##### Table of Contents



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 1934For the quarterly period from 1-1-04 to 3-31-04[  ]
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT.
 
 Commission file number 000-31025 METALINE CONTACT MINES  
  Washington
    
    91-0779945(State or jurisdiction of incorporation or
organization)
    
    (IRS Employer Identification No.)
 6599 Prichard Creek Road, Murray, ID 83874    920-987-5317    State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practical date: 14,531,254 Transitional Small Business Disclosure Format (Check one):  Yes  [  ]  No  [X]




---



TABLE OF CONTENTS PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    F-1Item 2. Managements Analysis and Discussion
    
    
    3Item 3. Controls and Procedures
    
    
    4PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    6Item 2. Changes in Securities
    
    
    6Item 3. Defaults Upon Senior Securities
    
    
    6Item 4. Submission of Matters to a Vote of Security Holders
    
    
    6Item 5. Other Information
    
    
    6Item 6. Exhibits and Reports on Form 8-K
    
    
    7SIGNATURES
    
    
    7EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 -2-




---



##### Table of Contents



PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements METALINE CONTACT MINES FINANCIAL STATEMENTS
March 31, 2004 Williams & Webster, P.S.Certified Public AccountantsBank of America Financial Center
601 W. Riverside, Suite 1940
Spokane, WA 99201 F-1




---



##### Table of Contents



METALINE CONTACT MINES TABLE OF CONTENTS INDEPENDENT ACCOUNTANTS REVIEW REPORT
    
    
    F-3FINANCIAL STATEMENTSBalance Sheets
    
    
    F-4Statements of Operations
    
    
    F-5Statement of Stockholders Equity
    
    
    F-6Statements of Cash Flows
    
    
    F-7NOTES TO FINANCIAL STATEMENTS
    
    
    F-8
 F-2




---



##### Table of Contents



The Board of Directors
Metaline Contact Mines
Murray, Idaho 
 INDEPENDENT ACCOUNTANTS REVIEW REPORT We have reviewed the accompanying balance sheet of Metaline Contact Mines as of
March 31, 2004, and the related statements of operations, stockholders equity,
and cash flows for the three months ended March 31, 2004 and 2003. 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, 2003 were audited by
us and we expressed an unqualified opinion on them in our report dated March 5,
2004. We have not performed any auditing procedures since that date. Williams & Webster, P.S.Certified Public Accountants
Spokane, Washington May 10, 2004 F-3




---



##### Table of Contents



METALINE CONTACT MINES 
 BALANCE SHEETS
 March 31,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    105,520
    
    
    $
    105,687OTHER ASSETSPrepaid expenses
    
    
    3,000
    
    
    
    Receivables from related parties
    
    
    109,413
    
    
    
    109,413Accrued interest receivable
    
    
    24,892
    
    
    
    22,978Investment in LLC
    
    
    33,835
    
    
    
    33,935Total Other Assets
    
    
    171,140
    
    
    
    166,326TOTAL ASSETS
    
    $
    276,660
    
    
    $
    272,013LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESDeferred royalty income
    
    $
    3,880
    
    
    $
    3,880Total Current Liabilities
    
    
    3,880
    
    
    
    3,880COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon stock, $0.05 par value;
20,000,000 shares authorized, and 14,531,254
14,064,300 shares issued and outstanding, respectively
    
    
    726,570
    
    
    
    703,222Additional paid-in capital
    
    
    316,582
    
    
    
    302,165Stock options
    
    
    17,907
    
    
    
    17,907Accumulated deficit
    
    
    (788,279
    )
    
    
    (755,161
    )Total Stockholders Equity
    
    
    272,780
    
    
    
    268,133TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    276,660
    
    
    $
    272,013
 See accompanying notes and accountants review report. F-4




---



##### Table of Contents



METALINE CONTACT MINES 
 STATEMENTS OF
OPERATIONS
 Three Months EndedMarch 31,
    
    March 31,2004
    
    2003(Unaudited)
    
    (Unaudited)REVENUESRoyalty income
    
    $
    3,880
    
    
    $
    3,880GENERAL AND ADMINISTRATIVE EXPENSESConsulting and management fees
    
    
    
    
    
    
    1,500Property expense
    
    
    37,765
    
    
    
    Professional fees
    
    
    
    
    
    
    6,785Transfer agent fees
    
    
    434
    
    
    
    453Taxes, licenses, and fees
    
    
    300
    
    
    
    400Office supplies and expenses
    
    
    368
    
    
    
