**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

----

 

**FORM 10-QSB**

 

**ý****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period endedJanuary 31, 2005**

 

**o****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT**

**For the transition period from                      to                      **

 

**Commission file number: 000-27667**

 

**Metalline Mining Company**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **Nevada**                         | ** ** | **91-1766677**                     |
|------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction      |       | (IRS Employer  Identification No.) |
| of incorporation or  organization) |       |                               |

 

**1330 E. Margaret Ave.**

**Coeur d’Alene, ID 83815**

(Address of principalexecutive offices)

 

Issuer’s telephonenumber, including area code: **(208) 665-2002**

 

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes [X]  No [  ]

 

There were 19,928,181 shares of the issuer’scommon stock, par value $0.01, outstanding as of March 1, 2005.

 

 

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### **METALLINEMINING COMPANY QUARTERLY REPORT**

**ON FORM 10-QSB FOR THE QUARTERLY PERIOD**

### **ENDEDJANUARY 31, 2005**

 

 

 

 

# **TABLE OF CONTENTS**

 

#  

| PART I - FINANCIAL  INFORMATION |     |
|---------------------------------|----------|
|                            |     |   |   |
|                            | Item 1:  | Financial Statements |   |
|                            |     |   |   |
|                            | Item  2: | Management’s  Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                            |     |   |   |
|                            | Item 3:  | Controls and  Procedures |   |
|                            |     |   |   |
| PART II - OTHER INFORMATION     |     |
|                            |     |   |   |
|                            | Item 1:  | Legal Proceedings |   |
|                            |     |   |   |
|                            | Item  2: | Unregistered  Sales of Equity Securities and Use of Proceeds |   |
|                            |     |   |   |
|                            | Item 3:  | Defaults upon  Senior Securities |   |
|                            |     |   |   |
|                            | Item  4: | Submission  of Matters to a Vote of Security Holders |   |
|                            |     |   |   |
|                            | Item 5:  | Other Information |   |
|                            |     |   |   |
|                            | Item  6: | Exhibits |   |
|                            |     |   |   |
| Signatures                      |     |

 

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## **PART I - FINANCIAL INFORMATION**

 

**ITEM 1.          Financial Statements.**

 

Thereviewed consolidated financial statements of Metalline Mining Company (the “Company”),for the period covered by this report, are included elsewhere in this report,beginning at page F/S-1.

 

Thereviewed consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for the interim financialinformation with the instructions to Form 10-QSB and Rule 10-01 of RegulationS-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements. In the opinion of the Company’s management, all adjustments(consisting of only normal accruals) considered necessary for a fairpresentation have been included. Operating results for the three-month periodended January 31, 2005 are not necessarily indicative of the results that maybe expected for the full year ending October 31, 2005.

 

Forfurther information refer to the financial statements and footnotes thereto inthe Company’s Annual Report on Form 10-KSB for the year ended October 31, 2004incorporated by reference herein.

 

**ITEM 2.****                            ****Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

*Forward-Looking Statements*

 

This Quarterly Report on Form 10-QSB,including this Management’s Discussion and Analysis of Financial Condition andResults of Operations, contains forward-looking statements regarding futureevents and the Company’s future results that are subject to the safe harborscreated under the Securities Act of 1933 (the “Securities Act”) and theSecurities Exchange Act of 1934 (the “Exchange Act”).  These statements are based on currentexpectations, estimates, forecasts, and projections about the industry in whichthe Company operates and the beliefs and assumptions of the Company’s management.  Words such as “expects,” “anticipates,” “targets,”“goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,”“may,” variations of such words, and similar expressions are intended toidentify such forward-looking statements. In addition, any statements that refer to projections of the Company’sfuture financial performance, the Company’s anticipated growth and potentialsin its business, and other characterizations of future events or circumstancesare forward-looking statements.  Readersare cautioned that these forward-looking statements are only predictions andare subject to risks, uncertainties, and assumptions that are difficult topredict, including those identified elsewhere herein and in the Company’sAnnual Report on Form 10-KSB for the fiscal year ended October 31, 2004 under “RiskFactors”.  Therefore, actual results maydiffer materially and adversely from those expressed in any forward-lookingstatements.  The Company undertakes noobligation to revise or update any forward-looking statements for any reason.

 

1

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*Overview*

 

The Company is an exploration stage enterprise formed under the laws ofthe State of Nevada on August 20, 1993, to engage in the business ofmining.  The Company currently owns onemining property located in Mexico known as the Sierra Mojada Property (the “Property”).The Company conducts its operations in Mexico through its wholly ownedsubsidiary corporation, Minera Metalin S.A. de C.V. (“Minera Metalin”).

 

The Property consists of eight concessions totaling 7,060 hectares(17,446 acres). The Company owns title to 100% of the concessions which itacquired by purchase agreements from the previous titled owners.  The Property is located within a historicalmining district known as the Sierra Mojada Mining District (the “District”).

 

The District is located in the west central part of the state ofCoahuila, Mexico, near the Coahuila-Chihuahua state border approximately  200 kilometers south of the Big Bend of theRio Grande River. The principal mining area extends for some 5 kilometers in aneast-west direction along the base of the precipitous, 1,000 meter high, SierraMojada Range.

 

The District has high voltage electric power and is accessible fromTorreon by vehicle via 250 kilometers of paved road.  There is also a well maintained, 1100 meter,gravel airstrip in the District as well as rail lines connecting with theNational Railway at Escalon and Monclova.

 

Since its discovery in 1879, the District is estimated to have producedin excess of 10 million tons of high-grade ore that graded in excess of 30%lead, 20% zinc, 1% copper and 1 kg (31 ounces) silver per metric ton.  This estimate was compiled by the Companyfrom available information in mining industry literature and from previousoperators in the District, including A.I.M.E. Transactions Volumes, IndustriasPenoles and ASARCO.  The District hasnever had a mill to concentrate ore, and therefore all mining conducted thusfar has been limited to selectively mining ore of sufficient grade to directship to smelters.  For this reason, theCompany believes that the mill grade ore that was not mined should still beavailable to be mined.  In excess of 45mines have produced ore from the 5 kilometer by 2 kilometer area comprising thehistoric District.  The deepest workingshave ore grade mineralization and are among the best targets for reservedevelopment, including the vertical extent greater than 300 meters which isstill is unexplored.

