The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| |
Three
Months Ended April
30, | | |
Six
Months Ended April
30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
REVENUES | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
EXPLORATION AND PROPERTY HOLDING COSTS | |
| | | |
| | | |
| | | |
| | |
Exploration and property holding costs | |
| 38,259 | | |
| 53,493 | | |
| 155,465 | | |
| 161,781 | |
Depreciation (Note 7) | |
| 3,667 | | |
| 5,483 | | |
| 7,338 | | |
| 10,726 | |
Concessions impairment (Note 8) | |
| — | | |
| — | | |
| 15,541 | | |
| — | |
Goodwill impairment | |
| — | | |
| 2,058,031 | | |
| — | | |
| 2,058,031 | |
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS | |
| 41,926 | | |
| 2,117,007 | | |
| 178,344 | | |
| 2,230,538 | |
| |
| | | |
| | | |
| | | |
| | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
| | | |
| | | |
| | | |
| | |
Personnel | |
| 106,906 | | |
| 187,516 | | |
| 195,680 | | |
| 279,651 | |
Office and administrative | |
| 65,919 | | |
| 96,374 | | |
| 100,431 | | |
| 131,222 | |
Professional services | |
| 219,283 | | |
| 59,805 | | |
| 266,247 | | |
| 118,552 | |
Directors’ fees | |
| 26,324 | | |
| 69,954 | | |
| 60,150 | | |
| 88,870 | |
Provision for uncollectible value-added taxes (Note 6) | |
| 2,108 | | |
| 2,867 | | |
| 10,434 | | |
| 9,302 | |
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES | |
| 420,540 | | |
| 416,516 | | |
| 632,942 | | |
| 627,597 | |
| |
| | | |
| | | |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (462,466 | ) | |
| (2,533,523 | ) | |
| (811,286 | ) | |
| (2,858,135 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER EXPENSES | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 6,297 | | |
| 5 | | |
| 13,091 | | |
| 11 | |
Foreign currency transaction loss | |
| (2,554 | ) | |
| (13,962 | ) | |
| (5,396 | ) | |
| (18,355 | ) |
Other costs (Note 13) | |
| (19,355 | ) | |
| — | | |
| (19,355 | ) | |
| — | |
TOTAL OTHER EXPENSES | |
| (15,612 | ) | |
| (13,957 | ) | |
| (11,660 | ) | |
| (18,344 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (478,078 | ) | |
| (2,547,480 | ) | |
| (822,946 | ) | |
| (2,876,479 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME TAX RECOVERY (EXPENSE) | |
| 283 | | |
| (500 | ) | |
| (717 | ) | |
| (1,500 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET AND COMPREHENSIVE LOSS | |
| (477,795 | ) | |
| (2,547,980 | ) | |
| (823,663 | ) | |
| (2,877,979 | ) |
| |
| | | |
| | | |
| | | |
| | |
BASIC AND DILUTED NET LOSS PER COMMON SHARE | |
$ | (0.01 | ) | |
$ | (0.07 | ) | |
$ | (0.02 | ) | |
$ | (0.08 | ) |
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES | |
| 35,420,820 | | |
| 34,958,654 | | |
| 35,235,210 | | |
| 34,749,841 | |
| |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| |
Common
Stock | |
| | |
| | |
| | |
| |
| |
Number
of Shares | | |
Amount | | |
Additional
Paid-in Capital | | |
Accumulated Deficit | | |
Other
Comprehensive
Income | | |
Total
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Six months ended April 30, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, October 31, 2022 | |
| 35,055,652 | | |
$ | 2,418,415 | | |
$ | 140,750,310 | | |
$ | (137,394,298 | ) | |
$ | 92,248 | | |
$ | 5,866,675 | |
Issuance of common stock as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- For compensation at $0.14 per share (Note 10) | |
| 625,000 | | |
| 6,250 | | |
| 82,161 | | |
| — | | |
| — | | |
| 88,411 | |
Stock option activity as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- Stock-based compensation for options issued to directors, officers, employees,
and advisors (Note 11) | |
| — | | |
| — | | |
| 51,176 | | |
| — | | |
| — | | |
| 51,176 | |
Net loss for the six-month period ended April 30,
2023 | |
| — | | |
| — | | |
| — | | |
| (823,663 | ) | |
| — | | |
| (823,663 | ) |
Balance, April 30, 2023 | |
| 35,680,652 | | |
$ | 2,424,665 | | |
$ | 140,883,647 | | |
$ | (138,217,961 | ) | |
$ | 92,248 | | |
$ | 5,182,599 | |
| |
| Common Stock | | |
| | | |
| | | |
| | | |
| | |
| |
| Number of Shares | | |
| Amount | | |
| Additional
Paid-in Capital | | |
| Accumulated Deficit | | |
| Other Comprehensive Income | | |
| Total Equity | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Three months ended April 30, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, January 31, 2023 | |
| 35,055,652 | | |
$ | 2,418,415 | | |
$ | 140,804,660 | | |
$ | (137,740,166 | ) | |
$ | 92,248 | | |
$ | 5,575,157 | |
