10-K 1 r10k01m.txt METALLINE MINING COMPANY SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission file number: 000-27667 METALLINE MINING COMPANY (Exact name of registrant as specified in its charter) Nevada 91-1766677 (State or other jurisdiction (IRS Employer Identification No.) of incorporation) 1330 E. MARGARET AVE. COEUR D'ALENE, ID 83815 (Address of principal executive offices) Registrant's telephone number, including area code: (208) 665-2002 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock The OTC-Bulletin Board Title of each class Name of each exchange on which registered 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 as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant at January 11, 2002 was $7,028,093. The number of shares of common stock outstanding at such date was 10,067,595 shares. An additional 1,901,500 were deemed outstanding at such date pursuant to presently exercisable options. METALLINE MINING COMPANY ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 TABLE OF CONTENTS Page SAFE HARBOR STATEMENT . . . . . . . . . . . . . . . . . . . . . . . (ii) PART I Item 1: Description of Business . . . . . . . . . . . . . 1 Item 2: Risk Factors . . . . . . . . . . . . . . . . . . . 6 Item 3: Description of Properties . . . . . . . . . . . . 8 Item 4: Legal Proceedings . . . . . . . . . . . . . . . . . 9 Item 5: Indemnification of Directors and Officers . . . . . 9 Item 6: Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 9 PART II Item 7: Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . 9 Item 8: Recent Sale of Unregistered Securities . . . . . . 10 Item 9: Selected Financial Data . . . . . . . . . . . . . 12 Item 10: Description of Securities . . . . . . . . . . . . 13 Item 11: Management's Discussion and Analysis of Financial Condition and Plan of Operations . . . . 14 Item 12: Financial Statements and Supplementary Data . . . 15 Item 13: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . 15 PART III Item 14: Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 16 Item 15: Executive Compensation . . . . . . . . . . . . . 17 Item 16: Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 18 Item 17: Certain Relationships and Related Transactions . . 19 PART IV Item 18: Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . 21 Index to Financials . . . . . . . . . . . . . . . . . . . . . . . . 22 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F/S - 18 (i) METALLINE MINING COMPANY ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 SAFE HARBOR STATEMENT This report contains both historical and prospective statements concerning the Company and its operations. Historical statements are based on events that have already happened; examples include the reported financial and operating results, descriptions of pending and completed transactions, and management and compensation matters. Prospective statements, on the other hand, are based on events that are reasonably expected to happen in the future; examples include the timing of projected operations, the likely effect or resolution of known contingencies or other foreseeable events, and projected operating results. Prospective statements (which are known as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995) may or may not prove true with the passage of time because of future risks and uncertainties. The Company cannot predict what factors might cause actual results to differ materially from those indicated by prospective statements. The risks and uncertainties associated with prospective statements contained in this report include, among others, the following: [The balance of this page has been intentionally left blank.] (ii) METALLINE MINING COMPANY ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 PART I ITEM 1. DESCRIPTION OF BUSINESS. Background Metalline Mining Company is a development stage enterprise formed under the laws of the State of Nevada, on August 20, 1993, to engage in the business of mining. Current Operations Metalline currently owns one mining property located in Mexico known as the Sierra Mojada Property. Metalline conducts its operations in Mexico through its wholly owned subsidiary corporation, Minera Metalin S.A. de C.V. The Sierra Mojada Property The Mexican government owns the mineral rights. The exclusive right to explore and exploit the mineral rights is granted by issuance of a concession to a company or individual that denounces the area desired for exploration or exploitation. After the concession has been issued an annual fee is paid to the government and annual Proof of Labor must be filed to maintain the title to the concession. The annual fee is determined on the basis of the area of the concession and the type of activity on the concession. The concession can be held for 6 years under the exploration fee, after 6 years the exploitation fee is paid. The Sierra Mojada Property is comprised of eight concessions totaling 7,060 hectares (17,446 acres). The concessions were acquired by purchase agreements from the titled owners. The Company controls 100% of the concessions and has made all payments necessary to acquire title to all eight concessions. A summary of the concessions is as follows: Concession Title No. Hectares ---------- -------- --------- Sierra Mojada 198513 4767.3154 Mojada 3 199246 1689.2173 Esmeralda 188765 117.5025 Esmeralda 1 187776 97.6839 Unification Mineros Nortenos 169343 336.7905 La Blanca 188326 33.5044 Fortuna 160461 13.9582 Vulcano 83507 4.4904 ------- Total 7060.4626 ========= Location and Access The Sierra Mojada Mining District is located in the west central part of the state of Coahuila, Mexico, near the Coahuila-Chihuahua state border some 200 kilometers south of the Big Bend of the Rio Grande River. The principal mining area extends for some 5 kilometers in an east-west direction along the base of the precipitous, 1,000 meter high, Sierra Mojada Range. Page 1 Location and Access The Sierra Mojada Mining District is located in the west central part of the state of Coahuila, Mexico, near the Coahuila-Chihuahua state border some 200 kilometers south of the Big Bend of the Rio Grande River. The principal mining area extends for some 5 kilometers in an east-west direction along the base of the precipitous, 1,000 meter high, Sierra Mojada Range. Vehicle access from Torreon is by 200 kilometers on paved road to the Penoles chemical plant at Laguna del Rey and then another 50 kilometers of gravel road to Sierra Mojada. There is a well maintained, 1200 meter, gravel airstrip. The District has high voltage electric power and is served by a rail line, which was constructed from Escalon to the district in 1891 and later connected to Monclova. This part of Mexico is remote, arid and sparsely populated; the region is known as the "zone of silence". History The initial discovery of silver ore in the Sierra Mojada Property was made in 1879. Over the next 12 years numerous small mines developed along an oxidized silver lead ore body known as the "lead manto" (a bed, layer or strata). The lead manto was mined continuously for 3 kilometers and discontinuously for another 2 kilometers. Ore was selectively mined and hauled by wagon to Escalon on the railroad main line from El Paso to Mexico City; from there it went to smelters in Mexico and the United States. In September of 1891 the Mexican Northern Railroad completed its spur line from Escalon to the district. Rail access stimulated development and the period from 1891 to the late 1920's was the peak of productivity of the district. The main lead manto was nearly mined out by 1905, the same year that the discovery of the first silver- copper ore body was made. Additional discoveries of silver, silver- copper, and silver-copper-zinc-lead ores provided production through the 1930's. Between 1922 and 1931 additional lead manto silver-lead ore was discovered and mined to the southwest for some 1,400 meters under the Sierra Mojada range, this manto was eventually mined for more than 2 kilometers. By the mid 1920's many of the mines were under control of Penoles Corporation ("Penoles") and ASARCO Corporation ("ASARCO"). ASARCO ceased mining in the district in the late 1930's. Both companies still owned properties during the 1940's and Penoles mined until the late 1950's when the Mineros Nortenos Cooperative acquired the Penoles properties. The Mineros Nortenos Cooperative ("Mineros Nortenos") has operated the San Salvador, Encantada and Fronteriza mines since 1957 and direct shipped high-grade oxide zinc and lead-silver ore to smelters in Mexico. The lead manto produced 3 to 3.5 million tonnes with another 1.5 million tonnes of similar ore coming from other ore bodies to the west and to the southwest. Mineros Nortenos has mined about 600,000 tonnes of predominantly oxide zinc ore with grades of 20 to 50% zinc. Some of this ore was oxide silver-lead and silver, copper, zinc and lead sulfide at grades of 1 to 4 kilogram silver per tonne, 1 to 5% copper, 10 to 30% zinc and 30 to 70% lead. Production records from 1978 to 1981 for the San Salvador mine average 33.5% zinc. The Sierra Mojada Property has produced in excess of 10 million tonnes of high-grade ore that graded in excess of 20% lead, 20% zinc, 1% copper and 1 kg (31 ounces) silver per tonne that was shipped directly to the smelter. The district has never had a mill to concentrate ore. All of the mining was done selectively for ore of sufficient grade to direct ship; mill grade ore was left unmined. More than Page 2 50 kilometers of underground workings are spread through the 5 kilometer by 2 kilometer area from which more than 45 mines have produced ore. The deepest workings have ore grade mineralization and provide some of the best targets for reserve development. In spite of the amount of historic work, when a map of all of the historic workings is viewed there is much more unexplored area in the 5 by 2 kilometer area than has been explored and the vertical extent greater than 100 meters is totally unexplored. The sediments are predominantly carbonate with some sandstone and shale and the attitudes are near horizontal. The mines are dry and the rocks are competent, there is very little unstable ground and the ore thickness is amenable to high volume mechanized mining methods. Sierra Mojada has ideal mining conditions and grades for low cost production. Based upon the foregoing, Metalline is of the opinion that the magnitude of the Sierra Mojada mineral system and its exploration potential is capable of providing new reserves for many more years of mining. However, there is no assurance as to the quantity or quality of the undeveloped reserves. Geology The Sierra Mojada District is located on the southern margin of the Sabinas Basin, a large rift basin in northeastern Mexico, which formed during Late Jurassic and Cretaceous tectonic extension. Beginning in Latest Jurassic the Sabinas basin began to form with the basin being dropped down to the north relative to the Coahuila Peninsula that was being uplifted to the south. The Sierra Mojada fault is, possibly, one of the faults that contributed to the rift basin forming process, which occurred over a time span in excess of 80 million years. During basin formation the Sierra Mojada fault, if present, would have been a normal fault due to crustal extension. The most recent motion on the Sierra Mojada fault is post mineral and reverse. The reverse motion most likely occurred as a result of Late Cretaceous Laramide tectonic compression about 60 million years ago. Stratigraphy Upper Jurassic and Lower Cretaceous marine carbonate, sandstone and shale, the La Casita and Menchaca Formations, are overlain by Lower Cretaceous red beds, the San Marcos Formation, composed of conglomerate, sandstone, siltstone, shale, tuff and mineralized carbonate sediments. The San Marcos is overlain by a marine carbonate sequence of Early and Middle Cretaceous age, the Cupido, La Pena, Aurora and Georgetown Formations. Mineralization Sierra Mojada has two mineral systems separated by the east west trending Sierra Mojada Fault. North of the fault the mineralization is chemical sedimentary disseminated to massive silver, copper, zinc and lead sulfide deposited in the Menchaca Formation. South of the fault the mineralization is deposited in the La Pena and Aurora Formations and consists of oxide zinc and lead mantos and solution cavern filling, karst and interformational breccia. These two mineral systems have been brought into proximity to each other by post mineral reverse motion on the Sierra Mojada Fault that faults the San Marcos and Menchaca Formations against Aurora. The San Marcos and Menchaca Formations are 25 million years older than the Aurora Formation. The mineral systems have been mined in an east-west direction for over 5 kilometers, in a north-south direction in excess of 2 kilometers and for a vertical extent of 100 meters. Page 3 The Sierra Mojada mineral systems are chemical sedimentary and brine related. The ore minerals are in chemical equilibrium with the host rocks, which are limestone, dolomite, carbonate shale and sandstone. There is no alteration, silicification or skarn mineralization. Mineralization has been episodically deposited in certain beds, resulting in a vertical repetition of mineralized beds and ore bodies in the Menchaca Formation and in the Aurora Formation. This Intermittent or episodic deposition of mineralization has occurred over at least the 25 million years represented by these two formations and it is possible that this process was ongoing during deposition of the other units above the basement rocks. The thickness and character of the rock units below the existing workings is unknown and will have to be determined by drilling. With the evidence of the repetitive nature of the mineralization the potential for additional discovery