10-Q 1 r10q1m2.txt 1ST QRT METALLINE MINING COMPANY 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2002 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 [ ] METALLINE MINING COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1: Financial Statements . . . . . . . . . . . . . 1 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operation . . 1 PART II - OTHER INFORMATION Item 1: Legal Proceedings . . . . . . . . . . . . . . . 5 Item 2: Changes in Securities . . . . . . . . . . . . . 5 Item 3: Defaults upon Senior Securities . . . . . . . . 5 Item 4: Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . .5 Item 5: Other Information . . . . . . . . . . . . . . . .5 Item 6: Exhibits and Reports on Form 8-K . . . . . . . . 5 Index to Financials . . . . . . . . . . . . . . . . . . . . 6 Signatures . . . . . . . . . . . . . . . . . . . . . F/S-9 [The balance of this page has been intentionally left blank.] (i) PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements. The reviewed financial statements of the Company for the period covered by this report are included elsewhere in this report, beginning at page F/S-1. The reviewed financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of only normal accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended January 31, 2002 are not necessarily indicative of the results that may be expected for the full year ending October 31, 2002. For further information refer to the financial statements and footnotes thereto in the Company's Annual Report on Form 10-K for the year ended October 31, 2001 incorporated by reference herein. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS FOR THE PERIOD ENDED JANUARY 31, 2002. Three months ended January 31, 2002 compared to the nine months ended January 31, 2001: During the three months ended January 31, 2002, the Company realized other income of $17,500 from the sale of zinc carbonate ore from the Company's San Salvadore mine, in accordance with a contract announced in May 2001 with Fireborn, Inc. of Atlanta, Georgia. Costs associated with the Sale of the ore totaled $104,848 for the three-month period ended January 31, 2002. There were no ore sales or associated costs in the three-month period ended January 31, 2001. General and administrative expenses increased to $196,581 for the three-month period ended January 31, 2002 as compared to $285,477 for the three-month period ended January 31, 2001. The decrease is primarily due to a reduction in expenses of maintaining the property. For the three months ended January 31, 2002, the Company experienced a loss of $281,796, or $0.03 per share, compared to a loss of $283,313, or $0.03 per share, during the comparable period in the previous year. LIQUIDITY AND CAPITAL RESOURCES. 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 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 Page 1 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 financed its obligations during the 2000- 2001 fiscal year by its sale of 270,000 shares at prices ranging between $0.75 and $2.00 per share. During the current period, the Company has realized $100,000 from the sale of 50,000 shares. 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"). 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. The Company is current on its annual payments. 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. 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 Incorporated ("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. Page 2 The lead manto produced 3 to 3.5 million tons prior to 1905 with another 1.5 million tons of similar ore coming from other ore bodies to the west and to the southwest. Mineros Nortenos has mined about 600,000 tons 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 ton, 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 tons of high-grade ore that graded in excess of 30% lead, 20% zinc, 1% copper and 1 kg (31 ounces) silver per ton 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 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 high grades, to enable it to be a low-cost producer. Based upon the foregoing, the Company 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. 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. 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 international mining company. The agreement allowed North to acquire a 60% participating interest in Sierra Mojada by exploring and completing a feasibility study over a "Earn In Period" of not more than 5 years. In August, 2000 Rio Tinto Ltd. purchased North Limited for its 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. Page 3 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. In December 2001 Metalline Mining Company signed an agreement with the B.O.W. Corporation of El Paso, Texas for an exclusive lease on 41 patented and 81 unpatented mining claims in the Silver Hills District at Orogrande, New Mexico. The property contains high-grade garnet deposits that will be developed for the industrial abrasive market. The agreement allows Metalline to mine, process and market any metallic, non-metallic, or other mineral mined and sold from the property by establishing the quality and marketability of the garnet and by furnishing B.O.W. a business plan and feasibility study within six months. The agreement also provides that within 12 months of completing the feasibility study, if warranted, Metalline will construct and place into production a mining and marketing operation with a minimum capacity of 25,000 tons per year of industrial garnet. As consideration for the exclusive lease, B.O.W. will receive up to 50% of net profits from the operation. 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 January 31, 2002, 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. Page 4 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. CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 31, 2002 WERE AS FOLLOWS: During the three-month period ended January 31, 2002, the Company's cash position increased by $89,550, to $120,582. In addition, short-term investments readily convertible to cash decreased by $277,888 to $206,560. During the three-month period, the Company used $261,338 in operating activities, not including the liquidation and transfer to cash of $277,888 in short-term investments. In addition, the Company realized $100,000 from the sale of Company stock. The only use of cash other than for operating activities was the purchase of property for $27,000. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. Neither the constituent instruments defining the rights of the registrant's securities holders nor the rights evidenced by the registrant's outstanding common stock have been modified, limited, or qualified. The Company sold 50,000 shares of its common stock at a price of $2.00 per share in the three month period ended January 31, 2002. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The registrant has no outstanding senior securities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. In February 2001 a notice of annual meeting and proxy statement were mailed to shareholders of record January 5, 2001 regarding matters to be considered at the annual shareholders meeting scheduled for March 1, 2001. Matters considered were (1) election of directors, (2) consideration and approval of the Company's 2001 Stock Option Plan, (3) consideration and approval of a proposed amendment to the Company's Articles of Incorporation to authorize a class of Preferred Shares, (4) election of outside auditors. There have been no matters submitted to a vote of security holders since March 1, 2001. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. EXHIBITS. The following exhibit is filed as part of this report: None. REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the registrant during the period covered by this report. Page 5 METALLINE MINING COMPANY INDEX TO FINANCIAL STATEMENTS Financial Statements: PAGE Balance Sheets as of January 31, 2002 and October 31, 2001 . . . . . . . . . . . . . . . . . F/S-1 Statements of Operations for the three-month period ended January 31, 2002 and January 31, 2001, and for the period from inception (November 8, 1993) to January 31, 2002 . . . . . . . . . . . . . . .. . . F/S-2 Statements of Changes in Stockholder's Equity for the period from inception (November 8, 1993) to January 31, 2002 . . . . . . . . . . . . . . . . . .F/S-3 Statements of Cash Flow for the three-month Periods ended January 31, 2002 and January 31, 2001, and for the period from inception (November 8, 1993) to January 31, 2002 . . . . . . . . F/S-7 Notes to Financial Statements . . . . . . . . . . . . .F/S-8 Signatures . . . . . . . . . . . . . . . . . . . . . . F/S-9 [The balance of this page has been intentionally left blank.] Page 6 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) BALANCE SHEETS

