U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED |
| 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:
(Exact name of registrant as specified in its charter)
| State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area
code:
Securities registered pursuant to Section 12(b) of
the Act:
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.
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).
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 ☐ | |
| 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 September 12, 2022, there were
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2022 |
October 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Value-added tax receivable, net of allowance for uncollectible taxes of $ | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and deposits | ||||||||
| Investments (Note 5) | ||||||||
| Total Current Assets | ||||||||
| Value-added tax receivable, net of allowance for uncollectible taxes of $ | ||||||||
| Office and mining equipment, net (Note 8) | ||||||||
| Property concessions (Note 9) | ||||||||
| Goodwill (Note 10) | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and expenses | ||||||||
| Due to related party | ||||||||
| Income tax payable | ||||||||
| Total Current Liabilities | ||||||||
| Loan payable (Note 11) | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 16) | ||||||||
| STOCKHOLDERS’ EQUITY (Notes 6, 12, 13 and 14) | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Other comprehensive income | ||||||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
| 3 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| EXPLORATION AND PROPERTY HOLDING COSTS | ||||||||||||||||
| Exploration and property holding costs | ||||||||||||||||
| Depreciation (Note 8) | ||||||||||||||||
| Goodwill impairment (Note 10) | ||||||||||||||||
| TOTAL EXPLORATION AND PROPERTY HOLDING COSTS | ||||||||||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||
| Personnel | ||||||||||||||||
| Office and administrative | ||||||||||||||||
| Professional services | ||||||||||||||||
| Directors’ fees | ||||||||||||||||
| Provision for (recovery of) uncollectible value-added taxes (Note 7) | ( | ) | ||||||||||||||
| TOTAL GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Foreign currency transaction (loss) gain | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on investment (Note 5) | ||||||||||||||||
| TOTAL OTHER INCOME (EXPENSES) | ( | ) | ||||||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME TAX EXPENSE | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | ( | ) | ( | ) | ||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| Common Stock | ||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Total Stockholders’ Equity | |||||||||||||||||||
| Nine months ended July 31, 2022 | ||||||||||||||||||||||||
| Balance, October 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common stock as follows: -for compensation at $ | ||||||||||||||||||||||||
| Stock option activity as follows: | ||||||||||||||||||||||||
| - Stock-based compensation for options issued to directors, officers, employees and advisors (Note 13) | — | — | — | — | ||||||||||||||||||||
| Net loss for the nine-month period ended July 31, 2022 | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, July 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Total Stockholders’ Equity | |||||||||||||||||||
| Three months ended July 31, 2022 | ||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock option activity as follows: | ||||||||||||||||||||||||
| - Stock-based compensation for options issued to directors, officers, employees and advisors (Note 13) | — | |||||||||||||||||||||||
| Net loss for the three-month period ended July 31, 2022 | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, July 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
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 STOCKHOLDERS’ EQUITY (Unaudited)
| Common Stock | ||||||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||
| Nine months ended July 31, 2021 | ||||||||||||||||||||||||||||
| Balance, October 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Earn-in option agreement (Note 4) | — | |||||||||||||||||||||||||||
| Issuance of common stock as follows: | ||||||||||||||||||||||||||||
| - for cash at a price of $ | ||||||||||||||||||||||||||||
| - for cash at a price of Canadian Dollar (“$CDN”) | — | — | — | |||||||||||||||||||||||||
| - for cashless exercise of options (Notes 12 and 13) | ( | ) | ||||||||||||||||||||||||||
| Changes in interests in subsidiary | — | |||||||||||||||||||||||||||
| Stock option activity as follows: | ||||||||||||||||||||||||||||
| - Stock-based compensation for options issued to directors, officers, employees and advisors (Note 13) | — | — | — | — | — | |||||||||||||||||||||||
| Net loss for the nine-month period ended July 31, 2021 | — | — | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance, July 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||
| Three months ended July 31, 2021 | ||||||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Issuance of common stock as follows: | ||||||||||||||||||||||||||||
| - for cash at a price of $CDN | — | — | — | |||||||||||||||||||||||||
| - for cashless exercise of options (Notes 12 and 13) | ( | ) | ||||||||||||||||||||||||||
| Changes in interests in subsidiary | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock option activity as follows: | ||||||||||||||||||||||||||||
| - Stock-based compensation for options issued to directors, officers, employees and advisors (Note 13) | — | — | — | — | — | |||||||||||||||||||||||
| Net loss for the three-month period ended July 31, 2021 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, July 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
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)
Nine Months Ended July 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation | ||||||||
| Goodwill impairment (Note 10) | ||||||||
| Provision for uncollectible value-added taxes | ||||||||
| Foreign currency transaction loss (income) | ( | ) | ||||||
| Stock options issued for compensation (Note 12) | ||||||||
| Shares of common stock issued for services (Note 12) | ||||||||
| Realized share of net gain of investment (Note 5) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Value-added tax receivable | ( | ) | ( | ) | ||||
| Income tax receivable | ||||||||
| Other receivables | ( | ) | ||||||
| Prepaid expenses and deposits | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and expenses | ( | ) | ||||||
| Due to related party | ||||||||
| Income tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of investments, net of costs (Note 5) | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Loan receivable | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Property concessions funding (Note 4) | ||||||||
| Proceeds from loan financing (Note 11) | ||||||||
| Proceeds from issuance of common stock, net of offering costs (Note 12) | ||||||||
| Proceeds from issuance of common stock of subsidiary, net of offering costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents beginning of period | ||||||||
| Cash and cash equivalents end of period | $ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
| 7 |
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
Nine Months Ended July 31, | ||||||||
| 2022 | 2021 | |||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | ||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITY: | ||||||||
| Arras Private Placement costs included in accounts payable and accrued liabilities | $ | $ | ||||||
| 2021 Private Placement costs included in accounts payable and accrued liabilities | ||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN
Silver Bull Resources, Inc. (the “Company”) was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s name was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources, Inc. The Company’s fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects and may never enter into the development stage with respect to any of its projects.
