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|   | **UNITED  STATES**                      |     OMB APPROVAL                                                                              |
|--------|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|   | **SECURITIES AND EXCHANGE  COMMISSION** | OMB Number: 3235-0070

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|   | **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 June 30, 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**

 

###### **MINESMANAGEMENT, 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.  xYes    oNo

 

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 August 11, 2008, 22,746,220 shares ofcommon stock, par value $0.001 per share, were issued and outstanding.

 

SEC 1296 (9-05)       Potential persons who are to respond tothe collection of information contained in this form are not required torespond unless the form displays a currently valid OMB control number.

 

 

 

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**MINESMANAGEMENT, INC.**

**FORM 10-Q**

**QUARTERENDED JUNE 30, 2008**

 

**INDEX**

 
|                                     |                                                                                        | **Page** |
|------------------------------------------|---------------------------------------------------------------------------------------------|----------|
| PART I – FINANCIAL INFORMATION |                                                                                        |
|                                     |                                                                                        |
| ITEM 1.                                  | Financial statements (unaudited)                                                            | i        |
| ITEM 2.                                  | Management’s Discussion and Analysis of Financial Condition and  Results of Operations | 10       |
| ITEM 3.                                  | Quantitative and Qualitative Disclosures About Market Risk and  Hedging Activities          | 12       |
| ITEM 4.                                  | Controls and Procedures                                                                     | 12       |
|                                     |                                                                                        |     |
| PART II — OTHER INFORMATION    |                                                                                        |
|                                     |                                                                                        |
| ITEM 1.                                  | Legal Proceedings                                                                           | 14       |
| ITEM 1A.                                 | Risk Factors                                                                                | 14       |
| ITEM 2.                                  | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 14       |
| ITEM 3.                                  | Defaults Upon Senior Securities                                                             | 14       |
| ITEM 4.                                  | Submission of Matters to a Vote of Security  Holders                                        | 14       |
| ITEM 5.                                  | Other Information                                                                           | 14       |
| ITEM 6.                                  | Exhibits                                                                                    | 14       |
|                                     |                                                                                        |     |
| SIGNATURES                               |                                                                                        | 15       |

 

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**PART I– FINANCIAL INFORMATION**

 

**ITEM1.**                                                     FINANCIAL STATEMENTS (UNAUDITED)

 

**Contents**

 
| ** **                                             | **Page** |
|--------------------------------------------------------|----------|
|                                                   |     |
| *FINANCIAL  STATEMENTS:*                               | * * |
| * *                                               | * * |
| *Condensed  consolidated balance sheets*               | *1*      |
| * *                                               | * * |
| *Condensed  consolidated statements of operations*     | *2*      |
| * *                                               | * * |
| *Condensed  consolidated statements of cash flows*     | *3*      |
| * *                                               | * * |
| *Notes to condensed consolidated financial statements* | *4-9*    |

 

i

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**MinesManagement, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

** **
| ** **                                                                                                                                                                                        | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ***Assets***                                                                                                                                                                                      |       |                    |       |                        |       |
| *CURRENT  ASSETS:*                                                                                                                                                                                |       |                    |       |                        |       |
| Cash and  cash equivalents                                                                                                                                                                        |       | $                       | 24,703,403 |                        | $          | 29,743,372 |   |
| Interest  receivable                                                                                                                                                                              |       | 77,288                  |       | 80,662                      |       |
| Prepaid  expenses and deposits                                                                                                                                                                    |       | 201,240                 |       | 130,583                     |       |
| Total  current assets                                                                                                                                                                             |       | 24,981,931              |       | 29,954,617                  |       |
|                                                                                                                                                                                              |       |                    |       |                        |       |
| *PROPERTY  AND EQUIPMENT:*                                                                                                                                                                        |       |                    |       |                        |       |
| Construction  in progress                                                                                                                                                                         |       | 1,860,675               |       | 3,092,374                   |       |
| Mine  buildings and leasehold improvements                                                                                                                                                        |       | 836,454                 |       | 783,610                     |       |
| Plant and  equipment                                                                                                                                                                              |       | 8,044,539               |       | 5,662,485                   |       |
| Office  equipment                                                                                                                                                                                 |       | 326,000                 |       | 297,909                     |       |
|                                                                                                                                                                                              |       | 11,067,668              |       | 9,836,378                   |       |
| Less  accumulated depreciation                                                                                                                                                                    |       | 918,713                 |       | 428,693                     |       |
|                                                                                                                                                                                              |       | 10,148,955              |       | 9,407,685                   |       |
| *OTHER  ASSETS:*                                                                                                                                                                                  |       |                    |       |                        |       |
| Certificates  of deposit                                                                                                                                                                          |       | 1,477,221               |       | 1,477,221                   |       |
| Available-for-sale  securities                                                                                                                                                                    |       | 103,927                 |       | 132,516                     |       |
| Reclamation deposits                                                                                                                                                                              |       | 1,184,966               |       | 1,184,966                   |       |
|                                                                                                                                                                                              |       | 2,766,114               |       | 2,794,703                   |       |
|                                                                                                                                                                                              |       | $                       | 37,897,000 |                        | $          | 42,157,005 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                                                                                   |       |                    |       |                        |       |
| *CURRENT  LIABILITIES:*                                                                                                                                                                           |       |                    |       |                        |       |
| Accounts  payable                                                                                                                                                                                 |       | $                       | 439,336    |                        | $          | 1,948,566 |   |
| Payroll and  payroll taxes payable                                                                                                                                                                |       | 25,087                  |       | 23,173                      |       |
| Total current  liabilities                                                                                                                                                                        |       | 464,423                 |       | 1,971,739                   |       |
|                                                                                                                                                                                              |       |                    |       |                        |       |
| *LONG-TERM  LIABILITIES:*                                                                                                                                                                         |       |                    |       |                        |       |
| Asset  retirement obligation                                                                                                                                                                      |       | 367,160                 |       | —                      |       |
| Total  liabilities                                                                                                                                                                                |       | 831,583                 |       | 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 June 30, 2008 and  December 31, 2007, respectively |       | 22,746                  |       | 22,236                      |       |
| Preferred  stock – no par value, 10,000,000 shares authorized; no shares issued and  outstanding                                                                                             |       | —                  |       | —                      |       |
|                                                                                                                                                                                              |       |                    |       |                        |       |
| Additional  paid-in capital                                                                                                                                                                       |       | 65,998,972              |       | 64,700,129                  |       |
| Accumulated  deficit                                                                                                                                                                              |       | (1,117,306              | )          | (1,117,306                  | )          |
| Deficit  accumulated during the exploration stage                                                                                                                                                 |       | (27,931,757             | )          | (23,541,144                 | )          |
| Accumulated  other comprehensive income                                                                                                                                                           |       | 92,762                  |       | 121,351                     |       |
|                                                                                                                                                                                              |       |                    |       |                        |       |
| Total  stockholders’ equity                                                                                                                                                                  |       | 37,065,417              |       | 40,185,266                  |       |
|                                                                                                                                                                                              |       | $                       | 37,897,000 |                        | $          | 42,157,005 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

