UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period from 4-1-01 to 6-30-01

|      |                                                                   
|----- | ------------------------------------------------------------------
|[   ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT.

For the transition period from  to

Commission file number 000-31025

METALINE CONTACT MINES

---

(Exact name of small business issuer as specified in its charter)




|                                                         |  |                                  
|-------------------------------------------------------- |  | ---------------------------------
|Washington                                               |  | 91-0779945                       
|                                                         |  |                                  
|(State or jurisdiction of incorporation or
organization) |  | (IRS Employer Identification No.)

6599 Prichard Creek Road, Murray, ID 83874

---

(Address of principal executive offices)


208-682-2217

---

(Issuers
telephone number)


State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practical date: 14,064,300

Transitional Small Business Disclosure Format (Check one):  Yes [   ]  No [X]



---

TABLE OF CONTENTS



|                               |                                                                    |                                   |  |  |  |  |  | 
|------------------------------ | ------------------------------------------------------------------ | --------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                      
|                               |                                                                    | BALANCE SHEETS                   
|                               |                                                                    | STATEMENTS OF OPERATIONS         
|                               |                                                                    | STATEMENT OF STOCKHOLDERS EQUITY
|                               |                                                                    | STATEMENTS OF CASH FLOW          
|                               |                                                                    | NOTES TO THE FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis or Plan of Operations
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                         
|                               | Item 2. Changes in Securities                                     
|                               | Item 3. Defaults Upon Senior Securities                           
|                               | Item 4. Submission of Matters to a Vote of Security Holders       
|                               | Item 5. Other Information                                         
|                               | Item 6. Exhibits and Reports on Form 8-K                          
|SIGNATURES                    

TABLE OF CONTENTS

|                                                                   |  |     
|------------------------------------------------------------------ |  | ----
|PART I  FINANCIAL INFORMATION                                     |  | PAGE
|                                                                   |  |     
|                                                                  
|Item 1. Financial Statements                                       |  | 1   
|                                                                  
|Balance
Sheets                                                     |  | 1   
|                                                                  
|Statement
of Operations                                            |  | 2   
|                                                                  
|Statement
of Stockholders' Equity                                  |  | 3   
|                                                                  
|Statement
of Cash Flow                                             |  | 4   
|                                                                  
|Item 2.
Managements Discussion and Analysis or Plan of Operations |  | 5   
|                                                                  
|PART II  OTHER INFORMATION                                        |  |     
|                                                                  
|Item 1. Legal Proceedings                                          |  | 6   
|                                                                  
|Item 2. Changes in Securities                                      |  | 6   
|                                                                  
|Item 3. Defaults Upon Senior Securities                            |  | 6   
|                                                                  
|Item 4. Submission of Matters to a Vote of Security Holders        |  | 7   
|                                                                  
|Item 5. Other Information                                          |  | 7   
|                                                                  
|Item 6. Exhibits and Reports on Form 8-K                           |  | 7   
|                                                                  
|SIGNATURES                                                         |  | 7   

i



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METALINE CONTACT MINES

FINANCIAL STATEMENTS
June 30, 2001







Williams & Webster, P.S.Certified Public AccountantsBank of America Financial Center
601 W. Riverside, Suite 1940
Spokane, WA 99201

F-1



---



METALINE CONTACT MINES

TABLE OF CONTENTS

|                              |                                   |  |   |   | 
|----------------------------- | --------------------------------- |  | - | - | 
|ACCOUNTANTS REVIEW REPORT    |                                   |  | 1 |  
|                             
|                             
|                             
|                             
|FINANCIAL STATEMENTS          |                                   |  |   |  
|                             
|                             
|                             
|                             
|                              | Balance Sheets                    |  |   | 2 | 
|                             
|                             
|                             
|                             
|                              | Statements of Operations          |  |   | 3 | 
|                             
|                             
|                             
|                             
|                              | Statement of Stockholders Equity |  |   | 4 | 
|                             
|                             
|                             
|                             
|                              | Statements of Cash Flows          |  |   | 5 | 
|                             
|                             
|                             
|                             
|NOTES TO FINANCIAL STATEMENTS |                                   |  | 6 |  

F-2



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The Board of Directors
Metaline Contact Mines
Murray, Idaho

ACCOUNTANTS REVIEW REPORT

We have reviewed the accompanying balance sheet of Metaline Contact Mines as of
June 30, 2001, and the related statements of operations, stockholders equity,
and cash flows for the six months then ended. All information included in
these financial statements is the representation of the management of Metaline
Contact Mines.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States
of America.

The financial statements for the year ended December 31, 2000 were audited by
us and we expressed an unqualified opinion on them in our report dated March 5,
2001, but we have not performed any auditing procedures since that date.

