UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2006
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file number: 000-27667
METALLINE MINING COMPANY
(Exact name of small business issuer as specified in its charter)
Nevada 91-1766677
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1330 E. Margaret Ave.
Coeur d'Alene, ID 83815
(Address of principal executive offices)
Issuer's telephone number, including area code: (208) 665-2002
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
There were 34,101,661 shares of the issuer's common stock, par value $0.01,
outstanding as of May 1, 2006.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
METALLINE MINING COMPANY QUARTERLY REPORT
ON FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED APRIL 30, 2006
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements.............................................1
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations....................1
Item 3: Controls and Procedures..........................................4
PART II - OTHER INFORMATION
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds......5
Item 6: Exhibits.........................................................5
Signatures.....................................................................6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The reviewed consolidated financial statements of Metalline Mining
Company (the "Company"), for the period covered by this report, are included
elsewhere in this report, beginning at page F/S-1.
The reviewed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for the interim
financial information with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of only normal accruals) considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended April 30, 2006 are not necessarily indicative of the results that may be
expected for the full year ending October 31, 2006.
For further information refer to the financial statements and footnotes
thereto in the Company's Annual Report on Form 10-KSB for the year ended October
31, 2005 incorporated by reference herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB, including Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and the Company's future
results that are subject to the safe harbors created under the Securities Act of
1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the
"Exchange Act"). These statements are based on current expectations, estimates,
forecasts, and projections about the industry in which the Company operates and
the beliefs and assumptions of the Company's management. Words such as
"expects," "anticipates," "targets," "goals," "projects," "intends," "plans,"
"believes," "seeks," "estimates," "continues," "may," variations of such words,
and similar expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to projections of the
Company's future financial performance, the Company's anticipated growth and
potentials in its business, and other characterizations of future events or
circumstances are forward-looking statements. Readers are cautioned that these
forward-looking statements are only predictions and are subject to risks,
uncertainties, and assumptions that are difficult to predict, including those
identified elsewhere herein and in the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2005 under "Risk Factors." Therefore,
actual results may differ materially and adversely from those expressed in any
forward-looking statements. The Company undertakes no obligation to revise or
update any forward-looking statements for any reason.
1
Overview
The Company is an exploration stage enterprise formed under the laws of
the state of Nevada on August 20, 1993, to engage in the business of mining. The
Company (through its subsidiary) currently owns eight concessions that are
located in the municipality of Sierra Mojada, Coahuila, Mexico. The Company's
objective is to define sufficient mineral reserves on these concessions to
justify the development of a mechanized mining operation (the "Project"). The
Company conducts its operations in Mexico and owns these eight concessions
through its wholly owned Mexican subsidiary, Minera Metalin S.A. de C.V.
Cautionary Note
The Company is an exploration stage company and does not currently have
any known reserves and cannot be expected to have reserves unless and until a
feasibility study is completed for the Sierra Mojada concessions that shows
proven and probable reserves. There can be no assurance that the Company's
concessions contain proven and probable reserves and investors may lose their
entire investment in the Company.
Set forth in the Company's Annual Report on Form 10-KSB and in other
documents we file with the Securities and Exchange Commission are risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained in this
Quarterly Report on Form 10-QSB.
Results of Operations for the Period Ended April 30, 2006.
Six months ended April 30, 2006 compared to the six months ended April
30, 2005:
During the six months ended April 30, 2006, the Company realized other
income of $52,038 from the sale of zinc carbonate ore from the Company's San
Salvadore mine, in accordance with a contract with Cameron Chemicals Inc.,
Norfolk, Virginia. Costs associated with the sale of the ore totaled $93,575 in
the six-month period ended April 30, 2006. There were ore sales of $202,786 in
the six-month period ended April 30, 2005. General and administrative expenses
decreased to $2,047,896 for the six-month period ended April 30, 2006 as
compared to $2,271,097 for the six-month period ended April 30, 2005. The
decrease is primarily due to a cessation of drilling activity on the Company's
property, resulting in a decrease in exploration expenditures of $664,659,
partially offset by an increase in taxes and fees of $126,651. For the six
months ended April 30, 2006, the Company experienced a loss of $2,001,309, or
$0.07 per share, compared to a loss of $2,243,748, or $0.11 per share, during
the comparable period in the previous year.
