ASM

Business Context and Reporting Period

Company: Avino Silver & Gold Mines Ltd.
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2011
Accounting Standard: International Financial Reporting Standards (IFRS) – First year of adoption (transitioned from Canadian GAAP).
Business Overview: Avino is a Canadian-based resource firm in the exploration stage, primarily focused on silver and gold properties in Durango, Mexico (Avino Mine and San Gonzalo zone) and Canada (Yukon and British Columbia). The company has not generated operating revenue since 2001 and relies on financing and interest income.

Key Financial Metrics (Year Ended Dec 31, 2011)

Note: The company reported no operating revenue. Income was derived from interest ($78,857) and other sources ($10,499). Expenses were dominated by share-based payments ($2,529,620) and operating/administrative costs ($4,042,647).

Material Changes vs. Prior Period

• Significant Increase in Net Loss: Net loss increased by approximately $3.4 million (from $0.79M to $4.18M). This was primarily driven by a $2.2 million increase in share-based payment expenses due to new option grants.
• Cash Burn: Cash and cash equivalents decreased by approximately $3.8 million, reflecting expenditures on exploration and mine development in Mexico ($3.8M) partially offset by concentrate sales ($3.1M).
• Accounting Transition: The 2011 financials are the first prepared under IFRS. Comparative 2010 figures have been restated. Key adjustments included reclassifying investments in related companies to fair value through profit or loss and changes in foreign currency translation.
• Operational Progress: Completed a 10,000-tonne bulk sample program at the San Gonzalo deposit, yielding positive metallurgical results (76% silver recovery, 59% gold recovery) and generating US$1.83 million in proceeds from concentrate sales.

Outlook, Risks, and Contingencies

Management Commentary and Outlook

Management is proceeding with a mine plan to develop the 3rd, 4th, and 5th levels of the San Gonzalo zone to achieve a sustained mill feed rate of 250 tonnes per day. The company listed on the NYSE-AMEX in August 2011 to increase investor exposure. Future capital requirements are significant to re-open the Avino Mine and continue exploration.

Risk Factors

• Going Concern: The company has incurred losses since inception and has an accumulated deficit of $28.3 million. Continuation depends on raising additional equity capital, which is not guaranteed.
• Regulatory/Compliance Issues: In May 2012, the company issued a retraction and clarification regarding technical property disclosures (NI 43-101) for the Avino property (ET Zone) and San Gonzalo zone following a review by the British Columbia Securities Commission. Certain resource estimates and economic analyses were deemed non-compliant and retracted pending new technical reports.
• Exploration Risk: As an exploration-stage company, there is no assurance that mineral deposits will be economically mineable or that permits will be obtained.
• Internal Controls: Management identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and insufficient written policies.

Investor Verification Checklist

• Capital Adequacy: Verify the company's ability to raise the necessary capital to fund the San Gonzalo mine development and ongoing exploration, given the $3.8M cash burn in 2011.
• Resource Validity: Review the status of the new NI 43-101 compliant technical reports for the Avino ET Zone and San Gonzalo, following the May 2012 retraction of previous estimates.
• Internal Controls: Assess the progress made in remediating the material weaknesses in internal controls identified in the 2011 filing.
• Concentrate Sales: Confirm the timing and pricing of the sale of the remaining San Gonzalo concentrate inventory.
• Related Party Transactions: Review the cost-sharing agreement with Oniva International Services Corp. and other related party fees, which totaled over $390,000 in 2011.