Williams & Webster, P.S.Certified Public Accountants
Spokane, Washington

July 24, 2001

F-3



---



PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

METALINE CONTACT MINES
BALANCE SHEETS

|                                     |                                            |                                                                                                       |                            |         |             |         |              |         |          |         | 
|------------------------------------ | ------------------------------------------ | ----------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------- | ------- | ------------ | ------- | -------- | ------- | 
|                                     |                                            |                                                                                                       |                            |         | June 30,    |         |              |         |         
|                                     |                                            |                                                                                                       |                            |         | 2001        |         | December 31,
|                                     |                                            |                                                                                                       |                            |         | (unaudited) |         | 2000        
|                                     |                                            |                                                                                                       |                            |         |             |         |             
|ASSETS                               |                                            |                                                                                                       |                            |         |             |         |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | CURRENT ASSETS                             |                                                                                                       |                            |         |             |         |              |         |         
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Cash and cash equivalents                                                                             |                            | $       | 281,780     |         |              | $       | 321,761  |        
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     |                                            |                                                                                                       | TOTAL CURRENT ASSETS       |         |             | 281,780 |              |         |          | 321,761 | 
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     | OTHER ASSETS                               |                                                                                                       |                            |         |             |         |              |         |         
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Receivables from related parties                                                                      |                            |         | 109,413     |         |              |         | 109,413  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Investment in LLC                                                                                     |                            |         | 37,609      |         |              |         | 37,847   |        
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     |                                            |                                                                                                       | TOTAL OTHER ASSETS         |         |             | 147,022 |              |         |          | 147,260 | 
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     | TOTAL ASSETS                               |                                                                                                       | $                          | 428,802 |             |         | $            | 469,021 |         
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                            |                                                                                                       |                            |         |             |         |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | CURRENT LIABILITIES                        |                                                                                                       |                            |         |             |         |              |         |         
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Accounts payable                                                                                      |                            | $       | 32,302      |         |              | $       | 1,355    |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Unrealized royalty income                                                                             |                            |         | 3,000       |         |              |         | 3,000    |        
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     |                                            |                                                                                                       | TOTAL CURRENT LIABILITIES  |         |             | 35,302  |              |         |          | 4,355   | 
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     | COMMITMENTS AND CONTINGENCIES              |                                                                                                       |                            |        |             |         |              |        |         
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     | STOCKHOLDERS EQUITY                       |                                                                                                       |                            |         |             |         |              |         |         
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Common stock, $0.05 par value; 20,000,000 shares authorized,
14,064,300 shares issued and outstanding |                            |         | 703,222     |         |              |         | 703,222  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Additional paid-in capital                                                                            |                            |         | 302,165     |         |              |         | 302,165  |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Stock options                                                                                         |                            |         | 13,632      |         |              |         | 13,632   |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Accumulated deficit                                                                                   |                            |         | (625,519    | )       |              |         | (554,353 | )      
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     |                                            |                                                                                                       | TOTAL STOCKHOLDERS EQUITY |         |             | 393,500 |              |         |          | 464,666 | 
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        
|                                     | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                       | $                          | 428,802 |             |         | $            | 469,021 |         
|                                     |                                            |                                                                                                       |                            |         |             |         |              |        

See accompanying notes and accountants review report.

