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 ENDED April 30, 2019.

 

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

 

 

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 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 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

 

As of June 14, 2019, 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 2
ITEM 1.  FINANCIAL STATEMENTS. 2
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 20
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 28
ITEM 4.   CONTROLS AND PROCEDURES. 28
PART II – OTHER INFORMATION 29
ITEM 1.   LEGAL PROCEEDINGS. 29
ITEM 1A.   RISK FACTORS. 29
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 29
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES. 29
ITEM 4.   MINE SAFETY DISCLOSURES. 29
ITEM 5.   OTHER INFORMATION. 29
ITEM 6.   EXHIBITS. 30
SIGNATURES 31

 

[The balance of this page has been intentionally left blank.]

 

 

1 
 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

  

 

April 30,

2019

 

 

October 31,

2018

    (Unaudited)      
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents   $3,487,394   $3,025,839 
Value-added tax receivable, net of allowance for uncollectible taxes of $126,349 and $98,414 respectively (Note 6)    231,181    175,020 
Income tax receivables    510    160 
Other receivables    9,955    12,045 
Prepaid expenses and deposits    188,456    237,253 
Total Current Assets    3,917,496    3,450,317 
           
           
Office and mining equipment, net (Note 7)    186,888    201,486 
Property concessions (Note 8)    5,031,747    5,019,927 
Goodwill (Note 9)    2,058,031    2,058,031 
 TOTAL ASSETS   $11,194,162   $10,729,761 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable   $145,405   $253,327 
Accrued liabilities and expenses    233,293    439,450 
Income tax payable    1,500    4,700 
Stock option liability (Note 11)    6,342    25,116 
Warrant derivative liability (Note 12)    23,151    405,500 
Total Current Liabilities    409,691    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, 236,328,214,and 234,868,214 shares issued and outstanding, respectively    2,363,282    2,348,682 
Additional paid-in capital    135,499,681    133,015,768 
Accumulated deficit    (127,170,740)   (125,855,030)
Other comprehensive income    92,248    92,248 
 Total Stockholders’ Equity    10,784,471    9,601,668 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $11,194,162   $10,729,761 
           

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

2 
 

 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

 

 

  

Three Month Ended

April 30,

 

Six Months Ended

April 30,

   2019  2018  2019  2018
             
REVENUES  $   $   $   $ 
                     
EXPLORATION AND PROPERTY HOLDING COSTS                    
Exploration and property holding costs    356,131    102,536    814,160    276,640 
Depreciation    7,381    6,763    14,598    13,880 
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS    363,512    109,299    828,758    290,520 
                     
GENERAL AND ADMINISTRATIVE EXPENSES                    
Personnel    166,160    113,045    339,367    245,342 
Office and administrative    154,996    139,123    280,888    238,089 
Professional services    71,397    88,289    136,278    140,199 
Directors’ fees    53,300    38,440    107,765    80,454 
Provision for uncollectible value-added taxes (Note 6)    11,639    5,800    20,955    25,202 
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES    457,492    384,697    885,253    729,286 
                     
LOSS FROM OPERATIONS    (821,004)   (493,996)   (1,714,011)   (1,019,806)
                     
OTHER INCOME (EXPENSES)                    
Interest income    6,265    129    6,384    769 
Interest and finance costs    —      (690)   —      (1,639)
Foreign currency transaction gain    2,073    5,572    7,904    2,599 
Change in fair value of stock option liability (Note 11)    16,983    2,249    18,774    (5,792)
Change in fair value of warrant derivative liability (Note 12)    484,636    293,225    370,223    (1,305,119)
Miscellaneous income    —      —      —      225 
 TOTAL OTHER INCOME (EXPENSES)    509,957    300,485    403,285    (1,308,957)
                     
LOSS BEFORE INCOME TAXES    (311,047)   (193,511)   (1,310,726)   (2,328,763)
                     
INCOME TAX EXPENSE    3,312    236    4,984    1,562 
                     
NET AND COMPREHENSIVE LOSS    (314,359)   (193,747)   (1,315,710)   (2,330,325)
 BASIC AND DILUTED NET LOSS PER COMMON SHARE   $—     $—     $(0.01)  $(0.01)
 BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 5)    236,010,911    202,514,499    235,435,436    200,944,274 
                     

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

3 
 

 

 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

 

 

   Common Stock  Additional     Other  Total
   Number of Shares  Amount  Paid-in Capital 

Accumulated

Deficit

  Comprehensive Income  Stockholder’ Equity
Six months ended April 30, 2019                              
Balance, October 31, 2018    234,868,214   $2,348,682   $133,015,768   $(125,855,030)  $92,248   $9,601,668 
Issuance of common stock as follows:
                              
 - Exercise of warrants at a price of $CDN 0.13 per share less costs of $210 (Note 10)    1,460,000    14,600    128,276    —      —      142,876 
Earn-in option agreement (Note 4)   —      —      2,221,380    —      —      2,221,380 
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13 (Note 12)    —      —      12,126    —      —      12,126 
Stock option and warrants activity as follows:                              
- Stock-based compensation for options issued to directors, officers, employees and consultants (Note 11)    —      —      122,131    —      —      122,131 
Net loss for the six month period ended April 30, 2019   —      —      —      (1,315,710)   —      (1,315,710)
Balance, April 30, 2019    236,328,214   $2,363,282   $135,499,681   $(127,170,740)  $92,248   $10,784,471 
                               

 

 

   Common Stock  Additional     Other    
   Number of Shares  Amount  Paid-in
Capital
  Accumulated
Deficit
  Comprehensive Income  Stockholder’ Equity
Three months ended April 30, 2019                  
Balance, January 31, 2019    235,268,214   $2,352,682   $134,162,059   $(126,856,381)   92,248   $9,750,608 
Issuance of common stock as follows:                               
- Exercise of warrants at a price of $CDN 0.13 per share less costs of $140 (Note 10)    1,060,000    10,600    92,928    —      —      103,528 
Earn-in option agreement    —      —      1,175,380    —      —      1,175,380 
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13    —      —      9,094    —      —      9,094 
Stock option and warrants activity as follows:                              
- Stock-based compensation for options issued to directors, officers, employees and consultants    —      —      60,220    —      —      60,220 
Net loss for the three month period ended April 30, 2019   —      —      —      (314,359)   —      (314,359)
Balance, April 30, 2019    236,328,214   $2,363,282   $135,499,681   $(127,170,740)  $92,248   $10,784,471 

 

 

 

 

4 
 

 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (continued)

 

 

    Common Stock    Additional         Other      
    Number of Shares    Amount    Paid-in Capital    Accumulated Deficit    Comprehensive Income    Total 
Six months ended April 30, 2018                              
Balance, October 31, 2017    199,259,967   $1,992,599   $127,679,664   $(122,335,364)  $92,248   $7,429,147 
Issuance of common stock as follows:                               
- exercise of warrants at a price of $CDN 0.13 per share less costs of $750 (Note 10)    5,440,000    54,400    497,352    —      —      551,752 
- exercise of agent warrants at a price of $CDN 0.10 per share less costs of $165 (Note 10)    39,375    394    2,586    —      —      2,980 
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13 (Note 12)    —      —      379,908    —      —      379,908 
Reclassification to additional paid-up capital upon exercise of warrants at price of $CDN 0.10 (Note 12)    —      —      3,615    —      —      3,615 
Stock option activity as follows:                               
- Stock-based compensation for options issued to officers, employees and consultants    —      —      51,634    —      —      51,634 
Net loss for the six month period ended April 30, 2018   —      —      —      (2,330,325)   —      (2,330,325)
Balance, April 30, 2018    204,739,342   $2,047,393   $128,614,759   $(124,665,689)  $92,248   $6,088,711 
                               