Issuance of common stock as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- For compensation at $0.14 per share (Note 10) | |
| 625,000 | | |
| 6,250 | | |
| 82,161 | | |
| — | | |
| — | | |
| 88,411 | |
Stock option activity as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- Stock-based compensation (recovery) for options issued to directors,
officers, employees, and advisors (Note 11) | |
| — | | |
| — | | |
| (3,174 | ) | |
| — | | |
| — | | |
| (3,174 | ) |
Net loss for the three-month period ended April 30, 2023 | |
| — | | |
| — | | |
| — | | |
| (477,795 | ) | |
| — | | |
| (477,795 | ) |
Balance, April 30, 2023 | |
| 35,680,652 | | |
$ | 2,424,665 | | |
$ | 140,883,647 | | |
$ | (138,217,961 | ) | |
$ | 92,248 | | |
$ | 5,182,599 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(Unaudited)
| |
| Common Stock | | |
| | | |
| | | |
| | | |
| | |
| |
| Number
of Shares | | |
| Amount | | |
| Additional
Paid-in Capital | | |
| Accumulated Deficit | | |
| Other
Comprehensive
Income | | |
| Total
Stockholders’ Equity | |
Six months ended April 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, October 31, 2021 | |
| 34,547,838 | | |
$ | 2,413,337 | | |
$ | 139,803,515 | | |
| (134,226,099 | ) | |
$ | 92,248 | | |
$ | 8,083,001 | |
Issuance of common stock as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- For compensation at $0.25 per share (Note 10) | |
| 507,814 | | |
| 5,078 | | |
| 123,016 | | |
| — | | |
| — | | |
| 128,094 | |
Stock option activity as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- Stock-based compensation for options issued to directors, officers, employees, and advisors (Note 11) | |
| — | | |
| — | | |
| 197,080 | | |
| — | | |
| — | | |
| 197,080 | |
Net loss for the six-month period ended April 30, 2022 | |
| — | | |
| — | | |
| — | | |
| (2,877,979 | ) | |
| — | | |
| (2,877,979 | ) |
Balance, April 30, 2022 | |
| 35,055,652 | | |
$ | 2,418,415 | | |
$ | 140,123,611 | | |
| (137,104,078 | ) | |
$ | 92,248 | | |
$ | 5,530,196 | |
| |
Common
Stock | |
| | |
| | |
| | |
| |
| |
Number
of Shares | | |
Amount | | |
Additional Paid-in Capital | | |
Accumulated Deficit | | |
Other
Comprehensive
Income | | |
Total
Stockholders’
Equity | |
Three months ended April 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, January 31, 2022 | |
| 34,547,838 | | |
$ | 2,413,337 | | |
$ | 139,803,515 | | |
| (134,556,098 | ) | |
$ | 92,248 | | |
$ | 7,753,002 | |
Issuance of common stock as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- For compensation at $0.25 per share (Note 10) | |
| 507,814 | | |
| 5,078 | | |
| 123,016 | | |
| — | | |
| — | | |
| 128,094 | |
Stock option activity as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock option activity as follows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- Stock-based compensation for options issued to directors, officers, employees, and advisors (Note 11) | |
| — | | |
| — | | |
| 197,080 | | |
| — | | |
| — | | |
| 197,080 | |
Net loss for the three-month period ended April 30, 2022 | |
| — | | |
| — | | |
| — | | |
| (2,547,980 | ) | |
| — | | |
| (2,547,980 | ) |
Balance, April 30, 2022 | |
| 35,055,652 | | |
$ | 2,418,415 | | |
$ | 140,123,611 | | |
| (137,104,078 | ) | |
$ | 92,248 | | |
$ | 5,530,196 | |
The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
| | |
| |
| |
Six
Months Ended April
30, | |
| |
2023 | | |
2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (823,663 | ) | |
$ | (2,877,979 | ) |
Adjustments to reconcile net loss to net cash used by operating activities: | |
| | | |
| | |
Depreciation | |
| 7,338 | | |
| 10,726 | |
Concessions impairment (Note 8) | |
| 15,541 | | |
| — | |
Goodwill impairment | |
| — | | |
| 2,058,031 | |
Provision for uncollectible value-added taxes | |
| 10,434 | | |
| 9,302 | |
Foreign currency transaction (income) loss | |
| (2,194 | ) | |
| 36,363 | |
Stock options issued for compensation (Note 11) | |
| 51,176 | | |
| 197,080 | |
Shares of common stock issued for services (Note 10) | |
| 88,411 | | |
| 128,094 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Value-added tax receivable | |
| (5,870 | ) | |
| (10,572 | ) |
Other receivables | |
| (3,435 | ) | |
| (272 | ) |
Prepaid expenses and deposits | |
| 14,581 | | |
| 148,087 | |
Accounts payable | |
| 178,276 | | |
| (159,201 | ) |
Accrued liabilities and expenses | |
| 61,193 | | |
| (117,920 | ) |
Due to related party (Note 5) | |
| 20,767 | | |
| 7,547 | |
Income tax payable | |
| (1,500 | ) | |
