SILVER BULL RESOURCES, INC. - Quarter Report: 2022 April (Form 10-Q)

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE QUARTERLY PERIOD ENDED April 30, 2022.

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE TRANSITION PERIOD FROM _________ TO _________.

 

Commission File Number: 001-33125

 

SILVER BULL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	91-1766677
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)

 

777 Dunsmuir Street, Suite 1610

Vancouver, B.C., Canada V7Y 1K4

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: (604)-687-5800

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☑		Smaller reporting company ☑
		Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

 

As of June 9, 2022, there were 35,055,652 shares of the registrant’s $0.01 par value common stock outstanding, the registrant’s only outstanding class of voting securities.

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

 

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION	3
ITEM 1.  FINANCIAL STATEMENTS.	3
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	21
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	29
ITEM 4.   CONTROLS AND PROCEDURES.	29
PART II – OTHER INFORMATION	30
ITEM 1.   LEGAL PROCEEDINGS.	30
ITEM 1A.   RISK FACTORS.	30
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	30
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.	30
ITEM 4.   MINE SAFETY DISCLOSURES.	30
ITEM 5.   OTHER INFORMATION.	30
ITEM 6.   EXHIBITS.	31
SIGNATURES	32

 

 

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

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		April 30, 2022				October 31, 2021
			(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	87,303			$	189,607
Value-added tax receivable, net of allowance for uncollectible taxes of $420,982 (Note 7)			—				120,810
Other receivables			6,528				7,307
Prepaid expenses and deposits			41,272				196,178
Investments (Note 5)			666,167				1,166,770
Total Current Assets			801,270				1,680,672
Value-added tax receivable, net of allowance for uncollectible taxes of $431,477 (Note 7)			122,769				—
Office and mining equipment, net (Note 8)			153,414				164,140
Property concessions (Note 9)			5,019,927				5,019,927
Goodwill (Note 10)			—				2,058,031
TOTAL ASSETS		$	6,097,380			$	8,922,770
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	306,324			$	465,865
Accrued liabilities and expenses			203,909				324,454
Due to related party			7,547				—
Income tax payable			2,500				1,000
Total Current Liabilities			520,280				791,319
Loan payable (Note 11)			46,904				48,450
TOTAL LIABILITIES			567,184				839,769
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ EQUITY (Notes 6, 12, 13 and 14)
Common stock, $0.01 par value; 150,000,000 shares authorized, 35,055,652 and 34,547,838 shares issued and outstanding, respectively			2,418,415				2,413,337
Additional paid-in capital			140,123,611				139,803,515
Accumulated deficit			(137,104,078	)			(134,226,099	)
Other comprehensive income			92,248				92,248
Total Stockholders’ Equity			5,530,196				8,083,001
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	6,097,380			$	8,922,770

 

 

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,
		2022				2021				2022				2021
REVENUES		$	—			$	—			$	—			$	—
EXPLORATION AND PROPERTY HOLDING COSTS
Exploration and property holding costs			53,493				126,927				161,781				460,974
Depreciation (Note 8)			5,483				12,057				10,726				22,484
Goodwill impairment (Note 10)			2,058,031				—				2,058,031				—
TOTAL EXPLORATION AND PROPERTY HOLDING COSTS			2,117,007				138,984				2,230,538				483,458
GENERAL AND ADMINISTRATIVE EXPENSES
Personnel			187,516				288,930				279,651				429,962
Office and administrative			96,374				101,250				131,222				230,211
Professional services			59,805				201,717				118,552				402,581
Directors’ fees			69,954				162,196				88,870				192,685
Provision for uncollectible value-added taxes (Note 7)			2,867				2,702				9,302				11,274
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES			416,516				756,795				627,597				1,266,713
LOSS FROM OPERATIONS			(2,533,523	)			(895,779	)			(2,858,135	)			(1,750,171	)
OTHER (EXPENSES) INCOME
Interest income			5				26				11				80
Foreign currency transaction (loss) gain			(13,962	)			27,073				(18,355	)			25,054
TOTAL OTHER (EXPENSES) INCOME			(13,957	)			27,099				(18,344	)			25,134
LOSS BEFORE INCOME TAXES			(2,547,480	)			(868,680	)			(2,876,479	)			(1,725,037	)
INCOME TAX EXPENSE			500				1,500				1,500				3,537
NET LOSS			(2,547,980	)			(870,180	)			(2,877,979	)			(1,728,574	)
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS			—				(47,276	)			—				(47,276	)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS			(2,547,980	)			(822,904	)			(2,877,979	)			(1,681,298	)
BASIC AND DILUTED NET LOSS PER COMMON SHARE		$	(0.07	)		$	(0.02	)		$	(0.08	)		$	(0.05	)
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES			34,958,654				33,708,785				34,749,841				33,579,148

 

 

 

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 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 12)			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 13)			—				—				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 12)			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 13)			—				—				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 STOCKHOLDERS’ EQUITY (Unaudited)

