ITEM 1. FINANCIAL STATEMENTS.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
January 31,
2020
|
|
October 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,594,657
|
|
|
$
|
1,431,634
|
|
Value-added tax receivable, net of allowance for uncollectible taxes of $343,441 and $327,624 respectively (Note 6)
|
|
|
268,580
|
|
|
|
255,847
|
|
Income tax receivables
|
|
|
1,081
|
|
|
|
784
|
|
Other receivables
|
|
|
12,942
|
|
|
|
8,543
|
|
Prepaid expenses and deposits
|
|
|
176,595
|
|
|
|
204,713
|
|
Total Current Assets
|
|
|
2,053,855
|
|
|
|
1,901,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and mining equipment, net (Note 7)
|
|
|
217,292
|
|
|
|
226,413
|
|
Property concessions (Note 8)
|
|
|
5,019,927
|
|
|
|
5,019,927
|
|
Goodwill (Note 9)
|
|
|
2,058,031
|
|
|
|
2,058,031
|
|
TOTAL ASSETS
|
|
$
|
9,349,105
|
|
|
$
|
9,205,892
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
174,108
|
|
|
$
|
328,943
|
|
Accrued liabilities and expenses
|
|
|
258,615
|
|
|
|
305,446
|
|
Income tax payable
|
|
|
1,250
|
|
|
|
1,825
|
|
Stock option liability (Note 11)
|
|
|
—
|
|
|
|
4,803
|
|
Total Current Liabilities
|
|
|
433,973
|
|
|
|
641,017
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 1 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (Notes 4, 10, 11 and 12)
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 300,000,000 shares authorized,
236,328,214, and 236,328,214 shares issued and outstanding, respectively
|
|
|
2,363,282
|
|
|
|
2,363,282
|
|
Additional paid-in capital
|
|
|
136,821,644
|
|
|
|
135,902,944
|
|
Accumulated deficit
|
|
|
(130,362,042
|
)
|
|
|
(129,793,599
|
)
|
Other comprehensive income
|
|
|
92,248
|
|
|
|
92,248
|
|
Total Stockholders’ Equity
|
|
|
8,915,132
|
|
|
|
8,564,875
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
9,349,105
|
|
|
$
|
9,205,892
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS (Unaudited)
|
|
Three Months Ended
January 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
EXPLORATION AND PROPERTY HOLDING COSTS
|
|
|
|
|
|
|
|
|
Exploration and property holding costs
|
|
|
203,530
|
|
|
|
458,029
|
|
Depreciation
|
|
|
9,121
|
|
|
|
7,217
|
|
TOTAL EXPLORATION AND PROPERTY HOLDING
COSTS
|
|
|
212,651
|
|
|
|
465,246
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
156,217
|
|
|
|
173,207
|
|
Office and administrative
|
|
|
71,428
|
|
|
|
125,892
|
|
Professional services
|
|
|
80,321
|
|
|
|
64,881
|
|
Directors’ fees
|
|
|
37,483
|
|
|
|
54,465
|
|
Provision for uncollectible value-added taxes (Note 6)
|
|
|
10,578
|
|
|
|
9,316
|
|
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
356,027
|
|
|
|
427,761
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(568,678
|
)
|
|
|
(893,007
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,480
|
|
|
|
119
|
|
Foreign currency transaction (loss) gain
|
|
|
(4,002
|
)
|
|
|
5,831
|
|
Change in fair value of stock option liability (Note 11)
|
|
|
—
|
|
|
|
1,791
|
|
Change in fair value of warrant derivative liability
|
|
|
—
|
|
|
|
(114,413
|
)
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
1,478
|
|
|
|
(106,672
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(567,200
|
)
|
|
|
(999,679
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
1,243
|
|
|
|
1,672
|
|
NET LOSS AND COMPREHENSIVE LOSS
|
|
$
|
(568,443
|
)
|
|
$
|
(1,001,351
|
)
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE
|
|
$
|
—
|
|
|
$
|
—
|
|
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
236,328,214
|
|
|
|
234,872,562
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Number of
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Comprehensive
Income
|
|
Stockholders’
Equity
|
Three months ended January 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2019
|
|
|
236,328,214
|
|
|
$
|
2,363,282
|
|
|
$
|
135,902,944
|
|
|
$
|
(129,793,599
|
)
|
|
$
|
92,248
|
|
|
$
|
8,564,875
|
|
Earn-in option agreement (Note 4)
|
|
|
—
|
|
|
|
—
|
|
|
|
895,172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
895,172
|
|
Reclassification to additional paid-in capital of stock option liability (Notes 3 and 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,803
