**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

##### **FORM 10-Q**

##### ** **

**(MARK ONE)**

 
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2008.**                                                                                                                                                                                     |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                      |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 FOR THE TRANSITION PERIOD FROM                    TO                 .** |

** **

**COMMISSIONFILE NUMBER  000-29786**

 

**MINES MANAGEMENT, INC.**

(Exact Name of Registrant asSpecified in its Charter)

 

| **IDAHO**                                                       | ** ** | **91-0538859**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or  Other Jurisdiction of Incorporation or Organization) |       | (I.R.S.  Employer Identification No.) |

 

| **905 W. Riverside Avenue, Suite 311****Spokane, Washington** | ** ** | **99201**  |
|--------------------------------------------------------------------|------------|------------|
| (Address Of  Principal Executive Offices)                          |       | (Zip Code) |

 

| **(509) 838-6050**                                         |
|------------------------------------------------------------|
| (Registrant’s  Telephone Number, Including Area Code) |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  x Yes    o  No

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one):

 

| Large accelerated filer o                      |   | Accelerated filer x          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a smaller  reporting company) |   |                              |

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x

 

At May 13, 2008, 22,746,220 shares ofcommon stock, par value $0.001 per share, were issued and outstanding.

 

SEC 1296 (9-05)      Potentialpersons who are to respond to the collection of information contained in thisform are not required to respond unless the form displays a currently valid OMBcontrol number.

 

 

----

 

**MINESMANAGEMENT, INC.**

**FORM 10-Q**

**QUARTERENDED MARCH 31, 2008**

 

**INDEX**

 
| ** **                               | ** **                                                                                  | **Page** |
|------------------------------------------|---------------------------------------------------------------------------------------------|----------|
|                                     |                                                                                        |
| PART I – FINANCIAL INFORMATION |                                                                                        |
|                                     |                                                                                        |
| ITEM 1.                                  | Financial statements (unaudited)                                                            | 1        |
| ITEM 2.                                  | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 12       |
| ITEM 3.                                  | Quantitative and Qualitative Disclosures  About Market Risk and Hedging Activities          | 14       |
| ITEM 4.                                  | Controls and Procedures                                                                     | 14       |
|                                     |                                                                                        |     |
| PART II — OTHER INFORMATION    |                                                                                        |
|                                     |                                                                                        |
| ITEM 1.                                  | Legal Proceedings                                                                           | 16       |
|                                     |                                                                                        |     |
| ITEM 1A.                                 | Risk Factors                                                                                | 16       |
|                                     |                                                                                        |     |
| ITEM 2.                                  | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 16       |
| ITEM 3.                                  | Defaults Upon Senior Securities                                                             | 16       |
| ITEM 4.                                  | Submission of Matters to a Vote of Security  Holders                                        | 16       |
| ITEM 5.                                  | Other Information                                                                           | 16       |
| ITEM 6.                                  | Exhibits                                                                                    | 16       |
|                                     |                                                                                        |     |
| SIGNATURES                               |                                                                                        | 17       |

 

----

 

**PART I–FINANCIAL INFORMATION**

** **

**ITEM 1.          FINANCIALSTATEMENTS (UNAUDITED)**

** **

**MINESMANAGEMENT, INC.**

**AND SUBSIDIARIES**

 

#### **ConsolidatedFinancial Statements**

#### ** **

**March 31, 2008 and 2007**

 

----

 

**Contents**
| ** **                                                        | **Page** |
|-------------------------------------------------------------------|----------|
|                                                              |     |
| *FINANCIAL  STATEMENTS:*                                          | * * |
| * *                                                          | * * |
| *Condensed Consolidated  balance sheets*                          | *1*      |
| * *                                                          | * * |
| *Condensed Consolidated  statements of operations*                | *2*      |
| * *                                                          | * * |
| *Condensed  Consolidated statements of stockholders’ equity* | *3*      |
| * *                                                          | * * |
| *Condensed  Consolidated statements of cash flows*                | *4*      |
| * *                                                          | * * |
| *Notes to  condensed consolidated financial statements*           | *5-11*   |
| * *                                                          | * * |

 

i

----

 

**MinesManagement, Inc. and Subsidiaries**

**(AExploration Stage Company)**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

** **
| ** **                                                                                                                                                                                         | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ***Assets***                                                                                                                                                                                       |       |                     |       |                        |       |
| *CURRENT  ASSETS:*                                                                                                                                                                                 |       |                     |       |                        |       |
| Cash and  cash equivalents                                                                                                                                                                         |       | $                        | 27,176,818 |                        | $          | 29,743,372 |   |
| Interest  receivable                                                                                                                                                                               |       | 49,336                   |       | 80,662                      |       |
| Prepaid  expenses and deposits                                                                                                                                                                     |       | 106,204                  |       | 130,583                     |       |
| Total  current assets                                                                                                                                                                              |       | 27,332,358               |       | 29,954,617                  |       |
|                                                                                                                                                                                               |       |                     |       |                        |       |
| *PROPERTY  AND EQUIPMENT:*                                                                                                                                                                         |       |                     |       |                        |       |
| Construction  in progress                                                                                                                                                                          |       | 3,470,958                |       | 3,092,374                   |       |
| Mine buildings  and leasehold improvements                                                                                                                                                         |       | 783,610                  |       | 783,610                     |       |
| Equipment                                                                                                                                                                                          |       | 6,410,063                |       | 5,662,485                   |       |
| Office  equipment                                                                                                                                                                                  |       | 320,595                  |       | 297,909                     |       |
|                                                                                                                                                                                               |       | 10,985,226               |       | 9,836,378                   |       |
| Less  accumulated depreciation                                                                                                                                                                     |       | 662,479                  |       | 428,693                     |       |
|                                                                                                                                                                                               |       | 10,322,747               |       | 9,407,685                   |       |
| *OTHER  ASSETS:*                                                                                                                                                                                   |       |                     |       |                        |       |
| Certificates  of deposit                                                                                                                                                                           |       | 1,477,221                |       | 1,477,221                   |       |
| Available-for-sale  securities                                                                                                                                                                     |       | 80,427                   |       | 132,516                     |       |
| Reclamation deposits                                                                                                                                                                               |       | 1,184,966                |       | 1,184,966                   |       |
|                                                                                                                                                                                               |       | 2,742,614                |       | 2,794,703                   |       |
|                                                                                                                                                                                               |       | $                        | 40,397,719 |                        | $          | 42,157,005 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                                                                                    |       |                     |       |                        |       |
| *CURRENT  LIABILITIES:*                                                                                                                                                                            |       |                     |       |                        |       |
| Accounts  payable                                                                                                                                                                                  |       | $                        | 830,884    |                        | $          | 1,948,566 |   |
| Payroll and  payroll taxes payable                                                                                                                                                                 |       | 17,050                   |       | 23,173                      |       |
| Total  current liabilities                                                                                                                                                                         |       | 847,934                  |       | 1,971,739                   |       |
|                                                                                                                                                                                               |       |                     |       |                        |       |
| *LONG-TERM  LIABILITIES:*                                                                                                                                                                          |       |                     |       |                        |       |
| Asset  retirement obligation                                                                                                                                                                       |       | 324,800                  |       | —                      |       |
| Total  liabilities                                                                                                                                                                                 |       | 1,172,734                |       | 1,971,739                   |       |
|                                                                                                                                                                                               |       |                     |       |                        |       |
| *COMMITMENTS  AND CONTINGENCIES*                                                                                                                                                                   |       |                     |       |                        |       |
| *STOCKHOLDERS’  EQUITY:*                                                                                                                                                                      |       |                     |       |                        |       |
| Common stock  – par value $0.001, authorized 100,000,000 shares; issued and outstanding  22,746,220 and 22,236,067 shares as of March 31, 2008 and  December 31, 2007, respectively |       | 22,746                   |       | 22,236                      |       |
| Preferred  stock – no par value, 10,000,000 shares authorized; -0- shares issued and  outstanding                                                                                             |       | —                   |       | —                      |       |
| Additional  paid-in capital                                                                                                                                                                        |       | 65,596,745               |       | 64,700,129                  |       |
| Accumulated  deficit                                                                                                                                                                               |       | (1,117,306               | )          | (1,117,306                  | )          |
| Deficit  accumulated during the exploration stage                                                                                                                                                  |       | (25,346,462              | )          | (23,541,144                 | )          |
| Accumulated  other comprehensive income                                                                                                                                                            |       | 69,262                   |       | 121,351                     |       |
| Total  stockholders’ equity                                                                                                                                                                   |       | 39,224,985               |       | 40,185,266                  |       |
|                                                                                                                                                                                               |       | $                        | 40,397,719 |                        | $          | 42,157,005 |   |

