Business Overview
Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in
the business of mineral exploration. The Company's primary objective is to
define sufficient mineral reserves on the Sierra Mojada Property to justify the
development of a mechanized mining operation. Operations in Mexico are conducted
through the Company's wholly-owned Mexican subsidiaries, Minera Metalin and
Minas. However, as noted above, Silver Bull has not established any reserves at
the Sierra Mojada Property, is in the exploration stage and may never enter the
development or production stage.
Silver Bull's corporate office is located at 777 Dunsmuir Street, Suite 1605,
Vancouver, British Columbia, Canada V7Y 1G6, telephone number is (604) 687-5800.
Recent Developments
South32 Option Agreement
On June 1, 2018, Silver Bull and its subsidiaries Minera Metalin and
Contratistas entered into an earn-in option agreement (the "South32 Option
Agreement") with South32 International Investment Holdings Pty Ltd ("South32"),
a wholly owned subsidiary of South32 Limited (ASX/JSE/LSE: S32), whereby South32
was able to obtain an option to purchase 70% of the shares of Minera Metalin and
Contratistas (the "South32 Option").
On October 11, 2019, the Company and its subsidiary Minera Metalin issued a
notice of force majeure to South32 pursuant to the South32 Option Agreement. Due
to a blockade by a cooperative of local miners called Sociedad Cooperativa de
Exploración Minera Mineros Norteños, S.C.L. ("Mineros Norteños"), all work was
halted on the Sierra Mojada Property. The notice of force majeure was issued
because of the blockade's impact on the ability of the Company and its
subsidiary Minera Metalin to perform their obligations under the South32 Option
Agreement. Pursuant to the South32 Option Agreement, any time period provided
for in the South32 Option Agreement was to be generally extended by a period
equal to the period of delay caused by the event of force majeure.
On August 31, 2022, the South32 Option Agreement was mutually terminated by
South32 and the Company. South32 paid $518,000 to the Company as a final payment
for the exploration costs occurred by the Company during the blockade and
released South32 from all claims as the date of termination.
As of January 26, 2023, the blockade by Mineros Norteños at, on and around the
Sierra Mojada Property is ongoing.
Goodwill and Possible Other Long-Lived Assets Impairment
Goodwill represents the excess, at the date of acquisition, of the purchase
price of the business acquired over the fair value of the net tangible and
intangible assets acquired. Due to a sustained decrease in the value of the
Company's common stock as a result of the continued blockade at the Sierra
Mojada Property, management concluded that this constituted an indication of
impairment of goodwill. On April 30, 2022, management performed a qualitative
assessment to determine whether it is more likely than not that the fair value
of the reporting unit is less than its carrying amount. Based on this
assessment, management determined it is more likely than not that the fair value
of the reporting unit is less than its carrying amount, and recorded a goodwill
impairment of $2,058,031 in the fiscal year ended October 31, 2022. If the
blockade at Sierra Mojada Property continues and the Company's share price
remains depressed, then further impairment of other long-lived assets such as
property concessions is possible.
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Sierra Mojada Property
In January 2023, the Company's board of directors approved an exploration budget
for the Sierra Mojada Property of $0.3 million and a $0.7 million budget for
general and administrative expenses for calendar year 2023. Due to the blockade
by Mineros Norteños previously mentioned under the "Recent Developments" section
of this Form 10-K, all exploration work remains halted at the Sierra Mojada
Property. Until the blockade situation is resolved, the focus of the exploration
budget for the Sierra Mojada Property is maintaining the Company's property
concessions.
2022 Drilling
During the year ended October 31, 2022, no drilling was conducted as the
drilling program remained halted due to the continuing blockade.
2023 Exploration Program
The focus of the Company's 2023 calendar year exploration program at the Sierra
Mojada Property will be to resolve the blockade and to maintain property
concessions in Mexico. Upon resolution of the blockade, the Company will develop
and announce an updated exploration program.
Results of Operations
Fiscal Year Ended October 31, 2022 Compared to Fiscal Year Ended October 31,
2021
For the fiscal year ended October 31, 2022, the Company reported a consolidated
net loss of $3,168,000 or approximately $0.09 per share, compared to a
consolidated net loss of $2,448,000 or approximately $0.07 per share during the
fiscal year ended October 31, 2021. The $720,000 increase in the consolidated
net loss was primarily due to a $1,414,000 increase in exploration and property
holding costs (which was mainly the result of the $2,058,000 goodwill impairment
as described in the "Recent Developments" section) which was partially offset by
a $615,000 decrease in exploration and property costs, a $1,518,000 decrease in
general and administrative expense and a $824,000 decrease in other income in
the 2022 fiscal year compared to 2021 fiscal year as described below.
