**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

 

### **FORM10-KSB/A**

**AMENDMENT 1**

 

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

**THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the fiscal year ended October 31, 2004**

 

**OR**

 

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

**THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                 to                 **

 

**Commission file number: 000-27667**

 

**MetallineMining Company**

(Exact name of registrant as specified in itscharter)

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

** **

**1330 E. Margaret Ave.**

**Coeur d’Alene, ID 83815**

(Address of principal executive offices)

 

Registrant’s telephone number, including areacode: **(208) 665-2002**

 

Securities registered pursuant to Section 12(b) of the Act: **None**

 

Securities registered pursuant to Section 12(g) of the Act:

 
| **Common  Stock**    | ** ** | **The  OTC-Bulletin Board**                |
|----------------------|------------|--------------------------------------------|
| Title  of each class |       | Name  of each exchange on which registered |

 

Check whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch shorter period as the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.

Yes ý  No o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B contained in this form, and no disclosure will becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-KSBor any amendments to this Form 10-KSB. ý

 

The aggregate market value of the voting stock held by non-affiliatesof the registrant at January 14, 2005 was $24,904,458. The number of shares ofcommon stock outstanding at such date was 19,751,409 shares. An additional1,996,554 were deemed outstanding at such date pursuant to presentlyexercisable options and warrants.

 

 

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# **EXPLANATORYNOTE**

 

ThisAnnual Report on Form 10-KSB/A is being filed as Amendment No. 1 to our AnnualReport on Form 10-KSB for the fiscal year ended October 31, 2004.  This Form 10-KSB/A is filed with theSecurities and Exchange Commission solely for the purpose of restating our financialstatements to correct certain descriptive errors and to add Exhibits 31.1,31.2, 32.1, and 32.2.  This Form 10-KSB/Adoes not otherwise change or update the disclosures set forth in the Form10-KSB as originally filed and does not otherwise reflect events occurringafter the filing of the Form 10-KSB.

 

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# **METALLINE MINING COMPANY ANNUALREPORT**

**ON FORM 10-KSB FOR THE FISCAL YEAR**

### **ENDEDOCTOBER 31, 2004**

 

TABLE OF CONTENTS

 
| ** **                     | **Page**             |
|--------------------------------|----------------------|
|                           |                 |
| FORWARD-LOOKING  STATEMENTS    | (ii)                 |
|                           |                 |   |
| PART II                        |                 |   |
| Item 7:                        | Financial Statements | 1 |
|                           |                 |   |
| PART III                       |                 |   |
| Item 13:                       | Exhibits             | 2 |
|                           |                 |   |
| Signatures                     | 3                    |
|                           |                 |
| Index  to Financial Statements | F/S-1                |
|                           |                 |
| Index  to Exhibits             | E-1                  |

 

(i)

----

 

#### **FORWARD**-LOOKINGSTATEMENTS

 

This Report on Form 10-KSB containsforward-looking statements regarding future events and the Company’s futureresults that are subject to the safe harbors created under the Securities Actof 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “ExchangeAct”).  These statements are based oncurrent expectations, estimates, forecasts, and projections about the industryin which the Company operates and the beliefs and assumptions of the Company’smanagement.  Words such as “expects,” “anticipates,”“targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,”“continues,” “may,” variations of such words, and similar expressions areintended to identify such forward-looking statements.  In addition, any statements that refer toprojections of the Company’s future financial performance, the Company’santicipated growth and potentials in its business, andother characterizations of future events or circumstances are forward-lookingstatements.  Readers are cautioned thatthese forward-looking statements are only predictions and are subject to risks,uncertainties, and assumptions that are difficult to predict, including thoseidentified elsewhere herein and in the Company’s Annual Report on Form 10-KSBfor the fiscal year ended October 31, 2004 under “Risk Factors.”  Therefore, actual results may differmaterially and adversely from those expressed in any forward-lookingstatements.  The Company undertakes noobligation to revise or update any forward-looking statements for any reason.

 

[The balance of this page has beenintentionally left blank.]

 

(ii)

----

 

### **PART II**

 

**ITEM 7****.****  FINANCIAL STATEMENTS.**

 

The required financial statements, as amended, are contained in pagesF/S-1 through F/S-24 of this Form 10-KSB/A.

 

1

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### **PART III**

 

**ITEM 13.********EXHIBITS.**

 

Item13 is amended to add the following exhibits.

 
| **EXHIBIT  NO.** | ** ** | **EXHIBIT**                                                                                                    |
|------------------|------------|----------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                           |
| 31.1             |       | Certification  of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange  Act. Filed herewith. |
|             |       |                                                                                                           |
| 31.2             |       | Certification  of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange  Act. Filed herewith. |
|             |       |                                                                                                           |
| 32.1             |       | Certification  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. Furnished  herewith.         |
|             |       |                                                                                                           |
| 32.2             |       | Certification  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. Furnished  herewith.         |

 

2

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Securities Exchange Actof 1934, the registrant has caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   | METALLINE MINING COMPANY |                         |
|--------|--------------------------|------------------------------|
|   |                     |                         |   |
|   | BY:                      | /s/ Merlin Bingham           |   |   |
|   |                     | Merlin Bingham,              |   |
|   |                     | President                    |   |
|   |                     | Date: September 15,  2005    |   |
|   |                     |                         |   |
|   |                     |                         |   |
|   | By:                      | /s/ Wayne Schoonmaker,       |   |   |
|   |                     | Wayne Schoonmaker,           |   |
|   |                     | Principal Accounting Officer |   |
|   |                     | Date: September 15, 2005     |   |
|        |                          |                              |  |  |  |

 

 

In accordance with the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated:

 
| By:    | /s/ Merlin Bingham       |   | By:                              | /s/ Roger Kolvoord |   |
|--------|--------------------------|--------|----------------------------------|--------------------|--------|
|   | Merlin Bingham           |   | Roger Kolvoord                   |
|   | President/Director       |   | Vice President-Business/Director |
|   | Date: September 15, 2005 |   | Date: September 15, 2005         |
|   |                     |   |                             |
| By:    | /s/ Wayne Schoonmaker    |   | By:                              | /s/ Wesley Pomeroy |   |
|   | Wayne Schoonmaker        |   | Wesley Pomeroy                   |
|   | Secretary/Treasurer      |   | Director                         |
|   | Date: September 15, 2005 |   | Date: September 15, 2005         |
|        |                          |        |                                  |                    |        |  |

 

3

----

 

### METALLINEMINING COMPANY

 

### INDEXTO CONSOLIDATED FINANCIALSTATEMENTS

 
|                                               | **PAGE**                                                                                                                                           |
|----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                               |                                                                                                                                               |
| Report of Independent Certified Public Accountants | F/S-2                                                                                                                                              |
|                                               |                                                                                                                                               |   |
| Financial Statements:                              |                                                                                                                                               |
|                                               |                                                                                                                                               |   |
|                                               | Balance Sheets as of October 31, 2004 and October 31, 2003                                                                                         | F/S-3 |
|                                               |                                                                                                                                               |   |
|                                               | Statements of Operations for the Years Ended October 31, 2004 and  2003, and for the period from inception (November 8, 1993) to October 31,  2004 | F/S-4 |
|                                               |                                                                                                                                               |   |
|                                               | Statements of Changes in Stockholder’s Equity for the period from  inception (November 8, 1993) to October 31, 2004                           | F/S-5 |
|                                               |                                                                                                                                               |   |
|                                               | Statements of Cash Flow for the Years Ended October 31, 2004 and 2003,  and for the period from inception (November 8, 1993) to October 31, 2004   | F/S-8 |
|                                               |                                                                                                                                               |   |
|                                               | Notes to Financial Statements                                                                                                                      | F/S-9 |

 

[The balance of this page has beenintentionally left blank.]

 

F/S-1

----

 

###### **REPORT OF INDEPENDENT CERTIFIEDPUBLIC ACCOUNTANTS**

 

The Board of Directors

Metalline Mining Company

Coeur d’Alene, Idaho

 

### REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Wehave audited the accompanying consolidated balance sheets of Metalline MiningCompany (a Nevada corporation and an exploration stage company) as of October31, 2004 and 2003, and the related consolidated statements of operations,stockholders’ equity, and cash flows for the years then ended, and for theperiod from November 8, 1993 (inception) to October 31, 2004. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

Weconducted our audit in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Metalline Mining Companyas of October 31, 2004 and 2003, the results of its operations, stockholders’equity and it’s cash flows for the years then ended and for the period fromNovember 8, 1993 (inception) to October 31, 2004 in conformity with accountingprinciples generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been preparedassuming that the Company will continue as a going concern. As discussed inNote 2 to the financial statements, the Company’s significant operating lossesraise substantial doubt about its ability to continue as a going concern.Management’s plans regarding those matters also are described in Note 2. Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

 

Williams & Webster, P.S.

