Statements contained in this Form 10-Q, including in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure About Market Risk", are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities. We have tried to identify these forward-looking statements by using words such as "may," "will," "expect," "anticipate," "believe," "intend," "feel," "plan," "estimate," "project," "forecast" and similar expressions. These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A - Risk Factors in our annual report filed on Form 10-K for the year ended December 31, 2006. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to Sterling Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Sterling Mining Company is a minerals, exploration, development and a producing company traded on the over the counter market in the United States. As is typical with such companies, losses are incurred in the stages of exploration and development, which typically need to be funded through equity or debt financing. Sterling has expanded rapidly its range of activities since 2003 and this has generated funding requirements for the initiation of and advancing of rehabilitation, maintenance, exploration and mine planning at the Sunshine Mine, start-up of the Barones plant in Mexico and the crusher there, the, acquisition costs of projects increasing both administrative and operational staff to manage the increased scope of Sterling's activities.

The company's main focus is the Sunshine Mine project where we are engaged in maintenance, rehabilitation, exploration and preparation for production. We also have exploration interests in Idaho, Montana, and in Mexico. We have a land position of early stage prospects in Idaho, Montana and Mexico that we are evaluating to determine whether to hold and explore or seek the participation of industry partners.

The Company's operating mines are the Barones silver project and the San Acacio mine in Zacatecas, Mexico. The crusher at the Barones project became operational in late July 2007, resulting in increased production, recoveries, precipitate and work-in-process inventory. Total production for the quarter was 16,855 ounces of silver and 18 ounces of gold compared to 15,390 ounces of silver and 22 ounces of gold in the third quarter of 2006. At the Barones silver project in Mexico, silver production was 11,513 ounces of silver and 14 ounces of gold in the third quarter of 2007. San Acacio ore processed at an outsourced concentrating facility resulted in

The Company's principal project is the Sunshine Mine in the State of Idaho. Management forecasts to begin production in December 2007. The Company completed 1,728 feet of in-house and 1,231 feet of contracted underground diamond drilling during the quarter from the new Sterling Tunnel level. Drill results are used to guide additional drilling and exploration activities. Sterling mining crews began drifting on an un-mined portion of the Sunshine vein system accessed by a 750 foot crosscut from the Sterling Tunnel. Drifting on the vein totaled 333 feet and yielded 2,226 tons of vein material for processing. A second crosscut to the Sunshine vein was started and advanced 60 feet. This crosscut will allow drifting on an additional 800 feet of Sunshine vein. Polaris track drift development totaling 216 feet was completed and included creating a drill station to explore lower elevations of the Sunshine-Polaris veins and the Yankee Girl vein 1,200 feet to the south.

The Company hired twenty-eight full time employees at the Sunshine Mine during the quarter bringing the total mine workforce to ninety-three. The Silver Summit hoist became operational on August 10, was outfitted with new hoist ropes and certified to begin shaft repair in September. Shaft repair crews working on a double shift basis have advanced down to 866 feet below the top station. The top 3,000 feet of this shaft constitutes a key element of the secondary escapeway required by law in order to commence production from "lower country" areas of the mine.

A large multi-stage pump was installed in the Jewell shaft to dewater to 3700 level. Water in the shaft has been lowered over 90 feet and was 215 feet below 3100 level at the end of the quarter. Work began to re-establish services across 3100 and 3000 levels to connect with the Silver Summit shaft in order to complete the escapeway system. Compressed air and communications have been advanced to 3000 level. Electrical components were received to start installing power on 3100 level for pumps and fans.

Sterling mill crews returned the concentrating facility to operational status in late September. Installation of a conveyor feed system to allow upper country ore to be introduced into the coarse ore bin was completed. Vein Material from exploration drifting on the Sterling Tunnel level is providing mill feed and resulting concentrates are being collected while load-out facilities are being renovated. Water treatment equipment operated during the quarter adjacent to the tailings pond. Start-up tailings are reporting to the tailings pond and work is in progress to supply Sterling Tunnel stopes with sandfill and rehabilitate the sandfill delivery system to the lower mine. Seven underground diesel loaders for development and stoping were received during the quarter as well as one single-boom hydraulic drill jumbo. The Company continued to order and receive equipment and supplies and re-stock the mine warehouse to meet the development plan.

The Company has exploration projects in Idaho, Montana and Mexico. During the third quarter of 2007, Sterling Mining Company continued acquisition and assessment of exploration properties in Mexico. The Company intends to enter into joint ventures with other junior exploration companies on several of its projects while advancing other projects by itself.

Comparative Results of Operations

For the three and nine months ended September 30, 2007 compared to three and nine months ended September 30, 2006:

Revenues

Lease and contract income for the nine months ended September 30 was $730,838 in 2007 and $18,150 in 2006. The increase was primarily due to revenues from the 2007 agreements with Source Minerals, Silver Fields and Aura Silver.

Sales of metal from continuing operations in the three and nine months ended September 30. 2006 consisted of sales of silver and gold from the refinery in Zacatecas, Mexico and coin revenues in the USA from the sale of coins, rounds and bullion. Total sales for the quarter were $205,115 in 2007 and $159,012 in 2006. Total sales for the nine months ended September 30, 2007 were $608,718 in 2007 and $743,945 in 2006. Sales in the third quarter in Mexico were $204,982 in 2007 and $161,669 in 2006. Sales of metals for the nine months ended September 30 in Mexico were $577,553 in 2007 and $710,751in 2006.

Revenues in the third quarter in the USA were $89,086 in 2007 and $3,393 in 2006. Revenues for the nine months ended September 30 in the USA were $322,003 in 2007 and $51,344 in 2006.

Costs and Expenses

The cost of production for the quarter increased compared to one year ago. The increase was due, in part, to an increase in sales in both countries. The Company reported "Production Costs Applicable to Sales" of $318,278 in the third quarter of 2007 and $154,445 in the third quarter of 2006. "Production Costs Applicable to Sales" for the nine months ended September 30 was $831,647 in 2007 and $682,878 in 2006. "Production Costs Applicable to Sales" for the third quarter in Mexico was $303,935 in 2007 and $149,602 in 2006. "Production Costs Applicable to Sales" for the nine months ended September 30 in Mexico was $806,945 in 2007 and $656,907 in 2006. The Cost of Revenues for coin sales in the U.S. was $14,343 and $4,843 in the third quarters of 2007 and 2006 respectively. The Cost of Revenues for coin sales in the U.S. was $24,702 and $25,971 for the nine months ended September 30 of 2007 and 2006 respectively.

Total operating expenses increased from $1,866,364 in the third quarter of 2006 to $5,608,117 in 2007, as the Company accelerated its activity to prepare the Sunshine Mine for operation. As a result, the loss from operations increased from $1,701,302 in the third quarter of 2006 to $5,314,049 in 2007 and the net loss for the quarter increased from $1,644,472 in 2006 to $5,298,635 in 2007.

For the nine months ended September 30 operating expenses increased from $5,326,361 in 2006 to $12,796,270 in 2007. As a result, the loss from operations increased from $4,564,266 in 2006 to $11,456,714 in 2007 and the net loss for the nine month period increased from $4,509,355 in 2006 to $11,220,197 in 2007. The reason for the increase is the same as above, an acceleration of activities to prepare the Sunshine Mine for operations.

Other income and expense for the quarter resulted in a net gain of $15,414 in 2007 and $56,830 in 2006. The largest component of that income in the third quarter of 2007 was interest income. The largest component of that income in the third quarter of 2006 was gain on foreign exchange.

Other income and expense for the nine months ended September 30 resulted in a net gain of $236,517 in 2007 and a net gain of $54,911 in 2006. The largest component of other income in nine months ended September 30, 2007 and 2006 was gain on the sale of investments.

Income Taxes

Sterling Mining Company has a substantial net operating loss for U.S. income tax purposes. Sterling de Mexico has a net tax asset of IVA tax refundable in Mexico of approximately $249,000.

Liquidity and Capital Resources

The Company's cash balance at September 30, 2007 was $13,569,678. During the three and nine months ended September 30, 2007, the Company received cash upon the exercise of options and warrants, the private placement of common stock, and the sale of special warrants. Total cash provided by financing activities was approximately $23.2 million in the third quarter and $34.6 million in the nine months ended September 30, 2007.

The Company's use of funds has been growing due to increasing exploration activities both in Mexico and at the Sunshine Mine in Idaho. Rehabilitation and capital expenditures at the Sunshine Mine have been the primary use of funds. The completion of the crusher at the Barones silver plant was the second largest capital expenditure during the quarter. Corporate General and Administrative expense has grown since the third quarter of 2006 as the Company expanded its operational and administrative staff. As the Company grows and prepares for the operation of the Sunshine Mine, management anticipates further capital improvements, equipment purchases and staff increases.

Management has been successful in raising capital through private equity offerings and may seek additional debt and/or equity funding for future operations if needed. While the Company believes its cash, cash equivalents and short-term investments and cash from operations will be adequate to meet its obligations in 2007, there can be no assurances that financing will be available though private equity or convertible debt offerings, if needed.

Should the mine fail to produce positive operating cash flows, there is no assurance the Company will be successful in its fund raising efforts in future years, or that its Mexican operations can generate significant excess cash to help fund operating expenses.

The capital requirements of the Company's Mexican operations will be dependent on the profits and cash flow from Barones and San Acacio operations, results of economic and technical studies on our other projects and any exploration projects the Company may select for advancement.

Contractual Obligations

The Company is obligated under certain contractual arrangements for future cash
expenditures. The following table sets forth our contractual obligations for the
periods shown:



                                                                      Payments due by period
                                                          Less
                                                         than 1
                                             Total        Year     1-3 Years    3-5 Years     After 5 Year
Notes Payable Operating Leases:           $   529,050   $ 27,862   $  501,188   $       -                -
J.E. Prospect                             $    65,000   $ 12,500   $   12,500   $   20,000   $       20,000
Jestec                                        115,000         -        15,000       50,000           50,000
American Reclamation                          390,000     30,000      120,000      120,000          120,000
Chester Mining Co.                             23,400      1,800        7,200        7,200            7,200
Mineral Mountain                               10,800         -         3,600        3,600            3,600
Merger Mines                                   15,000      2,500        2,500        5,000            5,000
Timberline Resources                           60,000         -        20,000       20,000           20,000
Metropolitan Mines                             39,000      3,000       12,000       12,000           12,000
Rock Creek Mining                              19,500      1,500        6,000        6,000            6,000
San Acacio                                         -          -            -            -                -

Sub-total Leases                          $   737,700   $ 51,300   $  198,800   $  243,800   $      243,800

Total Obligations                         $ 1,266,750   $ 79,162   $  699,988   $  243,800   $      243,800

Critical Accounting Policies and Estimates

The Company has determined from the significant accounting policies as disclosed in our financial statements, that the following two disclosures are critical accounting policies.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

At least annually, management reviews the reserves used to estimate the quantities and grades of ore at our mines which management believes can be recovered and sold economically. Management's calculations of proven and probable ore reserves are based on in-house engineering and geological assessments using current operating costs, metals prices and, when applicable, on third-party audits of our reserves.

Reserve estimates will change as existing reserves are depleted through production and as production costs and/or metals prices change. A significant drop in metals prices may reduce reserves by making some portion of such ore uneconomic to develop and produce. Changes in reserves may also reflect that actual grades of ore processed may be different from stated reserve grades because of variation in grades in areas mined, mining dilution and other factors. Estimated reserves, particularly for properties that have not yet commenced production, may require revision based on actual production experience.

Declines in the market prices of metals, increased production or capital costs, reduction in the grade or tonnage of the deposit or an increase in the dilution of the ore or reduced recovery rates may render ore reserves uneconomic to exploit. If our realized price for the metals we produce were to decline substantially below the levels set for calculation of reserves for an extended period, there could be material delays in the development of new projects, net losses, reduced cash flow, restatements or reductions in reserves and asset

Mineral Exploration and Development Costs

The Company has been engaged in exploration since 1998.

In accordance with GAAP, the Company expenses exploration costs as incurred. Significant property acquisition costs for undeveloped mineral interests that have significant potential to develop an economic ore body are capitalized. The Company will amortize the capital costs based on proven and probable ore reserves if an economic ore body is developed. If an economic ore body is not discovered previously capitalized costs are expensed in the period in which it is determined that the property does not contain an economic ore body. Costs to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines are capitalized and will be amortized on units of production basis over proven and probable reserves. Gains and losses on the sales or retirement of assets are recorded as other income or expense.

The Company expects to have reserves in the future on any development it deems commercially viable. The essential nature of any reserves acquired or discovered will be estimates based upon ore body information presented to and reviewed by professionals. The enterprise of exploration and mining are subject to substantial uncertainties in development and operations. The Company continues to recruit a team of operational professionals, with the highest standards for reporting always being in the forethought of management.

Any estimates arising out of our exploration, development and operational activities will be expected to be reviewed under current internal policies. Our current environment has had only a short period of active operations and management believes that all exploration, development and operating policies are being accurately maintained. Our future operations will be heavily dependent on the market values of precious metals and our estimated costs of production. As these determinants change we would expect analysis by management of both short-term and long-term conditions, which could have a negative impact on the Company's choices concerning development and operations of its existing and future acquired properties.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurement". Management does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations when FAS 157 becomes effective, after November 15, 2007.

In February 2006, the FASB issued SFAS No. 155 "Accounting for Certain Hybrid Financial Instruments," which amends SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 155 resolves issues addressed in Statement 133 Implementation Issue No. D1 "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets," and permits:

• Fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;

• Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation;

• Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and

• Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

FAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 is not expected to have a material effect on our consolidated financial statements.

In February 2006, the FASB issued FSP No. 123(R)-4 "Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of Contingent Event." FSP 123(R)-4 amends paragraphs 32 and A229 of SFAS No. 123(R) to incorporate the concept that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee's control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur, and that an option or similar instrument that is classified as equity, but subsequently becomes a liability because the contingent cash settlement event is probable of occurring, shall be accounted for similar to a modification from an equity to liability award. FSP 123(R)-4 became effective when we adopted SFAS 123(R) and is not expected to have a material effect on our consolidated financial statements.

In September 2005, the FASB issued Emerging Issues Task Force ("EITF") Issue No. 04-13 "Accounting for Purchases and Sales of Inventory with the same Counterparty." The scope of EITF No. 04-13 includes guidance on the circumstances under which two or more inventory purchases and sales transactions with the same counterparty should be viewed as a single exchange transaction under the scope of Opinion 29 "Accounting for Nonmonetary Transactions," and whether there are circumstances under which nonmonetary exchanges of inventory within the same line of business should be recognized at fair value. EITF No. 04-13 is effective for new arrangements entered into, or modifications or renegotiations of existing arrangements, beginning in the first interim or annual reporting period beginning after March 15, 2006. The adoption of EITF Issue No. 04-13 is not expected to have a material effect on our consolidated financial statements.