F-4



---



METALINE CONTACT MINES
STATEMENTS OF OPERATIONS

|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |        |        |        | 
|---------------------------------------------------- | ------------------------------------ | ------------------ | -------------- | ------ | -------------------------- | ------ | ------------------------ | ------ | ----------- | ------ | ----------- | ------ | ----- | ------ | ---------- | ------ | ------ | ------ | 
|                                                     |                                      |                    |                |        | For the Three Months Ended |        | For the Six Months Ended
|                                                     |                                      |                    |                |        |                            |        |                         
|                                                     |                                      |                    |                |        | June 30,                   |        | June 30,                 |        | June 30,    |        | June 30,   
|                                                     |                                      |                    |                |        | 2001                       |        | 2000                     |        | 2001        |        | 2000       
|                                                     |                                      |                    |                |        | (unaudited)                |        | (unaudited)              |        | (unaudited) |        | (unaudited)
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |            
|REVENUES                                             |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Royalty income                       |                    | $              | 3,000  |                            |        | $                        | 3,000  |             |        | $           | 6,000  |       |        | $          | 6,000  |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|GENERAL AND ADMINISTRATIVE EXPENSES                  |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Consulting and management fees       |                    |                | 30,000 |                            |        |                          | 30,000 |             |        |             | 60,000 |       |        |            | 60,000 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accounting and legal fees            |                    |                | 5,969  |                            |        |                          | 10,428 |             |        |             | 14,365 |       |        |            | 10,711 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Transfer agent fees                  |                    |                | 418    |                            |        |                          | 76     |             |        |             | 655    |       |        |            | 303    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Office                               |                    |                | 5,930  |                            |        |                          | 563    |             |        |             | 7,604  |       |        |            | 1,722  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Utilities                            |                    |                |       |                            |        |                          | 4      |             |        |             |       |       |        |            | 4      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Travel and meals                     |                    |                | 739    |                            |        |                          | 1,513  |             |        |             | 739    |       |        |            | 1,513  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Taxes and licenses                   |                    |                | 10     |                            |        |                          | 59     |             |        |             | 10     |       |        |            | 59     |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|                                                     |                                      |                    | Total Expenses |        |                            | 43,066 |                          |        |             | 42,643 |             |        |       | 83,373 |            |        |        | 74,312 | 
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|OPERATING INCOME (LOSS)                              |                                      |                    | (40,066        | )      |                            |        | (39,643                  | )      |             |        | (77,373     | )      |       |        | (68,312    | )     
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|OTHER INCOME                                         |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Interest income                      |                    |                |       |                            |        |                          | 3,523  |             |        |             | 300    |       |        |            | 3,523  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividend income                      |                    |                | 2,857  |                            |        |                          | 4,074  |             |        |             | 6,144  |       |        |            | 7,378  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Income (Loss) from investment in LLC |                    |                | (133   | )                          |        |                          | (382   | )           |        |             | (237   | )     |        |            | (382   | )     
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|                                                     |                                      | Total Other Income |                |        | 2,724                      |        |                          |        | 7,215       |        |             |        | 6,207 |        |            |        | 10,519 |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|INCOME (LOSS) BEFORE TAXES                           |                                      |                    | (37,342        | )      |                            |        | (32,428                  | )      |             |        | (71,166     | )      |       |        | (57,793    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|INCOME TAX EXPENSE                                   |                                      |                    |               |        |                            |        |                         |        |             |        |            |        |       |        |           |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|NET INCOME (LOSS)                                    |                                      | $                  | (37,342        | )      |                            | $      | (32,428                  | )      |             | $      | (71,166     | )      |       | $      | (57,793    | )     
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|NET INCOME (LOSS) PER COMMON SHARE                   |                                      | $                  | nil            |        |                            | $      | nil                      |        |             | $      | nil         |        |       | $      | nil        |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       
|WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING |                                      |                    | 14,064,300     |        |                            |        | 14,064,300               |        |             |        | 14,064,300  |        |       |        | 14,064,300 |       
|                                                     |                                      |                    |                |        |                            |        |                          |        |             |        |             |        |       |        |            |       

See accompanying notes and accountants review report.

F-5



---



METALINE CONTACT MINES
STATEMENT OF STOCKHOLDERS EQUITY

|                             |                                      |                                                            |            |              |         |        |         |         |        |             |         |         |   |               |          |          |          |   |        |        |   |       |         |         |          |  
|---------------------------- | ------------------------------------ | ---------------------------------------------------------- | ---------- | ------------ | ------- | ------ | ------- | ------- | ------ | ----------- | ------- | ------- | - | ------------- | -------- | -------- | -------- | - | ------ | ------ | - | ----- | ------- | ------- | -------- | -
|                             |                                      |                                                            |            | Number of    |         |        |         |         |        |             |         |         |   |               |          |          |          |   |        |        |   | Total
|                             |                                      |                                                            |            | Common       |         | Common |         | Paid-in |        | Accumulated |         | Stock   |   | Stockholders'
|                             |                                      |                                                            |            | Stock Shares |         | Stock  |         | Capital |        | Deficit     |         | Options |   | Equity       
|                             |                                      |                                                            |            |              |         |        |         |         |        |             |         |         |   |              
|BALANCE AT DECEMBER 31, 1999 |                                      |                                                            | 13,564,300 |              |         | $      | 678,222 |         |        | $           | 302,165 |         |   | $             | (432,146 | )        |          | $ | 13,632 |        |   | $     | 561,873 |        
|                            
|                            
|                            
|                            
|                             |                                      | Issuances of stock for accounts payable at
$0.05 per share |            |              | 500,000 |        |         |         | 25,000 |             |         |         |  |               |          |          |         |   |        |        |  |       |         |         | 25,000   |  
|                            
|                            
|                            
|                            
|                             |                                      | Net loss, December 31, 2000                                |            |              |        |        |         |         |       |             |         |         |  |               |          |          | (122,207 | ) |        |        |  |       |         |         | (122,207 | )
|                             |                                      |                                                            |            |              |         |        |         |         |        |             |         |         |   |               |          |          |          |   |        |        |   |       |         |        
|                             | BALANCE AT DECEMBER 31, 2000         |                                                            |            | 14,064,300   |         |        |         | 703,222 |        |             |         | 302,165 |   |               |          | (554,353 | )        |   |        | 13,632 |   |       |         | 464,666 |         
|                            
|                            
|                            
|                            
|                             |                                      | Net loss for the six months ended
June 30, 2001            |            |              |        |        |         |         |       |             |         |         |  |               |          |          | (71,166  | ) |        |        |  |       |         |         | (71,166  | )
|                             |                                      |                                                            |            |              |         |        |         |         |        |             |         |         |   |               |          |          |          |   |        |        |   |       |         |        
|                             | BALANCE AT JUNE 30, 2001 (Unaudited) |                                                            |            | 14,064,300   |         |        | $       | 703,222 |        |             | $       | 302,165 |   |               | $        | (625,519 | )        |   | $      | 13,632 |   |       | $       | 393,500 |         
|                             |                                      |                                                            |            |              |         |        |         |         |        |             |         |         |   |               |          |          |          |   |        |        |   |       |         |        

