##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 FORM 10-KSB [X]

    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934For the fiscal year ended December 31, 2002 [   ]

    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934For the transition period from             toCommission file number METALINE CONTACT MINES 
 (Name of Small Business Issuer in its charter)
 Washington
(State or other jurisdiction or incorporation
or organization)
    
    91-0779945
(I.R.S. Employer Identification No.) 6599 Prichard Creek Road, Murray, Idaho
(Address of principal executive offices)
    
    83874
(Zip Code) Issuers telephone number 208-682-2217 Securities registered under Section 12(b) of the Exchange Act: Title of each class
    
    Name of each exchange on which registered Securities registered under Section 12(g) of the Exchange Act: Capital Common - $0.05 Par Value
(Title of Class)(Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [   ] No Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [   ] State issuers revenues for its most recent fiscal year. $12,790.00     Table of Contents  State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days. $4,219,290 as of April 1, 2002 (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Check whether the issuer has filed all documents and reports to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [   ] Yes [   ] No. NOT
APPLICABLE (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date. 14,064,300 as of April 1,
2002 DOCUMENTS NCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 (Securities Act). The
listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for the fiscal year ended December 31, 1990). Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]    TABLE OF CONTENTS  PART IItem 1. Description of BusinessItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7. Financial StatementsItem 8. Changes in and Disagreements With Accountants on Accounting and Financial DisclosurePART IIIItem 9. Directors, Executive Officers, and Promoters and Control PersonsItem 10. Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and ManagementItem 12. Certain Relationships and Related TransactionsItem 13. Exhibits and Reports on Form 8-KItem 14. Controls and ProceduresSIGNATUREEXHIBIT 99.1EXHIBIT 99.1    Table of Contents  TABLE OF CONTENTS PART IItem 1.
    
    Description of Business
    
    4Item 2.
    
    Description of Property
    
    7Item 3.
    
    Legal Proceedings
    
    8Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    8PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters
    
    8Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    9Item 7.
    
    Financial Statements
    
    F-1Item 8.
    
    Changes In and Disagreements With Accountants on Accounting
And Financial Disclosure
    
    27PART IIIItem 9.
    
    Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
    
    27Item 10.
    
    Executive Compensation
    
    29Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    31Item 12.
    
    Certain Relationships and Related Transactions
    
    32Item 13.
    
    Exhibits and Reports on Form 8-K
    
    33Item 14.
    
