The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
8,080
|
|
|
$
|
4,599
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for financing fees (Note 8)
|
|
$
|
—
|
|
|
$
|
26,165
|
|
Offering costs included in accounts payable and accrued liabilities
|
|
$
|
—
|
|
|
$
|
50,653
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
SILVER
BULL RESOURCES, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Amount
|
|
|
|
Additional Paid-in Capital
|
|
|
|
Accumulated Deficit
|
|
|
|
Other Comprehensive Income
|
|
|
|
Total
|
|
Balance, November 1, 2017
|
|
|
199,259,967
|
|
|
$
|
1,992,599
|
|
|
$
|
127,679,664
|
|
|
$
|
(122,335,364
|
)
|
|
$
|
92,248
|
|
|
$
|
7,429,147
|
|
Issuance of common stock as follows:
- for cash
at a price of $0.13 per share with attached warrants, less offering costs of $343,816 (Note 8)
|
|
|
29,141,872
|
|
|
|
291,419
|
|
|
|
3,153,208
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,444,627
|
|
- exercise of warrants at a price of $CDN 0.13 per share,
less costs of $795 (Note 8)
|
|
|
5,565,000
|
|
|
|
55,650
|
|
|
|
508,689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
564,339
|
|
- exercise of agent warrants at a price of $CDN 0.10
per share, less costs of $333 (Note 8)
|
|
|
901,375
|
|
|
|
9,014
|
|
|
|
60,556
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69,570
|
|
Earn-In Option Agreement (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
922,783
|
|
|
|
—
|
|
|
|
—
|
|
|
|
922,783
|
|
Stock-based compensation for options issued to directors, officers,
employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
245,629
|
|
|
|
—
|
|
|
|
—
|
|
|
|
245,629
|
|
Fair value of warrants issued to agents in connection with the $0.13
per share private placement (Notes 8 and 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
26,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,165
|
|
Reclassification of consultants’ stock options to liability
(Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,111
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,111
|
)
|
Reclassification to additional paid-in capital upon exercise of
warrants at price of $CDN 0.13 (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
385,738
|
|
|
|
—
|
|
|
|
—
|
|
|
|
385,738
|
|
Reclassification to additional paid-in capital upon exercise of
warrants at price of $CDN 0.10 (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
61,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,447
|
|
Net loss for the year ended October 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,519,666
|
)
|
|
|
—
|
|
|
|
(3,519,666
|
)
|
Balance, October 31, 2018
|
|
|
234,868,214
|
|
|
$
|
2,348,682
|
|
|
$
|
133,015,768
|
|
|
$
|
(125,855,030
|
)
|
|
$
|
92,248
|
|
|
$
|
9,601,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock as follows:
- Exercise
of warrants at a price of $0.13 per share less costs of $210 (Note 8)
|
|
|
1,460,000
|
|
|
|
14,600
|
|
|
|
128,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142,876
|
|
Earn-In Option Agreement (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,540,810
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,540,810
|
|
Reclassification to additional paid-in capital upon exercise of
warrants at price of $CDN 0.13 (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,126
|
|
Reclassification of consultants’ stock options to liability
(Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
(792
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(792
|
)
|
Stock-based compensation for options issued to directors, officers,
employees and consultants
|
|
|
—
|
|
|
|
—
|
|
|
|
206,756
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206,756
|
|
Net loss for the year ended October 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,938,569
|
)
|
|
|
—
|
|
|
|
(3,938,569
|
)
|
Balance, October 31, 2019
|
|
|
236,328,214
|
|
|
$
|
2,363,282
|
|
|
$
|
135,902,944
|
|
|
$
|
(129,793,599
|
)
|
|
$
|
92,248
|
|
|
$
|
8,564,875
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Silver Bull Resources, Inc. (the “Company”)
was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral
properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s
name was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources,
Inc. The Company’s fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and
is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects
and may never enter into the development stage with respect to any of its projects.
The Company engages in the business of mineral
exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the “Sierra Mojada
Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin
S.A. de C.V. (“Minera Metalin”), Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) and 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 incorporated in the State of Delaware, was merged with and into Dome Ventures Corporation
(“Dome”), a Delaware corporation. As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned
subsidiary Dome Asia Inc. (“Dome Asia”), which is incorporated in the British Virgin Islands. Dome Asia has a wholly-owned
subsidiary, Dome Minerals Nigeria Limited, incorporated in Nigeria.
The Company’s efforts and expenditures
have been concentrated on the exploration of properties, principally in the Sierra Mojada Property located in Coahuila, Mexico.
The Company has not determined whether its exploration properties contain ore reserves that are economically recoverable. The ultimate
realization of the Company’s investment in exploration properties is dependent upon the success of future property sales,
the existence of economically recoverable reserves, and the ability of the Company to obtain financing or make other arrangements
for exploration, development, and future profitable production activities. The ultimate realization of the Company’s investment
in exploration properties cannot be determined at this time.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of significant accounting policies
is presented to assist in understanding the consolidated financial statements. The consolidated financial statements and notes
are representations of the Company’s management, which is responsible for their integrity and objectivity.
Basis of Presentation
The Company’s consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
using the accrual method of accounting, except for cash flow amounts.
All figures are in United States dollars
unless otherwise noted.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The
wholly owned subsidiaries of the Company are listed in Note 1 to the consolidated financial statements.
The Company consolidates entities in which
it has a controlling financial interest based on either the variable interest entity (VIE) or voting interest model.
