20-F 1 avino_20f.htm FROM 20-F avino_20f.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F

 
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
or

þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the fiscal year ended December 31, 2009

or

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from _______________ to ________________

or

o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        Date of event requiring this shell company report______________

Commission File Number 0-9266
 
AVINO SILVER & GOLD MINES LTD.
(Exact name of Registrant as specified in its charter)
 
Not Applicable
(Translation of Registrant’s name into English)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

455 Granville Street, Suite 400 Vancouver, British Columbia V6C 1T1, Canada
(Address of principal executive offices)

David Wolfin, 455 Granville Street, Suite 400 Vancouver, British Columbia V6C 1T1, Canada,
Tel:604-682-3701, Email: dwolfin@oniva.ca
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Not Applicable   Not Applicable
Title of Each Class   Name of Each Exchange on Which Registered
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Shares, without Par Value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 
 
 
 

Not Applicable
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock
as of the close of the period covered by the annual report.
 
There were 20,584,727 common shares, without par value, issued and outstanding as of December 31, 2009. .

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
oYes  þNo

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
oYes  þNo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þYes  oNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
oYes  oNo
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
 
 Large Accelerated File   o Accelerated Filer   o  Non-Accelerated Filer   þ
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP o                                                          International Financial Reporting Standards as issued                                                                       Other þ
by the International Accounting Standards Board    o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow.
Item 17 þ Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yeso  Noo
 
 
 
 

TABLE OF CONTENTS
 
Introduction     4  
Currency     4  
Forward-looking Statements     4  
Cautionary Note to United States Investors Concerning Estimate of Measured and Indicated Mineral Resources     4  
Glossary of Mining Terms     5  
           
Part I      
           
Item 1.
Identity of Directors, Senior Management and Advisors
     8  
Item 2
Offer Statistics and Expected Timetable
     8  
Item 3. 
Key Information
     8  
Item 4. 
Information on the Company
     15  
Item 5
Operating and Financial Review and Prospects
     47  
Item 6.
Directors, Senior Management and Employees
     51  
Item 7.
Major Shareholders and Related Party Transactions
     62  
Item 8. 
Financial Information
     63  
Item 9. 
The Offer and Listing
     64  
Item 10.
Additional Information
     65  
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
     70  
Item 12. 
Description of Securities Other than Equity Securities
     70  
           
Part II        
           
Item 13.
Defaults, Dividend Arrearages and Delinquencies
     71  
Item 14. 
Material Modifications to the Rights of Security Holders and Use of Proceeds
     71  
Item 15T. 
Controls and Procedures
     71  
Item 16A. 
Audit Committee Financial Expert
     72  
Item 16B. 
Code of Ethics
     72  
Item 16C. 
Principal Accountant Fees and Services
     73  
Item 16D.
Exemptions from the Listing Standards for Audit Committees
     73  
Item 16E. 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
     73  
           
Part III        
           
Item 17.
Financial Statements
     74  
Item 18.
Financial Statements
     74  
Item 19. 
Exhibits
     74  
 
 
 
 

INTRODUCTION
 
In this Annual Report on Form 20-F, which we refer to as the “Annual Report”, except as otherwise indicated or as the context otherwise requires, the “Company”, “we”, “our” or “us” refers to Avino Silver & Gold Mines Ltd.
 
We were incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, as amended, and changed its name to Avino Mines & Resources Limited.  On April 12, 1995, we changed our corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding.  On August 29, 1997, we changed our corporate name to Avino Silver & Gold Mines Ltd. to better reflect our business of exploring for and mining silver and gold.  Our principal executive office is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, Canada.
 
You should rely only on the information contained in this Annual Report. We have not authorized anyone to provide you with information that is different. The information in this Annual Report may only be accurate on the date of this Annual Report or on or as at any other date provided with respect to specific information.
 
CURRENCY
 
Unless we otherwise indicate in this Annual Report, all references to “Canadian Dollars”, “CDN$” or “$” are to the lawful currency of Canada and all references to “U.S. Dollars” or “US$” are to the lawful currency of the United States.
 
FORWARD-LOOKING STATEMENTS
 
The following discussion contains forward-looking statements within the meaning of the United States Private Securities Legislation Reform Act of 1995 concerning the Company’s plans for its mineral properties which may affect the future operating results and financial position.  Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from those anticipated in the forward-looking statements.  These factors include, but are not limited to, the factors set forth in the sections entitled “Risk Factors” in Item 3.D., and “Operating and Financial Review and Prospects” in Item 5.  Statements concerning reserves and resources may also be deemed to constitute forward-looking statements to the extent that such statements reflect the conclusion that deposits may be economically exploitable.  Any statements that express or involve discussions with respect to predictions, expectations, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “does not expect”, “is expected”, “anticipates”, “does not anticipate”, “plans”, “estimates”, or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements”.
 
CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATE OF MEASURED AND INDICATED MINERAL RESOURCES
 
We advise United States investors that although the terms “measured resources” and “indicated resources” are recognized and required by Canadian regulations, the United States Securities and Exchange Commission, referred to as the “SEC”, does not recognize them.  United States investors are cautioned not to assume that all or any part of our mineral resources in these categories will ever be converted into mineral reserves.
 
 
4
 

GLOSSARY OF MINING TERMS
 
agglomeration
Cementing crushed or ground rock particles together into larger pieces, usually to make them easier to handle; used frequently in heap-leaching operations.
anomalous
A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set.
anomaly
Any concentration of metal noticeably above or below the average background concentration.
assay
An analysis to determine the presence, absence or quantity of one or more components.
breccia
A rock in which angular fragments are surrounded by a mass of finer-grained material.
Cretaceous
The geologic period extending from 135 million to 65 million years ago.
cubic meters or m3
A metric measurement of volume, being a cube one meter in length on each side.
cyanidation
A method of extracting exposed gold or silver grains from crushed or ground ore by dissolving it in a weak cyanide solution.
Diamond drill
A rotary type of rock drill that cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter.
fault
A fracture in a rock where there has been displacement of the two sides.
grade
The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.
heap leaching
A process whereby valuable metals, usually gold and silver, are leached from a heap, or pad, of crushed ore by leaching solutions percolating down through the heap and collected from a sloping, impermeable liner below the pad.
hectare or ha
An area totaling 10,000 square meters.
highly anomalous
An anomaly which is 50 to 100 times average background, i.e. it is statistically much greater in amplitude.
lp induced polarization
A method of ground geophysics surveying employing an electrical current to determine indications of mineralization, also referred to as “IP”.
laterite
A residual product of rock decay that is red in colour and has a high content in the oxides of iron and hydroxide of aluminum.
 
 
5
 
 
mineral reserve
The economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of the reporting, that economic extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral resources are sub-divided in order of increasing confidence into “probable” and “proven” mineral reserves. A probable mineral reserve has a lower level of confidence than a proven mineral reserve. The term “mineral reserve” does not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals.
mineral resource
The estimated quantity and grade of mineralization that is of potential economic merit. A resource estimate does not require specific mining, metallurgical, environmental, price and cost data, but the nature and continuity or mineralization must be understood. Mineral resources are sub-divided in order of increasing geological confidence into “inferred”, “indicated”, and “measured” categories. An inferred mineral resource has a lower level of confidence than that applied to an indicated mineral resource. An indicated mineral resource has a higher level of confidence than an inferred mineral resource, but has a lower level of confidence than a measured mineral resource. A mineral resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the earth’s crust in such form and quantity and of such grade or quality that it has reasonable prospects for economic extraction.
mineralization
Usually implies minerals of value occurring in rocks.
net smelter or NSR Royalty
Payment of a percentage of net mining profits after deducting applicable smelter charges.
NQ
Denotes a definition of drill size of approximately 2-1/2 inches.
oxide
A compound of oxygen and some other element.
ore
A natural aggregate of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated.
outcrop
An exposure of rock at the earth’s surface.
possible or inferred ore
Term used to describe ore where the mineralization is believed to exist on the basis of some geological information, but the size, shape, grade, and tonnage are a matter of speculation.
prefeasibility study and
preliminary feasibility study
Each means a comprehensive study of the viability of a mineral project that has advanced to a stage where mining method, in the case of underground mining, or the pit configuration, in the case of open pit mining, has been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating and economic factors, and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve.
probable mineral reserve
The economically mineable part of an indicated, and in some circumstances, a measured mineral resource demonstrated by at least a prefeasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
 
 
6
 
 
proven mineral reserve
The economically mineable part of a measured mineral resource demonstrated by at least a prefeasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. The term should be restricted to that part of the deposit where production planning is taking place and for which any variation in the estimate would not significantly affect potential economic viability.
quartz
Silica or SiO2, a common constituent of veins, especially those containing gold and silver mineralization.
tailings
Material rejected from a mill after most of the recoverable valuable minerals have been extracted.
ton
Imperial measurement of weight equivalent to 2,000 pounds.
tonne
Metric measurement of weight equivalent to 2,205 pounds (1,000 kg)
TPD
Tonnes per day.
trench
A long, narrow excavation dug through overburden, or blasted out of rock, to expose a vein or ore structure.
tonne
Metric measurement of weight equivalent to 1,000 kilograms (or 2,204.6 pounds).
veins
The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.
 
 
7
 
 
PART I
 
Item 1.   Identity of Directors, Senior Management and Advisors
 
Not applicable.
 
Item 2.   Offer Statistics and Expected Timetable
 
Not applicable.
 
Item 3.   Key Information
 
A.           Selected Financial Data
 
The selected historical financial information presented in the table below for each of the years ended  December 31, 2009, December 31, 2008, December 31, 2007(1), January 31, 2007 and January 31, 2006, is derived from the audited financial statements of the Company. The audited consolidated financial statements and notes for the years ended December 31, 2009, December 31, 2008, and the eleven month period ended December 31, 2007 are included in this Annual Report.  The selected historical financial information for each year ended January 31, 2007 and 2006, presented in the table below are derived from financial statements of the Company that are not included in this Annual Report.  The selected financial information presented below should be read in conjunction with the Company’s consolidated financial statements and the notes thereto (Item 17) and the Operating and Financial Review and Prospects (Item 5) included elsewhere in this Annual Report.
 
The selected financial data has been prepared in accordance with Canadian generally accepted accounting principles, which we refer to as “Canadian GAAP”.  The consolidated financial statements included in Item 17 in this Annual Report are also prepared under Canadian GAAP.  Included within these consolidated financial statements in Note 23 is a reconciliation between Canadian GAAP and United States generally accepted accounting principals, referred to as “US GAAP”, which differ, among other things, in respect to the recording of the investments in marketable securities, deferred exploration expenditures and recognition of future income tax benefits on renouncement of Canadian exploration expenditures to flow-through investors.
_____________________ 
(1) In January 2008, the Company changed its financial year end from January 31 to December 31. Consequently, the period ended December 31, 2007 is an 11 month fiscal year.  (referred hereinafter as fiscal year end “2007-II”)
 
 
8
 
 
Canadian GAAP
      
 
 
  
Years Ended December 31,
    
 Eleven Months Ended
December 31,
    
Years Ended January 31,
  
   
2009
    
2008
    
2007
    
2007
    
2006
  
Summary of Operations:
                              
Revenue
   $ -     $ -     $ -     $ -     $ -  
Interest Income
     68,224       146,386       359,339       430,231       46,082  
Expenses
                                        
Operating and administrative
     669,178       1,575,913       868,527       4,014,734       1,416,797  
Write-down of mineral properties
     608,118       -       -       -       103,342  
Equity losses in Cia Minera Mexicana de Avino, S.A. de C.V.
     -       -       -       33,581       342,596  
Litigation settlement
     -       2,785       (759,302 )     -       -  
Misappropriation loss
     -       -       (86,155 )     -          
Mineral property option revenue
     -       25,000       -       -       -  
Write-down of investment
     -       -       -       -       217,000  
Site assessment of Cia Minera Mexicana de Avino, S.A. de C.V.
     -       -       -       -       355,921  
Future income tax benefit (expense)
     239,562       (98,653 )     501,083       -       19,750  
Net loss
     (987,759 )     (1,538,876 )     (885,863 )     (3,648,539 )     (2,369,724 )
Loss per share
     (0.05 )     (0.07 )     (0.04 )     (0.20 )     (0.22 )
                                         
Weighted average number of shares outstanding
     20,584,727       20,584,727       20,584,727       18,385,007       10,965,718  

    As at December 31,     As at January 31,  
 
  
2009
    
2008
    
2007
    
2007
    
2006
  
    Balance Sheet Data:                              
Total assets
   $ 19,206,278     $ 20,126,230     $ 21,190,940       23,295,039     $ 3,901,160  
Cash and cash equivalents
     2,829,605       3,575,241       6,342,481       11,045,106       3,067,011  
Total liabilities
     2,241,179       2,508,776       2,532,414       3,789,083       586,714  
Shareholders’ equity
     16,965,099       17,617,454       18,658,526       19,505,956       3,314,446  



United States GAAP
    Years Ended December 31,      Eleven Months Ended
December 31,
      
Years Ended January 31,
  
 
   2009     2008     2007     2007     2006  
    Summary of Operations:                              
Net loss per Canadian GAAP
   $ (987,759 )   $ (1,538,876 )   $ (885,863 )   $ (3,684,539 )   $ (2,369,724 )
Adjustments
     (95,108 )     (1,851,231 )     (2,833,433 )     (10,277,556 )     (74,147 )
Net loss per US GAAP
     (1,082,867 )     (3,390,107 )     (3,719,296 )     (13,962,095 )     (2,443,871 )
Loss  per share per US GAAP
     (0.05 )     (0.17 )     (0.18 )     (0.76 )     (0.22 )
 
 
9
 

    As at December 31,     As at January 31,  
    2009     2008     2007     2007     2006  
Balance Sheet Data:
                              
Total assets under Canadian GAAP
     19,206,278       20,126,230       21,190,940       23,295,039       3,901,160  
Adjustments
     (14,573,506 )     (14,861,524 )     (13,096,805 )     (10,747,339 )     (260,955 )
Total assets under US GAAP
     4,632,772       5,264,706       8,094,135       12,547,700       3,640,205  
                                         
Total equity under Canadian GAAP
     16,965,099       17,617,454       18,658,526       19,505,956       3,314,446  
Adjustments
     (12,879,499 )     (12,927,955 )     (11,261,889 )     (10,747,339 )     (260,955 )
Total equity under US GAAP
     4,085,600       4,689,499       7,396,637       8,758,617       3,053,491  
 
Exchange Rates
 
The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1).

Year Ended
  
Average
  
Period End
  
High
  
Low
2006
  
1.2061
  
1.1436
  
1.2703
  
1.1436
2007
  
1.1357
  
1.1792
  
1.1824
  
1.0989
2007 II
  
1.0651
  
0.9913
  
1.1853
  
0.9170
2008
  
1.0660
  
1.2246
  
1.2969
  
0.9719
2009
  
1.1420
  
1.0466
  
1.3000
  
1.0292
 
The following table sets forth the high and low exchange rate for the past six months based on the noon buying rate.  As of July 9, 2010, the exchange rate was CDN$1.0328 for each US$1.
 
Month
  
High
    
Low
  
January 2010
     1.0657       1.0251  
February 2010
     1.0734       1.0420  
March 2010
     1.0421       1.0113  
April 2010
     1.0201       0.9961  
May 2010
     1.0778       1.0116  
June 2010
     1.0606       1.0199  
 
B.           Capitalization and Indebtedness
 
Not Applicable.
 
C.           Reasons for the Offer and Use of Proceeds
 
Not Applicable.
 
D.           Risk Factors
 
In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business.  This Annual Report contains forward-looking statements that involve risks and uncertainties.  The Company’s actual results may differ materially from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report.
 
 
10
 
 
We will be required to raise additional capital to mine our properties.  The Company is currently in the exploration stage of its properties.  If the Company determines based on its most recent information that it is feasible to begin operations on its properties, the Company will be required to raise additional capital in order to develop and bring the properties into production.  Our ability to raise funds will depend on several factors, including, but not limited to, current economic conditions, our properties, our prospects, metal prices, businesses competing for financing and our financial condition. There can be no assurance that we will be able to raise funds, or to raise funds on commercially reasonable terms.
 
We have incurred net losses since our inception and expect losses to continue.  We have not been profitable since our inception. For the year ended December 31, 2009, we had a net loss of $987,759 and an accumulated deficit on December 31, 2009 of $24,170,684.  The Company has not generated revenues from operations since 2001 and does not expect to generate revenues from operations until one or more of its properties are placed in production.  There is no assurance that any of the Company’s properties will be placed in production or that the Company’s operations will be profitable in the future.
 
The mining industry is highly speculative and involves substantial risks.  Even when mining is conducted on properties known to contain significant quantities of mineral deposits it is generally accepted in the mining industry that most exploration projects do not result in the discovery of mineable deposits of ore that can be extracted in a commercially economical manner.  There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions.  Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls.  Mining activities are subject to substantial operating hazards, some of which are not insurable or may not be insured for economic reasons.
 
The commercial quantities of ore cannot be accurately predicted.  Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.
 
There are no assurances that we can produce minerals on a commercially viable basis.  The Company’s ability to generate revenue and profit is expected to occur through exploration of its existing properties as well as through acquisitions of interests in new properties.  Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations.  The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to refining facilities, and the market price of the minerals at the time of sale.  There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.
 
Mining operations and exploration activities are subject to various federal, provincial and local laws and regulations. Laws and regulation govern the development, mining, production, importing and exporting of minerals, taxes, labour standards, occupational health, waste disposal, protection of the environment, mine safety, toxic substances, and other matters.  In many cases, licenses and permits are required to conduct mining operations.  Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company.  Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations.  Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.
 
 
11
 
 
Market price is highly speculative.  The market price of metals is highly speculative and volatile. Instability in metal prices may affect the interest in mining properties and the development of and production of such properties.
 
Penny stock rules may make it more difficult to trade the Company’s common shares.  The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price, as defined, less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions.  Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse.  For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser’s written agreement of the transaction prior to the sale.  Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.
 
 
Title risks.  The validity and ownership of mining property holdings can be uncertain and may be contested.  Although the Company’s properties in Canada are currently wholly owned by the Company, there are currently a number of pending and potential native title or traditional land owner claims in Canada.  Accordingly, there can be no assurance that the Company’s properties in Canada will not be affected.
 
Competition for mineral land.  There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities.  Many participants are engaged in the mining business, including large, established mining companies.  Accordingly, there can be no assurance that the Company will be able to compete successfully for new mining properties.
 
Competition for recruitment and retention of qualified personnel.  We compete with other exploration companies, many of which have greater financial resources than us or are further in their development, for the recruitment and retention of qualified employees and other personnel.  Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies.  If we require and are unsuccessful in acquiring additional personnel or other exploration resources, we will not be able to grow at the rate we desire or at all.
 
Uncertainty of exploration and development programs.  The Company’s profitability is significantly affected by the costs and results of its exploration and development programs.  As mines have limited lives based on proven and probable mineral reserves, the Company actively seeks to expand its mineral reserves, primarily through exploration, development and strategic acquisitions.  Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful.  Among the many uncertainties inherent in any gold and silver exploration and development program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities.  Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of production may change.  Accordingly, the Company’s exploration and development programs may not result in any new economically viable mining operations or yield new mineral reserves to expand current mineral reserves.
 
Licenses and permits.  The operations of the Company require licenses and permits from various governmental authorities.  The Company believes that it holds all necessary licenses and permits under applicable laws and regulations and believes that it is presently complying in all material respects with the terms of such licenses and permits.  However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that the Company will be able to obtain or maintain all necessary licenses and permits as are required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.
 
Political or economic instability or unexpected regulatory change. Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states.  Our mineral exploration activities could be adversely effected by:
 
 
12
 
 
●
    political instability and violence;
 
·  
    war and civil disturbances;
 
·  
    expropriation or nationalization;
 
·  
    changing fiscal regimes;
 
·  
    fluctuations in currency exchange rates;
 
·  
    high rates of inflation;
 
·  
    underdeveloped industrial and economic infrastructure;
 
·  
    changes in the regulatory environment governing mineral properties; and
 
·  
    unenforceability of contractual rights,
 
any of which may adversely affect our business in that country.
 
We may be adversely affected by fluctuations in foreign exchange rates. We maintain our bank accounts mainly in Canadian and U.S. Dollars.  Any appreciation in the currency of Mexico or other countries where we may carryout exploration activities against the Canadian or U.S. Dollar will increase our costs of carrying out operations in such countries.  In addition, any decrease in the U.S. Dollar against the Canadian Dollar will result in a loss on our books to the extent we hold funds in U.S. Dollars.
 
Land reclamation requirements.  Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize the long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation.  In order to carry out reclamation obligations imposed on us in connection with our mineral exploration we must allocate financial resources that might otherwise be spent on further exploration programs.
 
Litigation.  Although the Company is not currently subject to litigation, it may become involved in disputes with other parties in the future which may result in litigation.  Any litigation could be costly and time consuming and could divert our management from our business operations.  In addition, if the Company is unable to resolve any litigation favourably, it may have a material adverse impact on the Company’s financial performance, cash flow and results of operations.
 
Acquisitions.  The Company undertakes evaluations of opportunities to acquire additional gold and silver mining properties.  Any resultant acquisitions may be significant in size, may change the scale of the Company’s business, and may expose the Company to new geographic, political, operating, financial and geological risks.  The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks, such as a significant decline in the price of gold or silver, the ore body proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the Company’s ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties.  In addition, the Company may need additional capital to finance an acquisition.  Historically, the Company has raised funds through equity financing and the exercise of options and warrants.  However, the Company’s ability to raise capital to acquire and explore resource properties may be adversely affected by the market prices for natural resources which are highly speculative and volatile. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
 
 
13
 
 
Conflict of interest.  Certain directors and officers of the Company are officers and/or directors of, or are associated with, other natural resource companies that acquire interests in mineral properties.  Such associations may give rise to conflicts of interest from time to time.  The directors are required by law, however, to act honestly and in good faith with a view to the best interests of the Company and to disclose any personal interest which they may have in any material transaction which is proposed to be entered into with the Company and to abstain from voting as a director for the approval of any such transaction.
 
Dependence on management.  We are dependent on the services of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding.  Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.
 
Uncertainty of continuing as a going concern.  The continuation of the Company depends upon its ability to develop a self-supporting business and generate cash flow from operations and/or to raise equity capital through the sale of its securities. The Company will be required to raise new financing through the sale of shares or issuance of debt to continue with the exploration and development of its mineral properties.  As a result, there is uncertainty about the Company’s ability to continue as a going concern.  The Company’s consolidated financial statements do not include the adjustments that would be necessary if the Company were unable to continue as a going concern.
 
Limited and volatile trading volume.  Although the Company’s common shares are listed on the TSX Venture Exchange, referred to as the “TSX-V” and the Frankfurt Stock Exchange, referred to as the “FSE” and quoted in the United States on the OTC Bulletin Board, referred to as the “OTC BB”, the volume of trading has been limited and volatile in the past and is likely to continue to be so in the future, reducing the liquidity of an investment in the Company’s common shares and making it difficult for investors to readily sell their shares in the open market.  Without a liquid market for the Company’s common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.
 
Volatility of share price.  In recent years, securities markets in Canada have experienced a high level of price volatility.  The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point.  These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria.  During the 2009 fiscal year, the Company’s common share price fluctuated between a low of $0.38 and a high of $0.99.  Subsequent to the 2009 fiscal year and as of June 30, 2010, the Company’s common share price has fluctuated between a low of $0.65 and a high of $0.88.  Significant fluctuations in the Company’s common share price is likely to continue, and could potentially increase in the future.
 
Difficulty for United States investors to effect services of process against the Company.  The Company is incorporated under the laws of the Province of British Columbia, Canada. Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. The majority of the Company’s directors and officers are residents of Canada and all of the Company’s assets are located outside of the United States.  A judgment of a United States court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter.  There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.
 
 
14
 
 
Item 4.   Information on the Company
 
Cautionary Note to United States Investors
 
We describe our properties utilizing mining terminology such as “measured resources” and “indicated resources” that are required by Canadian regulations but are not recognized by the SEC.  United States investors are cautioned not to assume that any part of the mineral deposits in these categories will ever be converted into reserves.
 
A.           History and Development of the Company
 
The Company was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, changing its name to Avino Mines & Resources Limited.  On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding.  On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd., its current name, to better reflect the business of the Company of exploring for and mining silver and gold.  In January 2008, the Company announced the change of its financial year end from January 31 to December 31.  The change was completed in order to align the Company’s financial statement reporting requirements with its Mexico subsidiaries which operate on a calendar fiscal year.
 
The Company is a reporting issuer in British Columbia and Alberta, a foreign issuer with the SEC and trades on the TSX-V under the symbol “ASM”, on the OTCBB under the symbol “ASGMF” and on the Frankfurt Stock Exchange under the symbol “GV6”.  The principal executive office of the Company is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, and its telephone number is 604-682-3701.
 
The Company is a natural resource company, primarily engaged in the acquisition, exploration and development of natural resource properties.  The Company’s principal business activities have been the exploration of certain mineral properties located in Canada, specifically British Columbia and the Yukon Territory, and in Mexico.
 
Significant Acquisitions and Significant Dispositions
 
On July 17, 2006, the Company completed the acquisition of Compañía Minera Mexicana de Avino, S.A. de C.V. (“Cia Minera”), a Mexican corporation, through the acquisition of an additional 39.25% interest in Cia Minera which combined with the Company’s pre-existing 49% share of Cia Minera, brought the Company’s ownership interest in Cia Minera to 88.25%.  The additional 39.25% interest in Cia Minera was obtained though the acquisition of 76.88% of the common shares of Promotora Avino S.A. De C.V., referred to as “Promotora”, which in turn owns 49.75% of Cia Minera’s common shares, and the direct acquisition of 1% of the common shares of Cia Minera.
 
The July 17, 2006 acquisition was accomplished by a share exchange by which the Company issued 3,164,702 shares as consideration, which we refer to as the “Payment Shares”, for the purchase of the additional 39.25% interest in Cia Minera.  The Payment Shares were valued based on the July 17, 2006 closing market price of the Company’s shares on the TSX-V.
 
The Company acquired a further 1.1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate. On December 21, 2007 approval was received and the Company obtained the 1.1% interest from the estate for no additional consideration.
 
On February 16, 2009, the Company converted existing loans advanced to Cia Minera in to new additional shares of Cia Minera. As a result, the Company’s ownership interest in Cia Minera increased to 99.28%.
 
The Company has no other significant acquisitions or dispositions of property, except as disclosed in this Annual Report.
 
