SVBL Silver Bull Resources Inc (QB)

 SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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

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

SILVER BULL RESOURCES, INC.

(AN EXPLORATION STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

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 has been engaged in the business of mineral exploration. The Company currently owns a number of property concessions located in Coahuila, Mexico (collectively known as the “Sierra Mojada Property”). The Company conducts its operations in Mexico through its wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V. (“Minera Metalin”) and Minas de Coahuila SBR S.A. de C.V. (“Minas”).

On April 16, 2010, Metalline Mining Delaware, Inc., a wholly-owned subsidiary of the Company incorporated in the State of Delaware, was merged with and into Dome Ventures Corporation (“Dome”), a Delaware corporation. As a result, Dome became a wholly-owned subsidiary of the Company. Dome has a wholly-owned subsidiary Dome Asia Inc., which is incorporated in the British Virgin Islands.

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

Illegal Blockade of Sierra Mojada Property

The Company’s efforts and expenditures have been concentrated on the exploration of properties, principally with respect to the Sierra Mojada Property located in Coahuila, Mexico.

On June 1, 2018, the Company and its subsidiaries Minera Metalin and Contratistas de Sierra Mojada S.A. de C.V. entered into an earn-in option agreement (the “South32 Option Agreement”) with South32 International Investment Holdings Pty Ltd (“South32”), a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32 was able to obtain an option to purchase 70% of the shares of Minera Metalin (the “South32 Option”).

On October 11, 2019, the Company and its subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the South32 Option Agreement. Due to an illegal blockade by a cooperative of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”), the Company halted all work on the Sierra Mojada Property. The notice of force majeure was issued because the Company and its subsidiary Minera Metalin was unable to perform their obligations under the South32 Option Agreement due to the blockade. Pursuant to the South32 Option Agreement, any time period provided for in the South32 Option Agreement was to be generally extended by a period equal to the period of delay caused by the event of force majeure.

On August 31, 2022, due to the ongoing blockade of the site, the South32 Option Agreement was mutually terminated by South32 and the Company.

On March 2, 2023, the Company filed a Notice of Intent with Mexico’s Directorate General of Foreign Investment to initiate a legacy NAFTA claim under Annex 14-C of the United States-Mexico-Canada Agreement to recover economic damages resulting from the illegal blockade of the Sierra Mojada Property by Mineros Norteños (“NAFTA Notice of Intent”). The Company has been unable to access the project since the illegal blockade commenced in September 2019. Despite numerous demands and requests for action by the Company, Mexican governmental agencies have allowed this unlawful behaviour to continue and, as such, failed to protect the Company’s investment.

Arras Minerals Corp. Spin-Off

On August 12, 2020, the Company entered into an option agreement (the “Beskauga Option Agreement”) with Copperbelt AG, a corporation existing under the laws of Switzerland (“Copperbelt Parent”), and Dostyk LLP, an entity existing under the laws of Kazakhstan and a wholly-owned subsidiary of Copperbelt (the “Copperbelt Sub,” and together with Copperbelt Parent, “Copperbelt”), pursuant to which the Company has the exclusive right and option to acquire Copperbelt’s right, title and 100% interest in the Beskauga property located in Kazakhstan (the “Beskauga Property”), which consists of the Beskauga Main project (the “Beskauga Main Project”) and the Beskauga South project (the “Beskauga South Project,” and together the Beskauga Main Project, the “Beskauga Project”). The transaction contemplated by the Beskauga Option Agreement closed on January 26, 2021.

On February 5, 2021, Arras Minerals Corp. (“Arras”) was incorporated in British Columbia, Canada, as a wholly-owned subsidiary of the Company. On March 19, 2021, pursuant to an asset purchase agreement with Arras, the Company transferred its right, title and interest in and to the Beskauga Option Agreement, among other things, to Arras in exchange for 36,000,000 common shares of Arras. On September 24, 2021, the Company distributed to its shareholders one Arras common share for each Silver Bull share held by such shareholders, or 34,547,838 Arras shares in total. Upon completion of the distribution, the Company retained 1,452,162 Arras common shares as a strategic investment and Arras became a stand-alone company.  