| 1,500 | |
Net cash used in operating activities | |
| (388,945 | ) | |
| (569,214 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITY: | |
| | | |
| | |
Proceeds from sale of investments | |
| — | | |
| 469,484 | |
Net cash provided by investing activity | |
| — | | |
| 469,484 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITY: | |
| | | |
| | |
Net cash provided by financing activity | |
| — | | |
| — | |
| |
| | | |
| | |
Effect of exchange rates on cash and cash equivalents | |
| — | | |
| (2,574 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (388,945 | ) | |
| (102,304 | ) |
| |
| | | |
| | |
Cash and cash equivalents beginning of period | |
| 886,728 | | |
| 189,607 | |
| |
| | | |
| | |
Cash and cash equivalents end of period | |
$ | 497,783 | | |
$ | 87,303 | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
| |
Six Months Ended April 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
SUPPLEMENTAL CASH FLOW DISCLOSURES: | |
| | | |
| | |
| |
| | | |
| | |
Income taxes paid | |
$ | 2,220 | | |
$ | 1,803 | |
Interest paid | |
| — | | |
$ | — | |
| |
| | | |
| | |
The accompanying notes are an integral part of these
interim condensed consolidated financial statements.
NOTE 1 – ORGANIZATION, DESCRIPTION
OF BUSINESS AND GOING CONCERN
Silver Bull Resources, Inc. (the “Company”)
was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral
properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s name
was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources, Inc. The Company’s
fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and is considered an exploration
stage company. The Company has not established any reserves with respect to its exploration projects and is not expected to enter into
the development stage with respect to any of its projects.
The Company has been engaged in the business
of mineral exploration. The Company currently owns a number of property concessions located in Coahuila, 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 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 April 23, 2023,
Nomad Minerals Ltd. (“Nomad Minerals"), a wholly-owned subsidiary of the Company, was incorporated in British Columbia,
Canada. On April 28, 2023, Nomad Metals Limited was incorporated at Astana International Financial Centre in Astana, Republic of
Kazakhstan, as a wholly-owned subsidiary of Nomad Minerals.
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 “Sierra
Mojada Project”). 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.
Illegal Blockade of Sierra Mojada Property
The Company’s efforts and expenditures
have been concentrated on the exploration of properties, principally with respect to the Sierra Mojada Property located in Coahuila, Mexico.
On June 1, 2018, the Company and its subsidiaries
Minera Metalin and Contratistas de Sierra Mojada S.A. de C.V. 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 (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 an illegal 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 the
Company and its subsidiary Minera Metalin was unable to perform their obligations under the South32 Option Agreement due to the blockade.
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, due to the ongoing blockade
of the site, the South32 Option Agreement was mutually terminated by South32 and the Company.
No portion of the equity value of the Company
has been classified as temporary equity as the South32 Option has no intrinsic value. South32 paid $518,000 to the Company as a final
payment for the exploration costs incurred by the Company during the blockade and the Company released South32 from all of claims as of
the date of termination.
As of June 13, 2023, the
blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing, and the Company remains unable to access the
Sierra Mojada Property.
On March 2, 2023, the Company filed a Notice
of Intent with Mexico’s Directorate General of Foreign Investment to initiate a legacy NAFTA claim under Annex 14-C of the United
States-Mexico-Canada Agreement to recover economic damages resulting from the illegal blockade of the Sierra Mojada Property by Mineros
Norteños (“NAFTA Notice of Intent”). The Company has been unable to access the project since the illegal blockade commenced
in September 2019. Despite numerous demands and requests for action by the Company, Mexican governmental agencies have allowed this unlawful
behaviour to continue and, as such, failed to protect the Company’s investment.