*CertifiedPublic Accountants*

Spokane, Washington

January 21, 2005

 

F/S-2

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**METALLINEMINING COMPANY (AN EXPLORATION STAGE COMPANY) CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                           | ** ** | **October 31,  2004** | ** ** | **October 31,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ASSETS                                                                                                                               |       |                  |       |                  |       |
|                                                                                                                                 |       |                  |       |                  |       |
| CURRENT ASSETS                                                                                                                       |       |                  |       |                  |       |
| Cash and cash equivalents                                                                                                            |       | $                     | 1,384,030  |                  | $          | 733,369 |   |
| Marketable securities                                                                                                                |       | 1,250,000             |       | —                |       |
| Accounts receivable                                                                                                                  |       | 88,164                |       | —                |       |
| Prepaid expenses                                                                                                                     |       | 2,052                 |       | 126                   |       |
| Employee advances                                                                                                                    |       | 34,022                |       | 20,900                |       |
| Total Current Assets                                                                                                                 |       | 2,758,268             |       | 754,395               |       |
|                                                                                                                                 |       |                  |       |                  |       |
| PROPERTY CONCESSIONS                                                                                                                 |       |                  |       |                  |       |
| Sierra Mojada, Mojada 3                                                                                                              |       | 15,875                |       | 15,875                |       |
| Fortuna                                                                                                                              |       | 76,725                |       | 76,725                |       |
| Esmeralda                                                                                                                            |       | 255,647               |       | 255,647               |       |
| Esmeralda 1                                                                                                                          |       | 180,988               |       | 180,988               |       |
| U.M. Nortenos, Vulcano                                                                                                               |       | 3,682,772             |       | 3,682,772             |       |
| La Blanca                                                                                                                            |       | 122,760               |       | 122,760               |       |
| Total Property Concessions                                                                                                           |       | 4,334,767             |       | 4,334,767             |       |
|                                                                                                                                 |       |                  |       |                  |       |
| PROPERTY AND EQUIPMENT                                                                                                               |       |                  |       |                  |       |
| Office and mining equipment, net of  accumulated depreciation                                                                        |       | 566,843               |       | 301,142               |       |
| Total Property and Equipment                                                                                                         |       | 566,843               |       | 301,142               |       |
|                                                                                                                                 |       |                  |       |                  |       |
| TOTAL ASSETS                                                                                                                         |       | $                     | 7,659,878  |                  | $          | 5,390,304 |   |
|                                                                                                                                 |       |                  |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                            |       |                  |       |                  |       |
|                                                                                                                                 |       |                  |       |                  |       |
| CURRENT LIABILITIES                                                                                                                  |       |                  |       |                  |       |
| Accounts payable                                                                                                                     |       | $                     | 57,231     |                  | $          | 110,898 |   |
| Accrued liabilities and expenses                                                                                                     |       | 145,445               |       | 7,961                 |       |
| Note payable, current portion                                                                                                        |       | 4,209                 |       | 4,209                 |       |
| Total Current Liabilities                                                                                                            |       | 206,885               |       | 123,068               |       |
|                                                                                                                                 |       |                  |       |                  |       |
| LONG-TERM LIABILITIES                                                                                                                |       |                  |       |                  |       |
| Note payable, net of current portion                                                                                                 |       | 11,574                |       | 15,783                |       |
|                                                                                                                                 |       |                  |       |                  |       |
| 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, 19,751,409 and 11,845,055 shares issued and outstanding,  respectively |       | 197,515               |       | 118,451               |       |
| Stock subscriptions receivable                                                                                                       |       | —                |       | (38,000               | )          |
| Additional paid-in capital                                                                                                           |       | 19,064,992            |       | 11,955,285            |       |
| Stock options and warrants                                                                                                           |       | 1,498,550             |       | 1,498,550             |       |
| Deficit accumulated during exploration  stage                                                                                        |       | (13,319,638           | )          | (8,282,833            | )          |
| Total Stockholders’ Equity                                                                                                      |       | 7,441,419             |       | 5,251,453             |       |
|                                                                                                                                 |       |                  |       |                  |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                      |       | $                     | 7,659,878  |                  | $          | 5,390,304 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F/S-3

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**METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY)**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                                              | ** ** | ** **      | ** ** | ** **      | ** ** | **November 8,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                              | ** ** | ** **      | ** ** | ** **      | ** ** | **1993**        | ** ** |
| ** **                                                              | ** ** | ** **      | ** ** | ** **      | ** ** | **(Inception)** | ** ** |
| ** **                                                              | ** ** | **Years Ended** | ** ** | **to**          | ** ** |
| ** **                                                              | ** ** | **October 31,** | ** ** | **October 31,** | ** ** | **October 31,** | ** ** |
| ** **                                                              | ** ** | **2004**        | ** ** | **2003**        | ** ** | **2004**        | ** ** |
|                                                                    |       |            |       |            |       |            |       |
| REVENUES                                                                |       | $               | —     |            | $          | —          |       | $ | — |   |
|                                                                    |       |            |       |            |       |            |       |
| GENERAL AND ADMINISTRATIVE EXPENSES                                     |       |            |       |            |       |            |       |
| Salaries and payroll expenses                                           |       | 633,019         |       | 575,912         |       | 2,440,513       |       |
| Office and administrative expenses                                      |       | 299,172         |       | 24,651          |       | 679,463         |       |
| Taxes and fees                                                          |       | 108,220         |       | 141,533         |       | 394,088         |       |
| Professional services                                                   |       | 516,015         |       | 253,419         |       | 4,038,658       |       |
| Property expenses                                                       |       | 233,148         |       | 66,501          |       | 1,758,046       |       |
| Depreciation                                                            |       | 63,045          |       | 42,833          |       | 258,393         |       |
| Exploration and research                                                |       | 3,374,049       |       | 74,553          |       | 3,667,202       |       |
| TOTAL GENERAL AND ADMINISTRATIVE EXPENSES                               |       | 5,226,667       |       | 1,179,402       |       | 13,236,362      |       |
|                                                                    |       |            |       |            |       |            |       |
| LOSS FROM OPERATIONS                                                    |       | (5,226,667      | )          | (1,179,402      | )          | (13,236,362     | )          |
|                                                                    |       |            |       |            |       |            |       |
| OTHER INCOME (EXPENSES)                                                 |       |            |       |            |       |            |       |
| Miscellaneous ore sales, net of expenses                                |       | 170,217         |       | 72,091          |       | 157,174         |       |
| Interest and investment income                                          |       | 20,251          |       | 83              |       | 45,715          |       |
| Interest and financing expense                                          |       | (606            | )          | —          |       | (286,165        | )          |
| TOTAL OTHER INCOME                                                      |       | 189,861         |       | 72,174          |       | (83,277         | )          |
|                                                                    |       |            |       |            |       |            |       |
| LOSS BEFORE INCOME TAXES                                                |       | (5,036,805      | )          | (1,107,228      | )          | (13,319,638     | )          |
|                                                                    |       |            |       |            |       |            |       |
| INCOME TAXES                                                            |       | —          |       | —          |       | —          |       |
|                                                                    |       |            |       |            |       |            |       |
| NET LOSS                                                                |       | $               | (5,036,805 | )               | $          | (1,107,228      | )          | $ | (13,319,638 | ) |
|                                                                    |       |            |       |            |       |            |       |
| BASIC AND  DILUTED NET LOSS PER COMMON SHARE                            |       | $               | (0.30      | )               | $          | (0.10           | )          |   |   |
|                                                                    |       |            |       |            |       |            |       |
| BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING |       | 17,025,631      |       | 10,955,423      |       |            |       |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F/S-4