Under the VIE model, a VIE is a reporting entity
that has (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) the
obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
Currently, the Company manages the mineral exploration program in the property concessions in Mexico through its wholly-owned subsidiary
corporations Minera Metalin and Contratistas.
The Company has determined Minera Metalin and
Contratistas are variable interest entities and the Company is the primary beneficiary.
Use of Estimates
The preparation of these consolidated financial
statements in conformity with GAAP requires management to make estimates based on assumptions about future events that affect the
amounts reported in the consolidated financial statements and related notes to the consolidated financial statements. Actual results
could differ from those estimates. Estimates and assumptions are reviewed on an ongoing basis based on historical experience and
other factors that are considered to be relevant under the circumstances. Revisions to estimates and assumptions are accounted
for prospectively.
Significant areas involving the use of estimates
include determining the allowance for uncollectible taxes, evaluating recoverability of property concessions, evaluating impairment
of long-lived assets, evaluating impairment of goodwill, establishing a valuation allowance on future use of deferred tax assets,
calculating a valuation for stock option liability, calculating a valuation for warrant derivative liability and calculating stock-based
compensation.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid
investments with an original maturity of three months or less at the date of purchase.
Property Concessions
Property concession acquisition costs are capitalized
when incurred and will be amortized using the units of production method following the commencement of production. If a property
concession is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.
To date, no property concessions have reached the production stage.
Acquisition costs include cash consideration
and the fair market value of shares issued on the acquisition of property concessions.
Exploration Costs
Exploration costs incurred are expensed to
the date of establishing that costs incurred are economically recoverable. Exploration expenditures incurred subsequent to the
establishment of economic recoverability are capitalized and included in the carrying amount of the related property. To date,
the Company has not established the economic recoverability of its exploration prospects; therefore, all exploration costs are
being expensed.
Property and Equipment
Property and equipment are recorded at cost
less accumulated depreciation and impairment losses. Assets under construction are depreciated when they are substantially complete
and available for their intended use, over their estimated useful lives. Repairs and maintenance of property and equipment are
expensed as incurred. Costs incurred to enhance the service potential of property and equipment are capitalized and depreciated
over the remaining useful life of the improved asset. Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the related assets as follows:
|
·
|
Mining equipment – five to 10 years
|
|
·
|
Building and structures – 40 years
|
|
·
|
Computer equipment and software – three years
|
|
·
|
Well equipment – 10 to 40 years
|
|
·
|
Office equipment – three to 10 years
|
Impairment of Long-Lived Assets
Management reviews and evaluates its long-lived
assets for impairment when events and changes in circumstances indicate that the related carrying amounts of its assets may not
be recoverable. Impairment is considered to exist if the future cash flows on an undiscounted basis are less than the carrying
amount of the long-lived asset. An impairment loss is measured and recorded based on the difference between book value and fair
value of the asset group. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable
cash flows that are largely independent of cash flows from other asset groups. In estimating future cash flows, the Company estimates
the price that would be received to sell an asset group in an orderly transaction between market participants at the measurement
date. Significant factors that impact this price include the price of silver and zinc, and general market conditions for exploration
companies, among other factors.
Goodwill
Goodwill is the purchase
premium after adjusting for the fair value of net assets acquired. The Company tests goodwill for impairment at the reporting unit
level at least annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired. Goodwill
impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting
units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The Company performs
its annual goodwill impairment tests on April 30th of each fiscal year.
Income Taxes
The Tax Cuts and Jobs Act of 2017 (the
“Tax Act”) was signed into law on December 22, 2017. The law includes significant changes to the U.S. corporate income
tax system, including a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense
and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax
system. The law did not have a material impact on the Company’s financial position, results of operations or cash flows and
disclosures.
The Company follows the asset and liability
method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on temporary
differences between the tax basis and accounting basis of the assets and liabilities measured using tax rates enacted at the balance
sheet date. The Company recognizes the tax benefit from uncertain tax positions only if it is at least “more likely than
not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon settlement with the taxing authorities. This accounting standard
also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.
A valuation allowance is recorded against deferred
tax assets if management does not believe that the Company has met the “more likely than not” standard imposed by this
guidance to allow recognition of such an asset. Management recorded a full valuation allowance at October 31, 2019 and 2018 against
the deferred tax assets as it determined that future realization would not meet the “more likely than not” criteria.
Warrant Derivative Liability
The Company classifies warrants with a Canadian
Dollar (“$CDN”) exercise price on its consolidated balance sheets as a derivative liability that is fair valued at
each reporting period subsequent to the initial issuance as the functional currency of Silver Bull is the U.S. dollar and the exercise
price of the warrants is the $CDN. The Company has used the Black-Scholes pricing model to fair value the warrants that do not
have an acceleration feature and has used the Monte Carlo valuation model to fair value the warrants that do have an acceleration
feature. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment.
Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the
Company’s common stock at the date of issuance, and at each subsequent reporting period, is based on the historical volatility
adjusted to reflect the implicit discount to historical volatilities observed in the prices of traded warrants. The risk-free interest
rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants
at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend
yield is expected to be none as the Company has not paid dividend nor does the Company anticipate paying any dividend in the foreseeable
future.
The derivatives warrants are not traded in
an active market and the fair value is determined using valuation techniques. The estimates may be significantly different from
those recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating
the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded in the
consolidated statement of operations and comprehensive loss each reporting period.
Stock-Based Compensation
The Company uses the Black-Scholes pricing
model as a method for determining the estimated fair value for all stock options awarded to employees, officers, directors and
consultants. The expected term of the options is based upon an evaluation of historical and expected future exercise behavior.
