20-F 1 avino_20f.htm FORM 20-F

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

x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012

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)
570 Granville Street, Suite 900 Vancouver, British Columbia V6C 3P1, Canada
(Address of principal executive offices)
David Wolfin, 570 Granville Street, Suite 900 Vancouver, British Columbia V6C 3P1, Canada,
Tel: 604-682-3701, Email: dwolfin@avino.com
(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:

Common Shares, without Par Value |  | NYSE Mkt
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:
Not Applicable
(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 27,127,416 common shares, without par value, issued and outstanding as of December 31, 2012.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
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. o Yes x No
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. x Yes o No
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). o Yes o No
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 x

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 o
| by the International Accounting Standards Board x |

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 o 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 x
(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. Yes o No o

TABLE OF CONTENTS

Introduction |  |  | 2 |
Currency |  |  | 2 |
Forward-looking Statements |  |  | 2 |
Cautionary Note to United States Investors Concerning Estimate of Measured and Indicated Mineral Resources |  |  | 3 |
Explanatory Note regarding Presentation of Financial Information |  |  | 3 |
Glossary of Mining Terms |  |  | 4 |
Part I |  |  |  | 7 |
| Item 1. | Identity of Directors, Senior Management and Advisors |  |  | 7 |
| Item 2. | Offer Statistics and Expected Timetable |  |  | 7 |
| Item 3. | Key Information |  |  | 7 |
| Item 4. | Information on the Company |  |  | 14 |
| Item 5. | Operating and Financial Review and Prospects |  |  | 39 |
| Item 6. | Directors, Senior Management and Employees |  |  | 45 |
| Item 7. | Major Shareholders and Related Party Transactions |  |  | 56 |
| Item 8. | Financial Information |  |  | 57 |
| Item 9. | The Offer and Listing |  |  | 57 |
| Item 10. | Additional Information |  |  | 58 |
| Item 11. | Quantitative and Qualitative Disclosures About Market Risk |  |  | 64 |
| Item 12. | Description of Securities Other than Equity Securities |  |  | 64 |
Part II |  |  |  | 65 |
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |  |  | 65 |
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |  |  | 65 |
| Item 15. | Controls and Procedures |  |  | 65 |
| Item 16A. | Audit Committee Financial Expert |  |  | 67 |
| Item 16B. | Code of Ethics |  |  | 67 |
| Item 16C. | Principal Accountant Fees and Services |  |  | 67 |
| Item 16D. | Exemptions from the Listing Standards for Audit Committees |  |  | 68 |
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |  |  | 68 |
| Item 16F. | Changes in Registrants Certifying Accountant |  |  | 68 |
| Item 16G. | Corporate Governance |  |  | 68 |
| Item 16H. | Mine Safety Disclosure |  |  | 68 |
Part III |  |  |  | 69 |
| Item 17. | Financial Statements |  |  | 69 |
| Item 18. | Financial Statements |  |  | 69 |
| Item 19. | Exhibits |  |  | 70 |

1

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, 1968, 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 effected 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 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, 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
Certain statements contained in this document, other than statements of historical fact, including, without limitation, those concerning the economic outlook for the silver mining industry, expectations regarding silver prices, production, cash costs and other operating results, growth prospects and outlook of the Company’s operations, individually or in the aggregate, including the completion and commencement of commercial operations of certain of the Company’s exploration and production projects, the Company’s liquidity and capital resources and capital expenditure, and the outcome and consequences of any potential or pending litigation or regulatory proceedings, contain forward-looking statements regarding the Company’s operations, economic performance and financial condition.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, amongst other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in silver prices and exchange rates, political changes in Mexico, competition for resource properties and infrastructure in the mineral exploration industry, the Company’s ability to obtain additional financing, and business and operational risk management and other factors as determined in “Item 3D.: Risk Factors” and elsewhere in this annual report. These factors are not necessarily all of the important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.
The Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. All subsequent written or oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by the cautionary statements herein.
2

CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATE OF MEASURED AND INDICATED MINERAL RESOURCES
In Canada, an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of the Securities and Exchange Commission (the “SEC”) applicable to registration statements and reports filed by United States companies pursuant to the United States Securities Act of 1933, as amended (the “Securities Act”), or the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, information contained in this annual report concerning descriptions of mineralization under Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC. In particular, this annual report on Form 20-F includes the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource” and “inferred mineral resource”. Investors are advised that these terms are defined in and required to be disclosed under Canadian rules by National Instrument 43-101 (“NI 43-101”). U.S. Investors are cautioned not to assume that any part of the mineral deposits in these categories will ever be converted into reserves. However, these terms are not defined terms under SEC Industry Guide 7 and are not permitted to be used in reports and registration statements filed with the SEC by U.S. domestic issuers. In addition, NI 43-101 permits disclosure of “contained ounces” of mineralization. In contrast, the SEC only permits issuers to report mineralization as in place tonnage and grade without reference to unit measures.
The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in SEC Industry Guide 7. Under SEC Industry Guide 7 (under the Exchange Act), as interpreted by the staff of the SEC, mineralization may not be classified as a “reserve” for United States reporting purposes unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards.
United States investors are cautioned not to assume that any part or all of the mineral deposits identified as an “indicated mineral resource,” “measured mineral resource” or “inferred mineral resource” will ever be converted to reserves as defined in NI 43-101 or SEC Industry Guide 7. Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, or economic studies. U.S. investors are cautioned not to assume that part or all of an inferred mineral resource exists, or is economically or legally mineable.
EXPLANATORY NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION
The annual audited consolidated financial statements contained in this annual report on Form 20-F are reported in Canadian dollars. For the years ended December 31, 2012, 2011, and 2010 we have prepared our consolidated financial statements in accordance with IFRS, as issued by the IASB. Our December 31, 2010 consolidated financial statements were initially prepared in accordance with Canadian GAAP, consistent with the prior years and the periods ended December 31, 2009 and 2008. We have adjusted our consolidated financial information at and for the year ended December 31, 2010, in accordance with IFRS 1, and therefore the financial information set forth in this annual report on Form 20-F for the year ended December 31, 2010 may differ from information previously published. We adopted IFRS with a transition date of January 1, 2010.
3

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 m 3 | 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.
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.
Ip induced polarization | A method of ground geophysics surveying employing an electrical current to determine indications of mineralization, also referred to as “IP”.

4

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.
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.
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.

5

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.
veins | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.

6

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 consolidated financial information set forth below has been derived from our annual audited consolidated financial statements for each of the years in the five-year period ended December 31, 2012.
For the years ended December 31, 2012, 2011, and 2010 we have prepared our consolidated financial statements in accordance with IFRS, as issued by the IASB. Our December 31, 2010 consolidated financial statements were initially prepared in accordance with Canadian GAAP, consistent with the prior years and the periods ended December 31, 2009 and 2008. We have adjusted our consolidated financial information at and for the year ended December 31, 2010, in accordance with IFRS 1, and therefore the financial information set forth in this annual report on Form 20-F for the year ended December 31, 2010 may differ from information previously published. We adopted IFRS with a transition date of January 1, 2010.
The selected historical consolidated financial information presented below is condensed and may not contain all of the information that you should consider. This selected financial data should be read in conjunction with our annual audited consolidated financial statements, the notes thereto and the section entitled ‘‘Item 5 — Operating and Financial Review and Prospects.’’
In accordance with IFRS
The tables below set forth selected consolidated financial data under IFRS for the years ended December 31, 2012, 2011 and 2010 and as at December 31, 2012, 2011 and 2010. The information has been derived from our annual audited consolidated financial statements set forth in ‘‘Item 17 — Financial Statements.’’

|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Summary of Operations: |  |  |  |  |  |  |  |  |
Revenue |  | $ | 2,255,376 |  |  | $ | - |  |  | $ | - |
Cost of sales |  |  | 1,434,569 |  |  |  | - |  |  |  | - |
Interest Income |  |  | 21,760 |  |  |  | 78,857 |  |  |  | 14,206 |
Other Income |  |  | 23,464 |  |  |  | 10,499 |  |  |  | - |
Expenses |  |  |  |  |  |  |  |  |  |  |  |
Operating and administrative |  |  | 1,929,746 |  |  |  | 4,042,647 |  |  |  | 1,110,643 |
Unrealized (loss) gain in investments in related companies |  |  | (110,021 | ) |  |  | (212,966 | ) |  |  | 313,323 |
Foreign exchange gain |  |  | 116,562 |  |  |  | 68,404 |  |  |  | 19,951 |
Deferred income tax expense |  |  | (260,321 | ) |  |  | (86,498 | ) |  |  | (27,677 | )
Net loss |  |  | (1,263,178 | ) |  |  | (4,184,351 | ) |  |  | (790,840 | )
Loss per share |  |  | (0.05 | ) |  |  | (0.16 | ) |  |  | (0.04 | )
Weighted average number of shares outstanding |  |  | 27,072,053 |  |  |  | 26,795,632 |  |  |  | 21,059,008 |

7

|  | 2012 |  |  | 2011 |  |  | 2010 |
Balance Sheet Data: |  |  |  |  |  |  |  |  |
Total assets |  | $ | 26,191,608 |  |  | $ | 26,136,355 |  |  | $ | 26,578,517 |
Cash and cash equivalents |  | $ | 4,035,985 |  |  |  | 5,282,464 |  |  |  | 9,051,848 |
Total liabilities |  | $ | 4,244,230 |  |  |  | 3,202,096 |  |  |  | 2,662,727 |
Shareholders’ equity |  |  | 21,947,378 |  |  |  | 22,934,259 |  |  |  | 23,915,790 |

In accordance with Canadian GAAP
The tables below for the years ended December 31, 2009 and 2008 contain selected financial data prepared in accordance with Canadian GAAP, which have been derived from our previously audited consolidated financial statements for the periods ending on such dates. The financial data presented below for 2009 and 2008 presented in accordance with Canadian GAAP and reconciled to United States GAAP, is not comparable to information prepared in accordance with IFRS.

Canadian GAAP |  |  |
|  | Years Ended December 31, |
|  | 2009 |  |  | 2008 |
Summary of Operations: |  |  |  |  |  |
Revenue |  | $ | - |  |  | $ | - |
Interest Income |  |  | 68,224 |  |  |  | 146,386 |
Expenses |  |  |  |  |  |  |  |
Operating and administrative |  |  | 669,178 |  |  |  | 1,575,913 |
Write-down of Exploration and evaluation assets |  |  | 608,118 |  |  |  | - |
Mineral property option revenue |  |  | - |  |  |  | 25,000 |
Future income tax benefit (expense) |  |  | 239,562 |  |  |  | (98,653 | )
Net loss |  |  | (987,759 | ) |  |  | (1,538,876 | )
Loss per share |  |  | (0.05 | ) |  |  | (0.07 | )
Weighted average number of shares outstanding |  |  | 20,584,727 |  |  |  | 20,584,727 |

|  | As at December 31, |
|  | 2009 |  |  | 2008 |
Balance Sheet Data: |  |  |  |  |  |
Total assets |  | $ | 19,206,278 |  |  | $ | 20,126,230 |
Cash and cash equivalents |  |  | 2,829,605 |  |  |  | 3,575,241 |
Total liabilities |  |  | 2,241,179 |  |  |  | 2,508,776 |
Shareholders’ equity |  |  | 16,965,099 |  |  |  | 17,617,454 |

United States GAAP |  |  |  |  |  |
|  | Years Ended December 31, |
|  | 2009 |  |  | 2008 |
Summary of Operations: |  |  |  |  |  |
Net loss per Canadian GAAP |  | $ | (987,759 | ) |  | $ | (1,538,876 | )
Adjustments |  |  | (95,108 | ) |  |  | (1,851,231 | )
Net loss per US GAAP |  |  | (1,082,867 | ) |  |  | (3,390,107 | )
Loss per share per US GAAP |  |  | (0.05 | ) |  |  | (0.17 | )

8

|  | As at December 31, |
|  | 2009 |  |  | 2008 |
Balance Sheet Data: |  |  |  |  |  |
Total assets under Canadian GAAP |  |  | 19,206,278 |  |  |  | 20,126,230 |
Adjustments |  |  | (14,573,506 | ) |  |  | (14,861,524 | )
Total assets under US GAAP |  |  | 4,632,772 |  |  |  | 5,264,706 |
Total equity under Canadian GAAP |  |  | 16,965,099 |  |  |  | 17,617,454 |
Adjustments |  |  | (12,879,499 | ) |  |  | (12,927,955 | )
Total equity under US GAAP |  |  | 4,085,600 |  |  |  | 4,689,499 |

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).

Fiscal Year Ended |  | Average |  |  | Period End |  |  | High |  |  | Low |
2008 |  |  | 1.0660 |  |  |  | 1.2246 |  |  |  | 1.2969 |  |  |  | 0.9719 |
2009 |  |  | 1.1420 |  |  |  | 1.0466 |  |  |  | 1.3000 |  |  |  | 1.0292 |
2010 |  |  | 1.0299 |  |  |  | 0.9946 |  |  |  | 1.0778 |  |  |  | 0.9946 |
2011 |  |  | 0.9891 |  |  |  | 1.0170 |  |  |  | 1.0630 |  |  |  | 0.9383 |
2012 |  |  | 0.9996 |  |  |  | 0.9958 |  |  |  | 1.0299 |  |  |  | 0.9600 |

The following table sets forth the high and low exchange rate for the past six months based on the noon buying rate. As of April 30, 2013, the exchange rate was CDN$0.9929 for each US$1.

Month |  | High |  |  | Low |
November 2012 |  |  | 1.0074 |  |  |  | 0.9971 |
December 2012 |  |  | 1.0162 |  |  |  | 1.0042 |
January 2013 |  |  | 1.0164 |  |  |  | 0.9923 |
February 2013 |  |  | 1.0041 |  |  |  | 0.9722 |
March 2013 |  |  | 0.9847 |  |  |  | 0.9696 |
April 2013 |  |  | 0.9929 |  |  |  | 0.9737 |

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.
9

We will be required to raise additional capital to mine our properties. The Company is currently focusing on further defining an effective plan to mine its San Gonzalo orebody. Although the Company recently began mining operations at the San Gonzalo mine, the Company will still be required to raise capital to further develop the San Gonzalo mine. Our ability to raise funds will depend on several factors, including, but not limited to, current economic conditions, our perceived value for 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. Historically, the Company has raised funds through equity financing and the exercise of options and warrants. The raising of capital may have a dilutive effect on the Company’s per share book value.
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, 2012, we had a net loss of $1,263,178 and an accumulated deficit at December 31, 2012 of $29,458,319. On October 1, 2012, the Company began to generate net income its operations at the San Gonzalo mine however there is no assurance that any of the Company’s operations will be profitable in the future.
As of December 31, 2012, our internal control over financial reporting were ineffective, and if we continue to fail to improve such controls and procedures, investors could lose confidence in our financial and other reports, the price of our shares of common stock may decline, and we may be subject to increased risks and liabilities.
As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002. The Exchange Act requires, among other things, that we file annual reports with respect to our business and financial condition. Section 404 of the Sarbanes-Oxley Act requires, among other things, that we include a report of our management on our internal control over financial reporting. We are also required to include certifications of our management regarding the effectiveness of our disclosure controls and procedures. For the year ended December 31, 2012, our management has concluded that our disclosure controls and procedures and internal control over financial reporting were ineffective 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. To remediate such weaknesses, we plan to implement the following changes: (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. If we cannot effectively and efficiently improve our controls and procedures, we could suffer material misstatements in our financial statements and other information we report and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial and other information. This could lead to a decline in the trading price of our common shares.
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.
10

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.
Operating Hazards and Risks. The operation and development of a mine or mineral property involves many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include:

· | environmental hazards;

· | industrial accidents and explosions;

· | the encountering of unusual or unexpected geological formations;

· | ground fall and cave-ins;

· | flooding;

· | earthquakes; and

· | periodic interruptions due to inclement or hazardous weather conditions.

These occurrences could result in environmental damage and liabilities, work stoppages and delayed production, increased production costs, damage to, or destruction of, Exploration and evaluation assets or production facilities, personal injury or death, asset write downs, monetary losses and other liabilities. Liabilities that the Company incurs may exceed the policy limits of its insurance coverage or may not be insurable, in which event the Company could incur significant costs that could adversely impact its business, operations or profitability.
Metal Market Prices are highly speculative and volatile. 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.
Canadian Title risks. The validity and ownership of mining property holdings can be uncertain and may be contested. Although the Company owns its properties in Canada, 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.
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.
11

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:

· | 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 Exploration and evaluation assets ; 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.
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. 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.
12

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 Exploration and evaluation assets . 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.
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
Limited and volatile trading volume. Although the Company’s common shares are listed on the NYSE Mkt, the TSX Venture Exchange, referred to as the “TSX-V” and the Frankfurt Stock Exchange, referred to as the “FSE”, 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 common 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 general 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. Significant fluctuations in the Company’s common share price is likely to continue.
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 common shares 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 common shares and also affect the ability of our investors to sell their common shares in the secondary market.
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 Exchange Act. 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.
13

Item 4. Information on the Company
Cautionary Note to United States Investors
In Canada, an issuer is required to provide technical information with respect to mineralization, including reserves and resources, if any, on its mineral exploration properties in accordance with Canadian requirements, which differ significantly from the requirements of the SEC applicable to registration statements and reports filed by United States companies pursuant to the Securities Act, or the Exchange Act. As such, information contained in this annual report concerning descriptions of mineralization under Canadian standards may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of the SEC. In particular, this annual report on Form 20-F includes the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource” and “inferred mineral resource”. Investors are advised that these terms are defined in and required to be disclosed under Canadian rules by National Instrument 43-101 (“NI 43-101”). U.S. Investors are cautioned not to assume that any part of the mineral deposits in these categories will ever be converted into reserves. However, these terms are not defined terms under SEC Industry Guide 7 and are not recognized in reports and registration statements filed with the SEC by U.S. domestic issuers. In addition, NI 43-101 permits disclosure of “contained ounces” of mineralization. In contrast, the SEC only permits issuers to report mineralization as in place tonnage and grade without reference to unit measures.
The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in SEC Industry Guide 7. Under SEC Industry Guide 7 (under the Exchange Act), as interpreted by the staff of the SEC, mineralization may not be classified as a “reserve” for United States reporting purposes unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards.
United States investors are cautioned not to assume that any part or all of the mineral deposits identified as an “indicated mineral resource,” “measured mineral resource” or “inferred mineral resource” will ever be converted to reserves as defined in NI 43-101 or SEC Industry Guide 7. Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities legislation, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, or economic studies. U.S. investors are cautioned not to assume that part or all of an inferred mineral resource exists, or is economically or legally mineable.
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, 1968, 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 Exchange Act, changing its name to Avino Mines & Resources Limited. On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and effected 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 the Province of British Columbia and Alberta, a foreign private issuer with the SEC and trades on the TSX Venture Exchange, Tier 2 status under the symbol “ASM”, listed on the NYSE-MKT under the symbol “ASM” and on the Berlin & Frankfurt Stock Exchange under the symbol “GV6”. In July, 2012, the Company’s listing on the TSX Venture Exchange was reclassified to Tier 2 status. The principal executive office of the Company is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, 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 and development of a mineral property located in the State of Durango, Mexico. The Company also owns other Exploration and evaluation assets in British Columbia and the Yukon Territory, Canada.
14

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. (“Avino Mexico”), a Mexican corporation, through the acquisition of an additional 39.25% interest in Avino Mexico which combined with the Company’s pre-existing 49% share of Avino Mexico, brought the Company’s ownership interest in Avino Mexico to 88.25%. The additional 39.25% interest in Avino Mexico was obtained through 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 Avino Mexico’s common shares, and the direct acquisition of 1% of the common shares of Avino Mexico.
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 Avino Mexico. 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 Avino Mexico 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 Avino Mexico in to new additional shares of Avino Mexico. As a result, the Company’s ownership interest in Avino Mexico increased to 99.28%.
The Company has no other significant acquisitions or dispositions of property, except as disclosed in this Annual Report.
B. Business Overview
Operations and Principal Activities
The Company is a Canadian-based resource firm focused on silver and gold production and 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 however, in late April 2012, the Company relinquished its interest in the Aumax silver and gold property to focus on its property in Mexico. 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 a “production stage company”, since announcing production at its San Gonzalo Mine located on the Avino property in Durango Mexico in October 2012. Avino’s Canadian properties are all at the exploration stage. In order to determine if a commercially viable mineral deposit exists in any of the Company’s Canadian properties, further geological work will need to be done and a final evaluation based upon the results obtained to conclude economic and legal feasibility. The Company is currently focusing on production at the Avino mines and will continue to evaluate its Canadian properties for further development, if any.
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.
15

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.
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 believes it 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.
16

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 Avino Mexico in which the Company has a 96.6% direct ownership and an additional 2.68% of Avino Mexico is held through Promotora. The Company’s total effective ownership interest in Avino Mexico is 99.28%.
All of the above subsidiaries are incorporated under the laws of Mexico.
D. Property, Plants and Equipment
The Company is producing a bulk concentrate at the San Gonzalo Mine located on the Avino property in Durango Mexico. The Company is also working to re-open the main Avino Mine as well as exploring options to re-process a large tailings resource left from past mining on the property. In addition the Company is exploring three silver and gold projects in Canada. 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 Avino Mexico, a Mexican company which is involved in the mining of commercial ores and resource exploration and development, including the operation of the Avino Mine. Avino Mexico 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 the Eagle, Olympic-Kelvin, and Minto, and Aumax properties. However, as disclosed above, the Company relinquished its interest in the Aumax property to focus on its property in Mexico.
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 Property, Durango, Mexico
17