    1,016TOTAL EXPENSES
    
    
    38,867
    
    
    
    10,154OPERATING LOSS
    
    
    (34,987
    )
    
    
    (6,274
    )OTHER INCOME (LOSS)Dividend income
    
    
    54
    
    
    
    128Interest income
    
    
    1,915
    
    
    
    1,915Loss from investment in LLC
    
    
    (100
    )
    
    
    (466
    )TOTAL OTHER INCOME
    
    
    1,869
    
    
    
    1,577LOSS BEFORE TAXES
    
    
    (33,118
    )
    
    
    (4,697
    )INCOME TAX EXPENSE
    
    
    
    
    
    
    NET LOSS
    
    $
    (33,118
    )
    
    $
    (4,697
    )NET LOSS PER COMMON SHARE,
BASIC AND DILUTED
    
    $
    nil
    
    
    $
    nilWEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED
    
    
    14,375,603
    
    
    
    14,064,300
 See accompanying notes and accountants review report. F-5




---



##### Table of Contents



METALINE CONTACT MINES 
 STATEMENT OF
STOCKHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    Paid-in
    
    Stock
    
    Accumulated
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Options
    
    Deficit
    
    EquityBalance, December 31, 2002
    
    
    14,064,300
    
    
    
    703,222
    
    
    
    302,165
    
    
    
    17,907
    
    
    
    (738,208
    )
    
    
    285,086Net loss for the year ended, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,953
    )
    
    
    (16,953
    )Balance, December 31, 2003
    
    
    14,064,300
    
    
    
    703,222
    
    
    
    302,165
    
    
    
    17,907
    
    
    
    (755,161
    )
    
    
    268,133Common stock issued at $0.08 per share
for property expense
    
    
    466,954
    
    
    
    23,348
    
    
    
    14,417
    
    
    
    
    
    
    
    
    
    
    
    37,765Net loss for the three months ended,
March 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,118
    )
    
    
    (33,118
    )Balance, March 31, 2004 (unaudited)
    
    
    14,531,254
    
    
    $
    726,570
    
    
    $
    316,582
    
    
    $
    17,907
    
    
    $
    (788,279
    )
    
    $
    272,780
 See accompanying notes and accountants review report. F-6




---



##### Table of Contents



METALINE CONTACT MINES 
 STATEMENT OF CASH
FLOWS
 Three Months EndedMarch 31,
    
    March 31,2004
    
    2003(Unaudited)
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (33,118
    )
    
    $
    (4,697
    )Adjustments to reconcile net loss to net cash
provided (used) by operating activities:Net loss in investment in LLC
    
    
    100
    
    
    
    466Changes in assets and liabilities:Increase in interest receivable
    
    
    (1,914
    )
    
    
    (1,915
    )Increase prepaid expenses
    
    
    (3,000
    )Payment of expenses from issuance of stock
    
    
    37,765
    
    
    
    Net cash provided (used) by operating activities
    
    
    (167
    )
    
    
    (6,146
    )CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
    
    
    
    
    
    
    CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (167
    )
    
    
    (6,146
    )Cash and cash equivalents, beginning of period
    
    
    105,687
    
    
    
    111,124Cash and cash equivalents, end of period
    
    $
    105,520
    
    
    $
    104,978SUPPLEMENTAL CASH FLOW DISCLOSURES:Income taxes paid
    
    $
    
    
    
    $
    Interest paid
    
    $
    
    
    
    $
    NON-CASH TRANSACTIONS:Payment of expenses from issuance of stock
    
    $
    37,765
    
    
    $
    
 See accompanying notes and accountants review report. F-7




---



##### Table of Contents



METALINE CONTACT MINES 
 NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004
 NOTE 1  ORGANIZATION AND DESCRIPTION OF BUSINESS Metaline Contact Mines (hereinafter Metaline or the Company) 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. The Companys year end is December 31. 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 basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. Recent Accounting Pronouncements In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (hereinafter
SFAS No. 150). SFAS No. 150 establishes standards for classifying and
measuring certain financial instruments with characteristics of both
liabilities and equity and requires that those instruments be classified as
liabilities in statements of financial position. Previously, many of those
instruments were classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has determined that there was no impact to its financial
statements from the adoption of this statement. In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (hereinafter SFAS No. 149).
SFAS No. 149 amends and clarifies the accounting for derivative instruments,
including certain derivative instruments F-8




