ASM

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, 2009
Business Overview: Avino is a Canadian-based natural resource company in the exploration stage, focused on silver and gold properties in Mexico (primarily the Avino Mine in Durango) and Canada (British Columbia and Yukon). The company has not generated operating revenues since 2001 and relies on interest income and financing to fund exploration and mine refurbishment.

Key Financial Metrics (Canadian GAAP)

Note: Under US GAAP, the Net Loss for 2009 was $(1,082,867) due to the expensing of exploration costs and different tax treatments.

Material Changes vs. Prior Period

• Reduced Net Loss: The net loss decreased by approximately $551,000 compared to 2008, primarily driven by a significant reduction in operating and administrative expenses ($906,735 decrease).
• Expense Reductions: Key drivers for lower expenses included a $347,913 decrease in stock-based compensation, a $181,456 recovery of Mexican Value-Added Tax (VAT) previously written off, and reduced investor relations and travel costs.
• Impairment Charges: The company recorded a $608,118 write-down of mineral properties in British Columbia (Aumax, Minto, and Olympic-Kelvin) to nominal values, as no exploration is currently planned for these assets.
• Cash Burn: Cash and cash equivalents decreased by approximately $745,636 during the year, reflecting ongoing exploration expenditures and mine refurbishment costs.

Outlook, Management Commentary, and Risks

Operational Focus and Guidance

Management's primary focus in 2009 and 2010 is the San Gonzalo deposit at the Avino Mine in Mexico. The company is conducting a 10,000-tonne bulk sampling program to confirm grades and metallurgy. A preliminary NI 43-101 resource estimate for San Gonzalo indicates 4.75 million ounces of silver and 37,300 ounces of gold. The company expects to begin processing stockpiled ore for commissioning in the second quarter of 2010.

Risks and Contingencies

• Going Concern: The company has incurred losses since inception and has an accumulated deficit of $24.2 million. Continuation as a going concern is dependent on raising additional equity capital and the successful development of economically recoverable reserves.
• Capital Requirements: Significant additional capital is required to bring the Avino Mine into production. There is no assurance that financing will be available on commercially reasonable terms.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of December 31, 2009, citing material weaknesses including inadequate segregation of duties, insufficient written policies, and lack of disaster recovery plans.
• Resource Classification: The company uses Canadian resource classifications (measured/indicated) which are not recognized by the SEC; investors are cautioned not to assume these will convert to reserves.

Key Facts for Investor Verification

• Cash Runway: Verify the sufficiency of the ~$2.8 million cash balance against the estimated costs of the bulk sampling program and ongoing mine refurbishment.
• San Gonzalo Results: Monitor the results of the 10,000-tonne bulk sample to confirm the economic viability of the deposit and the accuracy of the preliminary resource estimate.
• Financing Plans: Assess the company's ability to raise the necessary equity capital to transition from exploration to production, given the current market conditions and lack of operating revenue.
• Internal Control Remediation: Review subsequent filings to confirm the remediation of the material weaknesses in internal controls over financial reporting identified in this filing.
• US GAAP Reconciliation: Note the significant difference between Canadian GAAP and US GAAP net loss due to the treatment of exploration costs (capitalized vs. expensed).