    Controls and Procedures
    
    34     Table of Contents  
 PART I 
 Item 1. Description of Business  The Company was incorporated on November 15, 1928 pursuant to the laws of
the State of Washington, for the purposes of engaging in the acquisition,
leasing, exploration and, if warranted, development and mining of mineral
resource properties, and to conduct all business appertaining thereto.
Subsequent its organization the Company began acquiring unpatented
zinc-lead mining claims and other mineral rights in the Metaline
District, Pend Oreille County, State of Washington.Unpatented mining claims are claims in which an individual, corporation,
or other legal entity, by the act of a valid location under the mining
laws of the United States, has obtained a right to remove and extract
minerals from the land, but where full title of the land has not been
acquired from the U.S. Government. A patented mining claim refers to a
parcel of mineral land for which the Federal Government has conveyed its
title to an individual, corporation or other legal entity.From 1928 until 1946, the Company was inactive, except for maintaining
its mineral holdings, and in 1946, leased its mineral holdings to
Metaline Mining & Leasing Company for a period of 25 years. There is no
affiliation, past or present, between the Company and Metaline Mining &
Leasing Company.In 1959, The Bunker Hill Company (hereinafter Bunker Hill) began
managing the Companys business affairs and minerals holdings. The
Company, however, remained a non-operating corporation until after the
expiration of its lease with Metaline Mining & Leasing Company.On November 7, 1960, the Company entered into a Plan and Agreement of
Reorganization and Re-capitalization with the Bunker Hill and Day Mines
Inc (hereinafter Day Mines), who at the time were large shareholders of
the Company, and the owners of other mining properties in the Metaline
District, Pend Oreille County, Washington. The parties to the
reorganization agreement felt that by consolidating their respective
mining properties under the common ownership of the Company, the combined
mining properties could be more advantageously explored and, if
warranted, developed. In consideration of said additional mining
properties, and the cancellation of certain indebtedness the Company had
with Bunker Hill and Day Mines, the Company issued 1,288,619 shares of
its common stock to Bunker Hill, and 728,825 shares of its common stock
to Day Mines.On April 14, 1976, the Company entered into an Exploration and Operating
Agreement (the 1976 Agreement) with Bunker Hill whereby Bunker Hill was
granted the exclusive right to conduct exploration and, if warranted,
development and mining operations on the Companys mineral holdings.In 1982, control of the Company was transferred from Bunker Hill to
Bunker Limited Partnership, who subsequently transferred the operating
control of the 1976 Agreement to Pintlar Corp., a subsidiary of Gulf
Resources & Chemical, the parent company of Bunker Hill. In 1990,
Pintlar Corp. transferred operating control of the 1976 Agreement to
Resource Finance Inc., the U.S. subsidiary of RFC Resource Finance
Corporation, Toronto, Ontario, Canada. In 1996, Cominco American
Incorporated acquired operating control of the 1976 Agreement with its
acquisition of Resource Finance Inc. -4-     Table of Contents   In October of 1996, the then-current management and majority shareholders
of the Company commenced a structured reorganization whereby the Company
organized Metaline Contact Mines LLC (hereinafter MCMLLC), a Delaware
Limited Liability Company, and assigned all of the surface rights to the
private real property and standing timber thereon (hereinafter the
Assigned Assets) it acquired in the 1960 reorganization agreement with
Bunker Hill and Day Mines, to MCMLLC in exchange for a 99% equity
membership interest in MCMLLC. At that time, management of the Company
felt it would be in the best interests of the shareholders of the Company
to transfer the Assigned Assets to a limited liability company that is
owned by the shareholders of the Company in proportion to their interests
in the Company. The Company became the Managing Member of MCMLLC.
Immediately after its organization, and prior to being assigned the
Assigned Assets, MCMLLC had no business or assets.A limited liability company is owned by its members, and members own
equity membership interests in the limited liability company similar to
partnership interests in a partnership. In most states, including
Delaware, each member has the authority to manage the business and
affairs of the limited liability company unless such management authority
is vested in one or more managers. Members of a limited liability
company whose business and affairs are managed by a manager or
managers become non-managing members and own non-managing equity
membership interests. As the Managing Member of MCMLLC, the Company has
the full, exclusive and complete discretion to manage and control the
business affairs of MCMLLC, including, but not limited to, the right to
make all decisions affecting the business and affairs of MCMLLC as it
deems necessary or appropriate to accomplish the purposes and direct the
affairs of MCMLLC. The non-managing members of MCMLLC have no rights to
vote on or consent to any matter, act, decision or document involving
MCMLLC or its business, or take part in the day-to-day management, or the
operation or control, of the business and affairs of MCMLLC.As a part of its reorganization, the Company retained ownership of all
sub-surface mineral rights to the Assigned Assets, ownership of its
unpatented mining claims and attached mineral rights, and offered its
shareholders the opportunity to exchange their shares of common stock in
the Company for proportionate non-managing equity membership interests in
MCMLLC. A total of 19 of the Companys 302 shareholders accepted the
exchange offer that resulted in MCMLLC owning 11,686,643 shares of common
stock in the Company, or 93.02% of the outstanding shares of the Company
at the time of the reorganization.On September 1, 1997, the then-current management of the Company
negotiated a new Mining Lease With Purchase Option with Cominco American
Incorporated (hereinafter the New Cominco Lease) on the Companys
mineral rights, which New Cominco Lease superseded the 1976 Agreement in
its entirety.On June 1, 1998, Nor-Pac Limited Company (hereinafter Nor-Pac), an
Idaho Limited Liability Company, acquired a 99.994% non-managing equity
membership interest in MCMLLC from 18 of its non-managing members, and
became the controlling shareholder of the Company through its majority
ownership of MCMLLC. Simultaneous therewith, the Companys Board of
Directors resigned, Nor-Pac filled the vacant Board with its slate of
Directors, and MCMLLC sold the Assigned Assets to an independent third
party.The Company does not own any interest in mineral properties or rights
that are currently in production, nor has it ever derived any revenues
from the sale of zinc or other materials. It has never filed any
bankruptcy, receivership or similar proceedings. -5-     Table of Contents   Business of CompanyThe Company leases its mineral rights and properties described in Item 3
below, to Cominco American Incorporated (hereinafter Cominco) pursuant
to the New Cominco Lease. Cominco is the U.S. subsidiary of Cominco Ltd.,
a large international Canadian mining company. Cominco is exploring for
zinc and lead ores on the Companys mineral rights. In the event that
Cominco is successful in discovering a commercially viable ore body on
the Companys mineral holdings, and that ore body is placed into
commercial production, the Company will receive production royalties from
Cominco. There are no assurances, however, that Cominco will be
successful in discovering a commercially viable ore body on the Companys
mineral holdings.The term of the New Cominco Lease is for 20 years, with an option for an
additional 20-year period, and so long thereafter as there is commercial
production from the Companys mineral rights. Under the terms of the
New Cominco Lease, the Company receives an advance royalty of $3,000.00
per quarter for the first 5 years, $4,000.00 per quarter for the next 5
years, and $5,500.00 per quarter thereafter. The New Cominco Lease also
provides a 3% Net Smelter Returns production royalty upon the
commencement of commercial production. During the first 3 years of
production the production royalty is fixed at $150,000.00 per year.Under the terms of the New Cominco Lease, the Company is not responsible
for or subject to any existing or probable governmental approvals or
regulations with regard to its mineral rights. In the event, however,
Cominco is successful in placing the Companys mineral rights into
commercial production, federal, state and local governmental permits may
be required; in which case obtaining any such permits is the
responsibility of Cominco. Any ores mined from the Companys mineral
rights by Cominco would be by underground mining methods, and transported
underground to Comincos processing facilities that are situated on
Comincos own properties. Tailings ponds and associated waste rock
storage areas will be on Cominco owned properties, and, except for
surface exploration drilling, and geophysical and geochemical surveys,
there will be no surface disturbances on the Companys holdings that
would be subject to reclamation requirements. Surface disturbances from
surface drilling, and geophysical and geochemical surveys, would be
extremely minor, and in the event Cominco failed to reclaim such sites,
the Company may be required to reclaim same, in which case the resultant
liability to the Company would not be significant. All permitting, and
reclamation requirements and liabilities with regard to Comincos
processing facilities are for the sole account and responsibility of
Cominco. Failure by Cominco to obtain any necessary permits for its
processing facilities could result in Cominco ceasing its exploration
activities on the Companys mineral holdings, and subject the New Cominco
Lease to termination by Cominco on its terms.In 1995, McCulley Frick & Gilman Inc. (MF&G), an environmental
consulting and engineering services firm with offices in Wallace, Idaho,
conducted a Phase I Environmental Site Assessment (the ESA) of the
Companys private landholdings. In December of 1997, the Company
obtained an update to the ESA also authored by MF&G. Both assessments
affirmed that previous mining exploration activities conducted on the
properties left no hazardous substances or facilities, as defined in
the Comprehensive Environmental, Response, Compensation, and Liability
Act (CERCLA), and pose no threat to human health, natural resources, or
the environment from the standpoint of releases of any potentially
hazardous substances to soil, groundwater, surface water or air. It is
therefore managements opinion that the Company would have minimal
liability if named as a Potentially Responsible Party (PRP) under
CERCLA from any past mining-oriented activities. Further, as stated in
the above paragraph, any future mining operations that may be conducted
on the Companys mineral rights by Cominco under the New Cominco Lease
would be by underground mining methods and the ores extracted would be
transported underground in raw -6-     Table of Contents   form directly to Comincos processing facilities located on Cominco owned
property. No hazardous substances or facilities will be used or
constructed on the Companys mineral holdings. Nevertheless, the Company
is listed in the chain-of-title of the properties and could be named as a
PRP in the future. However, it is managements opinion that any such
liability from being named a PRP would be minimal, and defendable under
42 U.S.C. § 9607(b)(3).Additionally, under the New Cominco Lease, Cominco has the responsibility
to maintain the Companys unpatented mining claims. To maintain an
unpatented mining claim, the claimant must pay a $100 maintenance fee and
incur $100 in assessment expenditures annually per claim. In the event
Cominco failed to maintain the Companys unpatented mining claims, the
Company would be required to pay the annual maintenance fee and incur
assessment expenditures in order to maintain the claims in good standing.
Due to its large number of unpatented mining claims, any such failure by
Cominco could be a significant financial obligation of the Company.The Company has no employees, has not announced any new products or
services; does not require sources and raw materials; and has spent no
funds on research during the last two fiscal years.Reports to securities holdersOn September 14, 2000, the Company became a reporting company with the
Securities and Exchange Commission, and as a reporting company will file all
required reports, including, but not limited to, its Form 10-QSB and Form
10-KSB. The Company will supply annual reports to its shareholders.The public may read and copy all materials the Company files with the U.S.
Securities and Exchange Commission (the SEC) at the SECs Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may also
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov)
that will contain reports, proxy and information statements and other
information regarding the Company that will be filed electronically with the
SEC. 
 Item 2. Description of Property  The Company owns all right, title and interest in and to mineral rights,
all of which are located in the County of Pend Oreille, State of
Washington, as follows: the mineral rights attached to 5,798 acres of
fee simple property; the mineral rights attached to 487 acres of patented
mining claims, and the mineral rights attached to 1,925 acres of
unpatented lode mining claims. The Company does not own the surface
rights to any of the fee simple property or patented mining claims. It
does, however, have the right to use of the surface of the fee simple
property and patented mining claims for exploration purposes, and the
surface of the unpatented mining claims for exploration and, if
warranted, development and mining purposes.A map of the Companys mineral rights in relationship to Comincos Pend
Oreille Mine properties is shown on the following page.The Company rents office facilities at 6599 Prichard Creek Road, Murray,
Idaho 83874, pursuant to an Office Service Agreement, dated June 1, 1998,
as amended on July 1, 1999 and September 1, 2000, between Murrayville
Land Company LLC and the Company. The term of the agreement is
month-to-month, for $225.00 per month, plus its share of the operating
costs of the facility, and other expenses -7-     Table of Contents   The Company does not invest in real estate or interests in real estate,
does not invest in real estate mortgages or the types of properties
subject to mortgages, does not invest in the securities of or interests
of persons primarily engaged in real estate, does not own any improved
properties, and has no plans for the renovation, improvement or
development of any of its properties. In the opinion of management, the
Companys properties are adequately covered by insurance. 
 Item 3. Legal Proceedings  Neither the Company, its directors, officers or affiliates, or owners of
record or beneficially of more than 5% of any class of voting securities,
is a party to any pending legal proceedings, nor do any of the above
named parties expect to be a party to any future legal proceedings.
Additionally, the Company is not aware of any governmental authority that
is contemplating legal proceedings against the Company, its mineral
rights or properties. 
 Item 4. Submission of Matters to a Vote of Security Holders  No matters were submitted during the past fiscal year covered by this
report to a vote of security holders, through the solicitation of proxies
or otherwise. 
 PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters  The Companys shares as of the date of this filing are listed for trading
on NASDAQs OTCBB and the National Quotation Bureaus Pink Sheets,
since June 4, 1999. The range of high and low bid information for the
last eight quarters is as follows: High
    
