<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
POST-EFFECTIVE AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
METALINE CONTACT MINES
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(Name of Small Business Issuer in its charter)
Washington 91-0779945
------------------------------- -------------------
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
6599 Prichard Creek Road, Murray, Idaho 83874
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (208) 682-2217
Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
--------------------------------- -----------------------------------------
--------------------------------- -----------------------------------------
Securities to be registered pursuant to Section 12(g) of the Act.
Capital Common - $0.05 Par Value
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(Title of Class)
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(Title of Class)
1 of 46 Total Pages
<PAGE> 2
FORWARD LOOKING STATEMENTS
Metaline Contact Mines (hereinafter referred to as the "Company") cautions
readers that certain important factors may affect the Company's actual results
and could cause such results to differ materially from any forward-looking
statements that may be deemed to have been made in this Form 10-SB or that are
otherwise made by or on behalf of the Company. For this purpose, any statements
contained in the Form 10-SB that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "expect," "believe," "anticipate," "intend,"
"could," "estimate," "plan," or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. Factors that may affect the Company's results include, but are not
limited to, the Company's limited operating history, its ability to produce
additional products and services, its dependence on a limited number of
customers and key personnel, its possible need for additional financing, its
dependence on certain industries, and competition from its customers. With
respect to any forward-looking statements contained herein, the Company believes
that it is subject to a number or risk factors, including: competitive actions;
zinc prices; lack of available financing; and general economic and business
conditions. Any forward-looking statements in this report should be evaluated in
light of these important risk factors. The Company is also subject to other
risks detailed herein or set forth from time to time in the Company's filings
with the U.S. Securities and Exchange Commission.
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<PAGE> 3
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Description of Business 4
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Item 3. Description of Property 7
Item 4. Security Ownership of Certain Beneficial Owners and Management 8
Item 5. Directors and Executive Officers, and Promoters and Control Persons 10
Item 6. Executive Compensation 12
Item 7. Certain Relationships and Related Transactions 15
Item 8. Description of Securities 16
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters 17
Item 2. Legal Proceedings 19
Item 3. Changes in and Disagreements with Accountants 19
Item 4. Recent Sales of Unregistered Securities 19
Item 5. Indemnification of Directors and Officers 20
PART F/S
Item 1. Financial Statements 21
PART III
Item 1. Index to Exhibits 20
Item 2. Description of Exhibits 46
</TABLE>
-3-
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Metaline Contact Mines (hereinafter referred to as the "Company") is
filing this Form 10-SB on a voluntary basis in order to make it's
financial and other information equally available to any interested
parties or investors.
The Company was incorporated on November 15, 1928 pursuant to the laws
of the State of Washington, for the purposes of engaging in the
acquisition, leasing, exploration, development and mining of mineral
resource properties, and to conduct all business appertaining thereto.
Subsequent to organization the Company began acquiring unpatented
zinc-lead mining claims and other mineral rights in the Metaline
District, Pend Oreille County, State of Washington.
Unpatented mining claims are claims in which an individual, corporation,
or other legal entity, by the act of a valid location under the mining
laws of the United States, has obtained a right to remove and extract
minerals from the land, but where full title of the land has not been
acquired from the U.S. Government. A patented mining claim refers to a
parcel of mineral land for which the Federal Government has conveyed its
title to an individual, corporation or other legal entity.
From 1928 until 1946, the Company was inactive except for maintaining
its mineral holdings.
In 1946, the Company leased its mineral holdings to Metaline Mining &
Leasing Company for a period of 25 years. There is no affiliation, past
or present, between the Company and Metaline Mining & Leasing Company.
In 1959, The Bunker Hill Company (hereinafter "Bunker Hill"), began
managing the Company's business affairs and minerals holdings. However,
the Company remained a non-operating corporation until after the
expiration of its lease with Metaline Mining & Leasing Company.
On April 14, 1976, the Company entered into an Exploration and Operating
Agreement (the "1976 Agreement") with Bunker Hill whereby Bunker Hill
was granted the exclusive right to conduct exploration, development and,
if warranted, mining operations on the Company's mineral holdings.
In 1982, control of the Company was transferred from Bunker Hill to
Bunker Limited Partnership, who subsequently transferred the operating
control of the 1976 Agreement to Pintlar Corp., a subsidiary of Gulf
Resources & Chemical, the parent company of The Bunker Hill Company. In
1990, Pintlar Corp. transferred operating control of the 1976 Agreement
to Resource Finance Inc., the U.S. subsidiary of RFC Resource Finance
Corporation, Toronto, Ontario, Canada. In 1996, Cominco American
Incorporated acquired operating control of the 1976 Agreement with its
acquisition of Resource Finance Inc.
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<PAGE> 5
In October of 1996, the Company commenced a structured reorganization in
which the the Company contributed the surface rights of it's private
real property described in Part I, Item 3(a) below, and standing timber
thereon, to Metaline Contact Mines LLC, a Delaware limited liability
company (hereinafter "MCMLLC") in exchange for a 99% equity membership
interest in MCMLLC. The Company retained all of sub-surface mineral
rights to it's properties. As a part of the reorganization, the
shareholders of the Company were offered the opportunity to exchange
their shares of common stock in the Company for non-managing equity
membership interests in MCMLLC. A total of 19 shareholders accepted the
exchange offer resulting in MCMLLC owning 11,686,643 shares of common
stock in the Company, or 93.02%. The Company is the Managing Member of
MCMLLC.
On September 1, 1997, the Company negotiated a new Mining Lease With
Purchase Option with Cominco American Incorporated (hereinafter the "New
Cominco Lease") on the Company's mineral rights, which New Cominco Lease
superseded the 1976 Agreement in its entirety.
The Company has never had any bankruptcy, receivership or similar
proceedings.
The Company does not own any interest in mineral properties or rights
that are currently in production, nor has it ever derived any revenues
from the sale of zinc or other materials.
b. Business of Company.
1. The Company leases it's mineral rights and properties, described
in Part I, Item 3(a) below, to Cominco American Incorporated
(hereinafter "Cominco") who is currently exploring for zinc and
lead. The Company offers no products or services to the general
public.
2. Since the Company does not offer any products or services to the
public it has no distribution methods in place. In the event,
however, that Cominco is successful in discovering a commercial
ore body on the Company's mineral holdings, and that ore body is
placed into commercial production, the Company will receive
production royalties from Cominco. There are no assurances,
however, that Cominco will be successful in discovering a
commercial ore body on the Company's mineral holdings.
3. There has been no new product or service publicly announced by
the Company.
4. The Company competes with other mining companies in connection
with the acquisition of mineral properties, some of which have
substantially greater financial resources than the Company. The
Company believes no single company has sufficient market power
to affect the price or supply of zinc in the world market.
5. The Company's business does not require sources and raw
materials.
6. The Company is dependent on the success of Cominco's
exploration, development, and, if warranted, mining programs.
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<PAGE> 6
7. The Company leases it's mineral rights, as described in Item
3(a) below, to Cominco pursuant to the New Cominco Lease. The
term of the New Cominco Lease is for 20 years, with an option
for an additional 20 year period, and so long thereafter as
there is commercial production from the Company's mineral
rights. Under the terms of the New Cominco Lease, the Company
receives an advance royalty of $3,000.00 per quarter for the
first 5 years, $4,000.00 per quarter for the next 5 years, and
$5,500.00 per quarter thereafter. The New Cominco Lease also
provides a 3% Net Smelter Returns production royalty upon the
commencement of commercial production. During the first 3 years
of production the production royalty is fixed at $150,000.00 per
year.
8. Under the terms of the New Cominco Lease, the Company is not
responsible for any governmental approvals with regard to it's
mineral rights. However, in the event the Company's Lessee,
Cominco, is successful in placing the Company's mineral rights
into commercial production, federal, state and local
governmental permits may be required, in which case obtaining
any such permits is the responsibility of Cominco.
9. Under the terms of the New Cominco Lease, the Company is not
subject to any existing or probable governmental regulations.
However, the Company's Lessee, Cominco, is subject to and
responsible for all existing and future governmental regulations
with regard to reclamation.
10. The Company has spent no funds on research and development
during the last two fiscal years.
11. In the event there is commercial production from the Company's
minerals rights, the costs and effects of compliance with
environmental laws are the responsibility of Cominco.
12. The Company has no employees.
c. Reports to securities holders.
1. The Company is required to deliver annual reports to its
security holders.
2. On or about September 14, 2000, the Company became a reporting
company with the Securities and Exchange Commission, and as a
reporting company will file all required reports, including, nut
not limited to, its Form 10-QSB and Form 10-KSB.
3. The public may read and copy all materials the Company files
with the U.S. Securities and Exchange Commission (the "SEC") at
the SEC's Public Reference Room at 450 Fifth Street N.W.,
Washington, D.C. 20549. The public may also obtain information
on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330.
d. The Company is not a Canadian Issuer and therefore this paragraph is not
applicable.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(a) Plan of Operation.