Liquidity and Capital Resources.
The Company financed its obligations during the fiscal year ended
October 31, 2005 by the sale of 7,580,150 shares of its common stock during the
previous fiscal year at an average price of $1.00 per share, less issuance costs
of $698,863, and the sale of 476,404 shares of common stock during the year
ended October 31, 2005 at an average price of $0.98 per share. During the six
months ended April 30, 2006 the Company sold 13,448,483 shares in private
placement transactions at a price of $0.80 per share. Due to the Company's
substantial losses and minimal revenues, the Company's independent certified
public accountants included a paragraph in the Company's 2005 financial
statements relative to a going concerning uncertainty.
2
The Company continues to maintain a sampling and drilling program that
is budgeted at approximately $50,000 per month, not including analytical costs
which can vary from $20,000 to $40,000 per month. The Company has estimated that
completion of a feasibility study will cost approximately $5 million , but there
can be no assurance that this estimate will not be revised upward. The Company
expects to spend approximately $2.5 million in the next 12 months on the
feasibility study. The Company believes the feasibility study will be completed
in the next 12 to 18 months.
The Company's management believes that private placements of its shares
have provided sufficient cash for the Company to continue to operate for at
least the next twelve months based on current expense projections. Following the
completion of a successful feasibility study, the Company would then proceed to
the construction phase, which would entail construction of a mine and related
infrastructure pursuant to a mine plan developed specifically for the Company's
concessions, and construction of an extraction plant to extract metal from the
ore that would be mined. In order to proceed with the construction phase, the
Company would need to rely on additional equity or debt, or the Company may seek
joint venture partners or other alternative financing sources.
Cash flows for the six months ended April 30, 2006 were as follows:
During the six-month period ended April 30, 2006, the Company's cash
position increased by $9,433,484, due to the private placement sale of
13,448,483 shares of the Company's common stock at a price of $0.80 per share.
Also during this period, the Company used $1,320,724 in operating activities,
principally in connection with maintaining the property and costs of the private
placement.
3
Effect of Recently Issued Accounting Pronouncements.
In May 2005, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 154 ("SFAS No. 154"), "Accounting Changes
and Error Corrections." This statement requires entities that voluntarily make a
change in an accounting principle to apply that change retrospectively to prior
periods' financial statements, unless this would be impracticable. SFAS No. 154
supersedes APB Opinion No. 20, "Accounting Changes," which previously required
that most voluntary changes in an accounting principle be recognized by
including in the current period's net income the cumulative effect of changing
to the new accounting principle. SFAS No. 154 also makes a distinction between
"retrospective application" of an accounting principle and the "restatement" of
financial statements to reflect the correction of an error. SFAS No. 154 applies
to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. Management believes the adoption of this
statement will not have an immediate material impact on the financial statements
of the Company.
In March 2005, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset
Retirement Obligations." FIN 47 clarifies that the term "conditional asset
retirement obligation," which as used in SFAS No. 143, "Accounting for Asset
Retirement Obligations," refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The entity must record a liability for a "conditional" asset retirement
obligation of the fair value of the obligation can be reasonably estimated. FIN
47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective
no later than the end of fiscal years ending after December 15, 2005. Management
believes the adoption of this statement will not have an immediate material
impact on the financial statements of the Company.
ITEM 3. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures.
The Company's principal executive officer and principal financial
officer have evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based on
such evaluation, the Company's principal executive officer and principal
financial officer have concluded that, as of the end of such period, the
Company's disclosure control and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
4
Changes in Internal Control Over Financial Reporting.
There was no change in the Company's internal control over financial
reporting that occurred during the fiscal quarter to which this report relates
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None, except as previously reported on Form 8-K filed March 6, 2006.
