U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDEDJanuary 31, |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________. |
Commission File Number:001-33125
SILVER BULL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 91-1766677 |
State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) |
777 Dunsmuir Street, Suite 1610
Vancouver, B.C. V7Y 1K4
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: 604-687-5800
Securities registered pursuant to Section 12(b) of the Act:None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes R ☒ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes R☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐ | Accelerated filer☐ | |
Non-accelerated filer☐ | Smaller reporting company ☒ | |
Emerging growth company☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No R
As of March 15, 2019,13, 2020, there were 236,328,214 shares of the registrant’s $0.01 par value common stock outstanding, the registrant’s only outstanding class of voting securities.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS. | |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | |
| ITEM 4. CONTROLS AND PROCEDURES. | |
PART II – OTHER INFORMATION | 25 |
| ITEM 1. LEGAL PROCEEDINGS. | 25 |
| ITEM 1A. RISK FACTORS. | 25 |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES. | |
| ITEM 4. MINE SAFETY DISCLOSURES. | |
| ITEM 5. OTHER INFORMATION. | |
| ITEM 6. EXHIBITS. | |
| SIGNATURES |
[The balance of this page has been intentionally left blank.]
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 2019 | October 31, 2018 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 2,994,197 | $ | 3,025,839 | ||||
| Value-added tax receivable, net of allowance for uncollectible taxes of $114,113 and $98,414 respectively (Note 6) | 205,933 | 175,020 | ||||||
Income tax receivables | 357 | 160 | ||||||
Other receivables | 18,753 | 12,045 | ||||||
Prepaid expenses and deposits | 149,957 | 237,253 | ||||||
Total Current Assets | 3,369,197 | 3,450,317 | ||||||
Office and mining equipment, net (Note 7) | 194,269 | 201,486 | ||||||
Property concessions (Note 8) | 5,031,747 | 5,019,927 | ||||||
Goodwill (Note 9) | 2,058,031 | 2,058,031 | ||||||
| TOTAL ASSETS | $ | 10,653,244 | $ | 10,729,761 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 154,036 | $ | 253,327 | ||||
Accrued liabilities and expenses | 206,894 | 439,450 | ||||||
| Income tax payable | 1,500 | 4,700 | ||||||
| Stock option liability (Note 11) | 23,325 | 25,116 | ||||||
| Warrant derivative liability (Note 12) | 516,881 | 405,500 | ||||||
Total Current Liabilities | 902,636 | 1,128,093 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY (Notes 4, 10, 11 and 12) | ||||||||
Common stock, $0.01 par value; 300,000,000 shares authorized, 235,268,214, and 234,868,214 shares issued and outstanding, respectively | 2,352,682 | 2,348,682 | ||||||
Additional paid-in capital | 134,162,059 | 133,015,768 | ||||||
Accumulated deficit | (126,856,381 | ) | (125,855,030 | ) | ||||
Other comprehensive income | 92,248 | 92,248 | ||||||
Total Stockholders’ Equity | 9,750,608 | 9,601,668 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 10,653,244 | $ | 10,729,761 | ||||
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.
| 3 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Three Months Ended January 31, | ||||||||
| 2019 | 2018 | |||||||
| REVENUES | $ | — | $ | — | ||||
| EXPLORATION AND PROPERTY HOLDING COSTS | ||||||||
Exploration and property holding costs | 458,029 | 174,104 | ||||||
Depreciation | 7,217 | 7,117 | ||||||
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS | 465,246 | 181,221 | ||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
Personnel | 173,207 | 132,297 | ||||||
Office and administrative | 125,892 | 98,966 | ||||||
Professional services | 64,881 | 51,910 | ||||||
Directors’ fees | 54,465 | 42,014 | ||||||
| Provision for uncollectible value-added taxes (Note 6) | 9,316 | 19,402 | ||||||
| TOTAL GENERAL AND ADMINISTRATIVE EXPENSES | 427,761 | 344,589 | ||||||
LOSS FROM OPERATIONS | (893,007 | ) | (525,810 | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
Interest income | 119 | 640 | ||||||
Interest and finance costs | — | (949 | ) | |||||
Foreign currency transaction gain (loss) | 5,831 | (2,973 | ) | |||||
| Change in fair value of stock option liability (Note 11) | 1,791 | (8,041 | ) | |||||
| Change in fair value of warrant derivative liability (Note 12) | (114,413 | ) | (1,598,344 | ) | ||||
Miscellaneous income | — | 225 | ||||||
TOTAL OTHER INCOME (EXPENSES) | (106,672 | ) | (1,609,442 | ) | ||||
LOSS BEFORE INCOME TAXES | (999,679 | ) | (2,135,252 | ) | ||||
INCOME TAX EXPENSE | 1,672 | 1,326 | ||||||
NET LOSS AND COMPREHENSIVE LOSS | $ | (1,001,351 | ) | $ | (2,136,578 | ) | ||
BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ | — | $ | (0.01 | ) | |||
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 234,872,562 | 199,425,252 | ||||||
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.