The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining
life of the options at the valuation date. Volatility is determined based upon historical volatility of the Company’s stock
and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be none as the
Company has not paid dividends nor does the Company anticipate paying any dividends in the foreseeable future. The Company uses
the graded vesting attribution method to recognize compensation costs over the requisite service period. Stock options granted
to consultants when the exercise price is in $CDN are classified as stock option liability on the Company’s consolidated
balance sheets upon vesting.
The Company classifies cumulative compensation
cost associated with options on subsidiary equity as additional paid-in capital until exercise.
Loss per Share
Basic loss per share includes no dilution and
is computed by dividing net loss available to common shareholders by the weighted average common shares outstanding for the period.
Diluted loss per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully
diluted loss per share. Although there were stock options and warrants in the aggregate of 32,152,305 shares and 55,250,230 shares
outstanding at October 31, 2019 and 2018, respectively, they were not included in the calculation of loss per share because they
would have been considered anti-dilutive.
Foreign Currency Translation
During the years ended October 31, 2019 and
2018, the functional currency of Silver Bull Resources, Inc. and its subsidiaries was the U.S. dollar.
During the years ended October 31, 2019 and
2018, the Company’s Mexican operations’ monetary assets and liabilities were translated into U.S. dollars at the period-end
exchange rate and non-monetary assets and liabilities were translated using the historical exchange rate. The Company’s Mexican
operations’ revenue and expenses were translated at the average exchange rate during the period except for depreciation of
office and mining equipment, costs of office and mining equipment sold and impairment of property concessions, all of which are
translated using the historical exchange rate. Foreign currency translation gains and losses of the Company’s Mexican operations
are included in the consolidated statement of operations.
Accounting for Loss Contingencies and Legal
Costs
From time to time, the Company is named as
a defendant in legal actions arising from its normal business activities. The Company records an accrual for the estimated loss
from a loss contingency when information available prior to issuance of its financial statements indicates that it is probable
that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.
Disclosure of a loss contingency is made by the Company if there is at least a reasonable possibility that a loss has been incurred,
and either an accrual has not been made or an exposure to loss exists in excess of the amount accrued. In cases where only disclosure
of the loss contingency is required, either the estimated loss or a range of estimated loss is disclosed or it is stated that an
estimate cannot be made. Legal costs incurred in connection with loss contingencies are considered period costs and accordingly
are expensed in the period services are provided.
Recent Accounting Pronouncements Adopted
in the Year
Effective November 1, 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.
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 became effective
for the Company’s fiscal year beginning November 1, 2019. At this time, the Company does not expect that this update will
have a material impact 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 became 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 does not expect that this update will have a material
impact on the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
3 – EARN-IN OPTION AGREEMENT
On June 1, 2018, the Company and its
subsidiaries Minera Metalin and Contratistas entered into an Earn-In Option Agreement (the “Option Agreement”) with
South32 International Investment Holdings Pty Ltd (“South32”), a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE:
S32), whereby South32 is able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the “Option”).
Minera Metalin owns the Sierra Mojada Property located in Coahuila, Mexico (the “Sierra Mojada Project”), and Contratistas
supplies labor for the Sierra Mojada Project. Under the Option Agreement, South32 earns into the Option by funding a collaborative
exploration program on the Sierra Mojada Project. Upon the terms and subject to the conditions set forth in the Option Agreement,
in order for South32 to earn and maintain its four-year Option, South32 must have contributed to Minera Metalin for exploration
of the Sierra Mojada Project at least $3 million by the end of Year 1, $6 million by the end of Year 2, $8 million by the end of
Year 3 and $10 million by the end of Year 4 (the “Initial Funding”). Funding is made on a quarterly basis based on
the subsequent quarter’s exploration budget. South32 may exercise the Option by contributing $100 million to Minera Metalin
(the “Subscription Payment”), less the amount of Initial Funding previously contributed by South32. The issuance of
shares upon notice of exercise of the Option by South32 is subject to antitrust approval by the Mexican government. If the full
amount of the Subscription Payment is advanced by South32 and the Option becomes exercisable and is exercised, the Company and
South32 will be obligated to contribute funding to Minera Metalin on a 30/70 pro rata basis. If South32 elects not to continue
with the Option during the four-year option period, the Sierra Mojada Project will remain 100% owned by the Company. The exploration
program will be initially managed by the Company, with South32 being able to approve the exploration program funded by it. 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. Cumulative funding
received under the Option Agreement from South32 as of October 31, 2019 was $3,463,593. Cumulative exploration expenditures under
the Option Agreement as of October 31, 2019 was $3,904,263. In November and December 2019, we received the second and third payments
for Year 2 of the Option Agreement of $666,336 and $228,836, respectively, 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.
On October 11, 2019, the Company and its subsidiary
Minera Metalin issued a notice of force majeure to South32 pursuant to the Option Agreement. Due to a blockade by a cooperative
of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”),
the Company has temporarily halted all work on the Sierra Mojada Property. The notice of force majeure was issued because of the
blockade’s impact on the ability of the Company and its subsidiary Minera Metalin to perform their obligations under the
Option Agreement. Pursuant to the Option Agreement, any time period provided for in the Option Agreement will generally be extended
by a period equal to the period of delay caused by the event of force majeure.