ITEM 6. EXHIBITS.
(a) Documents which are filed as a part of this report:
1. Financial Statements: The required financial statements
are contained in pages F/S-1 through F/S-11 of this
Form 10-QSB.
2. Financial Statement Schedules: Financial statement
schedules have been omitted as they are not applicable
or the information is included in the Consolidated
Financial Statements.
3. Exhibits: The exhibits filed as part of this report and
the exhibits incorporated herein by reference are
listed in the Exhibit Index at page E-1.
(b) See (a)(3) above for all exhibits filed herewith.
(c) All schedules are omitted as the required information is not
applicable or the information is presented in the Consolidated
Financial Statements or related notes.
[The balance of this page is intentionally left blank]
5
METALLINE MINING COMPANY
AN EXPLORATION STAGE COMPANY
APRIL 30, 2006
SIGNATURES
In accordance with Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METALLINE MINING COMPANY
June 14, 2006 By: /s/ Merlin D. Bingham
-------------------------- ---------------------------------
Date Merlin D. Bingham, its President
June 14, 2006 By: /s/ Wayne L. Schoonmaker
-------------------------- ---------------------------------
Date Wayne L. Schoonmaker, its
Principal Financial Officer
6
EXHIBIT INDEX
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
METALLINE MINING COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Consolidated Financial Statements:
Consolidated Balance Sheets as of April 30, 2006.................................................F/S-2
Consolidated Statements of Operations for the three-month and six-month
periods ended April 30, 2006 and
April 30, 2005 and for the period from inception
(November 8, 1993) to April 30, 2006.............................................................F/S-3
Consolidated Statements of Cash Flow for the six-month periods ended April
30, 2006 and April 30, 2005, and for the period from inception (November 8,
1993)
to April 30, 2006................................................................................F/S-4
Condensed Notes to Consolidated Financial Statements.............................................F/S-5
[The balance of this page has been intentionally left blank.]
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
April 30,
2006 October 31,
(unaudited) 2005
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,646,853 $ 213,369
Accounts receivable 25,293 23,620
Prepaid expenses 38,099 13,242
Employee advances 16,351 9,560
------------ ------------
Total Current Assets 9,726,596 259,791
------------ ------------
PROPERTY CONCESSIONS
Sierra Mojada, Mojada 3 15,875 15,875
Fortuna 76,725 76,725
Esmeralda 255,647 255,647
Esmeralda I 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
------------ ------------
EQUIPMENT
Office and mining equipment, net 451,865 490,884
------------ ------------
Total Equipment 451,865 490,884
------------ ------------
TOTAL ASSETS $ 14,513,228 $ 5,085,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 112,136 $ 86,189
Accrued liabilities and expenses 172,720 189,046
Other liabilities 10,000 15,873
Note payable, current portion 4,209 4,209
------------ ------------
Total Current Liabilities 299,065 295,317
------------ ------------
LONG-TERM LIABILITIES
Note payable, net of current portion 5,260 7,365
------------ ------------
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,
34,101,661 and 20,404,585
shares issued and
outstanding, respectively 341,017 204,047
Additional paid-in capital 27,218,675 19,852,673
Stock options and warrants 5,272,319 1,347,839
Deficit accumulated during
exploration stage (18,623,108) (16,621,799)
------------ ------------
Total Stockholders' Equity 14,208,903 4,782,760
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,513,228 $ 5,085,442
============ ============
The accompanying condensed notes are an integral part of these interim
consolidated financial statements.