Exploration and Property Holding Costs
Exploration and property holding costs increased by $1,414,000 to $2,392,000 in
the 2022 fiscal year from $978,000 in the 2021 fiscal year. This increase was
mainly the result of a $2,058,000 goodwill impairment (as described in the
"Recent Developments" section) which was partially offset by a $615,000 decrease
in exploration and holding costs as the result of costs incurred in connection
with the Beskauga Option Agreement in the 2021 fiscal year. There were no
comparable expenses in the 2022 fiscal year.
General and Administrative Costs
General and administrative expenses decreased by $1,518,000 to $1,045,000 in the
2022 fiscal year from $2,563,000 in the 2021 fiscal year as described below.
Stock-based compensation was a factor in the fluctuations in general and
administrative expenses. Overall stock-based compensation included in general
and administrative expense decreased to $296,000 in the 2022 fiscal year from
$492,000 in the 2021 fiscal year. This was mainly due to stock options granted
to Silver Bull employees, directors and advisors in the 2022 fiscal year
compared to Arras stock options granted to Arras' employees, directors and
advisors in the 2021 fiscal year, while Arras was a subsidiary of the Company.
Personnel costs decreased by $433,000 to $453,000 in the 2022 fiscal year from
$886,000 in the 2021 fiscal year. This decrease was mainly due to a decrease in
employees' salaries in the 2022 fiscal year compared to the 2021 fiscal year
included the personnel costs related to Arras.
Office and administrative expenses decreased by $146,000 to $235,000 in the 2022
fiscal year from $381,000 in the 2021 fiscal year. This decrease was primarily
due to decreased investor relations activities, which in the 2021 fiscal year
were incurred in relation to a special meeting of shareholders in December 2020
and the planned distribution of Arras shares to Silver Bull shareholders.
Professional services decreased by $685,000 to $183,000 in the 2022 fiscal year
from $868,000 in the 2021 fiscal year. This decrease was mainly due to legal and
accounting fees incurred in relation to the special meeting of shareholders in
December 2020, the incorporation of Arras and the planned distribution of Arras
shares in the 2021 fiscal year.
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Directors' fees decreased by $208,000 to $158,000 in the 2022 fiscal year as
compared to $366,000 for the 2021 fiscal year. This decrease was primarily due
to a $137,000 decrease in director fees and decrease in stock-based compensation
expense to $86,000 in the 2022 fiscal year from $156,000 in the 2021 fiscal year
as a result of stock options vesting in the 2022 fiscal year having a lower fair
value than stock options vesting in the 2021 fiscal year.
The Company recorded a $14,000 provision for uncollectible VAT for the 2022
fiscal year as compared to a $62,000 provision for uncollectible VAT in the 2021
fiscal year. The allowance for uncollectible taxes in Mexico was estimated by
management based upon a number of factors, including the length of time the
returns have been outstanding, responses received from tax authorities, general
economic conditions in Mexico and estimated net recovery after commissions.
Other Income (Expenses)
The Company recorded other income of $273,000 in the 2022 fiscal year as
compared to other income of $1,097,000 in the 2021 fiscal year. The significant
factor contributing to other income in the 2022 fiscal year was a gain of
$301,000 from selling Arras common shares and interest income of $6,000, which
was offset by a $34,000 foreign currency transaction loss. The significant
factor contributing to other income in the 2021 fiscal year was a $1,091,000
unrealized gain of Arras shares held by Silver Bull and $6,000 in foreign
currency transaction income.
Material Changes in Financial Condition; Liquidity and Capital Resources
Disposition of Arras Shares
On December 6, 2021, the Company sold 600,000 common shares of Arras at a price
of $CDN 1.00 per share for proceeds of $469,484 ($CDN 600,000).
On June 15, 2022, the Company sold its remaining 852,262 common shares of Arras
at a price of $CDN 1.50 per share for gross proceeds of $994,704 ($CDN
1,278,393), incurring broker costs of $30,075 in relation to the sale.
Termination of South32 Option Agreement
On August 31, 2022, the South32 Option Agreement was mutually terminated by
South32 and the Company. During the 2022 fiscal year, Silver Bull received a
payment from South32 in the amount of $518,000 as reimbursement for costs
incurred during the force majeure period.
Cash Flows
During the 2022 fiscal year, cash and cash equivalents were primarily utilized
to fund general and administrative expenses and exploration activities at the
Sierra Mojada Property.