The combined carrying amount of the assets
and liabilities of Minera Metalin and Contratistas (consolidated with their wholly-owned subsidiary) are as follows at October
31, 2019:
Assets:
|
|
Mexico
|
Cash and cash equivalents
|
|
$
|
62,000
|
|
Value-added tax receivable, net
|
|
|
256,000
|
|
Other receivables
|
|
|
5,000
|
|
Income tax receivable
|
|
|
1,000
|
|
Prepaid expenses and deposits
|
|
|
101,000
|
|
Office and mining equipment, net
|
|
|
226,000
|
|
Property concessions
|
|
|
5,020,000
|
|
Total assets
|
|
$
|
5,671,000
|
|
Liabilities:
|
|
|
Accounts payable
|
|
|
206,000
|
|
Accrued liabilities and expenses
|
|
|
160,000
|
|
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option
|
|
|
3,992,000
|
|
Total liabilities
|
|
$
|
4,358,000
|
|
|
|
|
|
|
Net advances and investment in the Company’s Mexican subsidiaries
|
|
$
|
1,313,000
|
|
The Company’s maximum exposure to loss
at October 31, 2019 is $5,305,000, which includes the carrying value of the VIEs’ net assets excluding the payable to Silver
Bull Resources, Inc.
NOTE 4 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”) receivable
relates to VAT paid in Mexico. The Company estimates net VAT of $255,847 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 fiscal years ended October 31, 2019 and 2018 is as follows:
|
|
|
Allowance for uncollectible VAT – October 31, 2017
|
|
$
|
67,729
|
|
Provision for uncollectible VAT
|
|
|
37,457
|
|
Write-off VAT receivable
|
|
|
(3,440
|
)
|
Foreign currency translation adjustment
|
|
|
(3,332
|
)
|
Allowance for uncollectible VAT – October 31, 2018
|
|
|
98,414
|
|
Provision for uncollectible VAT
|
|
|
222,130
|
|
Foreign currency translation adjustment
|
|
|
7,080
|
|
Allowance for uncollectible VAT – October 31, 2019
|
|
$
|
327,624
|
|
NOTE 5 – OFFICE AND MINING EQUIPMENT
The following is a summary of the Company’s
office and mining equipment at October 31, 2019 and October 31, 2018:
|
|
October 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
|
|
|
(609,806
|
)
|
|
|
(577,508
|
)
|
Office and mining equipment, net
|
|
$
|
226,413
|
|
|
$
|
201,486
|
|
NOTE 6 – PROPERTY CONCESSIONS
The following is a summary of the Company’s
property concessions in Sierra Mojada, Mexico as at October 31, 2019 and 2018:
|
Property Concessions – October 31, 2017
|
|
|
$
|
5,004,386
|
|
|
Acquisitions
|
|
|
|
15,541
|
|
|
Property Concessions – October 31, 2018
|
|
|
$
|
5,019,927
|
|
|
Acquisitions
|
|
|
|
11,821
|
|
|
Impairment
|
|
|
|
(11,821
|
)
|
|
Property Concessions – October 31, 2019
|
|
|
$
|
5,019,927
|
|
NOTE 7 – GOODWILL
Goodwill
represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net
tangible and intangible assets acquired. On April 30, 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 October 31, 2019 and 2018:
|
Goodwill – October 31, 2019 and 2018
|
|
|
$
|
2,058,031
|
|
NOTE 8 – 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 year ended October 31, 2019.
On July 25 and August 20, 2018, the
Company completed a two-tranche private placement for 29,141,872 units at a purchase price of $0.13 per unit (the “$0.13
Unit”) for gross proceeds of $3,788,443. Each $0.13 Unit consists of one share of the Company’s common stock and one
half of one common stock purchase warrant (the “$0.13 Warrant”). Each full $0.13 Warrant entitles the holder
thereof to acquire one share of common stock at a price of $0.16 for a period of 24 months from the closing of the private placement.
The Company paid a 7% finder’s fee totaling $224,110 to agents with respect to certain purchasers who were introduced by
these agents. In addition, the agents received 1,231,374 non-transferable warrants (the “2018 Agent’s Warrants”).
Each 2018 Agent’s Warrant entitles an agent to acquire one share of common stock at a price of $0.14 for a period of 24 months
from the closing of the private placement. The fair value of the 2018 Agent’s Warrants was determined to be $26,165 (Note
10), and the Company incurred other offering costs of $93,541.
On June 6, 2018, 43,750 warrants to
acquire 43,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $3,388 ($CDN 4,375).
On May 28, 2018, 292,250 warrants to
acquire 292,250 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $22,479 ($CDN 29,225).
On May 7, 2018, 125,000 warrants to
acquire 125,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $12,632 ($CDN 16,250).
On May 7, 2018, 526,000 warrants to
acquire 526,000 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $40,889 ($CDN 52,600).
On April 4, 2018, 625,000 warrants to
acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $63,432 ($CDN 81,250).
On March 29, 2018, 1,000,000 warrants to
acquire 1,000,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $100,822 ($CDN 130,000).
On March 28, 2018, 8,750 warrants to
acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $678 ($CDN 875).
On March 15, 2018, 1,025,000 warrants to
acquire 1,025,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $102,248 ($CDN 133,250).
On March 14, 2018, 250,000 warrants to
acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $25,108 ($CDN 32,500).
On March 8, 2018, 974,500 warrants to
acquire 974,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $98,000 ($CDN 126,685).
On February 20, 2018, 8,750 warrants to
acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $693 ($CDN 875).
On February 20, 2018, 250,000 warrants to
acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $25,749 ($CDN 32,500).
On February 16, 2018, 250,000 warrants to
acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $25,917 ($CDN 32,500).