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**METALLINE MINING COMPANY (AN EXPLORATION STAGE COMPANY)**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY**

 
| ** **                                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** **         | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|------------------|------------|----------------|------------|-------------|------------|-------------------|------------|--------------------|------------|-----------------|------------|------------|------------|
| ** **                                            | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Stock**   | ** ** | **Stock**         | ** ** | **Deficit During** | ** ** | ** **      | ** ** |
| ** **                                            | ** ** | **Number of**    | ** ** | ** **     | ** ** | **Paid-in** | ** ** | **Subscriptions** | ** ** | **Options and**    | ** ** | **Exploration** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **Shares**       | ** ** | **Amount**     | ** ** | **Capital** | ** ** | **Receivable**    | ** ** | **Warrants**       | ** ** | **Stage**       | ** ** | **Total**  | ** ** |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Common stock  issuance prior to inception (no value)  |       | 960,800          |       | $              | 9,608      |        | $          | (9,608            | )          | $                  | —     |            | $          | —     |       | $ | — |   | $ | — |   |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| 1:5 reverse  common stock split                       |       | (768,640         | )          | (7,686         | )          | 7,686       |       | —            |       | —             |       | —          |       | —     |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Net loss for the  year ended October 31, 1994         |       | —           |       | —         |       | —      |       | —            |       | —             |       | (8,831          | )          | (8,831     | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Balances, October  31, 1994                           |       | 192,160          |       | 1,922          |       | (1,922      | )          | —            |       | —             |       | (8,831          | )          | (8,831     | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| 3:1 common stock  split                               |       | 384,320          |       | 3,843          |       | (3,843      | )          | —            |       | —             |       | —          |       | —     |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Net loss for the  year ended October 31, 1995         |       | —           |       | —         |       | —      |       | —            |       | —             |       | (7,761          | )          | (7,761     | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Balances, October  31, 1995                           |       | 576,480          |       | 5,765          |       | (5,765      | )          | —            |       | —             |       | (16,592         | )          | (16,592    | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Issuances of  common stock as follows:                |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| • for par  value at transfer of ownership        |       | 2,000            |       | 20             |       | —      |       | —            |       | —             |       | —          |       | 20         |       |
| • for cash at  an average of $0.11 per share     |       | 1,320,859        |       | 13,209         |       | 133,150     |       | —            |       | —             |       | —          |       | 146,359    |       |
| • for  services at an average of $0.08 per share |       | 185,000          |       | 1,850          |       | 12,600      |       | —            |       | —             |       | —          |       | 14,450     |       |
| • for  computer equipment at $0.01 per share     |       | 150,000          |       | 1,500          |       | 13,500      |       | —            |       | —             |       | —          |       | 15,000     |       |
| • for mineral  property at $0.01 per share       |       | 900,000          |       | 9,000          |       | —      |       | —            |       | —             |       | —          |       | 9,000      |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Net loss for the  year ended October 31, 1996         |       | —           |       | —         |       | —      |       | —            |       | —             |       | (40,670         | )          | (40,670    | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Balances, October  31, 1996                           |       | 3,134,339        |       | 31,344         |       | 153,485     |       | —            |       | —             |       | (57,262         | )          | 127,567    |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Issuances of  common stock as follows:                |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| • for cash at  an average of $0.61 per share     |       | 926,600          |       | 9,266          |       | 594,794     |       | —            |       | —             |       | —          |       | 604,060    |       |
| • for  services at an average of $0.74 per share |       | 291,300          |       | 2,913          |       | 159,545     |       | —            |       | —             |       | —          |       | 162,458    |       |
| • for payment  of a loan at $0.32 per share      |       | 100,200          |       | 1,002          |       | 30,528      |       | —            |       | —             |       | —          |       | 31,530     |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Options issued as  follows:                           |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| • 300,000  options for cash                      |       | —           |       | —         |       | 3,000       |       | —            |       | —             |       | —          |       | 3,000      |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Net loss for the  year ended October 31, 1997         |       | —           |       | —         |       | —      |       | —            |       | —             |       | (582,919        | )          | (582,919   | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Balances, October  31, 1997                           |       | 4,452,439        |       | 44,525         |       | 941,352     |       | —            |       | —             |       | (640,181        | )          | 345,696    |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Issuances of common  stock as follows:                |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| • for cash at  an average of $1.00 per share     |       | 843,500          |       | 8,435          |       | 832,010     |       | —            |       | —             |       | —          |       | 840,445    |       |
| • for cash  and receivables at $1.00 per share   |       | 555,000          |       | 5,550          |       | 519,450     |       | (300,000          | )          | —             |       | —          |       | 225,000    |       |
| • for services  at an average of $0.53 per share |       | 41,800           |       | 418            |       | 21,882      |       | —            |       | —             |       | —          |       | 22,300     |       |
| • for mine  data base at $1.63 per share         |       | 200,000          |       | 2,000          |       | 323,000     |       | —            |       | —             |       | —          |       | 325,000    |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Options issued or  granted as follows:                |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| • 1,200,000  options for cash                    |       | —           |       | —         |       | 120,000     |       | —            |       | —             |       | —          |       | 120,000    |       |
| • for  financing fees                            |       | —           |       | —         |       | —      |       | —            |       | 60,000             |       | —          |       | 60,000     |       |
| • for  consulting fees                           |       | —           |       | —         |       | —      |       | —            |       | 117,000            |       | —          |       | 117,000    |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Warrants issued  for services                         |       | —           |       | —         |       | —      |       | —            |       | 488,980            |       | (488,980        | )          | —     |       |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Net loss for the  year ended October 31, 1998         |       | —           |       | —         |       | —      |       | —            |       | —             |       | (906,036        | )          | (906,036   | )          |
|                                                  |       |             |       |           |       |        |       |              |       |               |       |            |       |       |       |
| Balance, October  31, 1998                            |       | 6,092,739        |       | $              | 60,928     |        | $          | 2,757,694         |       | $                  | (300,000   | )               | $          | 665,980    |       | $ | (2,035,197 | ) | $ | 1,149,405 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

F/S-5

----

 
| ** **                                                | ** ** | ** **        | ** ** | ** **     | ** ** | ** **  | ** ** | ** **        | ** ** | ** **          | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|----------------|------------|-------------|------------|-------------------|------------|---------------------|------------|-----------------|------------|------------|------------|
| ** **                                                | ** ** | **Common  Stock** | ** ** | **Additional** | ** ** | **Stock**   | ** ** | **Stock**         | ** ** | **Deficit  During** | ** ** | ** **      | ** ** |
| ** **                                                | ** ** | **Number  of**    | ** ** | ** **     | ** ** | **Paid-in** | ** ** | **Subscriptions** | ** ** | **Options  and**    | ** ** | **Exploration** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Shares**        | ** ** | **Amount**     | ** ** | **Capital** | ** ** | **Receivable**    | ** ** | **Warrants**        | ** ** | **Stage**       | ** ** | **Total**  | ** ** |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Balance, October  31, 1998                                |       | 6,092,739         |       | $              | 60,928     |        | $          | 2,757,694         |       | $                   | (300,000   | )               | $          | 665,980    |       | $ | (2,035,197 | ) | $ | 1,149,405 |   |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Issuances of  common stock as follows:                    |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • for cash at  an average of $1.04 per share         |       | 818,800           |       | 8,188          |       | 842,712     |       | —            |       | —              |       | —          |       | 850,900    |       |
| • for  drilling fees at $0.90 per share              |       | 55,556            |       | 556            |       | 49,444      |       | —            |       | —              |       | —          |       | 50,000     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Stock option and  warrant activity as follows:            |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • exercise of  options at $0.90 per share            |       | 250,000           |       | 2,500          |       | 267,500     |       | —            |       | (45,000             | )          | —          |       | 225,000    |       |
| • issuance of  options for financing fees            |       | —            |       | —         |       | —      |       | —            |       | 216,000             |       | —          |       | 216,000    |       |
| • expiration  of options                             |       | —            |       | —         |       | 60,000      |       | —            |       | (60,000             | )          | —          |       | —     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Stock  subscription received                              |       | —            |       | —         |       | —      |       | 300,000           |       | —              |       | —          |       | 300,000    |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Net loss for the  year ended October 31, 1999             |       | —            |       | —         |       | —      |       | —            |       | —              |       | (1,423,045      | )          | (1,423,045 | )          |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Balance, October  31, 1999                                |       | 7,217,095         |       | 72,172         |       | 3,977,350   |       | —            |       | 776,980             |       | (3,458,242      | )          | 1,368,260  |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Stock option and  warrant activity as follows:            |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Exercise of  options at $0.86 per share                   |       | 950,000           |       | 9,500          |       | 1,090,750   |       | —            |       | (288,000            | )          | —          |       | 812,250    |       |
| Warrants issued  for services                             |       | —            |       | —         |       | —      |       | —            |       | 55,000              |       | —          |       | 55,000     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Issuances of  common stock as follows:                    |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • for cash at  an average of $2.77 per share         |       | 1,440,500         |       | 14,405         |       | 3,972,220   |       | —            |       | —              |       | —          |       | 3,986,625  |       |
| • for  services at $1.28 per share                   |       | 120,000           |       | 1,200          |       | 152,160     |       | —            |       | —              |       | —          |       | 153,360    |       |
| • for  equipment at $1.67 per share                  |       | 15,000            |       | 150            |       | 24,850      |       | —            |       | —              |       | —          |       | 25,000     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Net loss for the  year ended October 31, 2000             |       | —            |       | —         |       | —      |       | —            |       | —              |       | (882,208        | )          | (882,208   | )          |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Balances, October  31, 2000                               |       | 9,742,595         |       | 97,427         |       | 9,217,330   |       | —            |       | 543,980             |       | (4,340,450      | )          | 5,518,287  |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Stock option and  warrant activity as follows:            |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • Warrants  exercised at $0.75 per share             |       | 20,000            |       | 200            |       | 25,560      |       | —            |       | (10,760             | )          | —          |       | 15,000     |       |
| • Options  issued for consulting fees                |       | —            |       | —         |       | —      |       | —            |       | 740,892             |       | —          |       | 740,892    |       |
| • Warrants  issued for consulting fees               |       | —            |       | —         |       | —      |       | —            |       | 144,791             |       | —          |       | 144,791    |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Issuances of  common stock as follows:                    |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • for cash at  $2.00 per share                       |       | 250,000           |       | 2,500          |       | 494,076     |       | —            |       | 3,424               |       | —          |       | 500,000    |       |
| • for cash of  $210 and services at $2.07 per share  |       | 21,000            |       | 210            |       | 43,260      |       | —            |       | —              |       | —          |       | 43,470     |       |
| • for cash of  $180 and services at $2.05 per share  |       | 18,000            |       | 180            |       | 36,720      |       | —            |       | —              |       | —          |       | 36,900     |       |
| • for services  at $2.45 per share                   |       | 6,000             |       | 60             |       | 14,640      |       | —            |       | —              |       | —          |       | 14,700     |       |
| • for  services at $1.50 per share                   |       | 12,000            |       | 120            |       | 17,880      |       | —            |       | —              |       | —          |       | 18,000     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Net loss for the  year ended October 31, 2001             |       | —            |       | —         |       | —      |       | —            |       | —              |       | (2,069,390      | )          | (2,069,390 | )          |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Balance, October  31, 2001                                |       | 10,069,595        |       | 100,697        |       | 9,849,466   |       | —            |       | 1,422,327           |       | (6,409,840      | )          | 4,962,650  |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Issuances of  common stock as follows:                    |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • for cash at  $2.00 per share                       |       | 50,000            |       | 500            |       | 99,500      |       | —            |       | —              |       | —          |       | 100,000    |       |
| • for cash  and warrants at $1.50 per share          |       | 96,000            |       | 960            |       | 134,400     |       | —            |       | 8,640               |       | —          |       | 144,000    |       |
| • for cash  and warrants at $1.50 per share          |       | 66,667            |       | 667            |       | 93,333      |       | —            |       | 6,000               |       | —          |       | 100,000    |       |
| • for  compensation at an average of $1.23 per share |       | 86,078            |       | 861            |       | 104,014     |       | —            |       | —              |       | —          |       | 104,875    |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Stock option  activity as follows:                        |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| • for  compensation at $0.61 per share               |       | —            |       | —         |       | —      |       | —            |       | 61,000              |       | —          |       | 61,000     |       |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Net loss for the  year ended October 31, 2002             |       | —            |       | —         |       | —      |       | —            |       | —              |       | (765,765        | )          | (765,765   | )          |
|                                                      |       |              |       |           |       |        |       |              |       |                |       |            |       |       |       |
| Balance, October  31, 2002                                |       | 10,368,340        |       | $              | 103,685    |        | $          | 10,280,713        |       | $                   | —     |            | $          | 1,497,967  |       | $ | (7,175,605 | ) | $ | 4,706,760 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