 

See accompanying notes toconsolidated financial statements.

 

1

----

 

**MinesManagement, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

 
| ** **                                    | ** ** | **Three Months Ended  March 31,** | ** ** | **From Inception August 12,  2002 Through********March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                         | ** ** | **2007**                                                                              | ** ** | **2008** | ** ** |
| *REVENUE:*                                    |       |                                             |       |                                                                                  |       |   |   |
| Royalties                                     |       | $                                                | 3,080      |                                                                                  | $          | 2,015 |   | $ | 55,319 |   |
| *OPERATING  EXPENSES:*                        |       |                                             |       |                                                                                  |       |   |   |
| Administrative                                |       | 340,363                                          |       | 227,482                                                                               |       | 4,849,203 |   |
| Depreciation                                  |       | 254,946                                          |       | 28,395                                                                                |       | 630,776 |   |
| Asset  retirement accretion expense           |       | 18,787                                           |       | —                                                                                |       | 18,787 |   |
| Legal,  accounting, and consulting            |       | 263,674                                          |       | 275,094                                                                               |       | 1,806,289 |   |
| Miscellaneous                                 |       | 5,660                                            |       | 7,654                                                                                 |       | 59,574 |   |
| Exploration                                   |       | —                                           |       | 30,372                                                                                |       | 165,176 |   |
| Oil and gas  operating                        |       | —                                           |       | 113                                                                                   |       | 12,970 |   |
| Rent and  office                              |       | 41,539                                           |       | 48,966                                                                                |       | 721,900 |   |
| Compensation;  directors, officers and staff  |       | 489,625                                          |       | 260,713                                                                               |       | 8,615,007 |   |
| Taxes and  licenses                           |       | 44,930                                           |       | 48,706                                                                                |       | 304,663 |   |
| Telephone                                     |       | 8,665                                            |       | 9,458                                                                                 |       | 104,106 |   |
| Fees,  filing, and licenses                   |       | 52,061                                           |       | 112,621                                                                               |       | 1,616,966 |   |
| Environmental                                 |       | 99,862                                           |       | 43,643                                                                                |       | 957,115 |   |
| Engineering                                   |       | 2,210                                            |       | 9,162                                                                                 |       | 1,494,041 |   |
| Permitting                                    |       | 349,545                                          |       | 876,198                                                                               |       | 5,059,342 |   |
| Equipment  rent and operating                 |       | 120,051                                          |       | 65,911                                                                                |       | 480,720 |   |
| Commissions                                   |       | —                                           |       | —                                                                                |       | 68,440 |   |
| Impairment of mineral properties              |       | —                                           |       | —                                                                                |       | 504,492 |   |
| Total  operating expenses                     |       | 2,091,918                                        |       | 2,044,488                                                                             |       | 27,469,567 |   |
| *LOSS FROM  OPERATIONS*                       |       | (2,088,838                                       | )          | (2,042,473                                                                            | )          | (27,414,248 | ) |
| *OTHER  INCOME:*                              |       |                                             |       |                                                                                  |       |   |   |
| Interest                                      |       | 283,520                                          |       | 197,238                                                                               |       | 2,064,328 |   |
| Miscellaneous                                 |       | —                                           |       | —                                                                                |       | 3,458 |   |
|                                          |       | 283,520                                          |       | 197,238                                                                               |       | 2,067,786 |   |
| *NET LOSS*                                    |       | $                                                | (1,805,318 | )                                                                                     | $          | (1,845,235 | ) | $ | (25,346,462 | ) |
| *NET LOSS  PER SHARE (basic and diluted)*     |       | $                                                | (0.08      | )                                                                                     | $          | (0.14 | ) |   |   |
| *WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING* |       | 22,415,581                                       |       | 12,849,467                                                                            |       |   |   |

 

See accompanying notes toconsolidated financial statements.

 

2

----

 

**Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)**

**FROM INCEPTION (AUGUST 12, 2002) THROUGH MARCH 31,2008**

 
| ** **                                                    | ** ** | ** **            | ** ** | ** **                          | ** ** | ** **     | ** ** | ** **      | ** ** | ** **               | ** ** | ** **        | ** ** | **Deficit**         | ** ** | ** **      | ** ** | ** **  | ** **  |
|---------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|----------------|------------|-----------------|------------|--------------------------|------------|-------------------|------------|---------------------|------------|-----------------|------------|-------------|-------------|
| ** **                                                    | ** ** | ** **            | ** ** | ** **                          | ** ** | ** **     | ** ** | ** **      | ** ** | ** **               | ** ** | ** **        | ** ** | **Accumulated**     | ** ** | **Accumulated** | ** ** | ** **  | ** **  |
| ** **                                                    | ** ** | ** **            | ** ** | ** **                          | ** ** | ** **     | ** ** | ** **      | ** ** | ** **               | ** ** | ** **        | ** ** | **During the** | ** ** | **Other**       | ** ** | ** **  | ** **  |
| ** **                                                    | ** ** | **Common Stock** | ** ** | **Issuable Common Stock** | ** ** | **Additional** | ** ** | **Accumulated** | ** ** | **Exploration**          | ** ** | **Comprehensive** | ** ** | ** **          | ** ** |
| ** **                                                    | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Shares**     | ** ** | **Amount**      | ** ** | **Paid-in Capital** | ** ** | **Deficit**       | ** ** | **Stage**           | ** ** | **Income**      | ** ** | **Total**   | ** **  |
| *BALANCES,  AUGUST 12, 2002 (INCEPTION OF EXPLORATION STAGE)* |       | 5,316,956             |       | $                                   | 5,317      |           | 90,000     |            | $          | 22,500                   |       | $                 | 1,495,998  |                | $          | (1,117,306      | )          | $           | —      |   | $ | 846 |   | $ | 407,355 |   |
| Issuable common  stock issued                                 |       | 90,000                |       | 90                                  |       | (90,000        | )          | (22,500         | )          | 22,410                   |       | —            |       | —              |       | —          |       | —      |        |
| Exercise of  stock options and warrants                       |       | 1,905,579             |       | 1,905                               |       | —         |       | —          |       | 2,525,363                |       | —            |       | —              |       | —          |       | 2,527,268   |        |
| Stock-based  compensation                                     |       | 14,895,912            |       | 14,897                              |       | —         |       | —          |       | 60,656,385               |       | —            |       | —              |       | —          |       | 60,671,282  |        |
| Issuance of  stock for Heidelberg shares                      |       | 27,620                |       | 27                                  |       | —         |       | —          |       | (27                      | )          | —            |       | —              |       | —          |       | —      |        |
| Comprehensive  loss:                                          |       |                  |       |                                |       |           |       |            |       |                     |       |              |       |                |       |            |       |        |        |
| Adjustment to  net unrealized gain on marketable securities   |       | —                |       | —                              |       | —         |       | —          |       | —                   |       | —            |       | —              |       | 120,505         |       | 120,505     |        |
|                                                          |       |                  |       |                                |       |           |       |            |       |                     |       |              |       |                |       |            |       |        |        |
| Net loss                                                      |       | —                |       | —                              |       | —         |       | —          |       | —                   |       | —            |       | (23,541,144         | )          | —          |       | (23,541,144 | )           |
| Comprehensive  loss                                           |       |                  |       |                                |       |           |       |            |       |                     |       |              |       |                |       |            |       | (23,420,639 | )      |
| *BALANCES,  DECEMBER 31, 2007*                           |       | 22,236,067            |       | 22,236                              |       | —         |       | —          |       | 64,700,129               |       | (1,117,306        | )          | (23,541,144         | )          | 121,351         |       | 40,185,266  |        |
| Exercise of  stock options and warrants                       |       | 510,153               |       | 510                                 |       | —         |       | —          |       | 811,490                  |       | —            |       | —              |       | —          |       | 812,000     |        |
| Stock-based  compensation                                     |       | —                |       | —                              |       | —         |       | —          |       | 85,126                   |       | —            |       | —              |       | —          |       | 85,126      |        |
| Comprehensive  loss:                                          |       |                  |       |                                |       |           |       |            |       |                     |       |              |       |                |       |            |       |        |        |
| Adjustment to  net unrealized gain on marketable securities   |       | —                |       | —                              |       | —         |       | —          |       | —                   |       | —            |       | —              |       | (52,089         | )          | (52,089     | )           |
| Net loss                                                      |       | —                |       | —                              |       | —         |       | —          |       | —                   |       | —            |       | (1,805,318          | )          | —          |       | (1,805,318  | )           |
| Comprehensive  loss                                           |       |                  |       |                                |       |           |       |            |       |                     |       |              |       |                |       |            |       | (1,857,407  | )           |
| *BALANCES,  MARCH 31, 2008*                              |       | 22,746,220            |       | $                                   | 22,746     |           | —     |            | $          | —                   |       | $                 | 65,596,745 |                | $          | (1,117,306      | )          | $           | (25,346,462 | ) | $ | 69,262 |   | $ | 39,224,985 |   |

 

See accompanying notes to consolidated financial statements.

 

3

----

 

**MinesManagement, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** | **From Inception  August 12, 2002  Through  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| **Increase (Decrease) in Cash and Cash Equivalents** | ** ** | **2008**                                         | ** ** | **2007**                                                                    | ** ** | **2008** | ** ** |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                        | ** ** | ** **                                       | ** ** | ** **                                                                  | ** ** | ** ** | ** ** |
| Net loss                                                                           |       | $                                                | (1,805,318 | )                                                                           | $          | (1,845,235 | ) | $ | (25,346,462 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities:       |       |                                             |       |                                                                        |       |   |   |
| Stock-based compensation                                                           |       | 85,126                                           |       | —                                                                      |       | 5,100,981 |   |
| Stock received for services                                                        |       | —                                           |       | —                                                                      |       | (11,165 | ) |
| Depreciation                                                                       |       | 254,946                                          |       | 28,395                                                                      |       | 630,776 |   |
| Accretion of asset retirement obligation                                           |       | 18,787                                           |       | —                                                                      |       | 18,787 |   |
| Impairment of mineral properties                                                   |       | —                                           |       | —                                                                      |       | 504,492 |   |
| Changes in assets and liabilities:                                                 |       |                                             |       |                                                                        |       |   |   |
| Interest receivable                                                                |       | 31,326                                           |       | 34,839                                                                      |       | (49,336 | ) |
| Prepaid expenses and deposits                                                      |       | 24,379                                           |       | 40,332                                                                      |       | (166,615 | ) |
| Accounts payable                                                                   |       | (1,117,682                                       | )          | 20,013                                                                      |       | 830,884 |   |
| Payroll and payroll taxes payable                                                  |       | (6,123                                           | )          | 895                                                                         |       | 13,870 |   |
| State income taxes payable                                                         |       | —                                           |       | —                                                                      |       | (164 | ) |
| Net cash used in operating activities                                              |       | (2,514,559                                       | )          | (1,720,761                                                                  | )          | (18,473,952 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                            |       |                                             |       |                                                                        |       |   |   |
| Purchase of fixed assets                                                           |       | (824,578                                         | )          | (234,834                                                                    | )          | (7,516,150 | ) |
| Proceeds from disposition of property and equipment                                |       | 33,154                                           |       |                                                                        |       | 35,423 |   |
| Construction in progress                                                           |       | (72,571                                          | )          |                                                                        |       | (3,164,945 | ) |
| (Purchase) sale of certificates of deposit                                         |       | —                                           |       | 1,829,240                                                                   |       | (2,601,276 | ) |
| Increase in mineral properties                                                     |       | —                                           |       | —                                                                      |       | (144,312 | ) |
| Net cash provided by (used in) investing activities                                |       | (863,995                                         | )          | 1,594,406                                                                   |       | (13,391,260 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                            |       |                                             |       |                                                                        |       |   |   |
| Proceeds from sales of common stock                                                |       | 812,000                                          |       | —                                                                      |       | 58,994,695 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS*                            |       | (2,566,554                                       | )          | (126,355                                                                    | )          | 27,129,483 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD*                                   |       | 29,743,372                                       |       | 743,652                                                                     |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                         |       | $                                                | 27,176,818 |                                                                        | $          | 617,297 |   | $ | 27,176,818 |   |
| *SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING  ACTIVITIES:*                        |       |                                             |       |                                                                        |       |   |   |
| Initial measurement of asset retirement obligation                                 |       | $                                                | 306,013    |                                                                        | —     |   | $ | 306,013 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

----

 

**NOTE 1  — ORGANIZATION AND SUMMARY OF SIGNIFICANTACCOUNTING POLICIES:**

 

*Organization:*

* *

Mines Management, Inc. (the Company) is apublicly held Idaho corporation incorporated in 1947.  The Company acquires, explores, and developsmineral properties principally in North America.

