SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
x QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended July 31, 2005
o TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT
For
the
transition period from _____________ to _____________
Commission
file number: 000-27667
Metalline
Mining Company
(Exact
name of small business issuer as specified in its charter)
Nevada
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91-1766677
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(State
or other jurisdiction
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(IRS
Employer Identification No.)
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of
incorporation or organization)
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|
1330
E.
Margaret Ave.
Coeur
d'Alene, ID 83815
(Address
of principal executive offices)
Issuer's
telephone number, including area code: (208) 665-2002
Check
whether the issuer (1) filed all reports required to be filed by Section
13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
There
were 20,191,585 shares of the issuer's common stock, par value $0.01,
outstanding as of September 1, 2005.
Transitional
Small Business Disclosure Format (check one): Yes o No x
METALLINE
MINING COMPANY QUARTERLY REPORT
ON
FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED
JULY 31, 2005
TABLE
OF CONTENTS
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1:
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Financial
Statements
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1
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Item
2:
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Management's
Discussion and Analysis of
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Financial
Condition and Results of Operations
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1
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Item
3:
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Controls
and Procedures
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8
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PART
II - OTHER INFORMATION
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Item
1:
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Legal
Proceedings
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9
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Item
2:
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Unregistered
Sales of Equity Securities and Use of Proceeds
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9
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Item
3:
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Defaults
upon Senior Securities
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9
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Item
4:
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Submission
of Matters to a Vote of Security Holders
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9
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Item
5:
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Other
Information
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9
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Item
6:
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Exhibits
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9
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Signatures
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10
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PART
I - FINANCIAL INFORMATION
ITEM
1. Financial
Statements.
The
reviewed consolidated financial statements of Metalline Mining Company (the
"Company"), for the period covered by this report, are included elsewhere
in
this report, beginning at page F/S-1.
The
reviewed consolidated financial statements have been prepared in accordance
with
generally accepted accounting principles for the interim financial information
with the instructions to Form 10-QSB 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 nine-month period ended July 31, 2005
are
not necessarily indicative of the results that may be expected for the full
year
ending October 31, 2005.
For
further information refer to the financial statements and footnotes thereto
in
the Company's Annual Report on Form 10-KSB for the year ended October 31,
2004
incorporated by reference herein.
ITEM
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Statements
This
Quarterly Report on Form 10-QSB, including Management's Discussion and Analysis
of Financial Condition and Results of Operations, contains forward-looking
statements regarding future events and the Company's future results that
are
subject to the safe harbors created under the Securities Act of 1933 (the
"Securities Act") and the Securities Exchange Act of 1934 (the "Exchange
Act").
These statements are based on current expectations, estimates, forecasts,
and
projections about the industry in which the Company operates and the beliefs
and
assumptions of the Company's management. Words such as "expects," "anticipates,"
"targets," "goals," "projects," "intends," "plans," "believes," "seeks,"
"estimates," "continues," "may," variations of such words, and similar
expressions are intended to identify such forward-looking statements. In
addition, any statements that refer to projections of the Company's future
financial performance, the Company's anticipated growth and potentials in
its
business, and other characterizations of future events or circumstances are
forward-looking statements. Readers are cautioned that these forward-looking
statements are only predictions and are subject to risks, uncertainties,
and
assumptions that are difficult to predict, including those identified elsewhere
herein and in the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 2004 under "Risk Factors." Therefore, actual results may
differ materially and adversely from those expressed in any forward-looking
statements. The Company undertakes no obligation to revise or update any
forward-looking statements for any reason.
Overview
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
currently owns eight concessions located in the municipality of Sierra Mojada,
Coahuila, Mexico. The Company conducts its operations in Mexico through its
wholly owned Mexican subsidiary, Minera Metalin S.A. de C.V.
The
eight
concessions total 7,108 hectares (17,563 acres). The Company owns 100% of
the
eight concessions pursuant to purchase agreements with the previous owners.
A
number of prior established concessions that are not owned by the Company
are
located within the largest concession, the Sierra Mojada concession. The
Company
holds title to the concessions that it owns subject to its obligation to
maintain the concessions by conducting work on the concessions, recording
evidence of the work with the Mexican Ministry of Mines and paying a semi-annual
fee to the Mexican government.
Ownership
of a concession provides the owner with exclusive exploration and exploitation
rights of all minerals located on the concessions, but does not include the
surface rights to the real property. Therefore, the Company will need to
negotiate the necessary agreements, as needed, with the appropriate surface
landowners if the Company determines that a mining operation is feasible
for the
concessions. The Company currently anticipates that it will build mining
infrastructure needed on land owned by the local municipality. Initial
communications with the municipality officials indicate that they will be
willing to negotiate the necessary agreements.
The
concessions are located within a mining district known as the Sierra Mojada
District (the "District"). The District is located in the west central part
of
the state of Coahuila, Mexico, near the Coahuila-Chihuahua state border
approximately 200 kilometers south of the Big Bend of the Rio Grande River.
See
Exhibit 99.1 attached hereto and incorporated herein by reference for a map
showing the location of the mine. 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. The District has high voltage electric power
supplied by the national power company, Comision Federal de Electricidad,
C.F.E.
and is supplied water by the municipality of Sierra Mojada. The District
is
accessible from Torreon by vehicle via 250 kilometers of paved road. There
is a
well maintained, 1100 meter, gravel airstrip in the District as well as a
railroad connecting with the National Railway at Escalon and Monclova.