On February 13, 2018, 178,000 warrants to
acquire 178,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $18,365 ($CDN 23,140).
On January 29, 2018, 21,875 warrants to
acquire 21,875 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate
gross proceeds of $1,773 ($CDN 2,188).
On January 22, 2018, 62,500 warrants to
acquire 62,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $6,522 ($CDN 8,125).
On January 15, 2018, 625,000 warrants to
acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $65,408 ($CDN 81,250).
On January 8, 2018, 200,000 warrants to
acquire 200,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate
gross proceeds of $20,931 ($CDN 26,000).
The Company incurred costs of $1,128
related to the warrant exercises in the year ended October 31, 2018.
NOTE 9 – 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 years ended October 31, 2019 and 2018 are as follows:
|
|
|
Year Ended
October 31,
|
Options
|
|
2019
|
|
2018
|
|
|
|
|
|
Expected volatility
|
|
—
|
|
40% – 87%
|
Risk-free interest rate
|
|
—
|
|
1.94% – 2.60%
|
Dividend yield
|
|
—
|
|
—
|
Expected term (in years)
|
|
—
|
|
2.50 – 5.00
|
|
|
|
|
|
|
No options
were granted during the year ended October 31, 2019. During the year ended October 31, 2018, the Company granted options to acquire
350,000 shares of common stock with an exercise price of $CDN 0.215 per share and 7,825,000 options to acquire shares of common
stock with an exercise price of $CDN 0.13 per share. No options were exercised during the years ended October 31, 2019 and 2018.
The weighted-average grant-date fair value of the stock options granted was $0.06 per share.
The following is a summary of stock option
activity for the fiscal years ended October 31, 2019 and 2018:
Options
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at October 31, 2017
|
|
|
|
12,794,286
|
|
|
|
0.16
|
|
|
|
2.98
|
|
|
$
|
110,622
|
|
|
Granted
|
|
|
|
8,175,000
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
(2,019,286
|
)
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2018
|
|
|
|
18,950,000
|
|
|
|
0.11
|
|
|
|
3.48
|
|
|
$
|
429,158
|
|
|
Expired
|
|
|
|
(2,600,000
|
)
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2019
|
|
|
|
16,350,000
|
|
|
$
|
0.09
|
|
|
|
2.83
|
|
|
$
|
46,448
|
|
|
Exercisable at October 31, 2019
|
|
|
|
13,833,333
|
|
|
$
|
0.09
|
|
|
|
2.64
|
|
|
$
|
46,448
|
|
The Company recognized stock-based compensation
costs for stock options of $206,756 and $245,629 for the fiscal years ended October 31, 2019 and 2018, respectively. As of October
31, 2019, there remains $62,420 of total unrecognized compensation expense, which is expected to be recognized over a weighted
average period of 0.46 years.
Summarized information about stock options
outstanding and exercisable at October 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
|
|
|
|
1.32
|
|
|
$
|
0.06
|
|
|
|
4,075,000
|
|
|
$
|
0.06
|
|
|
|
0.10
|
|
|
|
11,625,000
|
|
|
|
3.37
|
|
|
|
0.10
|
|
|
|
9,108,333
|
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
3.30
|
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
0.16
|
|
|
|
0.19
|
|
|
|
300,000
|
|
|
|
1.76
|
|
|
|
0.19
|
|
|
|
300,000
|
|
|
|
0.19
|
|
|
$
|
0.06 – 0.19
|
|
|
|
16,350,000
|
|
|
|
2.83
|
|
|
$
|
0.09
|
|
|
|
13,833,333
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted to consultants with a
$CDN exercise price are classified as a stock option liability on the Company’s consolidated balance sheets upon vesting.
The following is a summary of the Company’s stock option liability at October 31, 2019 and October 31, 2018:
Stock option liability at October 31, 2017
|
|
$
|
5,194
|
|
Reclassification from additional paid-in capital
|
|
|
28,111
|
|
Change in fair value of stock option liability
|
|
|
(8,189
|
)
|
Stock option liability at October 31, 2018
|
|
$
|
25,116
|
|
Reclassification from additional paid-in capital
|
|
|
792
|
|
Change in fair value of stock option liability
|
|
|
(21,105
|
)
|
Stock option liability at October 31, 2019
|
|
$
|
4,803
|
|
NOTE 10 – WARRANTS
A summary of warrant activity for the fiscal
years ended October 31, 2019 and 2018 is as follows:
Warrants
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
Outstanding at October 31, 2017
|
|
|
27,164,700
|
|
|
$
|
0.10
|
|
|
|
1.70
|
|
|
$
|
9,769
|
|
Issued in the $0.13 Unit private placement (Note 8)
|
|
|
14,570,931
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
Agent’s Warrants (Note 8)
|
|
|
1,231,374
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(200,400
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,466,375
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2018
|
|
|
36,300,230
|
|
|
$
|
0.13
|
|
|
|
1.16
|
|
|
$
|
254,068
|
|
Exercised
|
|
|
(1,460,000
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(19,037,925
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2019
|
|
|
15,802,305
|
|
|
$
|
0.16
|
|
|
|
0.75
|
|
|
$
|
—
|
|
During the year ended October 31, 2018,
the Company issued 14,570,931 warrants with an exercise price of $0.16 in connection with the $0.13 Unit private placement and
issued 1,231,374 compensation warrants to agents with an exercise price of $0.14 (Note 8). The fair value of the 2018 Agent’s
Warrants was determined to be $26,165 based on the Black-Scholes pricing model using a risk-free interest rate of 2.8% - 2.9%,
expected volatility of 39% - 45%, a dividend yield of 0%, and a contractual term of two years.