F/S-6

----

 
| ** **                                                           | ** ** | ** **             | ** ** | ** **  | ** ** | ** **        | ** ** | ** **       | ** ** | ** **      | ** ** | **Accumulated**     | ** ** | ** **      | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|-------------|------------|-------------------|------------|------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|
| ** **                                                           | ** ** | ** **             | ** ** | ** **  | ** ** | **Additional**    | ** ** | **Stock**        | ** ** | **Stock**       | ** ** | **Deficit  During** | ** ** | ** **      | ** ** |
| ** **                                                           | ** ** | **Common  Stock**      | ** ** | **Paid-in** | ** ** | **Subscriptions** | ** ** | **Options  and** | ** ** | **Exploration** | ** ** | ** **          | ** ** |
| ** **                                                           | ** ** | **Shares**             | ** ** | **Amount**  | ** ** | **Capital**       | ** ** | **Receivable**   | ** ** | **Warrants**    | ** ** | **Stage**           | ** ** | **Total**       | ** ** |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Balance, October  31, 2002                                           |       | 10,368,340             |       | $           | 103,685    |              | $          | 10,280,713       |       | $               | —     |                | $          | 1,497,967       |       | $ | (7,175,605 | ) | $ | 4,706,760 |   |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Issuances of  common stock as follows:                               |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| • for cash at  $2.00 per share                                  |       | 100,000                |       | 1,000       |       | 199,000           |       | —           |       | —          |       | —              |       | 200,000         |       |
| • for cash at  an average of $0.98 per share                    |       | 849,000                |       | 8,489       |       | 821,510           |       | —           |       | —          |       | —              |       | 829,999         |       |
| • for cash  and warrants at $1.50 per share                     |       | 7,000                  |       | 70          |       | 9,847             |       | —           |       | 583             |       | —              |       | 10,500          |       |
| • for  compensation at an average of $1.25 per share            |       | 391,332                |       | 3,913       |       | 487,275           |       | —           |       | —          |       | —              |       | 491,188         |       |
| • for  services at an average of $1.23 per share                |       | 91,383                 |       | 914         |       | 119,320           |       | —           |       | —          |       | —              |       | 120,234         |       |
| • for  subscriptions receivable at $1.00 per share              |       | 38,000                 |       | 380         |       | 37,620            |       | (38,000          | )          | —          |       | —              |       | —          |       |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Net loss for the  year ended October 31, 2003                        |       | —                 |       | —      |       | —            |       | —           |       | —          |       | (1,107,228          | )          | (1,107,228      | )          |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Balance, October  31, 2003                                           |       | 11,845,055             |       | 118,451     |       | 11,955,285        |       | (38,000          | )          | 1,498,550       |       | (8,282,833          | )          | 5,251,453       |       |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Issuances of  common stock as follows:                               |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| • for cash at  $1.00 per share, less issuance costs of $698,863 |       | 7,580,150              |       | 75,802      |       | 6,805,485         |       | —           |       | —          |       | —              |       | 6,881,287       |       |
| • for  compensation at an average of $1.26 per share            |       | 120,655                |       | 1,207       |       | 151,064           |       | —           |       | —          |       | —              |       | 152,271         |       |
| • for  services at various prices                               |       | 141,286                |       | 1,413       |       | 153,801           |       | —           |       | —          |       | —              |       | 155,214         |       |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Stock  subscription received                                         |       | —                 |       | —      |       | —            |       | 38,000           |       | —          |       | —              |       | 38,000          |       |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Miscellaneous  corrections and adjustments                           |       | 64,263                 |       | 643         |       | (643              | )          | —           |       | —          |       | —              |       | —          |       |
|                                                                 |       |                   |       |        |       |              |       |             |       |            |       |                |       |            |       |
| Net loss for the  year ended October 31, 2004                        |       | —                 |       | —      |       | —            |       | —           |       | —          |       | (5,036,805          | )          | (5,036,805      | )          |
| Balance, October  31, 2004                                           |       | 19,751,409   |       | $           | 197,515    |              | $          | 19,064,992       |       | $               | —     |                | $          | 1,498,550  |       | $ | (13,319,638 | ) | $ | 7,441,419 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F/S-7

----

 