Exploration Stage

The Company has established the existence of mineral resources for the Sierra Mojada Project. The Company has not established proven or probable reserves, as defined by the United States Securities and the U.S. Securities and Exchange Commission (the “SEC”) subpart 1300 of Regulation S-K (“S-K 1300”), through the completion of a “final” or “bankable” feasibility study for Sierra Mojada Project. Furthermore, the Company has no plans to establish proven or probable reserves for Sierra Mojada Project. As a result, and despite the fact that the Company commenced extraction of mineral resources at the Sierra Mojada Property, the Company remains an exploration stage company, as defined by the SEC.

Beginning with the Company’s annual report on Form 10-K for the year ended October 31, 2022, the Company reports its mineral resources in accordance with S-K 1300.

Going Concern

Since its inception in November 1993, the Company has not generated revenue and has incurred an accumulated deficit of $137,740,000. 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 January 31, 2023, the Company had cash and cash equivalents of approximately $746,000. Based on the Company’s limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether the Company’s existing cash resources are sufficient to enable the Company to continue its operations for the next 12 months as a going concern. Management plans to pursue possible financing and strategic options including, but not limited to, obtaining additional equity financing, and the exercising of warrants by warrantholders. However, there is no assurance that the Company will be successful in pursuing these plans.

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

NOTE 2 – BASIS OF PRESENTATION

The Company’s interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules of the SEC regarding interim reporting. All intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures 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, 2022 was derived from the audited consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2022.

All figures are in United States dollars unless otherwise noted.

The interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the interim condensed consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. Uncertainties with respect to estimates and assumptions are inherent in the preparation of the Company’s interim condensed consolidated financial statements. Accordingly, operating results for the three months ended January 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 2023 or any future period.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies are defined in the Company’s Annual Report on Form 10-K for the year ended October 31, 2022 filed with the SEC on January 26, 2023.

Other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force) and the SEC did not or are not expected to have a significant impact on the Company’s present or future consolidated financial statements.

NOTE 4 – SOUTH32 OPTION AGREEMENT  

On June 1, 2018, the Company and its subsidiaries Minera Metalin and Contratistas de Sierra Mojada S.A. de C.V. entered into the South32 Option Agreement with South32, a wholly-owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32 was able to obtain an option to purchase 70% of the shares of Minera Metalin.

On October 11, 2019, the Company and its subsidiary Minera Metalin issued a notice of force majeure to South32 pursuant to the South32 Option Agreement. Due to a blockade by a cooperative of local miners called Sociedad Cooperativa de Exploración Minera Mineros Norteños, S.C.L. (“Mineros Norteños”), the Company halted all work on the Sierra Mojada Property. The notice of force majeure was issued because of the blockade’s impact on the ability of the Company and its subsidiary Minera Metalin to perform their obligations under the South32 Option Agreement. Pursuant to the South32 Option Agreement, any time period provided for in the South32 Option Agreement was to be generally extended by a period equal to the period of delay caused by the event of force majeure.

On August 31, 2022, the South32 Option Agreement was mutually terminated by South32 and the Company. No portion of the equity value of the Company has been classified as temporary equity as the South32 Option has no intrinsic value. South32 paid $518,000 to the Company as a final payment for the exploration costs incurred by the Company during the blockade and the Company released South32 from all of claims as of the date of termination.

As of March 16, 2023, the blockade by Mineros Norteños at, on and around the Sierra Mojada Property is ongoing.

NOTE 5 – NET LOSS PER SHARE

The Company had stock options and warrants outstanding at January 31, 2023 and 2022 that upon exercise were issuable into 5,165,039 and 2,015,039 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 6 – DUE FROM RELATED PARTY

As of January 31, 2023, due from related party consists of $10,882 (October 31, 2022 - $23,196) due from Arras for shared employees’ salaries and office expenses. This amount is non-interest bearing and is to be repaid on demand.