| 4 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| Common Stock | Additional | Other | Total | |||||||||||||||||||||
Number of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Income | Stockholders’ Equity | |||||||||||||||||||
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 (Note 12) | — | — | 3,032 | — | — | 3,032 | ||||||||||||||||||
| Stock option and warrants 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 | ||||||||||||
| 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.
| 5 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended January 31, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (1,001,351 | ) | $ | (2,136,578 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation | 7,217 | 7,117 | ||||||
| Provision for uncollectible value-added taxes | 9,316 | 19,402 | ||||||
Foreign currency transaction gain | (9,288 | ) | (7,518 | ) | ||||
| Change in fair value of warrant derivative liability (Note 12) | 114,413 | 1,598,344 | ||||||
| Change in fair value of stock option liability (Note 11) | (1,791 | ) | 8,041 | |||||
Stock options issued for compensation | 61,911 | 31,620 | ||||||
Changes in operating assets and liabilities: | ||||||||
Value-added tax receivable | (29,068 | ) | (11,887 | ) | ||||
Income tax receivables | (181 | ) | (2,925 | ) | ||||
Other receivables | (6,634 | ) | 163 | |||||
Prepaid expenses and deposits | 86,624 | (10,995 | ) | |||||
Accounts payable | (99,449 | ) | (17,178 | ) | ||||
Accrued liabilities and expenses | (235,966 | ) | (35,395 | ) | ||||
Income tax payable | (3,200 | ) | 1,000 | |||||
Net cash used in operating activities | (1,107,447 | ) | (556,789 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Acquisition of property concessions (Note 8) | (11,820 | ) | (15,541 | ) | ||||
Net cash used in investing activities | (11,820 | ) | (15,541 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Property concessions funding (Note 4) | 1,046,000 | — | ||||||
| Proceeds from exercise of warrants, net of costs (Note 10) | 39,348 | 94,634 | ||||||
Net cash provided by financing activities | 1,085,348 | 94,634 | ||||||
| Effect of exchange rates on cash and cash equivalents | 2,277 | 6,490 | ||||||
Net decrease in cash and cash equivalents | (31,642 | ) | (471,206 | ) | ||||
| Cash and cash equivalents beginning of period | 3,025,839 | 681,776 | ||||||
Cash and cash equivalents end of period | $ | 2,994,197 | $ | 210,570 | ||||
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.
| 6 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
Three Months Ended January 31, | ||||||||
| 2019 | 2018 | |||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
Income taxes paid | $ | — | $ | 1,072 | ||||
Interest paid | — | 949 | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issuance costs included in accounts payable and accrued liability | $ | — | $ | 220 | ||||
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.
| 7 |
NOTE 1 – ORGANIZATION, AND DESCRIPTION OF BUSINESS
Silver Bull Resources, Inc. (the “Company”) was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s name was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources, Inc. The Company’s fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects and may never enter into the development stage with respect to any of its projects.
The Company engages in the business of mineral exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the “Sierra Mojada Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V. (“Minera Metalin”) and, Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) and through Minera Metalin’s wholly-owned subsidiary Minas de Coahuila SBR S.A. de C.V. (“Minas”).
On April 16, 2010, Metalline Mining Delaware, Inc., a wholly-owned subsidiary of the Company 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, 20182019 was derived from the audited consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.
All figures are in United States dollars unless otherwise noted.
| 8 |
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, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2019.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies are defined in the Company’s Annual Report on Form 10-K for the year ended October 31, 20182019 filed on January 16, 2019,13, 2020, except as follows.
