ASM

Business Context and Reporting Period

Company: Avino Silver & Gold Mines Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended January 31, 2003
Business Overview: Avino is a Canadian-based exploration-stage company focused on silver and gold properties in British Columbia, Yukon, and Mexico. The company has no operating revenues and relies on equity financing to fund exploration. Its primary asset is a 49% interest in the Avino Mine in Mexico (Cia Minera), which has been on care and maintenance since late 2001 due to depressed metal prices.

Key Financial Metrics (Canadian GAAP)

Note: The company reported a net loss under U.S. GAAP of $(390,991) for 2003 due to differences in the treatment of exploration costs and foreign exchange.

Material Changes vs. Prior Period

• Significant Loss Reduction: The net loss decreased dramatically from $3.29 million in 2002 to $187,000 in 2003. This improvement was primarily due to the absence of large non-cash write-downs that occurred in 2002.
• Asset Write-downs (2002): The 2002 loss included a $1.66 million write-down of the Bralorne mining property and a $1.26 million equity loss from the Mexican affiliate (Cia Minera). No such write-downs occurred in 2003.
• Debt Elimination: In June 2002, the company transferred its interest in the Bralorne joint venture to Bralorne-Pioneer Gold Mines Ltd. in exchange for the assumption of $1.63 million in debenture debt. Consequently, the company had no debenture payable or related interest expense in 2003.
• Property Acquisitions: In 2003, the company acquired the Eagle property (Yukon) and Aumax property (British Columbia) primarily through the issuance of common shares, adding $204,001 to mineral property interests.

Outlook, Risks, and Contingencies

• Going Concern Uncertainty: The company has a working capital deficit and no operating revenues. Management states that the continuation of the company depends on its ability to raise additional capital through equity financing. The financial statements do not include adjustments that would be necessary if the company were unable to continue as a going concern.
• Acquisition of Cia Minera: The company is negotiating to acquire the remaining 51% interest in Cia Minera (owner of the Avino Mine) for 4 million common shares. This transaction is subject to due diligence and regulatory approval. If completed, the company will need to refinance.
• Legal Contingency: A lessor is contesting a royalty agreement with Cia Minera, claiming approximately $3.77 million in royalties. Cia Minera has accrued $807,000 and paid $244,000 into trust. The company is seeking to settle for 25% of the accrued liability.
• Exploration Stage: All properties are in the exploration stage. There is no assurance that economically recoverable reserves exist or that the company can raise the capital required to bring properties into production.
• Market Risk: The company is subject to volatile metal prices and "penny stock" regulations, which may limit liquidity and trading volume.

Investor Verification Checklist

• Capital Adequacy: Verify the company's ability to raise the necessary equity capital to fund ongoing operations and the proposed acquisition of Cia Minera, given the current working capital deficit.
• Acquisition Status: Confirm the status of the agreement to purchase the remaining 51% of Cia Minera and the completion of the required independent technical report and audit.
• Legal Exposure: Monitor the resolution of the royalty dispute with Cia Minera's lessor, which could result in significant additional liabilities.
• Exploration Results: Review upcoming drilling and assay results for the Eagle, Aumax, and Olympic-Kelvin properties to assess the potential for economic reserves.
• Debt Contingency: Understand the extent of the company's contingent liability regarding the debentures assumed by Bralorne-Pioneer, should Bralorne-Pioneer default.