U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
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x
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ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED October
31, 2006.
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD OF _________ TO
_________.
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Commission
File Number: 0-27659
METALLINE
MINING COMPANY
(Name
of small business issuer in its charter)
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Nevada
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91-1766677
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State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization
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Identification
No.)
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1330
E. Margaret Ave., Coeur d’Alene, ID 83815
(Address
of principal executive offices, including zip code)
Issuer's
telephone number: (208)
665-2002
Securities
registered under Section 12(b) of the Act:
Common
Stock, $0.01 Par Value
(Title
of
Class)
Securities
registered under Section 12(g) of the Act: None
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
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 preceding 12 months
(or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes
x No
o
Check
here if there is no disclosure of delinquent filers in response to Item 405
of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes
o No
x
Issuer's
revenues for its most recent fiscal year: None.
As
of
January 19, 2007, there were 34,207,912 shares of the Registrant's $.01 par
value Common Stock ("Common Stock"), Registrant's only outstanding class of
voting securities, outstanding. The aggregate market value of Common Stock
held
by non-affiliates of the Registrant, computed by reference to the closing bid
price on January 19, 2007, is $100,160,035.
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
Transitional
Small Business Disclosure Format (check one): Yes
o No
x
PART
I
When
we
use the terms "Metalline Mining Company," the "Company," "we," "us," "our,"
or
"Metalline," we are referring to Metalline Mining Company and its subsidiaries,
unless the context otherwise requires. We have included technical terms
important to an understanding of our business under "Glossary of Common Terms"
at the end of this section. Throughout this document we make statements that
are
classified as "forward-looking." Please refer to the "Cautionary Statement
about
Forward-Looking Statements" section of this document for an explanation of
these
types of assertions.
Item
1. DESCRIPTION
OF BUSINESS
Background
and Corporate Structure
Metalline
Mining Company (the "Company") is an exploration stage company, formed under
the
laws of the state of Nevada on August 20, 1993, to engage in the business of
mining. The Company currently owns twelve concessions, which are located in
the
municipality of Sierra Mojada, Coahuila, Mexico (the “Property”). The Company's
objective is to define sufficient mineral reserves on the Property to justify
the development of a mechanized mining operation (the "Project"). The Company
conducts its operations in Mexico through its wholly owned Mexican subsidiaries,
Minera Metalin S.A. de C.V. (“Minera”) and Contratistas de Sierra Mojada S.A. de
C.V.
General
Development of the Business
Mining
operations are typically developed in phases. These phases include:
1)
Exploration - exploring to identify available mineral deposits, securing
a legal
right to exploit a deposit and define a resource;
2)
Preliminary development - conducting a feasibility study to engineering
factors,
construction plans, and expected operating costs so as to determine whether
deposits may be profitably extracted; and
3)
Development - consisting of constructing mine working and processing
plant and
procuring and installing related equipment so that mining operations
may be
started.
The
Company has completed the first phase, by exploring the Sierra Mojada
concessions to identify available mineral deposits, securing a legal right
to
exploit the deposit and defining a resource. From 1999 through early 2005 an
oxide zinc mineralization has been defined that management has determined
contains sufficient estimated zinc metal to justify a feasibility study of
the
mineralized material.
The
Company is now in the midst of performing second phase activities. A feasibility
study has been initiated for the Company by Green Team International of
Johannesburg, South Africa as the prime contractor. The Company’s plan of
operation for the next 12 months is to continue work on the feasibility study
to
determine whether a mining operation may be profitably conducted on the
Company's concessions. The study is a detailed engineering and economic
valuation of the iron oxide manto mineralized material. The study consists
of
six major elements: Resource Model, Metallurgy, Mine Plan, Extraction, Reduction
and Water Development. The Metallurgy studies have been completed, results
of
which have been announced in a news release dated July 12, 2005. The resource
model, a tedious process dependent upon other engineering results, continues
in
progress. The Mine Plan studies contract has been awarded to the firm of
Pincock, Allen and Holt. The mine plan studies involve three stages of
progressively more definitive work. These are a scoping stage, a preliminary
design phase, and a detailed design phase. The scoping stage of Mine Plan
studies will evaluate methods to mine the deposit, determine the optimum method
to mine the deposit, the associated capital and mining costs and determine
feasible production rates. The production rate for the project is determined
through an economic evaluation that seeks to optimize the expected return on
investment based on consideration of the resource model and interactions with
the mining method, the extraction and reduction plants in the context of the
expected capital and operating costs of the entire system. A baseline design
case using concentration of oxide zinc minerals and refining the concentrate
using solvent extraction and electrowinning (SXEW) is used to compare the
economic efficiency of various engineering alternatives. After the optimum
approach is determined, the engineering design is developed in stages of
increasing complexity and detail. Throughout this process, standard engineering
practices are employed to progressively reduce the engineering and economic
uncertainties.
Water
Development is in progress and consists of drilling for a groundwater supply
capable of producing water for the mine and plant in volumes adequate to meet
water supply requirements estimated by the engineering groups performing the
feasibility study. The water exploration program has been conducted by Metalline
staff working with our consulting hydrologist, the Barranca Group. During 2006,
the Company drilled 22 holes to provide information about water. Eight of these
yielded air lift tests in excess of 50 gallons per minute from depths of 200
meters or less. One hole, which was completed using an open hole completion
technique, tested at a rate of 152 gallons per minute during a 24 hour pump
test. The water produced from the well is brackish with a temperature of 30
C,
as is water from many nearby exploration holes. Our consulting engineers state
that the water quality is adequate for process use, but the quality is too
low
to meet standards for human drinking water. These results suggest that a
suitable water supply can be identified.
The
Company estimates that completion of a feasibility study will cost an additional
$3.3 million and the Company expects that it will take an additional 12 to
18
months to complete. Following the completion of a successful feasibility study,
the Company would then proceed to secure financing for the construction of
a
mine and related infrastructure pursuant to a Mine Plan developed specifically
for the Company's concessions and for Concentration and Reduction plants to
extract metal from the ore that would be mined. The Company estimates that
construction of a mine and extraction and reduction plant would cost
approximately $400 million and take approximately two to three years to complete
after completion of the feasibility study, assuming sufficient funding is
available. The Company intends to finance construction costs by seeking a
combination of equity and debt. In addition the Company may seek joint venture
partners or other alternative financing sources as necessary to complete
development of the project.
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, copper, silver, zinc, lead mineralization has been mapped,
channel sampled and drilled and is known as the Polymetallic Manto. 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.
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 into the Esmeralda mine, the next mine
to
the west of the San Salvador, 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.
Holes
drilled 2,000 meters west of the San Salvador Mine intersected oxide zinc
mineralization that is up to 140 meters (460 feet) thick and 10 meters (33
feet)
below the surface. Drilling has also intersected oxide zinc mineralization
intermittently over the 2,000 meters between the Fronteriza mine and the
Oriental mine.
In
2004,
the Company retained Reserva International, LLC, an independent contractor
specializing in resource evaluation, to generate a preliminary 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 sufficient mineralized material has been
defined to justify construction of a mine, extraction plant and refinery, 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. As
part
of this work, the resource model will be reevaluated to insure its compliance
with applicable engineering norms and the engineering and geostatistical
standards applicable to project evaluations of this quality.
The
Company initiated the feasibility study in 2004, retaining Green Team
Consultants International cc ("GTI"), of Johannesburg, South Africa. Metalline’s
selection of GTI was partially due to GTI’s experience conducting the
feasibility study for the Skorpion mine and its involvement in the project
execution up to hot commissioning. Norman Green, managing member of GTI, was
the
Anglo Base Metals Project Manager for the Skorpion Zinc Project, while other
members of GTI were deployed in area manager and various technical roles in
the
integrated Anglo Base Metals Team. The Anglo Base Metals Project Team was
responsible for the overall management of the EPCM contractor during project
execution and commissioning. After commissioning, various members of GTI
remained involved during the ramp-up phase to assist with operator training,
plant optimization and remedial work. The Skorpion mine is the first, and to
date the only, mine in the world using the solvent extraction electrowinning
process for extracting Special High Grade zinc (SHG 99.995%) from oxide zinc
ore.
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
zinc 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 Pincock, Allen &
Holt ("PAH") of Lakewood, Colorado to prepare the mine plan as part of the
feasibility study for the Project.
GTI
has
also retained Min-Tek, a South African consulting company specializing in
mineral and metallurgical research and development, to complete the
metallurgical work for the Project. Min-Tek performed the metallurgical work
for
the Skorpion feasibility studies.
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, PAH and SRK have completed a tour and examination of the Sierra Mojada
Property, 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.
On
July
12, 2005, the Company released the results of Mint-Tek's metallurgical test
work. The test work focused on demonstrating the viability of using a
combination of dense media separation ("DMS") and flotation processes to
successfully produce a zinc oxide concentrate from representative samples taken
from the Sierra Mojada mineralization. The report included a conceptual block
flow diagram showing the key DMS and flotation steps followed by conventional
zinc refining using leach, solvent extraction and electrowinning. The Company
believes that the ability to produce a concentrate which can be shipped
economically would be a major contributing factor to the potential success
of
the Project because it would allow the Company to choose the best site for
a
refinery based upon the tax regime, cost of power and other capital and
operating cost inputs available at various locations. In addition, the report
noted that acid-consuming mineral such as limestone and dolomite would be
discarded in the concentration process, which would reduce sulphuric acid
consumption in the refinery process.
Min-Tek's
test work of the Sierra Mojada samples indicated that a zinc oxide concentrate
with a zinc content of 30% can be produced at an overall concentrator zinc
recovery of 75% to 80%. The concentrate produced responded well to atmospheric
leaching with dilute sulphuric acid, and refinery leach extraction efficiency
was above 98%. The concentrator operating cost is expected to be approximately
$5 to $8 per ton of ore treated, which is offset by the fact that the sulphuric
acid consumption in the refinery leach step is expected to be 70% less than
that
achievable with direct leaching of the ore.
The
Company expects to continue to optimize the concentrating process route by
conducting further test work to confirm key aspects of the flowsheet and to
enhance overall recovery and concentrate grade. In particular, the incorporation
of cleaner and scavenger steps in the flotation circuit and the potential to
recover zinc from slimes produced in the process provides further upside
potential.
Feasibility
study work continues to determine the mining method and its related costs and
to
determine the production rate. During 2006, one core hole was drilled into
the
rocks that are within the block of ground considered to be within the resource
model. This hole was drilled for quality control purposes. Although the core
from this hole has been assayed, and the results appear to confirm previous
work, no detailed statistical analysis has yet been performed on these results
relative to previous results.
We
also
performed surface core drilling, underground core drilling, and underground
percussion drilling in areas outside of the oxide zinc resource. This work
also
included, surveying, mapping and channel sampling in the La Esmeralda mine
and
in older mine workings between the San Salvador mine shaft and extensive older
workings to the west. No historic data is available for the La Esmeralda mine,
which produced ore from the Lead Manto south of the Sierra Mojada Fault and
the
copper, silver, polymetallic mineralization north of the Sierra Mojada Fault.
The Company expects that if underground mining methods are employed, access
to
the Iron Oxide Manto mineralization will enter through ground upon which La
Esmeralda is located, and the location of the existing workings must be
determined as part of the mine plan for the feasibility study. Channel samples
in these workings have been collected and have produced a few thousand samples
of mineralized material, which consist of north side copper-silver
mineralization and south side oxide zinc mineralization. The company has also
completed an extensive sampling program in the vicinity of the La Norteña
workings in the area of the Fronteriza mine shaft, where extensive workings
for
silver and coppers ore were developed historically. Not all of the assay results
for this area have yet been received from the laboratory. Although the assays
values for many samples are high, the 3-dimensional geometric relationships
between the numerous samples are complex and it would be difficult to present
the results to the public in a meaningful and complete manner. The Company
will
release these results only after geostatistical modeling has been completed
and
a proper engineering report can be issued.
The
Company has nearly completed condemnation drilling of areas identified as the
potential surface plant location and for tailings disposal. The objective of
this drilling is to insure that no mineralized bodies lie beneath the area
where
surface structures would be built and to provide information of the engineering
properties of the ground in these areas. The results of this drilling confirm
that there are no shallow ore bodies present in these areas. The company
contracted for and received a high resolution digital elevation model (DEM)
of
the area and terrain corrected orthophotographs. This information is used by
the
engineers of the feasibility team and in various submissions to government
agencies. The Company has issued a contract for an environmental and social
impact studies. The project will be executed to comply with the high standards
of the Mexican government as well as those promulgated by the World Bank. Two
seasonal biological transects have been completed for areas that may be impacted
by surface facilities and tailings disposal. So far those studies have not
disclosed the presence of any endangered plant or animal species in the area.
A
field examination was completed by representatives of the INAH (Mexican National
Institute of Archeology and History) to determine if the project would have
archaeological and historical impacts. This work disclosed no problems. Baseline
weather records have been located and a recording weather station has been
installed on the proposed plant site.
The
Company had a mining operation in the Smithsonite Manto that has been shipping
zinc carbonate ore to the United States for use as a micronutrient for the
fertilizer industry. During the period ended October 31, 2006, the Company
realized other income from the sale of the zinc carbonate ore. The Company
ceased mining the zinc carbonate ore in 2005 and shipped the last ore from
inventory in September 2006.
Employees
Metalline
Mining Company currently has five employees, four of which are full time and
one
part time. Approximately 50 employees are employed under contract to our Mexican
operating company Contratistas de Sierra Mojada S.A. de C.V. Our Mexican holding
company, Minera Metalin S.A. de C.V., has no employees.
Risk
Factors
Our
securities are highly speculative and involve a high degree of risk, including
among other items the risk factors described below.
RISKS
RELATED TO OUR BUSINESS:
Exploration
Stage Mining Company With No History of Operation
The
Company is in its exploration stage, has very limited 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, complication, and delays frequently encountered in connection
with
a new business, and the competitive and regulatory environment in which the
Company will operate.
Due
to Our History of Operating Losses, We are Uncertain That We Will Be Able to
Maintain Sufficient Cash to Accomplish Our Business Objectives
During
the fiscal years ended October 31, 2006 and 2005 we suffered net losses of
$11,193,037 and $3,302,161, respectively. At October 31, 2006 there was
stockholders' equity of $11,122,129 and a working capital of $6,175,396. There
is no assurance that we can generate net income, increase revenues or
successfully explore and exploit our properties.
See
the
"Plan of Operation" below for a description of management's plans in regard
to
this issue. The financial statements do not include any adjustments relating
to
the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should we be unsuccessful
in implementing these plans.
No
Commercially Mineable Ore Body; Resources and Reserves
No
commercially mineable ore body has been delineated on the properties, nor have
any reserves been identified. 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 will ever contain reserves and investors may
lose
their entire investment in the Company.
We
have
not yet established any reserves. There are numerous uncertainties inherent
in
estimating quantities of zinc reserves, including many factors beyond our
control, and no assurance can be given that the recovery of zinc will be
realized. In general, estimates of recoverable zinc resources are based upon
a
number of factors and assumptions made as of the date on which the resource
estimates were determined, such as geological and engineering estimates which
have inherent uncertainties and the assumed effects of regulation by
governmental agencies and estimates of future commodity prices and operating
costs, all of which may vary considerably from actual results. All such
estimates are, to some degree, uncertain and classifications of resources are
only attempts to define the degree of uncertainty involved. For these reasons,
estimates of the recoverable zinc, the classification of such resources based
on
risk of recovery, prepared by different engineers or by the same engineers
at
different times, may vary substantially. No estimates of commerciality or
recoverable zinc resources can be made at this time, if ever.
Our
Business Plan is Highly Speculative and its Success Depends on Mineral
Development in the Sierra Mojada Concessions
Our
business plan is focused primarily on developing and operating a mine in the
Company’s Sierra Mojada concessions and to identify reserves, as described
herein. Exploitation of mineralization and determining whether the
mineralization might be extracted profitably is highly speculative and it may
take a number of years until production is possible, during which time the
economic viability of the project may change. Substantial expenditures are
required to establish reserves, extract metals from ores and, in the case of
new
properties, to construct mining and processing facilities. We are subject to
all
of the risks inherent in mineral development (as described in more detail
below), including identification of commercial projects, operation and revenue
uncertainties, market sizes, profitability, market demand, and commodity price
fluctuations. Further, the economic feasibility of any development project
is
based upon, among other things, estimates of the size and grade of reserves,
proximity to infrastructures and other resources (such as water and power),
production rates, capital and operating costs, and metals prices. Development
projects are also subject to the completion of favorable feasibility studies,
issuance of necessary permits and the ability to raise further capital to fund
activities. There can be no assurance that we will be successful in overcoming
these risks.