 
| ** **                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** | **From Inception August 12,  2002 Through********June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008**                                                                             | ** ** | **2007** | ** ** | **2008** | ** ** |
| ***REVENUE:***                                   |       |                                            |       |                                          |       |                                                                                 |       |   |   |   |   |
| **Royalties**                                    |       | $                                               | 5,247      |                                          | $          | 678                                                                                  |       | $ | 8,327 |   | $ | 2,693 |   | $ | 60,566 |   |
| ***OPERATING EXPENSES:***                        |       |                                            |       |                                          |       |                                                                                 |       |   |   |   |   |
| **Administrative**                               |       | 290,485                                         |       | 338,655                                       |       | 630,848                                                                              |       | 550,637 |   | 4,970,188 |   |
| **Depreciation**                                 |       | 276,439                                         |       | 30,265                                        |       | 531,385                                                                              |       | 58,660 |   | 907,215 |   |
| **Asset retirement accretion expense**           |       | 4,186                                           |       | —                                        |       | 22,973                                                                               |       | — |   | 22,973 |   |
| **Legal, accounting, and consulting**            |       | 196,141                                         |       | 19,917                                        |       | 459,815                                                                              |       | 295,011 |   | 2,002,430 |   |
| **Miscellaneous**                                |       | 4,543                                           |       | 2,547                                         |       | 10,203                                                                               |       | 10,201 |   | 64,117 |   |
| **Exploration**                                  |       | —                                          |       | (18,506                                       | )          | —                                                                               |       | 11,866 |   | 165,176 |   |
| **Oil and gas operating**                        |       | —                                          |       | 405                                           |       | —                                                                               |       | 518 |   | 12,970 |   |
| **Rent and office**                              |       | 43,012                                          |       | 25,991                                        |       | 84,551                                                                               |       | 74,957 |   | 764,912 |   |
| **Compensation; directors, officers and staff**  |       | 1,225,697                                       |       | 904,645                                       |       | 1,715,322                                                                            |       | 1,180,858 |   | 10,010,204 |   |
| **Taxes and licenses**                           |       | 40,622                                          |       | 8,640                                         |       | 85,552                                                                               |       | 57,346 |   | 345,285 |   |
| **Telephone**                                    |       | 7,428                                           |       | 9,035                                         |       | 16,093                                                                               |       | 18,493 |   | 111,534 |   |
| **Fees, filing, and licenses**                   |       | 46,645                                          |       | 64,871                                        |       | 98,706                                                                               |       | 177,492 |   | 1,663,611 |   |
| **Environmental**                                |       | 189,494                                         |       | 42,072                                        |       | 289,356                                                                              |       | 85,715 |   | 1,146,609 |   |
| **Engineering**                                  |       | 507                                             |       | 27,833                                        |       | 2,717                                                                                |       | 36,995 |   | 1,494,548 |   |
| **Permitting**                                   |       | 316,375                                         |       | 123,324                                       |       | 625,420                                                                              |       | 975,872 |   | 5,145,067 |   |
| **Equipment rent and operating**                 |       | 147,180                                         |       | 114,907                                       |       | 307,731                                                                              |       | 204,468 |   | 858,550 |   |
| **Commissions**                                  |       | —                                          |       | —                                        |       | —                                                                               |       | — |   | 68,440 |   |
| **Impairment of mineral properties**             |       | —                                          |       | —                                        |       | —                                                                               |       | — |   | 504,492 |   |
| **Total operating expenses**                     |       | 2,788,754                                       |       | 1,694,601                                     |       | 4,880,672                                                                            |       | 3,739,089 |   | 30,258,321 |   |
| ***LOSS FROM OPERATIONS***                       |       | (2,783,507                                      | )          | (1,693,923                                    | )          | (4,872,345                                                                           | )          | (3,736,396 | ) | (30,197,755 | ) |
| ***OTHER INCOME:***                              |       |                                            |       |                                          |       |                                                                                 |       |   |   |   |   |
| **Interest**                                     |       | 198,212                                         |       | 129,707                                       |       | 481,732                                                                              |       | 326,945 |   | 2,262,540 |   |
| **Miscellaneous**                                |       | —                                          |       | —                                        |       | —                                                                               |       | — |   | 3,458 |   |
|                                             |       | 198,212                                         |       | 129,707                                       |       | 481,732                                                                              |       | 326,945 |   | 2,265,998 |   |
| ***NET LOSS***                                   |       | $                                               | (2,585,295 | )                                             | $          | (1,564,216                                                                           | )          | $ | (4,390,613 | ) | $ | (3,409,451 | ) | $ | (27,931,757 | ) |
| ***NET LOSS PER SHARE (basic and diluted)***     |       | $                                               | (0.11      | )                                             | $          | (0.09                                                                                | )          | $ | (0.19 | ) | $ | (0.22 | ) |   |   |
| ***WEIGHTED AVERAGE COMMON SHARES OUTSTANDING*** |       | 22,746,220                                      |       | 18,008,843                                    |       | 22,580,900                                                                           |       | 15,443,407 |   |   |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