In addition, the Company received $518,000 from South32 and net proceeds of
$1,434,000 from the sale of Arras common shares. As a result of the funding from
South32 and the proceeds received from the sale of Arras common shares, which
were partially offset by exploration activities and general and administrative
expenses, cash and cash equivalents increased from $190,000 at October 31, 2021
to $887,000 at October 31, 2022.
Cash flows used in operations for the 2022 fiscal year were $1,255,000 as
compared to $1,685,000 for the 2021 fiscal year. The decrease was mainly due to
due diligence and exploration activities at the Beskauga Property in relation to
the Beskauga Option Agreement in the 2021 fiscal year and decreased general and
administrative expenses, which were offset by the timing of certain payments.
Cash flows provided by investing activities for the 2022 fiscal year were net
proceeds of $1,434,000 from the sale Arras common shares. Cash flows used in
investing activities for the 2021 fiscal year were $2,516,000, which included
$1,928,000 for loans made to Ekidos Minerals LLP, $505,000 cash and cash
equivalents that were for the deconsolidation of Arras and $82,000 for the
purchase of equipment.
Cash flows provided by financing activities for the 2022 fiscal year were
$518,000 as compared to $2,531,000 in the 2021 fiscal year. The cash flows
provided by financing activities in the 2022 fiscal year were due to funding
from South32. The cash flows provided by financing activities in the 2021 fiscal
year was due to the 2021 Silver Bull Private Placement, the Arras private
placement, the second tranche of 2020 Silver Bull Private Placement , funding
from South32 and a Canada Emergency Business Account loan.
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Capital Resources
As of October 31, 2022, the Company had cash and cash equivalents of $887,000 as
compared to cash and cash equivalents of $190,000 as of October 31, 2021. The
increase in liquidity was primarily the result of the proceeds from the sale of
investments and funding from South32, which were partially offset by exploration
activities and property holding costs at the Sierra Mojada Property and general
and administrative expenses.
Since the Company's inception in November 1993, it has not generated revenue and
has incurred an accumulated deficit of $137,394,000. Accordingly, the Company
has not generated cash flows from operations, and since inception has relied
primarily upon proceeds from private placements and registered direct offerings
of its equity securities, warrant exercises, the sale of investments and funding
from South32 as the primary sources of financing to fund operations. Based on
the limited cash and cash equivalents, and history of losses, there is
substantial doubt as to whether the Company's existing cash resources are
sufficient to enable it to continue operations for the next 12 months as a going
concern. Management plans to pursue possible financing and strategic options,
including, but not limited to, obtaining additional equity financing and the
exercise of warrants by warrantholders. However, there is no assurance that the
Company will be successful in pursuing these plans.
Anyfuture additional financing in the near term will likely be in the form of
the issuance of equity securities, which will result in dilution to Silver
Bull's existing shareholders. Moreover, the Company may incur significant fees
and expenses in the pursuit of a financing or other strategic transaction, which
will increase the rate at which its cash and cash equivalents are depleted.
Capital Requirements and Liquidity; Need for Additional Funding
The Company's management and board of directors monitor overall costs, expenses,
and financial resources and, if necessary, will adjust planned operational
expenditures in an attempt to ensure that the Company has sufficient operating
capital. The Company continues to evaluate its costs and planned expenditures,
including its Sierra Mojada Property as discussed below.
The continued exploration of the Sierra Mojada Property will require significant
amounts of additional capital. In January 2023, the board of directors approved
an exploration budget for the Sierra Mojada Property of $0.3 million and $0.7
million for general and administrative expenses for calendar year 2023. As of
December 31, 2022, the Company had approximately $0.8 million in cash and cash
equivalents. The continued exploration of the Sierra Mojada Property ultimately
will require the Company to raise additional capital, identify other sources of
funding or identify a strategic partner.
The Company will continue to evaluate its ability to obtain additional financial
resources, and will attempt to reduce or limit expenditures on the Sierra Mojada
Property as well as general and administrative costs if it is determined that
additional financial resources are unavailable or available on terms that it
determines are unacceptable. However, it may not be possible to reduce costs,
and even if the Company is successful in reducing costs, it still may not be
able to continue operations for the next 12 months as a going concern. If the
Company is unable to fund future operations by obtaining additional financial
resources or through public or private offerings of equity, it does not expect
to have sufficient available cash and cash equivalents to continue its
operations for the next 12 months as a going concern. Debt or equity financing
may not be available on acceptable terms, if at all. Equity financing, if
available, may result in substantial dilution to existing stockholders. If the
Company is unable to fund future operations by way of financings, including
public or private offerings of equity or debt securities, its business,
financial condition and results of operations will be adversely impacted.