 

The sediments in the District are predominantly carbonate with somesandstone and shale and the attitudes are near horizontal.  The mines are dry and the rocks arecompetent, the thickness of the mineralization and its attitude is amenable tohigh volume mechanized mining methods and low cost production.

 

The Company has been exploring the sedimentary beds of tabular, nearlyhorizontal bodies of rock that are known as “mantos.”  The Company is in the final stages ofdefining the outer boundaries of the Iron Oxide Manto located on theProperty.  A diamond drill program wasinitiated in January 2004, and as of January 31, 2005, over 26,500 meters ofdiamond drill core has been completed. The drill program will continue with two drills to refine the boundariesof

 

2

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mineralizationof the Iron Oxide Manto and drill additional exploration holes into the Property’sSmithsonite Manto. Both of these mantos are south of the Sierra Mojada Faultand composed of oxide zinc mineralization.

 

In addition to the current drilling operations, the Company anticipatesdrilling and sampling of the Property’s Polymetallic Manto north of the SierraMojada Fault to further evaluate the mineralization.  Over 5,000 samples of the polymetallicmineralization were collected from the Polymetallic Manto by the Company until1999.  These samples contained an averageof 300 grams silver per metric ton (10 ounces silver per metric ton), 0.6%copper, 5.5% zinc and 2.2% lead.  Withinthis mineralization silver grades range from kilograms (31 ounces per kilogram)to as high as 11 kilograms over a thickness of 9 meters (3.28 feet per meter) andcopper grades are as high as 4%, which indicates that the Polymetallic Mantocontains very high grade silver, copper mineralization.  Work on this mineralization was put onstandby in 1999 when the potential of the oxide zinc mineralization wasrecognized as a result of a positive feasibility study conducted for theSkorpion mine located in Namibia, Africa, by Reunion Ltd.  Now that the oxide zinc mineralization is inthe feasibility study stage the Company is refocusing its attention oncontinued exploration of the silver and copper content of the PolymetallicManto. However, the Company has not yet allocated financial resources toinitiate such additional exploration.

 

A second block model of theoxide zinc mantos data has been completed by Reserva International, anindependent contractor specializing in resource evaluation.  The results, using a 5% cut off grade (usinggrades greater than 5%) and with blocks of 5 cubic meter dimensions, estimate17,926,988 metric tons with a grade of 8.78% zinc for the Iron Oxide Manto andestimate 5,431,050 metric tons with a grade of 12.08% zinc for the SmithsoniteManto.  In total, 2.23 million metrictons contained zinc metal.  Based onthese estimates, the Company has determined that the estimated mineralizationjustifies a feasibility study of the Property.

 

Based upon the results ofwork completed by the Company and two mining companies that were previous jointventure partners on the Property, North Limited and Industrias Penoles, theCompany is of the opinion that a resource sufficient to justify a mine andsolvent extraction electrowinning plant has been defined and has thereforecommissioned a feasibility study on that resource.  This study will consist of a detailed engineeringand economic valuation of mineral property resources to determine the value ofthe mineralization on the Property.

 

Green Team International (“GTI”), Johannesburg, S. Africa has beenretained by the Company to complete the feasibility study on the Property.  The expected cost of the feasibility study isestimated to be $5 million.  Thefeasibility study will address metallurgy, mine plan, extraction method andeconomic evaluation studies.  Thefeasibility study process is based on the estimated mineralization of the Property and is intended to identifythe economic parameters of mining and extracting zinc from the Property.  Parameters that will determine thefeasibility of mining zinc on the Property include the percent of metalrecovered from the ore during mining and processing, acid consumption duringleaching, mining costs for removing the ore and preparing it for extraction,and the costs of extracting and refining the metal from the ore.  Financial analyses will then be applied tothe results to determine the projected rate of return and profitability of theproject.  If the results of thefeasibility study are positive, the Company would then seek additionalfinancing to raise enough capital to implement the project.

 

3

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The Company’s selection of GTI was partially due to GTI’s experienceconducting the feasibility study on the Skorpion mine.  GTI designed, supervised the construction,and operated the Skorpion mine and extraction plant through initial productionand until the mine and plant were at 90% of capacity, at which point operationof the mine and plant was turned over to Skorpion Zinc, an Anglo Americancompany.  The Skorpion mine is the first,and to date only, mine in the world using the solvent extraction electrowinningprocess for extracting Super High Grade zinc (SHG zinc is 99.995% zinc) fromoxide zinc ore.  Solvent extractionelectrowinning is a hydrometallurgical process that has about a 30% lower costfor extracting zinc than the pyrometallurgical process used at smelters by mostother mining operations around the world. The Company anticipates that using solvent extraction electrowinningwill enable the Company to extract zinc more efficiently and economically thanits competitors.

 

GTI, as general contractor for the feasibility study, has retained TWPConsulting (Pty) Ltd. (“TWP”) to prepare the mine plan for the projectfeasibility study.  TWP is a large SouthAfrican mining consulting company that works on large mining projects in SouthAfrica and internationally, including the mine plan at the Skorpion mine.  GTI has also retainedMin-Tek, a South African consulting metallurgical company, to complete themetallurgical work on the property. Min-Tek performed the metallurgical work for the Skorpion feasibility studies.  The Company's metallurgical work has been inprogress for over 3 months and additional samples, sufficient to complete themetallurgical studies, are in transit to South Africa.  GTI has alsoretained SRK Consulting (“SRK”) as the auditing engineering firm for the SierraMojada Feasibility Study. SRK is a world-wide engineering consulting companythat was the auditing engineering firm for the feasibility study of theSkorpion mine.

 

Principals of GTI, TWP and SRK recently completed a tour of theProperty, reviewed the data, conducted underground tours of the Iron Oxide,Smithsonite and Polymetallic Mantos, and selected surface locations for themine and extraction plant facilities.