See accompanying notes and accountants review report.

F-6



---



METALINE CONTACT MINES
STATEMENTS OF CASH FLOW

|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |         |         |        | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | ------- | ------------------------ | ------- | ----------- | ------- | ------- | ------ | 
|                                              |                                                                                                 |                                                  |                                                  |         | For the Six Months Ended
|                                              |                                                                                                 |                                                  |                                                  |         |                         
|                                              |                                                                                                 |                                                  |                                                  |         | June 30,                 |         | June 30,   
|                                              |                                                                                                 |                                                  |                                                  |         | 2001                     |         | 2000       
|                                              |                                                                                                 |                                                  |                                                  |         | (unaudited)              |         | (unaudited)
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |            
|CASH FLOWS FROM OPERATING ACTIVITIES          |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|                                             
|                                             
|                                             
|                                             
|                                              | Net income (loss)                                                                               |                                                  | $                                                | (71,166 | )                        |         | $           | (57,793 | )      
|                                             
|                                             
|                                             
|                                             
|                                              | Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |                                                  |                                                  |         |                          |         |             |         |        
|                                             
|                                             
|                                             
|                                             
|                                              | Changes in assets and liabilities:                                                              |                                                  |                                                  |         |                          |         |             |         |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                 | (Increase) decrease in account receivable        |                                                  |         |                         |         |             |         | 117,356 |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                 | (Increase) decrease in investment in LLC         |                                                  |         | 238                      |         |             |         | 382     |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                 | Increase (decrease) in accounts payable          |                                                  |         | 30,947                   |         |             |         | (25,876 | )     
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                 | Increase (decrease) in unrealized royalty income |                                                  |         |                         |         |             |         | 3,000   |       
|                                             
|                                             
|                                             
|                                             
|                                              | Payment of expenses from issuance of stock                                                      |                                                  |                                                  |        |                          |         |             | 25,000  |        
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|                                              |                                                                                                 |                                                  | Net cash provided (used) by operating activities |         |                          | (39,981 | )           |         |         | 62,069 | 
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES   |                                                                                                 |                                                  |                                                 |         |                          |         |            |        
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   |                                                                                                 |                                                  |                                                 |         |                          |         |            |        
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|                                              | Net increase (decrease) in cash and cash equivalents                                            |                                                  |                                                  | (39,981 | )                        |         |             | 62,069  |        
|                                             
|                                             
|                                             
|                                             
|Cash and cash equivalents beginning of period |                                                                                                 |                                                  | 321,761                                          |         |                          |         | 321,228     |        
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|Cash and cash equivalents for end of period   |                                                                                                 | $                                                | 281,780                                          |         |                          | $       | 383,297     |        
|                                              |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|SUPPLEMENTAL CASH FLOW DISCLOSURES:           |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|                                             
|                                             
|                                             
|                                             
|                                              | Income taxes paid                                                                               |                                                  | $                                                |        |                          |         | $           |        |        
|                                             
|                                             
|                                             
|                                             
|                                              | Interest paid                                                                                   |                                                  | $                                                |        |                          |         | $           |        |        
|                                             
|                                             
|                                             
|                                             
|NON-CASH TRANSACTIONS:                        |                                                                                                 |                                                  |                                                  |         |                          |         |             |        
|                                             
|                                             
|                                             
|                                             
|                                              | Stock issued in payment of consulting and other expenses                                        |                                                  | $                                                |        |                          |         | $           | 25,000  |        

See accompanying notes and accountants review report.