at depth is high. Exploration and Development. The Company has spent the last 5 years collecting historic data on the district, geologic mapping and sampling of the surface and the underground mines and has completed a reverse circulation drilling program consisting of 24 holes and a total of 6630 meters of drilling. During 2000 the North Limited drilled 26 reverse circulation holes totaling 6,618 meters. The drilling and channel sampling are the first step in developing ore reserves at Sierra Mojada. Metalline's drilling consisted of fifteen holes drilled on a grid of about 30 meters by 60 meters on the Encantada North zone, north of the Sierra Mojada fault, to evaluate the silver, copper, zinc and lead mineralization. Nine holes were drilled in the San Salvador, Encantada and Fronteriza mines to test the oxide zinc mineral system south of the Sierra Mojada fault. These holes were spaced at about 100 to 200 meter intervals over a 1500 meter extent in the three mines. North's holes were all drilled to test the oxide zinc mineralization in the San Salvador, Encantada and Fronteriza mines. Three step out holes extent the mineralization 2 kilometers to the west of the San Salvador mine. Three step out holes to the south did not encounter mineralization. The results confirm and expand the mineralization of the Encantada North and the oxide zinc mantos. Multiple intersections of ore grade mineralization over thick intervals were obtained, with some intersects of exceptional grade and thickness. The results of the drill program have been released in news releases dating from February 1999 through November 2000 and are available from Metalline. Exploration and evaluation of the mineral systems of the district and the Metalline's total land position to define the limits of the known mineralization and for discovery of new mineralization will continue and accelerate. The oxide zinc system in the San Salvador, Encantada and Fronteriza mines and the Encantada North silver, copper, zinc, lead zone will move to development stage for drilling, sampling and defining of an ore reserve. This will involve surface and underground drilling and channel sampling, drifting and raising in sufficient detail to determine the tonnage and grade of an ore reserve and perform a feasibility study, including metallurgical studies, to determine if the reserves are commercially viable. Costs of these programs at this time have not been estimated, but will be estimated as each stage of the exploration and development programs are planned and budgeted. Joint Venture Agreement In October, 1999 Minera Metalin signed a Joint Venture Letter Agreement with Minera North S. de R.L. de C.V. a wholly owned subsidiary of North Limited of Melbourne Australia, a major Page 4 international mining company. The agreement allows North to acquire a 60% participating interest in Sierra Mojada by exploring and completing a feasibility study (which shall be of a standard acceptable to international banks as enabling them to lend funds to the project) over a "Earn In Period" of not more than 5 years. In August, 2000 Rio Tinto Ltd purchased North Ltd for their iron ore holding and has subsequently terminated the agreement with Minera Metalin. On the 15th of November, 2001 Metalline Mining Company and its Mexican Subsidiary Minera Metalin, S.A. de C.V. signed an Agreement with Minas Penoles, S.A. de C.V. and Compania Minera La Parrena, S.A. de C.V. The Agreement allows Minas Penoles to earn a 60% interest in the Sierra Majada project by exploring and completing a feasibility study over an "Earn in Period" of not more than 5 years. The study is to be of sufficient detail and quality to be used to secure debt financing for the development and operation of the project. Minas Penoles is committed to complete US $1,000,000 (one million US Dollars) of Qualified Expenditures on the Property as may be recommended by the Technical Committee during the first year as of the date of signing the Agreement. Minas Penoles is to be the Operator; operations are under the control of the Technical Committee that will be composed of 2 representatives from Metalin and 3 from Minas Penoles. In addition, Minas Penoles will purchase Metalline Mining Company shares at a fixed price of US $2.00 per share in the following schedule and manner: (i).- 50,000 shares upon signing the Agreement, purchased by Minas Penoles, S.A. de C.V. by means of a capital contribution to Metalline. Subsequently, and always following this same mechanism (i.e.- capital contribution to Mealline), if Penoles should elect to continue exploration after twelve months time as of the Effective Date, then (ii).- Minas Penoles, S.A. de C.V. shall purchase 100,000 additional Metalline shares at US $2.00 per share; (iii).- if Penoles should continue exploration after twenty-four months, Minas Penoles, S.A. de C.V. shall purchase an additional 100,000 Metalline shares at US $2.00 per share. It is the parties' intent and understanding that, in order to carry out to completion the Project once the Earn-In has been achieved or at whatever other time the Parties shall agree to in writing, the parties shall form a joint venture vehicle (the "Joint Venture Company") subject to the terms of the Agreement. The terms and conditions of the Joint Venture will be established in separate document(s) as the parties may deem necessary, in which Joint Venture, Minas Penoles, S.A. de C.V. shall have a 60% participation, and Metalin a 40% participation, subject to the terms of the Agreement. Timetable Definition of a 2 million tonne sulfide reserve and completion of a feasibility study is estimated to take 1.5 to 2 years. Construction and development of a 1000 tonne per day mine and mill will require an additional 2 years. Defining a 20 million tonne oxide reserve would require 2 to 3 years of drilling, an additional 1 to 2 years for completing a feasibility study and about 5 years to develop the mine and build a hydrometallurgical plant. There is potential for long-term reserve expansion within the known extent of the mineral systems. There is potential to discover ore deposits in unexplored portions of the land position and at depth in unexplored stratigraphy. There is however, no assurance that the Company will have the monetary resources to continue to explore for, develop, or retrieve any of the minerals located in the Sierra Mojada Property. Page 5 ITEM 2. RISK FACTORS 1. EXPLORATION STAGE MINING COMPANY WITH NO HISTORY OF OPERATION. The Company is in its exploration stage, has no operating history and is subject to all the risks inherent in a new business enterprise. The likelihood of success of the Company must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with a new business, and the competitive and regulatory environment in which the Company will operate. See "Business." 2. NO COMMERCIALLY MINEABLE ORE BODY. No commercially mineable ore body has been delineated on the properties, nor have any reserves been identified. See "Business." 3. RISKS INHERENT IN THE MINING INDUSTRY. The Company is subject to all of the risks inherent in the mining industry including, without limitation, the following: competition from a large number of companies, many of which are significantly larger than the Company, in the acquisition, exploration, and development of mining properties; the concession holder must pay fees and perform labor on the concessions to maintain the concessions title; exploration for minerals is highly speculative and involves substantial risks, even when conducted on properties known to contain significant quantities of mineralization, and most exploration projects do not result in the discovery of commercially mineable deposits of ore; 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; a large number of factors beyond the control of the Company, including fluctuations in metal prices, inflation, and other economic conditions, will affect the economic feasibility of mining; mining activities are subject to substantial operating hazards some of which are not insurable or may not be insured due to economic considerations; and, the availability of water, which is essential to milling operations. 4. NATURE OF THE INDUSTRY. Exploration, development and mining of mineral properties is highly speculative and involves unique and greater risks than are generally associated with other businesses. The Company's operations will be subject to all the operating hazards and risks normally incident to the exploration, development and mining of mineral properties, including risks enumerated above and below. 5. FLUCTUATING PRICE FOR METALS. The Company's operations will be greatly influenced by the prices of silver, copper, lead, zinc and other metals. These prices fluctuate widely and are affected by numerous factors beyond the Company's control, including expectations for inflation, the strength of the United States dollar, global and regional demand and political and economic conditions and production costs in major metal producing regions of the world. 6. MINING CONCESSIONS. The Company holds mining concessions in Mexico. Concessions require work and financial expenditures to retain their validity. See "Business." 7. ENVIRONMENTAL CONTROLS. Compliance with statutory environmental quality requirements may necessitate significant capital outlays, may materially affect the earning power of the Company, or may cause material changes in the Company's intended activities. No assurance can be given that environmental standards imposed by either federal or state governments will not be changed or become more stringent, thereby possibly materially adversely affecting the proposed activities of the Company. 8. GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONTROLS. The Company's activities are subject to extensive Mexican laws and regulations controlling not only the exploration for and development of mineral properties, but also the possible effect of such activities upon the environment. In its mining operations, the Company will use certain equipment which will subject the Company to Mexican safety Page 6 and health regulations. While the Company intends to act in compliance with all such regulations, any adverse ruling under any regulations, any imposition of a fine, or any imposition of more stringent regulations could require the Company to make additional capital expenditures that could impair its operations. 9. AVAILABILITY OF WATER SHORTAGES OF SUPPLIES AND MATERIALS. Water is essential in all phases of the exploration and development of mineral properties. It is used in such processes as exploration, drilling, leaching, placer mining, dredging, testing, and hydraulic mining. Any water that may be found will be subject to acquisition pursuant to appropriate governing laws. The Company has definitely not determined the availability of water at Sierra Mojada, except to note that adequate water supplies are generally developed by drilling, but has not determined the cost of acquisition. Both the lack of available water and the cost of acquisition may make an otherwise viable project economically impossible to complete. The mineral industry has experienced from time to time shortages of certain supplies and materials necessary in the exploration for and evaluation of mineral deposits. The prices at which such supplies and materials are available have also greatly increased. There is a possibility that planned operations may be subject to delays due to such shortages and that further price escalations will increase the costs of the Company. 10. UNINSURED RISKS. The Company may not be insured against all losses or liabilities, which may arise from operations, either because such insurance is unavailable or because the Company has elected not to purchase such insurance due to high premium costs or other reasons. 11. NEED FOR SUBSEQUENT FUNDING. The Company has an immediate need for additional funds in order to finance its proposed business operations. The Company's continued operations therefore will depend upon the availability of cash flow, if any, from its operations or its ability to raise additional funds through bank borrowings or equity or debt financing. There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. 12. NEED FOR ADDITIONAL KEY PERSONNEL. At the present, the Company employs three full time and two part-time employees. The success of the Company's proposed business will depend, in part, upon the ability to attract and retain qualified employees. The Company believes that it will be able to attract competent employees, but no assurance can be given that the Company will be successful in this regard. If the Company is unable to engage and retain the necessary personnel, its business would be materially and adversely affected. 13. RELIANCE UPON DIRECTORS AND OFFICERS. The Company is wholly dependent, at the present, upon the personal efforts and abilities of its Officers and Directors who will exercise control over the day to day affairs of the Company. While the Company may solicit business through its Officers, there can be no assurance as to the volume of business, if any, which the Company may succeed in obtaining, nor that its proposed operations will prove to be profitable. As of the date hereof, the Company does not have any commitments regarding its proposed operations and there can be no assurance that any commitments will be forthcoming. See "Business" and "Management." 14. NON-ARMS'S LENGTH TRANSACTION. The number of shares of Common Stock issued to present shareholders of the Company for cash was arbitrarily determined and may not be considered the product of arm's length transactions. See "Principal Shareholders." 