January 31, October 31, 2002 2001 (Unaudited) ----------- ----------- ASSETS CURRENT ASSETS Cash $ 120,582 $ 31,032 Investments 206,560 484,447 Foreign Tax Refund Receivable 59,288 59,288 Prepaid expenses 829 3,849 Employee advances 11,146 11,146 ------ ------ Total Current Assets 398,405 589,762 ------ ------ MINERAL PROPERT 4,334,767 4,334,767 ------ ------ PROPERTY AND EQUIPMENT Office and mining equipment 201,129 174,129 Less: Accumulated depreciation (122,894) (116,655) ------- ------ Total Property and Equipment 78,235 57,474 ------- ------ TOTAL ASSETS $4,811,407 $4,982,003 ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $15,955 $ 5,275 Accrued liabilities 14,591 14,098 ------ ------ Total Current Liabilities 30,546 19,373 ------ ------ COMMITMENTS AND CONTINGENCIES - - ------ ------ STOCKHOLDERS' EQUITY Common stock, $0.01 par value; 50,000,000 shares authorized, 10,117,595 and 10,067,595 shares issued and outstanding respectively. 101,177 100,407 Additional paid-in capital 9,948,966 9,849,466 Stock options and warrants 1,422,327 1,422,327 Deficit accumulated during exploration stage (6,691,609) (6,409,840) ------ ------ Total Stockholders' Equity 4,780,861 4,962,630 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,811,407 $4,982,003 ====== ====== See accompanying notes to these financial statements.