**METALLINEMINING COMPANY**

**(AN EXPLORATION STAGE COMPANY)**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
| ** **                                                                   | ** ** | ** **      | ** ** | ** **      | ** ** | **Period from**      | ** ** |
|------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|----------------------|------------|
| ** **                                                                   | ** ** | ** **      | ** ** | ** **      | ** ** | **November 8, 1993** | ** ** |
| ** **                                                                   | ** ** | ** **      | ** ** | ** **      | ** ** | **(Inception)**      | ** ** |
| ** **                                                                   | ** ** | **Years Ended** | ** ** | **to**          | ** ** |
| ** **                                                                   | ** ** | **October 31,** | ** ** | **October 31,** | ** ** | **October 31,**      | ** ** |
| ** **                                                                   | ** ** | **2004**        | ** ** | **2003**        | ** ** | **2004**             | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |       |            |       |            |       |                 |       |
| Net loss                                                                     |       | $               | (5,036,805 | )               | $          | (1,107,228           | )          | $ | (13,319,638 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities: |       |            |       |            |       |                 |       |
| Depreciation                                                                 |       | 63,045          |       | 42,833          |       | 258,363              |       |
| Noncash expenses                                                             |       | —          |       | —          |       | 126,864              |       |
| Payment of services from issuance of stock                                   |       | 155,214         |       | 120,234         |       | 966,538              |       |
| Issuance of stock for compensation                                           |       | 152,271         |       | 491,188         |       | 643,459              |       |
| 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                                       |       | —          |       | 59,287          |       | —               |       |
| Marketable securities                                                        |       | (1,250,000      | )          | —          |       | (1,250,000           | )          |
| Accounts receivable                                                          |       | (88,164         | )          | 62,501          |       | (88,164              | )          |
| Prepaid expenses                                                             |       | (1,926          | )          | 1,794           |       | (2,052               | )          |
| Employee advances                                                            |       | (13,122         | )          | (7,479          | )          | (34,022              | )          |
| Increase (decrease) in:                                                      |       |            |       |            |       |                 |       |
| Accounts payable                                                             |       | (53,667         | )          | (325            | )          | 57,231               |       |
| Contracts payable                                                            |       | —          |       | 4,209           |       | 4,209                |       |
| Accrued liabilities and expenses                                             |       | 137,484         |       | (169,562        | )          | 161,228              |       |
| Net cash used by operating activities                                        |       | (5,935,671      | )          | (520,373        | )          | (10,382,795          | )          |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |       |            |       |            |       |                 |       |
| Purchase of investments                                                      |       | —          |       | —          |       | (484,447             | )          |
| Proceeds from investments                                                    |       | —          |       | —          |       | 484,447              |       |
| Equipment purchases                                                          |       | (328,746        | )          | (20,945         | )          | (785,183             | )          |
| Mining property acquisitions                                                 |       | —          |       | —          |       | (4,452,631           | )          |
| Net cash used by investing activities                                        |       | (328,746        | )          | (3,120          | )          | (5,237,814           | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |       |            |       |            |       |                 |       |
| Proceeds from sales of common stock                                          |       | 6,881,287       |       | 1,040,499       |       | 15,903,458           |       |
| Proceeds from sales of options and warrants                                  |       | —          |       | —          |       | 949,890              |       |
| Deposits for sale of stock                                                   |       | 38,000          |       | —          |       | 125,500              |       |
| Proceeds from shareholder loans                                              |       | —          |       | —          |       | 30,000               |       |
| Payment of note payable                                                      |       | (4,209          | )          | —          |       | (4,209               | )          |
| Net cash provided by financing activities:                                   |       | 6,915,078       |       | 1,040,499       |       | 17,004,639           |       |
| Net increase (decrease) in cash and cash  equivalents                        |       | 650,661         |       | 517,006         |       | 1,384,030            |       |
| Cash and cash equivalents beginning of  period                               |       | 733,369         |       | 216,363         |       | —               |       |
| Cash and cash equivalents end of period                                      |       | $               | 1,384,030  |            | $          | 733,369              |       | $ | 1,384,030 |   |
|                                                                         |       |            |       |            |       |                 |       |
| SUPPLEMENTAL CASH FLOW DISCLOSURES:                                          |       |            |       |            |       |                 |       |
| Income taxes paid                                                            |       | $               | —     |            | $          | —               |       | $ | — |   |
| Interest paid                                                                |       | $               | 606        |            | $          | —               |       | $ | 606 |   |
|                                                                         |       |            |       |            |       |                 |       |
| NON-CASH INVESTING AND FINANCING  ACTIVITIES:                                |       |            |       |            |       |                 |       |
| Common stock issued for services                                             |       | $               | 155,214    |            | $          | 611,422              |       | $ | 966,538 |   |
| Common stock issued for compensation                                         |       | $               | 152,271    |            | $          | 491,188              |       | $ | 643,459 |   |
| 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 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F/S-8

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** **

**METALLINE MINING COMPANY**

**(AN EXPLORATION STAGE COMPANY)**

**NOTES****TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**OCTOBER 31, 2004**

** **

**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 concessions. The Cadgie Company was a spin-offfrom its predecessor, Precious Metal Mines, Inc.  On June 28, 1996, at a special directorsmeeting, the Company’s name was changed to Metalline Mining Company.  The Company’s fiscal year-end is October 31.

 

The Company expects to engage in the business of mining. The Companycurrently owns concessions located in a mining region known as the SierraMojada District that is located in the municipality of Sierra Mojada, Coahuila,Mexico.  The Company conducts itsoperations in Mexico through its wholly owned subsidiary corporation, MineraMetalin S.A. de C.V. (“Minera Metalin”).

 

The Company’s efforts have been concentrated in expenditures related toexploration of the concessions.  TheCompany has not determined whether the concessions contain ore reserves thatare economically recoverable.  Theultimate realization of the Company’s investment in exploration of theconcessions is dependent upon the success of future concession sales, theexistence of economically recoverable reserves, the ability of the Company toobtain financing or make other arrangements for development, and upon futureprofitable production.  The ultimaterealization of the Company’s investment in exploration of the concessionscannot be determined at this time, and accordingly, no provision for any assetimpairment that may result, in the event the Company is not successful indeveloping or selling these concessions, has been made in the accompanyingfinancial statements.

 

The Company is actively seeking additional capital and managementbelieves its concessions can ultimately be sold or developed to enable theCompany to continue its operations. However, there are inherent uncertaintiesin mining operations and management cannot provide assurances that it will besuccessful in this endeavor. Furthermore, the Company is in the explorationstage, as it has not realized any revenues from its planned operations.

 

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

This summary ofsignificant accounting policies is presented to assist in understanding thefinancial statements.  The financialstatements and notes are representations of the Company’s management, which isresponsible for their integrity and objectivity.  These accounting policies conform toaccounting principles generally accepted in the U.S. and have been consistentlyapplied in the preparation of the financial statements.

 

F/S-9

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Accounting Method

The Company’s financial statements are prepared using the accrualmethod of accounting.

 

Accounts Receivable

The Company carries its accounts receivable at cost.  On a periodic basis, the Company evaluatesits accounts receivable and determines if an allowance for doubtful accounts isnecessary, based on a history of past write-offs and collections and currentcredit conditions.

 

The Company has not yet established a policy regarding accruinginterest on trade receivables. Accounts will be written off as uncollectiblewhen it is determined that collection will be unlikely.

 

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers allbank accounts, certificates of deposit, money market accounts and short-termdebt securities purchased with a maturity of three months or less to be cashequivalents.

 

Compensated Absences

The Company’s policy is to recognize the cost of compensated absenceswhen actually paid to employees.  If theamount were estimatible, it would not be currently recognized as the amountwould be deemed immaterial.

 

Concentration of Risk

The Company maintains its domestic cash in two commercial depositoryaccounts.  One of these accounts isinsured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000.The other account consists of money market funds, certificates of deposit andpreferred securities, all of which are not insured.  The Company also maintains cash in banks inMexico.  These accounts, which had U.S.dollar balances of $61,616 and $40,968 at October 31, 2004 and 2003respectively, are denominated in pesos and are considered uninsured.  Additionally, the Company maintained Mexicanpetty cash balances of $4,864 and $29,862 at October 31, 2004 and 2003,respectively.  At October 31, 2004, theCompany’s cash balances exceeded the federally insured amount by $1,357,926.

 

Derivative Instruments

The Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 133, “Accounting for Derivative Instruments andHedging Activities,” (hereinafter “SFAS No. 133”) as amended by SFAS No. 137, “Accountingfor Derivative Instruments and Hedging Activities – Deferral of the EffectiveDate of FASB No. 133”, and SFAS No. 138, “Accounting for Certain DerivativeInstruments and Certain Hedging Activities” and SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities”.  These statements establish accounting andreporting standards for derivative instruments, including certain derivativeinstruments embedded in other contracts, and for hedging activities.  They 

 

F/S-10

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require that an entity recognize allderivatives as either assets or liabilities in the consolidated balance sheetand 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.

###  

Duringthe years ended October 31, 2004 and 2003, the Company has not engaged in anytransactions that would be considered derivative instruments or hedgingactivities.

 

Earnings Per Share

The Company has adopted Statement of Financial Accounting Standards No.128, which provides for calculation of “basic” and “diluted” earnings pershare.  Basic earnings per share includesno dilution and is computed by dividing net income available to commonshareholders by the weighted average common shares outstanding for the period.  Diluted earnings per share reflect thepotential dilution of securities that could share in the earnings of an entitysimilar to fully diluted earnings per share. Although there were common stock equivalents outstanding October 31,2004 and 2003, they were not included in the calculation of earnings per sharebecause they would have been considered anti-dilutive.  Common stock equivalents outstanding were1,096,554 and 2,058,055 at October 31, 2004 and 2003, respectively.

 

Use of Estimates

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.