 

*Summary of Significant AccountingPolicies:*

 

*(a)*                                  Principlesof consolidation

* *

The accompanying condensed consolidated financialstatements include the accounts of Mines Management, Inc., and itswholly-owned subsidiaries, Newhi, Inc., Montanore Mineral Corporation, andMontmin Corporation.  Intercompanybalances and transactions have been eliminated.

 

*(b)*                                 ExplorationStage Enterprise

* *

The Company’s financial statements are prepared inaccordance with the provisions of Statement of Financial Accounting Standards No. 7*Accounting for Development Stage Enterprises*,as it devotes substantially all of its efforts to acquiring and exploringmining interests that should eventually provide sufficient net profits tosustain the Company’s existence.  Untilsuch interests are engaged in commercial production, the Company will continueto prepare its financial statements and related disclosures in accordance withthis standard.

 

*(c)*                                  Cashand cash equivalents

* *

Cash and cash equivalents include cash on hand, cashin banks, investments in certificates of deposit with original maturities of 90days or less, and money market funds.

 

*(d)*                                 Availablefor sale securities

* *

Available for sale securities are recorded at fairvalue, with unrealized gains or losses recorded as a component of equity,unless the value of the security is considered impaired.  Realized gains and losses and non-temporaryimpairments in value are recorded in the statement of operations.

 

*(e)*                                  Fairvalue of financial instruments

* *

The Company’s financial instruments, as defined byStatement of Financial Accounting Standards (SFAS) No. 107, *Disclosures about Fair Value of Financial Instruments*,include cash and short term investments. All instruments are accounted for on a historical cost basis, which, dueto the short maturity of these financial instruments, approximates fair valueat March 31, 2008.

 

*(f)*                                    Propertyand equipment

* *

Property and equipment are stated at cost.  Buildings and leasehold improvements aredepreciated on the straight-line basis over an estimated useful life of 39years.  Machinery and furniture are generallydepreciated using accelerated methods over estimated useful lives ranging from5 to 10 years.

 

*(g)*                                 Miningproperties, exploration and development costs

* *

All exploration expenditures are expensed asincurred.  Significant propertyacquisition payments for active exploration properties are capitalized,including payments to acquire mineral rights. Once a feasibility study has been completed, approved by management, anda decision is made to put the ore body into production, expenditures to developnew mines, to define further mineralization in existing ore bodies, and toexpand the capacity of operating mines, are capitalized and amortized on theunits of production basis over proven and probable reserves.  The Company charges to operations the allocableportion of capitalized costs attributable to properties sold.  Capitalized costs are allocated to propertiessold based on the proportion of claims sold to the claims remaining within theproject area.

 

5

----

 

*(h)*                                 Assetimpairment

* *

The Company evaluates its long-lived assets forimpairment when events or changes in circumstances indicate that the relatedcarrying amount may not be recoverable. If the sum of estimated future net cash flows on an undiscounted basisis less than the carrying amount of the related asset grouping, assetimpairment is considered to exist.  Therelated impairment loss is measured by comparing estimated future net cashflows on a discounted basis to the carrying amount of the asset.  Changes in significant assumptions underlyingfuture cash flow estimates may have a material effect on the Company’sfinancial position and results of operations. During 2007, the Company identified and recognized an impairment loss asdescribed more fully in note 3.

 

*(i)*                                     Assetretirement obligations

* *

The Company has adopted SFAS No. 143, *Accounting for Asset Retirement Obligations*,which establishes a uniform methodology for accounting for estimatedreclamation and abandonment costs. According to SFAS No. 143, the fair value of a liability for anasset retirement obligation (ARO) will be recognized in the period in which itis incurred if a reasonable estimate of fair value can be made.  The ARO is capitalized as part of thecarrying value of the assets to which it is associated, and depreciated overthe useful life of the asset.

 

The Financial Accounting Standards Board (“FASB”)issued Interpretation (FIN) No. 47, *Accountingfor Conditional Asset Retirement Obligations*, which clarifies thatthe term *conditional asset retirementobligation* as used in SFAS No. 143 refers to a legal obligationto perform an asset retirement activity where the timing or method ofsettlement is conditional on a future event. Where the obligation to perform the asset retirement activity isunconditional, even though uncertainty exists about the timing or method ofsettlement, the entity is required to recognize a liability for the fair valueof the conditional retirement obligation if reasonably estimable.  FIN No. 47 also clarifies when an entitywould have sufficient information to reasonably estimate fair value.

 

*(j)*                                     DeferredIncome Taxes

* *

Deferred income tax is provided for differencesbetween the bases of assets and liabilities for financial and income taxreporting.  A deferred tax asset, subjectto a valuation allowance, is recognized for estimated future tax benefits oftax-basis operating losses being carried forward.

 

The FASB has issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with FASB Statement No. 109, Accountingfor Income Taxes. FIN 48 prescribes a recognition threshold and measurementstandard for the financial statement recognition and measurement of an incometax position taken or expected to be taken in a tax return.  In addition, FIN 48 provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition.  The Company adopted FIN 48 on January 1, 2007. At March 31,2008 the provisions of FIN 48 had no effect on the Company’s financialstatements.

 

*(k)*                                  Stockcompensation

* *

The Company measures and records the costs ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award, recognized over the period duringwhich an employee is required to provide services in exchange for suchaward.  The Company uses the “modifiedprospective method” of transition as described under SFAS No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure.  Under this method, compensation cost isrecognized for awards granted and for awards modified, repurchased or cancelledin the period after adoption. Compensation cost is also recognized for the unvested portion of awardsgranted prior to adoption.  The fairvalue for each option award is estimated at the date of grant using theBlack-Scholes option-pricing model.  TheCompany recognized stock-based compensation of $85,126 (of which $29,591 wasfor services performed by outside parties), and $0 for the periods ended March 31,2008 and 2007, respectively.

 

At March 31, 2008, the Company had two stockoption plans, which are described more fully in note 6.

