SECURITIES & EXCHANGE COMMISSION EDGAR FILING
SILVER BULL RESOURCES, INC.
Form: 10-K
Date Filed: 2012-01-11
Corporate Issuer CIK: 1031093
Symbol:
SIC Code:
Fiscal Year End:
SVBL
1000
10/31
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
R
£
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED October 31, 2011
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD OF _________ TO _________.
Commission File Number: 001-33125
SILVER BULL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada
State or other jurisdiction of incorporation or organization
91-1766677
(I.R.S. Employer Identification No.)
885 West Georgia Street, Suite 2200
Vancouver, B.C. V6C 3E8
(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:
Title of each class
Common Stock, $0.01 Par Value
Name of each exchange on which registered
NYSE Amex
Common Stock, $0.01 Par Value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No R
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes o No R
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 R No ❑
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files).
Yes R No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ❑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company:
Large accelerated filer ❑ Accelerated filer R Non-accelerated filer ❑ Smaller reporting company ❑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No R
As of December 31, 2011, there were 136,160,157 shares of the registrant’s $.01 par value Common Stock (“Common Stock”),
Registrant’s only outstanding class of voting securities, outstanding.
As of April 29, 2011, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market
value of voting and non-voting common stock held by non-affiliates of the registrant was $97,882,544 (based on the closing price of
$0.97 as reported on the NYSE Amex as of that date).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Items 1 and
2.
Item 1A.
Item 1B.
Item 3.
Item 4.
Business and Properties
Risk Factors
Unresolved Staff Comments
Legal Proceedings
(Removed and Reserved)
PART I
PART II
Market for Registrant’s Common Equity and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Controls and Procedures
Item 9A.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART III
Item 15.
Exhibits, Financial Statement Schedules
Signatures
PART IV
1
Page
5
17
23
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
When we use the terms “Silver Bull Resources, Inc.,” “we,” “us,” “our,” or “Silver Bull,” 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” at the end of this section. Throughout this document we make statements that are
classified as “forward-looking.” Please refer to the “Cautionary Statement about Forward-Looking Statements” section of this
document for an explanation of these types of assertions.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes certain statements that may be deemed to be “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”) and the United States 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. 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
express or implied in these forward-looking statements as a result of the factors described under “Risk Factors” in this Annual Report
on Form 10-K, including:
· Results of future exploration at our Sierra Mojada Project;
· Our ability to raise necessary capital to conduct our exploration activities, and do so on acceptable terms;
· Worldwide economic and political events affecting the market prices for silver, gold, zinc, lead, and other minerals that
may be found on our exploration properties;
· The amount and nature of future capital and exploration expenditures;
· Competitive factors, including exploration-related competition;
· Our inability to obtain required permits;
· 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 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 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.
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Cautionary Note Regarding Exploration 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
“Risk Factors.”
The following terms are used throughout this Annual Report on Form 10-K.
Glossary of Common Terms
Concession
A grant of a tract of land made by a government or other controlling authority in return for
stipulated services or a promise that the land will be used for a specific purpose.
Exploration Stage
A prospect that is not yet in either the development or production stage.
Feasibility Study
An engineering study designed to define the technical, economic, and legal viability of a mining
project with a high degree of reliability.
Formation
A distinct layer of sedimentary rock of similar composition.
Mineralized Material
Mining
Mineral bearing material such as zinc, silver, gold and lead that has been physically delineated by
one or more of a number of methods including drilling, underground work, surface trenching and
other types of sampling. This material has been found to contain a sufficient amount of
mineralization of an average grade of metal or metals to have economic potential that warrants
further exploration evaluation. While this material is not currently or may never be classified as
reserves, it is reported as mineralized material only if the potential exists for reclassification into
the reserves category. This material cannot be classified in the reserves category until final
technical, economic and legal factors have been determined. Under the United States Securities
and Exchange Commission’s standards, a mineral deposit does not qualify as a reserve unless
the recoveries from the deposit are expected to be sufficient to recover total cash and non-cash
costs for the mine and related facilities and make a profit.
The process of extraction and beneficiation of mineral reserves to produce a marketable metal or
mineral product. Exploration continues during the mining process and, in many cases, mineral
reserves are expanded during the life of the mine operations as the exploration potential of the
deposit is realized.
Ore, Ore Reserve, or Mineable
Ore Body
The part of a mineral deposit which could be economically and legally extracted or produced at the
time of the reserve determination.
Reserves
Estimated remaining quantities of mineral deposit and related substances anticipated to be
recoverable from known accumulations, from a given date forward, based on:
(a) analysis of drilling, geological, geophysical and engineering data;
(b) the use of established technology;
(c) specified economic conditions, which are generally accepted as being reasonable, and which
are disclosed; and
(d) permitted and financed for development.
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Resources
Those quantities of mineral deposit estimated to exist originally in naturally occurring
accumulations.
Resources are, therefore, those quantities estimated on a particular date to be remaining in
known accumulations plus those quantities already produced from known accumulations plus
those quantities in accumulations yet to be discovered.
Resources are divided into:
(a) discovered resources, which are limited to known accumulations; and
(b) undiscovered resources.
Tonne
A metric ton which is equivalent to 2,204.6 pounds.
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Items 1 and 2. BUSINESS AND PROPERTIES
Overview and Corporate Structure
PART I
Silver Bull Resources, Inc. 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. In
1996, our name was changed to Metalline Mining Company (“Metalline”). On April 20, 2011, at an annual meeting of shareholders,
our shareholders approved the change of our name to Silver Bull Resources, Inc. The name change became effective on April 21,
2011. We have not realized any revenues from our planned operations and we are considered an Exploration Stage Company. We
have not established any reserves with respect to our exploration projects, and may never enter into the development with respect to
any of our projects.
We engage in the business of mineral exploration. We currently own or have the option to acquire a number of property concessions
in Mexico within a mining district known as the Sierra Mojada District, located in the west-central part of the state of Coahuila,
Mexico. We conduct our operations in Mexico through our wholly-owned subsidiary corporations, Minera Metalin S.A. de C.V.
(“Minera Metalin”) and Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”) and through Minera Metalin’s wholly-owned
subsidiary Minas de Coahuila SBR S.A. de C.V.
In April 2010, Metalline Mining Delaware, Inc., our wholly-owned subsidiary, was merged with and into Dome Ventures Corporation
(“Dome”). As a result, Dome became a wholly-owned subsidiary of Silver Bull. Dome’s subsidiaries include its wholly-owned
subsidiaries Dome Asia Inc., and Dome International Global Inc., which are incorporated in the British Virgin Islands. Dome
International Global Inc.’s subsidiaries include its wholly-owned subsidiaries incorporated in Gabon, Dome Ventures SARL Gabon,
and African Resources SARL Gabon, as well as its 99.99%-owned subsidiary, Dome Minerals Nigeria Limited incorporated in
Nigeria. We conduct our exploration activities in Gabon, Africa through Dome Ventures SARL Gabon and African Resources SARL
Gabon.
Our efforts have been concentrated in expenditures related to exploration properties, principally in the Sierra Mojada Property located
in Coahuila, Mexico. We have not determined whether the exploration properties contain ore reserves that are economically
recoverable. The ultimate realization of our investment in exploration properties is dependent upon the success of future property
sales, the existence of economically recoverable reserves, our ability to obtain financing or make other arrangements for
development, and upon future profitable production. The ultimate realization of our investment in exploration properties cannot be
determined at this time, and accordingly, no provision for any asset impairment that may result, in the event we are not successful in
developing or selling these properties, has been made in the accompanying consolidated financial statements.
Sierra Mojada Project
Location, Access and Infrastructure
The Sierra Mojada project is located within a mining district known as the Sierra Mojada District. The Sierra Mojada District is located
in the west central part of the state of Coahuila, Mexico, near the Coahuila-Chihuahua state border approximately 200 kilometers
south of the Big Bend of the Rio Grande River. The principal mining area extends for approximately 5 kilometers in an east-west
direction along the base of the precipitous, 1,000 meter high, Sierra Mojada Range.
The Sierra Mojada project site is situated to the south of the village of Esmeralda, on the northern side of a major escarpment that
forms the northern margin of the Sierra Mojada range. In general, the site is approximately 1,500 meters above sea level. The
project is accessible by paved road from the city of Torreon, Coahuila, which lies approximately 250 kilometers to the
southwest. Esmerelda is served by a rail spur of the Coahuila Durango railroad. There is an airstrip east of Esmeralda, although its
availability is limited, and another airstrip at the nearby Penoles plant, which we can use occasionally. The Sierra Mojada District has
high voltage electric power supplied by the national power company, Comision Federal de Electricidad, C.F.E. and is supplied water
by the municipality of Sierra Mojada. Although power levels are sufficient for current operations and exploration, future development
of the project, if any, may require additional power supplies to be sourced.
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Our facilities in Mexico include offices, residences, shops, warehouse buildings and exploration equipment located at Calle Mina #1,
La Esmeralda, Coahuila, Mexico.
The map below shows the location of the Sierra Mojada project:
Property History
Silver and lead were first discovered by a foraging party in 1879, and mining to 1886 consisted of native silver, silver chloride, and
lead carbonate ores. After 1886, silver-lead-zinc-copper sulphate ores within limestone and sandstone units were produced. No
accurate production history has been found for historical mining during this period.
Approximately 90 years ago, zinc silicate and zinc carbonate minerals (“Zinc Manto Zone”) were discovered underlying the silver-
lead mineralized horizon. The Zinc Manto Zone is predominantly zinc dominated, but with subordinate Lead – rich manto and is
principally situated in the footwall rocks of the Sierra Mojada Fault System. Since discovery and up to 1990, zinc, silver, and lead ores
were mined from various mines along the strike of the deposit including from the Sierra Mojada property. Ores mined from within
these areas were hand sorted and the concentrate shipped mostly to smelters in the United States.
Activity during the period of 1956 to 1990 consisted of operations by the Mineros Norteños Cooperativa and operations by individual
owners and operators of pre-existing mines. The Mineros Norteños operated the San Salvador, Encantada, Fronteriza, Esmeralda,
and Parrena mines, and shipped oxide zinc ore to Zinc National’s smelter in Monterrey, while copper and silver ore were shipped to
smelters in Mexico and the United States.
We estimate that over 45 mines have produced ore from underground workings throughout the approximately five kilometer by two
kilometer area that comprises the Sierra Mojada District. We estimate that since its discovery in 1879, the Sierra Mojada District has
produced approximately 10 million tons of silver, zinc, lead and copper ore. The Sierra Mojada District does not have a mill to
concentrate ore and all mining conducted thus far has been limited to selectively mined ore of sufficient grade to direct ship to
smelters. We believe that mill grade mineralization that was not mined remains available for extraction. No mining operations are
currently active within the area of the Sierra Mojada District, except for a dolomite quarry by Peñoles near Esmeralda.
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In the 1990’s, Kennecott Copper Corporation (“Kennecott”) had a joint venture agreement involving USMX’s Sierra Mojada
concessions. Kennecott terminated the joint venture in approximately 1995. We entered into a Joint Exploration and Development
Agreement with USMX in July 1996 involving USMX’s Sierra Mojada concessions. In 1998, we purchased the Sierra Mojada and the
USMX concessions and the Joint Exploration and Development Agreement was terminated. We also purchased certain other
concessions during this time and conducted exploration for copper and silver mineralization from 1997 through 1999.
In October of 1999, we entered into a joint venture with North Limited of Melbourne, Australia (now Rio Tinto). North Limited withdrew
from the joint venture in October 2000.
We entered into a joint venture agreement with Peñoles in November 2001. The agreement allowed Peñoles to acquire 60% of the
Sierra Mojada project by completing a bankable Feasibility Study and making annual payments to us. During 2002 and 2003,
Peñoles conducted an underground exploration program. In December 2003, the joint venture was terminated by mutual consent
between Peñoles and us.
Title and Ownership Rights
The Sierra Mojada project is comprised of 40 mining concessions consisting of 21,167 hectares (about 52,305 acres). This includes
11 concessions which we purchased, 17 concessions which were granted by the Mexican government and 12 concessions that are
subject to option agreements which require further payments from us, as described below. Our concessions are without known
reserves and the project is exploratory in nature.
Twelve of the concessions in the Sierra Mojada project are subject to options to purchase from existing third party concession
owners. The agreements are considered option purchase agreements and give us the option, but not the obligation, to acquire the
concessions at established prices. Pursuant to the option purchase agreements, we are required to make certain payments over the
terms of these contracts. The payments required to obtain full ownership of these concessions are set forth in the table below:
Olympia (1 concession)
Payment Date
February 2012
August 2012
February 2013
August 2013
Payment Amount
MXN $200,000
MXN $250,000
MXN $470,000
MXN $1,000,000
Nuevo Dulces Nombres (Centenario) and Yolanda III (2 concessions)
Payment Date
Anticipated Second Quarter 2012(2)
Beginning 24 months after the initial payment
date and ending 48 months after the initial
payment date
Payment Amount(1)
US $480,000
US $20,000 per month
(1) 48 months after the initial payment date, we have the option of acquiring
Nuevo Dulces Nombres (100% interest) for US $4 million and Yolanda III (100%
interest) for US $2 million.
(2) Initial payment is expected to be paid in the second quarter of the 2012
fiscal year.
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Fortaleza and Ampl. A Fortaleza (2 concessions)
Payment Date
February 2012
August 2012
February 2013
August 2013
February 2014
August 2014
February 2015
August 2015
February 2016
Payment Amount(1)
US $75,000
US $75,000
US $75,000
US $75,000
US $125,000
US $150,000
US $175,000
US $200,000
US $300,000
___________________________
(1) In August 2016, we have the option of acquiring Fortaleza and Ampl. A
Fortaleza (100% interest) for US $2.675 million.
Poder de Dios, Anexas a Poder de Dios, and Ampliacion a Poder de Dios (3 concessions)
Payment Date
April 2012
October 2012
April 2013
October 2013
April 2014
October 2014
April 2015(2)
Payment Amount
US $200,000
US $300,000
US $300,000
US $300,000
US $300,000
US $300,000
US $300,000
Option Purchase Price(1)
US $4 million
US $4 million
US $5 million
US $5 million
US $6 million
US $6 million
US $7 million
________________________
(1) Payments shown in the second column are required to maintain the option. Payments
shown in the third column reflect the purchase price at that point in time for the acquisition of 100%
of the concessions. Upon payment of the option purchase price, no subsequent payments are
required.
(2) After April 2015, we must pay $300,000 every 6 months in order to maintain the option-
purchase agreement. During this period, we have the option of acquiring Poder de Dios, Anexas a
Poder de Dios, and Ampliacion a Poder de Dios (100% interest) for US $7 million.
Veta Rica o La Inglesa (1 concession)
Payment Date
April 2012
April 2013
April 2014
Payment Amount
US $200,000
US $300,000
US $300,000
La Perla, La India, and La India Dos (3 concessions)
Payment Date
April 2012
April 2013
April 2014
Payment Amount
US $300,000
US $400,000
US $500,000
(1) Payments shown in the second column are required to maintain the option. Payments
shown in the third column reflect the purchase price at that point in time for the acquisition of 100%
of the concessions. Upon payment of the option purchase price, no subsequent payments are
required.
Option Purchase Price(1)
US $3 million
US $4 million
US $5 million
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If exploration results warrant, we intend to make the above payments. We will record these payments as property concession
assets. In the event we elect not to move forward with the purchase option outlined above, we will expense all cumulative costs
deferred for each respective concession.
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Each mining concession enables us to explore the underlying concession in consideration for the payment of a semi-annual fee to the
Mexican government and completion of certain annual assessment work. Annual assessment work in excess of statutory annual
requirements can be carried forward and applied to future periods.
Ownership of a concession provides the owner with exclusive exploration and exploitation rights to all minerals located on the
concessions, but does not include the surface rights to the real property. Therefore, we will need to negotiate any necessary
agreements with the appropriate surface landowners if we determine that a mining operation is feasible for the concessions. We own
surface rights to five lots in the area (Sierra Mojada lot #1, #3, #4, #6 and #7). The municipality officials indicate that they will grant
the necessary agreements to land that we do not own but may be necessary for any mine development, although no binding
arrangement has been established. We have entered into preliminary agreements with other local communities and with private
landholders to obtain surface trespass and use rights to drill water wells, to complete and test water wells, and to build water
pipelines from well sites to our holdings near Sierra Mojada.
Geology and Mineralization
The Sierra Mojada concessions contain a mineral system which can be separated into two distinct zones; The “Shallow Silver Zone”
and the “Zinc Zone”. These two zones lie along the Sierra Mojada Fault which trends east-west along the base of the Sierra Mojada
range. All of the mineralization identified to date is seen as oxide, which has been derived from primary “sulphide” bodies which have
been oxidized and remobilized into porous and fractured rock along the Sierra Mojada Fault. The formation of a silver rich zone (The
Shallow Silver Zone) and a zinc rich zone (The Zinc Zone) is a reflection of the mobility’s of the metals in the ground water conditions
at Sierra Mojada.
The geology of the Sierra Mojada District is composed of a Cretaceous limestone and dolomite sequence sitting on top of the
Jurassic “San Marcos” red sediments. This sedimentary sequence has then later been intruded by Tertiary volcanics, which are
considered to be responsible for the mineralization seen at Sierra Mojada. Historical mines are dry and the rocks are competent for
the most part. The thickness and attitude of the mineralized material could potentially be amenable to high volume mechanized
mining methods and low cost production.
November 2011 Technical Report
On November 25, 2011, SRK Consulting (Canada) Inc. (“SRK”) delivered a technical report on the silver mineralization in the
“Shallow Silver Zone” of the Sierra Mojada Project in accordance with the Canadian Securities Administrators’ National Instrument
43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”). The resource was estimated from 1,107 diamond drill holes, 34
reverse circulation drill holes, 10,611 channel samples and 3,056 long holes. In total, these contain 157,758 assay records, of which
148,950 records contain silver and zinc assays values.
At an economic cutoff grade of 15 grams/tonne of silver for mineralized material possibly accessible by open pit mining and 70
grams/tonne of silver for mineralized material possibly amendable to underground mining, the Report indicates mineralized material
of 28.564 million tonnes at an average silver grade of 50.4 grams/tonne for the silver pit and 0.282 million tonnes at an average silver
grade of 110.9 grams/tonne for the underground workings. Mineralized material estimates do not include any amounts categorized
as inferred resources.
“Mineralized material” as used in this Annual Report on Form 10-K, although permissible under SEC’s Guide 7, does not
indicate “reserves” by SEC standards. We cannot be certain that any part of the Sierra Mojada project will ever be
confirmed or converted into SEC Industry Guide 7 compliant “reserves.” Investors are cautioned not to assume that all
or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can
be economically or legally extracted.
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Sampling, Analysis, Quality Control and Security
Our activities conform to mining industry standard practices and very closely follow the Best Practices Guidelines of the Canadian
Institute of Mining, Metallurgy, and Petroleum (CIM). Sampling is directed and supervised by trained and experienced geologists.
Drill core and other samples are processed and logged using industry standard methods. Standard samples, duplicates and blanks
are periodically entered into the stream of samples submitted for assays, and campaigns of re-sampling and duplicate analyses and
round-robin inter-laboratory validations are conducted periodically. We use ALS Chemex - Vancouver laboratory as our primary
laboratory. ALS Chemex is ISO 9001:2000 certified. All analytical results that are used in resource models are exclusively from
the independent primary laboratory.
Our consultants perform technical audits of our operations, including our formal QA/QC program, and recommend improvements as
needed. A systematic program of duplicate sampling and assaying of representative samples from previous exploration activities was
completed in 2010 under the direction and control of our consultants. Results of this study acceptably confirm the values in the
project database used for resource modeling.
We formerly operated a sample preparation and an analytical laboratory at the project that prepared samples for shipment, and
performed QA/QC analyses to ensure against cross contamination of samples during preparation, and removed most low-value
samples from the flow to the primary laboratory. For both cost and perception reasons, the internal laboratory has been shut down
and all drill samples are submitted directly to ALS Chemex for sample preparation and analyses.
Prior Exploration Activities
We have focused our exploration efforts on two primary locations: the Shallow Silver Zone and the Zinc Zone. As further described
below, we have conducted various exploration activities at the Sierra Mojada project, however, to date we have not established any
reserves, and the project remains in the exploration state, and may never enter the development stage.
Prior to 2010 exploration efforts largely focused on the Zinc Zone. In 2004 we hired Green Team International (“GTI”) of
Johannesburg, South Africa to assess five major elements of the Zinc Zone: Metallurgy, Resource Model, Mine Plan, Refining and
Water Development.
Based off this study in 2008, we completed an initial scoping phase of the feasibility study and developed a preliminary mine plan
based upon our initial zinc resource model. The preliminary mine plan anticipated using an underground mining method that would
use a long-hole end-slice panel stoping method to perform high-volume relatively low cost mining. The preliminary mine plan
projected a minimum daily production rate of 3,000 tonnes (metric tons) per day, and a 17-year mine life. Shortly after developing the
preliminary mine plan, we started working with our engineering firms to develop a more detailed mine plan and concentrator plant
study. In May 2008, we selected SNC-Lavalin to prepare the detailed concentrator plant study. While working on the detailed mine
plan and concentrator plant studies, we contracted with Pincock, Allen, & Holt (“PAH”) to complete a new resource model based upon
latest drilling results and a suite of silver analysis that were not available when the previous resource model was developed.
In July 2008, we announced that PAH completed a new resource model on the oxide zinc mineralization that more than doubled the
estimated amount of zinc present in the deposit. The new resource model increased the estimated size and zinc content of the
deposit plus added a potential estimated by-product credit for silver associated with the oxide zinc mineralization. The new resource
model required that we take a fresh look at the optimum mine size, mining methods, and other economic and engineering
factors. We now believe that open pit mining will be effective on a deposit of this size and geometry and would remove the production
rate constraints that are inherent in the underground mining scenario that was previously considered. We have completed a first
pass evaluation of open pit mining of the new resource model and have determined that mining and processing rates might be as
much as five times greater than the underground mining method. Open pit mining would likely result in significant economies of scale
and may allow market opportunities that are not available with a smaller underground operation. Preliminary economic evaluation of
open pit mining suggests that it would be much more profitable.
Moreover, open pit mining would potentially allow us to mine what was previously termed the silver polymetallic mineralization which
lies adjacent to the oxide zinc mineralization and on the north side of the east-west Sierra Mojada Fault, as well as silver-zinc
mineralization that partially overlies the main oxide zinc zone. Mining of this silver mineralization by open pit would provide access to
the oxide zinc mineralization and reduce the strip ratio (waste to ore mining ratio) required to mine the zinc oxide mineralization. All
feasibility study engineering work on the Zinc Zone is on hold pending collection of the required open pit exploration data and
development of an improved resource model.
In fiscal 2009 we scaled back our exploration activities and administrative costs to conserve capital while we tried to secure additional
sources of capital.
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10
After closing the transaction with Dome in April 2010, we focused our exploration activities at Sierra Mojada on the Shallow Silver
Zone which lies largely at surface. By the end of calendar 2010 an 18,000 meter diamond drilling had been completed.
The silver contained within the Shallow Silver Zone is seen primarily as silver halide minerals. The zinc contained within the Zinc
Zone is contained mostly in the mineral hemimorphite and to a lesser amount in the mineral smithsonite. These silver and zinc
minerals will probably require a different processing plant to recover the contained metals. Intensive geological, mineralogical,
metallurgical, and geochemical studies are currently underway to better understand the characteristics of the silver mineralization.
2011 Exploration Activities
Drilling Program to Refine the Silver-Zinc Resource Model
Our operations in calendar year 2011 focused on drilling and further defining the Shallow Silver Zone. A total of approximately 37,000
meters of drilling was completed primarily on this zone in calendar 2011. This drilling was very successful in defining a near-surface
oxide silver-zinc-lead zone of mineralization that is at least three kilometers long, averages about 150 meters wide and about 35
meters thick. It can be seen at surface in the western half of the resource area, before dipping at around 10 degrees at the eastern
end of the mineralized body. At present, the very eastern edge of the mineralization defined so far lies under about 200 meters of
alluvial cover. The entire 3.8 kilometer strike length of the resource appears to be amenable to mining by open pit
methods. Additionally, a new zone of silver mineralization named the Centenario Zone was identified. The Centenario Zone is hosted
along the “Centenario” fault, a buried east-west trending structure which lies 300 meters to the north of, and runs parallel to, the
“Sierra Mojada” fault – which hosts the Shallow Silver Zone.
As discussed in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation we have approved
an exploration budget of $14.6 million for calendar year 2012. This exploration program includes a planned 41,200 meter drilling
program targeting the Centenario Zone and the western extension of the Shallow Silver Zone. Additionally, this program includes a
planned 5,000 meter underground drilling program targeting along the 2.2 kilometer Parrena adit which lies immediately south of the
Shallow Silver Zone. The Parrena adit has not been previously drilled.