 

Exploration Costs

In accordance with accounting principles generally accepted in theUnited States of America, the Company expenses exploration costs asincurred.  Exploration costs expensedduring the year ended October 31, 2004 and 2003 were $3,374,049 and $74,553,respectively.  The exploration costsexpensed during the Company’s exploration stage amount to $3,667,202.

 

F/S-11

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Exploration Stage Activities

The Company has been in the exploration stage since November 8, 1993and has no revenues from operations.  TheCompany is primarily engaged in the acquisition and exploration of concessions.  Should the Company locate a commerciallyminable reserve, the Company would expect to actively prepare the site forextraction.

 

Fair Value of Financial Instruments

The Company’s financial instruments as defined by Statement ofFinancial Accounting Standards No. 107, “Disclosures about Fair Value ofFinancial Instruments,” include cash and cash equivalents, marketablesecurities, receivables, advances to employees, accounts payable and accruedexpenses.  All instruments are accountedfor on a historical cost basis, which, due to the short maturity of thesefinancial instruments, approximates fair value at October 31, 2004 and 2003.

 

Foreign Currency Translation

Assets and liabilities of the Company’s foreign operations aretranslated into U.S. dollars at the year-end exchange rates, and revenue andexpenses are translated at the average exchange rates during the period.  Exchange differences arising on translationare disclosed as a separate component of shareholders’ equity.  Realized gains and losses from foreigncurrency transactions are reflected in the results of operations.

 

Foreign Operations

The accompanying balance sheet at October 31, 2004 contains Companyassets in Mexico, including:  $4,334,767in concessions; $507,257 (before accumulated depreciation) of mining equipment;and $66,480 of cash.  Although thiscountry is considered economically stable, it is always possible thatunanticipated events in foreign countries could disrupt the Company’soperations.  The Mexican government doesnot require foreign entities to maintain cash reserves in Mexico.

 

Going Concern

As shown in theaccompanying financial statements, the Company has no revenues, has incurred anet loss of $5,036,805 for the year ended October 31, 2004 and has anaccumulated deficit of $13,319,638. These factors indicate that the Company may be unable to continue inexistence.  The financial statements donot include any adjustments related to the recoverability and classification ofrecorded assets, or the amounts and classification of liabilities that might benecessary in the event the Company cannot continue in existence.

 

The Company’s managementbelieves that significant and imminent private placements of stock andcontinuing contracted agreements will generate sufficient cash for the Companyto continue to operate based on current expense projections. The Company iscurrently operating on the cash proceeds of a private placement offeringcompleted in the second quarter of the year ended October 31, 2004.

 

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Marketable Securities

Pursuant to Statement of Financial Accounting Standards No. 115, theCompany classifies marketable securities as trading, available-for-sale, orheld-to-maturity.  During the year endedOctober 31, 2004, the Company purchased $1,250,000 in various preferred equitysecurities and has classified them as available-for-sale.  The Company did not incur unrealized gains orlosses related to its available-for-sale securities during the year endedOctober 31, 2004.

 

Concessions

Costs of acquiringconcessions are capitalized by project area upon purchase of the associatedconcessions.  Costs to maintain themineral rights and leases are expensed as incurred.  When a concession reaches the productionstage, the related capitalized costs will be amortized, using the units ofproduction method on the basis of periodic estimates of ore reserves.

 

Concessions are periodicallyassessed for impairment of value and any diminution in value is charged tooperations at the time of impairment. Should a concession be abandoned, its capitalized costs are charged tooperations.  The Company charges tooperations the allocable portion of capitalized costs attributable toconcessions sold.  Capitalized costs areallocated to concessions abandoned or sold based on the proportion ofconcessions abandoned or sold to the concessions remaining within the projectarea.

 

Principles of Consolidation

The consolidated financial statements include the accounts of theCompany and its wholly owned subsidiary, after elimination of intercompanyaccounts and transactions.  The whollyowned subsidiary of the Company is listed in Note 1.

 

Property and Equipment

Property and equipment are recorded at cost. Major additions andimprovements are capitalized. Minor replacements, maintenance and repairs thatdo not increase the useful life of the assets are expensed as incurred.Depreciation of property and equipment is determined using the straight-line oraccelerated methods over the expected useful lives of the assets.  See Note 3.

 

Provision for Taxes

Income taxes are provided based upon the liability method of accountingpursuant to Statement of Financial Accounting Standards No. 109, “Accountingfor Income Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income taxes are recorded to reflect thetax consequences in future years of differences between the tax basis of assetsand liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded againstdeferred tax assets if management does not believe the Company has met the “morelikely than not” standard imposed by SFAS No. 109 to allow recognition of suchan asset.

 

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At October 31, 2004, the Company had net deferred tax assets calculatedat an expected rate of 34% of approximately $4,000,000, principally arisingfrom net operating loss carryforwards for income tax purposes.  As management of the Company cannot determinethat it is more likely than not that the Company will realize the benefit ofthe net deferred tax asset, there is a valuation allowance equal to the netdeferred tax asset.

 

The significant components of the deferred tax assets at October 31,2004 and 2003 were as follows:

 
| ** **                             | ** ** | **October 31,  2004** | ** ** | **October 31,  2003** | ** ** |
|----------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| Net operating loss carryforward        |       | $                     | 11,800,000 |                  | $          | 6,800,000 |   |
|                                   |       |                  |       |                  |       |
| Deferred tax asset                     |       | $                     | 4,000,000  |                  | $          | 2,300,000 |   |
| Deferred tax asset valuation allowance |       | $                     | (4,000,000 | )                     | $          | (2,300,000 | ) |

 

At October 31, 2004, the Company has net operating loss carryforwardsof approximately $11,800,000, which expire in the years 2008 through 2024.  The Company has recognized approximately$1,483,000 of losses from the issuance of stock options and warrants forservices through fiscal 2004, which were not deductible for tax purposes.  The change in the allowance account fromOctober 31, 2003 to 2004 was $1,700,000. The Company has immaterial temporarydifferences resulting from differences in tax depreciation of equipment.

 

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards 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 guidance in that Opinion, however,included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance.  A nonmonetary exchangehas commercial substance if the future cash flows of the entity are expected tochange 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.

 

F/S-14

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In December 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 152, which amends SFASStatement No. 66, “Accounting for Sales of Real Estate,” to reference thefinancial accounting and reporting guidance for real estate time-sharingtransactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accountingfor Real Estate Time-Sharing Transactions.” This statement also amends SFAS No. 67, “Accounting for Costs andInitial Rental Operations of Real Estate Projects,” to state that the guidancefor (a) incidental operations and (b) costs incurred to sell real estateprojects, 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.

 

In November 2004, the Financial Accounting Standards Board issuedStatement of 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 have immediate material impact on the financial statementsof the Company, as the Company maintains no inventory.

 

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.  Management believes the adoption of thisStatement will not impact the financial statements of the Company.

 

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 

 

F/S-15

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other contracts, and for hedging activities under SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities”. This statement is effectivefor contracts 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.

 

Revenue Recognition Policy

The Company recognizes revenue when there is a mutually executedcontract, the contract price is fixed and determinable, delivery of the producthas occurred, and collectibility of the contract price is consideredprobable.  As of October 31, 2004, theCompany has not recognized revenues.

 

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, “Accounting forStock-Based Compensation” (hereinafter “SFAS No. 123”)*,*definesa fair value-based method of accounting for stock options and other equityinstruments.  The Company has adopted thismethod, which measures compensation costs based on the estimated fair value ofthe award and recognizes that cost over the service period.

 

**NOTE 3 – PROPERTY AND EQUIPMENT**

 

Propertyand equipment are stated at cost. Depreciation is provided using the straight-line or accelerated methodsover the estimated useful lives of the assets. The useful lives of property, plant and equipment for purposes ofcomputing depreciation are five to seven years for equipment, and 39 years forbuildings.  The following is a summary ofproperty, equipment, and accumulated depreciation at October 31, 2004 and 2003:

 
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Mining equipment               |       | $        | 507,257    |     | $          | 202,144 |   |
| Buildings and structures       |       | 141,061  |       | 141,061  |       |
| Land - non mineral             |       | 15,839   |       | 15,839   |       |
| Vehicles                       |       | 42,068   |       | 25,301   |       |
| Computer equipment             |       | 88,787   |       | 81,922   |       |
| Office equipment               |       | 4,183    |       | 4,183    |       |
| Furniture and fixtures         |       | 8,185    |       | 8,185    |       |
|                           |       | 807,380  |       | 478,635  |       |
| Less: Accumulated depreciation |       | (240,537 | )          | (177,493 | )          |
|                           |       | $        | 566,843    |     | $          | 301,142 |   |

 

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Depreciationexpense for the years ended October 31, 2004 and 2003 was $63,045 and $42,833,respectively.  The Company evaluates therecoverability of property and equipment when events and circumstances indicatethat such assets might be impaired.  TheCompany determines impairment by comparing the undiscounted future cash flowsestimated to be generated by these assets to their respective carrying amounts.  Maintenance and repairs are expensed asincurred.  Replacements and bettermentsare capitalized.  The cost and relatedreserves of assets sold or retired are removed from the accounts, and anyresulting gain or loss is reflected in results of operations.