(1) The Company's Plan of Operation for the next twelve
months will be to maintain its compliance with the terms
and conditions of the New Cominco Lease, and its
reporting requirements under the Securities Exchange act
of 1934, as amended.
Under the terms of the New Cominco Lease, the Company is
not required to participate financially in any
exploration, development or mining expenditures
initiated by Cominco. All such expenditures are for the
sole account of Cominco. Additionally, Cominco pays the
Company advance royalties of $12,000 per year for the
first five (5) years of the term of the New Cominco
Lease, $16,000 per year for the next five (5) years, and
$22,000 per year thereafter against a 3% Net Smelter
Return royalty on production in the event any of the
Company's mineral holdings subject to the New Cominco
Lease commence commercial production.
(i) It is the opinion of management that the Company
has sufficient cash reserves, and other income
in the form of advance royalties and interest on
its cash reserves, to satisfy its cash
requirements for the next three (3) years. The
Company will not need to raise any additional
funds in the next twelve (12) months.
(ii) The Company is not involved in any product
research and development.
(iii) The Company does not expect to purchase or sell
any plant, or significant equipment.
(iv) The Company does not expect to change the number
of employees.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company has not had revenues from operations for the last
two fiscal years and is, therefore, not required to provide the
information requisite in this Item.
ITEM 3. DESCRIPTION OF PROPERTY.
(a) The Company owns all right, title and interest in and to mineral
rights, all of which are located in the County of Pend Oreille,
State of Washington, as follows: the mineral rights attached to
5,798 acres of fee simple property; the mineral rights attached
to 487 acres of patented mining claims, and the mineral rights
attached to 1,925 acres of unpatented lode mining claims. The
Company does not own the surface rights to any of the fee simple
property or patented mining claims. It does, however, have the
right to use of the surface of the unpatented mining claims for
exploration, development and mining purposes.
The Company rents office facilities at 6599 Prichard Creek Road, Murray,
Idaho 83874.
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<PAGE> 8
(b) Investment Policies.
(1) The Company does not invest in real estate or interests
in real estate that does not pertain to the mining
industry.
(2) The Company does not invest in real estate mortgages, or
the types of properties subject to mortgages.
(3) The Company does not invest in the securities of or
interests of persons primarily engaged in real estate.
(c) Description of Real Estate and Operating Data.
(1) The Company owns the mineral rights and properties
described in Item 3(a) above, all of which are located
in the County of Pend Oreille, State of Washington. The
mineral rights and properties are under lease to Cominco
who is exploring for zinc and lead ores. Although there
are known occurrences of zinc and lead on the Company's
properties, there are no commercial ore bodies known to
exist on same.
(2) The Company's title to its mineral rights and properties
are described in Item 3(a) above. There are no
mortgages, liens or encumbrances on said mineral rights
and properties, except for the New Cominco Lease.
(3) The Company rents its office facilities pursuant to an
Office Service Agreement, dated June 1, 1998, as amended
on July 1, 1999 and September 1, 2000, between
Murrayville Land Company LLC and the Company. The term
of the agreement is month-to-month, for $225.00 per
month, plus its share of the operating costs of the
facility, and other expenses.
(4) The Company has no plans for the renovation, improvement
or development of any of its properties. Any and all
mining development programs are under the sole direction
and account of Cominco.
(5) The Company's properties are under lease to Cominco and
are, therefore, not subject to competitive conditions.
(6) In the opinion of management, the Company's properties
are adequately covered by insurance.
(7) The Company does not own any improved properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners.
<TABLE>
<CAPTION>
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(1) (2) (3) (4)
TITLE OF CLASS NAME AND AMOUNT AND PERCENT OF CLASS
ADDRESS OF NATURE OF
BENEFICIAL BENEFICIAL
OWNER OWNER
------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
Common Metaline Contact 11,236,643 79.89%
Contact Mines LLC Direct Owner
P.O. Box 387
Murray, ID 83874(1)
Common Nor-Pac Limited 1,500,000 10.66%
Company Direct Owner
P.O. Box 412
Murray, ID 83874
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</TABLE>
Note 1: Metaline Contact Mines LLC is owned, as to 99.994%, by Nor-Pac
Limited Company.
Richard L. Howell is the Trustee of the R.L. and M.D. Howell Trust, the
owner of a 25% equity membership interest in Nor-Pac Limited Company.
Ed Pommerening is the President and Manager of Riverview Timber Services
LLC, the owner of a 25% equity membership interest in Nor-Pac Limited
Company.
John W. Beasley is the President and Manager of J.W. Beasley Interests
LLC, a limited partner (as to 50%) of G.G.J.B. & K.G.P.B. Holdings
Limited Partnership (hereinafter referred to as "GGJB"). GGJB is the
owner of a 25% equity membership interest in Nor-Pac Limited Company.
(b) Security Ownership of Management.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
(1) (2) (3) (4)
TITLE OF CLASS NAME AND AMOUNT AND PERCENT OF CLASS
ADDRESS OF NATURE OF
BENEFICIAL BENEFICIAL
OWNER OWNER
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Richard L. Howell 3,184,161 22.64%
P.O. Box 472 Indirect Owner
Lewiston, ID 83501(1)
Common Ed Pommerening 3,184,161 22.64%
P.O. Box 369 Indirect Owner
Pinehurst, ID 83850(2)
John W. Beasley 1,592,081 11.32%
P.O. Box 387 Indirect Owner
Murray, ID 83874(3)
Common Directors & Executive 6,368,322 56.60%
Officers, as a group Indirect Owner
------------------------------------------------------------------------------
</TABLE>
(c) Changes in Control.
There are no arrangements which may result in a change in control of the
Company.
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<PAGE> 10
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, AND PROMOTERS AND CONTROL PERSONS.
(a) Identify directors and executive officers.
(1) Richard L. Howell, age 65; John W. Beasley, age 55; Ed
Pommerening, age 52.
(2) Richard L. Howell, President and Director; John W.
Beasley, Secretary and Director; Ed Pommerening,
Director.
(3) All of the individuals named in Part I, Item 5(a)(1) and
5(a)(2) above have held their respective positions since
June 1, 1998.
(4) Richard L. Howell. Mr. Howell has been the President and
a director of the Company since 1998. From 1978 to 1995,
Mr. Howell was the Personal Representative of the Estate
of Nelson R. Howard and Trustee of the Testamentary
Trust created under the Will of Nelson R. Howard. From
1995 to June 1, 2000, Mr. Howell was the Manager of
Golconda Limited Company, the successor to the Nelson
Howard Trust. From 1994 to present Mr. Howell has been
the President and a Governor of Mission Mountain
Interests Ltd. Co.; from 1997 to present the President
and a Governor of Nor-Pac Limited Company; from 1998 to
present, the President and a Governor of Murrayville
Land Company LLC, and from 1998 to present, a Director
of Paymaster Resources Incorporated.
John W. Beasley. Mr. Beasley has been the Secretary and
a director of the Company since 1998. He holds a
Bachelor of Science degree in Agricultural Economics
from the University of California at Berkeley. From 1967
to 1975, Mr. Beasley played professional football for
the Minnesota Vikings (including Super Bowl IV) and New
Orleans Saints. From 1976 to 1982, he held numerous
management positions with the Gulf Consolidated Services
organization, including Vice President - Eastern
Hemisphere in London, England. From 1992 to present, Mr.
Beasley has been President and Manager of J.W. Beasley
Interests LLC; from 1994 to present, the Secretary and a
Governor of Mission Mountain Interests Ltd. Co.; from
1997 to present, the Secretary and a Governor of Nor-Pac
Limited Company; from 1998 to present, the Secretary and
a Governor of Murrayville Land Company LLC, the
Secretary and a Governor of East-of-Idaho LLC, and the
President and a Director of Paymaster Resources
Incorporated; from 1999 to present, the Secretary and a
Governor of Prichard Creek Resource Partners LLC.
Ed Pommerening. Mr. Pommerening has been a director of
the Company since 1998. He holds a Bachelor of Science
degree in Forestry from the University of Idaho. From
1974 to 1982, Mr. Pommerening was the Forester for The
Bunker Hill Company, and from 1982 to 1991 for the
Bunker Limited Partnership. From 1991 through 1993, Mr.
Pommerening was the Forester for Pintlar Corp. From 1993
to the present, Mr. Pommerening has been the President
and Manager of Riverview Timber Services LLC; from 1997
to present, a Governor of Nor-Pac Limited Company, and
from 1998 to present, the Secretary and a Director of
Paymaster Resources Incorporated.