Warrants exercised during the years
ended October 31, 2019 and 2018 are discussed in Note 8.
The warrants exercised during the years
end October 31, 2019 and 2018 had an intrinsic value of $12,126 and $447,185, respectively.
Summarized information about warrants outstanding
and exercisable at October 31, 2019 is as follows:
|
|
Warrants Outstanding and Exercisable
|
|
|
|
Exercise Price
|
|
|
|
Number
Outstanding
|
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
|
Weighted Average Exercise Price
|
|
|
$
|
0.14
|
|
|
|
1,231,374
|
|
|
|
0.74
|
|
|
$
|
0.14
|
|
|
|
0.16
|
|
|
|
14,570,931
|
|
|
|
0.75
|
|
|
|
0.16
|
|
|
$
|
0.14 – 0.16
|
|
|
|
15,802,305
|
|
|
|
0.75
|
|
|
$
|
0.16
|
|
The Company’s
warrants with a $CDN exercise price have been recognized as a derivative liability. The following is a summary of the Company’s
warrant derivative liability at October 31, 2019 and October 31, 2018:
Warrant derivative liability at October 31, 2017
|
|
$
|
341,717
|
|
Change in fair value of warrant derivative liability
|
|
|
510,968
|
|
Reclassification to additional paid-in capital upon exercise of warrants
|
|
|
(447,185
|
)
|
Warrant derivative liability at October 31, 2018
|
|
$
|
405,500
|
|
Change in fair value of warrant derivative liability
|
|
|
(393,374
|
)
|
Reclassification to additional paid-in capital upon exercise of warrants
|
|
|
(12,126
|
)
|
Warrant derivative liability at October 31, 2019
|
|
$
|
—
|
|
As
of October 31, 2019, all warrants with a $CDN exercise price have expired.
NOTE 11 – TAX REFORM AND INCOME TAXES
Provision for Taxes
The Tax Act was signed into law on December
22, 2017. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction
from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international
taxation from a worldwide tax system to a territorial tax system. The Tax Act required the Company to use a statutory tax rate
of 21% for the year ended October 31, 2019. The Tax Act required the Company to use a blended statutory tax rate of 23% for the
year ended October 31, 2018.
The Company files a United States federal income
tax return and a Canadian branch return on a fiscal year-end basis and files Mexican income tax returns for its three Mexican subsidiaries
on a calendar year-end basis. The Company and two of its wholly-owned subsidiaries, Minera Metalin and Minas, have not generated
taxable income since inception. Contratistas, another wholly-owned Mexican subsidiary, has historically generated taxable income
based upon intercompany fees billed to Minera Metalin on the services it provides.
On April 16, 2010, a wholly-owned subsidiary
of the Company was merged with and into Dome, resulting in Dome becoming a wholly-owned subsidiary of the Company. Dome, a Delaware
corporation, files a tax return in the United States as part of the Company’s consolidated tax return.
The components of loss before income taxes
were as follows:
|
|
For the year ended
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
United States
|
|
$
|
(1,155,000
|
)
|
|
$
|
(2,228,000
|
)
|
Foreign
|
|
|
(2,778,000
|
)
|
|
|
(1,288,000
|
)
|
Loss before income taxes
|
|
$
|
(3,933,000
|
)
|
|
$
|
(3,516,000
|
)
|
The components of the provision for income
taxes are as follows:
|
|
For the year ended
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
Current tax expense
|
|
$
|
5,309
|
|
|
$
|
3,718
|
|
Deferred tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
5,309
|
|
|
$
|
3,718
|
|
The Company’s provision for income taxes
for the fiscal year ended October 31, 2019 consisted of a tax expense of $5,309 related to a recovery for income taxes for Contratistas
and a provision for income taxes for the Silver Bull Canadian branch return for the fiscal year ended October 31, 2019.
The reconciliation of the provision for income
taxes computed at the U.S. statutory rate to the provision for income tax as shown in the statement of operations and comprehensive
loss is as follows:
|
|
For the year ended
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Income tax benefit calculated at U.S. federal income tax rate
|
|
$
|
(826,000
|
)
|
|
$
|
(808,000
|
)
|
|
|
|
|
|
|
|
|
|
Differences arising from:
|
|
|
|
|
|
|
|
|
Other permanent differences
|
|
|
81,000
|
|
|
|
207,000
|
|
Differences due to foreign income tax rates
|
|
|
(244,000
|
)
|
|
|
(81,000
|
)
|
Adjustment to prior year taxes
|
|
|
(28,000
|
)
|
|
|
68,000
|
|
Inflation adjustment foreign net operating loss
|
|
|
(258,000
|
)
|
|
|
(375,000
|
)
|
Foreign currency fluctuations
|
|
|
(344,000
|
)
|
|
|
417,000
|
|
Decrease in valuation allowance
|
|
|
(403,000
|
)
|
|
|
(4,810,000
|
)
|
Re-measurement of deferred tax assets at 21%
|
|
|
—
|
|
|
|
4,767,000
|
|
Net operation loss carry forwards expiration - United States
|
|
|
154,000
|
|
|
|
99,000
|
|
Net operation loss carry forwards expiration - Mexico
|
|
|
1,873,000
|
|
|
|
520,000
|
|
Net income tax provision
|
|
$
|
5,000
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
The components of the deferred tax assets at
October 31, 2019 and 2018 were as follows:
|
|
October 31,
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards – U.S.