NOTE 7 – VALUE-ADDED TAX RECEIVABLE

Value-added tax (“VAT”) receivable relates to VAT paid in Mexico. The Company estimates that net VAT of $128,070 (October 31, 2022 - $127,036) will be received and believes that it remains legally entitled to be refunded the full amount of the VAT receivable and intends to rigorously continue its VAT recovery efforts. While the Company continues to pursue recovery from the Mexican government, the outcomes and process for recovering VAT can be lengthy and unpredictable based on the continued failure to recover the VAT receivable and a recent preliminary unfavorable ruling from the Mexican tax authority, which the Company is in the process of challenging. The allowance for uncollectible VAT was estimated by management based upon 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 three months ended January 31, 2023 is as follows:

During the three months ended January 31, 2023, the Company decided to withdraw certain concessions’ applications in Sierra Mojada, Mexico. As a result, the Company no longer has the right to these property concessions and the value in use is $nil. Accordingly, the Company has written off the capitalized property concession balance related to these concessions of $15,541 in accordance with level 3 of the fair value hierarchy.

If the blockade at Sierra Mojada Property continues then further impairment of property concessions is possible.

NOTE 10 – 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.

NOTE 11 – COMMON STOCK

No shares of common share stock were issued during the three months ended January 31, 2023 and 2022.

NOTE 12 – 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.

No options were granted to exercised during the three months ended January 31, 2023 and 2022.

The following is a summary of stock option activity for the three months ended January 31, 2023:

The Company recognized stock-based compensation costs for stock options of $54,350 and $nil for the three months ended January 31, 2023 and 2022, respectively. As of January 31, 2023, there was $75,961 of total unrecognized compensation expense.

Summarized information about stock options outstanding and exercisable at January 31, 2023 is as follows:

* Pursuant to the terms of the Separation and Distribution Agreement, dated as of August 31, 2021, between Silver Bull and Arras entered into in connection with the Distribution (Note 1), 1,971,289 warrants with a weighted average exercise price of $0.59 are exercisable into one share of common stock of the Company and one common share of Arras. The Company will receive $0.34 of the proceeds from the exercise of each of these warrants and the remaining proceeds will be paid to Arras.

No warrants were issued or exercised during the three months ended January 31, 2023 or 2022.

Summarized information about warrants outstanding and exercisable at January 31, 2023 is as follows:

NOTE 14 – 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:

Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of cash and cash equivalents, accounts payable, due from related party and loan payable.

The carrying amounts of cash and cash equivalents, accounts payable and due from related party approximate fair value at January 31, 2023 and October 31, 2022 due to the short maturities of these financial instruments. Loan payable is classified as Level 2 in the fair value hierarchy.

Credit Risk

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

The Company maintains its U.S. dollar and Canadian dollar cash and cash equivalents in bank and demand deposit accounts with major financial institutions with high credit standings. Cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to $CDN 100,000. Certain Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they relate to U.S. dollar deposits held in Canadian financial institutions. As of January 31, 2023, and October 31, 2022, the Company’s cash and cash equivalent balances held in Canadian financial institutions included $646,005 and $802,761, respectively, which was not insured by the CDIC. The Company has not experienced any losses on such accounts, and management believes that using major financial institutions with high credit ratings mitigates the credit risk to cash and cash equivalents.

The Company also maintains cash in bank accounts in Mexico. These accounts are denominated in the local currency and are considered uninsured. As of January 31, 2023, and October 31, 2022, the U.S. dollar equivalent balance for these accounts was $24,897 and $10,702, respectively.

As at January 31, 2023 and October 31, 2022, cash and cash equivalents consist of guaranteed investment certificates of $377,828 and $369,551, respectively, held in bank accounts.