Recent Accounting Pronouncements Adopted in the Three-Month Period Ended January 31, 20192020
On November 1, 2018,2019, 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.
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 Company’s fiscal year beginning November 1, 2019. Early application is permitted. At this time,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 has not determinedto reassess whether a contract contains a lease, the effectslease classification, and any initial direct costs incurred.
The Company also elected a number of optional practical expedients including the following:
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 February 2016,December 2019, the FASB issued ASU 2016-02, “Leases,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 require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes becomebe effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the Company’s fiscal year beginning November 1, 2019. Modified retrospectiveimpact the adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. At this time, the Company has not determined the effects of this updateASU 2019-12 will have on the Company’sits financial position, results of operations or cash flows and disclosures.
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Other recent accounting pronouncementpronouncements 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. In June 2018, theThe Company received initial funding of $3,144,163 from South32 for Year 1 of $922,783. During the period from November 1, 2018 to January 31,Option Agreement. In April 2019, the Company received two payments totaling $1,046,000a notice from South32.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 2019,2020, the Company received the fourtha payment of $1,175,380 from South32. As$147,366 for Year 2 of January 31, 2019, $501,648 remains unspent. South32 is able to terminate the Option Agreement at any time without penalty other than forfeiture of the Option.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 (“VIEs”) 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 optionOption 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.
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The combined approximate carrying amount of the assets and liabilities of Contratistas and Minera Metalin (consolidated with Minera Metalin’stheir wholly-owned subsidiary) are as follows at January 31, 2019:
| Assets: | Mexico | |||
| Cash and cash equivalents | $ | 101,000 | ||
| Value-added tax receivable, net | 206,000 | |||
| Other receivables | 1,000 | |||
| Prepaid expenses and deposits | 9,000 | |||
| Office and mining equipment, net | 194,000 | |||
| Property concessions | 5,032,000 | |||
| Total assets | $ | 5,543,000 | ||
| Liabilities: | ||||
| Accounts payable | 2,000 | |||
| Accrued liabilities and expenses | 65,000 | |||
| Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option | 3,376,000 | |||
| Total liabilities | $ | 3,443,000 | ||
| Net advances and investment in the Company’s Mexican subsidiaries | $ | 2,100,000 | ||
| 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, 2019,2020, Silver Bull Resources, Inc. holds $429,000held $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 ofat the Sierra Mojada.
The Company’s maximum exposure to loss at January 31, 20192020 is $5,476,000,$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, 20192020 and 20182019 that upon exercise were issuable into 54,666,89632,152,305 and 38,735,32554,666,896 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 $205,933$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.
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A summary of the changes in the allowance for uncollectible VAT for the three months ended January 31, 20192020 is as follows:
| Allowance for uncollectible VAT – October 31, 2018 | $ | 98,414 | ||
| Provision for VAT receivable allowance | 9,316 | |||
| Foreign currency translation adjustment | 5,666 | |||
| Write-off of VAT receivable | 717 | |||
| Allowance for uncollectible VAT – January 31, 2019 | $ | 114,113 |
| 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, 20192020 and October 31, 2018,2019, respectively:
| January 31, | October 31, | |||||||
| 2019 | 2018 | |||||||
| Mining equipment | $ | 358,513 | $ | 358,513 | ||||
| Vehicles | 73,287 | 73,287 | ||||||
| Buildings and structures | 185,724 | 185,724 | ||||||
| Computer equipment and software | 74,236 | 74,236 | ||||||
| Well equipment | 39,637 | 39,637 | ||||||
| Office equipment | 47,597 | 47,597 | ||||||
| 778,994 | 778,994 | |||||||
| Less: Accumulated depreciation | (584,725 | ) | (577,508 | ) | ||||
| Office and mining equipment, net | $ | 194,269 | $ | 201,486 | ||||
| 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, 20192020 and October 31, 2018:
| Property concessions –October 31, 2018 | $ | 5,019,927 | ||
| Acquisitions | 11,820 | |||
| Property concessions – January 31, 2019 | $ | 5,031,747 |
| 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, 2018,2019, 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 that it is not more likely than not that thefair value of the reporting unit is less than its carrying amount. The Company performs its annual goodwill impairment teststest as of April 30th of each fiscal year.