 

The Company is also of the opinion that the Sierra Mojada Project hasexploration potential for continued development of future reserves.  However, there is no assurance as to thequantity or quality of the undeveloped reserves and there is no assurance thatthe Company will be able to raise the monetary resources necessary to completethe feasibility study or to continue to explore for, develop, or retrieve anyof the minerals located in the Property.

 

The Company has a mining operation in the Smithsonite Manto that hasbeen shipping zinc and carbonate ore to Cameron Chemical Company for use as amicronutrient for the fertilizer industry. During the period ended January 31, 2005, the Company realized otherincome from the sale of zinc carbonate ore mined on that property.  The Company has subsequently ceased miningzinc carbonate ore, but anticipates continued sales in the near future from itsexisting inventory of mined ore.  

 

4

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*Results of Operations for thePeriod Ended January 31, 2005.*

 

Three months ended January31, 2005 compared to the three months ended January 31, 2004:

 

Duringthe three months ended January 31, 2005, the Company realized other income of $130,771from the sale of zinc carbonate ore from the Company’s San Salvadore minelocated on the property, in accordance with a contract with Cameron ChemicalsInc., Norfolk, Virginia. Costs associated with the sale of the ore totaled $97,962.59for the three-month period ended January 31, 2005. There were ore sales of$161,006 in the three-month period ended January, 2004. General andadministrative expenses increased to $1,309,186 for the three-month periodended January 31, 2005 as compared to $377,701 for the three-month period endedJanuary 31, 2004. The increase is primarily due to an increase in an increasein exploration expenditures of $454,268, an increase in consulting andprofessional services of $179,885, and an increase of $232,355 in payroll andrelated expenses. For the three months ended January 31, 2005, the Companyexperienced a loss of $1,261,409, or $0.06 per share, compared to a loss of $268,493,or $0.02 per share, during the comparable period in the previous year.

 

*Results of Operations for thePeriod Ended January 31, 2004.*

 

Three months ended January 31, 2004 compared to the three months ended January 31, 2003:

 

Duringthe three months ended January 31, 2004, the Company realized other income of$191,906 from the sale of zinc carbonate ore to Cameron Chemicals, Inc. Costsassociated with the sale of the ore totaled $95,202 for the three-month periodended January 31, 2004. There were ore sales of $89,568 in the three-monthperiod ended July 31, 2003. General and administrative expenses increased to $377,701for the three- month period ended January 31, 2004 as compared to $318,287 forthe three-month period ended January 31, 2003. The increase is primarily due toan increase in payroll expenses of $28,035, an increase in professionalservices of $61,314, and a $9,642 increase in exploration expenditures. Theseincreases were partially offset by a $60,667 decrease in expenses ofmaintaining the property. For the three months ended January 31, 2004, theCompany experienced a loss of $268,493, or $0.02 per share, compared to a lossof $305,176, or $0.03 per share, during the comparable period in the previousyear.

 

*Liquidity and CapitalResources.*

 

TheCompany financed its obligations during the 2003-2004 fiscal year by selling7,580,150 shares of its common stock at an average price of $1.00 per share,less issuance costs of $698,863.  Due tothe Company’s substantial losses and mineral revenues, the Company’sindependent certified public accountants included a paragraph in the Company’s2004 financial statements relative to a going concerning uncertainty.

 

5

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In order to maintain operations, the Companywill have to raise additional capital through loans or through the sale ofsecurities. If the Company is unable to raise additional capital, it may haveto cease operations. The Company’s plan of operation, subject to maintainingsufficient funds, calls for drilling and sampling of the Sierra Mojado Property’sRed Zinc Manto to define an ore reserve and continued exploration of the silverand copper content of the Polymetallic Manto.

 

*Cash flows for the threemonths ended January 31, 2005 were as follows:*

 

Duringthe three-month period ended January 31, 2005, the Company’s cash positiondecreased to $379,067 in cash and $1,000,000 in marketable securities,primarily due to expenditures related to the drilling program being conducted bythe Company on the Property.  During thethree-month period, the Company used $996,313 in operating activities,principally in connection with the current drilling program.  In addition, the Company expended $7,598 for additionalmining equipment.

 

*Effect of Recently IssuedAccounting Pronouncements.*

 

In December 2004, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 153 (hereinafter “SFAS No. 153”). This statement addresses the measurement of exchanges of nonmonetaryassets.  The guidance in APB Opinion No.29, “Accounting for Nonmonetary Transactions,” is based on the principle thatexchanges of nonmonetary assets should be measured based on the fair value ofthe assets exchanged.  The guidance inthat opinion, however, included certain exceptions to that principle.  SFAS No. 153 amends APB Opinion 29 toeliminate the exception for nonmonetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance.  Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange.  This statement is effective for financialstatements for fiscal years beginning after June 15, 2005.  Earlier application is permitted fornonmonetary asset exchanges incurred during fiscal years beginning after thedate of this statement is issued. Management believes the adoption of this statement will not impact thefinancial statements of the Company.

 

In December 2004, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 152, which amends SFAS Statement No. 66, “Accounting for Sales ofReal Estate,” to reference the financial accounting and reporting guidance forreal estate time-sharing transactions that is provided in AICPA Statement ofPosition (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.”  This statement also amends SFAS No. 67, “Accountingfor Costs and Initial Rental Operations of Real Estate Projects,” to state thatthe guidance for (a) incidental operations and (b) costs incurred to sell realestate projects, does not apply to real estate time-sharing transactions.  The accounting for those operations and costsis subject to the guidance in SOP 04-2. This statement is effective for financial statements for fiscal yearsbeginning after June 15, 2005. Management believes the adoption of this statement will not impact the financialstatements of the Company.

 

6

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In November 2004, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4” (hereinafter “SFAS No. 151”).  This statement amends the guidance in ARBNo. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage).  Under somecircumstances, SFAS No. 151 mandates that items such as idle facility expense,excessive spoilage, double freight, and re-handling costs be recognized ascurrent-period charges.  In addition,this statement requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. This statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005.  Management believes the adoption of this statementwill not impact the financial statements of the Company.