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**Mines Management, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** | **From Inception  August 12, 2002  Through  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| **Increase (Decrease) in Cash and Cash Equivalents** | ** ** | **2008**                                      | ** ** | **2007**                                                                   | ** ** | **2008** | ** ** |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                                            | ** ** | ** **                                    | ** ** | ** **                                                                 | ** ** | ** ** | ** ** |
| Net loss                                                                           |       | $                                             | (4,390,613 | )                                                                          | $          | (3,409,451 | ) | $ | (27,931,757 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:       |       |                                          |       |                                                                       |       |   |   |
| Stock-based compensation                                                           |       | 727,909                                       |       | 427,420                                                                    |       | 5,743,764 |   |
| Stock received for services                                                        |       | —                                        |       | —                                                                     |       | (11,165 | ) |
| Depreciation                                                                       |       | 531,385                                       |       | 58,660                                                                     |       | 907,215 |   |
| Accretion of asset retirement obligation                                           |       | 22,973                                        |       | —                                                                     |       | 22,973 |   |
| Impairment of mineral properties                                                   |       | —                                        |       | —                                                                     |       | 504,492 |   |
| Changes in assets and liabilities:                                                 |       |                                          |       |                                                                       |       |   |   |
| Interest receivable                                                                |       | 3,374                                         |       | 5,729                                                                      |       | (77,288 | ) |
| Prepaid expenses and deposits                                                      |       | (70,657                                       | )          | (475,709                                                                   | )          | (261,651 | ) |
| Accounts payable                                                                   |       | (1,509,230                                    | )          | 626,772                                                                    |       | 439,172 |   |
| Payroll and payroll taxes payable                                                  |       | 1,914                                         |       | 10,010                                                                     |       | 21,907 |   |
| Net cash used in operating activities                                              |       | (4,682,945                                    | )          | (2,756,569                                                                 | )          | (20,642,338 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                            |       |                                          |       |                                                                       |       |   |   |
| Purchase of fixed assets                                                           |       | (859,531                                      | )          | (665,308                                                                   | )          | (7,551,103 | ) |
| Proceeds from disposition of property and  equipment                               |       | 33,154                                        |       | —                                                                     |       | 35,423 |   |
| Construction in progress                                                           |       | (102,091                                      | )          | (469,594                                                                   | )          | (3,194,465 | ) |
| (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                               |       | (928,468                                      | )          | 694,338                                                                    |       | (13,455,733 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                            |       |                                          |       |                                                                       |       |   |   |
| Net proceeds from sales of common stock                                            |       | 571,444                                       |       | 31,585,713                                                                 |       | 58,754,139 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS*                            |       | (5,039,969                                    | )          | 29,523,482                                                                 |       | 24,656,068 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD*                                  |       | 29,743,372                                    |       | 743,652                                                                    |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                         |       | $                                             | 24,703,403 |                                                                       | $          | 30,267,134 |   | $ | 24,703,403 |   |
| *SUPPLEMENTAL DISCLOSURE OF NONCASH  INVESTING ACTIVITIES:*                        |       |                                          |       |                                                                       |       |   |   |
| Initial measurement of asset retirement  obligation                                |       | $                                             | 344,187    |                                                                       | —     |   | $ | 344,187 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

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**NOTE 1  —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

 

## *Organization:*

##  

MinesManagement, Inc. (the Company) is an Idaho corporation incorporated in1947.  The Company acquires, explores,and develops mineral properties in North America.

 

## *Summary of Significant Accounting Policies:*

##  

*(a)*                                  Principles ofconsolidation

* *

The accompanying condensed consolidatedfinancial statements include the accounts of Mines Management, Inc., andits wholly-owned subsidiaries, Newhi, Inc., Montanore Mineral Corporationand Montmin Corporation.  Intercompanybalances and transactions have been eliminated.

 

*(b)*                                 Exploration StageEnterprise

* *

Since the Company is in the exploration stageof operation, the Company’s financial statements are prepared in accordancewith the provisions of Statement of Financial Accounting Standards (SFAS) No. 7*Accounting for Development Stage Enterprises*,as it devotes substantially all of its efforts to acquiring and exploringmining interests that management believes should eventually provide sufficientnet profits to sustain the Company’s existence. Until such interests are engaged in commercial production, the Companywill continue to prepare its financial statements and related disclosures inaccordance with this standard.

