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 March 31, 2006
|_| Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-31380
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ATLAS MINING COMPANY.
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(Exact name of registrant as specified in its charter)
Idaho 82-0096527
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(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 /_/
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES /_/ NO /X/
The number of shares outstanding of each of the issuer's classes of
common equity as of May 12, 2006 was as follows: 49,327,652 shares of
Common Stock.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
ATLAS MINING COMPANY
SECOND QUARTER 2006 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
March 31, 2006........................................................3
Unaudited Consolidated Statements of Operations Three Months Ended
March 31, 2006 and 2005...............................................4
Unaudited Consolidated Statements of Cash Flows Three Months Ended
March 31, 2006 and 2005...............................................5
Notes to Unaudited Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................21
Item 3. Controls and Procedures........................................23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................23
Item 2. Unregistered Sales of Equity Securities and Use of.............24
Item 3. Defaults Upon Senior Securities................................24
Item 4. Submission of Matters to a Vote of Security Holders............24
Item 5. Other Information..............................................24
Item 6. Exhibits.......................................................24
Signatures..............................................................25
Certification under Sarbanes-Oxley Act of 2002..........................26
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
ASSETS
-------
March 31, December 31,
2006 2005
------------ ------------
(unaudited)
Current Assets
Cash $ 1,195,953 $ 2,215,930
Accounts receivable (net of allowance of $0) 211,251 40,174
Investments - available for sale 19,538 19,538
Advances 701 750
Deposits and prepaids 71,731 100,454
------------ ------------
Total Current Assets 1,499,175 2,376,846
------------ ------------
Property and Equipment
Land and tunnels 1,005,159 1,005,159
Buildings and equipment 188,192 188,192
Mining equipment 422,509 244,499
Milling equipment 247,714 247,714
Office equipment 26,689 26,689
Vehicles 116,578 111,259
Less: Accumulated depreciation (264,943) (229,311)
------------ ------------
Total Property and Equipment 1,741,897 1,594,200
------------ ------------
Other Assets
Long-term Note Receivable 50,000 50,000
Mining supplies 9,000 9,000
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Total Other Assets 59,000 59,000
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Total Assets $ 3,300,072 $ 4,030,045
============ ============
The accompanying notes are an integral part of these financial statements.
3
Atlas Mining Company and Subsidiary
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2006 2005
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(unaudited)
Current Liabilities
Accounts payable and accrued liabilities $ 205,424 $ 101,532
Current portion of long-term debt 15,995 25,973
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Total Current Liabilities 221,419 127,505
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Long-Term Liabilities
Notes payable 39,683 49,661
Less: current portion of long-term debt (15,995) (25,973)
------------ ------------
Total Long-Term Liabilities 23,688 23,688
------------ ------------
Minority Interest 52,797 52,797
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Stockholders' Equity (Deficit)
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, 48,925,687 and 48,852,892 shares
issued and outstanding, respectively 13,653,660 13,598,660
Additional Paid in Capital 16,850 -
Cost of treasury stock, 1,313,022 in 2005
and 2004 (131,221) (131,221)
Accumulated Deficit (10,537,294) (9,641,558)
Accumulated other comprehensive income (loss) 174 174
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Total Stockholders' Equity (Deficit) 3,002,168 3,826,055
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,300,072 $ 4,030,045
============ ============
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
March 31,
--------------------------
2006 2005
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Revenues - Contract Mining $ 334,710 $ 143,373
Revenues - Mining Production - -
Revenues - Timber - -
------------ ------------
Total Revenues 334,710 143,373
------------ ------------
Cost of Sales - Contract Mining 174,281 150,147
Cost of Sales - Mining Production - -
Cost of Sales - Timber - -
------------ ------------
Total Cost of Sales 174,281 150,147
------------ ------------
Gross Profit (Loss) 160,429 (6,774)
------------ ------------
Operating Expenses
Exploration & development costs 610,767 165,579
Mining production costs 106,229 -
General & administrative 350,129 550,936
------------ ------------
Total Operating Expenses 1,067,125 716,515
------------ ------------
Net Operating Income (Loss) (906,696) (723,289)
------------ ------------
Other Income(Expense)
Interest income 11,501 167
Interest expense (558) (34,561)
Miscellaneous Income 15 -
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Total Other Income(Expense) 10,958 (34,394)
------------ ------------
Income (Loss) Before Income Taxes (895,738) (757,683)
Provision (Benefit) for Income Taxes - -
------------ ------------
Net Income (Loss) $ (895,738) $ (757,683)
============ ============
Net Income (Loss) Per Share $ (0.02) $ (0.02)
============ ============
Weighted Average Shares Outstanding 48,907,448 40,840,731
============ ============
The accompanying notes are an integral part of these financial statements.