The Company engages in the business of mineral exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the “Sierra Mojada Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V. (“Minera Metalin”) and Minas de Coahuila SBR S.A. de C.V. (“Minas”). On August 26, 2021, the Company’s wholly-owned Mexican subsidiary, Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) merged with and into Minera Metalin.
On April 16, 2010, Metalline Mining Delaware, Inc., a wholly-owned subsidiary of the Company incorporated in the State of Delaware, was merged with and into Dome Ventures Corporation (“Dome”), a Delaware corporation. As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned subsidiary Dome Asia Inc., which is incorporated in the British Virgin Islands.
On August 12, 2020, the Company entered
into an option agreement (the “Beskauga Option Agreement”) with Copperbelt AG, a corporation existing under the laws of Switzerland
(“Copperbelt Parent”), and Dostyk LLP, an entity existing under the laws of Kazakhstan and a wholly-owned subsidiary of Copperbelt
(the “Copperbelt Sub,” and together with Copperbelt Parent, “Copperbelt”), pursuant to which the Company has the
exclusive right and option to acquire Copperbelt’s right, title and
On February 5, 2021, Arras Minerals Corp. (“Arras”)
was incorporated in British Columbia, Canada, as a wholly-owned subsidiary of the Company. On March 19, 2021, pursuant to an asset purchase
agreement with Arras, the Company transferred its right, title and interest in and to the Beskauga Option Agreement, among other things,
to Arras in exchange for
The Company’s efforts and expenditures have been concentrated on the exploration of properties, principally in the Sierra Mojada Property located in Coahuila, Mexico. The Company has not determined whether its exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company’s investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, and the ability of the Company to obtain financing or make other arrangements for exploration, development, and future profitable production activities. The ultimate realization of the Company’s investment in exploration properties cannot be determined at this time.
Going Concern
Since its inception in November 1993, the Company has not generated revenue and has incurred an accumulated deficit of $
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These interim condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern. Such adjustments could be material.
NOTE 2 – BASIS OF PRESENTATION
The Company’s interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet at October 31, 2021 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, 2021.
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 for the recent accounting pronouncements adopted as disclosed in Note 3. In the opinion of management, the interim condensed consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. Uncertainties with respect to estimates and assumptions are inherent in the preparation of the Company’s interim condensed consolidated financial statements. Accordingly, operating results for the nine months ended July 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2022 or any future period.
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, 2021 filed with the SEC on January 14, 2022, except as follows.
Recent Accounting Pronouncements Adopted in the Nine-Month Period Ended July 31, 2022
On November 1, 2021, the Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Updated (“ASU”) 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” ASU 2020-01 is effective for interim and annual periods beginning after December 15, 2020. 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 March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method” which is intended to make amendments to the fair value hedge accounting previously issued in ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new standard will be effective for reporting periods beginning after December 15, 2022. The standard introduced the portfolio layer method allowing multiple hedged layers of a single closed portfolio when applying fair value hedge accounting. The adoption of this update is not expected to have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on the Company’s present or future consolidated financial statements.
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NOTE 4 – SOUTH32 OPTION AGREEMENT
On June 1, 2018, the Company and its subsidiaries
Minera Metalin and Contratistas entered into an earn-in option agreement (the “South32 Option Agreement”) with South32 International
Investment Holdings Pty Ltd (“South32”), a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32
was able to obtain an option to purchase
On October 11, 2019, the Company and its subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the South32 Option Agreement. Due to a blockade by a cooperative of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”), the Company has halted all work on the Sierra Mojada Property. The notice of force majeure was issued because of the blockade’s impact on the ability of the Company and its subsidiary Minera Metalin to perform their obligations under the South32 Option Agreement. Pursuant to the South32 Option Agreement, any time period provided for in the South32 Option Agreement was to be generally extended by a period equal to the period of delay caused by the event of force majeure.
On August 31, 2022, the South32 Option Agreement was mutually terminated by South32 and the Company (Note 18).
As of September 12, 2022, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.
As noted above, Contratistas has since merged
with and into Minera Metalin. Minera Metalin owns the Sierra Mojada Property located in Coahuila, Mexico (the “Sierra Mojada Project”)
and supplies labor for the Sierra Mojada Project. Under the South32 Option Agreement, South32 could have earned into the South32 Option
by funding a collaborative exploration program on the Sierra Mojada Project. Upon the terms and subject to the conditions set forth in
the South32 Option Agreement, in order for South32 to earn and maintain its four-year option, South32 was to have contributed to Minera
Metalin for exploration of the Sierra Mojada Project at least $
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Upon exercise of the South32 Option, Minera
Metalin would have been required to issue common shares to South32.
The Company determined that Minera Metalin is a variable interest entity and that the South32 Option Agreement did not resulted in the transfer of control of the Sierra Mojada Project to South32. The Company also determined that the South32 Option Agreement represented 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 South32 Option had been exercised and shares were issued prior to a decision to develop a mine, such shares would have been classified as temporary equity as they would have been contingently redeemable in exchange for a net smelter royalty under circumstances that were not wholly in control of the Company or South32 and were not probable.
No portion of the equity value had been classified as temporary equity as the South32 Option had no intrinsic value.