Ownership
The Company has a 99.28% ownership interest in Avino Mexico, a company incorporated under the laws of Mexico. Avino Mexico owns the Avino Property. The Company acquired its initial 49% interest in Avino Mexico 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.
In addition to its wholly owned claims, Avino Mexico leases four core mineral claims in consideration for royalties. While the mine was producing from 1974 until 2001, it operated under a lease which expired October 31, 2010. In February 2012, Avino Mexico re-negotiated and entered into a new agreement with Minerales de Avino, S.A. de C.V. (“Minerales”) to acquire mineral rights on the four core mineral claims, whereby Avino Mexico will have the exclusive right to explore these claims for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the grant of these rights, the Company paid Minerales US$250,000 by the issuance of 135,189 common shares of the Company at a deemed price of $1.85 per share. The Company will have a period of 24 months for the development of mining facilities. The Company has agreed to pay to Minerales a royalty equal to 3.5% of net smelter returns (the “NSR Royalty”), at the commencement of commercial production from the property. In addition, after the development period, if the minimum monthly processing rate of the mine facilities is less than 15,000 tonnes, then the Company must pay to Minerales in any event a minimum royalty equal to the applicable NSR Royalty based on processing at a minimum monthly rate of 15,000 tonnes. Minerales has also granted to the Company the exclusive right to purchase a 100% interest in the leased property at any time during the term of the agreement (or any renewal thereof), upon payment of US$8 million within 15 days of the Company’s notice of election to acquire the leased property. The purchase would be completed under a separate purchase agreement for the legal transfer of the property.
Property Description and Location
The Avino Property is located approximately 82 km’s to the NE of the city of Durango and covers approximately 1,005.1044 hectares. The property is accessible via a paved public road. The Avino Mine had been an open pit operation until March 1993, at which time Avino Mexico commenced underground operations. Mineralized rock was broken by ripping, drilling and blasting and trucked to the processing plant, approximately 400 meters from the pit, where it was processed. The Avino Mine was an underground operation at the time of its 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.
The Avino Mine and processing plant were historically serviced by a heavy equipment repair shop, mechanical and electrical shops, assay office, metallurgical laboratory, warehouse and other auxiliary facilities. Electric power was supplied by the government-owned Federal Electricity Commission.
Water for use at the mill is obtained from: (i) the Galeana Well; (ii) the El Caracol Reservoir (iii) Tailings Reclaim Water.
The property was dormant from 2002 to 2006, largely due to low copper and silver prices. As stated above, Avino gained control of the property in July 2006 and exploration resumed that year; this led to the discovery of new mineralization at San Gonzalo and resulting in underground work and bulk sample testing to firm up the grade and metallurgy in the fall of 2010.
Following the bulk sample which was completed in the second quarter of 2011, underground work of the San Gonzalo Mine continued in preparation for on-going production. In October 2012, Avino announced that production had commenced at the San Gonzalo Mine.
Production
The fiscal year ended December 31, 2012 saw Avino transition from an exploration stage to a production stage company. Effective October 1, 2012, commercial production commenced at the San Gonzalo silver-gold-lead-zinc underground mine and ore processing complex, located on the Avino property in the Durango State of Mexico.
18

Results from the first six months of operations are reported in the table below:

| Oct 2012 | Nov 2012 | Dec 2012 | Jan 2013 | Feb 2013 | Mar 2013
Total Mill Feed (dry tonnes) | 6,647 | 6,528 | 6,364 | 6,392 | 6,418 | 6,913
Average Daily Throughput (tpd) | 214 | 218 | 235 | 228 | 229 | 230
Days of Operation | 31 | 30 | 27 | 28 | 28 | 30
Feed Grade Silver (g/t) | 233 | 256 | 287 | 315 | 306 | 307
Feed Grade Gold (g/t) | 0.93 | 0.99 | 1.19 | 1.27 | 1.19 | 1.40
Bulk Concentrate (dry tonnes) | 180 | 177 | 181 | 197 | 166 | 206
Bulk Concentrate Grade Silver (kg/t) | 7.04 | 7.37 | 7.90 | 8.32 | 9.43 | 8.52
Bulk Concentrate Grade Gold (g/t) | 25.0 | 25.4 | 28.6 | 29.1 | 30.4 | 34.5
Recovery Silver (%) | 82 | 78 | 78 | 81 | 80 | 83
Recovery Gold (%) | 72 | 69 | 68 | 70 | 66 | 73
Mill Availability (%) | 97.2 | 98.1 | 87.9 | 91.1 | 99.0 | 96.7
Total Silver Produced (kg) | 1,265 | 1,302 | 1,433 | 1,638 | 1,565 | 1,757
Total Gold Produced (g) | 4,489 | 4,487 | 5,185 | 5,722 | 5,036 | 7,117
Total Silver Produced (oz) calculated | 40,671 | 41,870 | 46,066 | 52,779 | 50,315 | 56,488
Total Gold Produced (oz) calculated | 144 | 144 | 167 | 184 | 162 | 228
Total Silver Equivalent Produced (oz) | 47,888 | 49,083 | 54,401 | 62,781 | 59,228 | 69,098

Comparative figures from Q4 2012 and Q1 2013 are as follows:

| Q4 2012 | Q1 2013 | % Change
Total Mill Feed (dry tonnes) | 19,539 | 19,723 | 0.9
Average Daily Throughput (tpd) | 222 | 229 | 3.1
Days of Operation | 88 | 86 | (2.30)
Feed Grade Silver (g/t) | 259 | 309 | 19.3
Feed Grade Gold (g/t) | 1.04 | 1.29 | 24.0
Bulk Concentrate (dry tonnes) | 538 | 568 | 5.6
Bulk Concentrate Grade Silver (kg/t) | 7.44 | 8.72 | 17
Bulk Concentrate Grade Gold (g/t) | 26.33 | 31.4 | 19.3
Recovery Silver (%) | 79 | 81 | 2.5
Recovery Gold (%) | 70 | 70 | 0
Mill Availability (%) | 94.4 | 95.5 | 1.2
Total Silver Produced (kg) | 4,000 | 4,960 | 24.1
Total Gold Produced (g) | 14,161 | 17,875 | 26.2
Total Silver Produced (oz) calculated | 128,607 | 159,582 | 24.1
Total Gold Produced (oz) calculated | 455 | 574 | 26.2
Total Silver Equivalent Produced (oz) | 151,372 | 191,107 | 26.2

19

Silver equivalent for Q1 2013 was calculated using a 55:1 ratio for silver to gold. For Q4 2012, a 50:1 ratio was used in the calculation. (The ratio was changed to reflect more current gold and silver prices.) Mill production figures have not been reconciled and are subject to adjustment with concentrate sales. Year-to-date and calculated figures may not add up due to rounding.
Production from San Gonzalo mine during the months of October and November were sold in 2012. December production was stored in inventory.
Processing Plant
In September 2006, the Company conducted a review of the plant, including the condition of all equipment, capacity of each circuit, and efficiency of the plant. The review was an order of magnitude cost estimate for putting the plant back into operation at the rate of 1,000 tpd.
The Company’s processing plant was built initially in the 1970’s and was refurbished and capacity increased in 1993. Most of the infrastructure was in place for both a 250 tpd and 1,000 tpd operation. 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 report concluded that the process plant can be brought back into operation in possibly three months contingent upon the availability of operators and mechanics for about US $1 million at 1000 tpd for an operating life of 5 to 10 years.
A 250 tpd (“circuit 1”) circuit in the mill was subsequently renovated in 2008-9 in order to process material from the San Gonzalo Mine.
During Q2 2013 a second 250 tpd circuit (“circuit 2”) in the mill was commissioned and put into operation for the processing of historic Avino surface stockpiles.

Circuit # | Throughput (tpd) | Source of Mill feed | Online Date
1 | 250 | San Gonzalo | Now Online
2 | 250 | Avino Surface Stockpiles, SG, ET | Now Online
3 | 1,000 | Avino Mine | 2014

· | Circuit 1 will continue to process high-grade mill feed from the San Gonzalo Mine.

· | Circuit 2 will initially be used to process remaining historic aboveground stockpiles left from past mining of the main Avino Vein. The Company expects the stockpiles will provide enough mill feed for approximately seven months of operations. After the historic stockpiles have been depleted, the new circuit will have the ability to process additional mill feed from the San Gonzalo and Avino Mines as they are developed at depth.

· | Circuit 3 is scheduled to begin processing new material from the main Avino Mine in 2014.

Geophysical Surveys: Induced Polarization (IP)
In December 2006, Avino conducted an 80 km line deep penetrating IP Survey at the property. IP geophysics helps identify drill targets. The IP Survey was completed in 2007. Avino did follow-up soil geochemical, satellite imagery and other surveys to better define targets in the covered areas.
20

Drilling & Programs 2008 – 2012
After taking control of the property in 2006, Avino commenced a regional drill program that continued into 2012. Exploration initially focused on the Elena Tolosa area of the main Avino vein as well as on a new area known as San Gonzalo. Both areas produced favorable results and are now the company’s focus for further development. Ongoing exploration on the property is focused on expanding the San Gonzalo zone as well as outlining the remainder of the Avino Vein and to define new targets on the property such as the Guadalupe, La Potosina, Los Angeles, Aguila Mexicana and Santa Ana.
Details are as follows:
Avino Main Vein (Veta Avino) Elena Tolosa Area (“ET”)
During 2007, 2008 and 2012 Avino drilled 27 holes to explore the ET area of the main Avino deposit below level 11.5 where mining had ended in November 2001. The programs explored the vein system below the original workings to ensure that vein widths and copper/silver values continued at depth and will be used in preparing a new NI 43-101 compliant resource estimate for the ET zone by an independent engineering firm.
Results of the 2007 holes (ET07-01 through ET07-10) were released as assays became available. Holes ET-08-01 through ET-08-08 were drilled in 2008 and holes ET-12-01 through ET- 12-09 were drilled in 2012. The results were released as assays became available and are summarized below:
Details are as follows:
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).
Detailed intersections

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

21

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 intersections

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

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.
22

Detailed intersections

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

23

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.
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

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:
Detailed intersections

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

24

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:
Detailed intersections

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 | 1.50 | 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
263.75 | 265.25 | 1.50 | 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

25

ET-08-08
Drilled approximately 100m east of the ET-08-01 it intersected the main Avino vein 192.95 – 203.25m (10.3m)
Detailed intersections

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

A further eight holes ET-12-01 through ET-12-09 on the ET zone were released in 2012.

Hole # | Bearing | Dip | Down Hole Intersection (from – to) | Length (m) | Silver (g/t) | Gold (g/t) | Copper %
ET-12-01 | 332 | 62 | 246.30 – 275.1 | 28.8 | 142 | 0.352 | 0.481
Including: | 254.40 – 275.1 | 20.7 | 175 | 0.36 | 0.577
ET-12-02 | 335 | 53 | 304.80 – 335.6 | 30.8 | 76 | 0.29 | 1
ET-12-03 | 336 | 59 | 325.25 – 349.9 | 24.65 | 100 | 0.4 | 0.67
Including: | 349.65 – 349.9 | 0.25 | 1,035 | 0.18 | 1.03
ET-12-04 | 336 | -63 | 314.40 – 358.3 | 43.9 | 77 | 0.33 | 0.88
|  |  | 314.40 – 327.7 | 13.35 | 81 | 0.39 | 0.58
Including: | 327.70 – 334.5 | 6.75 | 28 | 0.31 | 0.72
|  |  | 334.50 – 358.3 | 23.8 | 77 | 0.33 | 1.12
ET-12-05 | 336 | -62 | 345.10 – 356.9 | 11.8 | 104 | 0.97 | 0.63
|  |  | 345.10 – 345.8 | 0.7 | 1,183 | 39.59 | 2.44
ET-12-06 | 336 | -70 | 380.60 – 388.6 | 8.05 | 258 | 0.11 | 1.14
ET-12-07 | 336 | 64 | 305.40 – 324.70 | 19.3 | 39 | 0.06 | 0.462
ET-12-08 | 336 | 72 | 329.80 – 343.80 | 14.35 | 24 | 0.05 | 0.436
|  |  | 343.80 – 365.15 | 21.35 | 17 | 0.05 | 0.612
ET-12-09 | 336 | 72 | 339.55 – 387.40 | 47.85 | 19 | 0.03 | 0.441

*Down hole intersection lengths are reported, true widths are unknown
26

Guadalupe
In March 2011, as part of a regional exploration program, Avino drilled an initial 5 holes on the Guadalupe vein. These holes explored higher grade areas along the Guadalupe structure which had been identified by previous surface sampling programs and a coincident IP chargeability anomaly. Results from the first five holes were as follows:

Hole# | Bearing | Dip | From (m) | To (m) | Down Hole Intersection (m) | Gold (g/t) | Silver (g/t) | Copper (ppm) | Lead (ppm) | Zinc (ppm)
GPE-11-01 | 205 | 45 | 54.80 | 55.40 | 1.10 | 0.167 | 44.25 | 13700 |  |
GPE 11-02 | 207 | 43 | 52.40 | 56.00 | 3.10 | 0.80 | 47.70 | 2372 | 2959 | 1435

Following up on these promising results, Avino drilled a further 21 holes (GPE 11-03 through GPE-11-23) at Guadalupe
Assay results as follows:

Hole# | Bearing | Dip | From (m) | To (m) | Down Hole Intersection (m) | Gold (g/t) | Silver (g/t) | Copper (ppm) | Lead (ppm) | Zinc (ppm)
GPE-11-03 | 207 | 42 | 47.2 | 50.68 | 3.45 | 0.2 | 156.3 | N/A | N/A | N/A
GPE-11-05 | 359 | 44 | 20.75 | 22.55 | 1.8 | 2.88 | 163 | N/A | N/A | N/A
GPE-11-06 | 211 | 48 | 62.4 | 67.65 | 5.25 | 1.53 | 36 | 3844 | 3145 | 846
GPE-11-07 | 210 | 58 | 72.1 | 74.25 | 2.15 | 1.695 | 52.5 | 2284 | 2125 | 1216
GPE-11-09 | 219 | 49 | 66.15 | 67.15 | 1 | 0.1 | 248 | N/A | N/A | N/A
GPE-11-10 | 5 | 41 | 109.1 | 109.7 | 0.6 | 1.37 | 240 | 13100 | 1680 | 4065
GPE-11-12 | 4 | 61 | 15.2 | 15.4 | 0.2 | 0.18 | 223 | 6583 | 908 | 1186
GPE-11-13 | 333 | 54 | 76.95 | 77.2 | 0.25 | 0.007 | 216 | N/A | 96800 | 167000
includes: |  | 80.1 | 80.6 | 0.5 | 0.42 | 102 | N/A | 1140 | 8431
GPE-11-14 | 334 | 76 | 119.85 | 122.15 | 2.3 | 0.24 | 199 | N/A | N/A | N/A
includes: |  | 121.2 | 122.15 | 0.95 | 0.31 | 363 | N/A | 81530 | 106363
GPE-11-15 | 19 | 60 | 98.75 | 100.1 | 1.35 | 0.12 | 451 | N/A | 64244 | 115433
GPE-11-16 | 25 | 70 | 100.6 | 102 | 1.4 | 0.84 | 3 | N/A | 26 | 158
GPE-11-17 | 18 | 40 | 70.65 | 71.95 | 1.3 | 1.34 | 79 | N/A | 3555 | 1410
GPE-11-19 | 350 | 69 | 104.75 | 106.4 | 1.65 | 0.1 | 21 | N/A | 2427 | 9148
GPE-11-23 | 321 | 62 | 170.55 | 171.75 | 1.2 | 0.24 | 296 | N/A | 17800 | 24300

27

San Gonzalo
The San Gonzalo structure strikes NW/SE and dips very steeply (85-90°) to SW. During 2007and 2008, Avino drilled 40 holes totaling 9,204 meters to explore San Gonzalo. Results of these holes were released as assays became available.
In 2008, Avino drilled a further 8 holes at San Gonzalo as follows:
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
Detailed intersections

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
Detailed intersections

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).
28

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 breccia | 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

SG-08-04
Intersected San Gonzalo vein 261.25-264.6m (3.35m) 0.5 g/t gold 59 g/t silver.
Detailed intersections

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

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:
Detailed intersections

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

29

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

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

San Gonzalo Bulk Sample Program:
NI 43-101 Resource Calculation
Following the 2007-8 San Gonzalo drill program, in 2009 Avino completed a NI-43-101 compliant resource estimate on the portion of the San Gonzalo vein explored in the drill program. Such NI-43-101 is out-dated and the information is not included herein. Avino is working to release an updated NI-43-101 resource estimate which will factor in the work done at San Gonzalo.
In 2011, Avino drilled a further 11 holes at San Gonzalo. The 2011 program was designed to determine the feeder systems for the San Gonzalo deposit, select results are as follows:

Hole # | Bearing | Dip | Hole Length (m) | Intersection (Down Hole Length (m)) | Gold (g/t) | Silver (g/t) | Lead (PPM) | Zinc (PPM)
SG -11-12 | 218 | 71 | 312 | 290.85 - 291.30 (0.45) | 1.04 | 2441 | 17300 | 12300
|  |  |  | 295.3 - 297.35 (2.05) | 6.21 | 996 | 8398 | 13776
SG-11-13 | 218 | 71 | 345 | 319.70 - 323.40 (3.70) | 0.1 | 11 | 217 | 399
SG-11-14 | 209 | 61 | 331 | 321.05 - 322.70 (1.65) | 1.32 | 216 | 1601 | 4124
SG-11-15 | 211 | 68 | 363 | 349.65 - 350.90 (1.25) | 1.16 | 141 | 6570 | 11856
SG-11-16 | 209 | 62 | 334 | No Significant Values
SG-11-17 | 210 | 70 | 383 | 365.30 - 366.55 (1.25) | 0.14 | 185 | 2646 | 3818

30

San Gonzalo Bulk Sample Program
In 2009 and the early part of 2010, Avino’s main focus was to lay the ground work for a bulk sampling program to firm up the grade and the metallurgy of the San Gonzalo deposit. The sampling program was also to provide the needed concentrate material for further evaluation by 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 2009 and the permits were granted within 8 to 12 weeks after the applications were filed.
A major portion of the work and investment over the last couple of years has centered on improving and upgrading the existing mill and equipment.
In December 2009, the Company announced that contract terms had been finalized with Desarrollo Minero Guadalupe S.A. de C.V. (“DMG”) for the mining of the 10,000 tonne bulk sample from the San Gonzalo deposit.
The mining contract included collaring of the portal, driving 1,000 meters of development consisting of a decline, crosscuts and raises and the extraction of 10,000 tonnes of mineralized vein material.
In January 2010, DMG began driving the first decline to the 2,260 m elevation for infrastructure work and extraction of the bulk sample. The San Gonzalo vein was intersected in May 2010 and a smaller splay vein was intersected two months later. A second decline was driven to the 2,306m level.
By July 2010 both levels had intersected the San Gonzalo vein. The Upper Level 1 has been driven northwest along the San Gonzalo Vein and broke in to the old San Gonzalo workings. The exploration drift on the Lower Level 2 (2260 m) along the San Gonzalo vein was also advanced to the northwest towards the old San Gonzalo workings.
On October 6, 2010, the two levels were connected with the completion of the first raise allowing the start of stoping (cut and fill) for the bulk sample. By January 2011, development for the extraction of the 10,000 tonne bulk sample was completed by the mining contractor DMG; processing of the bulk sample began shortly afterwards.
San Gonzalo Bulk Sample Results
In July 2012, the results from the 10,000 tonne bulk sample program at San Gonzalo were announced. The bulk sample was intended to allow the Company to assess the economics of the zone by confirming mineral grades obtained through earlier diamond drilling. The results were released after a comprehensive review of the data and discussions with engineers. The bulk sample program was completed during the first quarter of 2011 and the Company sold 188 tonnes of the San Gonzales bulk concentrate for net proceeds of US$1.83 million. In April 2012, the Company sold the balance of the San Gonzalo concentrate.
The results are based on the metallurgical balance provided below:

| Weight | Assay (g/t) | Contents (kg) | Contents (oz’s) | Recovery (%)
| Tonnes | Au | Ag | AAu | Ag | Au | Ag | Au | AAg
Feed | 10,519* | 0.9 | 261 | 9.35 | 2,746.75 | 300.9 | 88,311.7 | 100 | 100
Concentrate | 232 | 23.8* | 8,998* | 5.52 | 2,087.53 | 177.5 | 67,116.9 | 59 | 76
Tail | 10,287 | 0.4 | 64 | 3.83 | 659.22 | 123.4 | 21,194.8 | 41 | 24

*These figures have been reconciled to the weighed feed tonnage and the final concentrate assays of the paid shipment. They also have been rounded for clarity.
31

The overall bulk sample feed grade was 261g/t Ag and 0.9g/t Au. Silver and gold recoveries were 76% and 59% respectively and 232 dry tonnes of flotation concentrate were produced of which 188 tonnes were sold for net proceeds of US$1.83 million. If the entire production were sold under the same contract terms, the net proceeds would have been US$2.26 million.
Evaluation costs relating to mining, milling, and overhead for the bulk sample program US$567,045 or US$7.62 per ounce silver equivalent. Included in these amounts are costs for the raises and stopes. Cost per tonne produced were $53.91 and proceeds on 188 tonnes of concentrate sold of US $1.83 million. (The contract prices per ounce of silver and gold were US$36.75 and US$1,511.31 respectively)
The net proceeds of the bulk sample program yielded a positive result and demonstrate the viability of the San Gonzalo Project. On the basis of this result, we are proceeding with our mine plan to develop the 3rd, 4th and 5th levels and to provide mill feed at the rate of 250 tonne per day on a sustained basis. Once this throughput has been achieved and is on a sustainable basis, the Company will look at improving and optimizing the economics of the San Gonzalo deposit based on the Wardrop findings. No formal feasibility study has been commissioned after bulk sampling program.
San Gonzalo Mine
Following the completion of the bulk sample which was comprised of material from levels 1 and 2, mine advancement at San Gonzalo has been ongoing. In 2012, the remaining material from the stopes on level 2 was mined and brought to the surface. During the year, level 3 was the main focus of mining activities with two stopes having been developed and partially extracted by the end of the year. By the end of July, a decline from level 3 to level 4 had been completed and work on the ramp to level 5 had commenced. By year-end, level 5 had been reached and stope development on level 4 was underway. Underground advancement for 2012 totaled 2,558 metres consisting of ramp advancement, cross cuts, drifts and raises.
During the 3rd and 4th quarters 2012, sampling results from drifting along the San Gonzalo vein were released. These samples are analyzed for silver, gold, copper, lead and zinc by fire assay and AA methods at the Company’s own lab at the mine, providing a quick estimate of vein width, and grade. Channel samples are then taken from the back and sent for assay by Inspectorate Labs for public release in compliance with NI 43-101.
Many of the samples taken produced silver assays results greater than 1,000 g/t confirming earlier drill results which indicated the deposit is significantly higher grade at depth, than at level 2 where the 10,000 tonne bulk sample test was drawn from in 2010.
The lengths sampled to date are as follows:

North West of Cross Cut (old shaft)
Length along Vein (m) | Average Width (m) | Silver (g/t) | Gold (g/t) | Copper (ppm) | Lead (ppm) | Zinc (ppm)
26.79 | 1.67 | 518 | 2.58 | 560 | 6500 | 7540
13.64 | 1.60 | 80 | 0.68 | 300 | 4390 | 7690
17.02 | 1.53 | 622 | 3.33 | 600 | 8350 | 13930
38.78 | 1.65 | 387 | 1.60 | 610 | 5,790 | 9,270
55.61 | 2.15 | 654 | 2.40 | 890 | 13,580 | 24,610
Includes:
10.18 | 2.22 | 1,380 | 3.24 | 1180 | 9420 | 21120
Includes sample 166893 on sample line L64 – the highest grade Avino has sampled in 6 years at SG
| 0.40 | 14,768 | 14.57 | 12,300 | 39,100 | 39,000
6.27 | 1.90 | 243 | 1.80 | 510 | 3,490 | 6,830
10.54 | 1.47 | 45 | 0.23 | 180 | 2,280 | 5,160

