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, 2014
Accounting Basis: International Financial Reporting Standards (IFRS)
Primary Operations: Exploration, extraction, and processing of silver, gold, and copper in Durango, Mexico (San Gonzalo and Avino mines) and British Columbia, Canada (Bralorne mine project).

Key Financial Metrics (2014)

Note: All figures are in Canadian Dollars (CDN$) unless otherwise specified.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased by approximately 20% (CDN$3.2 million) compared to 2013, driven by higher grades at the San Gonzalo mine and increased tonnage processed from historical Avino stockpiles.
• Profitability: Net income more than tripled to CDN$2.5 million, up from CDN$0.8 million in 2013. This was primarily due to higher revenues and a fair value adjustment on warrant liability.
• Acquisition: In October 2014, the Company acquired 100% of Bralorne Gold Mines Ltd. (Bralorne) in British Columbia. The transaction was accounted for as an asset acquisition with a total consideration of CDN$8.1 million.
• Operational Expansion: The Company completed the rehabilitation of the 1,000 TPD Mill Circuit 3 at the Avino Mine in late 2014, commencing full-scale testing in January 2015. This marks the first mining activity at the Avino Mine since 2001.
• Capital Structure: The Company raised approximately CDN$12.2 million through brokered public offerings and option exercises in 2014. Total shares issued and outstanding increased to 35,374,813.

Guidance, Outlook, and Risks

Outlook and Guidance

• 2015 Budget: The Company estimates total costs for 2015 to be CDN$38 million (CDN$17 million operating expenses and CDN$21 million capital expenditures).
• Capital Needs: Management explicitly states the need to raise additional capital to fund planned activities, including the expansion of the Avino Mine and exploration at Bralorne. There is no assurance that funds can be raised on commercially reasonable terms.
• Production Targets: The Company expects to continue extracting and processing resources at the San Gonzalo mine and aims to expand activities at the Avino Mine and Bralorne project.

Material Risks and Contingencies

• Internal Controls: Management concluded that disclosure controls and internal controls over financial reporting were ineffective as of December 31, 2014. Material weaknesses include inadequate segregation of duties, insufficient written policies, and limited staff resources.
• Reserve Status: The Company has no proven or probable mineral reserves as defined by the SEC. Operations are based on mineral resources and management's determination of technical feasibility and commercial viability without a formal feasibility study for the Avino Mine.
• Commodity Prices: Profitability is highly sensitive to fluctuations in silver, gold, and copper prices.
• Regulatory and Political: Operations in Mexico are subject to political instability, regulatory changes (including new mining duties), and potential title challenges.

Investor Verification Checklist

• Capital Adequacy: Verify the Company's ability to raise the estimated CDN$38 million required for 2015 operations and capital expenditures.
• Internal Control Remediation: Monitor progress on remediation plans for the identified material weaknesses in internal controls over financial reporting.
• Reserve Conversion: Assess the timeline and likelihood of converting mineral resources into SEC-defined proven or probable reserves, particularly for the Avino Mine.
• Production Costs: Review actual cash costs per ounce against budgeted figures as the Avino Mine ramps up to full capacity.
• Commodity Exposure: Evaluate the impact of potential declines in silver and gold prices on the Company's margin and liquidity.