The combined approximate carrying amount of the assets and liabilities of Minera Metalin (consolidated with its wholly-owned subsidiary) are as follows at July 31, 2022:
| Assets: | Mexico | |||
| Cash and cash equivalents | $ | |||
| Value-added tax receivable, net | ||||
| Prepaid expenses and deposits | ||||
| Office and mining equipment, net | ||||
| Property concessions | ||||
| Total assets | $ | |||
| Liabilities: | ||||
| Accounts payable | $ | |||
| Accrued liabilities and expenses | ||||
| Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the South32 Option | ||||
| Total liabilities | $ | |||
| Net advances and investment in the Company’s Mexican subsidiary | $ | |||
The Company’s maximum exposure to loss at July 31, 2022 is $
NOTE 5 – INVESTMENTS
On August 12, 2020, the Company entered
into the Beskauga Option Agreement with Copperbelt pursuant to which it had the exclusive right and option to acquire Copperbelt’s
right, title and
On September 24, 2021, pursuant to a Separation
and Distribution Agreement, the Company distributed to its shareholders one Arras common share for
each Silver Bull share held by such shareholders, or ,838 Arras common shares in total
(the “Distribution”). Upon completion of the Distribution, the Company retained
| 12 |
At the time of the Distribution, the Company determined that Arras was no longer a controlled subsidiary due to the dilution of its interest in Arras and the fact that Arras became a stand-alone company at the time of the Distribution. On the date control was lost, the Company recorded its interest retained in Arras at carrying value without gain or loss.
The Company determined that the Company’s retained interest in Arras is accounted for using the fair value method for the period from September 24, 2021, onwards, and its investments in Arras is presented as an investment.
On December 6, 2021, the Company sold
On June 15, 2022, the Company sold the
remaining
A summary of the changes in investments for the year ended October 31, 2021 and the nine months ended July 31, 2022 is as follows:
| Equity security – October 31, 2020 | $ | |||
| Carrying value of investment on deconsolidation | ||||
| Gain on investment | ||||
| Equity security – October 31, 2021 | $ | |||
| Sale of investment, net of costs | ( | ) | ||
| Gain on investment | ||||
| Foreign currency translation adjustment | ( | ) | ||
| Equity security – July 31, 2022 | $ |
Changes in the fair value of the Company’s investments in equity securities are recognized each period in the interim condensed consolidated financial statement primarily using fair value method if the observable quoted market prices are not available.
NOTE 6 – NET LOSS PER SHARE
The Company had stock options and warrants
outstanding at July 31, 2022 and 2021 that upon exercise were issuable into
NOTE 7 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”) receivable relates
to VAT paid in Mexico. The Company estimates that net VAT of $
A summary of the changes in the allowance for uncollectible VAT for the nine months ended July 31, 2022 is as follows:
| Allowance for uncollectible VAT – October 31, 2021 | $ | |||
| Provision for VAT receivable allowance | ||||
| Foreign currency translation adjustment | ||||
| Allowance for uncollectible VAT – July 31, 2022 | $ |
| 13 |
NOTE 8 – OFFICE AND MINING EQUIPMENT
The following is a summary of the Company’s office and mining equipment at July 31, 2022 and October 31, 2021, respectively:
| July 31, | October 31, | |||||||
| 2022 | 2021 | |||||||
| Mining equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Buildings and structures | ||||||||
| Computer equipment and software | ||||||||
| Well equipment | ||||||||
| Office equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Office and mining equipment, net | $ | $ | ||||||
NOTE 9 – PROPERTY CONCESSIONS
The following is a summary of the Company’s property concessions for the Sierra Mojada Property as at July 31, 2022 and October 31, 2021:
| Property concessions – July 31, 2022 and October 31, 2021 | $ |
If the blockade at Sierra Mojada Project continues then further impairment of property concessions is possible.
NOTE 10 – 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. The Company’s inability to advance the Sierra Mojada Project due to the ongoing blockade
has resulted in a sustained decrease in the value of the Company’s common stock. As such, the Company concluded that this constituted
an indication of impairment of goodwill. On April 30, 2022, 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 more likely than not that the fair value of the reporting unit is less than its
carrying amount, the Company recorded a goodwill impairment of $
The following is a summary of the Company’s goodwill balance as of July 31, 2022 and October 31, 2021:
| Goodwill – October 31, 2021 | $ | |||||
| Impairment | ( | ) | ||||
| Goodwill – July 31, 2022 | $ |
NOTE 11 – LOAN PAYABLE
In June 2020, the Company received $
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In January 2021, the Company received an additional
$
The balance of the CEBA loan is fully repayable on or before the end of the Extended Term, if not repaid on or before the end of the Initial Term. The Company anticipates repaying the CEBA loan prior to the Initial Term date. An income will be recognized in the period when the CEBA loan is forgiven.
| Loan payable – October 31, 2021 | $ | |||
| Foreign currency translation adjustment | ( | ) | ||
| Loan payable – July 31, 2022 | $ |
NOTE 12 – COMMON STOCK
On February 17, 2022, the Company issued
Following shareholder approval, the Company
amended its articles of incorporation on April 20, 2021 to increase the number of authorized shares of common stock from
On June 28, 2021, the Company completed a private
placement (the “2021 Silver Bull Private Placement”) for
On June 15, 2021, options to acquire
On February 2, 2021, options to acquire
On November 9, 2020, the Company completed the second
and final tranche of a two-tranche private placement (the “Silver Bull Private Placement”) for
NOTE 13 – STOCK OPTIONS
The Company has one stock option plan under which
equity securities are authorized for issuance to officers, directors, employees and advisors: the 2019 Stock Option and Stock Bonus Plan
(the “2019 Plan”). The 2019 Plan was amended on April 19, 2022 (the “Amended 2019 Plan”). Under the Amended 2019
Plan,
Options are typically granted with an exercise price
equal to the closing market price of the Company’s stock at the date of grant, have a graded vesting schedule over
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During the nine months period ended July 31,
2022, the Company granted options to acquire
No options were exercised during the nine months ended July 31, 2022.