Metallurgical Studies
We have recently hired two metallurgical experts to lead our metallurgical program in 2012. The goal of this program will be to test
the silver for heap and agitation cyanide leach methods. We will also look to see how any low grade zinc (<1%) which reports with the
silver mineralization can be recovered. We will also review all of the previous metallurgical work completed on the Zinc Zone.
Continued Improvement of the Sierra Mojada Infrastructure
The Sierra Mojada project office and camp facilities received a major facelift and upgrade in 2011 to improve on the serviceability and
utility of the facilities and the safety surrounding activity on the grounds of the facility.
Exploration of Land Position
During 2011 we conducted an extensive exploration program on three prospects; “San Francisco”, “Palomas Negros”, and
“Dormidos” which lie outside the immediate mineralized zone at Sierra Mojada. Initial mapping and prospecting over these areas
looked promising. Only San Francisco was drilled in 2011, and although intercepting silver and zinc mineralization up to 15 meters in
width it is not deemed to be a priority target for 2012. Follow up work and drilling are planned on the other two prospects in 2012.
Health and Safety and Environment
A Health, Safety, and Environment audit of the Sierra Mojada project site by outside consultants completed in 2010 and then again in
mid-2011 revealed the project was in need of improved health and safety awareness programs, and facilities. Training of staff,
coupled with new procedures and emphasis on safe work practices has greatly improve the safety on the site. New first aid facilities
and services provided by trained first aiders has also been setup. Since implementing these new safety protocols and awareness
programs among employees and contractors the minor accident incident rate on the project has been reduced significantly.
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Gabon, Africa Licenses and Interests
We, through our wholly-owned subsidiary Dome, own three exploration licenses (Ndjole, Mevang, and Mitzic) each covering
approximately 2,000 square kilometers in Gabon, Africa. These concessions are without known reserves and the project is
exploratory in nature. The Mitzic license, the Mevang license and the Ndjole license are approximately 150 km east of Libreville, the
capital of Gabon.
In November 2006, Dome was granted the Mitzic prospection permit covering 12,800 square kilometers in Gabon. In July of 2008,
Dome converted three areas of the Mitzic prospection permit into three “exploration” licenses, namely the Mitzic exploration license,
the Mevang exploration license and the Ndjole exploration license, each covering an area of 2,000 square kilometers.
The Mitzic license, the Mevang license and the Ndjole license allow Dome to explore an aggregate of 6,000 square
kilometers. Dome may employ sub-surface exploration methods, such as drilling and trial mining to look for potential gold, iron and
manganese projects. These licenses are valid for three years, are transferable and are renewable twice for three year periods.
Applications for license renewal were submitted to the government in June 2011. We expect these license renewals to be issued in
early 2012.
The “Mitzic”, “Mevang”, and “Ndjole” exploration licenses take in areas of Archaean basement rocks and Palaeo-Proterozic cover
sequences that are highly prospective for gold, manganese and iron. An extensive stream sampling campaign conducted by the
French geological survey in the 1970’s and 1980’s identified numerous stream anomalies within these areas that had never been
explored with modern exploration methods due to the dense cover of equatorial rainforest, low population of the country, and the
government’s previous focus on petroleum and forestry. The Mitzic exploration license takes in a series of Archaean rocks that
include greenstone belts and Banded Iron Formations, rocks and is highly prospective for iron ore. The Ndjole and Mevang
exploration licenses take in Palaeo-Proterozoic rocks that form part of the Central West African Orogenic Belt, and are strongly
deformed and metamorphosed to greenschist facies, making them highly prospective for large “orogenic”-type gold deposits. The
Ndjole license also takes in structural disruptions associated with a second continental-scale structure, the “Ikoye-Ikobe Fault.” This
area is characterized by extensive artisinal gold workings of which the gold is thought to come from a local primary source.
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As further set forth below, two of Dome’s licenses, Ndjole and Mevang, are currently being explored pursuant to a joint venture
agreement with a subsidiary of AngloGold Ashanti (“AngloGold”). Dome’s third license, the Mitzic license, has iron ore potential and
we are looking for a joint venture partner on this license. Additionally, Dome also has a joint venture interest in the Ogooue license
that is owned by AngloGold. Although we believe these properties merit future exploration activities, our activities are at a preliminary
stage and we do not consider any of the properties to be individually material.
Joint Venture Agreements
In October 2009, Dome and AngloGold, an international gold mining company, entered into two joint venture agreements. The first
joint venture agreement called the “Ndjole and Mevang Joint Venture agreement” refers to exploration specifically carried out by
AngloGold on the Ndjole and Mevang licenses which are owned by Dome. The second joint venture agreement called the “Ogooue
Joint Venture Agreement” refers specifically to exploration carried out by AngloGold on the Ogooue Prospection permit which is
owned by AngloGold.
Project management between October 2009 and August 2010 was managed by Dome staff. Effective August 2010 AngloGold
assumed the role of project manager for both the Ogooue Joint Venture and the Ndjole and Mevang Joint Venture.
Ndjole and Mevang Joint Venture Agreement
Dome is the owner of the Ndjole and Mevang exploration licenses, each comprised of 2,000 square kilometers. Under the terms of the
joint venture, AngloGold earned a 20% interest by paying Dome $400,000 upon signing of the joint venture agreement in October
2009. AngloGold can earn an additional 40% interest by paying Dome $100,000 per year from 2010 through 2012 and by incurring
exploration expenditures in the amount of $3.7 million from 2010 through 2012 at the rate of $1 million in the first year, $1.2 million in
the second year and $1.5 million in the third year.
Once it has earned a 60% interest, AngloGold can earn an additional 10% interest (70% total) by spending $5 million on exploration
expenditures within two years of earning into a 60% interest as set out above. When the parties have a 70/30 joint venture and if
Dome elects not to contribute to work programs and budgets, AngloGold can elect to earn an additional 15% interest (85% total) by
carrying the project to a completed pre-feasibility study. Should AngloGold fail to perform as set out above, a 100% interest in the
licenses shall revert to Dome and the joint venture will cease. AngloGold is entitled to withdraw from the joint venture after it has spent
$1 million on exploration expenditures.
Joint venture dilution provisions apply whereby if Dome is diluted in the future to a joint venture interest of 5% or less due to lack of
contribution to exploration budgets, its interests will be converted to a 2% Net Smelter Return which can be purchased at appraised
value 14 months after commencement of commercial production.
A 4,000 meter drill program finished at the beginning of June 2011 on Dome’s Ndjole and Mevang properties. The drilling mainly
focused on two significant gold anomalies in the Ndjole license which are above 50 parts per billion and both in excess of 5km in
length. These anomalies were previously identified through mapping and soil sampling in the area and appear to be associated with
major lithological contacts and structures in the area. Gold intercepts between 1 meter and 13 meters in thickness were encountered
with the best intercept being 9 meters at 7.6g/t gold. Most intercepts were in the 1 meter to 3 meter range at 1 to 4 g/t gold.
AngloGold currently owns 20% of each the Ndjole and Mevang licences. As of October 31, 2011, AngloGold has incurred
expenditures of approximately $5.2 million and subject to a payment to Dome of $100,000 on or before October 29, 2012 will acquire
60% of the total project.
Ogooue Joint Venture Agreement
AngloGold acquired a reconnaissance license over an area comprising 8,295 square kilometers in Gabon, Africa. This license was
acquired by AngloGold for its gold potential. In October 2009, Dome and AngloGold Ashanti entered into a joint venture agreement
establishing a joint venture in which AngloGold holds an 80% interest and Dome holds a 20% interest. Dome played a key role in
identifying the ground covered by the licensee and assisting with the application.
AngloGold agreed to spend a minimum of $100,000 on exploration and will fund the first $3 million of exploration expenditures, after
which the parties will contribute on an 80/20 basis. Should AngloGold not meet its funding obligation, the license will be assigned to
Dome. Joint venture dilution provisions apply and if Dome’s interest in the joint venture is diluted to 5% or less due to lack of
contribution to exploration budgets, its interests will be converted to a 2% net smelter return which can be purchased at an appraised
value 14 months after commencement of commercial production.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As of October 31, 2011, AngloGold has spent approximately $300,000 on the Ogooue property. In July 2011 AngloGold applied to
reduce the ground by applying for an exploration license over areas consider prospect. Dome will hold a 20% interest in this license
when it is granted by the Government of Gabon.
Gabon Facility
Our facilities in Gabon include three rented offices which double as accommodation for staff. Two of the offices are located in the
capital city of Libreville, and one field office is located in the village of Ndjole. The Libreville offices include an office-house used by
Dome staff to coordinate exploration activities involving the Mitzic License, and an office-house used by the Dome-AngloGold Ashanti
Joint Venture to coordinate and manage exploration activities for the Ndjole and Mevang Licenses. The Ndjole field office is four hours
by sealed road due east from Libreville and is the main staging point for exploration activities for work on the Ndjole and Mevang
licenses. Field based activities from here are run out of tented field camps. Electricity for all offices is supplied from the local grid and
from light diesel generators for field camps.
Executive Officers of Silver Bull Resources
We have four executive officers: (1) Executive Chairman, (2) President and Chief Executive Officer, (3) Chief Financial Officer, and (4)
Vice President - Exploration. Set forth below is information regarding our executive officers.
Name and Residence
Brian Edgar
Vancouver, BC
Tim Barry
Vancouver, BC
Sean Fallis
Vancouver, BC
Jason Cunliffe
Medonza, Argentina
Age
61
Executive Chairman
Position
36
President, Chief Executive Officer and Director
32
Chief Financial Officer
41
Vice President - Exploration
Brian Edgar. Mr. Edgar was appointed Chairman of the Board of Directors in April 2010. Mr. Edgar has broad experience working in
junior and mid-size level natural resource companies. He previously served as Dome's President and Chief Executive Officer from
February 2005 until it was acquired by Metalline in April 2010. Further, Mr. Edgar served on Dome's Board of Directors from 1998 to
2010. Mr. Edgar currently serves as a director of BlackPearl Resources Inc., Denison Mines Corp., Lucara Diamond Corp., Lundin
Mining Corporation, and ShaMaran Petroleum Corp. Prior to establishing Rand Edgar Capital Corp. (succeeded by Rand Edgar
Investment Corp.), Mr. Edgar practiced corporate/securities law in Vancouver, British Columbia, Canada for sixteen years.
Tim Barry. Mr. Barry has served as a director, President and Chief Executive Officer since March 2011. From August 2010 to March
2011, he served as our Vice President - Exploration. Between 2006 and August 2010, Mr. Barry spent 5 years working as Chief
Geologist in West and Central Africa for Dome. During this time, he managed all aspects of Dome’s exploration programs, as well as
overseeing corporate compliance for Dome’s various subsidiaries. Mr. Barry also served on Dome’s board of directors. In 2005 he
worked as a project geologist in Mongolia for Entree Gold, a company that has a significant stake in Oyu Tolgoi. Between 1998 and
2005, Mr. Barry worked as an exploration geologist for Ross River Minerals on its El Pulpo copper/gold project in Sinaloa, Mexico, for
Canabrava Diamonds on its exploration programs in the James Bay lowlands in Ontario, Canada, and for Homestake on its Plutonic
Gold Mine in Western Australia. He has also worked as a mapping geologist for the Geological Survey of Canada in the Coast
Mountains, and as a research assistant at the University of British Columbia, where he examined the potential of CO2 sequestration in
Canada using ultramafic rocks. Mr. Barry received a bachelor of science from the University of Otago in Dundein, New Zealand and
is a registered geologist (AusIMM). He also serves on the board of directors of Acme Resources, a junior exploration company listed
on the Toronto Stock Exchange, and is involved in several private technology companies that work in the data backup and insurance
industry.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Sean Fallis. Mr. Fallis was appointed Chief Financial Officer in April 2011. From February 2011 to April 2011, he served as our Vice
President - Finance. From July 2008 to February 2011, Mr. Fallis served as the Corporate Controller for Rusoro Mining Ltd (TSX
Venture: “RML”). Prior to working at Rusoro Mining Ltd, he worked at PricewaterhouseCoopers as an Audit Senior Associate from
January 2007 to June 2008, where he worked with both Canadian and U.S. publicly listed companies in the audit and assurance
practice. At PricewaterhouseCoopers, Mr. Fallis focused on clients in the mining industry. Further, he worked at SmytheRatcliffe
Chartered Accountants as a staff accountant from September 2004 to December 2006. Mr. Fallis received a bachelor of science from
Simon Fraser University in 2002 and is a Chartered Accountant.
Jason Cunliffe. Mr. Cunliffe was appointed Vice President - Exploration in August 2011. Mr. Cunliffe has over seventeen years of
experience working for natural resource companies in South and Central America. Prior to joining us, he served as the Exploration
Manager of ECI Exploration & Mining, a company engaged in the exploration and development of gold, silver, and base metal
ores. Mr. Cunliffe also served as the Exploration Manager South America for Underworld Resources Inc. from January 2008 to
October 2008. From January 2002 to December 2007, he served in various capacities for Hochschild Mining plc, a precious metals
producer operating in the Americas with a primary focus on silver and gold, including as Exploration Manager South America and
Exploration Manager Argentina and Chile. From August 2000 until December 2001, Mr. Cunliffe served as a senior geologist for
IAMGOLD. Mr. Cunliffe is a Professional Geologist and has a master’s degree in Geology from Leicester University in the United
Kingdom.
Competition and Mineral Prices
Silver and zinc are commodities, and their prices are volatile. During 2011, the price of silver ranged from a low of $26.16 per ounce
to a high of $48.70 per ounce, and the price of zinc ranged from a low of $1,871 per tonne to a high of $2,473 per tonne. Silver and
zinc prices are affected by many factors beyond our control, including prevailing interest rates and returns on other asset classes,
expectations regarding inflation, speculation, currency values, governmental decisions regarding the disposal of precious metals
stockpiles, global and regional demand and production, political and economic conditions and other factors. The competitive nature of
the business and the risks we are therefore faced with are discussed further in the item entitled “Risk Factors,” below.
The following tables set forth for the periods indicated on the London Metal Exchange high and low silver and zinc prices in U.S.
dollars per troy ounce and per tonne, respectively. On October 31, 2011, the closing price of silver was $34.24 per troy ounce. On
October 31, 2011, the closing price of zinc was $1,871 per tonne.
Year
2005
2006
2007
2008
2009
2010
2011
Year
2005
2006
2007
2008
2009
2010
2011
Silver
Zinc
Low
$6.39
$8.83
$11.67
$8.88
$10.51
$15.14
$26.16
Low
$1,196
$2,091
$2,379
$1,113
$1,118
$1,746
$1,871
High
$9.23
$14.94
$15.82
$20.92
$19.18
$30.70
$48.70
High
$1,819
$4,381
$3,848
$2,511
$2,374
$2,414
$2,473
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Government Regulation
Mineral exploration activities are subject to various national, state/provincial, and local laws and regulations, which govern
prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the
environment, mine safety, hazardous substances and other matters. Similarly, if any of our properties are developed and/or mined
those activities are also subject to significant governmental regulation and oversight. We will obtain the licenses, permits or other
authorizations currently required to conduct our exploration program. We believe that we are in compliance in all material respects
with applicable mining, health, safety and environmental statutes and the regulations applicable to the mineral interests we now hold
in Mexico and Gabon.
Environment Regulations
Our activities are subject to various national and local laws and regulations governing protection of the environment. These laws are
continually changing and, in general, are becoming more restrictive. We intend to conduct business in a way that safeguards public
health and the environment. We will conduct our operational compliance with applicable laws and regulations.
Changes to current state or federal laws and regulations in Mexico and Gabon could, in the future, require additional capital
expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any,
might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.
During fiscal 2011, we had no material environmental incidents or non-compliance with any applicable environmental regulations.
Employees
We have four employees and three outside consultants of which all are full time. Contratistas de Sierra Mojada S.A. de C.V, our
wholly-owned operating subsidiary in Mexico currently has 39 employees and consultants who are full time. Minera Metalin S.A. de
C.V., our mineral holding company in Mexico, does not have any employees. Dome Gabon SARL, our wholly-owned subsidiary in
Gabon has approximately 20 employees and consultants who are full time. African Resources SARL Gabon has one full time
consultant.
Corporate Offices
Our corporate offices are located at 885 West Georgia Street, Suite 2200, Vancouver, British Columbia, Canada V6C 3E8, our
telephone number is (604) 687-5800 and our fax number is (604) 687-4646. We lease our corporate office space, and the current
lease is on a month-to-month basis at the basic rate of $10,000 per month for general corporate development rent and administrative
services to a company owned by Mr. Edgar.
Available Information
We maintain an internet website at http://www.silverbullresources.com. The information on our website is not incorporated by
reference in this Annual Report on Form 10-K. We make available on or through our website certain reports and amendments to
those reports that we file with or furnish to the Securities and Exchange Commission (the “SEC”) in accordance with the Exchange
Act. Alternatively, you may read and copy any information we file with the SEC at its public reference room at 100 “F” Street NE,
Washington, D.C. 20549. You may obtain information about the operation of the public reference room by calling 1-800-SEC-0330.
You may also obtain this information from the SEC’s website, http://www.sec.gov.
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Item 1A. RISK FACTORS
Our securities are highly speculative and involve a high degree of risk. Our business, operating or financial condition could be harmed
due to any of the following risks. Accordingly, investors should carefully consider these risks in making a decision as to whether to
purchase, sell or hold our securities. In addition, investors should note that the risks described below are not the only risks facing us.
Additional risks not presently known to us, or risks that do not seem significant today, may also impair our business operations in the
future. You should carefully consider the risks described below before making a decision to invest in our securities.
RISKS RELATED TO OUR BUSINESS:
We are an exploration stage mining company with no history of operations.
We are an exploration stage enterprise engaged in mineral exploration in Mexico and Gabon, Africa. We have a very limited
operating history and are subject to all the risks inherent in a new business enterprise. As an exploration stage company, we may
never enter the development and production stages. To date we have had no revenues and have relied upon equity financing to fund
our operations. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and
delays frequently encountered in connection with an exploration stage business, and the competitive and regulatory environment in
which we operate and will operate, such as under-capitalization, personnel limitations, and limited financing sources.
We have no commercially mineable ore body.
No commercially mineable ore body has been delineated on our Sierra Mojada Project or on our exploration licenses in Gabon,
Africa, nor have our properties been shown to contain proven or probable mineral reserves. SRK Consulting (Canada), Inc. recently
completed a technical report on the silver mineralization of the “Shallow Silver Zone” at the Sierra Mojada Project. We cannot assure
you that any mineral deposits we identify on the Sierra Mojada Project, in Gabon or on another property will qualify as an ore body
that can be legally and economically exploited or that any particular level of recovery of silver or other minerals from discovered
mineralization will in fact be realized. Most exploration projects do not result in the discovery of commercially mineable ore deposits.
Even if the presence of reserves is established at a project, the legal and economic viability of the project may not justify exploitation.
Mineral resource estimates may not be reliable.
There are numerous uncertainties inherent in estimating quantities of mineralized material such as silver, zinc, lead, and gold,
including many factors beyond our control, and no assurance can be given that the recovery of mineralized material will be realized.
In general, estimates of mineralized material are based upon a number of factors and assumptions made as of the date on which the
estimates were determined, including:
· geological and engineering estimates that have inherent uncertainties and the assumed effects of regulation by governmental
agencies;
· the judgment of the engineers preparing the estimate;
· estimates of future metals prices and operating costs;
· the quality and quantity of available data;
· the interpretation of that data; and
· the accuracy of various mandated economic assumptions, all of which may vary considerably from actual results.
All estimates are, to some degree, uncertain. For these reasons, estimates of the recoverable mineral resources prepared by different
engineers or by the same engineers at different times, may vary substantially. As such, there is significant uncertainty in any
mineralized material estimate and actual deposits encountered and the economic viability of a deposit may differ materially from our
estimates.
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Our business plan is highly speculative and its success largely depends on the successful exploration of our Sierra Mojada
concessions.
Although we hold exploration licenses in Gabon, our business plan is focused on exploring the Sierra Mojada concessions to identify
reserves, and if appropriate, to ultimately develop this property. Further, although we have recently reported mineralized material on
our Sierra Mojada Project, we have not established any reserves and remain in the exploration stage. We may never enter the
development or production stage. Exploration of mineralization and determining whether the mineralization might be extracted
profitably is highly speculative, and it may take a number of years until production is possible, during which time the economic
viability of the project may change. Substantial expenditures are required to establish reserves, extract metals from ore and to
construct mining and processing facilities.
The Sierra Mojada Project is subject to all of the risks inherent in mineral exploration and development. The economic feasibility of
any mineral exploration and/or development project is based upon, among other things, estimates of the size and grade of mineral
reserves, proximity to infrastructures and other resources (such as water and power), anticipated production rates, capital and
operating costs, and metals prices. Development projects are also subject to the completion of favorable feasibility studies, issuance
of necessary permits, and the ability to raise further capital to fund activities. There can be no assurance that we will be successful in
overcoming these risks. Because of our focus on the Sierra Mojada Project, the success of our operations and our profitability may
be disproportionately exposed to the impact of adverse conditions unique to the Torreon, Mexico region, as the Sierra Mojada Project
is located 250 kilometers north of this area.
Due to our history of operating losses, we are uncertain that we will be able to maintain sufficient cash to accomplish our
business objectives.
During the years ended October 31, 2011 and October 31, 2010, we suffered net losses of $12,237,360 and $9,405,490,
respectively. At October 31, 2011, we had stockholders’ equity of $32,991,122 and working capital of $2,424,936. Significant amounts
of capital will be required to continue to explore and potentially develop the Sierra Mojada concessions. We are not engaged in any
revenue producing activities and we do not expect to do so in the near future. Currently our sources of funding consist of the sale of
additional equity securities, entering into joint venture agreements or selling a portion of our interests in our assets. There is no
assurance that any additional capital that we will require will be obtainable on terms acceptable to us, if at all. Failure to obtain such
additional financing could result in delays or indefinite postponement of further exploration of our projects. Additional financing, if
available, will likely result in substantial dilution to existing stockholders.
We may have difficulty meeting our current and future capital requirements.
Our management and our board of directors monitor our overall costs and expenses and, if necessary, adjust our programs and
planned expenditures in an attempt to ensure we have sufficient operating capital. We continue to evaluate our costs and planned
expenditures for our on-going exploration efforts at our Sierra Mojada Project. We raised in excess of $3 million during our 2010
fiscal year, increased our cash and cash equivalent assets by approximately $14.58 million through the merger transaction with Dome
Ventures Corporation (“Dome”) that occurred in April 2010, and raised approximately $5 million in a private placement in fiscal 2011.
In addition, we raised approximately $10.5 million from an offering of our common stock to certain investors that occurred in
December 2011. However, the continued exploration and possible development of the Sierra Mojada Project will require significant
amounts of additional capital. In addition, in the event AngloGold funds its exploration commitment under the joint venture
agreements with Dome, we may require additional capital to further our interests in Gabon. As a result, we may need to explore
raising additional capital during fiscal 2012 and beyond so that we can continue to fully fund our planned activities. The extraordinary
conditions in the global financial and capital markets have currently limited the availability of this funding. If the disruptions in the
global financial and capital markets continue, debt or equity financing may not be available to us on acceptable terms, if at all.
Moreover, as a result of a late Form 8-K filing in 2011, we are not eligible to use our “shelf” registration statement during the majority
of 2012. Because of that limitation, our ability to quickly access U.S. capital markets will be somewhat constrained. If we are unable
to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business, financial
condition and exploration activities will be adversely impacted.
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Our exploration activities require significant amounts of capital that may not be recovered.
Mineral exploration activities are subject to many risks, including the risk that no commercially productive or extractable resources will
be encountered. There can be no assurance that our activities will ultimately lead to an economically feasible project or that we will
recover all or any portion of our investment. Mineral exploration often involves unprofitable efforts, including drilling operations that
ultimately do not further our exploration efforts. The cost of minerals exploration is often uncertain and cost overruns are common.
Our drilling and exploration operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are
beyond our control, including title problems, weather conditions, compliance with governmental requirements, including permitting
issues, and shortages or delays in the delivery of equipment and services.
We primarily rely on a third party to fund the exploration of our interests in Gabon, Africa.