 

			Common Stock
			Number of Shares*				Amount				Additional Paid-in Capital				Accumulated Deficit				Other  Comprehensive Income				Non-Controlling Interests				Total Equity
Six months ended April 30, 2021
Balance, October 31, 2020			33,165,945			$	2,399,518			$	138,613,286			$	(132,019,148	)		$	92,248			$	—			$	9,085,904
Earn-in option agreement (Note 4)			—				—				82,670				—				—				—				82,670
Issuance of common stock as follows:
- for cash at a price of $0.47 per share with attached warrants, less offering costs of $6,780 (Note 12)			319,000				3,190				139,960				—				—				—				143,150
- for cashless exercise of options (Notes 12 and 13)			228,986				2,290				(2,290	)			—				—				—				—
Changes in interests in subsidiary			—				—				—				—				—				1,982,706				1,982,706
Stock option activity as follows:
- Stock-based compensation for options issued to directors, officers, employees and advisors			—				—				305,877				—				—				—				305,877
Net loss for the six-month period ended April 30, 2020			—				—				—				(1,681,298	)			—				(47,276	)			(1,728,574	)
Balance, April 30, 2021			33,713,931			$	2,404,998			$	139,139,503			$	(133,700,446	)		$	92,248			$	1,935,430			$	9,871,733

 

 

			Common Stock
			Number of Shares*				Amount				Additional Paid-in Capital				Accumulated Deficit				Other Comprehensive Income				Non-Controlling Interests				Total Equity
Three months ended April 30, 2021
Balance, January 31, 2021			33,484,945			$	2,402,708			$	138,825,532			$	(132,877,542	)		$	92,248			$	—			$	8,442,946
Earn-in option agreement (Note 4)			—				—				10,384				—				—				—				10,384
Issuance of common stock as follows:
- for cashless exercise of options (Notes 12 and 13)			228,986				2,290				(2,290	)			—				—				—				—
Changes in interests in subsidiary			—				—				—				—				—				1,982,706				1,982,706
Stock option activity as follows:
- Stock-based compensation for options issued to directors, officers, employees and advisors			—				—				305,877				—				—				—				305,877
Net loss for the three-month period ended April 30, 2020			—				—				—				(822,904	)			—				(47,276	)			(870,180	)
Balance, April 30, 2021			33,713,931			$	2,404,998			$	139,139,503			$	(133,700,446	)		$	92,248			$	1,935,430			$	9,871,733

 

 

*Shares outstanding for prior periods have been restated for the one-for-eight reverse stock split.

 

 

 

 

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,
		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,877,979	)		$	(1,728,574	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation			10,726				22,484
Goodwill impairment (Note 10)			2,058,031				—
Provision for uncollectible value-added taxes			9,302				11,274
Foreign currency transaction loss (income)			36,363				(34,441	)
Stock options issued for compensation (Note 12)			197,080				305,877
Shares of common stock issued for services (Note 13)			128,094				—
Changes in operating assets and liabilities:
Value-added tax receivable			(10,572	)			(20,173	)
Other receivables			(272	)			(1,101	)
Prepaid expenses and deposits			148,087				66,085
Accounts payable			(159,201	)			19,378
Accrued liabilities and expenses			(117,920	)			65,103
Due to related party			7,547				—
Income tax payable			1,500				(2,000	)
Net cash used in operating activities			(569,214	)			(1,296,088	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments (Note 5)			469,484				—
Purchase of equipment			—				(10,179	)
Loan receivable			—				(1,075,000	)
Net cash provided by (used in) investing activities			469,484				(1,085,179	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Property concessions funding (Note 4)			—				82,670
Proceeds from loan financing (Note 11)			—				15,615
Proceeds from issuance of common stock, net of offering costs (Note 12)			—				143,150
Proceeds from issuance of common stock of subsidiary, net of offering costs			—				2,001,244
Net cash provided by financing activities			—				2,242,679
Effect of exchange rates on cash and cash equivalents			(2,574	)			36,448
Net decrease in cash and cash equivalents			(102,304	)			(102,140	)
Cash and cash equivalents beginning of period			189,607				1,861,518
Cash and cash equivalents end of period		$	87,303			$	1,759,378

 

 

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

 

 

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

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

 

 

		Six Months Ended April 30,
		2022				2021
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid		$	1,803			$	5,732
Interest paid			—			$	—
NON-CASH INVESTING AND FINANCING ACTIVITY:
Arras Private Placement costs included in accounts payable and accrued liabilities		$	—			$	18,538

 

 

 

 

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

 

NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN

Silver Bull Resources, Inc. (the “Company”) was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. On June 28, 1996, the Company’s name was changed to Metalline Mining Company. On April 21, 2011, the Company’s name was changed to Silver Bull Resources, Inc. The Company’s fiscal year-end is October 31. The Company has not realized any revenues from its planned operations and is considered an exploration stage company. The Company has not established any reserves with respect to its exploration projects and may never enter into the development stage with respect to any of its projects.