F-7



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 1  ORGANIZATION AND DESCRIPTION OF BUSINESS

Metaline Contact Mines (hereinafter Metaline) was incorporated in November of
1928 under the laws of the State of Washington for the purpose of engaging in
mining and the buying and selling of ores, metals, and minerals.

The Company was reorganized and recapitalized in 1960 and its articles of
incorporation were amended to expand its business purposes to include various
additional business activities. Metaline has continued its operations since
its formation and has historically acquired land, mineral rights, patented lode
mining claims, and timber in the Pacific Northwest.

In the last quarter of 1996, Metaline transferred substantially all of its
assets to a limited liability company. See Note 4.

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 United States of America 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.

Interim Financial Statements

The interim financial statements as of and for the period ended June 30, 2001
included herein have been prepared for the Company without audit. They reflect
all adjustments, which are, in the opinion of management, necessary to present
fairly the results of operations for these periods. All such adjustments are
normal recurring adjustments. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full fiscal year.

Use of 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.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.

F-8



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

The carrying amounts for cash, receivables, investments, and payables
approximate their fair value.

Derivative Instruments

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.

At June 30, 2001, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.

Investments

The Company accounts for its investment in Metaline Contact Mines LLC using the
equity method. See Note 4.

Compensated Absences

Currently, the Company has no employees; therefore it is impracticable to
estimate the amount of compensation for future absences and no liability has
been recorded in the accompanying financial statements. The Companys policy
will be to recognize the costs of compensated absences when actually paid to
employees.

Income taxes

The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted laws, of temporary
differences between the financial reporting and tax bases of assets,
liabilities and tax carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for the amount of any tax benefits
which, more likely than not based on current circumstances, are not expected to
realized.

Basic and Diluted Loss Per Share

Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Outstanding options
have been excluded from the calculation of diluted loss per share as they would
be antidilutive, therefore basic and diluted loss per share are the same.

NOTE 3  CASH EQUIVALENTS

The Company holds funds which are primarily deposited in one money market
account, which funds are not insured by the Federal Deposit Insurance Company.
The balance in that account was $277,904 and $310,460 at June 30, 2001 and
December 31, 2000, respectively.

F-9



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 4  INVESTMENT IN LLC

On October 30, 1996, the Company organized a Delaware limited liability
company, Metaline Contact Mines, LLC (hereinafter The LLC). Upon
organization of The LLC, the Company transferred substantially all of its
assets (primarily real property surface rights and timber) to The LLC. At the
time of The LLCs formation, the Company was the sole, managing member in The
LLC, representing 100% ownership.

In 1998, the majority of the Companys interest in The LLC was expensed in
connection with the sale of the majority of The LLCs assets.

At the beginning of 1998, the Companys former shareholders acquired 93 percent
of The LLC by transferring their stock in the Company to The LLC in exchange
for non-managing membership interests. (See Note 6.) At the conclusion of
this share exchange, the Companys percentage of ownership in The LLC was
reduced to seven percent (7%). The Company wrote down its initial investment
by 93% to reflect its diluted investment in The LLC. After the write down of
its investment, and net change in member capital during the year 1998, the
value of the Companys investment in The LLC was $45,440 at December 31, 1998.

After the dilution of its investment in The LLC, the Company continued as the
managing member of The LLC. See Note 5.

In 1999, a net loss of $7,187 in The LLC resulted in a decreased value of the
Companys interest to $38,383.

At December 31, 2000, the Company recorded a loss in The LLC of $405, resulting
in a decreased value of the Companys interest to $37,847. The loss recorded
for the six months ending June 30, 2001 was $238.

NOTE 5  CHANGE IN LLC OWNERSHIP

On June 1, 1998, Nor-Pac Limited Company (hereinafter Nor-Pac) purchased
control of The LLC from its three principal owners at the time (Bunker Limited
Partnership, Hecla Mining Company, and Metaline Mining & Leasing Company) by
acquiring these entities non-managing membership interests in Metaline Contact
Mines LLC. See Note 4.

NOTE 6  COMMITMENTS AND CONTINGENCIES

All earnings from The LLC in 1997 and 1996 were attributed by The LLCs
principal owners to Metaline. Accordingly, Metaline reported these earnings as
its own taxable income (on both Metalines and The LLCs federal income tax
returns) although Metaline retained only a 6.9861 percent interest in The LLC
from the end of 1996 to December 31, 1998. For calendar 1998 and future years,
Metaline will report only its pro rata share (6.9861%) of taxable income from
The LLC, with other LLC members reporting their respective share of LLC taxable
income.