Over
45
mines have produced ore from underground workings throughout the approximately
five kilometer by two kilometer area that comprises the District. The Company
estimates that since its discovery in 1879, the District has produced about
10
million tons of high grade ore that was shipped directly to smelters. The
District has never had a mill to concentrate ore and all mining conducted
thus
far has been limited to selectively mined ore of sufficient grade to direct
ship
to smelters. The Company believes that mill grade mineralization that was
not
mined remains available for extraction. The Company anticipates exploring
and
potentially developing the mill grade mineralization and the unexplored portions
of the concessions.
The
concessions contain two distinct mineral systems separated by the Sierra
Mojada
fault which trends east-west along the base of the range. North of the fault
mineralization is composed of silver, copper, zinc, lead sulfide and oxide
minerals. South of the fault the mineralization is oxide zinc and oxide lead
minerals.
The
sediments in the District are predominantly limestone and dolomite with some
conglomerate, sandstone and shale and the bedding attitudes are near horizontal.
The mines are dry and the rocks are competent. The thickness and attitude
of the
mineralized material is amenable to high volume mechanized mining methods
and
low cost production.
Mining
operations are typically developed in phases. These phases include: 1) exploring
to identify available mineral deposits and define a resource; 2) conducting
a
feasibility study to determine whether deposits may be profitably extracted;
and
3) eventually developing mining operations. The Company has already conducted
extensive exploration and identification of the mineralization located on
the
concessions. The Company has also initiated a feasibility study. If the results
of the feasibility study are positive and the Company is able to secure
sufficient financing, then the Company would proceed to the development stage,
leading eventually to the operation of a mine on the concessions.
Thus
far,
the Company has spent a total of approximately $13 million during the
exploration phase and continues to maintain a sampling and drilling program
that
is budgeted at approximately $50,000 per month, not including analytical
costs
which can vary from $20,000 to $40,000 per month. The Company estimates that
completion of a feasibility study will cost approximately $5 million and
the
Company expects that it will take approximately 12 months to complete. Following
the completion of a successful feasibility study, the Company would then
proceed
to the construction phase, which would entail construction of a mine and
related
infrastructure pursuant to a mine plan developed specifically for the Company's
concessions, and construction of an extraction plant to extract metal from
the
ore that would be mined.
Much
of
the infrastructure required for a mine, including access to roads, electricity
and rail lines, is already in place due to the historical mining operations
conducted in the District. Results from mapping, sampling, drilling and
inspection of existing workings indicate that large mineralized resources
can be
developed within and adjacent to the existing workings and in unexplored
stratigraphic units outside of and below the existing mine workings. The
Company
anticipates that it would also build additional infrastructure, including
mine
access, a tailings pond and an extraction plant. The Company would also enter
into agreements with the landowners of the concessions' surface rights upon
completion of a feasibility study and finalization of a mine plan for the
Project. The Company estimates that construction of a mine and extraction
plant
would cost approximately $400 million and take approximately 2 to 3 years
to
complete.
A
description of work completed in the exploration phase and initiated in the
feasibility phase follows:
In
1997
the Company initiated exploration of the concessions by collecting and analyzing
historical data from previous mining operations, surveying the locations
of the
mines, geological mapping, and sampling of the surface and some of the existing
mines. Based on the information gained from this work, the Company has been
exploring the tabular, nearly horizontal bodies of mineralized material located
on the concessions that are known as mantos.
Exploration
from 1997 to 1999 concentrated on the polymetallic copper, silver, zinc,
lead
mineralization north of the Sierra Mojada Fault. The Veta Rica, Once, San
Jose
and other mines located in the western part of the district were mapped and
channel sampled. In the eastern part of the district in the Encantada and
Fronteriza mines, the copper, silver, zinc, lead mineralization, known as
the
Polymetallic Manto, has been mapped, channel sampled and drilled.
Work
on
the polymetallic mineralization was put on standby in 1999 when the Company
recognized the potential of the oxide zinc mineralization as a result of
a
positive feasibility study conducted on the Skorpion Mine located in Namibia,
Africa, that demonstrated that the use of the solvent extraction electrowinning
("SXEW") process could make it profitable to mine oxide zinc deposits that
would
otherwise be unfeasible. Now that the Company's work on the oxide zinc
mineralization is in the feasibility study stage, the Company anticipates
continued exploration of the polymetallic mineral system north of the Sierra
Mojada Fault. However, the Company has not yet allocated financial resources
nor
established a timeline for when it expects to initiate such additional
exploration.
The
Company initiated a diamond drill program in January 2004, and drilled over
30,000 meters in 2004 and 2005. In addition, over 9,000 meters of percussion
drill and over 12,000 meters of channel samples of the oxide zinc mineralization
in the San Salvador, Encantada and Fronteriza mines has been completed by
the
Company and its joint venture partners. This work has defined a body of oxide
zinc mineralization extending 1,500 meters in an east-west direction, 100
to 200
meters in a north-south direction, and 20 to 100 meters vertically. The Company
intends to continue the drill program to further define the extent of the
Iron
Oxide Manto and the Smithsonite Manto.
Prior
mining of oxide zinc mineralization has occurred intermittently over a distance
in excess of 5 kilometers from the Oriental Mine located in the east end
of the
District to the Vasquez Tres Mine located in the west end of the
District.
In
2004,
the Company retained Reserva International, LLC, an independent contractor
specializing in resource evaluation, to generate a block model evaluation
based
upon the data compiled from the Company's and its joint venture partner’s
accumulated database to determine the size and grade of the mineralization
of
the Iron Oxide Manto and the Smithsonite Manto. Based on the estimates generated
from the block model evaluation, the Company has determined that the estimated
mineralization justifies a feasibility study of the Iron Oxide Manto.