South East of Cross Cut (Old Shaft)
Length along Vein (m) | Average Width (m) | Silver (g/t) | Gold (g/t) | Copper (ppm) | Lead (ppm) | Zinc (ppm)
4.56 | 2.31 | 357 | 1.56 | 600 | 7430 | 23890
39.33 | 1.79 | 429 | 1.98 | 630 | 4,950 | 8,980

32

Avino Mine (Elena Tolosa)
Avino produced ore from the Avino Vein from 1974 to 2001 producing approximately 5 million tons, containing 16 million ounces silver, 96,000 ounces gold and 24 million pounds of copper. The mine was closed in November 2001 due to low metal prices (Silver US$4.37/oz, Gold US$283/oz, Copper US$0.65/lb) and the closure of a key smelter.
Production from 1976 to 1992 was from the Tolosa open pit. Subsequent production was mostly from a 4x4 meter ramp access underground operation using sub-level stoping with a sub-vertical increment restricted from 11 to 15m to counter mine dilution arising from an occasional, semi-incompetent hanging-wall. From 1997 - 2001, the mine operated six days per week, three shifts per day, averaging 1000 tons per day and achieved up to 1300 tpd.
Mineral rights on the concessions, Unification La Platosa, totaling an area of 98.83 hectares which cover 1300 metres along the main Avino deposit were held under an option agreement with a private company (Minerales de Avino SA de SV "Minerales"). That agreement required Avino to pay a 3.5% royalty to Minerales, which expired on October 31, 2010. This new agreement replaces the original expired deal.
In February 2012, Avino, through its wholly owned Mexican subsidiary entered into a new agreement with Minerales whereby Minerales has indirectly granted to the Company the exclusive right to explore and mine the La Platosa property known as the "ET zone".
Terms of the New Agreement
Pursuant to the new agreement, the Company will have the exclusive right to explore and mine the property for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the grant of these rights, the Company must pay to Minerales a deemed sum of US$250,000, by the issuance of 135,189 common shares of the Company. The Company will have a period of 24 months (the "Development Period") for the development of mining facilities.
The Company has agreed to pay to Minerales a royalty equal to 3.5% of net smelter returns (the "NSR Royalty"), at the commencement of commercial production from the property. In addition, after the Development Period, if the minimum monthly processing rate of the mine facilities is less than 15,000 tonnes, then the Company must pay to Minerales in any event a minimum royalty equal to the applicable NSR Royalty based on processing at a minimum monthly rate of 15,000 tonnes.
Minerales has also granted to the Company the exclusive right to purchase a 100% interest in the property at any time during the term of the new agreement (or any renewal thereof), upon payment of US$8 million within 15 days of the Company's notice of election to acquire the property. The purchase would be completed under a separate purchase agreement for the legal transfer of the property.
Avino Mine Development
Shortly after signing the new Minerales royalty agreement, the Company initiated an exploration program to further define remaining resources. The 2012 drill program, which totalled 3,263 metres through 9 holes was intended to form the basis for a current mineral resource estimate below level 12 to be included in a forthcoming NI 43-101 compliant resource report. The results were consistent with results from drilling conducted between 2006 and 2008 and demonstrated the thickness and consistency of the vein. Full results from the drill program can be viewed in the section above titled Exploration.
33

To resume underground development of the Avino mine, the existing underground workings must first be dewatered. During the year, construction of a water treatment plant and water testing was completed. At the time of this report, the water level had receded down to level 8 of the mine. Mexican authorities have granted permission to the Company to de-water the mine without requiring a formal permit. Avino is required to submit quarterly reports logging the chemical content of the water being pumped from the underground workings. Once the water is treated it will be discharged to the El Caricol dam on the property and used for milling as well as for irrigation of local farms. Dewatering is expected to reach the bottom of the flooded area (level 11) within 6 to 8 months with operations expected to resume in Q1 2014.
A review of the underground workings by mine personnel above the water level is also taking place to identify potential mining areas for mill feed; this represents part of the exploration program aimed at reopening the ET (Avino) mine.
Historic Avino Mine Above Ground Stockpiles
During the first three quarters of 2012, Avino processed material left from past mining of the main Avino vein. The historic stockpiles had been left on the surface in various locations across the property making delivery for processing easy and cost efficient. The stockpiles provided Avino an opportunity to generate cash flow while tuning the mill and continuing underground advancement and mining at San Gonzalo. During this period, the Company was considered an exploration stage company, therefore the proceeds from the sale of this concentrate was charged as a reduction of Exploration and evaluation assets and exploration costs; all concentrate produced during the period was sold. Quarterly output results from this project are as follows:

2012 Quarter | Source of Mill Feed | Feed Material Processed (tonnes) | Concentrate Produced (tonnes) | Ag oz Produced (calculated) | Au oz Produced (calculated) | Ag Eq oz Produced* (calculated)
Q1 | Historic Stockpiles | 14,600 | 176 | 17,875 | 220 | 28,875
Q2 | Historic Stockpiles | 16,900 | 134 | 14,129 | 180 | 23,129
Q3 | Historic Stockpiles | 20,015 | 323 | 31,024 | 381 | 50,074
Total | Historic Stockpiles | 51,515 | 633 | 63,028 | 781 | 102,078

Silver equivalent was calculated using a 55:1 ratio for silver to gold. Mill production figures have not been reconciled and are subject to adjustment with concentrate sales. Year-to-date and calculated figures may not add up due to rounding.
Tailings
Avino continues to explore options for upgrading the mine's tailings resource. The tailings are situated approximately 500 m west-southwest of the main shaft to the main Avino mine.
This asset includes oxide and sulphide tailings, each requiring separate treatment methods. The tailings resource was created during between 1976 and 2001 during Avino's previous operation from both open pit (oxide tailings) then later underground (sulphide talings) mining. Improved metals markets now potentially enable Avino to process the remaining silver and gold in the tailings.
An NI 43-101 resource estimate on the oxide tailings was completed in July 2005. The assay values for this estimate are based on 28 drill holes, which were completed on the tailings in 1990, and include 407.75 m of drilling and 383 assays of both gold and silver. The oxide tailings are estimated to contain a 2.34 million tonne inferred mineral resource grading 91.3 g/t silver and 0.54 g/t gold, with a 50 g/t silver cut-off. The oxide tailings were produced between 1974 and 1993 from open pit mining of the main Avino vein. The entire resource is classified as an Inferred Mineral Resource based on the historical nature of the drilling (prior to institution of NI 43-101 and associated quality assurance/quality control (QA/QC) requirements).
34

In 2012 an updated Technical Report* on the Avino Property was published which focused on the oxide tailings resource. The new study factored in current metals prices (US$1,271 oz Gold, US$20.59 silver) for a base case analysis of the project as well as a spot price analysis using (US$1,622.20 Gold, US$28.36 Silver). Cyanide heap leach tests undertaken in the study produced recoveries of: 68% for silver, 82% for gold or 78% for silver, 87% for gold if the material is first re-ground at the mill and then leached in tanks. The Technical Report is a preliminary economic assessment and should not be considered a prefeasibility or feasibility study, as the economics and technical viability of the oxide tailings have not been demonstrated at this time. The above preliminary economic assessment is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to apply economic considerations that would allow for categorization as mineral reserves. Furthermore, there is no certainty that the preliminary economic assessment will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
This tailings mineral resource will be mined through surface methods and without blasting. A truck/front-end loader arrangement will be used and will operate one 8 hour shift per day, 365 days per year for the 4.7-year life of this Project. Initially the oxide tailings, which are at the bottom of the pile, will be processed without having to move the sulphide tailings, which covers only a portion of the oxide tailings. Not all of the sulphide tailings need to be removed to gain access to the oxide tailings. Approximately 0.5 million tonnes of oxide tailings will be sent to the heap leach pad annually.
Metal Production

Total Tonnes to Mill | 2,340,000
Annual Tonnes to Mill | 500,000
Mine Life | 5 years
Average Silver Grade (g/t) | 91.30 g/t
Average Gold Grade (g/t) | 0.54 g/t
Total Silver Production (oz) | 4,814,000
Total Gold Production (oz) | 31,000
Average Annual Silver Production (oz) | 1,028,860
Average Annual Gold Production (oz) | 6,580

Economics

| Base Case | Spot Price Case
Gold Value (US$) | $1,256 | $1,622
Silver Value (US$) | $20.38 | $28.36
IRR | 54.4% | 92%
Payback period | 1.6 years | 1.1 years
NPV (US$’000) 8% discount rate | $38,647 | $74,186

*Data disclosed in July 25th, 2012 technical report by Tetra Tech: A Technical Report on the Avino Property. Michael O'Brian, M.Sc., Pr.Sci.Nat, FGSSA, FAusIIM, FSAIIM, Hassan Ghaffari, P.Eng., Jacques Ouellet, P.Eng., Ph.D., Monica Danon-Schaffer, Ph.D, P.Eng., Sabry Abdel Hafex, Ph.D., P.Eng and Wayne Stoyko, P.Eng., are the Qualified Persons, as defined under National Instrument 43-101, who supervised and are responsible for the Technical Report on the Avino Property.
35

Note on Mineral Resources
Mineral resources that are not mineral reserves do not have demonstrated economic viability. This assessment is preliminary in nature as it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable to them to be categorized as mineral reserves. At this time there is no certainty that the preliminary assessment and economics will be realized.
Eagle Property
Ownership. The wholly owned Eagle property was acquired in 2003 when Avino purchased a 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 and currently has a deferred value of $2,504.
Property Description and Location. The 516 ha property is located in the Yukon Territory approximately kilometers west of Keno City. It is currently in its Phase I stage of exploration. The property is accessed by a 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.
Avaron Mining Corp. Option Agreement. In January 2012, Avino entered into an option agreement with Avaron Mining Corp. (“Avaron”), whereby Avaron can earn the exclusive right and option to acquire a 100% title and interest in the Eagle Property.
To earn a 75% interest in the Eagle Property, Avaron must:
· Incur Exploration Costs totaling $7.1 million over five years.
· Make total cash payments of $375,000 over five years to Avino.
· Issue a total 800,000 common shares of Avaron over five years to Avino.
After earning a 75% interest, Avaron may either elect to form a Joint Venture with Avino, or has the following two options to earn the remaining 25% interest:
36

Option 1. Avaron may elect within the next six months to place the property into production and commence commercial production within 3 years, subject to a 2.5% Net Smelter Return and a minimum $200,000 annual advance royalty payments payable for 5 years or until production begins; or
Option 2. If Avaron does not elect to place the property into production, Avaron must pay $100,000 annual advance royalty payments and 250,000 common shares to Avino on or before each of the sixth and seventh anniversaries of January 3, 2012 and at its sole expense, complete drilling of an additional 10,000 metres in depth on the Property or incur an additional $2,000,000 in exploration costs in lieu of such drilling on or before the seventh anniversary of the January 3, 2012.
In November 2012 Avino entered into an amending agreement dated November 22, 2012 to amend the option agreement dated January 3, 2012 (the “Option Agreement”) with Avaron, whereby Avaron was required to issue an extra 100,000 common shares to Avino in order to shift the first anniversary cash payment and work commitment down for a year.
Concurrently, Avino, Avaron and Benz Capital Corp. (“Benz”) entered into an Option Purchase and Assignment Agreement dated November 30, 2012 (the “Purchase Agreement”) whereby, Benz may acquire all of Avaron's interest in the Option Agreement pursuant to which Avaron has the option to acquire from Avino up to an undivided 100% interest in the Eagle Property. Avino agreed to provide the consent to the Purchase Agreement for 50,000 common shares from Benz.
Proposed Work Program. The Company does not proposed to conduct any work at the Eagle property since it is subject to an option to Avaron.
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.
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.
Proposed Work Program. No further work is proposed at this time.
37

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 government 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.
Proposed Work Program. No further work program has been proposed.
EL Laberinto Property
Ownership. Avino is, directly or through its wholly-owned Mexican subsidiary Compania Minera Mexicana de Avino, S.A. de C.V., the sole legal and beneficial owner of 100% of the rights, title and interest in and to the Laberinto Property located in Durango State, Mexico
Property Description and Location. The El Laberinto property is situated 60 kilometres NE of Durango, Mexico and 25 kilometres west of Avino’s main mine. It occurs in the Sierra La Silla (hills) which form part of a large volcanic caldera which also contains Avino’s main holdings. The Sierra La Silla area contains many silver, gold, lead, zinc and copper veins similar to those at Avino which are also situated in the lower volcanic Andesite sequence.
History. El Laberinto is a small property today and is a remnant of a much larger land package in the area once controlled by Avino.
During 1995 Avino mapped the La Silla area and sampled the principal veins. Avino had assembled the land package in the district in search of another Avino main vein. (Report August 1995)
Avino drove an adit on the Veta Grande (“Big Vein”) in late 1995. Values of silver and gold were sub economic. The adit was stopped at approximately 300 metres length before it reached the main shoot described in the 1995 report. Three holes were drilled below the adit, assays are unavailable.
Avino does not consider that the Big Vein has been adequately explored to date. Although the adit showed low values, it did not reach the principal shoot and was likely too high on the vein structure.
38

In July 2012, the Company entered into an option and joint venture agreement with Endeavour Silver Corp. ("Endeavour"), whereby Endeavour was granted the option to acquire up to a 75% interest in the El Laberinto Property, Durango State, Mexico, consisting of approximately 91.7 hectares. In order to exercise the option, Endeavour must pay up to US $200,000 in annual installments over 4 years to Avino in option payments, and incur up to US$3 million in exploration work on the El Laberinto Property over the next 4 years
Upon Endeavour acquiring its 75% interest, a joint venture will be formed, under which if any party does not contribute its proportionate share of costs, its participating interest will be diluted on a pro rata basis according to the contributions of all parties. If any party's participating interest is reduced to 10% or less, then its interest will be automatically converted into a 2.5% net smelter returns royalty.
Proposed Work Program. In light of Endeavour’s option on the El Laberinto property, the Company does not anticipate spending funds on the property.
Other Properties (Durango, Mexico)
Avino also has mineral rights for 5 other properties in the Durango State of Mexico:
The El Hueco property, located near Silver Standard’s Pitarilla mine close to the town of Santiago Papasquiaro is comprised of 5 adjoining concessions and covers approximately 1312.42hectares. Avino assembled the land package between1999 and 2005.
The Ana Maria property, located near Gomez Palacio consists of 9 adjoining concessions and covers approximately2545hectares. Avino assembled the land package in 2001 and 2002.
The La Potosina, El Fuerte and Aranjuez concessions, used to be contiguous with the Avino Mine property where the bulk of the work has been taking place, but claims in between these mining concessions and the Avino Mine property have been dropped.
Avino considers these properties to be of merit, but has no current plans for exploration and development at this time.
Item 4A. Unresolved Staff Comments
Not Applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the information contained in the Company’s annual audited consolidated financial statements and the notes thereto for the years ended December 31, 2012, 2011 and 2010 included in this annual report on Form 20-F. Such discussion and analysis is based upon our annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) for the years ended December 31, 2012 and 2011.
For all periods up to and including the year ended December 31, 2010, we prepared our consolidated financial statements in accordance with Canadian generally accepted accounting principles (‘‘Canadian GAAP’’). The annual audited consolidated financial statements for the year ended December 31, 2011 were our first annual consolidated financial statements that were prepared in accordance with IFRS as issued by the International Accounting Standards Board (‘‘IASB’’).
A. Operating Results
Developments for 2012
San Gonzalo
Following the completion of the bulk sample which was comprised of material from levels 1 and 2, mine advancement at San Gonzalo has been ongoing. In 2012, the remaining material from the stopes on level 2 was mined and brought to the surface. During the year, level 3 was the main focus of mining activities with two stopes having been developed and partially extracted by the end of the year. By the end of July, a decline from level 3 to level 4 had been completed and work on the ramp to level 5 had commenced. By year-end, level 5 had been reached and stope development on level 4 was underway. Underground advancement for 2012 totaled 2,558 metres consisting of ramp advancement, cross cuts, drifts and raises.
39

Production at San Gonzalo
The Company declared production to have been achieved as of October 1, 2012 at its San Gonzalo mine and Avino processing facility. Results from the first six months of operations are reported in the table below:

| Oct 2012 | Nov 2012 | Dec 2012 | Jan 2013 | Feb 2013 | Mar 2013
Total Mill Feed (dry tonnes) | 6,647 | 6,528 | 6,364 | 6,392 | 6,418 | 6,913
Average Daily Throughput (tpd) | 214 | 218 | 235 | 228 | 229 | 230
Days of Operation | 31 | 30 | 27 | 28 | 28 | 30
Feed Grade Silver (g/t) | 233 | 256 | 287 | 315 | 306 | 307
Feed Grade Gold (g/t) | 0.93 | 0.99 | 1.19 | 1.27 | 1.19 | 1.40
Bulk Concentrate (dry tonnes) | 180 | 177 | 181 | 197 | 166 | 206
Bulk Concentrate Grade Silver (kg/t) | 7.04 | 7.37 | 7.90 | 8.32 | 9.43 | 8.52
Bulk Concentrate Grade Gold (g/t) | 25.0 | 25.4 | 28.6 | 29.1 | 30.4 | 34.5
Recovery Silver (%) | 82 | 78 | 78 | 81 | 80 | 83
Recovery Gold (%) | 72 | 69 | 68 | 70 | 66 | 73
Mill Availability (%) | 97.2 | 98.1 | 87.9 | 91.1 | 99.0 | 96.7
Total Silver Produced (kg) | 1,265 | 1,302 | 1,433 | 1,638 | 1,565 | 1,757
Total Gold Produced (g) | 4,489 | 4,487 | 5,185 | 5,722 | 5,036 | 7,117
Total Silver Produced (oz) calculated | 40,671 | 41,870 | 46,066 | 52,779 | 50,315 | 56,488
Total Gold Produced (oz) calculated | 144 | 144 | 167 | 184 | 162 | 228
Total Silver Equivalent Produced (oz) | 47,888 | 49,083 | 54,401 | 62,781 | 59,228 | 69,098

Comparative figures from Q4 2012 and Q1 2013 are as follows:

| Q4 2012 | Q1 2013 | % Change
Total Mill Feed (dry tonnes) | 19,539 | 19,723 | 0.9
Total Mill Feed (dry tonnes) | 19,539 | 19,723 | 0.9
Average Daily Throughput (tpd) | 222 | 229* | 3.1
Days of Operation | 88 | 86 | (2.30)
Feed Grade Silver (g/t) | 259 | 309* | 19.3
Feed Grade Gold (g/t) | 1.04 | 1.29* | 24.0
Bulk Concentrate (dry tonnes) | 538 | 568 | 5.6
Bulk Concentrate Grade Silver (kg/t) | 7.44 | 8.72* | 17
Bulk Concentrate Grade Gold (g/t) | 26.33 | 31.4* | 19.3
Recovery Silver (%) | 79 | 81* | 2.5
Recovery Gold (%) | 70 | 70* | 0
Mill Availability (%) | 94.4 | 95.5* | 1.2
Total Silver Produced (kg) | 4,000 | 4,960 | 24.1
Total Gold Produced (g) | 14,161 | 17,875 | 26.2
Total Silver Produced (oz) calculated | 128,607 | 159,582 | 24.1
Total Gold Produced (oz) calculated | 455 | 574 | 26.2
Total Silver Equivalent Produced (oz) | 151,372 | 191,107 | 26.2

Silver equivalent for Q1 2013 were calculated using a 55:1 ratio for silver to gold. For Q4 2012, a 50:1 ratio was used in the calculation. (The ratio was changed to reflect more current gold and silver prices.) Mill production figures have not been reconciled and are subject to adjustment with concentrate sales. Year-to-date and calculated figures may not add up due to rounding.
40

· | Feed grade for silver during Q1 2013 increased by 19.3% over Q4 2012

· | Feed grade for gold during Q1 2013 increased by 24% over Q4 2012

· | Bulk concentrate grades for silver and gold increased by 17% and 19.3% respectively during Q1 2013 as compared to Q4 2012

· | The above resulted in a 24.1% and 26.2% increase in silver and gold production respectively.