5
Atlas Mining Company and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2006 2005
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Cash Flows from Operating Activities:
Net Income (Loss) $ (895,738) $ (757,478)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 35,632 26,922
Stock issued for services 45,000 388,421
Compensation for Options 16,850 -
Minority Interest - 3
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable (171,078) 139,260
Deposits and prepaids 28,724 19,017
Accounts payable and accrued expenses 95,418 (115,430)
------------ ------------
Net Cash Provided(Used) by Operating Activities (845,192) (299,285)
Cash Flows from Investing Activities:
Purchases of equipment (183,329) (83,898)
Payments for advances 49 -
------------ ------------
Net Cash Provided (Used) by Investing Activities (183,280) (83,898)
Cash Flows from Financing Activities:
Payments for notes payable (1,505) (52,153)
Proceeds from issuance of common stock 10,000 561,999
------------ ------------
Net Cash Provided (Used) by Financing Activities 8,495 509,846
------------ ------------
Increase (Decrease) in Cash (1,019,977) 126,663
Cash and Cash Equivalents at Beginning of Period 2,215,930 206,635
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,195,953 $ 333,298
============ ============
The accompanying notes are an integral part of these financial statements.
6
Atlas Mining Company
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2006 2005
------------ ------------
Cash Paid For:
Interest $ 558 $ 34,561
Income Taxes $ - $ -
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Stock issued for services $ 45,000 $ 388,421
The accompanying notes are an integral part of these financial statements.
7
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Atlas Mining Company, ("the Company") was incorporated in the state of
Idaho on March 4, 1924. The Company was formed for the purpose of
exploring and developing the Atlas mine, a consolidation of several
patented mining claims located in Coeur d' Alene mining district near
Mullan, Idaho. The Company eventually became inactive as a result of
low silver prices.
In September 1997, the Company became active and purchased
substantially all of the operating equipment and mining supplies from
Fausett International, Inc., a related party. The purchase price
totaled $1,416,099, which consisted of $50,000 cash, 875,000 shares of
the Company's common stock valued at $350,000 and a note payable of
$1,016,094. After the purchase, the Company commenced contracting
operations through the trade name, Atlas Fausett Contracting. Through
Atlas Fausett Contracting, the Company provides shaft sinking,
underground mine development and contracting primarily to companies in
the mining and civil industries. The Company also pursues property
acquisitions and resource development projects. In 2002, the Company
settled out the debt to Fausett International and returned the
majority of the unusable equipment; however the Company continues to
pursue contracting activities.
In 1997 and 1998, the Company was to exchange 844,560 shares of its
common stock for all of the outstanding shares of Sierra Silver Lead
Mines, Inc. (Sierra), an Idaho corporation. As of March 31, 2006,
384,465 shares of the Company's common stock had not been exchanged.
The Company was unable to locate some of the shareholders of Sierra.
Therefore, the Company agreed to transfer the stock to an Atlas Mining
Company Trust account in trust for the unlocated shareholders of
Sierra Silver. The acquisition of Sierra has been recorded as a
purchase. The purchase price totaled $276,157. All of the assets and
liabilities of Sierra were transferred to the Company and Sierra
ceased to exist.
In April 1999, the Company exchanged 741,816 shares of its common
stock and paid cash of $15,770 for all of the outstanding shares of
Olympic Silver Resources, Inc. (Olympic), a Nevada corporation.
Olympic holds the rights to the San Acacio Mine in Zacatecas, Mexico.
The purchase price totaled $228,566. The acquisition has been
recorded as a purchase and all of the assets and liabilities were
transferred to the Company. In 2001, the Company did not renew the
rights to the property due to increased carrying costs.
8
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In 1998 and 1999, the Company exchanged 71,238 shares of its common
stock for 53% of the outstanding shares of Park Copper and Gold
Mining, Ltd. (Park Copper), an Idaho corporation. The purchase price
totaled $72,825. The acquisition was recorded as a purchase.
In July 2001, Atlas Mining Company began leasing the Dragon Mine from
Conjecture Silver Mines, Inc. in Spokane, Washington. Conjecture Mines
has since been merged into Chester Mines, Inc. at the same location.