In October 2009, Dome, which became our wholly owned subsidiary in April 2010, entered into two joint venture agreements with
AngloGold for the exploration of its Ndjole and Mevang exploration licenses in Gabon. In addition, Dome entered into a separate joint
venture agreement with respect to a license held by a third party - the Ogooue license. Prior to Dome entering into the joint venture
agreement with respect to its license, it was not engaged in active exploration operations on its Gabon licenses. The terms of the joint
venture agreements require AngloGold to fund the initial (and current) exploration costs of two of our exploration licenses in order to
earn an interest in the project. Should AngloGold elect not to fund the exploration commitments under the joint venture agreements,
the entire interest in the licenses would revert to Dome and the joint venture will cease. Accordingly, we may have to temporarily or
permanently scale back exploration of our Gabon licenses and/or attempt to identify another third party to fund the exploration
efforts. Alternatively, we could suspend our exploration activities in Gabon altogether.
Our financial condition could be adversely affected by changes in currency exchange rates, especially between the U.S.
dollar and the Mexican peso given our focus on the Sierra, Mojada Project.
Our financial condition is affected in part by currency exchange rates, as portions of our exploration costs in Mexico and Gabon are
denominated in the local currency. A weakening U.S. dollar relative to the Mexican peso will have the effect of increasing exploration
costs while a strengthening U.S. dollar will have the effect of reducing exploration costs. The Gabon local currency is tied to the Euro.
Some of our exploration activities in Mexico are tied to the peso. The exchange rates between the Euro and the U.S. dollar and
between the peso and U.S. dollar have fluctuated widely in response to international political conditions, general economic conditions
and other factors beyond our control. We seek to mitigate exposure to foreign currency fluctuations by completing a majority of our
purchases in U.S. dollars and holding a majority of our cash balances in U.S. dollars.
THE BUSINESS OF MINERAL EXPLORATION IS SUBJECT TO MANY RISKS:
There are inherent risks in the mineral exploration industry
We are subject to all of the risks inherent in the minerals exploration industry including, without limitation, the following:
· we are subject to competition from a large number of companies, many of which are significantly larger than we are, in the
acquisition, exploration, and development of mining properties;
· we might not be able raise enough money to pay the fees and taxes and perform the labor necessary to maintain our
concessions in good force;
· exploration for minerals is highly speculative and involves substantial risks, even when conducted on properties known to
contain significant quantities of mineralization, our exploration projects may not result in the discovery of commercially
mineable deposits of ore;
· the probability of an individual prospect ever having reserves that meet the requirements for reporting under SEC Industry
Guide 7 is remote and any funds spent on exploration may be lost;
· our operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting
procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other
environmental protection controls and we may not be able to comply with these regulations and controls; and
· a large number of factors beyond our control, including fluctuations in metal prices, inflation, and other economic conditions,
will affect the economic feasibility of mining.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Metals prices are subject to extreme fluctuation.
Our activities are influenced by the prices of commodities, including silver, zinc, lead, gold, and other metals. These prices fluctuate
widely and are affected by numerous factors beyond our control, including interest rates, expectations for inflation, speculation,
currency values (in particular the strength of the U.S. dollar), global and regional demand, political and economic conditions and
production costs in major metal producing regions of the world.
Our ability to establish reserves through our exploration activities, our future profitability and our long-term viability, depend, in large
part, on the market prices of silver, zinc, lead, gold, and other metals. The market prices for these metals are volatile and are affected
by numerous factors beyond our control, including:
· global or regional consumption patterns;
· supply of, and demand for, silver, zinc, lead, gold, and other metals;
· speculative activities and producer hedging activities;
· expectations for inflation;
· political and economic conditions; and
· supply of, and demand for, consumables required for production.
Future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could in turn reduce
the value of our properties, make it more difficult to raise additional capital, and make it uneconomical for us to continue our
exploration activities.
There are inherent risks with foreign operations.
Our business activities are primarily conducted in Mexico, and we also hold interests in Gabon, and as such, our activities are
exposed to various levels of foreign political, economic and other risks and uncertainties. These risks and uncertainties include, but
are not limited to, terrorism, hostage taking, military repression, extreme fluctuations in currency exchange rates, high rates of
inflation, labor unrest, the risks of war or civil unrest, expropriation and nationalization, renegotiation or nullification of existing
concessions, licenses, permits, approvals and contracts, illegal mining, changes in taxation policies, restrictions on foreign exchange
and repatriation, changing political conditions, currency controls and governmental regulations that favor or require the rewarding of
contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.
Changes, if any, in mining or investment policies or shifts in political attitude in Mexico and/or Gabon may adversely affect our
exploration and possible future development activities. We may also be affected in varying degrees by government regulations with
respect to, but not limited to, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local
people, water use and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral
right applications and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or
foreign parties as joint venture partners with carried or other interests.
The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our
operations. In addition, legislation in the U.S., Canada, Mexico and/or Gabon regulating foreign trade, investment and taxation could
have a material adverse effect on our financial condition.
Our Sierra Mojada Project is located in Mexico and is subject to various levels of political, economic, legal and other risks.
The Sierra Mojada Project, our primary focus, is in Mexico. In the past, Mexico has been subject to political instability, changes and
uncertainties, which have resulted in changes to existing governmental regulations affecting mineral exploration and mining activities.
Mexico’s status as a developing country may make it more difficult for us to obtain any required financing for the Sierra Mojada
Project or other projects in Mexico in the future. Our Sierra Mojada Project is also subject to a variety of governmental regulations
governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine
development, protection of endangered and protected species and other matters. Mexican regulators have broad authority to shut
down and/or levy fines against facilities that do not comply with regulations or standards.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our exploration activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the
mining industry or shifts in political conditions that increase the costs related to the Sierra Mojada Project. Changes, if any, in mining
or investment policies or shifts in political attitude may adversely affect our financial condition. Expansion of our activities will be
subject to the need to assure the availability of adequate supplies of water and power, which could be affected by government policy
and competing operations in the area.
The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our
financial condition. Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation
could negatively impact current or planned exploration activities with the Sierra Mojada Project or in respect to any other projects in
which we become involved in Mexico. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in
the interruption of exploration operations or material fines, penalties or other liabilities.
Title to our properties may be challenged or defective.
Our future operations, including our activities at the Sierra Mojada Project and other exploration activities, will require additional
permits from various governmental authorities. Our operations are and will continue to be governed by laws and regulations governing
prospecting, mineral exploration, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use,
environmental protection, mine safety, mining royalties and other matters. There can be no assurance that we will be able to acquire
all required licenses, permits or property rights on reasonable terms or in a timely manner, or at all, and that such terms will not be
adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not
be challenged by third parties.
We attempt to confirm the validity of our rights of title to, or contract rights with respect to, each mineral property in which we have a
material interest. However, we cannot guarantee that title to our properties will not be challenged. The Sierra Mojada property may be
subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There may
be valid challenges to the title of any of the claims comprising the Sierra Mojada property that, if successful, could impair possible
development and/or operations with respect to such properties in the future. Challenges to permits or property rights, whether
successful or unsuccessful; changes to the terms of permits or property rights; or a failure to comply with the terms of any permits or
property rights that have been obtained, could have a material adverse effect on our business by delaying or preventing or making
continued operations economically unfeasible.
A title defect could result in Silver Bull losing all or a portion of its right, title, and interest in and to the properties to which the title
defect relates. Title insurance generally is not available, and our ability to ensure that we have obtained secure title to individual
mineral properties or mining concessions may be severely constrained. In addition, we may be unable to operate our properties as
permitted or to enforce our rights with respect to our properties. We annually monitor the official land records in Mexico City to
determine if there are annotations indicating the existence of a legal challenge against the validity of any of our concessions. As of
December 2011, there were no such annotations, nor are we aware of any challenges from the government or from third parties.
In addition, in connection with the purchase of certain mining concessions, it appears that the prior management of Silver Bull agreed
to pay a net royalty interest on revenue from future mineral sales on certain concessions at the Sierra Mojada project. We are
currently evaluating the applicability of this royalty interest, but if the royalty remains in effect and applies to concessions on which a
significant portion of our mineralized material is located, the existence of the royalty may have a material effect on the economic
feasibility of potential future development of Sierra Mojada project.
We are subject to complex environmental and other regulatory risks, which could expose us to significant liability and
delay, and potentially the suspension or termination of our exploration efforts.
Our mineral exploration activities are subject to federal, state and local environmental regulation in the jurisdictions where our mineral
properties are located. These regulations mandate, among other things, the maintenance of air and water quality standards and land
reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. No
assurance can be given that environmental standards imposed by these governments will not be changed, thereby possibly
materially adversely affecting our proposed activities. Compliance with these environmental requirements may also necessitate
significant capital outlays or may materially affect our earning power.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties
for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for
companies and their officers, directors and employees. As a result of recent changes in environmental laws in Mexico, for example,
more legal actions supported or sponsored by non-governmental groups interested in halting projects may be filed against companies
operating in all industrial sectors, including the mining sector. Mexican projects are also subject to the environmental agreements
entered into by Mexico, the United States and Canada in connection with the North American Free Trade Agreement.
Future changes in environmental regulation in the jurisdictions where our projects are located may adversely affect our exploration
activities, make them prohibitively expensive, or prohibit them altogether. Environmental hazards may exist on the properties in which
we currently hold interests, such as the Sierra Mojada Project, or may hold interests in the future, which are unknown to us at present
and that have been caused by us or previous owners or operators, or that may have occurred naturally. We may be liable for
remediating any damage that we may have caused. The liability could include costs for removing or remediating the release and
damage to natural resources, including ground water, as well as the payment of fines and penalties.
We may face a shortage of water.
Water is essential in all phases of the exploration and development of mineral properties. It is used in such processes as exploration,
drilling, leaching, placer mining, dredging, testing, and hydraulic mining. Both the lack of available water and the cost of acquisition
may make an otherwise viable project economically impossible to complete. Although the work completed on the Sierra Mojada
Project thus far indicates that an adequate supply of water can probably be developed in the area for an underground mining
operation, we will need to complete an additional water exploration program to determine if there is sufficient water available for an
open pit mining operation.
We may face a shortage of supplies and materials.
The mineral industry has experienced from time to time shortages of certain supplies and materials necessary in the exploration for
and evaluation of mineral deposits. The prices at which such supplies and materials are available have also greatly increased. Our
planned operations could be subject to delays due to such shortages and further price escalations could increase our costs for such
supplies and materials. Our experience and that of others in the industry is that suppliers are often unable to meet contractual
obligations for supplies, equipment, materials, and services, and that alternate sources of supply do not exist.
Competition for outside engineers and consultants is fierce.
We are heavily dependent upon outside engineers and other professionals to complete work on our exploration projects. The mining
industry has experienced significant growth over the last several years and as a result, many engineering and consulting firms have
experienced a shortage of qualified engineering personnel. We closely monitor our outside consultants through regular meetings and
review of resource allocations and project milestones. However, the lack of qualified personnel combined with increased mining
projects could result in delays in completing work on our exploration projects or result in higher costs to keep personnel focused on
our project.
Our non-operating properties are subject to various hazards.
We are subject to risks and hazards, including environmental hazards, the encountering of unusual or unexpected geological
formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These
occurrences could result in damage to, or destruction of, mineral properties or future production facilities, personal injury or death,
environmental damage, delays in our exploration activities, asset write-downs, monetary losses and possible legal liability. We may
not be insured against all losses or liabilities, either because such insurance is unavailable or because we have elected not to
purchase such insurance due to high premium costs or other reasons. Although we maintain insurance in an amount that we consider
to be adequate, liabilities might exceed policy limits, in which event we could incur significant costs that could adversely affect our
activities. The realization of any significant liabilities in connection with our activities as described above could negatively affect our
activities and the price of our common stock.
We need and rely upon key personnel.
Presently, we employ a limited number of full-time employees, utilize outside consultants, and in large part rely on the personal
efforts of our officers and directors. Our success will depend, in part, upon the ability to attract and retain qualified employees. We
believe that we will be able to attract competent employees and consultants, but no assurance can be given that we will be
successful in this regard. If we are unable to engage and retain the necessary personnel, our business would be materially and
adversely affected. Competition for these professionals is extremely intense.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
RISKS RELATING TO OUR COMMON STOCK:
No dividends are anticipated.
At the present time we do not anticipate paying dividends, cash or otherwise, on our common stock in the foreseeable future. Future
dividends will depend on our earnings, if any, our financial requirements and other factors. There can be no assurance that we will
pay dividends.
Our stock price can be extremely volatile.
Our common stock is listed on the TSX and NYSE Amex. The trading price of our common stock has been and could continue to be
subject to wide fluctuations in response to announcements of our business developments, results and progress of our exploration
activities at the Sierra Mojada Project and in Gabon, progress reports on our exploration activities, and other events or factors. In
addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the
market prices of companies, at times for reasons unrelated to their operating performance. These fluctuations could be in response
to:
· volatility in metal prices;
· political developments in the foreign countries in which our properties, or properties for which we perform services, are
located; and
· news reports relating to trends in our industry or general economic conditions.
These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time,
including as to whether our common stock will sustain market prices at or near the offering price, or as to what effect the sale of
shares or the availability of common stock for sale at any time will have on the prevailing market price.
Further equity financings may lead to the dilution of our common stock.
In order to finance future operations, we may raise funds through the issuance of common stock or the issuance of debt instruments
or other securities convertible into common stock. We cannot predict the size of future issuances of common stock or the size and
terms of future issuances of debt instruments or other securities convertible into common stock or the effect, if any, that future
issuances and sales of our securities will have on the market price of our common stock. Any transaction involving the issuance of
previously authorized but unissued shares, or securities convertible into common stock, would result in dilution, possibly substantial,
to present and prospective security holders.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 3. LEGAL PROCEEDINGS
We are not subject to any pending or, to our knowledge, threatened, legal proceedings.
Item 4. REMOVED AND RESERVED
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
PART II
Our common stock is traded on the NYSE Amex (formerly known as the American Stock Exchange) under the symbol “SVBL”. On
August 26, 2010, our common stock began trading on the Toronto Stock Exchange under the symbol “SVB”.
The following table sets forth the high and low sales prices of our common stock for each quarter during the fiscal years ended
October 31, 2011, October 31, 2010, and October 31, 2009, as well as through December 31, 2011, as reported by the NYSE Amex
and the Toronto Stock Exchange.
2012
First Quarter (through December 31, 2011)
2011
First Quarter (January 31, 2011)
Second Quarter (April 30, 2011)
Third Quarter (July 31, 2011)
Fourth Quarter (October 31, 2011)
2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
NYSE Amex
(SVBL)
Toronto
Stock Exchange
(SVB) (1)
High
Low High
Low
($)
(Cdn$)
$ 0.69
$0.49
$0.70
$0.50
$1.27
1.33
0.98
0.75
$0.78
0.88
0.58
0.57
$ 1.32
1.35
0.95
0.75
$ 0.95
1.59
1.02
0.85
$ 0.51
0.37
0.33
0.74
$0.61
0.93
0.58
0.55
$0.52
0.62
0.52
0.57
$0.20
0.11
0.18
0.27
The closing price of our Common Stock as reported on December 31, 2011 on the NYSE Amex, was $0.54 per share.
(1) Silver Bull began trading on the Toronto Stock Exchange on August 26, 2010. Share price information for the Toronto Stock
Exchange prior to November 11, 2010 is unavailable.
Holders
As of December 31, 2011, there were 207 holders of record of our common stock. This does not include persons who hold our
common stock in brokerage accounts and otherwise in “street name.”
Dividends
We did not declare or pay cash or other dividends on our common stock during the last two calendar years. We have no plans to pay
any dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
As of October 31, 2011, we had two active formal equity compensation plans.
· The 2006 Stock Option Plan (the “2006 Plan”) was adopted by the board of directors in May 2006, and approved by the
stockholders in July 2006. Five million shares of common stock are reserved for issuance under the 2006 Plan. As of
October 31, 2011, options to acquire 478,574 shares of common stock are outstanding pursuant to the 2006 Plan and
4,045,807 shares remain available for issuance under the plan.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
· The 2010 Stock Option and Bonus Plan (the “2010 Plan”) was adopted by the board of directors in December 2009 and
approved by the stockholders in April 2010. Under the 2010 Plan, the lesser of (i) 30,000,000 shares or (ii) 10% of the total
shares outstanding will be reserved to be issued upon the exercise of options or the grant of stock bonuses. As of October
31, 2011, there are 10,300,000 shares reserved for issuance under the 2010 Plan. Options to acquire 4,073,334 shares of
common stock are outstanding pursuant to the 2010 plan, and 5,556,308 shares remain available for issuance under the
plan.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights
under our compensation plans as of October 31, 2011.
Number of securities to be
issued upon exercise of
outstanding options,
warrants
and rights
Weighted average exercise
price of outstanding
options, warrants and
rights
Number of securities
remaining available
for
future issuance
4,551,908(1)
$1.06
9,602,115(2)
590,000(3)
5,141,908
$2.93
$1.27
—
9,602,115
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security
holders
Total
(1) Includes: (i) options to acquire 478,574 shares of common stock under the 2006 Plan; and (ii) options to acquire 4,073,334
shares of common stock under the 2010 Plan.
(2) Includes: (i) 4,045,807 shares of common stock available for issuance under the 2006 Plan; and (ii) 5,556,308 shares of
common stock available for issuance under the 2010 Plan.
(3) Includes: (i) warrants to purchase 590,000 shares as compensation for financial services to David Nahmias.
Recent Sales of Unregistered Securities
All sales of unregistered equity securities that occurred during the period covered by this report, and through December 31, 2011,
have been previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed”
with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent
we specifically incorporate it by reference into such a filing.
Performance Graph
The following graph compares the cumulative return provided to stockholders of Silver Bull Resources, Inc. relative to the cumulative
total returns of the NYSE Amex Composite Index (XAX) and the Philadelphia Gold and Silver Index (XAU). An investment of $100 is
assumed to have been made in our common stock and in each of the indexes on October 31, 2006 and its relative performance is
tracked through October 31, 2011. The indices are included for comparative purpose only.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Oct. 31,
2006
Oct. 31,
2007
Oct. 31,
2008
Oct. 31,
2009
Oct. 31,
2010
Oct. 31,
2011
Silver Bull Resources, Inc. (SVBL)
NYSE Amex Composite Index (XAX)
Philadelphia Gold and Silver Index (XAU)
$100
$100
$100
$117.69
$128.75
$136.99
$15.52
$74.64
$59.03
$19.49
$89.15
$114.08
$22.74
$106.03
$148.79
$24.19
$115.61
$146.56
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data with respect to Silver Bull and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.
(In thousands, except per share data)
FINANCIAL HIGHLIGHTS
Year Ended October 31,
2011
2010 (1)
2009
2008
2007
Revenues
Loss from operations
Net loss
Basic and diluted loss per common share
Cash and cash equivalents
Total assets
Stockholders’ equity
$
$
— $
(11,745)
(12,237)
(0.11)
4,240
35,214
32,991
—
(10,838)
(9,405)
(0.12)
10,571
41,313
39,526
— $
(4,453)
(4,724)
(0.12)
1,483
7,042
6,237
— $
(8,743)
(12,320)
(0.31)
2,229
7,818
7,440
—
(7,413)
(6,932)
(0.20)
1,434
15,233
14,832
1) On April 16, 2010, we completed a merger transaction with Dome Venture Corporation (“Dome”), whereby Dome became our
wholly owned subsidiary. At the closing of the transaction, $11,961,516 of net proceeds from Dome’s special warrant offering,
and the cash acquired in the transaction, our cash and cash equivalents increased by approximately $14,580,000 as a result of
the transaction.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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.” Throughout this document we make statements that are classified as “forward-looking.” See “Cautionary Statement
Regarding Forward-Looking Statements.”
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 (the “Sierra Mojada Project”). We conduct our operations in Mexico through our wholly-owned Mexican subsidiaries,
Minera Metalin S.A. de C.V. (“Minera”) and Contratistas de Sierra Mojada S.A. de C.V. (“Contratistas”). However, as noted above, we
have not established any reserves at the Sierra Mojada Property, and are in the exploration stage and may never enter the
development or production stage.
On April 16, 2010, we completed a merger transaction with Dome Ventures Corporation (“Dome”), whereby Dome became our
wholly-owned subsidiary. Dome through its subsidiaries holds three exploration licenses in Gabon, West Africa covering
approximately 6,000 square kilometers and has entered into a joint venture agreement with a subsidiary of AngloGold Ashanti Limited
(“AngloGold”) on two of its licenses, Ndjole and Mevang. Dome also entered into a second joint venture agreement on the Ogooue
license held by AngloGold. Dome’s third license, the Mitzic license, has iron ore potential and we are currently looking for a joint
venture partner on this license. Operations in Gabon are conducted by Dome’s subsidiaries Dome Ventures SARL Gabon and
African Resources SARL Gabon.
Our principal offices are located at 885 West Georgia Street, Suite 2200, Vancouver, BC, Canada V6C 3E8, and our telephone
number is 604-687-5800.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Current Year Developments
Sierra Mojada Property
In January 2011, our board of directors approved a calendar year 2011 exploration budget of $9.5 million for the Sierra Mojada
Property subject to us raising additional capital during the first half of calendar year 2011 to fully fund these exploration activities. As
a result of closing a private placement with Coeur d’Alene Mines Corporation (“Coeur”) on June 2, 2011 for net proceeds of
approximately $4.9 million, we revised the exploration budget to $10.5 million for the Sierra Mojada project. This $1 million increase
was completely for drilling and related costs.
The 2011 exploration program at the Sierra Mojada Property was designed to build on the drilling activities of 2010. The aim of the
program was to further define and extend the Shallow Silver Zone. The Shallow Silver Zone is an oxide silver zone (+/- zinc and lead),
hosted along an east-west trending fracture-karst system set in a Cretaceous limestone-dolomite sequence. At depth, the Shallow
Silver Zone appears to merge with the Zinc Zone to form a continuous mineralized body over 4 kilometers in length. The different
mobility characteristics of the metals in a low temperature oxide environment has resulted in a crude zonation of the mineralized body
creating a silver rich zone the Shallow Silver Zone and a zinc rich zone the Red Zinc Zone.
Mineralized Material Estimate
On November 25, 2011, SRK Consulting (Canada) Inc. (“SRK”) delivered a technical report on the silver mineralization in the
“Shallow Silver Zone” of the Sierra Mojada Project in accordance with the Canadian Securities Administrators’ National Instrument
43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”). The resource was estimated from 1,107 diamond drill holes, 34
reverse circulation drill holes, 10,611 channel samples and 3,056 long holes. In total, these contain 157,758 assay records, of which
148,950 records contain silver and zinc assays values.
At an economic cutoff grade of 15 grams/tonne of silver for mineralized material possibly accessible by open pit mining and 70
grams/tonne of silver for mineralized material possibly amendable to underground mining, the Report indicates mineralized material
of 28.564 million tonnes at an average silver grade of 50.4 grams/tonne for the silver pit and 0.282 million tonnes at an average silver
grade of 110.9 grams/tonne for the underground workings. Mineralized material estimates do not include any amounts categorized
as inferred resources.
“Mineralized material” as used in this Annual Report on Form 10-K, although permissible under SEC’s Guide 7, does not
indicate “reserves” by SEC standards. We cannot be certain that any part of the Sierra Mojada project will ever be
confirmed or converted into SEC Industry Guide 7 compliant “reserves.” Investors are cautioned not to assume that all
or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can
be economically or legally extracted.
Drilling
During the 2011 calendar year we drilled approximately 37,000 meters at the Sierra Mojada Property which was focused on drilling
and further defining the Shallow Silver Zone. This drilling was very successful in defining a near-surface oxide silver-zinc-lead zone of
mineralization that is at least three kilometers long, averages about 150 meters wide and about 35 meters thick. It can be seen at
surface in the western half of the resource area, before dipping at around 10 degrees at the eastern end of the mineralized body. At
present, the very eastern edge of the mineralization defined so far lies under about 200 meters of alluvial cover. The entire 3.8
kilometer strike length of the resource appears to be amenable to mining by open pit methods. Additionally, a new zone of silver
mineralization named the Centenario Zone was identified. The Centenario Zone is hosted along the “Centenario” fault, a buried east-
west trending structure which lies 300 meters to the north of, and runs parallel to, the “Sierra Mojada” fault – which hosts the Shallow
Silver Zone.
As discussed in the “Material Changes in Financial Condition; Liquidity and Capital” resources section below we have approved an
exploration budget of $14.6 million for calendar 2012. This exploration program includes a planned 41,200 meter drilling program
targeting the Centenario Zone and the western extension of the Shallow Silver Zone. Additionally, this program includes a planned
5,000 meter underground drilling program targeting along the 2.2 kilometer Parrena adit which lies immediately south of the shallow
silver zone. The Parrena adit has not been previously drilled.
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Geological Mapping
In addition to drilling the extensions on the Shallow Silver Zone, a regional mapping and prospecting exploration program focused on
the Palamos Negros, Dormidos, and San Francisco prospects is underway. The aim of this program is to identify drill targets in these
prospects outside of the Shallow Silver Zone. During the second half of 2011 12 holes totaling just over 1,500 meters were drilled at
the San Francisco prospect. Due to resulted being below expectations management is reevaluating further work to be taken in
relation to the San Francisco prospect.