Liquidity Risk  

Liquidity risk is the risk that the Company will encounter difficulty in satisfying its financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating investing and financing activities. As at January 31, 2023, the Company had working capital of $302,805 and cash and cash equivalents of $745,808 and is exposed to significant liquidity risk at this time. Furthermore, as the Company is in the exploration stage, it will periodically have to raise funds to continue operations and intends to raise further financing through equity offerings.

Accounts payable and accrued liabilities are non-interest-bearing and are normally settled on 30-day terms.

Interest Rate Risk

The Company holds substantially all of its cash and cash equivalents in bank and demand deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash and cash equivalent balances during the three months ended January 31, 2023, a 1% decrease in interest rates would have resulted in a reduction of approximately $1,699  in interest income for the period.

Foreign Currency Exchange Risk

Certain purchases of labor, operating supplies and capital assets are denominated in $CDN, $MXN or other currencies. As a result, currency exchange fluctuations may impact the costs of the Company’s operations. Specifically, the appreciation of the $MXN or $CDN against the U.S. dollar may result in an increase in operating expenses and capital costs in U.S. dollar terms. The Company currently does not engage in any currency hedging activities.

Based on the net exposures as at January 31, 2023, a 5% depreciation or appreciation of the $CDN and $MXN against the US dollar would result in an increase and decrease, respectively, of approximately $6,000 in the Company’s net income.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Compliance with Environmental Regulations

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

Property Concessions in Mexico

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

Royalty

The Company has agreed to pay a 2% net smelter return royalty on certain property concessions within the Sierra Mojada Property based on the revenue generated from production. Total payments under this royalty are limited to $6.875 million (the “Royalty”). To date, no royalties have been paid.

Litigation and Claims

Mineros Norteños Case

On May 20, 2014, Mineros Norteños filed an action in the Local First Civil Court in the District of Morelos, State of Chihuahua, Mexico, against the Company’s subsidiary, Minera Metalin, claiming that Minera Metalin breached an agreement regarding the development of the Sierra Mojada Property. Mineros Norteños sought payment of the Royalty, including interest at a rate of 6% per annum since August 30, 2004, even though no revenue has been produced from the applicable mining concessions. It also sought payment of wages to the cooperative’s members since August 30, 2004, even though none of the individuals were hired or performed work for Minera Metalin under this agreement and Minera Metalin did not commit to hiring them. On January 19, 2015, the case was moved to the Third District Court (of federal jurisdiction). On October 4, 2017, the court ruled that Mineros Norteños was time barred from bringing the case. On October 19, 2017, Mineros Norteños appealed this ruling. On July 31, 2019, the Federal Appeals Court upheld the original ruling. This ruling was subsequently challenged by Mineros Norteños and on January 24, 2020, the Federal Circuit Court ruled that the Federal Appeals Court must consider additional factors in its ruling. In March 2020, the Federal Appeals Court upheld the original ruling after considering these additional factors. In August 2020, Mineros Norteños appealed this ruling, which appeal the Company timely responded and objected to on October 5, 2020. On March 26, 2021, the Federal Circuit Court issued a final and conclusive resolution, affirming the Federal Appeals Court decision. Despite the judgments in favour of the Company, Mineros Norteños has continued to block access to the facilities at Sierra Mojada since September 2019.  The Company has filed criminal complaints with the State of Coahuila, federal and state authorities have been contacted to intervene and terminate the blockade, and the Company has attempted to negotiate with Mineros Norteños, without resolution to date. The Company has not accrued any amounts in its consolidated financial statements with respect to this claim.

Notice of Intent under the North American Free Trade Agreement (“NAFTA”)

On March 2, 2023, the Company filed a Notice of Intent with Mexico’s Directorate General of Foreign Investment to initiate a legacy NAFTA claim under Annex 14-C of the United States-Mexico-Canada Agreement to recover economic damages resulting from the illegal blockade of the Sierra Mojada Property by Mineros Norteños (Note 1).

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 consolidated financial statements with respect to this claim.

