UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2005

Commission File Number 1-7375

COMMERCE GROUP CORP.
(Exact name of registrant as specified in its charter)

WISCONSIN 39-6050862
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (414) 462-5310

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
- -------------------------------- ----------------------
Common Shares $0.10 par value Pink Sheets

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrant is an accelerated file (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

The aggregate market value of the 16,735,882 shares held by nonaffiliates
of the registrant based on the closing price of the OTC BB on September 30,
2004 was $1,589,909.

At March 31, 2005, there were 23,823,734 shares of the registrant's common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of Form 10-K is incorporated herein by
reference to the registrant's definitive Proxy Statement relating to its
2005 Annual Meeting of Stockholders, which will be filed with the
Commission within 120 days after the end of the registrant's fiscal year.

COMMERCE GROUP CORP.
2005 FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended March 31, 2005

TABLE OF CONTENTS

Page

PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security Holders. . . . 23
Item 4(a). Executive Officers and Managers of the Company . . . . . . 23

PART II

Item 5. Market for the Company's Common Stock and Related
Stockholders' Matters. . . . . . . . . . . . . . . . . . . 25
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 27
Item 7(a) Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . . 39
Item 8. Financial Statements and Supplementary Data. . . . . . . . 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 71
Item 9(a). Controls and Procedures. . . . . . . . . . . . . . . . . . 72
Item 9(b) Other Information. . . . . . . . . . . . . . . . . . . . . 72

PART III

Item 10. Directors and Executive Officers of the Registrant . . . . 72
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 73
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . 73
Item 13. Certain Relationships and Related Transactions . . . . . . 73
Item 14. Principal Accounting Fees and Services . . . . . . . . . . 73

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . 73

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.

PART I

Item 1. Business
- -----------------
Glossary of Selected Mining Terms
- ---------------------------------

Cut-off Grade The minimum grade of ore used to establish reserves.

Dore Unrefined gold and silver bullion consisting of
approximately 90% precious metals that will be further
refined to almost pure metal.

Development Stage A "development stage" project is one which is
undergoing preparation of an established commercially
mineable deposit for its extraction but which is not
yet in production. This stage occurs after completion
of a feasibility study.

Exploration Stage An "exploration stage" prospect is one which is not in
either the development or production stage.

Fault A surface or zone of rock fracture along which there
has been displacement.

Feasibility Study An engineering study designed to define the technical,
economic, and legal viability of a mining project with
a high degree of reliability.

Formation A distinct layer of sedimentary rock of similar
composition.

Grade The metal content of ore, usually expressed in troy
ounces per ton.

Heap Leaching A method of recovering gold or other precious metals
from a heap of ore placed on an impervious pad, whereby
a dilute leaching solution is allowed to percolate
through the heap, dissolving the precious metal, which
is subsequently captured and recovered.

Mineralized
Material The term "mineralized material" refers to material that
is not included in the reserve as it does not meet all
of the criteria for adequate demonstration for economic
or legal extraction.

Mining Mining is the process of extraction and beneficiation
of mineral reserves to produce a marketable metal or
mineral product. Exploration continues during the
mining process and, in many cases, mineral reserves are
expanded during the life of the mine operations as the
exploration potential of the deposit is realized.

Net Smelter
Return Royalty A defined percentage of the gross revenue from a
resource extraction operation, less a proportionate
share or transportation, insurance, and processing
costs.

Outcrop That part of a geologic formation or structure that
appears at the surface of the earth.

Probable Reserves Reserves for which quantity and grade and/or quality
are computed from information similar to that used for
Proven Reserves, but the sites for inspection, sampling
and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although
lower than that for Proven Reserves, is high enough to
assume continuity between points of observation.

Production Stage A "production stage" project is actively engaged in the
process of extraction and beneficiation of mineral
reserves to produce a marketable metal or mineral
product.

Proven Reserves Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or
drill holes; grade and/or quality are computed from the
results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so
closely and the geologic character is so well-defined
that size, shape, depth and mineral content of reserves
are well established.

Reclamation The process of returning land to another use after
mining is completed.

Recoverable That portion of metal contained in ore that can be
extracted by processing.

Reserves That part of a mineral deposit which could be
economically and legally extracted or produced at the
time of reserve determination.

Run-of-Mine Mined ore of a size that can be processed without
further crushing.

Strip Ratio The ratio between tonnage of waste and ore in an open
pit mine.

Waste Barren rock or mineralized material that is too low in
grade to be economically processed.

GENERAL
- -------

Commerce Group Corp. ("Commerce," the "Company," and/or the "Registrant")
is the only precious metals company that has produced gold in the past
twenty years in the Republic of El Salvador, Central America. Furthermore,
since 1968, Commerce has been operative in the exploration, exploitation,
development, and production of precious metals in El Salvador. Its gold
ore reserves in the San Sebastian Gold Mine (SSGM) exceed 1.5 million
ounces. Commerce's objectives are to obtain a sufficient amount of funds
to expand its San Cristobal Mill and Plant and to commence an open-pit,
heap-leach operation at its SSGM to produce gold at a profit. Commerce
simultaneously continues to seek a compatible acquisition, merger, other
business arrangement, or an endeavor in which synergism will prevail. This
combination should enhance the value of Commerce's common shares.

Commerce has been a Wisconsin-chartered corporation since its merger from a
State of Delaware corporation on April 1, 1999, and its corporate
headquarters are based in Milwaukee, Wisconsin. It was organized in 1962
and its common shares have been publicly traded since 1968. The Company's
shares have been trading on the Over the Counter Bulletin Board (OTCBB)
under the Symbol CGCO.OB from May 5, 1999 through January 20, 2005. Since
January 21, 2005 its shares have been trading on the Pink Sheets under the
trade symbol of CGCO.PK as a result of its former auditor not being
registered with the Public Company Accounting Oversight Board (PCAOB) on or
before the deadline date of October 22, 2003. Since the auditor was not
registered, the financial statements for the period ended March 31, 2004
were regarded as being in non compliance with Section 102 of the Sarbanes-
Oxley Act of 2002. Reference is made to the Company's Securities and
Exchange Commission Form 8-Ks filed on January 21, 2005 and May 6, 2005.

COMPANY'S WEBSITE
- -----------------

Commerce has a website located at http://www.commercegroupcorp.com. This
website can be used to access recent new releases, U.S. Securities and
Exchange Commission filings, the Company's Annual Report, Proxy Statement,
Board Committee Charter, and other items of interest. The contents of the
Company's website are not incorporated into this document. The U.S.
Securities and Exchange Commission filings, including supplemental
schedules and exhibits can also be accessed free of charge through the U.S.
Securities and Exchange Commission's website at: http://www.sec.gov.

PRECIOUS METAL MINING
- ---------------------

Commerce continues to be engaged in the exploration, exploitation,
development and production of gold and silver mines in the Republic of El
Salvador, Central America, through its Commerce/Sanseb Joint Venture
("Joint Venture"). Commerce holds a nearly 100% interest in the Joint
Venture which is the operator of the San Sebastian Gold Mine ("SSGM").

Commerce's objective is to enhance the value of its shares by realizing
profits from the production and sale of gold and silver, cash flow, and by
increasing its gold/silver ore reserves. This may be achieved by its
continuing to be a low-cost gold producer, by increasing production and by
expanding its gold ore reserves. Commerce has an opportunity to increase
its gold ore reserves since on March 3, 2003, it received the New San
Sebastian Gold Mine Exploration Concession/License hereinafter identified
as the "New SSGM." It is currently exploring this 42-square kilometer area
(10,374 acres), which includes three formerly-operated mines and
encompasses the SSGM.

The Government of El Salvador on May 25, 2004 granted the Nueva Esparta
Exploration Concession/License which consists of 45 square kilometers of
area (11,115 acres) and includes eight formerly operated gold and silver
mines. This concession further enhances the potential to increase gold and
silver ore reserves. It presently is concentrating on the exploration of
the Montemayor Mine which is one of the eight formerly operated mines in
this concession.

Commerce's current goal is to secure sufficient capital to increase its
production of gold to 113,000 ounces per year and to simultaneously develop
additional gold/silver ore reserves. The Company expects to increase
production by developing an open-pit, heap-leach operation on the SSGM site
and by acquiring additional mill and related equipment which will increase
the capacity of the processing of its higher grade virgin ore at the San
Cristobal Mill and Plant ("SCMP"). The SSGM heap-leach operation should
have the capability of producing (through processing a higher volume of
gold ore of 2,000 to 6,000 tons per day) significantly more gold than what
can be produced at the SCMP, which has a present capacity of processing
200 tons of gold ore per day. Commerce will also continue to explore areas
contiguous to the SSGM site, and it also is planning exploratory and drill
programs in its concession areas.

OPERATIONS

On December 31, 1999, the Joint Venture decided to temporarily suspend its
processing of gold ore at its SCMP until such time as it has adequate funds
to retrofit, restore, rehabilitate, and expand its mill and plant. An
overhauling is needed to preserve the integrity of the equipment. The
initial resumption of producing gold was with the SCMP used equipment the
Joint Venture purchased on February 23, 1993. Even though the Joint
Venture has maintained this mill and plant on a continuous basis, certain
basic structural components are worn out and need to be replaced,
retrofitted or overhauled. Another significant concern at that time was
the substantial decline in the world market price of gold. Concurrent with
the decision to suspend processing gold ore was the awareness to increase
efficiency by expanding the SCMP facilities from the existing 200-ton-per-
day capacity to a 500-ton-per-day operation. From March 31, 1995 through
December 31, 1999 when production was suspended, 22,710 ounces of bullion
containing 13,305 ounces of gold and 4,667 ounces of silver were produced
at the SSGM and then sold at the respective current world market price.

There are approximately 1.5 million ounces of proven and estimated gold ore
reserves at the SSGM. Although the financial statement periods presented
herein reflect that the SSGM is the only one of the Company's mining
properties which has generated revenues, there are strong indications of
commercial gold/silver ore present at some of the other gold mine sites.

At the current stage of the exploration and development, the Company's
geologists have defined the following gold reserves:

<Table>
<Caption>
Ounces
Average -----------------------
Tons Grade Contained Probable Total
----------- ----------- ----------- ----------- -----------

San Sebastian Gold Mine
(a) Virgin ore, dump and
waste material 14,404,096 0.081 1,166,732 1,166,732
(b) Stope fill
(estimated) 1,000,000 0.340 340,000 340,000
----------- ----------- ----------- ----------- -----------
15,404,096 1,166,732 340,000 1,506,732
=========== =========== =========== ===========
</Table>

The anticipated recovery for processing via the SCMP will range from 85% to
95% and for heap leaching from 65% to 70%.

SSGM JOINT VENTURE ARRANGEMENTS
- -------------------------------

Commerce acquired 82 1/2% of the authorized and issued common shares of San
Sebastian Gold Mines, Inc. ("Sanseb"), a Nevada corporation formed on
September 4, 1968. The balance of Sanseb's shares are held by
approximately 200 unrelated shareholders. From 1969 forward, Commerce has
provided substantially all of the capital required to develop a mining
operation at the SSGM, to fund exploration, and to acquire and refurbish
the SCMP.

On September 22, 1987, Commerce and Sanseb entered into a joint venture
agreement (named the "Commerce/Sanseb Joint Venture" and sometimes referred
to herein as the "Joint Venture") to formalize the relationship between
Commerce and Sanseb with respect to the mining venture and to divide
profits. The terms of this agreement authorize Commerce to supervise and
control all of the business affairs of the Joint Venture. Under this
agreement 90% of the net pre-tax profits of the Joint Venture will be
distributed to Commerce and ten percent to Sanseb, and because
Commerce owns 82 1/2% of the authorized and issued shares of Sanseb,
Commerce in effect has an over 98% interest in the activities of the Joint
Venture. In order to maintain current accounting between Commerce and
Sanseb, the interest charges to Sanseb on advances made by Commerce are
kept separately. Therefore, when profits are earned, the interest due to
Commerce when it is recorded will be paid from the cash distributions made
to Sanseb.

The Joint Venture leases the SSGM from the Company's 52%-owned subsidiary,
Mineral San Sebastian, S.A. de C.V. ("Misanse"), an El Salvadoran
corporation. On January 14, 2003, the Company entered into an amended and
renewed 30-year lease agreement with Mineral San Sebastian Sociedad Anomina
de Capital Variable (Misanse) pursuant to the approval of the Misanse
shareholders and Misanse directors at a meeting held on January 12, 2003.
The renewed lease is for a period of time commencing and coinciding with
the date that the Company received its Renewed San Sebastian Gold Mine
Exploitation Concession/License, hereinafter identified as the "Renewed
SSGM," from the Ministry of Economy's Director of El Salvador Department of
Hydrocarbons and Mines (DHM). The lease is automatically extendible for
one or more equal periods. The Company will pay to Misanse for the rental
of this real estate the sum of five percent of the sales of the gold and
silver produced from this real estate, however, the payment will not be
less than $343.00 per month. The Company has the right to assign this
lease without prior notice or permission from Misanse. This lease is
pledged as collateral for loans made to related parties (Item 8. Financial
Statements and Supplementary Data, Note 7).

The Joint Venture is registered as an operating entity to do business in
the State of Wisconsin, U.S.A. and in the Republic of El Salvador, Central
America. The Joint Venture Agreement authorizes Commerce to execute
agreements on behalf of the Joint Venture.

ORGANIZATIONAL STRUCTURE AND MINING PROJECTS
- --------------------------------------------

The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries, and its Commerce/Sanseb Joint Venture, but
it excludes its 52% ownership of Mineral San Sebastian S.A. de C.V. Upon
consolidation, all intercompany balances and transactions are eliminated.

Charter/Joint Venture
Included in the Consolidated Statements % Ownership Place Date
- --------------------------------------- ----------- ---------- ----------

Homespan Realty Co., Inc. ("Homespan") 100.0 Wisconsin 02/12/1959
Ecomm Group Inc. ("Ecomm") 100.0 Wisconsin 06/24/1974
San Luis Estates, Inc. ("SLE") 100.0 Colorado 11/09/1970
San Sebastian Gold Mines, Inc. ("Sanseb") 82.5 Nevada 09/04/1968
Universal Developers, Inc. ("UDI") 100.0 Wisconsin 09/28/1964
Commerce/Sanseb Joint Venture
("Joint Venture") 90.0 Wisconsin &
El Salvador 09/22/1987

Not included in the Consolidated Statements
- -------------------------------------------
Mineral San Sebastian, S.A. de C.V. ("Misanse") 52.0 El Salvador 05/08/1960
</Table>

Commerce was originally formed as a Wisconsin corporation (September 14,
1962). It then merged into a Delaware corporation on July 26, 1971 and on
April 1, 1999 it merged back into a Wisconsin corporation. It owns 52% of
Misanse, an El Salvadoran corporation that was formed on May 8, 1960,
reinstated on January 25, 1975 and reincorporated on October 22, 1993.
Misanse previously had a mining concession with the government of El
Salvador and is the owner of the SSGM real estate. At that time, Misanse
had assigned the mining concession to Commerce Group Corp. and San
Sebastian Gold Mines, Inc., the mining operator formed on September 22,
1987 and known as the Commerce/Sanseb Joint Venture (Joint Venture). The
Joint Venture operates the SCMP (the gold processing plant acquired on
February 23, 1993) and has conducted exploration, exploitation, development
and production at the SSGM since October 1968; it was also in production
from 1972 through March 1978 and from April 1, 1995 through December 1999.
It also performed exploration at the following mines: San Felipe-El Potosi
(from September 1993 through November 1999) and its extension Capulin (from
May 1995 through November 1999); Modesto (from August 1993 through July
1997); Hormiguero (from September 1993 through 1998) and Montemayor (from
March 1995 through July 1997). Commerce also owns 82 1/2% of the San
Sebastian Gold Mines, Inc. (SSGM) which was chartered as a Nevada
corporation on September 4, 1968.

From 2003 to the present the Joint Venture is performing exploration at the
La Lola Mine, the Santa Lucia Mine, the Tabanco Mine, and the Montemayor
Mine, which are included in the New SSGM and in the Nueva Esparta
Concession/License.

The Government of El Salvador has issued the Modesto and San Felipe-El
Potosi mining concessions to others. Commerce's attorneys have challenged
the legality of the issuance of these concessions. Commerce owns certain
properties believed to be crucial to the Modesto Mine and it holds
leases to the key property of the Montemayor Mine. It plans to apply for
concessions on the Modesto property that it owns. It also has a lease
agreement with the owners of the San Felipe-El Potosi Mine. Although the
sub surface rights belong to the Government of El Salvador, access to the
surface rights must be obtained from the owner.

All of the mines mentioned, including the eleven mines admitted in the two
exploration concessions, were formerly in production and did produce gold
and/or silver. In addition to the channel trenching, test pit holes, and
underground adit openings, the Joint Venture had its own diamond drilling
rig and had contracted with others to explore the above-described SSGM
potential targets in depth. All of the mining properties appear to have
promising geologic prospects, alterations, and historical records that bear
evidence that all have been mined and at one time in the past produced
gold/silver.

WORLD GOLD MARKET PRICE, CUSTOMERS AND COMPETITION
- --------------------------------------------------

Since the Joint Venture was in operation and produced gold on a curbed
start-up basis, its revenues, profitability and cash flow were greatly
influenced by the world market price of gold. The gold world market price
is generally influenced by basic supply and demand fundamentals. It is
unpredictable, volatile, can fluctuate widely and is affected by numerous
factors beyond the Company's control, including, but not limited to,
expectations for inflation, the relative strength of the United States'
dollar in relation to other major worldwide currencies, political and
economic conditions, central bank sales or purchases, inflation, production
costs in major gold-producing regions, and other factors. The supply and
demand for gold can also greatly affect the price of gold. The Company has
not and does not expect in the foreseeable future to engage in hedging or
other similar transactions to minimize the risk of fluctuations in gold
prices or currencies. The Company's present and past practice has been to
sell its gold and silver at the world market spot prices. Gold and silver
can be sold on numerous markets throughout the world, and the market price
is readily ascertainable for such precious metals. There are many
worldwide refiners and smelters available to refine these precious metals.
Refined gold and silver can also be sold to a large number of precious
metal dealers on a competitive basis. The Joint Venture's SCMP operation
which produces dor, was refined by and sold to a refinery located in the
United States.

At this time the Joint Venture believes that, due to its current financial
capacity, it may not be a major gold producer based on the size of larger
existing gold mining companies. The Company believes no single
gold-producing company could have a large impact to offset either the price
or supply of gold in the world market. There are many mining entities in
the world producing gold. Many of these companies have substantially
greater technical and financial resources and larger gold ore reserves than
the Company. The Company believes that the expertise of the Joint
Venture's experienced key personnel, its ability to train its employees,
its low overhead, its gold ore resources, its accessibility to the mine,
its infrastructure, and its projected low cost of production may allow it
to compete effectively and to produce reasonable profits.

The profitability and viability of the Joint Venture is dependent upon, not
only the price of gold in the world market (which can be unstable), but
also upon the political stability of El Salvador and the availability of
adequate funding for either the SCMP operation or the SSGM open-pit,
heap-leaching operation or for the other exploration projects.

As of this date, inflation, currency, interest rate fluctuations, and
political instability have not had a material impact on the Company or its
results of operations.

SEASONALITY
- -----------

Seasonality does not have a material impact on the Company's operations,
but the rainy season in El Salvador (May through November) can subdue
production.

ENVIRONMENTAL MATTERS
- ---------------------

Since the Government of El Salvador (GOES) has established a new Mining Law
effective February 1996, its exploration, development, and production
programs are subject to environmental protection. The GOES has established
the Office of the El Salvador Ministry of Environment and Natural Resources
(MARN). In order to comply with mining law, the Company was required to
obtain environmental permits. On October 15, 2002, an environmental permit
under MARN Resolution 474-2002 was issued for the SCMP. On October 21,
2002, an environmental permit under MARN Resolution 493-2002 was issued
pertaining to the SSGM.

Environmental regulations add to the cost and time needed to bring new
mines into production and add to operating and closure costs for mines
already in operation. As the Company places more mines into production,
the costs associated with regulatory compliance can be expected to
increase. Such costs are a normal cost of doing business in the mining
industry, and may require significant capital and operating expenditures in
the future. The Company's policy is to adhere to the El Salvador
environmental standards. The Company cannot accurately predict or estimate
the impact of any future laws or regulations developed in El Salvador that
would affect the Company's operations.

All operations by the Company involving the exploration or the production
of minerals are subject to existing laws and regulations relating to
exploration procedures, safety precautions, employee health and safety, air
quality standards, pollution of water sources, waste materials, odor,
noise, dust and other environmental protection requirements adopted by the
El Salvador governmental authorities. The Company was required to prepare
and present to such authorities data pertaining to the effect or impact
that any proposed exploration or production of minerals may have upon the
environment. The requirements imposed by any such authorities may be
costly, time consuming and may delay operations. Future legislation and
regulations designed to protect the environment, as well as future
interpretations of existing laws and regulations, may require substantial
increases in equipment and operating costs to the Company and delays,
interruptions, or a termination of operations. The Company cannot
accurately predict or estimate the impact of any such future laws or
regulations, or future interpretations of existing laws and regulations, on
its operations.

REPUBLIC OF EL SALVADOR, CENTRAL AMERICA INFORMATION SOURCES
- ------------------------------------------------------------

The most current information about El Salvador can be obtained from the
following sources:

1. General information can be obtained through the Internet from the
following websites: http://www.usinfo.org.sv/eng/irc/svlinks.html and
http://www.dirla.com/elsalvador2.html.

2. The U.S. Embassy in El Salvador can also be contacted at Final
Boulevard Santa Elena Sur, Urbanizacion Santa Elena, Antiguo
Cuscatl n, La Libertad, El Salvador, telephone (011) 503-278-4444 and
fax (011) 503-278-6011 or at its website:
http://www.elsalvador.usembassy.gov.

OPERATIONS, OTHER THAN MINING
- -----------------------------

Commerce independently and through its partially and wholly-owned
subsidiaries conducted other business activities, which at present are
dormant. Previous operations consisted of the following: (1) land
acquisition and real estate development through its wholly-owned
subsidiaries, San Luis Estates, Inc. ("SLE") and Universal Developers, Inc.
("UDI"); (2) real estate sales, through its wholly-owned subsidiary,
Homespan Realty Co., Inc. ("Homespan"); and (3) advertising and various
businesses, including Internet-related businesses, through its subsidiary,
Ecomm Group Inc. ("Ecomm").

LAND ACQUISITION, DEVELOPMENT, OWNERSHIP AND REAL ESTATE SALES
- --------------------------------------------------------------

During the past years, the Company has substantially diminished its
activities in the business of real estate development conducted principally
through its subsidiaries San Luis Estates, Inc. ("SLE"), a Colorado
corporation, and Universal Developers, Inc. ("UDI"), a Wisconsin
corporation. At present, all activities have ceased.

Misanse, the Company's majority-owned subsidiary (52%) owns the SSGM real
estate consisting of approximately 1,470 acres. This real estate is
located approximately two and one-half miles northwest of the city of Santa
Rosa de Lima, off of the Pan American Highway (a four-lane highway), about
108 miles southeast of the capital city of San Salvador, El Salvador, and
is about 11 miles west from the border of the Country of Honduras. It is
also about 26 miles from the city of La Union which has railroad and port
facilities. The Company, on January 14, 2003, entered into a long term
lease arrangement with Misanse.

The Company also leases approximately 166 acres of real estate on which it
has its SCMP and plans to process ore on this site. These facilities are
located on the Pan American Highway, near the City of El Divisadero.

The Company owns approximately 63 acres of land on the Modesto Mine site
which is located due north of the city of Paisnal and approximately 19
miles north of San Salvador, the capital city of El Salvador. This real
estate is pledged as collateral for funds advanced to the Company. It also
leases approximately 175 acres of land considered to be the main part of
the Montemayor Mine in the Department of Morazan.

The Joint Venture entered into a lease agreement with the San Felipe-El
Potosi Cooperative ("Cooperative") of the city of Potosi, El Salvador on
July 6, 1993, to lease the real estate encompassing the San Felipe-El
Potosi Mine for a period of 30 years and with an option to renew the lease
for an additional 25 years, for the purpose of mining and extracting
minerals.

Reference is made to "Item 2. Properties," for additional information.

Homespan, the local real estate marketing subsidiary of the Company is
presently inactive. It has no significant activity and is not material to
the Company's operation.

EMPLOYEES
- ---------

As of March 31, 2005, the Company and its wholly-owned subsidiaries
employed between 45 and 55 full-time persons, which number may adjust
seasonally. The Company also employs up to four persons, including part-
time help, in the United States. None of the Company's employees are
covered by collective bargaining agreements.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS & GOVERNMENT
CONTRACTS
- --------------------------------------------------------------------

Other than concessions, licenses and interests in mining properties granted
by governmental authorities and private landowners, the Company does not
own any material patents, trademarks, licenses, franchises or concessions.

SIGNIFICANT CUSTOMERS
- ---------------------

The Company presently has no individual significant customers in which the
loss of one or more would have an adverse effect on any segment of its
operations or from whom the Company has received more than ten percent of
its consolidated revenues, except for the sale of gold when the Joint
Venture is in production. The gold in dor, form is refined and then sold
at the world market spot price to a refinery located in the United States.

MISCELLANEOUS
- -------------

Backlog orders at this time are not significant to either the Company's or
its majority-owned subsidiaries' areas of operations, or at this time is
any portion of their operations subject to renegotiation of profits or
termination of contracts at the election of the United States' Government.

At this time, neither the Company nor its majority-owned subsidiaries
conduct any material research and development activities, except as
indicated in this report with respect to the Joint Venture and its mining
exploration, exploitation, and development programs in the Republic of El
Salvador, Central America.

The Company believes that the United States federal, state and local
provisions regulating the discharge of materials into the environment
should not have a substantial effect on the capital expenditures, earnings
or competitive position of the Company or any of its majority-owned
subsidiaries as the Company does not have any mining activity in the United
States.

Item 2. Properties

Mining Properties

The table below provides a summary of the most significant mining
properties in which Commerce Group Corp. or the Joint Venture has an
interest. All of the properties are located in the Republic of El
Salvador, Central America. More detailed information regarding each of
these properties is provided in the text that follows.

<Table>
<Caption>
Amount
Date of Funds
Interest to Make Date Mine
Property Nature was Cost of Property will be
Description of Interest Acquired Interest Operational Operational
----------- ----------- -------- --------- ----------------- ----------------

1.San Sebastian Mineral 1968 5% of This is dependent It was in
Mine located concession the gross on the scale of operation on a
two and consisting precious production that curbed product-
one-half miles of 100% metal management ion basis from
northwest of ownership proceeds decides to 03/31/05 until
the city of of the or perform. The December 31,
Santa Rosa precious $343 a amount of 1999 when
de Lima and metals month investment operations were
the Pan extracted whichever could be from suspended due
American from this is $5 million to the need to
highway. mine. higher. to 100$ million. overhaul,
repair, restore
and expand
the SCMP
facilities.

2. San Felipe- El Salvador 07/06/93 5% of Undetermined Undetermined.
El Postosi/ legal the gross until a
Cauplin Mine counsel is precious preliminary
located near in the metals drilling program
the city of process of proceeds. is completed;
Postosi, 18 reviewing estimated cost
miles north- alternatives of drilling
west of the to obtain is $2 million.
city of San the mineral
Miguel. concession.

3. Hormiguero Ownership 09/93 The Undetermined Undetermined.
Mine located of the surface until a
five miles tailings. use of preliminary
southest of land drilling program
the City of (rent) is completed;
San Cristobal is to estimated cost
Mill and Plant be of drilling
near the city negotiated. is $2 million.
of Comacaron. Mine surface
channel trenching
and adit cleaning
should be completed
to determine
drilling costs.

4 Modesto Mine Application 09/93 On the Undetermined Undetermined.
located near is to Company- until a
the city of submitted owned preliminary
Paisnal andfor a mineral land it drilling
about 19 miles concession appears program is
north of El on the real as if completed;
Salvador, the estate owned this will estimated
capital city. by the be an cost of
Company to underground drilling
own 100% mine, is $2
of the therefore, million.
precious no cost
metals for
extracted interest.
from the
real estate
owned by
the Company.

5. Montemayor Application 07/95 It Undetermined Undetermined.
Mine located is to be appears until a
about 14 milessubmitted for that this preliminary
northeast a mineral will be drilling
of SCMP and concession an under- program is
about six on the real ground completed;
miles estate owned mine, estimated
northwest of by the therefore, cost of
SSGM. Company to current drilling
own 100% of leases is $2
the precious will have million.
metals to be
extracted renegotiated
from the and
areas the extended.
Company leases.

6 San Mil and Equipment Equipment To expand the Curbed product-
Cristobal Plant owned 02/23/93 purchased plant, including ion commenced
Mill and by Joint and and a crushing March 1995;
Plant located Venture. there- extensive system to a expansion
off the The real after retro- capacity of program in
Pan American estate Lease fitting 500 tons per progress.
Highway is owned 11/12/93 was and day; an estimated Operations
west of the by an agency continues sum of up to suspended
city of El of the to be $3 million may on 12/31/99
Divisadero. Government performed. be required, until the
of El The all dependent existing
Salvador. depreciation whether new or equipment is
Includes investment used equipment overhauled,
crushing through will be repaired,
equipment 03/31/04 purchased. restored and
located at is expansion
the San $4,333,128. on the SCMP
Sebastian facilities are
Gold Mine. completed, and,
dependent on the
price of gold.

7. New San Exploration 02/03 Undeter- Undetermined Undetermined.
Sebastian concession mined until
Gold Mine issue by as exploration
Exploration the negotiations at an
Concession/ Government will be estimated
License of El made with cost of $2
consisting Salvador the surface million is
of 42 for 100% rights completed.
square ownership owners.
kilometers. of the
precious
metals.

</Table>

THE SAN SEBASTIAN GOLD MINE

GENERAL LOCATION AND ACCESSIBILITY

The SSGM is situated on a mountainous tract of land consisting of
approximately 1,470 acres of explored and unexplored mining prospects. The
SSGM is located approximately two and one-half miles off of the Pan
American Highway, northwest of the city of Santa Rosa de Lima in the
Department of La Union, El Salvador. The tract is typical of the numerous
volcanic mountains of the coastal range of southeastern El Salvador. The
topography is mountainous with elevations ranging from 300 to 1,500 feet
above sea level. The mountain slopes are steep, the gulches are well
defined, and the drainage is excellent.

There is good roadway access to the SSGM site. Most of the reconstruction
of the Pan American Highway from two lanes to four lanes (from the city of
San Salvador to the Honduran border) has been completed. The city of Santa
Rosa de Lima (approximately three miles from the SSGM) is one of the
larger cities in the Eastern Zone. The SSGM is approximately 30 miles
from the city of San Miguel, which is El Salvador's third largest city, and
approximately 108 miles southeast of El Salvador's capital city, San
Salvador. SSGM is also approximately 26 miles from the city of La Union
which has port and railroad facilities. Major United States' commercial
airlines provide daily scheduled flights to the Comalapa Airport which is
located on the outskirts of the city of San Salvador.

SSGM RESERVES AND OPERATION

GOLD ORE RESERVES (03/31/05)
Contained
Average Gold
Tons Grade Ounces (1)
------------ ------------ ------------

Ore - virgin (includes 960,000
tons of dump material) 14,404,096 0.081 1,166,732
Stope fill (estimated) 1,000,000 0.340 340,000
------------ ------------ ------------
Totals 15,404,096 1,506,732

</Table>

(1) The estimated recoverable ounces of gold by processing: SCMP, 85% to
95%; heap leach, 65% to 70%.

The dump material and stope fill at the SSGM are the by-products of past
mining operations. The dump material is actually gold ore which has been
mined in the search for higher grades of gold ore and piled to the side of
past excavations as it was considered at that time to be too low of a grade
of ore to process economically; however, it was reserved for future
processing when the price of gold is at a level to process it profitably.
The stope fill that is available was in the past (1900 era) considered to
be too low of a grade of ore to process economically, therefore it was
primarily used to fill the voids in the underground workings to accommodate
the extraction of the higher grade of gold ore in the past SSGM mining
activities. Virgin gold ore, as the term is used in this report, is gold
ore which is on the surface and readily available for processing; it also
includes the undeveloped underground gold ore.

At the turn of the twentieth century, the SSGM was rated as one of the
richest gold mines in the world. The United Nations' 1969 Mineral Survey
Report states that "unquestionably the San Sebastian deposit was the jewel
of the El Salvador mining industry and one of the most prolific gold mines
in Central America."

Virgin gold ore at the SSGM represents the majority of the material (14.4
million tons, including the dump waste material) in the Company's reserves.
The Company plans to use an open-pit mining method and will truck the
lower grade gold ore to one or more heap-leaching pads developed at the
SSGM site. The use of open-pit mining and heap-leaching techniques will
enable the Company to process a higher volume of low grade gold ore than
can be processed at the SCMP. The Company plans to continue to operate the
SCMP after developing a leach-pad operation at the SSGM, using the facility
to process the higher grade ore it encounters in the course of mining at
the SSGM. The milling operation at the SCMP is expected to return a higher
rate of gold recovery than can be expected from heap-leaching techniques.

Approximately 960,000 tons of dump material present at the SSGM site, with
grades ranging from 0.082 to 0.178 ounces of gold per ton, have been
combined with the virgin ore reserves. An analysis of the underground
stope fill material was made by the Company's consulting geologist who has
confirmed that about seven percent of the stope fill had been removed and
processed during the 1973-1978 period. The grade of the stope fill
averages 0.34 ounces of gold per ton. It is estimated that there are about
one million tons available for SCMP treatment from the underground
operations. It is necessary to remove the material which has caved in the
adits to reach the stope fill areas, or it eventually will be encountered
in the open-pit operations.

All residue from the contemplated operations will be stockpiled for
potential future processing dependent upon the price of gold, improvements
in technology, and the depletion of higher grade material.

MISANSE MINING LEASE

The Company (previously through the Joint Venture) leases the SSGM from
Mineral San Sebastian, S.A. de C.V. ("Misanse"), an El Salvadoran
corporation. The Company owns 52% of the total of Misanse's issued and
outstanding shares. The balance of the shares are owned by about 100 El
Salvador, Central American and United States' citizens. (Reference is made
to Item 8. Financial Statements and Supplementary Data, Note 7, for
related party interests.)

SSGM MINING LEASE

On January 14, 2003, the Company entered into an amended and renewed lease
agreement with Mineral San Sebastian Sociedad Anomina de Capital Variable
(Misanse) pursuant to the approval of the Misanse shareholders and
directors at a shareholders' meeting and thereafter at a directors' meeting
both held on January 12, 2003. The renewed lease is for a period to
coincide with the term of its Renewed SSGM, which it received on August 29,
2003 from the DHM. It was automatically amended on May 20, 2004 to
coincide with the extension of the term of the Renewed San Sebastian Gold
Mine Exploitation Concession/License from 20 to 30 years. The lease is
automatically extendible for one or more equal periods. The Company will
pay to Misanse for the rental of this real estate the sum of five percent
of the sales of the gold and silver produced from this real estate,
however, the payment will not be less than $343.00 per month. The Company
has the right to assign this lease without prior notice or permission from
Misanse. This lease is pledged as collateral for loans made to related
parties (Item 8. Financial Statements and Supplementary Data, Note 7).

MISANSE MINERAL CONCESSION/LICENSE-GOVERNMENT OF EL SALVADOR

In El Salvador, the rights to minerals below the sub-surface are vested
with the government. Mineral rights are granted by the government through
concessions or licenses.

On January 27, 1987, the Government of El Salvador granted a right to the
SSGM mining concession ("concession") to Misanse which was subject to the
performance of the El Salvador Mining Law requirements. These rights were
simultaneously assigned to the Joint Venture.

On July 23, 1987, the Government of El Salvador delivered and granted to
Misanse, possession of the mining concession. At that time this provided
the right to extract and export minerals for a term of 25 years (plus a
25-year renewal option) beginning on the first day of production from the
real estate which encompasses the SSGM owned by Misanse. Misanse assigned
this concession to the Joint Venture.

Effective February 1996, the Government of El Salvador passed a law which
required mining companies to pay to it three percent of its gross gold sale
receipts and an additional one percent is to be paid to the El Salvador
municipality which has jurisdiction of the mine site. As of July 2001, a
series of revisions to the El Salvador Mining Law were made. A principal
change is that the fee has been reduced to two percent of the gross gold
receipts.

RENEWED SAN SEBASTIAN GOLD MINE EXPLOITATION CONCESSION/LICENSE UNDER EL
SALVADOR AGREEMENT NUMBER 591 DATED MAY 20, 2004 AND DELIVERED ON JUNE 4,
2004 (RENEWED SSGM) - APPROXIMATELY 1.2306 SQUARE KILOMETERS (304 ACRES)
LOCATED IN THE DEPARTMENT OF LA UNION, EL SALVADOR, CENTRAL AMERICA

On September 6, 2002, at a meeting held with the El Salvadoran Minister of
Economy and the DHM, it was agreed to submit an application for the Renewed
SSGM for a 30-year term and to simultaneously cancel the concession
obtained on July 23, 1987. On September 26, 2002, the Company filed this
application. On February 28, 2003 (received March 3, 2003) the DHM
admitted to the receipt of the application and the Company proceeded to
file public notices as required by Article 40 of the El Salvadoran Mining
Law and its Reform (MLIR). On April 16, 2003, the Company's El Salvadoran
legal counsel filed with the DHM notice that it believed that it complied
with the requirements of Article 40, and that there were no objections; and
requested that the DHM make its inspection as required by MLIR Article 42.
An inspection by the DHM was made. The Company then provided a bond which
was required by the DHM to protect third parties against any damage caused
from the mining operations, and it simultaneously paid the annual surface
tax. On August 29, 2003 the Office of the Ministry of Economy formally
presented the Company with a twenty-year Renewed SSGM which was dated
August 18, 2003. On May 20, 2004 (delivered June 4, 2004) the Government
of El Salvador under this Agreement Number 591 extended the exploitation
concession for a period of thirty (30) years. This Renewed SSGM replaces
the collateral that the same parties held with the previous concession.

NEW SSGM EXPLORATION CONCESSION/LICENSE UNDER EL SALVADOR RESOLUTION NUMBER
27 (NEW SSGM) - APPROXIMATELY 40.7694 SQUARE KILOMETERS (10,070 ACRES)
LOCATED IN THE DEPARTMENTS OF LA UNION AND MORAZAN, EL SALVADOR, CENTRAL
AMERICA

On October 20, 2002, the Company applied to the Government of El Salvador
through the DHM for the New SSGM, which covers an area of 42 square
kilometers and includes approximately 1.2306 square kilometers of the
Renewed SSGM. The New SSGM is in the jurisdiction of the City of Santa
Rosa de Lima in the Department of La Union and the Nueva Esparta is in the
Department of Morazan, Republic of El Salvador, Central America. On
February 24, 2003, the DHM issued the New SSGM for a period of four years
starting from the date following the notification of this resolution which
was received on March 3, 2003. The New SSGM may be extended for two two-
year periods, or for a total of eight years. Besides the San Sebastian
Gold Mine, the following three other formerly operative gold and silver
mines included in the New SSGM are being explored: the La Lola Mine, the
Santa Lucia Mine, and the Tabanco Mine. Historical data reflects the
following:

A French company operated the La Lola Mine in 1920; they developed two
quartz veins, which were named La Lola and Buena Vista. From 1950 through
1953, Mr. Amadeo Tinetti produced 1,850 ounces of gold and 66,000 ounces of
silver.

The Tabanco Mine is south of the La Lola Mine. Records evidence and local
citizens confirm that several levels of mining occurred. Isolated rich ore
shoots reported to contain sulfides and silver chloride were encountered.
The oxidized sulfide ore was mined from a width of three to six feet with a
grade of 0.50 ounces per ton of gold and five ounces of silver. Records
reflect that the Herrera family produced gold and silver beginning in the
year 1780.

In the Tepeyac vein very high-grade ore in one to two foot widths was
encountered. A United Nation's team performed sampling and reported that
in a sulfide bearing zone they found 0.31 ounces of gold and 4.52 ounces of
silver in a 4.9 foot wide vein. The footwall host rock assayed at 0.22
ounces of gold and 41.29 ounces of silver. This footwall rock area
location was not specifically identified, but the result lends strength to
the recommendation that in any further sampling or mapping of veins in the
epithermal environment, close attention will be directed to the wall rock.

The third mine in this exploration concession is the Santa Lucia Mine in
which Mr. Humberto Perla developed a 100 meter wide underground vein. This
vein is the west continuation of the Granadilla and the Aro Nuevo veins
located about two miles west of the SSGM property.

NUEVA ESPARTA EXPLORATION CONCESSION/LICENSE (NUEVA ESPARTA) - 45 SQUARE
KILOMETERS (11,115 ACRES)

On or about October 20, 2002, the Company filed an application with the
Government of El Salvador through the DHM for the Nueva Esparta, which
consists of 45 square kilometers north and adjacent to the New SSGM. This
rectangular area is in the Departments of La Union (east) and Morazan
(west) and in the jurisdiction of the City of Santa Rosa de Lima, El
Salvador, Central America. On May 25, 2004 (received June 4, 2004) the
Government of El Salvador under Resolution Number 271 issued the
exploration concession for a period of four years with a right to request
an additional four year extension. An important observation is that these
mines form a belt of mineralization following a fault line from the SSGM to
the Montemayor Mine for a distance of approximately five miles. Included in
the Nueva Esparta are eight other formerly operated gold and silver mines
known as: the Grande Mine, the Las Pinas Mine, the Oro Mine, the
Montemayor Mine, the Baradero Mine, the Carrizal Mine, the La Joya Mine and
the Copetillo Mine. Historical data reflects the following:

The Montemayor Mine has records that show that an English company commenced
production of precious metals sometime about 1860. A report prepared by
Mr. Fleury in 1878 stated that the area assayed approximately 48 ounces of
silver and 0.85 ounces of gold per ton. Six underground workings were
developed, but no records are available. A United Nation's report reflects
a possible grade of twelve ounces of silver and 0.29 ounces of gold form a
section of the Montemayor vein stope. The Montatita, Tempique, Guarumo,
Santa Gertrudis and El Indio vein findings support expanded exploration.
The Company has performed preliminary exploration in the Montemayor Mine
are from 1995 through 1997. Its findings from the ore samples were very
positive and encouraged additional exploration. Exploration will consist
of locating workable ore within the known structures through mapping and
sampling of vein outcrops and reopening, mapping and sampling of
underground work.

The El Baradero Mine is located near the Montemayor Mine. When in
production, most of the ore processed at the Montemayor mill came from this
area and the quality of the precious metals appeared to have the highest
values. The veins identified in the area are the Saravia, Borbollon,
Caraguito 1 to 3, Eulalio and the Miserocordia.

At the La Joya Mine the Company, during previous exploration, discovered
three parallel wide quartz veins averaging in width from six feet to
twenty-seven feet running northwest by southeast dipping at 42 degrees
southwest. More exploration will be concentrated in this tract.

El Jimenito and Santa Teresa are two wide veins that the Company found at
the El Carrizal Mine. They are 1,920 to 2,560 feet apart. The local
residents recollect that free gold was found in the Santa Teresa Vein Adit.
This mine is located between the La Joya and Copetillo Mines.

One vein was discovered at the Copetillo Mine in an underground adit. It
was developed into two sublevels connected to the south with one 100-foot
shaft. Residents recall seeing free gold in the Canton Copetillo.

The Las Pinas Mine is located in the Canton Las Caras and was in operation
in 1935. It was developed for a five-year, 100-ton-per-day mill and plant.
Records show that the average grade of silver was 5.10 ounces per ton and
that the grade of gold averaged 0.06 ounces per ton.

The La Joya Mine is located in the Canton La Joya. Records relating to
activities were not preserved. While exploring the region, Commerce found
three parallel wide quartz veins ranging from six to 25 feet running
northwest to southeast. The grass roots exploration suggests that this is
an area with great ore potential.

At this time there is no available information about the Oro Mine. It is a
short distance south of the Montemayor Mine. This could be a good
exploration target.

SSGM CURRENT STATUS

The Company, through its Joint Venture is conducting the following
activities: It is in the exploration, exploitation, development and
pre-production mining stage which consists of completing its survey,
mapping, site preparation, infrastructure, construction, planning, and the
performance of the auxiliary work needed to resume gold production at the
SSGM site. Presently, the Company is seeking funding to purchase
equipment, to purchase inventory, and to use for working capital for its
on-site proposed open-pit, heap-leaching operation. As an alternate, the
Company is considering a joint venture, merger, acquisition, or any other
mutually agreed upon business arrangement.

The Company's main objective and plan, through the Joint Venture, is to
operate a moderate tonnage, low-grade, open-pit, heap-leaching operation to
produce gold on its SSGM site. Dependent on the funding, the grade of ore,
and the tonnage processed, it anticipates producing more than 40,000 ounces
of gold from its open-pit, heap-leaching operation during the first twelve
full operating months and then gradually increasing the annual production
of gold to 113,000 ounces.

The Company's plans include placing its SCMP into production. Although it
will be a low tonnage operation, the Company believes that it would be
profitable since the present price of gold is over $400 an ounce.

PROPOSED SSGM OPEN-PIT, HEAP-LEACHING OPERATION

The Joint Venture has placed the SCMP into a curbed production operation
until it receives the funds that it requires or enters into a business
arrangement. It now intends to obtain a sum of $9 million or more to
commence an open-pit, heap-leaching operation at the SSGM site. An
additional $8 million or more is estimated to be required for the crushing
system, plant, and mining equipment, if the Joint Venture were unable to
lease this equipment. After these funds are obtained, the Joint Venture
intends to start processing gold ore from its open pit at a production
level of 2,000 tons per day. During the second year, the production level
plans are to expand production to 3,000 tons per day (the funds for this
expansion could be generated from profits). An increase to process 4,000
tons of gold ore per day would take place during the third year and another
expansion to process 6,000 tons per day would take place at the beginning
of the fifth year; all funds for this expansion should be available through
a combination of earned profits, borrowings, equity sales, or other
creative sources. With the anticipated production volume, there is more
than a nine-year supply of gold ore and it is believed that a substantial
amount of gold ore can be proven to continue operating at the same levels
for a longer period.

The Company's geologists have defined a body of ore consisting of 138
million tons of gold ore at a grade of 0.025 ounces of gold per ton. This
reflects a potential of 3.4 million ounces of gold (including the existing
1.5 million ounces) and about 400,000 ounces of silver from this planned
open-pit, heap-leaching operation. It would take about 64 years to process
this body of gold ore at a production capacity of 6,000 tons per day.

SSGM OWNERSHIP OF THE PROPERTY

The San Sebastian Gold Mine real estate consisting of approximately 1,470
acres, is owned by Misanse, a Salvadoran corporation. The Company owns 52%
of Misanse common shares that are issued and outstanding.

ENVIRONMENTAL MATTERS

The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities in the jurisdictions in which
the Company operates. Accordingly, the Company has adopted policies,
practices and procedures in the areas of pollution control, product safety,
occupational health and the production, handling, storage, use and
disposal of hazardous materials to prevent material environmental or other
damage, and to limit the financial liability which could result from such
events. However, some risk of environmental or other damage is inherent in
the business of the Company, as it is with other companies engaged in
similar businesses.

Since the Company has been granted the Renewed SSGM from the DHM, it is
required to maintain environmental permits. The issuance of these permits
is under the jurisdiction of the El Salvador Ministry of Environment and
Natural Resources Office (MARN). On October 15, 2002, MARN issued an
environmental permit under Resolution 474-2002 for the SCMP. On October
20, 2002, MARN issued an environmental permit under Resolution 493-2002 for
the Renewed SSGM Exploitation area. A financial security (bond) has been
submitted as required.

Environmental regulations add to the cost and time needed to bring new
mines or mills into production and add to operating and closure costs for
mines already in operation. As the Company places more mines into
production, the costs associated with regulatory compliance can be expected
to increase. Such costs are a normal cost of doing business in the mining
industry, and may require significant capital and operating expenditures in
the future. The Company cannot accurately predict or estimate the impact
of any future laws or regulations developed in El Salvador that would
affect the Company's operations.

All operations by the Company involving the exploration or the production
of minerals are subject to existing laws and regulations relating to
exploration procedures, safety precautions, employee health and safety, air
quality standards, pollution of water sources, waste materials, odor,
noise, dust and other environmental protection requirements adopted by the
El Salvador governmental authorities. The Company is required to prepare
and present to such authorities data pertaining to the effect or impact
that any proposed exploration, exploitation or production of minerals may
have upon the environment. The requirements imposed by any such
authorities may be costly, time consuming and may delay operations. Future
legislation and regulations designed to protect the environment, as well as
future interpretations of existing laws and regulations, may require
substantial increases in equipment and operating costs to the Company and
delays, interruptions, or a termination of operations. The Company cannot
accurately predict or estimate the impact of any such future laws or
regulations, or future interpretations of existing laws and regulations, on
its operations.

SAN FELIPE-EL POTOSI MINE ("POTOSI") AND ITS EXTENSION THE EL CAPULIN MINE
("EL CAPULIN")
- --------------------------------------------------------------------------
POTOSI LOCATION

The Joint Venture had commenced an exploration program on the Potosi
property which is located approximately 18 miles northwest of the city of
San Miguel, the third largest city in the Republic of El Salvador, Central
America, on a paved road 15 miles to the city of Chapalteque and then west
three miles on a gravel road to the city of Potosi. The historical records
and the exploration work performed by the Company indicate that the
potential of developing a gold mine is above average.

POTOSI LEASE AGREEMENT

The Joint Venture entered into a lease agreement with the San Felipe Potosi
Cooperative ("Cooperative") of the city of Potosi, El Salvador on July 6,
1993, to lease the real estate for a period of 30 years, with an option to
renew the lease for an additional 25 years, for the purpose of mining and
extracting minerals. Although the Company did not receive a
concession/license from the DHM, it is preserving its rights under the
lease agreement.

MODESTO MINE

MODESTO MINE LOCATION
- ---------------------

The Modesto Mine is located due north of the town of El Paisnal,
approximately 19 miles north of the capital city, San Salvador, in the
Republic of El Salvador, Central America.

MODESTO MINE PRESENT STATUS

On or about September 2, 1993, the Joint Venture, acting as a nominee
through one of its employees, filed an application with the DHM to explore
the 4,000 hectares (9,800 acres) of property known as the Modesto Mine.
The application, together with the consent to explore this area from the
property owners owning more than 25% of total area, has been submitted to
the DHM. Also, the Joint Venture had submitted its original plan to this
governmental agency on January 24, 1994, outlining its exploration program.

In order to comply with the current mining regulations adopted by the
Government of El Salvador during February 1996, the Joint Venture filed an
exploration concession application on April 21, 1997.

After completing the necessary surveying, mapping and planning, the Joint
Venture proceeded to clean and trench the surface and adit vein exposure.
Since August 1993, 3,084 metric feet of surface channel trenching (10,177
feet) and 866 meters (2,858 feet) of adit cleaning were completed. In
addition, four inclines have been excavated for entry. A total of 4,027
fire assay samples were performed revealing an average grade of 0.035
ounces per ton. The Joint Venture suspended its exploration during July
1997 as the Government of El Salvador awarded the concession of the
property to another mining company. The Company believes that it owns the
title to key property, therefore permission from the Company will be
required before entry can be made by others. The Joint Venture, upon
advice of legal counsel, intends to file an application for a concession
(license) on the property it owns.

MONTEMAYOR MINE ("MONTEMAYOR")
- ------------------------------

MONTEMAYOR LOCATION/OWNERSHIP

The Joint Venture has obtained leases for more than 175 acres of the
surface rights from a number of property owners which permit the Joint
Venture to enter their property for the purpose of exploring, exploiting
and developing the property and then, if feasible, to mine and extract
minerals from this property. The term of this permission is for an
infinite period. The Company believes that this leased real estate
contains the "heart" of the mine. Montemayor is located about 14 miles
northeast of the SCMP, six miles northwest of the SSGM and about two and
one-half miles east of the city of San Francisco Gotera in the Department
of Morazan, Republic of El Salvador. Historical records evidence that the
potential for the Montemayor to become an exploration and development
silver-gold producing prospect is good.

On April 22, 1997, a current exploration concession was filed with the El
Salvador Minister of Economy's office in order to comply with the El
Salvadoran Mining Law adopted in February 1996. During July 1997, the
Minister of Economy awarded the concession to others. Since the Joint
Venture has leases on the surface of key real estate, it cannot be forced
to allow others to operate a mine on this key part of the property. The
concession/license for the Montemayor Mine is included in the Nueva Esparta
concession granted to the Company on May 25, 2004.

SAN CRISTOBAL MILL AND PLANT ("SCMP") RECOVERY AND PROCESSING SYSTEM
- --------------------------------------------------------------------
SCMP LOCATION

SCMP is located near the city of El Divisadero (bordering the Pan American
Highway), and is approximately 13 miles east of the city of San Miguel,
the third largest city in the Republic of El Salvador, Central America.

SCMP LEASE AGREEMENT

Although the Joint Venture owns the mill, plant and related equipment, it
does not own the land and certain buildings.

On November 12, 1993, the Joint Venture entered into an agreement with
Corporacion Salvadorena de Inversiones ("Corsain"), an El Salvadoran
governmental agency, to lease for a period of ten years (expiring November
12, 1993), approximately 166 acres of land and buildings on which its gold
processing mill, plant and related equipment (the SCMP) are located, and
which is approximately 15 miles west of the SSGM site. The basic annual
lease payment was U.S. $11,500, payable annually in advance, unless
otherwise amended, and subject to an annual increase based on the annual
United States' inflation rate. As agreed, a security deposit of U.S.
$11,500 was paid on the same date and this deposit was subject to increases
based on any United States' inflationary rate adjustments. This lease
agreement expired.

On April 26, 2004, a three-year lease, which includes an automatic
additional three-year extension subject to Corsain's review, was executed
by and between Corsain and the Company. This lease is retroactive to
November 12, 2003 and the monthly lease payments are $1,418.51 plus the El
Salvadoran added value tax. The lease is subject to an annual increase
based on the U.S. annual inflationary rate adjustments. The SCMP is
strategically located to process ore from other mining projects.

SCMP MILL AND PLANT PROCESS DESCRIPTION

CURRENT STATUS

The SCMP (a precious metal cyanidation carbon-in-leach system) has a
capacity of processing up to 200 tons of virgin ore per day. The following
units of operations are required: crushing, grinding, thickening, agitated
leaching and recovery of precious metals via a carbon-in-leach (CIL)
system.

The SCMP has been designed to process up to 500 tons of virgin ore per day.
The SCMP operations were suspended as of December 31, 1999, as the plant,
equipment, and facilities have been place on a care and maintenance status
until such time as the Company has sufficient funds to complete a major
overhaul in order to place it into operating condition and at a time the
price of gold is stabilized to assure a profit.

SCMP PROJECT OPERATING PLAN
- ---------------------------

CURRENT AND ANTICIPATED PRODUCTION SCHEDULE

Preproduction development, consisting primarily of expansive road and site
improvements to the mine and mill sites, mill equipment modifications and
the development and hauling of virgin ore has taken place during the past
years. Initial production from April 1, 1995 was from the SSGM tailings.
After the SSGM tailings' resource was exhausted, virgin gold ore was
excavated from the SSGM surface (Coseguina area) and hauled to the SCMP
site for processing.

The other sources of gold ore from the SSGM to be used at the SCMP
operation will be obtained from the stope fill or higher grade gold ore
after obtaining access via the underground workings or from the surface of
the main ore body. This gold ore will have to be crushed and pulverized,
which increases the cost, but is expected to yield a 90% or higher
recovery. The income, dependent on the market price of gold from the
higher grade and recovery of gold ore, is expected to be substantially
more than the cost involved, providing that the world gold market price
does not decline to a level of unprofitability.

The gold ore from the SSGM open-pit was loaded onto 20-25 ton dump trucks
for transport to the SCMP. Trucks then hauled the gold ore on the Pan
American Highway approximately 15 miles from the SSGM. Mine employees are
responsible for the mining activities including the determination of areas
to be excavated, trucking and loading operations, head sampling and sample
analysis.

The gold ore was received at the SCMP where it was weighed, logged, and
sampled. Weighing is performed utilizing a conveyor belt scale and/or a
truck scale located on the SCMP site. The excess gold ore was then
unloaded at the SCMP site and stockpiled in an area which was developed to
allow storage of more than 50,000 tons.

ENVIRONMENTAL MATTERS

Reference is made to San Sebastian Gold Mine "ENVIRONMENTAL MATTERS." The
same information applies. On October 15, 2002, an environmental permit
(Resolution 474-2002) was issued to the Company by the Office of the El
Salvadoran Ministry of Environment and Natural Resources.

THE JOINT VENTURE LABORATORIES (LAB)
- ------------------------------------

The Joint Venture has two laboratories: one located at the SCMP facilities
and the other on real estate owned by the Company near the SSGM site. A
total of 78,441 samples of exploration fire assays have been logged through
March 31, 2005. This total does not include the assays that were performed
for production purposes.

CORPORATE HEADQUARTERS
- ----------------------

The Company leases approximately 4,032 square feet of office space for its
corporate headquarters on the second floor of the building known as the
General Building located at 6001 North 91st Street, Milwaukee, Wisconsin,
at a monthly rental charge of $2,789 on a month-to-month basis. The lessor
is General Lumber & Supply Co., Inc. ("General Lumber"), a Wisconsin
corporation. The Company's President, Edward L. Machulak, owns 55% of the
common stock of General Lumber. Edward L. Machulak disclaims any interest
in the balance of General Lumber common stock which is owned by relatives,
his wife, and a trust formed for the benefit of his children. In addition,
the Company shares proportionately any increase in real property taxes and
any increase in general fire and extended coverage insurance on the
property. In lieu of cash payment, the Lessor has agreed to apply the
monthly rental payments owed to the secured open-ended, on-demand
promissory note(s) due to it.

ITEM 3. LEGAL PROCEEDINGS
- --------------------------

The Company is not a party to any material legal proceedings. However, on
January 21, 2005, the Company filed a S.E.C. Form 8-K explaining why the
Company changed its certified public accountant. The decision was made
because the CPA failed to register as is required with the Public Company
Accounting Oversight Board (PCAOB). Section 102 of the Sarbanes-Oxley Act
of 2002 made it unlawful after October 22, 2003 for any U.S. public
accounting firm or person associated with a U.S. public accounting firm
that is not registered with the PCAOB to prepare, issue or to participate
in the preparation or issuance of any audit report with respect to any
issuer. Since the former auditor was not registered with the PCAOB, the
Company retained another auditing firm on May 2, 2005. For more
information reference is made to the following U.S. S.E.C. Form 8-K
filings: January 21, 2005 and May 6, 2005.

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

No matters were brought to a vote of security holders in the last quarter
ended March 31, 2005.

ITEM 4(A). EXECUTIVE OFFICERS AND MANAGERS OF THE COMPANY
- ----------------------------------------------------------

Listed below are the names, ages and positions of the executive officers
and managers of the Company and their business experience during the past
five or more years. All officers are elected at the annual meeting of the
directors, which is normally held after the annual shareholders' meeting.

Age as of Executive Offices Held Period Served
Name March 31, 2005 With Company (1) In Office (2)
- ------------- -------------- ----------------------------- ------------------

Edward L.
Machulak 78 President, Chief Executive,
Operating and Financial Officer 9/14/62 to present
Treasurer 06/78 to present
Edward A.
Machulak
(Son of the
President) 53 Executive Vice President 10/16/92 to present
Secretary 1/12/87 to present
Assistant Secretary 4/15/86 to 1/12/87

Luis A. Limay 63 Project and Mine Manager 10/86 to 1995
Manager of El Salvador
Operations 03/95 to present

</Table>

(1) There have never been any undisclosed arrangements or understandings
between any Executive Officer and any other person pursuant to which
any Executive Officer was elected as an Executive Officer.

(2) Executive Officers are elected by the Directors for a term expiring at
the Directors' Annual Meeting and/or hold such positions until their
successors have been elected and have qualified.

FAMILY RELATIONSHIPS
- --------------------

Edward A. Machulak, presently a Director, Member of the Directors'
Executive Committee, Director-Emeritus, Executive Vice President, and
Secretary, is the son of Edward L. Machulak, the Company's Chairman of the
Board of Directors who is also a Member of the Directors' Executive
Committee, and is the President and Treasurer of the Company. Attorney
John E. Machulak (son of Edward L. Machulak) of the law firm of Machulak,
Robertson & Sodos, S.C. is the legal counsel for the Company.

OFFICERS' AND KEY MANAGEMENT'S EXPERIENCE
- -----------------------------------------

The business experience of each of the Directors, Officers, and Key
Management is as follows:

EDWARD L. MACHULAK has been employed by the Company since September 1962.
Mr. Machulak has served as the President, Director, and Chairman of the
Board of Directors of the Company since 1962, Treasurer since 1978, and on
March 11, 1991, he was elected as a Member of the Directors' Executive
Committee. He has been a member of the Audit Committee since February 9,
1998, the date that the Audit Committee was formed, and has been a
Director-Emeritus since December 5, 1979.

He is a Director and the President or Officer of: Homespan Realty Co.,
Inc.; San Luis Estates, Inc.; San Sebastian Gold Mines, Inc.; and Universal
Developers, Inc. He is the Secretary and Treasurer of Ecomm Group Inc. He
is the authorized representative of the Commerce/Sanseb Joint Venture. He
is a Director, was the Treasurer, and as of January 12, 2003, was elected
President of Mineral San Sebastian S.A. de C.V. Also he is involved in
various capacities with the following companies: General Lumber & Supply
Co., Inc., Director; Edjo, Ltd., Director and Secretary; and Landpak, Inc.,
Director and Secretary.

EDWARD A. MACHULAK (son of Edward L. Machulak) is a Director and holds the
following Company positions: Director as of October 28, 1985; a member of
the Directors' Executive Committee as of March 11, 1991; Director-Emeritus
since October 28, 2000; Executive Vice President as of October 16, 1992;
Secretary as of January 12, 1987; and he was the Assistant Secretary from
April 15, 1986 through January 12, 1987.

He is also a Director, Vice President and Secretary of: Homespan Realty
Co., Inc. and San Luis Estates, Inc.; and is a Director and Secretary of
San Sebastian Gold Mines, Inc. He has been a Director and Secretary of
Ecomm Group Inc. and was elected President on May 17, 2000.

His business experience is as follows: Director and Corporate Secretary of
General Lumber & Supply Co., Inc., a building material wholesale and retail
distribution center from April 1, 1970 to November 1983; Director and
President of Gamco, Inc., a marketing and advertising company, from
November 1983 to present; Director and President of Circular Marketing,
Inc., an advertising and marketing business, from March 1986 to present;
Director and President of MacPak, an Internet developer from September 26,
1996 to present; Director and President of Edjo, Ltd., a company involved
in the development, subdividing and sale of land and real estate from June
7, 1973 to present; Director and President of Landpak, Inc., a corporation
which owns, operates, manages and sells real estate from September 1985 to
present; and he was involved in other corporate real estate ventures and
business activities.

LUIS ALFONSO LIMAY was appointed to the position of Project and Mine
Manager in October 1986 and is responsible for managing the daily affairs
of the Joint Venture. During March 1995, Mr. Limay was appointed to the
position of Manager of El Salvador operations which supersedes his position
as Project and Mine Manager. Mr. Limay was employed by Sanseb from 1977
through March 1978 as its chief geologist. He obtained degrees in geology
and engineering from the National University of San Marlos, Lima, Peru, and
the University of Toronto. He was employed as chief geologist by Rosario
Resources in a Honduran underground mining operation and he held the same
position with Canadian Javelin, a silver mining company that formerly
operated in El Salvador.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDERS'
MATTERS
- -------------------------------------------------------------------------

(A) PRINCIPAL MARKET AND COMMON STOCK PRICE
- --------------------------------------------

Since January 21, 2005, the Company's common shares have been trading on
the Pink Sheets under the symbol CGCO.PK which results from its former
public accounting firm certifying the Company's financial statements for
its fiscal year ended March 31, 2004 while not being registered with the
Public Company Accounting Oversight Board (PCAOB) as required under Section
102 of the Sarbanes-Oxley Act of 2002. The Company retained a new public
accounting firm to meet the requirements of the PCAOB. Reference is made
to the U.S. S.E.C. Form 8-K filings of January 21, 2005 and May 6, 2005 for
more information.

Since May 5, 1999, the Company's common shares are being traded on the Over
the Counter Bulletin Board (OTCBB) under the symbol CGCO.OB. Prior to this
time, the common shares were traded since 1968 on the Over the Counter,
American Stock Exchange, Boston Stock Exchange and on the Nasdaq Smallcap.
Since January 21, 2005, the Company's shares have been trading on the Pink
Sheets.

The following table reflects the range of high and low trade prices of the
common shares as reported by the OTCBB through January 20, 2005, and
thereafter on the Pink Sheets for the period ended March 31, 2005, as well
as the highest and lowest trade price during each quarter through the
period ended March 31, 2004.

For the period ended March 31, 2005 March 31, 2004
High Low High Low
----- ----- ----- -----

First quarter ending June 30 $0.25 $0.14 $0.30 $0.15
Second quarter ending September 30 $0.23 $0.08 $0.37 $0.21
Third quarter ending December 31 $0.20 $0.09 $0.31 $0.22
Fourth quarter ending March 31 $0.12 $0.08 $0.30 $0.20
</Table>

(B) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES
- ---------------------------------------------------

As of March 31, 2005, the common shares were held by approximately 3,600
shareholders; it is estimated that over 95% are United States' residents.

As of March 31, 2005, the Company's transfer agent and registrar certified
that there were 1,610 shareholders of record. The number of shareholders
of the Company who beneficially own shares in nominee or "street name" or
through similar arrangements are estimated by the Company to be
approximately 1,990.

As of March 31, 2005, there were issued and outstanding: (a) 23,823,734
shares of common stock; and (b) no stock options were outstanding to
purchase common stock.

(D) DIVIDEND HISTORY
- ---------------------

Subject to the rights of holders of any outstanding series of preferred
shares to receive preferential dividends, and to other applicable
restrictions and limitations, holders of shares of common shares are
entitled to receive dividends if and when declared by the Board of
Directors out of funds legally available. No dividends were payable during
the last fiscal year ended March 31, 2005. The declaration of future
dividends will be determined by the Board of Directors in light of the
Company's earnings, cash requirements and other relevant considerations.

(E) ISSUE OF SECURITIES
- ------------------------

During the fourth quarter ended March 31, 2005, the Company issued 179,048
of its common shares to its Directors in payment for annual Directors'
fees, 114,286 common shares in payment for its annual Officer's
compensation; and 65,952 common shares to a Director for services rendered.
These shares were issued pursuant to a Securities and Exchange Commission
Form S-8 Registration.

Item 6. Selected Financial Data

The following table sets forth certain financial information with respect
to the Company and is qualified in its entirety by reference to the
historical financial statements and notes thereto of the Company included
in "Item 8. Financial Statements and Supplementary Data." The statement
of operations and balance sheet data included in this table for each of the
five years in the fiscal period ended March 31st, were derived from the
audited financial statements and the accompanying notes to those financial
statements.

<Table>
<Caption>
Year Ended March 31
-------------------------------------------------------------

2005 2004 2003 2002 2001
----------- ----------- ----------- ----------- -----------

INCOME STATEMENT DATA
Total revenue $ 0 $ 0 $ 0 $ 38 $ 242,182
=========== =========== =========== =========== ===========
Income (loss) from
continuing operations $ (229,936) $ (237,790) $ (232,647) $ (303,465) $ (164,679)
=========== =========== =========== =========== ===========
Income (loss) from
continuing operations
per share:
Basic and diluted $ (.0102) $ (.0113) $ (.0123) $ (.0186) $ (.0116)
=========== =========== =========== =========== ===========
Weighted average
shares - basic and
diluted 22,581,814 21,089,812 18,907,958 16,349,170 14,174,662
=========== =========== =========== =========== ===========
Cash dividends per
common share $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== ===========

BALANCE SHEET DATA
Working capital *1 $ 496,977 $ 504,882 $ 457,538 $ 199,573 $ 152,906
=========== =========== =========== =========== ===========
Total assets $36,518,576 $39,419,381 $32,500,150 $31,390,671 $30,008,216
=========== =========== =========== =========== ===========
Short-term
obligations *1 $16,178,620 $13,981,516 $12,329,096 $11,486,216 $ 9,998,955
=========== =========== =========== =========== ===========
Long-term obligations $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== ===========
Shareholders' equity $20,339,956 $20,437,865 $20,171,054 $19,904,955 $20,009,261
=========== =========== =========== =========== ===========
</Table>

*1 Although the majority of the short-term obligations are due on
demand, some of these obligations have the attributes of being
long-term as most of the debt is due to related parties who have
not called for the payment except for nominal amounts of their
short-term loans during the past five or more years.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- -------------------------------------------------------------------------

The matters discussed in this report on Form 10-K, when not historical
matters, are forward-looking statements that involve a number of risks and
uncertainties that could cause actual results to differ materially from
projected results. Such factors include, among others, the speculative
nature of mineral exploration, gold and silver prices, production and
reserve estimates, litigation, environmental and government regulations,
general economic conditions, conditions in the financial markets, political
and competitive developments in domestic and foreign areas in which the
Company operates, availability of financing, force majeure events,
technological and operational difficulties encountered in connection with
the Company's mining activities, labor relations, other risk factors as
described from time to time in the Company's filings with the Securities
and Exchange Commission and other matters discussed under this reporting
category. Many of these factors are beyond the Company's ability to
control or predict. The Company disclaims any intent or obligation to
update its forward-looking statements, whether as a result of receiving new
information, the occurrence of future events, or otherwise. Should one or
more of those risks or uncertainties materialize, or should any underlying
assumption prove incorrect, actual results or outcomes may vary materially
from those described herein as anticipated, believed, estimated, expected
or intended.
27

Management's discussion and analysis ("MD&A") of the financial condition
and results of operations of the Company should be read in conjunction
with the audited consolidated financial statements and the notes thereto.
The Company prepares and files its consolidated financial statements and
MD&A in United States ("U.S.") dollars and in accordance with U.S.
generally accepted accounting principles ("GAAP").

The following discussion provides information on the results of operations
for each of the three years ended March 31, 2005, 2004 and 2003 and the
financial condition, liquidity and capital resources for March 31, 2005 and
2004. The financial statements of the Company and the notes thereto
contain detailed information that should be referred to in conjunction with
this discussion.

OVERVIEW
- --------

The Company is in the precious metals exploration, exploitation,
development, production business with mines that are located in the
Republic of El Salvador, Central America. The Company's objective is to
increase shareholder value by increasing its gold and silver ore reserves
within the concession/license areas granted to the Company by the
Government of El Salvador (GOES) and by processing these reserves at an
above average profit. Substantial capital expenditures are required to
find, develop and process gold ore. The Company's geologists and engineers
believe that its existing precious metal reserves can be substantially
increased by continuous exploration.

The Company is determined to obtain the capital it requires to produce gold
at its San Cristobal Mill and Plant facilities and to construct an open-
pit, heap-leach operation on its San Sebastian Gold Mine site which is
located approximately two and one half miles off of the Pan American
highway northwest of the City of Santa Rosa de Lima in the Department of La
Union , El Salvador.

The Company has no revenues because it is not in production and it requires
funds to purchase the necessary equipment, inventory and working capital to
commence processing the 15 million ton ore reserves which should contain
approximately 1.5 million ounces of gold. The Company is determined to
raise sufficient capital to enter into production. Its alternative is to
joint venture, merge, be acquired or enter into a business combination
that will benefit all parties concerned.

All of the Company's mines are located in the Republic of El Salvador,
Central America. The GOES has issued three concessions.

1. On August 30, 2004 the Renewed San Sebastian Gold Mine EXPLOITATION
Concession/License (Renewed SSGM) was issued for a period of 30 years.
This gives the Company the right to extract and process its ore
reserves to produce gold and silver from the San Sebastian Gold Mine
site. The Company's geologists have determined that there are
approximately 1.2 million ounces of gold/silver in the 14.4 million
tons of ore and they have estimated that there are an additional
340,000 ounces of gold/silver contained in the one million tons of
stope fill.

2. On February 24, 2003, the GOES granted to the Company the New San
Sebastian Gold Mine Exploration Concession/License (New SSGM)
consisting of approximately 10,070 acres which encompass the Renewed
SSGM Exploitation Concession/License. This concession gives the right
to exploitation of the subsurface in this area. In this area there
are three formerly operated mines: La Lola Mine, Santa Lucia Mine and
Tabanco Mine. Presently the Company is performing exploration work at
the Tabanco and La Lola Mine area.

3. On May 25, 2004 the GOES granted to the Company the Nueva Esparta
Exploration Concession/License consisting of 11,115 acres of area to
explore. This concession abuts the New SSGM Exploration
Concession/License and it has eight formerly operated gold/silver
mines: the Grande Mine, the Las Pinas Mine, the Oro Mine, the
Montemayor Mine, the Barradero Mine, the Carrizal Mine, the La Joya
Mine and the Copetillo Mine. The Company did exploration work on the
Montemayor Mine from 1995 - 1997 and it has resumed its exploration
work this year.

The Company is a U.S. Wisconsin chartered corporation engaged in
exploration, exploitation, development and gold and silver production with
its primary asset being the San Sebastian Gold Mine (SSGM). The SSGM is
located in the Republic of El Salvador, Central America and produced over
one million ounces of gold during the 1900-1917 period The Company became
involved as an investor and then as a majority owner. Gold and silver was
produced from mid-1972 through the first quarter of 1978. The suspension
was caused by the El Salvador civil unrest which peace pact was entered
into in December 1992 conditioned upon meeting the terms during a three-
year period. Production of gold and silver commenced on April 1, 1995 and
the operations were suspended during the first quarter of 2000 due to the
low selling price of gold at that time and the need to retrofit, restore
and expand the San Cristobal Mill and Plant (SCMP). The Company presently
is seeking funds to restore the SCMP and to set up an open-pit, heap-leach
operation at the SSGM site. Its alternative is to joint venture or to
enter into a merger or business combination.

On December 6, 2004, the Company was notified by NASDAQ that its Certified
Public Accountant had not registered with the Public Company Accounting
Oversight Board (PCAOB) prior to October 22, 2003 as is required by Section
102 of the Sarbanes-Oxley Act of 2002. After an oral hearing with NASD on
January 13, 2005 they responded with a fax dated January 19, 2005 with
their determination which basically stated that since the Company's
independent accountant was not registered with the PCAOB, its financial
statements were considered not being filed timely and "Accordingly the
Panel determined that the company's securities are not eligible for
continued quotation on the OTCBB and based on the filing delinquency to
delete all quotations of the company's securities on the OTCBB effective
with the open of business on Friday, January 21, 2005. The hearing file
has been closed."

From January 21, 2005 the Company's shares were quoted as CGCO.PK on the
Pink Sheets. The Company anticipated resolving the SEC filing of its
financial statements by retaining a new auditing firm and filing all
financial reports timely. For more detailed information, the Company
refers to the two S.E.C. Form 8-Ks filed on January 21, 2005 and May 6,
2005. The Company has retained an independent accounting firm which is
registered with the PCAOB.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------

The ensuing discussion and analysis of financial condition and results of
operations are based on the Company's consolidated financial statements,
prepared in accordance with accounting principles generally accepted in the
United States of America and contained within this report on S.E.C. Form
10-K. Certain amounts included in or affecting the Company's financial
statements and related disclosures must be estimated, requiring that
certain assumptions be made with respect to values or conditions which
cannot be made with certainty at the time the financial statements are
prepared. Therefore, the reported amounts of the Company's assets and
liabilities, revenues and expenses, and associated disclosures with respect
to contingent assets and obligations are necessarily affected by these
estimates. The more significant areas requiring the use of management
estimates and assumptions relate to mineral reserves that are the basis for
future cash flow estimates and units-of-production amortization
determination; recoverability and timing of gold production from the heap-
leaching process; environmental, reclamation and closure obligations; asset
impairments (including estimates of future cash flows); useful lives and
residual values of intangible assets; fair value of financial instruments;
valuation allowances for deferred tax assets; and contingencies and
litigation. The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions.

The Company believes the following significant assumptions and estimates
affect its more critical practices and accounting policies used in the
preparation of its consolidated financial statements.

A critical accounting policy is one that is important to the portrayal of
the Company's financial condition and results, and requires the Company to
make difficult subjective and/or complex judgments. Critical accounting
policies cover accounting matters that are inherently uncertain because the
future resolution of such matters is unknown. The Company believes the
following accounting policies are critical policies; accounting for its
gold ore reserves, environmental liabilities, income taxes and asset
retirement obligations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions for the reporting period and as of the financial statement
date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results could differ
from those amounts.

Gold ore reserves include reserves that represent estimated quantities of
gold in which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reserves under
existing economic and operating conditions. The gold ore reserves are
based on estimates prepared by geology and mining consultants and are used
to calculate depreciation, depletion and amortization (DD&A) and determine
if any potential impairment exists related to the recorded value of the
Company's gold ore reserves. Decline in the market price of gold may
render certain reserves containing relatively lower grade of mineralization
uneconomic to mine. Changes in capital and operating costs including other
factors could materially and adversely affect ore reserves.

The Company reviews, on an as needed basis, its estimates of costs of
compliance with environmental laws and the cleanup of various sites,
including sites in which governmental agencies have designated the Company
as a potentially responsible party. When it is probable that obligations
have been incurred and where a minimum cost or a reasonable estimate of the
actual costs of compliance or remediation can be determined, the applicable
amount is accrued. Actual costs can differ from estimates due to changes
in laws and regulations, discovery and analysis of site conditions and
changes in technology.

The Company makes certain estimates, which may include various tax planning
strategies, in determining taxable income, the timing of deductions and the
utilization of tax attributes, which can differ from estimates due to
changes in laws and regulations, discovery and analysis of site conditions
and changes in technology.

Management is required to make judgments based on historical experience and
future expectations on the future abandonment cost, net of salvage value,
of its mining properties and equipment. The Company reviews its estimate
of the future obligation periodically and will accrue the estimated
obligation based on the SFAS No. 143 "Account for Asset Retirement
Obligations."

From time to time, the Company estimates its ore reserves when it is in
production. There are a number of uncertainties inherent in estimating
quantities of reserves, including many factors beyond the control of the
Company. Ore reserve estimates are based upon engineering evaluations of
assay values derived from samplings of drill holes and other openings.
Additionally, declines in the market price of gold may render certain
reserves containing relatively lower grades of mineralization uneconomic to
mine. Further, availability of permits, changes in operating and capital
costs, and other factors could materially and adversely affect ore
reserves. The Company uses its ore reserve estimates in determining the
unit basis for mine depreciation and closure rates, as well as in
evaluating mine asset impairments. Changes in ore reserve estimates could
significantly affect these items.

The Company will assess its producing properties and undeveloped mineral
claims and leases for impairment when events or changes in circumstances
warrant and at least annually. For producing properties and equipment, an
impairment is recognized when the estimated future cash flows (undiscounted
and without interest) expected to result in the use of the asset are less
than the carrying amount of that asset. Measurement of the impairment loss
is based on discounted cash flows. Undeveloped mineral claims and leases
are measured on a fair value basis. Fair value with respect to such
mineral interest, pursuant to Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
effective January 1, 2002, would generally be assessed with reference to
comparable property sales transactions in the market place.

The Emerging Issues Task Force (EITF) formed a committee to evaluate
certain mining industry accounting issues, including issues arising from
the application of SFAS No. 141, BUSINESS COMBINATIONS (SFAS No. 141) and
SFAS No. 142, GOODWILL AND OTHER TANGIBLE ASSETS (SFAS No. 142) to business
combinations within the mining industry, accounting for good will and other
intangibles and the capitalization of costs after the commencement of
production, including deferred stripping. The issues discussed also
included whether mineral rights conveyed by leases represent tangible or
intangible assets and the amortization of such assets. In March 2004, the
EITF reached a consensus, subject to ratification by the FASB, that
benefits from mineral deposits. The EITF also reached a consensus, subject
to ratification by the FASB, on other mining related issues involving
impairment and business combinations.

On March 31, 2004, the FASB ratified the consensus of the EITF on other
mining related issues involving impairment and business combinations. This
did not have an impact to the Company's financial statements since it did
not change the Company's accounting. The FASB also ratified the consensus
of the EITF that mineral rights conveyed by leases should be considered
tangible assets subject to the finalization of a FASB Staff Position (FSP)
in this regard.

On April 30, 2004, the FASB issued a FSP amending SFAS No. 141 and SFAS No.
142 to provide that certain mineral use rights are considered tangible
assets and that mineral use rights should be accounted for based on their
substance. If recharacterization of an asset results, prior period amounts
in the statement of financial position are to be reclassified with any
effects on amortization or depreciation prospectively applied The FSP is
effective for the first reporting period beginning after April 29, 2004,
with early adoption permitted. The Company does presently have the legal
right to extract minerals from the Renewed SSGM granted to it by the GOES,
the Company will continue to record the carrying value of the properties
until it enters into production. No such occurrence has affected the
Company during this period.

The Company at least annually plans to assess its properties and
undeveloped mineral claims and leases, if any, for impairment when events
or changes in circumstances indicate that the properties may be impaired.
For producing properties and equipment, an impairment is recognized when
the estimated future cash flows (undiscounted and without interest)
expected to result in the use of the asset are less than the carrying
amount of that asset. Measurement of the impairment loss is based on
discounted cash flows. Undeveloped mineral claims and leases are measured
on a fair value basis. Fair value with respect to such mineral interest,
pursuant to Statement of Financial Accounting Standards No. 144, ACCOUNTING
FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, effective January 1,
2002, would generally be assessed with reference to comparable property
sales transaction in the market place. The expected values associated with
potential property development are estimated using the traditional net
present value analysis of revenues, costs and capital investment cash flow
projections discounted at a risk-adjusted rate reflective to the time
periods associated with each possible outcome. Assumptions underlying
future cash flow estimates are subject to risks and uncertainties. Also,
the occurrence of past market transactions does not mean that such
comparable amounts would be applicable to the Company's situation. Any
differences between significant assumptions and market conditions could
have a material effect on the fair value estimate.

The financial statements for the fiscal years ended March 31, 2005, 2004
and prior years reflect and include Commerce Group Corp.'s subsidiaries and
the Commerce Group Corp./Sanseb Joint Venture (Joint Venture) on a
consolidated basis. Previously, the Company reported the investment in the
Joint Venture as advances to the Joint Venture and the Company's advances
included the interest earned on these advances in anticipation of the
interest being reimbursed. Now these advances are restated and combined
with the Company's Consolidated Financial Statements. Although the
elimination of interest income reduces the retained earnings, it does not
eliminate the interest charged by and earned by the Company which is due
and payable to it and which is maintained additionally with a separate
accounting. At such time when the profits from the gold mining operation
are distributed, the interest earned on these advances will be paid first
to the Company pursuant to an agreement entered into by the joint venture
parties.

For the fiscal year ended March 31, 2005, the Company was able to segregate
the disbursements to the Joint Venture to identify the category to be
charged. Reference is made to Item 8. Financial Statements and
Supplementary Data, Note 2, for additional details.

GOLD ORE RESERVES (03/31/05)

The Company's geologists have defined the following San Sebastian Gold Mine
gold ore reserves:

<Table>
<Caption>
Tons Average Grade Ounces
----------- ------------- -------------

Virgin ore 14,404,096 0.081 1,166,732
Stope fill estimated 1,000,000 0.340 340,000
----------- ------------- -------------
Totals 15,404,096 1,506,732
=========== =============
</Table>

The estimated recoverable ounces by processing through the San Cristobal
Mill and Plant ranges from 85% to 95%; the recovery of gold from the heap-
leaching operations should range from 60% to 70%.

PRECIOUS METAL MINING STRATEGY

The Company has produced gold from 1972 through March 1978 at the SSGM site
and from March 31, 1995 through December 31, 1999 at its SCMP. Its SCMP
consisted primarily of used equipment that had been installed at its leased
site by a previous mining company. The used processing equipment was
acquired by the Joint Venture on February 23, 1993, and the SCMP operations
were officially suspended as of March 31, 2000. During this period, the
price of gold suffered a severe decline.

Although while in operation at the SCMP site the Company has on a
continuous basis repaired, maintained, modified, and restored the
equipment, it presently lacks sufficient funds to retrofit and to expand
the SCMP facilities.

The Company has temporarily suspended its gold processing until such time
as it has adequate funds for the retrofitting, rehabilitation, restoration,
overhauling, and most importantly for the expansion of the SCMP facilities.
During the last two fiscal periods, the price of gold has increased to a
level to place the SCMP into a profitable position.

The Company has a number of non-exclusive independent consulting agreements
for the purpose of raising the sum of up to U.S. $20 million. The funds
are to be used to purchase and install equipment, perform site development,
working capital for the SSGM open-pit, heap-leaching operation, and for the
retrofit and expansion of the Joint Venture's SCMP.

Through December 1999, the Joint Venture produced gold primarily from
processing the SSGM tailings and from the virgin ore it was excavating from
its SSGM open pit. The gold was processed at its SCMP facility which is
located approximately 15 miles from the SSGM site. It is contemplating the
installation of a pilot open-pit, heap-leaching gold-processing system on
the SSGM site. The cone crushing system is being maintained at this site.
It also is continuing its SSGM site preparation, the expansion of its
exploration and exploitation targets, and the enlargement and development
of its gold ore reserves. The Modesto Mine has been placed on a standby
exploration program basis pending the advice from its legal counsel
relative to the filing of applications for concessions (licenses) on the
real estate that it owns. All of the mining properties are located in the
Republic of El Salvador, Central America.

The Joint Venture will continue its attempts to commence its production of
gold from the SSGM site. Its objectives are to have an expanded
complementary operation while continuing its endeavor to obtain sufficient
funds for the SSGM open-pit, heap-leach operation. The Company's main
objective and plan, through the Joint Venture, is to operate at the SSGM
site, a moderate tonnage, low-grade, open-pit, heap-leaching,
gold-producing mine. It intends to commence this gold-mining operation as
soon as adequate funding is in place and providing the gold price remains
at or above the current price level. Dependent on the grade of gold ore
processed and the funds it is able to obtain, it then anticipates producing
annually approximately 10,000 ounces of gold from the SCMP operation and
eventually up to 113,000 ounces of gold from its SSGM open-pit,
heap-leaching operation. The Joint Venture continues on a limited basis to
conduct an exploration program to develop additional gold ore reserves at
the SSGM. Since it has the New SSGM and the Nueva Esparta Exploration
Concession/License, it is exploring the Mina Lola, the Tabanco Mine, the
Santa Lucia Mine, and the Montemayor Mine.

The Company produced gold at the SSGM site from 1972-1978 and the Joint
Venture produced gold from March 1995 through December 1999 at the SCMP
through a start-up or preliminary operation, which was a forerunner of its
greater goals. The Company's revenues, profitability and cash flow are
greatly influenced by the price of gold. Gold prices fluctuate widely and
are affected by numerous factors which will be beyond the Company's
control, such as, expectations for inflation, the strength of the U.S.
dollar, overproduction of gold, global and regional demand, acts of
terrorism, or political and economic conditions, or for that matter, many
other reasons. The combined effect of these and other factors is
difficult; perhaps impossible to predict. Should the market price of gold
fall below the Company's production costs and remain at such level for any
sustained period, the Company could experience losses.

The Company believes that neither it, nor any other competitor, has a
material effect on the precious metal markets and that the price it will
receive for its production is dependent upon world market conditions over
which it has no control.

RESULTS OF OPERATION FOR THE FISCAL YEAR ENDED MARCH 31, 2005 COMPARED TO
MARCH 31, 2004
- --------------------------------------------------------------------------
There are no revenues as the Company has suspended its gold production
until it is able to enter into a business arrangement or is able to procure
the funds it requires to rehabilitate, retrofit, overhaul, and expand its
SCMP to commence an open-pit, heap-leach operation at the SSGM site. The
price of gold has stabilized at a price level that could assure a
profitable operation. The Company recorded a net loss of $229,936 or
$0.102 cents per share for its fiscal year ended March 31, 2005. This
compares to a net loss of $237,790 or $.0113 cents per share for the fiscal
year ended March 31, 2004.

There was no current or deferred provision for income taxes during the
fiscal period ended March 31, 2005 or 2004. Additionally, even though the
Company has an operating tax loss carryforward, the Company has previously
recorded a net deferred tax asset due to an assessment of the "more likely
than not" realization criteria required by the Statement of Financial
Accounting Standards No. 109, Accounting for Taxes.

Inflation did not have a material impact on operations in the fiscal years
ended March 31, 2005 or 2004. The Company does not anticipate that
inflation will have a material impact on continuing operations during the
next fiscal year.

Interest expense in the sum of $1,691,519 was recorded by the Company
during this fiscal period compared to $1,433,298 for the same period in
2004, and it was eliminated with the interest income earned from the Joint
Venture.

Almost all of the costs and expenses incurred by the Company are allocated
and charged to the Joint Venture. The Joint Venture capitalizes these costs
and expenses and will continue to do so until such time when it is in
production. At the time production commences, these capitalized costs will
be charged as an expense based on a per unit basis. If the prospect of
gold production becomes unlikely, all of these costs will be written off in
the year that this occurs.

RESULTS OF OPERATION FOR THE FISCAL YEAR ENDED MARCH 31, 2004 COMPARED TO
MARCH 31, 2003
- --------------------------------------------------------------------------

There are no revenues as the Company has suspended its gold production
until it is able to enter into a business arrangement or is able to procure
the funds it requires to rehabilitate, retrofit, overhaul, and expand its
SCMP, and to commence an open-pit, heap-leach operation at the SSGM site.
The price of gold has stabilized at a price level that could assure a
profitable operation. The Company recorded a net loss of $237,790 or
$.0113 cents per share. This compares to a net loss of $232,647 or $.0123
cents per share for the fiscal year ended March 31, 2003.

There was no current or deferred provision for income taxes during the
fiscal period ended March 31, 2004 or 2003. Additionally, even though the
Company has an operating tax loss carryforward, the Company has previously
recorded a net deferred tax asset due to an assessment of the "more likely
than not" realization criteria required by the Statement of Financial
Accounting Standards No. 109, Accounting for Taxes.

Inflation did not have a material impact on operations in the fiscal years
ended March 31, 2004 or 2003. The Company does not anticipate that
inflation will have a material impact on continuing operations during the
next fiscal year.

Interest expense in the sum of $1,433,298 was recorded by the Company
during this fiscal period compared to $1,212,976 for the same period in
2003, and it was eliminated with the interest income earned from the Joint
Venture.

Almost all of the costs and expenses incurred by the Company are allocated
and charged to the Joint Venture. The Joint Venture capitalizes these costs
and expenses and will continue to do so until such time when it is in full
production. At the time production commences, these capitalized costs will
be charged as an expense based on a per unit basis. If the prospect of
gold production becomes unlikely, all of these costs will be written off in
the year that this occurs.

FINANCING ACTIVITIES, LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------------------

As of December 31, 1999 and effective as of March 31, 2000, the Joint
Venture suspended its SCMP operations and placed it on a stand-by case and
maintenance status until such time as it would have adequate funding to
repair, retrofit, overhaul and expand the mill to process its gold ore,
and/or when it has funding to commence an open-pit, heap-leach operation.
After almost five years of 24-hour-per-day operation with used equipment,
the SCMP requires an overhaul. At that time the low price of gold did not
provide an adequate cash reserve for these needs. Additional equipment has
to be purchased, delivered and installed and the SCMP has to be
retrofitted, overhauled and its capacity should be expanded.

The Company will endeavor to commence an open-pit, heap-leaching operation
at the SSGM as there is a substantial amount of gold ore that grades less
than 0.04 ounces per ton. The Company's engineers had determined that a
2,000 ton-per-day open-pit, heap-leach, start-up operation may produce
1,280 ounces of gold per month. It is necessary to raise adequate funds
from outside sources for this operation; the amount required is dependent
on the targeted daily volume of production.

The Company estimates that it will need up to U.S. $17 million to start a
2,000 ton-per-day open-pit, heap-leaching operation. Eventually the
production capacity would be increased in stages to 6,000 tons per day so
that annual production could be 113,000 ounces of gold at the SSGM. The
use of the $17,000,000 proceeds is as follows: $8,250,000 for mining
equipment and the completion of erecting a crushing system; $3,783,548 for
the processing equipment and site and infrastructure costs; and a sum of
$4,966,452 is to be used for working capital. The once depressed price of
gold has substantially increased during the last two years. The Company's
incredibly low common share market price is a major deterrent in raising
cash for the Company's programs.

The Company continues to be cognizant of its cash liquidity until it is
able to produce adequate profits from its SSGM gold production. It will
attempt to obtain sufficient funds to assist the Joint Venture in placing
the SSGM into production as the anticipated profits from the existing SCMP
operation (unless accumulated over a period of time) appear insufficient to
meet the SSGM capital and the other mining exploration requirements. In
order to continue obtaining funds to conduct the Joint Venture's
exploration, exploitation, development, expansion programs, and the
production of gold from the SSGM open-pit, heap-leaching operation, it is
necessary for the Company to obtain funds from other sources. The Company
may have to borrow funds by issuing open-ended, secured, on-demand or
unsecured promissory notes, by selling its shares to its directors,
officers and other interested accredited investors, or by entering into a
joint venture, merging, or developing an acceptable form of a business
combination with others.

During the past, the Joint Venture was engaged in exploration,
exploitation and development programs designed to increase its gold ore
reserves. The prospects of expanding the gold reserves are positive. The
Company believes that the past invested funds significantly contributed to
the value of the SSGM and to the value of its other mining prospects as
the results of the exploratory efforts evidence the potential for a
substantial increase of gold ore reserves. The Company was unable to
obtain sufficient funds during this fiscal year to complete the
modification and expansion of the SCMP or for its open-pit, heap-leach
operation. However, the Company did invest funds during this fiscal
period, which were used to progress the erection of the cone crushing
system, to maintain the SCMP, and to conduct exploration programs.

The Company continues to rely on its directors, officers, related parties
and others for its funding needs. The Company believes that it may be able
to obtain such short-term and/or equity funds as are required from similar
sources as it has in the past. It further believes that the funding
needed to proceed with the continued exploration of the other exploration
targets for the purpose of increasing its gold ore reserves will be greatly
enhanced if the price of gold stays at the current or higher level. These
exploration programs will involve airborne geophysics, stream chemistry,
geological mapping, trenching, drilling, etc. The Joint Venture believes
that it may be able to joint venture or enter into other business
arrangements to share these exploration costs with other entities.

From September 1987 through March 31, 2005, the Company has advanced the
sum of $48,953,121 to the Joint Venture (which includes interest charges
payable to the Company), and three of the Company's subsidiaries have
advanced the sum of $590,265, for a total of $49,543,386. This investment
includes the charge of $31,200,773 for interest expense during this period
of time. The funds invested in the Joint Venture were used primarily for
the exploration, exploitation, and development of the SSGM, for the
construction of the Joint Venture laboratory facilities on real estate
owned by the Company near the SSGM site, for the operation of the
laboratory, for the purchase of a 200-ton per day used SCMP precious
metals' cyanide leaching mill and plant, for the initial retrofitting,
repair, modernization and expansion of its SCMP facilities, for consumable
inventory, for working capital, for exploration and holding costs of the
San Felipe-El Potosi Mine, the Modesto Mine, the Montemayor Mine, the
Tabanco Mine and the La Lola Mine, for SSGM infrastructure, including
rewiring, repairing and installation of over two miles of the Company's
electric power lines to provide electrical service, for the purchase of
equipment, laboratory chemicals, and supplies, for parts and supply
inventory, for the maintenance of the Company-owned dam and reservoir, for
extensive road extension and preservation, for its participation in the
construction of a community bridge, for community telephone building and
facilities, for a community place of worship, for the purchase of the real
estate on the Modesto Mine, for leasing the Montemayor real estate, for the
purchase and erection of a cone crushing system, for diamond drilling at
the SSGM, for the purchase of a rod mill and a carbon regeneration system,
for holding costs, and for many other related needs.

RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------

In December 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NON-MONETARY
ASSETS AN AMENDMENT OF APB NO. 29." This Statement amends APB Opinion No.
29, "ACCOUNTING FOR NON-MONETARY TRANSACTIONS" to eliminate the exception
for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not
have commercial substance. That exception required that some non-monetary
exchanges be recorded on a carryover basis versus this Statement, which
requires that an entity record a non-monetary exchange at fair value and
recognize any gain or loss if the transaction has commercial substance.
This Statement is effective for fiscal years beginning after June 15, 2005.
At this time the Company believes that the adoption of SFAS No. 153 will
not have a material impact on our financial position, net earnings or cash
flows.

In December 2004, the FASB issued SFAS No. 123 revised in 2004, "SHARE-
BASED PAYMENT." This Statement is a revision of SFAS No 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION," and supersedes APB No. 25, "ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES." The Statement requires companies to recognize
in the income statement the grant-date fair value of stock options and
other equity based compensation issued to employees. This Statement is
effective as of the beginning of the first interim or annual period that
commences after June 15, 2005. At this time, the Company does not expect
the effects of the adoption of SFAS No. 123 to have a material impact on
the Company's financial position, net earnings or cash flows.

In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS -- AN
AMENDMENT OF ARB NO. 43, CHAPTER 4" ("SFAS 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "INVENTORY PRICING," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions, the new
rule requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs be recognized as current-period
charges regardless of whether they meet the criterion of "so abnormal" as
stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation
of fixed production overhead to the costs of conversion be based on the
normal capacity of the production facilities. SFAS 151 is effective for
fiscal years beginning after June 15, 2005. The Company is currently
evaluating the effect that the adoption of SFAS 151 will have on its
results of operations or financial position at this time, but it does not
expect SFAS 151 to have a material effect.

In November 2004, the FASB issued EITF Issue No. 03-13, "APPLYING THE
CONDITIONS IN PARAGRAPH 42 OF FASB STATEMENT NO. 144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, IN DETERMINING WHETHER TO
REPORT DISCONTINUED OPERATIONS" (EITF No. 03-13). This issue assists in
the development of a model for evaluating (a) which cash flows are to be
considered in determining whether cash flows have been or will be
eliminated and (b) what types of continuing involvement constitute
significant continuing involvement. The guidance in this issue should be
applied to a component of an enterprise that is either disposed of or
classified as held for sale in fiscal periods beginning after December 15,
2004. Previously reported operating results related to disposal
transactions initiated within an enterprise's fiscal year that includes the
date that this consensus was ratified (November 30, 2004) may be
reclassified. The Company at this time does not believe that the adoption
of EITF No. 031-13 will have a material impact on its financial position,
net earnings or cash flows.

In September 2004, the FASB issued EITF Issue No. 03-1, "THE MEANING OF
OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS"
(EITF No. 03-01). The guidance in EITF No. 03-1 was effective for other-
than-temporary impairment evaluation made in reporting periods beginning
after June 15, 2004. However, certain provisions regarding the assessment
of whether an impairment is other than temporary have been delayed.
Although the disclosure requirements continue to be effective in annual
financial statements for fiscal year ending after December 15, 2003, for
investments accounted for under SFAS No. 115 and 124. For all other
investments addressed by EITF No. 03-1, the disclosures continue to be
effective in annual financial statements for fiscal years ending after June
15, 2004. The Company at this time does not believe that the adoption of
EITF No. 03-1 will have a material impact on its financial position, net
earnings or cash flows.

On April 30, 2004 the FASB issued a Staff Position (FSP) amending SFAS No.
141 and SFAS No. 142 to provide that certain mineral use rights are
considered tangible assets and should be accounted for based on their
substance. If recharacterization of an asset results, prior period amounts
in the statement of financial position are to be reclassified with any
effects on amortization or depreciation prospectively applied. The FSP was
effective for the first reporting period beginning after April 29, 2004,
with early adoption permitted.

EMPLOYEES
- ---------

As of March 31, 2004, the Joint Venture employed between 45 and 55 full-
time persons in El Salvador to perform its limited exploration,
exploitation, and development programs; to complete the erection of the
cone crushing system, to provide 24-hour seven-day-a-week security at three
different sites; to provide engineering, geology, drafting, and computer-
related services; and to handle the administration of its activities. None
of the employees are covered by any collective bargaining agreements. It
has developed a harmonious relationship with its employees, and it believes
that at one time in the past, it was one of the largest single non-
agricultural employers in the El Salvador Eastern Zone. Also, the Company
employs up to four persons, including part-time help, in the United States.
Since the Joint Venture has laid off most of its employees, the Joint
Venture had to pay their severance pay and other benefits, therefore from
time to time it sold and continues to sell the Company's common shares
which were issued to the Commerce Group Corp. Employee Benefit Account. El
Salvador employees are entitled to receive severance pay, which is based on
one month's pay for each year of employment.

RELATED PARTY LOANS, OBLIGATIONS AND TRANSACTIONS
- -------------------------------------------------

The related party transactions are included in detail in the Notes to the
Consolidated Financial Statements.

COMPANY ADVANCES TO THE JOINT VENTURE
- -------------------------------------

Since September 1987 through March 31, 2005, the Company, and three of its
subsidiaries, have advanced to the Joint Venture $48,953,121. Included in
the total advances is the interest charged to the Joint Venture by the
Company which amounts to $31,200,773 through March 31, 2005. So far, the
Company furnished all of the funds required by the Joint Venture. The cost
of the interest charge has been eliminated from these financial statements.

EFFORTS TO OBTAIN CAPITAL
- -------------------------

Since the concession was granted, and through the present time, substantial
effort is exercised by the Directors and Officers in attempting to secure
funding through various sources, all with the purpose to expand the
operations of the SCMP, to construct an open-pit heap-leach operation at
the SSGM site, and to continue the exploration of its other mining
prospects. In more than one instance, the Company has encountered
difficulty in negotiating reasonable terms and conditions.

The Company, Sanseb, and the Joint Venture consider the past political
situation in the Republic of El Salvador to have been unstable, and believe
that the final peace declaration on December 16, 1992, has put an end to
the conflict. Even though many years have passed, the stigma of the past
unfavorable political status in the Republic of El Salvador exists and
therefore certain investors continue to be apprehensive to invest the funds
required. However, as explained in this report, the Company was able to
obtain a sum of funds to invest in the expansion and retrofitting of its
SCMP and for the exploration of its other mining prospects. The decline in
the Company's common stock market price places the Company in a situation
of substantially diluting its common shares in order to raise equity
capital. The Company believes that it will be able to obtain adequate
financing to conduct its operations from the same sources as in the past.
There are no assurances that funds will be available, except at this time,
there is a greater world-wide interest in the ownership of gold. The price
of gold is at a favorable height which should encourage investors to invest
in gold mining companies.

ENVIRONMENTAL REGULATIONS
- -------------------------

The El Salvador Department of Hydrocarbons and Mines (DHM) requires
environmental permits to be issued in connection with the issuance of
exploitation concessions. The issuance of these permits are under the
jurisdiction of the El Salvador Ministry of Environment and Natural
Resources Office (MARN). On October 15, 2002, MARN issued an environmental
permit under Resolution 474-2002 for the SCMP. On October 20, 2002, MARN
issued an environmental permit under Resolution 493-2002 for the Renewed
SSGM Exploitation area. Reference is made to Item 1. Environmental Matters
for additional details.

GUARANTEES
- ----------

The Company has provided the Government of El Salvador with the following
guarantees on September 27, 2002: three-year guarantees were issued by the
Banco Agricola, S.C. on behalf of the Company to the Ministry of
Environment and Natural Resources; Guarantee No. 1901-0000059-8 was issued
for the San Cristobal Mill and Plant in the sum of $771.49; and Guarantee
no. 1901-0000058-7 was issued for the Renewed SSGM in the sum of
$14,428.68.

On July 10, 2003 a one-year third party liability guarantee in the sum of
$42,857.14 expiring July 10, 2004 was issued by Compania Anglo Salvadorena
de Seguros, S.A. on behalf of the Company to the Ministry of Economy's
Office of the Department of Hydrocarbons and Mines. The guaranty was
renewed for the period of July 10, 2004 through July 10, 2005.

DIVIDENDS
- ---------

For the foreseeable future, it is anticipated that the Company will use any
of its earnings to finance its growth and expansion, therefore, dividends
will not be paid to shareholders.

IMPACT OF INFLATION
- -------------------

The impact of inflation on the Company has not been significant in recent
years because of the relatively low rates of inflation and deflation
experienced in the United States.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------------------

COMMODITY PRICES
- ----------------

When in production, the Company's earnings and cash flow will be
significantly impacted by changes in the market price of gold. Gold prices
can fluctuate widely and are affected by numerous factors, such as demand,
production levels, economic policies of central banks, producer hedging,
and the strength of the U.S. dollar relative to other currencies. During
the last five years, the average annual market price of gold has fluctuated
between $270 per ounce and $425 per ounce. The Company has not been
engaged in any hedging contracts whatsoever. Therefore, it had no
outstanding forward gold contracts.

As of March 31, 2005, the Company's debt payable to related parties was
$11,364,188 and to others $269,179, for a total of $11,633,367. All of the
debt is subject to interest at a rate of two to four percent over the prime
rate, but not less than sixteen percent, payable monthly and more fully
described in the financial statements.

FOREIGN CURRENCY
- ----------------

The Company conducts the majority of its business in the Republic of El
Salvador, Central America. Currently, El Salvador is on the U.S. dollar
system, and therefore all receipts and expenditures since January 1, 2001
are in U.S. dollars.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------
Some of the statements contained in this report are forward-looking
statements, such as estimates and statements that describe the Company's
future plans, objectives or goals, including words to the effect that the
Company or management expects a stated condition or result to occur. Since
forward-looking statements address future events and conditions, by their
very nature, they involve inherent risks and uncertainties. Actual results
in each case could differ materially from those currently anticipated in
such statements by reason of factors such as production at the Company's
mines, changes in operating costs, changes in general economic conditions
and conditions in the financial markets, changes in demand and prices for
the products the Company produces, litigation, legislative, environmental
and other judicial, regulatory, political and competitive developments in
areas in which the Company operates and technological and operational
difficulties encountered in connection with mining. Many of these factors
are beyond the Company's ability to control or predict. The Company
disclaims any intent or obligation to update its forward-looking
statements, whether as a result of receiving new information, the
occurrence of future events, or otherwise.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------

Index to Consolidated Financial Statements
and Supplementary Financial Data

Page

Report of Independent Registered Public Accounting Firm. . . . . . . . 44

Financial Statements:

Consolidated Balance Sheets, Years Ended March 31,
2005 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Consolidated Statements of Operations, Years Ended March 31,
2005, 2004 and 2003. . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Changes in Shareholders' Equity
Years Ended March 31, 2005, 2004 and 2003. . . . . . . . . . . . . . 47
Consolidated Statements of Cash Flows, Years Ended March 31,
2005, 2004 and 2003. . . . . . . . . . . . . . . . . . . . . . . . . 48
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 51
Selected Quarterly Financial Data (Unaudited). . . . . . . . . . . . . 71

Supplementary Financial Data:

Report of Independent Accountant on the Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Schedules of financial statements other than those listed herein have been
omitted since they are either not required, are not applicable, or the
required information is included in the financial statements and related
notes.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Commerce Group Corp.
Milwaukee, Wisconsin

We have audited the accompanying consolidated balance sheets of Commerce
Group Corp. (a Wisconsin corporation) as of March 31, 2005 and 2004, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, audits of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated statements referred to above present
fairly, in all material respects, the consolidated financial position of
Commerce Group Corp. as of March 31, 2005 and 2004, and the consolidated
results of their operations and their cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States of America.

Chisholm, Bierwolf & Nilson, LLC
Certified Public Accountants

Bountiful, Utah
May 18, 2005

COMMERCE GROUP CORP., ITS SUBSIDIARIES, AND THE JOINT VENTURE
Consolidated Balance Sheets--March 31

2005 2004
------------ ------------

ASSETS
-------
Current assets
Cash $ 13,669 $ 30,348
Other current assets 218,528 219,098
Accounts receivable, related 584,468 584,011
Accounts receivable - 24,658
Mining supplies 39,562 39,562
Prepaid items and deposits 84,266 95,794
------------ ------------
Total current assets 940,493 993,471

Property, plant and equipment, net 4,427,876 4,333,128

Mining resources investment 31,150,207 29,092,782
------------ ------------
Total assets $ 36,518,576 $ 34,419,381
============ ============
LIABILITIES
-----------
Current liabilities
Accounts payable $ 213,514 $ 262,704
Accounts payable, related 230,001 225,885
Notes and accrued interest payable
to related parties 11,364,188 9,400,682
Notes and accrued interest payable to others 269,179 247,579
Accrued salaries 3,072,136 2,871,128
Accrued legal fees 32,981 327,015
Other accrued expenses 696,621 646,523
------------ ------------
Total liabilities 16,178,620 13,981,516

Commitments and contingencies
(Notes 2, 4, 5, 6, 7, 8, 10 & 12)
SHAREHOLDERS' EQUITY
---------------------
Preferred Stock
Preferred stock, $0.10 par value:
Authorized 250,000 shares;
Issued and outstanding
2004-none; 2003-none $ 0 $ 0
Common stock, $0.10 par value:
Authorized 50,000,000 shares;
Issued and outstanding:
2005-23,823,734 2,382,373
2004-22,681,591 2,268,159
Capital in excess of par value 19,292,410 19,274,597
Retained earnings (deficit) (1,334,827) (1,104,891)
------------ ------------
Total shareholders' equity 20,339,956 20,437,865
------------ ------------
Total liabilities and shareholders' equity $ 36,518,576 $ 34,419,381
============ ============
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.

42
COMMERCE GROUP CORP., ITS SUBSIDIARIES, AND THE JOINT VENTURE
Consolidated Statements of Operations
For the Years Ended March 31
<Table>
<Caption>
2005 2004 2003
------------ ------------ ------------

Revenues: $ 0 $ 0 $ 0

Expenses:
General and administrative $ 229,936 $ 237,790 $ 232,647
------------ ------------ ------------
Total expenses 229,936 237,790 232,647

Net profit (loss) (229,936) (237,790) (232,647)
Credit (charges) for income taxes 0 0 0
------------ ------------ ------------
Net income (loss) after income tax
credit (charge) $ (229,936) $ (237,790) $ (232,647)
============ ============ ============
Net income (loss) per share
basic/diluted $ (.01) $ (.01) $ (.01)
============ ============ ============

Weighted av. basic/diluted
common shares outstanding 22,581,814 21,089,812 18,907,958
============ ============ ============

</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
43

COMMERCE GROUP CORP., ITS SUBSIDIARIES, AND THE JOINT VENTURE
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended March 31, 2005, 2004 and 2003
<Table>
<Caption>
Common Stock
--------------------------------------
Capital in Retained
Number of Excess of Earnings
Shares Par Value Par Value (Deficit)
---------- ------------ ------------ ------------

Balances March 31, 2002 17,468,008 $ 1,746,801 $ 18,792,109 $ (634,454)

Net loss for FY March 31, 2003 - - - (232,647)

Common stock issued for:
Dir./off./employee
/services comp. 693,221 69,322 85,848 -
Payment of debt 1,435,200 143,520 85,805 -
Cash 811,000 81,100 33,650 -
---------- ------------ ------------ ------------
Balances March 31, 2003 20,407,429 2,040,743 18,997,412 (867,101)

Net loss for FY March 31, 2004 (237,790)

Common stock issued for:
Dir./off./employee/
services comp. 630,862 63,086 92,014 -
Payment of debt 928,300 92,830 138,657 -
Stock options exercised for
cash 230,000 23,000 6,500 -
Cash 485,000 48,500 63,350 -
Capital distribution - - (23,336) -
---------- ------------ ------------ ------------
Balances March 31, 2004 22,681,591 2,268,159 19,274,597 (1,104,891)

Net loss for FY March 31, 2005 - - - (229,936)

Common stock issued for:
Dir./off./employee
/services comp. 535,786 53,578 5,649 -
Payment of debt 500,000 50,000 2,500 -
Cash 106,357 10,636 9,664 -
---------- ------------ ------------ ------------
Balances March 31, 2005 23,823,734 $ 2,382,373 $ 19,292,410 $(1,334,827)
========== ============ ============ ============

</Table>
The accompanying notes are an integral part of
these consolidated financial statements.

COMMERCE GROUP CORP., ITS SUBSIDIARIES, AND THE JOINT VENTURE
Consolidated Statements of Cash Flows

<Table>
<Caption>
For the Years Ended March 31
2005 2004 2003
------------ ------------ ------------

Operating activities:
Net loss $(229,936) $(237,790) $(232,647)
Adjustments to reconcile net loss to net
cash provided by used in) operating
activities:
Common stock issued for services rendered 59,227 155,100 155,170
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable and other current assets 24,771 (24,977) (85,108)
Decrease (increase) in prepaid items and
deposits 11,528 (53,893) (16,856)
Increase (decrease) in accounts payable
and other accrued expenses 5,024 58,674 58,915
Increase (decrease) in accrued salaries 40,808 (94,101) 9,650
Increase (decrease) in accrued legal fees 5,966 74 12,138
------------ ------------ ------------
Net cash provided by (used in)
operating activities (82,612) (196,913) (98,738)

Investing activities:
Investment in mining resources and property,
plant and equipment (300,454) (135,241) (214,089)
------------ ------------ ------------
Net cash used by investing activities (300,454) (135,241) (214,089)

Financing activities:
Cash received on related party notes payable 346,087 193,148 187,000
Common stock issued for cash 20,300 141,350 114,750
------------ ------------ ------------
Net cash provided by financing activities 366,387 334,498 301,750

Net increase (decrease) in cash and cash
equivalents (16,679) 2,344 (11,077)

Cash - beg. of year 30,348 28,004 39,081
------------ ------------ ------------
Cash - end of year $ 13,669 $ 30,348 $ 28,004
============ ============ ============

</Table>
The accompanying notes are an integral part of
these consolidated financial statements.

COMMERCE GROUP CORP., ITS SUBSIDIARIES, AND THE JOINT VENTURE
Consolidated Statements of Cash Flows, continued

Supplemental disclosures of cash information:
<Table>
<Caption>
Supplemental disclosures of cash information: Year Ended
March 31, 2005 March 31, 2004
-------------- ---------------

A. Cash information $Amount $Amount
1. Accrued interest capitalized $1,691,519 $1,433,298
2. Interest expense paid in cash - -
3. Income taxes paid - -
B. Non cash investing and financing
Common stock issued for:
1. Director fees, officer compensation,
employee benefits and services 535,786 $59,227 630,862 $155,100
2. Related party notes payable 500,000 $52,500 928,300 $231,487
</Table>
C. Other supplemental disclosures

1. Other current assets consist of securities held by Commerce for
the Commerce Group Corp. Employee Benefit Account, which are
stated at cost of $86,080 at March 31, 2005. The funds are to be
used to pay the El Salvadoran employee medical benefits and
pension benefits as required by the El Salvadoran Government.

The El Salvadoran vacation and Christmas bonus payments are due
when earned while the severance pay is due and payable at such
time when the employee has been discharged, retired, permanently
laid off, death or when incapable of working due to permanent
health/work related conditions. The Company has sole control and
jurisdiction over this account and to the best of the Company's
knowledge, there is absolutely no condition, right, or
requirement by the El Salvadoran authorities to have such funds
in any form of a reserve.

Also included in other current assets are certain precious stones
and jewelry stated at cost of $132,448 at March 31, 2005.

2. The accounts receivable, related consist of advances to Mineral
San Sebastian S.A. (Misanse), which is 52% owned by the Company.
These advances are an offset for the past and future Misanse
rental charges that are included in the accounts payable. An
accounting is as follows:

<Table>
<Caption>
Misanse Others Total
-------- -------- --------

Accounts receivable $584,468 $ 0 $584,468
Accounts payable $230,001 $213,514 $443,515
</Table>

On January 14, 2003, at a Misanse shareholders' meeting held at the
Company's City of San Miguel, El Salvador office, the shareholders and
the Directors approved, confirmed and ratified the amount that Misanse
owed the Company for advances and other obligations the Company
incurred on behalf of Misanse. The amount due to Misanse at that time
was also approved, ratified and confirmed.

The Company is of the opinion that it is appropriate to record the
fact that Misanse owes the Company $584,468 and that the Company owes
Misanse $230,001 as Misanse is not consolidated with the Company's
financial records. When gold production commences, the 5% royalty
payable to Misanse for rent of the San Sebastian Gold Mine property
based on the gross proceeds from the sale of gold and the accounts
payable offset will reduce this receivable until it is paid in full.

3. Mining supplies consist of consumable items used in processing gold
ore, which are stated at the average cost.

The accompanying notes are an integral part of
these consolidated financial statements.

COMMERCE GROUP CORP., ITS SUBSIDIARIES AND THE JOINT VENTURE
Notes to the Financial Statements
March 31, 2005

(1) The Company and Basis of Presentation of Financial Statements

(a) Commerce Group Corp. ("Commerce," the "Company" and/or "Registrant")
and its 82 1/2%-owned subsidiary, San Sebastian Gold Mines, Inc.
("Sanseb") both United States corporations, have formed the
Commerce/Sanseb Joint Venture ("Joint Venture") for the purpose of
performing gold mining, the sale of gold, and related activities,
including, but not limited to, exploration, exploitation, development,
extraction and processing of precious metals in the Republic of El
Salvador, Central America. Gold bullion, currently the Joint
Venture's principal product, was produced (but not on a full
production basis) in El Salvador and refined and sold in the United
States. Expansion of exploration is a goal at the San Sebastian Gold
Mine ("SSGM") which is located near the city of Santa Rosa de Lima.
Expanded exploration is being limited at other mining projects until
adequate funding is obtained under acceptable terms and conditions.
All of the mining projects are located in the Republic of El Salvador,
Central America.

On March 3, 2003, the Company received an exploration license from the
Government of El Salvador (GOES) dated February 24, 2003, for the
exploration of minerals in an area encompassing the SSGM, consisting
of 40.77 square kilometers (10,070 acres), which is hereafter referred
to as the "New SSGM Exploration Concession/License" or the "New SSGM."
This expanded area provides the Company with an opportunity to
increase its gold and silver ore reserves. Included in this area are
three formerly-operated gold and silver mines: the La Lola Mine, the
Santa Lucia Mine and the Tabanco Mine.

On May 20, 2004 (delivered June 4, 2004) the Company was granted an
exploitation concession from the GOES consisting of 1.23 square
kilometers (304 acres) for the exploration of the precious metals.
Hereafter, this grant will be referred to as the Renewed San Sebastian
Gold Mine Exploitation Concession/License (Renewed SSGM).

On May 25, 2004 (received June 4, 2004) the GOES issued a second
exploration concession consisting of 45 square kilometers (11,115
acres) hereinafter referred to as the Nueva Esparta.

As of March 31, 2000 the Joint Venture had temporarily suspended the
San Cristobal Mill and Plant ("SCMP") operations (operations ceased
on December 31, 1999) until such time as it has adequate funds to
retrofit, rehabilitate, restore and expand these facilities and until
there is certainty that the price of gold will be stabilized at the
current or a higher selling price.

The Company continues to be cognizant of its cash needs until such
time as it is able to produce adequate profits from its SSGM gold
production. It will continue to attempt to obtain sufficient funds to
assist the Joint Venture in placing the SSGM into production as the
anticipated profits from the existing SCMP operation (unless
accumulated over a period of time) appear insufficient to meet the
SSGM capital and the other mining exploration requirements. In order
to continue to follow its goal to conduct the Joint Venture's
exploration, exploitation, development expansion programs, and the
production of gold from the SSGM open-pit, heap-leaching operation, it
is necessary for the Company to obtain funds from other sources. The

Company may have to borrow funds by issuing open-ended, secured, on-
demand or unsecured promissory notes, by selling its shares to its
directors, officers and other interested accredited investors, or by
entering into a joint venture, merger, or developing an acceptable,
creative form of a business combination.

The Company's directors and officers, with the aid of investment
bankers and finders, are aggressively seeking a compatible financial
or business arrangement. The verbal and written proposals or
arrangements received were not acceptable by the Company due to the
terms and conditions.

The Joint Venture plans to begin its open-pit, heap-leaching process
on the SSGM site when adequate funding becomes available under fair
and reasonable terms and conditions, and providing that the price of
gold maintains the current price level. It also plans to continue its
SSGM site preparation, the expansion of its exploration and
exploitation targets, and the enlargement and development of its gold
ore reserves. Furthermore, it plans to explore the potential of other
gold mine exploration prospects in El Salvador. Concurrently, it is
in the process of obtaining necessary funding for each of these
separate programs while its Joint Venture is performing minor retrofit
and rehabilitation work at the SCMP. It commenced an exploration
program in the New SSGM and in the Nueva Esparta.

(b) Basis of presentation:

Management estimates and assumptions:

Certain amounts included in or affecting the Company's financial
statements and related disclosures must be estimated, requiring that
certain assumptions be made with respect to values or conditions which
cannot be made with certainty at the time the financial statements are
prepared. Therefore, the reported amounts of the Company's assets and
liabilities, revenues and expenses, and associated disclosures with
respect to contingent assets and obligations are necessarily affected
by these estimates. The Company evaluates these estimates on an
ongoing basis, utilizing historical experience, consultation with
experts, and other methods considered reasonable in the particular
circumstances. Nevertheless, actual results may differ significantly
from the Company's estimates.

(2) Significant Accounting Policies
- ------------------------------------

Consolidated Statements

The Joint Venture and the following subsidiaries are all majority-owned by
the Company and are included in the consolidated financial statements of
the Company. All significant intercompany balances and transactions have
been eliminated. The Company does not have corporate control of Misanse as
the majority of Misanse's elected directors are El Salvadoran shareholders.

<Table>
<Caption>
Charter/Joint Venture
---------------------
Included in the Consolidated Statements % Ownership Place Date
- --------------------------------------- ----------- ------------ ------------

</Table>

MINORITY INTEREST

During the periods ended March 31, 2005 and 2004, there were no expenses in
the entities wherein minority interests existed. Minority interest as a
whole is immaterial in these financial statements and therefore have not
been presented.

OTHER CURRENT ASSETS

Other current assets consist of securities held as nominee for the Commerce
Group Corp. Employee Benefit Account, and are stated at cost. Other
current assets also include certain precious stones also stated at cost.

ACCOUNTS RECEIVABLE

The accounts receivable consist of advances to Misanse, a 52%-owned
subsidiary, which will be offset for the Misanse rental charges included in
the accounts payable.

INTERCOMPANY BALANCES

All intercompany balances and transactions have been eliminated in the
consolidated financial statements.

MINING SUPPLIES

Mining supplies consist of consumable supplies used in connection with
processing ore, and are stated at cost, which is lower than the market
value.

DEFERRED MINING COSTS

The Company, in order to avoid expense and revenue unbalance, capitalizes
all costs directly associated with acquisition, exploration and development
of specific properties, until these properties are put into operation, sold
or are abandoned. Gains or losses resulting from the sale or abandonment
of mining properties will be included in operations. The Joint Venture
capitalizes its costs and expenses and will write off these cumulative
costs on a units of production method at such time as it begins producing
gold derived from the gold ore on a full production basis. If the prospect
of gold production, due to different conditions and circumstances becomes
unlikely, all of these costs may be written off in the year that this
occurs.

The Company regularly evaluates its carrying value of exploration
properties in light of their potential for economic mineralization and the
likelihood of continued work by either the Company or a joint venture
partner. The Company may, from time to time, reduce its carrying value to
an amount that approximates fair market value based upon an assessment of
such criteria.

REVENUE RECOGNITION

Revenue from the sale of gold will be recognized when delivery has
occurred, title and risk of loss passes to the buyer, and collectability is
reasonably assured. Gold sales will be made in accordance with sales
contracts where the price is fixed or determinable.

PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment is stated at the lower of cost or estimated
net realizable value. Mining properties, development costs and plant and
equipment will be depreciated when full production takes place using the
units of production method based upon proven and probable reserves. Until
the Company suspended its mining operations, the assets were depreciated
using the straight-line method over estimated useful lives ranging from
three to ten years. Depreciation and amortization expenses include the
amortization of assets acquired, if any, under capital leases.
Replacements and major improvements are capitalized. When in operation,
maintenance and repairs will be charged to expense based on average
estimated equipment usage. Interest costs incurred in the construction or
acquisition of property, plant, and equipment are capitalized and amortized
over the useful lives of the related assets. Since the Company suspended
its gold processing operations effective March 31, 2000, it also ceased to
depreciate its fixed assets.

MINERAL EXPLORATION AND DEVELOPMENT COSTS

Significant property acquisition payments for active exploration properties
are capitalized. If no minable ore body is discovered, previously
capitalized costs are expensed in the period the property is abandoned.
Expenditures for the development of new mines, to define further
mineralization at and adjacent to existing ore bodies, and to expand the
capacity of operating mines, are capitalized and amortized on the units of
production basis over proven and probable reserves.

IMPAIRMENTS

The Company evaluates the carrying value of its properties and equipment
when events or changes in circumstances indicate that the properties or
equipment may be impaired and then at that time it plans to apply the
provisions of Statement of Financial Accounting Standards No. 121 (SFAS
121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. Estimated future net cash flows, on an
undiscounted basis, from each property are calculated using estimated
recoverable ounces of gold (considering current proven and probable
reserves and mineral resources expected to be converted into mineral
reserves. The inclusion of mineral resources is based on various
circumstances, including but not limited to, the existence and nature of
known mineralization, location of the property, results of drilling; and
analysis to demonstrate the ore is commercially recoverable), estimated
future gold price realization (considering historical and current prices,
price trends and related factors); and operating, capital and site
restoration costs. Reduction in the carrying value of property, plant and
equipment, with a corresponding charge to income, are recorded to the
extent that the estimated future net cash flows are less than the carrying
value.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and amends APB No. 30, "Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." This Statement
requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less costs to sell. SFAS
No. 144 retains the fundamental provision of SFAS 121 for (a) recognition
and measurement of the impairment of long-lived assets to be held and used
and (b) measurement of long-lived assets to be disposed of by sale. This
statement also retains APB No. 30's requirement that companies report
discontinued operations separately from continuing operations. All
provisions of this statement are effective in the first quarter of 2003.
At this time, the Company believes that the impact of this standard should
have no material impact on the financial statements taken as a whole.

In December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure (SFAS No. 148). SFAS No. 148, amends SFAS No.
123, Accounting for Stock-Based Compensation (SFAS No. 123), to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirement of SFAS No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
amendments to SFAS No. 123 are effective for financial statements for
fiscal years ending after December 15, 2002. The Company will account for
stock-based employee compensation using the intrinsic value method in
accordance with APB No. 25, Accounting for Stock Issued to Employees when
such plan will be implemented by the Company. At that time, the Company
will disclose the requirements of SFAS No. 148. No stock-based employee
compensation has been provided as of this date, as no employee stock
compensation was issued during the years ended March 31, 2005 and 2004.

ASSET RETIREMENT OBLIGATIONS: The Company, when the occurrence arises,
plans to adopt a Statement of Financial Accounting Standards No. 143,
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS (SFAS No. 143). SFAS No. 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. Fair value is determined by
estimating the retirement obligations in the period an asset is first
placed in service and then adjusting that amount for estimated inflation
and market risk contingencies to the projected settlement date of the
liability. The result is then discounted to a present value from the
projected settlement date to the date the asset was first placed in
service. The present value of the asset retirement obligation is recorded
as an additional property cost and as an asset retirement liability. The
amortization of the additional property cost (using the units of production
method) will be included in depreciation, depletion and amortization
expense and the accretion of the discounted liability will be recorded as a
separate operating expense in the Company's Statement of Operations.

In December 2004, the FASB issued SFAS No. 153, "EXCHANGE OF NON-MONETARY
ASSETS AN AMENDMENT OF APB NO. 29." This Statement amends APB Opinion No.
29, "ACCOUNTING FOR NON-MONETARY TRANSACTIONS" to eliminate the exception
for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not
have commercial substance. That exception required that some non-monetary
exchanges be recorded on a carryover basis versus this Statement, which
requires that an entity record a non-monetary exchange at fair value and
recognize any gain or loss if the transaction has commercial substance.
This Statement is effective for fiscal year beginning after June 15, 2005.
The Company, at this time, cannot determine the impact that the adoption of
SFAS No. 153 may have on its financial position, net earnings, or cash
flows.

In December 2004, the FASB issued SFAS No. 123 revised 2004, "SHARE-BASED
PAYMENT." This Statement is a revision of SFAS No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," and supersedes APB No. 25, "Accounting for Stock
Issued to Employees." The Statement requires companies to recognize in the
income statement the grant-date fair value of stock options and other
equity based compensation issued to employees. This Statement is effective
as of the beginning of the first interim or annual period that commences
after June 15, 2005. The Company cannot yet determine the impact that the
adoption of SFAS No. 123 revised 2004 will have on its financial position,
net earnings or cash flows.

In November 2004, the FASB issued EITF Issue No. 03-13, "APPLYING THE
CONDITIONS IN PARAGRAPH 42 OF FASB STATEMENT NO. 144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, IN DETERMINING WHETHER TO
REPORT DISCONTINUED OPERATIONS" (EITF No. 0-3-13). This issue assists in
the development of a model for evaluating (a) which cash flows are to be
considered in determining whether cash flows have been or will be
eliminated and (b) what types of continuing involvement constitute
significant continuing involvement. The guidance in this issue should be
applied to a component of an enterprise that is either disposed of or
classified as held for sale in fiscal periods beginning after December 15,
2004. Previously reported operating results related to disposal
transaction initiated within an enterprise's fiscal year that includes the
date that this consensus was ratified (November 30, 2004) may be
reclassified. The Company at this time cannot determine the impact that
the adoption of EITF No. 03-13 may have on its financial position, net
earnings or cash flows.

In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS -- AN
AMENDMENT OF ARB NO. 43, CHAPTER 4" ("SFAS 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "INVENTORY PRICING," to clarify the
accounting for abnormal amounts of idle facility expenses, freight,
handling costs, and wasted material (spoilage). Among other provisions,
the new rule required that items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs be recognized as current-
period charges regardless of whether they meet the criterion of "so
abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that
the allocation of fixed production overhead to the costs of conversion be
based on the normal capacity of the production facilities. SFAS 151 is
effective for fiscal years beginning after June 15, 2005. The Company is
evaluating the effect that the adoption of SFAS 151 may have on its results
of operations or financial position but it does not expect SFAS 151 to have
a material effect.

In September 2004, the FASB issued EITF Issue No. 03-1, "THE MEANING OF
OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS"
(EITF NO. 03-1). The guidance in EITF No. 03-1 was effective for other-
than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004. However, certain provisions regarding the assessment
of whether an impairment is other than temporary have been delayed.
Although the disclosure requirements continue to be effective in annual
financial statements for fiscal years ended after December 15, 2003, for
investments accounted for under SFAS No. 115 and 124. For all other
investments addressed by EITF No. 03-1, the disclosures continue to be
effective in annual financial statements for fiscal years ending after June
15, 2004. The Company believes at this time that the adoption of EITF No.
03-1 will not have a material impact on its financial position, net
earnings or cash flows.

On April 30, 2004 the FASB issued a FASB Staff Position (FSP) amending SFAS
No. 141 and SFAS No. 142 to provide that certain mineral use rights are
considered tangible assets and should be accounted for based on their
substance. If recharacterization of an asset results, prior period amounts
in the statement of financial position are to be reclassified with any
effects on amortization or depreciation prospectively applied. The FSP was
effective for the first reporting period beginning after April 29, 2004,
with early adoption permitted. The Company believes that at this time it
is not necessary to reclassify any of its tangible assets.

Management's estimates of gold and other metal prices, recoverable proven
and probable reserves, operating, capital, and reclamation costs are
subject to certain risks and uncertainties which may affect the
recoverability of the Company's investment in property, plant, and
equipment. Although management has made its best estimate of these factors
based on current conditions, it is reasonably possible that changes could
occur in the near-term which could adversely affect management's estimate
of the net cash flows expected to be generated from its mining properties.

Estimates of future cash flows are subject to risks and uncertainties. It
is possible that changes could occur which may affect the recoverability of
property, plant and equipment.

INTEREST CAPITALIZATION

Interest costs are capitalized as part of the historical cost of facilities
and equipment, if material.

INCOME TAXES

The Company files a consolidated federal income tax return with its
subsidiaries (See Note 9). The Joint Venture files a U.S. partnership
return.

EARNINGS (LOSS) PER COMMON SHARE

The Company has in the past years reported its "Earnings per Share" (EPS)
which presently complies with the provisions of Statement of Financial
Accounting Standards No. 128 (SFAS No. 128). As required by this standard,
the Company, if applicable, could report two earnings per share amounts,
basic net income and diluted net income per share. Basic net income per
share is computed by dividing income or loss reportable to common
shareholders (the numerator) by the weighted average number of common
shares outstanding (the denominator). The computation of diluted net
income or loss per share is similar to the computation of basic net income
per share except that the denominator is increased to include the dilutive
effect of the additional common shares that would have been outstanding if
all convertible securities, stock options, rights, share loans etc. had
been converted to common shares.

However, the computation of diluted EPS shall not assume conversion,
exercise, or contingent issuance of securities that would have an
antidilutive effect on earnings per share. Shares issued on actual
conversion, exercise, or satisfaction of certain conditions for which the
underlying potential common shares were antidilutive shall be included in
the computation as outstanding common shares from the date of conversion,
exercise, or satisfaction of those conditions, respectively. Therefore,
there is no difference in the earnings or the number of basic or diluted
shares.

The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the
financial statements.

Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------ ------------

For the year ended March 31, 2005:
Basic EPS
Net loss to common Shareholders $ (229,936) 22,581,814 $ (0.01)
For the year ended March 31, 2004: ============ ============ ============
Basic EPS
Net loss to common Shareholders $ (237,790) 21,089,812 $ (0.01)
For the year ended March 31, 2003: ============ ============ ============
Basic EPS
Net loss to common Shareholders $ (232,647) 18,907,958 $ (0.01)
============ ============ ============

</Table>

FOREIGN CURRENCY

The Company conducts the majority of its operations in the Republic of El
Salvador, Central America. Currently, El Salvador is on the U.S. dollar
system and therefore all receipts and expenditures since January 1, 2001
are in U.S. dollars.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year amounts to conform
to the current year presentations. The Company changed the amounts
classified as general & administrative expense from amounts previously
recorded as mining resources.

(3) Investment in Property, Plant, Equipment and Mining Resources
- -----------------------------------------------------------------

The following is a summary of the investment in property, plant, equipment,
mining resources and development costs:

March 31, 2005 March 31, 2004
---------------------------------- -----------------------------------
Accumulated Accumulated
Depre- Depre-
Cost ciation Net Cost ciation Net
----------- ---------- ----------- ----------- ---------- -----------

Mineral
Properties
and Deferred
Development $31,150,207 - $31,150,207 $29,092,782 - $29,092,782

Property,
Plant and
Equipment 6,680,019 2,252,143 4,427,876 6,585,271 2,252,143 4,333,128
----------- ---------- ----------- ----------- ---------- -----------
$37,830,226 $2,252,143 $35,578,083 $35,678,053 $2,252,143 $33,425,910
=========== ========== =========== =========== ========== ===========
</Table>

Vehicles, office, mining and laboratory equipment, buildings, etc. are
stated at cost and are depreciated using the straight-line method over
estimated useful lives of three to ten years. Maintenance and repairs are
charged to expense as incurred. Since the Joint Venture suspended
operations in view of the weak price of gold and the need to expand the
SCMP facilities, no depreciation has been recorded during the following
fiscal years. The Company is maintaining the property and equipment and
will begin to depreciate them once operations commence again.

(4) COMMERCE/SANSEB JOINT VENTURE ("JOINT VENTURE")
- ---------------------------------------------------

The Company is in a joint venture with and owns 82 1/2% of the total common
stock (2,002,037 shares) of Sanseb, a U.S. State of Nevada chartered (1968)
corporation. The balance of Sanseb's stock is held by approximately 180
non-related shareholders, including the President of the Company who owns
2,073 common shares. Sanseb was formed in 1968 to explore, exploit,
research, and develop adequate gold reserves. Sanseb produced gold from
the SSGM from 1972 through February 1978.

On September 22, 1987, the Company and Sanseb entered into a joint venture
agreement to formalize their relationship with respect to the mining
venture and to account for the Company's substantial investment in Sanseb.
Under the terms of the agreement, the Company is authorized to supervise
and control all of the business affairs of the Joint Venture and has the
authority to do all that is necessary to resume mining operations at the
SSGM on behalf of the Joint Venture. The net pre-tax profits of the Joint
Venture will be distributed as follows: Company 90%; and Sanseb 10%.
Since the Company owns 82 1/2% of the authorized and issued common shares
of Sanseb, the Company in effect has over a 98% interest in the Joint
Venture activities.

The joint venture agreement further provides that the Company has the right
to be compensated for its general and administrative expenses in connection
with managing the Joint Venture.

Under the joint venture agreement, agreements signed by the Company for the
benefit of the Joint Venture create obligations binding upon the Joint
Venture.

The Joint Venture is registered to do business in the State of Wisconsin
and in the Republic of El Salvador, Central America.

INVESTMENTS IN JOINT VENTURE

As of March 31, 2005, the Company's investments, including charges for
interest expense to the Joint Venture, were $48,953,121 and three of the
Company's subsidiaries' advances were $590,265 for a total of $49,543,386.

INVESTMENT IN EL SALVADOR MINING PROJECTS

During the fiscal year, the Company has advanced funds, performed services,
and allocated its general and administrative costs to the Joint Venture.

As of March 31, 2005 and 2004, the Company, Sanseb and three of the
Company's subsidiaries have invested (including carrying costs) the
following in its Joint Venture:

<Table>
<Caption>
2005 2004
------------ ------------

The Company's advances (net of gold sale proceeds)
since 09/22/87 $48,953,121 $44,295,125
The Company's initial investment in the Joint Venture 3,508,180 3,508,180
Sanseb's investment in the Joint Venture 3,508,180 3,508,180
Sanseb's investment in the mining projects and amount
due to the Company 38,822,252 36,340,906
------------ ------------
Total: 94,791,733 87,652,391
Advances by the Company's three subsidiaries 590,265 590,265
------------ ------------
Combined total investment $ 95,381,998 $ 88,242,656
============ ============

</Table>

SSGM ACTIVITY

The Company had no significant activity at the SSGM site from February 1978
through January 1987 due to the civil unrest in El Salvador. The present status
is that, the Company, since January 1987, and thereafter, the Joint Venture,
since September 1987, have completed certain of the required mining
pre-production preliminary stages in the minable and proven gold ore reserve
area, and the Company is active in attempting to obtain adequate financing for
the proposed open-pit, heap-leaching operations at the SSGM. The Joint Venture
plans to resume its exploration and expansion program to develop additional gold
ore reserves in the area surrounding the minable gold ore reserves. Presently,
it is completing the erection of its cone crushing system and performing minor
rehabilitation repairs to its San Cristobal Mill and Plant. On February 24,
2003, the Ministry of Economy's Director of El Salvador Department of
Hydrocarbons and Mines (DHM) granted an exploration concession referred to as
the "New SSGM" which area includes and encompasses the existing SSGM. Presently
the Company is in the process of exploring three of the formerly operated gold
mines. On May 25, 2004, the Government of El Salvador (GOES) granted another
exploration concession which is referred to as the "Nueva Esparta" and includes
eight formerly operated gold and silver mines. Exploration has commenced on the
Montemayor Mine.

MINERAL SAN SEBASTIAN S.A. DE C.V. ("MISANSE")

(A) MISANSE CORPORATE STRUCTURE

The SSGM real estate is owned by and leased to the Joint Venture by Misanse, a
Salvadoran-chartered corporation. The Company owns 52% of the total of
Misanse's issued and outstanding common shares. The balance is owned by
approximately 100 El Salvador, Central American, and United States' citizens.

(B) SSGM MINING LEASE

On January 14, 2003, the Company entered into an amended and renewed 30-year
lease agreement with Mineral San Sebastian Sociedad Anomina de Capital Variable
(Misanse) pursuant to the approval of the Misanse shareholders and Misanse
directors at a meeting held on January 12, 2003. The renewed lease is for a
period of thirty (30) years commencing on the date that the Company received its
Renewed San Sebastian Gold Mine Exploitation Concession/License, hereinafter
identified as the "Renewed SSGM," from the DHM. The lease is automatically
extendible for one or more equal periods. The Company will pay to Misanse for
the rental of this real estate the sum of five percent of the sales of the gold
and silver produced from this real estate, however, the payment will not be less
than $343.00 per month. The Company has the right to assign this lease without
prior notice or permission from Misanse. This lease is pledged as collateral
for loans made to related parties (Note 7).

RENEWED SAN SEBASTIAN GOLD MINE EXPLOITATION CONCESSION/LICENSE UNDER EL
SALVADOR AGREEMENT NUMBER 591 DATED MAY 20, 2004 AND DELIVERED ON JUNE 4, 2004
(RENEWED SSGM) - APPROXIMATELY 1.2306 SQUARE KILOMETERS (304 ACRES) LOCATED IN
THE DEPARTMENT OF LA UNION, EL SALVADOR, CENTRAL AMERICA

On September 6, 2002, at a meeting held with the El Salvadoran Minister of
Economy and the DHM, it was agreed to submit an application for the Renewed SSGM
for a 30-year term and to simultaneously cancel the concession obtained on July
23, 1987. On September 26, 2002, the Company filed this application. On
February 28, 2003 (received March 3, 2003) the DHM admitted to the receipt of
the application and the Company proceeded to file public notices as required by
Article 40 of the El Salvadoran Mining Law and its Reform (MLIR). On April 16,
2003, the Company's El Salvadoran legal counsel filed with the DHM notice that
it believed that it complied with the requirements of Article 40, and that there
were no objections; and requested that the DHM make its inspection as required
by MLIR Article 42. An inspection by the DHM was made. The Company then
provided a bond which was required by the DHM to protect third parties against
any damage caused from the mining operations, and it simultaneously paid the
annual surface tax. On August 29, 2003 the Office of the Ministry of Economy
formally presented the Company with a twenty-year Renewed SSGM which was dated
August 18, 2003. On May 20, 2004 (delivered June 4, 2004) the Government of El
Salvador under this Agreement Number 591 extended the exploitation concession
for a period of thirty (30) years. This Renewed SSGM replaces the collateral
that the same parties held with the previous concession.

NEW SSGM EXPLORATION CONCESSION/LICENSE UNDER EL SALVADOR RESOLUTION NUMBER 27
(NEW SSGM) - APPROXIMATELY 40.7694 SQUARE KILOMETERS (10,070 ACRES) LOCATED IN
THE DEPARTMENTS OF LA UNION AND MORAZAN, EL SALVADOR, CENTRAL AMERICA

On October 20, 2002, the Company applied to the Government of El Salvador
through the DHM for the New SSGM, which covers an area of 42 square kilometers
and includes approximately 1.2306 square kilometers of the Renewed SSGM. The
New SSGM is in the jurisdiction of the City of Santa Rosa de Lima in the
Department of La Union and in the Nueva Esparta in the Department of Morazan,
Republic of El Salvador, Central America. On February 24, 2003, the DHM issued
the New SSGM for a period of four years starting from the date following the
notification of this resolution which was received on March 3, 2003. The New
SSGM may be extended for two two-year periods, or for a total of eight years.
Besides the San Sebastian Gold Mine, the following three other formerly
operative gold and silver mines included in the New SSGM are being explored:
the La Lola Mine, the Santa Lucia Mine, and the Tabanco Mine.

NUEVA ESPARTA EXPLORATION CONCESSION/LICENSE (NUEVA ESPARTA) - 45 SQUARE
KILOMETERS (11,115 ACRES)

On or about October 20, 2002, the Company filed an application with the
Government of El Salvador through the DHM for the Nueva Esparta, which consists
of 45 square kilometers north and adjacent to the New SSGM. This rectangular
area is in the Departments of La Union (east) and Morazan (west) and in the
jurisdiction of the City of Santa Rosa de Lima, El Salvador, Central America.
On May 25, 2004 (received June 4, 2004) the Government of El Salvador under
Resolution Number 271 issued the exploration concession for a period of four
years with a right to request an additional four year extension. An important
observation is that these mines form a belt of mineralization following a fault
line from the SSGM to the Montemayor Mine for a distance of approximately five
miles. Included in the Nueva Esparta are eight other formerly operated gold and
silver mines known as: the Grande Mine, the Las Pinas Mine, the Oro Mine, the
Montemayor Mine, the Baradero Mine, the Carrizal Mine, the La Joya Mine and the
Copetillo Mine.

EL SALVADOR MINERAL PRODUCTION FEES

As of July 2001, a series of revisions to the El Salvador Mining Law offer to
make exploitation more attractive. The principal change is that the fee has
been reduced to two percent of the gross gold and silver receipts. The Company
believes that it is in compliance with the new law, and plans to file
applications for all of the mining concessions in which it has an interest.

SCMP LAND AND BUILDING LEASE

On November 12, 1993, the Joint Venture entered into an agreement with
Corporacion Salvadorena de Inversiones ("Corsain"), an El Salvadoran
governmental agency, to lease for a period of ten years, approximately 166 acres
of land and buildings on which its gold processing mill, plant and related
equipment (the SCMP) are located, and which is approximately 15 miles west of
the SSGM site. The basic annual lease payment was U.S. $11,500, payable
annually in advance, unless otherwise amended, and subject to an annual increase
based on the annual United States' inflation rate. As agreed, a security
deposit of U.S. $11,500 was paid on the same date and this deposit was subject
to increases based on any United States' inflationary rate adjustments.

On April 26, 2004, a three-year lease, which includes an automatic additional
three-year extension subject to Corsain's review, was executed by and between
Corsain and the Company. This lease is retroactive to November 12, 2003 and the
monthly lease payments are $1,418.51 plus the El Salvadoran added value tax.
The lease is subject to an annual increase based on the U.S. annual inflationary
rate adjustments. The SCMP is strategically located to process ore from other
nearby mining projects.

MODESTO MINE

REAL ESTATE

The Company owns 63 acres of land which are a key part of the Modesto Mine that
is located near the city of El Paisnal, El Salvador. This real estate is
subject to a mortgage and promissory note and is pledged as collateral to
certain parties described in Note 7.

SAN FELIPE-EL POTOSI MINE ("POTOSI")

REAL ESTATE LEASE AGREEMENT

The Joint Venture entered into a lease agreement with the San Felipe-El Potosi
Cooperative ("Cooperative") of the city of Potosi, El Salvador on July 6, 1993,
to lease the real estate encompassing the San Felipe-El Potosi Mine for a period
of 30 years and with an option to renew the lease for an additional 25 years,
for the purpose of mining and extracting minerals.

MONTEMAYOR MINE

The Joint Venture has leased approximately 175 acres of land that it considers
to be the key mining property. The terms of the various leases are one year
with automatic renewal rights. This property is located 14 miles northwest of
the SCMP, six miles northwest of the SSGM, and about two miles east of the city
of San Francisco Gotera in the Department of Morazan, El Salvador.

(5) SYNOPSIS OF REAL ESTATE OWNERSHIP AND LEASES
- -------------------------------------------------

The Company's 52%-owned subsidiary, Misanse, owns the 1,470 acre SSGM site
located near the city of Santa Rosa de Lima in the Department of La Union, El
Salvador. Other real estate ownership or leases in El Salvador are as follows:
the Company owns approximately 63 acres at the Modesto Mine; and the Joint
Venture leases the SCMP land and buildings on which its mill, plant and
equipment are located. In addition, the Joint Venture has entered into a lease
agreement to lease approximately 675 acres based on the production of gold
payable in the form of royalties with a mining prospect in the Department of San
Miguel and it previously leased approximately 175 acres in the Department of
Morazan in the Republic of El Salvador. The Company also leases on a month-to-
month basis approximately 4,032 square feet of office space in Milwaukee,
Wisconsin.

(6) NOTES PAYABLE AND ACCRUED INTEREST
- ---------------------------------------

<Table>
<Caption>
03/31/05 03/31/04
------------ ------------

Related Parties

Mortgage and promissory notes to related parties,
interest ranging from one percent to four percent
over prime rate, but not less than 16%, payable
monthly, due on demand, using the Misanse lease,
real estate and all other assets owned by the
Company, its subsidiaries and the Joint Venture
as collateral. (Note 7) $11,364,188 $9,400,682

Other

Short-term notes and accrued interest (March 31,
2005, $134,179 and March 31, 2004, $112,579)
issued to other non related parties, interest
rates of varying amounts, in lieu of actual cash
payments and includes a mortgage on a certain
parcel of land pledged as collateral located in
El Salvador. 269,179 247,579
------------ ------------
Total: $ 11,633,367 $ 9,648,261
============ ============
</Table>

(7) RELATED PARTY TRANSACTIONS
- -------------------------------

The Company, in an attempt to preserve cash, had prevailed on its President
to accrue his salary for the past 24 years, including vacation pay, for a
total of $2,994,015 and $2,815,265 at March 31, 2005 and 2004,
respectively.

In addition, with the consent and approval of the Directors, the President
of the Company, as an individual and not as a Director or Officer of the
Company, entered into the following financial transactions with the
Company, the status of which is reflected as of March 31, 2005 and 2004:

The amount of cash funds which the Company has borrowed from its President
from time to time, together with accrued interest, amounts to $7,909,686
and $6,565,817 at March 31, 2005 and 2004, respectively. To evidence this
debt, the Company has issued to its President a series of open-ended,
secured, on-demand promissory notes, with interest payable monthly at the
prime rate plus two percent, but not less than 16% per annum.

The Company had borrowed an aggregate of $1,022,396 and $915,066 at March
31, 2005 and 2004, respectively, including accrued interest, from the
Company's President's Rollover Individual Retirement Account (ELM RIRA).
These loans are evidenced by the Company's open-ended, secured, on-demand
promissory note, with interest payable monthly at the prime rate plus four
percent per annum, but not less than 16% per annum.

On March 24, 2005, in order to reduce the Company's debt and to provide
liquidity to the ELM RIRA, the Company sold to the ELM RIRA, 500,000 of its
restricted common shares at a price of $.105 each for a total of $52,500.
The sale price of the common shares was no less favorable than the sales
price negotiated with other related and unrelated third parties during this
period of time.

In order to satisfy the Company's cash requirements from time to time, the
Company's President has sold or pledged as collateral for loans, shares of
the Company's common stock owned by him. In order to compensate its
President for selling or pledging his shares on behalf of the Company, the
Company has made a practice of issuing him the number of restricted shares
of common stock equivalent to the number of shares sold or pledged, plus an
additional number of shares equivalent to the amount of accrued interest
calculated at the prime rate plus three percent per annum and payable
monthly. The Company receives all of the net cash proceeds from the sale
or from the pledge of these shares. The Company did not borrow any common
shares during this fiscal year. The share loans, if any, are all in
accordance with the terms and conditions of Director-approved, open-ended
loan agreements dated June 20, 1988, October 14, 1988, May 17, 1989, and
April 1, 1990.

On February 16, 1987, the Company granted its President, by unanimous
consent of the Board of Directors, compensation in the form of a bonus in
the amount of two percent of the pre-tax profits realized by the Company
from its gold mining operations in El Salvador, payable annually over a
period of twenty years commencing on the first day of the month following
the month in which gold production commences.

The President, as an individual, and not as a Director or Officer of the
Company, presently owns a total of 467 Misanse common shares. There are a
total of 2,600 Misanse common shares issued and outstanding.

Also with the consent and approval of the Directors, a company in which the
President has a 55% ownership, General Lumber & Supply Co., Inc. (GLSCO),
entered into the following agreements, and the status is reflected as of
March 31, 2005:

The Company leased approximately 4,032 square feet on a month-to-month
basis for its corporate headquarters' office; the monthly rental charge was
$2,789. The same related company provides administrative services, use of
its vehicles, and other property, as required by the Company.

In lieu of cash payments for the office space rental and for the
consulting, administrative services, etc., these amounts due are added each
month to this related company's open-ended, secured, on-demand promissory
note issued by the Company.

In addition, this related company does from time to time use its credit
facilities to purchase items needed for itself or for the Joint Venture's
mining needs.

This related company has been issued an open-ended, secured, on-demand
promissory note which amounts to $1,659,754 and $1,262,390 at March 31,
2005 and 2004, respectively; the annual interest rate is four percent plus
the prime rate, but not less than 16%, and it is payable monthly.

The Company's Directors have consented and approved the following
transactions of which the status of each are reflected as of March 31, 2005
and 2004:

The President's wife's Rollover Individual Retirement Account (SM RIRA) has
the Company's open-ended, secured, on-demand promissory note in the sum
of $591,629 and $503,581 at March 31, 2005 and 2004, respectively, which
bears interest at an annual rate of prime plus three percent, but not less
than 16% and the interest is payable monthly.

The Directors also have acknowledged that the wife of the President is to
be compensated for her consulting fees due to her from October, 1, 1994
through September 30, 2000 or 72 months at $2,800 a month, and thereafter
at $3,000 per month. The Company owes her as an individual and as a
consultant, the sum of $363,600 and $327,600 at March 31, 2005 and 2004,
respectively, for services rendered from October 1994.

The Law Firm which represents the Company in which a son of the President
is a principal is owed the sum of $332,981.50 for 1,799.90 hours of legal
services rendered from July 1980 through March 31, 2005. By agreement on
the date of payment, these fees are to be adjusted to commensurate with the
current hourly fees charged by the Law Firm.

The son of the President and his son's wife have the Company's open-ended,
on-demand promissory note in the sum of $180,723 and $153,828 at March 31,
2005 and 2004, respectively, which bears interest at an annual rate of 16%
payable monthly.

The Directors, by their agreement, have deferred cash payment of their
Director fees beginning on January 1, 1981, until such time as the
Company's operations are profitable. Effective from October 1, 1996, the
Director fees are $1,200 for each quarterly meeting and $400 for attendance
at any other Directors' meeting. The Executive Committee Director fees are
$400 for each meeting. The Directors and Officers have an option to
receive cash at such time as the Company has profits and an adequate cash
flow, or to at any time exchange the amount due to them for the Company's
common shares. The Directors and Officers of the Company exercised their
option to receive a total of 293,334 common shares valued at $.105 a share
in lieu of any cash compensation for all amounts due to them as of March
31, 2005. In addition, during this period one Director received 65,952 of
the Company's common shares for consulting services valued at $6,925. The
Chairman/President does not receive any Director fees.

The Company advances funds, allocates and charges its expenses to the Joint
Venture. The Joint Venture in turn capitalizes all of these advances,
costs and expenses. When full production commences, these capitalized
costs will be charged as an expense based on a per unit production basis.
The Company also charges interest for its advances to the Joint Venture
which interest rate is established to be the prime rate quoted on the first
day of each month plus four percent and said interest is payable monthly.
This interest is eliminated from the consolidated statement of operations.
However, a separate accounting is maintained for the purpose of recording
the amount that is due to the Company from the Joint Venture.

COMPANY NET ADVANCES TO THE JOINT VENTURE
- -----------------------------------------

<Table>
<Caption>
2005 2004
Advances Charges Advances Charges
----------- ----------- ----------- -----------

Beginning balances $44,295,125 $27,200,167 $40,181,015 $23,751,735
March 31, 2005 advances 4,657,996 4,000,606 4,114,110 3,448,432
----------- ----------- ----------- -----------
Total Company advances 48,953,121 31,200,773 44,295,125 27,200,167
Advances by three of the
Company's subsidiaries 590,265 0 590,265 0
----------- ----------- ----------- -----------
Total net advances March 31, 2005 $49,543,386 $31,200,773 $44,885,390 $27,200,167
=========== =========== =========== ===========
</Table>

(8) COMMITMENTS
- ----------------

Reference is made to Notes 2, 4, 5, 6, 7, 10 and 12.

(9) INCOME TAXES
- -----------------

At March 31, 2005, the Company and its subsidiaries, excluding the Joint
Venture, have estimated net operating losses remaining in a sum of
approximately $6,397,280 which may be carried forward to offset future
taxable income; the net operating losses expire at various times to the
year of 2019.

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes. Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss, tax credit carry-forwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.

<Table>
<Caption>
March 31,
2005 2004
------------ ------------

Deferred Tax Assets:
Net Operating Loss Carry-forwards $ 2,175,000 $ 2,097,000
Valuation Allowance for Deferred Tax Assets (2,175,000) (2,097,000)
------------ ------------
Net Deferred Tax Assets: - -
============ ============

</Table>
64

(10) DESCRIPTION OF SECURITIES

A. COMMON STOCK

The Company's Wisconsin Certificate of Incorporation effective as of April
1, 1999 authorizes the issuance of 50,000,000 shares of common stock, $0.10
par value per share of which 23,823,734 shares were issued and outstanding
as of March 31, 2005. Holders of shares of common stock are entitled to
one vote for each share on all matters to be voted on by the shareholders.
Holders of common stock have no cumulative voting rights. Holders of
shares of common stock are entitled to share ratably in dividends, if any,
as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefore. In the event of a
liquidation, dissolution or winding up of the Company, the holders of
shares of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. Holders of common stock have no
preemptive rights to purchase the Company's common stock. There are no
conversion rights or redemption or sinking fund provisions with respect to
the common stock. All of the issued and outstanding shares of common stock
are validly issued, fully paid and non-assessable.

B. PREFERRED STOCK

There were no preferred shares issued and outstanding for the periods
ending March 31, 2005 or 2004.

The Company's Wisconsin Certificate of Incorporation authorizes the
issuance of 250,000 shares of preferred stock, $0.10 par value.

The preferred shares are issuable in one or more series. If issued, the
Board of Directors is authorized to fix or alter the dividend rate,
conversion rights (if any), voting rights, rights and terms of redemption
(including any sinking fund provisions), redemption price or prices,
liquidation preferences and number of shares constituting any wholly
unissued series of preferred shares.

C. STOCK OPTION ACTIVITY:

<Table>
<Caption>
03/31/05 03/31/04 03/31/03

Weighted Weighted Weighted
Option Average Option Average Option Average
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------

Outstanding, beg, yr., 210,000 $0.23 960,000 $0.21 670,000 $0.22
Granted 0 N/A 0 N/A 290,000 $0.19
Exercised 0 N/A (500,000) N/A 0 N/A
Forfeited 0 N/A (60,000) N/A 0 N/A
Expired (210,000) N/A (190,000) N/A 0 N/A
--------- -------- --------- -------- --------- --------
Outstanding, end of yr. 0 $0.00 210,000 $0.23 960,000 $0.21
========= ======== ========= ======== ========= ========

</Table>

There were no stock options issued or outstanding as of March 31, 2005.

D. STOCK RIGHTS - TO THE PRESIDENT

Reference is made to Note 7, Related Party Transactions, of the Company's
financial statements which disclose the terms and conditions of the share
loans to the Company by the President and the interest which is payable to
him by the Company's issuance of its restricted common shares.

Any share interest payable to the President is for shares loaned to the
Company and/or for such shares loaned or pledged for collateral purposes,
or for unpaid interest, from time to time, all in accordance with the terms
and conditions of Director-approved, open-ended loan agreements dated June
20, 1988, October 14, 1988, May 17, 1989 and April 1, 1990.

E. SHARE LOANS - OTHERS

A series of borrowings of the Company's common shares were made from time
to time under the provision that the owners would sell said shares as the
Company's designee, with the proceeds payable to the Company. In exchange,
the Company agreed to pay these shares loaned within 31 days or less by
issuing its restricted common shares, together with interest payable in
restricted common shares payable at a negotiated rate of interest normally
payable in advance for a period of one year. As of March 31, 2005, there
were no shares due to other parties for shares borrowed or for interest
payment.

F. S.E.C. FORM S-8 REGISTRATION

On June 10, 2002, the Company filed its fifth Securities and Exchange
Commission Form S-8 Registration Statement No. 333-90122 under the
Securities Act of 1933, and it registered 1,500,000 of the Company's $0.10
par value common shares for the purpose of distributing shares pursuant to
the plan contained in such registration. From the 1,500,000 shares
registered 1,281,245 shares were issued, and 281,755 shares remain to be
issued as of March 31, 2005.

G. COMMERCE GROUP CORP. EMPLOYEE BENEFIT ACCOUNT (CGCEBA)

This account was established for the purpose of compensating the Company's
employees for benefits such as retirement, severance pay, and all other
related compensation that is mandatory under El Salvadoran labor
regulations, and/or as determined by the Officers of the Corporation. The
Directors provide the Officers of the Company with the authority to issue
its common shares to the CGCEBA on an as needed basis. Under this plan,
payment can be made to any employee of the Company or the Company's
subsidiaries. The CGCEBA has sold some of the shares issued to this
account from time to time to meet its obligations primarily to its El
Salvadoran employees. As of April 1, 2004, 385,000 shares remained in the
account. 3,000 shares were sold, leaving a balance of 382,000 shares as of
March 31, 2005.

(11) LITIGATION
- ----------------

There is no known pending litigation.

(12) CERTAIN CONCENTRATIONS AND CONCENTRATIONS OF CREDIT RISK
- --------------------------------------------------------------

The Company is subject to concentrations of credit risk in connection with
maintaining its cash primarily in two financial institutions for the
amounts in excess of levels. One is insured by the Federal Deposit
Insurance Corporation. The other is an El Salvadoran banking institution
which the Company uses to pay its El Salvadoran obligations. The Company
considers the U.S. institution to be financially strong and does not
consider the underlying risk at this time with its El Salvadoran bank to be
significant. To date, these concentrations of credit risk have not had a
significant effect on the Company's financial position or results of
operations.

The Company is not subject to credit risk in connection with any hedging
activities as it has not hedged any of its gold production. If the Company
changes its policies, then it will only use highly-rated credit worthy
counterparties, therefore it should not anticipate non-performance.

(13) COMMITMENTS AND CONTINGENCIES
- ----------------------------------

ENVIRONMENTAL COMPLIANCE

Based upon current knowledge, the Company believes that it is in compliance
with the U.S. and El Salvadoran environmental laws and regulations as
currently promulgated. However, the exact nature of environmental control
problems, if any, which the Company may encounter in the future cannot be
predicted, primarily because of the increasing number, complexity and
changing character of environmental requirements that may be enacted or of
the standards being promulgated by governmental authorities.

ENVIRONMENTAL GUARANTEES

In connection with the issuance of environmental permits, the Company has
provided the Government of El Salvador with the following guarantees on
September 27, 2002: three-year guarantees were issued by the Banco
Agricola, S.C. on behalf of the Company to the Ministry of Environment and
Natural Resources; Guarantee No. 1901-0000059-8 was issued for the San
Cristobal Mill and Plant in the sum of $771.49; and Guarantee No. 1901-
0000058-7 was issued for the Renewed SSGM Exploitation Concession/License
in the sum of $14,428.68.

In connection with the Renewed SSGM Exploitation Concession/License, on
July 15, 2003 a one-year, third party liability guarantee (bond) in the sum
of $42,857.14 was issued by Compania Anglo Salvadorena de Seguros, S.A.
(Anglosal) on behalf of the Company to the Ministry of Economy's Office of
the Department of Hydrocarbons and Mines. The Company pledged its SSGM
laboratory real estate as collateral to Anglosal for the issuance of the
bond. On August 24, 2004 the bond was renewed and will expire on July 15,
2005, unless it is renewed.

The El Salvadoran Environmental Law, Decree No. 233, 1998 and the General
Regulation of the Environmental Law specify the following:

- An environmental permit from the Ministry of Environment and
Natural Resources (MARN) based on the approval of an
Environmental Impact Assessment, is required for exploration,
exploitation and industrial processing of minerals and fossil
fuels;
- The environmental permit requires the company to implement
prevention, minimization or compensation measures established in
the environmental management program, which is a component of the
Environmental Impact Assessment;
- A financial security (bond) is required that covers the total
cost of the facilities or investment required to comply with the
environmental management plans included in the Environmental
Impact Assessment.

Numeric standards for ambient air quality; emissions from fixed sources;
maximum environmental noise levels; water quality and effluent limits are
specified in various norms and regulation, including the Special Regulation
of Technical Norms for Environmental Quality Decree No. 40, and the Special
Regulations of Wastewater Decree No. 39.

The El Salvadoran Department of Hydrocarbons and Mines (DHM) requires
environmental permits to be issued in connection with the application of
the Renewed SSGM. The issuance of these permits is under the jurisdiction
of the El Salvador Ministry of Environment and Natural Resources Office
(MARN). On October 15, 2002, MARN issued an environmental permit under
Resolution 474-2002 for the SCMP. On October 20, 2002, MARN issued an
environmental permit under Resolution 493-2002 for the Renewed SSGM
Exploitation area.

LEASE COMMITMENTS

The month-to-month lease of its offices is described in note (7) Related
Party Transactions of the Notes to the Consolidated Financial Statements.
The lease of the SCMP and other mining leases are described in note (4)
Commerce/Sanseb Joint Venture ("Joint Venture") and in note (5) Synopsis of
Real Estate Ownership and Leases of the Notes to the Consolidated Financial
Statements.

CONFIRMATION AGREEMENTS

The Company, with Directors' approval, as of the end of each fiscal year,
enters into confirmation agreements with Edward L. Machulak as an
individual, and not as a Director or Officer of the Company, the Edward L.
Machulak Rollover Individual Retirement Account, General Lumber & Supply
Co., Inc., and Sylvia Machulak as an individual and for the Sylvia Machulak
Rollover Individual Retirement Account, to acknowledge the amount due, the
collateral pledged, and other pertinent facts and understandings between
the parties. These agreements are filed annually as exhibits to the SEC
Form 10-K.

INTERCOMPANY TRANSACTIONS AND OTHER TRANSACTIONS

In addition to the transactions between the Company and General Lumber, and
certain individuals who also are Directors and Officers of the Company and
between the Company and its Officers, Directors and affiliates, the Company
has had transactions with its subsidiaries, San Luis Estates, Inc.,
Universal Developers, Inc., Homespan Realty Co., Inc., Ecomm Group Inc.,
San Sebastian Gold Mines, Inc., Mineral San Sebastian S.A. de C.V., and
substantial transactions with the Commerce/Sanseb Joint Venture.

The Company advances funds, allocates expenses, and charges for
disbursements made to the Joint Venture. The Joint Venture in turn
capitalizes all of these advances, allocations, expenses, and
disbursements.

The Company has adopted a policy to maintain a separate accounting of the
amount due to it from Sanseb and the Joint Venture. This independent
accounting will be maintained by the Company to reflect its investment and
the amount due to it. This record will become the official document for
future Joint Venture cash distributions. All of the advances and interest
earned will be paid to the Company before the distribution to others of any
of the Joint Venture's profits or cash flow.

The Company maintains a separate accounting for the funds or credits
advanced to the Joint Venture and for the interest charged which is at the
prime rate quoted on the first business day of each month plus four percent
and said interest is payable monthly. These advances, together with
interest, are to be paid to the Company prior to the distribution of any of
the Joint Venture profits, and are reflected as follows:

Company Net Advances to the Joint Venture
- -----------------------------------------
<Table>
<Caption>
Total Interest
Advances Charges
------------ ------------

Balance March 31, 2005 $44,295,125 $27,200,167
Advances during fiscal year ended
March 31, 2005 4,657,996 4,000,606
------------ ------------
Total Company's net advances 48,953,121 31,200,773
Advances by threes of the Company's
subsidiaries 590,265 0
------------ ------------
Total net advances as of March 31, 2005 $ 49,543,386 $ 31,200,773
============ ============
</Table>

(14) BUSINESS SEGMENTS
- ----------------------

The Statement of Financial Accounting Standards No. 131 (SFAS 131),
Disclosures about Segments of an Enterprise and Related Information became
effective for fiscal years beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises
determine operating segments and report information about those segments in
annual financial statements. SFAS 131 also requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS 131 further establishes standards for
related disclosure about products and services, geographic areas, and major
customers.

The Company presently has two reportable segments: mining and other. The
mining segment was engaged in the exploration of precious metals. The
mining processing is temporarily suspended. The other segments are those
activities that are combined for reporting purposes. There were no
reportable activities in the Internet business; no income and no expenses
were recorded.

<Table>
<Caption>
Mining *1 El Salvador, Corporate
Central America Headquarters
------------------ ------------------

Year ended March 31, 2005
Sales and revenues $ 0 $ 0
Depreciation & amortization 0 0
Operating income (loss) 0 (229,936)
Total assets 36,286,379 232,197
Capital expenditures 2,152,172 0
Year ended March 31, 2004
Sales and revenues $ 0 $ 0
Depreciation & amortization 0 0
Operating income (loss) 0 (237,790)
Total assets 34,169,935 249,446
Capital expenditures 1,861,353 0
Year ended March 31, 2003
Sales and revenues $ 0 $ 0
Depreciation & amortization 0 0
Operating income (loss) 0 (232,647)
Total assets 32,277,568 222,582
Capital expenditures 806,764 0
</Table>

*1 Its major customer for the refining and purchase of gold is a refinery
located in the United States. The price of gold is dependent on the
world market price over which the Company, the refinery or any other
single competitor do not have control.

(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
- -----------------------------------------

The following is a tabulation of unaudited quarterly operating results for
2005 and 2004:

<Table>
<Caption>
Per Share Basic
Operating Net Diluted Net
Fiscal year ended 3/31/05 Revenues (Loss) Income/(Loss)
- ------------------------- ---------- ------------ ---------------

First quarter 6/30/04 $ 0 $ (50,586) $ (.0022)
Second quarter 9/30/04 $ 0 $ (59,783) $ (.0027)
Third quarter 12/31/04 $ 0 $ (50,586) $ (.0022)
Fourth quarter 3/31/05 $ 0 $ (68,981) $ (.0031)
---------- ------------ ---------------
$ 0 $ (229,936) $ (.0102)
========== ============ ===============
Fiscal year ended 3/31/05
- -------------------------
First quarter 6/30/03 $ 0 $ (57,070) $ (.0027)
Second quarter 9/30/03 $ 0 $ (54,691) $ (.0026)
Third quarter 12/31/03 $ 0 $ (59,448) $ (.0028)
Fourth quarter 3/31/04 $ 0 $ (66,581) $ (.0032)
- ------------------------- ---------- ------------ ---------------
$ 0 $ (237,790) $ (.0113)
========== ============ ===============
</Table>

(16) Uncertainties

The Company has experienced recurring operating losses since the gold
extraction operations have been placed on a hold status. The Company
has had no revenues during this phase and is therefore dependent upon
raising capital to continue operations. During the past 5 years, the
Company and its shareholders and officers have been unable to provide
the capital necessary to continue the operations of the Company and
the maintenance of the mine and related equipment. However, there is
no guarantee that the Company can continue to provide required capital
to keep the Company's assets maintained. If the Company was unable to
raise sufficient funds, the Company would be unable to pay the
employees maintaining its mining equipment in El Salvador, which could
result in loss of assets or impairment thereof. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.

Management believes it has sufficient reserves through loans from its
principal officer through interested accredited investors to continue
operations for the coming year. Management is also entertaining joint
venture opportunities, and other financing in order to generate
sufficient capital to begin the open pit heap leaching operation at
the San Sebastian Gold Mine.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------

There has been a change in the Company's certified public accountant which
resulted from the previous certified public accountant who audited and
certified the Company's March 31, 2004 financial statements not being
registered with the Public Company Accounting Oversight Board (PCAOB) as is
required by Section 102 of the Sarbanes-Oxley Act of 2002. Therefore, the
financial statements for the Company's fiscal year ended March 31, 2004
were regarded as being incomplete. In order to correct the deficiency, the
Company on January 18, 2005 engaged a certified public accountant from Las
Vegas, Nevada. The Company on January 21, 2005 filed an 8-K notifying that
the previous accountant resigned and that the Company engaged its new
independent account. The March 31, 2004 audit report prepared by the
previous accountant did not contain an adverse opinion or was qualified or
modified as to uncertainty audit scope or accounting principles. There
were no disagreements with the previous accountant on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure.

After a lapse of time and upon preliminary review of the Company's
financial records the new Las Vegas accountant explained that his firm did
not have the capacity and time to audit the Company's financial statements
within the due date time frame. This CPA firm referred the Company to
Chisholm, Bierwolf & Nilson, LLC, Certified Public Accountants. On May 6,
2005, the Company filed with the U.S. Securities and Exchange Commission a
Form 8-K explaining that on May 2, 2005 it engaged the accounting firm of
Chisholm, Bierwolf & Nilson, LLC as independent certified accountants and
simultaneously accepted the resignation of the Las Vegas accounting firm.
For more details, reference is made to SEC Form 8-Ks filed on January 21,
2005 and May 6, 2005.

ITEM 9(A). CONTROLS AND PROCEDURES
- -----------------------------------

Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures," as defined by regulations of the
Securities and Exchange Commission ("SEC"), means controls and other
procedures that are designed to ensure that information required to be
disclosed in the reports that the Company files or submits to the SEC under
the Securities Exchange Act of 1934, as amended (the "Act"), is recorded,
processed, summarized and reported, within the time periods specified in
the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it
files or submits to the SEC under the Act is accumulated and communicated
to the Company's management, including its principal executive officer and
its principal financial officer, as appropriate to allow timely decisions
to be made regarding required disclosure. The Company's Chief Executive
Officer and Chief Financial Officer have evaluated the Company's disclosure
controls and procedures as of the end of the period covered by this Annual
Report on Form 10-K and have concluded that the Company's disclosure
controls and procedures are effective as of the date of such evaluation.

Changes in Internal Control Over Financial Reporting

The Company also maintains a system of internal controls. The term
"internal controls," as defined by the American Institute of Certified
Public Accountants' Codification of Statement on Auditing Standards, AU
Section 319, means controls and other procedures designed to provide
reasonable assurance regarding the achievement of objectives in the
reliability of the Company's financial reporting, the effectiveness and
efficiency of the Company's operations and the Company's compliance with
applicable laws and regulations. There have been no changes in the
Company's internal controls or in other factors during the fourth fiscal
quarter that could significantly affect the Company's internal control over
financial reporting.

ITEM 9(B). OTHER INFORMATION
- -----------------------------

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------

The information required by this item appears under the captions "Officers
and Directors," "Section 16(a) Beneficial Ownership Reporting Compliance"
and "Code of Ethics" included in the Company's definitive proxy statement
for the 2005 Annual Meeting to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year and is incorporated by reference
in this Annual Report on Form 10-K. Information regarding executive
officers and managers is contained in Part I of this report under "Item
4(a). Executive Officers and Managers of the Company."

ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------

The information called for by Item 11 is incorporated by reference from
information under the caption "Executive Compensation" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A no later
than 120 days after the close of its fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------

The information called for by Item 12 is incorporated by reference from
information under the captions "Security Ownership of Directors and
Management" and "Principal Shareholders" in the Company's definitive proxy
statement to be filed pursuant to Regulation 14A no later than 120 days
after the close of its fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------

The information called for by Item 13 is incorporated by reference from
information under the caption "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement to be filed
pursuant to Regulation 14A no later than 120 days after the close of its
fiscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
- ------------------------------------------------

The information called for by Item 14 is incorporated by reference from the
information under the caption "Fees to Independent Accountants" to be
included in the Company's definitive proxy statement to be filed pursuant
to Regulation 14A no later than 120 days after the close of its fiscal
year.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------

(A) FINANCIAL STATEMENTS AND SCHEDULES

See Index to Consolidated Financial Statements and Supplementary Financial
Data in Item 8 of this report.

Report of Independent Accountant on the Financial Statement Schedules 80

Schedule IV (1) Indebtedness of Related Parties 81

Schedule IV (2) Indebtedness to Related Parties 83

(B) REPORTS ON FORM 8-K

The Form 8-K reports filed during the three months ended March 31, 2005 and
subsequently filed are as follows:

On January 21, 2005, the Company filed a S.E.C. Form 8-K explaining why the
Company changed its certified public accountant. The decision was made
because the CPA who certified the March 31, 2004 financial statements was
not registered as is required with the Public Company Accounting Oversight
Board (PCAOB). Section 102 of the Sarbanes-Oxley Act of 2002 made it
unlawful after October 22, 2003 for any U.S. public accounting firm or
person associated with a U.S. public accounting firm that is not registered
with the PCAOB to prepare, issue or to participate in the preparation or
issuance of any audit report with respect to any issuer.

On May 6, 2005, the Company filed a S.E.C. Form 8-K to report the
engagement of its newly registered certified public accountant.

The exhibit numbers noted by an asterisk (*) indicate exhibits actually
filed with this Annual Report on Form 10-K. All other exhibits are
incorporated by reference into this Annual Report on Form 10-K.

Exhibit
No. Description of Exhibit
- ------- ----------------------

3.1 Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.(i) of the Company's S.E.C. Form 8-K filed
on April 13, 1999.)

3.2 By-laws of the Company. (Incorporated by reference to Exhibit
3.(ii) of the Company's S.E.C. Form 8-K filed on April 13,
1999.)

Exhibit
No. Description of Exhibit
- ------- ----------------------

3.3 The Articles of Amendment of the Wisconsin corporation increasing
the authorized shares to 50,000,000 common shares. (Incorporated
by reference to Exhibit 3.(iii) of the Company's S.E.C. Form 8-K
filed on April 13, 1999.)

3.4 The Articles of Merger from a Delaware corporation to a Wisconsin
corporation effective April 1, 1999 at 12:01 a.m. (Central Time).
(Incorporated by reference to Exhibit 2.(i) of the Company's
S.E.C. Form 8-K filed on April 13, 1999.)

3.5 A Certificate of Merger filed with the Office of the Secretary of
State of Delaware merging into a Wisconsin corporation.
(Incorporated by reference to Exhibit 2.(ii) of the Company's
S.E.C. Form 8-K filed on April 13, 1999.)

4 Instruments defining the rights of security holders, including
indentures.

9 Voting Trust Agreement--not applicable.

10 Material contracts.

10.1 Bonus compensation, Edward L. Machulak, February 16, 1987.
(Incorporated by reference to Exhibit 7 of the Company's Form
10-K for the year ended March 31, 1987.)

10.2 Loan Agreement and Promissory Note, Edward L. Machulak, June 20,
1988. (Incorporated by reference to Exhibit 10.2 of the Company's
Form 10-K for the year ended March 31, 1993.)

10.3 Loan Agreement and Promissory Note, Edward L. Machulak, October
14, 1988. (Incorporated by reference to Exhibit 10.3 of the
Company's Form 10-K for the year ended March 31, 1993.)

10.4 Loan Agreement and Promissory Note, Edward L. Machulak, May 17,
1989. (Incorporated by reference to Exhibit 10.4 of the Company's
Form 10-K for the year ended March 31, 1993.)

10.5 Loan Agreement and Promissory Note, Edward L. Machulak, April 1,
1990. (Incorporated by reference to Exhibit 10.5 of the Company's
Form 10-K for the year ended March 31, 1993.)

10.6 Letter Agreement, Edward L. Machulak, October 10, 1989.
(Incorporated by reference to Exhibit 10.6 of the Company's Form
10-K for the year ended March 31, 1993.)

Exhibit
No. Description of Exhibit
- ------- ----------------------
10.7 Loan Agreement and Promissory Note dated January 19, 1994.
(Incorporated by reference to Exhibit 10.10 of the Company's Form
10-K for the year ended March 31, 1995.)

10.8 John E. Machulak and Susan R. Robertson, Loan Agreement and
Promissory Note dated June 3, 1994. (Incorporated by reference
to Exhibit 10.14 of the Company's Form 10-K for the year ended
March 31, 1995.)

10.9 Lillian M. Skeen, Loan Agreement and Open Ended On Demand
Promissory Note dated June 26, 1997. (Incorporated by reference
to Exhibit 10.9 of the Company's Form 10-K for the year ended
March 31, 1998.)

10.10 Robert C. Skeen, Loan Agreement and Open Ended On Demand
Promissory Note dated June 26, 1997. (Incorporated by reference
to Exhibit 10.10 of the Company's Form 10-K for the year ended
March 31, 1998.)

10.11 Robert C. Skeen, Loan Agreement and Open Ended On Demand
Promissory Note dated January 20, 1998. (Incorporated by
reference to Exhibit 10.11 of the Company's Form 10-K for the
year ended March 31, 1998.)

10.12 John E. Machulak and Susan R. Robertson, Loan Agreement and Open
Ended On Demand Promissory Note dated March 6, 1998.
(Incorporated by reference to Exhibit 10.12 of the Company's Form
10-K for the year ended March 31, 1998.)

10.13 Lillian M. Skeen, Loan Agreement and Open Ended On Demand
Promissory Note dated May 21, 1998. (Incorporated by reference to
Exhibit 10.13 of the Company's Form 10-K for the year ended March
31, 1998.)

10.14 Edward A. Machulak, Loan Agreement and Open Ended On Demand
Promissory Note dated March 6, 1998. (Incorporated by reference
to Exhibit 10.14 of the Company's Form 10-K for the year ended
March 31, 1999.)

10.15 Three-year lease agreement by and between the Company and
Corporacion Salvadorena de Inversiones ("Corsain"), an El
Salvadoran governmental agency, covering the real estate known as
the San Cristobal Mill and Plant (SCMP) executed on April 26,
2004, retroactive to November 13, 2003. (Incorporated by
reference to Exhibit 10.15 of the Company's Form 10-K for the
year ended March 31, 2004.)

11* Schedule of Computation of Net Income Per Share

21* Subsidiaries and Joint Venture of the Company

23.1* Consent of Independent Certified Public Accountants Chisholm,
Bierwolf & Nilson, LLC

Exhibit
No. Description of Exhibit
- ------- ----------------------

31.1* Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13(a)-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of Executive Vice President and Secretary pursuant
to Rule 13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

32.1* Certification of Chief Executive Officer and Chief Financial
Officer pursuant to U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

32.2* Certification of Executive Vice President and Secretary pursuant
to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

99.0 Additional Exhibits

99.1* Confirmation agreement, General Lumber & Supply Co., Inc., May 9,
2005.

99.2* Confirmation Agreement, Edward L. Machulak, May 9, 2005.

99.3* Confirmation Agreement, Edward L. Machulak Rollover Individual
Retirement Account, May 9, 2005.

99.4* Confirmation Agreement, Sylvia Machulak as an individual and for
her Rollover Individual Retirement Account, May 9, 2005.

99.5 Concession Agreement Assignment to the Company by Misanse
(Incorporated by reference to Exhibit 1 of the Company's Form
10-K for the year ended March 31, 1988.)

99.6 S.E.C. Form S-8 Registration Statement No. 333-90122 filed under
the Securities Act of 1933, as amended and declared effective
June 10, 2002, registering one and one-half million of its common
shares, ten cents par value. (Incorporated by reference as this
S.E.C. Form S-8 Registration Statement had been filed on June 10,
2002.) 281,755 shares remain to be issued as of March 31, 2005.

99.6(a) Consent of Independent Certified Public Accountant to incorporate
by reference in the S.E.C. Form S-8 Registration Statement No.
333-90122 filed under the Securities Act of 1933 as amended and
declared effective June 10, 2002 the Certified Public
Accountant's report dated May 10, 2004 relating to the financial
statements of the Company for the years ended March 31, 2004 and
2003.

Exhibit
No. Description of Exhibit
- ------- ----------------------

99.7 Individual financial statements of majority-owned companies have
been omitted because most of these companies are inactive and do
not constitute a significant or material contribution to the
Company.

</Table>
78

COMMERCE GROUP CORP.
FORM 10-K - MARCH 31, 2005

PART IV

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on July 5,
2005.

COMMERCE GROUP CORP.
(Company)

By: /s/ Edward L. Machulak
---------------------------------
Edward L. Machulak
Chairman of the Board of Directors,
Member of Executive Committee,
Member of Audit Committee
Director-Emeritus, President, Treasurer,
Chief Executive, Operating and Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons, on behalf of the
Company and in the capacities and on the dates indicated:

<Table>
<Caption>
Name Office Date
- --------------------- ---------------------------- --------------

/s/ Edward L. Machulak
- ----------------------
Edward L. Machulak Chairman of the Board of Directors, July 5, 2005
Member of Executive Committee,
Member of Audit Committee,
Director-Emeritus, President,
Treasurer, Chief Executive, Operating
and Financial Officer

/s/ Edward A. Machulak
- ----------------------
Edward A. Machulak Director, Member of Executive Committee,
Director-Emeritus, Executive Vice
President and Secretary July 5, 2005

/s/ Sidney Sodos
- ----------------------
Sidney Sodos Director July 5, 2005

/s/ John H. Curry
- ----------------------
John H. Curry Director and Member of Audit
Committee July 5, 2005

</Table>
79

COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES

SCHEDULE IV (1)
INDEBTEDNESS OF RELATED PARTIES - NON CURRENT
YEARS ENDED MARCH 31, 2005, 2004, AND 2003

Commerce/Sanseb Joint Venture (Joint Venture)
<Table>
<Caption>
Beginning of Additions to Deletions to Balance at End
Name of Person (1) Period (3) Indebtedness(2) Indebtedness of Period (3)
- ----------------- ------------ --------------- ------------ --------------

Year ended March 31, 2005
Joint Venture $44,885,391 $4,657,996 $0 $48,953,121

Year ended March 31, 2004
Joint Venture $40,771,280 $4,114,110 $0 $44,885,390

Year ended March 31, 2003
Joint Venture $37,320,188 $3,451,092 $0 $40,771,280
</Table>

(1) Commerce Group Corp. (90% ownership) and San Sebastian Gold Mines,
Inc. (10% ownership), Joint Venture ("Joint Venture"); includes the
advances from three of the Company's subsidiaries.

(2) The purpose of the advances is to continue the exploration,
exploitation and development of the SSGM and the other mining
prospects and activities managed by the Joint Venture which are
located in the Republic of El Salvador, Central America. Also, funds
were used to retrofit, rehabilitate, repair and to renovate the San
Cristobal Mill and Plant acquired by the Joint Venture for the purpose
of producing gold. The standby maintenance and holding costs are also
included. The addition to indebtedness is netted to include any
adjustments for payments or credits.

(3) Beginning with September 30, 1987, the total indebtedness includes the
advances of $590,265 from three of the Company's subsidiaries.

San Sebastian Gold Mines, Inc. (SSGM)
- -------------------------------------
<Table>
<Caption>
Beginning of Additions to Deletions to Balance at End
Name of Person (1) Period (3) Indebtedness(2) Indebtedness of Period (3)
- ----------------- ------------ --------------- ------------ --------------

Year ended March 31, 2005
SSGM $36,340,906 $2,481,346 $0 $38,822,252

Year ended March 31, 2004
SSGM $34,160,023 $2,180,883 $0 $36,340,906

Year ended March 31, 2003
SSGM $31,989,058 $2,170,965 $0 $34,160,023
</Table>

(1) San Sebastian Gold Mines, Inc. (SSGM) in which Commerce Group Corp.
owns 82 1/2% of its issued and outstanding common shares.

(2) The advances to SSGM primarily consist of the interest due to the
Company on SSGM's outstanding indebtedness.

This Page Left Blank Intentionally.

COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES

SCHEDULE IV(2)
INDEBTEDNESS TO RELATED PARTIES
CURRENT YEARS ENDED MARCH 31, 2005, 2004, AND 2003
<Table>
<Caption>
Balance at (Deletions)to Balance
Beginning Indebtedness at End
Identity of Debtor of Period (1) of Period
- ------------------ ------------ ------------ ------------

Year ended March 31, 2005
- -------------------------
President of the Company $6,565,817 $1,343,869(a) $7,909,686(a)
President's RIRA 915,066 107,330(b) 1,022,396(b)
President's Affiliated Company 1,262,390 397,365(c) 1,659,755(c)
President's Wife's RIRA 503,581 88,047(d) 591,628(d)
President's Son/Daughter-in-Law 153,828 26,895(d) 180,723(d)
---------- ---------- -----------
Total, notes payable $9,400,682 $1,963,506 $11,364,188
========== ========== ===========
President's Accrued Salary $2,815,265 $ 178,750(e) $ 2,994,015(e)
========== ========== ===========
President's Wife's Consulting Fees $ 327,600 $ 36,000(f) $ 363,600(f)
========== ========== ===========
Legal fees (President's son is
a principal) $ 327,015 $ 5,966(g) $ 332,981(g)
========== ========== ===========

Year ended March 31, 2004
President of the Company $5,521,516 $1,044,301(a) $6,565,817
President's RIRA 824,866 90,200(b) 915,066
President's Affiliated Company 1,120,442 141,948(c) 1,262,390
President's Wife's RIRA 429,391 74,190(d) 503,581
President's Son/Daughter-in-Law 131,165 22,663(d) 153,828
---------- ---------- --------------
Total, notes payable $8,027,380 $1,373,302 $ 9,400,682

President's Accrued Salary $2,636,515 $ 178,750(e) $ 2,815,265
President's Wife's Consulting Fees $ 291,600 $ 36,000(f) $ 327,600
========== ========== ==============
Legal fees (President's son
is a principal) $ 326,941 $ 74(g) $ 327,015
========== ========== ==============

Year ended March 31, 2003
President of the Company $4,643,856 $ 877,660(a) $ 5,521,516
President's RIRA 703,647 121,219(b) 824,866
President's Affiliated Company 1,098,193 22,249(c) 1,120,442
President's Wife's RIRA 366,289 63,102(d) 429,391
Others 111,889 19,276(d) 131,165
---------- ---------- --------------
Total, notes payable $6,923,874 $1,103,506 $ 8,027,380
========== ========== ==============
President's Accrued Salary $2,457,765 $ 178,750(e) $ 2,636,515
========== ========== ==============
President's Wife's Consulting Fees $ 255,600 $ 36,000(f) $ 291,600
========== ========== ==============
Legal fees (President's
son is a principal) $ 314,804 $ 12,137(g) $ 326,941
========== ========== ==============
</Table>
82

(1)(a)(b) The net additions to the open-ended, secured, on-demand
promissory notes issued to the President of the Company, as an
individual, and not as a Director or Officer of the Company, and
his RIRA are from net cash advances and/or accrued interest.

The President's RIRA on March 24, 2005 purchased 500,000 of the
Company's restricted common shares, par value $.10, at a price of
$.105 each, for a total of $52,500. Payment for this purchase
was made by reducing the amount of debt due to the RIRA.

(1)(c) The President owns 55% of an Affiliated Company's common shares.
The additions to the open-ended, secured, on-demand promissory
note issued to an Affiliated Company result from cash advances,
accrued interest, accrued office rent, vehicle rental, computer
use and other expenses incurred on behalf of the Company.

(1)(d) The additions resulted from accrued interest earned during the
fiscal year.

(1)(e) The President's salary of $165,000 was accrued for the entire
fiscal year. In addition, the Directors, pursuant to a
resolution, compensated the President in the sum of $13,750 for
one month's vacation pay.

(1)(f) Twelve months of consulting fees at $3,000 per month for a total
of $36,000.

(1)(g) The addition of the amounts due to the Law Firm results for legal
services rendered during this period.