Off-Balance Sheet Arrangements
There are no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to its shareholders.
Recent Accounting Pronouncements Adopted in the Fiscal Year Ended October 31,
2022
On November 1, 2020, Silver Bull adopted the Financial Accounting Standards
Board's ("FASB's") Accounting Standards Updated ("ASU") 2020-01, "Investments -
Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures
(Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the
Interactions between Topic 321, Topic 323, and Topic 815." This ASU is effective
for interim and annual periods beginning after December 15, 2020. The adoption
of this update did not have a material impact on the Company's financial
position, results of operations or cash flows and disclosures.
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Recent Accounting Pronouncements Not Yet Adopted
In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic
815): Fair Value Hedging-Portfolio Layer Method" which is intended to make
amendments to the fair value hedge accounting previously issued in ASU 2017-12
"Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities". The new standard will be effective for reporting periods
beginning after December 15, 2022. The standard introduced the portfolio layer
method allowing multiple hedged layers of a single closed portfolio when
applying fair value hedge accounting. The adoption of this update is not
expected to have a material impact on the Company's financial position, results
of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force) and the SEC did not or are not expected to have a
material impact on the present or future consolidated financial statements of
the Company.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires the Company
to establish accounting policies and make estimates and assumptions that affect
reported amounts of assets and liabilities at the date of the consolidated
financial statements. These consolidated financial statements include some
estimates and assumptions that are based on informed judgments and estimates of
management. The Company evaluates its policies and estimates on an ongoing basis
and discuss the development, selection and disclosure of critical accounting
policies with the audit committee of the board of directors. Predicting future
events is inherently an imprecise activity and as such requires the use of
judgment. The Company's consolidated financial statements may differ based upon
different estimates and assumptions.
Significant accounting policies are discussed in Note 2, Summary of Significant
Accounting Policies, to the consolidated financial statements. The significant
accounting policies are subject to judgments and uncertainties that affect the
application of such policies. The Company believes that these consolidated
financial statements include the most likely outcomes with regard to amounts
that are based on management's judgment and estimates. The consolidated
financial position and results of operations may be materially different when
reported under different conditions or when using different assumptions in the
application of such policies. If estimates or assumptions prove to be different
from the actual amounts, adjustments are made in subsequent periods to reflect
more current information. The Company believes that the following accounting
policies are critical to the preparation of its consolidated financial
statements due to the estimation process and business judgment involved in their
application:
Principles of Consolidation - South32 Option Agreement
The Company consolidated entities in which it had a controlling financial
interest based on either the variable interest entity (VIE) or voting interest
model. Generally, the primary beneficiary of a VIE is a reporting entity that
has (a) the power to direct the activities that most significantly impact the
VIE's economic performance, and (b) the obligation to absorb losses of, or the
right to receive benefits from, the VIE that could potentially be significant to
the VIE. Currently, the Company managed the mineral exploration program in the
property concessions in Mexico through its wholly-owned subsidiary corporations
Minera Metalin.
The Company determined that Minera Metalin was a variable interest entity and it
was the primary beneficiary.
Management had applied judgment in reaching its conclusion with respect to
accounting for the South32 Option Agreement with South32, described in Note 3 to
the consolidated financial statements. Under the South32 Option Agreement,
South32 was able to obtain an option to purchase 70% of the shares of Minera
Metalin (the "South32 Option"). Management had determined that the South32
Option Agreement did not result in the transfer of control of the Sierra Mojada
Project to South32 and that the South32 Option Agreement represented
non-employee share-based compensation associated with the collaborative
exploration program undertaken by the parties. The compensation cost was
expensed when the associated exploration activity occurred. The share-based
payments had been classified as equity instruments and valued based on the fair
value of consideration received, as it was more reliably measurable than the
fair value of the equity interest. In the event the South32 Option was exercised
and shares were issued prior to a decision to develop a mine, such shares would
have been classified as temporary equity as they would have been contingently
redeemable in exchange for a net smelter royalty under circumstances not wholly
in control of us or South32 and which were not probable. No portion of the
equity value has been classified as temporary equity as the South32 Option has
no intrinsic value.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates based on assumptions about future events
that affect the amounts reported in the consolidated financial statements and
related notes to the consolidated financial statements. Actual results could
differ from those estimates. Estimates and assumptions are reviewed on an
ongoing basis based on historical experience and other factors that are
considered to be relevant under the circumstances. Revisions to estimates and
assumptions are accounted for prospectively.