F/S-1 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF OPERATIONS

Period from Three Months Ended November 8, 1993 ----------------- (Inception) January 31, January 31, through 2002 2001 January 31, 2002 (Unaudited) (Unaudited) (Unaudited) ------ ------ ------ REVENUES $ - $ - $ - ------ ------ ------ GENERAL AND ADMINI- STRATIVE EXPENSES Salaries 54,000 54,000 944,874 Office and administrative 27,706 32,049 318,958 Taxes and fees 23,129 21,212 131,807 Professional services 84,098 44,853 3,235,159 Property expenses - 116,448 1,434,476 Marketing and research 1,410 9,789 168,984 Financing Costs - - 276,000 Depreciation 6,238 7,124 122,924 ------ ------ ------ Total Expenses 196,581 285,477 6,633,182 ------ ------ ------ OPERATING LOSS (196,581) (285,477) (6,633,182) ------ ------ ------ OTHER INCOME (EXPENSES) Miscellaneous ore sales, net of expenses (87,348) - (73,230) Interest income 2,096 2,164 24,338 Interest expense - - (9,599) Miscellaneous income 64 - 84 ------ ------ ------ Total other income (expense) (85,188) 2,164 (58,407) ------ ------ ------ LOSS BEFORE INCOME TAXES (281,769) (283,313) (6,691,589) ====== ====== ====== INCOME TAXES - - - ------ ------ ------ NET LOSS$ (281,769) $(283,313) $(6,691,569) ====== ====== ====== NET LOSS PER COMMON SHARE BASIC AND DILUTED $(0.03) $(0.03) $(1.40) ====== ====== ====== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED 0,087,595 9,740,595 4,789,638 ------------------ See accompanying notes to these financial statements.

F/S-2 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) (8831) ----- ---- ---- ---- ---- ---- ---- Balances, October 31, 1994 192,160 1,922 (1,922) - - (8,831) (8831) 3:1, common stock split 384,320 3,843 (3,843) - - - - Loss for the year ended October 31, 1995 - - - - - (7,861)(7,761) ------ ---- ---- ---- ---- ---- ---- Balances, October 31, 1995 576,480 5,765 (5,765) - - (16592)(16592) 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 an average of $0.08 per share 185,000 1,850 12,600 - - - 162,458 - 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 - - - - - (40670)(40670) ----- ---- ---- ---- ---- ----- ----- Balances, October 31, 1996 3,132,339 $31,324 $153,485 $- $ - $(57,262)$127,547 -------- ------- ------- ---- -------- ------ Schedule continued on next page. See accompanying notes to these financial statements.

F/S-3 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 ------ ----- ----- ------- -------- ------ ----- Balances, October 31, 1996 3,132,339 $31,324 $153,485 $ - $ - $(57262) $127547 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, 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 the year ended October 31, 1998 - - - - - (906,036)(906,036) ---- ---- ---- --- ----- ------- ------- Balances, October 31, 1998 6090739 $60908 $2757694$(300000)$655980 $(2035197)$1149385 ---- ---- ------ ---- ----- ------- ------ Schedule continued on next page. See accompanying notes to 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 ------ ----- ----- ------- -------- ------ ----- Balances, October 31, 1998 6,090,739 60,908 2757694 (300,000) 665,980 (2035197) 1149385 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 warrants 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 the year ended October 31, 1999 - - - - - (1423045)(1423045) --- --- ---- ----- --- ------- ------ Balance at October 31, 1999 7215095 $72152 $3977350 $ - $776980 $(3458242)$1368240 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 - 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) ----- ---- ---- --- ----- ------- ------ Balances, October 31, 2000 9,740,595 $97,407 $9217330 $ - $543,980 $(4340450)$5518267 ------- ------ ------- --- ----- ------ ------- ------------------------------- Schedule continued on next page. See accompanying note to 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 ------ ----- ----- ------- -------- ------ ----- Balances, October 31, 2000 9,740,595 $97,407 $9,217,330 $ - $543980 $(4340450)$5518267 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 $2.05 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 - - - - - (2069390)(2069390) ------ ------ ------ ----- ---- ------ ------- Balances, October 31, 2001 10,067,595 100,677 9,849,466 - 1422327 (6409840) 4962630 Issuance of stock for cash at $2.00 per common share 50,000 500 99,500 - - - 100,000 Loss for 3 months ended January 31, 2002 - - - - - (281,769)(281,769) ------ ---- ----- ---- ---- ------ ------ Balances, January 31, 2002 10,117,595 $101,177 $9948966 $ - $1422327 $(6691609)$4780861 ======= ====== ======= ==== ======= ======= ===== See accompanying notes to these financial statements.