 

 

 

   Common Stock  Additional     Other   
   Number of Shares  Amount  Paid-in Capital  Accumulated Deficit  Comprehensive Income  Total
Three months ended April 30, 2018                              

Balance, January 31, 2018

   200,169,342   $2,001,693   $127,877,925   $(124,471,942)  $92,248   $5,499,924 
Issuance of common stock as follows:                               
 - exercise of warrants at a price of $CDN 0.13 per share less costs of $585 (Note 10)    4,552,500    45,525    413,531    —      —      459,056 
 - exercise of agent warrants at a price of $CDN 0.10 per share less costs of $110 (Note 10)    17,500    175    1,086    —      —      1,261 
Reclassification to additional paid-in capital upon exercise of warrants at price of $CDN 0.13    —      —      300,627    —      —      300,627 
Reclassification to additional paid-up capital upon exercise of warrants at price of $CDN 0.10    —      —      1,576    —      —      1,576 
Stock option activity as follows:                              
- Stock-based compensation for options issued to officers, employees and consultants    —      —      20,014    —      —      20,014 
 Net loss for the three month period ended April 30, 2018   —      —      —      (193,747)   —      (193,747)
Balance, April 30, 2018    204,739,342   $2,047,393   $128,614,759   $(124,665,689)  $92,248   $6,088,711 

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

5 
 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

       
  

Six Months Ended

April 30,

   2019  2018
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss   $(1,315,710)  $(2,330,325)
Adjustments to reconcile net loss to net cash used by operating activities:          
Depreciation    14,598    13,880 
Provision for uncollectible value-added taxes    20,955    25,202 
Foreign currency transaction loss (gain)    3,157    (2,411)
Change in fair value of warrant derivative liability (Note 12)    (370,223)   1,305,119 
Change in fair value of stock option liability (Note 11)    (18,774)   5,792 
Stock options issued for compensation    122,131    72,565 
Changes in operating assets and liabilities:           
Value-added tax receivable    (65,670)   (28,986)
Income tax receivable    (337)   —   
Other receivables    2,171    (7,401)
Prepaid expenses and deposits    47,517    30,848 
Accounts payable    (108,467)   37,135 
Accrued liabilities and expenses    (220,096)   (95,273)
    Income tax payable    (3,200)   (2,780)
Net cash used in operating activities    (1,891,948)   (976,635)
           
CASH FLOWS FROM INVESTING ACTIVITY:          
Acquisition of property concessions (Note 8)    (11,820)   (15,541)
Net cash used in investing activity    (11,820)   (15,541)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Property concessions funding (Note 4)   2,221,380    —   
Proceeds from exercise of warrants, net of costs (Note 10)   142,876    555,207 
Net cash provided by financing activities    2,364,256    555,207 
           
Effect of exchange rates on cash and cash equivalents    1,067    1,766 
           
Net increase (decrease) in cash and cash equivalents    461,555    (435,203)
           
Cash and cash equivalents beginning of period    3,025,839    681,776 
           
Cash and cash equivalents end of period   $3,487,394   $246,573 
           

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

6 
 

 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)

 

  

Six Months Ended

April 30,

   2019  2018
       
SUPPLEMENTAL CASH FLOW DISCLOSURES:          
           
Income taxes paid   $3,192   $4,599 
Interest paid    —      1,639 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Common stock issuance costs included in accounts payable and accrued liability  $—     $475 

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

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, was merged with and into Dome Ventures Corporation (“Dome”). As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned subsidiary, Dome Asia Inc. (“Dome Asia”), which is incorporated in the British Virgin Islands. Dome Asia has a wholly-owned subsidiary, Dome Minerals Nigeria Limited, incorporated in Nigeria.

 

The Company’s efforts and expenditures have been concentrated on the exploration of properties, principally the Sierra Mojada Property located in Coahuila, Mexico. The Company has not determined whether its exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company’s investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, and the ability of the Company to obtain financing or make other arrangements for exploration, development, and future profitable production activities. The ultimate realization of the Company’s investment in exploration properties cannot be determined at this time.

 

NOTE 2 – BASIS OF PRESENTATION

The Company’s interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The interim condensed consolidated balance sheet at October 31, 2018 was derived from the audited consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018.

All figures are in United States dollars unless otherwise noted.

The interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, except as disclosed in Note 3. In the opinion of management, the interim condensed consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. Uncertainties with respect to estimates and assumptions are inherent in the preparation of the Company’s interim condensed consolidated financial statements. Accordingly, operating results for the six months ended April 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2019.

 

8 
 

 

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies are defined in the Company’s Annual Report on Form 10-K for the year ended October 31, 2018 filed on January 16, 2019, except as follows.

Recent Accounting Pronouncements Adopted in the Six-Month Period Ended April 30, 2019

Effective November 1, 2018, the Company adopted the Financial Accounting Standards Board’s (the “FASB’s”) Accounting Standards Update (“ASU”) 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which addresses the transfer to noncustomers of nonfinancial assets or ownership interests in consolidated subsidiaries that do not constitute a business and the contribution of nonfinancial assets that are not a business to a joint venture or other noncontrolled investee. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

 

Effective November 1, 2018, the Company adopted the FASB’s ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business to assist entities in the evaluation of acquisitions and disposals of assets or businesses. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

Effective November 1, 2018, the Company adopted the FASB’s ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which required entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

Effective November 1, 2018, the Company adopted the FASB’s ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on the presentation and classification of certain cash receipts and payments in the statement of cash flows. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

Effective November 1, 2018, the Company adopted the FASB’s ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which (i) requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (iii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

Effective November 1, 2018, the Company adopted the FASB’s 2014-09, “Revenue from Contracts with Customers (Topic 606),” which has subsequently been amended to update revenue guidance under the newly-created ASC 606. The new standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about revenue recognition. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 simplifies the accounting for nonemployee share-based payments, aligning it more closely with the accounting for employee awards. These changes become effective for the Company’s fiscal year beginning November 1, 2019. Early application is permitted. At this time, the Company has not determined the effects of this update on the Company’s financial position, results of operations or cash flows and disclosures.

 

 

9 
 

 

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for the Company’s fiscal year beginning November 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. At this time, the Company has not determined the effects of this update on the Company’s financial position, results of operations or cash flows and disclosures.

 

Other recent accounting pronouncement issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on the Company’s present or future consolidated financial statements.

