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 and Minas.
However, as noted above, we have not established any reserves at the Sierra
Mojada Property, are in the exploration stage and may never enter the
development or production stage.
Our principal office is located at 777 Dunsmuir Street, Suite 1610, Vancouver,
BC, Canada V7Y 1K4, and our telephone number is 604-687-5800.
Recent Developments
Distribution of Arras Common Shares
On August 31, 2021, the board of directors approved the distribution of Arras
common shares. 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. Upon completion of the Distribution, we
retained 1,452,162 Arras common shares, or approximately 4% of the outstanding
Arras common shares, as a strategic investment, and Arras became a stand-alone
company.
Amendments to Articles of Incorporation
On April 19, 2021, our shareholders approved and adopted amended and restated
articles of incorporation to, among other things, increase the number of
authorized shares of our common stock from 37.5 million to 150 million.
2021 Silver Bull Private Placement
In June 2021, we sold 500,000 shares of common stock, raising gross proceeds of
$405,351 ($CDN 500,000). For a full description of the 2021 Silver Bull Private
Placement, see the "Material Changes in Financial Condition; Liquidity and
Capital Resources" section below.
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2020 Silver Bull Private Placement
In November 2020, in the second and final tranche of the 2020 Silver Bull
Private Placement, we sold of 319,000 units consisting of one share of our
common stock and one-half of one transferable common stock purchase warrant,
raising gross proceeds of $149,930. For a full description of the 2020 Silver
Bull Private Placement, see the "Material Changes in Financial Condition;
Liquidity and Capital Resources" section below.
Arras Private Placement
On April 1, 2021, while Arras was a subsidiary of the Company, Arras completed a
private placement (the "Arras Private Placement") for 5,035,000 common shares at
a price of $CDN 0.50 per share for gross proceeds of $CDN 2,517,500. No
placement agent or finder's fees were paid in connection with the Arras Private
Placement. Arras incurred other offering costs associated with the Arras Private
Placement of $20,687. For a full description of the Arras Private Placement, see
the "Material Changes in Financial Condition; Liquidity and Capital Resources"
section below.
South32 Option Agreement
On June 1, 2018, we and our subsidiaries Minera Metalin and Contratistas entered
into the South32 Option Agreement with South32, whereby South32 is able to
obtain the South32 Option to purchase 70% of the shares of Minera Metalin and
Contratistas. Contratistas has since merged with and into Minera Metalin.
Contratistas has since merged with and into Minera Metalin. Minera Metalin owns
the Sierra Mojada Property located in Coahuila, Mexico, 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. Funding is made on a quarterly basis based on the
following quarter's exploration budget. South32 may exercise the South32 Option
by contributing $100 million to Minera Metalin, 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 had received funding of $1,502,831, which included payments of
$319,430 and $1,100,731 received during the years ended October 31, 2019 and
2020, 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 October 31, 2021, we had received cumulative funding
of $4,646,994 under the South32 Option Agreement. During the year ended October
31, 2021, we received payment of $82,670 for the extended Year 2 time period. 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 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 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 not wholly
in control of us or South32 and which 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 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 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.
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Sierra Mojada Property
In April 2021, our board of directors approved an exploration budget for the
Sierra Mojada Property of $0.2 million and a $1.4 million budget for general and
administrative expenses for calendar year 2021. Due to the blockade by Mineros
Norteños previously mentioned under the "Recent Developments - South32 Option
Agreement" section of this Form 10-K, we have halted all exploration work at the
Sierra Mojada Property. Until the blockade situation is resolved, the focus of
the exploration budget for the Sierra Mojada Property is maintaining our
property concessions.
2021 Drilling
During the year ended October 31, 2021 we conducted no drilling as we halted the
drilling program due to the blockade.
2022 Exploration Program
The focus of our 2022 calendar year exploration program on the Sierra Mojada
Property will be 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.