 

The Company engages in the business of mineral exploration. The Company currently owns a number of property concessions in Mexico (collectively known as the “Sierra Mojada Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V. (“Minera Metalin”) 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 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, or approximately 4% of the outstanding Arras common shares, as a strategic investment (Note 5), and Arras became a stand-alone company. The Company included the financial results of Arras in its consolidated statement of operations for the period from February 5, 2021 to September 24, 2021, the date of the distribution.

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 $137,104,078. Accordingly, the Company has not generated cash flows from operations, and since inception the Company has relied primarily upon proceeds from private placements and registered direct offerings of the Company’s equity securities, sales of investments and warrant exercises as the primary sources of financing to fund the Company’s operations. As of April 30, 2022, the Company had cash and cash equivalents of approximately $87,000. 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, exercising warrants and selling its investments in Arras. However, there is no assurance that the Company will be successful in pursuing these plans.

 

These interim condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern. Such adjustments could be material.

 

 

 

NOTE 2 – BASIS OF PRESENTATION

The Company’s interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The 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 six months ended April 30, 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 Six-Month Period Ended April 30, 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.

 

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 is able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the “South32 Option”). 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 earns 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 must have contributed to Minera Metalin for exploration of the Sierra Mojada Project at least $3 million by the end of Year 1, $6 million by the end of Year 2, $8 million by the end of Year 3 and $10 million by the end of Year 4 (the “Initial Funding”). Funding is made on a quarterly basis based on the subsequent quarter’s exploration budget. South32 may exercise the South32 Option by contributing $100 million to Minera Metalin (the “Subscription Payment”), less the amount of Initial Funding previously contributed by South32. The issuance of shares upon notice of exercise of the South32 Option by South32 is subject to antitrust approval by the Mexican government. If the full amount of the Subscription Payment is advanced by South32 and the South32 Option becomes exercisable and is exercised, the Company and South32 will be obligated to contribute funding to Minera Metalin on a 30/70 pro rata basis. If South32 elects not to continue with the South32 Option during the four-year option period, the Sierra Mojada Project will remain 100% owned by the Company. The exploration program will be initially managed by the Company, with South32 being able to approve the exploration program funded by it. The Company received funding of $3,144,163 from South32 for Year 1 of the South32 Option Agreement. In April 2019, the Company received a notice from South32 to maintain the South32 Option Agreement for Year 2 by providing cumulative funding of $6 million by the end of such period. The Company received funding of $1,502,831, which included payments of $319,430, $1,100,731 and $82,670 received during the years ended October 31, 2019, 2020 and 2021, respectively, from South32 for Year 2 of the South32 Option Agreement, the time period for which has been extended by an event of force majeure described in more detail below. As of April 30, 2022, the Company had received cumulative funding of $4,646,994 under the South32 Option Agreement. During the six months ended April 30, 2022, the Company received $nil payments for the extended Year 2 time period due to an event of force majeure. If the South32 Option Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government, the Company is under no obligation to reimburse South32 for amounts contributed under the South32 Option Agreement.

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

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

 

No portion of the equity value has been classified as temporary equity as the South32 Option has no intrinsic value.

On October 11, 2019, the Company and its subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the 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 will generally be extended by a period equal to the period of delay caused by the event of force majeure. As of June 9, 2022, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.

The combined approximate carrying amount of the assets and liabilities of Minera Metalin (consolidated with its wholly-owned subsidiary) are as follows at April 30, 2022:

 

 

Assets:		Mexico
Cash and cash equivalents		$	5,000
Value-added tax receivable, net			123,000
Prepaid expenses and deposits			4,000
Office and mining equipment, net			153,000
Property concessions			5,020,000
Total assets		$	5,305,000

 

 

Liabilities:
Accounts payable		$	39,000
Accrued liabilities and expenses			69,000
Payable to Silver Bull Resources, Inc. to be converted to equity upon exercise of the South32 Option			3,727,000
Total liabilities		$	3,835,000
Net advances and investment in the Company’s Mexican subsidiary		$	1,470,000

 

 

The Company’s maximum exposure to loss at April 30, 2022 is $5,197,000, which includes the carrying value of the variable interest entity’s net asset, excluding the payable to Silver Bull Resources, Inc.

 

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 100% interest in the Beskauga property located in Kazakhstan. On March 19, 2021, the Company transferred its interest in the Beskauga Option Agreement, among other things, to its subsidiary, Arras, in exchange for 36,000,000 common shares of Arras.

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 34,547,838 Arras common shares in total (the “Distribution”). Upon completion of the Distribution, the Company retained 1,452,162 Arras shares, or approximately 4% of the outstanding Arras common shares, as a strategic investment.

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 600,000 common shares of Arras at a price of $CDN 1.00 per share for proceeds of $469,484 ($CDN 600,000). As of April 30, 2022, the Company retained 852,162 Arras shares, or approximately 1.7% (October 31, 2021: 3.0%) of the outstanding Arras common shares.