 

NOTE 4 – EARN-IN OPTION AGREEMENT

On June 1, 2018, the Company and its subsidiaries Minera Metalin and Contratistas entered into an Earn-In Option Agreement (the “Option Agreement”) with South32 International Investment Holdings Pty Ltd (“South32”), a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32 is able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the “Option”). Minera Metalin owns the Sierra Mojada Property located in Coahuila, Mexico (the “Sierra Mojada Project”), and Contratistas supplies labor for the Sierra Mojada Project. Under the Option Agreement, South32 earns into the Option by funding a collaborative exploration program on the Sierra Mojada Project. Upon the terms and subject to the conditions set forth in the Option Agreement, in order for South32 to earn and maintain its four-year Option, South32 must have contributed to Minera Metalin for exploration of the Sierra Mojada Project at least $3 million by the end of Year 1, $6 million by the end of Year 2, $8 million by the end of Year 3 and $10 million by the end of Year 4 (the “Initial Funding”). Funding is made on a quarterly basis based on the subsequent quarter’s exploration budget. South32 may exercise the Option by contributing $100 million to Minera Metalin (the “Subscription Payment”), less the amount of Initial Funding previously contributed by South32. The issuance of shares upon notice of exercise of the Option by South32 is subject to antitrust approval by the Mexican government. If the full amount of the Subscription Payment is advanced by South32 and the Option becomes exercisable and is exercised, the Company and South32 will be obligated to contribute funding to Minera Metalin on a 30/70 pro rata basis. If South32 elects not to continue with the Option during the four-year option period, the Sierra Mojada Project will remain 100% owned by the Company. The exploration program will be initially managed by the Company, with South32 being able to approve the exploration program funded by it. The Company received funding of $3,144,163 from South32 for Year 1 of the Option Agreement, of which $1,246,768 remains unspent as of April 30, 2019. In April 2019, the Company received a notice from South32 to maintain the Option Agreement for Year 2 by providing cumulative funding of $6 million by the end of such period. In May 2019 the Company received the initial payment of $319,430 for Year 2 of the Option Agreement from South32. If the Option Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government, the Company is under no obligation to reimburse South32 for amounts contributed under the Option Agreement.

Upon exercise of the Option, Minera Metalin and Contratistas are required to issue common shares to South32. Pursuant to the Option Agreement, following exercise and until a decision has been made by the board of directors of Minera Metalin to develop and construct a mine on the Sierra Mojada Project, each shareholder holding greater than or equal to 10% of the shares may withdraw as an owner in exchange for a 2% net smelter royalty on products produced and sold from the Sierra Mojada Project. Any shareholder whose holdings are reduced to less than 10% must surrender its interest in exchange for a 2% net smelter royalty.

The Company has determined that Minera Metalin and Contratistas are variable interest entities and that the Option Agreement has not resulted in the transfer of control of the Sierra Mojada Project to South32. The Company has also determined that the Option Agreement represents non-employee share-based compensation associated with the collaborative exploration program undertaken by the parties. The compensation cost is expensed when the associated exploration activity occurs. The share-based payments have been classified as equity instruments and valued based on the fair value of the cash consideration received, as it is more reliably measurable than the fair value of the equity interest. If the Option is exercised and shares are issued prior to a decision to develop a mine, such shares would be classified as temporary equity as they would be contingently redeemable in exchange for a net smelter royalty under circumstances that are not wholly in control of the Company or South32 and are not currently probable.

No portion of the equity value has been classified as temporary equity as the option has no intrinsic value.

 

 

10 
 

 

 

The combined approximate carrying amount of the assets and liabilities of Contratistas and Minera Metalin (consolidated with Minera Metalin’s wholly-owned subsidiary) are as follows at April 30, 2019:

 

Assets:  Mexico
Cash and cash equivalents  $104,000 
Value-added tax receivable, net   231,000 
Other receivables   1,000 
Income tax receivable   1,000 
Prepaid expenses and deposits   109,000 
Office and mining equipment, net   187,000 
Property concessions   5,032,000 
Total assets  $5,665,000 

 

 

Liabilities:   
Accounts payable   47,000 
Accrued liabilities and expenses   148,000 
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the Option   2,551,000 
Total liabilities  $2,746,000 
      
Net advances and investment in the Company’s Mexican subsidiaries  $2,919,000 

 

In addition, at April 30, 2019, Silver Bull Resources, Inc. held $1,174,000 of cash received from South32, which is to be contributed to the capital of the Mexican subsidiaries as required for exploration. Cash received from South32 is required to be used to further exploration of Sierra Mojada.

 

The Company’s maximum exposure to loss at April 30, 2019 is $5,470,000, which includes the carrying value of the Mexican subsidiaries’ net assets excluding the payable to Silver Bull Resources, Inc.

 

NOTE 5 – LOSS PER SHARE

The Company had stock options and warrants outstanding at April 30, 2019 and 2018 that upon exercise were issuable into 53,515,230 and 34,515,325 shares of the Company’s common stock, respectively. They were not included in the calculation of loss per share because they would have been anti-dilutive.

NOTE 6 – VALUE-ADDED TAX RECEIVABLE

Value-added tax (“VAT”) receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $231,181 will be received within 12 months of the balance sheet date. The allowance for uncollectible VAT was estimated by management based upon a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions.

A summary of the changes in the allowance for uncollectible VAT for the six months ended April 30, 2019 is as follows:

 Allowance for uncollectible VAT – October 31, 2018  $98,414 
Provision for VAT receivable allowance   20,955 
Foreign currency translation adjustment   6,218 
Write-off of VAT receivable   762 
Allowance for uncollectible VAT – April 30, 2019  $126,349 

 

 

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NOTE 7 – OFFICE AND MINING EQUIPMENT

The following is a summary of the Company’s office and mining equipment at April 30, 2019 and October 31, 2018, respectively:

   April 30,  October 31,
   2019  2018
       
Mining equipment  $358,513   $358,513 
Vehicles   73,287    73,287 
Buildings and structures   185,724    185,724 
Computer equipment and software   74,236    74,236 
Well equipment   39,637    39,637 
Office equipment   47,597    47,597 
    778,994    778,994 
Less:  Accumulated depreciation   (592,106)   (577,508)
Office and mining equipment, net  $186,888   $201,486 

 

NOTE 8 – PROPERTY CONCESSIONS

The following is a summary of the Company’s property concessions for the Sierra Mojada Property as at April 30, 2019 and October 31, 2018:

Property concessions –October 31, 2018  $5,019,927 
Acquisitions   11,820 
Property concessions – April 30, 2019  $5,031,747 

 

 

NOTE 9 – GOODWILL

Goodwill represents the excess, at the date of acquisition, of the purchase price of the business acquired over the fair value of the net tangible and intangible assets acquired. On April 30, 2019, the Company elected to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Based on this assessment, management determined it is not more likely than not that the fair value of the reporting unit is less than its carrying amount.

 

The following is a summary of the Company’s goodwill balance as at April 30, 2019 and October 31, 2018:

 

 Goodwill – April 30, 2019 and October 31, 2018   $2,058,031 

 

NOTE 10 – COMMON STOCK

On March 6, 2019, 460,000 warrants to acquire 460,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $44,560 ($CDN 59,800).

On February 21, 2019, 600,000 warrants to acquire 600,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $59,109 ($CDN 78,000).

On January 30, 2019, 400,000 warrants to acquire 400,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $39,418 ($CDN 52,000).

The Company incurred costs of $210 related to warrant exercises in the six months ended April 30, 2019.

On April 4, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $63,432 ($CDN 81,250).

 

12 
 

 

 

On March 29, 2018, 1,000,000 warrants to acquire 1,000,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $100,822 ($CDN 130,000).

On March 28, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $678 ($CDN 875).

On March 15, 2018, 1,025,000 warrants to acquire 1,025,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $102,248 ($CDN 133,250).

On March 14, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,108 ($CDN 32,500).

On March 8, 2018, 974,500 warrants to acquire 974,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $98,000 ($CDN 126,685).