Milling - Historic Avino Mine Above Ground Stockpiles
During the first three quarters of 2012, Avino processed material left from past mining of the main Avino vein. The historic stockpiles had been left on the surface in various locations across the property making delivery for processing easy and cost efficient. The stockpiles provided Avino an opportunity to generate cash flow while tuning the mill and continuing underground advancement and mining at San Gonzalo. During this period, the Company was considered an exploration stage company, therefore the proceeds from the sale of this concentrate was charged as a reduction of Exploration and evaluation assets and exploration costs; all concentrate produced during the period was sold. Quarterly output results from this project are as follows:

2012 Quarter | Source of Mill Feed | Feed Material Processed (tonnes) | Concentrate Produced (tonnes) | Ag oz Produced (calculated) | Au oz Produced (calculated) | Ag Eq oz Produced* (calculated)
Q1 | Historic ET Stockpiles | 14,600 | 176 | 17,875 | 220 | 28,875
Q2 | Historic ET Stockpiles | 16,900 | 134 | 14,129 | 180 | 23,129
Q3 | Historic ET Stockpiles | 20,015 | 323 | 31,024 | 381 | 50,074
Total | Historic ET Stockpiles | 51,515 | 633 | 63,028 | 781 | 102,078

Silver equivalent was calculated using a 55:1 ratio for silver to gold. Mill production figures have not been reconciled and are subject to adjustment with concentrate sales. Year-to-date and calculated figures may not add up due to rounding.
Exploration - Avino Mine
In February 2012, a new long-term royalty agreement was signed to grant Avino mining rights to the main Avino vein. Mining activities were suspended on the Avino vein in 2001 due to low metals prices and the closure of a key smelter. Shortly after signing the new royalty agreement, the Company initiated an exploration program to further define remaining resources. The 2012 drill program, which totaled 3,263 metres through 9 holes was intended to form the basis for a current mineral resource estimate below level 12 to be included in a forthcoming NI 43-101 compliant resource report. The results were consistent with results from drilling conducted between 2006 and 2008 and demonstrated the thickness and consistency of the vein. Full results from the drill program can be viewed in the exploration section above.
Development – Avino Mine
To resume underground development of the Avino mine, the existing underground workings must first be dewatered. During the year, construction of a water treatment plant and water testing was completed. As of April 30, 2013, the water level had receded down to level 8 of the mine. Mexican authorities have granted permission to the Company to de-water the mine without requiring a formal permit. Avino is required to submit quarterly reports logging the chemical content of the water being pumped from the underground workings. Once the water is treated it will be discharged to the El Caricol dam on the property and used for milling as well as for irrigation of local farms. Dewatering is expected to reach the bottom of the flooded area (level 11) within 6 to 8 months with operations expected to resume in 2014.
41

A review of the underground workings by mine personnel above the water level is also taking place to identify potential mining areas for mill feed; this represents part of the exploration program aimed at reopening the ET (Avino) mine.
Mill Expansion
In Q4 2012, Avino began to re-furbish a second 250 tpd circuit (circuit 2) to process remaining historic aboveground stockpiles left from past mining of the main Avino Vein. The Company expects the stockpiles will provide enough mill feed for approximately seven months of operations. During the third quarter of 2012, Circuit 1 (250 tpd) produced 50,074 ounces of silver equivalent (calculated) from the same stock piles, Avino expects output will be similar from Circuit 2 once it's activated in Q2 of this year. After the historic stockpiles have been depleted, the new circuit will have the ability to process additional mill feed from the San Gonzalo and Avino Mines as they are developed at depth.
Financing
In January 2013, the Company completed a credit facility with Caterpillar Finance for up to US $5 million. The financing will help Avino advance its current operations at San Gonzalo and reopen the old Avino Mine. The credit facility bears interest at rates ranging from 0% to 4.95% per annum. Equipment leased under the credit facility has terms of 18 months to 60 months. These terms are dependent on the Company's requirements and equipment acquired. With the credit facility in place, the Company has acquired several key pieces of mining equipment including: a new Caterpillar 420F Backhoe loader, Caterpillar R1600 Scoop tram and an Oldenburg underground rock drill. This equipment represents roughly one third of the credit facility
Results of Operations The review of the Company’s financial results is based on the fiscal years ended December 31, 2012, and 2011.
Twelve months ended December 31, 2012 compared with the twelve months ended December 31, 2011.
Revenues
On October 1, 2012, Avino achieved commercial production at the San Gonzalo mine. During the fourth quarter the San Gonzalo mine produced 561 tonnes of bulk silver/gold concentrate recognizing revenues of $2,255,376 on the sale of 368 tonnes of concentrate bulk silver/gold with a cost of sales of $1,434,569 for a gross profit of $820,807. Metal prices for revenues recognized in that period, weighted by dollar of revenue recognized averaged US$31.54 per ounce of silver, US$1,680 per ounce of silver.
Prior to commencing commercial production at San Gonzalo on October 1, 2012, the Company’s processing facility was used to treat process historic stockpiles remaining from the previous operation prior to 2001. In accordance with Company’s accounting policy, the proceeds from concentrate sales for the first nine months of 2012 was recorded as a reduction of exploration and evaluation costs. During the first nine months this activity produced 633 tonnes of concentrate generating proceeds of $3,490,581.
Operating and administrative expenses
Operating and administrative expenses were $1,929,746 for the year ended December 31, 2012 as compared with of $4,042,647 for the year ended December 31, 2011, a decrease of $2,112,901. The decrease was primarily due to a reduction in share-based payments to employees, directors, and consultants which decrease by $2,511,212 during the year. The decrease in share-based payments is due to more options being granted in the year ended December 31, 2011, than for the year ended December 31, 2012. The decrease in share-based payments was partially offset by increases in office and miscellaneous of $331,322 and salaries and benefits $284,532.
42

Loss for the year
The loss for the year ended December 31, 2012 was $1,263,178 compared with a loss of $4,184,351 for the year ended December 31, 2011, a decrease in loss of 2,921,173. The significant differences include the recognition of mine operating income of $820,807 and a decrease of share-based payments of $2,511,212.
Twelve months ended December 31, 2011 compared with the twelve months ended December 31, 2010
Operating and administrative expenses
Operating and administrative expenses were $4,042,647 for the year ended December 31, 2011 as compared with of $1,110,643 for the year ended December 31, 2010, an increase of $2,932,004. The increase was primarily due to share-based payments to employees, directors, and consultants which increased by $2,187,872 during the year. The increase in share-based payments is due to more options being granted in the current year. Other increases include $105,786 in office and miscellaneous due to an increase in mining activity at the Company’s Mexican subsidiary and higher occupancy costs incurred by the parent company. There were also increases in management fees of $200,260 due to a one-time bonus paid to the CEO, and an increase in investor relation expenses of $195,432 due to the NYSE Mkt listing and increased promotional media.
Loss for the year
The loss for the year ended December 31, 2011 was $4,184,351 compared with a loss of $790,840 for the year ended December 31, 2010, an increase in loss of $3,393,511. The significant differences include an increase in general and administrative expenses of $2,932,004 as discussed above. This was offset by an increase in interest income of $64,651 and an increase in gain on foreign exchange of $48,453 due to fluctuations in the Mexican Peso and US Dollar. The Company incurred an unrealized loss on investments in related companies of $212,966 compared to an unrealized gain of $313,323 in the prior year which resulted in an increase in unrealized loss of $526,289.
B. Liquidity and Capital Resources
During the year ended December 31, 2012, the Company incurred expenditures relating to its Mexican properties of $2,392,914 which was offset by the sale of concentrate of $3,490,581. The Company had non-cash additions to Mexican properties of $250,100 relating to deferred depreciation on property, plant, and equipment and $204,334 relating to common shares issued for rights extension, and non-cash reductions of $2,661,265 and $136,511 relating to amounts transferred to mining properties and movements in foreign exchange . The net decrease to Exploration and evaluation assets at the Company’s Mexican properties was $3,441,009. The Company also acquired property, plant and equipment of $981,119, not including the amount transferred from exploration and evaluation assets, net of depreciation of $308,962 and foreign exchange movements of $26,222 The Company is now in commercial production and earned operating revenues of $2,255,376 in addition to interest and other income of $45,224 during the year ended December 31, 2012.
During the year ended December 31, 2011, the Company incurred expenditures relating to its Mexican properties of $3,831,493 which was offset by the sale of concentrate of $3,114,552. The Company had non-cash additions to Mexican properties of $232,821, $292,000, and $137,749 relating to deferred depreciation on property, plant, and equipment, reclamation provision, and movements in foreign exchange respectively. The net change to exploration and evaluation assets at the Company’s Mexican properties was a decrease of $1,376,871. The Company also acquired property, plant and equipment of $1,483,453 net of depreciation of $235,566 and foreign exchange movements of $53,544.
The Company’s cash and cash equivalents at December 31, 2012 totaled $4,035,985 compared to $5,282,464 at December 31, 2011, while working capital totaled $5,363,372 compared to $5,723,398 for the same dates respectively. At December 31, 2012, the Company had current liabilities of $1,476,681 (2011 - $804,740). Accounts payable have contractual maturities of approximately 30-90 days or are due on demand and are subject to normal trade terms. Amounts due to related parties are without stated terms of interest or repayment.
43

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 affect 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, 2012, the Company had the following contractual obligations:

|  | Payment due by period |
|  | Total |  |  | <1 year |  |  | 1-3 Years |  |  | 3-5 Years |  |  | More than 5 years |
Trade payables and other payables |  | $ | 1,145,747 |  |  | $ | 1,145,747 |  |  |  |  |  |  | - |  |  |  | - |
Minimum rental and lease payments |  |  | 922,206 |  |  |  | 248,512 |  |  |  | 495,788 |  |  |  | 101,400 |  |  |  | 76,506 |
Deferred Income Tax Liabilities |  |  | 2,365,677 |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  | 2,365,677 |
Total |  | $ | 4,433,630 |  |  | $ | 1,394,259 |  |  | $ | 495,788 |  |  | $ | 101,400 |  |  | $ | 2,442,183 |

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.
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.
44

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 April 30, 2013. The directors are elected for a term of one year at the annual meeting of shareholders. This year’s annual meeting will be held on June 27, 2013.

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 Director/President/CEO |  | Director and VP Finance of Berkley Resources Inc., President and Director of Coral Gold Resources Ltd. and Gray Rock Resources Ltd. and Director of Bralorne Gold Mines Ltd., Mill Bay Ventures Ltd. and Cresval Capital Corp. |  | October 1995
Andrew Kaplan Director |  | A business consultant, Director of Coral Gold Resources Ltd. |  | September 2011
Jasman Yee Director |  | Metallurgical Engineer |  | January 2011
Dorothy Chin Corporate Secretary |  | Corporate Secretary of Bralorne Gold Mines Ltd., Ltd., and Levon Resources Ltd. |  | September 2008
Malcolm Davidson* Chief Financial Officer |  | Chief Financial Officer of Coral Gold Resources Ltd., Gray Rock Resources Ltd., and Avaron Mining Corporation |  | March 2012

* Ms. Lisa Sharp resigned as CFO on March 5, 2012 and Mr. Malcolm Davidson was appointed as CFO on the same date.
45

B. Compensation
During the last completed fiscal year of the Company, the Company had three executive officers, namely, David Wolfin, Chief Executive Officer; Malcolm Davidson, Chief Financial Officer (appointed on March 5, 2012); and Lisa Sharp, former Chief Financial Officer who resigned on March 5, 2012.

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 three components of the compensation package are included to enable the Company to meet different objectives. The objectives of base salary are to recognize market pay, and acknowledge the competencies and skills of individuals. The objective of incentive bonuses (paid in the form of cash payments) is to add a variable component of compensation to recognize corporate and individual performances for executive officers and employees. The objectives of stock option awards 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 new incentive stock option plans and amendments to the existing stock option plan are the responsibility of the Company’s Compensation Committee.
The compensation of the executive officers is reviewed and recommended for Board approval by the Company’s Compensation Committee. Although the Board has not formally evaluated the risks associated with the Company’s compensation policies and practices, the Board has no reason to believe that any risks that arise from the Company’s compensation policies and practices are reasonably likely to have a material impact on the Company.
The members of the Compensation Committee are Gary Robertson (Chair), Michael Baybak, Jasman Yee and Andew Kaplan, all of whom are independent, except for Jasman Yee, applying the definition set out in Section 1.4 of NI 52-110 since he provided consulting services to the Company. See “Corporate Governance – Compensation Committee” for a discussion of the role and responsibilities of the Compensation Committee.
The general objectives of the Company’s compensation strategy are to:

(a) | compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long term shareholder value;

(b) | align management’s interests with the long term interests of shareholders;

(c) | provide a compensation package that is commensurate with other comparable companies to enable the Company to attract and retain talent; and

(d) | ensure that the total compensation package is designed in a manner that takes into account the Company’s present stage of development and its available financial resources. The Company’s compensation packages have been designed to provide a blend of a non-cash stock option component and a reasonable salary. In addition, extraordinary efforts which enhance shareholder value are rewarded with cash bonuses.

Other than discussed above, the Company has no other forms of compensation. Payments may be made from time to time to individuals [directors] or companies that they control for the provision of consulting services which may be deemed a form of compensation. 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.
46

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 | Discretionary cash payment | Reward individual performance in achieving corporate goals
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. | Reward long-term financial and operating performance and align interests of key employees with those of shareholders

The Company relies on the discretion and judgment of the directors in establishing and amending contracts for all forms of compensation, including stock options to be granted to the CEO and the directors, and for reviewing the CEO’s recommendations respecting compensation of the other officers of the Company, to ensure such arrangements reflect the responsibilities and risks associated with each position. There is no formal process using objectives, criteria, or analysis, for determining compensation. When determining the compensation of its officers, the Compensation Committee and the Board are guided by the general objectives of the Company’s compensation strategy as set out above.

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, 2012 of the Company to its executive officers:

Name and principal position | Year | Salary ($) | Share-based awards ($)1 | Option-based awards ($)2 | Non-equity incentive plan compensation ($)3 | Pension value ($)4 | All other compensation ($) | Total compensation ($)
David Wolfin(5) President, CEO & Director | 2012 | $150,000 | NIL | NIL | NIL | NIL | NIL | $150,000
2011 | $145,500 | NIL | $1,058,200 | 150,000 | NIL | NIL | $1,353,700
2010 | $96,000 | NIL | $65,300 | NIL | NIL | NIL | $161,300
malcolm davidson cfo* | 2012 | $32,378 | NIL | NIL | NIL | NIL | NIL | $32,378
2011 | N/A | N/A | N/A | N/A | N/A | N/A | N/A
2010 | N/A | N/A | N/A | N/A | N/A | N/A | N/A
Lisa Sharp Former CFO* | 2012 | $9,063 | NIL | NIL | NIL | NIL | NIL | $9,063
2011 | $27,521 | NIL | $124,600 | NIL | NIL | NIL | $152,121
2010 | $20,992 | NIL | $18,300 | NIL | NIL | NIL | $39,292

1 The Company does not currently have any share-based award plans.
2 The methodology used to calculate the grant date fair value is based on the Black-Scholes Option Pricing Model. There were no new option based awards issued during the year.
3 The Company’s sole non-equity incentive plan is the payment of a discretionary cash bonus.
4 The Company does not have any pension plans.
5On June 24, 2010, Mr. David Wolfin was appointed CEO. Mr. David Wolfin’s salary was paid to Intermark Capital Corp., a private BC corporation controlled by David Wolfin.
*Ms. Lisa Sharp resigned as CFO on March 5, 2012 and Mr. Malcolm Davidson was appointed as CFO on the same date.
47

Annual Base Salary
Base Salary for the executive officers is determined by the Board based upon the recommendation of the Compensation Committee and its recommendations are reached primarily by informal comparison of the remuneration paid by other reporting issuers similar in size and within the industry and review of other publicly available information on remuneration that the Compensation Committee feels is suitable.
The Annual Base Salary paid to the executive officers is, for the purpose of establishing appropriate increases, reviewed annually by the Board upon the recommendation of the Compensation Committee 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 is in the sole discretion of the Board and Compensation Committee.
Non-Equity Incentive Plan Compensation
One of the three components of the Company’s compensation package is a discretionary annual cash bonus, paid to recognize individual performance in attaining corporate goals and objectives. The Company does not have a long-term incentive plan.
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 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 up to 10% of the Company’s issued capital from time to time. For details of the Plan please refer to “Particulars of Matters to be Act Upon” in the Information Circular.
The Plan is administered by the Compensation Committee. The process the Company uses to grant option-based awards is upon the recommendations of the Compensation Committee.
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 feels is suitable. 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 December 31, 2012:

| 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 ($) | Market or payout value of vested share-based awards not paid out or distributed ($)
David Wolfin President, CEO & Director | 65,000 | $0.75 | Feb. 27, 2013 | $69,550 | Nil | Nil | Nil
15,000 | $0.81 | Jan 14, 2015 | $15,150 | Nil | Nil | Nil
95,000 | $1.05 | Sept 15, 2015 | $73,150 | Nil | Nil | Nil
410,000 | $2.30 | Jan 18, 2016 | N/A | Nil | Nil | Nil
360,000 | $2.00 | Sept 30, 2016 | N/A | Nil | Nil | Nil
malcolm davidson CFO | 20,000 | $2.30 | Jan 18, 2016 | N/A | Nil | Nil | Nil
40,000 | $2.00 | Sept 30, 2016 | N/A | Nil | Nil | Nil
25,000 | $1.60 | Feb 18, 2018 | $5,500 | Nil | Nil | Nil

1 In-the-Money Options are the difference between the market value of the underlying securities at December 31, 2012 and the exercise price of the option. The closing market price for the Company's common share as at December 31, 2012 was $1.82 per common share.
48

Incentive plan awards – value vested or earned during the year
An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period. An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.
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, 2012:

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 President, CEO and Director | Nil | Nil | Nil
Malcolm Davidson CFO | Nil | Nil | Nil
Lisa Sharp Former CFO | Nil | Nil | Nil

(1) | The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date.

4) | Pension Plan Benefits

No pension plan or retirement benefit plans have been instituted by the Company and none are proposed at this time.
Use of Financial Instruments
The Company does not have in place policies which restrict the ability of directors or executive officers to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by a director or executive officers. Any such purchases would be subject to applicable insider reporting requirements.

5) | Termination and Change of Control Benefits

On January 1, 2013, the Company entered into a consulting agreement with Intermark Capital Corporation, a company owned by David Wolfin, which contains certain provisions in connection with termination of employment or change of control.
49

The Agreement can be terminated at any time prior to the expiry of the term, as follows:

a) | by Mr. Wolfin electing to give the Company not less than 3 months prior notice of such termination;

b) | by the Company electing to give Mr. Wolfin 3 months prior notice of such termination along with a termination payment equal to the annual consulting fee; and

c) | by Mr. Wolfin electing to give the Company notice, in the event that there occurs a Change of Control (as defined below) within six (6) months of the effective date of such Change of Control, and if Mr. Wolfin so elects to terminate this Agreement, then Mr. Wolfin will be entitled to a termination payment equal to the annual consulting fee within thirty (30) days of the date of termination.

A Change of Control shall be deemed to have occurred when:

i) | any person, entity or group becomes the beneficial owner of 20% or more of the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors, and such person, entity or group uses such effective voting control to change a majority of the Board of Directors of the Company, either all at once or through any series of elections and appointments when considered together; or

ii) | completion of the sale or other disposition by the Company of all or substantially all of the Company's assets or a reorganization or merger or consolidation of the Company with any other entity or corporation, other than:

iii) | a reorganization or merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of another entity, more than 50.1% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such reorganization or merger or consolidation; or

iv) | a reorganization or merger or consolidation effected to implement a recapitalization or reincorporation of the Company (or similar transaction) that does not result in a material change in beneficial ownership of the voting securities of the Company or its successor.

6) | Director Compensation

The following table sets forth the value of all compensation paid to the directors, excluding Mr. Wolfin who is paid as an officer and not as a director, in their capacity as directors for the year ended December 31, 2012:

Name | Fees earned ($) | Share-based awards ($) | Option-based awards ($) | Non-equity incentive plan compensation ($) | Pension value ($) | All other compensation ($) | Total ($)
Michael* Baybak | $6,000 | NIL | NIL | NIL | NIL | NIL | $6,000
Gary* Robertson | $6,000 | NIL | NIL | NIL | NIL | NIL | $6,000
Jasman Yee | $6,000 | NIL | NIL | NIL | NIL | NIL | $6,000
Andrew* Kaplan | $4,500 | NIL | NIL | NIL | NIL | NIL | $4,500

*Independent & Non-Employee Directors
50

No director of the Company who is not a Named Executive Officer has received, during the most recently completed financial year, compensation pursuant to:

(a) | any standard arrangement for the compensation of directors for their services in their capacity as Directors, including any additional amounts payable for committee participation or special assignments;

(b) | any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of Directors in their capacity as Directors except for the granting of stock options; or

(c) | any arrangement for the compensation of directors for services as consultants or experts.

The Company may grant incentive stock options to Directors of the Company from time to time pursuant to the stock option plan of the Company and in accordance with the policies of the TSX Venture Exchange (the "TSX-V").
Outstanding share-based awards and option-based awards
The following table sets forth the options granted to the directors to purchase or acquire securities of the Company outstanding at December 31, 2012:

| Option-based Awards | Share-based Awards
Name (1) | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date | Value of unexercised in-the-money options ($)(2) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested ($) | Market or payout value of share-based awards not paid out or distributed ($)(1)
Michael Baybak | 25,000 15,000 20,000 100,000 40,000 25,000 | $0.75 $0.81 $1.05 $2.30 $2.00 $1.60 | Feb 27, 2013 Jan 14, 2015 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018 | $26,750 $15,150 $15,400 Nil Nil $5,500 | Nil Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil Nil
Gary Robertson | 25,000 15,000 30,000 100,000 60,000 25,000 | $0.75 $0.81 $1.05 $2.30 $2.00 $1.60 | Feb 27, 2013 Jan 14, 2015 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018 | $26,750 $15,150 $23,100 Nil Nil $5,500 | Nil Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil Nil
Jasman Yee | 15,000 30,000 100,000 60,000 25,000 | $0.75 $1.05 $2.30 $2.00 $1.60 | Sept 22, 2014 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018 | $16,050 $23,100 Nil Nil $5,500 | Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil | Nil Nil Nil Nil Nil
Andrew Kaplan | 20,000 5,000 40,000 25,000 | $2.00 $2.30 $2.00 $1.60 | Dec 9, 2013 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018 | Nil Nil Nil $5,500 | Nil Nil Nil Nil | Nil Nil Nil Nil | Nil Nil Nil Nil

(1) | For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above.

(2) | The in-the-money option value is the difference between the market value of the underlying securities as at December 31, 2012 and the exercise price of the option. The closing market price of the Company’s common shares as at December 31, 2012 was $1.82 per common share.

51

Incentive plan awards – value vested or earned during the year
An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specific period. An “incentive plan award” means compensation awarded, earned, paid or payable under an incentive plan.
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 directors during the year ended December 31, 2012:

Name (1) | Option-based awards – Value vested during the year ($) (2) | Share-based awards – Value vested during the year ($) | Non-equity incentive plan compensation – Value earned during the year ($)
Michael Baybak | Nil | Nil | Nil
Gary Robertson | Nil | Nil | Nil
Jasman Yee | Nil | Nil | Nil
Andrew Kaplan | Nil | Nil | Nil

(1) | For the compensation of David Wolfin, the named executive officer of the Company, see “Incentive Plan Awards” above.

(2) | The aggregate dollar value that would have been realized if the options granted during the year had been exercised on the vesting date.

Termination of Employment, Changes in Responsibilities and Employment Contracts
The Company entered into a consulting agreement between Intermark Capital Corporation, a company wholly owned by David Wolfin, the named executive officer of the Company on January 1, 2013. For details please see “Termination and Change of Control Benefits” above.
C. Board Practices
The Board is currently comprised of five directors. 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 & Special Meeting, held on June 22, 2012, the shareholders elected Messrs. Michael Baybak, Gary Robertson, David Wolfin, Jasman Yee and Andrew Kaplan as directors of the Company.
The Board has considered the relationship of each director to the Company and currently considers three of the five directors to be “unrelated” (Messrs. Baybak, Robertson, and Kaplan). “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.
52

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 Code of Ethics (“Code”) has been adopted and applies to all directors, officers and employees. The Board meets on at least a quarterly basis and following the annual meeting of shareholders. The frequency of the meetings and nature of the meeting agendas are dependent on the nature of the business and affairs which the Company faces from time to time. During the year ended December 31, 2012, the Board met five times.
To facilitate the functioning of the Board independently of management, the Audit Committee, Compensation Committee and Governance and Nominating Committee consist of majority independent directors. When appropriate, members of management are not present for the discussion and determination of certain matters at meetings of the Board. The independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance.
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.
The Audit Committee currently consists of three directors, Gary Robertson, Andrew Kaplan and Jasman Yee, two of whom are independent. Jasman Yee is not independent because he provided consulting services to the Company. All of the members 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 and International Financial Reporting Standards (“IFRS).
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.

53

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 four directors, Messrs. Yee, Robertson, Kaplan and Baybak, three of whom are unrelated; Mr. Yee is not unrelated.
The charter of the Compensation Committee is available at the Company’s website at www.avino.com.
Governance and Nominating Committee
The Governance and Nominating Committee review/recommend matters to the Board with respect to the governance and nominating matters. In this regard, the purpose of the Governance and Nominating Committee is to:

i. | manage the corporate governance system for the Board;

ii. | assist the Board to fulfill its duty to meet the applicable legal, regulatory and (self-regulatory) business principles and 'codes of best practice' of corporate behaviour and conduct;

iii. | assist in the creation of a corporate culture and environment of integrity and accountability;

iv. | monitor the quality of the relationship between the Board and management of the Company;

v. | review the Chief Executive Officer's succession plan;

vi. | recommend to the Board nominees for appointment of the Board;

vii. | lead the Board's annual review of the Chief Executive Officer's performance; and

viii. | annually review and set an agenda of the Board on an ongoing basis.