A summary of the changes in investments for the year ended October 31, 2021 and the six months ended April 30, 2022 is as follows:

 

Equity security – October 31, 2020		$	—
Carrying value of investment on deconsolidation			75,817
Gain on investment			1,090,953
Equity security – October 31, 2021		$	1,166,770
Sale of investment			(469,484	)
Foreign currency translation adjustment			(31,119	)
Equity security – April 30, 2022		$	666,167

 

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 April 30, 2022 and 2021 that upon exercise were issuable into 5,215,039 and 4,015,039 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 7 – VALUE-ADDED TAX RECEIVABLE

Value-added tax (“VAT”) receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $122,769 (October 31, 2021 - $120,810) 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 Company reclassified the carrying value of the receivable to non-current assets as of April 30, 2022 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 a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions.

 

A summary of the changes in the allowance for uncollectible VAT for the six months ended April 30, 2022 is as follows:

Allowance for uncollectible VAT – October 31, 2021		$	420,982
Provision for VAT receivable allowance			9,302
Foreign currency translation adjustment			1,193
Allowance for uncollectible VAT – April 30, 2022		$	431,477

 

 

NOTE 8 – OFFICE AND MINING EQUIPMENT

The following is a summary of the Company’s office and mining equipment at April 30, 2022 and October 31, 2021, respectively:

		April 30,				October 31,
		2022				2021
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			(682,806	)			(672,080	)
Office and mining equipment, net		$	153,414			$	164,140

 

NOTE 9 – PROPERTY CONCESSIONS

The following is a summary of the Company’s property concessions for the Sierra Mojada Property as at April 30, 2022 and October 31, 2021:

Property concessions – April 30, 2022 and October 31, 2021

$

5,019,927

 

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 $2,085,031 during the six months period ended April 30, 2022. If the blockade at Sierra Mojada Project continues then further impairment of other long-lived assets is possible.

The following is a summary of the Company’s goodwill balance as of April 30, 2022 and October 31, 2021:

 

	Goodwill – October 31, 2021			$	2,085,031
	Impairment				(2,085,031	)
	Goodwill – April 30, 2022			$	—

 

NOTE 11 – 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 CEBA loan to qualify for loan forgiveness had been 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, 2021		$	48,450
Foreign currency translation adjustment			(1,546	)
Loan payable – April 30, 2022		$	46,904

 

NOTE 12 – COMMON STOCK

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 $128,094 ($CDN 162,500).

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 37,500,000 to 150,000,000.

On February 2, 2021, options to acquire 509,375 shares of common stock were exercised on a cashless basis whereby the recipients elected to receive 228,986 shares without payment of the cash exercise price and the remaining options for 280,389 shares were cancelled.

 

On November 9, 2020, the Company completed the second and final tranche of a two-tranche private placement (the “Silver Bull Private Placement”) for 319,000 units (each, a “Unit”) at a purchase price of $0.47 per Unit for gross proceeds of $149,930. Each Unit consists of one share of the Company’s common stock and one half of one transferable common stock purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitles the holder thereof to acquire one share of common stock at a price of $0.59 until November 9, 2025. The Company incurred other offering costs associated with the second and final tranche of the Silver Bull Private Placement of $6,780. Subscribers of the second and final tranche of the Silver Bull Private Placement included management for a total 319,000 Units and gross proceeds of $149,930.

 

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, 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, 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.

 

On February 2, 2021, options to acquire 228,986 shares of common stock were exercised on a cashless basis at an average exercise price of $CDN 0.60 per share. The options had an intrinsic value of $194,630 at the time of exercise.  

 

No options were granted during the six months ended April 30, 2021.

 

 

The following is a summary of stock option activity for the six months ended April 30, 2022:

 

Options				Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)				Aggregate Intrinsic Value
	Outstanding at October 31, 2021				43,750			$	1.35				1.30			$	—
	Granted				3,300,000				0.25				—				—
	Cancelled				(100,000	)			0.25				—				—
	Outstanding at April 30, 2022				3,243,750				0.26				4.68				—
	Exercisable at April 30, 2022				1,143,750			$	0.29				4.45			$	—

 

 

Summarized information about stock options outstanding and exercisable at April 30, 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
$	0.25				3,200,000				4.73			$	0.25				1,100,000			$	0.25
	1.34				43,750				0.81				1.34				43,750				1.34

 

NOTE 14 – WARRANTS

A summary of warrant activity for the six months ended April 30, 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			1,971,289			$	0.59				3.99			$	—
Outstanding and exercisable at April 30, 2022*			1,971,289				0.59				3.50				—

 

 

* 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 5), 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, 2022.

 

 

During the six months ended April 30, 2021, the Company issued 159,500 warrants with an exercise price of $0.59 in connection with the Silver Bull Private Placement.

 

No warrants were exercised during the six months ended April 30, 2021.