On February 20, 2018, 8,750 warrants to acquire 8,750 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $693 ($CDN 875).

On February 20, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,749 ($CDN 32,500).

On February 16, 2018, 250,000 warrants to acquire 250,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $25,917 ($CDN 32,500).

On February 13, 2018, 178,000 warrants to acquire 178,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $18,365 ($CDN 23,140).

On January 29, 2018, 21,875 warrants to acquire 21,875 shares of common stock were exercised at an exercise price of $CDN 0.10 per share of common stock for aggregate gross proceeds of $1,773 ($CDN 2,188).

On January 22, 2018, 62,500 warrants to acquire 62,500 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $6,522 ($CDN 8,125).

On January 15, 2018, 625,000 warrants to acquire 625,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $65,408 ($CDN 81,250).

On January 8, 2018, 200,000 warrants to acquire 200,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share of common stock for aggregate gross proceeds of $20,931 ($CDN 26,000).

The Company incurred costs of $915 related to warrant exercises in the six months ended April 30, 2018.

 

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NOTE 11 – STOCK OPTIONS

The Company has two stock option plans, the 2010 Stock Option and Stock Bonus Plan, as amended (the “2010 Plan”) and the 2019 Stock Option and Stock Bonus Plan (the “2019 Plan”). Under each of the 2010 Plan and the 2019 Plan, the lesser of (i) 30,000,000 shares or (ii) 10% of the total shares outstanding are reserved for issuance upon the exercise of options or the grant of stock bonuses.  

 

Options are typically granted with an exercise price equal to the closing market price of the Company’s stock at the date of grant, have a graded vesting schedule over approximately one to two years and have a contractual term of five years.

 

A summary of the range of assumptions used to value stock options granted for the six months ended April 30, 2019 and 2018 are as follows:

 

   

Six Months Ended

April 30,

Options   2019   2018
         
Expected volatility     40%
Risk-free interest rate     1.94%
Dividend yield    
Expected term (in years)     5.0

 

No options were granted or exercised during the six months ended April 30, 2019. No options were exercised during the six months ended April 30, 2018.

 

During the six months ended April 30, 2018, the Company granted to a consultant options that vested immediately to acquire 350,000 shares of common stock with a weighted-average grant-date fair value of $0.06 per share and an exercise price of Canadian dollar (“$CDN”) 0.215 per share. No options were exercised during the six months ended April 30, 2018.

 

The following is a summary of stock option activity for the six months ended April 30, 2019:

 

Options   Shares   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life (Years)   Aggregate Intrinsic Value
                 
Outstanding at October 31, 2018   18,950,000 $ 0.11   3.48 $ 429,158
Cancelled and expired   (275,000)   0.10        
Outstanding at April 30, 2019   18,675,000 $ 0.11   2.96 $ 91,075
Exercisable at April 30, 2019   13,641,667 $ 0.12   2.44 $ 91,075

 

The Company recognized stock-based compensation costs for stock options of $122,131 and $72,565 for the six months ended April 30, 2019 and 2018, respectively. As of April 30, 2019, there was $147,151 of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 0.55 years.

 

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Summarized information about stock options outstanding and exercisable at April 30, 2019 is as follows:

Options Outstanding  Options Exercisable
Exercise Price 

Number

Outstanding

  Weighted Average Remaining Contractual Life (Years)  Weighted Average Exercise Price  Number Exercisable 

Weighted Average Exercise

Price

$0.06    4,075,000    1.82   $0.06    4,075,000   $0.06 
 0.10    11,625,000    3.88    0.10    6,591,667    0.10 
 0.16    350,000    3.81    0.16    350,000    0.16 
   0.19 – 0.26    2,625,000    0.56    0.26    2,625,000    0.26 
$ 0.06 – 0.26    18,675,000    2.96   $0.11    13,641,667   $0.12 
                            

 

Stock options granted to consultants with a $CDN exercise price are classified as stock option liability on the Company’s interim condensed consolidated balance sheets upon vesting. The following is a summary of the Company’s stock option liability at April 30, 2019 and October 31, 2018:

 

Stock option liability at October 31, 2018:     $25,116 
Change in fair value of stock option liability    (18,774)
 Stock option liability at April 30, 2019   $6,342 

 

NOTE 12 WARRANTS

A summary of warrant activity for the six months ended April 30, 2019 is as follows:

 

Warrants  Shares  Weighted Average Exercise Price  Weighted Average Remaining Contractual Life (Years)  Aggregate Intrinsic Value
             
Outstanding and exercisable at October 31, 2019   36,300,230   $0.13    1.16   $254,068 
Exercised   (1,460,000)  $0.10           
Outstanding and exercisable at April 30, 2019   34,840,230   $0.13    0.68   $1,333 
                     

 

Warrants exercised during the six months ended April 30, 2019 and 2018 are discussed in Note 10.

The warrants exercised during the six months ended April 30, 2019 and 2018 had an intrinsic value of $12,126 and $383,523, respectively.

 

15 
 

 

 

Summarized information about warrants outstanding and exercisable at April 30, 2019 is as follows:

 

Warrants Outstanding and Exercisable
Exercise Price 

Number

Outstanding

  Weighted Average Remaining Contractual Life (Years)  Weighted Average Exercise Price
$0.08    357,925    0.19   $0.08 
 0.10    14,340,000    0.21    0.10 
 0.12    4,340,000    0.22    0.12 
 0.14    1,231,374    1.25    0.14 
 0.16    14,570,931    1.25    0.16 
$0.08 – 0.16    34,840,230    0.68   $0.13 

 

If the closing price of the Company’s common stock on the TSX is higher than $CDN 0.30 for 20 consecutive trading days, then on the 20th consecutive trading day (the “Acceleration Trigger Date”) the expiry date of the above $0.12 warrants may be accelerated to the 20th trading day after the Acceleration Trigger Date by the issuance, within three trading days of the Acceleration Trigger Date, of a news release announcing such acceleration.

 

The Company’s warrants with a $CDN exercise price have been recognized as a derivative liability. The following is a summary of the Company’s warrant derivative liability at April 30, 2019 and October 31, 2018:

 

Warrant derivative liability at October 31, 2018:     $405,500 
Change in fair value of warrant derivative liability    (370,223)
Reclassification to additional paid-in capital upon exercise of warrants    (12,126)
 Warrant derivative liability at April 30, 2019   $23,151 

 

NOTE 13 – FINANCIAL INSTRUMENTS

Fair Value Measurements

All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of financial assets or the assumption of liabilities carried at amortized cost, in which case the transaction costs adjust the carrying amount.

The three levels of the fair value hierarchy are as follows:

  Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
  Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
  Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company’s financial instruments consist of cash and cash equivalents, accounts payable, stock option liability and warrant derivative liability.

The carrying amounts of cash and cash equivalents and accounts payable approximate fair value at April 30, 2019 and October 31, 2018 due to the short maturities of these financial instruments.

 

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Derivative liability

The Company classifies warrants with a $CDN exercise price on its interim condensed consolidated balance sheets as a derivative liability, which is fair valued at each reporting period subsequent to the initial issuance as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing model to determine the fair value of the warrants that do not have an acceleration feature and has used the Monte Carlo valuation model to determine the fair value of the warrants that do have an acceleration feature (Note 12). Determining the appropriate fair-value model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the Company’s common stock at the date of issuance, and at each subsequent reporting period, is based on the historical volatility adjusted to reflect the implicit discount to historical volatilities observed in the prices of traded warrants. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is expected to be none as the Company has not paid dividends nor does the Company anticipate paying a dividend in the foreseeable future.