Risks
Inherent in the Mining Industry
The
Company is subject to all of the risks inherent in the mining industry
including, without limitation, the following:
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competition
from a large number of companies, many of which are significantly
larger
than the Company, in the acquisition, exploration, and development
of
mining properties;
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the
Company, the concession holder, might not be able raise enough
money to
pay the fees, taxes and perform labor necessary to maintain the
concessions in good force
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exploration
for minerals is highly speculative and involves substantial risks,
even
when conducted on properties known to contain significant quantities
of
mineralization, and most exploration projects do not result in
the
discovery of commercially mineable deposits of ore;
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the
probability of an individual prospect ever having reserves that
meet the
requirements of Securities Act Industry Guide 7 is extremely remote,
and
in all probability the properties do not contain any reserves,
and any
funds spent on exploration will probably be lost;
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operations
are subject to a variety of existing laws and regulations relating
to
exploration and development, permitting procedures, safety precautions,
property reclamation, employee health and safety, air quality standards,
pollution and other environmental protection controls and the Company
may
not be able to comply with these regulations and controls;
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a
large number of factors beyond the control of the Company, including
fluctuations in metal prices, inflation, and other economic conditions,
will affect the economic feasibility of mining;
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mining
activities are subject to substantial operating hazards some of
which are
not insurable or may not be insured due to economic considerations;
and
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the
availability of water, which is essential to mining and milling
operations.
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THE
BUSINESS OF MINERAL EXPLORATION IS SUBJECT TO MANY RISKS:
Nature
of Zinc Exploration and Development
Zinc
exploration and development is very competitive and involves many risks that
even a combination of experience, knowledge and careful evaluation may not
be
able to overcome. As with any natural resource property, there can be no
assurance that commercial deposits of zinc will be produced from our
concessions. Furthermore, the marketability of any discovered resource will
be
affected by numerous factors beyond our control. These factors include, but
are
not limited to, market fluctuations of prices, proximity and capacity of water
and processing equipment, equipment availability and government regulations
(including, without limitation, regulations relating to prices, taxes,
royalties, land tenure, allowable production, importing and exporting of zinc
and environmental protection). The extent of these factors cannot be accurately
predicted, but the combination of these factors may result in us not receiving
an adequate return on invested capital.
Fluctuating
Price for Metals
The
Company's operations will be greatly influenced by the prices of commodities,
including silver, copper, lead, zinc, and other metals. These prices fluctuate
widely and are affected by numerous factors beyond the Company's control,
including interest rates, expectations for inflation, speculation, currency
values, in particular the strength of the United States dollar, global and
regional demand, political and economic conditions and production costs in
major
metal producing regions of the world.
Mining
Concessions
The
Company holds mining concessions in Mexico. 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 the concessions provides the Company 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 in part owned by the Company and
in
part owned by the local municipality. Initial communications with the
municipality officials indicate that they will be willing to negotiate the
necessary agreements, but there can be no assurance that an agreement that
is
satisfactory to the Company will be reached.
Title
to Our Mineral Properties May be Challenged
Our
policy is to seek to confirm the validity of our rights to title to, or contract
rights with respect to, each mineral property in which we have a material
interest. However, we cannot guarantee that title to our properties will not
be
challenged. Title insurance generally is not available, and our ability to
ensure that we have obtained secure claim to individual mineral properties
or
mining concessions may be severely constrained. We have not conducted surveys
of
all of the claims in which we hold direct or indirect interests and, therefore,
the precise area and location of these claims may be in doubt. Accordingly,
our
mineral properties may be subject to prior unregistered agreements, transfers
or
claims, and title may be affected by, among other things, undetected defects.
In
addition, we may be unable to operate our properties as permitted or to enforce
our rights with respect to our properties. We annually check the official land
records in Mexico City to determine if there are annotations indicating the
existence of a legal challenge against the validity of any of our concessions.
As of October 2006, there were no such annotations, nor are we aware of any
challenges from the government or from third parties.
Our
Activities are in Mexico, which is Subject to Political and Economic
Instability
We
currently conduct exploration activities in Mexico. Although the country is
considered economically stable, it has from time to time experienced economic
or
political instability. We may be materially adversely affected by risks
associated with conducting operations in this country, including:
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|
|
political
instability and violence;
|
| |
|
|
|
| |
·
|
|
war
and civil disturbance;
|
| |
|
|
|
| |
·
|
|
expropriation
or nationalization;
|
| |
|
|
|
| |
·
|
|
changing
fiscal regimes;
|
| |
|
|
|
| |
·
|
|
fluctuations
in currency exchange rates;
|
| |
|
|
|
| |
·
|
|
high
rates of inflation;
|
| |
|
|
|
| |
·
|
|
underdeveloped
industrial and economic infrastructure; and
|
| |
|
|
|
| |
·
|
|
unenforceability
of contractual rights.
|
Changes
in mining or investment policies or shifts in the prevailing political climate
in any of the countries in which we conduct exploration and development
activities could adversely affect our business. Our operations may be affected
in varying degrees by government regulations with respect to, among other
things:
| |
·
|
|
production
restrictions;
|
| |
|
|
|
| |
·
|
|
price
controls;
|
| |
|
|
|
| |
·
|
|
export
and import controls;
|
| |
|
|
|
| |
·
|
|
income
and other taxes;
|
| |
|
|
|
| |
·
|
|
maintenance
of claims;
|
| |
|
|
|
| |
·
|
|
environmental
legislation;
|
| |
|
|
|
| |
·
|
|
foreign
ownership restrictions;
|
| |
|
|
|
| |
·
|
|
labor;
|
| |
|
|
|
| |
·
|
|
welfare
benefit policies;
|
| |
|
|
|
| |
·
|
|
land
use;
|
| |
|
|
|
| |
·
|
|
land
claims of local residents;
|
| |
|
|
|
| |
·
|
|
water
use; and
|
| |
|
|
|
| |
·
|
|
mine
safety.
|
We
cannot
accurately predict the effect of these factors. In addition, legislation in
the
United States regulating foreign trade, investment and taxation could have
a
material adverse effect on our financial condition, results of operations and
cash flows. In management’s judgment, these risks are very much less than the
equivalent risks would be for a project of a similar nature conducted in the
United States.
Environmental
Controls
Compliance
with statutory environmental quality requirements may necessitate significant
capital outlays, may materially affect the earning power of the Company, or
may
cause material changes in the Company's intended activities. No assurance can
be
given that environmental standards imposed by either federal or state
governments will not be changed or become more stringent, thereby possibly
materially adversely affecting the proposed activities of the Company. In
addition, if we are unable to fund fully the cost of remediation of any
environmental condition, we may be required to suspend operations or enter
into
interim compliance measures pending completion of the required remediation.
Availability
of Water; Shortages of Supplies and Materials.
Water
is
essential in all phases of the exploration and development of mineral
properties. It is used in such processes as exploration, drilling, leaching,
placer mining, dredging, testing, and hydraulic mining. Mining and ore
processing requires large volumes of water. Both the lack of available water
and
the cost of acquisition may make an otherwise viable project economically
impossible to complete. In addition, the mineral industry has experienced from
time to time shortages of certain supplies and materials necessary in the
exploration for and evaluation of mineral deposits. The prices at which such
supplies and materials are available have also greatly increased. There is
a
possibility that planned operations may be subject to delays due to such
shortages and that further price escalations will increase the Company’s costs
of such supplies and materials.
Operational
Hazards; Uninsured Risks
The
mining business is subject to risks and hazards, including environmental
hazards, industrial accidents, the encountering of unusual or unexpected
geological formations, cave-ins, flooding, earthquakes and periodic
interruptions due to inclement or hazardous weather conditions. These
occurrences could result in damage to, or destruction of, mineral properties
or
production facilities, personal injury or death, environmental damage, reduced
production and delays in mining, asset write-downs, monetary losses and possible
legal liability. The Company may not be insured against all losses or
liabilities, which may arise from operations, either because such insurance
is
unavailable or because the Company has elected not to purchase such insurance
due to high premium costs or other reasons. Although the Company maintains
insurance in an amount that we consider to be adequate, liabilities might exceed
policy limits, in which event we could incur significant costs that could
adversely affect our results of operation. The realization of any significant
liabilities in connection with our mining activities as described above could
negatively affect our results of operations and the price of our common
stock.
Capital
Requirements and Liquidity; Need for Subsequent Funding
Although
the Company has no immediate need for additional funds in order to finance
its
proposed business operations for the next 12 to 18 months, the Company's
operations after completion of the feasibility study will depend upon the
availability of cash flow, if any, from its operations or its ability to raise
additional funds through equity or debt financing. There is no assurance that
the Company will be able to obtain additional funding when needed, or that
such
funding, if available, can be obtained on terms acceptable to the Company.
If
the Company cannot obtain needed funds for implementing its mine plan after
completion of the feasibility study, it may be forced to curtail or cease its
activities. Equity financing, if available, may result in substantial dilution
to existing stockholders.
THE
LOSS
OF CURRENT MANAGEMENT MAY MAKE IT DIFFICULT FOR US TO OPERATE:
Need
for Additional Key Personnel; Reliance on Officers and
Directors
At
the
present, the Company employs four full-time and one part-time employee in the
United States, and relies on the personal efforts of its officers and directors.
The success of the Company's proposed business will depend, in part, upon the
ability to attract and retain qualified employees. The Company believes that
it
will be able to attract competent employees, but no assurance can be given
that
the Company will be successful in this regard. If the Company is unable to
engage and retain the necessary personnel, its business would be materially
and
adversely affected.
Indemnification
of Officers and Directors for Securities Liabilities
The
Bylaws of the Company provide that the Company may indemnify any director,
officer, agent, and/or employee as to those liabilities and on those terms
and
conditions as are specified in the Nevada Business Corporation Act. Further,
the
Company may purchase and maintain insurance on behalf of any such persons
whether or not the corporation would have the power to indemnify such person
against the liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such officers,
directors, agents, and employees for losses incurred by the Company as a result
of their actions. Further, the Company has been advised that in the opinion
of
the Securities and Exchange Commission, indemnification is against public policy
as expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
RISKS
RELATING TO OUR COMMON STOCK:
No
Dividends Anticipated
At
the
present time the Company does not anticipate paying dividends, cash or
otherwise, on its common stock in the foreseeable future. Future dividends
will
depend on earnings, if any, of the Company, its financial requirements and
other
factors. There can be no assurance that the Company will pay
dividends.
Our
Stock Price Can Be Extremely Volatile
The
trading price of our Common Stock has been and could continue to be subject
to
wide fluctuations in response to announcements of our business developments
and
drill results, progress reports on our feasibility study, the metals markets
in
general, and other events or factors. In addition, stock markets have
experienced extreme price volatility in recent years. This volatility has had
a
substantial effect on the market prices of companies, at times for reasons
unrelated to their operating performance. Such broad market fluctuations may
adversely affect the price of our Common Stock.
Item
2.DESCRIPTION
OF PROPERTY
The
Company owns the following twelve mining concessions, including the buildings
and equipment located thereon:
|
Concession
|
|
|
|
Title
No.
|
|
hectares
|
|
| |
|
|
|
|
|
|
|
|
Sierra
Mojada
|
|
|
|
|
|
198513
|
|
|
4,767.3154
|
|
|
Mojada
2*
|
|
|
|
|
|
227585
|
|
|
3,500.0000
|
|
|
El
Retorno*
|
|
|
|
|
|
216681
|
|
|
817.6548
|
|
|
Mojada
3
|
|
|
new
title (reduced)
|
|
|
226756
|
|
|
772.0000
|
|
|
Unificacion
Mineros Nortenos
|
|
|
|
|
|
169343
|
|
|
336.7905
|
|
|
Esmeralda
I (97.6839)
|
|
|
|
|
|
187776
|
|
|
145.0000
|
|
|
Esmeralda
|
|
|
|
|
|
212169
|
|
|
117.5025
|
|
|
La
Blanca
|
|
|
|
|
|
220569
|
|
|
33.5044
|
|
|
Fortuna
|
|
|
|
|
|
160461
|
|
|
13.9582
|
|
|
Los
Ramones*
|
|
|
|
|
|
223093
|
|
|
8.6039
|
|
|
El
Retorno Fracc. 1*
|
|
|
|
|
|
223154
|
|
|
5.5071
|
|
|
Vulcano
|
|
|
|
|
|
83507
|
|
|
4.4094
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
10,522.2462
|
|
|
*
|
Documentation
of the acquisition of these concessions was not available until fiscal
year beginning November 1, 2006. Total cost for these concessions
was
approximately $32,000 in the
aggregate.
|
The
twelve concessions total 10,522 hectares (26,040 acres). The Company owns 100%
of the twelve 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. Annual assessment work in excess
of
statutory annual requirements can be carried forward to apply against the work
required for future years. The value of our accumulated carry forwards on our
concessions would meet future requirements for many years.
The
Company has applied for an additional concession of 2400 hectares in an area
located to the NW of the Town of Esmeralda. This concession is called Dormidos,
and it is contiguous with our other concessions. Government officials requested
a modified application for this concession and it is being created. We expect
that title to this concession will ultimately be granted to the
Company.
The
Company is using a new process under newly revised Mexican mineral land law
to
seek title to certain small parcels within and bounded by our concessions.
These
parcels are very old concessions that appear to have been abandoned and where
the precise locations of the concession corners are uncertain. The concessions
involved are more than one kilometer away from the area being studied in our
feasibility study. The new law appears to grant the Company, as owners of the
surrounding concessions, an exclusive right to award of these concessions.
A
governmental process to grant such title in under development and our
applications are serving as test cases. We cannot anticipate when a final
determination will be made on these applications.
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 any necessary agreements with the appropriate surface landowners
if
the Company determines that a mining operation is feasible for the concessions.
The Company owns surface rights to three lots in the area (Sierra Mojada lottes
#1, #2, and #7) and the preliminary location of the surface plant is mostly
on
these lots. The Company currently anticipates that it will build mining
infrastructure needed on land partly owned by the local municipality. The
municipality officials indicate that they will grant the necessary agreements.
The preliminary location for the tailing impoundment is on land owned by the
Ejido Esmeralda, an agricultural cooperative. The Company has entered into
a
fifty year lease agreement with the Ejido for the use of this land and up to
50
Ha of common use land elsewhere on the Ejido. The Company has entered into
preliminary agreements with other Ejidos and with private landholders to obtain
surface trespass and use rights to drill water wells, to complete and test
water
wells, and to build water pipelines from well sites to the Companies holdings
near Sierra Mojada. The Company is moving to perfect these agreements by having
them executed and filed before a Notary Public.
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, 1,100 meter, gravel airstrip in the District as well as a
railroad connecting with the National Railway at Escalon and at
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.
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. The Company may need additional high power
transmission lines if we put in a SXEW plant and the mine. The Municipality
is
seeking to evaluate the adequacy of the current power system for the future
needs of the community, and has funding to increase the capacity of the power
lines. The Company will work with the Municipality to assess these needs as
the
power requirements are received from our feasibility team. At present, we
foresee no great problem meeting the power requirements of mine and
concentrator. On the other hand, we question whether Mexico has or will have
adequate excess power capacity to meet the requirements of an SXEW plant of
the
size we anticipate. As part of the feasibility study, we are evaluating other
options for the SXEW plant site. 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 dry tailings disposal site and a Concentrator. Tailings might be
placed back below the ground as backfill of stopes, if we have an underground
mine, or might be stacked in a protected location on Ejido Esmeralda land to
the
east of the town of Esmeralda. The Company will complete entering into
agreements with the landowners of all surface rights not owned by the Company
before completion of a feasibility study.
The
Company's corporate offices are located at 1330 East Margaret Avenue, Coeur
d'Alene, Idaho 83815, and its telephone number is (208) 665-2002 and fax number
is (208) 665-0041. The Company’s website is www.metalin.com. The Company's
facilities in Mexico include offices, residences, shops, warehouse buildings
and
mining equipment located at Calle Mina #1, La Esmeralda, Coahuila, Mexico.
The
Company's telephone and fax number in Mexico is 52 872 761 5129. Electric power
has been upgraded to 13,200 volts and lines run to the office 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.
The hoist on the Fronteriza shaft is current undergoing a major overhaul and
repair. The Company has chosen not to obtain insurance on some its facilities
and equipment because it would be difficult to obtain the insurance and the
cost
would outweigh the value. In management's opinion, the Company's plant and
equipment are mostly in good condition and well maintained, and adequate
round-the-clock security is provided.
Glossary
of Common Terms
The
terms
defined in this section are used throughout this Form 10-KSB.
|
Concession
|
|
A
grant of a tract of land made by a government or other controlling
authority in return for stipulated services or a promise that the
land
will be used for a specific
purpose.
|
|
Exploration
expenditures
|
|
Costs
incurred in identifying areas that may warrant examination and in
examining specific areas that are considered to have prospects that
may
contain mineral deposit reserves.
|
| |
|
|
|
Mineralized
Material
|
|
Zinc
bearing material that has been physically delineated by one or more
of a
number of methods including drilling, underground work, surface trenching
and other types of sampling. This material has been found to contain
a
sufficient amount of mineralization of an average grade of metal
or metals
to have economic potential that warrants further exploration evaluation.