We initially paid 400,000 shares of our common stock, valued at
$100,000, for a one-year lease. Under the terms of the lease
agreement, we had the right to renew the lease annually in exchange
for 100,000 additional shares of our common stock, or the option to
purchase the property for $500,000 if we had $1,000,000 in sales from
the mine in a 12-month period. We exercised the option to purchase
the Dragon Mine on August 18, 2005 for $500,000. The property consists
of 38 patented mining claims on approximately 230 acres.
b. Revenue Recognition
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance the Securities and Exchange Commission
Staff Accounting Bulletin No. 101 and 104. The Company sells contract
mining services, mined halloysite clay and raw timber.
Revenue for contract mining services is recognized once a contract
with a fixed and determinable fee has been established the services
have been rendered and collection is reasonably assured.
Revenue for mined halloysite clay is recognized upon shipment and
customer acceptance once a contract with a fixed and determinable fee
has been established and collection is received or the resulting
receivable is deemed probable. Certain of the Company's sales
contracts call for a fixed price per ton plus a percentage of future
sales revenue on the resale of product. Revenues are recorded at the
time of sale based upon the fixed price per ton upon shipment.
Revenues from the future resale of the product are recognized upon
receipt as amounts are not determinable.
Revenue for harvested raw timber is recognized once it has been
shipped to the mill, a contract with a fixed and determinable fee has
been established and collection is received or the resulting
receivable is deemed probable.
9
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. 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.
d. Basis of Consolidation
The Company's investments representing a 50% or greater interest are
consolidated. The consolidated financial statements presented reflect
the accounts of Atlas Mining Company and Park Copper & Gold. At both
March 31, 2006 and December 31, 2005 the Company held a 53% ownership
interest in Park Copper & Gold. The Company recorded no liability for
the 47% non-controlling interest as Park Copper & Gold had a
stockholders deficit at the time of merger. Further, the net loss for
Park Copper & Gold for the periods ended March 31, 2006 and December
31, 2005 applicable to the 47% non-controlling interest were not
allocated to the non-controlling interest as there is no obligation of
the non-controlling interest to share in such losses. All significant
inter-company transactions between the parent and subsidiary have been
eliminated in consolidation.
e. 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 March 31, 2006:
Basic EPS
Net loss to common shareholders $ (895,738) 48,907,448 $ (0.02)
============ ============ ============
For the year ended March 31, 2005:
Basic EPS
Net loss to common shareholders $ (757,683) 40,840,731 $ (0.02)
============ ============ ============
At March 31, 2006 and 2005 the Company had 4,664,000 and 5,684,000
common stock equivalents that were not included in the calculation of
earning per share as their effect was anti-dilutive.
10
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
g. 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.
h. 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
------------ ------------ ------------ ------------
March 31, 2006 $ 19,364 $ 174 $ - $ 19,538
December 31, 2005 $ 19,364 $ 174 $ - $ 19,538
11
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. 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.
j. 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.
k. 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 March 31, 2006 and
December 31, 2005, no impairments were recognized. Depreciation
expense for the quarters ended March 31, 2006 and 2005 totaled $35,632
and $26,922, respectively.
l. 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
March 31, 2006 and 2005. The Company has no investments in derivative
financial instruments.
12
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Mining Exploration and Development Costs
Land and mining property acquisitions are carried at cost. The
Company expenses prospecting and mining exploration costs. At the
point when a property is determined to have proven and probable
reserves, subsequent development costs are capitalized as capitalized
development costs. Capitalized development costs will include
acquisition costs and property development costs. When these
properties are developed and operations commence, capitalized costs
will be charged to operations using the units-of-production method
over proven and probable reserves. Upon abandonment or sale of a
mineral property, all capitalized costs relating to the specific
property are written off in the period abandoned or sold and a gain or
loss is recognized.
At March 31, 2006, all mine costs have been expensed. During the
quarter ended March 31, 2006, the Company recognized no revenue from
the sale of halloysite clay.
n. 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 5.