On June 15, 2021, options to acquire
On February 2, 2021, options to acquire
No options were granted during the nine months ended July 31, 2021.
The following is a summary of stock option activity for the nine months ended July 31, 2022:
| Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||||
| Outstanding at October 31, 2021 | $ | $ | ||||||||||||||||
| Granted | — | — | ||||||||||||||||
| Cancelled | ( | ) | — | — | ||||||||||||||
| Outstanding at July 31, 2022 | — | |||||||||||||||||
| Exercisable at July 31, 2022 | $ | $ | ||||||||||||||||
The Company recognized stock-based compensation costs
for stock options of $
Summarized information about stock options outstanding and exercisable at July 31, 2022 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 | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
NOTE 14 – WARRANTS
A summary of warrant activity for the nine months ended July 31, 2022 is as follows:
| Warrants | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding and exercisable at October 31, 2021 | $ | $ | ||||||||||||||
| Outstanding and exercisable at July 31, 2022* | ||||||||||||||||
*
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No warrants were issued or exercised during the nine months ended July 31, 2022.
During the nine months ended July 31, 2021, the Company
issued
No warrants were exercised during the nine months ended July 31, 2021.
Summarized information about warrants outstanding and exercisable at July 31, 2022 is as follows:
| Warrants Outstanding and Exercisable | ||||||||||||||
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||
| $ | $ | |||||||||||||
NOTE 15 – 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, investments, accounts payable, due to related party and loan payable.
The carrying amounts of cash and cash equivalents, investment, accounts payable and due to related party approximate fair value at July 31, 2022 and October 31, 2021 due to the short maturities of these financial instruments. Loan payable is classified as Level 2 in the fair value hierarchy.
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Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets, the Company has established policies to ensure liquidity of funds and ensure that counterparties demonstrate acceptable levels of creditworthiness.
The Company maintains its U.S. dollar and Canadian
dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash
deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to $CDN
The Company also maintains cash in bank accounts
in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of July 31, 2022, and October 31, 2021,
the U.S. dollar equivalent balance for these accounts was $
Interest Rate Risk
The Company holds substantially all of its
cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received on these
balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during the nine months
ended July 31, 2022, a
Foreign Currency Exchange Risk
The Company is not subject to any significant market risk related to foreign currency exchange rate fluctuations.
NOTE 16 – 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
Litigation and Claims
Mineros Norteños Case
On May 20, 2014,
Mineros Norteños filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico, against
the Company’s subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development of the Sierra
Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of
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Valdez Case
On February 15,
2016, Messrs. Jaime Valdez Farias and Maria Asuncion Perez Alonso (collectively, “Valdez”) filed an action before the
Local First Civil Court of Torreon, State of Coahuila, Mexico, against the Company’s subsidiary, Minera Metalin, claiming that Minera
Metalin had breached an agreement regarding the development of the Sierra Mojada Property. Valdez sought payment in the amount of $
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.
COVID-19
Global outbreaks of contagious diseases, including the December 2019 outbreak of a novel strain of coronavirus (COVID-19), have the potential to significantly and adversely impact our operations and business. On March 11, 2020, the World Health Organization recognized COVID-19 as a global pandemic. Pandemics or disease outbreaks such as the currently ongoing COVID-19 outbreak may have a variety of adverse effects on our business, including by depressing commodity prices and the market value of our securities and limiting the ability of our management to meet with potential financing sources. The spread of COVID-19 has had, and continues to have, a negative impact on the financial markets, which may impact our ability to obtain additional financing in the near term. A prolonged downturn in the financial markets could have an adverse effect on our business, results of operations and ability to raise capital.
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NOTE 17 – SEGMENT INFORMATION
The Company operates in a single reportable segment: the exploration of mineral property interests. The Company has mineral property interests in Sierra Mojada, Mexico.
Geographic information is approximately as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| July 31, | July 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Mexico | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Kazakhstan | ( | ) | ( | ) | ||||||||||||
| Canada | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The following table details the allocation of assets included in the accompanying balance sheet at July 31, 2022:
| Canada | Mexico | Total | ||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Other receivables | ||||||||||||
| Prepaid expenses and deposits | ||||||||||||
| Value-added tax receivable, net | ||||||||||||
| Office and mining equipment, net | ||||||||||||
| Property concessions | ||||||||||||
| $ | $ | $ | ||||||||||
The following table details the allocation of assets included in the accompanying balance sheet at October 31, 2021:
| Canada | Mexico | Total | ||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Value-added tax receivable, net | ||||||||||||
| Other receivables | ||||||||||||
| Prepaid expenses and deposits | ||||||||||||
| Investments | ||||||||||||
| Office and mining equipment, net | ||||||||||||
| Property concessions | ||||||||||||
| Goodwill | ||||||||||||
| $ | $ | $ | ||||||||||
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.