On or before June 30, 2023, the Company intends
to file the request for arbitration (the “Request”) in the legacy NAFTA claim at the International Centre for Settlement of
Investment Dispute (the “ICSID”).
Arras Minerals Corp. Spin-Off
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 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 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 36,000,000 common shares of Arras. On September 24, 2021, the Company
distributed to its shareholders one Arras common share for each Silver Bull share held by such shareholders, or 34,547,838 Arras shares
in total. Upon completion of the distribution, the Company retained 1,452,162 Arras common shares as a strategic investment and Arras
became a stand-alone company.
In December 2021 and June 2022, the
Company sold 600,000 and 852,262 common shares of Arras at a price of $CDN 1.00 and $CDN 1.50 per shares, respectively. The Company has
no interest in Arras as of April 30, 2023.
Exploration Stage
The
Company has established the existence of mineral resources for the Sierra Mojada Project. The Company has not established proven or probable
reserves, as defined by the United States Securities and the U.S. Securities and Exchange Commission (the “SEC”) subpart
1300 of Regulation S-K (“S-K 1300”), through the completion of a “final” or “bankable” feasibility
study for Sierra Mojada Project. Furthermore, the Company has no plans to establish proven or probable reserves for Sierra Mojada Project.
As a result, and despite the fact that the Company commenced extraction of mineral resources at the Sierra Mojada Property, the Company
remains an exploration stage company, as defined by the SEC.
Beginning with the Company’s annual report on Form 10-K for the year ended
October 31, 2022, the Company reports its mineral resources in accordance with S-K 1300.
Going Concern
Since its inception in November 1993, the Company has yet to generated revenue and has incurred an accumulated deficit
of $138,218,000. Accordingly, the Company has not generated cash flows from operations. Since inception, the Company has relied primarily
upon proceeds from private placements and registered direct offerings of the Company’s equity securities, sales of investments and
warrant exercises as the primary sources of financing to fund the Company’s operations. As
of April 30, 2023, the Company had cash and cash equivalents of approximately $498,000. Based on the Company’s limited cash and
cash equivalents, and history of losses, there is substantial doubt as to whether the Company’s existing cash resources are sufficient
to enable the Company to continue its operations for the next 12 months as a going concern. Management plans to pursue possible financing
and strategic options, including, but not limited to, obtaining additional equity financing, and the exercising of warrants by warrantholders.
However, there is no assurance that the Company will be successful in pursuing these plans.
These interim condensed consolidated financial statements
have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities
that may be necessary in the event the Company can no longer continue as a going concern. Such adjustments could be material.
NOTE 2 – BASIS OF PRESENTATION
The Company’s interim condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”)
and applicable rules of the SEC regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation.
Certain information and note disclosures typically 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, 2022 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, 2022.
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. In the opinion of management, the interim
condensed consolidated financial statements furnished herein include all adjustments, all of which are of a routine 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, 2023, are not necessarily indicative of the results that may be expected for the fiscal year ending October
31, 2023, 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, 2022 filed with the SEC on January 26, 2023.
Other recent accounting
pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force) and
the SEC did not or are not expected to have a significant impact on the Company’s present or future consolidated financial statements.
NOTE
4 – NET LOSS PER SHARE
The Company had stock options and warrants
outstanding at April 30, 2023 and 2022 that upon exercise were issuable into 4,971,289 and
5,215,039 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 5 – DUE FROM RELATED PARTY
As of April 30, 2023, due from related party
consists of $2,428 (October 31, 2022 - $23,196) due from Arras for shared employees’ salaries and office expenses. This amount is
non-interest bearing and is to be repaid on demand.