While this material is not currently or may never be classified as
reserves, it is reported as mineralized material only if the potential
exists for reclassification into the reserves category. This material
cannot be classified in the reserves category until final technical,
economic and legal factors have been determined. Under the United
States
Securities and Exchange Commission’s standards, a mineral deposit does not
qualify as a reserve unless the recoveries from the deposit are expected
to be sufficient to recover total cash and non-cash costs for the
mine and
related facilities and make a profit.
|
| |
|
|
|
Ore,
Ore Reserve, or Mineable Ore Body
|
|
The
part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve
determination.
|
| |
|
|
|
Reserves
|
|
Estimated
remaining quantities of mineral deposit and related substances anticipated
to be recoverable from known accumulations, from a given date forward,
based on:
(a)
analysis of drilling, geological, geophysical and engineering
data;
(b)
the use of established technology; and
(c)
specified economic conditions, which are generally accepted as being
reasonable, and which are disclosed.
|
| |
|
|
|
Resources
|
|
Those
quantities of mineral deposit estimated to exist originally in naturally
occurring accumulations.
Resources
are, therefore, those quantities estimated on a particular date to
be
remaining in known accumulations plus those quantities already produced
from known accumulations plus those quantities in accumulations yet
to be
discovered.
Resources
are divided into:
(a)
discovered resources, which are limited to known accumulations;
and
(b)
undiscovered resources.
|
| |
|
|
|
Stratigraphic
units
|
|
A
body of rock established as a distinct entity, geologically classified,
based on any of the properties or attributes or combinations thereof
that
rocks possess.
|
| |
|
|
|
Tonne
|
|
A
metric ton which is equivalent to 2,200 pounds.
|
| |
|
|
|
Unproved
property
|
|
A
property or part of a property to which no reserves have been specifically
attributed.
|
Item
3. LEGAL
PROCEEDINGS
None.
Item
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
Company held a Special Meeting of Shareholders on September 25, 2006 (the
“Special Meeting”). At the Special Meeting, the shareholders approved the
following:
|
Proposal
#1 -Increase Authorized Common Stock
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
| |
|
|
|
|
|
|
|
|
|
|
Approval
of an amendment to the Company's
Articles
of Incorporation to increase
the
authorized
shares of Common Stock from
50,000,000
shares to 160,000,000 shares.
|
|
|
22,781,856
|
|
|
677,562
|
|
|
39,463
|
|
|
|
|
PART
II
Item
5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
The
Company's Common Stock is traded on the American Stock Exchange under the symbol
MMG. The following table sets forth the high and low closing prices of the
Company's Common Stock during the periods indicated as reported by the Internet
source Yahoo Finance (http://finance.yahoo.com)
and
BigCharts (http://bigcharts.marketwatch.com).
The
quotations below reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
| |
|
Fiscal
Quarter
|
|
High
Bid Price
|
|
Low
Bid Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year End
October
31, 2006
|
|
|
4th
Quarter
(8/1/06 –
10/31/06)
3rd
Quarter
(5/1/06 – 7/31/06)
2nd
Quarter
(2/1/06 – 4/30/06)
1st
Quarter
(11/1/05 – 1/31/06)
|
|
$
$
$
$
|
3.24
5.67
2.97
2.39
|
|
$
$
$
$
|
1.51
2.45
1.82
0.72
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year End
October
31, 2005
|
|
|
4th
Quarter
(8/1/05 – 10/31/05)
3rd
Quarter
(5/1/05 – 7/31/05)
2nd
Quarter
(2/1/05 – 4/30/05)
1st
Quarter
(11/1/04 – 1/31/05)
|
|
$
$
$
$
|
1.25
1.45
2.09
2.31
|
|
$
$
$
$
|
0.84
0.90
1.35
1.55
|
|
The
closing price of the Common Stock as reported on January 19, 2007, was $3.11
per
share.
Holders
As
of
January 19, 2007, there were 275 holders of record of the Company's Common
Stock, who collectively held 34,207,912 issued and outstanding shares of Common
Stock.
Dividends
The
Company did not declare or pay cash or other dividends on its Common Stock
during the last two calendar years. The Company has no plans to pay any
dividends, although it may do so if its financial position changes.
Equity
Compensation Plans Information
The
Company's Board of Directors adopted the 2000 Equity Incentive Plan (the “2000
Plan”) in 2001 with stockholder approval, and the 2006 Stock Option Plan (the
"2006 Plan") in May 2006 and obtained stockholder approval in July 2006.
The
following table gives information about the Company's Common Stock that may
be
issued upon the exercise of options, warrants and rights under the Company's
compensation plans as of October 31, 2006.
|
Plan
Category
|
|
Number
of securities to be
issued
upon exercise of
outstanding
options, warrants
and
rights
|
|
Weighted
average exercise
price
of outstanding
options,
warrants and rights
|
|
Number
of securities
remaining
available for
future
issuance
|
| |
|
|
|
|
|
|
|
Equity
compensation
plans
approved by
security
holders
|
|
3,360,000(1)
|
|
$2.41
|
|
2,426,000(2)
|
| |
|
|
|
|
|
|
|
Equity
compensation
plans
not approved by
security
holders
|
|
227,353(3)
|
|
$1.25
|
|
—
|
| |
|
|
|
|
|
|
|
Total
|
|
3,587,353
|
|
$2.34
|
|
2,426,000
|
| |
(1)
|
Includes:
(i) options to acquire 610,000 shares of Common Stock under the Company’s
2000 Equity Incentive Plan; and (ii) options to acquire 2,750,000
shares
of common stock under the Company’s 2006 Stock Option Plan.
|
| |
(2)
|
Includes:
(i) 230,000 shares of Common Stock under the Company’s 2000 Equity
Incentive Plan; and (ii) 2,196,000 shares of common stock under the
Company’s 2006 Stock Option Plan.
|
| |
(3)
|
Includes
(i) warrants to purchase 6,103 shares of Common Stock as compensation
for
services to Tomlinson Programs Inc., (ii) warrants to purchase 204,000
shares of Common Stock as compensation for services to Aegis Capital
Inc.,
and (iii) warrants to purchase 17,250 shares of Common Stock to an
independent director of the
Company.
|
Recent
Sales of Unregistered Securities
Following
are descriptions of all unregistered equity securities of the Company sold
during the last fiscal quarter, excluding transactions that were previously
reported on Form 10-QSB or Form 8-K during the period.
On
October 24, 2006 the Company granted 36,000 shares of Common Stock to the
Company’s independent directors as compensation for services. Although the
shares have accrued, the Company is delinquent on issuing the share
certificates. No commission or other remuneration was paid or given in
connection with this transaction. The Common Stock will be issued in reliance
on
the exemption from registration contained in Section 4(2) of the Securities
Act
of 1933 (the "Securities Act").
On
October 31, 2006 the Company granted 18,000 shares of Common Stock to the
Company’s independent directors as compensation for services. Although the
shares have accrued, the Company is delinquent on issuing the share
certificates. No commission or other remuneration was paid or given in
connection with this transaction. The Common Stock will be issued in reliance
on
the exemption from registration contained in Section 4(2) of the Securities
Act
of 1933 (the "Securities Act").
Item
6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary
Statement about Forward-Looking Statements
This
Annual Report on Form 10-KSB includes certain statements that may be deemed
to
be "forward-looking statements." All statements, other than statements of
historical facts, included in this Form 10-KSB that address activities, events
or developments that our management expects, believes or anticipates will or
may
occur in the future are forward-looking statements. Such forward-looking
statements include discussion of such matters as:
| |
·
|
The
amount and nature of future capital, development and exploration
expenditures;
|
| |
·
|
The
timing of exploration activities;
|
| |
·
|
Business
strategies and development of our business plan;
and
|
Forward-looking
statements also typically include words such as "anticipate", "estimate",
"expect", "potential", "could" or similar words suggesting future outcomes.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions, expected future developments and other factors we believe are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including such factors as the volatility
and level of zinc prices, currency exchange rate fluctuations, uncertainties
in
cash flow, expected acquisition benefits, exploration mining and operating
risks, competition, litigation, environmental matters, the potential impact
of
government regulations, and other matters discussed under the caption "Risk
Factors," many of which are beyond our control. Readers are cautioned that
forward-looking statements are not guarantees of future performance and that
actual results or developments may differ materially from those expressed or
implied in the forward-looking statements.
The
Company is under no duty to update any of these forward-looking statements
after
the date of this report. You should not place undue reliance on these
forward-looking statements.
Plan
of Operation
As
stated
in the section of this report titled “General Development of the Business” the
primary activity of the Company is to complete a feasibility study and to
evaluate the engineering factors and economics of mining the oxide zinc
mineralization. The study consists of six major elements: Resource Model,
Metallurgy, Mine Plan, Extraction, Reduction and Water Development. The resource
model is currently being revised and when the revision is complete it will
be
used interactively with the mining and concentrator team to optimize the
baseline business case for the study. The Resource Model will then be subjected
to a technical audit.
The
Company will also audit and improve its sample collecting, sample preparation,
and data logging technical processes. It will also acquire improved geological
information requested by its engineers in completing their studies. The new
studies will include geotechnical studies and other testing to confirm the
applicability of various mining methods to the rocks at Sierra Mojada. The
Company will analyze a large sampling of rocks from within the boundaries of
the
current Resource Model grade shell for other metals that might be recovered
as
coproducts of mining zinc. The elements being considered include silver,
cadmium, indium, gallium, germanium, and cobalt.
Metallurgical
studies will continue with an objective of improving the design of the
concentrator circuit for processing of zinc as well as to evaluate the existing
circuit as applied to the recovery of silver. The scoping study phase of the
mine plan will be completed by evaluating interactions and optimizations between
mine plan, concentrator and refinery sizing, and the resource model. On
completion of this activity, the basic mine method(s) and project capacities
will be frozen and mine planning will be carried to the next level of detail.
The location of the refinery, the extraction and reduction plant will then
be
finalized, using the results of a previously performed alternatives analysis,
and the details of refinery location and design will be attacked. GTI has
previously completed fairly mature concentrator and refinery designs.
Water
development will be completed, several wells will be completed and tested,
and
application will be made to the appropriate agency (the Comisión Nacional de
Agua) to grant the Company water rights. Environmental, Social, and permitting
studies will be continued and completed by our consultants. Weather-, noise-,
and air-quality-monitoring will be performed. A documented community out-reach
program is already underway and will be continued with our workers, the local
community, the local government and appropriate agencies in State and Federal
governments. All of this work will be done to comply with Mexican regulations,
laws, and norms and with sustainable development considerations as described
in
the International Finance Corporations “Performance Standards on Social and
Environmental Sustainability” and the Environment Assessment required by the
World Bank’s “Equator Principles”.
The
Company is improving its general business capabilities in Mexico so that it
is
capable of performing the ramp up in activity required by our business
objectives. We are selectively improving the quality of our workforce at all
levels. We will become fully compliant with labor registration, safety, health
and training requirements, and environmental registration. Until that time,
we
do not have to comply in these areas because we were grandfathered into
compliance.
Some
overarching business objectives in our activities are: to systematically reduce
the significant risk factors listed earlier in this document; to reach the
level
of certainty required to comply with SEC Industry Guide 7; and to meet the
level
of quality required for our Feasibility Study to be acceptable to financial
institutions to support funding decisions. Two disciplines help us to reach
these objectives. First, generally accepted international engineering practice
is based on methodology to achieve progressive reduction of risk and progressive
reduction in economic uncertainties as studies progress. Second, outside
technical/engineering auditors are retained to insure that work is done to
the
quality required by the engineering norms.
The
Company will continue its program to explore for new mineralization. This effort
is most intensely focused on areas of silver-copper mineralization close to
mine
workings that might be constructed to access and work the zinc oxide manto.
The
purpose of this work is both to identify areas that might be mined as well
as to
insure that contemplated mine workings do not render mineralization unmineable
that might otherwise be exploited. The Company is aware of other areas within
its concessions that it believes may have significant exploration potential.
As
resources are available, or specific opportunities are identified, such areas
may receive exploration attention.
In
the
past the Company has evaluated various opportunities for generating near-term
revenues from small scale mining from its concessions, and it will continue
to
do so in the future. However, it will only engage in such operations if 1)
they
are not diversionary to the task of completing the Feasibility Study; 2) they
are safe for our workers; 3) the business risk is low; 4) the opportunity is
affordable; 5) the profit potential is significant to a company of our size.
We
have no current plans to enter any such venture.
In
order
to finance the feasibility study and the business operations described above
for
corporate overhead through completion of the feasibility study, the Company
has
raised capital by selling unregistered shares of its common stock as described
below in “Liquidity and Capital Resources.”
Cautionary
Note
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. See “Risk Factors.”
Results
of Operations
During
the twelve months ended October 31, 2006, the Company realized other income
of
$224,348 as compared to $165,231 for the twelve month period ending October
31,
2005. General and administrative expenses increased to $11,417,385 for the
twelve month period ended October 31, 2006 as compared to $3,467,392 for the
fiscal year ended October 31, 2005. The increase is primarily due to the
increase in office and administrative expenses of $105,798, increase in
exploration of $411,893, professional services increase of $688,226 and increase
in taxes and fees of $212,566. Additionally,
there was an increase in payroll costs of $4,761,642, which was primarily due
to
the expensing of stock options granted during the twelve months ended October
31, 2006, and an increase in directors fees of $1,836,165. For the twelve
months ended
October 31, 2006, the Company experienced a loss of $11,193,037, or $0.36 per
share, compared to a loss of $3,302,161, or $0.16 per share, during the
comparable period in the previous year.
Liquidity
and Capital Resources
During
the year ended October 31, 2006 the Company sold 13,456,084 shares
in
private placement transactions at a price of $0.80 per share, which included
a
warrant to purchase one share of the Company’s common stock at an exercise price
of $1.25 per share with an exercise period of 5 years, and issued 25,000 shares
at $1.25 per share for exercise of a warrant. The Company financed its
obligations during the fiscal year ended October 31, 2006 by the sale of these
shares of its common stock, less issuance costs of $339,816.
The
Company 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 has estimated that
completion of a feasibility study will cost approximately $6.3 million, but
there can be no assurance that this estimate will not be revised upward.
Assuming adequate funding is available, the Company expects to spend
approximately $3.3 million in the next 12 months on the feasibility study.
The
Company believes the feasibility study will be completed in the next 12 to
18
months. If at any time we think we have insufficient cash, we will adjust our
program and expenditures appropriately.
The
Company's management believes that private placements of its shares have
provided sufficient cash for the Company to continue to operate for at least
the
next twelve months based on current expense projections. 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. In order to proceed with the construction phase, the
Company would need to rely on additional equity or debt financing, or the
Company may seek joint venture partners or other alternative financing
sources.
Cash
flows for the year ended October 31, 2006 were as follows:
During
the twelve month period ended October 31, 2006, the Company's cash position
increased by $6,401,625, which includes cash, cash equivalents and marketable
securities, due to the private placement sale of 13,456,084 shares of the
Company's common stock at a price of $0.80 per share. Also during this period,
the Company used $4,623,450 in operating activities, principally in connection
with maintaining the property and costs of the private placement, implementation
of a surface exploration drilling program and continued feasibility study
funding, which includes the water development drilling.
Critical
Accounting Policies
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
Our
management routinely makes judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations. Our significant accounting policies are disclosed in Note 2
to
the Consolidated Financial Statements included in this Annual Report on Form
10-KSB.
Property
Concessions
Costs
of
acquiring property concessions are capitalized by project area upon purchase
or
staking of the associated claims. Costs to maintain the property concessions
and
leases are expensed as incurred. When a property concession reaches the
production stage, the related capitalized costs will be amortized, using the
units of production method on the basis of periodic estimates of ore reserves.
To date no concessions have reached production stage.
Property
concessions are periodically assessed for impairment of value and any diminution
in value is charged to operations at the time of impairment. Should a property
concession be abandoned, its capitalized costs are charged to operations. The
Company charges to operations the allocable portion of capitalized costs
attributable to property concessions sold. Capitalized costs are allocated
to
property concessions abandoned or sold based on the proportion of claims
abandoned or sold to the claims remaining within the project area.
Deferred
tax assets and liabilities
The
Company recognizes the expected future tax benefit from deferred tax assets
when
the tax benefit is considered to be more likely than not of being realized.
Assessing the recoverability of deferred tax assets requires management to
make
significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecasted cash flows and the
application of existing tax laws in each jurisdiction. To the extent that future
cash flows and taxable income differ significantly from estimates, the ability
of the Company to realize deferred tax assets could be impacted. Additionally,
future changes in tax laws in the jurisdictions in which the Company operates
could limit the Company’s ability to obtain the future tax
benefits.
Estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Foreign
Currency Translation
While
the
Company’s functional currency is the U.S. dollar, the majority of its operations
are in Mexico. The assets and liabilities relating to Mexican operations are
exposed to exchange rate fluctuations. The Company has adopted Financial
Accounting Standard No. 52. Monetary assets and liabilities denominated in
foreign currencies are translated into United States dollars at rates of
exchange in effect at the balance sheet date, and revenue and expenses are
translated at the average exchange rate during the period. Realized gains or
losses are included in income for the year as a result of operations.
Non-monetary assets, liabilities and items recorded in income arising from
transactions denominated in foreign currencies are translated at rates of
exchange in effect at the date of the transaction.
Accounting
for Stock Options and Warrants Granted to Employees and Nonemployees
The
Company currently reports stock issued to employees under the rules of SFAS
No.
123 and therefore, the Company’s accounting for stock options and warrants are
not affected by the issuance of SFAS No. 123R, except for how it relates to
modification of existing options.
In
December 2004, the Financial Accounting Standards Board revised SFAS No. 123
and
issued SFAS No. 123R.
Warrants
were valued using the Black-Scholes option pricing model. The assumptions used
were as follows: volatility of 80%, a risk-free interest rate of 5% and an
exercise term of five years.
The
fair
value of options was determined using the Black-Scholes option pricing model
using a risk free interest rate of 5% and a volatility of 80%.
Impairment
of Long-Lived Assets
We
review
the net carrying value of all facilities, including idle facilities, on a
periodic basis. We estimate the net realizable value of each property based
on
the estimated undiscounted future cash flows that will be generated from
operations at each property, the estimated salvage value of the surface plant
and equipment and the value associated with property interests. These estimates
of undiscounted future cash flows are dependent upon the estimates of metal
to
be recovered from proven and probable ore reserves and mineral resources
expected to be converted into mineral reserves, future production cost estimates
and future metals price estimates over the estimated remaining mine life. If
undiscounted cash flows are less than the carrying value of a property, an
impairment loss is recognized based upon the estimated expected future cash
flows from the property discounted at an interest rate commensurate with the
risk involved.
Environmental
Matters
When
it
is probable that costs associated with environmental remediation obligations
will be incurred and they are reasonably estimable, we accrue such costs at
the
most likely estimate. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of
the
remedial feasibility study for such facility and are charged to provisions
for
closed operations and environmental matters. We periodically review our accrued
liabilities for such remediation costs as evidence becomes available indicating
that our remediation liability has potentially changed. Costs of future
expenditures for environmental remediation are not discounted to their present
value unless subject to a contractually obligated fixed payment schedule. Such
costs are based on our current estimate of amounts that are expected to be
incurred when the remediation work is performed within current laws and
regulations. Recoveries of environmental remediation costs from other parties
are recorded as assets when their receipt is deemed probable.
Future
remediation costs for inactive mines are accrued based on management’s best
estimate at the end of each period of the undiscounted costs expected to be
incurred. Such costs estimates include, where applicable, ongoing care,
maintenance and monitoring costs. Changes in estimates are reflected in earnings
in the period an estimate is revised.
Accounting
for reclamation and remediation obligations requires management to make
estimates unique to each mining operation of the future costs the Company will
incur to complete the reclamation and remediation work required to comply with
existing laws and regulations. Actual costs incurred in future periods could
differ from amounts estimated. Additionally, future changes to environmental
laws and regulations could increase the extent of reclamation and remediation
work required. Any such increases in future costs could materially impact the
amounts charged to earnings. At October 31, 2006 the Company has no accrual
for
reclamation and remediation obligations because management cannot make a
reasonable estimate. Any reclamation or remediation costs related to abandoned
concessions has been previously expensed.
Item
7. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
See
Financial Statements and Supplementary Data following the signature page of
this
Form 10-KSB.
| Item
8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Item
8A. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Based
on
an evaluation as of the end of the period covered by this annual report, the
Company's principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are
effective for the purposes set forth in such definition.
The
Company's management has also concluded that the Company's disclosure controls
and procedures are effective to ensure that information required to be disclosed
in the Company's reports filed under the Exchange Act is accumulated and
communicated to management, including the principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls
There
have not been any changes in the Company's internal controls over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Company's last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM
8B. Other Information
None.
PART
III
| Item
9. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(A) OF THE EXCHANGE ACT
|
MANAGEMENT
Unless
otherwise indicated in their employment agreement executive officers of the
Company are elected by the Board of Directors and serve for a term of one year
and until their successors have been elected and qualified or until their
earlier resignation or removal by the Board of Directors. There are no family
relationships among any of the directors and executive officers of the Company.
None of the executive officers are currently involved in any legal
proceedings.
The
following table sets forth the names and ages of all executive officers and
directors and the positions and offices that each person holds with the
Company:
|
Name
of Director or Officer
and
Position in the Company
|
|
Officer
or
Director
Since
|
|
Age
|
|
Office(s)
Held and Other Business Experience
|
|
Merlin
Bingham
President
and Chairman of the Board of Directors
|
|
1996
|
|
73
|
|
Since
October 1996, Mr. Bingham has been the President and Chairman of
the Board
of Directors of the Company. From 1963 to 1983 Mr. Bingham worked
in
exploration for mining and oil companies in the western U.S. and
Alaska,
Zambia, the United Arab Emirates, Ecuador and Mexico. From 1983 to
1996,
Mr. Bingham has been a consulting geologist. Mr. Bingham received
a B.S.
degree in Mineralogy from the University of Utah in
1963
|
| |
|
|
|
|
|
|
|
Roger
Kolvoord,
Executive
Vice President
and
Director
|
|
Director
since 2002; Officer since 2003
|
|
67
|
|
Dr.
Kolvoord has been a director of the Company since August 2002 and
was
appointed Vice President, Business in April 2003. Dr. Kolvoord has
a B.S.
degree in geology from the University of Michigan, a M.S. in Mineralogy
form the University of Utah, and a Ph.D. in geochemistry from the
University of Texas at Austin. He worked in exploration and exploration
research for Kennecott Copper Company, Ranchers Exploration and
Development Corporation, and ARCO, and operated a services company
providing field services to oil and gas and mining companies. He
has
extensive mining and energy exploration experience. He was a manager
with
the Boeing Company for 14 years, working mainly in program management
and
new business development capacities in information systems and in
remote
sensing and geospatial information (mapping) ventures. An Associate
Technical Fellow of the Boeing Company, he returned to private consulting
practice in 2000. Mr. Kolvoord is an active member of the American
Association of Petroleum Geologists and the Society of Mining Engineers.
He resides in the Puget Sound region of
Washington.
|
|
Name
of Director or Officer
and
Position in the Company
|
|
Officer
or
Director
Since
|
|
Age
|
|
Office(s)
Held and Other Business Experience
|
| |
|
|
|
|
|
|
|
Wesley
Pomeroy, Director
|
|
2005
|
|
52
|
|
Mr.
Pomeroy was appointed to the Board of Directors in September 2005.
Mr. Pomeroy is currently President of The Joe Dandy Mining Company,
which has had gold properties in Cripple Creek, Colorado since
1887. He is
a member of the Front Range Oil and Gas LLC and the POMOCO LLC
(Pomeroy
Oil Company). He is also currently a consulting geologist with
Vortex
Petroleum Inc. and has been associated since 1977 with various
exploration
and oil and gas companies. Also since 1977 Mr. Pomeroy has been
a member
in good standing of the American Association of Petroleum Geologists
and
the Rocky Mountain Association of Geologists. Mr.
Pomeroy received a Bachelor of Science degree in geology from Colorado
State University in 1977 and an MBA from the University of Colorado
in
1990. Mr. Pomeroy is a registered Professional Geologist for the
State of
Wyoming. He resides in the Denver, Colorado area.
|
| |
|
|
|
|
|
|
|
Robert
Kramer, Director
|
|
2006
|
|
60
|
|
Robert
Kramer, C.A., was elected to the Board of Directors in July 2006.
Mr. Kramer is the co-founder and Chief Executive Officer of Current
Technology Corporation (OTCBB:CRTCF). The company was formed in
1987 to
research, develop and commercialize electrotherapeutic products
for the
treatment of hair loss. An entrepreneur by nature, with a particular
interest in the financial sector, he has been a founder/principal
of a
number of private companies offering commercial mortgages, venture
capital
and tax driven investments. Prior to co-founding Current Technology,
he
was a joint venture partner in an enterprise that raised funding
for
approximately 20 public mining companies conducting exploration
activities
in Western Canada. A graduate of the University of California,
Berkeley
with a degree in economics, Mr. Kramer has been a member of the
Canadian
Institute of Chartered Accountants and the Institute of Chartered
Accountants of British Columbia for over 30 years. Mr. Kramer is
a
Registered Certified Public Accountant in the State of
Illinois. In 2005 he was admitted as a Fellow to The Institute of
Chartered Securities and Administrators.
|
|
Name
of Director or Officer
and
Position in the Company
|
|
Officer
or
Director
Since
|
|
Age
|
|
Office(s)
Held and Other Business Experience
|
| |
|
|
|
|
|
|
|
Terry
Brown,
Vice
President-Operations
|
|
2005
|
|
47
|
|
Mr.
Brown was appointed Vice President-Operations in September 2005.
Mr.
Brown has 22 years experience in the mining industry in the United
States,
Mexico and Chile and has most recently been active as a consulting
geologist in Mexico. His background is in exploration and project
management, mine development and feasibility studies, and mining
operations. Mr. Brown is a Certified Professional Geologist and
is a
member of the American Institute of Professional Geologists and
the
Society of Economic Geologists. He received a Bachelor of Science
degree
in geology from the New Mexico Institute of Mining & Technology in
1983. Mr. Brown resides in Chihuahua, Mexico.
|
| |
|
|
|
|
|
|
|
Wayne
Schoonmaker, Treasurer and Secretary
|
|
1997
|
|
69
|
|
Mr.
Schoonmaker was appointed Secretary & Treasurer of the Company in
August 1997 and has held that position since that time. He is also
Secretary & Treasurer and Director of Independence Lead Mines Company
of Wallace, Idaho. During the period of 1979 through 1993, Mr.
Schoonmaker
was employed at Asarco Incorporated as Chief Accountant of the
Troy Mine
and as Financial Manager of Asarco's Northwest Mining Department.
From
July 1978 to December 1978, Mr. Schoonmaker was Assistant Treasurer
of the
Bunker Hill Mining Company, and from 1964 to 1978, he was Assistant
Secretary of Hecla Mining Company. Mr. Schoonmaker received a Bachelor
of
Science degree in Accounting from the University of Montana in
1962 and an
MBA from the University of Idaho in 1987. Mr. Schoonmaker is a
Certified
Public Accountant in the states of Idaho and
Montana.
|
Except
as
indicated in the above table, no director of the Company is a director of an
entity that has its securities registered pursuant to Section 12 of the Exchange
Act.
Audit
Committee
We
have a
separately designated standing audit committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The following persons serve on our
audit committee: Wesley Pomeroy and Robert Kramer. Mr. Pomeroy and Mr.
Kramer are each "independent" as that term is defined in Section 121A of
the American Stock Exchange listing standards and in Item 7(d)(3)(iv) of
Schedule 14A. Mr. Kramer is the financial expert for the audit committee. See
“Management” for information about Mr. Kramer’s relevant
experience.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act, as amended, requires the Company's officers and
directors and persons who own more than 10% of the Company's outstanding Common
Stock to file reports of ownership with the Securities and Exchange Commission
("SEC"). Directors, officers, and greater than 10% stockholders are required
by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based
solely on a review of Forms 3, 4, and 5 and amendments thereto furnished to
the
Company during and for the Company's year ended October 31, 2006, and as of
January 19, 2007 there were no directors, officers or more than 10% stockholders
of the Company who failed to timely file a Form 3, 4 or 5, other than Merlin
Bingham (as to one transaction on one Form 4), Roger Kolvoord (as to one
transaction on one Form 4), Terry Brown (as to one transaction on one Form
4),
and Wesley Pomeroy (as to one transaction on one Form 4).
Code
of Ethics
On
May 1,
2006, our Board of Directors adopted a code of ethics that applies to all of
our
officers and employees, including our principal executive officer, principal
financial officer, principal accounting officer and controller. Our code of
ethics establishes standards and guidelines to assist our directors, officers,
and employees in complying with both the Company's corporate policies and with
the law.
Item
10. EXECUTIVE
COMPENSATION
Compensation
and other Benefits of Executive Officers
The
following table sets out the compensation received for the fiscal years October
31, 2006, 2005 and 2004 in respect to each of the individuals who were the
Company's chief executive officer at any time during the last fiscal year and
the Company's most highly compensated executive officers whose total salary
and
bonus exceeded $100,000 (the "Named Executive Officers") See "Certain
Relationships and Related Transactions".
SUMMARY
COMPENSATION TABLE
|
FISCAL
YEAR COMPENSATION
|
|
LONG
TERM COMPENSATION
|
|
| |
|
|
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
|
Name
and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual
Compensation(4)
|
|
Securities
Underlying
Option/SARs
Granted
|
|
Restricted
Shares
or
Restricted Share
Units
|
|
LTIP
Payouts
($)
|
|
All
other
Compensation
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merlin
Bingham, President
|
|
|
2006
2005
|
|
$
$
|
206,000
201,563
|
|
$
$
|
0
0
|
|
$
$
|
0
0
|
|
|
1,000,000
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
| |
|
|
2004
|
|
$
|
101,563
|
|
$
|
0
|
|
$
|
60,938
|
(1)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Kolvoord, Executive Vice President
|
|
|
2006
2005
|
|
$
$
|
187,000
81,250
|
|
$
$
|
0
0
|
|
$
$
|
0
0
|
|
|
750,000
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
| |
|
|
2004
|
|
$
|
118,750
|
|
$
|
0
|
|
$
|
74,479
|
(1)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
Brown,
Vice
President, Operations
|
|
|
2006
2005
2004
|
|
$
$
|
125,000
56,160
0
|
|
$
$
$
|
0
0
0
|
|
$
$
$
|
0
0
0
|
|
|
250,000
0
0
|
|
|
0
0
0
|
|
|
0
0
0
|
|
|
0
0
0
|
|
| (1) |
Represents
the value of the shares of the Company’s Common Stock issued as
compensation for services rendered, based on the fair market value
of such
shares on the date of issuance.
|
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
Merlin
Bingham
Effective
January 1, 2007, Merlin Bingham entered into an Executive Employment Agreement
with the Company, pursuant to which he will receive a base annual salary of
$206,000. The executive is entitled to participate in all the Company’s employee
benefit plans and employee benefits, including any retirement, pension,
profit-sharing, stock option, insurance, hospital or other plans and benefits
which now may be in effect or which may hereafter be adopted by the Board of
Directors.
According
to the severance terms of the Executive Employment Agreement, upon termination
of employment by the Company without cause, the executive will receive a
severance payment equal to twelve months salary. Upon a change in control (which
is defined in the agreement), the executive will receive a severance payment
equal to twelve months salary following the expiration of his Executive
Employment Agreement. The agreement may also be terminated at any time by the
executive, with 30 days’ notice, in which case the executive is only entitled to
payments of salary and benefits through the date of termination.
Roger
Kolvoord
Effective
January 1, 2007, Roger Kolvoord entered into an Executive Employment Agreement
with the Company pursuant to which he will receive a base annual salary
(referred to as the Base Fee in his agreement) of $187,000. The executive is
entitled to participate in all the Company’s employee benefit plans and employee
benefits, including any retirement, pension, profit-sharing, stock option,
insurance, hospital or other plans and benefits which now may be in effect
or
which may hereafter be adopted by the Board of Directors. The terms regarding
severance and change of control are substantially identical to those described
for Mr. Bingham’s above.
Terry
Brown
Effective
January 1, 2007, Terry Brown entered into an Executive Employment Agreement
with
the Company pursuant to which he will receive a base annual salary (referred
to
as the Base Fee in his agreement) of $125,000. The executive is entitled to
participate in all the Company’s employee benefit plans and employee benefits,
including any retirement, pension, profit-sharing, stock option, insurance,
hospital or other plans and benefits which now may be in effect or which may
hereafter be adopted by the Board of Directors. The terms regarding severance
and change of control are substantially identical to those described for Mr.
Bingham’s above.
There
are
no other arrangements or understandings between any executive officer and any
director or other person pursuant to which any person was selected as a director
or an executive officer.
Option/Stock
Appreciation Rights ("SAR") Grants during the most recently completed Fiscal
Year.
The
following table sets out the stock options and stock warrants granted as
bonuses, which were granted by the Company during 2006 to the Named Executive
Officers.