| 20 |
The following table details the allocation of exploration and property holding costs for the exploration properties:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| July 31, | July 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Exploration and property holding costs for the period | ||||||||||||||||
| Mexico | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Kazakhstan | ( | ) | ( | ) | ||||||||||||
| ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
NOTE 18 – SUBSEQUENT EVENT
On
August 31, 2022, the Company and South32 mutually agreed to terminate the South32 Option Agreement. The Sierra Mojada Project remains
| 21 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
When using the terms “Silver Bull,” or the “Company,” management is referring to Silver Bull Resources, Inc. and its subsidiaries, unless the context otherwise requires. Management has included technical terms important to an understanding of the Company’s business under “Glossary of Common Terms” in its Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
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. Management uses 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:
| • | The sufficiency of the Company’s existing cash resources to enable it to continue operations for the next 12 months as a going concern; |
| • | Prospects of entering the development or production stage with respect to any of the Company’s projects; |
| • | Planned activities at the Sierra Mojada Project in 2022 and beyond; |
| • | Whether any part of the Sierra Mojada Project will ever be confirmed or converted into “proven or probable mineral reserves” as defined under Item 1300 of Regulation S-K; |
| • | The requirement of additional power supplies for the Sierra Mojada Project if a mining operation is determined to be feasible; |
| • | The Company’s ability to obtain and hold additional concessions in the Sierra Mojada Project areas; |
| • | The timing, duration and overall impact of the COVID-19 pandemic on the Company’s business; |
| • | Whether the Company will be required to obtain additional surface rights if a mining operation is determined to be feasible; |
| • | The possible impact on the Company’s operations of the blockade by a cooperative of miners on the Sierra Mojada property; |
| • | The potential acquisition of additional mineral properties or property concessions; |
| • | Testing of the impact of the fine bubble flotation test work on the recovery of minerals and initial rough concentrate grade; |
| • | The impact of recent accounting pronouncements on financial position, results of operations or cash flows and disclosures; |
| • | The impact of changes to current state or federal laws and regulations on estimated capital expenditures, the economics of a particular project and/or activities; |
| • | The ability to raise additional capital and/or pursue additional strategic options, and the potential impact on the business, financial condition and results of operations of doing so or not; |
| • | The impact of changing foreign currency exchange rates on the Company’s financial condition; |
| • | The impairment of goodwill and likelihood of further impairment of other long-lived assets; |
| 22 |
| • | Whether using major financial institutions with high credit ratings mitigates credit risk; |
| • | The impact of changing economic conditions on interest rates; |
| • | Expectations regarding future recovery of value-added taxes (“VAT”) paid in Mexico; 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 management’s experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, and the 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 the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021, including without limitation, risks associated with the following:
| • | Termination of the South32 Option Agreement; |
| • | The ability to obtain additional financial resources on acceptable terms to (i) conduct exploration activities and (ii) maintain general and administrative expenditures at acceptable levels; |
| • | The ability to acquire additional mineral properties or property concessions; |
| • | Results of future exploration at the 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 the Company’s exploration properties (ii) interest rates and (iii) foreign currency exchange rates; |
| • | Outbreaks of disease, including the COVID-19 pandemic, and related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations; |
| • | The amount and nature of future capital and exploration expenditures; |
| • | Volatility in the Company’s stock price; |
| • | The 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; |
| • | The ability to retain key management, consultants and experts necessary to successfully operate and grow the business; and |
| • | Political and economic instability in Mexico and other countries in which the Company conducts its 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 the Company.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, management undertakes 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. Readers should not place undue reliance on these forward-looking statements.
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Cautionary Note Regarding Exploration Stage Companies
Silver Bull is an exploration stage company and does 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 these 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, 2021.
Business Overview
Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in the business of mineral exploration, and its primary objective is to define sufficient mineral reserves on the Sierra Mojada Property to justify the development of a mechanized mining operation. The Company conducts its operations in Mexico through its wholly-owned Mexican subsidiaries, Minera Metalin S.A. de C.V. (“Minera Metalin”) and Minas de Coahuila SBR S.A. de C.V. On August 26, 2021, the wholly-owned Mexican subsidiary, Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) merged with and into Minera Metalin. As noted above, the Company has not established any reserves at the Sierra Mojada Property, and it is in the exploration stage, and may never enter the development or production stage.
On August 12, 2020, the Company entered into an option agreement (the “Beskauga Option Agreement”) with Copperbelt AG, a corporation existing under the laws of Switzerland (“Copperbelt Parent”), and Dostyk LLP, an entity existing under the laws of Kazakhstan and a wholly-owned subsidiary of Copperbelt Parent (the “Copperbelt Sub,” and together with Copperbelt Parent, “Copperbelt”), pursuant to which it had the exclusive right and option (the “Beskauga Option”) to acquire Copperbelt’s right, title and 100% interest in the Beskauga property located in Kazakhstan (the “Beskauga Property”), which consists of the Beskauga Main project (the “Beskauga Main Project”) and the Beskauga South project (the “Beskauga South Project,” and together the Beskauga Main Project, the “Beskauga Project”). The transaction contemplated by the Beskauga Option Agreement closed on January 26, 2021.
On February 5, 2021, Arras Minerals Corp. (“Arras”) was incorporated in British Columbia, Canada, as a wholly-owned subsidiary of Silver Bull. On March 19, 2021, pursuant to an asset purchase agreement with Arras, the Company transferred its right, title and interest in and to the Beskauga Option Agreement, among other things, to Arras in exchange for 36,000,000 common shares of Arras. On September 24, 2021, Silver Bull distributed to its shareholders one Arras common share for each Silver Bull share held by such shareholders, or 34,547,838 Arras common shares in total (the “Distribution”), and Arras became a stand-alone company. The financial results of Arras have been included in the Company’s consolidated statement of operations for the period from February 5, 2021 to September 24, 2021, the date of the Distribution.
Silver Bull’s principal office is located at 777 Dunsmuir Street, Suite 1605 Vancouver, BC, Canada V7Y 1K4, and the telephone number is 604-687-5800.
Recent Developments
South32 Option Agreement
On June 1, 2018, Silver Bull and its subsidiaries Minera Metalin and Contratistas entered into an earn-in option agreement (the “South32 Option Agreement”) with South32 International Investment Holdings Pty Ltd (“South32”), a wholly owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32 was able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the “South32 Option”).