Prior to January 1, 2006, the Company applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations in accounting for awards made under the Company's
stock-based compensation plans. Under this method, compensation
expense was recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
During the periods presented in the accompanying financial statements,
the Company has adopted the provisions of SFAS No. 123R using the
modified-prospective transition method and the disclosures that follow
are based on applying SFAS No. 123R. Under this transition method,
compensation expense recognized during the three months ended March
31, 2005 included: (a) compensation expense for all share-based
awards granted prior to, but not yet vested as of January 1, 2006, and
(b) compensation expense for all share-based awards granted on or
after January 1, 2006. Accordingly, compensation expense of $16, 850
has been recognized for grants of options to employees and directors
in the accompanying statements of operations for the period ended
March 31, 2006. In accordance with the modified-prospective
transition method, the Company's financial statements for the prior
year have not been restated to reflect, and do not include, the impact
of SFAS 123R. 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 in 2005 consistent with the provisions of SFAS
No. 123R, the Company's net loss and basic net loss per common share
would have been increased to the pro forma amounts indicated below:
13
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
n. Stock Options Continued
2005
------------
Net Loss As reported $ (757,683)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method (16,850)
------------
Proforma $ (774,533)
Basic earnings per share
------------
As reported $ (0.02)
Proforma $ (0.02)
o. Recently Enacted Accounting Standards
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations an interpretation of FASB
Statement No. 143" ("FIN 47"). FIN 47 clarifies that the term
conditional asset retirement obligation as used in FASB Statement
No. 143, "Accounting for Asset Retirement Obligations," refers to a
legal obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a future event
that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of
settlement. Thus, the timing and (or) method of settlement may be
conditional on a future event.
Accordingly, an entity is required to recognize a liability for the
fair value of a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated. This
Interpretation is effective no later than the end of fiscal years
ending after December 15, 2005. The adoption of FIN 47 did not have a
material impact on the Company's financial position or results of
operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154") which replaces Accounting Principles
Board Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements An Amendment of
APB Opinion No. 28." SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. It
establishes retrospective application, or the latest practicable date,
as the required method for reporting a change in accounting principle
and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company is currently evaluating
the effect that the adoption of SFAS 154 will have on its consolidated
results of operations and financial condition but does not expect it
to have a material impact.
14
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In October 2005, the FASB issued FSP FAS 13-1, "Accounting for Rental
Costs Incurred During a Construction Period" ("FSP FAS 13-1") which
requires companies to expense rental costs associated with ground or
building operating leases that are incurred during the construction
period. FSP FAS 13-1 is effective in first reporting period beginning
after December 15, 2005. The Company does not expect that this
pronouncement will have a material effect on its financial statements.
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. Management has sold shares of its
restricted stock in the past year to help support its financing
activities and reduced the Company's debt. The Company has continued
to obtain additional work in the contracting entity and intends to
bring the Dragon Mine into production. The Company believes these
actions will help to solidify their continued operations. Management
feels the elimination of it debts, the revenue stream from contracting
and halloysite clay sales, and the sale of stock will provide
sufficient cash flows to continue as a going concern.
NOTE 3 - LONG-TERM LIABILITIES
Long- term liabilities are detailed in the following schedules as of
March 31, 2006 and December 31, 2005:
March 31, December 31,
2006 2005
------------ ------------
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. $ 28,384 $ 29,888
Note payable to an insurance company, due in
monthly installments of $2,825. The note matures
in July 2006. 11,299 19,773
------------ ------------
Total Notes Payable $ 39,683 $ 49,661
Less Current Portion (15,995) (25,973)
------------ ------------
Total Long-Term Liabilities $ 23,688 $ 23,688
============ ============
15
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 3 - LONG-TERM LIABILITIES (Continued)
Future minimum principal payments on notes payable are as follows:
2006 $ 15,995
2007 6,688
2008 7,214
2009 7,781
2010 2,005
Thereafter -
------------
Total $ 39,683
============
NOTE 4 -RELATED PARTY TRANSACTIONS
During 2006 and 2005, an officer loaned the Company $0 and $1,670,
respectively. The loan was repaid to the officer during the 3rd
quarter of 2005.
NOTE 5 -COMMON STOCK
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 March 31,
2006, no options have been granted under this plan.
16
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 5 - COMMON STOCK (Continued)
The Company is authorized to issue stock options under one existing
stock option plan approved by stockholders. The fair value of each of
the Company's stock option awards is estimated on the date of grant
using a Black-Scholes option-pricing model that uses the assumptions
noted in the table below. Expected volatility is based on an average
of historical volatility of the company's stock. The risk-free
interest rate for periods within the contractual life of the stock
option award is based on the yield curve of a zero-coupon U.S.