 

InMay 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No.150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity” (hereinafter “SFASNo. 150”). SFAS No. 150 establishes standards for classifying and measuringcertain financial instruments with characteristics of both liabilities andequity and requires that those instruments be classified as liabilities instatements of financial position. Previously, many of those instruments wereclassified as equity. SFAS No.150 is effective for financial instrumentsentered into or modified after May 31, 2003 and otherwise is effective at thebeginning of the first interim period after June 15, 2003. The Company hasdetermined that there was no impact from the adoption of this statement.

 

InApril 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities” (hereinafter “SFAS No. 149”).SFAS No. 149 amends and clarifies the accounting of derivativeinstruments, including certain derivative instruments embedded in othercontracts, and for hedging activities under SFAS No. 33, “Accounting forDerivative Instruments and Hedging Activities”. This statement is effective forcontracts entered into or modified after June 30, 2003 and for hedgingrelationships designated after June 30, 2003. The adoption of SFAS No.149 isnot expected to have a material impact on the financial position or results ofoperations of the Company.

 

**ITEM 3.  Controls and Procedures.**

 

*Disclosure Controls and Procedures.*

 

The Company’s principal executive officerand principal financial officer have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Exchange Act) as of the end of the period covered bythis report.  Based on such evaluation,the Company’s principal executive officer and principal financial officer haveconcluded that, as of the end of such period, the Company’s disclosure controland procedures are effective in recording, processing, summarizing andreporting, on a timely basis, information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act.

 

7

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*Changes in Internal Control OverFinancial Reporting.*

 

There was no change in theCompany’s internal control over financial reporting that occurred during thefiscal quarter to which this report relates that has materially affected, or isreasonably likely to  materially affect,the Company’s internal control over financial reporting.

 

 

**PART II- OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

The Company is not currently a party to any legalproceedings.

 

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

 

Duringthe three months ended January 31, 2005 the Company issued 176,772 shares toofficers and directors as compensation for services.  These shares were issued in private placementtransactions without registration under the Securities Act in reliance upon theexemptions from the registration requirements provided by Section 4(2), andRule 506 of Regulation D under the Securities Act.

 

**Item 3.Defaults Upon Senior Securities.**

 

None.

 

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

 

None.

 

**Item 5. Other Information.**

 

None.

 

**Item 6. Exhibits.**

 

(a)           Documents which are filed as a partof this report:

 

1.                           Financial Statements: The required financial statements are contained in pages F/S-1through F/S-4 of this Form 10-QSB.

 

2.                           Financial Statement Schedules: Financial statement schedules have been omitted as they are notapplicable or the information is included in the Consolidated FinancialStatements.

 

8

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3.                           Exhibits:  The exhibitsfiled as part of this report and the exhibits incorporated herein by referenceare listed in the Exhibit Index at page E-1.

 

(b)                     See (a)(3) above for all exhibits filed herewith.

 

(c)                      All schedules are omitted as the requiredinformation is not applicable or the information is presented in theConsolidated Financial Statements or related notes.

 

9

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** **

**METALLINE MINING COMPANY**

**An Exploration Stage Company**

 

**January 31, 2005**

 

 

**SIGNATURES**

 

In accordance with Section 12, 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|            |   | METALLINE MINING COMPANY       |
|-----------------|--------|--------------------------------|
|            |   |                           |
|            |   |                           |
| March 17,  2005 | By:    | /s/ Merlin  Bingham            |
| Date            |   | Merlin  Bingham, its President |
|            |   |                           |
| March 17,  2005 | By:    | /s/ Wayne L.  Schoonmaker      |
| Date            |   | Wayne  Schoonmaker, its        |
|            |   | Principal  Financial Officer   |
|                 |        |                                |  |

 

10

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**EXHIBIT INDEX**

 

 

  3.1                           Articles ofIncorporation of the registrant.  Fieldas an exhibit to the registrant’s registration statement on Form 10-SB(Commission File No. 000-27667) and incorporated by reference herein.

 

  3.2                           Bylaws ofregistrant.  Filed as an exhibit to theregistrant’s registration statement on Form 10-SB and incorporated by referenceherein.

 

  3.3                           Articles ofAmendment to the Articles of Incorporation. Filed as an exhibit to the registrant’s registration statement on Form10-SB and incorporated by reference herein.

 

  4.1         Reference is made to Exhibits 3.1, 3.2and 3.3.

 

31.1         Rule 13a-14(a)/15d-14(a) Certificationof Principal Executive Officer

 

31.2         Rule 13a-14(a)/15d-14(a) Certificationof Principal Financial Officer

 

32.1         Section 1350 Certification of PrincipalExecutive Officer

 

32.2         Section 1350 Certification of PrincipalFinancial Officer

 

E-1

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**METALLINE MINING COMPANY**

 

**INDEX TO CONSOLIDATED****FINANCIAL****STATEMENTS**

 

 

 
| Consolidated Financial  Statements:                                     |   |
|-------------------------------------------------------------------------|--------|
|                                                                    |   |
| Consolidated Balance Sheets  as of January 31, 2005                     |   |
| and October 31, 2004                                                    |   |
|                                                                    |   |
| Consolidated  Statements of Operations for the three months periods     |   |
| ended January 31,  2005 January 31, 2004 and for                        |   |
| the period from  inception (November 8, 1993)                           |   |
| to January 31,  2005                                                    |   |
|                                                                    |   |
| Consolidated  Statements of Cash Flow for the three-month periods ended |   |
| January 31, 2005  and January 31, 2004, and for the                     |   |
| period from  inception (November 8, 1993) to                            |   |
| January 31, 2005                                                        |   |
|                                                                    |   |
| Condensed Notes to  Consolidated Financial Statements                   |   |

 

F/S-1

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| **METALLINE MINING COMPANY**

**(AN EXPLORATION STAGE COMPANY)**

**CONSOLIDATED BALANCE SHEETS** |
|---------------------------------------------------------------------------------------------------|