On October 11, 2019, the Company and its subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the South32 Option Agreement. Due to a blockade by a cooperative of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”), the Company halted all work on the Sierra Mojada Property. The notice of force majeure was issued because of the blockade’s impact on the ability of the Company and its subsidiary Minera Metalin to perform their obligations under the South32 Option Agreement. Pursuant to the South32 Option Agreement, any time period provided for in the South32 Option Agreement was to be generally extended by a period equal to the period of delay caused by the event of force majeure.
| 24 |
On August 31, 2022, the South32 Option Agreement was mutually terminated by South32 and the Company.
As of September 12, 2022, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.
Goodwill and possible other long-lived assets Impairment
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. Due to a sustained decrease in the value of Silver Bull common stock as a result of the continued blockade at the Sierra Mojada Property, management concluded that this constituted an indication of impairment of goodwill. On April 30, 2022, management performed 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 more likely than not that the fair value of the reporting unit is less than its carrying amount, and recorded a goodwill impairment of $2,058,031 during the nine months period ended July 31, 2022. If the blockade at Sierra Mojada Property continues and the Company’s share price remains depressed, then further impairment of other long-lived assets such as property concessions is possible.
Properties Concessions and Outlook
Sierra Mojada Property
The focus of the remainder of the 2022 calendar year at the Sierra Mojada Property is to resolve the blockade and to maintain the Company’s property concessions in Mexico. Upon resolution of the blockade, management will prepare an updated exploration program.
Results of Operations
Three Months Ended July 31, 2022 and July 31, 2021
For the three months ended July 31, 2022, the Company had a net loss of $15,000, or approximately $nil per share, compared to a net loss of $1,160,000, or approximately $0.03 per share, during the comparable period last year. The $1,145,000 decrease in net loss was primarily due to a $330,000 decrease in exploration and property costs and a $504,000 decrease in general and administrative expense compared to the comparable period last year and $304,000 in other income for the three months ended July 31, 2022, compared to $8,000 in other expenses in the comparable period last year as described below.
Exploration and Property Holding Costs
Exploration and property holding costs decreased $330,000 to $110,000 for the three months ended July 31, 2022, compared to $440,000 for the comparable period last year. This decrease was the result of a $330,000 decrease in exploration and holding costs incurred in connection with the Beskauga Option Agreement in the comparable period last year. There were no comparable expenses in the current three-months period as the Company no longer holds the Beskauga Option Agreement.
General and Administrative Expenses
General and administrative expenses of $207,000 were recorded for the three months ended July 31, 2022 as compared to $711,000 for the comparable period last year. The $504,000 decrease was mainly the result of a $105,000 decrease in personnel costs, a $36,000 decrease in office and administrative costs, a $303,000 decrease in professional services and a $64,000 decrease in directors’ fees, which was offset by a $2,000 provision for uncollectible VAT for the three months end July 31, 2022, compared to a $1,000 recovery of uncollectible VAT for the comparable period last year as described below. In addition, the general and administrative expenses included the costs of Arras in the comparable period last year.
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Stock-based compensation was a factor in the fluctuations in general and administrative expenses. Overall stock-based compensation included in general and administrative expense decreased to $53,000 for the three months ended July 31, 2022 from $100,000 for the comparable period last year. This was mainly due to stock options granted to the Company’s employees, directors and advisors in the three months ended July 31, 2022 compared to Arras’ stock options granted to Arras’ employees, directors and advisors in the comparable period last year while Arras was being consolidated by the Company.
Personnel costs decreased $105,000 to $88,000 for the three months ended July 31, 2022 as compared to $193,000 for the comparable period last year. This decrease was mainly due to a decrease in employees’ salaries to $44,000 in the three months ended July 31, 2022 from $135,000 in the comparable period last year as the comparable period included the personnel costs related to Arras. Additionally, a $10,000 decrease in stock-based compensation expenses in the three months ended July 31, 2022 from $51,000 in the comparable period last year as a result of stock options vesting in the three months ended July 31, 2022 having a lower fair value than stock options vesting in the comparable period last year.
Office and administrative costs decreased $36,000 to $61,000 for the three months ended July 31, 2022 as compared to $97,000 for the comparable period last year. This decrease was primarily due to decreased investor relations activities, which in the prior period were incurred in relation to the planned distribution of Arras shares to Silver Bull shareholders.
Professional fees decreased $303,000 to $18,000 for the three months ended July 31, 2022 compared to $321,000 for the comparable period last year. This decrease is mainly due to legal and accounting fees incurred in relation to the incorporation of Arras and the planned distribution of Arras shares in the comparable period last year.
Directors’ fees decreased $64,000 to $37,000 for the three months ended July 31, 2022 as compared to $101,000 for the comparable period last year. This decrease was primarily due to a $27,000 decrease in director fees and decrease in stock-based compensation expense to $12,000 in the three months ended July 31, 2022 from $49,000 in the comparable period last year as a result of stock options vesting in the three months ended July 31, 2022 having a lower fair value than stock options vesting in the comparable period last year.
A $2,000 provision for uncollectible VAT was recorded for the three months ended July 31, 2022, compared to a $1,000 recovery of uncollectible VAT for the comparable period last year. 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.
Other Income (Expenses)
Other income of $304,000 was recorded for the three months ended July 31, 2022 as compared to other expenses of $8,000 for the comparable period last year. The significant factor contributing to other income was a $301,000 gain from selling Arras shares and interest income of $4,000 compared to a foreign currency transaction loss of $8,000 for the comparable period last year.
Nine Months Ended July 31, 2022 and July 31, 2021
For the nine months ended July 31, 2022, the Company had a net loss of $2,893,000, or approximately $0.08 per share, compared to a net loss of $2,889,000, or approximately $0.09 per share, during the comparable period last year. The $4,000 increase in net loss was primarily due to a $1,416,000 increase in exploration and property holding costs (which was significantly the result of the $2,058,000 goodwill impairment as described in the “Recent Developments” section) which was partially offset by a $642,000 decrease in exploration and property costs, a $1,143,000 decrease in general and administrative expense and a $269,000 increase in other income in the nine months ended July 31, 2022 compared to comparable period last year as described below.