F-10



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 6  COMMITMENTS AND CONTINGENCIES (continued)

The LLC has agreed, in writing, to indemnify Metaline for any prior year income
distributions requested by other LLC members. As of June 30, 2001, no cash or
property distributions were made by the LLC to its members for indemnification
purposes. In view of the ownership changes in The LLC, future distributions
are expected to be made by The LLC to its members as determined from time to
time by Metaline, its managing member. See Note 5 regarding a change in LLC
ownership.

See Note 11 regarding management contract with related party.

NOTE 7  COMMON STOCK

The Company has authorized the issuance of 20,000,000 shares of common stock at
a par value of $0.05 per share.

During the year ended December 31, 1999, the Company issued 750,000 shares of
common stock to Nor-Pac, a related party, for consulting fees valued at
$37,500.

The Company issued 500,000 shares of its common stock to Nor-Pac during the
year ended December 31, 2000. These shares, valued at $25,000, were also
issued for consulting fees.

The Company did not issue any common stock or stock equivalents for the period
ended June 30, 2001.

NOTE 8  STOCK OPTIONS

On November 16, 1999, the board of directors approved the Metaline Contact
Mines 1999 Stock Option Plan. This plan allows the Company to distribute up to
2,000,000 shares of common stock shares to officers, directors, employees and
consultants through the authorization of the Companys board of directors at an
initial exercise price of $0.125. The options may be exercised until November
16, 2009, at which time they expire.

The fair value of each option granted was estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made to
estimate fair value: the risk-free interest rate is 6.11%, volatility is 0.3,
and the expected life of the options is ten years. Accordingly, $13,632 of the
options expense was initially recorded in the Companys financial statements
as consulting and management fees during the year ended December 31, 1999. In
accordance with Financial Accounting Standard No. 123 paragraph 115, this
expense was deemed to be an estimate, subject to adjustment by decreasing the
expense in the period of forfeiture.

F-11



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 8  STOCK OPTIONS (continued)

Following is a summary of the status of fixed options outstanding at December
31, 2000 and June 30, 2001:

|                               |           |  |           |   |          |   |          |   | 
|------------------------------ | --------- |  | --------- | - | -------- | - | -------- | - | 
|                               |           |  |           |   |          |   | Weighted
|                               |           |  |           |   |          |   | Average 
|                               |           |  | Number of |   | Exercise
|                               |           |  | Shares    |   | Price   
|                               |           |  |           |   |         
|Outstanding, January 1, 2000   |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                              
|                              
|                              
|                              
|                               | Granted   |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Exercised |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Forfeited |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Expired   |  |           |  |          |   |          |  | 
|                               |           |  |           |   |          |   |          |  
|Outstanding, December 31, 2000 |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                               |           |  |           |   |          |   |          |  
|Exercisable, December 31, 2000 |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                               |           |  |           |   |          |   |          |  
|Outstanding, January 1, 2001   |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                              
|                              
|                              
|                              
|                               | Granted   |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Exercised |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Forfeited |  |           |  |          |   |          |  | 
|                              
|                              
|                              
|                              
|                               | Expired   |  |           |  |          |   |          |  | 
|                               |           |  |           |   |          |   |          |  
|Outstanding, June 30, 2001     |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                               |           |  |           |   |          |   |          |  
|Exercisable, June 30, 2001     |           |  | 1,000,000 |   |          | $ | 0.125    |  
|                               |           |  |           |   |          |   |          |  

The Companys weighted average fair value of options granted during the six
months ended June 30, 2001, and December 31, 2000, respectively, were zero.

NOTE 9  MINING LEASE WITH PURCHASE OPTION

On September 1, 1997, Metaline and The LLC acting jointly as lessors, executed
an agreement with Cominco American Incorporated (hereinafter Cominco) wherein
Cominco received the right to explore, develop, and mine the Companys
underground mineral rights in Pend Oreille County, Washington for a period of
twenty years with an option renewal period of the same length. Under this
lease agreement, Cominco obligated itself to pay the lessors $3,000 per quarter
for the first five years of the lease with ascending quarterly increments at
each successive five year interval.

The aforementioned quarterly disbursements are characterized by the lease as
advance royalty payments which may be fully offset against a three-percent
production royalty retained by the lessors.

F-12



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 9  MINING LEASE WITH PURCHASE OPTION (continued)

The lease agreement, while providing that Cominco must expend $125,000 in
exploration work within the first five years of the lease, also gives Cominco
the option to purchase 200 surface acres of the leased property for fair market
value during the lease term.

From the inception of the lease through June 30, 2001, the Company has received
$45,016 in payments from Cominco.