 
15
 
 
B.           Business Overview
 
Operations and Principal Activities
 
The Company is a Canadian-based resource firm focused on silver and gold exploration.  The Company has a long prior history of operation, beginning in 1968 with the development of the Avino Silver Mine, located in the state of Durango, Mexico (the “Avino Mine”).  From 1974 to 2001, the Avino Mine produced silver, gold, copper and lead and provided hundreds of jobs for the Durango region before closing due to depressed metal prices and closing of smelter.  Beginning in 2002, the Company re-directed its corporate strategy to focus almost entirely on silver and began acquiring silver properties in North America. The Company acquired the Eagle property in Canada’s Yukon Territory and the Aumax silver and gold property in British Columbia. Each property produced positive assays for silver through drilling and sampling.  The Avino Mine in Mexico and surrounding mineral leases continue to hold silver potential. These properties, along with other silver and gold projects, will remain the Company’s principal focus for the foreseeable future.
 
Presently, the Company is an “exploration stage company”, as all of the Company’s properties are currently in the exploratory stage of development.  In order to determine if a commercially viable mineral deposit exists in any of the Company’s properties, further geological work will need to be done and a final evaluation based upon the results obtained to conclude economic and legal feasibility.
 
Competition
 
The mining industry in which the Company is engaged is highly competitive.  Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company.  The Company competes with other mining companies in connection with the acquisition of gold, silver and other precious metal properties.  In general, properties with a higher grade of recoverable mineral and/or which are more readily mined afford the owners a competitive advantage in that the cost of production of the final mineral product is lower.  In 2009, demand for silver exceeded supply and worldwide demand is expected to increase through 2010.  This, in part, has fueled the increases in silver prices over the same period.  Thus, a degree of competition exists between those engaged in the mining industry to acquire the most valuable properties.  As a result, the Company may eventually be unable to acquire attractive gold or silver mining properties.
 
Seasonality
 
Certain of our operations are conducted in British Columbia and the Yukon Territory.  The weather during the colder seasons in these areas can be extreme and can cause interruptions or delays in our operations.  As a result, the preferable time for activities in these regions is the spring and summer when costs are more reasonable and access to the properties is easier.  In the summer months, however, if the weather has been unusually hot and dry, access to the Company’s properties may be limited as a result of access restrictions being imposed to monitor the risks of forest fires.
 
 
16
 
 
Governmental Regulation
 
The current and anticipated future operations of the Company, including development activities and commencement of production on its properties, require permits from various federal, territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.  Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.  Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that the Company obtain permits from various governmental agencies.  The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities.  There can be no assurance, however, that all permits which the Company may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that such laws and regulations, or that new legislation or modifications to existing legislation, would not have an adverse effect on any exploration or mining project which the Company might undertake.
 
Mineral exploration and mining in Mexico is covered under the Mining Law as first published in June 1992, and amended in April 2005. Mining operations in Mexico are administered by the Ministry of Economy. Environmental regulations are covered under “Ley General del Equilibrio Ecológio y la Protección al Ambiente” (General Law of Ecological Balance and Environmental Protection) and its regulations. Certain other environmental laws, including “Ley de Aguas Nacionales” (Law of National Waters) and “Ley Forestal” (Forestry Law) and their associated regulations may also cover certain operations. The kind of permits or authorizations required to conduct mining or mineral exploration operations in Mexico depend upon the type of operation. Common exploration activities do not require prior environmental authorization or licenses, but it is advisable to request a confirmation from the National Water Commission that planned operations will not affect the water table. It is also necessary to confirm that any planned operations will not be conducted in protected natural areas.
 
The Company has obtained all necessary permits and authorizations required for its current exploration.  The Company has had no material costs related to compliance and/or permits in recent years, and anticipates no material costs in the next year.  Unfavorable amendments to current laws, regulations and permits governing operations and activities of resource exploration companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.
 
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.  Parties engaged in exploration and mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.
 
The enactment of new laws or amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment or delays in the development of new mining properties.
 
C.           Organizational Structure
 
The Company’s Mexican subsidiaries are the wholly owned subsidiary of Oniva Silver and Gold Mines S.A. de C.V., referred to as “Oniva”, Promotora, in which the Company has direct ownership of 79.09%, and Cia Minera in which the Company has a 96.6% direct ownership and an additional 2.68% of Cia Minera is held through Promotora.  The Company’s total effective ownership interest in Cia Minera is 99.28%.
 
All of the above subsidiaries are incorporated under the laws of Mexico.
 
 
17
 
 
D.           Property, Plants and Equipment
 
The Company is exploring five silver and gold projects in Canada and Mexico.  All of the Company’s mineral property interests in Canada are wholly-owned by the Company.  In Mexico, the Company has a 99.28% interest in Cia Minera, a Mexican company which is involved in the mining of commercial ores and resource exploration and development, including the operation of the Avino Mine.  Cia Minera is not involved with any exploration activities in Canada.  The Company owns and manages these properties. Exploration in Canada has in recent years, been limited to prospecting, trenching and drill programs on our Eagle, Olympic-Kelvin, Minto, and Aumax properties.
 
The Company uses detailed sampling to provide the basis for quality estimates and grades of its mineral discoveries.  Samples are collected under the supervision of a qualified person who then follows procedures for the collection, sample preparation and chain of custody guidelines for the shipment of the samples to a certified commercial laboratory as set out in National Instrument 43-101. These commercial labs have standard Quality Assurance/Quality Control protocols in place for the various assaying methods that are being used on the samples. In addition, blanks, standards and duplicates are generally used to confirm the validity of the results before they are reported.

Avino Mine
   
Ownership.  The Company has a 99.28% ownership interest in Cia Minera, a company incorporated under the laws of Mexico.  Cia Minera owns the Avino property.  The Company acquired its 49% interest in Cia Minera in 1968, an additional interest of 39.25% in July 2006, 1.1% interest in December 2007 and most recently 9.93% in February 2009.
 
Cia Minera leases four core mineral claims in consideration for royalties.  Prior to the Company acquiring control of Cia Minera, the lessor had contested the underlying royalty agreement and had filed a legal action claiming royalties were owed from years prior to the Company’s acquisition of control. Once control was obtained, an amicable settlement was negotiated during the period ended December 31, 2007 whereby the Company settled the dispute at a cost of $1,497,604 (settlement denominated in USD$1,500,000). The $1,497,604 amount, less a prior year accrual of $738,302 is recorded in litigation settlement expense during the period ended December 31, 2007. The Company paid a $1,398,457 (USD$1,400,000) portion of the settlement during the period ended December 31, 2007 and the balance owing of $102,785 (USD$100,000) during the year ended December 31, 2008. A difference in foreign exchange on the settlement date in 2008 resulted in $2,785 recovery.
 
Property Description and Location.  The Avino Mine is located approximately 74 kilometers to the northeast of the city of Durango and covers approximately 4,364 hectares.  The property is accessible via road.  The Avino Mine had been an open pit operation until March 1993, at which time Cia Minera commenced underground operations.  Mineralized rock is broken by ripping, drilling and blasting and is trucked to the concentrator, approximately 415 meters from the pit, where it is processed. The Avino Mine was an underground operation at the time of closure in November 2001.

History. The Avino Mine operated from 1974 to 2001, producing about 497 tons of silver, three tons of gold, and 11,000 tons of copper until the suspension of mining operations in November 2001.  Since that time, the mine plant and equipment have been on care and maintenance. Over the last two years, the Company has been refurbishing the plant.
 
 
18
 
 
The Avino Mine and mill were historically serviced by a heavy equipment repair shop, a mechanical and electrical shop, an assay office, a metallurgical laboratory, a warehouse and other auxiliary facilities.  Electric power has been supplied by the government-owned Federal Electricity Commission, referred to as the “FEC”.
 
Water for use at the mill is primarily obtained from: (i) wells; (ii) old underground workings; and (iii) earth dams.  In prior years, the water supply has been insufficient to increase the capacity of the mill. In 1989, Cia Minera constructed a dam in hope of storing water for use in the dry season.  The dam has a capacity of 1,000,000 cubic meters.  Cia Minera had entered into an agreement with the Federal Government of Mexico for the repair and improvement of a government dam located approximately five and one-half kilometers from the mine.  The contract provides that the Government and Cia Minera will each contribute 50% of the cost of repairing the dam and raising the height by six meters and to construct a new spillway.  The work was substantially completed during 1989, and Cia Minera installed a pipeline system allowing water to flow from the Government dam to the mill.  The contract provides that Cia Minera will share the use of the Government dam with local farmers.  The local farmers have priority for the use of a specific volume of the water and the balance is available for use by the mine.  The water can be transmitted to the mine by means of five kilometers of pipe which has been installed by Cia Minera. In early 1996, Cia Minera also drilled a well 400 meters in depth on a property owned by Cia Minera, ten kilometers from the mill site.  A pipeline has been constructed, and Cia Minera has sufficient water for its own needs.  Further, from 1995 to 1998, Mexico experienced a drought.  While the drought adversely affected operations in late 1995 until April 1996, Cia Minera believes that the new well will adequately meet its water requirements. In addition, Cia Minera utilizes water conservation practices, such as recirculation of water and capturing rain water in earth dams.
 
In April 2006, Wardrop Engineering Inc. (“Wardrop”), completed the study on “Tailings Retreatment Process Options for the Avino Tailings Project in Durango, Mexico”, referred to as the “Wardrop Report”.  The Wardrop Report concluded the oxide tailing is amenable to cyanidation with agglomerated heap leach as the method of choice followed by Merril Crowe precipitation of the silver and gold.  The sulphide tailing would require sampling and further metallurgical test work before a proper assessment can be made.
 
The preliminary evaluation of the oxide tailings suggested the capital cost for a 500,000 ton per year, 4 year operation is US$16,200,000 and the cost to operate per ton of tailings is US$8.64.  Capital costs for a plant twice the size and half the life was US$22,700,000.  The internal rate of return and the net present value favoured the 4 year operation.
 
The disclosure of the implied values is preliminary in nature and includes inferred mineral resources that are considered to be too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.
 
Mr. Rick Alexander P. Eng., an independent qualified person as defined by applicable Canadian rules has prepared the capital cost estimate and co-coordinated Wardrop’s work on the Avino Tailings Project.
 
The Company operated the mine from 1976 to 2001 when closure was caused by low silver, gold and copper prices and the local smelter closing for toll processing.  The 2006 drill program was designed to test for continuity down dip below the existing workings of the three principal areas of mineralization (San Luis, Elena-Tolosa, and Chirumbo). The Avino vein system strikes principally east west over 1.2 km and dips south at 60 - 70˚.  Drilling of the Avino vein in 2006 was disappointing and continuity was not found.
 
 
19
 
 
During 2006 to 2007, the Company had drilled 82 holes totaling approximately 18,000 metres on different targets across the Avino property. The Company has decided to focus on the San Gonzalo vein system. The Company may continue exploration of its other properties at a later date.
 
The Company announced the first results of a diamond drill program on the San Gonzalo gold, silver, lead, zinc structure situated 2 km northeast of its former producing Avino mine (1976 – 2001).
 
The San Gonzalo structure strikes northwest/southeast and dips very steeply (85-90°) towards the southwest.  The principal intersections are:

Vein or Structure
From
(m)
To
(m)
Down Hole Lengths
(m)
Au
(g/t)
Ag
(g/t)
Pb
(%)
Zn
(%)
Hole SG-07-01
              
Santiago Vein
147.0
149.7
2.70
1.19
227
> 1%
> 1%
San Gonzalo Vein Hanging Wall Zone
357.3
362.15
4.85
0.64
343.2
0.36%
0.63%
San Gonzalo Vein Foot Wall Zone
372.65
375.05
2.4
2.41
712.4
0.5%
0.13%
Hole SG-07-02
              
San Gonzalo Vein Hanging Wall Zone
214.65
219.10
4.45
6.11
583.8
1.4
2.54
San Gonzalo Vein Foot Wall Zone
252.65
256.00
3.35
6.91
21.1
1.55
2.33
Hole SG-07-03
              
San Gonzalo Vein
187.45
188.70
1.25
3.57
341
0.6
0.87
Hole SG-07-04
              
Santiago Vein
18.55
25.00
6.45
0.21
364
NS
NS
(includes)
20.85
21.9
1.05
0.29
990
0.21
NS
 
21.90
22.8
0.90
0.49
433
0.16
NS
Cross Vein
31.00
34.05
3.05
0.18
86
0.17
NS
San Gonzalo HW
248.15
249.25
1.10
0.43
58
0.25
0.26
FW
258.75
259.00
0.25
2.66
114
4.8
4.22
Hole SG-07-05
              
Santiago Vein
28.70
31.80
3.10
0.49
201
NS
NS
Includes
31.10
31.80
0.70
1.54
272
NS
NS
Hole SG-07-06
              
Santiago Vein
24.80
28.30
3.50
0.40
226
NS
NS
Cross Vein
280.65
280.90
0.25
0.50
2,120
7.82
NS
San Gonzalo Vein
367.35
371.5
3.85
0.10
11
NS
NS
Hole SG-07-07
              
San Gonzalo Vein
247.75
250.35
2.60
2.85
351
1.04
0.66
 
Hole SG-07-08 missed the ore shoot and encountered only low gold and silver values. For holes SG-07-09, 10 and 11 only gold results have been received to date.
 
The Company also announced significant intersections from holes SG-07-12 and SG-07-13 as follows:
 
SG-07-12 (Dip 53 total length 175.45 m)
 
Down hole intersection length 165.65 -- 169.45 m (3.80 m) 9.5 g/t gold, 655 g/t silver, 574 ppm copper, 2,872 ppm lead, 2503 ppm zinc.
 
 
20
 
 
Includes:
 
From
    
To
    
Metres
    
Au g/t
    
Ag g/t
    
Cu ppm
    
Pb ppm
    
Zn ppm
  
165.65       166.40       0.75       22.902       1,609.6       840       2,106       3,692  
166.40       167.05       0.65       8.366       898.0       262       974       2,266  
167.05       167.75       0.70       13.508       427.6       261       1,188       1,282  
167.75       168.55       0.80       1.890       283.6       1,169       9,356       4,652  
168.55       169.45       0.90       2.792       194.4       293       427       723  
 
SG-07-13 (Dip 50 total length 160.55)
 
Down Hole Intersection Lengths 147.45 -- 153.00 m (5.55m)
 
1.12 g/t gold, 189 g/t silver, 0.28% lead, 0.43% zinc.
 
Or
 
149.05 -- 153.00 m (3.59m) 1.39 g/t gold, 230 g/t silver
 
544 ppm copper, 3,211 ppm lead and 4368 zinc
 
Includes:
 
From
    
To
    
Metres
    
Au g/t
    
Ag g/t
    
Cu ppm
    
Pb ppm
    
Zn ppm
  
147.45       148.45       1.00       0.550       91.5       3,199       2,205       2,436  
148.45       149.05       0.60       0.155       77.9       326       724       7,039  
149.05       149.70       0.65       1.209       150.8       192       1,284       1,670  
149.70       150.70       1.00       0.778       500.6       264       1.779       3,037  
150.70       151.50       0.80       3.153       238.9       1,910       11,000       10,700  
151.50       152.20       0.70       0.822       121.3       241       922       4,552  
152.20       153.00       0.80       1.057       44.5       91       783       1,730  
 
In September 2006, the Company commissioned an independent plant audit by Herb Osborne and Associates, a widely recognized expert in process plant evaluations, to conduct a full review of the plant, including the condition of all equipment, the capacity of each circuit, and the efficiency of plant.  The report was an order of magnitude cost estimate for the processing plant and is not National Instrument 43-101 (“NI 43-101”) compliant as it does not include underground development work.
 
The Avino process plant was built initially in the 1970’s refurbished and capacity increased in 1993.  Most of the infrastructure is in place for an ongoing 1,000 TPD operation.  Some of the buildings will require cleanup and repair and refurbishment.  The plant was fully permitted but remains in temporary closure.  Permits will have to be brought current.
 
At the time of shutdown in 2001 with low commodity prices and closure of smelter, the mill was operating at an average rate of 1,130 TPD.  The concentration ratio (weight) ranged from 2.5 to 3.5% i.e. producing 25-30 TPD of concentrate at a 20-25 g/t Au, 2-4 Kg/t Ag and 22-24% Cu.  Prior to shut down the average cost per ton milled was approximately US $16/ton and about US $7/ton for freight treatment and refining charges from the smelter.   A new mining value cut off grade was determined to be around US $30/ton.  This followed a review of the historical production and financial figures.
 
 
21
 
 
The report concluded that the process plant can be brought back into operation in as little as three months contingent upon the availability of operators and mechanics for about US $1 million for an operating life of 5 to 10 years.  A more realistic schedule would be nine months to accommodate the time required to ready the mine for continuous production.  The operating life of 5 to 10 years refers to the operating life of the processing plant after the capital expenditures and not the operating life of the mine. The Company has not completed a feasibility study and this should not be perceived as a projection.
 
The report also concluded that the existing tailings pond is near capacity and that there is adequate space with reasonable gradients adjacent to the existing tailings to construct a new tailings area as well as space for a future heap leach operation on previously disturbed ground.  Order of magnitude cost estimate for this tailings facility is based on a starter dam and monitoring devices necessary for a ten year life is a little over US $2 million.
 
Total capital expenditure to achieve a 10 year operating plan is therefore estimated to be around US $3 million and a reasonable valuation of the property as an operating entity is US $40 million.  The valuation of US $40 million by Herb Osborne and Associates is the construction value for a new 1,000 TPD plant with new equipment and is not a value of the property as an operating entity.
 
In December 2006, the Company contracted Peter E. Walcott & Associates to carry out an 80 km line deep penetrating IP Survey at its Avino property in Mexico.  IP Geophysics will help identify drill targets for the upcoming years.  The IP Survey was completed in 2007. Once a final report has been received from Peter E. Walcott & Associates, Avino is planning to conduct follow-up soil geochemical, satellite imagery and other surveys to better define targets in the covered areas.
 
During January 2008, Avino released results of holes SG-07-32 through SG-07-40 at San Gonzalo and ET-07-01 through ET-07-10 on the ET zone of the main Avino Vein.
 
Further drill results at San Gonzalo SG-08-01, SG-08-02, SG-08-03 through SG-08-06 were released in September and November 2008.  A further eight holes ET-08-01 through ET-08-08 on the ET zone were also released in November 2008.
 
In addition, in 2008 Avino drilled seven holes on the Avino Mexicana structure, two at La Blanca, six holes at San Jose, and four at Santa Ana, of which two holes at Aquila Mexicana intersected significant mineralization.
 
Details of the drilling results conducted in the year ended December 31, 2008 are as follow:
 
SG-07-32                       (Bearing 215                                - Dip 70 - Length 390.2m)
 
Intersection 392.50 – 397.75m (5.25m), 0.49 g/t gold 54 g/t silver (0.01oz/t gold, 1.57oz/t silver).
 
Detailed intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
392.50
393.20
0.70
Hanging wall vein
2.1490
0.06
192.8
5.62
710
1484
1153
393.20
394.60
1.40
Strong silicif and quartz veining. San Gonzalo System
0.1230
0.004
24.1
0.70
176
393
1081
394.60
396.20
1.60
“
0.1400
0.004
7.7
0.22
59
148
522
396.20
397.75
1.55
San Gonzalo Vein System
0.4190
0.01
65.9
0.92
116
528
919
 
 
22
 
 
SG-07-33                      (Bearing 209 - Dip 45 - Length 130.60m)

Intersection 116.15 – 123.60m (7.45m), 0.69 g/t gold, 127.6 g/t silver (0.02 oz/t gold, 3.722 oz/t silver).
 
Detailed intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
116.15
117.15
1.00
San Gonzalo vein
0.283
0.01
264.3
7.71
361
8295
25100
117.15
118.40
1.25
San Gonzalo vein
0.337
0.01
205.5
5.99
659
7934
32900
118.40
119.55
1.15
San Gonzalo vein
0.934
0.03
90.4
2.64
475
10000
39300
119.55
120.50
0.95
San Gonzalo vein
0.168
0.005
76.1
2.22
193
2418
7965
120.50
121.85
1.35
San Gonzalo vein
1.996
0.06
126.8
3.70
878
31400
17400
121.85
122.70
0.85
San Gonzalo vein
0.378
0.01
60.8
1.77
954
17700
61800
122.70
123.60
0.90
San Gonzalo vein
0.115
0.003
33.8
0.99
192
1495
1573
 
Holes SG-07-34, 35 and 36 were drilled on the south west side of the San Gonzalo ore zone. They define the edge of the ore zone. They intersected only narrow low grade gold silver mineralization as follows:
 
SG-07-34                      (Bearing 215 - Dip 45 - Length 100m)
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
161.50
162.60
1.10
San Gonzalo vein
0.258
0.008
28.0
0.82
60
129
231
162.60
163.95
1.35
Silicif tuff
0.072
0.002
6.8
0.20
9
42
285
163.95
165.02
1.10
Quartz veining
0.050
0.001
7.0
0.20
26
43
220
165.05
166.20
1.15
Quartz veining
0.066
0.002
5.1
0.15
22
43
355
166.20
167.30
1.10
San Gonzalo vein
0.058
0.002
19.7
0.57
24
58
822
 
SG-07-35                      (Bearing 209 - Dip 45 - Length 272.15m)
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu ppm
Pb
ppm
Zn
ppm
195.40
196.05
0.65
San Gonzalo vein
2.254
  
>200
  
194
947
1397
 
 
23
 
 
SG-07-36                      (Bearing 215 - Dip 45 - Length 102.15m)
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
65.30
65.65
0.35
San Gonzalo vein
<0.005
0.000
6.0
0.17
13
60
520
78.05
78.80
0.75
Los Angeles vein
0.030
0.001
12.1
0.35
13
29
428
78.80
80.45
1.65
Silicif tuff
0.010
0.000
3.8
0.11
103
95
456
80.45
81.95
1.50
Los Angeles vein
0.105
0.003
19.5
0.57
73
144
281
 
SG-07-37                      (Bearing 219 - Dip 53 - Length 154.35m)
 
Intersection 145.45 – 147.55 (2.10mts), 0.16 g/t gold, 146 g/t silver (0.005 oz/t gold, 4.26 oz/t silver).
 
Detailed intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
145.45
146.55
1.10
San Gonzalo vein
0.210
0.006
220.7
6.44
104
698
2554
146.55
147.55
1.00
San Gonzalo vein
0.108
0.003
63.6
1.85
68
670
1257
 
SG-07-38                      (Bearing 221 - Dip 66.5 - Length 214.15m)
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
168.65
170.00
1.35
S Gonzalo Vein. Ox-milky wh qtz vein
0.716
0.021
88.2
2.57
231
1278
2217
 
SG-07-39                      (Bearing 220 - Dip 73 - Length 128.05m)
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
76.50
77.00
0.50
San Gonzalo vein
0.286
0.008
25.5
0.74
61
943
918
77.00
77.80
0.80
San Gonzalo vein
0.192
0.006
66.5
1.94
118
324
357
77.80
78.60
0.80
San Gonzalo vein
0.082
0.002
58.5
1.71
142
1001
1032
 
 
24
 
 
SG-07-40                      (Bearing 230 – Dip 74 – Length 516.05m)
 
Detailed intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
Pb
ppm
Zn
ppm
33.20
33.70
0.50
Santiago vein
5.966
0.174
2851.9
83.18
576
748
1558
255.65
256.75
1.10
Qtz veining w/chalcopyrite
0.030
0.001
212.6
6.20
6115
1386
2887
275.90
276.45
0.55
Quartz veinlet w/sulfides
0.059
0.002
390.0
11.37
978
17000
364
382.90
383.25
0.35
Quartz veinlet w/sulfides. Along core axe
1.926
0.056
208.7
6.09
331
270
307
500.25
501.65
1.40
San Gonzalo vein
0.075
0.002
14.1
0.41
71
263
833
501.65
502.45
0.80
San Gonzalo vein
0.015
0.000
3.1
0.09
25
49
81
 
ET-07-01                       (Bearing 001                                - Dip 69 - Length 298.6m)

Total Avino vein intersection: 216.35 – 293.65m (77.3m)
 
Significant intersection: 284.90 – 290.0m (5.1m), 0.055 g/t gold, 114 g/t silver (0.002oz/t gold, 3.32oz/ton silver), 8385 ppm copper.
 
Detailed intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
284.90
285.85
0.95
Avino vein. Silicified quartz with diss cpy-py-specularite
0.068
0.002
201.7
5.88
3149
285.85
286.80
0.95
Avino vein. Silicified quartz with diss cpy-py-specularite
0.025
0.001
35.4
1.03
969
286.80
287.00
0.20
Avino vein. Silicified quartz with diss cpy-py-specularite
0.226
0.007
808.8
23.59
100200
287.00
288.50
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite
0.045
0.001
27.3
0.80
2540
288.50
290.00
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite
0.052
0.002
101.6
2.96
10000
 
ET-07-02                      (Bearing 358 - Dip 75 - Length 311.9m)

Intersected Avino vein: 243.45 – 300.7m (57.25m)

No significant assays.
 