F/S-2
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
November 8,
1993
Three Months Ended Six Months Ended (Inception)
---------------------------- ---------------------------- to
April 30, April 30, April 30, April 30, April 30,
2006 2005 2006 2005 2006
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and payroll expenses 707,418 180,585 838,114 572,996 4,075,731
Office and administrative expenses 114,610 111,022 165,483 176,583 1,154,429
Taxes and fees 54,136 26,944 173,678 47,027 663,119
Professional services 505,538 335,821 611,889 624,138 4,979,591
Property expenses 135,492 14,655 145,427 71,535 2,089,530
Depreciation 20,843 21,148 41,443 42,297 383,303
Exploration and research 53,710 271,736 71,862 736,521 5,405,948
------------ ------------ ------------ ------------ ------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,591,747 961,911 2,047,896 2,271,097 18,751,650
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,591,747) (961,911) (2,047,896) (2,271,097) (18,751,650)
OTHER INCOME (EXPENSES)
Miscellaneous ore sales, net of expenses -- (31,449) (41,537) 1,359 123,601
VAT tax refunds -- -- 13,045 -- 132,660
Miscellaneous income 61,500 -- 61,500 -- 70,000
Interest and investment income (3,292) 11,172 14,434 26,293 89,907
Interest and financing expense (520) (151) (855) (303) (287,626)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME 57,688 (20,428) 46,587 27,349 128,542
------------ ------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,534,059) (982,339) (2,001,309) (2,243,748) (18,623,108)
INCOME TAXES -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,534,059) $ (982,339) $ (2,001,309) $ (2,243,748) $(18,623,108)
============ ============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.05) $ (0.05) $ (0.07) $ (0.11)
============ ============ ============ ============
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 32,770,130 19,928,181 27,209,376 19,877,810
============ ============ ============ ============
The accompanying condensed notes are an integral part of these interim
consolidated financial statements.
F/S-3
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Period from
November 8, 1993
6 Months Ended (Inception)
------------------------------- to
April 30, April 30, April 30,
2006 2005 2006
(unaudited) (unaudited) (unaudited)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,001,309) $ (2,243,748) $(18,623,108)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 41,443 42,297 383,363
Noncash expenses -- -- 126,864
Common stock issued for services -- -- 966,538
Common stock issued for compensation 668,715 176,772 1,488,946
Stock options issued for services -- -- 801,892
Stock options issued for financing fees -- -- 276,000
Common stock issued for payment of expenses -- -- 326,527
Stock warrants issued for services -- -- 688,771
(Increase) decrease in: --
Foreign property tax refund receivable -- -- --
Marketable securities -- 650,000 --
Reclassification of markeetable securities -- 600,000 --
Accounts receivable (1,673) (12,132) (25,293)
Prepaid expenses (24,857) (35,140) (38,100)
Employee advances (6,791) 24,462 (16,351)
Increase (decrease) in: --
Accounts payable 25,947 (35,582) 112,135
Other liabilities (5,873) 26,074 (1,664)
Accrued liabilities and expenses (16,326) (12,124) 204,378
------------ ------------ ------------
Net cash used by operating activities (1,320,724) (819,121) (13,329,102)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments -- -- (484,447)
Proceeds from investments -- -- 484,447
Equipment purchases (2,424) (7,598) (795,205)
Mining property acquisitions -- -- (4,452,631)
------------ ------------ ------------
Net cash used by investing activities (2,424) (7,598) (5,247,836)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock with warrants 10,758,737 -- 27,128,924
Proceeds from sales of options and warrants -- -- 949,890
Deposits for sale of stock -- 35,000 125,500
Proceeds from shareholder loans -- -- 30,000
Payment of note payable (2,105) (2,105) (10,523)
------------ ------------ ------------
Net cash provided by financing activities: 10,756,632 32,895 28,223,791
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 9,433,484 (793,824) 9,646,853
Cash and cash equivalents beginning of period 213,369 1,384,030 --
------------ ------------ ------------
Cash and cash equivalents end of period $ 9,646,853 $ 590,206 $ 9,646,853
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ -- $ --
Interest paid $ 520 $ 303 $ 287,291
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services $ -- $ -- $ 966,538
Common stock issued for compensation $ 668,715 $ 176,772 $ 1,488,946
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 condensed notes are an integral part of these interim
consolidated financial statements.