Although
the Company is of the opinion that mineralized material sufficient to justify
construction of a mine, extraction plant and refinery has been defined, the
Company still must complete a feasibility study to determine whether a mining
operation may be profitably conducted. This study will consist of a detailed
engineering and economic valuation of the Iron Oxide Manto mineralized material
to determine the viability and profitability of the potential operation.
The
Company initiated the feasibility study in 2004, retaining Green Team
Consultants International cc ("GTI"), of Johannesburg, South Africa. GTI
was
selected, in part, due to GTI's experience conducting the feasibility study
for
the Skorpion Mine in Namibia, Africa. GTI supervised the design, construction,
and training of the Skorpion Zinc personnel and operated the mine and extraction
plant through initial production and until the mine and plant were at 90%
of
capacity, at which point operation of the mine and plant was turned over
to
Skorpion Zinc, a subsidiary of Anglo American Corporation PLC.
The
Skorpion Mine is the first, and to date only, mine in the world using the
SXEW
process for extracting zinc from oxide zinc ore and produces a refined product,
Super High Grade (SHG) zinc which is 99.995% zinc. SXEW is a hydrometallurgical
process that has about a 30% lower cost for extracting zinc than the
pyrometallurgical process used at smelters by essentially all other mining
operations around the world. The Company anticipates that using the SXEW
process
will enable the Company to extract zinc more efficiently and economically
than
its competitors.
GTI,
as
general contractor for the feasibility study, has retained TWP Consulting
(pty)
Ltd. ("TWP") to prepare the mine plan as part of the feasibility study for
the
Project. TWP is a large South African mining consulting company that has
worked
on large mining projects in South Africa and internationally, including the
mine
plan at the Skorpion Mine.
GTI
has
also retained Min-Tek, a South African consulting company specializing in
mineral and metallurgical research and development, to complete the
metallurgical work. Min-Tek performed the metallurgical work for the Skorpion
feasibility studies. Metallurgical test work results have been reported in
Metalline’s press release dated July 12, 2005.
GTI
has
also retained SRK Consulting ("SRK") as the auditing engineering firm for
the
feasibility study. SRK is a world-wide engineering consulting company that
was
the auditing engineering firm for the feasibility study of the Skorpion Mine.
Principals
of GTI, TWP and SRK have completed a tour and examination of Sierra Mojada,
reviewed the project data, conducted underground examination of the Iron
Oxide,
Smithsonite and Polymetallic Mantos, and selected surface locations for the
mine
and extraction plant facilities.
The
Company has had a mining operation in the Smithsonite Manto that has been
shipping zinc carbonate ore to Cameron Chemical Company, for use as a
micronutrient for the fertilizer industry. During the period ended July 31,
2005, the Company realized other income from the sale of zinc carbonate ore.
The
Company has ceased mining zinc carbonate ore, but anticipates continued sales
from the existing inventory of mined ore until the inventory is
depleted.
The
Company's facilities in Mexico include offices, residences, shops, warehouse
buildings and mining equipment located at Calle Maria #1, La Esmeralda,
Coahuila, Mexico. Electric power has been upgraded to 13,200 volts and lines
run
to the compound, the shops and the San Salvador and Encantada mines. The
San
Salvador and the Encantada mines have been electrified and the main levels
are
wired. San Salvador and Encantada head frames and hoists have been rebuilt
and
upgraded. In management's opinion, the Company's plant and equipment are
in good
condition and well maintained.
Cautionary
Note to Investors
The
Company is an exploration stage company and does not currently have any known
reserves and cannot be expected to have reserves unless and until a feasibility
study is completed for the Sierra Mojada concessions that shows proven and
probable reserves. There can be no assurance that the Company's concessions
contain proven and probable reserves and investors may lose their entire
investment in the Company.
Results
of Operations for the Period Ended July 31, 2005.
Nine
months ended July 31, 2005 compared to the nine months ended July 31,
2004:
During
the nine months ended July 31, 2005, the Company realized other income of
$235,021 from the sale of zinc carbonate ore from the Company's San Salvadore
mine, in accordance with a contract with Cameron Chemicals Inc., Norfolk,
Virginia. Costs associated with the sale of the ore totaled $247,372 for
the
nine-month period ended July 31, 2005. There were ore sales of $297,936 in
the
nine-month period ended July 31, 2004. General and administrative expenses
decreased to $2,742,570 for the nine-month period ended July 31, 2005 as
compared to $2,882,519 for the six-month period ended July 31, 2004. The
decrease is primarily due to a decrease in exploration expenditures of $878,718,
partially offset by an increase in consulting and professional services of
$520,868, and an increase of $220,691 in payroll and related expenses. For
the
nine months ended July 31, 2005, the Company experienced a loss of $2,715,834,
or $0.14 per share, compared to a loss of $2,723,947, or $0.16 per share,
during
the comparable period in the previous year.