 

Summarized information about warrants outstanding and exercisable at April 30, 2022 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				3.50			$	0.59

 

 

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, accounts payable and due to related party approximate fair value at April 30, 2022 and October 31, 2021 due to the short maturities of these financial instruments. Investments and loan payable are 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 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, 2022, and October 31, 2021, the Company’s cash and cash equivalent balances held in Canadian financial institutions included $4,217 and $98,671, respectively, which was not insured by the CDIC. The Company has not experienced any losses on such accounts, and management believes that using major financial institutions with high credit ratings mitigates the credit risk to cash and cash equivalents.

 

The Company also maintains cash in bank accounts in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of April 30, 2022, and October 31, 2021, the U.S. dollar equivalent balance for these accounts was $4,913 and $10,239, respectively.

Interest Rate Risk

The Company holds substantially all of its cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during the six months ended April 30, 2022, a 1% decrease in interest rates would have resulted in a reduction of approximately $11 in interest income for the period.

Foreign Currency Exchange Risk

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

Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices such as investments in Arras common shares. The Company does not hold or issue derivatives for trading or speculative purposes. Based on the balance of investments in Arras common shares on April 30, 2022, a 10% decrease in the market price would have resulted in a reduction in other income for the period of $66,616.

 

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 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, as well as attempt to negotiate with Mineros Norteños, without resolution to date. The Company has not accrued any amounts in its interim condensed consolidated financial statements with respect to this claim.

 

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 interim condensed consolidated financial statements with respect to this claim.

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

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.  

 

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 Six Months Ended
		April 30,								April 30,
		2022				2021				2022				2021
Mexico			(2,117,000	)		$	(45,000	)		$	(2,231,000	)		$	(103,000	)
Kazakhstan			—				(94,000	)			—				(380,000	)
Canada			(431,000	)			(684,000	)			(647,000	)			(1,198,000	)
Net Loss			(2,548,000	)		$	(823,000	)		$	(2,878,000	)		$	(1,681,000	)

 

The following table details the allocation of assets included in the accompanying balance sheet at April 30, 2022:

		Canada				Mexico				Total
Cash and cash equivalents		$	82,000			$	5,000			$	87,000
Other receivables			7,000				—				7,000
Prepaid expenses and deposits			37,000				4,000				41,000
Investments			666,000				—				666,000
Value-added tax receivable, net			—				123,000				123,000
Office and mining equipment, net			—				153,000				153,000
Property concessions			—				5,020,000				5,020,000
		$	792,000			$	5,305,000			$	6,097,000

 

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		$	180,000			$	10,000			$	190,000
Value-added tax receivable, net			—				121,000				121,000
Other receivables			3,000				4,000				7,000
Prepaid expenses and deposits			96,000				100,000				196,000
Investments			1,167,000				—				1,167,000
Office and mining equipment, net			—				164,000				164,000
Property concessions			—				5,020,000				5,020,000
Goodwill			—				2,058,000				2,058,000
		$	1,370,000			$	7,477,000			$	8,923,000

 

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

The following table details the allocation of exploration and property holding costs for the exploration properties:

		For the Three Months Ended								For the Six Months Ended
		April 30,								April 30,
		2021				2020				2021				2020
Exploration and property holding costs for the period
Mexico			(2,117,000	)		$	(45,000	)		$	(2,231,000	)		$	(103,000	)
Kazakhstan			—				(94,000	)			—				(380,000	)
			(2,117,000	)		$	(139,000	)		$	(2,231,000	)		$	(483,000	)

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

When we use the terms “Silver Bull,” “we,” “us,” or “our,” we are referring to Silver Bull Resources, Inc. and its subsidiaries, unless the context otherwise requires.  We have included technical terms important to an understanding of our business under “Glossary of Common Terms” in our Annual Report on Form 10-K for the fiscal year ended October 31, 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. We use words such as “anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “will,” “projection,” “should,” “believe,” “potential,” “could,” or similar words suggesting future outcomes (including negative and grammatical variations) to identify forward-looking statements. Forward-looking statements include statements we make regarding:

• The sufficiency of our existing cash resources to enable us to continue our operations for the next 12 months as a going concern;
• Future payments that may be made by South32 under the terms of the South32 Option Agreement;
• Prospects of entering the development or production stage with respect to any of our projects;
• Our planned activities at the Sierra Mojada Project in 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;
• Our 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 we 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 our 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 our activities;
• Our ability to raise additional capital and/or pursue additional strategic options, and the potential impact on our business, financial condition and results of operations of doing so or not;
• The impact of changing foreign currency exchange rates on our financial condition;
• The impairment of goodwill and likelihood of further impairment of other long-lived assets

 

• Whether using major financial institutions with high credit ratings mitigates credit risk;
• The impact of changing economic conditions on interest rates;
• Our 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 our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, and our actual results could differ from those expressed or implied in these forward-looking statements as a result of the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, including without limitation, risks associated with the following:

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

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

 

 