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,803
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants (Note 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
18,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,725
|
|
Net loss for the three month period ended January 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(568,443
|
)
|
|
|
—
|
|
|
|
(568,443
|
)
|
Balance, January 31, 2020
|
|
|
236,328,214
|
|
|
$
|
2,363,282
|
|
|
$
|
136,821,644
|
|
|
$
|
(130,362,042
|
)
|
|
$
|
92,248
|
|
|
$
|
8,915,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
Number of
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Comprehensive
Income
|
|
Stockholders’
Equity
|
Three months ended January 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2018
|
|
|
234,868,214
|
|
|
$
|
2,348,682
|
|
|
$
|
133,015,768
|
|
|
$
|
(125,855,030
|
)
|
|
$
|
92,248
|
|
|
$
|
9,601,668
|
|
Issuance of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- exercise of warrants at a price of Canadian Dollar (“$CDN”) 0.13 per share less costs of $70 (Note 10)
|
|
|
400,000
|
|
|
|
4,000
|
|
|
|
35,348
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,348
|
|
Earn-in option agreement (Note 4)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,046,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,046,000
|
|
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13
|
|
|
—
|
|
|
|
—
|
|
|
|
3,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,032
|
|
Stock option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Stock-based compensation for options issued to directors, officers, employees and consultants (Note 11)
|
|
|
—
|
|
|
|
—
|
|
|
|
61,911
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,911
|
|
Net loss for the three month period ended January 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,001,351
|
)
|
|
|
—
|
|
|
|
(1,001,351
|
)
|
Balance, January 31, 2019
|
|
|
235,268,214
|
|
|
$
|
2,352,682
|
|
|
$
|
134,162,059
|
|
|
$
|
(126,856,381
|
)
|
|
$
|
92,248
|
|
|
$
|
9,750,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
2020
|
|
2019
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(568,443
|
)
|
|
$
|
(1,001,351
|
)
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,121
|
|
|
|
7,217
|
|
Provision for uncollectible value-added taxes
|
|
|
10,578
|
|
|
|
9,316
|
|
Foreign currency transaction gain
|
|
|
(1,514
|
)
|
|
|
(9,288
|
)
|
Change in fair value of warrant derivative liability
|
|
|
—
|
|
|
|
114,413
|
|
Change in fair value of stock option liability
|
|
|
—
|
|
|
|
(1,791
|
)
|
Stock options issued for compensation
|
|
|
18,725
|
|
|
|
61,911
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Value-added tax receivable
|
|
|
(18,675
|
)
|
|
|
(29,068
|
)
|
Income tax receivables
|
|
|
(280
|
)
|
|
|
(181
|
)
|
Other receivables
|
|
|
(4,274
|
)
|
|
|
(6,634
|
)
|
Prepaid expenses and deposits
|
|
|
27,733
|
|
|
|
86,624
|
|
Accounts payable
|
|
|
(156,374
|
)
|
|
|
(99,449
|
)
|
Accrued liabilities and expenses
|
|
|
(49,383
|
)
|
|
|
(235,966
|
)
|
Income tax payable
|
|
|
(575
|
)
|
|
|
(3,200
|
)
|
Net cash used in operating activities
|
|
|
(733,361
|
)
|
|
|
(1,107,447
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition of property concessions
|
|
|
—
|
|
|
|
(11,820
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(11,820
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property concessions funding (Note 4)
|
|
|
895,172
|
|
|
|
1,046,000
|
|
Proceeds from exercise of warrants, net of costs (Note 10)
|
|
|
—
|
|
|
|
39,348
|
|
Net cash provided by financing activities
|
|
|
895,172
|
|
|
|
1,085,348
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
1,212
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
163,023
|
|
|
|
(31,642
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
1,431,634
|
|
|
|
3,025,839
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
1,594,657
|
|
|
$
|
2,994,197
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
|
|
Three Months Ended
January 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,823
|
|
|
$
|
—
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part
of these interim condensed consolidated financial statements.