 

*(c)*                                  Cash and cashequivalents

* *

Cash and cash equivalents include cash onhand, cash in banks, investments in certificates of deposit with originalmaturities of 90 days or less, and money market funds.

 

*(d)*                                 Available for salesecurities

* *

Available for sale securities are recorded atfair value, 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)*                                  Fair value offinancial instruments

* *

The Company’s financial instruments, asdefined by SFAS No. 107, *Disclosuresabout Fair Value of Financial Instruments*, include cash and shortterm investments.  All instruments areaccounted for on a historical cost basis, which, due to the short maturity ofthese financial instruments, approximates fair value at June 30, 2008.

 

*(f)*                                    Property andequipment

* *

Property and equipment are stated atcost.  Buildings and leaseholdimprovements are depreciated on the straight-line basis over an estimateduseful life of 39 years.  Machinery andfurniture are generally depreciated using accelerated methods over estimateduseful lives ranging from 5 to 10 years.

 

*(g)*                                 Mining properties,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 theallocable portion 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.

 

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* *

*(h)*                                 Asset impairment

* *

The Company evaluates its long-lived assetsfor impairment when events or changes in circumstances indicate that therelated carrying amounts may not be recoverable.  If the sum of estimated future net cash flowson an undiscounted basis is less than the carrying amount of the related assetgrouping, asset impairment is considered to exist.  The related impairment loss is measured bycomparing estimated future net cash flows on a discounted basis to the carryingamount of the asset.  Changes insignificant assumptions underlying future cash flow estimates may have amaterial effect on the Company’s financial position and results ofoperations.  During 2007, the Companyidentified and recognized an impairment loss as described more fully in note 3.

 

*(i)*                                     Asset retirementobligations

* *

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 with which it is associated, and depreciated overthe useful life of the asset.  TheCompany has an ARO associated with its underground evaluation program at theMontanore Project, described more fully in note 8.

 

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)*                                     Deferred IncomeTaxes

* *

Deferred income taxes are provided fordifferences between the bases of assets and liabilities for financial andincome tax reporting.  A deferred taxasset, subject to a valuation allowance, is recognized for estimated future taxbenefits of tax-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 June 30,2008, the provisions of FIN 48 had no effect on the Company’s financialstatements.

 

*(k)*                                  Stock compensation

* *

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 Companyrecognized stock-based compensation of $642,783 and $427,420 for the threemonth periods ended June 30, 2008 and 2007, respectively.  The Company recognized stock-basedcompensation of $727,909 and $427,420 for the six month periods ended June 30,2008 and 2007, respectively.

 

At June 30, 2008, the Company had twostock option plans, which are described more fully in note 6.

 

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* *

*(l)*                                     Net loss per share

* *

Basic and diluted loss per share is computedusing the weighted average number of shares outstanding during the periods.Stock options and warrants outstanding are antidilutive****and are not considered in the computation.

 

*(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)*                                 Assumptions and use ofestimates

* *

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.

 

**NOTE2  — STOCKHOLDERS’ EQUITY:**

** **

## *Common Stock:*

##  

In 2003, theCompany sold 1,152,007 common shares for $1,267,207 ($1.10 per share).  In connection with the stock sales, theCompany granted warrants to purchase up to 1,152,007 common shares at $1.20 pershare through two years from the date of issue. Cumulative warrants exercised relating to this issue were 1,152,007shares at June 30, 2008 and December 31, 2007, respectively.

 

In 2004, theCompany sold 1,285,000 common shares for $6,425,000 ($5.00 per share).  In connection with the stock sales, theCompany granted warrants to purchase up to 511,000 shares of common stock at$7.25 per share through five years from the initial exercise date.  The Company paid a cash finder’s fee of 7% ofthe gross purchase price received in the offering.  The finder also received 3% warrantcompensation, or warrants to purchase 192,750 common shares at $7.25 per sharethrough February 18, 2009.  Thewarrant 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 June 30, 2008 and December 31,2007, were 148,750 and 145,750, respectively.

 

In 2005, theCompany sold 1,016,667 common shares for $6,100,002 ($6.00 per share).  In connection with the stock sales, theCompany granted warrants to purchase up to 737,084 shares of common stock at$8.25 per share through five years from the date of issuance.  The Company paid a cash finder’s fee of 7% ofthe gross purchase price received in the offering.  The finder also received a 3.75% warrantcompensation, or warrants to purchase 228,750 common shares at $8.25 per sharethrough October 20, 2010.  Thesewarrants were repriced at $5.00 per share in April 2007 in accordance withthe anti-dilution provisions of the 2005 warrant agreement.  To date, no warrants relating to this issuehave been exercised.

 

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

 

On April 20,2007, the Company completed a public offering of 6,000,000 units at a price of$5.00 per unit, resulting in gross proceeds of $30,000,000 ($28,200,000 netproceeds).  Each unit is comprised of oneshare of common stock and one-half of one common stock purchase warrant, witheach full warrant being exercisable for five years to purchase one share ofcommon stock at a price of $5.75 per share. The warrants are listed on the Toronto Stock Exchange and are tradablein US dollars under the symbol MGT.GT.U.