Nine
months ended July 31, 2004 compared to the nine months ended July 31,
2003:
During
the nine months ended July 31, 2004, the Company realized other income of
$297,936 from the sale of zinc carbonate ore from the Company's San Salvadore
mine, in accordance with a contract with Cameron Chemicals Inc., Norfolk,
Virginia. Costs associated with the sale of the ore totaled $170,048 for
the
nine-month period ended July 31, 2004. There were ore sales of $287,846 in
the
nine-month period ended July 31, 2003. General and administrative expenses
increased to $2,882,519 for the nine-month period ended July 31, 2004 as
compared to $849,472 for the nine-month period ended July 31, 2003. The increase
is primarily due to an increase in office and administrative expenses of
$128,518 and a $1,696,391 increase in exploration expenditures. For the nine
months ended July 31, 2004, the Company experienced a loss of $2,723,947,
or
$0.16 per share, compared to a loss of $770,335, or $0.07 per share, during
the
comparable period in the previous year.
Liquidity
and Capital Resources.
The
Company financed its obligations during the fiscal year ended October 31,
2004
by selling 7,580,150 shares of its common stock at an average price of $1.00
per
share, less issuance costs of $698,863. During the nine months ended July
31,
2005 the Company sold 263,404 shares in private placement transactions at
a
price of $1.125 per share. Due to the Company's substantial losses and mineral
revenues, the Company's independent certified public accountants included
a
paragraph in the Company's 2004 financial statements relative to a going
concerning uncertainty.
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.
Cash
flows for the nine months ended July 31, 2005 were as follows:
During
the nine-month period ended July 31, 2005, the Company's cash position decreased
by $943,190 primarily due to expenditures related to the drilling program
conducted by the Company on the Company's concessions. During the nine-month
period, $600,000 in marketable securities were reclassified as cash and cash
equivalents. Also during this period, the Company used $1,228,764 in operating
activities, principally in connection with the drilling program. In addition,
the Company realized $296,329 from the sale of 263,404 shares of the Company’s
common stock, and expended $7,598 for additional mining equipment.
Effect
of Recently Issued Accounting Pronouncements.
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 153 (hereinafter "SFAS No. 153"). This
statement addresses the measurement of exchanges of nonmonetary assets. The
guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions,"
is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that opinion,
however, included certain exceptions to that principle. SFAS No. 153 amends
APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of
nonmonetary assets that do not have commercial substance. A nonmonetary
exchange
has commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. This statement is effective
for financial statements for fiscal years beginning after June 15, 2005.
Earlier
application is permitted for nonmonetary asset exchanges incurred during
fiscal
years beginning after the date of this statement is issued. Management believes
the adoption of this statement will not impact the financial statements of
the
Company.
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 152, which amends SFAS Statement No. 66,
"Accounting for Sales of Real Estate," to reference the financial accounting
and
reporting guidance for real estate time-sharing transactions that is provided
in
AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing
Transactions." This statement also amends SFAS No. 67, "Accounting for Costs
and
Initial Rental Operations of Real Estate Projects," to state that the guidance
for (a) incidental operations and (b) costs incurred to sell real estate
projects, does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. Management believes the adoption of this
statement will not impact the financial statements of the Company.
In
November 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 151, "Inventory Costs— an amendment of ARB
No. 43, Chapter 4" (hereinafter "SFAS No. 151"). This statement
amends
the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Under some circumstances, SFAS No.
151
mandates that items such as idle facility expense, excessive spoilage, double
freight, and re-handling costs be recognized as current-period charges. In
addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management believes the
adoption of this statement will not impact the financial statements of the
Company.
ITEM
3. Controls
and Procedures.
Disclosure
Controls and Procedures.
The
Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based on such
evaluation, the Company's principal executive officer and principal financial
officer have concluded that, as of the end of such period, the Company's
disclosure control and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.
Changes
in Internal Control Over Financial Reporting.
There
was
no change in the Company's internal control over financial reporting that
occurred during the fiscal quarter to which this report relates that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
The
Company is not currently a party to any legal proceedings.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the nine months ended July 31, 2005, the Company issued 176,772 shares to
officers and directors as compensation for services, and sold 263,404 shares
of
the Company's common stock at a price of $1.125 per share. These shares were
issued in private placement transactions without registration under the
Securities Act in reliance upon the exemptions from the registration
requirements provided by Section 4(2) of the Securities Act, and Rule 506
of
Regulation D promulgated under the Securities Act.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
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(a) |
Documents
which are filed as a part of this report:
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1. |
Financial
Statements:
The required financial statements are contained in pages F/S-1
through F/S-11 of this Form 10-QSB.
|
|
2. |
Financial Statement Schedules:
Financial statement schedules have been omitted as they are not
applicable
or the information is included in the Consolidated Financial Statements.
|
|
3. |
Exhibits:
The exhibits filed as part of this report and the exhibits incorporated
herein by reference are listed in the Exhibit Index at page
E-1. |
|
(b)
|
See
(a)(3) above for all exhibits filed
herewith.
|
|
(c)
|
All
schedules are omitted as the required information is not applicable
or the
information is presented in the Consolidated Financial Statements
or
related notes.
|
METALLINE
MINING COMPANY
An
Exploration Stage Company
July
31, 2005
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.
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METALLINE MINING COMPANY |
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September
15, 2005
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By: |
/s/
Merlin D. Bingham |
Date
|
Merlin
D. Bingham, its President |
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September
15, 2005
|
By: |
/s/
Wayne L. Schoonmaker |
Date
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Wayne
L. Schoonmaker, its |
|
Principal
Financial Officer
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METALLINE
MINING COMPANY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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PAGE
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Consolidated
Financial Statements:
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Consolidated
Balance Sheets as of July 31, 2005
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and
October 31, 2004
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F/S-2
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Consolidated
Statements of Operations for the three
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and
nine-month periods ended July 31, 2005 and
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July
31, 2004 and for the period from inception
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(November
8, 1993) to July 31, 2005
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F/S-3
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Consolidated
Statements of Cash Flow for the nine-month
|
|
periods
ended July 31, 2005 and July 31, 2004, and
|
|
for
the period from inception (November 8, 1993)
|
|
to
July 31, 2005
|
F/S-4
|
|
|
Condensed
Notes to Consolidated Financial Statements
|
F/S-5
|
[The
balance of this page has been intentionally left blank.]