    Low1st Quarter, 2001
    
    $
    0.45
    
    
    $
    0.152nd Quarter, 2001
    
    $
    0.45
    
    
    $
    0.153rd Quarter, 2001
    
    $
    0.45
    
    
    $
    0.154th Quarter, 2001
    
    $
    0.45
    
    
    $
    0.151st Quarter, 2002
    
    $
    0.45
    
    
    $
    0.152nd Quarter, 2002
    
    $
    0.45
    
    
    $
    0.153rd Quarter, 2002
    
    $
    0.45
    
    
    $
    0.154th Quarter, 2002
    
    $
    0.45
    
    
    $
    0.15  The above quotations were supplied by Olson Payne & Company, Spokane,
Washington. Olson Payne & Company is licensed securities brokerage firm
registered with the National Association of Securities Dealers. There is
no affiliation between the Company and this firm. The quoted prices are
inter-dealer prices, without retail mark-up, markdown or commissions, and
may not represent actual transactions.Management approved the reservation of 2,000,000 shares of the Companys
common stock for options pursuant to the 1999 Stock Option Plan (the
Stock Option Plan). On November 15, 1999, the Company held a Special
Meeting of Shareholders, who approved the Stock Option Plan. On November
16, 1999, the Company issued options to its three (3) directors and two
(2) independent consultants, totaling One Million (1,250,000) shares.
The independent consultants are Gene George of Spokane, Washington, and
Nelson Robert Howard of Lewiston, Idaho. -8-     Table of Contents   There are 314,500 shares of common stock that are eligible to be sold
pursuant to Rule 144 of the Securities Act of 1933, as amended. The
Company has not agreed to register any of its securities under the
Securities Act for sale by its security holders, nor is any of its common
equity being, or has been, proposed to be offered publicly. The Company
has issued no dividends to date, and there are no immediate plans to
issue dividends this year or in the immediate future.There are 293 shareholders of the Companys common stock. 
 Item 6. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Results of OperationsThe Company had revenues from operations of $12,790 in 2002, versus
$12,000 in 2001. The increase of $790 was due to the increase of
advanced royalties paid to the Company under the terms of New Cominco
Lease. The Company also experienced a significant decrease in its
operating loss to $56,631 in 2002 from $150,901 in 2001. The decrease in
operating loss of $94,270 was predominantly due to decrease in management
fees, as well as a decrease in professional fees, and office expenses and
supplies.Consulting and management fees decreased by $84,661 in 2002 to $39,614
from $124,275 in 2001, due to the decrease in management fees paid to
Nor-Pac Limited Company. Professional fees, consisting of legal and
accounting, decreased $5,994 in 2002 to $17,694 in 2002 from $23,688 in
2001, due to a decrease in legal and tax advice received in connection
with a proposed transaction with Paymaster Resources Incorporated, which
transaction was rescinded. Transfer agent fees increased $5 to $1,153 in
2002 versus $1,148 in 2001 due to a slight increase in trading volume on
the Companys common stock. Office supplies and expenses decreased to
$10,960 in 2002 from $13,051 in 2001 due reduced costs associated with
the Companys Office Services Agreement. Travel expenses decreased by
$739 in 2002, to a total of nil from $739 in 2001, due to decreased
travel requirements by the Company.The Companys other income decreased by $7,473 in 2002 to $8,102 from
$15,575 in 2001. The decrease was predominantly caused by the decrease
in dividend income earned on the Companys money market account.Financial ConditionThe Companys financial condition for the years 2001 and 2002 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 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. And, 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. -9-     Table of Contents   At present 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.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. However, the Company competes with
other mining companies in 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, and does not expect to 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 ResourcesTo 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 December 31, 2002 was $129,124 as
compared to $183,354 as of December 31, 2001.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 $3,000 per month payable under the terms of its
Management Agreement, as amended, 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). On January 1, 2002, the
Company and Nor-Pac amended the terms of the Management Agreement so that
the Company has reduced the amount of its monthly management fee from
$10,000 to $3,000. The Company also has a related party receivable from
MCMLLC in the amount of $109,413 as of December 31, 2001, plus accrued
interest of $15,320. 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. -10-     Table of Contents  
 Item 7. Financial Statements METALINE CONTACT MINES FINANCIAL STATEMENTS
December 31, 2002 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 AUDITORS 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 AUDITORS REPORT We have audited the accompanying balance sheets of Metaline Contact Mines as of
December 31, 2002 and 2001, and the related statements of operations,
stockholders equity and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metaline Contact Mines as of
December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. Williams & Webster, P.S.
Spokane, WashingtonCertified Public Accountants February 14, 2003 F-3    Table of Contents  METALINE CONTACT MINES
BALANCE SHEETS December 31,
    