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative F-8




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (Continued) Instruments and Hedging Activities. This statement is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to
have a material impact on the financial position or results of operations of
the Company. In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (hereinafter SFAS No. 148). SFAS
No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, the statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosure in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions of the statement
are effective for financial statements for fiscal years ending after December
15, 2002. As the Company accounts for stock-based compensation using SFAS No.
123, the adoption of SFAS No. 148 has no material impact on the Companys
financial condition or results of operations. 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 statements of cash flows, the Company considers all
short-term debt with original maturities of three months or less to be cash
equivalents. Fair Value of Financial Instruments The carrying amounts for cash, receivables, investments, accounts payable and
accrued liabilities approximate their fair value. All instruments are accounted
for on an historical cost basis, which, due to the short maturity of these
financial instruments, approximates fair value at March 31, 2004. Concentration of Risk The Company maintains its cash in primarily one money market account, the funds
of which are not insured by the Federal Deposit Insurance Corporation. The
balance in that account was $105,149 and $105,687 at March 31, 2004 and
December 31, 2003, respectively. Further, the Companys sole source of
revenues currently is royalty income received under a mineral property lease
with Teck Cominco American, Inc. See Note 6. F-9




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Derivative Instruments The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 (hereinafter SFAS No. 133), Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB No. 133, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, and SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities,
the last of which is effective June 30, 2003. These statements establish and
clarify accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. They require that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes. At March 31, 2004, the Company had 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 3. Compensated Absences Currently, the Company has no employees; therefore, no liability has been
recorded in the accompanying financial statements. The Companys policy will be
to recognize the costs of compensated absences when there are employees who
earn such benefits. 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; accordingly, basic and diluted loss per share are the same. Revenue Recognition The Company recognizes royalty revenue as earned according to contract terms. F-10




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 3  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% of The
LLC by transferring their stock in the Company to The LLC in exchange for
non-managing membership interests. See Note 7. 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. At March 31, 2004, the Company recorded a quarterly loss on its investment in
The LLC of $100
thereby reducing the Companys recorded interest in The LLC to $33,835. NOTE 4 - MINERAL PROPERTIES In 1996, Metaline transferred timber and real property surface rights to The
LLC (see Note 3) but retained underground mineral rights to the transferred
real property and its mining claims, located in Pend Oreille County in
Washington State. The timber and real property surface rights were deemed by
management to have a value equal to their recorded cost and this cost was
transferred to The LLC. The related mineral rights are carried at no cost on
Metalines books. In 1997, Metaline and The LLC jointly leased certain Pend Oreille County real
estate and all related mineral rights to a major mining company. See Note 6. In January 2004, the Company issued 466,954 shares of its common stock to
Paymaster Resources Incorporated (hereinafter Paymaster), a related party
(due to common officers and directors), in order to acquire Paymasters
interest in the Gold Chest Mines minerals lease to patented mining claims in
Shoshone County, Idaho. In this transaction, the Company also acquired
Paymasters interest in an exploration agreement with New Jersey Mining Company
which relates to the aforementioned mining claims. Because there are no proven
and probable reserves, the Company recognized $37,765 of property expenses in
connection with this agreement. F-11




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 5  RELATED PARTY TRANSACTIONS In March 2002, the Company advanced $18,000 on a short-term, non-interest
bearing, unsecured basis to
Murrayville Land Company, LLC, an affiliated company, to facilitate a real
estate purchase. This receivable was repaid in May 2003. During 1998, The LLC sold property for a net gain of $5,958,762. Metalines
share of this gain, before adjustments of the Companys investment from The
LLCs operating results and write down from its substantial decrease in
ownership of The LLC, was $507,858. See Note 3. The Company recorded a
non-current, related party receivable of $109,413 for the balance of the
distribution. Due to uncertainty as to the date this receivable will be
collected, this asset together with accrued interest at the rate of 7 percent
per annum is recorded as a non-current asset at March 31, 2004 and December 31,
2003. In June 1998, Metaline executed an agreement with Nor-Pac Limited Company
(hereinafter Nor-Pac), an affiliated company, wherein, for providing
management and consulting services to Metaline, Nor-Pac was entitled to receive
500,000 shares of Metaline common stock in the second half of 1998, 250,000
shares of Metaline common stock quarterly in 1999 and $10,000 per month
thereafter commencing on January 1, 2000. This agreement was modified with an
effective date of January 1, 2002, reducing the fee to $3,000 per month. A
further modification was made effective January 1, 2003, reducing the
management fee to $500 per month. For additional information on related parties, see Notes 3, 4, 6, 7 and 10. NOTE 6  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 Metaline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 lease characterizes the aforementioned quarterly
disbursements as advance royalty payments which may be fully offset against a
three-percent production royalty retained by the lessors. The lease agreement
gives Cominco the option to purchase 200 surface acres of the leased property
for fair market value during the lease term. During 2001, Teck Cominco
Limited was formed, following the acquisition of
Cominco Limited by another mining company, Teck Corporation. The former
subsidiary of Cominco Limited, Cominco American Incorporated, was renamed Teck
Cominco American, Inc., and continues as lessee under the original Cominco
lease agreement. Effective March 15, 2002, the aforementioned lease agreement was amended,
thereby reducing the amount of acreage leased from the Company, and providing
for an approximately three percent (3%) decrease in royalty payments. F-12