METALLINE
MINING COMPANY
|
(AN
EXPLORATION STAGE COMPANY)
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
July
31
|
|
October
31,
|
|
|
|
2005
|
|
2004
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
440,840
|
|
$
|
1,384,030
|
|
Marketable
securities
|
|
|
-
|
|
|
1,250,000
|
|
Accounts
receivable
|
|
|
13,674
|
|
|
88,164
|
|
Prepaid
expenses
|
|
|
32,945
|
|
|
2,052
|
|
Employee
advances
|
|
|
9,560
|
|
|
34,022
|
|
Total
Current Assets
|
|
|
497,019
|
|
|
2,758,268
|
|
|
|
|
|
|
|
|
|
PROPERTIES,
SIERRA MOJADA CONCESSIONS
|
|
|
|
|
|
|
|
Sierra
Mojada, Mojada 3
|
|
|
15,875
|
|
|
15,875
|
|
Fortuna
|
|
|
76,725
|
|
|
76,725
|
|
Esmeralda
|
|
|
255,647
|
|
|
255,647
|
|
Esmeralda
I
|
|
|
180,988
|
|
|
180,988
|
|
U.M.
Nortenos, Vulcano
|
|
|
3,682,772
|
|
|
3,682,772
|
|
La
Blanca
|
|
|
122,760
|
|
|
122,760
|
|
Total
Property Concessions
|
|
|
4,334,767
|
|
|
4,334,767
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
Office
and mining equipment, net of accumulated depreciation
|
|
|
511,514
|
|
|
566,843
|
|
Total
Property and Equipment
|
|
|
511,514
|
|
|
566,843
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
5,343,300
|
|
$
|
7,659,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
5,439
|
|
$
|
57,231
|
|
Accrued
liabilities and expenses
|
|
|
114,527
|
|
|
145,445
|
|
Other
liabilities
|
|
|
12,022
|
|
|
-
|
|
Note
payable, current portion
|
|
|
4,209
|
|
|
4,209
|
|
Total
Current Liabilities
|
|
|
136,197
|
|
|
206,885
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
Note
payable, net of current portion
|
|
|
8,417
|
|
|
11,574
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 1,000,000 shares authorized,
|
|
|
|
|
|
|
|
no
shares outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.01 par value; 50,000,000 shares authorized,
|
|
|
|
|
|
|
|
20,191,585
and 19,751,409 shares issued and outstanding,
respectively
|
|
|
201,916
|
|
|
197,515
|
|
Additional
paid-in capital
|
|
|
19,425,319
|
|
|
19,064,992
|
|
Stock
options and warrants
|
|
|
1,606,923
|
|
|
1,498,550
|
|
Deficit
accumulated during exploration stage
|
|
|
(16,035,472
|
)
|
|
(13,319,638
|
)
|
Total
Stockholders' Equity
|
|
|
5,198,686
|
|
|
7,441,419
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
5,343,300
|
|
$
|
7,659,878
|
|
The
accompanying condensed notes are an integral part of these consolidated
financial statements.
METALLINE
MINING COMPANY
|
(AN
EXPLORATION STAGE COMPANY)
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
November
8,
|
|
|
|
|
|
|
|
|
|
|
|
1993
|
|
|
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
to
|
|
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and payroll expenses
|
|
|
109,929
|
|
|
149,656
|
|
|
682,925
|
|
|
462,234
|
|
|
3,123,437
|
|
Office
and administrative expenses
|
|
|
70,985
|
|
|
71,611
|
|
|
247,568
|
|
|
196,572
|
|
|
927,031
|
|
Taxes
and fees
|
|
|
969
|
|
|
33,838
|
|
|
47,996
|
|
|
90,607
|
|
|
442,084
|
|
Professional
services
|
|
|
141,585
|
|
|
147,165
|
|
|
765,724
|
|
|
244,856
|
|
|
4,804,381
|
|
Property
expenses
|
|
|
44,281
|
|
|
131,517
|
|
|
115,816
|
|
|
146,135
|
|
|
1,873,862
|
|
Depreciation
|
|
|
20,630
|
|
|
18,658
|
|
|
62,927
|
|
|
43,783
|
|
|
321,320
|
|
Exploration
and research
|
|
|
83,093
|
|
|
1,138,703
|
|
|
819,614
|
|
|
1,698,332
|
|
|
4,486,816
|
|
TOTAL
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
471,472
|
|
|
1,691,148
|
|
|
2,742,570
|
|
|
2,882,519
|
|
|
15,978,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(471,472
|
)
|
|
(1,691,148
|
)
|
|
(2,742,570
|
)
|
|
(2,882,519
|
)
|
|
(15,978,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
ore sales, net of expenses
|
|
|
(13,710
|
)
|
|
21,254
|
|
|
(12,351
|
)
|
|
155,856
|
|
|
144,823
|
|
Gain
on sale of equipment
|
|
|
10,000
|
|
|
-
|
|
|
10,000
|
|
|
-
|
|
|
10,000
|
|
Interest
and investment income
|
|
|
3,249
|
|
|
2,798
|
|
|
29,542
|
|
|
3,171
|
|
|
75,257
|
|
Interest
and financing expense
|
|
|
(152
|
)
|
|
(152
|
)
|
|
(455
|
)
|
|
(455
|
)
|
|
(286,621
|
)
|
TOTAL
OTHER INCOME
|
|
|
(613
|
)
|
|
23,900
|
|
|
26,736
|
|
|
158,572
|
|
|
(56,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(472,085
|
)
|
|
(1,667,248
|
)
|
|
(2,715,834
|
)
|
|
(2,723,947
|
)
|
|
(16,035,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(472,085
|
)
|
$
|
(1,667,248
|
)
|
$
|
(2,715,834
|
)
|
$
|
(2,723,947
|
)
|
$
|
(16,035,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARE
|
|
$
|
(0.02
|
)
|
$
|
(0.09
|
)
|
$
|
(0.14
|
)
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF
COMMON SHARES OUTSTANDING
|
|
|
20,045,873
|
|
|
19,542,160
|
|
|
19,934,446
|
|
|
16,720,771
|
|
|
|
|
See
condensed notes to the consolidated financial statements.
