Business Context and Reporting Period
Company: Avino Silver & Gold Mines Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008 (12 months).
Business Stage: Exploration stage. The Company has no operating revenues from mining and is focused on the acquisition, exploration, and development of silver and gold properties in Mexico (Avino Mine) and Canada (British Columbia and Yukon).
Accounting Basis: Financial statements are prepared under Canadian GAAP. Significant reconciliations to US GAAP are provided, primarily regarding the expensing of exploration costs.
Key Financial Metrics (Canadian GAAP)
| Metric | Year Ended Dec 31, 2008 | 11 Months Ended Dec 31, 2007 |
|---|---|---|
| Revenue | $0 | $0 |
| Interest Income | $146,386 | $359,339 |
| Operating Expenses | $1,575,913 | $868,527 |
| Net Loss | $(1,538,876) | $(885,863) |
| Loss Per Share | $(0.07) | $(0.04) |
| Cash and Cash Equivalents | $3,575,241 | $6,342,481 |
| Total Assets | $20,126,230 | $21,190,940 |
| Total Liabilities | $2,508,776 | $2,532,414 |
| Shareholders' Equity | $17,617,454 | $18,658,526 |
Note: Under US GAAP, the Net Loss for 2008 was significantly higher at $(3,204,942) due to the immediate expensing of exploration costs.
Material Changes vs. Prior Period
- Increased Net Loss: The net loss increased by approximately $653,000 compared to the prior 11-month period. This was driven by a $585,800 increase in stock-based compensation and a $213,652 write-down of Mexican Value-Added Tax (VAT) receivables.
- Decreased Interest Income: Interest income dropped by $212,953 due to lower interest rates and a reduction in cash balances.
- Cash Burn: Cash and cash equivalents decreased by $2.77 million, primarily due to exploration expenditures of $1.76 million on Mexican properties and operating costs.
- Ownership Change: Subsequent to year-end (February 2009), the Company increased its ownership in its Mexican subsidiary, Cia Minera, to 99.28% via capitalization of loans.
Outlook, Risks, and Management Commentary
- Going Concern: The Company explicitly states that its ability to continue as a going concern is dependent on raising additional capital to fund exploration and development. There is no assurance that financing will be available.
- Exploration Plans: Management plans to continue exploration at the Avino Mine in Mexico, including a bulk sampling program (estimated cost $2.9 million total) and further drilling. No significant work is planned for Canadian properties in the immediate term.
- Internal Control Weaknesses: Management concluded that disclosure controls and internal controls over financial reporting were not effective as of December 31, 2008. Material weaknesses included inadequate segregation of duties, insufficient written policies, and lack of disaster recovery plans.
- Key Risks:
- Speculative nature of mining and uncertainty of discovering economically viable reserves.
- Dependence on metal prices (silver and gold).
- Political and regulatory risks in Mexico and Canada.
- Limited and volatile trading volume of shares (Penny Stock rules may apply).
Investor Verification Checklist
- Cash Runway: Verify if the Company has secured the additional financing required to fund the planned bulk sampling program and exploration through 2009, given the stated "substantial doubt" about going concern status.
- Internal Controls: Review the remediation plan for the identified material weaknesses in internal controls over financial reporting.
- US GAAP Reconciliation: Analyze the significant difference between Canadian GAAP and US GAAP net loss figures, as US GAAP requires exploration costs to be expensed immediately, drastically reducing reported equity and increasing losses.
- VAT Recovery: Assess the likelihood of recovering the Mexican VAT receivables, given the $213,652 write-down taken in 2008.
- Share Dilution: Monitor potential dilution from the 1,854,500 outstanding stock options and 2,498,750 warrants.