    December 31,2002
    
    2001ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    111,124
    
    
    $
    183,354Receivable from related party
    
    
    18,000
    
    
    
    Total Current Assets
    
    
    129,124
    
    
    
    183,354OTHER ASSETSReceivables from related parties
    
    
    109,413
    
    
    
    109,413Accrued interest receivable
    
    
    15,320
    
    
    
    7,660Investment in LLC
    
    
    35,109
    
    
    
    36,188Total Other Assets
    
    
    159,842
    
    
    
    153,261TOTAL ASSETS
    
    $
    288,966
    
    
    $
    336,615LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESDeferred royalty income
    
    $
    3,880
    
    
    $
    3,000Total Current Liabilities
    
    
    3,880
    
    
    
    3,000COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon stock, $0.05 par value;
20,000,000 shares authorized,
14,064,300 shares issued and outstanding
    
    
    703,222
    
    
    
    703,222Additional paid-in capital
    
    
    302,165
    
    
    
    302,165Stock options
    
    
    17,907
    
    
    
    17,907Accumulated deficit
    
    
    (738,208
    )
    
    
    (689,679
    )Total Stockholders Equity
    
    
    285,086
    
    
    
    333,615TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    288,966
    
    
    $
    336,615 The accompanying notes are in integral part of these financial statements. F-4    Table of Contents  METALINE CONTACT MINES
STATEMENT OF OPERATIONS Year EndedDecember 31,
    
    December 31,2002
    
    2001REVENUESRoyalty income
    
    $
    12,790
    
    
    $
    12,000GENERAL AND ADMINISTRATIVE EXPENSESConsulting and management fees
    
    
    39,614
    
    
    
    124,275Professional fees
    
    
    17,694
    
    
    
    23,688Transfer agent fees
    
    
    1,153
    
    
    
    1,148Office supplies and expenses
    
    
    10,960
    
    
    
    13,051Travel and meals
    
    
    
    
    
    
    739TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    69,421
    
    
    
    162,901OPERATING LOSS
    
    
    (56,631
    )
    
    
    (150,901
    )OTHER INCOMEDividend income
    
    
    1,522
    
    
    
    9,274Interest income
    
    
    7,659
    
    
    
    7,660Miscellaneous income
    
    
    
    
    
    
    300Loss from investment in LLC
    
    
    (1,079
    )
    
    
    (1,659
    )TOTAL OTHER INCOME
    
    
    8,102
    
    
    
    15,575LOSS BEFORE TAXES
    
    
    (48,529
    )
    
    
    (135,326
    )INCOME TAX EXPENSE
    
    
    
    
    
    
    NET LOSS
    
    $
    (48,529
    )
    
    $
    (135,326
    )NET LOSS PER COMMON SHARE,
BASIC AND DILUTED
    
    $     nil
    
    $
    (0.01
    )WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED
    
    
    14,064,300
    
    
    
    14,064,300 The accompanying notes are in integral part of these financial statements. F-5    Table of Contents  METALINE CONTACT MINES
STATEMENT OF STOCKHOLDERS EQUITY Common Stock
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalPaid-in
    
    Stock
    
    Accumulated
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Options
    
    Deficit
    
    EquityBalance, December 31, 2000
    
    
    14,064,300
    
    
    $
    703,222
    
    
    $
    302,165
    
    
    $
    13,632
    
    
    $
    (554,353
    )
    
    $
    464,666Stock options granted November 12, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,275
    
    
    
    
    
    
    
    4,275Net loss for the year ended, December
31, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,326
    )
    
    
    (135,326
    )Balance, December 31, 2001
    
    
    14,064,300
    
    
    
    703,222
    
    
    
    302,165
    
    
    
    17,907
    
    
    
    (689,679
    )
    
    
    333,615Net loss for the year ended, December
31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,529
    )
    
    
    (48,529
    )Balance, December 31, 2002
    
    
    14,064,300
    
    
    $
    703,222
    
    
    $
    302,165
    
    
    $
    17,907
    
    
    $
    (738,208
    )
    
    $
    285,086 The accompanying notes are in integral part of these financial statements. F-6    Table of Contents  METALINE CONTACT MINES
STATEMENT OF CASH FLOWS For the Year EndedDecember 31,
    
    December 31,2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (48,529
    )
    
    $
    (135,326
    )Adjustments to reconcile net loss to net cash
provided (used) by operating activities:Payment of expenses from issuance of stock
    
    
    
    
    
    
    4,275Net loss in investment in LLC
    
    
    1,079
    
    
    
    1,659Changes in assets and liabilities:Increase in interest receivable
    
    
    (7,659
    )
    
    
    (7,660
    )Increase (decrease) in accounts payable
    
    
    
    
    
    
    (1,355
    )Increase (decrease) in deferred royalty income
    
    
    880
    
    
    
    Net cash provided (used) by operating activities
    
    
    (54,229
    )
    
    
    (138,407
    )CASH FLOWS PROVIDED BY INVESTING ACTIVITIESCash advance to related party
    
    
    (18,000
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (18,000
    )
    
    
    CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (72,229
    )
    
    
    (138,407
    )Cash and cash equivalents, beginning of period
    
    
    183,354
    
    
    
