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, 2005
Business Overview: The Company is a Canadian-based natural resource firm in the exploration stage, focused on silver and gold properties in British Columbia, Yukon, and Mexico. It holds a 49% interest in Cia Minera Mexicana de Avino, S.A. de C.V. ("Cia Minera"), which owns the Avino Mine in Mexico. The mine has been on care and maintenance since November 2001 due to depressed metal prices. The Company has no operating revenues and relies on equity financing to fund exploration and administrative costs.

Key Financial Metrics (Canadian GAAP)

Note: The Company reported no debt (debentures) as of January 31, 2005, having retired prior obligations in 2002. Interest income for 2005 was $41,999, primarily from guaranteed investment certificates.

Material Changes vs. Prior Period

• Increased Net Loss: The net loss increased by $369,119 (83%) compared to 2004. This was driven by a $269,455 increase in due diligence costs related to the potential acquisition of the remaining 51% of Cia Minera and a $174,564 increase in general and administrative expenses.
• Administrative Expenses: Operating and administrative expenses rose to $506,010 from $331,446. Increases were attributed to stock-based compensation ($40,770 increase), salaries, professional fees, and investor relations costs.
• Cash Position: Cash and cash equivalents decreased by $548,922 to $2.28 million. This reduction was due to operating cash outflows of $893,311, partially offset by $435,789 raised from the exercise of stock options and warrants.
• Exploration Expenditures: Capitalized exploration expenditures increased to $91,400 in 2005 from $20,100 in 2004, primarily on the Olympic-Kelvin property.

Outlook, Risks, and Contingencies

• Going Concern Uncertainty: The Company has incurred net losses since inception and has an accumulated deficit of $14.55 million. The auditors' report notes substantial doubt about the Company's ability to continue as a going concern, dependent on its ability to raise additional capital.
• Acquisition of Cia Minera: The Company is negotiating to acquire the remaining 51% interest in Cia Minera for 4 million common shares. This transaction is subject to due diligence, regulatory approval, and shareholder approval. If completed, the Company will need to refinance.
• Legal Contingency: Cia Minera faces a legal action from a lessor claiming approximately $3.77 million in royalties. Cia Minera has accrued $807,000 and paid $244,000 into trust, intending to contest the claim vigorously.
• Capital Requirements: The Company requires additional capital to develop its properties and bring them into production. It has no assurance that it can raise necessary funds or that its properties will be commercially viable.
• Market Risk: The Company is subject to volatility in silver and gold prices, which are highly speculative. Additionally, the Company's shares are subject to "penny stock" rules, which may limit liquidity.

Key Facts for Investor Verification

• Capital Adequacy: Verify if the Company has secured the additional financing required to proceed with the Cia Minera acquisition and fund ongoing exploration, given the "going concern" warning.
• Cia Minera Acquisition Status: Confirm the progress of the due diligence and regulatory approvals required to finalize the purchase of the remaining 51% of Cia Minera.
• Royalty Litigation: Monitor the outcome of the $3.77 million royalty claim against Cia Minera, as a loss could significantly impact the value of the potential acquisition.
• Exploration Results: Review upcoming drilling results for the Eagle, Aumax, and Olympic-Kelvin properties to assess the potential for economically recoverable reserves.
• US GAAP Reconciliation: Note that under US GAAP, the net loss for 2005 was $(947,310) due to the expensing of exploration costs, which are capitalized under Canadian GAAP.