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

NOTE 16 – 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:

The following table details the allocation of assets included in the accompanying balance sheet at January 31, 2023:

The following table details the allocation of assets included in the accompanying balance sheet at October 31, 2022:

The Company has significant assets in Coahuila, Mexico. Although Mexico is generally considered economically stable, unanticipated events in Mexico, such as the blockade, can, and may in the future, disrupt the Company’s operations. The Mexican government does not require foreign entities to maintain cash reserves in Mexico.

These statements are based on certain assumptions and analyses made by us in light of management’s experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, and the actual results could differ from those expressed or implied in these forward-looking statements as a result of the factors described under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022, including without limitation, risks associated with the following:

• The ability to obtain additional financial resources on acceptable terms to (i) fund the Company’s NAFTA claim (ii) maintain its property concessions in Mexico and (iii) maintain general and administrative expenditures at acceptable levels;
• The ability to acquire additional mineral properties or property concessions;

• The ability of the Company to maintain its assets in Mexico given the performance of the Mexican government at various levels, including those described in PART II, ITEM 1A RISK FACTORS;

• Worldwide economic and political events affecting (i) the market prices for silver, zinc, lead, copper and other minerals that may be found on the Company’s exploration properties (ii) interest rates and (iii) foreign currency exchange rates;
• The amount and nature of future capital and exploration expenditures;
• Volatility in the Company’s stock price;
• The inability to obtain required permits;
• Competitive factors, including exploration-related competition;
• Timing of receipt and maintenance of government approvals;
• Unanticipated title issues;
• Changes in tax laws;
• Changes in regulatory frameworks or regulations affecting our activities;
• The ability to retain key management, consultants and experts necessary to successfully operate and grow the business; and
• Political and economic instability in Mexico and other countries in which the Company conducts its business, and future potential actions of the governments in such countries with respect to nationalization of natural resources or other changes in mining or taxation policies.

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

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

Cautionary Note Regarding Exploration Stage Companies

Silver Bull is an exploration stage company and does not currently have any known reserves and cannot be expected to have reserves unless and until a feasibility study is completed for the Sierra Mojada concessions that shows proven and probable reserves. There can be no assurance that these concessions contain proven and probable reserves, and investors may lose their entire investment. See the sections titled “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Business Overview

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

On August 12, 2020, the Company entered into an option agreement (the “Beskauga Option Agreement”) with Copperbelt AG, a corporation existing under the laws of Switzerland (“Copperbelt Parent”), and Dostyk LLP, an entity existing under the laws of Kazakhstan and a wholly-owned subsidiary of Copperbelt Parent (the “Copperbelt Sub,” and together with Copperbelt Parent, “Copperbelt”), pursuant to which it had the exclusive right and option (the “Beskauga Option”) to acquire Copperbelt’s right, title and 100% interest in the Beskauga property located in Kazakhstan (the “Beskauga Property”), which consists of the Beskauga Main project (the “Beskauga Main Project”) and the Beskauga South project (the “Beskauga South Project,” and together the Beskauga Main Project, the “Beskauga Project”). The transaction contemplated by the Beskauga Option Agreement closed on January 26, 2021.

On February 5, 2021, Arras Minerals Corp. (“Arras”) was incorporated in British Columbia, Canada, as a wholly-owned subsidiary of Silver Bull. On March 19, 2021, pursuant to an asset purchase agreement with Arras, the Company transferred its right, title and interest in and to the Beskauga Option Agreement, among other things, to Arras in exchange for 36,000,000 common shares of Arras. On September 24, 2021, Silver Bull distributed to its shareholders one Arras common share for each Silver Bull share held by such shareholders, or 34,547,838 Arras common shares in total (the “Distribution”), and Arras became a stand-alone company.

Silver Bull’s principal office is located at 777 Dunsmuir Street, Suite 1605 Vancouver, BC, Canada V7Y 1K4, and the telephone number is 604-687-5800. 