(5) The principal business conducted by the other companies
mentioned in Item 5(4) above are as follows:
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<PAGE> 11
(a) Golconda Limited Company, an Idaho limited
liability company, is the successor to the
assets formerly owned in the Nelson Howard
Trust, which actively invests in real estate,
private timberlands, ranchlands, and other
companies.
(b) Mission Mountain Interests Ltd. Co., an Idaho
limited liability company, owns and operates
private timberlands which timberlands are leased
to the City of Kellogg, as the Silver Mountain
Ski and Summer Resort, in Shoshone County,
Idaho.
(c) J.W. Beasley Interests LLC, an Idaho limited
liability company, is a management, consulting
and investment holding company specializing in
the natural resources industry.
(d) Riverview Timber Services LLC, an Idaho limited
liability company, is a consulting forestry
company.
(e) Paymaster Resources Incorporated, an Idaho
corporation, is a mineral exploration company
which leases the Golden Chest Mine, Shoshone
County, Idaho.
(f) Nor-Pac Limited Company, an Idaho limited
liability company, is a management, consulting
and investment holding company with interests in
real property and other companies.
(g) Murrayville Land Company LLC, an Idaho limited
liability company, owns and operates an
executive office facility in Murray, Idaho.
(h) East-of-Idaho LLC, a Wisconsin limited liability
company, owns and operates a small resort in
central Wisconsin.
(i) Prichard Creek Resource Partners LLC, an Idaho
limited liability company, owns unpatented
mining claims in Shoshone County, Idaho.
(j) Pintlar Corp. was a wholly-owned subsidiary of
Gulf Resources & Chemical created to manage the
environmental affairs at the Bunker Hill Mine
Superfund Site in Kellogg, Idaho, and the
employee retirement/benefit plans for Bunker
Hill employees.
(5) The above Directors are not directors of any other
reporting companies.
(6) The Secretary, John W. Beasley, spends approximately 20
hours per week, and the President, Richard L. Howell,
spends approximately 5 hours per week on the business of
the Company.
(b) Identify Significant Employees.
There are no persons other than the officers and directors of
the Company who are expected to make a significant contribution
to the business of the Company.
(c) Family Relationships.
There are no family relationships among the officers and
directors of the Company.
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<PAGE> 12
(d) Involvement in Certain Legal Proceedings.
(1) There have been no bankruptcy petition filed by or
against any business of which the officers and directors
have been or are partners, officers, or directors.
(2) None of the officers and directors of the Company have
been convicted in a criminal proceeding, or is subject
to a pending criminal proceeding.
(3) None of the officers and directors of the Company have
been or is being subject to any order, judgement, or
decree of any court of competent jurisdiction
permanently or temporarily enjoining, barring,
suspending or otherwise limiting their involvement in
any type of business, securities or banking activities.
(4) None of the officers and directors of the Company have
violated any federal or state securities or commodities
law, or found by any court of competent jurisdiction,
the Securities and Exchange Commission, or the Commodity
Futures Trading Commission to have violated any such
laws.
ITEM 6. EXECUTIVE COMPENSATION.
(a) General.
(1) On June 1, 1998, the Company entered into the Management
Agreement described in Item 7(a) below with Nor-Pac
Limited Company ("Nor-Pac"). To date, the Company has
paid Nor-Pac management fees in the amount of 1,500,000
shares of its authorized, but unissued, common stock,
with an aggregate value of $75,000, and $100,000 in
cash.
(2) Nor-Pac is owned, as to 75%, by entities that are owned
by the Company's directors, and has been more fully
disclosed in Item 7(a) below.
(b) Summary Compensation Table.
<TABLE>
<CAPTION>
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SUMMARY COMPENSATION TABLE
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Long Term Compensation
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Annual Compensation Awards Payouts
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(a) (b) (c) (d) (e) (f) (g) (h) (i)
----------------------------------------------------------------------------------------------------------------------------
Name Restricted Securities
and Other Annual Stock Underlying LTIP All Other
Principal Salary Bonus Compensation Awards Option/SAR Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 1999 0 0 0 0 250,000 0 1,050
Howell, 2000 0 0 0 0 0 0 25,000
President
and Director
----------------------------------------------------------------------------------------------------------------------------
John 1999 0 0 0 0 250,000 0 1,050
Beasley, 2000 0 0 0 0 0 0 12,500
Secretary
and Director
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Ed 1999 0 0 0 0 250,000 0 1,050
Pommerening
Director 2000 0 0 0 0 0 0 25,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Option/SAR Grants Table.
<TABLE>
<CAPTION>
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
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Individual Grants
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(a) (b) (c) (d) (e)
------------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total Options/SAR's Exercise or
Underlying Options/SAR's Granted to Employees in Fiscal Base Price Expiration
Name Granted Year ($/S) Date
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard 250,000 25% $0.125 11-16-09
Howell
------------------------------------------------------------------------------------------------------------------------
John 250,000 25% $0.125 11-16-09
Beasley
------------------------------------------------------------------------------------------------------------------------
Ed 250,000 25% $0.125 11-16-09
Pommerening
------------------------------------------------------------------------------------------------------------------------
Gene 250,000 25% $0.125 11-16-09
George
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The Exercise Price, as specified in column "d" above is subject to
adjustment. In the event the Company issues or sells any common stock for a per
share consideration of less than the Exercise Price stated in column "d" above,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by a fraction (i) the numerator of which shall
be the sum of (x) the aggregate number of common shares outstanding immediately
prior to such issue or sale plus (y) the consideration received by the Company
upon such issue or sale, and (ii) the denominator of which shall be the product
of (x) the aggregate number of common shares outstanding immediately after the
issue or sale, multiplied by (y) the market price of the common shares
immediately prior to such issue or sale.
No adjustment of the Exercise Price shall be made by reason of (i) the issue,
sale, or grant under any stock option plan or stock purchase plan of the Company
or under any individual arrangement or otherwise, to any employee or director of
the Company or any independent contractor, in consideration of the rendering of
services to the Company by such employee, director, or independent contractor,
of any common shares or rights to subscribe for or to purchase, or options for
the purchase of, common shares or convertible securities or (ii) a change in the
purchase price provided for in any such right or option, in the additional
consideration, if any, payable upon the conversion or exchange of any such
convertible securities, or in the rate at which any such convertible securities
are convertible or exchangeable.
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<PAGE> 14
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
--------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised In-the
Unexercised Options/SARs at FY- Money Options/SARs at FY-
Shares Value End(#) End($)
Acquired on Realized
Name Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard 0 0 250,000 / 0 $0 / $0
Howell
--------------------------------------------------------------------------------------------------------------------------
John 0 0 250,000 / 0 $0 / $0
Beasley
--------------------------------------------------------------------------------------------------------------------------
Ed 0 0 250,000 / 0 $0 / $0
Pommerening
--------------------------------------------------------------------------------------------------------------------------
Gene 0 0 250,000 / 0 $0 / $0
George
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(e) Long-Term Incentive Plan ("LTIP") Awards Table.
The Company has no Long Term Incentive Plans.
(f) Compensation of Directors.
1. Directors of the Company receive $175.00 for each
regularly scheduled meeting of directors, and $350.00
for each specially scheduled meeting, plus normal
out-of-pocket expenses incurred to attend said meetings.
2. There are no other arrangements to compensate directors.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
(1) The Company has no employment contracts with its
executive officers.
(2) The Company has no compensatory plan or arrangements
with its executive officers in the event of the
resignation, retirement or any other termination of such
executive officers, nor does the Company have any
arrangements with its executive officers in the event of
a charge-in-control of the Company.
(h) Reporting On Repricing of Options/SAR's.
(1) During the last completed fiscal year the Company was
not a reporting company pursuant to Section 13(a) or
15(d) of the Exchange Act, and did not adjust or amend
the exercise price of stock options previously awarded.
(2) There were no repricing of options during the last
completed fiscal year. Therefore, no explanations were
required by the Compensation Committee.
-14-
<PAGE> 15
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) On June 1, 1998, the Company entered into an Agreement for
Management and Consulting Services with Nor-Pac Limited Company
(hereinafter referred to as the "Management Agreement"), which
Management Agreement was amended by First Amendment to the
Agreement for Management and Consulting Services, dated January
1, 1999. Under the terms of the Management Agreement Nor-Pac
Limited Company (hereinafter referred to as "Nor-Pac") provides
the Company with certain management and consulting services, and
Nor-Pac is entitled to receive Five Hundred Thousand (500,000)
shares of the Company's authorized, but unissued, common stock
in the second half of 1998, Two Hundred Fifty Thousand (250,000)
shares quarterly in 1999, and Ten Thousand Dollars ($10,000.00)
per month thereafter commencing on January 1, 2000. In the event
in 1999 the Company's common stock becomes publicly traded on
NASDAQ's Over-the-Counter Electronic Bulletin Board (OTCBB),
Nor-Pac shall receive as additional compensation Five Hundred
Thousand (500,000) shares of common stock and One Million
(1,000,000) shares if the Company's common stock become listed
on NASDAQ. In 1999, the Company's common stock did not become
publicly traded on either the OTCBB or NASDAQ, and as a result,
Nor-Pac was not compensated the additional shares of the
Company's common stock as described hereinabove.