The Governance and Nominating Committee currently consists of three directors, Messrs. Yee, Kaplan and Baybak, two of whom are unrelated; Mr. Yee is not unrelated.
The charter of the Governance and Nominating Committee is available at the Company’s website at www.avino.com.
D. Employees
As at December 31, 2012, the Company has 85 employees located in Mexico. The Company’s senior management as well as administrative and corporate services are located in Canada and 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. However, because these people are hired through companies, they are not technically deemed employees of the Company.
As at December 31, 2011, the Company had 69 employees located in Mexico, and as at December 31, 2010, the Company had 40 employees located in Mexico.
54

E. Share Ownership
The following table sets forth the share ownership of the individuals referred to in “Compensation” as of April 30, 2013:

Name of Beneficial Owner |  | Number of Shares |  |  | Percent |
Michael Baybak |  |  | 64,700 |  |  |  | * |
Gary Robertson |  |  | 122,900 |  |  |  | * |
David Wolfin |  |  | 381,184 |  |  |  | 1.4% |
Jasman Yee |  |  | 44,643 |  |  |  | * |
Andrew Kaplan |  |  | 9,375 |  |  |  | * |
Malcolm Davidson |  | Nil |  |  |  | N/A |

*Less than one percent
Outstanding Options
The following information, as of April 30, 2013, 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 |  |  | 15,000 95,000 410,000 360,000 |  | Jan 14, 2010 Sept 10, 2010 Jan 18, 2011 Sept 30, 2011 |  | $0.81 $1.05 $2.30 $2.00 |  | Jan 14, 2015 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016
Malcolm Davidson CFO |  |  | 20,000 40,00 25,000 |  | Jan 18, 2011 Sept 30, 2011 Feb 18, 2013 |  | $2.30 $2.00 $1.60 |  | Jan 18, 2016 Sept 30, 2016 Feb 18, 2018
Michael Baybak Director |  |  | 15,000 20,000 100,000 40,000 25,000 |  | Jan 14, 2010 Sept 10, 2010 Jan 18, 2011 Sept 30, 2011 Feb 18, 2013 |  | $0.81 $1.05 $2.30 $2.00 $1.60 |  | Jan 14, 2015 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018
Gary Robertson Director |  |  | 15,000 30,000 100,000 60,000 25,000 |  | Jan 14, 2010 Sept 10, 2010 Jan 18, 2011 Sept 30, 2011 Feb 18, 2013 |  | $0.81 $1.05 $2.30 $2.00 $1.60 |  | Jan 14, 2015 Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018
Jasman Yee Director |  |  | 22,857 100,000 60,000 25,000 |  | Sept 10, 2010 Jan 18, 2011 Sept 30, 2011 Feb 18, 2013 |  | $1.05 $2.30 $2.00 $1.60 |  | Sept 10, 2015 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018
Andrew Kaplan Director |  |  | 10,625 5,000 40,000 25,000 |  | Dec 09, 2010 Jan 18, 2011 Sept 30, 2011 Feb 18, 2013 |  | $2.00 $2.30 $2.00 $1.60 |  | Dec 09, 2013 Jan 18, 2016 Sept 30, 2016 Feb 18, 2018

55

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 April 30, 2013, 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 other than:

Name | Number of Common Shares | Percentage
Sprott Inc. (1) | 4,774,600 | 15.9

(1) Sprott Inc. and Sprott Canadian Equity Fund have filed a Joint Schedule 13G in which they have indicated that they beneficially own 4,774,600 common shares.
As of April 30, 2013, there were 27,433,934 common shares issued and outstanding. Of those common shares issued and outstanding, 22,202,407 common shares were held by 277 shareholders whose addresses were in Canada.
B. Related Party Transactions
During the year ended December 31, 2012, the Company paid, or made provision for the future payment of the following amounts to related parties:

i) | $455,756 (2011 - $392,751) 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) | $150,000 (2011 - $295,500) to a private company controlled by Mr. Wolfin for management fees;

iii) | $63,938 (2011 - $48,429) to a private company controlled by a director of a related company for geological consulting services;

iv) | $22,500 (2011 - $18,750) to Directors for Directors fees.

v) | The amounts due to related parties consist of $147,845 (December 31, 2011 - $179,338) due to Oniva;$24,469 (December 31, 2011 - $19,625) due to Directors for Directors fees; $2,400 (December 31, 2011 -$4,800) due to director of a related company for geological consulting services;

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.
56

Item 8. Financial Information
A. Consolidated Financial Statements and Other Financial Information

· | See ‘‘Item 17. Financial Statements’’ for our Annual Audited Consolidated Financial Statements, related notes and other financial information filed with this annual report on Form 20-F.

Dividend Policy
The Company has never paid any dividends and does not intend to in the near future.
B. Significant Changes
Except as otherwise disclosed in this annual report, there have been no material changes in our financial position, operations or cash flows since December 31, 2012.
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 and U.S. Dollars on the OTCBB/NYSE-Mkt for the Company’s common shares for the past five years, for each quarter for the last two fiscal years, and for the last four months.

|  | TSX-V (Canadian Dollars) |  |  | OTCBB/NYSE-Mkt* (United States Dollars) |
Last Four Months |  | High |  |  | Low |  |  | High |  |  | Low |
April 30, 2013 |  |  | 1.51 |  |  |  | 1.07 |  |  |  | 1.49 |  |  |  | 1.05 |
March 31, 2013 |  |  | 1.74 |  |  |  | 1.41 |  |  |  | 1.69 |  |  |  | 1.47 |
February 28, 2013 |  |  | 1.78 |  |  |  | 1.37 |  |  |  | 1.80 |  |  |  | 1.33 |
January 31, 2013 |  |  | 1.90 |  |  |  | 1.47 |  |  |  | 1.95 |  |  |  | 1.52 |
2012 |  | High |  |  | Low |  |  | High |  |  | Low |
Fourth Quarter ended December 31, 2012 |  |  | 1.89 |  |  |  | 1.37 |  |  |  | 1.90 |  |  |  | 1.42 |
Third Quarter ended September 30, 2012 |  |  | 1.80 |  |  |  | 1.12 |  |  |  | 1.74 |  |  |  | 1.07 |
Second Quarter ended June 30, 2012 |  |  | 2.10 |  |  |  | 1.08 |  |  |  | 2.10 |  |  |  | 1.08 |
First Quarter ended March 31, 2012 |  |  | 2.52 |  |  |  | 1.51 |  |  |  | 2.54 |  |  |  | 1.46 |
2011 |  | High |  |  | Low |  |  | High |  |  | Low |
Fourth Quarter ended December 31, 2011 |  |  | 2.14 |  |  |  | 1.42 |  |  |  | 2.16 |  |  |  | 1.39 |
Third Quarter ended September 30, 2011 |  |  | 2.90 |  |  |  | 1.66 |  |  |  | 2.94 | * |  |  | 1.61 | *
Second Quarter ended June 30, 2011 |  |  | 3.42 |  |  |  | 2.04 |  |  |  | 3.56 |  |  |  | 2.02 |
First Quarter ended March 31, 2011 |  |  | 3.47 |  |  |  | 2.23 |  |  |  | 3.54 |  |  |  | 2.26 |

Last Five Fiscal Years |  | High |  |  | Low |  |  | High |  |  | Low |
2012 |  |  | 2.52 |  |  |  | 1.08 |  |  |  | 2.54 |  |  |  | 1.07 |
2011 |  |  | 3.47 |  |  |  | 1.42 |  |  |  | 2.94 | * |  |  | 1.39 | *
2010 |  |  | 2.95 |  |  |  | 0.66 |  |  |  | 2.89 |  |  |  | 0.63 |
2009 |  |  | 0.99 |  |  |  | 0.38 |  |  |  | 0.95 |  |  |  | 0.30 |
2008 |  |  | 1.78 |  |  |  | 0.18 |  |  |  | 1.79 |  |  |  | 0.20 |

*The Company listed on the NYSE-MKT on August 2, 2011 under the symbol “ASM”. Prior to listing its common shares on the NYSE Mkt, the Company’s common shares were quoted on the OTC Bulletin Board.
57

B. Plan of Distribution
Not Applicable.
C. Markets
The Company’s common shares are listed on the TSX-V under the symbol “ASM”, on the Berlin & Frankfurt Stock Exchange under the symbol “GV6” and listed on the NYSE-Mkt, under the symbol “ASM”. In July, 2012, the Company’s listing on the TSX Venture Exchange was re-classified to Tier 2 status.
On May 11, 2012, as a result of a review by the British Columbia Securities Commission (“BCSC”), we issued a news release to clarify and retract certain disclosures made pertaining to conceptual exploration targets and economic analyses of mineral resources at our Avino property in Durango, Mexico. As indicated in the news release, certain disclosure relating to our properties provided in news releases, on our website and in investor materials, did not comply with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”). On July 3, 2012, the BCSC issued a cease trading order until concerns raised by the BCSC regarding disclosure of the Avino property had been addressed. On July 25, 2012, the BCSC’s cease trade order was revoked and the Company’s common shares resumed trading on the TSX-V and NYSE-Mkt on July 30, 2012.
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
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.
58

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 not 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 cancelled 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.”
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
1. Intermark Capital Corporation Consulting Agreement
2. Minerales de Avino SA de SV Agreement
3. Avaron Mining Corp. Option Agreement
4. $5 Million Master Credit Facility with Caterpillar Credito, S.A. de C.V.
5. Benz Capital Corp. Option Purchase and Assignment Agreement
6. Option and Joint Venture Agreement with Endeavour Silver Corp.
59

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.”
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.
60

United States Federal Income Tax Consequences
Passive Foreign Investment Company
In light of the Company’s production at the San Gonzalo mine during the fourth quarter of 2012, the Company may not be deemed 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.
If the Company qualifies as a PFIC, and 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.
61

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.
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).
62

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).
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 via Edgar. 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).
63

Our principal executive office is located at Suite 900, 570 Granville Street, Vancouver, British Columbia V6C 3P1, Canada. Our telephone number is (604) 682-3701. Our website is located at www.avino.com. Information contained on, or that can be accessed through, our website is not part of this Annual Report.
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
The Audit Committee of our board of directors regularly reviews foreign exchange and interest rates. Our policy prohibits the use of financial instruments for speculative purposes. See Note 21 in our annual audited consolidated Financial Statements contained in this annual report on Form 20-F for quantitative and qualitative disclosure of market risk.
Item 12. Description of Securities Other than Equity Securities
Not Applicable.
64

Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
On April 23, 2013, the Board of Directors approved and adopted a Shareholder Rights Plan (the "Rights Plan"). The Rights Plan is subject to, among other things, the acceptance of regulatory authorities, ratification by the shareholders of the Company. The Rights Plan entitles shareholders to severable rights to purchase additional shares of the Company upon the occurrence of a take-over bid (i.e. an offer to purchase 20% or more of the issued shares, when aggregated with the offeror's shareholdings), which fails to meet certain conditions. Bids which meet these conditions ("Permitted Bids") do not trigger the rights to purchase additional shares. Permitted Bids are offers which meet all of the following conditions:
1. The offer is made to all shareholders and includes shares issuable upon exercise of share purchase warrants, stock options and other convertible securities;
2. The offer must contain an irrevocable and unqualified provision that no shares will be taken up or paid for prior to the close of business on a date less than 60 days following the date of the Bid, and only if at such date more than 50% of the shares held by independent shareholders have been deposited or tendered and not withdrawn;
3. The offer must contain an irrevocable and unqualified provision that any share deposited may be withdrawn at any time until being taken up and paid for; and
4. The offer must contain an irrevocable and unqualified provision that if the deposit conditions set out in above are met, then the offeror will make a public announcement of that fact, and the bid will remain open for deposits or tenders of additional shares for not less than 10 business days from the date of the public announcement.
The Rights Plan is designed to ensure that all shareholders are treated fairly and equitably in the event of a take-over bid.
Item 15. 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.”
65

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 International Financial Reporting Standards. 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 International Reporting Standards, 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.
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, 2012 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, 2012 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, 2012. 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, 2012: (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
During the period covered by this annual report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
66

Item 16.
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 adopted a Code of Ethics (“Code”) that applies to all directors, officers and employees of the Company.
This Code covers a wide range of financial and non-financial business practices and procedures. This Code does not cover every issue that may arise, but it sets out basic principles to guide all Executive and Staff of the Company. If a law or regulation conflicts with a policy in this Code, then personnel must comply with the law or regulation. If any person has any questions about this Code or potential conflicts with a law or regulation, they should contact the Company's Board of Directors or Audit Committee.
All Executive and Staff should recognize that they hold an important role in the overall corporate governance and ethical standards of the Company. Each person is capable and empowered to ensure that the Company's, its shareholders' and other stakeholders' interests are appropriately balanced, protected and preserved. Accordingly, this Code provides principles to which all personnel are expected to adhere and advocate. The Code embodies rules regarding individual and peer responsibilities, as well as responsibilities to the Company, the shareholders, other stakeholders, and the public generally.
A copy of the Code is available at the Company’s website at www.avino.com.
Item 16C. Principal Accountant Fees and Services
The independent auditor for the years ended December 31, 2012, December 31, 2011 and December 31, 2010 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, 2012 were $115,000 (2011: $84,880; 2010: $89,000).
Audit-Related Fees
The audit-related fees billed by Manning Elliott LLP for the year ended December 31, 2012 were $4,500 (2011: $5,900; 2010: $Nil).
Tax Fees
The tax fees billed by Manning Elliott LLP for the year ended December 31, 2012 are estimated to be $2,600 (2011: $2,600; 2010: $3,200).
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, 2012 are estimated to be $4,000 (2011 $4,000; 2010: $5,000).
67

The Audit Committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2012. 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
The Company has adopted a Code of Ethical Conduct that applies to all directors, officers and employees. The Company has also established Audit Committee, Governance & Nominating Committee and Compensation Committee. Please refer to “Committee” under “Board Practice” in this Form 20F. The charters of these Committees are available at the Company’s website at www.avino.com under Corporate Governance.
Item 16H. Mine Safety Disclosure
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and pursuant to this Item 16H, each operator of a coal or other mine is required to include disclosures regarding certain mine safety results in its periodic reports filed with the SEC. The operation of the our quarries is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977. We do not own any mines in the United States and as a result, this information is not required.
68

Part III
Item 17. Financial Statements
The following financial statements pertaining to the Company are filed as part of this Annual Report:

Management’s Responsibility for Financial Reporting |  |  | 67 |
Report of Independent Registered Public Accounting Firm |  |  | 68 |
Consolidated Statements of Financial Position as at December 31, 2012 and December 31, 2011 |  |  | 69 |
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2012, 2011 and 2010 |  |  | 70 |
Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010 |  |  | 71 |
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 |  |  | 72 |
Notes to the Consolidated Financial Statements |  | 73 thru 99 |

Item 18. Financial Statements
See Item 17.
69

Item 19. Exhibits

Exhibit Number |  | Name
1.1 |  | Memorandum of Avino Silver & Gold Mines Ltd.*
1.2 |  | Articles of Avino Silver & Gold Mines Ltd.*
2.1 |  | Shareholders Rights Plan Agreement dated Apr. 22, 2013
4.1 |  | Share Purchase Agreement dated March 22, 2004*
4.2 |  | Intermark Capital Corporation Consulting Agreement dated Jan. 1, 2013
4.3 |  | Minerales de Avino SA de SV Agreement dated Feb. 18, 2012
4.4 |  | Stock Option Plan
4.5 |  | $5 Million Master Credit Facility with Caterpillar Credito, S.A. de C.V. and Continuing Guarantee dated Dec. 17, 2012
4.6 |  | Avaron Mining Corp. Option Agreement dated Jan 03, 2012
4.7 |  | Benz Capital Corp. Option Purchase and Assignment Agreement dated Nov. 30, 2012
4.8 |  | Endeavour Silver Corp. Option to Joint Venture Agreement dated Jul 30, 2012
8.1 |  | List of Subsidiaries
11.1 |  | Code of Ethics
11.2 |  | Audit Committee Charter
11.3 |  | Governance & Nominating Committee Charter
11.4 |  | Compensation Committee Charter
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
13.3 |  | Consent of Tetra Tech

___________________________
* Previously filed.
70

AVINO SILVER & GOLD MINES LTD.
Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
71

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Avino Silver & Gold Mines Ltd. (the “Company”) are the responsibility of the Company’s management. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and reflect management’s best estimates and judgment based on information currently available.
Management has developed and is maintaining a system of internal controls to ensure that the Company’s assets are safeguarded, transactions are authorized and properly recorded and financial information is reliable.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the audit and the annual consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements as at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been audited by Manning Elliott LLP, Chartered Accountants, and their report outlines the scope of their examination and gives their opinion on the consolidated financial statements.

“David Wolfin” |  |  | “Malcolm Davidson”
David Wolfin |  |  | Malcolm Davidson
President & CEO |  |  | Chief Financial Officer
April 30, 2013 |  |  | April 30, 2013

72

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
Avino Silver & Gold Mines Ltd.
We have audited the accompanying consolidated financial statements of Avino Silver & Gold Mines Ltd. which comprise the consolidated statements of financial position as at December 31, 2012 and 2011, and the consolidated statements of operations, comprehensive loss, changes in equity and cash flows for the years ended December 31, 2012, 2011 and 2010, and the related notes comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design 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. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting; accordingly we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Avino Silver & Gold Mines Ltd. as at December 31, 2012 and 2011, and the results of its operations and its cash flows for the years ended December 31, 2012, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ “Manning Elliott LLP”
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
April 30, 2013
73

AVINO SILVER & GOLD MINES LTD.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)

|  | Note |  |  | December 31, 2012 |  |  | December 31, 2011 |
ASSETS |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  | $ | 4,035,985 |  |  | $ | 5,282,464 |
Interest receivable |  |  |  |  |  | 1,070 |  |  |  | 53,643 |
Sales taxes recoverable |  | 5 |  |  |  | 196,178 |  |  |  | 228,820 |
Amounts receivable |  |  |  |  |  | 254,695 |  |  |  | 876,946 |
Prepaid expenses and other assets |  |  |  |  |  | 126,285 |  |  |  | 86,265 |
Inventory |  | 8 |  |  |  | 2,225,840 |  |  |  | - |
|  |  |  |  |  | 6,840,053 |  |  |  | 6,528,138 |
Exploration and Evaluation Assets |  | 6 |  |  |  | 12,828,202 |  |  |  | 16,274,354 |
Plant, Equipment and Mining Properties |  | 10 |  |  |  | 6,308,480 |  |  |  | 3,023,969 |
Investment in Related Companies |  | 11 |  |  |  | 194,373 |  |  |  | 304,394 |
Investment in Other Companies |  | 12 |  |  |  | 15,000 |  |  |  | - |
Reclamation Bonds |  |  |  |  |  | 5,500 |  |  |  | 5,500 |
|  |  |  |  | $ | 26,191,608 |  |  | $ | 26,136,355 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  |  |  |  | $ | 1,145,747 |  |  | $ | 600,977 |
Amounts due to related parties |  | 17 |  |  |  | 174,714 |  |  |  | 203,763 |
Current portion of finance lease obligations |  | 18 |  |  |  | 156,220 |  |  |  | - |
|  |  |  |  |  | 1,476,681 |  |  |  | 804,740 |
Finance Lease Obligations |  | 18 |  |  |  | 78,732 |  |  |  | - |
Reclamation Provision |  | 13 |  |  |  | 323,140 |  |  |  | 292,000 |
Deferred Tax Liability |  | 24 |  |  |  | 2,365,677 |  |  |  | 2,105,356 |
Total liabilities |  |  |  |  |  | 4,244,230 |  |  |  | 3,202,096 |
EQUITY |  |  |  |  |  |  |  |  |  |  |
Share Capital |  | 14 |  |  |  | 42,088,103 |  |  |  | 41,720,083 |
Equity Reserves |  |  |  |  |  | 9,749,674 |  |  |  | 9,898,186 |
Treasury Shares (14,180 Shares, at cost) |  |  |  |  |  | (101,869 | ) |  |  | (101,869 | )
Accumulated Other Comprehensive Loss |  |  |  |  |  | (330,211 | ) |  |  | (262,400 | )
Accumulated Deficit |  |  |  |  |  | (29,458,319 | ) |  |  | (28,319,741 | )
Total Equity |  |  |  |  |  | 21,947,378 |  |  |  | 22,934,259 |
|  |  |  |  | $ | 26,191,608 |  |  | $ | 26,136,355 |

Subsequent Events – Note 25
Approved by the Board of Directors on April 30, 2013:

/s/ Gary Robertson |  |  | /s/ David Wolfin |
Director |  |  | Director |

The accompanying notes are an integral part of the consolidated financial statements
74

AVINO SILVER & GOLD MINES LTD.
For the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian dollars)

|  | Note |  |  | 2012 |  |  | 2011 |  |  | 2010 |
Revenue from Mining Operations |  | 16 |  |  | $ | 2,255,376 |  |  | $ | - |  |  | $ | - |
Cost of Sales |  | 16 |  |  |  | 1,434,569 |  |  |  | - |  |  |  | - |
Mine Operating Income |  |  |  |  |  | 820,807 |  |  |  | - |  |  |  | - |
General and Administrative Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation |  |  |  |  |  | 6,193 |  |  |  | 803 |  |  |  | 3,834 |
Investor relations |  |  |  |  |  | 247,044 |  |  |  | 294,882 |  |  |  | 99,450 |
Management fees |  |  |  |  |  | 150,000 |  |  |  | 296,260 |  |  |  | 96,000 |
Office and miscellaneous |  |  |  |  |  | 531,043 |  |  |  | 199,721 |  |  |  | 162,945 |
Professional fees |  |  |  |  |  | 205,578 |  |  |  | 189,459 |  |  |  | 127,711 |
Regulatory and compliance fees |  |  |  |  |  | 75,738 |  |  |  | 121,591 |  |  |  | 26,028 |
Salaries and benefits |  |  |  |  |  | 561,398 |  |  |  | 276,866 |  |  |  | 165,417 |
Sales tax write-down (provision recovery) |  |  |  |  |  | (47,409 | ) |  |  | - |  |  |  | 42,478 |
Share-based payments |  | 15 |  |  |  | 18,408 |  |  |  | 2,529,620 |  |  |  | 341,748 |
Travel and promotion |  |  |  |  |  | 181,753 |  |  |  | 133,445 |  |  |  | 45,032 |
|  |  |  |  |  | 1,929,746 |  |  |  | 4,042,647 |  |  |  | 1,110,643 |
Loss before other items and income tax |  |  |  |  |  | (1,108,939 | ) |  |  | (4,042,647 | ) |  |  | (1,110,643 | )
Other Items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange gain |  |  |  |  |  | 116,562 |  |  |  | 68,404 |  |  |  | 19,951 |
Interest income |  |  |  |  |  | 21,760 |  |  |  | 78,857 |  |  |  | 14,206 |
Other income |  |  |  |  |  | 23,464 |  |  |  | 10,499 |  |  |  | - |
Mineral property option income |  | 7 |  |  |  | 54,317 |  |  |  | - |  |  |  | - |
Unrealized gain (loss) on investments in related companies |  | 12 |  |  |  | (110,021 | ) |  |  | (212,966 | ) |  |  | 313,323 |
Loss before income tax |  |  |  |  |  | (1,002,857 | ) |  |  | (4,097,853 | ) |  |  | (763,163 | )
Deferred income tax expense |  |  |  |  |  | (260,321 | ) |  |  | (86,498 | ) |  |  | (27,677 | )
Net Loss |  |  |  |  |  | (1,263,178 | ) |  |  | (4,184,351 | ) |  |  | (790,840 | )
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation differences for foreign operations |  |  |  |  |  | (67,811 | ) |  |  | 82,689 |  |  |  | (345,089 | )
Comprehensive Loss |  |  |  |  | $ | (1,330,989 | ) |  | $ | (4,101,662 | ) |  | $ | (1,135,929 | )
Loss per Share - Basic and Diluted |  |  |  |  | $ | (0.05 | ) |  | $ | (0.16 | ) |  | $ | (0.04 | )
Weighted Average Number of Shares Outstanding |  |  |  |  |  | 27,072,053 |  |  |  | 26,795,632 |  |  |  | 20,059,008 |