NOTE 1 – ORGANIZATION, DESCRIPTION
OF BUSINESS AND GOING CONCERN
Silver Bull Resources, Inc. (the “Company”)
was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral
properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s
name was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources,
Inc. The Company’s fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and
is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects
and may never enter into the development stage with respect to any of its projects.
The Company engages in the business of mineral
exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the “Sierra Mojada
Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin
S.A. de C.V. (“Minera Metalin”), Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) and Minas
de Coahuila SBR S.A. de C.V.
On April 16, 2010, Metalline Mining Delaware,
Inc., a wholly-owned subsidiary of the Company incorporated in the State of Delaware, was merged with and into Dome Ventures Corporation
(“Dome”), a Delaware Corporation. As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned
subsidiary, Dome Asia Inc. (“Dome Asia”), which is incorporated in the British Virgin Islands. Dome Asia has a wholly-owned
subsidiary, Dome Minerals Nigeria Limited, incorporated in Nigeria.
The Company’s efforts and expenditures
have been concentrated on the exploration of properties, principally in the Sierra Mojada Property located in Coahuila, Mexico.
The Company has not determined whether its exploration properties contain ore reserves that are economically recoverable. The ultimate
realization of the Company’s investment in exploration properties is dependent upon the success of future property sales,
the existence of economically recoverable reserves, and the ability of the Company to obtain financing or make other arrangements
for exploration, development, and future profitable production activities. The ultimate realization of the Company’s investment
in exploration properties cannot be determined at this time.
Going Concern
Since its inception in November 1993, the
Company has not generated revenue and has incurred an accumulated deficit of $130,362,042. Accordingly, the Company has not generated
cash flows from operations, and since inception the Company has relied primarily upon proceeds from private placements and registered
direct offerings of the Company’s equity securities and warrant exercises as the primary sources of financing to fund the
Company’s operations. As of January 31, 2020, the Company had cash and cash equivalents of $1,594,657. Based on the Company’s
limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether the Company’s existing
cash resources are sufficient to enable the Company to continue its operations for the next 12 months as a going concern. Management
plans to pursue possible financing and strategic options including, but not limited to obtaining additional equity financing.
Management has successfully pursued these options previously and believes that they alleviate the substantial doubt that the Company
can continue its operations for the next 12 months as a going concern. However, there is no assurance that the Company will be
successful in pursuing these plans.
These interim condensed consolidated financial
statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of
assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern. Such adjustments
could be material.
NOTE 2 – BASIS OF PRESENTATION
The Company’s interim condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“GAAP”) and applicable rules of the U.S. Securities and Exchange Commission (the “SEC”)
regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information
and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations. The interim condensed consolidated balance sheet at October 31, 2019 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, 2019.
All figures are in United States dollars
unless otherwise noted.
The interim condensed consolidated financial
statements have been prepared on the same basis as the audited consolidated financial statements, except as disclosed in Note 3.
In the opinion of management, the interim condensed consolidated financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.
Uncertainties with respect to estimates and assumptions are inherent in the preparation of the Company’s interim condensed
consolidated financial statements. Accordingly, operating results for the three months ended January 31, 2020 are not necessarily
indicative of the results that may be expected for the fiscal year ending October 31, 2020.
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, 2019 filed on January 13, 2020, except
as follows.
Recent Accounting Pronouncements
Adopted in the Three-Month Period Ended January 31, 2020
On November 1, 2019, the Company adopted the
Financial Accounting Standards Board’s (the “FASB’s”) Accounting Standards Update (“ASU”) 2018-07,
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”,
which became effective for fiscal years beginning after December 15, 2018. ASU 2018-07 simplifies the accounting for nonemployee
share-based payments, aligning it more closely with the accounting for employee awards. Under the adoption provisions, equity-classified
awards for which a measurement date had already been established as of the adoption date, including the Company’s Earn-In
Option Agreement (Note 4), are unaffected by ASU 2018-07. As a result of this adoption, the Company reclassified $4,803 from stock
option liability to additional paid-in capital (Note 11).