F/S-4
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Metalline Mining Company ("the Company") was incorporated in the State of Nevada
on November 8, 1993 as the Cadgie Company for the purpose of acquiring and
developing mineral concessions. The Cadgie Company was a spin-off from its
predecessor, Precious Metal Mines, Inc. On June 28, 1996, at a special directors
meeting, 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 Company currently
owns concessions located in a mining region known as the Sierra Mojada District
that is located in the municipality of Sierra Mojada, Coahuila, Mexico. The
Company conducts its operations in Mexico through its wholly owned subsidiary
corporation, Minera Metalin S.A. de C.V. ("Minera Metalin").
NOTE 2 - BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B as
promulgated by the Securities and Exchange Commission ("SEC"). Accordingly,
these financial statements do not include all of the disclosures required by
generally accepted accounting principles in the United States of America for
complete financial statements. These unaudited interim financial statements
should be read in conjunction with the audited financial statements for the year
ended October 31, 2005. In the opinion of management, the unaudited interim
financial statements furnished herein include all adjustments, all of which are
of a normal recurring nature, necessary for a fair statement of the results for
the interim period presented.
The preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities known to exist as
of the date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties with respect to
such estimates and assumptions are inherent in the preparation of the Company's
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions and could have a material effect on
the reported amounts of the Company's financial position and results of
operations.
Operating results for the six-month period ended April 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2006.
F/S-5
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
Concentration of Risk
---------------------
The Company maintains its domestic cash in two commercial depository accounts.
One of these accounts is insured by the Federal Deposit Insurance Corporation
(FDIC) for up to $100,000. The other account consists of money market funds,
certificates of deposit and preferred securities, all of which are not insured.
The Company also maintains cash in banks in Mexico. These accounts, which had
U.S. dollar balances of $42,477 and $20,253 at April 30, 2006 and 2005,
respectively, are denominated in pesos and are considered uninsured.
Additionally, the Company maintained Mexican petty cash balances of $157 and
$1,542 at April 30, 2006 and 2005, respectively. At April 30, 2006, the
Company's cash balances included $9,592,104 which was not federally insured.
Exploration Costs
-----------------
In accordance with accounting principles generally accepted in the United States
of America, the Company expenses exploration costs as incurred. Exploration
costs expensed during the six months ended April 30, 2006 and 2005 were $71,862
and $736,521, respectively. The exploration costs expensed during the Company's
exploration stage amount to $5,405,948.
Foreign Operations
------------------
The accompanying balance sheet at April 30, 2006 contains Company assets in
Mexico, including: $4,334,767 in property concessions; $514,855 (before
accumulated depreciation) of mining equipment; and $42,634 of cash. Although
this country is considered economically stable, it is always possible that
unanticipated events in foreign countries could disrupt the Company's
operations. The Mexican government does not require foreign entities to maintain
cash reserves in Mexico.
Going Concern
-------------
As shown in the accompanying financial statements, the Company has no revenues,
has incurred a net loss of $2,001,309 for the six months ended April 30, 2006
and has an accumulated deficit of $18,623,108. These factors indicate that the
Company may be unable to continue in existence. The financial statements do not
include any adjustments related to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
The Company's management believes that private placements of its shares have
provided sufficient cash for the Company to continue to operate based on current
expense projections.
F/S-6
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets--an amendment of FASB Statement No. 140." This statement requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in any of the following situations: a transfer of the
servicer's financial assets that meets the requirements for sale accounting; a
transfer of the servicer's financial assets to a qualifying special-purpose
entity in a guaranteed mortgage securitization in which the transferor retains
all of the resulting securities and classifies them as either available-for-sale
securities or trading securities; or an acquisition or assumption of an
obligation to service a financial asset that does not relate to financial assets
of the servicer or its consolidated affiliates. The statement also requires all
separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable and permits an entity to choose either
the amortization or fair value method for subsequent measurement of each class
of servicing assets and liabilities. The statement further permits, at its
initial adoption, a one-time reclassification of available for sale securities
to trading securities by entities with recognized servicing rights, without
calling into question the treatment of other available for sale securities under
Statement 115, provided that the available for sale securities are identified in
some manner as offsetting the entity's exposure to changes in fair value of
servicing assets or servicing liabilities that a servicer elects to subsequently
measure at fair value and requires separate presentation of servicing assets and
servicing liabilities subsequently measured at fair value in the statement of
financial position and additional disclosures for all separately recognized
servicing assets and servicing liabilities. This statement is effective for
fiscal years beginning after September 15, 2006, with early adoption permitted
as of the beginning of an entity's fiscal year. Management believes the adoption
of this statement will have no impact on the Company's financial condition or
results of operations.