 

Theunderwriters were granted an over-allotment option, exercisable for a period of30 days following the closing, to acquire up to an additional 900,000units.   On May 7, 2007, theunderwriters exercised the over-allotment option for 836,600 units.  The total offering was therefore 6,836,600units for gross proceeds to the Company of $34,183,000, or $32,124,697 in netproceeds to the Company, after deducting underwriting commissions but beforededucting offering expenses.  To date, nowarrants relating to this issue have been exercised.

 

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On November 2,2007, the Company sold 2,500,000 common shares in a private placement at aprice of $4.00 per share, resulting in gross proceeds of $10,000,000.  In connection with the stock sale, theCompany entered into a Right of First Refusal agreement (the “ROFR”) whichgrants a twenty-year right of first proposal and a right to match third-partyproposals, to purchase all or any portion of silver mined, produced orrecovered by the Company in the State of Montana.  The ROFR does not apply to trade sales andspot sales in the ordinary course of business or forward sales, in each case,for which no upfront payment is received by the Company

 

During the sixmonths ended June 30, 2008, the Company paid approximately $241,000 in legalfees directly related to the common stock offering.

 

## *Preferred Stock:*

##  

The Companyhas authorized 10,000,000 shares of no par value preferred stock.  Through June 30, 2008, the Company hadnot issued any preferred stock.

 

**NOTE3  — MINING PROPERTIES:**

** **

## *Montanore:*

##  

The Montanoreproperty is located in northwestern Montana and includes 18 mining claimscovering 355 acres plus one 5-acre patented mill site.  In August 2002, the Company acquired acontrolling interest in the Montanore silver and copper deposit in Sanders County,Montana.  The Company received aquitclaim deed from Noranda Mineral Corp. (Noranda) when Noranda elected towithdraw from the project.    In December 2002,the Company received a quitclaim deed to all intellectual property connectedwith studies that Noranda carried out on the project.

 

During thefourth quarter of 2007, the Company determined that the $278,519 carrying valueof this property should be written off due to the fact that a significantportion of the balance represented exploration costs inappropriatelycapitalized in prior years.

 

## *Advance and Iroquois:*

##  

The Advanceproperty consists of 720 acres of patented mineral rights.  Although the Company does not own theoverlying surface rights to its patented mineral rights, it does have right ofaccess to explore and mine.  The Iroquoisproperty consists of 64 acres of patented mineral and surface rights and 15unpatented mining claims containing 300 acres.

 

During thefourth quarter of 2007, the Company evaluated the carrying values of these propertiesand determined to record an impairment adjustment of $225,973 based on itsassessment of the likely future cash flows from the properties.

 

**NOTE4  — CONSTRUCTION IN PROGRESS:**

** **

Constructionhas begun on the underground electrical, pumping, and ventilation systems atthe Libby adit at the Montanore Project. The anticipated cost of these projects is expected to total $2,517,000,with approximately $1,500,000  includedin construction in progress as of June 30, 2008.

 

Also includedin construction in progress as of June 30, 2008 is $16,500 in costsassociated with the construction of a nitrate treatment and removal system atthe Montanore Project site.  Theestimated total cost of this project is $1,798,000.

 

**NOTE5  — INVESTMENTS:**

** **

## *Certificates of Deposit:*

##  

The Companyowns a $115,684 certificate of deposit which matures in September 2008 andbears interest at the rate of 3.64%.  TheCompany also owns six $226,923 certificates of deposit for a total of$1,361,537.  These investments mature in2009 and bear interest at the rate of 4.21%. Included with reclamation deposits, the Company has a $1,124,055certificate of deposit which is pledged as security for a Letter of Credit tothe Montana Department of Environmental Quality as a reclamation guarantee forthe Montanore expansion evaluation program. This certificate matures in January 2009 and will automaticallyrenew annually.  It currently bearsinterest at the rate of 4.5%.

 

## *Available-for-sale Securities:*

##  

The Companyowns 45,000 free-trading shares of Bitterroot Resources, Ltd. (BTT), a publicCanadian corporation traded on the Toronto Venture Exchange.  The shares are held as “available for sale.”  This investment is being recorded at fairmarket value with a corresponding adjustment to stockholders’ equity.  The shares had a market value of $26,951 and$15,484 at June 30, 2008 and December 31, 2007, respectively.  The Company also owns 196,000 free-tradingshares of 

 

7

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PancontinentalUranium Corporation (previously Centram Exploration Ltd.), a public Canadiancorporation traded on the Toronto Venture Exchange.  The shares are held as “available for sale.”  The shares were received in 2002 in exchangefor administrative services provided by the Company.  The 196,000 free-trading shares had a marketvalue of $76,976 and $117,032 at June 30, 2008 and December 31, 2007respectively.

 

**NOTE6  — STOCK OPTIONS:**

** **

During theyear ended December 31, 2003, the stockholders of the Company approved twostock-based compensation plans — the 2003 Stock Option Plan (which includesboth qualified and nonqualified options) and the 2003 Consultant StockCompensation Plan.  Under the 2003 StockOption Plan, the Company may grant options to purchase up to 1,200,000 sharesof common stock.  Under the 2003Consultant Stock Compensation Plan, the Company may grant options to purchaseup to 400,000 shares of common stock. During 2004, the Company increased the maximum number of common sharesavailable under the 2003 Stock Option Plan and the 2003 Consultant StockCompensation Plan to 3,000,000 and 700,000 shares, respectively.  The shares are issued from the Company’sauthorized and unissued common stock upon exercise.