 
25
 
 
ET-07-03                      (Bearing 336 – Dip 71 – Length 349.5m)
 
Intersected Avino vein: 280.75 – 331.75m (51.0m)
 
Significant intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
280.75
282.25
1.50
Avino vein. Oxidized material
7.680
0.224
121.9
3.56
6048
282.25
283.75
1.50
Avino vein. Oxidized material
6.034
0.176
196.3
5.73
5034
283.75
285.25
1.50
Avino vein. Oxidized material
1.692
0.049
69.9
2.04
10400
285.25
286.75
1.50
Avino vein. Oxidized material
13.988
0.408
295.3
8.61
19600
286.75
288.25
1.50
Avino vein. Oxidized material
4.731
0.138
104.7
3.05
16100
288.25
289.75
1.50
Avino vein. Oxidized material
2.158
0.063
103.7
3.02
3948
289.75
291.25
1.50
Avino vein. Oxidized material
0.158
0.005
31.5
0.92
3789
291.25
292.75
1.50
Avino vein. Oxidized material
2.411
0.070
60.0
1.75
2683
292.75
294.25
1.50
Avino vein. Oxidized material
2.733
0.080
27.5
0.80
2793
294.25
295.75
1.50
Avino vein. Oxidized material
0.548
0.016
89.6
2.61
7268
295.75
297.25
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite.
3.086
0.090
161.8
4.72
5934
297.25
298.75
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite.
7.954
0.232
75.7
2.21
1476
298.75
300.25
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite.
2.265
0.066
97.0
2.83
10500
300.25
301.75
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite.
1.057
0.031
60.4
1.76
1486
301.75
303.25
1.50
Avino vein. Silicified quartz with diss cpy-py-specularite.
1.911
0.056
42.0
1.22
3258

ET-07-04                      (Bearing 331 – Dip 56 – Length 318.7m)

Intersected Avino vein: 271.45 – 304.45m (33.0m)
 
Significant intersections:
 
From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
271.45
272.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.155
0.005
44.1
1.29
3618
272.95
274.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.397
0.012
106.1
3.09
2842
274.45
275.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
1.080
0.031
76.1
2.22
3862
275.95
277.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
1.314
0.038
126.9
3.70
4010
277.45
278.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.874
0.025
53.0
1.55
381
278.95
280.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.534
0.016
61.4
1.79
675
280.45
281.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.436
0.013
97.3
2.84
2649
287.95
289.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.250
0.007
63.5
1.85
7555
289.45
290.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.101
0.003
31.4
0.92
5156
290.95
292.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
1.115
0.033
138.6
4.04
3558
292.45
293.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.151
0.004
86.3
2.52
4162
293.95
295.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.161
0.005
34.9
1.02
3521
295.45
296.95
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.568
0.017
41.6
1.21
5047
296.95
298.45
1.50
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.115
0.003
29.1
0.85
10000
298.45
300.10
1.65
Avino vein. Wh qtz veining w/ fine grain diss cpy-py
0.080
0.002
29.8
0.87
8408

 
26
 
ET-07-05                      (Bearing 333 – Dip 66 – Length 351.5m)

Intersected Avino vein: 292.75 – 342.45m (49.7m)

Significant intersections:

From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
301.95
303.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
1.152
0.034
83.0
2.42
1971
303.45
304.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
1.483
0.043
26.7
0.78
683
304.95
306.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
2.119
0.062
36.9
1.08
2030
312.45
312.95
0.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
1.752
0.051
10.7
0.31
533
312.95
315.45
2.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
1.015
0.030
119.7
3.49
1268
315.45
316.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.195
0.006
204.2
5.96
8565
316.95
318.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.075
0.002
123.6
3.60
2212
319.95
321.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.155
0.005
86.2
2.51
20300
321.45
322.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.120
0.003
30.4
0.89
13000
322.95
324.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.115
0.003
45.2
1.32
15400
324.45
325.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.075
0.002
40.2
1.17
18400
325.95
327.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.070
0.002
27.5
0.80
10200
327.45
328.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.050
0.001
48.1
1.40
17500
328.95
330.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.053
0.002
38.2
1.11
16700
330.45
331.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.095
0.003
61.9
1.81
20200
331.95
333.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.144
0.004
75.2
2.19
18900
333.45
334.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.130
0.004
45.7
1.33
15800
337.95
339.45
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.328
0.010
69.0
2.01
12200
339.45
340.95
1.50
Avino vein. Wh qtz stkwk-veining w/diss f.g. cpy+py+spec
0.236
0.007
41.0
1.20
12200
 
ET-07-06                      (Bearing 336 – Dip 55 – Length 320.05m)

Intersected Avino vein: 289.00 – 309.6m (19.6m)

Significant intersections:

From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
289.00
290.50
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.950
0.028
228.9
6.68
23200
298.00
299.50
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.165
0.005
72.3
2.11
14800
299.50
301.00
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.485
0.014
54.6
1.59
8401
301.00
302.50
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.090
0.003
40.8
1.19
11500
302.50
304.00
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.147
0.004
55.6
1.62
14400
304.00
305.50
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.093
0.003
55.8
1.63
8321
305.50
307.00
1.50
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
1.590
0.046
90.4
2.64
15100
307.00
308.60
1.60
Avino vein. Wh qtz stockwork veining textures w’diss py-cpy
0.150
0.004
73.8
2.15
8729
308.60
310.10
1.50
Intrusive rock. Wh qtz veining w/cpy
0.040
0.001
54.6
1.59
5962
310.10
311.60
1.50
Intrusive rock. Wh qtz veining w/cpy
0.075
0.002
98.0
2.86
6217
311.60
313.10
1.50
Intrusive rock. Wh qtz veining w/cpy
0.075
0.002
81.9
2.39
10800
313.10
314.60
1.50
Intrusive rock. Wh qtz veining w/cpy
0.040
0.001
97.9
2.86
7765

 
27
 
 
ET-07-07                      (Bearing 330 – Dip 59 – Length 304.85m)

Intersected Avino vein: 272.30 – 295.15m (22.85m), 0.11 g/t gold, 115 g/t silver (0.003 oz/t gold 3.35 oz/t silver), 13810 ppm copper

Significant intersections:

From
To
Metres
Description
Au
g/t
Au
oz/t
Ag
g/t
Ag
oz/t
Cu
ppm
272.30
273.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.615
0.018
80.6
2.35
2199
273.80
275.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.148
0.004
160.9
4.69
20500
275.30
276.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.118
0.003
203.5
5.94
19700
276.80
278.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.280
0.008
172.8
5.04
17800
278.30
279.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.368
0.011
441.4
12.87
24600
279.80
281.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.220
0.006
327.0
9.54
12600
281.30
282.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.081
0.002
110.8
3.23
3002
282.80
284.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.065
0.002
184.6
5.38
3317
284.30
285.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.070
0.002
89.2
2.60
8786
285.80
287.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.070
0.002
209.3
6.10
54400
287.30
288.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.035
0.001
32.8
0.96
13200
288.80
290.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.047
0.001
76.1
2.22
29300
290.30
291.80
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.126
0.004
339.7
9.91
44300
291.80
293.30
1.50
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.060
0.002
20.8
0.61
6361
293.30
295.15
1.85
Avino vein. Wh qtz veining w/moderate diss cpy and strong py.
0.202
0.006
166.9
4.87
55500

ET-07-08                      (Bearing 346 – Dip 69 – Length 399.7m)

Intersected Avino vein: 346.65 – 366.7m (20.05m)

Significant intersections:

From
To
Metres
Description
Au
g/t
Au oz/t
Ag
g/t
Ag oz/t
Cu ppm
355.85
357.35
1.50
Avino vein. Moderate diss cpy-py
0.111
0.003
257.5
7.51
6959
357.35
359.15
1.80
Avino vein. Moderate diss cpy-py
0.125
0.004
170.0
4.96
9341

ET-07-09                      (Bearing 336 – Dip 62 – Length 328.6m)

Intersected Avino vein: 272.80 – 319.10m (46.3m)

Significant intersections:

From
To
Metres
Description
Au
g/t
Au oz/t
Ag
g/t
Ag oz/t
Cu ppm
290.80
292.30
1.50
Avino vein with massive chalcopyrite
0.040
0.001
101.9
2.97
12100
292.30
293.80
1.50
Avino vein with massive chalcopyrite
0.160
0.005
23.7
0.69
11500
295.30
296.80
1.50
Avino vein with massive chalcopyrite
0.146
0.004
32.3
0.94
11200
299.80
301.30
1.50
Avino vein with massive chalcopyrite
0.070
0.002
51.2
1.49
6327
301.30
302.80
1.50
Avino vein with massive chalcopyrite
0.360
0.010
40.4
1.18
14600
302.80
304.30
1.50
Avino vein with massive chalcopyrite
0.015
0.000
18.1
0.53
8029
304.30
305.80
1.50
Avino vein with massive chalcopyrite
0.020
0.001
28.2
0.82
8475


 
28
 
ET-07-10                      (Bearing 336 – Dip 63 – Length 308.7m)

Intersected Avino vein: 243.80 – 299.10m (55.3m)

Significant intersections:

From
To
Metres
Description
Au g/t
Au oz/t
Ag g/t
Ag
oz/t
Cu ppm
257.30
258.80
1.50
Avino quartz vein with sulphides
0.160
0.005
85.3
2.49
15700
258.80
260.30
1.50
Avino quartz vein with sulphides
0.080
0.002
86.6
2.53
23400
260.30
261.80
1.50
Avino quartz vein with sulphides
0.125
0.004
27.7
0.81
14100
261.80
263.30
1.50
Avino quartz vein with sulphides
0.101
0.003
21.8
0.64
15400
263.30
264.80
1.50
Avino quartz vein with sulphides
0.098
0.003
20.3
0.59
13500
266.30
267.80
1.50
Avino quartz vein with sulphides
0.574
0.017
43.4
1.27
6613
267.80
269.30
1.50
Avino quartz vein with sulphides
0.457
0.013
39.8
1.16
4211
269.30
270.80
1.50
Avino quartz vein with sulphides
0.089
0.003
19.3
0.56
15200
282.80
284.30
1.50
Avino quartz vein with sulphides
0.020
0.001
9.3
0.27
16000
284.30
285.80
1.50
Avino quartz vein with sulphides
0.010
0.000
10.2
0.30
19300
285.80
287.30
1.50
Avino quartz vein with sulphides
0.035
0.001
27.0
0.79
31600
287.30
288.80
1.50
Avino quartz vein with sulphides
0.070
0.002
37.4
1.09
21500
288.80
290.30
1.50
Avino quartz vein with sulphides
0.049
0.001
27.1
0.79
34200
290.30
291.80
1.50
Avino quartz vein with sulphides
0.065
0.002
51.3
1.50
72600
291.80
293.30
1.50
Avino quartz vein with sulphides
0.020
0.001
14.8
0.43
33300
293.30
294.80
1.50
Avino quartz vein with sulphides
0.335
0.010
28.8
0.84
15000
294.80
295.80
1.00
Avino quartz vein with sulphides
0.035
0.001
23.2
0.68
17200
295.80
297.30
1.50
Avino quartz vein with sulphides
1.310
0.038
37.9
1.11
16100
297.30
299.10
1.80
Avino quartz vein with sulphides
0.510
0.015
51.5
1.50
7570

 
29
 
Hole SG-08-01 on the San Gonzalo vein intersected a 2.75-metre zone 1.13 g/t gold and 155 g/t silver of gold and silver mineralization with the following values:

SG-08-01
From
(m)
To
(m)
Length
(m)
Au
(g/t)
Ag
(g/t)
Cu
(ppm)
Pb
(ppm)
Zn
(ppm)
143.05
144.40
1.35
1.330
168.6
309
530
3598
144.40
145.80
1.40
0.930
142.1
131
560
1540
 
Hole SG-08-02 intersected two zones of mineralization. The first zone, located above the San Gonzalo vein in the hanging wall, measured 1.60 metres grading 1.72 g/t gold and 704 g/t silver. The second zone, located within the vein, measured 3.0 metres grading 10.28 g/t gold and 545 g/t silver. Intersection and grade details were as follows:

SG-08-02        
From
(m)
To
(m)
Length
(m)
Au
(g/t)
Ag
(g/t)
Cu
(ppm)
Pb
(ppm)
Zn
(ppm)
257.50
258.05
.55
.420
150.2
318
2832
5393
258.05
258.70
.65
3.840
1564.4
264
13100
13900
258.70
259.10
.40
0.075
68.1
79
266
502
               
263.05
263.75
.70
10.765
1275.6
7394
106000
146000
263.75
263.95
.20
0.115
62.3
364
4916
31000
263.95
264.70
.75
2.606
587.4
4327
76200
200000
264.70
265.30
.60
7.337
224.1
2363
146000
355000
264.30
266.05
.75
22.560
204.2
917
80000
126000
 
SG-08-02 was drilled to explore a gap between previous holes SG-07-14 (5.40 m @ 1.52 g/t gold  and 774 g/t silver) and hole SG-07-22 (2.26 m. @ 1.497 g/t gold 152g/t silver).

Aguila Mexicana:  Seven holes – AM-08-01 thru 07
Hole AM-08-02 intersected 5.05 metres @ 0.49 g/t gold 75.38 g/t silver.

AM-08-02 Details
From
(m)
To
(m)
Length
(m)
Au
(g/t)
Ag
(g/t)
Cu
(ppm)
Pb
(ppm)
Zn
(ppm)
195.05
195.90
.85
.221
189.4
155
238
438
195.90
196.80
.90
.100
19.1
139
155
384
196.80
197.90
1.10
.245
82,6
738
14400
34000
197.90
199.10
1.20
.905
42.1
467
13800
46500
199.10
200.10
1.00
1.046
77.1
1552
3977
  

 
30
 
 
Hole AM-08-04 intersected  3.30 metres grading 0.34 g/t gold and 151 g/t silver.

AM-08-04 Details:
From
(m)
To
(m)
Length
(m)
Au
(g/t)
Ag
(g/t)
Cu
(ppm)
Pb
(ppm)
Zn
(ppm)
205.10
206.15
1.05
0.309
85.4
1092
4672
4835
206.15
207.15
1.00
0.259
132.7
3278
6780
1116
207.15
207.80
.65
0.600
277.4
1017
1979
1020
207.80
208.40
.60
0.243
159.4
693
786
693
 
AM-08-02 AND AM-08-04 generated the first good drill values from the Aguila Mexicana zone, and they represent viable targets for future exploration.

Hole SG-08-03 intersected San Gonzalo vein 322.20-325.7m (3.7m) 0.41 g/t gold 119 g/t silver which includes 322.00-323.70 m (1.7m) 0.2 g/t gold 74.7 g/t silver and 323.70 – 325.7m (2.0m) 0.58 g/t gold 156 g/t silver.

Detailed intersections:
 
From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
321.40
322.00
0.60
Andesite volcanic with quartz veins
0.016
1.6
33
126
423
322.00
322.85
0.65
0.215
74.1
409
11500
2725
322.85
323.70
0.85
0.195
75.2
389
2665
3405
323.70
324.10
0.40
0.109
221.0
3668
65000
3569
324.10
324.90
0.80
San Gonzalo vein with quartz brecci
0.925
55.0
264
6449
3610
324.90
325.70
0.80
0.457
223.5
729
15500
4012
325.70
327.00
1.30
0.288
31.8
483
2241
2408
 
 
31
 
 
Hole SG-08-04 intersected San Gonzalo vein 261.25-264.6m (3.35m) 0.5 g/t gold 59 g/t silver.

Detailed intersections as follows:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
261.25
261.75
0.50
San Gonzalo Vein
0.802
81.0
145
754
1251
261.75
262.75
1.00
0.331
61.4
234
1014
2002
262.75
263.15
0.40
0.040
11.2
39
109
353
263.15
263.70
0.55
0.990
85.0
119
396
794
263.70
264.60
0.90
0.424
49.7
208
440
702

Hole SG-08-05 did not intersect the San Gonzalo vein but hit a breccia zone which may be part
of the vein system. Values were low:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
437.75
438.50
0.75
Breccia Zone
0.030
0.1
5
33
32
438.50
438.90
0.40
<0.005
<0.1
6
22
76
438.90
439.55
0.65
0.015
<0.1
7
18
65
439.55
440.35
0.80
0.010
<0.1
8
14
30

Hole SG-08-06 intersected San Gonzalo 214.05 – 219.70m (5.65m) 0.88 g/t gold, 235 g/t silver.

Details as follows:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
214.05
214.85
0.80
 
San Gonzalo vein with Sulphide Minerals
0.729
204.0
2944
21400
17600
214.85
215.95
1.10
0.523
95.0
1189
5264
6417
215.95
216.80
0.65
0.335
47.5
398
1486
2918
216.80
218.00
1.20
0.360
87.3
1960
5342
7772
218.00
218.85
0.85
3.228
758.9
3731
18500
19000
218.85
219.70
0.85
0.402
316.1
7094
17500
14800
 
 
32
 

 Hole ET-08-01 drilled on the eastern side of the ET shoot below level 9. The hole intersected the Avino vein but gold and silver values are low.

Avino vein 196.90 – 213.40m (16.5m).
 
Details:
From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
196.90
198.40
1.50
Avino Vein
0.322
3.6
259
149
719
198.40
199.90
1.50
0.020
7.8
97
68
554
199.90
201.40
1.50
0.054
5.2
331
180
665
201.40
202.90
1.50
<0.005
2.4
306
45
2079
202.90
204.40
1.50
0.090
1.6
271
54
5950
204.40
205.90
1.50
0.005
0.6
456
25
2784
205.90
207.40
1.50
<0.005
0.8
168
16
4381
207.40
208.90
1.50
<0.005
0.8
229
18
2361
208.90
210.40
1.50
0.040
1.3
178
34
3494
210.40
211.90
1.50
0.015
0.3
320
23
2502
211.90
213.40
1.50
0.005
3.0
621
29
3957

Hole ET-08-02 drilled on west side of ET shoot 50 m west of workings on level 10.

The hole intersected gold values in the hanging wall of the main Avino vein, 189.75 – 194.25m (4.50m) 2.66 g/t gold 19.7 g/t silver. The overall vein was intersected 189.75 – 213.50m (23.75m).

Detailed values as follows:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
189.75
191.25
1.50
Avino Vein
2.635
19.4
692
724
817
191.25
192.75
1.50
3.225
12.0
113
95
612
192.75
194.25
1.50
2.080
27.7
224
125
595
194.25
195.75
1.50
<0.005
40.5
1734
454
847
195.75
197.25
1.50
<0.005
3.4
28
184
1074
197.25
198.75
1.50
<0.005
4.0
42
168
690
198.75
200.25
1.50
<0.005
4.9
201
352
1042
200.25
201.75
1.50
<0.005
10.6
276
162
670
201.75
203.25
1.50
0.035
20.3
68
320
1091
203.25
204.75
1.50
<0.005
12.7
228
413
871
204.75
206.25
1.50
<0.005
32.2
751
317
530
206.25
207.75
1.50
<0.005
8.5
1200
83
410
207.75
209.25
1.50
<0.005
10.3
957
134
660
209.25
210.75
1.50
<0.005
25.5
1180
185
522
210.75
212.25
1.50
<0.005
22.9
2220
423
3806
212.25
213.50
1.25
<0.005
36.9
400
473
2021

Hole ET-08-03 Also drilled on the west side of ET workings approximately 50m beyond end of level 11 ½. Intersected a mineralized breccia in the hanging wall rock 80.40 – 84.50m (4.1m) 3.82 g/t gold, 103 g/t silver. The main vein was intersected 214.55 – 257.85m (43.3m) 0.52 g/t gold, 43 g/t silver.
Detailed intersections as follows:

 
33
 

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
79.75
80.40
0.65
Breccia Zone
0.020
14.7
409
40
2080
80.40
81.90
1.50
1.396
48.0
2641
148
435
81.90
83.20
1.30
6.720
174.4
2456
327
21
83.20
84.50
1.30
3.703
96.4
1815
818
94
214.55
216.05
1.50
Main Avino Vein
0.135
21.2
315
241
217
216.05
217.55
1.50
0.109
40.6
257
618
318
217.55
219.05
1.50
3.017
113.2
5264
177
123
219.05
220.55
1.50
0.096
7.9
1528
298
330
220.55
222.05
1.50
0.025
8.8
405
253
275
222.05
223.66
1.50
0.128
11.9
520
687
391
223.56
225.05
1.50
0.049
9.6
1592
5318
570
225.05
226.55
1.50
0.105
8.4
631
331
750
226.55
228.05
1.50
0.084
21.1
432
167
487
226.05
229.55
1.50
0.100
21.7
517
1910
584
229.55
231.05
1.50
0.723
82.3
484
4282
3006
231.05
232.55
1.50
1.310
94.9
3753
565
674
 
From
(m)
 
To
(m)
 
Length
(m)
 
Description
 
g/t
 
ppm
Au
Ag
Cu
Pb
Zn
232.55
234.05
1.50
Main Avino Vein
1.890
58.4
574
474
619
234.05
235.55
1.50
1.658
69.1
1117
412
687
235.55
237.05
1.50
2.756
53.0
2590
396
711
237.05
238.55
1.50
1.065
28.7
1816
280
410
238.55
240.05
1.50
0.219
66.5
1263
916
416
240.05
241.55
1.50
0.185
45.3
369
191
424
241.55
243.05
1.50
0.167
42.0
1220
482
438
243.05
244.55
1.50
0.382
48.1
8097
525
2111
244.55
246.05
1.50
0.648
60.7
1638
766
716
246.05
247.55
1.50
0.506
49.7
1311
549
415
247.55
249.05
1.50
0.125
39.7
1343
911
475
249.05
250.55
1.50
0.160
78.1
3430
790
737
250.55
252.05
1.50
0.135
92.9
3617
551
506
252.05
253.55
1.50
0.130
44.4
5739
351
603
253.55
255.05
1.50
0.070
42.6
3395
796
357
255.05
256.55
1.50
0.045
30.0
2971
365
374
256.55
257.85
1.30
0.025
31.4
5772
1510
686

Hole ET-08-04 Hit the Avino vein 75m below the lowest working level 12 of the mine, it intersected the Avino vein from 321.00 - 341.10m (20.1m) which includes 327.00 – 330.00m 3m 1.17 g/t gold, 133 g/t silver.

337.50 – 341.10m (3.6m) 0.04 g/t gold, 128 g/t silver and 327.00 – 341.10m (14.1m) 81 g/t silver, 0.726 copper.
 
 
34
 
 
Detailed intersections:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
321.00
322.50
1.50
Main Avino Vein
0.501
34.2
2378
264
426
322.50
324.00
1.50
1.146
71.0
3147
421
496
324.00
325.50
1.50
0.904
55.2
4652
230
288
325.50
327.00
1.50
0.262
54.9
1395
230
236
327.00
328.50
1.50
2.174
165.0
8408
509
286
328.50
330.00
1.50
0.173
101.9
7194
8582
3727
330.00
331.50
1.50
0.053
56.0
4926
5923
18300
331.50
333.00
1.50
0.095
54.9
4081
2559
561
333.00
334.50
1.50
0.080
23.1
1089
1199
301
334.50
336.00
1.50
0.052
56.6
11000
536
597
336.00
337.50
1.50
0.030
49.7
10900
170
618
337.50
339.00
1.50
0.032
156.6
14700
395
853
339.00
340.00
1.00
0.025
48.4
6149
174
595
340.00
341.10
1.10
0.064
161.8
8252
2170
1765
 
Hole ET-08-05 Drilled approximately 80m east of hole ET-08-04 intersected the Avino vein 293.35 – 302.70 (9.35m). It is well off the ET shoot and did not intersect significant gold or silver values but copper values are of interest:

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
290.95
292.30
1.35
Main Avino Vein
0.172
16.7
533
3964
643
292.30
293.35
1.05
0.096
0.5
581
5078
2842
293.35
294.85
1.50
0.379
30.8
2116
8000
559
294.85
296.35
1.50
0.050
12.3
2654
7063
582
296.35
297.60
1.25
0.568
67.3
3564
3688
164
297.60
299.10
1.50
0.062
42.4
5360
1771
688
299.10
300.60
1.50
0.020
31.8
14900
896
3473
300.60
301.70
1.10
0.060
34.4
11300
282
1743
301.70
302.70
1.00
0.130
44.2
10000
469
1265

Hole ET-08-06 Intersects the Avino vein 60m east of final working face on level 11 ½. The Avino vein is wide: 237.60 – 288.70m (51.10m) but gold and silver values are low although some high copper grades were intersected on the foot wall side of the vein:
 
 
35
 

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
237.60
238.25
0.65
Main Avino Vein
0.140
74.2
3526
7260
909
238.25
239.75
1.50
0.065
22.4
2260
344
383
239.75
241.25
1.50
0.020
8.7
883
43
528
241.25
242.75
1.50
0.115
10.1
2249
374
1981
242.75
244.25
1.50
0.045
8.7
2641
40
631
244.25
245.75
1.50
0.105
14.4
3472
87
651
245.75
247.25
1.50
0.072
17.1
4780
41
876
247.25
248.75
1.50
0.053
20.5
6107
100
950
248.75
250.25
1.50
0.100
11.0
4619
191
1044
250.25
251.75
1.50
 0.120 10.4
4869
282
784
251.75
253.25
1.50
0.035
4.0
1261
45
662
253.25
254.75
1.50
0.163
14.9
2553
78
835
254.75
256.25
1.50
0.045
25.4
6483
95
734
256.25
257.75
1.70
0.015
12.0
5544
40
871
257.75
259.25
1.50
0.025
39.8
5758
217
521
259.25
260.75
1.50
0.025
20.6
6136
89
465
260.75
262.25
1.50
0.015
10.5
3202
74
327
262.25
263.75
1.50
0.059
24.0
3670
105
533
 
 
36
 
 
263.75
265.25
1.50
   Main Avino Vein 
0.049
28.7
3252
183
718
265.25
266.75
1.50
0.053
14.2
6129
112
584
266.75
268.25
1.50
0.156
47.3
7192
217
399
268.25
269.75
1.50
0.102
19.8
3342
125
326
269.75
271.25
1.50
0.030
9.1
4101
38
414
271.25
272.75
1.50
0.010
9.3
2611
94
455
272.75
274.25
1.50
0.020
7.9
3355
41
391
274.25
275.75
1.50
0.020
16.5
4405
58
496
275.75
277.25
1.50
0.076
82.7
4570
422
979
277.25
278.75
1.50
0.084
58.4
5545
956
593
278.75
280.25
1.50
0.010
16.6
5749
74
659
280.25
281.75
1.50
0.020
18.7
4592
68
575
281.75
283.25
1.50
0.015
16.1
4219
74
651
283.25
284.75
1.50
0.038
23.6
3526
7260
909
284.75
286.25
1.50
 
  Main Avino Vein 
<0.005
6.7
2841
22
1225
286.25
287.75
1.50
0.092
49.4
25700
44
2712
287.75
288.70
0.95
0.105
62.5
27200
57
2669

Hole ET-08-08 Drilled approximately 100m east of the ET-08-01 it intersected the main Avino vein 192.95 – 203.25m (10.3m) but gold and silver values were generally low:
 
 
37
 

From
(m)
To
(m)
Length
(m)
Description
g/t
ppm
Au
Ag
Cu
Pb
Zn
192.95
194.45
1.50
Main Avino Vein
1.456
4.6
318
57
508
194.45
195.95
1.50
0.431
4.4
329
256
502
195.95
197.10
1.15
0.325
13.5
1523
2446
3813
197.10
198.60
1.50
0.100
2.5
133
355
1688
198.60
199.70
1.10
0.048
4.4
101
36
1206
199.70
200.80
1.10
0.046
5.7
69
72
896
200.80
201.75
0.95
0.203
27.2
120
301
627
201.75
203.25
1.50
0.030
6.5
431
43
1048
 
Proposed Work Program.  As a result of the numerous ore-grade intersections encountered at San Gonzalo, a NI 43-101-compliant resource calculation is underway for this zone. The Company retained David Gunning, P. Eng., a Qualified Person under NI 43-101, to review all results. The Company also plans to extract and process a 10,000-tonne bulk sample from San Gonzalo. This program will provide concentrate for testing at various smelters. In preparation for the sampling, the Company has recommissioned a 250-tonne circuit at the mill to facilitate the processing of lead-silver ore from San Gonzalo.

In 2009, the main focus of the Company was to conduct a bulk sampling program to firm up the grade and the metallurgy of the newly discovered San Gonzalo deposit. The sampling program will also provide the needed concentrate material for further evaluation by the various smelters and trading companies and for on-site processing if deemed feasible.

