SILVER
BULL RESOURCES, INC.
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
|
|
Nine
Months Ended
July
31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
3,195
|
|
|
$
|
4,599
|
|
Interest
paid
|
|
|
—
|
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued for financing fees (Note 10)
|
|
$
|
—
|
|
|
$
|
21,973
|
|
Offering
costs included in accounts payable and accrued liabilities
|
|
|
—
|
|
|
|
100,827
|
|
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 nine months
ended July 31, 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 Nine-Month Period Ended July 31, 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. Additionally, there were no changes
in classification of the financial instruments as a result of the adoption.
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.
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. As of July 31, 2019, $378,001 of the funds received from South32 remains unspent. 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 July 31, 2019:
Assets:
|
|
Mexico
|
Cash and
cash equivalents
|
|
$
|
85,000
|
|
Value-added tax receivable,
net
|
|
|
325,000
|
|
Other receivables
|
|
|
5,000
|
|
Income tax receivable
|
|
|
1,000
|
|
Prepaid expenses and
deposits
|
|
|
106,000
|
|
Office and mining equipment,
net
|
|
|
236,000
|
|
Property
concessions
|
|
|
5,032,000
|
|
Total
assets
|
|
$
|
5,790,000
|
|
Liabilities:
|
|
|
Accounts
payable
|
|
|
165,000
|
|
Accrued liabilities
and expenses
|
|
|
175,000
|
|
Payable
to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option
|
|
|
3,327,000
|
|
Total
liabilities
|
|
$
|
3,667,000
|
|
|
|
|
|
|
Net
advances and investment in the Company’s Mexican subsidiaries
|
|
$
|
2,123,000
|
|
In
addition, at July 31, 2019, Silver Bull Resources, Inc. held $331,000 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 July 31, 2019 is $5,450,000, which includes the carrying value of the Mexican subsidiaries’
net assets excluding the payable to Silver Bull Resources, Inc.
NOTE
5 – NET (LOSS) INCOME PER SHARE
The
Company had stock options and warrants outstanding at July 31, 2019 and 2018 that upon exercise were issuable into 36,977,305
and 43,522,453 shares of the Company’s common stock, respectively. Basic net (loss) income per share is computed by dividing
net (loss) income available to common stockholders by the weighted average number of common shares outstanding during the period.
Diluted net (loss) income per share reflects the potential dilution that would occur if securities or other contracts to issue
common shares were exercised.
NOTE
6 – VALUE-ADDED TAX RECEIVABLE
Value-added
tax (“VAT”) receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $324,873 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 nine months ended July 31, 2019 is as follows:
Allowance
for uncollectible VAT – October 31, 2018
|
|
$
|
98,414
|
|
Provision
for VAT receivable allowance
|
|
|
66,498
|
|
Foreign
currency translation adjustment
|
|
|
5,896
|
|
Write-off
of VAT receivable
|
|
|
605
|
|
Allowance
for uncollectible VAT – July 31, 2019
|
|
$
|
171,413
|
|
NOTE
7 – OFFICE AND MINING EQUIPMENT
The
following is a summary of the Company’s office and mining equipment at July 31, 2019 and October 31, 2018, respectively:
|
|
July
31,
|
|
October
31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Mining
equipment
|
|
$
|
396,152
|
|
|
$
|
358,513
|
|
Vehicles
|
|
|
92,873
|
|
|
|
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
|
|
|
|
|
836,219
|
|
|
|
778,994
|
|
Less: Accumulated
depreciation
|
|
|
(600,467
|
)
|
|
|
(577,508
|
)
|
Office
and mining equipment, net
|
|
$
|
235,752
|
|
|
$
|
201,486
|
|
NOTE
8 – PROPERTY CONCESSIONS
The
following is a summary of the Company’s property concessions for the Sierra Mojada Property as at July 31, 2019 and October
31, 2018:
Property
concessions –October 31, 2018
|
|
$
|
5,019,927
|
|
Acquisitions
|
|
|
11,820
|
|
Property
concessions – July 31, 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
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 July 31, 2019 and October 31, 2018:
|
Goodwill
– July 31, 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 nine months ended July 31, 2019.
On
July 27, 2018, the Company received $20,222 for 155,555 units at a purchase price of $0.13 per unit (the “$0.13 Unit”)
for the second tranche of the private placement. On July 25, 2018, the Company completed the initial tranche of a two tranche
private placement for 21,776,317 units at a purchase price of $0.13 per unit for gross proceeds of $2,830,921. Each $0.13 Unit
consists of one share of the Company’s common stock and one half of one common stock purchase warrant (the “$0.13
Warrant”). Each full $0.13 Warrant entitles the holder thereof to acquire one share of common stock at a price of
$0.16 for a period of 24 months from the closing of the private placement. The Company paid a 7% finder’s fee totaling $184,070
to agents with respect to certain purchasers who were introduced by these agents. In addition, the agents received 1,011,374 non-transferable
warrants (the “2018 Agent’s Warrants”). Each 2018 Agent’s Warrant entitles the agents to acquire one share
of common stock at a price of $0.14 for a period of 24 months from the closing of the private placement. The fair value of the
2018 Agent’s Warrants was determined to be $21,973 (Note 12), and the Company incurred other offering costs of $96,124.
On
June 6, 2018, 43,750 warrants to acquire 43,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per
share of common stock for aggregate gross proceeds of $3,388 ($CDN 4,375).