NOTE 10  INCOME TAXES

The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. The
Companys total tax net operating loss carryforwards were approximately
$475,000 at June 30, 2001 which expire between 2018 and 2021. The deferred tax
asset attributed to net operating loss carryforwards at June 30, 2001 and
December 31, 2000, was as follows:

|                                       |  |               |          |                   |  |   |          |  
|-------------------------------------- |  | ------------- | -------- | ----------------- |  | - | -------- | -
|                                       |  | June 30, 2001 |          | December 31, 2000
|                                       |  |               |          |                  
|Net operating loss carryforward        |  | $             | 475,000  |                   |  | $ | 421,000  |  
|                                       |  |               |          |                   |  |   |          |  
|                                      
|                                      
|                                      
|                                      
|Deferred tax asset                     |  |               | 475,000  |                   |  |   | 421,000  |  
|                                      
|                                      
|                                      
|                                      
|Deferred tax asset valuation
allowance |  |               | (475,000 | )                 |  |   | (421,000 | )
|                                       |  |               |          |                   |  |   |          |  
|                                      
|                                      
|                                      
|                                      
|                                       |  | $             |         |                   |  | $ |         |  
|                                       |  |               |          |                   |  |   |          |  

Metaline Contact Mines recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to the
expiration of net operating loss carryforwards. The valuation allowance of
deferred tax assets increased by $54,000 and $124,000 during the six months
ended June 30, 2001 and year ended December 31, 2000, respectively.

NOTE 11  RELATED PARTIES

Related Party Receivables

At June 30, 2001, the Company had approximately $109,000 of related party
receivables on its balance sheet. The majority of these receivables originated
with the Companys share of undistributed proceeds from a property sale by The
LLC in 1998.

F-13



---



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2001

NOTE 11  RELATED PARTIES (continued)

Management and Consulting Services
In June 1998, Metaline executed an agreement with Nor-Pac wherein, for
providing management and consulting services to Metaline, Nor-Pac was entitled
to receive 500,000 shares of the Companys common stock in the second half of
1998, 250,000 shares of the Companys common stock quarterly in 1999 and
$10,000 per month thereafter commencing on January 1, 2000. The Company issued
250,000 shares and 500,000 shares during the years ended December 31, 1999 and
2000, respectively, as required by the management and consulting agreement, in
addition to paying $120,000 in cash in 2000, and $30,000 cash plus $30,000
accrued in accounts payable in the first six months of 2001 for services.

NOTE 12  SUBSEQUENT EVENTS

On May 21, 2001 the Company filed a preliminary proxy concerning the assignment
and transfer of substantially all of its assets and liabilities to Paymaster
Resources Incorporated (Paymaster), an Idaho corporation. In exchange
Paymaster would convey 14,064,300 shares of its authorized but unissued common
stock to the Company for distribution to its shareholders. As of the date of
the accountants report, this transaction has not occurred.

F-14



---



|        |                                                           
|------- | ----------------------------------------------------------
|Item 2. | Managements Discussion and Analysis or Plan of Operations



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The Company had revenues from operations of $3,000 in the second quarter
of 2001, the same as its operating revenues of $3,000 in the second
quarter of 2000. However, the Company experienced an increased operating
loss of $40,066 in the second quarter of 2001 versus $39,643 in the
second quarter of 2000. The increased loss of $423 in the second quarter
of 2001 was predominantly due to increased office expenses related to the
Companys increased number of filings with the Securities and Exchange
Commission (SEC) on EDGAR, and increase of transfer agent fees.                                                                                                                                                      
|
| | Consulting and management fees remained the same at $30,000. However,
professional fees, consisting of legal and accounting, decreased $4,459
in the second quarter of 2001 to $5,969 versus $10,428 in the second
quarter of 2000, due to a reduction in accounting requirements. Transfer
agent fees increased $342 in the second quarter of 2001 to $418 from $76
in the second quarter of 2000 due to the Companys request for a special
shareholders list and mailing labels in preparation of a special meeting
of shareholders. Office supplies and expenses increased to $5,930 in the
second quarter of 2001 from $563 in the second quarter of 2000, or
$5,367, due to the Companys increased SEC filings via the EDGAR system.
|
| | The Companys other income decreased by $4,491 in the second quarter of
2001 to $2,724 from $7,215 in the second quarter of 2000. The decrease
was caused due to no interest income earned, lower balances and dividend
rates on the Companys money market account, and a $133 loss from its
investment in Metaline Contact Mines LLC.                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Financial Condition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | The Companys financial condition is such that it can continue at its
current level of operations for an additional 1-1/2 years without the
necessity of additional capital. Current level of operations includes
maintaining compliance with the New Cominco Lease, and the reporting
requirements of the SEC. Thereafter, the Company may require additional
capital for future operating costs and working capital. Such additional
capital could be obtained from either increased revenues from operations
(in the event the Companys mineral rights and properties are placed into
commercial production by Cominco), or from the sale of shares of the
Companys authorized, but unissued, common stock.                           
|
| | Under the New Cominco Lease, any production decision on the Companys
mineral rights and properties is under the sole discretion and control of
Cominco. Further, there are no assurances that the Company would be able
to sell shares of its authorized, but unissued, common stock on terms
acceptable to the Company. Any such sales of shares could be dilutive to
the Companys then-existing shareholders, and any debt financings could
involve restrictive covenants with respect to future capital raising
activities, and other financial and operational matters.                                                                                                                                                              
|
| | Presently there are no trends, events or uncertainties that have, or are
reasonably likely to have, a material impact on the Companys short-term
or long-term liquidity; there are no material commitments for capital
expenditures, except for the management of its own business affairs; and
there are no known trends, events or uncertainties that have or that are
reasonably expected to have a material impact on the revenues from
operations.                                                                                                                                                                                                                                                                                   