Applications for permits to the various regulatory agencies were submitted early in the year and the permits were granted within 8 to 12 weeks after the applications were filed. After obtaining the permits, the Company was in a position to proceed with its operating plan for the bulk sampling program. The capital cost of the program was finalized and the expenditure was approved. While this was ongoing, the Company continued holding discussions with various concentrate buyers.
 
 
38
 

During the year, the Company provided progress reports and updates and by April, 2010 reported significant progress towards its goal of beginning a 10,000 tonne bulk sample to facilitate a production decision regarding San Gonzalo.  Plant refurbishing is nearly complete and management expects to begin processing stockpiled ore for commissioning and testing purposes during the second quarter of 2010. Construction of the surface infrastructure and underground development are ongoing, and the Company expects to treat the 10,000 tonne San Gonzalo bulk sample after the stockpiled ore test has been completed.

A major portion of the work and investment in 2009 centered on improving and upgrading the existing mine and equipment.  The Company is committed to making the facility modern and efficient for use in production well beyond the bulk sampling phase.

Eagle Property


Ownership.  The Eagle property is wholly owned by the Company and was acquired in 2003 when it acquired its 100% interest in 14 quartz leases by issuing 200,000 common shares at a price of $0.50 per share for total consideration of $100,000. The property was written down to a nominal value of $1 in fiscal 2006 by a charge to operations of $103,242.
 
Property Description and Location.  This property is located in the Yukon Territory approximately eight kilometers west of Keno City.  The property covers approximately 516 hectares.  It is currently in its Phase I stage of exploration.  The property is accessed by road.  Whitehorse, the nearest major city, is approximately 380 kilometres to the south of the village of Mayo.  The village of Mayo is 60 kilometers to the southeast of Keno City.  The Eagle property lies on the south-east facing slope of Galena Hill where the elevations range from about 1350 to 1540 m.  Permafrost, while thin to non-existent in places, is reported to be found under accumulations of surface rubble left from glaciation.
 
History.  The Eagle property has produced positive assays for silver since exploration first occurred there in 1964.  The initial drill program, consisting of 29 holes, encountered assays of 6,900 grams per tonne of silver over 1.2 metres in hole #23 and 1,708 grams per tonne of silver over 2.1 metres in hole JB1.  Follow-up drilling in 1978 was designed to expand on the discoveries of hole #23.  This discovery became known as the Eagle vein.  The Eagle property is part of the historic Keno Hill mining camp.
 
The Eagle Property includes historic surface trenches that expose a section of the Eagle vein, a strong transverse vein-fault hosted in Keno Hill Quartzite. The Eagle vein varies from 0.6 to 4.9 metres wide with mineralized lenses of galena, tetrahedrite and sphalerite. Yukon Government files report that a total of 33 holes totalling 3,075.5 metres have been drilled along 300 metres of vein strike on the property in two programs (1964 and 1978/79). The best intercepts are reported in the following table.
 
 
39
 
 
EAGLE VEIN – HISTORIC REPORTED DRILLING (YTG MinFile 105M 021)
 
Year
Operator
Reported Structure
Reported Intercept
(m)
Silver g/t
Lead %
Zinc %
1964
Jersey Yukon Mines Ltd.
Branch Vein
2.1
1,885.7
12.8
4.2
   
Main Vein (parallel intercepts)
0.15
7,624.9
1.2
  
     
0.4
682.3
11.6
  
1978/79
Teck Corporation
Main Vein (DDH JB3)
1.5
366.6
5.4
6.8

Soil sampling conducted in 1971 by United Keno Hill Mines Ltd. outlined a strong 300 metre long Pb-Ag anomaly across the southern boundary of Mega Silver Inc.’s (“Mega Silver”, now known as “Mega Precious Metals”) adjoining Man claim that apparently represents the untested northeast extension of the Eagle vein.
 
On November 12, 2008 and amended April 1, 2009, the Company entered into an option agreement (the “Option Agreement”) with Mega Silver, whereby Mega Silver can earn the exclusive right and option to acquire a 100% title and interest in the Eagle Property located in the Yukon Territory. In October 2009, Mega Silver returned the Eagle property to the Company due to a change in its corporate exploration objective.

During 2008, the Company received $25,000 upon execution of the Option Agreement which was recorded in income.
 
During 2009, Mega Silver completed six NTW diamond drill holes on the Eagle property totalling 1,897.1 metres. The work program was successful in indentifying strong silver-gold-indium enriched zinc and lead mineralization hosted in the Eagle vein fault, a known and proven host of significant intercepts of Pb-Zn-Ag mineralization, including a reported 7,624.9 g/t Ag, 1.2% Pb and 1.5% Zn over 0.15metres (hole E64-23). The work has also established that indium, used in plasma screens, is present in significant concentrations in the sphalerite enriched Eagle vein.
 
Hole D09EE-02 intersected three vein structures within a 23.7m wide zone assaying 47.1 g/t Ag, 0.38 % Pb, 3.85% Zn and 37.7 g/t In, and includes the upper vein which assayed 0.3g/t Au, 284.3 g/t Ag, 3.16% Pb, 7.11% Zn and 57.9 g/t In. In addition, hole D09EE-01 intercepted possible replacement-style disseminated arsenopyrite and pyrite mineralization that assayed 1.26 g/t Au over 1.5m (351.0-352.5m), indicating a possible new gold exploration target in the camp similar to the skarns of the Newry (Aurex) gold prospect roughly 13 km to the west-southwest.
 
EAGLE PROPERTY - DIAMOND DRILL RESULTS SUMMARY
 
Hole Number
Intercept
Analytical Results*
Target
Drill Section
From
(m)
To
(m)
Width (m)
Au
(ppb)
Ag
(g/t)
Pb
(ppm)
Zn
(ppm)
In
(g/t)
D09EE-01
Eagle Vein
L40+00E
  
328.6
332.7
4.1
16
15.1
554
1.16%
11.3
 
346.3
352.5
6.2
425
12.2
489
1.86%
22.9
Incl.
351.0
352.5
1.5
1263
15.7
138
797
0.1
D09EE-02
Eagle Vein
L40+00E
  
272.9
296.6
23.7
60
47.1
3750
3.85%
37.1
Incl.
272.9
274.2
1.3
312
284.3
3.16%
7.11%
57.9
Incl.
283.7
284.8
1.1
222
110.8
1.90%
12.01%
89.4
Incl.
288.3
296.0
7.7
46
20.9
1008
4.89%
65.8
D09EE-03
Eagle / McLeod
L33+50E
  
267.7
268.4
0.7
8
29.4
3120
5262
n/a
D09EE-04
McLeod Fault
n/a
  
-
-
-
No significant results.
D09EE-10
Eagle Vein
L39+00E
  
305.1
305.9
0.8
160
28.1
0.35%
3.23%
n/a
D09EE-11
Eagle Vein
L42+00E
  
232.7
241.1
8.4
181
10.3
668
1.09%
n/a
Incl.
232.7
234.1
1.4
934
18.6
482
2.53%
n/a
 
244.5
265.5
19.0
58
29.1
2805
2.79%
n/a
Incl.
252.5
254.5
2.0
112
145.0
1.03%
3.17%
20.3
And
262.8
264.6
1.8
230
31.9
626
18.52%
285.4

* Analytical results reported in ppb (Au) and ppm (Pb, Zn) and g/t (In) unless otherwise indicated.

 
40
 
 
Proposed Work Program.  The 2009 work program identified strong results which warrant further exploration; the Company is currently evaluating other possibilities.

Aumax Property

 
Ownership.  The Aumax Property is wholly owned by the Company.  In 2003, the Company acquired a 100% interest in six Crown granted mineral claims, located in the Lillooet Mining Division of British Columbia, Canada by issuing 200,000 common shares at a price of $0.50 per share and paying $4,000 in cash for total consideration of $104,000. During the fiscal year ended January 31, 2007, these mineral claims were converted into one claim encompassing all of the original claims. During the fiscal year ended December 31, 2009, the Company wrote down the value of these exploration costs to a nominal value of $1 by an impairment charge to operations of $187,852.
 
Property Description and Location.  The property is located in southern British Columbia approximately 16 kilometers southwest of the town of Lillooet.  The property can be accessed from Lillooet by a logging road.  The upper zone of the Aumax property can be accessed by hiking a further 1.5 km to the southwest.  The property covers approximately 975 hectares and is located between Cayoosh Creek and Phair Creek.  The showings were discovered in 1999.  The showings have economically interesting gold and silver values.
 
History.  Cayoosh Creek has a history of limited placer gold production starting in the 1860’s.  Some of this production occurred immediately downstream of the property, near the mouth of Downtown Creek.
 
A limited exploration program of prospecting, rock and soil sampling and mechanized trenching was carried out in October of 1999.  Trenching on the Aumax showing was inconclusive.  Many highly anomalous quartz-carbonate boulders were excavated but bedrock was not reached in critical areas.  Chip samples of veins exposed in the trenches were highly anomalous, generally in the hundreds of parts per billion gold.  Further prospecting and soil sampling of the southeast (upslope) of the Aumax showing was recommended.
 
Limited soil sampling and prospecting in 1999 on the Upper Zone returned extremely anomalous soil samples.  A grid geochemical sampling and further prospecting in this area was recommended.
 
The Company has placed a reclamation bond of $1,500 at December 31, 2009 (December 31, 2008:$1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.
 
Proposed Work Program.  Geological studies conducted late in 2002 concluded that the discoveries to date lie downslope of the mineral source.  A subsequent report in November 2004 recommended a Phase 1 program of more prospecting, geological mapping and additional soil sampling to determine the source of the mineralization.  Based on the results of this program, Phase 2 exploration would include trenching and possible diamond drilling but to date, no work program has been proposed.

Olympic-Kelvin Property
 
Ownership.  The Olympic-Kelvin property is wholly owned by the Company and was acquired in 1987 when it acquired a 100% interest in 20 reverted Crown granted mineral claims, one located mineral claim and three fractions located in the Lillooet Mining Division of British Columbia. The property was written down entirely in fiscal 2002. During the fiscal year ended January 31, 2007, these original mineral claims and fractions were converted into six claims encompassing all of the original claims. The Company recommenced exploration of the property in fiscal 2004 and ceased exploration activities in fiscal 2006. During the fiscal year ended December 31, 2009, the Company wrote down the value of these exploration costs to a nominal value of $1 by an impairment charge to operations of $163,466. The Company will maintain these claims in good standing and may decide to commence exploration again on the Olympic-Kelvin Property. However, the current focus of the Company is its exploration activities in Mexico.
 
 
41
 
 
Property Description and Location.  The Olympic-Kelvin property totals approximately 662.5 hectares and is located on the south side of Carpenter Lake, five kilometers northeast of Goldbridge in the Lillooet Mining Division, British Columbia.
 
The Olympic-Kelvin property is easily accessible by the all-weather, publicly maintained, Gray Rock logging road which runs northeast from Goldbridge.  Access on the Olympic-Kelvin property is possible on a number of cat trails built by the Company and previous operators.
 
The Olympic-Kelvin property covers rocks of the Pioneer Formation and Bridge River Terrane.  These rocks are cut by northwest trending regional scale structures sub-parallel to the Ferguson and Cadwallader Structures.  The structures on the Olympic-Kelvin property are roughly the same distance from the Upper Cretaceous-Tertiary granitic Bendor Intrusions as the Bralorne/Pioneer mines.  A similar flexure is present in the northwest trending structures on the Olympic-Kelvin property.  These structures on the property are mineralized with gold and silver and have received considerable past work, including at least four adits.
 
History.  The Company recommenced exploration on the Olympic-Kelvin property in January 2004, following up on work completed in 1988 that outlined two prospective areas for gold and silver, the Margarita Zone and the Enigma Zone.
 
In the Margarita Zone, hole OLY 88-4 returned 24 grams per tonne of gold over 0.85 metres within a much wider intersection of 8.2 grams per tonne of gold over 3.48 metres. The true width of this zone is estimated to be 1.47 metres. A large part of the zone is listwanite, indicating the potential for better grade mineralization immediately below this intersection.  Hole OLY 88-6 cut the same zone 75 metres to the northwest and returned 4.26 grams per tonne of gold over 1.34 metres within an eight metre section (5.6 m true width) of mainly listwanite.  The area of these intersections is approximately 50 metres off of the Gray Rock Road and could be accessed for mining purposes by an underground ramp from the road.
 
The Enigma Zone is a colour anomaly on the south shore of Carpenter Lake on Lot 6280, approximately 700 metres east, north-east of the Margarita Zone.  Trenching revealed a quartz stock work zone with areas of abundant stibnite. Sampling returned 1.7 grams per tonne of gold over 21 metres within a 75 metre mineralized zone. This is a very wide zone for the Bridge River Camp and, if the zone has significant strike length, it could be amenable to open pit mining. Hole 04-0k-04 was drilled 154 metres under the Enigma Zone and returned highly anomalous gold values.  Detailed geological mapping and geochemical sampling has been recommended.
 
Drilling in January of 2005 was unsuccessful in intersecting the Margarita Zone.  One hole was drilled from the east to attempt to intersect the zone.  This hole was abandoned at 21.3 metres because of bad ground conditions.  No values of economic interest were returned from samples taken from the hole.
 
The Company has placed a reclamation bond of $1,500 at December 31, 2009 (December 31, 2008: $1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.
 
 
42
 
 
No drilling on the Olympic Property was completed in 2009.
 
Proposed Work Program. No further work is proposed at this time.

Minto Property

Ownership.  The Minto Property is wholly owned by the Company and was acquired in early 1985 when it acquired its 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim, situated in the Lillooet Mining Division of British Columbia. During the January 31, 2007 year end these mineral claims were converted into one claim encompassing all of the original claims. The property was written down to a nominal value of $1 in fiscal 2002. The Company recommenced exploration of the property in fiscal 2006 and ceased exploration activities in fiscal 2007 and during the 2009 year end wrote down the value to a nominal amount of $1 by an impairment charge to operations of $256,800. The Company will maintain these claims in good standing and may decide to commence exploration again on the Minto Property. However, the current focus of the Company is its exploration activities in Mexico.
 
Property Description and Location.  The Minto Property is situated about ten kilometers east of Goldbridge in the Bridge River gold district of British Columbia and adjoins the Olympic-Kelvin Property.   The property covers approximately 204 hectares.  The claims occupy the lake bed and north side of Carpenter Lake.  Access from Goldbridge is made via an all-weather gravel road which skirts the north shore of Carpenter Lake.
 
Gold Bridge can be reached from Vancouver via Hope and Lillooet, a distance of 445 kilometers, or via Pemberton using the four-wheel-drive Hurley Pass route, a distance of 225 km.
 
The terrain is rugged, typical of the eastern margin of the Coast Range Mountains.  The claim group ranges in elevation from 650 meters on Carpenter Lake to a maximum of 1020 meters.
 
The climate of the Bridge River District is transitional between humid coastal belt and more arid interior plateau.  Annual precipitation is modest with a significant proportion falling as snow in the winter.  Summers tend to be warm to hot depending on the altitude, and winters are moderately cold.
 
History.  The claim group has been explored intermittently for over sixty years and several gold-bearing structures are known on the property.  Production from the Minto mine between 1934 and 1940 amounted to 88,900 tons of ore returning 17,558 ounces of gold and 50,582 ounces of silver.  During 1985, geological, geochemical, and geophysical (VLF-EM) surveys were conducted and trenches were excavated in anomalous areas.  In-fill soil geochemistry and further trenching were undertaken in 1987.
 
A mechanized trenching program was carried out on the Minto Property in June, 2005 to test the Minto North and Jumper Zones.    Seven trenches were excavated, sampled, mapped and reclaimed, usually in a one day period.  Chip samples from all the trenches returned values from anomalous to economic levels in gold.
 
In December 2006, the Company announced the results of the 2006 drilling program on the Minto Property.  The four diamond core holes were drilled to explore down dip extensions of gold bearing structures originally discovered in trench 827 on the Minto North Zone.

 
43
 
 
Holes MO-06-01 and 02 were drilled from a site approximately 10 metres west of trench 827.  Hole MO-06-03 was drilled from a site approximately 2 metres north and 7 metres east of MO-06-01 and 02.  Hole MO-06-04 was drilled from the same set-up.
 
The gold bearing structures consist of sets of parallel narrow (1-2 mm) fractures containing quartz, carbonate, grey sulphide veinlets.  Assay samples from the four holes drilled conveyed from 1.04 grams per ten to 45.4 grams per tonne.
 
The Company has placed a reclamation bond of $2,500 at December 31, 2009 (December 31, 2008: $2,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.
 
Proposed Work Program.    No further work program has been proposed.

2009 Summary of Significant Events

Permits

The Company secured all permits to operate the San Gonzalo deposit and the processing plant at the rate of 250 TPD. These permits are valid for processing the 10,000 tonne bulk sample as well as for full production. The Company has kept these permits in good standing with regular submissions to the regulatory authorities to maintain compliance.

Plant Power Supply

Finalization of an agreement with Mexico’s state power utility commission CFE (Commission Federal de Electricidad) resulted in an increase to the supply of power to the plant. This step was necessary to operate the 250 TPD circuit on a sustained basis, and it also resulted in an electrical system upgrade.

Mining Contractor

The Company selected and engaged the mining contractor, Desarrollo Minero Guadalupe S.A. de C.V. (“DMG”), for development work and extraction of the bulk sample. DMG began driving the decline in January. The mining contract will include driving approximately 1,000 metres of development consisting of a decline, crosscuts and raises. The Company expects to extend this contract with continued mining operations in the event the bulk sampling program results in positive cash flow.
 
 
44
 

Reclaim Water System

The water supply system from the tailings pond was completed and the two water storage tanks were cleaned out. Process water supply to the plant is now fully functional.

Assay Lab

Repairs to the assay lab were completed. A new AAS unit was also purchased to provide on-site control assays.

Mill Circuit

The 250 TPD mill circuit is nearly complete with all major pieces in place. The mill will be tested with stockpiled material from earlier operations. The crushing plant was also upgraded with the purchase of a jaw crusher, installation of a new conveyor and major repairs to the cone crusher and vibrating screen.

Key Personnel

As the project advanced, the Company hired a Mining Engineer to monitor the development of the mine and oversee the work of DMG. The Company also began searching for a Plant Manager and Chief Assayer.

Bulk Sampling to Confirm Grade and Recoveries

The Company’s focus for 2009 was the development of the mine and plant to conduct a 10,000 tonne bulk sample from the high-grade San Gonzalo zone. This sample will allow the Company to assess economics of the zone and confirm mineral grades obtained through earlier diamond drilling. The Company is also investigating potential buyers for the San Gonzalo concentrate. Samples have been shipped to various smelters for testing. The goal is to complete the bulk sample program and move into full production if results are positive.

The bulk sampling program will begin by processing older stockpiled materials grading 0.41% Cu, 90 g Ag/t and 1.1 g Au/t. This step will allow the fine tuning of the refurbished 250 TPD plant circuit prior to processing the higher grade San Gonzalo material.
 
 
45
 

Progress Update For 2010

Underground Development

Ramp development is ongoing with about 65m to go before intersecting the San Gonzalo vein. Several narrow alterations rich in pyrite have been noted and logged during the advancement of the ramp. The 10m cut out for equipment turnaround in the ramp has been completed.

Buildings and Power Supply

The mine office, workshop and diesel fuel storage are approximately 80% complete. Design of oil spillage from the workshop and fuel storage has been factored in according to the land use permit. DMG has overseen the supply of the power generator and the air compressors. The hotel, miners’ quarters and telecommunications system are complete and fully functional.

Tailings and Reclaim Water Supply

The tailings reclaim water system is operational and plans are in place to reactivate the La Caricol water system as well to ensure milling operations will not be impacted during the balance of the dry season.

Electrical

The entire electrical system has been upgraded in order to comply with CFE requirements. The majority of this work has been completed. However, there is still additional work required as more equipment is added to the operating list.

Plant Refurbishing

The crushing circuit is currently undergoing commissioning. The Company is expecting a report from Metso Minerals verifying that the cone crusher is ready for service and the installation of the lubrication system is within specification.

The jaw crusher, screen and various conveyor belts have been tested and appear to be problem free. Longer running times are required, however, to ensure moving parts will not overheat during operations.

The 8x6 ball mill was started empty and the speed was measured at 22rpm. At this speed, it represents a little over 80% of critical so its capacity has been optimized. Ball charge is expected to range from 12 to 16 tonnes depending on the % desired loading.

NI 43-101 Resource Calculation

An NI 43-101 resource calculation for San Gonzalo, completed by Orequest Consultants, estimates that the zone contains 4.75 million ounces of silver and 37,300 ounces of gold, calculated as follows:
Ag                Au                Zinc                Lead
Tonnes                g/t                g/t                 %                 %
 
444,250                332               2.61                1.5                1.0
 
 
46
 

These figures were compiled from 2007 surface drilling at San Gonzalo (January to December 2007, 40 holes, 9,204 metres), which produced some significant silver intersections.

The decline will descend into the San Gonzalo vein, where drilling over the past two years has outlined a resource of 444,250 tonnes grading 332 g/t silver, 2.61 g/t gold, 1.5% zinc and 1.0% lead.  Exploration and development to expand the resource will continue.

In addition, the Company is also planning to explore new areas of the property, expand upon discoveries made in 2008 and follow up on the 2008 mapping and sampling. At present, trenching and 9,000 metres (29,520 feet) of new drilling have been proposed for up to 15 areas of the property. These proposals will be reviewed once the bulk sampling program has been completed.

Item 4A. Unresolved Staff Comments

Not Applicable.

Item 5.  Operating and Financial Review and Prospects

The following discussion and analysis of the operations, results and financial position of the Company for the year ended December 31, 2009, and December 31, 2008, should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto.

The financial statements are prepared in accordance with Canadian GAAP which has several notable differences from US GAAP. Canadian GAAP permits the deferral of acquisition and exploration costs, subject to periodic adjustments for impairment, whereas US GAAP requires that such costs be expensed in the period incurred. In addition, US GAAP requires investments available for sale to be recorded at fair market value with unrealized gains or losses recognized as part of comprehensive income (loss) unless a decline in value is considered to be other than temporary. Effective for fiscal December 31, 2007 the Canadian GAAP treatment is the same, however in fiscal January 31, 2007 such investments were recorded in accordance with Canadian GAAP at the lower of cost and market; long-term investments in marketable securities are written down to market when impairment is considered other than temporary, in which case the written-down value becomes the new cost base, and the impairment is charged to operations. US GAAP requires the recognition of a stock-based compensation expense associated with the extension of the expiry date of outstanding warrants whereas Canadian GAAP has no clear guidance on non-service orientated equity awards. See Note 23 to the financial statements which sets out a reconciliation between Canadian and US GAAP.
 
 
47
 
 
A.  Operating Results
 
Results of Operations
 
The results of operations are based on the fiscal years ended December 31, 2009, 2008 and 2007.
 
Twelve months ended December 31, 2009 compared with the twelve months ended December 31, 2008.
 
Operating and administrative expenses
 
Operating and administrative expenses were $669,178 for the twelve month period ended December 31, 2009 as compared with of $1,575,913 for the twelve months ended December 31, 2008, a decrease of $906,735. The primary differences are attributable to decreases of $347,913 in stock-based compensation, $103,161 in investor relations and $395,108 in recovery of sale tax. Other decreases include $10,815 in travel and promotion, $8,529 in general exploration, $16,805 in office and miscellaneous, and $27,194 in salaries. The Company recorded $181,456 as a recovery to the Mexican Value-Added Tax (“VAT”) that was written off during the year end December 31, 2008. The Company received the majority of this tax back in cash refunds. The stock based compensation was lower as a result of fewer stock options granted in 2009. The lower expense in investor relations is due to a reduction in research reports and publications. The decline in travel expenses is a result of attending fewer trade shows.
 
Loss for the period
 
The loss for the twelve month period ended December 31, 2009 was $987,759 compared with a loss of $1,538,876 for the twelve month period ended December 31, 2008, a difference of $551,117. The decrease of $906,735 in operating and administrative expenses was offset by a reduction in interest income of $78,162, a reduction of $25,000 in option revenue and a write down on British Columbia mineral properties of $608,118. The Company also recorded a future income tax recovery of $239,562 as compared to an expense in 2008 of $98,653, a difference of $338,215. These were offset by a reduction in foreign exchange loss of $20,232, the difference between the loss of $18,249 in 2009 and $38,481 in 2008.
 
Twelve months ended December 31, 2008 compared with eleven months ended December 31, 2007
 
Operating and administrative expenses
 
 
General and administrative expenses totaled $1,575,913 for the twelve month period ended December 31, 2008 compared with $868,527 for the eleven month period ended December 31, 2007, an increase of $707,386. The significant increases were $585,800 in stock based compensation and $213,652 related to a write down of the Mexican sales tax receivable with smaller increases in amortization, management fees, regulatory fees and salaries by $823, $8,000, $4,646 and $35,744, respectively. These increases were offset by decreases of $9,813 in general exploration, $20,490 in office and miscellaneous, $17,256 in professional fees, $70,000 in shareholder and investor relations and $23,720 in travel and promotions. Shareholder and investor relations is lower due to expense related to granting of stock options to investor relations service providers in 2007-II.
 
 
48
 

The stock based compensation was higher due to stock options being granted during fiscal 2008 where no options were granted in 2007-II. During the year, the Company determined that an allowance should be established for the Mexican VAT in the amount of $213,652.

Loss for the year

Loss for fiscal 2008 was $1,538,876 compared with a loss of $885,863 for the eleven month period ended December 31, 2007, an increase of $653,013. Generally the overall general and administrative costs for the fiscal 2008 were lower than fiscal 2007-II as mentioned above but these were offset with the VAT allowance, stock based compensation and a lower amount of interest income with differences of $213,652, $585,800 and $212,953, respectively. In addition, the Company recorded a future income tax expense of $98,653 as compared to $501,083 recovery amount in fiscal 2007-II.
 
B.  Liquidity and Capital Resources
 
The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva for a percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the Company, and to pay a percentage fee based on the total overhead and corporate expenses. The agreement may be terminated with one-month notice by either party. Transactions and balances with Oniva, which is a related company, are disclosed in the transactions with related parties section.
 
During the year ended December 31, 2009, the Company incurred expenditures that increased its mineral property carrying value on its Mexican properties by $320,100 and capital assets by $281,461. At this time the Company has no operating revenues but earned interest income of $68,224 during the year ended December 31, 2009. As the Company’s cash and cash equivalents will continue to be drawn down by operations and there has been downward pressure on interest rates as well therefore interest income is expected to decrease in future periods.
 