Commencing on January 1, 2000, the Company and Nor-Pac review on
a quarterly basis the amount and scope of the consulting,
management and advisory services performed by Nor-Pac on the
Company's behalf, and if it is determined that it is a
materially greater of lesser amount, then the Company and
Nor-Pac shall agree to an equitable adjustment in the fees paid
by the Company. All payments due Nor-Pac pursuant to the terms
of the Management Agreement have been made.
Under the terms of the Management Agreement, Nor-Pac makes
available to the Company the services of its officers and
representatives for the purposes of advising and consulting with
the Company concerning all phases of the Company's business
affairs and operations, including the following:
(1) assisting the Company in determining its short and long
term capital requirements, in determining the best
method of fulfilling such capital requirements, and in
locating sources of equity and long and short term debt
financing;
(2) assisting the Company in determining the need for and
devising and installing financial, accounting and other
office and business systems and controls;
(3) assisting the Company in developing business investment
and management plans and programs, in formulating
policies and objectives, and carrying out such plans,
programs and policies required for the efficient and
successful operation of the Company's business
operations;
(4) assisting the Company in developing a public trading
market for its securities;
(5) assisting the Company in finding, researching,
evaluating, leasing, acquiring, joint-venturing and in
any and all ways securing the rights to natural resource
properties.
-15-
<PAGE> 16
Nor-Pac is Seventy Five Percent (75%) owned by entities that are
owned, directly or indirectly, in whole or in part, by Richard
L. Howell, John W. Beasley and Ed Pommerening, directors of the
Company. By virtue of their respective interests in these
entities, Richard L. Howell, John W. Beasley and Ed Pommerening
may be deemed to have an indirect material interest in the
transaction.
On June 1, 1998, the Company entered into an Office Services
Agreement (the "Office Agreement") with Murrayville Land Company
LLC ("Murrayville"), which Office Agreement was amended on July
1, 1999 and September 1, 2000. Under the terms of the Office
Agreement, Murrayville provides the Company with office
facilities and the use of office equipment on a monthly basis
for $225 per month, plus its proportionate share of office
overhead. All payments to Murrayville under the terms of the
Office Agreement are current.
Murrayville Land Company LLC is 66.66% owned by entities that
are owned by Richard L. Howell and John W. Beasley, officers and
directors of the Company. By virtue of their respective
interests in these entities, Richard L. Howell and John W.
Beasley may be deemed to have an indirect material interest in
the transaction.
On June 1, 2000, Metaline Contact Mines LLC (hereinafter
"MCMLLC"), a Delaware limited liability company, and parent of
the Company, sold properties which the Company's share of
proceeds was $507.858. MCMLLC paid the Company $402,388, and the
Company recorded a accounts receivable for the balance of
$105,470.
On September 20, 1999, the Company loaned Nor-Pac the sum of
$95,000.00 at an annual interest rate of 8.25% pursuant to a
formal loan document. The loan, plus all accrued interest, was
paid in full on June 20, 2000.
(b) It is the opinion of the management of the Company that the
services and fees provided for in the Management Agreement and
the Office Agreement are no less favorable to the Company than
could have been secured in arm's-length transactions. The amount
of interest paid by Nor-Pac on its loan from the Company was
approximately twice the amount being earned by the Company in
it's money market account at the time of the loan.
(c) Metaline Contact Mines LLC ("MCMLLC"), a Delaware limited
liability company, owns 79.89% of the outstanding shares of the
Company. The Company is the Managing Member of MCMLLC.
(d) Transactions With Promoters.
(1) The Company has not transacted any business with
promoters.
(2) No assets have been or are to be acquired from
promoters.
ITEM 8. DESCRIPTION OF SECURITIES.
(a) Common Stock.
(1) The Company is authorized to issue 20,000,000 shares of
Common Stock, par value $0.05 per share. The Company
presently has 14,064,300 shares of Common Stock issued
and outstanding, which are held by 303 shareholders.
-16-
<PAGE> 17
All shares of Common Stock have equal voting rights,
and, when validly issued and outstanding, are entitled
to one vote per share in all matters to be voted upon by
shareholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption
rights and may be issued only as fully paid and
non-assessable shares. Cumulative voting in the election
of Directors is not permitted. In the event of
liquidation of the Company, each shareholder is entitled
to receive a proportionate share of the Company's assets
available for distribution to shareholders after the
payment of liabilities and after distribution in full of
preferential amounts, if any. All shares of the
Company's Common Stock issued and outstanding are fully
paid and non-assessable. Holders of the Common Stock are
entitled to a pro-rata share in dividends and
distributions with respect to the Common Stock, as may
be declared by the Board of Directors out of funds
legally available therefore.
(2) The Company is not authorized in its Articles of
Incorporation to offer any preferred stock.
(3) The rights of the common stockholders are described in
Item 8(a)(1) above.
(4) There are no provisions in the Company's Articles of
Incorporation or By-laws that would delay, defer or
prevent a change in control of the Company.
(b) Debt Securities.
(1) The Company is not offering any debt securities.
(2) There are no material provisions giving or limiting the
rights of debtholders as there are no debtholders.
(3) There is no trustee designated by any debenture as there
is no debenture.
(4) There are no tax effects of any securities being offered
at an "original issue discount" as no securities are
being offered.
(c) Other Securities To Be Registered.
The Company is not registering any other securities.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information.
(1) On June 4, 1999, the Company's common stock was approved
for trading on the National Quotation Bureau's "Pink
Sheets".
(i) The principal market for Company's common stock
is not an exchange.
(ii) The range of high and low bid information for
the last seven quarters is as follows:
-17-
<PAGE> 18
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
2nd Quarter, 1999: $0.25 $0.0625
3rd Quarter, 1999: $0.25 $0.0625
4th Quarter, 1999: $0.25 $0.0625
1st Quarter, 2000: $0.25 $0.0625
2nd Quarter, 2000: $0.25 $0.625
3rd Quarter, 2000: $0.25 $0.625
</TABLE>
Quotations were supplied by J. Alexander
Securities Inc., Los Angeles, California, and,
commencing in the first quarter of 2000, by
Olson Paine, Spokane, Washington. Quoted prices
are inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent
actual transactions.
(iii) J. Alexander Securities Inc. and Olson Paine are
licensed securities brokerage firms registered
with the National Association of Securities
Dealers. There is no affiliation between the
Company and either of these firms.
(iv) As of the date of this filing, the Company's
common stock has not become publicly traded on
NASDAQ or its OTCBB.
(2) (i) Management approved the reservation of 2,000,000
shares of the Company's common stock for options
pursuant to the 1999 Stock Option Plan (the
"Stock Option Plan"). On November 15, 1999, the
Company held a Special Meeting of Shareholders,
who approved the Stock Option Plan. On November
16, 1999, the Company issued options to its
three (3) directors and an independent
consultant totaling One Million (1,000,000)
shares. The independent consultant is Gene
George of Spokane, Washington.
(ii) There are 250,000 shares of common stock that
could be sold pursuant to Rule 144 of the
Securities Act of 1933, as amended. The Company
has not agreed to register any of its securities
under the Securities Act for sale by its
security holders.
(iii) There is no common equity being or has been
proposed to be offered publicly by the Company.
(b) Holders.
There are 303 shareholders of the Company's common stock.
(c) Dividends.
The Company has issued no dividends to date and there are no
immediate plans to issue dividends this year or in the immediate
future.
-18-
<PAGE> 19
ITEM 2. LEGAL PROCEEDINGS.
(a) Neither the Company, its directors, officers or affiliates, or
owners of record or beneficially of more than 5% of any class of
voting securities, is a party to any pending legal proceedings,
nor do any of the above named parties expect to be a party to
any future legal proceedings.
(b) The Company is not aware of any governmental authority that is
contemplating legal proceedings against the Company, its mineral
rights or properties.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
(a) There have been no changes in or disagreements with accountants
on accounting and financial disclosure of the Company during the
Company's two most recent fiscal years.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(a) On October 26, 1998, the Company issued Two Hundred Fifty
Thousand (250,000) shares of its authorized, but unissued,
common stock to Nor-Pac Limited Company, an Idaho limited
liability company ("Nor-Pac"), pursuant to the terms of the
Management Agreement described in Part I, Item 7(a) above. The
aggregate amount of the consideration was $12,500.00.
On January 29, 1999, the Company issued Two Hundred Fifty
Thousand (250,000) shares of its authorized, but unissued,
common stock to Nor-Pac, pursuant to the terms of the Management
Agreement described in Part I, Item 7(a) above. The aggregate
amount of the consideration was $12,500.00.