 

 
| ** **                                                                                                                           | ** ** | **January 31,  2005** | ** ** | **October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------|------------|
| ** **                                                                                                                           | ** ** | **(unaudited)**       | ** ** | **2004**        | ** ** |
| ASSETS                                                                                                                               |       |                  |       |            |       |
|                                                                                                                                 |       |                  |       |            |       |
| CURRENT ASSETS                                                                                                                       |       |                  |       |            |       |
| Cash and cash  equivalents                                                                                                           |       | $                     | 379,067    |            | $          | 1,384,030 |   |
| Marketable  securities                                                                                                               |       | 1,000,000             |       | 1,250,000       |       |
| Accounts  receivable                                                                                                                 |       | 148,566               |       | 88,164          |       |
| Prepaid expenses                                                                                                                     |       | 50,370                |       | 2,052           |       |
| Employee advances                                                                                                                    |       | 39,022                |       | 34,022          |       |
| Total Current  Assets                                                                                                                |       | 1,617,024             |       | 2,758,268       |       |
|                                                                                                                                 |       |                  |       |            |       |
| MINERAL  PROPERTIES                                                                                                                  |       | 4,334,767             |       | 4,334,767       |       |
|                                                                                                                                 |       |                  |       |            |       |
| PROPERTY AND  EQUIPMENT                                                                                                              |       |                  |       |            |       |
| Office and  mining equipment, net of accumulated depreciation                                                                        |       | 553,292               |       | 566,843         |       |
| Total Property  and Equipment                                                                                                        |       | 553,292               |       | 566,843         |       |
|                                                                                                                                 |       |                  |       |            |       |
| TOTAL ASSETS                                                                                                                         |       | $                     | 6,505,083  |            | $          | 7,659,878 |   |
|                                                                                                                                 |       |                  |       |            |       |
| LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                                |       |                  |       |            |       |
|                                                                                                                                 |       |                  |       |            |       |
| CURRENT  LIABILITIES                                                                                                                 |       |                  |       |            |       |
| Accounts payable                                                                                                                     |       | $                     | 4,939      |            | $          | 57,231 |   |
| Accrued  liabilities and expenses                                                                                                    |       | 93,867                |       | 145,445         |       |
| Note payable,  current portion                                                                                                       |       | 38,974                |       | 4,209           |       |
| Total Current  Liabilities                                                                                                           |       | 137,779               |       | 206,885         |       |
|                                                                                                                                 |       |                  |       |            |       |
| LONG-TERM  LIABILITIES                                                                                                               |       |                  |       |            |       |
| Note payable,  net of current portion                                                                                                |       | 10,522                |       | 11,574          |       |
|                                                                                                                                 |       |                  |       |            |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                       |       | —                |       | —          |       |
|                                                                                                                                 |       |                  |       |            |       |
| STOCKHOLDERS'  EQUITY                                                                                                                |       |                  |       |            |       |
| Preferred stock,  $0.01 par value; 1,000,000 shares authorized, no shares outstanding                                                |       | —                |       | —          |       |
| Common stock,  $0.01 par value; 50,000,000 shares authorized, 19,928,181 and 19,751,409  shares issued and outstanding, respectively |       | 199,283               |       | 197,515         |       |
| Stock  subscriptions receivable                                                                                                      |       | —                |       | —          |       |
| Additional  paid-in capital                                                                                                          |       | 19,239,997            |       | 19,064,992      |       |
| Stock options  and warrants                                                                                                          |       | 1,498,550             |       | 1,498,550       |       |
| Deficit  accumulated during exploration stage                                                                                        |       | (14,581,047           | )          | (13,319,638     | )          |
| Total  Stockholders' Equity                                                                                                          |       | 6,356,782             |       | 7,441,419       |       |
|                                                                                                                                 |       |                  |       |            |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                          |       | $                     | 6,505,083  |            | $          | 7,659,878 |   |

 

 

 

 

 

Theaccompanying condensed notes are an integral part of these consolidatedfinancial statements.

 

F/S-2

----

 

 
| **CONSOLIDATED STATEMENTS OF OPERATIONS** |
|-------------------------------------------|

 

 
| ** **                                                                  | ** ** | **Three Months Ended** | ** ** | **Period from  November 8, 1993  (Inception) to** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                  | ** ** | **January 31,**        | ** ** | **January 31,**                                   | ** ** | **January 31,** | ** ** |
| ** **                                                                  | ** ** | **2005**               | ** ** | **2004**                                          | ** ** | **2005** | ** ** |
| ** **                                                                  | ** ** | **(unaudited)**        | ** ** | **(unaudited)**                                   | ** ** | **(unaudited)** | ** ** |
|                                                                        |       |                   |       |                                              |       |   |   |
| REVENUES                                                                    |       | $                      | —     |                                              | $          | — |   | $ | — |   |
|                                                                        |       |                   |       |                                              |       |   |   |
| GENERAL AND  ADMINISTRATIVE EXPENSES                                        |       |                   |       |                                              |       |   |   |
| Salaries and  payroll expenses                                              |       | 392,411                |       | 160,056                                           |       | 2,832,923 |   |
| Office and  administrative expenses                                         |       | 65,561                 |       | 24,904                                            |       | 745,024 |   |
| Taxes and fees                                                              |       | 20,083                 |       | 40,918                                            |       | 414,171 |   |
| Professional  services                                                      |       | 288,317                |       | 108,432                                           |       | 4,326,975 |   |
| Property  expenses                                                          |       | 56,880                 |       | —                                            |       | 1,814,926 |   |
| Depreciation                                                                |       | 21,149                 |       | 32,874                                            |       | 279,542 |   |
| Exploration and  research                                                   |       | 464,785                |       | 10,517                                            |       | 4,131,987 |   |
| TOTAL GENERAL  AND ADMINISTRATIVE EXPENSES                                  |       | 1,309,186              |       | 377,701                                           |       | 14,545,548 |   |
|                                                                        |       |                   |       |                                              |       |   |   |
| LOSS FROM  OPERATIONS                                                       |       | (1,309,186             | )          | (377,701                                          | )          | (14,545,548 | ) |
|                                                                        |       |                   |       |                                              |       |   |   |
| OTHER INCOME  (EXPENSES)                                                    |       |                   |       |                                              |       |   |   |
| Miscellaneous  ore sales, net of expenses                                   |       | 32,808                 |       | 96,704                                            |       | 189,982 |   |
| Interest and  investment income                                             |       | 15,121                 |       | 12,656                                            |       | 60,836 |   |
| Interest and  financing expense                                             |       | (152                   | )          | (152                                              | )          | (286,317 | ) |
| TOTAL OTHER  INCOME                                                         |       | 47,778                 |       | 109,208                                           |       | (35,499 | ) |
|                                                                        |       |                   |       |                                              |       |   |   |
| LOSS BEFORE  INCOME TAXES                                                   |       | (1,261,409             | )          | (268,493                                          | )          | (14,581,047 | ) |
|                                                                        |       |                   |       |                                              |       |   |   |
| INCOME TAXES                                                                |       | —                 |       | —                                            |       | — |   |
|                                                                        |       |                   |       |                                              |       |   |   |
| NET LOSS                                                                    |       | $                      | (1,261,409 | )                                                 | $          | (268,493 | ) | $ | (14,581,047 | ) |
|                                                                        |       |                   |       |                                              |       |   |   |
| BASIC AND  DILUTED NET LOSS PER  COMMON SHARE                               |       | $                      | (0.06      | )                                                 | $          | (0.02 | ) |   |   |
|                                                                        |       |                   |       |                                              |       |   |   |
| BASIC AND  DILUTED