Airborne Geophysics
A 1,700 line kilometer “ZTEM” airborne geophysics survey was completed in March of 2011 by Geotech Ltd. a company based in
Ontario, Canada. The survey was increased from the original 1,550 line kilometer plan to ensure complete coverage of several
magnetic anomalies previously identified. Ken Witherly of Condor Consulting, Inc., based out of Denver, Colorado provided QA/QC
on the data. The aim of this work is to help better define potential drill targets within the wider Sierra Mojada area. The results
identified a number of buried structures and better outlined several lithological units in the area.
Gabon Property
To date, three main coherent gold anomalies above 50 parts per billion (“ppb”) and over 5km in length and up to 1.5km wide and
several smaller anomalous zones up to 2km in length and up to 1km wide have been identified. Background gold values in the region
are less than 5 ppb and results above 20 ppb are considered anomalous. Over 25% of the results received to date are above 30 ppb
with peak values in excess of 5,000 ppb in the soils. The anomalies appear to have strong structural controls concentrating along
mapped or inferred lithological contacts, structural breaks, and fold hinges. There is also a strong spatial relationship of the gold
anomalies to a thick graphitic lithological unit in the area that is thought to represent an ideal lithological trap for mineralizing fluids.
Initial prospecting in these anomalous zones has identified a number of gold bearing quartz veins, many of which run between 2 g/t to
5 g/t gold.
Exploratory drilling has focused on these gold anomalies. East-west trending drill fences have been positioned to test roughly north-
south trending lithological contacts which are considered as the most favorable sites for gold deposition. A total of 5,000 meters was
drilled with gold intercepts between 1m to 13m in thickness encountered. The best intercept averaged 7.6 g/t gold over 9 meters.
Most intercepts were in the 1 meter to 3 meter range at 1 to 4 g/t gold. Anomalous silver and manganese were also encountered in
some holes.
Airborne Geophysics
A 5,000 line kilometer VTEM Geophysics survey was completed by Spectrem Air LTD over the Ndjole exploration permit in March
2011. Results show a strong electro-magnetic response that has been strongly folded and deformed.
Mapping
Mapping of the main gold prospects was completed in the Ndjole and Mevang licences at 1:20,000 scale. Detailed mapping at 1:5000
scale occurred over areas with drilling to better define lithological contacts and local structure.
A large soil sampling and mapping campaign lead by AngloGold targeting the extensions to the known geology is currently underway
on the property and will continue into 2012.
Management Changes
During 2011, we made significant additional changes in our management and board of directors:
· On February 14, 2011, Dr. Nicole Adshead-Bell was appointed to the Board of Directors as an independent
director. Dr. Adshead-Bell is a geologist with a significant amount of experience in the investment banking and
financial analysis industries where her primary emphasis has been on mid-sized and junior level natural resources
companies.
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· On March 3, 2011, Tim Barry (previously our Vice President of Exploration) was appointed Chief Executive Officer,
President and Director, replacing Gregory Hahn who had been serving as interim Chief Executive Officer since July
2010. Mr. Barry has over 15 years of exploration and management experience. He has worked as a consulting
geologist on projects in Canada, Mexico, Australia, New Zealand, Mongolia and West Africa and has significant
experience with Silver Bull's field operations in Africa.
· On April 15, 2011, Sean Fallis (previously our Vice President of Finance) was appointed Chief Financial Officer,
replacing Robert Devers who had been serving as Chief Financial Officer. Mr. Fallis is a Chartered Accountant and
was formerly the corporate controller of gold producer Rusoro Mining Ltd. Prior to Rusoro Mining Ltd. Mr. Fallis
worked with Canadian and United States publically listed companies in the audit and assurance practice of
PricewaterhouseCoopers where Mr. Fallis focused on clients in the mining industry.
· On April 20, 2011, Daniel Kunz was appointed to the Board of Directors. Mr. Kunz has over 30 years of experience in
all areas of engineering, management, accounting, finance and operations. Mr. Kunz has held positions in Ivanhoe
Mines (President), MK Gold Company (President & CEO) and Morrison Knudsen Corporation (Vice President and
Controller, and as CFO to the Mining Group).
· On April 20, 2011, Greg Hahn, Wesley Pomeroy and Robert Kramer ceased serving as directors.
· On August 4, 2011, we entered into an independent contractor agreement with Jason Cunliffe, as the newly
appointed Vice President of Exploration.
Results of Operations
Upon the closing of the Merger on April 16, 2010, Dome became our wholly owned subsidiary. The financial results from Dome are
included in our consolidated statement of operations and comprehensive (loss) income and consolidated statement of cash flows for
the year ended October 31, 2011. However, because the merger with Dome did not close until April 2010, Dome’s financial results
are only included in our consolidated statement of operations and comprehensive (loss) income and consolidated statement of cash
flows for the year ended October 31, 2010, for the period from April 16, 2010 to October 31, 2010.
For the fiscal year ended October 31, 2011, we experienced a consolidated net loss of $12,237,000 or approximately $0.11 per
share, compared to a consolidated net loss of $9,405,000 or approximately $0.12 per share during the fiscal year ended October 31,
2010. The $2,832,000 increase in the consolidated net loss was primarily due to a $2,529,000 increase in exploration and property
holding costs in the 2011 fiscal year from the 2010 fiscal year and a foreign currency translation loss of $349,000 in the 2011 fiscal
year compared to a foreign currency translation gain of $1,365,000 in the 2010 fiscal year. This was partially offset by a $1,622,000
decrease in general and administrative expenses in the 2011 fiscal year from the 2010 fiscal year.
Exploration and Property Holding Costs
Exploration and property holding costs increased $2,529,000 to $8,373,000 in the 2011 fiscal year from $5,844,000 in the 2010 fiscal
year primarily due to a significantly expanded exploration program on the Sierra Mojada Property as cash constraints limited the
amount of exploration activities in the portion of 2010 fiscal year prior to the merger previously discussed.
General and Administrative Costs
General and administrative expenses decreased $1,622,000 to $3,372,000 in the 2011 fiscal year from $4,994,000 in the 2010 fiscal
year as described below.
Stock based compensation was a significant factor for the fluctuations in personnel and directors fees. Overall stock based
compensation included in general and administrative expenses increased to $928,000 in the 2011 fiscal year from $822,000 in the
2010 fiscal year.
Personnel costs decreased $595,000 to $1,369,000 in the 2011 fiscal year from $1,964,000 in the 2010 fiscal year. This decrease
was primarily due to $861,000 of severance expense in the 2010 fiscal year due to change in control provisions in the employment
agreements of three former executives. This expense was offset by higher stock based compensation, which increased to $587,000
in the 2011 fiscal year from $340,000 in the 2010 fiscal year. Stock based compensation increased due to the issuance of stock
options to the new members of management in the 2011 fiscal year. Also, we entered into a severance agreement in the 2011 fiscal
year with our former Chief Financial Officer Robert Devers whereby he received severance payments totaling approximately
$165,000 which was paid in April 2011.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Office and administrative expenses of $658,000 in the 2011 fiscal year was comparable to $634,000 in the 2010 fiscal year.
Significant costs in office and administrative include shareholder relations, costs of maintaining our corporate office and listing and
exchange fees.
Professional fees decreased $113,000 to $589,000 in the 2011 fiscal year from $702,000 in the 2010 fiscal year. The decrease
relates to additional legal and accounting costs incurred in the prior year as a result of the Dome merger and the application for listing
on the Toronto Stock Exchange offset by additional costs in the current year associated with the dual listings on the NYSE Amex and
Toronto Stock Exchange.
Directors’ fees decreased $224,000 to $526,000 in the 2011 fiscal year from $750,000 in the 2010 fiscal year. This decrease was
primarily due to a $141,000 decrease in stock based compensation to $341,000 in the 2011 fiscal year from $482,000 in the 2010
fiscal year as a result of stock options granted to new directors and the pro rata stock based compensation of stock options previously
granted in August 2010.
We recorded a provision of $204,000 in the 2011 fiscal year for uncollectible value-added taxes compared to a provision of $929,000
in the 2010 fiscal 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, general economic conditions in Mexico and estimated net recovery
after commissions.
Other Income (Expense)
We recorded other expense of $465,000 in the 2011 fiscal year compared to other income of $1,430,000 in the 2010 fiscal year. This
was mainly the result of a foreign currency translation loss of $349,000 in the 2011 fiscal year compared to a foreign currency
translation gain of $1,365,000 in the 2010 fiscal year. These foreign currency translation gains and losses are primarily due to the
impact of the change in exchange rate between the US dollar and Mexican Peso and the resulting impact on the intercompany loans
between Silver Bull and our Mexican subsidiaries.
Material Changes in Financial Condition; Liquidity and Capital Resources
Cash Flows
During the 2011 fiscal year we primarily utilized cash and cash on hand and proceeds from issuances of common stock to fund
exploration activities at the Sierra Mojada Property including property concession option purchase agreement payments and for
general and administrative expenses. During this period, we received $5,805,000 in net proceeds from the issuance of common
stock through a private placement to Coeur and through the exercise of stock options and warrants. As a result of exploration
activities and general and administrative expenses offset by the financing obtained through equity transactions, cash and cash
equivalents decreased from $10,571,000 at October 31, 2010 to $4,240,000 at October 31, 2011.
Cash flows used in operations for the 2011 fiscal year was $11,503,000 as compared to $9,297,000 for the comparable period in
2010. This increase was mainly due to the significantly higher exploration costs at the Sierra Mojada Property and increased value
added tax receivable payments which were partially offset by reduced general and administrative expenses (excluding stock based
compensation) as discussed in the results of operations section above.
Cash flows used in investing activities for the 2011 fiscal year was $398,000 as compared to $1,803,000 in cash flows provided by
operations for the 2010 fiscal year. During the 2011 fiscal year we sold equipment for $443,000, purchased equipment for $143,000
and spent $798,000 on the acquisition of property concessions as compared to sales of equipment of $9,000, purchases of equipment
for $551,000 and payments of $373,000 for the acquisition of property concessions in the 2010 fiscal year. The cash outflow for the
2010 fiscal year was offset by cash acquired in the Merger of $2,619,000. Equipment purchases decreased and equipment sales
increased in the 2011 fiscal year as we are using external contractors for a greater portion of the drilling work on the Sierra Mojada
Property and acquisition of property concessions increased due to the execution of additional concession option purchase
agreements and the escalating payment nature of the agreements.
Cash flows provided by financing activities for the 2011 fiscal year was $5,608,000 as compared to $16,607,000 for the 2010 fiscal
year. The significant decrease in cash flows is due to the $15,072,000 of proceeds from the issuance of common stock including
common stock issued related to the Dome transaction during the 2010 fiscal year offset by net proceeds of $4,917,000 for the private
placement with Coeur completed in the 2011 fiscal year.
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Capital Resources
As of October 31, 2011, we had cash and cash equivalents of $4,240,000 and working capital of $2,425,000 as compared to cash
and cash equivalents of $10,571,000 and working capital of $9,072,000 as of October 31, 2010. The decrease in our liquidity and
working capital were primarily the result of cash used by operating and investing activities including exploration work and acquisition
of additional concessions which were partially offset by proceeds received from financing activities including the issuance of common
stock and proceeds received on the exercise of warrants. The accounts payable and accrued liabilities at October 31, 2011 increased
as a result of the additional exploration work on the Sierra Mojada Property and timing of payments.
Since inception, we have relied primarily upon proceeds from private placements and registered direct offerings of our equity
securities and warrant exercises as our 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. Issuances 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 arrange for other financing to fund our planned business activities. Moreover, as a result of a late Form 8-K filing in
2011, we may not be eligible to use our “shelf” registration statement during the majority of 2012. In that event, our ability to quickly
access U.S. capital markets will be somewhat constrained. If we are unable to fund future operations by way of financing, including
public or private offerings of equity or debt securities, our business, financial condition and exploration activities will be adversely
impacted.
December 2011 Offering
During December 2011 we closed registered direct offerings for the sale or 21,050,000 shares of common stock at a price of $0.50
per share for gross proceeds of $10,525,000. We paid a 6% finder’s fee totaling $94,500 to a Canadian finder with respect to certain
non-U.S. purchasers who were introduced by them.
Capital Requirements and Liquidity; Need for Subsequent 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 we have sufficient operating capital. We continue to evaluate our costs
and planned expenditures including for our Sierra Mojada Property.
The continued exploration of the Sierra Mojada Property will require significant amounts of additional capital. In January 2012, the
board of directors approved a calendar year 2012 exploration budget of $14.6 million for the Sierra Mojada Property and a $1.9 million
budget for general and administrative expenses. As of December 31, 2011, we had approximately $12.6 million in cash on hand, and
therefore we anticipate that we will need to raise additional capital to fully fund the calendar 2012 exploration program at the Sierra
Mojada Property and for general and administrative expenses. During calendar year 2012 we will continue to evaluate our ability to
raise additional capital and we will reduce expenditures on the Sierra Mojada property if we determine that additional capital is
unavailable or available on terms that we determine are unacceptable. Also, 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 transaction. The on-
going uncertainty and volatility in the global financial and capital markets have limited the availability of funding. 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 financing, including public or private offerings of equity or
debt securities, our business, financial condition and results of operations will be adversely impacted.
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Table of Contractual Obligations
The following table summarizes our contractual obligations as of October 31, 2011:
Contractual Obligations
Operating leases
Sierra Mojada concession option purchase
payments
Total
Total
Less Than
1 Year
29
1 - 3
Years
(in thousands of $)
-
29
More
Than 5
Years
3 - 5
Years
-
21,632
21,661
1,665
1,694
10,257
10,257
9,710
9,710
-
-
-
The above table assumes the Poder de Dios, Anexas a Poder de Dios, and Amplicaion a Poder de Dios option purchase price is
exercised on January 1, 2013 and the La Perla, La India, and La India Dos option purchase price is also exercised on January 1,
2013.The above atase Company closed alated to the Dome Mergere agreementss o be included in an updated NI 43-101 technical
report
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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to our stockholders.
Recent Accounting Pronouncements
We do not expect any recent accounting pronouncements to have a material effect on our financial position, results of operations, or
cash flows.
In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other”. This new guidance on testing goodwill
provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently
prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill
impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less
than its carrying amount, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011 with prospective application required. The adoption of this guidance is
not expected to have a material effect on our financial position, results of operations or cash flows.
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05,
“Presentation of Comprehensive Income.” This update amended the presentation options in Accounting Standards Codification
(“ASC”) 220, “Comprehensive Income,” to provide an entity the option to present the total of comprehensive income, the components
of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011 with retrospective application required. The adoption of this guidance will not have a significant
impact on the presentation of our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.” This update amended explanations of how to measure fair value to result in common fair
value measurement and disclosure requirements in U.S GAAP and IFRSs. ASU 2011-04 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011 with prospective application required. The adoption of this guidance is
not expected to have a material effect on our financial position, results of operations or cash flows.
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In January 2010, the FASB issued ASU No. 2010-06 which provides amendments to ASC Topic 820 that will provide more robust
disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and
clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009. The
adoption of this guidance did not have a material effect on our financial position, results of operations or cash flows. The disclosures
about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. We do not expect that the full
adoption of ASU No. 2010-06 will have a material effect on our financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the United States
Securities and Exchange Commission did not or are not believed 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 generally accepted accounting principles 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 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 on-going 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.
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 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. In the event estimates or
assumptions prove to be different from the actual amounts, adjustments are made in subsequent periods to reflect more current
information. We believe 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:
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
mineral concessions, evaluating impairment of long-lived assets, evaluating impairment of goodwill, establishing a valuation
allowance on future use of deferred tax assets, determining the fair value of assets and liabilities acquired in the merger with Dome
and calculating stock-based compensation.
Property Concessions
Costs of acquiring property concessions are capitalized by project area upon purchase or staking of the associated claims. Costs to
maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related
capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. To date,
no mineral concessions have reached the production stage.
We review and evaluate our property concessions for impairment annually or when events or changes in circumstances indicate that
the related carrying amounts may not be recoverable and any impairment in carrying value is charged to operations at the time of
impairment. Should a concession be abandoned, its capitalized costs are charged to operations. We charge to operations the
allocable portion of capitalized costs attributable to concessions sold. Capitalized costs are allocated to concessions abandoned or
sold based on the proportion of claims abandoned or sold to the claims remaining within the project area.
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Impairment of Long-Lived Assets
Long-lived assets, comprised of property and equipment subject to amortization, are assessed for impairment whenever events or
circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are
grouped and tested for recoverability at the lowest level that generates independent cash flows from another asset group. In testing
the recoverability of the assets, the carrying value of the assets or asset groups is compared to the fair value of the assets or asset
groups. An impairment loss is recognized as the excess of the carrying value over the fair value when an asset or asset group is not
recoverable.
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. When multiple reporting units are acquired in one business combination, goodwill is
allocated to reporting units as of the date of the business combination, by determining estimates of the fair value of each reporting
unit and comparing this amount to the fair values of assets and liabilities in the reporting unit. Goodwill is not amortized.
We perform goodwill annual impairment tests at April 30 each fiscal year and when events and circumstances indicate that the
carrying amounts may no longer be recoverable. Goodwill is assessed at the reporting unit level. In performing the impairment tests,
we estimate the fair values of our reporting units that include goodwill and compares those fair values to the reporting units’ carrying
amounts. If a reporting unit’s carrying amount exceeds its fair value, we compare the implied fair value of the reporting unit’s goodwill
to the carrying amount, and any excess of the carrying amount of goodwill over the implied fair value is charged to earnings.
Income Taxes
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 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, 2011 and October 31, 2010 against the deferred tax assets as it deems future realization would not meet the criteria “more likely
than not”.
Stock-Based Compensation and Warrants
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 evaluation of historical and expected
future exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if
future volatility is expected to vary from historical experience. We have not historically issued any dividends and we do not expect to
in the future. We use the graded vesting attribution method to recognize compensation costs over the requisite service period.
We also used the Black-Scholes valuation model to determine the fair market value of warrants. Expected volatility is based upon
weighted average of historical volatility over the contractual term of the warrant and implied volatility. The risk-free interest rate is
based upon implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the contractual term of the option. 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.
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Foreign Currency Translation
Assets and liabilities of our foreign operations are translated into U.S. dollars at the year-end exchange rates, and revenue and
expenses are translated at the average exchange rates during the period. Exchange differences arising on translation are disclosed
as a separate component of stockholders’ equity. Realized gains and losses from foreign currency transactions are reflected in the
results of operations. During the year-ended October 31, 2010, intercompany transactions and balances with our Mexican and
Gabonese subsidiaries were considered to be short-term in nature and accordingly all foreign currency transaction gains and losses
on intercompany loans are included in the consolidated statement of operations and comprehensive (loss) income during the year-
ended October 31, 2010.
On July 7, 2011, we acknowledged our intention to convert certain intercompany loans totaling $13.4 million to equity. Subsequent to
July 7, 2011, we no longer recognize foreign currency transaction gains or losses on this $13.4 million portion of intercompany loans
in the consolidated statement of operations and comprehensive (loss) income.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We hold substantially all of our 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 and restricted cash balances during the year ended October 31, 2011, a 1% decrease in interest rates would have
resulted in a reduction in interest income for the period of approximately $37,000.
Foreign Currency Exchange Risk
Certain purchases of labor, operating supplies and capital assets are denominated in Canadian Dollars (“$CDN”), Mexican Pesos,
Central African Francs (“$CFA”) or other currencies. As a result, currency exchange fluctuations may impact the costs of our
operations. Specifically, the appreciation of the Mexican Peso, $CDN or $CFA against the US dollar may result in an increase in
operating expenses and capital costs in US dollar terms. To reduce this risk as of October 31, 2011, we maintain minimum cash
balances in $CFA and Mexican Pesos. As of October 31, 2011, we maintained the majority of our cash balance in $CDN. Subsequent
to the registered direct offerings in December 2011 we maintain the majority of cash balances in US dollars. We currently do not
engage in any currency hedging activities.
Commodity Price Risk
Our primary business activity is the exploration of properties containing silver, zinc, lead and other minerals. As a result, decreases in
the price of any of these metals have the potential to negatively impact our ability to establish reserves and develop our exploration
properties. None of our properties are in production and we do not currently hold any commodity derivative positions.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See “Index to Consolidated Financial Statements” following the signature page of this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of October 31, 2011, we have carried out an evaluation under the supervision of, and with the participation of our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based on the evaluation as of October 31,
2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e)) under the Securities Exchange Act of 1934) were effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed
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) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is
defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our
principal executive and principal financial officers, we assessed, as of October 31, 2011, the effectiveness of our internal control over
financial reporting. This assessment was based on criteria established in the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using those criteria,
management concluded that our internal control over financial reporting as of October 31, 2011, was effective.
Internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and
principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those policies and procedures that:
· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
· provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements
in accordance with U.S. generally accepted accounting principles and that our receipts and expenditures are being made only
in accordance with authorization of our management and directors; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of
controls can provide absolute assurance that all control issues, if any, within a company have been detected.
(c) Attestation Report of Registered Public Accounting Firm
Hein & Associates LLP, an independent registered public accounting firm, has issued an attestation report on our internal control
over financial reporting, which is required under this Item 9A is set forth below under the caption “Report of Independent Registered
Public Accounting Firm.”
(d) Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended October 31, 2011 that materially
affected, or were reasonably likely to materially affect, our internal control over financial reporting.
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Silver Bull Resources, Inc.
We have audited Silver Bull Resources, Inc’s internal control over financial reporting as of October 31, 2011, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Silver Bull Resources, Inc.’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Silver Bull Resources, Inc. maintained, in all material respects, effective internal control over financial reporting as of
October 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Silver Bull Resources, Inc. and subsidiaries as of October 31, 2011 and 2010, and the related
consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for the
years then ended, and our report dated January 11, 2012 expressed an unqualified opinion.
/s/ Hein & Associates LLP
HEIN & ASSOCIATES LLP
Denver, Colorado
January 11, 2012
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual
shareholders meeting and is incorporated by reference in this report.
Item 11. EXECUTIVE COMPENSATION
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual
shareholders meeting and is incorporated by reference in this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual
shareholders meeting and is incorporated by reference in this report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual
shareholders meeting and is incorporated by reference in this report.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2012 annual
shareholders meeting and is incorporated by reference in this report.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
See “Index to Consolidated financial statements” on page 35.
Exhibit
Number
3.1.1
Restated Articles of Incorporation.
Exhibit Description
Incorporated by Reference
Form Date of Report
10-K
10/31/2010
Exhibit
3.1.1
Filed
Herewith
3.1.2
Amended and Restated Bylaws
10-K
10/31/2010
3.1.2
4.1
Rights Agreement
8-A
06/11/2007
10.1
2000 Equity Incentive Plan.
10-KSB
10/31/2006
10.2
2006 Stock Option Plan.
10-KSB
10/31/2006
10.3
2010 Stock Option Plan.
10.4
Employment agreement with Robert Devers
10.5
Consulting agreement with Greg Hahn Consulting LLC
8-K
8-K
8-K
02/03/2010
01/17/2008
08/02/2010
10.6
Employment agreement with Brian Edgar
10-Q
07/31/2011
10.7
Employment agreement with Timothy Barry
10-Q
07/31/2011
10.8
Employment agreement with Sean Fallis
10.9
Independent contractor agreement with Jason Cunliffe
8-K
8-K
04/06/2011
08/04/2011
14
Code of Ethics
10-KSB
01/31/07
1
4.1
4.2
10.3
10.1
10.1
10.2
10.1
10.2
10.1
14
21.1
Subsidiaries of the Registrant
23.1
Consent of Hein & Associates LLP
23.2
Consent of SRK Consulting (Canada) Inc.
31.1
31.2
32.1
32.2
Certification of CEO Pursuant to Exchange Act Rules 13a-14
and 15d-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
Certification of CFO Pursuant to Exchange Act Rules 13a-14
and 15d-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
Certification of CEO Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
Certification of CFO Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
99.1
Sierra Mojada location map. (1)
99.2
Gabon location map. (1)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
X
X
X
X
X
X
X
X
X
(1) Filed herewith under Items 1 and 2. Business and Properties.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: January 11, 2012
Date: January 11, 2012
SILVER BULL RESOURCES, INC.
By:
/s/ Timothy Barry
Timothy Barry,
President and Chief Executive Officer
By:
/s/ Sean Fallis
Sean Fallis,
Chief Financial Officer
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SILVER BULL RESOURCES, INC.
(An Exploration Stage Company)
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive (Loss) Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
[The balance of this page has been intentionally left blank.]
PAGE NO.