 

**NOTE 4 – PROPERTIES—CONCESSIONS**

 

Sierra MojadaMining District Concessions

During the periodof August 23, 1996 to July 18, 2000, the Company executed sixseparate agreements for the acquisition of eight concessions in the miningregion known as the Sierra Mojada District located in Sierra Mojada, Coahuila,Mexico.  Each agreement enabled theCompany to explore the underlying concession in consideration for the paymentof stipulated annual payments.  Each ofthe concession agreements included an option to purchase the concession and theannual payments were applied in full toward the contracted purchase price ofthe related concession.

 

The Companysubsequently completed the purchase of the eight concessions, as follows:  Esmeralda, consisting of approximately 118hectares, on March 20, 1997; Fortuna, consisting of approximately 14hectares, on December 8, 1999; Sierra Mojada and Mojada 3, consisting ofapproximately 4,767 and 1,689 hectares, respectively, on May 30, 2000;Unificacion Mineros Nortenos and Vulcano, consisting of approximately 337 and 4hectares, respectively, on August 30, 2000; Esmeralda I, consisting ofapproximately 98 hectares, on August 20, 2001; and La Blanca, consistingof approximately 34 hectares, on August 20, 2001.  The Company has recorded the concessions atacquisition cost.

 

All of theconcessions were acquired by purchase agreements with Mexican entities and/orMexican individuals and all of the concessions were paid for in cash.  In the acquisition of Sierra Mojada andMojada 3 there was one purchase agreement for both concessions.  Also, in the acquisition of UnificacionMineros Nortenos and Vulcano, there was one purchase agreement for bothconcessions.

 

Because all eight concessionsare located in the Sierra Mojada Mining District and in close proximity to oneanother, the concessions are routinely treated as one major prospect area andare collectively referred to as the Sierra Mojada Project.  The primary work performed on the Company’sconcessions has consisted of geologic mapping, sampling, and drilling.  This work has resulted in establishing thepresence of mineralized material (zinc) of sufficient quantity and grade tojustify in the Company’s opinion a feasibility study (which commenced in 2005,subsequent to the Company’s October 31, 2004 fiscal year end).

 

F/S-17

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**NOTE 5 –LONG-TERM LIABILITIES**

 

TheCompany’s long-term liabilities at October 31, 2004 and 2003 are as follows:

 
| ** **                                                                                                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Note payable to bank, due July of 2008,  monthly principal and interest payments at 4.94%, collateralized by a vehicle |       | $        | 15,783     |     | $          | 19,992 |   |
|                                                                                                                   |       |     |       |     |       |
| Less: Current portion                                                                                                  |       | (4,209   | )          | (4,209   | )          |
|                                                                                                                   |       | $        | 11,574     |     | $          | 15,783 |   |

 

Loanmaturities for each of the five years following October 31, 2004 are asfollows:

 
| 2005   |   | $      | 4,111  |   |
|--------|--------|--------|--------|--------|
| 2006   |   | 4,319  |   |
| 2007   |   | 4,537  |   |
| 2008   |   | 2,816  |   |
| 2009   |   | — |   |
|   |   | $      | 15,783 |   |

 

**NOTE 6 –RELATED PARTY TRANSACTIONS**

 

The Company receives rent-free office space in Coeur d’Alene, Idahofrom its president.  The value of thespace is not considered materially significant for financial reporting purposes.  The Company also has given $34,022 in cashadvances for travel to two of its officers at October 31, 2004 under anaccountable plan per IRS Regulation Section 1.62.

 

**NOTE 7 – 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 October 31, 2004, therewere no shares of preferred stock issued or outstanding.

 

**NOTE 8 – COMMON STOCK**

 

During the year ended October 31, 2004, theCompany issued 7,580,150 shares of common stock for cash consideration at $1.00per share less issuance costs of $698,863. Officers of the Company were issued 120,655 shares at an average of$1.26 per share in payment of accrued 

 

F/S-18

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wages. The Company also issued 141,286 shares in exchange for services received.  See Note 13.

 

During the year ended October 31, 2003, the Company sold 7,000 commonstock units with an ascribed cash value of $10,500. The Company also sold849,000 shares at an average price of $0.98 per share. The Company also issued100,000 shares of common stock under the Penoles agreement for cash, at $2.00per share. Additionally, 373,925 shares of common stock valued at $468,771 wereissued as compensation to officers.

 

During the year ended October 31, 2002, the Company sold 162,667 commonstock units with an ascribed cash value of $229,360 for common stock, and$14,640 for warrants.  The Company alsoissued 50,000 shares of common stock under the Penoles agreement for cash at$2.00 a share.  (See Note 12.)  Additionally, 86,078 shares of common stockvalued at $104,875 were issued as compensation to officers.  On May 20, 2002, the Company authorized theoffering of 1,000,000 common stock units, with each unit consisting of oneshare of common stock and one warrant equal to 1/3 of a share of common stock.

 

During the year ended October 31, 2001, the Company issued 20,000shares of common stock for the exercise of warrants valued at $10,760 and forcash of $15,000.  Additionally, 57,000shares of common stock were issued for services valued at $112,680 and for cashof $390, and 250,000 shares of common stock with 125,000 warrants attached wereissued for $500,000 in cash.

 

During the year ended October 31, 2000, the Company sold 1,440,500shares of its common stock for $3,968,625 cash, issued 120,000 shares of commonstock for services valued $153,360, issued 15,000 shares of common stock forequipment valued at $25,000 and issued 950,000 shares of common stock foroptions exercised at $0.86 per share.

 

During the year ended October 31, 1999, the Company sold 1,068,800shares of common stock for $1,075,900 cash. In addition the Company received $37,500 as a deposit toward thepurchase of 50,000 shares (this stock was issued in December 1999) and $300,000for payment of subscriptions receivable. The Company also issued 55,556 shares for payment of drilling expensesvalued at $50,000.

 

In February 1998, 200,000 shares of common stock were issued for a minedatabase.  The shares were valued at$1.625 per share, resulting in a transaction valued at $325,000.  Services valued at $22,300 were paid with41,800 shares of common stock.  Anadditional 1,398,500 shares of common stock were issued for $1,065,445 cash andreceivables, and a subscription receivable of $300,000, between February andOctober 1998.

 

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In April 1997, 250,000 common stock shares were issuedfor cash of $87,500 and 133,800 shares of common stock were issued for servicesvalued at $45,583.  In May and June 1997,181,600shares of common stock were issued for $63,560 cash and 62,500 shares ofcommon stock were issued for services valued at $21,875.  In August and October 1997, 420,000 and75,000 shares of common stock were issued for cash of $378,000 and $75,000,respectively.  Additionally, duringAugust 1997, 100,200 shares of common stock were issued for debt of $31,530 and95,000 shares of common stock were issued for services valued at $95,000.

 

During November 1995, the Company’s directors approved the issuance of45,000 shares of common stock for services rendered at $0.01 per share.  During June 1996, the Company issued 900,000shares of common stock for the assignment of mineral rights in the SierraMojada Project in Coahuila, Mexico valued at $0.01 per share to Messrs. John Ryan,Merlin Bingham, and Daniel Gorski, who had formed a partnership to advancedevelopment of the mining concession located in Coahuila, Mexico.  The partnership had an informal joint ventureagreement with USMX, Inc. covering the mining concessions.  By acquiring the partnership interest, theCompany was able to negotiate and sign a formal joint venture agreement withUSMX in July 1996.

 

During the year endedOctober 31, 1996, Metalline Mining Company issued 1,320,859 shares of commonstock for $146,359 in cash.  DuringOctober 1996, the Company issued 150,000 shares of common stock for computerequipment valued at $15,000.  Also duringOctober 1996, the Company issued 120,000 shares of common stock to Mr. Gorskiand an additional 20,000 shares of common stock to Mr. Ryan for servicesrendered valued at $14,000.

 

In January 1996, Mr. Carmen Ridland, in a privatesale, sold a controlling interest in the corporation to Mr. Howard Crosby.  On January 12, 1996, Mr. Ridland transferredcontrol of Cadgie Co. to Mr. Crosby and Mr. Robert Jorgensen.