Treasury bond on the date the award is granted with a maturity equal
to the expected term of the award. The Company uses historical data
to estimate forfeitures within its valuation model. The expected term
of awards granted is derived from historical experience under the
Company's stock-based compensation plans and represents the period of
time that awards granted are expected to be outstanding.
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 $0.13 per share under the non-qualified
stock option plan. The options vested 43% on January 1, 2005, and 14%
on January 1, 2006 -2009.
A summary of the status of the options granted under the Company's
1998 stock option plan and other agreements and changes for the three
months ended March 31, 2006, are as follows:
March 31, 2006
------------------------------------------------
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Life Value
----------- ----------- ----------- -----------
Outstanding at beginning of period 3,500,000 $ 0.13 3 years $ 2,940,000
Granted - - - -
Exercised - - - -
Forfeited - - - -
Expired - - - -
------------------------------------------------
Outstanding at end of Period 3,500,000 $ 0.13 2.75 years $ 4,480,000
------------------------------------------------
Vested and expected to vest in
the future 3,500,000 $ 0.13 2.75 years $ 4,480,000
Exercisable at end of period 2,000,000 $ 0.13 2.75 years $ 2,635,000
Weighted average fair value of
options granted - - - -
------------------------------------------------
The Company had 2,000,000 non vested options at the beginning of the period
with a weighted average grant date fair value of $0.269. At March 31, 2006
the Company had 1,500,000 non vested options with a weighted average grant
date fair value of $0.269 resulting in unrecognized compensation expense
$178,800 which is expected to be expensed over a weighted-average period of
1.4 years.
17
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 5 - COMMON STOCK (Continued)
The total intrinsic value of options exercised during the three months
ended March 31, 2006 and 2005 was $0 and $0 respectively. Intrinsic
value is measured using the fair market value at the date of exercise
(for shares exercised) or at March 31, 2006 and 2005 (for outstanding
options), less the applicable exercise price.
Common Stock
------------
During the quarter ended March 31, 2006 the Company sold a total of
20,000 shares of restricted common stock at a price of $0.50 per share
for a total of $10,000 cash. The sale resulted from a redemption of
an outstanding warrant.
During the quarter ended March 31, 2006 the Company issued 50,000
shares of stock at a price of $0.90 in payment of $45,000 worth of
services provided to the company.
Stock Warrants
--------------
The Company has issued warrants to non-employees under various
agreements expiring through January 2007. A summary of the status of
warrants granted at March 31, 2006, and changes during the period then
ended is as follows:
Weighted
Average
Exercise
Shares Price
---------------------------
Outstanding at beginning of period 1,184,000 0.46
Granted - -
Exercised 20,000 0.50
Forfeited - -
Expired - -
---------------------------
Outstanding at end of period 1,164,000 0.46
Exercisable at end of period 1,164,000 0.46
A summary of the status of the warrants outstanding at March 31, 2006
is presented below:
Weighted
-Average Weighted Weighted
Range of Remaining Average -Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------ ------------ ------------ ------------ ------------ ------------
$0.25 154,000 0.75 years $0.25 154,000 $0.25
$0.40 750,000 0.83 years $0.52 750,000 $0.52
$0.50 260,000 0.75 years $0.50 260,000 $0.50
------------ ------------ ------------ ------------ ------------ ------------
1,164,000 1,164,000
18
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 6 SEGMENT REPORTING
The Company's Chief Operating Decision-maker, as defined in SFAS No.
131, is considered to be Atlas's CEO. The Chief Operating Decision-
maker reviews separate financial information for the contract mining
business segment, the mining production business segment and the
timber business segment. Each of the Company's business segments offer
and distribute distinct services to different customer segments. The
contract mining segment provides mining services and specialized civil
construction services in various locations for mine operators,
exploration companies and the construction and natural resources
industries. Other activities include site evaluation, feasibility
studies, trouble-shooting and consultation prior to the undertaking of
exploration and mine development. The mining production segment is
located at the Dragon Mine in Juab County, Utah which contains a
deposit of high quality halloysite clay. The Company is in the
process of extracting this clay to sell to outside parties. The
Company holds property with harvestable timber in Northern Idaho.
Timber harvesting is contracted out to a qualified logger, who is able
to negotiate with local timber mills on the price for the timber. The
Company primarily uses the timber to generate revenues and cash flows
for other operations. The Company therefore considers that it has
three reportable segments under SFAS 131 during 2005 to 2006 as
follows: (i) contract mining, (ii) mining production, and (iii)
timber.