Management Changes
On October 1, 2021, Darren Klinck was appointed as President, replacing Timothy
Barry in such role on that date. Timothy Barry remains our Chief Executive
Officer. Mr. Klinck, most recently served as President (August 2017-April 2021)
and Chief Executive Officer (August 2017-January 2020) of Bluestone Resources
Inc. From April 2007 to June 2017, he served in numerous roles at OceanaGold
Corporation, including Executive Vice President and Head of Corporate
Development, Head of Business Development, and Vice President of Corporate and
Investor Relations. Mr. Klinck has served as a director of ValOre Metals Corp.
since June 1, 2021, as a director of Gold Basin Resources Corp. since
September 9, 2021, and as the President and a director of Arras Minerals Corp.
since October 1, 2021. In addition, he served as a director of Bluestone
Resources Inc. from August 2017 to April 2021. Mr. Klinck has a Bachelor of
Commerce degree from the Haskayne School of Business at The University of
Calgary.
Results of Operations
Fiscal Year Ended October 31, 2021 Compared to Fiscal Year Ended October 31,
2020
For the fiscal year ended October 31, 2021, we reported a consolidated net loss
of $2,448,000 or approximately $0.07 per share, compared to a consolidated net
loss of $2,226,000 or approximately $0.08 per share during the fiscal year ended
October 31, 2020. The $222,000 increase in the consolidated net loss was
primarily due to a $298,000 increase in exploration and property holding costs,
a $1,040,000 increase in general and administrative expenses, which was
partially offset by a $1,091,000 unrealized gain of Arras shares held by Silver
Bull and $6,000 in other income in the 2021 fiscal year compared to $15,000 in
other expenses in the 2020 fiscal year as described below.
Exploration and Property Holding Costs
Exploration and property holding costs increased by $298,000 to $978,000 in the
2021 fiscal year from $680,000 in the 2020 fiscal year. This increase was the
result of an increase in stock-based compensation expenses, finders' fees due
and exploration activities in connection of the Beskauga Option Agreement, which
was offset by a decrease in expenses at the Sierra Mojada Property due to the
blockade discussed in the "Recent Developments - South32 Option Agreement"
section above.
General and Administrative Costs
General and administrative expenses increased by $1,040,000 to $2,563,000 in the
2021 fiscal year from $1,523,000 in the 2020 fiscal year as described below.
Stock-based compensation was a factor in the fluctuations in general and
administrative expenses. Overall stock-based compensation included in general
and administrative expense increased to $492,000 in the 2021 fiscal year from
$62,000 in the 2020 fiscal year. This was mainly due to stock options granted to
Arras' employees, directors and advisors in the 2021 fiscal year, while Arras
was a subsidiary of the Company.
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Personnel costs increased by $272,000 to $886,000 in the 2021 fiscal year from
$614,000 in the 2020 fiscal year. This increase was mainly due to a $246,000
increase in stock-based compensation expense as a result of stock options
vesting in the 2021 fiscal year having a higher fair value than stock options
vesting in the 2020 fiscal year.
Office and administrative expenses increased by $64,000 to $381,000 in the 2021
fiscal year from $317,000 in the 2020 fiscal year. This increase was mainly due
to an increase in investor relations activities relating to costs associated
with the special meeting of shareholders in December 2020.
Professional services increased by $470,000 to $868,000 in the 2021 fiscal year
from $398,000 in the 2020 fiscal year. This increase was mainly due to a
$373,000 increase in legal fees, a $107,000 increase in accounting fees, which
includes $85,000 for the special meeting of shareholders in December 2020, and
$378,000 for the incorporation and spin-off of Arras and the Distribution of
Arras common shares to our shareholders.
Directors' fees increased by $222,000 to $366,000 in the 2021 fiscal year as
compared to $144,000 for the 2020 fiscal year. This increase was primarily due
to an additional $36,000 in directors' fees for Arras directors and a $185,000
increase in stock-based compensation expenses as a result of stock options
vesting in the 2021 fiscal year having a lower fair value than stock options
vesting in the 2020 fiscal year.
We recorded a $62,000 provision for uncollectible VAT for the 2021 fiscal year
as compared to a $50,000 provision for uncollectible VAT in the 2020 fiscal
year. The increase was mainly due to a reduction in management's estimated
probability of collecting outstanding VAT in the 2021 fiscal year. The allowance
for uncollectible taxes in Mexico 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 $1,097,000 in the 2021 fiscal year as compared to
other expenses of $15,000 in the 2020 fiscal year. The significant factor
contributing to other income in the 2021 fiscal year was a $1,091,000 unrealized
gain of Arras shares held by Silver Bull and $6,000 in foreign currency
transaction income. The significant factor contributing to other expenses in the
2020 fiscal year was a $22,000 foreign currency transaction loss.