On November 1, 2019, the Company adopted the
FASB’s ASU 2016-02, “Leases,” (Topic 842), together with subsequent amendments, which became effective for fiscal
years beginning after December 15, 2018. The new standard requires a lessee to recognize on its balance sheet, a liability to make
lease payments (the lease liability) and the right-of-use (“ROU”) asset representing the right to the underlying asset
for the lease term and allows companies to elect to apply the standard at the effective date. The Company elected the package
of practical expedients permitted under the transition guidance, which applies to expired or existing leases and allows the Company
not to reassess whether a contract contains a lease, the lease classification, and any initial direct costs incurred.
The Company also elected a number of optional
practical expedients including the following:
-
the short-term lease recognition exemption whereby ROU assets and lease liabilities
will not be recognized for leasing arrangements with terms less than one year;
-
the land easements practical expedient whereby existing land easements are not reassessed
under the new standard;
-
the hindsight practical expedient when determining lease term at transition; and
-
the practical expedient not to apply lease accounting to the intangible right to explore
for those natural resources, and rights to use the land in which those natural resources are contained.
The adoption of this update did not have an impact on the Company’s financial position, results of operations or cash flows and disclosures.
Recent
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12,
“Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects
related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies
and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning
after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12
will have on its financial position, results of operations or cash flows and disclosures.
Other recent
accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected
to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 4 – 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.
The Company has received funding of $1,214,602 from South32 for Year 2 of the Option Agreement as of January 31, 2020. In March 2020, the Company received a payment of $147,366 for Year
2 of the Option Agreement from South32. If the Option
Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government,
the Company is under no obligation to reimburse South32 for amounts contributed under the Option Agreement.
Upon exercise of the Option, Minera
Metalin and Contratistas are required to issue common shares to South32. Pursuant to the Option Agreement, following exercise and
until a decision has been made by the board of directors of Minera Metalin to develop and construct a mine on the Sierra Mojada
Project, each shareholder holding greater than or equal to 10% of the shares may withdraw as an owner in exchange for a 2% net
smelter royalty on products produced and sold from the Sierra Mojada Project. Any shareholder whose holdings are reduced to less
than 10% must surrender its interest in exchange for a 2% net smelter royalty.
The Company has determined that Minera
Metalin and Contratistas are variable interest entities and that the Option Agreement has not resulted in the transfer of control
of the Sierra Mojada Project to South32. The Company has also determined that the Option Agreement represents non-employee share-based
compensation associated with the collaborative exploration program undertaken by the parties. The compensation cost is expensed
when the associated exploration activity occurs. The share-based payments have been classified as equity instruments and valued
based on the fair value of the cash consideration received, as it is more reliably measurable than the fair value of the equity
interest. If the Option is exercised and shares are issued prior to a decision to develop a mine, such shares would be classified
as temporary equity as they would be contingently redeemable in exchange for a net smelter royalty under circumstances that are
not wholly in control of the Company or South32 and are not currently probable.
No portion of the equity value has been classified
as temporary equity as the Option has no intrinsic value.
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. As of March 13, 2020, the blockade by Mineros Norteños
at, on and around the Sierra Mojada Property is ongoing.
The combined approximate carrying amount of the assets and liabilities
of Contratistas and Minera Metalin (consolidated with their wholly-owned subsidiary) are as follows at January 31, 2020:
Assets:
|
|
Mexico
|
Cash and cash equivalents
|
|
$
|
70,000
|
|
Value-added tax receivable, net
|
|
|
269,000
|
|
Other receivables
|
|
|
8,000
|
|
Income tax receivable
|
|
|
1,000
|
|
Prepaid expenses and deposits
|
|
|
100,000
|
|
Office and mining equipment, net
|
|
|
217,000
|
|
Property concessions
|
|
|
5,020,000
|
|
Total assets
|
|
$
|
5,685,000
|
|
Liabilities:
|
|
|
Accounts payable
|
|
$
|
54,000
|
|
Accrued liabilities and expenses
|
|
|
148,000
|
|
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option
|
|
|
3,464,000
|
|
Total liabilities
|
|
$
|
3,666,000
|
|
|
|
|
|
|
Net advances and investment in the Company’s Mexican subsidiaries
|
|
$
|
2,019,000
|
|
In addition, at January 31, 2020, Silver Bull Resources, Inc. held
$51,000 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 at the Sierra Mojada Property.