 

The Company reclassifies stock options granted to consultants with a $CDN exercise price on its interim condensed consolidated balance sheets upon vesting as a stock option liability that is fair valued at each reporting period subsequent to reclassification as the functional currency of Silver Bull is the U.S. dollar. The Company has used the Black-Scholes pricing model to fair value these stock options. Determining the appropriate fair-value model and calculating the fair value of these stock options requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of the Company’s common stock at the date of reclassification, and at each subsequent reporting period, is based on the historical volatility of the Company’s common stock and adjusted if future volatility is expected to vary from historical experience. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the options at the valuation date. The expected life of the options is based upon historical and expected future exercise behavior. The dividend yield is expected to be none as the Company has not paid dividends nor does the Company anticipate paying any dividend in the foreseeable future.

 

The derivative warrants are not traded in an active market, and the fair value is determined using valuation techniques. The estimates may be significantly different from those recorded in the interim condensed consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market. All changes in fair value are recorded in the interim condensed consolidated statement of operations and comprehensive loss each reporting period. These are considered to be a Level 3 financial instrument.

 

The Company has the following liabilities under the fair value hierarchy:

   April 30, 2019
Liability  Level 1  Level 2  Level 3
          
Stock option liability  $—     $—     $6,342 
Warrant derivative liability  $—     $—     $23,151 

 

Credit Risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets, the Company has established policies to ensure liquidity of funds and ensure that counterparties demonstrate acceptable levels of creditworthiness.

 

17 
 

 

The Company maintains its U.S. dollar and Canadian dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to $CDN 100,000. Certain Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they relate to U.S. dollar deposits held in Canadian financial institutions. As of April 30, 2019, and October 31, 2018, the Company’s cash and cash equivalent balances held in Canadian financial institutions included $3,325,066 and $2,919,461, respectively, which was not insured by the CDIC. The Company has not experienced any losses on such accounts, and management believes that using major financial institutions with high credit ratings mitigates the credit risk to cash and cash equivalents.

The Company also maintains cash in bank accounts in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of April 30, 2019, and October 31, 2018, the U.S. dollar equivalent balance for these accounts was $104,485 and $32,668, respectively.

Interest Rate Risk

The Company holds substantially all of its cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during the six months ended April 30, 2019, a 1% decrease in interest rates would have resulted in a reduction of approximately $3,192 in interest income for the period.

Foreign Currency Exchange Risk

The Company is not subject to any significant market risk related to foreign currency exchange rate fluctuations.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Compliance with Environmental Regulations

The Company’s exploration activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or affect the economics of a project, and cause changes or delays in the Company’s activities.

Property Concessions in Mexico

To properly maintain property concessions in Mexico, the Company is required to pay a semi-annual fee to the Mexican government and complete annual assessment work.

Royalty

The Company has agreed to pay a 2% net smelter return royalty on certain property concessions within the Sierra Mojada Property based on the revenue generated from production. Total payments under this royalty are limited to $6.875 million (the “Royalty”).

Litigation and Claims

On May 20, 2014, a cooperative named Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”) filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico, against the Company’s subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development of the Sierra Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of 6% per annum since August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment of wages to the cooperative’s members since August 30, 2004, even though none of the individuals were hired or performed work for Minera Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was moved to the Third District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was time barred from bringing the case. On October 19, 2017, Mineros Norteños appealed this ruling. The Company and the Company’s Mexican legal counsel believe that it is unlikely that the court’s ruling will be overturned. The Company has not accrued any amounts in its interim condensed consolidated financial statements with respect to this claim.

From time to time, the Company is involved in other disputes, claims, proceedings and legal actions arising in the ordinary course of business. The Company intends to vigorously defend all claims against the Company and pursue its full legal rights in cases where the Company has been harmed. Although the ultimate outcome of these proceedings cannot be accurately predicted due to the inherent uncertainty of litigation, in the opinion of management, based upon current information, no other currently pending or overtly threatened proceeding is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.

 

 

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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 approximately as follows:

  

For the Three Months

Ended

 

For the Six Months

Ended

   April 30,  April 30,
   2019  2018  2019  2018
             
Mexico          (377,000)  $(117,000)  $(846,000)  $(318,000)
Canada       63,000    (77,000)   (470,000)   (2,012,000)
 Net Loss    (314,000)  $(194,000)  $(1,316,000)  $(2,330,000)
                     

 

The following table details the allocation of assets included in the accompanying balance sheet at April 30, 2019:

   Canada  Mexico  Total
Cash and cash equivalents  $3,383,000   $104,000   $3,487,000 
Value-added tax receivable, net   —      231,000    231,000 
Other receivables   9,000    1,000    10,000 
Prepaid expenses and deposits   79,000    110,000    189,000 
Office and mining equipment, net   —      187,000    187,000 
Property concessions   —      5,032,000    5,032,000 
Goodwill   —      2,058,000    2,058,000 
   $3,471,000   $7,723,000   $11,194,000 

 

The following table details the allocation of assets included in the accompanying balance sheet at October 31, 2018:

   Canada  Mexico  Total
Cash and cash equivalents  $2,993,000   $33,000   $3,026,000 
Value-added tax receivable, net   —      175,000    175,000 
Other receivables   11,000    1,000    12,000 
Prepaid expenses and deposits   226,000    11,000    237,000 
Office and mining equipment, net   —      202,000    202,000 
Property concessions   —      5,020,000    5,020,000 
Goodwill   —      2,058,000    2,058,000 
   $3,230,000   $7,500,000   $10,730,000 

 

The Company has significant assets in Coahuila, Mexico. Although Mexico is generally considered economically stable, it is always possible that unanticipated events in Mexico could disrupt the Company’s operations. The Mexican government does not require foreign entities to maintain cash reserves in Mexico.

 

19 
 
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:

·Future payments that may be made by South32 under the terms of the Earn-In Option Agreement;
·Prospects of entering the development or production stage with respect to any of our projects;
·Our planned activities at the Sierra Mojada Project in 2019 and beyond, including with respect to exploration and drilling, metallurgical studies, surveys and other testing activities, and expenditures;
·Whether any part of the Sierra Mojada Project will ever be confirmed or converted into SEC Industry Guide 7-compliant “reserves”;
·Testing of the impact of the fine bubble flotation test work on the recovery of minerals;
·The impact of recent accounting pronouncements on our financial position, results of operations or cash flows and disclosures;
·Our ability to raise additional capital and/or pursue additional strategic options, and the potential impact on our business, financial condition and results of operations of doing so or not;
·The impact of changes to current state or federal laws and regulations on estimated capital expenditures, the economics of a particular project and/or our activities;
·Our expectations regarding future recovery of value-added taxes (“VAT”) paid in Mexico;
·The period during which unrecognized compensation expense is expected to be recognized;
·Whether using major financial institutions with high credit ratings mitigates credit risk;
·The impact of changing economic conditions on interest rates;
·The possible impact of events in Mexico on the Company’s operations; and
·The merits of any claims in connection with, and the expected timing of any, ongoing legal proceedings.