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS FOR SECURITIES LIABILITIES. The Bylaws of the Company provide that the Company may indemnify any Director, Officer, agent and/or employee as to Page 7 those liabilities and on those terms and conditions as are specified in the Nevada Business Corporation Act. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. 16. COMPETITION. The Company believes that it will have competitors and potential competitors, many of whom may have considerably greater financial and other resources than the Company. 17. PUBLIC MARKET FOR SECURITIES. At present, the Company's common stock is traded under the symbol MMGG on the OTC Bulletin Board operated by the National Association of Securities Dealers, Inc. This market is a thinly traded market and lacks the liquidity of other public markets with which some investors may have more experience. 18. CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL. There are no preemptive rights in connection with the Company's Common Stock. The shareholders purchasing in this offering may be further diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. See "Description of the Securities." 19. NO DIVIDENDS ANTICIPATED. At the present time the Company does not anticipate paying dividends, cash or otherwise, on its Common Stock in the foreseeable future. Future dividends will depend on earnings, if any, of the Company, its financial requirements and other factors. Investors who anticipate the need of an immediate income from their investment in the Company's Common Stock should refrain from the purchase of the securities being offered hereby. See "Dividend Policy." ITEM 3. DESCRIPTION OF PROPERTIES. The Company does not own any real or personal property other than the following eight mining concessions: Concession Title No. Hectares ----------- ---------- -------------- Sierra Mojada 198513 4767.3154 Mojada 3 199246 1689.2173 Esmeralda 188765 117.5025 Esmeralda 1 187776 97.6839 Unification Mineros Nortenos 169343 336.7905 La Blanca 188326 33.5044 Fortuna 160461 13.9582 Vulcano 83507 4.4904 --------- Total 7060.4626 =========== The Company's corporate offices are located at 1330 East Margaret Avenue, Coeur d'Alene, Idaho 83815 and its telephone number is (208) 665-2002 and FAX is (208) 665-0041. Minera Metalin has its operations, consisting of offices, residences, shops, and warehouse buildings, located at Calle Mina #1, La Esmeralda, Coahuila, Mexico and its telephone and FAX number is 52 177 52100. Page 8 ITEM 4. LEGAL PROCEEDINGS. The Company is not a party to any pending or threatened litigation and to its knowledge, no action, suit or proceedings has been threatened against its officers and its directors. ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The laws of the state of Nevada under certain circumstances provide for indemnification of the Company's Officers, Directors and controlling persons against liabilities, which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to the Company's Articles of Incorporation and to the statutory provisions. In general, any Officer, Director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person's actions were in good faith, were believed to be in the Company's best interest, and were not unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of the Board of Directors, by legal counsel, or by a vote of the shareholders, that the applicable standard of conduct was met by the person to be indemnified. The circumstances under which indemnification is granted in connection with an action brought on behalf of the Company is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. In such actions, the person to be indemnified must have acted in good faith and in a manner believed to have been in the Company's best interest, and have not been adjudged liable for negligence or misconduct. The Company's Articles of Incorporation and Bylaws do not contain any provisions for indemnification as described above. ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of the shareholders of Metalline Mining Company was held on March 1, 2001. The following items were presented for a vote of the shareholders, all of which were approved: 1. Election of three directors. 2. Authorization of a Qualified Stock Option Plan. 3. Amendment of the Company's Articles of Incorporation to authorize one million shares of Preferred Stock, $0.01 par value per share. 4. Ratification of the appointment of Williams & Webster, Certified Public Accountants, to audit the financial statements of the Company for the year ending October 31, 2001. PART II ITEM 7. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS. The Company's shares are traded on the Bulletin Board operated by the National Association of Securities Dealers, Inc. (the "Bulletin Board") under the trading symbol "MMGG." The Company's shares began trading November 19, 1996. Summary trading by quarter for 2001, 2000, and 1999 are as follows: Page 9 Fiscal Quarter High Bid [1] Low Bid [1] --------------- --------------- -------------- 2001 Fourth Quarter 2 11/32 1 1/5 Third Quarter 2 1/2 1 5/8 Second Quarter 2 3/4 1 5/8 First Quarter 2 3/4 2 2000 Fourth Quarter 4 1/4 1 3/4 Third Quarter 4 3/8 3 1/4 Second Quarter 4 2 1/8 First Quarter 3 1/8 2 1999 Fourth Quarter 4 3/8 2 3/16 Third Quarter 4 3/8 1 1/2 Second Quarter 2 1/16 3/4 First Quarter 1 3/32 7/16 [1] These quotations reflect inter-dealer prices, without retail mark- up, mark-down or commissions and may not represent actual transactions. As of October 31, 2001, the Company has 120 holders of record of its Common Stock. The Company has not paid any dividends since its inception and does not anticipate paying any dividends on its Common Stock in the foreseeable future. ITEM 8. RECENT SALES OF UNREGISTERED SECURITIES. The Company has 10,067,595 shares of Common Stock issued and outstanding as of October 31, 2001. Of the 10,067,595 shares of the Company's Common Stock outstanding, 4,481,545 shares are freely tradeable and 5,586,050 shares can only be resold in compliance with Reg. 144 adopted under the Securities Act of 1933 (the "Act"). In general, under Rule 144 as currently in effect, a person (or persons whose Shares are aggregated) who has beneficially owned Shares privately acquired directly or indirectly from the Company or from an affiliate, for at least one year, or who is an affiliate, is entitled to sell within any three month period a number of such Shares that does not exceed the greater of 1% of the then outstanding shares of the Company's Common Stock or the average weekly trading volume in the Company's Common Stock during the four calendar weeks, immediately preceding such sale. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person (or persons whose Shares are aggregated) who is not deemed to have been an affiliate at any time during the 90 day preceding a sale, and who has beneficially owned Restricted Shares for at least two years, is entitled to sell all such Shares under Rule 144 without regard to the volume limitations, current public information requirements, manner of sale provisions or notice requirements. On August 24, 1993, the Company issued 960,800 of its $0.01 par value shares to Precious Metal Mines, Inc. ("PMM"), for 16 unpatented mining claims located near Philipsburg, Montana comprising the Kadex property group. The foregoing shares were issued pursuant to Section 4(2) of the Securities Act of 1933 (the "Act"). Page 10 On August 31, 1994, the directors of Cadgie Co. declared a 1:5 reverse stock split of the outstanding Cadgie Co. shares, thus reducing the number of outstanding shares from 960,800 to 192,160 shares. On August 4, 1995, the directors of Cadgie Co. declared a 3:1 forward stock split of the outstanding Cadgie Co. shares, thus increasing the number of outstanding shares from 192,160 to 576,480. During November 1995, Cadgie Co. directors approved an issue of 45,000 shares of Common Stock to Mr. Ryan for services rendered at $0.01 per share. The foregoing shares were issued pursuant to Section 4(2) of the Act. In June 1996, the Company completed a private placement of common stock resulting in net proceeds of $25,000. The Company issued 250,000 common shares in connection with this private placement. The Company also issued 900,000 shares to Messrs. Bingham, Gorski and Ryan who had formed a partnership to advance development of the mining concession located in Coahuila, Mexico. The partnership had an informal joint venture agreement with Dakota covering the mining concessions. By acquiring the partnership interest, the Company was able to negotiate and sign a formal joint venture agreement with Dakota in July 1996. The foregoing shares were issued pursuant to Section 4(2) of the Act. During June 1996, the Company issued 900,000 shares of Common Stock for the assignment of mineral rights in the Sierra Mojada Project in Coahuila, Mexico valued at $0.01. The foregoing shares were issued pursuant to Section 4(2) of the Act. In October 1996, the Company completed a private placement of common stock resulting in net proceeds of $125,500. The Company issued 1,255,000 shares in connection with this placement. The Company also issued 120,000 shares to Mr. Gorski in payment for his services for the months of September and October. The Company issued 20,000 shares of Common Stock to Mr. Ryan as payment for services in those same months. Further, the Company issued 150,000 shares of common stock for computer equipment. The foregoing shares were issued pursuant to Section 4(2) of the Act. During February 1997, the Company borrowed $30,000 from shareholders and issued 24,900 shares of Common Stock as a loan incentive. The foregoing shares were issued pursuant to Section 4(2) of the Act. In March 1997, the Company completed an issuance of Common Stock resulting in net proceeds of $17,500. The foregoing shares were issued pursuant to Section 4(2) of the Act. In April 1997, the Company issued to Royal Silver Mines, Inc., 200,000 shares of Common Stock resulting in proceeds of $70,000. The Company issued 133,800 shares of Common Stock were issued for services and expenses. A total of 24,900 shares of Common Stock were issued as loan incentives (interest) for $30,000 in loans from shareholders. These shares were issued at $0.30 per share. A total of 77,600 shares of Common Stock were issued in exchange for wages during the months of January, February and March 1997 at $0.35 per share. A total of 31,300 shares of Common Stock were issued to cover expenses incurred by shareholders at $0.35 per share. The foregoing shares were issued pursuant to Section 4(2) of the Act. On June 5, 1997, the Company issued 50,000 shares of Common Stock in consideration of services rendered. The foregoing shares were issued pursuant to Section 4(2) of the Act. Page 11 In 1997 and 1998, the Company issued warrants to eight persons. Each warrant entitles the holder to acquire one share of common stock at exercise prices ranging from $0.35 to $2.25. A total of 1,046,500 warrants were issued and 996,500 are currently outstanding; 50,000 of the warrants have been exercised. The warrants were issued pursuant to Section 4(2) of the Act. Between August 14, 1998 and November 23, 1998, the Company sold 565,000 shares of common stock to eight persons/entities in consideration of $565,000. The foregoing shares were sold pursuant to Section 4(2) of the Securities Act of 1933. Between March 8, 1999 and June 11, 1999, the Company sold 662,500 shares of common stock to eight persons/entities in consideration of $662,500. The foregoing shares were sold pursuant to Section 4(2) of the Securities Act of 1933. In July and November 1999, options for 1,200,000 shares of common stock were exercised as a price of $0.90 per share, pursuant to Section 4(2) of the Act. In August, 2000, the Company sold 1,440,500 shares for common stock at a price of $2.77 per share. The foregoing shares were sold pursuant to Section 4(2) of the Securities Act of 1933. During the year ended October 31, 2000 the company issued 120,000 shares for services rendered and 15,000 shares for equipment. The foregoing shares were issued pursuant to Section 4(2) of the Securities Act of 1933. During the year ended October 31, 2001 the Company issued 20,000 shares of common stock for the exercise of warrants valued at $10,760 and cash of $15,000. Additionally, 57,000 shares of common stock were issued for services valued at $112,420 and cash of $570 and 250,000 shares of common stock with 125,000 warrants attached were issued for $500,000 in cash. The foregoing shares were issued pursuant to Section 4(2) of the Securities Act of 1933. ITEM 9. SELECTED FINANCIAL DATA. The selected financial data set forth below has been derived from, and should be read in conjunction with the Company's financial statements and the notes thereto, and Item 11 of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations. The selected financial data for the three years ended October 31, 2000 have been derived from the Company's consolidated financial statements appearing elsewhere in this report, which have been audited by Williams & Webster P.S., Spokane, Washington. The selected financial data should be read in conjunction with and is qualified by such financial statements and the notes thereto. 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Selected Financial Data 2001 2000 1999 Summary of Balance Sheets: ------ ------ ------ Working capital $570,389 $1,090,094 $194,731 Current assets 589,762 1,111,886 248,997 Total assets 4,982,003 5,540,059 1,422,506 Current liabilities 19,373 21,792 54,266 Long-term obligation 0 0 0 Total liabilities 19,373 21,792 54,266 Stockholder's equity 4,962,630 5,518,267 1,368,240 Summary of Statements of Operations: Revenues 0 0 0 Net loss (2,069,390) (882,208) (1,423,045) Net loss per share (0.21) (0.10) (0.22) ----------- Cumulative losses for period from inception (Nov. 8, 1993) through October 31, 2001 were $6,409,800.