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

Cautionary Note Regarding Exploration Stage Companies

We are an exploration stage company and do not currently have any known reserves and cannot be expected to have reserves unless and until a feasibility study is completed for the Sierra Mojada concessions that shows proven and probable reserves. There can be no assurance that our concessions contain proven and probable reserves, and investors may lose their entire investment. See the sections titled “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Business Overview

Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in the business of mineral exploration. Our primary objective is to define sufficient mineral reserves on the Sierra Mojada Property to justify the development of a mechanized mining operation. We conduct our operations in Mexico through our wholly-owned Mexican subsidiaries, Minera Metalin S.A. de C.V. (“Minera Metalin”) and Minas de Coahuila SBR S.A. de C.V. On August 26, 2021, our wholly-owned Mexican subsidiary, Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) merged with and into Minera Metalin. However, as noted above, we have not established any reserves at the Sierra Mojada Property, we are in the exploration stage, and we may never enter the development or production stage.

On August 12, 2020, we 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 we have 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, we transferred our 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, we distributed to our 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. We have included the financial results of Arras in our consolidated statement of operations for the period from February 5, 2021 to September 24, 2021, the date of the Distribution.

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

 

Recent Developments

 

South32 Option Agreement

 

On June 1, 2018, we and our 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 is able to obtain an option to purchase 70% of the shares of Minera Metalin and Contratistas (the “South32 Option”). 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”) supplies labor for the Sierra Mojada Project. Under the South32 Option Agreement, South32 earns 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 must have contributed to Minera Metalin for exploration of the Sierra Mojada Project at least $3 million by the end of Year 1, $6 million by the end of Year 2, $8 million by the end of Year 3 and $10 million by the end of Year 4 (the “Initial Funding”). Funding is made on a quarterly basis based on the subsequent quarter’s exploration budget. South32 may exercise the South32 Option by contributing $100 million to Minera Metalin (the “Subscription Payment”), less the amount of Initial Funding previously contributed by South32. The issuance of shares upon notice of exercise of the South32 Option by South32 is subject to antitrust approval by the Mexican government. If the full amount of the Subscription Payment is advanced by South32 and the South32 Option becomes exercisable and is exercised, we and South32 will be obligated to contribute funding to Minera Metalin on a 30/70 pro rata basis. If South32 elects not to continue with the South32 Option during the four-year option period, the Sierra Mojada Project will remain 100% owned by us. The exploration program will be initially managed by us, with South32 being able to approve the exploration program funded by it. We received funding of $3,144,163 from South32 for Year 1 of the South32 Option Agreement. In April 2019, we received a notice from South32 to maintain the South32 Option Agreement for Year 2 by providing cumulative funding of $6 million by the end of such period. We received funding of $1,502,831, which included payments of $319,430, $1,100,731 and $82,670 received during the years ended October 31, 2019, 2020 and 2021, respectively, from South32 for Year 2 of the South32 Option Agreement, the time period for which has been extended by an event of force majeure described in more detail below. As of April 30, 2022, we had received cumulative funding of $4,646,994 under the South32 Option Agreement. During the six months ended April 30, 2022, we received $nil payment for the extended Year 2 time period due an event of force majeure. If the South32 Option Agreement is terminated by South32 without cause or if South32 is unable to obtain antitrust authorization from the Mexican government, we are under no obligation to reimburse South32 for amounts contributed under the South32 Option Agreement.

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

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

On October 11, 2019, we and our 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”), we have 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 us and our subsidiary Minera Metalin to perform our obligations under the South32 Option Agreement. Pursuant to the South32 Option Agreement, any time period provided for in the South32 Option Agreement will generally be extended by a period equal to the period of delay caused by the event of force majeure. As of June 9, 2022, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.

 

Goodwill 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 our common stock as a result of the continued blockade at the Sierra Mojada Property, we concluded that this constituted an indication of impairment of our goodwill. At April 30, 2022, we 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, we recorded a goodwill impairment of $2,058,031 during the six months period ended April 30, 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 is possible.

 

Properties Concessions and Outlook

 

Sierra Mojada Property

The focus of our 2022 calendar year at the Sierra Mojada Property is to resolve the blockade and to maintain our property concessions in Mexico. Upon resolution of the blockade, we will work with South32 to approve an updated exploration program.

Results of Operations

 

Three Months Ended April 30, 2022 and April 30, 2021

For the three months ended April 30, 2022, we had a net loss of $2,548,000, or approximately $0.07 per share, compared to a net loss of $823,000, or approximately $0.02 per share, during the comparable period last year. The $1,725,000 increase in net loss was primarily due to a $1,978,000 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 $80,000 decrease in exploration and property costs and a $340,000 decrease in general and administrative expense compared to the comparable period last year as described below.

Exploration and Property Holding Costs

Exploration and property holding costs increased $1,978,000 to $2,117,000 for the three months ended April 30, 2022, compared to $139,000 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 $80,000 decrease in exploration and holding costs as the result of we incurred costs in connection of the Beskauga Option Agreement in the comparable period last year. There were no comparable expenses in the current three-month period.