 

*(l)*                                     Netloss per share

* *

Basic and diluted loss per share is computed usingthe weighted average number of shares outstanding during the periods. Stockoptions and warrants outstanding were anti-dilutive during the periodspresented and are not 

 

6

----

 

considered in the computation.  Outstanding options to purchase 1,621,000 and2,199,000 shares and outstanding warrants to purchase 5,965,333 and 1,517,834shares were not included in the computation of diluted earnings per share at March 31,2008 and 2007, respectively.

 

*(m)*                               Reclassifications

* *

Certain amounts in the prior-period financialstatements have been reclassified for comparative purposes to conform tocurrent period presentation with no effect on total assets or net loss aspreviously reported.

 

*(n)*                                 Assumptionsand use of estimates

* *

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting period.  Actual results may differ from thoseestimates.

 

**NOTE 2  —STOCKHOLDERS’ EQUITY:**

** **

*Common Stock:*

 

In 2003, the Company sold 1,152,007 common sharesfor $1,267,207 ($1.10 per share).  Inconnection with the stock sales, the Company granted warrants to purchase up to1,152,007 common shares at $1.20 per share through two years from the date ofissue.  Cumulative warrants exercisedrelating to this issue were 1,152,007 shares at March 31, 2008 and December 31,2007, respectively.

 

In 2004, the Company sold 1,285,000 common sharesfor $6,425,000 ($5.00 per share).  Inconnection with the stock sales, the Company granted warrants to purchase up to511,000 shares of common stock at $7.25 per share through five years from theinitial exercise date.  The Company paida cash finder’s fee of 7% of the gross purchase price received in theoffering.  The finder also received 3%warrant compensation, or warrants to purchase 192,750 common shares at $7.25per share through February 18, 2009. The warrant exercise price was reduced to $6.00 per share in October 2005,to $5.00 per share in April 2007 and to $4.00 per share in November 2007in accordance with the anti-dilution provisions of the 2004 warrant agreement.Cumulative warrants exercised relating to this issue at March 31, 2008 andDecember 31, 2007, were 148,750 and 145,750, respectively.

 

In 2005, the Company sold 1,016,667 common sharesfor $6,100,002 ($6.00 per share).  Inconnection with the stock sales, the Company granted warrants to purchase up to737,084 shares of common stock at $8.25 per share through five years from thedate of issuance.  To date, no warrantshave been exercised.  The Company paid acash finder’s fee of 7% of the gross purchase price received in theoffering.  The finder also received a3.75% warrant compensation, or warrants to purchase 228,750 common shares at$8.25 per share through October 20, 2010. The exercise price of these warrants were was reduced to $5.00 per sharein April 2007 in accordance with the anti-dilution provisions of the 2005warrant agreement.

 

In 2005, the Company sold 40,000 common shares for$240,000 ($6.00 per share).

 

On April 20, 2007 the Company completed apublic offering of 6,000,000 units at a price of $5.00 per unit, resulting ingross proceeds of $30,000,000 ($28,200,000 net proceeds).  Each unit is comprised of one share of commonstock and one-half of one common stock purchase warrant, with each full warrantbeing exercisable for five years to purchase one share of common stock at aprice of $5.75 per share.  The warrantsare listed on the TSX and are tradable in US dollars under the symbol MGT.GT.U.

 

The underwriters were granted an over-allotmentoption, exercisable for a period of 30 days following the closing, to acquireup to an additional 900,000 units.   On May 7,2007, the underwriters exercised the over-allotment option for 836,600units.  The total offering was therefore6,836,600 units for gross proceeds to the Company of $34,183,000, or$32,124,697 in net proceeds to the Company, after deducting underwritingcommissions but before deducting offering expenses.

 

On November 2, 2007 the Company sold 2,500,000common shares in a private placement at a price of $4.00 per share, resultingin gross proceeds of $10,000,000.  Inconnection with the stock sale, the Company entered into a Right of FirstRefusal agreement (the “ROFR”) which grants a twenty-year right of firstproposal and a right to match third-party proposals, to purchase all or anyportion of silver mined, produced or recovered by the Company in the State ofMontana.  

 

7

----

 

The ROFR does not apply to trade sales and spotsales in the ordinary course of business or forward sales, in each case, forwhich no upfront payment is received by the Company

 

*Preferred Stock:*

 

The Company has authorized 10,000,000 shares of nopar value preferred stock.  Through March 31,2008, the Company had not issued any preferred stock.

 

**NOTE 3  —MINING PROPERTIES**

** **

*Montanore:*

 

The Montanore property is located in northwesternMontana and includes 18 mining claims covering 355 acres plus one 5-acrepatented mill site.  In August 2002,the Company acquired a controlling interest in the Montanore silver and copperdeposit in Sanders County, Montana.  TheCompany received a quitclaim deed from Noranda Mineral Corp. (Noranda) whenNoranda elected to withdraw from the project.   In December 2002, the Company received a quitclaim deed to allintellectual property connected with studies that Noranda carried out on the project.

 

During the fourth quarter of 2007, the Companydetermined that the $278,519 carrying value of this property should be writtenoff due to the fact that a significant portion of the balance representedexploration costs inappropriately capitalized in prior years.

 

*Advance and Iroquois:*

 

The Advance property consists of 720 acres ofpatented mineral rights.  Although theCompany does not own the overlying surface rights to its patented mineralrights, it does have right of access to explore and mine.  The Iroquois property consists of 64 acres ofpatented mineral and surface rights and 15 unpatented mining claims containing300 acres.

 

During the fourth quarter of 2007, the Companyevaluated the carrying values of these properties and determined to record animpairment adjustment of $225,973 based on its assessment of the likely futurecash flows from the properties.

 

**NOTE 4  —CONSTRUCTION IN PROGRESS**

** **

The Company is in the process of constructing awater treatment plant at the proposed Montanore mine site in Libby,Montana.  This project was substantiallycomplete as of March 31, 2008 with approximately $1,409,000 included inconstruction in progress as of March 31, 2008.

 

Construction has also begun on the undergroundelectrical, pumping, and ventilation systems at the Libby adit at the Montanoreproject.  The anticipated cost of theseprojects is expected to total $2,517,000 with approximately $1,492,000 includedin construction in progress as of March 31, 2008.

 

Also included in construction in progress as of March 31,2008 are $215,000 and $49,000 in costs associated with the construction of alined waste repository and storage facilities, respectively, at the Montanoremine site.  Estimated total cost of theseprojects is $217,000 and $87,500, respectively.

 

**NOTE 5  —INVESTMENTS**

** **

*Certificates of Deposit:*

* *

The Company owns a $115,684 certificate of depositwhich matures in September 2008 and has an interest rate of 3.64%.  The Company also owns six $226,923certificates of deposit for a total of $1,361,537.  These investments mature in 2009 and earnrates of 4.21%.  Included withreclamation deposits, the Company has a $1,124,055 certificate of deposit whichis pledged as security for a Letter of Credit to the Montana Department ofEnvironmental Quality for the reclamation guarantee for the Montanore expansionevaluation program.  This certificatematures in January 2009 and will automatically renew annually.  It currently earns a rate of 4.5%.