The accompanying notes are an integral part of the consolidated financial statements
75

AVINO SILVER & GOLD MINES LTD.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

|  | Note |  | Number of Common Shares |  | Share Capital Amount |  | Equity Reserves |  | Treasury Shares |  | Accumulated Other Comprehensive Loss |  | Accumulated Deficit |  | Total Equity |
Balance, January 1, 2010 |  |  |  |  | 20,584,727 |  | $ | 33,173,022 |  | $ | 7,349,978 |  | $ | (101,869 | ) | $ | - |  | $ | (23,940,230 | ) | $ | 16,480,901 |
Common shares issued for cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Private placement |  | 14 |  |  | 5,100,000 |  |  | 5,107,614 |  |  | 3,202,468 |  |  | - |  |  | - |  |  | - |  |  | 8,310,082 |
Share issuance costs |  |  |  |  | - |  |  | (435,387 | ) |  | - |  |  | - |  |  | - |  |  | - |  |  | (435,387 | )
Exercise of stock options |  | 14 |  |  | 472,500 |  |  | 354,375 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 354,375 |
Share-based payments |  | 15 |  |  | - |  |  | - |  |  | 341,748 |  |  | - |  |  | - |  |  | - |  |  | 341,748 |
Fair value of stock options exercised |  |  |  |  | - |  |  | 993,675 |  |  | (993,675 | ) |  | - |  |  | - |  |  | - |  |  | - |
Options and warrants cancelled or expired |  |  |  |  | - |  |  | - |  |  | (391,681 | ) |  | - |  |  | - |  |  | 391,681 |  |  | - |
Net loss for the year |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (790,840 | ) |  | (790,840 | )
Cumulative translation adjustments |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (345,089 | ) |  | - |  |  | (345,089 | )
Balance, December 31, 2010 |  |  |  |  | 26,157,227 |  | $ | 39,193,299 |  | $ | 9,508,838 |  | $ | (101,869 | ) | $ | (345,089 | ) | $ | (24,339,389 | ) | $ | 23,915,790 |
Common shares issued for cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options |  | 14 |  |  | 753,000 |  |  | 592,050 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 592,050 |
Share issuance costs |  |  |  |  | - |  |  | (1,539 | ) |  | - |  |  | - |  |  | - |  |  | - |  |  | (1,539 | )
Fair value of stock options exercised |  |  |  |  | - |  |  | 1,936,273 |  |  | (1,936,273 | ) |  | - |  |  | - |  |  | - |  |  | - |
Share-based payments |  | 15 |  |  | - |  |  | - |  |  | 2,529,620 |  |  | - |  |  | - |  |  | - |  |  | 2,529,620 |
Options and warrants cancelled or expired |  |  |  |  | - |  |  | - |  |  | (203,999 | ) |  | - |  |  | - |  |  | 203,999 |  |  | - |
Net loss for the year |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (4,184,351 | ) |  | (4,184,351 | )
Cumulative translation adjustments |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 82,689 |  |  | - |  |  | 82,689 |
Balance, December 31, 2011 |  |  |  |  | 26,910,227 |  | $ | 41,720,083 |  | $ | 9,898,186 |  | $ | (101,869 | ) | $ | (262,400 | ) | $ | (28,319,741 | ) | $ | 22,934,259 |
Common shares issued for cash: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercise of stock options |  |  |  |  | 82,000 |  |  | 75,600 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 75,600 |
Share issuance costs |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Shares issued for leased claim payment |  | 6(a)(iv) |  |  | 135,189 |  |  | 250,100 |  |  | - |  |  | - |  |  | - |  |  |  |  |  | 250,100 |
Fair value of stock options exercised |  |  |  |  | - |  |  | 42,320 |  |  | (42,320 | ) |  | - |  |  | - |  |  | - |  |  | - |
Share-based payments |  | 15 |  |  | - |  |  | - |  |  | 18,408 |  |  | - |  |  | - |  |  | - |  |  | 18,408 |
Options and warrants cancelled or expired |  |  |  |  | - |  |  | - |  |  | (124,600 | ) |  | - |  |  | - |  |  | 124,600 |  |  | - |
Net loss for the year |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (1,263,178 | ) |  | (1,263,178 | )
Cumulative translation adjustments |  |  |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (67,811 | ) |  | - |  |  | (67,811 | )
Balance, December 31, 2012 |  |  |  |  | 27,127,416 |  | $ | 42,088,103 |  | $ | 9,749,674 |  | $ | (101,869 | ) | $ | (330,211 | ) | $ | (29,458,319 | ) | $ | 21,947,378 |

The accompanying notes are an integral part of the consolidated financial statements
76

AVINO SILVER & GOLD MINES LTD.
For the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

|  | Note |  |  | 2012 |  |  | 2011 |  |  | 2010 |
Cash Provided By (Used In): |  |  |  |  |  |  |  |  |  |  |  |
Operating Activities |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  |  |  |  | $ | (1,263,178 | ) |  | $ | (4,184,351 | ) |  | $ | (790,840 | )
Adjustments for non-cash items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation, depletion, and accretion |  | 10 |  |  |  | 194,453 |  |  |  | 803 |  |  |  | 3,834 |
Share-based payments |  | 15 |  |  |  | 18,408 |  |  |  | 2,529,620 |  |  |  | 341,748 |
Unrealized loss (gain) on investments |  | 12 |  |  |  | 110,021 |  |  |  | 212,966 |  |  |  | (313,323 | )
Sales tax write-down (provision recovery) |  |  |  |  |  | (46,640 | ) |  |  | - |  |  |  | 42,478 |
Mineral property option income |  |  |  |  |  | (15,000 | ) |  |  | - |  |  |  | - |
Deferred income tax expense |  | 24 |  |  |  | 260,321 |  |  |  | 86,499 |  |  |  | 27,677 |
|  |  |  |  |  | (741,615 | ) |  |  | (1,354,463 | ) |  |  | (688,426 | )
Net change in non-cash working capital |  | 19 |  |  |  | (718,112 | ) |  |  | 60,462 |  |  |  | (76,289 | )
|  |  |  |  |  | (1,459,727 | ) |  |  | (1,294,001 | ) |  |  | (764,715 | )
Financing Activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Shares issued for cash, net of issuance costs |  | 14 |  |  |  | 75,600 |  |  |  | 590,511 |  |  |  | 8,229,069 |
Finance lease payments |  |  |  |  |  | (42,969 | ) |  |  | - |  |  |  | - |
|  |  |  |  |  | 32,631 |  |  |  | 590,511 |  |  |  | 8,229,069 |
Investing Activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recovery of exploration costs from concentrate proceeds |  |  |  |  |  | 3,490,581 |  |  |  | 3,114,552 |  |  |  | 1,014,270 |
Exploration and evaluation expenditures |  |  |  |  |  | (2,387,771 | ) |  |  | (4,590,331 | ) |  |  | (1,839,096 | )
Additions to plant, equipment and mining properties |  |  |  |  |  | (946,286 | ) |  |  | (1,483,453 | ) |  |  | (324,360 | )
|  |  |  |  |  | 156,524 |  |  |  | (2,959,232 | ) |  |  | (1,149,186 | )
Change in cash and cash equivalents |  |  |  |  |  | (1,270,572 | ) |  |  | (3,662,722 | ) |  |  | 6,315,168 |
Effect of exchange rate changes on cash and cash equivalents |  |  |  |  |  | 24,093 |  |  |  | (106,662 | ) |  |  | (93,413 | )
Cash and Cash Equivalents, Beginning |  |  |  |  |  | 5,282,464 |  |  |  | 9,051,848 |  |  |  | 2,830,093 |
Cash and Cash Equivalents, Ending |  |  |  |  | $ | 4,035,985 |  |  | $ | 5,282,464 |  |  | $ | 9,051,848 |

Supplementary cash flow information (Note 19)
The accompanying notes are an integral part of the consolidated financial statements
77

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

1. | NATURE OF OPERATIONS

Avino Silver & Gold Mines Ltd. (the “Company” or “Avino”) was incorporated in 1968 under the laws of the Province of British Columbia, Canada. The Company is engaged in the production and sale of silver and gold, and the exploration, development, and acquisition of mineral properties.
The Company’s head office and principal place of business is Suite 900, 570 Granville Street, Vancouver, BC, Canada. The Company is a reporting issuer in Canada and the United States and trades on the TSX-V, NYSE Mkt and the Frankfurt Stock Exchange.
The Company owns interests in mineral properties located in Durango, Mexico, British Columbia and the Yukon, Canada. The Company is in the business of producing silver, gold and copper, and the exploration of mineral properties. On October 1, 2012 the Company commenced production of silver and gold at its San Gonzalo mine in the state of Durango, Mexico.

2. | BASIS OF PRESENTATION

Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of Presentation
These consolidated financial statements are expressed in Canadian dollars and have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting on a going concern basis. The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements as if the policies have always been in effect.
Foreign Currency Translation

| a) | Functional currencies

The functional and presentation currency of the Company is the Canadian dollar. The functional currency of the Company’s subsidiaries is the U.S. dollar which is determined to be the currency of the primary economic environment in which the subsidiaries operate.

| b) | Foreign currency transactions

Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the statement of financial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

| c) | Foreign operations

Subsidiaries that have functional currencies other than Canadian dollars translate their statement of operations items to Canadian dollars at the average rate during the year. Assets and liabilities are translated at exchange rates prevailing at the end of each reporting period. Exchange rate variations resulting from the retranslation at closing rate of the net investment in such subsidiaries, together with differences between their statement of operations items translated at actual and average rates, are recognized in the accumulated other comprehensive income/loss.
78

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

2. | BASIS OF PRESENTATION (continued)

Significant Accounting Judgements and Estimates
The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates under different assumptions and conditions.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

| a) | Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs

Management has determined that exploratory drilling, evaluation, development and related costs incurred which were capitalized have future economic benefits and are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, scoping studies, accessible facilities, existing permits and life of mine plans.

| b) | Stockpile and concentrate inventory valuations

Concentrate and stockpile ore are valued at the lower of the average costs or net realizable value.The assumptions used in the valuation of ore stockpile and concentrate include estimates of silver and gold contained in the ore stockpile and finished goods assumptions of the amount of silver and gold that is expected to be recovered from them. If these estimates or assumptions prove to be inaccurate, the Company could be required to write down the recorded value of its ore stockpile and finished would increase the Company’s expenses and reduce working capital.

| c) | Estimated reclamation provisions

The Company’s provision for decommissioning liabilities represents management’s best estimate of the present value of the future cash outflows required to settle estimated reclamation and closure costs at the end of mine’s life. The provision reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk free interest rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized by the Company.
Changes to reclamation and closure cost obligations are recorded with a corresponding change to the carrying amounts of related mining properties. Adjustments to the carrying amounts of related mining properties can result in a change to future depletion expense.

| d) | Valuation of share based payments

The Company uses the Black Scholes Option Pricing Model for valuation of share based payments. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.
79

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

2. | BASIS OF PRESENTATION (continued)

Significant Accounting Judgements and Estimates (continued)

| e) | Commencement of commercial production and production levels intended by management

| Prior to reaching commercial production levels intended by management, costs incurred are capitalized as part of the costs of related exploration and evaluation assets and proceeds from concentrate sales are offset against costs capitalized. Depletion of capitalized costs for mining properties and depreciation of plant and equipment begin when operating levels intended by management have been reached. Management considers several factors, including production capacity, recoveries and number of uninterrupted production days, in determining when a mining property has reached the commercial production levels intended by management. The results of operations of the Company during the periods presented in these consolidated financial statements have been impacted by management’s determination that the San Gonzalo Mine commenced production on October 1, 2012.

| f) | Impairment of plant and equipment, mining properties and exploration and evaluation assets

Management considers both external and internal sources of information in assessing whether there areany indications that the Company’s plant and equipment, mining properties and exploration and evaluation assets are impaired. External sources of information management considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of its plant, equipment and mining interests. Internal sources of information management consider include the manner in which mining properties and plant and equipment are being used or are expected to be used and indications of economic performance of the assets.

| In determining the recoverable amounts of the Company’s plant, equipment, and mining properties, management makes estimates of the discounted future pre tax cash flows expected to be derived from the Company’s mining properties, and the appropriate discount rate. Reductions in metal price forecasts, increases in estimated future costs of production, increases in estimated future non expansionary capital expenditures, reductions in the amount of recoverable resources, and exploration potential, and/or adverse current economics can result in a write down of the carrying amounts of the Company’s plant, equipment and mining properties.

| g) | Depreciation rate for plant and equipment and depletion rate for mining properties

Depreciation and depletion expenses are allocated based on assumed asset lives. Should the asset life, depletion rates or depreciation rates differ from the initial estimate, an adjustment would be made in the consolidated statements of loss.

| h) | Recognition and measurement of deferred tax assets and liabilities

| Estimates of future taxable income are based on forecasted cash flows from operations and theapplication of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based onlife of mine projections internally developed and reviewed by management. Weight is attached to tax planning opportunities that are within the Company’s control, and are feasible and implementable without significant obstacles. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets/liabilities.

80

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

2. | BASIS OF PRESENTATION (continued)

Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its Mexican subsidiaries.

|  | Ownership Interest |  | Jurisdiction |  | Nature of Operations
Oniva Silver and Gold Mines S.A., (“Oniva Silver”) |  | 100% |  | Mexico |  | Mexican operations administration
Promotora Avino, S.A. De C.V. (“Promotora”) |  | 79.09% |  | Mexico |  | Holding Company
Compania Minera Mexicana de Avino, S.A. de C.V. |  | 96.60% direct |  | Mexico |  | Mining and Exploration
(“Avino Mexico”) |  | 2.68% indirect (Promotora) |  |  |  |
|  | 99.28% effective |  |  |  |

Inter-company balances and transactions, including unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.
Financial Instruments
All financial assets are initially recorded at fair value and classified into one of four categories: held to maturity, available for sale, loans and receivable or fair value through profit or loss (“FVTPL”). All financial liabilities are initially recorded at fair value and classified as either FVTPL or other financial liabilities. Financial instruments comprise cash and cash equivalents, marketable securities and accounts payable. At initial recognition management has classified financial assets and liabilities as follows:
The Company has classified its cash and cash equivalents, interest receivable, and investments in related and other companies as FVTPL. Amounts receivable are classified as loans and receivables. Accounts payable and amounts due to related parties are classified as other liabilities.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash.
81

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

3. | SIGNIFICANT ACCOUNTING POLICIES

Exploration and evaluation assets
The Company capitalizes all costs relating to the acquisition, exploration and evaluation of mineral claims and recognizes any proceeds received as a reduction of the cost of the related claims. The Company’s capitalized exploration and evaluation are classified as intangibles assets. Such costs include, but are not exclusive to, geological, geophysical studies, exploratory drilling and sampling. When commercial production commences, these costs will be subject to depletion. The aggregate costs related to abandoned mineral claims are charged to operations at the time of any abandonment, or when it has been determined that there is evidence of a permanent impairment. An impairment charge relating to a mineral claim is subsequently reversed when new exploration results or actual or potential proceeds on sale or farm out of the property result in a revised estimate of the recoverable amount, but only to the extent that this does not exceed the original carrying value of the property that would have resulted if no impairment had been recognized.
The recoverability of amounts shown for exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete development of the properties, and on future production or proceeds of disposition.
Incidental revenues and operating costs are included in exploration and evaluation costs prior to commercial production.
All capitalized exploration and evaluation expenditures are monitored for indications of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest. To the extent that exploration expenditures are not expected to be recovered, it is written down and charged to operations.
Plant, equipment and mining properties
Once the work completed supports a commercial production decision by management all expenditures incurred to that date for the mine are reclassified to mining properties. Expenditures capitalized to mining properties include all costs related to exploration, evaluation and development, direct overhead costs and the initial estimate of the reclamation provision. Prior to being reclassified to mining properties, exploration and development costs are assessed for impairment. Subsequent to the commencement of commercial production, further development expenditures incurred with respect to a mining property are capitalized, when it is probable that additional future economic benefits will flow to the Company. Otherwise, such expenditures are classified as a cost of production.
Plant and equipment are recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that are directly attributable to bringing the asset to a location and condition necessary to operate in a manner intended by management. Such costs are accumulated as construction in progress until the asset is available for use, at which point the asset is classified as plant, equipment and mining properties.
After the start of commercial production mining properties are depleted using the straight-line method over the estimated remaining life of the mine. The Company estimates the remaining life of its producing mineral properties on an annual basis using a combination of quantitative and qualitative factors including historical results, mineral resource estimates, and management’s intent to operate the property.
The Company does not have sufficient reserve information to form a basis for the application of the units-of-production method.
82

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

3. | SIGNIFICANT ACCOUNTING POLICIES (continued)

Plant, equipment and mining properties (continued)
Accumulated mill, machinery, plant facilities, and certain equipment are depreciated using the straight-line method over their estimated useful lives, not to exceed the life of the mine for any assets that are inseparable from the mine. When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (or components) of plant and equipment.
Plant and equipment are depreciated at the following annual rates:

Office equipment, furniture and fixtures | 20% | declining balance
Computer equipment | 30% | declining balance
Mine machinery and transportation equipment | 20% | declining balance
Mill machinery and processing equipment | 20 | years straight line
Buildings and constructions | 20 | years straight line

Impairment
At each financial position reporting date, the carrying amounts of the Company’s assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss for the period.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
Leases
Leases in which the Company assumes substantially all risks and rewards of ownership are classified as finance leases. Assets held under finance leases are recognized at the lower of the fair value and present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. The corresponding liability is recognized as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation to achieve a constant rate of interest on the remaining liability. Finance charges are charged as a finance expense to profit and loss, unless they are attributable to qualifying assets, in which case they are capitalized.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time patter in which economic benefits from the leased asset are consumed.
83

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

3. | SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory
Material extracted from the Company's mine is classified as either ore or waste. Ore represents material that, at the time of extraction, the Company expects to process into a saleable form and sell at a profit. Raw materials are comprised of ore stockpiles. Ore is accumulated in stockpiles that are subsequently processed into bulk silver/gold concentrate in a saleable form. The Company has bulk silver/gold concentrate inventory which is in saleable form which has not yet been sold. Mine operating supplies represent commodity consumables and other raw materials used in the production process, as well as spare parts and other maintenance supplies that are not classified as capital items.
Inventories are valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes all costs incurred, based on a normal production capacity, in bringing each product to its present location and condition. Cost of inventories comprises direct labor, materials and contractor expenses, depletion and depreciation on mining properties, plant, and equipment; and an allocation of mine site overhead costs. As ore is removed for processing, costs are removed based on the average cost per tonne in the stockpile. Stockpile ore tonnages are verified by periodic surveys.
The Company records provisions to reduce inventory to net realizable value to reflect changes in economic factors that impact inventory value and to reflect present intentions for the use of slow moving and obsolete supplies inventory. Net realizable value is determined with reference to relevant market prices less applicable variable selling expenses. Provisions recorded also reflect an estimate of the remaining costs of completion to bring the inventory into its saleable form. Provisions are also recorded if necessary to reduce mine operating supplies to net realizable value, which is generally calculated by reference to its salvage or scrap value, when it is determined that the supplies are obsolete. Provisions are reversed to reflect subsequent recoveries in net realizable value where the inventory is still on hand.
Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and other sales tax or duty.
Revenue from the sale of concentrate is recognized upon delivery when persuasive evidence of a sale agreement exists, the risks of ownership are transferred to the customer, collection is reasonably assured, and price is readily determinable. Revenue is based on quoted market prices during the quotation period published in the metal bulletin less treatment, refining and smelting charges, and penalties.
Metals contained in bulk concentrate sold to third parties are provisionally invoiced and the price is not settled until a predetermined contractual future date, typically one to three months after delivery to the customer, based on the market price of metals at that time. The Company enters into contracts which provide a provisional payment on delivery based upon provisional assays, and quoted metal prices. Revenues are recorded when title passes from the Company to the buyer based on the spot price on date of delivery, and subsequently adjusted to market price based on date of the final settlement.
Prior to commercial production concentrate sales incidental to the exploration of mineral properties were recorded net of production costs as a reduction of capitalized exploration and evaluation costs.
84

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

3. | SIGNIFICANT ACCOUNTING POLICIES (continued)

Share capital

| a) | Common shares Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

| b) | Repurchase of share capital (treasury shares) When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained deficit.

Share-based payment transactions
The Company’s share option plan allows employees and consultants to acquire common shares of the Company. All options granted are measured at fair value and are recognized in expenses as share-based payments with a corresponding increase in equity reserves. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.
The fair value of employee options is measured at grant date, and each tranche is recognized using the graded vesting method over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. Share options granted to non-employees or consultants are measured at the fair value of goods or services received. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.
Provisions
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events; it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. If material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in any provision due to passage of time is recognized as accretion expense.
The Company records the present value of estimated costs of legal and constructive obligations required to restore mining properties in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and restoration, reclamation and re-vegetation of affected areas.
Reclamation provision
The fair value of the liability for a rehabilitation provision is recorded when it is incurred. When the liability is initially recognized, the present value of the estimated cost is capitalized by increasing the carrying amount of the related mineral property. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability, which is accreted over time through periodic charges to income or loss. Additional disturbances or changes in rehabilitation costs will be recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur.
85

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

3. | SIGNIFICANT ACCOUNTING POLICIES (continued)

Loss per Share
The Company presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share is determined by adjusting the loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares.
Income taxes
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized as equity.
Deferred tax is provided using the statement of financial position asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a future tax asset will be recovered, it provides a valuation allowance against that excess.