F-2
F-3
F-4
F-5 - F-6
F-7 - F-12
F-13 - F-37
F-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Silver Bull Resources, Inc.
Vancouver, British Columbia, Canada
We have audited the accompanying consolidated balance sheets of Silver Bull Resources, Inc. (an exploration stage company) (the
“Company”) as of October 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive (loss)
income, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Silver Bull Resources, Inc. (an exploration stage company) as of October 31, 2011 and 2010 and the results of its
operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
We have also audited the combination in the consolidated statements of operations and comprehensive (loss) income, cash flows,
and stockholders’ equity of the amounts as presented for the years ending October 31, 2011 and 2010 with the amounts for the
corresponding consolidated statements for the period from inception (November 8, 1993) through October 31, 2009. In our opinion
the amounts have been properly combined for the period from inception (November 8, 1993) through October 31, 2011.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Silver
Bull Resources, Inc.’s and subsidiaries’ internal control over financial reporting as of October 31, 2011, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated January 11, 2012 expressed an unqualified opinion on the effectiveness of Silver Bull Resources, Inc.’s internal
control over financial reporting.
/s/ Hein & Associates LLP
HEIN & ASSOCIATES LLP
Denver, Colorado
January 11, 2012
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash (Note 4)
Other receivables
Prepaid expenses
Prepaid income taxes
Total Current Assets
PROPERTY CONCESSIONS
Sierra Mojada, Mexico (Note 5)
Gabon, Africa (Notes 3, 5 and 7)
October 31,
2011
October 31,
2010
$
$
4,239,899
77,068
80,789
239,286
10,933
4,647,975
10,570,598
—
17,965
248,417
22,231
10,859,211
4,846,687
4,500,148
9,346,835
4,318,292
4,396,915
8,715,207
EQUIPMENT
Office and mining equipment, net of accumulated depreciation of $973,457 and $941,781,
respectively (Note 6)
785,486
1,361,358
OTHER ASSETS
Value-added tax receivable, net of allowance for uncollectible taxes of $1,380,818 and
$1,241,876 , respectively (Note 8)
Goodwill (Notes 3 and 9)
Other assets
1,826,664
18,495,031
112,170
20,433,865
629,338
19,738,862
9,435
20,377,635
TOTAL ASSETS
$
35,214,161
$
41,313,411
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued liabilities and expenses
Accrued severance costs
Payable to joint venture partner (Note 7)
Income tax payable (Note 15)
Total Current Liabilities
COMMITMENTS AND CONTINGENCIES (Notes 11 and 17)
STOCKHOLDERS’ EQUITY (Notes 11, 12, 13, 14 and 20)
Common stock, $0.01 par value; 300,000,000 shares authorized,
115,110,157 and 105,929,762 shares issued and outstanding, respectively
Additional paid-in capital
Deficit accumulated during exploration stage
Other comprehensive income
Total Stockholders’ Equity
$
$
798,679
874,605
—
541,913
729,314
241,389
184,000
632,687
7,842
2,223,039
—
1,787,390
1,151,101
105,201,435
(73,559,865)
198,451
32,991,122
1,059,297
98,358,340
(61,322,505)
1,430,889
39,526,021
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
35,214,161
$
41,313,411
The accompanying notes are an integral part of these consolidated financial statements.
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Years Ended
October 31,
2011
2010
Period from
November 8,
1993
(Inception)
to October 31,
2011
REVENUES
$
—
$
—
$
—
EXPLORATION AND PROPERTY HOLDING COSTS
Exploration and property holding costs
Depreciation and asset write-off
TOTAL EXPLORATION AND PROPERY HOLDING COSTS
GENERAL AND ADMINISTRATIVE EXPENSES
Personnel costs
Office and administrative expenses
Professional services
Directors’ fees
Provision for uncollectible value-added taxes
Depreciation
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
8,099,070
274,381
8,373,451
1,368,524
658,225
589,246
526,459
204,190
25,285
3,371,929
5,571,788
271,724
5,843,512
35,907,190
1,422,001
37,329,191
1,964,385
633,897
702,226
749,891
928,877
15,175
4,994,451
15,786,463
4,006,711
7,950,810
4,438,101
1,409,585
260,780
33,852,450
LOSS FROM OPERATIONS
(11,745,380)
(10,837,963)
(71,181,641)
OTHER (EXPENSES) INCOME
Interest and investment income
Foreign currency translation (loss) gain
Miscellaneous (loss) income
TOTAL OTHER (EXPENSE) INCOME
36,535
(348,813)
(152,845)
(465,123)
60,954
1,364,555
4,764
1,430,273
934,898
(2,837,232)
(220,718)
(2,123,052)
LOSS BEFORE INCOME TAXES
(12,210,503)
(9,407,690)
(73,304,693)
INCOME TAX EXPENSE (BENEFIT) (Note 15)
26,857
(2,200)
129,082
NET LOSS
$
(12,237,360) $
(9,405,490) $
(73,433,775)
OTHER COMPREHENSIVE (LOSS) INCOME– Foreign currency
translation adjustments
(1,232,438)
(1,090,707)
198,451
COMPREHENSIVE LOSS
$
(13,469,798) $
(10,496,197) $
(73,235,324)
BASIC AND DILUTED NET LOSS PER COMMON SHARE
$
(0.11) $
(0.12)
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
109,977,943
81,432,631
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and equipment write-off
Provision for uncollectible value-added taxes
Noncash expenses
Foreign currency transaction loss (gain)
Common stock issued for services
Common stock issued for compensation
Stock options issued for compensation
Common stock issued for directors fees
Stock options and warrants issued for directors fees
Stock options issued for services
Stock options issued for financing fees
Common stock issued for payment of expenses
Stock warrants issued for services
(Increase) decrease in, net of merger transaction:
Value added tax receivable
Restricted cash
Other receivables
Prepaid expenses
Prepaid income taxes
Deposits
Increase (decrease) in, net of merger transaction:
Accounts payable
Income tax payable
Accrued liabilities and expenses
Accrued severance
Deferred salaries and costs
Other liabilities
Net cash used by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments
Proceeds from investment sales
Cash acquired in merger with Dome Ventures (Note 3)
Equipment purchases
Proceeds from sale of equipment
Proceeds from mining concessions option payment (Note 7)
Acquisition of mining concessions
Net cash (used by) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock
Proceeds from exercise of warrants
Proceeds from exercise of options
Deferred offering costs
Payable to joint venture partner
Proceeds from sales of options and warrants
Proceeds from shareholder loans
Payment of note payable
Net cash provided by financing activities:
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Years Ended
October 31,
2011
2010
Period from
November 8,
1993
(Inception)
to October 31,
2011
$
(12,237,360) $
(9,405,490) $
(73,433,775)
241,150
204,190
—
173,930
—
—
1,129,421
—
—
—
—
—
—
(1,471,491)
(75,839)
(63,268)
1,918
10,843
(7,855)
100,577
8,363
666,897
(184,000)
—
—
311,336
923,288
—
(1,352,817)
—
—
927,999
95,832
—
—
—
—
—
(759,575)
—
18,749
(94,040)
(21,562)
(4,746)
409,014
(9,544)
58,581
—
(393,903)
—
(11,502,524)
(9,296,878)
—
—
—
(142,508)
442,665
100,000
(797,960)
—
—
2,618,548
(550,986)
8,900
100,000
(373,479)
(397,803)
1,802,983
4,917,221
699,344
188,913
(94,549)
(102,778)
—
—
—
5,608,151
15,071,516
953,595
—
—
582,372
—
—
—
16,607,483
1,651,138
1,402,610
126,864
2,828,276
1,237,047
1,059,946
9,144,629
693,276
1,665,705
849,892
276,000
326,527
1,978,243
(3,341,097)
(75,839)
(69,066)
(223,241)
(10,719)
(12,601)
564,593
11,252
922,123
—
—
7,649
(52,420,568)
(21,609,447)
21,609,447
2,618,548
(3,017,682)
451,565
200,000
(5,803,476)
(5,551,045)
54,690,931
6,350,286
188,913
(94,549)
479,594
949,890
30,000
(15,783)
62,579,282
Effect of exchange rates on cash and cash equivalents
(38,523)
(25,933)
(367,770)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents beginning of period
(6,330,699)
10,570,598
9,087,655
1,482,943
4,239,899
—
Cash and cash equivalents end of period
$
4,239,899
$
10,570,598
$
4,239,899
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid
Interest paid
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in merger with Dome
Warrants issued in merger with Dome
Common stock issued for equipment
Common stock options issued for financing fees
Common stock options issued for non-cash options
Years Ended
October 31,
2011
2010
Period from
November 8,
1993
(Inception)
to October 31,
2011
23,556
—
$
$
27,074
—
$
$
140,564
286,771
—
—
—
—
727
$
$
$
$
$
24,840,886
1,895,252
—
—
—
$
$
$
$
$
24,840,886
1,895,252
25,000
276,000
59,947
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock
Additional
Stock
Deficit
Accumulated
During
Other
Number of
Shares
Amount
Paid-in
Capital
Subscriptions
Receivable
Exploration
Stage
Comprehensive
Income (Loss)
Total
Common stock issuance prior to inception
(no value)
576,480 $
5,765 $
(5,765) $
— $
— $
— $
—
Net loss for the year ended October 31,
1994
Balances, October 31, 1994
Net loss for the year ended October 31,
1995
Balances, October 31, 1995
—
576,480
—
5,765
—
(5,765)
—
—
(8,831)
(8,831)
—
—
(8,831)
(8,831)
—
576,480
—
5,765
—
(5,765)
—
—
(7,761)
(16,592)
—
—
(7,761)
(16,592)
Issuances of common stock as follows: - for
par value at transfer of ownership
2,000
- for cash at an average of $0.11 per share 1,320,859
- for services at an average of $0.08 per
20
13,209
—
133,150
share
- for computer equipment at $0.01 per share
- for mineral property at $0.01 per share
185,000
150,000
900,000
1,850
1,500
9,000
12,600
13,500
—
—
—
—
—
—
—
—
—
—
—
—
—
20
146,359
—
—
—
14,450
15,000
9,000
Net loss for the year ended October 31,
1996
Balances, October 31, 1996
Issuances of common stock as follows: - for
cash at an average of $0.61 per share
- for services at an average of $0.74 per
share
- for payment of a loan at $0.32 per share
Options issued as follows:
- 300,000 options for cash
Net loss for the year ended October 31,
1997
Balances, October 31, 1997
—
3,134,339
—
31,344
—
153,485
—
—
(40,670)
(57,262)
—
—
(40,670)
127,567
926,600
9,266
594,794
291,300
100,200
2,913
1,002
159,545
30,528
—
—
—
—
—
—
—
604,060
—
—
162,458
31,530
—
—
3,000
—
—
—
3,000
—
4,452,439
—
44,525
—
941,352
—
—
(582,919)
(640,181)
—
—
(582,919)
345,696
Issuances of common stock as follows: - for
cash at an average of $1.00 per share
- for cash and receivables at $1.00 per share
- for services at an average of $0.53 per
843,500
555,000
8,435
5,550
832,010
519,450
—
(300,000)
share
- for mine data base at $1.63 per share
41,800
200,000
418
2,000
21,882
323,000
Options issued or granted as follows: -
1,200,000 options for cash
- for financing fees
- for consulting fees
—
—
—
—
—
—
120,000
60,000
117,000
—
—
—
—
—
—
—
—
—
—
—
—
Warrants issued for services
—
—
488,980
—
(488,980)
—
—
840,445
225,000
—
—
22,300
325,000
—
—
—
—
120,000
60,000
117,000
—
Net loss for the year ended October 31,
1998
Balance, October 31, 1998
—
6,092,739 $
—
—
60,928 $ 3,423,674 $
—
(906,036)
(300,000) $ (2,035,197) $
(906,036)
—
— $ 1,149,405
The accompanying notes are an integral part of these consolidated financial statements.
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
Additional
Number of
Shares
Amount
Paid-in
Capital
Stock
Subscriptions
Receivable
Deficit
Accumulated
During
Exploration
Stage
Other
Comprehensive
Income (Loss)
Total
Balance, October 31, 1998
6,092,739 $
60,928 $ 3,423,674 $
(300,000) $ (2,035,197) $
— $ 1,149,405
Issuances of common stock as follows:
- for cash at an average of $1.04 per share
- for drilling fees at $0.90 per share
818,800
55,556
8,188
556
842,712
49,444
Stock option and warrant activity as follows:
- exercise of options at $0.90 per share
- issuance of options for financing fees
250,000
—
2,500
—
222,500
216,000
—
—
—
—
Stock subscription received
—
—
—
300,000
—
—
—
—
—
—
—
850,900
50,000
—
—
225,000
216,000
—
300,000
Net loss for the year ended October 31,
1999
Balance, October 31, 1999
—
7,217,095
—
—
72,172 4,754,330
—
—
(1,423,045)
(3,458,242)
— (1,423,045)
— 1,368,260
Stock option and warrant activity as follows:
- Exercise of options at $0.86 per share
- Warrants issued for services
950,000
—
9,500
—
802,750
55,000
Issuances of common stock as follows:
- for cash at an average of $2.77 per share 1,440,500
120,000
- for services at $1.28 per share
15,000
- for equipment at $1.67 per share
14,405 3,972,220
152,160
24,850
1,200
150
—
—
—
—
—
—
—
—
—
—
—
—
812,250
55,000
— 3,986,625
153,360
—
25,000
—
Net loss for the year ended October 31,
2000
Balances, October 31, 2000
—
9,742,595
—
—
97,427 9,761,310
—
—
(882,208)
(4,340,450)
(882,208)
—
— 5,518,287
Stock option and warrant activity as follows:
- Warrants exercised at $0.75 per share
- Options issued for consulting fees
- Warrants issued for consulting fees
20,000
—
—
200
—
—
14,800
740,892
144,791
Issuances of common stock as follows:
- for cash at $2.00 per share
- for cash of $210 and services at $2.07 per
250,000
2,500
497,500
share
21,000
210
43,260
- for cash of $180 and services at $2.05 per
share
- for services at $2.45 per share
- for services at $1.50 per share
Net loss for the year ended October 31,
18,000
6,000
12,000
180
60
120
36,720
14,640
17,880
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,000
740,892
144,791
—
500,000
—
43,470
—
—
—
36,900
14,700
18,000
2001
Balance, October 31, 2001
—
10,069,595
—
—
100,697 11,271,793
—
—
(2,069,390)
(6,409,840)
— (2,069,390)
— 4,962,650
Issuances of common stock as follows:
- for cash at $2.00 per share
- for cash and warrants at $1.50 per share
- for cash and warrants at $1.50 per share
- for compensation at an average of $1.23
50,000
96,000
66,667
500
960
667
99,500
143,040
99,333
per share
86,078
861
104,014
—
—
—
—
—
—
—
—
—
—
—
100,000
144,000
100,000
—
104,875
Stock option activity as follows:
- for compensation at $0.61 per share
Net loss for the year ended October 31,
2002
—
—
61,000
—
—
—
61,000
—
—
—
—
(765,765)
Balance, October 31, 2002
10,368,340 $
103,685 $ 11,778,680 $
— $ (7,175,605) $
The accompanying notes are an integral part of these consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-8
—
(765,765)
— $ 4,706,760
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
Additional
Stock
Deficit
Accumulated
During
Other
Number of
Shares
Amount
Paid-in
Capital
Subscriptions
Receivable
Exploration
Stage
Comprehensive
Income (Loss)
Total
Balance, October 31, 2002
10,368,340 $
103,685 $ 11,778,680 $
— $ (7,175,605) $
— $ 4,706,760
Issuances of common stock as follows:
- for cash at $2.00 per share
- for cash at an average of $0.98 per share
- for cash and warrants at $1.50 per share
- for compensation at an average of $1.25
100,000
849,000
7,000
1,000
8,489
70
199,000
821,510
10,430
per share
391,332
3,913
487,275
- for services at an average of $1.23 per
share
91,383
914
119,320
- for subscriptions receivable at $1.00 per
—
—
—
—
—
share
38,000
380
37,620
(38,000)
—
—
—
—
—
—
—
—
—
200,000
829,999
10,500
—
491,188
—
120,234
—
—
Net loss for the year ended October 31,
2003
—
—
—
—
(1,107,228)
— (1,107,228)
Balance, October 31, 2003
11,845,055
118,451 13,453,835
(38,000)
(8,282,833)
— 5,251,453
Issuances of common stock as follows:
- for cash at $1.00 per share, less
issuance costs of $698,863
- for compensation at an average of $1.26
per share
- for services at various prices
7,580,150
75,801 6,805,485
120,655
141,286
1,207
1,413
151,064
153,801
—
—
—
Stock subscription received
—
—
—
38,000
—
—
—
—
— 6,881,286
—
—
152,271
155,214
—
38,000
Miscellaneous corrections and
adjustments
Net loss for the year ended October 31,
2004
64,263
643
(643)
—
—
—
—
—
—
—
—
(5,036,805)
— (5,036,805)
Balance, October 31, 2004
19,751,409
197,515 20,563,542
— (13,319,638)
— 7,441,419
Issuances of common stock as follows:
- for cash at an average of $0.98 per share
with attached warrants
476,404
4,764
461,965
- for compensation at an average of $1.00
per share
176,772
1,768
175,005
—
—
—
—
—
466,729
—
176,773
Net loss for the year ended October 31,
2005
—
—
—
—
(3,302,161)
Balance, October 31, 2005
20,404,585 $
204,047 $ 21,200,512 $
— $ (16,621,799) $
— (3,302,161)
— $ 4,782,760
The accompanying notes are an integral part of these consolidated financial statements.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
Additional
Stock
Deficit
Accumulated
During
Other
Number of
Shares
Amount
Paid-in
Capital
Subscriptions
Receivable
Exploration
Stage
Comprehensive
Income (Loss)
Total
Balance, October 31, 2005
20,404,585 $
204,047 $ 21,200,512 $
— $ (16,621,799) $
— $ 4,782,760
Issuance of common stock as follows:
- for cash at an average price of $.80 per
share with attached warrants
13,374,833
133,748 11,077,879
- for services at an average price of $.80
per share with attached warrants
73,650
736
58,213
- for compensation at an average price of
$.80 per share
248,593
2,486
154,389
- for adjustment of private placement
selling price
81,251
812
(812)
—
—
—
—
—
—
—
—
— 11,211,627
—
58,949
—
156,875
—
—
Stock option and warrant activity as
follows:
- stock based compensation for options
issued to officers and independent
directors at an average fair value of
$2.18 per share
- options & warrants for directors fees at
an average fair value of $2.17 per
share
- modification of options
- exercise of warrants at an average
—
— 4,360,000
—
—
—
4,360,000
price of $1.25 per share
25,000
250
31,000
—
—
— 1,665,705
48,000
—
—
—
—
—
—
—
—
—
1,665,705
48,000
—
31,250
Net loss for the year ended October 31,
2006
—
—
—
— (11,193,037)
— (11,193,037)
Balance, October 31, 2006
34,207,912 $
342,079 $ 38,594,886 $
— $ (27,814,836) $
— $ 11,122,129
Issuance of common stock as follows:
- for cash at an average price of $2.35
per share with attached warrants
- for services at an average price of
2,413,571
24,136 5,647,757
$4.31 per share
49,120
491
211,069
- for directors fees at an average price of
$2.71 per share
108,000
1,080
305,100
—
—
—
—
—
—
—
5,671,893
—
211,560
—
306,180
Stock option and warrant activity as
follows:
- exercise of warrants at an average
price of $1.30 per share
2,240,374
22,404 2,917,750
—
—
—
2,940,154
- warrants issued for financial services at
an average fair value of $1.82 per
share
- stock based compensation for options
issued to officer and independent
director
- for cashless exercise of options
- extension of warrant for services
Other Comprehensive Income – Foreign
—
— 1,094,950
—
—
—
1,094,950
—
126,000
—
—
1,260
—
434,189
(1,260)
68,999
—
—
—
—
—
—
434,189
—
68,999
Currency translation adjustment
—
—
—
—
—
(86,642)
(86,642)
Net loss for the year ended October 31,
2007
—
—
—
—
(6,931,557)
—
(6,931,557)
Balance, October 31, 2007
39,144,977 $
391,450 $ 49,273,440 $
— $ (34,746,393) $
(86,642) $ 14,831,855
The accompanying notes are an integral part of these consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
Additional
Stock
Deficit
Accumulated
During
Other
Number of
Shares
Amount
Paid-in
Capital
Subscriptions
Receivable
Exploration
Stage
Comprehensive
Income (Loss)
Total
Balance, October 31, 2007
39,144,977 $
391,450 $ 49,273,440 $
— $ (34,746,393) $
(86,642) $ 14,831,855
Issuance of common stock as follows:
- for directors fees at an average price of
$1.69 per share
145,200
1,452
243,480
- for services at an average price of $2.18
per share
38,000
380
82,460
Stock option and warrant activity as
follows:
- exercise of warrants at an average price
of $1.25 per share
381,250
3,812
472,751
- warrants issued for financial services at
an average fair value of $.82 per share
—
—
81,838
- stock based compensation for options
issued to officer and independent
directors during prior periods
- stock based compensation for options
issued to officers
- stock based compensation for options
issued to employees
- stock based compensation for options
issued to consultant
Other Comprehensive Income – Foreign
—
—
693,362
—
—
475,018
—
—
164,435
—
—
266,616
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
244,932
—
82,840
—
476,563
—
81,838
—
693,362
—
475,018
—
164,435
—
266,616
Currency Translation Adjustment
—
—
—
—
—
2,442,682
2,442,682
Net loss for the year ended October 31,
2008
—
—
—
— (12,320,422)
— (12,320,422)
Balance, October 31, 2008
39,709,427 $
397,094 $ 51,753,400 $
— $ (47,066,815) $
2,356,040 $ 7,439,719
Issuance of common stock as follows:
- for cash at an average price of $0.25 per
share with attached warrants
5,291,952
52,920 1,270,068
- for directors fees at an average price of
$0.36 per share
129,600
1,296
45,036
—
—
—
—
—
1,322,988
—
46,332
Stock option and warrant activity as
follows:
- exercise of warrants at an average price
of $0.34 per share
3,703,450
37,034 1,212,346
—
—
—
1,249,380
- warrants issued for financial services at
an average fair value of $0.43 per
share
- extension of warrant for services
- stock based compensation for options
issued to officers, employees, and
independent directors during prior
periods
- stock based compensation for options
issued to officers and independent
directors
—
—
—
—
39,022
4,664
—
—
—
39,022
4,664
—
—
514,152
—
—
—
514,152
—
—
179,436
—
—
—
179,436
Deemed dividend on exercise of warrants
—
—
126,090
—
(126,090)
—
—
Other Comprehensive Income – Foreign
Currency Translation Adjustment
—
—
—
—
—
165,556
165,556
Net loss for the year ended October 31,
2009
—
—
—
—
(4,724,110)
—
(4,724,110)
Balance, October 31, 2009
48,834,429 $
488,344 $ 55,144,214 $
— $ (51,917,015) $
2,521,596 $ 6,237,139
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The accompanying notes are an integral part of these consolidated financial statements.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SILVER BULL RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock
Additional
Stock
Deficit
Accumulated
During
Other
Number of
Shares
Amount
Paid-in
Capital
Subscriptions
Receivable
Exploration
Stage
Comprehensive
Income
Total
Balance, October 31, 2009
48,834,429
$
488,344
$ 55,144,214
$
—
$ (51,917,015)
$
2,521,596
$ 6,237,139
Issuance of common stock as follows:
- for cash at an average price of $0.46
per share with attached warrant
- for special warrant offering at an
average price of $0.46 per share less
offering costs of $1,048,484
- for Dome merger consideration at
$1.26 per share with attached warrant
(Note 3)
- for directors fees at an average price of
6,700,000
67,000
3,043,000
28,009,594
280,096
11,681,420
19,714,989
197,150
24,643,736
$0.81 per share
118,800
1,188
94,644
Stock option and warrant activity as
follows:
- warrants issued to replace Dome
warrants as of Merger Date (Note 3)
- warrants issued at an average price of
$0.41 per share
- for cashless exercise of options
- stock based compensation for options
issued to officers, employees, and
independent directors during prior
periods
- stock based compensation for options
issued to officers and independent
directors
Other Comprehensive Income – Foreign
Currency Translation Adjustment
Net loss for the year ended October 31,
—
—
1,895,252
2,308,281
243,669
23,082
2,437
930,512
(2,437)
—
—
—
—
67,065
—
860,934
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,110,000
—
11,961,516
—
24,840,886
—
95,832
—
1,895,252
—
953,594
—
—
67,065
—
860,934
—
(1,090,707)
(1,090,707)
2010
—
—
—
—
(9,405,490)
— (9,405,490)
Balance, October 31, 2010
105,929,762 $ 1,059,297 $ 98,358,340 $
— $ (61,322,505)
$
1,430,889
$ 39,526,021
7,353,000
73,530
4,843,691
—
—
—
4,917,221
Issuance of common stock as follows:
- for cash at an average price of $0.68 per
share less offering costs of $82,819
Stock option and warrant activity as follows:
- stock based compensation for options
issued to officers, employees, consultants
and directors
- exercise of warrants at an average price of
- stock options exercised at an average price
of $0.51 per share
- for cashless exercise of options
Other Comprehensive Income – Foreign
Currency Translation Adjustment
Net loss for the year ended October 31,
2011
$0.50 per share
1,385,353
13,854
685,490
—
—
1,129,421
369,355
72,687
3,693
727
185,220
(727)
—
—
—
—
—
—
—
—
—
—
1,129,421
699,344
—
—
188,913
—
—
—
—
—
—
—
— (1,232,438)
(1,232,438)
—
— (12,237,360)
—
(12,237,360)
Balance, October 31, 2011
115,110,157
$ 1,151,101
$ 105,201,435 $
— $ (73,559,865) $
198,451
$ 32,991,122
The accompanying notes are an integral part of these consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS
Organization and Description of Business
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, at a special directors meeting, the Company’s name was changed to Metalline Mining Company
(“Metalline”). On April 20, 2011, at an annual meeting of shareholders, the Company’s name change to Silver Bull Resources, Inc.
was approved and became effective April 21, 2011. 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 with respect to any of its projects.