    321,761Cash and cash equivalents, end of period
    
    $
    111,125
    
    
    $
    183,354SUPPLEMENTAL CASH FLOW DISCLOSURES:Income taxes paid
    
    $
    
    
    
    $
    Interest paid
    
    $
    
    
    
    $
    NON-CASH TRANSACTIONS:Payment of expenses from stock options granted
    
    $
    
    
    
    $
    4,275 The accompanying notes are in integral part of these financial statements. F-7    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 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. 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. Accounting Pronouncements
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
148 amends SFAS 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 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 the intrinsic
value method prescribed in APB No. 25, Accounting for Stock Issued to
Employees, the adoption of SFAS 148 has no material impact on the Companys
financial condition or results of operations. F-8    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Pronouncements
(Continued)
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (hereinafter SFAS No. 146). SFAS No. 146
addresses significant issues regarding the recognition, measurement, and
reporting of costs associated with exit and disposal activities, including
restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating
a contract that is not a capital lease, costs to consolidate facilities or
relocate employees, and termination benefits provided to employees that are
involuntarily terminated under the terms of a one-time benefit arrangement that
is not an ongoing benefit arrangement or an individual deferred-compensation
contract. SFAS No. 146 was issued in June 2002, effective December 31, 2002.
The Companys financial position and results of operations have not been
affected by adopting SFAS No. 146. In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
(hereinafter SFAS No. 145) which updates, clarifies and simplifies existing
accounting pronouncements. SFAS No. 4, which required all gains and losses from
the extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related tax effect was rescinded. As a result, SFAS
No. 64, which amended SFAS No. 4, was rescinded as it was no longer necessary.
SFAS No. 145 amended SFAS No. 13 to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Managements adoption of this statement has not
affected the financial position or results of operations at December 31, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (hereinafter SFAS No. 144). SFAS No. 144
replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of. This new standard establishes a
single accounting model for long-lived assets to be disposed of by sale,
including discontinued operations. SFAS No. 144 requires that these long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or discontinued operations.
This statement is effective beginning for fiscal years after December 15, 2001,
with earlier application encouraged. The Company adopted SFAS No. 144, which
had no impact on the financial statements of the Company at December 31, 2002. F-9    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Pronouncements
(Continued)
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, Business Combinations (hereinafter SFAS No. 141) and Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(hereinafter SFAS No. 142). SFAS No. 141 provides for the elimination of the
pooling-of-interests method of accounting for business combinations with an
acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the
amortization of goodwill and other intangible assets with indefinite lives and
requires periodic reassessment of the underlying value of such assets for
impairment. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. An early adoption provision exists for companies with fiscal years
beginning after March 15, 2001. On September 1, 2001, the Company adopted SFAS
No. 142. Application of the nonamortization provision of SFAS No. 142 is
expected to result in no changes to the Companys results of operations or
financial position because the Company has no recorded intangible assets. 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, 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 December 31, 2002. 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 $110,353 and $180,035 at December 31, 2002 and
December 31, 2001, 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. 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 F-10    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative Instruments (continued)
Certain Derivative Instruments and Certain Hedging Activities, which is
effective for the Company as of January 1, 2001. These statements establish
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
and for hedging activities. They require that an entity recognize all
derivatives as either assets or liabilities in the 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 December 31, 2002, 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, it is impractical 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. 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. Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (hereinafter SFAS No. 123),defines a fair
value-based method of accounting for stock options and other equity
instruments. The Company has adopted this method, which measures compensation
costs based on the estimated fair value of the award and recognizes that cost
over the service period. F-11    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 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 December 31, 2002, the Company recorded a year-end loss in The LLC of
$1,080, reducing the Companys recorded interest in the LLC to $35,109. 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. NOTE 5  RELATED PARTIES In March 2002, the Company advanced $18,000 on a short-term, non-interest
bearing, unsecured basis to Murrayville Land Company, an affiliated company, to
facilitate a real estate purchase. Collection on the receivable is expected
within one year. F-12    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 5  RELATED PARTIES (continued) 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, interest at the rate of 7 percent per annum was accrued as a
non-current asset at December 31, 2002 and December 31, 2001. 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
subsequently modified with an effective date of January 1, 2002, providing that
Nor-Pac will receive $3,000 per month, rather than $10,000 per month. For additional information on related parties, see Notes 3, 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, while providing that
Cominco must expend $125,000 in exploration work within the first five years of
the lease, also gave 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 December 31, 2002, Metaline has
received $63,806 in payments from Cominco. During 2001, Teck Cominco Limited was
formed, following the acquisition of
Cominco Corporation by another mining company, Teck Corporation. The former
subsidiary of Cominco Corporation, Cominco American Incorporated was renamed,
Teck Cominco American, Inc., and continues as lessee under the original Cominco
lease agreement. F-13    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 6  MINING LEASE WITH PURCHASE OPTION (continued) 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. 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 SFAS No. 109 Accounting for Income Taxes. Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. A valuation allowance is recorded
against deferred tax assets if management does not believe the Company has met
the more likely than not standard imposed by SFAS No. 109 to allow
recognition of such an asset. At December 31, 2002, the Company had a net deferred tax asset of approximately
$160,000 principally arising from net operating loss carryforwards for income
tax purposes, which were calculated using a 34% tax rate. 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 December 31, 2002. At December 31, 2002, the Company has a net operating loss carryforward of
approximately $471,000, which will fully expire in the year 2022. NOTE 9  STOCK OPTIONS 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 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. F-14    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 NOTE 9  STOCK OPTIONS (continued) 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
0.24, 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. Following is a summary of the status of fixed options outstanding at December
31, 2001 and December 31, 2002: WeightedAverageNumber of
    
    ExerciseShares
    
    PriceOutstanding, January 1, 2001
    
    
    1,000,000
    
    
    $
    0.125Granted, November 12, 2001
    
    
    250,000
    
    
    
    0.150Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding, December 31, 2001
    
    
    1,250,000
    
    
    $
    0.130Exercisable, December 31, 2001
    
    
    1,250,000
    
    
    $
    0.130Fair value of options granted
    
    $
    4,275Outstanding January 1, 2002
    
    
    1,250,000
    
    
    $
    0.130Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding, December 31, 2002
    