The Chief Operating Decision-maker evaluates performance and allocates
resources based on revenues produced from operations. The accounting
policies of the reportable segments are the same as those described in
the summary of significant accounting policies. It is the Company's
policy that trade between the segments is entered into at an arms-
length basis.
Segment Reporting
For the Year Ended
March 31,
2006 2005
------------ ------------
Contract Mining:
Net Revenue $ 334,710 $ 143,373
Operating Expenses
Cost of Sales 174,281 150,147
General & Administrative 157,529 247,921
------------ ------------
Total Operating Expenses 331,810 398,068
------------ ------------
Net Operating Profit (Loss) 2,900 (254,695)
============ ============
Capital Expenditures: 5,318 2,517
------------ ------------
Depreciation: 2,302 133
Total Assets: $ 110,840 $ 27,917
============ ============
19
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
Mining Production:
Net Revenue - -
Operating Expenses
Cost of Sales - -
Mining Production Costs 106,229 -
Exploration & Development Costs 610,767 165,579
------------ ------------
General & Administrative 157,529 247,921
------------ ------------
Total Operating Expenses 874,525 413,500
------------ ------------
Net Operating (Loss) (874,525) (413,500)
============ ============
Capital Expenditures: 178,011 81,381
------------ ------------
Depreciation: 33,330 26,789
Total Assets: 2,783,822 1,015,706
------------ ------------
Timber:
Net Revenue - -
Operating Expenses
Cost of Sales - -
General & Administrative 35,071 55,094
------------ ------------
35,071 55,094
------------ ------------
Net Operating (Loss) (35,071) (55,094)
============ ============
Capital Expenditures: - -
------------ ------------
Depreciation: - -
Total Assets: 405,410 405,410
------------ ------------
Consolidated on Financial Statements:
Total Revenues 334,710 143,373
Operating Expenses
Total Cost of Sales 174,281 150,147
Exploration & development costs 610,767 165,579
Mining production costs 106,229 -
Total General & Administrative 350,129 550,936
------------ ------------
Total Operating Expenses 1,241,406 866,662
------------ ------------
Net Operating (Loss) (906,696) (723,289)
============ ============
Capital Expenditures: 183,329 83,898
------------ ------------
Depreciation: 35,632 26,922
Total Assets 3,300,072 1,449,033
------------ ------------
20
Atlas Mining Company and Subsidiary
Notes to the Consolidated Financial Statements
March 31, 2006
NOTE 7 SUBSEQUENT EVENTS
The Company issued 8,000 shares of stock on April 7, 2006 at a price
of $1.69 in payment of $13,520 for payment on the purchase of a mining
property.
The Company issued 340,500 shares of stock on May 11, 2006 at a price
of $2.00 for $681,000 in cash.
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 and
in New Foundland, Canada. 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 unless they fit into the parameters we have set. Further,
we will limit our acquisitions based on our ability to conduct our
feasibility surveys and other exploration
work on these properties, and until we have been able to bring our existing
acquisitions into a income generating stage.
In August 2001, we acquired the Dragon Mine in Juab, Utah and began
our
clay exploration. Our exploration and development expenses for the period
ending March 31, 2006 and December 31, 2005 were $610,767 and $760,347
respectively on the halloysite clay project.
The halloysite clay is considered a non-toxic material, and 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. In
2003 and 2006 we completed diamond drilling programs to verify location of
clay beds at the Dragon Mine. With that information we have been able to
formulate development and mining plans.
During 2005 we have worked to develop and bring the Dragon Mine into a
production stage.
Our halloysite clay marketing efforts include contacting potential
customers and distributors, which we have done. 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 verified
our ability to provide the quality and quantities as required by the
potential buyers. From results of the product samples distributed we have
numerous potential buyers. In March, 2006 we activated Nano Clay and
Technologies, Inc., a wholly owned subsidiary, and hired Dr Ron Price as
its President and Chief Executive Officer, to pursue these activities.
21
Until the Dragon mine is producing in a profitable manner we are not
aggressively trying to develop other properties. However it is our intent
to look for other properties that can be acquired, developed and mined with
minimal costs, and environmental problems.