The Company engages in the business of mineral exploration. The Company currently owns or has the option to acquire 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”) and Contratistas de Sierra Mojada S.A. de
C.V. (“Contratistas”) and through Minera’s wholly-owned subsidiary 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, was merged with and into Dome
Ventures Corporation (“Dome”). As a result, Dome became a wholly-owned subsidiary of the Company. Dome’s subsidiaries include
its wholly-owned subsidiaries Dome Asia Inc., and Dome International Global Inc., which are incorporated in the British Virgin
Islands. Dome International Global Inc.’s subsidiaries include its wholly-owned subsidiaries incorporated in Gabon, Dome Ventures
SARL Gabon, and African Resources SARL Gabon, as well as its 99.99%-owned subsidiary, Dome Minerals Nigeria Limited
incorporated in Nigeria. The Company conducts its exploration activities in Gabon, Africa through Dome Ventures SARL Gabon and
African Resources SARL Gabon. The Company included the financial results of Dome and its subsidiaries in the Company’s
consolidated statement of operations and comprehensive (loss) income effective April 16, 2010.
The Company’s efforts have been concentrated in expenditures related to exploration properties, principally in the Sierra Mojada
Property located in Coahuila, Mexico. The Company has not determined whether the 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, the ability of the Company to obtain financing or
make other arrangements for development, and upon future profitable production. The ultimate realization of the Company’s
investment in exploration properties cannot be determined at this time, and accordingly, no provision for any asset impairment that
may result, in the event the Company is not successful in developing or selling these properties, has been made in the
accompanying consolidated financial statements.
The Company’s consolidated financial statements have been prepared on the basis of accounting principles applicable to a going
concern which assumed the Company will realize its assets and discharge its liabilities in the normal course of business. Accordingly,
the Company’s consolidated financial statements do not reflect the adjustments to the carrying value of assets and liabilities, or the
impact on the consolidated statement of operations and comprehensive (loss) income and balance sheet classifications that would be
necessary if the going concern assumption was not appropriate. Management believes that the Company has sufficient financial
resources, including the proceeds received in the registered direct offerings described in Note 20 and the ability to adjust exploration
activities, to sustain operations over the twelve month period beginning November 1, 2011. The Company has not generated any
revenue from operations and the Company’s continued exploration activities will ultimately require the Company to raise additional
capital, identify other sources of funding, or identify strategic transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the consolidated financial statements. The
consolidated financial statements and notes are representations of the Company’s management, which is responsible for their
integrity and objectivity.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) and prepared using the accrual method of accounting.
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after elimination of
intercompany accounts and transactions. The wholly owned subsidiaries of the Company are listed in Note 1.
Use of Estimates
The preparation of these 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
mineral concessions, evaluating impairment of long-lived assets, evaluating impairment of goodwill, establishing a valuation
allowance on future use of deferred tax assets, determining the fair value of assets and liabilities acquired in the merger with Dome
(Note 3) and calculating stock-based compensation.
Revenue Recognition
The Company recognizes revenue when the title and risks and rewards of ownership pass to the buyer, the selling price is fixed and
determinable, persuasive evidence of an arrangement exists and collection of the sale proceeds is considered probable. As of
October 31, 2011, the Company has not recognized any revenues.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investment with an original maturity of three month or less.
Property Concessions
Costs of acquiring property concessions are capitalized by project area upon purchase or staking of the associated claims. Costs to
maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related
capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. To date,
no mineral concessions have reached the production stage.
The Company reviews and evaluates its property concessions for impairment annually or when events or changes in circumstances
indicate that the related carrying amounts may not be recoverable and any impairment in carrying value is charged to operations at
the time of impairment. Should a concession be abandoned, its capitalized costs are charged to operations. The Company charges to
operations the allocable portion of capitalized costs attributable to concessions sold. Capitalized costs are allocated to concessions
abandoned or sold based on the proportion of claims abandoned or sold to the claims remaining within the project area.
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.
The Company has been in the exploration stage since November 8, 1993 and has no revenues from operations. The Company is
primarily engaged in the acquisition and exploration of mineral properties. Should the Company locate a commercially mineable
reserve, the Company would expect to actively prepare the site for extraction. Exploration costs expensed during the fiscal years
ended October 31, 2011 and 2010 were $8,373,451 and $5,843,512, respectively. The exploration costs expensed to date during the
Company’s exploration stage amount to $37,329,191.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and impairment losses. Property and equipment are
depreciated using the straight-line or accelerated methods, over the estimated useful lives of the related assets. Assets under
construction are depreciated when they are substantially complete and available for their intended use, over their estimated useful
lives. Repairs and maintenance of property and equipment are expensed as incurred. Costs incurred to enhance the service potential
of plant and equipment are capitalized and depreciated over the remaining useful life of the improved asset.
Impairment of Long-Lived Assets
Management reviews and evaluates its long-lived assets for impairment when events and changes in circumstances indicate that the
related carrying amounts of its 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, as determined through the application of a present value
technique using expected future cash flows to estimate fair value in the absence of a market price. 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, all assets are grouped at the exploration project level.
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. When multiple reporting units are acquired in one business combination, goodwill is
allocated to reporting units as of the date of the business combination, by determining estimates of the fair value of each reporting
unit and comparing this amount to the fair values of assets and liabilities in the reporting unit. Goodwill is not amortized.
The Company performs goodwill annual impairment tests at April 30 each fiscal year and when events and circumstances indicate
that the carrying amounts may no longer be recoverable. Goodwill is assessed at the reporting unit level. In performing the
impairment tests, the Company estimates the fair values of its reporting units that include goodwill and compares those fair values to
the reporting units’ carrying amounts. If a reporting unit’s carrying amount exceeds its fair value, the Company compares the implied
fair value of the reporting unit’s goodwill to the carrying amount, and any excess of the carrying amount of goodwill over the implied
fair value is charged to earnings.
Income Taxes
The Company follows 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. The Company recognizes 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 the Company has 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, 2011 and October 31, 2010 against the deferred tax assets as it deems future realization would not meet the criteria
“more likely than not”.
Stock-Based Compensation and Warrants
The Company uses 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 evaluation of historical
and expected future exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with
maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of the Company’s
stock and adjusted if future volatility is expected to vary from historical experience. The Company has not historically issued any
dividends and it does not expect to in the future. The Company uses the graded vesting attribution method to recognize
compensation costs over the requisite service period.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company also used the Black-Scholes valuation model to determine the fair market value of warrants. Expected volatility is
based upon weighted average of historical volatility over the contractual term of the warrant and implied volatility. The risk-free
interest rate is based upon implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the contractual term of
the option. The dividend yield is assumed to be none as the Company has not paid dividends nor does not anticipate paying any
dividends in the foreseeable future.
Loss Per Share
Basic loss per share includes no dilution and is computed by dividing net loss available to common shareholders by the weighted
average common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share
in the earnings of an entity similar to fully diluted loss per share. Although there were stock options and warrants in the aggregate of
6,355,864 shares and 19,217,639 shares outstanding at October 31, 2011 and 2010, respectively, they were not included in the
calculation of loss per share because they would have been considered anti-dilutive.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the year-end exchange rates, and
revenue and expenses are translated at the average exchange rates during the period. Exchange differences arising on translation
are disclosed as a separate component of stockholders’ equity. Realized gains and losses from foreign currency transactions are
reflected in the results of operations. During the year-ended October 31, 2010, intercompany transactions and balances with the
Company’s Mexican and Gabonese subsidiaries were considered to be short-term in nature and accordingly all foreign currency
transaction gains and losses on intercompany loans are included in the consolidated statement of operations and comprehensive
(loss) income during the year-ended October 31, 2010.
On July 7, 2011, the Company acknowledged the Company’s intention to convert certain intercompany loans totaling $13.4 million to
equity. Subsequent to July 7, 2011, the Company no longer recognizes foreign currency transaction gains or losses on this $13.4
million portion of intercompany loans in the consolidated statement of operations and comprehensive (loss) income.
Accounting for Loss Contingencies and Legal Costs
From time to time, the Company is named as a defendant in legal actions arising from our normal business activities. The Company
records 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 the Company 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.
Recent Accounting Pronouncements Adopted in the Year
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06
which provides amendments to ASC Topic 820 that will provide more robust disclosures about (1) the different classes of assets and
liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and
(4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009. The adoption of this guidance did not have a material effect on the
Company’s financial position, results of operations or cash flows. The disclosures about purchases, sales, issuances and settlements
in the roll forward of activity in Level 3 fair value measurements disclosures are effective for fiscal years beginning after December 15,
2010, and for interim periods within those years. The Company does not expect that the full adoption of ASU No. 2010-06 will have a
material effect on the Company`s financial position, results of operations or cash flows.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Recent Accounting Pronouncements Not Yet Adopted
In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other”. This new guidance on testing goodwill
provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently
prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill
impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less
than its carrying amount, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011 with prospective application required. The adoption of this guidance is
not expected to have a material effect on the Company`s financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This update amended the presentation
options in Accounting Standards Codification (“ASC”) 220, “Comprehensive Income,” to provide an entity the option to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2011 with retrospective application required. The
adoption of this guidance is not expected to have a material effect on the Company`s financial position, results of operations or cash
flows.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.” This update amended explanations of how to measure fair value to result in common fair
value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. ASU 2011-04 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2011 with prospective application required. The
adoption of this guidance is not expected to have a material effect on the Company`s financial position, results of operations or cash
flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the United States
Securities and Exchange Commission did not or are not believed to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 3 – MERGER WITH DOME VENTURES
On April 16, 2010 (the “Merger Date”), a wholly-owned subsidiary of the Company was merged with and into Dome, resulting in
Dome becoming a wholly-owned subsidiary of the Company (the “Merger”). To effect the Merger, Dome stockholders received
0.968818 shares of the Company’s common stock for each share of Dome common stock they held as of the Merger Date.
Additionally, on the Merger Date, all outstanding warrants to acquire Dome common stock were exchanged for warrants to acquire the
Company’s common stock on equivalent terms. As a result of the Merger, the holders of the Company’s common stock prior to the
Merger Date own approximately 53% of the Company post-merger and the former Dome shareholders own approximately 47% of the
Company post-merger.
Based on the closing price of the Company’s common stock on the Merger Date, the consideration received by Dome shareholders in
the Merger had a value of approximately $26.7 million as detailed below.
Dome common stock outstanding on the Merger Date
Less: Dome common stock issued in connection with the special warrant offering (a)
Dome common stock outstanding on the Merger Date attributable to the merger
consideration
Multiplied by Silver Bull’s stock price as of the Merger Date multiplied by the exchange ratio
of 0.968818 ($1.26 x 0.968818)
Fair value of the Silver Bull warrants issued to replace Dome warrants as of the Merger
Date (b)
Merger consideration transferred
F-17
Conversion
Calculation
Estimated Fair
Value
49,260,624
(28,911,111)
20,349,513
$
1.2207 $
24,840,886
1,895,252
26,736,138
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(a)
(b)
In accordance with ASC Topic 805-10, Business Combinations — Overall (“ASC 805-10”), transactions entered into primarily
for the benefit of the combined entity, rather than primarily for the benefit of the acquired company should be accounted for as a
separate transaction. The special warrant offering described above was completed for the benefit of the combined entity and
therefore the value of the Silver Bull common shares issued in exchange for the shares acquired upon the conversion of the
special warrants was treated as a separate financing transaction and not included as part of the merger consideration.
Represents the fair value of warrants to acquire 2,228,281 shares of Company common stock issued to replace Dome warrants
outstanding as of the Merger Date. ASC 805-10 requires that the fair value of replacement warrants be included in the
consideration transferred. The fair value of the Silver Bull equivalent warrants was estimated using the Black-Scholes valuation
model utilizing the assumptions noted below.
Stock price
Post conversion strike price
Average expected volatility
Dividend yield
Average risk-free interest rate
Average contractual term
Black-Scholes average value per warrant
$1.26
$0.41
98%
None
0.12%
.19 years
$0.8505
The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets
acquired and liabilities assumed to be recognized at their fair values as of the Merger Date. The following table summarizes the
estimated fair values of major assets acquired and liabilities assumed:
Cash and cash equivalents
Other receivables
Prepaid expenses
Property Concessions – Gabon, Africa
Equipment
Value-added tax receivable
Other assets
Accounts payable
Accrued expenses
Payable to joint venture partner
Total identifiable net assets
Goodwill
Merger consideration transferred
Estimated Fair
Value
$
$
2,618,548
17,942
6,404
4,496,915
59,331
65,129
4,294
(251,577)
(6,436)
(13,274)
6,997,276
19,738,862
26,736,138
As of the Merger Date, the expected fair value of other receivables and value-added tax receivable approximated the historical cost.
Property concessions do not have a useful life pursuant to the Company’s policy on property concessions. The Company estimates
that the goodwill resulting from the Dome Merger transaction will be not deductible for tax purposes. Goodwill represents the
expected synergies from combining operations of Dome and the Company.
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on
estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets
acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results from operations. The Company’s
management allocated the acquisition cost to the assets acquired and liabilities assumed based on the estimated fair value of Dome’s
tangible and identifiable assets and liabilities. The amount allocated to the property concessions was based on a valuation report
prepared by a third party appraisal firm.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the fiscal year ended October 31, 2010, the Company incurred merger related transaction costs consisting primarily of legal
and accounting fees of $260,672. These costs are included in professional fees on the consolidated statement of operations and
comprehensive (loss) income.
Actual and Pro-forma Impact of the Merger
Dome’s net loss of $11,174 for period from the Merger Date through October 31, 2010 is included in the Company’s consolidated
statement of operations and comprehensive (loss) income for the fiscal year ended October 31, 2010. The net loss for Dome
represents a net loss per share of less than $0.01 per share for the Company during the fiscal year ended October 31, 2010.
The following table presents supplemental pro forma information as if the Merger had occurred on November 1, 2009. The pro forma
consolidated results are not necessarily indicative of what the Company’s consolidated net loss would have been had the Company
completed the Merger on November 1, 2009. In addition, the pro forma consolidated results do not purport to project the future results
of the combined Company nor do they reflect the expected realization of any cost savings associated with the Merger.
Revenues
Net loss
Loss per share
Fiscal year Ended
October 31,
2010
$
$
—
(10,258,000)
(0.10)
2010 Pro forma Results – Fiscal year Ended October 31, 2010
The 2010 pro forma results were calculated by combining the results of Silver Bull with the stand-alone historical results of Dome for
the six months ended March 31, 2010. Additionally the following adjustments were made to account for certain costs which would
have been incurred had the acquisition commenced on November 1, 2009:
•
•
•
Record additional depreciation of $15,000 for estimated fair value of fixed assets identified in the merger using an estimated
remaining life of two years.
Eliminate historical compensation costs for Dome officers/directors incurred during the period and record additional director’s
fees for the chairman and two additional independent directors added in conjunction with the merger.
Credit for actual transactions costs incurred of $650,000 to consummate the merger during the fiscal year ended October 31,
2010.
NOTE 4 – RESTRICTED CASH
At October 31, 2011, the Company has $77,068 of restricted cash which is classified as a current asset. The restricted cash
represents cash contributed by AngloGold Ashanti Limited (“AngloGold”) for use exclusively on exploration costs related to the joint
venture agreements with AngloGold (Note 7).
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 5 – PROPERTY CONCESSIONS
The following is a summary of the Company’s property concessions in Sierra Mojada, Mexico and Gabon, Africa as at October 31,
2011 and 2010, respectively:
Property Concessions – October 31, 2009
Acquisitions
Joint venture agreement payment received (Note 7)
Foreign currency translation adjustment
Property Concessions – October 31, 2010
Acquisitions
Joint venture agreement payment received (Note 7)
Foreign currency translation adjustment
Property Concessions – October 31, 2011
Sierra Mojada,
Mexico
Gabon,
Africa
$
$
$
3,713,722 $
373,479
—
231,091
4,318,292 $
797,960
—
(269,565)
4,846,687 $
—
4,496,915
(100,000)
—
4,396,915
—
(100,000)
203,233
4,500,148
NOTE 6 – OFFICE AND MINING EQUIPMENT
The following is a summary of the Company's property and equipment at October 31, 2011 and October 31, 2010, respectively:
Mining equipment
Vehicles
Buildings and structures
Computer equipment and software
Well equipment
Office equipment
Less: Accumulated depreciation
October 31,
2011
1,051,312 $
229,912
186,041
203,000
39,637
49,041
1,758,943
(973,457)
785,486 $
$
$
October 31,
2010
1,639,726
181,040
193,257
202,884
41,762
44,470
2,303,139
(941,781)
1,361,358
NOTE 7 – JOINT VENTURE AGREEMENTS
In October 2009, Dome and AngloGold entered into two joint venture agreements; the Ogooue Joint Venture Agreement and the
Ndjole and Mevang Joint Venture Agreement.
Ogooue Joint Venture Agreement
AngloGold acquired a reconnaissance license over an area comprising 8,295 square kilometers in Gabon, Africa. This license was
acquired by AngloGold for its gold potential. The joint venture is an 80/20 joint venture in favor of AngloGold. AngloGold has made a
firm commitment to spend $100,000 on exploration and will solely fund the first $3 million of exploration expenditures, after which the
parties will contribute on an 80/20 basis. Joint venture dilution provisions apply whereby if Dome is diluted in the future to a joint
venture interest of 5% or less due to lack of contribution to exploration budgets, its interest will be converted to a 2% Net Smelter
Return which can be purchased at an appraised value 14 months after commencement of commercial production. Should AngloGold
elect not to spend the aforesaid $3 million, the lease shall be assigned to Dome.
Ndjole and Mevang Joint Venture Agreement
Dome is the owner of the Ndjole and Mevang exploration licenses, each comprised of 2,000 square kilometers. Under the terms of the
joint venture, AngloGold earned a 20% interest by paying Dome $400,000 upon signing of the joint venture agreement in October
2009. AngloGold can earn an additional 40% interest by paying Dome $100,000 per year from 2010 through 2012 and by incurring
exploration expenditures in the amount of $3.7 million from 2010 through 2012 at the rate of $1 million in the first year, $1.2 million in
the second year and $1.5 million in the third year. As of October 31, 2011, AngloGold has incurred expenditures of $5,181,000 and
paid Dome two payments of $100,000 each.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Once it has earned a 60% interest, AngloGold can earn an additional 10% interest (70% total) by spending $5 million on exploration
expenditures within two years of earning into a 60% interest as set out above. When the parties have a 70/30 joint venture, and if
Dome elects not to contribute to work programs and budgets, AngloGold may elect to earn an additional 15% interest (85% total) by
carrying the project to a completed pre-feasibility study. Should AngloGold fail to perform as set out above, a 100% interest in the
licenses shall revert to Dome and the joint venture will cease. AngloGold shall be entitled to withdraw from the joint venture after it has
spent $1 million on exploration expenditures.
Joint venture dilution provisions apply whereby if Dome is diluted in the future to a joint venture interest of 5% or less due to lack of
contribution to exploration budgets, its interests will be converted to a 2% Net Smelter Return which can be purchased at appraised
value 14 months after commencement of commercial production.
Pursuant to the terms of the joint venture agreement, exploration costs are currently being funded 100% by AngloGold through the
Company’s wholly owned subsidiary, Dome Gabon SARL. AngloGold will typically fund in advance the exploration costs for the
upcoming period. Any funds received in excess of exploration costs are reflected as a payable to joint venture partner on the
Company’s consolidated balance sheet. As of October 31, 2011, the payable to AngloGold was $541,913.
NOTE 8 – VALUE-ADDED TAX RECEIVABLE
During 2008, the Company filed value added (“IVA”) tax returns with the Mexican authorities to recover IVA taxes paid by its Mexican
subsidiaries from 2005 through 2008. The Mexican authorities reviewed the IVA tax returns filed and requested the Company
provide copies of supporting documentation for amounts filed. During 2008 and 2009, the Company worked extensively with IVA tax
consultants and Mexican authorities to provide the requested documentation and answer questions related to these tax returns, but
was unable to recover the IVA tax amounts.
As the result of these difficulties, the Company applied for authorization before the tax authorities to transfer the tax office jurisdiction
to Mexico City beginning in the 2012 fiscal year. During December 2011 the Company received this authorization and the Company
plans to file IVA tax returns in Mexico City including those historical IVA tax returns previously filed in other jurisdictions.
At October 31, 2010, management evaluated the IVA tax receivable and increased the allowance for uncollectible taxes to
approximately 15.4 million Pesos or $1,241,876. 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, general economic conditions in Mexico and
estimated net recovery after commissions.
During the year ended October 31, 2011 management evaluated the recoverability of the IVA tax receivable and increased the
provision by $204,190. Due to the uncertainty of when any IVA taxes will be recovered, the Company continues to reflect the net IVA
tax receivable as a long-term asset on the Consolidated Balance Sheet as of October 31, 2011.
A summary of the changes in the allowance for uncollectible taxes for the fiscal years ended October 31, 2011 and 2010 is as
follows:
Allowance for uncollectible taxes – November 1, 2009
Provision for Uncollectible IVA Taxes
Foreign currency translation adjustment
Allowance for uncollectible taxes – October 31, 2010
Provision for Uncollectible IVA Taxes
Foreign currency translation adjustment
Allowance for uncollectible taxes – October 31, 2011
$
$
273,761
928,877
39,238
1,241,876
204,190
(65,248)
1,380,818
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 9 – 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 annual goodwill impairment test was completed on April 30, 2011, with no impairment
identified. As at October 31, 2011 the Company did not identify any potential indicators of impairment.
The following is a summary of the Company’s goodwill balance as at October 31, 2011 and 2010, respectively:
Goodwill – October 31, 2009
Acquisitions (Note 3)
Goodwill – October 31, 2010
Foreign currency translation adjustment
Goodwill – October 31, 2011
$
$
$
—
19,738,862
19,738,862
(1,243,831)
18,495,031
NOTE 10 - RELATED PARTY TRANSACTIONS
Following the Merger, the Company entered into a similar arrangement that Dome previously had with Rand Edgar Investment Corp,
a company owned by Brian Edgar, the Company's Executive Chairman, whereby the Company paid $10,000 per month for general
corporate development, rent and administrative services for an office in Vancouver, British Columbia. During the year ended October
31, 2011 the Company paid $125,939 to Rand Edgar Investment for general corporate development, rent and administrative services
which is included in the office and administrative expenses line of the consolidated statement of operations and comprehensive (loss)
income.
NOTE 11 – SHAREHOLDER RIGHTS PLAN
On June 11, 2007, the Board of Directors adopted a Shareholders’ Right Plan through the adoption of a Rights Agreement, which
became effective immediately. In connection with the adoption of the Rights Agreement, the Board of Directors declared a distribution
of one Right for each outstanding share of the Company’s common stock, payable to shareholders of record at the close of business
on June 22, 2007. In accordance with the Rights Plan, one Right has attached to each share of Company common stock issued since
that date. Each Right is attached to the underlying common share and will remain with the common share if the share is sold or
transferred. As of October 31, 2011, there are 115,110,157 shares outstanding with Rights attached.