    
    1,250,000
    
    
    $
    0.130Exercisable, December 31, 2002
    
    
    1,250,000
    
    
    $
    0.130 F-15    Table of Contents  METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
December 31,2002 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 2001, 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 December 31, 2002, 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. NOTE 11  SUBSEQUENT EVENTS Effective January 1, 2003, the agreement between Nor-Pac Limited Company
(Nor-Pac) and Metaline Contact Mines was amended to provide that Nor-Pac will
receive $500 per month, rather than $3,000 per month for management and
consulting services. Murrayville Land has escrowed funds to repay its loan from the Company of
$18,000 with an expected closing in March 2003. F-16    Table of Contents  
 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  There have been no changes in or disagreements with accountants on
accounting and financial disclosure of the Company during the Companys two
most recent fiscal years. 
 PART III 
 Item 9. Directors, Executive Officers, and Promoters and Control Persons  The officers and directors of the Company are as follows:Richard L. Howell. Age 68. Mr. Howell has been the President and a
director of the Company since 1998. From 1978 to 1995, Mr. Howell was
the Personal Representative of the Estate of Nelson R. Howard and Trustee
of the Testamentary Trust created under the Will of Nelson R. Howard.
From 1995 to June 1, 2000, Mr. Howell was the Manager of Golconda Limited
Company, the successor to the Nelson Howard Trust. From 1994 to present
Mr. Howell has been the President and a Governor of Mission Mountain
Interests Ltd. Co.; from 1997 to present the President and a Governor of
Nor-Pac Limited Company; from 1998 to present, the President and a
Governor of Murrayville Land Company LLC, and from 1998 to present, a
Director of Paymaster Resources Incorporated.John W. Beasley. Age 57. Mr. Beasley has been the Secretary and a
director of the Company since 1998. He holds a Bachelor of Science
degree in Agricultural Economics from the University of California at
Berkeley. From 1967 to 1975, Mr. Beasley played professional football
for the Minnesota Vikings (including Super Bowl IV) and New Orleans
Saints. From 1976 to 1982, he held numerous management positions with
the Gulf Consolidated Services organization, including Vice President -
Eastern Hemisphere in London, England. From 1992 to present, Mr. Beasley
has been President and Manager of J.W. Beasley Interests LLC; from 1994
to present, the Secretary and a Governor of Mission Mountain Interests
Ltd. Co.; from 1997 to present, the Secretary and a Governor of Nor-Pac
Limited Company; from 1998 to present, the Secretary and a Governor of
Murrayville Land Company LLC, the Secretary and a Governor of
East-of-Idaho LLC, and the President and a Director of Paymaster
Resources Incorporated; from 1999 to present, the Secretary and a
Governor of Prichard Creek Resource Partners LLC.Ed Pommerening. Age 55. Mr. Pommerening has been a director of the
Company since 1998. He holds a Bachelor of Science degree in Forestry
from the University of Idaho. From 1974 to 1982, Mr. Pommerening was the
Forester for The Bunker Hill Company, and from 1982 to 1991 for the
Bunker Limited Partnership. From 1991 through 1993, Mr. Pommerening was
the Forester for Pintlar Corp. From 1993 to the present, Mr. Pommerening
has been the President and Manager of Riverview Timber Services LLC; from
1997 to present, a Governor of Nor-Pac Limited Company, and from 1998 to
present, the Secretary and a Director of Paymaster Resources
Incorporated.The principal business conducted by the other companies mentioned in the
above resumes is as follows:  (1)
    
    Golconda Limited Company, an Idaho limited liability company,
is the successor to the assets formerly owned in the Nelson Howard
Trust, which actively invests in real estate, private timberlands,
ranchlands, and other companies. -27-    Table of Contents   (2)
    
    Mission Mountain Interests Ltd. Co., an Idaho limited
liability company, owns and operates private timberlands, which
timberlands are leased to the City of Kellogg, as the Silver
Mountain
Ski and Summer Resort, in Shoshone County, Idaho.(3)
    
    J.W. Beasley Interests LLC, an Idaho limited liability
company, is a management, consulting and investment holding company
specializing in the natural resources industry.(4)
    
    Riverview Timber Services LLC, an Idaho limited liability
company, is a consulting forestry company.(5)
    
    Paymaster Resources Incorporated, an Idaho corporation, is a
mineral exploration company that leases the Golden Chest Mine,
Shoshone County, Idaho.(6)
    
    Nor-Pac Limited Company, an Idaho limited liability company,
is a management, consulting and investment holding company with
interests in real property and other companies.(7)
    
    Murrayville Land Company LLC, an Idaho limited liability
company, owns and operates an executive office facility in Murray,
Idaho.(8)
    
    East-of-Idaho LLC, a Wisconsin limited liability company,
owns and operates a small resort in central Wisconsin.(9)
    
    Prichard Creek Resource Partners LLC, an Idaho limited
liability company, owns unpatented mining claims in Shoshone County,
Idaho.(10)
    
    Pintlar Corp. was a wholly owned subsidiary of Gulf Resources
& Chemical created to manage the environmental affairs at the Bunker
Hill Mine Superfund Site in Kellogg, Idaho, and the employee
retirement/benefit plans for Bunker Hill employees.  The Directors of the Company are not directors of any other reporting
companies. The Companys Secretary, John W. Beasley, spends approximately
20 hours per week, and its President, Richard L. Howell, spends
approximately 5 hours per week, on the business affairs of the Company.There are no persons, other than the officers and directors of the
Company, expected to make a significant contribution to the business of the
Company. There are no family relationships among the officers and directors of
the Company, nor have any of them been subject to a bankruptcy petition filed
by or against any business of which they were officers, directors or partners.
Additionally, none of the officers and directors of the Company have been
convicted in a criminal proceeding, or subject to a pending criminal
proceeding; been, or is subject to any order, judgment, or decree of any court
of competent jurisdiction permanently or temporarily enjoining, barring,
suspending or otherwise limiting their involvement in any type of business,
securities or banking activities. None of the officers and directors of the
Company have violated any federal or state securities or commodities law, or
found by any court of competent jurisdiction, the Securities and Exchange
Commission, or the Commodity Futures Trading Commission to have violated any
such laws. -28-    Table of Contents  
 Item 10. Executive Compensation  On June 1, 1998, the Company entered into the Management Agreement
described below with Nor-Pac Limited Company (Nor-Pac). To date, the
Company has paid Nor-Pac management fees in the amount of 1,500,000
shares of its authorized, but unissued, common stock, with an aggregate
value of $75,000, and $176,000 in cash. Nor-Pac is owned, as to 75%, by
entities that are owned by the Companys directors as disclosed below.Summary Compensation Table SUMMARY COMPENSATION TABLE Long Term CompensationAnnual Compensation
    