WEIGHTED AVERAGE  NUMBER

OF COMMON SHARES  OUTSTANDING |       | 19,829,081             |       | 11,899,227                                        |       |   |   |

 

 

 

 

 

Theaccompanying condensed notes are an integral part of these consolidatedfinancial statements.

 

F/S-3

----

 
| **CONSOLIDATED STATEMENTS OF CASH FLOWS** |
|-------------------------------------------|

 

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** | **Period from November 8, 1993**

**(Inception) to** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **January 31,**        | ** ** | **January 31,**                                      | ** ** | **January 31,** | ** ** |
| ** **                                                                   | ** ** | **2005**               | ** ** | **2004**                                             | ** ** | **2005** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**        | ** ** | **(unaudited)**                                      | ** ** | **(unaudited)** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                       |       |                   |       |                                                 |       |   |   |
| Net loss                                                                     |       | $                      | (1,261,409 | )                                                    | $          | (268,493 | ) | $ | (14,581,047 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |                   |       |                                                 |       |   |   |
| Depreciation                                                                 |       | 21,149                 |       | 10,517                                               |       | 279,512 |   |
| Noncash expenses                                                             |       | —                 |       | —                                               |       | 126,864 |   |
| Payment of  services from issuance of stock                                  |       | —                 |       | 120,821                                              |       | 966,538 |   |
| Issuance of  stock for compensation                                          |       | 176,772                |       | —                                               |       | 820,231 |   |
| Payment of  services from issuance of options                                |       | —                 |       | —                                               |       | 801,892 |   |
| Payment of  financing fees from the issuance of stock options                |       | —                 |       | —                                               |       | 276,000 |   |
| Payment of  expenses from issuance of stock                                  |       | —                 |       | —                                               |       | 326,527 |   |
| Warrants issued  for services                                                |       | —                 |       | —                                               |       | 688,771 |   |
| (Increase)  decrease in:                                                     |       |                   |       |                                                 |       |   |   |
| Foreign property  tax refund receivable                                      |       | —                 |       | —                                               |       | — |   |
| Marketable  securities                                                       |       | 250,000                |       | —                                               |       | (1,000,000 | ) |
| Accounts  receivable                                                         |       | (60,402                | )          | (44,818                                              | )          | (148,566 | ) |
| Prepaid expenses                                                             |       | (48,318                | )          | 126                                                  |       | (50,370 | ) |
| Employee  advances                                                           |       | (5,000                 | )          | 5,763                                                |       | (39,022 | ) |
| Increase  (decrease) in:                                                     |       |                   |       |                                                 |       |   |   |
| Accounts payable                                                             |       | (52,292                | )          | (3,183                                               | )          | 4,939 |   |
| Contracts  payable                                                           |       | 34,765                 |       | —                                               |       | 38,974 |   |
| Accrued  liabilities and expenses                                            |       | (51,578                | )          | 7,957                                                |       | 109,650 |   |
| Net cash used by  operating activities                                       |       | (996,313               | )          | (171,310                                             | )          | (11,379,107 | ) |
|                                                                         |       |                   |       |                                                 |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                       |       |                   |       |                                                 |       |   |   |
| Purchase of  investments                                                     |       | —                 |       | —                                               |       | (484,447 | ) |
| Proceeds from  investments                                                   |       | —                 |       | —                                               |       | 484,447 |   |
| Equipment  purchases                                                         |       | (7,598                 | )          | (32,756                                              | )          | (792,781 | ) |
| Mining property  acquisitions                                                |       | —                 |       | —                                               |       | (4,452,631 | ) |
| Net cash used by  investing activities                                       |       | (7,598                 | )          | (32,756                                              | )          | (5,245,412 | ) |
|                                                                         |       |                   |       |                                                 |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                       |       |                   |       |                                                 |       |   |   |
| Proceeds from  sales of common stock                                         |       | —                 |       | 1,284,500                                            |       | 15,903,458 |   |
| Proceeds from  sales of options and warrants                                 |       | —                 |       | —                                               |       | 949,890 |   |
| Deposits for  sale of stock                                                  |       | —                 |       | —                                               |       | 125,500 |   |
| Proceeds from  shareholder loans                                             |       | —                 |       | —                                               |       | 30,000 |   |
| Payment of note  payable                                                     |       | (1,052                 | )          | —                                               |       | (5,262 | ) |
| Net cash  provided (used) by financing activities:                           |       | (1,052                 | )          | 1,284,500                                            |       | 17,003,586 |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | (1,004,963             | )          | 1,080,434                                            |       | 379,067 |   |
| Cash and cash  equivalents beginning of period                               |       | 1,384,030              |       | 733,369                                              |       | — |   |
| Cash and cash  equivalents end of period                                     |       | $                      | 379,067    |                                                 | $          | 1,813,803 |   | $ | 379,067 |   |
|                                                                         |       |                   |       |                                                 |       |   |   |
| SUPPLEMENTAL  CASH FLOW DISCLOSURES:                                         |       |                   |       |                                                 |       |   |   |
|                                                                         |       |                   |       |                                                 |       |   |   |
| Income taxes  paid                                                           |       | $                      | —     |                                                 | $          | — |   | $ | — |   |
| Interest paid                                                                |       | $                      | 152        |                                                 | $          | 152 |   | $ | 758 |   |
|                                                                         |       |                   |       |                                                 |       |   |   |
| NON-CASH  INVESTING AND FINANCING ACTIVITIES:                                |       |                   |       |                                                 |       |   |   |
|                                                                         |       |                   |       |                                                 |       |   |   |
| Common stock  issued for services                                            |       | $                      | —     |                                                 | $          | 120,821 |   | $ | 966,538 |   |
| Common stock  issued for compensation                                        |       | $                      | 176,772    |                                                 | $          | — |   | $ | 820,231 |   |
| Common stock  issued for payment of expenses                                 |       | $                      | —     |                                                 | $          | — |   | $ | 326,527 |   |
| Common stock  issued for equipment                                           |       | $                      | —     |                                                 | $          | — |   | $ | 25,000 |   |
| Common stock  options issued for financing fees                              |       | $                      | —     |                                                 | $          | — |   | $ | 276,000 |   |
| Options issued  for services                                                 |       | $                      | —     |                                                 | $          | — |   | $ | 801,892 |   |
| Warrants issued  for services                                                |       | $                      | —     |                                                 | $          | — |   | $ | 688,771 |   |
| Noncash expenses                                                             |       | $                      | —     |                                                 | $          | — |   | $ | 126,864 |   |