OPTION/SAR
GRANTS IN PREVIOUS YEAR - 2006
INDIVIDUAL
GRANTS
|
Name
|
|
Number
of
Securities
Underlying
Options/SARs
Granted
(#)
|
|
%
of Total
Options/SARs
Granted
to
Employees
in
Fiscal
Year
|
|
Exercise
or
Base
Price ($)
|
|
Expiration
Date
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merlin
Bingham
|
|
|
1,000,000
|
|
|
50
|
%
|
$
|
2.59
|
|
|
May
1, 2016
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Kolvoord
|
|
|
750,000
|
|
|
37.5
|
%
|
$
|
2.59
|
|
|
May
1, 2016
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
Brown
|
|
|
250,000
|
|
|
12.5
|
%
|
$
|
2.59
|
|
|
May
1, 2016
|
|
Aggregated
Option/SAR Exercised in Last Financial Year and Fiscal Year-End Option/SAR
Values
The
following table sets out all option/SARs and warrants granted as bonuses which
were exercised by the Named Executive Officers during the most recently
completed fiscal year and the values of options/SARs and warrants for such
persons as of the end of the most recently completed fiscal year.
AGGREGATED
OPTION/SAR EXERCISED IN LAST FINANCIAL YEAR
AND
FISCAL YEAR-END OPTION/SAR VALUES.
|
Name
|
|
Shares
Acquired on
Exercise
(#)
|
|
Value
Realized ($)
|
|
Number
of Securities Underlying Unexercised Options/SARs at FY-End
(#)
Exercisable/
Unexercisable
|
|
Value
of
Unexercised
Options/SARs at
FY-End
($)
Exercisable/
Unexercisable
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merlin
Bingham
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Kolvoord
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
Brown
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Compensation
of Directors
Prior
to
October 24, 2006, the Company did not have any standard arrangements pursuant
to
which the Company's directors are compensated for services as directors. The
following director compensation was adopted effective October 24,
2006.
The
independent directors of the Company are compensated $7,500 per fiscal quarter,
plus 9,000 shares of the Company’s Common Stock per fiscal quarter for their
services. In addition, they have been and may be compensated with discretionary
stock option grants. No pension or retirement benefit plan has been instituted
by the Company and none is proposed at this time. There is no arrangement for
compensation with respect to termination of the directors in the event of change
of control of the Company.
The
Company does not have any standard arrangements pursuant to which the Company's
non-independent directors are compensated for services as
directors.
Other
Arrangements
During
the fiscal year end October 31, 2006, the Company compensated the following
directors, who are not Named Executive Officers, for their services as directors
as follows:
To
Wesley
Pomeroy, (i) options to purchase 250,000 shares of Common Stock at an exercise
price of $2.59 per share, expiring on May 1, 2016; (ii) $35,000 cash; and (iii)
42,000 shares of Common Stock, which have accrued, but the Company is delayed
in
issuing the stock certificates.
To
Robert
Kramer, (i) options to purchase 500,000 shares of Common Stock at an exercise
price of $2.59 per share, expiring on May 1, 2016; (ii) $10,000 cash; and (iii)
12,000 shares of Common Stock, which have accrued, but the Company is delayed
in
issuing the stock certificates.
Repricing
of Options
None.
Item
11. SECURITY
OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of January 19, 2007, the number of shares of
the
Company's Common Stock beneficially owned by each of the Company's current
directors, the Company's executive officers and each named executive officer,
and the number of shares beneficially owned by all of the Company's current
directors and named executive officers as a group:
|
Name
and Address of Beneficial Owner
|
|
Position
|
|
Amount
and Nature of Metalline
Beneficial
Ownership
|
|
Percent
of Metalline
Common
stock
|
| |
|
|
|
|
|
|
|
Merlin
Bingham
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
President
and Director
|
|
2,445,639(1)
|
|
6.9%
|
| |
|
|
|
|
|
|
|
Roger
Kolvoord
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
Executive
Vice President and Director
|
|
1,210,406(2)
|
|
3.5%
|
| |
|
|
|
|
|
|
|
Wayne
Schoonmaker
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
Treasurer,
Secretary
|
|
89,568
|
|
*
|
| |
|
|
|
|
|
|
|
Wesley
Pomeroy
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
Director
|
|
592,000(3)
|
|
1.7%
|
| |
|
|
|
|
|
|
|
Terry
Brown
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
Vice
President-Operations
|
|
312,500(4)
|
|
*
|
| |
|
|
|
|
|
|
|
Robert
Kramer
1330
E. Margaret Ave.
Coeur
d’Alene, ID 83815
|
|
Director
|
|
529,250(5)
|
|
1.5%
|
| |
|
|
|
|
|
|
|
All
current directors, executive officers and named executive officers
as a
group (six persons)
|
|
|
|
5,179,363(6)
|
|
13.9%
|
*
Indicates less than one percent.
(1)
Includes: (i) options to acquire 1,000,000 shares of the Company’s common stock
at $2.59 per share until May 1, 2016; (ii) options to acquire 100,000 shares
of
the Company’s common stock at $2.15 per share until March 1, 2010; and (iii)
options held by Mr.
Bingham’s spouse to acquire 50,000 shares of the Company’s common stock at $1.32
per share until October 4, 2010.
(2)
Includes: (i) options to acquire 750,000 shares of the Company’s common stock at
$2.59 per share until May 1, 2016; and (ii) options to acquire 100,000 shares
of
the Company’s common stock at $1.25 per share until August 6, 2009.
(3)
Includes 150,000 warrants exercisable at $1.25 per share and expiring on
February 20, 2011. Also includes options to acquire 250,000 shares of the
Company’s common stock at $2.59 per share until May 1, 2016.
(4)
Includes: (i) options to acquire 10,000 shares of the Company’s common stock at
$2.00 per share until October 1, 2012; and (ii) options to acquire 250,000
shares of the Company’s common stock at $2.59 per share until May 1,
2016.
(5)
Includes: (i) warrants to acquire 17,250 shares of the Company’s common stock at
$1.25 until February 20, 2011; and (ii) options to acquire 500,000 shares of
the
Company’s common stock at $2.59 per share until May 1, 2016.
(6)
Includes securities reflected in footnotes 1 - 5.
Security
Ownership of Certain Beneficial Owners
As
of
January 19, 2007, the Company was not aware of any person who beneficially
owned, or was known to own beneficially, more than 5% of the Company's
outstanding shares of Common Stock.
Securities
Authorized for Issuance Under Equity Plans
|
Plan
Category
|
|
Number
of securities to be
issued
upon exercise of
outstanding
options, warrants
and
rights
|
|
Weighted
average exercise
price
of outstanding
options,
warrants and rights
|
|
Number
of securities
remaining
available for
future
issuance
|
| |
|
|
|
|
|
|
|
Equity
compensation
plans
approved by
security
holders
|
|
3,360,000(1)
|
|
$2.41
|
|
2,426,000(2)
|
| |
|
|
|
|
|
|
|
Equity
compensation
plans
not approved by
security
holders
|
|
227,353(3)
|
|
$1.25
|
|
|
| |
|
|
|
|
|
|
|
Total
|
|
3,587,353
|
|
$2.34
|
|
2,426,000
|
| |
(1)
|
Includes:
(i) options to acquire 610,000 shares of Common Stock under the Company’s
2000 Equity Incentive Plan; and (ii) options to acquire 2,750,000
shares
of common stock under the Company’s 2006 Stock Option Plan.
|
| |
(2)
|
Includes:
(i) 230,000 shares of Common Stock under the Company’s 2000 Equity
Incentive Plan; and (ii) 2,196,000 shares of common stock under the
Company’s 2006 Stock Option Plan.
|
| |
(3)
|
Includes
(i) warrants to purchase 6,103 shares of Common Stock as compensation
for
services to Tomlinson Programs Inc., (ii) warrants to purchase 204,000
shares of Common Stock as compensation for services to Aegis Capital
Inc.,
and (iii) warrants to purchase 17,250 shares of Common Stock to an
independent director of the Company.
|
Changes
in Control
None.
Item
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company receives rent-free office space in Coeur d'Alene, Idaho from its
president. The value of the space is not considered materially significant
for
financial reporting purposes.
In
January and February 2006, Wesley Pomeroy, a director of the Company,
participated in a private placement with the Company whereby Mr. Pomeroy
purchased, and the Company issued, 150,000 shares of Common Stock and warrants
to purchase 150,000 shares of Common Stock at $1.25 per share and exercisable
for five years. The private placement is described in the Management's
Discussion and Analysis section, above.
In
February 2006, the Company paid to Robert Kramer a consulting fee of $13,800
and
a warrant to purchase 17,250 shares of Common Stock at $1.25 per share and
expiring on February 20, 2011.
Other
than the transactions stated above, none of the directors or executive officers
of the Company, nor any person who owned of record or was known to own
beneficially more than 5% of the Company’s outstanding shares of its Common
Stock, nor any associate or affiliate of such persons or companies, has any
material interest, direct or indirect, in any transaction that has occurred
since November 1, 2004, or in any proposed transaction, which has materially
affected or will affect the Company.
PART
IV
|
Item
13.
|
|
EXHIBITS
|
| |
|
|
|
(a)
|
|
Exhibits
|
| |
|
|
|
3.1(a)
|
|
Articles
of Incorporation.1
|
| |
|
|
|
3.1(b)
|
|
Certificate
of Amendment to Articles of Incorporation,2
and
enclosed herewith.
|
| |
|
|
|
3.2
|
|
Bylaws.2
|
| |
|
|
|
4.1
|
|
2000
Equity Incentive Plan, enclosed herewith.
|
| |
|
|
|
4.2
|
|
2006
Stock Option Plan, enclosed herewith.
|
| |
|
|
|
10.1
|
|
Subscription
Agreement between the Company and subscribers, dated March 6,
2006.3
|
| |
|
|
|
10.2
|
|
Employment
Agreement with Merlin Bingham, effective January 1, 2007, enclosed
herewith.
|
| |
|
|
|
10.3
|
|
Employment
Agreement with Roger Kolvoord, effective January 1, 2007, enclosed
herewith.
|
| |
|
|
|
10.4
|
|
Employment
Agreement with Terry Brown, effective January 1, 2007, enclosed
herewith.
|
| |
|
|
|
14
|
|
Code
of Ethics, enclosed herewith.
|
| |
|
|
|
21.1
|
|
Subsidiaries
of the Registrant, enclosed herewith.
|
| |
|
|
|
31.1
|
|
Certification
of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
| |
|
|
|
31.2
|
|
Certification
of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
| |
|
|
|
32.1
|
|
Certification
of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
| |
|
|
|
32.2
|
|
Certification
of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
| |
|
|
|
99.1
|
|
Sierra
Mojada location map.4
|
|
(1)
|
Incorporated
by reference from Form 10-SB, filed October 15,
1999.
|
|
(2)
|
Incorporated
by reference from Form 10-QSB, filed September 19,
2006.
|
|
(3)
|
Incorporated
by reference from Form 8-K, filed March 6,
2006.
|
|
(4)
|
Incorporated
by reference from Form 10-KSB, filed January 31,
2006.
|
Item
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
Williams
& Webster, P.S. serves as our independent registered public accounting firm.
Audit
Fees
Our
principal accountant, Williams & Webster, P.S., billed us aggregate fees in
the amount of approximately $35,395 for the fiscal year ended October 31, 2006
and approximately $21,647 for the fiscal year ended October 31, 2005. These
amounts were billed for professional services that Williams & Webster, P.S.
provided for the audit of our annual financial statements and the review of
the
financial statements included in our report on 10-KSB.
Audit-Related
Fees
There
were no fees billed by Williams & Webster, P.S. for audit-related services
rendered during fiscal years ended October 31, 2006 and 2005.
Tax
Fees
There
were no fees billed by Williams & Webster, P.S. for tax services rendered
during fiscal years ended October 31, 2006 and 2005.
All
Other Fees
There
were no other services provided by Williams & Webster, P.S. during fiscal
years ended October 31, 2006 and 2005.
Audit
Committee's Pre-Approval Practice
Section 10A(i) of
the Exchange Act prohibits our auditors from performing audit services for
us as
well as any services not considered to be "audit services" unless such services
are pre-approved by the audit committee of the Board of Directors, or unless
the
services meet certain de
minimis
standards. The audit committee's charter (adopted May 1, 2006) provides that
the
audit committee must:
| |
·
|
Preapprove
all audit services that the auditor may provide to us or any subsidiary
(including, without limitation, providing comfort letters in connection
with securities underwritings or statutory audits) as required by
§10A(i)(1)(A) of the Exchange Act (as amended by the Sarbanes-Oxley
Act of
2002).
|
| |
·
|
Preapprove
all non-audit services (other than certain de
minimis
services described in §10A(i)(1)(B) of the Exchange Act (as amended by the
Sarbanes-Oxley Act of 2002)) that the auditors propose to provide
to us or
any of our subsidiaries.
|
The
audit
committee considers at each of its meetings whether to approve any audit
services or non-audit services. In some cases, management may present the
request; in other cases, the auditors may present the request.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
|
|
| |
METALLINE
MINING COMPANY
|
|
|
|
|
Date:
January 31, 2007
|
By: |
/s/ Merlin
Bingham |
| |
Merlin
Bingham, President and Principal Executive
Officer
|
| |
|
|
|
|
|
|
Date:
January 31, 2007
|
By: |
/s/ Wayne
Schoonmaker |
| |
Wayne
Schoonmaker, Secretary and Principal Accounting
Officer
|
Pursuant
to the requirement 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:
| |
|
|
|
|
|
|
Date:
January 31, 2007
|
By: |
/s/ Merlin
Bingham |
| |
Merlin
Bingham, Director
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Date:
January 31, 2007
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By: |
/s/
Roger Kolvoord |
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INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
METALLINE
MINING COMPANY
(An
Exploration Stage Company)
| |
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PAGE
NO.
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Report
of Independent Registered Public Accounting Firm
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F-1
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Financial
Statements:
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Consolidated
Balance Sheets
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F-2
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Consolidated
Statements of Operations
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F-3
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Consolidated
Statements of Changes in Stockholders’ Equity
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F-4
- F-6
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Consolidated
Statements of Cash Flows
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F-7
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Notes
to Consolidated Financial Statements
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F-8
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[The
balance of this page has been intentionally left blank.]
The
Board
of Directors
Metalline
Mining Company
Coeur
d'Alene, Idaho
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying consolidated balance sheets of Metalline Mining Company
(a Nevada corporation and an exploration stage company) as of October 31, 2006
and 2005, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended, and for the period from November
8, 1993 (inception) to October 31, 2006. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Metalline Mining Company
as
of October 31, 2006 and 2005, and the results of its operations, stockholders'
equity and its cash flows for the years then ended, and for the period from
November 8, 1993 (inception) to October 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Williams & Webster, P.S.
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
January
30, 2007
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
| |
|
October
31,
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October
31,
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2006
|
|
2005
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|
ASSETS
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CURRENT
ASSETS
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|
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|
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Cash
and cash equivalents
|
|
$
|
689,994
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$
|
213,369
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Marketable
securities
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5,925,000
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|
-
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Accounts
receivable
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35,934
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|
23,620
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Prepaid
expenses
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14,288
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13,242
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Employee
advances
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-
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9,560
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Total
Current Assets
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|
6,665,216
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259,791
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PROPERTY
CONCESSIONS
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Sierra
Mojada, Mojada 3
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15,875
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|
15,875
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Fortuna
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|
76,725
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|
76,725
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Esmeralda
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|
255,647
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|
255,647
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|
Esmeralda
I
|
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|
180,988
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|
180,988
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U.M.