On February 18, 1999, the Company issued Two Hundred Fifty
Thousand (250,000) shares of its authorized, but unissued,
common stock to Nor-Pac, pursuant to the terms of the Management
Agreement described in Part I, Item 7(a) above. The aggregate
amount of the consideration was $12,500.00.
On July 15, 1999, the Company issued Two Hundred Fifty Thousand
(250,000) shares of its authorized, but unissued, common stock
to Nor-Pac, pursuant to the terms of the Management Agreement
described in Part I, Item 7(a) above. The aggregate amount of
the consideration was $12,500.00.
On November 16, 1999, the Company granted options to its three
directors, and an independent consultant, pursuant to an Option
Certificate, whereby the directors and the consultant have the
right to purchase an aggregate of 250,000 shares each of the
Company's common stock at an initial Exercise Price of $0.125
per share. In the event all of the options are exercised, the
aggregate amount of the consideration realized by the Company
will be $125,000.
On January 18, 2000, the Company issued Five Hundred Thousand
(500,000) shares of its authorized, but unissued, common stock
to Nor-Pac, pursuant to the terms of the Management Agreement
described in Part I, Item 7(a) above. The aggregate amount of
the consideration was $25,000.00.
(b) There were no underwriters or public offering of the shares or
options mentioned above.
-19-
<PAGE> 20
(c) The shares were issued for other than cash. The consideration
received by the Company was the management and consulting
services provided pursuant to the terms of the Agreement for
Management and Consulting Services mentioned in Part I, Item
7(a) above.
(d) The shares and options were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
(e) The options may be exercised by the registered holder, in whole
or in part, by the surrender of the option certificate, duly
endorsed, at the principal office of the Company and upon
payment to the Company by cash, cashier's check, or certified
check, payable to the Company of the purchase price of the
common shares purchased. The common shares so purchased shall be
deemed to be issued on the date on which these option
certificate shall have been surrendered and payment made for
such common shares. The certificate for such common shares shall
be delivered to the registered holder within a reasonable time,
not exceeding ten (10) days, after the option shall have been
exercised and a new option certificate evidencing the number of
options, if any, remaining unexercised shall also be issued to
the registered holder within such time. No fractional common
shares of the Company, or scripts for any such fractional shares
shall be issued upon the exercise of any options. The exercise
of the option shall be for not less than five thousand (5,000)
shares of common stock.
(f) A report of the use of proceeds is not required.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended By-Laws of the Company indemnify all of its officers and
directors, past, present and future, against any and all expenses
incurred by them, and each of them, which may be incurred in any legal
action brought against any or all of them while serving as an officer
and/or director of the Company, so long as such action(s) or refusal to
take action(s) by any or all of them was not willful, grossly negligent,
fraudulent, or with criminal intent.
PART F/S
ITEM 1. FINANCIAL STATEMENTS.
The audited financial statements of the Company and related notes which
are included in this registration statement have been examined by
Williams & Webster, P.A., Certified Public Accountants, and have been
included in reliance upon the opinion of such accountants given their
authority as a expert in auditing and accounting.
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Title Page
------ ----- ----
<S> <C> <C>
3(i)* Articles of Incorporation 30
3(ii)* By-Laws 45
10(i)* Mining Lease With Purchase Option 57
10(ii)(A)* Agreement for Management and Consulting Services 97
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
10-SB, as amended, filed on July 14, 2000 and amended on August 11, 2000, File
No. 0-31025.
-20-
<PAGE> 21
METALINE CONTACT MINES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
Williams & Webster, P.S.
Certified Public Accountants
Bank of America Financial Center
601 W. Riverside, Suite 1940
Spokane, WA 99201
-21-
<PAGE> 22
METALINE CONTACT MINES
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS; 6
</TABLE>
-22-
<PAGE> 23
[WILLIAMS & WEBSTER, P.S. LETTERHEAD]
The Board of Directors
Metaline Contact Mines
Murray, Idaho
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Metaline Contact Mines as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metaline Contact Mines at
December 31, 1999 and 1998, and the results of its operations, stockholders'
equity, and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 29, 2000, EXCEPT AS TO NOTES 2, 3 AND 5 WHICH ARE AS OF OCTOBER 31, 2000
-23-
<PAGE> 24
METALINE CONTACT MINES
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 321,228 $ 407,347
Federal tax deposit 1,500 --
--------- ---------
TOTAL CURRENT ASSETS 322,728 407,347
--------- ---------
OTHER ASSETS
Receivables from related parties 226,768 129,413
Investment in LLC 38,253 45,440
--------- ---------
TOTAL OTHER ASSETS 265,021 174,853
--------- ---------
TOTAL ASSETS $ 587,749 $ 582,200
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 25,876 $ --
--------- ---------
TOTAL CURRENT LIABILITIES 25,876 --
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.05 par value; 20,000,000 shares authorized,
13,564,300 and 12,814,300 shares issued and outstanding 678,222 640,722
Additional paid-in capital 302,165 302,165
Stock options 13,632 --
Accumulated deficit (432,146) (360,687)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 561,873 582,200
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 587,749 $ 582,200
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 24 -
<PAGE> 25
METALINE CONTACT MINES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Royalty income $ 12,000 $ 9,008
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting and management fees 79,567 12,500
Accounting and legal fees 8,728 18,166
Transfer agent fees 957 1,169
Repairs and maintenance -- 1,082
Rent 2,075 1,050
Office 2,260 703
Utilities 135 372
Travel and meals 744 137
Taxes and licenses 79 86
Insurance -- 60
------------ ------------
Total Expenses 94,545 35,325
------------ ------------
OPERATING INCOME (LOSS) (82,545) (26,317)
------------ ------------
OTHER INCOME
Interest income 2,355 730
Dividend income 15,918 --
Income (Loss) from investment in LLC (7,187) 455,538
------------ ------------
Total Other Income 11,086 456,268
------------ ------------
NET INCOME (LOSS) BEFORE TAXES (71,459) 429,951
INCOME TAX EXPENSE -- --
------------ ------------
NET INCOME (LOSS) $ (71,459) $ 429,951
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 13,378,684 12,626,800
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 25 -
<PAGE> 26
METALINE CONTACT MINES
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
Number of Total
Common Common Paid-in Accumulated Stock Stockholders'
Stock Shares Stock Capital Deficit Options Equity
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AT DECEMBER 31, 1997 12,564,300 $ 628,222 $ 302,165 $ (790,638) $ -- $ 139,749
Issuance of stock at September 30, 1998
in payment of consulting fees at 250,000 12,500 -- -- -- 12,500
$0.05 per share
Net income for the year ended
December 31, 1998 -- -- -- 429,951 -- 429,951
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, AT DECEMBER 31, 1998 12,814,300 640,722 302,165 (360,687) -- 582,200
Issuances of stock for consulting fees at
$0.05 per share 750,000 37,500 -- -- -- 37,500
Stock options granted November 16, 1999 -- -- -- -- 13,632 13,632
Net loss for the year ended -- -- -- (71,459) -- (71,459)
December 31, 1999
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 13,564,300 $ 678,222 $ 302,165 $ (432,146) $ 13,632 $ 561,873
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 26 -
<PAGE> 27
METALINE CONTACT MINES
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (71,459) $ 429,951
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Changes in assets and liabilities:
Increase in account receivable (97,355) (96,358)
Decrease in investment in LLC 7,187 --
Increase in accounts payable 25,876 --
Decrease (increase) in other assets (1,500) 52,613
Payment of expenses from stock options granted 13,632 --
Payment of expenses from issuance of stock 37,500 12,500
--------- ---------
Net cash provided (used) by operating activities (86,119) 398,706
--------- ---------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES -- --
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES -- --
--------- ---------
Net increase (decrease) in cash and cash equivalents (86,119) 398,706
Cash and cash equivalents beginning of year 407,347 8,641
--------- ---------
Cash and cash equivalents for end of year $ 321,228 $ 407,347
========= =========
Supplemental cash flow disclosures:
Income taxes paid $ -- $ --
Interest paid $ -- $ --
NON-CASH TRANSACTIONS
Stock issued in payment of consulting and other expenses $ 37,500 $ 12,500
Payment of expenses from stock options granted $ 13,632 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 27 -
<PAGE> 28
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Metaline Contact Mines (hereinafter "Metaline") was incorporated in November of
1928 under the laws of the State of Washington for the purpose of engaging in
mining and the buying and selling of ores, metals, and minerals.
The Company was reorganized and recapitalized in 1960 and its articles of
incorporation were amended to expand its business purposes to include various
additional business activities. Metaline has continued its operations since its
formation and has historically acquired land, mineral rights, patented lode
mining claims, and timber.