Recent Developments

Commencement of Legacy North American Free Trade Agreement (“NAFTA”) Claim

On March 2, 2023, the Company filed the NAFTA Notice of Intent. The Company has been unable to access the project since the illegal blockade commenced in September 2019. Despite numerous demands and requests for action by the Company, Mexican governmental agencies have allowed this unlawful behaviour to continue and, as such, failed to protect the Company’s investment. Silver Bull will be seeking to recover no less than US$178 million in damages that it has suffered as a result of Mexico’s breach of its NAFTA obligations.

Properties Concessions and Outlook

Sierra Mojada Property

The focus of the Company for the remainder of the 2023 calendar year is to continue the claim process under NAFTA in relation to the blockade at the Sierra Mojada Property.

Results of Operations

Three Months Ended January 31, 2023 and January 31, 2022

For the three months ended January 31, 2023, we experienced a net loss of $346,000, or approximately $0.01 per share, compared to a net loss of $330,000, or approximately $0.01 per share, during the comparable period last year. The $16,000 increase in net loss was primarily due to a $22,000 increase in exploration and property holding costs, which was offset by $4,000 in other income compared to $4,000 in other expense compared to the same period last year as described below.

Exploration and Property Holding Costs

Exploration and property holding costs increased $22,000 to $136,000 for the three months ended January 31, 2023, compared to $114,000 for the comparable period last year. This increase was mainly due to a $16,000 concessions’ impairment as a result the Company’s decision to withdraw certain concessions’ applications and write off the capitalized property concession balance for the three months ended January 31, 2023.

General and Administrative Expenses

The Company recorded general and administrative expenses of $212,000 for the three months ended January 31, 2023 as compared to $211,000 for the comparable period last year. The $1,000 increase was mainly the result of a $15,000 increase in directors’ fees and a $2,000 increase in the provision for uncollectible VAT, which was offset by a $3,000 decrease in personnel costs and an $12,000 decrease in professional services as described below.

Stock-based compensation was a factor in the fluctuations in general and administrative expenses. The Company recorded $53,000 in stock-based compensation included in general and administrative expense for the three months ended January 31, 2023 compared to $nil for the comparable period last year   as a result of no stock options were granted and vested to employees, directors and consultants.

Personnel costs decreased $3,000 to $89,000 for the three months ended January 31, 2023 as compared to $92,000 for the comparable period last year. This decrease was mainly due to a $44,000 decrease in salaries due to revised agreements with the Company’s management in January 2022, which was offset by a $41,000 increase in stock-based compensation compared to the same period last year.

Office and administrative costs of $35,000 for the three months ended January 31, 2023 were similar to the $35,000 in such costs for the comparable period last year.

Professional fees decreased $12,000 to $47,000 for the three months ended January 31, 2023 compared to $59,000 for the comparable period last year. This decrease was mainly due to a $14,000 decrease in legal fees, which was offset by a $2,000 increase in accounting fees.

Directors’ fees increased $15,000 to $34,000 for the three months ended January 31, 2023 as compared to $19,000 for the comparable period last year. This increase was primarily due to a $12,000 increase in stock-based compensation and a $3,000 increase in directors fee compensation as a result of revised chairman fees compared to the same period last year.

We recorded a $8,000 provision for uncollectible VAT for the three months ended January 31, 2023 as compared to a $6,000 provision for uncollectible VAT in the comparable period last year. The allowance for uncollectible VAT was estimated by management based upon a number of factors, including the length of time the returns have been outstanding, responses received from tax authorities, general economic conditions in Mexico and estimated net recovery after commissions.

Other Income (Expenses)

We recorded other income of $4,000 for the three months ended January 31, 2023 as compared to other expenses of $4,000 for the comparable period last year. The significant factors contributing to other income was $6,000 in interest income for the three months ended January 31, 2023. The significant factors contributing to other expense was a $4,000 foreign currency transaction loss for the comparable period last year.

Material Changes in Financial Condition; Liquidity and Capital Resources

Cash Flows

During the three months ended January 31, 2023, we primarily utilized cash and cash equivalents to fund general and administrative expenses and exploration activities at the Sierra Mojada Property. As a result of the exploration activities and general and administrative expenses, cash and cash equivalents decreased from $887,000 at October 31, 2022 to $746,000 at January 31, 2023.