The Company’s maximum exposure to loss at January 31, 2020
is $5,483,000, which includes the carrying value of the Mexican subsidiaries’ net assets excluding the payable to Silver
Bull Resources, Inc.
NOTE 5 – NET LOSS PER SHARE
The Company had stock options and warrants
outstanding at January 31, 2020 and 2019 that upon exercise were issuable into 32,152,305 and 54,666,896 shares of the Company’s
common stock, respectively. They were not included in the calculation of loss per share because they would have been anti-dilutive.
NOTE 6 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”)
receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $268,580 will be received within 12 months of the
balance sheet date. The allowance for uncollectible VAT was estimated by management based upon a number of factors, including the
length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico
and estimated net recovery after commissions.
A summary of the changes in the allowance
for uncollectible VAT for the three months ended January 31, 2020 is as follows:
Allowance for uncollectible VAT – October 31, 2019
|
|
$
|
327,624
|
|
Provision for VAT receivable allowance
|
|
|
10,578
|
|
Foreign currency translation adjustment
|
|
|
5,239
|
|
Allowance for uncollectible VAT – January 31, 2020
|
|
$
|
343,441
|
|
NOTE 7 – OFFICE AND MINING
EQUIPMENT
The following is a summary of the Company’s
office and mining equipment at January 31, 2020 and October 31, 2019, respectively:
|
|
January 31,
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Mining equipment
|
|
$
|
396,152
|
|
|
$
|
396,152
|
|
Vehicles
|
|
|
92,873
|
|
|
|
92,873
|
|
Buildings and structures
|
|
|
185,724
|
|
|
|
185,724
|
|
Computer equipment and software
|
|
|
74,236
|
|
|
|
74,236
|
|
Well equipment
|
|
|
39,637
|
|
|
|
39,637
|
|
Office equipment
|
|
|
47,597
|
|
|
|
47,597
|
|
|
|
|
836,219
|
|
|
|
836,219
|
|
Less: Accumulated depreciation
|
|
|
(618,927
|
)
|
|
|
(609,806
|
)
|
Office and mining equipment, net
|
|
$
|
217,292
|
|
|
$
|
226,413
|
|
NOTE 8 – PROPERTY CONCESSIONS
The following is a summary of the Company’s
property concessions for the Sierra Mojada Property as at January 31, 2020 and October 31, 2019:
|
Property concessions – January 31, 2020 and October 31, 2019
|
|
|
$
|
5,019,927
|
|
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 January 31, 2020 and October 31, 2019:
|
Goodwill – January 31, 2020 and October 31, 2019
|
|
|
$
|
2,058,031
|
|
NOTE 10 – COMMON STOCK
No shares of common stock were issued
during the three months ended January 31, 2020.
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 $70 related
to warrant exercises in the three months ended January 31, 2019.
NOTE 11 – STOCK OPTIONS
The Company has two stock option plans, the
2010 Stock Option and Stock Bonus Plan, as amended (the “2010 Plan”) and the 2019 Stock Option and Stock Bonus Plan
(the “2019 Plan”). Under each of the 2010 Plan and the 2019 Plan, the lesser of (i) 30,000,000 shares or (ii) 10% of
the total shares outstanding are reserved for issuance upon the exercise of options or the grant of stock bonuses.
Options are typically granted with an exercise
price equal to the closing market price of the Company’s stock at the date of grant, have a graded vesting schedule over
two years and have a contractual term of five years.
No options were granted or exercised during
the three months ended January 31, 2020 and January 31, 2019.
