(592,106
|
)
|
|
|
(577,508
|
)
|
Office and mining equipment, net
|
|
$
|
186,888
|
|
|
$
|
201,486
|
|
NOTE 8 – PROPERTY CONCESSIONS
The following is a summary of the Company’s
property concessions for the Sierra Mojada Property as at April 30, 2019 and October 31, 2018:
Property concessions –October 31, 2018
|
|
$
|
5,019,927
|
|
Acquisitions
|
|
|
11,820
|
|
Property concessions – April 30, 2019
|
|
$
|
5,031,747
|
|
NOTE 9 – 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, 2019, 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 April 30, 2019 and October 31, 2018:
|
Goodwill – April 30, 2019 and October 31, 2018
|
|
|
$
|
2,058,031
|
|
NOTE 10 – COMMON STOCK
On March 6, 2019, 460,000 warrants to
acquire 460,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $44,560 ($CDN 59,800).
On February 21, 2019, 600,000 warrants to
acquire 600,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $59,109 ($CDN 78,000).
On January 30, 2019, 400,000 warrants to
acquire 400,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $39,418 ($CDN 52,000).
The Company incurred costs of $210 related
to warrant exercises in the six months ended April 30, 2019.
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 $915 related
to warrant exercises in the six months ended April 30, 2018.
NOTE 11 – STOCK OPTIONS
The Company has two stock option plans, the
2010 Stock Option and Stock Bonus Plan, as amended (the “2010 Plan”) and the 2019 Stock Option and Stock Bonus Plan
(the “2019 Plan”). Under each of the 2010 Plan and the 2019 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 six months ended April 30, 2019 and 2018 are as follows:
|
|
Six Months Ended
April 30,
|
Options
|
|
2019
|
|
2018
|
|
|
|
|
|
Expected volatility
|
|
—
|
|
40%
|
Risk-free interest rate
|
|
—
|
|
1.94%
|
Dividend yield
|
|
—
|
|
—
|
Expected term (in years)
|
|
—
|
|
5.0
|
No options were granted or exercised during
the six months ended April 30, 2019. No options were exercised during the six months ended April 30, 2018.
During the six months ended April 30, 2018,
the Company granted to a consultant options that vested immediately to acquire 350,000 shares of common stock with a weighted-average
grant-date fair value of $0.06 per share and an exercise price of Canadian dollar (“$CDN”) 0.215 per share. No options
were exercised during the six months ended April 30, 2018.
The following is a summary of stock option
activity for the six months ended April 30, 2019:
Options
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2018
|
|
18,950,000
|
$
|
0.11
|
|
3.48
|
$
|
429,158
|
Cancelled and expired
|
|
(275,000)
|
|
0.10
|
|
|
|
|
Outstanding at April 30, 2019
|
|
18,675,000
|
$
|
0.11
|
|
2.96
|
$
|
91,075
|
Exercisable at April 30, 2019
|
|
13,641,667
|
$
|
0.12
|
|
2.44
|
$
|
91,075
|
The Company recognized stock-based compensation
costs for stock options of $122,131 and $72,565 for the six months ended April 30, 2019 and 2018, respectively. As of April 30,
2019, there was $147,151 of total unrecognized compensation expense, which is expected to be recognized over a weighted average
period of 0.55 years.
Summarized information about stock options
outstanding and exercisable at April 30, 2019 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
|
|
|
|
1.82
|
|
|
$
|
0.06
|
|
|
|
4,075,000
|
|
|
$
|
0.06
|
|
|
0.10
|
|
|
|
11,625,000
|
|
|
|
3.88
|
|
|
|
0.10
|
|
|
|
6,591,667
|
|
|
|
0.10
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
3.81
|
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
0.16
|
|
|
0.19 – 0.26
|
|
|
|
2,625,000
|
|
|
|
0.56
|
|
|
|
0.26
|
|
|
|
2,625,000
|
|
|
|
0.26
|
|
$
|
0.06 – 0.26
|
|
|
|
18,675,000
|
|
|
|
2.96
|
|
|
$
|
0.11
|
|
|
|
13,641,667
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted to consultants with a
$CDN exercise price are classified as stock option liability on the Company’s interim condensed consolidated balance sheets
upon vesting. The following is a summary of the Company’s stock option liability at April 30, 2019 and October 31, 2018:
Stock option liability at October 31, 2018:
|
|
$
|
25,116
|
|
Change in fair value of stock option liability
|
|
|
(18,774
|
)
|
Stock option liability at April 30, 2019
|
|
$
|
6,342
|
|
NOTE 12
–
WARRANTS
A summary of warrant activity for the six months
ended April 30, 2019 is as follows:
Warrants
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2019
|
|
|
36,300,230
|
|
|
$
|
0.13
|
|
|
|
1.16
|
|
|
$
|
254,068
|
|
Exercised
|
|
|
(1,460,000
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 30, 2019
|
|
|
34,840,230
|
|
|
$
|
0.13
|
|
|
|
0.68
|
|
|
$
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercised during the six months
ended April 30, 2019 and 2018 are discussed in Note 10.