|
|
$
|
7,359,000
|
|
|
$
|
7,232,000
|
|
Net capital loss carry forwards – U.S.
|
|
|
62,000
|
|
|
|
62,000
|
|
Net operating loss carry forwards – Mexico
|
|
|
6,656,000
|
|
|
|
7,736,000
|
|
Stock-based compensation – U.S.
|
|
|
8,000
|
|
|
|
7,000
|
|
Exploration costs
|
|
|
830,000
|
|
|
|
295,000
|
|
Other – United States
|
|
|
30,000
|
|
|
|
26,000
|
|
Other – Mexico
|
|
|
29,000
|
|
|
|
19,000
|
|
Total net deferred tax assets
|
|
|
14,974,000
|
|
|
|
15,377,000
|
|
Less: valuation allowance
|
|
|
(14,974,000
|
)
|
|
|
(15,377,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At October 31, 2019, the Company has U.S. net
operating loss carry-forwards of approximately $32 million that expire in the years 2020 through 2037 and $3 million which will
be carried forward indefinitely. The Company has U.S net capital loss carry-forwards of approximately $0.3 million that expire
in the year 2020. The Company has approximately $22 million of net operating loss carry-forwards in Mexico that expire in the years
2020 through 2029.
The valuation allowance for deferred tax assets
of $15.0 and $15.4 million at October 31, 2019 and 2018, respectively, relates principally to the uncertainty of the utilization
of certain deferred tax assets, primarily net operating loss carry forwards in various tax jurisdictions. The Company continually
assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be
realized prior to their expiration. Based on the Company’s assessment, it has determined that the deferred tax assets are
not currently realizable.
Net Operating Loss Carry Forward Limitation
The Tax Reform Act of 1986 contains provisions
that limit the utilization of net operating loss and tax credit carry forwards if there has been a change in ownership as described
in Section 382 of the Internal Revenue Code. As a result of the Dome merger in April 2010, substantial changes in the Company’s
ownership have occurred that may limit or reduce the amount of net operating loss carry forwards that the Company could utilize
in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine
what impact, if any, that ownership change may have had on its operating loss carry forwards. In each period since its inception,
the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred
tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its consolidated
statement of operations and comprehensive loss.
Accounting for Uncertainty in Income Taxes
During the fiscal years ended October 31, 2019
and 2018, the Company has not identified any unrecognized tax benefits or had any additions or reductions in tax positions and
therefore a reconciliation of the beginning and ending amount of unrecognized tax benefits is not presented.
The Company does not have any unrecognized
tax benefits as of October 31, 2019, and accordingly the Company’s effective tax rate will not be materially affected by
unrecognized tax benefits.
The following tax years remain open to examination
by the Company’s principal tax jurisdictions:
|
United States:
|
2015 and all following years
|
|
|
Mexico:
|
2014 and all following years
|
|
|
Canada:
|
2015 and all following years
|
|
|
|
|
|
|
|
|
The Company has not identified any uncertain
tax position for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase
or decrease within the next 12 months.
The Company’s policy is to classify tax
related interest and penalties as income tax expense. There is no interest or penalties estimated on the underpayment of income
taxes as a result of unrecognized tax benefits.
NOTE
12 – FINANCIAL INSTRUMENTS
Fair Value Measurements
All financial assets and financial liabilities
are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly
attributable to the acquisition of financial assets or the assumption of liabilities carried at amortized cost, in which case the
transaction costs adjust the carrying amount.
The three levels of the fair value hierarchy
are as follows:
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Under fair value accounting, assets
and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The
Company’s financial instruments consist of cash and cash equivalents, accounts payable, stock option liability and warrant
derivative liability.
The carrying amounts of cash and cash
equivalents and accounts payable approximate fair value at October 31, 2019 and 2018 due to the short maturities of these financial
instruments.
Derivative liability
The Company classifies warrants with a $CDN
exercise price on its consolidated balance sheets as a derivative liability that is fair valued at each reporting period subsequent
to the initial issuance as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing
model to determine the fair value of the warrants that do not have an acceleration feature and has used the Monte Carlo valuation
model to determine the fair value of the warrants that do have an acceleration feature (Note 10). Determining the appropriate fair-value
model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates used may cause the
value to be higher or lower than that reported. The estimated volatility of the Company’s common stock at the date of issuance,
and at each subsequent reporting period, is based on the historical volatility adjusted to reflect the implicit discount to historical
volatilities observed in the prices of traded warrants. The risk-free interest rate is based on rates published by the government
for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the
warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is expected to be none as the Company
has not paid dividends nor does the Company anticipate paying a dividend in the foreseeable future.
The Company reclassifies stock options granted
to consultants with a $CDN exercise price on its consolidated balance sheets upon vesting as a stock option liability that is fair
valued at each reporting period subsequent to reclassification as the functional currency of Silver Bull is the U.S. dollar. The
Company has used the Black-Scholes pricing model to fair value these stock options. Determining the appropriate fair-value model
and calculating the fair value of these stock options requires considerable judgment. Any change in the estimates used may cause
the value to be higher or lower than that reported. The estimated volatility of the Company’s common stock at the date of
reclassification, and at each subsequent reporting period, is based on the historical volatility of the Company’s common
stock and adjusted if future volatility is expected to vary from historical experience. The risk-free interest rate is based on
rates published by the government for bonds with a maturity similar to the expected remaining life of the options at the valuation
date. The expected life of the options is based upon historical and expected future exercise behavior. The dividend yield is expected
to be none as the Company has not paid dividends nor does the Company anticipate paying any dividend in the foreseeable future.