In certain circumstances, in the event that any person acquires beneficial ownership of 20% or more of the outstanding shares of the
Company’s common stock, each holder of a Right, other than the acquirer, would be entitled to receive, upon payment of the
purchase price, which is initially set at $20 per Right, a number of shares of the Company’s common stock having a value equal to
two times such purchase price. The anti-takeover mechanisms of the Rights Agreement were not triggered by the merger transaction
with Dome and no holders of the Rights were entitled to exercise their Rights as a result of that transaction or any events described in
the Merger Agreement. The Rights will expire on June 11, 2017.
NOTE 12 - COMMON STOCK
During the year ended October 31, 2011, the Company completed a private placement of 7,353,000 shares of common stock at $0.68
per share. Net proceeds from the private placement were $4,917,221. The Company also issued 1,385,353 shares of common stock
upon the exercise of warrants at an average cash consideration of $0.50 per share. Options to acquire 369,355 shares of common
stock were also exercised at an average exercise price of $0.51 per share. In addition, options to acquire 400,261 shares of common
stock were exercised by way of a cashless exercise whereby the recipients elected to receive 72,687 shares without payment of the
cash exercise price and the remaining options for 327,574 shares were cancelled.
In August 2010, the Company completed a private placement of 200,000 units at a price of $0.60 per unit, with each unit consisting of
one share of restricted common stock and one stock purchase warrant. Each warrant entitles the holder to purchase one share of
common stock. Each whole warrant is exercisable at $0.70 per share and has a term of one year. Net proceeds from this placement
were $120,000.
On April 16, 2010, the Company completed the Merger and issued a total of 47,724,583 shares of common stock for all the issued
and outstanding shares of Dome. Based upon the closing exchange ratio of 0.968818 shares of Silver Bull common shares for each
single share of Dome common stock, the Company determined that 28,009,594 common shares of Silver Bull were issued pursuant to
the special warrant offering and 19,714,989 common shares of Silver Bull were issued for merger consideration. After deducting
offering costs of $1,048,484, the total net proceeds from the special warrant offering were $11,961,516.
Pursuant to ASC 805-10, the 19,714,989 shares issued for merger consideration were measured at $1.26, the closing market price of
the Company’s common stock on April 16, 2010.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On January 10, 2010, Dome raised $13,010,000 through a private placement of special warrants. The private placement was
completed through a syndicate of Canadian investment dealers and each special warrant automatically converted into one share of
Dome common stock immediately prior to the closing of the Merger. The funds were held in escrow pending the closing.
On December 22, 2009, the Company closed a private placement of 6,500,000 units, at a price of $0.46 per unit, with each unit
consisting of one share of common stock of the Company and one common stock purchase warrant of the Company, two of which
warrants entitled the holder to purchase one share of common stock. As a result of the closing of the Merger on April 16, 2010, the
warrants issued as part of this private placement were terminated in accordance with their terms. Total proceeds from this private
placement were $2,990,000.
During year ended October 31, 2010, the Company issued 2,308,281 shares of common stock upon the exercise of warrants at an
average cash consideration of $0.41 per share and issued 118,800 shares of common stock at an average market price of $0.81 per
share to its independent directors for services provided. In addition, during the fiscal year ended October 31, 2010, options to acquire
448,938 shares of common stock were exercised by way of a cashless exercise whereby the recipients elected to receive 243,669
shares without payment of the exercised price and the remaining options for 205,262 shares were cancelled.
During the year ended October 31, 2009, the Company completed a private placement of 5,291,952 units at $0.25 per unit. Each
unit consisted of one share of restricted common stock and one half of a warrant. Each whole warrant is exercisable at $0.50 per
share and has a term of 3 years. Net proceeds from these placements were $1,322,988. Also during 2009, the Company issued
3,703,450 shares of common stock for warrants exercised at an average cash consideration of $0.34 per share and issued 129,600
shares of common stock at an average market price of $0.36 per share to its independent directors for services provided.
During the year ended October 31, 2008, the Company issued 381,250 shares of common stock for warrants exercised at an average
cash consideration of $1.25 per share. In addition, the Company granted 38,000 shares to three employees of Contratistas at an
average market price of $2.18. The Company also issued 145,200 shares of common stock at an average market price of $1.69 per
share to its independent directors for services provided during the 4th quarter of 2007 and for the four quarters in fiscal 2008. The
Company had accrued $68,460 as of October 31, 2007 for costs associated with director shares for the quarter ended October 31,
2007.
During the year ended October 31, 2007, the Company completed a private placement of 2,413,571 shares of the Company’s
common stock and warrants to purchase 1,206,785 shares of common stock exercisable at $2.42 per share for four years, at a price
of $4.70 per unit, which consists of two shares of common stock and one warrant. Net proceeds from this private placement were
$5,671,893. In addition, the Company issued 2,240,374 shares of common stock for warrants exercised at an average cash
consideration of $1.30 per share and issued 49,120 shares to outside consultants for services provided at an average price of $4.31
per share. Also during 2007, the Company issued 108,000 shares of common stock at an average price of $2.84 per share to its
independent directors for services provided and issued 126,000 shares of common stock in a cashless exercise of options.
During the year ended October 31, 2006, the Company issued 13,456,084 shares of common stock for cash consideration at an
average of $0.83 per share and 73,650 shares valued at $0.80 per share for services received. Included with each share purchased
was a warrant to purchase one share of the Company’s common stock at an exercise price of $1.25 per share with an exercise period
of 5 years. In addition, warrants were exercised for 25,000 shares of common stock for cash consideration at an average of $1.25 per
share. In addition, 248,593 shares of common stock were issued to employees of the Company for prior compensation at an average
value of $0.63 per share during the year ended October 31, 2006.
During the year ended October 31, 2005, the Company issued 476,404 shares of common stock for cash consideration at an average
of $0.98 per share. In addition, 176,772 shares of common stock were issued to officers and employees of the Company at an
average of $1.00 per share in payment of accrued wages. On September 28, 2005 the Company authorized the issuance of
7,500,000 shares of common stock at a price of $0.80 per share, to include with each share purchased a warrant to purchase one
share of the Company’s common stock at an exercise price of $1.25 per share and with an exercise period of 5 years. Accordingly,
options to purchase 476,404 shares of common stock were issued during the year ended October 31, 2005.
During the year ended October 31, 2004, the Company issued 7,580,150 shares of common stock for cash consideration at $1.00 per
share less issuance costs of $698,863. Officers of the Company were issued 120,655 shares at an average of $1.26 per share in
payment of accrued wages. The Company also issued 141,286 shares in exchange for services received.
F-23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the year ended October 31, 2003, the Company sold 7,000 common stock units with an ascribed cash value of $10,500. The
Company also sold 849,000 shares at an average price of $0.98 per share. The Company also issued 100,000 shares of common
stock under the Penoles agreement for cash, at $2.00 per share. Additionally, 373,925 shares of common stock valued at $468,771
were issued as compensation to officers.
During the year ended October 31, 2002, the Company sold 162,667 common stock units with attached warrants for cash of
$244,000. The Company also issued 50,000 shares of common stock under the Penoles agreement for cash at $2.00 a share.
Additionally, 86,078 shares of common stock valued at $104,875 were issued as compensation to officers. On May 20, 2002, the
Company authorized the offering of 1,000,000 common stock units, with each unit consisting of one share of common stock and one
warrant equal to 1/3 of a share of common stock.
During the year ended October 31, 2001, the Company issued 20,000 shares of common stock with attached warrants for cash of
$15,000. Additionally, 57,000 shares of common stock were issued for services valued at $112,680 and for cash of $390, and 250,000
shares of common stock with 125,000 warrants attached were issued for $500,000 in cash.
During the year ended October 31, 2000, the Company sold 1,440,500 shares of its common stock for $3,986,625 cash, issued
120,000 shares of common stock for services valued $153,360, issued 15,000 shares of common stock for equipment valued at
$25,000 and issued 950,000 shares of common stock for options exercised at $0.86 per share.
During the year ended October 31, 1999, the Company sold 1,068,800 shares of common stock for $1,075,900 cash. In addition the
Company received $300,000 for payment of subscriptions receivable. The Company also issued 55,556 shares for payment of drilling
expenses valued at $50,000.
In February 1998, 200,000 shares of common stock were issued for a mine database. The shares were valued at $1.625 per share,
resulting in a transaction valued at $325,000. Services valued at $22,300 were paid with 41,800 shares of common stock. An
additional 1,398,500 shares of common stock were issued for $1,065,445 cash and receivables, and a subscription receivable of
$300,000, between February and October 1998.
In April 1997, 250,000 common stock shares were issued for cash of $87,500 and 133,800 shares of common stock were issued for
services valued at $45,583. In May and June 1997, 181,600 shares of common stock were issued for $63,560 cash and 62,500
shares of common stock were issued for services valued at $21,875. In August and October 1997, 420,000 and 75,000 shares of
common stock were issued for cash of $378,000 and $75,000, respectively. Additionally, during August 1997, 100,200 shares of
common stock were issued for debt of $31,530 and 95,000 shares of common stock were issued for services valued at $95,000.
During November 1995, the Company’s directors approved the issuance of 45,000 shares of common stock for services rendered at
$0.01 per share. During June 1996, the Company issued 900,000 shares of common stock for the assignment of mineral rights in the
Sierra Mojada Project in Coahuila, Mexico valued at $0.01 per share to Messrs. John Ryan, Merlin Bingham, and Daniel Gorski, who
had formed a partnership to advance exploration of the mining concession located in Coahuila, Mexico. The partnership had an
informal joint venture agreement with USMX, Inc. covering the mining concessions. By acquiring the partnership interest, the
Company was able to negotiate and sign a formal joint venture agreement with USMX in July 1996.
During the year ended October 31, 1996, Metalline Mining Company issued 1,320,859 shares of common stock for $146,359 in cash.
During October 1996, the Company issued 150,000 shares of common stock for computer equipment valued at $15,000. Also during
October 1996, the Company issued 120,000 shares of common stock to Mr. Gorski and an additional 20,000 shares of common stock
to Mr. Ryan for services rendered valued at $14,000.
In January 1996, Mr. Carmen Ridland, in a private sale, sold a controlling interest in the corporation to Mr. Howard Crosby. On
January 12, 1996, Mr. Ridland transferred control of Cadgie Co. to Mr. Crosby and Mr. Robert Jorgensen.
On August 4, 1995 the directors of Cadgie Co. declared a 3:1 forward stock split of the outstanding Cadgie Co. shares, thus
increasing the number of outstanding shares from 192,160 to 576,480.
On August 31, 1994, the directors of Cadgie Co. declared a 1:5 reverse stock split of the outstanding Cadgie Co. shares, thus
reducing the number of outstanding shares from 960,800 to 192,160 shares.
The Company (originally called Cadgie Company) was formed in August of 1993 and incorporated in November 1993 by Mr. Carman
Ridland of Las Vegas, Nevada as a spin-off from its predecessor, Precious Metal Mines, Inc. The Company issued 960,800 of its
$0.01 par value shares to Precious Metal Mines, Inc. for 16 unpatented mining claims located near Philipsburg, Montana comprising
the Kadex property group. Precious Metal Mines, Inc. distributed the 960,800 shares of Cadgie Company to its shareholders. One
share of Cadgie Co. was exchanged for each share of Precious Metal Mines, Inc. held by holders of record as of August 31, 1993.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 13 - STOCK OPTIONS
The Company has adopted two active stock option plans. Under the 2006 Stock Option Plan (the “2006 Plan”) the Company may
grant non-statutory and incentive options to employees, directors and consultants for up to a total of 5,000,000 shares of common
stock. Under the 2010 Stock Option and Stock Bonus Plan (the “2010 Plan”), the lesser of (i) 30,000,000 shares or (ii) 10% of the total
shares outstanding are reserved for issuance upon the exercise of options or the grant of stock bonuses.
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 approximately 2 to 3 years and have a contractual term of 5 to 10 years.
A summary of the range of assumptions used to value stock options granted for the nine months ended October 31, 2011 and 2010
are as follows:
Options
Expected volatility
Risk-free interest rate
Dividend yield
Expected term (in years)
Fiscal Year Ended
October 31,
2011
2010
96-113% 101% -114%
0.39-1.53% 0.63% – 0.93%
—
2.50 – 3.50
—
2.50 – 3.50
During the year ended October 31, 2011, options to acquire 369,355 shares of common stock were also exercised at an average
exercise price of $0.51 per share. In addition, options to acquire 400,261 shares of common stock were exercised by way of a
cashless exercise whereby the recipients elected to receive 72,687 shares without payment of the exercise price and the remaining
options for 327,574 shares were cancelled. The options had a combined intrinsic value of $197,034 at the time of exercise. Also
during the year ended October 31, 2011, the Company granted options to acquire 2,295,000 shares of common stock with a
weighted-average grant-date fair value of $0.58.
During the year ended October 31, 2010, options to acquire 243,669 shares of common stock were exercised by way of a cashless
exercise at an average exercise price of $0.34 per share. The options had an intrinsic value of $99,941 at the time of exercise. Also
during the year ended October 31, 2010, the Company granted options to acquire 3,495,000 shares of common stock with a
weighted-average grant-date fair value of $0.46.
The following is a summary of stock option activity for the fiscal year ended October 31, 2011 and 2010:
Options
Outstanding at October 31, 2009
Granted
Exercised
Forfeited
Expired
Outstanding at October 31, 2010
Granted
Exercised
Forfeited
Expired
Outstanding at October 31, 2011
Shares
5,005,623 $
3,495,000
(243,669)
(1,055,262)
(300,000)
6,901,692 $
2,295,000
(442,042)
(947,621)
(3,255,121)
4,551,908
Vested or Expected to Vest at October 31, 2011 4,551,908 $
Exercisable at October 31, 2011
3,031,903 $
Weighted
Average
Exercise
Price
2.27
0.72
0.34
2.11
1.87
1.59
0.90
0.52
0.82
2.23
1.06
1.06
1.16
F-25
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
3.60
3.60
3.23
33,600
$
$
33,600
11,200
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company recognized stock-based compensation costs for stock options of $1,129,421 and $927,999 for the fiscal years ended
October 31, 2011 and 2010, respectively. As of October 31, 2011, there remains $450,555 of total unrecognized compensation
expense which is expected to be recognized over a weighted average period of 1.75 years.
On September 7, 2010, the Company granted options to purchase 295,000 shares of common stock under the 2010 Stock Option
Plan to twenty employees with an exercise price of $0.73 and an expiration date of five years. The fair market value of the options at
the date of grant was $0.47 per share.
On August 23, 2010, the Company granted stock options to purchase 200,000 shares of common stock under the 2010 Stock Option
Plan to each of its independent directors of the Company with an exercise price of $0.72 and an expiration date of five years. The
Board also granted options on August 23, 2010 to the persons serving on the Board who were not considered independent at the time
of grant being: Brian Edgar (an option to acquire 600,000 shares); Merlin Bingham (an option to acquire 200,000 shares); and Greg
Hahn (an option to acquire 200,000 shares). The fair market value of the 1,800,000 options at the date of grant was $0.46 per share.
Also on August 23, 2010 the Company granted stock options to purchase an aggregate of 1,400,000 shares of common stock under
the 2010 Stock Option Plan to the Company’s executive officers with an exercise price of $0.72 and an expiration date of five years.
The fair market value of the options at the date of grant was $0.47 per share.
In February 2009, the Company granted options to acquire 705,619 shares of common stock with a weighted-average grant-date fair
value of $0.25 to officers, corporate employees and independent directors in consideration for entering into salary deferral
agreements. The stock options have an exercise price of $0.34 and an expiration term of 10 years. The options vested immediately
and had a fair value of $179,436 at date of grant.
On January 18, 2008, the Compensation Committee recommended to the Board of Directors and the Board granted stock options to
purchase 400,000 shares of common stock under the 2006 Stock Option Plan to the officers of the Company with an exercise price of
$2.18 and an expiration date of ten years. The fair market value of the options at the date of grant was $1.60 per share.
Also on January 18, 2008, the Board of Directors granted options to purchase 200,004 shares of common stock under the 2006 Stock
Option Plan to fourteen Mexican employees with an exercise price of $2.18 and an expiration date of ten years. The fair market value
of the options at the date of grant was $1.67 per share.
On April 17, 2008, the Board of Directors granted options to purchase 150,000 shares of common stock under the 2006 Stock Option
Plan to a legal consultant in Mexico with an exercise price of $2.25 and an expiration date of ten years. The fair market value of the
options at the date of grant was $1.78 per share.
In October 2007, the Company granted stock options to purchase up to 250,000 shares of common stock to an independent director
at $2.85 per share under the 2006 Plan. The fair market value of the options at the date of grant was $2.15 per share
In June 2007, the Company granted stock options to purchase up to 250,000 shares of common stock to the Company’s CFO at
$4.30 per share under the 2006 Plan. The fair market value of the options at the date of grant was $3.37 per share.
In, February 2007, options for 210,000 shares of the Company’s common stock granted under the Company’s 2001 Equity Incentive
Plan were exercised under the “cashless exercise” provision of the Plan, whereby recipients elected to receive 126,000 shares
without payment of the exercise price, and the remaining options for 84,000 shares were cancelled.
During the year ended October 31, 2006, the Company granted 2,000,000 options to officers under the 2006 Stock Option Plan with
an exercise price of $2.59 and an expiration of ten years. The options had a fair value of $2.18 per share. In addition, the Company
granted 750,000 options to independent directors with an exercise price of $2.59 and an expiration of ten years. These options vested
immediately and were assigned a fair value of $2.18 per share. In addition, the Company extended the contractual life of 310,000
fully vested stock options held by 19 employees. As a result of this modification, the Company recognized additional compensation
expense of $48,000 for the year ended October 31, 2006.
F-26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In 2002, the Company granted 100,000 options with an exercise price of $1.25 and an expiration of seven years. The total value was
calculated at $61,000.
Summarized information about stock options outstanding and exercisable at October 31, 2011 is as follows:
Options Outstanding
Options Exercisable
Weighted
Ave.
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number Exercisable
Weighted
Average
Exercise
Price
Exercise
Price
0.63 –
Number
Outstanding
$
1.20
2.18-2.25
4,073,334
228,574
3.82 $
3.53
0.80
2.18
2,553,329 $
228,574
0.77
2.18
4.30
250,000
0.08
4.30
250,000
4.30
0.63 -
$
4.30
4,551,908
3.60 $
1.06
3,031,903 $
1.16
A summary of the non-vested options as of October 31, 2011 and 2010 and changes during the fiscal years ended October 31, 2011
and 2010 is as follows:
Non-vested Shares
Shares
Nonvested at October 31, 2009
Granted
Vested
Forfeited
Nonvested at October 31, 2010
Granted
Vested
Forfeited
Nonvested at October 31, 2011
Weighted-
Average Grant-
Date Fair Value
1.69
0.46
0.59
—
0.51
0.58
0.54
0.55
0.56
266,670 $
3,495,000
(1,798,333)
—
1,963,337 $
2,295,000
(1,785,950)
(952,382)
1,520,005 $
NOTE 14 - WARRANTS
A summary of warrant activity for the fiscal years ended October 31, 2011 and 2010 is as follows:
Warrants
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Outstanding at October 31 2009
Issued with private placement
Issued in merger with Dome
Exercised
Forfeited or expired
Outstanding at October 31, 2010
Exercised
Forfeited or expired
Outstanding at October 31, 2011
12,979,090 $
3,450,000
2,228,281
(2,308,281)
(4,033,413)
12,315,677 $
(1,385,353)
(9,126,368)
1,803,956 $
1.23
0.58
0.41
0.41
0.75
1.21
0.50
1.30
1.30
0.60 $
236,073
Exercisable at October 31, 2011
1,803,956 $
1.30
0.60 $
236,073
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the fiscal year ended October 31, 2011, warrants to acquire 1,385,353 shares of common stock were exercised at an average
exercise price of $0.50 per share. The warrants had an intrinsic value of $786,112 at time of exercise.
Summarized information about warrants outstanding and exercisable at October 31, 2011 is as follows:
Warrants Outstanding
Weighted
Ave.
Remaining
Contractual
Life (Years)
Number
Outstanding
Weighted
Average
Exercise
Price
Exercise
Price
Warrants Exercisable
Number Exercisable
Weighted
Average
Exercise
Price
0.34 –
0.50
3.40
0.34 -
1,303,956
500,000
0.76
0.18
$
0.49
3.40
1,303,956 $
500,000
0.49
3.40
3.40
1,803,956
0.60
$
1.30
1,803,956 $
1.30
$
$
Pursuant to the private placement transaction that closed in August 2010, the Company issued warrants to acquire 200,000 shares of
common stock.
In connection with the Merger, the Company issued 2,228,281 warrants with an exercise price of $0.41 to replace all of the
outstanding warrants of Dome at the time of the Merger. As detailed in Note 3, the fair value of the warrants using the Black-Scholes
valuation model was $1,895,252. All of these warrants were subsequently exercised in June 2010. The warrants had an intrinsic
value of $631,669 at time of exercise.
Pursuant to the private placement transaction that closed in December 2009, the Company issued warrants to acquire 3,250,000 of
common stock. The warrants were only to be exercisable if the merger agreement between Dome and Silver Bull was terminated and
then only for a term extending until one year following the date of issuance, with an exercise price of $0.57 per share of common
stock. As a result of the closing of the Merger on April 16, 2010, the warrants issued in this private placement were terminated in
accordance with their terms.
During the fiscal year ended October 31, 2010, warrants to acquire 2,308,281 shares of common stock were exercised at an average
exercise price of $0.41 per share. The warrants had an intrinsic value of $686,469 at time of exercise.
In October 2009, warrants for 3,703,450 shares were exercised at an average price of $0.34 per share for total cash proceeds of
$1,249,380. The warrants were exercised pursuant to a short-term one-time offer to four accredited investors to exercise these
warrants early. The Company agreed to reduce the exercise price of 2,900,000 warrants with a stated exercise price of $1.25 and
803,450 warrants with a stated exercise price of $2.42 to $0.32 and $0.40, respectively to secure necessary short-term working
capital.
The Company determined the fair value of the warrant inducement to be $126,090 using the Black-Scholes pricing model using risk
free interest rates of 0.04% to 0.66%, expected volatility of 98% to 133%, dividend yield of 0%, and contractual terms of .04 to 1.3
years. Since these warrants were initially issued in connection with two earlier private placements of the Company’s securities and
since the offer was only available to a limited number of warrant holders, the Company recorded the fair value of the warrant
inducement as a deemed dividend and accordingly has increased the net loss applicable to common stockholders for the fiscal year
ended October 31, 2009.
Also in 2009, the Company granted warrants to purchase 90,000 shares of Common Stock with an exercise price of $0.34 and an
expiration term of 4 years to a financial consultant in consideration for entering into a consulting fee deferral agreement. The fair
value of these warrants was determined to be $39,021 based upon the Black-Scholes pricing model using risk free interest rate of
1.96%, expected volatility of 102%, dividend yield of 0%, and a contractual term of 4 years.
F-28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the fiscal year ended October 31, 2008, warrants for 381,250 shares were exercised at an average price of $1.25 per share for
total cash proceeds of $476,563. The warrants had a total intrinsic value of $478,438 at date of exercise.
On June 4, 2008 the Company issued a warrant to purchase 100,000 shares of common stock to a consultant for financial services at
an exercise price of $2.00 per share. The warrant has a two year term and will vest equally over the term of the consulting
contract. The fair value of these warrants was determined to be $81,838 based upon the Black-Scholes pricing model using risk free
interest rate of 2.47%, expected volatility of 73%, dividend yield of 0%, and a contractual term of 2 years.
During the fiscal year ended October 31, 2007, the Company issued warrants for 600,000 common shares for professional services at
an average exercise price of $3.27 per share and average contractual terms 4.6 years. The fair value of these warrants was
determined to be $1,094,950 based upon the Black-Scholes pricing model using risk free interest rate of 5%, expected volatility of
80%, and expected term of 1.4 to 3 years. In addition, the Company extended the contractual life of a warrant for 59,610 shares of
common stock in consideration of financial services.
As a result of this modification, the Company recognized additional professional service fees of $68,999 for the year ended October
31, 2007.
During the year ended October 31, 2006 the Company granted warrants for 210,103 shares for services in connection with the
Company’s private placement, with an exercise price of $1.25 and an expiration of 5 years. The fair value of these warrants was
determined to be $403,215 using the Black-Scholes pricing model using a risk free interest rate of 5%, no dividends to be paid, and a
volatility of 80%. Also during the year ended October 31, 2006, the Company issued a warrant for 17,250 shares to an independent
director with an exercise price of $1.25 and an expiration of 5 years. The fair value of this warrant was determined using the Black-
Scholes option pricing model using a risk free interest rate of 5%, no dividends to be paid, and a volatility of 80%. The total value was
calculated at $30,705.
During the year ended October 31, 2005, the Company issued 476,404 common stock units that consisted of 476,354 shares of
common stock and warrants to purchase an additional 476,404 shares of common stock.