In February 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial
Instruments, an Amendment of FASB Standards No. 133 and 140" (hereinafter "SFAS
No. 155"). This statement established the accounting for certain derivatives
embedded in other instruments. It simplifies accounting for certain hybrid
financial instruments by permitting fair value remeasurement for any hybrid
instrument that contains an embedded derivative that otherwise would require
bifurcation under SFAS No. 133 as well as eliminating a restriction on the
passive derivative instruments that a qualifying special-purpose entity ("SPE")
may hold under SFAS No. 140. This statement allows a public entity to
irrevocably elect to initially and subsequently measure a hybrid instrument that
would be required to be separated into a host contract and derivative in its
entirety at fair value (with changes in fair value recognized in earnings) so
long as that instrument is not designated as a hedging instrument pursuant to
the statement. SFAS No. 140 previously prohibited a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
statement is effective for fiscal years beginning after September 15, 2006, with
early adoption permitted as of the beginning of an entity's fiscal year.
Management believes the adoption of this statement will have no impact on the
Company's financial condition or results of operations.
F/S-7
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
NOTE 4 - CONCESSIONS IN THE SIERRA MOJADA DISTRICT
Sierra Mojada Mining Concessions
--------------------------------
During the period of August 23, 1996 to July 18, 2000, the Company executed six
separate agreements for the acquisition of eight concessions in the mining
region known as the Sierra Mojada District located in Sierra Mojada, Coahuila,
Mexico. Each agreement enabled the Company to explore the underlying concession
in consideration for the payment of stipulated annual payments. Each of the
concession agreements included an option to purchase the concession and the
annual payments, which were applied in full toward the contracted purchase price
of the related concession.
The Company subsequently completed the purchase of the eight concessions, as
follows: Esmeralda, consisting of approximately 118 hectares, on March 20, 1997;
Fortuna, consisting of approximately 14 hectares, on December 8, 1999; Sierra
Mojada and Mojada 3, consisting of approximately 4,767 and 1,689 hectares,
respectively, on May 30, 2000; Unificacion Mineros Nortenos and Vulcano,
consisting of approximately 337 and 4 hectares, respectively, on August 30,
2000; Esmeralda I, consisting of approximately 98 hectares, on August 20, 2001;
and La Blanca, consisting of approximately 34 hectares, on August 20, 2001. The
Company has recorded the concessions at acquisition cost.
All of the concessions were acquired by purchase agreements with Mexican
entities and/or Mexican individuals and all of the concessions were paid for in
cash. In the acquisition of Sierra Mojada and Mojada 3 there was one purchase
agreement for both concessions. Also, in the acquisition of Unificacion Mineros
Nortenos and Vulcano, there was one purchase agreement for both concessions.
Because all eight concessions are located in the same mining region and in close
proximity to one another, the concessions are routinely treated as one major
prospect area and are collectively referred to as the Sierra Mojada Project. The
primary work performed on the Company's concessions has consisted of geologic
mapping, sampling, and drilling. This work has resulted in establishing the
presence of mineralized material (zinc) of sufficient quantity and grade to
justify in the Company's opinion a feasibility study which commenced in 2005.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of the Company's property and equipment at April 30,
2006 and October 31, 2005, respectively:
F/S-8
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
April 30, October 31,
2006 2005
--------- ---------
Mining equipment $ 514,855 $ 514,855
Buildings and structures 141,061 141,061
Land - non mineral 15,839 15,839
Vehicles 42,068 42,068
Computer equipment 91,211 88,787
Office equipment 4,183 4,183
Furniture and fixtures 8,185 8,185
--------- ---------
817,402 814,978
Less: Accumulated depreciation (365,537) (324,094)
--------- ---------
$ 451,865 $ 490,884
========= =========
Depreciation expense for the periods ended April 30, 2006 and 2005 was $41,443
and $21,149 respectively.