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Exploration and Property Holding Costs
Exploration and property holding costs increased $1,416,000 to $2,340,000 for the nine months ended July 31, 2022, compared to $924,000 for the comparable period last year. This increase was mainly the result of a $2,058,000 goodwill impairment (as described in the “Recent Developments” section) which was partially offset by a $642,000 decrease in exploration and holding costs as the result of costs incurred in connection with the Beskauga Option Agreement in the comparable period last year. There were no comparable expenses in the current nine-month period.
General and Administrative Expenses
General and administrative expenses of $834,000 were recorded for the nine months ended July 31, 2022 as compared to $1,977,000 for the comparable period last year. The $1,143,000 decrease was mainly the result of a $254,000 decrease in personnel costs, a $135,000 decrease in office and administrative costs, a $587,000 decrease in professional services and a $168,000 decrease in directors’ fees as described below. In addition, general and administrative expenses included the financial results of Arras in the comparable period last year.
Stock-based compensation was a factor in the fluctuations in general and administrative expenses. Overall stock-based compensation included in general and administrative expense decreased to $244,000 for the nine months ended July 31, 2022 from $358,000 for the comparable period last year. This was mainly due to stock options granted to Silver Bull employees, directors and advisors in the nine months ended July 31, 2022 compared Arras stock options granted to Arras’ employees, directors and advisors in the comparable period last year.
Personnel costs decreased $254,000 to $368,000 for the nine months ended July 31, 2022 as compared to $622,000 for the comparable period last year. This decrease was mainly due to a decrease in employees’ salaries in the nine months ended July 31, 2022 compared to the comparable period last year as the comparable period included the personnel costs related to Arras.
Office and administrative costs decreased $135,000 to $192,000 for the nine months ended July 31, 2022 as compared to $327,000 for the comparable period last year. This decrease was primarily due to decreased investor relations activities, which in the prior period were incurred in relation to a special general meeting of shareholders and the planned distribution of Arras shares to Silver Bull shareholders.
Professional fees decreased $587,000 to $137,000 for the nine months ended July 31, 2022 compared to $724,000 for the comparable period last year. This decrease is mainly due to legal and accounting fees incurred in relation to the special meeting of shareholders in December 2020, the incorporation of Arras and the planned distribution of Arras shares in the comparable period last year.
Directors’ fees decreased $168,000 to $126,000 for the nine months ended July 31, 2022 as compared to $294,000 for the comparable period last year. This decrease was primarily due to a $52,000 decrease in director fees and decrease in stock-based compensation expense to $60,000 in the nine months ended July 31, 2022 from $176,000 in the comparable period last year as a result of stock options vesting in the nine months ended July 31, 2022 having a lower fair value than stock options vesting in the comparable period last year.
A provision for uncollectible VAT of $11,000 was recorded for the nine months ended July 31, 2022 as compared to a provision for uncollectible VAT of $10,000 in the comparable period last year. 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.
Other Income (Expenses)
Other income of $286,000 was recorded for the nine months ended July 31, 2022 as compared to other income of $17,000 for the comparable period last year. The significant factor contributing to other income for the nine months ended July 31, 2022 was a gain of $301,000 from selling Arras common shares and interest income of $4,000, which was offset by a $20,000 foreign currency transaction loss compared to a $17,000 foreign currency transaction gain for the comparable period last year.
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Material Changes in Financial Condition; Liquidity and Capital Resources
Cash Flows
During the nine months ended July 31, 2022, the Company primarily utilized cash and cash equivalents to fund general and administrative expenses and exploration activities at the Sierra Mojada Property. During the nine months ended July 31, 2022, Silver Bull received net proceeds of $1,434,000 from the sale of 600,000 Arras common shares at a price of $CDN 1.00 per share and 852,262 Arras common shares at a price of $CDN 1.50 per share. As a result of the proceeds received from the sale of Arras common shares, which were partially offset by exploration activities and general and administrative expenses, cash and cash equivalents increased from $190,000 at October 31, 2021 to $632,000 at July 31, 2022.
Cash flows used in operating activities for the nine months ended July 31, 2022 were $987,000, as compared to $2,131,000 for the comparable period in 2021. This decrease was mainly due to due diligence and exploration activities at the Beskauga Property in relation to the Beskauga Option Agreement in the comparable period last year and decreased general and administrative expenses, which was offset by the timing of certain payments.
Cash flows provided by investing activities for the nine months ended July 31, 2022 were net proceeds of $1,434,000 from the sale of 600,000 Arras common shares at a price of $CDN 1.00 per share and 852,262 Arras common shares at a price of $CDN 1.50 per share. Cash flows used in investing activities for the nine months ended July 31, 2021 were $1,777,000 for loans made to Ekidos Minerals LLP (made while the Beskauga Project was being consolidated by the Company) and purchases of equipment.
Cash flows provided by financing activities for the nine months ended July 31, 2022 were $nil, as compared to $2,642,000 for the same period last year. The cash flows provided by financing activities for the nine months ended July 31, 2021 were comprised of net proceeds from the second and final tranche of the Silver Bull Private Placement and the Arras Private Placement, funding from South32 and the CEBA loan.
Capital Resources
As of July 31, 2022, the Company had cash and cash equivalents of $632,000, as compared to cash and cash equivalents of $190,000 as of October 31, 2021. The increase in liquidity was primarily the result of the proceeds from sale of investments, which were partially offset by exploration activities at the Sierra Mojada Property and general and administrative expenses.