Material Changes in Financial Condition; Liquidity and Capital Resources
2021 Silver Bull Private Placement
On June 25, 2021, we sold 500,000 shares of common stock for gross proceeds of
$405,351 ($CDN 500,000) in the 2021 Silver Bull Private Placement. No placement
agent or finder's fees were paid in connection with the 2021 Silver Bull Private
Placement. We incurred other offering costs associated with the 2021 Silver Bull
Private Placement of $14,628.
Arras Private Placement
On April 1, 2021, Arras completed the Arras Private Placement for 5,035,000
common shares at a price of $CDN 0.50 per share for gross proceeds of $CDN
2,517,500. No placement agent or finder's fees were paid in connection with the
Arras Private Placement. We incurred other offering costs associated with the
Arras Private Placement of $20,687.
2020 Silver Bull Private Placement
On October 27, 2020, in the initial tranche of the 2020 Silver Bull Private
Placement, we sold 3,623,580 units (each, a "Unit") at a purchase price of $0.47
per Unit for gross proceeds of $1,703,000. On November 9, 2020, in the second
and final tranche of the 2020 Silver Bull Private Placement, we sold 319,000
Units at a purchase price of $0.47 per Unit for gross proceeds of $150,000. Each
Unit consists of one share of our 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 our common stock and one
common share of Arras as per the terms of the Separation and Distribution
agreement between Silver Bull and Arras completed in conjunction with the
Distribution, at a price of $0.59 until the fifth annual anniversary of the
closing of the respective tranche of the 2020 Silver Bull Private Placement.
We paid a finder's fee totaling $26,000 to an agent with respect to certain
purchasers who were introduced to us by the agent. We incurred other offering
costs associated with the 2020 Silver Bull Private Placement of $105,236.
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Cash Flows
During the 2021 fiscal year, we primarily utilized cash and cash equivalents to
fund (i) exploration activities at the Beskauga Property and the acquisition of
mineral concessions located in Kazakhstan, while Arras was a subsidiary of the
Company (ii) general and administrative expenses and (iii) exploration
activities at the Sierra Mojada Property. In addition, we received $83,000 from
South32, net proceeds of $133,000 from the second and final tranche of the 2020
Silver Bull Private Placement, which was partially offset by an $81,000 payment
for share issuance costs due to the timing of the payment, net proceeds of
$400,000 from the 2021 Silver Bull Private Placement and a Canada Emergency
Business Account ("CEBA") loan for $16,000. As a result of the exploration
activities and general and administrative expenses, which were partially offset
by net cash proceeds received from the second and final tranche of the 2020
Silver Bull Private Placement, 2021 Silver Bull Private Placement, funding from
South32, and the CEBA loan, cash and cash equivalents decreased from $1,862,000
at October 31, 2020 to $190,000 at October 31, 2021.
Cash flows used in operations for the 2021 fiscal year was $1,685,000 as
compared to $1,958,000 in the 2020 fiscal year. This decrease was mainly due to
increased unpaid accounts payable and accrued liabilities and expenses, which
was offset by increased exploration activities in relation to the Beskauga
Option Agreement for the period from February 5, 2021 to September 24, 2021 and
increased general and administrative expenses and timing of certain payments.
Cash flows used in investing activities for the 2021 fiscal year was $2,516,000,
which included $1,928,000 for loans made to Ekidos Minerals LLP and $505,000
cash and cash equivalents that were for the deconsolidation of Arras, which was
partially offset by $82,000 for the purchase of equipment. Cash flows used in
investing activities in the 2020 fiscal year was $408,000 for loans made to
Ekidos Minerals LLP and purchases of equipment.
Cash flows provided by financing activities for the 2021 fiscal year was
$2,531,000 as compared to $2,799,000 in the 2020 fiscal year. The cash flows
provided by financing activities in the 2021 fiscal year was due to the 2021
Silver Bull Private Placement, the Arras Private Placement, the second tranche
of 2020 Silver Bull Private Placement, funding from South32 and the CEBA loan.
The cash flows provided by financing activities in the 2020 fiscal year was due
to the initial tranche of the 2020 Silver Bull Private Placement, funding from
South32 and the CEBA loan.