 

 

 

 

 

Theaccompanying condensed notes are an integral part of these consolidatedfinancial statements.

 

F/S-4

----

 

#### **NOTE** 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Metalline Mining Company (“the Company”) was incorporated in the Stateof Nevada on November 8, 1993 as the Cadgie Company for the purpose ofacquiring and developing mineral properties. The Cadgie Company was a spin-offfrom its predecessor, Precious Metal Mines, Inc. On June 28, 1996, at a specialdirectors meeting, the Company’s name was changed to Metalline MiningCompany.  The Company’s fiscal year-endis October 31.

 

The Company expects to engage in the business of mining. The Companycurrently owns one mining property located in Mexico known as the Sierra MojadaProperty. The Company conducts its operations in Mexico through its whollyowned subsidiary corporation, Minera Metalin S.A. de C.V. (“Minera Metalin”).

 

**NOTE 2 — BASIS OF PRESENTATION**

 

The foregoing unaudited interim financial statements have been preparedin accordance with generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-QSB and RegulationS-B as promulgated by the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements donot include all of the disclosures required by generally accepted accountingprinciples in the United States of America for complete financialstatements.  These unaudited interimfinancial statements should be read in conjunction with the audited financial statementsfor the year ended October 31, 2004.  Inthe opinion of management, the unaudited interim financial statements furnishedherein include all adjustments, all of which are of a normal recurring nature,necessary for a fair statement of the results for the interim period presented.

 

The preparation of financial statements in accordance with generallyaccepted accounting principles in the United States of America requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities, disclosure of contingent assets and liabilities known to exist asof the date the financial statements are published, and the reported amounts ofrevenues and expenses during the reporting period.  Uncertainties with respect to such estimatesand assumptions are inherent in the preparation of the Company’s financialstatements; accordingly, it is possible that the actual results could differfrom these estimates and assumptions and could have a material effect on thereported amounts of the Company’s financial position and results of operations.

 

Operating results for the three month period ended January 31, 2005 arenot necessarily indicative of the results that may be expected for the yearending October 31, 2005.

 

**NOTE 3 —RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 153 (hereinafter “SFAS No. 153”).  This statement addresses the measurement ofexchanges of nonmonetary assets.  Theguidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” isbased on the principle that exchanges of nonmonetary assets should be measuredbased on the fair value of the assets exchanged.  The

 

F/S-5

----

 

guidance in that opinion, however, included certain exceptions to thatprinciple.  SFAS No. 153 amends APBOpinion 29 to eliminate the exception for nonmonetary exchanges of similarproductive assets and replaces it with a general exception for exchanges ofnonmonetary assets that do not have commercial substance.  A nonmonetary exchange has commercialsubstance if the future cash flows of the entity are expected to changesignificantly as a result of the exchange. This statement is effective for financial statements for fiscal yearsbeginning after June 15, 2005.  Earlierapplication is permitted for nonmonetary asset exchanges incurred during fiscalyears beginning after the date of this statement is issued.  Management believes the adoption of this statementwill not impact the financial statements of the Company.

 

In December 2004, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 152,which amends SFAS Statement No. 66, “Accounting for Sales of Real Estate,” toreference the financial accounting and reporting guidance for real estatetime-sharing transactions that is provided in AICPA Statement of Position (SOP)04-2, “Accounting for Real Estate Time-Sharing Transactions.”  This statement also amends SFAS No. 67, “Accountingfor Costs and Initial Rental Operations of Real Estate Projects,” to state thatthe guidance for (a) incidental operations and (b) costs incurred to sell realestate projects, does not apply to real estate time-sharing transactions.  The accounting for those operations and costsis subject to the guidance in SOP 04-2. This statement is effective for financial statements for fiscal yearsbeginning after June 15, 2005. Management believes the adoption of this statement will not impact thefinancial statements of the Company.

 

InNovember 2004, the Financial Accounting Standards Board issued Statementof Financial Accounting Standards No. 151, “Inventory Costs— an amendment of ARB No. 43, Chapter 4”(hereinafter “SFAS No. 151”).  This statement amends the guidance in ARBNo. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage).  Under somecircumstances, SFAS No. 151 mandates that items such as idle facility expense,excessive spoilage, double freight, and re-handling costs be recognized ascurrent-period charges.  In addition,this statement requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. This statement is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005.  Management believes the adoption of thisstatement will not impact the financial statements of the Company.