On
May 28, 2018, 292,250 warrants to acquire 292,250 shares of common stock were exercised at an exercise price of $CDN 0.10
per share of common stock for aggregate gross proceeds of $22,479 ($CDN 29,225).
On
May 7, 2018, 125,000 warrants to acquire 125,000 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $12,632 ($CDN 16,250).
On
May 7, 2018, 526,000 warrants to acquire 526,000 shares of common stock were exercised at an exercise price of $CDN 0.10
per share of common stock for aggregate gross proceeds of $40,889 ($CDN 52,600).
On
April 4, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $63,432 ($CDN 81,250).
On
March 29, 2018, 1,000,000 warrants to acquire 1,000,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $100,822 ($CDN 130,000).
On
March 28, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per
share of common stock for aggregate gross proceeds of $678 ($CDN 875).
On
March 15, 2018, 1,025,000 warrants to acquire 1,025,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $102,248 ($CDN 133,250).
On
March 14, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $25,108 ($CDN 32,500).
On
March 8, 2018, 974,500 warrants to acquire 974,500 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $98,000 ($CDN 126,685).
On
February 20, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10
per share of common stock for aggregate gross proceeds of $693 ($CDN 875).
On
February 20, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $25,749 ($CDN 32,500).
On
February 16, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $25,917 ($CDN 32,500).
On
February 13, 2018, 178,000 warrants to acquire 178,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $18,365 ($CDN 23,140).
On
January 29, 2018, 21,875 warrants to acquire 21,875 shares of common stock were exercised at an exercise price of $CDN 0.10
per share of common stock for aggregate gross proceeds of $1,773 ($CDN 2,188).
On
January 22, 2018, 62,500 warrants to acquire 62,500 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $6,522 ($CDN 8,125).
On
January 15, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN
0.13 per share of common stock for aggregate gross proceeds of $65,408 ($CDN 81,250).
On
January 8, 2018, 200,000 warrants to acquire 200,000 shares of common stock were exercised at an exercise price of $CDN 0.13
per share of common stock for aggregate gross proceeds of $20,931 ($CDN 26,000).
The
Company incurred costs of $1,128 related to warrant exercises in the nine months ended July 31, 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. On July 12, 2019, the Company registered 23,632,821 of the Company’s common stock with
the SEC for issuance under the 2019 Plan.
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 nine months ended July 31, 2019 and 2018 are as
follows:
|
|
Nine
Months Ended
July
31,
|
Options
|
|
2019
|
|
2018
|
|
|
|
|
|
Expected
volatility
|
|
—
|
|
40%
|
Risk-free
interest rate
|
|
—
|
|
1.94%
|
Dividend
yield
|
|
—
|
|
—
|
Expected
term (in years)
|
|
—
|
|
5.00
|
No
options were granted or exercised during the nine months ended July 31, 2019.
During
the nine months ended July 31, 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 nine months ended July 31, 2018.
The
following is a summary of stock option activity for the nine months ended July 31, 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 July 31, 2019
|
|
|
18,675,000
|
|
|
$
|
0.11
|
|
|
|
2.71
|
|
|
$
|
305,370
|
|
Exercisable
at July 31, 2019
|
|
|
13,641,667
|
|
|
$
|
0.12
|
|
|
|
2.18
|
|
|
$
|
267,088
|
|
The
Company recognized stock-based compensation costs for stock options of $176,340 and $79,014 for the nine months ended July 31,
2019 and 2018, respectively. As of July 31, 2019, there was $93,790 of total unrecognized compensation expense, which is expected
to be recognized over a weighted average period of 0.52 years.