 

On August 4, 1995 the directors of Cadgie Co. declareda 3:1 forward stock split of the outstanding Cadgie Co. shares, thus increasingthe number of outstanding shares from 192,160 to 576,480.

 

On August 31, 1994, the directors of Cadgie Co.declared a 1:5 reverse stock split of the outstanding Cadgie Co. shares, thusreducing the number of outstanding shares from 960,800 to 192,160 shares.

 

The Company (Cadgie Co.) was formed in August of 1993 and incorporatedin November 1993 by Mr. Carman Ridland of Las Vegas, Nevada as a spin-off fromits predecessor, Precious Metal Mines, Inc. The Company issued 960,800 of its $0.01 par value shares to PreciousMetal Mines, Inc. for 16 unpatented mining claims located near Philipsburg,Montana comprising the Kadex property group. Precious Metal Mines, Inc. distributed the 960,800 shares of CadgieCompany

 

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to its shareholders.  One shareof Cadgie Co. was exchanged for each share of Precious Metal Mines, Inc. heldby holders of record as of August 31, 1993.

 

**NOTE 9 – STOCK OPTIONS**

 

During the years ended October 31, 2004 and 2003, the Company did notgrant common stock options.

 

In 2002, the Company granted 100,000 options with an exercise price of$1.25 and an expiration of seven years. The fair value of these options was determined using the Black-Scholesoption pricing model using a risk free interest rate of 3.25% and a volatilityof 42.49%.  The total value wascalculated at $61,000.

 

Following is a summary of the Company’s stock option activity duringthe years ending October 31, 2004 and 2003:

 
| ** **                              | ** ** | **Shares** | ** ** | **Weighted   Average Exercise  Price** | ** ** |
|-----------------------------------------|------------|------------|------------|----------------------------------------|------------|
|                                    |       |       |       |                                   |       |
| Options outstanding at November 1, 2002 |       | 820,000    |       | $                                      | 1.67       |   |
| Granted                                 |       | —     |       | —                                 |       |
| Canceled                                |       | —     |       | —                                 |       |
| Exercised                               |       | —     |       | —                                 |       |
| Options outstanding at October 31, 2003 |       | 820,000    |       | 1.67                                   |       |
| Granted                                 |       | —     |       | —                                 |       |
| Canceled                                |       | (100,000   | )          | 2.15                                   |       |
| Exercised                               |       | —     |       | —                                 |       |
| Options outstanding at October 31, 2004 |       | 720,000    |       | $                                      | 1.60       |   |

 

On March 1, 2001, the Company’s shareholders approved a qualified stockoption plan (the “Plan”), which provides for non-statutory and incentive stockoptions for employees, directors and consultants, and has reserved a total of1,000,000 shares of common stock for issuance pursuant to the Plan.  Summarizedinformation about stock options outstanding and exercisable at October 31, 2004is as follows:

 

F/S-21

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| **Options Outstanding** | ** ** | **Options Exercisable**  | ** ** |
|-------------------------|------------|--------------------------|------------|
| **Exercise    Price**   | ** ** | **Number   Outstanding** | ** ** | **Weighted   Average   Remaining Contractual   Life (Years)** | ** ** | **Weighted   Average   Exercise   Price** | ** ** | **Number   Exercisable** | ** ** | **Weighted   Average   Exercise   Price** | ** ** |
| $                       | 1.25       |                     | 100,000    |   | 4.77 |   | $ | 1.25 |   | 100,000 |   | $ | 1.25 |   |
| 1.32                    |       | 320,000                  |       | 1.93 |   | 1.32 |   | 320,000 |   | 1.32 |   |
| 1.75                    |       | 100,000                  |       | 3.35 |   | 1.75 |   | 100,000 |   | 1.75 |   |
| 2.15                    |       | 200,000                  |       | 5.33 |   | 2.15 |   | 200,000 |   | 2.15 |   |
| $                       | 1.25-2.15  |                     | 720,000    |   | 3.47 |   | $ | 1.60 |   | 720,000 |   | $ | 1.60 |   |

 

**NOTE 10 – WARRANTS**

 

The Company did not issue common stock warrants during the year endedOctober 31, 2004.

 

During the year ended October 31, 2003, the Company issued 7,000 commonstock units that consisted of 7,000 shares of common stock and warrants topurchase an additional 2,333 shares of common stock.  As part of the total cash purchase, thewarrants were valued at $583.

 

During the year ended October 31, 2002, the Company issued 162,667common stock units that were made up of 162,667 shares of common stock andwarrants to purchase an additional 54,222 shares of common stock.  As part of the total cash purchase, thewarrants were valued at $14,640.

 

During the year ended October 31, 2001, the Company issued 250,000shares of stock with 125,000 warrants attached. These warrants were valued at $3,424. Additionally 20,000 warrants were exercised for $15,000 in cash andservices valued at $10,760.  The Companyalso issued 80,000 warrants for services, which were valued at $144,791.

 

At October 31, 2000, there were outstanding warrants to purchase996,500 shares of the Company’s common stock, at prices ranging from $0.75 to$2.00 per share.  The warrants, whichbecame exercisable in 1999, but have not been exercised, expire at variousdates through 2005.  The Company hasreserved 996,500 shares for the expected exercise of these warrants. Thesewarrants were valued at $543,980 using the method described below.

 

The fair value of each warrant is estimated on the issue date using theBlack-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk freeinterest of 5%, volatility of 0.3 and 0.5 and expected life of 5 to 10 years.

 

F/S-22

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**NOTE 11 – COMMITMENTS AND CONTINGENCIES**

 

Compliance with Environmental Regulations

The Company’s miningactivities are subject to laws and regulations controlling not only theexploration and mining of mineral properties, but also the effect of suchactivities on the environment. Compliance with such laws and regulations may necessitate additionalcapital outlays, affect the economics of a project, and cause changes or delaysin the Company’s activities.

 

LossContingencies

In December 2002, MineraMetalin, the Company’s Mexican subsidiary, was named as a co-defendant in alawsuit filed in Mexico regarding the Company’s purchase of two miningconcessions.  During the year endedOctober 31, 2003 the Company settled this suit for approximately $36,000.  The Company paid approximately $13,800 at thetime of settlement, with the balance payable in six equal installments ofapproximately $3,700.  The Company hasmet its obligation under the settlement at October 31, 2004.

 

**NOTE 12 –JOINT VENTURE AGREEMENTS**

 

Penoles Agreement

On November 15, 2001, theCompany entered into an agreement with Compania Minera La Parrena S.A. de C.V.(“Penoles”) whereby Penoles may earn the right to acquire a 60% interest incertain mining concessions located in the Sierra Mojada region of Coahuila,Mexico.  The earn-in right was contingentupon the following:  delivery by Penoleswithin four years of a pre-feasibility study, completion by Penoles of$1,000,000 of qualified expenditures on the aforementioned mining concessions,and Penoles purchase of up to 250,000 shares of Metalline’s common stock $2.00per share.  As of October 31, 2003,Penoles had purchased 150,000 shares of common stock under this agreement.  See Note 8.

 

During the year endedOctober 31, 2003, the Company received reimbursement of $151,536 from Penolesfor expenses incurred by Metalline, which were applied toward an aggregate$85,712 of qualified expenditures incurred by Penoles. In November 2003, theagreement between the Company and Minas Penoles was terminated by the Company.

 

Northern Limited

On October 7, 1999, theCompany announced that it entered into a five-year “earn-in” type of a joint ventureagreement with North Limited. The agreement gives North Limited the right toearn into 60% of the Company’s Sierra Mojada Project by providing all fundsnecessary to complete a feasibility study delivered in no more than five yearsthat is acceptable to international banking institutions for lendingdevelopment capital.  North Limited is alarge Australian mining company based in Melbourne, Australia and was known asNorth Broken Hill Peko before a 

 

F/S-23

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name change in 1994.  In August2000, Rio Tinto Limited purchased North Limited for its iron ore holdings andsubsequently terminated North Limited’s agreement with the Company.

 

**NOTE 13 – SUBSEQUENT EVENTS**

 

In December of 2004, theCompany issued 139,272 shares of its common stock at $1.00 per share toofficers in payment of accrued wages.

 

F/S-24

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**EXHIBIT****INDEX**

 
| **EXHIBIT  NO.** | ** ** | **EXHIBIT**                                                                                                    |
|------------------|------------|----------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                           |
| 31.1             |       | Certification  of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange  Act. Filed herewith. |
|             |       |                                                                                                           |
| 31.2             |       | Certification  of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange  Act. Filed herewith. |
|             |       |                                                                                                           |
| 32.1             |       | Certification  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. Furnished  herewith.         |
|             |       |                                                                                                           |
| 32.2             |       | Certification  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. Furnished  herewith.         |

 

E-1

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