We have a mining plan and reclamation bond 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 three month period ending March 31, 2006 were
$334,710 and $143,373 for the same period ending March 31, 2005, or an
increase of 133%. The main difference was caused by the increase in
contracting revenues of $191,337 for this period compared to the previous
year.
Gross profit (loss) for the three month period ending March 31, 2006
was $160,429 compared to ($6,774) for the same period ending March 31,
2005, a difference of $167,203. This was due to the increased revenues for
the three month period ending March 31, 2006 over the same period ended
March 31, 2005.
Total operating expenses for the three month period ending March 31,
2006 was $960,831 compared to $716,515 for the same period ending March 31,
2005 or an increase of 34%. Although the company recognized less
administrative costs and professional fees in the period ended March 31,
2006 compared to the same period ended March 31, 2005, more Exploration and
development costs were incurred.
Our net profit (loss) for the three month period ending March 31, 2006
was ($895,738) compared to ($757,683) for the same period ending March 31,
2005, or an increase of 18%. As mentioned above, the company experienced
more Exploration and development expenses for the period ended March 31,
2006 compared to the same period ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
To date our activities have been financed primarily through the sale
of equity securities, borrowings, and revenues from Atlas Fausett
Contracting 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 March 31, 2006 and March 31,
2005 contract mining accounted for 100% of the revenue. Our current asset
and debt structure is explained below.
Our total assets as of March 31, 2006 were $3,300,072 compared to
$4,030,045 as of December 31, 2005, or a decrease of $729,973. For the
three month period ended March 31, 2006 the company has decreased its
current assets by $877,671, but increased its fixed assets by $147,697
through acquisitions of additional equipment for mining.
Total liabilities were $297,904 as of March 31, 2005, compared to
$203,990 as of December 31, 2005. The company was able to reduce its debts
during the past year from approximately $1,400,000 to the above amounts.
The following debts are still outstanding.
We have a note payable to a lending company for a vehicle due in
monthly installments of $688, including interest of 7.59% with a balance of
$28,384. We have a note payable to an insurance company for insurance
premiums with a monthly installment of $2,825, and a balance of $11,299.
Accounts payable and accrued expenses due as of March 31, 2006 were
$205,424 and are the result of daily operations and accrued taxes. We also
carry a liability of $52,797 to the minority interest in a subsidiary.
22
If we do not reduce our debts, we would be obligated to pay an average
of $2,317 per month or $27,811 for the next fiscal year.
We may need to obtain additional funding to pursue our business
strategy during the next fiscal year. If so, we anticipate seeking
additional funding through additional private placements, joint venture
agreements, production financing, and/or pre-sale loans, although we do not
have any specific plans or agreements for such funding. Our inability to
raise additional capital to fund operations through the remainder of this
year and through the next fiscal year could have a detrimental effect on
our ability to pursue our business plan, and possibly our ability to
continue as a going concern.
Our principal sources of cash flow during the first quarter 2006 was
from contracting activities which provided an average of $111,570 per month
for the three month period ended March 31, 2006, and averaged $47,791 per
month for the same period in 2005. 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 three month period ended
March 31, 2006 was $8,495 compared to $509,846 for the same period in 2005,
a difference of $501,351. The major factor for the difference was receipt
of proceeds from issuance of common stock in 2005.
The Company used $183,280 from investing activities for the three
month period ended March 31, 2006, compared to using $83,898 in the same
period in 2005, a difference of $99,382. This was attributed to purchases
of more equipment in the period ended March 31, 2006 compared to the same
period in 2005.
Cash flow used by operating activities for the three month period
ended March 31, 2006, was ($845,192) compared to ($299,285) for the same
period in 2005, a difference of $545,907. In the three month period in
2006 net losses was more, Accounts receivables increased, and Accounts
payable decreased, compared to the same period in 2005.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure
controls and procedures (as defined in the Securities Exchange Act of
1934 Rules l3a 14(c) and 15d 14(c) as of a date within 90 days of the
filing date of this quarterly report on Form 10-QSB (the "Evaluation
Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure
that material information relating to it would be made known to it by
others within the Company, particularly during the period in which this
quarterly report on Form 10-QSB was being prepared.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect the Company's disclosure
controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 31, 2006, the Company issued 20,000 shares of common stock to
an accredited investor for $10,000 for the redemption of an
outstanding warrant.
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
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(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
24
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: May 12, 2006 /s/ William Jacobson
-------------------------------------------
By: William Jacobson
Chief Executive Officer,
Chief Financial Officer
25