Significant areas involving the use of estimates include determining the
allowance for uncollectible taxes, evaluating recoverability of property
concessions, evaluating impairment of long-lived assets, evaluating impairment
of goodwill, valuation of investments, establishing a valuation allowance on
future use of deferred tax assets, calculating a valuation for stock option
liability and calculating stock-based compensation.
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Property Concessions
Property concession acquisition costs are capitalized when incurred and will be
amortized using the units of production method following the commencement of
production. If a property concession is subsequently abandoned or impaired, any
capitalized costs will be expensed in the period of abandonment or impairment.
To date, no property concessions have reached the production stage.
Acquisition costs include cash consideration and the fair market value of shares
issued on the acquisition of property concessions.
Exploration Costs
Exploration costs incurred are expensed to the date of establishing that costs
incurred are economically recoverable. Exploration expenditures incurred
subsequent to the establishment of economic recoverability are capitalized and
included in the carrying amount of the related property. To date, the Company
has not established the economic recoverability of its exploration prospects;
therefore, all exploration costs are being expensed.
Impairment of Long-Lived Assets
The Company 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. 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, the Company estimates the price
that would be received to sell an asset group in an orderly transaction between
market participants at the measurement date. Significant factors that impact
this price include the price of silver and zinc, and general market conditions
for exploration companies, among other factors.
Goodwill
Goodwill is the purchase premium after adjusting for the fair value of net
assets acquired. Goodwill is tested for impairment at the reporting unit level
at least annually, or more frequently if events or changes in circumstances
indicate that the assets may be impaired. Goodwill impairment tests require
judgment, including the identification of reporting units, assignment of assets
and liabilities to reporting units, assignment of goodwill to reporting units,
and determination of the fair value of each reporting unit. Annual goodwill
impairment testing is performed on April 30th of each fiscal year.
Income Taxes
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. The
law includes significant changes to the U.S. corporate income tax system,
including a federal corporate rate reduction from 35% to 21%, limitations on the
deductibility of interest expense and executive compensation, and the transition
of U.S. international taxation from a worldwide tax system to a territorial tax
system. The law did not have a material impact on the Company's financial
position, results of operations or cash flows and disclosures.
The asset and liability method of accounting for income taxes is followed. 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
tax benefit from uncertain tax positions is recognized only if it is at least
"more likely than not" that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon settlement with the taxing authorities. This accounting
standard also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods and disclosure.
A valuation allowance is recorded against deferred tax assets if management does
not believe that 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, 2022 and October 31, 2021 against the
deferred tax assets as it determined that future realization would not meet the
"more likely than not" criteria.
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Stock-Based Compensation
The Black-Scholes pricing model is used as a method for determining the
estimated fair value for all stock options awarded to employees, officers,
directors and consultants. The expected term of the options is based upon an
evaluation of historical and expected future exercise behavior. The risk-free
interest rate is based on rates published by the government for bonds with a
maturity similar to the expected remaining life of the options at the valuation
date. Volatility is determined based upon historical volatility of the Company's
stock and adjusted if future volatility is expected to vary from historical
experience. The dividend yield is assumed to be none as Silver Bull has not paid
dividends nor does it anticipate paying any dividends in the foreseeable future.
The graded vesting attribution method is used to recognize compensation costs
over the requisite service period.
Cumulative compensation cost associated with options on subsidiary equity are
classified as additional paid-in capital until exercised.
Foreign Currency Translation
During the fiscal years ended October 31, 2022 and October 31, 2021, the
functional currency of Silver Bull Resources, Inc. and its subsidiaries was the
U.S. dollar.
During the fiscal years ended October 31, 2022 and October 31, 2021, Silver
Bull's Mexican operations' monetary assets and liabilities with foreign source
currencies were translated into U.S. dollars at the period-end exchange rate,
and non-monetary assets and liabilities with foreign source currencies were
translated using the historical exchange rate. The Mexican operations' revenue
and expenses were translated at the average exchange rate during the period
except for depreciation of office and mining equipment, costs of office and
mining equipment sold and impairment of property concessions, all of which are
translated using the historical exchange rate. Foreign currency translation
gains and losses of the Mexican operations are included in the consolidated
statements of operations.
Accounting for Loss Contingencies and Legal Costs
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. An accrual for the estimated loss from a
loss contingency is recorded when information available prior to issuance of the
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.
Investments
Investments comprise an approximately nil and 3% interest in Arras at
October 31, 2022 and 2021, respectively. Investments are measured at fair value
through profit or loss, with gains or losses from changes in fair value
recognized in the consolidated statements of operations and comprehensive loss.
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