Nortenos, Vulcano
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|
3,682,772
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|
|
3,682,772
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La
Blanca
|
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|
122,760
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|
|
122,760
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Total
Property Concessions
|
|
|
4,334,767
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|
4,334,767
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EQUIPMENT
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Office
and mining equipment, net
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611,966
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490,884
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Total
Equipment
|
|
|
611,966
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490,884
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TOTAL
ASSETS
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|
$
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11,611,949
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$
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5,085,442
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES
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|
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Accounts
payable
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$
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238,198
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|
$
|
86,189
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|
|
Accounts
payable - Related Parties
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125,460
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|
-
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Accrued
liabilities and expenses
|
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|
116,162
|
|
|
189,046
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Other
liabilities
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10,000
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|
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15,873
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Note
payable, current portion
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-
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4,209
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Total
Current Liabilities
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489,820
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295,317
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LONG-TERM
LIABILITIES
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Note
payable, net of current portion
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-
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7,365
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COMMITMENTS
AND CONTINGENCIES
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-
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-
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STOCKHOLDERS'
EQUITY
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Common
stock, $0.01 par value; 160,000,000 shares authorized,
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34,207,912
and 20,404,585 shares issued and outstanding,
respectively
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342,079
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204,047
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Additional
paid-in capital
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26,831,539
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19,852,673
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Stock
options and warrants
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|
11,763,347
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1,347,839
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Deficit
accumulated during exploration stage
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|
(27,814,836
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)
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|
(16,621,799
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)
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Total
Stockholders' Equity
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|
|
11,122,129
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|
|
4,782,760
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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|
$
|
11,611,949
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$
|
5,085,442
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|
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(0
|
)
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The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
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November
8,
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1993
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|
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|
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|
(Inception)
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|
|
Years
Ended
|
|
to
|
|
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|
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
|
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|
Salaries
and payroll expenses
|
|
|
5,558,746
|
|
|
797,104
|
|
|
8,796,363
|
|
|
Office
and administrative expenses
|
|
|
415,281
|
|
|
309,483
|
|
|
1,404,227
|
|
|
Taxes
and fees
|
|
|
307,919
|
|
|
95,353
|
|
|
797,360
|
|
|
Professional
services
|
|
|
1,017,180
|
|
|
328,954
|
|
|
5,384,852
|
|
|
Directors
fees
|
|
|
1,836,165
|
|
|
|
|
|
1,836,165
|
|
|
Property
expenses
|
|
|
113,962
|
|
|
186,057
|
|
|
2,058,065
|
|
|
Depreciation
|
|
|
89,355
|
|
|
83,557
|
|
|
431,245
|
|
|
Exploration
and research
|
|
|
2,078,777
|
|
|
1,666,884
|
|
|
7,412,863
|
|
|
TOTAL
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
11,417,385
|
|
|
3,467,392
|
|
|
28,121,139
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(11,417,385
|
)
|
|
(3,467,392
|
)
|
|
(28,121,139
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
ore sales, net of expenses
|
|
|
(30,896
|
)
|
|
7,964
|
|
|
134,242
|
|
|
VAT
tax refunds
|
|
|
13,045
|
|
|
119,615
|
|
|
132,660
|
|
|
Rental
income
|
|
|
85,500
|
|
|
8,500
|
|
|
94,000
|
|
|
Miscellaneous
income (expense)
|
|
|
(14,484
|
)
|
|
-
|
|
|
(14,484
|
)
|
|
Interest
and investment income
|
|
|
174,698
|
|
|
29,758
|
|
|
250,171
|
|
|
Interest
and financing expense
|
|
|
(3,515
|
)
|
|
(606
|
)
|
|
(290,286
|
)
|
|
TOTAL
OTHER INCOME
|
|
|
224,348
|
|
|
165,231
|
|
|
306,302
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(11,193,037
|
)
|
|
(3,302,161
|
)
|
|
(27,814,836
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(11,193,037
|
)
|
$
|
(3,302,161
|
)
|
$
|
(27,814,836
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARE
|
|
$
|
(0.36
|
)
|
$
|
(0.16
|
)
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
OF
COMMON SHARES OUTSTANDING
|
|
|
30,748,662
|
|
|
20,014,313
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
| |
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Stock
Subscriptions Receivable
|
|
Stock
Options
and
Warrants
|
|
Accumulated
Deficit
During
Exploration
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1994
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,831
|
)
|
|
(8,831
|
)
|
|
Balances,
October 31, 1994
|
|
|
192,160
|
|
|
1,922
|
|
|
(1,922
|
)
|
|
-
|
|
|
-
|
|
|
(8,831
|
)
|
|
(8,831
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3:1
common stock split
|
|
|
384,320
|
|
|
3,843
|
|
|
(3,843
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1995
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,761
|
)
|
|
(7,761
|
)
|
|
Balances,
October 31, 1995
|
|
|
576,480
|
|
|
5,765
|
|
|
(5,765
|
)
|
|
-
|
|
|
-
|
|
|
(16,592
|
)
|
|
(16,592
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for par value at transfer of ownership
|
|
|
2,000
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20
|
|
|
-
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,450
|
|
|
-
for computer equipment at $0.01 per share
|
|
|
150,000
|
|
|
1,500
|
|
|
13,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
-
for mineral property at $0.01 per share
|
|
|
900,000
|
|
|
9,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1996
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(40,670
|
)
|
|
(40,670
|
)
|
|
Balances,
October 31, 1996
|
|
|
3,134,339
|
|
|
31,344
|
|
|
153,485
|
|
|
-
|
|
|
-
|
|
|
(57,262
|
)
|
|
127,567
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
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
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(582,919
|
)
|
|
(582,919
|
)
|
|
Balances,
October 31, 1997
|
|
|
4,452,439
|
|
|
44,525
|
|
|
941,352
|
|
|
-
|
|
|
-
|
|
|
(640,181
|
)
|
|
345,696
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
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
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1998
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(906,036
|
)
|
|
(906,036
|
)
|
|
Balance,
October 31, 1998
|
|
|
6,092,739
|
|
$
|
60,928
|
|
$
|
2,757,694
|
|
$
|
(300,000
|
)
|
$
|
665,980
|
|
$
|
(2,035,197
|
)
|
$
|
1,149,405
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Stock
Subscriptions
Receivable
|
|
Stock
Options
and
Warrants
|
|
Accumulated
Deficit
During
Exploration
Stage
|
|
Total
|
|
|
Balance,
October 31, 1998
|
|
|
6,092,739
|
|
$
|
60,928
|
|
$
|
2,757,694
|
|
$
|
(300,000
|
)
|
$
|
665,980
|
|
$
|
(2,035,197
|
)
|
$
|
1,149,405
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
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
option and warrant activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
exercise of options at $0.90 per share
|
|
|
250,000
|
|
|
2,500
|
|
|
267,500
|
|
|
-
|
|
|
(45,000
|
)
|
|
-
|
|
|
225,000
|
|
|
-
issuance of options for financing fees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
216,000
|
|
|
-
|
|
|
216,000
|
|
|
-
expiration of options
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
|
-
|
|
|
(60,000
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
subscription received
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 1999
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,423,045
|
)
|
|
(1,423,045
|
)
|
|
Balance,
October 31, 1999
|
|
|
7,217,095
|
|
|
72,172
|
|
|
3,977,350
|
|
|
-
|
|
|
776,980
|
|
|
(3,458,242
|
)
|
|
1,368,260
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option and warrant activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options at $0.86 per share
|
|
|
950,000
|
|
|
9,500
|
|
|
1,090,750
|
|
|
-
|
|
|
(288,000
|
)
|
|
-
|
|
|
812,250
|
|
|
Warrants
issued for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
55,000
|
|
|
-
|
|
|
55,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
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
|
|
|
-
for equipment at $1.67 per share
|
|
|
15,000
|
|
|
150
|
|
|
24,850
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(882,208
|
)
|
|
(882,208
|
)
|
|
Balances,
October 31, 2000
|
|
|
9,742,595
|
|
|
97,427
|
|
|
9,217,330
|
|
|
-
|
|
|
543,980
|
|
|
(4,340,450
|
)
|
|
5,518,287
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option and warrant activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Warrants exercised at $0.75 per share
|
|
|
20,000
|
|
|
200
|
|
|
25,560
|
|
|
-
|
|
|
(10,760
|
)
|
|
-
|
|
|
15,000
|
|
|
-
Options issued for consulting fees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
740,892
|
|
|
-
|
|
|
740,892
|
|
|
-
Warrants issued for consulting fees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
144,791
|
|
|
-
|
|
|
144,791
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for cash at $2.00 per share
|
|
|
250,000
|
|
|
2,500
|
|
|
494,076
|
|
|
-
|
|
|
3,424
|
|
|
-
|
|
|
500,000
|
|
|
-
for cash of $210 and services at $2.07 per share
|
|
|
21,000
|
|
|
210
|
|
|
43,260
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
43,470
|
|
|
-
for cash of $180 and services at $2.05 per share
|
|
|
18,000
|
|
|
180
|
|
|
36,720
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,900
|
|
|
-
for services at $2.45 per share
|
|
|
6,000
|
|
|
60
|
|
|
14,640
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,700
|
|
|
-
for services at $1.50 per share
|
|
|
12,000
|
|
|
120
|
|
|
17,880
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2001
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,069,390
|
)
|
|
(2,069,390
|
)
|
|
Balance,
October 31, 2001
|
|
|
10,069,595
|
|
|
100,697
|
|
|
9,849,466
|
|
|
-
|
|
|
1,422,327
|
|
|
(6,409,840
|
)
|
|
4,962,650
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for cash at $2.00 per share
|
|
|
50,000
|
|
|
500
|
|
|
99,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
-
for cash and warrants at $1.50 per share
|
|
|
96,000
|
|
|
960
|
|
|
134,400
|
|
|
-
|
|
|
8,640
|
|
|
-
|
|
|
144,000
|
|
|
-
for cash and warrants at $1.50 per share
|
|
|
66,667
|
|
|
667
|
|
|
93,333
|
|
|
-
|
|
|
6,000
|
|
|
-
|
|
|
100,000
|
|
|
-
for compensation at an average of $1.23 per share
|
|
|
86,078
|
|
|
861
|
|
|
104,014
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
104,875
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for compensation at $0.61 per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
61,000
|
|
|
-
|
|
|
61,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2002
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(765,765
|
)
|
|
(765,765
|
)
|
|
Balance,
October 31, 2002
|
|
|
10,368,340
|
|
$
|
103,685
|
|
$
|
10,280,713
|
|
$
|
-
|
|
$
|
1,497,967
|
|
$
|
(7,175,605
|
)
|
$
|
4,706,760
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Stock
|
|
Stock
|
|
Deficit
During
|
|
|
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
Subscriptions
|
|
Options
and
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Warrants
|
|
Stage
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2002
|
|
|
10,368,340
|
|
$
|
103,685
|
|
$
|
10,280,713
|
|
$
|
-
|
|
$
|
1,497,967
|
|
$
|
(7,175,605
|
)
|
$
|
4,706,760
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for cash at $2.00 per share
|
|
|
100,000
|
|
|
1,000
|
|
|
199,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
for cash at an average of $0.98 per share
|
|
|
849,000
|
|
|
8,489
|
|
|
821,510
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
829,999
|
|
|
-
for cash and warrants at $1.50 per share
|
|
|
7,000
|
|
|
70
|
|
|
9,847
|
|
|
-
|
|
|
583
|
|
|
-
|
|
|
10,500
|
|
|
-
for compensation at an average of $1.25 per share
|
|
|
391,332
|
|
|
3,913
|
|
|
487,275
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
491,188
|
|
|
-
for services at an average of $1.23 per share
|
|
|
91,383
|
|
|
914
|
|
|
119,320
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
120,234
|
|
|
-
for subscriptions receivable at $1.00 per share
|
|
|
38,000
|
|
|
380
|
|
|
37,620
|
|
|
(38,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,107,228
|
)
|
|
(1,107,228
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2003
|
|
|
11,845,055
|
|
|
118,451
|
|
|
11,955,285
|
|
|
(38,000
|
)
|
|
1,498,550
|
|
|
(8,282,833
|
)
|
|
5,251,453
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
for cash at $1.00 per share, less issuance costs of $698,863
|
|
|
7,580,150
|
|
|
75,802
|
|
|
6,805,485
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,881,287
|
|
|
-
for compensation at an average of $1.26 per share
|
|
|
120,655
|
|
|
1,207
|
|
|
151,064
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
152,271
|
|
|
-
for services at various prices
|
|
|
141,286
|
|
|
1,413
|
|
|
153,801
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
155,214
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
subscription received
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
38,000
|
|
|
-
|
|
|
-
|
|
|
38,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
corrections and adjustments
|
|
|
64,263
|
|
|
643
|
|
|
(643
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,036,805
|
)
|
|
(5,036,805
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2004
|
|
|
19,751,409
|
|
|
197,515
|
|
|
19,064,992
|
|
|
-
|
|
|
1,498,550
|
|
|
(13,319,638
|
)
|
|
7,441,419
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash at an average of $0.98 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
with attached warrants valued at an average of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.28
per share
|
|
|
476,404
|
|
|
4,764
|
|
|
329,806
|
|
|
-
|
|
|
132,159
|
|
|
-
|
|
|
466,729
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for compensation at an average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$1.00 per share
|
|
|
176,772
|
|
|
1,768
|
|
|
175,005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
176,773
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
of stock warrants
|
|
|
-
|
|
|
-
|
|
|
282,870
|
|
|
-
|
|
|
(282,870
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,302,161
|
)
|
|
(3,302,161
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2005
|
|
|
20,404,585
|
|
$
|
204,047
|
|
$
|
19,852,673
|
|
$
|
-
|
|
$
|
1,347,839
|
|
$
|
(16,621,799
|
)
|
$
|
4,782,760
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash at an average of $0.80 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
with attached warrants valued at $0.29 per share
|
|
|
13,374,833
|
|
|
133,748
|
|
|
7,153,399
|
|
|
|
|
|
3,924,480
|
|
|
|
|
|
11,211,627
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services at $0.80 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
attached warrants valued at $0.29 per share
|
|
|
73,650
|
|
|
736
|
|
|
36,855
|
|
|
|
|
|
21,358
|
|
|
|
|
|
58,949
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option and warrant activity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Options issued for compensation at $2.18 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,360,000
|
|
|
|
|
|
4,360,000
|
|
|
-
warrants issued for services at $1.92 per share
|
|
|
|
|
|
|
|
|
(403,215
|
)
|
|
|
|
|
403,215
|
|
|
|
|
|
-
|
|
|
-
Options & warrants for directors fees at an average of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.17
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,665,705
|
|
|
|
|
|
1,665,705
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification
of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,000
|
|
|
|
|
|
48,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for compensation at an average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$0.80 per share
|
|
|
248,593
|
|
|
2,486
|
|
|
154,389
|
|
|
|
|
|
|
|
|
|
|
|
156,875
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants at $1.25 per share
|
|
|
25,000
|
|
|
250
|
|
|
38,250
|
|
|
|
|
|
(7,250
|
)
|
|
|
|
|
31,250
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
of private placement selling price
|
|
|
81,251
|
|
|
812
|
|
|
(812
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended October 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,193,037
|
)
|
|
(11,193,037
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2006
|
|
|
34,207,912
|
|
$
|
342,079
|
|
$
|
26,831,539
|
|
$
|
-
|
|
$
|
11,763,347
|
|
$
|
(27,814,836
|
)
|
$
|
11,122,129
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
Period
from
|
|
| |
|
|
|
|
|
November
8, 1993
|
|
| |
|
|
|
|
|
(Inception)
|
|
| |
|
Years
Ended
|
|
|
|
to
|
|
| |
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,193,037
|
)
|
$
|
(3,302,161
|
)
|
$
|
(27,814,836
|
)
|
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
89,355
|
|
|
83,557
|
|
|
431,245
|
|
|
Noncash
expenses
|
|
|
-
|
|
|
-
|
|
|
126,864
|
|
|
Common
stock issued for services
|
|
|
58,949
|
|
|
-
|
|
|
1,025,487
|
|
|
Common
stock issued for compensation
|
|
|
156,875
|
|
|
176,772
|
|
|
977,106
|
|
|
Options
issued for compensation
|
|
|
4,360,000
|
|
|
|
|
|
4,360,000
|
|
|
Options
and warramts issued for directors fees
|
|
|
1,665,705
|
|
|
|
|
|
1,665,705
|
|
|
Stock
options issued for services
|
|
|
48,000
|
|
|
-
|
|
|
849,892
|
|
|
Stock
options issued for financing fees
|
|
|
-
|
|
|
-
|
|
|
276,000
|
|
|
Common
stock issued for payment of expenses
|
|
|
-
|
|
|
-
|
|
|
326,527
|
|
|
Stock
warrants issued for services
|
|
|
-
|
|
|
-
|
|
|
688,771
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
-
|
|
|
Accounts
receivable
|
|
|
(12,314
|
)
|
|
64,544
|
|
|
(35,934
|
)
|
|
Prepaid
expenses
|
|
|
(1,046
|
)
|
|
(11,190
|
)
|
|
(14,288
|
)
|
|
Employee
advances
|
|
|
9,560
|
|
|
24,462
|
|
|
-
|
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
-
|
|
|
Related
party payable
|
|
|
125,460
|
|
|
-
|
|
|
125,460
|
|
|
Accounts
payable
|
|
|
152,009
|
|
|
28,959
|
|
|
238,198
|
|
|
Contracts
payable
|
|
|
(4,209
|
)
|
|
-
|
|
|
-
|
|
|
Accrued
liabilities and expenses
|
|
|
(78,757
|
)
|
|
59,474
|
|
|
126,162
|
|
|
Net
cash used by operating activities
|
|
|
(4,623,450
|
)
|
|
(2,875,583
|
)
|
|
(16,647,641
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
(5,925,000
|
)
|
|
1,250,000
|
|
|
(5,925,000
|
)
|
|
Purchase
of investments
|
|
|
-
|
|
|
-
|
|
|
(484,447
|
)
|
|
Proceeds
from investments
|
|
|
-
|
|
|
-
|
|
|
484,447
|
|
|
Equipment
purchases
|
|
|
(210,437
|
)
|
|
(7,598
|
)
|
|
(987,405
|
)
|
|
Mining
property acquisitions
|
|
|
-
|
|
|
-
|
|
|
(4,452,631
|
)
|
|
Net
cash used by investing activities
|
|
|
(6,135,437
|
)
|
|
1,242,402
|
|
|
(11,365,036
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of common stock
|
|
|
11,211,627
|
|
|
466,729
|
|
|
27,581,814
|
|
|
Proceeds
from sales of options and warrants
|
|
|
31,250
|
|
|
-
|
|
|
981,140
|
|
|
Deposits
for sale of stock
|
|
|
-
|
|
|
-
|
|
|
125,500
|
|
|
Proceeds
from shareholder loans
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
Payment
of note payable
|
|
|
(7,365
|
)
|
|
(4,209
|
)
|
|
(15,783
|
)
|
|
Net
cash provided by financing activities:
|
|
|
11,235,512
|
|
|
462,520
|
|
|
28,702,671
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
476,625
|
|
|
(1,170,661
|
)
|
|
689,994
|
|
|
Cash
and cash equivalents beginning of period
|
|
|
213,369
|
|
|
1,384,030
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents end of period
|
|
$
|
689,994
|
|
$
|
213,369
|
|
$
|
689,994
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Interest
paid
|
|
$
|
3,515
|
|
$
|
606
|
|
$
|
286,771
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for equipment
|
|
$
|
-
|
|
$
|
-
|
|
$
|
25,000
|
|
|
Common
stock options issued for financing fees
|
|
$
|
-
|
|
$
|
-
|
|
$
|
276,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Metalline
Mining Company ("the Company") was incorporated in the State of Nevada on
November 8, 1993 as the Cadgie Company for the purpose of acquiring and
developing mineral properties. The Cadgie Company was a spin-off from its
predecessor, Precious Metal Mines, Inc. 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
one mining property located in Mexico known as the Sierra Mojada Property.