In the last quarter of 1996, Metaline transferred substantially all of its
assets to a limited liability company. See Note 3 and Note 8.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to
assist in understanding the financial statements. The financial statements and
notes are representations of the Company's management which is responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
INVESTMENTS
THE COMPANY ACCOUNTS FOR ITS INVESTMENT IN METALINE CONTACT MINES LLC USING THE
EQUITY METHOD. SEE NOTE 3.
Earnings Per Share
Earnings per share was computed by dividing the net income (loss) by the
weighted average number of shares outstanding during the year. The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time they were outstanding.
Impaired Asset Policy
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from estimates.
-28-
<PAGE> 29
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3- INVESTMENTS IN LLC
On October 30, 1996, Metaline formed a Delaware limited liability company,
Metaline Contact Mines, LLC (hereinafter "The LLC"). UPON ORGANIZATION OF THE
LLC, THE COMPANY TRANSFERRED SUBSTANTIALLY ALL OF ITS ASSETS (PRIMARILY REAL
PROPERTY SURFACE RIGHTS AND TIMBER) TO THE LLC. THE COMPANY RECORDED ITS INITIAL
INVESTMENT IN THE LLC AT $674,834, THE NET BOOK VALUE OF THE ASSETS TRANSFERRED.
AT THE TIME OF THE LLC'S FORMATION, THE COMPANY WAS THE SOLE MEMBER IN THE LLC,
REPRESENTING 100% OWNERSHIP.
In 1998, the majority of the Company's interest in The LLC was expensed in
connection with the sale of the majority of The LLC's assets. See Note 5.
AT THE BEGINNING OF 1998, THE COMPANY'S FORMER SHAREHOLDERS ACQUIRED 93 PERCENT
OF THE LLC BY TRANSFERRING THEIR STOCK IN THE COMPANY TO THE LLC IN EXCHANGE FOR
NON-MANAGING MEMBER INTERESTS. AT THE CONCLUSION OF THIS SHARE EXCHANGE, THE
COMPANY'S PERCENTAGE OF OWNERSHIP IN THE LLC WAS REDUCED TO SEVEN PERCENT (7%).
THE COMPANY WROTE DOWN ITS INITIAL INVESTMENT BY 93%, THUS A LOSS OF $627,596
WAS RECORDED TO REFLECT ITS DILUTED INVESTMENT IN THE LLC. AFTER THE WRITE DOWN
OF ITS INVESTMENT, APPLICATION OF THE LLC'S CAPITAL GAINS, AND THE LLC'S
OPERATING LOSS FOR THE YEAR ENDED DECEMBER 31, 1998, THE VALUE OF THE COMPANY'S
INVESTMENT IN THE LLC WAS $45,440.
BOTH BEFORE AND AFTER THE SHARE EXCHANGE, THE COMPANY WAS THE MANAGING MEMBER OF
THE LLC. SEE NOTE 5 AND NOTE 9.
In 1999, a net loss in The LLC resulted in a decreased value of the Company's
interest to $38,382.
NOTE 4-MINERAL PROPERTIES
In 1996, Metaline transferred timber and real property surface rights to The LLC
(see Note 3) but retained underground mineral rights to the transferred real
property and its mining claims, located in Pend Oreille County in Washington
State. The timber and real property surface rights were deemed by management to
have a value equal to their recorded cost and this cost was transferred to The
LLC. The related mineral rights are carried at no cost on Metaline's books.
In 1997, Metaline and The LLC jointly leased certain Pend Oreille County real
estate and all of its mineral rights to a major mining company. See Note 6.
NOTE 5- RELATED PARTIES
During 1996, $33,055 was advanced to The LLC for operating expenditures. At
December 31, 1998, the remaining balance was $24,055. These funds are recorded
on Metaline's books as part of a non-current, related party receivable.
During 1998, The LLC sold property for a net gain of $5,958,762. Metaline's
share of this gain BEFORE ADJUSTMENT OF THE COMPANY'S INVESTMENT FROM THE LLC'S
OPERATING RESULTS AND WRITE DOWN FROM ITS SUBSTANTIAL DECREASE IN OWNERSHIP OF
THE LLC (SEE NOTE 3) was $507,858. The Company recorded a non-current, related
parry receivable of $105,470 for the balance of the distribution which is
expected to be received in 2000.
-29-
<PAGE> 30
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - RELATED PARTIES (CONTINUED)
In June 1998, Metaline executed an agreement with Nor-Pac Limited Company
wherein, for providing management and consulting services to Metaline, Nor-Pac
was entitled to receive 500,000 shares of Metaline common stock in the second
half of 1998, 250,000 shares of Metaline common stock quarterly in 1999 and
$10,000 per month thereafter commencing on January 1, 2000. In the event that
Metaline's common stock becomes publicly trading on NASDAQ or equivalent stock
exchange, Nor-Pac shall receive as additional compensation 1,000,000 shares of
common stock (if public trading commences in 1999). In September 1998, Metaline
issued 250,000 shares of common stock to Nor-Pac and also issued another 250,000
shares in January 1999.
Throughout 1999, two additional stock issuances to Nor-Pac occurred totaling
500,000 shares in payment of consulting fees for the first and second quarter of
1999. Consulting fees for the third and fourth quarter of 1999 have been accrued
and it is expected that shares will be issued in the year 2000 in full payment
of the services.
On September 20, 1999, the Company's Board of Directors approved a $95,000 loan
to Nor-Pac at an annual interest rate of 8.25%. The uncollateralized,
shot-term instrument is due, in full, on September 20, 2000.
For additional information on related parties, see Notes 3, 6 and 9.
NOTE 6 - MINING LEASE WITH PURCHASE OPTION
On September 1, 1997, Metaline and The LLC acting jointly as lessors, executed
an agreement with Cominco American Incorporated (hereinafter "Cominco") wherein
Cominco received the right to explore, develop, and mine Metaline's underground
mineral rights in Pend Oreille County, Washington for a period of twenty years
with an option renewal period of the same length. Under this lease agreement,
Cominco obligates itself to pay the lessors $3,000 per quarter for the first
five years of the lease with ascending quarterly increments at each successive
five year interval.
The aforementioned quarterly disbursements are characterized by the lease as
"advance royalty payments" which may be fully offset against a three-percent
production royalty retained by the lessors.
The lease agreement, while providing that Cominco must expend $125,000 in
exploration work within the first five years of the lease, also gives Cominco
the option to purchase 200 surface acres of the leased property for fair market
value during the lease term.
From the inception of the lease through December 31, 1999, Metaline has received
$27,016 in payments from Cominco.
NOTE 7 - INCOME TAXES
The Company has available unused operating loss carryforwards that may be
applied against future taxable income of $244,581 and $52,925 expiring on
December 31, 2018 and 2019, respectively.
-30-
<PAGE> 31
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - INCOME TAXES (CONTINUED)
No deferred tax benefit has been reported in the financial statements, as the
Company believes there is a significant chance that the net operating loss
carryforwards will expire unused. Accordingly, the potential tax benefits of the
net operating loss carryforwards are offset by a valuation allowance of the same
amount.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
All earnings from The LLC in 1997 and 1996 were attributed by The LLC's
principal owners to Metaline. Accordingly, Metaline reported these earnings as
its own taxable income (on both Metaline's and The LLC's federal income tax
returns) although Metaline retained only a 6.9861 percent interest in The LLC
from the end of 1996 to December 31,1998. For calendar 1998 and 1999, Metaline
will report only its pro rata share (6.9861%) of taxable income from The LLC,
with other LLC members reporting their respective share of LLC taxable income.
The LLC has agreed, in writing, to indemnify Metaline for any prior year income
distributions requested by other LLC members. As of December 31, 1999, no cash
or property distributions were made by the LLC to its members for
indemnification purposes. In view of the ownership changes in The LLC, future
distributions are expected to be made by The LLC to its members as determined
from rime to time by Metaline, its managing member. See Note 9 regarding a
change in LLC ownership and see Note 5 regarding related party commitment.
NOTE 9 - CHANGE IN LLC OWNERSHIP
On June 1, 1998, Nor-Pac Limited Company purchased control of Metaline from its
three principal owners at the time (Bunker Limited Partnership, Hecla Mining
Company, and Metaline Mining & Leasing Company) by acquiring these entities'
interests in Metaline Contact Mines LLC. See Note 1 and Note 5.
NOTE 10 - STOCK OPTIONS
On November 16, 1999, the board of directors approved the Metaline Contact Mines
1999 Stock Option Plan. This plan allows the Company to distribute up to
2,000,000 shares of common stock shares to officers, directors, employees and
consultants through the authorization of the Company's board of directors at an
initial exercise price of $0.125. The options may be exercised until November
16, 2009, at which time they expire.