4. | RECENT ACCOUNTING PRONOUNCEMENTS

Certain new standards, interpretations and amendments to existing standards have been issued by the IASB that are mandatory for accounting periods beginning on January 1, 2013, or later periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.
IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes the principles for the presentation and preparation of financial statements when an entity controls one or more other entities. IFRS 10 changed the definition of control such that the same criteria are applied to all entities to determine control. IFRS 10 supersedes all of the guidance in IAS 27 Separate Financial Statements and SIC 12 Consolidation – Special Purpose Entities.
New accounting standards effective January 1, 2013
IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-monetary Contributions.
IFRS 12 – Disclosure of interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.
86

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

4. | RECENT ACCOUNTING PRONOUNCEMENTS (continued)

IFRS 13 – Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value that is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.
IAS 27 – Separate Financial Statements
As a result of the issue of the new consolidation suite of standards, IAS 27 Separate Financial Statements has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.
IAS 28 – Investments in Associates and Joint Ventures
As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will provided the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee.
IAS 1 – Presentation of Financial Statements
In June 2011, the IASB issued an amendment to IAS 1, which requires entities to separately present items in other comprehensive income based on whether or not they may be recycled to profit or loss in future periods.
IFRIC 20 – Production Stripping Costs
In October 2011, the IASB issued IFRIC 20 Stripping Costs, which requires the capitalization and depreciation of stripping costs in the production phase if an entity can demonstrate that it is probable future economic benefits will be realized, the costs can be reliably measured and the entity can demonstrate that it is probable future economic benefits will be realized, the costs can be reliably measured and the entity can identify the component of the ore body for which access has been improved.
IAS 32 – Financial Instruments: Presentation
In December 2011, the IASB issued an amendment to clarify the meaning of the offsetting criterion and the principle behind net settlement, including identifying when some gross settlement systems may be considered equivalent to net settlement. Earlier application is permitted when applied with corresponding amendment to IFRS 7.
The following standard will be effective for annual periods beginning on or after January 1, 2015:
IFRS 9 – Financial Instruments
In November 2009, as part of the IASB project to replace IAS 39 Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9 Financial Instruments that introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities.
Management does not expect that the adoption of these standards and interpretations will have a significant effect on the consolidated financial statements of the Company other than additional disclosures.
87

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

5. | SALES TAXES RECOVERABLE

The Company’s sales tax recoverable consists of the Mexican I.V.A. a Value-Added Tax (“VAT”) and the Canadian Harmonized Sales Tax (“HST”) recoverable.

|  | 2012 |  |  | 2011 |
VAT recoverable |  | $ | 167,340 |  |  | $ | 252,621 |
Write-down provision |  |  | - |  |  |  | (46,640 | )
VAT net carrying amount |  |  | 167,340 |  |  |  | 205,981 |
HST recoverable |  |  | 28,838 |  |  |  | 22,839 |
Sales tax recoverable |  | $ | 196,178 |  |  | $ | 228,820 |

The Company records the VAT net of a write-down provision, reflecting an estimate of the amount of VAT recoverable based on past collection history and the length of time amounts are outstanding.

6. | EXPLORATION AND EVALUATION ASSETS

The Company has accumulated the following acquisition, exploration and evaluation costs which are not subject to depletion:

|  |  |  |  | British |  |  |  |  |  |  |
|  | Durango |  |  | Columbia |  |  | Yukon |  |  |  |
|  | Mexico |  |  | Canada |  |  | Canada |  |  | Total |
Balance, January 1, 2011 |  | $ | 14,892,336 |  |  | $ | 3 |  |  | $ | 2,504 |  |  | $ | 14,894,843 |
Costs incurred during 2011: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assays |  |  | 89,147 |  |  |  | - |  |  |  | - |  |  |  | 89,147 |
Assessment and taxes |  |  | 30,759 |  |  |  | - |  |  |  | - |  |  |  | 30,759 |
Drilling and exploration |  |  | 3,248,382 |  |  |  | - |  |  |  | - |  |  |  | 3,248,382 |
Geological |  |  | 460,565 |  |  |  | - |  |  |  | 2,640 |  |  |  | 463,205 |
Sale of concentrate |  |  | (3,114,552 | ) |  |  | - |  |  |  | - |  |  |  | (3,114,552 | )
Depreciation of plant and equipment |  |  | 232,821 |  |  |  | - |  |  |  | - |  |  |  | 232,821 |
Reclamation provision |  |  | 292,000 |  |  |  | - |  |  |  | - |  |  |  | 292,000 |
Effect of movement in exchange rates |  |  | 137,749 |  |  |  | - |  |  |  | - |  |  |  | 137,749 |
Balance, December 31, 2011 |  | $ | 16,269,207 |  |  | $ | 3 |  |  | $ | 5,144 |  |  | $ | 16,274,354 |
Costs incurred during 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assays |  |  | 49,685 |  |  |  | - |  |  |  | - |  |  |  | 49,685 |
Rights extension (Note 6(a)(iv)) |  |  | 250,100 |  |  |  | - |  |  |  | - |  |  |  | 250,100 |
Assessment and taxes |  |  | 86,870 |  |  |  | - |  |  |  | - |  |  |  | 86,870 |
Drilling and exploration |  |  | 2,124,503 |  |  |  | - |  |  |  | - |  |  |  | 2,124,503 |
Geological |  |  | 131,856 |  |  |  | - |  |  |  | - |  |  |  | 131,856 |
Sale of concentrate |  |  | (3,490,581 | ) |  |  | - |  |  |  | - |  |  |  | (3,490,581 | )
Depreciation of plant and equipment |  |  | 204,334 |  |  |  | - |  |  |  | - |  |  |  | 204,334 |
Effect of movement in exchange rates |  |  | (136,511 | ) |  |  | - |  |  |  | - |  |  |  | (136,511 | )
Transfer to mining properties |  |  | (2,661,265 | ) |  |  | - |  |  |  | - |  |  |  | (2,661,265 | )
Property option revenue (Note 7(b)) |  |  | - |  |  |  | - |  |  |  | (5,143 | ) |  |  | (5,143 | )
Balance, December 31, 2012 |  | $ | 12,828,198 |  |  | $ | 3 |  |  | $ | 1 |  |  | $ | 12,828,202 |

88

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

6. | EXPLORATION AND EVALUATION ASSETS (continued)

Additional information on the Company’s exploration and evaluation properties by region is as follows:

| (a) | Durango, Mexico

The Company’s subsidiary Avino Mexico owns 42 mineral claims and leases 4 mineral claims under leased concessions in the state of Durango, Mexico. The Company’s mineral claims in Mexico are divided into the following four groups:

| (i) | Avino mine area property

The Avino mine property is situated around the towns of Panuco de Coronado and San Jose de Avino and surrounding the historic Avino mine site. 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. Within the Avino mine site area is the Company’s San Gonzalo mine which commenced commercial production on October 1, 2102 and on that date accumulated exploration and evaluation costs for the San Gonzalo mine were transferred to mining properties (see Note 10).

| (ii) | 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.

| (iii) | Santiago Papas Quiero property

The Santiago 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.

| (iv) | Unification Las Platosa properties

The Unification Las Platosa properties are situated with the Avino property around the towns of Panuco de Coronado and San Jose de Avino and surrounding the formerly producing Avino mine.
In February 2012, the Company’s wholly-owned Mexican subsidiary entered into a new agreement with Minerales de Avino, S.A. de C.V. (“Minerales”) whereby Minerales has indirectly granted to the Company the exclusive right to explore and mine the La Platosa property known as the “ET zone”.
Under the agreement, the Company has obtained the exclusive right to explore and mine the property for an initial period of 15 years, with the option to extend the agreement for another 5 years. In consideration of the grant of these rights, the Company has paid to Minerales $250,100, by the issuance of 135,189 common shares of the Company. The Company will have until February 2014 to develop the mining facilities.
The Company has agreed to pay to Minerales a royalty equal to 3.5% of net smelter returns at the commencement of commercial production from the property. In addition, after the development period, if the minimum monthly processing rate of the mine facilities is less than 15,000 tonnes, then the Company must pay to Minerales in any event a minimum royalty equal to the applicable NSR Royalty based on processing at a minimum monthly rate of 15,000 tonnes.
Minerales has also granted to the Company the exclusive right to purchase a 100% interest in the property at any time during the term of the agreement (or any renewal thereof), upon payment of US$8 million within 15 days of the Company’s notice of election to acquire the property. The purchase would be subject to a separate purchase agreement for the legal transfer of the property.
89

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

6. | EXPLORATION AND EVALUATION ASSETS (continued)

| (b) | British Columbia, Canada

The Company’s mineral claims in British Columbia encompass the following three properties:

| (i) | Aumax property

The Company owns a 100% interest in a Crown granted mineral claim, located in the Lillooet Mining Division of British Columbia, Canada.

| (ii) | Minto property

The Company has a 100% interest in a Crown granted mineral claim situated in the Lillooet Mining Division of British Columbia.

| (iii) | Olympic-Kelvin property

The Company has a 100% interest in six Crown granted mineral claims located in the Lillooet Mining Division of British Columbia.

| (c) | Yukon, Canada

The Company owns 100% interest in 14 quartz leases located in the Mayo Mining Division of the Yukon, Canada which are collectively comprise the Eagle property. During January, 2012, the Company entered into an option agreement on the Eagle property, refer to Note 7(b).

7. | MINERAL PROPERTY OPTION AGREEMENTS

The Company has two option agreements on its mineral properties which are included in exploration and evaluation assets. During fiscal 2012 a total of $54,317 was recognized as mineral property option income for these two option agreements.

| (a) | On July 30, 2012, the Company entered into an option and joint venture agreement with Endeavour Silver Corp. ("Endeavour") (TSX: EDV), whereby Endeavour was granted the option to acquire up to a 75% interest in the Laberinto property, located in the general Avino mine area in Durango State, Mexico and consists of approximately 91.7 hectares. In order to exercise the option, Endeavour must pay a total of US$200,000 to the Company, and incur a total of US$3,000,000 in exploration work as follows:

|  |  | Cash |  |  | Exploration Expenditures |
Upon signing July 30, 2012 (received) |  |  | US$ | 20,000 |  |  | US$ | – |
On or before July 30, 2013 |  |  |  | 30,000 |  |  |  | 300,000 |
On or before July 30, 2014 |  |  |  | 40,000 |  |  |  | 500,000 |
On or before July 30, 2015 |  |  |  | 50,000 |  |  |  | 1,000,000 |
On or before July 30, 2016 |  |  |  | 60,000 |  |  |  | 1,200,000 |
|  |  | US$ | 200,000 |  |  | US$ | 3,000,000 |

Upon Endeavour acquiring its 75% interest, a joint venture will be formed, under which if any party does not contribute its proportionate share of costs, its participating interest will be diluted on a pro rata basis according to the contributions of all parties. If any party's participating interest is reduced to 10% or less, then its interest will be automatically converted into a 2.5% net smelter return royalty.
90

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

7. | MINERAL PROPERTY OPTION AGREEMENTS (continued)

| (b) | During January 2012, the Company entered into an option agreement with Avaron Mining Corp. (“Avaron”) a private Canadian company, whereby Avaron can earn the exclusive right and option to acquire a 100% title and interest in the Company’s Eagle Property located in the Yukon Territory.

Avaron can earn a 75% interest by paying a total cash payment of $375,000, issue 800,000 common shares, incurring exploration costs of $100,000 and also drilling 35,000 meters (or incur exploration costs of up to $7,000,000) as follows:

|  | Cash |  |  | Exploration Expenditures |  |  | Shares |
On or before January 31, 2012 (received) |  | $ | 25,000 |  |  | $ | – |  |  |  | 150,000 |
On or before January 31, 2013 |  |  | – |  |  |  | 100,000 |  |  |  | 150,000 |
On or before January 31, 2014 |  |  | 100,000 |  |  |  | 625,000 |  |  |  | – |
On or before January 31, 2015 |  |  | 100,000 |  |  |  | 1,000,000 |  |  |  | – |
On or before January 31, 2016 |  |  | 50,000 |  |  |  | 2,000,000 |  |  |  | 250,000 |
On or before January 31, 2017 |  |  | 100,000 |  |  |  | 3,375,000 |  |  |  | 250,000 |
|  | $ | 375,000 |  |  | $ | 7,100,000 |  |  |  | 800,000 |

After the initial 75% interest is earned Avaron may either elect to form a Joint Venture with the Company, or has the ability to earn the remaining 25% interest by paying a series of annual advance royalties and completing other activities as defined in the option agreement.
Upon signing the agreement, the Company received a $25,000 cash payment. $5,143 of the payment was recorded as a reduction to the carrying value of the Eagle Property resulting in a $1 carrying value of the Eagle Property in exploration and evaluation assets. The remaining cash proceeds of $19,857 were recorded as option revenue along with the $15,000 fair value of the 150,000 common shares of Avaron that were received.
Subsequent to the 2012 year end Avaron’s option was assigned to another corporation, refer to Note 25(e).

8. | INVENTORY

|  | 2012 |  |  | 2011 |
Concentrate inventory |  | $ | 631,859 |  |  | $ | - |
Ore stock piles |  |  | 1,384,973 |  |  |  | - |
Materials and supplies |  |  | 209,008 |  |  |  | - |
|  | $ | 2,225,840 |  |  | $ | - |

The amount of inventory recognized as an expense for the year ended December 31, 2012 includes production costs and amortization and depletion directly attributable to the inventory production process.

9. | NON-CONTROLLING INTEREST

For the years ended December 31, 2012, 2011 and 2010 the Company has an effective 99.28% interest in its subsidiary Avino Mexico and the remaining 0.72% portion represents a non-controlling interest. To date the losses attributable to the non-controlling interest are insignificant and accordingly have not been recognized in the consolidated financial statements.
91

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

10. | PLANT, EQUIPMENT AND MINING PROPERTIES

|  | Mining Properties |  |  | Office equipment, furniture and fixtures |  |  | Computer equipment |  |  | Mine machinery and transportation equipment |  |  | Mill machinery and processing equipment |  |  | Buildings and construction |  |  | TOTAL |
|  | $ |  |  | $ |  |  | $ |  |  | $ |  |  | $ |  |  | $ |  |  | $ |
COST |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2011 |  |  | - |  |  |  | 6,249 |  |  |  | 26,707 |  |  |  | 201,180 |  |  |  | 1,182,177 |  |  |  | 322,907 |  |  |  | 1,739,220 |
Additions |  |  | - |  |  |  | 7,855 |  |  |  | 5,174 |  |  |  | 970,763 |  |  |  | 499,661 |  |  |  | - |  |  |  | 1,483,453 |
Effect of movement in exchange rates |  |  | - |  |  |  | 76 |  |  |  | 578 |  |  |  | 21,274 |  |  |  | 30,176 |  |  |  | 5,862 |  |  |  | 57,966 |
Balance at December 31, 2011 |  |  | - |  |  |  | 14,180 |  |  |  | 32,459 |  |  |  | 1,193,217 |  |  |  | 1,712,014 |  |  |  | 328,769 |  |  |  | 3,280,639 |
Additions |  |  | 2,661,265 |  |  |  | 7,125 |  |  |  | 57,576 |  |  |  | 547,663 |  |  |  | 368,755 |  |  |  | - |  |  |  | 3,642,384 |
Effect of movement in exchange rates |  |  | 19,055 |  |  |  | 82 |  |  |  | 643 |  |  |  | 12,426 |  |  |  | 14,704 |  |  |  | 2,343 |  |  |  | 49,253 |
Balance at December 31, 2012 |  |  | 2,680,320 |  |  |  | 21,387 |  |  |  | 90,678 |  |  |  | 1,753,306 |  |  |  | 2,095,473 |  |  |  | 331,112 |  |  |  | 6,972,276 |
ACCUMULATED DEPLETION AND DEPRECIATION |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2011 |  |  | - |  |  |  | 4,600 |  |  |  | 7,574 |  |  |  | 4,508 |  |  |  | - |  |  |  | - |  |  |  | 16,682 |
Additions |  |  | - |  |  |  | 1,305 |  |  |  | 6,594 |  |  |  | 139,558 |  |  |  | 71,745 |  |  |  | 16,364 |  |  |  | 235,566 |
Effect of movement in exchange rates |  |  | - |  |  |  | 7 |  |  |  | 256 |  |  |  | 2,582 |  |  |  | 1,285 |  |  |  | 292 |  |  |  | 4,422 |
Balance at December 31, 2011 |  |  | - |  |  |  | 5,912 |  |  |  | 14,424 |  |  |  | 146,648 |  |  |  | 73,030 |  |  |  | 16,656 |  |  |  | 256,670 |
Additions |  |  | 93,518 |  |  |  | 2,149 |  |  |  | 9,042 |  |  |  | 235,149 |  |  |  | 42,529 |  |  |  | 20,093 |  |  |  | 402,480 |
Effect of movement in exchange rates |  |  | 670 |  |  |  | 12 |  |  |  | 167 |  |  |  | 2,716 |  |  |  | 820 |  |  |  | 261 |  |  |  | 4,646 |
Balance at December 31, 2012 |  |  | 94,188 |  |  |  | 8,073 |  |  |  | 23,633 |  |  |  | 384,513 |  |  |  | 116,379 |  |  |  | 37,010 |  |  |  | 663,796 |
NET BOOK VALUE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At December 31, 2012 |  |  | 2,586,132 |  |  |  | 13,314 |  |  |  | 67,045 |  |  |  | 1,368,793 |  |  |  | 1,979,094 |  |  |  | 294,102 |  |  |  | 6,308,480 |
At December 31, 2011 |  |  | - |  |  |  | 8,268 |  |  |  | 18,035 |  |  |  | 1,046,569 |  |  |  | 1,638,984 |  |  |  | 312,113 |  |  |  | 3,023,969 |

92

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

10. | PLANT, EQUIPMENT AND MINING PROPERTIES (continued)

The mining properties consist of the San Gonzalo mining concession which covers 12 hectares and is located approximately 2 km from the historic Avino mine site. Depletion began being recorded from October 1, 2012 when the Company commenced commercial production at the San Gonzalo mine.

11. | INVESTMENTS IN RELATED COMPANIES

Investments in related companies comprise the following:

|  |  |  |  | Accumulated Unrealized |  |  | Fair Value December 31, |  |  | Fair Value December 31, |
|  | Cost |  |  | Gains (Losses) |  |  | 2012 |  |  | 2011 |
(a) Bralorne Gold Mines Ltd. |  | $ | 205,848 |  |  |  | (71,486 | ) |  | $ | 134,362 |  |  | $ | 150,485 |
(b) Levon Resources Ltd. |  |  | 4,236 |  |  |  | 55,774 |  |  |  | 60,010 |  |  |  | 153,908 |
(c) Oniva International Services Corp. |  |  | 1 |  |  |  | - |  |  |  | 1 |  |  |  | 1 |
|  | $ | 210,085 |  |  |  | (15,712 | ) |  | $ | 194,373 |  |  | $ | 304,394 |

During the year, the Company recorded a $110,021 unrealized loss (2011 - $212,966 loss, 2010 - $313,323 gain) on investments in related companies, representing the change in fair value during the year.

| (a) | Bralorne Gold Mines Ltd. (“Bralorne”) The Company’s investment in Bralorne consists of 179,149 common shares with a quoted market value of $134,362 as at December 31, 2012 (2011 - $150,485). 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 $60,010 as at December 31, 2012 (2011 - $153,908). Levon is a public company with common directors.

| (c) | Oniva International Services Corp. (“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 20 for disclosure on the Company’s commitment to Oniva.

12. | INVESTMENT IN OTHER COMPANIES

In January 2012, the Company acquired 150,000 common shares of Avaron Mining Corp. with an adjusted cost base of $15,000 as part of the option agreement with Avaron described in Note 7 (b). The Company has designated the investment in Avaron as fair value through profit and loss and classifies the common shares of Avaron as a long-term investment.

13. | RECLAMATION PROVISION

Management has estimated that the present value of its reclamation provision at December 31, 2012 is $323,140 (December 31, 2011 - $292,000). The present value of the obligation was calculated using a risk-free interest rate of 7% and an inflation rate of 4%. Reclamation activities are estimated to occur over a one-year period beginning in 2018. The undiscounted value of the obligation is $368,709 (2011 - $355,200).
93

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

14. | SHARE CAPITAL

| (a) | Authorized: Unlimited common shares without par value

| (b) | Issued:

| (i) | On February 22, 2012, the Company issued 135,189 common shares under a new 20 year royalty agreement with Minerales de Avino S.A. de C.V. The fair market value of the common shares on February 22, 2012 was $1.85 per share.

| (ii) | On December 20, 2010, the Company closed a non-brokered private placement issuing 2,700,000 units at a price of $1.90 per unit for gross proceeds of $5,130,000. Each unit is comprised of one common share and one non-transferrable share purchase warrant. Each share purchase warrant is exercisable for a term for a term of three years into one common share at a price of $2.50 per share until December 22, 2013. The Company paid a cash commission equal to 5% of the applicable gross proceeds from units sold to such investors ($210,900) and compensation warrants to purchase common shares of the Company equal to 5% of the units sold under the offering (111,000 units). The fair value of the warrants and compensation warrants have been estimated using the Black-Scholes option pricing model using the following assumptions: risk-free interest rate of 1.90%, dividend yield of nil, volatility of 84.87%, and an expected life of three years. Of the $5,130,000 total aggregate proceeds raised $3,252,285 was attributed to common shares and the residual amount of $1,877,715 was attributed to the common share purchase warrants, which has been recorded in equity reserve. The fair value of the compensation warrants was valued at $180,082.

| (iii) | On November 10, 2010, the Company closed a non-brokered private placement issuing 2,400,000 units at a price of $1.25 per unit for gross proceeds of $3,000,000. Each unit is comprised of one common share and one non-transferrable share purchase warrant. Each share purchase warrant is exercisable for a term for a term of three years into one common share at a price of $1.52 per share until November 10, 2013. The fair value of the warrants has been estimated using the Black-Scholes option pricing model using the following assumptions: risk-free interest rate of 1.94%, dividend yield of nil, volatility of 83.86%, and an expected life of three years. Of the $3,000,000 total aggregate proceeds raised $1,855,329 was attributed to common shares and the residual amount of $1,144,671 was attributed to common share purchase warrants, which has been recorded in contributed surplus.