 

In May 2003, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 150, “Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity” (hereinafter “SFAS No. 150”).SFAS No. 150 establishes standards for classifying and measuring certainfinancial instruments with characteristics of both liabilities and equity andrequires that those instruments be classified as liabilities in statements offinancial position. Previously, many of those instruments were classified asequity. SFAS No. 150 is effective for financial instruments entered into ormodified after May 31, 2003 and otherwise is effective at the beginning of thefirst interim period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not impactthe financial position or results of operations of the Company.

 

F/S-6

----

 

In April 2003, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 149, “Amendment of Statement 133 on Derivative Instruments andHedging Activities” (hereinafter “SFAS No. 149”). SFAS No. 149 amends andclarifies the accounting for derivative instruments, including certainderivative instruments embedded in other contracts, and for hedging activitiesunder SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities”. This statement is effective for contracts entered into or modifiedafter June 30, 2003 and for hedging relationships designated after June 30,2003. The adoption of SFAS No. 149 did not impact the financial position orresults of operations of the Company.

 

**NOTE 4 —MARKETABLE SECURITIES**

 

The Company’sinvestments in equity securities that are intended to be held for a shortperiod are classified as trading securities. These securities are recorded at fair value as current assets on thebalance sheet under the caption of marketable securities.  The change in fair value of these securitiesis included in earnings during the period presented.  The Company’s marketable securities consistof preferred stock held by UBS securities for the Company’s account.  These investments are not insured, andtherefore, a total of $1,000,000 was at risk on January 31, 2005.

 

**NOTE 5 — MINERAL PROPERTIES**

 

Sierra Mojada Mining Concessions

In June of 1996, USMX (now named Dakota) and the Company entered into ajoint venture agreement, whereby the Company could acquire a 65% interest in amining concession named The Sierra Mojada Project, located in Coahuila, Mexico.Under the terms of the agreement, the Company was to contribute two milliondollars ($2,000,000) in work commitments over the following seven years.

 

After the execution of the USMX agreement, Dakota’s interest (35%) inthe joint venture was sold to an entity, which subsequently defaulted on itsjoint venture obligations.  This actionin 1998 triggered the elimination of the joint venture and resulted in theCompany assuming 100% control of the Sierra Mojada concession without the needto spend $2,000,000 to vest its interest.

 

During the period of August 23, 1996 to September 2, 1997, the Companyexecuted five separate agreements for the acquisition of explorationconcessions in the same mining region as the Sierra Mojada Project inMexico.  Each agreement enables theCompany to explore the underlying property by paying stipulated annualpayments, which shall be applied in full toward the contracted purchase priceof the related concession.

 

During August 2000, theCompany made the final payment for the first year and acquired title to theUnificacion Mineros Nortenos Concession in the Sierra Mojada Project.  With this transaction, the Company acquiredtitle to all of its concessions at Sierra Mojada.

 

Under the terms of the above agreements, the Company was obligated topay and in fact did pay $103,076 during the year ended October 31, 2001.

 

F/S-7

----

 

The Company has engaged an independent party to conduct a feasibilitystudy of the mineral properties.  Afeasibility study is a detailed engineering and economic evaluation of mineralproperty resources.  The study willultimately generate the data necessary to establish the economic value of themineral properties, the results of which could increase or decrease the currentcarrying value of the properties.  TheCompany anticipates that the study may be complete by the end of fiscal year2005.

 

As of January 31, 2005, the Company is continuing to conduct a drillingproject on the property to further delineate the mineral deposit.

 

**NOTE 6 — PROPERTY AND EQUIPMENT**

 

The following is a summary of the Company’sproperty and equipment at January 31, 2005 and October 31, 2004, respectively:

 
| ** **                      | ** ** | **January 31,** | ** ** | **October 31,** | ** ** |
|---------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                      | ** ** | **2005**        | ** ** | **2004**        | ** ** |
| Mining equipment                |       | $               | 514,855    |            | $          | 507,257 |   |
| Buildings and  structures       |       | 141,061         |       | 141,061         |       |
| Land - non  mineral             |       | 15,839          |       | 15,839          |       |
| Vehicles                        |       | 42,068          |       | 42,068          |       |
| Computer  equipment             |       | 88,787          |       | 88,787          |       |
| Office equipment                |       | 4,183           |       | 4,183           |       |
| Furniture and  fixtures         |       | 8,185           |       | 8,185           |       |
|                            |       | 814,978         |       | 807,380         |       |
| Less:  Accumulated depreciation |       | (261,686        | )          | (240,537        | )          |
|                            |       | $               | 553,292    |            | $          | 566,843 |   |

 

**NOTE 7 — CAPITAL STOCK**

 

Preferred Stock

At its March 1, 2001 annual shareholdersmeeting, the Company approved a change to its articles of incorporation wherebythe Company is authorized to issue 1,000,000 shares of $0.01 par valuepreferred stock.  The specific featuresof the preferred stock are to be determined by the Company’s board ofdirectors.  At January 31, 2005, therewere no shares of preferred stock issued or outstanding.

 

Common Stock

During the year ended October 31, 2004, theCompany issued 7,580,150 shares of common stock for cash consideration of $1.00per share less issuance costs of $698,863. The only shares issued during the three months ending January 31, 2005were 176,772 shares issued to officers and directors as compensation forservices at $1.00 per share.

 

F/S-8

----

 

Stock Options

On March 1, 2001, the Company’s shareholders approved a qualified stockoption plan.  The number of shareseligible for issuance under the qualified plan is to be determined by theCompany’s board of directors.  As ofJanuary 31, 2005, there were 720,000 options outstanding and exercisable.  Of this amount, 250,000 were granted toofficers and directors of the Company.

 

Warrants

The Company did not issue warrants during thethree months ended January 31, 2005.

 

F/S-9

----