METALLINE
MINING COMPANY
|
(AN
EXPLORATION STAGE COMPANY)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
November
8, 1993
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
Nine
Months Ended
|
|
to
|
|
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,715,834
|
)
|
$
|
(2,723,947
|
)
|
$
|
(16,035,472
|
)
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
62,927
|
|
|
43,783
|
|
|
321,290
|
|
Noncash
expenses
|
|
|
-
|
|
|
-
|
|
|
126,864
|
|
Payment
of services from issuance of stock
|
|
|
-
|
|
|
272,922
|
|
|
966,538
|
|
Issuance
of stock for compensation
|
|
|
176,772
|
|
|
-
|
|
|
820,231
|
|
Payment
of services from issuance of options
|
|
|
-
|
|
|
-
|
|
|
801,892
|
|
Payment
of financing fees from the
|
|
|
|
|
|
|
|
|
|
|
issuance
of stock options
|
|
|
-
|
|
|
-
|
|
|
276,000
|
|
Payment
of expenses from issuance of stock
|
|
|
-
|
|
|
-
|
|
|
326,527
|
|
Warrants
issued for services
|
|
|
-
|
|
|
-
|
|
|
688,771
|
|
Gain
on sale of fixed assets
|
|
|
(10,000
|
)
|
|
-
|
|
|
(10,000
|
)
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
Foreign
property tax refund receivable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Marketable
securities
|
|
|
650,000
|
|
|
-
|
|
|
(600,000
|
)
|
Reclassification
of marketable securities
|
|
|
|
|
|
|
|
|
|
|
to
cash and cash equivalents
|
|
|
600,000
|
|
|
-
|
|
|
600,000
|
|
Accounts
receivable
|
|
|
74,490
|
|
|
(57,348
|
)
|
|
(13,674
|
)
|
Prepaid
expenses
|
|
|
(30,893
|
)
|
|
(20
|
)
|
|
(32,945
|
)
|
Employee
advances
|
|
|
24,462
|
|
|
(13,897
|
)
|
|
(9,560
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(51,792
|
)
|
|
(60,574
|
)
|
|
5,439
|
|
Accrued
liabilities and expenses
|
|
|
(30,918
|
)
|
|
101,302
|
|
|
130,309
|
|
Other
liabilities
|
|
|
12,022
|
|
|
-
|
|
|
16,231
|
|
Net
cash used by operating activities
|
|
|
(1,238,764
|
)
|
|
(2,437,779
|
)
|
|
(11,621,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of investments
|
|
|
-
|
|
|
-
|
|
|
(484,447
|
)
|
Proceeds
from investments
|
|
|
-
|
|
|
-
|
|
|
484,447
|
|
Proceeds
from sale of fixed assets
|
|
|
10,000
|
|
|
-
|
|
|
10,000
|
|
Equipment
purchases
|
|
|
(7,598
|
)
|
|
(296,997
|
)
|
|
(792,781
|
)
|
Mining
property acquisitions
|
|
|
-
|
|
|
-
|
|
|
(4,452,631
|
)
|
Net
cash used by investing activities
|
|
|
2,402
|
|
|
(296,997
|
)
|
|
(5,235,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of common stock
|
|
|
296,329
|
|
|
6,917,850
|
|
|
16,325,287
|
|
Proceeds
from sales of options and warrants
|
|
|
-
|
|
|
-
|
|
|
949,890
|
|
Proceeds
from shareholder loans
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
Payment
of note payable
|
|
|
(3,157
|
)
|
|
-
|
|
|
(7,366
|
)
|
Net
cash provided (used) by financing activities:
|
|
|
293,172
|
|
|
6,917,850
|
|
|
17,297,811
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(943,190
|
)
|
|
4,183,074
|
|
|
440,840
|
|
Cash
and cash equivalents beginning of period
|
|
|
1,384,030
|
|
|
733,369
|
|
|
-
|
|
Cash
and cash equivalents end of period
|
|
$
|
440,840
|
|
$
|
4,916,443
|
|
$
|
440,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Interest
paid
|
|
$
|
455
|
|
$
|
455
|
|
$
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
$
|
-
|
|
$
|
272,922
|
|
$
|
966,538
|
|
Common
stock issued for compensation
|
|
$
|
176,772
|
|
$
|
-
|
|
$
|
820,231
|
|
Common
stock issued for payment of expenses
|
|
$
|
-
|
|
$
|
-
|
|
$
|
326,527
|
|
Common
stock issued for equipment
|
|
$
|
-
|
|
$
|
-
|
|
$
|
40,000
|
|
Common
stock options issued for financing fees
|
|
$
|
-
|
|
$
|
-
|
|
$
|
276,000
|
|
Options
issued for services
|
|
$
|
-
|
|
$
|
-
|
|
$
|
801,892
|
|
Warrants
issued for services
|
|
$
|
-
|
|
$
|
-
|
|
$
|
688,771
|
|
Noncash
expenses
|
|
$
|
-
|
|
$
|
-
|
|
$
|
126,864
|
|
The
accompanying condensed notes are an integral part of these consolidated
financial statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
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 concessions. The Cadgie Company was a spin-off from its
predecessor, Precious Metal Mines, Inc. 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 expects to engage in the business of mining. The Company currently
owns
concessions located in a mining region known as the Sierra Mojada District
that
is located in the municipality of Sierra Mojada, Coahuila, Mexico. The Company
conducts its operations in Mexico through its wholly owned subsidiary
corporation, Minera Metalin S.A. de C.V. (“Minera Metalin”).