The Company did not issue common stock warrants during the year ended October 31, 2004.
During the year ended October 31, 2003, the Company issued 7,000 common stock units that consisted of 7,000 shares of common
stock and warrants to purchase an additional 2,333 shares of common stock.
During the year ended October 31, 2002, the Company issued 162,667 common stock units that were made up of 162,667 shares of
common stock and warrants to purchase an additional 54,222 shares of common stock.
During the year ended October 31, 2001, the Company issued 250,000 shares of stock with 125,000 warrants attached. Additionally
20,000 warrants were exercised for $15,000 in cash and services valued at $10,760. The Company also issued 80,000 warrants for
services, which were valued at $144,791.
At October 31, 2000, there were outstanding warrants to purchase 996,500 shares of the Company’s common stock, at prices ranging
from $0.75 to $2.00 per share. The warrants, which became exercisable in 1999, but have not been exercised, expire at various
dates through 2005. The Company has reserved 996,500 shares for the expected exercise of these warrants. These warrants were
valued at $543,980 using the Black-Scholes option pricing model using a risk free interest of 5%, volatility of 0.3 and 0.5 and
expected life of 5 to 10 years.
NOTE 15 – INCOME TAXES
Provision for Taxes
The Company files a United States federal income tax return on a fiscal year-end basis and files Mexican income tax returns for its
three Mexican subsidiaries on a calendar year-end basis. The Company and two of its wholly-owned subsidiaries, Minera and Minas,
have not generated taxable income since inception. Contratistas, another wholly- owned Mexican subsidiary, has historically
generated taxable income based upon intercompany fees billed to Minera on the services it provides
On April 16, 2010, a wholly-owned subsidiary of the Company was merged with and into Dome as discussed in Note 1, resulting in
Dome becoming a wholly-owned subsidiary of the Company. Dome, a Delaware corporation with offices in Canada, files tax returns
in the United States and Canada and Dome Ventures SARL Gabon and African Resources SARL Gabon file tax returns in Gabon,
Africa. Dome and its subsidiaries do not currently generate taxable income.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The components of the provision for income taxes are as follows:
Foreign
Current tax expense (benefit)
Deferred tax expense (benefit)
For the year ended
October 31,
2011
2010
$
$
27,000 $
—
27,000 $
(2,200)
—
(2,200)
The Company’s provision for income taxes for the fiscal year ended October 31, 2011 consisted of a tax expense of $27,000 related
to a provision to income taxes expense for Contratistas for the year ended October 31, 2011.
The reconciliation of the provision for income taxes computed at the U.S. statutory rate to the provision for income tax as shown in the
statement of operations is as follows:
For the year ended
October 31,
2011
2010
Income tax benefit calculated at U.S. Federal Income tax rate
$ (4,274,000) $ (3,292,000)
Differences arising from:
Permanent differences
State income taxes
Benefit from lower foreign income tax rate
Decrease (increase) in state tax rates
Adjustment to prior year taxes
Inflation adjustment foreign net operating loss
Foreign currency fluctuations
Increase in valuation allowance
Other
Net income tax provision
(58,000)
—
489,000
1,053,000
(11,000)
(226,000)
310,000
2,702,000
42,000
27,000 $
259,000
(157,000)
240,000
(360,000)
68,000
(138,000)
(240,000)
3,618,000
—
(2,000)
$
The components of the deferred tax assets at October 31, 2011 and 2010 were as follows:
Deferred tax assets:
Net operating loss carryforwards – U.S.
Net operating loss carryforwards – Mexico
Stock-based compensation – U.S.
Exploration costs
Other – U.S.
Other – Mexico
Deferred tax liability
Mining Concessions
Total net deferred tax assets
Less: valuation allowance
Net deferred tax asset
October 31,
2011
2010
$ 10,889,000 $ 10,710,000
4,645,000
3,352,000
299,000
68,000
385,000
19,459,000
6,519,000
3,271,000
1,015,000
84,000
366,000
22,144,000
(1,539,000)
20,605,000
(20,605,000)
— $
$
(1,539,000)
17,920,000
(17,920,000)
—
F-30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
At October 31, 2011, the Company has U.S. net operating loss carry-forwards of approximately $31 million which expire in the years
2011 through 2031. The Company has approximately $23 million of net operating loss carry-forwards in Mexico which expire in the
years 2014 through 2021.
The valuation allowance for deferred tax assets of $20.6 and $17.9 million at October 31, 2011 and 2010, respectively, relates
principally to the uncertainty of the utilization of certain deferred tax assets, primarily net operating loss carry forwards in various tax
jurisdictions. The Company continually assesses both positive and negative evidence to determine whether it is more likely than not
that the deferred tax assets can be realized prior to their expiration. Based on the Company’s assessment it has determined the
deferred tax assets are not currently realizable.
Mexico Tax Legislation
Mexican companies are subject to a dual tax system comprised of ISR (Income Tax) and IETU (Flat Tax). The Mexican subsidiaries
are subject to pay the greater of the ISR and IETU and therefore the Company determines its deferred income taxes based on the tax
regime it expects to be subject to in the future. In 2010 and 2011 the ISR rate was 30%. As a result of the 2010 Tax Reform, the ISR
rate will be 30% in 2012, 29% in 2013 and 28% for 2014 and thereafter the IETU is 17.5% in 2010 and thereafter.
Net Operating Loss Carry-forward Limitation
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has
been a change in ownership as described in Section 382 of the Internal Revenue Code. As a result of the Dome merger in April 2010,
substantial changes in the Company’s ownership have occurred that may limit or reduce the amount of net operating loss carry-
forward that the Company could utilize in the future to offset taxable income. We have not completed a detailed Section 382 study at
this time to determine what impact, if any, that ownership changes may have had on our operating loss carryforwards. In each period
since our inception, we have recorded a valuation allowance for the full amount of our deferred tax assets, as the realization of the
deferred tax asset is uncertain. As a result, we have not recognized any federal or state income tax benefit in our consolidated
statement of operations and comprehensive (loss) income.
Accounting for Uncertainty in Income Taxes
During the fiscal years ended October 31, 2011 and 2010, the Company has not identified any unrecognized tax benefits or had any
additions or reductions in tax positions and therefore a reconciliation of the beginning and ending amount of unrecognized tax benefits
is not presented.
The Company does not have any unrecognized tax benefits as of October 31, 2011 and accordingly the Company’s effective tax rate
will not be materially affected by unrecognized tax benefits.
The following tax years remain open to examination by the Company’s principal tax jurisdictions:
United States:
Mexico:
Canada:
Gabon, Africa:
2007 and all following years
2005 and all following years
2006 and all following years
2008 and all following years
The Company has not identified any uncertain tax position for which it is reasonably possible that the total amount of unrecognized
tax benefit will significantly increase or decrease within the next twelve months.
The Company’s policy is to classify tax related interest and penalties as income tax expense. There is no interest or penalties
estimated on the underpayment of income taxes as a result of unrecognized tax benefits.
F-31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 16 – 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 qualifying assets, in which case they are added to the costs of
those assets until such time as the assets are substantially ready for their intended use or sale.
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;
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. As of October 31, 2011 and October 31, 2010, the Company had no financial or non-financial assets or
liabilities required to be reported for fair value purposes.
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, other
receivables, accounts payable, accrued liabilities and expenses and accrued severance costs approximate fair value at October 31,
2010 and 2011 due to the short maturities of these financial instruments.
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 counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and Canadian Dollar (“$CDN”) cash and cash equivalents in bank and demand deposit
accounts with major financial institutions with high credit standings. Cash deposits held in the United States are insured by the
Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000 and $CDN cash deposits held in Canada are insured by the
Canada Deposit Insurance Corporation (“CDIC”) for up to $CDN 100,000. Certain United States and Canadian bank accounts held by
the Company exceed these federally insured limits or are uninsured as they related to US Dollar deposits held in Canadian financial
institutions. As of October 31, 2011 and 2010, the Company’s cash and cash equivalent balances held in United States and Canadian
financial institutions included $4,008,674 and $9,522,180 respectively, which was not insured by the FDIC or 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 in cash.
The Company also maintains cash and restricted cash in bank accounts in Mexico and Gabon. These accounts are denominated in
the local currency and are considered uninsured. As of October 31, 2011 and 2010, the US dollar equivalent balance for these
accounts was $116,451 and $798,418, respectively.
Interest Rate Risk
The Company holds substantially all of the Company’s 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 and restricted cash balances during the year ended October 31, 2011, a 1% decrease in interest
rates would have resulted in a reduction in interest income for the period of approximately $37,000.
Foreign Currency Exchange Risk
Certain purchases of labor, operating supplies and capital assets are denominated in Canadian Dollars (“$CDN”), Mexican Pesos
(“MXN”), Central African Francs (“$CFA”) or other currencies. As a result, currency exchange fluctuations may impact the costs of
our operations. Specifically, the appreciation of the MXN, $CDN or $CFA against the US dollar may result in an increase in operating
expenses and capital costs in US dollar terms. To reduce this risk as of October 31, 2011, the Company maintains minimum cash
balances in $CFA and MXN. As of October 31, 2011, the Company maintained the majority of its cash balance in $CDN. Subsequent
to the registered direct offerings described in Note 20 the Company maintains the majority of cash balances in US dollars. The
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Company currently does not engage in any currency hedging activities.
F-32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 17 - 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.
Employment Agreements
In January 2007, the Company entered into an employment with Terry Brown as Vice President Operations which provided for an
annual salary of $150,000 and was effective to January 1, 2012. Effective November 1, 2010, Terry Brown ceased serving as Vice
President Operations. The Company entered into a severance agreement with Mr. Brown whereby he agreed to waive any and all
legal claims (known or unknown) he may have against the Company in exchange for severance payments totaling approximately
$175,000. The amount of this sum severance amount was determined based on the termination and change in control provisions in
Mr. Brown’s employment agreement and was paid during January 2011.
In January 2008, the Company entered into an employment agreement with Robert Devers, as Chief Financial Officer that provided
for an annual base salary of $165,000. Effective April 15, 2011, Robert Devers ceased serving as Chief Financial Officer. The
Company entered into a severance agreement with Mr. Devers whereby he agreed to waive any and all legal claims (known or
unknown) he may have against the Company in exchange for severance payments totaling approximately $165,000. The amount of
this sum severance amount was determined based on the termination provisions in Mr. Devers’s employment agreement and was
paid in April 2011.
On August 4, 2010 (although effective as of July 1, 2010), the Company entered into a consulting agreement with an entity controlled
by Mr. Hahn, that set forth the terms by which Mr. Hahn served as the Company’s interim President and Chief Executive
Officer. Effective September 1, 2010 the agreement was amended to provide that Mr. Hahn will devote approximately 75% of his
business related time to the Company (which resulted in the increase in his compensation). Initially Mr. Hahn was compensated at
the rate of $12,000 per month while serving as an executive officer, however effective September 1, 2010 his compensation was
increased to $18,000 due to the increased time demands imposed on Mr. Hahn. Effective February 25, 2011, Mr. Hahn resigned as
Interim President and Chief Executive Officer to correspond with the appointment of Mr. Barry as President and Chief Executive
Officer and the consulting agreement between the entity controlled by Mr. Hahn and the Company was terminated.
On April 16, 2010 the Company and Brian Edgar, the Executive Chairman of the Board of Directors, agreed to the materials terms of
his compensation. In September 2010, the Company entered into an employment agreement with Mr. Edgar memorializing the terms
of his employment. The employment agreement has a term through April 15, 2012. Mr. Edgar will receive $7,500 per month in his
capacity as Executive Chairman. The employment agreement provides that Mr. Edgar is entitled to a severance payment if the
agreement is terminated under certain circumstances including if Mr. Edgar is terminated without cause. On September 2, 2011, the
Company entered into a new employment agreement with Mr. Edgar, as the Executive Chairman of the Board of Directors that
revised the change in control provision and changed his monthly fee to $CDN 7,500. In the event of a change in control upon Mr.
Edgar providing written notice of termination, the Company shall pay his base salary for up to 12 months plus the previous year
bonus.
Effective September 1, 2010, the Company entered into an employment agreement with Timothy Barry, as Vice President
Exploration. Mr. Barry’s employment agreement remained in effect upon his appointment to President and Chief Executive Officer on
February 25, 2011. On September 2, 2011 (although effective June 1, 2011), the Company entered into a new employment
agreement with Mr. Barry, as President and Chief Executive Officer that provides for base compensation of $CDN 18,000 per month
(or $CDN 216,000 annually) and potential bonus of $CDN 30,000 if certain performance targets are met. The employment
agreement provides that Mr. Barry is entitled to written notice of termination for up to 12 months if Mr. Barry meets certain
employment terms and is terminated without cause. In the event of a change in control upon Mr. Barry providing written notice of
termination, the Company shall pay his base salary for up to 18 months plus the previous year bonus if Mr. Barry is employed more
than 24 months.
F-33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On January 24, 2011, the Company entered into an employment agreement with Sean Fallis, as Vice President Finance that
provides for an annual base salary of $CDN 150,000. The employment agreement commenced on February 7, 2011 and provides
that Mr. Fallis is entitled to written notice of termination for up to six months if Mr. Fallis meets certain employment terms and is
terminated without cause. In the event of a change in control upon Mr. Fallis providing written notice of termination, the Company
shall pay his base salary for up to 12 months if Mr. Fallis is employed more than 36 months. Effective April 15, 2011 Mr. Fallis was
appointed Chief Financial Officer.
On August 4, 2011, the Company entered into an independent contractor agreement with Jason Cunliffe, as the newly appointed
Vice President of Exploration. Pursuant to the agreement Mr. Cunliffe will receive $700 per day for each day worked and a potential
annual bonus of $20,000 if certain performance targets are met. The agreement continues on a month-to-month basis and can be
terminated by either party with 30 days advance notice. In the event of a change in control upon Mr. Cunliffe providing written notice
of termination, the Company shall pay his daily consulting rate for up to 240 days if Mr. Cunliffe is employed more than 36 months.
Property Concessions 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.
In addition twelve of the concessions in the Sierra Mojada project are subject to options to purchase from existing third party
concession owners. The agreements are considered option purchase agreements and give the Company the option, but not the
obligation, to acquire the concessions at established prices. Pursuant to the option purchase agreements, the Company is required
to make certain payments over the terms of these contracts. The payments required to obtain full ownership of these concessions
are set forth in the table below:
Olympia (1 concession)
Payment Date
February 2012
August 2012
February 2013
August 2013
Payment Amount
MXN $200,000
MXN $250,000
MXN $470,000
MXN $1,000,000
Nuevo Dulces Nombres (Centenario) and Yolanda III (2 concessions)
Payment Date
Anticipated Second Quarter 2012(2)
Beginning 24 months after the initial payment
date and ending 48 months after the initial
payment date
Payment Amount(1)
$480,000
$20,000 per month
(1) 48 months after the initial payment date, Silver Bull has the option of
acquiring Nuevo Dulces Nombres (100% interest) for $4 million and Yolanda III
(100% interest) for $2 million.
(2) Initial payment is expected to be paid in the second quarter of the 2012
fiscal year.
F-34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Fortaleza and Ampl. A Fortaleza (2 concessions)
Payment Date
February 2012
August 2012
February 2013
August 2013
February 2014
August 2014
February 2015
August 2015
February 2016
Payment Amount(1)
$75,000
$75,000
$75,000
$75,000
$125,000
$150,000
$175,000
$200,000
$300,000
(1) In August 2016, Silver Bull has the option of acquiring Fortaleza and Ampl.
A Fortaleza (100% interest) for $2.675 million.
Poder de Dios, Anexas a Poder de Dios, and Ampliacion a Poder de Dios (3 concessions)
Payment Date
April 2012
October 2012
April 2013
October 2013
April 2014
October 2014
April 2015(2)
Payment Amount
$200,000
$300,000
$300,000
$300,000
$300,000
$300,000
$300,000
Option Purchase Price(1)
$4 million
$4 million
$5 million
$5 million
$6 million
$6 million
$7 million
(1) Payments shown in the second column are required to maintain the option. Payments
shown in the third column reflect the purchase price at that point in time for the acquisition of 100%
of the concessions. Upon payment of the option purchase price, no subsequent payments are
required.
(2) After April 2015, Silver Bull must pay $300,000 every 6 months in order to maintain the
option-purchase agreement. During this period, Silver Bull has the option of acquiring Poder de Dios,
Anexas a Poder de Dios, and Ampliacion a Poder de Dios (100% interest) for $7 million.
Veta Rica o La Inglesa (1 concession)
Payment Date
April 2012
April 2013
April 2014
Payment Amount
$200,000
$300,000
$300,000
La Perla, La India, and La India Dos (3 concessions)
Payment Date
April 2012
April 2013
April 2014
___________________
Payment Amount
$300,000
$400,000
$500,000
Option Purchase Price(1)
$3 million
$4 million
$5 million
(1) Payments shown in the second column are required to maintain the option. Payments
shown in the third column reflect the purchase price at that point in time for the acquisition of 100%
of the concessions. Upon payment of the option purchase price, no subsequent payments are
required.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Property Concessions Gabon
The Company holds title to several property concessions in Gabon, Africa that require the Company to spend minimal amounts each
term to renew the licenses. Each license is renewable twice with each renewal lasting for three years. The Company must spend
200,000,000 CFA francs in order to renew each exploration license for a second term of three years and 400,000,000 CFA francs in
order to renew the license for a third term of three years. The Company must spend 800,000,000 CFA francs in the third term. Dome
may apply for a mining license at any time during these periods. The initial term of these exploration licenses expired on September
18, 2011. The Company applied for renewal in June of 2011 as it had met the necessary expenditure requirements and expects to
receive the renewal approval in 2012. As of October 31, 2011, one US Dollar approximates 473 CFA francs.
NOTE 18 – SEGMENT INFORMATION
The Company operates in one business segment being the exploration of mineral property interests. The Company has mineral
property interests in Sierra Mojada, Mexico and Gabon, Africa.
Geographic information is approximately as follows:
For the Fiscal Year Ended
October 31,
Period from
November 8,
1993
(Inception) To
October 31,
Net (loss) for the period
Mexico
Canada
Gabon
United States
Exploration and property holding costs for the period
Mexico
Gabon
2011
2010
$ (8,878,000) $ (5,434,000) $ (37,545,000)
(1,286,000)
(294,000)
(34,309,000)
$ (12,237,000) $ (9,405,000) $ (73,434,000)
(42,000)
31,000
(3,960,000)
(1,244,000)
(325,000)
(1,790,000)
Period from
November 8,
1993
(Inception) To
For the Fiscal Year Ended
October 31,
October 31,
2011
2010
$ (8,071,000) $ (5,844,000) $ (37,027,000)
(302,000)
$ (8,373,000) $ (5,844,000) $ (37,329,000)
(302,000)
2011
—
The following table details foreign assets included in the accompanying balance sheet at October 31, 2011:
Cash and cash equivalents
Restricted cash
Other receivables
Prepaid expenses and income taxes
Mining concessions
Office & mining equipment, net
Value-added tax receivable, net
Goodwill
Other assets
Total
Mexico Canada Gabon
$
18,098 $ 4,200,426 $
-
71,654
100,456
-
9,135
149,763
4,846,687
764,411
1,278,082
18,495,031
-
21,375 $ 4,239,899
77,068
77,068
80,789
-
250,219
-
- 4,500,148 9,346,835
785,486
14,368
548,582 1,826,664
- 18,495,031
112,170
$25,561,207 $ 4,473,792 $ 5,179,162 $35,214,161
6,707
-
-
94,549
17,621
The Company has significant assets in Coahuila, Mexico and Gabon, Africa. Although these countries are generally considered
economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s
operations. Neither the Mexican government nor the Gabonese government requires foreign entities to maintain cash reserves in
their respective country.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 19 – RECLASSIFICATION
Certain reclassifications have been made to the prior period and inception to date consolidated financial statements in order to
conform to the 2011 presentation. These reclassifications have no effect on net loss, total assets or accumulated deficit as previously
reported.
NOTE 20 – SUBSEQUENT EVENTS
On December 12, 2011, the Company closed a registered direct offering for the sale or 20,755,000 shares of common stock at a price
of $0.50 per share for gross proceeds of $10,377,500. The Company paid a 6% finder’s fee totaling $94,500 to a Canadian finder
with respect to certain non-U.S. purchasers who were introduced by them.
On December 13, 2011, the Company closed a registered direct offering for the sale or 295,000 shares of common stock at a price of
$0.50 per share for gross proceeds of $147,500.
On January 9, 2012, the Company entered into an agreement with an international contract driller for a minimum of 20,000 meters of
drilling at the Sierra Mojada Property. The total drilling commitment is approximately $1.7 million.
F-37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 21.1
We currently conduct our operations through subsidiaries. The names and ownership structure of our subsidiaries are set forth in the
chart below.
Name
Metalline, Inc. (“Metalline”)
Jurisdiction of Incorporation or
Organization
Colorado, USA
Contratistas de Sierra Mojada S.A. de C.V.
Minera Metalin S.A. de C.V.
Mexico
Mexico
Ownership Percentage
100% by Silver Bull
98% by Silver Bull and 2% by Metalline
99.998% by Silver Bull and 0.002% by
Metalline
Minas De Coahuila SBR S.A. de C.V.
Mexico
100% by Minera Metalin S.A. de C.V.
Dome Ventures Corporation (“Dome”)
Delaware, USA
100% by Silver Bull
Dome Asia Inc.
British Virgin Islands
100% by Dome
Dome International Global Inc.
British Virgin Islands
100% by Dome
Dome Minerals Nigeria Limited
Dome Ventures SARL Gabon
African Resources SARL Gabon
Nigeria
Gabon
Gabon
99.99% by Dome International Global Inc.
100% by Dome International Global Inc.
100% by Dome International Global Inc.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3, as amended (File Nos.
333-172789, 333-172868 and 333-174816), and the Registration Statements on Form S-8 (File Nos. 333-171723 and 333-140588) of
Silver Bull Resources, Inc. (the “Company”) of our report dated January 11, 2012 to the Board of Directors of the Company relating to
the audit of the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in
this Annual Report on Form 10-K for the year ended October 31, 2011.
/s/ Hein & Associates LLP
Hein & Associates LLP
Denver, Colorado
January 11, 2012
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 23.2
SRK Vancouver
Suite 2200 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
T: +1.604.681.4196
F: +1.604.687.5532
vancouver@srk.com
www.srk.com
CONSENT OF SRK CONSULTING (CANADA), INC.
We hereby consent to the incorporation by reference of any mineralized material and other analyses performed by us in our
capacity as an independent consultant to Silver Bull Resources, Inc. (the “Company”), which are set forth in the Company’s Annual
Report on Form 10-K for the year ended October 31, 2011, in the Company’s Registration Statements on Form S-3, as amended
(File Nos. 333-172789, 333-172868 and 333-174816), and Form S-8 (File Nos. 333-171723 and 333-140588), any prospectuses or
amendments or supplements thereto, and in any amendment to any of the foregoing.
Date: January 11, 2012
SRK CONSULTING (CANADA), INC.
/s/ Gilles Arseneau
Name: Gilles Arseneau, P. Geo.
Title: Principal Geologist
U.S. Offices:
Anchorage
Denver
Elko
Fort Collins
Reno
Tucson
907.677.3520
303.985.1333
775.753.4151
970.407.8302
775.828.6800
520.544.3688
Mexico Office:
Guadalupe,
Zacatecas
52.492.927.8982
Canadian Offices:
Saskatoon
Sudbury
Toronto
Vancouver
Yellowknife
306.955.4778
705,682.3270
416.601.1445
604.681.4196
867.873.8670
Group Offices:
Africa
Asia
Australia
Europe
North America
South America
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.1
Certifications:
I, Timothy Barry, certify that:
1. I have reviewed this Annual Report on Form 10-K of Silver Bull Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any changes in the company’s internal control over financial reporting that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over
financial reporting.
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
Dated: January 11, 2012
By:
/s/ Timothy Barry
Timothy Barry, President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.2
Certifications:
I, Sean Fallis, certify that:
1. I have reviewed this Annual Report on Form 10-K of Silver Bull Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any changes in the company’s internal control over financial reporting that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over
financial reporting.
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
Dated: January 11, 2012
By:
/s/ Sean Fallis
Sean Fallis, Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Executive Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
EXHIBIT 32.1
In connection with the Annual Report of Silver Bull Resources, Inc. (the “Company”) on Form 10-K for the annual period ended
October 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: January 11, 2012
By
/s/ Timothy Barry
Timothy Barry, President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Financial Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
EXHIBIT 32.2
In connection with the Annual Report of Silver Bull Resources, Inc. (the “Company”) on Form 10-K for the annual period ended
October 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: January 11, 2012
By /s/ Sean Fallis
Sean Fallis, Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.