The
Company conducts its operations in Mexico through its wholly owned subsidiary
corporations, Minera Metalin S.A. de C.V. (“Minera Metalin”) and Contratistas de
Sierra Mojada S.A. de C.V.
The
Company’s efforts have been concentrated in expenditures related to exploration
properties, principally in the Sierra Mojada project located in Coahuila,
Mexico. The Company has not determined whether the exploration properties
contain ore reserves that are economically recoverable. The ultimate realization
of the Company’s investment in exploration properties is dependent upon the
success of future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing or make other
arrangements for development, and upon future profitable production. The
ultimate realization of the Company’s investment in exploration properties
cannot be determined at this time, and accordingly, no provision for any asset
impairment that may result, in the event the Company is not successful in
developing or selling these properties, has been made in the accompanying
financial statements.
The
Company is actively seeking additional capital and management believes its
properties can ultimately be sold or developed to enable the Company to continue
its operations. However, there are inherent uncertainties in mining operations
and management cannot provide assurances that it will be successful in this
endeavor. Furthermore, the Company is in the exploration stage, as it has not
realized any revenues from its planned operations.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes
are
representations of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the U.S. and have been consistently applied
in
the preparation of the financial statements.
Accounting
Method
The
Company's financial statements are prepared using the accrual method of
accounting.
Accounts
Receivable
The
Company carries its accounts receivable at cost. On a periodic basis, the
Company evaluates its accounts receivable and determines if an allowance for
doubtful accounts is necessary, based on a history of past write-offs and
collections and current credit conditions.
The
Company has not yet established a policy regarding accruing interest on trade
receivables. Accounts will be written off as uncollectible when it is determined
that collection will be unlikely.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all bank
accounts, certificates of deposit, money market accounts and short-term debt
securities purchased with a maturity of three months or less to be cash
equivalents.
Compensated
Absences
The
Company’s policy is to recognize the cost of compensated absences when actually
paid to employees. If the amount were estimatible, it would not be currently
recognized as the amount would be deemed immaterial.
Concentration
of Risk
The
Company maintains its domestic cash in two commercial depository accounts.
These
accounts, as well as the certificates of deposits held by the Company, are
insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000
each. Funds held in preferred stock, totaling $4,500,000, are not insured.
The
Company also maintains cash in banks in Mexico. These accounts, which had U.S.
dollar balances of $184,679 and $30,110 at October 31, 2006 and 2005
respectively, are denominated in pesos and are considered uninsured. At October
31, 2006, the Company’s cash balances and marketable securities included
$4,684,679 which were not federally insured.
Derivative
Instruments
The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” (hereinafter “SFAS No. 133”) as amended by SFAS No. 137,
“Accounting for Derivative Instruments and Hedging Activities - Deferral of
the
Effective Date of FASB No. 133”, and SFAS No. 138, “Accounting for Certain
Derivative Instruments and Certain Hedging Activities” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
These statements establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. They require that an entity recognize
all
derivatives as either assets or liabilities in the consolidated balance sheet
and measure those instruments at fair value.
If
certain conditions are met, a derivative may be specifically designated as
a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged
risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
Historically,
the Company has not entered into derivatives contracts to hedge existing risks
or for speculative purposes.
During
the years ended October 31, 2006 and 2005, the Company has not engaged in any
transactions that would be considered derivative instruments or hedging
activities.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings
Per Share
The
Company has adopted Statement of Financial Accounting Standards No. 128, which
provides for calculation of "basic" and "diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing net income
available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity similar
to
fully diluted earnings per share. Although there were common stock equivalents
of 18,174,723 shares and 1,833,887 shares outstanding at October 31, 2006 and
2005, respectively, they were not included in the calculation of earnings per
share because they would have been considered anti-dilutive.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Exploration
Costs
In
accordance with accounting principles generally accepted in the United States
of
America, the Company expenses exploration costs as incurred. Exploration costs
expensed during the years ended October 31, 2006 and 2005 were $2,078,777 and
$1,666,884, respectively. The exploration costs expensed during the Company’s
exploration stage amount to $7,412,863.
Exploration
Stage Activities
The
Company has been in the exploration stage since November 8, 1993 and has no
revenues from operations. The Company is primarily engaged in the acquisition
and exploration of mineral properties. Should the Company locate a commercially
mineable reserve, the Company would expect to actively prepare the site for
extraction.
Fair
Value of Financial Instruments
The
Company's financial instruments as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
include cash and cash equivalents, marketable securities, receivables, advances
to employees, accounts payable and accrued expenses. All instruments are
accounted for on a historical cost basis, which, due to the short maturity
of
these financial instruments, approximates fair value at October 31, 2006 and
2005.
Foreign
Currency Translation
Assets
and liabilities of the Company’s foreign operations are translated into U.S.
dollars at the year-end exchange rates, and revenue and expenses are translated
at the average exchange rates during the period. Exchange differences arising
on
translation are disclosed as a separate component of shareholders’ equity.
Realized gains and losses from foreign currency transactions are reflected
in
the results of operations.
Foreign
Operations
The
accompanying balance sheet at October 31, 2006 contains Company assets in
Mexico, including: $4,334,767 in mineral properties; $533,124 (before
accumulated depreciation) of mining equipment; and $184,679 of cash. Although
this country is considered economically stable, it is always possible that
unanticipated events in foreign countries could disrupt the Company’s
operations. The Mexican government does not require foreign entities to maintain
cash reserves in Mexico.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
At
October 31, 2005 the Company held no marketable securities. A portion of the
proceeds from the recent private placement was invested with a major securities
investment firm in marketable securities pending a need for the funds, and
at
October 31, 2006 the Company held $5,925,000 in available-for-sale marketable
securities, consisting of $4,500,000 in preferred securities (including treasury
inflation protected securities and auction rate preferred securities) and
$1,425,000 in fixed income securities (certificates of deposit) with terms
of
less than one year. For both types of securities, cost (carrying value)
approximates market value.
Mineral
Properties
Costs
of
acquiring mineral properties are capitalized by project area upon purchase
or
staking of the associated claims. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the production stage,
the related capitalized costs will be amortized, using the units of production
method on the basis of periodic estimates of ore reserves.
Mineral
properties are periodically assessed for impairment of value and any diminution
in value is charged to operations at the time of impairment. Should a property
be abandoned, its capitalized costs are charged to operations. The Company
charges to operations the allocable portion of capitalized costs attributable
to
properties sold. Capitalized costs are allocated to properties abandoned or
sold
based on the proportion of claims abandoned or sold to the claims remaining
within the project area.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, after elimination of intercompany accounts and
transactions. The wholly owned subsidiaries of the Company are listed in Note
1.
Property
and Equipment
Property
and equipment are recorded at cost. Major additions and improvements are
capitalized. Minor replacements, maintenance and repairs that do not increase
the useful life of the assets are expensed as incurred. Depreciation of property
and equipment is determined using the straight-line or accelerated methods
over
the expected useful lives of the assets. See Note 3.
Provision
for Taxes
Income
taxes are provided based upon the liability method of accounting pursuant to
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end. A valuation allowance is recorded against deferred
tax
assets if management does not believe the Company has met the “more likely than
not” standard imposed by SFAS No. 109 to allow recognition of such an
asset.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
At
October 31, 2006, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $6,500,000, 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 October 31, 2006 and 2005
were as follows:
| |
|
October
31,
|
|
October
31,
|
|
| |
|
2006
|
|
2005
|
|
|
Net
operating loss carryforward
|
|
$
|
19,100,000
|
|
$
|
14,900,000
|
|
| |
|
|
|
|
|
|
|
|
Deferred
tax asset
|
|
$
|
6,500,000
|
|
$
|
5,000,000
|
|
|
Deferred
tax asset valuation allowance
|
|
$
|
(6,500,000
|
)
|
$
|
(5,000,000
|
)
|
At
October 31, 2006, the Company has net operating loss carryforwards of
approximately $19,100,000, which expire in the years 2008 through 2026. The
change in the allowance account from October 31, 2005 to 2006 was $1,500,000.
The Company has immaterial temporary differences resulting from differences
in
tax depreciation of equipment.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, “Fair Value Measurements” (hereinafter
“SFAS No. 157”), which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. Where applicable, SFAS No. 157
simplifies and codifies related guidance within GAAP and does not require any
new fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. Earlier adoption is encouraged. The Company does
not
expect the adoption of SFAS No. 157 to have a significant effect on its
financial position or results of operation
In
June
2006, the Financial Accounting Standards Board issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109” (hereinafter “FIN 48”), which prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48
is
effective for fiscal years beginning after December 15, 2006. The Company does
not expect the adoption of FIN 48 to have a material impact on its financial
reporting, and the Company is currently evaluating the impact, if any the
adoption of FIN 48 will have on its disclosure requirements.
In
March
2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets-an
amendment of FASB Statement No. 140.” This statement requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
any of the following situations: a transfer of the servicer’s financial assets
that meets the requirements for sale accounting; a transfer of the servicer’s
financial assets to a qualifying special-purpose entity in a guaranteed mortgage
securitization in which
the
transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities in accordance with FASB
Statement No. 115; or an acquisition or assumption of an obligation to service
a
financial asset that does not relate to financial assets of the servicer or
its
consolidated affiliates. The statement also requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair
value, if practicable and permits an entity to choose either the amortization
or
fair value method for subsequent measurement of each class of servicing assets
and liabilities. This statement is effective for fiscal years beginning after
September 15, 2006 with early adoption permitted as of the beginning of an
entity’s fiscal year. Management believes the adoption of this statement will
have no impact on the Company’s financial condition or results of operations.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
Accounting Pronouncements (continued)
In
February 2006, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Standards No.133 and 140” (hereafter “SFAS No.
155”). This statement established the accounting for certain derivatives
embedded in other instruments. It simplifies accounting for certain hybrid
financial instruments by permitting fair value remeasurement for any hybrid
instrument that contains an embedded derivative that otherwise would require
bifurcation under SFAS No. 133 as well as eliminating a restriction on the
passive derivative instruments that a qualifying special-purpose entity (“SPE”)
may hold under SFAS No. 140. This statement allows a public entity to
irrevocably elect to initially and subsequently measure a hybrid instrument
that
would be required to be separated into a host contract and derivative in its
entirety at fair value (with changes in fair value recognized in earnings)
so
long as that instrument is not designated as a hedging instrument pursuant
to
the statement. SFAS No. 140 previously prohibited a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
statement is effective for fiscal years beginning after September 15, 2006,
with
early adoption permitted as of the beginning of an entity’s fiscal year.
Management believes the adoption of this statement will have no impact on the
Company’s financial condition or results of operations.
In
May
2005, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 154, “Accounting Changes and error Corrections,”
(hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion
No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in
Interim Financial Statements - An Amendment of APB Opinion No. 28.” SFAS No. 154
provides guidance on accounting for and reporting changes in accounting
principles and error corrections. SFAS No. 154 requires that changes in
accounting principle be applied retrospectively to prior period financial
statements and is effective for fiscal years beginning after December 15, 2005.
Management does not expect SFAS No. 154 to have a material impact on the
Company’s financial position, results of operations, or cash flows.
Revenue
Recognition Policy
The
Company recognizes revenue when there is a mutually executed contract, the
contract price is fixed and determinable, delivery of the product has occurred,
and collectibility of the contract price is considered probable. As of October
31, 2006, the Company has not recognized revenues.
Stock-Based
Compensation
Statement
of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (hereinafter “SFAS No. 123”),
defines
a
fair value-based method of accounting for stock options and other equity
instruments. The Company has adopted this method, which measures compensation
costs based on the estimated fair value of the award and recognizes that cost
over the service period.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost. Depreciation is provided using the
straight-line or accelerated methods over the estimated useful lives of the
assets. The useful lives of property, plant and equipment for purposes of
computing depreciation are five to seven years for equipment, and 39 years
for
buildings. The following is a summary of property, equipment, and accumulated
depreciation at October 31, 2006 and 2005:
| |
|
2006
|
|
2005
|
|
|
Communication
Equipment
|
|
$
|
10,179
|
|
$ |
|
|
|
Mining
equipment
|
|
|
589,751
|
|
|
514,855
|
|
|
Buildings
and structures
|
|
|
141,061
|
|
|
141,061
|
|
|
Land
- non mineral
|
|
|
15,839
|
|
|
15,839
|
|
|
Vehicles
|
|
|
152,030
|
|
|
42,068
|
|
|
Computer
equipment
|
|
|
120,664
|
|
|
88,787
|
|
|
Office
equipment
|
|
|
9,446
|
|
|
4,183
|
|
|
Furniture
and fixtures
|
|
|
888
|
|
|
8,185
|
|
| |
|
|
1,039,858
|
|
|
807,380
|
|
|
Less:
Accumulated depreciation
|
|
|
(427,892
|
)
|
|
(324,094
|
)
|
| |
|
$
|
611,966
|
|
$
|
490,884
|
|
Depreciation
expense for the years ended October 31, 2006 and 2005 was $89,355 and $83,557,
respectively. The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be impaired.
The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying amounts.
Maintenance and repairs are expensed as incurred. Replacements and betterments
are capitalized. The cost and related reserves of assets sold or retired are
removed from the accounts, and any resulting gain or loss is reflected in
results of operations.
NOTE
4 - PROPERTIES—CONCESSIONS
Sierra
Mojada Mining Concessions
In
June
of 1996, USMX (now named Dakota) and the Company entered into a joint venture
agreement, whereby the Company could acquire a 65% interest in a mining
concession named The
Sierra Mojada Project, located in Coahuila, Mexico. Under the terms of the
agreement, the Company was to contribute two million dollars ($2,000,000) in
work commitments over the following seven years.
After
the
execution of the USMX agreement, Dakota’s interest (35%) in the joint venture
was sold to an entity, which subsequently defaulted on its joint venture
obligations. This action in 1998 triggered the elimination of the joint venture
and resulted in the Company assuming 100% control of the Sierra Mojada
concession without the need to spend $2,000,000 to vest its
interest.
During
the period of August 23, 1996 to September 2, 1997, the Company executed five
separate agreements for the acquisition of exploration concessions in the same
mining region as the Sierra Mojada Project in Mexico.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
4 - PROPERTIES—CONCESSIONS (continued)
Each
agreement enables the Company to explore the underlying property by paying
stipulated annual payments, which shall be applied in full toward the contracted
purchase price of the related concession.
During
August 2000, the Company made the final payment for the first year and acquired
title to the Unificacion Mineros Nortenos Concession in the Sierra Mojada
Project. With this transaction, the Company acquired title to all of its
concessions at Sierra Mojada.
NOTE
5 - LONG-TERM LIABILITIES
The
Company’s long-term liabilities at October 31, 2006 and 2005 are as
follows:
| |
|
2006
|
|
2005
|
|
|
Note
payable to bank, due July of 2008,
|
|
|
|
|
|
|
|
|
monthly
principal and interest payments
|
|
|
|
|
|
|
|
|
at
4.94%, collateralized by a vehicle
|
|
$
|
0
|
|
$
|
11,574
|
|
| |
|
|
|
|
|
|
|
|
Less:
Current portion
|
|
|
0
|
|
|
(4,209
|
)
|
| |
|
$
|
0
|
|
$
|
7,365
|
|
|
The
Loan balances were paid off in the year ended October 31, 2006.
|
NOTE
6 - RELATED PARTY TRANSACTIONS
The
Company receives rent-free office space in Coeur d’Alene, Idaho from its
president. The value of the space is not considered materially significant
for
financial reporting purposes.