At December 31, 2009, the Company had working capital of $2,420,918 and cash equivalents of $2,829,605. The Company is continuing its exploration program and refurbishing of its mine facility for a bulk sampling program in Mexico. The annual cost for the bulk sampling program estimated by Orequest was $2,651,000 U.S. and the Company has stayed well below this budget. While the current market clearly presents challenges, the Company’s cash position of approximately CDN$2 million puts it in a strong position for continued growth and to bring the Avino Mine back into production. The Company has no plans for the British Columbia properties during the remainder of the fiscal year 2010.
 
The Company continues in the exploration stage until such time that the Avino Mine is re-opened. The investment in and expenditures for the mineral properties comprise most of the Company’s assets along with a lesser asset amount in regards to the Avino Mine facilities and equipment. The recoverability of amounts shown for its mineral property interest and related deferred costs and the Company’s ability to continue as a going concern is dependent upon the continued support from its directors, the discovery of economically recoverable reserves and the ability of the Company to obtain the financing necessary to complete development and achieve profitable operations in the future. The outcome of these matters cannot be predicted at this time.
 
Mineral exploration and development is capital extensive, and in order to re-commence operations at the Avino Mine, the Company may be obliged to raise new equity capital in the future. There is no assurance that the Company will be successful in raising additional new equity capital.
 
 
49
 
 
C.  Research and Development, Patents and Licenses, etc.
 
As the Company is a mineral exploration company with no research and development, the information required by this section is not applicable.
 
D.  Trend Information
 
As at the time of filing this Annual Report and as otherwise disclosed in this Annual Report, the Company is not aware of any specific trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. Many factors that are beyond the control of the Company can affect the Company’s operations, including, but not limited to, the price of minerals, the economy on a global scale, land and exploration permitting, and the appeal of investments in exploration companies. The appeal of exploration companies as investment alternatives could effect the liquidity of the Company and thus future exploration, development and financial conditions of the Company. Other factors such as retaining qualified mining personnel and contractor availability and costs could also impact the Company’s operations.
 
E.  Off-Balance Sheet Arrangements
 
The Company has no off-balance sheet arrangements.
 
F.  Tabular Disclosure of Contractual Obligations
 
As at December 31, 2009, the Company had the following contractual obligations:
 
   
Payment due by period
  
   
Total
    
<1 year
    
1-3 Years
    
3-5 Years
    
More than 5 years
  
Drilling Contract
   $ 46,768     $ 46,768       -       -       -  
Future Income Tax Liabilities
     1,694,007       -       -       -       1,694,007  
Total
   $ 1,740,775     $ 46,768       -       -     $ 1,694,007  
 
G.  Safe Harbor
Certain statements in this Annual Report, including those appearing under this Item 5, constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology used such as "plans", "expects", "estimates", "budgets", "intends", "anticipates", "believes", "projects", "indicates", "targets", "objective", "could", "may", or other similar words.

 
50
 
 
The forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for metals; the results of exploration and development drilling and related activities; economic conditions in the countries and provinces in which we carry on business, especially economic slowdown; actions by governmental authorities including increases in taxes, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflict; the negotiation and closing of material contracts; and the other factors discussed in Item 3 Key Information – "Risk Factors", and in other documents that we file with the SEC. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors; our course of action would depend upon our assessment of the future considering all information then available. In that regard, any statements as to future production levels; capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding of our capital program; drilling; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves; dates by which transactions are expected to close; cash flows; uses of cash flows; collectability of receivables; availability of trade credit; expected operating costs; expenditures and allowances relating to environmental matters; debt levels; and changes in any of the foregoing are forward-looking statements, and there can be no assurances that the expectations conveyed by such forward-looking statements will, in fact, be realized.
 
Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.
 
Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
 
Item 6.  Directors, Senior Management and Employees
 
A.           Directors and Senior Management
 
The following is a list of the Company’s directors and senior management as at July 13, 2010.  The directors are elected for a term of one year at the annual meeting of shareholders. This year’s annual meeting was held on June 24, 2010.
 
 
51
 

Name and Present Position with the Company
  
Principal Occupation
  
Director/Officer Since
         
Michael Baybak
Director
  
A business consultant.
  
June 1990
         
Gary Robertson
Director
  
Certified Financial Planner, Director of Bralorne Gold Mines Ltd., Coral Gold Resources Ltd., Levon Resources Ltd., Mill Bay Ventures Inc. and Sage Gold Inc.
  
August 2005
         
David Wolfin(1)
Director/President/CEO
  
Director and VP Finance of Berkley Resources Inc., Director and VP Finance of Bralorne Gold Mines Ltd., Director and VP Finance, of Levon Resources Ltd., President and Director of Coral Gold Resources Ltd. and Gray Rock Resources Ltd. and Director of Mill Bay Ventures Ltd. and Cresval Capital Corp.
  
October 1995
         
Dorothy Chin
Corporate Secretary
  
Corporate Secretary of Bralorne Gold Mines Ltd., Coral Gold Resources Ltd., Gray Rock Resources Ltd., and Levon Resources Ltd.; formerly Corporate Secretary of Mill Bay Ventures Inc. and Dentonia Resources Ltd.
  
September 2008
         
Lisa Sharp
Chief Financial Officer
  
Chief Financial Officer of Bralorne Gold Mines Ltd., Coral Gold Resources Ltd., Gray Rock Resources Ltd., Levon Resources Ltd., Mill Bay Ventures Inc. and Venerable Ventures Ltd.
  
June 2008

 
52
 
 
B.      Compensation
 
During the last completed fiscal year of the Company, the Company had three executive officers, namely, its CEO, Louis Wolfin, its President, David Wolfin, and its CFO, Lisa Sharp. At the Company’s Annual General Meeting on June 24, 2010, Louis Wolfin resigned as CEO and a Director. David Wolfin was appointed CEO and President of the Company.
 
1)  
Compensation Discussion and Analysis
 
The Company does not have a compensation program other than paying base salaries, incentive bonuses, and incentive stock options to its executive officers.  The Company recognizes the need to provide compensation package that will attract and retain qualified and experienced executives, as well as align the compensation level of each executive to that executive’s level of responsibility.  The objectives of base salary are to recognize market pay, and acknowledge the competencies and skills of individuals.  The objectives of incentive bonuses in the form of cash payments are designed to add a variable component of compensation, based on corporate and individual performances for executive officers and employees.  No incentive bonuses were paid to executive officers and employees during the most recently completed fiscal year. The objectives of the stock option are to reward achievement of long-term financial and operating performance and focus on key activities and achievements critical to the ongoing success of the Company.  Implementation of a new incentive stock option plan and amendments to the existing stock option plan are the responsibility of the Company’s Compensation Committee.
 
The Company has no other forms of compensation, although payments may be made from time to time to individuals or companies they control for the provision of consulting services.  Such consulting services are paid for by the Company at competitive industry rates for work of a similar nature by reputable arm’s length services providers.
 
The process for determining executive compensation relies solely on discussions amongst the board of directors of the Company (the “Board”) with the input from and upon the recommendations of the Compensation Committee, without any formal objectives criteria and analysis.
 
Actual compensation will vary based on the performance of the executives relative to the achievement of goals and the price of the Company’s securities.
 
Compensation Element
  
Description
  
Compensation Objectives
         
Annual Base Salary
  
Salary is market-competitive, fixed level of compensation
  
Retain qualified leaders, motivate strong business performance.
         
Incentive Bonuses
  
Cash payment to add variable component to compensation
  
Based on corporate and individual performances of key personnel.
         
Incentive Stock Option
  
Equity grants are made in the form of stock options.  The amount of grant will be dependent on individual and corporate performance.
  
Retain qualified leaders, motivate strong business performance.
 
 
53
 
 
2)  
Summary Compensation Table
 
The following table sets forth particulars concerning the compensation paid or accrued for services rendered to the Company in all capacities during the most recently completed financial year ended December 31, 2009 of the Company to its executive officers:
 
 
 
 
 
 
Name and principal position
 
 
 
 
 
 
Year
 
 
 
 
 
Salary
($)
 
 
 
Share-based awards
($)
 
 
 
Option-based awards
($) (*)
 
Non-equity incentive plan compensation
($)
 
 
 
 
Pension value
($)
 
 
 
 
All other compensation
($)
 
 
 
 
Total compensation
($)
Annual incentive plans
Long-term incentive plans
David Wolfin(1) President, CEO and Director
2009
$96,000
NIL
NIL
NIL
NIL
NIL
NIL
$96,000
Louis Wolfin(1)
Former CEO and Director
2009
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
Lisa Sharp
CFO
2009
$19,800
NIL
NIL
NIL
NIL
NIL
NIL
$19,800
 
* The methodology used to calculate the grant date fair value is the last closing price of the Company’s shares before the date of the stock option grant less the exercise price.
 
(1)  On June 24, 2010 Louis Wolfin resigned as CEO and David Wolfin was appointed President and CEO.
 
Annual Base Salary
 
Base Salary for the executive officers is determined by the Board upon the recommendation of the Compensation Committee and its recommendations are reached primarily by comparison of the remuneration paid by other reporting issuers with the same size and industry and with publicly available information on remuneration that the Compensation Committee feels is suitable.
 
The Annual Base Salary paid to the executive officers shall, for the purpose of establishing appropriate increases, be reviewed annually by the Board upon the recommendation of the Compensation Committee thereof as part of the annual review of executive officers.  The decision on whether to grant an increase to the executive’s base salary and the amount of any such increase shall be in the sole discretion of the Board and Compensation Committee thereof.
 
Long Term Incentive Plan (LTIP)
 
The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities), was paid or distributed to the executive officers during the most recently completed financial year ended December 31, 2009.
 
 
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Option Based Award
 
An Option Based Award is in the form of the grant of an incentive stock option.  The objective of the incentive stock option is to reward executive officers, employees and directors’ individual performance at the discretion of the Board upon the recommendation of the Compensation Committee.  The plan currently used by the Company is the 2010 Stock Option Plan.
 
The Company currently maintains a formal stock option plan (the “Plan”), under which stock options have been granted and may be granted to purchase a number equal to 10% of the Company’s issued capital from time to time.  For details of the option plan please refer to “Particulars of Matters to be Act Upon” in the Information Circular filed with the SEC on June 1, 2010.
 
The 2010 Stock Option Plan is administered by the Compensation Committee pursuant to the 2010 Stock Option Plan.  The process the Company uses to grant option-based awards to executive officers is upon the recommendations of the Compensation Committee to the Board of Directors.
 
The role of the Compensation Committee is to recommend to the Board the compensation of the Company’s directors and the executive officers which the Committee believes is suitable.
 
As of December 31, 2009, stock options to purchase a total of up to 1,819,500 shares have been granted and remain outstanding under the Plan, leaving 238,973 options available for issuance.  All previous grants of option-based awards are taken into account when considering new grants.
 
3)  
Incentive Plan Awards
 
Outstanding share-based awards and option-based awards
 
The following table sets forth the options granted to the executive officers to purchase or acquire securities of the Company outstanding at the end of the most recently completed financial year ended December 31, 2009:
 
 
Option-based Awards
Share-based Awards
Name
Number of securities underlying unexercised options
(#)
Option exercise price
($)
Option expiration date
Value of unexercised in-the-money options
($)(1)
Number of shares or units of shares that have not vested
(#)
Market or payout value of share-based awards that have not vested
($)(1)
David Wolfin(2) President, CEO and Director
100,000
200,000
65,000
$0.75
$0.75
$0.75
April 5, 2010
April 26, 2011
Feb. 27, 2013
Nil
Nil
Nil
Louis Wolfin(2)
Former CEO and Director
100,000
180,000
65,000
$0.75
$0.75
$0.75
April 5, 2010
April 26, 2011
Feb. 27, 2013
Nil
Nil
Nil
Lisa Sharp
CFO
50,000
$0.75
Sept. 22, 2014
Nil
Nil
Nil
 
 
55
 
 
(1)  
No value was attributed to unexercised options that were out of the money on December 31, 2009.
 
(2)  
On June 24, 2010 Louis Wolfin resigned as CEO and David Wolfin was appointed President and CEO.
 
Incentive plan awards – value vested or earned during the year
 
The following table sets forth the value vested or earned during the year of option-based awards, share-based awards and non-equity incentive plan compensation paid to executive officers during the most recently completed financial year ended December 31, 2009:



Name
Option-based awards – Value vested during the year ($) (1)
Share-based awards – Value vested during the year
($)
Non-equity incentive plan compensation – Value earned during the year ($)
David Wolfin(2)
President, CEO and Director
Nil
Nil
Nil
Louis Wolfin(2)
Former CEO and Director
Nil
Nil
Nil
Lisa Sharp
CFO
Nil
Nil
Nil
 
(1)  
No value was attributed to unexercised vested options that were out of the money on December 31, 2009.
 
(2)  
On June 24, 2010 Louis Wolfin resigned as CEO and David Wolfin was appointed President and CEO.
 
4)  
Pension Plan Benefits
 
No pension plan or retirement benefit plans have been instituted by the Company and none are proposed at this time.
 
5)  
Termination and Change of Control Benefits
 
The Company does not have any employment contracts with the executive officers, and there are no contractual provisions for termination of employment or change in responsibilities.
 
 
56
 
 
 6)
Director Compensation
 
The following table sets forth the value of all compensation paid to the directors during the most recently completed financial year ended December 31, 2009:
 
 
 
 
Name
 
Fees earned
($)
Share-based awards
($)
Option-based awards
($)(1)
Non-equity incentive plan compensation
($)
 
Pension value
($)
 
All other compensation
($)
 
 
Total
($)
Lloyd Andrews(2)*
$6,000
NIL
NIL
NIL
NIL
NIL
$6,000
Michael Baybak*
$3,000
NIL
NIL
NIL
NIL
NIL
$3,000
Gary Robertson*
$6,000
NIL
NIL
NIL
NIL
NIL
$6,000
David Wolfin(3)
NIL
NIL
NIL
NIL
NIL
NIL
NIL
Louis Wolfin(4)
Nil
NIL
NIL
NIL
NIL
NIL
Nil
Victor Chevillon(5)
Nil
NIL
NIL
NIL
NIL
NIL
Nil
 
*Independent & Non-Employee Directors
 
(1)  The methodology used to calculate the grant date fair value is the last closing price of the Company’s shares before the date of the stock option grant less the exercise price.
 
(2)  Lloyd Andrews was not nominated for re-election at the annual general meeting held on June 24, 2010.
(3)  David Wolfin was appointed CEO and President on June 24, 2010.
(4)  Louis Wolfin resigned as a director and CEO on June 24, 2010.
(5)  Victor Chevillon resigned as a director of the company on May 7, 2009.
 
The Company pays its independent directors $750 per quarter.  Each independent director is also paid $250 per quarter for each committee he serves as a member.  
 
Incentive stock options have been granted to non-employee directors of the Company to purchase an aggregate of 180,000 shares of the Company at a price of $0.75 per share exercisable on or before April 5, 2010 and September 26, 2010, of which 7,500 have been exercised; 380,000 shares of the Company at a price of $0.75 per share exercisable on or before April 26, 2011, none of which have been exercised; 140,000 shares of the Company at a price of $0.75 per share exercisable on or before February 27, 2013, none of which have been exercised; and 60,000 shares of the Company at a price of $0.81per share exercisable on or before January 14, 2015, none of which have been exercised.
 
Termination of Employment, Changes in Responsibilities and Employment Contracts
 
There are no employment contracts between the Company and its executive officers and the Company has no compensatory plan or arrangement with respect to its executive officers in the event of the resignation, retirement or any other termination of the executive officers’ employment with the Company or in the event of a change of control of the Company or in the event of a change in the executive officers’ responsibilities following a change in control, where in respect of the executive officers the value of such compensation exceeds $100,000.
 
 
57
 
 
C.           Board Practices
 
The Board is currently comprised of three directors. At the Annual General Meeting of the Company held on June 24, 2010, the shareholders of the Company voted in favour of reducing the number of directors from five to four. The size and experience of the Board is important for providing the Company with effective governance in the mining industry.  The Board’s mandate and responsibilities can be effectively and efficiently administered at its current size. The Board has functioned, and is of the view that it can continue to function, independently of management as required.  Directors are elected for a term of one year at the annual general meeting.  At the Annual General Meeting, held on June 24, 2010, the shareholders elected Messrs. Michael Baybak, Gary Robertson, David Wolfin, and Louis Wolfin as directors. Subsequent to the Annual General Meeting, Louis Wolfin resigned as CEO and Director.
 
The Board has considered the relationship of each director to the Company and currently considers two of the three directors to be “unrelated” (Messrs. Baybak, and Robertson).  “Unrelated director” means a director who is independent of management and free from any interest and any business or other relationship which could reasonably be perceived to materially interfere with the director’s ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings.
 
 Procedures are in place to allow the Board to function independently.  At the present time, the Board has experienced directors that have made a significant contribution to the Company’s success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company.  Committees meet independent of management and other directors.
 
Mandate of the Board of Directors, its Committees and Management
 
The role of the Board is to oversee the conduct of the Company’s business, including the supervision of management, and determining the Company’s strategy. Management is responsible for the Company’s day to day operations, including proposing its strategic direction and presenting budgets and business plans to the Board for consideration and approval. The strategic plan takes into account, among other things, the opportunities and risks of the Company’s business. Management provides the Board with periodic assessments as to those risks and the implementation of the Company’s systems to manage those risks. The Board reviews the personnel needs of the Company from time to time, having particular regard to succession issues relating to senior management. Management is responsible for the training and development of personnel. The Board assesses how effectively the Company communicates with shareholders, but has not adopted a formal communications policy. Through the Audit Committee, and in conjunction with its auditors, the Board assesses the adequacy of the Company’s internal control and management information systems.  The Board looks to management to keep it informed of all significant developments relating to or effecting the Company’s operations. Major financings, acquisitions, dispositions and investments are subject to board approval. A formal mandate for the Board of Directors, the Chief Executive Officer and the Chief Financial Officer has not been considered necessary since the relative allocation of responsibility is well understood by both management and the Board.  The Board meets as required. The Board and committees may take action at these meetings or at a meeting by conference call or by written consent.
 
Committees
 
Audit Committee
 
The Audit Committee assists the Board in its oversight of the Company’s financial statements and other related public disclosures, the Company’s compliance with legal and regulatory requirements relating to financial reporting, the external auditors, qualifications and independence and the performance of the internal audit function and the external auditors. The Audit Committee has direct communications channels with the Company’s auditors. The Audit Committee reviews the Company’s financial statements and related management’s discussion and analysis of financial and operating results. The Audit Committee can retain legal, accounting or other advisors.
 
 
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The Audit Committee currently consists of three directors (Messrs. David Wolfin, Michael Baybak, and Gary Robertson). Two of the members are independent and all of whom are financially literate, and have accounting or related financial expertise. “Financially literate” means the ability to read and understand a balance sheet, an income statement, and a cash flow statement.  “Accounting or related financial expertise” means the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with Canadian GAAP.
 
The Board has adopted a charter for the Audit Committee which is reviewed annually and sets out the role and oversight responsibilities of the Audit Committee with respect to:
 
·      
its relationship with and expectation of the external auditors, including the establishment of the independence of the external auditor and the approval of any non-audit mandates of the external auditor;
 
·      
determination of which non-audit services the external auditor is prohibited from providing;
 
·      
the engagement, evaluation, remuneration, and termination of the external auditors;
 
·      
appropriate funding for the payment of the auditor’s compensation and for any advisors retained by the audit committee;
 
·      
its relationship with and expectation of the internal auditor;
 
·      
its oversight of internal control;
 
·      
disclosure of financial and related information; and
 
·      
any other matter that the audit committee feels is important to its mandate or that which the board chooses to delegate to it.
 
Compensation Committee
 
The Compensation Committee recommends to the Board the compensation of the Company’s Directors and the Chief Executive Officer which the Compensation Committee feels is suitable.  Its recommendations are reached primarily by comparison of the remuneration paid by the Company with publicly available information on remuneration paid by other reporting issuers that the Compensation Committee feels are similarly placed within the same business of the Company.
 
The Compensation Committee consists of three directors, Messrs. Robertson and Baybak are unrelated and Mr. D. Wolfin is related.  It is intended that the Compensation Committee will eventually be comprised of solely unrelated directors.
 
 
59
 
 
Corporate Governance Committee
 
The Corporate Governance Committee assists the Board in establishing the Company’s corporate governance policies and practices generally, identifying individuals qualified to become members of the Board, reviewing the composition and functioning of the Board and its committees and making recommendations to the Board as appropriate.  When considering nominees to the Board, the Corporate Governance Committee’s mandate requires that it consider the current composition of the Board and give consideration to candidates having experience in the industry, life experience and background.  The Corporate Governance Committee is also responsible for the Company’s corporate governance guidelines.  The Corporate Governance Committee may retain legal or other advisors.
 
The Corporate Governance Committee currently consists of three directors, Messrs. Robertson and Baybak are unrelated and Mr. D. Wolfin is related.  It is intended that the Corporate Governance Committee will eventually be comprised solely of unrelated and independent directors.
 
D.           Employees
 
As at December 31, 2009, the Company has 17 employees located in Mexico, 15 with Cia Minera and two with Oniva. The Company’s senior management as well as administrative and corporate services are located in Canada; however, these people are not considered employees of the Company in a legal sense. Senior management and administrative staff are contracted by the Company through their companies or through the Company’s cost sharing agreement for overhead and corporate services with Oniva International Services Corp.
 
E.           Share Ownership
 
The following table sets forth the share ownership of the individuals referred to in “Compensation” as of June 30, 2010
 
Name of Beneficial Owner
  
Number of Shares
    
Percent
  
Lloyd Andrews(1)
     16,500       *  
Michael Baybak
     2,400       *  
Gary Robertson
     20,800       *  
David Wolfin
     102,584       *  
Louis Wolfin(2)
     4,345       *  
Lisa Sharp
  
Nil
       N/A  
Victor Chevillon(3)
  
Nil
       N/A  
 
*Less than one percent
 
(1)  Lloyd Andrews was not nominated for re-election at our annual general meeting held on June 24, 2010.
(2)  Louis Wolfin resigned as a director and CEO on June 24, 2010
(3)  Victor Chevillon resigned as a director on May 7, 2009
 
 
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Outstanding Options
 
The following information, as of June 30, 2010, reflects outstanding options held by the individuals referred to in “Compensation”:
 
 
No. of Shares
  
Date of Grant
  
Exercise Price
  
Expiration Date
               
David Wolfin
President, CEO and Director
200,000
65,000
15,000
  
April 26, 2006
Feb. 27, 2008
January 14, 2010
  
$0.75
$0.75
$0.81
  
April 26, 2011
Feb. 27, 2013
January 14, 2015
               
 
Louis Wolfin
Former CEO & Director
180,000
65,000
15,000
  
April 26, 2006
Feb. 27, 2008
January 14, 2010
  
$0.75
$0.75
$0.81
  
April 26, 2011
Feb. 27, 2013
January 14, 2015
               
Lisa Sharp
CFO
50,000
  
Sept. 22, 2009
  
$0.75
  
Sept. 22, 2014
               
 
Michael Baybak
Director
100,000
25,000
15,000
  
April 26, 2006
Feb. 27, 2008
January 14, 2010
  
$0.75
$0.75
$0.81
  
April 26, 2011
Feb. 27, 2013
January 14, 2015
               
 
Gary Robertson
Director
30,000
50,000
25,000
15,000
  
Sept. 26, 2005
April 26, 2006
Feb. 27, 2008
January 14, 2010
  
$0.75
$0.75
$0.75
$0.81
  
Sept. 26, 2010
April 26, 2011
Feb. 27, 2013
January 14, 2015
               
Victor Chevillon
Former Director
 
Nil
  
 
N/A
  
 
N/A
  
 
N/A
               
Lloyd Andrews
Former Director
30,000
50,000
25,000
15,000
  
Sept. 26, 2005
April 26, 2006
Feb. 27, 2008
January 14, 2010
  
$0.75
$0.75
$0.75
$0.81
  
Sept. 26, 2010
April 26, 2011
Feb. 27, 2013
January 14, 2015
 
 
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Item 7.   Major Shareholders and Related Party Transactions
 
A.           Major Shareholders
 
To the knowledge of the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.

As of June 25, 2010, to the knowledge of the Company, no person who owned more than five (5%) percent of the outstanding shares of each class of the Company’s voting securities.
 
As of June 25, 2010, there were 20,584,727 common shares issued and outstanding. Of those common shares issued and outstanding, 15,514,673 common shares were held by 62 shareholders whose addresses were in Canada.
 
B.           Related Party Transactions
 
During the year ended December 31, 2009, the Company paid, or made provision for the future payment of the following amounts to related parties:
 
 
i)
$148,754 (2008 - $188,158; 2007-II - $153,733) for administrative expenses (rent, salaries, office supplies and other miscellaneous disbursements) to Oniva International Services Corp (“Oniva”), a private company beneficially owned by the Company and a number of other public companies related through common directors;
 
 
ii)
$96,000 (2008 - $96,000; 2007-II - $88,000) to a private company controlled by a director for management fees;
 
 
iii)
$30,000 (2008 - $30,000; 2007-II - $27,500) to a private company controlled by a director of a related company for consulting fees;
 
 
iv)
$10,344 (2008 - $34,698; 2007-II - $36,100) to a private company controlled by a director for geological consulting services;
 
 
v)
$4,331 (2008 - $16,789; 2007-II - $Nil) to a private company controlled by a director of a related company for geological consulting services;
 
 
vi)
$Nil (2008 - $Nil; 2007-II - $40,513) for investor relations services to National Media Associates, a business significantly influenced by a director of the Company;
 
 
vii)
 
viii)
$Nil (2008 - $Nil; 2007-II - $65,577) in drilling expenses to ABC Drilling Services Inc., a private drilling company owned by Oniva;
 
$15,000 (2008 - $15,000; 2007-II - $13,750) to directors for fees.
 
 
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The amounts due to related parties consist of $145,120 (2008 - $145,011) due to Oniva; $18,000 (2008 - $9,000) due to Directors for Directors fees; $Nil (2008 - $16,789) due to a Director of a related company for geological services; $1,054 (2008 - $Nil) due to a Director for geological services; and $516 (2008 - $Nil) due to a private company controlled by a Director for an expense reimbursement.
 
All related party transactions are recorded at the value agreed upon by the Company and the related party. The amounts due from and due to related parties are non-interest bearing, non-secured and with no stated terms of repayment.
 
C.           Interests of Experts and Counsel
 
Not Applicable.
 