Capital Resources
As of October 31, 2021, we had cash and cash equivalents of $190,000 as compared
to cash and cash equivalents of $1,862,000 as of October 31, 2020. The decrease
in our liquidity was primarily the result of the exploration activities at the
Sierra Mojada Property and Beskauga Property and general and administrative
expenses, which was partially offset by the 2021 Silver Bull Private Placement,
the Arras Private Placement, the second tranche of 2020 Silver Bull Private
Placement, funding from South32 and the CEBA loan.
Since our inception in November 1993, we have not generated revenue and have
incurred an accumulated deficit of $134,226,000. 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 and funding from South32 as the
primary sources of financing to fund our operations. We anticipate that we will
continue to rely on sales of our securities in order to continue to fund our
business operations. The issuance of additional shares will result in dilution
to our existing stockholders. There is no assurance that we will be able to
complete any additional sales of our equity securities or that we will be able
to arrange for other financing to fund our planned business activities.
Any future additional financing in the near term will likely be in the form of
payments from South32 or an issuance of equity interests, 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.
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The continued exploration of the Sierra Mojada Property will require significant
amounts of additional capital. In December 2021, our board of directors approved
an exploration budget for the Sierra Mojada Property of $0.3 million and $0.8
million for general and administrative expenses for calendar year 2022. As of
December 31, 2021, we had approximately $0.3 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 3 - 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, and be obligated to contribute
30% of subsequent funding toward the development of the Sierra Mojada Project.
If we fail to satisfy our funding commitment, our interest in Minera Metalin
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 the sale of Arras shares held by the Company or
through public or private offerings of equity, 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. Debt or equity financing may not be
available to us on acceptable terms, if at all. Equity financing, if available,
may result in substantial dilution to existing stockholders. If we are unable to
fund future operations by way of financings, including public or private
offerings of equity or debt securities, our business, financial condition and
results of operations will be adversely impacted.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to our shareholders.
Recent Accounting Pronouncements Adopted in the Fiscal Year Ended October 31,
2021
On November 1, 2020, we adopted the Financial Accounting Standards Board's
("FASB") Accounting Standards Updated ("ASU") 2019-12, "Income Taxes -
Simplifying the Accounting for Income Taxes (Topic 740)" which is intended to
simplify various aspects related to accounting for income taxes. ASU 2019-12
removes certain exceptions to the general principles in Topic 740 and clarifies
and amends existing guidance to improve consistent application. ASU 2019-12 will
be effective for interim and annual periods beginning after December 15, 2020.
Early adoption is permitted. 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 January 2020, the FASB issued ASU No. 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 fiscal
years beginning after December 15, 2020. 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires us to
establish accounting policies and make estimates and assumptions that affect our
reported amounts of assets and liabilities at the date of the consolidated
financial statements. These consolidated financial statements include some
estimates and assumptions that are based on informed judgments and estimates of
management. We evaluate our policies and estimates on an ongoing basis and
discuss the development, selection and disclosure of critical accounting
policies with the Audit Committee of the Board of Directors. Predicting future
events is inherently an imprecise activity and as such requires the use of
judgment. Our consolidated financial statements may differ based upon different
estimates and assumptions.
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We discuss our significant accounting policies in Note 2, Summary of Significant
Accounting Policies, to our consolidated financial statements. Our significant
accounting policies are subject to judgments and uncertainties that affect the
application of such policies. We believe that these consolidated financial
statements include the most likely outcomes with regard to amounts that are
based on our judgment and estimates. Our consolidated financial position and
results of operations may be materially different when reported under different
conditions or when using different assumptions in the application of such
policies. If estimates or assumptions prove to be different from the actual
amounts, adjustments are made in subsequent periods to reflect more current
information. We believe that the following accounting policies are critical to
the preparation of our consolidated financial statements due to the estimation
process and business judgment involved in their application:
Principles of Consolidation - South32 Option Agreement
We consolidate entities in which we have a controlling financial interest based
on either the variable interest entity (VIE) or voting interest model.
Generally, the primary beneficiary of a VIE is a reporting entity that has (a)
the power to direct the activities that most significantly impact the VIE's
economic performance, and (b) the obligation to absorb losses of, or the right
to receive benefits from, the VIE that could potentially be significant to the
VIE. Currently, we manage the mineral exploration program in the property
concessions in Mexico through our wholly-owned subsidiary corporations Minera
Metalin.