17



---





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a mineral resource exploration oriented enterprise, the Company will
investigate future business opportunities that are consistent with its
corporate charter and field of expertise, and in the opinion of
management worthy of investigation. It should be noted, however, that
the Company competes with other mining companies in connection with the
acquisition of mineral properties, some of which have substantially
greater financial resources than the Company. Management has not
recognized any such opportunities as of the date of this filing, nor does
it expect to do so during the next 12-month period. In the event such an
opportunity would materialize, the Companys initial due diligence
process in investigating such opportunity would not involve any
significant investment by the Company.                                                                                                                                                                                                                             
|
| | Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | To date, the Company has funded its capital requirements from revenues
from operations, and dividends and interest earned on its cash accounts.
The Companys cash position as of June 30, 2001 was $281,780 as compared
to $382,521 as of June 30, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company has no debt. The Company does not expect to incur any
debt in the immediate future to expand its current level of operation,
nor does it expect to expand its business operation in the immediate
future. The Companys most significant cash requirement is its
management fee of $10,000 per month payable under the terms of its
Management Agreement with Nor-Pac. However, as a related party, Nor-Pac
has contractually agreed in the Management Agreement to (i) review and
adjust on a quarterly basis the amount of the management fees based on
time spent on the Companys affairs, and (ii) convert management fees
that are payable in cash into common stock in the Company in the event of
a shortfall of cash (the exchange rate would be determined at the time of
the shortfall). The Company also has a related party receivable from
MCMLLC in the amount of $109,413 as of June 30, 2001. As the Managing
Member of MCMLLC, the Company has the ability to collect on this
receivable in the event of a shortfall of cash.
|
| | Based on the foregoing, it is managements opinion that at its current
level of operations the Company can satisfy its working capital
requirements internally in the immediate future without the need to seek
outside sources of equity or debt funding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

PART II  OTHER INFORMATION

Item 1. Legal Proceedings



| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | The Company is not a party to any legal proceedings, and management is
not aware of any threatened litigation, claims or assessments.

Item 2. Changes in Securities



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There has been no change in securities since January 8, 2000. All of the
Companys issuance of securities was disclosed in its annual Form 10-KSB
(Filed on April 27, 2001).

Item 3. Defaults Upon Senior Securities



| |      
| | -----
| | None.

18



---



Item 4. Submission of Matters to a Vote of Security Holders



| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company did not submit any matters to a vote of its shareholders
during the second quarter of 2001. The Company did, however, file a
Preliminary Proxy on Form 14A with the U.S. Securities and Exchange
Commission (the SEC) on May 21, 2001. On May 25, 2001, the SEC
provided the Company with written comments concerning the Preliminary
Proxy requiring additional disclosure.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At the time it filed the Preliminary Proxy with the SEC, the Company was
seeking shareholder approval to assign all of its assets and liabilities
to Paymaster Resources Incorporated, a non-reporting Idaho corporation,
in exchange for 14,064,300 shares of Paymasters authorized, but
unissued, common stock, which shares were to be ultimately distributed to
the Companys shareholders in an amount equal to the shareholders
respective shareholdings in the Company. The Company is currently
preparing an amendment to the Preliminary Proxy.

Item 5. Other Information



| |      
| | -----
| | None.

Item 6. Exhibits and Reports on Form 8-K



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | No exhibits required. There were no reports filed on Form 8-K during the
three month period ended June 30, 2001.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
DATED this the 10th day of August, 2001

| |                                      |                    
| | ------------------------------------ | -------------------
| | METALINE CONTACT MINES              
|
| | By:                                  | /s/ John W. Beasley
| |                                     
| | John W. Beasley
Secretary & Director





19