 

*Available-for-sale Securities:*

* *

The Company owns 45,000 free-trading shares ofBitterroot Resources, Ltd. (BTT), a public Canadian corporation traded on theToronto Venture Exchange.  The shares areheld as “available for sale.”  Thisinvestment is being recorded at fair market value with a corresponding adjustmentto stockholders’ equity.  The shares hada market value of $13,663 and 

 

8

----

 

$15,484 at March 31, 2008 and December 31,2007, respectively.  The Company alsoowns 196,000 free-trading shares of Pancontinental Uranium Corporation(previously Centram Exploration Ltd.), a public Canadian corporation traded onthe Toronto Venture Exchange.  The sharesare held as “available for sale.”  Theshares were received in 2002 in exchange for administrative services providedby the Company.  The 196,000 free-tradingshares had a market value of $66,764 and $117,032 at March 31, 2008 and December 31,2007 respectively.

 

**NOTE 6  —STOCK OPTIONS**

** **

During the year ended December 31, 2003, theshareholders of the Company approved two stock-based compensation plans – the2003 Stock Option Plan (which includes both qualified and nonqualified options)and the 2003 Consultant Stock Compensation Plan.  Under the 2003 Stock Option Plan, the Companymay grant options to purchase up to 1,200,000 shares of common stock.  Under the 2003 Consultant Stock CompensationPlan, the Company may grant options to purchase up to 400,000 shares of commonstock.  During 2004, the Companyincreased the maximum number of common shares available under the 2003 StockOption Plan and the 2003 Consultant Stock Compensation Plan to 3,000,000 and700,000 shares, respectively.  The sharesare issued from the Company’s authorized and unissued common stock uponexercise.

 

Under both 2003 Stock Option Plans, the optionexercise price may not be less than 100% of the fair market value per share onthe date of grant.  Stock options areexercisable within ten years from the date of the grant of the option.  Vesting of the options granted under bothplans is at the discretion of the Board of Directors.

 

In November 2007, the Board of Directorsadopted, subject to shareholder approval, the 2007 Equity Incentive Plan (the “2007Plan”), which provides for the issuance of both qualified and nonqualifiedstock options and restricted shares to directors, employees and consultants ofthe Company.  Up to 3,000,000 shares ofthe Company’s authorized but unissued common stock are available for issuanceunder the 2007 Plan.  On December 17,2007, the Company issued 750,000 stock options under the 2007 Plan to directorsand officers, subject to shareholder approval. The options had an exercise price of $2.99 per share, representing theshare price at the close of trading on December 17, 2007, with 50% of theoptions vesting on June 1, 2008 and 50% vesting on June 1, 2009.

 

The Company has a policy of re-pricing stock optionswhen the market price of the stock is $1.00 below the exercise price of theoutstanding option.  The newly issuedoption has the same vesting schedule and expiration date as the option that iscancelled.  During 2007, the Companycancelled and reissued 1,670,000 stock options held by 12 employees, includingofficers and directors. As a result of those actions, the Company recognizedadditional compensation expense of $462,527 for the year ended December 31,2007.  On May 16, 2007, 505,000options having an exercise price of $5.01 per share were cancelled and replacedby options having an exercise price of $3.90 per share, the closing price ofthe Company’s common stock on May 16, 2007.  On July 6, 2007, 505,000 options withexercise prices of $4.34 and $4.65 per share were cancelled and an equal numberof options were issued having an exercise price of $3.33 per share, the closingprice of the Company’s stock on July 6, 2007.  On August 16, 2007, 660,000 optionshaving exercise prices ranging from $3.90 to $3.95 per share were cancelled andreplaced by options having an exercise price of $2.82 per share, the closingprice of the Company’s common stock on August 16, 2007.

 

A summary of the option activity under the Plans asof March 31, 2008, and changes during the period then ended, is presentedbelow:

 
| ** **                          | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at January 1, 2008 |       | 2,136,000                   |       | $                                       | 2.68       |                                                 |       |                                |       |   |
| Granted                             |       | 10,000                      |       | $                                       | 3.30       |                                                 |       |                                |       |   |
| Exercised                           |       | (520,000                    | )          | $                                       | 1.65       |                                                 |       |                                |       |   |
| Forfeited or expired                |       | (5,000                      | )          | $                                       | 6.20       |                                                 |       |                                |       |   |
| Outstanding at March 31, 2008  |       | 1,621,000                   |       | $                                       | 3.00       |                                                 | 2.79       |                                | $          | 1,594,850 |   |
| Exercisable at March 31, 2008  |       | 1,326,000                   |       | $                                       | 2.99       |                                                 | 1.81       |                                | $          | 806,500 |   |

 

The fair value for each option award is estimated atthe date of grant using the Black-Scholes option-pricing model using theassumptions noted in the following table.  Volatility for the periods presented is based on the historicalvolatility of the Company’s common stock over the expected life of theoption.  The risk-free rate for periodswithin the expected term of 

 

9

----

 

the option is based on the U.S. Treasury yield curvein effect at the time of the grant.  TheCompany does not foresee the payment of dividends in the near term.

 
| ** **                                | ** ** | **Quarters Ended  March 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                | ** ** | **2008**                                | ** ** | **2007(1)** | ** ** |
| Weighted average risk-free interest rate  |       | 3.85                                    | %          | — |   |
| Weighted average volatility               |       | 56.95                                   | %          | — |   |
| Expected dividend yield                   |       | —                                  |       | — |   |
| Weighted average expected life (in years) |       | 2.00                                    |       | — |   |

 

----

(1)  No options were granted during the firstquarter of 2007.

 

The weighted average grant-date fair value of optionsgranted during the quarterly period ending March 31, 2008 was $1.12.  The total intrinsic value of the optionsexercised during the quarterly period ended March 31, 2008, was$1,311,230.

 

A summary of the status of the Company’s nonvestedoptions as of March 31, 2008, and changes during the year then ended, ispresented below:

 
| ** **                        | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------------|------------|
| Nonvested at January 1, 2008 |       | 290,000                     |       | $                                                   | 1.27       |   |
| Granted                           |       | 10,000                      |       | $                                                   | 1.12       |   |
| Vested                            |       | (5,000                      | )          | $                                                   | 1.12       |   |
| Forfeited                         |       | —                      |       | —                                              |       |
| Nonvested at March 31, 2008  |       | 295,000                     |       | $                                                   | 1.27       |   |

 

As of March 31, 2008, there was $921,643 ofunrecognized compensation cost related to nonvested share-based compensationarrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period ofone year.  The total fair value of sharesvested during the quarterly periods ended March 31, 2008 and 2007 was$5,600 and $-0-, respectively.