These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, and our actual results could differ from those expressed or implied in these forward-looking statements as a result of the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, including without limitation, risks associated with the following:

 

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·The continued funding by South32 of amounts required under the Earn-In Option Agreement;
·Our ability to obtain additional financial resources on acceptable terms to (i) conduct our exploration activities and (ii) maintain our general and administrative expenditures at acceptable levels;
·Results of future exploration at our Sierra Mojada Project;
·Worldwide economic and political events affecting (i) the market prices for silver, zinc, lead, copper and other minerals that may be found on our exploration properties, (ii) interest rates and (iii) foreign currency exchange rates;
·The amount and nature of future capital and exploration expenditures;
·Volatility in our stock price;
·Our inability to obtain required permits;
·Competitive factors, including exploration-related competition;
·Timing of receipt and maintenance of government approvals;
·Unanticipated title issues;
·Changes in tax laws;
·Changes in regulatory frameworks or regulations affecting our activities;
·Our ability to retain key management and consultants and experts necessary to successfully operate and grow our business; and
·Political and economic instability in Mexico and other countries in which we conduct our business, and future potential actions of the governments in such countries with respect to nationalization of natural resources or other changes in mining or taxation policies.

These factors are not intended to represent a complete list of the general or specific factors that could affect us.

All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. You should not place undue reliance on these forward-looking statements.

Cautionary Note Regarding Exploration Stage Companies

We are an exploration stage company and do not currently have any known reserves and cannot be expected to have reserves unless and until a feasibility study is completed for the Sierra Mojada concessions that shows proven and probable reserves. There can be no assurance that our concessions contain proven and probable reserves, and investors may lose their entire investment. See the sections titled “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.

Business Overview

Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in the business of mineral exploration. Our primary objective is to define sufficient mineral reserves on the Sierra Mojada Property to justify the development of a mechanized mining operation. We conduct our operations in Mexico through our wholly-owned Mexican subsidiaries, 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”). However, as noted above, we have not established any reserves at the Sierra Mojada Property, we are in the exploration stage, and we may never enter the development or production stage.

Our principal office is located at 777 Dunsmuir Street, Suite 1610, Vancouver, BC, Canada V7Y 1K4, and our telephone number is 604-687-5800. 

 

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Current Developments

 

South32 Earn-In Option Agreement

On June 1, 2018, we and our 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, we 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 us. The exploration program will be initially managed by us, with South32 being able to approve the exploration program funded by it. We received funding of $3,144,163 from South32 for Year 1 of the Option Agreement, of which $1,246,768 remains unspent as of April 30, 2019. In April 2019, we received a notice from South32 to maintain the Option Agreement for Year 2 by providing cumulative funding of $6 million by the end of such period. In May 2019, we received the initial payment of $319,430 for Year 2 of the Option Agreement from South32. If the Option Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government, we are 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.

We have 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. We have also determined 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.

 

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2019 Warrants Exercised

In the six months ended April 30, 2019, we received net proceeds of approximately $143,000 from the exercise of share purchase warrants as described in the “Material Changes in Financial Condition; Liquidity and Capital Resources” section.

Property Concessions and Outlook

Sierra Mojada Property

In January 2019, our board of directors approved an exploration budget for the Sierra Mojada Property of $1.8 million for the period from January 2019 through May 2019 and $1.1 million for general and administrative expenses for calendar year 2019. In June 2019, our board of directors approved an exploration budget for the Sierra Mojada Property of $3.5 million for the period from June 2019 through May 2020. The focus of our 2019 and 2020 calendar year exploration program will be the drill program described below and a follow-up drill program based on the results of the current drill program.

Airborne Geophysics

Between September 2018 and November 2018, we completed a 5,297-line-kilometer helicopter-borne Versatile Time Domain Electro Magnetic (“VTEM”) and Magnetic Geophysical Survey over the Sierra Mojada Property. The VTEM survey was conducted as part of the work program under the Option Agreement with South32. The results of this survey aided in refining the design the drill program. 

Drilling

We commenced an 8,000-meter drill program in April 2019 under the Option Agreement with South32, and we completed 1,045 meters of drilling as of April 30, 2019.

Metallurgical Studies

In May 2015, we selected and shipped samples of high grade zinc material to a lab in Denver, Colorado for “fine bubble” flotation test work and to a group in Australia to assess their proprietary hydrometallurgy process. Previous test work completed by Silver Bull using mechanical flotation has shown an 87% recovery of zinc from the white zinc zone to produce a rough concentrate of 43% zinc, and a 72.5% recovery of zinc from the red zinc zone to produce a rough concentrate of 30% zinc. The “fine bubble” flotation test work that was performed did not improve recovery, but based on analysis of the results, it was determined that the “fine bubble” flotation test process may be able to be adjusted to improve recovery. Further testing is not planned at this time.

In addition, we previously conducted a metallurgical program to test the recovery of (i) the silver mineralization using the agitation cyanide leach method and (ii) the zinc mineralization using the SART process (sulfidization, acidification, recycling, and thickening). The test work on the silver-rich zone (the “Silver Zone”) focused on cyanide leach recovery of the silver using “Bottle Roll” tests to simulate an agitation leach system and to determine the recovery of (A) low-grade zinc that occurs in the Silver Zone and (B) high-grade zinc from the zinc-rich zone that had been blended with mineralization from the Silver Zone to the leach solution. The silver was recovered from the cyanide leach solution using the Merrill Crowe technique, and the zinc was recovered from the leach solution using the SART process. The SART process is a metallurgical process that regenerates and recycles the cyanide used in the leaching process of the silver and zinc and allows for the recovery of zinc that has been leached by the cyanide solution. The results showed an overall average silver recovery of 73.2% with peak values of 89.0% and an overall average zinc recovery of 44% in the Silver Zone.

 

 

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Results of Operations

Three Months Ended April 30, 2019 and April 30, 2018

For the three months ended April 30, 2019, we experienced a net loss of $314,000, or approximately $nil per share, compared to a net loss of $194,000, or approximately $nil per share, during the comparable period last year. The $120,000 increase in net loss was primarily due to a $255,000 increase in exploration and property holding costs and a $72,000 increase in general and administrative expenses, which was partially offset by a $210,000 increase in other income compared to the comparable period last year as described below.

Exploration and Property Holding Costs

Exploration and property holding costs increased $255,000 to $364,000 for the three months ended April 30, 2019, compared to $109,000 for the comparable period last year. This increase was mainly the result of our drilling program in the three months ended April 30, 2019.

General and Administrative Expenses

We recorded general and administrative expenses of $457,000 for the three months ended April 30, 2019 as compared to $385,000 for the comparable period last year. The $72,000 increase was mainly the result of a $53,000 increase in personnel costs, a $16,000 increase in office and administrative costs, a $15,000 increase in directors’ fees and a $6,000 increase in the provision for uncollectible VAT, which was partially offset by a $17,000 decrease in professional services as described below.

Personnel costs increased $53,000 to $166,000 for the three months ended April 30, 2019 as compared to $113,000 for the comparable period last year. This increase was mainly due to an increase in employees’ salaries and a $24,000 increase in stock-based compensation expense as a result of stock options vesting in the three months ended April 30, 2019 having a higher fair value than stock options vesting in the comparable period last year.

Office and administrative costs increased $16,000 to $155,000 for the three months ended April 30, 2019 as compared to $139,000 for the same period last year. This increase was mainly due to an increase in investor relations activities and travel costs.