The derivatives warrants are not traded
in an active market and the fair value is determined using valuation techniques. The estimates may be significantly different from
those recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating
the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded in the
consolidated statement of operations and comprehensive loss each reporting period. These are considered to be a Level 3 financial
instrument. As of October 31, 2019, all warrants with a $CDN exercise price have expired.
The Company has the following liabilities under
the fair value hierarchy:
|
|
October 31, 2019
|
Liability
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Stock option liability
|
$
|
—
|
$
|
—
|
$
|
4,803
|
|
Credit Risk
Credit risk is the risk that the counterparty
to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure
to credit risk on financial assets, the Company has established policies to ensure liquidity of funds and ensure that counterparties
demonstrate minimum acceptable credit worthiness.
The Company maintains its U.S. dollar and $CDN
cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash
deposits held in 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 related to U.S. dollar
deposits held in Canadian financial institutions. As of October 31, 2019 and 2018, the Company’s cash and cash equivalent
balances held in Canadian financial institutions included $1,296,115 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 in cash and cash equivalents.
The Company also maintains cash in bank accounts
in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of October 31, 2019 and 2018,
the U.S. dollar equivalent balance for these accounts was $62,024 and $32,668, respectively.
Interest Rate Risk
The Company holds substantially all of the
Company’s cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates
received on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances
during the fiscal year ended October 31, 2019, a 1% decrease in interest rates would have resulted in a reduction in interest income
for the period of approximately $15,326.
Foreign Currency Exchange Risk
The Company is not subject to any material market
risk related to foreign currency exchange rate fluctuations.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Compliance with Environmental Regulations
The Company’s exploration activities
are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect
of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or
affect the economics of a project, and cause changes or delays in the Company’s activities.
Property Concessions Mexico
To properly maintain property concessions in
Mexico, the Company is required to pay a semi-annual fee to the Mexican government and complete annual assessment work.
Royalty
The Company
has agreed to pay a 2% net smelter return royalty on certain property concessions within the Sierra Mojada Property based on the
revenue generated from production. Total payments under this royalty are limited to $6.875 million (the “Royalty”).
To date, no royalties have been paid.
Litigation and
Claims
On May 20,
2014, Mineros Norteños filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico,
against the Company’s subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development
of the Sierra Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of 6% per annum
since August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment
of wages to the cooperative’s members since August 30, 2004, even though none of the individuals were hired or performed
work for Minera Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was
moved to the Third District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was
time barred from bringing the case. On October 19, 2017, Mineros Norteños appealed this ruling. On July 31, 2019, the federal
appeals court upheld 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. The
Company has not accrued any amounts in its consolidated financial statements with respect to this claim.
From time to time,
the Company is involved in other disputes, claims, proceedings and legal actions arising in the ordinary course of business. The
Company intends to vigorously defend all claims against the Company, and pursue its full legal rights in cases where the Company
has been harmed. Although the ultimate outcome of these proceedings cannot be accurately predicted due to the inherent uncertainty
of litigation, in the opinion of management, based upon current information, no other currently pending or overtly threatened proceeding
is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.
NOTE 14 – SEGMENT INFORMATION
The Company
operates in a single reportable segment: the exploration of mineral property interests. The Company has mineral property interests
in Sierra Mojada, Mexico.
Geographic information is approximately as
follows:
|
|
For the Year Ended
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
Net loss
|
|
|
|
|
|
|
|
|
Mexico
|
|
$
|
(2,784,000
|
)
|
|
$
|
(1,292,000
|
)
|
Canada
|
|
|
(1,155,000
|
)
|
|
|
(2,228,000
|
)
|
Net Loss
|
|
$
|
(3,939,000
|
)
|
|
$
|
(3,520,000
|
)
|
|
|
|
|
|
|
|
|
|
The following table details allocation of assets
included in the accompanying consolidated balance sheets at October 31, 2019:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
1,370,000
|
|
|
$
|
62,000
|
|
|
$
|
1,432,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
256,000
|
|
|
|
256,000
|
|
Other receivables
|
|
|
4,000
|
|
|
|
5,000
|
|
|
|
9,000
|
|
Prepaid expenses and deposits
|
|
|
103,000
|
|
|
|
102,000
|
|
|
|
205,000
|
|
Office and mining equipment, net
|
|
|
—
|
|
|
|
226,000
|
|
|
|
226,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
1,477,000
|
|
|
$
|
7,729,000
|
|
|
$
|
9,206,000
|
|
The following table details the allocation
of assets included in the accompanying consolidated balance sheet at October 31, 2018:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
2,993,000
|
|
|
$
|
33,000
|
|
|
$
|
3,026,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
175,000
|
|
|
|
175,000
|
|
Other receivables
|
|
|
11,000
|
|
|
|
1,000
|
|
|
|
12,000
|
|
Prepaid expenses and deposits
|
|
|
226,000
|
|
|
|
11,000
|
|
|
|
237,000
|
|
Office and mining equipment, net
|
|
|
—
|
|
|
|
202,000
|
|
|
|
202,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
3,230,000
|
|
|
$
|
7,500,000
|
|
|
$
|
10,730,000
|
|
The 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.
Silver Bull Resources (QB) (USOTC:SVBL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Silver Bull Resources (QB) (USOTC:SVBL)
Historical Stock Chart
From Apr 2023 to Apr 2024