    Awards
    
    Payouts(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)Name
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted
    
    Securitiesand
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Stock
    
    Underlying
    
    LTIP
    
    All OtherPrincipal
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation
    
    Awards
    
    Option/SAR
    
    Payouts
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)
    
    ($)Richard
    
    
    2000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Howell,
    
    
    2001
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0President
    
    
    2002
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0and DirectorJohn
    
    
    2000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Beasley,
    
    
    2001
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Secretary
    
    
    2002
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0and DirectorEd
    
    
    2000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0PommereningDirector
    
    
    2001
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02002
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0  Option/SAR Grants Table Option/SAR Grants in Last Fiscal Year Individual Grants(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)Number of Securities
    
    % of
Total Options/SARs
    
    Exercise orUnderlying Options/SARs
    
    Granted to Employees in Fiscal
    
    Base Price
    
    ExpirationName
    
    Granted
    
    Year
    
    ($/S)
    
    Date0
    
    
    
    0
    
    
    
    N/A
    
    
    
    N/A -29-    Table of Contents  Note:
    The Exercise Price, as specified in column d
above is subject to adjustment. In the event the Company
issues or sells any common stock for a per share
consideration of less than the Exercise Price stated in
column d above, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior to
the time of such issue or sale by a fraction (i) the
numerator of which shall be the sum of (x) the aggregate
number of common shares outstanding immediately prior to such
issue or sale plus (y) the consideration received by the
Company upon such issue or sale, and (ii) the denominator of
which shall be the product of (x) the aggregate number of
common shares outstanding immediately after the issue or
sale, multiplied by (y) the market price of the common shares
immediately prior to such issue or sale.No adjustment of the Exercise Price shall be made by reason
of (i) the issue, sale, or grant under any stock option plan
or stock purchase plan of the Company or under any
individual arrangement or otherwise, to any employee or
director of the Company or any independent contractor, in
consideration of the rendering of services to the Company by
such employee, director, or independent contractor, of any
common shares or rights to subscribe for or to purchase, or
options for the purchase of, common shares or convertible
securities or (ii) a change in the purchase price provided
for in any such right or option, in the additional
consideration, if any, payable upon the conversion or
exchange of any such convertible securities, or in the rate
at which any such convertible securities are convertible or
exchangeable.  Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table  Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)Number of Securities Underlying
    
    Value of Unexercised In-theShares
    
    Value
    
    Unexercised Options/SARs at FY-
    
    Money Options/SARs at FY-Acquired on
    
    Realized
    
    End (#)
    
    End ($)Name
    
    Exercise (#)
    
    ($)
    

Exercisable/Unexercisable
    

Exercisable/UnexercisableRichard
    
    
    0
    
    
    
    0
    
    
    0 / 0
    
    $0 / $0HowellJohn
    
    
    0
    
    
    
    0
    
    
    0 / 0
    

    $0 /$0BeasleyEd
    
    
    0
    
    
    
    0
    
    
    0 / 0
    
    $0 / $0PommereningGene
    
    
    0
    
    
    
    0
    
    

    0 / 0
    
    $0 / $0GeorgeNelson
    
    
    0
    
    
    
    0
    
    
    0 / 0
    
    $0 / $0RobertHoward -30-    Table of Contents   The Company has no Long Term Incentive Plans. Directors of the Company
receive $175.00 for each regularly scheduled meeting of directors, and
$350.00 for each specially scheduled meeting, plus normal out-of-pocket
expenses incurred to attend said meetings. Except for the options
granted to the Directors as described below, there are no other
arrangements to compensate directors. The Company has no employment
contracts with its executive officers, and no compensatory plan or
arrangements with its executive officers in the event of the resignation,
retirement or any other termination of such executive officers, nor does
the Company have any arrangements with its executive officers in the
event of a charge in control of the Company. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management  The following table describes the Security Ownership of Certain
Beneficial Owners and Management as of April 1, 2002: (2)
    
    (3)Name and
    
    Amount and
    
    
    
    
    
    (5)Address of
    
    Nature of
    
    
    
    
    
    Amount and (Percent)(1)
    
    Beneficial
    
    Beneficial
    
    (4)    
    of Class if All WarrantsTitle of Class
    
    Owner
    
    Owner
    
    Percent of Class
    
    are ExercisedCommon
    
    Metaline Contact
    
    
    11,236,643
    
    
    
    79.89
    %
    
    
    11,236,643
    
    
    
    (73.30
    %)Mines LLC
    
    
    Direct OwnerP.O. Box 387Murray, ID 83874 (1)Common
    
    Nor-Pac Limited
    
    
    1,500,000
    
    
    
    10.66
    %
    
    
    1,500,000
    
    
    
    (9.70
    %)Company
    

    
    Direct OwnerP.O. Box 412Murray, ID 83874Common
    
    Richard L. Howell
    
    
    3,183,992
    
    
    
    22.60
    %
    
    
    3,433,992
    
    
    
    (22.40
    %)1509 Hemlock
    
    
    Indirect OwnerLewiston, ID 83501Common
    
    Ed Pommerening
    
    
    3,183,992
    
    
    
    22.60
    %
    
    
    3,433,992
    
    
    
    (22.40
    %)P.O. Box 369
    
    

    Indirect OwnerPinehurst, ID 83850Common
    
    John W. Beasley
    
    
    1,591,996
    
    
    
    11.30


    %
    
    
    1,841,996
    
    
    
    (12.00
    %)P.O. Box 387
    
    
    Indirect OwnerMurray, ID 83874Common
    
    Directors and
    
    
    7,959,980
    
    
    
    56.50
    %
    
    
    8,709,980
    
    
    