 

Under both2003 Stock Option Plans, the option exercise price may not be less than 100% ofthe fair market value per share on the date of grant.  Stock options are exercisable within tenyears from the date of the grant of the option. The schedule for vesting of the options granted under both plans is atthe discretion of the Board of Directors.

 

In November 2007,the Board of Directors adopted, subject to shareholder approval, the 2007Equity Incentive Plan (the “2007 Plan”), which provides for the issuance ofboth qualified and nonqualified stock options and restricted shares todirectors, employees and consultants of the Company.  Up to 3,000,000 shares of the Company’sauthorized but unissued common stock are available for issuance under the 2007Plan.  On December 17, 2007, theCompany issued 750,000 stock options under the 2007 Plan to directors andofficers , subject to shareholder approval. The options have 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 2007 Plan was approved by theshareholders on May 22, 2008.  Theoptions are treated as having been issued immediately following stockholderapproval.

 

The Companyhas a policy of re-pricing stock options when the market price of the stock is$1.00 below the exercise price of the outstanding option.  The newly issued option has the same vestingschedule and expiration date as the option that is cancelled.  During 2007, the Company cancelled andreissued 1,670,000 stock options held by 12 employees, including officers anddirectors.  During 2008, the Companycancelled and reissued 18,000 stock options held by 4 employees.   As aresult of those actions, the Company recognized additional compensation expenseof $5,580 for the period ended June 30, 2008 and $462,527 for the yearended December 31, 2007.

 

A summary of the optionactivity under the Plans as of June 30, 2008, and changes during the  periods then ended, is presented below: 

 
| ** **                     | ** ** | **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       |                                                 |       |                            |       |   |
| Granted                        |       | 750,000                     |       | $                                       | 2.99       |                                                 |       |                            |       |   |
| Exercised                      |       | —                      |       | —                                  |       |                                                 |       |                            |       |
| Forfeited or expired           |       | —                      |       | —                                  |       |                                                 |       |                            |       |
| Outstanding at June 30, 2008   |       | 2,371,000                   |       | $                                       | 2.99       |                                                 | 3.62       |                            | $          | 1,888,620 |   |
| Exercisable at June 30, 2008   |       | 1,726,000                   |       | $                                       | 2.98       |                                                 | 2.77       |                            | $          | 95,520 |   |

 

The fair value for each optionaward is estimated at the date of grant using the Black-Scholes option-pricingmodel using the assumptions noted in the following table.   Volatility for the periods presented isbased on the historical volatility of the Company’s common stock over theexpected life of the option.  Therisk-free rate for periods within the expected term of the option is based onthe U.S. Treasury yield curve in effect at the time of the grant.  The Company does not foresee the payment ofdividends in the near term.

 

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| ** **                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted average risk-free interest rate  |       | 2.56                                            | %          | 4.76                                          | %          | 2.59 | % | 4.76 | % |
| Weighted average volatility               |       | 51.96                                           | %          | 54.84                                         | %          | 52.09 | % | 54.84 | % |
| Expected dividend yield                   |       | —                                          |       | —                                        |       | — |   | — |   |
| Weighted average expected life (in years) |       | 2.00                                            |       | 2.00                                          |       | 2.00 |   | 2.00 |   |

 

There were nooptions exercised during the three month periods ended June 30, 2008 and2007.  During the six months ended June30, 2008, there were 520,000 stock options exercised with a weighted averageexercise price of $1.65.  The intrinsicvalue of these options  upon exercise was$1,311,230.

 

A summary ofthe status of the Company’s nonvested options as of June 30, 2008, and changesduring the periods then ended, is presented 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       |   |
| Nonvested at March 31, 2008  |       | 295,000                     |       | $                                                   | 1.27       |   |
| Granted                      |       | 375,000                     |       | $                                                   | 1.42       |   |
| Vested                       |       | (25,000                     | )          | $                                                   | 1.35       |   |
| Nonvested at June 30, 2008   |       | 645,000                     |       | $                                                   | 1.35       |   |

 

As of June 30,2008, there was $606,940 of unrecognized compensation cost related to nonvestedshare-based compensation arrangements granted under the Plans.  That cost is expected to be recognized over aweighted-average period of one year.  

 

Totalcompensation costs recognized for stock-based employee compensation awards was$621,683 and $420,870 for the three months ended June 30, 2008 and 2007,respectively.  Total compensation costsrecognized for stock-based employee compensation awards was $677,218 and$420,870 for the six months ended June 30, 2008 and 2007, respectively. Thesecosts were included in compensation expense on the Statement ofOperations.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$21,100 and $6,550 for the three months ended June 30, 2008 and 2007,respectively.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$50,691 and $6,550 for the six months ended June 30, 2008 and 2007,respectively.  These costs were includedin administrative and environmental expenses on the Statement ofOperations.  Cash received from optionsexercised under all share-based payment arrangements during the six monthsended June 30, 2008 and 2007 was $812,000 and $-0-, respectively.

 

**NOTE7  — CONCENTRATION OF CREDIT RISK:**

** **

The Companymaintains its cash and cash equivalents in two financial institutions.  Balances are insured by the Federal DepositInsurance Corporation up to $100,000.

 

**NOTE8  —ASSET RETIREMENT OBLIGATIONS:**

** **

Included inthe Company’s construction in progress account is an asset related to an assetretirement obligation (ARO) associated with the Company’s undergroundevaluation program at the Montanore Project. The ARO resulted from the reclamation and remediation requirements ofthe Montana Department of Environmental Quality as outlined in the Company’spermit to carry out the evaluation program.