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 6  MINING LEASE WITH PURCHASE OPTION (continued) From the inception of the lease through March 31, 2004, Metaline has received
$94,846 in payments from Cominco and Teck. NOTE 7  CHANGE IN LLC OWNERSHIP On June 1, 1998, Nor-Pac Limited Company (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
Notes 1 and 5. NOTE 8  INCOME TAXES Income taxes are provided based upon the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes (hereinafter SFAS No. 109). Under this approach, deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
the deferred tax asset if management does not believe the Company has met the
more likely than not standard imposed by SFAS No. 109 to allow recognition of
such an asset. At March 31, 2004 and December 31, 2003, the Company had a net deferred tax
asset of approximately $220,000 and $212,000, respectively, principally arising
from net operating loss carryforwards for income tax purposes, which were
calculated using a 34% tax rate. This resulted in an increase to the net
deferred tax asset of approximately $8,000 for the quarter ended March 31,
2004. As management of the Company cannot determine that it is more likely than
not that the Company will realize the benefit of the net deferred tax asset, a
valuation allowance equal to the net deferred tax asset has been established. At March 31, 2004, the Company has a net operating loss carryforward of
approximately $658,000, which will fully expire in the year 2024. NOTE 9  STOCK OPTIONS The Company has adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (hereinafter SFAS No. 123), which
defines a fair value-based method of accounting for stock options and other
equity instruments. This method measures compensation costs based on the
estimated fair value of the award and recognizes that cost over the service
period. F-13




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 On November 16, 1999, the Companys 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 F-13




---



##### Table of Contents



METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2004 NOTE 9  STOCK OPTIONS (continued) 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, or $0.15, depending on the terms of the option certificate.
The options may be exercised until November 16, 2009, at which time they
expire. The fair value of the options granted on November 12, 2001 was estimated using
the Black-Scholes Option Price Calculation. The following assumptions were made
to estimate fair value: the risk-free interest rate is 6.0%, volatility is 24%,
and the expected life of the options is eight years. Accordingly, $4,275 of
option expense was recorded in the Companys financial statements as consulting
and management fees. 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. As of March 31, 2004 and December 31, 2003, the Company had 1,125,000 options
outstanding and exercisable at an average of $0.13 per share of common stock. NOTE 10  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) with Metaline retaining only a 6.9861% interest in The LLC. For
calendar years 1998 through 2003, Metaline reported 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. The LLC has agreed, in writing, to indemnify Metaline for any prior year income
distributions requested by other LLC members. As of March 31, 2004, 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 7 regarding a change in LLC
ownership and see Note 5 regarding related party commitment. F-14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis or Plan of Operations Results of Operations The Company had revenues from operations of $3,880 in the first quarter
of 2004, the same as in the first quarter of 2003. The Company
experienced an increased operating loss of $34,987 in the first quarter
of 2004 versus $6,274 in the first quarter of 2003. The increased loss of
$28,713 in the first quarter of 2004 was due to a significant property
expense incurred as a result of the acquisition of the Golden Chest Lease
(see Item 5  Other Information below). There was a decrease in management and consulting fees to nil in the
first quarter of 2004 versus $1,500 in the first quarter of 2003. The
decrease was a result of the termination of the Agreement For Management
and Consulting Services with Nor-Pac Limited Company (Nor-Pac).
Property expense increased to $37,765 in the first quarter of 2004, from
nil in the first quarter of 2003. The increase of $37,765 was due to the
fact that there are no proven or probable ore reserves on the properties
subject to the Golden Chest Lease. Professional fees, consisting of
legal and accounting were nil in the first quarter of 2004 versus $6,785
in the first quarter of 2003. The decrease of $6,785 was caused by the
Company not being billed during the first quarter of 2004 by its auditors
for the 2003 audit. Transfer agent fees decreased by $19 in the first
quarter of 2004, to $434 in the first quarter of 2004 from $453 in the
first quarter of 2003 due to a decrease in trading activities on the
Companys common stock. Office supplies and related expenses decreased
to $368 in the first quarter of 2004 from $1,016 in the first quarter of
2003. The decrease of $648 was due primarily to the termination of the
Companys Office Services Agreement with Murrayville Land Company LLC.
Taxes, licenses and fees decreased by $100 in the first quarter of 2004,
from $400 in 2003 to $300 in 2004. The Companys other income increased $292 in the first quarter of 2004 to
$1,869 from $1,577 in the first quarter of 2003, due to a reduced loss in
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 2 years without the
necessity of additional capital. Current level of operations includes
management tasks such as auditing/accounting and other related SEC
reporting requirements. 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 Teck Cominco American Incorporated (Teck
Cominco) and/or New Jersey Mining Company (New Jersey Mining), or from
the sale of shares of the Companys authorized, but unissued, common
stock. Under the New Cominco Lease and New Jersey Exploration Agreement, any
production decision on the Companys mineral rights and properties are
under the sole discretion and control of Teck Cominco and New Jersey
Mining. 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. -3-