 

Total compensation costs recognized for stock-basedemployee compensation awards was $55,535 and $-0- for the periods ended March 31,2008 and 2007, respectively included in compensation expense on the Statementof Operations.  Total costs recognizedfor stock-based compensation awards for services performed by outside partieswas $29,591 and $-0- for the periods ended March 31, 2008 and 2007,respectively included in administrative and environmental expenses on theStatement of Operations.  Cash receivedfrom options exercised under all share-based payment arrangements for the periodsended March 31, 2008 and 2007 was $812,000 and $-0-, respectively.

 

**NOTE 7  —CONCENTRATION OF CREDIT RISK**

** **

The Company maintains its cash and cash equivalentsin two financial institutions.  Balancesare insured by the Federal Deposit Insurance Corporation up to $100,000.

 

10

----

 

**NOTE 8 —ASSET RETIREMENT OBLIGATIONS**

** **

Included in the Company’s construction in progressaccount is an asset related to an asset retirement obligation (ARO) associatedwith the Company’s underground evaluation program on the MontanoreProject.  The ARO resulted from thereclamation and remediation requirements of the Montana Department ofEnvironmental Quality as outlined in the Company’s permit to carry out itsevaluation program.

 

Estimated reclamation costs were discounted using acredit adjusted risk-free interest rate of 4.78% from the time the Companyexpects to pay the retirement obligation to the time it incurred theobligation, which is estimated at 25 years. The following table summarizes activity in the Company’s assetretirement obligation:

 
| ** **             | ** ** | **Three Months  Ended  March 31, 2008** | ** ** |
|------------------------|------------|--------------------------------------------------------|------------|
| Beginning balance      |       | —                                                 |       |
| Revisions of estimates |       | $                                                      | 306,013    |   |
| Accretion expense      |       | 18,787                                                 |       |
| Ending balance         |       | $                                                      | 324,800    |   |

 

11

----

 
| **ITEM 2.** | ** ** | **MANAGEMENT’S DISCUSSION  AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

Advancing the Montanore Silver-Copper Projectcontinues to be the Company’s main focus. In addition to its planned advanced exploration and delineation drillingprogram, the Company is continuing its repermitting efforts with federal andstate agencies and its optimization review of the Project.

 

## **Overview**

 

In the first quarter of 2008, the Company:

 

·                  Receivednotice from Montana Department of Environmental Quality (DEQ) confirming thatHard Rock operating Permit 150, originally issued in 1993, was transferred tothe Company with the acquisition of Noranda Mineral Corporation in 2006.

 

·                  HiredMr. John Thompson, Vice President/General Manager for the MontanoreProject, effective January 1, 2008.

 

·                  SelectedSmall Mine Development of Boise, Idaho (SMD) as contractor to manage activitiesrelated to rehabilitation and advancement of the Libby adit and drill stationdevelopment.

 

·                  Maintaineda strong cash and investment position with $28.7 million on hand at March 31,2008.

 

The Company has initiated its planned two-yearadvanced exploration and delineation drilling program at the MontanoreProject.  During the first quarter of2008, the Company continued to make preparations for the commencement ofdrifting and delineation drilling, including commissioning of the watertreatment plant and preliminary work on the rehabilitation of the Libbyadit.  Full scale dewatering andrehabilitation are expected to begin upon completion of the environmentassessment covering the Company’s proposed road use during the program by theU.S. Forest Service.

 

When dewatering and rehabilitation is complete, theCompany plans to advance the adit approximately 3,000 feet toward the center ofthe deposit, then complete an additional 10,000 feet of development drifting toprovide drill access to different portions of the deposit, construct drillstations, and complete diamond core drilling of approximately 50 holes totalingapproximately 45,000 feet.

 

The objectives of the advanced exploration anddelineation drilling program are to:

 

·                  Expandthe known higher grade intercepts of the Montanore deposit;

 

·                  Developadditional information about the deposit;

 

·                  Furtherassess and define the mineralized zone; and

 

·                  Provideadditional geotechnical, hydrological, and other data.

 

Results of the drilling program, if successful, areexpected to provide data to support the completion of a bankable feasibilitystudy.

 

The net cash expenditures for the quarter ending March 31,2008 were $0.9 million for the purchase of equipment and commissioning of thewater treatment plant and other site infrastructure and $2.5 million foroperating activities.  The Companybelieves that it has sufficient working capital for rehabilitation of the Libbyadit and commencement of drifting and delineation drilling.

 

**Advanced Exploration andDelineation Drilling Program**

 

In the first quarter of 2008, the Montanore Projectcontinued to make progress on several fronts. Construction work at the siteincluded commissioning of the water treatment plant and construction of anoutside storage facility.  Minormodifications were made during the testing and initial start up of the watertreatment plant, which included the addition of a pH control system andmiscellaneous adjustments to various programmable control systems.  Additional work on the water treatment systemincluded the design of the underground sumps and the rehabilitation ofapproximately 100 ft. of adit 

 

12

----

 

immediately beyond the steel sets.  A contract for the design and engineeringstudy of a nitrate removal system to be added to the water treatment plant wasawarded in the first quarter.

 

Additional work directly related to therehabilitation included an initial ground control and support evaluation of theexisting ground conditions by an outside ground support consultant. A requestfor quotation was prepared and sent out to several mining contractors for therehabilitation work.  Bids were receivedback and evaluated with an award in March 2008 for the work to Small MineDevelopment of Boise, Idaho.  Work wasalso initiated on the layout and design of the delineation drilling program.

 

The commissioning and start-up of the Sandvik roofbolting machine and the Getman scaler have been completed with both machinesfunctioning satisfactorily.  Equipmentreceived during the first quarter included an underground lube/service truckand a scissor lift platform truck.

 

**Permitting and Environmental**

 

In the first quarter of 2008, the Company continuedto work with the federal and state agencies reviewing the preliminary draftenvironmental impact statement (PDEIS). Included in this review is the development of monitoring plans andmitigation for the Project to address potential impact on surface and groundwater, grizzly bear, bull trout, and other natural resources.  Management expects that a draft EIS will beissued to the public for comment this summer.

 

An updated Plan of Operations was submitted to theMontana DEQ in February 2008 and, upon request from the DEQ, the Companywithdrew its 2004 permit application. The DEQ will consider the updated plan as a formal request to revise theexisting permit and its approval of the proposed revisions is pending thecompletion of the EIS in coordination with the USFS.

 

Commencement of dewatering and rehabilitation of theLibby adit are pending approval by the U.S. Forest Service (USFS) of anenvironmental assessment regarding the Company’s proposed road use during thatprocess.  The EA was requested by theUSFS in mid-2007 and submitted for review in August 2007.

 

**Financial and Operating Results**

 

Mines Management is an exploration stage companywith a large silver-copper project, the Montanore Project, located innorthwestern Montana.  The Companycontinues to expense all of its expenditures with the exception of equipmentand infrastructure which are capitalized.  The Company has no revenues from mining operations.  Financial results of operations includeprimarily interest income, general and administrative expenses, permitting,project advancement and engineering expenses.