The fair value of each option granted was estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made to
estimate fair value: the risk-free interest rate is 6.11%, volatility is 0.3,
and the expected life of the options is ten years. Accordingly, $13,632 of the
option's expense was initially recorded in the Company's financial statements as
consulting and management fees. In accordance with Financial Accounting Standard
No. 123 paragraph 115, this expense was deemed to be an estimate, subject to
adjustment by decreasing the expense in the period of forfeiture.
-31-
<PAGE> 32
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCK OPTIONS (CONTINUED)
Following is a summary of the status of fixed options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Outstanding, January 1, 1999 -- $ --
Granted 1,000,000 0.125
Exercised -- --
Forfeited -- --
Expired -- --
--------- ---------
Outstanding, December 31,1999 1,000,000 $ 0.125
========= =========
Exercisable, December 31, 1999 1,000,000 $ 0.125
========= =========
</TABLE>
NOTE 11-SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the following event occurred:
On March 1, 2000, a payment of $25,000 was received from Metaline Contact Mines
LLC, which will be applied to the account receivable from related parties. See
Note 5.
-32-
<PAGE> 33
METALINE CONTACT MINES
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
WILLIAMS & WEBSTER, P.S.
CERTIFIED PUBLIC ACCOUNTANTS
BANK OF AMERICA FINANCIAL CENTER
601 W. RIVERSIDE, SUITE 1940
SPOKANE; WA 99201
-33-
<PAGE> 34
METALINE CONTACT MINES
TABLE OF CONTENTS
<TABLE>
<S> <C>
ACCOUNTANT'S REVIEW REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6
</TABLE>
-34-
<PAGE> 35
[WILLIAMS & WEBSTER, P.S. LETTERHEAD]
The Board of Directors
Metaline Contact Mines
Murray, Idaho
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Metaline Contact Mines as of
September 30, 2000 and the related statements of operations, stockholders'
equity and cash flows for the nine months and three months ended September 30,
2000 and September 30, 1999, respectively. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance With
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended December 31,1999 were audited by us
and we expressed an unqualified opinion on them in our report dated March
29,2000, but we have not performed any auditing procedures since that date.
/s/ WILLIAMS & WEBSTER, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, WA
October 31, 2000
-35-
<PAGE> 36
METALINE CONTACT MINES
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 353,991 $ 321,228
Federal tax deposit -- 1,500
--------- ---------
Total Current Assets 353,991 322,728
--------- ---------
OTHER ASSETS
Receivables from related parties 109,413 226,768
Prepaid expenses 1,000 --
Investment in LLC 37,535 38,253
--------- ---------
Total Other Assets 147,948 265,021
--------- ---------
TOTAL ASSETS $ 501,939 $ 587,749
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ 25,876
Unrealized royalty income 3,000 --
--------- ---------
Total Current Liabilities 3,000 25,876
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.05 par value; 20,000,000 shares authorized,
14,064,300 and 13,564,300 shares issued and outstanding 703,222 678,222
Additional paid-in capital 302,165 302,165
Stock options 13,632 13,632
Accumulated deficit (520,080) (432,146)
--------- ---------
Total Stockholders' Equity 498,939 561,873
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 501,939 $ 587,749
========= =========
</TABLE>
See accompanying notes and accountant's review report.
36
<PAGE> 37
METALINE CONTACT MINES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting and management fees 30,075 12,500 90,075 37,785
Accounting and legal fees 1,192 104 11,903 7,442
Transfer agent fees 276 207 579 450
Office 5,622 942 7,344 2,703
Utilities -- 44 4 135
Travel and meals 81 -- 1,594 --
Taxes and licenses 10 20 69 79
------------ ------------ ------------ ------------
Total Expenses 37,256 13,817 111,568 48,594
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (37,256) (13,817) (111,568) (48,594)
------------ ------------ ------------ ------------
OTHER INCOME
Royalty income 3,000 3,000 9,000 9,000
Interest income 40 653 3,563 653
Dividend income 5,148 5,440 12,526 12,972
Miscellaneous income (expense) (755) 653 (755) 653
Income (Loss) from investment in LLC (318) (300) (700) (900)
------------ ------------ ------------ ------------
Total Other Income 7,115 9,446 23,634 22,378
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES (30,141) (4,371) (87,934) (26,216)
INCOME TAX EXPENSE -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (30,141) $ (4,371) $ (87,934) $ (26,216)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE,
BASIC AND DILUTED $ nil $ nil $ nil $ nil
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 13,378,684 12,626,800 13,378,684 12,626,800
============ ============ ============ ============
</TABLE>
See accompanying notes and accountant's review report.
37
<PAGE> 38
METALINE CONTACT MINES
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of Total
Common Common Paid-in Accumulated Stock Stockholders'
Stock Shares Stock Capital Deficit Options Equity
------------ ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AT DECEMBER 31, 1997 12,564,300 $ 628,222 $ 302,165 $ (790,638) $ -- $ 139,749
Issuance of stock at September 30, 1998
in payment of consulting fees at
$0.05 per share 250,000 12,500 -- -- -- 12,500
Net income for the year ended
December 31, 1998 -- -- -- 429,951 -- 429,951
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, AT DECEMBER 31, 1998 12,814,300 640,722 302,165 (360,687) -- 582,200
Issuances of stock for consulting fees at
$0.05 per share 750,000 37,500 -- -- -- 37,500
Stock options granted to officers and
directors for consulting fees -- -- -- -- 13,632 13,632
Net loss for the year ended
December 31, 1999 -- -- -- (71,459) -- (71,459)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 13,564,300 678,222 302,165 (432,146) 13,632 561,873
Issuances of stock for accounts payable at
$0.05 per share 500,000 25,000 -- -- -- 25,000
Net loss for the period ended
September 30, 2000 -- -- -- (87,934) -- (87,934)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, September 30, 2000 (unaudited) 14,064,300 $ 703,222 $ 302,165 $ (520,080) $ 13,632 $ 498,939
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes and accountant's review report.
38
<PAGE> 39
METALINE CONTACT MINES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (87,934) $ (26,216)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Changes in assets and liabilities:
(Increase) decrease in federal tax deposit 1,500 (293)
(Increase) decrease in account receivable 117,355 (95,653)
(Increase) in prepaid expenses (1,000) --
(Increase) decrease in investment in LLC 718 901
Increase (decrease) in accounts payable (25,876) --
Increase (decrease) in unrealized royalty income 3,000 --
Payment of expenses from issuance of stock 25,000 37,500
--------- ---------
Net cash provided (used) by operating activities 32,763 (83,761)
--------- ---------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES -- --
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES -- --
--------- ---------
Net increase (decrease) in cash and cash equivalents 32,763 (83,761)
Cash and cash equivalents beginning of period 321,228 407,347
--------- ---------
Cash and cash equivalents for end of period $ 353,991 $ 323,586
========= =========
Supplemental cash flow disclosures:
Income taxes paid $ -- $ --
========= =========
Interest paid $ -- $ --
========= =========
NON-CASH TRANSACTIONS
Stock issued in payment of consulting and other expenses $ 25,000 $ 37,500
========= =========
</TABLE>
See accompanying notes and accountant's review report.
39
<PAGE> 40
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Metaline Contact Mines (hereinafter "Metaline") was incorporated in November of
1928 under the laws of the State of Washington for the purpose of engaging in
mining and the buying and selling of ores, metals, and minerals.
The Company was reorganized and recapitalized in 1960 and its articles of
incorporation were amended to expand its business purposes to include various
additional business activities. Metaline has continued its operations since its
formation and has historically acquired land, mineral rights, patented lode
mining claims, and timber.
In the last quarter of 1996, Metaline transferred substantially all of its
assets to a limited liability company. See Note 3 and Note 8.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to
assist in understanding the financial statements. The financial statements and
notes are representations of the Company's management which is responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Interim Financial Statements
The interim financial statements as of and for the period ended September 30,
2000 included herein have been prepared for the Company without audit. They
reflect all adjustments, which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. All such adjustments
are normal recurring adjustments. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full fiscal year.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primary relate to unsettled transactions and events as of the date of
the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
-40-
<PAGE> 41
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts for cash, receivables, and payables approximate their fair
value.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
At September 30, 2000, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Impaired Asset Policy
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts. The
Company does not believe any adjustments are needed to the carrying value of its
assets at September 30, 2000.
Investments
The Company accounts for its investment in Metaline Contact Mines LLC using the
equity method. See Note 3.
Compensated Absences
Currently, the Company has no employees; therefore it is impracticable to
estimate the amount of compensation for future absences and no liability has
been recorded in the accompanying financial statements. The Company's policy
will be to recognize the costs of compensated absences when actually paid to
employees.
Basic and Diluted Loss Per Share
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Basic and diluted loss
per share was the same, as there were no common stock equivalents outstanding.