Since the Company’s inception in November 1993, it has not generated revenue and have incurred an accumulative deficit of $137,119,000. Accordingly, Silver Bull has not generated cash flows from operations, and since inception has relied primarily upon proceeds from private placements and registered direct offerings of the Company’s equity securities, warrant exercises, sale of investments, and funding from South32 as the primary sources of financing to fund our operations. Based on the Company’s limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether its existing cash resources are sufficient to enable it to continue operations for the next 12 months as a going concern. Management plans to pursue possible financing and strategic options, include, but are not limited to, obtaining additional equity financing and the exercise of warrants by warrantholders. However, there is no assurance that the Company will be successful in pursuing these plans.
Any future additional financing in the near term will likely be in the form of the issuance of equity securities, which will result in dilution to Silver Bull’s existing shareholders. Moreover, the Company may incur significant fees and expenses in the pursuit of a financing or other strategic transaction, which will increase the rate at which its cash and cash equivalents are depleted.
Capital Requirements and Liquidity; Need for Additional Funding
The Company’s management and board of directors monitor overall costs, expenses, and financial resources and, if necessary, will adjust planned operational expenditures in an attempt to ensure that the Company has sufficient operating capital. Management continues to evaluate the Company’s costs and planned expenditures, including for the Sierra Mojada Property, as discussed below.
The continued exploration of the Sierra Mojada Property will require significant amounts of additional capital. In December 2021, Silver Bull’s board of directors approved a calendar year 2022 exploration budget of $0.3 million for the Sierra Mojada Property and $0.8 million for general and administrative expenses for calendar year 2022. As of August 31, 2022, the Company had approximately $0.6 million in cash and cash equivalents. The continued exploration of the Sierra Mojada Property ultimately will require the Company to raise additional capital, identify other sources of funding or identify another strategic partner.
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For information about the strategic partnership with South32, see Note 4 – South32 Option Agreement in the financial statements and Note 18 – Subsequent Event.
Management will continue to evaluate the Company’s ability to obtain additional financial resources, and will attempt to reduce or limit expenditures on the Sierra Mojada Property as well as general and administrative costs if determined that additional financial resources are unavailable or available on terms that management determine are unacceptable. However, it may not be possible to reduce costs, and even if management is successful in reducing costs, the Company still may not be able to continue operations for the next 12 months as a going concern. If the Company is unable to fund future operations by obtaining additional financial resources, including an equity offering or other strategic transaction, management do not expect to have sufficient available cash and cash equivalents to continue the Company’s operations for the next 12 months as a going concern.
Critical Accounting Policies
The critical accounting policies are defined in our Annual Report on Form 10-K for the year ended October 31, 2021 filed with the SEC on January 14, 2022.
Recent Accounting Pronouncements Adopted in the Nine-Month Period Ended July 31, 2022
On November 1, 2020, we adopted the Financial Accounting Standards Board’s (the “FASB’s”) Accounting Standards Updated (“ASU”) 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This ASU is effective for interim and annual periods beginning after December 15, 2020. 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 March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method” which is intended to make amendments to the fair value hedge accounting previously issued in ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The new standard will be effective for reporting periods beginning after December 15, 2022. The standard introduced the portfolio layer method allowing multiple hedged layers of a single closed portfolio when applying fair value hedge accounting. The adoption of this update is not expected to have a material impact on the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a material impact on the Company’s present or future consolidated financial statements.
| 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 the Company’s Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of July 31, 2022. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of July 31, 2022.
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in its 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 in its reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
| (b) | Changes in Internal Control over Financial Reporting |
During the quarter ended July 31, 2022, 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.
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PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
See Note 16 – Commitments and Contingencies to the Company’s financial statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) for information regarding legal proceedings in which it is involved.
| ITEM 1A. | RISK FACTORS. |
There have been no material changes from the risk factors included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2021.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Recent Sales of Unregistered Securities
No sales of unregistered equity securities occurred during the period covered by this report.
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. |
On August 31, 2022, the Company and its subsidiary, Minera Metalin, entered into a termination agreement (the “Termination Agreement”) with South32 pursuant to which agreement the parties will terminate that the South32 Option Agreement, dated as of June 1, 2018 and amended on March 20, 2019, among the Company, Minera Metalin, South32, and Contratistas, which merged with an into Minera Metalin on August 26, 2021. As a condition precedent to the termination of the Option Agreement, and as reimbursement for project-related costs and expenditures incurred or expected to be incurred in relation to the Option Agreement, South32 must pay Silver Bull $518,000 in cash. Pursuant to the Termination Agreement, upon termination of the Option Agreement, Silver Bull and Minera Metalin will release South32, and South32 will release Silver Bull and Minera Metalin, from any claims, including in relation to their respective obligations arising from the Option Agreement.
The Option Agreement has been under a force majeure since October 11, 2019 due to an ongoing blockade of the Sierra Mojada property located in Coahuila, Mexico, by a cooperative of local miners, Mineros Norteños.
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| ITEM 6. | EXHIBITS. |
| 101.LAB* | XBRL Labels Linkbase Document | X | ||||||
| 104 | The Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101). | X | ||||||
| X | Filed herewith | |||||||
| XX |
Furnished herewith
|
|||||||
| + | Indicates a management contract or compensatory plan, contract or arrangement. | |||||||
| * | The following financial information from Silver Bull Resources, Inc.’s Quarterly Report on Form 10-Q for the nine months ended July 31, 2022, 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 Statements 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: September 12, 2022 | By: | /s/ Timothy Barry |
| Timothy Barry | ||
| President and Chief Executive Officer | ||
|
(Principal Executive Officer)
| ||
| Dated: September 12, 2022 | By: | /s/ Christopher Richards |
| Christopher Richards | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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