Cash flows used in operating activities for the three months ended January 31, 2023 were $141,000, as compared to $436,000 for the comparable period in 2022. This decrease was mainly due to the decreased general and administrative expenses and the timing of certain payments.

Cash flows provided by investing activities for the three months ended January 31, 2023 were $nil. Cash flows provided by investing activities for the three months ended January 31, 2022 were proceeds of $470,000 from the sale of 600,000 Arras common shares at a price of $CDN 1.00 per share.

Cash flows provided by financing activities for the three months ended January 31, 2023 and 2022 were $nil.

Capital Resources

As of January 31, 2023, the Company had cash and cash equivalents of $746,000, as compared to cash and cash equivalents of $887,000 as of October 31, 2022. The decrease in liquidity and working capital were primarily the result of the exploration activities at the Sierra Mojada Property and general and administrative expenses.

Since the Company’s inception in November 1993, it has not generated revenue and have incurred an accumulative deficit of $137,740,000. Accordingly, Silver Bull has not generated cash flows from operations, and since inception has relied primarily upon proceeds from private placements and registered direct offerings of the Company’s equity securities, warrant exercises, sale of investments, and funding from South32 as the primary sources of financing to fund our operations. Based on the Company’s limited cash and cash equivalents, and history of losses, there is substantial doubt as to whether its existing cash resources are sufficient to enable it to continue operations for the next 12 months as a going concern. Management plans to pursue possible financing and strategic options, include, but are not limited to, obtaining additional equity financing and the exercise of warrants by warrantholders. However, there is no assurance that the Company will be successful in pursuing these plans.

Any future additional financing in the near term will likely be in the form of the issuance of equity securities, which will result in dilution to Silver Bull’s existing shareholders. Moreover, the Company may incur significant fees and expenses in the pursuit of a financing or other strategic transaction, which will increase the rate at which its cash and cash equivalents are depleted.

Capital Requirements and Liquidity; Need for Additional Funding

The Company’s management and board of directors monitor overall costs, expenses, and financial resources and, if necessary, will adjust planned operational expenditures in an attempt to ensure that the Company has sufficient operating capital. Management continues to evaluate the Company’s costs and planned expenditures, including for the Sierra Mojada Property, as discussed below.

The aforementioned NAFTA claim process will require the Company to incur significant expense and devote significant resources. Outcomes in NAFTA arbitration and the process for recovering funds, even if there is a successful outcome in NAFTA arbitration, can be lengthy and unpredictable. Furthermore, there is a risk that the Company will be unable to secure the necessary funding to advance its claim.

In January 2023, Silver Bull’s board of directors approved a calendar year 2023 budget of $0.3 million for the Sierra Mojada Property and $0.7 million for general and administrative expenses for calendar year 2022. The focus of the Company’s 2023 calendar year program at the Sierra Mojada Property will be to maintain its property concessions in Mexico. As of February 28, 2023, the Company had approximately $0.7 million in cash and cash equivalents. To maintain the Sierra Mojada Property and NAFTA claim ultimately will require the Company to raise additional capital, identify other sources of funding or identify another strategic partner.

Management will continue to evaluate the Company’s ability to obtain additional financial resources, and will attempt to reduce or limit expenditures on the Sierra Mojada Property as well as general and administrative costs if determined that additional financial resources are unavailable or available on terms that management determine are unacceptable. However, it may not be possible to reduce costs, and even if management is successful in reducing costs, the Company still may not be able to continue operations for the next 12 months as a going concern. If the Company is unable to fund future operations by obtaining additional financial resources, including an equity offering or other strategic transaction, management do not expect to have sufficient available cash and cash equivalents to continue the Company’s operations for the next 12 months as a going concern.

Critical Accounting Policies

The critical accounting policies are defined in our Annual Report on Form 10-K for the year ended October 31, 2022 filed with the SEC on January 26, 2023.

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.