We have determined that Minera Metalin is a variable interest entity and we are
the primary beneficiary.
We have applied judgment in reaching our conclusion with respect to accounting
for the South32 Option Agreement with South32, described in Note 3 to the
consolidated financial statements. Under the South32 Option Agreement, South32
is able to obtain an option to purchase 70% of the shares of Minera Metalin (the
"South32 Option"). We have determined that the South32 Option Agreement has not
resulted in the transfer of control of the Sierra Mojada Project to South32 and
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 consideration received, as it
is more reliably measurable than the fair value of the equity interest. In the
event 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 not wholly in control of us or South32 and which are not currently
probable. No portion of the equity value has been classified as temporary equity
as the South32 Option has no intrinsic value.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates based on assumptions about future events
that affect the amounts reported in the consolidated financial statements and
related notes to the consolidated financial statements. Actual results could
differ from those estimates. Estimates and assumptions are reviewed on an
ongoing basis based on historical experience and other factors that are
considered to be relevant under the circumstances. Revisions to estimates and
assumptions are accounted for prospectively.
Significant areas involving the use of estimates include determining the
allowance for uncollectible taxes, evaluating recoverability of property
concessions, evaluating impairment of long-lived assets, evaluating impairment
of goodwill, valuation of investments, establishing a valuation allowance on
future use of deferred tax assets, calculating a valuation for stock option
liability and calculating stock-based compensation.
Property Concessions
Property concession acquisition costs are capitalized when incurred and will be
amortized using the units of production method following the commencement of
production. If a property concession is subsequently abandoned or impaired, any
capitalized costs will be expensed in the period of abandonment or impairment.
To date, no property concessions have reached the production stage.
Acquisition costs include cash consideration and the fair market value of shares
issued on the acquisition of property concessions.
Exploration Costs
Exploration costs incurred are expensed to the date of establishing that costs
incurred are economically recoverable. Exploration expenditures incurred
subsequent to the establishment of economic recoverability are capitalized and
included in the carrying amount of the related property. To date, we have not
established the economic recoverability of our exploration prospects; therefore,
all exploration costs are being expensed.
Impairment of Long-Lived Assets
We review and evaluate our long-lived assets for impairment when events and
changes in circumstances indicate that the related carrying amounts of our
assets may not be recoverable. Impairment is considered to exist if the future
cash flows on an undiscounted basis are less than the carrying amount of the
long-lived asset. An impairment loss is measured and recorded based on the
difference between book value and fair value of the asset group. In estimating
future cash flows, assets are grouped at the lowest level for which there is
identifiable cash flows that are largely independent of cash flows from other
asset groups. In estimating future cash flows, we estimate the price that would
be received to sell an asset group in an orderly transaction between market
participants at the measurement date. Significant factors that impact this price
include the price of silver and zinc, and general market conditions for
exploration companies, among other factors.
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Goodwill
Goodwill is the purchase premium after adjusting for the fair value of net
assets acquired. We test goodwill for impairment at the reporting unit level at
least annually, or more frequently if events or changes in circumstances
indicate that the assets may be impaired. Goodwill impairment tests require
judgment, including the identification of reporting units, assignment of assets
and liabilities to reporting units, assignment of goodwill to reporting units,
and determination of the fair value of each reporting unit. We perform our
annual goodwill impairment tests on April 30th of each fiscal year.
Income Taxes
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. The
law includes significant changes to the U.S. corporate income tax system,
including a federal corporate rate reduction from 35% to 21%, limitations on the
deductibility of interest expense and executive compensation, and the transition
of U.S. international taxation from a worldwide tax system to a territorial tax
system. The law did not have a material impact on our financial position,
results of operations or cash flows and disclosures.
We follow the asset and liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
temporary differences between the tax basis and accounting basis of the assets
and liabilities measured using tax rates enacted at the balance sheet date. We
recognize the tax benefit from uncertain tax positions only if it is at least
"more likely than not" that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon settlement with the taxing authorities. This accounting
standard also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods and disclosure.