F/S - 6 METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY) STATEMENTS OF CASH FLOWS

Period from Three Months Ended November 8, 1993 ------------------ (Inception) January 31, January 31, through 2002 2001 January 31, 2002 (Unaudited) (Unaudited) (Unaudited) --------- --------- --------- Cash flows from operating activities: Net loss $(281,769) $(283,313) $(6,691,609) Adjustments to reconcile net loss to cash used by operating activities: Depreciation 6,238 7,124 122,894 Stock and options given in exchange for services - - 2,015,878 Stock and options for operating expenses - - 729,391 Changes in operating assets and liabilities: (Increase) decrease in investments 277,888 - (206,559) (Increase) decrease in refunds receivable - - (59,287) (Increase) decrease in prepaid expenses 3,020 2,120 (829) (Increase) decrease in employee advances - (282) (11,146) Increase (decrease) in accounts payable 0,680 10,026 15,955 Increase (decrease) in accrued liabilities 493 1,550 14,591 ------ ------ ------ Net cash used by operating activities 16,550 (282,775) (4,070,721) ------ ------ ------ Cash flows from investing activities: Purchase of property and equipment (27,000) (6,583) (161,128) Acquisition of mineral properties - - (4,452,631) ------ ------ ------ Net cash used by investing activities (27,000) (6,583) (4,613,759) ------ ------ ------ Cash flows from financing activities: Proceeds from sales of common stock 100,000 - 7,752,312 Proceeds from sales of options - - 935,250 Deposits for sale of stock - - 87,500 Proceeds from shareholders' loans - - 30,000 ------ ------ ------ Net cash provided by financing activities: 100,000 - 8,805,062 ------ ------ ------ Net increase (decrease) in cash 89,550 (269,358) 120,582 Cash beginning of period 31,032 550,557 - ------ ------ ------ Cash at end of period $120,582 $281,199 $120,582 ====== ====== ====== Supplemental cash flow disclosures: Income taxes paid in cash - - $ 9,599 Interest paid in cash - - - Non-cash financing activities: Common stock issued for services - - $473,175 Common stock issued for expenses - - $326,527 Common stock issued for equipment - - $ 40,000 Common stock issued for payment of debt - - $ 80,000 Common stock options issued for services - - $107,400 Common stock options issued for financing fees - - $276,000 ----------- See accompanying notes to these financial statements.

F/S-7 METALLINE MINING COMPANY AN EXPLORATION STAGE COMPANY NOTES TO THE FINANCIAL STATEMENTS JANUARY 31, 2002 The interim financial statements of Metalline Mining Company included herein have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange. Although certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, the Company believes that the disclosures are adequate to make the information presented no misleading. The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended October 31, 2000. The financial statements included herein reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results for interim periods. The results for interim periods are not necessarily indicative of trends or of results to be expected for a full year. NOTE 1 Preferred Stock -------------- At its March 1, 2001 annual shareholders meeting, the Company approved a change to its articles of incorporation whereby the Company is authorized to issue one million shares of $0.01 par value preferred stock. The specific features of the preferred stock will be determined by the Company's board of directors. Stock Option Plan --------------- On March 1, 2001, the Company's shareholders approved a qualified stock option plan. The number of shares eligible for issuance under the qualified plan is to be determined by the Company's board of directors. NOTE 2 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 Majada 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 concessions, and Penoles' purchase of up to 250,000 shares of Metalline's common stock at $2.00 per share. NOTE 3 In December 2001 Metalline Mining Company signed an agreement with the B.O.W. Corporation of El Paso, Texas for an exclusive lease on 41 patented and 81 unpatented mining claims in the Silver Hills District at Orogrande, New Mexico. The property contains high-grade garnet deposits that will be developed for the industrial abrasive market. The agreement allows Metalline to mine, process and market any metallic, non-metallic, or other mineral mined and sold from the property by establishing the quality and marketability of the garnet and by furnishing B.O.W. a business plan and feasibility study within six months. The agreement also provides that within 12 months of completing the feasibility study, if warranted, Metalline will construct and place into production a mining and marketing operation with a minimum capacity of 25,000 tons per year of industrial garnet. As consideration for the exclusive lease, B.O.W. will receive up to 50% of net profits from the operation. F/S - 8 METALLINE MINING COMPANY AN EXPLORATION STAGE COMPANY JANUARY 31, 2002 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: March 11, 2002 By: /s/ Wayne L. Schoonmaker ----------------------- Wayne Schoonmaker, its Principal Accounting Officer Date: March 11, 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: March 11, 2002 Date: March 11, 2002 By: /s/ Daniel Gorski By: /s/ Wayne L. Schoonmaker --------- ----------- Daniel Gorski Wayne Schoonmaker Vice President/Director Secretary/Treasurer Date: March 11, 2002 Date: March 11, 2002 F/S - 9