---



##### Table of Contents



From time-to-time, 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 recognized such an opportunity with its acquisition of the
Golden Chest Lease from Paymaster Resources Incorporated, and the New
Jersey Exploration Agreement associated therewith. 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 March 31, 2004 was $105,520 as compared
to $105,687 as of March 31, 2003. 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.
The Company has no financial obligations under the New Cominco Lease, the
Golden Chest Lease, or the New Jersey Exploration Agreement. Its most
significant cash requirements are its accounting fees and financial
printing expenses associated with its reporting requirements with the
U.S. Securities and Exchange Commission. Management fees payable to
Nor-Pac were terminated on January 1, 2004. The Company also has a
related party receivable from MCMLLC in the amount of $109,413, with
accrued interest of $24,892, as of March 31, 2004. As the Managing
Member of MCMLLC, the Company believes it 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. 
 Item 3. Controls and Procedures Annual Evaluations of the Companys Disclosure Controls and Internal Controls. Within 90 days prior to the date of this Quarterly Report on Form 10-QSB, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (Disclosure Controls), and its internal
controls and procedures for financial reporting (Internal Controls). This
evaluation (the Controls Evaluation) was done under the supervision and with
the participation of management, including the Companys Chief Executive
Officer (CEO) and Chief Financial Officer (CFO). Rules adopted by the SEC
require that in this section of the Quarterly Report the Company present the
conclusions of the CEO and the CFO about the effectiveness of its Disclosure
Controls and Internal Controls based on and as of the date of the Controls
Evaluation. CEO and CFO Certifications. Appearing immediately following the Signatures section of this Quarterly Report
there are two separate forms of Certifications of the CEO and the CFO. The
first form of Certification is required in accord with Section 302 of the
Sarbanes-Oxley Act of 2002 (the Section 302 Certification). This section of
the Quarterly Report, which you are currently reading, is the information
concerning the Controls Evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented. -4-




---



##### Table of Contents



Disclosure Controls and Internal Controls. Disclosure Controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934 (Exchange Act), such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission (SEC) rules and forms.
Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure. Internal Controls are procedures which are designed with the
objective of providing reasonable assurance that the Companys (1) transactions
are properly authorized; (2) assets are safeguarded against unauthorized or
improper use; and (3) transactions are properly recorded and reported, all to
permit the preparation of our financial statements in conformity with generally
accepted accounting principles. Limitations of the Effectiveness of Controls. The Companys management, including the CEO and CFO, does not expect that its
Disclosure Controls or its Internal Controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected. Scope of the Controls Evaluation. The CEO/CFO evaluation of the Companys Disclosure Controls and our Internal
Controls include a review of the controls objectives and design, the controls
implementation by the Company and the effect of the controls on the
information generated for use in this Quarterly Report. In the course of the
Controls Evaluation, management sough to identify data errors, controls
problems or acts of fraud and to confirm that appropriate corrective action,
including process improvements, were being undertaken. This type of evaluation
will be done on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in the Companys Quarterly Reports on Form 10-QSB
and Annual Report on Form 10-KSB. The Companys Internal Controls are also
evaluated on an on-going basis by its independent auditors in connection with
their audit and review activities. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and make modifications as necessary; our intent in this regard is that
the Disclosure Controls and the Internal Controls will be maintained as dynamic
systems that change (including the improvements and corrections) as conditions
warrant. Among other matters, the Company sought in its evaluation to determine whether
there were any significant deficiencies or material weaknesses in the
Companys Internal Controls, or whether the Company had identified any acts of
fraud involving personnel who have a significant role in the Companys Internal
Controls. This information was important both for the Controls Evaluation
generally and because items 5 and 6 in the Section 302 Certifications of the
CEO and CFO require that the CEO and CFO disclose that information to our
Boards Audit Committee and to our independent auditors and to report on
related matters in this section of the Annual Report. In the professional
auditing literature, significant deficiencies are referred to as reportable
conditions; these are control issues that could have -5-