NOTE
7 - COMMON STOCK
During
the year ended October 31, 2006, the Company issued 13,456,084 shares of common
stock for cash consideration at an average of $0.80 per share and 73,650 shares
valued at $0.80 per share for services received. Included with each share
purchased was a warrant to purchase one share of the Company’s common stock at
an exercise price of $1.25 per share with and exercise period of 5 years. In
addition, warrants were exercised for 25,000 shares of common stock for cash
consideration at an average of $1.25 per share. There were also 54,000 shares
of
common stock granted to the Company’s independent directors at an average value
of $2.32 per share for services received. Although the shares were due to the
directors at October 31, 2006, they have not yet been issued. In addition,
248,593 shares of common stock were issued to employees of the Company for
prior
compensation at an average value of $2.69 per share during the year ended
October 31, 2006.
During
the year ended October 31, 2005, the Company issued 476,404 shares of common
stock for cash consideration at an average of $0.98 per share. In addition,
176,772 shares of common stock were issued to officers and employees of the
company at an average of $1.00 per share in payment of accrued wages. On
September 28, 2005 the Company authorized the issuance of 7,500,000 shares
of
common stock at a price of $0.80 per share, to include with each share purchased
a warrant to purchase one share of the Company’s common stock at an exercise
price of $1.25 per share and with an exercise period of 5 years. Accordingly,
options
to purchase 476,404 shares of common stock were issued during the year ended
October 31, 2005.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
7 - COMMON STOCK (continued)
During
the year ended October 31, 2004, the Company issued 7,580,150 shares of common
stock for cash consideration at $1.00 per share less issuance costs of $698,863.
Officers of the Company were issued 120,655 shares at an average of $1.26 per
share in payment of accrued wages. The Company also issued 141,286 shares in
exchange for services received. See
Note
13.
During
the year ended October 31, 2003, the Company sold 7,000 common stock units
with
an ascribed cash value of $10,500. The Company also sold 849,000 shares at
an
average
price of $0.98 per share. The Company also issued 100,000 shares of common
stock
under the Penoles agreement for cash, at $2.00 per share. Additionally, 373,925
shares of common stock valued at $468,771 were issued as compensation to
officers.
During
the year ended October 31, 2002, the Company sold 162,667 common stock units
with an ascribed cash value of $229,360 for common stock, and $14,640 for
warrants. The Company also issued 50,000 shares of common stock under the
Penoles agreement for cash at $2.00 a share. (See Note 11.) Additionally, 86,078
shares of common stock valued at $104,875 were issued as compensation to
officers. On May 20, 2002, the Company authorized the offering of 1,000,000
common stock units, with each unit consisting of one share of common stock
and
one warrant equal to 1/3 of a share of common stock.
During
the year ended October 31, 2001, the Company issued 20,000 shares of common
stock for the exercise of warrants valued at $10,760 and for cash of $15,000.
Additionally, 57,000 shares of common stock were issued for services valued
at
$112,680 and for cash of $390, and 250,000 shares of common stock with 125,000
warrants attached were issued for $500,000 in cash.
During
the year ended October 31, 2000, the Company sold 1,440,500 shares of its common
stock for $3,968,625 cash, issued 120,000 shares of common stock for services
valued $153,360, issued 15,000 shares of common stock for equipment valued
at
$25,000 and issued 950,000 shares of common stock for options exercised at
$0.86
per share.
During
the year ended October 31, 1999, the Company sold 1,068,800 shares of common
stock for $1,075,900 cash. In addition the Company received $37,500 as a deposit
toward the purchase of 50,000 shares (this stock was issued in December 1999)
and $300,000 for payment of subscriptions receivable. The Company also issued
55,556 shares for payment of drilling expenses valued at $50,000.
In
February 1998, 200,000 shares of common stock were issued for a mine database.
The shares were valued at $1.625 per share, resulting in a transaction valued
at
$325,000. Services valued at $22,300 were paid with 41,800 shares of common
stock. An additional 1,398,500 shares of common stock were issued for $1,065,445
cash and receivables, and a subscription receivable of $300,000, between
February and October 1998.
In
April
1997, 250,000 common stock shares were issued for cash of $87,500 and 133,800
shares of common stock were issued for services valued at $45,583. In May and
June 1997, 181,600 shares
of
common stock were issued for $63,560 cash and 62,500 shares of common stock
were
issued for services valued at$21,875. In August and October 1997, 420,000 and
75,000 shares of common
stock were issued for cash of $378,000 and $75,000, respectively. Additionally,
during August 1997, 100,200 shares of common stock were issued for debt of
$31,530 and 95,000 shares of common stock were issued for services valued at
$95,000.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
7 - COMMON STOCK (Continued)
During
November 1995, the Company’s directors approved the issuance of 45,000 shares of
common stock for services rendered at $0.01 per share. During June 1996, the
Company issued 900,000 shares of common stock for the assignment of mineral
rights in the Sierra Mojada Project in Coahuila, Mexico valued at $0.01 per
share to Messrs. John Ryan, Merlin Bingham, and Daniel Gorski, who had formed a
partnership to advance development of the mining concession located in Coahuila,
Mexico. The partnership had an informal joint venture agreement with USMX,
Inc.
covering the mining concessions. By acquiring the partnership interest, the
Company was able to negotiate and sign a formal joint venture agreement with
USMX in July 1996.
During
the year ended October 31, 1996, Metalline Mining Company issued 1,320,859
shares of common stock for $146,359 in cash. During October 1996, the Company
issued 150,000 shares of common stock for computer equipment valued at $15,000.
Also during October 1996, the Company issued 120,000 shares of common stock
to
Mr. Gorski and an additional 20,000 shares of common stock to Mr. Ryan for
services rendered valued at $14,000.
In
January 1996, Mr. Carmen Ridland, in a private sale, sold a controlling interest
in the corporation to Mr. Howard Crosby. On January 12, 1996, Mr. Ridland
transferred control of Cadgie Co. to Mr. Crosby and Mr. Robert
Jorgensen.
On
August
4, 1995 the directors of Cadgie Co. declared a 3:1 forward stock split of the
outstanding Cadgie Co. shares, thus increasing the number of outstanding shares
from 192,160 to 576,480.
On
August
31, 1994, the directors of Cadgie Co. declared a 1:5 reverse stock split of
the
outstanding Cadgie Co. shares, thus reducing the number of outstanding shares
from 960,800 to 192,160 shares.
The
Company (Cadgie Co.) was formed in August of 1993 and incorporated in November
1993 by Mr. Carman Ridland of Las Vegas, Nevada as a spin-off from its
predecessor, Precious Metal Mines, Inc. The Company issued 960,800 of its $0.01
par value shares to Precious Metal Mines, Inc. for 16 unpatented mining claims
located near Philipsburg, Montana comprising the Kadex property group. Precious
Metal Mines, Inc. distributed the 960,800 shares of Cadgie Company to its
shareholders. One share of Cadgie Co. was exchanged for each share of Precious
Metal Mines, Inc. held by holders of record as of August 31, 1993.
NOTE
8 - STOCK OPTIONS
During
the year ended October 31, 2006, the Company granted 2,000,000 options to
officers under the Stock Option Plan of 2006 with an exercise price of $2.59
and
an expiration of ten years. The fair value of these options was determined
using
the Black-Scholes option pricing model using a risk free interest rate of 5%,
no
dividends to be paid, and a volatility of 80%. The total value was calculated
at
$4,360,000. In addition, the Company granted 750,000 option to independent
directors with an exercise price of $2.59 and an expiration of ten years. The
fair value of these options was determined using the Black-Scholes option
pricing model using a risk free interest rate of 5%, no dividends to be paid,
and a volatility of 80%. The total value was calculated at
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
8 - STOCK OPTIONS (continued)
$1,635,000.
In addition, the terms of 310,000 options granted under the Stock Option
Plan of
2000 and scheduled to expire October 4, 2006 were extended to October 4,
2010,
with an exercise price of $1.32 per share. The fair value of the options
was
determined using the Black-Scholes option pricing model using a risk free
interest rate of 5%, no dividends to be paid, and a volatility of 80% The
total
value was calculated at $48,000.
In
2002,
the Company granted 100,000 options with an exercise price of $1.25 and an
expiration of seven years. The fair value of these options was determined using
the Black-Scholes option pricing model using a risk free interest rate of 3.25%
and a volatility of 42.49%. The total value was calculated at
$61,000.
Following
is a summary of the Company’s stock option activity during the years ending
October 31, 2006 and 2005:
| |
|
Shares
|
|
Weighted
Average Exercise Price
|
|
| |
|
|
|
|
|
|
Options
outstanding at November 1, 2004
|
|
|
670,000
|
|
$
|
1.58
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
Canceled
|
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Options
outstanding at October 31, 2005
|
|
|
670,000
|
|
|
1.58
|
|
|
Granted
|
|
|
2,750,000
|
|
|
2.59
|
|
|
Canceled
|
|
|
(60,000
|
)
|
|
1.32
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Options
outstanding at October 31, 2006
|
|
|
3,360,000
|
|
$
|
2.56
|
|
On
July
7, 2006, the Company’s shareholders approved a qualified stock option plan (the
“Plan”), which provides for non-statutory and incentive stock options for
employees, directors and consultants, and has reserved a total of 5,000,000
shares of common stock for issuance pursuant to the Plan.
On
March
1, 2001, the Company’s shareholders approved a qualified stock option plan (the
“Plan”), which provides for non-statutory and incentive stock options for
employees, directors and consultants, and has reserved a total of 1,000,000
shares of common stock for issuance pursuant to the Plan. Summarized information
about stock options outstanding and exercisable at October 31, 2006 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
|
|
|
$
|
1.30
|
|
|
100,000
|
|
|
2.77
|
|
$
|
1.30
|
|
|
100,000
|
|
$
|
1.30
|
|
| |
1.32
|
|
|
310,000
|
|
|
3.93
|
|
|
1.32
|
|
|
310,000
|
|
|
1.32
|
|
| |
2.59
|
|
|
2,750,000
|
|
|
9.50
|
|
|
2.59
|
|
|
2750,000
|
|
|
2.59
|
|
| |
2.15
|
|
|
200,000
|
|
|
3.33
|
|
|
2.15
|
|
|
200,000
|
|
|
2.15
|
|
|
$
|
1.30-2.59
|
|
|
3,360,000
|
|
|
8.40
|
|
$
|
2.41
|
|
|
3,360,000
|
|
$
|
2.41
|
|
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
9 - WARRANTS
During
the year ended October 31, 2006, the Company issued as a private placement
13,456,084 common stock units that consisted of 13,456,084 shares of common
stock and warrants to purchase an additional 13,456,084 shares of common stock.
As part of the total cash purchase, the warrants were valued at $3,945,838.
Also
during the year ended October 31, 2006 the Company granted warrants for 210,103
shares for services in connection with the Company’s private placement, with an
exercise price of $1.25 and an expiration of 5 years. The fair value of these
options was determined using the Black-Scholes option pricing model using a
risk
free interest rate of 5%, no dividends to be paid, and a volatility of 80%.
The
total value was calculated at $403,215. Also during the year ended October
31,
2006 the Company issued a warrant for 17,250 shares to an independent director
with an exercise price of $1.25 and an expiration of 5 years. The fair value
of
this warrant was determined using the Black-Scholes option pricing model using
a
risk free interest rate of 5%, no dividends to be paid, and a volatility of
80%.
The total value was calculated at $30,705.
During
the year ended October 31, 2005, the Company issued 476,404 common stock units
that consisted of 476,354 shares of common stock and warrants to purchase an
additional 476,404 shares of common stock. As part of the total cash purchase,
the warrants were valued at $108,373.
The
Company did not issue common stock warrants during the year ended October 31,
2004.
During
the year ended October 31, 2003, the Company issued 7,000 common stock units
that consisted of 7,000 shares of common stock and warrants to purchase an
additional 2,333 shares
of
common stock. As part of the total cash purchase, the warrants were valued
at
$583.
During
the year ended October 31, 2002, the Company issued 162,667 common stock units
that were made up of 162,667 shares of common stock and warrants to purchase
an
additional 54,222 shares of common stock. As part of the total cash purchase,
the warrants were valued at $14,640.
During
the year ended October 31, 2001, the Company issued 250,000 shares of stock
with
125,000 warrants attached. These warrants were valued at $3,424. Additionally
20,000 warrants were exercised for $15,000 in cash and services valued at
$10,760. The Company also issued 80,000 warrants for services, which were valued
at $144,791.
At
October 31, 2000, there were outstanding warrants to purchase 996,500 shares
of
the Company’s common stock, at prices ranging from $0.75 to $2.00 per share. The
warrants, which became exercisable in 1999, but have not been exercised, expire
at various dates through 2005. The Company has reserved 996,500 shares for
the
expected exercise of these warrants. These warrants were valued at $543,980
using the method described below.
The
fair
value of each warrant is estimated on the issue date using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating
fair
value: risk free interest of 5%, volatility of 0.3 and 0.5 and expected life
of
5 to 10 years.
NOTE
10 - COMMITMENTS AND CONTINGENCIES
Compliance
with Environmental Regulations
The
Company’s mining activities are subject to laws and regulations controlling not
only the exploration
and mining of mineral properties, but also the effect of such activities on
the
environment.
Compliance with such laws and regulations may necessitate additional capital
outlays, affect the economics of a project, and cause changes or delays in
the
Company’s activities.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
10 - COMMITMENTS AND CONTINGENCIES (continued)
Loss
Contingencies
In
December 2002, Minera Metalin, the Company's Mexican subsidiary, was named
as a
co-defendant in a lawsuit filed in Mexico regarding the Company's purchase
of
two mining concessions. During the year ended October 31, 2003 the Company
settled this suit for approximately $36,000. The Company paid approximately
$13,800 at the time of settlement, with the balance payable in six equal
installments of approximately $3,700. The Company has met its obligation under
the settlement at October 31, 2004.
NOTE
11 - JOINT VENTURE AGREEMENTS
Penoles
Agreement
On
November 15, 2001, the Company entered into an agreement with Compania Minera
La
Parrena S.A. de C.V. ("Penoles") whereby Penoles may earn the right to acquire
a
60% interest in certain mining concessions located in the Sierra Mojada region
of Coahuila, Mexico. The earn-in right was 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 $2.00 per share. As of October 31, 2003, Penoles had purchased 150,000
shares of common stock under this agreement. See Note 8.
During
the year ended October 31, 2003, the Company received reimbursement of $151,536
from Penoles for expenses incurred by Metalline, which were applied toward
an
aggregate $85,712 of qualified expenditures incurred by Penoles. In November
2003, the agreement between the Company and Minas Penoles was terminated by
the
Company.
Northern
Limited
On
October 7, 1999, the Company announced that it entered into a five-year
“earn-in” type of a joint venture agreement with North Limited. The agreement
gives North Limited the right to earn into 60% of the Company’s Sierra Mojada
Project by providing all funds necessary to complete a feasibility study
delivered in no more than five years that is acceptable to international banking
institutions for lending development capital. North Limited is a large
Australian mining company based in Melbourne, Australia and was known as North
Broken Hill Peko before a name change in 1994. In August 2000, Rio Tinto Limited
purchased North Limited for its iron ore holdings and subsequently terminated
North Limited’s agreement with the Company.
NOTE
12 - SUBSEQUENT EVENTS
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
Effective
January 1, 2007, Merlin Bingham entered into an Executive Employment Agreement
with the Company, pursuant to which he will receive a base annual salary of
$206,000. The executive is entitled to participate in all the Company’s employee
benefit plans and employee benefits,
including any retirement, pension, profit-sharing stock option, insurance,
hospital or other plans and benefits which now may be in effect or which may
hereafter be adopted by the Board of Directors.
Effective
January 1, 2007, Roger Kolvoord entered into an Executive Employment Agreement
with the Company pursuant to which he will receive a base annual salary
(referred to as the Base Fee in his agreement) of $187,000. The executive is
entitled to participate in all the Company’s employee benefit plans and employee
benefits,
including any retirement, pension, profit-sharing, stock option, insurance,
hospital or other plans and benefits which no may be in effect or which may
hereafter be adopted by the Board of Directors. The terms regarding severance
and change of control are substantially identical to those described for Mr.
Bingham’s above.
METALLINE
MINING COMPANY
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2006
NOTE
12 - SUBSEQUENT EVENTS (continued)
Effective
January 1, 2007, Terry Brown entered into an Executive Employment Agreement
with
the Company pursuant to which he will receive a base annual salary (referred
to
as the Base Fee in his agreement) of $125,000. The executive is entitled to
participate in all the Company’s employee benefit plans and employee benefits,
including any retirement, pension, profit-sharing, stock option, insurance
hospital or other plans and benefits which now may be in effect or which may
hereafter be adopted by the Board of Directors. The terms regarding severance
and change of control are substantially identical to those described for Mr.
Bingham’s above.