 

**Quarter Ended March 31, 2008**

 

The Company reported a net loss for the quarterended March 31, 2008 of $1.8 million, or $0.08 per share, compared to anet loss of $1.8 million, or $0.14 per share, for the quarter ended March 31,2007.  There were increases in operatingexpenses of approximately $50,000, principally in administrative expenditures, compensation,environmental expenses, equipment rental and depreciation, during the firstquarter of 2008 compared to the first quarter of 2007.  These increases resulted from additionalinvestor relation activities in 2008 and the addition of employees, equipment,and infrastructure to support the Company’s advanced exploration anddelineation drilling program.  Permittingcosts decreased by approximately $0.5 million during the first quarter of2008 compared to the first quarter of 2007 because there were substantialexpenditures during 2007 related to the assessment and design of the watertreatment system.

 

**Liquidity**

 

During the quarter ended March 31, 2008, thenet cash used for operating activities was $2.5 million, which consistedlargely of permitting and administrative expenses associated with increasedactivities at the Montanore Project site. The net cash used in investing activities during the quarter was $0.9million for procurement of equipment and construction in progress.

 

The Company anticipates spending approximately $15.6million from cash and investments on hand during the final three quarters of2008 for activities and equipment purchases related to the advanced explorationand delineation drilling program and repermitting efforts at the MontanoreProject. The Company believes that it has sufficient working capital forrehabilitation of the Libby adit and commencement of delineation drilling.

 

13

----

 

## **Forward Looking Statements**

 

Some information contained in or incorporatedby reference into this report may contain forward looking statements.  These statements include comments regardingfurther exploration and evaluation of the Montanore Project, including plannedrehabilitation and extension of the Libby Adit, drilling activities,feasibility determination, engineering studies, environmental and permittingrequirements, process and timing; financing needs; planned expenditures in2008; potential completion of a bankable feasibility study; and the markets forsilver and copper.  The use of any of thewords “development”, “anticipate”, “continues”, “estimate”, “expect”, “may”, “project”,“should”, “believe”, and similar expressions are intended to identifyuncertainties.  The Company believes theexpectations reflected in those forward looking statements are reasonable.  However, the Company cannot assure that theexpectations will prove to be correct. Actual results could differ materially from those anticipated in theseforward looking statements as a result of the factors set forth below and otherfactors set forth and incorporated by reference into this report:

 

·                  Worldwideeconomic and political events affecting the supply of and demand for silver andcopper

 

·                  Volatilityin the market price for silver and copper

 

·                  Financialmarket conditions and the availability of financing on acceptable terms

 

·                  Uncertaintiesassociated with developing new mines

 

·                  Variationsin ore grade and other characteristics affecting mining, crushing, milling andsmelting and mineral recoveries

 

·                  Geological,technical, permitting, mining and processing problems

 

·                  Theavailability, terms, conditions and timing of required governmental permits andapprovals, and potential opposition to the majority of permits

 

·                  Uncertaintyregarding future changes in applicable law or implementation of existing law

 

·                  Theavailability of experienced employees

 

·                  Thefactors discussed under “Risk Factors” in our Form 10-K for the periodending December 31, 2007.

 
| **ITEM 3.** | ** ** | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND HEDGING ACTIVITIES** |
|-------------|------------|----------------------------------------------------------------------------------------|

** **

All of our cash balances are held in U.S.dollars and our long term investment certificates of deposit are denominated inU.S. dollars in local and national banking institutions.  We manage the timing of cash required forreview of the permitting and engineering of the Montanore Project and forgeneral corporate purposes utilizing our money market account and we investfunds not immediately required in certificates of deposit with varyingmaturities and fixed early retirement costs of three months interest.  Our policy is to invest only in governmentand corporate grade securities rated “investment grade” or better.

 

The market prices of base and precious metalssuch as silver and copper fluctuate widely and are affected by numerous factorsbeyond the control of any mining company. These factors include expectations with regard to the rate of inflation,the exchange rates of the dollar and other currencies, interest rates, globalor regional political, economic or banking crises, and a number of otherfactors.  If the market price of silveror copper should decrease, the value of the Company’s Montanore Project coulddecline and the Company might not be able to recover its investment in thatproject.  Any determination to develop orconstruct a mine would be made long before the first revenues from productionwould be received.  Price fluctuationsbetween the time that such decisions are made and the commencement ofproduction could affect the economics of the mine.

 
| **ITEM 4.** | ** ** | **CONTROLS AND PROCEDURES** |
|-------------|------------|-----------------------------|

** **

Glenn M. Dobbs, the Company’s President andCEO, and James H. Moore, the Company’s Chief Financial Officer and Treasurer,have evaluated the Company’s disclosure controls and procedures as of March 31,2008.  Based upon this evaluation, theChief Executive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are designed and were effective as of March 31,2008 to give reasonable assurances that the information 

 

14

----

 

required to be disclosed in the reports thatthe Company’s files or submits under the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission, and that such information is also accumulated and communicated tothe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer.

 

There were no changes in the Company’sinternal controls or, to the knowledge of the management of the Company, anyother changes that materially affect, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

15

----

 

**PART II — OTHER INFORMATION**

** **

**ITEM 1.**                                                     LEGAL PROCEEDINGS

** **

None

 

**ITEM 1A.**                                            RISK FACTORS

** **

There are nomaterial changes from the risk factors previously disclosed in the Company’sAnnual Report on Form 10-K for the year ending December 31, 2007.

 

**ITEM 2.**                                                     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

** **

None

 

**ITEM 3.**                                                     DEFAULTS UPON SENIOR SECURITIES

** **

None

 

**ITEM 4.**                                                     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

** **

None

 

**ITEM 5.**                                                     OTHER INFORMATION

** **

None

 

**ITEM 6.**                                                     EXHIBITS

** **

31.1                          Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct

 

31.2                          Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct

 

32.1                          Certificationof Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of theSarbanes-Oxley Act)

 

32.2                          Certificationof Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of theSarbanes-Oxley Act)

 

16

----

 

# **SIGNATURES**

# ** **

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on behalf of the undersigned thereuntoduly authorized.

 

 
|                     |   |                                   |
|--------------------------|--------|----------------------------------------|
| Date:  May 15, 2008 | By:    | /s/ Glenn M.  Dobbs                    |
|                     |   | Glenn M.  Dobbs                        |
|                     |   | President  and Chief Executive Officer |
|                     |   |                                   |
|                     |   |                                   |
| Date:  May 15, 2008 | By:    | /s/ James H.  Moore                    |
|                     |   | James H.  Moore                        |
|                     |   | Chief  Financial Officer               |

 

17

----

 

**EXHIBIT INDEX**

 

31.1                          Certification of ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 

31.2                          Certification of ChiefFinancial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 

32.1                          Certification of ChiefExecutive Officer pursuant to 18 U.S.C., 1350 (Section 906 of theSarbanes-Oxley Act)

 

32.2                          Certification of ChiefFinancial Officer pursuant to 18 U.S.C., 1350 (Section 906 of theSarbanes-Oxley Act)

 

----