    (56.80
    %)Executive Officers
    
    
    Indirect Ownersas a group Note 1:
    Metaline Contact Mines LLC is owned, as to 99.994%, by
Nor-Pac Limited Company (hereinafter Nor-Pac).Note 2:
    Richard L. Howell is the Trustee of the R.L. and M.D.
Howell Trust, the owner of a 25% equity membership interest in
Nor-Pac; Ed Pommerening is the President and Manager of Riverview
Timber Services LLC, the owner of a 25% equity membership interest
in Nor-Pac; and John W. Beasley is the President and Manager of J.W.
Beasley Interests LLC, a limited partner (as to 50%) of G.G.J.B. &
K.G.P.B. Holdings Limited Partnership (hereinafter referred to as
GGJB). GGJB is the owner of a 25% equity membership interest in
Nor-Pac. -31-    Table of Contents   By virtue of their respective interests in R.L. and M.D. Howell
Trust, Riverview Timber Services LLC, and J.W. Beasley Interests
LLC (and its interests in GGJB), and those entities respective
interests in Nor-Pac, Messrs. Howell, Pommerening, and Beasley are
considered as being indirect owners of the above shares.There are no arrangements, written or oral, which may result in a
change in control of the Company. 
 Item 12. Certain Relationships and Related Transactions  On June 1, 1998, the Company entered into an Agreement for Management and
Consulting Services with Nor-Pac Limited Company (hereinafter referred to
as the Management Agreement), which Management Agreement was amended by
First Amendment to the Agreement for Management and Consulting Services,
dated January 1, 1999. Under the terms of the Management Agreement
Nor-Pac Limited Company (hereinafter referred to as Nor-Pac) provides
the Company with certain management and consulting services, and Nor-Pac
is entitled to receive Five Hundred Thousand (500,000) shares of the
Companys authorized, but unissued, common stock in the second half of
1998, Two Hundred Fifty Thousand (250,000) shares quarterly in 1999, and
Ten Thousand Dollars ($10,000.00) per month thereafter commencing on
January 1, 2000. In the event in 1999 the Companys common stock becomes
publicly traded on NASDAQs Over-the-Counter Electronic Bulletin Board
(OTCBB), Nor-Pac shall receive as additional compensation Five Hundred
Thousand (500,000) shares of common stock and One Million (1,000,000)
shares if the Companys common stock become listed on NASDAQ. In 1999,
the Companys common stock did not become publicly traded on either the
OTCBB or NASDAQ, and as a result, Nor-Pac was not compensated the
additional shares of the Companys common stock as described hereinabove.  Commencing on January 1, 2000, the Company and Nor-Pac review on a
quarterly basis the amount and scope of the consulting, management and
advisory services performed by Nor-Pac on the Companys behalf, and if it
is determined that it is a materially greater of lesser amount, then the
Company and Nor-Pac shall agree to an equitable adjustment in the fees
paid by the Company. All payments due Nor-Pac pursuant to the terms of
the Management Agreement have been made.  Under the terms of the Management Agreement, Nor-Pac makes available to
the Company the services of its officers and representatives for the
purposes of advising and consulting with the Company concerning all
phases of the Companys business affairs and operations, including the
following:   (1)
    
    assisting the Company in determining its short and long term
capital requirements, in determining the best method of fulfilling
such capital requirements, and in locating sources of equity and
long and short term debt financing;(2)
    
    assisting the Company in determining the need for and
devising and installing financial, accounting and other office and
business systems and controls;(3)
    
    assisting the Company in developing business investment and
management plans and programs, in formulating policies and
objectives, and carrying out such plans, programs and policies
required for the efficient and successful operation of the Companys
business operations;(4)
    
    assisting the Company in developing a public trading market for its
securities;(5)
    
    assisting the Company in finding, researching, evaluating,
leasing, acquiring, joint venturing and in any and all ways securing
the rights to natural resource properties. -32-    Table of Contents  Nor-Pac is Seventy Five Percent (75%) owned by entities that are owned,
directly or indirectly, in whole or in part, by Richard L. Howell, John
W. Beasley and Ed Pommerening, directors of the Company. Because of
their respective interests in these entities, Richard L. Howell, John W.
Beasley and Ed Pommerening may be deemed to have an indirect material
interest in the transaction.It is the opinion of the management of the Company that the services and
fees provided for in the Management Agreement as amended are no less
favorable to the Company than could have been secured in arms-length
transactions.Metaline Contact Mines LLC (MCMLLC), a Delaware limited liability
company, owns 79.89% of the outstanding shares of the Company. The
Company is the Managing Member of MCMLLC.The Company has not transacted any business with promoters, nor have any
of its assets been or are to be acquired from promoters.Subsequent Event to Management AgreementOn January 1, 2003, the Company and Nor-Pac amended the Management
Agreement thereby reducing the management fee from Three Thousand Dollars
($3,000.00) to Five Hundred Dollars ($500.00) per month. 
 Item 13. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits required by Item 601 of Regulation S-B: Exhibit No.
    
    Description3(i)
    

    
    Amended Articles of Incorporation. Incorporated
by reference to the Companys Registration Statement on Form
10-SB. File No. 0-31025.3(ii)
    

    
    By-Laws. Incorporated by reference to the
Companys Registration Statement on Form 10-SB. File No.
0-31025.10(i)
    

    
    Mining Lease With Purchase Option.
Incorporated by reference to the Companys Registration
Statement on Form 10-SB. File No. 0-31025.10(ii)(A)
    

    
    Agreement for Management and Consulting Services.
Incorporated by reference to the Companys Registration
Statement on Form 10-SB. File No. 0-31025.99.1
    

    
    Certification Pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.2
    

    
    Certification Pursuant to 18 U.S.C. Section
1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.  (b)
    
    No reports have been filed on Form 8-K during the last fiscal
year covered by this report. -33-    Table of Contents  
 Item 14. Controls and Procedures ANNUAL EVALUATION OF THE COMPANYS DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Within 90 days prior to the date of this Annual Report on Form 10-KSB, 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 Annual 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 Annual Report
there are two separate forms of Certifications of the CEO and the CFO. The
second 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 Annual 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. 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 Annual
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 its 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. -34-    Table of Contents  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 Annual 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 sough 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 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. -35-    Table of Contents  
 SIGNATURE In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. METALINE CONTACT MINESBy:

/s/ Richard L. Howell

Richard L. Howell, President
(Principal Executive Officer)
    

    Date:
    4/10/03By:


/s/ John W. Beasley

John W. Beasley, Secretary/Treasurer
(Principal Financial Officer)
    

    Date:
    4/10/03 In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated. By:
    /s/ Richard L. Howell

Richard L. Howell
Director
    

    Date:
    4/10/03By:
    /s/ John W. Beasley

John W. Beasley
Director
    

    Date:
    4/10/03By:



    /s/ Ed Pommerening
Ed Pommerening
Director
    
    Date:
4/10/03 Supplemental information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Exchange Act by Non-Reporting Issuers Not Applicable -36-