Item 8.   Financial Information
 
A.           Consolidated Statements and Other Financial Information
 
The following financial statements of the Company are attached to this Annual Report:
 
·      
Audit Report of Independent Registered Public Accounting Firm;
 
·      
Consolidated Balance Sheets as at December 31, 2009 and December 31, 2008;
 
·      
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2009, December 31, 2008 and  the eleven months ended December 31, 2007;
 
·      
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2009, December 31, 2008 and the eleven months ended December 31, 2007;
 
·      
Consolidated Statements of Cash Flows for the years ended December 31, 2009, December  31,2008 and the eleven months ended December 31, 2007; and
 
·      
Notes to the Consolidated Financial Statements for the years ended December 31, 2009, December 31, 2008 and the eleven months ended December 31, 2007.
 
Dividend Policy
 
The Company has never paid any dividends and does not intend to in the near future.
 
B.           Significant Changes
 
None.
 
 
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Item 9.   The Offer and Listing
 
A.           Offer and Listing Details
 
The following sets forth the high and low prices expressed in Canadian Dollars on the TSX-V for the Company’s common shares for the past five years, for each quarter for the last two fiscal years, and for the last six months.
 
   
TSX-V
(Canadian Dollars)
    
OTCBB
(United States Dollars)
  
Last Six Months
  
High
    
Low
    
High
    
Low
  
June 2010
     0.86       0.70       0.85       0.67  
May 2010
     0.86       0.66       0.81       0.63  
April 2010
     0.83       0.66       0.88       0.66  
March 2010
     0.81       0.65       0.78       0.65  
February 2010
     0.80       0.66       0.76       0.64  
January 2010
     0.88       0.68       0.85       0.64  
2009
  
High
    
Low
    
High
    
Low
  
Fourth Quarter ended December 31, 2009
     0.99       0.57       0.95       0.52  
Third Quarter ended September 30, 2009
     0.71       0.49       0.69       0.44  
Second Quarter ended June 30, 2009
     0.82       0.38       0.75       0.30  
First Quarter ended March 31, 2009
     0.83       0.50       0.70       0.50  
                                 
2008
  
High
    
Low
    
High
    
Low
  
Fourth Quarter ended December 31, 2008
     0.99       0.18       0.95       0.20  
Third Quarter ended September 30, 2008
     1.38       0.77       1.50       0.65  
Second Quarter ended June 30, 2008
     1.70       1.34       1.69       1.30  
First Quarter ended March 31, 2008
     1.74       1.55       1.79       1.40  
                                 
Last Five Fiscal Years
  
High
    
Low
    
High
    
Low
  
2009
     0.99       0.38       0.95       0.30  
    2008     1.78       0.18       1.79       0.20  
2007(1)
      2.75       1.46       2.42       1.44  
2007(2)
     4.48       1.50       4.00       1.32  
2006
     2.29       1.11       2.01       0.87  
 
(1)  Year ended December 31, 2007 consisted of eleven months.
(2)  Year ended January 31, 2007 consisted of twelve months.
 
B.           Plan of Distribution
 
Not Applicable.
 
C.           Markets
 
The common shares of the Company are listed on the TSX-V under the symbol “ASM”, on the FSE under the symbol “GV6” and quoted in the United States on the OTCBB, under the symbol “ASGMF”.
 
D.           Selling Shareholders
 
Not Applicable.
 
E.           Dilution
 
Not Applicable.
 
F.           Expenses of the Issue
 
Not Applicable.

 
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Item 10. Additional Information
 
A.           Share Capital
 
Not Applicable.
 
B.           Memorandum and Articles of Association
 
Common Shares
 
All issued and outstanding common shares are fully paid and non-assessable.  Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors.  The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors.  There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares.  In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.
 
Powers and Duties of Directors
 
The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the British Columbia Business Corporations Act or by the Memorandum or the Articles, required to be exercised by the Company in a general meeting.
 
Directors will serve as such until the next annual meeting.  In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director.  Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken.  However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.
 
The directors may from time to time on behalf of the Company:  (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; and (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
 
The directors of the Company must be persons of the full age of 18 years. There is no minimum share ownership to be a Director.  No person shall be a director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt; convicted of an offense in connection with the promotion, formation or management of a corporation or involved in fraud within the last five years; or a person that has had a registration in any capacity under the British Columbia Securities Act or the British Columbia Mortgage Brokers Act canceled within the last five years.
 
Shareholders
 
An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors.  A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holders representing two shareholders, or one shareholder and a proxy holder representing another shareholder.  There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, referred to as the “Investment Act”, discussed below under “Item 10. Additional Information, D. Exchange Controls.”
 
 
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In accordance with British Columbia law, directors shall be elected by an “ordinary resolution” which means: (a) a resolution passed by the shareholders of the Company at a general meeting by a simple majority of the votes cast in person or by proxy; or (b) a resolution that has been submitted to the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by such shareholders of the Company holding shares carrying not less than the requisite majority of the votes entitled to be cast on it.
 
Under British Columbia law certain items such as an amendment to the Company’s articles or entering into a merger requires approval by a special resolution which means: (a) a resolution passed by a majority of not less than the requisite majority of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company; or (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.
 
C.           Material Contracts
 
The Company entered into a share exchange agreement dated for reference June 9, 2004 with Pedro Sanchez Mejorada, Fernando Ysita Del Hoyo, Francisco Ysita del Hoyo, Bernardo Ysita del Hoyo, Carlos Ysita del Hoyo, Manuel Ysita del Hoyo, Eduardo Ysita del Hoyo, Mercedes Ysita del Hoyo, Cia Minera and Promotora in connection with the acquisition of the remaining 51% interest in Cia Minera.  The consideration to be paid by the Company for the 51% interest consists of four million common shares of the Company.  This agreement was subject to a number of conditions including a satisfactory due diligence review and final regulatory approval. The TSX-V approved the agreement on October 18, 2005. The acquisition of an additional 39.25% interest in Cia Minera was completed on July 17, 2006 for consideration of 3,164,702 common shares of the Company and the acquisition of a further 1.1% from an estate for no additional consideration was completed on December 21, 2007.  On February 16, 2009, the Company’s subsidiary, Cia Minera, held a Shareholders Meeting to increase the capital through capitalization of loans advanced to Cia Minera by the Company. As a result, the Company’s ownership interest in Cia Minera has increased to 99.28%.
 
The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva International for a variable percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the company, and to pay a percentage fee based on the total overhead and corporate expenses.  The agreement may be terminated with one-month notice by either party.
 
The Company has a commitment related to the exploration of its mineral properties in Durango, Mexico, from an agreement signed in 2008 that required drilling 5,000 meters of which the Company completed approximately 50% of this amount in 2008. Management is uncertain when further drilling will commence and as at December 31, 2009, if the Company chooses, it could terminate this contract at a cost of $46,768 (USD$44,499).
 
The Company entered into an agreement in which monthly operation services will be performed through to September 2010 in Durango, Mexico at a total committed cost of $85,131 (services denominated in US$81,000).
 
Please refer to Note 14 of the financial statements included elsewhere in this Annual Report (Item 17) for further disclosure regarding material commitments.
 
D.           Exchange Controls
 
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Issuer’s securities, except as discussed below under “Item 10. Additional Information, E. Taxation.”
 
 
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There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
 
E.           Taxation
 
Canadian Federal Income Tax Consequences
 
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property, referred to as a “U.S. Holder”.  This summary is based on the current provisions of the Income Tax Act (Canada), referred to as the “Tax Act”, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and the current provisions of the Canada-United States Income Tax Convention, 1980, as amended, referred to as the “Treaty”.  Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty.  It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
 
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.
 
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common shares.  The statutory rate of withholding tax is 25% of the gross amount of the dividend paid.  The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty.  Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder.  The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U.S. Holder.
 
Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U.S. Holder nor persons with whom the U.S. Holder did not deal at arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.
 
United States Federal Income Tax Consequences
 
Passive Foreign Investment Company
 
The Company believes that it is a passive foreign investment company, referred to as a “PFIC” for United States federal income tax purposes with respect to a United States Investor.  The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company’s shares, either (i) at least 75 % of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company’s assets are attributable to assets that produce or are held for the production of passive income.  In each case, the Company must take into account a pro-rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% or more of the stock by value (the “look-through” rules).  Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income.  As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Company’s assets.
 
 
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Because the Company believes it qualifies as a PFIC, unless a United States Investor who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a “qualified electing fund”, referred to as a “QEF” (described below), or (ii) marks the stock to market (described below), the following rules apply:
 
 
1.
Distributions made by the Company during a taxable year to a United States Investor who owns shares in the Company that are an “excess distribution” (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such United States Investor’s holding period before the taxable year) must be allocated ratably to each day of such shareholder’s holding period.  The amount allocated to the current taxable year and to years when the corporation was not a PFIC must be included as ordinary income in the shareholder’s gross income for the year of distribution.  The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion.  The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest.  The interest charge is at the rate applicable to deficiencies in income taxes.
 
 
2.
The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.
 
A shareholder that makes a section 1295 election will be currently taxable on his or her pro-rata share of the Company’s ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder’s basis in his or her shares will be increased to reflect taxed but undistributed income.  Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.
 
A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder’s election year).  A section 1295 election is effective for the shareholder’s election year and all subsequent taxable years of the shareholder.  Procedures exist for both retroactive elections and filing of protective statements.  Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC.  Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election.  Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.
 
If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder’s holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder.  If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes.  Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.
 
A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder’s income tax return for the first taxable year to which the election will apply.  A shareholder must make a section 1295 election by completing Form 8621, attaching said Form to its federal income tax return, and reflecting in the Form the information provided in the PFIC Annual Information Statement, or if the shareholder calculated the financial information, a statement to that effect.  The PFIC Annual Information Statement must include the shareholder’s pro-rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC’s taxable year or information that will enable the shareholder to calculate its pro-rata shares.  In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles.  A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder’s pro-rata shares of the PFIC’s ordinary earnings and net capital gain.  In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC’s books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain.  A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly for each taxable year to which the Section 1295 election applies must comply with the foregoing submissions.
 
 
68
 
Because the Company’s stock is “marketable” under section 1296(e), a United States Investor may elect to mark the stock to market each year.  In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder’s adjusted basis in such stock.  A shareholder is also generally allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year.  Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the shareholder for prior taxable years.  While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the United States Investor has marked to market, coordination rules for limited application will apply in the case of a United States Investor that marks to market PFIC stock later than the beginning of the shareholder’s holding period for the PFIC stock.
 
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.
 
Controlled Foreign Corporations
 
Sections 951 through 964 and Section 1248 of the Internal Revenue Code, referred to as the “Code”, relate to controlled foreign corporations, referred to as “CFCs”.  A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder’s holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC.  The PFIC provisions continue to apply in the case of a PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.
 
The 10% United States shareholders of a CFC are subject to current United States tax on their pro-rata shares of certain income of the CFC and their pro-rata shares of the CFC’s earnings invested in certain United States property.  The effect is that the CFC provisions may impute some portion of such a corporation’s undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.
 
The Company does not believe that it will be a CFC.  It is possible that the Company could become a CFC in the future.  Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.
 
Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company
 
A corporation will be classified as a personal holding company, or a “PHC”, if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation’s stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income).  A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).
 
A corporation will be classified as a foreign personal holding company, or an “FPHC”, and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation’s stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income).  Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC’s undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted).
 
 
69
 
A corporation will be classified as a foreign investment company, or an “FIC”, if for any taxable year it: (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein); and (ii) 50% or more of the value or the total combined voting power of all the corporation’s stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons.  In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder’s ratable share of the corporation’s earnings and profits for the period during which such stock was held.
 
The Company believes that it is not and will not be a PHC, FPHC or FIC.  However, no assurance can be given as to the Company’s future status.
 
United States Information Reporting and Backup Withholding
 
Dividends are generally subject to the information reporting requirements of the Code.  Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.
 
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor’s federal income tax liability.
 
Filing of Information Returns
 
Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return.  In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return.  Other filing requirements may apply and United States Investors should consult their own tax advisors concerning these requirements.
 
F.           Dividends and Paying Agents
 
Not Applicable.
 
G.           Statement by Experts
 
Not Applicable.
 
H.           Documents on Display
 
The Company files annual reports and furnishes other information with the SEC.  You may read and copy any document that we file at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the Commission’s website (http://www.sec.gov).  The Company also files its annual reports and other information with the Canadian Securities Administrators via SEDAR (www.sedar.com).
 
Copies of the Company’s material contracts are kept in the Company’s administrative headquarters.
 
I.            Subsidiary Information
 
None.
 
Item 11.  Quantitative and Qualitative Disclosures about Market Risk
 
Not Applicable.
 
Item 12.  Description of Securities Other than Equity Securities
 
Not Applicable.

 
70
 
 
Part II
 
Item 13. Defaults, Dividend Arrearages and Delinquencies
 
None.
 
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
 
None.
 
Item 15T. Controls and Procedures
 
Disclosure Controls and Procedures
 
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our company’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report on Form 20-F.  Based on the evaluation, these officers concluded that as of the end of the period covered by this Annual Report on Form 20-F, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission.  These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to our company’s management, including our company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.  The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control Over Financial Reporting.”
 
Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.  Our company intends to remediate the material weaknesses as set out below.
 
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our company’s internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Canadian generally accepted accounting principles, and that our company’s receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
 
 
71
 
Our management, including our principal executive officer and principal financial officer, along with an independent consultant, conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 2009 based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 2009 due to the following material weaknesses: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting, financial reporting and corporate governance; and (iii) insufficient disaster recovery plans.
 
Our company has taken steps to enhance and improve the design of our internal controls over financial reporting, however these steps were not complete as of December 31, 2009. During the period covered by this annual report on Form 20-F, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2010: (i) address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting, financial reporting and corporate governance; and (iii) implement a disaster recovery plan.
 
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
 
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in internal control over financial reporting in the year ended December 31, 2009.  However, as a result of the evaluation of our internal control over financial reporting as of December 31, 2009, conducted by our principal executive officer, principal financial officer and an independent consultant, we expect to make such changes in the year ended December 31, 2010.
 
Item 16. [Reserved]
 
Item 16A.  Audit Committee Financial Expert
 
The Board determined that Mr. Gary Robertson is qualified as an Audit Committee Financial Expert.  Mr. Robertson is independent as determined by the NASDAQ listing rules.
 
Item 16B.  Code of Ethics
 
The Company has not currently adopted a code of ethics but is evaluating its internal procedures to determine the necessity of same.  In the event that it is determined a code of ethics is necessary, an appropriate code will be implemented.

 
72
 
 
Item 16C.  Principal Accountant Fees and Services
 
The independent auditor for the years ended December 31, 2009, December 31, 2008 and, the eleven-month period ended December 31, was Manning Elliott LLP.
 
Audit Fees
 
The aggregate fees billed by Manning Elliott LLP for professional services rendered for the audit of the Company’s year ended December 31, 2009 were $69,000 (2008: $64,500; 2007: $85,000).
 
Audit-Related Fees
 
The audit-related fees billed by Manning Elliott LLP for the year ended December 31, 2009 were $4,000 (2008: $2,880; 2007: $4,636).
 
Tax Fees
 
The tax fees billed by Manning Elliott LLP for the year ended December 31, 2009 are estimated to be $3,500 (2008: $3,200; 2007: $4,830).
 
All Other Fees
 
The aggregate fees billed by Manning Elliott LLP for advisory and review services relating to the Company’s annual report on Form 20-F for the year ended December 31, 2009 are estimated to be $5,000 (2008: $5,000; 2007: $5,460).
 
The Audit Committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2009.  The Audit Committee pre-approves all non-audit services to be performed by the auditor in accordance with the Audit Committee Charter.  There were no hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
 
Item 16D.  Exemptions from the Listing Standards for Audit Committees
 
Not applicable.
 
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
None.
 
Item 16F.  Changes in Registrants Certifying Accountant
 
None.
 
Item 16G.  Corporate Governance
 
Not applicable.
 
 
73
 
 
Part III
 
Item 17.  Financial Statements
 
The following financial statements pertaining to the Company are filed as part of this Annual Report:

Audit Report of Independent Registered Public Accounting Firm ......................................................................................................73
 
Consolidated Balance Sheets as at December 31, 2009 and December 31, 2008 .................................................................................74
 
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31,
2009, December 31, 2008 and the eleven months ended December 31, 2007 .......................................................................................75
 
Consolidated Statements of Shareholders’ Equity for the years ended December 31,
2009, December 31, 2008 and the eleven months ended December 31, 2007 .......................................................................................76
 
Consolidated Statements of Cash Flows for the years ended December 31,
2009, December 31, 2008 and the eleven months ended December 31, 2007 .......................................................................................77
 
Notes to the Consolidated Financial Statements for the years ended December 31,
2009, December 31, 2008 and the eleven months ended December 31, 2007 .......................................................................................78 thru 103
 
Item 18.  Financial Statements
 
See Item 17.
 
Item 19.  
 Exhibit Number   Name
 1.1    Memorandum of Avino Silver & Gold Mines Ltd.*
 1.2    Articles of Avino Silver & Gold Mines Ltd.*
 4.1    Share Purchase Agreement dated March 22, 2004*
 8.1    List of Subsidiaries
 12.1   Certification of the Principal Executive Officer
 12.2    Certification of the Principal Financial Officer
 13.1   Certificate under the Sarbanes-Oxley Act of the Principal Executive Officer
 13.2    Certificate under the Sarbanes-Oxley Act of the Principal Financial Officer
___________________________
*  Previously filed.

 
74
 
 

 
 
AVINO SILVER & GOLD MINES LTD.
 
Consolidated Financial Statements

For the year ended December 31, 2009, December 31, 2008 and
the eleven-months ended December 31, 2007
 
 
 
 
 
 
 
 
 
75
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
Avino Silver & Gold Mines Ltd.
 
We have audited the consolidated balance sheets of Avino Silver & Gold Mines Ltd. as at December 31, 2009 and 2008 and the consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the years ended December 31, 2009 and 2008 and the eleven month period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
 
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 and the eleven month period ended December 31, 2007 in accordance with Canadian generally accepted accounting principles.
 
/s/ “Manning Elliott LLP”
 
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
April 29, 2010
 
COMMENTS BY AUDITORS ON CANADA-UNITED STATES REPORTING DIFFERENCES
 
The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the shareholders dated April 29, 2010, is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.
 
/s/ “Manning Elliott LLP”
 
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
April 29, 2010
 
 
76
 
 
AVINO SILVER & GOLD MINES LTD.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
 
   
December 31,
    
December 31,
  
   
2009
    
2008
  
             
ASSETS
            
Current
            
Cash and cash equivalents
   $ 2,829,605     $ 3,575,241  
Interest receivable
     146       2,939  
Sales tax recoverable (Note 9)
     88,725       387,007  
Prepaid expenses and other assets
     49,614       11,487  
      2,968,090       3,976,674  
                 
Property, Plant & Equipment (Note 6)
     1,455,146       1,176,013  
Reclamation Bonds
     5,500       5,500  
Mineral Properties (Note 7)
     14,573,506       14,861,524  
Investments in Related Companies (Note 8)
     204,036       106,519  
    $ 19,206,278     $ 20,126,230  
                 
LIABILITIES
                
Current
                
Accounts payable and accrued liabilities
   $ 382,482     $ 404,407  
Amounts due to related parties (Note 12(a))
     164,690       170,800  
      547,172       575,207  
                 
Future income tax liability
     1,694,007       1,933,569  
      2,241,179       2,508,776  
SHAREHOLDERS' EQUITY
                
Share Capital (Note 10)
     33,112,072       33,112,072  
Contributed Surplus
     8,131,629       7,893,742  
Treasury Shares (14,180 Shares, at cost)
     (101,869 )     (101,869 )
      41,141,832       40,903,945  
                 
Accumulated other comprehensive loss
     (6,049 )     (103,566 )
Deficit
     (24,170,684 )     (23,182,925 )
      (24,176,733 )     (23,286,491 )
      16,965,099       17,617,454  
    $ 19,206,278     $ 20,126,230  

Nature of Operations – Note 1
Subsequent Events – Note 22
 
Approved by the Board of Directors:
 
“Louis Wolfin”                      Director  “David Wolfin”                  Director         
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
77
 
 
AVINO SILVER & GOLD MINES LTD.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian dollars)
Period ended December 31
 
 
   
Year ended
2009
    
Year ended
2008
    
(Note 2)
Eleven-months ended
2007
  
                   
Operating and Administrative Expenses
                  
Amortization
   $ 2,328     $ 2,869     $ 2,046  
General exploration
     294       8,823       18,636  
Investor relations
     90,031       193,192       263,192  
Management fees
     96,000       96,000       88,000  
Office and miscellaneous
     104,548       121,353       141,843  
Professional fees
     183,911       179,299       196,555  
Regulatory and compliance fees
     24,540       25,821       21,175  
Salaries and benefits
     82,160       109,354       73,610  
Sales tax (recovery) write-down (Note 9)
     (181,456 )     213,652       -  
Stock-based compensation (Note 11)
     237,887       585,800       -  
Travel and promotion
     28,935       39,750       63,470  
      669,178       1,575,913       868,527  
                         
Other Income (Expenses)
                        
Interest income
     68,224       146,386       359,339  
Foreign exchange loss
     (18,249 )     (38,481 )     (32,301 )
Impairment of mineral properties (Note 7)
     (608,118 )     -       -  
Litigation settlement (Note 19)
     -       2,785       (759,302 )
Mineral property option revenue (Note 7)
     -       25,000       -  
Misappropriation loss (Note 20)
     -       -       (86,155 )
                         
LOSS BEFORE INCOME TAX
     (1,227,321 )     (1,440,223 )     (1,386,946 )
Future income tax recovery (expense) (Note 17)
     239,562       (98,653 )     501,083  
NET LOSS
     (987,759 )     (1,538,876 )     (885,863 )
                         
Other Comprehensive Income (Loss)
                        
Unrealized gain (loss) on investments in related companies (Note 8)
     97,517       (108,196 )     (12,487 )
                         
COMPREHENSIVE LOSS
   $ (890,242 )   $ (1,647,072 )   $ (898,350 )
                         
Loss per Share - Basic and Diluted
   $ (0.05 )   $ (0.07 )   $ (0.04 )
                         
Weighted Average Number of Shares Outstanding
     20,584,727       20,584,727       20,584,727  
 
The accompanying notes are an integral part of these consolidated financial statements

 
78
 
 
AVINO SILVER & GOLD MINES LTD.
Consolidated Statements of Shareholders’ Equity
For the years ended December 31, 2009, December 31, 2008 and eleven month period ended December 31, 2007
(Expressed in Canadian dollars)
 
 
   
Number of Common Shares
    
Share Capital
    
Share Subscriptions Receivable
    
Treasury Shares
    
Contributed Surplus
    
Deficit
    
Accumulated Other Comprehensive Income (Loss)
    
Total Shareholders’ Equity
  
                                                 
Balance, January 31, 2007
     20,584,727     $ 33,112,072     $ (5,940 )   $ (101,869 )   $ 7,259,879     $ (20,758,186 )   $ -     $ 19,505,956  
                                                                 
Transitional adjustment for fair value of investments
     -       -       -               -       -       17,117       17,117  
                                                                 
Shares issued for proceeds receivable
     -       -       5,940       -       -       -       -       5,940  
Net loss for the period
     -       -       -       -       -       (885,863 )     -       (885,863 )
Unrealized loss on investments
     -       -       -       -       -       -       (12,487 )     (12,487 )
Stock-based compensation (Note 11)
     -       -       -       -       27,863       -       -       27,863  
                                                                 
Balance, December 31, 2007
     20,584,727       33,112,072       -       (101,869 )     7,287,742       (21,644,049 )     4,630       18,658,526  
                                                                 
Net loss for the year
     -       -       -       -       -       (1,538,876 )     -       (1,538,876 )
Unrealized loss on investments
     -       -       -       -       -       -       (108,196 )     (108,196 )
Stock-based compensation (Note 11)
     -       -       -       -       606,000       -       -       606,000  
                                                                 
Balance, December 31, 2008
     20,584,727       33,112,072       -       (101,869 )     7,893,742       (23,182,925 )     (103,566 )     17,617,454  
                                                                 
Net loss for the year
     -       -       -       -       -       (987,759 )     -       (987,759 )
Unrealized loss on investments
     -       -       -       -       -       -       97,517       97,517  
Stock-based compensation (Note 11)
     -       -       -       -       237,887       -       -       237,887  
                                                                 
Balance, December 31, 2009
     20,584,727     $ 33,112,072     $ -     $ (101,869 )   $ 8,131,629     $ (24,170,684 )   $ (6,049 )   $ 16,965,099  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
79
 
 
AVINO SILVER & GOLD MINES LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

   
Year ended
December 31, 2009
    
Year ended
December 31, 2008
    
(Note 2)
Eleven-months ended December 31, 2007
  
                   
CASH PROVIDED BY (USED IN):
                  
                   
OPERATING ACTIVITIES
                  
Net loss
   $ (987,759 )   $ (1,538,876 )   $ (885,863 )
Adjustments for non-cash items:
                        
Amortization
     2,328       2,869       2,046  
Sales tax write-down provision
     8,873       213,652       -  
Stock-based compensation
     237,887       585,800       -  
Stock-based compensation included in investor relations
     -       20,200       27,863  
Impairment of mineral properties
     608,118       -       -  
Future income tax expense (recovery)
     (239,562 )     98,653       (501,083 )
                         
      (370,115 )     (617,702 )     (1,357,037 )
                         
Net change in non-cash working capital (Note 13)
     226,040       (291,327 )     (987,164 )
                         
      (144,075 )     (909,029 )     (2,344,201 )
                         
                         
FINANCING ACTIVITIES
                        
Collection of share subscriptions receivable
     -       -       5,940  
                         
INVESTING ACTIVITIES
                        
Mineral property exploration expenditures
     (320,100 )     (1,764,719 )     (2,292,156 )
Property, plant and equipment purchases
     (281,461 )     (93,492 )     (72,208 )
                         
      (601,561 )     (1,858,211 )     (2,364,364 )
                         
Decrease in cash and cash equivalents
     (745,636 )     (2,767,240 )     (4,702,625 )
                         
CASH AND CASH EQUIVALENTS, Beginning
     3,575,241       6,342,481       11,045,106  
                         
CASH AND CASH EQUIVALENTS, Ending
   $ 2,829,605     $ 3,575,241     $ 6,342,481  
                         
                         
SUPPLEMENTARY CASH FLOW DISCLOSURES
                        
Cash paid for:
                        
Interest expense
   $ -     $ -     $ 87  
Income taxes
     -       -       -  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
80
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

1.  NATURE OF OPERATIONS

Avino Silver & Gold Mines Ltd. (the “Company” or “Avino”) was incorporated in 1969 under the laws of the Province of British Columbia, Canada. The Company’s principal business activities include the acquisition, exploration and development of mineral properties. The Company owns interests in mineral properties located in Durango, Mexico and in British Columbia and the Yukon, Canada.

The Company is in the exploration stage and is in the process of determining whether these properties contain ore reserves which are economically recoverable.
 