The following is a summary of the Company’s goodwill balance as at January 31, 20192020 and October 31, 2018:
| Goodwill – January 31, | $ | 2,058,031 |
NOTE 10 – COMMON STOCK
No 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 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.
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NOTE 11 – STOCK OPTIONS
The Company has onetwo stock option plan,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.
No options were granted or exercised during the three months ended January 31, 20192020 and January 31, 2018.
The following is a summary of stock option activity for the three months ended January 31, 2019:
| Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at October 31, 2018 | 18,950,000 | $ | 0.11 | 3.48 | $ | 429,158 | ||||||||||
| Cancelled | (183,334 | ) | 0.10 | |||||||||||||
| Outstanding at January 31, 2019 | 18,766,666 | $ | 0.11 | 3.19 | $ | 546,447 | ||||||||||
| Exercisable at January 31, 2019 | 12,375,000 | $ | 0.12 | 2.61 | $ | 395,396 | ||||||||||
| 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 $61,911$18,725 and $31,620$61,911 for the three months ended January 31, 20192020 and 2018,2019, respectively. As of January 31, 2019,2020, there was $209,283$43,694 of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 0.610.33 years.
Summarized information about stock options outstanding and exercisable at January 31, 20192020 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 | 2.06 | $ | 0.06 | 4,075,000 | $ | 0.06 | ||||||||||||||
| 0.10 | 11,716,666 | 4.09 | 0.10 | 5,325,000 | 0.10 | |||||||||||||||||
| 0.16 | 350,000 | 4.05 | 0.16 | 350,000 | 0.16 | |||||||||||||||||
| 0.19 – 0.26 | 2,625,000 | 0.81 | 0.25 | 2,625,000 | 0.25 | |||||||||||||||||
| $ | 0.06 – 0.26 | 18,766,666 | 3.19 | $ | 0.11 | 12,375,000 | $ | 0.12 | ||||||||||||||
| 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 arewere classified as a stock option liability on the Company’s interim condensed consolidated balance sheets upon vesting.
| Stock option liability at October 31, 2019: | $ | 4,803 | ||
| Reclassification to additional paid-in capital | (4,803 | ) | ||
| Stock option liability at January 31, 2020 | $ | — |
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Stock option liability at October 31, 2018: | $ | 25,116 | ||
Change in fair value of stock option liability | (1,791 | ) | ||
Stock option liability at January 31, 2019 | $ | 23,325 |
NOTE 12– WARRANTS
A summary of warrant activity for the three months ended January 31, 20192020 is as follows:
| Warrants | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding and exercisable at October 31, 2019 | 36,300,230 | $ | 0.13 | 1.16 | $ | 254,068 | ||||||||||
| Exercised | (400,000 | ) | $ | 0.10 | ||||||||||||
| Outstanding and exercisable at January 31, 2019 | 35,900,230 | $ | 0.13 | 0.91 | $ | 367,831 | ||||||||||
| 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 and 2018 are discussed in Note 10.
The warrants exercised during the three months ended January 31, 2019 and 2018 had an intrinsic value of $3,032 and $81,231, respectively.
Summarized information about warrants outstanding and exercisable at January 31, 20192020 is as follows:
| Warrants Outstanding and Exercisable | ||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||
| $ | 0.08 | 357,925 | 0.44 | $ | 0.08 | |||||||||
| 0.10 | 15,400,000 | 0.45 | 0.10 | |||||||||||
| 0.12 | 4,340,000 | 0.47 | 0.12 | |||||||||||
| 0.14 | 1,231,374 | 1.49 | 0.14 | |||||||||||
| 0.16 | 14,570,931 | 1.50 | 0.16 | |||||||||||
| $ | 0.08 – 0.16 | 35,900,230 | 0.91 | $ | 0.13 | |||||||||
Warrant derivative liability at October 31, 2018: | $ | 405,500 | ||
Change in fair value of warrant derivative liability | 114,413 | |||
Reclassification to additional paid-in capital upon exercise of warrants | (3,032 | ) | ||
Warrant derivative liability at January 31, 2019 | $ | 516,881 |
| 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 optionThe carrying amounts of cash and cash equivalents and accounts payable approximate fair value at January 31, 20192020 and October 31, 20182019 due to the short maturities of these financial instruments.