General and Administrative Expenses

We recorded general and administrative expenses of $417,000 for the three months ended April 30, 2022 as compared to $757,000 for the comparable period last year. The $340,000 decrease was mainly the result of a $101,000 decrease in personnel costs, a $5,000 decrease in office and administrative costs, a $142,000 decrease in professional services and a $92,000 decrease in directors’ fees as described below. In addition, our general and administrative expenses including the financial result 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 $191,000 for the three months ended April 30, 2022 from $257,000 for the comparable period last year. This was mainly due to stock options granted to our employee, directors and advisors in the three months ended April 30, 2022 compared Arras’ stock options granted to Arras’ employees, directors and advisors in the comparable period last year.

 

Personnel costs decreased $101,000 to $188,000 for the three months ended April 30, 2022 as compared to $289,000 for the comparable period last year. This decrease was mainly due to a decrease in employees’ salaries, which was partially offset by an $12,000 increase in stock-based compensation expenses in the three months ended April 30, 2022 from $131,000 in the comparable period last year as a result of stock options vesting in the three months ended April 30, 2022 having a higher fair value than stock options vesting in the comparable period last year.

Office and administrative costs of $96,000 for the three months ended April 30, 2022 were similar to the $101,000 in such costs for the comparable period last year.

Professional fees decreased $142,000 to $60,000 for the three months ended April 30, 2022 compared to $202,000 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 to our shareholders in the comparable period last year.

Directors’ fees decreased $92,000 to $70,000 for the three months ended April 30, 2022 as compared to $162,000 for the comparable period last year. This decrease was primarily due to a $13,000 decrease in director fees and decrease the stock-based compensation expense to $48,000 in the three months ended April 30, 2022 from $127,000 in the comparable period last year as a result of stock options vesting in the three months ended April 30, 2022 having a lower fair value than stock options vesting in the comparable period last year.

We recorded a $3,000 provision for uncollectible VAT for the three months ended April 30, 2022, which was similar to the $3,000 in such costs for the comparable period last year. The allowance for uncollectible taxes was estimated by management based upon a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions.

Other (Expenses) Income

We recorded other expenses of $14,000 for the three months ended April 30, 2022 as compared to other income of $27,000 for the comparable period last year. The significant factor contributing to other expenses was an $14,000 foreign currency transaction loss compared to a $27,000 foreign currency transaction gain for the comparable period last year.

 

Six Months Ended April 30, 2022 and April 30, 2021

 

For the six months ended April 30, 2022, we had net loss of $2,878,000, or approximately $0.08 per share, compared to a net loss of $1,681,000, or approximately $0.05 per share, during the comparable period last year. The $1,149,000 increase in net loss was primarily due to a $1,748,000 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 $311,000 decrease in exploration and property costs and a $639,000 decrease in general and administrative expense compared to the comparable period last year as described below.

Exploration and Property Holding Costs

Exploration and property holding costs increased $1,748,000 to $2,231,000 for the six months ended April 30, 2022, compared to $484,000 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 $311,000 decrease in exploration and holding costs as the result of we incurred costs in connection of the Beskauga Option Agreement in the comparable period last year. There were no comparable expenses in the current six-month period.

 

General and Administrative Expenses

 

We recorded general and administrative expenses of $628,000 for the six months ended April 30, 2022 as compared to $1,267,000 for the comparable period last year. The $639,000 decrease was mainly the result of a $150,000 decrease in personnel costs, a $99,000 decrease in office and administrative costs, a $284,000 decrease in professional services and a $104,000 decrease in directors’ fees as described below. In addition, our general and administrative expenses including the financial result 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 $191,000 for the six months ended April 30, 2022 from $257,000 for the comparable period last year. This was mainly due to stock options granted to our employee, directors and advisors in the six months ended April 30, 2022 compared Arras’ stock options granted to Arras’ employees, directors and advisors in the comparable period last year.

Personnel costs decreased $150,000 to $280,000 for the six months ended April 30, 2022 as compared to $430,000 for the comparable period last year. This decrease was mainly due to a decrease in employees’ salaries, which was partially offset by an $12,000 increase in stock-based compensation expenses in the six months ended April 30, 2022 from $131,000 in the comparable period last year as a result of stock options vesting in the six months ended April 30, 2022 having a higher fair value than stock options vesting in the comparable period last year.

Office and administrative costs decreased $99,000 to $131,000 for the six months ended April 30, 2022 as compared to $230,000 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

Professional fees decreased $285,000 to $119,000 for the six months ended April 30, 2022 compared to $403,000 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 to our shareholders in the comparable period last year.

Directors’ fees decreased $104,000 to $89,000 for the six months ended April 30, 2022 as compared to $193,000 for the comparable period last year. This decrease was primarily due to a $25,000 decrease in director fees and decrease the stock-based compensation expense to $48,000 in the six months ended April 30, 2022 from $127,000 in the comparable period last year as a result of stock options vesting in the six months ended April 30, 2022 having a lower fair value than stock options vesting in the comparable period last year.