The recoverability of amounts recorded as mineral properties and related deferred costs is dependent upon the discovery of economically recoverable reserves, maintenance of the Company’s legal interests in its mineral claims, obtaining further financing for exploration and development of its mineral claims, re-development of its mining and processing operations and commencement of future profitable production, or receiving proceeds from the sale of all or an interest in its mineral properties.
 
These audited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) applicable to a going concern, which assume that the Company will realize its assets and discharge its liabilities in the normal course of business. The Company will be required to raise new financing through the sale of shares or issuance of debt to continue with the exploration and development of its mineral properties. Although management intends to secure additional financing as may be required, there can be no assurance that management will be successful in its efforts to secure additional financing or that it will ever develop a self-supporting business. These factors together raise substantial doubt about the Company’s ability to continue as a going concern. These audited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
2.  CHANGE OF FISCAL YEAR END

During 2007, the Company changed its fiscal year end from January 31st to December 31st to correspond to the December 31st fiscal year end of the Company’s Mexican operating subsidiaries, which report on a calendar year basis. The effect of this change resulted in a comparative eleven months fiscal period ended December 31, 2007 for the consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows.
 
3.  SIGNIFICANT ACCOUNTING POLICIES
 
i)  
Basis of presentation
 
These consolidated financial statements have been prepared in Canadian Dollars in accordance with Canadian GAAP and include the accounts of the Company and its Mexican subsidiaries. A summary of the differences between accounting principles generally accepted in Canada and those generally accepted in the United States is contained in Note 23. All significant inter-company balances and transactions have been eliminated on consolidation. The Company’s Mexican subsidiaries are Oniva Silver and Gold Mines S.A., (“Oniva Silver”) which is wholly-owned, Promotora Avino, S.A. De C.V. (“Promotora”) in which the Company has a direct 79.09% ownership, and Compania Minera Mexicana de Avino, S.A. de C.V. (“Cia Minera”) in which the Company has a 96.60% direct ownership and an additional 2.68% indirect effective ownership held through Promotora. The ownership interests in Cia Minera combine for an effective 99.28% held by the Company as at December 31, 2009 (2008 - 89.35%) (see Note 4).
 
 
81
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
i) 
Basis of presentation (continued)
 
These consolidated financial statements include the net assets and operations of the Promotora and Cia Minera subsidiaries on a consolidated basis beginning from July 17, 2006 onward.
 
ii)  
Cash and cash equivalents
 
The Company considers all highly liquid instruments with original maturities of three months or less on the date of purchase to be cash equivalents. Cash equivalents are carried at cost, plus accrued interest, which approximates fair market value.
 
iii)  
Property, plant and equipment
 
Property, plant and equipment is stated at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the assets on the declining balance basis at the following annual rates:
 
Office equipment, furniture and fixtures
     20 %
Computer equipment
     30 %
 
The mine mill, machinery, plant facilities and equipment are not in active use, as the Company is in the process of refurbishing these assets. Accordingly, these assets are considered to be under reconstruction and no amortization has been recorded on them. Once production commences, the mine mill, machinery, plant facilities and equipment will be amortized at rates sufficient to amortize such costs over their estimated productive lives, which do not exceed the related estimated mine lives, of such facilities based on proven and probable reserves.
 
iv)  
Mineral properties, deferred exploration and development expenditures
 
The Company follows CICA Accounting Guideline 11, Enterprises in the Development Stage. Mineral property acquisition, exploration and development costs are deferred until the property to which they relate is placed into production, sold, allowed to lapse or abandoned. Mineral property acquisition costs include the cash consideration and the fair value of common shares issued for mineral property interests based on the observed trading price of the shares. Mineral exploration costs such as field labour and consultants, geology and assaying, and mining claims are capitalized and carried at cost until the properties to which they relate are placed into production, sold or management determines a permanent impairment in value. Development costs incurred to access ore bodies identified in the current mining plan will be expensed as incurred after production has commenced.
 
Development costs necessary to extend a mine beyond those areas identified in the current mining plan and which are incurred to access additional reserves are deferred until the incremental reserves are mined. Mineral properties and development costs, including the mineral acquisition and direct mineral exploration costs relating to the current mining plan, will be depleted and amortized using the units-of-production method over the estimated life of the ore body based on proven and probable reserves once commercial production commences.
 
 
82
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 

3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
v)  
Investments
 
Investments in shares of public companies traded on an active market over which Avino does not have control or exercises significant influence are classified as available-for-sale and accounted for at fair market value, based upon quoted market share prices at the consolidated balance sheet date. Unrealized gains or losses on these investments are recorded as other comprehensive income or loss, unless a decline in value is considered to be other than temporary. Purchases and sales of investments are measured on a settlement date basis.
 
vi)  
Translation of foreign currencies and foreign subsidiaries
 
The Company’s integrated Mexican foreign subsidiaries are financially and operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated foreign operations into Canadian dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at rates in effect during the period, except for amortization, which is translated on the same basis as the related assets. The resulting exchange gains or losses are recognized in income.
 
vii)  
Comprehensive loss
 
Effective February 1, 2007 comprehensive loss is comprised of the sum of the net loss and other comprehensive income or loss which includes unrealized gains or losses from changes in the fair market value of available-for-sale investments, changes in the fair market value of derivative instruments designated as cash flow hedges and currency translation adjustments on self-sustaining foreign operations. The Company does not have any derivative instruments or self-sustaining foreign operations and currently the Company’s other comprehensive income (loss) is comprised only of changes in the fair value of the Company’s available-for-sale investments.
 
viii)  
Financial
 
(a)  Classification
 
Financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are measured at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and accounting for changes in the value of these investments will depend on their initial classification as follows: held-for-trading financials assets are measured at fair value with changes in fair value recognized in operations. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the change in value is realized or the instrument is derecognized or permanently impaired.
 
 
83
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
viii)  
Financial instruments (continued)
 
(b)  Transaction costs
 
Transaction costs attributable to the acquisition or issue of financial assets or financial liabilities, other than those classified as held-for-trading, are added to the initial fair value amount to match the costs with the related transactions.
 
ix)  
Use of estimates
 
The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Significant areas requiring the use of estimates relate to the recoverability or valuation of sales taxes recoverable, property, plant, equipment, and mineral properties, the valuation of asset retirement obligations, useful lives for amortization, recognition and disclosure of future income tax assets and liabilities, and stock-based compensation. Actual results could differ from those estimates.
 
x)  
Income taxes
 
The Company follows the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are determined based on temporary differences between the accounting and taxes bases for existing assets and liabilities, and are measured using the tax rates expected to apply when these differences reverse. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized.
 
The Company follows CICA Emerging Issues Committee Abstract 146 Flow-Through Shares. Canadian tax legislation permits a company to issue securities referred to as flow-through shares whereby the Company assigns the tax deductions arising from the related resource expenditures, to the shareholders. When resource expenditures are renounced to the investors and the Company has reasonable assurance that the expenditures will be completed, a future income tax liability is recognized for the net tax effect of the deductions renounced, and share capital is reduced.
 
If the Company has sufficient unrecognized tax losses carried forward or other unrecognized future income tax assets to offset all or part of this future income tax liability, a portion of such unrecognized future income tax assets is recorded as a future income tax recovery up to the amount of the future income tax liability that would otherwise be recognized.
 
 
84
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
xi)  
Stock-based compensation
 
The Company recognizes stock-based compensation expense for the estimated fair value of stock-based payments. Compensation costs attributable to stock options or similar equity instruments granted to employees are measured at the fair value at the grant date using the Black-Scholes option pricing model, and are expensed over the expected vesting period. Transactions in which goods or services are received from non-employees in exchange for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Consideration received on the exercise of stock options is recorded as share capital with a corresponding reduction in the contributed surplus related to the options exercised.
 
xii)  
Loss per share
 
Basic loss per share is calculated using the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares using the treasury method. The treasury method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate. Stock options and warrants are dilutive when the average market prices of the common shares during the year exceed the exercise prices of the options and warrants.
 
For the years ended December 31, 2009, December 31, 2008 and the eleven months ended December 31, 2007, the existence of warrants and options affects the calculation of loss per share on a fully diluted basis. As the affect of this dilution is to reduce the reported loss per share (anti-dilutive), fully diluted loss per share information has not been shown.
 
xiii)  
Asset retirement obligations
 
The Company recognizes the fair value of its liability for asset retirement obligations (“ARO”), including site restoration costs in the period in which such liabilities are incurred and can be reasonably estimated. Upon recognition of an ARO, the site restoration costs are capitalized as a part of the mineral property. In periods subsequent to initial measurement, the ARO is adjusted for both the passage of time and revisions to the original estimates. If the obligation is settled for other than the carrying amount of the liability, a gain or loss on the settlement is recognized. The Company estimated its site restoration costs as at December 31, 2009 to be $nil (2008 - $nil) as significant disturbance of sites giving rise to restoration obligations has not yet occurred.
 
 
85
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
xiv)  
Impairment of long-lived assets
 
The recoverability of long-lived assets, which includes property, plant, equipment, and mineral properties is assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is based on factors such as future asset utilization and the future undiscounted cash flows expected to result from the use or sale of the related assets. An impairment loss is recognized when the carrying amount of an asset that is held and used exceeds the projected undiscounted future net cash flows expected from its use and disposal less costs to sell, and is measured as the amount by which the carrying amount of the asset exceeds its fair value, which is measured based on discounted cash flows when quoted market prices are not available.
 
Impairment in the carrying value of non-producing mineral properties may occur when one of the following conditions exists:
 
(a)  the Company’s work program on a property has significantly changed, so that previously identified resource targets or work programs are no longer being pursued;
 
(b)  exploration results are not promising and no more work is being planned in the foreseeable future on the property; or
 
(c)  the remaining lease terms for the property are insufficient to conduct necessary studies, exploration work, or mineral extraction.
 
Once impairment has been determined in the carrying value of a mineral property, it will be written-down to fair value. Amounts shown for mineral properties reflect costs incurred to date, less impairments, and are not intended to reflect present or future values.
 
xv)  
New Accounting Standards
 
Effective January 1, 2009, the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (“CICA”). These accounting policy changes were adopted on a prospective basis with no restatement of prior period consolidated financial statements:
 
(a)  
CICA Section 3064 Goodwill and Intangible Assets replaces Section 3062 Goodwill and Intangible Assets, and Section 3450 Research and Development Costs, which also resulted in amendments to related guidance contained in AcG-11 Enterprises in the Development Stage and Section 1000 Financial Statement Concepts. This new standard establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit orientated enterprises. The adoption of this standard had no impact on the Company’s consolidated financial statements for fiscal 2009.
 
(b)  
Emerging Issues Committee Abstracts (“EIC”) 173 Credit Risk and the Fair Value of Financial Assets and Financial Liabilities provides guidance on how to take into account an entity’s own credit risk and the credit risk of the counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. The adoption of this standard had no impact on the Company’s consolidated financial statements for fiscal 2009.
 
(c)  
EIC 174 Mining Exploration Costs provides guidance related to the measurement of exploration costs and the conditions that a mining enterprise should consider when determining the need to perform an impairment review of such costs. The adoption of this standard had no impact on the Company’s consolidated financial statements for fiscal 2009.
 
 
86
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
3.  SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
(d)  
Amendments to CICA Section 3862 Financial Instruments – Disclosures. These amendments are applicable to the Company’s annual financial statements, requiring additional disclosure about fair value measurements of financial instruments and enhanced liquidity disclosure requirements for publically accountable enterprises. The disclosures required by these new standards are included in Note 18.
 
xvi)  
Recent Accounting Pronouncements
 
(a)  
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (“IFRS”) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011. The standard also requires that comparative figures for 2010 be based on IFRS. The Company is currently in the planning stages to identify the impact of adopting IFRS on its financial statements and will continue to invest in training and necessary resources to complete the conversion. The Company continues to monitor and assess the impact of convergence of Canadian GAAP and IFRS. The Company anticipates implementation of these standards in its first quarter of 2011 and is currently evaluating the impact of their adoption on its consolidated financial statements.
 
(b) 
CICA Section 1582 Business Combinations, which replaces Section 1581, Business Combinations; CICA Section 1601 Consolidated Financial Statement and Section 1602 Non-Controlling Interests, which replace Section 1600, Consolidated Financial Statements. These new standards are based on the International Financial Reporting Standard 3, Business Combinations. These new standards replace the existing guidance on business combination and consolidated financial statements. These new standards require that most assets acquired and liabilities assumed, including contingent liabilities, to be measured at fair value and all acquisition costs to be expensed. These new standards also require non-controlling interests to be recognized as a separate component of equity and net earnings to be calculated without a deduction for non-controlling interests. The objective of these new standards is to harmonize Canadian accounting for business combinations with the International and United States accounting standards. The new standards are to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011, with earlier application permitted. This standard is effective for the Company for interim and annual financial statements beginning on January 1, 2011. The Company has not yet determined the impact of the adoption of this change on its consolidated financial statements.
 
4.   SUBSIDIARY COMPANIA MINERA MEXICANA DE AVINO, S.A. DE C.V.
 
On February 16, 2009 the Company converted existing loans advanced to its subsidiary Compania Minera Mexicana de Avino, S.A. de C.V. (“Cia Minera”) into new additional shares, resulting in the Company’s ownership increasing by 9.93% to an effective 99.28%. The inter-company loans and the investment in shares of Cia Minera have been eliminated upon consolidation of the financial statements.  The Company had a pre-existing effective ownership interest of 89.35% in Cia Minera during fiscal December 31, 2008 and 2007 prior to the 9.93% increase. The issuance of shares to the Company by Cia Minera on February 16, 2009 resulted in a reduction in the non-controlling interest from 10.65% to 0.72% (see Note 5).
 
The historic operations of Cia Minera involved the mining of commercial grade ores which produced silver, gold and copper. This plant and mine ceased operations in November 2001 due to low metal prices and the closure of a smelter. The Company is evaluating the re-activation of the mine and has commenced exploration activities on Cia Minera’s mineral properties in the state of Durango, Mexico (see Note 7).
 
 
87
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
5.   NON-CONTROLLING INTEREST
 
As at December 31, 2009 the Company has an effective 99.28% interest in its subsidiary Cia Minera, and the remaining 0.72% portion is a non-controlling interest, reflecting a change in ownership interests resulting from the shares that Cia Minera issued to the Company on February 16, 2009 (the “Cia Minera Share Transaction”) as described in Note 4.  In fiscal 2008 the non-controlling interest of Cia Minera was 10.65% and the 9.93% change in the fiscal 2009 ownership results in a reduction of the non-controlling interest.
 
Cia Minera’s operations have generated recurring losses since the Company acquired control of Cia Minera on July 17, 2006 and the owners of the minority interest have not funded and are not required to fund their share of Cia Minera’s net losses and have not demonstrated any commitment for funding.  Accordingly, the non-controlling interest in Cia Minera operating losses are not recognized as a recoverable asset in these financial statements and there is no allocation of consolidated net losses to the minority interests.
 
The Cia Minera Share Transaction is accounted for as a capital transaction and the funds that were previously advanced to Cia Minera are consolidated in the financial statements as assets, expenditures or deficit according to the full use of the funds in 2009 or past years.  The minority interest has not contributed any assets or funds for Cia Minera’s operations and no past losses have been attributed as recoverable from the minority interest, therefore upon the reduction of the minority interest in fiscal 2009 there are no adjustments affecting the balances presented in the consolidated financial statements.
 
6.  PROPERTY, PLANT AND EQUIPMENT
 
   
Cost
    
Accumulated Amortization
    
2009
Net Book Value
    
2008
Net Book Value
  
Office equipment, furniture and fixtures
   $ 5,512     $ 4,557     $ 955     $ 1,194  
Computer equipment
     27,642       6,587       21,055       22,928  
Mine mill, machinery and processing plant
     1,387,082       -       1,387,082       1,105,621  
Mine facilities and equipment
     48,416       2,362       46,054       46,270  
    $ 1,468,652     $ 13,506     $ 1,455,146     $ 1,176,013  
 
 
88
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

7.   MINERAL PROPERTIES
 
         
British
              
   
Durango
    
Columbia
    
Yukon
        
   
Mexico
    
Canada
    
Canada
    
Total
  
                         
Balance, December 31, 2007
   $ 12,489,137     $ 607,667     $ 1     $ 13,096,805  
                                 
Exploration costs incurred
   during year:
                                
Assays
     98,442       67       303       98,812  
Assessment and taxes
     60,565       -       -       60,565  
Drilling
     1,276,941       -       -       1,276,941  
Geological
     326,564       387       1,450       328,401  
Balance, December 31, 2008
   $ 14,251,649     $ 608,121     $ 1,754     $ 14,861,524  
                                 
Exploration costs incurred
   during year:
                                
Assays
     9,480       -       -       9,480  
Assessment and taxes
     40,948       -       -       40,948  
Drilling
     156,612       -       -       156,612  
Geological
     143,149       -       -       143,149  
Sale of concentrate
     (30,089 )     -       -       (30,089 )
Impairment of mineral properties
     -       (608,118 )     -       (608,118 )
                                 
Balance, December 31, 2009
   $ 14,571,749     $ 3     $ 1,754     $ 14,573,506  
 
Additional information on the Company’s mineral properties by region is as follows:
 
(a)    Durango, Mexico
 
The Company’s subsidiary Cia Minera owns 42 mineral claims in the state of Durango, Mexico.  In addition four core mineral claims are under leased concessions – exploitation rights to and for the Unification La Platosa, are granted by a lease agreement, to Cia Minera from Minerales de Avino SA de CV. The two concessions, Primer Rey and Avino y Emma, are included in the lease agreement, but are discrete and lie under the town of San Jose de Avino. The agreement is valid until October 31, 2010. An ongoing dispute regarding royalties on the leased mineral claims was settled during fiscal December 31, 2007 (see Note 19).
 
The Company’s mineral claims in Mexico are divided into the following four properties:
 
(i)    Avino mine area property
 
The Avino mine property is situated around the towns of Panucho de Coronado and San Jose de Avino and surrounding the formerly producing Avino mine. There are four exploration concessions covering 154.4 hectares, 24 exploitation concessions covering 1,284.7 hectares and one leased exploitation concession covering 98.83 hectares.
 
(ii)   Stackpole area property
 
The Stackpole area property is situated with the Avino mine property around the towns of Panucho de Coronado and San Jose de Avino and surrounding the formerly producing Avino mine. Under a royalty agreement covering three mineral concessions, Cia Minera shall pay to Minerales de Avino royalties of 3.5% on mineral extracted, processed and sold from the Unification La Platosa, San Carlos and San Jose concessions. The royalties are to be calculated on a base of net sales (net smelter payment less the cost of sales) less the process costs at the mine.
 
 
89
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
7.   MINERAL PROPERTIES (Continued)

(a)   Durango, Mexico (continued)
 
(iii)  Gomez Palacio property
 
        The Gomez Palacio property is located near the town of Gomez Palacio, Durango, Mexico. There are nine exploration concessions covering 2,549 hectares.
 
(iv)  Papas Quiero property
                
The Papas Quiero property is located near the village of Papas Quiero, Durango, Mexico. There are four exploration concessions covering 2,552.6 hectares and one exploitation concession covering 602.9 hectares.
 
(b)   British Columbia, Canada
 
The Company’s mineral claims in British Columbia are divided into the following three properties:
 
(i)  
Aumax property
 
In 2003 the Company acquired a 100% interest in six Crown granted mineral claims, located in the Lillooet Mining Division of British Columbia, Canada by issuing 200,000 common shares at a price of $0.50 per share and paying $4,000 in cash for total consideration of $104,000. During the January 31, 2007 year end these mineral claims were converted into one claim encompassing all of the original claims.
 
(ii)  
Minto property
 
The Company has a 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim, situated in the Lillooet Mining Division of British Columbia. During the January 31, 2007 year end these mineral claims were converted into one claim encompassing all of the original claims. The property was written down to a nominal value of $1 in fiscal 2002. The Company recommenced exploration of the property in fiscal 2006 and costs incurred since then have been deferred.
 
(iii)  
Olympic-Kelvin property
 
The Company has a 100% interest in 20 reverted Crown granted mineral claims, one located mineral claim and three fractions located in the Lillooet Mining Division of British Columbia. The property was written down entirely in fiscal 2002. During the January 31, 2007 year end these original mineral claims and fractions were converted into six claims encompassing all of the original claims. The Company recommenced exploration of the property in fiscal 2004 and costs incurred since then have been deferred.
 
During the year, the Company wrote down the value of the three British Columbia properties to a nominal value of $1 each. The Company is keeping all claims in good standing however no exploration is currently planned for these properties.
 
 
90
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

7.   MINERAL PROPERTIES (Continued)
 
(c)  
Yukon, Canada
 
In 2003 the Company acquired a 100% interest in 14 quartz leases, located in the Mayo Mining Division of the Yukon, Canada by issuing 200,000 common shares at a price of $0.50 per share for total consideration of $100,000. The property was written down to a nominal value of $1 in fiscal 2006 by a charge to operations of $103,242.
 
On November 12, 2008 and amended April 1, 2009, the Company entered into an option agreement with Mega Silver Inc. (“Mega Silver”), whereby Mega Silver can earn the excusive right and option to acquire a 100% title and interest in the Eagle Property located in the Yukon Territory.
 
To earn a 75% interest in the Eagle Property, Mega Silver must:
 
•    Incur Exploration Costs totalling $7.1 million over five years
 
•    Make total cash payments of $400,000 over five years to Avino.
 
•    Issue 500,000 common shares of Mega Silver in Years 4 and 5 to Avino.
 
After earning a 75% interest, Mega Silver may either elect to form a Joint Venture with Avino, or earn an additional 25% interest, whereby Mega Silver must:
 
•     
Take the property into production, subject to a 2.5% Net Smelter Return, pay the Company $200,000, and $200,000 on or before each yearly anniversary of the production decision until the later of the fifth anniversary or the date of commercial production commences.
 
During 2008 the Company received $25,000 upon execution of the agreement which was recorded in income.
 
In 2009 the Company received a notice from Mega Silver which terminated the option agreement.
 
8.  INVESTMENTS IN RELATED COMPANIES
 
Investments in related companies comprise the following:
 
         
Accumulated
    
Fair
    
Fair
  
         
Unrealized
    
Value
    
Value
  
   
Cost
    
Gains (Losses)
    
2009
    
2008
  
                         
(a) Bralorne Gold Mines Ltd.
   $ 205,848     $ (62,529 )   $ 143,319     $ 89,574  
(b) Levon Resources Ltd.
     4,236       56,480       60,716       16,944  
(c) Oniva InternationalServices Corporation
     1       -       1       1  
                                 
    $ 210,085     $ (6,049 )   $ 204,036     $ 106,519  
 
During 2009 the Company recognized a $97,517 (2008 - $108,196, unrealized loss) unrealized gain on investments in related companies classified as available-for-sale in other comprehensive income, representing the change in fair value during the year.
 
 
91
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

8.   INVESTMENTS IN RELATED COMPANIES (Continued)
 
(a)  Bralorne Gold Mines Ltd. (“Bralorne”)
 
The Company’s investment in Bralorne consists of 179,149 common shares with a quoted market value of $143,319 as at December 31, 2009 (2008 - $89,574). Bralorne is a public company with common directors.
 
(b)  Levon Resources Ltd. (“Levon”)
 
The Company’s investment in Levon consists of 141,200 common shares with a quoted market value of $60,716 as at December 31, 2009 (2008 - $16,944). Levon is a public company with common directors.
 
(c)  Oniva International Services Corporation (“Oniva”)
 
The Company owns a 16.67% interest in Oniva, a private company with common management, which provides office and administration services to the Company. The remaining 83.33% is shared equally between five other companies that are related by some common directors and management. See Note 14 for disclosure on the Company’s commitment to Oniva.
 
9.  SALES TAX RECOVERABLE
 
The Company’s sales tax recoverable consists of the Mexican I.V.A. a Value-Added Tax (“VAT”) and the Canadian Goods and Services Tax (“GST”) recoverable.
 
   
2009
    
2008
  
             
VAT recoverable
   $ 92,706     $ 679,315  
Write-down provision
     (8,873 )     (302,632 )
                 
VAT net carrying amount
     83,833       376,683  
GST recoverable
     4,892       10,324  
                 
Sales tax recoverable
   $ 88,725     $ 387,007  
                 
 
 
92
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
9.   SALES TAX RECOVERABLE (Continued)
 
The Company records the VAT net of a write-down provision, reflecting an estimate of the amount of the VAT recoverable based on past collection history and the length of time amounts are outstanding. During 2009 the Company received VAT refunds including interest totalling $617,245 for past claims included in the December 31, 2008 balance of VAT recoverable, resulting in a significant recovery of the sales tax write-down provision in 2009 and a lower ending balance of VAT as at December 31, 2009. The 2009 sales tax write-down recovery is presented in the statement of operations translated at exchanges rates effective for 2009 when the refunds were received.
 
10.  SHARE CAPITAL
 
(a)  
Authorized:   Unlimited common shares without par value

(b)  
Warrants
 
During the year ended December 31, 2009 there were no warrants issued, exercised or expired. On February 29, 2008, the TSX Venture Exchange approved the extension of the expiry date for the warrants expiring on March 20, 2008. The new expiry date for these warrants is March 20, 2009. On February 26, 2009, the TSX Venture Exchange granted approval to further extend these warrants to March 20, 2010.
 
Details of share purchase warrants outstanding as of December 31, 2009 and 2008 are:
 
 
Expiry Date
  
Exercise Price
    
Warrants
Outstanding
  
             
March 20, 2010 (i)
   $ 2.50       2,498,750  

(i) Subsequent to December 31, 2009, the warrants expired unexercised.

(c)  
Stock options
 
The Company has a stock option plan under which it may grant stock options up to 10% of the Company’s total number of shares issued and outstanding on a non-diluted basis. The stock option plan provides for the granting of stock options to regular employees and persons providing investor-relation or consulting services up to a limit of 5% and 2% respectively of the Company’s total number of issued and outstanding shares per year. The stock options vest on the date of grant, except for those issued to persons providing investor-relation or consulting services, which vest over a period of one year. The option price must be greater or equal to the discounted market price on the grant date and the option term cannot exceed five years from the grant date.
 