94

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

14. | SHARE CAPITAL (continued)

| (c) | Warrants:

During 2012 and 2011 there were no warrants issued or exercised. Details of share purchase warrants outstanding are:

|  | Underlying Shares |  |  | Weighted Average Exercise Price |
Balance, December 31, 2010 |  |  | 5,211,000 |  |  | $ | 2.05 |
Balance, December 31, 2011 |  |  | 5,211,000 |  |  | $ | 2.05 |
Balance, December 31, 2012 |  |  | 5,211,000 |  |  | $ | 2.05 |

Details of share purchase warrants outstanding as of December 31, 2012 and December 31, 2011 are:

|  | Exercise Price |  |  | Warrants Outstanding and Exercisable |
Expiry Date |  | per Share |  |  | 2012 |  |  | 2011 |
November 10, 2013 |  | $ | 1.52 |  |  |  | 2,400,000 |  |  |  | 2,400,000 |
December 22, 2013 |  | $ | 2.50 |  |  |  | 2,811,000 |  |  |  | 2,811,000 |
|  |  |  |  |  |  | 5,211,000 |  |  |  | 5,211,000 |

| (d) | 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.

|  | Underlying Shares |  |  | Weighted Average Exercise Price |
Stock options outstanding and exercisable, December 31, 2010 |  |  | 1,605,000 |  |  | $ | 0.97 |
Granted |  |  | 1,840,000 |  |  | $ | 2.16 |
Expired or cancelled |  |  | (70,000 | ) |  | $ | 3.53 |
Exercised |  |  | (753,000 | ) |  | $ | 0.79 |
Stock options outstanding and exercisable, December 31, 2011 |  |  | 2,622,000 |  |  | $ | 1.80 |
Granted |  |  | 30,000 |  |  | $ | 2.00 |
Expired or cancelled |  |  | (90,000 | ) |  | $ | 2.17 |
Exercised |  |  | (82,000 | ) |  | $ | 0.92 |
Stock options outstanding and exercisable, December 31, 2012 |  |  | 2,480,000 |  |  | $ | 1.81 |

As at December 31, 2012, the weighted average remaining contractual life of stock options outstanding is 2.78 years.
95

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

14. | SHARE CAPITAL (continued)

| (d) | Stock options:

Details of stock options outstanding are:

|  |  |  |  | Stock Options Outstanding |
Expiry Date |  | Exercise Price |  |  | 2012 |  |  | 2011 |  |  | 2010 |
April 26, 2011 |  | $ | 3.99 |  |  |  | - |  |  |  | - |  |  |  | 60,000 |
April 26, 2011 |  | $ | 0.75 |  |  |  | - |  |  |  | - |  |  |  | 600,000 |
January 16, 2013 |  | $ | 2.00 |  |  |  | 30,000 |  |  |  | - |  |  |  | - |
February 27, 2013 |  | $ | 1.65 |  |  |  | 10,000 |  |  |  | 10,000 |  |  |  | 10,000 |
February 27, 2013 |  | $ | 0.75 |  |  |  | 295,000 |  |  |  | 295,000 |  |  |  | 340,000 |
December 9, 2013 |  | $ | 2.00 |  |  |  | 20,000 |  |  |  | 20,000 |  |  |  | 20,000 |
September 22, 2014 |  | $ | 0.75 |  |  |  | 25,000 |  |  |  | 60,000 |  |  |  | 75,000 |
January 14, 2015 |  | $ | 0.81 |  |  |  | 60,000 |  |  |  | 60,000 |  |  |  | 75,000 |
September 10, 2015 |  | $ | 1.05 |  |  |  | 290,000 |  |  |  | 337,000 |  |  |  | 425,000 |
January 18, 2016 |  | $ | 2.30 |  |  |  | 960,000 |  |  |  | 1,010,000 |  |  |  | - |
September 30, 2016 |  | $ | 2.00 |  |  |  | 790,000 |  |  |  | 830,000 |  |  |  | - |
|  |  |  |  |  |  | 2,480,000 |  |  |  | 2,622,000 |  |  |  | 1,605,000 |

15. | SHARE-BASED PAYMENTS

During the year ended December 31, 2012, the Company granted stock options to consultants of the Company to purchase up to a total of 30,000 common shares at a weighted average exercise price of $2.00 per share pursuant to the Company’s stock option plan. The options vest on dates ranging from the grant date to January 15, 2013. The options are exercisable on or before January 16, 2013.
During the year ended December 31, 2011, the Company granted stock options to various directors, officers, employees, consultants, and investor relations of the Company to purchase up to a total of 1,840,000 common shares at a weighted average exercise price of $2.16 per share pursuant to the Company’s stock option plan. The options vest on dates ranging from the grant date to September 30, 2012. The options are exercisable on or before September 30, 2016.
During 2010 the Company granted stock options to various directors, officers, employees, consultants, and investor relations of the Company to purchase up to a total of 520,000 common shares at a weighted average exercise price of $1.05 per share pursuant to the Company’s stock option plan. The options vest on dates ranging from the grant date to September 30, 2011. The options are exercisable on or before September 10, 2015.
The Company recorded total amount of share-based payment expense in the amount of $18,408 (2011 - $2,529,620, 2010 - $341,748).
Option-pricing requires the use of highly subjective estimates and assumptions including the expected stock price volatility. The expected volatility used in valuing stock options is based on volatility observed in historical periods. 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, consultants, and employees was calculated using the Black-Scholes model with following weighted average assumptions and resulting grant date fair value:
96

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

15. | SHARE-BASED PAYMENTS (continued)

|  | 2012 |  |  | 2011 |  |  | 2010 |
Weighted average assumptions: |  |  |  |  |  |  |  |  |
Risk-free interest rate |  |  | 1.06 | % |  |  | 2.05 | % |  |  | 2.08 | %
Expected dividend yield |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Expected option life (years) |  |  | 0.42 |  |  |  | 4.99 |  |  |  | 4.83 |
Expected stock price volatility |  |  | 50.89 | % |  |  | 76.17 | % |  |  | 74.95 | %
Weighted average fair value at grant date |  | $ | 0.13 |  |  | $ | 1.38 |  |  | $ | 0.67 |

16. | REVENUE AND COST OF SALES

Revenue and the related cost of sales reflect the sale of silver and gold concentrate produced at the San Gonzalo mine from the commencement of commercial production on October 1, 2012 to December 31, 2012.
Cost of sales consists of changes in inventories, direct mining costs which include personnel costs, general and administrative costs, energy costs (principally diesel fuel and electricity), maintenance and repair costs, operating supplies, external services, third party smelting, refining and transport fees; and depreciation related to sales and other expenses for the period. Cost of sales is based on the weighted average cost of contained or recoverable ounces sold for the period. Direct costs include the costs of extracting co-products.

|  | 2012 |  |  | 2011 |  |  | 2010 |
Direct mining cost |  | $ | 1,246,309 |  |  |  | - |  |  |  | - |
Depreciation, depletion, and accretion |  |  | 188,260 |  |  |  | - |  |  |  | - |
|  | $ | 1,434,569 |  |  |  | - |  |  |  | - |

17. | RELATED PARTY TRANSACTIONS AND BALANCES

All related party transactions are recorded at the exchange amount which is the amount agreed to by the Company and the related party.

| (a) | Management transactions

The Company has identified its directors and certain senior officers as its key management personnel. The compensation costs for key management personnel for the years ended December 31, 2012, 2011 and 2010 and are as follows:

|  | 2012 |  |  | 2011 |  |  | 2010 |
Salaries and benefits |  | $ | 243,011 |  |  | $ | 362,173 |  |  | $ | 149,542 |
Share‐based payments |  |  | - |  |  |  | 2,009,400 |  |  |  | 186,200 |
|  | $ | 243,011 |  |  | $ | 2,371,573 |  |  | $ | 335,742 |

| (b) | In the normal course of operations the Company transacts with companies related to Avino’s directors or officers. All amounts payable are non-interest bearing and due on demand. As at December 31, 2012 and 2011 the following amounts are due to related parties:

|  | December 31, 2012 |  |  | December 31, 2011 |
Directors |  | $ | 24,469 |  |  | $ | 19,625 |
Oniva International Services Corp. |  |  | 147,845 |  |  |  | 179,338 |
Sampson Engineering Inc. |  |  | 2,400 |  |  |  | 4,800 |
|  | $ | 174,714 |  |  | $ | 203,763 |

97

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

17. | RELATED PARTY TRANSACTIONS AND BALANCES (continued)

| (c) | Other related party transactions

The Company has a cost sharing agreement to reimburse Oniva International Services Corp. (“Oniva”) as described in Note 20. The transactions with Oniva during the year are summarized below:

|  | 2012 |  |  | 2011 |  |  | 2010 |
Salaries and benefits |  | $ | 179,555 |  |  | $ | 151,941 |  |  | $ | 108,086 |
Office and miscellaneous |  |  | 276,201 |  |  |  | 240,810 |  |  |  | 60,441 |
|  | $ | 455,756 |  |  | $ | 392,751 |  |  | $ | 168,527 |

18. | FINANCE LEASE OBLIGATIONS

The Company has entered into mining equipment leases expiring between 2013 and 2014 with interest rates ranging from 1.75% to 2.5% per annum. The Company has the option to purchase the mining equipment at the end of the lease term for a nominal amount. The Company’s obligation under finance leases are secured by the lessor’s title to the leased assets. The fair value of the finance lease liabilities approximates their carrying amount. Plant and equipment includes a $338,825 net carrying amount for this leased mining equipment.

|  | 2012 |
Not later than one year |  | $ | 156,478 |
Later than one year and not later than five years |  |  | 78,863 |
Less: Future finance charges |  |  | (389 | )
Present value of minimum lease payments |  |  | 234,952 |
Less: Current portion |  |  | (156,220 | )
Non-current portion |  | $ | 78,732 |

19. | SUPPLEMENTARY CASH FLOW INFORMATION

|  | 2012 |  |  | 2011 |  |  | 2010 |
Net change in non-cash working capital items: |  |  |  |  |  |  |  |  |
Interest receivable |  | $ | 52,573 |  |  | $ | (49,501 | ) |  | $ | (3,996 | )
Amounts receivable |  |  | 622,251 |  |  |  | - |  |  |  | - |
Sales taxes recoverable |  |  | 79,282 |  |  |  | 4,868 |  |  |  | (187,089 | )
Prepaid expenses |  |  | (40,020 | ) |  |  | (55,775 | ) |  |  | 19,310 |
Inventories |  |  | (2,225,840 | ) |  |  | - |  |  |  | - |
Accounts payable and accrued liabilities |  |  | 822,691 |  |  |  | 126,372 |  |  |  | 90,912 |
Due to related parties |  |  | (29,049 | ) |  |  | 34,498 |  |  |  | 4,574 |
|  | $ | (718,112 | ) |  | $ | 60,462 |  |  | $ | (76,289 | )

|  | 2012 |  |  | 2011 |  |  | 2010 |
Interest paid |  | $ | 1,471 |  |  | $ | - |  |  | $ | - |
Taxes paid |  | $ | - |  |  | $ | - |  |  | $ | - |

20. | COMMITMENTS

The Company has a cost sharing agreement 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.
98

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

20. | COMMITMENTS (continued)

The agreement may be terminated with one-month notice by either party. Transactions and balances with Oniva are disclosed in Note 17.
The Company and its subsidiary have various lease agreements for their office premises, use of land, drilling and equipment.
The Company has commitments in respect of these lease agreements as follows:

|  | December 31, 2012 |  |  | December 31, 2011 |
Not later than one year |  | $ | 248,512 |  |  | $ | 243,301 |
Later than one year and no later than five years |  |  | 597,188 |  |  |  | 824,910 |
Later than 5 years |  |  | 76,506 |  |  |  | 84,046 |
|  | $ | 922,206 |  |  | $ | 1,152,257 |

21. | FINANCIAL INSTRUMENTS

The fair values of the Company’s cash and cash equivalents, amounts receivable, due to related party and accounts payables approximate their carrying values because of the short-term nature of these instruments. The investments in related companies are based on quoted market prices.
The Company’s financial instruments are exposed to certain financial risks, credit risk, liquidity risk and market risk.

| (a) | Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s cash is exposed to credit risk. The Company is not exposed to significant credit risk on amounts receivable.
The Company manages credit risk, in respect of cash, by maintaining the majority of cash at high credit rated Canadian financial institutions. However, as at December 31, 2012 cash and cash equivalents substantially exceed the amounts covered under federal deposit insurance
Concentration of credit risk exists with respect to the Company’s cash as the majority of the amounts are held with a single Canadian financial institution.

| (b) | Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. The Company has cash at December 31, 2012 in the amount of $4,035,985 (2011 - $5,282,464) in order to meet short-term business requirements. At December 31, 2012, the Company had current liabilities of $1,476,681 (2011 - $804,740). Accounts payable have contractual maturities of approximately 30-90 days or are due on demand and are subject to normal trade terms. Amounts due to related parties are without stated terms of interest or repayment.
99

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

21. | FINANCIAL INSTRUMENTS (continued)

| (c) | Market Risk

Market risk consists of interest rate risk, foreign currency risk and other price risk. These are discussed further below.
Interest Rate Risk
Interest rate risk consists of two components:

| (i) | To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk.

| (ii) | To the extent that changes in prevailing market rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk.

In management’s opinion, the Company is not exposed to significant interest rate risk as the Company has no significant interest-bearing debt as of December 31, 2012 and 2011.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities are denominated in foreign currency with respect to the following assets and liabilities, as a portion of these amounts are denominated in Mexican Pesos and US dollars as follows:

|  | December 31, 2012 |  |  | December 31, 2011 |
|  | MXN |  |  | USD |  |  | MXN |  |  | USD |
Cash and cash equivalents |  | $ | 3,586,471 |  |  | $ | 1,312,607 |  |  | $ | 935,096 |  |  | $ | 496,186 |
Sales taxes recoverable |  |  | 2,180,706 |  |  |  | - |  |  |  | 2,789,015 |  |  |  | - |
Amounts receivable |  |  | 3,096,083 |  |  |  | 210,076 |  |  |  | - |  |  |  | 862,287 |
Accounts payable and accrued liabilities |  |  | (2,775,290 | ) |  |  | (408,437 | ) |  |  | (6,214,511 | ) |  |  | - |
Amounts due to related parties |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Finance lease obligations |  |  | - |  |  |  | (236,157 | ) |  |  |  |  |  |  |  |
Net exposure |  |  | 6,087,970 |  |  |  | 878,089 |  |  |  | (2,490,400 | ) |  |  | 1,358,473 |
Canadian dollar equivalent |  | $ | 467,178 |  |  | $ | 873,611 |  |  | $ | (183,877 | ) |  | $ | 1,381,567 |

100

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

21. | FINANCIAL INSTRUMENTS (continued)

| (c) | Market Risk (continued)

Foreign Currency Risk (continued)
Based on the net Canadian dollar denominated asset and liability exposures as at December 31, 2012, a 10% fluctuation in the Canadian/Mexican and Canadian/US exchange rates will impact the Company’s earnings by approximately $134,078 (2011 - $119,769).
The Company has not entered into any foreign currency contracts to mitigate this risk
Other Price Risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is exposed to other price risk with respect to its investment in related parties as they are carried at fair value based on quoted market prices.
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.

| (d) | Classification of Financial instruments

IFRS 7 ‘Financial Instruments: Disclosures’ establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included in Level 1 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 for the asset or liability that are not based on observable market data (unobservable inputs).
The following table sets forth the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2012:

|  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Cash and cash equivalents |  | $ | 4,035,985 |  |  |  | - |  |  |  | - |
Investments in related parties |  |  | 194,373 |  |  |  | - |  |  |  | - |
Other investments |  |  | 15,000 |  |  |  |  |  |  |  |  |
|  | $ | 4,245,358 |  |  |  | - |  |  |  | - |

22. | 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.
101

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

23. | SEGMENTED INFORMATION

The Company operates in one reportable operating segment, being the acquisition, exploration and development of mineral properties.
The Company has non-current assets in the following geographic locations:

|  | 2012 |  |  | 2011 |
Canada |  | $ | 214,873 |  |  | $ | 319,334 |
Mexico |  |  | 19,136,682 |  |  |  | 19,288,883 |
|  | $ | 19,351,555 |  |  | $ | 19,608,217 |

24. | INCOME TAXES

The components of the income tax provision including, the statutory tax rate, effective tax rate and the effect of the unrecognized deferred tax assets are as follows:

|  | 2012 |  |  | 2011 |
Statutory rate |  |  | 25 | % |  |  | 26.5 | %
Income taxes recovered at the Canadian statutory rate |  | $ | 315,794 |  |  | $ | 1,116,093 |
Less permanent differences: |  |  |  |  |  |  |  |
Share-based payments |  |  | (4,602 | ) |  |  | (670,349 | )
Effect of difference in Mexican tax rates |  |  | (12,523 | ) |  |  | 9,933 |
Other non-tax deductible expenses |  |  | (94,214 | ) |  |  | (1,902 | )
Effect of difference between functional and tax reporting currency |  |  | 155,354 |  |  |  | (328,855 | )
Change in enacted rates |  |  | (68,807 | ) |  |  | (21,016 | )
Change in unrecognized benefit of tax losses |  |  | (282,604 | ) |  |  | (273,033 | )
Benefit (liability) of tax attributes recognized and other items |  |  | (268,719 | ) |  |  | 82,631 |
Income tax expense recognized in the year |  | $ | (260,321 | ) |  | $ | (86,498 | )

102

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

24. | INCOME TAXES (continued)

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

|  | 2012 |  |  | 2011 |
Expected tax recovery rate |  |  | 25 | % |  |  | 25 | %
Non-capital tax losses carried forward |  | $ | 1,855,370 |  |  | $ | 1,558,068 |
Capital losses carried forward |  |  | 184,026 |  |  |  | 184,026 |
Canadian exploration expenses, Canadian development expenses and foreign exploration, and development expenses in excess of book value of Canadian mineral properties |  |  | 467,953 |  |  |  | 485,737 |
Share issuance costs |  |  | 25,531 |  |  |  | 38,296 |
Tax basis of investments in related companies in excess of book value |  |  | 30,964 |  |  |  | 15,337 |
Undeducted capital cost allowance in excess of book value of Canadian equipment |  |  | 52,602 |  |  |  | 52,378 |
Deferred income tax assets |  |  | 2,616,446 |  |  |  | 2,333,842 |
Unrecognized deferred tax assets |  |  | (2,616,446 | ) |  |  | (2,333,842 | )
Net tax assets |  | $ | – |  |  | $ | – |

The potential benefit of Canadian net operating tax loss carry-forwards and other Canadian deferred 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 deferred 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 Avino Mexico. 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 Avino Mexico 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 deferred 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 deferred income tax liabilities are as follows:

|  | 2012 |  |  | 2011 |
Mexican statutory rate |  |  | 29 | % |  |  | 28 | %
Book value of mineral properties in excess of tax bases |  | $ | 4,240,462 |  |  | $ | 3,818,183 |
Book value of plant and equipment in excess of tax bases |  |  | 394,475 |  |  |  | 408,219 |
Less: Mexican tax losses carried forward |  |  | (2,269,260 | ) |  |  | (2,121,046 | )
Deferred income tax liability |  | $ | 2,365,677 |  |  | $ | 2,105,356 |

103

AVINO SILVER & GOLD MINES LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and 2010
(Expressed in Canadian dollars)

24. | INCOME TAXES (continued)

The Company has capital losses of $1,472,210 carried forward and $7,421,481 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 $7,825,035 (denominated in MXN$101,939,408) 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 |
2014 |  |  | $ | 568,450 |  |  | $ | – |
2018 |  |  |  | – |  |  |  | 3,205,719 |
2019 |  |  |  | – |  |  |  | 1,096,028 |
2020 |  |  |  | – |  |  |  | 1,054,855 |
2021 |  |  |  | – |  |  |  | 854,217 |
2025 |  |  |  | 799,044 |  |  |  | 1,614,216 |
2026 |  |  |  | 646,331 |  |  |  | – |
2027 |  |  |  | 643,498 |  |  |  | – |
2028 |  |  |  | 774,118 |  |  |  | – |
2029 |  |  |  | 727,183 |  |  |  | – |
2030 |  |  |  | 804,957 |  |  |  | – |
2031 |  |  |  | 1,268,691 |  |  |  | – |
2032 |  |  |  | 1,189,209 |  |  |  | – |
|  |  | $ | 7,421,481 |  |  | $ | 7,825,035 |

25. | SUBSEQUENT EVENTS

Events occurring after December 31, 2012:

| (a) | 306,518 options were exercised for gross proceeds of $63,750.

| (b) | 75,000 options expired unexercised.

| (c) | 250,000 options were granted to directors, officers, and employees with a weighted average price of $1.60 and expire in 5 years from the grant date.

| (d) | The Company entered into a credit facility with Caterpillar Finance permitting the purchase up to US $5,000,000 of mining and related equipment. The credit facility bears interest at rates ranging from 0% to 4.95% per annum. Equipment leased under the credit facility has terms of 18 months to 60 months. These terms are dependent on the Company's requirements and equipment acquired. The Company has acquired three pieces of mining equipment under the credit facility totaling US$1,457,458. This equipment is use for current mining operations.

| (e) | On April 10, 2013 the TSX-V approved to the terms of an option purchase and assignment agreement permitting Benz Capital Corp. to acquire all of Avaron's interest in an option agreement between Avaron (see Note 7(b)) and Avino pursuant to which Avaron has the option to acquire from Avino up to an undivided 100% interest in the Eagle Property.

As consideration for the option assignment, Benz has issued 50,000 Common Shares and Avaron has issued 250,000 common shares to Avino as required under the terms of the Option Agreement.
104

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: May 14, 2013 | By: | /s/ David Wolfin |
|  | David Wolfin, Chief Executive Officer |
|  | (Principal Executive Officer) |

105

Exhibit Number |  | Name
1.1 |  | Memorandum of Avino Silver & Gold Mines Ltd.*
1.2 |  | Articles of Avino Silver & Gold Mines Ltd.*
2.1 |  | Shareholders Rights Plan Agreement dated Apr. 22, 2013
4.1 |  | Share Purchase Agreement dated March 22, 2004*
4.2 |  | Intermark Capital Corporation Consulting Agreement dated Jan. 1, 2013
4.3 |  | Minerales de Avino SA de SV Agreement dated Feb. 18, 2012
4.4 |  | Stock Option Plan
4.5 |  | $5 Million Master Credit Facility with Caterpillar Credito, S.A. de C.V. and Continuing Guarantee dated Dec. 17, 2012
4.6 |  | Avaron Mining Corp. Option Agreement dated Jan 03, 2012
4.7 |  | Benz Capital Corp. Option Purchase and Assignment Agreement dated Nov. 30, 2012
4.8 |  | Endeavour Silver Corp. Option to Joint Venture Agreement dated Jul 30, 2012
8.1 |  | List of Subsidiaries
11.1 |  | Code of Ethics
11.2 |  | Audit Committee Charter
11.3 |  | Governance & Nominating Committee Charter
11.4 |  | Compensation Committee Charter
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
13.3 |  | Consent of Tetra Tech

___________________________
* Previously filed.
106