The following is a summary of stock option
activity for the three months ended January 31, 2020:
Options
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2019
|
|
|
|
16,350,000
|
|
|
$
|
0.09
|
|
|
|
2.83
|
|
|
$
|
46,448
|
|
|
Outstanding at January 31, 2020
|
|
|
|
16,350,000
|
|
|
$
|
0.09
|
|
|
|
2.58
|
|
|
$
|
15,397
|
|
|
Exercisable at January 31, 2020
|
|
|
|
13,833,333
|
|
|
$
|
0.09
|
|
|
|
2.39
|
|
|
$
|
15,397
|
|
The Company recognized stock-based compensation
costs for stock options of $18,725 and $61,911 for the three months ended January 31, 2020 and 2019, respectively. As of January
31, 2020, there was $43,694 of total unrecognized compensation expense, which is expected to be recognized over a weighted average
period of 0.33 years.
Summarized information about stock options
outstanding and exercisable at January 31, 2020 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
|
|
|
|
1.06
|
|
|
0.06
|
|
|
|
4,075,000
|
|
|
$
|
0.06
|
|
|
0.10
|
|
|
|
11,625,000
|
|
|
|
3.12
|
|
|
0.10
|
|
|
|
9,108,333
|
|
|
|
0.10
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
3.05
|
|
|
0.16
|
|
|
|
350,000
|
|
|
|
0.16
|
|
|
0.19
|
|
|
|
300,000
|
|
|
|
1.51
|
|
|
0.19
|
|
|
|
300,000
|
|
|
|
0.19
|
|
$
|
0.06 – 0.19
|
|
|
|
16,350,000
|
|
|
|
2.58
|
|
|
0.09
|
|
|
|
13,833,333
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the adoption of ASU 2018-07 on November
1, 2019, stock options granted to consultants with a $CDN exercise price were classified as a stock option liability on the Company’s
consolidated balance sheets upon vesting. On adoption of ASU 2018-07, the classification of stock options granted to consultants
with a $CDN exercise price is only reassessed if the award is modified after it vests and the consultant is no longer providing
services, rather than once performance is complete and the award vests. ASU 2018-07 requires liability-classified awards that have
not been settled as of the adoption date to be remeasured based on their adoption-date fair value. As a result, the Company reclassified
$4,803 from stock option liability to additional paid-in capital on adoption of ASU 2018-07 (Note 3). The following is a summary
of the Company’s stock option liability at January 31, 2020 and October 31, 2019:
Stock option liability at October 31, 2019:
|
|
$
|
4,803
|
|
Reclassification to additional paid-in capital
|
|
|
(4,803
|
)
|
Stock option liability at January 31, 2020
|
|
$
|
—
|
|
NOTE 12 –
WARRANTS
A summary of warrant activity for the three
months ended January 31, 2020 is as follows:
Warrants
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2019
|
|
|
15,802,305
|
|
|
$
|
0.16
|
|
|
|
0.75
|
|
|
$
|
—
|
|
Outstanding and exercisable at January 31, 2020
|
|
|
15,802,305
|
|
|
$
|
0.16
|
|
|
|
0.50
|
|
|
$
|
—
|
|
No warrants were issued or exercised during
the three months ended January 31, 2020.
No warrants were issued during the three months
ended January 31, 2019.
Warrants exercised during the three months
ended January 31, 2019 are discussed in Note 10.
The
warrants exercised during the three months ended January 31, 2019 had an intrinsic value of $3,032.
Summarized information about warrants outstanding
and exercisable at January 31, 2020 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
|
|
|
|
0.49
|
|
|
$
|
0.14
|
|
|
0.16
|
|
|
|
14,570,931
|
|
|
|
0.50
|
|
|
|
0.16
|
|
$
|
0.14 – 0.16
|
|
|
|
15,802,305
|
|
|
|
0.50
|
|
|
$
|
0.16
|
|
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 and stock option liability.
The carrying amounts of cash and cash
equivalents and accounts payable approximate fair value at January 31, 2020 and October 31, 2019 due to the short maturities of
these financial instruments.
Derivative liability
The Company classified warrants with a $CDN
exercise price as a derivative liability, which was 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 used the Black-Scholes pricing model to determine the fair
value of these warrants. Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable
judgment. The estimated volatility of the Company’s common stock at the date of issuance, and at each subsequent reporting
period, was 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 was 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 was assumed to
be equivalent to their remaining contractual term. The dividend yield was expected to be none as the Company has not paid dividends
nor does the Company anticipate paying a dividend in the foreseeable future. All changes in fair value were recorded in the interim
Condensed Consolidated Statements of Operations and Comprehensive Loss each reporting period.