 
93
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

10.  SHARE CAPITAL (Continued)

(c)  Stock options (continued)

   
Underlying Shares
    
Weighted Average Exercised Price
  
             
Stock options outstanding, December 31, 2007
     1,451,300     $ 3.23  
   Granted
     600,000     $ 1.65  
   Expired or cancelled
     (196,800 )   $ 1.97  
                 
Stock options outstanding, December 31, 2008
     1,854,500     $ 2.85  
   Granted
     160,000     $ 0.75  
   Expired or cancelled
     (195,000 )   $ 2.49  
                 
Stock options outstanding, December 31, 2009
     1,819,500     $ 0.88 *
 
Details of stock options outstanding are:
Expiry Date
  
Exercise Price
    
2009
Stock Options Outstanding
    
2008
Stock Options Outstanding
  
                   
April 5, 2010
   $ 1.35 **     42,500       262,000  
April 5, 2010
   $ 0.75 **     219,500       -  
September 26, 2010
   $ 1.35       -       52,500  
September 26, 2010
   $ 0.75 *     52,500       -  
March 15, 2011
   $ 2.72       -       120,000  
April 26, 2011
   $ 3.99       60,000       940,000  
April 26, 2011
   $ 0.75 *     865,000       -  
February 26, 2013
   $ 1.65       10,000       -  
February 26, 2013
   $ 0.75 *     410,000       480,000  
September 22, 2014
   $ 0.75       160,000       -  
                         
              1,819,500       1,854,500  
 
*  Repriced during the year, the Company’s shareholders and the TSX Venture Exchange approved a re-pricing of options for directors and employees. See Note 11.
** Subsequent to December 31, 2009, the stock options expired unexercised.

As of December 31, 2009, 1,819,500 stock options (2008 – 1,854,500) were exercisable with a weighted average remaining contractual life of 1.87 years (2008 – 2.62 years).

 
94
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
11.  STOCK-BASED COMPENSATION
 
During 2009 the Company granted stock options to various officers and employees of the Company to purchase up to a total of 160,000 common shares at an exercise price of $0.75 per share pursuant to the Company’s stock option plan. The options vested immediately and are exercisable on or before September 22, 2014.  The Company recorded stock-based compensation expense of $62,400 for these stock options

On August 25, 2009, the TSX Venture Exchange approved an amendment to the terms of 1,547,000 outstanding options held by directors and employees by adjusting the exercise price to $0.75 per share. The options previously had exercise prices ranging from $1.35 to $3.99. There were no adjustments to the life of the options. Additional stock based compensation of $175,487 relates to the re-pricing of the options.

The Company recorded total amount of stock based compensation expense in the amount of $237,887 (2008 - $585,800; 2007 - $Nil).
 
Investor relations expenses consist of expenses related to disseminated publications and other communications with shareholders, required by regulatory or other authorities. During 2009 investor relations consultants were not granted any stock options (2008 – 20,000; 2007 – nil).The shareholder and investor relations expense for 2009 includes $nil (2008 - $20,200; 2007 - $27,863) for the fair value of stock options vesting to investor relations consultants.

During the 2009 year, 195,000 stock options were forfeited or cancelled.

Option-pricing requires the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates. The fair value of the options re-priced and granted to officers, directors, employees and investor relations consultants was calculated using the Black-Scholes model with following weighted average assumptions and resulting grant date fair value:

   
Year Ended
December 31, 2009
    
Year Ended
December 31,
2008
    
Period Ended
December 31,
2007
  
Weighted average assumptions:
                  
 Risk-free interest rate
     1.38 %     3.32 %     –  
 Expected dividend yield
     –       –       –  
 Expected option life (years)
     2.27       5       –  
 Expected stock price volatility
     94.84 %     78.23 %     –  
Weighted average fair value at grant date
   $ 0.16     $ 1.01       –  

 
95
 

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
12.  RELATED PARTY TRANSACTIONS AND BALANCES
 
In the normal course of operations the Company transacts with companies related to Avino’s directors or officers. The balances and transactions with related parties not disclosed elsewhere in these financial statements are as follows:
 
(a)  Amounts due to related parties:
 
   
December 31,
2009
    
December 31,
2008
  
Directors
   $ 18,000     $ 9,000  
Chevillon Exploration
     -       16,789  
Frobisher Securities Ltd.
     516       -  
Oniva International Services Corp.
     145,120       145,011  
Sampson Engineering Inc.
     1,054       -  
    $ 164,690     $ 170,800  
 
The amounts due to related parties are non-interest bearing, unsecured and due on demand.
 
(b)
The Company recorded the following amounts for management and consulting services provided by the following companies:
 
   
Year Ended
December 31, 2009
    
Year Ended
December 31, 2008
    
Period Ended
December 31, 2007
  
                   
Intermark Capital Corp
   $ 96,000     $ 96,000     $ 88,000  
Wear Wolfin Design Ltd.
     30,000       30,000       27,500  
    $ 126,000     $ 126,000     $ 115,500  
 
(c)  The Company recorded the following amounts for other services provided by the following companies:
 
   
Year Ended
December 31, 2009
    
Year Ended
December 31, 2008
    
Period Ended
December 31, 2007
  
                   
ABC Drilling Services Inc.
   $ -     $ -     $ 65,577  
Chevillon Exploration Consulting
     4,331       16,789       -  
Sampson Engineering Inc.
     10,344       34,698       36,100  
National Media Associates
     -       -       40,513  
    $ 14,675     $ 51,487     $ 142,190  
 
(d)
The Company recorded the following amounts for administrative services and expenses provided by Oniva International Services Corp.:
 
   
Year Ended
December 31, 2008
    
Year Ended
December 31, 2008
    
Period Ended
December 31, 2007
  
                   
Salaries and benefits
   $ 81,841     $ 109,354     $ 72,365  
Office and miscellaneous
     66,913       78,804       81,368  
                         
    $ 148,754     $ 188,158     $ 153,733  
 
All related party transactions are recorded at the exchange amount, representing the value agreed upon by the Company and the related party, which management believes approximates fair value.
 
 
96
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
13.  SUPPLEMENTARY CASH FLOW INFORMATION

   
2009
    
2008
    
2007
  
Net change in non-cash working capital items:
                  
Interest receivable
   $ 2,793     $ 16,244     $ 18,996  
Sales taxes recoverable
     289,409       (206,110 )     (338,069 )
Prepaid expenses
     (38,127 )     20,830       21,725  
Due from related parties
     -       -       65,770  
Accounts payable and
   accrued liabilities
     (21,925 )     (116,303 )     (790,850 )
Due to related parties
     (6,110 )     (5,988 )     35,264  
    $ 226,040     $ (291,327 )   $ (987,164 )
 
14.  COMMITMENTS
 
The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva for a percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the Company, and to pay a percentage fee based on the total overhead and corporate expenses. The agreement may be terminated with one-month notice by either party. Transactions and balances with Oniva are disclosed in Note 12.
 
The Company has a commitment related to the exploration of its mineral properties in Durango, Mexico, from an agreement signed in 2008 that required drilling 5,000 meters of which the Company completed approximately 50% of this amount in 2008. Management is uncertain when further drilling will commence and as at December 31, 2009, if the Company chooses, it could terminate this contract at a cost of $46,768 (USD$44,499).
 
The Company has an agreement in which monthly operating services will be performed through to September 2010 in Durango, Mexico at a total committed cost of $85,131 (services denominated in USD$81,000).
 
On November 27, 2009, the Company entered into an agreement with a mining contractor for development work and extraction of ore. The agreement is for a term of six months starting from the Company making the required advance payment toward the project. In December 2009, the Company advanced the contractor $36,054 (payment denominated in MXN$450,000) which has been recorded as prepaid expenditures. Subsequent to the end of the year, the Company advanced the contractor a further $36,054 (payment denominated in MXN$450,000). These two advances represent the total advance required to begin the contract. The agreement is based on unit rates with no minimum amounts required to be completed.
 
The Company’s subsidiary has various lease agreements for their office premises, use of land and internet at the mine site. The future lease obligations are as follows including the drilling and services agreement noted above:
 
   
Amount
  
       
2010
   $ 152,869  
2011
     11,297  
2012
     11,297  
2013
     11,297  
2014
     11,297  
 
   $ 198,057  
 
 
97
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
15.  CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the exploration and development of its properties and to maintain flexible capital structure for its projects for the benefit of its stakeholders. In the management of capital, the Company includes the components of shareholders’ equity as well as cash and cash equivalents.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or adjust the amount of cash and cash equivalents. Management reviews the capital structure on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company is not subject to externally imposed capital requirements.

16.  SEGMENTED INFORMATION

The Company’s operations are limited to one industry segment, being the acquisition, exploration and development of mineral properties. Regional geographic information pertaining to the Company’s mineral properties is disclosed in Note 7.

17.  INCOME TAXES
 
The components of the income tax provision including, the statutory tax rate, effective tax rate and the effect of the valuation allowance are as follows:
 
   
2009
    
2008
    
2007
  
                   
Statutory rate
     30.00 %     31.00 %     34.12 %
                         
Income taxes recovered at the Canadian statutory rate
   $ 368,196     $ 446,469     $ 473,225  
                         
Less permanent differences:
                        
     Stock-based compensation
     (71,366 )     (181,598 )     –  
     Investor relations expense for stock options granted
     -       (6,262 )     (9,507 )
     Reduction for effect of lower Mexican tax rates
     1,394       (7,160 )     (64,829 )
     Other non-tax deductible expenses
     (363 )     (762 )     (1,574 )
                         
Effect of temporary differences:
                        
      Share issuance costs
     -       51,071       71,239  
                         
Non-capital losses expired
     (271,284 )                
Change in enacted rates
     (206,652 )                
                         
Valuation allowance on benefit of tax loss
     180,075       (301,758 )     (468,554 )
                         
Benefit of Mexican tax losses recognized on reduction of future income tax liability
     239,694       (98,653 )     501,083  
                         
Income tax recovery recognized in the year
   $ 239,694     $ (98,653 )   $ 501,083  

 
98
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
17.   INCOME TAXES (Continued)

The approximate tax effects of each type of temporary difference that gives rise to potential future income tax assets are as follows:

   
2009
    
2008
  
             
Expected tax recovery rate
     26 %     27 %
                 
Non-capital tax losses carried forward
   $ 1,141,325     $ 1,219,963  
                 
Capital losses carried forward
     191,387       323,886  
                 
Canadian exploration expenses, Canadian development expenses and foreign exploration, and development expenses in excess of book value of Canadian mineral properties
     540,234       441,491  
                 
Share issuance costs
     42,833       88,963  
                 
Tax basis of investments in related companies in excess of book value
     28,210       47,740  
                 
Undeducted capital cost allowance in excess of book value of Canadian equipment
     54,225       56,246  
                 
Future income tax assets
     1,998,214       2,178,289  
                 
Less: valuation allowance
     (1,998,214 )     (2,178,289 )
                 
Net tax assets
   $ –     $ –  
 
The potential benefit of Canadian net operating tax loss carry-forwards and other Canadian future income tax assets has not been recognized in the financial statements since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years.
 
The future income tax liability presented in these consolidated financial statements is due to the difference in the carrying amounts and tax bases of the Mexican mineral properties, mine plant and equipment, which were acquired in the purchase of Cia Minera. The carrying values of the Mexican mineral properties, mine plant and equipment includes an estimated fair value adjustment recorded upon the July 17, 2006 acquisition of control of Cia Minera that was based on a share exchange, while the tax bases of these assets are historical undeducted tax amounts that were nil on acquisition. The future tax liability is attributable to assets in the tax jurisdiction of Mexico and is presented net of Mexican tax losses carried forward. The approximate tax effects of each type of temporary difference that gives rise to future income tax liabilities are as follows:

   
2009
    
2008
  
             
Mexican statutory rate
     28 %     28 %
                 
Book value of mineral properties in excess of tax bases
   $ 3,472,175     $ 3,382,547  
Book value of plant and equipment in excess of tax bases
     333,676       275,092  
Less: Mexican tax losses carried forward
     (2,111,844 )     (1,724,070 )
                 
Future income tax liability
   $ 1,674,007     $ 1,933,569  

 
99
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
17.  INCOME TAXES (Continued)

The Company has capital losses of $1,472,210 carried forward and $4,389,710 in non-capital tax losses carried forward available to reduce future Canadian taxable income. The capital losses can be carried forward indefinitely unless used. Additionally, the Company has $7,542,300 (denominated in MXN$78,199,403) in tax losses which are available to reduce future Mexican taxable income. The Company’s Canadian non-capital tax losses and Mexican tax losses, if unused, expire as follows:

Year of Expiry
  
Canada
    
Mexico
  
             
2010
   $ 343,690     $ 1,373,853  
2014
     568,450       –  
2016
     –       3,623,246  
2017
     –       1,502,459  
2018
     –       1,042,742  
2025
     799,044       –  
2026
     646,331       –  
2027
     643,498       –  
2028
     774,118       –  
2029
     614,579       –  
                 
    $ 4,389,710     $ 7,542,300  
 
18.    FINANCIAL INSTRUMENTS AND RISKS
 
(a)  
Classification
 
The Company has classified its cash and cash equivalents as held-for-trading. Investments in related companies are classified as available-for-sale. Accounts payable and amounts due to related parties are classified as other liabilities. Interest receivable is classified as held for trading.
 
The following table summarizes information regarding the carrying values of the Company’s financial instruments:

   
2009
    
2008
  
             
Held for trading (i)
   $ 2,829,751     $ 3,578,180  
Available for sale (ii)
     204,036       106,519  
Other financial liabilities (iii)
     547,172       575,207  

(i)     
Cash and cash equivalents and interest receivable
(ii)     
Investments in related companies
(iii)     
Accounts payable and amounts due to related parties

 
100
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 

18.  FINANCIAL INSTRUMENTS AND RISKS (Continued)
 
(b)    Fair values
 
The Company’s financial instruments consist of cash and cash equivalents, interest receivable investments in related companies, accounts payable and amounts due to related parties.  The carrying amounts of these short-term financial instruments are a reasonable estimate of their fair value because of their current nature, and the investments in related companies are carried at fair values based on quoted market prices.
 
The Company classifies its fair value measurements in accordance with an established hierarchy that prioritizes the inputs in valuation techniques used to measure fair value as follows:
 
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 – Inputs that are not based on observable market date.
 
The following table sets forth the Company’s financial assets measured at fair value by level within the fair value hierarchy:
 
                     
Total
  
   
Level 1
    
Level 2
    
Level 3
    
2009
  
                         
Cash and cash equivalents
   $ 2,829,605     $ -     $ -     $ 2,829,605  
Investments in related companies
     204,036       -       -       204,036  
    $ 3,033,641     $ -     $ -     $ 3,033,641  
 
(c)  
Interest rate risk
 
In management’s opinion, the Company is not exposed to significant interest rate risk as the Company has nointerest bearing debt.
 
(d)  
Foreign exchange rate risk
 
The operations and financial instruments of the Company’s subsidiaries are denominated in Mexican pesos (“MXN”) and are converted into Canadian dollars as the reporting currency in these financial statements. Fluctuations in the exchange rates between the Mexican peso and the Canadian dollar could have a material effect on the Company’s business and on the reported amounts of the Company’s financial instruments. The Company is exposed to foreign exchange rate risk relating to cash denominated in Mexican pesos totalling $116,014 (MXN$1,448,008), and accounts payable denominated in pesos totalling $283,850 (MXN$3,542,809). The Company does not utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates.
 
(e)  
Credit risk
 
The Company's cash and equivalents are primarily held in a GIC and in accounts with Canadian financial institutions, and as at December 31, 2009 cash and cash equivalents substantially exceed the amounts covered under federal deposit insurance. To minimize the credit risk on cash and cash equivalents the Company uses high quality financial institutions. As at December 31, 2009 the Company has no financial assets that are past due or impaired due to credit risk defaults.
 
(f)  
Liquidity risk
 
The Company ensures its holding of cash and cash equivalents is sufficient to meet its operational requirements. The Company handles its liquidity risk through the management of its capital structure. All of the Company’s financial liabilities have contractual maturities of approximately 30 days or are due on demand and are subject to normal trade terms.
 
 
101
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)

 
18.   FINANCIAL INSTRUMENTS AND RISKS (Continued)
 
(g)  
Market risk
 
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in market prices. The sale of the financial instruments can be affected by changes in interest rates, foreign exchange rates, and equity prices. The Company is exposed to market risk in trading its investments, and unfavourable market conditions could result in dispositions of investments at less than favourable prices. The Company’s investments are accounted for at estimated fair values and are sensitive to changes in market prices, such that changes in market prices result in a proportionate change in the carrying value of the Company’s investments. The Company’s ability to raise capital to fund mineral resource exploration is subject to risks associated with fluctuations in mineral resource prices. Management closely monitors commodity prices, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
 
(h)  
Sensitivity analysis
 
The Company has completed a sensitivity analysis to estimate the impact on net loss for the year which a change in foreign exchange rates would have had.  A change of +/- 10% in MXN$ foreign exchange rate would have an impact of approximately +/- $8,881 on the Company’s net loss.  This impact results from the Company’s MXN$ based balances of monetary assets and liabilities.
 
19.   LITIGATION SETTLEMENT
 
The Company’s subsidiary Cia Minera leases four core mineral claims in consideration for royalties. The lessor had contested the underlying royalty agreement, and had filed a legal action claiming royalties were owed from years prior to the Company’s acquisition of control of Cia Minera. An amicable settlement was negotiated during the period ended December 31, 2007 whereby the Company settled the dispute at a cost of $1,497,604 (settlement denominated in USD$1,500,000).
 
During fiscal December 31, 2007, the Company recorded a litigation settlement expense of $759,302 which was the $1,497,604 amount less a prior year accrual of $738,302. The Company paid a $1,398,457 (USD$1,400,000) portion of the settlement in the year ended December 31, 2007 and the $99,130 balance owing (USD$100,000) was paid during the year ended December 31, 2008. This payment during 2008 resulted in a credit to the litigation settlement of $2,785 due to the foreign exchange difference on the settlement date.
 
20.  MISAPPROPRIATION LOSS
 
During fiscal 2007, the Company incurred a misappropriation loss of MXN$930,000 (CAD$86,155) as a result of a fraudulent disbursement initiated by an unknown third party who was able to access the Company’s Mexican bank account. The Company’s legal representative and the Mexican authorities are attempting to retrieve the funds, however there is no guarantee that these funds will be recovered and the Company has fully provided for this loss. The Company has taken stringent steps as a result of this loss including the use of another bank’s services and has added additional internal controls over banking transactions to prevent the reoccurrence of such a loss in the future.
 
21.  COMPARATIVE FIGURES
 
Certain prior year comparative figures have been reclassified to conform to the financial statements presentation adopted for fiscal 2009.
 
 
102
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
22.  SUBSEQUENT EVENTS

On January 14, 2010, there were 75,000 stock options granted to directors of the Company at an exercise price of $0.81, expiring on January 14, 2015.
 
23.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
 
The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which in most respects conform to accounting principals generally accepted in the United States (“US GAAP”). There are certain material    differences between Canadian and US GAAP and if these consolidated financial statements were prepared in accordance with US GAAP, the impact would be as follows:

   
2009
    
2008
  
Balance sheets
            
Total assets under Canadian GAAP
   $ 19,206,278     $ 20,126,230  
Deferred exploration expenditures and mineral property acquisition costs (ii)
     (14,573,506 )     (14,861,524 )
Total assets under US GAAP
   $  4,632,772     $  5,264,706  
                 
Total liabilities under Canadian GAAP
   $ 2,241,179     $ 2,508,776  
Future income taxes related to mineral properties (ii)
     (1,694,007 )     (1,933,569 )
Total liabilities under US GAAP
   $ 547,172     $ 575,207  
                 
Total shareholders’ equity under Canadian GAAP
   $ 16,965,099     $ 17,617,454  
Future income taxes related to mineral properties (ii)
     1,694,007       1,933,569  
Deferred exploration expenditures (ii)
     (14,573,506 )     (14,861,524 )
Total shareholders’ equity under US GAAP
   $ 4,085,600     $ 4,689,499  
 
   
2009
    
2008
    
2007
  
Consolidated statements of operations
                  
Loss for year under Canadian GAAP
   $ (987,759 )   $ (1,538,876 )   $ (885,863 )
Future income taxes related to mineral properties (i)
     (239,562 )     98,653       (501,083 )
Current period exploration costs (i)
     (320,100 )     (1,764,719 )     (2,332,350 )
Addback of impairment in mineral properties
     608,118       -       -  
Stock based compensation expense (ii)
     (143,564 )     (185,165 )     -  
Net loss for the year under US GAAP (ii)
   $ (1,082,867 )   $ (3,390,107 )   $ (3,719,296 )
Loss per share under US GAAP - basic and diluted
   $ (0.05 )   $ (0.17 )   $ (0.18 )
 
 
103
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
23.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
 
   
2009
    
2008
    
2007
  
Statements of cash flows
                  
Cash flows used in operating activities under Canadian GAAP
   $ (144,075 )   $ (909,029 )   $ (2,344,201 )
Mineral properties expenditures (ii)
     (320,100 )     (1,764,719 )     (2,292,156 )
Cash flows used in operating activities under US GAAP
   $ (464,175 )   $ (2,673,748 )   $ (4,636,357 )
                         
Cash flows used in investing activities under Canadian GAAP
   $ (601,561 )   $ (1,858,211 )   $ (2,364,364 )
Mineral properties expenditures (ii)
     320,100       1,764,719       2,292,156  
Cash flows used in investing activities under US GAAP
   $ (281,461 )   $ (93,492 )   $ (72,208 )
 
i)  
Mineral properties and deferred exploration expenditures
 
Canadian GAAP permits the deferral of costs for the acquisition of mineral properties and exploration expenditures subject to periodic assessments for impairment. US GAAP requires that mineral exploration costs relating to unproven mineral properties be expensed.  Under US GAAP the acquisition costs of mineral properties are initially capitalized with an assessment for impairment under ASC 360 performed at each reporting period. For US GAAP cash flow statement purposes, mineral property exploration expenditures would be shown under operating activities rather than investing activities.
 
ii) 
Stock-based compensation
 
Under ASC 718 US GAAP requires the recognition of a stock-based compensation expense associated with the extension of the expiry date of outstanding warrants whereas Canadian GAAP has no clear guidance on non-service orientated equity awards. The Company has calculated this expense using the Black-Scholes option pricing model with the following assumptions for the fair value of the original warrants at the date of amendment and the fair value of the amended warrants at the date of the amendment respectively: risk-free interest rates 1.27% (2008 - 3.05%), dividend yield of nil and nil, volatility of 104% and 155% (2008 –26.61% and 44.12%) and an expected life of 0.06 years and 1.06 years (2008 - 0.05 years and 1.05 years).
 
iii) 
Recent adopted accounting standards
 
In June 2009, FASB issued Accounting Standards Codification (“ASC”) Topic 105, Generally Accepted Accounting Principles. ASC Topic 105 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with US GAAP for the Securities and Exchange Commission (“SEC”) registrants. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes all existing non-SEC accounting and reporting standards. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. The FASB will instead issue new standards in the form of Accounting Standards Updates (“ASU”). The FASB will not consider ASUs as authoritative in their own right and ASUs will serve only to update the Codification, provide background information about the guidance and provide the basis for conclusions on changes in Codification. These changes and the Codification itself do not change US GAAP. The adoption of these changes has only impacted the manner in which new accounting guidance under US GAAP is referenced and otherwise did not affect the Company’s consolidated financial statements.
 
 
104
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
23.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

iii) 
Recent adopted accounting standards (continued)
 
In May 2009, the FASB issued ASC 855-10-05, Subsequent Events (formerly SFAS No. 165) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new guidance defines two types of subsequent events: “recognized subsequent events” and “non-recognized subsequent events”. Recognized subsequent events provide additional evidence about conditions that existed at the balance sheet date and must be reflected in the Company’s financial statements. Non-recognized subsequent events provide evidence about conditions that arouse after the balance sheet date and are not reflected in the financial statements of a company. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
 
In March 2008, the FASB issued ASC 815-10-15 Derivatives and Hedging (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133). ASC 815-10-15 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
 
In December 2007, the FASB issued ASC 810-10, Non-Controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51. ASC 810-10 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of this statement did not have a material impact on the Company's consolidated financial statements.
 
In December 2007, the FASB issued ASC 805 Business Combinations (formerly SFAS No. 141(R)) that establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this statement did not have a material impact on the Company's consolidated financial statements.
 
 
105
 
 
AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2009, December 31, 2008 and eleven-months ended December 31, 2007
(Expressed in Canadian dollars)
 
 
23.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

iv) 
Recently issued accounting pronouncements
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued amendment to ASC 820 Fair Value Measurements and Disclosures (formerly SFAS 166 Accounting for Transfers of Financial Assets, which amends FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishing of Liabilities) significantly changing how companies account for transfers of financial assets. The standard provides revised guidance in a number of areas including the elimination of qualifying special purpose entity concept, the introduction of new “participating interest” definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarification and amendments to the derecognition criteria for a transfer to be accounted for as a sale when beneficial interests are received by the transferor, and extensive new disclosures. The provisions are to be applied to transfers of financial assets occurring in years beginning after November 15, 2009. The adoption of this standard is not expected to have a material impact on the Company’s future reported financial position or results of operations.
 
In June 2009, the FASB issued an amendment to ASC 810 Consolidation (formerly SFAS 167, Amendments to FASB Interpretation No. 46 (R), which amends the consolidation guidance for variable interest entities (“VIE”) under FIN 46(R), Consolidation of Variable Interest Entities). The changes include the elimination of the exemption for qualifying special purpose entities and a new approach for determining who should consolidate a variable interest entity. In addition, changes to when it is necessary to reassess who should consolidate a variable interest entity have also been made. In determining the primary beneficiary, or entity required to consolidate a VIE, quantitative analysis of who absorbs the majority of the VIEs expected losses or receives a majority of the VIEs expected residual returns or both is no longer required. Under the amendment, an entity is required to assess whether its variable interest or interests in an entity give it a controlling financial interest in the VIE, which involves more qualitative analysis. Additional disclosures will be required under the amendment to provide more transparent information regarding an entity’s involvement with a VIE. The provisions are to be applied to transfers of financial assets occurring in years beginning after November 15, 2009. The adoption of this standard is not expected to have a material impact on the Company’s future reported financial position or results of operations.

 
106
 

 
SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

               
  AVINO SILVER & GOLD MINES LTD.  
       
Date: July 14, 2010
By:
/s/ David Wolfin  
    Name: David Wolfin  
    Title: Chief Executive Officer  
       
   
 
 
107
 
 
 Exhibit Number   Name
 1.1    Memorandum of Avino Silver & Gold Mines Ltd.*
 1.2    Articles of Avino Silver & Gold Mines Ltd.*
 4.1    Share Purchase Agreement dated March 22, 2004*
 8.1    List of Subsidiaries
 12.1   Certification of the Principal Executive Officer
 12.2    Certification of the Principal Financial Officer
 13.1   Certificate under the Sarbanes-Oxley Act of the Principal Executive Officer
 13.2    Certificate under the Sarbanes-Oxley Act of the Principal Financial Officer
___________________________
*  Previously filed.
 
 
108