Professional fees decreased $17,000 to $71,000 for the three months ended April 30, 2019 compared to $88,000 for the comparable period last year. This decrease is mainly due to a decrease in accounting fees and legal fees.

Directors’ fees increased $15,000 to $53,000 for the three months ended April 30, 2019 as compared to $38,000 for the comparable period last year. This increase was primarily due to the increase in stock-based compensation expense to $23,000 in the three months ended April 30, 2019 from $7,000 in the comparable period last year as a result of stock options vesting in the three months ended April 30, 2019 having a higher fair value than stock options vesting in the comparable period last year.

We recorded a $12,000 provision of uncollectible VAT for the three months ended April 30, 2019 as compared to a $6,000 provision of uncollectible VAT in the comparable period last year. The allowance for uncollectible taxes 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.

Other Income (Expenses)

We recorded other income of $510,000 for the three months ended April 30, 2019 as compared to other income of $300,000 for the comparable period last year. The significant factor contributing to other income in the three months ended April 30, 2019 was $485,000 in income from a change in fair value of warrant derivative liability due to a decrease in fair value of warrants with a $CDN exercise price from February 1, 2019 to April 30, 2019. The significant factor contributing to other income in the three months ended April 30, 2018 was $293,000 in income from a change in fair value of warrant derivative liability due to a decrease in fair value of warrants with a $CDN exercise price from February 1, 2018 to April 30, 2018.

 

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Six Months Ended April 30, 2019 and April 30, 2018

 

For the six months ended April 30, 2019, we experienced a net loss of $1,316,000, or approximately $0.01 per share, compared to a net loss of $2,330,000, or approximately $0.01 per share, during the comparable period last year. The $1,014,000 decrease in net loss was primarily due to $403,000 in other income for the six months ended April 30, 2019 compared to $1,309,000 in other expenses in the comparable period last year, which was partially offset by a $538,000 increase in exploration and property holding costs and a $156,000 increase in general and administrative expenses, compared to the comparable period last year as described below.

 

Exploration and Property Holding Costs

 

Exploration and property holding costs increased $538,000 to $829,000 for the six months ended April 30, 2019, compared to $291,000 for the comparable period last year. This increase was mainly due to an increase in exploration activities under the Option Agreement, including our drill program and the airborne geophysics survey in the six months ended April 30, 2019 compared to underground drilling in the comparable period last year.

General and Administrative Expenses

 

We recorded general and administrative expenses of $885,000 for the six months ended April 30, 2019 as compared to $729,000 for the comparable period last year. The $156,000 increase was mainly the result of a $94,000 increase in personnel costs, a $43,000 increase in office and administrative costs, and a $28,000 increase in directors’ fees, which was partially offset by a $4,000 decrease in professional services and a $4,000 decrease in the provision for uncollectible VAT as described below.

 

Personnel costs increased $94,000 to $339,000 for the six months ended April 30, 2019 as compared to $245,000 for the same period last year. This increase was mainly due to an increase in employees’ salaries and a $44,000 increase in stock-based compensation expense as a result of stock options vesting in the six months ended April 30, 2019 having a higher fair value than stock options vesting in the comparable period last year.

Office and administrative costs increased $43,000 to $281,000 for the six months ended April 30, 2019 as compared to $238,000 for the comparable period last year. This increase was mainly due to an increase in investor relations activities.

 

Professional fees decreased $4,000 to $136,000 for the six months ended April 30, 2019 compared to $140,000 for the comparable period last year. This decrease is mainly due to a decrease in accounting fees.

Directors’ fees increased $28,000 to $108,000 for the six months ended April 30, 2019 as compared to $80,000 for the comparable period last year. This increase was primarily due to an increase in stock-based compensation expense to $47,000 in the six months ended April 30, 2019 from $18,000 in the comparable period last year as a result of stock options vesting in the six months ended April 30, 2019 having a higher fair value than stock options vesting in the comparable period last year.

We recorded a $21,000 provision for uncollectible VAT for the six months ended April 30, 2019 as compared to a $25,000 provision for uncollectible VAT in the comparable period last year. The allowance for uncollectible taxes 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.

Other Income (Expenses)

 

We recorded other income of $403,000 for the six months ended April 30, 2019 as compared to other expenses of $1,309,000 for the comparable period last year. The significant factor contributing to other income in the six months ended April 30, 2019 was $370,000 in income from a change in fair value of warrant derivative liability due to a decrease in fair value of warrants with a $CDN exercise price from October 31, 2018 to April 30, 2019. The significant factor contributing to other expenses in the six months ended April 30, 2018 was a $1,305,000 expense from a change in fair value of warrant derivative liability due to an increase in fair value of warrants with a $CDN exercise price from October 31, 2017 to April 30, 2018.

 

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Material Changes in Financial Condition; Liquidity and Capital Resources

 

Warrants Exercised

 

During the six months ended April 30, 2019, 1,460,000 warrants to acquire 1,460,000 shares of common stock were exercised at an exercise price of $CDN 0.13 per share for aggregate gross proceeds of $143,087 ($CDN 189,800) We incurred costs of $210 related to these warrant exercises.

 

Cash Flows

During the six months ended April 30, 2019, we primarily utilized cash and cash equivalents to fund exploration activities at the Sierra Mojada Property and for general and administrative expenses. Additionally, during the six months ended April 30, 2019, we received net cash proceeds of $143,000 from warrants exercised and $2,221,000 from South32. As a result of net cash proceeds received from the warrants exercised and funding from South32, which was partially offset by the exploration activities and general and administrative expenses, cash and cash equivalents increased from $3,026,000 at October 31, 2018 to $3,487,000 at April 30, 2019.

Cash flows used in operating activities for the six months ended April 30, 2019 was $1,892,000, as compared to $977,000 for the comparable period in 2018. This increase was mainly due to increased exploration work at the Sierra Mojada Property and general and administrative expenses, and a larger reduction of accounts payable and accrued liabilities and expenses in the six months ended April 30, 2019.  

Cash flows used in investing activities for the six months ended April 30, 2019 was $12,000 for the acquisition of property concessions, as compared to $16,000 for the acquisition of property concessions for the comparable period in 2018.

Cash flows provided by financing activities for the six months ended April 30, 2019 was $2,364,000, as compared to $555,000 for the comparable period last year. The cash flow provided by financing activities for the six months ended April 30, 2019 was due to proceeds from the exercise of warrants and funding from South32. The cash flow provided by financing activities for the comparable period last year was due to proceeds from the exercise of warrants.

Capital Resources

As of April 30, 2019, we had cash and cash equivalents of $3,487,000, as compared to cash and cash equivalents of $3,026,000 as of October 31, 2018. The increase in our liquidity was primarily the result of the proceeds from the exercise of warrants and funding from South32, which were partially offset by the exploration activities at the Sierra Mojada Property and general and administrative expenses.

Since our inception in November 1993, we have not generated revenue and have incurred an accumulated deficit of $127,170,740. Accordingly, we have not generated cash flows from operations, and since inception we have relied primarily upon proceeds from private placements and registered direct offerings of our equity securities, warrant exercises and funding from South32 as the primary sources of financing to fund our operations. We anticipate that we will continue to rely on sales of our securities in order to continue to fund our business operations. The issuance of additional shares will result in dilution to our existing stockholders. There is no assurance that we will be able to complete any additional sales of our equity securities or that we will be able to arrange for other financing to fund our planned business activities.   