The
warrants exercised during the six months ended April 30, 2019 and 2018 had an intrinsic value of $12,126 and $383,523, respectively.
Summarized information about warrants outstanding
and exercisable at April 30, 2019 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
|
|
|
|
0.19
|
|
|
$
|
0.08
|
|
|
0.10
|
|
|
|
14,340,000
|
|
|
|
0.21
|
|
|
|
0.10
|
|
|
0.12
|
|
|
|
4,340,000
|
|
|
|
0.22
|
|
|
|
0.12
|
|
|
0.14
|
|
|
|
1,231,374
|
|
|
|
1.25
|
|
|
|
0.14
|
|
|
0.16
|
|
|
|
14,570,931
|
|
|
|
1.25
|
|
|
|
0.16
|
|
$
|
0.08 – 0.16
|
|
|
|
34,840,230
|
|
|
|
0.68
|
|
|
$
|
0.13
|
|
If the closing price of the Company’s
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 April 30,
2019 and October 31, 2018:
Warrant derivative liability at October 31, 2018:
|
|
$
|
405,500
|
|
Change in fair value of warrant derivative liability
|
|
|
(370,223
|
)
|
Reclassification to additional paid-in capital upon exercise of warrants
|
|
|
(12,126
|
)
|
Warrant derivative liability at April 30, 2019
|
|
$
|
23,151
|
|
NOTE 13 – 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 April 30, 2019 and October 31, 2018 due to the short maturities of these
financial instruments.
Derivative liability
The Company classifies warrants with a $CDN
exercise price on its interim condensed consolidated balance sheets as a derivative liability, which 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 12). 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 interim condensed 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 derivative 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 interim condensed 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 fair value are recorded
in the interim condensed 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:
|
|
April 30, 2019
|
Liability
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
Stock option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,342
|
|
Warrant derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,151
|
|
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 April 30, 2019, and October 31, 2018, the Company’s
cash and cash equivalent balances held in Canadian financial institutions included $3,325,066 and $2,919,461, 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 April 30, 2019, and
October 31, 2018, the U.S. dollar equivalent balance for these accounts was $104,485 and $32,668, 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 six months ended April 30, 2019, a 1% decrease in interest rates would have resulted in a reduction of approximately $3,192
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 14 – 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”).
Litigation and Claims
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 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.
NOTE 15 – 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
|
|
For the Six Months
Ended
|
|
|
April 30,
|
|
April 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
(377,000
|
)
|
|
$
|
(117,000
|
)
|
|
$
|
(846,000
|
)
|
|
$
|
(318,000
|
)
|
Canada
|
|
|
63,000
|
|
|
|
(77,000
|
)
|
|
|
(470,000
|
)
|
|
|
(2,012,000
|
)
|
Net Loss
|
|
|
(314,000
|
)
|
|
$
|
(194,000
|
)
|
|
$
|
(1,316,000
|
)
|
|
$
|
(2,330,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details the allocation of assets included
in the accompanying balance sheet at April 30, 2019:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
3,383,000
|
|
|
$
|
104,000
|
|
|
$
|
3,487,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
231,000
|
|
|
|
231,000
|
|
Other receivables
|
|
|
9,000
|
|
|
|
1,000
|
|
|
|
10,000
|
|
Prepaid expenses and deposits
|
|
|
79,000
|
|
|
|
110,000
|
|
|
|
189,000
|
|
Office and mining equipment, net
|
|
|
—
|
|
|
|
187,000
|
|
|
|
187,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,032,000
|
|
|
|
5,032,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
3,471,000
|
|
|
$
|
7,723,000
|
|
|
$
|
11,194,000
|
|
The following table details the allocation of assets included
in the accompanying 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 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.