NOTE
2 - BASIS OF PRESENTATION
The
foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B as
promulgated by the Securities and Exchange Commission (“SEC”). Accordingly,
these financial statements do not include all of the disclosures required by
generally accepted accounting principles in the United States of America for
complete financial statements. These unaudited interim financial statements
should be read in conjunction with the audited financial statements for the
year
ended October 31, 2004. In the opinion of management, the unaudited interim
financial statements furnished herein include all adjustments, all of which
are
of a normal recurring nature, necessary for a fair statement of the results
for
the interim period presented.
The
preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities known to exist
as
of the date the financial statements are published, and the reported amounts
of
revenues and expenses during the reporting period. Uncertainties with respect
to
such estimates and assumptions are inherent in the preparation of the Company’s
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions and could have a material effect
on
the reported amounts of the Company’s financial position and results of
operations.
Operating
results for the nine month period ended July 31, 2005 are not necessarily
indicative of the results that may be expected for the year ending October
31,
2005.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
Going
Concern
As
shown
in the accompanying financial statements, the Company has no revenues, has
incurred a net loss of $2,715,834 for the nine months ended July 31, 2005 and
has an accumulated deficit of $16,035,472. 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.
The
Company’s management believes that 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.
NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153 (hereinafter “SFAS No. 153”). This
statement addresses the measurement of exchanges of nonmonetary assets. The
guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that opinion,
however, included certain exceptions to that principle. SFAS No. 153 amends
APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary
exchange
has commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. This statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges incurred during fiscal
years beginning after the date of this statement is issued. Management believes
the adoption of this statement will not impact the financial statements of
the
Company.
In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, which amends SFAS Statement No. 66,
“Accounting for Sales of Real Estate,” to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided
in
AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing
Transactions.” This statement also amends SFAS No. 67, “Accounting for Costs and
Initial Rental Operations of Real Estate Projects,” to state that the guidance
for (a) incidental operations and (b) costs incurred to sell real estate
projects, does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. Management believes the adoption of this
statement will not impact the financial statements of the Company.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
In
November 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 151, “Inventory Costs— an amendment of ARB
No. 43, Chapter 4” (hereinafter “SFAS No. 151”). This statement amends
the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Under some circumstances, SFAS No. 151
mandates that items such as idle facility expense, excessive spoilage, double
freight, and re-handling costs be recognized as current-period charges. In
addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management believes the
adoption of this statement will not impact the financial statements of the
Company.
NOTE
4 - MARKETABLE SECURITIES
Pursuant
to Statement of Financial Accounting Standards No. 115, the Company classifies
marketable securities as trading, available-for-sale, or held-to-maturity.
During the year ended October 31, 2004, the Company purchased $1,250,000 in
various preferred equity securities and classified them as available-for-sale.
The Company’s marketable securities consisted of preferred stock held by UBS
securities for the Company’s account. These investments were subsequently
disposed of and the Company currently holds no marketable
securities.
NOTE
5 - CONCESSIONS IN THE SIERRA MOJADA DISTRICT
Sierra
Mojada Mining Concessions
During
the period of August 23, 1996 to July 18, 2000, the Company executed six
separate agreements for the acquisition of eight concessions in the mining
region known as the Sierra Mojada District located in Sierra Mojada, Coahuila,
Mexico. Each agreement enabled the Company to explore the underlying concession
in consideration for the payment of stipulated annual payments. Each of the
concession agreements included an option to purchase the concession and the
annual payments, which were applied in full toward the contracted purchase
price
of the related concession.
The
Company subsequently completed the purchase of the eight concessions, as
follows: Esmeralda, consisting of approximately 118 hectares, on March 20,
1997;
Fortuna, consisting of approximately 14 hectares, on December 8, 1999; Sierra
Mojada and Mojada 3, consisting of approximately 4,767 and 1,689 hectares,
respectively, on May 30, 2000; Unificacion Mineros Nortenos and Vulcano,
consisting of approximately 337 and 4 hectares, respectively, on August 30,
2000; Esmeralda I, consisting of approximately 98 hectares, on August 20, 2001;
and La Blanca, consisting of approximately 34 hectares, on August 20, 2001.
The
Company has recorded the concessions at acquisition cost.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
All
of
the concessions were acquired by purchase agreements with Mexican entities
and/or Mexican individuals and all of the concessions were paid for in cash.