Summarized
information about stock options outstanding and exercisable at July 31, 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
|
|
|
|
1.57
|
|
|
$
|
0.06
|
|
|
|
4,075,000
|
|
|
$
|
0.06
|
|
|
0.10
|
|
|
|
11,625,000
|
|
|
|
3.63
|
|
|
|
0.10
|
|
|
|
6,591,667
|
|
|
|
0.10
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
3.56
|
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
0.16
|
|
|
0.19
– 0.26
|
|
|
|
2,625,000
|
|
|
|
0.31
|
|
|
|
0.26
|
|
|
|
2,625,000
|
|
|
|
0.26
|
|
$
|
0.06
– 0.26
|
|
|
|
18,675,000
|
|
|
|
2.71
|
|
|
$
|
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
July 31, 2019 and October 31, 2018:
Stock
option liability at October 31, 2018:
|
|
$
|
25,116
|
|
Change
in fair value of stock option liability
|
|
|
(13,509
|
)
|
Stock
option liability at July 31, 2019
|
|
$
|
11,607
|
|
NOTE
12 – WARRANTS
A
summary of warrant activity for the nine months ended July 31, 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, 2018
|
|
|
36,300,230
|
|
|
$
|
0.13
|
|
|
|
1.16
|
|
|
$
|
254,068
|
|
Exercised
|
|
|
(1,460,000
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(16,537,925
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at July 31, 2019
|
|
|
18,302,305
|
|
|
$
|
0.15
|
|
|
|
0.87
|
|
|
$
|
19,014
|
|
No
warrants were issued during the nine months ended July 31, 2019.
During
the nine months ended July 31, 2018, the Company issued 10,888,154 warrants with an exercise price of $0.16 in connection with
the $0.13 Unit private placement and issued 1,011,374 compensation warrants to agents with an exercise price of $0.14 (Note 10).
The fair value of the 2018 Agent’s Warrants was determined to be $21,973 based on the Black-Scholes pricing model using
a risk-free interest rate of 2.9%, expected volatility of 39%, dividend yield of 0%, and a contractual term of two years.
Warrants
exercised during the nine months ended July 31, 2019 and 2018 are discussed in Note 10.
The
warrants exercised during the nine months ended July 31, 2019 and 2018 had an intrinsic value of $12,126 and $447,185, respectively.
Summarized
information about warrants outstanding and exercisable at July 31, 2019 is as follows:
|
Warrants
Outstanding and Exercisable
|
|
|
Exercise
Price
|
|
|
|
Number
Outstanding
|
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.10
|
|
|
|
2,500,000
|
|
|
|
0.01
|
|
|
|
0.10
|
|
|
0.14
|
|
|
|
1,231,374
|
|
|
|
1.00
|
|
|
|
0.14
|
|
|
0.16
|
|
|
|
14,570,931
|
|
|
|
1.00
|
|
|
|
0.16
|
|
$
|
0.10
– 0.16
|
|
|
|
18,302,305
|
|
|
|
0.87
|
|
|
$
|
0.15
|
|
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 July 31, 2019 and October 31, 2018:
Warrant
derivative liability at October 31, 2018:
|
|
$
|
405,500
|
|
Change
in fair value of warrant derivative liability
|
|
|
(372,329
|
)
|
Reclassification
to additional paid-in capital upon exercise of warrants
|
|
|
(12,126
|
)
|
Warrant
derivative liability at July 31, 2019
|
|
$
|
21,045
|
|
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 July 31, 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:
|
|
July
31, 2019
|
Liability
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
|
|
|
|
|
|
Stock
option liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,607
|
|
Warrant
derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,045
|
|
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 July 31, 2019, and
October 31, 2018, the Company’s cash and cash equivalent balances held in Canadian financial institutions included $2,273,926
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 July 31, 2019, and October 31, 2018, the U.S. dollar equivalent balance for these accounts was $85,046 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 nine months ended July 31, 2019, a 1% decrease in interest rates would have resulted in a
reduction of approximately $10,693 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. On July 31, 2019, the
Federal Appeal Court held the original ruling. This ruling has been subsequently challenged by Mineros Norteños. The Company
and the Company’s Mexican legal counsel believe that it is unlikely that the court’s ruling will be overturned. 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 Nine Months Ended
|
|
|
July
31,
|
|
July
31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
(1,138,000
|
)
|
|
$
|
(218,000
|
)
|
|
$
|
(1,984,000
|
)
|
|
$
|
(536,000
|
)
|
Canada
|
|
|
(367,000
|
)
|
|
|
293,000
|
|
|
|
(837,000
|
)
|
|
|
(1,720,000
|
)
|
Net
(Loss) Income
|
|
|
(1,505,000
|
)
|
|
$
|
75,000
|
|
|
$
|
(2,821,000
|
)
|
|
$
|
(2,256,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table details the allocation of assets included in the accompanying balance sheet at July 31, 2019:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and
cash equivalents
|
|
$
|
2,350,000
|
|
|
$
|
85,000
|
|
|
$
|
2,435,000
|
|
Value-added tax receivable,
net
|
|
|
—
|
|
|
|
325,000
|
|
|
|
325,000
|
|
Other receivables
|
|
|
9,000
|
|
|
|
5,000
|
|
|
|
14,000
|
|
Prepaid expenses and
deposits
|
|
|
37,000
|
|
|
|
106,000
|
|
|
|
143,000
|
|
Office and mining equipment,
net
|
|
|
—
|
|
|
|
236,000
|
|
|
|
236,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,032,000
|
|
|
|
5,032,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
2,396,000
|
|
|
$
|
7,847,000
|
|
|
$
|
10,243,000
|
|
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.