Credit Risk
Credit risk is the risk that the counterparty
to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure
to credit risk on financial assets, the Company has established policies to ensure liquidity of funds and ensure that counterparties
demonstrate acceptable levels of creditworthiness.
The Company maintains its U.S. dollar
and Canadian dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit
standings. Cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to
$CDN 100,000. Certain Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they
relate to U.S. dollar deposits held in Canadian financial institutions. As of January 31, 2020, and October 31, 2019, the Company’s
cash and cash equivalent balances held in Canadian financial institutions included $1,476,124 and $1,296,115, respectively, which
was not insured by the CDIC. The Company has not experienced any losses on such accounts, and management believes that using major
financial institutions with high credit ratings mitigates the credit risk to cash and cash equivalents.
The Company also maintains cash in bank
accounts in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of January 31, 2020,
and October 31, 2019, the U.S. dollar equivalent balance for these accounts was $69,675 and $62,024, respectively.
Interest Rate Risk
The Company holds substantially all
of its cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received
on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during
the three months ended January 31, 2020, a 1% decrease in interest rates would have resulted in a reduction of approximately $4,123
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”). To date, no royalties have been paid.
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 was subsequently challenged by Mineros Norteños and on January 24, 2020, the Federal Circuit Court ruled that the
Federal Appeal Court must consider additional factors in its ruling. In March 2020 the Federal Appeals Court held the original
ruling after considering these additional factors. Mineros Norteños may challenge this ruling at the Federal Circuit Court.
The Company and the Company’s Mexican legal counsel believe that it is unlikely that the court’s ruling will be overturned.
The Company has not accrued any amounts in its interim condensed consolidated financial statements with respect to this claim.
From time to
time, the Company is involved in other disputes, claims, proceedings and legal actions arising in the ordinary course of business.
The Company intends to vigorously defend all claims against the Company and pursue its full legal rights in cases where the Company
has been harmed. Although the ultimate outcome of these proceedings cannot be accurately predicted due to the inherent uncertainty
of litigation, in the opinion of management, based upon current information, no other currently pending or overtly threatened proceeding
is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.
NOTE 15 – SEGMENT INFORMATION
The Company operates in a single reportable
segment: the exploration of mineral property interests. The Company has mineral property interests in Sierra Mojada, Mexico.
Geographic
information is approximately as follows:
|
|
For the Three Months Ended
|
|
|
January 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Mexico
|
|
$
|
(197,000
|
)
|
|
$
|
(469,000
|
)
|
Canada
|
|
|
(371,000
|
)
|
|
|
(532,000
|
)
|
Net Loss
|
|
$
|
(568,000
|
)
|
|
$
|
(1,001,000
|
)
|
The following table details the allocation of assets included
in the accompanying balance sheet at January 31, 2020:
|
|
Canada
|
|
Mexico
|
|
Total
|
Cash and cash equivalents
|
|
$
|
1,525,000
|
|
|
$
|
70,000
|
|
|
$
|
1,595,000
|
|
Value-added tax receivable, net
|
|
|
—
|
|
|
|
268,000
|
|
|
|
268,000
|
|
Other receivables
|
|
|
5,000
|
|
|
|
9,000
|
|
|
|
14,000
|
|
Prepaid expenses and deposits
|
|
|
77,000
|
|
|
|
100,000
|
|
|
|
177,000
|
|
Office and mining equipment, net
|
|
|
—
|
|
|
|
217,000
|
|
|
|
217,000
|
|
Property concessions
|
|
|
—
|
|
|
|
5,020,000
|
|
|
|
5,020,000
|
|
Goodwill
|
|
|
—
|
|
|
|
2,058,000
|
|
|
|
2,058,000
|
|
|
|
$
|
1,607,000
|
|
|
$
|
7,742,000
|
|
|
$
|
9,349,000
|
|
The following table details the allocation of assets included
in the accompanying balance sheet 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 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.