NOTE 6 - CAPITAL STOCK
Preferred Stock
---------------
At its March 1, 2001 annual shareholders meeting, the Company approved a change
to its articles of incorporation whereby the Company is authorized to issue
1,000,000 shares of $0.01 par value preferred stock. The specific features of
the preferred stock are to be determined by the Company's board of directors. At
April 30, 2006, there were no shares of preferred stock issued or outstanding.
Common Stock
------------
In March 2005, the Company's board of directors authorized a private placement
of up to 5,333,334 shares of the Company's restricted common stock at a price of
$1.125 per share for total proceeds of $6,000,000. Purchasers of these shares
also received a warrant to purchase one share of the Company's common stock at
an exercise price of $2.00 per share with an exercise period of five years. In
September 2005, a modification of the private placement terms was authorized.
The modified terms allow for the issuance of shares of common stock at a price
of $0.80 per share, a warrant exercise price of $1.25 per share and an exercise
period of five years. During the six months ended April 30, 2006, the Company
issued 13,448,483 shares of common stock under the aforementioned private
placement, for cash consideration at $0.80 per share with attached warrants
valued at an average of $0.29 per share. Net proceeds from this private
placement were $10,758,737. The commission and other costs associated with this
private placement were $339,816. In addition to the common stock issued through
the private placement, 248,593 shares of common stock were issued for prior
compensation at $2.69 per share.
Stock Options
-------------
On March 1, 2001, the Company's shareholders approved a qualified stock option
plan. The number of shares eligible for issuance under the qualified plan is to
be determined by the Company's board of directors. The Company has not issued
any new options since 2002. As of April 30, 2006, there were 670,000 options
outstanding and exercisable. Of this amount, 250,000 were granted to officers
and directors of the Company.
F/S-9
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
Summarized information regarding stock options outstanding and exercisable at
April 30, 2006 is as follows:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
$ 1.25 100,000 3.27 $ 1.25 100,000 $ 1.25
1.32 370,000 0.43 1.32 370,000 1.32
2.15 200,000 3.84 2.15 200,000 2.15
------------ ------------------ ---------------- -------------- --------------- -------------
$ 1.25-2.15 670,000 1.87 $ 1.60 670,000 $ 1.56
============ ================== ================ ============== =============== =============
Warrants
--------
During the six months ended April 30, 2006, the Company issued 13,448,483 common
stock warrants, exercisable at $1.25 per share. A value of $0.29 per warrant was
allocated to these warrants with a total allocated value of $3,924,480 as part
of the investment unit priced at $0.80 per share.
NOTE 7 - INCOME TAXES
At April 30, 2006, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $5,282,000, principally arising from net
operating loss carryforwards for income tax purposes. As management of the
Company cannot determine that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset, there is a valuation
allowance equal to the net deferred tax asset.
F/S-10
METALLINE MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2006
--------------------------------------------------------------------------------
The significant components of the deferred tax assets at April 30, 2006 and
October 31, 2005 are as follows:
April 30, October 31,
2006 2005
------------ ------------
Net operating loss carryforward $ 15,534,000 $ 13,572,000
============ ============
Deferred tax asset $ 5,282,000 $ 4,614,000
Deferred tax asset valuation allowance $ (5,282,000) $ (4,614,000)
As of April 30, 2006, the Company had net operating loss carryforwards of
approximately $15,534,000, which expire in the years 2008 through 2026. The
Company has recognized approximately $1,491,000 of losses from the issuance of
stock options and warrants for services through fiscal 2005, which were not
deductible for tax purposes. The change in the allowance account from October
31, 2005 to April 30, 2006 was $668,000. The Company has immaterial temporary
differences resulting from differences in tax depreciation of equipment.
F/S-11