-41-
<PAGE> 42
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 3 - INVESTMENTS IN LLC
On October 30, 1996, Metaline formed a Delaware limited liability company,
Metaline Contact Mines, LLC (hereinafter "The LLC"). Upon organization of The
LLC, The Company transferred substantially all of its assets (primarily real
property surface rights and timber) to The LLC. The Company recorded its initial
investment in The LLC at $674,834, the net book value of the assets transferred.
At the time of The LLC's formation, the Company was the sole member in The LLC,
representing 100% ownership.
In 1998, the majority of the Company's interest in The LLC was expensed in
connection with the sale of the majority of The LLC's assets. See Note 5.
At the beginning of 1998, the Company's former shareholders acquired 93 percent
of The LLC by transferring their stock in the Company to The LLC in exchange for
non-managing member interests. At the conclusion of this share exchange, the
Company's percentage of ownership in The LLC was reduced to seven percent (7%).
The Company wrote down its initial investment by 93%, thus a loss of $627,596
was recorded to reflect its diluted investment in The LLC. After the write down
of its investment, application of The LLC's capital gains, and The LLC's
operating loss for the year ended December 31, 1998, the value of the Company's
investment in The LLC was $45,440.
Both before and after the share exchange, the Company was the managing member of
The LLC. See Note 5 and Note 9.
In 1999, a net loss in The LLC resulted in a decreased value of the Company's
interest to $38,383.
NOTE 4 - MINERAL PROPERTIES
In 1996, Metaline transferred timber and real property surface rights to The LLC
(see Note 3) but retained underground mineral rights to the transferred real
property and its mining claims, located in Pend Oreille County in Washington
State. The timber and real property surface rights were deemed by management to
have a value equal to their recorded cost and this cost was transferred to The
LLC. The related mineral rights are carried at no cost on Metaline's books.
In 1997, Metaline and The LLC jointly leased certain Pend Oreille County real
estate and all of its mineral rights to a major mining company. See Note 6.
NOTE 5 - RELATED PARTIES
During 1996, $33,055 was advanced to The LLC for operating expenditures. At
September 30, 2000, the remaining balance was approximately $4,000. These funds
are recorded on Metaline's books as part of a non-current, related party
receivable.
-42-
<PAGE> 43
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 5 - RELATED PARTIES (CONTINUED)
During 1998, The LLC sold property for a net gain of $5,958,762. Metaline's
share of this gain before adjustment of the Company's investment from The LLC's
operating results and write down from its substantial decrease in ownership of
The LLC (See Note 3) was $507,858. The Company recorded a non-current,
related party receivable of $105,470 for the balance of the distribution which
is expected to be received in 2000.
In June 1998, Metaline executed an agreement with Nor-Pac Limited Company
wherein, for providing management and consulting services to Metaline, Nor-Pac
was entitled to receive 500,000 shares of Metaline common stock in the second
half of 1998, 250,000 shares of Metaline common stock quarterly in 1999 and
$10,000 per month thereafter commencing on January 1, 2000. In the event that
Metaline's common stock becomes publicly trading on NASDAQ or equivalent stock
exchange, Nor-Pac shall receive as additional compensation 1,000,000 shares of
common stock (if public trading commences in 1999). In September 1998, Metaline
issued 250,000 shares of common stock to Nor-Pac and also issued another 250,000
shares in January 1999.
Throughout 1999, two additional stock issuances to NOR-PAC occurred totaling
500,000 shares in payment of consulting fees for the first and second quarter of
1999. Consulting fees for the third and fourth quarter of 1999 have been accrued
and it is expected that shares will be issued in the year 2000 in full payment
of the services.
For additional information on related parties, see Notes 3, 6 and 9.
NOTE 6 - MINING LEASE WITH PURCHASE OPTION
On September 1, 1997, Metaline and The LLC acting jointly as lessors, executed
an agreement with Cominco American Incorporated (hereinafter "Cominco") wherein
Cominco received the right to explore, develop, and mine Metaline's underground
mineral rights in Pend Oreille County, Washington for a period of twenty years
with an option renewal period of the same length. Under this lease agreement,
Cominco obligates itself to pay the lessors $3,000 per quarter for the first
five years of the lease with ascending quarterly increments at each successive
five year interval.
The aforementioned quarterly disbursements are characterized by the lease as
"advance royalty payments" which may be fully offset against a three-percent
production royalty retained by the lessors.
-43-
<PAGE> 44
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 6 - MINING LEASE WITH PURCHASE OPTION (CONTINUED)
The lease agreement, while providing that Cominco must expend $125,000 in
exploration work within the first five years of the lease, also gives Cominco
the option to purchase 200 surface acres of the leased property for fair market
value during the lease term.
From the inception of the lease through December 31, 1999, Metaline has received
$27,016 in payments from Cominco.
NOTE 7 - INCOME TAXES
The Company has available unused operating loss carryforwards that may be
applied against future taxable income of $244,581 and $52,925 expiring on
December 31, 2018 and 2019, respectively.
No deferred tax benefit has been reported in the financial statements, as the
Company believes there is a significant chance that the net operating loss
carryforwards will expire unused. Accordingly, the potential tax benefits of the
net operating loss carryforwards are offset by a valuation allowance of the same
amount. The estimated operating loss attributed to the nine months ended
September 30, 2000 was $87,000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
All earnings from The LLC in 1997 and 1996 were attributed by The LLC's
principal owners to Metaline. Accordingly, Metaline reported these earnings as
its own taxable income (on both Metaline's and The LLC's federal income tax
returns) although Metaline retained only a 6.9861 percent interest in The LLC
from the end of 1996 to December 31, 1998. For calendar 1998 and 1999, Metaline
will report only its pro rata share (6.9861%) of taxable income from The LLC,
with other LLC members reporting their respective share of LLC taxable income.
The LLC has agreed, in writing, to indemnify Metaline for any prior year income
distributions requested by other LLC members. As of December 31, 1999, no cash
or property distributions were made by the LLC to its members for
indemnification purposes. In view of the ownership changes in The LLC, future
distributions are expected to be made by The LLC to its members as determined
from time to time by Metaline, its managing member. See Note 9 regarding a
change in LLC ownership and see Note 5 regarding related party commitment.
NOTE 9 - CHANGE IN LLC OWNERSHIP
On June 1, 1998, Nor-Pac Limited Company purchased control of Metaline from its
three principal owners at the time (Bunker Limited Partnership, Hecla Mining
Company, and Metaline Mining & Leasing Company) by acquiring these entities'
interests in Metaline Contact Mines LLC. See Note 1 and Note 5.
-44-
<PAGE> 45
METALINE CONTACT MINES
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 10-STOCK OPTIONS
On November 16, 1999, the board of directors approved the Metaline Contact Mines
1999 Stock Option Plan. This plan allows the Company to distribute up to
2,000,000 shares of common stock shares to officers, directors, employees and
consultants through the authorization of the Company's board of directors at an
initial exercise price of $0.125. The options may be exercised until November
16, 2009, at which time they expire.
The fair value of each option granted was estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made to
estimate fair value: the risk-free interest rate is 6.11%, volatility is 0.3,
and the expected life of the options is ten years. Accordingly, $13,632 of the
option's expense was initially recorded in the Company's financial statements as
consulting and management fees. In accordance with Financial Accounting Standard
No. 123 paragraph 115, this expense was deemed to be an estimate, subject to
adjustment by decreasing the expense in the period of forfeiture.
Following is a summary of the status of fixed options outstanding at December
31, 1999 and September 30,2000:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Outstanding, January 1, 1999 -- $ --
Granted 1,000,000 0.125
Exercised -- --
Forfeited -- --
Expired -- --
--------- ---------
Outstanding, December 31, 1999 1,000,000 $ 0.125
========= =========
Exercisable, December 31, 1999 1,000,000 $ 0.125
========= =========
Outstanding, January 1, 2000 1,000,000 $ 0.125
Granted -- --
Exercised -- --
Forfeited -- --
Expired -- --
--------- ---------
Outstanding, September 30, 2000 1,000,000 $ 0.125
========= =========
Exercisable, September 30, 2000 1,000,000 $ 0.125
========= =========
</TABLE>
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<PAGE> 46
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATED this the 1st day of December, 2000 "Registrant"
METALINE CONTACT MINES
By: /s/ John W. Beasley
---------------------------------
John W. Beasley
Secretary
ITEM 2. DESCRIPTION OF EXHIBITS.
3(i)* A complete copy of the Company's Articles of Incorporation, as
amended.
3(ii)* A complete copy of the Company's By-Laws, as amended.
10(i)* A complete copy of the Mining Lease With Purchase Option.
10(ii)(A)* A complete copy of the Agreement for Management and Consulting
Services, as amended.
* Incorporated by reference to the Company's Registration Statement on Form
10-SB, as amended, filed on July 14, 2000, and amended on August 11, 2000, File
No. 0-31025.
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