 

Estimatedreclamation costs were discounted using a credit adjusted risk-free interestrate of 4.78% from the time the Company expects to pay the retirementobligation to the time it incurred the obligation, which is estimated at 25years.  During the period ended June 30,2008, the Company revised estimated reclamation costs based on additional workcompleted at the Montanore Project. The following table summarizes activity inthe Company’s asset retirement obligation

 
| ** **                    | ** ** | **Six Months  Ended  June 30, 2008** | ** ** |
|-------------------------------|------------|-----------------------------------------------------|------------|
| Balance  January 1, 2008 |       | —                                              |       |
| Revisions of  estimates       |       | $                                                   | 306,013    |   |
| Accretion  expense            |       | 18,787                                              |       |
| Balance  March 31, 2008  |       | 324,800                                             |       |
| Revision of  estimate         |       | 38,174                                              |       |
| Accretion  expense            |       | 4,186                                               |       |
| Balance  June 30, 2008   |       | $                                                   | 367,160    |   |

 

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| **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 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 second quarter of 2008, the Company:

 

·                  Receivedapproval from the Montana State Department of Commerce of the proposed HardRock Mining Impact Plan for the Montanore Project.

 

·                  Completedand redistributed the second draft of the Preliminary Draft EnvironmentalImpact Statement to state and federal agencies for comment, which is the finalstage of review prior to publication for public comment.

 

·                  SelectedSmall Mine Development as contractor to manage activities related toadvancement of the Libby adit and drill station development.

 

·                  Maintaineda strong cash and investment position with $27.5 million on hand at June 30,2008.

 

The net cash expenditures for the six monthsended June 30, 2008 were $0.9 million for the purchase of equipment andcompletion of the water treatment plant and other site infrastructure and $4.7million for operating activities.  TheCompany believes that it has sufficient working capital to complete therehabilitation of the Libby adit and commencement of delineation drilling.

 

## **Advanced Exploration and DelineationDrilling Program**

##  

In the second quarter of 2008, we continuedpreparations for the rehabilitation of the Libby adit, which is scheduled tobegin promptly after issuance of the environmental assessment (EA) by the U.S.Forest Service, which is a pre-requisite to obtaining a permit for theassociated road use.  Activities duringthe second quarter included continued commissioning of underground miningequipment and the initial phase of underground sump construction.

 

As part of the water treatment system, weadvanced the ground rehabilitation in the sections of the adit required foraccess to underground sump locations, and ground support to provide safe accessto the sump location.  Excavation on thefirst two sumps was begun underground using the Tamrock face jumbo drill.  Other work associated with the watertreatment system included the installation of a 13.8 kva power line and loadcenter underground and the addition of a pH control system on the raw waterfeed to the treatment plant.

 

We have also begun engineering work on thenitrate treatment plant, which will operate in conjunction with the existingwater treatment plant.  Cost estimatesand preliminary designs are currently being evaluated.

 

## **Permitting and Environmental**

##  

In the second quarter of 2008, the U.S. Forest Service and MontanaDepartment of Environmental Quality completed a second preliminary draftenvironmental impact statement (PDEIS).  This version of the PDEISaddresses agency comments and edits from the first draft.  The agencieswill make a final review of this document before submitting the draft EIS tothe public for review and comment.  The Company anticipates the draft willbe published for public review late in the third quarter or early in the fourthquarter of this year.

 

In addition, the Company continues to develop and review a number ofmonitoring and mitigation plans .  These plans are focused on identifyingways to implement the Project to reduce negative impacts and documentenvironmental conditions before, during, and after mine operations.

 

The agencies also continued to evaluate the different transmission linealternatives outlined in the PDEIS.  The Company has provided requestedtechnical documents and other information for the evaluation effort.  TheCompany also continues 

 

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to work with Flathead Electric Cooperative and Bonneville PowerAdministration (BPA) on the substation and electrical tie to the Noxon-LibbyBPA transmission line.

 

The Company is continuing to work with the U.S. Forest Service tocomplete the environmental assessment (EA) for the dewatering andrehabilitation of the Libby adit.  At that agency’s request, the Companyhas prepared a 3-dimensional hydrologic model to predict groundwater inflow tothe exploration workings.  The model was submitted to the Forest Servicein early August of 2008.

 

## **Financial and Operating Results**

##  

Mines Management, Inc. is an explorationstage company with a large silver-copper project, the Montanore Project,located in northwestern Montana.  TheCompany continues to expense all of its expenditures with the exception ofequipment and infrastructure, which are capitalized.   The Company has no revenues from miningoperations.  Financial results ofoperations include primarily interest income, general and administrativeexpenses, permitting, project advancement and engineering expenses.

 

**QuarterEnded June 30, 2008**

 

The Company reported a net loss for thequarter ended June 30, 2008 of $2.6 million, or $0.11 per share, comparedto a net loss of $1.6 million, or $0.09 per share, for the quarter ended June 30,2007.  The $1.0 million increase in netloss in the second quarter of 2008 is attributable to increases in operatingexpenses of approximately $1.1 million over the second quarter of 2007,principally in depreciation, legal, accounting, consulting, compensation,environmental, and permitting expenses. These increases resulted from the addition of new employees, equipmentpurchases, and depreciation of capitalized costs of infrastructure to supportthe Company’s advanced exploration and delineation drilling program.  Permitting and environmental costs increasedby approximately $0.3 million during the second quarter of 2008 comparedto the second quarter of 2007 because of increased activities relating to theEA and submission of the second draft PDEIS.