---



##### Table of Contents



a significant adverse effect on the ability to record, process, summarize and
report financial data in the financial statements. A material weakness is
defined in the auditing literature as a particularly serious condition where
the internal control does not reduce to a relatively low level the risk that
misstatements caused by error or fraud may occur in amounts that would be
material in relation to the financial statements and may not be detected within
a timely period by employees in the normal course of performing their assigned
functions. The Company also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, management
considered what revision, improvement and/or correction to make in accord with
our on-going procedures. In accord with SEC requirements, the CEO and CFO note that, since the date of
the Controls Evaluation to the date of this Quarterly Report, there have been
no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses. Conclusions. Based upon the Controls Evaluation, the Companys CEO and CFO have concluded
that, subject to the limitations noted above, its Disclosure Controls are
effective to ensure that material information relating to the Company is made
known to management, including the CEO and CFO, particularly during the period
when its periodic reports are being prepared, and that its Internal Controls
are effective to provide reasonable assurance that the Companys financial
statements are fairly presented in conformity with generally accepted
accounting principles. 
 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 for the quarter ending March 31,
2004. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information On January 10, 2004, the Company entered into an Agreement with Paymaster
Resources Incorporated (hereinafter Paymaster) to acquire Paymasters
mineral lease on mining properties near Murray, Idaho commonly known as
the Golden Chest Mine (the Golden Chest Lease), and Paymasters
exploration agreement with New Jersey Mining Company (the New Jersey
Exploration Agreement), which relates to the Golden Chest Mine. The
Paymaster shareholders approved the Agreement at a special meeting on
February 23, 2004. -6-




---



##### Table of Contents



Summary of Terms of Transaction Under the terms of the Agreement, the Company issued Paymaster 466,954
 shares of its authorized, but unissued, shares of common stock (the
Metaline Shares) in exchange for Paymasters interests in the Golden
Chest Lease, and the New Jersey Exploration Agreement. The Metaline
Shares will not be registered with the Securities and Exchange Commission
or any State, and will be restricted. In the event the Golden Chest Mine
commence commercial production during the tenure of the New Jersey
Exploration Agreement, or any lease as a result thereof, the Company will
pay Paymaster an additional 1,000,000 shares of its authorized, but
unissued, common stock. Golden Chest Lease The Golden Chest Lease continues until July 1, 2018, with options
thereafter so long as there is commercial production. The Company has no
advance royalty payments, work requirements, or other holding costs. The
Company pays the Lessor, J.W. Beasley Interests LLC, an amount equal to
Fifty Percent (50%), in kind, of royalties and other payments received
from New Jersey Mining under the terms of the New Jersey Exploration
Agreement. New Jersey Exploration Agreement The New Jersey Exploration agreement commenced on September 5, 2003, and
calls for a 2-1/2 year exploration period. Commencing September 5, 2004,
New Jersey Mining will issue the Company 10,000 shares of its common
stock each 6-month period. If New Jersey Mining exercises its option to
lease the Golden Chest Mine it will pay the Company an additional 100,000
            shares of its common stock, and a sliding scale net smelter return
royalty, which increases with the price of gold. The royalty is 3% up to
a gold price of $400 per ounce, and then increases to a maximum of 6%.
Also, New Jersey Mining will issue the Company 50,000 additional shares
of its common stock for each 10,000 ounces of gold produced from the
Golden Chest Mine. 
 Item 6. Exhibits and Reports on Form 8-K Exhibit 31.1  Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. Exhibit 31.2  Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. Exhibit 32.1  Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Exhibit 32.2  Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. There were no reports filed on Form 8-K during the three month period
ended March 31, 2004. 
 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 19th day of May, 2004
    METALINE CONTACT MINESBy:
    /s/ John W. BeasleyJohn W. BeasleySecretary/Treasurer/CFO -7-