We recorded a $9,000 provision for uncollectible VAT for the six months ended April 30, 2022 as compared to a $11,000 provision for uncollectible VAT in the comparable period last year. The allowance for uncollectible taxes was estimated by management based upon a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions.

Other (Expenses) Income

 

We recorded other expenses of $18,000 for the six months ended April 30, 2022 as compared to other income of $25,000 for the comparable period last year. The significant factors contributing to other expenses was an $18,000 foreign currency transaction loss compared to a $25,000 foreign currency transaction gain for the comparable period last year.

 

Material Changes in Financial Condition; Liquidity and Capital Resources

 

Cash Flows

During the six months ended April 30, 2022, we primarily utilized cash and cash equivalents to fund general and administrative expenses and exploration activities at the Sierra Mojada Property. During the six months ended April 30, 2022, we received proceeds of $470,000 from the sale of 600,000 Arras common shares at a price of $CDN 1.00 per share. As a result of the exploration activities and general and administrative expenses, which were partially offset by the cash proceeds received from the sale of Arras common shares, cash and cash equivalents decreased from $190,000 at October 31, 2021 to $87,000 at April 30, 2022.

 

Cash flows used in operating activities for the six months ended April 30, 2022 were $569,000, as compared to $1,296,000 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 six months ended April 30, 2022 were proceeds of $470,000 from sale of 600,000 Arras common shares at a price of $CDN 1.00 per share. Cash flows used in investing activities for the six months ended April 30, 2021 were $1,085,000 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 six months ended April 30, 2022 were $nil, as compared to $2,243,000 for the same period last year. The cash flows provided by financing activities for the six months ended April 30, 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 April 30, 2022, we had cash and cash equivalents of $87,000, as compared to cash and cash equivalents of $190,000 as of October 31, 2021. The decrease in our liquidity was primarily the result of the exploration activities at the Sierra Mojada Property and general and administrative expenses, which were partially offset by proceeds from sale of investments.

Since our inception in November 1993, we have not generated revenue and have incurred an accumulative deficit of $137,100,000. Accordingly, we have not generated cash flows from operations, and since inception we have relied primarily upon proceeds from private placements and registered direct offerings of our equity securities, warrant exercises, sale of investments, and funding from South32 as the primary sources of financing to fund our operations. As of April 30, 2022, we had cash and cash equivalents of $87,000. Based on our limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether our existing cash resources are sufficient to enable us to continue our 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, selling its investments in Arras and exercising warrants. However, there is no assurance that we will be successful in pursuing these plans.

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

Capital Requirements and Liquidity; Need for Additional Funding

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

 

The continued exploration of the Sierra Mojada Property will require significant amounts of additional capital. In December 2021, our 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 May 31, 2022, we had approximately $0.1 million in cash and cash equivalents. The continued exploration of the Sierra Mojada Property ultimately will require us to raise additional capital, identify other sources of funding or identify another strategic partner.

For information about our current strategic partnership with South32, see Note 4 – South32 Option Agreement in our financial statements. If South32 exercises its option to purchase 70% of the equity of Minera Metalin, under the terms of the South32 Option Agreement, we will retain a 30% ownership in Minera Metalin be obligated to contribute 30% of subsequent funding toward the development of the Sierra Mojada Project. If we fail to satisfy our funding commitment, our interest in Minera Metalin will be diluted. We do not currently have sufficient funds with which to satisfy this future funding commitment, and there is no certainty that we will be able to obtain sufficient future funds on acceptable terms or at all. If South32 terminates the South32 Option Agreement, our funding obligations for the Sierra Mojada Property would increase, likely resulting in a reduction in exploration work on the Sierra Mojada Property.

 

We will continue to evaluate our ability to obtain additional financial resources, and we will attempt to reduce or limit expenditures on the Sierra Mojada Property as well as general and administrative costs if we determine that additional financial resources are unavailable or available on terms that we determine are unacceptable. However, it may not be possible to reduce costs, and even if we are successful in reducing costs, we still may not be able to continue operations for the next 12 months as a going concern. If we are unable to fund future operations by obtaining additional financial resources, including an equity offering or other strategic transaction, we do not expect to have sufficient available cash and cash equivalents to continue our operations for the next 12 months as a going concern. Equity financing may not be available to us on acceptable terms, if at all. Equity financing, if available, may result in substantial dilution to existing shareholders. If we are unable to fund operations by obtaining additional financial resources, there is substantial doubt as to whether we can continue our operations through the end of the current fiscal year 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 Six-Month Period Ended April 30, 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 our 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 our financial position, results of operations or cash flows and disclosures.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

(a)

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of April 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of April 30, 2022.

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

(b)

Changes in Internal Control over Financial Reporting

During the quarter ended April 30, 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.

 

PART II – OTHER INFORMATION