ITEM 10. DESCRIPTION OF SECURITIES. Common Stock The authorized Common Stock of the Company consists of 50,000,000 shares of $0.01 par value Common Stock. As of October 31, 2001, 10,067,595 shares are issued and outstanding of which 4,481,545 are freely tradable. In general, under Reg.144, an affiliate of the Company (officers, directors, and owners of more than ten percent (10%) of the outstanding shares of Common Stock are affiliates of the Company) may sell in ordinary market transactions through a broker or with a market maker, within any three (3) month period a number of shares which does not exceed the greater of one percent (1%) of the number of outstanding shares of Common Stock or the average of the weekly trading volume of the Common Stock during the four calendar weeks prior to such sale. Sales under Reg.144 require the filing of Form 144 with the Securities and Exchange Commission. If the shares of Common Stock have been held for more than two (2) years by a person who is not an affiliate, there is no limitation on the manner of sale or the volume of shares that may be sold and no Form 144 is required. Sales under Reg. 144 may have a depressive effect on the market price of the Company's Common Stock. All shares have equal voting rights and are not assessable. Voting rights are not cumulative and, therefore, the holders of more than 50% of the Common Stock could, if they chose to do so, elect all of the directors of the Company. Upon liquidation, dissolution, or winding up of the Company, the assets of the Company, after the payment of liabilities, will be distributed pro rata to the holders of the Common Stock. The holders of the Common Stock do not have preemptive rights to subscribe for any securities of the Company and have no right to require the Company to redeem or purchase their shares. The shares of Common Stock presently outstanding are fully paid and non-assessable. Page 13 Dividends Holders of the Common Stock are entitled to share equally in dividends when, as and if declared by the Board of Directors of the Company, out of funds legally available therefore. No dividend has been paid on the Common Stock since inception, and none is contemplated in the foreseeable future. Options and Warrants Currently, the Company has outstanding stock options and warrants to acquire up to 1,901,500 shares of common stock at exercise prices ranging from $0.35 to $5.00 per share. Each option or warrant permits the holder thereof to acquire one share of common stock. The options and warrant expiration periods range from December 6, 2001 to March 1, 2010. Transfer Agent The transfer agent for the Company's Common Stock is Columbia Stock Transfer Co., 421 Coeur d'Alene Avenue, Coeur d'Alene, Idaho 83814. ITEM 11. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Results of Operations - Inception (August 20, 1993) through October 31, 2001. Metalline Mining Company (the "Company") is an exploration stage enterprise formed under the laws of the State of Nevada, on August 20, 1993, to engage in the business of mining. The Company has no operating history and is subject to all the risks inherent in a new business enterprise. The likelihood of success of the Company must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with a new business, and the competitive and regulatory environment in which the Company will operate. From inception until May 1996, the Company was essentially dormant having as its only asset unpatented mining claims located in the State of Montana ("Kadex Property"). Since May 1996, the focus of the Company has been the Sierra Mojada Project in Mexico and the Company has dropped the Kadex Property claims. The Company does not intend to purchase a plant or significant equipment. The Company will hire employees on an as needed basis, however, the Company does not expect any significant changes in the number of employees. Liquidity and Capital Resources. The Company has insufficient funds to carry on operations during the next twelve months. In order to maintain operations, the Company will have to raise additional capital through loans or through the sale of securities. If the Company is unable to raise additional capital, it may have to cease operations. The Company's plan of operation, subject to maintaining sufficient funds, calls for continued geologic mapping of the surface and underground workings, sampling and drilling to explore for additional mineralization and to develop an ore reserve, and compilation of the data into a computer data base for reserve calculation. Due to the Company's lack of revenues, the Company's independent certified public accountants included a paragraph in the Company's 2001 financial statements relative to a going concern uncertainty. The Company has financed its obligations during the 2000 - 2001 fiscal year by its sale of 327,000 shares at an average price of $1.58 per share. Page 14 The Company is engaged in the business of mining. The Company currently owns one mining property located in Mexico known as the Sierra Mojada Property. The Company conducts its operations in Mexico through its wholly owned subsidiary corporation, Minera Metalin S.A. de C.V. ("Minera Metalin"). EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. At October 31, 2001, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. In September 2000, the FASB issued SFAS No.140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities and also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No.140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company believes that the adoption of this standard will not have a material effect on the Company's results of operations or financial position. In June 2001, the FASB issued SFAS No.141, "Business Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets." SFAS No.141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1,2001 or later. SFAS No.142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No.142 is effective for fiscal years beginning after December 15, 2001. An early adoption provision exists for companies with fiscal years beginning after March 15, 2001. On October 31, 2001, the Company adopted SFAS No.142. Application of the nonamortization provision of SFAS No.142 is expected to result in no change in net income in fiscal 2002. The Company is currently evaluating the impact of the transitional provisions of the statement. ITEM 12. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Company for the years ended October 31, 2001, 2000, and 1999 included elsewhere in this report have been audited by Williams & Webster, P.S., Spokane, Washington. An index to such financial statements appears at Page 17 of this report. ITEM 13. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no disagreements on accounting and financial disclosures through the date of this 10-K. Page 15 PART III ITEM 14. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. The officers and directors of the Company are as follows: Name Age Position Merlin Bingham 68 President and Chairman of the Board of Directors Daniel Gorski 64 Vice President of Operations and a member of the Board of Directors Jim Czirr 47 Member of the Board of Directors and Consultant Wayne Schoonmaker 64 Secretary & Treasurer All directors hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. The Company's officers are elected by the Board of Directors at the annual meeting and hold office until their death, or until they resign, or have been removed from office. Officer and Director Biographies: Merlin Bingham, President and Chairman of the Board of Directors Since October 1996, Mr. Bingham has been the President and Chairman of the Board of Directors of the Company. From 1963 to 1983 Mr. Bingham worked in exploration for mining and oil companies in the western U.S. and Alaska, Zambia, the United Arab Emirates, Ecuador and Mexico. Since 1983, Mr. Bingham has been a consulting geologist. Mr. Bingham received a B.S. degree in Mineralogy from the University of Utah in 1963. Daniel Gorski, Vice President of Operations and a member of the Board of Directors Since June 1996, Mr. Gorski has been the Vice President of Operations and a member of the Board of Directors of the Company. Mr. Gorski has been a consulting geologist and mine manager since 1974 working in the western U.S. and Mexico. From January 1992 to June 1996, Mr. Gorski was employed as a contract geologist, working in Mexico, employed by USMX, Inc., an exploration and mining company located in Denver, Colorado. Mr. Gorski received a B.S. degree in Geology from Ross State College, Alpine Texas and a M.A. in Geology from the University of Texas in 1970. Jim Czirr - Director and Financial Consultant Since June 1998, Mr. Czirr has been a member of the Board of Directors and a financial consultant to the company since December 1997. Mr. Czirr has over 20 years experience as a financial and public relations consultant in the areas of business strategies, marketing, incentive programs, finance and capital formation and has extensive experience in the brokerage business and in oil and gas limited partnerships. Page 16 Wayne Schoonmaker - Secretary & Treasurer From 1981 to 1993, Mr. Schoonmaker was Financial Manager of the Northwest Mining Department of ASARCO and from 1978 to 1981, he was Chief Accountant at ASARCO's Troy Unit in Montana, where he was responsible for the installation and implementation of the accounting system for the start-up of the Troy Mine. From July 1978 to December 1978, Mr. Schoonmaker was Assistant Treasurer of the Bunker Hill Mining Company, and from 1964 to 1978, he was Assistant Corporation Secretary of Hecla Mining Company. Mr. Schoonmaker currently serves as Secretary and Treasurer of Sterling Mining Company, which position he has held since July 1999. Mr. Schoonmaker received a Bachelor of Science degree in Accounting from the University of Montana in 1962 and an MBA from the University of Idaho in 1987. Mr. Schoonmaker is a Certified Public Accountant in the states of Idaho and Montana. ITEM 15. EXECUTIVE COMPENSATION. Summary Compensation. The following table sets forth the compensation paid by the Company from January 1, 1997 through December 31, 2001, for each officer and director of the Company. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. SUMMARY COMPENSATION TABLE
Long-Term Compensation Annual Compensation Awards Securities Names Other Under Restricted Executive Annual Options/ Shares or Officer and Compen- SARs Restricted LTIP Principal Year Salary Bonus sation Granted Share Payouts Position Ended (US$) (US$) (US$) (#) Units(US$) (US$) Merlin 2001 72,000 0 0 100,000 0 0 Bingham 2000 72,000 0 0 0 0 0 President 1999 72,000 0 0 0 0 0 1998 72,000 0 0 0 0 0 1997 33,000 0 0 0 0 0 Daniel 2001 72,000 0 0 100,000 0 0 Gorski 2000 72,000 0 0 0 0 0 Vice 1999 72,000 0 0 0 0 0 President 1998 78,000 0 0 0 0 0 1997 54,000 0 0 0 0 0 Jim 2001 0 0 130,000 100,000 0 0 Czirr 2000 0 0 35,745 0 0 0 Director 1999 0 0 36,000 0 0 0 1998 0 0 36,000 100,000 0 0 1997 0 0 0 100,000 0 0 Wayne 2001 18,000 0 0 50,000 0 0 Schoonmaker 2000 18,000 0 0 0 0 0 Secretary/ 1999 18,000 0 0 0 0 0 Treasurer 1998 7,500 0 0 0 0 0 1997 0 0 0 0 0 0
Page 17 There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of the Company's officers and directors. Option/SAR Grants. The following grants of stock options, whether or not in tandem with stock appreciation rights ("SARs") and freestanding SARs have been made to officers and/or directors:
Number of Securities Number of Underlying Securities Options/SARs Underlying Granted Exercise Number of Options During Last or Base Options Expiration Name SARs Granted 12 Months Price($/Sh) Exercised Date ------- ------------ ------------- ----------- ---------- -------------- James Czirr 100,000 0 $0.75 -0- 11/01/04 James Czirr 100,000 0 $1.00 -0- 09/15/05 Merlin D. Bingham 100,000 100,000 2.15 -0- 03/01/10 Daniel E. Gorski 100,000 100,000 2.15 -0- 03/01/10 James C. Czirr 100,000 100,000 2.15 -0- 03/01/10 Wayne L. Schoonmaker 50,000 50,000 1.32 -0- 10/04/06
Long-Term Incentive Plan Awards. The Company's shareholders approved a Qualified Stock Option Plan at the annual meeting of shareholders held March 1, 2001. During the year ended October 31, 2001, options for 350,000 shares were granted to officers and directors of the Company. Compensation of Directors. In general, the Directors do not receive any compensation for serving as members of the Board of Directors. The Board has not implemented a plan to award options to any Directors. There are no contractual arrangements with any member of the Board of Directors other than with James Czirr. Mr. Czirr has entered into a consulting agreement with the Company whereby Mr. Czirr supplies financial and business consulting services and is compensated in stock and options. See "Certain Relationships and Related Transaction." ITEM 16. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the Common Stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock each director individually and all officers and directors of the Company as a group. Each person has sole voting and investment power with respect to the shares of Common Stock shown, unless otherwise noted, and all ownership is of record and beneficial. Page 18 Name Number of % of Outstanding of owner Shares Position Shares ------------ ------- ----------- ---------- Merlin Bingham 935,000 President, CEO and Chairman of the 9.29% Board of Directors Daniel Gorski 766,600 Vice President of Operations and member 7.61% of the Board of Directors Jim Czirr 490,100 Member of the Board of 4.87% Directors Wayne Schoonmaker 0 Secretary & Treasurer 0.00% All officers and 2,191,700 21.77% directors as a group (4 persons) Britannia Holdings 3,190,500 31.69% King's House The Grange St. Peter Port Guernsey Channel Islands ITEM 17. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company was formed on November 8, 1993, by Mr. Carman Ridland of Las Vegas, Nevada as a spin-off from its predecessor Precious Metal Mines, Inc. ("PMM"). The Company issued 960,800 of its $0.01 par value shares to PMM, for 16 unpatented mining claims located near Philipsburg, Montana comprising the Kadex property group. PMM distributed the 960,800 shares of Cadgie Co. to its shareholders, one share of Cadgie Co. for each share of PMM held by holders of record as of August 31, 1993. On August 31, 1994, the directors of Cadgie Co. declared a 1:5 reverse stock split of the outstanding Cadgie Co. shares, thus reducing the number of outstanding shares from 960,800 to 192,160 shares. On August 4, 1995, the directors of Cadgie Co. declared a 3:1 forward stock split of the outstanding Cadgie Co. shares, thus increasing the number of outstanding shares from 192,160 to 576,480. During November 1995, Metalline Mining Company's directors approved an issue of 45,000 shares of Common Stock to Mr. Ryan for services rendered at $0.01 per share. In January 1996, Carman Ridland in a private sale, sold a controlling interest in the corporation to Howard Crosby. On January 12, 1996, Mr. Ridland transferred control of Cadgie Co. to Mr. Howard Crosby and Mr. Robert Jorgensen. Page 19 In May 1996, Messrs. Crosby and Jorgensen were made aware of certain potentially valuable mining properties and concessions located at Sierra Mojada, Coahuila, Mexico. Messrs. Crosby and Jorgensen transferred control of Cadgie Co. to Messrs. Bingham, Gorski and Ryan so that Cadgie Co. could focus on the opportunity presented at Sierra Mojada. In June 1996, the Company completed a private placement of common stock resulting in net proceeds of $25,000. The Company issued 250,000 common shares in connection with this private placement. The Company also issued 900,000 shares to Messrs. Bingham, Gorski and Ryan who had formed a partnership to advance development of the mining concession located in Coahuila, Mexico. The partnership had an informal joint venture agreement with Dakota covering the mining concessions. By acquiring the partnership interest, the Company was able to negotiate and sign a formal joint venture agreement with Dakota in July 1996. During June 1996, the Company issued 900,000 shares of Common Stock for the assignment of mineral rights in the Sierra Mojada Project in Coahuila, Mexico valued at $0.01. In August 1996, the Company changed its name to Metalline Mining Company and increased the authorized capital to 50,000,000 shares. In October 1996, the Company completed a private placement of common stock resulting in net proceeds of $125,500. The Company issued 1,255,000 shares in connection with this placement. The Company also issued 120,000 shares to Mr. Gorski in payment for his services for the months of September and October. The Company issued 20,000 shares of Common Stock to Mr. Ryan as payment for services in those same months. Further, the Company issued 150,000 shares of common stock for computer equipment. During February 1997, the Company borrowed $30,000 from shareholders and issued 24,900 shares of Common Stock as a loan incentive. In March 1997, the Company completed an issuance of Common Stock resulting in net proceeds of $17,500. In April 1997, the Company issued to Royal Silver Mines, Inc., 200,000 shares of Common Stock resulting in proceeds of $70,000. The Company issued 133,800 shares of Common Stock were issued for services and expenses. A total of 24,900 shares of Common Stock were issued as loan incentives (interest) for $30,000 in loans from shareholders. These shares were issued at $0.30 per share. A total of 77,600 shares of Common Stock were issued in exchange for wages during the months of January, February and March 1997 at $0.35 per share. A total of 31,300 shares of Common Stock were issued to cover expenses incurred by shareholders at $0.35 per share. On June 5, 1997, the Company issued 50,000 shares of Common Stock to Mario Ayub Touche in consideration of services rendered. In December 1997, the Company entered into a consulting agreement with James Czirr, a member of the Board of Directors. Pursuant to the consulting agreement, Mr. Czirr supplies financial and business consulting services and is compensated in stock and options. Page 20 PART IV ITEM 18. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. EXHIBITS. The following exhibits are filed as part of this report. Exhibits previously filed are incorporated by reference, as noted. EXHIBIT NO. EXHIBIT 3.1 Articles of Incorporation of the registrant. Filed as an exhibit to the registrant's registration statement on Form 10 SB (Commission File No.000-27667) and incorporated by reference herein. 3.2 Bylaws of registrant. Filed as an exhibit to the registrant's registration statement on Form 10 SB and incorporated by reference herein. 3.3 Articles of Amendment to the Articles of Incorporation. Filed as an exhibit to the registrant's registration statement on Form 10 SB and incorporated by reference herein. 4.1 Specimen stock certificate of the registrant. Filed as an exhibit to the registrant's registration statement on Form 10 SB and incorporated by reference herein. 10.1 Master agreement between the registrant and USMX, Inc. relating to development and exploration of certain mineral properties. Filed as an exhibit to the registrant's registration statement on Form 10 SB and incorporated by reference herein. 10.2 Royal Silver letter regarding Joint Venture Agreement between Royal Silver, Minera Metalin S.A. de C.V. and its registrant. Filed as an exhibit to the registrant's registration statement on Form 10 SB and incorporated by reference herein. 10.3 Consulting Agreement dated December 1, 1997 between the registrant and James Czirr. Filed as Exhibit 99.1 on the registrant's Form 10-SB and incorporated by reference herein. 10.4 Consulting addendum dated August 24, 1998 between the registrant and James Czirr. Filed as Exhibit 99.2 on the registrant's Form 10-SB and incorporated by reference herein. REPORTS ON FORM 8-K. NONE. [The balance of this page has been intentionally left blank.] Page 21 METALLINE MINING COMPANY INDEX TO FINANCIAL STATEMENTS PAGE Report of Independent Certified Public Accountanats . . . . . . . . . . . . . . . . . . . . F/S 1 Financial Statements: Balance Sheets as of October 31, 2001 and October 31, 2000 . . . . . . . . . . . . . . . . . . . .F/S 2 Statements of Loss for the Years Ended October 31, 2001, 2000, 1999, and for the period from inception (November 8, 1993) to October 31, 2001 . . . . . . . . . . . . . . . . . . . . F/S 3 Statements of Changes in Stockholder's Equity for the period from inception (November 8, 1993) to October 31, 2001 . . . . . . . . . . . . . . . . . . . . F/S 4 Statements of Cash Flow for the Years Ended October 31, 2001, 2000, 1999, and for the period from inception (November 8, 1993) to October 31, 2001 . . . . . . . . . . . . . . . . . . . . . F/S 8 Notes to Financial Statements . . . . . . . . . . . . . . . F/S 9 Summary of Accounting Policies . . . . . . . . . . . . . . .F/S 9 Signatures . . . . . . . . . . . . . . . . . . . . . . . . .F/S 18 [The balance of this page has been intentionally left blank.] Page 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Metalline Mining Company Coeur d'Alene, Idaho INDEPENDENT AUDITOR'S REPORT --------------------------------------------- We have audited the accompanying balance sheets of Metalline Mining Company (an exploration stage company) as of October 31, 2001 and 2000, and the related statements of operations, shareholders' equity, and cash flows for the years then ended, and for the period from November 8, 1993 (inception) through October 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metalline Mining Company as of October 31, 2001 and 2000, and the results of its operations and cash flows for the years then ended and for the period from November 8, 1993 (inception) to October 31, 2001 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Williams & Webster, P.S. CERTIFIED PUBLIC ACCOUNTANTS Spokane, Washington January 9, 2002 F/S 1 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) BALANCE SHEETS
October 31, 2001 October 31, 2000 ---------------- ---------------- ASSETS CURRENT ASSETS Cash $ 31,032 $ 550,557 Investments 484,447 - Foreign tax refund receivable 59,288 547,237 Prepaid expenses 3,849 3,228 Employee advances 11,146 10,864 ------- ------- Total Current Assets 589,762 1,111,886 -------- --------- MINERAL PROPERTIES 4,334,767 4,348,785 --------- -------- OTHER ASSETS Office and mining equipment, net of accumulated depreciation 57,474 79,388 -------- ------ Total Other Assets 57,474 79,388 ------- ------ TOTAL ASSETS $ 4,982,003 $ 5,540,059 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 5,275 $ 5,625 Accrued liabilities 14,098 16,167 ------- ------- Total Current Liabilities 19,373 21,792 ------- ------ COMMITMENTS AND CONTINGENCIES 0 0 ----- ---- STOCKHOLDERS' EQUITY Prefered stock, $0.01 par value; 1,000,000 shares authorized, no shares outstanding 0 0 Common stock, $0.01 par value; 50,000,000 shares authorized, 10,067,595 shares issued and 9,740,595 shares issued and outstanding,respectively 100,677 97,407 Additional paid-in capital 9,849,466 9,217,330 Stock options and warrants 1,422,327 543,980 Deficit accumulated during exploration stage (6,409,840) (4,340,450) ---------- ---------- Total Stockholders' Equity 4,962,630 5,518,267 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,982,003 $5,540,059 =========== ============ The accompanying notes are an integral part of these financial statements.