NOTE 6 – VALUE-ADDED TAX RECEIVABLE
Value-added tax (“VAT”)
receivable relates to VAT paid in Mexico. The Company estimates a net VAT of $134,639
(October 31, 2022 - $127,036)
will be received and believes that it remains legally entitled to be refunded the full amount of the VAT receivable and intends to rigorously
continue its VAT recovery efforts. While the Company continues to pursue recovery from the Mexican government, the outcomes and process
for recovering VAT can be lengthy and unpredictable based on the continued failure to
recover the VAT receivable and a recent preliminary unfavorable ruling from the Mexican tax authority, which the Company is in the process
of challenging. The allowance for uncollectible VAT was estimated by
management based upon several 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, 2023 is as follows:
Allowance for uncollectible VAT – October 31, 2022 | |
$ | 449,219 | |
Provision for VAT receivable allowance | |
| 10,434 | |
Foreign currency translation adjustment | |
| 46,658 | |
Allowance for uncollectible VAT – April 30, 2023 | |
$ | 506,311 | |
NOTE 7 – OFFICE AND MINING EQUIPMENT
The following is a summary of the Company’s
office and mining equipment at April 30, 2023 and October 31, 2022, respectively:
| |
April 30, | | |
October 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Mining equipment | |
$ | 396,153 | | |
$ | 396,153 | |
Vehicles | |
| 92,873 | | |
| 92,873 | |
Buildings and structures | |
| 185,724 | | |
| 185,724 | |
Computer equipment and software | |
| 74,236 | | |
| 74,236 | |
Well equipment | |
| 39,637 | | |
| 39,637 | |
Office equipment | |
| 47,597 | | |
| 47,597 | |
| |
| 836,220 | | |
| 836,220 | |
Less: Accumulated depreciation | |
| (699,990 | ) | |
| (692,652 | ) |
Office and mining equipment, net | |
$ | 136,230 | | |
$ | 143,568 | |
NOTE 8 – PROPERTY CONCESSIONS
The following is a summary of the Company’s
property concessions for the Sierra Mojada Property as at April 30, 2023 and October 31, 2022:
Property concessions – October 31, 2022 | | |
$ | 5,019,927 | |
Impairment | | |
| (15,541 | ) |
Property concessions – April 30, 2023 | | |
$ | 5,004,386 | |
During the
six months ended April 30, 2023, the Company decided to withdraw certain concessions’ applications in Sierra Mojada, Mexico. As
a result, the Company no longer has the right to these property concessions and the value in use is $nil. Accordingly, the Company has
written off the capitalized property concession balance related to these concessions of $15,541 in accordance with level 3 of the fair
value hierarchy.
If the blockade at Sierra
Mojada Property continues, further impairment of property concessions is possible.
NOTE 9 – LOAN PAYABLE
In June 2020, the Company received $29,531 ($CDN 40,000)
in the form of a Canada Emergency Business Account (“CEBA”) loan. CEBA is part of the economic assistance program launched
by the Government of Canada to ensure that businesses have access to capital during the COVID-19 pandemic that can only be used to pay
non-deferrable operating expenses. During the period from receipt of the CEBA loan to December 31, 2022 (the “Initial Term”),
no interest will be charged on the principal amount outstanding. If at least $CDN 30,000 is repaid on or before the end of the Initial
Term, the remaining $CDN 10,000 of principal will be forgiven pursuant to the terms of the CEBA loan. During the period from January 1,
2023 to December 31, 2025 (the “Extended Term”), if any portion of the loan remains outstanding, interest will be payable
monthly at a rate of 5% per annum on the outstanding principal balance.
In January 2021, the
Company received an additional $15,615 ($CDN 20,000) CEBA loan. Fifty percent (50%) of the additional loan is forgivable if repaid
by December 31, 2022. The loan accrues no interest before the end of the Initial Term, and thereafter converts to a three-year term
loan with a 5% annual interest rate. Any portion of the loan is repayable without penalty at any time prior to December 31, 2025.
The total CEBA loan amount stands at $CDN 60,000 with $CDN 20,000 forgivable if repaid by December 31, 2022. In January 2022, the
repayment deadline for the CEBA loan to qualify for loan forgiveness was extended to December 31, 2023.
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, 2022 | |
$ | 43,959 | |
Foreign currency translation adjustment | |
| 230 | |
Loan payable – April 30, 2023 | |
$ | 44,189 | |
NOTE 10 – COMMON STOCK
On March 9, 2023, the Company issued 625,000
shares of common stock at an average of $0.14 per share of common stock as payment of accrued management bonuses in the amount of $88,411
($CDN121,875).
On February 17, 2022, the Company issued 507,814
shares of common stock at an average of $0.25 per share of common stock as payment of accrued management bonuses in the amount of $128,094
($CDN162,500).
NOTE 11 – 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, 10% of the total shares outstanding are reserved for issuance upon the exercise of options or the grant of stock bonuses, to a maximum
of 15,000,000 shares.
Options are typically granted with an exercise price
equal to the closing market price of the Company’s stock at the date of grant, have a graded vesting schedule over two years and
have a contractual term of five years.
During the six months period ended April 30, 2023,
the Company granted options to acquire 150,000 shares of common stock with a weighted-average grant-date fair value of $0.07 per share.
A summary of the range of assumptions used to value
stock options granted for the six months ended April 30, 2023 and 2022 are as follows:
| |
| Six
Months Ended
April 30,
| |
Options | |
| 2023 | | |
| 2022 | |
| |
| | | |
| | |
Expected volatility | |
| 74% – 81% | | |
| 81% – 87% | |
Risk-free interest rate | |
| 3.83% – 3.96% | | |
| 1.60% – 1.74% | |
Dividend yield | |
| — | | |
| — | |
Expected term (in years) | |
| 2.50 – 3.50 | | |
| 2.50 – 3.50 | |
No options were exercised during the six months ended
April 30, 2023.
During the six months period ended April 30,
2022, the Company granted options to acquire 3,300,000 shares of common stock with a weighted-average grant-date fair value of $0.14 per
share.
No options were exercised during the six months ended
April 30, 2022.
The following is a summary of stock option activity
for the six months ended April 30, 2023:
Options | | |
Shares | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (Years) | | |
Aggregate
Intrinsic Value | |
| | |
| | |
| | |
| | |
| |
Outstanding at October 31, 2022 | | |
| 3,193,750 | | |
$ | 0.25 | | |
| 4.25 | | |
$ | — | |
Granted | | |
| 150,000 | | |
| 0.14 | | |
| | | |
| | |
Cancelled | | |
| (300,000 | ) | |
| 0.24 | | |
| | | |
| | |
Expired | | |
| (43,750 | ) | |
| 1.27 | | |
| | | |
| | |
Outstanding at April 30, 2023 | | |
| 3,000,000 | | |
| 0.23 | | |
| 3.14 | | |
| — | |
Exercisable at April 30, 2023 | | |
| 2,150,000 | | |
$ | 0.23 | | |
| 2.83 | | |
$ | — | |
The Company recognized stock-based compensation costs
for stock options of $51,176 and $197,080 for the six months ended April 30, 2023 and 2022, respectively. As of April 30, 2023, there
was $47,430 of total unrecognized compensation expense.
Summarized information about stock options outstanding
and exercisable at April 30, 2023 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 | |
$ | 0.24 | | |
| 2,850,000 | | |
| 3.05 | | |
$ | 0.24 | | |
| 2,100,000 | | |
$ | 0.24 | |
| 0.14 | | |
| 150,000 | | |
| 4.87 | | |
| 0.14 | | |
| 50,000 | | |
| 0.14 | |
NOTE 12 –
WARRANTS
A summary of warrant activity for the six months ended
April 30, 2023 is as follows:
Warrants | |
Shares | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (Years) | | |
Aggregate
Intrinsic Value | |
| |
| | |
| | |
| | |
| |
Outstanding and exercisable at October 31, 2022 | |
| 1,971,289 | | |
$ | 0.59 | | |
| 2.99 | | |
$ | — | |
Outstanding and exercisable at April 30, 2023* | |
| 1,971,289 | | |
| 0.59 | | |
| 2.50 | | |
| — | |
* Pursuant to the terms of the Separation and Distribution
Agreement, dated as of August 31, 2021, between Silver Bull and Arras entered into in connection with the Distribution (Note 1), 1,971,289
warrants with a weighted average exercise price of $0.59 are exercisable into one share of common stock of the Company and one common
share of Arras. The Company will receive $0.34 of the proceeds from the exercise of each of these warrants and the remaining proceeds
will be paid to Arras.
No warrants were issued or exercised during the six
months ended April 30, 2023 or 2022.
Summarized information about warrants outstanding
and exercisable at April 30, 2023 is as follows:
| Warrants
Outstanding and Exercisable | |
| Exercise
Price | | |
| Number Outstanding
| | |
| Weighted
Average Remaining Contractual Life (Years) | | |
| Weighted
Average Exercise Price | |
$ | 0.59 | | |
| 1,971,289 | | |
| 2.50 | | |
$ | 0.59 | |
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 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, due from related party and loan payable.
The carrying amounts of cash and cash equivalents,
accounts payable and due from related party approximate fair value at April 30, 2023 and October 31, 2022 due to the short maturities
of these financial instruments. Loan payable is classified as Level 2 in the fair value hierarchy.
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 the liquidity of funds and
ensure that counterparties demonstrate acceptable levels of creditworthiness.
The Company maintains its U.S. dollar and Canadian
dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash
deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to $CDN 100,000. Certain Canadian
bank accounts held by the Company exceed these federally insured limits or are uninsured as they relate to U.S. dollar deposits held in
Canadian financial institutions. As of April 30, 2023, and October 31, 2022, the Company’s cash and cash equivalent balances held
in Canadian financial institutions included $423,968 and $802,761, 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.
In February 2023, a cash balance of $19,355 ($MXN 349,884) was subject to seizure by the Mexican government due to a dispute over certain years’ VAT and corporate tax. As a result, the Company does not maintain cash in bank accounts in Mexico as of April 30, 2023. These accounts were denominated in the local currency and are considered uninsured. As of April 30, 2023 and October 31, 2022, the U.S. dollar equivalent balance for these accounts was $nil and $10,702, respectively.
As at April 30, 2023 and October 31, 2022,
cash and cash equivalents consist of guaranteed investment certificates of $224,186 and $369,551, respectively, held in bank accounts.
Liquidity Risk
Liquidity risk is the risk that the Company
will encounter difficulty in satisfying its financial obligations as they become due. The Company manages its liquidity risk by forecasting
cash flows from operations and anticipating investing and financing activities. As at April 30, 2023, the Company had working capital
deficiency of $92,656 and cash and cash equivalents of $497,783 and is exposed to significant liquidity risk at this time. Furthermore,
as the Company is in the exploration stage, it will periodically have to raise funds to continue operations and intends to raise further
financing through equity offerings.
Accounts payable and accrued liabilities are
non-interest-bearing and are typically settled on 30-day terms.
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, 2023, a 1% decrease in interest rates would have resulted in a reduction of approximately $2,771 in interest income for
the period.
Foreign Currency Exchange Risk
Certain purchases of labor, operating supplies and
capital assets are denominated in $CDN, $MXN or other currencies. As a result, currency exchange fluctuations may impact the costs of
the Company’s operations. Specifically, the appreciation of the $MXN or $CDN against the U.S. dollar may result in an increase in
operating expenses and capital costs in U.S. dollar terms. The Company currently does not engage in any currency hedging activities.
Based on the net exposures as at April 30,
2023, a 5% depreciation or appreciation of the $CDN and $MXN against the US dollar would result in an increase and decrease, respectively,
of approximately $5,000 in the Company’s net income.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Compliance with Environmental Regulations
The Company’s exploration activities
are subject to laws and regulations controlling not only the exploration and mining of mineral properties but also the effect of such
activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or affect the economics
of a project, and cause changes or delays in the Company’s activities.
Property Concessions in Mexico
To properly maintain property concessions in
Mexico, the Company is required to pay a semi-annual fee to the Mexican government and complete annual assessment work.
Royalty
The Company has agreed to pay a 2% net smelter
return royalty on certain property concessions within the Sierra Mojada Property based on the revenue generated from production. Total
payments under this royalty are limited to $6.875 million (the “Royalty”). To date, no royalties have been paid.
Litigation and Claims
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 6% per annum since
August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment of wages
to the cooperative’s members since August 30, 2004, even though none of the individuals were hired or performed work for Minera
Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was moved to the Third
District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was time barred from bringing
the case. On October 19, 2017, Mineros Norteños appealed this ruling. On July 31, 2019, the Federal Appeals Court upheld
the original ruling. This ruling was subsequently challenged by Mineros Norteños and on January 24, 2020, the Federal Circuit
Court ruled that the Federal Appeals Court must consider additional factors in its ruling. In March 2020, the Federal Appeals Court upheld
the original ruling after considering these additional factors. In August 2020, Mineros Norteños appealed this ruling, which appeal
the Company timely responded and objected to on October 5, 2020. On March 26, 2021, the Federal Circuit Court issued a final and
conclusive resolution, affirming the Federal Appeals Court decision. Despite the judgments in favour of the Company, Mineros Norteños
has continued to block access to the facilities at Sierra Mojada since September 2019. The Company has filed criminal complaints
with the State of Coahuila, federal and state authorities have been contacted to intervene and terminate the blockade, and the Company
has attempted to negotiate with Mineros Norteños, without resolution to date. The Company has not accrued any amounts
in its condensed interim consolidated financial statements with respect to this claim.
Legacy
investment claim under the North American Free Trade Agreement (“NAFTA”)
On March 2,
2023, the Company filed a Notice of Intent with Mexico’s Directorate General of Foreign Investment to initiate a legacy NAFTA
claim under Annex 14-C of the United States-Mexico-Canada Agreement to recover economic damages resulting from the illegal blockade of
the Sierra Mojada Property by Mineros Norteños (Note 1). On May 30, 2023, the Company attended a meeting with Mexican government
officials in Mexico City, no settlement had been reached and the Request in the legacy NAFTA claim will be filed with the ICSID on or
before June 30, 2023.
The Company has engaged Boies Schiller Flexner
(UK) LLP as its legal advisers on the legacy NAFTA claim. To support the legacy NAFTA claim, the Company engaged an arbitration consultant,
who, upon a successful arbitration ruling, is to receive an arbitration fee amounting to 6% of the net amount of the award by ICSID less
all associated direct costs incurred by the Company.
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 $5.9
million for the alleged breach of the agreement. On April 28, 2016, Minera Metalin filed its response to the complaint, asserting various
defenses, including that Minera Metalin terminated the agreement before the payment obligations arose and that certain conditions precedent
to such payment obligations were never satisfied by Valdez. The Company and the Company’s Mexican legal counsel asserted all applicable
defenses. In May 2017, a final judgment was entered finding for the Company, the defendant, acquitting the Company of all of the plaintiff’s
claims and demands. However, due to a technicality in an early procedural act, Valdez was allowed to, and did, challenge the judgment
before a local Appeals Court. On October 1, 2020, the Appeals Court entered a resolution overturning the previous judgment and entering
a resolution in favor of Valdez in the amount of $5 million, plus court costs. In November 2020, the judgment of the Appeals Court was
timely challenged by the Company by means of an “Amparo” lawsuit (Constitutional protection) before a Federal Circuit Court.
In June 2021, the Federal Circuit Court ruled in favour of the plaintiff. The Company believes these judgments are contrary to applicable
law. The plaintiff initiated proceedings to enforce the Appeals Court resolution, and the Company has offered a mining concession as a
payment in full to terminate this controversy definitively. The Company believes the likelihood of the plaintiff succeeding in collecting
any amount on this claim is remote, as such the Company has not accrued any amounts in its condensed interim consolidated financial statements with respect
to this claim.
From time to time,
the Company is involved in other disputes, claims, proceedings and legal actions arising in the ordinary course of business. The Company
intends to vigorously defend all claims against the Company and pursue its full legal rights in cases where the Company has been harmed.
Although the ultimate outcome of these proceedings cannot be accurately predicted due to the inherent uncertainty of litigation, in the
opinion of management, based upon current information, no other currently pending or overtly threatened proceeding is expected to have
a material adverse effect on the Company’s business, financial condition or results of operations.
NOTE 15 – SEGMENT INFORMATION
The Company operates in a single reportable
segment: the exploration of mineral property interests. The Company has mineral property interests in Sierra Mojada, Mexico.
Geographic
information is approximately as follows:
| |
For the Three Months Ended | | |
For the Six Months Ended | |
| |
April 30, | | |
April 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Mexico | |
| (55,000 | ) | |
$ | (2,117,000 | ) | |
$ | (211,000 | ) | |
$ | (2,231,000 | ) |
Canada | |
| (423,000 | ) | |
| (431,000 | ) | |
| (613,000 | ) | |
| (647,000 | ) |
Net Loss | |
| (478,000 | ) | |
$ | (2,548,000 | ) | |
$ | (824,000 | ) | |
$ | (2,878,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
The following table details the allocation of assets included in
the accompanying balance sheet at April 30, 2023:
| |
Canada | | |
Mexico | | |
Total | |
Cash and cash equivalents | |
$ | 498,000 | | |
$ | — | | |
$ | 498,000 | |
Other receivables | |
| 6,000 | | |
| — | | |
| 6,000 | |
Prepaid expenses and deposits | |
| 30,000 | | |
| 5,000 | | |
| 35,000 | |
Due from related party | |
| 3,000 | | |
| — | | |
| 3,000 | |
Value-added tax receivable, net | |
| — | | |
| 135,000 | | |
| 135,000 | |
Office and mining equipment, net | |
| — | | |
| 136,000 | | |
| 136,000 | |
Property concessions | |
| — | | |
| 5,004,000 | | |
| 5,004,000 | |
| |
$ | 537,000 | | |
$ | 5,280,000 | | |
$ | 5,817,000 | |
The following table details the allocation of assets included in
the accompanying balance sheet at October 31, 2022:
| |
Canada | | |
Mexico | | |
Total | |
Cash and cash equivalents | |
$ | 876,000 | | |
$ | 11,000 | | |
$ | 887,000 | |
Value-added tax receivable, net | |
| — | | |
| 127,000 | | |
| 127,000 | |
Other receivables | |
| 3,000 | | |
| — | | |
| 3,000 | |
Prepaid expenses and deposits | |
| 45,000 | | |
| 4,000 | | |
| 49,000 | |
Due from related party | |
| 23,000 | | |
| — | | |
| 23,000 | |
Office and mining equipment, net | |
| — | | |
| 144,000 | | |
| 144,000 | |
Property concessions | |
| — | | |
| 5,020,000 | | |
| 5,020,000 | |
| |
$ | 947,000 | | |
$ | 5,306,000 | | |
$ | 6,253,000 | |
The Company has significant
assets in Coahuila, Mexico. Although Mexico is generally considered economically stable, unanticipated events in Mexico, such as the
blockade, can, and may in the future, disrupt the Company’s operations. The Mexican government does not require foreign entities
to maintain cash reserves in Mexico.