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Derivative liability
The Company classifiesclassified warrants with a $CDN exercise price on its interim condensed consolidated balance sheets as a derivative liability, which iswas fair valued at each reporting period subsequent to the initial issuance as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing model to determine the fair value of the warrants that do not have an acceleration feature and has used the Monte Carlo valuation model to determine the fair value of the warrants that do have an acceleration feature (Note 12).these warrants. 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, iswas 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 iswas 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 iswas assumed to be equivalent to their remaining contractual term. The dividend yield iswas expected to be none as the Company has not paid dividends nor does the Company anticipate paying a dividend in the foreseeable future.
| January 31, 2019 | ||||||||||||
| Liability | Level 1 | Level 2 | Level 3 | |||||||||
| Stock option liability | $ | — | $ | — | $ | 23,325 | ||||||
| Warrant derivative liability | $ | — | $ | — | $ | 516,881 | ||||||
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, 2019,2020, and October 31, 2018,2019, the Company’s cash and cash equivalent balances held in Canadian financial institutions included $2,817,248$1,476,124 and $2,919,461,$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, 2019,2020, and October 31, 2018,2019, the U.S. dollar equivalent balance for these accounts was $100,869$69,675 and $32,668,$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, 2019,2020, a 1% decrease in interest rates would have resulted in a reduction of approximately $119$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.
| 15 |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Compliance with Environmental Regulations
The Company’s exploration activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or affect the economics of a project, and cause changes or delays in the Company’s activities.
Property Concessions in Mexico
To properly maintain property concessions in Mexico, the Company is required to pay a semi-annual fee to the Mexican government and complete annual assessment work.
Royalty
The Company has agreed to pay a 2% net smelter return royalty on certain property concessions within the Sierra Mojada Property based on the revenue generated from production. Total payments under this royalty are limited to $6.875 million (the “Royalty”).
Litigation and Claims
On May 20, 2014, a cooperative named Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”) filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico, against the Company’s subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development of the Sierra Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of 6% per annum since August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment of wages to the cooperative’s members since August 30, 2004, even though none of the individuals were hired or performed work for Minera Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was moved to the Third District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was time barred from bringing the case. On October 19, 2017, Mineros Norteños appealed this ruling. On July 31, 2019, the Federal Appeal Court held the original ruling. This ruling 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.
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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 approximatelyas follows:
| For the Three Months Ended | ||||||||
| January 31, | ||||||||
| 2019 | 2018 | |||||||
Mexico | $ | (469,000 | ) | $ | (201,000 | ) | ||
Canada | (532,000 | ) | (1,936,000 | ) | ||||
| Net Loss | $ | (1,001,000 | ) | $ | (2,137,000 | ) | ||
| 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, 2019:
| Canada | Mexico | Total | ||||||||||
| Cash and cash equivalents | $ | 2,893,000 | $ | 101,000 | $ | 2,994,000 | ||||||
| Value-added tax receivable, net | - | 206,000 | 206,000 | |||||||||
| Other receivables | 17,000 | 1,000 | 18,000 | |||||||||
| Prepaid expenses and deposits | 141,000 | 10,000 | 151,000 | |||||||||
| Office and mining equipment, net | - | 194,000 | 194,000 | |||||||||
| Property concessions | - | 5,032,000 | 5,032,000 | |||||||||
| Goodwill | - | 2,058,000 | 2,058,000 | |||||||||
| $ | 3,051,000 | $ | 7,602,000 | $ | 10,653,000 | |||||||
| 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, 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 | |||||||
| 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.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
When we use the terms “Silver Bull,” “we,” “us,” or “our,” we are referring to Silver Bull Resources, Inc. and its subsidiaries, unless the context otherwise requires. We have included technical terms important to an understanding of our business under “Glossary of Common Terms” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the U.S. Private Securities Litigation Reform Act of 1995, and “forward-looking information” within the meaning of applicable Canadian securities legislation. We use words such as “anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “will,” “projection,” “should,” “believe,” “potential,” “could,” or similar words suggesting future outcomes (including negative and grammatical variations) to identify forward-looking statements. Forward-looking statements include statements we make regarding: