SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
|_| Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-31380
ATLAS MINING COMPANY.
---------------------
(Exact name of registrant as specified in its charter)
Idaho 82-0096527
----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 East Mullan Avenue, Osburn, Idaho 83849
--------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(208) 556-1181
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Issuer's telephone number, including area code
Former name, former address and formal fiscal year, if changed since
last report: N/A
Indicate by check 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 /_/
The number of shares outstanding of each of the issuer's classes of
common equity as of August 12, 2005 was as follows: 48,177,097 shares of
Common Stock.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
ATLAS MINING COMPANY
SECOND QUARTER 2005 REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheet
June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations
Three Months Ended June 30, 2005 and 2004, Six Months
Ended June 30, 2005 and 2004. . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004 . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Certification under Sarbanes-Oxley Act of 2002 . . . . . . . . . . . . . 22
Atlas Mining Company
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
2005 2004
------------ ------------
(unaudited)
Current Assets
Cash $ 3,276,808 $ 206,635
Accounts receivable (net of allowance of $0) - 273,014
Investments - available for sale 19,538 19,538
Advances - -
Deposits and Prepaids 27,426 65,738
Advances - related party - -
------------ ------------
Total Current Assets 3,323,772 564,925
Property and Equipment, Net 879,632 849,746
Other Assets
Dragon Mine Capitalized Costs - -
Mining supplies 9,000 9,000
------------ ------------
Total Other Assets 9,000 9,000
------------ ------------
Total Assets $ 4,212,404 $ 1,423,671
============ ============
The accompanying notes are an integral part of these financial statements
3
Atlas Mining Company
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
June 30, December 31,
2005 2004
------------ ------------
(unaudited)
Current Liabilities
Accounts payable and accrued liabilities $ 97,753 $ 304,925
Line of credit - -
Current portion of long-term debt 418,685 1,031,672
------------ ------------
Total Current Liabilities 516,438 1,336,597
Long-Term Liabilities
Notes payable 58,421 811,373
Notes payable - related party 389,332 250,354
Less: current portion of long-term debt (418,685) (1,031,672)
------------ ------------
Total Long-Term Liabilities 29,068 30,055
Minority Interest 52,649 52,649
Stockholders' Equity
Preferred stock, $1.00 par value, 10,000,000
shares authorized, noncumulative, nonvoting,
nonconvertible, none issued or outstanding - -
Common stock, no par value, 60,000,000 shares
authorized, 47,201,107 and 36,826,222 shares
issued and outstanding, respectively 12,251,167 6,006,657
Cost of treasury stock, 1,313,022 and 1,313,022
shares, respectively (131,221) 131,221)
Retained earnings (deficit) (7,748,371) (5,861,240)
Accumulated comprehensive income (loss) 174 174
Subscription Receivable (750,000) -
Prepaid expenses (7,500) (10,000)
------------ ------------
Total Stockholders' Equity 3,614,249 4,370
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,212,404 $ 1,423,671
============ ============
The accompanying notes are an integral part of these financial statements
4
Atlas Mining Company
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenues $ 15,105 $ 229,096 $ 158,478 $ 387,725
------------ ------------ ------------ ------------
Cost of Sales 174,155 186,928 488,259 312,002
------------ ------------ ------------ ------------
Gross Profit (Loss) (159,050) 42,168 (329,781) 75,723
------------ ------------ ------------ ------------
Operating Expenses
Exploration & development
costs 133,924 53,540 296,503 55,628
General & administrative 863,956 121,316 1,255,312 442,982
------------ ------------ ------------ ------------
Total Operating Expenses 997,880 174,856 1,551,815 498,610
------------ ------------ ------------ ------------
Net Operating Income (Loss) (1,156,930) (132,688) (1,881,596) (422,887)
------------ ------------ ------------ ------------
Other Income(Expense)
Interest income 349 28 515 29
Interest expense (6,299) (12,492) (39,483) (23,526)
Miscellaneous Income 5 - 6 -
Minority Interest 3 - 3 -
Gain (loss) on sale of
investments available for
sale - - - 1,489
Gain (loss) on settlement of
debt 33,424 - 33,424 -
------------ ------------ ------------ ------------
Total Other Income(Expense) 27,482 (12,464) (5,535) (22,008)
------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes (1,129,448) (145,152) (1,887,131) (444,895)
Provision (Benefit) for
Income Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) $(1,129,448) $ (145,152) $(1,887,131) $ (444,895)
============ ============ ============ ============
Net Income (Loss) Per Share $ (0.03) $ (0.00) $ (0.05) $ (0.01)
============ ============ ============ ============
Weighted Average Shares
Outstanding 42,960,089 36,980,055 41,906,265 36,343,391
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
Atlas Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(1,887,131) $ (444,895)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 54,011 6,623
Gain on sale of investments available for sale - (1,489)
Stock issued for services 862,966 281,650
Amortization - 5,000
Minority Interest - -
Gain on settlement of debt (33,424) -
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable 273,014 (111,775)
Deposits and Prepaids 40,812 (2,473)
Accounts payable and accrued expenses (207,172) 20,198
------------ ------------
Net Cash (Used) by Operating Activities (896,924) (247,161)
------------ ------------
Cash Flows from Investing Activities:
Purchases of equipment (83,897) (266,354)
Proceeds from advances - 149,870
Proceeds from sale of investments available
for sale - 1,921
Payments for advances - (100,000)
------------ ------------
Net Cash (Used) by Investing Activities (83,897) (214,563)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from notes payable - 39,660
Payments for notes payable (580,550) (4,984)
Payments for line of credit - (1,337)
Proceeds from subscription receivable - 440,000
Proceeds from issuance of common stock 4,631,544 -
------------ ------------
Net Cash Provided by Financing Activities 4,050,994 473,339
------------ ------------
Increase in Cash 3,070,173 11,615
Cash and Cash Equivalents at Beginning of Period 206,635 6,814
------------ ------------
Cash and Cash Equivalents at End of Period $ 3,276,808 $ 18,429
============ ============
The accompanying notes are an integral part of these financial statements.
6
Atlas Mining Company
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
2005 2004
------------ ------------
Cash Paid For:
Interest $ 39,483 $ 20,284
============ ============
Income Taxes $ - $ -
============ ============
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Stock issued for services $ 862,966 $ 281,650
============ ============
Stock issued for notes payable $ - $ -
============ ============
The accompanying notes are an integral part of these financial statements.
7
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
of the United States of America for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles of the United States
of America for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the December 31, 2004 audited financial statements and
notes thereto for Altas Mining Company and Subsidiary. The results of
operations for the periods ended June 30, 2005 and 2004 are not necessarily
indicative of the operating results for the full year.
a. Revenue and Cost Recognition
The Company recognizes income and expenses on the accrual basis of
accounting. Revenues from unit price contracts are recognized on the
units produced method which management considers the best available
measure of progress on contracts.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation costs. Costs
associated with the start-up of contracts are capitalized as deferred
contract costs and amortized to expense over the life of the contract.
General and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including
those arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are
recognized in the period in which revisions are determined.
Contract claims are included in revenue when realization is probable
and can be reliably estimated.
b. Bad Debts
Bad debts on receivables are charged to expense in the year the
receivable is determined uncollectible, therefore, no allowance for
doubtful accounts is included in the financial statements. Amounts
determined as uncollectible are not significant to the overall
presentation of the financial statements.
8
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Basis of Consolidation
The consolidated financial statements include the accounts of Park
Copper & Gold Mining Ltd. All significant inter-company accounts and
transactions have been eliminated in the consolidation.
d. Earnings (Loss) Per Share
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 quarter ended June 30, 2005:
Basic EPS
Net loss to common Shareholders $(1,887,131) 40,840,731 $ (0.05)
============ ============ ============
For the quarter ended June 30, 2004:
Basic EPS
Net loss to common Shareholders $ (444,895) 36,343,391 $ (0.01)
============ ============ ============
e. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents. The Company had
$3,176,808 in excess of federally insured amounts in its bank accounts
at June 30, 2005.
f. Income Taxes
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.
9
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Available for Sale Investments
Management determines the appropriate classification of marketable
equity security investments at the time of purchase and reevaluates
such designation as of each balance sheet date. Unrestricted
marketable equity securities have been classified as available for
sale. Available for sale securities are carried at fair value, with
the unrealized gains and losses, net of tax, reported as a net amount
in accumulated other comprehensive income. Realized gains and losses
and declines in value judged to be other-than-temporary on available
for sale securities are included in investment income or loss. The
cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available
for sale are included in investment income.
The following is a summary of available for sale equity securities
which are concentrated in companies in the mining industry:
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
June 30, 2005 $ 19,364 $ 174 $ - $ 19,538
December 31, 2004 $ 19,364 $ 174 $ - $ 19,538
h. Mining Supplies
Mining supplies, consisting primarily of bits, steel, and other mining
related equipment, are stated at the lower of cost (first-in, first-
out) or market. In addition, equipment repair parts and maintenance
items are also included at cost.
i. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements assets and
liabilities involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
10
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization is computed on the straight-line method over the
estimated useful lives of the assets as follows:
Estimated
Useful Life
------------
Building 39 years
Mining equipment 2-8 years
Office and shop furniture and equipment 5-8 years
Vehicles 5 years
In accordance with Financial Accounting Standards Board Statement No.
144, the Company records impairment of long-lived assets to be held
and used or to be disposed of when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount. At June 30, 2005 and
2004, no impairments were recognized. Depreciation expense for the
quarters ended June 30, 2005 and 2004 totaled $54,011 and $6,623,
respectively.
k. Financial Instruments
The recorded amounts of financial instruments, including cash
equivalents, receivables, investments, accounts payable and accrued
expenses, and long-term debt approximate their market values as of
June 30, 2005 and 2004. The Company has no investments in derivative
financial instruments.
l. Mining Exploration and Development Costs
The company has elected to expense all mining exploration and
development costs due to the uncertainty of bringing its projects into
production, and in accordance with generally accepted accounting
principles in the mining industry. At such a time as mining continues
in any of the Company's properties, the Company will capitalize costs
of successfully developing the properties, when future benefit of the
costs can be identified.
11
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Stock Options
The Company has stock option plans that provide for stock-based
employee compensation, including the granting of stock options, to
certain key employees. The plans are more fully described in Note 7.
The Company accounts for the stock option plans in accordance with the
recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations. Under this method, compensation expense is recorded
on the date of grant only if the current market price of the
underlying stock exceeds the exercise price.
During the periods presented in the accompanying financial statements
the Company has granted options under the 1998 Stock Options Plans.
The Corporation has adopted the disclosure-only provisions under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost under
SFAS No.123 has been recognized for the stock option plans or other
agreements in the accompanying statement of operations. Had
compensation cost for the Company's stock option plans and agreements
been determined based on the fair value at the grant date for awards
during the second quarter of 2005 and 2004 consistent with the
provisions of SFAS No. 123, the Company's net earnings net of taxes
and earnings per share would have been reduced to the pro forma
amounts indicated below:
2005 2004
------------ ------------
Net Loss
As reported $(1,887,131) $ (444,895)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method (101,100) -
------------ ------------
Proforma $(1,988,231) $ (444,895)
------------ ------------
Basic earnings per share
As reported $ (0.05) $ (0.01)
Proforma $ (0.05) $ (0.01)
NOTE 2 -GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company is
dependent upon raising capital to continue operations. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. It is management's plan to reduce the
Company's debt through a negotiated settlement with its major creditor
(see Note 6) and the initiation of the operations at the Dragon Mine.
The Company has been able to sell shares of its restricted stock to
help support its financing activities. Management believes settlement
of it debts, the mining operations, and the sale of stock will provide
sufficient cash flows to continue as a going concern.
12
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 3 - LONG-TERM LIABILITIES
Long- term liabilities are detailed in the following schedules:
June 30, December 31,
2005 2004
------------ ------------
Note payable to a company, due in monthly
payments of $1,000 with a balloon payment
due at maturity, including interest at 9%.
The note matured August 16, 2001, past due. $ - 53,455
Note payable to a lending company, due in
Monthly installments of $688, including
interest at 7.59%. The note matures in March
2010 and is collateralized by a vehicle. 32,813 35,630
Note payable to a lending company, due
in monthly installments of $578, including
interest at 11.99%. The note matured August
2003, secured by a vehicle, past due. - -
Note payable to a mortgage company, due in
monthly installments of $1,614, including
interest at 16%. The note is due in August
2005, secured by the proceeds of a logging
agreement and collateralized by land and a
building. - 118,920
Note payable to a lending company, balloon
payment due at maturity, bears interest at 8%
per month. The note is secured by land owned
by a related party and matured in March 2003,
past due. - 120,700
Note payable to a mortgage company, principal
due at maturity and bears interest at 3.5% per
month. The note matured in October 2003,
secured by property, past due. 25,608 86,100
Note payable to a lending company, principal
due at maturity and bears interest at 5% per
month. The note matured in May 2003, secured
by land, past due. - 345,508
13
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 3 - LONG-TERM LIABILITIES (Continued)
Long- term liabilities are detailed in the following schedules:
June 30, December 31,
2005 2004
------------ ------------
Note payable to a company, principal due at
maturity with no interest. The note matures in
May 2005. - 17,000
Note payable to a company, principal due at
maturity with interest at 10.2%. The note
matures in February 2005. - 34,060
------------ ------------
Total Notes Payable $ 58,421 $ 811,373
------------ ------------
Notes payable - related party:
Note payable to a company with a common officer,
payable on demand and bears no interest $ 314,556 $ 158,866
Note payable to an officer, payable on demand
and bears no interest. $ 74,776 $ 91,488
------------ ------------
Total Notes Payable - Related Party 389,332 250,354
------------ ------------
Total Long-Term Liabilities 447,753 1,061,727
Less Current Portion (29,353) (781,318)
Less Current Portion-Related Party (389,332) (250,354)
------------ ------------
Total Current Portion 418,685 1,031,672
------------ ------------
Total Long-Term Liabilities $ 29,068 $ 30,055
============ ============
Future minimum principal payments on notes payable are as follows at June
30, 2005:
2005 $ 389,332
2006 6,201
2007 6,688
2008 7,214
2009 7,781
Thereafter 1,997
------------
Total $ 419,213
============
14
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 4 -RELATED PARTY TRANSACTIONS
During 2005 and 2004, the Company paid advances to a company with a
common officer. The balance of the advances at June 30, 2005 and
December 31, 2004 was $0 and $0, respectively.
During 2005 and 2004, an officer loaned the Company $1,670 and
$34,659, respectively. During the first two quarters of 2005, the
Company paid off $18,382 in credit card receipts as partial payment
for the note. During 2004, the Company paid cash of $14,000 as
partial payment for the note. During 2003, the Company paid cash of
$1,009 and issued 1,000,000 shares of stock valued at $10,000 as
partial payment for the note. The balance of the note payable at June
30, 2005 and 2004 was $74,776 and $70,829, respectively.
NOTE 5 - COMMON STOCK AND STOCK OPTIONS
In 1998, the Company adopted a non-qualified stock option plan
authorizing the granting to officers, directors, or employees options
to purchase common stock. Options are granted by the Administrative
Committee, which is elected by the Board of Directors. The number of
options granted under this plan and any other plans active may not
exceed 10% of the currently issued and outstanding shares of the
Company's common stock. The term of each option granted is determined
by the Committee, but cannot be for more than five years from the date
the option is granted. The option price per share with each option
granted will be fixed by the Administrative Committee on the date of
grant.
The Company adopted an incentive stock option plan in 1998. The stock
option plan permits the Company to grant to key employees options to
purchase shares of stock in the Company at the direction of the
Committee. The price of shares purchased must be equal to or greater
than fair market value of the common stock at the date. At June 30,
2005, no options have been granted under this plan.
During 2004, the company's board of directors approved an option to
the Company's CEO to acquire up to 3.5 million shares of common stock
over a five year period at $0.18 per share under the non-qualified
stock option plan. The options vest 43% on January 1, 2005, and 14%
on January 1, 2006 -2009.
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model. Assumptions used to
compute the weighted-average grants during the quarter ended June 30,
2005 include risk-free interest rates of 2%, expected dividend yields
of 0%, expected life of 3 years, and expected volatility 150%. During
2004, the Company granted options to purchase up to 3.5 million of its
common shares with a calculated weighted average fair value of $0.13
each.
15
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2005
NOTE 5 - COMMON STOCK AND STOCK OPTIONS (Continued)
During the two quarters ended June 30, 2005 the Company sold a total
of 5,302,100 shares of restricted common stock at $0.908 per share for
a total of $4,243,123 cash.
During the two quarters ended June 30, 2005 the Company issued
2,003,790 shares of stock at prices ranging from $0.70 to $1.11 in
payment of $1,251,387 worth of services provided to the company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On July 10, 2001, the Company entered into an agreement to lease and
possibly purchase a mine in Juab County, Utah. The Company has the
sole option to renew the lease on an annual basis. The agreement
requires the lease payments be made through the issuance of 100,000
shares of the Company's common stock each year. In July 2004, the
Company issued 100,000 shares of common stock valued at $20,000 to
renew the lease. In July 2003, the Company issued 100,000 shares of
common stock valued at $10,000 to renew the lease. The Company has
the option to purchase the mine for $500,000 at anytime, or when it
sells $1,000,000 of product from the mine during a twelve month
period.
On February 16, 2005, a Settlement Agreement was entered into between
the Company and the court appointed receiver for American National
Mortgage Company regarding the resolution of approximately $711,174
principal debt owed by Atlas plus unpaid interest. According to the
agreement, Atlas is to pay $406,000 plus 175,000 shares of common
stock valued at $78,750. The agreement became effective upon approval
by the courts in April 2005. The Company paid the $406,000 on June
30, 2005 and has not yet issued the stock portion of the settlement
agreement. The Company settled an outstanding debt with Moss Adams,
LLP by making payments of $53,250 during the month of June 2005.
NOTE 7 SUBSEQUENT EVENTS
From July 1-8, 2005, the Company issued a total of 825,990 shares of
restricted stock for the payment of a $750,000 subscription
receivable. On July 7 8 the Company issued 100,000 shares of
restricted common stock at a price of $0.95 per share for a total of
$95,000 as a renewal of the Dragon Mine Lease. They also issued
50,000 shares of common stock at a price of $0.95 in payment of
$45,400 worth of services provided to the Company.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
We are a natural resources company engaged in the acquisition and
exploration of our resource properties in the states of Idaho and Utah. We
also provide contract mining services and specialized civil construction
services for mine operators, exploration companies and the construction and
natural resource industries through our trade name "Atlas Fausett
Contracting."
Our primary source of revenue is generated by our Atlas Fausett
Contracting operations. However, we also have exploration targets and
timber. As a result, we are providing Management's discussion on our plan
of operation.
Contract Mining
Our contract mining generates most of our revenues. This may decrease
as we are able to increase operations on our owned properties, and we will
adjust our resources accordingly. At this time, we anticipate that our
contracting will remain a significant portion of our business.
Property Exploration
We intend to continue our exploration activities for halloysite clay
and other minerals, and intend to acquire commercially feasible properties
that can be put into production with minimal environmental problems and
with limited financial resources. We do not intend to seek out and acquire
other properties until we have finished conducting our feasibility surveys
and other exploration work on our current properties. Although we have not
yet generated income from these properties, we are continuing our
exploratory and development work on these properties. We have no
assurances that our exploration will result in proving any commercially
viable deposits. We realize that additional steps will need to be taken to
move from an exploration stage to a development or productions stage.
In August 2001, we acquired the Dragon Mine in Juab, Utah and began
our halloysite clay exploration. During the first six months of 2005, we
had $133,924 in exploration expenses.
The halloysite clay is considered a non-toxic material and, as
commercially viable amounts have been found on the property, we feel we can
produce a sellable product with minimal environmental consequences using
proper containment and processing techniques. The intended processing will
be the crushing, drying, and packaging of the product for shipment. We have
been able to formulate development and mining plans. We consider this
property, the Dragon Mine, to be in the development stage, and it is our
intent to bring it into a production stage in the near future.
We have also contacted potential customers, distributors and suppliers
in the clay businesses. Each buyer may have a different use for the product
and the price and quantity will vary as a result. The sale of product
cannot be formalized until we have developed the mine and become production
ready.
17
Although we are looking at other properties, at this time we have been
concentrating on our efforts to bring the clay property from the
exploration stage to the development stage, and from a development stage to
a production stage. Once the clay property is further developed it is our
intent to acquire other properties that can be developed and mined with
minimal costs, and environmental problems.
We have a mining plan approved by the proper state authorities, have
filed and received Mine Safety and Health Administration (MSHA)
registration, and County permitting where applicable. In the future, we
may pursue additional acquisitions and exploration of other properties for
metals and industrial minerals, development of which will require
submission of new mining and reclamation plans to the proper state and
federal authorities.
Timber
We will continue to harvest timber on our property. Timber harvesting
will be dependent upon lumber prices and weather. We normally do not log
much in the winter months.
RESULTS OF OPERATIONS
Revenues for the six month period ending June 30, 2005, were $158,478,
and $387,7254 for the same period in 2004, or approximately a 59%%
decrease. For the three month period ending June 30, 2005, revenues were
$15,105, compared to $229,096 for the same period in 2004, or approximately
a 93% decrease. The company was not able to maintain contracting work
during the comparable periods of 2005, compared to 2004. Thus reflecting an
decrease in revenues. For the six month period ended June 30, 2005, the
company had timber no revenues compared to $10,758 for the same period in
2004.
Gross profit (loss) for the six months ended June 30, 2005, was
($329,781), compared to $75,723, for the same period in 2004. This was
attributed to the greater revenue in 2004 compared to 2005, and direct
expenses at the Dragon Mine that were not charged to Exploration and
development costs. For the three month period ended June 30, 2005, our
gross profit was ($159,050)compared to $42,168 for the same period in
2004. Again greater revenues in 2004 brought gross profits while smaller
revenues in the same period in 2005 were not adequate enough to offset
costs.
As of the six month period ended June 30, 2005, our total operating
expenses were $1,551,815 compared to $498,610 for the same period in 2004.
For the three month period ended June 30, 2005, the total operating
expenses were $997,880, compared to $174,856 for the same period in 2004, a
increase of 211% and 470% respectively. The increase in this category
resulted mainly from increases in professional fees during 2005, associated
with work at the Dragon mine and fees associated with debt settlements.
Exploration and Development Expenses for the six month period ending
June 30, 2005 were $296,503 compared to $55,628 for the same period in
2004. For the three month period ending June 30, 2005 exploration and
development expenses were $133,924 compared to $53,540 for the same period
in 2004. During 2005 the company began underground development of the
Dragon Mine, which was more costly than the work completed in the
comparable periods in 2004.
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Our net profit (loss) for the six month period ended June 30, 2005,
was ($1,887,131) compared to ($444,895) for the same period in 2004, a
increase if 324%. For the three month period ended June 30, 2005, the
figure was ($1,129,448) compared ($145,152), a increase of 678%. Decreased
revenues and increased General and Administrative costs in 2005 helped
contribute to this difference.
LIQUIDITY AND CAPITAL RESOURCES
To date our activities have been financed primarily through the sale
of equity securities, borrowings, and revenues from AFC and logging
operations. We intend to continue pursuing contract mining work and logging
of our timber properties to help pay for our operations. For the three
month periods ended June 30, 2005 and June 30,2004, contract mining
accounted for 100% of the revenue. We have also borrowed from various
sources to finance our activities. Our current debt structure is explained
below.
Our total assets increased from $4,212,404 as of June 30, 2005,
compared to $1,423,671 as of December 31, 2004. The company has increased
its current assets by $2,758,847 and has acquired additional equipment for
mining and processing during the first six months of the current year.
Total liabilities were $598,155 as of June 30, 2005, compared to $1,419,301
as of December 31, 2004. The company cash balances increased due to the
injection of new investment money received during the period ended June 30,
2005. The company has paid some of the debts owed as of June 30,2005, as a
result, and should be able to make adjustments to the remaining liabilities
as a result of the settlements arranged.
We have a note payable to William Jacobson, an officer and director,
which is payable on demand and bears no interest. The proceeds from this
note were used for general working capital. The current amount due as of
June 30, 2005 is $74,776. Accounts payable and accrued expenses due as of
June 30, 2005 were $97,753 and are the result of daily operations and taxes
owed.
We had a note payable to Moss Adams, LLP, an accounting firm, for
$53,250 at 9% per annum, due in monthly payments of $1,000 with a balloon
payment due at maturity. The note was for accounting services provided to
us in 1999 and 2000. As of June 30, 2005 we had paid this debt and were
able to record a gain on the settlement of $33,424. We had notes payable
to American National Mortgage, secured by property in northern Idaho, and
due in monthly interest installments of $35,788.39. The notes matured on
May 31, 2003. American Mortgage filed bankruptcy, and we negotiated a
settlement on this debt with the trustee. As of June 30, 2005, we had paid
the cash settlement amount of $406,000, and will issue a stock certificate
for the remaining portion after which we will make the necessary
adjustments to our liabilities. We also had a note payable to CLS
Mortgage Company, due in monthly installments of $1,614, including interest
at 16%. This note was paid as of June 30, 2005.
If we do not incur any other debt or pay off our remaining debts, we
would be obligated to pay an average of $34,890 per month or $418,685 for
the next fiscal year.
We feel we do not need to obtain additional funding to pursue our
business strategy during the next fiscal year. At the present time, we
anticipate utilizing the existing cash available to bring the Dragon Mine
into a positive revenue generating position. Our inability to do this may
require additional capital, however we do not foresee that this will be a
problem for the next fiscal year.
19
Our principal sources of cash flow during the first quarter 2005 was
from contracting activities which provided an average of $47,791 per month
for the three month period ended June 30, 2005, and averaged $50,232 per
month for the same period in 2004. In addition, we rely on our credit
facilities and any public or private sales of equity for additional cash
flow.
Cash flow from financing activities for the six month period ended
June 30, 2005 was $4,050,994 compared to $473,339 for the same period in
2004, a difference of $3,577,655. The major factor for the difference was
receipt of proceeds from issuance of common stock in 2005.
The Company spent $83,897 from investing activities for the six month
period ended June 30, 2005, compared to $214,563 in the same period in
2004, a difference of $130,666. The majority of this difference was
attributed to larger purchases of equipment at the Dragon Mine in 2004
compared to 2005.
Cash flow used by operating activities for the six month period ended
June 30, 2005, was ($896,924) compared to ($247,161) for the same period in
2003, a difference of $649,763. In the six month period in 2005 a decrease
in the accounts payable and an increase in services accounted for the major
change.
Item 3. CONTROLS AND PROCEDURES
(a) The term "disclosure controls and procedures" refers to the
controls and procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it
files under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized and reported within required time periods.
Within 90 days prior to the date of filing this report (the "Evaluation
Date"), we carried out an evaluation under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer of
the effectiveness of our disclosure controls and procedures. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the Evaluation Date, such controls and procedures
were effective in ensuring that required information will be disclosed on a
timely basis in our periodic reports filed under the Exchange Act.
(b) Changes in internal controls
There were no significant changes to our internal controls or in other
factors that could significantly affect our internal controls subsequent to
the Evaluation Date.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 29, 2005, the Company issued 4,054,100 shares of common
stock to four accredited investors for $3,681,123.
Unless otherwise noted, the sales set forth above involved no
underwriter's discounts or commissions and are claimed to be exempt from
registration with the Securities and Exchange Commission pursuant to
Section 4 (2) of the Securities Act of 1933, as amended, as transactions by
an issuer not involving a public offering, the issuance and sale by the
company of its securities to financially sophisticated individuals who are
fully aware of the company's activities, as well as its business and
financial condition, and who acquired said securities for investment
purposes and understood the ramifications of same.
Item 3. Defaults Upon Senior Securities
We have notes payable to American National Mortgage due in the amount
of $606,608. The notes matured on May 31, 2003, at which time the principal
became due, and is secured by property in northern Idaho. American
Mortgage has filed bankruptcy, and we have negotiated a settlement on this
debt with the trustee, and have paid a portion of the amount due.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
The following exhibits are included in this Report:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
--------- -----------------------
31.1 Certification pursuant to Rule 13a-14 of the Securities
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, of the Chief Executive Officer
and Principal Financial Officer
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of the Chief Executive Officer and Principal
Financial Officer
(b) The following reports on Form 8-K were filed during the quarter
ended June 30, 2005:
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ATLAS MINING COMPANY
Dated: August 15, 2005 /s/ William Jacobson
-------------------------------------------
By: William Jacobson
Chief Executive Officer,
Chief Financial Officer
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