F/S 2 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF OPERATIONS
Years Ended Period from ------------- November 8, 1993 October 31, October 31, (Inception) to 2001 2000 October 31,2001 ------- ------- -------------- REVENUES $ 0 $ 0 $ 0 ------ ----- ------- GENERAL AND ADMINISTRATIVE EXPENSES Salaries 234,480 224,616 890,874 Office 111,279 91,196 291,252 Taxes and fees 58,193 50,244 108,678 Professional services 1,261,376 371,379 3,151,061 Property expenses 361,647 49,215 1,434,476 Depreciation 28,498 25,830 116,686 Exploration and research 38,332 78,459 167,574 Financing Costs 0 0 276,000 ------ ------ ------- Total General and Administrative Expenses 2,093,805 890,939 6,436,601 ---------- ------- --------- LOSS FROM OPERATIONS $(2,093,805) (890,939) (6,436,601) ========== ========= ========== OTHER INCOME (EXPENSES) Miscellaneous ore sales, net of expenses 14,098 20 14,118 Interest income 10,317 8,711 22,242 Interest expense 0 0 (9,599) ------ ----- ------ Total Other Income 24,415 8,731 26,801 ======== ======= ======= LOSS BEFORE INCOME TAXES (2,069,390) (882,208) (6,409,800) INCOME TAXES 0 0 0 ------ ----- ------ NET LOSS $(2,069,390) $(882,208) $(6,409,800) ========= ========= ========= BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.21) $ (0.10) $ (2.00) ======= ======= ======= BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,912,262 8,573,927 3,199,971 ========= ========= ========= The accompanying notes are an integral part of these financial statements.
F/S 3 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Common Stock Stock Stock Deficit ----------------- Additional Sub- Options During Ex- Number of Paid-in scriptions and ploration Shares Amount Capital Receivable Warrants Stage Total -------- ------- ---------- ---------- -------- --------- ----- Common stock issuance prior to inception (no value) 960,800 $ 9,608 $(9,608) $ - $ - $ - $ - 1:5 reverse common stock split (768,640) (7,686) 7,686 - - - - Loss for the year ended October 31, 1994 - - - - - (8,831) (8,831) ------- ------ ------ ------ ----- ------ ------ Balances, October 31, 1994 192,160 1,922 (1,922) - - (8,831) (8,831) 3:1 common stock split 384,320 3,843 (3,843) - - - - Loss for the year ended October 31, 1995 - - - - - (7,761) (7,761) ------ ----- ------ ----- ----- ------- ------ Balance, October 31, 1995 576,480 $ 5,765 $(5,765) $ - $ - $(16,592) $(16,592) --------- -------- ------- ----- ----- --------- ------- Issuance of common stock as follows: - for cash at an average of $0.11 per share 1,320,859 13,209 133,150 - - - 146,359 - for services at $0.08 per share 185,000 1,850 12,600 - - - 14,450 - for computer equipment at $0.01 per share 150,000 1,500 13,500 - - - 15,000 - for mineral property at $0.01 per share 900,000 9,000 - - - - 9,000 Loss for the year ended October 31, 1996 - - - - - (40,670) (40,670) ------ ------- ------- ----- ----- -------- ------- Balances, October 31, 1996 3,132,339 $31,324 $153,485 $ - $ - $(57,262) $127,547 -------- ---------- -------- -------- ----- ----- -------- ------- Table continued on next page. The accompanying notes are an integral part of these financial statements. F/S 4
METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated Common Stock Stock Stock Deficit ----------------- Additional Sub- Options During Ex- Number of Paid-in scriptions and ploration Shares Amount Capital Receivable Warrants Stage Total -------- ------- ---------- ---------- -------- --------- ----- Balance brought Forward 3,132,339 $ 31,324 $ 153,485 $ - $ - $(57,262) $127,547 Issuance of common Stock as follows: - for cash at an average of $0.61 per share 926,600 9,266 594,794 - - - 604,060 - for services at an average of $0.74 per share 291,300 2,913 159,545 - - - 162,458 - for payment of a loan at $0.32 per share 100,200 1,002 30,528 - - - 31,530 Options issued as follows: - 300,000 options for cash - - 3,000 - - - 3,000 Loss for year ended October 31, 1997 - - - - - (582,919) (582,919) ----- ----- ----- ----- ----- ------- ------- Balances at October 31, 1997 4,450,439 $44,505 $941,352 $ - $ - $(640,181 $345,676 Issuance of common stock as follows: - for cash at an average of $1.00 per share 843,500 8,435 832,010 - - - 840,445 - for cash and receivables at $1.00 per share 555,000 5,550 519,450 (300,000) - - 225,000 - for services at an average of $0.53 per share 41,800 418 21,882 - - - 22,300 - for mine data base at $1.63 per share 200,000 2,000 323,000 - - - 325,000 Options issued or granted as follows: - 1,200,000 options for cash - - 120,000 - - - 120,000 - for financing fees - - - - 60,000 - 60,000 - for consulting fees - - - - 117,000 - 117,000 Warrants issued for services - - - - 488,980 (488,980) - Loss for year ended October 31, 1998 - - - - - (906,036) (906,036) ----- ----- ------ ----- ----- ----- ------ Balance, October 31, 1998 6,090,739 $60,908 $2,757,694 $(300,000)$665,980 $(2,035,197)$(1,149,385) --------- ------ --------- -------- ------- --------- --------- --------- Table continued on next page. The accompanying notes are an integral part of these financial statements.
F/S 5 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated Common Stock Stock Stock Deficit ----------------- Additional Sub- Options During Ex- Number of Paid-in scriptions and ploration Shares Amount Capital Receivable Warrants Stage Total -------- ------- ---------- ---------- -------- --------- ----- Balance brought Forward 6,090,739 $60,908 $2,757,694 $(300,000) $665,980 $(2,035,197) $(1,149,385) Issuance of common stock as follows: - for cash at an average of $1.04 per share 818,800 8,188 842,712 - - - 850,900 - for drilling fees at $0.90 per share 55,556 556 49,444 - - - 50,000 Stock options and warrant activity as follows: - exercise of options at $0.90 per share 250,000 2,500 267,500 - (45,000) - 225,000 - issuance of options for financing fees - - - - 216,000 - 216,000 - expiration of options - - 60,000 - (60,000) - - Stock subscription received - - - 300,000 - - 300,000 Loss for year ended October 31, 1999 - - - - - (1,423,045) (1,423,045) ----- ----- ----- ----- ----- -------- -------- Balance, October 31, 1999 7,215,095 $72,152 $3,977,350 $ - $776,980 $(3,458,242) $1,368,240 Exercise of options at $0.86 per share 950,000 9,500 1,090,750 - (288,000) - 812,250 Issuance of common stock as follows: - for cash at an average of $2.77 per share 1,440,500 14,405 3,972,220 - - - 3,986,625 Issuance of common stock for services at $1.28 per share 120,000 1,200 152,160 - - - 153,360 Issuance of common stock for equipment at $1.67 per share 15,000 150 24,850 - - - 25,000 Warrants issued for services - - - - 55,000 - 55,000 Loss for the year ended October 31, 2000 - - - - - (882,208) (882,208) ----- ----- ----- ----- ----- ------ ------ Balance, October 31, 2000 9,740,595 $97,407 $9,217,330 $ - $543,980 $(4,340,450) $5,518,267 --------- ------- --------- ----- ------- ---------- --------- --------- Table continued on next page. The accompanying notes are an integral part of these financial statements.
F/S 6 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated Common Stock Stock Stock Deficit ----------------- Additional Sub- Options During Ex- Number of Paid-in scriptions and ploration Shares Amount Capital Receivable Warrants Stage Total -------- ------- ---------- ---------- -------- --------- ----- Balance brought Forward 9,740,595 $97,407 $9,217,330 $ - $543,980 $(4,340,450) $5,518,267 Warrants exercised at $0.75 per common share 20,000 200 25,560 - (10,760) - 15,000 Issuance of stock for cash at $2.00 per common share 250,000 2,500 494,076 - 3,424 - 500,000 Issuance of stock for cash of $210 and services valued at $2.07 per common share 21,000 210 43,260 - - - 43,470 Issuance of stock for cash of $180 and services valued at $2.05 per common share 18,000 180 36,720 - - - 36,900 Issuance of stock for services valued at $2.45 per common share 6,000 60 14,640 - - - 14,700 Stock issued for services valued at $1.50 per common share 12,000 120 17,880 - - - 18,000 Options issued for consulting fees - - - - 740,892 - 740,892 Warrants issued for consulting fees - - - - 144,791 - 144,791 Loss for the year ended October 31,2001 - - - - - (2,069,390)(2,069,390) ----- ---- ----- ----- ----- --------- --------- Balance, October 31, 2001 10,067,595 $100,677 $9,849,466 $ - $1,422,327 $(6,409,840) $4,962,630 ========== ======= ========= ===== ========= ========= ========== ------ The accompanying notes are an integral part of these financial statements.