 

**Six Months Ended June 30, 2008**

 

The Company reported a net loss for the sixmonths ended June 30, 2008 of $4.4 million, or $0.19 per share, versus aloss of $3.4 million or $0.22 per share for the six months ended June 30,2007.  The $1.0 million****increase in net loss in 2008 is largely attributable toincreased depreciation of $0.5 million, legal accounting and consulting fees of$0.2 million and compensation increases of $0.5 million, offset by an increasein interest income of $0.2 million in the first six months of 2008 over 2007.  These increases were a result of a full sixmonths of depreciation of the Montanore equipment and site infrastructuredelivered and completed in late 2007 and early 2008.  The compensation increase was due to theaddition of new employees and stock based compensation for employees and directorsfor 2008.

 

## **Liquidity**

##  

During the six months ended June 30,2008, the net cash used for operating activities was $4.7 million, whichconsisted largely of permitting and administrative expenses associated withincreased activities at the Montanore Project site.  The net cash used in investing activitiesduring the same period was $0.9 million, for procurement of equipment andconstruction in progress.  For the sixmonths ended June 30, 2008 the net cash from financing activities was $0.8million from the exercise of employee stock options less $0.2 million of legalfees associated with financing.

 

The Company anticipates spendingapproximately $9.6 million from cash and investments on hand during the finaltwo quarters of 2008 for activities and equipment purchases related to theadvanced exploration and delineation drilling program and repermitting effortsat the Montanore Project. The total capital and operating expenses for the yearto date are approximately $5.0 million below the original forecast for the yearbecause of delays in agency approval of the EA. The Company believes that it has sufficient working capital forrehabilitation and completion of the Libby adit and commencement of delineationdrilling, which are estimated to cost an additional****$19.0 million.

 

## **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 in 2008;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 

 

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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.

 

**ITEM4.**                                                     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 June 30,2008.  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 June 30,2008 to give reasonable assurances that the information required to bedisclosed in the reports that the Company files or submits under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the rules and forms of theSecurities and Exchange Commission, and that such information is alsoaccumulated and communicated to the Company’s management, including its ChiefExecutive Officer and Chief Financial Officer.

 

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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.

 

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**PART II — OTHER INFORMATION**

** **

**ITEM1.**                                                     LEGAL PROCEEDINGS

** **

None.

 

**ITEM 1A.**                                            RISK FACTORS

** **

There are no material changes from the riskfactors previously disclosed in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

**ITEM2.**                                                     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

** **

None.

 

**ITEM3.**                                                     DEFAULTS UPON SENIOR SECURITIES

** **

None.

 

**ITEM4.**                                                     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

** **

At the Company’s annual meeting ofstockholders, which was held on May 22, 2008, the stockholders of theCompany approved the election of Mr. Glenn Dobbs and Mr. Roy Franklinto serve on the Company’s board of directors until the Annual meeting to beheld in 2011. Voting results were as follows:

 
| ** **           | ** ** | **For**    | ** ** | **Against** | ** ** | **Withheld** | ** ** |
|----------------------|------------|------------|------------|-------------|------------|--------------|------------|
|                 |       |       |       |        |       |         |       |
| **Glenn M.  Dobbs**  |       | 13,175,371 |       | 0           |       | 1,514,310    |       |
|                 |       |       |       |        |       |         |       |
| **Roy G.  Franklin** |       | 14,347,768 |       | 0           |       | 341,913      |       |

 

The Company’s stockholders also approved theadoption of the Company’s 2007 Equity Incentive Plan.  Voting results were as follows:

 
| ** **            | ** ** | **For**   | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Non-Votes** | ** ** |
|-----------------------|------------|-----------|------------|-------------|------------|--------------|------------|---------------|------------|
|                  |       |      |       |        |       |         |       |          |       |
| **Adoption  of Plan** |       | 4,897,112 |       | 1,742,170   |       | 54,153       |       | 7,996,246     |       |

 

**ITEM5.**                                                     OTHER INFORMATION

** **

None.

 

**ITEM6.**                                                     EXHIBITS

** **
| 31.1   |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                               |
| 31.2   |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act                   |
|   |   |                                                                                                               |
| 32.1   |   | Certification of Chief Executive Officer  pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act) |
|   |   |                                                                                                               |
| 32.2   |   | Certification of Chief Financial Officer  pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act) |

 

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# **Table of Contents**

 

# **SIGNATURES**

# ** **

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on behalf of the undersigned thereunto duly authorized.

 

 
| Date: August 11, 2008 | By:    |      /s/ Glenn M. Dobbs |
|----------------------------|--------|--------------------------------------------------|
|                       |   | Glenn M. Dobbs                                   |
|                       |   | President and Chief Executive Officer            |
|                       |   |
|                       |   |
| Date: August 11, 2008 | By:    |      /s/ James H. Moore |
|                       |   | James H. Moore                                   |
|                       |   | Chief Financial Officer                          |
|                            |        |                                                  |  |  |

 

15

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Table of Contents

 

**EXHIBITINDEX**

 
| 31.1   |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                               |
| 31.2   |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act                   |
|   |   |                                                                                                               |
| 32.1   |   | Certification of Chief Executive Officer  pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act) |
|   |   |                                                                                                               |
| 32.2   |   | Certification of Chief Financial Officer  pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act) |

 

16

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