In
the acquisition of Sierra Mojada and Mojada 3 there was one purchase agreement
for both concessions. Also, in the acquisition of Unificacion Mineros Nortenos
and Vulcano, there was one purchase agreement for both concessions.
Because
all eight concessions are located in the Sierra Mojada Mining District and
in
close proximity to one another, the concessions are routinely treated as one
major prospect area and are collectively referred to as the Sierra Mojada
Project. The primary work performed on the Company’s concessions has consisted
of geologic mapping, sampling, and drilling. This work has resulted in
establishing the presence of mineralized material (zinc) of sufficient quantity
and grade to justify in the Company’s opinion a feasibility study (which
commenced in 2005, subsequent to the Company's October 31, 2004 fiscal year
end).
NOTE
6 - PROPERTY AND EQUIPMENT
The
following is a summary of the Company’s property and equipment at July 31, 2005
and October 31, 2004, respectively:
|
|
July
31,
|
|
October
31,
|
|
|
|
2005
|
|
2004
|
|
Mining
equipment
|
|
$
|
514,855
|
|
$
|
507,257
|
|
Buildings
and structures
|
|
|
141,061
|
|
|
141,061
|
|
Land
- non mineral
|
|
|
15,839
|
|
|
15,839
|
|
Vehicles
|
|
|
42,068
|
|
|
42,068
|
|
Computer
equipment
|
|
|
88,787
|
|
|
88,787
|
|
Office
equipment
|
|
|
4,183
|
|
|
4,183
|
|
Furniture
and fixtures
|
|
|
8,185
|
|
|
8,185
|
|
|
|
|
814,978
|
|
|
807,380
|
|
Less:
Accumulated depreciation
|
|
|
(303,464
|
)
|
|
(240,537
|
)
|
|
|
$
|
511,514
|
|
$
|
566,843
|
|
NOTE
7 - CAPITAL STOCK
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 1,000,000
shares of $0.01 par value preferred stock. The specific features of the
preferred stock are to be determined by the Company’s board of directors. At
July 31, 2005, there were no shares of preferred stock issued or
outstanding.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
Common
Stock
During
the nine months ended July 31, 2005 the Company issued 176,772 shares to
officers and directors as compensation for services at a price of $1.00 per
share.
During
the nine months ended July 31, 2005 the Company issued 263,404 shares to private
placement participants for total cash proceeds of $296,329.
Stock
Options
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. As of July 31, 2005, there were
720,000 options outstanding and exercisable. Of this amount, 250,000 were
granted to officers and directors of the Company.
Summarized
information regarding stock options outstanding and exercisable at July 31,
2005
is as follows:
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
$
|
1.25
|
|
|
100,000
|
|
|
4.02
|
|
$
|
1.25
|
|
|
100,000
|
|
$
|
1.25
|
|
|
1.32
|
|
|
320,000
|
|
|
1.18
|
|
|
1.32
|
|
|
320,000
|
|
|
1.32
|
|
|
1.75
|
|
|
100,000
|
|
|
2.61
|
|
|
1.75
|
|
|
100,000
|
|
|
1.75
|
|
|
2.15
|
|
|
200,000
|
|
|
4.59
|
|
|
2.15
|
|
|
200,000
|
|
|
2.15
|
|
$
|
1.25-2.15
|
|
|
720,000
|
|
|
2.72
|
|
$
|
1.60
|
|
|
720,000
|
|
$
|
1.60
|
|
Warrants
During
the nine months ended July 31, 2005, the Company issued warrants to purchase
an
aggregate of 263,404 shares of Company common stock, exercisable at $2.00 per
share. The value allocated to these warrants was $108,373.
NOTE
8 - FINANCIAL STATEMENT RECLASSIFICATION
For
the
period ended April 30, 2005, the Company reclassified various balance sheet
and
cash flow statement balances. These reclassifications did not effect the
statement of operations for the periods presented.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2005
NOTE
9 - INCOME TAXES
At
July
31, 2005, the Company had net deferred tax assets calculated at an expected
rate
of 34% of approximately $4,478,000, principally arising from net operating
loss
carryforwards 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, there is a valuation allowance equal
to
the net deferred tax asset.
The
significant components of the deferred tax assets at July 31, 2005 and October
31, 2004 are as follows:
|
|
July
31,
|
|
October
31,
|
|
|
|
2005
|
|
2004
|
|
Net
operating loss carryforward
|
|
$
|
13,171,000
|
|
$
|
10,456,000
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset
|
|
$
|
4,478,000
|
|
$
|
3,555,000
|
|
Deferred
tax asset valuation allowance
|
|
$
|
(4,478,000
|
)
|
$
|
(3,555,000
|
)
|
At
July
31, 2005, the Company had net operating loss carryforwards of approximately
$13,171,000, which expire in the years 2008 through 2025. The Company has
recognized approximately $1,483,000 of losses from the issuance of stock options
and warrants for services through fiscal 2004, which were not deductible for
tax
purposes. The change in the allowance account from October 31, 2004 to July
31,
2005 was $923,000. The Company has immaterial temporary differences resulting
from differences in tax depreciation of equipment.
EXHIBIT
INDEX
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 current report
on
Form 8-K on September 14, 2005 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 |
Reference
is made to Exhibits 3.1, 3.2 and
3.3.
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) of the
Exchange
Act. Filed herewith.
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) of the
Exchange
Act. Filed herewith.
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
Furnished herewith.
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
Furnished herewith.
|
99.1
|
Sierra
Mojada location map. Filed
herewith.
|