F/S 7 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF CASH FLOWS
Years Ended Period from ------------------ November 8, 1993 October 31, October 31, (Inception)to 2001 2000 October 31,2001 ------- ------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,069,390) $(882,208) $(6,409,840) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 28,498 25,830 116,656 Noncash expenses 126,864 - 126,864 Payment of services from issuance of stock 112,680 153,000 586,215 Payment of services from issuance of options 740,892 - 740,892 Payment of financing fees from the issuance of stock options - - 276,000 Payment of expenses with issuance of stock - - 326,527 Warrants issued for services 144,791 55,000 688,771 (Increases) decreases in: Foreign property tax refund receivable 487,949 (547,236) (59,287) Prepaid expenses (621) (101) (3,849) Employee advances (282) (5,656) (11,146) Investments (484,447) - (484,447) Increases (decreases) in: Accounts payable (350) (11,141) 5,275 Accrued liabilities (2,069) (21,334) 14,098 ----- ------ ------ Net cash used by operating activities (915,485) (1,233,846) (4,087,271) ------ -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Equipment purchases (6,584) (10,380) (134,128) Mining property acquisitions (112,846) (3,245,114) (4,452,631) ----- -------- --------- Net cash used by investing activities (119,430) (3,255,494) (4,586,759) ----- ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of common stock 515,390 3,986,625 7,652,312 Proceeds from sales of options - 812,250 935,250 Deposits for sale of stock - - 87,500 Proceeds from shareholder loans - - 30,000 ---- ---- ----- Net cash provided by financing activities: 515,390 4,799,235 8,705,062 ----- ------- -------- Net increase (decrease) in cash and cash equivalents (519,525) 309,895 31,032 Cash beginning of period 550,557 240,662 - ----- ----- ------ Cash at end of period $31,032 $550,557 $31,032 ====== ======= ====== SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ - $ - $ - Interest paid $ - $ - $ - NON-CASH FINANCING ACTIVITIES: Common stock issued for services $112,680 $153,360 $586,215 Common stock issued for payment of expenses $ - $ - $326,527 Common stock issued for equipment $ - $25,000 $25,000 Common stock options issued for financing fees $ - $ - $276,000 Options issued for services $740,892 $ - $740,892 Warrants issued for services $144,791 $55,000 $688,771 The accompanying notes are an integral part of these financial statements.
F/S 8 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS Metalline Mining Company ("the Company") was incorporated in the State of Nevada on November 8, 1993 as the Cadgie Company for the purpose of acquiring and developing mineral properties. The Cadgie Company was a spin-off from its predecessor, Precious Metal Mines, Inc. The articles of incorporation of Cadgie Company were executed on August 20, 1993. On June 28, 1996, at a special directors meeting, the Company's name was changed to Metalline Mining Company. The Company's fiscal year-end is October 31. The Company's efforts have been concentrated in expenditures related to exploration properties, principally in the Sierra Mojada project located in Coahuila, Mexico. The Company has not determined whether the exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company's investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development, and upon future profitable production. The ultimate realization of the Company's investment in exploration properties cannot be determined at this time, and accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the accompanying financial statements. The Company is actively seeking additional capital and management believes its properties can ultimately be sold or developed to enable the Company to continue its operations. However, there are inherent uncertainties in mining operations and management cannot provide assurances that it will be successful in this endeavor. Furthermore, the Company is in the exploration stage, as it has not realized any revenues from its planned operations. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the U.S. and have been consistently applied in the preparation of the financial statements. ACCOUNTING METHOD The Company's financial statements are prepared using the accrual method of accounting. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts from prior periods have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company's accumulated deficit or net losses presented. EXPLORATION STAGE ACTIVITIES The Company has been in the exploration stage since November 8, 1993 and has no revenues from operations. The Company is primarily engaged in the acquisition and exploration of mineral properties. Should the Company locate a commercial minable reserve, the Company would expect to actively prepare the site for extraction. F/S 9 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) SEGMENT REPORTING The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the fiscal year ended October 31, 1999. SFAS No. 131 requires disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect the Company's results of operations or financial position. The Company's mineral properties were not engaged in any production activity. The Company had no segments engaged in business activities at October 31, 2001 and, therefore, no segment reporting is required. FOREIGN OPERATIONS The accompanying balance sheet includes $4,334,767 of the Company's mineral properties $62,429 (before accumulated depreciation) of mining equipment, $2,590 of the Company's cash and a $59,288 tax refund receivable in Mexico. Although this country is considered economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company's operations. The Mexican government does not require foreign entities to maintain cash reserves in Mexico. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at the year-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange differences arising on translation are disclosed as a separate component of shareholders' equity. Realized gains and losses from foreign currency transactions are reflected in the results of operations. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, as defined by SFAS No. 107 "Disclosures about Fair Value of Financial Instruments," include cash, advances to employee, foreign tax return receivable, investments, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at October 31, 2001. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. INVESTMENT IN SECURITIES Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, the Company's investments in securities are classified as either trading, held to maturity, or available-for-sale. During the year ended October 31, 2001 the Company did not own any securities classified as either trading or held to maturity. However, at October 31, 2001, the Company did own securities classified as available-for-sale, which consists of debt and equity securities. Unrealized holding gains and losses, net of tax, on securities available-for-sale are reported as a net amount in a separate component of other comprehensive income. At October 31, 2001, the Company did not have any unrealized holding gains or losses. Gains and losses on the sale of securities available-for-sale are determined using the specific identification method and are included in earnings. GOING CONCERN As shown in the accompanying financial statements, the Company has no revenues, has incurred a net loss of $2,069,390 for the year ended October 31, 2001 and has an accumulated deficit. These factors indicate that the Company may be unable to continue in existence. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. F/S 10 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company's management believes that significant and imminent private placements will generate sufficient cash for the Company to continue to operate based on current expense projections. CONCENTRATION OF RISK The Company maintains its domestic cash in primarily one commercial bank in Coeur d'Alene, Idaho. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At October 31, 2000, the Company exceeded the insured amount by $233,687. The Company also maintains cash in a bank in Mexico. This account, which had a balance of $2,590 at October 31, 2001, is denominated in pesos and is considered uninsured. The Company also has recorded a refund receivable at October 31, 2001 from the overpayment of Mexican property taxes. This receivable, originating from the payment of assessed taxes on the Company's Mexican property concessions, is considered fully collectible. DERIVATIVE INSTRUMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.133", and SFAS No.138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which is effective for the Company as of January 1, 2001. This standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes. At October 31, 2001 and 2000, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. ACCOUNTING PRONOUNCEMENTS In September 2000, the FASB issued SFAS No.140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities and also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No.140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company believes that the adoption of this standard will not have a material effect on the Company's results of operations or financial position. In June 2001, the FASB issued SFAS No.141, "Business Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets." SFAS No.141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No.142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. F/S 11 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SFAS No.142 is effective for fiscal years beginning after December 15, 2001. An early adoption provision exists for companies with fiscal years beginning after March 15, 2001. On October 31, 2001, the Company adopted SFAS No.142. Application of the nonamortization provision of SFAS No.142 is expected to result in no change in net income in fiscal 2002. The Company is currently evaluating the impact of the transitional provisions of the statement. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the fiscal 2001 presentation. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line and accelerated methods over the expected useful lives of the assets of five years. IMPAIRED ASSET POLICY In March 1995, the Financial Accounting Standards Board issued SFAS No.121 titled "Accounting for Impairment of Long-lived Assets." In complying with this standard, the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amounts. The Company does not believe any adjustments are needed to the carrying value of its assets at October 31, 2001. MINERAL PROPERTIES Costs of acquiring mineral properties are capitalized by project area upon purchase or staking of the associated claims. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value and any diminution in value is charged to operations at the time of impairment. Should a property be abandoned, its capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties abandoned or sold based on the proportion of claims abandoned or sold to the claims remaining within the project area. REVENUE RECOGNITION POLICY Revenues from sales of product will be recognized when the product is shipped. EXPLORATION COSTS In accordance with accounting principles generally accepted in the United States of America, the Company expenses exploration costs as incurred. Exploration costs expensed during the year ended October 31, 2001 were $38,332. The exploration costs expensed during the Company's exploration stage are $167,574. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued SFAS No.123 titled "Accounting for Stock-Based Compensation." This statement encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. Transactions in equity instruments with non-employees for goods or services must be accounted for on the fair value method. The Company has adopted the fair value accounting prescribed by SFAS No.123. F/S 12 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PROVISION FOR TAXES At October 31, 2001, the Company had net deferred tax assets of $1,200,000, principally arising from net operating loss carryforward for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at October 31, 2001. At October 31, 2001, the Company has net operating loss carryforward of approximately $5,000,000, which expire in the years 2008 through 2021. The Company recognized approximately $998,753 of losses for the issuance of common stock, stock options and stock warrants for services in 2001, which were not deductible for tax purposes. EARNINGS PER SHARE The Company has adopted SFAS No. 128, which provides for calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Although there were common stock equivalents outstanding October 31, 2001, they were not included in the calculation of earnings per share because they would have been considered anti-dilutive. NOTE 3 INVESTMENTS The Company's securities investments are classified as available for sale securities which are recorded at fair value in investments on the balance sheet, with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income. The Company has no securities, which are classified as trading securities. At October 31, 2001, the market values of investments were as follows: Boulder Total Return Fund $200,000 Eaton Vance Senior Income Trust 200,000 Pilgrim Prime Rate Trust 75,000 Money Market Funds 9,447 -------- 484,447 ======== NOTE 4 PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The useful lives of property, plant and equipment for purposes of computing depreciation are five to seven years. The following is a summary of property, equipment, and accumulated depreciation: October 31, October 31, 2001 2000 ------ ------ Mining equipment $62,429 $62,429 Vehicles 23,618 23,618 Computer equipment 78,948 72,364 Furniture fixtures 9,135 9,135 ----- ----- Total assets 174,130 167,546 Less accumulated depreciation (116,656) (88,158) ------- ------ $57,474 $79,388 ====== ====== F/S 13 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 4 PROPERTY AND EQUIPMENT (continued) Depreciation expense for the years ended October 31, 2001 and 2000 was $28,498 and $25,830, respectively. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting gain or loss is reflected in results of operations. NOTE 5 MINERAL PROPERTIES SIERRA MOJADA MINING CONCESSIONS In June of 1996, USMX (now named Dakota) and the Company entered into a joint venture agreement, whereby the Company could acquire a 65% interest in a mining concession named the Sierra Mojada Project, located in Coahuila, Mexico. Under the terms of the agreement, the Company was to contribute two million dollars ($2,000,000) in work commitments over the following seven years. After the execution of the USMX agreement, Dakota's interest (35%) in the joint venture was sold to an entity, which subsequently defaulted on its joint venture obligations. This action in 1998 triggered the elimination of the joint venture and resulted in the Company assuming 100% control of the Sierra Mojada concession without the need to spend $2,000,000 to vest its interest. During the period August 23, 1996 to September 2, 1997, the Company executed five separate agreements for the acquisition of exploration concessions in the same mining region as the Sierra Mojada Project in Mexico. Each agreement enables the Company to explore the underlying property by paying stipulated annual payments, which shall be applied in full toward the contracted purchase price of the related concession. Under the terms of the agreements, the Company was obligated to pay and in fact did pay $103,076 and $3,355,384 during the years ended October 31, 2001 and 2000, respectively. During August 2000, the Company made the final payment for the first year and acquired title to the Unificacion Mineros Nortenos Concession in the Sierra Mojada Project. With this transaction, the Company has acquired title to all of its concessions at Sierra Mojada. NOTE 6 RELATED PARTY TRANSACTIONS The Company receives rent-free office space in Coeur d'Alene, Idaho from its president. The value of the space is not considered materially significant for financial reporting purposes. NOTE 7 COMMON STOCK During the year ended October 31, 2001 the Company issued 20,000 shares of common stock for the exercise of warrants valued at $10,760 and cash of $15,000. Additionally, 57,000 shares of common stock were issued for services valued at $112,680 and cash of $390 and 250,000 shares of common stock with 125,000 warrants attached were issued for $500,000 in cash. During the year ended October 31, 2000, the Company sold 1,440,500 shares of its common stock for $3,968,625 cash, issued 120,000 shares of common stock for services valued $153,360, issued 15,000 shares of common stock for equipment valued at $25,000 and issued 950,000 shares of common stock for options exercised at $0.86 per share. F/S 14 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 7 COMMON STOCK (continued) During the year ended October 31, 1999, the Company sold 1,068,800 shares of common stock for $1,075,900 cash. In addition the Company received $37,500 as a deposit toward the purchase of 50,000 shares (this stock was issued in December 1999) and $300,000 for payment of subscriptions receivable. The Company also issued 55,556 shares for payment of drilling expenses valued at $50,000. In February 1998, 200,000 shares of common stock were issued for a mine database. The shares were valued at $1.625 per share, resulting in a transaction valued at $325,000. Services valued at $22,300 were paid with 41,800 shares of common stock. An additional 1,398,500 shares of common stock were issued for $1,065,445 cash and a subscription receivable of $300,000, between February and October 1998. In April 1997, 250,000 common stock shares were issued for cash of $87,500 and 133,800 shares of common stock were issued for services valued at $45,583. In May and June 1997, 181,600 shares of common stock were issued for $63,560 cash and 62,500 shares of common stock were issued for services valued at $21,875. In August and October 1997, 420,000 and 75,000 shares of common stock were issued for cash of $378,000 and $75,000, respectively. Additionally, during August 1997, 100,200 shares of common stock were issued for debt of $31,530 and 95,000 shares of common stock for services valued at $95,000. During November 1995, Metalline Mining Company's directors approved the issuance of 45,000 shares of common stock for services rendered at $0.01 per share. During June 1996, Metalline Mining Company issued 900,000 shares of common stock for the assignment of mineral rights in the Sierra Mojada Project in Coahuila, Mexico valued at $0.01 per share. During October 1996, Metalline Mining Company issued 150,000 shares of common stock for computer equipment valued at $15,000. Also during October 1996, Metalline Mining Company issued 120,000 shares of common stock to Mr. Gorski and an additional 20,000 shares of common stock to Mr. Ryan for services rendered valued at $14,000. In January 1996, Mr. Carmen Ridland, in a private sale, sold a controlling interest in the corporation to Mr. Howard Crosby. On January 12, 1996, Mr. Ridland transferred control of Cadgie Co. to Mr. Crosby and Mr. Robert Jorgensen. The Company also issued 900,000 shares to Messrs. John Ryan, Merlin Bingham, and Daniel Gorski, who had formed a partnership to advance development of the mining concession located in Coahuila, Mexico. The partnership had an informal joint venture agreement with USMX, Inc. covering the mining concessions. By acquiring the partnership interest, the Company was able to negotiate and sign a formal joint venture agreement with USMX in July 1996. (See Note 4.) In August 1996, the Company changed its name to Metalline Mining Company. On August 4, 1995 the directors of Cadgie Co. declared a 3:1 forward stock split of the outstanding Cadgie Co. shares, thus increasing the number of outstanding shares from 192,160 to 576,480. On August 31, 1994, the directors of Cadgie Co. declared a 1:5 reverse stock split of the outstanding Cadgie Co. shares, thus reducing the number of outstanding shares from 960,800 to 192,160 shares. The Company (Cadgie Co.) was formed in August of 1993 and incorporated in November 1993 by Mr. Carman Ridland of Las Vegas, Nevada as a spin-off from its predecessor, Precious Metal Mines, Inc. The Company issued 960,800 of its $0.01 par value shares to Precious Metal Mines, Inc. for 16 unpatented mining claims located near Philipsburg, Montana comprising the Kadex property group. Precious Metal Mines, Inc. distributed the 960,800 shares of Cadgie Company to its shareholders. One share of Cadgie Co. was exchanged for each share of Precious Metal Mines, Inc. held by holders of record as of August 31, 1993. F/S 15 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 8 STOCK OPTIONS Following is a summary of the stock options during the years ending October 31, 2001 and 2000: Weighted Average Number Exercise Of Shares Price --------- --------- Outstanding at 11/1/99 950,000 $ .90 Granted - - Exercised 950,000 - Forfeited - .90 Expired - - ------- ------- Outstanding at 10/31/00 - $ - ======= ======= Options exercisable at 10/31/00 - - ======= ======= Weighted Average Number Exercise Of Shares Price --------- ---------- Outstanding at 11/1/00 - $ - Granted 720,000 1.86 Exercised - - Forfeited - - Expired - - -------- -------- Outstanding at 10/31/01 720,000 $ 1.86 ======== ======== Weighted average fair value of options granted during 2001 $ 1.02 ======== Options exercisable at 10/31/01 720,000 ======== The Company granted 720,000 options with exercise prices ranging from $1.32 to $2.15 and expire at various dates through 2010. The fair value of each option is estimated on the issue date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk free interest 5%, volatility is 50% and expected life is 9 to 5 years. Consulting expenses recognized for these options were $740,892 for the year ended October 31, 2001. NOTE 9 WARRANTS During the year ended October 31, 2001 the Company issued 250,000 shares of stock with 125,000 warrants attached. These warrants were valued at $3,424. Additionally 20,000 warrants were exercised for $15,000 in cash and services valued at $10,760. The Company also issued 80,000 warrants for services, which were valued at $144,791. At October 31, 2000, there were outstanding warrants to purchase 996,500 shares of the Company's common stock, at prices ranging from $0.75 to $2.00 per share. The warrants, which became exercisable in 1999, but have not been exercised, expire at various dates through 2005. The Company has reserved 996,500 shares for the expected exercise of these warrants. These warrants are valued at $543,980 using the method described below. The fair value of each warrant is estimated on the issue date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk free interest is 5%, volatility is 0.3 and 0.5 and expected life is 5 to 10 years. Consulting expenses recognized for these warrants were $144,791 and $55,000 for the fiscal years ended October 31, 2001 and 2000, respectively. F/S 16 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS OCTOBER 31, 2001 NOTE 10 COMMITMENTS AND CONTINGENCIES COMPLIANCE WITH ENVIRONMENTAL REGULATIONS The Company's mining activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. NOTE 11 JOINT VENTURE AGREEMENT On October 7, 1999, the Company announced that it entered into a five-year "earn-in" type of a joint venture agreement with North Limited. The agreement gives North Limited the right to earn into 60% of the Company's Sierra Mojada Project by providing all funds necessary to complete a feasibility study delivered in no more than five years that is acceptable to international banking institutions for lending development capital. North Limited is a large Australian mining company based in Melbourne, Australia and was known as North Broken Hill Peko before a name change in 1994. North Limited is dedicated to natural resource development that produces iron, uranium, base and precious metals and forestry products. At October 31, 2001, North Limited had no vested interest in the Sierra Mojada Project. NOTE 12 SUBSEQUENT EVENTS On November 15, 2001, the Company entered into an agreement with Compania Minera La Parrena S.A. de C.V. ("Penoles") whereby Penoles may earn the right to acquire a 60% interest in certain mining concessions located in the Sierra Mojada region of Coahuila, Mexico. The earn-in right is contingent upon the following: delivery by Penoles within four years of a pre- feasibility study, completion by Penoles of $1,000,000 of qualified expenditures on the aforementioned mining consessions, and Penoles's purchase of up to 250,000 shares of Metalline's common stock $2.00 per share. [The balance of this page has been intentionally left blank.] F/S 17 METALLINE MINING COMPANY An Exploration Stage Company October 31, 2001 SIGNATURES In accordance with Section 12, 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METALLINE MINING COMPANY BY: /s/ Merlin Bingham ----------------------- Merlin Bingham, its President Date: January 28, 2002 BY: /S/ WAYNE SCHOONMAKER ---------------------- Wayne Schoonmaker, its Principal Accounting Officer Date: January 28, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: By: /s/ Merlin Bingham By: /s/Jim Czirr -------------------- --------------------- Merlin Bingham Jim Czirr Director Director Date: January 28, 2002 Date: January 28, 2002 By: /s/ Daniel Gorski By: /s/Wayne Schoonmaker -------------------- --------------------- Daniel Gorski Wayne Schoonmaker Vice President/Director Secretary/Treasurer, Date: January 28, 2002 Director Date: January 28, 2002 F/S 18