Any future additional financing in the near term will likely be in the form of payments from South32 or proceeds from an issuance of equity securities, which will result in dilution to our existing shareholders. Moreover, we may incur significant fees and expenses in the pursuit of a financing or other strategic transaction, which will increase the rate at which our cash and cash equivalents are depleted.

 

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Capital Requirements and Liquidity; Need for Additional Funding

Our management and board of directors monitor our overall costs, expenses, and financial resources and, if necessary, will adjust our planned operational expenditures in an attempt to ensure that we have sufficient operating capital. We continue to evaluate our costs and planned expenditures, including for our Sierra Mojada Property as discussed below.

The continued exploration of the Sierra Mojada Property will require significant amounts of additional capital. In January 2019, our board of directors approved an exploration budget for the Sierra Mojada Property of $1.8 million for the period from January 2019 through May 2019 and $1.1 million for general and administrative expenses for calendar year 2019. In June 2019, our board of directors approved an exploration budget for the Sierra Mojada Property of $3.5 million for the period from June 2019 through May 2020. As of May 31, 2019, we had approximately $3.5 million in cash and cash equivalents. The continued exploration of the Sierra Mojada Property ultimately will require us to raise additional capital, identify other sources of funding or identify another strategic partner. For information about our current strategic partnership with South32, see Note 4 – Earn-In Option Agreement to our interim condensed consolidated financial statements (Part I, Item 1 of this Quarterly Report on Form 10-Q). If South32 exercises its option to purchase 70% of the equity of Minera Metalin and Contratistas, under the terms of the Option Agreement, we will retain a 30% ownership in Minera Metalin and Contratistas, and be obligated to contribute 30% of subsequent funding toward the development of the Sierra Mojada Project.  If we fail to satisfy our funding commitment, our interest in Minera Metalin and Contratistas will be diluted.  We do not currently have sufficient funds with which to satisfy this future funding commitment, and there is no certainty that we will be able to obtain sufficient future funds on acceptable terms or at all.  If South32 terminates the Option Agreement, our funding obligations for the Sierra Mojada Property would increase, likely resulting in a reduction of exploration work on the Sierra Mojada Property. Debt or equity financing may not be available to us on acceptable terms, if at all. Equity financing, if available, may result in substantial dilution to existing stockholders.  If we are unable to fund future operations by way of financings, including public or private offerings of equity or debt securities, our business, financial condition and results of operations will be adversely impacted.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our shareholders.

Critical Accounting Policies

The critical accounting policies are defined in our Annual Report on Form 10-K for the year ended October 31, 2018 filed on January 16, 2019.

Recent Accounting Pronouncements Adopted in the Six-Month Period Ended April 30, 2019

Effective November 1, 2018, we 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 our financial position, results of operations or cash flows and disclosures.

 

Effective November 1, 2018, we adopted the FASB’s ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business to assist entities in the evaluation of acquisitions and disposals of assets or businesses. The adoption of this update did not have a material impact on our financial position, results of operations or cash flows and disclosures.

 

Effective November 1, 2018, we adopted the FASB’s ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The adoption of this update did not have a material impact on our financial position, results of operations or cash flows and disclosures.

 

Effective November 1, 2018, we adopted the FASB’s ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on the presentation and classification of certain cash receipts and payments in the statement of cash flows. The adoption of this update did not have a material impact on our financial position, results of operations or cash flows and disclosures.

 

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Effective November 1, 2018, we adopted the FASB’s ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which (i) requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (iii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The adoption of this update did not have a material impact on our financial position, results of operations or cash flows and disclosures.

 

Effective November 1, 2018, we adopted the FASB’s ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which has subsequently been amended to update revenue guidance under the newly-created ASC 606. The new standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about revenue recognition. The adoption of this update did not have a material impact on our financial position, results of operations or cash flows and disclosures.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 simplifies the accounting for nonemployee share-based payments, aligning it more closely with the accounting for employee awards. These changes become effective for our fiscal year beginning November 1, 2019. Early application is permitted. At this time, we have not determined the effects of this update on our financial position, results of operations or cash flows and disclosures.

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for our fiscal year beginning November 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. At this time, we have not determined the effects of this update on our 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 our present or future consolidated financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4.CONTROLS AND PROCEDURES.
(a)Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of April 30, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of April 30, 2019.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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(b)Changes in Internal Control over Financial Reporting

During the quarter ended April 30, 2019, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS.

See Note 14 – Commitments and Contingencies to our financial statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) for information regarding legal proceedings in which we are involved.

ITEM 1A.RISK FACTORS.

There have been no material changes from the risk factors included in our Annual Report on Form 10-K for the year ended October 31, 2018.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

During the six months ended April 30, 2019, 1,460,000 warrants to acquire 1,460,000 shares of common stock were exercised by participants in the Company’s July 2017 private placement at an exercise price of $CDN 0.13 per share for aggregate gross proceeds of $143,087 ($CDN 189,800). The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D, or Regulation S, for purposes of the issuance of common stock upon the exercise of warrants.

 

Purchases of Equity Securities by the Company and Affiliated Purchasers

No purchases of equity securities were made by or on behalf of Silver Bull or any “affiliated purchaser” within the meaning of Rule 10b-18 under the Exchange Act during the period covered by this report.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.OTHER INFORMATION.

None.

 

 

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ITEM 6.EXHIBITS.
        Incorporated by Reference    
Exhibit Number   Exhibit Description   Form Date Exhibit   Filed/ Furnished Herewith
10.1   Amending Agreement No. 1, dated as of April 4, 2019 and effective as March 20, 2019, to the Option Agreement, dated as of June 1, 2018, by and among Silver Bull Resources, Inc., Minera Metalin S.A. de C.V., Contratistas de Sierra Mojada S.A. de C.V. and South32 International Investment Holding Pty Ltd   8-K 04/05/2019 10.1    
                 
10.2+   Silver Bull Resources, Inc. 2019 Stock Option and Stock Bonus Plan           X
                 
31.1   Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           X
                 
31.2   Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           X
                 
32.1   Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           XX
                 
32.2   Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           XX
                 
101.INS*    XBRL Instance Document           X
                 
101.SCH*    XBRL Schema Document          

X

 

101.CAL*    XBRL Calculation Linkbase Document           X

 

101.DEF*

 

 

XBRL Definition Linkbase Document

         

 

X

 

101.LAB*    XBRL Labels Linkbase Document           X

 

101.PRE*    XBRL Presentation Linkbase Document           X
                 
X    Filed herewith            
                 
XX    Furnished herewith            

 

+ Indicates a management contract or compensatory plan or arrangement.

 

* The following financial information from Silver Bull Resources, Inc.’s Quarterly Report on Form 10-Q for the six months ended April 30, 2019, is formatted in XBRL (Extensible Business Reporting Language): Interim Condensed Consolidated Balance Sheets, Interim Condensed Consolidated Statements of Operations and Comprehensive Loss, Interim Condensed Consolidated Statement of Stockholders’ Equity, Interim Condensed Consolidated Statements of Cash Flows.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  SILVER BULL RESOURCES, INC.
   
Dated:  June 14, 2019 By:   /s/ Timothy Barry
  Timothy Barry
  President and Chief Executive Officer
 

(Principal Executive Officer)

 

Dated:  June 14, 2019 By:   /s/ Sean Fallis
  Sean Fallis
  Chief Financial Officer
   (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

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