A valuation allowance is recorded against deferred tax assets if management does
not believe that we have met the "more likely than not" standard imposed by this
guidance to allow recognition of such an asset. Management recorded a full
valuation allowance at October 31, 2021 and October 31, 2020 against the
deferred tax assets as it determined that future realization would not meet the
"more likely than not" criteria.
Warrant Derivative Liability
We classified warrants with a $CDN exercise price on our balance sheet as a
derivative liability that is fair valued at each reporting period subsequent to
the initial issuance as our functional currency is the U.S. dollar and the
exercise price of the warrants is the $CDN. We have used the Black-Scholes
pricing model to value the warrants that do not have an acceleration feature and
have used the Monte Carlo valuation model to value the warrants that do have an
acceleration feature. Determining the appropriate fair-value model and
calculating the fair value of warrants requires considerable judgment. Any
change in the estimates used may cause the value to be higher or lower than that
reported. The estimated volatility of our common stock at the date of issuance,
and at each subsequent reporting period, is based on our historical volatility
adjusted to reflect the implicit discount to historical volatilities observed in
the prices of traded warrants. The risk-free interest rate is based on rates
published by the government for bonds with a maturity similar to the expected
remaining life of the warrants at the valuation date. The expected life of the
warrants is assumed to be equivalent to their remaining contractual term. The
dividend yield is expected to be none as we have not paid dividends nor do we
anticipate paying any dividend in the foreseeable future.
The derivatives warrants are not traded in an active market and the fair value
is determined using valuation techniques. The estimates may be significantly
different from those recorded in the consolidated financial statements because
of the use of judgment and the inherent uncertainty in estimating the fair value
of these instruments that are not quoted in an active market. All changes in the
fair value are recorded in the consolidated statement of operations and
comprehensive loss each reporting period.
Stock-Based Compensation
We use the Black-Scholes pricing model as a method for determining the estimated
fair value for all stock options awarded to employees, officers, directors and
consultants. The expected term of the options is based upon an evaluation of
historical and expected future exercise behavior. The risk-free interest rate is
based on rates published by the government for bonds with a maturity similar to
the expected remaining life of the options at the valuation date. Volatility is
determined based upon historical volatility of our stock and adjusted if future
volatility is expected to vary from historical experience. The dividend yield is
assumed to be none as we have not paid dividends nor do we anticipate paying any
dividends in the foreseeable future. We use the graded vesting attribution
method to recognize compensation costs over the requisite service period. Stock
options granted to consultants when the exercise price is in $CDN are classified
as stock option liability on our consolidated balance sheets upon vesting.
We classify cumulative compensation cost associated with options on subsidiary
equity as additional paid-in capital until exercise.
27
Foreign Currency Translation
During the fiscal years ended October 31, 2021 and October 31, 2020, the
functional currency of Silver Bull Resources, Inc. and our subsidiaries was the
U.S. dollar.
During the fiscal years ended October 31, 2021 and October 31, 2020, our Mexican
operations' monetary assets and liabilities with foreign source currencies were
translated into U.S. dollars at the period-end exchange rate, and non-monetary
assets and liabilities with foreign source currencies were translated using the
historical exchange rate. Our Mexican operations' revenue and expenses were
translated at the average exchange rate during the period except for
depreciation of office and mining equipment, costs of office and mining
equipment sold and impairment of property concessions, all of which are
translated using the historical exchange rate. Foreign currency translation
gains and losses of our Mexican operations are included in the consolidated
statements of operations.
Accounting for Loss Contingencies and Legal Costs
From time to time, we are named as a defendant in legal actions arising from our
normal business activities. We record an accrual for the estimated loss from a
loss contingency when information available prior to issuance of our financial
statements indicates that it is probable that a liability has been incurred at
the date of the financial statements and the amount of the loss can be
reasonably estimated. Disclosure of a loss contingency is made by Silver Bull
Resources, Inc. if there is at least a reasonable possibility that a loss has
been incurred, and either an accrual has not been made or an exposure to loss
exists in excess of the amount accrued. In cases where only disclosure of the
loss contingency is required, either the estimated loss or a range of estimated
loss is disclosed or it is stated that an estimate cannot be made. Legal costs
incurred in connection with loss contingencies are considered period costs and
accordingly are expensed in the period services are provided.
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SILVER BULL RESOURCES, INC. 
